Thats why our founders and their infinite wisdom set it up this way about thats our role and responsibility under the constitution, were going to fulfill it we appreciate your doing your jobs and we thank you for your time. This committee stands adjourned. Screeria nigeria. Here on cspan3 we show you Congressional Affairs hearings, on weekends cspan 3 is the home to American History tv. Six unique series the civil wars history. History bookshelf, the best known American History writers, the presidency. Lectures in history with top college professors. Our new series featuring archival government and educational films through the 1930s and 70s. Cspan 3 created by the cable tv industry and created by your local cable and satellite provider. Janet yellin testified last week before the House Financial Services committee, defending the feds Monetary Policy, and reemphasizing the fact that Interest Rates are likely to go up later this year. Congressman jeb henzerling chairs the committee. Committee will come to order, without objection the chair authorizes a recess, the hearing is for the purpose of receiving the semiannual testimony of the chair of the governors of the Federal Reserve system and the state of the economy. I recognize myself for three minutes to give an opening statement. Last week this committee began a series of hearings examining the dodd frank act on its fifth anniversary. It expanded the powers and reach of the Federal Reserve beyond its traditional Monetary Policy role. In historically unprecedented ways. The evidence continues to moubt that since the the passage of dodd frank is less stable, less prosperous and less free. We continue to be mired in lackluster halting Economic Growth. Middle income paychecks are nearly 12,000 less compared to the average post war recovery. And is the Ranking Member miss waters told us just a few months ago. The brutal truth is millions continue to teeter on the brink of poverty and collapse. One way our economy could be healthier is for the Federal Reserve to be more predictable. The fed followed a more clearly communicated and understandable and predictable convention or rule. Too often this leads to investors and consumers being lost in a hazy mist. One former fed president has written policy creates inefficiency. The fomc gives lip service to policy predictability its statements are vague it is Data Department but will not tell us what data and how with the power to amend it or deviate from it in no way interferes with the feds Monetary Policy independence. Next we in congress would be grossly neglect if we did not engage in engage in oversight. Dodd frank confers sweeping new power. Completely separate and apart from its traditional monetary pull. The fed continues to shield them through monetary independence. The fed has employed historically unprecedented methods, to paying interest on excess reserves, to keeping Interest Rates near zero for almost 7 years. By doing so, the fed has certainly blurred the lines. The fed has recently crossed the line by willfully ignoring a lawful congress ap subpoena for documents. This is inexecutivible. It cannot be allowed to stand. The feds refuseal to cooperate threatens both its reputation and its credibility. The fed is not above the law. Its a very serious matter, and must be resolve edd. The share now yields to the Ranking Member for three minutes. Welcome back. Im pleased to hear this month we commemorate the dodd flank reform act. It was signed into law just as we had emerged from the worst economic collapse in a generation. One which destroyed nearly 16 trillion in Household Wealth and 9 million jobs. This placed 11 million americans from their homes and doubled the Unemployment Rate. Since those dark days, weve seen improvement. Dodd frank made significant progress correcting the practices that help lead us to the crisis. It has delivered billions to victimize consumers, Greater Transparency to the once opaque banking practices that have caused the crisis and put in place clear rules of the road. Accommodation has led to growth. Unemployment falling to its lowest rate. Recovering Housing Market and significant increaseing in 401 k balances and the s p 500. These improvements do not paint a picture of an economy that has fully recovered, the gap between communities of color and women versus their white male counterpart remains dramatic a lack laughter First Quarter coupled with instability and slowing growth abroad have sat momentum for job creation and economic expansion here at home. I hope the board of governors will continue its slow and cautious approach to raising Interest Rates. Chairman yellin, as you know, raising Interest Rates is not in itself create a Strong Economy. It is a Strong Economy that must be the impetus for raising rates. With inflation continuing to hold near zero and numerous indicators of slack in the labor market, its my hope that the Federal Reserve will fully consider the impact of any potential Interest Rate increase on the middle class, and those communities that have yet to benefit from the economic recovery. So i thank you again chair yellin and i look forward to your testimony here today. And i yield back the balance of my time. The chair now recognizes the gentleman from virginia, mr. High zinga for two minutes. Up over here. Thank you for honoring my request to meet last month. Why the development of these policies are in desperate need of transparency. The feds recent high degree of transgression in how it conducts Monetary Policy suggests that reforms are needed. Continue to encourage the Federal Reserve as you know to adopt the rules based approach to Monetary Policy and communicate that rule to the public. The fed must be accountable to the Hardworking Taxpayers themselves. The last professor of Carnegie Mellon university testified that over the first 100 years of the Federal Reserves history, policies operated more effectively if it honors simple and clearly understood rules. There are only two periods in Federal Reserve history where they came close to operating under the rule. That happened to be the best two periods in fed history. In 1923 to 1928 and 1985 to 2003. They operated under some form of the gold standard. In the second, under the taylor rule. Those were the two, and the only two periods in federal history that have low inflation, relatively stable growth, 1345u8small recessions. I ask that you work with me and this committee to develop a foundation for a rules based Monetary Policy that will properly not slavish to borrow a phrase constrain the feds discretion without sacrificing the proper independence the fed has, allowing the fed to be more transparent in formulating and communicating Monetary Policy, to not only market participants, but also to the American People thank you, mr. Chairman, and i yield back the balancing of my time. Thank you so much, mr. Chairman. I am so happy to welcome you back i look forward to your testimony, to the q a period, and i think this committee will benefit from your strong background in economics. Were of course in the midst of a strong twoyear job growth but i have some concerns. You talk about slack in the labor market. It seems to me that that slack is disproportionately born by africanamericans and latinos. This brings me to the critical importance of the full employment part. While were plotting upwards. Theres many storm clouds. I want to see growth which will create jobs and decrease the National Debt. Now, i cringe at the austerity policies of this republican congress, i think it works at cross purposes with your pro growth policies. I want to hear you talk about that. Your predecessor came to congress and told us the sequester and the shutdown were examples of counter productivity. We want to give this slack as you call it out of the labor market. But Congress Needs to embrace growth policies that will help working people. Wall street is doing just fine. But we need to invest in education and infrastructure increase the minimum wage, so we can get more consumers spending money. And you know i read in your testimony here that the u. S. Exports are slumping yet this committee has refused to reauthorize the export import bank. These are unforced errors and i thank you and look forward to hearing your testimony. I yield back the balance of my time. The gentle lady yields back. Today we welcome the testimony of the honorable janet yellin. Chair yellen has previously testified before our committee. I believe she needs no further introduction. At the request of the chair i wish to inform all members i intend to adjourn the hearing at 1 00 p. M. This afternoon. Claire yellin, without objection, your written statement will remain a part of the record. You are now recognized for five minutes to give an oral presentation of your testimony. Thank you for being here. Thank you. Ranking member waters and members of the committee im pleased to present the Federal Reserves semiannual Monetary Policy report to the congress. In my remarks today i will discuss the current skpek discussion situation in outlook, before turning to Monetary Policy. Since my appearance before this committee in february inflation has continued to run below the level. To be most consistent over the federal run to promote maximum employment and price stability. The Unemployment Rate stands at 1. 