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Wednesday, July 15, 2015

LIVE: Janet Yellen testifies to the House Financial Services Committee

Fed Chair Janet Yellen gave her biannual update on monetary policy to the Financial Services Committee of the House of Representatives Wednesday.  After giving some prepared remarks, Yellen will take questions from the committee. Her prepared remarks hit the Fed website early Wednesday morning. Yellen said that the economy is probably going to be ready for an interest rate hike before the end of the year. Or, in Fedspeak: "economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy." She also took on the Congressional "Audit the Fed" movement, which the Federal Reserve vigorously opposes, which she got a lot of questions about in her last testimony to Congress, back in February. Yellen's prepared remarks say, "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." The semi-regular update to Congress used to be referred to as the "Humphrey-Hawkins Testimony." Congresswoman Maxine Waters asked Yellen about predatory lending against minorities, and asked her what she can do. While the Fed oversees the banks, who have to adhere to the Fair Lending Practices Act, Yellen said that it is something that Congress can do more about. On forward guidance and the future of monetary policy, Congressman Bill Huizenga asked Yellen about the Taylor rule, and whether the Fed will ever rely on a rule-based interest rate policy. Yellen said she would resist any policy that relies on the readings of two variables. She said that the Fed needs flexibility, and she believes in a systematic policy, rather than a rule-based policy. Congresswoman Gwyn Moore pressed Yellen more about this. Yellen said that the Fed is providing "a great deal of information to the public" through the Fed's "dot plot." Did Dodd-Frank enshrine too big to fail? No, says Yellen. "It directed us to increase the safety and soundness" of big institutions. Congressman Scott Garrett asked Yellen about the liquidity of the bond market. She said that it's not clear whether there is or is not a problem. By some metrics there doesn't seem to be a problem, by others, there does seem to be. (In internet-speak, Yellen's answer was ¯\_(ツ)_/¯.)  Congresswoman Carolyn Maloney asked Yellen about the risk to the US from turmoil in China and Greece, and how that might affect interest rate hikes. Yellen continued to say that the Fed's trajectory will be data dependent. The Fed is aware of what's going on abroad, but is more concerned about economic data at home. As for how rate increases will go after the first hike, that's data dependent, too.  Yellen also said that every FOMC meeting is "live," so people should not expect that there will only be a rate increase at a meeting where there is a scheduled press conference afterward (September and December this year). If the Fed decides to raise rates in July or October, there will likely be a special, unscheduled press conference afterward. Congresman Lacy Clay asked about the Community Reinvestment Act. Yellen said the Fed has been working to improve guidance for banks so that hopefully banks can do a better job of providing banking services for people in low-income areas. He also asked whether Dodd-Frank has hindered lending to would-be residential homebuyers. Yellen said... maybe, although it's probably a good thing that lending standards are tighter than they were before the financial crisis.  Senator Duffy asked Yellen about the Fed leak. It got tense. Duffy asked her to tell him what authority the Fed has not to comply with a Federal subpoena. Yellen said that the Fed "has indicated that we fully intend to cooperate with you," but have yet to send anything because it is an open investigation and the Inspector General has indicated that would compromise the investigation. "It appears that you are, or the Fed is, the one jeapordizing this investigation," said Duffy. "We have the right to these documents," he said. Congresswoman Terri Sewell asked about employment and how monetary policy can help with wage growth and underemployment. Yellen said that she thinks "we are seeing at least some tentative signs" of higher wages. There are both cyclical and structural factors going on, Yellen said. In particular, she pointed out that productivity growth in recent years has been disappointing, and that might be affecting wage growth. Sewell asked what Congress could do, and Yellen pointed to policies that emphasize education. Congressman Stephen Fincher asked about the economic impact of Dodd-Frank. Yellen said that a group of central banks looked at this type of question, and the cost-benefit analysis shows that preventing financial crises saves more money than a slightly higher price capital costs. This post continues to be updated.SEE ALSO: YELLEN: We think the economy will be ready for a rate hike this year Join the conversation about this story »