with "right wing economists." >> people who are right wing look at me and say she is coloring her policy with her politics. >> stay there. i want to take it to d.c. the headlines are out. let's go to peter cook. what is the word? >> janet yellen consistent with the fed's message from the last meeting with a few new wrinkles. she says the economy is improving. it has been a bounce back from the awful first quarter but she says there is slack out there in the labor markets and she will say in her testimony, although the economy improves, the recovery is not complete. we judge that a high degree of accommodation remains appropriate. three things. no real improvement in housing. she talks about participation rate being weaker tahhan it should be. she also talks about the modest wage gains. not enough to basically give her

evidence that there is not more slack in the labor markets. on interest rates, again, she will talk about the taper likely to end. bond buying likely to end later on this year. the fed will keep rates at a record low for a considerable period. if the labor market continues to improve more quickly, than anticipated by the committee resulting in faster conversion towards justice, increases in the federal funds rate target will occur sooner. conversely, if the economic disappointing, then the future path of his tryst rates likely will be more accommodative than currently anticipated. she has a warning and her testimony towards the on on the subject of financial stability. she says most asset prices seem to be in line with historical norms. "in some sectors such as lower

rated corporate -- valuations appear stretched. we are monitoring developments in the leverage loan market. and are working to advance the effectiveness of our guidance." expect financial stability. regulation could dominate this conversation. moreso than monetary policy. >> there has been a lot of interest in the fed's exit tools. and whether it would go to the toolkit in the form of reverse repos. or whether it would use pay interest, more interest on the bank interest at regional banks. any detail in her testimony about that? >> it is consistent with what we heard before. the basic message is what she is telling lawmakers as please do not take from the fact that we are planning for the exit an idea that it is coming imminently. this is prudent planning on our part. it is a message that they have

the tools and a message that -- to these lawmakers, we are being smart regulators. >> peter cook. we will be back to you. that is our chief washington correspondent peter cook bringing us the latest on janet yellen's testimony. the headlines coming out. we will get into it with our guests in a moment. but for now, let's have a look at what is going on, the market reaction. >> there you go. green across the board. >> but little changed. there is not a lot. we do not expect a lot. there was not likely to be allowed to trigger any kind of market volatility up or down. and that's what is reflected in equities and in the fixed income market. the same in treasuries. >> what do you think? >> so far there were no surprises, so the market is going to shift back to its summertime doldrums. unless she says something in the testimony or gets asked a question that throws things off,

i imagine this will be a nonevent. we know what the fed is up to. they have been transparent. ck fromve come ba earlier this year and given us a dovish outlook. the lyrical considerations are very important. janet is a james tobin student at yale. she is not a chicago economists are coming from the neoclassical world. she views monetary policy is a tool that can help the bottom end of the labor market and i think she is going to do that. >> tim johnson, the chairman of the senate banking committee is making his opening remarks at the moment. we will go to her testimony live as soon as she starts to speak, but david is right. the fed has provided a lot of transparency. transparency to what? when janet yellen talks about slack? how does she define that? >> that is for dashboard. it is clear. >> what you mean, that is for dashboard? >> she said in testimony she did

earlier this year the, that she has a dashboard which includes the level of long-term unemployment, the level of part-time workers for economic reasons, wage gains. those things are telling her there is still slack in the labor markets. it's been a message all the way through. we see those numbers change. she will not change her tune. she has a two-handed economist caveat in there. numbers are better, and we will move faster. if slower, we will move more slowly. this humphrey hawkins testimony when it was named for humphrey a nd hawkins the two authors of the law that required the fed chief to give testimony. when alan greenspan was fed chairman, you'll find out what he was thinking twice a year. now you have got her talking all the time. the forecast for the economy comes out four times a year.

she just spoke with the imf. bout valuationsa being stretched in the loan market, none of that is new. we wait and see if there is a mistake. >> very quickly before we turn our attention to bank earnings, janet yellen has a dashboard and we may do what is on it but we have no idea how much weight she's giving to each of the indicators on the dashboard. should we have a better idea of what those things are? presumably, if lawmakers, republicans and the house got their bill passed requiring policy-based or rule based policymaking, we'd get more. taylor wouldohn love that. my guess is that is not going to happen. one of the things you find in the difference between the neoclassical vbieiew or keynsian view is there is a discussion versus rules debate.

monetary policy for janet is much more important for most of the other board members and other presidents. i think she is going to be using that discretion in a way that john taylor might be upset with but will further her goals. goals are related primarily to the labor market, not to fighting yesterday's fight of inflation. >> this is been an issue that keeps coming up -- discretionary versus rules. fed officials have rejected rules. they preferred to react the economy as they see it. it will be interesting in tomorrow's hearing. auditul's old bill to the fed has been reintroduced into the house with the provision that the fed must adopt a rule or tell the gao why not. if they do not follow the rule, they are supposed to write a

letter explaining why. there is some talk that there will be enough strength among congressional republicans that it might pass. so an interesting line of questioning tomorrow. >> i know one group that is very focused on janet yellen's testimony -- bankers. while we are waiting for more, we have to talk about banks. sachs andgoldman j.p. morgan are up today which is perverse after better-than-expected earnings reports. banks beat on top and bottom lines, even -- this is why it think it is perverse -- as trading revenues continue to slow and head count is down. the big story we are watching is jamie dimon's health. the company is prepared for "all scenarios," as he continues his fight against her cancer. erik? >> stephanie. >> while jamie donegan say the success and plan is not changing. we are staying the course. does anyone believe that is the

case? was anyone talking about secession planning as related to jpmorgan six months ago? jamie dimon, america's favorite banker. >> i am not sure that is the title i would bestow on him. sure, they were talking about a six month ago. they do not think jpmorgan had a viable secession plan, because all of the people who appeared to be the likely and probable successors no longer work at the bank. more ofright, it's much an existential question because dimon has cancer. quicklyhe gets better and there is a possibility that he does not. the board has to make a decision at some point about secession. stress, ite added might not be the right time to have them as ceo and chairman. let's bring in the director of research at mkm partners. what are your thoughts? >> on jamie dimon, every company has some degree of secession

plans. they do not tell it to the public and to analysts. j.p. morgan and the operating committee, they have thoughts in mind. that contingency plan in place because -- just because we do not know it, does not mean that we should be too concerned. they have a deep bench, a lot of talented people. they have had some departures, but they also have a tier below jamie that is very experienced. >> is the focus on secession that jpmorgan right now appropriate? >> appropriate, given the fact that jamie is having health issues. is that the question? it is always appropriate any other time. >> yesterday, citigroup signs an agreement with the justice department and other regulators to resolve an investigation into its sales of mortgage backed securities. the market looks through that 100% and is paying attention to

citigroup as an operating company. today the same thing would appear to be happening with jpmorgan. the stock is up. yet all of the talk is about secession. the questions on the conference call about secession - -- succession. >> i think the numbers are things that we as analysts on a conference call have a lot of experience. we know how to handle it. it becomes difficult when you get into some of these intangible factors like succession. you cannot quantify it. jamie is a major figure in the american financial system. obviously, replacing somebody of that caliber is a pretty big issue, but i think the appropriateness, look it is business. this is a very important thing. it is absolutely appropriate. and something witty to focus on. again -- something we need to

focus on. i'm not obsessed about it because i have a lot of confidence in jamie and the team that they have some plans in place. in the unfortunate event that his health does not turn around as easily as he hopes. >> they give her joining us this morning. the director of research at mkm partners. >> right now senator tim johnson is introducing janet yellen. the humphrey hawkins testimony before the senate banking committee. let's take you to washington. reserve'sederal semiannual monetary policy report to the congress. today, i will discuss the current economic situation and outlook before turning to monetary policy. i will conclude with a few words about financial stability. the economy is continuing to make progress toward the federal reserve's objectives of maximum employment and price stability.

