The Fed In Danger

It would surprise us if Chairman Janet Yellen of the Federal Reserve were not already huddling with lawyers about the danger ahead. That’s our take-away from her testimony this week with the oversight committees in the House and Senate. We don’t mean to suggest that Mrs. Yellen is in peril for any personal wrongdoing. We do, though, sense a whiff of danger for the Fed itself.

The danger stems from a growing sense in Congress that the Fed has, with its program of quantitative easing and ultra-low interest rates, lengthened the Great Recession. The House is now considering legislation to require the Fed to establish and follow certain rules. The bill, proposed by Congressmen Scott Garrett and William Huizenga, is called the Federal Reserve Accountability and Transparency Act of 2014.

The hazard came into focus as soon as Mrs. Yellen was finished sharing with the House her ruminations on the economy. “Chair Yellen,” began the Financial Services chairman, Jeb Hensarling, “let’s talk a little bit about independence.” He read her a definition of central bank independence by Lawrence Summers, the former Treasury Secretary whom Mrs. Yellen edged aside for Fed chairman.

Mr. Summers wrote of the “institutional relationship between the central bank and the executive, the procedure to nominate and dismiss the head of the central bank, the role of government officials on the central bank board, and the frequency of contact between the executive and the bank.” Mr. Hensarling, as cool a bicuspid as has ever questioned a Fed chairman, asked whether Mrs. Yellen agreed.

She started right off: “I see Federal Reserve independence . . .”

Suddenly, she seemed to sense danger. “Of course,” she said, interrupting her own sentence, “I mean we are a creature of Congress. We have a responsibility to report to Congress. And you used the term executive branch, I think, in the material . . .” Mr. Hensarling reminded her that he was quoting Mr. Summers. “So,” Mrs. Yellen hemmed, “I see us as needing to report regularly to Congress about our conduct of monetary policy and the economy.”

“Is it true,” Mr. Hensarling asked, “that there is a weekly meeting between you and the Secretary of the Treasury?”

“Ah, many weeks, I mean it’s not . . . every . . .” Mrs. Yellen hawed.

Read the rest via The Fed in Danger – The New York Sun.