Transcripts For CSPAN3 Federal Reserve Chair Janet Yellen Testifies On The Economic Outlook 20170214

The economy. It will come as no surprise to you, chair yellen, that improving Economic Growth is a key priority for congress this year. 2016 was the 11th Consecutive Year that the u. S. Economy failed to grow by more than 3 . One way to improve our Economic Growth is it to study and address areas where regulations can be improved. Since the financial crisis regulators have imposed thousands of new pages of regulations. We all need to better understand the combined impact of these rules on lending, liquidity, cost for small Financial Institutions, and broader Economic Growth. It is time to reassess what is working and what is not. Im encouraged by President Trumps executive order on Core Principles for regulating the Financial System. Directing the treasury secretary in consultation with the heads of the other member agencies of asoc including you to report on how well existing laws and regulations promote or inhibit Economic Growth will be a helpful step as we move forward. Financial regulations should strike the proper balance between the need for safe and sound Financial System and the need to promote a vibrant growing economy. I expect the vice chairman for supervision once confirmed will play an Important Role in striking this balance. We want our nations banks to be well capitalized and well regulated without being drowned by unnecessary compliance costs. This is especially important for the Community Banks and Credit Unions in america, which lack the personnel and infrastructure to handle the overwhelming Regulatory Burden of the past few years. Yet in many ways are treated the same as the worlds biggest institutions. At the last hearing, you stated that simplifying regulations for Community Banks continues to be a focus for the fed and i hope that remains the case. Our Regulatory Regime should be properly tailored and avoid a one size fits all approach. The fed recently took an encouraging step in that direction when it finalized changes to exempt certain banks from the qualitative portion of ccar. I appreciate that. Another area i would like to address is the 50 billion civvy threshold for regional banks. In prior hearings we discussed whether 50 billion is the appropriate threshold and i hope we with cork together to craft a more appropriate standard. My goal is to work with senators of this committee and financial regulators to better strike the balance between smart, thoughtful regulation and promoting Economic Growth. It is also been nearly a decade since fannie mae and freddie mac were put into conservatorship. Reform remains most significant piece of Unfinished Business following the crisis. And it is important to build bipartisan support for a pathway forward. For many years the fed expressed concerns about fannie mae and freddie mac and i encourage you, chair yellen, and the fed to work with this committee to help find a solution. With respect to Monetary Policy, it now has been nearly a decade since the fed began easing Monetary Policy in the fall of 2007 in response to the emerging financial crisis. Today the fed still holds close to 4. 5 trillion in assets on its Balance Sheet, which includes approximately 35 of the Outstanding Agency Mortgage Backed security market. I look forward to hearing from you on how the fed plans to normalize Monetary Policy and wind down its Balance Sheet. The Banking Committee has a lot of work to do this congress. My goal is to work with Ranking Member brown and other members of the committee to identify bipartisan approaches that we can quickly get signed into law. At the same time, we plan to start working on Housing Finance reform, flood insurance, sanctions and legislation to boost Economic Growth in the country. I look forward to working with you, chair yellen, the Federal Reserve and other members of the committee to attack the Critical Issues i mentioned this morning as well as others. With that, we look forward to your comments today, but first i turn to Ranking Member brown. Thank you, mr. Chairman. I appreciate the hearing today. And chair yellen, thank you for it is an honor to always to have you here and a pleasure in your insight as always helpful to all of us. Thank you for that. Since your appearance, madam chair, last june, the economy improved enough as we know that the fed raised the federal funds rate in december for only the second time since the financial crisis. Businesses continue to create jobs op s on a slow but steady some 70 plus months in a row, and finally is some wage growth. Yet there are concerns. Too Many Americans who want full time work still cant find it, many workers have left the labor force, the gains have been not large enough, and been uneven. Foreclosures and job losses hit africanamerican and latino communities particularly hard during the crisis. One study found that the average wealth for white families has grown three times faster as the rate than the rate for africanAmerican Families and 1. 2 times the growth rate for latino families over last three decades. These rates will take hundreds of years for those families to match where white families are today. For affluent american stock portfolios have recovered nicely since the crisis, but for most of ohio and most of our states the story is very different. The states job growth last year was the lowest since 2009. We actually went backwards five out of 12 months. In many places one in four homeowners is still underwater. As you heard me say, and as members of the committee have heard me say in the zip code, my wife and i live in in cleveland, first half of 2007 there were more foreclosures than any zip code in the United States of america. For ohio, manufacturers, the strong dollar continues to hurt exports. And there is uncertainty, much injected into the economy by this administration already, and by the majority party. Can americans continue to count on having Health Insurance . Will u. S. Manufacturers and exporters have a continued have continued access to foreign markets . Will importers have to pay a 20 sales tax . Will immigrants to this country have access to jobs . And to our universities, they dont even know what to expect tomorrow, let alone to do any kind of long range planning. All of that, our country and our economy is dependent upon. Americans elected the new president based on his promises to drain the swamp, to take on wall street and bring in and bring manufacturing jobs back to the industrial heartland. Were all concerned, though, when you look at some of the nominees confirmed with virtually every republican, virtually every time voting for amazingly ethically challenged nominees, nominees that would have stepped aside eight years ago or 16 years ago with new president s, were all concerned about that instead of focusing on infrastructure and real job creation and tax cuts for the middle class and education and workforce development, we have seen the new administration target working americans, furthering a billionaire special interest agenda and threaten wall street reform based on the false promises that banks are not lending. False promises some might call them lies. I think everyone in this dais can agree there are parts of wall street reform that could be improved and steps taken to help small banks and Credit Unions. Thats an ongoing process for both congress and the regulators. I applaud the fed decision, madam chair, its recent decision to remove banks below 250 billion in assets from part of is ccar process. Many of my republican colleagues are dead set beyond going beyond the reasonable adjustments and seeking to repeal reforms that are key to preventing next devastating financial crisis. Working americans lost trillions of dollars in the Retirement Savings after large wall street firms, made risky bets with other peoples money, either failed or were bailed out during the crisis, thats why congress put in place higher Capital Requirements for large banks, a mechanism to identify and regulate risky nonbank companies, and to make sure Financial Firms can fail without bailouts funded by taxpayers. Recent statements by top officials in the white house indicate they are specifically targeting these important safeguards, even though these parts of the law were supported by both parties back in less than a decade ago. Now, the administration is putting wall street bankers in charge, steve mnuchin, every single republican voted for him, was confirmed by the senate last night. They are going after the rules that their former employers dont like, theyre trying to take away the financial regulators freedom to make difficult decisions that will keep our Financial Systems stable. These priorities are wrong. American voters agree, 80 , 80 of one poll, thats republicans and democrats and independents, 80 agree we need tough rules and stronger, not weaker, penalties for wall street. I want to take a moment to recognize one person in particular who has been one of the chief architects of the stronger rules that have been put in place over the past several years to rein in wall street, misbehavior and excess. Last week governor trillo announced hes leaving the board of governors, i want to thank him for his service to our nation. Over the last eight years hes one of a handful of dedicated Public Servants who have made our Financial System safer for a generation to come. I also want to recognize scott alvarez, in his 36th year at the Federal Reserve, he is seated right behind, if he would put his hand up for a moment, hes in his 36th year at the fed, hes been general console of the fed for over a decade. Thank you for your service, mr. Alvarez. I look forward to hearing more from you about the current state of the economy, the importance especially the importance of strong rules to guard against economic calamity. I know youre not going to be there forever, though i wish you were, and the importance of the strong rules that you have put in place, and you will continue to put in place over the next dozen months or so, more than that, and what congress can do to help the economy create jobs and make it easier for all americans. And i underscore all americans to accumulate wealth to buy a home, to pay for college, and to have a decent honorable, dignified retirement. Madam chair, a pleasure to see you. Thank you, senator brown. And, again, madam chair, we appreciate you being here. We look forward to your Opening Statement at this point and then we will engage in some important discussion. You may proceed. Thank you. Chairman crapo, Ranking Member brown, and other members of the committee, im pleased to present the Federal Reserves semiannual Monetary Policy report to the congress. In my remarks today i will briefly discuss the current Economic Situation and outlook before turning to Monetary Policy. Since my appearance before this Committee Last june, the economy has continued to make progress to our dual mandate objectives of maximum employment and price stability. In the labor market, gains averaged 190,000 per month over the second half of 2016, and the number of jobs rose an additional 227,000 in january. Those gains bring the total increase in employment since its trough in early 2010 to nearly 16 million. In addition, the Unemployment Rate, which stood at 4. 8 in january, is more than 5 Percentage Points lower than where it stood at its peak in 2010, and is now in line with the median of the federal open Market Committee participants estimates of its longer run normal level. A broader level which includes the marginally attached to the labor force and people who were working part time but would like full time jobs is also continued to improve over the past year. In addition, the pace of wage growth has picked up relative to its pace of a few years ago. Further indication that the job market is tightening. Importantly, improvements in the labor market in recent years have been widespread with large declines in the Unemployment Rates for all major demographic groups, including africanamericans and hispanics. Even so, it is discouraging that jobless rates for those minorities remains significantly higher than the rate for the nation overall. Ongoing gains in the labor market have been accompanied by a further moderate expansion in economic activity. U. S. Real Gross Domestic Product is estimated to have risen 1. 9 last year. The same as in 2015. Consumer spending has continued to rise at a healthy pace, supported by steady income gains, increases in the value of Household Financial assets, and homes, favorable levels of consumer sentiment, and low Interest Rates. Last years sales of automobiles and light trucks were the highest annual total on record. In contrast, Business Investment was relatively soft for much of last year. Though it posted some larger gains toward the end of the year, in part reflecting an apparent end to the sharp decline in spending on drilling and mining structures. Moreover, Business Sentiment has noticeably improved in the past few months. In addition, weak foreign growth and the appreciation of the dollar over the past two years have restrained manufacturing output. Meanwhile, housinging construction has continued to trend up, at only a modest pace in recent quarters. While the lean stock of homes for sale and ongoing labor market gains should provide some support to Housing Construction Going Forward, the recent increases in Mortgage Rates may impart some restraint. Inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in Energy Prices and import prices. Total Consumer Prices is measured by the personal Consumption Expenditure, or pce, price index, rose 1. 