Addressing that issue “has to be among the most important goals of the post-crisis period,” she said. “ ‘Too big to fail’ is damaging, it creates moral hazard, it corrodes market discipline, it creates a threat to financial stability, and it does — unfairly, in my view — advantage large banking firms over small ones.”
A committee vote on Yellen’s nomination could come as early as next week, according to a congressional aide. The panel appears almost certain to send it to the full Senate for consideration.
However, at least one Republican senator on the committee, David Vitter of Louisiana, said Thursday that he will oppose her confirmation.
“Unfortunately, none of her answers were reassuring to me,” Vitter said on Fox Business Network. “I am very concerned about just the free-money policy with essentially no end in sight.”
President Obama nominated Yellen for the top job at the Fed last month after facing backlash from his own party and several key Republicans over his first choice for the position, former Treasury Secretary Larry Summers. Nearly two dozen Democrats signed a letter over the summer supporting Yellen for the job instead.
“Dr. Yellen has proved 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,” committee chairman Sen. Tim Johnson (D-S.D.) said Thursday.
Yellen, who currently holds the No. 2 position at the Fed, has been credited with sounding early alarms about the run-up in housing prices before the market collapsed. She said Thursday that the Fed should use its supervisory powers over financial firms to ward off bubbles but left open the possibility of raising interest rates in extraordinary cases.
“As a first line of defense, we have a variety of supervisory tools, micro- and macro-prudential, that we can use to attempt to limit the behavior that is giving rise to those asset price misalignments,” Yellen said. But, she added, “I would not rule out using monetary policy.”
Lawmakers also attempted to pin down a timeline for when the Fed might begin scaling back its $85-billion-a-month stimulus effort. When the central bank signaled that it could begin dialing back the program this year, stock prices plunged and a range of interest rates shot up. The Fed has since retreated from those statements.
Yellen defended the move as necessary so the Fed could assess how the rise in rates would affect the housing market, which is playing a critical role in the recovery. She said the Fed considers market conditions but is not beholden to them.
“I don’t think that the Fed ever can be or should be a prisoner of the markets,” Yellen said.
Although Yellen received some tough questions from lawmakers, the hearing was not contentious by Washington’s standards. Lawmakers even found some moments for levity, including an acknowledgment by Sen. Charles E. Schumer (D-N.Y.) of the home town he shares with Yellen.
“I think you’ll make a great chair,” he told her Thursday. “Your Brooklyn wisdom shines through.”
Yellen replied: “I never forget my roots.”