3 . Slightly below its level at the end of last year, and down more than 4 1 2 Percentage Points from its 10 peak meanwhile, monthly gains and nonfarmed Payroll Employment averaged about 210,000 over the first half of this year. Somewhat less than the robust 260,000 average seen in 2014. Its still sufficient to bring the increase in employment since its trough to more than 12 million jobs. The number of people suffering long term unemployment these measures as well as the Unemployment Rate continue to indicate theres slack in labor markets. Too many people are not searching for a job. But would likely do so if the labor market was stronger. Although there are attentive signs, it continues to be relatively subdued. Consistent with other indicators of slack market continues have improved substantially. They are not yet consistent with maximum employment even as the labor market was improve inging real gdp is now estimated to have been little changed in the First Quarter after having risen an average annual rate of 3 1 2 of the second half of last year Industrial Production has declined a bit in balance since the turn of the year. These developments bear watching, some of the sluggishness seems to be the result of trans tory factors. Including unusually severe winter weather, labor disruptions at west coast ports and statistical noise. Notably, Consumer Spending has picked up and sales of motorcycles in may and june were strong suggesting that both the households have the wherewithal to purchase items. The demand for housing is still being restrained by limited availability of Mortgage Loans to many potential home buyers. Business investment has been soft this year, partly reflecting the plunge in oil drilling, and net exports are being held down in several of our Major Trading partners and the appreciation of the dollar looking forward prospects are favorable for the u. S. Labor market and the economy more broadly. Low oil prices in ongoing employment gains have continued to bolster consuming spending. Financial conditions generally remain supportive of growth in many the highly accommodative monetary policies abroad should work to strengthen global growth. In addition some of the head winds including the effects of dollar appreciation on net exports and the effect of Lower Oil Prices on Capital Spending should diminish over time. As a result the fomc expects gdp growth to strengthen over the remainder of this year and the Unemployment Rate to decline gradually. As always, there are some uncertainties in the Economic Outlook. Foreign developments in particular pose some risks to u. S. Growth. The recovery in the euro area appears to have gained a former footing, the situation remains difficult china continues to grapple with the challenges posed by high death and volatile Financial Condition ss Economic Growth abroad could pick up more quickly, providing Additional Support for u. S. Economic activity. The trans tory influences holding down first half growth and the boost to Consumer Spending from oil prices shows through more definitively. As i noted earlier inflation continues to run below the committees 2 objective. With the personal consumption expenditures, up only a quarter of a over the 12 months ending in may and the core index which excludes the volatile influence over the same period. The recent low meetings reflect influences that are likely to be trans tory particularly the earlier steep declines in oil prices and in the prices of nonenergy imported goods indeed Energy Prices appear to have stabilized recently. Although monthly inflation reitings have firmed lately. The change in the index is likely to remain near its recent low level in the near term. My colleagues and i continue to expect that as the effects of these trans tory factors dissipate, and as the labor market improves further inflation will move gradually back to our 2 objective over the medium term market compensation remain low, they have risen some from their levels earlier this year and survey based measures of longer term inflation have remained stable the committee will continue to monitor inflation careful ly carefully the fomc conducts policy for price stability as required by our stat tory mandate from the Congress Given the Economic Situation i just described, the economy is judged at a high degree of policy accommodation remains appropriate. Consistent with that assessment weve continued to maintain the target range for the federal funds rate at zero to a quarter , and have kept the Federal Reserves holding ss at their current level to help maintain accommodative conditions. In its most recent statement the fomc again noted that it judged it would be appropriate to raise the target range for the federal funds rate, when it is seen further improvement in the labor market, and is reasonably confident that inflation will move back to its 2 objective over the medium term. Depending on its assessment of realized and expected progress for its objectives of maximum employment and 2 inflation if the economy evolves like we expect. Economic conditions would make it appropriate to raise the federal funds rate target. There by beginning to normalize the stance of Monetary Policy most participants in june projected an increase in the federal funds target range would likely become appropriate before year end. Let me emphasize again that these are projections based on the anticipated path of the economy not statements of intent to raise rates at any particular time. A decision by the committee to raise its target range for the federal funds rate will signal how much progress the economy has made in healing from the trauma of the financial crisis. That said the importance of the initial step to raise the federal funds rate target should not be over emphasized. What matters for Financial Conditions in the broader economy is the entire Interest Rates. Not including the initial increase in the federal funds rate. Indeed the stance will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment in 2 inflation the projections prepared for our june meeting, most fomc participants participated that Economic Conditions would evolve over time in a way that will warrant gradual increases in the federal funds rate as the head winds that still restrain real activity continue to diminish and inflation rises. If the expansion proves to be more vigorous and inflation moves higher than expected. The appropriate path would likely follow a higher and steeper trajectory. Conversely, if conditions were to prove weaker the appropriate electra correctly would be lower and less steep than currently projected as always, we will regularly reassess what level of the federal fundses rate is successful in achieving the committees dual mandate id like to know that the Federal Reserve is continued to refine its operational plans pertaining to the deployment of our various policy tools when the Committee Judges it appropriate to begin normalizing the stance of policy last fall the committee issued a detailed statement concerning its plans for policy normalization. And over the past few months we have announced a number of Additional Details regarding the approach the committee ininterpreteds to use when it decides to raise the target for the federal funds rate. These statements pertaining to policy normalization constitute recent examples of the many steps the Federal Reserve has taken over the years to improve our public communications. As this committee well knows, the board has for many years, delivered an extensive report on Monetary Policy and economic developments at semiannual hearings such as this one. They long announced its decisions by issuing statements shortly after its meetings, followed by minutes with a full account of policy discussions. And with an appropriate lag, complete meeting transcripts. Innovations in recent years have included Quarterly Press conferences and the quarterly release of fomc participants projections unemployment inflation and the appropriate path for the committees Interest Rate target. In addition, the committee adopted a statement in 2012 concerning its longer run goals and Monetary Policy strategy that included a specific 2 longer inflation, and a commitment to follow a balanced approach in pursuing our mandated goals. Transparency concerning the Federal Reserves conduct of Monetary Policy is desirable because better public understanding affects the policy. More important, is the Transparent Communications reflect the Federal Reserves commitment to accountability within our democratic system of government. Our various Communications Tools are important means of implementing Monetary Policy, and have many technical elements. Each step forward in our Communications Practices has been taken with the goal of enhancing Monetary Policy and avoiding unintended consequences. Effective communication ensures the Federal Reserve remains accountable. Measures that affect the ability of policy makers to make decisions about Monetary Policy free of short term political pressure in the name of transparency should be avoided. The Federal Reserve ranks among the most transparent of Central Banks. We publish a summary of our Balance Sheet every week, our Financial Statements are audited annually by an outside auditor and made public. Every security we hold is listed on the website reserve bank of new york, and in conformance with the dodd frank act transactions level data on all of our lending including the identity of borrowers and the amounts borrowed are published with the twoyear lag. Efforts to further increase transparency no matter how well intentions must avoid unintended consequences that could undermind the Federal Reserves ability to make policies. Since the february 2015 Monetary Policy report we have seen despite the soft patch in Economic Activity in the First Quarter, the labor market has continued to show progress toward our objective of maximum employment. Inflation is continued to run below our longer run objective, we believe trans tory factors have played a major role. We continue to anticipate that it will be appropriate to raise the target range for the federal funds rate when the committee has seen further improvement in the labor market and is reasonable confident that inflation will move back to its 2 objective over the medium term. As always, the Federal Reserve remains committed to employing its tools to best promote the attainment of its dual mandate. Thank you, id be pleased to take your questions. Thank you. The chair recognizes itself for questions. I hate to take up time to ask this, but its an important matter. Dodd frank monitored the policy role of the ned, through no fault of your own, theres not been a vice chair for supervision appointed. My counterpart in the senate has requested that you come on a semiannual basis until the president defines that position. Your written response to our request, to put it politely was not responsive so will you voluntarily honor our request, if the answer is yes ill take yes for the answer and if the answer is no ill give you a minute to explain. I stand ready to respond to requests for this committee to testify ill take yes for an answer and well issue those invitation s i want to discuss with you, growing con senses on these sides of the aisle notwithstanding its