extensively on the timing of the interest rate hike expected at some stage in the future. i'll come back to that later. but before we get to policies, let me say a few words about how we see the u.s. economic outlook. again we meet against a background of a shaky first quarter of the u.s. economy. and will you have seen that we have revised our growth forecast down to 2.5% in 2015. this is largely due to those factors that affected the first quarter. but this is not our main message, because we believe that this is -- does not actually indicate sub stantive material trends in the u.s. economy. our main point is that we still believe that the underpinnings for continued expansion are in place.

the labor market has steadily improved over the last year, job growth has averaged 260,000 per month, and financial conditions remain very accommodative. moreover we expect cheaper oil prices to continue taking -- to continue boosting growth while at the same time taking a bite out of the oil-related investment as we saw in the first quarter. as always, there are risks and uncertainties to this outlook. for example, further delay of the housing recovery and the strong dollar could be a drag on future growth. nevertheless, when we look at the whole picture, we believe that growth in the coming quarters will be at an annualized rate of 3% or even higher. we see inflation pressures as muted, long-term unemployment and high levels of part time work both point to remaining

employment slack wage indicators on the whole have shown only tepid growth and when combined with dollar appreciation and cheaper energy costs, we expect inflation to start rising later in the year. but only slowly, reaching the federal reserve's 2% medium term objective by mid 2017. so over the medium term, as we highlighted last year there's still much work to be done. our forecast of potential growth are now around 2%, far away from the 3% average growth rate that we saw before the great recession. given this outlook, i would highlight our policy recommendations in three areas. and i would start, of course, with monetary policy. as we have noted before, the fed's first rate increase in almost nine years has been

carefully prepared and telegraphed. nonetheless, regardless of the timing, higher u.s. policy rates could still result in significant market volatility with financial stability consequences that go well beyond the u.s. borders. in weighing these risks we think that there is a case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident. so in other words, we believe that a rate hike would be better off in early 2016. even after this first rate increase a gradual rise in the federal funds rates will likely be appropriate. such a path may create a modest rise of inflation above the fed's medium term goal, perhaps

up towards 2.5%. we believe that that would be manageable. however, pursuing a cautious and gradual approach to interest rate normalization will provide valuable insurance against the risk of disinflation and needing to cut rates back to zero. in the coming months, continued clear and effective communication by the fed will be more important than ever. last year we made some recommendations on the communication tool kit such as scheduling press conferences after each fymc meeting and publishing a quarterly monetary report. we recognize the difficulties with adding more communication, but we continue to believe that it merits consideration. turning to financial stability. our team has taken a detailed and comprehensive look at the health of the financial sector and our financial stability assessment program. much has been done over the

past several years to strengthen the u.s. financial system. it will be important to ensure that that progress, including the legislative advances under the dodd-frank act, is not rolled back. diluting the important progress made would clearly be undesirable. it also seems clear that risks have built up during the long period of exceptionally low interest rates. nevertheless, today the data points toward a system with pockets of vulnerabilities pockets of vulnerabilities, rather than with broad-based classes across the whole sector. but those pockets of vulnerabilities should not be minimized. they could create serious macrorelevant sources of financial instability both here and abroad. some of our concerns include the migration of intermediateation to so-called

shadow banks or nonbank financial institutions. and the potential for insufficient liquidity in a range of fixed income market particularly as these markets come under stress. i know that u.s. authorities are investing heavily in understanding and assessing these issues. some key policy recommendations to reduce financial stability risks that i would highlight include first of all, giving all members of the financial stability oversight committee, the fsoc, an explicit financial stability mandate so as to further strengthen the effectiveness of the fsoc. second, undertaking a concerted effort to provide the fsoc and the office of financial research with all the data they need to build a comprehensive view and analysis of systemic risk. third, of dating the regulatory

