Transcripts For CSPAN Key Capitol Hill Hearings 20140212

The job creations . Chair, yellen, i dont think your microphone is on. Can you see if its on, and if it is, please pull it closer to you. I apologize. I think certainly regulation has an impact on the economy, on Economic Growth. And there are many economic studies that have tried to document what it is. I think in the case of the Affordable Care act, cbo has done important analysis and probably will continue to look at it, i think theyve recognized that the impact of the act is likely to be come flex. I think theyre still attempting to figure out what all of the different channels are by which it will affect the economy, and, you know, well look at that and try to look at their assessments Going Forward. You know, we had to pass it to find out what was in it. And so now thats all coming together. Has the fed done any estimates on how many jobs the implementation of the doddfrank and the effect of the obama administrations regulatory policies are expected to cause the economy, or is it the feds not interested in that question because, you know, we feel doddfrank is going to have just as much impact on the job market as the Affordable Care act did. Well, you know, we lived through a financial crisis that has taken a huge toll on the economy, incruluding creating a period with very high unemployment. And most of the studies that have been done, for example, the Basil Committee in the United States participated in these assessments, as this is only one piece of doddfrank, but in deciding to raise capital standards on Financial Institutions, try to assess what would be the net effect on the econo economy, the overall impact that the study found is reducing the odds of a financial crisis would be the most important benefit, and when we see what a negative effect that has on jobs for such a prolonged period of time to my mind the regulatory agenda of trying to strengthen the Financial System which were trying to put into place to make it more resilient and reduce Systemic Risk will bring important longterm benefits to the economy. When you say longterm, what are you talking about . We always hear long term. What is longterm. When does longterm start . You know, weve been supposedly in a recovery now for a period of time. And we keep hearing that doddfrank and some of these other things that have gone in will have longterm pluses. When does longterm start . Is four years not long term . When are we planning on this kicking in . Five years, 20 years . I think it is kicking in in the sense that were building a more resilient Financial System and substantially mitigating the odds of another financial crisis that will take this kind of toll on households in the economy. Okay, and one other question quickly. Do you feel theres enough separation between the Federal Reserve and this administration in the fact that i know you meet with the secretary once a week, once a month. Its been tradition to meet almost once a week. There are many overlapping areas of interest between the Federal Reserve and the treasury that makes it desirable to have ongoing communication. Its completely independent in conducting Monetary Policy. Time has expired. The chair now recognizes mr. Meeks. Thank you, mr. Chairman. Its with great pleasure that i welcome you this morning, madame chair. Your historic position speaks volume, i believe for our nation and the continued progress our nation is making in the inclusion of women and minorities to positions of leadership and will be another source of inspiration for young women, like my three daughters. Especially those looking for career in the finance and banking industry. Let me just say im pleeased tht you have the job. Not just because youre the rig a woman. Because youre the right person for the job. Thank you, congressman. I appreciate that. Let me ask you something. I know mr. Clay touched on this. This thing about the wealth gap and when you look at what that 95 of the income gain system recovery have gone to the top 1 , you know, theres always been a big question between the relationship between main street and wall street. For me its been difficult, especially sitting on the committee to try to explain wall street to main street when you have this kind of inequality. Today, for example, on average, there is the africanamerican household is 20 times less than the white household. The median net income of white households stands at 110,000 versus 6,000 for blacks and 7,000 for hispanics. Largely because most peoples wealth was in their homes. And when you have the crisis because people were scared in the minority communities, they lost the closing. Now it has gone to a tremendous level. So given that we know that there is no loans and its staring into this community and has caused this disparity in wealth, is there anything the fed can do that will help middle class and more specifically, these individuals who were impacted at a great extent because of the inequality of what was going on in the system. Is there something that we can do to help them get back on their feet . Well, i think, congressman, the most important thing to do, which has been absolutely our focus is to promote a stronger recovery. That these same households that were hit so hard by what happened in the housing sector and by the subprime debacle, we want to see those households get jobs so that they can rebuild wealth and have the income that they need to support their families. Need to support their families. The problem, though, that were having is that many have referred to this recovery as a jobless recovery. And when you look at Technology Today and you see that technology is, you know, a lot of business folks are saying its for efficiency, et cetera, and thereby a lot of jobs that would have been gone to people, you know, are losing. I look at new york city. If you were a teller in a bank, atms have replaced you. Bridge tolls, you have easy pass. You know, all of these jobs that used to be manual labor now are replaced because of technology. So now, im a big believer in International Trade because that should create jobs. My question to you is, though, can we identify the jobs that will be created so that we can then pinpoint where we should be training individuals so that they can get the jobs that are going to be created and not just randomly creating jobs, but creating jobs and then we can go back into the communities and train people specifically for the jobs that we feel will be created as a result of the current economy. Well, a stronger economy is going to create jobs in virtually every sector of the economy. But a longerterm trend that ties in with the concerns that you have expressed is a growing skills gap, a growing wage inequality between more and less educated workers. Technological trends that have reduced what used to be an important class of good, highpaying wage jobs. Those jobs are being competed away because of technological change and to some extent shifts in global competition. I think every economist that i know believes that we need to address that skill gap in order to make sure that we reduce inequality. But is there anything the fed can do specifically to help in that what we can do is to try to promote stronger demand, a stronger job market generally. We have seen that a lowerincome individuals have been disproportionately harmed by the downturn and as the economy recovers. Im by no means saying that this is a panacea, not by any stretch of the imagination for inequality, but i think we will see gains broadly shared throughout the economy. Time of the gentleman has expired. The chair now recognizes the gentleman from north carolina, mr. Mchenry, the chair of our oversight and nvgts subcommittee. Chair, yellen, congratulations on your appointment and being an important mark in the history books as well. Thank you. I have a question. In 2010 you spoke that banks may be required in their debt stack, in their capital to use a convertible instrument that in good times has a debt nature and in bad times converts to equity. You said that they may be required to do this. Is this your intention to use this instrument . So i think when i gave the speech at that time, i was broadly considering possible regulations or shifts in the focus of supervision that might be helpful. I think there still is focus on Something Like that. I think to improve the resolvability of a large banking organization, something that the Federal Reserve and other regulators are contemplating, is a requirement that Bank Holding Companies hold a sufficient amount of longterm debt. It would play a role similar to the contingent capital instruments youve described. You mentioned that in your opening statement, about this requirement on longterm debt. Would it be your intention to have this contingent convertible capital as a part of that longterm debt requirement . Well, i think it bears this type of this type of debt would bear some similarities. Its not exactly the same, but it bears some similarities to contingent debt in that it is a source of gone concern of value that would be there if an organization got in trouble that would serve to recapitalize it. In the existence of such a class of debt, i think would give proper incentives to monitor risk taking in these organizations. So are you still broadly favorable towards these contingent convertible . I mean, there are a number of issues associated with that kind of debt, what would trigger it and so forth. But i think it remains an interesting possibility in this proposal an interesting possibility. Well, thats a fair admission from a chair of the Federal Reserve. So ill take that as somewhat favorable, if i may. And i was reading yesterday in the Financial Times. We have this discussion about the volcker rule and the exception the volcker rule provides for sovereign debt, visavis corporate debt in the United States. I read in the Financial Times yesterday that danielle nuey, whos the head of the Bank Supervisory agency in the european union, she said that theyre really going in a different direction in the eu. And in light of, you know, their recent crises with sovereign debt, she said, one of the biggest lessons of the Current Crisis is there is no riskfree assets. Sovereigns are not riskfree assets. That has been demonstrated. So we now have to react. In essence, the eu is going a different direction when it comes to sovereign debt than we are in the United States. How would you react to that . I believe the exemption for u. S. Debt markets was built into doddfrank. That was explicit in doddfrank. Okay. So what is your reaction to that . Were policymakers. We could remedy that if you think that is a flaw. You know, we have tried to write a rule that is consistent with doddfrank as it was legislated. So if we would you look favorably upon us saying that sovereign debt should not be exempt or should comparable to corporate debt . Thats something i would have to look at more carefully. But did you not look more carefully at this subject matter when you wrote the volcker rule . Well, we put into effect the allowance that congress included in doddfrank to exempt treasury securities. Well, no, thats treasury securities. Im asking about sovereign debt, which was excluded from the volcker rule. Written into the language of doddfrank is exclusion of u. S. Sovereign debt, not the exclusion of other sovereign debt. I would call this