Yellen Signals Continued Asset Purchases

(RTTNews) - Janet L. Yellen, President Obama's choice to lead the Federal Reserve when Chairman Ben Bernanke steps down in January, faced a Senate confirmation hearing Thursday morning.

Yellen, currently serving as Vice Chairman of the central bank, defended the ultra-easy monetary policy that has seen the Fed's balance sheet more than quadruple to nearly $4 trillion since 2008.

"Under the wise and skillful leadership of Chairman Bernanke, the Fed helped stabilize the financial system, arrest the steep fall in the economy, and restart growth," Yellen told the Committee on Banking, Housing, and Urban Affairs.

"We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," she added.

Gains in manufacturing and housing have helped drive modest economic growth this year, but Yellen warned that unemployment remains too high for the Fed to consider significantly scaling back its $85 billion a month in asset purchases.

With the economy generating 204,000 last month, the October jobs report was relatively positive despite a partial government shutdown.

However, the 7.3 percent unemployment rate remains well above the Fed's 6 percent target for winding down stimulus.

In addition, October saw the weakest labor participation rate in 35 years, meaning a rising number of Americans are giving up looking for work altogether.

To Yellen, that means the Fed must keep its foot on the pedal.

"A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases," Yellen said.

"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."

Banking Committee Chairman Sen. Tim Johnson (D-S.D.) said Yellen was highly qualified to lead the world's most important central bank, pointing to academic experience and years as President of the Fed's San Francisco branch.

Yellen, 67, would become the first woman to lead the Fed.

Despite murmurs of objection from the Tea Party caucus, she is expected to be confirmed by a comfortable margin.

All Democrats in the Senate are likely to vote in favor of her nomination, so Yellen needs backing from only a handful of Republicans to win confirmation.

Still, Republicans used the hearing to express concerns about the highly accommodative monetary policy.

Sen. Mike Crapo (R-ID), the ranking Republican on the panel, says markets are "too reliant" on Fed asset purchases.

"There's a disconnect between what the Fed intended with quantitative easing and the results of Fed policy," said Crapo, referring to the lackluster recovery from the worst recession in decades.

Asked by Crapo to estimate when the Fed will begin to taper, Yellen said policy makers are looking for signs that momentum in jobs growth is sustainable.

"At each meeting we attempted to asses whether the outlook is meeting the criteria we have set" to continue bond purchases, she added.