states will see improvements as that occurs, but, of course, you know the exact industrial structure of a state can matter, but there probably have been improvements, substantial improvements, and i think the labor market will continue to improve over time. the actions of other central banks around the world are in a counterveiling direction. how do you, overall, factor in the actions of those other central banks into the broad picture and how does that impact your decision making as to whether or not it's the right

time to move forward. >> so we are trying to assess the overall u.s. economic outlook, and we need to factor in all the different elements that determine that. our success in selling goods to the rest of the world -- that's an important determinant of the outlook. we have divergent monetary policies globally, and it often means that there will be exchange rate movements that accompany that, and we have seen that over the last year and a half. as i said, the combination of the weak growth abroad, plus the movement in the dollar has been a factor that has been depressing net exports, and that's been a subtraction from growth, and i think it will continue to be going forward. that's a negative, and, of course, it's something that

makes us much more cautious in terms of raising rates, but still 85% of spending on u.s. goods and services comes from consumers, investment spending, housing, and good fundamental reasons, there's greater strength there. when we put it all together, we're still seeing an overall picture of slightly above trade growth, ongoing improvements in the labor market. you know, wrovl there are risks. there are risks that come from the global environment that we have monitored carefully and recognize, but overall i would s

say. >> given some really -- i think some significant structural changes that are occurring in our economies as a result of the fact that a vast majority of people in this country have not seen increases of wages, middle class, in fact, has been stagnant, and it seems to be a disconnect from some of the policy or the theory, i should say, that i remember learning wreerz ago in economics that normally when you have increases in productivity that productivity translates into higher wage levels. we have not seen that. in fact, in recent years we've seen -- significantly more than wage levels.

if you are looking at formulating monetary policy, you are looking aggregate demand and -- >> fed chair yellen making headlines regarding the affect of terrorism on the economy. even commenting a tad on the dollar, which we'll get to a moment. in the meantime, we are waiting for the president to make a statement at the white house regarding the shooting in san bernardino yesterday. john harwood has some headlines first, though. >> we're waiting for that tape. the president has been talking to our colleagues in the pool inside the oval office, and the reports we've gotten from our colleagues say he has said he spoke to the mayor. thoughts and prayers to the victims. we yet do not know the motive for this attack. mentioned that the fbi is involved. he spoke with his national security team indicating that they're exploring as the fbi is the possibility of terrorism, but they don't yet have firm conclusions on what caused this. i believe the president is still talking to other leagues, carl,

so we'll wait and see what subsequent comments he makes. >> thank you very much. john harwood played with that tape. it's made available. we'll take it. in the meantime, janet wrelen continues to talk about the rising dollar. blame it on the diverging expectations between ecb policy and fed policy saying that domestic spending, most of the economy here in the u.s., is on what she called a solid course, and that that strong dollar is one reason why in her words fed policy will continue on a gradual path. let's get back to the q and a. >> well, that's a great question, and you introduced a lot of different elements into it. clearly the trends in income and having our disposable income for households are one of the most important factors determining consumer spending, and the fact

that wages have been pretty stagnant for a number of wreerz, i guess, compensation has been growing and the 2% or 2.5% range. that, you know, that is something we've had to take account of in forecasting what the strength of the wroefr all u.s. economy has been and it's integral to our forecasts, but i guess i would say that swrob growth has been pretty solid now for a number of wreerz, so disposable income in spite of the fact that wage growth has remained in that 2%, 2.5% range, there's been a lot of job growth that's added to disposable income. the savings rate moved up after the financial crisis, and it remains in positive territory, and it's remained stable. the consumer spending we're

seeing isn't largely being supported by taking on additional debt. it is being supported by income that households are earning. as the economy progresses, as the labor market strengthens further, i would expect to see some upward pressure on wage growth. recently in measures of hourly compensation and average hourly earnings, i think we've seen some welcome hints. it's tentative evidence. we don't know if it will last, but at least recent data does suggest some upward movement in wage increases, but over the last couple of wreerz the spending we have seen has been supported by income growth. inequality definitely plays a role here and, of course, we need to see sufficient wherewithal for households to