a lack of enthusiasm from you. Time of the gentleman has expired. The chair now recognizes the gentleman from massachusetts, mr. Capuano, for five minutes. Thank you, chair. Thank you for being with us today. I have a couple different areas id like to pursue. In your confirmation hearing, you made a comment, at least its reported you made a comment, addressing too big to fail is among the most important goals of the postcrisis period, which on some levels i would agree. Though i happen to think we did address a fair amount of it. I also accept chairman bernanke once said, which is reality is in perception. The perception is we havent done enough. Therefore we have to do more. Im just wondering if you have any thoughts on how to do that. Particularly with relation to either reinstituting some form of glass stooeg l or instituting some sort of marketdriven attempt to reduce the size of some of these too big to fail programs. So i think we have a broad agenda that is intended to address too big to fail, and we are putting it into effect and i think have made meaningful progress. We have do you think it would be worth us considering reinstituting some form of glass stooeg l . I think if we continue on the path were on of completing the doddfrank rule makings beyond that of putting in place a rule that would enable a resolution by through orderly liquidation by requiring so you think we wont need it when youre all done . I think we have to keep watching whether or not weve succeeded in addressing this, but i believe weve fair enough. I would ask you also take a look at hr2266, which is a marketdriven attempt to reduce the size of some of these institutions. I also want to talk about an editorial i read in american banker last week that basically n my opinion, coined a new phrase but one thats accurate. Too big to jail. And it was about the concern that not enough of these people that have foisted their inappropriate activities on us in 08 have paid a penalty on a personal basis. Some of these biggest corporations simply write a check to stay out of jail free. Because its not even their money. Its corporate money. And when i read it in american banker it kind of puts a big underscore to me. Im just wondering, do you have any concerns about the lack of personal accountability in some of the largest institutions in this world when it comes to some of the activities they participated in, not just before 2008 but after 2008 as well. Well, i do have concerns about those activities, and the Federal Reserve cooperates with the department of justice as appropriate when they take actions that are criminal in nature. The Federal Reserves focus is on safety and soundness. Were but isnt the safety and soundness of the entire economy based on trust and good activity . And my concern, to be perfectly honest, if people are not held personally accountable when theyre allowed to write corporate checks, not personal checks, to just push away their illgotten gains and they get to keep that money and continue on and actually get raises and bonuses from those institutions, the moral hazard says to the next guy coming down the street, the people you have to regulate, its okay. Dont worry about it. Do anything you want, and all we have to do is the corporation, not you, will pay a few hundred Million Dollars of shareholder money, by the way, not your money. You dont have a concern with that, with the Federal Reserve by not having not you, but by not having other entities holding the personal account that it will make your job tougher Going Forward . Well, i a gree with you there certainly should be accountability within these organizations. Thank you. I appreciate that. And the last point, i want to talk about fannie and freddie. I have always wanted to amend and reform them. However, ive also thought its wrong. Fannie and freddie has now pretty much paid back the money theyve borrowed from the taxpayer. I dont know if theyre exactly there, but theyre close to it and on their way. Yet, at the moment, they have been allowed by our own laws to pay one penny towards the payment of that principal. There are lawsuits going on, as im sure youre aware. Im just curious. Do you think that it is fair or wise or equitable to keep any entity in a de facto bankruptcy state once theyve paid back their debt . I think you know, with respect to gses i think it is really very important for congress to put in place a new system to address gse reform. I think we still have a system that has Systemic Risk, that government funding remains critical to the mortgage sector. And i think to really get housing back on its feet, its important for congress to put in place a new system and to explicitly decide what the role of the government should be in helping the housing sector. Time of the gentleman has expired. The chair now recognizes the gentleman from new jersey, mr. Garrett, chairman of our Capital Markets subcommittee. I thank the chair, and i thank chair yellen. Congratulations on your position. Welcome to the committee. Thank you also. I understand the rules here that you are waiving a little bit and staying a little longer, since there are a whole host of members on congress on both sides who would like to dig in. We do very much appreciate that. Im going to step aside from some of the monetary discussions some people have made and otherwise get into, to start off with, your prudential supervision role, which of course under doddfrank and others have been expanded greatly. Im not going to run through the list of all the expansions. You know well what they are. Let me just begin to go back, reference a letter you may a report back in november 2011. President gao came up with a report on doddfrank regulation and implementation of cost benefit and analysis. And in that report, just to brief you, fed reserve General Council responded to it with a letter. That was Scott Alvarez and james lyon responding to that. What they said, what the fed response was, that the Federal Reserve will consider appropriate ways to incorporate these recommendations into rule making procedure. I have the letter. They even go further. To seek, to follow the spirit of benefitcost requirements. Costbenefit analysis, basically. My first question to you is, you know, what progress are you all making . This is two years ago this letter was written. What progress are you making on completing and complying with more than the spirit of costbenefit analysis and rule making . Well, the Federal Reserve strongly supports analyzing the cost and benefits of rules that it puts into effect, and weve done a great deal of that. An example i could give you is in connection with our basal rule making where we participated in extensive costbenefit analysis, with other regulators. Would you say youre satisfied with how it wake out with volcker . We had no indication that a costbenefit analysis was done. I asked the governor where it is. We have not seen it. So two years later, it seems like on something thats important as that, it was not done. Do you believe it was done in that situation . I think whats important in the case of volcker is that doddfrank required the Federal Reserve in essence the decision about the cost and benefits of putting those restrictions in place were decided by congress, taking account of what the likely cost and benefits would be. And our job has been to implement it. We have certainly taken into account, issued a proposed rule, received a wide range thousand z and thousands of comments. I appreciate that. My time is very limited. I would encourage a true costbenefit analysis, one where could say please submit to for the record, that it be submitted to congress, which i think in anyones estimation was not done fully in volcker. Speaking of governor, the president has not appointed anyone to fill the position of Supervisory Division vice chair. Would you say that governor is effectively holding that position until that is completed . Until the appointment is made. Well, we operate the board through a committee system. Yeah. I usually have three governors and a chair. And governor ter rue low heads the boards banking supervision committee. So in that sense, he certainly takes the lead. Takes that role. But all of us are involved and all of us are responsible. But would you commit, then, to have goff te rue low come and testify on federal rule making before this committee, since he seems to be filling that role . He has done a great deal of testifying on these topics. Just on that topic, we can ask him . On all topics. I understand. I guess im asking for a commitment we can have him come back in that role and testify before the committee on rule making. Well, you know, i dont want to commit as to what hes going to do, but he has certainly taken the lead role in testifying on these topics. Sure. With regard to International Agreements that you negotiate, you probably see some ideas floating out there that Market Participants should have a better ability to chime in, comment on them. Prior to and in the process of making those agreements. Would you commit today to making allowing for Market Participants to engage in that process while youre making those International Agreements . Well, when we turn to putting rules into effect for the United States, which is what affects those firms, we always have consultation and take comments in a rigorous process of evaluating comments. Thank you. Time of the gentleman is expired. Care now recognizes the gentleman from texas, mr. Hinojosa for five minutes. Thank you. Thank you, chair yellen, for sharing your testimony and for your time with us today. Since the height of the 2008 financial crisis and the deep recession that followed it, the economy has made significant progress, as you and i know. The Unemployment Rate declined from a high of 10 in 2009 to the current rate of 6. 6 . In the most recent quarter, gdp grew at an annual rate of 3. 2 . And further more, despite some recent volatility, equity markets have substantial, have seen substantial gains with the s p index increasing by 30 last year, 2013. Many economists and policymakers fear that the nature of the recent recovery may indicate that the u. S. Economy could be a major infliction point where the ability of the private sector to create wealth is now outstripping its ability to create jobs. Ive seen that in the region that i represent in deep south texas. For most of the postwar period, u. S. Policymakers assumed that growth and employment went hand in hand, and the u. S. Economys performance had largely confirmed that assumption. But the structural evolution of the Global Economy and its effects on the u. S. Economy today could mean that growth and employment in the u. S. Are starting to diverge. Chair yellen, can you discuss with us why we appear to be undergoing what many have referred to as a jobless recovery . What explains the disparity between fairly weak employment growth in recent months and the fact that equities and corporate earnings are at an alltime high . Well, congressman, it certainly has been a slow recovery by the standards of u. S. History from downturns, but 7. 