Transcripts For CSPAN2 Janet Yellen 3 Percent Growth Quite Challenging 20170714

Welcome chair yellen promoting Economic Growth this a top priority for the committee in congress we have been encouraged to see stakeholders carefully evaluate current laws and regulations since the last hearing in february there have been numerous developments to impact Economic Growth legislation with more than 100 submissions from the stakeholders are listed on the committees website if you are interested to put together legislation the committee has held numerous hearings and federal financial regulators issued the second report and the Treasury Department issued the first report on the Core Principles of Financial Regulation in addition members on both sides have expressed interest to help find and the economy to improve the Bipartisan Legislation continues to build them particular interest finding Bipartisan Solutions to change of threshold and stress test fix the volcker rule and simplified small bank capital rules these are just a few of the issues raised in recent months in with those systemic firms with institutions that are not systemic have realworld the implications i regularly hillary hear from businessmen and women who are concerned about access to promote a healthy economy the 50 billion threshold is an area we should address there are different ways enhanced standard could be applied and if that threshold is appropriate care yellen terry allen and acting director former Federal Reserve governor and former comptroller express support for changing that 50 billion threshold. In addition Federal Reserve governor paul shared areas where some laws and regulations could be changed to alleviate burdens including resolution plans eyelet for to working with the fed with these issues that chair yellen can provide with a back together to further reduce the burden in retrospect to a finance system i repeatedly stated the status quo is not a viable option the Current System of this time the best interest of consumers and taxpayers or investors for the broader e economy and was encouraged Federal Reserve paul gave this speech that the status quo is unsustainable. Also as the memories fade the next few years they have the last best chance so with respect to Monetary Policy to raise Interest Rates four times since 2008 the fed maintains the accommodative Balance Sheet last month at the lindsay added the addendum to their policy to detail how the fed will reduce its assets. The committee continues to work to address many of these issues outlined today an accord to working with chair yellen. Chair yellen welcome back is good to see you thank you for your Service Center last appearance fomc increased the fed funds rate twice even though a slightly slower pace and wages have increased modestly it will lay out his plans to sell off securities during the crisis the banks are making record profits just past the stress test at the same time to be americans are struggling to make ends meet and worry their children will not have the Economic Security that they had and the Life Expectancy is falling in many parts of the country that is unprecedented in that tells us about our economy so i am troubled when i hear from the administration in the baking industry those that are seriously under water to save the is a. That i lived in of cleveland 10 years ago had more foreclosures in the first half of that year than any said coated United States of america and i see that difficulty people in my neighborhood have to rebuild their lives even though the wealth gap has widened fable that wall street gamble with the futures of families once again. That is back in style from the Treasury Department to the financial choice act to face a slate of nominees that are above wall street and by wall street and for wall street. Ten years ago chairman bernanke sat to nancy to and told the committee of concerns of the son of prime mortgages but concluded that overall the u. S. Economy appears likely to expand at a moderate pace with growth strengthening in 2008. We must not forget what actually happened a of a devastating financial crisis working families across a the country cannot forgive that with collective family shad not as a criticism of chairman bernanke he missed the signs and had company but he took aggressive action as all of you had to confront that crisis and then we put rules in place to strengthen the Capital Position lobbyist use the success of these reforms that they should now be guided with the results of this stress test prove that we can relax the rules passing the test once they want to make it easier i am sure every College Student that you taught in your career would have wanted the same thing but unlike the biggest banks to be to reverses to ask the was caused in part by though watchdogs who were focusing on bank profits instead the of worry that day are treating consumers fairly. There are parts of wall street that can be improved but the focus should be building a strong free economy for everyone and in particular in communities too often forgotten in this town and improving the Economic Security that felt of the devastation in the most of the financial crisis. To invest in an it infrastructure and expanding job training and opportunity. So weakening those safeguards and crossing the offenders and said the just passing along to their shareholders will not prevent another crisis i look forward to hearing your answers. Chair yellen we appreciate you being here with us today. Because it is the same that you gave yesterday at the house you have requested to waive the reading and we agree with that so we will proceed directly to the questions. Very good. I reminded members of the committee we have five minutes each. We will try our very best as we have a lot of time pressures today to keep you on course. Soul in this speech last week to outline principles of finance reform it was important to do three things to make a the possibility of future bailouts as low as possible to change the system of private capital without bipartisan agreement you agree . Yes i do. I support what governor paul put forward. Do you agree with the agency expressed about the need for us to act . Yes. Has been almost a decade and with the role of the government of Systemic Risk and it is important to move forward with reforms. There is Consensus Congress should change the threshold also changing the volcker rule of us testing requirements on Community Banks and Credit Unions do you agree it is appropriate to act in each of those areas . I do. Can you give that committee after hearing that they could reduce the burdens . I would be happy to do so get a hearing last month governor powell said they were reviewing the of volcker rule one of those aspects of implementation regulations that dont bear on the major policy goals can you elaborate . We look forward to working with the other agencies it is a very complex rule but we could find ways to reduce the burden. Many of us are aware that the effort to has been slow down because of the complexity to get four or five agencies to all agree on the same thing. What about having a designated the agency . Period that is something with a larger regulatory role that might be natural to take the lead. So you told me at the last hearing new bike the Balance Sheet to be pretty rarely treasury securities however the fomc plans initially is not reinvesting the treasury securities and 4 billion so that suggests the fed is more than the mortgagebacked securities is that accurate . Ultimately my guests is they will not be binding at the rate the principle is received it will be a long process to go back to the portfolio even after the Balance Sheet has been reduced we still have substantial holdings so willie will be running those mortgagebacked securities so it is sailing the process but the fomc is committed to a portfolio in the longer run. So history teaches us when congress is big gains like roosevelt or medicare that congress to read three years later goes back bipartisan to make modest changes to fix them and that is something we have been asking several years and with republicans to do with the Affordable Care act to make minor adjustments but instead that one say wholesale all the then to make those reforms assure you recently stated not expecting another financial crisis setting aside that delicate question is that dedicated on maintaining the strength of the regulatory structure was issued a stated originally