to congress. the committee will receive testimony from federal reserve chair janet yellen as has been required by statute since 1978. although this video has been used to communicate directly to congress and the american people, myself and many of our colleagues have been calling for greater accountability and more effective disclosure. in response we have heard the chorus of current and former federal reserve officials lined up to defend the structure and the degree of transparency. further accountability the congress, some have argued is not needed. i'm interested. i'm interested to hear what the current chair shares this view and whether she feels the fed should be immune from any reforms. as far as monetary policy committee questioned whether

the fed can rein in inflation and avoided destabilizing asset price when the time comes. the minutes posted online do little to answer the questions of when and how this we will be done and the most recent fomc transcript available to the public is from 2,008 over seven years ago. even though the fed has several monetary policy tools at its disposal an action of this magnitude as never before been taken to my knowledge. the federal open market committee continues to report that it can be patient and keeping the federal funds rate near zero. too much delay could lead to more painful correction down. what they are thinking and how they analyze this difficult problem remains a mystery. some continue some continue to dismiss calls for change

or more transparency. i would argue that they're is an even greater need for additional oversight by congress and further reforms our central bank has expanded its influence on households businesses, and markets. not only pushing the boundaries of traditional monetary policy but consolidated unmatched authority as a financial regulator. as the fed grows larger and more powerful much of this authority has become more concentrated in washington dc and new york. the fed emerged from the financial crisis as a super regulator with unprecedented power of entities it had not previously overseen. with such a delegation of authority comes responsibility for congress to know the impact these knew requirements placed on our economy. the role of

congress is not to serve on the federal open market community but to provide strong oversight and when times demanded bring about structural reform. as part of this process the community will hold another hearing next week to discuss options for enhanced oversight and reform. >> thank you. welcome. welcome back. our economy continues to see strong employment gains but we go the improvements are not being felt by enough americans. eleven and a half million that private-sector job growth comes on the heels of nine years when we lost for a half-million jobs. pundits pundits and politicians have been predicted runaway inflation for years but do not have a good grasp of what is happening. low wage growth has continued.

declining participation in the workforce is troubling. as as you pointed out the income inequality gap widened. it is good that we begin our session by commemorating the foot soldiers. they must also know that the wealth gap has widened. these are issues congress should be addressed. i appreciate your announcement last month of plans to create the committee advisory council were 15 members we will meet twice a year a year to offer perspectives on there economic circumstances

and the needs of low and moderate income communities and consumers. i hope the entire federal reserve system we will engage community leaders more than they have in the past do what you have done by setting the tone in washington and incorporate diverse perspectives into decision-making. we too often hear concerns that the fed is a system that is run by and to benefit the very largest banks. last november i help the subcommittee hearing on one facet of this exploring concerns about the culture of banks and the regulators a culture that produces rules and regulations designed to strengthen the financial stability of our economy and protect american financial interest. interest. i applaud the fed for finalizing strong rules.

i encourage you to move forward to finalize outstanding proposals so that everyone will benefit from the certainty of having appropriate rules in place. in today's papers they're are reports of the doj investigation and we have yet to see a proposed rule. you must send the message to your examiners that these goals must be implemented and enforced. finally while my colleagues are eager to help you decide monetary policy community that is the wrong role for congress. i think everyone of us knows that there are times when you can do better by having a candid discussion in private. our real goal must be to have a federal reserve that works for all americans can

have a stable a stable and diverse financial system that provides opportunities. that is why your dual mandate to promote price stability and employment and i appreciate perhaps more than any of your processes understand the dual mandate including employment, how important that is. >> welcome to the committee. we look forward to your testimony. your written testimony will be made part of the record in its entirety. >> chairman, ranking chairman, ranking member, members of the committee, i am pleased to present the federal reserve semiannual monetary policy report to the congress.

in my remarks today i we will discuss the current economic situation and outlook before turning to monetary policy. since my appearance before the committee last july the employment situation in the united states has been improving on many dimensions. the unemployment rate stands at 5.7 percent, down from just over 6 percent less and from percent percent at its peak in the late 2,009. the average pace of monthly job gains picked up from about 240,000 per month to 280,000 per month during the 2nd half. unemployment rose 260,000 in january. long-term unemployment has declined substantially. fuel workers are reporting that they can find part-time work when they would prefer

full-time employment. the pace has recovered to his prerecession level. however the labor force participation rate is lower than most estimates of its trend and wage growth remains sluggish suggesting that some cyclical weakness persists. in short, considerable progress has been achieved. the room for further improvement remains. at the same time that the labor market situation has improved to a the domestic spending and production have been increasing at a solid rate. real gross domestic product is now estimated to have increased at a three and three quarter percent annual rate during the 2nd half of last year.

gdp growth is not anticipated to be sustained but it is expected to be strong enough to result in the further gradual decline in the unemployment rate. consumer spending has been lifted resulting from the sharp drop in oil prices. however housing construction continues to lag the activity remains well below levels that we judge could be supported in the longer run by population growth and the likely rate of household formation. despite the overall improvement in the us economy and the us economic outlook longer-term interest rates in the united states and other advanced economies have moved down significantly middle of last year. the declines have reflected disappointment in foreign growth and changes in monetary policy abroad.

