Looking at. We have not looked into individual transactions with the president. That was one of two reviews that was done in deutsche bank. The mirror trading and high profile of politicians elected officials review. Are you familiar with that . Chairman yellen im mott familiar with the details. Our focus has been on the safety and soundness of the operations of deutschy in the u. S. Ms. Waters i yield back. Chairman hensarling the chealed yields back the gentlelady yields back. The chair now recognizes mr. Barr. Mr. Barr thank you, mr. Chairman. Chairwoman yellen, welcome back. In terms of the plan and in terms of portfolio composition and Balance Sheet normalization, why does your plan contemplate rolling off treasury securities at a faster pace than mortgage bonds . Chairman yellen so, the differences are relatively slight. My expectation is although one cant be certain of what the prepayments of principal will be on Mortgage Backed securities that ultimately our caps on reinvestment of Mortgage Backed securities will not be binding. That they will only come into play in exceptional circumstances. So once we phased in those caps i dont expect them to be binding. The treasury market is very deep in liquid. Its a huge market. Were our intention in gradually phasing up these caps is to avoid disruption. Mr. Barr thank you for that. This gets to the question of credit allocation. Let me move on to the issue of and the feds use of interest on exselves reserves as a Monetary Policy tool. The fed is now paying banks, 1. 4 on their reserve balances, if the fed follows through with its normalization plans, the fed will be paying banks a higher Interest Rate on the reserve sometime later this year. These Interest Payments as i said in my Opening Statement provide banks with a government subsidy to not lend out their reserves. Does the fed have any evidence that banks are passing on these higher interest on excess reserves rates to their customers in the form of higher Interest Rates on customer deposits . Chairman yellen my impression is that on larger deposits on c. D. s were beginning to see some upward movement in the rates that are available to customers. But not on retail deposit accounts. My expectation is although there will be a lag that as the general level of shortterm Interest Rates rise, that Competition AmongBanking Organizations will begin to put some upward pressure on those rates and mr. Barr we looked at some of the big banks pay on customer deposits. One basis point for many of them. Multiple institutions paying only one basis point on customer deposits. And the fed is paying 125 basis points. So it doesnt appear as though any of this passthrough is happening to customer accounts. That might compel the fed to reconsider the merits of its policy. Wouldnt it be better for growth if banks were encouraged to deploy more capital in the real economy instead of just parking it at the fed in exchange for ioer . Chairman yellen i dont see banks as parking it at the fed and not lending. My discussions with bankers and the information that we regularly collect suggests that banks are looking to make loans. There was a period of very slow loan growth at the beginning of the year. Our survey suggests it was more matter of demand than supply. Remember our interest on reserves is at a very low level mr. Barr if i could interject. An editorial comment, the dilemma the fed now appears to pace lowering interest on excess reserves would decrease the fed fund rate. But normalization would also entail moving back to the conventional open market operations. Let me finally in my limited time left talk to you a little bit about the limits of Monetary Policy. Of course we know we have been struggling overall with slow growth and low Labor Participation even though unemployment has come down. You talk a lot about substandard productivity. What Many Employers say to me is they simply cant compete with the government for labor and that the government is paying people to not work. As you know were in the middle of this big debate in washington about obamacare and whether or not we should reform medicaid. Heres what Alan Greenspan who calls you first rate economist said. Quote urgs cant get growth going so long as entitlement expansion is anywhere near where its been recently. Its eating up the sources of investment and the sources of growth. You cant have it both ways. You cannot fund all of the entitlements everybody wants and expect that youre going to get a g. D. P. Out of that of 3 or more at an annual rate. The arithmetic doesnt work. Wouldnt you agree that the structure of our welfare programs including obamacare contain disincentives for work . Chairman hensarling brief wednesday, please. Chairman yellen to my mind, the major factor here is an aging population that is putting downward pressure on Labor Force Participation. There are other factors that affect Labor Force Participation as well. But the slow growth that we have and anticipate reflects in part an aging population and slow productivity growth. Chairman hensarling the time of the gentleman has expired. The chair now recognizes the gentlelady from wisconsin, ms. Moore, Ranking Member of the Monetary Policy and trade subcommittee. Ms. Moore thank you so much, mr. Chairman. Let me pursue the question, madam chair, that mr. Barr was raising with you with regard to paying people not to work. He gave an example, medicaid. Just want to mention got a 2 3 of the people who use medicaid are like in Nursing Homes and they are unable to work. Just want to point that out. I also want to pursue some questions from you that the chairman seemed to be very interested in some rule space policy that the fomc had put out there. I want to note that a couple weeks ago you were very critical of the taylor rule. One of the rules that seems to be favored by the leadership on this committee. I was wondering if you could spend a little time talking to us about your reservations about the taylor rule and the appropriate application of it. Chairman yellen i dont believe that the fomc should mechanically follow any single simple rule. As we point out in the monetary do cy reports, policy rules embody some principles of sound Monetary Policy that should inform our policy decisions. And we have for several decades now looked at the recommendations of the taylor rule and a number of other different rules in deciding on the appropriate stance ofpolicy. As of policy. As we try to point out in the report, there were many different rules. There is no clear way to decide which one is better than others. They lead to a range of recommendations. So there is no single recommendation that comes out of a rulesbased approach. And the required judgment in order to implement about measuring things like the g. D. P. Or output gap. And particularly the neutral real level of Interest Rates. Something that we have been the ling with as has professional Economics Community now for many years. Ms. Moore thank you. So the choice act is a bill that we pushed out of this committee and it proposes sort of a rulebased Monetary Policy. Want to know what your thoughts specifically are about that piece of legislation. Chairman yellen i have said on many occasions that i am opposed to the requirements in the choice act. Ms. Moore what about subjecting the fed to appropriations. Chairman yellen i would be very concerned about subjecting the fed to appropriations. We, of course, want to start with saying that were obviously operating in all that we do under congressional mandates and laws. We seek to be transparent, to be accountable to congress, and to communicate as clearly as we can the basis for our actions and Monetary Policy and also in supervision. I do think our independence in setting our own appropriations ms. Moore thank you for that. I want to get back to the limitations that the fomc has with regard to closing the disparate and the disparity and gap of recovery for africanamericans, lower income whites. There is only so much you can do. So i was wondering if you would