tell me what met tricmetrix yout to make these judgments as you go along. >> well, the committee indicated that the path of purchases is not on a pre-set course, and all along at each of our meetings where we've had to decide whether or not to cut the pace of purchases or to stop that, or even to increase purchases, we've asked ourselves two questions. is the labor market continuing to improve? and do we retain confidence that going forward it will continue to do so? and do we see evidence that inflation is moving and will continue to move back to our 2% objective over time? and at every one of our meetings, since last december, when we started to taper the pace of purchases, we've asked those questions, and the answer

has been, yes, we think inflation is stabilized, and will gradually move up, and the, yes, we think the labor market will continue to improve, and we have cut -- and we use the term measured pace, our $10 billion a meeting. now we're forecast that, for the next -- that we will continue to see those conditions, and i think the evidence we're seeing is consistent with that, and 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, but 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, but that is -- that is the plan. >> excuse me. let me ask you a question -- i'm running out of time here -- about the labor market, because i think this is, this is a very, very concerning issue for the economy and for the country. the proportion of americans in the labor force is now less than 63%. we haven't seen those numbers since jimmy carter was president, many, many years -- i don't know if that's you or me, but it's annoying. we haven't seen those kinds of numbers since jimmy carter was president. the fed has said that you'll look at the labor market. you've just reiterated that in your testimony.

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

force participation among prime aged men and women, that suggests something that is not just demographic, and so my personal view is that a portion of the decline in labor force participation we've seen is a kind of hidden slack or unemployment. it may be if that's correct that as the labor market strengthens, that labor force participation will remain flat. instead of the demographic trend continuing to pull it down, that as people who have been discourage come back into the labor force and start getting jobs we will see the participation rate flatten out and the unemployment rate may not come down as quickly as it has been, but we'll need to look at that. that's 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% is that we would not -- as long as inflation was not a concern, we would not think about raising the federal funds rate above the zero to a quarter percent range until unemployment had declineed at least beloan, and 6.1% is not our target either. participants in the fomc are asked what they think a so-called full employment or normal longer run unemployment rate is, and in our -- in the monetary policy report we've distributed in june, they thought that was 5.2% to 5.5%. but, of course, we don't know, and we're looking at all of the things you mentioned in judging the labor force. in judging the labor market.

not just the unemployment rate, but a broad range of indicators, including involuntary part-time employment, as you mentioned, and broader metrix concerning the labor market. >> thank you. >> madam chair, you were quoted in a "new yorker" profile this week saying while the economy is improving from the depths of the financial crisis and the great recession, that "the headwinds are still there." and even when the headwinds diminished to the point when the economy is back on track and where we want it to be, it's still going to require an unusually accommodative monetary policy. that was your statement. and that seems pretty consistent with the concern of prominent economists outside of the fed. that current economic conditions and 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 are tightening too soon? >> so, i mean, i do agree with the view that there are substantial headwinds facing the economy. one example would be that we see in surveys of households that their expectations about their future finances and growth in their real incomes are exceptionally depressed, and i think that's a factor that is depressing spending. we see in the housing market where we had some progress, were ut it now looks like it's

stalled. a lack of credit availability for anyone who has anything other than a pristine credit rating, i think, remains a factor, and that's in many ways, in complicated ways, a legacy of what we have lived through. so i think there are, and fiscal policy has been a factor, in my view, holding back the recovery, and that's what monetary policy has had to counteract, and that's in part why we have needed such an accommodative monetary policy for so long. now, the economy is making progress. i do believe it's 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, but to the extent that even when the economy gets back on track, it doesn't mean that these headwinds will have completely disappeared, and in addition to that, productively growth is

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

appropriate to raise rates only gradually. there's some of the same factors that figure in the secular stagnation. >> 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 near historic lows, and construction employment is still below the pre-crisis levels. for example, wouldn't it be time to invest in repairing our nation's transportation and other infrastructure as a way to help against such headwinds? >> well, as i've said, fiscal policy for a number of years has been a drag on growth, and that is, we can translate that into a factor that has necessitated lower than normal interest rates to get the economy moving back on track, and, of course, it's a judgment for congress what the