regime in the insurance sector to create an independent and well resourced body that has nationwide remiss. there are further details in the concluding statement and as i have said it is explained in great details in the document that will be released on july 7. let me now turn to fiscal policies. we've said that before, given a forecast of the steady rise in public debt to g.d.p. ratio, it remains critically important to adopt and implement a credible medium term fiscal plan. this requires action on tax reform social security reform and steps to contain health care costs. if these fiscal challenges, medium term challenges that i'm referring to, were tackled, it would provide scope to expand the near term budget nfl for

measures to support -- envelope for measures to support future growth, job creation and productivity. and here i would prioritize infrastructure spending, better education spending and policies that raise labor participation, including steps like subsidized child care facilities. so in conclusion, we believe that near term u.s. growth prospects are good, notwithstanding the very bad first quarter that we saw yet again. muted inflation pressures suggest that interest rate hike can wait a little and that such interest rate hike will be better off in 2016. even after the initial step is taken, we believe that a gradual rise in the federal funds rate will likely be appropriate. and although we recognize that

very important progress has been made to strengthen the u.s. financial system, there is more to be done to address the pockets of vulnerabilities that i have just mentioned. so with that, i'm very happy to take your questions, preferably on the u.s. economy. thank you. mr. rice: thank you. if could you keep your questions as brief as possible, we'll try to take as many as possible. questioner: "wall street journal." i assume you spoke with your friend about your proposed plan. i'm wondering whether this will solidify your friendship or put -- cause -- does she agree? secondly, i cannot help but ask about the topic of greece. can a bailout of greece really credibly go forward without any

sort of serious debt relief and should that be part of the current proposal? ms. lagarde: thank you. you know we essentially agree with the president of the fed in that the interest rate hike must be data-dependent and based on sound and as detailed and granualer data and analysis that is possible, which is clearly the line that has been articulated by chairman yellen. over and over. so we totally agree with that. what we are seeing in the data that the team has analyzed, is analyzing is that the inflation rate is not progressing at a rate that would warrant

without risk i'll come back to that in a second, a rate hike in the next few months. which is why, to make the point, we are saying that the economy would be better off with a rate hike in early 2016 when hopefully the inflation data and numbers will have consolidated. and even if it is to a risk of a slight overinflation relative to the 2% rate that is mandated under the fed's rules, because we believe that the tradeoff between start too early -- starting too early and risking disinflation and having to return to lower rate is higher than the risk of slightly above 2% inflation going forward. that's the position.

on greece. first of all we certainly welcome the constructive meeting which has taken place yesterday between the greek prime minister and the president of the european commission and the president of the euro group. it clearly opens a window of time during which we can hear details from the authorities. they respond they comment -- their response their comment, their views on the joint proposal that was proposed to them yesterday. that joint proposal agreed between the european commission, the i.m.f. and the european central bank has clearly demonstrated significant flexibility on the part of the institutions relative to the previous program, in order to take into

account the political situation and the social situation, in order to mitigate and soften the consequences of the necessary measures that have to be taken to allow greece to return to stability and to sustainable growth and economy. so, we welcome all that. the flexibility that i have just mentioned touches on all sorts of issues, including the labor market including the pace of fiscal consolidation, including the time frame over which that fiscal son sol -- consolidation takes place and it's really very much intended to ease the adjustment and to facilitate this implementation for the people of greece. so, we look forward to the

position of the greek authorities and we stand ready to do now technical work, look at potential alternatives in order to reach the targets that have been set, as long as all that is consistent with likely solid implementation. and i would totally endorse the three points made by the president yesterday which is that that recovery process must be conducive to growth, to economic and financial sustainability, as well as to social acceptability in the country. mr. rice: thank you. yes, the lady in the second row. questioner: thank you. i want to ask a little bit more about international context, given the recent global

