The committee will come to order. The chair is authorized to declare a recess of the committee at any time. Members will have five legislative days to submit extraneous materials for the record. This is the purpose of receiving the semiannual testimony of the chair of the board of governors of the Federal Reserve system on Monetary Policy on the estate on the state of the economy. Recognize myself for an opening statement. Since we last convened on Monetary Policy, there have been encouraging economic headlines. Onfidence is up unemployment remains low, as does inflation. But it rests too much on incredibly low participation payment high disability participation rights. Both paychecks and savings for working Americans Still have room to grow after eight years of distortionary Economic Policy under the Previous Administration. On the fiscal front, help is on the way. House republicans have passed the American Health care act to lifted the burden of obamacare on our economy and the financial choice act, to unleash millions economic two on the chilies of dollars on the economic sidelines due to dodd frank and the house will vote on a fairer, flatter, more competitive tax code that will during us a healthier and dynamic economy and the Trump Administration is rolling back rules that harm our economy as well. Monetary policy must do its part as well. I am highly encouraged that chair yellen and her colleagues seem to be on track toward some type of Monetary Policy normalization, keeping Interest Rates much normalization. Lowing Interest Rates artificially has been judgmental. The pass for Economic Growth is for the fed to set a policy strategy to achieve its mandate and to stick to it. Forays by the fed into fiscal policy, credit allocation, could not and should not be permitted. Fed will soon convince soon commence a wind down of the Balance Sheet. Distraint into distinct credit markets is inherently fiscal policy, not Monetary Policy. There is talk of having the fed bailout Student Loans and public pension funds. I maintain, if we are not we may wake up to find our central bankers have become our central planners. Interest on required reserves was meant to counteract implicit tax. Interest on excess reserves should not be a permanent tool of Monetary Policy. Normalization would suggest shortterm Interest Rates be set by markets forces. Today, they are set by an administered rate paid on excess reserves, which is a premium reserve resting on uncertain Legal Authority forays into credit allocation. Threaten the feds independence and economic future. So lets hope the normalization is truly begun. I now recognize the Ranking Member for four minutes. Thank you, mr. Chairman. And thank you chair yellen. It is a pleasure to have you with us today. Day one, the story of the Trump Administration has been one of chaos and turmoil. Thatcreates uncertainty threatens the progress of our economy and opportunities available for all american households. Promises toany big hardworking americans about ushering in a new level of Economic Prosperity in america. Yet, despite all of his bluster, lets look at what trump has actually done. When it comes to our economy, more of it is good. He reduced that would have saved homeowners 500 a year. Toissued executive actions begin to dismantle wall street reform and embrace the wrong choice act. The chairmans bill to cut dodge frank wall street reform and consumer protections. The [indiscernible] there are actions that endanger the economic progress we have made since the great this recession. In passing the wrong choice act, House Republicans once again are trying to weaken the independence of the fed, and chain the feds policy decisions to a mathematical formula that would diminish its ability to support the economy and fulfill its mandate to promote full employment. The republicans bill would also subject federal financial regulators, including the fed, to politicize the annual of reparations process. All of this was not enough. President rouhani President Trump will soon have the opportunity to shake up the makeup of the board of governors, therefore turning the direction of policy to wall street. The white house announced the intent to nominate rando calls chair. Troubling, given his public opposition to key aspects of the dodd frank law and support for measures that would independence. Ds while our economy has made substantial progress since the height of the financial crisis, if we continue to see positive trends in the labor market as a resort a result of policies put in place by the fed, Congressional Democrats and president since your last testimony before this committee, wage Growth Continues to lag and disparitiesonomic continue to exist among racial lines so i hope fed policymakers would keep these mind and the fact that Inflation Expectations have theen as they evaluate stance of Monetary Policy so you foren, i commend your steady leadership and look forward to your testimony and mr. Chairman, i will yield back the balance of my time. Rep. Hensarling chair recognizes the chairman from mr. Barr. Mr. Barr welcome back to the nine yearsnd despite of the most accommodative u. S. Policy in recent history and positive economic news, Labor Force Participation remains at a disappointing 40 year low, wages are stagnant and Economic Growth 3 . Yet to eclipse making matters worse, like the farm bill used to pay farmers plant, the Federal Reserve, by paying interest on effectivelyves, is paying banks not to lend. Former fed chairman ben bernanke much in 2013 when he stated banks are not going to lend out the reserves at a rate lower than they can earn at the fed. The fed has adopted this reserveson excess policy to fund its enormous 4. 