Transcripts For CSPAN Federal Reserve Chair Predicts Moderate Pace Of Economic Growth 20170713

Her term ands in february. Inwhen her term ends february. The committee will come to order. The chair is authorized to declare a recess of the committee at any time. Members will have five legislative days to submit extraneous materials for the record. This is the purpose of receiving the semiannual testimony of the chair of the board of governors of the Federal Reserve system on Monetary Policy on the estate on the state of the economy. Recognize myself for an opening statement. Since we last convened on Monetary Policy, there have been encouraging economic headlines. Onfidence is up unemployment remains low, as does inflation. But it rests too much on incredibly low participation payment high disability participation rights. Both paychecks and savings for working Americans Still have room to grow after eight years of distortionary Economic Policy under the Previous Administration. On the fiscal front, help is on the way. House republicans have passed the American Health care act to lifted the burden of obamacare on our economy and the financial choice act, to unleash millions economic two on the chilies of dollars on the economic sidelines due to dodd frank and the house will vote on a fairer, flatter, more competitive tax code that will during us a healthier and dynamic economy and the Trump Administration is rolling back rules that harm our economy as well. Monetary policy must do its part as well. I am highly encouraged that chair yellen and her colleagues seem to be on track toward some type of Monetary Policy normalization, keeping Interest Rates much normalization. Lowing Interest Rates artificially has been judgmental. The pass for Economic Growth is for the fed to set a policy strategy to achieve its mandate and to stick to it. Forays by the fed into fiscal policy, credit allocation, could not and should not be permitted. Fed will soon convince soon commence a wind down of the Balance Sheet. Distraint into distinct credit markets is inherently fiscal policy, not Monetary Policy. There is talk of having the fed bailout Student Loans and public pension funds. I maintain, if we are not we may wake up to find our central bankers have become our central planners. Interest on required reserves was meant to counteract implicit tax. Interest on excess reserves should not be a permanent tool of Monetary Policy. Normalization would suggest shortterm Interest Rates be set by markets forces. Today, they are set by an administered rate paid on excess reserves, which is a premium reserve resting on uncertain Legal Authority forays into credit allocation. Threaten the feds independence and economic future. So lets hope the normalization is truly begun. I now recognize the Ranking Member for four minutes. Thank you, mr. Chairman. And thank you chair yellen. It is a pleasure to have you with us today. Day one, the story of the Trump Administration has been one of chaos and turmoil. Thatcreates uncertainty threatens the progress of our economy and opportunities available for all american households. Promises toany big hardworking americans about ushering in a new level of Economic Prosperity in america. Yet, despite all of his bluster, lets look at what trump has actually done. When it comes to our economy, more of it is good. He reduced that would have saved homeowners 500 a year. Toissued executive actions begin to dismantle wall street reform and embrace the wrong choice act. The chairmans bill to cut dodge frank wall street reform and consumer protections. The [indiscernible] there are actions that endanger the economic progress we have made since the great this recession. In passing the wrong choice act, House Republicans once again are trying to weaken the independence of the fed, and chain the feds policy decisions to a mathematical formula that would diminish its ability to support the economy and fulfill its mandate to promote full employment. The republicans bill would also subject federal financial regulators, including the fed, to politicize the annual of reparations process. All of this was not enough. President rouhani President Trump will soon have the opportunity to shake up the makeup of the board of governors, therefore turning the direction of policy to wall street. The white house announced the intent to nominate rando calls chair. Troubling, given his public opposition to key aspects of the dodd frank law and support for measures that would independence. Ds while our economy has made substantial progress since the height of the financial crisis, if we continue to see positive trends in the labor market as a resort a result of policies put in place by the fed, Congressional Democrats and president since your last testimony before this committee, wage Growth Continues to lag and disparitiesonomic continue to exist among racial lines so i hope fed policymakers would keep these mind and the fact that Inflation Expectations have theen as they evaluate stance of Monetary Policy so you foren, i commend your steady leadership and look forward to your testimony and mr. Chairman, i will yield back the balance of my time. Rep. Hensarling chair recognizes the chairman from mr. Barr. Mr. Barr welcome back to the nine yearsnd despite of the most accommodative u. S. Policy in recent history and positive economic news, Labor Force Participation remains at a disappointing 40 year low, wages are stagnant and Economic Growth 3 . Yet to eclipse making matters worse, like the farm bill used to pay farmers plant, the Federal Reserve, by paying interest on effectivelyves, is paying banks not to lend. Former fed chairman ben bernanke much in 2013 when he stated banks are not going to lend out the reserves at a rate lower than they can earn at the fed. The fed has adopted this reserveson excess policy to fund its enormous 4. 5 sheet bybalance guaranteeing the largest banks in america this lowrisk, onvemarket rate of return deposits deposits, the fed is discouraging lending into the economy, effectively taking money out of communities across america and leaving less capital mane street households and businesses to prosper. I was glad to read about the feds intentions to start shrinking its oversized portfolio. Share the view of fred bullard and others that this decision is long overdue. Me, however, is that once again the fed seems to be improvising instead of well grounded strategy. Earlier this year, some officials pointed to another fed funds rate increase in september a move to start reducing the Balance Sheet beginning in december. Hearing that the fomc might start the portfolio Reduction Plan in september and until december any further Interest Rate increase. Then, i welcome initiating process to reduce the size of the Balance Sheet sooner rather than later but look forward to your testimony and hopefully explanation whether the fed is once again changing its strategy why. F so, thank you for coming today and i look forward to your testimony topics. Ese and other yield back. Rep. Hensarling the chair now recognizes the gentlelady from wisconsin, ms. Moore, Ranking Member of the Monetary Policy trade subcommittee for one minute. Ms. Moore thank you for the annualere for humphreyhawkins report. Thanking start out by thank you for your thorough and thoughtful reply to our congressional letter regarding disparities in labor markets for African Americans and other minorities, thank you. It did not have a lot of solutions but it was very thoughtful, pointing out seek to find the answers. This disparate is really clear among minorities but im concerned that it is also populations ofll working americans and it seems pretty clear from the research the challenge moving useard will be able to fiscal policy to address income inequality in a way that the blunt instrument of Monetary Policy cant especially forward tomoves raise rates. I understand you have to do it asymmetrics aa, recovery that is troubling. And given that the poor and felt thelass have not benefits of the booming stock market and that inflation is control, i think the congress can and should use the first to shore up those segments of the population still hurting from recession and look forward to hearing your testimony and i yield back. Rep. Hensarling time of the yel expired. Ntlelady has we welcome the testimony of the she hase chair yellen, testified before this committee on numerous occasions. The witnesstion, written statement will be made part of the record. Nowr yellen, you are recognized for five minutes to give an oral presentation of your testimony. Being here. R chairman yellen thank you. Chairman hensarling, Ranking Member waters and other members of the committee, im pleased to reservese federal semi annual Monetary Policy report to the congress. In my remarks today, i will discuss the current Economic Situation and outlook before turning to Monetary Policy. Since my appearance before this the laborin february, market has continued to strengthen. Job gains have averaged 180,000 per month this year and still well above the pace we estimate be sufficient on average to provide jobs for new entrants to the labor force. Indeed, the Unemployment Rate has fallen about a quarter percentage point since the start of the year and at 4. 4 in june, 5. 5 Percentage Points below modestlyin 2010 and below the median of federal open participantsee assessments of its longer run normal level. Force Participation Rate has changed little on net this year, another indication of improving conditions in the jobs market given the demographically trend in thisd series. A broader measure of labor includesack that workers marginally attached to the labor force and those who wouldrttime prefer fulltime work has also is nowthis year and nearly as low as it was just before the recession. Encouraging the jobless rates have continued to majore for most demographic groups, including for African Americans and hispanics. However, as before the recession, Unemployment Rates groups remainrity higher than for the nation overall. Meanwhile, the economy appears to have grown at a moderate pace, on average so far this year. Adjusted grossn estimated touct is have increased at over 1. 5 in quarter, recent indicators suggest growth rebounded in the second quarter. In particular, growth in spending, which was weak earlier in the year, has months andn recent continues to be supported by job Household Wealth and favorable Consumer Sentiment. In addition, business fixed turned up this year after having been soft last year and strengthening in growth abroad has provided support for u. S. Manufacturing production and exports. Continuedg market has to gradually recover, aided by improvement in the labor market and Mortgage Rates that, although up somewhat from at relativelymain low levels. With regard to inflation, Consumer Prices as measured by the price index for personal consumption expenditures, increased 1. 4 over the 12 months ending in may, up from 1 a year ago but a thele lower than earlier in year. Core inflation which excludes food prices has also months,own in recent 1. 4 in may, a couple of tenths reading. Yearearlier it appears the recent lower readings on inflation are partly unusuallt of a few reductions in certain categories of prices. Will holdctions 12month inflation down until they drop out of the calculation. Nevertheless, with inflation theinuing to run below committees 2 longerrun objective, the fomc indicated in its june statement that it intends to carefully monitor and expected progress our symmetric inflation goal. Looking ahead, my colleagues on withomc and i expect further gradual adjustments in the stance of Monetary Policy, will continue to expand at a moderate pace over withext couple of years the job market strengthening further and inflation rising to 2 . This judgment reflects our view that Monetary Policy remains accommodative, ongoing job gains should continue to support the incomes and therefore consumer spending. Global Economic Growth should u. S. Rt further gains in exports and favorable financial conditions coupled with the prospect of continued games in domestic and foreign spending and the ongoing recovery in drilling activity should continue to support this investment. These developments should utilizationource somewhat further thereby fostering a stronger pace of wage and price increases. Course, considerable uncertainty always attends the Economic Outlook. There is, for example, uncertainty about when and how inflation will respond to tightening resource utilization. Changes in fiscal and other Government Policies here in the United States represent another source of uncertainty. In addition, although the Global Economyhe appear to have improved somewhat this year, a number of our trading partners continue to confront economic challenges. Present, i see roughly equal odds that the u. S. Economys be somewhatwill stronger or somewhat less strong than we currently project. I will now turn to Monetary Policy. To foster maximum employment and price stability by law. Red over the first half of 2017, the graduallycontinued to reduce the amount of monetary accommodation, specifically the fomc raised the federalange for the funds rate by. 25 at both its march and june meetings bringing of 1 toet to a range 1. 25 . So, the committee recognized the progress the economy has made and is expected continue to make toward mandated objectives. The committee continues to the evolution of the economy will warrant gradual increases in the federal funds time to achieve and maintain maximum employment and staple prices. Expectation is based on our view that the federal funds rate itsins somewhat below neutral level, that is, the funds ratee federal that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much get to a neutral policy stance. Anticipate we also that the factors that are currently holding down the diminishate will somewhat over time, additional gradual rate hikes are likely to appropriate over the next few years to sustain the economic and return inflation to our 2 goal. Continueshe committee to anticipate that the longerrun neutral level of the rate is likely to remain below levels it prevails previous decades. As i noted earlier, the Economic Outlook is always subject to considerably uncertainty and Monetary Policy is not on a preset course. Fomc participants will adjust their assessments of the appropriate path, the federal response to changes in Economic Outlooks and judgments of the associated incominginformed by data. In this regard as we noted in last month,tement inflation continues to run below and hasbjective declined recently. The committee will be monitoring inflation developments closely in the months ahead. In evaluating the stance of Monetary Policy, the fomc monetary consults policy rules that connect prescriptions for the policy variables associated with our mandated objectives. Such prescriptions cannot be applied in a mechanical way. Use requires careful judgments about the choice and measurements of the inputs into these rules as well as the implications of the many dosiderations these rules not take into account. I would like to note the simple Monetary Policy rules and their role in the Federal Reserves policy process that appears in our current Monetary Policy report. Now turn to our Balance Sheet. Augmented, the fomc its policy normalization principles and plans by providing Additional Details on the process that we will follow the size of our Balance Sheet. The committee intends to gradually reduce the Federal Reserves Security Holdings by decreasing its reinvestment of the principal payments it receives from the Securities System