Can trackback. Use of the tool like thunderclap, can you commit that whatever your going to do with social media that you will use tools or leave in place an audit trail, inability to see where it came from and who did it . I certainly know who worked on these issues internally. Right. Was not able to retract that. One of the things i try to explain although i dont agree with gal come i am not disrespecting their decision. The guide in on how you would use this command we followed it and will make sure. There other information is coming in. Anonymously do things. The one thing you can be sure. I got you. Well, 1st and 2nd. There are other offices that are like ovens. Our system doesnt know the difference between winter and summer time. I apologize. We have a number of members have a numbera number of questions we would like to submit for the record. Like you dont have enough to do. Again, thank you for being here this morning. I thought it was incredibly informative. Thank you for being with us. Under the rules of the committee the record will remain open for ten calendar days. Hearing is adjourned. Thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] this morning on cspan3 the House Armed Services subcommittee on readiness reviews the 2017th air force budget. We will bring that to live at 8 a. M. Eastern. This president s day weekend booktv has three days of nonfiction books and authors on cspan2. Heres the programs to watch for. Crime actually begins to fall in the early 1980s, and i think that happens because the baby boom generation which was the Major Players in the crime rise begin to age out. On monday, rescuing social change. He argues technology sometimes solves troubling and economic problems its not the main driver of progress. Watchable tv all weekend every weekend on cspan2, television for serious readers. For the second day in a row federal researcher janet yellen was on capitol hill to testify on the state of the economy. Yesterday she met with members of the senate banking, housing and urban affairs committee. This is about three hours. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] the meeting will come to order. Today we will receive testimony from Federal Reserve chair janee yellen. Federa the semiannual Monetary Policyet report to congress is anhe important statutory tool for oversight of the Federal Reserve c which was created by congress over 100 years ago as part of the Federal Reserve act. Ain the act grants the fed a certain grid independent but in no way does it come but in no way does it preclude congressional oversight or accountability to the american people. Theres broad consensus that the fed should to mitigate in a manner that helps congress and the public understate its Monetary Policycy decisionmaki. How the federal open Market Committee makes its decisions remains a point of contention, however. Some argue for unfettered discretion while others advocate a rulebased construct. Recently a Statement Released by 24 distinguished economists ands other officials including john taylor, george shultz, allannobl meltzer, three nobel Prize Winners disputes the ideaprize t adherents to a clear, more predictable rule of strategy edictabl would reducee fed independence. In fact, their statement argues, and ipull quote, publicly reporting a strategy helps prevent policymakers from pre bending under pressure and sacrificing independence. Last year this committee favorably reported the financial regulatory implarovement act whh include a provision that wouldd a provt not establishha a rule but rathr require the state to disclose to congress any rule it may happen it to use in its decisionmaking process. I believe this represents aeve e reasonable step towardsds increased transparency and accountability. D its my hope that this year we will be able to reach some kinda of an agreementt on this andach other banking reforms. Never before has it been moreons important for congress to consider ways to strengthen fed transparency and accountability. Since the financial crisis, the fed has expanded its marketsincs policy actions to an extent that wouldve been unthinkable 10 tht years would ago. As former fed chairman paul volcker describe during the crisis that they took him and ill quote him, actions that extended the very edge of its h lawful and implied powers, embed transcending certain, long embedded principles and practices. We are all to the money with the successive rounds of quantitative easing that brokeke the feds Balance Sheet to overd 4 trillion with no wind down inside. I think it makes the question, how will the fed shrink a Balance Sheet that exceeds 20 of the entire u. S. Economy . Some also worry that the fed may have assumed economicconomy . Responsibilities beyond its hav statutory mandate ofe price stability and full involvement. E to the extent that the Federal Reserve has done so it should be dis,closed and justified. While i agree the fed should be free to make independent decisions, it should not be completely shielded fromld not e explaining its decisions and thd factors that it uses to guidee them. At times it seems as though Federal Reserve officials resist even sensible reforms designed to improve economic performance, congressional oversight, or public understanding of theersip Federal Reserves actions. They need to preserve fed independence is very real, but o surely it does not justify objection to any reform. Independence and accountability should not be viewed as mutually exclusive concepts. In fact, accountability is evenab more crucial given the federalie reserves role as a financial regulator. Never before has a single entity held so much power over the sine direction of our Financial System. Eld so notably, doddfrank expanded the thority feds regulatory o authority ovr surance large sectors of the economy, including Insurance Companies and other nonbank Financial Institutions. Es an such Regulatory Authority in the rulemaking issued as result of it raised significant questions. Recently the Federal Reserve has issued a number of newraisesntla regulations stemming from thel basel iii pint capital rules, such as a total loss absorbingct capital, the liquidity coverage ratio, and high quality liquid asset raid. These rulemakings are based on the requirements set by the banks of International Settlements and its Basel Committee on bankingmmittee supervision. Ervisio but instead of allowinging International Bodies to serve as de facto u. S. Regulators, the fed should abruptly that these rules and enter important questions. S s apse for example, vet these rules. Of those International Requirements appropriate standard for our domestic . Financial institutions . Are the even necessary given yxisting rules . Are the are harming our economy replacing u. S. Firms at a disadvantage . I continue to encourage the Federal Reserve to further enc e exercise its regulatory discretion to tailor comeenhad r enhance standards according to the Systemic Risk profile of each institution, not arbitrary factors. Not have a and what does not have the con authority to do so, congress should step in with legislative changes. None of the Federal Reserves fe authorities are immunederal resm reform. Many of us believe that reform is longg overdue. Madam chairman come i look forward to your testimony today and her thoughts on these i important issues. Senator brown. Ughts thank you, mr. Chairman. Thank you, madam chair. Its so nice to have you backk. Your. Its good to see everyone back welco in this hearing room. This is a first gathering since october, and welcome all of you back. I cant help think back to february 2009 when then chair ben bernanke told this committee that our economy was suffering a severe contraction. President obama had just taken the reins in the middle of a obd financial crisis that would the become the worst since the great depression. Ican taxpa taxpayers had just rescued the banking and autodin industry. By the time we hit bottom, 9 million jobs have disappeared, the Unemployment Rate soared to 10 , and in some places that will represent it was higher. N t 5 million families lost their homes tothsure foreclosure. I mentioned to chair yellen my wife and i live in zip code w 44105if in cleveland which had more foreclosures in the first 2007 than any zip code in thewhm United States. Of 2,0 13 trillion in Household Wealth was wiped out it was one of thef darkest periods in our nations economic history. Seven years later its clearatis weve come a long way since the eom financial crisis. Our economy has added 30 million jobs since 2010 and weve had 7x consecutive, 71 consecutive, thats almost six years, of job growth. The Unemployment Rate has, dropped a little 5 5 to the lowest level since 2008. Average earnings are up. 5 since december. The second strongest monthly gain since the crisis up 2. 5 in the last year. The fed as we increased rates for the first time in a decade. Thats a good news but we still face severe challenges. Wages have been too flat for too long, too many workers are still looking for jobs. Those that have won are notookir making as much as they should be. Some are benefiting frommsome ae recovery, mostly the top 5 arem benefiting the recovery, from th the recovery, far more than average workers. International economies are slowing. Xports american exports are challenged i the strong dollar. Oil prices are at all time lows, though they havent provided thi economic boost many analysts expected. Inflation remains very low. The slow andndth steady progresn the economy has given rise to whatto w i fear, and i see thatn this room, what i fear is aearsa collective amnesia from many on wall street and many in congress, as if they forgot what happened in 2006, seven and eight, as if they didnt know about the human suffering in every one of our states, the lost wealth, the loss of jobs, the foreclosed homes. I think that a few of us and none of us in the spend time talking to people who have lost their homes and have to explain to their child that theyre to eg to have to move to a new neighborhood in a less nice to house and go to a differentt school. And the pain that causes to thee millions of people have seens o their homes foreclosedf peo on. They seem to have forgotten this collective amnesia suggests that far too many people who sit on the side of the dais have forgotten it just a devastatings the crisis was for an entire generation of working and middleclass americans. Instead of working to strengthen our economy and to bolster the Financial System safeguards, some republicans want to unleash the forces that almost destroyed the economy in the first place if you want to go back ecto business as usual with wallith e street. Instead of conductinget oversigt hearings to push for implementation of the wall street reform act, we all remember when president obama signed doddfrank the chief Financial Service lobbyists in this this town said now its halftime, meaning theyre going to go to work to try to stop tho fed and weaken the fdic rules and whatever they could do a bit of wall street. So instead of conducting hearings to push for implementation of wall streethos reform, in fact this committee instead has been Holding Hearings on weakening the law for banks and banks on banks anw to make it impossible for regulators to finalize the to mk rules. The Banking Committee has not ii 13 months healthy certain hearing will strengthen consumec protections. We have not talked about improving credit reporting debt collection. We have examined how to curtail payday lending or make rental rousing more accessible, affordable and safe. Theres a lot of work to do to ensure we do not repeat the loto mistakes that led to the great recession. Re i sent a letter to the we chair yellen this week urging the Federal Reserve to do more to reduce the risks posed by big banks involvement in the commodities business. The fed and the fdic need tons make public determinations if individual firms have notrediblg provided credible living wills that demonstrate they can go out of business without wrecking the Financial System. This is one of the ways we determine if too big ofut wrecke still actually exist. Er the regulator should finish rules related to compensation incentives on wall street, understanding when americansot h have not had a raise forad year, are just barely making it when they see this kind ofll compensation on wall street and these kinds of bonuses for executives inxecutives in many o helped to get us into that tituation we are in. We learnedy if we learn anything from the crisis is that wall street encouraged to behavior that caused the crisis at a steep rise to american homeowners and american renters. The f ed still has work remained at its Regulatory Framework for its nonbanks that supervises asu those Insurance Companies that own savings and loan Holding Companies. I hope you paid close attention, cdamtion r, totomada mt choshae irbusines models. While regulators take important steps to rein in risks in money market mutual funds and the triparty we go market come to policymakers should continue too examine these and others. To t potential threats in the nonbanks sector. To those who say the reforms have taken place in the u. S. Will put us at a competitivetic disadvantage, this week has shown us the actual benefit. Fie its good to me as result of a new regulation u. S. Financial institutions are more resilient than their counterparts in other parts of thel instituti world. Chair yellen, i look for your assessment of both the economy and will be our efforts to woulo strengthen and more stabilizer Financial System. All of us must do the necessaryo work to promotemo Financial Stability, to protect consumers to prevent what could be the next crisis. Theres far too much at stake for American Families to do otherwise. Thank you, madam chair. Your investment will be made part of the written record. Record. You may proceed as you wish. E to welcome to the committee t agai. Chairman shelby, Ranking Member brown, and other members of the committee, i am pleased to present the Federal Reserves semiannual Monetary Policymianne report to the congress. In my remarks today, i will discuss the current Economic Situation and outlook before turning to Monetary Policy. Since my appearance before this Committee Last july, the economy has made further progress towars the Federal Reserves objective of maximum employment. And while inflation is expected to remain low in the near term, in part because of the further declines in Energy Prices, the federal open Market Committee expects that inflation will rise infl to its 2 objective over the medium term. Term. In the labor market, the number in the of nonfarm payroll jobs rose 2. 0 million in 2015, and posted a further gain of 150,000 in january of this year. Thr. The cumulative increase in employment since its trough in early 2010, is now more than 13 million jobs. Than meanwhile, the Unemployment Rate fell to 4. 9 in january, 0. 8 percentage point below its level a year ago and in line with the median of fomc participants most recent estimates of its longerrun normal level. Other measures of labor marketos conditions have also shown solid improvement, with noticeable declines over the past year in the number of individuals who want and are available to work but have not actively searchedse recently, and in the number ofte people who are working part time but would rather work full timey however, these measures remain above the levels seen prior to the recession, suggesting that o some slack in labor marketsestih remains. Bor thus, while labor Market Conditions have improved substantially, there is still room for further sustainablestay improvement. The strong gains in the job market last year were accompanied by a continued moderate expansion in Economic Activity. U. S. Real Gross Domestic Product is estimated to have increased about 1. 