another notable development has been the plunge in oil prices for the bulk of which appears to reflect increased global supply rather than we could command. while the drop in oil prices we will have negative effects on the energy producers and probably result in job losses in the sector causing hardship for affected workers and there families it we will likely be a significant overall plus on that for our economy primarily that boost will arise from us households having the wherewithal to increase there spending on other goods and services as they spend less on gasoline. foreign economic foreign economic development could pose risks to the us economic outlook. although the pace of growth abroad appears to have stepped up slightly in the 2nd half of last year

foreign economies are confronting a a number of challenges that could restrain economic activity. in china economic growth could slow more than anticipated as policymakers address financial vulnerabilities and manage the desired transition to less reliance on exports upon exports and investment as sources of growth. in the euro area recovery remains slow and inflation has fallen to low levels although highly accommodative monetary policy should help boost economic growth and inflation. downside risk to economic activity in the region remains. the uncertainty surrounding the foreign outlook does not exclusively reflect downside risk. we could see economic activity respond to the policy stimulus now being

provided by foreign central banks more strongly that we currently anticipate, and the recent decline in oil prices could boost overall global economic growth more than we expect. inflation continues to rumble below the community's 2 percent objective in large part the recent softness reflects the drop in oil prices. indeed, the pce price index edged down during the 4th quarter of last year and looks to be on track to register a more significant decline this quarter because of falling consumer energy prices. core core pce inflation has also slowed since last summer in part reflecting declines in the prices of many important items and perhaps also some pass-through of lower energy cost in the core consumer

prices. despite the very very low recent readings on actual inflation and inflation expectations as measured in the range of surveys of household and professional forecasters have thus far remain stable. however, inflation compensation is calculated from the fields of real and nominal treasury securities. as as best we can tell, the following inflation compensation mainly reflects factors other than a reduction in longer-term inflation expectations. the committee expects inflation to decline further in the near term before rising gradually to a 2% over the medium-term as the labor market improves further in the transitory effects of lower energy prices and other factors dissipate. we we will continue to

monitor inflation development closely. i we will now turn the monetary policy. the federal open market committee is committed to policies to promote maximum employment and price stability consistent with our mandate from the congress. as my description of economic development indicated, our economy has made important progress toward the objective of maximum employment reflecting in part, support from support from the highly accommodative stance of monetary policy in recent years. in light of the cumulative process to progress and the substantial improvement in the outlook for labor market conditions the stated objective of the community's recent asset purchase program the fomc concluded that program at the.

even so the committee judges that a high a high degree of policy accommodation remains appropriate to foster further improvement in labor market conditions and to promote a a return to inflation toward 2 percent over the medium-term. accordingly the fomc has continued to maintain the target range for the federal funds rate is zero to one quarter percent and to keep the federal reserve holdings of longer-term securities at there current elevated level to help maintain accommodative financial conditions. the fomc is also providing forward guidance information about policy outlooks and expectations for the future path of the federal hundred. in that in that regard, the committee judged in december and january that it can be

patient and beginning to raise the federal funds rate. this judgment reflects the fact that inflation continues to run well below the community's 2 percent objective and 11 11 for sustainable improvement in labor market conditions still remains. the fomc assessment that it can be patient in beginning to normalize policy means that the committee considers it unlikely unlikely that economic conditions will want worldwide an increase in the target range for the federal funds rate for at least the next couple of fomc meetings. if economic conditions continue to improve as the committee anticipates the community we will at some time "it are in an increase in the target range for the federal funds rate on a meeting to meeting basis. before before then the community we will change its forward guidance.

however it is important to emphasize that a modification of the forward guidance should not be read as indicating that the community will necessarily increase the target range in a couple of meetings. instead of a modification should be understood as reflecting the community's judgment the conditions have improved to the.where it will soon be the case that a change in the target range could be warranted provided that labor market conditions continue to improve and further improvement is expected the committee anticipates that it will be appropriate to raise the target range for the federal funds rate went on the basis of incoming data the committee is reasonably confident that inflation we will move back over to medium-term toward our 2 percent objective.

a continues to be fomc assessment that even after employment and inflation levels consistent with our dual mandate economic conditions may, for some time, weren't keeping the federal fundraiser for all levels that the committee's use committees use as normal and want to run. it is it is possible that it may be necessary for the federal funds rate to run temporarily below its normal longer run level because the residual effects of the financial community continue to weigh on economic activity. if such factors continue to dissipate, we would expect the federal fund rate to move toward its longer run normal level. in response to unforeseen developments of the community we will adjust the target range for the federal funds rate the best promote the achievement of maximum employment and 2 percent inflation.

let me turn to the mechanics of how he intends to normalize the stands and conduct of monetary policy with a decision is eventually made to raise the target range. last september the fomc issued its statement on policy normalization principles, and plants. a statement provides information about the committees like the approach to raising short-term interest rates and reducing the federal reserve security holdings. as is always the case of the community we will determine the timing and pace of policy normalization so as to promote its statutory mandate to foster maximum employment and price stability. the fomc intends to adjust the stance of monetary policy during normalization primarily by changing its target range for the federal funds rate

and not by actively managing the federal reserve balance sheet. the committee is confident that it has the tools that it needs to read -- raise short-term interest rates when appropriate to do so to maintain reasonable control of the level short-term interest rates is policy continues to firm thereafter given the level of reserves held by depository institutions is likely to diminish only gradually. the primary means of raising the federal funds rate we will be to increase community we will also use an overnight reverse repurchase of the facility and other supplementary tools is needed to help control the federal funds rate. as economic and financial conditions evolve the community we will phase out

these supplementary tools were no longer needed. they intend to reduce security holdings primarily by ceasing to reinvest repayment of principal from securities held by the federal reserve. it is the committee's intention intention to hold in the longer run no more securities and necessary for the efficient and effective implementation of monetary policy and that the securities be primarily treasury securities. in. in sum, since the july 2014 monetary policy report they're has been important progress toward the fomc objective of maximum employment. however despite this too many americans remain unemployed or underemployed. wage of the sluggish and

inflation remains well below: objective. as always the federal federal reserve remains committed to employing as tools to best promote the attainment of its objectives thank you. i am pleased to take your questions. >> mdm. chair, i 1st want to get into measures of inflation. the federal reserve, i understand currently uses and inflation measure the core personal consumption expenditures which excludes volatile food and energy prices. several alternative measures of inflation exist including one called veteran which strips out a larger basket of volatile items from the calculation. i no you know all this. do you think the federal open market committee should incorporate alternative

measures of inflation such as trim? could you explain to us the risk of not properly gauge inflation expectations. >> let me 1st say that the federal open market community's 2 percent objective refers to the increase the annual increase the total in the total pce price index that includes food and energy. food and energy are important components of every household spending basket and i don't think it would make aches -- makes sense for be acceptable to americans to focus on a measure a measure that strips out these important components of the consumer basket. so we focus on total consumer prices, including food and energy.

