Yellen Maintains Support for Central Bank Independence, Banking Regulations

In a four-hour hearing Wednesday, Federal Reserve Chair Janet Yellen defended the central bank's dependence from Republican lawmakers calling for significant changes in the Federal Reserve's operations and regulatory oversight.

Republicans adamantly challenged the way Yellen has handled the economy and her leading role in implementing the 2010 Dodd-Frank Act - which the Trump Administration has vowed to overhaul – and reminded the chairman of Republicans' control of Congress.

"After eight years there is zero evidence that zero interest rates and a bloated Fed balance sheet lead to a healthy economy," House Financial Services Chairman Jeb Hensarling, R-Texas, told Yellen. "Clearly, American have a newfound expectation that our economy will grow healthier with different policies coming out of Washington."

Hensarling hinted his support of legislation that would minimize the Fed's independence by requiring a numerical formula for setting interest rates. In addition, interest rate decisions would undergo audit by the Government Accountability Office, the "congressional watchdog" that investigates how the government spends taxpayer dollars.

Opposed to both proposals, Yellen said that when discussing interest rates the central bank considers various formulas, though no single formula offers the flexibility needed for a final decision. She also argued that auditing would crimp the independence needed to pursue correct policies.

"I think central banks all over the world have recognized that an independent central bank that can focus on the long-term health of the economy ... gives rise to a better economic environment," Yellen said.

Turning to monetary policy, Yellen repeated the testimony provided the day prior to the Senate Banking Committee, indicating that the Fed will likely accelerate increases if the labor market stays on course and inflation continues toward the Fed's 2% target. The central bank has implemented two quarter-point interest rates over the past two years.

Though Democrats voiced support for Dodd-Frank regulations, Yellen agreed with GOP lawmakers that the provisions are burdensome for community banks, and therefore in need of modification. However, she voiced her favor of requirements set for large banks – in terms of increasing capital the amount of capital they should hold and subjecting them to annual stress tests. The GOP urged Yellen to delay further bank regulations until President Trump names a replacement for Daniel Tarullo, the Fed's leading official on bank regulations. Tarullo is leaving his post in early April.

Tarullo's departure marks the third vacancy on the seven-member board. As President Trump acts to fill these spots, Republicans said they expect favorable changes in policy.

While GOP lawmakers blamed a sluggish economy on the Fed's ultra-low interest rates and massive bond buying following the 2007-2009 recession, Democrats argued that circumstances would have been worse without the Fed's support.

U.S. Households Take-on Heaviest Debt Since 2008

According to the NY Federal Reserve's quarterly report, household debt rose by $226 billion in the fourth quarter of 2016, marking the largest quarterly jump since the comparable quarter of 2013. The U.S. total is now a staggering $12.58 trillion, the biggest number since 2008. For the year, U.S. household debt surged $460 billion, the biggest increase in a decade, and has nearly returned to the peak level before the global financial crisis.

Mortgages and auto loans were the biggest contributors to quarterly household debt, which was also weighed by credit cards and student loans. Interestingly, bankruptcies and foreclosures hit an 18-year low in the fourth quarter of 2016.

Notably, since the crash of the housing market, mortgages have accounted for a smaller share of overall loans.

"Since reaching a trough in mid-2013, the rebound in household debt has been led by student debt and auto debt, with only sluggish growth in mortgage debt," Wilbert van der Klaauw, a New York Fed senior vice president, said in the report.

Though home mortgages, which comprise about three-fourths of total household debt, rose $231 billion last year, the serious delinquency rate held steady at 1.6 percent in the second half of 2016, compared to 4.7 percent in the peak quarter. Seriously delinquent debt is defined as being 90 days or more past due.

Auto loan balances continued their steady rise and auto loan originations for 2016 reached a new annual record in the 18-year history of this data series, jumping $93 billion last year.

Student loan debt of $1.31 trillion marks an increase of $78 billion from a year ago – student loan balances have risen every year for the last 18 years. In a troubling trend, the serious delinquency rate is now more than 11 percent, compared to eight percent in late 2008.

