The Chair of the Board of Governors of the Federal Reserve, Janet Yellen on Thursday said that the Fed is open to raise the threshold for systemic banks importance as well as a slow increase of interest rates.
During the second day of the semiannual testimony of the Federal Reserve Chair, Janet Yellen, in front of Congress on the economy and monetary policy, many concerns were raised by Democrats and Republicans for the statement made by Yellen that the Fed would be raising interest rates.
She said that when the Fed starts to raise interest rates it would be done in a careful manner so that the economy does not hurt and that the job market and income gains would be set back. She said that the Fed is faced with a challenge of achieving the goals of maximum employment and stable prices.
While testifying in front of the Senate Banking Committee, a day after testifying in front of the House Financial Services Committee, Yellen was asked by Democratic Senator Sherrod Brown if it is prudent to raise interest rates with risks in tightening the monetary policy this soon even though the economy has progressed since the crisis, there is still much progress to be achieved. Yellen said that that the reason the Fed is going to raise interest rates in approximately two months is that the labor market and the broader economy have achieved improvement.
However, the questions about the raise of interest rates were rather lesser in number in comparison to the questions about the financial industry regulations. One of the more discussed topics was the threshold of the SIFIs. The Dodd-Frank financial reform of 2010 has made U.S. that have more than $50 billion in assets to be labeled as systematically important financial institutions, or SIFI, meaning that they are under constant supervision by the central bank.
According to Reuters, Republican Senator Mike Crapo told Yellen that the Fed Governor Daniel Tarullo is in favor of raising the threshold above $50 billion to which Yellen replied “So, like Governor Tarullo, I would be open to a modest increase in the threshold.” She also remarked that it is of vital importance that the Federal Reserve has the discretion over systematically important banks even if the threshold is increased.
Janet Yellen, the Fed chief, was under a lot of scrutiny at both testimonials of Congress, on topics ranging from the Fed’s place as a top bank regulator and the Wednesday testimony in front of House for transparency concerns and congressional oversight of the central bank about not handing over documents that might have been leaked containing market-sensitive information.
Yellen in both instances repeated that interest rates may or may not be increased, dependable on certain data, however she stressed that the progress in the labor market and the improving economy have put the central bank in a position to consider said policies when inflation would move back towards the target of 2%.