During testimony in front of the House Financial Services Committee, Federal Reserve Chair Janet Yellen was grilled by a member of Congress about whether the Fed and some of its members were favouring President Obama, the Democratic Party, and nominee Hillary Clinton.
Representative Scott Garrett (R-NJ) went after Yellen, saying that the Fed was delaying rate hikes in order to sustain the economy to be favourable to Obama and assist the election of Clinton.
“I know you have taken the position that the Fed’s positions are all purely data-driven… and that has absolutely nothing to do with politics,” said Garrett. “But, you know, less and less people really do believe that.”
Garrett than read headlines from a few news outlets that seemed to frame the Fed’s September decision not to raise rates as helping Clinton.
Garrett continued, “Chair Yellen, you have told our committee and the public on countless occasions that the Fed is not subject to undue political pressure, but as the saying goes perception is reality, and the public perception is that the Fed’s independence is nothing more than a myth and the Fed has an unacceptable, cosy relationship both with the Obama administration and with the higher-ups in the Democratic party.”
Garrett than ran through a litany of evidence of the Fed’s supposed political ties, including Yellen having lunches with partisan government officials during her time at the Treasury Department, former Chairman Ben Bernanke’s signalling of more quantitative easing just before the 2012 presidential election, and a speech from Yellen just before that election on income inequality.
Garrett also brought up the donations of Fed Governor Lael Brainard to the Clinton campaign and rumours that Brainard is, as Garrett accused, “angling for a top job” in the possible Clinton administration. There have been media reports that Brainard could be considered for Treasury Secretary in a Clinton administration.
Yellen noted that Brainard is allowed to donate to political campaigns under the Hatch Act, which details the political independence of the Fed.
“She’s acting in a way that is permitted by the rules we’re subject to,” said Yellen.
Yellen also said she has “absolutely no awareness” of Brainard speaking to Clinton about a future job in her administration.
“What’s important to me that in our collective decision making if I see politics being brought to bear in reasoning about our decision and I have never seen that on the part of any of my colleagues,” said Yellen.
Yellen said that she would “consult her counsel” on whether or not a Governor speaking to a campaign about a job in a future administration was a conflict of interest.
This exchange follows after Monday night’s debate, when Republican presidential candidate Donald Trump repeated his claims that the Fed is no longer independent and they are waiting to raise interest rates until President Obama leaves office. Trump believes that when the Fed does hike, it will wreck the US economy.