Yellen defends Fed from Trump attacks

Donald Trump’s charges that the Federal Reserve is a political tool of the Obama administration are gaining some traction on Capitol Hill.

Federal Reserve Chairwoman Janet Yellen had to directly rebut the GOP nominee’s attacks Wednesday when she testified to the House Financial Services Committee.

{mosads}Republicans have long been critical of the Fed’s policies since the financial crisis, but now they appear to be upping their attacks on a number of fronts.

Rep. Scott Garrett (R-N.J.), a subcommittee chair of the panel, directly charged that Yellen’s Fed had a “cozy relationship” with the Obama administration and Democrats. He echoed Trump’s claims that the Fed is deliberately keeping rates low to benefit Obama in his final months in office.

“Whether you like it or not, the public increasingly believes that the Fed’s independence is nothing more than a myth,” he said.

Garrett went on to argue that Yellen gave a speech on income inequality in 2014 because it was a major campaign theme for Democrats and blasted Fed Governor Lael Brainard for contributing to Hillary Clinton’s campaign while at the central bank.

Garrett also noted that Brainard’s name has been mentioned as a possible Treasury secretary under Clinton and asked if any of it posed a conflict of interest for the Fed.

Yellen said Brainard’s actions were within the Fed’s conflict of interest rules but that she’d need to consult with lawyers about the rules for an official potentially taking a job in a future administration.

“I would have to consult my counsel,” she said. “I’m not aware that that’s a conflict.”

The pointed exchange came two days after Trump told 80 million Americans that he believed the Fed was effectively hurting the economy to boost Obama’s popularity.

“We are in a big, fat, ugly bubble. … The day Obama goes off, and he leaves, and goes out to the golf course for the rest of his life to play golf, when they raise interest rates, you’re going to see some very bad things happen, because the Fed is not doing their job,” he said. “The Fed is being more political than Secretary Clinton.”

Trump has not offered any evidence to back up his claims, and the Fed for decades has emphasized it does not make decisions based on partisan politics.

Yellen has been a regular fixture on Capitol Hill since she took over the Fed in 2014 and has been a frequent target of GOP complaints about Fed policies and operations. But Wednesday’s hearing, two days after that debate, may have marked the most contentious of her tenure.

The topic of the hearing was financial regulation, which is always a hotly partisan issue, though separate from the Fed’s handling of monetary policy. Yet Yellen found herself in several contentious exchanges with Republicans skeptical of the Dodd-Frank financial reform law and the Fed’s expanded efforts to police Wall Street.

Rep. Sean Duffy (R-Wis.) aggressively questioned Yellen on whether banks were no longer “too big to fail” and grew frustrated when she would not answer with a simple “yes” or “no.”

“I think ‘too big to fail’ is a less significant problem than it was before,” she said. “It’s not a black or white issue.”

Yellen also came under the pressure from the left, as Democrats had a host of gripes or suggestions for the central bank.

Several Democrats pushed Yellen to up the diversity within top positions at the Fed, and Rep. David Scott (D-Ga.) outright asked Yellen to name an African-American to head the Atlanta Fed. Current President Dennis Lockhart is retiring at the end of February.

Others expressed frustration over the recent scandal at Wells Fargo, where regulators revealed that the bank opened millions of fake accounts for unknowing clients to boost sales numbers.

The bank has paid $185 million in fines, fired thousands of employees, and its board is under significant pressure to claw back pay for executives in place when the fake accounts were created.

Some frustration was directed at Yellen given the Fed’s role as a bank regulator.

Rep. Brad Sherman (D-Calif.) argued that the widespread bad behavior at Wells Fargo, which went on for years, is proof the bank is too large to be managed or regulated appropriately.

“Two million phony accounts not detected by the regulators, break them up,” he said.

Yellen dodged the question, saying simply that the largest banks are subjected to “exceptionally high standards.”

Rep. Stephen Lynch (D-Mass.) expressed frustration over the fact that Wells Fargo and other banks can enter into government settlements, and almost none have actually been taken to court for criminal activity.

“I don’t care if you win. Just get after them. Make their life hell,” he said.

Beyond those specific points, Yellen was broadly supported by Democrats on the panel, particularly against the attacks aired by Trump on Monday.

“I am disturbed by anyone, in a recent debate or anywhere, who suggests that Chair Yellen is somehow acting politically,” said Rep. Carolyn Maloney (D-N.Y.). “Nothing could be further from the truth.”

Fed officials have always been fiercely defensive of any claims the central bank is politically compromised, and Yellen has previously rebutted Trump’s claims by saying Fed officials never discuss politics when setting interest rates.

Yellen definitively dismissed the idea that the White House was putting pressure on the Fed to keep rates low.

“I have certainly never been pressured in any way by the administration,” she said in response to a question from Rep. Joyce Beatty (D-Ohio). “The administration, my experience has been, greatly respects the Fed’s independence.”