earlier the respond of the central bank for the dollar and for the price level. inflation currently looks to be very well controlled. our expectation, of course we'll adjust policy as needed, our expectation is inflation will be below target over the next couple years. unanticipated events can happen. the dollar has been pretty stable since the crisis. i don't think you should read into this any unwillingness to keep price stability as a critical goal of the central bank. all central banks including those with price stability mandate take into account to some extent the overall state of the economy. but over the medium term they seek to return inflation to the -- to its objective. that's what we're intending to do. >> so let me turn to quantitative easing. the fastball has applied an

unusual and unprecedented amount of monetary easing for a long period of time, not just during the crisis moments, but well after that and now apparently in through 2014. and by buying down treasury rates, is it your view that this is putting an artificial cap on price discovery in the treasury markets, and is that not lulling policymakers, fiscal policymakers into a false sense of security when true price recovery in our treasury markets might give us the wake-up call we need to get our act in order to fix our problem? are we not lulling ourselves into a false sense of security by this intervention in the treasury markets? >> mr. chairman, first, quantitative easing is just -- is very analogous to usual monetary policy of cutting short-term interest rates. that also lowers longer term

rates. it's a way to provide more support for the economy. our policies are hardly unusual. at this point, almost every major industrial central bank excluding canada which had less of a recession than we did has a large balance sheet and low interest rates, including the ones with single mandates. so -- again, as i mentioned, we not having any signs of higher inflation or declining dollar. in terms of the issue relating to distorting the bond market, again, it's the objective of the policy to get rates lower to provide more support for the economy and to bring inflation up to target if necessary. but i think the basic reasons for low long-term rates which are also a feature of every other major industrial economy, are low inflation, slow expected growth and the fact that the dollar is a safe haven.

and with problems in the world, people are investing in u.s. treasuries because they are attractive. i think it's important for me to say that if congress is being lulled, they shouldn't be lulled. i think we agree that the attention needs to be paid to these issues as the case of some of the countries that you're referring to, like greece and portugal suggest, if investors lieu confidence, the rates will go up. obviously it's important for congress to address these problems. i've spoken out about it quite consistently as you know. >> i think we agree that sustainable long-run economic growth derives from savings and investment, therefore increased productivity instead of borrowing and consumption. i know you well enough to know that we more or less agree with that. but do you measure the effects that these policies have on

savers, on people living on fixed income, living on cds? are you concerned at all about the very, very low interest payments that these savers are getting from these kinds of fixed income assets which are hitting our savings and investment side of the economy in exchange for helping the borrowing and consumption side of the economy. >> we are quite aware of that issue. we hear a lot about it. we consider it. we think about it. and i recognize that for people on a fixed income or who are -- whose main income is interest on a cd, i recognize it imposes a hardship. the purpose of our policy, though, is to create a stronger economy and savers collectively hold all the assets, all the capital in the economy. if you don't have a strong economy, if you have a weak

economy, you're not going to get good returns on all the other assets. >> my time is running out. let me give you just a sense of this. a lot of us believe the federal reserve was too loose for too long in the 2003 to 2005 period. that is what, in part, let to the asset bubble that occurred and the problems we have today. i know you don't agree with that. but because you don't agree with that, our fear is you're going to repeat the same mistakes again but by orders of magnitude that we can't even comprehend right now, and that federal reserve whose primary goal is to manage our money is involving itself in fiscal policy. it's sort of bailing out fiscal policy because the branch of government in charge of fiscal policy, this branch, is not doing its job. a budget hasn't passed congress in two years. we're going to pass a budget, we did one last year, but there's nothing in the senate. fiscal policy isn't being done the way it needs to be done, but that's not an excuse for the federal reserve to step in and

try and bail us out because that could be done at the expense of the priority which is unique to the federal reserve of maintaining our currency as a reliable store of value. we fear that these exercises in these new ambiguous statements will compromise that. that's the point i'm trying to make. mr. van hollen. >> thank you, mr. chairman, dr. bernanke, thank you for your testimony. you laid out what i think is a very clear two-track strategy for dealing with economic growth as we move forward. the first is recognizing the fiscal and budget tear challenge that we've got, and i think there's agreement on this committee that we need to come up with a predictable stable way to reduce our deficits and debt. we've had disagreements over how we do it, but not whether we do it. and in looking at that, there are two lessons i think from

what we see happening in europe, one is the debt crisis. if you wait too long to address these issues, you're right. your borrowing cost also go up. people will lose faith. we should heed that as an early warning and not delay putting in place those predictable changes. but your testimony also pointed out that there's a danger in overreacting to that in the near term in terms of the negative impact it could have on economic growth. and the other strategy that you've laid out is the need to nurture this very fragile economy we're in right now. so if you could just briefly talk about some of the lessons we've learned from the european experience, recognizing the debt crisis and early warning system. but the austerity only and immediately approach, some countries can't avoid it, like greece because they've gotten themselves in a fix.