6 in the 12 months ending in december. Still below the fomcs 2 objective but up 1 percentage point from its pace in 2015. Core pce inflation which excludes the volatile energy and food prices moved up to about 1. 75 . My colleagues on the fomc and i expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2 . This judgment reflects our view that u. S. Monetary policy remains accommodative and that the pace of Global Economic activity should pick up over time, supported by accommodative monetary policies abroad. Of course, our inflation outlook also depends importantly on our assessment that longer run Inflation Expectations will remain reasonably well anchored. It is reassuring that while marketbased measures of inflation compensation remain low, they have risen from the very low levels they reach during the latter part of 2015 and first half of 2016. Meanwhile, most survey measures of longer term Inflation Expectations have changed little on balance in recent months. As always, considerable uncertainty attends to the Economic Outlook, among the sources of uncertainty are possible changes in u. S. Fiscal and other policies, the future path of productivity growth and developments abroad. Turning to Monetary Policy, the fomc is committed to promoting maximum employment and price stability as mandated by congress. Against the backdrop of head winds weighing on the economy over the past year, including Financial Market stresses that emanated from developments abroad, the committee maintained an unchanged target for the federal funds rate for most of the year in order to support improvement in the labor market and increase in inflation toward 2 . At its december meeting, the committee raised the target range for the federal funds rate by. 25 to. 50 to. 75 . In doing so, the committee recognized the considerable progress the economy had made toward the fomcs dual objectives. The committee judged even after this increase in the federal funds rate target, Monetary Policy remains accommodate ive, strengthening Labor Conditions and a return to 2 inflation. At its meeting that concluded early this month, the Committee Left the target range for the federal funds rate unchanged, but reiterated that it expects the evolution of the economy to warrant further gradual increases in the federal funds rate to achieve and maintain its employment in inflation objectives. As i noted on previous occasions, waiting too long to remove accommodation would be unwise, potentially requiring the fomc to eventually raise rates rapidly, which could risk disrupting Financial Markets and pushing the economy into recession. Incoming data suggests that labor Market Conditions continue to strengthen and inflation is moving up to 2 , consistent with the committees expectations. At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate. The committees view that gradual increases in the federal funds rate will likely be appropriate reflects the expectation that the neutral federal funds rate, that is the Interest Rate that is neither expansionary, nor contractionry and that keeps the economy operating on an even keel will rise somewhat over time. Current estimates of the neutral rate are well below precrisis levels. A phenomenon may reflect slow productivity growth, subdued Economic Growth abroad, Strong Demand for safe longer term assets and other factors. The committee anticipates that the depressing effect of these factors will diminish somewhat over time, raising the neutral funds rate to levels that are still low by historical standards. That said, the Economic Outlook is uncertain, and Monetary Policy is not on a preset course. Fomc participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to the Economic Outlook and associated risks as informed by incoming data. Also, changes in fiscal policy or other economic policies could potentially affect the Economic Outlook. Of course, it is too early to know what policy changes will be put in place or how their economic effects will unfold. While it is not my intention to opine on specific tax or spending proposals, i would point to the importance of improving the pace of longer run Economic Growth and raising american Living Standards with policies aimed at improving productivity. I would also hope that fiscal policy changes will be consistent with putting u. S. Fiscal accounts on a sustainable trajectory. In any event, it is important to remember that fiscal policy is only one of the many factors that can influence the Economic Outlook and the appropriate course of Monetary Policy. Overall, the fomcs mondetary policys decision will be directed to the attainment of its congressionally mandated objectives of maximum employment and price stability. Finally, the committee has continued its policy of reinvesting proceeds from mat e maturing treasury securities and principle payments from agency debt and mortgagebacked securities. This policy, by keeping the committees holdings of longer term securities at sizable levels has helped maintain accommodative financial conditions. Thank you. I would be pleased to take your questions. Thank you very much, chair yellen. I want to get into that last issue, talked about with regard to the feds Balance Sheet. But before that, ive got two or three quick questions i wanted to go through with you. First, dodd frank established a new position at the Federal Reserve, the vice chairman of supervision. President obama has never yet designated anyone for this role, and instead fed governor dan trillo has acted as the de facto vice chairman for supervision in various ways including by chairing the Federal Reserve Boards Committee on supervision and regulation, overseeing the Large Institution supervision coordinating committee, and representing the fed at the Financial Stability board and in basel. What role do you envision and how will you work with this person once we get one nominated. And is it your expectation that they will have the responsibilities that governor trillo has including among other things chairing the committee on supervision and regulation and negotiating on behalf of the Federal Reserve in basel . Chairman crapo, i think as you know the entire board has a responsibility for approving new rules. But the vice chair would head our supervision and Regulation Committee and would coordinate our efforts in this area. He would he or she would also represent the board on international negotiations, financial regulatory standards, including representing the fed in basel and beyond that, the new vice chair would fulfill any statutory obligations such as providing semiannual testimony to congress on supervision. I look forward to working with that individual. Thank you very much. Secondly, President Trump recently issued an executive order directing the treasury secretary to work with the member agencies of fsoc to review the extent to which existing laws and regulations promote certain Core Principles. First of all, do you agree it is important to promote Core Principles mentioned in this executive order, and do you plan to work with the treasury secretary and other members of the fsoc to ensure this review occurs . So i certainly do agree with the Core Principles. They enunciate very important goals for our Financial System and for supervision and regulation of it. And i look forward to working with the treasury secretary and other members of fsoc to engage in this review. Thank you very much. My third question, before we get to the Balance Sheet, fannie mae and freddie mac were put in conservatorship in 2008 and continue to dominate the mortgage market. Im not alone in calling for housing reform, and considering it the most significant piece of Unfinished Business following the financial crisis. Do you believe that finding a durable comprehensive legislative solution for the Housing Finance market is urgently needed and are you willing to work with us to help us achieve that . Yes, i think it is very important that congress continue to deal with the gses and figure out what the governments role in Housing Finance should look like Going Forward. The goal of bringing private capital back into the mortgage market, i think, is important and i would hope that congress would decide explicitly on what the governments role is, and if there are guarantees that they would be recognized and priced appropriately and we look forward to continue working with you to help achieve these objectives. Thank you. I just wanted to get your comments on those few issues before i go into this final question on the Balance Sheet. The fed has said it will not begin shrinking its Balance Sheet until normalization of the level of federal funds rate is well under way. Recently some reserve Bank President s suggested that it is time to consider beginning that process. What are the benefits of starting to let the Balance Sheet run off rather than relying solely on shortterm rate hikes to tighten policy. And as shortterm rates rise, is it problematic to have the large Balance Sheet continuing to put downward pressure on longer term rates . Well, chairman crapo, the Federal Reserve resorted to purchases of longer term assets after the financial crisis at a time when the economy was very depressed, unemployment was very high, inflation running below our objectives, and extraordinary support was needed. But we would hope that that was a very unusual intervention and one that we would not frequently be relying on in the future. The fomc has enunciated it is longer run goal is to shrink our Balance Sheet, to levels consistent with the efficient and effective implementation of Monetary Policy. And while our system evolves and i cant put a number on that, i would anticipate a Balance Sheet substantially smaller than at the current time. We would like to in addition, we would like our Balance Sheet to, again, be primarily treasury securities, where as you pointed out, we have substantial holdings of Mortgage Backed securities. Now, to just financial conditions in order to influence economic developments in line with our dual mandate objectives, the committee would like the maximum extent possible to rely on variations in our shortterm overnight Interest Rate to accomplish that objective. It is our traditional tool, it is one we have the most confidence in, that markets best understand how we set it, and we have the greatest confidence in our ability to calibrate it relative to the needs of the economy. So we do not want to use fluctuations in our Balance Sheet policy as an active tool of Monetary Policy management. So what we would like to do is to find a time when we judge that our need to provide substantial accommodation to the economy in the coming years is minimal, when we have confidence that the economy is on a solid course, and that the federal funds rate has reached levels where we have some ability to address weakness by cutting it. And once we have that confidence, we will try to we will begin to allow maturing principle from from our investments to gradually and in an orderly way we will stop reinvestments or diminish them and allow our Balance Sheet to shrink in an orderly and predictable way. The committee has decided that it will not some Mortgage Backed securities, but as principle matures we will begin to allow allow those assets to run off our Balance Sheet. So we do expect to be discussing in greater detail, we gave general guidance that we want to wait to start this process until the process of normalization is well under way. And the committee and the coming months will be discussing issues pertaining to reinvestment strategy to try to provide further guidance. Thank you very much. Senator brown. Thank you. Madam chair, you testified last year that the Banking System was more safe, more resilient. Is that still true . I believe so. Yes. I mean, there is much more capital in the Banking System. The quantity of high Quality Capital to your one capital has more than doubled since before the financial crisis. There is much more liquidity. I believe the Financial System is much more resilient than it was thank you. Now that we know that, i think we already knew that, i appreciate your assertion and convincing arguments you made for some time, some have remarked that banks are not lending now. Is that true . Well, a recent survey by the National Federation of independent business, which is smaller businesses, indicated that only 4 of respondents were unable to get all of the loans that they needed. And the fraction of businesses ranking inadequate access to credit as their main problem stood at 2 , an extremely low number. So just because people has expanded overall by the Banking System and also to Small Businesses. Just because people in high places say it is true doesnt make it so. Are u. S. Banks competing others said u. S. Banks cant compete. Are u. S. Banks competing relative to their International Counterparts . U. S. Banks are generally considered quite strong, relative to their counterparts. They built up capital quickly, partly as a result