Transcripts For BLOOMBERG Market Makers 20140507

The joint Economic Committee, consistent of what we saw from the recent fed statement. She says the economy is starting to improve after the First Quarter as bad weather, but also says a high degree of monetary compensation is needed. Changes that the fed has put in place. She also talks about Financial Stability, addressing concerns about possibly bubble starting to form. To me walk you through what she had to say. She said the firstquarter slowdown was mostly due to transitory factors like the weather. She says many indicators indicating a rebound in spending is underway, putting the overall economy on solid track for growth. She goes on to say labor Market Conditions have improved appreciably but still far from satisfactory. She also talks about the stagnant wages out there, another indication, she says, of slack in the economy. Says risks,es three geopolitical problems. She does not say ukraine directly, but you can infer that is what she is talking about. She also points to the recent numbers in housing as being a cause for concern. She goes on to talk about the four guidance changes, the likelihood that rates will remain low for some period to come. She says finally, on the topic of Financial Stability and bubbles, she says she says, basically, federals in place, including the stress tests, make her feel better about the risk of bubbles, a direct sponsor to criticism she will be getting from the chairman of the panel, kevin brady of texas. They will talk about their causes of concern. Far. Not go too i want to bring in our own economic editor Michael Mckee with the real deal. And the head of u. S. Economics at renaissance research. Nothing really new. This is exciting tv, lets try again. The economy will not be that exciting. Riod. E in a normalizing pe what shelen is doing needs to do, reiterate that the fed will be slowly exiting. Nothing to suggest the baseline path of policies will change, tapering in 10 billion increments. The caution of the Housing Market is interesting. We have seen purchasing applications slowly start to come up, but at best, the Spring Season will be a slow grind up. Do you believe growth this year will be faster than last . Probably. Which is not saying much. 2014, evenstory for the worstcase consensus is better than what we did last year. Is interesting is not her economic forecast, she is not saying anything new. Nuance on the Housing Market, but she has apparently taken on board a lot of the market criticism of the way the fed has addressed their Communications Strategy and the idea of Financial Stability concerns which was a focus of the ongoing fed governors speech last night. She addresses though and does not give any different answers. She says this is what we have done and it has been good. I know a lot of people would disagree with that. As far as Financial Stability is concerned, she takes that on board in her comments. That is what stein and others have been pushing for, but the fed has to want out of what happens in the markets, what their policies are doing to markets, and whether they distort them. For says some yield reach for yield behavior may be evident. Hasnt it been happening for months now . If you look at the last fomc minutes, they talk about high valuation of smallcap equity. They have been underperforming broad equity markets. Look at the highyield market. There is some of this going on the Financial Stability is one of these interesting things. A strengthening economy also help stability. It is a secular thing. Circular thing. At the moment, there is no broadbased bubble in capital markets. You see some swaps showing the behavior, others are not. So long as that is the case, though systemic financial risk. She knows valuations remain at historical norms in the equity market as a whole, so nothing untoward at this point. That would make for exciting tv. Know what yellin has decided to say, even if her remarks are not track exactly along with her prepared testimony, how will lawmakers respond and treat her in the q a portion of the hearing . One thing that is striking from the testimony is how she anticipates the likely criticism to come mainly from republicans on the panel. And they are starting to taper, moderate quantitative easing, that is less other criticism from republicans, so they are starting to talk about other things, or dissipation rates in the Unemployment Rate, bubbles, so she devotes more of her testimony to address those issues. About, whytalked arent you moving back to a more rulesbased approach to when it comes to Monetary Policy . You can expect she will get deferential treatment from this committee. Chairman brady of texas has been a wellknown, polite fed critic, and is not afraid to call it like he sees it, and he will do that in his opening statement. He will all but suggest wall street is doing fine under janet yellen but main street continues to be hurt. One thing that is interesting to hear, if the question was posed why does the fed still think accommodation is necessary . Today we talked to a number of bond strategists and they basically say neither qe, treasury buying or bombarding, or Forward Guidance, are having an impact on rates anymore, so why continue to do this, why stretch it out, why keep rates low . What are you a publishing . It just so happens we have an excerpt of that conversation with David Einhorn on that issue of race towards the zero bound and continued quantitative easing. I want to keep an open mind here. I saw her speak at the Economic Club of couple weeks ago and was impressed by the speech. Have a base expectation, things change, and we will change our policy. I thought that was good. She said i do not look at one economic factor to drive things, i will look at all the factors. The way she is approaching problems conceptually is very good. I would love to see if she has a better reason why rates should at zero and the stage of the economy, but you take these things and she where she goes. She has get just gotten started. Coming up on janet yellen has just taken her seat. Very briefly, if there is continued slack in the labor economy, labor market, and we see a reach for yield happening and janet yellen is pointing to weakness in the Housing Market, shouldnt those kinds of criticisms should we expect those kinds of criticisms to intensify . What is the benefit of continuing quantitative easing at this point . I think it is slowly happening, you see some differentiation by industry in the labor market. Seeing high wages, others not, but broadly speaking, wages remain weak. Gap, isls me the output still wide. Year, then of the output gap will probably be closed. Then the markets will enter the nine month window for the rate hike. Although it is not a coincidence that the rate is closing while we also have this happening. The exit has begun. Coincidence, i think not. We have to take a break. When we come back, we will be neilMichael Mckee and dutta. You are watching Market Makers. Welcome back to market here on bloomberg television. As you can see, janet yellen prepared to speak in washington. While we await her remarks, its also talk about the other minor that has Financial Markets abuzz. Filing from chinese ecommerce giant alibaba dropped last night. Cory johnson is in san francisco. He has not had any sleep. I know that you were up all night long digging through it. Share with us the highs and lows. I was, in fact, up really early this morning reading this. It is a fascinating company. The big numbers are the big news here. This is a giant, very profitable business. Over a billion in revenues last year. We do not know about fourth quarter. This is not in the filing. Nearly 3 billion in revenue in the most recent quarter. Just as interesting is the profits from the business. This is a massively profitable business. In the last quarter of their filing, 57 net margins. He attack of profits here a lot of free cash flow. From a financial standpoint, it is growing fast. Revenue is nearly doubling yearoveryear. Profits doubling yearoveryear, that is. Just an impressive growth story, an impressive profit story, the likes we have rarely seen. And now the low points. Governance issues continue to be an issue. The wayypal business, that a lot of their payments are made on the alibaba platform, was taken out of it. They blame the chinese government, but the fact is, the shareholders of this company are not getting the assets. Even though they have a significant minority ownership, ownership. Majority you also have this weird structure that these Chinese Companies has worthy asset value by the shares in does not control all the company, only some of the assets are held overseas, the rest are in china and shareholders do not have a right to that. Add to that the on structure of the board which does not allow individual votes on who the Board Members are. All of that takes away the possibility of having good troll of the assets and Board Members, which is fine when things go great, but if there is a problem, shareholders will not have the records they do in u. S. Listed companies. You poured over the details last night looking for these outstanding issues. When it comes to pricing this deal, do you think potential investors will go through all of this, or simply, it is alibaba, they will all want in . , the smart ones will read it and we know who will be left standing when the market stops going up into the right. Certainly, the lemmings will be involved. You have every