open market account, specifically such be reinvested only to the extend that they receive gradually rising caps. Initially these caps will be set at relatively low levels to of securitiesme that private investors will have absorb. The committee currently expects that provided the economy evolves broadly as anticipated, it will likely begin to implement the program this year. Once we start to reduce our reinvestments, our securities will gradually decline as will the supply of reserve system. In the banking the longerrun normal level of will depend ons a number of asyet unknown factors including the Banking Systems future demand for reserves and the committees about how toons implement Monetary Policy most effectively. Nd the committee currently anticipates reducing the quantity of reserve balances to appreccably is below recent levels but larger than before the financial crisis. Finally, the committee affirmed in june that changing the target range for the federal funds rate our primary means of adjusting the stance of Monetary Policy. Do not intend, we to use the Balance Sheet as an policytool for monetary in normal times. However, the committee would be reinvestmentesume if a material deterioration in the Economic Outlook were to warrant a sizable reduction in the federal funds rate. Generally, the committee would be prepared to use its including of tools altering the size and composition of its Balance Sheet future Economic Conditions were to warrant a more accommodative Monetary Policy be achieved solely by reducing the federal funds rate. Thank you. To take yourd questions. Rep. Hensarling the chair himself for five minutes for questions. First question i have is with respect to the 2 inflation was adopted several years ago. I must admit, as an aside, a of an envelope calculation tells me that nominal prices every generation, still trying to figure out how with pricemensurate stability but thats not my question. In a recent press conference, some interpreted comments that made to indicate that you hadopen to an increase in the inflation target. Pursuing an increase in the inflation target . Or other members of the fomc, is this a matter of discussion within the fomc to increase the 2 inflation target . Is not. Yellen it we reaffirmed our 2 inflation target in january. We are very focused on trying to 2 inflation target and it is not a subject of discussion. Rep. Hensarling thank you, i take no for an answer. As you heard in my opening remain concerned, as do other members, about a blurring between the lines of Monetary Policy and fiscal credit specifically allocation. We feel ultimately this could feds upon the independence. Professor marvin goodfriend, who you may be familiar with, of carnegiemellon, gave what i thought was an instructive distinction between monetary and fiscal policy and said, Monetary Policy does not favor one sector of the economy over another and Monetary Policy creditt involve taking risk on to the feds Balance Sheet. On to say credit policy works by interposing the governments credit worthiness, power to borrow credibly taxes between private borrowers and lenders to distress borrowers. Fed credit policies are acquiring noncredit securities with freshly created Bank Reserves or proceeds from the treasures from the fed portfolio. I guess my question is, chair with this you agree distinction and if you dont agree with this distinction, do feel that credit policy is commensurate with your mandate . Onal chairman yellen the fomc, in principles for normalization has clearlypolicy indicated that it intends to return, over time, to a primarily treasuryonly portfolio and thats in order not to influence the allocation the economy. That said, our purchases of tookagebacked securities crisisfter a financial when the market for mortgagebacked securities was not working well and i believe it was appropriate but weve endorsed the principles of returning to a treasury portfolio. Rep. Hensarling do you or do you not associate yourself with professor goodfriends comments . Is that a useful distinction to it . As he articulated chairman yellen i think it is a useful distinction. Rep. Hensarling it is my understanding that the fed can legally purchase student debt guaranteed by the federal and municipal debt that matures in less than six months. That your understanding, as well . Chairman yellen im not sure about student debt. Treasurye to purchase and Agency Securities. Rep. Hensarling has the fomc the possibility of either purchasing student debt . R municipal chairman yellen not to the best of my knowledge. Rep. Hensarling finally, to end this part of the questioning, am i led to believe, then, that your Balance Sheet reduction allow you you will to return the fed funds rate as policy instrument instead of reserves, instead of interest on reserves . My understanding from your testimony . Chairman yellen well, we are on excess interest reserves as our key tool for rateng the federal funds so that is a key instrument of Monetary Policy. I said is that we on adjustments through Interest Rate on reserves through our fed funds rate target as a means of regulating. Rep. Hensarling my time is rapidly winding down, perhaps not in a question but request. I was heartened to see in your report a comparison of fed policy with a number of policy rules. Helpful,his is very chair yellen. That in somehough, respects, your report says how from theseffered policy rules but it did not say why. Broadestto give the amount of information to the markets so that people can plan would simplyi encourage you to perhaps even go discuss not how, but why the actual fomc policy differed from policy rules. I think that would be very encouraging if you would have a comment on that. Chairman yellen let me just say im very pleased that the onmittee found the material rules useful and we look forward you to provide further information that would committee. O the rep. Hensarling i now recognize the Ranking Member for five minutes. You,aters thank mr. Chairman. As part of the federal open committees statement on longerrun goals and monetary the committeey, states it would be concerned if inflation were running persistently above or below its 2 objective. Given that core inflation has below the feds 2 target for more than five years and is at 1. 4 , what is the furthertionale for raising rates at this time . 2 mark is truly is symmetric, shouldnt the federal open Market Committee be willing to allow inflation to begin 2 targetser to its before its able to justify increases . Rate chairman yellen let me say that were very committed to inflationour 2 objective and are well aware that for a number of years we under that andng recognize that there are dangers be associated with persistent undershoots of our objective and it is a semitic inflation objective. Is not a ceiling. Its a symmetric objective. Now, i would say with respect to the inflation outlook, although inflation has been running below 2 , earlier this year on a 12month basis, core inflation 1. 8 and headline came close to 2 . Strengtheen increasing in the labor market. That continues, and although process, lags in this i believe thats something that over time will put upward on both wages and prices. For several months running, we unusually low inflation readings. As i mentioned, there appear to some special factors that partly account for that. Example, quality adjusted plans of cell phone plunged several months ago and alsoription drug prices plunged. So some temporary factors appear at work. 12monthess, so our inflation rates will remain low until those factors drop out. Prematured say its to reach the judgment that were inflation path to 2 over the next couple of years. As we indicate in our statement, that wereing watching very closely, considering risks around the inflation outlook. Mind, a prudent course is to make some adjustments as long that werecast is heading back to 2 . But Monetary Policy is not on a preset course. This very closely and stand ready to adjust our appears that the inflation undershoot will be persistent. Ms. Waters thank you very much. Move on to ask you a question about Deutsche Bank. To commend you and your colleagues at the Federal Reserve for recently fining Deutsche Bank, a top creditor of the president , and his immediate family, for its comply with antimoney laundering requirements. Id like to learn a bit more about what you may have discovered in the course of your bank. Igation of deutsche were you able to verify that Deutsche Bank completed its own a russianeview of mirror trading scheme that took from 2011 to 2015 and as oft of the feds supervision Deutsche Banks antimoney compliance, can you comment on the Due Diligence the bank conducted on the accounts hisresident trump and immediate family members given the highprofile nature of their accounts . Chairman yellen so, we issued againstcement action Deutsche Bank for violations of act, antimoney laundering procedures in the states and that was based on our own investigations. The mirror trades that you therred to occurred outside United States. U. K. F. C. A. Took an action against Deutsche Bank trades. E those are not ones we were looking at. We havent of course in the course of our investigations looked into individual president. S with the ms. Waters that was one of two reviews that was done in Deutsche Bank. The mirror trading and high profile of politicians or elected officials review. Are you familiar with that . Chairman yellen im not familiar with the details. Our focus has been on the safety and soundness of the operations of deutsche in the u. S. Ms. Waters thank you, i yield back. Chairman hensarling the gentlelady yields back. The chair now recognizes mr. Barr, chairman of the monetary and trade subcommittee. Mr. Barr thank you, mr. Chairman. Chairwoman yellen, welcome back. We welcome the decision, the announced intentions of the fed reducingthe process of the size of its oversized portfolio. But 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 our 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 this gets to the credit allocation. On feds use of interest reserves as a Monetary Policy tool. Banks one and a quarter percent on balances and if the fed follows through with its normalization plans, they will be paying thinks a higher rate. These Interest Payments 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 rates to their customers in the form of higher Interest Rate on customer deposits . Chairman yellen my impression is on larger deposit on cds, we are beginning to see some upward movement in rates that are available to customers. Accounts. Ail deposit my expectation is although there as shortterm Interest Rates rise, Competition Among banking organizations will begin to put upward pressure on those rates. What somewe looked at of the big banks pay on customer deposits. Multiple institutions paying only one basis points on customer deposits. The fed is paying 125 basis points. It does not appear as though any of these this is happening to customer accounts. That might compel the fed to reconsider the policy. Wouldnt it be better for growth if banks were encouraged to employ more capital instead of parking it at the said fed . Chairman yellen i do not see banks as parking it at the fed. My discussion with bankers and the information we regularly collect suggests that banks are looking to make loans. There was a period of very slow growth at the beginning of the suggest itur surveys was more a matter of demand than supply. Remember our interest bond reserves is at a very low level. Mr. Barr if i could interject. The dilemma that the fed now faces is lowering interest on reserves would decrease the rate but it was also entail moving back to the conventional open market operations. When we talked to a little bit about the limits of Monetary Policy. We know we have been struggling overall with slow growth and Labor Participation, even though employment has come down. Unemployment has come down. What Many Employers say to me is they simply cannot compete with the government for labor. The government is hang people to not work. This debate in washington about obamacare and whether we should reform medicaid. You cannot get growth going so long as entitlement expansion is anywhere near where it has been recently. Have it both ways. You cannot fund all the entitlements everybody wants and expect he will get a gdp out of more of the annual rate. The arithmetic just does not work. Chairman yellen to my mind, the major factors is the population. Utting force on participation there are other factors that affect participation as well. The slow growth that we have and anticipate reflects slow productivity growth. Thank you. Let me start a pursuit of the question that mr. Barr was raising with you. Medicaid. Example of i want to mention that two thirds of the people who use medicaid are in Nursing Homes and unable to work. I want to point that out. I also want to pursue the question from you that the chairman seemed to be very interested in. I want to note that a couple weeks ago, you are very critical of the taylor rules. One of the rules that seems to be favored at the leadership on this committee. I wonder if you could spend a little time talking to us about your reservations about the taylor rule and the appropriate application. Chairman yellen i do not believe that they should mechanically follow any single, simple rule. Policy rules do embody some that should inform our policy decisions. We have, for several decades now, look that the recommendations of the taylor rule and a number of different rules in deciding on the appropriate stance of policy. As we try to point out in the , there are many different rules. There is no clear way to decide which one is better than others. There is no single recommendation that comes out of a rulesbased approach and the required judgment in order to implement measuring things like particularly gap, the neutral level of Interest Rate, something we have been struggling with, as has the professional Economics Community for many years. Act is a bill that we pushed out of this committee. We proposed a rulebased Monetary Policy. You want to know what your thoughts are specifically about that piece of legislation. Chairman yellen i said on many toasions that i am opposed the requirements. What about subjecting the fed appropriation . Chairman yellen i would be very concerned. Saying we start with are 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 on the basis for our actions and Monetary Policy, also in supervision. I do think our independence and setting our own appropriations thank you for that. I want to get back to the hastations that the fomc and closing the gap closing the gap. Theres only so much you can do. I was wondering if you would agree that some of the asperity sayinghat congress that we are paying people not to work when actually people who , those ared stamps old people, disabled people, and children. Would you say that Congress Needs to step up on the appropriation side doing things for lower income people to subsidize wages, that that is a better tool than what the fed has to offer . Chairman yellen as you indicated, Monetary Policy is a blunt cool. It is not something that we can blunt tool. Pool a strong labor market does benefit all groups, particularly minority groups, although the experiences are worse for them. I think it is absolutely appropriate for congress to consider appropriate fiscal policy and how it might be used to advance those objectives. Thank you so much. My time has expired. Recognizes a man from new mexico. Chair now recognizes and man from new mexico. Thank you for being him. We