present, they create their own risks if they're not appropriately managed. so completely agreed, this is important. we're giving it a great deal of attention. >> thank you very much. >> senator corker. >> thank you, mr. chairman, chair yellen thank you for being here today. there's a push right now to add a provision addressing currency manipulation in the asian pacific trade deal. do you think trade negotiations are an appropriate place for these currency issues and what if such an effort leads to the inclusion of international arbitration panel under tpp's enforcement procedures where companies or other nations could challenge future monetary policy decisions by the fed? >> so let me first say that i think currency manipulation that is undertaken in order to alter the competitive landscape and give one country an advantage in

international trade is inappropriate and needs to be addressed, but that said, there are many factors that influence the value of currencies, including differences in economic growth and capital f w flows and as you mentioned monetary policy is a factor that can have an impact on currencies. so i would really be concerned about a regime that would introduce sanctions for currency manipulation to trade agreements when it could be the case that it would hamper or even hobble monetary policy. monetary policies we've undertaken the federal reserve has undertaken over the last number of years, have been designed for valid domestic

objectives of price stability and maximum employment. we've undertaken monetary policy in order to achieve those objectives and that certainly is not currency manipulation, but monetary policy affects the economy through many channels, perhaps most importantly through interest rates, but monetary policy may have impact on currency values, and so i would see that kind of direction as having the potential to, perhaps, hamper the conduct of monetary policy or hobble the conduct of monetary policy and i would really worry greatly about that approach. >> so that's a long answer, but the answer i think you just said is, you would have a significant problem with that being part of a trade deal, is that correct? >> yes, i would. >> okay. the -- i want to follow the fed audit, the fed questioning auto

a little bit and walk through a series here and if we could be briefer with our answers that would be good. the first is respect to the fed's lending facility in the discount window access during the financial crisis. there are questions about how the facilities were conducted but the large extent congress addressed the issue about adopting the standards amendment to dodd/frank. can you speak to the impact to the sanders amendment on the gao's ability to audit prices? >> well, in response to that amendment, the gao conducted a complete review of the use of our 13-3 emergency lending authorities in all of the programs that were created and conducted an audit that was concluded i believe in mid-2011. in addition, the gao has the ability to audit open market operations and discount window

lending and we now report regularly all the details or the details of our open market operations a and with the two-year lag our discount window lending. >> those are fully transparent and fully audited now, is that correct? >> that is correct. >> second concern i've heard raised by the audit fed advocates the size and composition of the fed's $4.5 trillion balance sheet. does the fed disclose the types of assets that make up that $4.5 trillion? >> yes, we have audited financial statements which i have a copy of right here. we report on a security by security basis all of the securities that are in that portfolio, they're reported on the new york site. >> by number. >> by number. and we have a weekly balance sheet that reports significant

details of our balance sheet. >> so i hate to ask this question, but i ha've read quot lately not by you but by the fed advocates while you may issue an updated balance sheet each week, how do we know the securities actually exsnis. >> well, we have an outside accounting firm, an independent auditor, currently deloitte & touche, that does a thorough review of our balance sheet and that's what's contained in our annual report. it's both the board and all of the federal reserve banks and the consolidated federal reserve system. >> so they do exist? >> they do exist, senator. >> just my last point. it's obvious to me that the audit the fed effort is to not address auditing the fed, because the fed is audited and every day you publish the qsep

numbers of the things that you own and the -- >> correct. >> credit facilities you put in place during emergency, all of that is audited now. so to me, it's an attempt to allow congress to be able to put pressure on fed members relative to monetary policy. and i would just advocate that would not be a particularly good idea and it would cause us to put off tough decisions for the future like we currently are doing with budgetary matters, do you agree with that? >> i strongly agree. as i indicated -- well, let me say more generally, i think if you look around at the globe in modern times, and you consider every country that's gone through a period of chronic high inflation or hyper inflation, what you will find is, a central bank that was pressured to print money by -- >> politicians?