spend in a way that generates forecast of continuing growth. >> thank you. senator casey. >> mr. chairman, thank you. madam chair, we're grateful for your testimony today, your presence here, and your public service. i'll have just one question. i'll submit a second for the record because of the limitations on time that we have today. and we have in the senate as well. wanted to say, first, that i was heartened by some of the numbers in the first page of your testimony that we all have heard, i guess here or there, but we don't emphasize enough. the statement you made that the economy has created about 13 million jobs since the low point for employment in early 2010, that's good news. good news on the unemployment rate itself which has peaked at 10% in october 2009, declined to

5% in october this year. literally cut in half. heats good news. >> we take you to the white house now. president obama speaking in the oval office. >> yesterday a tragedy occurred in san bernardino. as i said in the immediate aftermath, our first order of business is to send our thoughts and prayers to the families of those who have been killed and to pray for a speedy recovery for those who were injured during this terrible attack. i had a chance to speak with mayor davis of san bernardino, and i thanked law enforcement in that city for their timely and professional response. i indicated to mayor davis that the entire country is thinking about that community and thanked him and his office for the way that they've been able to manage

an extraordinarily difficult situation with calm and clarity, and very much appreciated the coordination that's been taking place between local law enforcement and the fbi investigators. at this stage we do not yet know why this terrible event occurred. we do know that the two individuals who were killed were equipped with weapons and appeared to have access to additional weaponry at their homes, but we don't know where they did it. we don't know the extents of their plans. we do not know their motivations. i just received a briefing from

fbi director as well as attorney general lynch indicating the course of their investigation. at this point this is now an fbi investigation that's been done in cooperation and consultation with local law enforcement. it is possible that this was terrorist related, but we don't know. it's also possible that this was workplace related, and until the fbi has been able to conduct what are going to be a large number of interviews, until we understand the nature of the workplace relationship between the individual and his superiors because he worked with the organization where this terrible shooting took place, until all

the social media and electronic information has been exploited, we're just not going to be able to answer those questions, but what i can assure the american people is we're going to get to the bottom of this and that we are going to be vigilant as we always are in getting the facts before we issue any decisive judgments in terms of how this occurred. more broadly, as i said yesterday, you know, we see the prevalence of these kinds of mass shootings in this country, and i think so many americans sometimes feel as if there's nothing you can do about it. we are fortunate to have an extraordinary combination of law enforcement and intelligence and military that work every single

day to keep us safe, but we can't just leave it to our professionals to deal with the problem of these kinds of horrible killings. we all have a part to play. i do think that as the investigation moves forward, it's going to be important for all of us, including our legislatures, to see what we can do to make sure that when individuals decide that they want to do somebody harm, we will make it harder for them to do it because right now it's just too easy. you know, we're going to have to, i think, search ourselves as a society to make sure that we can take basic steps that would make it harder, not impossible, but harder for individuals to get access to weapons.

there will be, i think, a press conference later today led by the attorney general, director comey will continue to brief not only the press, but also members of congress about the course of the investigation. our expectation is that this may take some time before we're able to sort it all through. there may be mixed motives involved in this, which makes the investigation more complicated. rest assured, we will get to the bottom of this, and in the meantime, once again, i want to offer our deepest condolences to those who have been affected by this terrible tragedy. for those who have been injured, we hope that they get well quickly and that they're able to be back together with their families. thank you very much, everybody. >> thank you all.

