Heat, Not Light, at Hearing about the Fed ; Real Economic Debate Is Pushed Aside in Favor of Partisan Political Shots

By Schwartz, Nelson D | International New York Times, June 24, 2016 | Go to article overview

Heat, Not Light, at Hearing about the Fed ; Real Economic Debate Is Pushed Aside in Favor of Partisan Political Shots


Schwartz, Nelson D, International New York Times


The Fed chief's tesitimony to a committee in Congress highlighted how economic debate has been overshadowed by partisan politics.

Year after year of disappointing growth in the United States. Disappearing middle-class jobs. Turmoil overseas, including the looming possibility that British voters would decide this week to part ways with the European Union.

Urgent economic issues all.

But what did some lawmakers on the Financial Services Committee of the House of Representatives want to talk about on Wednesday when the Federal Reserve chairwoman, Janet L. Yellen, was called before them for her semiannual testimony to Congress? Whether the Federal Reserve, which has the power to create money at will, is solvent.

Ms. Yellen's final such appearance in advance of the United States presidential election in November was a master class in how many members of Congress have allowed real debate about America's economic challenges to be subsumed in the broader political din.

The hearing on Wednesday followed a more sober session on Tuesday before the Senate Banking Committee, where Ms. Yellen laid out a cautious view of the economy's prospects, playing down the risk of recession while reiterating that near-term weakness may prompt the Fed to hold off on interest rate increases.

With that message dominating the headlines, it was the turn of House members to pressure the central bank, which has become a bete noire for the right, just as it once was for the left in years past.

For the most part, Ms. Yellen did not fall into any traps, echoing the academic, even remote tone adopted by predecessors like Ben S. Bernanke and Alan Greenspan in the face of congressional gadflies and firebrands.

There were moments during the three-hour hearing when the Kabuki- type theater briefly abated and Ms. Yellen was asked to address the economic questions that many ordinary Americans are wrestling with, too.

Representative Danny Heck, a Washington State Democrat, noted that the government's best-known yardstick for unemployment stands at a healthy 4.7 percent. But he pointed out that a broader measure, which includes part-time workers who can't find full-time work, is still more than twice as high, an unusually large gap by historical standards that underscores the paucity of gains in the current recovery for many workers.

"I agree with you," Ms. Yellen said, before acknowledging that the higher rate shows just how much slack remains as the economic recovery approaches its seventh anniversary.

And Representative Ed Royce, a California Republican, queried Ms. Yellen on the impact of negative interest rates in Europe and Asia even as the Fed considers an interest rate increase in the coming months.

That spread in rates could have major implications for the dollar, Ms. Yellen explained, noting how exchange rates are sensitive to monetary policy and affect things as varied as inflation and overall economic conditions.

But the insights from Ms. Yellen, who taught economics at the University of California, Berkeley, for many years, were soon drowned by the dog whistles and dubious political point-scoring. …

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