inthe labor market, gains total nonfarm payroll employment onthaged about 230,000 per m over the first half of this year. a somewhat stronger pace than in 2013 and enough to bring the total increase in jobs during the economic recovery thus far to more than 9 million. the unemployed rate is falling nearly 1.5 percentage points over the past year and stood at four in june, down percentage points from its peak. measures of labor utilization have registered notable improvements over the past year. isl gross domestic product estimated to have declined sharply in the first quarter. the decline appears to increase -- to have resulted mostly from

transitory factors and a number of indicators of production and spending suggest that growth rebounded in the second quarter. but this bears close watching. the housing sector, however, has shown little recent progress. while the sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year's increase in mortgage rates and readings this year have overall continue to be disappointing. although 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' estimates of its longer run the normal level. labor force participation

appears weaker than one would expect a stunned the aging of the population and the level of unemployment. of thed on the aging population and the unemployment. these are indications that slack remains in labor markets. they are cooperated by the slow pace of growth in most measures of hourly compensation. inflation has moved up in recent months but remains below the fmoc's 2% objective for inflation in the longer run. the personal consumption expenditures or pce price index increased 1.8% over the 12 months through may. pressures on food and energy prices account for some of the increase in pce price inflation. core inflation, which includes -- exclud food and energy prices rosees 1%.

most participants project that both total and core inflation will be between 1.5 and 1.75% for this year as a whole. although the decline in gdp in the first quarter led to some downgrading of our growth projections for this year, i and other fomc participants continue economicpate that activity will expand at a moderate pace over the next several years, supported by accommodative monetary policy, a from fiscal oficy, the lag effects higher home prices in equity, and strengthening foreign growth. the committee sees the projected pace of economic growth as sufficient to support ongoing improvement in the labor market with further job gains.

and the on implement rate is anticipated to continue to decline -- the unemployment rate is anticipated to decline. consistent with the anticipated further recovery in the labor market, and given that longer term inflation expectations appear to be well anchored, we expect inflation to move back toward our 2% objective. as always, considerable uncertainty surrounds our projections for economic growth, unemployment and inflation. fmoc participants currently judge these risks to be nearly rrantced but to wa monitoring in the months ahead. i will now turn to monetary policy. the fomc is committed to policies that will promote maximum employment and price stability consistent with our

duel mandate from the congress. given the economic situation that i just described, we judged it a high degree of monetary policy accommodation remains appropriate. consistent with that assessment, we have maintained the target range for the federal funds rate have continuedd to rely on large-scale asset purchases and forward guidance about th bute the federal funds rate top provide the appropriate level of support to the economyath. the cumulative progress towards maximum employment that has occurred since the inception of the federal reserve's asset purchase 2012, and september the assessment that labor market conditions would continue to improve, the committee has made

measured reductions in the monthly pace of our asset purchases at each of our regular meetings this year. continue todata support our expectation of ongoing improvement in labor market conditions and inflation %, the back toward 2 committee likely will make further measured reductions in the pace of that -- of asset purchases at upcoming meetings with purchases concluding after the october meeting. even after the committee ends these purchases, the federal reserve's sizable holdings of longer-term securities will help maintain accommodative financial conditions. thus supporting further progress in returning employment and inflation to mandate consistent levels. the committee is also fostering accommodative financial conditions through forward guidance that provides greater

clarity about our policy outlook and expectations to the future path of the federal funds rate. since march, our postmeeting 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 that expected toward our objectives of maximum employment and 2% inflation. our evaluation will not hinge on one or two factors but rather will take into account a wide range of information, including measures of labor market conditions, indicators of inflation and long-term inflation expectations, and readings on financial developments. based on this assessment of thee factors, in june,

committee reiterated its expectation that the current target range for the federal funds rate likely will be appropriate for a considerable period after the asset purchase program end, especially if projected inflation continues to run below the committee's 2% goal and provided that inflation expectations remain well anchored. addition, we currently anticipate that even after employment and inflation are near mandate consistent levels, economic conditions may for some time warrant keeping the federal funds rate below levels that the committee views as normal in the longer run. outlook for the economy and financial markets is never certain. and now is no exception. therefore, the committee's

decisions about the path of the federal funds rate remain dependent upon our assessment of incoming information and the implications for the economic outlook. if the labor market continues to improve more quickly than committee, by the resulting in faster conversions al objectives, then increases in the federal funds rate target would occur more be more- sooner and rapid than in vision. conversely, if economic performance is disappointing, then the future path of interest orees likely would be m accommodative than currently anticipated. the committee remains confident that it has the tools it needs to raise short-term interest rates when the time is right and to achieve the desired level of short-term interest rates thereafter, even with the

federal reserve's elevated balance sheet. at our meetings this spring, we have been constructively working through the many issues associated with eventual normalization of the stampnce and conduct of monetary policies. these discussions are a matter of prudent planning and do not imply an imminent change in the stance of monetary policy. the committee will continue its upcoming meetings and we expect to provide additional information later this year. the committee recognizes that low interest rates may provide incentives for some investors to reach for yield. those actions could increase vulnerabilities in the financial system. ile prices of real estate, equities, and corporate bonds have risen appreciably and

valuation metrics have increased, they remain generally in line with historical norms. in some sectors, such as lower rated corporate debt, valuations appear stretched and issuance has been brisk. accordingly, we are closely monitoring developments in the leveraged loan market and are working to enhance the effectiveness of our supervisory guidance. more broadly, the financial sector has continued to become more resilient as banks have continued to boost their capital and liquidity positions and growth in wholesale short-term funding and financial markets has been modest. since the february monetary policy report, further important progress has been made in restoring the economy to health and in strengthening the

financial system. yet too many americans remain unemployed, inflation remains below our longer run objective and not all of the necessary financial reform initiatives have been completed. the federal reserve remains committed to employing all its resources and tools to achieve its macroeconomic objectives and to foster a stronger and more resilient financial system. thank you. i would be pleased to take your questions. your testimony. as we begin questions, will the five minutes on the clock for each member? chair yellen, there seems to be mixed signals about the economy. and the fact -- in the face of

these mixed signals, how cautiously will the fed proceed as it considers any larger scale asset purchases? chairman johnson, there are mixed signals concerning the economy. gdp growth isly, reported by the bureau of economic analysis to have declined at almost 3% an annual rate in the first quarter. that said, many indicators concerning the economy, indicators of spending and production, are substantially more positive than that. as i noted, the labor market throughout that period has also continued to improve and it -- at a somewhat faster rate that we had seen previously.

