As Yellen prepares to start testifying, Philadelphia Fed president Charles Plosser is weighing in on the future of monetary policy, saying the Fed should limit QE to Treasuries (which would mean no more purchases of mortgage-backed securities).
Senate Banking chair Tim Johnson's pre-meeting statement on Yellen: "Dr. Yellen has proven through her extensive and impressive record in public service and academia that she is most qualified to be the next chair of the Federal Reserve."
Some quick Senate banking committee background: It's led by Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID). The Committee is currently made up of 22 Senators; 12 Democrat, and 10 Republican.
Janet Yellen takes her seat; is swarmed by photographers.
Sen. Tim Johnson calls meeting to order. Yellen is beaming as the Senator begins rosy review of her biography.
Johnson says Yellen's economic predictions have routinely been spot on; a "tremendous quality" for a Fed chair.
Johnson says he will vote yes, urges others to do the same.
Sen. Mike Crapo now speaking, wondering "how long is too long" for Fed intervention in the markets.
Crapo: I want to hear Yellen's views on Dodd-Frank.
Markets down uniformly as Yellen begins speaking, though Cisco and Wal-Mart are weighing heavily. (Futures gained last night after her testimony came out).
Yellen now delivering her opening remarks. "The past six years have been challenging for our nation"
Yellen: "Today economy is significantly stronger and continues to improve"
Yellen says housing and auto industries have made impressive comebacks.
Yellen says 7.3% unemployment "is still too high"
Yellen says inflation still below target.
Yellen: Supporting recovery today is best way to have more normal economic policies in the future.
Yellen: Federal reserve has become a more open and transparent institution; I would continue that effort.
Yellen: today, banks are much better prepared to handle "financial turmoil."
Yellen: capital and liquidity rules and strong supervision are "important tools" for institutions that are "too big to fail."
Yellen: Fed has made "significant progress towards its goals but still has work to do."
Questions starting. Sen. Johnson asks how Yellen will help lower unemployment.
Yellen: long spells of unemployment impose great hardship on families. It's "imperative" to do what we can to promote a very strong recovery.
Yellen: we are continuing our asset purchase program (QE); benefits greater than the costs. "We will do what is in our power to ensure a robust recovery in the context of price stability."
Yellen: objective is to get back to full employment while keeping inflation under control. Don't remove support while recovery is "fragile"
Yellen: important to withdraw economic "accommodation" when the time has come and recovery progresses. Needs to come "back to normal" in a "timely fashion."
Sen. Crapo asks about QE continuing: I'm concerned about size of Fed's balance sheet and effect on economy.
Crapo: is QE creating risks in our financial markets?
Yellen responds: these purchases have made a "meaningful contribution" to economic growth based on my research.
Yellen: low interest rates have helped many households no longer be underwater, boosted auto sales, etc
Yellen says yes, QE cannot continue forever to Sen Crapo. We are monitoring it very closely.
Crapo: when will taper start? Yellen: Fed is looking for strong enough growth.
Yellen: "there's no set time" for tapering, but we asses it at each Fed meeting.
Sen. Menendez (D-NJ) asks about weak demand for goods and services.
Yellen: QE should help - creates jobs, incomes rise, more spending takes place.
Yellen: "I don't see risks of financial stability"
Sen. Menendez: how will you monitor asset bubbles?
Yellen: we track asset prices in lots of different sectors to see if there are price misalignments. I don't see evidence at this point in various sectors that prices are at a level that would threaten financial stability.
Sen. Richard Shelby (R-AL): is size of Fed intervention unprecedented? Yellen: yes.
Remember, Shelby voted against her nomination to serve as Fed vice chair in 2010.