at the at the same time we recognize that food and energy are particularly volatile and in order to get a better forecast sometimes of the underlying trend of inflation we do look at so-called core inflation that strips out these measures. and in trying to understand trends in inflation and the factors impacting inflation we look at a broad variety of measures although our index is the so-called pce price index. you look at the cpi, well known to most americans and also to these terms means. >> you have opined on the use of monetary policy which

provides the fed with a systematic way to conduct policy in response to changes in economic conditions. i believe they would also give the public a greater understanding of and perhaps confidence and the fed strategy. he stated, and i i quote rules of the general sort sure while our statutory mandate to promote maximum employment and price stability. you have expressed concerns over the effectiveness of such rules and times of economic stress. would you support the use of the monetary policy will have the feds choosing if the fed had discretion to modify it in terms of economic disruption? >> i i am not a proponent of chaining the federal open market community in its decision-making to any rule whatsoever. but monetary policy needs to

take account of a wide a wide range of factors, some of which are unusual and require special attention which is true. in the original paper on this topic, john taylor himself pointed to conditions such as the 1987 stock market crash that would have required a different response. i would say that it is useful for us to consult the recommendations of rules and reducing routinely, and they are an important input into what ultimately is a decision that requires sound judgment. >> in a recent speech richard a recent speech

richard fisher, the president dallas federal reserve bank is suggesting a reorganization. specifically advocating for a rotating vice chairmanship of the federal open market committee as well as a stronger role for regional banks. do you support any of mr. fisher's proposals? why or why not? >> i think the current structure of the federal open market community and the building structure was decided on by congress alone time ago after weighing a whole variety of considerations about the need for control in washington and the importance of regional representation.

it is of course, something that congress could revisit but i would say that it has worked very well. we have a broad range a broad range of opinion that is represented at the table and active debates. the decision to appoint the president of the new york fed is vice chair, reflecting the realities that the new york fed conducts open-market operations on behalf of the system and has special expertise pertaining to financial markets and i think that has worked well and continues to be true that they're is special expertise in new york. >> a recent article written by two economists at the think tank he to one proposes reducing the number of federal reserve district from 12 to five and making the presence of all regional bank voting members of the federal open market community. the article the article states that this would preserve regional diversity

are giving more authority. it also posits that it could allow for greater safety and soundness and remove the uncertainty created by 19 independent fomc members. do you oppose consolidation of the federal reserve districts? >> sen., senator, again, this is a matter for congress to decide. the structure of the federal reserve reflects choices that were hammered out a hundred years ago. i think the current structure works well, so i would not recommend changes. again, the federal reserve bank -- >> the congress -- >> they play important roles in the community, but this is up to congress to consider. >> my last question to you

as a threshold for banks, a recent report by the office of financial research shows a large disparity with systemic risk between the largest banks and those that are smaller and closer to 50 billion in assets. all banks about 50 billion are subject to enhanced regulation regardless of where they fall. do you think the findings of the office of financial research should be incorporated, considered in the determination of whether this is systemically significant? >> senator, we absolutely recognize the federal reserve that the largest banks in those closer to 50 billion for -- are quite different in terms of there systemic footprint. ..

>> >> have cause systemic risk? could you provide that for the record? >> i will certainly look into that. i will agree with you. >> by and large that is not

the case. >> i have one comment about capital requirement there is no question and to make for stronger banks and a more stable financial system so to have special interest with strong capital standards so thank you for that. with my opening statement last october you gave a speech jon income and wealth the quality of the best way to address that is a more robust economy. what steps are you taking to incorporate your concerns about monetary policy decisions? >> senator earlier committed to the price stability and maximum employment we have

said running a accommodative monetary policy from the labor market with a wide variety of indicators and market performance end in particular the large magnitude of part-time involuntary employment with the decline of labor force participation in parts of which we understand or believe to be cyclical losses we monitor very closely. and the fact this is not picked up very much with your recovery with the labor market is improving to

promote full recovery. >> productivity has changed and has continued to grow while wages have not and had to explain those dangers being uncoupled from productivity? >> we have seen a significant increase in the sheriff the priority dp. with the growth of inflation adjusted in productivity so that has been occurring of for some time during their recovery. wages tend to rise more

rapidly in this market so i interpret part of that phenomenon as a signal as a sign the labor market is not fully recovered but also there are longer-term structural factors that are affecting the shares of labor and capital. end points to the fact that many labor-intensive activities in the global production change are being increasingly house first and that phenomenon i think tends to push down and come as opposed to capital over the last decade or so. i think it is the combination of structural factors spirit that includes

the organization of labor is of factors. >> i appreciate the steps your predecessor made for greater transparency to notice the house to go one step further to honor the of monetary policy. what are your thoughts? >> i want to be completely clear that i strongly opposed that i believe the transparency to provide congress and the public with adequate information to understand our operations or financial condition conductive to me to the responsibilities that congress has assigned to a us is essential but to

