When Federal Reserve chair Janet Yellen heads to Capitol Hill on Wednesday, she’ll likely face attacks from both sides of the aisle.
While Democrats and Republicans in Congress have become increasingly polarised, they have converged on one issue: the lack of transparency from the Fed.
Yellen is set to deliver her semiannual monetary policy update to the House Financial Services Committee on Wednesday, and The Wall Street Journal says the tensions that have developed with Congress during her 18 month tenure will be on “full display.”
“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,” the Journal wrote on Tuesday.
“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.”
Members of Congress on both sides of the aisle have criticised the Fed’s emergency lending powers used during the financial crisis, the Fed’s handling of foreclosure settlements with the big banks, and particularly the Fed’s response to a possible leak from the September 2012 FOMC meeting.
Through all this, Yellen has struggled to maintain a good relationship with Congress while upholding the idea that the Fed must be above politics to do its job.
Yet, the Journal also reported that many current and former congressional staffers from both parties, as well as former Fed officials, told them the central bank wasn’t even doing the simple things to keep Congress happy, like quickly responding to information requests.
“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,” former Vice Chair Donald Kohn, a forty year Fed veteran, told the Journal. “That perception isn’t there.”
For her part, Yellen seems to have stepped up her Congressional schmoozing. In May, Yellen spoke with lawmakers 11 times, nine of which were with Republicans, according to The Journal.
This blows away the mere two meetings she had with Democratic senators in April.
And so while Yellen’s latest comments seem to signal that she is focusing on preparing the markets for a rate hike later this year, this week’s agenda on Capitol Hill seems likely to contain as many questions about the Fed is as there are questions about what it’s actually doing.