always appreciate your visits. The note in your comments you are about the Labor Force Participation rate. We have had opportunity to discuss that. Something that seems to be a concentration on the part of the fed before. It is now. What changed that it has become a bigger concentration for you. Chairman yellen it is important for us to try to determine how much slack there is in the labor markets and the potential. Anyhat did not seem to be comments from you in 2016. It was a number that did not come readily to your mind when you are in front of the committee. I wonder what has changed since january that he would now become be concentrating on that. Chairman yellen i was discussing this last year because there was some uncertainty after a very long and deep recession. Whatnt to understand potential there is for people to come back. As a midget in my testimony, Labor Force Participation as i mentioned in my testimony, Labor Force Participation rate im going to your comments. I almost do not see anything about that number on the screen behind you. Maybe it does not mean anything. Maybe it does. Do you ever talk about that in your committee question mark you ever contemplate committee . Chairman yellen i have discussed this previously with this committee. It is something we ought to be thinking about. You whent affect illinois bond rate was downgraded the first of the year and they are paying one of the highest deferential in our history . You cannot afford to pay the bills. If you hold their bonds, you might not get paid. If you went back to detroit when it filed a grip see, bondholders only got 74 on the dollar. , bondholders only got 74 on the dollar. It does not even make the print. I did see one sentence about illinois being downgraded. There was a brief discussion of puerto rico. We as a country are not discussing our ability to pay our bills, i think there is a downside affect of the problem. The fact your report does not bring it up is a little concerning to me. Chicago schools tried to issue a bond rating and did not get any bidders at all. It is driving the rate of the seven, seven and a half. Thele in charge of Financial Stability of the country, the value of our dollar, the value of our system, it seems like it would have more import in the document here. I would expect a whole chapter because there are estimates that we cannot pay our bills in the country. We continue to operate as if it is not going to matter if our ratings are downgraded. Up, weInterest Rate goes are already running deficits. Which means we have to print the money every year in order to operate. It seems like the people in charge of the system would be talking about it and postulating and telling us this is serious. We should Work Together and figure out what we can do to live within our means. Make sure that we are not paying triple and quadruple what other people are paying. I would love to hear your comments. Chairman yellen let me state and the strong as possible terms that i agree that what you are showing here represents a trend spending andurrent taxation decisions, is going to unsustainable situation. It will further harm our productivity growth 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 past over time. This is something i am not just seen today. We have been emphasizing for some time in our testimony. The lady from new york. Chairman 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 has not 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 investment policy . Or are your plans for the timing of the Balance Sheet normalization unchanged . We have beenen trying to very carefully lay out our plans to normalize our Balance Sheet in a gradually productive away. My colleagues made the judgment in june, when we laid out the final details that if the economy continues to evolve in line with our expectations, it is something we should begin to do this year. To my mind, i would say relatively soon. The exact timing of this, i do not think matters a great deal. It is something we have long to undertake. As i mentioned earlier, we are watching inflation very carefully. I do believe that part of the weaknesses and inflation represents transitory factors. Inflation has been running under our 2 objective. There could be more going on there. It is something we will watch very carefully. It will be a factor in our future decisions about rate increases. Thank you. Your term as said chair in ends in 2018. Pauld reagan renominated volker. President obama renominated in bernanke. Serving another four years if President Trump decides he wants to be nominate you . I absolutelyen intend to serve out my term. I am very focused on trying to achieve our congressionally mandated objectives and i really have not had to give further thought at this point to this question. Said does start process of start the Balance Sheet normalization, are you less likely to raise Interest Rates at the same time or tv the two actions as being view the twoou actions as being on the same track . Chairman yellen they are made no decision about whether or not those things could occur at the same time. Note that in june, we produced the summary of economic projections, which appear in the Monetary Policy report. The my colleagues median anticipated an increase in the funds rate would be appropriate this year. We constantly watch the economy, the evolution of inflation in the labor market, and we will make decisions on the basis of our evaluation of that information. Fed has suggested the stock market is overvalued. Are there other markets you consider overvalued . Do you think a correction in any of these markets would cause problems for Financial Stability . Chairman yellen in looking at asset prices and evaluations, we to on whether they are correct or not correct. What the potential spillovers or impacts on Financial Stability could be of a price we evaluations valuations, as asset prices have moved up, we have not seen a substantial increase in Borrowing Base on asset price movements. We have a Financial System, a Banking System that is wellcapitalized and strong. I believe it is resilient. Time of the gentlelady has expired. The chair recognizes the man from missouri. Thank you. Financialn of the institution subcommittee, one of my jobs and greatest concerns is the regulatory oversight. Fed it comes to the supervisory role, i want the fed to take a more measured approach until the nominee for vice chair for supervision has been confirmed as the senate. I do appreciate some of your comments and comments of your colleagues on issues such as the treatment of margin. Issues like these have a real impact on our economy. Letter. Ll i sent you a the response indicated that why you understood my concerns, you were not necessary looking to curtail some of this activity. Feds again asked that the hold off on imposing any supervisory burdens. I would ask for any response to these statements and concerns. Chairman yellen we have a relatively light regulatory agenda at this point. We are pleased to see and a nomination. We will look very carefully at the issues around regulatory burdens and look forward to having the input that individual of that individual is confirmed. Many provisions included in the recent treasury report. I hope the Federal Reserve is taking this seriously. Have you read the report yet . Chairman yellen yes. Ive read the report. There are many very useful and productive suggestions that your things that we have been thinking and doing ourselves. Reducing burdens on Community Banks. Recommendations pertaining to rule and ways to reduce burdens are all very useful. There are a few points where we have a different view. A lot of it is very useful. I look forward to working with you on that. Our branch is a check on the executive branch. We want to improve the ability of our banks to do the job of helping the communities grow. Communitye mentioned banks. I have a quick story for you. I shared this story with the committee in the past. Hasall bank in my district been caught in purgatory for the last five years. The agency has blocked the merger and acquisition institution because there was concern over certain products on the same politics products encouraged in the division of finance. Your staff has forced this bank to produce the document after document, which they have done. The bank has made several offers to remediate. The fed has rejected them. They spent more than 2 million in legal fees. They cannot afford to do this. Stop. Rocess has to the Federal Reserve, after five years, does this institution the determination of whether they can get this done. Are you aware of this case . Chairman yellen i am aware of the case. What can be our expectation to a resolution of this . Chairman yellen i am not on thed today to comment details of what is a confidential supervisory matter. There has been a set of complicated issues pertaining to consumer i understand where youre coming from. The bank on my side is very open about what their problems are. We have an individual who has medical problems. Financee a very viable that was to take them over. Way of an in punitive punishing this bank. On,five years this has gone that is enough. The willingness of the fed to work with the banks and their attorneys is not something we can continue to support. This is why i asked the question. Has someury report solutions to the problems, regulatory early, that we have. Regulatory, that we have. Findnt to work with you to ways to increase stability of the Community Banks to improve communities and help economies grow. We look forward to that. Time of the gentleman has expired. The chair recognizes mr. Ellison. Ellison think you for being here today. We start out by saying i am really happy about the appointment. Mandate and legal has great expertise. He increases the number of africanamerican Bank President s from none to one. I think that is important. Thank you for that. We debate around here a lot of the cause of Slower Growth over the last several years. Your party been exposed to some theories about why we have Slower Growth. Are not know if you familiar with this particular book, but it really talks about the financial asian nation financialization. Profits,ut the outside author has the statistic on the screen there. She said that while the Financial Sector is a little less than 7 of their economy, it provides about 4 of the jobs and earns a whopping set of corporate profits. 25 of corporate profit is a lot of money. Result, you see money flowing into those sectors rather than other sectors of the economy. Do you have any take on that . Do you have any impressions about that particular theory . Chairman yellen the financial importancegrown in relative to the u. S. Economy. Since is that if we look at the plate with respect to wages and jobs of middleclass families that have seen diminishing opportunities and downward pressures on their wages, we have to take account of factors such as technological change which has eliminated many middle income jobs and globalization that is reinforced has reinforced technical on drupal technological change. Sure technology plays some role. We have always had technology. We went from horsedrawn carriages to cars. People who made horseshoes had to find something new to do. I am always skeptical when i hear someone say technology. We have also had more employment. We have had this slow growth peering. Some people say period. Possible that Financial Service sector is channeling investment into financial and not into agriculture and Manufacturing Services that actually employed people . I will give you an example. If you look at the Sears Department stores, it is close closed close to 250 stores this year. Hundreds of communities will lose retail access. Could point to technology. I am sure that is part of the explanation. Or you share some ideas explain why the Retail Sector is being hit so you could say amazon, but i am doubtful that it claims the whole problem. Do you have any specific information on the role that finance i be playing in part of this decision . Do investors demand outside returns that demanded Companies Like sears sell real estate so that you could have federal returns on financial equities . Chair yellen i dont have anything specifically for you on that. I would 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, and have been unwilling to undertake equipment to the scale that we would ideally want to see. There are a number of things going on. Rep. Ellison thank you very much. Time with the gentleman now expires. We now recognize the chairman of our Capital Markets subcommittee. Sorry, hiding behind a couple of my colleagues here. [laughter] thank you. It is good to have you here, chair yellen. I appreciate the opportunity to have you. I want to touch briefly on something that chairman bar had talked about. The labor workforce participation. These are statistics, the civilian Participation Rate. This is a Study Released by the st. Louis fed. Im sure you are familiar with it. Said. Think fed. Sainitlouis. I wish i had the chart that i was able to put up, but it seems to me, what was most concerned with the drop in participation comes from the youngest american 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 that this argument that our economy has not responded the way that it has, we talked about this last time we were here and i little flimflam, not in a disrespectful way, but it is clear with the statistics are showing. What i want to talk about 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 it is not clear what it it is not clear what is happening in these markets and what is causing what, and you continued we do not see a problem, but it was something you needed to study further. Has there been a additional study and followup by the fed on that particular issue . Chair yellen that is something we continue to look at. We provide this committee with reports of particularly pertaining to Corporate Bonds. There have been a number of studies inside the fed and also no clearf it that show pattern. Some suggestions that regulations may be negatively impacting liquidity, but other studies reaching different conclusions. Rep. Huizenga you dont believe there are problems in the fixed income markets . Chair yellen so, the inventories of bonds held by some of the largest banks and Market Makers have declined on the other hand. Has spread that are low, and Corporate Bond issuance has been healthy. The market has done well. Rep. Huizenga isnt it true that we do not ask whether those are really there . There is a lack of transparency. Chair yellen it is hard to draw conclusions purely based on that. Rep. Huizenga we are going to actually be exploring this in my subcommittee. We have 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, testimony, from here. We need to have that investigative effort by the fed on this as well. I quickly want to move on. The former fed governor suggested in a speech that new regulatory paradigm is needed to expand fiduciary duties. To directors of Banking Institutions he posed the question of whether existing modes could be supplemented by modifying by fiduciary duties of Financial Firms for regulatory objectives. He believed there is a special Corporate Governance measure needed as part of an effective credential regulatory system, and he argues that traditional fiduciary duties focused on foreholders are inadequate Banking Institutions. We are not talking about the other fiduciary side of this. This is for chair yellen those are his personal recommendations. Rep. Huizenga is that a no . Chair yellen i am not prepared to say that i agree with all of those recommendations. Are focused on trying to clarify expectations to the important rule that they have in the banking and what is the job of Senior Management versus a board of directors. Rep. Huizenga that would be a concern i have here is what expertise the fed has on Corporate Governance issues like corporate boards and frankly on of thet the authority Federal Reserve seek to preempt state Corporate Governance requirements as well as a number of things. I appreciate your answer. Hasime with the gentleman expired. The chair recognizes the gentleman of colorado. , good morning, madam chair and thank you for being here and being a city hand at the Federal Reserve. Chair yellen thank you. You must be doing an ok job because i have listened to my friends, my republican friends, who generally have very crisp, sharp, piercing, probing, and accusatory questions. They do not have those today because things are doing pretty well. Colorado, i want to thank you. We were in real dumps eight years ago. Housing,loyment, crashing, foreclosures through the roof. At my district, we are 2. 