agree that some of the austerity like s that congress saying were paying people not to work when actually people who are e food stamps, those old people, disabled people, and children. Medicaid. Would you say that Congress Needs to step up on the appropriations side doing things for lower income people to subsidize wages. That is a better tool than what the fed has to offer . Chairman yellen as you indicated in your Opening Statement, Monetary Policy is a blunt tool. Its not something that we can se to achieve distributional objectives, although as we point out in the report, a strong labor market does benefit all groups and particularly minority groups. Although the experience is worse for them. I think its absolutely appropriate for congress to consider appropriate fiscal policy and how it might be used to advance those objectives. Ms. Moore thank you so much. My time has expired. Chairman hensarling the time of the gentlelady has expired. The chair now recognizes the gentleman from new mexico, mr. Pearce, chairman of our terrorism and elicit finance committee. Mr. Pearce thank you, mr. Chairman. Thank to you, chair, for being here. Always appreciate your visits. I know in your comments today you are talking about the Labor Force Participation rate and in the past i think you and i have had the opportunity to discuss that. It was not something that seemed to be a concentration on the part of the feds before now. And it is now. What changed that its become a bigger concentration for youall . Chairman yellen its important for us to try to determine how much slack there is in labor markets, how much potential mr. Pearce i understand that. It was important before. But there didnt seem to be any comments in 2016. It was just a number that didnt come readily to your mind when you were in front of the committee here. I just wondered what has changed since january you would now be concentrating on that . Chairman yellen i think i was discussing this last year because it is a source of uncertainty after a very long and deep recession. We want to understand what potential there is for people to come back. As i mentioned in my testimony, Labor Force Participation rate mr. Pearce i appreciate that. Im going through the Monetary Policy report here and im going through your comments. I almost dont see anything about that number on the screen behind you. Just constantly rolling there. Its the debt. Maybe it doesnt mean anything. Maybe it does. Youall ever talk about that in your committee . Do you ever contemplate that in your position . Chairman yellen i have discussed this previously with this committee mr. Pearce i understand. The report today is one of the driving factors and something we ought to be thinking about. How did it affect you all when illinois was downgraded their bond rating was downgraded at the first of the year and they are paying what one analyst said is the highest differential in our history. Now thats the reason having to pay more and the bonds being downgraded because they cant afford to pate bills. If you hold their bonds, you may not get paid. If you went back to detroit when it filed bankruptcy, bondholders on got 74 on the dollar. So it all feeds back towards this number here and the fact it doesnt even make the print. Not even the fine print that i could find. Maybe i missed it. I did see the one sentence about illinois being downgraded. There was a brief discussion of puerto rico. But the idea that we as a country are not discussing our ability to pay our bills is something that i think there is a downside effect to the problem. But the fact that your report doesnt bring up is a little concerning to me. And the way that really played out was a couple weeks ago when Chicago Schools tried to issue a bond rating and they didnt get any bidders at all. None. So they ended up driving the 3 4. Up to seven, 7 1 2, 7 but it seems like the people in charge of the Financial Stability of our contry, value of our dollar, the value of our promises to pay, it just seems like it would have a little bit more important in the document here. I would expect, frankly, maybe a whole chapter because there are estimates that we cant pay our bills in this country. O we continue to operate as of as if its not going to matter if our ratings are downgraded. If our Interest Rate goes up. Were already running deficits which means we have to print the money every year to operate. It seems like that the people in charge of the system would be talking about it and telling us, hey, this is kind of serious. Why dont we Work Together and start figuring out what we can do to live within our means, to just make sure that were not paying triple and quadruple what other people are paying for debt. I would love to hear your comments. Chairman yellen well, let me state in the strongest possible terms i agree that what youre showing here represents a trend spending and rent taxation decisions is going to able debt unsustain situation with rising Interest Rates and declining investment in the United States that will further harm Productivity Group and living standards. I believe a key thing that congress should be taking into account in designing fiscal policy is the need to achieve sustainability of this debt path over time. This is something im not sure saying today would have been emphasizing for some time in my testimony. Chairman hensarling the time of the gentleman has expired. The chair now recognizes the gentlelady from new york, mrs. Maloney, Ranking Member of our Capital Markets subcommittee. Mrs. Maloney chair yellen, as you mentioned earlier, inflation has not been moving up as quickly as the fed had been expecting. Given that the labor market has continued to tighten and inflation still hasnt increased to the target of 2 , do you think the fed should wait to see some improvement in the inflation outlook before it starts the process of Balance Sheet normalization by phasing out the feds reinvestment policy . In other words, are your plans for the timing of Balance Sheet normalization unchanged . Chairman yellen so, we have been trying to very carefully lay out our plans to normalize the size of our Balance Sheet in a gradual and predictable way. And my colleagues made the judgment in june when we laid out the final details that the economy continues to evolve in line with our expectations that its something that we should begin to do this year. And to my mind i would say relatively soon. The exact timing of this i dont think matters a great deal. It is something we have long been preparing to undertake. As i mentioned earlier, were watching inflation very carefully. I do believe that part of the weaknesses inflation represents transitory factors but will recognize inflation has been running under our 2 objective, there could be more going on there. Its something that we will watch very carefully. And will be a factor in our future decisions about rate increases. Mrs. Maloney thank you. As you know your term as fed chair ends in 2018. There is a long history of president s renominating fed chairs that their predecessors had originally named. Ronald reagan renominated paul volcker. Bill clinton renominated Alan Greenspan. And president obama renated renominated ben bernanke. My question is are you up to serving another four years as fed chair if President Trump decides he wants to renominate you . Chairman yellen what i previously said is that i absolutely intend to serve out my term. Im very focused on trying to achieve our congressionally mandated objectives and i really havent had to give further thought at this point to this question. Mrs. Maloney when the fed does start the process of Balance Sheet normalization, are you less likely to raise Interest Rates at the same time . Or do you view these two actions as being on separate tracks . Chairman yellen the path for the federal funds rate is a. Cision for the committee that has made no decision about whether or not both things could occur at the same time. I would note that in june at our most recent meeting we produced the summary