economy. what impact does the i.m.f. see of the weaker demand from japan and europe and also slowing chinese economies on the u.s. economic recovery? so how much do those factors play in slowing maybe the progress of fed's normalization of the monetary policy? and also, does the -- because there's a federal reserve official set yesterday sorry, one day before, that the federal reserve might place a little bit too much importance on the boost from the falling oil prices on consumption, so does the i.m.f. share the same view? thank you. ms. lagarde: given that your question is so heavily technical, i'm going to turn to the mission chief of the -- so he can take you through the details of the assessment of the various parameters so that you have fully technical information response. mr. rice: certainly -- mr. chalk: certainly the slower growth in the global economy is weighing on the u.s. it's very hard right now to

disentangle that from the effects of the stronger dollar and the effects of the west coast port strike on the trade data. i think we were quite encouraged that the trade data released yesterday was relatively positive. but it's just one data point. i think we are likely to see some weight -- some headwind on the u.s. economy from both weaker growth in the global economy and the trading partners, and also from a stronger dollar. so it is a factor that's feeding into our forecast. i can't tell you how much of our change in forecast is due to that. there's a lot of moves in oil, in the currency and global growth. we don't -- in terms of the boost to oil prices, i think we have been somewhat disappointed by the increase in household consumption that we have expected from a lower oil price. that's still a puzzle, i think that's a puzzle, one that we discuss with our counterpart notice u.s. government, that's also a puzzle for them. then at the same time the decline in oil sector

investment has been much stronger and much faster than i think we had anticipated a few months ago. so oil is definitely having a big effect on the u.s. we're expecting in the latter part of this year or the remainder part of this year that we will see more consumption effects from lower oil prices but it's definitely a risk to the u.s. economy if that oil windfall is saved and we we will ceeloer growth than we're currently expecting -- see lower growth than we're currently expecting. mr. rice: yes, sir. in the second row. questioner: hi. bloomberg news. i also have a double barrel question. one on u.s. and one on greece. first of all in the u.s. in your report you note that the u.s. dollar is i believe moderately overvalued. what is your expectation over the coming months of where the u.s. dollar will head, do you anticipate it remaining

overvalue, do you anticipate it returning to equilibrium in some kind of way? secondly, in greece, in the near term, how confident are you that greece will make its scheduled payment to the i.m.f. tomorrow? ms. lagarde: on the -- your question about the u.s. dollar and its positioning, we do conclude that the u.s. dollar is moderately overvalued. which is a change compared with our previous assessment. and that is clearly as a result of the constant appreciation of the u.s. dollar by about 13% over the last 12 months, relative to other currencies. continued overappreciation is a potential risk and should not be discounted. but we do not believe that it has so far affected negatively

the growth of the u.s. economy considering the oil price decline, which has been a bit of a tradeoff to that circumstance of appreciation of the dollar. incidentally, not that it matters so much, but it matters for the overall economy, this movement has also benefited economies that were suffering of very low inflation and currencies that have taken the benefit of underappreciation, which hopefully would facilitate their growth and therefore would be good for the global economy. i'm thinking here particularly of the eurozone and countries like japan. on the issue of the repayment, i can only listen to what the membership tells us. greece is a member of the institution and as indicated,

including as late as last night from the prime minister himself, payment had been honored and would be honored. i think his words were, do not worry. so, i'm confident that that will continue to be the case. mr. rice: swinging back around. the gentleman from in the front row. questioner: financial times. just following up on greece a little bit. has therein about a discussion about bundling this month's payments, have you had any discussion with the greek authorities about that, has therein been a request from greek authorities? and back to the issue of debt relief do you think that debt relief is needed in order to have a sustainable or a practical bailout or a working bailout? ms. lagarde: on your first point, it is not a matter that we discuss publicly.