>> politicians who were unable to balance the budget. >> so i'll close. i thank you, mr. chairman, for the extra time. i think one area that greater transparency could be utilized is in the regulatory area around things like ccar and others. i think that's an area where we should focus and i hope that over the course of the next several months, the fed will work with us in a constructive manner so we more fully understand how you go about that process. it does seem like a black box now. it's something that i think should be far more transparent and i hope you'll work with us in that regard. >> we'll be pleased to do so. >> thank you. >> thank you, senator. senator schumer. >> thank you, mr. chairman. thank you, chair yellen for your testimony, your hard work, your dedication. what i believe is your sound judgment and timely decision making have been a driving force behind the recovery. but i don't envy your position. you and other members of the fomc have important decisions to

make in the coming months. let me urge you to act with caution before raising rates. while there may be data points positive signs of economic growth, let me be clear, i believe the fed should remain committed to its current accommodative policy until it sees clear evidence that shows a consistent improvement in wages. in the current environment, wage growth needs to be a major factor, maybe even a load star for the fed, when it's deciding whether to raise rates. as i have said over and over again, to me, the single biggest problem the country faces is the decline of middle-class incomeses and while economic progress has been seen the past year strong expectations for growth of gdp, for instance, wage gains have remained sluggish through the economy, through the recovery, middle-class americans have not yet seen the benefits of this growth in their take home pay. we all know the statistics of middle class incomes declining

by 6.5% over the decade, $3600 lower than when president bush took office in 2001. i think the fed must think long and hard before implementing a monetary policy to reduce demand and hamper the growth of the economy. wage growth not only serves to benefit middle-class workers who have been asked to do more with less for too long, but placing a priority on consistent wage growth prior to raising rates serves the dual rule of fostering a rise in inflation towards the fed's 2% target, one that you've delineated. overall growth is rightfully a key factor in the decision. but i firmly believe the fed shouldn't raise rates until wages are back on a steady trend. steady upward trend. as you begin to consider the path towards normalization of rates, i think the fed must place a priority on seeing consistent real wage growth prior to any decision making. those who are worried about

inflation, you always have to worry about it, they should look at the last several years. there are few signs of inflation and, in fact, many economists believe that the chances of deflation are greater than worries of draic rises in inflation and concerns of deflation are further precipitated by the prospect of the fed raising rates too soon. so i think it's prudent decision for our broader economy and middle-class families across the country to wait until wages really begin to rise. so, first, do you agree it's critical for the fomc to see evidence of consistent wage growth prior to deciding to raise interest rates, absent indicators that inflation is climbing well above or above the fed's 2% target? and if the fomc doesn't wait, what are the potential consequences? >> well, for, our objective is price stability, which we've defined as 2% inflation, and as

i indicated before beginning to raise rates, the committee needs to be reasonably confident that over the medium term, inflation will move up towards its 2% objective. i don't want to sit down any single cry tear yan that's necessary for that to occur. the committee does look at wage growth. we've not yet seen, there are perhaps hints, but we've not yet seen any significant pick up in wage growth, but there are a number of different factors that affect the inflation outlook and we will be considering carefully a range of evidence that pertains to the inflation outlook and will determine the confidence that we feel in our -- we forecasted inflation

will move back up to 2%. certainly seeing continued improvement in the labor market, adds to that confidence and it would add it to our confidence also that over time, wages will pick up. but our objective is 2% inflation. and we will look at a wide range of evidence in deciding that. >> do you feel that the worry of rampant inflation, above 2% inflation, is any greater than the worry of deflation, given the flatness of wages, 70% of the economy is wages, jobs, broadly defined? >> the committee feels, i think, anticipates that inflation is being held down by transitory factors particularly of the decline we've seen in oil prices. we've also had considerable slack in the labor market and

it's diminishing over time now. wages tend to be a lagging indicator of improvement in the labor market. we have seen improvement and if we continue to see improvement, it would add to my confidence, especially as the impact of oil prices diminishes over time that inflation will move back up. >> one final question. do you see any real evidence of inflation heading above 2% right now, given -- >> i don't see any evidence of that, but inflation, we need to be forward looking. the committee is forward looking in setting monetary policy and we do see that the labor market is improving and we're getting closer to our goal of maximum employment. it's important to remember that monetary policy is highly accommodati accommodative. we've held the federal funds rate at a zero to quarter

percent range and have a large balance sheet in the policies have been in place for six years now. and we do have an economy that fortunately appears to be recovering and we have to be forward looking in setting monetary policy. i want to assure you we want to see that recovery continue. we don't feel the labor market is fully healed and that's a process we want to go on and we don't want to take policy actions that will hamper that, but monetary policy is very accommodative at the present. >> thank you. i urge caution. >> senator toomey. >> thank you, mr. chairman. >> okay. the q&a continues on capitol hill with the fed chair and senate banking economy. the headline, the stocks starting to enjoy, dow up 90 points, all-time high on the s&p, 2116.