of Economic Projections which appear in the Monetary Policy report. Most of my colleagues or at least the median anticipated that one further increase in the federal funds rate would likely be appropriate this year. We constantly watch the economy, the evolution of inflation in the labor market, and well make decisions on the basis of our evaluation of that information. Mrs. Maloney the fed has suggested that the stock market is currently overvalued. Are there other markets that you consider or see as overvalued as well . And do you think a correction in any of these markets would cause problems for Financial Stability . Chairman yellen in looking at asset prices and valuations we try not to opine on whether they are correct or they are not correct. The as you asked what potential spillovers or impacts on Financial Stability could be of asset price evaluations, my assessment of that is as asset prices have moved up, we have not seen a substantial increase in borrowing based on those asset price movements. We have a Financial System of system, a Banking System thats well capitalized and strong. I believe it is resilient. Chairman hensarling the time of the gentlelady has expired. The chair now recognizes the gentleman from missouri, mr. Luetkemeyer, chairman of our Financial Institutions subcommittee. Mr. Luetkemeyer thank you, mr. Chairman. Thank you, madam chair, for being here today. As chairman of the Financial Institutions subcommittee, one of my jobs and greatest concerns is the Regulatory Oversight by the various federal service agencies. Chair yellen, when it comes to the feds supervisory role, i want to renew my call and the call of so many of my colleagues that the fed take more measured approach and withhold any new regulation until the nominee for vice chair for supervision has been confirmed by the senate. I do appreciate some of your comments and the comments of your colleagues, particularly governor powell, on issues such as the treatment of margin on the supplemental ratio and c cart testing. Issues like these have a very real impact on our economy. I think it wise that the fed ease the associated burdens. You recall i sent you a letter, your response indicated while you understood my concerns, the fed wasnt necessarily looking to curtail some of the stress test related activity. Now that the vice chair supervision has been named, i again ask that the fed hold off on nigh supervisory burdens before any is in place. Chairman yellen ms. Yellen we have a relatively light regulatory agenda at this point. Im pleased to see a nomination. Clearly we will look very carefully at the whole set of issues around Regulatory Burden and look forward to having the input of that individual if hes confirmed. Mr. Luetkemeyer ok. Thank you. To that end, also want to mention i am very supportive of many of the provisions in the recent treasury report. I hope that the Federal Reserve is taking some recommendations seriously. Have you read the report yet, aware of it . Ms. Yellen yes, i have read the report and there are many very useful and productive suggestions that mirror things that weve been thinking and oing ourselves with respect to tailering of our regulations, reducing burdens on Community Banks. I think the recommendations pertaining to volcker rule and ways looking for ways to reduce burdens are all very useful. There are a few points where we have a different view. A lot in it is very useful. Mr. Luetkemeyer i look forward working with you on that. While our branch of the government sacheck on the executive branch and agencies, we want to work with you to try and improve the ability of our banks to be able to do the job of helping their communities grow. Im glad you mentioned Community Banks because i have a quick story for you. Id like your response. With regard to mid america bank and trust. Small bank in my district thats been caught in regulatory purgatory for the last five years. Your agency has blocked the merger and acquisition because of concern over certain products. The same products that have been encouraged by the fdic and the state of missouris division of finance. Your staff has forced this bank through the years to produce document after document, which they have done. And the bank has made now several offers to remediate but the fed has rejected them. Mid america has spent more than 2 million in legal fees. This is a small bank that really cant afford to do this. This process has got to stop. The Federal Reserve, after five years, owes this institution a determination whether they can get this done. My first question is, are you aware of this case . Ms. Yellen i am aware of this case. Mr. Luetkemeyer what can be our expectation of the resolution of this . Ms. Yellen well, im not prepared today to comment in detail on what is a confidential supervisory matter, but there have been a set of complicated issues pertaining to consumer mr. Luetkemeyer madam chair, with all due respect, i understand where youre coming from. The bank on my side understand what the problems are. We have an elderly individual who has medical problems who wants to divest themselves of this bank. They have a very viable, structured well capitalized bank that wants to take them over and basically whats happening here is a very punitive way of go about punishing this bank with a product the fed didnt like, quite frankly. So that five years this has gone on and thats enough and so the opaque rules and unwillingness of the fed to work cooperatively with the banks and their attorneys and regulators is not something we can continue to go and support. And this is why i ask the question we started back with the treasury report. Treasury report is i think some solutions to some of the problems that the regulatory that we have and that is the punitive nature of some of the actions taken by some of the agencies including yours. And so i think its got to stop. We want to work with you to find ways to increase the ability of these Community Banks to be able to improve their communities and help their economies grow and well look forward to that. With that i yield back. Thank you, mr. Chairman. Mr. Hensarling the time of the gentleman has expired. The chair now recognizes the gentleman from minnesota, mr. Ellison. Mr. Ellison good morning, chair yellen. Thank you for being here today. Let me start out by saying im really happy about the appointment of rafael, president of the Federal Reserve bank in atlanta. He meets the legal mandates and he has great expertise and also he increases the number of africanamerican Bank President s from none to one which i think is important. And so thank you for that. We debate around here a lot of the cause of Slower Growth over the last several years. Youve already been exposed to some peoples theories as to why we have Slower Growth. I was intrigued by this book i read recently called makers and takers. I dont know if you are familiar with this particular book, but its a book that really talks about the financialization of the economy , and i guess id like to get your take on it. And the author of the book notes that one reason for lower productivity and lower wages is the outside profits earned by some in the Financial Services sector, banking, real estate, insurance, hedge funds, wall street. , she fact, the author has a stat up there on the screen that id like you to take a look at. She says while the Financial Sector is a little less than 7 of the economy, it provides about 4 of the jobs but earns a whooping 25 of corporate profits. 