when a state requests a particular set of conditions, i'm not aware of such a thing, but it's not something that we debate and discuss. and asked about payment on friday, the prime minister said do not worry. so you can deduct easily that the unbundling is not in the cards. second, i don't want to isolate one component because everything, as has been mentioned by us at the ism, everything has to add up -- i.m.f., everything has to add up at the end of the day. which is why we, as far as we're concerned we have demonstrated flexibility and we continue to be flexible in assessing the measures that contribute to the fiscal targets that have been proposed. but clearly if there was to be slippages from those targets

for the whole program to add up, then financing has to be considered. and financing is a factor of the level of debt, which itself is a factor of the maturity and interest rates at which debt has been accumulating. mr. rice: thank you. yes, lady in the second row. questioner: thank you. i'm a reporter from china. recently our string of data have shown that personal consumption has shown signs of weakening in the u.s. as we see, the lower oil prices have failed to, so far has failed to translate into bigger purchasing powers and people are talking about the financial crisis have a lasting imprint on u.s. consumer behavior. so i want to know, from the point -- from your points of view, do you expect weakening

consumer consumption will become a long-term trend? the future? how should we consider growing the u.s. economy if the u.s. consumers tend to spend less? thank you. ms. lagarde: i would like to commend you on the analysis of the situation. that's what we conclude as well. but i don't know whether we draw sort of medium to long-term consequences from that short-term analysis, as to what will be the behavior of consumers going forward. nigel, do you want to address that? mr. chalk: we've seen structural changes in household behavior in the u.s. since the crisis. you now have a demographic that's aging, you have a young population that has a high level of student debt, you have lower household formations, so people aren't building wealth as they used to do by owning houses. i think all of these things are going to feed into long-term consumption behavior and don't think we believe we're going to go back to the kind of consumption and saving behavior which we saw precrisis which proved to be unsustainable.

however, i think with what we've seen in previous periods when we've had oil price declines is the initial impact is -- the save willing go up and the people wait to see, one, if those oil gains are permanent, or temporary, and, two, they want to actually see it affect their sort of daily household income, credit card bills. and then they adjust consumption behavior. so we should expect consumption behavior to adjust later this year. we should expect saving rates to come down. but certainly they're not going to go back to the level of consumption was prefinancial cry sills. -- crisis. mr. rice: i see a number of colleagues from the greek press so i'm going to call upon one colleague from the greek press. questioner: thank you for that. we do have a question on greece and one on the u.s. economy. on the u.s. economy, how much do you consider the external factors of risks like a greek

default or greek exit influencing the u.s. economy, and specifically the financial sector given that you analyzed the financial sector extensively in this review? and are you in contact with the u.s. secretary of the treasury about greece? has he conveyed any message to you about how he views the situation? are you in contact with the secretary of the treasury on greece? thank you. ms. lagarde: on the impact of the greek crisis on the u.s. economy, we don't believe that it is a significant risk. but having said that, there's so much uncertainty around this risk realization and the extent to which it would affect nationally regionally,

internationally the financial markets, i sort of phrase that fiscal assessment with a strong caveat. however, given the various tools available to the europeans, we don't grade that risk on the u.s. economy as very high. i'm in contact with many treasury secretaries around the world, including obviously the u.s. treasury secretary. we had a very good session yeds on the article four on the u.s. economy and we talked about international stability around the world, which includes, of course, a discussion on the current proposals and discussions taking place between the institutions and the country.

questioner: when you spoke at the atlantic council when you talked about the united states, you again underscored your disappointment with congress not acting on the rules change that you want for the governance of the i.m.f. and you said you continue to speak to members of congress in this country. could you give us an update on that and do you have anything different or positive to report on your dealings with the lawmakers? ms. lagarde: i think the i.m.f. membership continues to be disappointed with the five years' delay in implementing the governance reform that was

actually decided back in 2010 and largely advocated by the united states of america. where the only critical step lagging or missing rather, is ratification by the u.s. congress of such ratification. i continue to have discussions with various members of congress on that particular matter. i very much hope that this ratification will take place in due course. i think that in many instances we have demonstrated our ability to mobilize resources, to provide technical assistance to give support as well as the case, for instance, in the three ebola-stricken countries recently. as well as the case in relation to ukraine recently as well.