8 million jobs have been created since the trough in employment, i believe in the beginning of 2010. And while we still have a ways to go in the job market, is not by any means back to full strength, were not back to maximum employment. There has been substantial job creation so that i think we have made we have made progress. Clearly, we have further to go. Were trying to promote a faster recovery and a fuller recovery, but i do see, and not only in terms of the number of jobs, but across a broad range of labor market indicators, i do think theres progress even though certainly theres a significant way to go. In past speeches, you have indicated a concern about rising inequality. Many members on this committee are concerned due to moral beliefs. Additionally, many economists have expressed worry that it will impact the recovery. Do you believe that rising inequality might affect the stability of the economy . Well, i am very concerned. I share your concern about rising inequality. I think its one of the most important issues and one of the most Disturbing Trends facing the nation at the present time. There has been some discussion about the possibility that inequality is holding back the recovery because the gains have been so unequally distributed. I think we dont have certainty about that. But certainly rising inequality is not is partly a matter of a weak job market that were trying to address. But there are deep and disturbing longer term structural trends, rising disparity between the wages earned by more and less skilled workers, shifts in global competition that have diminished jobs for less educated people. Im very concerned about the percentages of unemployment in our 18 to 29yearolds. Not only in our country but in other countries in europe, as examples. What can we do so that we can bring those jobs, those rates down to a single digit . So we are working hard. The purpose of our Monetary Policy is to promote a stronger recovery that will see young people who are in school come out into stronger job market that can affect their entire future career. Its a key goal of the Federal Reserve, and i think congress could also consider ways of helping as well. Time of the gentleman has expired. Chair now recognizes the gentleman from california, mr. Miller, for five minutes. Thank you, mr. Chairman. Chair yellen, glad to have you here today. Ive enjoyed your testimony. Theres been a considerable amount of discussion. I was pleased you indicated your agreement that insurance has unique features that make it different from banks and that a tailored regulatory approach for insurances would be inappropriate. I think it would be devastating to apply the same standards to an Insurance Company that we did it a bank. So what are you going to do to make sure that Insurance Companies are not subject to inappropriate bankcentric rules . We explicitly decided when we put in effect our capital rules to defer their application to savings and loan Holding Companies with substantial insurance activities and to the other nonbanks that were designated. We wanted to have a chance to study what an appropriate regime would be, recognizing there are important differences between the Insurance Business and banking. We understand that the risk profiles of Insurance Companies really are materially different, and we are trying our best to craft a set of capital and liquidity standards that will be tailored to to the risk profiles of Insurance Companies. I would say that we do face constraints in our ability to do that because the collins amendment requires us to establish consolidated minimum risk based leverage and Capital Requirements for these entities that are no lower than those that apply to depository institutions. Within that constraint, were working as best we can to tailor and appropriate regime. Im concerned on the asset designation and how the feds look at assets of banks versus assets of Insurance Companies. Governor te rue low said, quote, the liability structure of Financial Institution affect the amount of capital it needs. It doesnt affect how risky a particular asset is. It doesnt matter who holds it. An asset is an asset. I guess my concern id like you to take into consideration is banks hold assets different than Insurance Companies do. Insurance Companies Generally buy asset for the long term. Banks will buy asset for short term. So to me, theres a difference in the way institutions hold assets and the difference in the reasons institutions buy assets. So i hope at some point in time you will take that into consideration when youre reviewing the asset held by a bank versus an Insurance Company. Last fall treasury offices of Financial Research published a report on Asset Management, Financial Stability at the direction of fsoc. Asset managers, as opposed to Financial Institutions, act as an agent on behalf of their clients where investment gains and losses are solely the clients do not flow through to the asset manager. Im concerned the Asset Management firms might be designated and put under bankcentric regulations. I think it would be harmful to Financial Sector if that happened. Do you agree that with the study that Asset Management and banks are different . I think, of course, they are different. Designation is something thats very important to any company and deserves very thorough review if fsoc considers these entitie entities. I think it will be appropriate to do very careful analysis of whether they do pose Systemic Risk. And as it applies, the regulations imposed on Asset Managers should be tailored and taken into account the fundamental difference between the business of the asset and the management and banking. Do you agree with that also . I definitely believe that our supervision in regulation should be tailored to the unique features of any entity we regulate. Okay. I would hope that the fed in the future can try to make it to create more of a comfortable environment for Insurance Companies. Theres been considerable unease in the industry, as you know, in the past year over what their future might be. Some have sold off assets such as they might have held a small bank for a courtesy to their clients because they thought they were going to be drug into the regulation of the banks. I hope that we can be more clear. I know in your position its very difficult to be clear sometimes because the market misreads that clarity. But there needs to be some clarity, i believe, for Insurance Companies so theyre not concerned in the future what their future might be. I yield back. Thank you, mr. Chairman. Chair now recognizes gentleman from massachusetts, mr. Lynch, for five minutes. Thank you, mr. Chairman. Madam chair, i want to just start off by welcoming you and congratulating you. I wish for your every success in your, for us, a new position. I do have a couple of questions. Recently theres a fair amount of attention thats been paid to the commodities activities of some of our Bank Holding Companies. For many years, american law and our Regulatory Framework recognized there should be a healthy separation between banking and commerce to ensure that we have the safety and soundness of banks, to ensure fair, inequitable credit flows to economically beneficial activity and also to prevent excessive concentration of power and wealth in the Financial Sector. However, over the last 15 years, this wall between banking and commerce has begun to crumble with serious negative consequences. In july of last year, the global risk manager for miller coors testified before the Senate Banking committee that the commodity activities of banks cost that company tens of millions of dollars and more than 10 billion for all aluminum buyers globally in 2012. Similarly, jpmorgan chase, deutsch bank, and barclays recently paid fines to the federal Energy Regulatory commission, which has won more than 8 million in Civil Penalties from banks since 2005 for manipulating electricity and natural gas markets. And then recently, the New York Times documented aluminum warehouses owned by Goldman Sachs that used obscure Exchange Rules to drum up hefty fees while contributing very little tangible benefit to the economy. So what all of this shows is that theres a move away from the traditional business of banking by banks and into more risky and, you know, potentially more lucrative but certainly more dangerous activities that seem to produce very little economic benefit while these banks are chasing profits and exposing themselves to steep fines and swings in commodity prices. So the bottom line for me is, do you support pulling back and getting the banks back into traditional banking business . Do you support restricting or prohibiting altogether these expanded commodities activities by banks . And what does the Federal Reserve plan to do to curb these abuses . Were thoroughly reviewing our supervision in these areas. We have recently put out an advance notice of proposed rule making in this area, highlighting a number of different issues that we want to consider. We will carefully look at the comments. I expect that we will be reviewing and likely making changes in these areas to address some of these concerns. I would say, though, that the Federal Reserves main focus in our supervision of these areas is to make sure that banks operate in the commodities activities in a safe and sound manner. You referred in your remarks to allegations of market manipulation. And i would point out that its the responsibility of market regulators, the cfts, the s. E. C. , in some cases the firk, to pursue actions with respect to market manipulation. We would, of course, cooperate in any investigation, but they do have primary responsibility. But yes, were thoroughly reviewing our policies in this area. All right. Thats great to hear. One other quick question. Section 956 of the doddfrank wall street reform and Consumer Protection act requires that the federal financial regulators issue a rule requiring big banks to disclose the incentivebased compensation agreements for employees who can expose the banks to excessive losses. In other words, an article, i believe, by gretchen morganson in the times a couple weeks ago. Where are we on that . I know youre in the rule making process. Do you agree with that approach . And where are we on that on the rule making process . Well, we did put into effect supervisory guidance with respect to compensation in the banking organizations that we supervise. We have engaged in horizontal reviews and are i believe there have been improvements in the compensation, incentive compensation practices of the organizations that we supervise, and we intend to be active in that area. Time of the gentleman has expired. The chair now recognizes the gentleman from california, mr. Royce, chairman of the House Foreign Affairs committee. Chair yellen, its good to have you here. Congratulations. Thank you. On your appointment. I was going to ask you about a speech you gave as president of the San Francisco fed some years ago. As chairman of the Federal Reserve there, you made some observations as sort of a warning, a wakeup call to the situation as it relates to the federal budget deficits not being sustainable. And your words were, we begin to look at numbers that are truly staggering, frightening. And you were talking about entitlements. You said, im concerned that the people take it as a given, that they have Social Security and medicare and support from medicaid to pay for nursing home care. And you explained then it was 8 of gdp. I think it was in about 2006 you gave that speech. 