Is returning to a moderate pace. She said the fed needed to verify the expected acceleration in growth and now she isnt acknowledging that may not happen at all. Important change in language and important shift in tone for the fed and for janet yellen. The speech that she is about to couple contains a little of bombshells that help explain why. First, janet yellen now admits that Larry Summers and other prominent ecommerc economist my crisisperi t a post period may be here to stay. Admits the he also Financial Market volatility that has made it so far for the fed hard for the fed to control the economy and to raise rates is partly a consequence of what she calls accommodated Monetary Policy. Low rates can be selfdefeating. They indirectly create a barrier to higher rates. Finally, i like to draw your attention to the Monetary Policy report itself. Specifically to the section on Financial Stability. The fed says, one, stocks are getting expensive on a forward pe basis. They have not adjusted or at least accommodated the recent drop in earnings estimates. There may be a bubble in commercial real estate. Number 3 the fed is concerned about the amount of leverage in the nonfinancial sector. Quality ishat credit starting to deteriorate. It is something we will also be. Anting to Pay Attention to it mark in the fed meeting last week, chair yellen side of the upcoming u. K. Referendum vote on the eu. Issue likely to be asked whether further questions on the referendum and its implications on the policy . How it is hard to know interested senators are in the brexit vote. Erik they often come to this hearing with questions they have been cooking up since the last semiannual testimony back in february. It has been months in the making. Heres what janet yellen says in her prepared remarks concerning the brexit. The u. K. Vote exiting the European Union could have significant economic repercussions. The committee is closely monitoring Global Economic and financial developments and their implications for the domestic Economic Activity labor markets. Janet yellen noted last week that brexit was one of the reasons that the fed chose to stand pat at 25 basis points. She is going to repeat that today. To what degree senators are interested in knowing more, we will have to wait and see. Vonnie that is Erik Schatzker on capitol hill. Right now, you can see Richard Shelby delivery Opening Statements. Be openinghat will statements from sharon brown, the Ranking Member on the democrat side. We will bring that testimony and questions following that to you live. We are more than 30 minutes into the trading day. Lets head to the markets desk were julie hyman is looking at reactions from headlines. From theocks down morning, but not much. Not seeing much change overall in the major averages. The nasdaq was up two quarters of a percent, but investigators are not waiting only for the q a with janet yellen but also with the u. K. Vote coming in a couple of days. As eric was talking, he mentioned that pricetoearnings ratio and i made a chart of it on the bloomberg. This is the pe of the s p 500. When you hear janet yellen talking about a valuation where pricetoearnings ratio on stocks that is getting to a relatively high level, this is what she is perhaps talking about. This is a fiveyear chart of the pricetoearnings ratio on the s p 500. It has been going higher and higher, around 19. 3 , historically above average. Thats a little bit of context for her discussion there in her prepared remarks. Heres the imap from bloomberg as well. Energy and materials under pressure today along with some of the commodities. Tech and Consumer Staples are helping lead the gains in todays session. Lets look at some of the lldividual movers, sha we . Warner enterprises is leading down after company came down with guidance on the Second Quarter fiscal resorts after the close yesterday, missing guidance by a wide margin. The magnitude by which guidance is below estimates may take investors by surprise. It certainly appears to be doing so. Citedompany driver pay and contractor cost increases. That is why you are seeing effects on the other trucking stocks. Airline stocks are doing quite well today. United continental is leading delta, but it is Still Holding up well. Targeting extra savings and revenue by 2018. I mentioned what is going on and commodities. Lets take a look at oil and gold. Both of them are heading lower, which explains the pressure we are seeing on energy and materials stocks. A quick check on the u. S. Dollar. The bloomberg dollar index is finally rebounding after a fourday losing streak, up about a quarter of 1 today. We are monitoring Opening Statements as we await janet yellen semiannual testimony to congress. Brown. Ohio democrat we just heard from Richard Shelby and we will be taking you to Janet Yellens remarks once they begin. Ark, what is going on in europe . Mark stocks rising for the third day, the biggest threeday gain since august. The gains are nowhere near the size we saw yesterday when the stoxx 600 rose by 3. 