Transcripts For CSPAN3 Federal Reserve Chair Predicts Moderate Pace Of Economic Growth 20170718

Economic condition and possible fed actions in the future. You look like nervous. Im much more nervous, like yeah. Yeah. At work it will be eight or nine days away, but it can happen any time. I hope so. Im better than that. Lets talk about schedules. The committee will come to order without objection and they declare a recess of the committee at any time. All members will have five legislative days within which to submit extraneous material to the chair for inclusion in the record. The hearing is for the purpose of receiving the semiannual testimony and the board of governors on the Federal Reserve system on Monetary Policy and the state of the economy. I now recognize myself for three minutes to give an opening statement. Since we last convened to take chair yellens on Monetary Policy, headline remains low as does inflation, but the headline Unemployment Rate still rests too much on an incredibly low Labor Participation rate and regrettably high disability payment Participation Rate. Both paychecks and savings for working Americans Still have considerable room to grow after eight years of distortionary Economic Policy under the Previous Administration. Fortunately, on the fiscal front, help is on the way. House republicans have passed both the American Health care act to lift the burden of obamacare from our economy and the financial choice act to End Bank Bailouts and unleash trillions of dollars of capital sitting on the economic sidelines due to dodd frank. These are landmark pieces of legislation. In the months to come the house will vote on a fairer, flatter more competitive tax code that will undoubtedly bring us a far healthier and dynamic economy and the Trump Administration is busy rolling back rules that harm our economy, as well. Monetary policy must, of course, do its part as well. I am highly encouraged that chair yellen and her colleagues seem to be on track toward some kind of Monetary Policy, and giving Interest Rates artificially low for too long was a key contributing factor to the last crisis. Let us hope it does not prove to be a key, contributing factor to the next. What is most desirable for longterm Economic Growth is for the fed to set out an easily discernible and transparent policy strategy to achieve its mandate and for highly exgent circumstances to stick to it. The fiscal policy cannot and should not be permitted. Assuming press reports are accurate and the fed will soon commence an orderly wind down of its Balance Sheet, this is more good news. Size and composition of the Balance Sheet remain alarming. Intervention into the credit market like mortgagebacked securities is fiscal policy, not Monetary Policy. Already theres talk of having the fed bail out Student Loans and clinician funds. If were not careful we may make up, and it may become the central planners. It will allow the foray into credit allocation is to pay excess reserves and today paying a premium over market. Interest on required reserves was meant to counteract an imblessity tax and interest on excess reserves should not become a permanent tool of Monetary Policy. Normalization would suggest that shortterm Interest Rates be set by market forces. Today they are set from the top down by an administered rate paid on excess reserves and its a premium rate resting on uncertain Legal Authority. To ways into credit allocation and fiscal policy threaten the feds independence and Economic Future so lets hope the normalization has truly begun. I now recognize the Ranking Member for four minutes. Thank you, mr. Chairman, and thank you, chair yellen. It is a pleasure to have you with us today. Since day one, the story of the Trump Administration has been one of chaos and turmoil. This creates uncertainty that threatens the progress of our economy and the opportunities available of all american households. Trump made many big promises to hardworking americans about ushering in a new level of Economic Prosperity in america. Yet, despite all of its luster, lets look at what trump has actually done when it comes to our economy. Now that is good. You reversed the planned cut to federal Housing Administration markets insurance premium, that would have saved homeowners 500 a year, and they issued executive actions to begin to dismantle wall street reform and embrace the wrong choice act. The chairmans bill to gut dodd frank wall street reform and consumer protection. And there are actions that endanger the economic progress weve made since the great recession. In passing the wrong choice act, House Republicans once again are trying to weaken the independence of the fed and change the feds policy division to a mathematical formula and has banished its ability to support the economy and fulfill its mandate to promote full employment. The republican bill would also subject federal financial regulators including the fed to the politicized annual appropriations process. All of this wasnt bad enough. President trump will soon have the opportunity to reshape the makeup of the board of governors, thereby tilting policy in the direction of wall street. For example, earlier this week the white house announced the president s intent to nominate randall cua, l to serve as the feds vice chair for supervision and the post responsible for overseeing the feds implementation of wall street reform. This is troubling, given the opposition to key aspects of the doddfrank law and support for managers that would curtail the feds independence. While our economy has made substantial progress since the height of the financial crisis and we continue to see positive trends in the labor market as a result of the policy put in place by the fed. Congressional democrats and president obamas key aspects of our economy have yet to fully recover. Since the last testimony before the committee wage Growth Continues to lag and troubling economic disparities continue to exist among racial and ethnic lives. So i hope their policymakers would keep these trends in mind and the fact that Inflation Expectations have fallen as they evaluate the stance of Monetary Policy, for chair yellen, i commend you for your steady leadership and look forward to your testimony, and with that, mr. Chairman, i would yield back the balance of my time. The lady yields back. The chair rblg oizes mr. Becogn. Welcome back to the committee and despite nearly nine years of the most accommodative and unconventional Monetary Policy in u. S. History and despite some recent, positive economic news. Labor force participation remains at a disappointing 40year low and wages are stagnant and the economic low has yet to eclipse 3 . Making matters worse just like the farm bill that used to pay farmer not to plant the Federal Reserve by paying interest on excess reserves is effectively paying banks not to lend. Former fed chairman ben bernanke said as much in 2013 when he stated, quote, banks are not going to lend out the reserves at a rate lower than they can earn at the fed, end quote. The fed has adopted this interest on excess reserves policy to fund its enormous 4. 5 billion Balance Sheet by guaranteeing the largest banks in america this low risk above market rate of return on deposits, the fed is discouraging lending into the real economy effectively taking money out of communities across america and leaving less capital for main street householdses and businesses to prosper. I was glad to read about the feds intentions to start shrinking its oversized portfolio. I share the view of james board and others that this decision is long overdue. What concerns me, however, is that once again, the fed seems to be improvising instead of following a wellgrounded strategy. Earlier this year, some officials pointed to another fed funds rate increase in september with the move to start reducing the Balance Sheet beginning in december. Now we are hearing that the fomc might start the portfolio Reduction Plan in september, and put off until december any further Interest Rate increase. Again, i welcome initiating the process to reduce the size of the Balance Sheet sooner rather than later, but i look forward to your testimony and hopefully an explanation whether the fed is once again changing its strategy and if so, why . Thank you for coming today and i look forward to your testimony about these and other topics . The time of the gentleman has expired. The chair recognizes the gentle lady from wisconsin miss moore from the sub come they for one minute. Thank you so much, mr. Chairman and thank you, madam chairwoman for appearing here for the annual hawkins report. I want to start out by think thatti thanking you for our very thorough reply regarding disparities and labor markets for africanamericans and other minorities. Thank you. It did not have a lot of solutions and it was very thoughtful for the projects that seek to sign the answers and this disparity is very clear among minorities, but im concerneded that it is also increasing in all populations of working americans and it seems pretty clear that the challenge moving forward will be able to have income and wealth inequality in a way that the blunt instrument of Monetary Policy cant especially as the fed moves forward to raise rates. I understand you have to do it, but there is an asymmetric recovery that is troubling. Given that the poor and working class have not felt the benefits of the booming stock market and that inflation is under control, i think the congress can and should use the power of the purse to shore up the statements of the population that are still hurting from their session and i look forward to hearing your testimony, and i yield back. Time of the gentle lady has expired. Today we welcome the testimony of the honorable janet yellen. I fell sel she needs no further introduction. Chair yellen, you are now recognized for five minutes to give an oral presentation of your testimony. Thank you for being here. Thank you. Chairman henserling and member waters and other members of the committee, i am pleased to present the Federal Reserves semiannual Monetary Policy report to the congress. My remarks today will discuss the Economic Situation and outlook before turning to Monetary Policy. Since my appearance before this committee in february, the labor market has continued to strengthen. Teams have averaged 180,000 per month so far this year down slightly from the average in 2016, and still well above the pace we estimate would be sufficient on average to provide jobs for new entrants for the labor force. Indeed the Unemployment Rate has fallen since the start of the year. And right before the Participation Rate has changed a little this year, another indication of improving conditions and the jobs market given the downward trend in the series. A broader measure of labor market slack that includes workers marginally attached to the labor force and those working parttime who would prefer fulltime work has fallen this year and is now nearly as low as it was just before the recession. Its also encouraging that jobless rateses have continued to decline for most major demographic groups including for africanamericans and hispanics. However, as before the recession, Unemployment Rates for these minority groups remain higher than the nation overall. Meanwhile, the economy appears to have grown at a moderate pace on average so far this year. Although inflation adjusted the Gross Domestic Product is currently estimated to have increased at an annual rate of only 1. 5 in the First Quarter were recent indicators suggested that growth rebounded in the second quarter. In particular, growth and Household Spending which was weak earlier in the year has picked up in recent months and continues to be supported by rising Household Wealth and favorable consumer sentiment. In addition, this is fixed investment has turned up this year after having been soft last year and the Economic Growth abroad has provided important support from u. S. Manufacturing production and exports. The Housing Market has continued to gradually recover aided by the ongoing improvement in the labor market and Mortgage Rates that although are up somewhat from a year ago remain at relatively low levels. With regard to inflation, overall Consumer Prices as measured by the price index for personal consumption expenditures increased 1. 4 over the 12 months ending in may, up from 1 a year ago, but a little lower than earlier in the year. Core inflation which excludes energy and food prices is also down in recent months and was 1. 4 in may. A couple of tenths below the earlier year reading. It appears that the recent lower readings on inflation are partly the result of a few unusual reductions in certain categories of prices. These reductions will hold 12month inflation down until they dropped out of the calculati calculation. Nevertheless, with inflation continuing to run below the committees 2 longer run objective, the fomc indicated in its june statement that it intends to carefully monitor actual and expected progress toward our inflation goal. Looking ahead, my colleagues on the fomc and i expect that with further gradual adjustments in the stance of Monetary Policy, the economy will continue to expand at a moderate pace over the next couple of years with the job market strengthening somewhat further and inflation rising to 2 . This judgment reflects our view that Monetary Policy remains accommodative. Ongoing job gains should continue to support the growth of incomes and therefore consumer spending. Global Economic Growth, further gains in u. S. Exports, and favorable financial conditions coupled with the prospect of continued gains in domestic and foreign spending, and the ongoing recovery in drilling activity should continue to support business investments. These developments should increase resource utilizations and thereby fostering a stronger pace of wage increase in prices. Of course, considerable uncertainty always attends the Economic Outlook. There is, for example, uncertainty about when and how much inflation will respond to tightening resource utilization. Possible changes in fiscal and other Government Policies here in the United States represent another source of uncertainty. In addition, although the prospects for the Global Economy appear to have improved somewhat this year, the number of our trading partners continue to confront economic challenges. At present, i see roughly equal odds that the u. S. Economys performance will be somewhat stronger or somewhat less strong than we currently project. I will now turn to Monetary Policy. The fomc seeks to foster maximum employment and price stability as required by law. Over the first half of 2017, the committee continued to gradually reduce the amount of Monetary Policy accommodation. Specifically, the fomc raised the target range for the federal funds rate by one quarter percentage point at both its march and june meetings, bringing the target to a range of 1to1 and a quarter percent. In doing so, the committee recognized the considerable progress the economy had made, and is expected to continue to make toward our mandated objectives. The committee continues to explore the evolution of the economy, gradual increases in the federal funds rate over time to achieve and maintain maximum employment and staple prices. That expectation is based on our view that the federal funds rate remains somewhat below its neutral level. The federal funds rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance. But because we also anticipate that the factors that are currently holding down the neutral rates will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 goal. Even sew, the committee continues to anticipate that the longer run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades. As i noted earlier, the Economic Outlook is always subject to considerable uncertainty and Monetary Policy is not on a preset course. Fomc participants will adjust their assessments of the appropriate path, the federal funds rate, and in response to changes to their Economic Outlooks and to their judgments of the associated risks as informed by incoming data. In this regard, as we noted in the fomc Statement Last month, inflation continues to run below our 2 objective and has declined recently. The committee will be monitoring Inflation Development closely in the months ahead. In evaluating the stance of Monetary Policy, the fomc routinely consults Monetary Policy rules that connect prescriptions for the policy rate with variables associated with our mandated objectives. However, such prescriptions cannot be applied in a mechanical way. Their use requires careful judgments about the choice and measurements of the inputs into these rules as well as the implications of the many considerations these rules do not take into account. I would like to note the discretion of simple Monetary Policy rules and their role in the Federal Reserves policy process that appears in our current Monetary Policy report. Let me now turn to our Balance Sheet. Last month, the fomc augmented its policy normalization principles and plans by providing Additional Details on the process that we will follow in normalizing the size of our Balance Sheet. The committee intends to gradually reduce the Federal Reserves Security Holdings by decreasing its reinvestment of the principle damage it receives from the securities held in the system open market account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps. Initially, these