75 in 2015. Over the course of the year, subdued foreign growth and thesr appreciation of the dollar restrained net exports. In the Fourth Quarter of last year, growth in the gross last domestic product is reported to edve slowed more sharply, to ant annual rate of just. 75 . Rate e again, growth was held back by. Weak net exports as well as by a negative contribution from inventory investment. Although private domestic final comand appears to have slowed somewhat in the Fourth Quarter, it has continued to advance. Household spending has been supported by steady job gains. And solid growth in real disposable income, aided in part by the declines in oil prices. One area of particular strength has been purchases of cars and light trucks; sales of these vehicles in 2015, reached theirp highest level ever. Ehicles in the drilling and mining sector, Lower Oil Prices have caused companies to slash jobs c and sharply cut capital outlays, but in most other sectors, Business Investment rose over rosesecond half of last year. And homebuilding activity has continued to move up, on balance, although the level of activity new construction remains well below the longerrun levels implied by demographic trends. Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic yctivity and the labor market,ot although declines in longer term Interest Rates and oil prices provide some offset. Still, ongoing employment gains and faster wage growth should support the growth of realport o incomes anwtd therefore consumer spending, and Global Economic growth should pick up over timed supported by highlyd pick accommodative monetary policiesy abroad. A against this backdrop, thepolic. Committee expects that with gradual adjustments in the stance of Monetary Policy, Economic Activity will expand at a moderate pace in coming years and that labor market indicatorg will continue to s trengthen. Abor mket as is always the case, the Economic Outlook is uncertain. At foreign economic developments,mt in particular, pose risks to u. S. Economic growth. Most notably, although recent Economic Indicators do not. Suggest a sharp slowdown inest chinese growth, declines in the Foreign Exchange value of thef renminbi have intensified uncertainty about chinas Exchange Rate policy and thecon. Prospects for its economy. This uncertainty led to increased volatility in global incr Financial Markets and, against the background of persistenttenb weakness abroad, exacerbated concerns about the outlook for Global Growth. These growth concerns, along with strong supply conditions and high inventories, contributed to the recent fall in the prices of oil and other commodities. In turn, low Commodity Prices could trigger financial stresses in commodityexporting economies, particularly in vulnerable emerging market economies, and for commodityproducing firms in many countries. Should any of these Downside Risks materialize, foreign activity and demand for u. S. Exports could weaken and financial Market Conditions could tighten further. Of course, Economic Growth could also exceed our projections for a number of reasons, including i sibility that low oil easons prices will boost u. S. Economicg growth more than we expect. Ec present, the committee is. Closely monitoring globalpect. Economic and financial developments, as well as assessing their implications fol the labor market and inflation and the balance of risks to thes outlook. Ng the plicatio as ins noted earlier, inflationk continues to run below the committees 2 objective. Overall consumer prices, asto measured by the price index forn personal consumptionmmitt expenditures, increased just meu. 50 over the 12 months of 2015n to a large extent, the lowcreaso average pace of inflation lasth. Year can be traced to the earlier steep declines in oilcan prices and in the prices ofearli other imported goods. Thepric and, given the recent furthers. Given declines in the prices of oilthd and other commodities, as wellih as the further appreciation of the dollar, the committees expects inflation to remain lowe in the near term. Iationf however, once oil and importts inflat prices stop falling, the downward pressure on domestic inflation from those sources should wane, and as the labor market strengthens further, inflation is expected to rise gradually to 2 over the medium term. In light of the current shortfall of inflation from 2 , the committee is carefully monitoring actual and expected progress toward its inflation goal. Of course, Inflation Expectations play an Important Role in the inflation process, and the committees confidence in the inflation outlook depends importantly on the degree to which longerrun Inflation Expectations remain well anchored. It is worth noting, in this regard, that marketbased measures of inflation compensation have moved down to historically low levels; our analysis suggests that changes in risk and liquidity premiums over the past year and a half contributed significantly to these declines. Some survey measures of longerrun Inflation Expectations are also at the low end of their recent ranges; overall, however, they have been reasonably stable. Turning to Monetary Policy, the fomc conducts policy to promote maximum employment and price stability, as required by our statutory mandate from the congress. Last march, the committee stated that it would be appropriate to raise the target range for the federal funds rate when it had seen further improvement in the labor market and was reasonably confident that inflation would move back to its 2 objective over the medium term. In december, the committee judged that these two criteria had been satisfied and decided to raise the target range for the federal funds rate 1 4 percentage point, to between. 25 and. 50 . This increase marked the end of a sevenyear period during which the federal funds rate was held near zero. The committee did not adjust the target range in january. The decision in december to raise the federal funds rate reflected the committees assessment that, even after a modest reduction in policy accommodation, Economic Activity would continue to expand at a moderate pace and labor market indicators would continue to strengthen. Although inflation was running below the committees longerrun objective, the fomc judged that much of the softness in inflation was attributable to transitory factors that are likely to abate over time, and that diminishing slack in labor and product markets would help move inflation toward 2 . In addition, the committee recognized that it takes time for Monetary Policy actions to affect Economic Conditions. If the fomc delayed the start of policy normalization for too long, it might have to tighten policy relatively abruptly in the future to keep the economy from overheating and inflation from significantly overshooting its objective. Such an abrupt tightening could increase the risk of pushing the economy into recession. It is important to note that even after this increase, the stance of Monetary Policy remains accommodative. The fomc anticipates that Economic Conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run. This expectation is consistent with the view that the neutral nominal federal funds rate, defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy was operating near potential, is currently low by historical standards and is likely to rise only gradually over time. The low level of the neutral federal funds rate may be partially attributable to a range of persistent economic headwinds, such as limited access to credit for some borrowers, weak growth abroad, and a significant appreciation of the dollar, that have weighed on aggregate demand. Of course, Monetary Policy is by no means on a preset course. The actual path of the federal funds rate will depend on what incoming data tell us about the Economic Outlook, and we will regularly reassess what level of the federal funds rate is consistent with achieving and maintaining maximum employment and 2 inflation. In doing so, we will take into account a wide range of information, including measures of labor Market Conditions, indicators of inflation pressures and Inflation Expectations, and readings on financial and international developments. In particular, stronger growth or a more rapid increase in inflation than the committee currently anticipates would suggest that the neutral federal funds rate was rising more quickly than expected, making it appropriate to raise the federal funds rate more quickly as well. Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. We are committed to our dual objectives, and we will adjust policy as appropriate to foster financial conditions consistent with the attainment of our objectives over time. Consistent with its previous communications, the Federal Reserve used interest on excess reserves and overnight reverse repurchase operations to move the federal funds rate into the new target range. The adjustment to the ioer rate has been particularly important in raising the federal funds rate and shortterm Interest Rates more generally in an environment of abundant bank reserves. Meanwhile, overnight rrp operations complement the ioer rate by establishing a soft floor on money market Interest Rates. The ioer rate and the overnight rrp operations allowed the fomc to control the federal funds rate effectively without having to first shrink its Balance Sheet by selling a large part of its holdings of longerterm securities. The committee judged that removing Monetary Policy accommodation by the traditional approach of raising shortterm Interest Rates is preferable to selling longerterm assets because such sales could be difficult to calibrate and could generate unexpected Financial Market reactions. The committee is continuing its policy of reinvesting proceeds from maturing treasury securities and principal payments from agency debt and mortgagebacked securities. As highlighted in the december statement, the fomc anticipates continuing this policy until normalization of the level of the federal funds rate is well under way. Maintaining our sizable holdings of longerterm securities should help maintain accommodative financial conditions and reduce the risk that we might need to return the federal funds rate target to the effective lower bound in response to future adverse shocks. Thank you. I would be pleased to take your questions. Madam chair, weve talked about this privately before, but does the fed still use the philips rule in a lot of its deliberations . Well is that an important tool or as cheap or is it just one of many tools . It is essentially a theory that fed recently but certainly not perfect explaining the inflation process. And its a theory that says first that Inflation Expectations play a key role in determining inflation. Second, that supply shocks such as movements and the price of oil or commodities or import prices also play an Important Role. And third, that degree of slack in the labor market where the degree more generally pressure on resources and the economy as a whole exert an influence on inflation as well. That degree underlines the kind of statement that i made that if inflation remains, Inflation Expectation remained well anchored and the transitory influence of Energy Prices and the dollar traded over time, that in a tightening labor market with higher resource utilization, i expect inflation to move back up 2 . It is consistent with that phillips curve theory. So in essence a yes. I want to make clear that all of those elements play a role. And, of course, there can be other factors, idiosyncratic factors, or other factors not captured by that model that make a difference. So that model in part underlies an Expectation Inflation rule returned to 2 . But in our state in december and january the committee indicated that we will continue to assess actual developments with inflation, and see whether they are in alignment with our expectations because after all this is not a theory that is broken. Would you say today that precipitous decline in the price of oil and gas, plus the rise of the dollar has surprised the fed to some extent . Or could you have predicted all this . So, i think we have been, markets have been and we have been quite surprised by movements in oil prices. I think in part they reflect supply influences, but demand may also play a role. The stronger dollar is partly something that we anticipated because the u. S. Economy has been performing more strongly than many foreign economies, and we have the virgins in the stance of Monetary Policy that influences capital flows and the dollar. Nevertheless, the strength of the dollar and the extent to which its moved up since mid2014 is not something that we anticipated. So yes, we have been surprised in part by those developments, and they have played a significant role in holding dowe inflation. You believe this economy,ayen although its number of years to old has peaked or near peaking, or will start declining and put us into a recession of some type works or you just dont know . If something youre watching . We are watching developmentst very car efully. I would say there is always some chance of a recession in anyhe year, but the evidence suggests that expansions dont die of old age. Tt e we are come as i mentioned in my testimony, looking very as carefully at global financialuly market and economic developments that create risks to the economy. And we areevelopme evaluating t, recognizing that these factorsr may well influence the balance of risks or the trajectory of the economy. Trajectory of the economy and thereby might affect the appropriate stance of Monetary Policy but at this point i think its premature to make a judgment. We will meet in march and are committee will carefully deliberate about what impact these developments have had. Today i think its premature to render a judgment on that. Are you saying basically the fed will be careful looking at every aspect of the economy and the International Economy before it raises the federal rates . Is no way you are saying . Yes we certainly will evaluating the outlook certainly taking these developments into account and what i want to emphasize sa said Monetary Policy is not on a preset course. We want to set the path of policy that will achieve the objectives that congress has assigned to us and not certainly entails making sure that the expansion, doing what they can to make sure that the expansion continues. Could you just take a couple of minutes and share with us your view as to the strength of our Banking System today . We hope we wont go into a recession but we do have cycles and we know that. What is the condition of our Banking System . Do you feel comfortable about our Banking System or is it something you are working every day on . I would think the steps that we have taken over the last seven years have had very substantial payoffs in the form of a much more resilient and stronger, better capitalized more liquid Banking System. We have not only raised capital on the quiddity standards including especially ramping those up for the most systemic firms. We have also used stress test methodology to see whether we think those firms, and we do think that they can continue to support the credit needs of our economy even in this scenario of very significant stress so i think we do have a strong Banking System and we have seen marked improvement. Thank you mr. Chairman. You said in response in your testimony and response to mr. Shelby the committee is by no means on a preset course and you later say that the economy were to disappoint you but suggest you would be less likely to raise Interest Rates and i have a couple russians about wages that the dual mandate is so important that i so appreciate your emphasis always on it of course and in restraining inflation