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we have -- we have -- as yellen speaks multiyear highs on the dow, the russell, the s&p, the dollar, steve liesman, did get a spike versus the yen and then eased back. why the turnaround in the middle of the q&a? >> you know, the answer to schumer was about the most hawkish thing i've heard her say. overall the market is taking this as a dovish -- i'm going to turn the sound off there, has taken it as a dovish report, very slightly if you look at the if fed funds futures they were down towards 48, a place they hadn't been, 48 basis points for the end of the year. a place they haven't been since early if february. when she pushed back on schumer

who schumer said listen, don't raise rates until we have wage inflation or stronger wage gains and she said, look, it's important that we have a very accommodative policy relative to the growth in the economy. which is a bit the trackp miller argument about the fed's policy off kilter. sympathy for that idea from the fed chair there, carl. >> would you argue her strongest or strident when she strongly opposes audit the fed and came out with a prop in the audited statements? >> i think that's true and emblematic of a fed chair who is far better prepared than she was in july. she definitely sounded in july she was back on her heels when it came to questioning from shelby, from elizabeth warren but she seems better prepared here coming with the prop as you said, and ready for the questions of the senators regarding things like audit the fed, she sounds stronger than she did back six months ago. >> 34 points away from nasdaq

5,000. let's get a listen. >> excess reserves. >> correct. >> my question is since that means over time in a normalizing environment, the transfer of teps of billions of dollars of what would go to the taxpayers to big money center banks, why are you doing that instead of simply selling the bonds which is a more conventional way to operate in the open market operation? >> well, remember that first of all, we will be paying banks rates that are comparable to those they can earn in the marketplace so those payments don't involve subsidies to banks and in addition remember that we have an expanding or holding our provision of reserves, we have acquired longer term assets on the asset side of our balance sheet and the spread above what we've been paying in terms of interest on excess reserves is

quite large, so although that will diminish over time as monetary policy is normalized, the expansion of our balance sheet, even though we are at present paying 25 basis points, interest on reserves, we've had record transfers to the treasury, close to $100 billion this past year and $500 billion since 2009. so there have been large transfers associated with that policy. >> that situation is likely to reverse if we get into a normalization mode? >> so we -- it is very -- it is likely that our transfers to, our remittances to the treasury will decline as short-term rates rise. we nevertheless expect the remittances to remain positive. >> thank you, mr. chairman.

>> senator warner? senator mendez, sorry. >> thank you, mr. chairman. i thank my colleague from virginia. madam share, thank you for your service. as you know, our economy continues to recover from the damage inflicted by the financial crisis and the great recession that followed. the gdp is growing, employers are hiring, unemployment is falling. so it's only natural that some are starting to look ahead to a time when the federal reserve can start withdrawing the monetary stimulus that has been so critical to our recovery. but from my view, we still face challenges. most americans are still waiting for the recovery to show up in meaningful income growth, long-term unemployment while down, is still high, inflation continues to run well below it target, as it has now for an extended period of time, so from

my perspective it's critical that the fed not put the cart before the horse and tight toon soon. you've said on multiple occasions that the federal reserve's timetable for raising rates will depend on the data. there are some who say the federal should tighten preemptively based on unemployment or wage growth or at the first hint of inflation. without waiting to find out if it's just a statistical blip. what would be the risk if the fed raises rates too soon compared to the risks of waiting? >> well, if the fed were to raise rates too soon, senator, we would risk undermining a recovery that is really just taking hold and is really succeeding, i think, in improving the labor market. as i said, i don't think we're back to attaining yet conditions