2005 maybe. You said that looking forward, the numbers showed that it would double that. It would be 16 of our entire gdp that would go to pay for entitlements. Now i guess were at 12 today, they tell me. And i was going to ask you about this because its a very similar thing that weve heard after the Federal Reserve chairman ben bernanke retired. He made some comments about this. And also allen greenspan. Your thoughts today on this . Well, i agree with my predecessors that when you look at these longrun trends at that time, i think we were looking over the next 30 to 40 years with unchanged programs, an ageing population, and at that Time Health Care costs that were rising more rapidly than the general price level. You would see a very, very substantial i believe i said roughly doubling of the share of gdp that would go to those three programs without revenues rising in tandem. Of course, that is the key dynamic that underlies cbos longterm budget projections that show the United States to be on an unsustainable budget path. And this is something we have known about for decades. And we need to but this is a question i have. Im not sure everybodys gotten the message. I heard the leader in the senate say we have got a generation before we have to deal with this. And i guess my question to you is, if we dont deal with it now in order to bend this curve, what will be the result for Young Americans coming into the work force a generation from now . What will they face . Well, well face a situation in which rising budget deficits begin to crowd out private investment and begin to lead to an environment of higher Interest Rates, slower growth, crowd out productive private investment. And economists agree with this. Regardless whether economists are left, right, or center, theyre all warning us of the same consequence. So the question i have is, is there a way for you basically to sell the American Public because i dont berealieve thate public really understands the magnitude of it in order to bring the pressure to bear to get an agreement that will address entitlement reform . How could you do that . How could you take your job as chair of the Federal Reserve and go out and explain the consequences of inaction in order to get washington moving and doing the right thing . You know, my predecessors, chairman greenspan and chairman bernanke, have consistently testified that these longrun Budget Trends but im sharing with you are highly problematic. I know. Weve heard the testimony here. What im sharing with you is that its not doing the trick. Somehow we have to figure out a way to get you, as chairwoman, out among the public to build support and maybe with the support of former fed chairmen who are saying today what youre saying today in order to galvanize the political, you know, action necessary because describing the consequences of inaction here isnt doing it. I believe that this is something thats essential for congress to address, and i anticipate consistently sending this message that this is a critical issue. Anything you can do to figure out a way to turn up the heat and get the facts out to the public on the consequences i mean, people used to live to be 65. Its going to be 85, and theyre having two children instead of four. This has to be addressed in terms of reforms. Time of the gentleman has expired. Chair now recognizes the gentleman from georgia, mr. Scott, for five minutes. Chair yellen, welcome. Im over here. Let me just ask you, because i need to ask you if you will be bold. We need bold leadership here. You got to do a mission, fighting price instability, inflation. But employment, that part of the mission has always been like a stepchild for the fed. Its been like a secondclass citizen. And we have a National Crisis on unemployment. This is riveting. The 6. 6 figure is misleading. I mean, College Graduates right now getting out of college is 22 . Young veterans, its 24 . Not to count young males at 30 . Onethird of all the workingage women have already slid into poverty. We need you to be bold. We need you to take us not around the docks with the little boats. We need you to take us out with the big ships on this issue. I need to ask you, will you do that . Will you lift this up and make the employment part of your mandate on an equal plateau with fighting inflation . Congressman, i strongly support both parts of the Federal Reserves dual mandate. Price stability and maximum employment. I have led the committee to produce a statement concerning its longer term policy strategies and goals that puts both of these on an equal footing. And in terms of bold policy, with the economy seemingly stuck my time is short. I want a yes or no answer. Yes, i will will you lift employment up . I mean, this nations in trouble. We have 50yearold men who are being laid off in desperate situations. We have jobs being shipped overseas. In other words, what im saying is, we need more than just zerorate Interest Rates. Your agency is the only one that has the mandate of dealing with unemployment. That is a dual mandate. And it has never been dealt with, with the level of importance that it should be. And let me ask you this, just to give you an idea. Right now, did you know that legislation has been introduced in this congress to eliminate your employment mandate away from that . Are you aware of that . Yes, i am. I strongly support the Federal Reserves dual mandate. Both parts of it, both price stability and the employment mandate matter enormously to american households. I think it serves this country well. And theres no conflict between most of the time, and especially now, between pursuing both pieces of this. We have acted boldly in order to promote a stronger recovery. What do you say to congress . Why would congress, at this most critical time, when the future of this country is at stake this is a National Crisis. The depth of unemployment, when you look at it structurally. And here in this congress, theyre trying to take away a part of your dual mandate to eliminate your employment mandate at this critical time. What do you have to say to congress about that . I feel very strongly that the feds dual mandate to focus on both employment and price stability has served this country well. Were committed to pursuing both parts of that mandate, and we are doing so. Chair, would you make it a part of the feds policy and objectives to fight this legislation, to speak out against this legislation . All im saying here is that you have a great opportunity here. This country needs leadership on fighting this unemployment, this structured unemployment. In every factor, it is a shame that our young people have this rate of unemployment. Many are giving up. They dont even calculate that in the work force, where theyve given up. And ms. Yellen, i am so proud of you, but i am going to be even more prouder if you become that chairman of fed to right the wrong and take us time of the gentleman has expired. The chair now recognizes the gentle lady from minnesota, ms. Bachman. Thank you, chairman. Were extremely grateful for you being here. Also, good luck on your service as the head of the Federal Reserve. We want you to be successful. Thank you. We asked our constituents what their number one question would be today. This is a historic opportunity to have a new Federal Reserve chair, and we had a plethora of responses from constituents with questions. But it was interesting that there was a commonality of the questions that came forth. One was really from our Financial Institutions and businesses. And the first was from individual constituents. So i would like to give you, first of all, the question that we received most from our individual constituents, and it was this. It was, you and other opponents of the audit the fed legislation have said that it threatens the independence of the Federal Reserve. Could you please point to a specific section of the bill that allows congress to interfere with the ability of the Federal Reserve to determine Monetary Policy . My constituents absolutely cant understand why the Federal Reserve would push back against having the Federal Reserve audited. So i strongly believe that the Federal Reserve should be audited. It should be open. It should be transparent. We are audited. Were audited by the gao in almost every aspect of our Financial Affairs and the programs that we run. We have outside independent Accounting Firms that audit the fed. We publish our Balance Sheet weekly. All of this is completely appropriate. What i dont agree with and would strongly oppose is interfering with the independence of Monetary Policy by bringing political pressures to bear on the committees judgment about what is the appropriate way to implement Monetary Policy. Were given objectives by congress thats completely appropriate. We report to congress. You should hold us accountable and ask us to explain how our policies advance the goals that you have assigned to us, but if you pass a bill that wouldnt have the gao come and take documents, second guess every decision that we make or permit them to do that within a short time of our making those decisions and bring political pressures to bear, congress wisely made the fed independent in the implementation of policy because it was understood that we sometimes have to make difficult decisions that would be hard for the congress to make in the best longrun interest of the country and enabling us to make those decisions free of shortterm political pressure is critical to maintaining our independence. Thank you. And i hear what your response is. Our former colleague, ron paul, who had introduced the legislation to audit the fed, contained within the language of that bill, this is no section that deals with giving congress the right to determine Monetary Policy. If the house and the senate were to pass the audit the fed legislation, if the president of the United States would pass that legislation, this is very strong bipartisan legislation. If that happened, would we hear from all of you at the Federal Reserve opposition to that bill that enjoys very strong support from the American Public . You would hear opposition to that bill because congress has for many, many years, for decades, exempted from gao audits our Monetary Policy decisions. And its really critical that our Monetary Policy Decision Makings, not other aspects of Federal Reserve operations, remain free of gao audits. And i think thats part of the reason why were here in this hearing today. Because the American People are feeling less and less empowered to be able to hold the Federal Reserve responsible and accountable. Because theyre seeing the Federal Reserves Balance Sheet escalate to a level never before seen in american history. And the people know that eventually they will be the ones called upon to meet the bills and payments that are accumulated by the Federal Reserve. What means do the American People have to hold the Federal Reserve accountable . In hearings like this, its entirely appropriate for you to demand accountability from me and from my colleagues. And thats time of the gentle lady has expired. Chair now recognizes the gentleman from texas, mr. Green, for five minutes. Thank you, mr. Chairman. I thank the Ranking Member as well, ms. Yellen. If youll look over this way. Yes, were over here. Thank you. And welcome to the committee. Thank you. You have acquitted yourself well today. Im sure this will be one of many visits that youll have with us, and i look forward to continuing this relationship. Were in our genesis today, but theres much we can do together. I