By Pam Martens and Russ Martens: July 15, 2015

Fed Chair Janet Yellen cannot possibly be looking forward to her 10 a.m. testimony before the House Financial Services Committee today. Her last rendezvous with that Committee in February saw tempers flare and angry questioning from both Democrats and Republicans.

At times in February, the typically mild-mannered Yellen answered questions curtly and at one point rolled her eyes at questioning from Congressman Scott Garrett (R-NJ). Garrett insinuated that Yellen has politicized her office by meeting so frequently with President Obama and Treasury Secretary Jack Lew.

Congressman Michael Capuano (D-MA) grilled Yellen about the living wills coming out of the too-big-to-fail banks. Capuano read from a statement by FDIC Vice Chair, Thomas Hoenig, which said these living wills “provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support.”

Capuano crisply told Yellen “if they don’t meet your requirements at the third try, what you said is…something along the lines that you’d be upset.” Yellen responded that what she had said was “we will find them to be not credible if we do not see progress…” Capuano interrupted curtly: “Would you break them up?” Yellen responded that the banks would have two years to show that they had made changes.

Capuano retorted: “So five years after Dodd-Frank, they still have potentially three years before there are any serious consequences to prove to you that they no longer offer a threat to the entire U.S. economic system.” Yellen said the Fed had put higher capital standards in place. Capuano responded that these capital standards have been found lacking by everyone who has studied the matter “except the Fed.”

Financial Services Committee Chairman Jeb Hensarling is expected to go on the attack this morning over the Fed’s refusal to respond to a subpoena from his Committee over an information leak at the Fed dating back to 2012.

The leak involves a very brazen newsletter, published by Medley Global Advisers, which reported on October 3, 2012 what the Fed minutes were going to reveal the following day.  One revelation from the newsletter referred to continued large bond purchases by the Fed as follows: “Tomorrow’s minutes will reference a staff paper that concludes the market has capacity to absorb purchases this large for a period of time.” When the Fed released its minutes the next day, it included just such a finding.

Congress is not happy about the way the Fed handled its internal investigation into the leak and its non-responsiveness to Congressional inquiries into the matter.

At 8:30 a.m. this morning, the Fed released the testimony that Yellen will deliver to the House today. On the status of the labor market, Yellen will tell the Committee:

“…monthly gains in nonfarm payroll employment averaged about 210,000 over the first half of this year, somewhat less than the robust 260,000 average seen in 2014 but still sufficient to bring the total increase in employment since its trough to more than 12 million jobs. Other measures of job market health are also trending in the right direction, with noticeable declines over the past year in the number of people suffering long-term unemployment and in the numbers working part time who would prefer full-time employment. However, these measures–as well as the unemployment rate–continue to indicate that there is still some slack in labor markets. For example, too many people are not searching for a job but would likely do so if the labor market was stronger. And, although there are tentative signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack.”

Yellen will also say that “Business investment has been soft this year, partly reflecting the plunge in oil drilling. And net exports are being held down by weak economic growth in several of our major trading partners and the appreciation of the dollar.”

Yellen will continue her long-running refrain that the effect of dollar appreciation against other currencies which is blunting export growth and the economic impacts from the plunge in oil prices “should diminish over time.” Yellen, again, offers no reasoning or logic for this position as a worldwide oil glut shows no signs of dissipating.

On the situation in Greece and China, Yellen will tell the Committee:

“…although the recovery in the euro area appears to have gained a firmer footing, the situation in Greece remains difficult. And China continues to grapple with the challenges posed by high debt, weak property markets, and volatile financial conditions. But economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for U.S. economic activity.”

As to when the first rate hike can be expected, Yellen will say:

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end. But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time.”