i'd associate with maximum employment, where normal labor market conditions, things have improved notably. we're not there yet. so we want to see a healthy recovery continue. in addition, as you mentioned, inflation is running well below our 2% objective and while we think a significant reason for that is because of transitory factors, most importantly, the decline we've seen in energy prices, we are committed to our 2% objective. just as we don't want to overshoot 2% on the high side, we don't want to chronically undershoot 2% on the low side either. and so before raising rates, we will want to feel confident that the recovery will continue and that inflation is moving up over time. there are also, of course, risks

of waiting too long to remove accommodation. we have a highly accommodative policy that's been in place for some time. we have to be forward looking. as the labor market tightens, wage growth and inflation can pick up to the point we would overshoot our inflation objective and conceivably there could be financial stability risks and we want to be attentive to those as well. >> right. >> so this is ball lapsing of costs and risks that we're trying to make in a deliberate and thoughtful fashion. >> i appreciate that. it's that balance that i hope your wisdom and those of your fellow board members can get just about right because i could see entering and choking off recovery before middle-class families actual feel its gains and trapping a too low inflation

or deflation set of circumstances. i appreciate that. let me ask you one other question. the -- i've heard several commentators say the interest rate increase by the fed would signal quote/unquote confidence to the market about the health of the u.s. economy and have a stimulative effect. do you agree with that theory? and if so, wouldn't the so-called confidence effect be more than offset by contraction nary impact of a rate increase? >> it's fair to say when we begin to raise our target for the federal if funds rate it will be because we are confident about the recovery and we are reasonably confident that inflation will move back to our 2% objective over time. but that confidence will reside in real improvements that we see in the underlying condition of

households and businesses where we would not be attempting to somehow boot strap an improvement in the economy that is purely occurring from a confidence effect that comes from our raising rates. there is reason, i think, to feel good about the economic outlook. households are -- have gone through major adjustments in their balance sheets and are in better financial condition than they were. the job situation is improving. even though wages haven't been rising in real terms very rapidly, there are more hours of work and more jobs, so household income is improving, lower oil prices are boosting household income, housing prices have rebounded and that's helped a lot of households. >> so -- >> and businesses are in -- >> so in essence real confidence

not confidence that is spun? >> that's right. there's no spin here. it's our confidence in the economy has improved and when we raise rates, it will be a signal in our confidence in the underlying fundamentals. >> thank you, mr. chairman. >> senator scott? >> thank you, mr. chairman. chair yellen, good morning. >> good morning. >> thank you for being here this morning. >> thank you. >> i would like to change the conversation and talk about the insurance industry and its impact on places like south carolina where we have about $354 billion of life insurance in place. as we think through the transferring of risk that the insurance industry provides i think it's a very important consideration. i'm a bit prij dissed in this area -- prejudiced in this area because i spent 25 years in the industry. the ability to transfer risk is nonexistent. the importance of how we impact the insurance industry, the fed i think will provide -- will

reverberate throughout the economy. i take very specific interest in the impact that the fed may have on regulating the insurance companies now that have been designated systemically important. my thought is the president signed a law that clarifies to the fed they not impose bank-like capital standards on insurance companies under supervision very obvious reasons. look at the activities of banks, loans and composites comparatively speaking to the long-term risk that most insurance companies are holding their assets for. it's important to have that delineation and take a different approach to insurance companies than we do other financial instituti institutions. i know from experience this is an important consideration. my question to you, what expertise does the fed have or plan to acquire as it begins to supervise insurance companies and how closely are you working with state insurance regulators? >> so, my answer would be that

we have acquired expertise, we have hired individuals who have experience in the insurance industry, and are trying to build our expertise there. we consult closely with the naic and with state insurance regulators and the federal insurance office. we are gaining experience because we're in our fourth annual supervision cycle of savings and loan holding companies, many of which are -- some of which have significant insurance activities and, of course, we're several insurance companies have been designated and we're supervising those as well. we are taking the time and doing the work that's necessary to understand their unique characteristics and fully plan to tailor our supervision and

capital and liquidity requirements for those insurance companies to make our supervisory regime appropriate. they're very important differences between the risks faced by insurance companies and banking organizations. we have undertaken a quantitative impact study and are actively engaged in working with the firms we'll be supervising to understand the unique characteristics of their operations before promulgating supervision regime. >> thank you. you've answered my third question as well. so i'll just go to the second question at this point then. will the fed issue an advanced notice of proposed rule making before issuing proposed rules on insurance capital standards then? >> yes. we will issue proposed rules. we recently issued a proposed