i believe we have done a great deal since the financial crisis because the Financial System to make it more resilient that there will not be another financial crisis but to have access in the aftermath with much stronger capital so that Banking System more urgent early generally is forcing the banks to improve the Risk Management and Capital Planning even if there is the economy that they could function in to greatly increase the monitoring of the Financial System but to say we could never be confident there is not another financial crisis but that we maintain those improvements with the risk of the damage. Dont read your answers on reform in there is some urgency to thats but divided your comments you may not expect of a good regulatory structure so those recommendations the way it was ready did seem to of a lot of input so those lower Capital Requirements if those were adopted would you continue to have that same level of confidence that you just repeated and said earlier . I would be in favor of reducing capital for the most systematic banks. And Consumer Protections . I do think those are important as well there are they said the treasury report that we agree and others read deal on our own. I apologize. That is to maintain. If we adopt the treasury report recommendations it with more likely resolve in a financial crisis . Some of the via. Returning to the topic ive discussed with your colleague the fed proposed adding a capital surcharged under the of stress test the former governor said they are below where they should be to incorporate those surcharges and is spreading to the rest of the Financial System. We are working very hard and we are hoping to make adjustments to better integrate those Capital Requirements. So you are assuming can you assure us those changes are in place for the stress test next year . It depends on the timing you have to go with that proposal but i cannot guarantee that will be in place. You dont see them headed in that direction . So integrating that capital buffer with the stress test but not only those surcharges. Senator . Welcome chair yellen, of that price stability that is important that current fed calculation shows inflation has fallen 1. 4 that the statistic is puzzling to some economists. Some have suggested that the fed should not continue that practice to raise Interest Rates because it has not kept pace with some of the things that you talked about earlier. In recent testimony and that is partly the result of some reductions and in addition is it possible that certain aspects such as slow growth and are artificially influencing inflation . So what do you believe . And within a period there has been a substantial appreciation in to ruth have some prices the trend has come to an end with the import prices are rising at a modest rate so i dont see the Global Economy at this point responsible for those low inflation readings. As i indicated there is is some special transitory factors with the unusual changes moving to be of limited data plans and with the Prescription Drug prices in we are watching inflation very carefully. Is being with respect to how that bears on policy. All my colleagues when you look at this matter in june even recognizing that weve had several months of low inflation ratings and focused on trying to understand it. Its to continue on a gradual path of increases. Its something we will watch carefully and i want to emphasize Monetary Policy isnt something set in stone and if our evaluation changes with respect to inflation, that will make a difference. This economy. Weve had a long expansion in the Unemployment Rate it is now at quite low levels. A negative shock in the extension, but i dont see anything in the nature of the expansion. What significance is the continuing lower price of oil and gas in the economy its a basic monthly calculation but it does have some something to say and do about the economy. Its the low prices of oil and gas have translated into the households goods and services. The prices have rebounded off of their very lows and thats meant the drilling activity is picked back up again and thats something that is supporting the investment spending demand in the economy. Thank you mr. Chairman. When you were here in february we discussed the Economic Impact of lost insurance. You said that the loss could have a Significant Impact on Household Spending for goods and services that could also impact of job mobility making it difficult for people to leave jobs for new positions or to start a new business because they would be risking their access to health insurance. Is that a view you hold today and can you explain why it . I cant quantif i cant quantify any of those effects, but clearly spending on health care is an important aspect of Household Budgets and changes that could have an effect on changes and goods and services in the economy. Access to health care is important. I think Research Suggests a certain amount of socalled job lock reflects the workers to hang onto the employer provided healthcare. I cant tell you quantitatively how important that is. You mentioned possible changes in fiscal policy and other governmental policies in the United States represents a source of economic uncertainty. Would you include potential changes to the system as one of the factors causing uncertainty into the Economic Outlook . I think that fiscal policies generally are associated with the level of policy uncertainty and its quite high at the moment. I believe if a potential 22 million more americans were uninsured by 2026 its going to cause premiums to skyrocket and middleclass families and those near retirement will have an impact on the economy. New jersey alone would see more uninsured under the republican proposal. A 47 increase in uncompensated care. That has an impact in the economy. Let me move to a different topic. What would be the consequences of weakening or eliminating the Federal Reserves full employment many of them minorities that have been left behind. They have higher Unemployment Rates substantially, so. What would be the elimination or the weakening of the full employment mandates to those communities . If the Federal Reserve by some suggestion eliminates the mandate as one of the missions what would be the consequence . It is an important mandates that keeps us focused on the market and weve been very focused on it. There hasnt been a conflict in the price stability and the employment mandates. I am simply suggesting that have a negative consequence . Let me ask you finally we see the rising level of Household Debt, and Interest Rates historically low levels and to me it is critical that they have the ability to respond to the economic decline. How does the target Inflation Impact Household Debt. The risk with respect to inflation is twosided but we are aware of the fact its been running below the 2 objective now for many years and we are very focused on trying to bring inflation up to the 2 objective that is asymmetrical objective and not a ceiling. It has a very adverse effect and can leave them drowned him back and we dont have a situation that serious but it is important when we have to present the objective to make sure that we achieve it and we are focused on doing that. Thank you mr. Chairman for being here this morning. Weve had a number of conversations but your accessibility is much appreciated. The last time we chatted we talked about the unwinding of the federal portfolio that today is about four and a half trillion dollars or so and i think at the beginning of the crisis that was under a trillion dollars. Could you just talk for a few minutes on the timing of the unwinding and if you have a target number at the end when what you see us getting their . They may not have much of the money in the market. Okay let me see if i can be responsive to that. It would set out a concrete and detailed plan and it involves reducing the extent that we reinvest the principal payments that we receive on the holdings of treasury and mortgagebacked securities. So, when we set the plan into effect, we will fit the cats on the amount of the reinvestment that we allow to occur. The caps will gradually rise over time, and our Balance Sheet will gradually run off if the consequence of reduced investment. We want to make sure that if we manage this in a way that is not disruptive to the Financial Markets and in part for that reason weve tried to set out in great detail how we intend to proceed so once we