Besent Hearing Sparks Fireworks: Denies Tariffs Causing Inflation, Reaffirms Strong Dollar, Calls Out Federal Reserve, Criticized as Trump’s Lackey

Wednesday, February 4, Eastern Time, U.S. Treasury Secretary Janet Yellen attended a hearing before the House Financial Services Committee, where lawmakers engaged in heated exchanges over various policies of the Trump administration, making the entire process “sparking with sparks.”

During the more than two-hour hearing, Yellen faced intense questioning from Democratic members, with both sides fiercely debating tariffs, Federal Reserve independence, financial regulation, and other policies. The atmosphere was highly tense, with Maxine Waters, the Democratic leader of the Financial Services Committee, at one point directly telling Yellen to “shut up,” and Gregory Meeks from New York accusing her of acting as Trump’s “lapdog.”

Yellen firmly defended the Trump administration’s “growth-promoting” policy agenda, emphasizing that tariffs would not cause inflation. This statement immediately drew strong dissatisfaction from Democratic members.

On the issue of Federal Reserve independence, Yellen showed a contradictory stance, supporting the Fed’s independence in monetary policy while emphasizing that such independence is based on public trust and requires accountability. She stated:

“I believe in the independence of the Federal Reserve, but I also believe in accountability.”

When asked whether she would advise Trump to “intervene verbally and politically” in Fed decisions, Yellen responded, “That’s his right,” and also that of all the House members present. She added, “Congress has not appropriated funds to the Fed. The Fed has magical funds, it prints its own money.”

Yellen said the Fed should remain independent in monetary policy but should be responsible on other issues, including making political statements or when costs exceed budgets. She argued that the Fed’s independence is based on trust with the American people, and during Biden’s administration, the Fed’s allowance of the worst inflation in 49 years has eroded that trust.

When Democratic member Ritchie Torres asked whether the President has the constitutional authority to dismiss the Fed Chair or Board members solely due to policy disagreements, Yellen refused to give a clear answer, saying, “I’m not a lawyer, I have no opinion on that,” and that the government should wait for the Supreme Court to rule on such matters. She stated:

“I do believe the Fed must maintain credibility, like Caesar’s wife—above reproach.”

Strong Dollar Commitment: Reaffirming Traditional Position but Policy Consistency in Question

Regarding exchange rate policy, Yellen reiterated to the House Financial Services Committee, “We always support a strong dollar policy.” This statement was consistent with her previous stance, and the dollar’s value remained largely unchanged after her comments.

Illinois Democrat Bill Foster pointed out that during every Republican president’s term, two things happen: the dollar weakens and manufacturing jobs are lost, whereas under Democratic administrations, the opposite occurs. Foster said the U.S. is becoming like Europe with high tariffs.

Yellen countered, saying Foster was using foreign rhetoric, and stated, “I can’t just snap my fingers and create factories,” but noted that factory construction is ongoing.

Media opinion suggests that Yellen’s reaffirmation of support for a “strong dollar policy” is less influential than during the globalization boom of the 1990s and early 2000s. Since the first Trump administration in 2017, through Biden’s term to now, the U.S. has shifted toward protectionist policies favoring weaker exchange rates.

Yellen told lawmakers that despite the rhetoric of “selling off America,” U.S. Treasury bonds still attracted record foreign inflows last year. She expects the 10-year U.S. Treasury yield to continue declining and considers this an important indicator of success.

Market Comments and Regulation: Defending Trump’s Posts, Criticizing Past Policies

During the hearing, lawmakers mentioned that Trump posted on his social media last year that it was a good time to buy shares of Trump Media & Technology Group (DJT), which surged that day, adding billions to its market value.

Democratic Rep. Al Green asked Yellen whether she thought an investigation was warranted into this event. Yellen responded that no investigation was needed because the statement was widely circulated. Green argued that for any other president, such behavior would be considered some form of “scam,” and at least should be investigated, claiming, “He is actually manipulating the U.S. stock market.”

On financial regulation, Yellen criticized previous regulatory actions as “reactive regulation rather than crisis prevention,” accusing regulators of playing the role of “dangerous goods cleanup crews” rather than preventing risks from spreading from the start. She blamed the previous administration for diverting attention from safety and sound regulation to climate and reputation issues, implying this led to the bank failures of 2023.