6 . That is 311 billion euros. Three significant polls in the last 12 hours to favor remain and one favorite leave. Of the the on checker possibility of brexit. We were up to 44 . The correlation between the ftse 100 and the pound is at its highest level since 2011. For youa lovely chart to perus at your own leisure. George soros is speaking out. The man who made a billion betting against sterling in 1992 says sterling could fall as much as 20 if brexit materializes. Lets not forget what happened on black wednesday. The pound fell 4 for the next six or seven months. Soros says it could fall below 120. Vonnie we are moments away from fed chair janet yellen the semiannual monetary report to congress. We will take you live to the hearing once yellen begins speaking. We are still hearing the Opening Statements from ranking democrat sherrod brown. Happening this hour, Mario Draghis testimony before the European Parliament, where he said the bank has to be ready for all contingencies depending on a brexit. This comes after a new poll shows the remain camp holds a slight edge over those wanting to vote to leave. Reporter standing by and Ryan Chilcote live with the latest on girardis testimony. He seems to be attending some confidence that the ecb will reach its inflation objective. Yeah, i think there were three takeaways when it comes to his main message. One is that the inflation dynamics remain subdued. The Growth Prospects remain subdued, but there is more stimulus in the pipeline. He was not suggesting or announcing more stimulus. It is stimulus already announced that will make its way to the market. Finally he reiterated to European Parliament members and set this to them before that no matter what the ecb does, he cannot help them unless they help themselves by applying investment and reform in their own eurozone economies. Mark ryan, it comes on a significant day because a bunch oneerman judges with hand tied behind their backs voted in favor of the omt program. What is the significance of that . Ryan look, that is just another tool in Mario Draghis toolkit that he could use should he need to. It allows him to invest and to buy bonds. Vonnie were going to have to stop either. We are going straight to janet yellen and her semiannual report to the Banking Committee. Janet yellen since my last appearance before this committee in february, the economy has made further progress through the Federal Reserves objective of maximum employment. And while inflation has are 2 ed to run below objective, the federal open Market Committee expects inflation to rise to that level over the medium term. Improvement pace of in the labor market appears to have slowed more recently, suggesting that are cautious approach to a jesting Monetary Policy adjusting Monetary Policy remains appropriate. In the labor market, the cumulative increase in jobs since the trough in early 2010 has now topped 14 million while the Unemployment Rate has fallen more than five Percentage Points from its peak. In addition, as we detail in the Monetary Policy report, jobless rates have declined for all major demographic groups, including for africanamericans and hispanics. Despite these declines however, it is troubling that Unemployment Rates for these minority groups remain higher than for the nation overall and that the annual income of the median africanamerican household is still well below the Median Income of other u. S. Households. During the First Quarter this year, job gains averaged 200,000 per month, just a bit slower than last years pace. While the Unemployment Rate held ,teady at 5 over this period the Labor Force Participation rate moved up noticeably. In april and may however, the average pace of job gains slowed to only 80,000 per month or about 100,000 per month after adjustment for the fx of the strike. The Unemployment Rate fell to 4. 7 in may, but that decline mainly occurred because fewer people reported that they were actively seeking work. A broader measure of labor market slack includes workers marginally attached to the workforce and those working parttime, who would prefer fulltime work, and it was unchanged in may and remains above its level prior to the recession. Of course, it is important not to overreact to one or two reports. Several other timely indicators of labor Market Conditions still look favorable. One notable development is that there is some tentative signs that wage growth may finally be picking up. That said, we will be watching the job market carefully to see whether the recent slowing in employment growth is transitory as we believe it is. Economic growth has been uneven over recent quarters. U. S. Inflation adjusted Gross Domestic Product is currently estimated to increase at an annual rate of only three quarters percent in the First Quarter of this year. Subdued for in growth and the appreciation of the dollar weighed on exports, while the Energy Sector was hard hit by the steep drop in Oil Prices Since mid2014. In addition, Business Investment outside of the Energy Sector was surprisingly weak. However, the available indicators point to a noticeable step up in gdp growth in the Second Quarter. In particular, Consumer Spending has picked up smartly in recent months, supported by solid growth in real disposable income and the ongoing effects of the increases in household wealth. , it has continued to recover gradually. It is by income gains in the very low level of mortgage rates. The recent pickup in household spending, together with underlying conditions favorable for growth, leads me to be optimistic that we will see further improvement in the labor market and the economy more broadly over the next few years. Monetary policy remains accommodative. Low oil prices and ongoing job gains should continue to support