but talk about the fact that an austerity only and immediate deep cuts, whether or not that can have a negative impact on the very fragile recovery that we're having now. >> well, the european situation is complicated. among other things, of course, they have monetary union and then a fiscal disunion. they don't have the same kind of situation we have here. you're correct, also, that there are some countries like greece and others that have very difficult fiscal sustainability issues. they've tried to address those in the near term. i hesitate a bit to advise my colleagues in europe, but i would cite the imf and others that point out that very slow growth or recession makes fiscal improvement more difficult

because tax revenues fall and spending automatic rises if there are social safety nets and the like. so it's important to try to figure out what the right balance is there. i want to be very clear. i don't want anyone sbrerpting me as saying anything other than that this congress has a very difficult and important job to address the long-term fiscal sustainability of our federal budget. that's a critical thing. i think that even more aggressive strategies that have been pursued recently are warranted over the longer term. but i also think that that can be done in a way which is persuasive to markets and achieves those objectives. but doesn't quite jolt the recovery -- doesn't do it all at once. i think as long as there's a

credible plan over a period of time and we move into that plan, that we'll achieve most of the objectives of fiscal sustainability. we need to at least avoid doing harm. i would say do no harm is an important piece of advice i would offer you. so there is a balancing acted there that i think is important for us to pay attention to. >> thank you, dr. bernanke. as you point out, those two goals are totally consistent. sometimes they get muddled in the message. i understand that sometimes people hear that -- interpret the need to prevent doing harm to the fragile economy now as meaning we shouldn't move ahead on long-term deficit reduction. of course we should, as you said. you can do things at the same time. but if you undermine the fragile economy, as the imf has warned is being done with certain fiscal policies in europe, that just creates an even bigger

hole. as i again apologize and have to leave to go to the conference on the payroll tax extension, if you could just comment on whether or not failure to extend the payroll tax cut for 160 million americans and whether failure to extend unemployment compensation for millions of americans who are out of work through no fault of their own, whether failure to do that would be a drag on what is already very fragile economic growth. >> congressman, i know you appreciate that i don't endorse individual tax and spending policies. i think that's a good approach for me to take. obviously you need to look at the whole picture. i agree with what you said before, that you can't do one and not the other. you can't say, well, we've got to protect the recovery and, therefore, we completely put aside all of fiscal issues,

approaches to fiscal sustainability. you've got to do both simultaneously and both credibly. it's a question of balance which is important. >> just to follow up. as i look at your gdp numbers, projected growth numbers, it seems pretty clear that they assume some extension of current policy, for example, an extension through the end of the year payroll tax -- not saying specific numbers. cbo had to assume current law, they had to assume we don't extend the payroll tax cut. they have to assume all the tax cuts at the end of the year, including middle income tax cuts laps. that's one of the reasons the cbo economic forecast, projections are lower than yours. i thank you, mr. chairman, thank my colleagues. >> yield the rest of the time? >> i yield the time. i think he also has a little time of his own as well. thank you, mr. chairman. >> members, he's leaving.

we're going to allow mr. dog get to finish his time. then we'll go back and forth. hold the clock for him. >> thank you very much. >> mr. dogget. >> thank you, mr. chairman, for your testimony. just continuing along the same line of questioning mr. van hollen was raising. chairman ryan expressed concern that under certain circumstances the fed pursues a balanced approach. do you believe that the fed is having any difficulty in achieving the goals of both employment and price stability? >> well, i think it's evident that particularly on the unemployment side we'd like to see greater progress than we've seen. on the inflation side i'm very cognizant of chairman ryan's concerns, but at least for now we appear to be pretty close to

target. i think what i would say about that -- we'll have to continue to evaluate monetary policy as the new data come in, as we see how the outlook changes and so on. but i've said before, and i think it's important to emphasize that monetary policy can't do everything. it's not a panacea. and this body and others need to think about the troubled parts of the economy, places where improvements can be made in tax code or in other areas, and again, to answer your question, we're obviously not satisfied with where we are. and while we'll continue to do all we can to meet our dual mandate which is what congress has given us, we hope that all of you and the administration and the like will look for alternative ways to strengthen our economy. >> you certainly have the

capacity to recommend to the congress that it alter that mandate if you thought it was interfering with the objectives of the fed? >> i think it's been -- the dual mandate has worked fine. it hasn't -- we have as good an inflation record as any other central bank. i don't think it's been a major problem. so i think it serves us well. that being said, congress created the fed. congress gave us our mandate. if you determine that you want to change it, we will, of course, do whatever you assign us to do. >> you, of course, determine how to implement that mandate. you said with reference to price stability, a goal of about 2% is your goal. and with reference to unemployment, did i hear you say 4.5% to 6%? >> 5.2. >> 5.2% to 6%? >> congressman, the difference between inflation and unemployment is the fed can control inflation in the long run. we cannot control unemployment in the long run. that's determined by many other

