Report and the state of the economstate of theeconomy before banking committee. This hearing begins with Committee Chairman tim johnson i call this hearing to order. This morning we welcome you back to the committee for testimony and the Federal Reserve semiannual Monetary Policy report to the congress. Since the chair was the last before the committee, Fisher Bernard and jerome were to effectively carry out the Monetary Policy and military functions. To that end, there are two remaining spots to be filled on the board and i hope for a swift nomination of qualified candidates with expertise in Community Banking as well as tough and effective oversight experience. The fed continues to grapple with many issues to spend both monetary and regulatory policy and look forward to hearing yellens perspective on these issues today. The study path of economic recovery will fall on the Great Recession took a sidestep with First Quarter. The Unemployment Rate has continued to drop in recent months with longterm unemployment and youth unemployment remained at unacceptably high and the housing sector to rebound from its troubles during the crisis with too many like the mortgage market. Given these headwinds against the more robust recovery and the low inflation rate and encouraged by the view that Monetary Policy would likely remain for a considerable time following the completion by the program. Im also encouraged by the continued progress being made to implement the wall street reform and an improved the u. S. Financial stability. Your recent comments outlining the importance of the tools must lean against the financial excess and focus on the resilience of the Financial System report to the need to ensure that the firms, particularly the largest and systemically important firms are prepared for the worst and able to withstand shocks from a variety of sources. In that end, it is imperative that the wall street reform will be completed as soon as possible. We must not forget how costly the crisis has been so the regulators and Congress Must continue to do all we can to keep our Financial System stable and promote strong Economic Growth. With that i will now turn to the Ranking Member for his Opening Statement of. Thank you mr. Chairman. During doctor yellens nomination hearing i noted the need to fill the vacancies the chairman reference at the Federal Reserve board with individuals bringing balance to the viewpoints. Again i state the president should nominate someone with Community Bank experience to the board to fill one of the remaining vacancies. The banks play an Important Role in the local economies and face the regulation. Weve should ensure the perspective is represented in the policymaking. Todays hearing is another important opportunity to discuss Monetary Policy and financial regulatory policy. Since our last hearing with chair yellen the fed has continued to reduce the pace of the largescale asset purchases known as quantitative easing. It has been a Welcome Development to see that under the chairs of action. And the process has begun and now we will likely be able to see all of the purchases cease later this year. Ive consistently made my opposition to the policy very clear. The quadrupling of the size of the Balance Sheet that has occurred as a result of the purchases of the treasury and agency to Mortgage Backed security is worrisome. These assets will remain on the Balance Sheet for a very long time and the reserves used to purchase them will remain in the Financial System. The process of normalizing the Monetary Policy will be difficult. Its failed to strengthen in the way that was promised by the supporters of this unconventional monetary stimul stimulus. They indicate in the coming years any miscommunication about the Monetary Policy during the normalization period could create risks to the Economic Outlook. Continued clear to communication will be important particularly as the fed is seeking to rely on the tools that are in familiar to the market. The old rituals have indicated that overnight reversed Purchase Agreement also known as the repo will likely pay a large part in the Monetary Policy in the normalization. While the federal fund rate becomes less and are kind. At the fomc meeting some raised concerns that the overnight facility could increase problems during the adverse Market Conditions potentially causing the counterparties to shift funds away from making loans and opting for the safety net and stacked. How will they balance the need for open dedication with the ability to preserve the flexibility showed unintended consequences arise in this important market. Im also interested in the comments in the use of macro prudential views by the fed. The experience with the tools is limited and many Central Banks will still have much to learn to use these measures effectively. Introducing the concept of managing u. S. Monetary policy by regulation and prudential oversight is on test did, and perhaps more theoretical than real. I agree with those that are concerned regulators may not be able to get the timing right. Many economists including those at the fed hasnt been very good judges of identifying market bubbles and predicting when the bubbles will burst. Your speech discussed the ability of the regulators to change the regulatory standards on the mortgage lending such as death to income and loantovalue ratios. As a macro prudential tool that could slow mortgage lending. Im skeptical that during a housing boom regulators would act aggressively to restrict lending to individuals with high levels of debt or low incomes. In fact recent experience suggests all the political pressures run counter to that happening. Its a low highly questionable to think they would identify before handling the tools should be adjusted in the credit cycle. While Financial Stability can complement the goal of the Monetary Policy committee is paramount to the regulators thas strike the right balance without harming the economy. Again we have a lot of issues to deal with and i look forward to your testimony today chair yellen. Yellen. Thank you. Thank you senator craop. I would like to remind my colleagues that the record will be opened for the next ten days of additional statements and other materials. I was now like to welcome the chair janet yellen back to the committee. She is serving her first term as ththe board board of governors e Federal Reserve system. The doctor yellen serves as the vice chair of the board fo boarr three years. She has also previously served as the chair of the council of economic advisers and president and ceo of the Federal Reserve debt of san francisco. Please begin your testimony. Thank you. Charan johnson, Ranking Member crapo, and members of the committee i am pleased to present the Federal Reserve semiannual Monetary Policy report to the congress. And my remarks today i will discuss the current Economic Situation and outlook before turning to Monetary Policy. I welcome clued with a few words about Financial Stability. The economy is continuing to make progress toward the Federal Reserves objectives of maximum employment and price stability. In the labor market gains in the total Payroll Employment averaged about 230,000 per month over the first half of this year. A somewhat stronger pace than 2013 and enough to bring the total increase in the jobs and the economic recovery this far up to 9 million. The Unemployment Rate