Yellen: December rate hike a ‘live possibility’

Federal Reserve Chairwoman Janet Yellen said Wednesday that an interest rate hike in December is a “live possibility.”

The Fed is engaged in an intense debate about whether it should raise rates before the end of the year. Yellen had previously indicated she would like to increase borrowing costs for the first time in nearly a decade before 2015 draws to a close. But a recent run of tepid economic data has heightened talk that the Fed’s move could slip into 2016.

{mosads}Yellen told lawmakers that she believes the economy is “performing well” and that while nothing had been decided, a rate hike was definitely a possibility at the Fed’s final 2015 meeting in December.

However, as she has long maintained, Yellen said nothing was written in stone and that the Fed’s decision will be based on the most recent economic data. She also took the opportunity to again emphasize that the initial rate hike should not be overblown, as it would simply be the first small step in a long run of policy tweaks in the months to come.

“I know there’s a great deal of focus on the initial move. It’s been a long time,” she said. “But markets and the public should be thinking about the entire path of policy rates.”

Yellen’s testimony Wednesday before the House Financial Services Committee was ostensibly about the Fed’s financial regulatory efforts. But lawmakers could not pass up the chance to press Yellen on the Fed’s monetary policy plans, as financial markets closely scrutinize the central bank’s every move ahead of an anticipated rate hike.

Several Democratic lawmakers pushed Yellen to exhibit caution when it comes to raising rates, noting that inflation is not rising significantly and a premature hike could weigh on the economic recovery.

Rep. Brad Sherman (D-Calif.) even went so far as to make a theological argument.

“God’s plan is not for things to rise in the autumn, as a matter of fact, that’s why we call it fall,” he said, jokingly. “God’s plan is for things to rise in the spring. And so if you want to be good with the almighty, you might want to delay until May.”

On the regulatory front, Yellen sought to paint an optimistic picture of the Fed’s efforts to overhaul how Wall Street operates in the wake of the financial crisis and the passage of the Dodd-Frank financial reform law. She told lawmakers that there has been a “substantial strengthening” of rules around the nation’s largest financial institutions, even as the Fed looks to wrap up work on some lingering Dodd-Frank rulemaking projects.

But at the same time, Yellen noted that she had been “extremely disturbed” by a host of rule violations by employees at some of the biggest banks in the world, ranging from the manipulation of key interest rates to working to dodge U.S. sanctions by doing business with blacklisted countries such as Iran.

Many of the regulatory questions from lawmakers were aimed at pushing Yellen to help settle a partisan fight over revisiting some of Dodd-Frank’s rules, such as whether automatically requiring banks with over $50 billion in assets to face heightened rules is appropriate.

Minutes before Yellen testified, the committee passed a package of 10 bills. Some of the measures were aimed at tweaking Dodd-Frank rules and advanced with opposition from most committee Democrats.

Rep. Maxine Waters (D-Calif.), the top Democrat on the panel, blasted the bills as the latest GOP attempt to “defund and defang” the law.

For her part, Yellen worked to steer clear of picking sides in that debate, arguing instead that she believes the Fed has the tools it needs to get the job done now, but she wouldn’t argue against more flexibility or heightened power granted by Congress.

Several Republicans bemoaned the fact that Yellen’s appearance before the panel was out of order. Twice-yearly congressional requests for testimony about the Fed’s regulatory efforts were supposed to be filled by the central bank’s vice chair for supervision, a new position created by Dodd-Frank. However, over five years since the law’s enactment, the White House has yet to even nominate a person for the position, driving the panel to call Yellen to testify amid the absence.

Chairman Jeb Hensarling (R-Texas) argued that the open position is endemic of a broader problem at the Fed, which is that it has been handed too much power with too little oversight.

“Under Dodd-Frank, the Fed can now functionally control virtually every major corner of the financial services sector of our economy, separate and apart from its traditional monetary policy authority,” he said. “Disturbingly, the Fed does so as part of a shadow regulatory system that is neither transparent nor accountable to the American people.”

Yellen said the Fed is managing to balance its regulatory workload with its monetary policy work, noting that Fed Governor Dan Tarullo is taking the lead on the regulatory front.

However, she added that she would “welcome” a White House appointment to formally fill the vice chair position.

Tags Dodd–Frank Wall Street Reform and Consumer Protection Act Federal Reserve System Janet Yellen

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