Yellen described Biden’s cryptocurrency policy as “extinction.” When asked whether the U.S. Treasury has the capacity to “rescue Bitcoin,” she said she has no authority to use taxpayer funds to buy Bitcoin. Reports indicate some Republicans, including Senator Cynthia Lummis, hope Yellen will buy Bitcoin by selling some of the U.S. gold reserves.

Regarding the Stablecoin legislation (Genius Act), Yellen said it could become “a key feature of U.S. government financing,” as stablecoin assets would be allocated in short-term government debt or similar instruments.

When lawmakers mentioned Central Bank Digital Currencies (CBDC), Yellen responded that the government is not currently considering creating a CBDC, and she believes the Federal Reserve is not considering doing so either.

Housing and Community Banks: Focus on Affordability, Call for Tailored Regulation

On housing affordability, Yellen highlighted that the premium of mortgage-backed securities over Treasuries is at its lowest in years, noting that the 10-year yield has fallen last year. She hinted that the government is still considering ending the regulatory oversight of Fannie Mae and Freddie Mac.

Yellen told Texas Republican Pete Sessions that the U.S. needs to get small banks back into the mortgage market, calling it a “tragedy” that the average age of first-time homebuyers has reached 40.

When Democrat Sylvia Garcia questioned how immigration affects the $500,000 home prices, Yellen said that increased demand from immigrants “transmits upward” and pushes prices higher, especially rents. She cited a study from Wharton School linking increased immigration during Biden’s term to rising housing and rent prices. Garcia also pointed out that immigrants are building many new homes.

Regarding community bank regulation, Committee Chair and Arkansas Republican French Hill said regulation has made community banks “too small to succeed.” Yellen agreed, emphasizing that “thriving community bank infrastructure and ecosystems are vital,” and called for “tailored” regulation, arguing small banks should not face the same rules as large banks.

Yellen repeatedly reaffirmed her “Main Street first” philosophy, stating it is about making Wall Street serve Main Street, not the other way around. She mentioned that The Wall Street Journal once attacked her as a populist for saying “it’s the people’s turn,” and she responded that the paper is called “The Wall Street Journal,” not “The People’s Journal.”

Democrats accuse Yellen of shielding Trump; hearing becomes chaotic

The hearing quickly turned fiery from the opening round. Besides Waters’ demand for Yellen to “shut up,” the most intense questioning came from Gregory Meeks from New York.

Meeks probed into a large investment by an Emirati company in Trump family’s World Liberty Financial cryptocurrency project, while Trump was engaged in diplomatic negotiations with the UAE.

Meeks claimed “this raises national security concerns,” and demanded Yellen promise to strengthen review of any bank license applications related to World Liberty Financial. He then shouted at Yellen: “Don’t be his (Trump’s) lapdog! Stop covering for the President! Don’t be his lapdog!” He also called on Yellen, as Treasury Secretary, to “serve the American people.”

Due to the heated exchanges, Chair Hill had to remind lawmakers and Yellen multiple times to follow House decorum rules, limiting questions to five minutes. He clearly tried to ease the tension after Meeks’ questioning, but with limited success.

Massachusetts Democrat Stephen Lynch’s confrontation with Yellen showed she had become quite adept at countering political opponents. When Lynch tried to shift to another topic and have a serious discussion, Yellen almost whispered, “Questions must be serious.” Later, she told the loudly speaking Lynch, “Can you speak louder? I can’t hear you.”

California Democrat Juan Vargas expressed disappointment in the hearing, criticizing Yellen for making defamatory and reckless remarks about Democrats, calling it “basically a waste of time” and damaging national confidence. He said, “I won’t ask any questions,” and told Yellen he thought “that would be pointless.” Vargas added that he believes Yellen has the capacity, but her performance this Wednesday was not optimal.

Yellen responded that she had a good dialogue with sometimes fiery Rep. Green, “regrettably, not all conversations can be like that.”

Missouri Democrat Emanuel Cleaver tried to de-escalate, saying, “You can’t honey and sting at the same time.” However, Yellen remained firm when answering Cleaver’s questions about the Fed, reaffirming her stance on independence and accountability.

Illinois Democrat Sean Casten referenced a letter he wrote in January 2024, stating tariffs could trigger inflation. Yellen replied, “If I was wrong, I want to correct that. I was also wrong in saying tariffs might cause inflation.” This contradictory statement further fueled Democratic doubts about her policy consistency.

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