1 unemployment. The state, 2. 3 . I know that is not the same. I know that is not the same everywhere. 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. Chair yellen thank you for that. A couple questions. First, there is a guy who has ged in telling me fedse need to shrink the accommodative policies, and pretty much, he is in the audience today. He isn to me directly behind you. He has been very firm over the years in wanting me to press you on this. Can you explain how you plan to shrink the accommodative policies that we took back in 2008, 2009, and 2010 . Chair 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 we have been assigned by congress, namely maximum employee in 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 we regard as sustainable in the longer run. I think that is entirely appropriate given that inflation is running below our objectives, ands the economy improves we come closer to achieving our objectives, we see it as appropriate to begin to gradually remove accommodation and move to a neutral stance. As i have 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. Unds rate target i believe policy remains accommodative. Given how low estimates have been neutral, federal funds that are now namely levels are just consistent with sustaining the strong labor market over time. We perhaps have some further moves that we envision making if the economy proceeds along the path it is on. Maynticipate that neutral be up some, although remaining at low levels, and that generates a view that over time, we may want to increase the. Unds rate a bit more federal really depends on how things evolve. Rep. Perlmutter let me change the subject real quick. Page 12 of the report, there are two words that i have never seen in any of your reports. It is abysmal performance. T is as to productivity and advance economic. Andmmodation of Technology Advances in science and Everything Else coupled with somethingare seeing in the second column. A number of potential explanations have been put forth for the abysmal performance of tfp. I am out of time. I think you for your service. You are doing a heck of a job. Thank you very much. Chair yellen thank you. Time of the gentleman has expired. Recognizes the gentleman from wisconsin. Thank you, mr. Chairman. Welcome, madam chair. My friend across the aisle seem to be relatively excited about lower unemployment, an economy that is picking up, the stock market and peoples 401 k s are improving. They want to give you a lot of highfives and backslapping. You get all the credit. What changes have you made since november 8 to kickstart the economy, make it grow that you are not doing before november 8 . Chair yellen what changes have we made to kickstart the economy . Rep. Duffy yes. Chair yellen we have continued on the course we have been on of normalizing Monetary Policy as the economy continues to recover. Rep. Duffy the real change is we have a new president in the white house. I make that point to my friend across the aisle. Do not get too excited on who is getting credit for an improving economy. I do want to follow up on what wasriend, mr. Huizinga asking about, the gentleman from michigan. The rule that the fed is playing on corporate boardrooms and Financial Institutions. You do have a role at the fed on these boardrooms. What role do you have . Chair yellen it is our job to make sure that banking organizations operate in a safe and sound manner and have ensures in place that 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. Rep. Duffy i have got to say though that virtually anything could fall under the relevant of safety and soundness. Who was hired and who was fired could was disciplined fall under safety and s oundness. That could fall under safety and soundness, right . And who a Financial Institution lends to could fall under the auspices of safety and sound. Chair yellen yes, it could. Rep. Duffy in essence, the fed could replace the board of directors am a who have a fiduciary duty to shareholders, and actually take over boards, all under the premise of safety and soundness. Chair yellen we believe the corporate boards play Critical Roles rep. Duffy a Critical Role, ok. Chair yellen in ensuring rep. Duffy what falls outside the scope of safety and some is in a Financial Institution . Exactly. Exactly. Chair yellen probably anything you mentioned. Rep. Duffy exactly. You cannot give me an answer because everything falls under that scope. That gives me concerned. The fed does not have if i do fear he duty to shareholders. And actually, Board Members have. Otential criminal liability does the fed have any civil or criminal liability should things go wrong on corporate board. Board members are liable. How about the fed . Members who are sitting in board meetings, are they potentially criminally or civilly liable for the decisions they push a board to make chair yellen not to the best of my knowledge . Rep. Duffy mine either. That is concerning. Im pushing on this because you have supervisory role, and about you to do a good job, but from the feedback we get, the involvement of the fed in corporate boardrooms, it has far surpassed, i think, the vision any of us had in this room. And it concerns us. Chair yellen let me say that we have talked to many corporate Board Members, and understand that there has been an accumulation of a large number boardms we have indicated members along with Senior Management should be responsible for. Rep. Duffy i dont believe you have the Authority Chair yellen we should clarify rep. Duffy the authority to make decisions. That is the feedback we have made. You one mustk question, do you anticipate this will be your last time testifying before this committee . Chair yellen my term expires in february, rep. Duffy so my way of asking you, are you seeking another term . Chair yellen i am not have not said anything about that. I intend to serve out of my term and not rep. Duffy i want to thank you for your service. I yield back. My time is expired. The time of the gentleman has expired. Mr. Foster. Thank you, mr. Chairman, and chairman yellen for your service. I have sent letters to you and other federal regulators. They have asked you about the requirement that custody bank old supplementary leverage ratio against deposits and at the federal, presumably because of worries that in some future universe, the fed deposits may become less safe and available than cash, which is a universe i do not enjoy contemplating. I believe that the Federal Reserve deposits are checking the sort of safe place where these large immediately cash positions that we should be encouraging because of the strength and reliability of the Federal Reserve of a counterparty. We have Bipartisan Legislation to require that credential 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 with this legislation if it were to go forward . Chair yellen im not going to comment on the legislation, but we are looking at the supplementary leverage ratio because of the impacts that you mentioned. A leverage ratio is meant to be devicep supervisory calibrated appropriately relative to riskbased Capital Requirements, and while in general, i think with will requirements, especially for the largest and most systemic istitutions, are at levels think are appropriate and am comfortable with, it may be that the supervised the supplementary leverage ratio needs to be recalibrated relative to that, and i am very much aware of the problems that you are mentioning. Rep. Foster thank you. I appreciate that. Chair yellen we are considering how to address them. Rep. Foster i would like to comment briefly in defense of my home state of illinois in regards to some remarks from my colleague from new mexico. We write a check for 40 billion to states, largely in the sun because rural areas, for every dollar of tax money, illinois receives back only 75 cents of federal spending. New mexico receives 2. 40 for every dollar of tax money. This check we write for 40 billion a year, had it and put into a Rainy Day Fund instead of redistributed to other states in the union, would have resulted in a balance in that Rainy Day Fund in excess of 1. 5 trillion today. And so, i think that when people discuss the fiscal problems of illinois, the starting point should be there. [laughter] rep. Foster now, finally, i would like to i cochair a future Work Task Force for the new democrat coalition. We are looking at the effects of technological and other changes that might occur in our workforce and what policies we should adopt to be mediate the bad side of those effects. There is a lot of discussion now about why inflation is not increasing as you would have guessed in the past, particularly wage inflation. In the past, when the gap closed very the job market, rapidly, employers would start putting up wages. That does not your to be happening the way it used to, and one of the explanations that was suggested for that is that employers have the opportunity instead of just beating up wages to simply invest in technology that replaces jobs. I was wondering if you thought there was a reasonable chance that you will have to change a Macro Economic models to reflect the loosening of the link between the tightness in the job market and the increase in wages . Chair yellen we are seeing attenuated 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 n we have been accustomed to historically. Rep. Foster in general, when the robots show up, they show up as low prices. You ask the average farmer what forced them to consolidate, they do not say it is the machine, they say it is low grain prices. Ways. Oes on in many retailers are struggling with price competition from amazon. We are not often name not as sufficient as the robots in Amazon Distribution Centers and so on. We have to look at this in a macroeconomic sense because its effects will not be small, and i encourage you to think about that. Chair yellen thank you. Time for the gentleman has expired. The gentlelady from missouri, miss wagner. Thank you, mr. Chairman. Our committee has been concerned for some time about confidential fomc information being shared with favored constituents. In march, vice chair fisher delivered a keynote for Brookings Institution dinner and reportedly delivered remarks and 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 the fact the speech took place has not been widely known. This keynote flies in the face externalmcs policy on communications of Committee Participants, which states that, and i am going to read this right out of the policy, Committee Participants will strive to ensure that their contacts with members of the public do not provide any profitmaking person or organization with the prestige advantage over its competitors. They will consider the sensible carefully and rigorously in scheduling meetings with anyone who might benefit financially from apparently exclusive contracts with Federal Reserve officials and in considering speak at meetings that are sponsored by profitmaking organizations or that are closed to the public and the media. Chair yellen, we all want transparency and accountability for our Monetary Policy so that it remains insulated from political and profitmaking interests. The vice chairs speech does not help with that at all, and flies in the face, flagrantly, of policy. The speech occurred just days before another fed official, jeffrey lacher, abruptly resigned as richmond fed president after getting to playing a role in the 2012 fomc leak where marketsensitive details of the Central Banks internal deliberations were leaked to a private consultant that ventured the details then share the details with client, who stood to net billions in profits. The true leaker still remains at large apparently as the former president appears to have only incidentally confirmed wasder information that already received. This is something that i certainly asked chairman of the oversight and investigation subcommittee will continue to look into. Chair yellen, how could this speech have been allowed to happen given everything that had occurred with the 2012 fomc leak . Chair yellen ok, so let me start by saying that the very beginning of our policy on fomc external Communications States the two Way 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 closeddoor meetings. So there is no requirement that if one see members cannot meet meet inmembers cannot closeddoor sessions. The Brookings Institution is not a forprofit institution. It is a nonprofit. We have a clear set of guidelines governing what can and cannot happen in such rep. Wagner will remarks be released to the public . Chair yellen the clear rules are that no fomc confidential information can be diebold ever ged ever, and fomc officials cannot discuss even their own views on policy except to the extent that they have already been presented in a public forum. Did not chairs remarks pertain to Monetary Policy. They pertained to financial rep. Wagner the difficulty with this is that we do not know that. In the interest of transparency and accountability, perhaps it would be good to show the light of day to whatever his remarks were to wall street bankers that were invited to his speech at the brookings institute. I have to say, madam chair, that come you know, it is very clear that these should not be closed to the public or the media. So i end very concerned about this going forward, and i am also concerned about the resolution on with the board due to the internal governance that happened on the fomc leak. I would like to submit that in writing and get your information on that. Thank you, mr. Chairman. I am sorry, my time. Chair yellen we corroborated fully with our Inspector General and Law Enforcement agencies. They have had access to all information that is relevant to this matter, and that they announced simultaneously with rep. Wagner they must get through standards and keep to its standards, madam chair. Time, gentlelady, has expired. Mr. Clay, Ranking Member of the subcommittee. Man yellenou, chairwo for being here. Perhaps we should replace some of the fantasy we have heard today on the other side with the reality. You know, i hear my colleagues over there say that within six month of this new administration, we have improved the economy, we have improved Employment Opportunities for americans. I guess they are pointing to the carrier deal in indiana, where they were promised over 1000 jobs to stay in this country, and about 750, we hear, are moving to mexico. But we will 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 Administration over more than six years. You. Re is my question to chair yellen, in may, the overall Unemployment Rate of 16year low. Although the Unemployment Rate reflectedn june, this the positive moves of more workers that had dropped out of the labor force, who had returned to look for work. But the overall rate of unemploymen employment is now dt historically low levels, would you say the economy has reached full employment or do you believe that this weakness is in the labor market where additional progress must be made . Chair yellen so, not all groups in the labor market are faring equally well, and we remain concerned about particularly for africanamericans and hispanics weaker job market outcomes, but Monetary Policy is a blunt tool. The overall state of the labor market is strong with many job openings and opportunities for workers. So, the Unemployment Rate has even fallen slightly below levels that my colleagues would regard as sustainable in the longer run. We have seen a steady rate for several years now, a constant rate more or less, with Labor Force Participation, with an aging population pushing it down, suggest groups that have been sidelined or finding opportunities, entering the labor force and gaining employment. So, thats a Strong Performance and this has now been going on for a number of years and has continued this year. Thank you for that response because progress does not happen , especially when you have to recover from the devastating recession. And so, for the other side to give credit to somebody not even focused on our economy is ridiculous. One more question. What, in your view, has been the key drivers of teh job gain since your last testimony before this Committee Six months ago . Have job gains been driven by longerterm trends from a growing economy, or have they largely resulted from new policy adopted in recent months . Chair yellen so, um, the Global Economy has recovered. It was a source of weakness earlier. Thats been the source of support. Weve had ongoing job gains and increases in, for example, housing prices that are boosting the wealth and Consumer Sentiment of americans. 