bank under the sun in this deal. The numbers are very strong, but there is a little bit of uncommon things. We will see how much stock get out there. Also, we will see how long this will take. Firstquarter numbers are not in this filing. We can make some presumptions. What is suggest to us is there will be updates along the way. This ipo process may take many months. We will see if the market can support such a big deal in the fall. I know alibaba and amazon are not copper and copies of each other, but people will inevitably be make comparisons between the two. How is it that alibaba has a net margin of 57 , when amazon has a net origin of less than half a percent . Differente very businesses, principally, because alibaba does not take ownership of the stuff they are selling. It is much more like ebay in that regard. The goal of global domination of commerce from amazon, and alibabas goal has been different. Companies like amazon have not been able to participate as much. Lock on thehad a second biggest economy in the world, and that has been their great benefit. Thanks for your insight this morning, cory johnson. York, we are waiting for Janet Yellens opening statement. We will go to capitol hill after a quick break. Stay with us. You are watching Market Makers on bloomberg tv. Welcome back to Market Makers. The vice chairman of the joint Economic Committee concluded momentarily her opening statements. We will hear from fed chair janet yellen any moment. You can see chairman brady saying a few words. He for janet yellen begins, neil dutta, what is the one thing she does not want to do today . Screwup. What would constitute a screwup . Ben tapered tantrum, a la bernanke last year. One of the reasons that Housing Market is in trouble. So slow and steady has to be her style . How does she avoid that . Hopefully, she has been well coached on the questions not to suggest anything other than what fed policy has been. Remind us again what bernanke said. He basically made the point that the rate of asset purchases would go down that year. By the way, that did happen. Yellen has begun her testimony before the joint Economic Committee of congress. Policyg with monetary before turning to some issues regarding Financial Stability. The economy is continuing to recover from the steep recession of 2008 and 2009. Real Gross Domestic Product growth stepped up to an average annual rate of about 3. 25 over the second half of last year. A faster pace than in the first half, and during the preceding two years. Although real gdp growth is currently estimated to have paused in the First Quarter of i see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather. With the harsh winter behind us, many recent indicators suggest that a rebound in spending and ,roduction is already underway putting the overall economy on track for solid growth in the current quarter. When cautionary note is readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching. Conditions in the labor market have continued to improve. The Unemployment Rate was 6. 3 1. 25 Percentage Points below where it was a year ago. Moreover, painful Payroll Employment average 200,000 jobs a month over the past year. During the economic recovery so has Payroll Employment increased by about 8. 5 million jobs since its low point. And the Unemployment Rate has 3. 75 Percentage Points since its peak. While conditions in the labor market have improved appreciably, it is still far from satisfactory way. Even with its recent declines, the Unemployment Rate continues to be elevated. Moreover, both the share of the labor force that has been unemployed for more than six months, and the number of individuals who work parttime but would prefer a fulltime job , are at historically high levels. In addition, most measures of Labor Compensation has been rising slowly. Another signal that a substantial amount of slack remains in the labor market. ,nflation has been quite low even as the economy has continued to expand. Some of the factors contributing to the softness in inflation the the past year, such as declines in nonoil import prices , will probably be transitory. Important they, measures of longer run Inflation Expectations have remained stable. That said, the federal open Market Committee recognizes that inflation persistently below two percent, the rate that the Committee Judges to be most consistent with its dual mandate , could pose risk to economic performance, and we are monitoring inflation developments closely. Economichead, i expect activity will expand at a somewhat faster pace this year the last year, that Unemployment Rate will continue to decline gradually and that inflation will begin to move up towards two percent. A faster rate of Economic Growth this year should be supported by reduced restraint from changes in fiscal policy. Gains in Household Net Worth from increases in home prices and equity values affirming our in Economic Growth and further improvements in household and Business Confidence as the economy continues to strengthen. Moreover, u. S. Financial conditions remain supportive of growth and Economic Activity and employment. Considerable uncertainties surround the space line Economic Outlook. Currently, one prominent risk is that adverse developments abroad , such as heightened geopolitical tensions or an intensification of financial stresses in emerging market economies could undermine confidence in the Global Economic recovery. Another risk, domestic in origin, is the recent flattening out of housing activity, could prove more protracted than currently expected, rather than resuming its earlier pace of recovery. Both of these elements of uncertainty will bear close observation. Turning to Monetary Policy, the Federal Reserve remains committed to policies designed to restore labor Market Conditions and inflation to levels consistent with those that the Committee Judges to be consistent with its dual mandate. Willways, our policy continue to being guided by the evolving economic and financial situation, and we will adjust the stance of policy appropriately to take account of changes in the Economic Outlook. In light of the considerable degree of slack that remains in labor markets, and continuation of inflation below the committees two percent objective, a high degree of monetary accommodation remains warranted. With the federal funds rate, our traditional policy tool near zero since late 2008, we have relied on two less conventional tools to provide support for the economy, asset urges his and Forward Guidance. Because these policy tools are less familiar, we have been especially attentive in recent years to the need to communicate to the public about how we intend to employ our policy tools in response to changing economic circumstances. Our Current Program of asset purchases began in september 2012, when the recovery had weakened, and progress in the , and werket had slowed said that our intention was to continue the program until we saw substantial improvement in the outlook for the labor market. By december 2013, the committee judged that the cumulative progress in the labor market orientated a modest reduction in the pace of asset purchases. At the first three meetings this that our assessment was there was sufficient underlying strength in the broader economy to support ongoing improvement in labor Market Conditions, so further measured reductions in asset purchases were appropriate. I should stress that even as the committee reduces the pace of its purchases of longerterm securities, it is still adding , and thoseings sizable holdings continued to put significant downward pressure on longerterm interest ,ates, support Mortgage Markets and contribute to favorable conditions and broader markets. Policy toolrtant has been Forward Guidance about the likely path of the federal funds rate as the economic recovery proceeds. Beginning in december 2012, the committee provided thatholdbased guidance turned him poorly the on the behaviors of the Unemployment Rate. As you know, at our march 2014 meeting with the Unemployment Rate nearing the threshold that had been laid out earlier, we undertook a significant review of our Forward Guidance. While indicating that the new guidance did not represent a shift in the fomcs policy intentions, the committee laid out a fuller description of the framework that will guide its policy decisions, going forward. Specifically, the new language explains that as the economy expands further, the committee will continue to assess both the realized and expected progress toward its objectives of maximum employment and two percent in late inflation. In assessing that progress, we will take into account a wide range of information, including measures of labor Market Conditions, indicators of inflation pressures, and Inflation Expectations, and readings on financial developments. April,h, and again last last month we stated we anticipated the current target range for the federal funds rate would be maintained for a considerable time after the Asset Purchase Program ends, especially if inflation continues to run below two inflationnd provided expectations remain well anchored. The new language also includes information on our thinking about the likely path of the policy rate after the committee decides to begin to remove policy accommodations. In particular, we anticipate that even after employment and inflation are near mandate consistent levels, economic and financial conditions may, for some time, or rent heaping the target federal