but also equally importantly to many of our constituents i think maybe even more importantly the importance of job growth and i also appreciate the importance deal of wage growth to deliberate on these questions are freezing Interest Rates. While job growth has been better than some might have expected with 71 consecutive months in which growth, with good science recently but not enough data released recently this month show average monthly earnings increase. Three questions and answer them together if he would prepare wage Growth Indicator showing the same increases at higher wage increases occurring across race and gender and economic set or source are certain groups doing better than others in that wage growth and finally can the economy reach full employment without Labor Force Participation increases for women and minorities and have widespread wage growth so if you would sort of pull those together and answered madam chair. So you asked about other wage indicators. As you indicated average Hourly Earnings have picked up but it is a series that is volatile and while i think we see some evidence of faster wage growth there i would still refer to that evidence in compensation per hour were we also see a somewhat slightly higher pace over the last 12 months in its growth but again this is a very volatile series ended in terms of employment cost index compensation growth has really not shown any sustained pickup and thats a significant series so it best i would say the evidence to a pickup is tentative. I do continue to envision that if the labor market continues to improve as we certainly hope it will, but there are is scope and we will likely see pickup in wage growth. In terms of particular groups in the economy, i cant give you recent evidence on developments, i think you asked for her race and gender but. And sector. I dont have those data at my fingertips but we know that in the u. S. We have had a longstanding trend toward rising inequality, rising wage inequality in this country and more educated people have seen faster wage growth than those in the middle and at the bottom and i believe that trend continues. A lot of jobs during the downturn, middle income jobs were lost and although jobs across the occupational distribution have been created, job creation has perhaps been more heavily skewed towards sectors that have lower pay and i think there are deeper structural reasons that these trends continue. They predate the downturn in the economy but the downturn probably accelerated those trends perhaps related to globalization and technological change that are demanding increased skill. Thank you and just one comment. I think we cant be satisfied that we have full employment without full employment across demographic lines meaning women and minorities especially. We dont have full employment for them also and i know you recognize that. Let me shift to and now we dont have a lot of time because theres a book called on living wills. We discuss the process less you knew felt the fed and fdic have provided companies with clear the backlog deficiencies to you. When do you anticipate providing feedback on last years submissions . When did you provide feedback on last years submissions and i committed to making formal determinations about insufficient plans and will you differentiate between and among firms when you provide feedback or make determinations . When, we are actively engaged in evaluating these plans. The board has met regularly since august. I believe we have had seven board meetings to discuss these plans. We have worked closely with the fdic. We have not made a final determination so its premature for me to give you a definite time but we will make these determinations in the nottoodistant future. We are very actively engaged and yes we are still committed as i indicated to finding the plan that meets the specifications we outlined. We are certainly prepared to specify what those deficiencies are. One more question. An aggressive thorough whipping will process answer the question too big to fail . It certainly helps. We have also put in place requirements for adequate socalled tea lack rules for adequate koulas absorbency. We certainly are requiring that firms have workable plans for how they would be resolved under bankruptcy and doddfrank, so we want to make sure that there is a way that they could do resolvable under bankruptcy and that the resources are there so that the taxpayer would not be at risk and doddfrank is a backup Authority Title ii which would be if its necessary and additional tool that we can use. So i think its premature to say we have solved too big to fail but i think we have made very substantial strides toward dealing with it in toward addressing it. Thank you. Senator crapo. Thank you mr. Chairman and chair yellen i appreciate your comments at our last hearing when we discussed the 50 billiondollar trigger being used to determine when a bank is systemic important and your openness to increasing the threshold them focusing on the flexibility that we need there. While Congress Continues to make progress on this effort and hopefully we will make some progress soon, you have previously noted that the Federal Reserve has the authority and discretion on its own to tailor the application of these rules as they apply to systemically important designated banks. Those covered by section 165 of doddfrank. My question is can you give a specific examples of the tailoring that might be in the works is the Federal Reserve works on this and will there be stress testing and resolution planning . So we are for example actively engaged in reviewing our stress test, testing and Capital Planning framework for the Bank Holding Companies above 50 billion we are considering ways in which we can make that less burdensome to the Bank Holding Companies that are close to the 50 billiondollar asset line. Along with that we might make it somewhat stricter for some of the we are considering that as well and i think that would be tailoring it appropriately at both ends of the spectrum. We are paying close attention to the costs and benefits of that particular changes and how they affect those institutions, so we havent made final decisions but that is certainly something on the drawing board for a hope you can make progress. Do you believe we will see any of that tailoring announced soon or applied soon . Certainly this year but i think if we were to make changes they would not take effect until the 2017th cycle of stress test. Thank you and shifting topics because of liquidity issues that occurred on october 3 team, 2014 in the treasury market there has been a lot of effort by the Federal Reserve and others to better understand the factors that impact the liquidity of the treasury market especially during stressed Market Conditions. The concerns of acres of several factors including new regulations may have reduced marketmaking capacity and during stressed Market Conditions the quiddity may be more prone to disappearing at times when its most needed. Are you concerned the liquidity in the bond markets may be less available and stressed conditions and we need to better understand and analyze all the factors including the impact of regulations on this . Senator yes i agree with what you said. Normal metrics, the ones we typically monitor on liquidity conditions in these markets havent changed that much but the perception and of course the experiences as you cited suggests under stress conditions the quiddity may disappear when its most needed. So we are looking very carefully at that and add all the factors that may be involved. Regulations are on the list but are there other things as well . The prevalence of High Frequency trading has increased. Brokerdealers have reconsidered in the aftermath of the crisis the appropriate models they want to use to run their businesses. There have been changes and disclosure that affect Corporate Bond markets and we want to try to disentangle the impact of all of those different influences. Thank you and one last question. Thereve been several hearings on Financial Stability Oversight Council that focused on ways to improve transparency accountability and communications. In the april subcommittee hearing that senator warner and i held the witnesses agreed the Oversight Council needed to provide actionable guidance disick dated, to designated systemically important Financial Institutions on how they could do you risk and ultimately shed their designation level, label. What has been done and the suspend referred to as an off ramp. Do you agree that further progress in this area is appropriate and when their Financial System be safer if companies knew what they could do to address the risks and have an incentive to become less systemically risk a . I would certainly agree with you. It would be good if they became less since systemically risky and designation is not intended to be permanent. The afsoc reviews these designations every year and it is of course important for firms to understand the kinds of steps that they could take to shed their designation and to become less risky. But i think the afsoc needs to be very careful not to micromanage these firms and to try to tell them exactly what their Business Models ought to be. Those firms know exact way why they were designated. They have received detailed letter sent analysis explaining what the factors were about their businesses that would give rise to Systemic Risk in the event of their failure so they do understand why they have been designated and the things that they would so designation is not intended to be permanent. We do have regular use and i think those firms do have an understanding of the kinds of things they need to be prepared to do so i just dont think its appropriate for the afsoc to say we want you to do the following business plans. There are a lot of german ways in which the firm might decide to address those issues. Thank you. My time has expired and i would like to discuss this with you further. Certainly. Senator tester. Thank you. Chairman yellen thank you for being here today. I want to follow up with senator crapos question. Correct me if im wrong you just said that Companies Understand wired they are designated as a sifi and they have two understand that they they do say what they have to do. So what you said because thats no information for me. In the sense that we have been given detailed explanations of what aspects of their business give rise to Systemic Risks that have caused them to be designated. So is that information given as the process goes on or after the process of designation is dumbed . There is a three stage process and there is a great deal of interaction with afsoc during that process. So i believe before they are designated there is a sufficient amount of interaction that they will understand. They are leading them to be designated and that they are given a very detailed would the up and opportunity is the process goes on to make changes so that they would change the direction that the afsoc is going and what im getting at is if that information is being given out early enough so the company can save well we are just going to make some changes. They have chosen to make changes to stop the designation. Do you believehey mto they certainly have lots of opportunities to interact with fsoc and to explain their Business Model and the direction its going. Thank you, chairman. I want to talk about the housing sector. Very, very briefly. Could you give us your perspective on what the fed is saying in the housing sector right now, and want a pickup in that sector would mean for the american taxpayer . So, we are seeing recovery i would say in housing. Its gone on now for a number of years but its very, very gradual. House prices are recovering. They have increased quite a bit and i think thats helping the financial situation of many households. The level of new construction, residential investment, remains quite low relative to underlying demographic trends. So it seems to me there is quite a significant way for housing to go before we could say its at levels consistent with demographic trends. So i think it will continue to improve. And it is a support to the economy. And a hiccup in the housing industry, what would that mean for the taxpayer right now . Ththe american taxpayer. But with a Housing Slowdown or perhaps, not a collapse but a decrease in their growth mean to the american taxpayer, visavis fannie mae and freddie mac . Mac. Visavis fannie mae, freddie mac . Im sorry i dont have numbers on that. Tell me, give me a sense of what the fed is doing to ensure we are protecting consumers about the same time different shading between Community Banks and big banks . When you say we are in consumers . While the same time differentiating the regulations that impact the small banks versus the big guys. Smacks of Consumer Protection is a very important part of our supervision and the cfpb examines the larger banks in terms of their consumer compliance and our responsibility is now with the Smaller Banks and Community Banks where we have Consumer Protection enforcement. We try to tailor our examinations, our consumer exams of the Community Banks so that they are not too burdensome and they are focused on real risk. Do you feel you have been successful in that tailoring from a Community Bank stan point . We are very focused on Regulatory Burden on Community Banks and we are trying to do both on the safety and soundness side and on the consumer compliance side. Everything that we can to reduce burden while making sure banks abide by Consumer Protection. If i might mr. Chair very quickly we are seeing consolidation of banks in montana pretty rapid. Is that true throughout the country and are you concerned about that . There has been consolidation. We are concerned about the burdens on Community Banks. And in a low interestrate environment, net interest margins are also squeezed for many of these banks. Thank you. Thank you for being here. The confirmation hearings, i noted you were in the first to head, which were at the time if the data shows you needed to raise Interest Rates you were going to do so in and you did that recently. You were talking 2 inflation and full employment. The question by many, are there any rules at the fed other than 2 inflation and full employment that died as you look at data, that died where you are going and not a particularly long answer to is at. There has been criticism about whether there really is the rule based system that people understand so that it is not like the fed is the wizard of oz and no one knows what is going to happen. Markets of fallen 500 points which is unusual after testimony which i thought was good yesterday but is there some other rule based system that those of us who care about these things can count on relative to what the feds actions are . If i might i would like to distinguish between the systematic approach to Monetary Policy which i believe would have been put in place and the system we use that is in line with what other advanced Central Banks do and mechanical, mathematical, rule based approach which i dont support and no central bank that i am aware of follows. We have articulated in a clear statement what our objectives are to present inflation and our interpretation of maximum employment. Every three months, all members, all participants in the fomc set out their explicit projections for key variables and put Monetary Policy path they regard as appropriate to achieve those variables and we publish those projections. It does show the range of forecastss, and what appropriate policy would be in line with those forecasts and tobagos projections every three months in line with incoming data and i would regard that as quite a bit of information and a systematic