Fed's Yellen faces heat from both sides of political divide

By Michael Flaherty WASHINGTON (Reuters) - Tough questions aimed at Federal Reserve Chair Janet Yellen from a rising force in the Democratic Party on Tuesday showed how the U.S. central bank is facing increasing pressure from both sides of the political aisle. "I urge you ... to assess whether the leadership of the Fed's staff is on the same page as the Federal Reserve Board," Senator Elizabeth Warren of Massachusetts said during Yellen's two-hour appearance before the Senate Banking Committee. The hearing, part of the Fed's semi-annual economic and monetary policy report to Congress, came amid rising threats to the central bank's independence. Republicans, now in control of both legislative branches, have been leading efforts to rein in the Fed, but Democrats are pushing for more transparency too. Yellen, who took over as Fed chief just over a year ago, maintained a calm, deliberate demeanour throughout the questioning, which touched upon currency manipulation, insurance regulation and a bill to fully audit the central bank. She was, however, not pressed on when the Fed might raise interest rates amid expectations that it will make the move later this year. Alabama Republican Richard Shelby, who chairs the committee, took an aggressive tack at the start of the session, issuing a statement saying that the Fed had gained "unprecedented power" and needed greater oversight. But in his questions to Yellen, Shelby showed respect and patience. The harshest questioning came from Warren, who has frequently criticized Wall Street and financial regulators and is being pushed by liberal Democrats to run for the presidency in 2016. Warren asked Yellen to explain why the Fed has not honoured her request for a briefing into leaked Fed meeting minutes several years ago, and she took aim at certain statements made by Fed general counsel Scott Alvarez, saying they showed he was critical of parts of the 2010 Dodd-Frank financial reform law. Several times, as Yellen tried to answer, Warren interrupted to demand a simpler response, saying at one point, "we just need a yes or no here." Yellen reaffirmed her strong opposition to the so-called "Audit the Fed" bill before Congress. It is championed by Republican Senator Rand Paul, a likely 2016 presidential candidate, but does not appear to have gained traction with other key Republicans, including Tennessee Republican Bob Corker. During the hearing, Corker said he opposed the bill. Shelby, a frequent Fed critic, has refused to say whether he supports it or not, though he said on Tuesday that Congress could structurally change the central bank if it wanted. Although committee members were largely respectful of Yellen's expertise and standing on Tuesday, she is likely to face a more hostile crowd when she appears in front of the House of Representatives Financial Services Committee on Wednesday. (Reporting by Michael Flaherty; Additional reporting by Jonathan Spicer in New York; Editing by Paul Simao)