rule that pertains to our supervision of ge capital and we would do the same with the other firms. >> thank you. on the issue of stress tests, i know the fed is -- through the supervision of bank holding companies and other bank nonfinancial companies the fed conducts stress tests to determine how well the entity could withstand different levels of financial distress. the fed currently has on its balance sheet about $4.5 trillion as a result of the qe program. much larger than any of the financial entities it regulatesp. it appears nobody is stress testing the fed. the proverbial fox is guarding the hen house from my sper perfective. as you begin to unwind the fed's massive balance sheet hopefully in the near future what assurances can you give this committee that the fed will stress test its own qe exit

plan? >> well, with respect to our balance sheet, let me say that we do stress test it and we have issued some reports and papers where we describe what stress tests would look like when their interest rate shocks how that would affect our balance sheet and path of remittances. but it really is important to recognize that the federal reserve is not identical to an ordinary banking organization. first of all, capital plays a very different role in the central bank than it does for a banking organization. congress and the rules put in place regarding our capital were never intended to make our capital play the same role and it's not necessary for it to play the same role as in a banking organization. importantly, unlike a bank, the

federal reserve's liabilities are mainly reserves to the banking system and currency, and these are not like the runble deposits of an ordinary banking organization, so the risks that the federal reserve faces in our balance sheet are of a different character than those facing an ordinary bank. but that said, we do look at the likely consequences for our balance sheet of different interest rate scenarios. >> certainly very different scenarios between the fed and the banks without any question. but $4.5 trillion in the way that you wind it down, is -- would reverberate throughout the economy in a way that no other financial organization would have impact. the path forward is incredibly important. >> well that's -- >> to the economy. >> that's one reason that one of the principles of our

normalization plans is that we want to wind down our balance sheet in an orderly, gradual, and predictable way and we've decided to use as our main tool of policy when the time comes for normalization, something that is much more familiar both to us and to markets and that is, variations in short-term interest rates. you know, of course, an alternative to that would be to say when the time comes, to want to tighten monetary policy, we could begin to sell assets. that would be another way of going about doing business. but we have more experience and markets have much more experience with variations in short-term rates and we want to proceed in that way that's familiar to us, familiar to market participants and the

public and to let our balance sheet play as passive role to gradually diminish in size mainly through ending reinvestment of maturing principle. >> thank you. >> senator warren, finally. >> thank you, chair yellen, coming down to the home stretch here. appreciate all your good work and this incredibly important balance to get right as we start down a path of unwinding. but i, like many of my colleagues, share with inflation of such a low rate, trying to get this timing right is so critically important. one of the things we've talked a lot about the status of the u.s. economy, but i want to raise three quick points. one, after the january fomc meetings, in your readouts one of the eyes tems you mentioned were international developments.

obviously, disruption potential in europe with the ongoing struggles with greece, china's slowing economy, can you rank or how will these international developments affect the fed's decision on timing on monetary policy? >> well, there are a broad range of international developments that we monitor and they do affect the performance, the likely performance, of the u.s. economy and factor both into our economic forecasts and our assessment of risks. growth in europe has been very slow, growth in china is slowing. the huge decline we've seen in oil prices has had repercussions all over the globe, in some areas positive, very positive in other areas negative. it affects our yacht looutlook,

developments through trade flows and developments in financial markets. the attempts of many central banks to add monetary policy accommodation is pushing down longer run interest rates in many parts of the world and that, as i mentioned in my testimony, spilling over to the united states. so there are many channels through which these global developments affect the u.s. outlook in ways both positive and negative. all in all, so factoring all of those things into account, while there are risks, and again both positive and negative, stemming from the global developments, we still think that the risks for the u.s. outlook are nearly balanced. we've got sufficiently strong growth in domestic demand and in domestic spending by consumers

and businesses that the recovery looks to be on solid ground. we've just, as i mentioned in my testimony, had a very strong growth in the second half of the year and looking forward and analyzing the factors likely to impact domestic spending. we're seeing perhaps not so -- not as strong as we just had, but nevertheless above trend growth and that really factors into account all of the global consideration. >> but obviously these international factors will affect your decision. >> i also want to associate my comments with senator corker's comments about like to make sure that we deal in a perfect world with currency manipulation but currency manipulation to one could appear as monetary policy to another. >> yes. >> as we've seen japan and europe, move towards more monetary easing, obviously one