politicize monetary policy were short-term political pressures to bear off the fed in terms of openness of the financial accounts and we are extensively audited of this volume which contains auditors of deloitte and touche of financial statements the people understand what it is about. it is extensively audited but i think it is critically important that the fed be able to deliberate the responsibilities that congress has assigned to was to achieve maximum on employment and be able to do

so of free a short-term political pressures and i would remind you in the air of the '70s costs when deflation co and history suggests there was political pressure to insulate to

perform better the economies are more stable with better performance in terms of inflation and macro economic stability. >> you mention in your community would be doing to encourage them to follow suit? >> most are actively involved and have community development programs to

address the special needs of their communities but in washington real also encourage oversight of those activities with similar practices. >> mr. chairman thank you and i would like to use my a time to go through the process we are in right now with you. the first economic growth submitted to congress states besides reviewing of existing regulations in an effort to eliminate unnecessary burdens the federal banking agencies work together to minimize burdens from current policy statements the report submitted to congress for the consumer protection issues and include the

recently adopted rules. however included in the federal register put forward for this current process we're supposed to be having the financial regulators look for a run to leave perdu and has a remarkable footnote that says this time around to review new regulations that will go into the process and clarified it is not a part of the process my question to you is with the process

the reviews all rules m the consumer financial projections and bureau should be a part of the process? we had a hearing last week dealing with credit unions and banks in the regulatory burdens that they face. with this set of rules and regulations that they feel tough on tool protestant - - , from the anti-money-laundering arena that as recently enacted that would be exacted. with qualified mortgage rule and the volcker rule and it is the son of the scope the

process is now undertaking. >> so in the process under consideration related to dodd/frank with the federal register notice and public comments that is an important part to design those rules considering in the appropriate way to design regulation to meet the dodd/frank objectives. for those agencies is something we go through very recently in the process for even those have not gone

into effect. >> is it the same with the cfpb wheat it is news and we don't need to review the rules? >> we don't have that rulemaking authority. >> day understand vague argument. but that is not what it says and does not say let's review the rules and regulations that our old but let's review them all. that is why the law was passed. but that recently is through the process but the dodd/frank legislation in itself is 48 pages long but the page cavanaugh of the regulations required has mushroomed to more than 50,000 pages so far in the

over 50 million self-regulatory text to say the fact they are new end day implementation process with that response to look at their regulations. >> we will be taken extensive public comments. sort to reduce the burden on community banks so to look for ways we can reduce the burden of regulation some twofold intent to expand your review.

>> the federal reserve has a provision responsibilities of monetary policy then it is that supervises the operation for the federal reserve the has a great deal of authority and several of us with the regulatory oversight that has been criticized but even recently >> in the aftermath of the hearings held here with the

allegations raised about the new york fed is a an internal review that is in a process. put the question we think is important to raise their, let me step back rehab process for supervising the largest banks that is led by the board. the reserve banks that are involved with the supervision of the institutions to take part in the process. so the question we thought it is important to look bad is it me in the process

those to be and the highest decision making and the extent of the reserve bank there may be a divergent opinions and the dissident views reached the highest level and that is of a question asked of the internal team with the new york fed with large banks of supervision including two major decisions could be heard at the highest level

but will also ask the inspector general to take his own independent review. and i expect him to be completed this year. >> and the board of governors to take action and to recognize. >> and we expect to report to you on the investigations with the suggestions for improvement are found and put those into effect. >> petasus strikes most people that some change has to happen. >> we will certainly take any administrative changes.

a day would like to wait in see before deciding on those measures. >> perhaps i could follow up with a question? we're all acutely sensitive to systematic risk so declare the house is that take bilateral transactions to put them on the multilateral basis but i just want to put jon your screen the sensitivity to the oversight of the clearing house is. because of the potential

because of a systemic problem with that on the table? >> absolutely. so to be careful in our supervision but to have agreed to of clearing houses with eight financial market utilities and have been designated as systemically important market utilities to be supervised by the federal reserve the fed and the cftc and sec have all been put in place and agreed

for what best practices are for liquidity standards and other risk-management standards for the financial markets utilities and is extremely high priority for us that we vigorously enforce those standards in the process to do so because although we have reduced risks they create their own if not appropriately manage so we give this the great deal of attention. >> thank you for being here today there is a push with currency manipulation and you make trade negotiations end of monday's stu's the effort of the arbitration

panel under the enforcement procedures for companies could challenge future monetary decisions by the fed. >> the me first say that currency manipulation is undertaken to alter the competitive landscape to give one country an advantage in international trade is an appropriate and the needs to be addressed. but that said there are many factors that influence the value of currencies including differences of economic growth and monetary policy is a factor that could have an impact on currencies. so i would be concerned about the regime that would

introduce sanctions for currency manipulation when it could be the case with monetary policy that is undertaken with the federal reserve as have been designed for valid domestic objective as monetary policy to of the -- achieve those objectives but monetary policy through many channels through interest rates that it may have on currency values so we would see that direction as potential to

even have the conduct of monetary policy. >> with that part of a trade deal is that correct? i wanted to do audits the fed end then looking at the discount window for the financial crisis that congress addresses give a news. [inaudible] that sanders amendment of the crisis or credit facilities?

>> the gao conducted a complete review or use of the landing authorities that were created were concluded in mid 2011 in the dishes to have open market operations and the discount window lending with the two year lead on the discount window. >> the second concern is size and composition of the 4.5 trillion dollar balance sheet have they disclosed those assets that makes that up? to make a guess we have

ordered financial statement sky-high then i have a copy of right here to report on security by security bases all of them are in that reported. and we have a weekly balance sheet. >> i hate to wrasses question but william a. issue the updated balance sheet each week how do we know the securities actually exist? >> to have the independent auditor from deloitte and touche to review the balance sheet that is contained in the annual report for both

the board and the federal reserve takes for the systems. >> so they do exist? >> it is obvious that the fed's effort is to do not address auditing the fed and every day you published the things that you own and the credit facilities and all of that is audited now. so with said members relative to monetary policy. that is not a particularly good idea causing it to put off tough decisions to you agree?

