This Is What Yellen Told Congress When Asked If The Fed Is Boosting The Stock Market

Tyler Durden's picture

Today was the second and final day of Janet Yellen's semiannual congressional testimony, after which she was said to have promptly departed to meet her colleagues in Basel, where they the world's key central bankers would meet the outcome of the Brexit vote together on the 18th floor of the BIS tower.

But first she had to slog through three hours of repetitive, redundant, and absolutely meaningless questioning.

Among the highlights was yet another bipolar shift in Yellen's demeanor who after last week's dramatically gloomy - and dovish - FOMC press conference, shifted into optimism mode and said she believes the recent weakness in job creation is "transitory" and does not reflect an otherwise growing economy.  "We are seeing a pickup in growth. There's been a sharp increase in consumer spending," Yellen told the House Financial Services Committee. "I'm very hopeful that we will see a pickup in growth. We will be watching for that as we assess the economy."

Then there was a fiery exchange with Committee Chairman Jeb Hensarling, who aggressively questioned Yellen over why the rate the Fed pays for reserves that banks store at the central bank is higher than the overnight funds rate, saying that the Fed's IOER subsidy which is above the Fed Funds rate violates a congressional statute.

HENSARLING: Today, you are paying 50 basis points on interest on excess reserves. The Fed funds rate yesterday, I believe, is 38 basis points. Is that correct? So, you're paying about a 35 percent premium on excess reserves. You're paying a premium to some of the largest banks in America, is that correct


YELLEN: Well, I consider a 12 basis point difference to be really quite small and in line with the general level of interest rates.


HENSARLING: OK. So, you believe you have the legal authority to do this, otherwise you wouldn't do it, is that correct?


YELLEN: Well, I do believe we have the legal authority to do it.


HENSARLING: Would it be legal for you to pay a 50 percent premium? You're paying a 35 percent premium today. Would it be legal to pay 100 percent premium?

And so on. Then there was the question posed by Rep. Huizenga of stress testing the Fed's $4.5 trillion balance sheet, specifically in the context of the massive duration risk which according to some estimates is about $2.5 billion DV01. To wit:

HUIZENGA: Given your belief in the value of stress testing, would you agree that it also would be appropriate to stress test the Fed's balance sheet with a $4.5 trillion portfolio, to make sure that the risk to the Fed, the treasury and the economy as a whole, if the Fed decides in the future that it's best to shrink its balance sheet faster than it's currently expected?  Do you believe that -- that the Fed is exposed with this $4.5 trillion balance sheet to considerable interest rate duration risk leading to loss of income as you unwind?


YELLEN: It is very unlikely that the Fed would end up with negative income. It is conceivable. There is a scenario in which the U.S. economy grows very strongly, and in order to avoid overheating, the Fed needs to raise short-term interest rates at a much more likely - at a much steeper pace than we consider likely to be appropriate. And in that scenario, it is conceivable that we would end up paying more for reserves than we earn on our -- in our assets. It's very unlikely.

Coming from Yellen, it means it is 100% guaranteed.

We saved the best two exchanges for last. In the first one, Rep. Andy Barr asked Yellen if she has any idea why growth has been disappointing, and if the Fed's constantly wrong growth forecasts are the reason.

BARR: In your prepared remarks, you indicated that business investment was surprisingly weak. Maybe the reason why the Fed is surprised and continued to miss on forecasts. And the Fed as the Washington journal pointed out, estimated 2.4 percent growth in December, that had fallen to 2.2 percent by March. This month, it was down to 2 percent. And it follows the Federal Reserve's consistent record of forecasting error from a standpoint of predicting stronger growth than is actually occurring.... I would like you to comment on that."


YELLEN: Well, growth has been disappointing. I'm not sure of the reason. But our forecasts of the unemployment rate and progress in the labor market have been pretty close. And we have seen a lot of job creation, firms that are doing relatively little investing are doing a lot of - are doing a lot of hiring.

And there's your reason.

However, the best, and last, Q&A was with California Rep. Edward Royce who asked whether the Fed was merely propping up stock prices.

ROYCE: I'm worried that the Federal Reserve has created a third pillar of monetary policy, that of a stable and rising stock market. And I say that because then-Chairman Bernanke, when he appeared here, stated repeatedly that, "the goal of QE was to increase asset prices like the stock market to create a wealth effect." That seems as though that was goal. It would stand to reason then that in deciding to raise rates and reduce the Fed's QE balance sheet standing at a still record $4.5 trillion, one would have to be prepared to accept the opposite result, a declining stock market and a slight deflation of the asset bubble that QE created. Yet, every time in the past three years when there has been a hint of raising rates and the stock market has declined accordingly, the Fed has cited stock market volatility as one of the reasons to stay the course and hold rates at zero. So indeed, the Fed has backed away so many times from rate normalization that - and I think this is a conceptual problem here that the market now expects stock market volatility to diminish the odds of a rate increase. So Madame Chair, is having a stable and rising stock market a third pillar or the Federal Reserve's monetary policy if I go back to what I originally heard Ben Bernanke articulate?