caps will be set at relatively low levels to limit the volume of securities that private investors will have to absorb. The committee currently expects that provided the Committee Evolves broadly as anticipated, it will likely begin to implement the program this year. Once we start to reduce our reinvestments, our Securities Holdings will gradually decline as will the supply of reserve balances in the Banking System. The reserve balances will depend on the number of as yet unknown factors, including the Banking Systems future demand for reserves and the committees future decisions about how to implement Monetary Policy most efficiently and effectively. The committee currently anticipates reducing the quantity of reserve balances to a level that is appreciably below recent levels, but larger than before the financial crisis. Finally, the committee affirmed in june that changing the target range for the federal funds rate is our primary means of adjusting the stance of Monetary Policy. In other words, we do not intend to use a Balance Sheet as an active tool for Monetary Policy in normal times. However, the committee would be prepared to resume reinvestment if a material deterioration in the Economic Outlook would warrant a sizable reduction in the federal funds rate. More generally, the committee would be prepared to use its full range of tools, including the size including altering the size and composition of its Balance Sheet if future Economic Conditions were to warrant more accommodative Monetary Policy than can be achieved solely by reducing the federal funds rate. Thank you. Id be pleased to take your questions. The chair now recognizes himself for five minutes for questions. Chair yellen, the first question i have is respect to the 2 inflation target that was adopted several years ago. I must admit, as an aside, a back of the envelope calculation tells me that nominal prices will double every generation. Im trying to figure out how that is commensurate with price stability, but that is not my question. In a recent press conference, some interpreted comments that you made to indicate that you were open to an increase in the inflation target. Are you pursuing an increase in the inflation target or the fomc, is this a matter of discussion within the fomc to increase the 2 inflation target . It is not. We reaffirmed our 2 inflation target in january. We are very focused on trying to achieve our 2 inflation target, and it is not a subject of discussion. Thank you. I will take no for an answer. As you heard in my opening statement, our main concern is to other members. Not a blurring between the lines of Monetary Policy and fiscal policy, specifically credit allocation. We feel that ultimately, this could impede upon the feds independence. Professor marvin goodfriend, who i think you may be familiar with, of carnegie mellon, gave what i thought was an instru instructiinstruc instructive distinction between monetary and fiscal policy. He said Monetary Policy does not favor one sector of the economy over another, and Monetary Policy does not involve taking credit risk onto the feds Balance Sheet. By contrast, he went on to say credit policy works by interposing the governments credit worthiness, the power to borrow credibly against further taxes, between private borrowers and lenders to distribute credit flows to distress borrowers. Fed credit policy involves lending to private institutions or acquiring nontreasury securities with freshly created bank or proceeds from the sale of treasuries from the fed portfolio. I guess my question is, do you agree with this discussion, and if you do agree with this distinction, do you feel that credit policy is commensurate with your congressional mandate . Well, the fomc and its principles are for normalization of Monetary Policy has clearly indicated that it intends to return over time to a primarily treasuryonly portfolio, and thats minority not to influence the allocation of credit in the economy. That said, our purchases of mortgagebacked securities took place after a financial crisis when the market for mortgagebacked securities was not working well. And i believe it was appropriate, but weve endorsed the principles i understand that, chair. The treasury portfolio. So do you or do you not associate yourself with professor goodfriends comments . Is that a useful distinction to you as he articulated it . I think it is a useful distinction. Okay. It is my understanding that the fed can legally purchase student debt guaranteed by the federal government, and municipal debt that matures in less than six months. Is that your understanding as well . Im not sure if thats student debt. We are able to purchase treasury and agency securities. Has the fomc ever discussed the possibility of either purchasing student debt or municipal debt . Not to the best of my knowledge. Finally, to end this part of the questioning, am i led to believe then that your Balance Sheet reduction will allow you to return the fed funds rate as the primary policy instrument instead of reserves, instead of interest on reserves . Is that my understanding from your testimony . Well, we are reliant on interest on excess reserves as our key tool for setting the federal funds rate. So that is a key instrument of Monetary Policy. But what i said is that we intend to rely on adjustments through interest on reserves, to the funds rate target as a means of regulating my time is rapidly winding down. Perhaps not in a question, but in a request. I was very heartened to see in your report a comparison of fed policy with a number of policy rules. I think this is very helpful, chair yellen. I would say in some respects your report says how how the fomc differed from these policy rules, but did not say why. In order to give the broadest amount of information to the markets so that people can plan their lives, i would simply encourage you to perhaps even go further and discuss how not how, but why the fomc differs from these policy rules. I think that would be very encouraging if you would have a brief comment on that. So let me just say im very pleased that you the Committee Found the material on rules useful, and we look forward to working with you to provide further information that would be useful to the committee. Thank you. I now recognize the Ranking Member for five minutes. Thank you, mr. Chairman. As part of the federal open Market Committee statement, our longer goals and Monetary Policy strategy, the committee states that it would be concerned if inflation were running persistently above or below its 2 objective. Given that core inflation has been below the feds 2 target for more than five years and is currently at 1. 4 , what is the feds rationale for further raising rates at this time . If the 2 market truly is semetric, shouldnt the committee symmetric, shouldnt they allow for to justify additional rate increases . So, let me say that were very committed to achieving our 2 inflation oifbt, and webjec a number of years, weve been running under that and recognize that there are dangers that would be associated with persistent undershoots of our inflation objective, and it is a symmetric inflation objective. 2 is not a ceiling. Its a symmetric objective. Now, i would say with respect to the inflation outlook, inflation has been running below 2 . Earlier this year, on a 12month basis, core inflation had reached 1. 8 . And headline inflation came close to 2 . We have seen increasing strength in the labor market that continues, and although theyre relaxed in this process, i believe that thats something that over time will put upward pressure on both. For several months running, weve seen unusually low inflation readings. As i mentioned, there appear to be some special factors that partner with the account for that. For example, quality adjusted prices of cell phone plans plunged several months ago, and Prescription Drug prices also plunged. So, some temporary factors appear to be at work. Nevertheless, so our 12month inflation rates will remain low until those factors drop out. But i would say its premature to reach the judgment that were not on the path to present inflation over the next couple of years. As we indicate in our statement, its something that were watching very closely, considering risk around the inflation outlook. To my mind, a prudent course is to make some adjustments as long as our forecast is that we are heading back to 2 . But Monetary Policy is not on a preset course. We are watching this very closely and stand ready to adjust our policy, if it appears that the inflation undershoot will be persistent. Thank you very much. Id like to move on to ask you a question about Deutsche Bank. First, id like to commend you and your colleagues at the Federal Reserve for recently fining Deutsche Bank, a top creditor of the president and his immediate family, for its failure to comply with antimoney laundering requirements. Id like to learn a bit more about what you may have discovered in the course of your investigation of Deutsche Bank. Were you able to verify that Deutsche Bank had completed its own internal review of a russian mirror trading scheme that took place from 2011 to 2015 . And secondly, as part of the feds supervision of Deutsche Banks antimoney laundering compliance, can you comment on the Due Diligence that the bank conducted on the accounts of President Trump and his immediate family members given the high profile nature of their account . So, we issued an enforcement action against Deutsche Bank for violations of bank secrecy act, antimoney laundering seizures in the United States, and that was based on our own investigations. The mirror trades that you referred to occurred outside the United States, recently the uk fca took an action against Deutsche Bank for those trades. Those are not ones that were involved in looking at, and in the course of our investigations, we havent looked into individual transactions with the president. That was one of two reviews that was done in Deutsche Bank, the mirror trading and the highprofile politicians and elected officials review. Are you familiar with that . Im not familiar with the details. Our focus has been on the safety and soundness of the operations of deutsche in the u. S. Thank you, i yield back. The gentlelady yields back. The chair recognizes the gentleman fnom kentucky. Thank you. Welcome back, and we welcome the decision, the announced intentions of the fed to begin the process of reducing the size of its oversized portfolio. But in terms of the plan, and in terms of portfolio composition and Balance Sheet normalization, why does your plan contemplate rolling off treasury securities at a faster pace than mortgage bonds . So the difference is relatively slight. My expectation is, although one cant be certain of what the prepayment of principle will be on mortgagebacked securities, that ultimately our caps on reinvestment of mortgagebacked securities will not be binding, that they will only come into play in exceptional circumstances. So once weve phased in those caps, i dont expect them to be binding. Essentially market is very deep, and liquid, its a huge market. Our intention in gradually phasing up these caps is to avoid disruption. Thank you for that. And this kind of gets to the question of further allocation. Let me move on quickly to the issue of and the feds use of interest on excess reserves as a Monetary Policy tool. The fed is now paying banks one and a quarter percent on their reserve balances, and if the fed follows through with its normalization plans, the fed will be paying banks a higher Interest Rate on their reserves sometime later this year. These interest payments, as i said in my opening statement, provide banks with a government subsidy to not lend out their reserves. Does the fed have any evidence that banks are passing on these higher interest on excess reserves rates to their customers in the form of higher Interest Rates on customer deposits . To my impression is that on larger deposits, on cds, were beginning to see some upward movement in the rates that are available to customers, but not on deposit accounts. My expectation is although there will be a lag, as Interest Rates rise, that Competition Among Banking Organizations will begin to put some upward pressure on those rates, and and yet we looked at some of the what some of the big banks pay on customer deposits, one basis point for many of them. Multiple institutions paying only one basis point on customer deposits. The fed is paying 125 basis points. It doesnt appear any of this passthrough is happening to customer accounts, and that might compel the fed to reconsider the merits of iioe policy. Wouldnt it be better for growth if banks were encouraged to deploy more capital in the real economy, instead of just parking it at the fed for ioer. I dont see banks as parking it at the fed, not lending. My discussion that we regularly collect suggests the banks are looking to make loans. There was a period of very slow growth at the beginning of the year. But our survey suggests its more a matter of demand than supply. So remember our interest on reserves is at a very low level. If i could just interject yes, maam. If i could just interject an editorial comment. Of course, would decrease the fed fund rate, but normalization would also entail moving back to the conventional open market operations. Let me finally in my limited time left talk to you a little bit about the limits of Monetary Policy. Of course, we know theyve struggled, even though unemployment has come down, and you talk a lot about substandard productivity. What Many Employers say to me is that they simply cant compete with the government for labor, and that the government is paying people to not work, and as you know, were in the middle of this big debate in washington about obamacare and whether or not we should reform medicaid. Heres what alan greenspan, who calls you a first rate economist, said. You cant get growth going so long as entitlement expansion is anywhere near what its been recently. Its eating up the sources of investment and the sources of growth and you cant have it both ways. You cannot fund all of the the entitlements everybody wants and expect that youre going to get a gdp out of that of 3 or more of the annual rate. The arithmetic just doesnt work. Wouldnt you agree that the structure of our programs contain disincentives for work . A brief answer, please. So, to my mind, the major factor here is an aging population that is putting downward pressure on Labor Force Participation. There are other factors that affect Labor Force Participation as well, but this group that they have reflects in part an aging population and slow productivity growth. The gentleman recognizes the gentlelady from wisconsin. Thank you so much, mr. Chairman. He gave an example of medicaid. 2 3 of the people who use medicaid are in nursing homes, and they are unable to work. I just want to point that out. I also want to pursue some questions from you that the chairman seems to be very interested in some rulesbased policy that the fomc had put out there. And i want to note that a couple weeks ago, you were very critical of the taylor rule, one of the rules that seems to be favored by the leadership on this committee. I was wondering if you could spend just a little time talking to us about your observations about the taylor rule and the appropriate application of it. Well, i dont believe that the fomc should mechanically follow any single simple rule, but as we point out in the Monetary Policy report, policy rules do embody some principles of sound Monetary Policy that should inform our policy decisions, and we have for several decades now looked at the recommendations of the taylor rule and a number of other different rules in deciding on the appropriate stance of policy. As we try to point out in the report, many different rules, theres no clear way to decide which one is better than others. So theres no single recommendation that comes out of a rulesbased approach, and the required judgment in order to implement about measuring things like the gdp or output gap, and particularly the neutral level of Interest Rates, something that weve been struggling with as has the professional Economics Community now for many years. Okay, well, thank you, chair. I want to know what your thoughts are specifically about that. Ive said on many occasions that im opposed to the requirements. Okay. What about subjecting the fed to appropriations, the appropriations . I would be very concerned about subjecting the fed to appropriations. We, of course, want to start with saying that were obviously operating in all that we do under congressional mandates and laws. We seek to be transparent, to be accountable to congress, and to communicate as clearly as we can the basis for our actions and Monetary Policy, and also supervision. I do think that our independence in setting our own appropriations thank you for that, madam chair. I want to get back to the limitations that the fomc has with regard to closing the disparity and the gap of recovery for africanamericans, lowerincome whites. Theres only so much you can do. So i was wondering if you would agree that some of the austerity measures that congress like, you know, saying that were paying people not to work, when actually people who receive food stamps, those are old people, disabled people and children, medicaid. Would you say that Congress Needs to step up on the appropriations side doing things