>>. >> said if you look at modern times with chronic high inflation or deflation of what you'll find is the ability to print money by politicians. >> with a greater transparency with the regulatory area. so the is the area we should focus over the course of the next several months so we can fully understand how you go about the process.

that they should be a far more to transparent. >> thank-you chairman for your testimony and hard-working and dedication and. that is the driving force behind the recovery but i don't into your position in. you end members have the important decisions to make the me urge you to wracked with caution. but let me be clear but with accommodative policy until it sees clear evidence of a consistent improvement of wages it tends to be a of major factor when it decides whether to raise rates as i

have said over and over it again the single problem the country faces is well economic progress has been seen strong and expectations of growth of gdp in remains sluggish suze economy the way all those of statistics over the decade $3,600 lower. so the fed must think long and hard before implement during monetary policy and wage growth atomizers to benefit middle-class workers with consistent wage growth prior to raising rates serves the dual role to the fed the 2 percent rule.

so to raise rates and though wages are back on a steady trend of word. so with the normalization of rates with that wage growth prior to decision making and those who are worried about inflation that they should look over the last several years. that many economists believe with drastic rises of the inflation with raising rates too soon. as well as middle-class families across the country to wait until wages begin to rise. do you agree it is critical

for his system wage growth prior to decide to raise interest rates absented decatur's it is climbing above clearly whether the potential consequences? >> those that we have defined as 2 percent inflation and as i indicated beginning to raise rates to be reasonably confident over a the middle term but i don't want to sit down and the single criterion that is necessary for that to occur but the committee does look get wage growth.

but we have not seen any significant pickup of wage growth. would do affect the inflation outlook to be considering carefully a range of evidence that pertains to the inflation outlook that will determine the confidence that we forecasted. with the labor market and thence to the confidence also. angeles get a wide range of the evidence. >> so is any greater than the worry of deflationary

with 70 percent of the economy is wages or jobs broadly defined? >> the committee feels i think or anticipations that inflation is held down by a factors particularly with the decline in oil prices. we also had considerable slack in the labor market diminishing over time when his we are a lagging indicator of improvement and if we continue to see improvement it would add to my confidence especially as the impact of oil prices is diminished over time. >> to you see any real evidence of inflation heading over 2 percent right now? >> i don't.

but they need to be forward-looking the committee is forward looking to set monetary policy and reduce the labor market is improving as we get closer to the goal of maximum employment. remember monetary policy is highly accommodative with the of rates at '02 1/4% range to have a large balance sheets in these but unfortunately appears to be recovering but i want to assure you we want to see the recovery continue and that is a process we want to go on to hamper that but it

is very accommodative. >> i urge caution. stemming thank you for joining us today. this is not a shock to members of the committee. with that economic crisis is over and it has been over four years at least 67 but we still maintain crisis of interest rates. we have unemployment going 2/6%. betting is easily explained by a policies and consumer sentiment is relatively high

slew to describe that economic recovery has solid and wal-mart said that the crisis has with over for a long time. sometimes there is a price to be paid with this accommodative policy. the problem over by constituents spend a lifetime to sacrifice so they could save for their retirement to have money on deposit at the bank using that jews supplement social security payments for right now they get nothing year after year. with the risk associated with this high would argue

the fixed then, markets are like this henry facilitates access deficits and what are the benefits? at best to remove economic activity that would otherwise occur and has paid no afford officially own interest rates led to economic growth of every one have zero interest-rate leno be disagreeable i would suggest the crisis is over in the time for normalization is well overdue. yes said repeatedly the goal of price stability is 2 percent inflation but certainly there is a congressional mandate but

the fact it is met to lose 2 percent of the purchasing power annually. the above the time she retires what she has saved at that plan would have lost half of the value how was that consistent with price stability? >> the fomc it does have to lou defined with price stability with 2% inflation rate that we chose largely for two reasons first of all, the price indices with

those biases because the of the failure to adequately capture but nevertheless the afford bias and a second of all because deflationary is dangerous with the environment to very low inflation and one of extremely low interest rates make it difficult for voluntary -- monetary policy with damaging episodes. >> i would just urge you to consider that impact so

historically we have changed level of accommodation typically buying and selling securities and to in the process of normalizing you intend to achieve that by changing the target level of the fed funds rate so with the interest of reserves but over time and normalizing environment so what goes to is the taxpayers why do you do that instead of simply selling to the bond which is a more conventional way to operate? >> remember that first of all, we don't pay their reach them is comparable to what they can learn in the

marketplace all the payments don't offer the subsidies and in addition remember we are expanding the provision of reserves we are required longer-term assets and the spread above what we are seeing in terms of interest is quite large so although the will diminish over time as monetary policy is to normalize the expansion of the balance sheet even though at present paying 25 basis points the interest on reserves is record transfers to the treasury close at 100 billion the past year and 500 billion since 2009.