25 of corporate profits. Like, thats a lot of money and so as a result, you see money flowing into those sectors rather than, you know, plant and equipment and other sectors of the economy that might lend themselves to greater employment. Do you have any take on that . Do you have any impressions about that particular theory . Ms. Yellen so the Financial Sector has grown in importance relative to the u. S. Economy but my sense is that if we look t the plight with respect to wages and jobs, of middleclass families that have seen diminishing opportunities and downward pressure on their wages, that we have to take account of factors such aztec knowlogical change that have eliminated many middleincome jobs and globalization that of reinforced the impact technological change and that has to be an important those things have to be an important piece of understanding whats happened. Mr. Ellison yeah. Im sure technology does play some role but weve always had technology, havent we . When we went from horse drawn carriages to cars, people that made horseshoes had Something Else to do. So i am skeptical when i hear people say technology. We always had technology and we had more employment but we had this kind of slow growth period. And we had some people say, well, its because people dont want to supply labor because theyre living too good on welfare. We also, you know, is there is it possible that the Financial Services sector is sort of channeling investment into financial, you know, activity and not into agriculture, manufacturing, services that actually employ people . So ill give you an example. If you look at Sears Department store, its closes about 250 stores this year. That means thousands of sierras and kmart employees will lose their jobs and many communities will lose retail access. Of course, you know, you could point to technology. Im sure thats part of the explanation. But you know, can you can you share some ideas or point to some analysis to explain why the Retail Sector is being hit so hard . You could say amazon but i doubt that explains the whole problem. Do you have any specific information on the role that finance might be playing in part of this, these decisions . And did investors outside returns that demand Companies Like sears, buy or sell real estate so you can have better returns on financial equities . Ms. Yellen well, i dont have anything specifically for you on that. Id be happy to take a look. I mean, i would point out that for many years Many American companies have been sitting on a lot of cash. Mr. Ellison yeah. Ms. Yellen and have been unwilling to undertake investment and plant and equipment to the scale we would ideally like to see. So i think there are a number of Different Things going on. Mr. Ellison thank you very much. I yield back my time. Mr. Hensarling the time of the gentleman has expired. The chair now recognizes the gentleman from michigan, mr. Huizenga, chairman of our Capital Markets subcommittee. Mr. Huizenga thanks, chair yellen. Sorry hiding behind a couple of my colleagues here. Thank you. Well, its good to have you here, chair yellen. Appreciate that opportunity to have you. I was not expecting to do this but i want to touch briefly on something that chairman barr talked about. The labor work force participation. These are u. S. Bureau labor statistics, civilian Labor Force Participation rate. This is a Study Released by the st. Louis fed. Sure youre familiar with it. Fed. Org. Is what i heard you say is disappointing levels of Labor Force Participation is unavoidable because of aging demographic. And i wish i had the chart that i was able to put up, but it seems to me whats most concerning is this drop in participation really comes from youngest americans and in fact that chart, again, released by the fed of st. Louis shows the highest levels we have seen since the 1960s for americans aged 55 and older. It seems to me this argument that our economy hasnt responded the way it has, we talked about this actually last time you were here. I think i labeled it flimflam, not in a disrespectful way but it was clearly not what some of the statistics are sharing. What i want to talk about, though, quickly is that during your semiannual testimony before this committee in 2015, you were asked about concerns regarding a lack of liquidity in certain fixed income markets and you stated its not clear quote, its not clear whats happening in these markets and whats causing what. You continued that, quote, we dont see a problem but that it was something that you needed to study further. So my question is, has there been additional study and followup by the fed on that particular issue . Ms. Yellen so that is something that we continue to look at. We provide this committee with regular reports, particularly pertaining to corporate bonds. Theres been a number of studies inside the fed and also outside of it that show, you know, no clear pattern. Some suggestions regulations may be negatively impacting liquidity but other studies reaching different conclusions. Mr. Huizenga so you dont believe there are problems in the fixed income markets . Ms. Yellen so the inventories of bonds held by some of the largest banks and Market Makers have declined. The other hand, the spreads are low. Corporate bond issuance has been healthy. The market has done well. Mr. Huizenga there is a lack of transparency. Ms. Yellen it is hard to draw conclusions purely based on that. Mr. Huizenga remember going to be exploring this in my Capital Markets subcommittee on friday. We got a hearing on fixed income markets. Really just trying to find out what is going on. So maybe we can help you with some of that analysis, with some testimony from here. But i we need to have that investigative effort by the fed on this as well. Quickly want to move on. It r fed governor turullo is needed to expand fiduciary duties. He posed whether existing regulation could be further supplemented modifying the few dishary beauties of Financial Firms to reflect what i characterized as regulatory objectives, closed quote. He believed there is a, quote, special Corporate Governance measures are needed as part of an effective prudential regulatory system. And he argues that traditional duties focused on shareholders are inadequate for banking institutions. We are not talking about d. O. L. Or any otherify doucheary side of this. Fiduciary side of this. Do you agree with those . Ms. Yellen those are his personal recommendations. Mr. Huizenga is that a no . Ms. Yellen i cant say i agree with all of those recommendations. We are focused on trying to clarify expectations for boards of directors to distinguish what the Important Role that they have in a Banking Organization and what is the job of Senior Management versus a board of directors. Mr. Huizenga that would be a concern that i have here is what expertise the fed has on Corporate Governance issues like fiduciary duties and Corporate Boards and frankly under what Legal Authority does the fed Federal Reserve seek to preempt state Corporate Governance requirements as well as a number of things. So i appreciate your answer and thank you, mr. Chair. Mr. Hensarling the time of the gentleman has expired. The chair now recognizes the gentleman from colorado, mr. Perlmutter, Ranking Member of our terrorism and illicit finance subcommittee. Mr. Perlmutter good morning, madam chair. Thank you for being here and thank you for being a steady hand at the Federal Reserve. And you must be doing an ok job because ive listened to my friends, my republican friends who generally have very crisp, sharp, piercing, probing and accusatory questions. They dont have those today. Because things are doing pretty well. In colorado, i want to thank you. We were in real dumps eight years ago. You know, 10 unemployment. Housing crashing, foreclosures through the roof. We are in my district we are at 2. 1 unemployment. The state generally 2. 