for lower income people to subsidize wages, that that is a better tool than what the food has to offer . As you indicated in your opening statement, Monetary Policy is a blunt tool, and its not something that we can use to achieve distributional objectives, although as we point out in the report, a strong labor market does benefit all groups, and particularly minority groups, although the experience is worse for them. So, yes, i think its absolutely appropriate for congress to consider appropriate fiscal policy and how it might be used to advance those objectives. Thank you so much. My time has expired. The time of the gentlelady has expired. The chair now recognizes the gentleman from new mexico, mr. Pierce, chairman of our terrorism and illicit finance committee. Thank you for being here. We always appreciate your visits. Now, i note in your comments today, talking about the labor force Participation Rate, and in the past, i think you and i had an opportunity to discuss that. It was not something that seemed to be a concentration on the part of the feds before now, and it is now. What changed that its become a bigger concentration for you all . So its important for us to try to determine how much slack there is in labor markets, how much potential i understand that. There didnt seem to be any comments from you. In 2016, it was a number that didnt come readily to your mind when you were in front of the committee here. Just wondering what has changed since january that you would now be concentrating on that. I think i was discussing this last year, because it is a source of uncertainty after a very long and deep recession. We want to understand the areas for people to come back. And as i mentioned in my testimony, labor force Participation Rate has been i appreciate that. If i could grab my time now. Im going through the Monetary Policy report now and going through your comments, and i almost dont see anything about that number on the screen behly there. Maybe it doesnt mean anything. And sort of maybe it does. Do yall ever talk about that in your committee . Do you ever contemplate that in your position . Well, ive discussed this previously with this committee. I understand, but today is one of the driving factors and something we ought to be thinking about. So how did it affect you all when illinois was downgraded their bond rating was downgraded to the first of the year, and they are paying what one analyst said is the highest differential in our history . The reason theyre having to pay more is because they cant afford to pay the bills, basically, and if you hold their bonds, you may not get paid. If you went back to detroit when it filed bankruptcy, bondholders only got 74 on the dollar. And so it all feeds back to this number here, and the fact that it doesnt even make the print, not even the find preint that i could find. Al maybe i missed it. I did see the one sentence about illinois being downgraded. There was brief discussion of puerto rico. But the idea that we as a country are not discussing our ability to pay our bills is something that i think theres a downside effect to the problem, but the fact that your report doesnt bring it up is a little concerning to me. And the way that really played out was a couple of weeks ago, when Chicago Schools tried to issue a bond rating and they didnt get any bidders at all. None. So they ended up driving the rate up to seven, seven and a half, 7 3 4 or something. But it seems like that the people in charge of the Financial Stability of the country, the value of our dollar, the value of our promises to pay, it just seems like it would have a little bit more importance in the document here. I would expect, frankly, maybe a whole chapter because there are estimates that we cant pay our bills in this country, and so we continue to operate as if as if its not going to matter if our ratings are downgraded. If our Interest Rate goes up, were already running deficits, which means we have to print the money every year in which to operate, and it seems like that the people in charge of the system would be talking about it and postulating and telling us, hey, this is kind of serious, why dont we all Work Together and start figuring out what we can do to live within our means, to just make sure that were not paying triple and quadruple what other people are paying. I would love to hear your comments. Well, let me state in the strongest possible terms, i agree that what youre showing here represents a trend that given current spending and taxation decisions is going to lead to an unsustainable debt situation with rising Interest Rates and declining investment in the United States that will further harm our productivity growth and Living Standards. I believe a key thing that congress should be taking into account in designing fiscal policy is the need to achieve sustainability of this debt path over time. This is something im not just saying today, but have been emphasizing for some time in my testimony. Thank you very much. I yield back, mr. Chairman. The time of the gentleman has expired. The chair now recognizes the gentlelady from new york, ms. Maloney, rappi maloney. Chair yellen, as you mentioned earlier, inflation has not been moving up as quickly as the fed had been expecting. And given that the labor market has continued to tighten, and inflation still hasnt increased to the feds target of 2 , do you think the fed should wait to see some improvement in the inflation outlook before it starts the process of Balance Sheet normalization by phasing out the feds reinvestment policy, or in other words, are your plans for the timing of Balance Sheet normalization unchanged . So, we have been trying to very carefully make our plans to normalize the size of our Balance Sheet in a gradual and predictable way, and my colleagues made the judgment in june when we laid out the final details, that as the economy continues to evolve in line with our expectations, that its something that we should begin to do this year, and to my mind, i would say relatively soon. The exact timing of this matters a great deal. Its something weve long been preparing to undertake. We are watching the inflation very carefully. I do believe that part of the weakness in inflation represents transitory factors, but will recognize inflation has been running under our 2 objective, that there could be more going on there. Its something we will watch very carefully, and will be a factor in our future decisions about rate increases. Thank you. As you know, your term as fed chair ends in 2018, and theres a long history of president s renominating fed chairs that their predecessors had originally named. Ronald reagan renominated paul voker. Bill clinton renominated alan greenspan. And president obama renominated ben bernanke. So my question is, are you open to serving another four years as fed chair if President Trump decides that he wants to renominate you . So, what i previously said is that i absolutely intend to serve out my term. Im very focused on trying to achieve our congressionally mandated objectives and i really havent had to give further thought at this point to this question. When the fed does start the process of Balance Sheet normalization, are you less likely to raise Interest Rates at the same time, or do you view these two actions as being on separate tracks . So the path for the federal funds rate is a decision for the committee, that theyve made no decision about whether or not both things could occur at the same time. I would note that in june at our most recent meeting, we produced the summary of economic projections, which appear in the Monetary Policy report. Most of my colleagues were the median anticipated, that one further increase in the federal funds rate would likely be appropriate this year. We constantly watch the economy, the evolution of inflation in the labor market, and well make decisions on the basis of our evaluation of that information. The fed has suggested that the stock market is currently overvalued. Are there other markets that you consider or see as overvalued as well, and do you think a correction in any of these markets would cause problems for Financial Stability . So in looking at asset prices and valuations, we try not to opine on whether theyre correct or whether theyre not correct, but as you asked what the central spillovers or impacts on Financial Stability could be of asset price revaluations, my assessment of that is asset prices have moved up. We have not seen a substantial increase in borrowing based on those asset price movements. We have a Financial System, a Banking System thats wellcapitalized and strong, and i believe its resilient. The time of the gentlelady has expired. The chair now recognizes the gentleman from missouri, the chairman of our Financial Institution subcommittee. Thank you, mr. Chairman, and thank you, madam chair for being here today. One of my jobs and greatest concerns is the Regulatory Oversight by the various Financial Services agencies. Chair yellen, when it comes to the feds supervisory role, i want to renew my call and the calls of so many of my colleagues that the fed take a more measured approach and withhold any new regulation until the nominee for vice chair for supervision has been confirmed by the senate. I do appreciate some of your comments, the comments of your colleagues, particularly governor powell, on issues such as the treatment of margin, the supplemental leverage ratio, and on ccard testing. Issues like these have a very real impact on our economy, and i think it wise that the fed ease the associated burdens. You recall, i sent you a letter on ccar. Your response to me indicated that while you understood my concerns, the fed wasnt necessarily looking to curtail some of this stress test related activity. So now that the vice chair of supervision has been named, ill again ask that the fed hold off on imposing any new supervisory burdens before the individual is in place, and i would just ask for a response of these statements and concerns. So, we have a relatively light regulatory agenda at this point. Im pleased to see a nomination. Clearly, we will look very carefully at the whole set of issues around Regulatory Burden, and look forward to having the input of that individual confirmed. Okay. Thank you. To that end, also i want to mention that im very supportive of many of the provisions included in the recent treasury report. I hope that the Federal Reserve is taking some recommendations seriously. Have you read the report yet . Are you aware of it . Yes, i have read the report, and there are many very useful and productive suggestions that mirror things that weve been thinking and doing ourselves with respect to tailoring of our regulations, reducing burdens on Community Banks. I think the recommendations pertaining to volcker rule and looking for ways to reduce burdens are all very useful. There are a few points where we have a different view on what it is very useful. Im looking forward to working on that with you. We want to work with you to try and prove the ability of our banks to be able to do the job of helping their communities grow, and im glad you mentioned Community Banks, because ive got a quick story for you, id like your response to it. Ive shared this story with the committee in the past. A small bank in the district has been caught in fill Federal Reserve purgatory for the last five years. The agency has blocked the merger of this institution over concern over certain products. The same products that have actually been encouraged by the fdic and the state of missouris division of finance. Your staff has forced this bank through the years to produce document after document, which they have done, and the bank has made now several offers to remediate, but the fed has rejected them. Mid america has spent more than 2 million in legal fees. This is a small bank that really cant afford to do this. This process has got to stop. The Federal Reserve, after five years, owes this institution a determination where they can get this done. So my first question is, are you aware of this case . I am aware of this case. Okay. What can be our expectation of the resolution of this . Well, im not prepared today to comment in detail on what is a confidential supervisory matter, but there have been a set of complicated issues pertaining to consumer well, madam chair, with all due respect, i understand where youre coming from. The bank on my side is very open about what their problems are, the concerns are. We have an elderly individual who has got medical problems who wants to divest themselves of this bank. They have a very viable, well structured finance, well capitalized bank that wants to take them over. Basically, whats happening here, a very punitive way of going about punishing this bank for a product that was something that the fed didnt like, quite frankly. And so, the five years this has gone on, and thats enough, and so the opaque rules and unwillingness of the fed to work cooperatively with the banks and their attorneys and the regulators is not something we can continue to support. And this is why i asked the question when we started back with the treasury report. The treasury report is i think some solutions to some of the problems that regulatorily that we have, and that is the punitive actions taken by some of the agents, including yours. So i think its got to stop. We want to work with you to be able to improve their communities and help their economies grow, and we look forward to that. With that, i yield back. The time of the gentleman has expired. The chair now recognizes the gentleman from minnesota, mr. Ellison. Good morning, chair yellen. Thank you for being here today. Let me start out by saying im really happy about the appointment of the president of the Federal Reserve bank in atlanta. He meets the legal mandates and he has great expertise, and also, he increases the number of africanamerican Bank President s from none to one, which i think is important. And so thank you for that. We debate around here a lot of the cause of Slower Growth over the last several years. Youve already been exposed to some peoples theories a as to why we have Slower Growth. I was intrigued by this book i read recently. I dont know if youre familiar with this particular book, but its a book that really talks about the financialization of the economy. I guess id like to get your take on it. The author of the book notes that one reason for lower productivity and lower wages is the outsized profits earned by some in the Financial Services sector, hedge funds, wall street, and an author, she has a stat up there on the screen, she says that while the Financial Sector it provides about 4 of the jobs, but earns a whopping 25 of corporate profits. 25 of corporate profits. Thats a lot of money. So as a result, you see money flowing into those sectors, rather than plant and equipment and other sectors of the economy that might lend themselves to greater employment. You have any impressions about that particular theory . So the Financial Sector has grown in importance relative to the u. S. Economy, but my sense is that if we look at the plight with respect to wages and jobs of middle class families that have seen diminishing opportunities and downward pressure on wages, that we have to take account of factors such azts technological change that have eliminated many middle income jobs and globalization that have reinforced the impact of technological change and that has to be an important those things have to be an important piece of understanding whats happened. Im sure that technology does play some role, but weve always had technology, havent we . I mean, when we went from horse drawn carriages to cars, people who made horseshoes had to find Something Else new to do. So im always a little skeptical when i hear people say technology. Weve always had technology. Weve also had more employment. But weve had kind of this slow growth period, and weve had some people say, well, its because people dont want to supply labor, because theyre living too good on welfare. Also, is it possible that the Financial Services sector is sort of channelling investment into financial, you know, activity and not into agriculture, Manufacturing Services that actually employed people . So ill give you an example. If you look at Sears Department store, its closing about 250 stores this year. That means about that means thousands of sears and kmart employees are going to lose their jobs and hundreds of communities will lose retail access. You could point to technology, im sure thats part of the explanation, but can you share some ideas or point to some analysis to explain why the Retail Sector is being hit so hard. You could say amazon, but im doubtful that that explains the whole problem. Any specific information on the role that finance might be playing in part of these decisions . And investors demand outside returns so that you can have better returns on financial equities. Well, i dont have anything specifically for you on that. Id be happy to take a look. I would point out that for many years, Many American companies have been sitting on a lot of cash. Yeah. And theyve been unwilling to undertake investment and equipment of the scale that we would ideally like to see. So i think there are a number of Different Things thank you very much. I yield back my time. The time of the gentleman has expired. We now recognize the gentleman from michigan. Thanks, chair. Im