WASHINGTON — Despite concerns from Democrats about the bank regulatory views of Federal Reserve Board officials who will lead the central bank following the departure of Janet Yellen, the current Fed chair said Wednesday that she is not worried.
Yellen said there was little if any difference between her views on bank regulation and that of her colleagues on the Fed board. That includes Gov. Jerome Powell, who has been nominated to be her successor.
“All of my colleagues on the board have expressed a strong commitment to keep in place the core reforms that have produced a strong financial system,” Yellen said, referring to changes in capital retention, stress testing, living wills and liquidity requirements.
“I think all of us agree that it is appropriate to tailor regulatory requirements … to the systemic footprint of firms,” Yellen said. “We’re also focused on community banks and want to find ways to relieve burdens. I do think all of my colleagues are in the same place with respect to our priorities.”
When asked whether there were any differences in her approach to banking regulation and the positions of her colleagues on the Fed board, Yellen said that she has “not seen anything emerge at this point that I would describe as a significant difference.”
Yellen’s comments, which were delivered in what is almost certainly her final press conference as Fed chair before her term expires in February, come as some Senate Democrats have assailed Powell and President Trump’s recently installed vice chair of supervision, Randal Quarles, as insufficiently tough on Wall Street banks and questioned their dedication to ensuring that financial firms do not pose a risk to the financial system.
Sen. Elizabeth Warren, D-Mass., was the sole member of the Senate Banking Committee to vote against Powell’s nomination to succeed Yellen earlier this month. In a statement before the vote, Warren said Powell’s views on big banks and deregulation made her withhold her support for his nomination.
“Our financial rules for big banks need to be stronger, not weaker, and I have no faith that Gov. Powell will move the Fed in that direction,” Warren said.
Sen. Sherrod Brown, D-Ohio, the top Democrat on the committee, similarly withheld his support for a bipartisan bill aimed at rolling back some aspects of Dodd-Frank over concerns about a provision in the bill to make some stress tests “periodic” rather than annual. He said such a change would give the new crop of Fed regulators the freedom to weaken a critical supervisory tool. Brown said he wouldn’t have had the same concerns about different regulators, but with Quarles and Powell, he did.
“Giving this regulatory authority not to Yellen and Tarullo, who have a history of strengthening regulation, but giving it to Quarles and the next Trump nominees, who have a history of deregulation” will yield negative results, Brown said. “Having the Trump regulators, who are clearly not the watchdogs that the Obama regulators were ... and giving them the option of not doing these stress tests, is really troubling.”
But Yellen’s comments suggest that there is not as much of a difference between her approach to regulation and that of her successors.
She similarly said that she had a great deal of confidence in Powell’s ability to steer the central bank in an appropriate course, noting that he has been on the Federal Open Market Committee since 2012 and has not dissented from a majority opinion in that time.
“He is committed to the mission of the Fed, to its independence and to its acting in a nonpartisan, nonpolitical way,” Yellen said of Powell. “I think there is strong consensus on the committee to the gradual approach that we are pursuing, and Gov. Powell has been part of that consensus.”
Meanwhile, Yellen also responded to a question about bitcoin, and downplayed its role in the payments system.
“Bitcoin at this time plays a very small role in the payments system and is not a stable store of value and does not constitute legal tender," she said. "It is a highly speculative asset."
Yellen’s comments come as the FOMC voted, as expected, to raise the federal funds rate by 25 basis points to 1.5% — the third interest rate hike in 2017. Fourteen of the 16 members of the committee voted to approve the hike, while Federal Reserve Bank of Chicago President Charles Evans and Federal Reserve Bank of Minneapolis President Neel Kashkari dissented, calling for rates to remain unchanged.
The FOMC’s September economic projections proved to have underestimated the strength of the economy, with GDP numbers revised upward to 2.5% for 2017, up from the estimated 2.1% in September. The committee also revised its inflation figures up slightly, with a headline inflation rating at 1.7% rather than the 1.6% projected in September.
The committee’s expectations for rate hikes in 2018 also seemed to have converged on three additional rate hikes, with six members expecting three hikes in 2018 and an additional six seeing either two or four hikes.
Outlooks for 2019, 2020 and the longer run are more scattered. Eight members foresaw an additional two or three rate hikes in 2019 beyond the three projected hikes in 2018. The projections for 2020 saw a similar concentration of members seeing rates fall between 2.875% and 3.25%, running even higher than long term expectations.