of the effects of that has been strength in the dollar and hurts our exports. speak to that for a moment and then if you could, let me get the last 30 seconds in at the end. >> you bet. so, you know, i think we should be on guard to, against currency manipulation, the g7 and international have agreed and i know our administration in dealing with foreign countries really tries to crack down on currency manipulation. nevertheless, i think certainly it's a prince. a -- principle agreed in the g7 monetary policy oriented towards domestic goals like price stability or in our case price stability in maximum employment, this is valid use of a domestic tool for a domestic purpose, it is true that the use of that tool can have repercussions on

exchange rates, but i really think it's not right to call that currency manipulation and to put it in the same bucket as interventions and exchange markets that are really geared toward changing the competitive landscape to the advantage of a country. >> mr. chairman, i would just in my last couple seconds want to make the point that one of the things that has been absent from this discussion todays has been we've talked a lot about your work, we haven't talked about our work and address our own fiscal policies. i would simply point out that because of the extraordinary remittances from the fed's expanded balance sheet we've seen north of $420 billion in net additional revenue that has diminished our deficit but that is not something that can be projected on into the future. >> no. >> as we talk about the times of raising interest rates and

trying to get back to normalized effort, i would simply point out again, 100 basis points increase in interest rates adds $120 billion a year on debt service. >> yes. >> and even cbo projections at this point will show that debt service with our current $18 trillion in debt will exceed total defense spending, or total domestic discretionary spending in ten years and that is not a good business plan for our country. >> all absolutely true. >> thank you, mr. chairman. >> thank you, mr. chairman. thank you for being here, chair yellen. you know, as you know, wall street banks could profit handsomely if they knew about the fed's plans before the rest of the market found out. and that's why any leak of confidential information from the fed results in serious penalties for the people who are responsible. but apparently there have been no consequences for the most recent leak. according to public reports, scott alvarez the general

counsel of the fed was put in charge of investigating a leak from the september 2012 meeting of the federal open markets committee, nearly two and a half years later the results of this investigation have not been made public, and no action has been taken. on february 5th, congressman cummings and i sent a letter to mr. alvarez requesting a briefing from him in advance of your appearance here today. but so far we have not received one. can you assure us that the congressman and i will get a briefing soon? >> so, if i might say, by way of background and -- >> i just need a yes or no. i want to get a briefing on what's happened that it's been two and a half years and there's been no public report about what happened from a significant leak? >> we are trying to work with your staff on the process to be responsive. >> i'll take that as a yes? >> yes. >> okay.

. thank you. as you know, this past december, house republicans successfully blew a hole in dodd/frank protections by attacking the repeal of the swaps pushout rule to a must pass government spending bill. that repeal, which was written by citigroup lobbyists will allow the biggest banks in the country to continue to receive taxpayer protection for some of their riskiest derivatives and swaps. now, a month before the repeal, mr. alvarez spoke at a conference at the american bar association, an organization that includes many lawyers who represent the banks that are affected by the fed's enforcement of dodd/frank. mr. alvarez openly criticized the swaps pushout rules saying, quote, you can tell it was written at 2:30 in the morning and it needs to be, i think, revisited just to make sense of

it. mr. alvarez also criticized the new rules dodd/frank put into place to address conflicts of interest, credit rating agencies, saying, quote, restrictions on the agency's really did not work and it doesn't work and it's more constraining than i think is helpful. so let me start by asking, does mr. alvarez's criticism of these two rules reflect your view or the view of the federal board of governors? >> so, let me just say that overs the years, we've had feedback that we've given on various aspects of dodd/frank. >> i appreciate that, chair. the question i'm asking, though, is these are specific criticisms he has made of dodd/frank rules that govern the largest financial institutions in this country and i'm just asking, do his criticisms reflect your criticisms or the criticisms of

