In two key respects, Thursday's confirmation hearing of Federal Reserve chairman-designate Janet Yellen before the Senate Banking Committee was perfectly unsurprising. First, through her temperate demeanor and command of the many issues facing the central bank, Yellen lived up to her billing as a first-rate academic economist with the personal qualities necessary to lead the Fed's sometimes contentious board.
Second, to the extent she expressed any policy views, they were broadly consistent with her reputation as what you might call an evidence-based monetary dove. She conceded that the Fed's controversial asset-purchasing strategy, known as quantitative easing, can't go on forever. But citing persistent high unemployment, she added that "supporting the recovery today is the surest path to returning to a more normal approach to monetary policy" in the long run. "I believe it could be costly to withdraw accommodation or to fail to provide adequate accommodation," she noted.
If there was any surprise, or disappointment, in the proceedings, it was the committee's performance. The biggest question likely to face Yellen during her prospective four-year term is how much longer to continue unconventional policies and how to unwind them when the time comes. A close second, in our view, is the future of the Fed's efforts to manage market expectations through public statements and other communications -- efforts with which Yellen has been closely associated intellectually but which went awry over the summer when Chairman Ben Bernanke first raised, then dashed, investors' expectations of a slowdown in asset purchases.
Yet the senators' questions emphasized the Fed's role as a bank regulator -- an important topic, to be sure, but also one with respect to which the Fed does not have unique responsibility, as it does regarding monetary policy. In any case, several committee members seemed to view regulatory matters disproportionately from the perspective of their home-state interests.
There's a limit to how much Yellen -- or any other nominee -- could have committed herself on any subject; within those prudential constraints, she tried to be as forthcoming as possible. Still, there's a striking contrast between the vast power the Fed necessarily assumed to prevent the collapse of the U.S. economy half a decade ago and the little we know specifically about how and why Yellen will exercise that power.
Thursday's hearing included many allusions to the potential pitfalls of quantitative easing: a possible regressive impact on wealth distribution; a possible encouragement of asset bubbles; a possible negative impact on savers greater than its benefits to job-seekers. It produced little in the way of definitive answers to these concerns, beyond reassuring the public that Yellen is well aware of the risks the Fed is taking and well-equipped, by experience and intellect, to weigh them against potential benefits.
In short, the Fed has taken the country into uncharted waters, but no one could be better positioned than Janet Yellen to figure out how to sail through them.