of our insistence that they do so, following the financial crisis. And as i mentioned earlier, our very well capitalized and theyre lending, theyre priced to book ratios are substantially higher than the ratios of banks headquartered in other areas, and theyre gaining market share, and they remain quite profitable. So banks are safe and safer and more resilient. Banks are lending. Banks are able to compete with their national counterparts. Consumers, some said consumers are worse off since the crisis or are consumers better protected today from abusive and deceptive and fraudulent practices than they were . Well, certainly we focused very much on protecting consumers, and implementation of strengthening the Financial System. And, of course, consumers were very seriously harmed by the financial crisis, but i think we have seen a significant recovery. And the fed is tailoring rules as we have discussed personally and in this forum, the fed is tailoring rules for communities and for Community Banks, regional banks, the largest banks, based upon factors including size and riskiness, correct . Yes. Seems to me that steps taken after the crisis with higher Capital Requirements as youve said was stress test, with orderly liquidation authority, with the Consumer Financial protection bureau, have made our economy stronger, Financial System more stable, our banks better capitalized, and our consumers pet s better protect. If the rules are removed as one executive said during the crisis, if the music is playing, you got to get up and dance. If the rules are removed, wall street will almost assuredly be back to the risky and reckless behavior we experienced before you took this job back before the crisis. Couple of other lines of questions if i could, madam chair. The secretary of treasury is to chair the Financial Stability Oversight Council to review the as a rules and other activities of members of the agency including the fed to determine if theyre consistent with the certain Core Principles of the executive branch. I know the fed and other agencies review their work to make sure that the rules continue to enhance Financial Stability and promote safety and soundness and to protect consumers. To the extent that you provide any information or conclusions to treasury or to fsoc about your agencys rules as part of the process, could you provide those materials to the Banking Committee . So i dont yet have any clarity about what the process will involve, but when you do . We always try to work with our oversight committees to provide materials that are, you know, relevant to your oversight of us that we will strive to we will count on that, thank you. I have doubts about the executive order that requires federal agencies to eliminate two rules, in many cases to Consumer Protections, for every new rule. Im troubled by what that means for financial regulators, a little like telling the Highway Department to take down two feet of guardrails for every foot it puts up. Is it clear that a series of questions, ill put them together if you would answer, is it clear that financial regulators including the fed are not covered by this rule . Does it make sense to remove two safety and soundness rules for every safety and soundness protection . Does it make sense to remove two Consumer Protections for every new Consumer Protection . Will it make our system more stable and better protect consumers from bad actors . So i believe that the independent agencies are not covered explicitly by the rules, but let me just say that considering Regulatory Burden, and looking for ways in issuing rules and reviewing outstanding rules constantly looking for ways to mitigate burden i think is an important goal. And it is one that we will strive have strived in, will strive to achieve and it is legitimate and important goal. Understanding, of course, what some people call rules and regulatory overreach, others call Consumer Protection and Environmental Protection and worker protections, chair yellen, last question, mr. Chairman, i want to follow up on an issue we talked about, diversity in the Federal Reserve system. We see the least diverse president s cabinet that we have seen anytime in the last three decades. The president s of two of the most diverse Federal Reserve districts in country, richmond and atlanta, announced their retirement. Each bank has begun its search for the replacement. What is the board of governors doing to ensure a diverse set of candidates is considered for these positions . The board consults with the search committees, that are charged with nominating individuals to serve as president s of the reserve banks. And we consistently emphasize that diversity is an extremely important goal. We ensure that the search is inclusive, that robust efforts are made to identify diverse pools, and that the boards are focused on this important goal as they go about their searches. And the last connected question, significant Racial Disparities and unemployment and wages persist everywhere, not, of course, just in places in both of these districts. What is the fed doing what is the fed doing to ensure that these challenges are understood by the board of directors and these districts . What can be done by the fed or others to address these issues . I think we are trying to address issues of hawaigh minor, unemployment by adopting policies that result in robust labor market and strong overall job conditions. Over last year, for example, the Unemployment Rate of africanamericans, i believe, has come down about a percentage point, moved substantially more than that for white americans. So a strong labor market does improve the situation of vulnerable minorities, though it is as i mentioned, it is disturbing that such large disparities continue to exist. Thank you. Senator shelby. Madam chair, good to see you. Thank you. I want to pick up on the theme that chairman crapo got into a minute ago, dealinging with the vice chairman of the fed we have been hoping that we did at one time hope that president obama would nominate someone, but didnt, and now as i understand it, there is going to be three openings at the fed, trillo, this coming april, whenever it is, hes resigning, two other openings that there. And then your tenure, youre appointed until next february, correct . Thats correct. Do you intend to fulfill this last year of your appointment . I do intend to complete my term as chair. Sure. What will be the mechanics of how the fed vice chairman will work. The chairman got into that some. With the whole board. You mentioned he would come before the committee to testify, he would represent people at the international dealing with regulatory relief, Regulatory Affairs and so forth. You got anything else to add to that . Importantly, he would chair our Board Committee on supervision and regulation. And that Committee Takes the lead on behalf of the full board in working with the division of supervision and regulation to craft rulemakings that are then brought to the full board for a vote. The vice chair would head that committee, and would have oversight in that role for our division of supervision and regulation and would also represent us in supervision, International Supervision groups, such as the basel committee. If we have three new appointments to the fed board of governors, that will be three new people to deal with, and youll have to deal with that as a chairman, is that right . Of course. We have diverse membership, changes over time, and the role of the chair is to work constructively with all the governors to manage the matters that congress has charged us with. When youre getting an area of Monetary Policy, inflation, deflation, so forth, price stability, what is the biggest challenge as youre looking at all of the data inside to see where inflation is reearing its head, so forth. Is it wages and salaries . Is that one of the big components . Is it energy is generally is a component there, and food is a component, but sometimes you dont count that, you know. What is your biggest challenge in measuring and engaging and configuring what inflation is doing or not doing . So we look at many measures of inflation, our objective, we recognize that food and energy are very important. Volatile. Consumers spend a good share of their budget on food and energy. We do not want to ignore movements in food and Energy Prices, in measuring inflation. So in my testimony, i began by saying that an overall comprehensive measure of price increases that includes food and energy ran at 1. 6 last year. There are many different measures. We have focused explicitly in seeing we have 2 inflation goal on the measure we regard as the best measure we have of Consumer Prices, which is the personal Consumption Expenditure price index, less well known than the cpi, but we think it is actually a more comprehensive measure. Now, food and Energy Prices are very volatile. And in looking forward over a number of years and trying to estimate where inflation is going, we often look at measures called Core Measures that remove food and Energy Prices. Wage developments, it is unclear that they have much direct effect on inflation, but generally what we found is that in a situation where labor and product markets are tight, inflation tends to move up. And movements in wage growth gives us a sense of just how tight labor markets are. In the area of regulations, last time you came before this committee this you alluded to, i believe back in june, i asked you the Federal Reserves plans to tailor the ccar process to provide much needed relief to smaller regional banks. On january 30th, the Federal Reserve issued his final ccar rule which tailored the process for institutions that have less than 250 billion. What is the significance of what you did there and how will that help them . I think that change will reduce burdens substantially regulation . Yes, for a significant number of institutions. After engaging in a fiveyear review of ccar and our stress testing methodologies, we decided the Capital Planning processes of those smaller institutions could be adequately reviewed and commented on to our normal supervisory processes and that it was appropriate to exempt them from the qualitative portion of that capital review. But we still are subjecting them to our stress tests and asking that requiring that they conduct stress tests themselves, that is an important component of our supervision. But as a regulator you will continue to monitor that and if that needs to be tailored, youll do it, whatever it takes . Yes, we believe very strongly in tailoring to make sure that our thank you, mr. Chairman and madame chair for your leadership. Some of my colleagues in the congress have called on the Federal Reserve to use a strict formula in setting Interest Rate, many times refer to the tali fire extinguisher rule. Could you explain to us how this would affect particularly working americans . Would it be good or bad and how we explain its ramifications . Right now, the taylor rule would call for a shortterm Interest Rate somewhere between 3. 5 and 4 . Which is obviously a much higher value of the federal funds rate than the fomc has deemed appropriate given the needs of the economy. I believe we would have a much weaker economy that in the last number of year, we would follow the number of dictates. The labor market would be weaker and instead of inflation, which is running below 2 , and we want to see it move up to our 2 objective, i believe inflation would be likely lower tharn it is now. So, jobs, higher mortgages, Interest Rate, a weaker economy, if we essentially just automatically following a formula. Thats right. I recently, a few weeks aelg, gave a peach speech at stanford where i tried to explain why i thought it was appropriate to adjust the roeecommendation of rules like that to into account for example the fact that not only the fomc, but most outside forecasters believed that the socalled neutral rate of interest has been unusually low in the aftermath of the crisis and the tail day lor rule would assume 2 current estimates would put this closer to zero. Thank you. Theres another aspect ive been working on for year, particularly incorporated some of the language in the dodd frank bill. Ensuring that clearing platforms are used, but there is a risk because systemic failure would be significant. So, can you give us an update on what you are doing and your colleagues to ensure the forms are adequately protected from failure that consumers ultimately protect from failure . We strongly believe regulated and well managed Financial Market interest infrastructure and that would include central counterparties. Play a financial positive Financial Stability role. They can help stem the propagation of disturbances and they reduce the volume of transactions among key Financial Institutions. And we think they play a Financial Stability role, but they can also be sources of risk to the Financial System if theyre not themselves well managed. Title 8 of dodd frank created a structure in which the Federal Reserve, the cftc and sec have oversight responsibilities to make sure that these key infrastructures of our Financial System, are managing their own risks successfully and were cooperating with the other regulators in our examinations to make sure that appropriate Risk Management standards