sorry, im hiding behind a couple of my colleagues here. Appreciate that opportunity to have you. I was not expecting this. I want to touch briefly on something that chairman barr had talked about, the labor workforce participation. These are u. S. Bureau statistics, civilian labor force Participation Rate. This is a Study Released by the st. Louis fed. Im sure youre familiar with it. Fred. Stlouisfed. Org. Clearly the levels of participation are unavoidable because of an aging demographic. I wish i had the chart that i was able to put up, but it seems to me, whats most concerning is this drop in participation really comes from youngest americans, and, in fact, that chart, again, released by the fed of st. Louis shows the highest levels we have seen since the 1960s for americans aged 55 and older. And it seems to me this argument that our economy hasnt responded the way that it has. We talked about this actually last time you were here, and i think i labeled it flimflam. Not in a disrespectful way, but it was clearly not what some of those statistics are showing. What i want to talk about quickly is that during your semiannual testimony before this committee in 2015, you were asked about concerns regarding a lack of liquidity in certain fixed income markets, and you stated that its not clear its not clear what is happening in these markets and what is causing what. You continued that. We dont see a problem, but it was something that you needed to study further. So my question is, has there been additional study and followup by the fed on that particular issue . So that is something that we continue to look at. We provide this committee with regular reports, particularly pertaining to Corporate Bonds. Theres been a number of studies inside the fed and also outside of it that show, you know, no clear pattern. Some suggestions that our regulations may be negatively impacting liquidity, but other studies reaching different conclusions. So you dont believe that theres problems in the fixed income markets . The inventories of bonds held by some of the largest banks and Market Makers have declined. On the other hand, the spreads are low Corporate Bond issuance has been healthy. The markets done well but isnt it true that we dont know whether those bid ask spreads are really there . I mean, theres a lack of transparency. It is hard to draw conclusions purely based on that. Well, we are going to actually be exploring this in my Capital Market subcommittee on friday. Weve got a hearing on fixed income markets. Really just trying to figure out what is going on. So maybe we can help you with some of that analysis with some testimony from here. But we need to have that investigative effort by the fed on this as well. I want to move on. The former fed governor suggested in a speech that a new regulatory paradigm is needed to expand fiduciary duties of directors of banking institutions. He posed the question whether existing modes of Financial Regulation could be further supplemented by modifying the fiduciary duties of the boards of regulated Financial Firms to reflect what i have characterized as regulatory objectives. Specifically, he believed there is a special Corporate Governance measures are needed as part of an effective prudentialed regulatory system, and he argues that traditional fiduciary duties focused on shareholders are inadequate for banking institutions. So were not talking about dol. This is for banking institutions. Do you agree with his recommendations . Well, those are his personal recommendations. Is that a no . Im not prepared to say that i agree with all of those recommendations. Were focused on trying to clarify expectations for boards of directors to distinguish what the Important Role that they have in the Banking Organization and what is the job of Senior Management versus board of directors that would be a concern that i have here. What expertise the fed has on Corporate Governance issues like fiduciary duties and Corporate Boards, and frankly, under what Legal Authority does the Federal Reserve seek to preempt state Corporate Governance requirements as well as a number of things. So appreciate your answer, and thank you. The time of the gentleman has expi expired. The chair recognizes the gentleman from colorado, the Ranking Member of our terrorism and illicit finance subcommittee. Good morning, madam chair, and thank you for being here, and thank you for being a steady hand at the Federal Reserve. Thank you. You must be doing an okay job, because ive listened to my friends, my republican friends who generally have very crisp, sharp, piercing, probing, and accusatory questions. They dont have those today. Because things are doing pretty well. In colorado, i want to thank you. We were in real dumps eight years ago. 10 unemployment. Housing crashing foreclosures through the roof. In my district, were at 2. 1 unemployment. The state is generally 2. 3 . I know thats not the same for you know, some of the parts might stay a little tougher. And i know across the nation, but generally, things have been steady, and i want to send you and the policies of the fed in helping us get out of what was a very bad situation. Thank you for that. So, a couple questions. First, theres a guy who has been pretty dogged in wanting to telling me that we need to shrink the feds accommodative policies, and pretty much, hes in the audience today, so explain to me directly behind you a couple rows. And hes been very firm of these years in wanting me to press you on this. So would you explain to me how you plan to shrink the accommodative policies that weve turned back in 2008, 2009, and 2010 . So the Federal Reserve was dealing for many years with an economy with very high accommod and inflation running below our 2 objective. We did everything that we possibly could to try to achieve the goals that had been assigned by congress, namely maximum employment and stability. We were constrained in our ability to use shortterm Interest Rates as a tool and so we used our Balance Sheet and undertook other measures to try to stimulate the economy. And, um, i believe weve been succeeding while inflation is still running below our 2 objective, the labor market, as you pointed out, is much healthier, the Unemployment Rate is now even running a little bit under levels that we regard as sustainable in the longer run. I think thats entirely appropriate, um, given that inflation is running below our objectives. So, as the economy improves and we come closer to achieving our objectives, we see it as appropriate to begin to gradually begin to remove accommodation and move to a neutral stance. As ive said on many occasions, the new normal with respect to the level of Interest Rates is neutral appears to be rather low so we have raised the federal funds rate target. I believe policy remains accommodative but, given low estimates of the neutral federal fund rates are now, namely levels the funds rate that we just be consistent with sustaining the strong labor market over time, um, we, you know, perhaps have some further moves, um, that we envision making, if the economy proceeds along the path its on. We will be anticipate that neutral may move up some although remaining at low levels and that generally the view that, over time, we may want to increase the funds rate a bit more. But, that all really depends on how things evolve. So let me change the subject real quick and on page 12 of the report there are two words that ive never seen in any of your reports its abysmal performance. And its as to productivity developments and the advanced economics, thats the section. And the combination of technology and and advances in clients and everything else, coupled with labor, were seeing something so its in the second column a number of potential explanations have been put forth for the abyss sal performance of t. F. T. But theres a waning oh, well, im out of time. I thank you for your service. Youre doing a heck of a job. Thank you very much. Time of the gentleman has expired. The chair now recognizes the gentleman from wisconsin, mr. Duffy thank you, mr. Chairman. Welcome, madam chair. My friends across the aisle seem to be relatively excited about lower unemployment, an economy thats picking up. The stock market and peoples 401 k s are improving and want to give you a lot of highfives and back slapping. You get all the credit. What changes have you made since november 8th to kickstart the economy to make it grow that you werent doing before november 8th . What what changes have we made to kickstart the economy . Yes. Weve continued on the course that weve been on of normalizing the path of monetary policies as the economy continues to recover. The real change has been we have a new president in the white house, id just make that point to my friends across the aisle. Do not get too excited on who should get credit for an improving economy. But, i do want to follow up on what my friend was asking about, the gentleman from michigan. In regard to the rule that the fed is playing on Corporate Boardrooms and Financial Institutions. You would acknowledge you do have a role at the fed in these boardrooms. What role do you have . What are you doing . Well, its our job to make sure that Banking Organizations are operating in a safe and sound manner and have policies in place that, um, ensure both their safe and sound management and compliance with, um, federal laws and regulations. And Corporate Boards play a Critical Role in ensuring, um, the performance of Financial Institutions. Isnt it fair to say, though, that virtually anything could fall under the umbrella of safety and [ inaudible ]. I mean who is hired and who is fired and who is disciplined within a Financial Institution could fall under it, right . Well, i think its important to and were going to try to that could fall under safety and soundness, right . Yes, it could. And capital flows, who a Financial Institution lends to could fall under the auspices of safety and soundness, right . Yes, it could. In fairness, it could replace the board of directors who have a fiduciary duties to shareholders and actually take over boards, all under the premise of safety and soundness. Well, we believe the Corporate Boards play Critical Roles in a Critical Role. In ensuring ensuring. What falls outside the scope of safety and sound in es in a Financial Institution . Exactly. Exactly. Probably anything you mentioned you cant give me an answer because everything falls under that scope. Thats our concern. The fed doesnt have a fiduciary duty to shareholders and actually Board Members have potential civil and criminal liability in their service on a board. Does the fed have any civil or criminal liability, um, [ inaudible ] on a Corporate Board . Board members are liable. How about the fed . Well, we have supervisory responsibilities. You do. But, are those fed members who are sitting in on board meetings are they potentially criminally or civilly liable for the decisions they push a board to make . Not to the best of my knowledge. Mine, either. Thats concerning for us. Im pushing on this because you do have a supervisory role and, um, i want you to do a good job. But, from the feedback that we get, the involvement the fed has in our Corporate Boardrooms has far surpassed i think the vision any of us had in this room and concerns us. So, let me say this. Weve talked to many corporate Board Members and understand that there has been an accumulation of, um, a large number of items we have, um, indicated that Board Members, along with Senior Management, should be responsible for. I dont believe you have the authority, madam chair we should clarify and thats the feedback we have had from members. My time is almost expired. If i could ask one more question do you anticipate this will be your last time testifying before this committee . Um, my term expires in february, and so a roundabout way of asking you may well be. Are you seeking another term . Not not said anything about that. I intend to serve out my term and not i want to thank you for your service and yield back. My time has expired. The chair now recognizes the gentleman from illinois. Thank you, mr. Chairman and chair yellen for your service. In the past ive sent letters to you and other federal regulators and asked about the requirement that custody bank hold spleemtary leverage ratio against deposits at the Federal Reserve presumably because of worries in some future universe fed deposits may become less safe than cash. I believe the Federal Reserve deposits are exactly the sort of safe place for these large immediately callable cash positions that we should actually be encouraging because of the strength and reliability of the Federal Reserve as a counterparty. As you may be aware we now have Bipartisan Legislation to require prudential regulators provide relief for institutions that place cash with the fed. At the same time, as providing significant flexibility for the regulators to deal with unusual circumstances. So, do you see any safety and soundness difficulties if this legislation were to go forward . Im not going to comment on the legislation. But, um, we are looking at the supplementary leverage ratio because of the impact that you mentioned. Leveraged ratio was meant to be a backup, a backup supervisory device calibrated appropriately relative to riskbased Capital Requirements. And, while, in general, i think riskbased Capital Requirements, especially for the largest and most systemic institutions are appropriate and i think comfortable with, it may be the supplementary leverage ratio needs to be recalibrated relative to that and im very much aware of the problem youre mentioning. Thank you. I appreciate that. Considering how [ inaudible ]. Thank you. Id like to use a little of my time to comment briefly in defense of my home state of illinois in response of some of the remarks of my colleague from new mexico. Every year the citizens of illinois write a check for approximately 40 billion to states largely in the sunbelt and rural areas because for every dollar tax money illinois receives back only 75 cents of federal spending. In contrast, new mexico receives 2. 40 back for every dollar of tax money. And so, this check that we write for 40 billion a year had it been put into a Rainy Day Fund instead of redistributed to the other states in the union would have resulted in a balance in that Rainy Day Fund in excess of 1. 5 trillion dollars today. I think when people discuss the fiscal problems of illinois, the starting point should be there. Now, finally, id like to future Work Task Force for the new Democrat Coalition an we are looking at the effects of technological and other changes that might occur in our workforce in the coming years and what policies we should adopt to remediate the bad side of those effects. Um, theres a lot of discussion now about why inflation is not increasing as you would have guessed in the past particularly wage inflation. In the past when the gap of the the gap closed up in the job market, that very rapidly employers would start bidding up wages. That doesnt appear to be happening the way it used to and one of the explanations that is suggested for that is that employers have the opportunity instead of just bidding up wages to simply invest in technology that replaces jobs. I was wondering if you think there is a reasonable chance that youre going to have to change your Macro Economic models to reflect the loosening of the link between the closest tightness in the job market and the increase in wages . Well, we are seeing attenuated links, i think, between the labor market and wages but even to a greater extent prices and inflation. Um, the relationship between those two things has become more attenuated than, um, weve been accustomed to historically and its in general, when the robots show up, they show up as low prices. If you ask the average farmer what forced them to consolidate they dont say its the machines they say its low grain prices and that goes on in many ways, retailers struggling in price competition from amazon. So, i think that really we have to look at this in a macroeconomic sense because its effects will not be small. I encourage you to think about that. Thank you. Time of the gentleman has expired. The chair recognizes the gentlelady from missouri thank you, mr. Chairman. And chair yellen, our committee has been concerned for some time about confidential fomc information being shared with favored constituents in large vice chair fisher reportedly delivered remarks and took questions on Interest Rate policy. I say reportedly because the dinner was closed to the public and the press but open to wall street and other financial interests. In addition, his prepared comments have not been made available and the fact the speech took place, frankly, at all was not widely known. This keynote flies in the face of the fomcs policy on external communications of Committee Participants which states that and im going to read this right out of the policy, Committee Participants will strive to ensure their contacts with members of the public do not provide any profitmaking person or organization with the prestige advantage over its competitors. They will consider this principle carefully and rigorously in scheduling meetings with anyone who might benefit financially from apparently exclusive contact with Federal Reserve officials and in considering invitations to speak at meetings that are sponsored by profitmaking organizations or that are