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. Thank you for that response. I hope this is not your last visit to this committee. Im sure it will not be the last time we visit. Thank you and i yield back. Florida. Thank you, mr. Chairman. I hate to get into the cat fight or dog fight or who shot john or whose policies are doing what. I heard the remark that the Economic Analysis cannot show any significant short term resul ts, 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. And i think we will go on. Chair yellen, good to see you again. Since i arrived in congress, the most cosponsored, bipartisan, significant piece of paulstion has been dr. 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 . Chair yellen i am strongly opposed to the fed being audited in the way normal americans would regard our financial accounts and holdings are it is not audited like all other agencies. You are aware, as well as i am, of a list of exemptions. Chair yellen what if the fed removes exactly one exemption that the Federal Reserve enjoys, which is real time policy reviews by the gao 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. I agree, if i thought there was a lot of truth to that statement. But auditing something up to the fact has nothing to do with th decision, i wouldnt think. I would consider it an important matter, actually, of transparency. I, for the life of me, cannot understand what the fed fears. Can you give me an an example that would justify the lack of transparency . Chair yellen a we dont have a lack of transparency. You do, if you cant audit it. To most people i know, it is a lack of transparency. I dont understand it and that is why im questioning you. Chair yellen i regard the Federal Reserve is one of the most transparent Central Banks in the world. That is a statement what do you fear about the audit. Give me a realtime example. Chair yellen i think the fomc needs a space in which it can h ave honest conversations and deliberate in realtime about the decisions that we make without having political influence brought to bear and secondguessing decisions that opining one and them. We can discuss things in public that are sensitive, talk about National Security. The Supreme Court does the same thing. You know, 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. Chair yellen because what you are talking about with the gao for policy reviews give me an example. Say, take for example, this. It woulddy said this, be horrible. It would be the end of the world for the fed. Give me an example like that. Chair yellen so, i would envision a situation where the gao, at the request of members of congress, might come in and say, at our meeting one week ago, we have taken the transcripts and reviewed what we said. We believe that the decision we made was the wrong one at that particular meeting. And i would say that is an extreme interference in politicalization of our ability to make independent Monetary Policy decisions. So, you are telling me we should not be transparent for the fear of being secondguessed, was criticizing you because they thought you were wrong . Did i get it . Well, what we are talking about his political interference in decisionmaking. I dont see that. If it is after the fight, i dont see the interference in decisionmaking. Chair yellen i do. Give me an example. Chair yellen i gave you an example. Peewee one example as to why they should not have that transparency. Give me one example as to why they should not have that transparency. The time has expired and the chair recognizes the gentleman from georgia. Welcome andlen, 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 judiciary john connors and myself, and others. We were hopeful that, 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. And you all did that. And we want to say, thank you. Much. We deeply appreciate that. That means a lot, not tjust to the africanamerican community, but to all americans. That is what this great country is about. Now, let me go to one other thing. Talk yellen, um, let me you and i have had ongoings about the hiring and employment rate of africanamericans. I always remember fondly when you referred to that as a blunt instrument. Was said, thats what said to james bond to describe him. In other words, he could not go through it. You said congress had to come up with osme legislation. We did that. 52, of whichtion 51 we send a copy to you. That would give the staggering Unemployment Rate of africanamerican men in the innercity into apprenticeships that are attached to rebuilding the infrastructure. That has been introduced and of law, fund have to by the 1890s africanamerican college. So, we put 95 million in the appropriations, hopefully, that we will be able to spread over for five years, 5 million for each of these universities over that period. Reportse read your that you have given. And you have talked about housing. And wed like to move to that next. Past three reports, you made a point to dedicate full sections of the report to assis the civic topics related to the disparity that the Federal Reserve that the Federal Reserve is seeing in the data for the africanamerican community. So, i want to call your attention specifically to those sections from the three most recents reports to congress. The titles of these and he referred to them as boxes, if you recall. Thats what the fed calls them. One box had the gains of economic expansion being widely shared. Box number two, homeownership by race, ethnicity. And box number three, does education determine who climbs the economic ladder . Of thoseat discussion, andlems, you highlighted included socioeconomic differences between whites and blacks, poor Credit Scores due to income disparities and continued discrimination. That lays it bear. So, chair yellen, let me just as k 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 address the homeownership problem hurting africanamericans, much as you suggested that we develop this onislation moving forward the unemployment of africanamericans . Chair yellen well, i dont want to 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 if you decide whats appropriate. And i do believe this is squarely in the domain of congress and the president. Were trying to provide useful information. Absolutely and we will pursue that. I would love for you tos ta stan in your position as chair lady of the fed. The time of the gentleman has expired. In i would like the time of the gentleman has expired. The chair now recognizes the gentleman from new jersey. Thank you, chair yellen. Down here, over here. Welcome. I want to thank you for your service to our country and i appreciate you being here today. I have two areas that would like to explore. Of new jersey in 2014, authorized by legislation, our department of banking and insurance to do Group Supervision of insurers involved in the international marketplace. And i know that under dodd frank, when it reevaluates designations annually is required to consult with state regulators. Sinceed to get a from you how you would view now a state Insurance Department doing regulatory work of a group insurer. How they mightt look at the designation of an insurer . Chair yellen this is a matter for them to decide we have met with state regulators in new jersey and i am aware of this development, which is a heartening one. Fsocs say the focus in designation is the Systemic Risk that the failure of an entity could pose to the broader Financial System to the best of my knowledge. Most state regulators focus supervision on protection of policyholders, which is of course, a very important objective, but not on the Systemic Risk that the activities of a company could pose to the broader Financial System and so, in considering this matter, fsoc what i think, have to take account of what the focus of the Holding Company supervision would be. I appreciate that. Just as ai would add buddy who was spent a lifetime in insurance, i think 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 that is another matter. The other area i wanted to explore with you was the labor or dissipation rate. The labor Participation Rate. You have mentioned it twice today and each time you have said that our aging population is pushing it down. 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. Does the fed use the bureau of labour Statistics Data on Labor Participation . Chair yellen i believe that is the core data. Bureaui have their, the of labor statistics Employment Data on my ipad. Im looking at it. Unfortunately i did not do it ahead of time, so i cannot put it on the screen. But when i look at the actual data, all people over 16 years old, so basically everyone a king age, that has gone the labor Participation Rate has gone from 66. 6 in 1994 to 62. 9 , a three percentage decline. You have suggested that is because people are getting older. They are dropping out of the workforce. That is not what this chart says. That 65 and is older has actually increased 18. 6 , a in 1994 to 6. 2 increase in that 20 year period. Let me just finish the question. 55 and older, which is broader and includes those of normal retirement age, the number has gone up by 10 Percentage Points. The group that has gone down is the 25 to 50yearolds. They have declined from 83. 4 participation to 80. 9 participation. Yeargroup, the 25 to 54 old group, their peak earnings 2. 5 , have declined by that is 8. 1 million Unemployed People in peak earning years. It does not seem to square with your assertion earlier, twice. Chair yellen so, very quickly. It is true that people in the retirement years, 65 and older, are working more than they used to, but the level of Labor Force Participation of that group is to medically lower than an prime age workers and increasing share of the population is now moving into those years with low Labor Force Participation. Theres no conflict between the number that you cited and my agingent that an labor force the time of the gentleman has expired. Chair yellen it is also the participation of prime age workers. The chair recognizes the gentleman from california. Thank you for coming here. Every few months i have reminded do you have not used your authority to break up the too big to fail institutions. I will spend you the next minute reminded you. They are too they to fail. If just one entity goes down, it could take our economy go down with them. They are too big to compete against because economic studies say that investors in the markets assume they will be bailed out. Theyve seen the congress will pass new legislation to bailout if that is thought necessary to save the economy. And therefore, they are able to get a cost of funds that could be as much as 80 basis point plus than they would otherwise. They are too big to jail, as former attorney generals have said they would not prosecute because it could take out the whole economy. If the same thing was done by a mediumsized bank, no economic problem, go ahead and prosecute. And then with the wells fargo debacle, we have a difference between republicans and democrats. Democrats tend to blame the management of wells fargo and say that proves they were too big to manage and republicans tend to blame you, the regulators, which proves they were too big to regulate. Too big to fail, too big to compete against, too big to manage, too big to regulate. When a protozoa gets too big it is able to spread into two healthy cells. I would think the geniuses on wall street have at least the same intelligence as a once cell aquatic animal. Every time you come here, you are attacked by those in criticize the low Interest Rates we have had in our economy. Now, with low Interest Rates you get more Economic Growth, but you might also get more inflation. Has the last five years rampant inflation been a disastrous difficulty for the American Economy . Chair yellen inflation has been running under our 2 objective for the last five years and continues to do so. I wont even ask you this question because it is so obvious. Has Economic Growth been too robust . I dont chair yellen it has not been particularly robust, but it has been sufficiently robust to create a lot of jobs. But every time you come here, youre told the Interest Rates are too low, but you are also criticized because the Economic Growth has not been robust enough. Behind you at the request of the majority is the National Debt clock. The majority always comes and tells you that you should shrink your Balance Sheet, that you should sell off your assets. Effect, ourou in lending money for longer terms and darling money for shorter terms, or just printing it. If you create a tremendous profit for the federal government by having a Balance Sheet that is large. People want to have a small Balance Sheet when your big Balance Sheet is grating a lot of profits for the federal government. Have any of the advocates for a smaller Balance Sheet proprosed to you the taxes they want to ace thee in order to repl profits that you are earning on the Balance Sheet they are telling you to shrink . Chair yellen it is certainly true that the large Balance Sheet has resulted in very substantial transfers to the treasury and to the federal budget. Let me say, our objective is not to make a profit and maximize those transfers, but rather to do what is right. I would say that the millions of americans who want us to run the federal government more like a business would say that perhaps, profit should be thought of as an important objective. And ill take your answer as that you have not heard any proponent of a smaller Balance Sheet put forward a tax increase proposal designed to replace those revenues, or to keep that clock behind you from turning finally,kly and we want businesses to do things that require longerterm capital. You tend to focus on shortterm Interest Rates. What has your big Balance Sheet gap to decrease the between short and longterm Interest Rates, the yield curve . Chair yellen we purchased a those assets to drive down longterm Interest Rates relative to short, or to flatten the yield curve and lower longerterm borrowing rates. Are to makeroposals it more difficult to borrow money longterm. Chair yellen that is correct. The chair now recognizes the gentleman from tennessee. Thank you, madam chair for appearing this morning. In the next hour or so, when this hearing ends, if you would receive a call from the president telling you that he intended to nominate you for another term, would you accept . Chair yellen it is something that has not been an issue. So far, it has not been something that has come up, but it is certainly something i would discuss with the president , obviously. Thank you yesterday, when i asked you about comments that jamie dimon made as it relates to assets coming off your books, youve stated here today and in previous reports that the fed the intend to reduce assets of the Balance Sheet. I would like to ask you first before asking about jamie dimon, if you could address the timing of when those assets will come off the books, the amounts, and procedurally, how that will be none. Chair yellen yes, weve tried to set out a relatively complete plan. Our assets currently total close , consisting ofn roughly 2. 