Transcripts For CSPAN3 Janet Yellen Testifies On The U.S. Economy 20170713

Welcome. Promoting Economic Growth remains are top priority for this committee and this congress. It is carefully and thoroughly evalwaiting current laws and regulations. There have been numerous developments that will impact Economic Growth legislation. Senator brown and i have so police sa solicited and more than 100 submissions have come in. They are listed on the committees were site. They issued their second report. The Treasury Department issued the First Department in it is finding ways to help our economies improve. Support for Bipartisan Legislation continues to build. Particular interest has been focused on finding bai partisan, change the threshold, exempt certain terms from stress testing and simplify small bank capital rules. These are just a few of many issues raised to the committee in recent months. Imposing enhanced standards design for the most complex system on institutions that are not systemic has real world implications. I regularly hear from idaho men and women who are concerned about access to Business Loans that would create jobs and promote a healthy committee. The threshold is an area which we would address. There are different ways enhanced standards one applied. All have questioned whether or not it is appropriate. The Federal Reserve governor powell acting controller, former Federal Reserve and former have all expressed support for changing the 50 billion threshold. In addition to the 50 billion threshold Federal Reserve shared specific areas where the feds believe some laws and regulations can be changed to alleviate including the stress tests and resolution plans among others. I look forward to working and welcome any additional color that you can provide on which congress may act together to further reduce burden. It is one of my key proi oiorit. The Current System is not in the best interest of consumers, taxpayers, investors, lenders or the broader economy. I was encouraged that Federal Reserve governor powell gave a speech. He also noted that as memories of the crisis fade the next few years may present our last best chance to finish these critical reforms. With respect to Monetary Policy the feds have raised Interest Rates four times since 2008. It maintains with a Balance Sheet that stands at 4. 5 trillion. Last month the open Market Committee opened an addendum and plans detailing how the fed will gradually reduce its assets. I welcome about the state of the economy and the path of Monetary Policy. It is to address many of these issues outlined here today. I look forward to working with the Federal Reserve and members of this committee, senator brown. Thank you for holding this hearing. Welcome back. Its wonderful to have you here and see you again. Thank you so much for your service. Since your last appearance the feds have increased the federal funds rate twice. Employers continue to create jobs although at a slightly slower pace than last year and wages have increased modestly. The feds continues to lay out securities that it purchased during the crisis. The biggest banks are making record profits, important to remember that. Biggest banks are making record profits just passed the feds 2017 stress tests. Too Many Americans continue to struggle to make ends meet. They boar ri their dhirn will not have Economic Security they once had. Life expectancy in many parts of the country is falling, something more or less unprecedented. It is than any zip code in the United States of america. I see the difficulty that people in my neighborhood and my zip code have been rebuilding their lives. Even though the wealth gap between white and black families have widened they want to let wall street gamble with the Financial Futures of working families once again. For working americans is back in style in parts of washington from the Treasury Departments report to the financial choice act to the houses financial apropuations bill. It is watchdogs who are of wall street, by wall street, for wall street. Ten years ago he sat in the seat that you occupy. After describing the Economic Conditions and housing and business sectors he told our committee he smoke abopoke abou mortgages but he concluded overall the u. S. Economy appears likely to expand at a moderate pace over the second half of 2007 with growth then strengthening a bit in 2008. We must not forget what actually happened next. A financial devastating financial crisis in maryland and arkansas and all over, working families across this country cant forget that. They are still digging out for can we forget it. I mention it not as a criticism. He had plenty of company and missing the signs of an impending crisis and collapse. Having passed the test once they want to make the test easier. Im sure every College Student you taught in your career would have wanted the same thing. They unlike our nations biggest banks would have been too embarrassed. It was caused in part by watchdogs who were busy focusing on bank profits. They were treating consumer fairly. Everyone on this can agree there are parts of wall street reform that can be improved. Of course there are. Our focus should be on growing a stronger economy from idaho to ohio and beyond and particularly in communities too often forgotten in this town. It means protecting consumers and improving the Economic Security of communities of color. It means strengthening the working and middle class families who felt the devastation of 2008s financial crisis. It means lowering the cost of health care. It means expanding Educational Opportunity and job training. Thats how you spur longterm Economic Growth that lifts up all americans. Weakening safeguards to boost bank profits. In crossing our fingers that wall street will invest we hope instead of just passing it along to their shareholders it will only hasten the next one. I look forward to hearing your answers to our questions. Thank you. Thank you senator brown. Welcome here. We proeshuate you being here today. My understanding is because my testimony is the same as the testimony you gave yesterday at the house that you requested to waive the reading of your testimony we agree with that. We will proceed directly to the questions. Very good. And we have five minutes each for questions. We will try our very best. We have a lot of time pressures today. We will try our very best to help you keep on course with your five minute question period. It is to change the system to attract large amounts of private capital and to identify and build upon areas of bipartisan agreement. Do you agree with these . Yes. I do. I would support the principals that governor powell put forward and say its something i Hope Congress will move to in the near future. And i know the answer to this but i would like to have you say it. Do you agree with the urgency that we expressed about the need for us to act . Yes. It has been almost a decade since they were moved in to receivership and the role of the government and the associated Systemic Risk remains, and i think its important to move forward with reforms. Go thank you. There appears to be growing consensus they should change the threshold and also changing the rule, exempting certain and reducing burdens on Community Banks and credit unions. Do you agree it would be appropriate for congress to act in each of those areas . I do. Thank you. Could you please give the committee after the hearing some additional suggestions or legislation they could reduce the burdens in these areas . We would be happy to do so. Thank you very much. At our hearing last month they said the Federal Reserve is reviewing the rule. He noted that there is room for eliminating or of regulation that dont directly bear on the rules main policy goals. Can you elaborate on the rule . We look forward to boricing with the other agencies that have a roll. It is a very complex rule partly reflecting the legislation, but i think we could find ways to reduce the burden and it should be a multiagency effort. And many of us are aware that the multiagency effort has been slowed down. Many of us believe because of the complexity of getting four or five agencies to all agree on the same thing. Thats true. Yes. What do you think about the idea of having a designated lead agency on this issue . I think its something the congress could certainly consider if one agency has a larger regulatory role with respect to those institutions. It might be natural for it to take the lead. Thank you and at our last hearing you told me we would like our Balance Sheet to again be primarily treasury securities. We have had holdings of Mortgage Backed securities. The fomcs plans to reduce the plan sheets include not reinvesting securities and 4 billion of Agency Securities per month. It is suggesting the feds may wind down more quickly than the Mortgage Backed security portfolio. Ultimately when the caps are fully phased in my guess is that they wont be binding and that well be running down Mortgage Backed securities at the rate that the principal is received on them. It will be a long process, i should say, to go back to the portfolio even after we have come to the point where our Balance Sheet has been reduced to as low a level as we expect to take it. Well still have substantial holdings of Mortgage Backed securities. So beyond that we will be running further and runningrefo with franklin roosevelt, 1965 Lyndon Johnson with medicare, that Congress Goes back to those issues bipartisanly and makes modest changes to fix them. Something weve been asking republicans to do with the Affordable Care act. The same with doddfrank. Instead weve seen a House Services committee that wants wholesale destruction. Of course we will work on making the kinds of changes that what ellen has spoken about in making those reforms. Madam chair, you recently stated you do not expect another financial crisis in our lifetimes. Setting aside the delicate question of your and my and all of our life expectancies, is that predicated on maintaining the strength of the current regulatory structure. Let me state what i think i should have stated originally when