trigger this process, we expect it to run in the background. It will be a predictable proce process. We think they did have a positive effect in the long term Interest Rates over many years. We would expect to see some increase in longerterm Interest Rates relative to shortterm Interest Rates but of course we will take that into effect. Along the route delete or rename a tool to try to achieve maximum employment price stability. Finally, you mentioned that our Balance Sheet was around a trillion dollars prior to the crisis and thats true but its important to recognize that although the Balance Sheet will shrink during this process as well the quantity of reserves have no expectation of going back to a Balance Sheet that small. You have about a minute left. As we talk about the Interest Rates that can be very positive for firsttime homebuyers is very negative for those depending on their investments to produce income so to speak. On the insurance side of a talk as well on the importance of having insurance expertise on the fsoc that retires septembe september 21 and we could be absent of any insurance expertise. Would you support legislation heading in the direction of making sure that the insurance expertise stays on fsoc . I do think its important to have expertise and exactly how you go about accomplishing that, i dont have a specific recommendation. I want to encourage the chairman and Ranking Member to continue their work on making sure that fsoc has that continuous insurance representation. Let me say at the outset its great to ask somebody a question that doesnt have to deal with russia. Recently i know they mov moved o scale back the qualitative portion and another former member before he left also discussed further reforms in many of those i support in the annual review. In a sense it is not broadcasting the methodology. I would like your view on that and how you see that continuing reform which i know youve already gone ahead and moved proactively. Do you see more reform and is there a value to seek the largest institutions . If thethey have substantially strengthened especially the largest banking firms and i think in the process we have gained assurance. The american households and businesses. We have looked carefully at how we conduct the stress tests and we are continuing to do so and are open to making changes. But let me say that conduct dinghies stress tests in a rigorous way and making sure they have the capacity to be able to meet our Capital Planning expectations which is facilitated is critically important to having a sound Financial System. I cant see putting the models into the public domain. I think it is something that has helped to provide market discipline. We tried to make it less burdensome for the 250 billiondollar institutions. Its conceivable that one day if the institutions were to show on a regular basis they have in place very strong Capital Planning standards. If we change the qualitative portion of the review for some of them as long as we have that assurance. But that remains an open question and this is a core part of the supervision that is essential. And in terms of moving up to the 250, there may be regional banks that would be slightly higher that might be afforded some relief. And i would argue that its less about the kind of annual basis and it would be triggered on the qualitative peace if they train their line of business and introduce a series of new products. Obviously i agree with you on this but the broadcasting methodology on the front and might not be the best way to go. Can you speak for a minute one of the ways we saw in the crisis as a lot of Financial Transactions moved into the shadow Banking System in a sense, and i think that we managed to try to scoop a lot of those back and in 2008, but capital moves fairly quickly. Where do you see the kind of shadow Banking System in 2017 where there may be older abilities are areas we ought to reexamine . We are constantly looking for vulnerabilities and recognize that risks can move outside the regulatory perimeter. I would note that with respect to shadow banking the changes weve made with respect to money market mutual funds have reduced what was important in the destabilizing risk. Weve made a number of changes with respect to the repo market that have reduced risks their. So i do see changes that have been made with respect to shadow banking. This has diminished risks. But we are on the lookout for areas where new risk may be emerging. Much has been made about the slow pace of recovery over the last eight years. One aspect that doesnt get quite as much coverage is that geographically distributed nature of the recovery has been concentrated primarily larger metropolitan areas in fact you look at the 20 counties in this country that accounted for over half of all business creation this is in contrast to 25 years ago in the metropolitan counties with more than a million people. It was 8. 4 whereas in this recovery Small Business creation and metropolitan counties more than a million was 4. 8 . Unfortunately in the small counties fewer than 100. Its negative 1. 2 . In arkansas we call the counties with fewer than a thousand people counties because theres only seven out of 75 that have 100,000 counties or 100,000 people. On page 19 of the most recent reports, the states that measures the Small Business Credit Demand has remained weak amid stable supplies. I understand the Small Business lending has never really recovered to pre crisis levels and also attributes the outcome of the demand for credit and supply of Small Business credit is stable. How do we know that its because of the weakness and that at least to a degree that contribute infector isnt the supply of Small Business loans. So we have a number of surveys including the regular survey on lending standards and banking organizations. The factors that may be affecting the growth of credit and supply factors and the statement that the demand is partially based on that information. Theres smaller businesses and asking about the problems that they face and a small number of sites the inability to gain access to credit as a significant factor. Its especially in rural areas and Small Business and we are committed to working on reducing the burdens the firm has faced. There is arkansas when the small Community Banks close. So if theres a Small Business that is used to rely on the spaldina smallbank in clevelands county that is no longer there what is the most common avenue to try to seek financing. They may be something and if there is i will get back to you on that. Thank you very much for the testimony. The Economic Situation in the country specifically as it is related to wage growth and even as we have seen fairly steady job growth we continue to see very sticky and stagnant wage growth and you indicated that is partly a result of the low productivity even when we have higher productivity we saw the wage growth. We need to do more in the way of job training whether its things like apprenticeships to the Community College is coming and i know youve made comments about that recently and i just hope as we look at the budget here in the United States senate we keep that in mind and in addition the need to focus on modernizing the infrastructure which is another area of productivity growth where i think we could make some progress and i wish we had started here in the Congress Working with the white house on that kind of bipartisan initiative. So i may followup with you on that. My questions to relate to the Ranking Member. Senator brown reminded us on the evening of the financial crisis, most people were predicting sunny skies and clear sailing. Didnt see the storm clouds ahead, and thats why we put in place some of the safeguards. That is a subject of ongoing debate. So theres the safety procedures that we put in place. Orderly Liquidation Authority do you believe its important to maintain and preserve. We saw during the crisis that the absence of a way to resolve a non depository institution is systemic Financial Institution in an orderly way to a massive intensification of the crisis. I agree bankruptcy should be the preferred route for resolving the firm and difficulty. Its the ability to resolve under the Bankruptcy Code and i believe weve made a great deal of progress getting firms not only to file these living wills but also to think systematically in the course of the regular business. They could be re capitalized by bailing hi baling