approach, we are telling the the public what the range of opinion is about appropriate policy and the economy. And not on not freeze that path we update those projections but we are showing what we think in a systematic way. A nice conversation the other way, one of the things the fed could do, you ask me questions along those lines, off of the record meeting. And contrast that with a rule based system. That would be helpful to the fed and the committee members, and the the fed now has, has there been any thought looking in the rearview mirror, and additional ammunition, were needed in the future. Thinking about additional ammunition. The best ammunition we have, the single most reliable and predictable full for affecting the stance of Monetary Policy is variation in shortterm Interest Rates. As the economy has gotten to a point where we are slowly reducing accommodation we have a choice between a falling off assets or raising jobs. As the economy goes in another direction the question is so you have a pretty loaded up Balance Sheets, people are beginning to observe that the fed is out of ammunition. Unless you decide to go to negative rates and if you could briefly, i am not proposing this, just observing what is happening around the world and what is happening in our own country people are waking up and realizing the fed really has no real ammunition left. And i dont want to this to be too long the rise you considering if things go south which none of us hope do, are you considering negative rates, yes or no . The answer is we had previously considered them and decided they would not work well to foster accommodation in 2010 in light of the experience of European Countries and others that have gone to negative rates. We would want to be prepared in that event we need to add accommodation. We havent finished that evaluation. We need to consider the context, there are a number of things to consider. And to judge whether they would be workable here. Where we would be, we were out of on the nation and that would be good for markets to understand the out of any nation and it is up to other factors but as i hear it, potentially negative rates or something that could affect things over time, productivity, you talked about that is the greatest driver for wage increases. I appreciate some of senator browns opening comments. The concern we have, the most vulnerable, those that are hurt most when we have downturns. The slowest to regain and no question theres a wealth gap but what do we do about it . Determining productivity in advances in living standards, to a rate of increase on how much a worker can produce in an hour, with productivity necessary, to support rising household incomes. We know productivity depends on many factors including our work force, and does this affect work force or skills . The answer is no. The quality of capital Monetary Policy does not affect that. Is that correct . The only qualification i would make is during the deep downturn, Capital Investments because it was very slow. A legacy that has a negative impact and when people are out of work for a long period of time, their skills can erode to the point where it becomes difficult for them. He is going to reprimand me for going over, is there anything about Monetary Policy . That would not be in order. Does Monetary Policy affect Infrastructure Investment . No. Productivity is on this side of the dice. Is that correct . When people try to look at the fed through Monetary Policy, increased productivity it is a ridiculous notion is it not . Fundamentally. That is our job and we are not doing our job. One last question. The chairman came in today in a very good mood. Last year in the budget meeting the head came in and said it reduces total savings over time, the Nations Capital spots would ultimately be smaller than it would be and productivity and total wages would be lower so as we accumulate debt, we are actually hurting many of the people in this room who came today because they care about this because really hurting productivity. Is that a true statement . Over long periods of time i would agree. Senator menendez. Thank you, mr. Chairman. Let me talk about the challenges, the numbers dont see their incomes rising. In some respects the numbers are indisputable, the Unemployment Rate of 4. 9 , the lowest since we have seen in february of 2008, less than half of what was in october of 2010, 14 million jobs over 71 straight months but those numbers in my mind dont tell will whole story. Long term unemployment persists with people unemployed for 27 weeks or longer compromising more than a quarter of all the total number of jobless individuals. The country had been waiting too long for incomes, increases to materialize and the economy has partially healed, hopefully will continue to yield is a clear indicator how much harm was inflicted by the financial crisis. Many employers paying low wages and offering limited benefits to their employees with little concern that these employees will leave because of the slack in the job market. Employers have a sea of prospects any time an employee jumps ship. Talk to me about what needs to be done at the fed and elsewhere to address longterm unemployment and to foster policies that transform Economic Growth into growth for hard working families. What we are trying to do to contribute to the solution of that problem is to keep the economy growing at a steady pace, to keep the labor market improving, in the hope and expectation that the stronger labor market will improve the status of all groups in the Labour Market and begin to bring down longterm unemployment, involuntary parttime employment and we have seen that. So Unemployment Rates have come down for almost all demographic groups. As high as it is the incidents of longterm unemployment has declined. Involuntary part term parttime unemployment employment has also declined as the economy has improved but these are long standing at verse trends including structural factors like globalization, very slow growth in middle income jobs, technological trends that have favored higher skilled workers. For congress there are any number of things that you might consider and might do that would be helpful in addressing these trends, some of them, many of them would be related to training, education, increasing opportunity to make sure those skills can be more readily acquired. How can the fed better account for full employment and thus enhance efficiency and production and its analysis of planning . From light point of view and the point of view of the fomc more jobs are always good, employment is good. When we think about maximum employment we are really considering is there a point at which pursuing that goal would lead to higher inflation and inflation above 2 objective . So we try to estimate and all participants in the fomc every three months right down their estimate of the Unemployment Rate in the economy that would be sustainable and consistent with our inflation objective is. At the moment the median of those estimates is 4. 9 but most of us recognize there are additional forms the we would like to see diminished. As a corollary, i would like to hear from you, context matters. The Senate Foreign relations committee, china and other places. And in europe and asia, a combination of fiscal austerity and tight Monetary Policy can be toxic for and economy that is recovering. A sense among fed policymakers they are eager to reach the point we can, quote, normalize Monetary Policy by raising rates. Can you describe the risk to the economy and this is that calibration but of tightening too soon but you take this global context consideration as you look at that . We take a global context into consideration. Normalization is not something we want to pursue and i accomplish for its own sake. We only want to move to more normal levels of Interest Rates if it is consistent with achieving our objectives of 2 inflation and maximum employment. We want and intend to put in place vote Monetary Policy that is consistent with achieving those objectives in an economy that has been recovering, the committee felt it could be in a path and would likely be on a path where shortterm rates will rise over time consistent with that objective. I want to emphasize that Monetary Policy is not on some preset course. Monetary policy will be set and calibrated to do the best it can to achieve congressional mandated objective is. Thank you, mr. Chairman. Madam chairman, thanks for joining us again. I want to follow up on the line of questioning senator corker was pursuing. You may recall always advocating the fed normally is Interest Rates for a long time. One of my deep concerns was Central Banks around the world, much including our own, seem to be trying to compensate for an inability of the political class, for Economic Growth. Fiscally unsustainable budgets and i would argue much of the world avalanche of new regulations holding back Economic Growth, high marginal tax rates that discourage savings work, investment, and the fact is Central Banks Monetary Policy make up for those problems. We could argue in some cases they could make it worse, it appeared to be pricing in expectation that there be further no further increases in the Interest Rates the central bank controls. They may be right, they may be wrong but that is the expectation now. Since the rest of the world pursuing ever further the new chapter in radical Monetary Policy, and i appreciate the fact, pointed out, i find it very disturbing to seriously consider moving in that direction, and the potential risks of negative Interest Rates. There is a qualitative difference and i would like to get your thoughts on this between 25 Basis Point Movement and said controlled rates, a movement that takes you from a low positive rate to another positive rate versus one that cause pressure into the negative. Most of us have grown up the expectation that there is an absolute flop for to Interest Rates, that would be shattered and there are practical consequences too. It would seem it would crush the interest margins for banks, perhaps dramatically diminish their ability to provide capital. I dont know how money market business survives at all, the sistine period of negative Interest Rates. I could see adverse effect on Business Investment, and pressure to move out the risk curve more than they have been pressured. It put the u. S. Deep in the midst of a global currency war which was won by he who defaces currency the most. I would suggest the results larry has been tried not gone so well, sweden has negative Interest Rates, they have a massive property bubble. The euro zone area generally had negative Interest Rate since june of 2014, gdp growth has been very weak. Japan recently instituted negative Interest Rates, recently had a failed auction, they gave up on auctioning, just monetize the debt. It seems to me there are a lot of potential problems. And first confirm for a layman when you talk about negative Interest Rates, we are talking about savers having to pay a bank to take their money on deposit. Is that equivalent to a tax on savings . Could you just comment on some of these other problems. In the European Countries that have taken rates to negative territory, i was surprised that it was possible to move rates as negative as some companies have done. We have not been those countries seen actual fees levied on depositors. I may be wrong, there may be some experiences there that i am not aware of but i dont think there has been broadbased pass through of negative rates to small depositors. If banks resist that their margins are crushed. Their margins are squeezed, low environment Interest Rate environment generally tends to push down net interest margins. They adopted it because they were concerned about inflation running very much below their objectives and wanted to stimulate the economy in order to achieve those objectives so there were reasons they adopted it. In our own context when we considered this in 2010 we were concerned about potential impact on money market functioning, didnt really think it would be possible to bring them to their negative levels end before we were to take a step like that we would have to think through all the institutional details and how they would work in the u. S. Context. It is a matter of Due Diligence and preparedness and these are things we need to work through but we dont even know if payments clearing and Settlement Systems in our context would be able to easily handle negative rates. A quick followup and i will be finished. Isnt it also true there is a internal memo from august of 2010 raises doubts about whether the fed has Legal Authority in to impose negative Interest Rates . There is a memo from 2010 and what it really said is the legal issues havent been studied. It was silent on the legality, discuss market functioning, economic issues, legal issues have not been vetted. I am not aware of any legal restriction. And we have not looked carefully at the legal side of this. I want to submit that memo to the record. The memo does a, quote, there are several legal and practical constraints, it is not at all clear the Federal Reserve act permits negative rates so there is a question in somebodys mind. It had not been seriously studied and at this point i am not aware of a legal constraint, but we have not run that through carefully. Thank you very much. Is great to see you, thank you for your service. As we go back and forth about the effects of Monetary Policy, i share some of senator to mes concerns about negative Interest Rates. A little tongue in cheek, make mention of one in your comments, replied revere to senator menendez which will have 100 approval on this panel where you said more jobs are good for the economy. How we get those more jobs is some question and we can debate Monetary Policy or not but when we talk about productivity i share your views on productivity, productivity gains often are driven by knowledge and skills and i think one of the things we have talked about before which unfortunately this congress has not fully addressed is the rising challenger round student debt now at 1. 