Front of us. We have talked before about Monetary Policy and i havent been a fan as a banker before i was in congress of going beyond the feds initial Interest Rate policies i felt like qe 1, 2 and 3 didnt produce the gdp effects or job increases that perhaps fed policy makers at the time thought. I have also been concerned that as we go back and look backwards now since 2008 that fed officials really have always been a little reluctant to talk about some of the unintended consequences of that, such as distorting the price mechanism in our economy, depressing cap rates for commercial real estate or running up equity prices which i think are a result when you have that, we have flooded from qe 2 into our economy, affecting price earnings, multiples, et cetera today i havent heard any discussion, we talked about the Balance Sheet, we talked about setting Interest Rates but i want to talk a little bit about the money multiplier aspect in your toolbox we flooded the system with reserves but we have a money multiplier thats down at echols rates, 1930s type rates, and i guess my view is shouldnt you lower the rate of interest paid on banks on excess reserves as youre raising rates and planning this very thoughtful, careful shrinkage of the feds Balance Sheet . The Interest Rate we pay on excess reserves is our key tool to adjust the general level of shortterm Interest Rates in the economy. And the committees deemed it appropriate to gradually raise the level of shortterm 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 normalize the general level of short rates in the economy. The rates on excess reserves. That is our key tool that we use to adjust 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 accounts for it being at 1930s levels when we have advanced reserves into the system as mightily as we have over the last eight years . Well, we had a highly depressed economy where Interest Rates fell close to zero and banks were willing to hold on to excess reserves my colleagues on the other side say the lending business is booming and the economy is growing successfully, so why is the multiplier not changed why is velocity still low like that in your view thats something we measure. Thats how we measure successful fed policy by looking at that. I mean, i wouldnt agree at all 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 aware of any central bank that would any longer approach it that way why is that why is it that it was between world war ii and 08 something that people looked at and it was talked about as a way that shows that we have a healthy investment and lending market and growing economy but in the 1930s and since 2008, were just satisfied with it, that its low and we dont say its important anymore . Can you put some perspective on that well, both in the Great Depression and in our more recent great recession, we have had a situation where shortterm rates fell essentially to 0 and pushing out additional reserves was essentially what they said during the depression was like pushing on a string and we encountered socalled liquidity trap and the relationship then between the quantity of reserves and nominal income begins to break down in those situations, and we faced a similar situation as to what we had during the Great Depression my time has expired time of the gentleman has expired. The next member will be the last member we call upon. I now recognize the gentleman from ohio, mr. Davidson, for five minutes. Thank you, mr. Chairman chair yellen, thank you for being here today i really appreciate your testimony. Thanks for the work you and the team at the Federal Reserve do to get our Monetary Policy right. I want to understand that a little bit you have talked about your policy is neutral to accommodative but what you have started to do is at least talk about applying the brakes. You have raised rates, you are talking about how to frankly you talked briefly about the supply of money being a little unstable well, 4 trillion of it, we know where it went but it did create some velocity in the money supply thats nontypical. So is what you are doing now essentially gently applying the brakes yes i think thats a fair characterization we have had our foot on the gas. We have been in an accommodative stance and as we have come closer to achieving our objectives, we have taken our foot off the gas to some extent so that we can sustain a strong recovery but we are moving towards something closer to lets call it a neutral stance. It keeps the economy operating on an even keel. Historically, applying the brakes gently or at the right time has been a challenge just like its been a challenge to hit the gas. I guess everyone always feels optimistic about their course of action at the time generally, people say bubbles have been one of the things that have caused this miscalculation. What bubbles do you see out there in the Macro Economy right now . So i try not to opine on the level of asset prices, although our report notes that valuations generally are 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 our Financial System and our economy, and in that context, look for evidence that surging asset prices might be leading to imprudent borrowing, a buildup in leverage in the economy that would be dangerous if the prices were to unwind, and we are not seeing that so we judge