Janet Yellen Under the Lights

November 14, 2013 9:03 AM EST
Janet Yellen's Fed Chairman confirmation hearing is scheduled today from 10AM-12PM ET. In her prepared remarks - released after the close yesterday - Yellen reiterated support for continued accommodative monetary policy. Today's Q&A, however, will be important.

FBR Capital's Edward Mills weighed in ahead of the confirmation, saying don't read too much into them and get head-faked. He said while the prepared remarks were in-line with expectations, the Q&A will be an opportunity for her to expand on her philosophy for leading the Fed.

"While today's hearing will be a great opportunity to hear directly from her, we caution about reading too much into her statements, as the first rule of a confirmation is to do no harm," Mills said.

Key points highlighted by Mills:

  • Initial statement matches expectations. Dr. Yellen’s opening statement was released yesterday afternoon; it reiterated her support for continuation of an accommodative approach to monetary policy. She argued use of unconventional tools today facilitates a return to normalcy in the future. She highlights unemployment remains above, and inflation below, the Fed's targets. Her focus on unemployment matches expectations she will be extremely focused on the Fed's full employment mandate. In what we view as a nod to the Senate's political climate, her testimony supports use of the Fed’s regulatory powers to limit "too big to fail" but
    restraining regulation to avoid overly burdening smaller community banks.

  • IBank regulation. Perhaps the most important but least discussed aspect of a Janet Yellen–run Fed will be her views on bank regulation. The Fed has been given extraordinary new regulatory powers by the Dodd-Frank Act; the Fed is finalizing key components. Most expectations are for a continuation of thoughtful implementation of Dodd-Frank. In recent years, the Fed has grown in its reputation for releasing rules implementing Congress' intent but taking strides to ensure regulations are not overly onerous. There will be some fear that the populist push in Congress to end "too big to fail" will give politicians cover to become more aggressive. We believe Dr.
    Yellen's significant focus on full employment will prevent a pivot to be more onerous, out of fear of harming economic growth.

  • IInflation concerns. Conservative Republicans have an issue with Dr. Yellen regarding what they see as overly accommodative monetary policy from the Fed and the potential for inflation above the Fed's targets. This led a number of committee members to vote against Dr. Yellen's appointment to vice chair in 2010, and we expect aggressive questioning and ultimate opposition from these members. In an attempt to be deferential, and in an attempt to win support of some Republican committee members, Dr. Yellen could attempt to appear more concerned about inflation and the concerns from these committee members than her policy resume will bear out. After confirmation, we expect Yellen to continue the Bernanke policies.

  • INext steps, nomination math. Following today’s hearing, we expect the Banking Committee to formally vote on her nomination before the Senate's Thanksgiving break, a hurdle Dr. Yellen should easily clear. Then the goal is to have the full Senate consider her nomination in December. She likely needs to clear a 60-vote threshold to avoid a filibuster. We anticipate support from all 55 Senate Democrats; it appears she has support from at least five Senate Republicans to avoid a protracted fight. We certainly expect some level of opposition, but not enough to sustain a filibuster.

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