YELLEN: It is not a third pillar of monetary policy. We do not target the level of stock prices. That is not an appropriate thing for us to do.

What Royce, who as noted above remarked explicitly about the "asset bubble that QE created", is talking about is the nightmarish merry go round, first shown here a month ago.

As for Yellen's response, it is not even worthy of a comment.

* * *

The full 3+ hour testimony is below.

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Coldfire's picture

Piled high and deep.

santafe's picture
santafe (not verified) Coldfire Jun 22, 2016 7:32 PM

Agree. Pure manure to fool the American People.

Beam Me Up Scotty's picture

I would have asked her : "is the Feds balance sheet REALLY 4 trillion?? Or is it 40 Trillion??  Or some other number.  How about we audit the Fed to find out??"

pathosattrition's picture

All the world's central bankers in one floor of a Basel building, in a country where automatic weapons are easy to come by... be a shame if something happened.

greenskeeper carl's picture

Im surprised they actually asked her a few good questions. Its like the ghost of congressman paul asked her a couple of them. Good for those reps. I don't often say that.

RaceToTheBottom's picture

Well they could have gotten Maxine Waters in there to lower the curve....

Sewage water is smarter than her.

Squid-puppets a-go-go's picture

this was just a classic 'answer a question that wasnt put to you'

She wasnt asked whether the Fed specifically targets a numerical on the S&P, she was asked if higher stock prices were considered a mandate

answer the question, bitch.

BuddyEffed's picture

The illusion of the stock market underpins many other illusions. Pensions, governments, etc all hinge on stock market in ways.

cheka's picture

frbny has agents (eu, boj, bis, primary dealers etc) and attack dogs (soros, hedgies, etc) in place to do most of the dirty work

scores of them

hag can deny without breaking a sweat

The Saint's picture
The Saint (not verified) RaceToTheBottom Jun 22, 2016 8:28 PM

What Yellen meant to say in that last Exchange:

"It's not appropriate for us to support the stock market but we do it anyway and we'll keep doing it as we see fit, Congressman."

rosiescenario's picture

....we do it because we want to receive gargantuan fees from GS as our "post Fed gift".

MrBoompi's picture

We do it because as employees of a private bank, we follow the wishes of our employers.  Who just happen to be the same people who give orders to you.  

greenskeeper carl's picture

they save her for making excuses for why blacks can't stop shooting each other in disporportionate numbers. She'll come along ansd give us a good quote eventually.

eatthebanksters's picture

I think Janet learned everything about banking from Maxine Waters and her husband.

Phineas J. Whoopie's picture

Gunga Galunga! don't ever jump ship Carl

wanderer9641's picture

It would be a shame if nothing happened


casfoto's picture

Or ask her about the BIS numbers stating that there is a world wide debt balance of $709 Trillion (compare that to the 2008 number of $658 Trillion) and ask her is she trying to save the world or is trying to do her job in saving America (Those that pay her and give her the grand title of Madam Chairman - that in itself is bullshit.) . Too many of her friends are overseas. We, at this point do not care about overseas. Get those interest rates up or there will be hell to pay.You have screwed the middle class way too long.

casfoto's picture

Or ask her about the BIS numbers stating that there is a world wide debt balance of $709 Trillion (compare that to the 2008 number of $658 Trillion) and ask her is she trying to save the world or is trying to do her job in saving America (Those that pay her and give her the grand title of Madam Chairman - that in itself is bullshit.) . Too many of her friends are overseas. We, at this point do not care about overseas. Get those interest rates up or there will be hell to pay.You have screwed the middle class way too long.

JRobby's picture

It's $40t (fully consolidated) follow the $$$$. You will need a team of 2,000 forensic auditors to unravel it.

remain calm's picture

WTF is Congress doing to help the economy. Let me answer? Jack Shit, in fact they are only making it worse, So fuck off you poitico hacks, Go fuck yourself you dishonorable miserable excuse for humans.

BeanusCountus's picture

They can help it, but the best thing they can do is get out of the way. Fed should adjust rates to reflect risk. And then get out of the way. Let people go broke, let companies go broke. Risk premiums will take care of themselves. Lots of short term pain to get there as everything is currently artificial. But when blow down happens real opportunity begins. They all read the same books I did, what makes them think (and complain) that years of supressing natural economic cycles could lead them to any place other than we are?

When Markets Fall's picture

It the vein of Joe Wilson, to Yellen we say: You Lie!

Beam Me Up Scotty's picture

It IS one big lie.  Lets audit the Fed and find out really how big the balance sheet is.  They basically have the power to create INFINITE dollars to keep some assets high (stawks) and some assets low (gold).  Until we know the truth about how much money they have really created, it TRULY IS THE MATRIX!!

ebworthen's picture

Yup, steaming crock of bullshit from the head bankster lackey of the FED.