the death whee they encounter substantial losses. But what the bankruptcy should be the preferred route to resolve such a firm title ii is a very important safeguard. That is a very workable approach by believe we need. The leverage ratio or the capital buffer the former governor said not that long ago that applying the simple ratio in exchange two escape the capital standards would allow the thing is to ditch the assets to boost profits in other words he and others have said its important to maintain both of these measures for the undue risk in the system. I agree with that. A simple ratio in poses a capital charge on the junk bond that is identical to the charge imposed on holding the Treasury Bill and got type of system can result in the banks taking on a great deal of risk. There is in the belt and suspenders approach but it shouldnt be what drives the decisionmaking firms so we have strong risk based capital and we now have and i enhanced ratio that applies to the most systemic banks so that the risk based capital is what is binding and we are looking at the calibration of supplementary leverage ratio because it may be poor example for custody banks may be having some adverse consequences. But both need to be in place and appropriately calibrated. Its good to see you again. Thank you for your service. I have two quick questions. I am very concerned about global debt. The institute of International Finance recently reported that the estimate of total debt is 217 trillion or more than 300 of the gdp. Do you agree with that directionally . Particularly the 300 billion do by the end of 18. Relative to the size of your Balance Sheet in the United States. I would not say coordinate. We certainly consult with one another and try to make sure we meet regularly and discuss our policy approaches. Make sure other Central Banks understand how we are looking at our economies so the major Central Banks understand the approach that others are taking so trying to ask in the aggregate sense how much debt is outstanding is something were not doing. Our economies are in rather different situations, while we all encountered weaknesses that were sufficiently severe, i think japan, the ecb, the bank of england, the United States, we all resorted to purchases of longerterm assets to support growth. I would say the United States is further along in the process of normalizing Monetary Policy. At least in the bank of japan. Are you concerned about the emerging market debt was so much of that to nominated and dollars today . It is a risk, a significant amount of that is in china, but that is not the only country where their substantial corporate tyler to nominated debts. Certainly that is a risk we have considered that affects the Global Economy. In regards to the fed Balance Sheet. His girly foreign have trillion dollars. I didnt quite get the answer, insert directional limit or target that you have set at this point for the size of a balance but is there a target in time. What we set is that we expect the quantity of reserves in the Banking System which is now a little bit over 2 trillion to shrink considerably. How small reserve balances will become when we have done this process is something we dont know. A lot has happened over the past decade to affect the demand for reserves. As the process occurs we expect to learn more about how the demand for by banking organizations for reserves house change. I want to point out the overall size of our Balance Sheet depends not only on the quantity of reserves but on other non reserve liabilities, importantly including currency. Back in 2007, the stock of currency outstanding was run 700 billion. It now stands close to one and a half billion. Even if reserves were to shrink to zero, our Balance Sheet would not go below one and have trillion. Im almost on time. You talk about a long recovery. Its been very weak but long. The typical recovery is about 58 months, about five years. With Consumer Confidence being at a 13 year high and yet Consumer Debt as you mentioned has risen again in the last what are your concerns relative to the strength of this market in the fiscal policy coming out of washington over the last couple years relative to potential correction this longstanding recovery. I do have a reasonable level of confidence that the expansion can continue. Were trying to put in place Monetary Policy that will facilitate that. Often, previous downturns following expansions have reflected inflation rising to levels that are unacceptable forcing the tightening Monetary Policy. A very different situation now. With inflation running below our target rather than above it. We are attentive not only to downsize but also the upside inflationary risks and we are focused on that. With respect to Consumer Debt, i think households are generally in a stronger position, mortgage debt has declined significantly relative to Household Income. Student debt has risen enormously. But a lot of the expansion of debt is among higher income households with strong credit worthiness and the burden of debt payment relative to Household Income is low. So of course, there are risks in some areas there but overall i would not point to Household Debt is something that is flashing red on of financial stability. Thank you. Senator warren. Thank you. Its good to see you again. I want to follow up on a letter i sent you last month urging the fed to remove the wells fargo Board Members who served during the banks fake accounts handle. I appreciate the response you sent me earlier this week which acknowledges that you have Legal Authority to remove these Board Members and that confirms that you are willing to use that Authority Foreign to. Thats a question i want to get it today. How could removal of these Board Members not be warranted given the fact that we already know. The 2008 financial crisis showed that the big banks had completely inadequate Risk Management system. After the crash the fed established tough rules for Risk Management they imposed Higher Standards on bigger and more complex institutions which means wells fargo, by law had to meet a very high standard. So the board is responsible and heres what theyre responsible for under the feds own regulation. Making sure their quote processes and systems to integrate Risk Management with management goals and its Compensation Structure. And, making sure their quote processes and systems to ensuring effective and timely implementation of actions to address emerging risks. Now, wells fargos do not come close to meeting those requirements. They established impossible crossselling goals and set up a Compensation Structure that put enormous structure on employees to open accounts for existing customers. Despite a mountain of evidence that these incentives were leading to the creation of fake accounts, the board did nothing for years. The result was thousands of employees opening more than 2 million fake accounts. So, can you explain to me how the wells board can possibly have satisfied its obligations under the feds Risk Management regulation. I am not prepared to discuss in detail what is confidential supervisory matter. I will say that the behavior that we saw was egregious and unacceptable. It is our job to understand what the root causes were of those failures and as i have agreed, we do have the power if it proves appropriate to move directors. A number of actions have already been taken. We need to conduct a thorough investigation to look at the full record to understand the root causes of the problems. We are certainly prepared to take Enforcement Actions if those proved to be appropriate. I appreciate that, because we already know a lot that is in the Public Record and that wells itself is already admitted to. In fact, wells fargo zone board commissioned an investigation by the law firm, sherman and sterling and found the barred was to differential on Risk Management issues and ignored several red flags about the scope of the fake accounts scandal. So, theres already a lot out there in public. Heres what worries me. Time after time, big banks cheater customers and no actual human beings are held accountable. Instead, theres a fine which is paid for by shareholders, not by executives and certainly not by directors of the board. And nothing will change at these big banks if that doesnt change. You know how i know that perfect . Because in 2011 the fed find wells fargo 85 million for illegally spearing mortgage borrowers into costlier loans. In