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New chief signals Fed’s policies aren’t changing

Janet Yellen (center) talked with House Financial Services Committee members Maxine Waters of California (left) and Carolyn Maloney of New York, both Democrats.

Cliff Owen/Associated Press

Janet Yellen (center) talked with House Financial Services Committee members Maxine Waters of California (left) and Carolyn Maloney of New York, both Democrats.

WASHINGTON — Janet Yellen pursued a simple strategy Tuesday for handling a battery of lawmakers who came armed with skepticism about the Federal Reserve: Politely stand your ground. Be consistent. Signal continuity at the top.

In her first public words since becoming Fed chair this month, Yellen struck a note of unity with her predecessor, Ben Bernanke, who stepped down last month. She embraced his dual outlook on the economy: It’s improving enough to withstand a slight pullback in the Fed’s stimulus yet still needs the help of low interest rates.

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When her questioners turned aggressive, Yellen stoutly defended the Fed’s approach to the 2008 financial crisis and the recession. She rebuffed suggestions that its stimulus efforts were ill-conceived or that stricter financial rules were squelching growth.

At times, she basked in good wishes from members of the House Financial Services Committee, to whom she was delivering the Fed’s twice-a-year report to Congress. Several female members offered warm congratulations to the first woman to lead the Fed in its 100 years. ‘‘I’ve understood more of what you’ve said today than the last two [Fed leaders],’’ said Representative Shelley Moore Capitol, Republican of West Virginia.

Fed leaders can make unusual witnesses at hearings. Unlike many other government officials, they strive to protect their political independence by avoiding confrontation. Yellen kept her guard up yet aimed not to sound combative.

She dropped no hints of how her leadership might depart from Bernanke’s. She stressed that the Fed would decide whether to continue paring its bond purchases — and eventually to raise short-term interest rates — based on how the economy improved. The Fed’s bond purchases are intended to keep borrowing rates low to stimulate growth.

At times, her descriptions of policy and strategy mirrored Bernanke’s nearly to the word. Her key goal: to assure investors the Bernanke-Yellen transition would be seamless.

It appeared to work. Yellen’s testimony contributed to a powerful rally on Wall Street. The Dow Jones industrial average soared nearly 200 points.

‘‘She clearly has read the Fed playbook on how to not say a lot,’’ said Brian Gardner, head of Washington research for Keefe, Bruyette & Woods, an investment bank.

Yellen, 67, repeated the Fed’s assurances that it expects to keep its key short-term rate near zero ‘‘well past’’ the time the unemployment rate drops below 6.5 percent, as long as inflation remains low.

That provoked a tart response from Republicans: Before it changed its likely timetable last year, the Fed had hinted that unemployment at 6.5 percent would be when it would start to consider raising short-term rates, they noted. Now, most economists don’t expect short-term rates to be raised until 2015, even though the unemployment rate is 6.6 percent, the lowest in over five years.

Hensarling wondered: When it comes to interest-rate policy, is the Fed ‘‘improvising”?

He noted that Yellen herself had once said ‘‘sensible’’ central bankers follow rules. ‘‘I believe that I am a sensible central banker, and these are very unusual times,’’ she replied.

Several Democrats asked how the Fed might narrow the gap between the richest Americans and everyone else. Yellen suggested the growing concentration of wealth might help explain why the recovery has been so sluggish. Yet she noted that the Fed could do little to stop ‘‘one of the most disturbing trends facing the nation.’’

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