Yellen Stands by Fed Transparency as Lawmakers Turn Up Heat

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Manuel Balce Ceneta/APFederal Reserve Chair Janet Yellen testifies Wednesday before the House Financial Services Committee hearing on monetary policy and the state of the economy.
By Howard Schneider and Michael Flaherty

WASHINGTON -- Federal Reserve Chair Janet Yellen resisted calls Wednesday for more congressional oversight, as members of a House of Representatives panel criticized the central bank's policies and pressed it to be more accountable.

In her semiannual testimony to Congress, Yellen repeated her view that the Fed will likely hike interest rates later this year if the U.S. economy expands as expected, and cited improvement in the labor market.

Her remarks largely tracked the Fed's policy statement last month.

But in the hearing before the House Financial Services Committee, monetary policy took a backseat to central bank transparency. While some lawmakers aggressively questioned Yellen, it was a gentler session than the grilling she received before the same panel in February.

The most heated exchange occurred when Representative Sean Duffy, a Wisconsin Republican, lambasted the Fed and Yellen for what he described as a failure to properly respond to the 2012 leak of sensitive information to a private financial newsletter.

Duffy pressed Yellen to explain why the Fed has failed to meet the House panel's demands to release documents related to the case.

"We've said that we plan to give [the documents] to you as soon as we're able to do so and not compromise an open criminal investigation," Yellen responded. "We want to see this investigation succeed."

Yellen added that the Fed has a clear set of rules to follow in the event of an alleged leak, but Duffy shot back that the central bank has failed to follow those rules.

"If anyone is trying to sweep this under the rug, it's the Fed," Duffy said, demonstrating the frustration that Republican and some Democratic lawmakers have felt over the case.

U.S. Treasury yields and the dollar rose on Yellen's rate comments, while U.S. stocks held steady.

'Not Above the Law'

Republican lawmakers in particular have sought to rein in the central bank's authority, disturbed by the quadrupling of its balance sheet, its wide impact on the economy and the broad regulation powers it has accumulated since the 2008 financial crisis.

Texas Republican Jeb Hensarling, the committee's chairman, demanded the central bank be more predictable and implored it to cooperate with the leak investigation. "The Fed is not above the law," Hensarling said during his opening remarks.

Hensarling noted that the Senate Banking Committee had passed a bill in May requiring the Fed chief to go before Congress in a separate hearing in place of the vice chair of regulation if that latter position remained unfilled.

Hensarling then asked for a "yes" or "no" answer, and as Yellen indicated her willingness to do so, he cut her off and said he would take that as a "yes."

Hensarling and Yellen then sparred over whether banks continued to be too-big-to-fail.

Representative Bill Huizenga, a Michigan Republican, told Yellen the Fed should follow a predictable monetary policy rule rather than exercise wide discretion.

"I think we need a systematic policy," Yellen responded. "But I would strongly resist agreeing to follow any rule where the stance of monetary policy depends on only the current readings of two economic variables, which is what your reference rule relies on."
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