5 trillion of treasuries and 1. 7 trillion of Mortgage Backed securities. Weve said that we intend to shrink our Balance Sheet and particularly, the outstanding quantity of reserves in the Banking System, which are now 2. 2 trillion in a gradual and for double way. And we have said that what we intend to do is, once we b egin this, as we receive principal payments on treasury and the Agency Securities in our portfolio, currently we are reinvesting all of those principal payments. We will begin to diminish our reinvestments and only reinvest to the extent that our monthly receipt of principle exceeds a cap. The cap will initially start at low levels, 6 billion a month for treasuries and 4 billion a month for Mortgage Backed securities. And over the space of a year we will ramp that up to 20 billion for Mortgage Backed securities and 30 billion for treasuries. So, after a year of this process running, the caps will remain in but only infrequently when they are and usually large, redemptions of principle that take place. And weve not decided yet on what our longer run Monetary Policy framework will be. And what quantity of reserves that will entail our supplying to the Banking System. We expect it to be substantially larger than precrisis, but substantially less than we have now. And i would say this process will play out probably to around 2022, when our Balance Sheet will probably be shrinking to normal levels. ,ow, currency since the Crisis Currency has more than doubled in quantity from about 700 billion to 1. 5 trillion now. Up Balance Sheet will end substantially larger than it was before the crisis, but appreciably lower than it is now. And then over time when this process is complete, if currency and circulation continues to grow, a Balance Sheet would likely grow in line with the overall economy. You probably saw the comments yesterday from jamie dimon, about his concerns about assets being moved off the Balance Sheet. Do you share those concerns . Chair yellen well, we have tried to be very methodical about informing the public and the market that how we are going to do this. Weve provided essentially and wee information have not heard significant concerns or seen a significant market reaction. So, weve indicated we expect to begin this, if the economy stays on if the economy stays on track this year. I expect and hope this will go smoothly and it will be a gradual and orderly process, one that we will not be revisiting on a regular basis. It is something that will run, it will be understood and play out over time, so obviously we will watch what the market impacts of this are when we put it into effect. I expect this to play out smoothly. My hope time of the gentleman has expired. The chair recognizes michigan. Thank you. It is good to see you, glad to have you back. As you may recall and some committees may recall from previous discussions, i have raised this issue of older industrial cities. The condition of older amenities, a subset of American Cities that are continuing to struggle. I am launching an effort, 2 00 and today at titled the future of americas cities and towns. We have talked in the past about the role that regional banks might play in working with these particular cities that face economic challenges and physical stress. The thing i am concerned about is when we look at aggregate data, even with relatively slow growth in the economy, the assumption is that even a slowly rising tide raises all boats. It does not it we know that. It does not. We know that. The question i have is what policies the fed might engage . And to the extent that your mandate regarding employment is affected by policy that we make, what are the initiatives that should be engaged on the fed and thisess to help deal with real disparity which continues to grow . Where we are going to see bankruptcies or at least insolvency if the states will not allow those communities to go into bankruptcy. These are communities that have high concentrations of minority populations. You know in your testimony the disparity of those communities that those communities face. This is not some kind of accident where, bad luck, a bunch of entities are struggling. I wonder what you might comment on what fed can do and what congress can do to help achieve, not only growth in terms of employment and wages, greater equity and how those areas of growth might be shared. Chair yellen the Federal Reserve and the reserve banks around the country play an Important Role in doing research , andmmunity development try to understand and publicize what kinds of strategies seem to work. We play a role in the Community Reinvestment act which Financial Institutions are looking to ways of promoting development. Umber of reserve the Banks Reserve banks have looked at all of the industrial cities and tried to study and we have volumes that have been published on this. The boston fed has been very active in trying to understand what strategies have been effective in all of the industrial cities in regenerating activity in dealing with these problems. Of course, they are complex, but they are a Workforce Development program and collaborations between governments, state governments, nonprofits, businesses that have been singled out as once that appeared to be promising. Issues,e very difficult and congress and policymakers that put the fed may have a role. It is mainly research in trying to disseminate findings. I appreciate that. My past work worked with the Philadelphia Fed on these issues. I wonder if you might in the final few seconds we have comment on policy that Congress Might enact, basically around budgetary policy that we have in place. Im concerned that is an area where we may undermined, not only your mandate, but also our work. In the one second remaining. Chair yellen i am not going to give you details, advice on fiscal policy. I think focusing on policies , strongmote activity Economic Growth should be at the top of your list. I thank you. Time is expired. I recognize the gentlelady from new york. Thank you, mr. Chairman and thank you chair yellen for being hit today and also for your service for being here today and also for your service. Sounds like our districts are very similar. I come from upstate new york. That has seen better days in terms of our economy. We want said Many Community very, and i might quote a interesting comment that was made by President Trump in his inaugural address and describing our manufacturing landscape. Cut scattered like tombstones across the landscape. In any go to any corner suburban or small city area and find Community Banks closed and overgrown with grass, not operating and empty where they once were providing great resources to our community. 50 of the Small Business loans are made by committee banks. 77 of agricultural loans are made by small banks and credit unions. Agriculture is still the number one industry in new york state. , i think this mirrors what has been going on in the business community, as well as the banking community. As you provided in your prior comments that you think a lot of Government Programs can help this and taxpayer money may be spent for work revitalization, but i am suggesting the free markets, since in new york state, we spend four times more using taxpayer money on producing jobs, and have the worst job production record in the nation. The highest outmigration of jobs in people because of our regulatory environment. I thank you for indicating earlier that you do think there are ways we can reduce regulations on these banks, especially the smaller once a cannot compete because of their compliance requirements it would have the growing Cyber Security issue, where there requirements. We have the growing cyber. Ecurity issue you indicated that you would support the treasurys release that certain regulatory relief is in order. Can you tell me a couple of those recommendations that you would support to help our small banks . Chair yellen i am very supportive of trying to reduce the burdens on Community Banks. We have suggested that immunity banks, there are things that congress could do to help reduce burdens, for example invoke a role for incentive compensation. Are you saying you would eliminate the rules for Small Committee banks . Where would you make that cut off . That would you make arbitrary decision . We could discuss that. You dont have an idea in mind where we could do that . I would love to know. Chair yellen i would prefer to get back to you. Theink there is a lot that banking regulators can do on their own. Were finished and agrippa review of the banking regulators addressinged to concerns of Community Banks, to come up with a simplified cuttal regime, we have reporting requirements for committee banks. We had tried to extend exam the workd to tailor that we do, in ways that are less burdensome to Community Banks and to risk focus our supervision so that we are focusing in our exams on areas that are at greatest risk so we have a long list of suggestions coming out of the agrippa review. Can you tell me you indicated these are some of the once you would support. Which ones would you not support . Chair yellen i dont have that list before me. Let me say in general that an area of the report that we are quite supportive of. Definitely the vocal rule, you like to eliminate that . Can you give me an estimate about where the capitalization requirement would be eliminated . Chair yellen we would try to simplify requirements for things like commercial real estate by volatility, commercial real estate that Community Banks found very complex or rather capital estimates that resulted in complexity. Time has expired. The gentlelady from ohio, ms. Beatty. Ex thank you, mr. Chairman thank you, mr. Chairman and thank you, chairwoman yellen. Let me take a point of privilege to thank you for all of your work and tell you what an honor it is for me to have been in congress at the time that i could sit here and ask questions of you. Secondly, you will hear throughout all of our hearings colleagues oftentimes referencing that letters were written and 30 days have gone by our months and they did not receive an answer. I want mr. Chairman and Ranking Members to enter into the record that every single letter that i adjust to you that i addressed to you, i got a response. I got a note with something attached with it from a staff person. One was actually your thanks. I think it is important, because so often we criticize those pi support colleagues on either side when someone does not respond to us. I wanted to say thank you. I am going to be consistent, but i am going to use some words i had not intended to use, but after my colleague from new york, congresswoman tenney, used finding common ground. I want to thank her for that. Im going to start with common ground. I think it is important when you represent a subset or have a background which we hear from real estate to Small Business to legal to housing or bankers, that you should use that expertise. What i have is something that is not included in the subset. I am a Small Business owner. I have been on a bank board. What is important to me is when we have inequalities, when we are talking about Economic Development in monetary growth and we dont count ethnicity and race, because it is a subset. While i appreciate your comment on page one of your testimony when you talk about the jobless rate has decreased, but because we know there is still so much disparity when we get to unemployment with people who look like me. I have to be that voice for black people and for minorities who get caught in the gap. With that, i am very afraid, because i know when we look at the economy and growth, it is 22 Million People that is going to lose their health care. If were going to cut programs where people then will have to wont have the money to pay for them, i am nervous. With that said, i serve on the financial and Economic Literacy caucus. It is a democrat and republican. As we are speaking, i am being appointed to the congressional asck Caucus Task Force cochair. He stated that income equality is a longterm risk to our economy. We cannot talk about income equality without looking at the disparities and the discrepancies in Household Wealth among africanamericans and minorities. I would like to say that recessions like the one we just had, and there is a chart on the board. It speaks for itself that led to africanamericans losing 52 of their wealth while White House Holds only loss only loss to 16 . Im concerned that rising income equality will further exacerbate for minorities with historically lower Household Wealth. Can you explain why income inequality is a longterm threat for the United States economy . Who has the power to help . Chair yellen i am very concerned about inequality in income and wealth. I think americans need to feel that the system economic where rewards come to those who work hard and play by the rules. When some groups do disproportionately well and others seem to be lagging behind , as has been the case, there is a sense of it being a very unfair system. Worst to the extent that inources are important ensuring intergenerational mobility that parents want to make sure that their children have access to the opportunities and ability to gain education. Im going to interrupt you to your my time back on opportunity. Thank you, because we introduced the beatty and now we have a black man for the first time, chairman boston chairman bostic out of atlanta goes on the national Federal Reserve board. Time has expired. The gentleman from indiana. It is time to take a deep breath. I wanted to touch on something that my colleague ms. Tenney had talked about in the treasury report and better understand the recommendations that you might agree with. I went through the report and pulled out some of the ones that i think a most pertinent to your role in the Federal Reserve, either from a regulatory standpoint or in regard to Monetary Policy. There may be some followup after that but you after remember, i got probably a c minus in economics. Many focus on the agree and disagree. Do you agree that they should be expanded treatment of certain qualifying instruments as hq l. A. , including highgrade ms. Highgradeincluding to fully reflect banks historical experience . One. Is a longwinded chair yellen on the first part, the fed is going further than the other regulators in including more liquid municipal securities. 