indicators of consumer sentiment and a business and optimism also seemed to be positive. so my reading at the present decline ist the gdp largely due to factors i would judge to be transitory, and i do think it -- negative numbers substantially understate the momentum in the economy. but of course, this is something we will need to watch carefully and are doing so. nevertheless, my overall view is more positive. as i mentioned, the labor market i believe has been improving. not only is the unemployment rate declining, but broader measures of performance of the labor market have also shown improvement and that's important. this is exactly what we want to

achieve. but the federal reserve does need to be cautious with respect to monetary policy. we have in the past seen false dawns, periods in which we thought growth would speed, pick up and the labor market would improve more quickly and later events have proven those hopes to be unfortunately overoptimistic. so we are watching very carefully, especially when short-term overnight rates are at 0. so we have no ability to lower them further. we need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates. and i think the forward guidance that we have provided in the policies that we have put in place are providing a great deal

of accommodation to the economy to make sure that it is on a sound trajectory. >> pertaining to the collins amendment, the senate recently passed legislation to clarify the fed's ability to apply insurance specific capital standards to insurance companies that it overseas. why is it important that congress act quickly and pass this legislation? my colleagues and i have made clear on many occasions, our objective in designing regulations for insurance companies that come under our supervision or other be tailored to suit the needs and special characteristics of the entities

we supervised. and we are certainly trying to achieve that in the case of the insurance entities we supervised. but there are constraints on our ability to tailor appropriate regulations. and the collins amendment does pose constraints. so i think it would be useful to increase flexibility to allow us greater latitude in tailoring appropriate regulations. >> in light of your recent speech, will you elaborate on how you envision the fed using macro prudential tools instead of monetary policy to maintain financial stability and build resilience in the financial system? >> well, i think most importantly, we have substantially strengthened the capital and liquidity positions

of banking firms and financial firms we supervised more generally. our objective is to make sure that these firms are on solid footing, and to the extent that the financial system or the economy are buffeted with shocks that these firms will be resilient, that they can continue to lend to support the credit needs of our economy even under adverse circumstances. and i would say our stress tests are very important as well. so first and foremost, the entire agenda from dodd-frank broadly coming out of the financial crisis to see a more resilient, better capitalized financial system, banking system, i'd say is the core of that effort.

so if there were an asset price we did not intervene to deal with that and that bubble burst, we want to make sure the financial system can withstand such a shock. and that is an objective of our efforts. we can also use more targeted tools that try to make sure that as business cycle conditions improve, as we go into more robust boom times, that for example in our stress test, we are automatically -- we automatically designed scenarios to impose a more severe stress that firms need to survive as asset prices increase and the economy grows robust. those are the kinds of tools i largely have in mind. >> senator? >> thank you.

in your testimony you mentioned that the federal fund rates will continue to low levels that the committee views as normal. you also added that the pending an economic outlook, this rate increase could occur sooner or later as we get a that are feeling for the strength of the economy. based on your view of the economy and the markets, when do you currently anticipate this first rate hike to occur? >> well, the committee has given guidance that says what we will be looking at is the progress we are making toward our two congressionally mandated objectives, maximum employment and price stability. our 2% inflation goal. there is no formula and there is no mechanical answer that i can give you about when the first rate increase will occur.

it will depend on the progress of the economy and how we assess it based on a variety of indicators. thatt a sense of the views members of our committee hold, included in the monetary policy report is a summary o economif projections that all purchase of pens in the fomc provided -- that all purchase of pens in the fomc provided at the june meeting. they depend on each participant's personal economic outlook and they are not a policy statement of the fomc, but they provide some sense of concretely what participants expected at the beginning of that meeting. and those rejections show that thatojectsioions show almost all participants indicate

if things continue on the trajectories they expect, would come sometime in 2015, and the medium projection for where the federal funds rate withstand at the end of the year was around 1%. so a positive but relatively low level. i think that gives you a feeling for what participants throug thought would be appropriate. i want to emphasize that what actually happens, our projections change with incoming data. the economy is uncertain. will actually happen clearly is going to depend on progress the economy makes. but i think that is consistent with the forward guidance that is contained in the fomc statement as well. >> thank you.

based on the minutes of the most fomc meetings, the discussion of monetary policy normalization has become an important topic for the committee. one of the strategies that was discussed is that the fed will drain reserves by lending its securities out to the market as a part of reverse purchase agreements or repos. there is concern that such a facility would be a safe haven in times of market stress a tracking large funds and -- at a racting large funds and depriving business of credit. is this a concern of yours? >> let me state that these are matters that we are discussing in an ongoing basis and no final decisions have been made about the precise strategy that we will use when the time comes to normalize monetary policy. but we have tried to provide in

the minutes of very good summary of the thinking in the committee as these discussions have taken place. one of the challenges we face is, as you mentioned in your opening remarks, the fed's balance sheet is very large. there are are very large quantities of reserves in the banking system. because of that, that poses some limits on our ability to precisely control the federal funds rate. we cannot really use quite the same strategy of intervention we used prior to the crisis. so we have indicated that the main tool we will use is the interest rate we pay on overnight reserves. the overnight are a facility you referred to as a backup tool that will be used to help us control the federal funds rate

to improve our control over the federal funds rate. i think it is a very useful and effective tool. we have gleaned that from the initial testing we have done. but as you mentioned, we do have concerns about allowing that facility to become too large tor to play too prominent a role. for precisely the reason that to gave -- if stresses were develop in the market, it provides a safe haven that could cause flight from lending to other participants in the money markets. two tools that we can use and are discussing to control those risks. one would be to maintain a relatively large spread between the interest rate we pay on overnight reverse rp's and the interest rate on excess

reserves, the larger that spread, the less use that facility will be. we can contemplate limits on the extent to which it can be used, either aggregate limits or limits that would apply to individual participants. all of that is figuring into our discussions. >> thank you. >> senator reid? >> thank you very much. you pointed out obviously that the mandate or one of the mandates of the fed is full employment. we have seen some progress but there has been variations regionally. my state suffers from an unemployment crisis. also underline the overall statistic is that the high long-term unemployment number. can you comment about what the fed is doing to try to address these two specific issues and further comment upon whether, as complementgress can

your efforts by reinstating long-term unemployment benefits for these people? note nationally long-term unemployment is at almost unprecedented levels historically in the average duration of unemployment is extremely long. also, of course, there are variations from state to state in the level of unemployment seeing muchates lower unemployment than the national average. and the reverse. our monetary policy really cannot affect things at the level of individual states. we have no specific tools to target long-term on appointment. but my expectation is that as the national unemployment rate comes down, and if the pace of

job creation stays where it is or rises, i expect to see improvements on all fronts. in fact, long-term unemployment has declined. seen,e evidence that i've although perhaps not utterly definitive, suggests that the decline in long-term unemployed does on balance reflect those who have experienced long spells getting jobs and moving into employment and not simply becoming so discouraged that they move out of the labor force. so that is a healthy development. while long-term unemployment remains at exceptionally high ve concern, i a gra do think we are seeing improvements as the job market is strengthening. and i think in every state we should expect to see as

confidence in the recovery grows and it strengthens, we should definitely expect to see improvements. the federal out reserve's monetary policies have limitations but fiscal policies of the congress can be much more proactive in terms of one, unemployment benefits so these people have some support as they look for and don't get discouraged in their quest for jobs. and second, infrastructure and a host of the programs. seeuld assume you would these as copper measure to your goal and necessary to your goal. -- as complementary to your goal and necessary for your goal. >> these are matters for congress to debate and decide with respect to long-term unemployment benefits. obviously we have a situation where long-term unemployment is far more common in the population and imposing serious

tolls. >> you do not have to respond. my sense is that for the last several years you have been in the only game in town in terms of trying to deal with this issue, because we have not taken some of the actions that we could that would have been a muchial and see us in better situation today. >> fiscal policy has been -- cbo would confirm a significant drag on the recovery. and fortunately that is diminishing. that is one of the positives for the economic outlook for economic growth going forward. >> i hope you're right. just quickly changing the subject. and probably making a point because my time is rapidly diminishing. hadfederal reserve in 2011 a program independent foreclosure review process which they were trying to help people who had been missed served by the foreclosure process

