that you felt it would be important for our country to see to the treaty. can you tell me your understanding of that position? >> yes, sir. it's been a longstanding position of the department of defense that joining that commission would be a good idea to give us the same -- on the same footing with the other signatories. not relying on the longstanding traditions law of the seat.

>> does this particularly take on some level of emergency given the opening of the arctic to commerce exploitation, energy and all the other potential areas of conflict? >> yes, sir, but particularly in the arctic. it would put us on the same footing as the other signatories, counsel. >> general kimball, there have been a lot of questions about afghanistan and our time frame there. as i understand it, there was intelligence that indicated isis was building up its strength and had designs on moving into iraq. what we didn't know was how weak the iraqi army would be. i would suggest, and i hope you agree, that one of your missions is to continually assess a readiness and effectiveness of the ansf, because it wasn't isis so much as the collapse of the iraqi army that led to the debacle currently unfolding in

iraq. would you agree? >> sir, i would agree, and today it is an -- they do have an assessment process in place to continue to evaluate the afghans 'forces. >> it strikes me that rather than an arbitrary date for leaving afghanistan, it should be based upon conditions on the field. would you agree with that? >> i think any military commander would want the flexibility to be able to provide an operational assessment, and if that is conditions on the ground, then i would agree with that, sir. but i owe this committee, and i owe my leadership my best military advice based on the mission at hand and the resources i have at the time. i do have some time to make that assessment, and in that time i also have time to continue to take a look at the afghan forces and the missions that we have to continue to upgrade for

capability. >> i'm not going to ask you to assess the political situation in afghanistan. i think that's unfolding before our eyes and it's difficult for anyone to assess. but one question, do you have any assessment of the ethnic makeup of the afs? one of the problems we have in iraq is the sunnis and the kurds and the government and most of the defense forces. is potentially the same mistake being made in afghanistan or not? i don't know the answer. i'm interested in your view. >> i can get you the composition of the ansf. i don't have that here. my gut tells me it follows part of the pattern of the country itself, so the great majority of the ansf would be probably 40, 45% past time. i know that's a difficult thing to make sure the ansf continues to be, for lack of a better word, apolitical and that they

continue to have the best interests of the country at hand, and i know so far from what i've seen and talked to the leadership there on the ground, that's exactly what they're seeing. so the leadership is keeping with the ansf and i know they made great strides with the leadership there. >> that's a very important ball to keep our eye on. because if the government that's left in place isn't broadly represented as a country, if we've learned anything in the last month, it's that that's a crucial element in the stability of the country that we leave behind. >> absolutely, sir. >> general votell, very quickly, how do we take sufficient advantage of the capabilities that the special operations have without exhausting them? i see your force as particularly important in the future. general dempsey, in a briefing the other day, used the term tailored response to situations. i think he was talking about you when he used that term.

>> yes, senator. as you and senator mccain saw when you visited some of our locations, we are able to be very effective with a very light touch. so i think what we always have to do is look at the situation that we are putting our forces in and be sure we provide the right capability without overdoing it and putting undue pressure on our forces. i think part of that is also working with our other department of defense forces, and where we can, leveraging their capabilities as well to ensure that we take advantage of all of the capabilities. >> what appears to be a future of unconventional non-state ak active forces, your men and women are going to be the spirit, lieutenant votel, and i look forward to working with you on it. >> senator haieh?

>> i want to thank all of you for the sacrifices you and your families have made for our country and continue to make. thank you. i wanted to ask general campbell, i know you served in afghanistan, had at least two or three tours there in iraq as well, and as we look at the situation that's happening in iraq right now with isis and, obviously, the huge security challenges we have there that are very threatening not only to us but to the entire region, what can we learn without having the withdrawal we had in 2011 toward what has happened in iraq as we look forward to our continued engagement in afghanistan? >> thank you, ma'am, for the

question. two times in afghanistan, this will be the third in about a 19th month of tour in iraq. i think all the veterans in iraq would tell you as we watch it unfold that it's very disheartening to see that. i'm committed in afghanistan to make sure the two assists and the ct make sure we continue to do everything we can to improve the afghan capability there so they can stand on their own, and i'll continue to provide my assessments as we go forward. we ought to take a look at iraq and take a look at the lessons learned there. i think our military and all our services on anything we do, we critique ourselves, we look at action reviews, we look at lessons learned. i think this is no different, and we'll take a hard look at this and see what we can learn and apply it to afghanistan. if confirmed, i'm committed to doing that, ma'am. >> i appreciate it, and i want to ask you about -- i know you received a number of questions taking over the command in afghanistan about the ct

mission. can you put in perspective what this ct mission means to your average american in terms of the protection of this country, what we've done in afghanistan and why it's such an important mission? >> yes, ma'am, i think if you just want to boil it down to very simplistic, and i probably told you this when you were there in 2010, maybe 2011, is we haven't had another 9/11 attack on the homeland. and we haven't had that since 2011 when we talked as well. we shouldn't take that for granted, and that's because you have great men and women in the services out there every day working hard. and the ct piece of that on a daily basis continues to strike after these networks that want to do harm to our country. i believe the ctps, if you want to boil it down in simplistic terms, is it protects the homeland. >> thanks, general. so i guess i would ask this question of both you and general

votel. thinking about the president on may 27 had made the announcement that by the end of 2016 that the presence -- we will have -- afghanistan will be at the embassy in kabul which will be a security component, basically a normal embassy presence is how he described it. in fact, it's been further described by the administration that the number of personnel that will be present as of january 1st, 2017 at the embassy for security there will be, and cooperative efforts, will be a thousand people. so my question to both of you is, as i hear general votel talk to us about the numbers on the ct mission in afghanistan that we have now, that we will plan to have there in 2015.

