WASHINGTON — The U.S. economy has made great strides in recovering from the financial crisis of 2008 but continues to perform short of potential and inflation continues to run below target, Federal Reserve Chairman-Nominee Janet Yellen will tell the Senate Banking Committee on Thursday.
In an unusual move, the Fed released Yellen's prepared remarks for the committee late Wednesday afternoon, ahead of her much-anticipated confirmation hearing.
The prepared remarks were largely safe and seemed designed to address points of concern gleaned from her private meetings in recent weeks with senators on the committee.
In the remarks, Yellen lauds the current chairman, Ben Bernanke, for his efforts to prevent the financial crisis from becoming a panic and depression, and touted the economic recovery.
"The private sector has created 7.8 million jobs since the post-crisis low for employment in 2010. Housing, which was at the center of the crisis, seems to have turned a corner--construction, home prices, and sales are up significantly," she said in the remarks. "The auto industry has made an impressive comeback, with domestic production and sales back to near their pre-crisis levels."
But, Yellen cautioned, such progress has lagged for the jobless.
"Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential," Yellen said. "At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time."
Tiptoeing carefully, Yellen said little about the Fed's controversial monthly purchases of $85 billion of government and mortgage bonds to bolster the economy. Critics fear it will ultimately spark inflation, and Yellen defended the effort as a means to an end_ economic recovery.
"A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases," she said."I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."
In a nod to concerns raised by committee member Sen. David Vitter, R-La., Yellen noted that "capital and liquidity rules and strong supervision are important tools for addressing the problem of financial institutions that are regarded as 'too big to fail.'"
Vitter has co-sponsored legislation with Ohio Democrat Sen. Sherrod Brown to have the largest banks to hold more capital in reserve as a means of ensuring their failure won't spark a government rescue in the future. They'd like these mega-banks like JP Morgan Chase, Citibank and Bank of America to hold in percent up to 15 percent of their total assets.
These banks and financial-sector trade associations are opposed and Yellen did not give Vitter any commitment, he said, that she'd support such large reserve requirements.