want to ask just two go into two areas. The first has to do with how much of the 08 crisis was cyclical as opposed to structural. Because if you apply structural, cyclical remedies to a structural problem, you dont get the desired results. So have you been able to quantify the amount of it that was cyclical as opposed to structural . Well, when you say that we had Serious Problems in the Financial Sector of the economy, we are certainly trying to put in place changes that will make the Financial System structurally sounder. But the crisis that was resulted from those weaknesses produced a marked downturn in spending in the economy and raised unemployment, lowered employment. Much of that shortfall is cyclical in the sense that it represents a shortfall of our economy producing well below what its capable of. And weve been trying through our own policies to boost spending in the economy to create jobs and get the economy back to operating closer at its potential, at its capacity. The theory of expansionary physical contraction is one that many of my colleagues have bought into, and it is the notion that if you cut government spending, that will stimulate the private sector and create more jobs, more businesses will come into being. Where do you stand on this theory of expansionary physical contraction . So i think government, the stance of government in the economy and its role in the economy in the long term influences growth. It influences capital formation. Dealing with budget deficits can have a favorable effect on Economic Growth in the long run. But in the short run, particularly in a weak economy, when government cuts spending or raises taxes, it almost invariably has the impact of lowering growth and raising unemployment. I believe thats whats been going on. Do you think we have reached a point where cutting a loan is not going to give us the desired results . Well, my predecessor, chairman bernanke, routinely advised congress to address longterm budget deficit issues, thought it was critical, as i do, to the longrun well being and functioning of this economy. But to avoid cuts in spending or increases in taxation that would diminish the ability of the economy to recover. So there are ways of addressing longterm budget deficits that wouldnt weaken the recovery, and i share his view. Thank you very much, mr. Chairman. I yield back. Gentleman yields back. The chair now recognizes the gentleman from new mexico, mr. Pierce, for five minutes. Thank you, mr. Chairman. Thank you, chair yellen, for being here and congratulations, not only your nomination but the confirmation. Thank you. The one of the articles refers to you as the champion of main street. I think its the senator brown of ohio says shell be a fed chair that gets out and sees the real economy more and talks to people. I had submitted a request for mr. Bernanke to come to the district and wed host a town hall together. I am still waiting on pins and needles for him to answer. Maybe im giving up that eternal hope now, but i would reissue that invitation to you. Thank you. Much appreciated. Ill try to do that. Well, ill start waiting on pins and needles for you. Okay. And the reason that i would make that offer is that in this hearing room, there have been references by people sitting a the that desk as seniors being collateral damage. That the low Interest Rate is acceptable collateral damage. And id like someone that sits on that side of the table to come out and explain that to the seniors that show up at my town Hall Meetings who say that we lived our life correctly. We saved. We paid for our homes. And now were caught in policies that reduce our ability to live on our savings, and theyre eating on their principal, just trying to get by. That does not seem acceptable, because many dont have the capability to go back to work. In a previous testimony somewhere, you have said that there are other instruments available. But those instruments bring a higher risk. And the last thing an 85yearold wants is more risk. Theyre just looking for that 2 or 3 coupon that does not exist anymore. That explanation to them of why they should understand that this is for the greater good sort of runs a little bit thin as they try to pay for increasing cost of food and gasoline, which dont show up in our inflation rates because we dont include them anymore, but the price of both are squeezing both the poor and seniors more than anything else, giving us a de facto war on the poor coming from washington right now. And thats probably the recurring theme that i see there. Now, id like to discuss just a little bit the logic. You said at one point that Interest Rates are lower because of too much savings. Yet, you have a policy the feds have a policy of paying interest on excess reserves, which would be a de facto way of encouraging more savings. So any discussion ever come up why were doing this, why are we paying this if we think theres too much savings . Well, the fed is paying an extremely low rate on interest on reserves its higher than zero, though, because zero is what one quarter of 1 is what seniors are getting right now so banks can make more than seniors. Again, they see the advantage going to the rich, not to the poor. Again, i just repeat theres sometimes the appearance of a war on the poor. My district is also very low income. Manufactured housing is a big deal. 50 of the homes in my district are manufactured housing. And yet, the policies really made it very difficult for banks to lend on that. I suspect that your staff has made known to you that these pressures exist. Have you all discussed that in any greater detail that wed need to look out for the people on the low end of the income spectrum . Well, qm was a policy adopted by the Consumer Financial protection bureau. I think they are trying to address a set of practices that resulted in unsafe and unsound okay. Well, thank you. Lending. But it is very important to monitor their impact on credit availability. One of the reasons that weve been able to get by with a qe is that were the worlds reserve currency. Has the fed thought at all about whats going to happen when more nations are expressing discontent that were printing money and were devaluing what theyre holding . So weve seen countries trade with other currencies past year . Any thoughts about what happens if the world says youre not the worlds reserve currency anymore . The dollar plays a Critical Role in the Global Economy and its the Federal Reserves job to make sure that inflation remains under control so that the dollar remains a safe and sound currency and can continue to play that role. Thank you. I have nothing further the other countries. Im going to yield back, mr. Chair. The chair now recognizes the gentleman from missouri, mr. Cleaver, for five minutes. Madam chair, thank you for being here. I want to talk Consumer Spending and jobs. 5 of our population is doing about 35 of the Consumer Spend i ing, and if you exclude food and energy, Consumer Spending would rise 1, 2, 3 , something in that area . With the distribution of spending, its very unequal. Yes. So im my concern is how do we increase Consumer Spending, raise gdp unless we are able to get a larger share of the population spending . And for them to spend they need to have some form of income. So what is the impact or what would be predictable impact if we if we had an Employment Benefits and a number of other programs that we are weve backed away from in congress . Well, with respect to unEmployment Benefits, they certainly were serving to support the spend iing of individuals who had long unemployment spells, and, you know, ending those well have some negative effect on spending and in the economy on growth. Because theyll spend everything they receive . More or less yes. Thats true. Thats right. Yes. So several people have talked about the structural unemployment here in the country. What do you think 6. 6, i guess, is unemployment, and thats not necessarily good but its better than what its been, but im interested in real unemployment. The u6 rate. What do you think it is . Do you have a good estimate . Well, the u6 rate includes discouraged workers. Yes. And those on part time, its substantially its substantially higher. More than double the dosh. Its close to 13 , and that is a much broader measure of shortfall in our economy from what we would like to see. So, you know, certainly there is discouraged workers, those who are marginally attached. We have 5 of the work force thats part time. For economic reasons theyre not able to find fulltime work and so thats a measure that is disproportionately elevated in comparison with the 6. 6 or u3 Unemployment Rate. So are there Jobs Available and people just wont take the jobs . Well, i think there is a short fall of jobs and the hiring remains well below normal levels and theres a shortage of demand in the economy that propels businesses to see that their sales are rising sufficiently that theyre wanting to take on enough additional workers in order to lower unemployment back to a normal level. Thats what were trying to address. I drove down to the boot hills in missouri, im from missouri, to speak at an event. On the way back i stopped at a chilis restaurant and there were no waiters or waitresses coming over to the table. They had a little box on the table and you speak in the box and to order your food and then somebody will bring it out. And they give you a certain number of minutes before its brought out. The point im making is, were taking jobs away and then were criticizing people for not taking the jobs that dont exist. Thank you. The chair wishes to alert all members, i intend to recognize two more members at which time the chair intends to call a 30minute recess. The chair now recognizes the gentleman from florida. Mr. Posy for 5 minutes. Thank you, mr. Chairman. I originally and i do want to ask about the volatile three pigs, but the questions by ms. Bachman i think deserve a little bit more response. As you well know, dr. Pauls legislation to audit the fed was the most cosponsored bill in the 112th congress. Very bipartisan. Passed by an overwhelmingly bipartisan vote, and it did not talk about interfering with the daytoday management and Decision Making of the fed, it was postDecision Making audits. And seeing were all government and official agencies under our dominion are subject to audit, it just seems very strange that the audit would object to having the logic behind their decisions and the many other of the litany of items youre exempted from being audited for deemed to be reasonable. So i think if members of congress can ask the gao to come into the Federal Reserve shortly after a meeting where weve made a difficult decision and to perhaps review transcripts and look at the debate that took place around a particular decisi decision, we release transcripts. We release minutes of our meetings, but to come in, review materials and say, no, we dont agree with a decision that was made at the last meeting will stifle debate in meetings and bring to bear shortterm political pressures in the Decision Making in the federal open Market Committee, and i do believe that independence of the Federal Reserve in making Monetary Policy means that we need some scope for deliberation and exercising our best judgment and then explaining to congress and the public what the logic of that was. And the purpose, as ive understood it as mia