appropriate priorities are, but i would certainly say that fiscal policy has been unusually tight for a period like we've lived through. >> and if, i understand that you don't want to dictate what congress' priorities are, but if, in fact, congress were to say, well, investing in significantly robustly in our transportation infrastructure and other similar infrastrurp projects, would that be something that would help against the headwinds? >> well, certainly it would be a counter to those headwinds, yes. >> thank you. >> senator heller. >> thank you, mr. chairman and thank you for holding this particular hearing, and chairman, thank you for being here. i apologize. i haven't been here for all of the questioning. the ranking member, and myself, are returning back and forth to the energy committee talking about fire suppression. you get credit and blame. i'm not blaming you for the fires out west. so we can take that question off the table. i know you do take a lot of blame, and i just want to thank

you for taking time. you said in your opening remarks that the recovery's not complete, from the great recession. and we've had a lot of lively debates here in this committee over the soundness and the safety of our market structures. we even had a hearing last week on high frequency trading. some are going so far as to claim that markets perhaps are rigs. if you talk to individuals five years ago in 2008 and told them we're going five years through a great recession and in that five-year period you'll see the stock market go from 6500 to 17,000, not too many people would have believed that. so i guess the question, books are being written about this, individuals are now going as far as to claim the markets are rigged. i want to get your feelings on this. do you believe the stock markets are rigged? >> well, i think there are a number of concerns that have been outlined about high frequency trading, and i believe it was in june mary jo white,

the chair of the s.e.c., gave a very important and very detailed discussion of high frequency trading outlining where she saw problems and whan potential solutions might be to those problems. >> the quantitative easing. do you believe unintended consequences of qe 1, 2 and 3 may be with all the bond buying that it's forcing people into the stock markets, creating this bubble? >> well, i think an environment of low interest rates in general, which have been promoted by our, both our keeping the federal funds rate at zero and additionally by our purchases, low rates do have an incentive to push individuals to

look for -- look for yield, to reach for yield, and that is both a good thing and a bad thing. on the one hand, we need healthy risk taking in order to spur a recovery. and low interest rates, i think, have had a positive effect on helping the recovery, but, of course, we have to be careful about looking for situations where low rates may be incensing behavior that can be dangerous to financial stability, and i particularly outlined in my remarks an area like leverage lending where we are seeing a marketed deterioration in underwriting standards, and it looks like it may be part of a reach for yield, and we're trying to deal with that through supervisory -- through supervisory means, but the kind

of broad-based increase in leverage in the economy and maturity transformation and credit growth that one tends to see in a situation with intense financial stability risks, i don't think we see those things. so at this point, they're more isolated and not broad based in general. at least in my assessment. >> thank you, doctor yellen. go back to senator johanins question, i may ask it a little differently. you do see a time when the federal reserve stops the bond buying program? >> well, as i indicated in my opening remarks, if things continue on the current course, and as the committee expects, the purchases would cease after october meeting. >> so if they cease, do you see -- i guess my question today would be, would you ever see the

restarting of quantitative easing? in other words, once it ends, do you believe that this is now the new normal? the federal government buys these bonds, or would you commit to saying the quantitative easing has come and gone and we've seen the last of it? >> well, it really depends on what the economy does. the economic outlook is very uncertain. i hope we're on a solid course of recovery, and that it will continue and not encounter some serious setback. i wouldn't take it off the table forever, as a tool the federal reserve might need to some day in some circumstances use again, but my hope is we're on a path of recovery, and monetary policy will over time normalize, that our purchases will end eventually our balance sheet will begin to shrink back towards more normal size, and when the time is right, that

short-term interest rates will begin to move above their current very, very low levels, too. >> dr. yellen, thank. mr. chairman, thank you. that is the fed chair. largely sticking to the script, if you're just joining us, saying no precise decision on the direction or timing of rates. low rates seen for a considerable period post qe. the headline deal s a lot of th thunder, filing by the fed saying valuations of smaller firms and the biotech and social space appear stretched and some of those names even in large cap sector are still under pressure today. when we come back, shares of reynolds, american and down after the deal announced. we'll talk to the ceo exclusively in a moment.

