Janet Yellen faces the Senate Banking committee today in her confirmation hearing to become the chairwoman of the Federal Reserve. Yellen is widely considered among the best-qualified nominees ever for the position: The vice chairwoman of the Fed also served as the head of the San Francisco Federal Reserve Bank and as a member of the Council of Economic Advisers. Despite her packed résumé, plenty of questions will remain at the hearing about her views on monetary policy. Here are three things to watch for as Yellen takes the stage today.
1. Lots of inflation talk: As deputy chairwoman, Yellen has supported quantitative easing, an unconventional monetary policy tool under which the central bank makes massive asset purchases in an attempt to stimulate borrowing and boost other investments such as stocks.
Many Republicans have blasted such loose monetary policy as leading to inflation, arguing that "printing money," the phrase often used to describe quantitative easing, will devalue the currency. The Fed's current $85 billion monthly asset purchases comprise the third round of easing, known as QE3. Republican lawmakers have from the start of the program questioned the wisdom of additional easing. For this reason, GOP senators have made it clear Yellen will not get an easy pass.
"I voted against Vice Chairman Yellen's original nomination to the Fed in 2010 because of her dovish views on monetary policy. We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed," said committee member Bob Corker, R-Tenn., in an October statement on Yellen's nomination.
Ranking member Mike Crapo, R-Idaho, likewise called out quantitative easing in his initial reaction to Yellen's nomination.
"I continue to strongly disagree with the Fed's use of quantitative easing, and am eager to learn Ms. Yellen's vision for the direction of the Federal Reserve as we go through the nomination process," he said in an October statement.
2. (Measured) reassurances to Republicans: Yellen, of course, will come prepared for her grilling. In a statement released ahead of the hearing, Yellen appears to assuage easing opponents by explaining that she, too, would like to end quantitative easing – but only when the time is right.
"A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases," she wrote. "I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."
She also has statistics on her side. Inflation has shown no signs of running out of control since the start of quantitative easing and is in fact well below the central bank's 2 percent target rate. The latest reading on the personal consumption expenditures price index, the measure the Fed uses to measure inflation, showed inflation to be up only around 1 percent from one year ago as of September's figures, released Nov. 8.
3. A jumpy stock market: Anytime a member of the Federal Reserve – and particularly Chairman Ben Bernanke – makes a comment about the potential for tapering the Fed's current $85 billion monthly asset purchase program, stock indexes either jump or crash. Today, the potential new leader of the Fed will be in the spotlight, peppered with questions from some lawmakers who are eager to see easing end immediately. Bernanke has been careful to avoid naming any hard dates on when tapering will begin, and it's likely Yellen will follow suit. However, given the extended line of questioning she will face, markets will be on the lookout for any new information.