as well as napal. so i very much hope that by demonstrating day after day, country after country, program after program that we actually produce public good helpful for the economy of the united states, congress members will be convinced that it will be ratification. questioner: i need to know your answer on this. for the last five years i asked the same question, if greece can make it five years i think is too long of a time and i wanted to know what went wrong and who is responsible for this

human disaster in greece? ms. lagarde: my hope is that by combining all the reforms and not just fiscal consolidation based on a narrow base of people who suffer much -- a much higher burden than on a more equal basis, by enforcing the structural reforms, by really embracing all the objectives of the program the country can pull itself out of a situation that has lasted for too long. and we are available to help in that process. we have demonstrated flexibility. but it's also a question of putting the economy on a

sustainable path where jobs can be createsed where the unemployment rate will go down, wrand ultimately the country will be able to finance itself using normal investors and not necessarily the i.m.f. and other institutions. medal

of honor ceremony for two soldiers killed during world war i. now, congressional budget officer keith hall testifies on his 2016 budget request. members ask about federal debt and the potential impact of repealing the affordable care act and downgrading the u.s. credit rating. this is two hours and ten minutes.

this hearing will come to order. i want to welcome everybody and wish everybody a good morning and thank you all for being here today for this cbo oversight hearing of the house budget committee. last month, congress passed the first balanced budget of its kind in over a decade. working together the house and senate put forth a plan that would get the nation's fiscal house in order, would grow our economy, strengthen our national economy and make government effective and accountable. last week we were reminded why

this effort is so incredibly important. on friday, the commerce department announced that the economy shrank, decreased in size. there have been three such quarter economic detraction since the it began we all hear from the administration their plans are to spend more money that we don't have, tax more money out of the pockets of hard-working american families and to build more regulatory barriers to jobs and growth. this new normal is simply unacceptable and it's why we've focused on putting forward a balanced budget with pro growth ideas to help grow american families and american businesses. today we begin taking the next steps forward by examining how congress can have a better and broader understanding of how the policies we put forward will affect our budget our economy important programs like medicare

and medicaid, our national security and other critical areas of interest and concern. today's hearing will allow this committee to hear firsthand from the very agency that assists congress in that effort, the congressional budget office. i want to welcome cbo director dr. keith hall. director hall, this is your first time hear since testifying on april 1 and we want to welcome you. you bring a tremendous amount of expertise and experience to the job and i want to thank you for agreeing to serve as director. we look forward to your testimony and the insights that you can share about how cbo works with congress and how it arrives at its conclusions and how we might improve trans parn transparency and more broadly what that means for the economic challenges facing our nation. the reports that cbo has provided to congress over the past several years has shown a steady and troubling decline in

economic growth projections. cbo has consistently raised the alarm about the unsustainable fiscal unbalance in washington and what has been lost due to an out of control increase in debt. something must be done and i appreciate the critical role that cbo has continued to play in our efforts to ensure the money that taxpayers send to washington is used responsibly and that there is transparency and oversight in all government programs. the information that cbo provides our committee and colleagues here in congress is vital to that goal and to the legislative process. having sound analysis in a timely manner that is responsive to the needs of the members of congress will help us advance real solutions. at the same time, it's obvious that congress needs a more complete and realistic understanding of the fiscal and economic impact of legislation that we consider. the work we do on behalf of our communities would be well served by knowing how certain policies might affect the broader

economy, job creation, investment decisions and more. and while it's impossible to perfectly predict the outcome of everything, we can and we must do a better job of getting more accurate projections. this doesn't mean throwing out tried practices but it means adding more tools to the toolboxes. you can barely go wrong and i encourage the budget office to be committed in the analysis whether on the macroeconomics side of the ledger or on specific sides of the interest. cbo has done tremendous work over the last 40 years thanks to its incredibly dedicated staff and i want to thank you, dr. hall, for your work for this agency and i look forward to hard-earned taxpayer dollars being spent more wiser and in an efficient and accountable manner so there is a positive impact on