i made that comment. I believe we have done a great deal since the financial crisis to strengthen the Financial System and to make it more resilient. I think we can never be confident that there wont be another financial crisis, but we have acted in the aftermath of that crisis to put in place much stronger capital and liquidity requirements for systemic banking organizations in the Banking System where generally i think our stress testing regime is forcing banks to greatly improve their Risk Management and Capital Planning. Its giving us assurance that even if there is a very significant downtown in the economy, that they will be able to function and provide for the credit needs of the economy and weve greatly increased our monitoring of the Financial System for a broader range of risks. But let me say we can never be confident that there wont be another financial crisis, but it is important that we maintain the improvements that have been put in place that mitigate the risk and the potential damage. Thank you. I just want people listening not to read your answers from the chairman about moving on reform and moving that there is some urgency to that and we dont want changes. We want them to be modest. Let me sort of further paint that picture with this question in light of your comments to me that you may not expect another financial crisis in our lifetimes. But the importance of a good regulatory structure diminishes the chances dramatically. If so, the recommendations of the treasury report that youre familiar with that obviously the way it was written you didnt seem to have a lot of input. Weaken regulations on the largest banks, including fewer Consumer Protections. If those were adopted, would you continue to have that same level of confidence that you just repeated. So i wouldnt be in favor of reducing capital for the most systemic banks. And Consumer Protections . I think those are important as well. There are a lot of things in the treasury report that we agree with that mirror things that were doing on our own to tailor regulations. But for those banks its critically important to maintain the capital standards. If we were to adopt the treasury report recommendations, it would more likely result in a potential financial crisis. Well, some of them, yes. Okay. Last question i wanted to ask. I wanted to return to a topic i discussed several weeks ago with your colleague governor powell. The biggest banks Capital Requirements, quote, are still somewhere below where they should be. Contagion from one of these banks spreading to the rest of the Financial System. Is the fed on track to finish these changes . Were working very hard on those. Were awaiting further work by our staff. We hope to include those surcharges and make other adjustments and to better integrate the Capital Requirements relating to the stress test into our normal capital regime. Can you give us with assurance can you assure us those changes will be in place for next years stress test . It depends on the timing. We will need to go out with the proposal and i cant guarantee that it will be in place that quickly. But you dont see the fed heading in the direction of the treasury report recommendations instead . The treasury report is supportive of integrating a capital buffer relating to the stress tests into our regular risk based Capital Requirements. But probably is not supportive of including the surcharges. More than probably. Thank you, madam chair. Senator shelby. Thank you. Welcome again, chairman yellen. In the area of inflation calculations which you have to deal with and price stability, which is very important to all Central Banks and to us, current fed calculations show that inflation has fallen to 1. 4 , i believe. This statistic is puzzling to some economists as Interest Rates were recently raised in june. Some have suggested that the fed should not continue the practice of gradually raising Interest Rates, because inflation has not kept pace as with some of the things that you had talked about earlier. You said in recent testimony, it appears that the recent lower readings on inflation are partly the result of a few unusual reductions in certain categories of prices, your words. Yes. In addition to these few unusual reductions here, is it possible that certain aspects of foreign economies such as slow growth and soft prices in china are artificially lowering or influencing inflation in this country. Or what is it . Whats going on here . Do you know and if you know what do you believe . Well, with respect to the Global Economy, weve been through a period in which theres been a substantial appreciation of the dollar and that depressed for quite some time import prices. But that trend has now come to an end, and import prices are rising at a modest rate. So i dont see the Global Economy as at this point mainly responsible for the low inflation readings. I do think there are some special onetime transitory factors. These unusual changes reflecting the move to unlimited data plans for cell phones and large declines in some Prescription Drug prices. There may be more going on. And were watching inflation very carefully in light of low readings. I think its premature to conclude that the underlying inflation trend is falling well short of 2 . I havent reached such a conclusion. We are watching data very carefully. And i would say i regard the risk as being twosided with respect to inflation. On the one hand, we are seeing low Inflation Numbers for several months. On the other hand, we have quite a tight labor market and it continues to strengthen. And experience suggests that ultimately, although with a lag, were not seeing very substantial upward pressure on wages, but we may begin to see pressures on wages and prices as slack in the economy diminishes. So i see the risk with respect to inflation as being twosided. And with respect to have that policy, most of my colleagues and i, when we looked at this matter in june, even recognizing that weve had several months of low inflation readings and that we are focused on trying to understand it, have felt that it probably remains prudent to continue on a gradual path of rate increases. But its something we will watch very carefully. And i want to emphasize that Monetary Policy is not something thats set in stone. If our evaluation changes with respect to inflation, that will make a difference. This economy has been in an expansionist mood for quite some time. A lot of economists say this is a mature economy. Would you disagree with that . Do you believe this economy has a lot more zip in it . Weve had a long expansion in the unemployment wages now at really quite low levels in a historic sense. But i do not believe that expansions die of old age. There are shocks that impact the economy and a negative shock should end the expansion. But i dont see anything inherent in the nature of the expansion that suggests that it will come to an end any time soon. My time is about gone. What significance is the continuing lower price of oil and gas in our economy . I know you exclude some of this from your basic monthly calculations. But it does have something to say and do about our economy, because so many things go into oil and gas. Well, its the low prices of oil and gas have translated into gains to households. Its boosted their ability to buy other goods and services. Overall very positive in the country . I think on balance its a positive. Sure. Now, oil prices have rebounded off their very lows. And thats meant that drilling activity has picked back up again. And thats something that is supporting investment spending and demand in the economy. Thank you. Thank you. Senator menendez. Thank you. Madam chair, thank you for your service. When you were here last in february we discussed the Economic Impact of loss to access to Health Insurance. You said then that large scale loss of access to Health Insurance could have a Significant Impact on Household Spending for goods and services. That could also impact job mobility, make it more difficult for people to leave jobs for new positions or start a new business because they would be risking their access to Health Insurance. Is that a view you still hold today and why . I really cant quantify any of those effects, but clearly spending on health care is an important aspect of Household Budgets and changes there could have an effect on spending on a wide range of goods and services in the economy. Access to health care is important. I think Research Suggests that a certain amount of socalled job lock reflects a desire of workers to hang onto Employer Provided Health care. I cant tell you quantitatively, however, how important that is. In your testimony you mentioned that possible changes in fiscal policy and over governmental policies in the United States represent a source of economic uncertainty. Right. Would you include potential changes to our Health Care System as one of the factors causing uncertainty in the Economic Outlook . Yes. I think fiscal policy, policies generally are associated, the level of policy uncertainty is quite high at the moment. I certainly believe that if a potential 22 million more americans are uninsured by 2026, that its going to cause premiums to skyrocket for middle class families and those nearing retirement, that thats going to have an impact on the economy. In new jersey alone wed see a million more uninsured under the republican proposals, a 47 increase in uncompensated care, 18. 