Federal Reserve Board Chairwoman Janet Yellen told House lawmakers Tuesday in her prepared remarks that she expects "a great deal of continuity" in the Federal Open Market Committee's approach to monetary policy.
However, Yellen conceded during the question and answer session with lawmakers that the Fed would pause its tapering of asset purchases if there was a "notable change" in the economic outlook, and increase asset purchases again if there were "a significant deterioration in the outlook — either for the job market or if inflation would not be moving back up over time."
While receiving mostly congratulations from the lawmakers in taking her new post, Rep. Jeb Hensarling, R-Texas, chairman of the committee, reminded Yellen of his committee's yearlong examination of the Fed via its Federal Reserve Centennial Oversight Project. "Any agency or bureau of government that is 100 years old probably needs a good check-up, especially one as powerful as yours," Hensarling said. "And I remind all, independence and accountability are not mutually exclusive concepts."
In her first report on monetary policy, Yellen told members of the House Financial Services Committee Tuesday that "If incoming information broadly supports the committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the committee will likely reduce the pace of asset purchases in further measured steps at future meetings."
She then took a line from her predecessor, Ben Bernanke, in his last speech by stating that "purchases are not on a preset course" and that "the committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."
At his last press conference in early January, Bernanke said after the December FOMC meeting that further tapering will "be data dependent." However, he said he anticipated that the Fed would "probably do a measured reduction" at each meeting in 2014.
Jim O'Sullivan, Chief U.S. economist at High Frequency Economics, said that Yellen "expressed cautious optimism about growth, with no sign of concern about some of the weaker data recently while downplaying the volatility in markets."
