Here are five key points from Federal Reserve Chair Janet Yellen’s testimony before the Senate Banking Committee today:
1. The economy has softened. Up until now, Fed officials have been highly optimistic about the recovery picking up momentum this year. Now, faced with reports of weakness in retail sales, housing and industrial production, Yellen is hedging.
Compared with her appearance before the House Financial Services Committee two weeks ago, Yellen said “a number of data releases have pointed to softer spending than many analysts had expected.” This may be partly because of weather. But she indicated the Fed will be watching closely and act if necessary — the tapering of its bond-buying “is not on a pre-set course.” (hence, joy in the stock market as she testified).
2. She is concerned about the plight of American workers, citing “extremely disturbing trends with very significant implications for our country.”
3. Like her predecessor Ben Bernanke, she criticized the fiscal austerity coming out of the White House and Congress. Fiscal policy “has been quite tight and has imposed a substantial drag on spending in the U.S. economy.” Austerity and congressional hostage-taking has forced the Fed to pick up the slack in an effort to keep the recovery going. The fiscal drawdown is unprecedented in modern times.
4. The Fed has no authority to regulate bitcoin. She said, “Bitcoin is a payment innovation that’s taking place outside the banking industry. To the best of my knowledge there’s no intersection at all, in any way, between bitcoin and banks that the Federal Reserve has the ability to supervise and regulate.”
West Virginia Sen. Joe Manchin, among others, is concerned about the “virtual currency’s” vulnerability to fraud and use in money laundering. Yellen said the central bank is “looking at this,” but also made the point that bitcoin is decentralized, “there’s no central issuer or network operator.”
5. She acknowledged that student lending is a problem. As Somerset Capital’s Timothy Connolly tweeted, “That’s an understatement.”
So far, no real clarity about what the Fed might do in the face of a Chinese financial meltdown. Perhaps it is best to say nothing.
And Don’t Miss: Federal Reserve Gov. Daniel Tarullo on financial stability | Tim Duy’s Fed Watch
Today’s Econ Haiku:
Seen Kerry lately?
Maybe he’s got a new plan
A WaMu Bitcoin