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Notes from the Hill: Yellen Testimony

The Semiannual Monetary Policy Report to the Congress

Russell McIntyre    |    Housing Policy

Federal Reserve Chairwoman Janet Yellen spent two days delivering testimony on The Semiannual Monetary Policy Report to the Congress following the Fed’s latest policy meeting. Her testimony before the Senate Banking Committee and the House Financial Services Committee was closely watched by market industries both domestically and internationally. Ms. Yellen discussed the overall state of the economy as well as more specific issues including, but not limited to, the Brexit, banking regulations, monetary policy and cyber security in the financial services arena.

Ms. Yellen highlighted several domestic economic trends since 2010, showing that the U.S. labor market has added more than 14 million jobs while the unemployment rate has fallen to 4.7 percent, representing a more than 5 percentage point decrease from its peak following the financial crisis. However, the Fed chief also acknowledged that recent overall economic growth has been disappointing. U.S. inflation-adjusted GDP is estimated to have increased at an annual rate of just .75 percent in the first quarter of this year. In addition, there has been a recent slow-down in employment growth with just 38,000 jobs added last month.

Despite this recent data, Ms. Yellen was optimistic that second quarter GDP growth would be promising, pointing to specific indicators that show an increase in consumer spending, disposable income and household wealth. Those indicators, coupled with lower mortgage rates, have also contributed to a slow, but steady recovery in the housing market. While these trends were positive, Ms. Yellen acknowledged the need to ensure that the effects of an economic expansion are equally felt in minority communities across the country.

With respect to global economic trends, Chairwoman Yellen believes that favorable international monetary policies will contribute to an uptick in global economic growth in the coming years. However, she also pointed to indicators that suggest lingering international economic uncertainty. There has been depressed foreign growth by countries like China, and the energy sector has felt the impact of declining oil prices since summer 2014. There has also been widespread concern about the potential economic impact of the “Brexit” – the United Kingdom’s exit from the European Union.

Ms. Yellen stated that Brexit could lead to a period of uncertainty or even global financial market volatility, but that there is no way of knowing for certain what the short-term or long-term impact would be. She carefully and directly articulated that the Fed will closely monitor the situation and react accordingly. Since the United Kingdom’s vote on June 24th, the Fed has decided to temporarily halt any further increases to its benchmark interest rate, instead focusing on ensuring access to liquidity in the volatile international financial markets.

Ms. Yellen discussed other actions the Fed may take in the near future, including the addition of more stringent bank capital requirements. Specifically, she indicated that the Fed could require the biggest banks to increase their balance sheets if they fail to shore up their “living will” plans. Right now, the Big 5 have until summer 2017 to make changes to their plans to safely unwind in the event of a failure. The Fed chief was confident that banks will submit acceptable plans on time, stating there will be consequences if they do not.

Lawmakers were concerned with what the Fed’s plans were to address serious cyber security threats around the world. Following the recent cyber attack on the central bank of Bangladesh’s account at the New York Fed and cybersecurity breaches at the Fed board in Washington, many members of Congress aimed to understand the scope of the Fed’s existing security vulnerabilities and what is being done to address them. Ms. Yellen reassured members that the Fed is working to fully understand past breaches and is engaging with partners to strengthen security mechanisms and standards that are currently in place.

At CoreLogic Government Affairs, we will continue to monitor actions taken by the Fed as they relate to our business and customers. Monitoring domestic and international economic trends, regulatory developments, changes to monetary policy, and efforts to protect sensitive data are essential to operating in an increasingly complex and connected global environment.



Arjun Malhotra is a contributing author and visiting scholar tasked with tracking and reporting on events and legislation impacting CoreLogic industries and clients. He will be assisting the CoreLogic Government Affairs team by providing additional research throughout the summer.

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