funds rate below levels that the Committee Views as normal in the longer run. Because the evolution of the economy is uncertain, policymakers need to carefully watch for signs that it is diverging from the baseline outlook and responded in a systematic way to stabilize the economy. Accordingly, for both our purchases and our forward , we have tried to communicate as clearly as possible how changes in the Economic Outlook will affect our policy stance. In doing so, we will help the public better understand how the committee will respond to unanticipated developments, thereby reducing uncertainty about the course of unemployment and inflation. In addition to our Monetary Policy responsibilities, the Federal Reserve works to preserve Financial Stability. Focusing on identifying and monitoring vulnerabilities in the Financial System and taking actions to reduce them. In this regard, the committee recognizes that an extended period of low Interest Rates has the potential to induce investors to reach for yield by taking on increased leverage, duration risk, or credit risk. Behaviorh for yield may be evidence, for example, in the lower rated corporate debt markets, where issuance of syndicated leverage loans and high yield bonds has continued to expand briskly. Spreads have continued to narrow , and underwriting standards have loosened further. While some Financial Intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date, particularly at the largest banks and life insurers. More generally, the valuation for the equity market as a whole , and other broad categories of assets, such as residential real estate, the main within historical norms. In addition im a Bank Holding Companies have improved their and raisedositions capital ratios to levels significantly higher than prior to the financial crisis. For the Financial Sector more broadly, leverage remains subdued, and measures of shortterm funding continued to be far below levels seen before the financial crisis. The Federal Reserve has also taken a number of regulatory steps, maybe in conjunction with other federal agencies, to consider continue to improve the resiliency of the Financial System. Most recently, the Federal Reserve finalized a rule implementing section 165 of the. Enhanced, to establish credential standards for large banking firms in the form of riskbased and the leveraged capital, liquidity, and Risk Management requirements. In addition, the rule requires large foreign banking organizations to form a u. S. Intermediate holding company, and it him poses enhanced Credential Holdings for these immediate holding companies. Looking forward, the Federal Reserve is considering whether additional measures are needed to further reduce the risks associated with large, interconnected financial institutions. Where we have seen substantial improvements in labor Market Conditions and the overall economy, since the financial , weis and severe recession recognize that more must be accomplished. Many americans who want a job are still unemployed. Inflation continues to run below the fomcs longer run objectives , and work remains to strengthen our Financial System. I will continue to work closely with my colleagues and others to carry out the Important Mission that the congress has given the Federal Reserve. Thank you. I will be pleased to take your questions. I would like to get a clearer picture of the feds comprehensive exit strategy in a number of areas. Assuming the Economic Projections old, can we expect qb bond purchasing to end sometime this fall . We have indicated that as long as we continue to see improvements in the labor market , and we believe the outlook is for continued progress, and as long as we continue to believe and see evidence that inflation will move back up over time to our two percent longer run objective, we anticipate continuing to reduce the pace of our asset purchases in measured steps, so the answer is yes. If something were to change notably about the outlook, we would reconsider that plan. If those conditions hold, we would continue on our current course. It to my leave colleagues to ask about the notably different changes. Holds 4. 7t, the fed trillion dollars on the Balance Sheet, extraordinarily large. When do you expect to begin normalizing the size of the feds Balance Sheet, is there a number of years . When we completed the Asset Purchase Program, the committee indicated that it expects that it will be a considerable time before we again to normalize policy in the sense of beginning to raise our target for shortterm Interest Rates. Size,t is the appropriate is there an appropriate size for the feds Balance Sheet . Numbernnot give you a that would be an appropriate size. The committee anticipates that the Balance Sheet over time will move down to substantially lower than it is now. Whether it will ultimately return to precrisis levels is ething that we will remain something that we will determine as we gain experience with exit. One way that we are likely to turn to, to normalize the size of our Balance Sheet, eventually when be to cease reinvestment and printing of principal assets come due. The committee has not given definite guidance about when it would take the step of stopping reinvestments of maturing. Rincipal eventually as he come closer to normalization, i expect we will give such guidance. On normalizing Interest Rates, when do you expect that to begin, assuming the feds economic ejections hold . What we have said in our most recent guidance is that, in when that time is at howwe will be looking much progress we have actually made in coming close to our mandate from congress to obtain maximum employment and inflation thewo percent, and will in pace at which we expect progress, going forward. The committee indicated that at the time the Purchase Program ends, it thinks it will be a considerable time beyond that, before it will be appropriate to begin that process. The reason is, under its toeline outlook, it expects need to see further progress in the labor market, and has emphasized the level of inflation will also matter. If the feds Economic Projections hold, what is that range . Say, you will begin normalizing Interest Rates in 2015, would i be wrong . There is no mechanical formula or timetable for when that would occur. Know that you work through your projections, going forward, and certainly, if those were to hold, you have some range of time that you would begin the process. What range is that . The committee has simply said a considerable time, without mechanically stating when that time interval is. This willre to say begin normalizing in 2016, would i be wrong . There is no specific timeline for doing that. Individual members of the federal open Market Committee, months, every three provide their own forecasts for how they see the economy evolving under appropriate , and thatolicy becomes a basis for discussion in the committee. You can look at those projections that include individual participants, expected payouts. For normalization, you would see in 2015 ors believe, 2016, normalization would begin under their baseline outlook. To put it in perspective, what range of years could we expect the target rate to reach two percent, for example . Is ithink the answer depends on the evolution of the economy. Ist we are focused on adjusting our Monetary Policy in light of incoming evidence about the evolution of the economy granted, obviously come all economicepends on performance. Given your Economic Projections, how far are we looking at to move about halfway back to normalization . Give youraid i cannot a timetable, but the committee did try to, in its recent statements in march and april, provide some guidance to the public about the pace at which it expects shortterm rates to increase once the process has started. What they said is they think it will take some time, even after the economy is, in a sense, functioning normally. Namely, operating at full employment, inflation around two percent. They think it is likely that it will take some time to come back to normal or historically average levels of Interest Rates. Shortterm Interest Rates, they normal levels based on history, something on the order of four percent. They have indicated that they believe it will take some time to reach levels like that. I would emphasize that is a forecast, not a promise. We have had headwinds that have acted on the economy, headwinds in the global economy, and perhaps a slowdown in the pace of growth in the economy. Those are some of the factors lead them to believe a gradual pace of interestrate increases will prove appropriate. Fed hold 1. 6 trillion Mortgage Backed securities, a large amount. Assuming the feds Economic Projections hold, when do you expect to begin moving them back into the market, reverse repos, or other approaches . I do worry, i think there will be political resistance when you take no steps. What years will you see that occurring . That we doindicated not intend to sell Mortgage Backed securities from our except perhaps when very small, are would eliminate some residual holdings. Eventually and the committee has not decided on the timing of we are likely to see a reinvestments of rentable principal. At that point, our holdings of mortgagebacked securities would begin to decline over time as le matures. It would take some years for our holdings to diminish. On bank reserves, 2. 