the growth of incomes and, therefore, Consumer Spending. Fiscal policy is now a small positive for growth and Global Economic growth should pick up over time, supported by a accommodative monetary policies abroad. Expectsult, the fomc that with gradual increases in the federal funds rate Economic Activity will continue to expand at a moderate pace and labor market indicators will strengthen further. Turning to inflation, overall consumer prices, as measured by the price index for personal conception expenditures, increased just 1 over the 12 months ending in april, up noticeably from its pace for much of last year, but still well short of the committees 2 objective. Much of the shortfall continues to reflect earlier declines in Energy Prices and lower prices for imports. Core inflation, which excludes energy and food prices, has been running close to 1. 5 . As the transitory influences holding down inflation fade and the labor market strengthens further, the committee expects inflation to rise to 2 over the mediumterm. Nonetheless, in considering future policy decisions, we will continue to carefully monitor actual and expected progress toward our inflation goal. Activity, considerable about the labor market remains. And thatstment remains illustrates one Downside Risk that domestic demand might falter. Imddition, although that optimistic about the longer run prospects for the u. S. Economy, we cannot rule out the possibility expressed by prominent economists that the slow productivity growth seen in recent years will continue into the future. Vulnerabilities in the Global Economy also remain. Slowing growth in china and falling Commodity Prices appeared to have ease from earlier this year, but china continues to face considerable challenges as it rebalance is its economy toward demand and consumption away from export led growth. More generally, and the current environment of sluggish growth, low inflation, and already very accommodative Monetary Policy in many advanced economies, Investor Perceptions of an appetite for risk can change abruptly. One development that could shift Investor Sentiment is the upcoming referendum in the United Kingdom. A u. K. Vote to exit the European Union could have significant economic repercussions. For all of these reasons, the committee is closely monitoring Global Economic and financial developments and their implications for domestic Economic Activity, labor markets, and inflation. I will turn next to Monetary Policy. The fomc seeks to promote maximum employment and price stability as mandated by congress. Given the Economic Situation i just described, Monetary Policy has remained accommodative over the first half of this year to support further improvements in the labor market and the return of inflation to our 2 objective. Specifically, the fomc has maintained its target range for the federal funds rate at a. 25 to a. 5 . It is held longerterm securities at an elevated level. Of the committees actions reflect a careful assessment of the appropriate setting for Monetary Policy, taking into account continuing below target inflation in the mixed readings on the labor market and Economic Growth seen this year. Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to Economic Growth in whetherile we assess growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2 objective. Another factor that supports taking a cautious approach in raising the federal funds rate is that the federal funds rate is still near its effective lower bound. If inflation were to remain persistently low or the labor market were to weaken, the committee would have only limited room to reduce the target range for the federal funds rate. However, if the economy were to overheat and inflation seemed likely to move significantly or persistently above 2 , the fomc could readily increased the target range of the federal funds rate. The fomc continues to anticipate the Economic Conditions will improve further and that the economy will evolve in a manner that will war it only gradual increases in the federal funds rate. In addition, the committee expects the federal funds rate will likely remain for some time below the levels that are expected to prevail in the longer run because headwinds, which include restraints on u. S. Economic activity from economic and financial developments abroad, subdued household formation, and meeker product to meaker productivity growth, means the economy to meet its potential is low by historical standards. If these headwinds slowly fade over time as the committee expects, then gradual increases in the federal funds rate are likely to be needed. In line with that view, most fomc participants, based on their projections prepared for the june meeting, anticipate the values for the federal funds rate of less than 1 at the end of this year and less than 2 at the end of next year will be consistent with their assessment of appropriate Monetary Policy. Of course, the Economic Outlook is uncertain, so Monetary Policy is by no means on a preset course. Fomc participants projections for the federal funds rate are not a predetermined plan for future policy. The actual path of the federal funds rate will depend on economic and financial developments and their implications for the outlook and associated risks. Stronger growth or a more rapid increase in inflation then the committee currently anticipates would likely make it appropriate to raise the federal funds rate more quickly. Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. We are committed to our dual objectives and we will o adjust policy as appropriate to foster financial conditions consistent with their attainment overtime. The committee is continuing its policy of reinvesting proceeds from treasury securities and principal payments from agency debt and Mortgage Backed securities. As highlighted in the Statement Released after the june fomc meeting, we anticipate continuing this policy until normalization of the level of the federal funds rate is well underway. Maintaining our sizable holdings of longerterm securities should help maintain accommodative financial conditions and should reduce the risk that we might have to lower the federal funds rate to the effective lower bound in the event of a future large adverse shock. Thank you. I will be pleased to take your questions. Madam chair, in recent years, the fed has increasingly used Forward Guidance to shape market expectations. However, the fed is frequently incorrect and predictions of Interest Rate predictions and has caused it to lose credibility among some quarters. How would you rate the utility of your former guidance over the past several months . In the past , we have used Forward Guidance less than we did in the aftermath of the financial crisis when we named calendar dates or gave explicit Economic Conditions that we would not need to see prevailing in the economy before considering an increase in the usedal funds rate could we that Forward Guidance in the aftermath of the crisis in order to help Market Participants understand how serious the crisis was and how long we thought we would need to maintain the federal funds rate. Senator brown are you saying you are not using Forward Guidance now . Janet yellen we are not relying very much on Forward Guidance. We do publish every three months theicipants projections for path of the federal funds rate that they believe will be appropriate in light of the expectations about the performance of the economy. Sometimes those past which participants discussed in their remarks are thought to constitute Forward Guidance about policy. I do believe those projections are helpful to the public in understanding the path of the economy that participants the is likely and how if those conditions prevail they would see Monetary Policy as evolving. As i always emphasize on every occasion, including in my prepared remarks, those paths, while i think they are helpful, are not a preset plan and not in any way a commitment. We are constantly trying to evaluate in light of incoming information the outlook in risks. Paths changee over time as we update our evaluation of the Economic Outlook. I think that is a critical part of Monetary Policy. Senator shelby has the slowing of the economy in certain areas you to hold back a little bit at times the information that you see there . Janet yellen so for quite some time now, we have seen mixed developments in the economy. Becausetors are slowing of the decline in Energy Prices, strong dollar foreign growth. Others providing an offset. Throughout until the last couple of months, progress in the labor market has held up extremely well. Months, as ifew mentioned, job gains averaged 100,000 on the strike adjusted basis, which is a substantial slowdown from the First Quarter and from last year. It is important for us to see on ongoing progress in the labor market. That is something we want to carefully evaluate and is the focus of our attention. But Economic Growth has picked up from a weak pace. If that slowdown is a reflection of weak growth earlier in the year, im hopeful that we will see stronger job gains Going Forward. While it is an important report, i would also emphasize that it is important never to overblown the significance of a single report or a small amount of data. Other information about the labor market suggests it continues to perform well. Senator shelby do you see a clear path ahead as farce your trajectory Going Forward on the economy picking up . Im not sure yet. Janet yellen it is our expectation. That is what you see in all the projections that were provided in connection last week with our june fomc meeting. Of course, there is uncertainty about that. Lown that inflation remains , we have the ability to watch economic developments and try to make sure the economy is on a very favorable path before raising rates. Senator shelby the fomc target for the fed funds rate has been at one half percent or lower since december 2008. A report last year from the bank of International Settlements found a prolonged. Of low Interest Rates may be damaging the u. S. Economy, resulting in too much debt and too little growth. In addition, the report states that low rates may impart have contributed to costly financial booms and busts. Do you agree that persistently low Interest Rates can have negative longterm effects on the u. S. Economy . Could you explain . Janet yellen i believe that the persistent low Interest Rates we have had have been essential to keeping the progress, but of course, low rates can induce households are banks or firms to reach for yield and can stoke financial instability. We are very attentive to that possibility. I would not at this time say that the threats from low rates to Financial Stability are elevated. I do not think they are elevated at this time. It is