5 billion lost in federal funding, the elimination of nearly 100,000 jobs. I think that has an impact on the economy. Let me move to a different topic. What would be the consequences of weakening or eliminating, as some have suggested, the fed reserves full employment man date, particularly for those workers that have been left behind in the recovery and continue to face barriers in the job market . I believe that the strengthening of the job market that weve seen over the last several years has been particularly beneficial to minorities. Our Monetary Policy report points out and this isnt the first time weve done this even in a socalled full employment economy, unfortunately africanamericans and hispanics have typically higher Unemployment Rates, substantially so than other groups. My specific question is what would be the elimination or weakening of your full employment mandate mean to those communities . If the Federal Reserve either by some suggestion eliminate the full employment mandate that the fed has or weaken that as one of your core missions. What would be the consequence . Its an important mandate that keeps us focused on the labor market and wanting to ensure strong performance. And we have been very focused on it. Of course, we also have a price stability mandate. Now, inflation has been running below our 2 objective now for many years. And so there has not been a conflict between our price stability and employment mandates. Im not suggesting that. Im simply suggesting that if you were to eliminate or weaken that, wouldnt that have negative consequences . It most likely would. Let me ask you finally, how does we see highrising levels of Household Debt, widening inequality, a neutral Interest Rate at historically low levels. To me its critical that the fed have the ability to respond in the event of another economic decline. How does below target Inflation Impact Household Debt . And what signs do you see of inflation coming close to the feds 2 target, let alone exceeding it by dangerous amounts . As i said, i think the risks with respect to inflation are twosided. But were very aware of the fact that inflation has been running below our 2 objective now for many years and were very focused on trying to bring inflation up to our 2 objective. Thats a symmetric objective and not a ceiling. We know from periods weve had deflation, which of course we dont have in this country, but that something that has a very adverse effect on debtors and can leave debtors drowned in debt. Now, we dont have a situation nearly that serious, but it is important when we have a 2 inflation objective to make sure that we achieve it and were focused on doing that. Thank you. Thank you, mr. Chairman. Thank you, chair yellen. Thank you for your accessibility as well. The last time we chatted, we talked a lot about the unwinding of the fed portfolio which i think today is about 4. 5 trillion or so. I think at the beginning of the crisis it was under a trillion dollars. Can you just talk for a few minutes on the timing of the unwinding and if you have a target number at the end, when would you see us getting there . I think my question is germane to the impact that your objective will have on south caroli carolinaresidents that are looking for ways to improve their quality of life. And that coupled with the Interest Rate may have a negative impact on first time home buyers as well as retirees that have much if not all of their money in the market. Let me see if i can be responsive to that. Our intention is to shrink our Balance Sheet and the quantity of reserves in the Banking System in a slow, gradual, predictable way. And we have set out a concrete and detailed plan for how to do that. And it involves reducing the extent to which we reinvest principal payments that we receive on our holdings of treasury and Mortgage Backed securities. So when we set the plan into effect, we will set caps on the amount of reinvestment that we allow to occur. The caps will gradually rise over time and our Balance Sheet will gradually run off as a consequence of reduced reinvestment. We want to make sure that we manage this in a way that is not disruptive to Financial Markets and in part for that reason, we have tried to set out increasingly clearly and in great detail how we intend to proceed. So once we trigger this process, i expect it to run in the background, not something that well be talking a lot from meeting to meeting. It will be a predictable process. Now, we think that our purchases of assets did have some positive effect in depressing longer term Interest Rates. So over many years as our Balance Sheet shrinks, we would expect to see some increase in longer term Interest Rates relative to shortterm Interest Rates. But of course we will take that into effect, namely a steepening of the yield curve in how we set the federal funds rate, which will become is now and i hope will remain our primary tool for adjusting the danstance of money policy. And we will set that as always with a view towards trying to achieve maximum employment and price stability. Finally you mentioned that our Balance Sheet was around a trillion dollars prior to the crisis. Thats true. But its important to recognize that although our Balance Sheet will shrink appreciably during this process as will the quantity of reserves, every no expectation of going back to a Balance Sheet that small. One of the factors influencing the size of our balance i have about a minute left. I hate to cut you off. I want to go to insurance. As we talked about the depressing of Interest Rates which can be very positive for first time home buyers, its very negative for those retirees on the return on their investments to produce their livable income, so to speak. On the insurance side, we talked as well on the importance of having influence expertise. I think mr. Woodalls term expires september 21st or thereabout. Today we could be absent of any insurance expertise on the fsoc. Would you support ledgislation that would head in the direction of making sure that the insurance expertise stays on the fsoc. I do think its important for fsoc to have insurance expertise. Exactly how you go about accomplishing that, i dont have a specific recommendation. Thank you, maam. My time is about up. I want to encourage our chairman and Ranking Member brown to continue their work on making sure that the fsoc has that continuous insurance representation. Senator warren. Thank you, mr. Chair. Chair warren its great to see you again. Its great to be asking somebody a question that doesnt have to deal with russia. You know, chair yellen, recently i know the fed moves pdctively to scale back the portion of the c card test. Many of those i support in terms of maybe folding c car into the traditional review so its not on a dual hatted. I do think that c car for the largest institutions is important and in a sense not broadcasting the methodology youre going to use before you do the test is important. Id like to get your views on that and how you see the either that continuing reform which i know youve already gone ahead and moved proactiviely fo banks under 250 billion. Is there some value for keeping c car in place for the largest institutions . So i do believe our stress tests and c car have substantialsubstantial ly strengthened especially the largest banking firms. I think we have in the process gained assurance that these firms have enough capital to be able to survive a very adverse stressful scenario while continuing to provide for the credit needs of american households and businesses. Weve looked carefully at c car and how we conduct the stress tests. And were continuing to do so, are open to making changes. But let me say that conducting these stress tests in a rigorous way and making sure that firms have the capacity to be able to meet our Capital Planning expectations, which c car has facilitated is critically important to having a sound Financial System. I cant really see our putting the models into the public doma domain. We have been making public the results of the stress test. I think thats an important part of transparency thats strengthened Market Participants understanding of the strength and weaknesses of particular banking organizations. And i think its something thats helped to provide market discipline. We have tried to make it less burd burdensome as you noted for the 250 billion institutions. Its conceivable that one day if the largest institutions were to show on a regular basis that they have in place very strong Capital Planning standards that meet our expectations, that perhaps could change the qualitative portion. That remains an open question. And this core part of our supervision thats essential. And i commend in terms of moving up to 250. And i even say maybe regional banks would be even slightly higher that might be afforded some relief. I would argue that its less about kind of annual basis and would be more triggered by on the qualitative piece if they change their line of business or introduce a series of new products. I agree with you that broadcasting it on the front end might not be the right way to go. Can you speak for a minute one of the ways we saw in the crisis was as a lot of Financial Transactions moved into the shadow Banking System, in a sense i think we scoop a lot of those back in 2008. We did. Capital moves fairly quickly. Where do you see the shadow Banking System in 2017 where there may be vulnerabilities or areas we ought to reexamine. Were constantly looking for vulnerabilities and recognize that risk can move outside the regulatory perimeter. I dont have something specifically to highlight. I would note that with respect to shadow banking, the changes that weve made with respect to money market mutual funds have reduces what is a very important detablizing risk. We have made a number of changes with respect to the Tri Party Repo market that have reduced risks there. I do see changes that have been made with respect to shadow banking that have diminished risks, but we are on the lookout for areas where new risks may be emerging. Senator cotton . Thank you. Welcome back. Much has been made about the slow pace of the recovery over the last eight years. One aspect of the recovery that doesnt get quite as much coverage is the geographically distributed nature of the recovery. Its been concentrated primarily in larger metropolitan areas. If you look at Small Business creation, just 20 counties in this country accounted for over half of all Small Business creation. Growth and new businesses was only 3. 9 . In counties with fewer than 100,000 residents it was 8. 4 . In small counties of fewer than 100, its negative 1. 