and you also discuss the importance of it, including unilateral operations, ct operations. how do we do that based on a kabul operation only? and how do we do that with a thousand people, and which part of that thousand people will fulfill this important mission to protect the homeland? and so i guess the real question is, we just heard your testimony about how important this is to protect our country and to have this ct mission. what happens after january of '17? >> thank you for the question. i'll start and let general votel provide his comments. you know, i don't know the number at the end of 2016. i understand and acknowledge the numbers you said and the numbers the president said. again, i have not looked at the composition. i know for the next two years, we'll continue to improve the capability of afghan forces, we'll continue to work with

pakistan. there's got to be a relationship there that will help on the ct piece, we'll grow some capability there. but as i said earlier, i will need some time to get on the ground to give you an assessment of where we will be. but i think we have to put in line with that there will be some time to improve the capability that's already there that may or may not help us reduce the numbers. but i could not talk in terms of the exact numbers at the end of 2016 that would be required just for the ct mission. and i can come back to that as i make that assessment. >> so, general votel, how does the ct mission, just having it be based on the numbers i just talked about. obviously there is a lot you have to do in an embassy, so we don't even know if any of those individuals would be designated for ct. >> thank you, senator, for the question. first off, i think what we have to continue to do is look at the conditions as time progresses here and continue to provide our very best military judgment and advice on the way forward with that. i do think we have some models

of where we conduct operations in other areas where we do use an embassy-based approach fairly effectively to continue to apply pressure against our networks. i think maintaining relationships to the degree that we can with our afghan partners in this particular situation here is hugely important to continuing to support our ct objectives. and i do think we have to look in a broader regional approach as well. there are the central agent states. there are certainly pakistan and other people in the region who we have to continue to have relationships with and continue to work with to address our broader ct objectives. >> so, general votel, do you -- in your view, do you think that we will be able to accomplish all that we need to accomplish now, knowing what you know of the conditions in afghanistan with a solely cattle-based approach where a thousand people are at the embassy and who knows

what that number within would be designated as ct? >> senator, i don't think i can answer that question accurately for you right now. i think it really depends upon the situation as it evolves. and that is why i think we have to look at the conditions, we have to provide our best advice on what it is that we need to sustain, what we need to have at an embassy-based approach to continue to protect the homeland and accomplish our objectives. >> well, i appreciate both your testimony. what you both said makes a lot of sense is that how we could possibly make the announcement from the administration of exactly how many people are going to be at that embassy and where they're going to be given the importance of the ct mission to protecting our country, helping us avoid another attack on our country when we don't even know what the conditions will be at the time. it's really hard to come up with a word for it, but it's certainly not a military-based decision based on the

announcement of our president, and i'm glad to hear both of you say that you're going to have to hear what the conditions are on the ground. i hope that our president will heed the conditions on the ground so that we can continue to perform this important mission of protecting our country and ensuring that we have this intelligence that has helped us prevent future attacks after 9/11 against this country. so thank you. >> thank you, senator ayotte. senator donnelly? >> thank you, mr. chairman, and i want to thank all of you and your families for their sacrifice. general votel, admiral mcbraven stated that suicide rates among special operations forces are hitting record highs. he put in place the preservation of the force and family program to try to help with that. and what i want to find out is, do you plan on continuing that? do you see it as a success? do you see anything that is more

effective or other avenues that can help with this? >> first of all, senator, thanks for the question. and i absolutely do continue to apply the same level of effort onto this and as much more as i can on this particular problem of suicide with our soft service members and our service members in general. i do think we have to continue to look at every potential resource that can help us to, one, understand the problem and then identify ways we can deal with this for our service members. so, you know, the numbers are alarming, and i think we have to -- i think it is our number one focus with respect to preserving the force. >> one of the things i would also ask you to take a look at is the things you learn from this program. if you see any of it that you say this has been really successful, or this might be something that's transferrable, if you would continue to share

that with all the other commands, it would be very, very helpful, i think. >> absolutely, senator. >> general campbell, to follow up on senator levin's point, it is obviously of critical nature that you continue to give us your unvarnished opinion as you see going forward where there might be glitches, where there might be problems, where the actual numbers need to be, and, you know, if the plan's not coming together, let us know. general dumpfort has been great on saying, here's where we are on all the metrics, here's where the problems are, here's where they're not. i'm sure we can continue to count on you for that. >> absolutely. >> following up on that, and i know you will keep an eye on this and let us know, is one of the stressing things that happened in iraq is so many of the real generals who were trained by you and many others were replaced by folks who, through connections or

friendship or whatever, wound up in those posts, and i think that caused significant damage to the iraqi army. we want to make sure the same thing doesn't happen in afghanistan. and if you could continue to let us know as you look at the force getting better, getting worse, leadership, those kind of things. i know you'll keep an eye on it. it would be helpful to us because it will also tell us if something is starting to go sideways there. >> absolutely. and i know general dumpfort and the rest of the team have put in place programs to look hard at the professionalism of the afghan officers. they have their open academy. they now have an obstacle course they put officers through, so they understand. they understand an important thing is trust between the military, trust between the people, trust between the military and their leadership. i continue to work that hard, sir. >> one of the things we've seen

recently, and it's somewhat unique in recent times. the pakistan army has just pushed into miranshaw, has just moved out of there. whether they've been captured is still under discussion, but it seems there is a real interest on the pak side to do something in those areas. do you see this as a window we haven't had for a while, to try to create some form of security in that region of afghanistan and pakistan? >> absolutely. any time that pakistan will continue to work their own operations inside their borders there, coordinate those also on the afghan side, i think that's a win. we tried to do that in 2010, 2011 on a much smaller level. so i do think this is a great opportunity for the engagement between the military and the pakistanis. i'm committed to helping where i

can on that. >> in a way, this is the furthest i've seen them push in a very long time, and i am hopeful that that can make -- in terms of easy being a general term -- make your life a little bit easier in those regions, that if they clean up some of the mess on their side, there may be less leaking over to your side. >> sir, absolutely. as you know, the pakistan army has suffered great casualties themselves in this war. >> they have? >> yes, sir. >> in the sofa agreement, i'm sure you'll continue to tell them, you know, we talk about how many troops will remain, but if we don't have a sofa agreeme agreement, it completely changes the whole discussion. so i trust that one of your primary efforts over there will be to continue to tell whoever will be their leader how critical this is. basically, everything else -- all the other efforts kind of line up with this. >> sir, i believe both

candidates have expressed their desire to sign the bfa and the sofa agreement to make sure they have continued coalition presence in afghanistan. they know the consequences if they do not do that, so hopefully that will get done before i get there, sir. if not, i will continue to work that hard. >> admiral gortney, one of the problems i have when i see isis and that whole front and reasonable is that there are also americans fighting with them over there, americans who have passports. and my fear is if they take a look back to our country. and they can be people who can be extraordinary weapons against us, and i am wondering your efforts in coordinating with homeland security, with fbi, with everybody else to try to keep an eye on what is going -- even though it's not here in northcomm, it directly affects

our homeland. >> sir, we all share your concern on that one. the defense of the homeland starts at the away game and working with our combat ant commanders in the inner agencies in the away game so that we stop it there before it comes to the homeland. inside the homeland, homeland security will have to deal with the consequences if we fail am th -- in that regard. >> one last question that i have time for is this. we've seen a huge influx of heroin into my home state, into other states, much of it coming up across the border. we've seen drugs coming in through the straits of florida and other areas, and we've had testimony that there is not near enough equipment, men, women, personnel, things needed to try to stop that. would you give us, in a perfect world, your best plan as to how to make a change in this area?

