Yellen faces first grilling before Congress

9:40 PM, Feb 9, 2014   |    comments
Janet Yellen smiles as she is introduced as being the first female to be nominated as Federal Reserve Board chair, prior to testifying on Capitol Hill in Washington. (Photo: Jacquelyn Martin, AP)
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(USA TODAY) - Janet Yellen, who on Tuesday faces her first grilling by Congress since she became chairwoman of the Federal Reserve, is expected to reiterate central bank plans to taper its stimulus despite recent weakness in the economy.

Yellen is scheduled to deliver her semi-annual testimony on monetary policy before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Thursday.

Yellen, 67, became the first woman to lead the Fed on Feb. 1, succeeding Ben Bernanke, who stepped down after helping lead the nation's recovery from the 2008 financial crisis. Yellen was previously the Fed's vice chair.

She is generally viewed as more concerned about promoting job growth and less worried about risks such as high inflation than Bernanke. She's likely to face tough questions from Republicans about whether she'll retreat from plans to pare back the Fed's massive monthly bondbuying, which is intended to hold down interest rates and spur economic and job growth.

In announcing Tuesday 's hearing, Financial Services Committee chairman Jeb Hensarling, R-Texas, said: "By lowering the borrowing costs of the federal government, the Fed has helped the Obama administration finance nearly $7 trillion in new debt since 2009. At the same time, the Federal Reserve has been buying trillions of dollars of U.S. Treasury securities, swelling its balance sheet to an unheard of $4 trillion - four times the size of its pre-crisis level."

Democrats could urge Yellen to keep the stimulus going -- at least for now.

Last week, the Labor Department reported a disappointing 113,000 job gains in January-the second straight month of weak growth and far below the 200,000-plus monthly pace since August. The report added to recent financial troubles in emerging markets and an ensuing stock market swoon that have raised questions about the durability of the economy's resurgence.

Yet many economists have attributed the slowdown at least partly to unusually cold and snowy weather in much of the USA, and they say emerging market woes are unlikely to significantly impact the U.S. economy.

Yellen "will probably emphasize that the weak tone of some of the incoming data and the turmoil in emerging markets are unlikely to prompt the Fed to slow the pace at which it is tapering its asset purchases," economist Paul Dales of Capital Economics said in a research note.

Tom Porcelli, chief U.S. economist of RBC Capital Markets says: "Our thinking is the Fed is committed to winding down purchases sooner rather than later."

The Fed trimmed its monthly purchases of government bonds by $10 billion in both December and January, citing a pickup in the economy and job market. Fed policymakers have suggested they'll reduce the bond buying, which now totals $65 billion a month, by a similar amount at each Fed meeting and halt it by the end of 2014, assuming the economy continues to advance.

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