Federal Reserve Chair Janet Yellen told the House Financial Services Committee Wednesday that the Fed will look at raising interest rates in 2015 if and as the labor market improves and inflation hits medium-range goals.

Wednesday marks the first of two days of testimony before Congress. Yellen’s prepared testimony mirrored a speech she gave just five days ago.

“In its most recent statement, the (Federal Open Market Committee) again noted that it judged it would be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term,” Yellen told the House committee. “The committee will determine the timing of the initial increase in the federal funds rate on a meeting-by-meeting basis, depending on its assessment of realized and expected progress toward its objectives of maximum employment and 2% inflation.

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy,” Yellen said. “Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end.”

Yellen also said that international concerns could affect the FOMC decision-making, particularly what’s happening with Greece and China currently.

“As always, however, there are some uncertainties in the economic outlook. Foreign developments, in particular, pose some risks to U.S. growth. Most notably, although the recovery in the euro area appears to have gained a firmer footing, the situation in Greece remains difficult,” she said. “And China continues to grapple with the challenges posed by high debt, weak property markets and volatile financial conditions.”

Yellen and the FOMC are leaving themselves wiggle room to adjust to market changes.

“In the projections prepared for our June meeting, most FOMC participants anticipated that economic conditions would evolve over time in a way that will warrant gradual increases in the federal funds rate as the headwinds that still restrain real activity continue to diminish and inflation rises,” Yellen said. “Of course, if the expansion proves to be more vigorous than currently anticipated and inflation moves higher than expected, then the appropriate path would likely follow a higher and steeper trajectory; conversely, if conditions were to prove weaker, then the appropriate trajectory would be lower and less steep than currently projected.”

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, criticized the Fed for its lack of direction and heavy-handed role in the post-Dodd-Frank era.

“During periods of expanded economic growth like the Great Moderation of 1987-2003, the Fed followed a more clearly communicated, understandable, and predictable convention or rule. America prospered,” Hensarling said. “Today we’re left with so-called ‘forward guidance,’ which unfortunately remains somewhat amorphous, opaque, and improvisational. 

“Too often, this leads to investors and consumers being lost in a rather hazy mist as they attempt to plan their economic futures and create a healthier economy for themselves and for us all,” he said.

He also raised the issue of the Fed’s lack of accountability and transparency, as well as its interference in the market creating or enabling greater moral hazards.

“Next, we in Congress would be grossly be negligent if we do not engage in greater oversight of the Federal Reserve System. Again, Dodd-Frank confers sweeping new powers on the Fed to regulate and control virtually every corner of the financial services sector of our economy, completely separate and apart from its traditional monetary policy role,” Hensarling said. “Yet too often, the Fed appears to shield these activates from public view and improperly cloaking them behind monetary policy independence.

“Second, the Fed has now employed historically unprecedented methods – from intervening to prop up select credit markets, to paying interest on excess reserves, to keeping interest rates near zero for almost seven years. By doing so the Fed has certainly blurred the lines between fiscal and monetary policy,” he said.

Rep. Maxine Waters, D-Calif., raised the specter of race and gender gaps in economic process. She said that despite the gains the economy and American companies have made since the financial crisis, the recovery during the Obama administration hasn’t been broad based.

“But these improvements do not paint a picture of an economy that has fully recovered. The gap between communities of color and women versus their white, male counterparts remains dramatic. A lackluster first quarter and a strong dollar – coupled with economic instability and slowing growth abroad – have sapped momentum for job creation and economic expansion here at home,” Waters said in prepared remarks.

She urged caution in raising rates.  

“As such, I hope the Board of Governors will continue its slow and cautious approach to raising interest rates. Chair Yellen, as you know, raising rates does not itself create a strong economy – it is a strong economy that must be the impetus for raising rates,” Waters said.

Yellen’s full prepared testimony can be read here.

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