or how to beef up our efforts in this area. >> it requires a whole new government approach that includes all of the inner agencies as well as very, very close cooperation between pacific command, northern command and southern command in order to work to close any of those seams that are out there between geographic commanders and seams between the inner agency partners in order to stem this flow. and it's got to stop -- it's got to go to the far reaches. you're not just going to be able to stop it at our borders, you have to go to the root cause of the problem and try to stem it from there, sir. >> thank you very much, and i hope -- and i know you will -- keep an eye on that effort as well. thank you, mr. chairman. >> thank you, senator donnelly. senator fischer? >> thank you, gentlemen.

i would like to thank you, your families, the service personnel that you represent for truly dedicating your lives in serving the people of this country and keeping us safe. thank you very much. general votel, in your written comments, you speak about the greatest threat that isil is to governments and syria and iraq, and then it threatens to jeopardize the entire region and their connections are growing throughout north africa and europe and also southeast asia. if this situation on the ground in iraq doesn't improve significantly, when do they become a threat to the united states? are we there already? >> senator, thank you for the question. i think they threatened some of our regional interests. they certainly threatened some of our key partners in the region and in europe right now, and i do think, as they continue

to go strength, that they will ultimately present a threat to the homeland. as we talked about a little bit earlier, the threat of foreign fighters that have gone to syria and now into iraq, i think, poses a very significant problem not only for us but also for our partners that we rely on. so i think that it is posing a threat to us right now. >> the admiral spoke about the away game. do we have the eyes on the ground in order to make the assessment on what's happening in iraq and how we're going to address it? i know we're looking at all the options that are out there. are we starting to narrow those down, or are we reaching the time of a tipping point already when it may be too late to even take advantage of some of those options that are there? >> senator, first off, i don't think it's too late to do anything right now. as you may be aware, we are just completing the assessment phase

here in iraq, and so we have been working with our iraqi security force partners there, both up in kyrgyzstan and down in the baghdad area and to the places we can get to to ensure that we understand what the situation on the ground is, what their capabilities are and what options we might have to assist them, to address this threat here in the future. >> i heard a comment made recently that perhaps we should take the mackvellian approach and let the militias and the terrorists fight each other. just stand back and let our enemies fight each other. aren't there risks to that? didn't we do that in syria? >> in general, i think there are risks to allowing things to just try to resolve themselves, particularly when there are interests that could affect our

country. >> would you think that would be an option the united states should look at with regards to iraq? >> i think we should look at all options that might be available to us, senator, and how we can address this particular problem. >> would that be your option, would you say, at this point? >> senator, i think as we kind of complete the assessments here right now, i would certainly want to have discussions with general austin as part of his assessment of this and ensure that we've had an opportunity to look at everything before reaching any conclusion. >> thank you. you know that the president has requested $5 billion for the counterterrorism partnership fund. what top priorities would you like to see this fund accomplish? >> i think that the counterterrorism fund can certainly help us with some of our partnership activities, and i think it can also help us with gaining the additional resources

that we might need to enable our partners, such as isr, which i think would be very helpful in really enabling our partners in a variety of different ways. >> and how do you see our special operations forces evolving, given the demand? senator king touched on that and touched on the pressures that you're looking at. you had mentioned to senator ayotte about the size of the force that you would look at in different countries, including afghanistan. do you see the special ops evolving -- i guess i'll just ask you, how do you see them evolving? >> i think, first of all, the level of strength that we are going to be at is adequate. i think it allows us to meet the requirements we have out there right now. i think it's important that we continue to focus on some of the

work that is done by admiral mccraven in his role. that is to continue to strengthen our relationship with other military partners out there so we do have trusted, dependable relationships and partners out there that we can work with and we can depend upon to accomplish the broader ct efforts. i do think it is important that we continue to have soft forces forward deployed in locations where they can assess, they can understand and they can, most importantly, work with our international partners who share our interests. >> i would ask you, general votel and also general campbell, if we're going to be conducting ct operations outside of afghanistan, how effective is that going to be? >> senator, just to clarify, conducting operations into afghanistan from locations outside of afghanistan?

>> yes. or throughout the region as well. >> i think -- >> if you would lose all your forces within the country. >> i think that would be very challenging. that would be a very challenging approach for us to continue to effectively do that. certainly there are things that we can certainly look at and we would have to look at all the conditions with that, but i think it would be challenging to try to address problems in one country from other regions, other countries. >> would that be a priority of yours, to explain to the administration the importance of keeping your forces there? >> senator, i think it's one of my primary responsibilities to always advise on how we best use our precious soft forces in a manner that gives us the most effect. >> and general campbell, your thoughts on that as well? >> senator, i agree with general votel. as i said earlier, i have not taken a look at what the result of that would be at the end of

2015 on the numbers. if your talk involves the capability of afghanistan, really that's what our government is trying to do in the ct arena. i look forward to working with general votel to provide those assessments as we move forward and the resources that would be required to complete that mission. >> i appreciate both of you, your comments to senator mccain and also senator ayotte on expressing your desire to have that flexibility and also to be able to make decisions based on what's happening on the ground. so thank you very much. mr. chairman? >> thank you very much, senator fischer. senator mccaskill? >> thank you. first, for admiral gortney, are smugglers moving these children through mexico with impunity? >> i would say the effect of the government, the mexican government and their armed forces are not as effective as

they could be. whether or not they're trying to interdictum or not trying to interdictum, i don't have a feeling on that. i think they're just not being effective. >> i think it's important once you're confirmed that you get a handle on this. it appears to me that all the information, these are cartel-based smugglers. it's the same enemy that we've been funding mexico to fight for as long as i've been in the united states senate, and at a certain point in time, the american people deserve some metrics on how successful the money we've been pouring into mexico has actually been in enabling the mexican military to do the basics of -- you know, i mean, it's obvious that buses and trains are moving loaded with thousands of children for miles through mexico.