peering at a hearing like this, is to give members of congress exactly that opportunity. I understand that. Some of us believe in the old adage, trust but verify, and thats what an audit would do. And so would it be reasonable to assume you would not object to an audit if it was post 30 days or 60 days . Is there a time limit when you would be totally unafraid to be audited in retrospect . Well, an audit is different than secondguessing policy judgments than made. Im not guessing we do that as it is now. I mean, we dont agree with all decisions you make now. I think thats clear from at least one side of this aisle, but i would like to think that at some point the fed could be audited like all official federal agencies, much less one that is not a Government Agency but has the run of our entire economy. Well, this is an exemption that has been granted the Federal Reserve thats central to our independence for decades by congress and weve changed a lot of policies trying to make it more transparent and accountable. Id like to think that government gets less corrupt every day, not more corrupt. Well, i dont believe that the Federal Reserve is in any way corrupt, and i believe that the confidence of markets in the Federal Reserve and in our Monetary Policy making would not be enhanced by that type of audit. By knowing by historically being able to audit things that every other agency is subject to review for but you should not be let me get over to baso 3. Starting in 2003 the recovery ratio will require enough banks to have net cash outflows for 30 days. The problem is that baso 3s definition includes the solve voern debt of countries like portugal, ireland, italy and spain. Dont you think that thats like leading sheep to slaughter . Well, we have designed a rule in the United States that would have stricter definitions to minimum. So you think that thats not the same as rating agencies with high risk mortgages as aaas which triggers a 2008 crisis . One is for our banking organizations and weve proposed this in our rules to hold assets that can be quickly converted into cash. Time of the gentleman has expired. The chair now recognizes the gentleman from colorado, wears his broncos cap. Thank you, mr. Chair, and ill wear my broncos cap next week. Madam chair, thank you for your testimony today and i had the pleasure to hear mr. Bernanke for a number of times come testify at these very same hearings and, you know, i really appreciated three things about him. One, hes very smart, very steady, and not very exciting. And i want to say youre following in his footsteps. Thank you. Appreciate that. So what i would like to talk to you about a little bit is the epsock and what is happening just in terms of numbers of meetings, what generally are you concerned about bubbles . Have you seen anything that, you know, would cause you some conce concern . We hear that Student Loans are awfully high and that might be a difficult issue coming up so can you tell us a little bit about what you see the role of the epsoc and how often you meet . I have to say im new to epsock. Ive only been in office 11 days and ive not attended epsock meetings previously, but there will be one this week. Epsock does meet regularly. There are deputies and staff who meet very frequently. Clearly a major focus is to address potential threats to Financial Stability, to identify those threats, and to assess them. This is something the Federal Reserve is very focused on. We have built very substantially our capacity to assess risk to the system. We bring that to epsock. We also use it in thinking about Monetary Policy and in supervising the largest institutions. We recognize that in an environment of low Interest Rates like weve had in the United States now for quite some time there may be an incentive to reach for yield and that we do have the potential to develop asset bubbles or a buildup in leverage or rapid credit growth or other threats to Financial Stability, so especially given that our Monetary Policy is so accommodative, were highly focused on trying to identify those threats. We could potentially take them into account in Monetary Policy, but certainly in our supervision and regulation we would try to address those threats. Broadly speaking, we havent seen leverage credit growth, asset prices build to the point where generally i would state that they were at worrisome levels. The stock market broadly has increased in value very substantially over the last year and, you know, our ability to detect bubbles is not perfect, but looking at a range of traditional valuation measures doesnt suggest that asset prices broadly speaking are in bubble territory or outside of normal historical ranges. There are a few areas where we do have concerns but nothing pr broadly speaking. So Student Loans, you mentioned again that the growth there has been very, very large, that mainly governmentbacked Student Loans rather than private, and i would say the concern there is this is debt that will be with students for a very long time if they get into financial difficulties, that debt stays with them. Its important that they be getting a good return for the borrowing that theyre doing, and its important that they understand what the burdens will be on them when they take out those loans. Of course, its very important, education is critically important, we want to see that, but the burdens are very high and its important that the education that students are getting pay a return and that they understand what it is theyre getting for the debt that theyre taking on. Thank you. And then ill finish where i started. Mr. Bernanke, very smart, very steady, not very exciting. The markets must agree because the markets are up today so we appreciate your testimony. Thank you for taking on this job. Its still a difficult economy out there even though its getting better, and we thank you for, you know, being at the you back live to the hearing room. The chairman is gaveling the session back in. Committee will come to order. Chair now recognizes the gentleman from virginia, mr. Hurt, for five minutes. Thank you, mr. Chairman. Chair yellen, thank you very much for appearing before our committee. Welcome, and i look forward to your tenure. Obviously we recognize gnat virginia Fifth District how important your task is, and we appreciate your commitment to that task. Tell you a little bit about our district. Its a very rural district in central south side virginia. It is a district that historically was dependent upon textiles, furniture, tobacco. Still is a very large Agricultural Producer in our state and in our nation, but weve seen hard times with the changes in especially in manufacturing. I know as an economist youre aware well aware of the terrible effects that has had in many parts of our country and south side virginia is no exception. Weve had over the years, in the last ten years, unemployment in parts of our district as hide as 25 so you can imagine what we really want are jobs and what we want is a booming economy. And so i guess one thing that strikes me, we hear it on the other side and weve heard it a few times this morning, in fact i think youve even used this word, the word inequality talking about i think income inequality, is that something that we need to focus on . Is that something the Federal Reserve needs to specifically focus on. I would suggest to you that obviously my view is that we need to focus on Economic Opportunity for all people, for everybody. We want to see that prosperity. And i would suggest that at least what contributes in part to that inequality are one size fits all, top down policies that come out of washington that make it more difficult for people in rural south side virginia to make it, whether it be an energy policy, keystone, for instance, one that the keystone policy that has come out of this administration has been one that has been an obstacle to jobs, not promoting jobs. The president s health care, we see more people in our district who are losing fulltime jobs going to parttime work. Obviously very, very difficult for my constituents as a consequence. I guess what i would ask as you take on this new very important responsibility, can you talk a little bit about your view of the rule making that comes from the Federal Reserve if you look at the vokle rule and you see that that was a rule that certainly in the beginning that was designed to get at the biggest banks but because of the trupps issue inadvertently perhaps ended up affecting a lot of smaller banks. Can you talk about this the one size fits all mentality that i feel pervades washington and how that affects our Community Banks all across main street in virginias Fifth District and leads to the inequality, lets say, of the access to credit from our Community Banks. Well, as a general philosophy, i dont agree with one size fits all. I think we ought to be designing regulation thats appropriate for each institution we regulate and Community Banks clearly pose do not pose the kind of Systemic Risks to Financial Stability that the larger banking organizations do and the kind of supervision and regulation thats appropriate for those systemically important banking institutions, i think we really want to do our very best to make sure that Community Banks arent burdened with all of that regulation. And i know we meet regularly with community bankers, and we have felt it particularly important to do so coming out of the financial crisis. We supervise them. We know theyre different. We want to listen to their concerns and understand them and were doing our very best to listen and try to tailor an appropriate set of Capital Requirements and other regulations. And from the standpoint of supervisor, the supervisory role that you play, likewise, you know, we hear from our Community Banks from time to time that sometimes it feels like there isnt the responsiveness that is needed. There is micromanagement that prevents them from being able to find a meeting of the minds with them and the customer and thats caused by the supervisory relationship. And so i hope as my time expires here that you all will continue to make that a top priority. I pledge to. At the Federal Reserve. I pledge to do so. Absolutely. Time of the gentleman has expired. The chair now recognizes the gentle lady from wisconsin, ms. Moore, for five minutes. Thank you very much, mr. Chair. It is so nice to be able to say madam chair. And thank you for your indulgence in really sitting through a lot of questions. I dont remember the former chair indulging us this way. Maybe things will change after youre here for a time or two. I have some questions. Let me start out with some Macro Economic questions. Theres a lot of criticism about quantitative easing and the positions that the fed has taken, the fed policy, and on the other end of the street here congress has been engaging in more and more and more fiscal austerity. Is it fair to say that were kind of working across purposes here, you know, on one end were forcing real austere cuts, the economy is slowing while youre doing quan at this at this titi economy is slowing while youre doing quan at this at this titi . Its my thought that we might be able to slow down on quantitative easing if we werent forcing such austerity on the economy. Your thoughts . Well, i agree. I basically agree with your point. Madam chair, i dont think your microphone is on or you need to pull it closer please. Is