are in place. Thank you. Final question in that cybersecurity is the issue on everyones mind and you recently have rule making, which would require board of directors to have adequate expertise ive been involved in legislation that would apply to publicly company because the cyber threat is not limited. It is u biktous. Could you briefly give us your sense of how important it is to get this cybersecurity expertise on board . I think cybersecurity is a major, major risk. That Financial Firms face. I think theyre very well aware of the risks and my sense is that boards directors generally appreciate the seriousness of cyber threat, but sometimes, they dont have a comprehensive or enterprise wide view, so it is very important for boards to have appropriate expertise. Thank you very much. Senator corker. Thank you, mr. Jim and madame chairman, for being here today and your service. I want to thank mr. Turulo. I want to thank him for his service along with mr. Alvarez. We were in the fox hole many, many times back in 08 a and again, i thank you for your service. I was interviewed earl lehr today, yourng people have always sort of hinged their future ons what you have to say and i guess its somewhat thankful now that it looks like you have a partner. No changes here, just the environment we lived in and yet now, we look at potential tax reform. We look at potential changes to the hemt care policy. Things relative to infrastructure and all of that. Is that affecting how you look at Monetary Policy decisions moving down the road . A stagnant situation just because of the environment, a very changing possibility, policy environment here, is that something thats affecting your deliberatio deliberations . So, we recognize there may be significant Economic Policy changes and that those changes could affect the outlook. Were very well aware of that. Trz and we dont yet have enough clarity on what changes will be p put in place to really clearly factor those policy changes into the Economic Outlook. So, we dont want the base current policy on speculation about what may come down the line. We will wait to gain greater clarity on policy changes. Once you develop greater clairity on what you think is coming down the pipe cowell affect Monetary Policy decisions. Well, its one of many, many factors that could affect Monetary Policy decisions. So i think the answer is yes, they could. Exactly how depends on how the timing competition. Growth could generation additional pressure, b so paying attention to that and when it hp happens, it can happen fairly quickly. Well Pay Attention to it. Some policies have supply side impacts and raised growth and sustainable growth. You mentioned something about sustain bable trajectory. The youre hoping the administration will develop a policy anything youre saying that has caused you to raise that issue. I agree, but is there something youre looking at that caused you to put a note in this or is that just a standard line that would be in report like this. The congressional budget offices most recent forecasts show deficits increasing over the next tenyear period under their baseline and the rh owe of debt to gdp. So, nothing is standard, is nothing youre looking at come out of the administration or congress is causing you u to raise that alarm. Its more than just the standard concern that many of us have, that were really conducting ourselves in a totally inkroept proept way as it relates to deficit. Nothing thats being discussed policy wise right now. Some of the policies that are being discussed might well raise deficits and in that context, they may also have impacts on Economic Growth. And the economys growth potential, so, not a simple matter to evaluate. But i do think its worth pointing out that fiscal sustainability has been b a long standing problem and that the u. S. Fiscal course as our population ages and Health Care Costs increase, is already not sustainable. Very 100 . You gave a very full answer to the Balance Sheet question. I understand how the Feds Fund Rate is much more target bable and accurate. I guess what i havent understand is just allowing the maturity. Just the mature and rolling off. Its hard to understand how that could create vagaries relative to Monetary Policy that would be hard to predetect. Can you share why . Sorry, i did not mean to say that would it could create a problem. We want to allow that process to occur in a gradual and orderly way. Wouldnt just aloeing this em to mature that quarter ly . Yes, it is orderly. Thats why we intend to do it that way. Just curious why to have it be an orderly process b, which is why we intend to allow those assets to run off as principle matures. So, we recognize however, that allowing that process to occur results in some tightening of financial conditions and so, before we turn that process on and start it, we want to make sure that we have adequate ab ability through our normal overnight Interest Rate moves to meet the needs of the economy. Particularly if it were to weaken some. Which it would be a long process if its running off. And we want to make sure we have enough scope and the economy is Strong Enough that run off wouldnt create a problem for the economy. I just want to close with a statement. I know when you were coming in and interviewing for this post and being affirmed, you mentioned to me that when times called for it, you would allow Interest Rates to rise and youre known as being a dove, but in fact, you are i know some people have criticized the rate as which rises have taken place, probably many included, but i want to thank you for allowing that to happen. Hoping it will continue as we return to more normal circumstances. Hopefully, the Balance Sheet will roll off and i hope youll continue to criticize us if we allow deficit spending to continue more so than it is today. Thank you so much. Thank you, senator and i think allowing that process to take place thats something that well show that the economy is doing well and the increases have been a reflection of the strength weve seen in the economy. Thank you. Thank you for your leadership. Has made tremendous strides sibs the crisis. Ensuing Great Recession, which wiped out nearly 13 trillion in Household Wealth and 9 million americans their job. I think these last six years have shown how positive its Blood Pressure to our economy. Its a strong market and most importantly, to American Families and businesses. Now, i want to ask you specifically, as you know, health care accounts for nearly 20 of u. S. Grk dp, including not only the delivery of Life Saving Health services, but also fuelling innovations in patient care. In diagnostic, in preventative health, in research and development. Cures to diseases, in response to the fy 17resolution, the office sent a letter to congress say thag the resolution would at 9. 5 trillion to the deficit. Recent studies have shown a major market disruption would have a detrimental impact on the market include iing a reduction job growth by nearly 2. 6 million jobs in 2019. My home state of new jersey is estimated to be b among the top of the list when it comes to potential job losses as a result of a spike in the number of uninsured. Further more, stripping nearly 30 Million People of their Health Insurance would have a Significant Impact on the productivity of the american workforce. Are you concerned about how this major increase in debt coupled with downturn in the labor market and decrease productivity would have on the larger economy . Well, we would have to look at what the impact is of shifts and health care on the Economic Outlook. Health care as you mentioned, does account for very significant share of spending. And a loss of access to Health Insurance could have a Significant Impact on spending of households for other goods and services. And beyond health care itself. Have impacts on the economy. In addition of access to health care, as for some individuals likely increased their mobility and deminnished the phenomenon called jaw block, where people are afraid to leave jobs because of losing Health Insurance and that could have implications for the labor market. So, we should tread lightly before we make major changes that create disruptions in the years leading up to the financial crisis, many and misled consumers into expensive subprime mortgage os even if they qualified for prime rates. We were final ly able to impowe a cop on the beach to protect hard work oing americans from unfair, deceptive and abusive financial practices. Its been working. As an independent agency, the cfp the bureau helps level the Playing Field and ensuring theyre purchasing a home, take out credit cards and use prepaid cards. Do you believe that if an independent consumer focused agency like the cfpb had existed prior to the financial crisis that much of the economic damage to working class family b would have been avoided . Also have enhanced national Financial Stability . Well, i do agree that consumer abuse is in the mortgage and areas played a key role in the crisis. The Federal Reserve that the time had responsibility for the enforcement of these regular laces and in retrospect, i wish the fed had acted more aggressively and earlier to to address these abuses. The crisis that its critical to to monitor this area, the potential for deceptive practices. To create financial crisis or stability issues. Since the Great Recession has played a critical role. About being the cop on the beat instead of being asleep at the switch. But in the ab b sense of that, the bureau is is playing a significant role ensuring this consumers have a level Playing Field. They have been focusing on these issues. In the 104 year history of the Federal Reserve, it has had not one, not one of 134 president s have been africanamerican or latino. Thats pretty outrageous. And it is my hope that now that there are some openings, that we begin to change that roelt raelt. These are two communities that have an enormous part of contributing to the nations gdp and for them not to have any representation whatsoever in the process of these banks is not acceptable. And i hope we can begin to change the reality. Increasing diversity is a priority and i share your hope. Thank you, mr. Chairman. Madame chair, thank you very much for joining us yet again. I want to briefly ask you a question about the forecast for dprout at the december meeting. As we know, we had in which a president and congress were lekked and a very, very central part of the message to the president and congress included a commitment to tax reform, to a very different regulatory approach. In the form of an infrastructure bill, but i dont think anyone disputes that campaigned on this. It seems that most of the world responded with the view that this increases the likelihood that we would have stronger Economic Growth. Equity markets responed powerfully and immediately. Bond markets sold off, which is consistent with the view of growth. The imf projected stronger growth. A poll of economists by the wall street showed a strong consensus that growth was likely to tick up. The world bank suggested that tax reform would at. 8 to american gdp in 2018, and yet, the december fed meeting, the fomc member, had no change in their opinion at all snars i can gather, about the prospect for Economic Growth. In fact, the upper bound, the highest estimate, decreased. So, just looks on the surface like the fomc members either believe its unlikely that any of those things will happen or they think that those things are not particularly pro growth and obviously, the rest of the world is of a different opinion. Does the fed have the view that that the prospect for dprouts are not changed fwi prospect of tax reform and Regulatory Reform . Well, we dont yet have clarity. Most of my colleagues decided they would not speculate on what Economic Policy changes would be put into effect and what their consequences would be. A few of my colleagues mentioned they assumed there would be a mild fiscal stimulus, but most of my colleagues have taken the view that we want greater clarity about the size, timing and composition of a changes to fiscal and other policies before trying to incorporate those into our forecasts. Okay x thats what i suspected. I spent you a outlining some big concerns. Compliance is enormously expensive. For the banks subject to that. Theres a resent report that sukt that is the models employed by the fed in testing procedures are not transparent. Thats i think generally acknowledged. The gao report goes on to suggest that the fed does not engage in sufficient Risk Management of the systems o f the models it uses. The gao report also concluded the fed has not assessed whether ccar is procyclical, despite it be countersick cyclical. Im concerned that c car might increase risks in one important respect. Theyre not explicit. Are very, very different for those of the banks and bosil 3. C car is is not required by statute. Defast is required by statute, but c car not. You mentioned earlier, theres been a huge increase in the capitalization of american banks post crisis, which is the case. And the fed already has ways of boosting Capital Requirements like the countersick cyclical b and the surcharge, so my question is, given all of that, isnt c car at least somewhat due politictive and since it is very, very costly