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What would Janet Yellen do?

By
Terry Keenan
Published Nov. 9, 2013, 11:14 p.m. ET

It’s happened only twice in the past 26 years, but this week Americans will get to watch as the Senate Banking Committee grills someone who is poised to become the most powerful woman in the nation and the second-most powerful person in the country.

The person on the hot seat will be Janet Yellen, the woman President Obama has tapped to become the 15th head of the nation’s central bank and someone whose power over the nation’s economy will extend well after the president has left office.

So what should the senators ask the Brooklyn-born professor?

Question 1. With the stock market at record highs and the Fed’s money-printing machine stuck in overdrive, why is consumer confidence at a two-year low, back at levels not seen since December 2011, when the Dow Jones industrial average was trading nearly 4,000 points lower than it is today?

Question 2. Since consumer-confidence surveys generally track the stock market (and often include the level of stock prices as a key measurement component), what’s out of whack now?

Question 3. Where’s the so-called “wealth effect”? While stocks are at record highs, consumers remain cautious. A survey last week released by Edward Jones showed that 76 percent of those asked say they will spend the same or less on holiday shopping than they did in 2012. Meanwhile, exit polls from Tuesday’s elections in New Jersey and Virginia show a majority of voters don’t see the economy improving. In the Garden State, home to the largest number of Wall Street workers outside of New York, 6 in 10 voters report the economy is in “bad shape.”

Question 4. What would a Yellen Fed do if the exuberant stock market of 2014, a market that has marked 37 new highs for the S&P 500 since January, began to crater? Print more money to buy even more bonds? Fed Chairman Ben Bernanke is handing his successor an almost-empty arsenal.

How Yellen might deal with a slowing economy and a bear market in stocks should be at the top of the agenda during this week’s hearings, especially since it’s not unusual for a freshman Fed chief to be shaken by a crisis n the early days.