has fallen nearly one and a half percentage point over the past year. Its down about four Percentage Points from the peak. Broad measures of the labor utilization have also registered notable improvements over the past year. They have declined sharply in the First Quarter. The decline appears to have resulted mostly. The recent indicators of the production spending suggest of the growth in the second quarter. But this bears a close watch. The housing sector however has shown little progress. The sector has recovered notably from its earlier trough and the housing activity leveled off in the wake of last years increase in the Mortgage Rates and readings this year have continued to be disappointing. The economy continues to improve, the recovery is not yet complete. Even with the recent declines, the Unemployment Rate remains above the federal open Market Committee participants estimate of its longrun normal level. The participation appears weaker than one would expect based on the aging population and the level of unemployment. These and other indications that a significant slack remains in the labor markets are corroborated by the continued slow pace of growth in most measures of the compensation. Inflation has moved up in recent months but you moves below the 2 objective for inflation in the longer run. The personal consumption expenditures price index increased 1. 8 over the 12 months through may. Pressures on food and Energy Prices account for some of the increase in the price inflation. The core inflation which excludes food and Energy Prices rose 1. 5 . Most Committee Participants project total and core inflation will be between one and a half to one and three quarters for this year as a whole. Although the decline in the gdp for the First Quarter led to some downgrading of the growth projection for this year i and other participants continue to anticipate Economic Activity will expand at a moderate pace over the next several years. In the drag from the fiscal policy the effect of the higher home prices and equity values and strengthening foreign growth. The committe committee seized te projected pace of Economic Growth as sufficient to support ongoing improvement in the labor market with further job gains and the employment rate is anticipated to continue to decline toward its longrun sustainable level. Consistent with the anticipated further recovery in the labor market, and given that longerterm Inflation Expectations appear to be well angered we expect inflation to move back into 2 objective over the coming years. As its about the projections for Economic Growth, unemployment and inflation buffer disappeared correctly judge these risks to be nearly balanced but wa warren to the monitoring in the months ahead. I will now turn to the Monetary Policy. We are committed to policies that will promote the maximum unemployment and price stability consistent in the dual mandate from the congress. Given the Economic Situation that i just described we judge a high degree of Monetary Policy accommodations remains appropriate. Consistent with that assessment, we have maintained the target range for the federal funds rate at zero to one quarter and have continued to rely on the largescale asset purchases and Forward Guidance about the path of the federal fund rate to provide the appropriate level of support for the economy. Since it has occurred since the inception of the Federal ReserveAsset Purchase Program in september of 2012 and the assessment of the labor Market Conditions would continue to improve the committee has made measured reductions in the monthly pace of the asset purchases and each of our regular meetings this year. If the incoming data continue to support our expectation of ongoing improvement in labor Market Conditions and inflation moving back towards 2 , the committee likely will make further reductions in the pace of asset purchases and upcoming meetings with purchases concluding after the meeting. Even after the committee and is the purchases the sizable holdings of longterm securities will help maintain the conditions. Thus supporting further progress in returning employment and inflation to mandate consistent levels. The committee is also fostering to be accommodated conditions in the Forward Guidance that provides greater clarity about the outlook and expectations for the future path of the federal funding rate. Since march, the post meeting statements have included a description of the framework that is guiding our Monetary Policy decisions. Specifically, our decisions are and will be based on an assessment of the progress both realized and expected towards our objectives of maximum employment and 2 inflation. Our evaluation will not hinge on one or two factors but rather will take into account the wide range of information including measures of labor Market Conditions come indicators of inflation and longerterm Inflation Expectations and readings on financial development. Based on its assessment of these factors, in june the committee re iterated it expectation that the current target range for the federal funds rate likely will be appropriate for a considerable period after the asset and if it continues to run below the 2 longrun goal and provided Inflation Expectations remain anchored. We anticipate after employment and inflation are a mere mandate consistent level Economic Conditions made for some time arent keeping the federal funds rate below the levels the Committee Views as normal in the longer run. Of course the outlook for the economy and Financial Market is never certain and now is no exception. Therefore the path of the federal funds rate remained dependent on our assessment of incoming information and the implications for the Economic Outlook. If the labor market continues to improve more quickly than anticipated by the kennedy resulting in faster convergence towards the dual objectives, then increases in the federal funds rate target likely would occur sooner and been more rapid than currently envisioned. Conversely if it is disappointing tha that the futue path of Interest Rates likely would be more accommodated than currently anticipated. The committee remains confident that it has the tools it needs to read the short term Interest Rates when the time is right and to achieve the desired level of shortterm Interest Rates thereafter even with the Federal Reserve of eight of the Balance Sheet. At the meetings this spring we have been constructively working through the many issues associated with the normalization of the stance and conduct of Monetary Policy. These are a matter of prudent planning and do not apply in the imminent change in the stance of Monetary Policy. We will continue discussions and expect to provide Additional Information later this year. They may provide incentives for some investors to reach and they could increase the abilities of the Financial System to adverse event. Will the prices of real estate, equities and Corporate Bonds have risen appreciably and valuation metrics have increased they remain in line with historical norms. In some sectors for valuation is stretched and issuance are closely monitoring developments in the low market and enhancing this. More broadly the continue to become resilient as banks continue to post the cli clip liquidity positions and growth of the shortterm funding and Financial Markets has been modest. And tom this time, since about Monetary Policy repo