Fed nominees promise they learned from crisis

NEW YORK (CNNMoney.com) -- President Obama's three picks for seats on the Federal Reserve Board of Governors told lawmakers Thursday that they would implement lessons learned from the financial crisis.

The Federal Reserve nominations hearing seemed to take a backseat to a sweeping financial reform bill Thursday, which the Senate is expected to vote on within hours. In fact, Senators flitted in and out of the room throughout the hearing, with even the committee chairman Chris Dodd leaving shortly after opening testimonies.

The hearing was meant to give lawmakers the opportunity to interview the three nominees, including Janet Yellen, Obama's pick to serve as vice chairperson of the Federal Reserve -- second in line to Chairman Ben Bernanke.

Peter Diamond, a professor at the Massachusetts Institute of Technology and Sarah Bloom Raskin, the Maryland Commissioner of Financial Regulation, are also up for seats on the board and answered senators' questions.

All three promised to be strong bank regulators, implementing policies that come from lessons learned in the financial crisis.

Yellen, who currently serves as the president of the San Francisco Federal Reserve Bank, also told lawmakers that while the Fed had been monitoring rising housing prices long before the market collapsed, the bank failed to see the crisis coming.

"We failed completely to understand the complexity of what the impact of a national decline in housing prices would be in the financial system. We saw a number of things and we failed to connect the dots," she said.

Going forward, Yellen said, job creation needs to be one of the central bank's top priorities.

If Yellen, Diamond and Raskin are confirmed by the Senate, Obama will have nominated five of the seven members on the Fed's Board of Governors. All three of the nominees are often seen as inflation "doves," meaning they would prefer to promote economic growth than focus on the threat of inflation.

But in the hearing, Yellen said she is "wholeheartedly committed" to the goal of price stability. Referring to the Fed's current policy of low interest rates, she said "when the appropriate time comes, we must withdraw the extraordinary monetary accommodation now in place in a careful and deliberate fashion."

The central bank has kept its fed funds rate near zero since December 2008, in an effort to spur economic activity and a recovery. Robust economic growth in the first few months of the year led some economists to criticize the Fed's continued low rates, but recent reports have shown the recovery may be loosing steam, giving the central bank further incentive to keep rates low for an extended period.

The hearing comes just one day after the Federal Reserve lowered its outlook for the economy, saying it expects unemployment will stay between 8.3% to 8.7% next year.