intentions, did not hit the mark and in fact, senator warren has been outspoken on the mat erter setting aside the arguments of whether or not aig bailout specifically was a good thing or a bad thing. Post dodd frank, is it your interpretation that the fed retains the power to go a similar bailout of aig where counter parties and creditors could receive 100 cents on the dollar including foreign entities . Let me start by saying the role of lender of last resort is a critical responsibility that Central Banks fulfill around the world and its why the Federal Reserve was created i do believe this is a very important power, we need to address liquidity and credit pressures in times when there is unusual financial stress. However, congress did amend section 133 in dodd frank to allow the Federal Reserve to extend to emergency credit for the Financial System, only through facilities that have broad based eligibility. Chair yellin the answer is no, we could not use those power powers to address a single issue like the aig situation. Bailout was made available. Theres still nothing prevent ing the fed from ensuring 100 cents on the dollar, is that correct . A broad im familiar with the statute, im just trying to figure out if theyre getting 100 cents on the dollar. Well, if we have failing Financial Firms we would not be able to put in place a broad based facility that was intended to rescue those firms. Its not allowed by dodd frank. Let me ask you this question its obviously a difference of opinion there. Federal reserve Bank President recently gave a speech dealing with 1334 and dealing with moral hazard, and i agree with you, the lender of last resort function is important but so is moral hazard in creating Systemic Risk. A final step may be required before Financial Stability can be assured. This would mean repealing the Federal Reserves remaining emergency lending powers. And further restraining the feds ability to lend a failing institution. Are you aware of president lacquers views on this topic. I am aware of his views but i disagree with him. Dodd frank has been amended to limit our powers as i mentioned to bailout a single firm or a failing firm or an insolvent. Wouldnt you expect we would have the final rule on 133. We know there are 800 pages devoted to helping to find the volcker rule. We see no such effort of defining the concepts broad based. Seeing no real constraint to your abilities. When would we expect to see that final rule fp. We put out a draft rule and received a number of comments and were working hard to come out with a revision. And i expect the it will certainly be out in the fall. Thank you, the chairs time has expired. Thank you very much. Chair yellin this morning i woke up to yet another story about discrimination against minorities. It seems honda has been caught. Charging higher Interest Rates to africanamericans and latinos when i hear those kinds of stories, im reminded about the predatory lending practices that took place in this country in 2008, et cetera and how these practices were targeted to minority communities. And minorities were charged higher Interest Rates, and when they prepared the income and the credit that blacks and minorities, the credit records to the credit records of whites. They could be the same, but they were paying more Interest Rates on many of these predatory product s products based on the sub prime lending, i cannot help but wonder, when is this going to stop . While we have you here today, and were talking about Monetary Policy, and were talking about Interest Rates qualitative easing et cetera et cetera i dont know how much you would do to deal with this inequality. I dont know if theres anything you can do that deals with discrimination, racism, that deals with income inequality. Its so big now that it will never be closed. We hear a lot of talk about income inequality and the wealth gap, we look at the high Unemployment Rates in the africanamerican and latino communities. Sometimes you just think despite the struggle despite all of the work, despite the challenges some of the stuff just will never go away. In this country. I guess im asking you because you have the responsibility for some of what goes on in this economy relative to some of these issues. What could you do . I mean what can you do about honda . What can you do about the banks and the predatory practices that continue to gouge latinos and africanamericans and target these products to our communities. What do you say about all of this . Let me start by saying that the practices you described and the trend toward rising inequality, the impact that it has on africanamericans and disadvantaged groups is something that greatly concerns me, and i think is of tremendous concern to all americans. In terms of what we can do when it comes to lending. Were responsible for supervision of Financial Institutions to make sure that they adhere to fair lending practices and we test regularly in our consumer compliance exams to make sure that the firms that we supervise are abiding by congresss rules to the equal opportunity act to make sure theyre not unfair Credit Practices that are being directed toward minorities or any americans. That is an important goal, we, of course, work to make sure that the banks we supervise meet their cra responsibilities which i think has been of benefit to low and moderate income communities and more broadly, in terms of our Monetary Policy responsibilities, maximum employment along with price stability are the two major goals that congress is assigned to us, the down turn that we experienced after the financial crisis, where unemployment rose to over 10 was particularly punishing to africanamericans and to lower skill eded workers more broadly. Trying to get it back to maximum employment. Lowering the Unemployment Rate. Traditionally, africanamericans and other minorities have had higher Unemployment Rates we dont have tools to be able to address the structure of unemployment. But across groups a Strong Economy generally i think really does tend to be beneficial to all americans. So thats what were working toward. And there are policies that i think congress could consider that would address these issues. Thank you. The time of the gentle lady has expired. Chairman of the Monetary Policy and trade subcommittee. Chair yellin i think we share a respect for rules based Monetary Policy, as you put it when you served on the fed board in the mid 90s, the taylor rule is what sensible Central Banks do, and it looks like were in pretty good company. Express rules based framework. One of the most important ways to extend responsibility is to practice it as part of a systemic systematic policy framework, i believe that indicating how the evolution of key economic valuables shape ss commission. Dr. Douglas holtz aiken also endorsed the rules based Monetary Policy saying i would like to see a rules based approach that doesnt rule out discretion. Because they can pick the rule they want to operate but if they can provide it to the congress and the American People. The American People will know what theyre up to. They have said Forward Guidance is critical. We need to know what theyre going to do rules provide that, close quote. Im curious when you and your colleagues at the fed will adopt a rules based policy . So you used the term systematic policy, i want to say that i strongly endorse in the strongly endorses following a system attic policy, and during my term is vice chair. I have tried to promote a systematic Monetary Policy. We follow a systematic policy not a simple rule based on two variables. Let me point you first in the Monetary Policy, report on the second page of the report, we have a clear statement of our longer run goals in Monetary Policy. Any systematic policy has to begin by articulating what the goals are clearly and the strategy that will be followed. Thats what we do there a rules based policy is a better way to go . Theres not a single central bank. In the world that follows a rule that would rely on variables. Informing our judgments about the Economic Outlook and the way we make policies systematic is we provide and you can see this in section 3, in part 3 of the Monetary Policy report, each individual, each participant writes down their own forecast for the economy and the appropriate policy that goes along with that and from that, you can get a clear sense of how we expect to conduct policy if the economy others in the market dont believe thats clear others dont believe thats clear. Were not trying to handcuff you, but we are asking that you write a rule within descriptive parameters. Purely use it as a reference point. One of the things you expressed, we can find ourselves if we had a rule, we may find ourselves in negative Interest Rates. Once we do that, were going to go to zero and no lower. Maybe. 