our economy and the lives and livelihoods of the american people. i'm pleased now to yield to mr. van hollen for the purpose of his opening statement. >> thank you, mr. chairman. let me start by joining you and welcoming director hall to your first budget committee hearing. welcome, dr. hall. the agency that you had the congressional budget office has a well-earned reputation as a nonbiased source of information for the congress and the public. its credibility has been based on the fact that members of congress see it as an independent professional nonpartisan arbitrator analysis of important questions. and i would like to just put in the record mr. chairman a letter that the first director of the congressional budget

office alice riflan wrote describing the importance of maintaining that nonpartisan position. >> without objection. >> director hall, i know that you know that you're the caretaker of that independent nonpartisan tradition and we look forward to working with you. i think it's going to be particularly important now that congress has directed the national budget office to engage in what is commonly referred to as dynamic scoring and there are lots of concerns about how games can be played with dynamic scoring. we saw in an analysis that was released of the former chairman of the ways and means committee tax proposal how those games can be played. the tax committee did an analyses of the potential dynamic effect of that proposal and, not surprisingly, in all

his public presentation, the chairman of the committee used the one that showed the most aggressive benefits in terms of economic growth and revenue not a conclusion that had been reached by the joint tax committee. so as you embark in this area i just understand and i know you do, that it's happening in a political context of a lot of suspicion about abuse of that particular approach. the chairman opened with some comments about the state of the economy and i would just point out that according to the nonpartisan congressional budget office's analysis of the republican budget at least over the next couple of years, it would actually create a contraction. in the economy, it would generally reduce total demand for goods and services and so i believe, as i think all of us

do, we need to keep the economy on the right track and that means not taking actions through the budget process and through cross that would actually slow down economic output. we're also looking at a lot of bills coming to the floor of the house and it's important to remind members that each of these bills is based on a huge accounting gimmick which this committee on a bipartisan basis has rejected in the past and the contingency fund and war savings fund as a slush fund to try to

get around the budget caps. and here's what the republican budget committee wrote a year ago about using oco in that way. abuse of the oco cap adjustment is a back door loophole that undermines the budget process. the budget committee will exercise its oversight responsibilities with respect to the use of the oco designation in the fiscal year 2015 budget process and it will oppose increases above the levels the administration and our military commanders say are needed to carry out the operations. so that was the republican budget committee report from a year ago. apparently they have torn it up, thrown it out the window and using oco for precisely the purposes that they said a year ago would undermine the integrity of the budget process.

and i do want to read a letter that was written just the other day to the chairman and ranking member of the appropriations committee from the director of omb where he points out -- and i quote -- as the secretary is referring here to the secretary of defense, ashton carter, as the secretary and chairman of the joint chiefs have repeatedly stated funding enduring operations is harmful both to military planning and to service member morale. secretary ash carter has called this approach managerial unsound and disparaging to our force. i hope in the coming weeks we will put an end to this budget gamesmanship and approach the budget in a serious way. the president has approached in a serious way, mr. chairman. he said that we need to invest both in additional defense and national security but we also

need to invest in scientific research and education. and he proposed to address this issue in a straightforward manner increasing each by about $38 billion. unfortunately, the congress chose to take a back-door path, back door by the testimony of our republican colleagues. and that has put us in the situation where we're now kind of paddling down this river serenely when we all know there's this huge waterfall ahead. and if our republican colleagues want to keep quietly paddling towards a government shutdown, that's their choice. we hope they will join with us in preventing that from happening. thank you, mr. chairman. i think we all know that is what is happening in this appropriations exercise. the president has made it clear he's not going to support any appropriation bills based on this oco gainsmenship so we hope