there has been large transfers associated with that policy. >> but that situation is likely to reverse the. >> is likely the transfers will decline in short-term rates rise but we will remain positive with remittances. >>. >> sorry mr. chairman. >> thank you for your service and as you know our economy continues to recover from the damage inflicted from the financial crisis but gdp is growing and employers are hiring so it is only natural that some are starting to look ahead to a time when the fed can

withdraw the monetary stimulus that has been critical to recovery but i believe we still face challenges we're still waiting to show up for income growth and employment is still high a inflationism runs well below target as it has now from my perspective it is critical that we don't tightening touse soon be you have said the timetable for raising rates will depend on the data some say the federal reserve should tighten preemptively based on unemployment or wage growth for at the first hint of inflation without waiting to see if it is a statistical blip what is the risk for a raise is too soon compared to the risk of

waiting? >> of the fed were trees rates too soon we would risk undermining a recovery that is just taking hold and in succeeding to improve the labor market. and though think we are back at two conditions of maximum employment things have improved notably bill we are not there yet we want to see a healthy recovery continue and in addition inflation is running well below 2% objective and though we think a significant reason for is that is of the transitory factors put the decline will be seen in

energy prices we are committed to the 2% objective just as the dollar to overshoot of the high side we don't want to shoot on the low side either. so before raising rates we are confident it will move up over time. there is a risk of waiting too long we have a highly accommodative policy in place we have to be forward-looking if the labor market tie-ins inflation could pick up to the point end conceivably there could be financial stability risks in. ♪ to be attentive to those as

well to do a balancing their risk free try to make a deliberate and thoughtful. >> i hope that balance is what i hope you can get right because i concede choking off the recovery before middle-class families actually feel the gains entrapping that too low inflation. i have heard several commentators say the interest of the fed would signals confidence about the health of the u.s. economy to have a stimulative effect. do you agree? and is so wouldn't that be offset by its the contraction neary impact?

>> it is fair to say when we raise the target for the fed funds rate it is because we're confident about the recovery and inflation will go back to the 2% the objective but that confidence will reside in real improvement with the underlying condition where we're not attempting to bootstrap and improvement of the economy the purely ochers from the confidence of raising rates there is reason to feel good about the economic outlook and households are going through major adjustments with their balance sheets and are in better condition end than

they were. the job situation is improving even though wages are not rising rapidly there are more jobs so household income is improving in the oil prices are boosting income on housing prices have rebounded and that has helped a lot of households. >> so a real confidence not that this blood in. >> there is no spin has improved when we raise rates is of a signal to the confidence of the underlying fundamentals. >> good morning. thanks for being here. to change the conversation and to talk about the insurance industry in place is like south carolina will

rehab life insurance in place with the transfer of risk the insurance company provides via spent 25 years in the insurance industry preaching the fact that the transfer of risk is nonexistent so that will reverberate throughout the economy i take a specific interest impact the fed may have to regulate these insurance companies and my thought is last year when the president signed a law to not impose the bakelite capital standards that was for obvious reasons for loans and deposits the most

hope that delineation and edo from experience but expertise does it supervises insurance companies and how we working with regulators. >> we have hired individuals to go the expertise there and with the state insurance regulators we're gaining experience in the fourth annual supervision cycle

that has significant insurance activities and of course, they have bent designated that we are supervising those of us well and taking the time to do the work that it is a necessary to understand unique characteristics to plan the supervision and liquidity requirements that requires them to make that supervisory regime appropriate there are important differences from insurance companies that we have undertaken and a steady to be actively engaged rookie with the firms we are supervising into a

understand the characteristics of their operations before promulgating supervision regime. >> with these advanced notice of the rulemaking with those capital standards ? >> yes. every will issue proposed rules we recently issued a proposed rule that pertains to use a provision of our capital and privileges the same with the other firms. >> with the issue of the stress test with other non-bank financial companies to determine how well the entity could withstand of what the fed currently has 4.5 trillion dollars as a

result of the program but it appears nobody is stress testing the fed the fox is guarding the hen house soever issue began to unwind the massive balance sheet what assurance is can years to give this committee it will stress test its own plan? >> with respect to our own balance sheet we do stress test and ways have issued some reports and papers raise wages scribe was stress test would like with the interest-rate cut it is important to recognize the reserve is not identical to

a banking organization in. first of all capital plays the very different role congress and the rules put in place regarding capital we never intended to make a play the same role, and it is unnecessary but unlike of bank the liabilities are mainly reserves to the banking system and currency ended is a like deposits of the ordinary banking organization so what the federal reserve faces is of a different character but with that stet said it elected the likely consequences for our balance sheet of different

interest-rate scenarios. >> very different scenarios no question of 4.5 trillion dollars is the way to wind it down to reverberate to that no other organization wed have impacted. >> that is one reason one of the principles of our plan is to wind down the balance sheet in a predictable play and have decided to use as the main tool of policy for normalization something that is much more familiar to us that is a variation of short-term interest-rate the alternative is to say we

could sell assets but we have more experience in the short-term rates and we want to proceed in a way to end is familiar to us and marketplace participants through ending reinvest -- reinvestment of the principal. >> coming down to the home stretch. we appreciate your could work because they start down the path to unwinding but

trying to get this right is so important. talk about the status of the economy after said january meetings one of the items you mentioned were international development with the potential increase and europe and the slowing economy, how do these affect the fed's decision on monetary policy? >> with the international development will look at the likely performance of the u.s. economy and factor both in tuesday economic forecast

grossi in europe has been very slow and growth in china is living there is a huge decline in the oil prices with chad repercussions all over the globe it affects the al look through developments of financial markets with the attempt of many central banks to have accommodation that pushes down interest rates in many parts of the world that spills over to the united states so there are many channels that it affects the u.s. outlook but

all in all two factors those into account while there are risks positive and negative stemming from global development we still think that the risks for the u.s. outlook to have sufficient a strong growth by consumers and businesses that the recovery looks to be on solid kid ground but just as i mentioned in my testimony to have day strong growth to analyze the factors to impact spending we california not as strong as as we just had but nevertheless growth that factors the global

consideration. >> but they will affect your decision. >> they will. >> with the comments to be sure that we deal with currency manipulation but that appears from one to another. . .