closed to the public and the media. Closed quote. Chair yellen, we all want transparency and accountability for our Monetary Policy so that it remains insulated from political and profitmaking interests. The vice chairs speech does not help with that, at all, and flies, in fact, in the face, flagrantly with policy. The speech occurred just days before another fed official, jeffrey lacker, abruptly resigned as rich man fed president after admitting to playing a role in the 2012fomc leak where marketsensitive details of the Central Banks internal deliberations were leaked to a private consultant that then shared the details with clients who stood to net millions in profits by strayeding ahead of the release of the news. However, the true leaker still remains at large apparently as former president lacker appears to have only incidentally confirmed Insider Information that medley had already received. This is something that i zerc certainly as chairman of the oversight and investigation subcommittee will continue to look into. Chair yellen, how could this speech have been allowed to happen given everything that had occurred with the 2012fomc leak . Okay. So, let me start by saying that the very beginning of our policy on fomc external Communications States Twoway Communications between members of the committee and members of the public are very important both to communicate, um, with the public and, also, for information and that these will occur in a variety of ways, including, in some closeddoor meetings. So, there was no requirement that, um, fomc members cannot meet in closeddoor sessions. The Brookings Institution is not a forprofit institution. Its a nonprofit and we have a clear set of guidelines governing what can and cannot happen in such will remarks be released to the public . So, the clear rules are that no fomc confidential information can be divulged, ever, including in a closeddoor setting and that fomc officials may not discuss even their own views on policy except to the extent that theyve already been presented in a public forum. Wall street remarks did not pertain to Monetary Policy. They pertained to financial the difficulty, chair yellen, is that we dont know that. In the interests of transparency and accountability, perhaps it would be good to show the light of day on whatever his remarks were to wall street bankers that were invited to a speech at the brookings institute. And i have to say, madam chair, that, you know, its very clear that these should not be closed to the public or the media. Im very concerned about this Going Forward and am also concerned about the resolution with the board due to the internal governance that happened on the fomc leak. So, id like to submit that in writing and get your information on that. Thank you, mr. Chairman. We have cooperated fully with our Inspector General and Law Enforcement agencies. They have had access to all, um, information thats relevant to this matter. And that they announced simultaneously with president the board must approve standards and keep to standards, madam chair. Chair now recognizes the gentleman from missouri, mr. Clay, Ranking Member of our Financial Institution subcommittee. Thank you, mr. Chairman, thank you chairwoman yellen for being here. You know, perhaps we should replace some of the fantasy that weve heard today on the other side with the reality you know. I hear my colleagues over there say that within six months of this new administration, we have improved the economy, we have improved Employment Opportunities for america. I guess theyre pointing to the carrier deal in indiana where they were promised over a thousand jobs to stay in this country and about 750 we hear are moving to mexico. But, well give the president credit for that deal. And, really, i know that the reason why the economy has turned around is the sustained job growth of the Previous Administration over more than six years. So, heres my question to you chair yellen, in may, the overall Unemployment Rate of 4. 3 hit a 16year low. Although the Unemployment Rate rose onetenth of a percent in june, this reflected a positive move that more workers who had dropped out of the labor force had returned to look for work. With the overall rate of employment now down at historically low levels, would you say that the economy has reached full employment or do you believe that this headline rate masks weaknesses in the labor market where additional progress must be made . So, not all groups in the labor market are faring equally well and we remain concerned about, particularly for africanamericans and hispanics, weaker job market outcomes. But, um, Monetary Policy is a blunt tool. As you point out, the Unemployment Rate and overall [ inaudible ] of the labor market is strong, with many job openings and opportunities for workers. Um, so, the Unemployment Rate is even falling slightly below levels that my colleagues would regard as sustainable in the longer run. We have seen, um, a steady rate for several years now, a constant rate more or less of Labor Force Participation which, with an aging population, tending to push it down, suggests the groups that have been sidelined or finding opportunities and entering the labor force and gaining employment, so thats a Strong Performance and this has now been going on, as you said, for a number of years. And has continued, um, has continued this year. Yeah. Thank you for that response because progress doesnt happen in six months especially when you have to recover from a devastating recession. And so, for the other side to give credit to someone whos not even focused on our economy is ridiculous. One more question what, in your view, have been the key drivers of the job gains since your last testimony before this Committee Six months ago . Have job gains been driven by longerterm trends from a growing economy or have they largely resulted from new policies adopted in recent months . So, um, the Global Economy has recovered. It was the source of weakness earlier. Thats been the source of support. And weve had ongoing job gains and increases in, for example, housing prices that are boosting the wealth of americans, and thats driving consumption spending thats Strong Enough to create ongoing job gains that exceed whats needed for an expanding labor force. So, the job market continues to strengthen and unemployment continues to move down. Thank you for that response. I hope this is not your last visit to this committee. But, im sure it wont be the last time we visit. Thank you and i yield back. Gentleman yields back. The chair recognizes the gentleman from florida thank you, chairman. I hate to get into the cat fight or dog fight of who shot john and whos policies are doing what and i heard the remark that, you know, the Economic Analysis cannot show any significant shortterm result or something to that effect. And id just like to remind the other side that i saw dramatic overnight change in the stock market from the election to the inauguration. And i think well go on. Chair yellen, good to see you again. Since i arrived in congress, the most cosponsored bipartisan significant piece of legislation has been dr. Pauls original legislati legislation regarding the fed. We passed it but it goes nowhere at the other end of the building. Are you afraid of getting that passed . Im strongly opposed. The fed is audited in every way normal americans would regard, n audit our financial accounts and holdings, our its not audited like all other agencies. You are aware as well as i am there are a list of exemptions. What if the fed removes exactly one exemption that the Federal Reserve enjoys, which is realtime policy reviews by the gao of our Monetary Policy decisions and that is the essence of Federal Reserve independence and trying to keep politics out of decisions that should be technical, professional and nonpartisan. Well, i would agree if i thought there was a lot of truth to that statement. But, auditing something after the fact has nothing to do with influencing the decision, i wouldnt think. I would consider it a matter important matter, actually, of transparency and i, for the life of me, cannot understand what the fed fears. Can you give me and example that would justify the lack of transparency . Well, we dont have a lack of transparency. You do, if you cant audit it its a lack of transparency. To most people i know its a lack of transparency. To some people it may not be. I dont understand that. Thats the reason im questioning you about it. So, i regard the Federal Reserve as one of the most transparent Central Banks in the world. Thats a statement. What do you fear about the audit . Give me a realtime example. So, i think the fom c needs space in which it can have honest conversations and deliberate in realtime about the decisions that we make, um, without having, um, political influence brought to bear and secondguessing decisions that we have made and opining on them possibly with the idea of reversing we can discuss things in public that are sensitive, talk about national security. The Supreme Court does the same thing. You know, they dont worry about the transparency influencing them. Just give me an example, give me an example of how transparency could hurt the fed. Just give me one example how it could hurt the fed being transparent. Because what youre talking about with the gao or policy reviews would be give me an example. Just say, take for example, this, if somebody said this, it would be horrible, it would be the end of the world for the fed. Give me an example like that. So, i would envision a situation where the gao, at the request of members of congress, might come in and say at our meeting a week ago, theyve taken the transcripts and reviewed what we said. They believe the decision we made was the wrong one at that particular meeting. And i would say thats an extreme interference and politicization of our ability to make independent Monetary Policy decision. So youre telling me we shouldnt be transparent for the fear of being secondguessed or somebody criticizing you because they thought you were wrong. Do i get it . Well, were talking about is political interference in Decision Making by i dont see that if its after the fact i dont see the interference in Decision Making. Well, i do. Well, give me an example. I gave you an example and thats how. Give me one example why they shouldnt have that transparency. Time of the gentleman has expired. The chair recognizes the gentleman from georgia, mr. Scott. Thank you very much, mr. Chairman. Chair yellen, welcome, good to have you again. Chair yellen, i, first of all, want to thank you and the Federal Reserve under the leadership of our Ranking Member, miss watters and Ranking Member of the judiciary john conyers and myself and others. We were hopeful that, for the first time in history, American History, that the Federal Reserve would appoint and hire the very first africanamerican ever to hold the position as a regional president of the fed. And you all did that. And we want to say thank you. So much. We deeply appreciate that. That means a lot, not just to the Africanamerican Community but to all americans. Thats what this great country is about. Let me go to one other thing. Chair yellen, um, let me talk you and i have had ongoing dialogue about the high Unemployment Rate of africanamericans and i always remember fondly when you refer to that as a blunt instrument. As i said thats what he said to james bond to describe him; in other words, he couldnt go through it. So, you said congress had to come up with some legislation. We did that. House resolution 51 or 52 of which we sent a copy to you, you know, which would get high africanamericans staggering Unemployment Rate of africanamerican young man in the inner city to a training program, attached to rebuilding the crumbling infrastructure. That has been introduced and, of course, each five years we have to by law fund the 1890s africanamerican colleges so we put 95 million in the appropriations, hopefully, that we will be able to spread over for five years, five Million Dollars for each of these universities over that period. N now, i read your past reports that you have given and you have talked about housing and wed like to move to that next. And in your past three reports, you made a point to dedicate four sections of the report to specific topics related to the disparity that the Federal Reserve is seeing in the data for the Africanamerican Community. So, i want to call your attention specifically to those sections from the three most recent reports to congress. The titles of these and you referred to them as boxes if you will recall, boxes. Thats what the fed calls them. One box was have the gains of the economic expansion been widely shared . Box number 2, homeownership by race, et tisty and box 3 does education determine who climbs the economic ladder . And in that discussion of those problems, you highlighted and included socioeconomic differences between whites and blacks, poor Credit Scores due to income disparities, and continued discrimination. That lays it bare. So, chair yellen, let me just ask you, of all of these factors in your boxes, which of these factors is most pressing and what recommendations ob substantive solutions can we, in congress, work on to help address the Home Ownership problem hurting africanamericans, much as you suggested that we develop this legislation thats moving forward on the unemployment of africanamericans . Well, i dont want to try to give you detailed suggestions for, um, what legislation you can put forward. Our job is to try to do the best we can to provide information and background that will be helpful to you when you decide whats appropriate. And i do believe this is squarely in the domain of congress and the president and were trying to provide useful information. Absolutely. And we will pursue that. I commend for you bringing that up. And i would love for you to stay on, in your position as chairlady of the fed. Time of the gentleman has expired. Time of the gentleman has expired. Time of the gentleman has expired. The chair now recognizes the gentleman from new jersey. Thank you, chair yellen. Down here. Over here. Hi there. Welcome. Hi. I want to thank you for your service to our country and appreciate you being here today. Your testimony has been helpful to me. I had two areas i wanted to explore. One is nonbank [ inaudible ]. My state, new jersey, in 2014, authorized by legislation our department of banking and insurance to do Group Supervision of insurers that were involved in the international marketplace. And i know that f. S. O. C. Under doddfrank when it reevaluates designations annually is required to consult with state regulators and i wanted to get a sense from you of whether how you would view now a state Insurance Department doing regulatory work of a group insurer, does that impact, in your view, how f. S. O. C. Might look at the sepic designation of an insurer . So, this is a matter for f. S. O. C. To decide. We have met with state regulators in new jersey and im aware of this development, which is a heartening one. I would say that the f. S. O. C. Focus in designations is the Systemic Risk that the failure of a given entity could pose to broader Financial System. To the best of my knowledge, most state regulators focus supervision on protection of policyholder which is, of course, a very important objective but not on the Systemic Risk that the activities of a company could pose to the broader Financial System. And so, in considering this matter, f. S. O. C. Would, i think, have to take account of what the focus of that Company Supervision would be. Okay. I appreciate that. Although, i would add, as just somebody who spent a lifetime in insurance. I think fed regulation has proven to be, when you regulate individual companies within a group, you create a Safer Company and i think our system is better than the european system, which focuses on the group, not the company. But thats another matter. The other area i wanted to explore with you was the Labor Participation rate. You have mentioned it twice today. And each time youve said that the our aging population is pushing it down. And i guess on the one hand that makes a certain amount of intuitive sense we have a baby boomer bubble working its way through but i did want to ask you about a few particulars with that. Do you use does the fed use the bureau of labor Statistics Data on Labor Participation . I believe that is i believe thats the core data. Thats the core data. So, i have their the bureau of labor statistics Employment Data on my ipad. Im looking at it. Unfortunately, i didnt do it ahead of time so i cant put it on the screen but when i look at the actual data, all people over 16 years old, so basically everyone who is of working age, that has gone, Labor Participation rate has gone from 66. 6 in 94 to 62. 9 in 14. So, its a 3. 7 percentage point decline in Labor Participation. And youve suggested thats because people are getting older and, you know, are dropping out of the workforce. But, thats not what this chart says. What it says is that, uh, 65 and o older has actually increased from 12. 4 in 94 to 18. 6 . Thats a 6. 2 increase in that 20year period. Let me just finish the question. For that group. And then for 55 and older, which is broader and includes those of normal retirement age, that numbers gone up by 10 percentage points. The one thats gone down, the group thats gone down is the 25 to 50yearolds, theyve declined from 83. 