Accessibility/Mobile Features
Skip Navigation
Skip to Content
Editorial News
Business
Classified Sites

The Canadian Press - ONLINE EDITION

Yellen says forcing Fed to follow formula in setting interest rates would be grave mistake

Federal Reserve Chair Janet Yellen gestures as she testifies on Capitol Hill in Washington, Wednesday, July 16, 2014, before the House Financial Services Committee hearing entitled:

Enlarge Image

Federal Reserve Chair Janet Yellen gestures as she testifies on Capitol Hill in Washington, Wednesday, July 16, 2014, before the House Financial Services Committee hearing entitled: "Monetary Policy and the State of the Economy. (AP Photo/Pablo Martinez Monsivais)

WASHINGTON - Federal Reserve Chair Janet Yellen said Wednesday it would be a serious mistake for Congress to require the nation's central bank to adopt a formal policy rule to guide its decisions on setting interest rates.

Yellen faced a barrage of questions from Republican lawmakers about legislation that they are supporting to make the Fed more accountable and make its policy decisions more transparent. One of the requirements would have the Fed adopt a policy rule that would govern future decisions and would have the Government Accountability Office audit the rule.

Yellen rejected that approach and said the Fed needed the flexibility it now has to make policy decisions.

"It would be a grave mistake for the Fed to commit to conduct monetary policy according to a mathematical rule. No central bank does that," Yellen told lawmakers.

She said that while the House legislation which was introduced last week would allow the Fed to deviate from any rule that it set up, any such change would trigger an audit by the GAO, the auditing arm of Congress. She said this procedure would "essentially undermine central bank independence in the conduct of monetary policy."

Yellen's comments came during an appearance before the House Financial Services Committee to present the Fed's semi-annual economic report to Congress.

Yellen repeated the testimony she had given on Tuesday before the Senate Banking Committee in which she said that while the economy is improving, it stills needs support from the Fed in the form of exceptionally low interest rates.

Yellen's discussion with GOP members of the committee over the proposed Federal Reserve Accountability and Transparency Act represented the sharpest questioning she has received from Congress since taking over in February as the Fed leader.

House Financial Services Chair Jeb Hensarling of Texas told Yellen that the Fed had dramatically increased its power in responding to the 2008 financial crisis and deep recession that followed and many lawmakers felt that power needed to be checked.

"The status quo is unacceptable," he said. "A dramatic increase in power calls for a corresponding increase in accountability and transparency."

Yellen maintained that the legislation as written would make it harder for the central bank to carry out the missions given to it by Congress to keep inflation under control and achieve maximum employment.

  • Rate this Rate This Star Icon
  • This article has not yet been rated.
  • We want you to tell us what you think of our articles. If the story moves you, compels you to act or tells you something you didn’t know, mark it high. If you thought it was well written, do the same. If it doesn’t meet your standards, mark it accordingly.

    You can also register and/or login to the site and join the conversation by leaving a comment.

    Rate it yourself by rolling over the stars and clicking when you reach your desired rating. We want you to tell us what you think of our articles. If the story moves you, compels you to act or tells you something you didn’t know, mark it high.

Sort by: Newest to Oldest | Oldest to Newest | Most Popular 0 Commentscomment icon

You can comment on most stories on brandonsun.com. You can also agree or disagree with other comments. All you need to do is register and/or login and you can join the conversation and give your feedback.

There are no comments at the moment. Be the first to post a comment below.

Post Your Commentcomment icon

Comment
  • You have characters left

The Brandon Sun does not necessarily endorse any of the views posted. Comments are moderated before publication. By submitting your comment, you agree to our Terms and Conditions. New to commenting? Check out our Frequently Asked Questions.

letters

Make text: Larger | Smaller

Brandon Sun Business Directory
Sudden Surge: Flood of 2014
Opportunity Magazine — The Bakken
Why Not Minot?
Welcome to Winnipeg

Social Media

Canadian Mortgage Rates