something that we need to watch because it can have that impact. You mentioned debt. I do not think we are seeing an undo build up of debt throughout the economy. Leverage remains at moderate levels well below where it was prior to the crisis. We are looking at credit growth, which has picked up, but is not at worrisome levels. For potentialing impacts of low rates on Financial Stability, which i think its appropriate. Senator shelby in an interview earlier this month, governor tarullo stated that the fed is reviewing the application of stress tests to regional banks. He uses the word probably will exempt regional banks from the qualitative portion of c car. Last december, the fed announced it was tailoring see car, but the tailoring turned out just to be a restatement of existing policy. What assurances can you give that this current review is a meaningful effort to tailor ccar in a way that recognizes different risk profiles of banks . If so, when do you expect such changes . Janet yellen we are engaging in a fiveyear, very serious review that has been informed by consultation with both financial and outsidecipants economists. I do think that you will see meaningful changes. The suggestion that governor tarullo made that banks between 50 and 250 billion that are subject to the stress tests might be left out of the. Ualitative portion of ccar still the stress tests would be applied, but the full qualitative part of ccar that relates to Capital Planning, they might be exempted from that. I think that is very likely could we will look at other changes as well that are designed to appropriate we impact isso that its most significant for the largest and most of stomach firms. It will be most of stomach firms. It will be a review and we will do it shortly. Senator shelby you alluded to the fact that come thursday that there is a big referendum in the United Kingdom on whether to stay in the European Union or to start leaving. What is the real implication or can you tell at this point if the british were to leave the Common Market . Could there be implications for the Common Market and for britain . Janet yellen it is a very important relationship. It would be significant for the United Kingdom and for europe as a whole. I think it would usher in a period of uncertainty and its very hard to predict. Eriod ofuld be a p Financial Market volatility that would negatively affect financial conditions and the u. S. Economic outlook. That is by no means certain, but it is something that we will be carefully monitoring. Senator shelby thank you. Senator brown. Senator brown thank you, mr. Chairman. Madam chair, i first thank you for your work on the recent insurance rules. Im pleased the fed has put out and post rulemaking for capital standards for the two Largest Insurance Companies and the 12 Insurance Companies that are saving some holding companies. I appreciate your constructive dialogue with stakeholders. I think that your response to our efforts here made a huge difference in doing this right. This week, the Banking Committee will have a hearing on capital liquidity rules. Please discuss for us the feds approach to capital liquidity rules for the nations largest banks, specifically have these new rules made our Financial System stronger . Janet yellen i do believe that the enhancements that we have put in place to capital and liquidity requirements that are tailored by firm size and systemic importance have made an enormous difference to the safety and soundness of the u. S. Financial system. The quantity of capital at the largest banking organizations is essentially doubled from before the crisis and the quality of that capital is very much higher. In addition to imposing higher static riskbased capital and leverage requirements, our stress testing and Capital Planning exercises are very detailed, forwardlooking exercises that are looking to ensure the largest firms an extremely stressful conditions would be able to go on, supporting the credit needs of the u. S. Economy, of households and businesses. I think that this is been a very significant exercise and has resulted in far superior understanding by the firms themselves of the risks they face and improve management of those risks. Is sufficient to ensure Financial Stability. Often liquidity is what disappears and i financial in a financial crisis. We have put in place for the largest banking organizations and enhancements to liquidity through the liquidity coverage ratio and our proposed net Stable Funding ratio. This also works to enhance Financial Stability. I think we have a much safer and sounder crisis prone system because of the enhancements that we are put in place. Senator brown thank you. Weve talked in the past about how the current labor market data did not reflect what has happened to minorities, whose rates of unemployment are still much higher than the average. Your testimony today for the first time, and thank you for that, you talked about minority Unemployment Rates and have included a new section in the semiannual Monetary Policy report with this data and a discussion of whether the gains of the economic expansion have been widely enough shared. Discuss why the fed made this addition to the report. Janet yellen well, the Federal Reserves job is to try to achieve maximum employment and marketains in the labor that are as widely distributed as possible. I believe its very important for us to