6 trillion dollars, is for many, including me, potential fuel for inflation. When the economy strengthens and banks into new to lend, we hope sooner rather than later, to keep inflation in check, will you raise reserve requirements or the rate of interest paid on reserves . Do you have a view at this point . It is my expectation when the time comes to raise shortterm Interest Rates, we will certainly raise the Interest Rate that we pay on excess reserves and are likely to use a number of complementary tools that we have developed, including our toolkit includes overnight reverse repos, deposit facility, we will use those tools to push up the general level of shortterm Interest Rates, but interest on reserves will be a cute tool that we will be using. What impact will that have on Economic Growth . We will only be taking that step when we have judged that the economy is strong enough, that Economic Growth is sufficient, the labor market has recovered enough, and inflation is moving back toward the percent. Theill have judged that time is appropriate to tighten financial conditions in order to make sure that we do not overshoot our inflation. Bjective and so the effect that it will have on the economy is to , to makethe economy sure we do not allow inflation to rise above our longerterm objectives. Will conclude with this. I have served on the committee in the early to mid2000, and your highly respectable predecessor sat there and assure the committee that maintaining Interest Rate for an extended period would not cause general Price Inflation or an unsustainable asset bubble which did not prove to be the case. For the credit fueled when the credit fueled housing bubble burst, your predecessor assured resultingtee that the weakness would be confined to the subprime segment of the Housing Market and damage would be limited to about 150 billion, roughly the cost of the s l crisis. Following the financial crisis in 2008, we were repeatedly assured the fed had a strategy Balance Sheetss or normalize policy, including the fed fund. The goal posts have been moved time and again, and now removed. Today, you have assured the committee once again and i appreciate your testimony that the fed is confident it can exit without sparking high inflation. But that we cannot know the , butls or the timetable and fomc have it essentially handled. I do not expect the fed to be perfect. Yours is a tough job, theres is a tough job. It strikes me, over time, this dont worry be happy monetary message is not working, at least in my view, certainly not for the economy at this point. I know my colleagues will ask about in todays wall street they make a point about financing budget deficits with centralbank money avoiding inflation. I wear with a track record of central banks, including the fed, in identifying these economic turning points and acting quickly to avoid inflation, that track record is not as good as we would like. So forgive me for being skeptical. I believe we need more specifics and a clear timetable on the comprehensive exit strategy. With that, again, thank you for being here. Vice chair klobuchar. As the chairman was talking about Forward Guidance policy, in the past it was about raising the Interest Rate, the 6. 5 on a blended rate, and now the fed says we will consider a wide array of Economic Indicators and not just the Unemployment Rate. The question you about this with the other indicators, but could you tell me what you see the benefits of this new approach, and what are the drawbacks of moving away from an exact number . Explain about the number, the 6. 5 . Arrived at that number at a time when the Unemployment Rate was around eight percent. We were very far from what you would call full employment. Hich is our goal we wanted to indicate to markets that we would need to see a lot of improvement in the labor market, and assuming inflation was under control, before we would dream about raising our target for shortterm Interest Rates. To make that clear, we took the number 6. 5 . Not,lt confident we would if inflation was under control, consider it appropriate to begin the process, as long as the Unemployment Rate was over 6. 5 . The gap would be sifted weficiently wide, something should not consider as a possibility. So we gave the number. 5 considerable distance from where public, to say, we will wait at least that long. That we would raise our target for the federal funds rate when we reach the level of 6. 5 . What we said was, that would be close enough that we need to look very close carefully, using many different metrics, where is it and what is appropriate policy, and now it is appropriate to really look at many more things. We changed our Forward Guidance only because we were coming close to 6. 5 and we have now crossed it. There is no change in the guidance. We are saying now that we are there, we want you to understand , we have to develop a more nuanced approach to what is going on in the labor market. A goodmployment rate is indicator of the state of the labor market, and if i can only have one, i think that is the , but thereuld choose are Different Things happening in the labor market we need to take account of. For example, parttime employment that is involuntary. Thate working parttime want fulltime jobs, want to work more. An exceptionally high levels, five percent of the labor force. It is unusually high related to the Unemployment Rate. We have really never seen a situation where longterm unemployment is so large, so large a fraction of total unemployment, around 35 . That is very unusual. Other things are happening that much in evaluating how slack is there in the labor markets. Labor force Participation Rate has fallen a lot. There is some structural reasons for that. Demographics. Baby boomers are aging and getting into the years where laboretire and their force participation naturally declines. So the decline we have seen is not entirely because of a weak economy, but i think some of it is because of a weak economy, and in a sense, it is hard to give you a precise number four how much of that decline is cyclical. To the says there is a cyclical decline that is more slack, and that is what we are looking at and trying to judge. We are also looking at wage developments in the level of Payroll Employment. Me follow up on a few things. What can the fed do about longterm unemployment, which we all technology is too high . Economy, as we have growth in the economy, my expectation is longterm unemployment will come down. Shortterm unemployment is around normal levels. Longtermy expect unemployment to decline as the economy strengthens. There is a debate about whether or not longterm unemployment may have less effect on wages turn, inflation, than shortterm unemployment, and that is something that was seething a great deal of public. Ttention and discussion i have very little doubt that growth in the economy picks up above trends at the pace, not longterm unemployment will come down, too. Last year, we had a hearing about income inequality. Robert talked about a situation in the country where we have the wealthiest 400 has the same amount of wealth as the bottom 50 . The International Monetary fund recently warned income inequality is a drag on our countries economy. Why do you think we have seen this rise and how does it affect Economic Growth for the country as a whole . Do you think it is a factor . Seen a trend toward rising income inequality, and income and wealth. I personally see this as a very thatrbing trend policymakers should be looking at and considering what is the appropriate response. A weak economy, the people affected by unemployment, are disproportionately people at the lower end of the income spectrum. So a weak economy and tributes something to income inequality. Contributes something to income inequality. What the fed can do is provide a stronger job market, and that helps, but the trends that are responsible for rising thanality go much deeper the fact that we have had a deep recession. Trendssee those secular in operation, at least since the mid1980s, a great deal of discussion about what they are, but they probably have to do with technological change, the way it has increased the demand for skills in the workforce, with globalization, and so the return to education and skill is going up dramatically. There may be institutional changes that are at work as well. So there are Deeper Forces that are affect in this that go beyond anything that the fed can do, but i really think something that we should be we should be thinking about it carefully. How housingentioned had flattened out. Could you expand on that . What we have seen while the Housing Market has come back, whereices in my state they have gone up the most, one Thing Holding housing back is the significant drop in household formation, which get to the income inequality, during and after the recession, about 800 fewer households were past sevenn in the years. Young people are not forming households as much and getting new houses. Could you comment on this . I agree with the data you are citing. We have seen very slow household formation. Many young people are living with their parents. It also is very difficult for people who come out of school with heavy burdens of student to qualify for mortgages. Very timely, my daughter is arriving tonight at 10 p. M. , she is only a first year in college, but still, yes. As thexpectation is that it is hardengthens to know what the new normal is. We need to see some pickup or continue your coverage continued recovery. Mortgage rates went up over the spring and summer, low by historical standards. In that sense