and not mandated by statute, would you consider bripging it to end in the foreseeable future . I think a key part of our regulatory process. It is a very detailed in institution specific and forward looking assess of the risks and affirms Balance Sheet and i think its been a corner stone of our efforts to improve supervision. Especially if the largest Banking Institutions that whose stability is really critical to overall u. S. Financial stability. The gao in their assessment found that the stress tests have been youthful and have played a useful role. They did not recommend we end them. They made a number of specific recommendations which we agree with and are working on and we will continue to review our practices to exception most of the institutions under 250 billion from the qualitative part of the c car review, but doi think stress testing has greatly strengthened our process. I appreciate that. I would just point out. Ooefb even in the absence, that does not necessarily imply the end of stress testing. Defast occurs separately, so i think its du as we know, we have had a de facto acting vice chair of who never went through the process and never exercised the powers of this position. It is my hope that the president will soon be able to nominate individuals to complete the board of governors include iing vice chair for supervision. Who will go through the process, who will be vetted and until such time, i hope the fed will refrain from issuing major new regulations that ought to benefit from these new people. Senator shelby had a quick question. We havent talked about this, mad dam chair. Just share with us and of course share in this with American People, the longterm danger of an imbalance and trade were running for years and years as opposed to shortterm and so forth and where are we and youre an economics professor, but we were taught thats not a good thing in the long run. So, we have a deficit most most people know you have a nationwide audience here this morning. Its the difference between the amount that we spend on goods and services that we import from abroad. Import versus expert port, isnt it . Correct of goods and services. So, we have a current account deficit. It has increased. In size. Ultimately, it lead to a build up of our indebtness to foreigners and so, it can be a longterm concern if its not on a sustainable corner. What is it roughly now . I believe its drk. Roughly. I believe in 2016, it amounted to about 2. of gdp and in dollars . About close to 500 billion is a deficit a little bit below that. Thats in one year. Correct. Whats our total indebtness . I dont have that figure. Could you furnish that . Weve had deficits for some time. Would that be in the trillions . Yes, be happy to furnish you with that figure. Would you call that a troubling thing longterm . Depends on what the longterm trend is is. It also depends on what we earn on our on our assets that we hold abroad to foreigners who hold our assets, but the trend there is important. When was the last time we had a survey plaus . Small in our current account . Can you furnish that for the record . Thank you. Has it been a number of years . Thank you. Thank you, mr. Chairman. Mad dam chairman. First of all, thanks for being here today. You have a difficult position and a very important position and i look forward to working with you in promoting sound policy in our country. Im sure youre aware of the ag sector of our economy is suffering. The wall street journal recently pointed out that soon, there would be fewer than 2 million farms in america for the First Time Since the louisiana purchase. We are rapid ly aproep approaching a crisis in the ag sector. Commodity prices have been sinking. Those still able to form will see their and the strength of the dollar the making it hard for American Farmers to compete. My question to you is recognized they need access to capital, to literally being able the borrow money and during a time we made it more time borrow money, a lot of these folks are seeing an end because they work in an industry which is seasonal and depend upon the weather. Some year, they make it, some, they dont. Would you suggest what we as policymakers should be focusing on if we want to help them make it through this next couple of years . Clo kro is setting up an emergency hot line for suicides. Could you talk to us in terms of what we can do to take some of the burden off of these Farming Families . So, give you recommendations on what congress should do to address the ag issues. We are focusing on the fact theres pressure on food and Commodity Prices after a number of years in which conditions were really very strong and land price is were pushed up, in some cases, we are seeing increases in rates on loans and you certain certainly growth in the economy coupled by a dollar that began to appreciate substantial ly around mid 2014. Has pressured farm ers and is putting pressure on farmers as you indicated. I think more specifically, farming moves from here to year. You can have a drought. Excessive moisture sometimes and not every year, youre going to be consistently successful in your endeavor. Would it be fair to say that with regard to our fooinancial institutions and their able toy loan or continue to carry debt, shouldnt there be some understanding within the policy at the federal level, that the tablety to survive, not just a 12 month cycle, but raps perhaps a 24 or 36 month cycle, this would seem that would be an appropriate policy to at least continue to explore. Would you see some value in that . Honestly, this is something up to congress to consider to look into. Its not something that the Federal Reserve has the ability to mandate. But Financial Institutions, which are the source of that able toy to borrow money, and during a year in which you have a bad year for crops or perhaps commodity price, eve nn a good year with yields, maybe down for a while. But in a cyclical manner. It seems rather illogical to base the ability pau bow rory money on a 12 month cycle. Wouldnt it make some sense to perhaps a different cycle to be considered in without having their loans be considered nonperforming aes is is t inass kopt on and Carry Forward for a shortterm period of time. I think Financial Institutions are try iing to engage in safe and sound lending. And want to be careful to protect themselves from losses. Thank you. Thank you, senator. Senator cot to be ton. Thank you for appearing for us once again. Id like to discuss wage growth. Or maybe i should put it better, lack of wage growth. Federal reserve tracks it as a measure of economic process and inflation. Over the past eight years, wage growth has been largely stagnant, although fortunately, weve seen a few positive trends in the last few monts. But i also want to look back beyond the last few years. Starting in the 1970s. And i think we have a graphic that will display this. Wages for workers with College Degrees has increased while wages and inflation adjusted terms. We see on the chart behind me. Over long periods of time, the average trend in wage growth depends on productivity growth and in recent year, productivity growth has been relatively depressed. In comparison say with the very long period in say 1949 to 2005. Growth productivity growth was probably a percentage point or so higher than its been subsequently. For different groups in the economy is your chart focuses on. Changes in wage growth depend on structural trends. In the labor market and in the economy. And what we have seen importantly because of change that has raised the return to skill, raised the mohannad for skilled workers and raised the awards to people who are able to use technology i think coupled with globalization that has made it easier to offshore or outsource jobs that involve routine work that can be done elsewhere or subject to change. Weve seen different trends for much faster wage growth for higher skilled individuals and much slower wage growth for those who are less skilled. The gap between the earnings of College Educated and High School Educations or less individuals continues to grow. And that has been a major source of the trends that you are describing in your chart. Do you care to venture an assessment of why were seeing that . So, the labor market is pretty tight and wage fwrout can has picked up somewhat. Average earnings were up ending in january and that would compare with around 2 from 2011 to 2015. Some other meshes are rising somewhat faster. Theres not a dramatic increase in wage growth in recent years. Not dramatic. In part, i think were seeing a reflection of healthy labor Market Conditions, but the fact that it remaps so low is also related to weak growth in the economy. Were trying to do our job and we have pus in place conditions intended to lower the Unemployment Rate, improve labor Market Conditions. Job growth really is strong and exceeded whats probably sustainable in the longer run and the labor market has continued in a general sense to improve although clearly, the gains are not evenly distributed among different segments o f the population. If the labor market were to continue to tighten through both more Economic Growth, but also say through a gradual reduction in the number of unskilled and low skilled immigrants and guest workers were bringing in, would we see continued wage growth . So, im not certain, i mean, i expect the labbe esh market to continue to improve somewhat fehr they aurther. We have to be careful not to all allow, we push inflation above our 2 and we will be b attentive to that, but i so expect somewhat stronger. The workforce Participation Rate is still at a lower level . So, the workforce par tis rate has been trending down. But historically, its still high. Its high, but its going to be trending down. Its been an important source of Labor Force Growth, so that would be reduced if immigration were to diminish. Thank you. Senator warren. Thank you, mr. Chairman. Good to see you again, chair je yellen. So, the 2008 financial crisis cost millions their jobs, homes and savings and in response, Congress Pass ed the bipartisan dodd frank act, which aimed to prevent big banks from blowing up the economy again. Now, President Trump has called it a quote, disaster and has vowed to quote dismantle it. He started down that road two weeks ago and has put two men who have spent a combined 42 years years at Goldman Sachs in charge of rewriting the rules to help big banks like gold man. Chair yellen, i know you and the fed spend an enormous amount of time looking at data about the economy and Financial Markets, so i want to follow up u on senator browns questions and get your take on some of the administrations main reasons for calling dodd frank a disaster. President trump said he hoped to quote, cut a lot out of dodd frank, close quote, but quote, friends of mine that have nice businesses cant borrow money. Now sh im aware of the Small Business survey you cited earlier, but i want to look at the bigger range of day that. What did the data show about business lending since dodd frank was enacted in 2010 . Well, cni lending at this point, its grown anded after declining. The same is true for total lo loans. Held by commercial banks. Total loans outstabd standing. In the most recent period for which we have data, the recent 12 month period grew over 7 . Related grew almost 4 , so we have seen healthy growth in actually lending in the economy. I mentioned to senator brown, i believe over half of Small Businesses indicated that they absolutely didnt need to lend and had no desire for credit for a variety of reasons. Didnt need to borrow. Did not need to wor r borrow at all, including slow growth in the economy. Thank you very much. Very impressive. So the data do not back up the president here. Another claim, from President Trumps economic adviser is banks have been forced to hoard capital and quote have been forced to literal build capital and build it instead of lending it to their clients. Now, chair yellen, when regulators impose a Capital Requirement on a bank, does that requirement prevent the bank from lending out that capital or in other words, is a Capital Requirement a reserve requirement . Can banks do whatever they want with that capital, including lending it . Its not a requirement they take money and stick it in a safe where it cant be used. Its a requirement that they finance the lending they want to do. With a certain amount of capital and not only with debt, so the capital is used to make loans. Good. So, the president s chief economic adviser the wrong about that pretty basic fact. Lets look at another statement by mr. Cohen. He said we have the best, most highly capitalized banks in the world and we should use that to our competitive advantage. But on the flip side, we also have the most highly regulated overburdened banks in world. That sounds like a contradiction to me. Either our banks have a competitive advantage because the world knows that we carefully regular lalt our banks or our banks have a competitive disadvantage because of those requirements. So, chair yellen, which one is it . How our banks down in our comparison to foreign come p competitors since we put our new rules in place . So, i dont have all the numbers at my fingertips, but b i believe our banks are more profit bable. As i mentioned, they have