5 sheet bybalance guaranteeing the largest banks in america this lowrisk, onvemarket rate of return deposits deposits, the fed is discouraging lending into the economy, effectively taking money out of communities across america and leaving less capital mane street households and businesses to prosper. I was glad to read about the feds intentions to start shrinking its oversized portfolio. Share the view of fred bullard and others that this decision is long overdue. Me, however, is that once again the fed seems to be improvising instead of well grounded strategy. Earlier this year, some officials pointed to another fed funds rate increase in september a move to start reducing the Balance Sheet beginning in december. Hearing that the fomc might start the portfolio Reduction Plan in september and until december any further Interest Rate increase. Then, i welcome initiating process to reduce the size of the Balance Sheet sooner rather than later but look forward to your testimony and hopefully explanation whether the fed is once again changing its strategy why. F so, thank you for coming today and i look forward to your testimony topics. Ese and other yield back. Rep. Hensarling the chair now recognizes the gentlelady from wisconsin, ms. Moore, Ranking Member of the Monetary Policy trade subcommittee for one minute. Ms. Moore thank you for the annualere for humphreyhawkins report. Thanking start out by thank you for your thorough and thoughtful reply to our congressional letter regarding disparities in labor markets for African Americans and other minorities, thank you. It did not have a lot of solutions but it was very thoughtful, pointing out seek to find the answers. This disparate is really clear among minorities but im concerned that it is also populations ofll working americans and it seems pretty clear from the research the challenge moving useard will be able to fiscal policy to address income inequality in a way that the blunt instrument of Monetary Policy cant especially forward tomoves raise rates. I understand you have to do it asymmetrics aa, recovery that is troubling. And given that the poor and felt thelass have not benefits of the booming stock market and that inflation is control, i think the congress can and should use the first to shore up those segments of the population still hurting from recession and look forward to hearing your testimony and i yield back. Rep. Hensarling time of the yel expired. Ntlelady has we welcome the testimony of the she hase chair yellen, testified before this committee on numerous occasions. The witnesstion, written statement will be made part of the record. Nowr yellen, you are recognized for five minutes to give an oral presentation of your testimony. Being here. R chairman yellen thank you. Chairman hensarling, Ranking Member waters and other members of the committee, im pleased to reservese federal semi annual Monetary Policy report to the congress. In my remarks today, i will discuss the current Economic Situation and outlook before turning to Monetary Policy. Since my appearance before this the laborin february, market has continued to strengthen. Job gains have averaged 180,000 per month this year and still well above the pace we estimate be sufficient on average to provide jobs for new entrants to the labor force. Indeed, the Unemployment Rate has fallen about a quarter percentage point since the start of the year and at 4. 4 in june, 5. 5 Percentage Points below modestlyin 2010 and below the median of federal open participantsee assessments of its longer run normal level. Force Participation Rate has changed little on net this year, another indication of improving conditions in the jobs market given the demographically trend in thisd series. A broader measure of labor includesack that workers marginally attached to the labor force and those who wouldrttime prefer fulltime work has also is nowthis year and nearly as low as it was just before the recession. Encouraging the jobless rates have continued to majore for most demographic groups, including for African Americans and hispanics. However, as before the recession, Unemployment Rates groups remainrity higher than for the nation overall. Meanwhile, the economy appears to have grown at a moderate pace, on average so far this year. Adjusted grossn estimated touct is have increased at over 1. 