monitor how different groups in the labor market are perceivesee if what we as broadbased labor market improvement is being widely shared. There are very significant differences in success in the labor market across demographic groups. Tohink its important for us be aware of those differences and to focus on them as we think about Monetary Policy and the work that the Federal Reserve does in the area of Community Development and trying to make sure that Financial Services are widely available to those that need it, including low and moderate income. Senator brown that brings to mind a meeting i had a few minutes ago with three people from my hometown of cleveland, three community leaders, about the lack of diversity in terms of gender and ethnicity and race and the lack of diversity in terms of ideas that are the classy directors in many of your Federal Reserves coming your 12 Federal Reserves around the country, including in cleveland. I, and i think many of us on this panel, like to see more diverse Federal Reserve system. The board of directors and the advisory committees and employees. Discuss what you have done as chair of the fed what more you can do to better address the financial needs of all americans as you reach into the community better. I know you have had a goal of doing that. You have said that at certainly one of our first meetings. Particularly serving those underserved by the Financial System. Janet yellen so i am personally committed and the Federal Reserve as an organization is committed to achieving diversity within our workforce and within our leadership at absolutely all levels. I believe we have made progress. I am committed to seeing us make further progress. In order to make sure that we are taking all the steps that we possibly can to promote diversity and economic inclusion, ive launched an interdisciplinary effort within the Federal Reserve to focus on all of our diversity initiatives both in terms of our own hiring throughout the Federal Reserve system, our work in Community Development to promote access to credit, our work in the Payment System to foster better and faster payments that can promote financial inclusion. I do believe we are making some progress, but i want us to make greater progress. At the board, minorities currently represent 18 . Women represent 37 of senior leadership. That is relatively common throughout the Federal Reserve system. You would see similar numbers. We have worked very hard to increase diversity among the reserve Bank Directors and directors on the Branch Boards and make quite a lot of progress. At this point, minority representation stands at about 24 of reserve bank and branch Board Directors could abou. About 30 are women. It is a matter that the board focuses on annual and its oversight of the ruler reserve banks. We track our progress and increasing the adversity and the board of directors and it is something that we will continue diversity is an extremely important goal and i will do every thing i can to further advance it. Senator brown i want you to share with us and a continual way the progress that you are making especially in the classy directors that they more represent the community not just in diversity of look and background, but diversity of ideas and all that. There are a Current Record number of job openings, but the may jobs data shows that workers are not being hired for these jobs. What do we do to get americans who want to work into these available jobs . What do we do better . Janet yellen there are in a normas number of job openings. There is a certain degree of mismatch of workers who are looking for work with the job openings that are available. Reserve, andderal i personally have been looking at Workforce Development ,rograms, job Training Programs some of which i think are doing a very good job of trying to that are needed to fill available jobs and work to match workers with jobs. I was recently in philadelphia and visited a very Impressive Program that is placing workers that have had trouble in the market job market into real jobs that can lead to upward mobility and a career in some of the philadelphia hospitals. I have seen such programs around the country that i think have been effective, but obviously our job at the fed is to make sure that we have a strong job market, that there are enough jobs being created, but helping that matching process, looking at a Training Program and educational opportunities, i think that is a piece of the puzzle as well. Have fromown as you time to time mentioned, exhorted is maybe too strong a word that maybe congressmans do a better job in terms of public works and infrastructure. You have also made comments from time to time about job training. Can you give us more instruction . In my last minute or so, can you give us more instruction on what to do here . Janet yellen im not going to give you detailed instruction. I think this is up to congress to decide. When one looks at either inclusion or inequality or more broadly the fact that we are suffering as a country from very low productivity growth, disappointingly low product to th productivity growth, and we think about what the factors are that over time influence productivity growth, the things that have long been identified as important our investments both private and public. Weve had private investment really since the financial crisis very weak. Private and public