higher market values relative to their book values and they areturing market share, for example from european banks, capitalized ban regarded as safe, sound and strong as conferring a competitive advantagen those banks and competing for business. A competitive advantage, taking away clients from other banks. Our banks have thrived since we passed dodd frank, both big banks and Community Banks are makie ining literally record pr. Id like to submit the most recent Quarterly Report from the fdic to show that banks of all sizes are more profitable than ever as well as this wall street journal considerate considerate l, u. S. Banks report record profit in the third quarter. May i do that . Without objection. Thank you, mr. Chair. On any issue, but something as important taz rules in place to stop another financial crisis, with we need to start with facts. Real facts. Not thosal terron ty facts that the administration has been noun for. The facts show that donald trump is wrong. And his chief economic as vider is wrong about every major reason theyve given to tear dodd frank. Bank profits are at record levels and our banks are blowing way their competitors, so why go after banking regulations . The president and team of gold man bankers that he has put in charge of economy, want to scrap the rules so they can go back to the good old days. When bankers could take huge risks if they got lucky, knowing they could bet boyle bailouts if it didnt pay off. We did this before and it ruled in the worst financial crisis since is great depression. We cannot afford to go gown to road again. Senator scott. Thank you for being here this morning. You had a teacher town hall meeting with post secondary educators and had a question about dodd frank. A part of your answer was Community Banks feel the burden of regulation is very great and i feel strongly we should be looking for ways to mitigate Regulatory Burden and we are looking for ways, particularly for smaller institutions to mitigate that burden. There could be modifications that could succeed. I would love to hear your thoughts on ways to mitigate that burden for small banks, specifically if places like South Carolina and other states. So, yes, let me reiterate what i said there. What weve suggested prooe eed is that Congress Might want to consider exempting Community Bank frs the volcker rule and some of the incentive compensation provisions that apply to them and those would be examples. Theres quite a bit we see being able to do ourselves and weve taken steps to extend the exam cycle for well managed and well capital sized banks. We have heard from Community Bankers that when big teams of examers come in and stay in the premesis for a long time, it can be quite disruptive and so, were doing much more work off site. Were trying to reduce our document nation requests and tailor them to areas we can are high risk that we want to examine. We do a lot to many of the regulations we put out apply to the largest banking organizations. And not to Community Banks. We try to make clear this just doesnt apply to you. We doept have to worry ant that. We try and make clear ha does apply to Community Banks and what portions dont apply to banks. Were trying to reduce the frequency of our exams for banks that are well managed and well risks. So, those are are some of the thipgs were doing, we are attempt i attempting that can reduce burden. Weve reduced with that we require on our equal reports. And many other things. Ellier, you noted there was a 1 drop in the rate of africanamericans, which a positive sign. Whether youre live in cleveland, ohio or detroit, michigan, unemployment without a High School Diploma is at least twice as high as in other demographic with the same level of education. What do you think drifs the disparity and what affects effects have your policies had on that specific demographic . They tend to be very badly affected and in this strong upturn, their gains, theyre basically regaining ground they lost. For example, just over the year, where as the white Unemployment Rate remained stable at 4. 3 , the africanamerican rate dropped from 8. 8 to 7. 7. But again as you pointed out, thats a much hire rate and the same is true at all education levels. For example, those with college had an Unemployment Rate of 2. 5 in january, those with less than 7. 7 and africanamericans tend to have worse experience. If you look at the 15. 8 over the overall 8 for all demographics versus the rate of versus white folks who have the College Level of education, my concerns longterm is that as we exam p the labor force Participation Rate, we know its down to 62. 8 or so. So, the real unemployment when you add all the numbers together, our entire Financial System is still wired around a defined benefits platform. Means its difficult for us to meet the obligations from Social Security to medicare. So longterm, if the growth in our economy from a People Perspective or africanamerican americans and hispanics having more kids in this nation, 30 , 20 unemployment is persistent, 16 to 20, it forshadows a very difficult future for this nation to meet our obligations. I agree and i think the its appropriate for congress to focus on policies that might mitigate the trends that weve discussed. Clearly, education and Training Workforce Development workforce are a part of that, but other things might be as well. Thank you, senator. Thank you, mr. Chairman and thank you, chair yellen. Great to see you again. I want to associate myself with the remarks of senator scott, but i also at least some consideration for for the underemployment and employment of native american citizens. I will tell you, they are even worse in indian country. I think i always want to point out we cant leave our native american citizens behind. I want to associate the remarks on small Community Banks, but dont want to spend all of my time talk iing about it, so mostly, what i use these foris to say whats on the horizon. What are the challenges that were going to have . We know that Retirement Security is a huge future burden in this country, but i want to focus on automation. And what automation will mean for employment, especially employment in the categories that senator scott was talking about. If you in a 2015 speech, the chief economist of the bank of england referenced a startling statistic that 47 of all u. S. Jobs are likely to be replaced by technology over the next ten to 15 years and that would be more than 80 million all together. Obviously we see this from automalgs in trucks, from retail moving to online retail. So im curious what steps the fed has taken to study the issue of automation and the impact on the north economy and u. S. Economy moving forward. I know you say better training, but a lot of concern and how we move forward. We know that out information and technological change more generally has had a very important effects on our economy over many decades and were not seer of the future that know where its going. Changes on the horizon that could have profound effects on the labor market and do you think were paying enough attention, obviously during the campaign, and and the trade from a lot less talk about automation, which i think has been a larger driver of displacement. So, how do we get the public attention to this. The educators taepgs to this and how do we change the labor markets and skill sets we need to change to that we end up with employment in our country. Technological change has been the source of growth in income frs generally, but its created huge disadvantages. For those with less education and often for those in manufactured and other areas that have seen outsourcing or affected by both automation and globalization and i think we need to think about ways to address the needs of those workers because theyve seen chronic long standing downward pressure on their wages and income. Theyre making it very hard for them to cope. I think one thing that get lost in this is when we talk about those workers, really talking about people 40s and 50s, theyre less concerned about their livelihood than the opportunity their children are going to have, so i think we need to be having a major discussion about what the job of the future looks like, what the job market of the future looks like. Want to get in one more question. And this is about the lack of prosecutions after 2008. What we can do about it to hold people more accountable. New york fed president bill dudley put forward an interesting idea. By requires doddfr ba incurr incurred by the firm would incentive leaders to system i can changes to improve the firms culture. Whats your view on the current incentive based pay on wall street . Do you think firms rely too much on equity based compensation and what are the risks with the dudley model . I think that was an important factor in the financial crisis in appropriate incentive schemes and weve worked in our own supervision to insist that firms put in place compensation schemes that dont lead to inappropriate risk taking, they may include a longer periods of deferral, if an individual who takes risk on behalf of the firm if there are losses suffered but i think its important to strengthen incentive compensation practices. One of the concerns i have im not a big believer always that enforcement is a strong deterrent especially if someone is addicted but i do believe enforcement is a strong deterrent is White Collar Crime and if i didnt know about it im not culpable, i think in order to really respond to peoples concerns about wall street and whats happening, we need to have a better system not only of Civil Enforcement but criminal enforcement. And interested in feedback from other regulatory agencies, a Million Dollar fine may shock a factory worker in cleveland its not going to shock a wall street banker, so we need to do a better job Holding People accountable. Senator tillis. Thank you. I had a couple of questions. One relates back to a discussion earlier about some of the members about i think a discussion disspelling the myth that banks arent lending. We are comparing probably not the right data sets so that people are absolutely valid based on what theyre using, they say Capital Requirements do have a negative affect on loan underwriting. I think theres a fair amount of information out there. I think what we see particularly among household lending and Small Business loans it tends to have a downward trend. You reference i think a survey by the nfib that said all but 4 of the people contacted were getting the loans they wanted. Im trying to square that with a research that shows a substantial decrease in the amount of loans precrisis, post crisis and im not going to talk about household loans or mortgages, they shouldnt havent been under written prekrpr precrisis, im seeing a number that says the average growth rate 2011 and beyond so after doddfrank reforms that were at about a 4 per annum about 7 percent per annum large banks, for again preBusiness Loans, so is it possible that the reason why 4 of the people would say are getting the loans they wanted because only 4 are asking for loans for businesses. I think thats true, we have had a slow growing economy and many businesses say their sales growth dont justify significant expansion plans that would make it desirable borrows arent looking to borrow. Isnt it problematic to have people leaving this thinking that they should move forward with to create jobs and take risks to make us think this is a phenomenon that only affects about 4 of the businesses . That everybody else is et getti the loans. Please finish your thought. I was going to say sometimes Small Business loans are under written by banks similar to credit cards or home ekquity loans. So one thing that may be happening to some Small Businesses is that because there was a substantial reduction in some especially in some areas of the country in Residential Property values theyre ability to finance Business Loans in that way. In your professional opinion do you think that the universe of potential Small Businesses that could be created are businesses that exist that want to expand that they have unfetered access to capital given the current environment . Well businesses that want to start up always need Equity Capital and that can be quite did i feel. Do you think that when were in an vieenvironment now, i hea this, since ive come on to the Banking Committee, but i speak with them and they say that the personal relationships that they had in the past where they could get a loan underwrited were pivoted to them getting a loan, if you have roughly the same amount of assets to secure the loan then you can get the a loan, but there are a lot stricter requirements that have a Chilling Effect in the nation, do you agree with that . Certainly, the objective is to encourage banks to lend, safe and sound lending and not be caught up in bureaucratic obstacles. Mr. Chair, i will go as quickly as possible and apologize to senator kennedy, but do want to touch on a second subject but i think were talking out of both sides of our mouth in washington and im not criticizing you for it but when i take a look at the movement of capital we say on one hand banks can lend to anybody, then five or six saying you better not lend based on outside parameters because of what i see overreaches in enforcement, so