thank you all. >> that is the president. you heard him say he has spoken to the mayor of san bernardino. at this point in his words, we don't know why they did it, but the two suspects who were killed were, in fact, equipped with weapons and had access to even more, adding that it is possible this was terrorist-related, but also possible it was workplace related. fbi will conduct its investigation. several interviews, obviously, still to come. we if back to capitol hill. fed chair yellen. this is john delaney asking the questions of maryland. i personally think it will be good for the economy because of some of these people who start looking at rates differently. so a few things i would like to say. when the fed takes its initial step in raising the target for

the federal funds rate, it's important to understand that that doesn't mean that there is some predetermined path back to historically normal rates. the notion that it should be -- >> but it's still -- >> it will be gradual. i mean, in general higher levels of interest rates, i think, do tend to make borrowing more expensive and discourage it, but it will occur in the context of a stronger economy, with higher income where people are doing better. it's not the only thing that affects investment decision or borrowing or spending decision, so i would not expect to see borrowing go down or lending go down when we raise rates modestly. >> you think it will encourage more borrow sng. >> often here, especially

anecdotal evidence that i hear along the lines that you are suggesting, that there are people who do feel i have a free option, rates will stay low for a long time, and if they see rates going up, there may be people who are on the fence who may decide now is the hour to act. >> so that wouldn't surprise you as an outcome from this decision? >> it wouldn't surprise me as an outcome, but it would not be -- that's a temporary affect. >> and you're not making -- >> in the way that borrowing from the future. i don't want to encourage the idea that i believe that higher rates in and of themselves would permanently tend to boost bow roaring and spending. >> right. one other wick question if i can. governor -- switching gears, governor carney gave a speech about two months ago where he talked about one of the long-term risks to financial markets being climate change because it will cause a

repricing of carbon related assets and potentially the reinsurance industry around risk related to weather. do you share some of those concerns? i don't know you don't have much time, so just short answer. >> what i thought was an extremely interesting speech, i cannot say that i'm aware of work that we have done looking at that, but i think it's something that is worth -- certainly worth considering. >> you think you'll be doing some work in that area? >> i will -- it's something we can get back to you on in and have a look on. >> thank you. thank you. senator cruise. >> thank you, mr. chairman. chair yellen, welcome. in the summer of 2008 responding to rising consumer prices, the federal reserve told markets that it was shifting to a tighter monetary policy. this then set off a scramble for cash which caused the dollar to

soar agos et prices to collapse and cpi to fall below zero. which set the stage for the financial crisis. in his recent memoir, former fed chairman ben bernanke says that the decision not to ease monetary policy at the september 2008 fomc meeting was "in retrospect certainly a mistake." do you agree with chairman better thrnanke that the fed sh have eased in 2008 or earlier? >> are you talking about 2008 or 2007? >> 2008. >> i mean, i think the fed responded pretty promptly in easing monetary policy to the pressures that were emerging, and, i mean, i don't disagree

about with his analysis of a particular decision, but i certainly wouldn't say that that decision is what caused the financial crisis, and by december of 2008 the federal funds rate had been lowered to zero. >> so when you say you don't disagree, does that mean you agree with chairman bernanke that it was a mistake? >> so i can't recall the exact passage that you are referring to, so before i say if i would agree, i would like to have a hands to review exactly what he said. >> i would be very interested if you would have the opportunity to review the passage and let the committee know whether you agree with this assessment. >> okay. >> i want to shift to a different fed chairman, which is paul volcker, who said in a speech before the brenton woods committee last year, "by now i think we can agree that the

absence of an official rules-based cooperatively managed monetary system has not been a great success. in fact, international financial crisis seem at least as frequent and more destructive in impeding economic stability and growth." chairman volcker went on to say, "the united states in particular had in the 1970s an unhappy decade of inflation ending and stagflation. the major latin american debt crisis followed in the 1980s. there was a serious banking crisis late in that decade followed by a new mexican crisis and the big and damaging asian crisis. less than a decade later it was capped by the financial crisis of the 2007 through between period and the great recession. not a pretty picture." now, you have said "it would be a grave mistake for the fed to commit to conduct monetary

policy according to a mathematical rule. do you agree with chairman volcker's characterization that the "absence of an official rules-based monetary system has not been a great success and not been a pretty picture? >> well, you have pointed to a large number of very damaging financial crisis, and in that sense i do believe it was very important for us to take steps to have a stronger financial system and one that's less crisis-prone. i don't think that the former chairman volcker was proposing a rule-based monetary policy in the sense of following simple mechanical rule, and i guess i would argue that many countries do have in essence a rule-based

