Inflation. Senator shelby do you believe this economy although it is a number years old has peaked or near peaking or will start declining and put us into a recession or you just dont know and something you are watching . Chair yellen we are watching developments very carefully. There is always some chance of a recession in any year, but the evidence suggests that expansions dont die of old age. We are, as i mentioned in my testimony, looking very carefully at Global Financial markets and economic developments that create risk to the economy and were evaluating them, recognizing that these factors may well influence the balance of risks or the trajectory of the economy and thereby might affect the stance of Monetary Policy. At this point its premature to make a judgment we will need in march and our committee will carefully deliberate about what impact these developments have had. Today, i think its premature to render judgment on that. Senator shelby are you saying basically, the fed will be careful looking at every aspect of the economy and International Economy before it raises the federal rates, is that what you are saying . Chair yellen we will evaluate the outlook certainly taking these developments into account. And i want to emphasize, as i said, Monetary Policy is not on a preset course. We want to set the path of policy and achieve the objectives that congress has september to us and making sure that the expansion doing what we can to make sure that the expansion continues. Senator shelby could you just take a couple of minutes and share with us your view as to banking gth of our system today we hope we wont go into a recession and we have cycles. Whats the condition of our Banking System . Do you feel comfortable about is it king system or something you are working every day on . Chair yellen the steps we have taken over the last seven years have had very substantial payoffs in the form of a much more resilient and stronger better capitalized, more liquid Banking System. We have not only raised liquidity standards especially ramping those up for the most systemic firms. We have also used stress test methodology to see whether we think those firms and we do think that they can continue to support the credit needs of our economy even in this scenario of very significant stress. So i think we do have a strong Banking System and seen marked improvement. Senator brown you said in response to your testimony and in response to chairman shelby, you said in regards to Monetary Policy, it is not on a preset course and if the economy were to disappoint that you would that you would be less likely to raise Interest Rates. I have a couple of questions about wages that the dual mandate is so important. I so appreciate your emphasis always on it on restraining inflation and also equally importantly and to many of our constituents, i think even more importantly that the importance of job growth and i appreciate the importance to you of wage growth as you deliberate on these questions of raising Interest Rates. While job growth has been better than some might have expected with 71 consecutive months, wage growth hasnt and i saw good signs lately but not enough. Average Hourly Earnings increased in 2015. My questions are these. Three questions and answer them together. Are other wage growth indicators showing the same increases . Are they occurring across race and gender and across economic sectors or certain groups doing better than others . And timely, can the economy reach full employment without labor force participation, increases for women and minorities and have widespread wage growth . Sort of pull those together and answer, madam chair. Chair yellen so you asked about other wage indicators. As you indicated average Hourly Earnings have picked up. But it is a series that is volatile and while we see some evidence of wage growth there, i would still refer to that evidence as tentative. In compensation per hour, we lso see somewhat higher pace over the last 12 months in its growth. But again this is a very volatile series. In terms of the employment cost index, compensation growth has really not shown any sustained pickup and that is significant. At best, i would say the evidence of a pickup is tentative. I do continue to envision that if the labor market continues to improve as we certainly hope it will, that there is scope and we will likely see some further pickup in wage growth. In terms of particular groups in he economy, i cant give you recent evidence on developments by i think you asked for race and gender, but senator brown and sector. Chair yellen i dont have those data at my fingertips. We know that in the u. S. , we have had a long standing trend towards rising inequality, rising wage inequality in this country and more educated people have seen faster wage growth than those in the middle and at the bottom. And i believe that trend continues. A lot of jobs during the downturn, middleincome jobs were lost and although jobs across the occupational creation has ob perhaps been more heavily skewed towards sectors that have lower pay. And i think that there are deeper structural reasons that these trends continue. They predate the downturn in the economy but the downturn probably accelerated those trends, perhaps relate to globalization and technological change that demand an increased skill. Senator brown i have one comment. I think we cant be satisfied that we have full employment without full employment across demographic lines, meaning women and minorities especially, that we dont have full employment until its for them also. Question on living wills, we discussed that process last year and you felt that the fed have provide clear feedback. And you would be willing to make formal determinations that certain plans are