Janet Yellen takes Fed case on the road
Federal Reserve Chair Janet Yellen on Monday took a page from a politician's playbook to defend the US central bank's easy-money policies, citing the struggles of three Americans.
It was her first public address since becoming Fed chair two months ago, and the tour of a manufacturing laboratory at Daley College on Chicago's southwest side was her first high-profile effort to lend an empathetic ear to the concerns of Americans five years into a frustratingly slow US recovery from recession.
At the lab, Yellen leaned in to watch as Masson Covington, a 29-year-old student, demonstrated how to precision-cut an aluminium bowling pin with a computer-numerical-controlled lathe.
"Oh, that's great!" the head of the US central bank said as the machine's luminescent coolant splashed behind a glass guard. "It's really simple," replied Covington. "I learned it all from these classrooms here."
Ostensibly, the excursion to Daley College, a community college that is part of the City Colleges of Chicago, was meant to highlight promising efforts to train skilled workers and to explain that the economy remains "considerably short" of the Fed's of goal of maximum sustainable employment and stable inflation, as Yellen put it in her morning remarks.
But behind the polite questions about course studies and job prospects, the trip around Chicago may have been as much about protecting the central bank's cherished independence from political interference.
If Yellen can convince college students that her sometimes perplexing institution serves the public's interest, the Fed has a better shot at beating back efforts in Washington it argues could erode its ability to make unfettered decisions on monetary policy.
"The Fed has been under attack because of some of the bailout policies that were followed during the financial crisis, and there is no vocal constituency on the Fed's side," said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta who is now chief monetary economist with Cumberland Advisors.
"So, such outreach activities are simply an attempt to show that the Fed does care about the public," he added. "Whether it will work or not is a different story."
This year, the Republican-led House of Representatives Financial Services Committee is holding what it calls an "aggressive" series of hearings on the Fed examining everything from the role its stimulus has played in swelling the nation's debt to the impact it has had on seniors' savings.
Meanwhile, Republican Senator Rand Paul, a potential 2016 presidential candidate, is pushing a bill that would open up the Fed's monetary policy deliberations to congressional audit. A similar bill passed the House in 2012.
While an overhaul of the 100-year-old Fed is unlikely, the debate could amplify as the November midterm elections approach.
Asked in the lab how well the Fed is understood, Covington, a married father of three, admitted he knows little beyond the fact that it "gets the money and deals with the money".
DORINE, JERMAINE, VICKI
Since the 2007-2009 recession, the Fed has effectively printed some US$3 trillion ($3.5 trillion). It has kept interest rates near zero for more than five years, and this month said it will keep them there for a considerable time even after it ends its bond-buying programme, which is to be wound down later this year.
In her speech to some 1100 people at a downtown convention centre, Yellen said the "recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics".
She said "considerable" slack still exists in the job market and said further monetary stimulus could be effective.
"I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers," Yellen said.
In an unusual move, she cited by name three workers who lost their jobs or absorbed sharp pay cuts when the recession hit, including one who "scrambled for odd jobs and temporary work".
"This is not just an academic debate," she said. "For Dorine Poole, Jermaine Brownlee and Vicki Lira, and for millions of others dislocated by the Great Recession who continue to struggle, the cause of the slow recovery is enormously important."
HOW POLITICAL THE FED HAS BECOME
Road trips are common for the presidents of the Fed's regional banks, who are supposed to gather information on the economy to bring to policy-setting meetings in Washington.
But they have not been for the head of the central bank, until Yellen's predecessor, Ben Bernanke, broke that mould with a concerted public campaign to address the Fed's critics.
In his last few speeches before retiring, Bernanke said the US central bank needed to show it is working in the public's interest or risk losing its policy independence.
Yellen, herself, who was the Fed's vice chair before becoming the central bank's chief, was previously president of the San Francisco Fed and did many such road trips.
Getting the message out "is all well and good, but I think the average American is more concerned about the value of their money, how much things cost, and whether or not they have a job", Representative Patrick McHenry, a Republican who heads the House Financial Services Committee's oversight panel, said in a telephone interview.
"This type of tour might further highlight how political the Fed has become in intervening in the economy and the outsized role they play," he said.
In House testimony in February, Yellen strongly rejected the "Audit the Fed" bill, warning of how it could bring "political pressures to bear on the committee's judgment about what is the appropriate way to implement monetary policy".
The pressure could cool if the economy keeps improving. US economic growth picked up in the second half of last year, and the unemployment rate has dropped from a post-recession high of 10 per cent in 2009 to 6.7 per cent last month.
That drop is due in part to the droves of Americans who have given up the search for work.
Some economists and more hawkish Fed officials believe the decline in unemployment means little slack remains in the labor market and that inflation will soon rise.
Yellen disagreed, pointing to the unusually large proportion of long-term unemployment and the elevated number of Americans working part time who want full-time work. She also noted that there has been little upward pressure on wages.