services. that was scrapped shortly afterwards. and went to a direct payment. $3.9 billion. i am told that program still has cash on hand, that you have not been able to reach the people. people receiving checks have not cash them. money, can you reprogrammed to say to - to state agencies? would you consider that? has beension at all made at this point on what to do with residual funds. a number of may be options we have yet to debate that. >> again, there are states and regions that need this help. if you could get the money to the people who could get it out, that would be a big positive. thank you, madam chair. >> senator vitter? >> thank you, mr. chairman. thank you madam chair for being

here. this week on the senate floor through the -- bill, the senate is expected to adopt and pass my amendment to mandate that at least one member of the federal reserve board had direct community bank or committee bank supervisory -- community bank supervisory experience. what is your reaction to that mandate? >> senator, i would welcome the appointment of a community banker to our board. i think a community banker can add a great deal to the work that we do. and i've worked with community bankers like governor duke or community bank supervisors like then governor raskin. and seen how much that experience can contribute to our work. so i'm very positive on the idea

of having a community banker appointed to the board. that said, i don't support requiring it via legislation. there are seven governorships. the boards has many different needs. if we were to sit down and make a list of all of the kinds of expertise that are needed and moreseful, there would be than seven items on that list. and i would prefer to see appointments made in light of the priorities, including for a community banker, rather than locking in and earmarking particular seats for particular purposes. that could is a road go further in the direction that would worry me if we are

earmarking. we could end up earmarking eatch seat, and i think greater flexibility needs do change over time. that is not in any way to diminish my support for seeing a community bank or appointed to the board. >> we look forward to this community bank experience being more forcefully put on the board through this legislation. so we will agree on that and look forward to it. madam chair, we have talked a lot over your various visits about too big to fail. it is a concern of mine and other members of the committee on both sides of the aisle. what i've personally heard is your agreeing with that general concern but i have not really seen that translate into concrete policy move to curb and change the continuation of too

big to fail. you were last before us on february 27. what if any specific policy changes, initiatives, movement ha has the fed or other regulators taken to curb and end too big to fail? >> so we have finalized our basel iii capital requirements that significantly increase the quality and quantity of capital in the banking system. even before we did that through we have worksts, to ensure that especially the largest and most systemic institutions have th abilitye to not only survive a very adverse stress to the system but also to lend and support the needs of

the economy through such a stress. the amount of capital in the bagging system has basically doubled since 2009. we have put in place, we have comment aor, liquidity coverage role we hope to finalize. we are in the process of working through a regulation that will -callednt so surcharges for the largest, most systemic firms. we have finalized an enhanced and higher leverage standard for the 8 largest firms in the united states. and we are working very hard to make sure that these firms are resolvable in the event they thatd encounter a stress

overwhelms those suspenseful -- substantial defenses. the ability to resolve such a firm. it has established an architecture for doing so. and the united states is working with other global regulators to think through how that authority could be exercised to deal with cross-border issues. they're discussing globally a requirement for the largest and most systemic organizations to hold sufficient, unsecured long-term debt at the holding company level to enable a resolution that would be smooth in the event that such a firm had to be resolved. we are working with those firms, enhancing their

ability to be resolved under the bankruptcy code. >> thank you. >> senator schumer? >> thank you, mr. chairman, and thank you, madama e chair. you make brooklyn proud. i'm so glad to have these hearings. i have been sitting at humphrey hawkins hearings since 1981. they are very elucidating. my first question deals with probably euros difficult issue as fed chair. the age old balancing test between fighting inflation and going to full employment. it is a hard tightrope to walk, particularly as conditions change. we are in a period of change. unemployed and has declined and the economy is starting to pick up. as a result, there is a lot of pressure coming from many for you to not only to accelerate

raised of q.e. ii and to rates. i would urge caution very strongly. to me, the greatest problem this country still faces is lack of good paying jobs, decline of middle-class incomes. that is with us very strongly. and worldwide labor markets still keep a lid on inflation. your stated target of 2%. 10 years ago with people heard the stated target was 2%, their jaws would drop. we are not even at that. i would ask you to be very cautious before you taper the quickly andam too entertain the prospect of raising rates. could you comment? >> yes. so, i certainly agree and tried

to emphasize that while we are making progress in the labor market, we have not achieved our goal. it is also the case that inflation is running under our 2% objective. theoth of those facts, plus fact that there have been substantial headwinds holding the recovery back and those headwinds, while we are overcoming them in making progress, until they are completely gone, it calls for an accommodative monetary policy to offset that. i would say, even if you consider our forward guidance we put in place in march, the committee indicated that even after we think the time has come to raise rates, we think it will be some considerable time before we move them back to

historically normal levels. l,d that reflects, wel different people have different views, but to my mind it reflects the fact that headwinds holding back the recovery do continue. productivity growth has been slow. of course, we need to be cautious to make sure the economy continues to recover. we have tried with respect to our asset purchases to set out a clear objective that we had to see a significant improvement in the outlook for the labor market and to put in place a process by which reductions in the pace of our purchases would be measured, delivered and allow us time to assess how the economy is recovering and we have followed a very deliberate course. as i've emphasized, this is not a preset course.

thee were to judge conditions had changed significantly, it is not locked in stone. >> thank you. i'm glad and relieved to hear it. i know there are pressures. in jobseeing improvement growth, but we're still seeing declines in median income and middle class incomes and lower incomes. and what it means is the number of jobs created that really pay growing quickly enough. poorer paying jobs are growing more quickly. how can the fed deal with that? on the other side, one of the things we worry about our bubbles. q.e. 3 has pushed a lot of money into corporate bonds and the stock market. i do not think there are bubbles there yet. but i hope you are considering ways to reduce the possibility of rebels without wholesale increases in rates. can you comment on both sides of that? >> well, with respect to wages,

most measures have competent -- of compensation have been running roughly in line with inflation so that gains in compensation adjusted for prices or in real terms have been nonexistent. so while rising compensation or that thewth is one sign labor market is healing, we are not even at the point where wages are rising at a pace that they could. wages have been rising less rapidly than productivity growth and what we have seen is a shift in the distribution of national income away from labor for capital. there is some room there for faster growth in wages and for real wage gains before we need

creatingthat -- that overall inflationary pressure for the economy that some -- that is something we are watching closely. with respect to bubbles, i have stated my strong preference is to use macro prudential and supervision policies to address areas where we see concerns. we are doing that in the case of, for example, leveraged lending. but i would never take off the table totally the idea that monetary policy might be needed to address financial stability concerns. to me, i do not see financial levelity concerns at the at this point where they need to be a key determinant of monetary policy. it is not my preference as the by anyine of defense means, but i would never want to take off the table that is some circumstances, particular if

macro prudential tools failed, monetary policy might be called on to play a role. but we are not there. >> thank you. >> senator? >> madam chair, thank you for being here today. this is the third time you have been before the committee. once as a nominee and twice in your role as chair. when you came to the committee last fall, i was concerned about the lack of progress to deal with, about the $4 trillion balance sheet. i was then and i still am concerned that the risk of quantitative easing outweighs the benefits. since that time, i want to say to you, i think you have moved in the right direction. pacect, you've moved at a that maybe i did not anticipate. $35 billion per