4 participation to 80. 9 participation. That group, the 25 to 54yearold group peak earning years have declined by 2. 5 . 2. 5 times 324 million population is 8. 1 million Unemployed People in peak earning years doesnt seem to square with your assertion earlier, twice. So, very quickly, um, it is true that people in the retirement years, 65 and older are working more now than they used to. But, the level of Labor Force Participation of that group is dramatically lower than of prime age workers and an increasing share of the population is now moving into those years with low Labor Force Participation. The time. So, theres no conflict between the number that you cited and my statement that an aging labor force time. Time of the gentleman has expired. Time of the gentleman has expired. The chair now recognizes the gentleman from california, mr. Sherman. Thank you, madam chairman for coming here every few months i remind you have not yet used your authority to break up the toobigto fail institutions. I will extend the next two minutes reminding you they are too big to feel. If just one entity goes down they could take our economy down with them. They are too big to compete against because economic studies say that they that investors and the markets assume that they will be bailed out. Theyve seen that congress will pass new legislation to bail out if that is thought necessary to save the economy. And that, therefore, theyre able to get a cost of funds that may be as much as 80 basis points less than they would otherwise. They are too big to jail as former attorney generals have said they wouldnt criminally prosecute them because it might take them their whole economy. The same thing done by a medium size bank, no economic problem, go ahead and prosecute. Then with the wells fargo debacle, we have a difference between republicans and democrats. Democrats tend to blame the management of wells fargo and say that proves they were too big to manage and republicans tend to blame you, the regulators, which just proves that they were too big to regulate. So, too big to fail, too big to compete against, too big to manage. When a i would think the genus every time you come here, youre attacked by those who criticize the low Interest Rate that weve had in our economy. Now, with low Interest Rates, you get more Economic Growth but you might also get more inflation. Over the last five years has rampant inflation been a disastrous difficulty for the american economy. Inflation has been running under our 2 objective the last five years and continues to do so. And i wont even ask you this question because its so obvious. Has Economic Growth been too robust . I dont it has not been particularly robust but its been sufficiently robust to create a lot of jobs and brought down the but every time you come here, youre told that the Interest Rates are too low but youre also criticized because the Economic Growth has not been robust enough. Now, behind you at the request of the majority is the National Debt clock. The majority always comes and tells you that you should shrink your Balance Sheet. That you should, you know, sell off your assets. Of course, you, in effect, are lending money for longer terms and borrowing money for shorter terms or just printing it, one way or the other. You create a tremendous profit for the federal government by having a big Balance Sheet. So, people want you to have a small Balance Sheet when your big Balance Sheet is creating a lot of profits for the federal government. Have any of the advocates for a smaller Balance Sheet proposed to you the taxes they want to increase in order to replace the profits that youre earning on the Balance Sheet that theyre telling you to shrink . It is certainly true that our large Balance Sheet has resulted in very substantial transfers to the treasury and to the federal budget. Let me say our objective is not to make a profit and to maximize those transfers but, rather, to do what is right in the i would but it is true. I would say the millions of americans who want us to run the federal government more like a xw business would say that, perhaps, profit should be thought of as an important objective and ill take your answer as that you have not heard any pronenent of a smaller Balance Sheet put forward a tax increase proposal designed to replace theory revenues or to keep that clock behind you from turning more quickly. Finally, we want businesses to do things that require longer term capital. You tend to focus on shortterm Interest Rates. What has your big Balance Sheet done to decrease the gap between short and longterm Interest Rates, the yield curve . Well, we purchased those assets to drive down longterm Interest Rates relative to short, or tore fl flatten the y curve and lower longer term borrowing rates. So the proposals are to make it more difficult to borrow money long term. Thats correct. Time of the gentleman has expired. The chair now recognizes the gentleman from tennessee. In the next hour or so, when this hearing ends, if you were to receive a call from the president telling you that he intends to nominate you for another term, would you accept . Its something that hasnt been an issue so far its not been something thats come up but i would certainly something that i would discuss with the president , obviously. Thank you. Yesterday, i want to ask you about comments that jamie dimond as it relates to assets coming off your books. Youve stated here today and in previous reports that the fed does intend to reduce its assets off the Balance Sheet. I would like to ask you first before i ask you about mr. Dimond, if you could address the timing of when those assets will come off the books, the amount, and procedural how that will be do done . Yes. Weve tried to set out relatively complete plans. Our assets currently total close to 4. 5 trillion dollars consisting of roughly 2. 5 billion of treasuries and 1. 7 of mortgagebacked securities. Weve said that we intend to shrink our Balance Sheet and, particularly, the outstanding quantity of reserves in the Banking System, which are now around 2. 2 trillion in a gradual and predictable way. And we have said that what we intend to do is, once we begin this, as we receive principal payments on treasuries and the aging securities in our portfolio, currently were reinvesting all of those principal payments, we will begin to diminish or reinvestments and only reinvest to the extent that our monthly receipt of principal exceeds the cap. The cap will initially start at a low level, six billion a month for tresh shes and four billion a month for mortgagebacked securities and over the space of a year well ramp up to 20 billion for mortgagebacked securities and 30 billion for treasuries. So, after a year of this process running, the cap will remain in place but find only infrequently when there are unusually large redemptions of principal that take place. And weve not decided yet on whether a longer run Monetary Policy framework will be and what quantity of reserves, um, that will entail are supplying to the Banking System. We expect it to be substantially larger than precrisis but substantially less than we have now. And i would say this process will play out, um, probably to around 2022, when our Balance Sheet would probably, somewhere in that range, shrink to normal levels. Now, currency since the crisis, currency has more than doubled in quantity from about 700 billion to 1. 5 trillion dollars now. So, our Balance Sheet will end up substantially larger than it was before the crisis but appreciably lower than it is now. And then, over time when this process is complete, if currency and circulation continues to grow, our Balance Sheet would likely grow in line with the overall economy. I think you probably saw the comments yesterday from jamie dimond chairman of Jpmorgan Chase about his concern about assets being moved off the Balance Sheet. Do you share those concerns . Well, weve tried to be very methodical about informing the public and markets about how were going to do this. Weve provided essentially complete information. Weve not heard significant concerns or seen a significant market reaction. So, weve indicated we expect to begin this, if the economy stays on track, this year. I expect and certainly hope that this will go smoothly. And it wont be an in orderly process, one that we will not see revise ting on a regular bas basis. It will be something we run and play out over time. So, obviously, we will watch what the market impacts of this are when we put it into effect. But, i expect this to play out smoothly, thats certainly my hope. Time of the gentleman has expired. The chair now recognizes the gentleman from michigan thank you, mr. Chairman and thank you chair yellen. Its good to see you. Glad to have you back. As you may recall and im sure some Committee Members will recall from previous discussions, i have consistently raised this issue of older industrial cities, the condition of older communities, a subset of American Cities that are continuing to struggle. In fact, im launching an effort actually beginning today with a discussion at 2 00 entitled the future of americas cities and towns. Specifically to raise more attention around this question. And weve talked in the past about the role that regional banks might play in working with these particular cities that face both economic challenges but specifically the cities that face fiscal stress. The thing that im concerned about is that when we look at aggregate data, even with relatively slow growth in the economy, the assumption is that even a slowly rising tide raises all boats. Well, it does not. And we know that. And so, the question i have that id like you to comment on, perhaps, is what policies the fed might engage and to the extent that your mandate regarding employment is also affected by policy that we make, what are the sorts of initiatives that you think should be engaged both by the fed and by congress to help deal with this real disparity which continues to grow . And ill just underscore this point by saying there are a whole set of American Cities that are really struggling, both in terms of the growing unemployment, increased poverty, lack of opportunity, low educational attainment, aging infrastructure, fiscal stress in these cities where were going to see bankruptcies or at least insolvency if the states wont allow those communities to go into bankruptcy, theyre still insolvent. These are communities that have high concentration s of minorit populations and you know the disparities those communities face. This is not some sort of accident where just bad luck communities are struggling but a result of policy. I wonder if you might comment what you think the fed can do and what congress could do to help achieve not only growth in terms of employment wages but greater equity in terms of how those areas of growth might be shared. So, the Federal Reserve and particularly the reserve banks around the country, um, play an Important Role in doing research on Community Development and try to understand and, um, publicize what kinds of strategies seem to work. Of course, um, we play a role in the Community Reinvestment act, which, um, Financial Institutions are looking for ways, for effective ways of promoting development. A number of reserve banks have looked specifically at older industrial cities and tried to study and we have volumes that have been published on this. The boston fed, in particular, has been very active in trying to understand what strategies have been effective in older industrial cities in regenerating activity in dealing with these problems. And, of course, theyre complex. But, there are Workforce Development programs and collaborations between governments, local governments, state governments, nonprofits, businesses that have been singled out as ones that appear to be promising. But, of course, these are very difficult, um, issues and congress and policymakers have thought the fed may have a role. Ours is mainly research and trying to disseminate findings that we have. I appreciate that and in my past work, ive worked with the philadelphia fed, cleveland, on these issues. But i wonder if you might just in the final few seconds that we have comment on policy that Congress Might enact, basically around budget tarry policy we have in place. Im really concerned thats a place we may undermine your mandate but also our own work. In the one second remaining. Im not going to give you detailed advice on fiscal policy. I think focusing on policies that promote productivity growth and stronger Economic Growth should be near the top of your list. I thank you. Appreciate you coming back again. Time of the gentleman has expired. The chair recognizes the gentlelady from new york. Thank you, mr. Chairman. Thank you, chair yellen, for being here today and, also for your service to our country. Im going to touch on exactly the same issues that my colleague just touched on and sounds like our districts are very similar. I come from upstate new york. Very highly agriculture area but a place that has seen better days in terms of our economy. We once had many, Many Community banks and i might quote a very interesting comment that was made by President Trump in his inaugural address describing our manufacturing landscape you can look at our Community Banks of the same way. Just about any corner in suburban or small city area in my district and find Community Banks closed and overgrown with grass and not operating and empty were they once were proiting great resource to our community, Small Business community. 50 of the Small Business loans made by Community Banks. 70 of agricultural loans made by small Community Banks in our community aaand ing community and agriculture is still the number 1 in our state, believe it or not. As you provided in your prior comments to my predecessor, speaker, that you think that a lot of Government Programs can help this and taxpayer money may be spent for work revitt talization but im suggesting possibly the free market since in new york state we spent four times more using taxpayer money in socalled cronyism on producing jobs and have the worst job production record in the nation, the highest migration of jobs and highest outmigration of people because of our Regulatory Burden and i thank you for indicating earlier you do think there are some ways we can reduce some regulations on some of these banks, especially the smaller ones who cant compete because of their compliance requirements. We now have the growing are Cybersecurity Issue where thats becoming very costly and burdensome obviously lending to mortgages and personal loans are very loans are very difficult. You indicated earlier you would support the treasurys release that certain regulatory relief is in order. Can you tell me a couple of the recommendations you would support in helping regulations to help small Community Banks and Credit Unions . I am very supportive of trying to reduce the burdens on Community Banks. We have suggested that Community Banks, there are things the congress could do to help reduce burdens, for example, invoke rule and incentive, compensation are you saying they would eliminate the volker rule . When would you make that cutoff. Something overall or where would you make the arbitrary decision. We can discuss that. I dont have a you dont have an idea in mind where we can do that. I would love to know. Im asking your i prefer to get back to you on that. We dont have a specific cutoff. I think theres a lot banking regulators can do on their own. We finished a review of the banking regulators are committed to addressing concerns of Community Banks about the complexity of capital regulations, come out with a simplified capital regime with recently cut reporting requirements for Community Banks. Were trying to extend exam cycles and to tailor the work that we do so more is done offsite in ways that are less burdensome to Community Banks and refocus supervision so were focusing in our exams in the areas that are at greatest risk. We have a long list of suggestions coming out of the review could you tell me you indicated earlier there were ones you would support, which are the ones you wouldnt support that are recommended by treasury as indicated . I dont have the list before me. Im just listing in general, in area of the report we are quite supportive of. Im not you know definitely the volker rule, you would like to eliminate that. Can you give me an estimate about the capitalization eliminated . We would try to simplify for things like commercial real estate, high volatility that banks have found complex or tax deferred access or other instruments that have resulted in complexity. Time has expired. The chair recognizes ms. Beattie from ohio. Let me first take a point of privilege to thank you for all of your work and tell you what an honor it is for me to be in congress at the time i could sit here and ask questions of you. And secondly, you will hear throughout all of our hearings, colleagues often times referencing that letters were written and 30 days have gone by or months and they did not receive an answer. I want mr. Chairman and Ranking Member to enter into the record, every single letter i address to you, i got a response and not only did i get a response, i got a note or something with it attached from a staff person and one of them i think was actually your thanks. I think its so important because often we criticize those and i