housing remains affordable and i expect housing to pick up, but really it has flattened out. You mentioned the cold weather, something near and dear to our heart in minnesota. The First Quarter is one of the major reasons we saw slowdown, so you would anticipate improvement . Yes, definitely. We have heard many different pieces of evidence, as well is what we see in broader recentics, suggesting data is much more encouraging. Car sales, retail sales, industrial production. I am quite hopeful that we will and are seeing a pickup in Economic Activity. In my opening i discussed how we did not see a significant rise in inflation in the near future. Do you agree . That is my forecast. Inflation has been running under two percent. Expect it to move gradually back over time, up to two percent. There are some transitory things that could give it a boost over the next year or so, but my expectation is that it will be gradual, gradually moving back to two. Obviously this is something we will watch very closely. I asked that from a guy who treated me and thought i was wrong. Sites. Ou are at my wherever he is out there with his strange handle, he knows the answer now. I mentioned that this is my last question here, in my opening i mentioned what we could be doing to continue to we mentioned a bunch of things, Immigration Reform, tax reform to make things more straightforward, not playing red light, green light every year with the tax code. One of the things i mentioned to you about the minneapolis Federal Reserve and what the head of it talk to me about in my office last week, the section 100 79 deduction limits for depreciation, they were in 2010, to 500,000 but the increased depreciation deduction expired at the end of 2013. Ironically, after i met with him i met with a bunch of Small Businesses over the next few days and as they said to me during the height of the downturn, they thought that this was a very useful thing to stimulate investments and add more jobs. I wanted to get your thought about that as we look at the tax incentives. Think that the cost of capital is an important factor that influences investments, although the state of the economy and Business Confidence and optimism about growth is a very Important Role as well. The tax provision that you mentioned is something that was put into effect at the time when investment spending was very weak. I cannot quantify what its impact was, but it probably played a role in having it pick up. That is janet yellen testifying before the joint Economic Committee in congress. Will return, of course, to that testimony in a moment, but we will take a quick break right now to review what we have heard just now with neil donna and our economics editor, Michael Mckee. What stands out to you so far . He had a pretty good idea of what was coming from the opening remarks, but now that we have , what do you say . There is a lack of consensus about the exit strategy. A lack of consensus in general . You sense a lack of consensus. Are they going to sell . Are they going to let securities roll up . Are they going to use traditional funds later . All the rest of it . These are things they will have to hash out. The mechanics, the plumbing of the system, that will be the critical test for analysts going forward, looking under the hood of the car. Onto tax. Ressing her one, when are you going to raise Interest Rates we were laughing, she was devolving into Alan Greenspan speech, trying to avoid answering the question. He was also asking her about the mechanics. As neil said, they have not decided yet. At one point bernanke laid out how they would do this and it involved first stopping reinvestment of the securities rolling off and second, rolling down the Balance Sheet. The third thing would be to raise the fed funds rate. The Balance Sheet has gotten so much bigger area they have not figured out what they want to do. The other important point, she keeps talking about inflation getting back to the two percent range before they start raising Interest Rates. She is talking about it as if it along ceiling, not a goal the way. So, if the market is looking for some sort of indicator, maybe you have something there. Neil, does this idea, right, that the fed is undecided at the very least on the mechanics of the exit strategy suggests that isng an investor, one who subject to the direction that the fed takes, that it will become a whole lot more difficult . Up until now, and what remains the case, all that matters is the basic tapering. Sounds like a year from now it will be a lot harder. There are two things. First, once tapering is over and the Balance Sheet flattens out, the principal question then is when are rates going to go up . As jeremy alluded to yesterday, that could create volatility in the fixed income markets, which at the moment remain very low. Janet yellen is answering a question right now on a similar, related topic, so lets go back to the testimony. Highend inflation, huge effort by chairman volker to tighten Monetary Policy to bring it down. We lived through it. In which fed policy was not sufficiently tight and high inflation led to a rise in Inflation Expectations. We saw that those Inflation Expectations could become a persistent source of high inflation and that it could be very costly to lower inflation. Arelessons from that time very real for all of us. Thatof us want to make mistake again. I do believe that we have the tools and determination to avoid that. Indicate inflationary developments and inflationary expectations as a part of our focus as we watch what is likely in the evolution of inflation. Say, you know, that we will get it perfect, but i can tell you that the committee has adopted a two Percent Inflation to make clearrder our commitment to achieving that. We are determined to have that happen. Of course, if we raise Interest Rates, the debt Interest Payments will exceed the National Defense budget. Ithin seven or eight years 2021 is the estimate. Together, weorking really need to grow our economy to be able to manage it. Be able to. O we expect, as the economy recovers, that a point will come where it will be appropriate to raise shortterm Interest Rates, longterm Interest Rates are over time asrising that occurs. This is something that countries should certainly be taking into whatnt as we look at fiscal burdens will be down the road. Thank you, my time has expired. Representative delaney . Thank you, mr. Chairman. Thank you, chair yellen, for being here. I was stunned at how remarkably clear and linear have been here today. It should not be a surprise, but it is impressive to observe firsthand, so thank you for that. You touched on something a few minutes ago that is in a deeper, structural trend going on in the employment market and job market. Those, very appropriately, i think, to the macro trends of globalization and technology, which as we all know have benefited people with terrific educations or with access to capital or highly refined skills, but have been very disruptive to the average american. In my judgment, this is the root cause of some of the concerns we have around income inequality and job creation. Particularly jobs with a decent standard of living. We are creating not a lot of middle school jobs. Is it possible and you hate to use those four words this time its different is it possible that these trends, as they continue to play out in our economy and job market, put us in a position where we have where the fed would have accommodating Monetary Policy for a sustained. Of time as we work through these things . Particularly absent congress doing things like Immigration Reform and more targeted ways to work through these challenges is it possible that that is the new norm and that the size of the Federal Reserve Balance Sheet stays large for a reasonable. Of time . Which i do not think is a problem, but i am curious to get your thoughts on that. So, i think that these longerterm trends have to do with the relative wages of different groups in the labor force. They have been going on for a long time for the reasons that you stated. I dont think that those trends are ones that the Federal Reserve can really address. Whyappropriate policies else would they have to do with education and training . In that sense, when the labor market has returned to normal, in the sense that most people who are looking for work are able to find work for which they are suited and skilled within a reasonable. Of time, there really wont be much more that is in our domain that we can do. We would keep our Balance Sheet large, we would refrain from raising Interest Rates for that same reason. But there are some people who have suggested that this distribution of income and rising inequality are pulling down spending and holding down spending growth. It is hard to get clear evidence on that. True, extent that that is it would be a way in which inequality would be slowing the pace of recovery back to full employment. That would be the the effect on how long we could hold Interest Rates where they are. My second question is around and you mentioned your testimony certain financial indicators, asset bubbles in particular. Over the last couple of years we have seen a deal linking that has gone on between leverage spreads and leverage, as leverage goes up, spreads widen, and as it goes down, they tighten. Dehave seen that the link link. This, i think of it more as fraud as opposed to formation of asset bubbles. How do you think about these things . What kind of benchmarks