that better . Yes. As an example over the last year, im sure during 2013, the cbo estimated that fiscal drag depressed growth by about a percentage point and a half, which is really a pretty significant significant drag on growth, and our policies have been trying to offset that, to boost the recovery so, yes, in that sense we have been working across purposes. Thank you, madam chair. One of the things that we would like to think that the current high unemployment is just cyclical. Can you tell us that weve reached the Tipping Point . Are we getting to a Tipping Point where this is going to be structural . Im sorry, where it could be structural . Yes. Were very much worried about the possibility it could become structural. We have some on the order of 36 of all unemployment is in the longterm spells of 26 weeks or greater and we know when people are unemployed for that long, they surely must get discouraged. They begin to lose their networks that enabled them to find jobs, may decide to drop out of the labor force permanently, may begin to lose the skills that are necessary to find new jobs or, as we can see, employers tend not to want to hire people who are longterm unemployed and so the notion that something that should be temporary can become a permanent source of permanent job loss is a huge problem for the economy and of course for the household. Thank you, madam chair. Just quickly. Inequality, another thing thats controversial. People think that inequality is just something that should be left to market forces, but would you is it fair to say that inequality is very harmful to our future Economic Growth and job creation and what tools in the tool kit does the fed have to address this threat . Well, our tool kit, im afraid, is more limited than what im afraid is necessary to deal with these trends. The major contribution that we can make is to try to promote a strong recovery. Many of the unemployed, particularly those with the most serious spells, are lower income people, and if we can get a good, strong recovery going, not only will they get jobs, firms will probably promote people faster and be more willing to engage. Thank you, madam. Just very quickly, i am very concerned about the fed continuing to work with the Cross Border Solutions on the orderly liquidation facilities and i am ive worked on this on my subcommittee and i hope that thats a priority of the fed. We are working very closely with foreign supervisors to try to be able to effect a cross border resolution. Those are if god forbid it should come to that, but these are challenging issues, but were very focused on them. Thank you so much. Time of the gentle lady has expired. The chair now recognizes the chairman from oklahoma, mr. Lucas, chair of the agriculture committee. Thank you, mr. Chair. Chairman yellen, it is a pleasure to be with you today. Sitting on the ag committee and working on the 2012, 2013 and 14 farm bill now signed into law, there are several things we look at in the committee. Some are directly or indirectly related to the activities of the fed. For instance, and not so much an agrelated issue, but the observation from some of my constituents that after the financial problems in 2008, the dramatic downturn in the stock market, going from losing half its value basically back to where it was, a little bit on the positive side, not just that, but, for instance, in farm land prices we watched over the course of the last five years a rather dramatic appreciation in the value of farm land. Now some might say that part of the rebound in the stock market reflected the simple fact that the equities should not have collapsed that far in value five years ago, but and some would also say that a big part of the takeoff in farm land values reflected the renewable fuel standard, a new government mandate consuming 40 of the crop, driving a demand in price responses that hadnt been there before, but in both cases it would seem as an observer, and your opinion of course on this, chair, that once these effects occurred, it would seem that both land prices and maybe stock market values have continued on in a trend that would reflect more than the initial effect of either rebounding stock market or the effect of the renewable fuel standard. In your opinion, how much effect has quantitative easing, the effort of course to try and address the Housing Market and the federal financial obligations, how much of that extra money that, liquidity has bled over into these other areas . Is part of the price in land price values attributable to things like the quantitative easing . So i will not profess to be an expert on land prices. And nobody is, but youre exactly right. I think land prices have been going up at a remarkable rate even before the stock market began to recover, and certainly what caught our attention is an area where we would be concerned about valuations. Weve been watching that very closely. But if resources become so pleasant at this full spread out into the other parts of the economy away from housing, if it distorts the decisionmaking process, in the farm bill this time we did away with the old direct payment program, basically taking 4 billion a year out of the farm economy in an effort part of which to address that issue, but if all of this money is churning and once these rates of return that appear to be so dramatically greater than anything else you can invest in, i guess what im asking you is one, of course as you noted, the fed watches all of these things, but when we undo quantitative easing, whats the effect going to be on things like farm land prices or stock market prices for that matter, equities . Well, i would agree that one of the channels by which Monetary Policy works is asset prices, and we have been trying to push down Interest Rates, particularly longer term Interest Rates. Those rates do matter to the valuation of all assets, both stocks, houses, and land prices and so i think its fair to say that our Monetary Policy has had an effect of boosting asset prices. We have tried to look carefully at whether or not broad classes of asset prices suggest the activity. Seen that in stocks generally speaking. Land prices i would say suggest a greater degree of overvaluation. From the perspective of a number of us, chair, the concern about the old analogy about the put your finger in the balloon and it pops out somewhere else, concern that is we would potentially, unintentionally, of course, create a bubble similar to housing a decade ago of farm land prices or somewhere else and the consequences of that is most unnerving. Your predecessor in response to a question of when will you know to undo the quantitative, his response was, well know. How will you know when the problem is fixed to undo . So, i appreciate the challenges you face. I certainly wouldnt want your job but then it took us two and a half years to do a farm bill too. Well watch asset prices very closely and recognize they can be a sign of excesses that are developing. Thank you, chair. Time of the gentleman expired. Chair welcomes the gentleman from connecticut mr. Himes. Thank you, mr. Chairman. Welcome, madame chair. Thank you. Its a pleasure of a man growing up with sisters and a mom and now wife and daughters, it is a thank you very much. Much appreciated. I want to follow up on a line of questioning by my friend from wisconsin and just read you a portion of your report here. Which reads, fiscal policy was a notable head wind in 2013 prior to relative recoveries, policy is unusually restrictive and the drag on gdp growth was particularly large and quanti quantifiquantif quantified that at 1. 5 . Maybe a minute or so, unusually restrictive. I wonder what you mean by that and. And number two, 1. 5 of gdp growth given up to unusually restrictive fiscal policy. Can you quantify that for me in terms of number of jobs . Well, i guess its im little reluctant to try to quantify it, but a percentage and a half less gdp growth would probably over the course of a year raise unemployment by several tenths of a percent. So it is significant. Now, the economys succeeded in growing in 2013 at a reasonable rate. Nevertheless, in creating jobs. But presumablpresumably, it wou grown faster without that drag. When you say its unusually restrictive, i think when you look historically of periods recovering from a deep downturn and unemployment is as high as it is, the typical stance of contribution of fiscal policy to growth would be substantially larger and what it means to be an unusual drag. I mean, not only absolutely a large, negative number, but its unusual given the economic conditions. Thank you. Thank you. So you did say that several tenths of a percentage point added to the Unemployment Rate. It is not unreasonable i think to assume its equating to magnitude of hundreds of thousands of jobs. Is that unusual to assume i havent done the math but probably several hundred thousands worth of jobs attributed by the Federal Reserve to the unusually restrictive fiscal policies which are generated in this institution. I appreciate you clarifying that. Ive been through not carefully but ive been through all 51 pages of this report. And i dont see mention of something the chairman identified as a huge drag on the economy. Regulatory costs and red tape. Am i misreading this or a reason why costs and red tape are not identified as a drag on the economy . I mean, that probably is a drag on the economy that there certainly are studies that suggest that regulation sometimes does depress Economic Growth and its hard to quantify it but it depends. You know, it depends exactly what were talking about. But in excludeing that from this report did the Federal Reserve make a judgment of materiality . Perhaps why is it not included in the report . Mainly focusing on macroeconomic factors. Okay. Thank you. I just had the opportunity to spend a little bit of time with mark zandi of moodys analytics and suggested or said he thought you might estimate the employment effects of the Monetary Policy carried out by your predecessor at roughly a million job that is exist in the face of that Monetary Policy. Is that a number with which you would agree . So there are a number of different studies and its hard to quantify exactly what the effects are but that is significant study. Okay. Thank you. Just in my remaining time, we had the opportunity to speak with the regulators on the topic of the volka rule, a very good idea and complex rule and i asked and ill forward my ask to you that i think the success of the implementation of the rule will reside largely in the ability of the regulators to give timely interpretive guidance on what you know is a very complicated, internal adjustment they will have to make so im hopeful that the inner agency group formed will put in place a system to provide rapid interpretive guidance to Financial Institutions around that complicated rule and will say, again, thank you. Its privilege to have you here and yield back the balance of the time. Thank you. The time of the gentleman is expired. The chair recognizes the gentleman of south carolina, mr. Mull vany for five minutes. Apparently did the chair doesnt. Yeah from wisconsin, mr. Duffy. You were throwing us for a loop. Thank you, mr. Chairman. Thank you, madame chairwoman. We appreciate your time. Especially those of us low on the dias. During his last testimony before our hearing, it was in july of 2013, chairman