25 many we wont call it the taylor rule but the yellin rule. We can have some of those things that are going to give some predictability. Whether its Douglas Aiken or others that have been within the federal bank reserve have said that predictability and transparency is the way to go i know you know we have a good discussion draft floating around and just so im clear, you dont believe there is a time that will be right to again go toward a rule based policy . I think we need a systematic policy, but i would strongly exist creating a rule where the stance of Monetary Policy depends on only the current readings of two economic variables, which is what your reference rule relies on. Thats what the reference rule does, it doesnt say thats whats to follow. You shouldnt be raising Interest Rates . The bank for international settlements. Cloud yi cloudy stead lower rates be get lower rates. We have confusion and thats what were asking for. I strongly believe in the systematic policy. Time of the gentlemen has expired. The chair recognizes the gentle lady from wisconsin. Thank you so much. The key of the Monetary Policy and trade subcommittee has been discussing with you the taylor rule. Id like to pursue that a little more. The imf is warning if greece leaves the eurozone it might slow growth internationally and impact the u. S. Much higher than expected. I guess id like you to speculate about how if you were handcuffed to borrow the terms used here earlier, the taylor rule how would that impede a response to such a crisis . The taylor rule would tell us the current setting of Monetary Policy should depend on only two variables, the current level of real gdp or the output gap, and the current level of inflation. It wouldnt take into account anyway our judgments about the Global Economy how we expected the european economy would be global or Financial Markets by such developments. In that sense it really restrict restricts any simple rule the Monetary Policy to a very short list variables and typically their current values. Thats one of the reasons. We spend a great deal of time and the forecast that we include in our Monetary Policy report that the the public every three months and we incorporate all of the kind of information that we think will happen in the Global Economy, and the other economic developments. Those factor into our economic forecasts and our view is to the appropriate role of policy. We are providing a great deal of information to the public by providing these participants forecasts because participants are telling the public how, in light of their economic forecast, concretely with numbers they think Monetary Policy should be set, so that is information about the socalled reaction function, namely the relationship between the economy and Monetary Policy that is incorporated in Something Like the taylor rule. Thank you so much. Can you provide us with a quick update on the feds implementation of the socalled collins fix governing practices . We appreciate Congress Passing the collins fix. In light of that we have a great deal of flexibility now to Design Capital standards that we think will be appropriate for the firms that we supervise, including the insurance based savings and Loan Holding Companies and the insurance sifees, and we are working hard and we will put in the Public Domain either orders or a proposed rule thank you. When we figure that out. Thank you so much. The fiveyear lookback of dodd frank, and our colleagues say we have enshrined too big to fail and wonder if you can say whether or not doddfrank enshrined too big to fail. I dont believe it enshrined too big to fail. So it gave us tools to raise capital and liquidity, to impose capital surcharges on those firms that we deem most systemic, to use stress testing as a methodology, to make these firms much less likely to fail and the amount of capital and liquidity has increased massively since the crisis. In addition, doddfrank gave us both title two Orderly Liquidation Authority which would be a new rule i have ten seconds left, so i think you covered it. Back to my idea about the labor market. Do you think ending the sequester and raising the minimum wage would be Good Strategies for getting our labor markets i think thats for congress i knew you would say that, and thats why i saved that for last. And the chair now recognizes mr. Garrett from the sub committee. In front of me last night i read through what is called the joint staff report, the u. S. Treasury market on october 15th, 2014. Its the staff report that looked at the what happened in the markets back in midoctober. Are you familiar with that report and do you adopt that report even though the name of it is the joint staff report, so is this staffs opinion or your opinion, so i understand that . I am certainly aware of its intensive staff work by staff and a number of agencies i certainly support the report. I assume so. I thought there was one seminal question, and i guess there are two, and i read your testimony and the addendums to your testimony which only came in this morning. First of all, is there a problem, and secondly, what was the cause . I thought we all concluded there was a problem but thats not clear from looking at the addendum to your report where it talks about the disruptions, and a nominal treasury markets do not indicate notable deteriorations and you said there was not problems in the liquidity of the market and you talk about that. I think theres a problem and other people think theres a problem, and we had hearings on this, and it was told to this committee there have been dramatic changes to the income market in recent years. Is kitcham right that there is dramatic changes to it or is your staff and you right that there is not a problem in the deterioration in the marketplace . Lets find out what is happening first of all. I think its not clear what is happening in the markets is there a problem, though . The report that you mentioned was just released and looked at a 12minute window overall, he was saying there has been a deterioration and there is a problem. Other panelists say there is a problem, and your staff is saying there isnt any . Its not clear whether there is or is not a problem. By some metrics, liquidity looks adequate, and by creating volumes i only have some metrics suggests there is a problem, so this is something that we need to study further. So you studied it so far and had an 80page report and i find it troubling it doesnt come to much conclusion. I was looking for the second seminal question that the chair and i asked lou and others, what was the cause of this . This still fails to come up with any particular explanation, and runs through half a dozen explanations and says this is not a problem, and one of them that it does say one that it does refer to, it says the growth and electronic trading and Competitive Pressures and other factors and regulation, and that word regulation only appears twice but your staff says regulation is an indicator to the changes in the volatility and liquidity in the marketplace, so it says regulation is part of the problem, right . Well, we just dont have a conclusion about what happened in the treasury market at this point. No, you regulation could have contributed in some way to this, but there are many other things going on as well. But it doesnt say that in your addendum at all, and nowhere did i see where it looks to regulation being the problem, and all other factors, size, order trade size or electronic trades or Competitive Pressures, and it doesnt say that in here, and we never could get that from secretary lou or anybody else in the administration, and so are you saying today, yes, regulation are potential problems in this area . Theyre things to look at. We have no evidence that those things are problems. During this window somebody let me ask you may i ask you this . Did you direct your staff to look into see where that was a potentiality . Did you direct them to look at that as a factor and will you in the future . We asked them to take a look at what caused this very Unusual Movement in treasury yields but they didnt. And they were unable to find any single cause. They pointed to a number of factors that could have been at play and it needs further study and its right for regulation to be on that list of things that we look at. Theres no evidence the time of the gentleman has expired. The chair now recognizes the gentlelady from new york, ms. Maloney, Ranking Member of the sub committee. Welcome chairman yellen, and i know some of my colleagues have been critical of your performance but i, for one, think you have done a tremendous job and i want to publicly thank you. You have been responsive to congress and you managed to wind down the Quantitative Easing Program smoothly and on schedule without causing any major disruptions in the Financial Markets, so thank you. I want to ask you questions about Monetary Policy. In your testimony today you said foreign developments, including the turmoil in greece and china, in your words, posed some risks to United States growth. Has the turmoil in china and greece changed your view about the appropriate timing for the first Interest Rate hike . So we look at International Developments very carefully in developing our forecast. Weve been tracking closely developments in greece and china and other parts of the world. The issues that exist are not new, for example, the committee in june was aware of these developments, and in june when the participants wrote down their views of the economy and appropriate policy, taking into account these developments and the risks they pose, they still thought the overall risks in the outlook were balanced and they judged it would be appropriate sometime this year to begin raising our target range for the federal funds rate. Of course, we continue to watch these developments, these Global Developments unfold and we will in the coming months. Were we to judge that these developments did create substantial risks or were changing the outlook in some notable way then a change in the outlook is something that would affect Monetary Policy. As we have said all along, we have no judgment at this point about the appropriate date to raise the federal funds rate and our judgment about that will defend on unfolding economic developments and how they affect our forecast. You stressed in your testimony that the pace of rate increases is more important than the timing of the first rate hike, and many economists, including the imf argued that the fed should wait longer to start raising rates, possibly waiting until next year, but should then follow a slightly steeper path of subsequent rate increases. So the question is, if the fed waits longer than currently forecast to start raising rates will that mean a steeper path of rate increases . Well, if we wait longer, it certainly could mean that when we when we begin to raise rates we might have to do so more rapidly, so an advantage to beginning a little earlier is we might have a more gradual path of rate increases. As i indicated, the entire path of rate increases does matter. There are many reasons why the Committee Judges in effect that an appropriate path of rate increases is likely to be gradual, but given that we have been at zero for over six years, it has been a long time since we have raised rates, doing so when we finally begin in a deliberate and gradual way, looking at what the impact of those decisions are on the economy strikes me as a prudent approach to take. And as you know, the markets have been anticipating a rate increase for quite some time, and that it will follow one of the fomc meetings that has a press conference afterwards. Currently there is a press conference after every other fonc meeting, and the fed only has two more chances to raise