do you use to indicate that we may be creating asset bubbles in different markets . We cannot detect within any certainty whether or not there is an asset bubble, but we can look at a variety of different valuation metrics akin to priceearnings ratios of the stock market. A variety of ways of measuring those. We can look to see how valuations, in that sense, have moved out of his store in normal ranges. I would say that for the equity markets as a whole, the answer valuations are in historically normal ranges. Now, longterm Interest Rates are low. Thatis one of the factors bleeds into equity market valuation. So, there is that linkage. There are pockets where we could potentially see ms. Valuation in smaller cap stocks, but overall those broad metrics do not obviouslyat we are in built up territory. We dont have targets for equity aices that cannot detect bubble with certainty. Thank you very much. All right, we are going to take a quick break here on Market Makers. We are listening to the testimony of fed chair janet yellen before the joint Economic Committee in congress. Stay with us, we will be back shortly and you will hear from the chairwoman once again. Are watching Market Makers, huron bloomberg. Here on bloomberg. We will take you back to Janet Yellens testimony just a moment, but before we do that, mike mckee is here, so is neil donna. Fewt yellen spoke just a moments ago about the socalled inequality problem. The widening gap between incomes and wealth. I presume she is talking about americans and how policymakers need to consider an appropriate response. What the she mean by that . Which policymakers is she talking about . Said dont think she is talking about herself. As she mentioned, inequality has been a condition in the u. S. Economy for almost three decades now. If anything, contrary to popular opinion, the fed is helping to reduce inequality. What we know about Business Cycles is that as vehicle inequality gets closer to full employment, things go down. Insofar as the fed is promoting full employment, which they are through aggressive policies, one other point is people talk about how the fed is punishing savers. That is true, bernanke admitted it. Who does the saving in this country . Rich people. I think that in two ways the fed is helping to promote income andlity by punishing savers promoting full employment. The argument is that by driving the stock market higher, you are helping the rich with of the widening inequality. Exactly, constitutes the rich . We are talking about a political argument, so there is no definition. It is in the eye of the beholder. Obviously, people with more equity in their portfolio tend to have higher gross wealth, put it that way. We are talking about the greatest good for the greatest number. Doing what we can to increase the size of the labor force, that is worth cutting the income on savers, even though we know it is not going to bother a wealthy person with a lot of money, but it hurts the elderly retiree. We have to sacrifice them a little bit for this. Her point is that if you really want to attract income inequality, that is your jars your job, not ours. We are talking about two different kinds of income inequality. Income inequality and wealth inequality. Rarely, persistent income inequality will create greater wealth inequality. How could either monetary or policypop fiscal makers tackle either . I think you have Something Like five percent of People Holding over 50 of the assets, Something Like that. I think that this is really on the fiscal side of the equation. Fiscal policymakers will have to deal with this. There are a number of things that they could do, primarily regarding really the Education System in this country. Tore is a high return skilled employment. Janet yellen made that point. That is not something that the fed is in control of. Neil, lets take a quick break from our conversation and returned to the testimony of the fed chair, janet yellen. Bob casey is questioning a democrat, i should add, is questioning the chairman right now. Testimony itur articulates when i think about it from a national perspective, good job numbers in the last couple of months, even the recent report, there is a lot less in the way of good news in terms of the labor Participation Rate tom of which i am told is at a 35 euros low. I noticed in your testimony you the on page one that during economic recovery so far, Payroll Employment has increased by 8. 5 million jobs and the Unemployment Rate has declined about three and threequarter Percentage Points. That is good news, both in terms of the recent news, as well as over a number of years, but we still have a long way to go. I guess the real cautionary note or reason for concern, main reason for concern, is the young Labor Force Participation. Can you speak to that in terms of what you are hoping to see with regards to that number . We have seen a substantial or soe over the last year in Labor Force Participation. I think that it is clear that part of it is demographic secular and will continue. The fact thatects we have an aging population and, as people move into that 60 plus age bracket, the amount that they work declines notably, in spite of the fact that current percentages of retirees are working more and participating more in the labor force than earlier percentages. But nevertheless, if we have a strong economy, even for that group, it would not surprise me at all if we did not see more participation in the labor force by retirees. In addition, we are seeing for a reduction in Labor Force Participation. For young people it is partly related to going back to school, but eventually, of course, those people will enter the labor force and seek jobs. Especially in those nonretiree demographic groups, to me it is clear that the weak state of the labor market partly explains why we are seeing a decline in Labor Force Participation. So, i will be looking carefully at trends in Labor Force Participation as the economy strengthens and the Unemployment Rate comes down. We really need to figure out what portion of the Labor Force Participation decline is secular and what portion is cyclical. That is what we will be looking at very closely. I guess i would expect, as the economy recovers, we might see labor force which is a patient strengthen rather than continue to decline. Talk aboutg that we a lot is the skills gap and disconnect there between jobs that you need to fill and jobs that need to be created in the future. The skill level of the folks seeking those jobs for work in the marketplace. I guess one of the questions i have for you is you look at trends all the time. Look at the Economic Impact of policies that we put in place here. Trends, you see the kind of skills needed for the jobs of the future. I would ask you my youngest daughter is a junior in high school. If she were two years old or three years old right now, what would you hope that she would those be placed in one of high skilled jobs that we hope we are creating an app policies for that undergird a strategy where we no longer have that kind of skills gap . What would you hope that i or society at large could provide her in terms of a healthier, smart start . I would hope that you and society at large would make sure that she has access to a good college education. The gap in earnings between those with a College Degree and those with less education has increased enormously. Opportunities to get advanced training and skills i think will clearly suggest that it will make a difference to her. I will send you some questions for the record as well. Thank you very much. Chair, knowing that senator she will get a good education. I have no doubt. Thank you, dr. Verio lightning. Let me first try to clean up a few things. Brady got to a point where he said that he he was hopeful you would enlighten the committee on six different points. There is no time for you to answer those. I would like to submit those questions as my question for the record and ask if you will answer them on the record. Will you do that . I will be glad to. About last point is transparency, which i think is a fine question. I also understand your reluctance to be tied down to specific predictions of when this or that will happen, but i think we got a yes from you on one thing, when the Asset Purchase Program will end. My understanding is you have a set of expectations for the rest of the year. And if those expectations are assetou expect the Purchase Program to end this fall. Is that a yes . Like that is correct. If the labor market continues to recover and we continue to see the evidence pointing to ,nflation moving up over time the committee is likely to continue taking further steps that would end of the program next fall. The fall of this year . Correct. Saidnator clover chart that she saw a rise in inflation in the future. You dont agree with that. Ideally, inflation should increase to two percent and that would be a better result, as far as you are concerned . Two percent is the committees longerterm objective and we would not want to see a persistent deviation either below or above two percent. Level wont be at that every moment, but we expect it to move up gradually over time. Mentioned during your testimony today maximum employment and full employment. Would you define those for the committee . Obviously those terms are interchangeable. Maximum and ointment is the wording used in the Federal Reserve act. A war that congress has defined for us. Short. Ing the term for could