viernes, 17 de julio de 2015

viernes, julio 17, 2015

Janet Yellen’s Fed Flounders in Political Arena

Congressional leaders from both sides of aisle fault central bank’s transparency and responsiveness

By Kate Davidson and Victoria McGrane

July 13, 2015 12:51 p.m. ET

Lawmakers in Congress say the Fed has been poor at communicating and responding to inquiries. Here, central bank chief Janet Yellen testifies before a Senate panel in February.Lawmakers in Congress say the Fed has been poor at communicating and responding to inquiries. Here, central bank chief Janet Yellen testifies before a Senate panel in February. Photo: Alex Wong/Getty Images


In his final days as Federal Reserve chairman, Ben Bernanke offered his successor parting advice for dealing with lawmakers: “The first thing to agree to is that Congress is our boss.”
Almost 18 months after taking the helm, Fed Chairwoman Janet Yellen is struggling to manage an increasingly strained relationship with the boss.

The Fed was structured by Congress as an independent agency and its monetary-policy decisions were specifically exempted from congressional audits. But the Fed must still answer to Congress—and lately it has become embroiled in a dispute with House Republicans over the possible leak of confidential information from its September 2012 policy meeting. Republicans, miffed by what they see as a lack of responsiveness from Fed officials on this and other matters, are pushing the central bank to turn over documents related to its internal leak probe.

Some lawmakers also are pressing Ms. Yellen to appear before Congress more frequently on regulatory issues. Meanwhile, some in Congress have found bipartisan accord to revamp aspects of the Fed’s structure and operations.

A central bank spokesman said “the Federal Reserve Board values transparency and accountability and aims to respond in a timely and complete manner to all congressional inquiries.”

At best, the confrontations pose a distraction for the Fed as it prepares to raise interest rates for the first time in nearly a decade. At worst, they could damage the central bank’s reputation in a way that hinders its effectiveness, potentially through legislative changes to how it conducts monetary policy.

The leak probe, and other points of tension, will be on full display Wednesday when Ms. Yellen delivers her semiannual monetary-policy testimony before the House panel hitting hardest against the central bank.

House Financial Services Committee Chairman Jeb Hensarling (R., Texas) said the Fed is violating the law by refusing to fully comply with a committee subpoena on the leak probe.

Asked if the committee may move to hold the Fed chairwoman in contempt—the next step in the process—Mr. Hensarling declined to say.

“We want the chair to tell the truth,” he said. “We want the Federal Reserve to produce the documents they are legally obligated to produce.”

Current and former staffers on both sides of the aisle, and former Fed officials, say the relationship didn’t have to get this bad. They argue the Fed has done poorly in some basic tasks required to keep the boss happy—like responding swiftly to requests for information—and it is catching up.

“The fact that we have to reiterate and re-ask the same questions hearing after hearing…should indicate there is a problem of lack of transparency despite all their so-called efforts to ameliorate it,” said Rep. Scott Garrett (R., N.J.), who helped craft pending legislation to change Fed operations on both the monetary policy and regulatory sides.

Some critics will never be satisfied, said Donald Kohn, a former Fed vice chairman who has worked with Ms. Yellen and Mr. Bernanke. But he acknowledged the central bank has a problem “at least of perception.”

“The Fed needs to be very careful that it is acting in a way that the middle two-thirds of the Congress will see as reasonable, and responding to the Congress promptly and reasonably,” he said. “That perception isn’t there.”

The tensions can be traced to the economic and political upheaval of the past seven years. The Fed earlier had gained an aura of technocratic competence thanks to steady economic growth, low inflation and financial stability. The 2008 financial crisis and its aftermath sullied that aura.

At the same time, Congress became more polarized. Conservative Republicans think the radical steps the Fed took to resuscitate the economy represent an irresponsible exercise of centralized government power. Populist Democrats and others think the Fed is too cozy with bankers who instigated the crisis.

The Fed has been hamstrung by a culture that prizes staying above ordinary politics and considers its independence central to its ability to do its job. The result is a Congress that sees the central bank as unresponsive, aloof, politically tone-deaf and unaccountable, and a central bank that wonders whether it could do anything, short of submitting every decision to congressional vote, to satisfy its critics.

“What they mean is, ‘They’re not giving us what we want. … They’re not supporting our theories.

They’re not agreeing with our policy objectives,’ ” said a former Obama administration official who worked on Fed matters, referring to Congress’s view of the central bank. “Those are battles that cannot be won no matter how hard you try.”