3 trillion and rising greater than creditcard debt and the ripple it has across the whole economy not just to it those individual students or recent graduates and their families but i would like you to comment upon the wage box you are caught in which student debt, not enough rising wages and the effect that has both on start ups, someone we all know, 80 of new jobs created by start ups, start up a entrepreneur numbers are down. A lot of that is due to student debt, firsttime home buyers are down oftentimes do to student debt, and regulatory entities looked at this but i would like you to comment on the effect if we continue to have this number grow, take a more comprehensive approach to student debt, would drag that will be on the economy. Echoing the your comments that more jobs are better for the economy driving down student debt would lead to further growth in the Housing Market and entrepreneurial activities. So on the one hand taking on that student debt to the extent it is successful in building skills that put people in higher wage jobs and qualify for better work, is really critical to their getting ahead. On the other hand there is a lot to worry about with student debt, people attending colleges or gaining education where they dont finish the reward isnt fair, to me that is a major concern, that people may not be wellinformed about what the benefits are of what they are taking on and check if an individual find themselves in difficult financial straits for any reason, because it is not discharge a bowl in bankruptcy, can be a very severe burden that really holds people back. In terms of studies, there has been, it would appear at decline in new business formation. I have not seen anything myself but i might not be aware of studies that link it to student debt. I havent seen that. Is certainly possible, but i am not aware of that. With respect to housing, some economists have tried to look at that and others have and i think results are next. It is not clear that student debt is a major factor responsible for inability to buy homes or get ahead in the Housing Market although i understand it is quite logical that a every student debt burden would make it i would note Home Builders across all sectors indicate particularly the weakest part of the Housing Market is firsttime home buyers, often times people who because they are otherwise burdened with student debt dont make those investments and high water july colleagues their comprehensive approach that senator warren and others suggested in terms of total refinancing but there are other steps that can be taken, whether it is better transparency, buying house might be the most expensive item you purchase, better transparency would force Higher Education to come clean a little more, clearly the problem of not finishing is a huge issue but we dont have much transparency in Higher Education on top of that. Income base payment, the Administration Made some movement there. I think theres more, theres low hanging fruit. Businesses already can provide ongoing education to employees on a pretax basis. I scratch my head with bipartisan legislation, if you cant continue your education on a pretax basis why shouldnt an employer be able in concert with an employee to use pretax dollars to pay down student debt on both sides of the Balance Sheet . Good for attention, good for employees as well. I wont go ahead and take the additional two four minutes, most of my colleagues have had beyond the time line in respect my other colleagues but i would like to submit for the record a couple questions about what happens as we draw down the capital surplus account and obviously the fed kicked in 517 billion over the last six years, as you wind down that portfolio we could see obviously those dollars go down and i know that you share the concerns as we unwind the 4 trillion Balance Sheet. How much cushion as the central Banking System indeed particularly when congress most recently has rated part of that commission . I would take that for the record. Thank you. Senator cohen. Senator warner get paid an extra eight nine minutes. I will try to be brief. Welcome back. Throughout much of history the Federal Reserve has raised Interest Rates when Economic Growth is strong and accompanying inflation is growing, hence the cliche that the Federal Reserve take the punch bowl away as the party is getting going. In december we are in the middle of the quarter with syrup. 7 Economic Growth and inflation was below stated target, the open Market Committee raise Interest Rates. Could you explain why this anomaly occurred . Our focus is on the Labour Market and the path that it is done and the fact that Economic Growth has been very slow, this has been true for quite some time and yet the labor market is made more or less continuous improvements is a reflection of slow pace of productivity growth i would say, so we saw a labor market that jobs were being created at a pace of around 225,000 or so a month. The Unemployment Rate fell close to levels we would regard as sustainable in the long run. Although in my view there remains slack. They did and still remains some slack in the Labour Market. Monetary policy was highly accommodative. The funds rate had been at zero for seven years and we have a large Balance Sheet so we were not talking about moving to a restrictive stance of policy simply diminishing accommodation via a modest amount and while inflation was running below our 2 objective the committee judge did transitory factors particularly Energy Prices and the appreciation of the dollar placing significant downward pressure for that would casey over time and as labor markets continued to improve, inflation would move back up for 2 and we want to make sure given the lag in Monetary Policy that we dont wait so long to begin the process of modest adjustments in the fed funds rate the an end up significantly over shooting both of our objectives and allowing inflation to rise to the point where we would have to tighten policy in a more precipitous manner which could potentially place on going sustainable Economic Growth and improvement in the Labour Market in jeopardy. We wanted to be able to move in a very gradual to make sure that the economy remained on a sustainable course of improvement. Thank you. You use the term transitory factors you also cite on page 5 of your testimony where you say the committee judged much of the softness was attributable to transitory factors that unlikely to abate overtime. You cited Energy Prices, appreciation of the dollar. Any other transitory factors . Those are the main ones. Energy prices have continued to move down. The appreciation of the dollar will hold or turnaround the current trajectory . Energy prices continued to move down, eventually they will start moving down and stabilize where that will be, when that eventually happens and dollars stabilize, inflation will it is hard to predict exactly when it could be. I want to turn to wages. Stagnant wages especially for working class men and women, i share that concern as to many judging by their tshirts. Havent touched upon immigration. I dont screen ilLegal Immigration but Legal Immigration. We are a record high levels of foreign born residents, 1. 7 were born in a foreign country. Do you think that level of mass Legal Immigration on wages of working men and women. Nativeborn americans . I am not aware of evidence that suggests i would need to look into that. Thank you, mr. Chairman. Chair yellen, good to see people here. People who were fed up, i know that as share you have done a lot about reach but seeing people here who have come in from a lot of places, strong reminder that every fed decision affects every person in this country. The fed has plenty of opportunities to hear from giant banks, good to hear from real people. I want to go back to this question. Doddfrank requires Financial Institutions, to submit living wills, these documents subscribe how these banks could be liquidated in iraq and orderly fashion in bankruptcy without even bringing down the economy and meeting at taxpayer bailout. The fed and the fdic fine living wills are credible, the agencies take steps to reduce the risks by imposing capital standards and remembered ratios and breaking up the banks by forcing them to sell off assets. And a yearandahalf ago in august of 2014, the fed and the fdic identified several problems with the living wills submitted by even of the biggest banks in this country. The fdic found that all 11 of those wills were not credible. The fed agreed about the problems and refused to make any determination about whether they met the Legal Standard about credibility. In other words, the fed didnt say they were credible or that they were not credible either. That mattered because the joint determination by the agencys in legal force. The third refusal to call the plan is not credible, meant the agencies couldnt use statutory tools to push these risky banks in the right direction. I want to look at that decision by the fed. The fdic stands behind insured deposits of its main mission is to stop Bank Failures before that happens attacks they wont be on the hook for some kind of bank failure. Of all the regulators the fdic has the most expertise on liquidating failed banks. If the fdic found the Bank Liquidation plans were not credible and the fed agreed with the fdic on the basic problems with each of these plans, why did the fed refused to join the fdic is and designate these plans as not credible . Looking back to the decision we made last year, we set out in the guidance pertaining to these living wills that we expected to go through a few rounds of submissions to clarify it is a completely new process and we felt the banks needed to understand what expectations were in terms of what we wanted to see and we felt we had not given sufficient the clear guidance to make the decision at that time. We worked very closely with the fdic. As you noted we have given detailed guidance to these terms about what we want to see in this round of living wills. We are spending a great deal of time, we had seven board meetings so far since august to discuss and work through these living wills, we are working closely with the fdic, evaluating them and we make clear and it continues to be the case that if this round of living wills, it doesnt satisfactorily addressed the shortcomings we identified last year, that we are prepared to make findings that a living will is deficient. Let me go where you are going. The fdic already thought that the facts established the plans were not credible for 11 of the largest Financial Institutions. In august of 2014 the fed and the fdic required those 11 firms to resubmit living wills that address the problems they had identified. The firms submitted their plans last july and it is my and standing you are just about finished reviewing those plans. Once again i want to underline joint determinations by the fdic and the fed will carry the force of law. Ken you say today you will work with the fdic to ensure that the agencys issued a joint determinations of credibility and one each of the 11 living wills that were resubmitted . We are working closely with them to evaluate those living wills. Last time you worked closely, what you said in your testimony. We did and we wrote a joint letters to these terms and we will try to do that again to identify shortcomings that the living wills have banned further steps we want to see. It is up to each member of the board of governorss and members of the fdic board. We are charged with our own individual judgments as to whether or not these living wills are credible to facilitate resolution, and i cannot guarantee you that we will arrive at identical working with each vested by congress, judgment based on the merits. If the issue joined determinations which is how you get to the effect of the law. Let me ask if you make another commitment. Will you at least commit that if the fed finds a living will credible and the fdic does not find a living will credible, that the fed will issue a written public explanation, it is the least the fed can do to help the public understand its position. Expectation is released the letters people send to the terms giving evaluations. You will explain if theres a difference between the fed and the fdic, why the fed decided something was credible, the fdic found it was not credible. I want to be careful exactly what i say about this. We expect to send letters. Hopefully they will be joint letters. Hopefully we will be able to agree on what the shortcomings are of the living wills and if we find if either agency finds they are not credible we need to identify specific deficiencies that we wish to see remedy. My strong hope and expectation is that we will a riot act joint agreement with the fdic on those deficiencies and release letters that explain what we find them to be. I very much hope that the fed and fdic are on the same page, the only way to get the impact of this law. Living wills are one of the primary tools that Congress Gave to regulators to make sure the taxpayers will not be on the hook if another giant bank fails and it is critical that the fed use this Authority Like the fdic has been willing to do to make our Financial System safer. I agree with you on that and we have been working with them all along through a supervisory process as well which is separate, but also emphasizing recovery planning and resolution to hour supervision, thank you. Thank you. Senator rounds please thank you and welcome. I suspect 60 different individuals have asked questions most of them have been asked. In looking at todays testimony i think a lot of attention was paid to the discussion on negative Interest Rates and i noted there were a couple of items i suspect you shared, you indicated while you would be looking at negative rates, the analysis is not done. Is not off the table but you also indicated variations in shortterm Interest Rates, one of the key tools you have. As you answer these questions, the current discussion and current focus not so much on reducing Interest Rates we have today, weatherization remain stable or move up. We have felt, we certainly felt in december the we made the decision to raise rates, that the economy is recovering, inflation and it would be appropriate to gradually continue to raise rates, not to cut them. How lot has happened since then. Economic and financial developments in hinge on the outlook, in the process of evaluating how those developments should affect out what courses of the balance of risks, we will meet in march and provide a new set of projections that will update markets on the thinking on the outlook for risks but i have not thought that a downturn sufficient to cause the next move to be a cut was a likely possibility. We have not yet seen, and i would say, a shift in the Economic Outlook that is sufficient to make that highly likely, but i also want to make clear that policies not on a preset course and our perception of the risks and outlooks change in a manner that did make that appropriate, certainly, that is something that the committee would have to take into account in order to meet its objectives. It is not what i think is the most likely scenario. Let me change focus and move to the regulatory side of the responsibilities which you carry but when Federal Reserve rates is important for the board to do a thorough costbenefit analysis before it creates new red tape or negotiate International Agreements by insurance capital standards. We talk a little bit about the fact that theres a Regulatory Impact on productivity. One thing on our side we talk about is what we can do certainly to provide opportunity for productivity increase with in our economy. There are some areas in which you do have on the regulatory side an impact as well. With regard to the issue of International Agreements specifically on insurance capital standards, is the fed currently working on costbenefit analysis related to the Insurance Industry . Either in the context of regulation or International Agreements . We are very carefully considering what capital standards we should impose on the designated firms that we need to create standards for, Holding Companies that are primarily insurance focused. Costbenefit analysis to those rules. You know, we are charged with putting in place appropriate standards to mitigate Systemic Risks pin the event that one of those terms, and in a sounder way, we will consider Regulatory Burdens and we will consider various ways of designing rules and which might be less burdensome. Does that mean you would consider doing costbenefit analysis and the burdens these may place on individual entities you are regulating . We will certainly put out a notice of proposed rulemaking and consider comments including those that pertain to costs. The answers i would rather not answer the question of whether or not theres costbenefit analysis included . I wont commit to a costbenefit analysis. Very good. With regard to one of the Major Concerns about the current insurance designation process there is no real comparison with banks to determine Systemic Risk because i suspect we are in uncharted waters, with regard to Insurance Companies and considering them we may not have a reliable data to compare banks to Insurance Companies in this regard. The Federal Reserve to compare the Systemic Risk of banks and nonbank companies against each other. Has there been an analysis . In the case of each of those designations, very Detailed Analysis asking what would be the systemic consequences of the failure of that organization, that were designated, that live prudential, did the term in and judge the failure of those organizationss would potentially systemic consequences that needed to be addressed. Are those publicly available analysis . You can find the analysis, they dont include confidential firm information, the firms themselves were provided, what is on the web site but there is detailed information. Thank you, mr. Chairman. Senator donnelly. Thank you. Yesterday was a really bad day for my home state of indiana. We had 2100 workers who were given pink slips yesterday. They lost their jobs at a company that had been in indiana since the early 1950s. Carriers indianapolis plant will be close, newtech is moving Manufacturing Department from huntington, indiana, parts of united technologies, over 2100 jobs. All of those jobs are being shipped to mexico. Last year, carrier had a 58 billion in sales, 6. 