3 . And i know thats not the same for, you know, some of the parts of my state a little tougher and i know across the nation, but generally things have been steady and i want to thank you and the policies of the fed in helping us get out of what was a very bad situation. Ms. Yellen thank you for that. Mr. Perlmutter so couple questions. First, theres a guy who has wanting ty dogged in to telling me that we need to shrink the feds accommodative policy and pretty much and hes in the audience today. So explain to me hes right directly behind you a couple of rows. And hes been very firm over these years in wanting me to press you on this. So would you explain to me how you plan to shrink the accommodative policies that we took back in 2008, 2009, 2010 . Ms. Yellen so the Federal Reserve was dealing for many years with an economy with very high unemployment and inflation running below our 2 objective. We did everything that we possibly could to try to achieve the goals that weve been assigned by congress, namely, maximum employment and price stability. We were constrained in our ability to use shortterm Interest Rates as a tool and so we used our Balance Sheet and undertook other measures to try to stimulate the economy. And i believe we have been succeeding while inflation is still running below our 2 objective, the labor market, as you pointed out, is much healthier. The Unemployment Rate is now even running a little bit under levels that we regard as sustainable in the longer run. I think thats entirely appropriate given that inflation is running below our objective. So as the economy improves and we come closer to achieving our objectives, we see it is appropriate to begin to gradually remove accommodation and move to a neutral stance. As i said on many occasions, the new normal with respect to what level of Interest Rates is neutral appears to be rather low. So we have raised the federal funds rate target. I believe policy remains accommodative but given how low estimates of the neutral federal funds rates are, namely, level of the funds rates that would be consistent to sustaining the strong labor market over time, we, you know, perhaps have some further moves that we envision making if the economy proceeds along the path that its on. We anticipate that neutral may move up some, although remaining at low levels. And that generates a view that over time we may want to increase the funds rate a bit more but that all really depends on how things evolve. Mr. Perlmutter let me change the subject real quick. On page 12 of the report, there are two words that i have never seen in any of your reports and thats abysmal performance, and its as to productivity developments in the advanced economics. Thats the section. And a combination of technology and advances in science and Everything Else coupled with labor, were seeing its in the second column. A number of potential explanations have been put forth for the abysmal performance of t. F. P. That theres a waning oh, well im out of time. I thank you for your service. Youre doing a heck of a job. Thank you very much. Ms. Yellen thank you. Mr. Hensarling the time of the gentleman has expired. The chair now recognizes the gentleman from wisconsin, mr. Duffy, chairman of our housing and insurance subcommittee. Mr. Duffy thank you, mr. Chairman. Welcome, madam chair. My friends across the aisle seem to be relatively excited about lower unemployment, an economy thats picking up. Cited the stock market and peoples 401ks are improving, and they want to give you a a lot of highfives and back slapping. You get all the credit. What changes have you made since november 8 to kickstart this economy and make it grow that you werent doing before november 8 . Ms. Yellen what changes have we made to kickstart the economy . Mr. Duffy yes. Ms. Yellen we have continued on the course that we have been on normalization the path of Monetary Policy as the economy continues to recover. Duffy the real change has been mr. Duffy the real change has been made is we have a new president in the oval office. Not get too excited on who improved the economy. I do want to followup on what my friend, mr. Huizenga, was asking about the gentleman from michigan in regard to the role the fed is playing on Corporate Board rooms and our Financial Institutions. Youd acknowledge you do have a role at the fed in these board rooms. What role do you have . What are you doing . Ms. Yellen well, its our job to make sure that Banking Organizations are operate in a safe and sound manner and have policies in place that ensure both their safe and sound management and compliance with federal laws and regulations. And Corporate Boards play a Critical Role in ensuring the performance of Financial Institutions. Mr. Duffy isnt it fair to say, though, virtually anything could fall under the umbrella of safety and soundness . I mean, who is hired and who is hired and who is disciplined within a Financial Institution could fall under safety and soundness, right . Ms. Yellen well, i think its important to and were going to try to do mr. Duffy that could fall under safety and soundness, right . Ms. Yellen yes, it could. Mr. Duffy and help capital flows, who a Financial Institution lends to could fall under the auspices of safety and soundness, right . Ms. Yellen yes. Mr. Duffy the office of safety and soundness could replace the board of directors who have a fiduciary duty to shareholders and actually take over boards. All under the premise of safety and soundness. Ms. Yellen well, we believe the Corporate Boards play Critical Roles in ensuring mr. Duffy what falls outside the scope of safety and soundness in a Financial Institution . Exactly. Exactly. Ms. Yellen probably anything you mentioned. Mr. Duffy exactly. You cant give me an answer because everything falls under that scope and thats a concern. The fed doesnt have a fiduciary duty to shareholders and actually Board Members have potential civil and criminal liability in their service on a board. Does the fed have any civil or criminal liability should things go wrong on a Corporate Board . Board members are liable, how about the fed . Ms. Yellen well, we have supervisory responsibilities. Mr. Duffy no you do. Are those fed members who are sitting on board meetings, are they potentially criminally or civilly liable for the decisions they push a board to make . Ms. Yellen not to the best of my knowledge. Mr. Duffy mine neither. Thats concerning for us. Im pushing you on this because you do have a supervisory role and i want you to do a good job, but from the feedback we get, the involvement that the fed has in our Corporate Board rooms has far surpassed, i think, the vision that any of us had in this room and it concerns us. Ms. Yellen so let me say that we have talked to many Corporate Board members, and understand that there has been an accumulation of a large number of vy temperatures items we have indicated Board Members along with Senior Management should be responsible for. Mr. Duffy i dont believe you have the authority, madam chair. I dont think you have the authority to make decisions and thats the feedback we have had from members. My time has almost expired. Let me ask one question. Do you anticipate this will be your last time testifying before this committee . Ms. Yellen my term exspires in february, and so mr. Duffy thats a roundabout way of asking you are you seeking another term . Ms. Yellen i have not said anything about that. I intend to serve out my term and mr. Duffy i want to thank you for your service. I yield back my time. Mr. Hensarling the time of the gentleman has expired. Chairman illinois, mr. Foster. Mr. Foster thank you for your service. In the past i sent letters to you and other federal regulators about the requirement that custody banks hold supplementry ratio levels at the Federal Reserve presumably worries in some future universe the fed deposits may become less safe and available than cash which is a universe i dont enjoy contemplating. I believe that the Federal Reserve deposits are exactly the sort of safe place for these large and immediately cash positions that we should actually be encouraging because of the strength and reliability of the Federal Reserve as a counterparty. Now, as you may be aware, we now have Bipartisan Legislation to require that prudential regulators provide relief for institutions that place cash with the fed at the same time as providing significant flexibility for the regulators to deal with unusual circumstances. So do you see any safety and soundness difficulties if this legislation were to go forward . Ms. Yellen so i am not going to comment on the legs, but we are looking at the supplementry leverage ratio because of the impacts that you mentioned. A leverage ratio was meant to be a backup backup supervisory device calibrated appropriately relative to riskbased capital requirements, and while in general i think riskbased capital requirements, especially for the largest and most systemic institutions are at levels that i think are appropriate and am comfortable with, it may be that the supplementry leverage ratio needs to be recalibrated relative to that. And im very much aware of the problems youre mentioning and were considering how to address them. Mr. Foster thank you. Id like to use a little of my time to comment briefly on defense of my home state of illinois in response to some of the remarks from my colleague from new mexico. Every year the citizens of illinois write a check for approximately 40 billion to states, largely in the sun belt and rural areas because for every dollar of tax money, illinois receives back only 75 cents of federal spending. In contrast, new mexico receives 2. 