2 . In arkansas we call counties with fewer than 100,000 people counties, because theres only seven out of 75 that have 100,000 people. On page 19 of the most recent report the fed states that measures of Small Business Credit Demand have remained weak amid stable supply. I understand that banks Small Business lending is weak and its never really recovered to precrisis levels. In your testimony you also attribute the outcome to weak Small Business demand for credit and you say that the supply of Small Business credit is stable. How do we know that the weak Lending Demand is the cause of this weakness in Small Business lending and to a degree the contributing factor is not a supply of small Business Loans in communities banks in places like rural arkansas. We have a number including our regular survey on lending standards and banking organizations that helps us try to distinguish between demand factors that may be affecting the growth of credit and supply factors. And the statement that demand is weak is partially based on that information. We do have surveys like the National Federation of independent business that regularly queries smaller businesses and asks them about the problems that they face. And a very small number cite inability to gain access to credit as a significant factor, reflecting their businesses thats affecting their businesses. But Community Banks are important sources of supply of credit, especially in rural areas to Small Business and we are very committed to reduce the burdens that these firms face from regulation so that they can thrive and they can meet the needs of consumers and Small Businesses in their communities. Does your study and analysis show what Small Businesses do in places like Cleveland County and Dallas County arkansas when their small Community Banks close or maybe are acquired and their presence is reduced to an atm location. If youre a Small Business and you used to rely on your small bank in Dallas County, that bank is no longer there. Im not aware of data that bears on that. There may be something. If there is, i will get back to you on that. Thank you very much for your testimony. Thank you for your leadership. Its great to have you here. The last time you were here we talked about some of the economic, you know, the situation in the country, specifically as it related to wage growth. Even as we have seen fairly steady job growth, we continue to see very sticky, stagnant wage growth. You indicated that that is partly a result of low productivity even though over decades even when we had higher productivity, we saw very unevenly distributed wage growth. And you mentioned that we need to do more in the way of investment and education, job training, whether its things like apprenticeships, Community Colleges, four years. I know youve made comments about that recently. I hope as we look at the budget here in the United States senate, we keep that in mind. And additionally the need to focus on modernizing our National Infrastructure which is another area of productivity growth where i think we could make some progress. I wish in fact we started here in the Congress Working with the white house on that kind of bipartisan initiative. So i may follow up with you on that. My questions do relate to some of the comments made by the Ranking Member. Senator brown reminded us on the eve of the financial crisis, most people were predicting didnt see the storm clouds ahead. Thats why we put in place some of these safeguards, these guardrails to try to make sure the economy could grow but without undo risk in the system. Yes. That obviously is the subject of ongoing debate now. I have a couple of questions related to the guardrails, the safety procedures we put in place. Orderly Liquidation Authority that was part of the doddfrank, do you believe its important to maintain and preserve that provision . I believe its essential to maintain orderly liquidation. We saw during the crisis that the absence of a way to resolve a nondepository institution, a systemic Financial Institution in an orderly way, led to a massive intensification of the crisis. Now, i agree that bankruptcy should be the preferred route for resolving firm difficulty. And congress in doddfrank mandated living wills and that we should work on the ability to resolve these firms under the bankruptcy code. I believe weve made a great deal of progress in getting firms not only to file these living wills but also to think systematically in the course of their regular business how they need to be organized to make them resolvable in the event of distress. We have put in place rules to ensure the most systemic firms have sufficient loss absorbant in a situation where they encounter substantial losses. Bankruptcy should be the preferred route to survive such a firm, title ii is a very important safeguard. One other question related to some of the safeguards that were put in place, because some have proposed eliminating either the leverage ratio or the capital buffer. Former governor said not that long ago that applying a simple leverage to banks in exchange for allowing them to escape doddfranks capital standards would allow banks to ditch safe assets in favor of riskier ones to boost profits. He and others have said its important to maintain both of these measures in order to prevent undo risk in the system. What is your view . I agree with that. A simple leverage ratio basically imposes a capital charge on a junk bond thats identical to the charge thats imposed on holding a Treasury Bill and that type of system can result in banks taking on a great deal of risk. So i believe risk based capital should be the most important form of capital regulation, that thats what should be binding and i see a leverage ratio as a backup catchall thats there in a belt and suspenders approach. But it shouldnt be what drives Decision Making in firms. So we have strong risk based capital. We now have an enhanced suppleme supplementary leverage ratio. These two things do need to be calibrated appropriately so the risk based capital is whats binding. And we are looking at the calibration of that suppleme supplementary leverage ratio, maybe having some unintended adverse consequences. Both need to be in place and they need to be appropriately calibrated. Thank you. Thank you for being here and for your service. I just have two quick questions. Im very concerned about global debt. The institute of International Finance recently reported that their estimate of total global debt is 217 trillion or more than 300 of global gdp. Do you agree with that . So i havent heard that number. That could be. I dont have that number. Of that, 60 trillion is estimated to be sovereign debt. We have about 20 trillion of the 60 trillion. With that as background, the four large Central Banks also have their largest historic Balance Sheets, japan, china, eu and u. S. Have collectively close to approaching 20 trillion now of Balance Sheet size. As you talk about reducing the size of the feds Balance Sheet, are you coordinating with these other Central Banks and looking at emerging market debt, particularly the 300 billion thats coming due by the end of 2018 relative to the size of your Balance Sheet here in the United States. I wouldnt say coordinate. We try to make sure we meet regularly and discuss our policy approaches, make sure that Central Banks understand how we are looking at our economies and policy options. I think the major Central Banks understand the approach that others are taking. But trying to ask in aggregate sense how much debt is outstanding is something that were not doing. Our economies are in rather different situations. While we all encountered weaknesses that were sufficiently severe that japan, the ecb, the bank of england, the United States, we all resorted to purchases of longer term assets to support growth. It leaves the bank of japan and the ecb. Are you concerned about so much of that denominated in dollars today . It is a risk. A significant amount of that is in china, but thats not the only country where there is substantial corporate dollar denominated debts. And certainly that is a risk that we have considered that affects the Global Economy. With regard to the feds Balance Sheet, its currently about 4. 5 trillion. Senator scott just asked earlier and i didnt quite get the answer. Is there a directional limit or a target that you have set at this point for the size of that Balance Sheet . You did say that you didnt see a 1 trillion Balance Sheet again. But is there a target and time period that youve discussed publicly about the size of that Balance Sheet . We dont have a target for the ultimate size of our Balance Sheet. What weve said 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 were done with this process is something we dont know. A lot has happened over the last decade to affect the demand for reserves. As this process occurs, we expect to learn more about how the demand by banking organizations for reserves has changed. But i do want to point out that the overall size of our Balance Sheet depends not only on the quantity of reserves but on the other nonreserve liabilities, importantly including currency. Back in 2007 the stock of currency at standing was around 700 billion. It now stands at closer to 1. 5 billion. Even if reserved were to shrink to zero, our Balance Sheet wouldnt go below 1. 5 trillion. You talk about this is a long recovery. Its been very weak but its been very long, almost nine years. The typical recovery is about five years. With Consumer Confidence being at a 13year high and yet Consumer Debt has risen again in the last couple of years, back to approaching 100 of Household Income. What are your concerns regarding the sfretrength of this market the policy coming out of washington relative to this correction in the longstanding weak recovery . And does the economy have energy to pop and recover from this extended period of weak Economic Growth . So i do have a reasonable level of confidence that the expansion can continue. And were trying to put in place a Monetary Policy that will facilitate that. Often previous down toturns following expansion have reflected inflation rising to levels that are unacceptable, forcing a tightening in Monetary Policy. We have a very different situation now with inflation running below our target rather than above it. Of course, as i said, we are attentive not only to downside but also to upside inflationary risks. And we are focused on that. With respect to Consumer Debt, i think households are generally in the 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 payments relative to Household Income is low. Of course there are risks in some areas that i wouldnt point to Household Debt as something that is, you know, flashing red on financial stability. Thank you. Senator warren . Thank you, mr. Chair. Its good to see you again chair yellen. I want to follow up on the letter i sent you last month urging the fed to remove the wells fargo Board Members who served during the scandal. 