factors and labor markets and other policies that we do not control. so we can't set an arbitrary target. what we can do is try to make our best guess of where the economy -- what level of unemployment the economy could sustain over a period of time. and we don't have an official number, but 5.2% to 6% is the central tendency of the estimates provided by the members of the fomc. >> while we would certainly be delighted to be at that range today or at the end of this year, that's still a substantial amount of unemployment, isn't it? >> certainly. we have a very high level of unemployment. we have not come remotely close to replacing the jobs lost in the recession. we have a very high level of long-term unemployment. i think we all agree that unemployment and underemployment and people leaving the labor force and owl those things are a serious problem. we disagree about remedies, but

the problem is certainly there. >> all i'm saying is that the objective that you've set in implementing the goal oh. >> you'll have another five after mr. --. >> okay. let me finish on this one point. the objective you set is not an overly demanding objective as far as unemployment, the 5.2% to 6%. >> we'll let you answer that in the next five minutes. mr. garrett. >> i heard your answer with mr. van hollen. you said normally you don't like to give a comment with regard to fiscal policy, tax bills in the like. and i thought really, mr. chairman? is that still your opinion? i was truly taken aback when recently the fed issued an unsolicited white paper, if you will, on housing policy whether, if you didn't advocate for you certainly mirrored much of the positions of this

administration. so i don't know how the two go together. on the one hand you say you don't get involved in those areas. here you had a white paper not solicited from us. i know you're protective of your independence, when you advocate for a position like that, why would you issue such a paper when we don't ask for it? >> congressman, first, the fed has a lot of interest in housing. it's important for the economy. it's important for monetary policy. we are bank supervisors, swoe ear interested in mortgage and lending -- >> so let me ask you this then. congress has a lot of interest in monetary policy. i guess the comparable would be for us to do a house resolution with regard to monetary policy. is this an invitation now to congress that we should be issuing resolutions to what the monetary policy that the fed should be doing? if so, i'm sure there are a lot of members that want to engage in it. >> well, i hear lots of advice from congressmen -- >> could i say the bottom line here though is that we've done a lot of work on this. we've gotten a lot of requests from individual congressmen for

our views an analysis. it was not the intent of that white paper to provide a set of recommendations. there were not -- there was not a list of recommendations at the end of the white paper. we were trying to provide pros an cons, analysis and background. i'm sorry if you think we went too far. >> i hear that. within 24 hours after the paper came out, the new york fed was out advocating for some of the positions. governor duke was advocating for positions out there. out can't be on both sides of the issue saying this is what we think and the governors coming out there saying advocating. if it's because you're saying members were asking your opinion, we were asking your opinion and we would certainly like to have seen a white paperback when the president's colossal failure with the stimulus was going through. we certainly would have liked a white paper at that time from the fed saying just how that would have all worked out. why didn't we see the white paper at that time spelling out whether this would work and whether you would advocate or

didn't advocate -- >> i know you're skeptical. we're trying hard to avoid encroaching on with respect to the points you made about governor duke and president dudley, they are not representing any official position of the board, they're speaking on their own recognizance. if you pay attention to the speeches that reserving presidents give, there's a wide variety of opinion even on monetary policy. no official endorsement of those positions. we are trying to provide useful background. i apologize if it was misinterpreted. again, our goal was just to be helpful. >> well i guess i would take off, what the chairman was talking about. you have two mandates in the area of employment, monetary policy and that's obviously a lot for the fed to be responsible for. we have an area in fiscal policy and would like to maintain that. you do have a fiscal responsibility, officially have, well, you're the owner of about

$1 trillion of more guelmortgag securities. wearing that hat, comment on the rephi plan. what will the impact be losses to the balance sheet if that plan was to go through? >> we haven't done that specific calculation. again i'm not going to endorse or not endorse -- >> not endorsing. the program what does it cost if we were to do that? >> there are costs as the president acknowledged. there are costs to it, and they -- they would have to be raised somehow, whether a bank tax or some other way. he mentioned $5 billion to $10 billion. we haven't looked at that number and don't know if it's correct or not. there would be cost to investors. >> you're the investor in this situation. bought at a premium. not a cost to the taxpayer, but your cost. have you begun to look to see what your cost would be as the loss realized on those? >> no, we haven't, although we