monetary policy oriented toward domestic goals like price stability or price stability and maximum employment, this is a very 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 think it it is not right to call that currency manipulation and to put it in the same bucket as intervention to the exchange market that are really geared toward changing the competitive landscape to the advantage of the country. >> mr. chairman, chairman, my last couple of seconds i want to make the.that one of the things that has been absent from this discussion today has been we have talked a lot about your work, not as much about our

work and need to still address our own fiscal policies. i i would simply.out that because of the extraordinary remittances from the expanded balance sheet we see north of $420 billion in net additional revenue that has diminished our deficit which is not something that can be projected onto the future. as we talk about the times of raising interest rates i simply.out the hundred basis.increase in interest rates adds a hundred and 20 billion a year on debt service. even cbo projections we will show that debt service with our current $18 trillion in debt we will exceed total defense spending or total domestic discretionary spending in ten ten years which is not a good business plan for our country. >> absolutely true. >> thank you, mr. chairman.

>> thank you, mr. chairman. thank you for being here. here. as you no wall street banks could profit handsomely if they knew about the fed plan that is why any leak of confidential nation results in serious penalties for the people responsible. apparently they're have have been no consequences for the most recent week. according to recent reports got out perez was put in charge of investigating leak from the september 2012 meeting of the federal of the markets committee nearly two and a half years later the results of this investigation have not been made public and know action has been taken. on february 5 congressman cummings and i sent a letter to mr. alvarez requesting a briefing in advance of your appearance hear today. so far we have not received one. can you assure us congressman and i we will

get a briefing soon? >> if i might by way of background. >> i just want to be able to get a briefing on what has happened? >> weird trying to work with your staff. >> of take that as a yes -- as we successfully blew a whole in dodd frank by attacking the appeal to must pass government spending bill , that repeal written by lobbyists we will allow the biggest banks in the country to continue to receive taxpayer protection for some

of the risky's derivatives and swaps. now, a month before the repeal mr. alvarez mr. alvarez spoke at a conference of the american bar association command organization that includes many lawyers who represent the banks affected by the feds enforcement of dodd frank. mr. alvarez openly criticized the swaps push out role saying you can tell was written credit waiting agency is more constraining and is helpful. as mr. alvarez's criticism of these two rules reflect your view with a view of the federal board of governors? >> let me just say that over the years we have had

feedback that we have given on various aspects of dodd frank. >> these are specific criticisms he has made of dodd frank rules that govern the largest financial institutions in this country do his criticisms reflect your criticisms or the criticisms of the federal board? >> i think i personally consider dodd frank to be a very important piece of legislation that has provided a roadmap for us to put in place regulations. >> i appreciate that mdm. chairman, but i just need a yes a yes or know. do his criticisms reflect yours? >> i am not speak -- not seeking in any way to alter dodd frank at this time.

>> let me bring up the question differently. do you think it is appropriate that mr. alvarez mr. alvarez to public positions that do not evidently reflect the public position especially before an audience that has a direct a direct financial interest in how the fed enforces its rules? >> i think the fed's position in my position is that we are able to work very constructively within the framework of dodd frank to tailor rules that are appropriate to the institutions we supervise and are not seeking to change that. >> i appreciate that. you know, we know that the fed staff plays a a critical role in shaping dodd frank rules and enforcing them. in the case of the swaps push out, congress passed the law in 2010. the fed and the occ delay the effective date until 2016 giving and other big

banks time to get the ball repealed before it ever went into effect. did mr. alvarez provide input into the fed decision to delay the effective date? >> i do not no. we usually have complicated rules that require adjustments by financial firms. this is been through all the rules that we have put into effect. >> i think this might be worth looking into. the fed is our 1st line of defense against another financial crisis and the fed general counsel or anyone at the fed staff should not be picking and choosing which rules to enforce based upon their

personal. we personal. we urge you to carefully review this issue same pages the federal reserve board. >> always last, hopefully not least. i want to 1st thank you for your patience and your responsiveness, and i was tempted to ask one question. i won't do that today. i want to to look to the future. senator warner really outlined one of the concerns that i have. we always simply fighting the last economic war in the you are a astute and respected student of the american economy. i we will give you a chance. you have heard a lot of

opinions and received a lot of advice the panel. i am going to give you a chance to give out some advice. when you look at leading and lagging indicators what troubles you and keep you awake at night that the american economy in the next ten to 15 years? what advice would you give to the united states congress and addressing those concerns that you have looking right now that those in the caves? >> as i said in a number of occasions with the rise we have seen inequality in the united states it's of great concern to me. >> we discussed is the last time you were hear and you offer know solutions. >> i think there are a variety of different things that the congress to consider in policy measures that might be appropriate. this really is a domain for congress to consider so that one of the concerns that i have.

>> no advice? >> i'm not going to weigh in on things that really are in your domain. i think it is important that would say something also is longer run issues with the federal budget. congress has made painful decisions that have now really stabilized what brought down the death -- deficit from it stabilized for a number of years the debt to gdp ratio. eventually debt to gdp will begin to rise and deficits we will increase again. as as the population ages and medicare, medicaid social security get to be a larger share a larger share of gdp they're are a lot of

ways in which is about all for a long time. i worry that if we were to again be hit by an adverse shock that they're is not much scope to use fiscal policy. it's questionable how much scope we would now have to put in place even on a temporary multi- year basis the expansionary fiscal policy and it is important to deal with these issues. >> what you are concerned about scope and it does not believe -- lead you to

believe that interest rates should be adjusted at this.to give you the flexibility to use interest rates should we receive another shot? >> well the fed would, of course, use course, use the tools that we have to try to achieve domestic ends. but i think having fiscal policy is important as well. >> if we look today at the american economy and some of the challenges and you and i have spoken privately about this, the millennial's and saving patterns and consumptive patterns, the shared economy, what concerns you about that now eight i'll eight years of change behavior consumption do you see those changing long-term consumptive patterns that may present some interesting patterns for the american economy?