Financial Stability risks at this point as moderate. So you have laid out a good plan and i dont really want to go over the whole thing. You have talked a lot about it but i am particularly concerned about the role that you kind of allude to here as, you start to see instability, you kind of shift hats from Monetary Policy to regulator in the regulation, you talked about really a pretty heavy hand in the sense of Steering Companies on policies, the Financial Times highlighted cases where you have even as regulator addressed h. R. Practices up to the point of advising terminating or replacing certain employees in companies, and at that point i guess how critical is it that our agent of Monetary Policy also serve as a regulator . Im not saying regulation doesnt need to be done. How important is it that our central banker does that so 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 risks to Financial Stability, pressures in particular portions of credit markets, and theres been a close integration between what we learn in Bank SupervisionFinancial Stability and Monetary Policy. Most closely on the mortgagebacked Securities Markets where you guys developed a strong affinity for them and accumulated quite a lot of them which gets to the monetary supply at this point you are looking at some of the asset purchases that you have made, really directly interacting with a key part of the market, putting those on your Balance Sheet, unwinding them, you have talked about a plan to do it, you talked about a change of plan to do it. What do you see as the risk to the monetary supply and you talk about, not to say its a bubble but clearly theres going to be affect on asset prices as you try to get that right. So we do believe that our asset 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 we have taken into account in deciding on what is the appropriate path for the federal funds rate. Thank you, chair yellen thank you mr. Chairman i yield back time of the gentleman has expired. I want to thank our witness, chair yellen, for her testimony today. Without objection, all members will have five legislative days within which to submit additional written questions to the witness, to the chair, which will be forwarded to the witness for her response i would ask our witness to please respond as promptly as you are able this hearing stands adjourned. Chairman hensarling gaveling the end to chair yellens testimony in front of the House Financial ServicesCommittee Welcome to power lunch. Brian, melissa and tyler here t chair wrapping up her testimony on capitol hill at least for this day her comments sparking a bit of a rally. The dow up 119 points. We will get to that in a moment first, Steve Liesman is hire with the highlights. Three hours of testimony and as far as the market was concerned, it all boiled down to something the fed chair janet yellen said in about 14 seconds over the outlook for rates 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 that prompted markets to start to bake out the possibility of a third rate hike this year. Its now just around 43 helped the rally in bonds and also in stocks yellen also sees Global Growth helping out all over, reject the effort to audit Monetary Policy. Lot of back and forth on that in congress and no comment on a second term, though congress did try three or four times the fed chair was also asked to respond to jpmorgans jamie dimons case about the feds plan to reduce its Balance Sheet. We have tried to be very methodical about informing the public and the markets about how we are going to do this. We have provided essentially complete information weechlt have not heard significant concerns or seen a significant market reaction. So we have indicated we expect to begin this if the economy stays on track this year she indicated Balance Sheet reduction could begin soon but didnt give a month. One point i want to make, an observation, maybe interesting, there werent a lot of questions about tax policy, economic policy, fiscal policy. Indicates to me not a lot of momentum going on in congress right now. Usually when theres bills on the tip of their tongue, when they are hot and heavy in congress, they ask a lot of questions to the fed chair about these kind of policies how does she feel about this or that. Exactly sometimes she parries and doesnt answer them. How many Interest Rate hikes have there been in this calendar year there was one in december. Two this year there have been three as part march and june . Yes no, no, sorry. No. There has been one this year one last year. One at the end of 2015 2016. 