not credible. When do you anticipate providing feedback on last years submissions . When do you provide on last years submissions . Are you committed to making formal determinations about insufficient plans and will you differentiate between and among firms when you provide feedback or make determinations . Chair yellen so when we are actively engaged in far long evaluating these plans, the board has met regularly since august. I believe we have had seven board meetings to discuss these plans. We have worked closely with the fdic. We have not made final determinations, so its premature for me to give you a definite time, but we will make these determinations in the not too distant future. We are very actively engaged. And yes, we are smile committed, as i indicated to finding the plans that dont meet the specifications we outlined. We are certainly specifying what those deficiencies are. Senator brown does an aggressive living will process answer the question too big to fail . Chair yellen it certainly helps. We have also put in place re quirmentse for our tlac rules for adequate loss and sorp sensey and requiring that firms have workable plans how they would be resolved under bankruptcy. And doddfrank so we want to make sure that there is a way they could be resolveable under bankruptcy and that the resources are there so that the taxpayer would not be at risk. And doddfrank is a backup authority to title 2 which if it is necessary, an additional tool which we can use. I think its premature to say we have solved too big to fail but we have made very substantial strides toward dealing with addressing it. Senator shelby senator crapo. Senator crapo i appreciate your comments where we discussed the 50 billion trigger to determine when a bank is important and increasing the threshold and focusing on the flexibility that we need there. While Congress Continues to make progress on this effort and hopefully we will make some progress soon, you have previously noted that the Federal Reserve has the authority and discretion on its own to taylor these. Those covered by section 165 of doddfrank. Can you give us some specific examples of the kind that might be in the works as the Federal Reserve works on this . And will there be relief on stress testing and resolution planning . Chair yellen so we are actively engaged in reviewing our stress testing and capital framework for the Bank Holding Companies ove 50 billion we are considering that risk burdensome that are close to the 50 billion asset line. Along with that we might make it somewhat stricter for some of the gsibs. We are considering that as well. Nd that would be tayloring we are paying close attention to the cost and benefits of particular changes how they affect those institutions. We havent made final decisions, but thats certainly on the drawing board. Senator crapo will we see that announced soon . Chair yellen certainly this year. But i think if we were to make changes, they would not take effect until the 2017 cycle of stress testing. Senator crapo and shifting topics, because of the of the liquidity issues that took place on october 13, 2014 in the treasury market there has been effort by the Federal Reserve to understand the factors that affect the liquidity of the market. The concern i hear is that several factors including new regulations may have reduced market capacity and during stressed Market Conditions liquidity may be more prone to disappearing at times when it is most needed as it seemed to do. Are you concerned that liquidity may be less available and we better understand all the factors including the impact of regulations on this . Chair yellen i agree with what you said. Normal metrics, the ones we typically monitor on liquidity conditions havent changed that much, but the perception and some experience as you cited suggest that under stress conditions, liquidity may disappear when its most needed. So we are looking carefully at that and all the factors that may be involved. Regulation is on the list but there are other things as well. The prevalence of High Frequency trading has increased. Broker dealers have reconsidered in the aftermath of the crisis the appropriate models they want to use to run their businesses. There have been changes in disclosure that affect Corporate Bond markets and we want to disentangle the impact of all of those different influences. Senator crapo one last question, there have been several hearings on Financial StabilityOversight Council that focused on ways to improve transparency, accountability and communications. In the april subcommittee hearing that senator warner and i held, the witnesses agreed that the council needed to provide actionable guidance designated important Financial Institutions on how they could derisk and shed their designation level label. Whats been done this has been referred to as an offramp. Do you agree further progress in this area is appropriate . And wouldnt our Financial System be safer if companies knew what they could do to address the risks and add an incentive to become less risky . Chair yellen i would agree with u and designation is not intended to be permanent. They use these designations every year. And it is important for firms to understand the kinds of steps that they could take to shed their designation and to become less risky. They need to be careful not to micro manage these firms and try to tell them exactly what their Business Models ought to be. Those firms know exactly why they were designated. They have received detailed letters and analysis explaining what the factors were about their businesses that would give risk. O systemic they do understand why they have been designated and the things they would need to address. So designation is not intended to be permanent. We do have