Fed chair Yellen rejects notion of ‘third pillar’ of policy, very hopeful for economic growth
Fed Chair Janet Yellen rejected the notion that the Fed has a “third pillar” of policy to keep stock market prices afloat.
On the second day of her semiannual congressional testimony Wednesday, Yellen was asked by Rep. Edward R. Royce, R-Calif., whether the U.S. central bank’s monetary policy is tied to boosting Wall Street’s equity values — in effect a “third pillar” to go along with the Fed’s dual mandate of full employment and price stability.
“We do not target the level of stock prices,” she said. “That is not an appropriate thing to do.”
The Fed has enacted three rounds of so-called quantitative easing, a monthly bond buying program that has seen its balance sheet soar to $4.5 trillion. The last round of QE ended in October 2014. Each round has seen a sharp rise in the stock market.
Though the Fed is out of the easing business for now, it has kept its interest rate target close to zero, hiking just once in the last 10 years. Each signal that the Fed is about to tighten policy has resulted in market volatility, prompting Royce to ask whether the central bank will be cowed by jangled nerves on Wall Street.
“We’re going to look at what the trajectory is for the economy, for the goals Congress has assigned us, namely inflation and maximum employment, and take policies we think are appropriate to foster them,” Yellen said.
However, Rep. Scott Garrett, R-N.J., charged that the Fed’s policies have been targeted toward helping “the rich over the poor” by implementing policies that boost the market, where most of the value is held by the wealthiest people. He did not give Yellen a chance to respond.
In other matters, Yellen said she believes the recent weakness in job creation is “transitory” and does not reflect an otherwise growing economy.