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no change from janet yellen saying rates may go up sooner if the job market improves more quickly. for the time being, steady as she goes. keeping a close eye on the q2 rebound. and fed filing saying some of the smaller firms appear stretched and valuation. and we saw a brief sell just a in yelp and facebook that recovered somewhat. that's interesting to watch the ancillary effects of that comment rchtd and sell-off in

bonds. stronger yields, stronger dollar, a hawkish reaction to the fed chair. steve liesman saying perhaps sewing the seeds for an improvement in the economy. particularly when it comes to the indicator watching in the labor market. getting people thinking ahead towards the world of higher rates. not completely explicit but that's the reaction and the word from the trading desk as well. >> got to start somewhere. it's the deal of the morning. reynolds american acquiring lorilland. send it over to david, the ceo of reynolds american. >> a deal, of course, a long way in it waiting for one of a great complexity as well. joining me now in an exclusive interview were reynolds american ceo susan cameron. very nice to have you on the program. thanks for joining us. >> thanks, david. pleasure. >> as i said, of course, a long nyp can coming. a great deal of planning has to go into a complex deal of this type, yet the reception in the stock market this morning, promptly your stock down over 4%. is that a disappointment to you?

>> i have to say, david, you know, we've watched this stock ratchet up, if we go back to the pre-speculation date of february 28th, you know, our stock is up 30%, 40%. so i think the market is digesting this deal. it is a complicated transaction. one of the most complicated deals probably ever done with four parties involved. i am absolutely convinced of the strategic and financial compelling statistics on this transaction. i know it will make reynolds american a stronger company. it enhances value for shareholders across all four pieces. and i'm looking forward to, would go with regulators to complete this deal in the first half of '15. >> i want to talk about regulation, but in terms of the performance of the stock today, obviously, in light of the fact it the who been up sharply since at least we started hearing, and reporting on this possible transaction. when you say you pursued it because strategically it merited

getting done. what are the central components of your thesis to say to shareholders, this is why we're doing it? >> it's absolutely strategic when we look at the brand portfolio. reynolds american added the very strong newport brand with 13 share of market and actually very complementary geography to reynolds american will give us the most balance and well-diversified brand portfolio in the sector. camel, paul mal, natural american spirit. bringing newport into the cigarette mix. reynolds is very strong in the west. newport very strong in the east and this will enhance our growth opportunities and we will truly have a national footprint. we also have -- >> growth? >> the number one brand in the moi space, number one brand in snoose and views are vapor, new digital vapor cigarette is also part of that portfolio. >> growth in the tobacco industry, some people hear that and say, what are you talking

about? isn't it just a fight for market share amongst a declining market overall? >> yes. i mean, cigarettes in the united states have been declining for a long time. but there is clearly market share growth, and if you look at the newport brand, when you think about the total sector, menthol is declining in terms of volume at a slower rate than the non-menthol brands. newport has been on a true growth trajectory and over two decades continued to grow volume in market share. so you're absolutely right, and we are committed to transforming this industry, and offering adult tobacco consumers alternative ways to enjoy tobacco. and to reduce the harm of smoking. but the cigarette portfolio here is well balanced and diversified. the mergers and revenue growth opportunities will enhance the value to all shareholders and certainly continue to enable us to invest behind brand building,

r & d and innovation going forward. >> antitrust aer concern. a package of divert chers going to impreert. nonetheless, a number of analysts who weighed in this morning put 60% to 65%, perhaps a high of 70% chance that you get through the antitrust review here. what gives you the confidence, that in fact you are going to receive the approvals you need from the u.s. government? >> we worked very hard with imperial and with lorilland, it was important to all of us to ensure we put together a divestiture package ensures we had continued competitiveness in the u.s. market. this package with winston-salem and kool and maverick and blue going to imperial, we believe, and look forward, to working with the regulators, will enable us to close this transaction. you know, it's important to

recognize imperial, which isn't as well known to u.s. investors, but they're the fourth largest tobacco company in the world by market share. so, and they are planning to invest behind these brands, and they will compete hard. they will have ten share of market, when this transaction closes, and we are competing, reynolds at the end would be 34%, and we are both competing with an industry leader that has over a 50 share of market. so this has always been a competitive sector and always will be and we're confident in this diverstiture package. >> there seemed to be confusion around the potential cost savings of the deal. a number of questions on it. i wanted to give you this opportunity to clarify. what is the real number here after the divestitures of cost savings and synergies that you are expecting at reynolds? i've heard $800 million and $300 million. what's the number? >> it is really important, and i would encourage all of your

viewers, to look at this information at reynolds american info dotcom. that whole investor presentation is available to anybody. but it is $800 million on a run rate businesses, and if you look at our opportunity for revenue growth and for enhancing value to shareholder going forward, it's important to look at it in that context. >> finally, why blu, get rid of blu and keep developing your ecig? >> we made the decision to develop our own vapor product. didn't buy a company outside and we blue this is a game-changing technology. look how it's performed in test markets, in colorado, it tripled the size of the e cigarette market and it took out 70% market share. so we believe that the perfect puff every time for the mayber user is a superior offer, and