regular reviews. And i think those firms do have an understanding of the things that they need to be prepared to do. I just dont think its appropriate for them to say we want you to do the following business plan. There are a lot of different ways in which a firm might decide to address those issues. Senator crapo thank you. I would like to discuss this ith you further. Senator tester thank you, chairman yellen for being here today. I wanted to follow up with senator crapos questions. You just said that the Companies Understand why they are designated and therefore they understand what they have to do to get undesignated. Is that what you just said . Because thats new information to me. Chair yellen in the sense that they have been given detailed explanations of what aspects of their business gives rise to Systemic Risk that have caused them to be designated. Senator tester is that information given as the process goes on or after the designation is done . Chair yellen there is a threestage process and great deal of interaction during that process. So i believe before they are designated there is a sufficient amount of interaction they well they understand that are leading them to be designated. And then they are given a very detailed senator tester could they make changes . If that information if that information is being given out early enough so the company can say, we are going to make some changes, not changes that they have demanded, but chosen do they have time to do that before the designation is made . Chair yellen they certainly have lots of opportunities to. Nteraction senator tester i want to talk about the housing sector. Could you give us your perspective on what the fed is seeing in the housing sector and what a hiccup would mean for the american taxpayer. Chair yellen so we are seeing a recovery i would say in housing. Its gone on now for a number of years, but its very, very gradal. House prices are recovering. They have increased quite a bit and i think thats helping the financial situation of many households. The level of new construction, residential investment remains quite low relative to underlying demographic trends. So it seems to me there is quite a significant way for housing to go before we could say its at levels consistent with demographic trends. I think it will continue to improve. And it is the support of the economy. Senator tester hiccup in the housing industry, what would it mean to the taxpayer . What would a Housing Slowdown or perhaps not a collapse but a decrease in their growth mean to the american taxpayer visavis c e ma chair yellen im sorry. Senator tester give me a sense of what the fed is doing to ensure we are protecting consumers while at the same time differentiating between Community Banks and the big banks . Chair yellen when you say we are protecting consumers senator tester while at the same time differentiating the regulations that impact the small banks versus the big guys. Chair yellen it is part of our supervision. And the cfpb examines the larger banks in terms of their consumer compliance and our responsibility is now with the Smaller Banks and Community Banks where we have Consumer Protection enforcement. Our exams of or the Community Banks so they are not too burdensome. Senator tester do you believe you have been successful . Chair yellen we are focused on Regulatory Burden on Community Banks and we are trying to do both in the safety and soundness side and on the consumer compliance side everything we can to reduce burden while still making sure that banks abide by Consumer Protection. Senator tester if i might, we are seeing consolidation of banks in montana pretty rapidly. Is that true throughout the country and are you concerned about that . Chair yellen there has been consolidation. We are concerned about the burdens on Community Banks and trying to relieve that in a lowInterest Rate, net interest margins are also squeezed for many of these banks and thats a factor here. Senator corker thank you for being here. I know we went through the confirmation hearings, i noted you were the first to head the fed and yet you honored the statements you made which were if the data showed that you were going to raise Interest Rates, you would do so and you just did it. You mentioned 2 . The question by many is, are there any other rules at the fed other than 2 inflation and full employment that guide, as you look at data that guide where you are going . I would like a not long answer. There have been criticisms whether there is a rulebased system so people understand so its not like the fed is the wizard of oz and markets have after 00 points, which testimony was good. But is there some other rulebased system that those of us can count on relative to what action rals feds is. Chair yellen i would like to talk about the system attic approach to Monetary Policy and the system that we use thats in line with what other advanced Central Banks do and a mechanical, mathematical rulebased approach which i dont support and no Central Bank Im aware of follows. We have articulated in a clear statement. Inflation and our maximum employment. Every three months, all participants in the fomc set out their explicit projections for key variables and also the Monetary Policy path that they regard as appropriate to achieve those variables. And we publish these projections. Its not a single committee endorsed view, but it does show the range of forecasts and assessments of what appropriate policy would be in line with those forecasts and we update those projections every three months in line with incoming data. And i would regard that as quite a bit of information and approach where were telling the public what the range of opinion is about appropriate policy and the associated path to the economy.