WASHINGTON -- A House Republican on Wednesday complained that the Federal Reserve's actions on interest rates have not fueled economic growth and have left financial markets confused about the Fed's next moves.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said that the Fed and the Obama administration have failed to produce the kind of economic policies needed to fuel the economy in the years after the 2007-2009 recession.
"What is clear and verifiable is that this weak economy doesn't work for millions of working Americans," Hensarling told Yellen. "The Fed has been the facilitator and accommodator of the administration's disastrous national debt policy and has regrettably lent its shrinking credibility to advancing the administration's social agenda."
While other Republicans on the committee joined in Hensarling's criticism, Democrats sought to defend Federal Reserve Chairman Janet Yellen. They noted that the unemployment rate has fallen from 10 percent to 4.7 percent, and 14 million jobs have been created despite modest overall growth.
Testifying for a second day before Congress, Yellen said the Fed has used the tools it has available to keep interest rates low as a way to bolster job creation. She reiterated that the Fed plans to be very cautious in raising interest rates and said the economy faces a mixed picture, with growth restrained by lackluster investment spending but bolstered by a solid rebound in consumer spending.
Yellen said she was "very hopeful" that job growth, which slowed sharply in April and May, will rebound in coming months.
"There are some headwinds but we do have strengths. Consumer spending is particularly strong," Yellen said. "I don't want to send a message of pessimism about the economy and where we are going."
The Fed left a key interest rate unchanged at a low level of 0.25 percent to 0.5 percent at its meeting last week, the fourth time it has passed up a chance to raise rates after nudging rates up by a quarter-point last December.
Yellen's remarks Tuesday and Wednesday move her closer to the argument made for some time by former Treasury Secretary Lawrence Summers that forces holding down growth and interest rates may be long-lasting. St. Louis Fed President James Bullard, who until recently had taken a more hawkish stance on policy, also shifted his views in a paper published last week suggesting the U.S. economy is stuck in a rut for at least the next two to three years.
Responding to questions from lawmakers, Yellen said the odds of a U.S. recession were low. She also said the central bank stood ready to act if needed in the event U.K. voters decide today to leave the EU, causing financial-market turmoil.
"We will closely monitor what the economic consequences will be and are prepared to act in light of that assessment," she said.
Yellen called widening wealth disparity in the U.S. "extremely disturbing," and warned that it could reshape consumption patterns in the future.
The Fed's semiannual Monetary Policy Report to Congress released Wednesday included a special section titled "Have the Gains of the Expansion Been Widely Shared?" That study concluded that blacks and Hispanics suffered the greatest proportional losses in full-time employment during the recession, and noted those workers' share remains "significantly depressed" even as hiring has rebounded.
According to the report, by 2014, median household incomes for blacks had recovered only 88 percent of their 2007 level, while incomes for Asian, white, and Hispanic households had regained at least 94 percent of pre-recession levels.
"Racial and ethnic differences in income were sizable before the financial crisis and have only grown larger since then, with the median black household income at $40,000 in 2014, compared with $67,000 for white and $85,000 for Asian households," according to the report.
Yellen has made prosperity for all a signature of her tenure as chair, remarking at her March 2014 swearing-in that "each job that is created" helps someone be a better parent, to build stronger community and contribute to a more prosperous nation. She gave an entire speech on inequality that same year.
Information for this article was contributed by Martin Crutsinger of The Associated Press and Christopher Condon and Craig Torres of Bloomberg News.
Business on 06/23/2016