i mean, clearly someone has decided in mexico they don't give a damn. >> well, i would say that the cartels do control areas of mexico that gives them the freedom of movement to do what you're saying, yes, ma'am. >> and the border? they have the freedom of the border. i think that is certainly a priority if we look at our national security. if we've got a neighbor to the south that has decided this is acceptable, you know, it means that there is a whole lot of other things they think is acceptable that, frankly, threaten our national security. so i hope you would make that a priority. for general campbell and for general votel -- am i saying your name right? is it votel or votel? >> it's votel. >> i look at the pillars of coin strategy, and if you look at iraq, there was a belief if we did the political piece, we did the security piece and we did the economic piece, it would be successful. well, the political piece didn't

turn out so well. and the economic piece is an ab abject piece we spent literally hundreds of millions of dollars for facilities that are in crumbles right now, that are inoperable. so is there any movement among your level of leadership in the military to take another look at the coin strategy in light of -- and by the way, i predict we're going to have the same problem in afghanistan. i've just been highlighting that ridiculous power plant that we spent $300 million on. we got the highway. it's almost as if we are so good as a military and we are so focused on our mission that we just get blinders on and say, we can impose this, we can build these highways, we can build these power lines, we can build these power plants, we can build these health facilities, we can

build these schools, we can impact while we're there the functioning capability of a government or of a military, but it appears to me that we've put a band-aid on a cancer and that it really is not something that is being successful. is it time to take another look at the coin strategy? >> ma'am, i'll take a shot at that. what i would tell you is that i think the military continues to take a look at its policies and procedures to continue to adapt to that to make sure we're flexible. they're always looking forward to see what that next fight will be. we always have to remain cognizant that there are lessons learned that continue to grow. i think on the coin piece, as you mentioned, this is not just a military piece of it, it's a whole government approach. the military could look at one piece, but we have to bring in the entire interagency to continue to learn those lessons and apply those resources to

make sure we can sustain that. as we work whatever country we're working in to build capacity in the country, it is a whole government piece, not just the military piece. whatever country that is, the people of that country have to want that, and they have to put forth effort as well. and i think in the end, as evidenced here in iraq, is leadership makes a difference, and we have to work with that very hard. >> well, you know, and that's one of the things that happened both in iraq and afghanistan is the blurring of the lines between the interagency, you know, the funds into infrastructure in iraq and then it leaked into infrastructure in afghanistan. i know the power plant was -- but the highway, we took that over. we were doing some of those things. and now some of those projects

will be outside the wire. we're not even going to see those projects, and there's a percentage of the projects you're going to inherit, general campbell, that we can't have any oversight over because we can't get oversight of where they are with the drawdown that we're embracing. so i watch and analyze the mistakes in iraq, and i think many of them are going to come to pass again in afghanistan, and then i'm wondering if we're going to do the exact same thing again. >> ma'am, if confirmed and i going to afghanistan, i'll certainly take a hard look at that. i spent many months in iraq as well. i don't want to see what's happening in iraq today happen in afghanistan in the future. and i'll work hard at that. >> they're lessee kwi equipped iraq was in terms of thfis was country that didn't even have a highway. they were so much further ahead

than afghanistan. i appreciate all you have done, i appreciate your leadership capacity, but i think you've been given an impossible task in afghanistan given the light of what that reality is in that country and in terms of taxpayers ever realizing the investment we hoped we would ever realize from the things we've built in afghanistan, the money we spent on building things for them. general votel? >> senator, i would only add i think it's an inherent responsibility for military commanders to challenge ourselves about our operating concepts and the way we think about the missions that we are giving. and i do think we have to look at our lessons learned and that has to inform our way barred. at my current level of leadership here at joint special operations command, i do know that socomm is looking very closely at all these concepts.

ip surge insurgency, unconventional warfare, things that we think will be valuable for us in the future. i look forward to working with my community and this committee to make sure these things are well understood. >> i really hope it's a check point moment about world coin and what has worked and what hasn't and why the failures have occurred. the one thing you guys are bad at is saying, we can't do this. you're given something to do and you just figure out some way to do it, and i'm proud of that. but it works against you in terms of acknowledging that maybe there is something that we're trying to do that, under the circumstances, just doesn't make sense for us to try. thank you both. thank you, all three, for your service. thank you, mr. chairman. >> thank you, senator mccaskill. senator graham? >> thank you, mr. chairman, and thank you for the service to our country and our families.

are you familiar with par 1, senator campbell? >> i've been to par 1. i don't know i went to the justice center. it came about after i left. >> i urge you to go visit. it's probably the crown jewel of criminal justice if thn that paf the world, and it's a very modern facility, well run, and the hope is that in the future when an insurgent is kpcaptured they will not be put in a conventional jail. if they're really a threat to afghanistan, they'll go to the justice center where they'll be secured and they'll have well-trained judges dispose of their cases. i would urge you to take a visit. i think it's very important in defeating the insurgency. >> i will do that, absolutely. >> in defeating the insurgency, they have to believe they'll get killed or captured. is that fair to say? >> they have to understand that there is going to be some sort of repercussion. >> and if they get captured,

they're likely to go to jail. without that, it's going to be hard to defeat these guys. would you agree with that? >> i do, sir. >> let's look at afghanistan as a line of defense for america. does that make sense to you? >> it makes sense that there has been a line there that allow them to attack our hoecmeland, yes, sir. >> the forces that attacked our country in 9/11, they had safe haven in afghanistan, the leadership, is that correct? >> that's correct. >> we've had at least one attack generated by the pakistan taliban that failed in new york, the bomb didn't go off in times square. but apparently the pakistani taliban want to reach america. is that still accurate, do you think? >> i believe there are many organizations that want to do harm to the homeland, and i do believe that every single day, the great military and other services are impacting other attempts that nobody here even knows about. >> and many of those

organizations reside in the afghan-pakistan border regions, is that correct? >> i would agree with that assessment. >> general votel, has al qaeda decimated non-operational in pakistan and afghanistan? >> i can't say they are completely non-operational. we have certainly applied a significant amount of pressure on them in afghanistan in which we are responsible for, and i think we have limited their ability to do things that they would desire to do or to use that as a safe haven. that said, i think we have to continue to apply that pressure. >> if we completely left on the ct front by 2017, january 2017, is it possible they could regenerate? >> i think it is possible, senator. they could regenerate if the conditions were not in place for the afghans to be able to continue to provide the oppression themselves. >> let's just lay out the plan for the american people. by the end of the year january

2015, how many troops are we going to have in afghanistan. general campbell? >> sir, by the end of '14, it's 9800, the current plan. by the end of '15, the proposal is about half of that, probably 5500. >> okay. what percentage of counterterrorism forces will exist today? how many counterterrorism forces do we have in afghanistan snowed. >> general vo tertel gave the nr of about 900 earlier today. >> i think the special forces is about 200. of that -- >> i'm talking about today. >> today we are roughly 3,000 plus. >> does that include the enablers? >> it includes some of our enab enablers. >> can you get back to us on that? i think we were told 7,000

yesterday. >> 7,000 is the total soft present in the country, and that includes the efforts we use to train and advise. >> so 7,000 top sight forces, including enableers. you say 2000, is that about right? >> approximately, general. >> let's fast-forward to january 2017. how many do we have given the current plan? >> i don't know that i have the answer to that. >> let's look at what we could have. under the current construct, january 17, we're down to security forces. is that true, general? >> that's true, yes, sir. >> and how many security forces did we leave behind in iraq? >> i believe the rough number is probably in the neighborhood of 200, 250. >> what if it was in the neighborhood of 1,000 in