to me letting a comment stand that banks are lending to any commerce you didnt say that, it was a supposition by a couple of members on the committee i think it is absolutely defiant what im saying in a Small Business community and the Community Banks particularly big banks in North Carolina which leads me to my last question, the precrisis, incidentally i think there were very important reforms that needed to be implemented with doddfrank, i think you have a bill thats this big, this big, that expands into a regulatory frame work thats that big. In particular, in North Carolina we had a very driving Echo Services system precrisis, over 100 Community Banks and a couple of relatively big banks in charlotte. Now we have seen a substantial decline, i think thats a national trend. You know the numbers as well as i do and since doddfrank has been implemented we have had two chartered. One is on an indian reservation, the other on an amish community. So we have completely destroyed of the banking echo system in my opinion because the Inflection Point was after doddfrank was implemented and cfpb all started to extending their rage. You did say i think in response to one of the questions that the Community Banks probably do need some relief you mentioned the vul ccar rule. I think Community Banks i agree with some of the trends you just described, i think they have been under pressure. You had many years of a weak economy, very low Interest Rates and pressure on net margins and compliance costs. I agree that it is very important for us to look for ways to relieve burden, and i am committed the Federal Reserve is committed to doing everything that we can to mitigate the burdens on these institutions. They play very Important Role as you have indicated in the economy and so many communities in supporting lending. Senator shauts. Thank you mr. Chairman, thank you chair yellen for your Public Service and for enduring quite a long hearing and accommodating all our questions. Before we get going on any questions i want to echo the sentiments of my colleagues for what doddfrank has done for the stability of our Economic System. Undermining doddfrank is not in my view the correct course of action. I wanted to ask you about Climate Change. It is affecting our economy in a number of ways such as prolonged droughts that reduce agricultural yields, coastal flooding, increased severity of storms and unpreaddictability weather forcost, noah reported 16 billion climate events, combined events cost the economy over 200 billion, lest we think it has increased eight fold over the last 30 years, climate events are taking a toll on our economy and they are expected to become more and more intense Going Forward. To what extent does it take into the accounts of Climate Change and assessing our economic out look and future Economic Risks . So, in Monetary Policy making our focus is on trying to achieve a strong labor market and price stability and our forecast usually go out a few years, but not over the decades in which Climate Change plays a role in changing, affecting the economic out look. And sometimes a hurricane or a drought can have some of which may be related to Climate Change but also other factors, may have a significant economic input impact that we take into account that may result in a period of weakness or movements in gdp that we see, but theres not very much that we can do in incorporating that into our forecast. I disagree and understand theres going to be a renaissance so enter anything political or unknowable or too long term for it to be meaningful for your analysis, but thats actually not the case anymore when it comes to whats happening in terms of Climate Change. The billion dollars event is a threshold for Financial Markets for insurance for noah for the National Weather service and were not talking 15 years from now there may be a higher frequency of Severe Weather events and may be more severe, were talking over the last four or five years we can actually measure this trajectory, youre all data driven people, in the Financial Markets, especially Insurance Companies the department of defense is responding to the reality of Climate Change and not in terms of a ten, 20, third year time horizon, but in planning for q3, q4. So i would think that analysis an that desire to stay on that which is knowable and not in dispute is a good instinct, but we now know what is happening to the climate and having material im pac impacts on the economy now. Would you care to comment . So, various International Fora is looking into aspects of Climate Change that could affect Financial Stability the exposures of financial organizations. And, i think thats appropriate. We recognize that risk events are Severe Weather Climate Changes could have affects on the Financial System. Our general approach since the financial crisis has been to try to build resilience among banking and financial organizations so they are well positioned to deal with risk events. So those are a couple of reactions. I appreciate what youre doing and i understand the difficulty of addressing something but i would like for you to consider the following proposition just because we dont know the extent of the risk doesnt mean we should book it at zero, it is not zero, it is now material, it is also no longer five, ten, 15 years from now. It is happening to us now and you may need another couple of quarters of unfortunate events to figure that into your decisionmaking process but the fed is going to have realize that Climate Change is it real its not a political issue but an economic one. I thank you for your time. And you may not have expected to talk about this this morning. Dr. Yellen thank you for being here, appreciate your time and coming through on some of these questions. I havent been here for the whole hearing. I apologize for that also. Did you make a comment as to whether or not Interest Rates are going to rise in march . I indicated that at our up coming meetings with will try to evaluate whether or not the economy is progressing, namely labor Market Conditions and inflation in line with our expectations. And if we find that they are, it probably will be appropriate to raise Interest Rates further. Weve indicated that we think a gradual path of rate increases is likely to be appropriate if the economy continues on its current course. Is that the same answer for Interest Rate increase for june . Same answer . Because i think those are the two most important questions that are going to come out of this hearing is that answer. So we lasted that in september of course the economic o economicoeconomi Economic Outlook is uncertain, but a few increases would be appropriate. The median was three at that time, that means we have eight meetings a year and means at some meetings we would if things remain on course increase our target for the federal funds rate and not act at others. And precisely when we would take an action whether its march or may or june. Right. I know people are focused on that. I cant tell you exactly. They are, just so you know, they are. I would say that every meeting is i want anticipate that the markets are anticipating to rate increases and individuals are also. Would you agree with that . Im sorry . That theyre anticipating increased rates this year. Its our expectation that there will be increased rates. In Southern Nevada 238,000 at the peak they were selling for 315,000. You can see still some homes are under water and a long way from full recovery in the state of nevada, so as the housing markets continue to struggle how does this impact your thoughts on future Interest Rate hikes . So housing has been recovering nationally, but at a very slow pace. And we recognize that higher Interest Rates can have a restraining impact on recovery and housing. House prices have been moving up. So its one of many factors that are thinking about the appropriate path of Interest Rates, but remember that employment growth is strong, consumers are doing well. Thats an important support for housing is well as the fact that there is so much potential for an increase in home ownership. So i expect housing to continue recovering, but overall we need to take account of all the different forces that affect job growth and inflation in the economy and everything put together we think that some removal of accommodation is likely to be appropriate. How important is a fiscal stimulus to the next Interest Rate hike . So, we dont know what fiscal plans congress and the str administration will decide on. Were not basing on speculation about that. The economy has been making solid progress, the unemployment late is close to levels we regard as sustainable in the longer run. Inflation has moved up and its those trends driving our policy decisions and not speculation about fiscal policy. Also, remember, there are many factor that is affect the economy, fiscal policy, they matter but only one of many things we need to consider. Let me ask you this on fiscal stimulus, whats better a tax hike or spending cuts . In your opinion. I think this is squarely in your domain to prioritize and decide on that. Better to cut Corporate Income taxes or personal income tax s taxes . Again, this is a decision that Congress Needs to make and outside of our purview. Do you support a border tax or not . Im not going to tell you that either. Im trying, im trying. Mr. Chairman, thank you. Chair yellen, nice to meet you. Nice to meet you. Im in new senator from nevada and thank you for your time today. Let me ask you because im new to the committee and keeping on with fiscal policy some would say that the act of 2011 Discretionary Spending and slowed the pace of the recovery of our economy, would you agree with that . I would say say that the data suggests that this support that fiscal policy provided to during the period of recovery overall both federal and state would you say substantially lower than a would be typical, would have been typical historically in an expansion aary downturn. But as it proceeded the last several years fiscal policy over all was relatively tight in comparison with past historical peerpd periods. Thank you. There are a lot of benefits to america, our diversity is our strength and the range of culture are for competitiveness, it is important for our Economic Growth. We have proof it contributes to our gdp and our economy. And there is a report out there from the National Academies of Sciences Engineering and medicine and revealed many important benefits including Economic Growth innovation and entrepreneurship and came with little to know affects on native born workers in the long term. And report also found children of immigrants on average go on to be the most positive fiscal contributors in the population, but despite this and immigrations importance we are hearing information coming from the white house and particularly President Trumps january 29th executive order dramatically expanding immigration order places 8 million undocumented immigrants at risk of deportation. The order has the affect of making every undocumented immigrant in the u. S. A prior to for removal and directs the department of Homeland Security to hire what is essentially a deportation force. Chair yellen, if your view as a noted labor economyist what impact would that have on our nation if we continue down the path of President Trumps massively expanding immigration. And along with that, what would be the consequences for our labor market in the price of goods and services . So, im not going to comment in detail on immigration policy. I think thats for congress and the administration to decide. But i would say that Labor Force Growth has been slowing in the United States. Its one of several reasons along with slow productivity growth for the fact that our economy has been growing at a slow pace and immigration has been an important source of Labor Force Growth, so slowing the pace of immigration probably would slow the growth rate of the economy. We are hearing a lot about proposals on 20 import tax on mexico in order to pay for a border wall. Im concerned about the potential for a trade war with our Third Largest trading partner if the mexican economy would go into recession how would that affect eamericans. Mexico and canada are important trade partners and our economy is in many ways sin c w synconace. Thank you. Senator kennedy. Maam chair im over here. Why is the economy growing so slowly . So, the economys potential to grow is largely determined by the growth of the labor force and by productivity growth output per worker and Labor Force Growth has slowed. We have an aging population and Labor Force Growth is relatively slow. And productivity growth in recent years has been depressingly slow, so i guess over the last six years business sector productivity has grown at an average of only. 5 per year. I didnt mean the interrupt you but ive just got five minutes, so its labor. So the economy for a number of years has been growing faster than resource growth and productive growth would have allowed and the labor market has been tightening, unemployment has been coming down and labor market slack has been diminishing. Right. That should help the economy. Its enabled us to grow it roughly 2 per year and the fact that its slacked in the face of 2 . We grow at 1. 