2015. There was year and a half december, december, june. So one this year one this year three over three years to get three Interest Rate hikes this year you would have to have one im telling you there were two this year. I really think there were. Am i crazy about that . I defer to steve. Sorry. I think okay. Hold on. We have a challenge on Live National television. Who is in team liesman we should know this. This is our only job this reading stuff its the memory thing i thought the comment that rates wont need to rise to levels of past cycles was a huge thing for the market because that basically signals theres a cap on the number of rate increases. Not only cap and also its more than a cap. The magnitude but also the effect of the normalization of the Balance Sheet in terms of tightening plus rate hikes, we will see some sort of ceiling. Heres the thing i took from that in addition to what you are saying first of all, it was said yesterday, we made a big deal of the comment, yellen echoing it today suggests theres a little bit of does it mean that the 3 long run rate that the fed says is the long rate for the economy actually needs to come down, and thats another question that what she said begs you were right. March and june but we were both right because it was december, december, march, june. Right but heres the thing i want to tell you i dont know a lot of things but dont tell a blind man where the furniture is in his house. If he knows where anything is, he knows where that is okay so i dont know very much but i know that. Good pick you were right. Thank you lets get to bob pisani at the Stock Exchange the date and time of rate hikes aside, is today a day where despite the headlines of the rest of the media, the fed trumps trump yes yellen and oil to a lesser extent are what moved the market it wasnt her q a, it was the written testimony early on the two things that moved it, yellen implied rates may not have to rise much because we are not far from the neutral funds rate, whatever that might be, and oil, the crude inventories were down, saudi arabia cutting august shipments, that helps this all pushed bond yields down thats helped bond proxies, utilities, consumer staples. Five to one advancing to declining stocks nice even emerging markets, Interest Rate sensitive. Banks have been down throughout the day as rates have been down a little bit we will get four big banks, all four reporting on friday couple moved into positive territory. The declines are modest. Oil has been up all day, helping some of the oil companies, downn the year the dow industrials and transports at new high big names like boeing, caterpillar, black decker, 52 week highs guys, back to you. Bob, thank you. Lets bring this all become to what it means for your money joining us, michelle mier from bank of america and jeff crumpleman of Riverpoint Capital Management the fed can be this sort of big scary thing, lot of really sort of wonky questions out there i think probably, i will speak for most of the audience, their 401 k maybe at a record high. Their kids Retirement Fund or college fund, may be at a record high is the feds reduction of its Balance Sheet which is coming going to send stocks down . I dont think it will send stocks down. I think what she said today is what the market wanted to hear we at riverpoint, its what we wanted to hear we can talk about this are probably four nuanced points but the summary is, she said we are going to be gradual, we are going to take our time, be measured, be datadependent. They needed to do something because of their dual mandate, Economic Activity is solid and the employment report kind of illustrated that this last friday yet inflation is rolling over so lets take a baby step, recognize this kind of pull and tug between those two and do something but lets dont go crazy. It was very very good. Okay, the last question from the congressman was about a foot on the gas pedal obviously the fed is in their own words taking the foot off the gas pedal. Will that slow the economy enough that it will send earnings down and thus, the stock market down . I think the fed is trying to do everything they can to avoid that scenario. They are talking about normalizing policy very slowly, depending how the data reacts and how financial conditions react. If you look at the past four hikes, financial conditions have eased following the hikes rather than tightened in that respect, it seems like the market is taking it in stride and the economy is taking it in stride as well, given that financial conditions are actually easier and more supportive for growth. So jeff, to pick up on the point in the prior conversation, what do you think the terminal rate is going to be when they get done with this cycle, whatever it is so you know, that is such a hard question when you are looking out into 18, 19, 20, to make a conclusion on that we look out six to 12 months and i think the key is trend the market cares about trend, not absolutes. She said the neutral rate is going to be lower than it was historically and what that says is whatever that peak is, its going to be lower. Thats what the market will look at over the next six to 12 months and thats just a good thing for equity prices and for the economy, both. Michelle and jeff, we have to leave it there because that testimony kind of bled into the hour here. We are a little bit tight. We will have you both back on soon thank you both very much news alert in the bond market right now tenyear notes are up for auction. Rick santelli, how did it come in you know, it wasnt as good as yesterdays threeyear, thats for sure. The grade, charlie minus cminus. Do keep in mind we are adding to an auction originally putting the coupon out there in may so its the second reopening so technically, nine year, ten month securities it dropped the a cminus the yield 2. 325. That was on the high side. The one issue market was trading around 2. 32 so a little gradeoff there. 2. 45 on the bid to cover, ten auction average almost spoton we are a little bit on indirects at 64. 8. We are light on directs at 5.