month. but the reality is there is $4 trillion balance sheet out there, which is concerning. in your testimony, you speak of your concerns about false dawns. and there have been some fits and starts with the fed in terms of tapering. so my question gets to this issue. your anticipating that by october this program will cease. timecould happen in that that would cause you to recalibrate and decide that october is not the appropriate date? maybe the program should go on for a time? tell me what metrics you are looking at to make these

judgments? >> well, the committee indicated that the path of purchases is not on a preset on a preset course. all along at each of our meetings, where we have had to decide whether or not to cut and paste of purchases, or to stop that, or to even to increase purchases, we have asked ourselves to questions -- is the labor market continuing to --rove, and do we retain him confidence that it will continue to do so? do we see evidence that inflation is moving, and will continue to move back to our 2% objective overtime? in every one of our meetings cents last december, since we started to taper the pace of purchases, we have asked those questions. the answer has been -- yes, we

think inflation has stabilized. and will gradually move up, and yes, we think the labor market will continue to improve. we have cut -- we used the term it measured pace, or $10 million meeting. that we willis continue to see those conditions. i think the evidence we are seeing is consistent with that. if we continue to see progress in the labor market, as i expect, and inflation stabilizing or moving up towards 2%, we would continue on the course we are. and as i mentioned, purchases would cease after october. if there would be some very significant change in the outlook that we see between now and october, so that we lost confidence that the labor market

will improve for some reason, or that inflation would move back up to 2%, then we would have to rethink that plan. that is the plan. >> excuse me. let me ask you a question. i am running out of time here. about the labor market. i think this is a very concerning issue for the economy, and for the country. the proportion of americans in the neighbor force -- the labor force is less than 63%. we haven't seen those numbers since jimmy carter was president, many years ago. [mic squeal] i don't know if that was you or me, but it is annoying. we haven't seen this kind of numbers since jimmy carter was president. the fed has said you will look at the labor market, you just reiterated that in your testimony.

originally it seemed like the benchmark you were trying to achieve was 6.5%. it is now 6.1%. to me, that doesn't tell the story. the fact that our unemployment doesn't reflect the reality that what is happening is people are taking part-time work, whether that is obamacare or some other reason -- we could debate a long time it. tell me what you were looking for when you constantly refer to the labor market? are you looking for more participation, more full-time employment -- what is it you are trying to achieve? i will ask you to be brief. i'm out of time. -- labor force participation certainly has moved down. part of that i believe is an aging population and demographic. when we see diminished labor force participation, among prime

aged men and women -- that suggest something that is not just demographics. that aonal view is portion of the decline in labor force participation we have seen is a kind of hidden slack in unemployment. correct, -- if that is as the labor market strengthens, that labor force participation will remain flat instead of a demographic trend continuing to pull it down. people who have been discouraged come back into the labor force, and start looking and getting jobs, we will see labor force participation rates flatten out. the unemployment rate he not come down as quickly as it has been. we will need to look at that -- that is a hypothesis. i do want to make clear.

6.5% has never been our objective for the labor force. what we said about 6.5% was that we would not -- as long as inflation was not a concern, we would not think about raising the federal funds rate above 0% to quarter percent range -- 25% range until that had declined at least below 6.5%. that has never been our target. 6.1% is not our target either. fomc arents in the asked what they think a so-called full employment, or normal longer run unemployment rate is. in the monetary policy report, we distributed in june, they thought that was 5.2% to 5.5%. of course, we don't know. we're looking at all the things you mentioned, in judging the labor force. in judging the labor market, not

just the unemployment rate. a broad range of indicators, including involuntary part-time employment. and a broader metrics concerning the labor market. >> thank you. quotedm chair, you were in the new yorker profile this week saying that while the economy is improving from the deaths -- the depths of the great recession and financial crisis, the headwinds are still there. even when they have diminished the point where the economy is back on track, and where we wanted to be, it is still going to require an unusually accommodative monetary policy. that was your statement. that seems pretty consistent with the concern of prominent economists outside of the fed. that current economic conditions are fiscal policy are producing an environment that requires lower than normal interest rates to generate economic growth and create jobs. can you explain to me what you mean about the need for

unusually accommodative monetary policy, and do you agree with the views being discussed by many that -- larry summers and others, about lower than normal interest rates and the dangers of tightening too soon? did -- i do agree with the views that there are substantial headwinds raising the economy. -- facing the economy. one example is that we see in surveys of households that their excitations about their future bestces and gross in their growth in their real incomes are exceptionally depressed. i think that is a factor that is depressing spending. markets, the housing where we had some progress, but it now looks like it has stalled. a lack of credit availability

for anyone who has anything other than a pristine credit rating i think remains a factor in that. in many ways, incompetent ways, a legacy of what we have lived through. i think in fiscal policy has been a factor. in my view, holding back the recovery. that is what monetary policy has had to counteract. that is in part why we have needed such an accommodative monetary policy for so long. the economy is making progress. i do believe it is making progress. and eventually, if we continue, a day will come when i think it will be appropriate to begin to raise our target for the federal funds rate. to the extent that even when the economy gets back on track, it doesn't mean that these headwinds will have completely disappeared. in addition to that, productivity growth is rather low.

that may not be a permanent state of affairs, but it certainly something that we have seen in the aftermath. we have seen it during most of the recovery. that is a factor that i think is suppressing business investment and will work for some time it. it will hold interest rates down. these concerns and factors are related to what economists are discussing including sectoral -- secular stagnation. the committee, when it thinks about what is normal in the longer run, the committee has recently slightly reduced their estimates of what will be normal in the longer run. it's the median view on that -- it's now something around it three point 75%. -- 3.75%. it's the same factors that are making the committee feel that it will be appropriate to raise

rates gradually. there are some of the same factors -- >> let me ask you beyond what the fed is doing. are there fiscal policy steps that congress can take to improve the situation and reduce the headwinds against growth? for example, we have interest rates at near historic role of -- near historic lows. construction employment is still below the cream -- precrisis levels. wouldn't it be time to invest in repairing our nation's transportation and other infrastructure, as a way to help in such headwinds? >> fiscal policy before number of years has been a drag on growth. that is -- we can translate that into a factor that is necessitated lower than normal interest rates to get the economy moving back on track. congressudgment for what the appropriate priorities

are. i would certainly say that fiscal policy has been unusually tight for the time we have lived through. >> i understand you don't want to dictate what congress's priorities are. but if congress were to say investing in transportation and for structure and other similar projects -- would that be something that would help against headwinds? >> certainly would be a counter to those headwinds. >> thank you. >> senator heller. >> to a mr. chairman. -- thank you, mr. chairman. i apologize i haven't been here for all of the questioning. we are running back and forth between the energy committee. i'm not blaming you for the fires out west. we can take that question off the table. i know you do take a lot of credit -- a lot of blame it. to thank you for

taking time it. you said in your opening remarks that your recovery is not --lete -- complete trade recovery is not complete. of discussionsot about safety and soundness of market structures. we had a hearing on high-frequency trading. some are claiming that markets are rigged. a break froming janet yellen's testimony to bring you up to speed. the fed chair is speaking before the senate banking committee, part of her regular semiannual testimony. so far, stephanie -- >> no surprises. >> not too many. gentlemen, your thoughts. >> unfortunately, i think it kind of went as we scripted. -- it's not a lot of surprises. she has been very good at not answering the questions they got her into trouble before.

someone asked her about when will raise lift off, and she went into a long discussion about the forecast, and where the committee sees it somewhere in the 2015 region. it shouldn't scare anyone off the bond markets. market reaction looks pretty subdued. --hink mike parted out pointed out, some discussion in the semiannual report about overvaluation in the equity reports that seems to have caught people's lives. over the net, not a lot of specifics equity markets. there is not too much to focus on. >> and let's bring that up specifically. i don't know that everyone is up to speed on that. with janet yellen's testimony, the fed releases on a semiannual basis a monetary policy report. there is lots of commentary and here on many different things. a comment on the stock market. specifically -- this.

