S. HRG. 113–125 NOMINATION OF JANET L. YELLEN HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED THIRTEENTH CONGRESS FIRST SESSION ON NOMINATION OF JANET L. YELLEN, OF CALIFORNIA, TO BE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM NOVEMBER 14, 2013 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: http://www.fdsys.gov/ U.S. GOVERNMENT PRINTING OFFICE 85–910 PDF WASHINGTON : 2014 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 14:24 Jan 30, 2014 Jkt 046629 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 L:\HEARINGS 2013\11-14 NOMINATION OF YELLEN\HEARING\111413.TXT JASON COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS TIM JOHNSON, South Dakota, Chairman JACK REED, Rhode Island MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York RICHARD C. SHELBY, Alabama ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee SHERROD BROWN, Ohio DAVID VITTER, Louisiana JON TESTER, Montana MIKE JOHANNS, Nebraska MARK R. WARNER, Virginia PATRICK J. TOOMEY, Pennsylvania JEFF MERKLEY, Oregon MARK KIRK, Illinois KAY HAGAN, North Carolina JERRY MORAN, Kansas JOE MANCHIN III, West Virginia TOM COBURN, Oklahoma ELIZABETH WARREN, Massachusetts DEAN HELLER, Nevada HEIDI HEITKAMP, North Dakota CHARLES YI, Staff Director GREGG RICHARD, Republican Staff Director LAURA SWANSON, Deputy Staff Director KRISHNA PATEL, FDIC Detailee BRIAN FILIPOWICH, Professional Staff Member GREG DEAN, Republican Chief Counsel MIKE LEE, Republican Professional Staff Member DAWN RATLIFF, Chief Clerk KELLY WISMER, Hearing Clerk SHELVIN SIMMONS, IT Director JIM CROWELL, Editor (II) VerDate Nov 24 2008 14:24 Jan 30, 2014 Jkt 046629 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 L:\HEARINGS 2013\11-14 NOMINATION OF YELLEN\HEARING\111413.TXT JASON CONTENTS THURSDAY, NOVEMBER 14, 2013 Page Opening statement of Chairman Johnson ............................................................. 1 Opening statements, comments, or prepared statements of: Senator Crapo ................................................................................................... 2 NOMINEE Janet L. Yellen, of California, to be Chairman of the Board of Governors of the Federal Reserve System ............................................................................ 4 Prepared statement .......................................................................................... 37 Biographical sketch of nominee ....................................................................... 39 Responses to written questions of: Senator Crapo ............................................................................................ 52 Senator Brown ........................................................................................... 57 Senator Hagan ........................................................................................... 58 Senator Warren ......................................................................................... 60 Senator Vitter ............................................................................................ 63 Senator Johanns ........................................................................................ 67 Senator Kirk .............................................................................................. 71 Senator Moran ........................................................................................... 81 Senator Coburn ......................................................................................... 84 (III) VerDate Nov 24 2008 14:24 Jan 30, 2014 Jkt 046629 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 L:\HEARINGS 2013\11-14 NOMINATION OF YELLEN\HEARING\111413.TXT JASON VerDate Nov 24 2008 14:24 Jan 30, 2014 Jkt 046629 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 L:\HEARINGS 2013\11-14 NOMINATION OF YELLEN\HEARING\111413.TXT JASON NOMINATION OF JANET L. YELLEN, OF CALIFORNIA, TO BE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM THURSDAY, NOVEMBER 14, 2013 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 10:01 a.m., in room SD–106, Dirksen Sen- ate Office Building, Hon. Tim Johnson, Chairman of the Com- mittee, presiding. OPENING STATEMENT OF CHAIRMAN TIM JOHNSON Chairman JOHNSON. I call this hearing to order. Today we consider the nomination of the Honorable Janet Yellen to be Chair of the Board of Governors of the Federal Reserve Sys- tem for a term of 4 years. Dr. Yellen is an extraordinary candidate to lead the Federal Re- serve. She currently serves as a Member and Vice Chair of the Board of Governors; she previously served as a Member of the Board of Governors in the 1990s; she was the Chair of President