afghanistan? what would the piece be? >> the piece would be for military sales. >> how many forces were involved in the security operations team in iraq? >> sir, i don't have that number. >> how about zero? >> i know it was a very low number. zero may be it, in fact, but i don't have that number, sir. >> this is the plan. and the question is, do we change the plan? who fills in the delta of where we're going? rated on an ability of a through f, label them to provide counterterrorism capabilities to protect our homeland? >> sorry, i hadn't looked at it in those terms, but my gut would tell me it's not very good. it would be on the low end of the scale. >> i've been told a d by very

prominent people. general votel, does that make sense to you? >> i believe in general campbell's comments, sir. >> so the efforts to eliminate al qaeda as a very tight force, and if being out of the country isn't advisable, it seems to me the line of defense that america enjoys today is going to vanish if something doesn't change. is that a fair statement, general campbell? >> sir, following your analogy, that would be a fair statement. >> the question for the committee is, do we want it to vanish? and the consequences to the nation of it vanishing. finally, general campbell, if the election process is not resolved within the constitutional process and somebody doesn't accept being robert e. lee and somebody accepting being grant, what's the likelihood of afghanistan holding together? >> sir, if they can't get

through this election process to show the afghan people and the rest of the world that they've done this political transfer of power peacefully, then right now the coalition forces will not continue to stay there after 2014. i think it narrows -- greatly increases the risk for afghanistan to fracture. >> i couldn't agree with you more. one final question. as to the ethnic makeup of the afghan security forces, about 45% of pashtun, but most of them are from the east, very few from the southern region around kandahar. what percentage of the leadership are weak? is it disproportionately large? >> i don't have the percentage. i would think it's probably low. >> i think it's actually high, and my fear is if there is a failure of two sides to agree at the election process, the two

sides will collide. do you agree with that and is it a concern? >> it is a concern. i think the two sides remain strong and political. >> would we be in jeopardy if you didn't get the election resolved quickly? >> i think if the election is resolved, then what will probably happen is that, again, my opinion only, is that they'll revert to what they've done for years and years and go back to the tribal affiliation -- >> that's my fear, too. thank you very much for your service. >> thank you, senator graham. senator cruz? >> thank you, mr. chairman. gentlemen, thank you for being here. general campbell, how would you describe the level of terrorist threat in afghanistan and pakistan right now, whether from the taliban, the county network or others? >> the level directed against the u.s. or the level directed

inside afghanistan? >> both. >> i couldn't put a percentage or high, medium, low threat level. what i would tell you is because of the great work of the men and women in special operations forces, general purpose forces in our agency, the threat to the homeland, because we keep the pressure on the networks there, continues to be mitigated. as i said earlier, we haven't had another 9/11 type attack, but that's not because people haven't been trying to do that. but to give you a percentage on how it is inside there, i have not been on the ground since april. i would have to get on the ground and give you a better assessment. >> if i understand your testimony correctly, it is that the threat to the homeland has been mitigated because of the pressure that we're putting on them currently. if that's right, that raises an obvious question, which is, we've been advised that in 2016 the troop level will be reduced to 1,000 troops, and in 2017,

reduced to nothing. if that plan is carried out, what will be our capability to engage in counterterrorism operations and to keep that pressure you described on them to prevent terrorists from carrying out a serious threat on the homeland? >> sir, as general votel mentioned earlier, we would have to take a look at other methods to do that, whether it's from outside the country, other technologies. i think, as he stated and as i stated earlier, for the next two years we'll continue to work hard at building the capacity of the afghan forces to have a vert ct force. we'll continue to work on that. and also we'll depend on what pakistan does and how they continue to evolve over the next two years. but if we go to zero, as you state stated, and we do have a threat at that time still, we'll have

to come up with a different strategy to be able to keep that threat and mitigate that threat. >> so in your personal judgment, are you concerned about our ability to execute effective a presence at zero? >> sir, today, again, i'm not the commander on the ground. i'm very comfortable where we are today based on everything i know and the great capacity of our special operating forces and the men and women on the ground, and if confirmed and i get on the ground, c.t. continues to be one of the missions that we have, then i'll make sure that this committee in my leadership understands the resources i believe are required to carry out that mission. >> let me ask a couple questions. i want to start out on missile defense. since june 12th, 386 rockets have been fired at israel, and the threat facing both the united states and our allies is quite real.

in last year's defense authorization act, the senate required the department of defense to study missile defense threats from the south such as the gulf of mexico. can you discuss the potential threats that may face the homeland from the south and what north-com has or needs in order to deal with this threat? >> if confirmed, i'm going to have to learn more about that particular mission about the threats. i'm not aware of the study of a ballistic missile threat from the south. focusing -- i have been focusing most against the north korean and iranian threat. i'll have to get back to you on that, sir. >> thank you. i look forward to continuing that discussion. let's shift then to a different aspect, which is border security. north-com helps secure the borders after 9/11. in your judgment, what additional role could north-com play given the crisis that we're

facing on the border right now? >> north-com is currently providing support to borders and customs who are doing the very best that they possibly can. we're in support to them. and we're currently providing them construction support, surveillance support, linguistic support, transportation support and surveillance. we can continue to give as much as the secretary asks of us in order to beef that up, but that's the limit of our authorities at this time. >> given that over 50,000 unaccompanied children have illegally entered the country this year, do you think it is clear that international terrorist organizations are fully aware of our vulnerabilities along the border? >> i would have to assume they are, sir. there are seams, find your seams

and you will find your enemy. whether it's the smuggling of children or smuggling of any kind, whether it's drugs, whether it's money, whether it's weapons, those seams can be exploited by terrorists as well and that's why it's important for us to look into those seams with our interagency partners. it gives us the surveillance and the ability to detect it should it be occurring. >> and would you agree that the coyotes and cartels that are smuggling in all of these little boys and little girls, that these are hardened, violent criminal organizations -- >> absolutely. >> that can be vicious? >> absolutely. operating in territories that they control, it gives them the freedom of movement to do what they want to do, to move whatever they want to do and they will move whatever they want for money. >> in your judgment, could the equipment returning from the cent-com theater of operations be potentially utilized by north-com and integrated on the

u.s./mexico border, specifically the tracking and isr systems? >> yes, sir. if those authorities are expanded to us, i would forward up a request to use as much of the capability as we feel is necessary in order to do it. we are, the department of defense is providing to law enforcement agency a great deal of surplus equipment that is coming back from iraq, that has come back from iraq and will come back from afghanistan. >> the magnitude of the threat on the border, the southwest border in particular, continues to grow. in 2011, border patrol apprehended over 300,000 people unlawfully crossing the southwest border. nearly 50,000 of them were from countries other than mexico. of those 255 were aliens from special interest countries. between 2006 and 2011, nearly

2,000 aliens from special interest countries were apprehended along the southwest border. given those numbers, would you agree that establishing control of our border with mexico has serious implications for national security? >> yes, sir, given the seams that are there that we talked about previously, we want to be able to close up all of those seams for the illegal movement of anything, be it terrorists or be it immigrants but i think from the numbers that you described, you described the magnitude that it came from the border south of mexico, and that's why it's the importance of working with south-com and our partner nations down there to work on the conditions, the long-term conditions, to prevent the flow of their people north into our borders, through all the other borders and into our borders. that's a long-term commitment that our nation has to make and working closely if confirmed, working very closely with south-com. we're there to do everything we can. >> absolutely. thank you, admiral. thank you, generals.