monetary policy in the sense that most countries have inflation targeting regimes and transparent monetary policies where the central banks are independent and spell out and are accountable to achieve an inflation objective, and the federal reserve has very much strengthened its transparency as to what our goals are, what our strategy is for trying to achieve those goals and provided the public with very detailed forecasted everies of what policies we think are appropriate to achieve the goals to the congress has asigned to us including a 2% inflation objective. over the last 20 years inflation has been highly stable. around 2%.

in that sense even though we may not follow the tail wind rule or some simple mathematical formula, i believe we do have a rules-based monetary policy in the united states, or at least a systematic policy in the united states and many other countries, most other countries do as well. >> one final question. in 2008, the fed began paying interest on reserves. in the seven years since then, do you know how much in interest the fed has paid banks under that policy? >> it's been set at 25 basis points, and i don't have the exact numbers at my finger tips, but i want to say it is a critically important tool of monetary policy. it's a tool that it's almost certainly advanced countries,

central banks have and rely on as a key tool of monetary policy. >> what has the impact been of paying billions of tlarz to those banks in the last seven years? >> it's helped us to set interest rates at level that is we thought were appropriate for economic growth and price stability in this country. >> thank you. >> senator cassie. >> madam chair, i get to go again. >> a lot of turmoil in china. there's an wrerl discussion about how obviously foreign markets are part of how we somewhere our growth. china may be devaluing their currency. it seems like they've weakened their currency. i could go on things you know better than i. what is the state of the chinese

mark market? >> so china has grown obviously very rapidly for a very long period of time, and in recent wreerz has been on a general slowing trend for reasons that are entirely understandable. namely slower labor force growth, reduction in the pace of investment growth, a desire that they have which is in their own interest and one that we share that their economy rebalanced from such heavy dependence on trade as a source of growth to domestic consumption, and as they have moved toward the technological frontier of further progress in adopting technological changes tend to slow.

>> are they truly attempting to increase domestic consumption? >> i always had a sense the way they kind of encourage savings and use those savings to, among other things, prop up their stock market, that their rhetoric says that they are attempting to increase domestic consumption, but their policies do not seem to reflect that rhetoric. >> so my impression is that they are trying to rebalance their economy. consumer spending is a smaller share, a far smaller share of their economy than consumer spending is of ours, and it has been growing rapidly. there are challenges that they have faced in trying to boost it, but i believe that it is, a course that they're on, that they regard in their own best interest, and we would agree. >> the changing subjects, by the way, so you feel that the

turmoil we're currently seeing and the threat they might devalue their currency, just to be specific, you don't feel like that threatens our economy. nor that -- let me ask the secondary question. are they attempting to, if you will, game it by increasing their exports by devaluing their currency, et cetera, et cetera? >> well, there was disruption last summer in financial markets when they made a decision to devalue the remnant be by a couple of percent to put that in context, remember that the u.s. dollar has been appreciating significantly over the last year and a half, and the chinese currency has been lirnked to the u.s. dollar. during that period, the chinese currency had some strengthening rather substantially relative to many of its trade partners.

they made a modest adjustment of their exchange rate, but in a way that was arguably not well communicated and proved disruptive and then they saw very large capital outflows. i think they recognized the ability of their exchange rate is in the best interest, and ultimately we would like to move to a more market-based and flexible system of exchange rate determination. >> i'm not sure, but i hope you're right. secondly, in january of this year the economy actually slowed. i think growth became negative. at the time it was attributed to slowdown in the energy market because oil prices have fallen, and energy states produced a lot of jobs, and, by the way, swrobz for those lower income, less skilled workers that we spoke much of here today. now it seems as if that fell.