it's rolling out nationally as we speak and we are confident we can continue to compete with blu and we are, our continuative, to become the vapor authority. >> ms. cameron, appreciate you taking the time this morning on, of course, a day of the announcement of this big deal. susan cameron, ceo of reynolds america. >> thanks so much. almost to the flat line here. over to steve liesman for headlines out of janet yellen, your thoughts, about the headlines we've already talked about? >> a couple of things. talking too big to fail. agreeing with comments from stanley fisher, vice chair made last week, that you can't solve systemic risk by dealing with too big to fail and should not lull ourselves into the sense because we're dealing with bigger banks we're resolving this problem. answering that question now about whether, about the fed's missed forecast when it comes to gdp, saying we make our policies based on what's actually happening and our expectations.

finally, maybe a slight hawkish tinge here. taken by one comment in the testimony where she says that labor markets slack, or other broader measures of labor utilization seem to have firm. maybe the whashgt when i look how it's trading is taking a bit of a hint from the that. back to the hearing, senator pat too many you questioning fed chair janet yellen. >> -- it would have to come to congress and explain when and why it was doing so. what are your thoughts on an arrangement of that nature? >> well, no central bank in the world follows mechanical mathematical rule and i think it would be a terrible mistake to ask the federal reserve to specify a mathematical rule. >> we have central banks that peg their currency. that's pretty much a well-defined rule. >> full of currency board. >> or having a global standard, as a pretty well defined rule. so -- >> that's -- >> historically not uncommon. >> if that's what you mean by a

role of god standard currency board, yes, that has happened, but given the goals congress assigned to us with respect to inflation and employment, i'm not aware of any, for example, an inflation targeting country of which there are many that has a mathematical rule. nevertheless, it makes perfect sense to behave in a relatively systemic way. it -- looking when you have objectives asking the question, how far are you from achieving those objectives, and how fast do you expect progress to be made in determining whether or not exactly how much accomodation is needed, and a number of different factors come into play at different times. if we were following a specific mathematical rule, i really think performance in this recovery would have been dreadful.

most of the rules we would have used first of all we couldn't have followed in the depths of the downturn. they would have called for negative interest rates. and if we had tightened monetary policies, some of those rules would have called forgiven the headwinds we face, the recovery would not be as far advanced as it is. so there is special factors and structural changes that need to be taken into account that would make me very disinclined to follow a mathematical rule, but i think it is important that a central bank behave in a systemic and predictable way, and to explain what it's doing, and how it sees itself as likely to respond to future economic developments as they unfold, and that is precisely what we're trying to do with our forward guidance. >> thank you, madam. >> senator? >> thank you, mr. chairman and thank you chairman yellen for

the work that you've done. i think in previous sessions that we've had, i think you've agreed that the ssock and the fed have and should exercise their authority to develop industry specific guidelines and metrics rather than forcing insurers orsatti management firms into a bank regulatory mod model. that is still your position, i would assume? >> i believe with respect to designation that -- >> yes. >> -- each unique company that's under consideration needs to be carefully -- >> okay. >> -- evaluated in detail. >> thank you. in the past some of us on this committee raised earn concerns that the fsok seems to have a lack of transparency and an iffy d designation process. word it this way -- can you tell me why the process

should not be transparent, if you think it should not be transparent? >> well, i think that it should be transparent what it is that the fsoc is considering and looking for and trying to evaluate when it looks diddish-evaluates a particular firm pnd ai believe the fsoc made it clear they're trying to identify entities that are responsible for systemic risk to the financial system, and the metrix it looks to do evaluate that. but on this great deal of confidential firm specific information that comes into play, in evaluating a particular firm that i don't think should be in the public domain -- unless it's -- unless it is actually designated in which case it has been brought into the public domain. >> right. you believe the metric should be

transparent? >> the criteria used to designate should be clear. >> do you believe they are now? >> i believe they're reasonably clear. >> okay. because there's some -- well, there's some, and i'm one of them, that believe that the process has not been transparent at all. and what i would ask of you, because i believe -- i believe you think it should be, and i agree with you, the information that is specific to a company doesn't need to be transparent but i think the metrix they're looking for so we know what they're looking for, quite frankly everybody knows what they're looking for, when it comes to designation is important. >> i believe they've indicated on what kinds of things they're taking into account. >> about six months ago, when you were before this committee, we talked about the end user exemption from the margin