2bel to be assets level assets, so we are supportive. Lets do you agree that u. S. Rules and limiting International Standards should be revisited including the shortterm wholesale funding component . Chair yellen we recently finalized that rule, and i participated in that review. I regard that as appropriate. Surcharges are at a level that i think are justifiable. What about the mandatory thatum rate issue ratio . Chair yellen i think that is important to make sure that it is systemically important to be resolved. Ts in the calibration in the calibration. Chair yellen we discussed that earlier. It is something we should look at, maybe having an unintended consequence. That we might agree with. Do you agree the Basel Committee including establishing a level Playing Field for u. S. Firms competing internationally . I yellen elected like would like to see basel three finalized. They are operating with very high capital standards and this is a matter of ensuring that other countries put in place appropriate capital regulation so that we have a level Playing Field. Agree with that in the final implementation of the basel three standard, would you exempt Community Banks . Well, i amn supportive i mean of developing a simplified capital extent thatto the Community Banks were affected by basel three, i am supportive of that. Would you agree with raising the asset threshold of the feds small bank Holding Company and saving and loan Company Policy to 2 billion of the current one billion . Chair yellen that is something we could look at. The last one that i had is do you agree that the fed should consider the implications on u. S. Credit intermediation and Systemic Risk from implementation of a resized standardized approach . Chair yellen that was a mouthful. Indeed. Chair yellen i need to get back to you on that. Thank you so much. I appreciate you taking the time. I yield back, mr. Chairman. The chair recognizes the gentleman from washington. Thank you, mr. Chairman and chair yellen. Couple of years ago, i asked you when does america get a raise . America deserves a raise. Fueled in part on my behalf because we have been through 30 years of stagnant wage growth with the exception of some warmth in the late 1990s. Of yourt you, because prowess as an economist. I admire you because what i perceived to be your commitment to some values, including concerns for how the fed oasys impact americans desperate fed policies impact americans. I believe it two years ago and i believe it now. 2. 5 nominal growth does not render americans feeling as though theyre getting ahead, that alone staying even. Commitment, or my perception of your commitment, to the average american, if such a thing exists, i read the Monetary Policy on page 42. Which essentially indicates that you project a definition of full employment over the longterm between 4. 5 and 4. 8 , if you get Monetary Policy right. Yet an indication that two years hence, the Unemployment Rate would be 3. 8 to 4. 5 . A little hard for me to read that as other than youre trying to or willing to let the economy run a little warm presumably because maybe we can get wage growth above 2. 5 , and maybe closer to an historic recovery rate at 4. 0 . Chair yellen inflation is to our 2 1. 4 objective. We have had five years or more of inflation running under our 2 objective. That is a commitment that we have. It is a metric objective, and i allowing the labor market and unemployment to decline to the kind of levels that you cited looks to be consistent with achieving our inflation objective. Would yield higher wage growth than 2. 5 , you would expect . Chair yellen wage growth seems low, but it is important to remember that one of the things that is holding down wage growth in real terms is very low activity growth. Very low productivity growth. I dont want to go down that rabbit hole. Chair yellen with that changing, that really limits the prospects for workers. I get that. I get the controversy surrounding our measure of productivity. The fact remains America Needs a a raise. Needs a a race. Raise. S a pay if we going to recession, the fed cuts Interest Rates. That increases availability and demand for loans for the purchase of homes and automobiles. Didnt happen this time with respect to housing necessarily. It did respond. He didnt respond. Auto sales are going down. There are layoffs in the industry. You have described the Monetary Policy approach you are taking as a stimulative, but that is not occurring in autos, especially given what i said earlier about i believe you care about average americans are impacted. Homes in autos are the two biggest purchases that most americans ever make. It didnt work at all for the recession and homes. Where stuck back in 1994 conceptual levels we are stuck back in 1994 construct levels. I concerned . Are you concerned . Chair yellen Mortgage Rates are little bit lost. I think you have to look at the bottom line which is this year we have had 180,000 jobs created a month, only slightly lower so. Last year, 190,000 or the Unemployment Rate continues to decline, the labor market continues to strengthen and that those salesven if are off their high, we have Strong Enough demand through consumer spending, Global Economy, a pickup in spending on plant and equipment that it is supporting continued throughout creation. Time and the gentleman has expired. The gentleman from oklahoma, mr. Lucas. Thank you, mr. Chairman. Chair yellen before asking you anything, i would like to express concerns about the treatment of centrally cleared customer margin under the supplemental leverage ratio. Im concerned that including this margin as the denominator of the ratio is artificially reducing the number of clearing options available to customers. As you may be aware, lets of endusers use clearinghouses to hedge against risk. Im encouraged by the recent treasury report on rate reforms suggesting this margin is no longer debt should be a part of the ratio calculation. In addition, your colleague told the senate that the fed is reviewing the leverage ratio, and i would agree with him that fixing this is critical for the health of the markets. I look forward to the outcome of this review. Let them chairman, i would like to madam chairman, i would like to discuss the guidance. In my district, energy is one of my biggest employers. It is going through a bit of a tough time. For the purposes of leverage lending guidance, recent energy if notn means many, most, Energy Companies are qualified as distressed industry, meaning the guidance limits the ability of those companies to get credit and to employ my constituents. Guidance also concerns me a bit because of the matter in which it was rolled out. Guidance in 2013 and in a series of faqs in 2014, that is not the most clear process. It is forced it is forced institutions to review every loan they have made. Have you considered retracting the guidance . Also have you met with any industries that are considered distressed to hear about their difficulties in obtaining credit . Chair yellen we have put in place the leverage lending guidance for very good reasons just for very good reasons. We were worried about Underwriting Practices for those kind of loans and want to make sure that lending is safe and sound. We had shared National Credit exams that resulted in disturbing findings about the quality of underwriting of those loans. I think it was appropriate to put such guidance in place. If they are having unintended consequences, i will discuss with my colleagues. I will look at that, but believe it was important to put that in place. I very much appreciate that. The Energy Sector is not just important for the district of oklahoma but for the entire National Economy it with the technological advances theyve adopted, we have gone from no ger being in quarters, being importers but exporters. The potential opportunities are just incredible. These guidances from 2013 and the faqs from 14 seem to be causing some real test from 2014 seemed because in some real stress as they are being interpreted. Your commitment to look at those to try make sure we do not cause unintended consequent is. The number of natural gas is still there. Technologies that have enhanced and reduced the cost of our duction is still in place, it is just have to work our way through a tough time. Bearing that in mind, i would appreciate that, chair. With that, i yield back. The chair now recognizes the german from maryland, mr. Delaney. Thank you chair yellen for your leadership. It is always nice to have you here. We are getting toward the end so i thought i would ask a question and tap into your knowledge is a macroeconomists to think about some of the longterm trends in employment. There has been talk recently about what will happen to the future of work and jobs based on technological innovation, automation, machine learning, artificial intelligence, whatever the category may be. While historically innovation has created more jobs than it has displaced, generally it does come with a lot of fear as to what will happen to the labor market. Maybe that is because we can see the jobs that will be displaced but we dont have the ability to imagine the jobs that will be created. This has caused many people to Start Talking about things like universalbased income where they are talking about how there will be no jobs in the future and robots will displace all the jobs it will have to figure out ways of supporting people. For me, that is premature. There are a lot of jobs in society that are being done that nobody is been paid for. Historically more jobs have been created. What is your thoughts on this topic . As someone who spends a lot of time thinking about the macro, but someone who cares deeply about employment and its importance to peoples dignity and ability to raise a family. How is this going to play out . Chair yellen i dont have a personal goal. You are very smart and you look at a lot of data. Chair yellen technological is has been a gym and has been a chairman to sleep ofortant source of growth Living Standards in the United States and around the world. It is something that we should want to see and foster, but it is disruptive, and it can cause considerable harm to groups of livelihood whose livelihood is disrupted by technological change that renders their skills less valuable. Expect the kind of technological changes that you describe will continue to change the nature of work, the kinds of jobs that will be available and the skills that will be needed to fill those jobs. To my mind, very important focus for all of us should be quest what should be the three thinks we should was to be the three things we should do . What would the things you would do to best prepare the future . Chair yellen education and to theg are central ability of workers to fill the new kinds of jobs that will be available and have the skills. When i talk to businesses that are adopting new technologies, they tell me it is also creating new kinds of jobs that they find that younger workers, even those with less education, have nevertheless been exposed to the kind of training that will enable them to fill the kinds of technical jobs that have been created with appropriate training, but it is a tremendous challenge for all of the workers who dont have that kind of training to make adjustments. I will look to both inshore we have appropriate education, apprenticeship programs and other things for younger people, and also to see what we can do to relieve the burdens on older workings relieve the burdens on older workings. Youre not necessarily bearish on the future of jobs . Correct. Worried that we are not doing enough or you think we should do more in reforming education, training, etc. The challenges are going to be significant. Chair yellen that is a key focus for me. Thank you, chair yellen. The gentleman yells back. Thank you chairman. Chair yellen, the Financial Sectors commitment to Cyber Security is perhaps better than any other. Others at raise concerns many regulators are starting to and properly calibrating requirements. We want to keep everyone moving in the same direction and that is to achieve stronger sub security. Do you believe the efforts to coordinate harmonization of rules in respect to seven security net of you support those efforts . Chair yellen i am supportive of those efforts. We have certainly heard in our own outreach on Cyber Security, the importance of passing uniform standards, so that firms are not facing different regulatory demands that may be technologically conflicting, and i think that is an important goal. You may be answered this enough. In its recently released report, in response to financial regulation, the Treasury Department called for federal banks and regulators to just using a common lexicon. I wonder if the Federal Reserve is committed to achieving this goal. Yes. During the last the parents, i expressed my concern about essentially cleared customer margin under a leverage ratio. It diminishes clearing options for customers while forcing them to pay more for these services. I applaud the Treasury Departments liquidation and its corporate will report to grant an offset through centrally cleared margins. An offset would have an impact on bank capital while driving down costs during services. I understand british regulators have already granted all set for client margins of u. K. For the sick of clearing customers, United States, i think the reserve should follow suit to adopt and offset to u. S. Firms. Chair yellen the supplementary leverage ratio to be having unintended consequences and it is something we should look at very carefully. Thank you. On a similar note, on june 22, we believe the leverage ratio is an important backstop for the riskbased framework. It is important to get relative calibration and the riskbased capital garments right. It is critical for mitigating any distortions and money markets. Changes alone along these lines would address concerns that their Business Model is affected by the leverage ratio. Former governor true love gave a speech where he stated as to the impact of the 2 enhanced leverage ratio, our experience with me to believe that it may be changing not to account for the different Business Operations of this, especially and tobacco terms, the two banks that are custodial and transactional nature, rather than lending and trading first. These banks have had the lowest riskbased, surcharges of the eight at 1. 