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 youre willing to use that authority if it is warranted. And thats the question i want to get at today. How could removal of these Board Members not be warranted, given the facts that we already know . You know the 2008 financial crisis completely inadequate Risk Management systems. After the crash, the fed established tough new rules for Risk Management. Those rules imposed higher Risk Management standards on bigger and more complex institutions, which means that wells fargo by law had to meet a very high standard. So lets lay this out. The wells fargo board of directors is ultimately responsible for Risk Management at the bank, is that right . That is a responsibility. Good. So the board is responsible. And heres what theyre responsible for under the feds own regulations. Processes and systems to integrate Risk Management with management goals in its Compensation Structure, and making sure there are, quote, processes and systems for ensuring effective and timely implementation of actions to address emerging risks. Wells fargo didnt come close to meeting those requirements. They established impossible cross selling goals and set up Compensation Structure that put enormous pressure on employees to open new accounts for existing customers. 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. Explain to me how the wells board can possibly have satisfied its obligations under the feds Risk Management regulation . So im not prepared to discuss in detail what is confidential, supervise ory matter. The behavior that we saw was egregious and unacceptable. It is our goal to understand what the root causes were of those failures. We do have power if it proves appropriate to remove directors. A number of actions have already been taken. And we need to conduct a thorough investigation to look at the full record to understand the root causes of problems. And we are certainly prepared to taken for Enforcement Actions i those are appropriate. I appreciate that. Because we already know a lot thats just in the Public Record and that wells itself has admitted to. And that in fact no actual human beings are held accountable. Instead theres a fine, which ultimately is paid for by shareholders, not by executives or directors of the board. Nothing is going to change at these big banks if that doesnt change. You know how i know that for a fact . Because in 2011 the fed fined wells fargo 85 million for illegally steering mortgage borrowers into costlier loans. And the fed specifically said those illegal practices were caused by, quote, incentive compensation and sales quota programs and the lack of adequate controls to manage the risks resulting from these programs. So the feds fined wells in 2011 for failing to manage the risks resulting from bad incentive compensation practices. And what did wells do . For the next four years immediately after that fine, 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 Directors who preside over the firing of thousands of employees for creating millions of fake accounts can keep their jobs, then i think every Bank Director in this country knows that they are bulletproof. And 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 you will use that power. Thank you. Senator sass. Thank you. Im very concerned about the most recently available data on job openings and job hires as you probably know. There are 6 million open jobs in america right now and yet job hire numbers are falling. I hear about this from Nebraska Businesses every week when im home. The difficulty they have in finding and retaining talent. What do you think the most prominent causes are of the mismatch between job openings and job seekers right now. So it is commonly the case with an Unemployment Rate as low as we have now that Many Employers would have vacancies and regard them and report that theyre 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 as a measure of labor market. With a 4. 4 Unemployment Rate, you should expect that there would be many firms that would find this. That said, i agree that there is job mismatch, that there are kinds of jobs that firms have had a good deal of difficulty in filling. I often when im asked about productivity growth and problems in the labor market, talk about the importance of worker Training Programs programs that have been devised in different parts of the country to try to enable workers who are having a tough time finding jobs fill the jobs that are available. And 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 a tight labor market. I hear many more firms telling me that they are doing their own training, putting in place and expanding Training Programs to try to fill these vacancies. Thank you for that. Im trying to get my hands around whether or not we think this is a new normal and somehow Economic Growth is going to solve this problem or whether we have a set of culture issues or training issues around mid career job changes in particular. Theres data that shows prime age males Labor Force Participation rates have been declining for over 40 years. Weve gone from about 4 40 years ago to pushing 15 i believe. Do you think this is a new normal . Weve had many decades of declining Labor Force Participation by prime age men and i think this reflects a whole variety of adverse trends related particularly to technological change thats eliminated many middle income jobs, those that can be replaced by technology, combined with Global Outsourcing and production. And 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 middle income jobs. And so this perhaps intensified during the recession. But it is a much longer lasting trend. Weve seen now unfortunately this is likely tied to the opioid crisis. Its tied to the problems that many communities have, you know weve even seen an increase in death rates due to deaths of despair, suicides, drugs. This is a very serious matter. I think there are social maladies all around us. If we had longer rounds, i would also ask you some questions about the new multicareer economy that weve headed toward and the fact that this institution is not at all nimble or prepared to think about what mid career job training looks like. One question on train. Exports from the u. S. To mexico have fallen 7 just in the last 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 commodities. Do you think that the u. S. Rhetoric around increasingly protection nis tone we seem to be speaking in a way that implies we might go to a trade war and were already seeing effects on certain commodities and exports . I am going to pass if you dont mind on this question. I mind a little bit. This is a matter thats well outside the domain of Monetary Policy and really is a matter for congress and the administration. I was going to ask you to keep your response short anyway. So thank you. Senator donnelly. Madam chair, thank you for your service to the country. Thank you. This is a subject that my colleague senator sass touched on a little bit and then you mentioned. We are in the midst of a severe opioid epidemic. Families, friends, personal add dirkss and it not only impacts Health Outcomes but has a real impact. The national Unemployment Rate is 4. 4 but the Labor Participation rate has gone down. People talk about the aging population, this and that. How much of a factor do you think the opioid abuse situation has been . I do think it is related to decline in Labor Force Participation among prime age workers. I dont know if its causal or its a symptom of long running economic. Particularly affected workers who have seen their Job Opportunities decline. This is something that has been going on for many decades. I suggest that many prime aged men who were not activity participating in the labor market are involved in Prescription Drug use, not always opioids. But we are seeing as i mentioned an increase in death rates which is extremely unusual. I think the United States is the only advanced nation that i know of where in these communities were actually communities, were seeing it especially among less educated men, increase in death rates partly reflecting opoid use and its, obviously, a very serious and heartbreaking problem. I have felt for a long time that, you know, if we the Job Opportunities are there if we could have somehow trained these individuals and gotten them tools to avoid this, and im not asking you to be a social scientist but i think you mentioned this, there seems to be a clear indication or a clear connection between this and the opportunity to go to a job, to get employed, to have success, and to in effect, have hope and dignity and purpose, it would seem to me. I would agree with you, and i feel that thats all of those things are bound up in this opoid crisis and are interacting in ways that are really quite devastating for these individuals and their communities. A little bit different topic but one that i think is going to be become more and more in the front of our windshield, because i think that, you know, if we look and Interest Rates start to go up one of my top concerns is the national debt. I think the debt already has an impact on future generations as the cost of borrowing is increasing. I think its going to get more expensive very soon, 260 billion plus a year, and you look at that and we have discussions here about how do we fund the National Institute for health which