>> while. look at some of that reaction. between 1% and 2%. and here we have. >> yelp as well, linkedin. it's a falling out of social media. >> and biotech. by tech stocks are down as well. this came up ash the whole idea of what you do about the bubbles, or potential bubbles -- that has come up a couple of times in recent weeks. on the macro credential arguments, i merely relation. you can do job building. >> what? >> macro credentials. specificas the question that senator schumer -- can you stop the bubble from forming? can you stop the market from

collapsing? they canu stop -- attack and probably do so. the other thing you could do is job own down some of this. is a mistake, or they put it in because they see problems. people will read this, and it will have an effect. >> temporarily. >> they have been bashing on the leverage alone market. on junk bondsing and pick bonds. babies see something they don't necessarily understand, may we don't like it. of alanminiscent greenspan's irrational exuberance discussion back in 1996. it took many years for that to actually pan out as an interesting view. certainly, over the long run, don't think that was a correct of you. the idea that are central banks governors will figure out when the next bubble happens is a

pretty difficult idea. >> don't you feel like they feel a lot of pressure to do that? >> i think they do. economicsort of stability ideas built-in to monetary policy. these sort of mit's style natural stabilizers of fiscal and monetary. they look to lean against the wind at times. certainly the vis and their report two weeks ago really pushed the whole lien versus clean idea. you lean against bubbles against -- instead of clean up after bubbles. i think there's more of a cleanup view at the fed. even jeremy stein was certainly not a proposal of saying we can identify the bubble. he just wanted to take into account some broader market conditions. that is what we're seeing the fed do. they are broadening out market conditions. how easy they

really are. >> it hasn't stopped policy makers from opining on valuations, whether it is about social media or biotechnology. with a broad market. the fed says in that very same overall report, valuations were generally at levels not far above historical averages. suggesting that in aggregate, investors are not excessively optimistic regarding equities. >> in either case, they are not calling a bubble. the best they can do is compare with the price is now to what the long-term historical averages and say, it is higher than that. we warned you. here's something to look at. we can't do anything about it necessarily. it may be justified, but it is above average. we are watching, you watch. >> we warned you -- so if there is a bubble, the investors can't point to the fed and say you should've protected me? >> it's more like they wouldn't -- you might.

we see thiske happening. and you should be aware of it as well. if you were investing, and you're not really paying attention to where valuations are on a historical basis, or should know about this. >> i think what you were alluding to staff is this idea of protecting yourself. no one wants to go back to that where they were saying this is normal, this is ok. and in the end, it was completely inconsistent with long-term fundamentals. --again say theld disagree, and fed is calling a bubble and biotech. substantially stretched may not be necessarily bubble territory. we could debate that. terminology,e same the fed is saying these people are excessively optimistic. >> maybe they want you to read

it that way. >> i think there is an idea that they are going to air on the side of caution. on the side of caution rather on the side of exuberance. they don't want to be seen as the guys that goosed the bubble. they want to be the guy to sit on the sidelines and said what are you doing, that is crazy, why are you investing in shale gas? >> that's a great book. qualitative easing is still happening. >> the market is not really listening to them. the s&p is less than it percent -- than 80% off of their regular. they are not getting everyone prepared for armageddon, they are just trying to not make the mistake of 2004, 2005, 2006, saying nothing is wrong. then saying, we really screwed that up. the idea that they are going to be more cautious than they probably should be, or we

probably should be as investors -- seems like a pretty sensible argument. [no audio] -- of course janet yellen's testimony, we will have more when we return to market makers.

>> you are watching "market makers," with erik schatzker and stephanie ruhle. systemic risk, and to be detailed.

>> be able to resolve these firms. we are also working on having the ability to do that. so on the one hand, there will -- muchlower on that lower odds that a systemic firm would fail. and should that occur, we will have better terms -- better tools to deal with it. that will process and other aspects of our supervision. we are trying to give these firms a feedback on ways in which they can alter their structure in order to enhance their results -- responsibility. >> the 11 -- the living will process for these largest firms. we really can address the issues of complexity over at the fdic. >> senator to me. >> thank you madam chair for joining us yet again. i think you know from our priebus conversations, i have

been long of the view that the risks association with this experiment and monetary policy outweigh the meager benefits. so i have disclosed that upfront. better a understand different aspect of this. that is a movement towards normalization, which arguably is underway now. necessarily depends on the projections that the fed makes. we have discussed some of those inflation projections. -- theseerns me is things are very hard to project. the fed doesn't have a great track record of projecting these things. i don't think they anticipated the extent to which a decline in the workforce participation would drive unemployment rates lower. i have a little graph here, which i know you can't see, but i will ask you be included in the record. it simply to pick the fed's rejection of gdp one year out,

and then compares it to where it actually was. it has been pretty terribly wrong for 10 years. it seems as though there is a systemic bias with a more optimistic outlook than what has actually come to pass. extenttion is, to what -- how introspective is the fed being about their own limitations in making areections which ultimately driving improvements in the direction of normalization. do fede precisely, members incorporate into your own decision-making process the fact that these projections haven't been so good? that's not to say you are unique in getting this projection wrong. i understand how difficult they are. but don't they argue for a more conservative approach, at a quicker move to normalization -- since you know the very frequently, these projections

have been wrong? >> i certainly agree that projections -- rejecting -- projecting future economic activity is a very difficult business. beendp projections have for a number of years not so optimistic. i would say that our projections about the labor markets in unemployment, as well as inflation, have come closer to the mark. gdp stands out as someplace where our projections have been systematically off. -- have towe half gear monetary policy to what actually occurs in the economy, not just what we expect will happen in the future. power forward guidance for example is very explicit in saying the time of normalization is policy. the time at which we would begin to raise the federal funds rate

range -- 0% 2.25% range to .25% range. it exceeds our expeditions about future polyp -- progress in achieving both of those goals. we are looking at what happens in the economy, and when we are wrong, we take that into account. as we see ourselves coming closer to our goals, or failing to achieve our goals, that is real live data that we respond to, and adjust our policy accordingly. featurethat must be a of monetary policy -- that it adjust to actually unfolding events, not just what we expected. >> thank you, one other question. there is a lot of discussion

about the fed following some sort of well-defined rule. many central banks do that. the fed itself has done it in the past. what is your reaction to the idea that the fed would be able to design its own rule, but it would be an objective data driven rule. the fed would be does wired -- required to disclose and dba from the rule, but it have to come to congress to explain why it was doing so. what are your thoughts on that arrangement? worldcentral bank in the follows a mathematical rule. it would be a mistake -- the aderal reserve to specify mathematical rule. >> we have central banks that had their currency. standard is ald pretty well-defined rule. historically it has not been uncommon. >> if that is what you mean by a rule of gold standard currency