the fed specifically said, those illegal practices were caused by incentive compensation and sales quota program and the lack of adequate controls to manage the risks resulting from these programs. So, the fed find wells in 2011 for failing to manage the risk, resulting from bad incentive compensation practices. And what did they do question for the next four years, immediately after that point, the board signed off on incentive compensation practices that led to the creation of 2 million fake accounts. Fines are not working with these giant Financial Institutions. If bank raised directors who preside over the firing of thousands of employees for creating millions of fake accounts can keep their jobs, and i think every bank tractor in this country knows that they are bulletproof. That poses a danger to the rest of us every single day. You have the power to change the culture on wall street, i know you care about this issue. I hope youll use that power. Thank you, senator sass. Madam chair, thank you for being here. Very concerned about the most recent available data on job openings and job hires. As you probably know their 6 million open jobs in america right now yet job higher numbers following. I hear about this from Nebraska Businesses every week when im home. But the difficulty they have in finding and retaining talent. What you think the most prominent causes are of the mismatch between job openings and job seekers right now . It is commonly the case with an Unemployment Rate is loose we have now, that Many Employers would have vacancies and regard them and report that their hard to fill. In fact, the fraction of firms reporting the jobs are hard to fill is in a way, an alternative to the Unemployment Rate is a measure with a 4. 4 Unemployment Rate, you should expect there would be many firms that would find us. That said, i agree there is job mismatch, there are kinds of jobs that firms have had a good deal of difficulty in filling. Often when im asked about productivity growth and problems of the labor market, talk about the importance of worker Training Programs, education, we routinely hear there are jobs for example in manufacturing, but ones that require skills that those who are losing jobs dont have. Often when i travel i look at programs that have been devised in different parts of the country to try to enable workers for having the tough time finding jobs to fill the jobs that are available. Ive seen examples of nonprofits partnering with state and local government and with local businesses, Community Colleges, to put in place programs that are linked to Job Opportunities that fill that gap. With the labor market i hear more firms telling me theyre doing their own training, putting in place of expanding Training Programs to try to fill vacancies. Thank you. Im try to get my hands on whether not we think this is a new normal and Economic Growth will solve this problem or whether we have a set of culture issues or institutional issues from midcareer job training. So we have data that shows that prime Age Male Labor Force Participation rates have been declining for over 40 years. Gone from 25 55yearold males, not participating in the simile volume cherry way to about 40 to 15 today. Do you think this is a new normal . Weve had many decades with declining laborforce participation by prime age men. I think this reflects a variety of adverse trends related particularly to technological change that eliminated many middleincome jobs. Those that can be replaced by technology combined with Global Outsourcing and production. The individuals that have lost those jobs have found it difficult to acquire the skills necessary to be reintegrated into the labor market. Many individuals with less education are finding it difficult to be placed in jobs that are middleincome jobs. So this perhaps intensified during the recession but its a much longer lasting trend. We are seeing now unfortunately this is likely tied to the opiate crisis. Ties to the problems that many communities have. Weve even seen an increase in death rates due to death despair, suicide, drug. So this is a very serious matter. I think their social maladies all around this that be valuable to unpack. If we had longer runs i would ask you questions about the new multicarrier economy that were headed toward. The fact that this institution is not a vulnerable Corporate Care to think about what that looks like. I want to ask you one question entry. Corn exports from the u. S. To mexico have fallen 7 in the past five months. Obviously mexico has been exploring other trading partners. Theres an attempt on mexicos part to turn from the u. S. Towards brazil for certain greens and commodities. To think the u. S. Rhetoric around increasingly protectionist tone is having a direct effect now on people trying to prenegotiated other trading partners question to have historical examples of moments like this where were not in a trade war but we seem to be speaking in a way that applies we may go there and were seen effects on certain Agricultural Commodities and exports . I am going to pass if you dont mind on this question. I mind a little bit. This is a matter well outside the do my Monetary Policy. And really is a matter for congress in the mid administration. Is going to ask you to keep your response short anyway. Senator donnelly. Thank you thank you for your service to the country. Really appreciate that. Thank you this is a subject that my colleague, senator sass touched on the little bit and then you mention. That is my state like many others within the midst of a severe or. Epidemic. All ages and backgrounds have been impacted. Families, friends, personal addictions. It not only impacts Health Outcomes but has a real consequence on economic and employment opportunities. The national Unemployment Rate is at 4. 4 . Labor Participation Rate has gone down. People talk about the aging population and this and that. How much of a factor do you think the opiate abuse situation has been . I do think it is related to decline and laborforce participation among our primates, workers, and dont know if it is causal or a symptom of longrunning economic maladies that have affected these communities and particularly affected workers who have seen their Job Opportunities decline something going on for many decades. Surveys suggest that many prime age men were not actively participating in the labor market are involved in Prescription Drug use, not always opiates but we are seen as i mentioned an increase which is extremely unusual i think the United States is the only advanced nation i know in these communities among less educated men apparently reflecting opiate use is obviously a serious problem. Because a Job Opportunities are there we could have somehow train these individuals and got them to avoid this, im not asking you to be a social scientist but there seems to be a clear indication for clear connection between this and the opportunity to go to a job and get employed. I would agree with you. I feel like all of those things are bound up in this opiate crisis. And they are interacting in ways that are really quite devastating for these individuals and their communities. On a bit different topic but one that i think is going to become more and more on our windshield because i think if we look and Interest Rates start to go out one of my top concerns is the national debt. I think the jets already has an impact on future generations as the cost of borrowing is increasing. I think it will get more expensive very soon, 260 billion plus per year. You look at that we have discussions about how to refund the National Institute for health which will cure cancer and diabetes and multiple sclerosis. And all those funds that we sit and try to figure out how to we get enough of, were spending 260 billion a year just paying interest on our debt. Thirty been point, and up a point that you look at me go, this is really as Interest Rates go up you say, this is going to have a very Significant Impact . So fiscal policy we have long known undercurrent policies on an unsustainable course. As the population continues to age, especially if healthcare costs rise, as they have historically more rapidly than the general price level, we are going to see the debt to gdp ratio rise from current level of around 75 which is not frightening but also not low, to unsustainable levels in the increase in interest on the debt will be a factor contributing to its unsustainability. You