is going to cure cancer, cure diabetes, cure multiple sclerosis and all those funds we sit and try to figure out how do we get enoughp of, were spending 260 billion a year, just paying interest on our debt. Is there a Tipping Point coming up or is there a point that you look at and you go, this is really the Interest Rate goes up and you go, this is going to have a very, very Significant Impact. Fiscal policy with one known under current policy is on an unsustainable course and as the population continues to age, especially Health Care Cost wise historically more rapidly than the general price levels, were going to see debt to gdp ratio rise from around current level 75 not frightening to not low, to unsustainable levels to increase in levels on the debt will be a factor contributing to its unsustainability. You routinely seen projections by the congressional budget office. They make ashunls about the path of short and longterm Interest Rates, they project, i dont have the exact numbers, shortterm Interest Rates rising. My colleagues most recently, we publish our estimates of longer run normal shortterm Interest Rates which we see is about 3 . Now, that estimate might change but cbo sees shortterm Interest Rates rising something at that level with longterm Interest Rates moving up. That is going to be a factor driving debt dynamic. Thank you. Thank you for your service and one week from today on july 20th, 330 carrier workers weve talked about so many times, start to lose their jobs. So please, keep them in mind about how we make sure that their chances for success are ahead and that we have trade laws that stand up for all our workers. Thank you very much. Thank you. Senator . Thank you, mr. Chairman. Madam chair, welcome once again. We appreciate the opportunity to visit with you. I was very pleased to hear your expression of concern regarding the enhanced slrs and in particular the impact it would have on a series of not a lot of banks but on some banks that are these custody banks. Yes. Im interested because for f Mutual Fund Holders the cost of the banks is passed on to the mutual funds. Im curious, i think its an issue that should be addressed and im wondering if you have a time frame or concept in terms of how to address the increase costs even though theyre holding as youve indicated one of the safest assets out there or instruments out there in terms of their use of central bank instruments. Can you talk about 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 be that we are looking at the issue with the appropriate calibrations of the enhappensed supplementary leveraged ratio for those banks, perhaps too high relative to risk based Capital Requirements. Im comfortable with the level of risk based Capital Requirements but this is something that needs to be looked into. Different countries have taken different approaches and another alternative is to recalibrate the ratio. I cant give you definite timetable for reconsideration of this, but it is something where, perhaps, a regulation had an unintended consequence and we are looking at that carefully. Do you feel you have the resources or capabilities to handle this or will it require legislation . My guess is we would not need legislation. I will get back to you if thats not the case. Thats fine. I would appreciate that. I believe its something we could change by us as banking regulators. Number one, i think it makes our banks within the United States look competitive with other competitors elsewhere that dont have the higher requirements and that cost is passed on to Mutual Fund Holders and i think that simply means one more fee that takes away from their net return. In either event we should at least examine it and i think there is room to be able to reduce some of the cost that is passed on to Mutual Fund Holders. We will have a careful look. Thank you. Im curious, theres been considerable debate in the Banking Committee this year about reforming dodd frank and the right sizing regulations and thresholdle that dodd frank established. Heard a number of concerns from financial insti tugtss set in dodd frank making it difficult for them to do business. The chairperson mentioned the concerns in his opening statement. Congressman barney frank, himself admitted in the pitfalls of these thresholds in a radio interview last november the former congressman said, we put in there that banks got the extra supervision if they were 50 billion in assets. That was a mistake. We should have made it much higher, 125 billion or more, and we should have indexed it. Im thinking perhaps even looked at other alternatives as opposed to a dollar threshold, perhaps the Business Model and what the Business Activities are of the individual institutions. With this in mind and even the fact that one of the architects of dodd frank openly admitted that they are inappropriate could you state here and now the thresholds should be raised or we should be looking at perhaps even changing to a Business Model approach . We did the taylor act and provided the taylor act as an alternative for Smaller Banks would model the types of regulations based on the business activity. Could you give us your thoughts and is it time now to start taking a hard look at changing that . So weve already said that we would favor some increased, if congress sticks with a dollar threshold, that we would support some increase in the threshold of an approach based on Business Model or factors is also a workable approach from our points of view, conceivably. Some of the enhanced standards should apply to more firms with lower levels of assets and others with higher levels, so i think either type of approach is something that we could work with and would be supportive of. Madam chair, first of all, thanks for being here. We appreciate it. I appreciate the information youve provided. Thank you, mr. Chairman. Thank you. Senator cortez. Thank you, mr. Chairman. Welcome chairwoman yellin, always good to see you and thank you for your service. Thank you. I appreciate your comments with respect to the opoid epidemic because in nevada that is having an impact. We see it. Every time i go home, we are having difficulty in hiring, but theres so much going on with respect to our economy because of it. Theres another area i would like to have discussion with you and that is housing. In both northern and Southern Nevada i also frequently hear concerns about the Housing Market from my constituents. In northern nevada home prices have been rising sharply and a lack of available inventory, particularly for people seeking to become firsttime home buyers. The rental vacancy rates are low. In Southern Nevada the worst rates of homeowners being under water on their mortgages, nearly a decade after the recession. In recent data suggests that las vegas has the worst rental affordability crisis for lower income households of any major city in the country. Can you opine or discuss the rule that Housing Affordability plays in the Overall Health of the u. S. Economy and can we count on Home Ownership to be the primary source of wealth building for our Younger Generation, like it used to be at one point in time . Well, housing plays an Important Role in the economy, although Housing Construction residential construction, is not an enormous sector. Housing has a very important influence on Economic Performance and on the health of consumers for such a large share of americans, their house is their most important asset and housing prices affect well being, their health and availability of credit and access of ability to borrow. The health of the Housing Market is extremely important. Let me and so talk about it when it comes to the Younger Generation. The Younger Generation that i talk to grew up through the housing crisis and at one point in time opening a home was the best invimts you could make. I dont know if they think that anymore and do you think that is something that is going to be of concern for our future and for the Younger Generation when it comes to opening a home . Theres always been a big debate about whether or not housing is the best investment that one can possibly make and i agree with you that in the aftermath of the crisis, views on that are changing. Im not going to opine on a personal view as to whether or not that is true. But, you know, for all but those individuals with very strong credit its extremely difficult now to enact mortgage credit and we do have overall, i would say, a shortage of housing whether its Owner Occupied housing or rental housing, relative to what you would think would be a normal pace of household formation in this country. As youve said, inventories are low, we have seen a significant pickup in production of rental housing. Thank you. Let me jump back to another issue that i hear from my constituents. As you well know, the fomc has raised Interest Rates four times since 2015. This generally my understanding helps banks revenue because they can charge more to lend money but what i hear from constituents, particularly is they dont see any benefit or Interest Rate increases that help them when they want to save their money. When do you anticipate that the impact of the feds rate hikes will be felt by savers in this country . Unfortunately theres a lag 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 buyer rates 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 rates that smaller retail depositors see. I think that will occur, but it will take a while to show up. Okay. Thank you so much. Appreciate your service. Senator corker. Thank you, mr. Chairman. Madam chairman, thank you for being here. Glad to see some of the moves that youre making and contemplating at the fed. I know theres been a lot of discussion about productivity and thats been going on for some time and for many, 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 actions are going to be taken and so everybody really with your predecessor and much of your term has relied upon the fed to be doing things to hopefully stimulate the economy and move things ahead. Which is too much of a burden for the fed. I mean we should be taking actions ourselves. Were