9 . Do you consider that acceptable for the strongest economy in the world . When you say acceptable, i certainly wish it were faster. Yeah. But we have seen as ive said a slow down in productivity growth. Why is that . I think nobody is certain exactly why that is. Ther there are a number of elements. We have seen a decline in dinism. Some people think the pace of underlying technological change do you think it could be people dont have the money to invest . The capital . Well, Capital Investment has also been quite slow. Yeah. What blame, if any, does the Federal Reserve system have to play in the fact where growth is so slow . Our objectives congress has assigned to us is price stability which we interpret 2 inflation and maximum employment. Uhhuh. And we have put in place an accommodative Monetary Policy for many years to get the economy operating at its potential so with high unemployment there was a lot of slack in the labor market, the economy was falling short of operating at the level of output that would be consistent with what a full employment economy would produce. Okay. And we have tried to remedy that and have now come close, so its labor supply and productivity i dont mean to interrupt you but i dont have much time. Can we agree that 1. 9 growth is not acceptable to most americans . Aso i think its a disappointing we can agree on that, i wasnt here in 2008. What did the Community Banks do wrong in 2008. 50 or less, what did they do wrong . Community banks were not the reason for the financial crisis. It was larger institutions that took risks and risks that developed outside of the Banking System. Right. That resulted in the financial crisis. I think i heard you say nothing. They did nothing wrong. I dont want to put words in your mouth. So how come theyre subject to doddfrank . The same rules that apply to the people who did do something wrong either because of incompetence or greed. Its not the case that the same rules apply to Community Banks that apply to larger institutions and the most severe requirements in doddfrank apply to the largest and most systematic institutions. The fed and other banking regulators have tried to taylor our supervision of banks according to their risk profiles and a large part of doddfrank does not apply at all to Community Banks. Im going to go over a little bit, mr. Chairman. Youre not saying that doddfrank hasnt imposed new regulations on Community Banks are you . I said it has imposed some but said large parts of doddfrank do not apply. But many parts do. So the water is not 12 feet deep but 10 feet deep but you can still drown in 10 feet of water. So they are appropriate to risk the profiles of banks but the Regulatory Burden on Community Banks is high, i agree with you. Why . You just said they didnt do anything wrong in 2008, i dont think so why. We think its important for all firms to have a Strong Capital standards including Community Banks, but the most severe increases have been impos imposed on larger banks corporations. Did insuspefficient capital cause the meltdown in 2008 . No, but many failed because of the lending they took on. One more mr. Chairman with your indulgence. Does it bother you that no individual person really responsible for 2008 really went to jail . I think those who were accountable should have had appropriate punishments. Its been up to the Justice Department to the regulators cant impose criminal sanctions. Thats up to the Justice Department. And, my understanding has been that in many cases they felt they could not get criminal convictions. Do you understand this is an opinion let me put it this way, can we agree that Many Americans rightly or wrongly they are angry in part because they feel there are too many undeserving i want to emphasize undeserving too many people at the top getting special treatment . I think that is how americans feel. Do you think thats true . I think that we have tried to put in place following doddfrank to greatly increase the safety and soundness and responsibility for Risk Management and sound compensation systems especially at the largest and most systematic institutions in that sense holding them accountable. Ive gone way over, thank you maam chair. I know you need to leave by 12 30 we have two senators left so if you will allow us we will let them have their time. Yes, of course. Senator donnelly. Maam chair, thank you for your service. Thank you. We appreciate it. Maam chair, when we look at some of the things that have caused damage over the years, you are here at a time about a day or two after the carrier layoffs occurred if you remember that and those layoffs in my home state immediate profits over the long term companies. They might be do to poorly constructed executive goals, but spending trillions to placate to stock buybacks, at the expense of workers, communities and long Term Economic value creation, new Research Find that companies focused on the long term by reinvesting in the company far outperform short term piers in financial and economic success. Im wondering if you agree that short termism for want of a better term could impact long term. I dont know of any rigorous work on this but certainly agree with you that focussing on long Term Investments that have significant payoff for companies in for the economy is important to the health of companies and the economy. Do you agree that the management and boor of Public Companies they should be stewards of the whole Company Including its works in the Long Term Health . Do you think that makes sense . Most Companies Understand their work forces are very important assets and their success requires having a focus on their Human Capital thats a firm asset. At the same time that those workers were let go, the ceo made over 10 million, the previous ceo before him, when he left, about two years before, on his last day received a payoff over 150 million. Thats why the American People are so angry, and think the system is so rigged that you go, were going to fire between carrier and utac, 2,100 people who have already agreed to a twotiered wage structure, but were going to pay 150 million to our ceo on his last day. Does that not seem like a perversion of the Economic System to you . I think its something that makes the American People mad. Yeah. What would you recommend to your infinite wisdom to change the short term thinking that we see . Thats really outside the demean of our responsibilities. And i believe its aps set of policies that congress and the administration should be thinking about. Well, i was thinking that with your experience and your abilities and talents all good advice is welcome. When a small town is devastated by job losses as has happened to so many towns across this country, where you look up and one day you have a Company Making windshields for one of the big three and the next day that windshield company is in mexico. It impacts the future of that town. Its not just the jobs that dry up but the economic, the secondary, gas stations, restaurants, grocery stores, how does a small town succeed when it feels like so many of these economic currents have been against them so long . You have driven some of these downtowns, im sure and seen it. I think its difficult for towns to cope with and many towns in rural areas have been very badly affected by these developments. Here is also what happens. Just so you know when you make these decisions, as these workers are laid off their children dreaming about going to college, dreaming about the best schools and dreaming about their chance to make it, you know, mom or dad comes home and the funds just arent there. The money just isnt there to give them to shot to do it. And i worry about the intergenerational impact of this whole situation too. Have you seen this intergenerational impact and its impact on success and is there anything the fed can do in terms of policies to try to make it so our next generation of leaders have a shot . Well, i mean our tools to deal with the issues that youre describing are limited. And we generally feel that the best contribution we can make is to use our tools to create overall strong economic conditions, a labor market thats generating enough jobs that there are opportunities there, but it doesnt always mean that the jobs are exactly what people want in the plays that they are. And i think congress and the str administration need to think about ways they can foster greater inclusion, greater mobility. Provide people with the tools that if your father lost his job in a good manufacturing job that the child can get a strong education and can get a job maybe in the sector of the economy that is growing more strongly that has strong Job Opportunities and there certainly are things we can do to foster greater equality across generations. Ill finish with this. I guess this would be to the ceos who are thinking about this or the short termism one of my heros was father hessberg, dont do whats easy, just do whats right. Thank you maam chair, and thank you mr. Chairman. Thank you for your service. Im going to pick up on a little bit of what mr. Donnelly was raising, thats the issue of wage growth because as you know we have had for really a period of decades high productivity growth overtime. Not recently as you say its disturbingly low, unfortunately they have not translated into large increases in real wages so im trying to look forward where we are now to see what the future holds for real wages. And as you indicate if your testimony, weve seen a tightening of the labor market, and we have seen a slight uptick in real wages, but as i listen to your testimony it sounds like you may believe theres not a lot of slack left in the labor market and if thats the case what are your projections with respect to real wage growth Going Forward . So i think somewhat faster wage growth than were seeing presently would be consistent with our inflation objective. And we are projecting after all Monetary Policy is still accommodative, job growth remains strong, the labor market is still strengthening and even if we move to gradually diminish Monetary Policy accommodation we expect some further strengthening in the labor market and i would expect that to push up wage growth somewhat more than we have seen so far, but ultimately real wage growth in the economy as a whole is limited by productivity growth determined by productivity growth and thats why ive lamented the fact that productivity growth has been so slow and even over the last decade is so much slower than what it was for much of u. S. Post war history and why i really urge congress to focus on policies may be fiscal policies or other policies that would succeed in raising productivity growth. Beyond that of course as you have indicated, from aggregate productive growth have been very unevenly distributed across the population and have had many decades of rising income and quali ekwaul equality, as opposed while those at the median or below have seen stagnation and so that reflects adverse structural trends, but when you see those with more education and skill are doing substantially better than those with less education and that the trends in the economy are adversely affecting those with less education to my mind thats telling us that investing in education and training and Work Force Development which can make many different forms depending on the population were talking about is an investment with the payoff and we know that it does have an important payoff. Thank you. I think you in part anticipated my question. I know you dont want to comment on specific policies before the congress, but fiscal policies, they could increase productivity overtime investments in education, is that the area you would most recommend . Generally, there are many that could impact growth. But policies that promote people or Human Capital. Fiscal capital both private investment are important in promoting productivity, then policies that foster innovation, the formation of firms research, dinamism. A number of those policies were in place over the last decades and had a less distribution of gains, is there anything mr. Donnelly asked you about incentives sort of within the corporate sector. Are there things with the power of the fed today that could influence long term versus short term calculations that the fed is not currently employing fully . Well, i think a Strong Economy and sustainable Economic Growth so that business firms can look out and can see a favorable economic climate that they expect will be sustained with low inflation is a Business Climate that does foster investment and thats what the kind of backdrop for business decisionmaking we would hope to provide. Thank you maam chair, and mr. Chairman, as this committee looks for commitment policy changes we have seen mostly rising productively rates but the rates very varied, folks who are doing really well have the rules stacked in their favor against the average american. I think we need to look at all our policies that are outside the purview of the fed and change them. Thank you. Thank you. Thank you, senator. And thank you chair yellen. You have spent nearly three hours here with us. We appreciate the work that you do and also your taking the time to spend this time with us here today. Without anything further this hearing is adjourned. 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