oil production rose a little bit for a variety of reasons. now it appears that oil production is decreasing once more. rig counts are falling. my state is impacted by this. any comments upon how this shedding of jobs and the exploration of the production will impact our economy? >> well, we have seen a huge decline in oil prices for reasons pertaining to both huge increases in supply and perhaps some slowing in demand. it has had an enormous impact on drilling activity, on jobs in that sector, and that has been one of the things that has been holding back growth. >> so even though we've gotten some benefit for consumer spending in terms of employment, now going forward as those jobs are further shed, what impact do you feel like that has upon our

growth? i'm struck that your forecast is that the economy is going to continue to grow at this kind of 2.5% rate. not the 3.5% we had under reagan and clinton, but that kind of 2.5%. if we're shedding all these jobs in the industry which provides such a tremendous number of jobs for less skilled workers, it seems as if that endangers even the 2.5% growth we have. >> well, remember that we have been creating roughly 200,000 jobs a month for the entire year. >> i was told once that it actually takes about 270,000 jobs a month to both bring back into employment those who are currently unemployed to take care of those but who would prefer to work and because our labor participation market is so low. for those newer workers that are entering the market to employ them as well as to maintain full employment for those current. i'm struck that something i read speaks of those 20 to

25-year-old workers being under employed. higher rate of unemployment among those. is that adequate to increase job participation and those that are newly entering? >> so to simply provide jobs for those who were newly entering the labor force probably requires under 100,000 jobs per month, and there's a downward trend in the labor force due to its aging. if labor force participation is stable, that helps to absorb people who were discouraged and have dropped out. that is still less than in terms of increasing back up to full employment -- excuse me -- our labor market participation is the lowest it's been since swrimy carter, and whenever the

president speaks about how great the unemployment rate is, i always think our labor participation is as low as it's been since swrimy carter. i guess my question is how do we rise up and increase our labor participation as well as take care of those who are entering now because we don't seem to be accomplishing that with even a 210,000 per month labor growth? sfroo we are on a path of declining labor force participation due to the aging of the work force population, so i don't think that we should expect to see.

>> we had the return of two of our key members of the committee, and we have a little bit of time. we had a hard 12 stop, and we have time for both of you to answer your questions. >> thank you, chairman. thank you, harm wrenl. sorry about the vote. in your comments when i was here earlier you mentioned moderate growth in the economy, but, yet, wrerl this week economists at citigroup predicted that not only the timing of the u.s. labor market will force the fed to increase short-term market or interest rates more rapidly than was anticipated. they said it would result in an inverted yield curve which typically proceeds a recession, and actually they said -- the economists said they would

assign about a 65% likelihood of a recession in the united states in 2016. now, 65% seems high to me, but i'm not an economist, and i'm not the fed chair, but zero may be too low as well. what would you assign a risk level of a recession next year? >> so i don't have a number for you, but a decision on the part of the fomc to increase rates would only occur in the context where -- the committee believed that we were going to enjoy at least someone of trained growth that we would see an improvement in the labor market. there's always uncertainty that pertains to the economic outlook. there were always shocks that occur. the risks -- the risks are on both sides there to faster

growth and also slower growth. i can't put a number on the risk of a recession, but i absolutely wouldn't see it as anything approaching 65%. >> okay. >> so assuming that you either do something or don't do something with respect to interest rates, i think everybody would probably agree that regardless of what you do, historically speaking, interest rates would still remain at historically lower level. what tools would you have? what tools would the fed have if indeed the economists at citi were right and we did go -- the u.s. did go into recession? what would you have to mitigate the effects of such a problem? >> so we have all of the tools that we have previously used to try to combat a recession. first of all, if we had raised rates, we would have the

possibility of lowering rates. >> we discussed the reasons that we thought it would be appropriate to keep rates at low levels as it turned out, seven years, almost now at zero rates. we discussed where we thought we could be reaping rates at low levels for a long time. as the market absorbed the notion that they will stay low for a long time, longer term yields came down. of course, we had asset purchases. we undertook substantial asset purchases in order to stimulate the economy. i think those purchases were