finally in a place where maybe, not for sure, of course, maybe we will be dealing with some things as congress deals with fiscal issues and other issues that relate to the economy. One of those coming up could be tax reform itself. Weve been in a situation with low inflation, really below where you would like for it to be, low productivity, below where you would like for it to be, and im not these are not questions to, you know, lead in a particular direction, but is tax reform one of those things that should congress pursue it in a productive manner, could be really helpful to as collateral to move the economy ahead in a much more rapid way . Well, i would certainly agree that appropriately designed tax reform could have a favorable effect on productivity. Of course it, obviously, depends on the details. Got it. Of what you do and i dont have numbers to give you, but, you know, certainly there is distortions in the tax code that i believe are negatively impacting productivity and so i think there is scope there to have a favorable impact on longterm Economic Growth. So one of the things that were going to be debating on both sides of the aisle, weve got, you know, look weve got huge fiscal issues as a nation. Obviously, constraining spending is, you know, one of the ways weve all, im sure in appropriate manner, want to look at to keep our deficits down, but growth is really the easiest way to move away from the issues that we have. Mr. Mull laneny was in my office this week, you know, tax reform is beginning to be something of discussion and i know that the Current Administration wants to see growth get into the 3 range to move beyond where weve been for some time and is tax reform from your perspective something that, again, if done properly, has the ability to move us into a much higher growth rate here in the United States . So as i said, i think it is something that could have a favorable impact if appropriately done. You know, productivity growth is something, its very hard to move, and if you put in place the policy that predictably raises productivity growth a few tenths you would probably regard that as a very good payoff, so the numbers typically studies show, when you do have a positive impact on productivity, theyre not a percent, theyre not a percent and a half, its hard to raise productivity growth, so i think it moves in the right direction, but it is challenging, given the last five years, productivity growth has averaged a half percent. The last decade, Something Like 1. 1 . So overall growth to the economy is productivity growth plus growth of the labor force, Labor Force Growth is declining. Its quite low. It is challenging to move productivity growth up that much, but i hope that congress and the administration will focus on changing to see it to accomplishing that. How much would productivity growth need to be to achieve, you know, a stable Economic Growth of 3 gdp growth. So i dont have the precise number for you, but it would probably have to rise to something over 2. Productivity over 2 to get Economic Growth to 3. Right. Given that labor force these are not leading questions. Because were going to have a significant debate about that, about this soon. Do you think its achievable for us, based on all the things that you see right now, to even achieve a 3 growth in the next fiveyear period . So i think its something that would be wonderful if you can accomplish it. I would love to see it. I think its challenging. You think that would be very difficult . I think it would be quite challenging . Thank you, mr. Chairman. Thank you, senator. Thank you. Senator corker gave you welcome. Thank you. Start there. Gave you a fiveyear window, how likely is it that were going to see a 3 growth in the next two years . Well, i think that would be quite challenging. Difficult. We heard that. So i mean i think there is strategies we should all pursue because its got to be one of the goals in fiscal and Monetary Policy to look at what we can do to get out of the flat growth rate of 2 , and i think theres a lot of people now basically saying were in a perpetual 2 growth, the economy is too mature, the economy is too sluggish, to ever get there. So i think its critically important that we examine strategies together on very real strategies, not makebelieve, just asking for productivity so you can mask a political agenda, so ill just leave it there. What percent of export growth in the last two years do you think has been related to commodities and agriculture . Im sorry. I dont have that number in front of me. I can get back to you on it. That would be great. I think what youre going to find is that 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 agricultural exports are always a great story when we talk about balance of trade. Unfortunately as you know, commodities are getting particularly hard hit. The commodity dependent state in a lot of ways. And the dollar values being high never help us in my opinion, but we challenge were challenged with bad weather, but were also challenge with a lot of uncertainty in the trade sector. Are we going to continue to have the trade regime that we currently have in nasa . Are we going to be able to do things in a bilateral context in the asia pacific rim that will replace, in fact, the promise of tpp. These are all great challenges. How do you see the trade disruption, trade policy disruption having an impact on agricultural exports and Commodity Prices . I really dont want to wade in in detail into trade policy, which is the responsibility of congress and the administration. But you would agree that it is part of trade policy is part of our opportunity for Economic Growth, part of our Overall Economic a critical component to our Economic Growth. You would agree. It certainly has been. Okay. When youre, you know i think we all understand the benefit of low Commodity Prices in terms of bringing down cost of production for companies and increase the disposable income for consumers, but at the same time we havent seen the type of boost to the Economic Growth in gdp that you would suggest just even taking a look at whats happened with gasoline prices, whats happened with Natural Gas Prices as an input in the Chemical Industry or as a major component of manufacturing costs. How are you weighing this tension as you consider further reduction in the feds Balance Sheet along with possible hikes to the Interest Rate . So, were considering the overall Economic Outlook relative to our objectives of maximum employment and price stability and Commodity Prices, energy, 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 depressed investment spending in the United States, although it was a plus for consumers, were now seeing a pickup in drilling activity, which is supporting spending on plant and equipment, but we need to look overall at all sectors of the economy and i would summarize that by saying although there are very different sectors, this year weve had 180,000 jobs a month last year, slightly more, about 190,000, this has been going on for a long time and its been you know, we cant control the distribution of jobs across sectors that are created but it has been driving a stronger and stronger labor market with Unemployment Rates that are now at, you know, close to historically low levels. Just to lay down a marker i would suggest that the reduction in Commodity Prices, the challenges of the commodity sector whether agriculture or energy, when you look at job growth in those difficult times after 2008, a large percentage of that job growth was equated to energy job growth. So its critically important we just not look at one side of the equation. Sure. And thats the point that i want to make. Any analysis on Commodity Prices in the context of the Greater National economy and productivity and maybe any little statement you can make on trade well follow up with questions. Thank you so much, chairwoman. Senator tillis. Thank you, mr. Chair. And i want to thank senator cortezmasso for consistently in the right committee bringing up the concern of Affordable Housing of both Home Ownership and affordable rentalle housing and i share all the sentiment ive heard in every committee shes spoken on it. I want to get back to i wasnt planning on it but senator corker brought up that im very interested in, because we do have to increase productivity. At least in North Carolina when we were in a financial crisis and a performer we figured out a way to do that has to do with tax code and regulation. I want to go back to regulations first. Since dodd frank when i met with chair greenspan a year and a half ago, he mentioned up to that point since dodd frank some 350,000 jobs have been created called Regulatory Compliance, in the category of Regulatory Compliance. In your judgment is that a job that improves productivity . Well, look, weve put in place regulations to serve important i understand that. Im just saying, in your professional judgment, does a job that relates to Regulatory Compliance contribute through productivity . Well, it is a cost of doing business. Okay. And so its imposed but for reasons produced presumably benefits. I understand. Its just if we take a look at there are various ways were going to stimulate growth. One of them will be im going to get on tax code one of them will be by in setting Capital Investment and improving productivity the things you can do by maybe clearing up or eliminating some of the distortions in the tax code. But we also have to be mindful to the extent that the regulatory burdens exceeds what we think is minimally necessary to work with compliance that represents risk, that is potential capital to be deployed to productivity rather than maybe to overly burdensome regulations. Would you agree with that . All regulators should be attentive to burdens and seek ways to minimize. If i have time, youve been generous with your time. I should have thanked you for taking the time to meet with my office in responding to a question we submitted after committee meetings. I appreciate it and enjoyed the discussions very much. Now tax reform is something we spend a lot of time