rates this year in september or december, even though there is a meeting later this month and one in october. Would the fed feel comfortable raising rates at the first time at a fomc meeting without a press conference scheduled afterwards, and are the july and october meetings on the table for rate increases . I try to emphasize every meeting is a live meeting and we could make decisions at any meeting of the fomc, and we have emphasized if we were to make such a decision we would likely have a press briefing afterwards and we recently conducted a test to make sure that members of the media and press understand how technically they would participate in such a press briefing. The time of the gentlelady has expired. The chair now recognizes the the chair now recognizes the next senator, mr. Meyer. We had a discussion about a Different Number of topics a few weeks ago, and i asked you or made mention of the fact that i was very concerned from the standpoint that government oversight reform had this report that they put out with regards to the internal emails and memos that showed that the fdic was going well beyond their Statutory Authority and duties and trying to limit the ability of certain Legal Businesses to do Legal Business and was impacting a lot of banks in a very negative way and the fact that you oversee some of the banks as well, i felt you should be pushing back and have a meeting with the chairman, and i asked you to do that and you have done that at this point . Yes, i have done that. I have discussed with chairman grunburg operation choke point and our views on what proper policy is on the part of the banking agencies with respect to how our examiners deal with banks and the services they offer. We both certainly agree on the importance of making sure that examiners and our policies dont discourage banks from Offering Services to any business that is operating within state and federal law. He and i agree that that is appropriate policy and did he indicate to you, though, how he is going to stop operation choke point within his own agency . I believe i dont want to speak about his policies i think its important that you make the point to him that he has to stop. In this report, this report of his own emails, within his department, he is implicated as being part of the problem, and therefore its important, i believe, that you have a discussion that he has to cease and desist those kinds of activities and get assurance from him that he will make sure thats done. He explained to me a number of policies that he has put in place to be absolutely certain that his examiners are abiding by the policy that i indicated, which is the banks we supervise that examiners in examining them do not if at some point you find that this is still continuing, will you confront him about that, if its continuing in the banks you oversee, will you tell him we find this operational and therefore you need to stop it. Will you stop him from doing it if you see it . I will continue to discuss with him this issue and to make sure our policies all right. With regards to another issue that we discussed with regards to designation, one of the concerns that i have, especially with insurers and Asset Managers is, as we were as they are designated, there doesnt seem to be a way for them to become dedesignated, there is no path written out, and you can say, well, they need to change their business model, but i would think it would be helpful whenever they are designated to say if you do this, this and this, these are the problems that have caused you to become designated, and if you change these things and do these things differently it would allow us to dedesignate you, and i dont see a path to dedesignate. Can you elaborate on that . Yes, if they review every single year the designations of firms and considers whether or not they are appropriate or no longer appropriate, and firms that are designated are given very detailed okay. Material to enable them to understand i would just encourage you every year to be sure you put Something Like that in there so there is certainty on the part of those folks that are designated. I have 30 seconds left so let me get one quick question in. The capital standards are a concern that this is the first time the fed ever got involved, and i know you are looking at International Capital standards. Would you commit to us prioritizing the domestic capital standards will take priority over the National Capital standards . International, in the International Capital standards would not become effective in the United States unless a regulation or rule were proposed thats my concern. And went through a full debate. Thats my concern. I want to make sure this domestic industry is protected. The chair now recognizes the gentleman from missouri, mr. Clay, Ranking Member of the Financial Institution sub committee. Welcome back chairwoman yellen. You were quoted in a june 17th american bankers article as stating that the Federal Reserve was examining ways to improve its implementation of the Community Reinvestment act amid concerns that regulators are letting too many poor communities go unserved by banks. How would the Federal Reserves effort seeking to improve implementation of the Community Reinvestment act encourage investments in places like the ones that i represent, such as ferguson, missouri, and other communities throughout this country that are mired in poverty . We have been working to improve implementation of the cra regulations with other banking regulators, and we have been doing that in part by trying to improve our guidance, adding to a set of interagency questions and answers on the Community Reinvestment. We came out with additional q a in 2013, and were working toward further additions. What this guidance does is try to clarify the ways in which basic Banking Services can help to meet the credit needs of low and moderate income people in the context of cra, and by doing that i hope what we will be doing is encouraging banks to consider providing the kinds of Banking Services that people in these communities need to be an important part of their cra program. Along those same lines of questioning, you stated in your testimony your concerns about the limited availability of Mortgage Loans. As a supporter of doddfrank, as the law given us unintended consequences and a tampdown on the banks ability to lend money in order for people to get Mortgage Loans . So its hard to say. I mean, certainly lending standards are much tighter than they were in the runup to the financial crisis. I think most of us think appropriately so we dont want to go back to lax lending standards, but it may be that the steps we have taken are having some unintended consequences, and that, you know, we need to work on that, make sure that credit is available. So do we need to tweak the law in order to allow banks to really get money out into our economy and allow people to realize the American Dream and purchase homes . Well, there are a number of obstacles that banks see to lending. Some have to do with putback risks, which are matters that the fhfa is working on with fannie and freddie, and, you know, it remains uncertainty about securitization and the rules around securitization, so we have not seen an active market come back for private residential mortgagebacked securities, and that could be part of what is happening. Well, okay. The Federal Reserve released a report entitled strategies for improving the u. S. Payment system. A followup to a 2013 consultation paper that signaled its intention to expand his presence in electronic payments. Why has the fed embarked on this Faster Payments Initiative . What does it hope to achieve . What is the Federal Reserves plan . So our basic plan is that we want to see a faster and safer Payment System in the United States. We think that many steps can be taken to make that possible, and the main rule we expect to play is that of a convener, to bring a lot of private sector participants to the table to talk through these issues, and for them we have set up task forces on faster payments and safer payments, and hundreds of private sector participants are discussing what they can do in order to bring this about, so were trying to play the role of facilitator of bringing people to the table. Thank you. The time of the gentleman has expired. The chair now recognizes the gentleman from wisconsin, mr. Duffy, chairman of the oversight investigations subcommittee. Thank you, mr. Chairman. Welcome, chair yellen. We have been doing an investigation into the 2012 fomc leak. We kindly asked you to produce documents in regard to the leak and you failed to comply and there was a subpoena for the documents by which you failed to comply. I would ask, what is your Legal Authority . Give me case law or statute that allows you to not comply with a congressional subpoena . First let me say that we have cooperated with the committee. No, i have limited time. Give me the Legal Authority you have not to comply for a subpoena . We asked for specific documents and you havent given them to us. We indicated that we fully intend to cooperate with you and provide the documents you requested, but we are not going to provide them now because this matter is the subject of an open criminal investigation by the boards Inspector General and by the department of justice. They have indicated to us that it will compromise likely compromise their investigation. You are the chair. You can read the statement all day long, but i would like to know the Legal Authority that you have. Basically you said in a letter that the oig basically requested that you dont give it to us. You are not bound by the doj or the oig. We asked for the documents. You said we are not going to give them to you. Is it fair to say you dont have Legal Authority no, we said we plan to give them to you as soon as we are able to do so and not compromise an open criminal investigation. Compromising an open we want to see this investigation succeed. Well, lets talk about the timeline. This happens in october of 2012. You dont follow your policy. The General Council does an extensive sixmonth investigation, and after that investigation the General Council is supposed to make a referral to the ig, and that doesnt happen. General Council Gives a report to the committee, right . When you get that report, because you are so concerned about justice and you are so concerned about bringing the leaker to the forefront, what do you do . Nothing. You didnt make a referral to the ig. You didnt make a referral to the fbi, the sec, the doj, you did absolutely nothing. Zero. So you are trying to say congress is going to obstruct your investigation when you had information you did nothing to perpetuate an investigation that would lead to the truth. Eventually, the ig did their own investigation. And they closed it. Congress said this is important stuff, and as Elizabeth Warren would say, we dont want that are well connected get information through the leaks, we should know who the leaker is, and we pressured you and the ig, and now there is a second investigation, and they said no, no, we cant give you that documentation because its a pending investigation and were concerned about jeopardizing it. Madam chair, it looks like you are jeopardizing or the fed is jeopardizing the investigation. Am i wrong . The fomc has in place a clear set of rules that are to be followed when there are allegations of a leak. You didnt follow them. They call for a review of the incident by the General Council and the fomc secretary. We have described to you how that review took place. It took place before the review was complete. Did the general i want to claim my time. Did the General Council per your guidelines, talk to the board or make a recommendation to the ig . The requirement is they do an initial review and solely determine whether they make a referral to the ig . They didnt do that. Before his review was complete he was informed by the ig that the ig had undertaken his own investigation and the ig was already looking at it before it was necessary for him to make a decision to refer it to the ig. My time is almost up. I claim my time. If anybody is trying to sweep this under the rug, its the fed. Its congress that is trying to bring light to this. Oi i sent you a letter on the 17th of june, and we have almost a full page of footnotes. We have the right to these documents. You have the duty to provide them to us, and you have no Legal Authority to deny that request and you are required to give us the documents and i hope you reconsider your denial. I yield back. The time of the gentleman has expired. The chair will recognize the gentle woman from alabama, ms. Saoul. Thank you for being here today. I want to bring your attention to the wages and what i see is income inequities going on and get your take on what we can do as far as monetary policies to close that gap. Since the height of the financial crisis, the u. S. Economy has made remarkable progress particularly in compared to other parts of the world, and here in the United States, the Unemployment Rate fell in june, and the president pointed out in his budget over the past four years that we put more people back to work here in the United States than europe has and in japan and other nations, however despite the overall employment gains there are still some districts, mine included, have folks that want to work but cannot find work, and the hourly Labor Compensation is lagging behind the growth, and the president s budget projects the share going to labor rather than to capital will remain at historic lows for years to come. What in your view can be done to reverse this trend and insure that the workers can get more gains for the economy, and i can tell you in my own district of alabama, while the overall nation has 5. 3 unemployment, our median average unemployment in a district that is disproportionately africanamerican is 9 to 10 , which is vastly different. And i want to know how the monetary policies can go about changing that trend . Monetary policy has been aimed at trying to achieve a strong recovery in the job market and while we are not there yet, i believe we have made substantial progress. As the economy improves and the labor market gets stronger, i would expect to see the growth of wages pick up over time and at this point i think were seeing at least some first tentative signs which growth is increasing and it has been running at a very slow pace. There are often lags between improvement in the labor market and a pickup in wage growth. Do you think Unemployment Rates is it more because of structural changes or cyclical factors . Both cyclical and structural factors matter. So cyclically, i think the average rate of growth will pick up, and structural factors are important, and productivity Growth Matters over time to real wage increases and productivity growth in recent years have frankly been very disappointing and that may be holding wages down. Across groups, differences in wage trends across different groups in the labor market, i think, reflect a deeper set of longer term structural influences and go way back to the late 70s or mid70s where we have seen growing gaps by education. We have seen a persistent increase in the returns to highskilled workers, and stagnation in the middle and at the bottom. Do you think any changes in our tax or spending policies could help close that gap quicker . I get that, you know, systemic problems in persistent poverty cause lots of segments of the population to have their unemployment lag behind overall unemployment, but are there substantive things we can do as far as tax policies or spending policies that would hasten the closing of that gap . Well, there are suggestions about things that congress could consider that would address an inequality. Certainly with a high return to education and skills being a very important factor in determining wage outcomes, and policies that address education at Different Levels would be relevant to that. Are there any outreach efforts the fed has made to understand the difference in communities of color with respect to the wage and the income inequality . We do have surveys. We are trying to collect information. Household surveys that enable us to gain better insight into this, and we have Community Development efforts that are addressed to low and moderate income communities to try and see what could be done. Thank you for your efforts and i hope you will continue them. Time for the gentlelady has expired. The chair recognizes the senator from tennessee. I appreciate you being here today, and i am going to get right to the point. Were going to talk a couple lines of questions, raising Interest Rates and what kind of impact they will have on National Debt versus personal debt, and i have been watching the tvs which are very informative and the charts that i think are being shown by my colleagues on the other side of the aisle, if we could change the top to progress since republicans took control of the house in 2011, that would be great. So i appreciate my buddies on the other side, and they ought to get a big kick out of that. Back to costs benefit analysis. The small and mediumsized banks and lending institutions all over the country, the impacts of doddfrank being burdensome, overburdensome, and does it mean financial regulations are above the law and has anyone at the Federal Reserve does an analysis on broader economic variables such as Capital Formation and perhaps most importantly, job creation . The cftc and s. E. C. , the other agencies do this. Why arent you doing this, and can you shed light on why you are not and would you be open to doing it . We do a great deal of analysis to try and understand the costs of regulations that we put in place, and their benefits. For instance, with example to the basal 3 capital requirements, we participated along with other countries in a very detailed cost benefit study of the likely impact of raising capital standards. We came to the conclusion that even though there might be a very modest burden on raising spreads and the costs of capital to the economy that the costs of financial crisis had been so dramatic and so large that the impact that we would have of reducing the odds of a financial crisis passed the cost benefit test easily. We regularly make sure we comply not to interrupt, buy my time is slipping. Would you be open to doing a specific cost benefit analysis, for every big decision . I get what youre saying. And i know its complicated, and you are saying in order to make sure we dont hurt this one over here, we are doing this year but we are not going to give you the information its not cut and dry which we need more than you are getting, and would you be open to doing a cost benefit analysis . Yes or no . We follow the analysis required by current law, and in some cases i think it would be difficult to do that. So, no . Congress is, for example, in doddfrank, already made a judgment that they want to see us put certain requirements into place based on Congress Judgment that it would make the Financial System safer and sounder. We put out proposed regulations for comment to try and accomplish an objective that Congress Already assigned to us. Reclaiming this. It seems like a common sense approach and i know its complicated that we would have what other agencies are doing, that we have a common sense approach cost benefit analysis, and i think you are saying that you are not in favor of doing it this time and maybe Congress Needs to do something else. Let me move on. But you are not in favor of it. Raising Interest Rates, and we see the current National Debt and personally the debt that Many Americans owe in this country. When we start down this path of raising rates, i am afraid, you know, there is a whole generation of people now that think the Interest Rate standard zero is the standard, and Interest Rates used to be 18 and 20 under the carter administration. When you start up the path of raising rates, my fear is we go into another recession and you cant raise rates again because rates are already low, and the only answer is more dumping money into the economy, and that gets very serious very quickly. What is your do you fear raising rates is going to do this . We are not going to raise rates if we think its going to tip the economy into a recession. We will raise rates because we believe the economy is Strong Enough that its appropriate to have higher rates to meet the objectives we have been assigned by congress. This is a concern for you as well . So we wouldnt do something that would jeopardize i yield back. Unless