we can get on with the business of the country. thank you. >> thank you. mr. hall i want to thank you for your time today. the committee has received your written statement and it will be made part of the formal hearing record. you have five minutes for your opening statement and we welcome you. >> thank you. chairman price, ranking member van hollen and members of the committee, i appreciate the opportunity to come before you today to discuss the work of the congressional budget office. we are pleased to discuss our accomplishments which we believe are substantial and also welcome feedback that you can provide about ways in which we can do our jobs better. in my short time at cbo it's become clear to me that the agency is left with a staff that is knowledgeable, highly skilled, very hardworking and dedicated to providing the best possible objective and impartial analysis to the congress. cbo has been one of the best places to work in the federal government. the congressional act of 1974

created this committee and the budget office together. cbo's work followed by the agency in concert with the budget committees and congressional leadership. the agency's chief responsibility is to help the budget committees with the matters under their jurisdiction. also under this law cbo supports other congressional committees, particularly the appropriations ways and means and finance committees. we're committed to providing information that is objective, insightful timely and explained. also, we make no policy recommendations. instead, we strive to present fully and fairly the likely consequences of alternative proposals being committed by the congress. in response to your interest for the upcoming year we've requested the funding for three new positions that would be devoted to conducting analysis of certain legislation as specified in the certain budget resolution and analyzing the effects of health care

proposals. focusing for a moment on these two topics over sell years now we have been devoting significant effort to developing analytical tools that enable us to assess the macroeconomic effects of fiscal policies. we've included reports and will vote to further develop our capacity to conduct dynamic analysis in the upcoming year. interest in legislative proposals related to health care on behalf of the congressional leadership remain very high. for example, we continue to analyze proposals to modify the affordable care act and could lead to significant legislative activity. we're in the process of analyzing various aspects of the health care system to assess the effects of future legislation on that system and on the federal budget. on a broader scale, in carrying out our mission of serving the

congress during 2015 and 2016 we'll focus on meeting three goals. the first is to provide the -- to continue to provide congress with budget and economic information that is objective and timely. in the upcoming year we expect to provide analysis to congress that include about 20 reports presenting an assessment of developments during the current fiscal year, the outlook for the budget and the economy, analysis of the president's budget long-term budget projections and options for reducing budget deficits. we'll also produce more than 500 formal cost estimates, mostly for bills reported by committees with about ten times as many preliminary and formal cost estimates, mostly to aid committees in the drafting of legislation. we also produced about 120 score keeping tab lagss for appropriation acts and produce roughly 85 analytical reports and other publications. all of our estimates are reviewed internally for

objectivity and clarity. that rigorous process involves multiple people at different levels in the organization. initially we consult with numerous outside experts who provide a variety of subjects. the majority and minority of multiple committees in both the senate and the house and regularly consult with this committee, other committees and the congressional leadership to ensure that we're focused on the work that is of the highest priority to congress. our second goal is to continue to explain the methodology for analysis clearly. we make our work widely available to the cross and public by releasing publicly all former cost estimates and analytical reports. input from outside experts and external review will remain an important component of our transparency. also, we will continue to have our documents and related information provide explanations that go well beyond just presentations of results. in addition, cbo analysts will explain details that underline

the details and staff and present their work and professional conferences. the trans pearn see in our work is very important and advancing it is one of my prime objectives. our third goal is to continue to improve our internal management. we continue to face considerable competitive pressure in attracting and retaining the highly skilled employees that we need. more than two-thirds of the staff consist of economists and budget analysts. talented people with those background are highly sought by private companies and universities. in closing, i would like to emphasize how much we at cbo have relied on the oversight of this committee and your help in explaining and communicating to others in congress about our role and the complex federal budget process. we rely on your constructive feedback and guidance on important legislative developments and congressional priorities. we are grateful for the support and guidance you've provided throughout the 40 years of cbo's existence and look forward to