included in the dodd-frank given the minimal risk they posed in the overall market. you and former chairman bernanke and trillo exempting end users from the costly margin requirements. is this still -- is this still true? today? do you still feel this way? >> yes. >> good. you had indicated that the rule would be out to the end of the year. end of user rule. just wondering if you're still on schedule. >> i think that's correct that we are. >> a few more head nods? okay. that is very, very good. thank you very much for that. i want to talk a little bit about the assessment? uft to give me an idea. i may have asked this question before, and if i have, forgive me. when you're looking at the assessment of incoming information when it comes to the

economy and when it comes to the fed funds, labor market is one of them. gdp is one of them. i assume housing is one of them. what are some other indicators you're looking at? >> well, we're really trying to assess the likely path of the labor market and employment, and inflation, which are the two goals congress told us to focus on, but 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's happening in the global economy. what do we expect will happen to our exports and imports? all of that figures in to what will growth be in the economy, and then in turn matters like productivity growth will affect how that translates into progress in the labor market.

so -- and with respect to inflation, of course, we're looking at many different metrics. >> and of all of those things you listed, which is of the most concern? >> of all of those different metrics? >> yes. talking about the inputs you consider within the economy, what's of the most concern? >> at this moment, what is the most concern? >> yes. >> i mean, essentially the committee having looked at all of these different factors, holds the view that we will enjoy moderate growth for the rest of the year and for the next couple of years, and the labor market will improve, and so while we're concerned that housing is a sector where we expected to see better recovery. we're not. that's a concern. but it's not quantitatively important enough to cause us to judge that it will hold back the

recovery. >> thank you. >> senator colburn? >> thank you, madam chairman, for being here. appreciate your work and your interest. you gave a speech recently on the importance of macro prudential tools to curtail financial instability when a particular asset class gets overheated. the persistent low interest rate environment caused a reach for yield. the fed is taking the stance that regulatory tools such as increased capital requirements, countercyclical buffers, margining, central clears, requirements for derivatives will improve the resiliency of our financial system. so my question for you, rather than preventing asset bubbles from happening, we're now taking the approach that they're going to happen, and we're going to deal with them. is that an accurate statement? >> well, i think the steps that

you indicated to strengthen the financial system do two things. they diminish the odds that bubbles will develop. for example, these rules diminish the chance that leverage will build up as an economy strengthens. we've taken steps and will take further steps to diminish the likely buildup in leverage in the economy. >> but -- you would agree that zero interest rate policy is tending to make people reach for yield now, and is an impetus towards bubble creation in certain asset classes? >> well, it can be, and that's why we're watching very carefully. >> is there any one particular area that you're worried about right now? in terms of asset bubbles? >> well, i've mentioned leveraged lending, and corporate debt markets especially lower

rated companies. i think we're seeing a deterioration in lending standards. and we are attentive to risks that can develop in this environment, for example, that banks may be, or others, may be taking on interest risk, and if interest rates, when interest rates ultimately begin to rise that if firms or individuals have taken risks and aren't adequately. >> capitalized? >> prepared to deal with them that can cause disit stress. distre distress. among those we management, interest rate risk, using stress testing in this latest round. we will specific scenarios designed to look at how large banks organizations would fare if interest rates were to

increase rapidly, and we're focused on how firms are managing their own interest rate risk. so i think there are some risks at a low interest rate environment. i've indicated that, and we're aware of them, but i think the improvements we've put in place in terms of regulation both diminishes the odds that risk will develop and if there is an asset bubble, and it bursts, it will -- it will -- we're not going to be able to catch every asset bubble or every thing that develops. >> i guess that goes to my core question. rather than have a policy that causes bubbles to create, why wouldn't we have a policy that does cause that, one. and, number two, it just seems to me now that we're kind of

locked in this zero interest rate phenomenon, and one of the consequences of that is reaching for yield, and now we're going to try to tenuate the response to the zero interest rate, rather than change the zero interest rate policy so we don't have the bubbles in the first place? >> so we have to recognize, also, that we're dealing with a real problem. the reason we have low interest rates is to deal with the very real problem, namely, the economy is operating significantly short of its potential. employment is suppressed well below its maximum stainable level, and inflation is running below our objectives. that's why we are holding interest rates low, and were we to significantly raise interest rates to deal with the set of concerns that you indicated, we should expect even worse