Clinton’s Council of Economic Advisers; and she served 6 years as the President of the San Francisco Fed. In addition, Dr. Yellen has an impressive academic record. She is a professor at Berkeley’s Haas School of Business and was pre- viously a professor at Harvard University, as well as a faculty member at the London School of Economics. Dr. Yellen graduated summa cum laude from Brown University and received her Ph.D. in economics from Yale. Dr. Yellen’s nomination is especially timely as our Nation strug- gles with high unemployment in the wake of the Great Recession. She has devoted a large portion of her professional and academic career to studying the labor market, unemployment, monetary pol- icy, and the economy. Dr. Yellen also has a strong track record in evaluating trends in the economy; her economic analysis has been spot-on. The New York Times recently noted that she was ‘‘the first Fed official, in 2005, to describe the rise in housing prices as a bubble that might damage the economy. She was also the first, in 2008, to say that the economy had fallen into a recession.’’ These forecasts were not an anomaly. The Wall Street Journal recently analyzed 700 predictions made between 2009 and 2012 in speeches and congressional testimony by 14 Federal Reserve policy (1) VerDate Nov 24 2008 14:24 Jan 30, 2014 Jkt 046629 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\11-14 NOMINATION OF YELLEN\HEARING\111413.TXT JASON 2 makers and found Dr. Yellen was the most accurate. Such accurate economic judgment would be a tremendous quality of a Fed Chair. Dr. Yellen has proven through her extensive and impressive record in public service and academia that she is most qualified to be the next Chair of the Federal Reserve. We need her expertise at the helm of the Fed as our Nation continues to recover from the Great Recession, completes Wall Street reform rulemakings, and continues to enhance the stability of our financial sector. I am excited to cast my vote to confirm her as the first woman to serve as Chair of the Federal Reserve, and when we vote on the nomination, I urge my colleagues to do the same. I now turn to Ranking Member Crapo for his opening statement. STATEMENT OF SENATOR MIKE CRAPO Senator CRAPO. Thank you, Mr. Chairman, for holding today’s hearing on the nomination of Dr. Yellen to be the next Chair of the Federal Reserve Board. Today’s hearing is an opportunity not only to examine Governor Yellen’s qualifications but also her views on the role and direction of the Federal Reserve. In recent years the Fed has engaged in unprecedented policies, including purchasing trillions of dollars in Treasuries and mort- gage-backed securities. Current Fed purchases total up to $85 bil- lion a month. As a result, the next Fed Chair will inherit a balance sheet that currently stands at approximately $3.8 trillion, four times higher than before the financial crisis. As I think everyone knows, I have been a long-time critic of the Fed’s quantitative easing purchases. Now that a reduction in asset purchases finally seems to be on the horizon, I am concerned that markets have become overly reliant on them. That is why it is es- sential to know how Dr. Yellen, if confirmed, would manage the process of normalizing our monetary policy. The Fed has indicated that it will hold short-term interest rates low for an extended pe- riod. In a speech in April, Governor Yellen stated, ‘‘The policy rate should, under present conditions, be held lower for longer.’’ But how long is too long? The extended period of low rates is hurting individuals living on fixed-income investments and defined benefit pension funds. The International Monetary Fund cautioned that the actions taken by central banks are associated with financial risks that are likely to increase the longer the policies are maintained. How would the Fed ensure that these risks are avoided under Dr. Yellen’s chairmanship? In addition to unprecedented monetary policy, the next Fed Chair will finalize several key financial regu- latory reform rules. These rules must balance the financial stability with the inherent need for markets to take on and accurately price risk. They must be done without putting the U.S. markets at an undue competitive disadvantage or harming consumers with unin- tended consequences. The Chair of the Federal Reserve must understand how different rules interact with each other, what impact they have on the af- fected entities and the economy at large. Just as some worried that we did not have another regulations on the books to prevent the economic crisis, some of us worry now that the post-crisis response VerDate Nov 24 2008