-- yes, that has happened. given the goals that congress has assigned to us, with respect to inflation, and employment, i'm not aware of any inflation targeting country of which there are many that has a mathematical rule. nevertheless, it makes perfect sense to behave in a relatively systematic way. if looking, when you have objectives, asking the question how far are you from achieving those objectives. whether or not exactly how much and aodation is needed number of different factors come into play at different times. if you are falling a specific mathematical rule, i really think performance in this recovery would have been dreadful. most of the rules, we would have

used. we could not have followed in the depths of the downturn. they would've called negative interest rates. if we had tightened monetary policy, as some of those rules would have called for, the recovery would not be as far as advanced. special factors and structural changes that need to that wouldto account make me very disinclined to follow a mathematical rule. bank important a central behavior in a systematic and to explain way and what it is doing and how it sees itself as likely to respond to future economic developments as the day unfolds. that is precisely what we are trying to do with our forward guidance. >> thank you mr. chairman and thank you yellen for the work

you have done. in previous sessions we have had, i think you agreed the fed have and should exercise their authority to develop industry-specific guidelines and metrics rather than enforcing insurers or asset management firms into a bank centric regulatory model. that is still your position? >> with respect to designation, each unique company under consideration needs to be carefully evaluated in detail. >> this committee has raise concerned -- consigns as fox a lack ofave transparency in the designation process. could you give me your view as far as whether the trip -- the process should be transparent or not? should i word this way, can you tell me why the process should

not be transparent if you think it should not be question mark -- be? >> it should be transparent what it is it is considering and looking for in trying to evaluate when it even value its a particular firm. they have made it clear they are trying to identify those responsible for systemic risk to the financial metrics it looks to evaluate. is a great deal of , evaluatingormation a specific firm, believed to not be in the public domain, unless it is actually designated, in which case it has been brought in. you believe the metric should be transparent? >> we will see the criteria used

to establish to designate should be clear. >> do they -- do you believe they are now? >> i believe they are reasonably clear. >> ok. there are some comment i am one of them, who believe the process has not been transparent at all. what i would ask of you, because i believe you think it should be , and i agree with you, the information that is specific through a company does not need to be transparent, but i think the metrics are using so we know what they are looking for so quite frankly everyone knows what they're looking for when it comes to designation. it is important. right. i believe they have indicated what kinds of things they are taking into account. >> about six months ago, when you were before the committee, we talked about clarifying the end-user exemption from the margin included in the. frank -- the dodd frank given the

margins. you and former chairman bernanke and the governor all indicated comfort with exempting and users from the costly margin requirements. true today?l do you still feel this way? >> yes. >> good. you indicated the rule would be out by the end of the year, the end-user role. i just wonder if you are still on schedule? >> i think it is correct that we are. >> ok. that is very good, thank you for that. i want to talk a little bit about the assessment just to give me an idea. atn you are looking about the assessment of incoming information when it comes to the economy and hedge funds, the

labor market is one of them, gdp is one of them. i would assume housing is one of them. what are other indicators you are looking at? >> we are really trying to of thethe likely path labor market in employment and inflation, which are the two on.s congress focuses in trying to make those assessments, we have to look at a huge range of data. housing, consumer spending, the strength of investment spending, what is happening in the global what do we expect will happen to our exports and imports, all that figures into what growth will be in the and then, in turn, matters like productivity growth how that translates into progress in the labor market and with respect to

inflation, we are looking at many different metrics. >> of all those things you listed, which is of the most concerned? concern? inputstalking about the you consider within the economy, what is the most concerned? less at this moment? -- >> at this moment? essentially, the committee, having looked at all these different factors, holds the view we will enjoy a moderate growth for the rest of the year and for the next couple of years and the labor market will improve. housing iserned that the sector where we expected to see recovery. that is a concern, but it is not quantitatively important enough to cause us to judge it would hold back the recovery.

>> thank you. >> thank you for being here. i appreciate your work and your interest. speech recently on the importance of macro prudential tools to entail the financial stability if a particular asset classes overheated. the persistent low interest rate environment has caused a retreat -- regulatory tools such as increased capital requirements, buffers, marching, central clearing, requirements will improve the resiliency of our financial system. my question for you, rather than preventing asset bubbles from happening, we are now taking the approach that they will happen and we will deal with them. is that an accurate statement? >> the steps you indicated to

strengthen the financial system do two things. they diminish the odds that doubles will develop. for example, these rules diminish the chance that as thee will build up economy strengthens. we have taken steps and we will to diminish steps the likely buildup in leverage in the economy. >> you would agree zero interest rate policy is tending to make people reach for yield now and bubblempetus toward creation and certain asset classes. >> it can be. that is why we are watching carefully. one particular area you are worried about right now in terms of asset bubbles? >> i mentioned corporate debt especially lower rated

companies. i think we are seeing a deterioration in lending standards. we are attentive to risks that can develop in this environment. that banks or others may be taking on interest-rate risks. if interest rates ultimately that if firms or individuals have taken risks and are not adequately prepared to deal with them, that can cause the institutions we supervise, we are looking at management of interest rate risk . we are using stress testing in the latest round. we had specific scenarios designed to look at how large banking organizations would fare if interest rates were to and we arepidly

focused on how firms are managing their own interest-rate risks. i think there are risks in a low interest rate environment. i've indicated that and we are aware of them. but i think the improvements we have put in place in terms of regulation both to menaces -- diminishes the odds a risk will develop and, if there is an weet bubble and it bursts, are not going to be able to .atch every single asset bubble >> that goes to my core question. rather than have a policy that causes bubbles to create, why not have a policy that does not cause that. now it just seems to me that we are kind of locked in a

zero interest rate phenomenon and one of the consequences of that is reaching for yield and we will try to tenuate the response to the zero interest rate rather than change the zero interest rate policy so we do not have the bubbles in the first place. >> we have to recognize also that we are dealing with a real problem. the reason we have low interest rates is to deal with a very real problem, namely the economy is operating significantly short of its potential. employment has depressed well below its maximum sustainable level and inflation is running below our objectives. that is why we are holding interest rates low. to significantly raise interest rates to deal with a set of concerns you indicated, we should expect even worse performance on those important

goals congress has established for the federal reserve. if we were to weaken the economy, it is not even clear we would be mitigating financial stability risks overall. >> we are in the trap. >> there are considerations in we need to bes. attentive to the financial stability risk here it if they and othercome extreme tools were not available or not successful, i would not take monetary policy off the table as a tool to be used. we should, by no means, think it would be costless. it could be very costly in terms of achieving very important and a weak economy creates its own set of financial it is notrisks, so even clear that, on balance, we

would be promoting financial stability. this is not a simple matter. there are complex trade-offs involved. >> i have an additional question for the record. we have fivees and less than 20 minutes remaining to devote. senator. forhank you chairman yellen your work. i will try to make my questions click and make one comment. as someone who advocated during. frank that nonbanks can be cities, have to share the concern about transparency as we go through the process. we have got to get it right. is for the non-bank designation. there is still a great question on transparency about whether it is size or a product component,

and the more clarity we can get on this, the better. ,wo questions i want to get out one is an issue that has not been raised yet. most of us decided we have great concerns around student debt. it is greater than credit card debt. i personally believe it is retarding recovery in the housing industry and with a number of entrepreneurs. some of us from -- us or post financial proposals. we with that income lands. there is bipartisan opportunity out there that would allow an employer to take a portion of an employee's salary and if that is pre-taxed the way we allow for subject but is this a that the said you have looked at and want to make a comment on in terms of a rising potential bubble in student debt and its effect on the economy? >> we are looking at it in the