inflation were at risk. The time of the gentleman has expired. The chair recognizes the gentleman from illinois, mr. Foster. Thank you, mr. Chairman and chair yellen for appearing today. On page 12 of your report, you note that the trade imbalance has been a substantial drag on gdp growth. The house and senate will soon go to conference on a customs deal part of a trade package mostly passed into law last month so my concern is and continues to be around the potential for our trade partners to undermine the value of free trade agreements can have without strong, enforcible prohibitions on currency manipulation. The administration put forth the position and insisted it was impossible to define currency manipulation, and with the imf definition of currency manipulation in a way that would not have impinged on your ability to have quantitative policy. Do you agree with that . And specifically in what ways would the imf definition have prevented you from Monetary Policy . So i do agree with the concerns that were expressed about currency manipulation. First let me make clear that i am opposed and the g7 and g20 hvae weighed in that intervention in currency markets by governments for the sake of changing the Competitive Landscape and purposely trying to agreed. To another country is wrong and inappropriate behavior and i understand. The question is, is it possible to make actionable objective criteria of the currency manipulation which would not have impinged on what we had to do . I believe its difficult because many factors influence the value of currencies traded in markets. The imf definition does not talk about the value but talks about the action. You have to be running a persistent trade surplus, and accumulating additional Foreign Exchange reserves and holding excess foreign reserves and none of those three would have been triggered by all of our response. And my question, the administrations perception was wrong, and the imf definition would have prevented us. So my concern with this is that i think its important for countries to be able to conduct monetary policies that best pursue domestic objectives. Those policies are not intended to impact currencies, but because they do affect Interest Rates and Interest Rates affect Global Capital flows, they have impacts on currency values, and all i have said about this topic is that i would worry about any type of legislation that could cripple Monetary Policy from achieving the objectives that congress has assigned to us. The question, the precise question is, is there anything you did that would have triggered the imf definition im not sure. I have not studied that carefully enough. Would it be possible to get back with an answer of that precise question . Thank you. I really appreciate that. I have a little time left. Are you familiar with albert einsteins quote, any theory should be made as simple as possible, but not simpler and are you reminded of the quote when you talk about things like the taylor rule, and you can manage everything could be reduced to a handful of variables . I think thats a very good point, and i think it is apropos of the taylor rule. It would be nice to be able to reduce appropriate policy to the current values of two simple variables but i think the world is more complicated than that. We cant take everything into account but there are important things that need to be considered, and thats why we have an fomc that has been asked to bring a great deal of information to the table. And the last, sort of a mathematical corolary of that, something that is changing over a period of time in response to a single one of the variables, that obviously does not mean that the real response function is a single function of the single variable. Time of the gentleman has expired. The chair now recognizes the gentleman from california. Mr. Royce. In your first appearance before the committee, you commented on the need to move forward with housing financial reform and do you continue to believe the current state of our secondary Mortgage Market poses a Systemic Risk, and should congress and the fhfa take steps to share that public risks backed by taxpayers with the private sector . Secretary lou suggested such an approach that would have his support. I have long said and my predecessors have as well, we would be desirable to see congress gse address reform to decide what is the appropriate role of the government in the Mortgage Market, and to try and bring private capital back into the Mortgage Market, and there are a number of different ways, different strategies congress could take to accomplish that, but i do think its important for congress to try to resolve those issues. Thank you. Last year, i along with other members of the houses committee copied you regarding our concerns about the lack of a formalized process for reviewing nonbank Financial Institutions facing designation, and we shared concerns about the need to conduct a thoughtful review of the Insurance Industry before moving to designated individual insurers. Since sending that letter, there have been additional steps taken to understand the industry which were clearly needed after the Flawed Office of Financial Research report, and one research report, and one governor endorsed an activities based systemic review, and so do you think it would be appropriate to conduct a thorough study and analysis of the Insurance Industry as well . Shouldnt all nonbank Financial Institutions face a similar process for review . So i mean, the Asset Management industry is one where its thought appropriate to focus on activities and to look at whether or not there are Systemic Risks associated with some Asset Management activities, examples would include liquidity and redemption risk and risk of offBalance Sheet leverage. With respect to insurance, i mean, this is not a matter of going from a review of individual companies to the activities type of approach. Its not something that they, to the best of my knowledge, have discussed. Let me go to my last question. In february of 2014 i asked about the deepening economic crisis in the commonwealth of puerto rico, and you said the Federal Reserve was monitoring and would continue to look at the potential consequences for stability of the events, and you thought it would be best not to step in as a creditor of the state or municipality, and you said it was more appropriate for congress. Do you believe that the best out come would be that puerto rico electorate power of authority and its creditors come to an agreement without Government Intervention . Without what . Without Government Intervention, and instead work it out between the power of authority and the creditors . So this is not a matter in which i have an opinion. I mean, the Federal Reserve thats something the Federal Reserve cant and should not be involved in and i think its important for congress to consider what is best to do in this case, and its not a question on which i have formed i have an informed judgment. What we have been doing is obviously monitoring developments in puerto rico which economically are very difficult, and we are looking to see are there risks that are being transmitted to the broader municipal debt market and we are not seeing signs of contagion, and thats another topic that is obviously important. But exactly what should be done in this situation, i think, is a matter for congress to consider. In the past you have said its best not to have the Federal Reserve to step in as a creditor. Thank you. Thank you for being here today and let me just stay we were very proud to have you last week in the great state of ohio. Although it was not columbus, the capital, we would look forward to having you come just a few miles north to visit us. My first question is to follow up on congresswoman waters question when she asked about discrimination and the loss of wealth base on subprime lending, and i am not sure you got to finish when you said there were other policies that congress could pursue to address discrimination and inequality. Can you elaborate on what those policies are . Well, i meant more broadly in terms of inequality among households, in terms of wealth and income, and there are many factors that affect inequality, and they tend to be deeper structural forces, including technological change that is increasingly up the skill demands for our workforce and raise the return to skilled workers relative to those that are less skilled. Certainly education, training are matters that are within congress domain to consider how to make sure that individuals have access to a worldclass education that is going to enable them to earn a higher wage, policies affecting infrastructure and Capital Formation, entrepreneurship and other things also affecting trends in inequality and i was referring to all of those factors where congress could potentially play a role. Thank you. When you were here in february before this committee, januarys Unemployment Rate was about 6. 6 overall, about four months after that, the rate decreased to about 5. 3 . However, in africanamerican communities, while it declined, it went from 12. 1 to 9. 