support colleagues on either side when someone doesnt respond to us. I wanted to say thank you. Im going to be consistent but i am going to use words i have not intended to use, after my colleague from new york used the words finding Common Ground i want to thank her for that and i want to start with Common Ground. I think its important when you represent a subset or have a background we hear from real estate to Small Business to legal to housing, or bankers, that you should use that expertise. What i have is something often not included in the subset. Im a Small Business owner, i understand finance, i have been on a bank board. Whats important to me is when we have inequalities talking about Economic Development and monetary growth and we dont count ethnicity and race because its a subset. While i appreciate your comments on page one of your testimony, when you talk about the job list rates have decreased but because we know there is still so much disparity when we get to unemployment with people who look like me, i have to be that voice for black people and minorities who get caught in the gap. With that, i am very afraid because i know when we look at the economy and growth, if 22 Million People are going to lose their healthcare, if were going to cut programs where people then or wont have the money to pay for them, im nervous. With that said, i serve on the financial and Economic Literacy caucus. Its a democrat and republican, and as speaking now, im being appointed to the congressional black economic and task forces cochair. You stated that income equality is a longterm risk to the economy. We cannot talk about income equality without looking at the discrepancies in wealth among African Americans and minorities. I would like to say that recessions like the one we just had theres a chart on the board and i think it speaks for itself, that led to African Americans losing 52 of the wealth while White House Holds only lost about 16 of their wealth. Im concerned that rising income equality will further hurt the problems for minorities. Can you explain to this committee why income inequality is a longterm threat to the United States economy and who has the power to help us fix this. Im very concerned about inequality and income and wealth, i think americans need to feel that the system, our Economic System is one where rewards come to those who work hard and play by the rules. And when some groups do disproportionately well and others seem to be lagging behind as has been the case, theres a sense of it being an unfair system. Worse to the extent that resources are important in assuring intergenerationle ability that parents want to make sure their children have access im going to interrupt you to get my time back on. We have a black man for the first time chairman out of atlanta on the national Federal Reserve board. Thank you and i yield that. Time has expired. The chair recognizes mr. Holingsworth. You have reached the bottom of the rink on our side of the aisle. Take to time a breath. I wanted to touch on something talked about in the treasury report and better understand some of the recommendations you might agree with and disagree with as well. I went through the report and pulled out some of the ones i think are most pertinent from your role and standpoint and thought i would ask specifically kind of agree, disagree. I know there may be follow up after that. You have to remember, i got probably a cand probably deserve worse in economics. Do you agree or disagree there should be expanded treatment of certain qualifying Instruments Incorporated into the lcr more fully reflect banks historical experience with calculated methodologies. Thats a long winded one. On the first part of it, i think the fed is going further than the other regulators including the more liquid municipal securities to be assets and so were supportive of that. Second one, do you agree or disagree that u. S. Rules implementing International Standards should be revisited including the risk base surcharge, the Short Term Holding component. We recently finalized that rule, and you know, i participated in that review when i think the surcharges are at a level i think is justifiable given the what about the mandatory minimum debt ratio . I believe thats important as well to ensure that the systemically important firms can be resolved. In the calculation for we discussed that earlier in connection with custody banks and it is something i think we should look at. It may be having an unintended consequence. That we might agree with. Do you agree or disagree for the International Reforms including establishing a global risk base to promote a more level base for firms competing internationally. I would like to see three finalized. Our Banking Organizations are operating with high capital standards and this is a matter of ensuring that other countries put into place appropriate capital regulations so we have a level playing field. So yes, i can see that happen. Agree with that. In the final implementations of the standards, would you exempt Community Banks from those . Would you exempt them from the Risk Base Capital regime promoted by it . Im supportive of developing a simplified capital regime but to the extent that Community Banks were affected by it. Im supportive of that. Do you agree or disagree with raising the asset threshold of savings and loan from the current billion to two billion. I think we could look at that. And the feds on intermediate Systemic Risk in the United States of a revised code. That was a mouthful. In data. I need to get back to you on that. I thank you. I really appreciate you taking time and coming to see us again. I enjoyed your first testimony and this one as well. I yield back to mr. Chairman. Thank you mr. Chairman and Ranking Member chair yellen. A couple years ago i asked you when does america get a raise, i asserted america deserves a raise, fueled in part on my behalf because weve been through 30 years of stagnant wage growth with the exception of some warmth in the late 90s. I respect you because of your economist and i admire you because of commitment to values, including a concern for how fed policies actually impact americans. And that includes in this area of wage growth. I believed it two years ago, i believe it now. 2. 5 nominal growth, better than a few years ago does not render americans feeling theyre getting ahead, let alone staying even. So, given your commitment or my perception of your commitment to the average american, if such a thing exists. I read with great interest in the monetary report on page 42, the table. Which essentially indicates that you project a definition of full employment over the longterm between 4. 5 and 4. 8 if you get Monetary Policy right, 4. 5 to 4. 8 and yet an indication that two years hence, the Unemployment Rate will be 3. 8 to 4. 5 . A little hard to read that other than youre trying to or willing to let the economy run a little warm presumably because maybe we can get wage growth above 2. 5 and maybe closer to the historic recovery rates of 4. 0 . Inflation is running over the past 12 months lower 2 objective and weve had five years or more of inflation running under our 2 objectives. Thats a commitment we have and an objective and i think allowing the labor market, allowing unemployment to climb to the kinds of levels you cited looks to be consistent with achieving our inflation objective. And would yield higher wage growth than 2. 5 you expect . I think wage growth seems somewhat low given the objective but it is important to remember that one of the Things Holding down wage growth in real terms is very low productivity growth. I dont want to go down that rabbit hole, we did that last time. I mean, without that changing, that really limits the long run prospects for workers. I get that and i get the controversy surrounding our measure of productivity of late. The fact remains, America Needs a pay raise. I take a straightforward view of this, if we fall into a recession, the fed cuts Interest Rates. That increases availability and demand for loans for the purchase of homes and automobiles and has a stimulus effect on the economy. It didnt happen this time with respect to housing necessarily, it didnt respond. It didnt in autos until recently and now auto sales are going down, layoffs in the industry. You have described the Monetary Policy approach youre taking as stimulative but thats not occurring in autos. Especially given what i said earlier, i believe you care how average americans are impacted. Homes and autos are the two biggest purchases most americans make. It didnt work through the recession in homes, were stuck back at 1994 construction levels and now not working on autos. Are you concerned . So Mortgage Rates are a little off their lows, although theyre down from last year. Look, i think you have to look at the bottom line, which is this year weve had 180,000 jobs created only slightly lower than last year, 190,000 or so. The Unemployment Rate continues to decline. The market continues to strengthen and that means that even if auto sales are off their high, we have Strong Enough demand through consumer spending, recovering Global Economy, pick up in spending on equipment that it is supporting continued job creation at rates greater than the labor force. Time to the gentleman has expired and now from oklahoma, mr. Lucas. Thank you mr. Chairman. Chair yellen, before asking you anything, i want to express concerns about the treatment of customer margin under supplemental ratio, for the clearing options available for customers. As you may be aware, a lot in my district use clearing houses. I am encouraged on the recent report suggesting that the margin is no longer should be a part of the ratio calculation. In addition, your colleague governor powell told the senate the fed is reviewing the ratio and fixing it is critical for the health of the markets and i look forward to the outcome of the review. Madam chairman, i would like to discuss the lending guidance. In my district, the Energy Sector is one of the largest employers, as you and everyone else is aware, the Energy Industry is going through a tough time and now for lending guidance, the downturn means many if not most qualify as distressed industries. The guidance limits the ability of the companies to get credit and loans to stay in operation and employ my constituents. The guidance in 2013 and in a series of faqs in 2014, thats not the most exactly clear process, forcing institutions to look at every loan made. The administration seems to share concerns, recommending that the guidance be revisited. Chair, have you considered retracking the guidance and along with that thought, have you met with any industries that are considered distressed to hear about their difficulties in obtaining credit . We put in place leverage guidance for i think very good reason. Which is we were concerned about underriding practices for those kind of loans and want to make sure that lending is safe and sound. We had shared National Credit exams that resulted in disturbing findings about the quality of underwriting of the loans and i think it was appropriate to put such guidance in place. If theyre having unintended consequences, i will discuss with my colleagues looking at that, but believe it was important to put that in place. I much appreciate that. Because the Energy Sector is not just important to the Third District of oklahoma, its important to the entire National Economy and with the technological advances where we have gone from many regions of the country not being importers of crude oil and natural gas but exporters, the potential opportunities there are incredible. And these guidances from 2013 and faqs from 2014 seem to be causing some real stress out there as theyre being interpreted and your commitment to look at those and try to make sure we dont create unintended consequences. The number of barrels of oil in the ground still at the reserves, the number of natural gas is still there, the technologies that have reduced the cost of production is still in place but we have to work our way through a tough time and bearing that in mind, i would appreciate that, chair. With that mr. Chairman, i yield back. The chair now recognizes the gentleman from maryland. Thank you chair yellen for your incomparable leadership to the Federal Reserve. Were getting towards the end, i thought i would ask a question and tap into your knowledge as a Macro Economy and think about longterm trends of employment. Theres been a lot of talk recently about what will happen to the future of work and jobs based on technological innovation, machine learning, artificial intelligence, whatever the category may be. While historically innovation has created more jobs than it has displaced, it jeanly comes with a lot of fear as to what will happen to the labor market. Maybe because well see the jobs that could be displaced but cant imagine the jobs created by the innovation. This has caused many people to Start Talking about universal basic income, talking about how there will be no jobs in the future and robots will take all the jobs and well have to figure out how to support people. For me its premature, for obvious reasons, theres a lot of jobs no one gets paid for and we should try to figure out how to pay people for doing something before paying for doing nothing. What is your thoughts on this topic as someone who spends a lot of time not just thinking about the macro but someone who cares deeply about employment and the importance to peoples dignity and ability to raise their family and earn a living. How is this going to play out in your opinion . I dont have a crystal ball. None of us do, i know. But youre very smart and you look at a lot of data. I know technological change has been tremendously important source of growth and improvement and Living Standards in the United States and around the world. Its something that we should want to see and foster. But it is disruptive and it can cause considerable harm to groups whose livelihood is disrupted by technological change that renders their skills less valuable or not at all valuable in the market. And i would expect that the kinds of technological changes that you describe will continue to change the nature of work, the kinds of jobs that will be available and the skills that will be needed to fill those jobs and to my mind, very important focus for all of us should be what are the three things we should do to prepare i agree with you, it will change the nature of work, create jobs and displace jobs. What are the two or three things you would do to prepare the future to succeed in that . In my mind education and training are central to the ability of workers to fill the new kind of jobs that will be available and have the skills. When i talk to businesses that are adopting new technologies, they tell me its creating new kinds of jobs that they find younger workers, even those with less education, nevertheless been exposed to the kind of training that will enable them to fill up the kinds of technical jobs that have been created with appropriate training, but its a tremendous challenge for all the workers who dont have that kind of training to make adjustments, i would look to both ensure that we have appropriate training education, apprenticeship programs and other things for younger people and to see what we can do to relieve the burdens on older people that will be displaced. So youre not necessarily bearish on the future of jobs and work. Correct. But you are worried that were not doing enough or you think we should do more for reforming education because the challenges will be significant. That is certainly a key focus for me. Thank you again chair yellen. Yields back to chair recognizing the gentleman from illinois. The commitment to Cyber Security is perhaps better than any other, unfortunately many have recently raised concerns that well intentioned, regulators are starting to require duplicated requirements, we want to achieve stronger security. Do you believe the rules and requirements with respect to Cyber Security, do you support the efforts . I am supportive of those efforts and we have certainly heard in our own outreach on Cyber Security, the importance of having uniformed standards so that firms are not facing different regulatory demands that may be technologically conflicting and i think thats an important goal. You may be answered this enough, just to get more specifically in the recently released report, the treasury government called for banking regulators to harmonize using a common lexicon. Is the Federal Reserve wanting to achieve this goal . Yes. I expressed my concern about centrally cleared customer, regulatory for margin forcing customers to pay more for the services. I applaud the recommendation in the cores principle report to grant an off set under the margin ratio, having a relatively insignificant for bank capital but driving down cost for services. I understand british regulators have granted one in the u. K. And the e. U. Is expected to offer an off set as well. I hope the Federal Reserve follows suit and works with regulators to adopt an off set for u. S. Firms. I think the supplement is having unintended consequences and its something we need to look at. On a similar note, june 22nd it was testified that we believe the leverage ratio is an important back stop to the capital framework but it is important to get the relative calibration right, doing so critical to prevent distortions