She Won’t Step Down
While speaking in front of Congress’s Joint Economic Committee, Federal Reserve Chair Janet Yellen confirmed that she would not leave her position before her term expires.
Yellen was compelled to quash rumors of a preemptive departure that manifested after Donald Trump won the White House on November 8. Trump was critical of Yellen during the presidential campaign, saying she was making decisions based on her political leanings.
Some analysts thought that meant she would leave if Trump became president, a scenario which unexpectedly became reality two weeks ago. As a result, speculation over Yellen’s departure mounted before she arrived at Capitol Hill to give testimony about the state of the economy.
“No I cannot,” she said when asked by Rep. Carolyn Maloney if there were circumstances under which she might leave before her term expires. “I was confirmed by the Senate to a four-year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term.”
Yellen tried to avoid even mentioning Trump’s name as she insisted that it was “critically important” for the Fed to remain free and independent. (Source: “Fed chief Yellen stands by central bank independence,” Financial Times, November 17, 2016.)
“Sometimes central banks need to do things that are not immediately popular for the health of the economy,” she said. “We’ve really seen terrible economic outcomes in countries where central banks have been subject to political pressure.”
Despite those caveats, Yellen maintained that economic growth continued to improve throughout 2016 and that a rate hike could come “relatively soon.” Her cautious optimism was founded on a bedrock of strong data that showed bright spots in real estate, employment, and wage growth.
Yellen said the Fed may have to act soon if economic conditions continue to tighten.
“Were the [Federal Open Market Committee] to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting [the] committee’s longer-run policy goals,” she said.
“Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”