routinely see projections by the congressional budget office, they make assumptions about the path of short and longterm Interest Rates, they project, dont have the exact numbers but shortterm Interest Rates rising, my colleagues most recently, we publish our estimates of longer run normal shortterm Interest Rates which receives about 3 . That estimate might change the cbo also sees shortterm Interest Rates rising towards Something Like that level so that is going to be increasingly a factor driving that dynamic. Thank you. Thank you for your service. One week from today, those carrier workers start to lose their jobs. So please, keep them in mind about how we make sure their chances for success her head and that we have trade laws that stand out for all our workers. Thank you mr. Chairman. Madam chair, welcome. We always appreciate the opportunity to visit with you. I was pleased to hear your expression of concern regarding the enhanced slrs and in particular the impact it would have on the series of not a lot of banks but some banks that are the custody banks. Interested because for mutual fund holders, the cost for those banks is passed on. Im curious, i think its an issue that should be addressed. Wondering if you have a timeframe or concept on how to address the increased cost even though there holding one of the safest assets out there in terms of their use of centralbank instrument. I would agree with you, weve been in touch and are aware of the issues faced by the custody banks. Its one of the reasons that we are looking at the issue of the appropriate celebration of the enhanced supplementary ratio for those banks. Perhaps its too high relative to the Capital Requirements. Im comfortable with the level of risk Capital Requirements, but this is something that needs to be looked into. Different countries have taken different approaches, one approach is to exempt certain items like central blank reserves where the alternative is to recalibrate the ratio, can give you a definite timetable or reconsideration of this, but its something where perhaps regulations have unintended consequence and were looking at that carefully. Do you think you have the resources or capabilities to handle this or does it require legislation . My guess is that we are not leavinneed legislation i would o get back with you. I think it does two things. It makes our banks within the United States that dont have the higher rate and second of all, think that cost is ultimately passed on to mutual fund holders. I think that means one more fee that takes away from their return. In either event i think we should examine it. I think theres room to reduce some of the cost which is passed on to mutual fund holders. Will have a careful look. Ive heard a number of concerns about the arbitrary thresholds that make it difficult for them to do business. They also had concerns in the opening statement, the congressman Bernie Franks have talked about the pitfalls. We put in there that banks got the extra supervision if there 50 billion in assets. That was a mistake. We should admit a much higher. 125 billion or more. We should have indexed it. And thinking perhaps even looked at other alternatives as opposed to a dollar threshold, perhaps a Business Model what the Business Activities are one of the architects of dodd frank had that are inappropriate, could you stay that the threshold should be raised or we should be looking at even changing to a Business Model approach . We did the taylor act as an alternative to Smaller Banks in the model the types of regulations based on business activity. Could you give us your thoughts and is it time to start work at changing that. We would favor some increases if congress sticks with the dollar threshold that we would support some increase in the threshold. An approach based on Business Modeler factors is also a workable approach from our point of view, conceivably some of the enhanced standards should apply to more firms with lower levels of assets and others with higher levels. I think either type of approach is something we could work with them would be supportive of. Madam chair, thank you for being here and i appreciate the information you provided. Mr. Chairman. Thank you. Think mr. Chairman. Welcome chairwoman, its always good to see wit you and thank yu for your service. I appreciate your comments with respect to the opiate epidemic. In about of the seven and impact. Every time we i go home we have difficulty in hiring but theres so much going on with respect to our economy because of it. Another area like to have a discussion is housing. In both northern and Southern Nevada i frequently hear concerns about the Housing Market from my constituents. In northern nevada home prices have been rising sharply and theres a lack of available inventory particularly for people seeking to become firsttime homebuyers. The rental vacancy rates are extremely low. And Southern Nevada we still have the worst rates of homeowners being underwater on their mortgages. And thats a decade after the recession. Recent data suggest that las vegas has the worst rental affordability crisis for lower income households of any major city in the country. Can you discuss the rule that Housing Affordability has in the Overall Health of the u. S. Economy. And, can we count on homeownership to be the primary source of wealth building for Younger Generation like it used to be at one point . Well housing plays an Important Role in the economy. Although housing construction, Residential Construction is not an enormous sector, housing has very important influence on Economic Performance and on the health of consumers for such a large share of americans, the house is their most important asset. Housing prices affect wellbeing, their wealth and availability of credit nexus and ability to borrow. So the health of the Housing Market is extremely important. So when it comes to the Younger Generation that i talked to grew up through the housing crisis. At one point time owning a home was the best investment you can make, i dont know if they think that anymore. To think that is something that will be of concern for future and for the Younger Generation when it comes to owning home . Theres always been a big debate about whether or not housing is the best investment that one can possibly make. I agree with you in the aftermath of the crisis views on the matter changing. Im not going to look at a personal view as to whether or not thats true. But for all but those individuals with very strong credit, its extremely difficult now to gain access to mortgage credit. We do have overall i would say a shortage of housing. Whether its owneroccupied housing or rental housing, relative to what you think would be a normal pace of household formation in this country. Inventories are low, we have seen a significant pink up and production of rental housing. Thank you. We go back to another issue i hear from my constituents. As you know, the Interest Rates have been raised four times since 2015. This generally helps banks revenue since they can charge more to lend money. But what i hear from constituents, particularly savers is that they do not see any benefit or Interest Rate increases that help them when they want to save their money. So, when anticipate the effect will be felt by savers. Unfortunately there is a lake in terms of when retail depositors see an increase in their rate. We are beginning to see for those who hold large cds for example that its possible to obtain a higher rate. But especially with rates having been so low for so long, i think it will take some time before Competition Among banking organizations begins to drive up the recess smaller retail depositors have. I think that will occur but it will take a while. Thank you. Senator corker. Think mr. Chairman. Madam chairman, thank you for being here. Im glad to see some of the lussier making. Another spent a lot of discussion about productivity and thats been going on for some time. For many years the only game in town as it related to dealing with the economy was Federal Reserve. Congress is in a place where likely no action what is going to be taken. So everybody with a predecessor and even your term relied upon the fed to be doing things that hopefully stimulate the economy and move things ahead. Which is too much of a burden for the fed. We should be taking actions ourselves. Were finally the place where maybe, staffordshire of course, maybe we will be dealing