1 billion in earnings, we have 20 one hundred people who have lost their jobs because 6. 1 billion in earnings is not enough. The promise of america has always been you work hard, you do your job, you help your company be profitable, and in return you hope to have a decent retirement, maybe get a fishing boat, see your kids go to school. How do we tell workers who have put their whole heart and soul into a company, who provided them with over 6. 1 billion in sales, that that is not enough . The reason folks are here is because theres always been a promise if you work hard the company will do right by you. Tell is adding 601 billion in earnings and shipping 2100 indiana jobs to mexico, when we also in indiana have said one of the best Business Climate in america, the same folks said if we put in tax extenders things like bonus depreciation, research credit, x m beam, a high sat here and find for x m bank because these folks said this will help american jobs state in america, how do you provide the confidence to these workers and others that this compact even exist anymore . A great deal has changed in the job market, many families during the downturn, particularly, in a longerterm basis, the kind of miserable situation you have described of losing a job that they held for the better part of their career and expected would be provided a secure retirement, this is a miserable and burdensome situation that many households have faced. For our part, what we are trying to do and have tried to do is make sure there are enough jobs overall in the economy may find another job and of course we know maybe this isnt as a fed chairman or fed chair, why should they have to find another job when they produced 6. One billion dollars in earnings for company that is doing extraordinarily well but it is still not enough . We are going to ship your job to mexico because you created huge profits for us, create an incredible success for us, you created the opportunity for this company to grow and for our shareholders to do really well but we dont have room for you as the worker anymore. You know that many firms have made that decision, that moving their activities elsewhere is a profitable course and have made those decisions. The question becomes profitable for who . For america . That we have forever had the promise that you do your job, you work hard, that is what my dad did every day, took the train to work everyday so he could feed us kids. I was the fifth of five but his Company Never told him sorry, you made a ton of dough for us, we are moving to mexico. If they did i dont know what we would have done. Now we are facing the same thing in the steel industry, we have been facing for a while and you probably heard there are questions about the ongoing viability of a number of American Steel companies. A big part of that is currency manipulation, illegal dumping, all of these kind of things. So as we look at this i know the Treasury Department Treasury Department monitors currency manipulation. Other agencies monitor illegal trade activity, but as head of the fed i you concerned that the United States tries to play by the rules all other countries dump here, manipulate currency and we seem to be unable to provide our companies who are doing this with a level Playing Field . The treasury has brought responsibility for Exchange Rate policy and have made clear in the g7 has made clear that currency manipulation to attempt to gain adage to attempt to gain advantage for countries products and global markets, had to shift the Playing Field through currency manipulation is unacceptable policy. And i know that the Treasury Department in their conversations with foreign officials and other countries is vigilant about looking for and addressing currency manipulation. On the other hand, we all recognize that countries should be allowed to use tools of domestic policy, like Monetary Policy, to stimulate domestic demand in situations where inflation is running well below a countries inflation objective or domestic spending. Unemployment is high and domestic spending is week. We have used Monetary Policy for this purpose. Other countries have done the same, and that is some impact of monetary policies on Exchange Rates. We recognize that but it also works through other channels that you probably should benefit. I hope you keep in mind as you set rates, as you said other things, the importance to our families of the chance to go to work. And i feel in particular very burned today after having fought so hard for the exim bank that some of the very same folks who told me it was critical for jobs in the United States to be there when they needed something, and then to walk away now. Thank you, madam chair. Thank you, mr. Chair. Thanks for holding this hearing. I want to thank the chairwoman for being here also, taking the time. I want to raise some questions about how the fed communicates with the general public. Specifically their policies and specifically how you communicate those. Let me give you an example and to let up to the increase of Interest Rates. People from the fed like the head of the San Francisco fed saying they are pretty hawkish, but Interest Rates were going to be increased and that those increases were coming and the market reacted to it. Been of others like ahead of the chicago fed calling for rates to stay near zero and the markets reacted to it. Then we have some fed officials implying that any rate increases would be datadriven and the markets responded to that. We have something there was no formula. Even today we seem to a new person each day giving their thoughts about future rates. I dont have a problem with fraud questions and a variety of viewpoints coming from fed members, but what is causing to is confusion and instability in the markets today ever done someone has something to say. Feeling like there to walk in front of a mic and make a comment. My question is to you, do you think there is a problem . And how these markets are reflecting every time one of these fed members open opens their mouth, by hundreds of boys. In general im not sure most of them know what they are talking about. So, i would say that congress purposely created a system with a larger Monetary Policymaking committee where there would be a diversity of views so that we did not fall into a groupthink type of mentality. And we do have at the moment 17 members who come to the table with a range of views. You are comfortable where we are today . We have guidelines for communications because it is important to explain to the public what our policy is about. Could i see a copy of the guideline . Id be glad to. First of all the guideline says that everyone shares a joint objective of explaining the committees decisions. They can explain their own views but should be explaining that they are not speaking for the committee, that they are speaking for themselves. The person who speaks for the committee is the chair. You raised rates on december 16 by a quarter of a point. At that time the markets closed at 2073. Yesterday it close at 1851, and i think its down another 34, 35 plus point today. Do you feel that you or the feds are responsible for this decline . Well, the immediate market response, and for a number of weeks, to the fed decision was quite tranquil. It was a decision that i believe had been well communicated and was expected, and there was very Little Market reaction. Around the turn of the year we begin to see more volatility in Financial Markets. Some of the precipitating factors seem to be the moving in chinese currency and the downward movement in oil prices. I think those things have been drivers and have an associated with the broader fears that have developed in the market about the attention of for weakening Global Growth with inflation, so i dont think it is mainly our policy. Policy. Moscow backed oil prices. Since it is not your policies causing market decline, you told us last year in this meeting that drop in oil prices was a good thing for the economy and for the consume. Thats what you said a year ago. Yet since then weve seen thousands of jobs lost. We see Oil Companies in bankruptcy and consumers that are not spending their gas savings. Do you still feel the same way about oil prices . Well, clearly declining oil prices has had some negative consequences. Theres been a sharp job cuts and cutbacks in chile to activity. Do you think you made a mistake a year ago when you said it would be good for the economy and good for the consumers . On balance, i would so its still true to the United States. We are a net importer of oil in spite of our large production, and against to households from Lower Oil Prices, the average about 1000 per household. Now, whether they spend or dont spend those games, those are substantial gains. From the standpoint of growth, whats been dominant so far i would say is a negative consequences on spending from the cutback in drilling activity. Do you think that banks in america are overregulated or under regulated . I recognize that Regulatory Burden is a significant issue for many banks. Its something we will do our very best and have been working to mitigate, particularly for Community Banks that are vital to the health of their communities. Not i do think for the larger banks whose failure would have systemic consequences, its critically important to make sure that they hold more capital liquidity or held to Higher Standards to address the threats thathey pose to the Financial Stability of our country in the Global Economy. Is it fair for me to say you believe Smaller Banks are overregulated, large tanks are under regulated . I do want to say as a blanket matter that Community Banks are overregulated. What i do think is that we need to do everything in our power to look for ways to simplify and control Regulatory Burdens for them. One more question. Thank you for let him ask the question. In a recent wall street journal survey, the odds of recession in the next 12 months has climbed to 21 and thats double what it was a year ago. What are your thoughts on that . Well, as i mentioned in my testimony, and my answers this morning, we have seen Global Economic and financial developments that may well affect the u. S. Outlook. Financial conditions have tightened, and i can have consequences for the outlook. I think its premature at this point to decide exactly what the consequences of those shocks will be. And it depends in part on whether they persist. And thats something we will be looking at it closely Going Forward. We are looking at closely. Thank you very much for being here. Mr. Chairman, thank you. Thank you, mr. Chairman. Thank you, madam chair. For the good job you do. Another brooklyn is in the news on glad we have another daughter of brooklyn doing well. I see that with some people in the audience from a group called fat out. Many from new york, and icy, welcome to do although its just my luck those were in new york just left. Tell them hello. And icy some of the shirts they let our wages go, and thats apropos that relates to my first question. I was pleased to see that rages rose 5 . They came back. I, new york city people. I believe cause of the wages grew. 5 in the month of january. I hope recent data weve seen is a sign that middleclass incomes and people trying to be and middleclass, their incomes are going to get because wages have been stagnant for too long. I have to be honest. Given the fact were in a deflationary of our but globally and on inflation rate is continuing to run well below the feds 2 target, im concerned for the movement by fed to raise rates in the near term could snuff out the embers of real wage growth before they even get a chance to catch fire. If you believe that the plot and decline of wages is the number one problem our economy faces, that it is harder to stay in the class, harder to get to the middle class and it has been in a very long time, you make that a very high priority, which i did and i know you do. So Going Forward to you stay believe that given the room for growth in the labor market, considerable evidence of consistent wage growth is still important for you to see before the fed considers raising rates further . And secondly, will the fomc be particularly cautious in its decisionmaking celesta protect against the prospect of stifling wage growth before it even gets going . So congress has assigned us maximum employment and price stability as objectives. Our focus is on inflation and trying to achieve a 2 objective for inflation. The behavior of wages, first of all, we have seen substantial improvement in the labor market, and at the time we raised rates, we expected that improvement to continue. Fully expect that as that occurred wages would move up at a somewhat faster pace. We have just begun to see. Its hardly sufficient, wouldnt you agree . We havent made up for the loss of wage growth over the last decade yet. Part of the wage growth has been extremely slow and the state of the labor market and the pace of inflation are not the only factors. For the last eight quarters productivity in the nonfarm business sector has barely grown at a quarter of a percent and that is a substantial drag on wages as well. So i would not say that wage growth is a litmus test for changes in Monetary Policy, but it is something that is indicative both of likely Inflationary Pressure Going Forward. Its not a sure sign of it, but its relevant and its also relevant in assessing whether or not we are at maximum employment. I see it just the other way, that i am less worried about inflation and more worried about slow wage growth which is picked up a little bit lately. If you look at the last decade or even the last three decades, productivity is considerably further up than wage growth is. One of our great challenges is tying the two together. I will just say, i hope that you and the fomc will look at growth and wages. It may not be the only issue but it is a very important issue. Im going to move on and you can comment further on what is it if you want, but its related. Another thing going on is the strength of the dollar. Its been critical in the interplay. I want to get your specific thoughts, given the strength of the dollar and influence of the global deflationary environment, couldnt one argue that the dollars strength has essentially serve as another increase to the federal funds rate . If you look at manufacturing, its not doing well because of all of those issues, and again, it seems to me that efforts by the fed to raise rates further could end up being a double whammy to our economy because here you have the strength of the dollar hurting our export businesses which are still vital to us, and another wages and onto that. So have you seen the strength have you seen that the strength of the dollar has influence on whether