5 . There leverage surcharges to present. This is problematic for the operations since they reinvest custody desk customer deposits into assets. States ury department it should include cash on deposit with Central Banks. Do you agree with this assessment . When can we expect the fed to take action to address these concerns . Chair yellen i agree with the comments of my colleagues that this may be considered this made creating these sets of problems. There are different ways of dealing with it. It so thatecalibrate these that it avoids adverse conferences. Do you expect that the fed will take action before january 2018 when the new ratio goes into effect . Chair yellen let me get back to you. Thank you again. I appreciate your work back to you. Thank you again. I appreciate your work. The chair intends to release the witness at 10 after 1 00. The chernow recognizes the german from texas the chair now recognizes the gentleman from texas. Ms. Yellen i thank you for appearing today. I am looking at currently an article from the Washington Post dated may 17, 2017. It is styled, the nations biggest tax have a common gripe. They have too much money. I would like to read some the portions. On capitale sitting according to march Research Report at goldman sachs. If Capital Requirements are lowered, banks can return the money to shareholders in the form of dividends, boosting the payouts perhaps i 45 in 20 per in 2018. Hampering the industrys arguments has been record profits, despite higher capital requirement, the countrys Banking Industry recorded more than one under 71 billion in profits last year. The volume of bank loans have increased significantly since the financial crisis. The question i have is this should we change the Capital Requirements, simply because we can have the opportunity to return more dividends . Boost more payouts . Is that a good reason to change Capital Requirements . Chair yellen i believe we should have strong Capital Requirements for the safety and soundness of the Banking System, the Financial Sector more broadly. I am comfortable with the level of riskbased Capital Requirements that are in place at this point. Especially the most systemic firms should have the largest so once thoses, Capital Buffers are in place, the Federal Reserve has no objection to firms distributing profits as dividends to shareholders or in the form of share repurchases. This year in our stress test, we approved the plans of almost all , returnedms involved capital of the shareholders, but that is because we are culpable that the Capital Buffers that are necessary for safe Banking System and comfortable that they can go on even under severe stress meeting the credit needs of those u. S. Economy. Thank you. Let me move to another topic. This is quite important and dont want to neglect it. Thank you for your response to the letter that i and some 36 colleagues sent you concerning the africanamericans, latinos and the fact that the Unemployment Rate for African Americans and latinos always seem to like behind anglos. I mentioned this to you now because in your letter you do cite some things that may be beneficial in terms of studies that will take place. I do want to call one thing to your attention, and it has to do with something that these studies probably wont address. It is the issue of race itself. Hideous discoloration and we have a difficult time legitimizing discrimination and a cause for unemployment being higher among certain groups. We know that it exists but we cannot get the actual empirical evidence to legitimize the existence. Can the fed aside from these additional things you will be endeavor to the fed engage in some sort of process that will allow us to acquire this empirical evidence . Until we can prevent that, we still have persons who are in denial. Your response, please. Chair yellen this is something that we can try to get at, although perhaps not definitively in studies that we do. There are studies that i am aware of, experimental type studies that can pretty clearly document what you are talking about. I may ick if could we explore the possibility of allowing testing to take place within banks . That is something we have difficulty acquiring empirical evidence. Chair yellen that is something i have to look into. The chair recognizes the german from north carolina. Chairman. Ou, mr. Chair yellen, d subscribe to the theory that Monetary Policy can work better independent of politics . Do. R yellen yes i in that light, does your opinion distributional politics . Chair yellen distributional politics. I think the fed should be nonpolitical. Yes maam. I have reviewed some of your speeches since last march. Didnt see a lot relative to Monetary Policy. I did see one speech where you appear before a community ,evelopment Research Conference and it was a conference of creating a just economy. The conference that you also spoke at on women at the brown the Monetary Policy was only mentioned one time in that speech and that reference was in context why monetary. Olicy is poorly equipped it appears these speeches address social issues. Do you worry that these in the same way exposes Monetary Policy to increased risk . Chair yellen it is my core responsibility to speak to the American People in a wide range of forums about the conduct of. Onetary policy and the economy i would disagree with your characterization of my presentations. In march i gave an important speech in chicago on Monetary Policy. I have had to press conferences after the march in june after the march and june meetings. I give remarks in london bearing on the u. S. Economy and Monetary Policy. If you go back a little longer to january, you will see many speeches to many different audiences at many levels, as well as the speeches at brown university. Chair yellen let me say that the Federal Reserve has other responsibilities, and in particular we have programs and Community Development that are i spoke at a test relating to Community Development. I think i made my point. Those particular ones were political. Supervision and regulation are now so intrusive, there is not a stretch to say that the largest Financial Institutions are being run by the fed. Do you agree . Chair yellen no i dont do you believe it is appropriate for the Federal Reserve by influence corporate government structures across the industry . Chair yellen i believe it is appropriate to make sure they are sound Corporate Governance in major Financial Institutions. We so what happens when that is not the case. That was part of how we ended up in the financial crisis. You believe that we need more government intrusions and that will salvage the problem . Chair yellen i believe we should ensure you dont leave the government itself plays a financial role in the financial collapse we had, in terms of forcing institutions to make loans to people were not credit worthy . Many of us disagree with that. Do you believe it is the Federal Reserve that has the ability to usurp or preempt state Corporate Law . Yellen i am not sure what you i am not going to give a simple yes or no. Are you aware that companies that are incorporated in each bound to those state laws . Do you believe that you have the ability to usurp laws . Chair yellen we are not usurping the laws, we are make sure that Companies Operate in a safe and some fashion. Their board of directors if the states have laws relative to those corporate boards, d you believe you have the authority to usurp those laws . Congress has passed laws that paid that places obligations on us. My time has run out. The chair yields to the gentleman from arkansas, mr. Hill. Thanked the chairman and chair yellen, nice to see you here. Thanks for your perseverance in front of us. We have talked before about Monetary Policy and i havent been a fan. I was a banker before i was in congress. Im going beyond the feds initial rate policies. Qe1, two and three did not produce the gdp effect, so the job increases that fed policymakers at the time thought. I have been concerned as you go back and look backward now, 2008, that officials have always been a little reluctant to talk about some of the unintended consequences of that, such as destroying the price mechanism in our economy, depressing cap rates for commercial real estate or running up equity prices, which i think are result in you qe2 we have flooded from into our economy. Today, i havent heard any we haveon about talked about the Balance Sheet, setting Interest Rates, but i want to talk about the money multiplier aspect in your toolbox. We flooded the system with reserves, but we have a multi we have a money multiplier, 1930s to great. 1930s type rate. Shouldnt you lower the rate of interest paid on banks on excess reserves, as you are raising rates in planning this thoughtful trackage of the feds Balance Sheet . Chair yellen the Interest Rate we pay on reserves is our key the generaljust level of shortterm Interest Rates in the economy. The committee deemed it appropriate to gradually raise the level of shortterm rates, as the labor market has strengthened and we have come closer to achieving our objective. No i would not agree that we shouldnt be using that tool on normalizing the level of short rates in the economy. The rates on excess reserves . Chair yellen that is our key tool that we use. Ask how do we get the money how do we get the money multiplier to increase . Chair yellen i dont look at the impact of Monetary Policy on the economy through the money multiplier. I think what do you think accounts for being at the 1930s level . Chair yellen we had a highly depressed economy where inches rates fell close Interest Rates fell close to zero and banks were willing to hold on to excess reserves. My colleagues on the other side say the lending business is booming in the economy is growing successfully. Why is the multiplier not changed . Why is the velocity still low . In your view . That is something we measure. Hair yellen i wouldnt agree we measure the success of fed policy by looking at the money multiplier. I think the quantity of money and its relationship to gdp has and notremely unstable a good way of running Monetary Policy. Im not aware of any centralbank that would any longer approach it that way. Why is that . As though it was between world war ii and 2008, something that people looked at and it was talked about as a way that shows we have a healthy investment and lending market and growing economy, but in the 1930s, were just satisfied that it is low and we dont say it is important anymore. Can you put some perspective on that . Chair yellen both in the Great Depression and in our more recent great recession, we have had the situation where shortterm rates fell pushinglly to 0 , and out additional reserves was essentially what they said during the depression was like pushing on the string. Trap. Ountered a liquidity the relationship then between the quantity of reserves and nominal income begins to break down in those situations. We faced similar situation that is to what we had done the Great Depression. My time has expired. The time and gentleman has expired. The next member will be the last number we call upon. The gentleman from ohio, mr. Davidson for five minutes. Chair yellen, thank you for being a today. I appreciate your testimony. I want to understand a little bit, you have talked about your policy is neutral to accommodate if. What you have started to do is talk about applying the brakes. You have raise rates and your rates. About raise you talk about money being unstable. It did create some velocity in the money supply that is nontypical. Is what you are doing now essentially gently applying the brakes echo the brakes . Chair yellen that is a fair characterization and where had the foot on the gas. Characterization. We have the foot on the gas. We have taken our foot off the gas to some extent so that we can sustain this strong recovery. We are moving toward something stanceo a neutral they keeps the economy moving on an even keel. sying the brakes gently applying the brakes gently or at the right time has been a challenge. Everyone also fills of the missing about the course of action at the time. People say bubbles have been one of the things that caused the miscalculation. What bubbles do you see in the graco economy right now . Seeellen i try not in the Macro Economy right now . Chair yellen valuations generally are toward the top of their historical ranges. What i tried to think about is if there are adjustments in asset prices, what consequences with a have on our Financial System . In that context, look for evidence that searching asset prices might be leading to borrowing built up in leveraging the economy that would be dangerous if the prices were to unwind. So we not seeing that, judge Financial Stability risks at this point is moderate. You laid out a good plan and i dont want to go over the whole thing. Roleconcerned about the that you allude to hear as, you start to see you kind of shift cap from Monetary Policy to regulator. In the regulation, you talk about really a pretty heavy hand in the sins of Steering Companies on policies. Financial times has highlighted cases where you addressed hr practices up to the point of advising terminating or replacing certain employees in companies. At that point, how critical is it that our agent of Monetary Policy also serve as a regulator . Im not saying that regulation doesnt need to be done. How important is it that our central banker does that . Chair yellen i would say especially in the aftermath of the financial crisis, we have found that our understanding of the economy, of the Financial System, and of appropriate Monetary Policy, has been greatly in warmed by the role informed by the role we play in supervision. It has helped us understand risk to Financial Stability, pressures in particular portions of credit markets, and theres been a close integration between what we learn in bank supervision, Financial Stability, and Monetary Policy. On the mortgagebacked securities markets, where you developed a strong affinity for them and accumulated quite a lot of them, which gets to the monetary supply. Youre looking at some of the asset purchases youve made directly interacting with a key part of the market, unwinding them. You talking about you talked about a plan to do it. What do you see as the risk to the monetary supply . Clearly theres going to be an on asset prices as you try to get that right. Chair yellen we do believe that our asset purchase programs were effective in pushing down longerterm rates and the socalled term premium embodied in longerterm rates, and very gradually, over time, as we shrink our Balance Sheet, i , but expect some modest over a number of years, upward pressure on longerterm rates. Its not something very substantial, but it is something that weve taken into account in deciding on what is the opiate appropriate. Thank you. I yield back. The time of the gentleman has expired. I want to thank chair yellen for her testimony today. All members will have five legislative days within which to submit additional questions to the chair, which will be forwarded to the witness. I would ask our witness to respond as promptly as you are able. This hearing stands adjourned. [captions Copyright National cable satellite corp. 2017] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] janet yellen returns to capitol hill tomorrow. We will have live coverage at 9 30 eastern time on cspan3, cspan. Org, and the cspan radio app. Cspans washington journal, live everyday with news and policy issues that impact you. Thursday morning, Arizona Republican congressman david schweitzer. Then npr justice correspondent gary johnson talks about fbi nominee Christopher Wrays testimony, and what his leadership could mean for the future of the agency. An Gregory Meeks will discuss the latest in the house investigation into russia in the 2016 election. The sure to watch washington journal live at 7 00 eastern thursday morning. Join the discussion. Today, two senators, Chris Van Hollen and pat toomey, introduced in north korea sanctions bill aimed at stopping their Nuclear Weapons development. They held a News Conference on capitol hill to discuss the measure. Thank all of you for joining us today. Im very pleased to be here with my friend, senator toomey, who has been a leader on banking issues, on National Security issues, and we are here to announce that we will be introducing Bipartisan Legislation to