bernanke testified that in about five years we can expect a spike in our debt to gdp ratio arising mostly from long term entitlement programs and a bunch of other things including Interest Rate on the debt. President obama acknowledged the major driver of the longterm liabilities is medicare, medicaid and Health Spending and nothing else comes close i think was his quote. I guess to you, chair yellen, do you agree that there are serious economic consequences and risks associated with the risk to address the failure of the imbalances and agree with the president and the predecessor that the principle driver of the unsustainable National Debt is longterm entitlements . Do you agree with that . I do. Great. We are on the same page. Thats wonderful. And we also agree that were not here to address this, you know, five years from now, one year from now. I mean, the realtime to address these entitlement issues starts today, doesnt it . Well, its often difficult to make adjustments in these programs and retirement programs that people count on and require if there are adjustments require planning over their lives and so yes. Its important to address them earlier. Right. Address them fairly for those who are in their retirement or near retirement. Of course. But we should as a body start to address them. You would also agree its pretty hard from your position to address these imbalances through Monetary Policy. We really have to do them through the legislative process, right . Yes. Now, if you look at longterm entitlement spending and the cbos report that just came out saying that the Affordable Care act or obamacare will cost another trillion dollars over the next ten years, you have to agree then that the Affordable Care act isnt bringing us closer to balances in regard to you are entitlement system but taking us further away from balance. Right . Well, so cbo was really the agency thats done the greatest, most careful assessment of the fiscal consequences. And i dont have anything to add to what they have said about the likely fiscal you dont dispute it but youre not necessarily agreeing with it . Is that your position . Thats really their domain of expertise and not ours. I would have to imagine that entitlements taking us further from balance. Let me move on. One of the concerns i have is the high rate of unemployment, and oftentimes after a downturn well see pretty Aggressive Growth and recovery and havent really seen that in this recovery. I think all of us on both sides of the aisle can agree we would wish that the economy would grow faster and more jobs would be created. Our concern also goes to labor participation. Its at pretty low rate. We wish more people were participating in the labor market. I know well disagree on this across the aisles and concerned that the president s Affordable Act has a fulltime defined as 30 hours. The cbo said it costs 2. 3 million jobs. All a stern for us. Specifically my concern goes to the young in america, the youth. Age 16 to 24. The Unemployment Rate is i think 24 . Really high and it is this time in a Young Persons life they learn skills to show up on time, follow directives of your boss. All life skill that is we use to probably, you know, move up the economic ladder. I dont know. I had to bag groceries at the iga. I dont know if you had a minimum wage job. I did. If we increase the minimum wage for young workers, maybe from, you know, 7. 25, if we got them up to 12, 13 bucks an hour, 15 bucks an hour, would that help create jobs for them in your opinion . I think standard economic theory suggests that changing the minimum wage has two effects. It raises the incomes of those people who get the higher wage and have jobs and it may to some extent discourage job creation. And there are a variety of different studies on how large that effect is. Some of them suggesting that its small but others taking a different view. So those that keep the jobs get a little better wage but not create jobs, may cost jobs. Is that right . Thats what a range of studies suggest. Thank you. The chair recognizes gentleman from michigan, mr. Peters for five minutes. Thank you, mr. Chairman. And chair yellen, first i would like to congratulate you on your historic nomination and your confirmation as the fed chair and thank you for appearing with us here today. And being so generous with your time. It is not easy to be in the socalled hot seat for as long as you are. Thank you for doing that. We appreciate it. Thank you. New data came out showing that two years after the koreau. S. Free trade agreement was passed we have now a record trade deficit with korea. In fact you are orks trade deficit with korea increased 56 since 2011 which was the year before the trade agreement took effect and without question this certainly hurts american manufacturers and american workers. Congress i believe cant ignore the impact of trade pacts on our free trade. I oppose Fast Track Authority unless that agreement includes very strong enforceable mechanisms or currency manipulation. I have serious concerns that china is included while maintaining the most closed auto market. The yen recently hate fiveyear low against the dollar and todays Monetary Policy report notes that the dollar has appreciated sharply against the yen since october. Its estimated that the recent fall in the yen puts roughly a 2,000 per export vehicle into the pockets of japans automakers. Now, i dont need to tell you every country has a right to have conduct sound Monetary Policy, but it is increasingly interconnected global policy, facilitating the direct manipulation of currency i believe cannot tolerated and whites argued the policies are not direct intervention, i believe its unsustainable when japan can no longer continue the policies, i think youll see a revision to direct currency, interventions, policy that they have used as late as 2011. So, madame chair, it certainly i think it can be argued that the feds Quantitative Easing Program helped manufacturers, boost exports and the ability to compete abroad. However, im curious to know if you believe that japanese Monetary Policy potentially weakened the beneficial effects of the feds Quantitative Easing Program for American Manufacturing sector and for middle class families. So, i would say this is a topic that the g7 is considered in generally come to the conclusion one that i agree with, that countries should be allowed to use Monetary Policy to pursue domestic aims. Certainly, not to target the value of a currency or to attempt some improvement in their competitive situation. But to address broad macroeconomic concerns. Japan has had almost 20 years of deflation. Mild but chronic and debilitating deflation. And i think its natural and logical that after such a long period of deflation the government and the bank of japan should want to put in place a set of policies to end that. As you said, in a Global Economy, economies are interconnected. Monetary policy does have Exchange Rate impacts. I see the bank of japans policy is intended and at least it looks favorable for now. Seems to be moving inflation out of deflation territory. And toward their 2 objective. To the extent that the policy is designed to stimulate domestic demand and it looks like it has raised growth in the japanese economy, of course, they have continuing problems and the need for, you know, to put in place policies to address their high debt and budget deficits, but to the extent that theyre successful and japan grows more quickly, i think that will be something that will read down to the benefit of japans neighbors if japan has stronger domestic spending, growth, there will be benefits throughout the Global Economy. But there are Exchange Rate implications of those policies, as well. Certainly, if they have closed markets, even if you have stronger domestic markets and not allowing american autos, for example, to be sold in japan, its a detrimental impact. My question was on the impact to the United States. Might be good for japan but its bad for the United States. Gentlemans time. The chair now recognizes the gentleman gentleman in south carolina. Thank you, mr. Chairman. With the microphone on, for five years. Chair yell b, it appears that the fomc had at least two special hearings over the course of the last several years regarding the debt ceiling. We have the minutes of the october 16th meeting. It says the staff provided an update on legislative developments baring on the debt ceiling and the funding of the federal government. Markets and aspects of the processing of federal payments. End quote. That falls on a similar meeting in august of 2011 where the notes reflect the following. Quote, the staff provided an update on the debt limit status, conditions in Financial Markets and plans that the Federal Reserve and the treasury had developed regarding the processing of federal payments. Both of the minutes that we have from those meetings contain similar language then on the conclusions that the Committee Received from the staff and amongst themselves regarding the debt ceiling status at this time. Ill read you the minutes from 2013. Quote, meeting participants saw no legal or operational need to make changes to the conduct or procedures employed in desk operations such as open market operations, large scale Securities Processing or the operation of the discount window. They also generally agreed that the Federal Reserve would continue to deploy prevailing processes. End quote. In light of the fact of at least two hearings where the technical aspects or the plans regarding the processing of federal payments have been raised and the conclusions of both of those that it would not materially impact the conduct or procedures of the fed, a simple question, is there a contingency plan in place, the making of federal payments in the event the debt ceiling is not raised . Not to the best of my knowledge. Then ill ask you, miss yellen, thank you for that. In the 2011 minutes, which read, the staff provided an update on the debt limit status, conditions in the Financial Markets and most importantly plans that the Federal Reserve and the treasury had developed regarding the process of federal payments, what were those plans that had already been developed as of at least august 2011 . I mean, were discussing very technical issues connected with the payment system, for example, would the treasury put through in the morning ach payments that they might not have sufficient balances in their account to pay. What would happen in such a circumstance . Well, in such a circumstances, if they did that, banks would receive instructions in the morning to pay customers amounts that the treasury wouldnt have in their Checking Account to make good on and so their checks would bounce leaving those institutions in a very difficult situation rye the plans referenced in the 2011 hearing in writing . There are briefings that staff made to the federal open Market Committee when we met, when we met about what our plans would be in terms of the responsibilities i understand that but are the briefings based upon a written document . Are they based on some verbal history at the fed or the treasury or a written down plan on these payments . To the best of my knowledge, there is no written down given the fact of a plan to have a great deal of impact on calming the markets in the face of a debt ceiling difficulty, do you think its a good idea to develop a