>> thank you very much, senator cruz. senator mccaskill? >> i didn't get a chance on my first round. i wanted to talk to you about the m.o.u., general campbell, about detainees. we went into the one m.o.u. in march of 2012 with the afghan government and then in an effort to reduce tensions, we signed another m.o.u. in march of 2013. it established the afghan review board. that process has resulted in the release of hundreds of detainees that we can directly track to attacks on our forces, and i believe, and i believe our government shares my belief, that this is a flagrant disregard of the principles outlined in the m.o.u. do you have any ideas as to how we can in the bsa or maybe it's

envisioned in the bsa that we can stop this release of these detainees who have attacked our military? >> thank you for the question. i have not looked at it in those terms. certainly if confirmed, i will work with the interagency and the authorities that would be required to ensure that we can put some controls on that. i think every military person on the ground there is concerned with the recidivism rate of detainees that are released and that come back into the fight. i think that's something that we have to continue to work with the afghan government on. i mean, right now based on the authorities, is there a call we can continue to show them why this particular individual and what they've done and provide them the evidence that we have of their wrongdoing. in the end right now that's ultimately their sovereign country and their decision to

release. we can continue to advise and i will continue to do that if confirmed. >> i know we're in limbo now on the bsa because we are in limbo about who's going to lead the country and when we're going to know who's going to lead the country and whether or not karzai's influence is going to continue to be significant, but i would think it would have a dramatic impact on morale if we are capturing those who have killed our most precious resource in this country and then they open the doors a day later and let them out. and i just want to be on record that i know i share with the members of this committee that we want to do anything we can to help make sure that that situation does not become the norm. >> thank you, ma'am. >> thank you, senator mccaskill. we thank you for your testimony, for your service. i hope we can get to, as we say, mark up your nominations very promptly and hopefully can get

you through the confirmation process in the senate very promptly. we will do our very best. you have great support on this committee, deservedly so. you've got great support from your families which make it possible for you to serve as you do. we thank you, we thank them, and we will stand adjourned.

live to capitol hill now, where federal reserve chair janet yellen is expected to

deliver the bank's semiannual monetary policy report to congress. this is her first time delivering the report since she took over as chair back in february. she will be testifying before the senate banking, housing and urban affairs committee. senator tim johnson is chair of the committee. he is coming through the door right now. senator mike crapo, ranking member. we do expect this to get under way in just a moment here live on cspan 3.

>> i call this hearing to order. this morning, we welcome chair yellen back to the committee for testimony on the fed reserve semiannual monetary policy report to the congress. since chair yellen was last before the committee, bernard

hall was confirmed by the senate to serve on the board. it is important that the fed maintain a full complement of governors to effectively carry out his monetary policy and regulatory functions. to that end, there are two remaining spots to be filled on the board and i hope for swift nomination of well-qualified candidates with expertise in community banking as well as tough and effective oversight experience. the fed continues to grapple with many present issues that span both monetary and regulatory policy, and look forward to hearing chair yellen's perspective on these issues today. the steady path to economic recovery following the great

recession took a sidestep with fourth quarter gdp falling. the unemployment rate has continued to drop in recent months, but long-term unemployment and youth unemployment remain unacceptably high, and the housing sector has been slow to rebound from its troubles during the crisis with too many credit-worthy borrowers locked out of the mortgage market. given these headwinds against a more robust recovery and low inflation rate, i am encouraged by the fomc's view that monetary policy will likely remain accommodative for a considerable time following the completion of the fed's assets purchase program. i'm also encouraged by the

continued progress being made to implement wall street reform and improve u.s. financial stability. chair yellen, your recent comments outlining the importance of macro financial tools that lean against financial excesses and focus on building resilience in the financial system -- to the need to ensure that firms, particularly the largest and most systemically important firms, are prepared for the worst and able to withstand shocks from a variety of sources. to that end, it is imperative that the wall street reform rules be completed as soon as possible. we must not forget how costly the last financial crisis has been so regulators and congress

must continue to do all we can to keep our financial system stable and promote strong economic growth. with that, i will now turn to ranking member crapo for his opening statement. >> thank you, mr. chairman. welcome, chair yellen. during chair yellen's nomination hearing, i noted the need to fill the additional vacancies that the chairman referenced at the federal reserve board with individuals bringing balanced viewpoints. again, i say that the president should nominate someone with community bank experience to the board to fill one of the remaining vacancies. community banks play an important role in their local economies and face a disproportionate burden from regulation. we should ensure that the perspective of those banks is represented in regulatory policy making. today's hearing is another important opportunity to discuss monetary policy and financial regulatory policy. since our last hearing with chair yellen, the fed has continued to reduce the pace of

its large scale asset purchases known as quantitative easing or qp. it has been a welcome development to see that under the chair's direction. this process of tapering has begun and now we will likely be able to see all qp purchases cease later this year. i have consistently made my opposition to the policy of qe very clear. the quadrupling of the size of the fed's balance sheet that has occurred as a result of the fed's qe purchases of treasury and mortgage-backed securities is worrysome. these qe assets will remain on the fed's balance sheet for a very long time and the reserves used to purchase them will remain in the financial system. the process of normalizing monetary policy will be difficult, particularly in light of the fact that our economy has failed to strengthen in the way that was promised by the supporters of this unconventional monetary stimulus. recent federal open market committee minutes indicate that in the coming years, any

miscommunication about monetary policy during this normalization period could create risks to the economic outlook. continued clear communication will be important, particularly as the fed is seeking to rely on new tools that are unfamiliar to the market. for example, fed officials have indicated that overnight reverse purchase agreements, also known as repos, will likely play a large part in setting monetary policy during normalization. while the federal funds rate becomes less important. at the fomc meeting, some raised concerns that the fed's overnight repo facility could increase problems during adverse market conditions, potentially causing counter parties to shift funds away from making loans and opting for the fed's safety net instead. how will the fed balance the need for open communication with the ability to preserve flexibility should unintended consequences arise in this important market? i'm also interested in your recent comments on the use of