the federal -- the federal board? >> i think we -- i personally and the board consider dodd/frank to be a very important piece of legislation that has provided a road map for us to put in place regulations -- >> i appreciate that. madam chairman. i just need a yes or no here. do his criticisms reflect your criticisms? >> certainly not seeking in any way to alter dodd/frank at this time. it is -- >> let me ask the question -- >> framework that is -- >> do you think it's appropriate that mr. alvarez took public positions that do not evidently reflect the public position of the fed's board, especially before an audience that has a direct financial interest in how the fed enforces its rules? >> well, i think the fed's position and my position is that we are able to work very

constructively within the framework of dodd/frank to tailor rules that are appropriate for the institutions we supervise and we're not seeking to change the law. >> i appreciate that. we know that the fed staff plays a critical role in shaping dodd/frank rules and enforcing them. in the case of the swaps pushout, congress passed the law in 2010, but the fed and the occ delayed the effective date of the rule until 2016. giving citigroup and other big banks time to get the rule repealed before it ever went into effect. did mr. alvarez provide input into the fed's decision to delay the effective date of the pushout rule? >> i don't know. i mean, we usually have phase ins for complicated rules that

require adjustments by financial firms. this has been true of all of the dodd/frank rules that we've put into effect. >> well, i think this might be worth looking into. you know, the fed is our first line of defense against another financial crisis and the fed's general counsel or anyone at the fed staff should not be picking and choosing which rules to enforce based on their personal views. so i urge you to carefully review this issue and to assess whether the leardship of the fed's staff is on the same page as the federal reserve board. thank you, mr. chairman. >> mr. chairman, thank you. always last. hopefully not least. chair yellen, i want to first thank you for your patience and your responsiveness and i was

tempted to ask one question which was your definition of patience but i won't do that today. instead, i want to look to the future. i think senator warren -- warner really outlined one of the concerns that i have. we always seem to be fighting the last economic war in the united states congress. you are a very astute and very respected student of the american economy. it's what you do every day. i'm going to give you a chance, you've heard a lot of opinions and received a lot of advice from this panel, i'm going to give you a chance to give us some advice. when you look at leading and lagging indicators, especially leading indicators, what troubles you and what keeps you awake at night about the american economy in the next ten to 15 years and what advice would you give to the united states congress in addressing those concerns that you have looking right now at those

indicators? >> well, i've said on a number of occasions that the rise we've seen in inequality in the united states is a great concern to me. >> i -- we discussed this the last time you were here and you offered no solutions towards that problem. you might recall. >> i think there are a variety of different things that the congress could consider in policy measures that might be appropriate, but this really is a domain for congress to consider so that's one of the concerns that i have. >> so no advice on the earned income tax credit or tax rates? >> i'm not going to weigh in on things that really are in your domain to evaluate. so i think that's important and i would say something also in congress' domain is longer run issues with the federal budget.

i think congress has made painful decisions that have now really stabilized, brought down the deficit very substantially and stabilized for a number of years the debt to gdp ratio, but eventually debt to gdp will begin to rise and deficits will increase again if we -- as the population ages and medicare, medicaid an social security get to be a larger share, a larger share of gdp under current programs and there are a lot of ways in which these are problems we've known about for a long time. i also worry that if we were to again be hit by an adverse shock, that there's not much scope to use fiscal policy. it was used in the early years after the financial crisis.

we ran large deficits, but in the course of doing that, to gdp ratio, rose and were another negative shock to come along, it's questionable how much scope we would now have to put if in place even on a temporary mull it ty year basis expansionary fiscal policy and i think it's important to deal with these issues, for the congress to do so. >> but your concern about scope doesn't lead you to believe t t that -- >> always interesting when we lose the feed. that was fed chair yellen. bearing some arrows there from senator warren, of course, and earlier from senator shelby. senator warren asking about the swap push out rule and one point telling her i just need a yes or no here. of course the fed chair's response the fed is not looking to alter dodd/frank.

steve liesman is back at hq i hope he has his ear piece in. was that the highlight of this, steve steve? >> sort of in terms of what matters to the market's monetary policy i don't think it was but in human drama sure. elizabeth warren is good at using her time, trying to get yes or no answers that the chair may not be willing to provide. the issue of scott alvarez the fed's chief counsel apparently criticizing a rule of dodd/frank and warren pressing her, pressing the chair as to whether or not that was the fed's instruction or in line with the fed board of governors thinking an important one and issue about a leak that came from the fed 2 1/2 years ago and whether or not warren could get a briefing on that. one of the more dramatic exchanges but not i think from a policy standpoint or market standpoint not one of the most cuss quenshal. >> to that point, art cashin here at post nine. what is the policy headline? a matter of patience comes out in march and gets discussed in april and a hike in june?

