Yellen to defend Fed’s stimulus policies

Janet Yellen, President Obama's nominee to succeed Ben Bernanke as Federal Reserve chairman, will defend the Fed's controversial stimulus policies at her confirmation hearing Thursday, according to her written testimony.

"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," Yellen will say in her opening statement to the Senate banking committee, which was released Wednesday afternoon.

Yellen is known as one of the Fed's most "dovish" policymakers — meaning she has placed more emphasis on reducing unemployment than in staving off eventual high inflation.

Committee Republicans are expected to argue that the Fed's $85 billion in monthly bond purchases will stoke inflation in future years while providing steadily diminishing benefits to the economy.

In her statement, Yellen says that current conditions support the Fed's stimulus.

"We have made good progress, but we have farther to go to regain ground lost in the crisis and the recession," her statement says. "Unemployment is down from a peak of 10%, but at 7.3% in October, is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2% and is expected to continue to do so for some time."

She adds: "For these reasons, the Federal Reserve is using its monetary policy to promote a more robust recovery."

Yellen is also expected to support strengthening regulation of large financial institutions to reduce the threat of another financial crisis, but not at the expense of hindering small banks.

Beefing up oversight and requiring banks to hold more capital to protect against possible losses "are important tools for addressing the problem of financial institutions that are regarded as 'too big to fail,' " her statement says.

"In writing new rules, however, the Fed should continue to limit the regulatory burden for community! banks and smaller institutions, taking into account their distinct role and contributions."

Yellen also noted that she has led a Fed effort to more clearly communicate with the public, including setting a 2% goal for annual inflation.

The goal "has helped anchor the public's expectations that inflation will remain low and stable in the future," her statement says. "In this and many other ways, the Federal Reserve has become a more open and transparent institution. I have strongly supported this commitment to openness and transparency, and will continue to do so if I am confirmed and serve as chair."

Yellen is expected to be confirmed by the Democratic-controlled Senate before Bernanke steps down in January.

Some Republican senators, including Sen. Rand Paul, R-Ky., and Sen. Lindsey Graham, R.-S.C., have threatened to block her nomination, but Democrats are expected to join with a handful of Republicans to remove the block.