you should raise rates further . The dollar is certainly something we take account of in deciding on Monetary Policy. I agree with you, net exports have declined. Its been a drag on the economy. And for that reason does factor into our thinking. Its one of the reasons we think that the socalled neutral level of the fed funds rate is low at the moment. But remember, in spite of that drag and the impact its having on manufacturing, the economy has continued to create jobs at a pace of 220,000 or more a month. And so we cant just look at sex oral impacts. River look at the overall performance of the labor market. But certainly sector impacts. The dollar and the drag it implies. It is a symptom and in part a signal of the strength of the u. S. Economy in comparison with many others. It is which possibly could make things worse. It is both things. Senator reid. Thank you very much, mr. Chairman. Thank you, madam chairman. Thank you for your leadership and your endurance. We expect nothing less from a brown graduate so im not at all surprised. One of the human phenomenon is sometimes when you try to fix a problem you create another problem. I know and doddfrank were concerned about the bilateral nature of derivatives. We have now required them to be on a climbing platform which creates, not a bilateral issue, but a multilateral issue. That in and of itself introduces the possible Systemic Risks and, frankly, one of the lessons of the crisis was always be on the watch for the next fault line and take proactive steps to prevent it. In that context, the Oversight Council noted theres still a number of central clearinghouse platform issues. Can you give us your comments and now about how close you are watching . Is there any developments that concern you . Will this be a constant area of investigation . So i completely agree with you, creating those central climbing platforms has importantly diminished risk in the Financial System, but they are a source of risk. Fsoc pointed out that this is making sure that there are appropriately supervised and operate subject to very high standards because they are platforms that concentrate risks. This is a very high priority for us. We are very focused on it. These platforms are now supervise. The sec and cfpb have significant authority here. We have backup authority. Globally, there is a focus on in shoring ensuring there is comprehensive platforms. We are not ready to rest and so everything is done, but we are very focused. Let me get to the issue, the international is important because of the ability and willingness of entities to arbitrage Regulatory Environment from moving from here to solicit does have quite the same oversight. You are trying i believe in many ways including margin requirements to level the Playing Field internationally. Thats exactly right. Thank you very much, madam chairman. The issue of Federal Reserve Bank President s, weve talked about this. I know youve got 12 that are due for reassignment or change at the end of february 2016, a few weeks from now. They will be elected by the directors were elected by local Financial Institutions to represent the public, in a classy directors are appointed by the board. General issue class c. Directors how the venture theres real Public Participation in this process . One of the impressions we had in 08, 09 was this sort of in insight into which, in fact, a class a rectors were appointed by the banks were influential. How do you ensure that theres a real public purpose and public scrutiny of these directors . So the governance around this was established in the Federal Reserve act and we try to make sure that the reserve banks and the board and to do that. We try to make sure that the class c. Directors that are appointed by the board are broadly representative of the public, and all sectors mentioned in the Federal Reserve act. I think we have a long Federal Reserve Bank Directors i have been rightly correct by my very intelligent staff, the precedence of the Federal Reserve president of the Federal Reserve bank thats the focus of my question. Yes. So that president s are appointed by the class b and c. Directors but we try to make sure that those class c, the directors were broadly, represent not only does this interest but also community interests, that there is sufficient diversity. The board is constantly attentive in its oversight of the reserve banks to the issue of diversity of representation on those boards. And it has improved considerably. At the moment i delete Something Like 45 of Bank Directors are either women or minorities. Now, they are charged with making recommendations about appointment and we deployment of reserve Bank President s. And the board of governors is charged with reviewing those recommendations and deciding. And we will take that obligation seriously. We have a regular process, an annual process, in which the board through its bank affairs committee, not bank affairs committee. Its oversight of the reserve bank, oversight committee. We review each bank every year and in particular the performance of the president. And the members of this committee discussed with a boards of directors, the chair, the deputy chair, the performance of the president. So there is ongoing monitoring of the performance of the president. There is feedback to the board of directors on it. When we come up to the five you point to review these appointments, we will act on the recommendations of the board of directors. But we will have in place, its not as place, its so were just looking at that for the first time when we make those decisions. Thank you, madam chairman. Thank you, mr. Chairman. I dont know if they saved the best for last, but you know we are hanging in there. The first thing i want to say, it troubles me every time this happens. In your exchange with senator warner, when you talk about working people, the answer is always lets improve their job skills. Lets get the more training and then theyll get a better job. Someone has to be a cna. Someone has to drive a garbage truck, and they are welltrained for those jobs but those jobs dont pay a living wage. Thats why so many people are frustrated. Because these jobs are not going to go away. These jobs are sent to what it has been waitstaff in a restaurant or whether it is being a cna and in nursing or whether it is, in fact, delivering pizza. And so we need to be really careful when the response to wage inequality or income inequality is more skills for the workers. Because i think it doesnt focus the attention on the value of work and what we do to improve the opportunities for people who work every day. I know you dont intend that but i just felt like i had to get that off my chest. The challenge that i have in north dakota, we are countercyclical as you know. We are fundamentally a commodity driven state, Commodity Prices have taken a toll, whether its our Agricultural Sector or whether it is in the energy sector. Thats been exacerbated by the high dollar value. I had a child once asked a child once asked become i said it does get figure out in north dakota if high dollar value is go to bed. I said let me help you with the. Its back. Because we are fundamentally and export state. I will tell you we are deeply concerned about currency manipulation. Are deeply concerned about the challenges of having to compete against other currencies in other markets and that has national Editing International ramifications. I also want to point out that in Production Oil production, gas production, weve lost public globally 250,000 jobs and about 100,000 jobs in this country. That is a huge hit, and it really was a production sector, whether we talk of agriculture or talking the oil and gas that avoided this economy during the tough times. There has been so little attention to the challenges of commodity producers. Not just come not people who invest, but the challenge of commodity producers. What is the fed doing to analyze the challenges for commodity producers and to analyze what the dollar value increase in dollar value the potential currency manipulation means Going Forward to production of commodities in this country . We are looking critically commodities, the prices and trends are a huge Global Driver and driver for the United States. We look carefully at the factors that are resulting in low Commodity Prices and trying to understand the extent to which low prices reflect supply or shifts in demand in various emerging markets spirit what impact deeply the dollar value has had on offer to build of Commodity Production in this country . The strong dollar, when the dollar appreciates, it typically tends to push down oil prices. So the link you are suggesting is certainly there. We have a Global Economy in which there is considerable weakness in many parts of the world, including europe and japan. Countries are adopting expansionary monetary policies in order to bring inflation up to their desired target levels and to address weakness in their own economies. The u. S. Is 4. 9 Unemployment Rate, is far more advanced in the process of recovery. At different cyclical positions of our economy, our different economies are a factor that is pushing up the dollar. The dollar in part reflects disproportionate strength in the u. S. Economy. And thats a natural response to it. Currency manipulation is something that the u. S. Treasury is responsible for currency policy and its something that they would not sanction. The g7 has spoken out against it, but we do believe that country should be able to use the tools of policy like Monetary Policy for domestic a and. One versus Monetary Policy is another persons currency manipulation and i think we need to be very cautious in how we characterize Monetary Policy and other countries, least we not limit our access to the tools we may need. I think thats very important. In the top five remaining, and i want to thank you for your patience, interceptor a lot of hours. I want to talk about something that ive been working on that is cost some concern within the fed organization, and that is cost benefit analysis and review of costbenefit analysis of independent agencies. Senator warner and portman have pursued a bill for a number of years which, in fact, asks that they be an independent review of costbenefit analysis of independent agencies here you have been subject to an executive order. That really is advisory come near as i can tell. Were trying to figure out how we can get a Second Opinion on your costbenefit analysis. I think thats an essential piece of this if were going to do the appropriate oversight. So i would just like a commitment that the fed will work with us to try and understand your need for independence but to please appreciate and is understand our need for legitimate oversight and tools that help us with legitimate oversight. I am certainly willing to work with you on that, but pressure, indicated, you recognize the importance that we not be subject to executive branch review. We have worked to try and figure out how we replace as the referring agency go how we engage him to the point we contract with independent economists to to look at the analysis and get a Second Opinion. I think youre kind of caught in the middle, people dont think it is inevitably think you do too much. One of the ways i think we can broaden support for the fed is rotten transparency. To live best point, tell us why youre making a decision if you believe that the living will is appropriate to tell us what you make this decision on costbenefit. I know youve been very interested in being more transparent without being disrupted to market. I appreciate the difficulty of the lane youre in, but we need these tools in order to give our oversight, and we need these tools kind of Going Forward. I look forward to working with you. This is not an act is going to go away pashtun this is not an idea that is going to go away. We would appreciate any input so that we can accomplish what we want which is to not set Monetary Policy by give us the tools we need to review what decisions you make. So thank you, mr. Chairman, and im done. Thank you. Senator shelby, the chairman will return in a moment. He has forever questioned, second run. I will ask a couple questions that i think we can dismiss you. I want to ask a question about senator heitkamps views on costbenefit. A lot of us are concerned about these efforts on costbenefit analysis and whether it could take us as a nation. I recall as you do, and we talked about this before, when the president , when the president signed doddfrank that leading Financial Services lobbyist in his counted its halftime. That was, sounded an alarm to a lot of us that we never they were going to do, wall street was going to do Everything Possible to slow walk i in july and lobbying push back against any of the doddfrank implementation that we all cared about and that, the recently passed by frank. This will costbenefit analysis idea, frankly, not questioning anybodys motors, particularly senator heitkamps, is the best way to we can doddfrank and actually kind of a dream of wall street to keep this slow walk going and slow it down even more. Its not just financial regulation, and you dont good work. I wish the fed and the past have done more, but generally regulars are trying. I think this will undercut your efforts, his costbenefit analysis bill. And ultimately lead to weakening health and safety rules which has been a longtime battle in this institution. The battle between the conservatory and innovators of the conservatives wanted to preserve the privilege and power and innovators want to move the country forward your costbenefit analysis helps that powerful people in this town resist any kind of regulation that makes peoples lives better, whether its health, safety, safety and soundness of the banking. Want to ask a question about that and about your letter. Senator rounds asked you about costbenefit. Sounds like a good idea. How can you be against Regulatory Reform . Its how do you calculate the benefit of a rule the country gets to state incentives that that so much harder to quantify the benefits and is at the cost. Thats not even counting the slow walk that this will require and how easy it is to delay things by the costbenefit analysis. You sent a letter signed by many of agency heads. Just explain why you sent that letter and kind of make your case for why thats so important. We were very concerned with the bill under consideration, first of all, would have a severe impact on the independent agencies ability to put out rules that would involve executive Branch President ial involvement. I agree with you it would cause very significant delays in implementing regulations, and probably result in unnecessary and unwarranted litigation in connection with our rules. As you said, we are putting out rules very often in situations where congress has decided it is a safety and soundness issue. They want us to address by imposing safeguards in a particular area. And our job is to figure out how to do that where congress has already judged that the benefits are worth while. As you said, the financial crisis took a huge toll, amazing Economic Cost to the country and the Global Economy. I assumed it would have been to try to create a safer and soda Financial System when we have done, for example, in connection with apple rules. It has been costbenefit analysis. Are some costs benefits of reducing the probability of a financial crisis overwhelm those costs. So our job is to find the least burdensome way of putting out rules to implement what congress has told us to do. We publish advanced notices of proposed rulemaking, notices of proposed rulemaking, take comments, look forward and discussed alternative ways that we might approach promulgating a rule to reduce the burden and