performance on those important goals that congress has established for the federal reserve, and if we were to weaken the economy, it's not even clear that we would be mitigating financial stability risks overall, because -- >> we're in the trap. >> there are considerations in both -- in both directions. and so we need to be very attentive to the financial stability risks, and as i've indicated, if they were to become extreme and other tools were not available or were not successful, i wouldn't take monetary policy off the table as a tool to be used, but we should by no means think it would be costless, because it could be very costly in terms of achieving other very important objectives, and a weak economy creates its own set of financial stability risks. so it's not even clear that on

balance we would be promoting financial stability. so this isn't a simple matter. there are complex trade-offs incontrol offed here. >> mr. chairman, i have additional questions for the record. >> yes. >> thank you. >> the chair notes that we have five members, and less than 20 minutes to re -- remaining, to devote. and senator warner? >> thank you, mr. chairman, and thank you chairman yellen for your good work. i'll try to make my questions quick and make one comment. as someone who advocating strongly during dodd-frank non-banks could be this, i tell you, i shire the senator's concern about the transparencies as we go through the process. we've got to get it right. and my concern is that for the non-bank siffy designation, a great question on transparency whether it is size or product

component, and the more clarity we can get on this, the better. the two questions i want to get at, one is -- an issue that's not been raised yet. i know some of us on this side of the aisle have grave concerns. around student debt. $1.1 trillion now, greater than credit card debt. i personally believe it is retarding recovery in the housing industry. clearly retarding the growth of in a number of aunt tra the pra nuers. some of us proposed refinancing proposals. we've looked at income based repayment plans. there's a bipartisan opportunity out there that would allow an employer to take a portion of an employee's salary and apply it directly to the student debt and pre-tax, the same way we allow for tuition. but is this a subject that at the fed you've looked at and you want to make a comment on in terms of its, this rising potential bubble in student debt?

and it's effect on the economy. >> we certainly are looking at it and the growth in student debt has been really dramatic. i think there has been some work that documents that it is probably having an effect on -- affect on young people to purp homes and certainly is a burden for those individuals that they'll be carrying through their lives. on the other hand, education is extremely important, and making available the financing that's necessary in this economy for individuals to acquire an education is of the first order of importance. i mean, i would be concerned, of course, that some of the decisions that students are making, they may not fully understand the burdens that they're assuming and how they

will affect their lives and second of all, may not always be accurately evaluating what the payoffs are to the training that they're taking on, and especially when there's inadequate information about the performance of the schools or programs that they're enrolled in, what are the job finding and income prospects. >> we have actually bipartisan -- fed chair janet yellen beginning to answer a broader scope of questions about their own gdp projections at the fed. student debt, you just ahead. a lot more from the fed chair after a short break. don't go away. do you is down. but it's our job to find them. the answers. the solutions. the innovations. all waiting to help us build something better. something more amazing. a safer, cleaner, brighter future.

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-- simply save it -- >> back to the fed chair's hearing. senator jeff merkley of oregon, asking the questions. >> -- when an international association of insurance supervisors discussing for internationally active insurance firms what might be appropriate capital standards for groups for, you know, for essentially consolidated capital requirements for not legal entity insurance firms that are regulated by the states, but the consolidated holding companies. nothing that happens in that

context that's similar to our participation in the basel committee. we're, you know, looking to put in place appropriate standards here in the united states, and nothing that is decided in that international group has any force in the united states, unless we propose rules to put them at for comment and finalize them, but i think it's helpful to get the perspectives of others and to the extent possible and appropriate to have an internationally level playing field. >> thank you. i'm going to jump right into the next point, which i wanted to double down on the student loan question, because i feel like there's a huge amount of emerging information an the delay in homoacquisition and this is certainly a drag on our economy as well as an impact on the quality of life of our young folks, but it also has a significant extended effect through the decades to come,

because of the slow pace of wealth aggregation for families, if they do not engage in home ownership early eer on, and it's actually shocking to see a reversal, a key statistic, in which folks who are 25 to 30 who have gone to college are now less likely to own a home than folks who didn't go to college. i want to -- this issue goes to the heart of the american dream, because the cost of college is not only affecting those who went and have this debt, but it's affecting the aspirations of our children in high school, starting to get advice particularly in blue collar communities like the one i live in, maybe be you shouldn't risk carrying this -- this mountain of debt in a context of such high uncertainty over jobs that might be able to have a monthly wage that could make those payments. >> well, i agree with you, that when you look at the numbers on student debt, it has to be a significant concern. for just the reasons you gave. >> thank you.