with some things as we deal with fiscal issues and other issues that relate to the economy. One of those coming up could be tax reform. We been in a situation with low inflation below where you would like for it to be. Productivity below where you would like for it to be. These are not questions to lead in a particular direction, but his tax reform one of those things that should congress pursued in a productive manner could be really helpful as collateral to move the economy ahead in a more rapid way . I would certainly agree that appropriately designed tax reform could have a favorable effect on productivity. Of course it depends on the detail of what you do. I dont have numbers to give you, but certainly there are distortions in the tax codes that i believe are negatively impacting productivity. So i think there is scope there to have a favorable impact on longterm Economic Growth. One of the things will be debating both sides of the aisle, we have huge fiscal issues as a nation, obviously constraining spending is one of the ways we will want to look at to keep her deficit town. Growth is really the easiest way to move away from the issues that we have. Mr. Mulvaney was in my office this week, tax reform is beginning to be something of discussion. I know the Current Administration wants to see growth get into the 3 range to move beyond where we have been for some time. His tax reform from your perspective something that, if done properly has the ability to move us into a much higher growth rate in the United States . As i said, i think it is something that could have a favorable impact if appropriately done. Productivity growth is something very hard to move. If you put in place a policy that predictably raises productivity growth a few tens you probably regard that s a very good payoff. So the numbers typically the study show when you do have a positive impact on productivity is not a percent or percent and a half, its hard to raise productivity growth. I think it was in the right direction, but it is challenging given the last five years productivity growth has averaged a half percent. Last decade Something Like 1. 1 . Overall growth for the economy is productivity growth plus growth of the labor force. Labor force growth is declining and quite low. It is challenging to move productivity growth up that much. I Hope Congress and the administration will focus on changes that will succeed in accomplishing that. How much would productivity growth need to be to achieve a stable Economic Growth of 3 . Gdp growth. I dont have the precise number for you, but it probably have to rise to something over two. Productivity over two to get Economic Growth to three. And these are not leading questions, because will have a significant debate about that. , do you think its achievable for a space on the things they see right now to even achieve a 3 growth . In the next fiveyear time. I think it is something that would be wonderful if you could accomplish it, i think is challenging. You think theyll be difficult . I think will be quite challenging. Thank you. Senator corker give you welcome, he gave you five year window, how likely is it that well see a 3 growth in the next two years . I think that would be quite challenging. We heard that. So i think their strategies we should all pursue because i think that has to be one of the goals and fiscal and Monetary Policy to look at what we can do to get out of the flat growth rate of 2 . I think there a lot of people now basically say were in a per natural 2 growth, the economies to mature and too sluggish to ever get there. So i think its critically important to examine strategies together on very real strategies, not makebelieve just asking for productivity so you can masco political agenda. So i will just leave it there. What percent of export growth in the last two years to think has been related to commodities in agriculture . Im sorry dont have that number in front of me. I can get back to. That be great. I think what youre going to find a set when you look at export growth, one of the Great Stories has really been an increase in exports of oil and increase in exports of energy. And certainly agriculture exports are great story will talk about balance of trade. Unfortunately right now as you know, commodities are getting hardhit. North dakota is a commodity dependent state in many ways. The dollar value being high never help us in my opinion. But we are challenged with bad weather but we are also challenged with a lot of uncertainty in the trade sector. Ever going to continue to have the trade regime that we currently have an after . Are going to be able to do things in a bilateral contacts in the asiapacific ground that will replace the promise of tpp . These are great challenges. How do you see the trade policy disruption having an impact on agricultural exports . I really dont want to weigh in detail to trade policy which is the responsibility of congress. In the administration. But you would agree that it is part of our opportunity for Economic Growth and part of our Overall Economic critical component to our Economic Growth. It certainly has spent. Think we all understand the benefit of low Commodity Prices in terms of bringing down costs of production for companies in the increase of disposable income for consumers. At the same time we havent seen the same type of abuse that you would suggest even taken a look at what is happening with gasoline prices and Natural Gas Prices is either an input in the Chemical Industry or as a major component of manufacturing costs. How are you weighing this is to consider further reduction in the feds Balance Sheet . We are considering the overall Economic Outlook relative to our objective submaximal employment and price stability. In Commodity Prices, energy and oil prices certainly feed into our view of the outlook. For example, the huge decline we saw in oil prices is certainly something that substantially depress investment spending with the United States although it was a plus for consumers. We are now seeing the pickup and drilling activity which is supporting spending on plant and equipment. But we need to look over all at all sectors of the economy. Ill summarize that by saying that although there are trends in different sectors, this year weve had 180 jobs a month. Lester slightly more about hundred 90000, this is been going on for a long time. We cant really control the distribution of jobs across sectors that have created, but it has been driving the stronger labor market with Unemployment Rates that are no at historically low level. Just lay down the marker, i would suggest that the reduction in Commodity Prices, whether agriculture or energy, when you look at job growth in those difficult times after 2008, large percentage of that job growth was equated to energy job growth. Its important to not just look at one side of the equation. And thats the point i want to make and any analysis on Commodity Prices in the context of the Greater National economy and productivity and a statement you can make on trade will follow up. Thank you so much senator tillis. Thank you mr. Chair. I want to thank senator cortez for consistently in the right committees bringing up the concern of Affordable Housing and i share virtually all the sentiment i have heard. I want to get back to i wasnt planning on it but senator corker brought up something im very interested in. We have to increase productivity. And at least in North Carolina when we were in a financial crisis we figured out a way to do that which had to do with tax code and regulations. I want to go back to regulations first. Probably sense. Frank what i met with the greenspan year and half or so ago he mentioned up to that point in. Frank some 350,000 jobs have been created that are called Regulatory Compliance. In your judgment, is that a job that improves productivity . We put in place regulations to serve important understand that, but in your professional judgment does a job that relate to Regulatory Compliance contribute to productivity. It is the cost of doing business. And its imposed for reasons that produce presumably benefit. If we take a look, their various ways going to similar growth. One will be by consenting Capital Investment in improving productivity, things that you can do by maybe clearing up or eliminating some of the distortions in the tax code. We also have to be mindful of what exceeds minimally necessary to ensure areas at risk. Thats