5 in quarter, recent indicators suggest growth rebounded in the second quarter. In particular, growth in spending, which was weak earlier in the year, has months andn recent continues to be supported by job Household Wealth and favorable Consumer Sentiment. In addition, business fixed turned up this year after having been soft last year and strengthening in growth abroad has provided support for u. S. Manufacturing production and exports. Continuedg market has to gradually recover, aided by improvement in the labor market and Mortgage Rates that, although up somewhat from at relativelymain low levels. With regard to inflation, Consumer Prices as measured by the price index for personal consumption expenditures, increased 1. 4 over the 12 months ending in may, up from 1 a year ago but a thele lower than earlier in year. Core inflation which excludes food prices has also months,own in recent 1. 4 in may, a couple of tenths reading. Yearearlier it appears the recent lower readings on inflation are partly unusuallt of a few reductions in certain categories of prices. Will holdctions 12month inflation down until they drop out of the calculation. Nevertheless, with inflation theinuing to run below committees 2 longerrun objective, the fomc indicated in its june statement that it intends to carefully monitor and expected progress our symmetric inflation goal. Looking ahead, my colleagues on withomc and i expect further gradual adjustments in the stance of Monetary Policy, will continue to expand at a moderate pace over withext couple of years the job market strengthening further and inflation rising to 2 . This judgment reflects our view that Monetary Policy remains accommodative, ongoing job gains should continue to support the incomes and therefore consumer spending. Global Economic Growth should u. S. Rt further gains in exports and favorable financial conditions coupled with the prospect of continued games in domestic and foreign spending and the ongoing recovery in drilling activity should continue to support this investment. These developments should utilizationource somewhat further thereby fostering a stronger pace of wage and price increases. Course, considerable uncertainty always attends the Economic Outlook. There is, for example, uncertainty about when and how inflation will respond to tightening resource utilization. Changes in fiscal and other Government Policies here in the United States represent another source of uncertainty. In addition, although the Global Economyhe appear to have improved somewhat this year, a number of our trading partners continue to confront economic challenges. Present, i see roughly equal odds that the u. S. Economys be somewhatwill stronger or somewhat less strong than we currently project. I will now turn to Monetary Policy. To foster maximum employment and price stability by law. Red over the first half of 2017, the graduallycontinued to reduce the amount of monetary accommodation, specifically the fomc raised the federalange for the funds rate by. 25 at both its march and june meetings bringing of 1 toet to a range 1. 25 . So, the committee recognized the progress the economy has made and is expected continue to make toward mandated objectives. The committee continues to the evolution of the economy will warrant gradual increases in the federal funds time to achieve and maintain maximum employment and staple prices. Expectation is based on our view that the federal funds rate itsins somewhat below neutral level, that is, the funds ratee federal that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much get to a neutral policy stance. Anticipate we also that the factors that are currently holding down the diminishate will somewhat over time, additional gradual rate hikes are likely to appropriate over the next few years to sustain the economic and return inflation to our 2 goal. Continueshe committee to anticipate that the longerrun neutral level of the rate is likely to remain below levels it prevails previous decades. As i noted earlier, the Economic Outlook is always subject to considerably uncertainty and Monetary Policy is not on a preset course. Fomc participants will adjust their assessments of the appropriate path, the federal response to changes in Economic Outlooks and judgments of the associated incominginformed by data. In this regard as we noted in last month,tement inflation continues to run below and hasbjective declined recently. The committee will be monitoring inflation developments closely in the months ahead. In evaluating the stance of Monetary Policy, the fomc monetary consults policy rules that connect prescriptions for the policy variables associated with our mandated objectives. Such prescriptions cannot be applied in a mechanical way. Use requires careful judgments about the choice and measurements of the inputs into these rules as well as the implications of the many dosiderations these rules not take into account. I would like to note the simple Monetary Policy rules and their role in the Federal Reserves policy process that appears in our current Monetary Policy report. Now turn to our Balance Sheet. Augmented, the fomc its policy normalization principles and plans by providing Additional Details on the process that we will follow the size of our balance eet. The committee intends to gradually reduce the Federal Reserves Security Holdings by decreasing its reinvestment of the principal payments it receives from the Securities System open market account, specifically such be reinvested only to the extend that