Why then, were the banks/corporations/insurers bailed out?

Why was Fannie Mae made whole but people evicted?

What stocks is the FED buying Janet?

You lying sack of shit!

OldPhart's picture

I did not watch that video.

I couldn't stand three hours of that voice.

Anything I post below is not derived from watching that video.

knukles's picture

So then Madame Chairperson, you don't target the general level of stock prices?
No, Mr Congressman, we target the speed and trajectory of the rise of stock prices.
And Madame Chairperson, what do you call this strategy?
We call it "Buy the Fucking Dip, Bitchez", Mr Congressman

Wild Theories's picture

YELLEN: Well, growth has been disappointing. I'm not sure of the reason.


That says it all.

knukles's picture


Automatic Choke's picture

Hey knuck.....please go ahead and get started.    I'll go get some popcorn on......


So It Goes's picture

Cognitive dissonance defined.  She can't look in the mirror and say she was at fault.  That would be too dissonant - she would have to commit seppuku

So It Goes's picture

Where is Abareno Shogun when we need him?


The program started in 1978 under the title Yoshimune Hy?banki: Abarenb? Sh?gun (Chronicle in Praise of Yoshimune: The Bold Shogun) who went after rogue Councillors and Daimyo who were abusing their power. 

tricorn teacup's picture

YELLEN: Well, growth has been disappointing. I'm not sure of the reason.

That one statement tells me Yellen knows about as much real world economics as a typical Democrat, nothing or worse than nothing.  The simple fact is the Fed is powerless to produce real economic stimulus.  All they can deliver is amphetimine analogs or other poisons.  Meanwhile other parts of government are strangeling and bleeding the economy.

Arnold's picture



Band aides are cheap.

Bandages are more costly.

Emergency room is 'free'.

Competent surgery is unobtainium.

He had a good run, but in the end it was more cost effective to kill the patient.

It was for the best.

Dickweed Wang's picture

From looking at her I'd say she lost the use of hers about 50 years ago . . . . don't they say that never having sex makes someone crazy??  I rest my case . . .

1980XLS's picture

I'm sure that thing closed and crusted up quite some time ago.

Only Slick Willie could get that thing back in action.

She is hotter than Hillary ya know.

buzzsaw99's picture

not the third pillar, the ONLY PILLAR

Squid-puppets a-go-go's picture

pecisely. How do you call pole-vaulting real estate values as 'price stability' ?

ISawThatToo's picture
ISawThatToo (not verified) Jun 22, 2016 7:37 PM

Banbait #274

Yellen: "We Khazarians support each other, so it is not that we are supporting the stock market, but just selective parts and participants. Participants that know and can recite the Kol Nidre. And when the time comes, we will alert same as to when we will be pulling the plug on the Goy."

Protocols 3:11-12 "11 this hatred will be still further magnified by the effects of an economic crises, which will stop dealing on the exchanges and bring industry to a standstill. We shall create by all the secret subterranean methods open to us and with the aid of gold, which is all in our hands, a universal economic crises whereby we shall throw upon the streets whole mobs of workers simultaneously in all the countries of Europe [The West]. These mobs will rush delightedly to shed the blood of those whom, in the simplicity of their ignorance, they have envied from their cradles, and whose property they will then be able to loot. 12 "Ours" they will not touch, because the moment of attack will be known to us and we shall take measures to protect our own."

abyssinian's picture

Stock market is the only pillar for the Feds.

buzzsaw99's picture

wasn't it just yesterday the fed issues a statement on stock P/Es being on the pricy side? it is the ONLY THING THEY WATCH. i believe that so strongly that i put my money where my mouth is and bought the ATH.

abyssinian's picture

The Feds finally realized that there will be no good ending with the markets, so the Brexit is set up to be blame... 

FreeShitter's picture

Nah too early yet, the blame will be on a country targeted for war. As war is the last tool in the toolbox.

Beam Me Up Scotty's picture

Stawk market IS NOT GOING TO TANK on the first Mullato's watch.  NO WAY NO HOW!!!  No one is going to RUIN his legacy with a stawk market crash right before his term ends.  Bank on it.

Squid-puppets a-go-go's picture

i agree with abyssinian

I think they have now gotten so many convinced Bremain will be rammed through hell or high water, its a perfect time to pull the rug, announce Brexit, pour fuel on the volatility bonfire and announce a rejig of the world order


or else why does kuroda & co happen to be in switzerland as we speak??

Zero Point's picture

We are Goldmans biggest muppet.

ThanksIwillHaveAnother's picture

Someone needs to create a highlights reel.   Can't watch 3 hours!

SillySalesmanQuestion's picture

I'm sure the last three minutes will suffice. Might be good to download and listen to all of it, if you are having a bout of insomnia.