40 back for every dollar of tax money. And so this check that we write for 40 billion a year, had it been put into arun day fund instead of a Rainy Day Fund instead of redistribute to other states in the union would have resulted in a balance of 1. 5 trillion today. So i think when people discuss the fiscal problems of illinois, the starting point should be there. Now [laughter] now id like, finally, id like to i cochair a future Work Task Force for the new democrat coalition. Were looking at the effects of technological and other changes that might occur in our work force in the coming years and what policies we should adopt to remediate the bad side of those effects. Theres a lot of discussion now about why inflation is not increasing as it you would have guessed in the past, particularly wage inflation. In the past when the gap closed up in the job market, thats very rapidly employers would start bidding up wages. That doesnt appear to be happening the way it used to. And one of the explanations that is suggested for that is that employers have the opportunity instead of just bidding up wages to simply invest in technology that replaces jobs. I was wondering if you think there is a reasonable chance that youre going to have to change your macroeconomic models to have the closest of the the tightness in the job market and the increase in wages . S. Yellen well, we are seeing links i think between the labor market and wages but even to a greater extent prices and inflation. The relationship between those two things has become more attenuated weve been accustomed to historically. Mr. Foster in general, when the robots show up, they show up as low prices. If you ask the average farmer, you know, what forced them to consolidate, they dont say its the machines. They say its low grain prices. And that goes on in many ways. Retailers are struggling with price competition from amazon. They dont often name well, we are not as efficient as the robots on amazon in amazon distribution centers. We need to look at this in a macroeconomic sense because those effects will not be small. I encourage you to think about that. Mr. Hensarling the time of the gentleman has expired. The chair now recognizes the gentlelady from missouri, mrs. Wagner, chairman of our oversight and investigations subcommittee. Mrs. Wagner thank you, mr. Chairman. And chair yellen, our committee has been concerned for some time about the confidential fmoc information being shared with favored constituents. In march, vice chair fisher delivered the key note for a Brookings Institution dinner and reportedly delivered remarks and to questions on Interest Rate policy. I say reportedly because the dinner was closed to the public and the press but open to wall street and other financial interests. In addition, fishers prepared comments have not been made available and in fact the speech took place at all was not widely known. This key note flies in the face of the fmocs policy on external communications of Committee Participants, which states that and i am going to read this right out of the policy quote, Committee Participants will strive to ensure their contacts with members of the public do not provide any profit making person or organization with a prestige advantage over its competitors. They will consider this principle carefully and rigorously in scheduling meetings with anyone who might benefit financially from apparently exclusive contacts with Federal Reserve officials and in considering invitations and to speak at meetings that are sponsored by profit making organizations or that are closed to the public and the media, closed quote. Schare yellen, we all want chair yellen, we all want transparency and accountability for our Monetary Policy so it remains insulated from. Olitical and profit making it flies in the face of policy. The speech occurred days before another fed official jeffrey, after admitted to playing a role in the 2012 fmoc leak where market sensitive details of the Central Banks internal deliberations were leaked to a private consultant that then shared the details with clients who stood to net millions in profits by trading ahead of the release of the news. However, the true leakers remains at large as jeffrey incidentally confirmed Insider Information that medley had already received. This is something that i certainly as chairman of the oversight and investigation subcommittee will continue to look into. Chair yellen, how could this speech been allowed to happen given everything that had occurred with the 2012 fmoc leak . Ms. Yellen ok. So let me start by saying the very beginning of our policy on fmoc external Communications States the Twoway Communications between members of the committee and members of the public are very important, both to communicate with the public and also to gain information and that these will occur in a variety of ways, including in some closed door meetings. So there is no requirement that fmoc members cannot meet in closed door sessions. The Brookings Institution is not a forprofit institution. Its a nonprofit and we have a clear set of guidelines governing what can and cannot happen in mrs. Wagner will the remarks be released to the public . Ms. Yellen so the clear rules hat no fmoc confidential information can be divunged ever, including in divunged ever in a closed door setting and that fmoc officials may not discuss even their own views on policy except to the extent they have already been presented in a public forum. The vice chairs remarks did not pertain to Monetary Policy. They pertain to financial mrs. Wagner reclaiming my time, chair yellen. The difficulty is we dont know that. In the interest of transparency and accountability, perhaps it would be good to show the light of day on whatever his remarks were to wall street bankers that were invited to a speech at the brookings institute. And i have to say madam chair, its very clear that these should not be closed to the public or the media so i am very concerned about this Going Forward and am also concerned about the resolution on the board due to the internal governance that happened on the fmoc leak. So id like to submit that in writing and get your information on that. Thank you, mr. Chairman. Sorry. Ms. Yellen so i want to say we have cooperated fully with our Inspector General and Law Enforcement agencies, that they have had access to all information thats relevant to this matter and that they announced simultaneously with the president. Mrs. Wagner the board must keep to its standards, madam chair. Mr. Hensarling the time of the gentlelady has expired. The chair now recognizes the gentleman from missouri, mr. Clay, Ranking Member of our Financial Institutions subcommittee. Mr. Clay thank you, mr. Chairman. Thank you, chairwoman yellen for being here. You know, perhaps we should replace some of the fantasy that weve heard today on the other side with the reality, you know. I hear my colleagues over there say within six months of this new administration we have improved the economy. We have improved Employment Opportunities for americans. I guess theyre pointing to the carrier deal in indiana where they were promised over 1,000 jobs to stay in this country and about 750 we hear are oving to mexico. But well give the president credit for that deal. And really, i know that the reason why the economy has turned around is the sustained job growth of the previous over more than six years. So heres my question to you. Chair yellen, in may, the overall Unemployment Rate of 4. 