successful as well. in conjunction with that forward guidance in brag down longer term rates and those tools are still available. >> last question. real quick. i met with -- >> fed chair yellen commenting on the participation rate among other things. in the meantime, our eyes are still on san bernardino where we are getting some new information. for that we go to jane wells who is in california. jane. >> hi, carl. at the top of the hour we are expecting a briefing for police to update us on everything, but pete williams, nbc's pete williams, has some information about the two suspected and now dead gun -- shooters. one a man, one a woman. apparently both married. the man, as we have been reporter is sayed farouk born in illinois in june 1987. a u.s. citizen by birth. maybe two years ago. he worked for the country for five years. police say he was at that holiday party with fellow county workers yesterday when he left. came back with his wife and opened fire according to police. the wife, she is very much a

mystery woman. we don't have a date of birth, though police have identified her as being 27 years old. she's a naturalized pakistani american citizen, arrived in the u.s. on a k-1 or fiance visa, according to pete williams. she achieved citizenship by virtue of her marriage to farouk. their daughter was born in may. farouk traveled once to saudi arabia two years ago. authorities believe based on the timing it was for the muslim haaj. they believe he met his wife there and brought her back again. this is from pete williams. many questions, again, about the weapons involved. two semiautomatic rifles, two semiautomatic handguns. i talked -- an mmp went from smith & wesson, which is sort of a police and military version of the ar-15. perfectly legal. popular in sporting. usually for shooting more smaller animals and obviously in this case fatal to humans. the two semiautomatic pistols, handguns, again, perfectly legal to buy. if you are a u.s. citizen, makes it all that much easier. the ap is reporting the atf said

those weapons were purchased, it appears, four years ago. not sure by whom or where. we hope to get more information on that when this news conference starts at the top of the hour. back to you. >> jane, thank you very much for that. our jane wells in san bernardino. we go back to the fed chair on capitol hill and the q and a expected to last almost another hour. we'll see. >> we get to cross each other's path. >> as we were discuss aing while ago, some of the indexes and some of the economist who's are saying, look, there's storm clouds on the horizon. our team we've been collecting information about worldwide debt and does that cause any fragility to north america and what i'm seeing numbers that in the last nine years, what developing countries, 57 trillion new debt, which is about doubled their gdp growth,

worldwide debt is 300% of gdp. how do you from a policy standpoint, as you are looking at an environment of possibly future interest rates adjustments and the affects that will have on u.s. currency, at the same time with, let's face it, a developing country debt. i won't call it crisis, but debt stress on the horizon. a, how does that affect your decision making, but, b, does that provide us any fragility to our economic growth or even potential recession threats? >> well, it certainly is something that we take account of as we try to evaluate the global environment and the likely impact it could have on the united states, and it's something we look at as well as part of our financial monitoring to try to determine whether there are risks that could impact financial stability in

the united states. >> but will the fed engage in certain bilateral agreements or swap agreements with some of the -- we'll call them developing countries or reserve banks to actually help wall off a cascade affect? you know, those of us that remember the tequila crisis and the others, what inoculations, what indemnification does the fed engage in from a policy sector? >> the fed has swap agreements with a very small number of advanced countries' central banks where we think it's important to make sure that banks doing dollar-based business have access to adequate liquidity. we have no swap arrangements with emerging market countries, and the only reason that we engage in those swap market arrangements is to essentially

protect financial stability in the wraits. there is no -- i don't know the word to use indemnification. >> i was trying to find a way. inoculation. >> these are risks that we consider in looking at u.s. financial markets. when you talk about debts, i think, you know, what's been discussed over the last year or so is the fact that private companies in many emerging markets have taken on dollar denominated debt. i think my sense is that the banking systems and the financial sectors of those emerging markets have been much more carefully regulated in recent years and are less vulnerable. they have themselves less dollar denominated in short-term debts, but the companies, corporations