macro prudential tools by the fed. you specifically recognize that experience with these tools is limited, and that many central banks will still have much to learn to use these measures effectively. introducing the concept of managing u.s. monetary policy by regulations and prudential oversight is untested, and perhaps more theoretical than real. i agree with those who are concerned that regulators may not be able to get the timing right. many economists including those at the fed have not been very good judges of identifying market bubbles and predicting when the bubbles will burst. your speech discussed the ability of regulators to change regulatory standards on mortgage lending such as debt to income and loan to value ratios. as a macro prudential tool that could slow mortgage lending. i'm very skeptical that during a housing boom, regulators would ever act aggressively to restrict lending to individuals with high levels of debt or low incomes. in fact, recent experience

suggests all the political pressures run counter to that happening. it's also highly questionable to think that forecasters will identify beforehand when these tools should be adjusted during the credit cycle. while financial stability can complement the goals of monetary policy, it's paramount that the regulators strike the right balance without un-duly harming the economy. we have a lot of issues to deal with and i look forward to your testimony today, chair yellen. thank you. >> thank you, senator crapo. to reserve time for questions, opening statements will be limited to the chair and ranking member. i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. i would now like to welcome chair janet yellen back to the committee. dr. yellen is serving her first

term as chair of the board of governors of the federal reserve system. prior to holding this position, dr. yellen served as vice-chair of the board for over 30 years. she has also previously served as chair of the council of economic advisors and president and ceo of the federal reserve bank of san francisco. chair yellen, it's good to see you once again. please begin your testimony. >> thank you. chairman johnson, ranking member crapo, and members of the committee, i'm pleased to present the federal reserve's semiannual monetary policy report to the congress. in my remarks today, i will discuss the current economic situation and outlook before turning to monetary policy. i will conclude with a few words about financial stability. the economy is continuing to

make progress toward the federal reserve's objectives of maximum employment and price stability. in the labor market, gains in total non-farm payroll employment averaged about 230,000 per month over the first half of this year. a somewhat stronger pace than in 2013, and enough to bring the total increase in jobs during the economic recovery thus far to more than nine million. the unemployment rate has fallen nearly one and a half percentage points over the past year and stood at 6.1% in june, down about four percentage points from its peak. broader measures of labor utilization have also registered notable improvements over the past year. real gross domestic product is estimated to have declined sharply in the first quarter.

the decline appears to have resulted mostly from transitory factors and a number of recent indicators of production and spending suggests the growth rebounded in the second quarter. but this bears close watching. the housing sector, however, has shown little recent progress. while the sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year's increase in mortgage rates, and readings this year have overall continued to be disappointing. although the economy continues to improve, the recovery is not yet complete. even with the recent declines, the unemployment rate remains above the federal open market committee participants' estimates of its longer run

normal level. labor force participation appears weaker than one would expect based on the aging of the population and the level of unemployment. these and other indications that significant slack remains in labor markets are corroborated by the continued slow pace of growth in most measures of our early compensation. inflation has moved up in recent months, but remains below the fomc's 2% objective for inflation in the longer run. the personal consumption expenditures or pce price index increased 1.8% over the 12 months through may. pressures on food and energy prices account for some of the increase in pce price inflation. core inflation, which excludes food and energy prices, rose

1.5%. most committee participants project that both total and core inflation will be between 1.5% and 1.75% for this year as a whole. although the decline in gdp in the first quarter led to some downgrading of our growth projections for this year, and and other fomc participants continue to anticipate that economic activity will expand at a moderate pace over the next several years, supported by accommodative monetary policy, a winning drag from fiscal policy, the lagged effects of higher home prices and equity values, and strengthening foreign growth. the committee sees the projected pace of economic growth as sufficient to support ongoing

improvement in the labor market with further job gains, and the unemployment rate is anticipated to continue to decline toward its longer run sustainable level. consistent with the anticipated further recovery in the labor market and given that longer term inflation expectations appear to be well anchored, we expect inflation to move back toward our 2% objective over coming years. as always, considerable uncertainty surrounds our projections for economic growth, unemployment and inflation. fomc participants currently judge these risks to be nearly balanced, but to warrant monitoring in the months ahead. i will now turn to monetary policy. the fomc is committed to policies that will promote

maximum employment and price stability consistent with our dual mandate from the congress. given the economic situation that i just described, we judge that a high degree of monetary policy accommodation remains appropriate. consistent with that assessment, we have maintained the target range for the federal funds rate at 0% to .25% and have continued to rely on large scale asset purchases and forward guidance about the path of the federal funds rate to provide the appropriate level of support for the economy. in light of the cumulative progress toward maximum employment that has occurred since the inception of the federal reserve's asset purchase program in september 2012, and the fomc's assessment that labor

market conditions would continue to improve, the committee has made measured reductions in the monthly pace of our asset purchases at each of our regular meetings this year. if incoming data continued to support our expectation of ongoing improvement in labor market conditions and inflation moving back toward 2%, the committee likely will make further measured reductions in the pace of asset purchases at upcoming meetings with purchases concluding after the october meeting. even after the committee ends these purchases, the federal reserve's sizeable holdings of longer term securities will help maintain accommodative financial conditions. thus supporting further progress in returning employment and inflation to mandate consistent levels. the committee is also fostering

accommodative financial conditions through forward guidance that provides greater clarity about our policy outlook and expectations for the future path of the federal funds rate. since march, our post-meeting statements have included a description of the framework that is guiding our monetary policy decisions. specifically, our decisions are and will be based on an assessment of the progress, both realized and expected, toward our objectives of maximum employment and 2% inflation. our evaluation will not hinge on one or two factors, but rather, will take into account a wide range of information, including measures of labor market conditions, indicators of inflation and long-term inflation expectations, and

readings on financial developments. based on its assessment of these factors, in june, the committee reiterated its expectation that the current target range for the federal funds rate likely will be appropriate for a considerable period after the asset purchase program ends, especially if projected inflation continues to run below the committee's 2% longer run goal, and provided that inflation expectations remain well anchored. in addition, we currently anticipate that even after employment and inflation are near mandate consistent levels, economic conditions may for some time warrant keeping the federal funds rate below levels that the committee views as normal in the longer run. of course, the outlook for the economy and financial markets is never certain, and now is no

exception. therefore, the committee's decisions about the path of the federal funds rate remain dependent on our assessment of incoming information and the implications for the economic outlook. if the labor market continues to improve more quickly than anticipated by the committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned. conversely, if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated. the committee remains confident that it has the tools it needs to raise short term interest rates when the time is right and

