Tuesday will mark the first ever testimony to Congress by new Federal Reserve Chairman Janet Yellen. One of the first things Yellen will address is the important contributions of Ben Bernanke as chairman, with accountability and transparency, and a pledge to continue that work.

If any serious surprises are going to come on Tuesday, they likely will be in the question-and-answer period. It is unusual for a new chairman to step in with radical or drastic comments.

The long and short of the matter is that it sounds as the tapering off in the monthly bond buying is likely to continue. The hedge is that decisions about their pace (asset purchases) will remain contingent on the outlook for the labor market and inflation, as well as the assessment of the likely efficacy and costs of such purchases.

Yellen’s outlook and look-back summary is as follows:

• Real gross domestic product (GDP) is currently estimated to have risen at an average annual rate of more than 3.5% in the third and fourth quarters, up from a 1.75% pace in the first half.
• About 1.25 million jobs have been added to payrolls since the previous Monetary Policy Report last July, and 3.25 million have been added since August 2012 (right before asset purchases began).
• The unemployment rate is still well above levels that FOMC participants estimate is consistent with maximum sustainable employment.
• The recovery in the housing sector slowed in the wake of last year’s increase in mortgage rates.
• Inflation remained low as the economy picked up strength — rising only about 1% last year — but well below the FOMC’s 2% objective.

Yellen’s quote for employment and inflation ahead says:

My colleagues on the FOMC and I anticipate that economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 percent over coming years. We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation.

Yellen also said, “Turning to monetary policy, let me emphasize that I expect a great deal of continuity in the FOMC’s approach to monetary policy.” This is actually a very short speech at the testimony, so the Q&A session is where the real meat of the testimony is likely to come.

FULL TESTIMONY

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