continuing that relationship for many years to come. thank you. >> thank you, dr. hall. i think, regardless of our political perspective, we want to get this economy rolling again and decrease our liability and our debt because it's that trajectory that helps growing jobs and opportunity. there are three ways, basically, to get more balance into our fiscal policy. one is to raise taxes, which our friends on the other side of the aisle want to do with great frequency. decrease spending but the real secret is growth. and i want to concentrate on growth and how we get an expanding economy and i'd like to focus on that in my time for questions. as i mentioned in my opening statement last week we received some really disappointing news about the economy. in the first quarter of this engineer year, january through march, the economy shrank. it's the third time since the end of the great recession that

the economy actually retracted. i'm not aware of any other recovery, dr. hall, that had this kind of retraction within the recovery itself. are you aware of any recovery that has this recent retraction? >> i have not. this has been a frustratingly slow recovery with respect to economic output. >> every time the economy contracts or underperforms, economists say there was a reason and in this case it's a winter that comes around every year. would you -- would you comment on why you think that the economy seems to have this fragility to it? what are the things that have related -- that have caused this fragile nature of our current economy? >> i think that's a tough question because it's been frustratingly slow. as you'll see from prior -- our prior projections and

everybody's prior projections, we all expected much stronger growth than we've seen. and i say it is rather frustrating. and i think part of it really seems to be slow productivity growth. it seems to be a big part of this. in fact, productivity sort of has a business cycle element to it. where you get maybe a little slow productivity growth at the start of a recession and then once the recovery kicks in you get fairly strong productivity growth. we just haven't seen that yet. we haven't had at all strong productivity growth. one of the ways to sort of see that is we've had this very modest output growth while we've had reasonably strong employment growth. and really, we've been lucky to get as much job growth as we've had and that's been a function of this low productivity growth. >> what i'd like folks to take a peak at is this slide projected here. these are the projections of real gdp growth for fiscal year

2015 and we're now through two complete quarters of fy 2015. if you normalize those for the years, we'd end up with a growth rate of 1.5%, clearly not what can get this economy rolling again. so do you think that we're missing some underlying weaknesses in our economy through the customary models that cbo has? are we missing something that the forecasts are not as accurate as we'd like them to be? >> i think economic forecasting is difficult. and it's always -- it's always full of errors. it always had errors in it and there are times that it's very hard to forecast the economy and it's not just cbo. it's everybody. you know, i think i would feel like cbo was missing something if somebody else was forecasting

any differently than we are but they are not. so these results are genuinely disappointing but i can't tell you why. >> let me probe a little deeper and see -- do your models -- does an increased tax rates have a drag effect on the economy? >> yes, it does. >> and do your models account for that? >> yes, they do. >> so your models that are included in the projection for fy 2015 include the taxes through obamacare and that have been incurred because of this administration? >> yes. >> does the increase in the amount of federal regulation have a drag on the economy? >> it can. it's sort of the idea that if you have an overall level of regulation that gets too high, it can slow things. there's actually also this one thing that i think may be a little underrated with respect to some of the economic data is the evidence on job loss, how

long people are out of work shows that when people lose a job during a bad economy, they stay unemployed for a much longer time period. it's one of the things that i get concerned about, if we do things that slow job growth during bad times, it delays recovery in the labor market. >> increasing regulation can slow job growth? >> it can. >> what about uncertainty, something that is hard to model and measure but uncertainty in the market, does that have a drag on the economy? does that decrease growth? >> it seems like it probably can. there's been fairly recent research that sort of suggests that economic uncertainty has been playing a role in this. i have to say, though, that it's still not widely accepted. it's still an interesting idea. it's not sort of the conventional view quite yet but i think it's quite interesting and that could be that it's having an impact. >> are you able to place that into your modelling? >> no we are not. >> so there may be things that

we are not capturing with our conventional modeling? >> that's right. >> may we have the second slide, please? this is the one that concerns me and ought to concern us all. we are now in the worst recovery, worst recovery since world war 2 coming out of an economic down turn and the congress budget office for growth over the next ten years average growth over the next ten years given in january '12 '13, and and 2015. and every time you have a decrease in growth then what that does is increase deficit. so what are the factors that you believe that the cbo believes is contributing to this continuing downward trend