growth -- and the growth in student debt has been dramatic. there has been working at that it is probably having an effect on the ability of young people to purchase homes. it is certainly a burden for those individuals they will carry through their lives. on the other hand, education is extremely important. making available the financing necessary in this economy for to acquire an education is the first order of importance. concerned that some of the decisions students are making, they may not fully understand the burdens they are assuming and how they will

affect their lives and second of be alwaysmay not accurately evaluating what the payoffs are to the training they are taking on, especially when there is inadequate speculation about the performance of schools .r programs >> we have bipartisan legislation and we now have a user-friendly website in housing and elsewhere. know before you go is the approach we have. i would win out we have seen student debt quadrupled from $200 billion to well north of one point -- 240 billion to 1.1 trillion roughly now. i would order you to look at this and add some additional suggestions. i want to -- use my last moment

to get into a question i asked before and i want to prod you one more time and that is on excess reserves. before, you kind of gave me the same answer chairman bernanke gave. the concern was that you kind of got rid of some of these reserves, and you are currently paying 25 basis points. the excess reserves have gone from $2.4 trillion to close to $2.6 billion -- join dollars. points on0 basics their policy toward excess reserves. i realize your concerns and the effect it might have on money market funds. with fund rates already so low, i just still do not understand why re-examining this policy might push financial to be willing to do more lending rather than house the funds to the fed. >> it is a legitimate question and something we have considered and debated and there have been

mixed views in the committee on the desirability of doing that. we have then quite concerned about what it might mean given moneyructure of our markets. >> money markets are already pretty low. >> yes. >> hopefully, you continue that debate. continuer believes to be something that stimulated the economy. thank you, madam chair. >> senator. >> thank you, mr. chair, and thank you for your testimony today. i will try to be crisp in these questions given the time. insurance advocates have expressed concerns that new regulations might the forthcoming based on an international standard influenced by nations that do not have our guarantees system and they believe this may result in capital requirements that are

unnecessary and it -- inappropriate for the industry and our nation. thoughts you might have to share on that topic? say theld simply federal reserve is participating now in an international association of insurance forrvisors, discussing internationally active insurance appropriateight be capital standards for groups for essentially consolidated capital for insurance firms regulated by the states but consolidated holding companies. nothing that happens in the context, it is similar to our

participation in the committee. we are looking to put in place appropriate standards here in the united states and nothing that is decided in the international group has any force in the united states unless we propose rules and finalize them. it is helpful to get the perspectives of others and, to the extent possible and appropriate, to have an internationally level langfield. >> thank you. i will jump right in to the next point, the student loan question. i feel like there is a huge amount of emerging information on bill a and home acquisition. this is a drag in itself on our economy as well as an impact of quality on her life and young folks. it also has a significant extent in effect through the decades to come because of the slow pace of

,ealth aggregation for families that they do not and gauge in home ownership later on. it is shocking to see a reversal , which folks, 25-30, to go to college are less likely to live at home than folks who did not go to college. it goes to the heart of the american dream. the cost of college is not just affecting those who went and had the debt. it is affecting the aspirations of children high school -- in high school who are starting to get advice that maybe you should not risk carrying this mountain of debt in the context of such high uncertainty over jobs that might be able to have a monthly wage that could make those payments. >> i agree with you that when you look at the numbers on student debt, it has to be a sick ethic and concern for just the reasons you gave. >> i look forward to any work the fed does in this area to

understand better the impacts on the economy. to theto return rulemaking process. you have expressed concern with the frustratingly slow pace of rulemaking and we have quite a -- conflict frank of interest and securitization, the issues senator levin was so forceful in bringing forward during dodd frank. security-based locks, compensation structures, and so forth. do we have a crisis of confidence in our ability to make the rulemaking system function? rule,e have a goal for and sometimes it is a year and sometimes two years, and we just cannot seem to get the rules completed and maybe even end up in a never never land, appropriately named yes --

because -- is this a change from two decades ago? what do we do about it? >> i know it has been frustratingly slow. it is caucasian and we want to take the time to get it right. we are involved in a lot of rulemaking that involves multiple agencies with different perspectives. we are also trying to coordinate with other countries to move so we maintainr in many areas a level playing field. this is an -- immensely time-consuming work. i understand your frustration. i hope to complete in the not-too-distant future the coverage program qr and, other things that we can ask that to come out of the pipeline. rulesa further agenda of

that i hope will make a great deal of progress on this year. to me, the glasses more half full than half empty. i believe we had made substantial progress and will continue to push forward the request thank you. >> thank you. chairman yellen, thank you for your service and for being here today. i wanted to follow-up on a letter i sent to the federal reserve. regarding the liquidity ratio standard. ofave heard from a number concerns from communities in north carolina about these vision of the municipal securities from high-quality liquid assets designation here i am and -- i am concerned and particular about the exclusion of municipal to restrict the

ability of state and local governments to raise the capital they need to finance public investments in schools and airports and all the other in structures is here the projects of really the cornerstone the u.s. economy. what is the justification for excluding these municipal securities when other types of debt, including foreign and sovereign debt are covered? thingms like a strange for me for foreign countries to be treated more favorably than aaa rated debt like -- of states like north carolina. >> this is a proposal we have put out for comment and we will look carefully at the comments we receive on this and other topics. the rationale for excluding them that we are expecting firms to hold truly high-quality liquid assets and will later be municipal bond is substantially

lower than any assets included on the list. the absence of liquid markets with those securities are traded , with reasons for excluding them. we will be looking carefully at comment before we come out with a final proposal. >> i ask that you consider the impact this exclusion could have on infrastructure investment and the ability of the states and local governments to actually manage those debts. >> would look at those comments. >> thank you. i also wanted to follow-up on senator murphy's question concerning the insurance entities. it is important that insurance companies be protected and that the state model for regulating the insurance also be inspected. it is a member of the financial facility board.

can you explain in more detail what the federal reserve is doing to ensure any international regulations do not harm these companies and respect the state-based model of the insurance regulation? >> we are working very closely and the state regulators are participating in these international discussions as well. nothing that is under consideration would affect the way in which legal into the insurance companies are regulated with respect to , thatl by the states we're looking at a separate set of capital requirements that would apply to the consolidated station. nothing that happens in the international forum states has any effect on american firms until we have incorporated them into regulations, which go out for comment and are ultimately finalized.

>> thank you. thank you, mr. chairman. >> senator warren. >> thank you, mr. chairman, and thank you, chair yellen for being here today. one of the tools that congress has given the fed to combat too big to fail is section 155 of dodd frank. this is the section that requires large financial institutions to submit plans each year describing how they in a rapidquidated and orderly fashion without bringing down the entire economy or needing a taxpayer bailout. review and the fdic must these plans and if they do not buy that the plan would actually result in a rapid and orderly liquidation of the company, then they must order the company to submit a new plan. here is the key part. as part of the order to submit a the fed and the fdic could require the company to simplify its structure or sell

off some of its assets. in other words, break up the bank. so that it could be more easily liquidated. let's consider what happened during the lehman brothers bankruptcy in 2008. that is the one that sparked the financial crisis, nearly melted down the economy, and triggered the bailout by the taxpayers. the court proceedings took three years. clearly not rapid or quarterly. was tiny compared to today's biggest banks. had $639ailed, it billion in assets. has nearly morgan $2.5 trillion in assets, that is four times as big as lehman was when it failed. lehman had 209 registered