3 hit a 16year low. Although the Unemployment Rate rose. 1 in june, this reflected the positive moves that more workers who had dropped out of the labor force had returned to look for work. With the overall rate of employment now down at historically low levels, would you say that the economy has reached full employment or do headline rate mass weaknesss in the labor market is where additional progress must be made . Ms. Yellen so not all groups in the labor market are fairing equally well and we remain concerned about particularly for africanamericans and hispanics weaker job market outcomes but Monetary Policy is a blunt tool. As you point out, the Unemployment Rate and overallstate of the labor market is strong with many job openings and opportunities for workers, so the Unemployment Rate is even full and slightly below levels that my colleagues would regard as sustainable in he longer run. We have seen a steady rate for several years now, constant rate of Labor Participation with an aging population tending to push it down suggest groups that have been sidelined or finding opportunities and entering the labor force and gaining employment. So thats a Strong Performance and this has been going on as you said for a number of years and has continued has continued this year. Mr. Clay and thank you for that response because progress doesnt happen in six months. Especially when you have to recover from a devastating recession. So for the other side to give credit to someone whos not even focused on our economy is ridiculous. One more question. What in your view have been the key drivers of the job gains since your last testimony before this Committee Six months ago . Have job gains been driven by longer term trends, from a growing economy or largely resulted in new policies adopted in recent months . S. Yellen so the Global Economy has recovered. It was a source of weakness earlier. Thats been the source of support and weve had ongoing job gains and increases in, for example, housing prices that are boogs the wealth and Consumer Sentiment of americans and thats driving consumption spending thats Strong Enough to create ongoing job gains that exceed whats needed for an expanding labor force. So the job market continues to strengthen and unemployment continues to move down. Mr. Clay and thank you for that response. I hope this is not your last visit to this economy but im sure it wont be the last time we visit. Thank you. I yield back. Mr. Hensarling the gentleman yields back. The chair recognizes the gentleman, mr. Posey. Mr. Posey thank you, mr. Chairman. I hate to get into the cat fight or dogfight of who killed and shot john and whose policies are doing what. I heard the remark that the Economic Analysis cannot show any significant shortterm results or something to that effect and id just like to remind the other side that i saw dramatic overnight change in the stock market from the election to the inauguration. 6 and i think well go on. Chair yellen, good to see you again. Since i arrived in congress, the most cosponsored bipartisan significant piece of legislation has been dr. Pauls original legislation to audit the fed. We passed it but it goes nowhere at the other end of the building. Are you afraid of getting that passed . Ms. Yellen im strongly opposed to audit the fed. Audited in fed is every normal way that americans would regard in what our financial accounts and holdings are mr. Posey its not audited like all agencies. You are aware as well as i am of the list of exemptions. Ms. Yellen what the fed removes exactly one exemption that the Federal Reserve enjoys which is realtime policy reviews by the g. A. O. Of our Monetary Policy decisions and that is the essence of Federal Reserve independence and trying to keep politics out of decisions that should be technical, professional and nonpartisan. Mr. Posey id agree if i thought there was a lot of truth to that statement. Auditing something after the fact has nothing to do with the decision, i wouldnt think. I would consider a matter an important matter, actually, of transparency and i for the life of me cannot understand what the fed fears. Can you give me an example that would justify the lack of transparency . Ms. Yellen well, we dont have a lack of transparency. Mr. Posey you do if you cant audit it. Its a lack of transparency. To most people its a lack of transparency. To some people maybe. Thats the reason im questioning you on that. Ms. Yellen the Federal Reserve is one of the most transparent Central Banks in the world. Mr. Posey thats a statement. What do you fear about the audit . Give me a realtime example. Ms. Yellen so i think the fmoc needs a space in which it can have honest conversations and deliberate in real time about the decision we make without having political influence brought to bear in second guessing decisions that we have made and opining on them possibly with the idea of reversing them. Mr. Posey we can discuss things in public that are sensitive. Talk about national security. The Supreme Court does the same thing. They dont worry about the transparency influencing them. Just give me an example. Give me an example of how transparency could hurt the fed. Just give me one example how it could hurt the fed being transparent. Ms. Yellen because what youre talking about with the g. A. O. Or policy reviews that mr. Posey not a general swipe of review. Take for example this. If somebody said this, it would be horrible, it would be end of the world for the fed. Give me an example like that. Ms. Yellen so i would envision a situation where the g. A. O. , at the request of members of congress, might come in and say at our meeting a week ago they have taken the transcripts and reviewed what we said, they believe the decision we made was the wrong one at that particular meeting. And i would say thats an extreme interference and politicization of our ability to make independent Monetary Policy decisions. Mr. Posey so youre telling me we shouldnt be transparent for the fear of being second guessed or somebody criticizing you because you thought you were wrong, do i get it . Ms. Yellen what were talking about is political interference in decisionmaking. Mr. Posey if its after the fact i dont see the interference in decisionmaking. Ms. Yellen well, i do. Mr. Posey give me an example. Ms. Yellen i gave you an example. Mr. Posey give me an example of why they shouldnt have that transparency. Mr. Hensarling the time of the gentleman has expired. The chair now recognizes the gentleman from georgia, mr. Scott. Senator scott thank you vitch very much mr. Scott thank you very much, mr. Chairman. Chair yellen, good to have you again. Chair yellen, i first of all want to thank you and the Federal Reserve under the leadership of our Ranking Member, ms. Waters, and Ranking Member of the judiciary committee, john conyers and myself and others, we were hopeful that for the first time in history, American History that the Federal Reserve would appoint and hire the very first africanamerican ever to hold the position as a regional president of the fed. Nd you all did that. Nd we want to say thank you. So much. We deeply appreciate that. That means a lot not just to the Africanamerican Community but to all americans. Thats what this great country is about. Now, let me go to one other thing. Chair yellen, let me talk. You and i have been having ongoing the high Unemployment Rate of africanamericans, and i always remember fondly when you referred to that as a blunt instrument. As i said, thats what m said to james bond to describe him. In other words, he couldnt go through it. So