US Federal Reserve chair nominee Janet Yellen made clear she is prepared to stand by the US Federal Reserve’s extraordinary efforts to pump up the US economy if she becomes chairman, if that is what it needs.
During a two-hour confirmation hearing before the US Senate Banking Committee on Thursday, Yellen expressed strong support for the central bank’s low interest-rate policies.
And she warned critics that any potential harm those policies pose are outweighed by the risk of leaving a still-weak economy to survive without them.
“I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” she said.
Yellen faced tough questions, particularly from Republicans.
However, she also drew praise from senators in both parties and is expected to be confirmed by the full Senate, becoming the first woman to lead the powerful bank.
A committee aide said Banking Committee chairman Tim Johnson plans a vote as soon as possible, potentially next week.
Yellen is likely to win support from most Democrats and a handful of Republicans.
Some Republicans expressed concerns at the hearing about the US$85 billion a month on bond purchases, which have swelled the Fed’s balance sheet to US$3.8 trillion. They are worried that the money flooding into the financial system is inflating stock and real estate prices. And that could be creating asset bubbles, which would have a disastrous impact on the economy if they burst.
Yellen repeatedly assured senators that the Fed is mindful of those risks.
However, she cautioned that there were other dangers if the Fed pulled back prematurely. The economy could weaken further and unemployment could rise.
Pressed by Republicans to specify when the central bank might begin scaling back the bond purchases, Yellen said Fed policymakers assess the risks and benefits of the bond purchase program each time they meet.
“The committee is looking for ... signs of growth that are strong enough to promote continued progress” in the labor market, she said. “There is no set time that we will decide to reduce the pace of our purchases.”
However, the latest economic data released on Thursday painted a less upbeat picture of the economy.
The US trade deficit widened in September as imports rose to their highest level in almost a year and exports fell for a third consecutive month, suggesting the third quarter growth estimate will probably be lowered.
First-time applications for jobless benefits fell last week, but the decline in claims for the week ended on Nov. 2 was smaller than previously reported.
“The reports reveal a slightly weaker path than we expected for exports and claims levels, which has modestly downgraded the outlook for the economy,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado.
The trade gap increased 8 percent to US$41.8 billion, the largest since May, the US Department of Commerce said.
That compared to economists’ expectations for a US$39 billion shortfall. When adjusted for inflation, the deficit on the trade balance widened to US$50.4 billion, also the biggest since May, from US$47.4 billion the prior month. This measure goes into the calculation of GDP and its rise in September suggested the government will probably trim its initial third-quarter GDP estimate by between 0.1 and 0.2 percentage point, according to economists.
In a separate report, the US Department of Labor said initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 339,000.
However, claims for the prior week were revised to show 5,000 more applications received than previously reported. The four-week moving average for new claims, which irons out week-to-week volatility, dropped 5,750 to 344,000.