Yellen rejects move to set up formula for Fed.
Yellen faced a barrage of questions from Republican lawmakers about legislation that they are supporting to make the Fed more accountable and make its policy decisions more transparent. One of the requirements would have the Fed adopt a policy rule that would govern future decisions and would have the Government Accountability Office audit the rule.
Yellen rejected that approach and said the Fed needed the flexibility it now has to make policy decisions.
"It would be a grave mistake for the Fed to commit to conduct monetary policy according to a mathematical rule. No central bank does that,'' Yellen told lawmakers.
She said that while the House legislation which was introduced last week would allow the Fed to deviate from any rule that it set up, any such change would trigger an audit by the GAO, the auditing arm of Congress. She said this procedure would "essentially undermine central bank independence in the conduct of monetary policy.''
Yellen's comments came during an appearance before the House Financial Services Committee to present the Fed's semi-annual economic report to Congress.
Yellen repeated the testimony she had given on Tuesday before the Senate Banking Committee in which she said that while the economy is improving, it stills needs support from the Fed in the form of exceptionally low interest rates.
Yellen's discussion with Republican members of the committee over the proposed Federal Reserve Accountability and Transparency Act represented the sharpest questioning she has received from Congress since taking over in February as the Fed leader.
House Financial Services Chair Jeb Hensarling told Yellen that the Fed had dramatically increased its power in responding to the 2008 financial crisis and deep recession that followed and many lawmakers felt that power needed to be checked.
"The status quo is unacceptable,'' he said. "A dramatic increase in power calls for a corresponding increase in accountability and transparency.''
Yellen maintained that the legislation as written would make it harder for the central bank to carry out the missions given to it by Congress to keep inflation under control and achieve maximum employment.
Meanwhile, the US economy kept expanding in all regions of the country in June and early July, helped by strength in consumer spending, a Federal Reserve survey released Wednesday indicates.
All 12 of the Fed's regions reported growth with five - New York, Chicago, Minneapolis, Dallas and San Francisco - characterizing growth as "moderate'' while the others reported "modest'' growth. Boston and Richmond reported that growth came in at a slightly slower pace than the previous reporting period.
The Fed's survey, known as the Beige Book, will be used by central bank officials when they next meet July 29-30 to review interest rate policies.
Analysts expect that the Fed will decide to keep its short-term interest rate at a record low near zero and authorize another reduction in its bond purchases aimed at keeping long-term interest rates low.
Federal Reserve Chair Janet Yellen, who spent two days delivering the Fed's twice-a-year policy report to Congress, emphasized before both Senate and House committees that despite recent sizable gains in employment, the central bank is in no rush to withdraw the massive support it is providing to the economy.
The Fed has kept its benchmark short-term rate at zero since December 2008, and many analysts believe the first rate increase is still about a year away.
The Beige Book survey was compiled from information gathered by the Fed's 12 regional banks in the period before July 7. The report said that consumer spending had increased in every district with auto sales generally stronger than other retail sales.
Tourism remained strong with hotels in the Boston, New York, Atlanta and Minneapolis districts describing room demand as robust.
YELLEN AT U.S. HOUSE COMMITTEE HEARING (EPA) - Chair of the Board of Governors of the Federal Reserve Janet Yellen testifies before the House Financial Services Committee hearing on 'Monetary Policy and the State of the Economy', on Capitol Hill in Washington, DC, USA, July 16, 2014.
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|Title Annotation:||Banking & Finance|
|Date:||Jul 17, 2014|
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