WASHINGTON – Over two days of testimony to Congress, Federal Reserve Chair Janet Yellen was grilled on everything from the direction of interest rates to the health of the economy to "Audit the Fed" legislation supported by Republicans.
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On some topics, Yellen shed light. On others, she didn't or couldn't provide guidance on the Fed's thinking or likely actions in the months ahead.
Here are three things we heard from Yellen's testimony.
— SHE SEES A STEADILY GAINING ECONOMY
Yellen noted the economy's consistent improvement since she last testified to Congress in July. At 5.7 percent, the unemployment rate is moving close to the Fed's target range of 5.2 percent to 5.5 percent. She noted that job gains have picked up significantly, to a monthly average of 280,000, compared with 240,000 in the first half of 2014. Other gauges are also showing strength, including a steady drop in the number of Americans who have been unemployed for more than six months.
— AREAS OF WEAKNESS REMAIN
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Yellen pointed to areas of disappointment. She noted that housing construction remains weak, with the pace of building well below levels that could be expected given population growth and the likely rate of household formation. The Fed is also dissatisfied with wage growth, though Yellen said it foresees improvement as a healthier economy leads employers to raise pay to fill vacancies. Though the Fed historically tends to worry more about prices rising too fast it is now concerned that inflation is dipping further below the 2 percent target rate that it sees as consistent with a strong economy.
— 'PATIENT' STILL THE WATCHWORD
Because of the tepid pay growth and excessively low inflation, Yellen said the Fed can remain "patient" in deciding when to finally start raising a key interest rate, which it's kept at a record low near zero for six years. Yellen repeated the explanation she used in December: That "patient" means no rate increase for at least two meetings. But she added that even after "patient" disappears from the Fed's policy statement, it won't mean a rate increase is necessarily imminent. Rather, the Fed will begin to consider a possible rate increase on a "meeting-by-meeting" basis. Flexibility will remain paramount.
Among the lingering unknowns:
— TIMETABLE FOR RATE HIKE
Yellen offered no further clarity on the issue of most importance to investors: When the first rate hike will occur. She did say Fed officials will need to see further improvement in the job market and become "reasonably confident that inflation will move back over the medium term toward our 2 percent objective."
The requirement for rising inflation may prove the tougher hurdle. That's because many economists think inflation is likely to fall further below the 2 percent target in coming months as the effects of lower gas prices and a stronger dollar work their way through the economy. Many economists think Yellen's testimony has ruled out a rate hike before June. And some now say the most likely date for the first hike has slipped to September or possibly even later this year.
— FUTURE OF FED INDEPENDENCE
Yellen faced sharp questioning from Republicans, especially on her second day of testimony Wednesday before the House Financial Services Committee. They say they're unhappy with the increased power the Fed has exercised since the 2008 financial crisis and Great Recession, after which it deployed unprecedented actions to try to boost economic growth.
Conservative lawmakers are pushing two bills that would subject the Fed to greater congressional control. An "Audit the Fed" bill would expand the authority of congressional auditors to review actions involving interest rates.
A second bill would require the Fed to follow a rule for setting rates and explain any deviations from applying that rule. Yellen dismissed both measures, saying the audit bill would subject the Fed to political interference and calling the rules measure unworkable.
Republican lawmakers countered that Yellen, the first Democrat to lead the Fed since 1987, was too close to the Obama administration.
Yellen will likely face continued pressure from Republicans, who now control both the House and the Senate, to justify the Fed's independence.