As Ms. Yellen put it when asked recently about legislation to revamp the Fed’s structure, “I’m not certain what the problem is that needs to be addressed.”

Many of the strongest complaints come from Republicans. But some Democrats have expressed dissatisfaction, publicly and privately, with the conduct and attitude of the Fed.


                   

Six Democrats, including Sens. Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, joined Republicans last year in complaining the Fed hadn’t complied with congressional intent in a requirement to restrict its emergency lending authority. Lawmakers from both parties are now pushing legislation to put more detailed constraints on those powers since the Fed failed to address their concerns.

Reps. Darrell Issa (R., Calif.) and Elijah Cummings (D., Md.), the leaders of the House Oversight Committee, sent a rare bipartisan request to the Fed last year seeking more details about how the Fed handled a foreclosure settlement, which some lawmakers said may have gone too easy on big banks.

The Office of the Comptroller of the Currency, which was also involved in the settlement and received the same request, turned over the information within a few weeks. The Fed waited more than two months until the night before Ms. Yellen was set to appear before the Joint Economic Committee, on which Mr. Cummings also serves, to produce the documents—a point Mr. Cummings complained about at the time.

J.W. Verret, until recently the House Financial Services Committee’s chief economist, recalled reaching out to a Fed governor to discuss Republican legislation requiring the central bank to follow a formula when setting interest rates—a measure Ms. Yellen and other Fed officials oppose.

The governor, whom Mr. Verret declined to name, agreed. But soon after, Fed congressional-affairs staff canceled the meeting and offered a sit-down with Fed staff instead.

Mr. Verret, now an assistant professor at George Mason University School of Law, said he got a better reception from several regional Fed banks including Dallas and St. Louis, which operate independently of the Fed board of governors in Washington. He found the presidents themselves—not just staff—willing to discuss provisions of the bill.

“Sometimes they agreed with me, sometimes they didn’t, but it felt like a real discussion,” he said. “I never had a discussion with any staffers from the Fed board…that didn’t feel scripted and like political talking points.”

One Democratic aide, whose boss is generally supportive of the central bank, said the Fed is responsive on some issues but not others, and tends to wait until the last minute to start engaging with members of Congress on important issues, such a measure requiring monetary-policy audits by an arm of Congress. The rest of the time, the person said, they seem disinterested in dealing with the Hill.

“The more criticism the Fed gets, it makes it harder on someone like Janet Yellen to maintain the Fed’s reputation as a nonpartisan expert institution that is doing the right thing,” said Sarah Binder, a senior fellow at the Brookings Institution who has studied the Fed’s relationship with Congress.

Fed leaders have long sparred with ardent critics on the Hill such as former Reps. Henry Gonzalez (D., Texas) and Ron Paul (R., Texas) and former Sen. Jim Bunning (R., Ky.). But frustration with the Fed has grown more mainstream since the 2008 crisis, a trend that can be measured in part by the proliferation and popularity of legislation aimed at the central bank.

One illustration: Mr. Paul’s anti-Fed bills attracted few, if any, co-sponsors in the years before the crisis. The “Audit the Fed” bill he introduced in 2009 went on to collect 320 co-sponsors in the House.

Some Fed officials, for their part, have defended the central bank’s independence from political interference as crucial for its mission on monetary policy and the economy.

Bills like Audit the Fed would politicize monetary policy and subject the Fed to short-term political pressure that could threaten its independence, Ms. Yellen said in February at her semiannual testimony before the Senate Banking Committee. “Academic studies establish beyond a shadow of a doubt that independent central banks perform better,” Ms. Yellen said.

There is evidence Ms. Yellen is trying to do some damage control, especially after House Republicans railed against her at the February hearing for failing to meet more regularly with the GOP.

She met with or spoke to lawmakers 11 times in May, compared with an average 2.4 lawmaker meetings a month before that. Nine of those conversations were with Republicans, including multiple calls with the leaders of the House Financial Services and Senate Banking committees.

Some Capitol Hill offices from both parties say they find the Fed accessible and willing to engage in deep discussion on any topic. Sen. Mark Warner (D., Va.) said Fed leadership and staff has been “incredibly responsive to my questions, even if sometimes their answers aren’t always the ones I’d prefer to hear.”

One Democratic aide said he has weekly—if not daily—interactions with the Fed, and recalled recently spending an hour on the phone with Governor Jerome Powell talking about derivatives risk.

Fed supporters also note Mr. Powell met with high-level GOP Senate staff in January. A Fed spokesman said Fed staff generally provide multiple briefings each week to congressional staff. The Fed also hosts an annual briefing at the central bank for congressional staff.

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