in money markets and other safe asset markets. Change of a loan along these lines that the Business Model is disproportionately effective by the ratio. And a speech was given stating as to the impact of the 2 ratio, our experience leads me to believe that it may be worth changing to account for those particularly in custody business. And he further stated in that quote the similarity is most significant for two banks dominant dominant dominant dominantly. This is especially promise mattic for operations since they have customer deposits into liquid. Exceptions from the denominator of total exposure should include carbon Central Banks. I wonder if you agree with the assessment and when we can expect the fed to take action i agree with the comments of my colleagues that the supplement ratio may be creating the set of problems you addressed. There are different ways of dealing with it, committed to looking at it and trying to recalibrate it to avoid the adverse consequences. I know its difficult to say, do you expect the fed to take action before january 2018 when the new enhanced ratio goes into effect . Let me get back to you on the time table. Thank you chair yellen. I yield back. The chair wishes to advise all members that the chair intends to release the witness at 10 after 1 00 and anticipates clearing four more members from the cue. The chair recognizes the gentleman from texas mr. Green. Thank you for appearing today. Im looking at currently an article from the Washington Post dated may 17th 2017, it is styled the nations biggest banks have a common gripe, they have too much money. I would like to read some of the relevant portions. Banks are sitting on a 131 billion in excess capital according to a Research Report by goldman sachs. Banks can return the money to Share Holders in the form of dividends, boosting the pay outs perhaps by 45 in 2018. This is according to the report. Hampering the industrys argument has been record profits, the countrys Banking Industry reported more than 171 billion in profit last year. And the volume of bank loans has increased significantly since the financial crisis. The question i have madam chair is this, should we change the Capital Requirements simply because we can have the opportunity to return more dividends, boost more payouts, is that a good reason to change Capital Requirements . I strongly believe we should have strong Capital Requirements for the safety and soundness of the Banking System, the Financial Sector, more broadly. I am comfortable with the level of Risk Base Capitals in place at this point and especially the most systemic firms should have the largest Capital Buffers. So, once those Capital Buffers are in place, the Federal Reserve has no objection to firms distributing profits as dividends to Share Holders or in the form of sherri repurchases. We approved the plans of almost all the firms involved to return capital of Share Holders but thats because were comfortable with the Capital Buffers necessary for a safe and sound Banking System and comfortable they can go on even under severe stress meeting the credit needs of the u. S. Economy. Thank you. Let me move to another topic because this is quite important. I dont want to neglect it. Thank you for your response to the letter that i and some 36 colleagues sent you concerning the African Americans, latinos and the fact that the Unemployment Rate for African Americans and latinos always seems to lag behind angelos. Im mentioning this to you, you cite some things that could be beneficial in terms of studies that take place. I want to call one thing to your attention, it has to do with something these studies probably wont address, the issue of race itself. Just race itself. Plain old discrimination. We have a difficult time legitimizing discrimination as a cause for unemployment being higher among certain groups. We know it exists but we cant get the actual empirical evidence to legitimize the existence. Can the fed, aside from these additional things youll be doing, i salute you for doing them but can the fed endeavor to engage in some sort of process to allow us to inquire the empirical evidence. There are still people in denial. Its something we can try to get at. Perhaps not definitively in studies we do. There are studies that im aware of experimental type studies that do pretty clearly document what youre talking about that economists have produced. One quick if i may ask this, could we explore the possibility of allowing testing to take place within banks, thats something we have difficulty inquiring, testing of empirical evidence. I need to look into that. Time has expired. Gentleman from north carolina. Good afternoon chair yellen. Do you subscribe to the theory that it can work better independent of politics . Yes, i do. Does that include distributionle politics . Distributionle politics . I think the fed should be non political. Yes, maam. I have reviewed some of your speeches since last march and i didnt see a lot in the Monetary Policy, i did see a speech where you appeared before a Community Development Research Conference and it was a conference creating a just economy. And the conference that you spoke at on women at the brown university, the Monetary Policy was mentioned only one time in the speech and that was in context of explaining why Monetary Policy is poorly equip to address pockets of high unemployment. It appears these speeches are to address social uses in addition to sound Monetary Policy. Do you worry these in the same way give it increase risk to distributionle politics. It is my core responsibility to speak to the American People in a wide range of forms about the kind of Monetary Policy and the economy and i would disagree with your characterization of my presentations. In march i gave an important speech in chicago on Monetary Policy. Ive had two press conferences after the march and june meetings. I recently gave remarks in london bearing on the u. S. Economy and Monetary Policy and if you go back a little longer to january, youll see many speeches to many different audiences at many levels as well as testimony im just pertaining to monetary im looking at brown university. Let me say, the Federal Reserve has other responsibilities and in particular we have extended programs you understand in Community Development. I spoke at a conference relating to Community Development that was about the board of governors. I think i made my point. Those particular ones were political. American Enterprise Institute says supervision and regulation is so intrusive, its not a stretch to say the largest Financial Institutions are being run by the feds. Do you agree with the assessment . No, i dont. For the Federal Reserve to corporate across the industry. I do believe its appropriate. Making sure there is sound Corporate Governance in major Financial Institutions and we saw what happens when thats not the case, it was part of how we ended up with the financial crisis. So you believe we needed more government intrusion and management that will salvage the problem. I believe we should ensure you dont believe the government plays a direct role in the financial collapse we had in terms of forcing Financial Institutions to make loans to people who were not credit worthy. I dont believe that was the main cause of the crisis. Many of us disagree with that. Do you believe the reserve has the authority for corporate law. Im not sure what you have in mind there. Are you aware that Companies Incorporated in each state are privy to their law requirements of the state. Okay. Do you believe you have the ability then to userp the laws . Were making sure if the states have laws relative to the Corporate Boards, do you believe you have the authority . Congress has passed laws to place obligations on us to supervise these institutions. The chair yields to the gentleman from arkansas, mr. Hill. Thank you chairman and chair yellen, nice to see you here looking fit and rested from all your travels. Thank you for your perseverance in front of us. We have talked about Monetary Policy and i havent been a fan before in congress of going beyond the feds initial rate policies, i felt one, two and three didnt produce the gdp effects or job increases that perhaps policy makers at the time thought. And i have been concerned that as we go back and look backwards since 2008, fed officials have been a little reluctant to talk about some of the unintended consequences of that, such as distorting the price mechanism in the economy, depressing cap rates for commercial real estate or running up equity prices that were the result flooding from qe2 into the economy. But today i havent heard discussion about we talked about the Balance Sheet and we talked about setting Interest Rates. I want to talk about the money multiplier aspect in your tool box. We flooded the system with reserves but have a money multiplier at the 1930s type rate. And i guess my view is shouldnt you lower the rate of interest paid on banks on excess reserves raising rates and planning this very thoughtful careful shrinkage of the Balance Sheet . The Interest Rate we pay is the key tool to adjust the short term Interest Rates in the economy. And the committees deemed it appropriate to gradually raise the level of short term rates as the labor market has strengthened and we have come closer to achieving our objectives. So, no, i wouldnt agree that we shouldnt be using that tool to normallize the general level of short rates in the economy. The rates on excess reserve. That is our key tool that we used to how do we get the money multiplier to increase then . Well, i guess i dont look at the impact of Monetary Policy on the economy through the money multiplier. I think what do you think it accounts for being at 1930 levels when we have advanced reserves as mightily as we have over eight years. We had a highly depressed economy where Interest Rates fell close to zero and banks were willing to hold on to excess reserves given but my colleagues on the other side say the lending business is booming and the economy is growing successfully, why is the multiplier not changed . Why is the philosophy still low like that. In your view. Its something we measure we measure successful fed policy looking at the fund. I mean, i wouldnt agree that we measure the success of fed policy by looking at the money multiplier. I think the quantity of money and its relationship to gdp has been extremely unstable and not a good way of running Monetary Policy, im not lware of a central bank that would approach it that way. Why is that . Why is it though that it was between world war ii and 08 something people looked at and talked about in a way that shows we have a healthy investment and lending market and growing economy but in the 1930s and since 2008 were satisfied that its low and dont say its important anymore. Can you put perspective on that . Both in the Great Depression and in the more recent great recession, weve had a situation where short term rates fell essentially to 0 and pushing out additional reserves was essentially what they said during the depression was like pushing on the string and the socalled liquidity trap and the quantity of reserves and nominal income begins to breakdown in those situations. We have faced similar situation as to what we had during the great recession. The last member will be the last member we call upon. I recognize the gentleman from ohio, mr. Davidson. Thank you for being here today chair yellen. I appreciate your testimony and thank you for the work you and the Federal Reserve do. I want to understand that a bit. You talked about your policy is neutral to accommodative but what you started to do is at least talk about applying the brakes. You have raised rates and you talked briefly about the supply of money being unstable. 4 trillion of it, we know where it went but it created money supply. Is this gently applying the brakes . I think thats a fair characterization. Weve had our foot on the gas. Weve been in an accommodative stance and as we come closer to achieving our objectives weve taken our foot off the gas to some extent so we can sustain a strong recovery. But were moving toward something closer to lets call it a neutral stance to keep the economy operating on an even keel. Historically its been a challenge just like its been a challenge to hit the gas. I guess everyone feels optimistic about the course of action at the time. Generally people say it bubbles, a bubble has caused the miss calculation. What bubbles do you see in the Macro Economy right now . I try not to opine on the level of prices, our report notes that evaluations are generally toward the top of their historical ranges. What i try to think about is if there are adjustments in asset prices, what consequences would they have on the Financial System and our economy. And in that context look for evidence that searching asset prices might be leading to prudent borrowing, build up in the economy that could be dangerous if the prices were to unwind. Were not seeing that. Okay. Financial stability risks at this point is moderate. So you have laid out a good plan and i dont want to go to the whole thing. You have talked a lot about it, i am concerned about the role that you kind of elude to here, you start to see instability, you shift tabs from Monetary Policy to regulator. And in the regulation you talked about really a pretty heavy hand in the sense of Steering Companies on policy, Financial Times highlighting cases as regulator addressing hr practices to the point of replacing certain employees in companies. And at that point, i guess how critical is it that our agent of Monetary Policy serve as a regulator . Im not saying regulation doesnt need to be done, how important is it that the central banker does that . I would say especially in the aftermath of the financial crisis, we have found that our understanding of the economy of the Financial System and of appropriate Monetary Policy has been greatly informed by the role we play in supervision, its helped us understand risk to Financial Stability pressures in particular portions of credit markets and a close integration between what we have learned in bank supervision, Monetary Policy. And on the Mortgage Backed security markets, you created quite a lot of them, that gets to the monetary supply. So at this point, youre looking at the asset purchases you have made, directly interacting with a key part of the market, putting them on your Balance Sheet, unwinding them. You talked about a plan to do it, a change of plan to do it, what do you see as the risk to the monetary supply, i say its a bubble but clearly theres an effect on asset prices trying to get that right. We do believe that the purchase programs were effective in pushing down longer term rates and the socalled term premium embodied in longer term rates and very gradually over time as we shrink our Balance Sheet, i would expect some modest but over a number of years upward pressure on longer term rates. Its not something very substantial, but it is something that weve taken into account in deciding on what is the appropriate path to the federal funds. Thank you mr. Chairman. Time of the gentleman has expired. Thank you chair yellen. All members will have five legislative days to submit additional written questions to the witness to the chair forwarded for the response. I would ask the witness to reply as soon as able. This hearing is adjourned. Earlier today mike pence talked about the latest on healthcare. Heres a short highlight focusing on what the g. O. P. And congress should do now. President trump and i are grateful for the efforts of Mitch Mcconnell and the vast majority of republicans who work so hard in the house and senate to keep their promise to repeal and replace obamacare. As the president said earlier today, most republicans were loyal, terrific and worked really hard and there are no truer words. Last night we learned that the senate still doesnt have consensus on a bill to repeal and replace obama care at the same time. President trump and i fully support to repeal obamacare and gives Congress Time as the president said to work on a new Healthcare Plan that will start with a clean slate. You know, the Senate Passed the very same bill in 2015 and sent it to president obamas desk and they should do it again. To be clear, the senate should vote to repeal now and replace later or return to the legislation carefully crafted in the house and senate, either way, inaction is not an option. Congress needs to step up, Congress Needs to do their job and Congress Needs to do their job now. applause this sunday at noon eastern, a cspan 3 special event. As American History tv is live from the detroit newsroom marking the anniversary of the 1967 detroit riots. Well speak with the former police chief to figure out what happened and why. Then Detroit Free Press editor Stephen Henderson and detreat free press discuss the Media Coverage of the riot and the aftermath. The 1967 detroit riots 50 years later. Live starting at noon eastern on cspan 3. Thank you for talking with cspan. What has it been like . Its been a whirl win but a great opportunity. What was the most surprising thing that you have picked up on in the past two weeks. Not too much was surprising. It is a fast pace and thats important because we have a lot we need to get done. And then making sure on the issue side and policy side but also getting the team put in place as well. So on that, on the side of the issues, most