acknowledged -- it should be acknowledged, that the rates of refinance have been extremely low. lower than expected over the last couple of years. in some sense that's reversing a gain we got. you're right. there are costs to the program. there are costs potentially to investors and those costs -- costs to the government potentially. >> one area we would like to have specific information back on and as a regulator what the regulate what it would be if the fees are increased on them. my time is up. thank you >> let me return to the last question and that is, many economists would think that unemployment of 5.2% to 6% leaves many peole badly in an e. is a substantial rate of unemployment even though it's much, much better than where we are today in setting your goals of trying to assure to avoid

excessive price instability and inflation, you have not taken a drastic position on unemployment. you've tried to have some, as you said, balance between the two. have you not? >> well, we're not -- there's nothing in our statement which suggests we think 5.2% to 6 percent unemployment is desirable or is a good outcome. we're just saying given where the economy is today, that's what we think it can sustain under more normal conditions. there are many policies congress could consider. work force skills and other things that might affect that long run unemployment and when it's changed we'll respond to that. >> on your estimates of what type of growth we will see in the near term in the economy that are in your testimony and the reports of the fed, what assumptions do those estimates make concerning fiscal policy and where the congress will be? i understand you're not getting

into specific bills, pro and con? >> in order to make forecasts we make guesses about what congress will actually do. there's no endorsement or non-endorsement involved in that. basically, the cbo presented sort of two kinds of extreme proposals. one in, when is the current law proposal, which assumes, for example, all tax cuts are ended and dock fix not adopted and so on. and then an alternative scenario which sort of took the most -- >> we had testimony about both yesterday. >> which assumed there was no -- all the tax cuts were extended and, you know, took the opposite approach. our numbers obviously are based on an intermediate level. assumes that some of these policies are undertaken, but not all of them, and we try to make our best guess, but it's only

staff guesses about what they think congress may do, and i don't think those forecasts, the details of that are particularly helpful to you. you obviously will be trying to figure out what the right thing to do is. >> with regard to an issue we've discussed when you've been here with the committee before on whether the policies of the financial community concerning rewards and compensation for taking excessive risk remain a problem, you've finally issued a report in october dealing with that. it indicated there had been improvement, but among the largest banks, there continues to be a number of problems with regard to risk-taking and how that leads to rewards from some of those that are taking the risk with other people's money. give us an assessment what's happened since that report came out to deal with this issue that many of us are concerned could

lead to another financial meltdown? >> the federal reserve undertook even before financial reform was passed by congress we undertook to look at this as a safety and soundness matter, and very early on began working with the boards and the compensation committees of the major institutions to try to structure their compensation in ways that did not lead to more, or excessive risk taking, and as the report suggested we made a good bit of progress. it's really sort of about that time of the year when a lot this information is finalized in terms of what the compensation package will look like. we continue to make progress on that. continue to work with the banks. as i said, i think a lot of the major institutions have taken serious steps in this direction. i would point out in addition beyond the actions that the federal reserve took,

independently, dodd-frank requires the fed and other bank regulators to establish incentive compensation standards, and that rulemaking progress is under way. that will augment and add to these guidance we've already provided. so we have seen progress and continue to work actively with the banks to -- i think in everyone's interest, to make the banks safer and reduce the risks to the taxpayer. >> does more need to be done? >> well, we continue to work on it. as we said in our report, you know, we don't think that where we're we need to be necessarily, and i think that there's a lot of interesting questions. this is actually an active topic about how best to structure pay packages. what kinds of -- what role should options and stock payments and so on pay -- play.

so more does need to be done, but i think part of the process will be learning in our consultations with the institutions and with academics and others about what works best. of course, europeans are doing similar things in this interchange there as well. >> thank you. >> mr. simpson? >> thank you, mr. chairman, and thank you for being here today and for your testimony and comments. i've got a member of this committee and the chairman also, i've been a member, eight years. for eight years we've had economists and other experts come and tell us we have a structural deficit problem that is unsustainable and we freed to do something about it. so far we failed to heed the warning. we are now in a situation where i think if we don't heed the warning there's going to be consequences to play nobody is willing to accept. the sad thing, both parties, republicans and democrats sit and demonize one another no matter what we try to do to address the problem. we call the democrats tax and spend liberals that don't care

about the economy and they show pictures of paul ryan pushing grandma off a cliff. unfortunately that doesn't solve the problem. when everyone in this room, everyone listening to us and everyone on this committee know what's has to be done. we've had several commissions that have looked at what needs to be done. they all say, almost universally, that you've got to get to $4 trillion to $6 trillion in savings if you'll have an impact on the long-term deficit of country. simpson-bowles, domenici reserve lynn, the gang of six, or whatever. we all know we've got to restrain discretionary spending. we all know that we've got to get entitlements under control and we all know that we need a pro-grow tax policy in this country instead of a 19th century tax code, one that fits the 21st vinch. we all know that. we might have differences of exactly how to do some of these thing, but we all know that problem exists and we all know we've got to come together. we