investments and education and Workforce Development and the pace of technological progress, which is influenced by the environment that contributes to innovation, the startup of new firms, and research and development and other basic support, i think all those areas should be on congresss list to focus on. Senator brown thank you. Senator corker thank you for being here and thank you for your service. Ive had numbers of conversations in the settings and others with your predecessor about qe2 and qe3. The fed announced in 2014 the normalization of the process. It was announced in 2014. It stated that the securities that we have built up on the Balance Sheet would be held to maturity. And then they would run off the Balance Sheet. Todaysically announced that we are embarking on qe4 by reinvesting the proceeds. Have you not . This is a major policy change, is it not, from where the fed has been that has allowed securities to run off. Maybe im misunderstanding what you are saying, but i thought i heard you say that when we reach maturity on these securities, the fed is going to reinvest them. Has a pretty big policy change, is it not . Janet yellen that has long been our policy. Ever since qe3 ended, we made clear that we would continue to reinvest maturing proceeds. We have been doing that ever since. We did say that as the economy recovers and the fed funds rate rises to a somewhat higher level than it is at present, a day would come when based on economic and financial conditions the committee would begin the process you just described is gradually allowing securities to run off our Balance Sheet so we reduce our holdings to more normal levels. We fully intend to do that, but i cannot give you a precise timetable for when that policy will begin. It is going to depend on how the economy evolves. Along time ago, we put out a set of normalization principles where we made clear that that is how we would proceed, namely continued reinvestment until after we had begun the process of raising the federal funds rate and achieve sufficient progress. That remains our intention. Senator corker thank you for clearing that up. I appreciate that. I know the last time you were here that we alluded to negative rates. I noticed what happened in japan and the eu. You were looking into the legality of whether you felt that you had the legal basis to pursue negative rates. Have you come to a conclusion relative to that . Janet yellen i believe we do have the legal basis to pursue negative rates, but i want to emphasize it is not something that we are considering. This is not a matter that we are actively looking at, considering. When we have looked at it or looked at that in the past, we have identified significant shortcomings of that type of approach. I dont think were going to have to provide accommodations. If we do, that is not something that is on our list. Senator corker very good, and i appreciate you clearing that up. Obviously japan and the eu have not had good benefits from that. At least its not a benefit that we can see. I appreciate you clearing that up. Thats very good. You look at the taylor rule from time to time and i know that the fed has not adopted the taylor rule. If you look at it, bloomberg has a chart that tracks it. Basically said rates and the taylor rule have been within a range. The biggest dichotomy that we have seen in years and years between fed funds rate and what they would be if the taylor rule was being employed, today it is at 2550 basis points. Under the taylor rule, we would be at 3. 7 , the target set rate today. Thats a big range difference. Is that because of the headwinds that you have been alluding to and what youre just generally seen in the market . Janet yellen yes, i believe it is because of the headwinds. One of the numbers in the taylor rule reflects professor taylors estimate of what we sometimes refer to as the neutral level of the fed funds rate. It is a level of the fed funds rate that is consistent with the economy operating at full employment. Something that by our estimate has been very depressed in the aftermath of the financial crisis. About secular stagnation are very much about what is the level of Interest Rate that is consistent with the economy operating at full employment. I am hopeful that rate will rise over time, although i am uncertain. At the moment, most of the divergence between our settings and what would be the higher levels that would be called for really reflect the headwinds that have been facing the economy since the financial crisis. Senator corker ive only got a little bit of time, but the employment rate is really misleading, is it not, relative to where we are in the labor market today, meaning that there is still a lot of excess capacity. I know that Ranking Member brown was alluding to that. That equation is a little bit off just because youre not really feeling the employment levels, even though the rates that show the involvement by the labor market is not what we would like for it to be. Let me ask one thing briefly living wills. I know under doddfrank that larger institutions are supposed to present living wills. Youre supposed to ensure that they can be resolved in bankruptcy. We are hopefully going through the final and duration in the next several months. I was confused and that governor powell recently mentioned that if the fed keeps raising capital levels, these institutions will own their