on, not in our first two years in North Carolina, because we sought to relieve regulatory burdens first to fund real tax reform, but here were going to move to tax reform, i hope fairly soon. You mentioned that there are certain distortions in the tax code, if they were dealt with properly, would probably have a positive impact on productivity or Economic Activity at a high level. Im not asking you to do our job by creating an agenda for tax reform, but at a high level could you give me some insights into the areas that you think are probably worthy of the most scrutiny as we go forward with tax reform . So again, this is an area i really want to be careful not to wade into and give you any type of detailed advice, but i would say that there is general agreement that there is distortions in the Corporate Tax code and opportunities for improvement. Now, i want to go back, in my remaining time. This is something that senator round touched on and i think probably other members did before i came here. I had two competing committees. Im sorry i wasnt here for your full testimony. But if you imagine that, you know, all the tools that you currently enjoy postdodd frank the stress test and living wills for banks for the largest banks, if they had been in place before the crisis, do you think that the crisis that we have experience wood have been substantially the scale of the crisis would have been substantially reduced . So 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 that were highly lerveraged and now i try to develop a reputation for being close on time. I got a great response in our personal meeting so i wont ask you to repeat it but what i would like to see are right sized applications of these applications. I would like to see rationale thought placed in how these regimes are applied to institutions not based on some arbitrary number 50 billion today or 250 billion, whatever the number, it seems to me that that should only be a data point and the nature of the businesses and the risks they represent should be the driving factor in Going Forward and right sizing these regulations, some of which i think are absolutely essential, do you agree . I do agree with that, and as i said, in response to the earlier question, one way that congress could approach this is to increase these dollar cutoffs. Yeah, but i would like to the alternative is to look at individual organizations to determine their riskiness one of the things well do is put more meaning to that. Everybody agrees in the abstract, but we need to get to a point to where you regulation based on the risk of the spikes of a targeted business. Instead of us feeling like we index lets say we raise the number from 50 billion to whatever and then index it over time we can pretend that were done, but i think were missing the opportunity to make sure your resources are focused on areas that represent the most risk and away from the businesses that dont. Thank you, mr. Chair. Sorry i went over. Senator kennedy. Thank you for your service, madam chair. Thank you. I think i read the last couple days First Quarter growth had been readjusted to 1. 4 . Does that sound right . Yes. And if you had up fettered discretion what would you do to improve on that . Well, close variables from quarter to quarter and we expect significantly stronger growth in the second quarter, so i would certainly in looking at the performance of the economy, smooth through the volatility, but doing that we have an economy that has grown over the last number of years by about 2 per year, and 2 has been sufficient to create very large number of jobs and a tighter labor market. Of course, its god to have more jobs in the tighter labor market, but the fact that that could be accomplished with 2 Economic Growth points to what is very disappointing, the potential of the u. S. Economy to grow is very low. Most i believe cbo in our economy estimates that the economys longer run potential to grow is currently under 2 . Okay. But my question, madam chair, i apologize for interrupting, my question is, if you had unfettered discretion, and were averaging 2 growth, and you want to get as close to 3 as you could, which was would be considered formal before 2008, if you had unfettered discretion what would you do. [ inaudible ] its a job for congress and the Administration Im 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 with which the economy operates. I would focus on training on education, the quality of Human Capital in this economy. I would focus on investment for public an private. I would focus on policies that impact technological change in research and development and there are a wide range of policies that bear on everything in my list, and so its that set of channels that i think is important in boosting the economys potential to grow. Okay. Did we make a mistake moving away from glass steagall . I dont believe that glass steagall was responsible for the financial crisis, so i dont see that as a major issue that was responsible for the financial difficulty. Did our move away from it contribute at all or was it just irrelevant in your judgment . Well, look, the largest distress was suffered at standalone investment banks like bear stearns and lehmans that, you know, was a product of glass steagall. The fact that those investment banks are now all major investment banks part of Bank Holding Companies and subject to stronger capital regulation is an important has the volcker rule worked . The volcker rule was designed to stop proprietary trading in banking organizations, the goal with which i agree and it was intended to permit market making. The implementation of it has been very complex and burdensome. Weve suggested Community Banks be exempt from it entirely. Should we get rid of it . I wouldnt get rid of it. I think the and i believe the treasury report suggests maintaining through restriction on proprietary trading in depository institutions so i wouldnt get rid of it, but i would look for ways to simplify it. Okay. Last question quickly, would you accept reappointment . Excuse me . Would you accept reappointment . So its 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 and havent really decided that issue. Thank you for your service, madam chair no thank you. Thank you. And chair yellen, we are approaching 11 30 which was the stop time. I hope we would be able to meet. Senator brown has asked for one more question and okay. He certainly is welcome to do so. This wasnt my intent. The first part if she were reappointed i would be happy to join senator kennedy in supporting her reappointment. Thank you, senator. Im not sure he said that, but i think he did. Thank you. Im mindful of the chairmans 11 30 meeting that republican conference has and im grateful for him giving me one series of last questions which will not take five minutes. Dodd frank are required to study forced arbitration and to make a rule protecting consumers from the practice of doing so would be in the public interest. In 2015 cfpb publicly released a conference study of the impact of forced arbitration, agreements on consumers, the bureau leased a proposal limiting the use of forced arbitration and consumer contracts. As you know on monday released the final rule. During that time cfpb surveyed and consulted with experts at prudential regulators like you. If any of your couple questions and then one brief comment, if any of your staff had safety and soundness concern about this rule do you think they would have raised those concerns with the cfpb during the rule making process. I know my staff consulted and i assume they would have but im not certain what those consultations were. Okay. And i have one more question, if the rule were 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 reg glitters would raise concerns about the rule making process . I assume they might well have. Okay. I thought thats why i thought it was unusual and i was surprised to see the acting controller understanding his short time there and short horizon to stay there, that he raised issues with this rule so late in a twoyear long process and mentioned safety and soundness i think the director clearly explained the effort cfpb made to consider input from safety and soundness regulator so i close with asking, consent to enter the letter on this issue into the record . Without objection. Thank you. If i had known you were going to go into the arbitration rule i might have rethought going back into that issue. Right. Thats right. We will discuss it further probably. Chair yellin, thank you again for being with us today and we always appreciate an opportunity we have to discuss these issues with you. For senatorses who wish to submit questions for the record, thursday, july 20th, is the due date and i encourage you chair yellin if you receive questions to please respond promptly. And with that, this hearing is adjourned. Thank you, chair. Thank you. I am confident that he will be if you missed any of this hearing with Federal Reserve chairman Jan Nel Yellin see it on our website cspan. Org in a little bit. Type janet yellin in the search box. Want to let you know coming up later here on cspan 3 well have live coverage of President Trump and french president emmanuel macron, theyre holding a joint News Conference as the president is visiting france during their celebration. Well have that live at 12 30 eastern here on cspan 3. Right now well go back to this mornings hearing with Federal Reserve chair janet yellin appearing for a second day on capitol hill. As she speaks to the senate Banking Committee about the countrys economy. Promoting Economic Growth remains a top priority for this committee and congress. Ive been encouraged to see federal agencies and stakeholders evaluating current laws and regulations. Since the last humphries hawkins hearing in february, there have been numerous developments that will impact Economic Growth legislation. Senator brown and i have solicited the public for Economic Growth proposals and more than 100 submissions from stakeholders have come in. They are listed on the committees website for those who may be interested and were workinget