5 over that same period. While africanamericans Unemployment Rate did decrease the number is still high. In fact its double the national Unemployment Rate. I think most, and you included, would agree that thats unacceptably high. My question is, as you assess the health of the labor market to what extent are you taking into account the fact that minority communities still face unacceptable high rates of unemployment and is there any outreach or anything that the Federal Reserve has engaged in to understand the extent in the communities i represent . So there really is not anything directly that the Federal Reserve can do to affect the structure of unemployment across groups, and unfortunately that has long been the case that africanamerican Unemployment Rates tend to be higher than those of, on average, among the nation as a whole, and it reflects a number of different sources of disadvantage that are operative there in our national Monetary Policy, and were trying to achieve a situation where jobs are broadly available in the economy to those who want to work, but we seek the maximum sustainable level of employment or we have to be careful not to try to push the economy to a point we have to worry about inflation remaining under control, and given our focus on inflation, there is certainly limits on what we can do for any particular group. Thank you. I have a few seconds left. Let me continue on the theme on the other side as i talk about the office of minorities and women inclusion. Certainly you know section 342 that created the office, and part of the thing that we have struggled with is the whole reporting authority and the standards for reporting back, what those federal regulation offices are doing. Do you have any oversight . We make each of the federal agencies or entities covered by this make annual reports to the congress so the board has reported annually on our efforts. We are very let me just say, we are very committed to doing what we can to facilitate inclusion of minorities and women and we have many programs and have tried to detail them in those reports. Time of the gentlelady expired. The chair recognizes the gentlelady from missouri, ms. Wagner. Thank you, mr. Chairman and chair yellen, and thank you for joining us today. I want to touch on issues that some of my colleagues also brought up and keeping in that vein, particularly with the news coming out of greece for the past few weeks i think its important for countries to take a hard look at their own debt, time for us to look in the mirror and address our own problems, including the over 18 trillion in debt we have accumulated. The Federal Reserve has employed exceptionally accommodating policies. We are now nearly seven years, maam, out with the federal funds rates still at the lower zero bound both quantitative easing and low Interest Rates made financing easier and has relieved pressure to the fiscal reforms to solve our longterm debt problem. Both you and your predecessor, chairman bernanke, have argued that fiscal reform is important over the long term, however you have also stated that fiscal prudence can be ignored to not hamper economic recovery. It has now been seven years and we can no longer say we are looking at the short term when we are dealing with our countrys debt problem, can we . So i, like my predecessor, i believe the nation faces a very serious debt problem in the years ahead. At the moment, deficits mainly because of congressional actions and those by the administration have succeeded in lowering deficits to the point where for the next several years the debt to gdp ratio was stable. But over time under cbo projections, as the population ages, and especially if healthcare costs rise above trend as has been historically typical, the country will face an unsustainable debt path which the ratio rises and that requires further actions. Thats mainly related to retirement programs to Social Security and even more important to medicare and healthcare cost trends. And so weve known about this for decades. There remains a need for action on this front. There does remain a need for action. And the long term budget outlook reports on some of the consequences of large and growing federal debt this comes again from the cbos long term budget outlook. It cites like lower income pressure for larger tax increases or spending cuts. Reduced ability to respond to domestic and International Problems and greater chance of a fiscal crisis. Are these things you consider with regard to Monetary Policy . I agree with the set of consequences that you just read to me. And ultimately, when we see those things being manifest, those consequences, so in the years ahead if deficits arent addressed and become very large, they will put pressure on the economy that, not right now, but in future years likely will cause us to have higher levels of Interest Rates than we otherwise would have. Diminish levels of investment and productivity growth in this economy, we would z to offset those forces by having a tighter Monetary Policy. Were not in that situation now. Particularly relating to Long Term Debt leading to a greater chance of fiscal crisis, is this something you discussed as part of if fsock when youre looking at Systemic Risk . Ive not been part of an fsock discussion, but it obviously is a significant issue for the long term. I have a short amount of time. When do we get to the long term, chair yellen . When are we there after seven years and adding 8 trillion in debt over the last handful of years . When do we get to the long term . The economy is recovering. Im pleased by its progress. As i indicated, my colleagues and i think if the economy progresses as we expect we probably will begin to raise Interest Rates sometime this year. And that takes us towards the long term. How does that affect our current debt . Two ways. Higher Interest Rates will raise the cost of servicing the debt, but a stronger economy which is what will cause us to raise Interest Rates the stronger economy boost tax receipts and is a favorable for the federal budget. Thank you. Time of the gentle lady has expired. Chair now recognizes gentleman from michigan. Thank you, mr. Chairman. Chair yellen, thank you for being here. Im blocked slightly by mr. Emmer who is functioning as a pulling guard i think right now. Got good coverage. The work that i did before i came to congress and a lot of the work ive been focused on since ive been here relates to the Economic Health of the americas cities and towns. And i know that a lot of the regional banks, most notably boston, cleveland, chicago and in some other ways philadelphia have been focusing some attention on this issue of the Fiscal Health of communities within their soupupervisory area. Im curious as to whether the board of governors might in the near future take up the question. What we have ive talked about this before. I know other members have heard me go on about it. We have an institutional pending looming institutional failure in this country. I mean theres often a tendency to think about cities facing significant municipal stress as being anomalies or having that problem as a result of significant mismanagement or an episodic sort of fiscal stress situation. But what were seeing, what the data shows us is there is a structural program. Municipal governments are facing a stress, hundreds of millions of dollars in general funded revenue and expenditures in many dozens of municipal institutions that are facing potential failure. And while i know the fed has involved itself most recently in the question of municipal bonds, potentially as a source of liquidity for banks, looking at the municipal financial situation from the investors side is one half of the equation. I think it is overdo that the fed with its strong voice and its dual mandate particularly its mandate related to employment take a look at the potential employment impacts of the failure of dozens potentially of American Cities that are central to our economy. And i wonder if you might comment on the problem. And offer, you know, any thoughts as to whether you think the board of governors might take this question up. I think it may be an important issue to take up. Thats something im happy to raise with my colleagues. I am well aware of the work thats gone on in a number of reserve banks. Reserve banks all have actative Community Development functions. And many of them have been very focused on often older cities or cities that have suffered declines in some cases because of the decline of manufacturing and trying to help them work towards strategies that would lead to their revitalization. And theyve done some very creative work. A number of them have. So i can discuss with my colleagues what we might do in that space. I am pleased to see the efforts and the good work that many of the reserve banks have undertaken. I think its been helpful to Community Leaders as they you know, try to devise strategies for revitalization. Thank you, i would just encourage you to look at this as potentially a part of the work of the board of governors itself. And looking at the roll that the bank banks, regional banks have done. Its important. When its looked at from the perspective of a region its seen as an anomaly. If the fed would be willing to use its Research Capacity to help elucidate to many policymakers that not only does this problem have a potential negative impact on employment. But its a structural and pervasive problem that goes beyond what normally had been seen as an anomaly or as an episode based on management failure or some unforeseen circumstances. Its a structural problem. I do think it fits well within the responsibility of the fed to look at. I appreciate your suggestion. I know a number of years ago the reserve banks collaborated to initiate work on this topic. They chose a number of communities around the country cities that were hard pressed and tried to work on understanding what strategies worked to revitalize these different kinds of communities. It could be collaborative work, the reserve banks undertake together. Thank you very much y. Appreciate it. Time of the gentleman has expired. The chair recognizes the gentleman from kentucky, mr. Barr. Welcome back. I wanted to talk to you about the low rate policy that the Federal Reserve has pursued for effectively almost a zero short term Interest Rate policy that the Federal Reserve has pursued for six years. One of the original targets that the fed set to raise rates was when an p unemployment reached 6. 5 . We are under that target, about 5. 3 unemployment. I appreciate your testimony that you expect to raise the target federal funds rate gradually by the end of this year. What i want to explore are the reasons why the fed has delayed normalizing Monetary Policy. And what that says about a few issues. What does it say about the unpredictability of fed policy . I appreciate your testimony that Effective Communication is critical and transparency is desirable. Doesnt the fact we are below 6. 5 unemployment for almost a year and a half and you havent raised rates doesnt that undermine the commitment to transparency and the commitment to communication . Well i want to make clear that the 6. 5 was never a target that we said we we never said we intended to raise rates when unemployment fell to 6. 5 . Instead, we said it was a threshold. If unemployment was above that level and inflation was well under control, we would not raise rates. Once unemployment fell below that level we would then