Credit card balances increased by $46 billion, and the aggregate credit card limit increased for the 16th consecutive quarter, with a serious delinquency rate of just above seven percent.

U.S. Shale Producers Hit Export Milestone as OPEC Cuts Production

U.S. oil producers are capitalizing on the recent moves by OPEC to cut back production. Last week, U.S. producers exported a record seven million barrels of crude to the world market, a figure that was nearly identical to the decrease in OPEC's production numbers.

Industry analysts suggest that this move makes sense, and it could also signal an emerging trend in the global oil industry. With OPEC nations limiting production, some analysts believe that the U.S. and its shale production operations could capture a more significant portion of the world export market moving forward. For reference, the one million barrels produced per day last week represented an increase of nearly 100 percent week-over-week.

"We're raising our output and it has more than a parochial impact. It's not so much that it makes the U.S. inventories unwieldy. It's that it adds to the global inventory," Tom Kloza, head of global energy research at Oil Price Information Service, told CNBC. "That really is the concern in the global oil market. We tend to import the medium and heavy [grades of crude]. I'm sure most of the exports are light sweet oil."

Energy analysts were taken aback by the record export levels, which has averaged 685,000 barrels a day over the past four weeks, but most aren't yet willing to call this high output sustainable for U.S. exports.

The swell in production didn't just affect the international market. The Energy Information Administration's weekly inventory data showed that U.S. oil stockpiles also swelled to a record high last week, reaching 518.2 million barrels. Gasoline inventories were also up to a new record of 259.1 million barrels, marking an increase of 2.8 million barrels.

John Kilduff of Again Capital told CNBC that China will likely be a major destination for U.S. barrels moving forward, owing to its recent purchases of U.S. shale operations. Per a report on Reuters, as many as seven million barrels were lined up and heading to Asia in recent months, with two million chartered to China in December by PetroChina and Unipec.

"It's incredible that we were able to put 9.5 million barrels into storage last week, while exporting a million barrels a day," Kilduff noted.

Even with the rising exports, the U.S. continues to import a massive amount of crude oil. Last week, the country imported 7.5 million barrels, down from 8.8 million the week prior. This figure could see additional decreases in the future. The U.S. government expects shale production to rise by 80,000 barrels a day next month, with forecasts calling for overall oil production reaching 9.5 million barrels a day next year. These increases are being driven by the ongoing OPEC cutbacks, as well as the stabilized prices of more than $50 per barrel.

"The infrastructure continues to get built out to export more and more crude oil. Not only have we built pipelines, but we built more export terminals. The industry continues to add infrastructure to support more exports," Andrew Lipow of Lipow Oil Associates told CNBC.

Dollar Weakened by Uncertainty over U.S. Rate Hike

The dollar fell against a basket of major currencies today amid lower U.S. bond yields and continued uncertainty over the timing of the Federal Reserve's next interest rate hike. The drop comes after a winning streak during which the greenback climbed to a five-week peak versus the euro and a 2-1/2 week high against the yen.

Analysts are now scaling back bets surrounding a rate hike following Fed Chair Janet Yellen's economic testimony before Congress earlier in the week. Traders suggest that she "didn't deliver enough conviction" to support a rate increase at the Fed's next meeting on March 14-15. Despite this sentiment, Yellen did signal that two rate increases could be in the cards for 2017 as the economy continues toward full employment and inflation approaches the Fed's two percent goal.

"The dollar rally that preceded Yellen's testimony wasn't given more fuel so we are seeing that move fade," Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago, told Reuters.

On the flipside, reduced expectations about a rate increase and a decline on U.S. equity indexes played a role in reviving investors' appetites for U.S. Treasuries, with benchmark yields dipping below 2.5 percent.

Following Yellen's suggestion that two rate increases could be upcoming, other Fed officials, including Fed Vice Chair Stanley Fischer and New York Fed President William Dudley, emphasized that the overall path of further rate rises would be gradual, as previously suggested.

According to interest rate futures, traders put the odds of a rate increase in March at roughly 22 percent, a steep drop from 31 percent earlier this week, as measured by CME Group's FedWatch tool.