you use that . I interpret maximum employment as a level of employment in the labor market where people are able to, in a reasonable amount of time, to gain work for todays purposes, you are not going to put a percentage point on it . No. Very good. Terms of income inequality lets get back to the melter article in todays wall street journal. He suggests that the policies of the Obama Administration and the Federal Reserve are responsible for the income inequality. He says that ironically, despite often repeated demands for , the policies pursued by the Obama Administration and supported by the Federal Reserve have accomplished the opposite. He goes on to say that people should recognize that goosing the stock market at low Interest Rates, with subsidies and handouts to cronies, have contributed to that result. We will leave the subsidies for another discussion, but dont you acknowledge, dr. Yellen, that the Interest Rates that you have achieved have driven people to the stock market, therefore goosing the stock market and contributing to his maldistribution of income . Deny that the level of Interest Rates affect i would hardlyt. Endorsed the term goosing the stock market. We have no targets for stock prices. The policies we have undertaken are meant to ease financial conditions in a whole variety of ways that would be conducive to generating greater spending, and greater spending means that we create jobs throughout the economy. To think of that as something that is promoting an increase in income inequality, i would take issue with. I think a stronger economy breeds benefits to a wide households throughout the economy, including lower income households who are so, they do. Probably have an impact on the stock market, but also housing prices, which have come back up again. For so many households, that is their most important asset. In return of house prices to more normal levels . I think that that has been a major benefit to Many American household. People have seen themselves moving from situations where they are underwater on their mortgages to being back in the black. It also helps give them access to credit, if they want to send a kid to school or have an emergency or start a small business. There have been benefits to this policy as pursued in main street and those who hold equities in their portfolios. Thank you. Senator sanders . Thank you, mr. Chairman. New endeavoryour here. Thank you. Mr. Chairman, with your permission i would like to put into the record a recent bbc article entitled study, u. S. Is an oligarchy, not a democracy. Chairman, is that all right . Chairman . Without objection. Thank you. Madame chair, in the u. S. Top one percent owned about 38 of the financial debt of america, the bottom 60 own 2. 6 . One family is worth over 140 billion dollars, more wealth than the bottom 40 of the american people. In recent years we have seen a huge increase in the number of millionaires and billionaires while we continue to have the highest rate of childhood poverty in the industrialized world. , as many of my republican friends talk about, the oppressive obama economic policies, david coke and charles koch struggled under these policies and their wealth increased by 12 billion in one year, despite the oppressive obama economic policies. 95 of new income, income generated in this country in the last year went to the top one percent. A study i have just introduced into the record, by two professors from prints and , it basically suggests that while historically we have considered our society to be a capitalist democracy, we may now have entered into a phase where we are an oligarchic form of society. Theour judgment, given enormous power held by the billionaire class and their political representatives, are we still a capitalist democracy . Or have we gone over into an oligarchic form of society in which incredible economic and political power now rests with the billionaire class . So, all of the statistics on inequality that you have cited are ones that greatly concerns me. I think for the same reason you are concerned about them. And determine the ability of different groups to participate equally in this democracy. Have grave effects on social stability over time. So, i dont know what to call our system. I would prefer not to use labels. But there is no question that we a growing and the quality and i personally find it very worrisome. It deserves the attention of policymakers. I take the point that the professors and others have made, that there comes a point where the billionaire class has so much political power, where the Koch Brothers and Citizens United are able to buy and sell politicians, at what point is that reversible . That is a great concern to me. I want to go over another point some of my colleagues, especially in the house, believe that we get improve lives for the middle class and create jobs by completely repealing the estate tax, which applies now to have celestine 1 10 of one percent of the wealthiest families in this country. Would it make sense to you to give enormous tax breaks to the families of the top one percent of people in this country . Have indicated that i share your concerns on inequality, but i guess i am going to say on to congress is up to decide what is appropriate. There are a number of different ways to address it. That is certainly on the list. All right, let me ask you another question. Some of my friends in the house suggest that one way to stimulate the economy to create decent paying jobs is to give more tax breaks to the wealthiest evil in this country and the largest corporations, despite the massive wealth and income inequality that we have right now. If we give tax breaks to the Koch Brothers, worth 80 billion, with that create jobs in this country . Like most of the evidence we have suggests that transfers to lower income people tend to be when there is a transfer to a wealthy individual. Changes in tax policy from the demand side, tax policy also has supplyside effects that one should take into account. Thank you, mr. Chairman. Dr. Yellen, thank you for being here for your testimony today. You mentioned several times that the Unemployment Rate is still too high. We are clearly in agreement. In april you made some remarks to the Economic Club of new york. At that time he said the central tendency of the federal open Market Committee with participant projections to the Unemployment Rate at the end of 2016 this is still out one a , andyears 5. 2 to 5. 6 for inflation the central tendency is 1. 2 . So, if this forecast were to become reality, we would be approaching what my colleagues and i view as maximum employment and price stability for the first time in a decade. I guess i am wondering you did not want to put a number on maximum reforms but you mentioned this in april, in light of the Unemployment Rate in around 4. 5 in the middle part of the last decade, you are indicating that full or maximum employment would be significantly higher . Is that the new normal that we are potentially targeting for full employment . That ishis is a number purely a get. Impure gosed on evidence that each member of our committee has been asked to make every three months. It is the level of the Unemployment Rate that we think would be consistent with inflation, rather than gradually rising inflation over time. That we the evidence see, their current read, and these are just estimates, these changes made from time to time, their best assessment, most of them are in a range of 5. 2 to 5. 6 . Now, when unemployment was as low as four percent previously that may have, involved overshooting. There is nothing that says 5. 2 is a floor on how low unemployment can go. For example, in the late 1990s unemployment fell well below those levels. But there may have been special factors and increases in productivity growth, strong dollar appreciation, which was holding inflation down and made that a happy coincidence that was possible. At the moment, this is their best guess and it is where the information in the economy is in 2016. You also mentioned that it was nice in general to see the 6. 