WASHINGTON - Janet Yellen’s confirmation as chairman of the Federal Reserve with the least Senate support on record shows that the central bank still faces intense political scrutiny six years after the financial crisis.
The Senate vote of 56-26 to confirm Yellen means she garnered even less support than outgoing Chairman Ben S. Bernanke, whose 2010 confirmation for a second term by a vote of 70-30 represented the most opposition for a Fed chief. Bernanke’s term ends Jan. 31.
Yellen takes over a Fed with a $4.02 trillion balance sheet bloated by a quantitative easing program, undertaken to pull the nation out of the deepest recession since the 1930s, that sparked strong Republican criticism. Crisis-era bailouts of financial firms, including American International Group Inc., exposed the Fed to charges it overstepped its authority.
“In the current political environment it’s probably unrealistic to expect things to cool off,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington, D.C., and a former Fed economist. “The Fed was forced by the circumstances of the crisis to take a series of controversial actions, not just QE but the whole crisis response, the bailouts, the facilities they put in place for banks and nonbanks.”
Yellen, 67, the first woman to head the Fed, will preside over an unwinding of the central bank’s unprecedented stimulus program if the economy performs as forecast. The Fed took the first step toward the exit last month when it reduced the monthly pace of asset purchases to $75 billion from $85 billion, citing evidence of improvement in the labor market.
The Fed’s Republican critics say its bond purchases risk creating asset-price bubbles and eventually stoking inflation, even as price increases remain subdued. The personal consumption expenditures index, the Fed’s preferred gauge, rose 0.9 percent in November from a year earlier and has stayed below the central bank’s 2 percent objective for 19 months.
“The stock market has become addicted to the Fed’s easy-money polices,” Republican Sen. Charles Grassley of Iowa, who voted against Yellen, said yesterday on the Senate floor. “The benefits to Main Street have been questionable at best.”
Such skepticism from Congress “means the Federal Reserve leadership is going to have to spend more time talking to the public and talking to Congress about what it’s doing,” Lewis Alexander, chief U.S. economist for Nomura Holdings Inc. in New York, said in an interview on Bloomberg Radio’s “The Hays Advantage.”
Bernanke, in a Jan. 3 speech in Philadelphia, said he was surprised by the amount of energy he’s had to devote to maintaining relationships with Congress beyond the twice-yearly testimony required by law.
“I had not entirely anticipated,” he said, “that I would spend so much time meeting with legislators outside of hearings - individually and in groups.”
He added: “I quickly came to realize the importance of these relationships with legislators in keeping open the channels of communication.”
In his final press conference last month, Bernanke said Yellen should keep in mind that “Congress is our boss.”