in these countries do -- have taken on a large quantity of debt. >> do you see any cascade risks from developing countries in both sovereign debt loads and private debt loads in those countries that would affect our economy? >> it is a risk that we monitor. i would not at this point say that it's a very serious risk to the u.s. financial system. >> this is not meant to be sort of a one-off -- another one-off we, but we were looking at some data about a month ago, and we'll call it dollar euro contracts, and the movement away from there being settled in new york in some i did not know was because of a regulatory or cost situation, they were not being settled under our regulatory environment. does that movement of dollar denominated contracts being settled overseas have any threat

or difficulty to the federal reserve's ability to both see data but also influence regulatory and even movement of those resources? >> so i'm not aware that there is such a trend, but i will try to look at that and get back to you. >> that's one of those technical written questions we've -- mr. chairman, wreeld back. thank you. >> thank you. i just want to inform members here, the chair has a need to leave at noon, and we want to honor that. i have just talked to the vice chair, and she agrees, which means maybe what we can do is i want to give everybody a chance to get a question in, but could we limit it to one question and maybe keep it to two to three minutes so that everybody has an opportunity to do that before we run out of time? dr. adams, you're the next in line here. >> thank you, mr. speaker, mr. chair, and thank you, ranking member for hosting the hearing, and chair yellen, thank you for being here.

based on the commentary i've heard from some of my colleagues making the wreed laming over reaches to adjust interest rates. it may not be leer that one of the most important factors impacting how the federal reserve will set interest rates is based on what's called the evening lib wrum real interest rate which has been consistently low and maybe even below zero. gin that the evening lib yum rate is low, close to zero, what has not been receiving enough attention is how fiscal policy should play an increasing role in stimulating demand and providing an up tick to the economy.

>> this is a real rate of interest or inflation adjusted rate of interest fell sharply after the financial crisis and remains quite depressed. it is a factor that leads us to believe in general when this rate comes down, it means that rates are likely to be lower than the historical norm and to the extent that we are operating in a low, even a positive interest rate environment, if the economy is hit by negative

shots, well, we do have tools that we can use, our most sure and certain instrument of policy is the fed funds rate, so when the average level of the fed funds rate is low we have less room to respond to negative shots. it helps to give us an environment and give us more scope to be stimulating the economy and responding to adverse shocks if the average level of interest rates were somewhat higher. i don't want to give you advice on fiscal policy that's up to you, but a more stimulative fiscal policy is something that would in the sense enable the fetd to have higher level of rates and then to have more

scope to respond to negative shocks. >> thank you very much. >> it's very close to what we have always had as maximum unemployment. the broader market that the bls uses, the u-6 those that have recently given up work or employed part-time for economic reasons. it's still higher than the average 9% during the last economic expansion from 2001 to 2007. this is -- this could be the time to raise rates. >> so i would agree with you that u-6 remains elevated

relative to its historic norms. it is higher than i would have expected based on our historical experience given where the standard or u-3 unemployment rate is, and it's one of the things that leads me to believe that even though we're close to that 4.9% median, there does remain a margin of slack in the labor market. an important part of u-6 that makes it that high while that's come down substantially, it's still hard to tell for sure because there is a trend over time toward more part-time employment in the u.s. economy, but i believe it remains higher than it ought to be in the so-called full employment economy. in addition, as you noted, there are also discouraged and marginally attached workers in a

fair number of them. >> i appreciate your patience. i am going to follow-up on what was mentioned. it's more along the accumulative impacts that i see from the regulatory perspective. that financial institutions or the financial sector hz to deal with. i'm thinking of the recent adoption of capital surcharges and the total loss absorbing -- the tlac proposal. can you maybe describe a little bit what all of these changes mean on an accumulative basis, either on the industry and on the economy and in particular this cost benefit idea, analysis, have you done or has it been talked about or discussed about doing a more comprehensive cost benefit analysis of what the accumulation of all these regulations have on the industry