3 . Oyment level fall to labor force Participation Rates, which he said he wanted to look at in detail, they fell to essentially a low, one of the most concerning members for me that have nowople left the workforce. The labor force has declined by a pretty significant number. What do you envision the labor force Participation Rate actually being . It is a bit hard for me to give you an estimate of that. We had a huge move. It is very unusual to see a 14 decline in the Unemployment Rate within a month. With a comparable move in Labor Force Participation, we always that one should not make too much of any single number. My preference would be to look and laborabor force market statistics over three or six months to get a read on things. If we do that, what we see is the Unemployment Rates coming down for the last six months. Job growth and employment have been gaining 200,000 jobs per month, somewhat higher over the last three months. The labor force purchase a patient rate has been bounced around, but roughly stable. So, it came down previously, over the last six months. Stable,een roughly which is i think there is a declining labor force Participation Rate trend, so the staple for labor force Participation Rates could signify that some cyclical slack in the labor market is gradually diminishing over time. So, looking over three months to six months, i would say that the patterns we are seeing are consistent with improvement in the labor market. Thank you, representative cummings . Senator warren and i wrote to you in february about a formal vote on the board of governors being required before the fed enters into orders over 1 million. We requested all incidents between 1997 and 2013 and found that only two percent of these donated over 1 million. During the hearing in the Banking Committee on the 27th, senator warren asked whether you agreed with our proposal. You answered i do think it is appropriate for us to make changes and i fully accept that we will. Yesterday senator warren and i received response letter from you in which you wrote i agree that it is appropriate for the board of governors to be fully involved in the important decisions related to the enforcement and supervisory steps ared that already underway to develop new processes and procedures for review of significant enforcement actions. Our question is can you tell me what specific steps are under where underway where the dashboard requires formal votes on all actions and that, by what date will occur . If this is not the procedural change that is anticipated, what new process is there that will be introduced . So, we have met. It is in the Public Record that we have had a number of meetings at this point over the last to discussonths enforcement actions. We are participating in those discussions with our staff early so that we can guide their handling of these matters. I think that that is fully appropriate. I pledge that we will continue to do so. Vote on at least one very important enforcement and i want to take a little bit more time working with staff to decide exactly what guidelines will be for when you should delegate and when board action is required. You suggested a particular cutoff and wanted to think more carefully about how to precisely define which actions should require board votes when it is appropriate for us to vote. What i do want to pledge is that the board will be very involved in discussing major enforcement actions. And we have done so. You were vice chair of the when the fedrnors terminated independent foreclosure review and agreed to settlement in january of 2013. Did the board formally approve the amendments to the degree that it terminated . The board did not vote on that agreement. Procedures in place, this was a matter that we delegated to the staff. The staff consulted closely with members of the board. So, the board did have impact requestingletter that the fed and the occ produce documents related to this decision, they produced documents several weeks ago. We saw the feds documents yesterday and we are still reviewing them. The documents produced show that atre were no reliable data the time, but there was preliminary data showing doubledigit outreach in some categories and on some surfaces. The dives were planned to identify the full extent, but he could not be completed because ifr was terminated. Did you notice when ifr was terminated . Terminatedwas because it was decided that the process was too slow in terms of to timeframe and its ability get money into the pockets of homeowners who had been harmed. It was a decision that the occ took the lead in and that the Federal Reserve went along with after consulting closely. That is Federal Reserve chairman, janet yellen. Peter cook, janet yellen has been speaking for almost two hours and has received some aggressive questioning from mr. Brady. What do you think here . That question from texas, the likelycan, mr. Brady, is the highlight so far. He really pressed us on timing and seems to be asking the question the people on wall street want, but she would not budge. She would not give him any specifics, telling him it will depend on the economic data. If not, we would have had some much more substantial news out of this testimony. Instead we got what we heard from her in the past regarding the improving economy, tapering enough to continue while rates remain low for some time. One thing that stood out to me in this testimony was that she was not overwhelmed by this fridays jobs report, that a three month to six month window is much more important to look at and that if anyone thought it was a game changer, it was pretty clear that that was not the message. What do you think, peter . I thought that comments on Labor Force Participation were interesting. She made the point that a flat eber force Participation Rate beingd an overall trend down. This is a modest indication that on is going into the deficit the Participation Rate and that it will not go up touch from here, meaning that if we continue to generate 200,000 jobs for month, there will be steady downward pressure. On an employment rate. There just is not that much of a stealth population waiting in the wings and scratching to get back in. There is an argument on that. M pozen up at Dartmouth Bank of england. Right, there are Research Suggests there is a large group of people waiting out there for the economy to improve. Like corporate, waiting to aend . People with less of labor force because they were marginal, they would be brought back once the economy improves enough. This debate is worth continuing, but we need to take a quick break here on Market Makers. The hearing is over, janet yellen has completed her testimony. There are definitely further highlights to share with you and we will be back after the short way to tell you all about it. Our economics editor, Michael Mckee, sticking with us. Stick around, we will be right back. Testimony has just wrapped up down in d. C. We are joined by neil donna and our own economics editor, Michael Mckee. What was the most outstanding to you, my brother . The things she said about inequality are provocative. That she is very worried about the trends that we see relative to income and wealth in america. She did not say much about the middle class, which is interesting. Her commentary seemed focused on the bottom and the top. At her as to whether or not america is still a capitalist democracy or, per a piece done recently on the bbc, whether it has become some kind of oligarchy of the ultrarich, the one percent of the one percent. It goes without saying that janet yellen did not answer that question directly, but she did decline to defend the system as that of a capitalist democracy. I want to replay some of my favorite parts. The part about losing the stock market in response to helping the system along, take a look. I would hardly endorse the term goosing the stock market. We have no target for stock prices. Policies that we have undertaken are meant to ease financial conditions in a whole variety of tos that will be conducive generating chip generating greater spending. Greater spending means that we create jobs throughout the economy. It goes without saying that that was going to be my favorite. Is part of the same discussion. The problem the fed got into is that they do want to boost the stock market, ben bernanke told us that when he started the whole qb price qe process. When you Start Talking about raising stock prices, you Start Talking about helping the rich and they dug themselves in a hole there. Now they dont want to say it, but it has always been part of their strategy. They dont have a target, but the idea that stocks go up . It adds to the wealth effect and i hope that people spend more to boost the economy. She is actually back on the hill tomorrow. I want to bring peter cook back on. Peter . Anwe will probably see instant replay tomorrow in front of the senate. She willmic outlook, face a lot of questions from lawmakers on the senate side who may not deal with her all the time because they do not serve on the Banking Committee. Much the same as it was today. Idea of janet yellen asking the senate for help, the Senate Vacancy coming up, nominations for brainerd. Re it is a real possibility that on may 28 there will just be three members of the federal board of governors and those vacancies, only three of the time, we have not seen that since 1936 and it potentially means that she cannot have a conversation with privatefed governor in because it violates open meeting rules. It is not the way to run a central bank. At some point she will be asking the senate to get a move on and give her some help over with the fed. Peter cook, thank you. I am sure that you will be with us tomorrow. We sort of cut you off before. Do you expect anything different tomorrow . Not really, i hate to go backwards but it is not that exciting. There were moments of this testimony where you got excited. Well, i am an economist. So you know. [laughter] relatively boring. But i will say that this is going to be a relatively boring year for the u. S. Economy, which is a good thing, and by extension it will be a relatively boring year for the fed. Paper or not . I think that this program you are an economist and are not boring, mike, are we headed into a boring year . In a way, we hope so. We have had so much time old over the years with the economy over the edge, not much is acting up today. That will wrap it up. You, sir. Kee, thank stephanie, see you tomorrow. That is it for Market Makers yuriko money clip is up next. Clip. Ome to money dunlop,investor, jeff he talks about the no normal and why he is so down on housing still. And fiatof chrysler says lets finish this dam thing. By the way, that is a direct quote. As davidlen testifies einhorn gives his report card on the fed chair. Boeing plays is a big bet on the future of space. Finally, in sports, richard sherman