own downsides or become less complex. Im just confused by that. , if theseeral reserve institutions cannot be resolved in bankruptcy, going to do what section 165 of doddfrank tells them to do or are you going to relies on raising capital to cause the banks to do them themselves . Janet yellen we are insisting that the firms address in some cases deficiencies and other foundshortcomings we have in living wills and the last submission. There is a timetable for doing that. If the firms fail to address the deficiencies or if later on by the summer of 2017 they fail to address the shortcomings, we have identified and we find them deficient. Doddfrank does say that the fdic and the fed can impose higher capital requirements, dity requirements or structural changes. I do not expect to go there, but we can assess those shortcomings we have identified. Senator corker thank you, madam chair. Senator shelby thank you very much and thank you madam chair. It strikes me that over the last several years you had a great difficult challenge. We all have. We have been operating with one hand tied behind her back, which is pursuing an expansionary policy and you are reluctant to raise rates. We have not had a complementary fiscal policy that invests in infrastructure and other things and allows you and the room to raise rates if necessary or if necessary to complement your activity. The point you just made in response to senator brown is that the productivity gap, some of it is related to decrepit infrastructure. It takes two hours to get someplace. That is too lost hours for someone delivering a package if it takes 10 minute on a superhighway. That is a part of to the productivity increase. Your in a position where you are doing all you can come up but its not enough and we have to step up. Is that something that you would tend to subsidize with . Sympathize with . Janet yellen in the United States and many other advanced nations where Interest Rates are at very low levels, it is common to say that Monetary Policy, Central Banks have been carrying the load in many parts of the world. Fiscal policy has, because of concern about large debt or deficits, not played a supportive role. We have achieved a lot in the United States and we have created over 14 million jobs. The Unemployment Rate has come down to 4. 7 . Inflation is still under 2 , but i believe moving up,. Were making good progress, but if there were to be a negative shock to the economy, and i mentioned this in my testimony, starting with very low levels of Interest Rates, we do not have a lot of room using our traditional triedandtrue method to respond if fiscal policy were more expansionary. This neutral level of Interest Rates, that is one of the factors, substantial policy that affects what level of Interest Rates is neutral for the economy , keeps it on an even keel, and the level would be higher with a different stance of fiscal policy. Senator reed we have made progress, i agree, but i think we couldve made more progress, but we are at a point now where exhausted most of your leverage and in on financial sense. If there was a shock, you have very little to respond. Janet yellen we have the same tools that we used earlier namely asset purchases, Forward Guidance, maturity distribution, duration of our portfolios. Those are the tools that we would rely on. Senator reed just for quickly, the other part of this dilemma is the sense that in some places , because Interest Rates have been so low, there is the possibility of creating a bubble. For example, driving people in equities because there is no return. The price is driven not because of the underlying quality, but that is because they can get money fast. Are you concerned about that . Janet yellen yes. As i said earlier, i dont see signs of extreme threats to Financial Stability at this time. This is something that we monitor very closely. It is something that can happen in a low Interest Rate environment. I do not think i see any broadbased evidence of those Financial Stability concerns, but it is something that is possible. Senator reed ive less than a minute, but with respect to Cyber Security, we had a discussion last time we were here. It is an increasing problem. Reports thateserve you have been breached in some respects. Just getting to the point, do you have the authority to require companies to put people on their boards that have Cyber Security expertise and also to publicly disclose what their Cyber Security general parameters are or something to indicate to the public that they are taking this seriously . Janet yellen it is a focus of our supervision. We do have standards that we expect Financial Institutions to meet and just what is expected depends on the complexity and importance of the firm. This as a very significant threat. On your question about boards of directors, i do not know that we have that we have looked at that. I would need to get back to you on that, but we are certainly supervising Financial Institutions ability to address cyber threats. Senator shelby senator vitter. You, madamter thank chair, for being here and for your service. In april, the fed finally released the results of the 2015 resolution plans of eight systemically important domestic banking institutions. Five of the nations largest banks failed that exercise, including j. P. Morgan chase, and bank of america. I three questions related to that. The new york times