Fed Chair Janet Yellen and her colleagues for quite some time have been bemoaning the low levels of business investment.
Pressed Thursday to explain why this has been the case, the central bank chief told Congress she wasn't sure, but she denied it had anything to do with the Fed's cheap-money policies of the past eight years.
"It's not clear in my mind why it is that investment spending has been as weak as it is," she told the Joint Economic Committee. "Initially, we had an economy with a lot of excess capacity. Firms were clearly operating without enough sales to justify a need to invest in additional capacity, and more recently with the economy moving toward full employment, we would expect to see investment spending pick up, and it's not obvious exactly why it hasn't picked up."
Sen. Bill Cassidy, R-La., suggested that the fault may lie in what the Fed has done. Specifically, he pointed to the central bank's quantitative easing measures that saw the Fed's balance sheet surge to $4.5 trillion largely on three rounds of bond buying.
Faced with the uncertainty of returns from capital expenditures and the near-certainty of returns on assets like stocks and bonds during what Cassidy called "easy money" QE programs, businesses opted for the latter, he said.
"I wouldn't agree that the Fed's monetary policy has hampered business investment or been a negative factor," Yellen responded. "I'm not aware of any evidence that suggests that it is."
She explained that productivity has been on the decline since companies started reversing bare-bones employment levels during the financial crisis. However, that has not been met with business investment, in part because companies don't believe it "will produce returns that justify those investments," Yellen said.