>> we are just beginning to understand how the millennial's amazing. they are certainly waiting longer to buy houses, to get married. they have a lot of student debt and seemed quite worried about how to the housing. they have had a tough time in the job market and exactly as the economy strengthens i expect more of them to form households of their own in my home we have yet to see how this is going to affect the generation. >> within may have experienced a change and consumptive patterns that we will present some unique challenges the whether sharing automobiles, in fact not buying homes doing the things that they have now

done to accommodate there economic challenges is the long-term. and i think that that one of the things that we need to do much more carefully is begin to look at not just having a discussion about monitoring policy the looking at fiscal policy where it is tax reform or taking a look at what we we're doing with the mortgage market to begin to develop an economy that the millennial's we will fully participate in. i hope you continue to think and provide provide us the advice that is extraordinarily valuable. >> thank you. >> thank you, mr. chair. the chair thank you for your service. i have had to go in and out of other committees and out of the subject is been brought up. the issue of wage stagnation that we have seen and the other piece of student debt when we look at the student debt and the numbers are so

high and it is been a lot of time, when i graduated college you could basically work an entire summer wind up paying off half of your tuition. how big a drag but one of my great concerns is been in some areas of the country how you build of the housing market with the people who want to buy a house the money i saved up for that. in many cases go off the student loan and it's a a box that you can never get out of. >> it's a little bit hard to tell. the housing market has not recovered in the ways that i would've anticipated. it has been slowly improving but household formation has been extremely low in the united states.

it's hard to tell me you have many young people who are living with their families still student debt because of a weak job market. my guess is the economy continues to improve. we'll improve. we'll see an improvement in household formation will see many young people decide that they prefer to read rather than buy homes but that we will give rise to a boost in multifamily construction even if not somewhat single-family construction that the housing market has been very depressed. nevertheless in spite of that the economy as a whole and the job market has had

sufficient strength to recover. >> my other concern in that area is what you see a young person who looks up and is doing the hundred thousand and student that. those dollars or dollars that are never used to go to a restaurant, never used to buy a car, never used to travel somewhere. overall job wise it seems to hit and make it more difficult and all those areas. >> it is true, but it also remains true that a higher education boosts income and is tremendously important. it is not always the case for every individual that it is a good investment but certainly on average it has been a very important and worthwhile investment. to my mind, that is the

other side of it. >> i completely agree what a wonderful investment it is. i just want to make sure that we can get that wonderful opportunity without basically settling herself for years and years. >> it has increased a great deal. >> one other area i wanted to ask you about is cyber security. i no that the fed has certain things i focus on. in the area of cyber security, it is from all all the financial organization one of the biggest concerns for the companies, how big a risk. >> it's on everyone topless the top of the list of concerns that we have that

the financial system the problems facing financial organizations. it is a top concern world given the importance of her own systems functioning of the patent system. internally if a great deal of attention to make sure we're addressing ever escalating threats to our operations. debates the elusive prize very attentive experts to work with those banks to make sure they are attentive it is it is a larger problem is one where retailers others involved in the financial system.

>> i we will conclude with this. the state area because of currency manipulation among many other areas in the no this is been mentioned but i would like to make sure you keep a close eye on this the ability to be competitive and all that was said to be if it is a fairfield we will do fine but if the game is rigged i don't know how we win that. i have always have the same feel that my leg member right next to me in ohio has dealt with this a lot.

it's been manipulated against the company. i would just ask that you keep that in mind thank you for your service. >> thank you. >> mdm. chair. >> you mentioned that the current unemployment is listed at 5.7%. however, one alternative measure that seems to fully capture a better sense of labor force participation is the use six measure that lists total unemployment and underemployment is 11.3 percent as of january 2015. this measure has not dipped below 10 percent unemployment since before

the crisis. according to the bureau of labor statistics data there are now 12 million more americans no longer participating in the workforce. do you agree that the unemployment number that you cited in your opening statement paints a rosy or better picture of the true unemployment rate? >> sen. senator, it is a broader measure of unemployment. it includes marginally attached and discouraged workers in also an unusually large number of individuals who are working part-time who would like. like full-time jobs. so it is a much broader indicator of underemployment or unemployment in the us economy and while it has come that it is become 12.1%

a year ago and has come down to 11.3. it definitely shows much rosier picture. and i do mention that we don't at this.in spite of the unemployment rate has come achieved to achieve so-called maximal employment part of these very reasons. labor force participation has come down has been trending down from the something we will continue for demographic reasons. i did i did not expect it to overtime, but i do think abortion of the labor force participation reflects cyclical weakness stronger job market. >> but you basically concede

that 11.3 percent of underemployed people that is not good. >> that is an abnormally high level and signifies week weakness that would be good to address including completion of capitol framework for you to. the federal reserve is a a member of the financial stability board. given the financial stability board is not accountable to congress or any branch of the us government to my knowledge where do these financial stability board reforms fit the us regulatory system?

does the federal reserve truth and resume data directives or suggestions or what? and what statutory basis does the fed have to implement the financial stability board form verbatim? do you think further the decisions are important enough that they should be fully vetted by the fs oc before being implemented? >> you can see the participate, including the administration of the regulators. nothing that is decided has a factor in the was relevant agencies proposals which are publicly that it to normal public comment process. those recommendations have no force