i'll look forward to any work that feds do knithis area to understand better the impacts on the economy. i want to turn to financial reform rulemaking process, and i know you've expressed concern with the frustratingly slow pace of some of the rule making, and we still have quite a long list from dodd-frank, four years later, not completed on credit rating agencies, conflict of interests and securitization, issues senator levin brought ford in dodd-frank. security based swaps, compensation structures and so forth. how do -- do we have kind of a crisis of confidence in our ability to make the rule making system function? we have a law, a goal for rule and sometimes it's a year, sometimes two years, and we just can't seem to get the rules competed and maybe even end up in never never land,

appropriately named because it seems we're never going to get to final rules? is this a change from two decades ago? what do we do about it? >> i mean, i know it's been frustratingly slow. it's complicated and we want to take the time to get it right. we're involved in a lot of rule makings that involve multiple agencies with different perspectives, and we're also trying to coordinate with other countries to move forward together so we maintain in many areas a level playing field, and this is immensely time consuming work. i understand your frustration. i guess i see a bunch of rules in the pipeline that i hope will be completed in the not too distant future. the liquidity coverage ratio, qrm. other things that we can expect to come out of the pipeline, and

i see a further agenda of rules that i really hope we will make a great deal of progress on this year. so to me the glass is more half full than half empty, and i actually believe we have made substantial progress and will continue to push forward. >> thank you. >> senator hagan? . >> thank you, mr. chairman, and chairman yellen, thank you for your service and for being here today. i wanted to follow-up on a la y letter i sent to the federal reserve, occ and fdic regarding the liquidity coverage ratio standard. i've heard from a number of, heard a number of concerns from communities in north carolina about the exclusion of the municipal securities from the high quality liquid assets designation, and in particular, i'm concerned that this exclusion of the municipal

securities could restrict the abilities of state and local governments to raise the capital they need to finance public hospitals, schools, roads, airports and all the other infrastructure systems, and these projects are really the cornerstone of the u.s. economy. what is the justification for excluding these municipal securities, when other types of debt including foreign sovereign debt are covered? seems a strange outcome for debt of foreign country to be treated more favorably than the aaa rated debt of states like north carolina. >> so let me say this is a proposal we've put out for comment, and we will look very carefully at the comments we receive on this, and other topics. the rationale for excluding them is that we're expecting firms to hold truly high-quality liquid

assets, and the liquidity of municipal bonds is substantially lower than any of the assets that are included on that list. so the absence of liquid markets where those securities are traded was the reason for excluding them, but we will be looking very carefully at comments before we come out with a final proposal. >> well, i ask that you consider the impact that this exclusion could have on infrastructure investments and then the ability of the states and local governments to actually manage their debt. >> we will look at those comments. >> thank you. and i also wanted to follow-up on senator merkley's question concerning the new global standards for the insurance entities. i believe it's important that the insurance companies be protected and that the state model for regulating the insurance be respected and as a member of the board and participant in these meetings, can you explain a little bit

more detail what the federal reserve is doing to ensure that any international regulations do not harm these companies and respect the state-based model of the insurance regulation? >> well, we're working very closely, and the state regulators are participating in these international discussions as well. nothing that's under consideration would affect the way in which legal entity insurance companies are regulated with respect to capital by the states. so we're looking at a separate set of capital requirements that would apply to the consolidated organization, and, again, nothing that happens in this international forum takes has any affect 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 leer todhere today. you know, one of theal toos congress has given the fed to combat too big ta to 0 fail is section 165 of dodd-frank. this is the section that requires large financial institutions to submit plans each year describing thousae ii could be liquided in a rapid and orderly fashion without bringing down the entire economy or needing a taxpayer bailout. now the fed and fdic must review these plans, and if they don't buy that the plan would actually result in the rapid and orderly liquidation of the company, then they must order the company to submit a new plan, and here's the key part. as part of the order to submit a new plan, the fed and the fundamental can 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 and not pose a risk to the economy. so let's consider what happened during the lehman brothers bankruptcy in 2008. that's 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 orderly. but lehman was tiny compared to today's biggest banks. when it failed, lehman had $639 billion in assets. today, jpmorgan has nearly $2.5 trillion in assets. that's four times as big as lehman was when it failed. lehman had 209