take comments into account. So its not as though there is not a wink the benefits and costs that are involved. How long it typically is that process . The process can take years, and especially when there are multiagency rules that have to be put in place. I mean, we are coming close to completing the doddfrank agenda of rulemaking, but that has taken a very long time and weve been very actively engaged in trying to do this as rapidly as we possibly can. If its taken have a decade or the regulators to you and the fdic at occ and others, its taken have a decade plus the doddfrank rulemaking, can you guess what it would have taken it had been a costbenefit analysis like this . Well clearly it wouldve been much more burdensome and take much longer. Theres no doubt about it. I cant get it i guess, but as you indicated, attempting to quantify the benefits of safety and soundness regulation is a very difficult. Who would have wanted this to take longer . You indicated that those who were who in this town, who in this country would have wanted these regulations have taken longer . We know that banking organizations are concerned with regulations and the burdens they impose. Let me shift to another question. I think senator shelby will be back in a couple of minutes. Want to talk about excess reserves. Im concerned this is an attempt by those opposed to the unconventional steps that that took during the crisis to limit the fed Monetary Policy tools. What are the implications of repealing or limiting interest on reserves . It is the most critical tool that we have for Monetary Policy to adjust the level of shortterm Interest Rates in the stance of Monetary Policy. If we were denied the ability to use that tool, first let me say that it is because we have that tool that our knowledge that we had that tool when the time came to raise Interest Rates was critical to the decision we made throughout the financial crisis and thereafter to undertake unconventional policies, including largescale lending programs, and then quantitative easing or largescale asset purchases. The knowledge that we, when the time came, would be able to use interest on excess reserves to raise the level of shortterm Interest Rates was critical in the decisions we made that i believe provided great support to the economy and caused us to recover more rapidly. Now, if congress were to repeal our ability to pay interest on reserves, we would not be able to control shortterm Interest Rates in the way we did before the crisis. So we would be forced to contemplate shrinking our Balance Sheet perhaps rapidly. And i would be greatly concerned about the impact that that could have on the economy, on the economic recovery. For example, selling off mortgagebacked securities could raise Mortgage Rates and have a very adverse impact on the Housing Market. And we purposely decided that we will shrink our Balance Sheet in a predictable and gradual manner to diminishing our seizing reinvested to avoid the kind of unpredictable impacts on financial conditions that could come from rapidly sell off our portfolio. But without the ability to control shortterm Interest Rates through using interest on excess reserves we would be forced to contemplate those steps, and i would worry about their consequences. And, finally, if i could just take another second, id like to point out that although we are paying banks interest on their accounts with us, the counterpart of those reserves is large Asset Holdings that we have on our Balance Sheet on which we are in considerably more Interest Income than we are paying to the banks. And that differential has resulted in 2015 and transfers from the fed to the treasury and the american taxpayers of 100 billion over the last two years, 600 billion since 2008. If our Balance Sheet had to shrink rapidly, those transfers would clearly diminish to the far lower level that would be typical before the crisis. This is not something that would be a financial winner. Thats how our goal is economic performance. I think our top concern should be what would be the impact on the economy which would be very negative. But even in the Financial Sense to the taxpayer it would not be a positive. Thank you, mr. Chairman. Thank you, senator brown. Madam chair, i have some questions but i know its a long morning come into the afternoon now. A recently house passed bill would force the Federal Reserve and other regulators to consider what you call liquid and readily marketable inducible bonds as level two assets in the calculation of the banks, liquidity coverage ratio. The level two category, its my understanding, currently includes gse securities which are considered very liquid and uniform in structure but in addition the fed has proposed treating eligible Municipal Bonds as level tv assets for liquidity purposes. My question, do you support the house bill to treat Municipal Bonds as level two assets, and why or why not . So i would not support legislation to treat them as level to a assets. Explain why. Yes. Because this is a liquid department to make sure that banks have sufficient liquid assets to cover the kinds of outflows they could during stressful times. In a stressful situation. So most liquid assets our cash and u. S. Treasuries, mortgagebacked securities, and every mortgagebacked securities and level 2a assets are quite liquid but not as liquid as cash or treasuries, it is why we downgraded them. And while we have proposed to include some more of liquid municipal securities, they are not as liquid as those included in 2a, and we have tried to recognize that while municipal securities generally are not very liquid, some are sufficiently liquid to include them in limited amounts but in category 2b. I think this bill would interfere with our supervisory judgments about what constitutes adequate liquidity. Are there two things, we talked about this at the many times and you have talked about it, there are two things banks need, capital and have have liquidity. You could have capital and liquidity and in a stressful invite you could be in trouble, could you not . Yes. So your statement is dealing with liquidity. You dont want to weaken the Banking System. You want to strengthen it. Is not your basic premise is . Obsolete, yes. In the area of reforming the Federal Reserve that i talked about in my opening statement, currently minutes of the board of governors do not have the ability to employ their own staff. Instead relying on sheer staff of the board. Understand that you oppose a policy that would allow a specific member of the board of governors of the Federal Reserve to employ even a Single Person to work exclusively for them. What are your reasons for imposing this policy . Is a control or what is at . I want to be careful. I think the governor certainly are entitled. They have substantial responsibilities and are entitled to adequate support. As chair i have worked to make sure, and i think this is true that each of the governors have somebody you on the board before you at your. Yes. And it was important to me when i was a member and vice chair and i took on a staff, staff member, not so much a higher from the outside, but a staff member who was assigned to work primarily with me to help me with my particular work. And most of the governors and now have Staff Members who were working primarily or exclusively within to help them undertake their particular job responsibilities. And im not opposed to that. Ive tried to foster it. We have pretty complicated agendas and a lot of work to do, and we do need help. If you were a member of the board of governors and joined no real support staff, then theres not a heck of a lot you could add to a debate like within the fed at a crucial time. But if you had support, there are many voices down there that should not be just one voice. There should be a healthy debate even inside the Federal Reserve, should it not . Yes, of course there should be. This staff provides support for all of the governors, including their individualized needs. But it is certainly appropriate for governors who want to have staffs specially work with them to have that ability. I am not opposed to that. In the gary of a transparency and transcript released, area you said the fed is one of the most transparent Central Banks in the world. But also come and these are your words, there is always room for further improvement. I understand you oppose a policy that would improve the transparency by shortening the delay, delay and the release of federal open Market Committee transcripts from five years to three. Five years to three . I believe only a few Central Banks released transcripts at all, and the next time we are the shortest. I believe the next shortest lag is eight years. When transcripts were first released, it was debated what the lag should be. And even with a five year lag, i think the experience was that fewer people were willing to engage actively with others in meetings, expressing their views rather than read from prepared remarks. While i so we have a reasonable degree of interaction in the meetings, the knowledge that we will be releasing transcripts in five years does lead to less interaction in the meetings are we really need to be able to engage with one another with the giveandtake where people feel protected that their unvarnished views and exchanges with their colleagues will not quickly be exposed to the public. After all, we released very detailed minutes of those discussiodiscussio ns within three weeks. I would simply fear that moving up the release, the timing of the release of verbatim transcripts actually would not add very much, if anything, they want the public already knows about our policies from detailed minutes of discussions, statements, reports are actually there wouldnt be much additional information, and it would stifle at the level of interaction that we have. Clearly thats a balancing act but thats my concern. I can see how or release of transcripts in five months or three months could cause problems in the economy. You know, the Monetary Policy and everything else, but three and five years, three years. I dont buy that. I believe that, and although ive said this private and publicly to you here, i believe the fed should be independent but i dont think you are totally independent. We should not be a member of the board of governors. I dont want to be a member of the board of governors. It on the other hand, we should know what you are doing and why you are doing it. Do we need to know that immediately . Probably not for a whole lot of reasons sometimes, but we do need to know, and to move the transcript released from five years to three years seems overly generous to me. Thats my view. We talked about this, too. When asked yesterday, i believe in the house, about the structure of the Federal Reserve system, you said and i will quote, their current structure of the fed is Something Congress decided after a long debate and weighing of a whole variety of considerations, thats true, like any important, while this may be the case i believe the Federal Reserve system was established by congress over 100 your sicko. Since then the country has changed dramatically. Our economy has changed dramatically. And as you are aware, the San Francisco Federal District now includes approximately 65 million people. This isnt the fed district. While the minneapolis fed district includes just 9 million people. Y. , madam chair, do you oppose instituting any type of review of the structure of the fed, outside healthy study . Why do you do that . Knowing that things are evolving all the time. It is of course up to congress to consider what the appropriate structure is of the fed, and im well aware of the fact that history plays a great role in deciding what the fed would be public if we were starting from scratch. You would not have the 12th district with 65 million people. I think 20 of the u. S. Economy having won Federal Reserve bank. In congress cant of course reconsider the appropriate structure. I simply mean to say i do not regard the structure as broken in the sense that it is failing to put in place good monetary policies, failing to collect the information we need about whats happening in the economy to craft good policies. We do have come as congress intended, independentminded people sitting around the table crafting policies. Of course, the structure could be Something Different and its up to congress to decide that. I certainly respect that. I simply because i dont think its broken the way it is. If i could add, the San Francisco that had a really, really good that president for a number of years. Yes. Thank you. We understand that. But the fact remains that since 1913, since 1950, youve seen greater population changes in this country. For example, in the south were i come from, from virginia to texas, the border states, thats the most heavily populated area of the United States and is slated to grow even more denser, is that correct . Yes. When i was in San Francisco look at the wests. We have places like las vegas or san diego that had no fed branch or reserve Bank Representation that are growing faster and far larger than many places that do have branches. So yes, there is an historical legacy that has left the Federal Reserve system in place where geographically it no longer represents the distribution of Economic Activity in the country. I would not argue. When things change dont you think we should be aware of that, to change with it . So, its up to congress to decide if changes are necessary. I only mean to say that, for example, what i was the president in the 12th district, i was highly attentive to making sure that even with a very large district, that i was aware of development all around our region, and a big effort to collect information from the various parts, very diverse parts of our districts. And i think my colleagues do that as well. Thank you. Madam chair, thank you for your patience. We appreciate your time today. Thank you for having me. [inaudible conversations] [inaudible conversations] [inaudible conversations] our road to the widest coverage continues tonight from st. Paul, minnesota, where democratic president ial candidates Hillary Clinton and Bernie Sanders are scheduled to speak at the fifth annual Humphrey Mondale did it will take you there live at 8 30 p. M. Eastern on cspan and cspan radio. Road to the white house began in iowa. The caucuses which date back to 1972 and then we moved to New Hampshire that quintessential first in the Nation Private which has a long and rich history. Now we begin to test the candidates and their message. We move south of South Carolina the First Southern primary and then to the Party Caucuses in nevada for the democrats and republicans. More than likely well see a number of candidates probably drop out so that you will been narrow and then we move into early march. Super tuesday, the start of winnertakeall primaries which means the delegate count will be critical. As we watch the count continue for the candidates we get a better sense of whose message is resonating and was on the path to the nomination. The senate is about to begin its session. They finished legislative work yesterday and today members will just b be giving be giving genes the best in sf next week for the president s day holiday and are due back on monday the 22nd when they will try to advance the nomination of a new commissioner. The presiding officer the senate will come to order. The chaplain dr. Barry black will lead the senate in prayer. The chaplain let us pray. Eternal spirit, instruct us in the way we should go. Direct the steps of our lawmakers, leading them beside still waters, as you restore their souls. As they put their trust in you, be for them a shield of defense
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