also potential capital that could be deployed to productivity rather than Overly Burdensome Regulations which agree with that . Yes. I think all regulators should be attentive to burdens. You been generous with your time. Should thank you for taking the time to meet with my office and responding to questions weve submitted after committee meetings. Ive enjoyed the discussions. Could you tax reform is something we spent a lot of time in. Not our first two years because without to relieve regulatory burdens first ultimately find real tax reform. Here we will move to tax reform, hopefully soon. You mentioned there are certain distortions in the text if they were dealt with properly would have a positive impact on productivity or economic activity. Im not asking you to do her job but at a high level, could you give me insights into the areas you think are worthy of the most scrutiny as we go forward with tax reform . Again, this is an area i want to be careful not to wait into and give you any tape of detailed advice. I would say there is general agreement that there are distractions in the Corporate Tax code and opportunities for improvement. I want to go back to my remaining time. This is something senator rounds touched on. Probably other members to before i came here. If you imagine that all the tools that you currently enjoy, the stress test and enhanced standards for the largest banks, if they had been in place before the crisis, to think the crisis we have experienced wouldve been the scale of the crisis wouldve been reduced . Thats a difficult judgment to render. But, i do think we have much stronger capital, much stronger liquidity. I think its important to recognize prior to the crisis we had many significant, large standalone investment banks there were highly leveraged. A try to develop a reputation to be close on time. I got a great response interpersonal meeting so i wont ask you to repeat it, but what i would like to see our right sized applications of these regulations. Id like to see rational thought placed on how the regimes are applied to institutions, not based on some arbitrary of 50 billion, seems to me that should only be a data point in the nature of the business and the risk they represent should be the driving factor of Going Forward and rightsizing the regulations,. I agree with that. As i said in response to earlier question, one way that congress could approach this is to increase the dollar cutoffs. An alternative is to look at individual organizations and the factors. I would like one of the things will do is maybe put more meaning to that. Everyone agrees in the abstract but we need to get to a point where you regulate based on the risk of specifics of a targeted business. Instead of raising the number to 50 billing to whatever an index it over time. We can pretend were done but were missing the opportunity to make sure your resources are focused on the areas with the most risk in a way for the businesses that dont. Im sorry i went over. Thank you, senator kennedy. Thank free service madam chair. I think i read the last couple of days that core growth have been readjusted 12. 4 was that right . Yes. What would you do to improve on that. The variable from quarter to quarter and we expect significantly stronger growth in the second quarter. So, it certainly looking at the performance of the economy, swing through the volatility. During that we have an economy that is grown over the last number of years by about 2 per year. 2 has been sufficient to create a very large number of jobs in a tighter labor market. Of course, its good to have more jobs in a tighter labor market. The fact that could be accomplished with 2 Economic Growth points to what is very disappointing, namely the potential of the u. S. Economy to grow is very low. Most i believe cbo and are committee estimates that the economies longer run potential to grow is currently under 2 . But my question, i apologize for interrupting but my question is, if you had unfettered discussion and were averaging 2 growth and you wanted to get as close to 3 as you could, which would be considered normal before 2008, if you had unfettered discussion, what would you do. This is really not a job for the Federal Reserve, its a job for congress and the administration. , asking for your advice. My advice would be to focus on all of those factors that determine productivity growth and that pertains to tax reform and the efficiency to which the economy operates. I would focus on training, education, on the quality of Human Capital in this economy. A focus on investments both public and private, i would focus on policies that impact technological change in research and development. There are wide range of policies that are in everything on my list. So it is that set of channels that i think is important in boosting the economys potential to grow. Did we make a mistake been away from glasssteagall . I dont believe glasssteagall was responsible for the financial crisis. I dont see that as a major issue that was responsible for the financial difficulties. Dinner move away from it contributed . Or was it irrelevant in your judgment . The largest distress was suffered as standalone investment banks. There is a product of glasssteagall. The fact that those investment banks are now all major are part of the Bank Holding Companies with a stronger capital regulation is an important safeguard. Okay. The vocal rule was designed to stop proprietary trading and banking organizations with which i agree. It was intended to permit marketmaking. The implementation of it has been very complex and burdensome. We have suggested that Community Banks be exempt from it entirely. Should we get rid of it . I would not get rid of it. I believe the treasury report suggest maintaining the restriction on proprietary trading. So i would not get rid of it, but i would look for ways to simplify. The last question, would you accept for reappointment . So it is something that i really dont have anything to say about at this time. Im really focused on carrying out the responsibilities that congress has assigned to us. I have not really decided that issue. Thank you for your service. We are approaching 1130 which was the stop time. I hope we would be able to me. Senator brown has asked for warmer question in his welcome to do so. If reappointed id be happy to join senator kennedy in supporting your appointment. A Ministry Said that, but i think you did. Im very mindful of the chairmans 1130 meeting that the republican conference s. Im grateful for giving me one series of less questions which will not take the whole five minutes. Dodd frank and a rule protecting consumers from the practice of doing so would be in the public interest. In 2015 they publicly released a study of the impact of forced arbitration, agreements on consumers, the bureau released limiting the use of force arbitration and consumer contract. A monday release the final role. During that time, they surveyed consulted with experts or prudential regulators like you, if any of it if any of your staff had safety concerns about this rule to think they would have raised the concerns with the cfpb during the rulemaking process . I know my staff consulted and i think they wouldve but im not certain what those consultations were. And if the rose likely to impact the safety of the u. S. Banking system, do you think it would be unusual that no staff of any of the prudential regulators would raise concerns about the rulemaking process . I assume they might well have. Thats why thought it was unusual. I was surprised to see the acting controller understanding the short time there is short horizon to stay there that he raised issues with this rule so late in a twoyear process and mention safety and i think the director clearly explained the efforts that have been made to consider impact. So i just close with asking unanimous consent to answer the letters on this issue into the record. Without objection. If id known if you were going to go to the arbitration rule i wouldve rethought going back into that issue. We will discuss it further probably. Thank you for being with us today. We always appreciate the opportunity we have to discuss issues with you. For senators who want to summit questions for the record, thursday july 20 is the due date. I encourage you if you receive questions to please respond promptly. With that, this hearing is adjourned. Thank you. [inaudible] [inaudible] [inaudible] [inaudible]