Yellen Stands by Fed Strategy

WSJ: Janet Yellen, the White House's nominee to run the Federal Reserve, suggested she would stick to plans to wind down the central bank's $85 billion-a-month bond-buying program in the coming months if the economy perks up.

Fed officials are trying to decide "at each meeting" whether the moment is right to begin trimming the bond purchases, she told members of the Senate Banking Committee at a hearing on her nomination to succeed Chairman Ben Bernanke, whose term ends in January. "There is no set time," Ms. Yellen said.

The Fed's next meeting is Dec. 17-18.

With those and other carefully crafted comments on a variety of policy issues, Ms. Yellen signaled a plan for continuity at the Fed and passed her first leadership test without alienating two key audiences: the lawmakers quizzing her, and financial markets.

The Dow Jones Industrial Average finished the day up 54.59 points, or 0.35%, at 15876.22. Yields on 10-year Treasury notes edged lower to 2.702%.

"The prospective Fed chair gets an A for showing her depth of knowledge while at the same time showing an adept skill for communicating well under pressure while conveying the sense of continuity that markets expect during the transition ahead," Tony Crescenzi, a senior strategist at bond-fund manager Pimco, said after the hearing.

Republicans, though skeptical of the Fed's easy-money policies, treated the Democrat with almost uniform deference.

"That was a better answer than I got from Chairman Bernanke last July," Sen. Dean Heller (R., Nev.) said after Ms. Yellen responded to a question about gold-price movements by saying people like to hold gold when they become fearful of financial turbulence. "I asked [Mr. Bernanke] the same question, and he said that nobody really understands gold prices," Mr. Heller said.

The committee plans to vote on Ms. Yellen's nomination as soon as next week. She is expected to then win confirmation from the full Senate, though some Republicans are likely to vote against her, including Sen. David Vitter (R., La.), who said Thursday that he wouldn't support her.

Ms. Yellen, now the Fed's vice chairwoman, served as head of the Council of Economic Advisers under President Bill Clinton, president of the Federal Reserve Bank of San Francisco and as a professor at the University of California at Berkeley. If confirmed, she would be the Fed's first female chief.

Her husband, George Akerlof, a Nobel Prize-winning economist and also a Berkeley professor, sat behind her during the hearing. Mr. Akerlof is a visiting economist at the International Monetary Fund whom she drops off at work every morning on her way to the Fed. Mr. Akerlof, who is sometimes seen walking the IMF halls in hiking boots, showed up for the hearing in dress shoes.

Ms. Yellen dressed in a black suit and came armed with a handful of notes and a black satchel at her side. She spent much of her testimony, with hints of her Brooklyn accent, tackling senators' questions about bank capital, insurance regulation, asset bubbles, income inequality and other subjects.

Ms. Yellen, who is known at the Fed for her preparation, spent several weeks boning up for the hearing and met most members of the committee privately beforehand. Sen. Bob Corker (R., Tenn.) said he was impressed that her answers in public were the same as her answers behind closed doors.

One of the primary points of scrutiny at the hearing was the Fed's bond-buying program. The central bank began telegraphing in May that it could begin winding down the program before year-end. That caused stock and bond prices to sputter, and the Fed balked at moving in September.

When officials launched the initiative last year they said they would keep it going until they saw substantial improvement in the labor market. The officials have been hinting for several months that the economy may be getting to a point where it doesn't need the additional fuel of Fed money-printing.

Ms. Yellen stuck to that line of thinking without being definitive. The nominee said at the hearing that the decision about winding down the program depended on how the economy performs. "We have seen meaningful progress in the labor market," Ms. Yellen said. "What the [Fed] is looking for is signs that we will have growth that's strong enough to promote continued progress."

She also repeated the Fed's message that even after the bond program ends, it will keep short-term interest rates near zero for a long time because the bank doesn't want to remove its support too fast.

Critics have questioned the benefits and worry it could fuel higher inflation or financial-asset bubbles.

Ms. Yellen said the benefits still exceed the costs and dismissed worries of a stock bubble. "Stock prices have risen pretty robustly, but I think that if you look at traditional valuation measures…you would not see stock prices in territory that suggests bubblelike conditions," she said.

Not everyone was reassured. "I think the economy has gotten used to the sugar you've put out there. And I just worry you're on a sugar high," said Sen. Mike Johanns (R., Neb.), expressing concern about bubbles in stocks and real estate.

When asked about the problems the Fed's low interest-rate policies are causing for older Americans living on fixed-income portfolios and earning small returns, she sought to turn the question around.

"Savers wear a lot of different hats," she said. "They may be retirees, who were hoping to get part-time work in order to supplement their income. They may be people who have children who were out of work, and who were suffering because of that." She said Fed policies were helping those people by supporting economic growth and hiring.

Write to Jon Hilsenrath