>> it's that yellen goes for gradualism and flexibility and the markets like that. she's got to be happy with the first day of her testimony. the dollar which had initially spiked is back to almost unchanged. yields which had initially spiked a bit have moved back down. so she has followed the hippocratic guideline, first do no harm. she did no harm today. >> certainly so. the ftse we should mention all-time closing high, surpassing a peak set 15 years ago. let's listen if as they bring this home. >> challenges in the long term. and i think that one of the things we need to do much more carefully here in the united states congress is begin to look at not just having a discussion with you about monetary policy, but looking at fiscal policy, whether it's tax reform, or whether it is, in fact, taking a look at what we're doing with the mortgage market, to begin to develop an economy that the

millennials will it fully participate in. and i hope you continue to think and provide us the advice that is extraordinarily valuable. thank you. >> thank you. >> senator donnelly. >> thank you, mr. chairman. and madam chair, thanks for your service. i apologize, i had to go in and out of other committees and i know this subject has been brought up. but the issue of wage stagnation that we've seen and the other piece of student debt, when we look at the student debt and the numbers are so high and, you know, it's been a long time, but when i graduated from college you could basically work half -- work an entire summer and wind up paying off about half what your tuition was. how big a drag and you may not have an exact measurement but one of my great concerns has been, in some areas of the country, how do you build up the housing market when the young people who want to buy a house,

the money that i saved up for that -- at that time 20% down payment, is now in many cases being used to pay off a student loan and it's a box almost you can never get out of. how big a drag do you see that being on the economy? >> so it's a little bit hard to tell. i mean, the housing market has not recovered in the way that i would have anticipated. it's been very slowly improving, but household formation has been extremely low in the united states. it's hard to tell you have many young people living with their families still. it's hard to tell whether that's because of student debt or because of a weak job market. my guess is the economy continues to improve, we will see an improvement in household

formation that we will see now many young people may decide they prefer to rent rather than buy homes, but that will give rise to a boost of multifamily construction even if not so much single family construction, but the housing market has been depressed. information, the job market has had sufficient strength to recover. >> mier on concern when you see a young person who looks up and dealing with 100,000 in student debt and they have this big chunk of money that goes off every month to pay that down, those dollars are dollars that are never used to go to a restaurant, never used to maybe buy a car, never used to travel somewhere and so overall job

wise, i think it hits or seems to hit, makes it more difficult in those areas to it continue job creation. >> it is true but it's also remains true that a higher education boosts income. >> oh. >> and is tremendously important it's not always the case not for every individual that it's a good investment but on average it's been a very important and worth while investment. to my mind that's the other side of it. >> i completely agree what a wonderful investment it is. i want to try to make sure we can get that opportunity without basically saddling yourself for years and years as you look ahead. >> the debt loads are very large and they've really increased a great deal. >> one other area i wanted to ask you about, is cyber security and i know that the fed has

certain things they focus on on a constant basis. in the area of cyber security, though, it is from alls the financial organizations i talk to, one of the biggest concerns they have for the companies is how big a risk do you see that in the years moving forward and how big in effect on the financial institutions do you see this being? >> well, i think it's on everyone's top list of the top of the list of concerns that we have about the financial system, about the problems face iing financial organizations and i would include the federal reserve in that too. it's a top concern of our own given the importance of our own systems to the payment, the functioning of the payment system of the u.s. and global economy. internally we are paying a great deal of attention to make sure

that we're addressing ever escalating threats to our own operations, the banks that we supervise, we're very attentive and have experts who work with those banks to make sure that they are attentive. it is a larger problem and this is one where cooperation is needed among card systems, retailers and others involved in the financial system and conceivably legislation might be needed in this area. >> thank you. i'll conclude with this. for the state i represent, indiana, we for many years were hit very, very hard on the manufacturing sector because of currency manipulation among many other areas. i know this has been mentioned. but i would like to