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As Yellen Faces Senators, Here's What To Watch For

The Fed has left its benchmark short-term rate at a record low near zero since December 2008. It's said it plans to keep it there at least as long as unemployment exceeds 6.5 percent. Last week, two Fed economists produced papers suggesting that the 6.5 percent threshold should drop a¿¿ to 5.5 percent or less. Doing so would signal to the public that the Fed would likely keep its benchmark rate low even longer than many assume.

Some economists now predict that at its March meeting, the Fed will say it's reducing its threshold for any increase in short-term rates to an unemployment rate of 6 percent.

a¿¿ DUAL MANDATE

Though she'll take care to sound evenhanded, look for hints that Yellen thinks maximizing job growth is a more urgent priority now than the Fed's other duty to keep prices in check.

The dual mandate can be tricky: It can tug the Fed in opposing directions. To maximize employment, the Fed would normally lower rates. Conversely, to avert high inflation, it would seek to raise rates to slow growth.

Two Republicans on the Banking Committee, Sens. Bob Corker of Tennessee and David Vitter of Louisiana, support legislation to limit the Fed to just one mandate a¿¿ guarding against high inflation.

Yellen and other Fed officials who back Bernanke's approach have argued that a still-subpar economy means the Fed must focus on boosting growth. They note that inflation remains well below the Fed's 2 percent target even while unemployment remains high.

President Barack Obama has expressed his desire to maintain the dual targets. In accepting Obama's nomination in October, Yellen perhaps tipped her hand about which of the mandates should take priority now: "Too many Americans still can't find a job and worry how they'll pay their bills," she said.

a¿¿ RISKS OF FED BOND BUYING

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