you said that congress had to come up with some legislation. We did that. House resolution 51 or 52 of which we sent a copy to you, u know, which would the staggering rate of africanamericans young men to apprenticeships, Training Programs attached to rebuilding the crumbling infrastructure. That has been introduced. Of course, each five years we have to by law fund the 1890s africanamerican colleges so we put 95 million in the appropriations, hopefully, that we will be able to spread over for five years at 5 million for each of these universities over that period. Ow, i read your past reports that you have given and you have talked about housing and wed like to move that next. In your past three reports, you made a point to dedicate full sections of the report to ecific topics related to the disparity that the Federal Reserve is seeing and the data for the Africanamerican Community. So i want to call your attention specifically to those sections from the three most recent reports to congress. The titles of these and you refer to them as boxes, if you recall, boxes, thats what the fed calls them. One box is have the gains of the economic expansion been widely shared . Box number two, homeownership ethnicity. And box number three, does it determine who climbs the economic ladder. And in are that discussion of you highlighted and included socioeconomic differences between whites and blacks, poor Credit Scores due o income disparities and continued discrimination. That lays it bare. So chair yellen, let me just ask you, of all of these factors in your boxes, which of these factors is most pressing, and what recommendations on substantive solutions can we in Congress Work on to help ddress the homeownership problems hurting africanamericans must as you suggested that we develop this legislation thats moving forward on the unemployment of africanamericans . Ms. Yellen well, i dont want o try to give you detailed suggestions for what legislation you can put forward. Our job is to try to do the best we can to provide information and background that will be helpful to you as you decide whats appropriate and i do believe this is squarely in the domain of congress and the president and were trying to provide useful information. Mr. Scott we will pursue you. I commend you for bringing it up. I would love for you to stay on in your position as chairlady of the fed. Mr. Hensarling the time of the gentleman has expired. The chair now recognizes the time of the gentleman has expired. The time of the gentleman has expired. The chair now recognizes the mr. Man from new jersey, macarthur. Mr. Macarthur down here. Over here. I want to thank you for your service to our country and i appreciate you being here today. Your testimony has been helpful to me. I had two areas i wanted to explore. One is nonbank sifis. Y state, new jersey, in 2014 authorized by legislation our department of banking and insurance to do Group Supervision of insurers that were involved in the International Marketplace and i know that fsoc under doddfrank when it reevaluates sifi designations annually is required to consult with state regulators and i wanted to get how you rom you of would view now a state Insurance Department doing regulatory work of a group insurer, does that impact in your view how fsoc might look at the sifi designation of an insurer . Ms. Yellen so this is a matter or fsoc to decide. We have met with state regulators in new jersey and i am aware of this development which is a heartening one. I would say that the fsocs focus in designation is the Systemic Risk that the failure of given entity could pose to the broader Financial System. To the best of my knowledge most state regulators focus and supervision on protection of policyholders which is, of course, a very important objective but not on the Systemic Risk that the activities a company could pose to the broader Financial System and so in considering this matter, fsoc would, i think, have to take account of what the focus of that Company Supervision would be. Mr. Macarthur ok. I appreciate that. Although i would add just somebody who spent a lifetime in insurance, i think fed regulation has proven to be when you regulate individual companies within a group you create a Safer Company and i think our system is better than the european system which focuses on the group, not the company. But thats another matter. The other area i wanted to explore with you was the Labor Participation rate. You have mentioned it twice today and each time you said that the our aging population is pushing it down. And i guess on the one hand that makes a certain amount of intuitive sense. We have a baby boomer bubble working its way through, but i did want to ask you about a few particulars with that. Do you use has the fed used the bureau of labor Statistics Data on Labor Participation . Ms. Yellen i believe thats the core data. Mr. Macarthur so i have their the bureau of labor statistics Employment Data on my ipad. Im looking at it. Unfortunately i didnt do it ahead of time so i cant put it on the screen. But when i look at the actual data, all people over 16 years old so basically everyone whos of working age that has gone Labor Participation rate has gone from 66. 6 in 1994 to 62. 9 in 2014. So its a 3. 7 percentage point decline in Labor Participation. And youve suggested thats because people are getting older and theyre dropping out of the work force. But thats not what this chart says. 65 and says is that older has actually increased 18. 6 . 4 in 1994 to thats a 6. 2 increase in that 20year period. Let me just finish the question. For that group. And then for 55 and older, which is broader and includes those of normal retirement age, that numbers gone up by 10 percentage points. The one thats gone down, the group thats gone down is the 25 to 50yearold. Theyve declined from 83. 4 participation to 80. 9 participation. To group, the 25 54yearold group, peak earning years has declined by 2 1 2 percent. 2 1 2 percent times 23 million population is 8. 9 million unemployed in peak years. It doesnt seem to square with your assertion earlier twice. Ms. Yellen so very quickly, it is true that people in the retirement years, 65 and older, are working more now than they used to. But the level of Labor Force Participation of that group is dramatically lower than a prime age workers and increasing share of the population is now moving into those years with lower Labor Force Participation. Mr. Hensarling the time ms. Yellen so theres no conflict between the number that you cited and my statement that an aging labor force mr. Hensarling the time of the gentleman has expired. Ms. Yellen it is also it is also mr. Hensarling the time of the gentleman has expired. Ms. Yellen participation of prime age workers. Mr. Hensarling the chair now recognizes the gentleman from california, mr. Sherman. Mr. Sherman thank you, madam chairman, for coming here every few months. I remind you that you have not yet used your authority to break up the two big too fail institutions. I will spend the next minute reminding youer in too big to fail. If the entity just one entity goes down, it could take our whole economy down with them. They are too big to compete against because economic studies say that they that investors and the markets assume they will be bailed out. Theyve seen that congress will pass new legislation to bail out if that is thought necessary to save the economy and that therefore theyre able to get a cost of funds that may be as much as 80 basis points less than they would otherwise. They are too big to jail as former attorney generals have said they wont criminally prosecute because it might take down the whole economy. If the same thing was done by a mediumsized bank, no economic problem, go ahead and prosecute them. The hearing with chair yellen continues online at cspan. Org. Shes also tomorrow before the Senate Banking committee. Were covering that live as well. 10 00 a. M. Eastern on cspan3. U. S. House gaveling in momentarily, beginning work on legislation dealing with