Yellen spars with GOP on leak probe, Fed reforms

Federal Reserve Chairwoman Janet Yellen on Wednesday butted heads with GOP lawmakers, as long-simmering frustrations boiled over during a congressional hearing.

Yellen and high-ranking Republicans on the House Financial Services Committee sparred over her response, or lack thereof, to a congressional subpoena tied to a probe of a 2012 leak of sensitive Fed information.

Lawmakers, long frustrated by what they see as an aloof and unresponsive Fed, said Yellen’s refusal to  comply immediately with their subpoena is a step too far.

“This is inexcusable and unsupported by legal precedent,” said Chairman Jeb Hensarling (R-Texas). “It cannot be allowed to stand.”

Republicans and the Fed have rarely seen eye to eye since the financial crisis.
Conservatives have been critical of the Fed’s unprecedented foray into economic stimulus and its broadly expanded regulatory efforts stemming from the Dodd-Frank financial reform law.

Now eyeing a host of legislative changes to the central bank, Republicans are seizing on the Fed’s response to a 2012 leak of sensitive Fed information as evidence that the central bank has become unaccountable and needs to be reined in.

“The Federal Reserve has proven itself to be one of the most unaccountable and least transparent agencies in the federal government, and today’s hearing did little to change that reality,” Rep. Scott Garrett (R-N.J.) said after the hearing. “It is an agency in dire need of change, and I look forward to continuing our committee’s efforts to bring real reforms to the Federal Reserve.”

The latest flash point is Yellen’s refusal to hand over documents pertaining to the 2012 leak, in which an investment advisory firm detailed private Fed deliberations for clients one day before a summary of the meeting was made public.

Even after the committee issued the subpoena, Yellen said she would not hand over the documents now because her action could jeopardize a criminal probe being conducted by the Fed’s inspector general and the Justice Department on the matter.

That standoff led to several tense exchanges between Yellen and GOP lawmakers, some of whom maintained the Fed only started an investigation to stymie congressional interest.

“It appears that you are the one — that the Fed is the one that is jeopardizing this investigation,” said Rep. Sean Duffy (R-Wis.). “If anybody is trying to sweep this under the rug, it’s the Fed.”

The frustration over the subpoena is the latest example Republicans point to when suggesting the Fed has grown too powerful and lacks appropriate checks from Congress. Policymakers have proposed a range of changes to the Fed this Congress, including tying its policy moves to an explicit rule and subjecting its policy deliberations to stricter congressional oversight.

Yellen has repeatedly rejected congressional calls for a central bank overhaul, warning that could subject it to political pressure or render it ineffective.

While Wednesday’s hearing was ostensibly about the Fed delivering its semiannual monetary policy report to Congress, Yellen took the unusual step of also detailing in her testimony the range of ways the Fed has tried to boost transparency and accountability. Her prepared comments included a detailed look at Fed changes over the years, and she said the Fed “ranks among the most transparent central banks.”

Efforts from Congress to alter how the Fed does business should be very carefully considered, she warned.

“Efforts to further increase transparency, no matter how well-intentioned, must avoid unintended consequences that could undermine the Federal Reserve’s ability to make policy in the long-run best interest of American families and businesses,” she said.

One of the ideas gaining traction among GOP lawmakers is tying the Fed’s policy moves to a specific rule that dictates policy shifts based on economic conditions. Lawmakers argue such a framework would make the Fed’s moves easier to anticipate. Yellen dismissed the idea Wednesday, saying it would limit experts at the Fed from using their full discretion.

“I don’t agree that rules-based policy is a better way to go,” she said. “I believe we need a systematic policy, but I would strongly resist agreeing to follow any rule.”

At Wednesday’s hearing, Yellen indicated that she still believes the Fed is on track to raise interest rates this year for the first time since the financial crisis, assuming the economy continues to improve as expected.

But, as usual, that prediction came with several caveats. She noted that dramatic changes in the U.S. or elsewhere in the world could upend economic conditions and change the Fed’s trajectory.

While feeling pressure from Republicans on accountability and oversight, Democrats pulled Yellen in another direction as several members expressed concern about a premature rate hike that could stall the economic recovery.

Yellen maintained that the Fed will proceed cautiously and make whatever adjustments it deems necessary to react to economic conditions.

And while Wednesday’s hearing was a testy one for Yellen, she also agreed to a request from Hensarling to appear again at a separate hearing in the near future devoted to regulatory matters.

“We look forward to having you back soon,” he said.

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