Federal Reserve Chairman Janet Yellen faced a grueling half-day of testimony on "Monetary Policy and the State of the Economy" before the House Financial Services Committee, chaired by Rep. Jeb Hensarling, R-Texas, on July 16.

In opening statements, Hensarling and ranking member Maxine Waters, D-Calif., traded charges that the other was unwilling to legislate. The problem is that they have different agendas. Hensarling wants to reform the Fed, the Financial Stability Oversight Council and other agencies, while Waters blames Hensarling for trying to hamstring the implementation of the Dodd-Frank Act and is eager to move on reauthorizing Terrorism Risk Insurance Act (TRIA) and the Export-Import Bank.

As is the custom, Yellen then repeated the statement she had made at the Senate Banking Committee the previous day. Hensarling criticized Yellen for not agreeing to stay all day, as she did when she gave her first testimony in February, but after that ordeal, Yellen has evidently come to her senses. As it was, she stayed for three hours, and everyone but stragglers got a chance to ask sometimes insightful, but often repetitious, questions.

Hensarling said he is under the impression that while Yellen appears twice before the committee each year, she meets with Treasury Secretary Jack Lew weekly, and he tried to cajole Yellen into agreeing to report the results of those conversations to him. She responded that they meet most weeks "to discuss matters of concern," but she did not show any enthusiasm for reporting back to the committee unless there was a formal agreement on an issue like how to conduct lending programs to divide responsibilities between the two entities, and those are made public.

Finally, Hensarling asked about plans to reduce the size of the Fed's balance sheet to historic levels. Yellen responded that the Federal Open Market Committee is discussing the principles that would govern this, with the intention of disclosing them. However, in an example of her sometimes startling candor, Yellen later told another questioner that the reduction to more normal levels would probably take place in the "distant" future. She could have just said "future," but she served notice that it will not happen anytime soon, and meanwhile the Fed will continue to support the economy by holding a lot of securities in its portfolio.

In response to a line of questions from Rep. Carolyn Maloney, D-N.Y., about plans to raise interest rates when the taper is complete, Yellen said the plan is to begin raising the federal funds rate sometime in 2015, moving toward 1 percent by the end of that year, and the Fed might use the interest rate paid on reserves as another tool for raising rates. However, she stressed that "there is no mechanical formula and no clear date." Maloney did not join Sen. Chuck Schumer, D-N.Y., in jawboning for caution in raising rates, as she has done before, but Rep. Brad Sherman, D-Calif., carried that message.

Another example of Yellen's sometimes startling candor came when she disclosed to Rep. Scott Garrett, R-N.J., that Fed might bail out broker dealers, which Garrett called "quite astounding."
Yellen said, "It depends on the circumstances." She had volunteered to the Senate Banking Committee the previous day that even after the taper is over, the asset purchase program could be reinstated at some future time.

(Archived video, the staff memorandum and Yellen's testimony can be found here.)