in particular and on the economy, and i'm just thinking from this regulatory rule book it's been a constant state of revision, essentially for the last six years. >> i do think it's the regulation that's an important impact on the economy, and my assessment would be the most important impact it's had is to make the banking system and the financial system more broadly far safer and sounder and less crisis prone that was prior to the financial crisis. you describe two regulations, the so-called tlac or long-term debt requirement. we proposed recently. i believe you also mentioned capital surcharges. now, it's important to

understand that those -- those regulations only apply to the eight largest system ebbingly important banks. in our regulations we are trying to make sure that community banks that are not systemic are not responsible for the financial crisis, are not going to be hit with all of those regulations, but i do think that it's critically important that the very largest and most systemic organizations need to be safer and sounder. they need to have more capital. they need to have more liquidity, and congress told us that they need in the event that they encounter difficulties or insolve ens where i, we need to be able to resolve those institutions. we don't want the taxpayer bailing out those institutions

again. there are smaller size institutions that extend to burden them and continue to hurt their business, and that's safer. if they did need to be resolved, that loss absorb ens where i that comes from having long-term debt at the holding company is going to be something that is very important that would enable their resolution either under title two or under the bankruptcy code. i do think that, yes, there are some costs associated with these regulations, and certainly on parts of it we've done significant cost benefit analysis, but really.

>> thank you, congressman. >> thank you. i hope the question hasn't been asked before. your two publicly stated mandates are price stability and full employment. insofar as you will answer my question on full employment, i want you to remember we have a lot of safety net programs and a lot of people feel that we're not going to achieve any better than whatever we're at 4.9 right now because the safety nets are so swren russ. people are either not looking or working part-time because they make so much more on that. at least right now price stability and full employment are supposedly where you want

hem to be. given that we're in a period of price stability, full employment, and the banking system is recovered, can you explain to all the savers? i used to represent older people. you would save money $100,000. you live off the interest rate. can you explain to our savers and our elderly population why you continue to maintain a zero interest rate given that it appears we're at full employment. yeah, given it appears our banks are stable and given it appears you have no inflation. >> well, so i would say that inflation is running -- i think we're pretty close to maximum employment. inflation is lower than the objective. we want to see that change. the economy is in the sense that you have described doing well, and that is the reason that it is a live option for us at our december meeting to discuss as we indicated whether or not it's

appropriate to raise rates, but we do have to ask the question what is a so-called neutral rate at which the economy would continue to operate near full employment and approach price stability and a good deal of research and i discuss some of this in a speech i gave just yesterday suggests that the neutral rate of interest is very much lower than it's been siftically. in real or inflation adjusted terms, perhaps close to zero at present. the level of interest rates that would support a continuation of these desirable trends is probably low. of course, when we were recovering from the great recession with high unemployment to stimulate all the swrob creation we had, we had to keep interest rates at very low

levels, zero. we are contemplating raising them, but we have said that we expect that process to be gradual and we want to make sure that having achieve this progress in the labor market, we maintain it and don't put it in danger. >> you mean my whole lifetime when older people put money in the bank and they are getting 3%, 4%, 5%, we didn't know it, but at the whole time we were putting an unnecessary drag on the economy? >> we had a different economy then and many things are different domestically and globally than they were then.

now every. >> that's a market source that the federal reserve operates in and conditions our ability to set rates that will be consistent in the attainment of congress's objectives. they have asked us to achieve. >> we can't give them as much interest rates. they're saving more than they used to. >> if there were a huge demand for those funds would be up to the levels that were more accustomed to having experienced historically, but it's not strong enough to swren rate a level of interest rates that more historically normal.

i want to say that i think this has been a constructive and timely hearing, and we deeply appreciate your willingness to be with us. we have a common goal. those of us on both ends of constitution avenue. the congress of the wraits, along with the executive branch, and also the federal reserve. i think that common goal is to enact and implement sound policies that achieve a dynamic economy that provides meaningful employment for our generation and meaningful employment for future generations. the more we can work together and the more we can share, how we get to those common goals and pass that on to future generations, that clearly say goal that has to be pursued with a lot of the passion and xlekt intellect, and you provide both. we thank you for that. with that, the hearing is adjourned.