The Psychology Behind the Recovery

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58 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest SECONDARY MARKET yellen tackles tapering, gse reform in Hearing The new Fed chair takes on all comers in her first Congressional hearing since taking the post. i f nothing else, Janet Yellen proved she has stamina. The newly installed Federal Reserve chair—the first woman to take the post in the institution's century-long his- tory—sat in front of the House Financial Services Committee for an extended session, fielding dozens of questions on topics ranging from the Fed's current direction to GSE reform. Yellen's prepared remarks for the committee echoed much of what analysts have seen in recent Federal Open Market Committee (FOMC) statements, with references to a recovering (but still weakened) labor mar- ket, a slowing housing market, restrictive fiscal policy, and the usual prediction of a "moder- ate" expansion in the nation's economic activity. She also told House members not to expect any great change in policy now that she's at the helm. Janet Yellen "[L]et me emphasize that I expect a great deal of continu- ity in the FOMC's approach to monetary policy," she said. "I served on the committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve's statutory mandate of maximum employment and price stability." Having said that, Yellen em- phasized "purchases are not on a preset course," and the FOMC's decisions about whether or not to taper will continue to hinge on its outlook from meeting to meeting. With the last two employment reports suggesting a possible slow- down in economic growth, the Fed chair was reluctant to discuss what they might mean for the pos- sibility of further cuts to purchases in the FOMC's next meeting. "The pace of job creation [in December and January] was running under what I had an- ticipated, but we have to be very careful not to jump to conclu- sions in interpreting what those reports mean," she said, adding that the committee has data to consider beyond employment rates. "I think it's important to take our time to assess just what the significance of this is." She also left open the pos- sibility for a ramp-up in asset purchases should economic con- ditions deteriorate significantly. Another topic of interest for the House committee was Yellen's thoughts on housing finance reform as industry play- ers and policymakers offer their ideas for moving forward for Fannie and Freddie. "I think the time has come," she said. "I hope that you will deal with a reform of the GSEs, and there are a variety of ways to do it, but I think the government should make its intended role more explicit and make sure that whatever enti- ties are set up to deal with housing finance don't create systemic risks to the financial system." One subject left out of the hearing was the Fed's latest round of annual capital stress tests, the results of which are expected to land this month.

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