to achieve the desired level of short term interest rates thereafter, even with the federal reserve's elevated balance sheet. at our meetings this spring, we have been constructively working through the many issues associated with eventual normalization of the stance and conduct of monetary policy. these ongoing discussions are a matter of prudent planning and do not imply any imminent change in the stance of monetary policy. the committee will continue its discussions in upcoming meetings and we expect to provide additional information later this year. the committee recognizes that low interest rates may provide incentives for some investors to reach for yield. and those actions could increase vulnerabilities in the financial system to adverse events. while prices of real estate,

equities and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms. in some sectors, such as lower rated corporate debt, valuations appear stretched and issuance has been brisk. accordingly, we are closely monitoring developments in the leverage loan market and are working to enhance the effectiveness of our supervisory guidance. more broadly, the financial sector has continued to become more resilient as banks have continued to boost their capital and liquidity positions, and growth in wholesale short term funding in financial markets has been modest. in sum, since the february monetary policy report, further

important progress has been made in restoring the economy to health and in strengthening the financial system, yet too many americans remain unemployed, inflation remains below our longer run objective and not all of the necessary financial reform initiatives have been completed. the federal reserve remains committed to employing all its resources and tools to achieve its macro economic objectives and to foster a stronger and more resilient financial system. thank you. i would be pleased to take your questions. >> thank you for your testimony. as we begin questions, will the clerk please put five minutes on the clock for each member. chair yellen, there seems to be mixed signals about the economy

and the fact -- the face of these mixed signals, how cautiously will the fed proceed as it considers any large scale asset purchases? >> chairman johnson, as you note, there are mixed signals concerning the economy. most importantly, gdp growth is reported by the bureau of economic analysis to have declined almost 3% at an annual rate in the first quarter. that said, many indicators concerning the economy, indicators of spending and production, are substantially more positive than that. as i noted, the labor market throughout that period has also

continued to improve and at a somewhat faster rate than we had seen previously. indicators of consumer sentiment and of business sentiment and optimism also seem to be positive, so my reading at the present time is that the gdp decline is largely due to factors i would judge to be transitory and i do think that it's substantially that negative number substantially understates the momentum in the economy, but of course, this is something we need to watch very carefully and are doing so. nevertheless, my overall view is more positive. now, as i mentioned, the labor market i believe has been improving. not only is the unemployment rate been declining, but broader measures of performance of the labor market have also shown

improvement, and that's important. this is of course exactly what we want to achieve. but the federal reserve does need to be quite cautious with respect to monetary policy. we have in the past seen sort of false dawns, periods in which we thought growth would speed, pick up, and the labor market would improve more quickly, and later events have proven those hopes to be unfortunately overoptimistic so we are watching very carefully, especially when short term overnight rates are at zero so we have no ability to lower them further. we need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates, and i think the forward guidance

that we have provided and the policies that we have put in place are providing a great deal of accommodation to the economy to make sure that it is on a sound trajectory. >> referring to the collins amendment, the senate recently passed legislation to clarify the fed's ability to apply an insurance-specific capital standards to insurance companies that it oversees. why is it important that congress act quickly and pass this legislation? >> well, as my colleagues and i have made clear on many occasions, our objective in designing regulations for insurance companies that come under our supervision or other non-bank sifis will be tailored

to suit the needs and special characteristics of the entities that we supervise, and we are certainly trying to achieve that in the case of the insurance entities that we supervise. but there are constraints on our ability to take, tailor appropriate regulations and the collins constraint, the collins amendment does pose constraints, so i think it would be useful to increase flexibility to allow us greater latitude in tailoring appropriate regulations. >> in light of your recent speech -- how you envision the fed using macro prudential tools instead of monetary policy to maintain financial stability and build resilience in the financial system? >> well, i think most importantly, we have

substantially strengthened the capital and liquidity positions of banking firms and financial firms that we supervise more generally. our objective is to make sure that these firms are on solid footing and to the extent that the financial system or the economy are buffeted with shocks, that these firms will be resilient, that they can continue to lend to support the credit needs of our economy, even under adverse circumstances, and i would say our stress tests are a very important part of that as well. so first and foremost, the entire agenda from dodd-frank and more broadly coming out of the financial crisis to see a more resilient, better

capitalized financial system, banking system, i'd say is the core of that effort. so if there were an asset price bubble and we did not intervene effectively to deal with that, and that bubble burst, we want to make sure that the financial system can withstand such a shock, and that is an objective of our efforts. we can also use more targeted tools that try to make sure that as business cycle conditions improve as we go into more robust boom times, that for example, in our stress tests, we have automatically designed the scenarios to impose a more severe stress that firms need to be able to survive as asset prices increase and the economy grows more robust. so those are the kinds of tools i largely have in mind.

>> senator crapo? >> thank you, mr. chairman. chair yellen, in your testimony you mentioned that you currently anticipate that the federal funds rate will continue below levels that the committee views as normal for an extended period of time. you also added that depending on economic outlook, this rate increase could occur sooner or later as we get a better feeling for the strength of the economy. based on your view of the economy and the markets, when do you currently anticipate this first rate hike to occur? >> well, the committee has given guidance that says what we will be looking at is the progress we're making toward our two congressionally mandated objectives, maximum employment and price stability or our 2% inflation goal. so there's no formula and there's no mechanical answer

that i can give you about when the first rate increase will occur. it will depend on the progress of the economy and how we assess it based on a variety of indicators. to get a sense of the views that members of our committee hold included in the monetary policy report is a summary of economic projections that all participants in the fomc provided at the beginning of our june meeting. so these projections are just that, they depend on each participant's own personal economic outlook and they are not a policy statement of the fomc, but they provide some sense of concretely what participants expected at the beginning of that meeting, and those projections show that

almost all participants anticipate that the first increase in the federal funds rate, if things continue on the trajectories they expect, would come sometime in 2015, and the median projection for where the federal funds rate would stand at the end of that year was around 1%. so a positive but relatively low level. and i think that gives you a feeling for what participants thought would be appropriate given their projections in june. i want to emphasize, as i've said repeatedly, that what actually happens, our projections change with incoming data. the economy is uncertain and what will actually happen clearly is going to depend on the progress the economy makes. but i think that's consistent with the forward guidance that's

contained in the fomc statement as well. >> thank you. based on the minutes of the most recent fomc meetings, the discussion of monetary policy normalization has become an important topic for the committee. one of the strategies that is discussed is that the fed will drain reserves by lending its securities out to the market as a part of reverse purchase agreements or repos. there is concern that such a facility would be a safe haven in times of market stress, attracting large funds, and depriving business of credit. is this a concern of yours, and how would the fed address the potential that the facility could aggravate a market crisis? >> well, let me say that these are matters that we are discussing in an ongoing basis and no final decisions have been made about the precise strategy that we will use when the time

comes to normalize monetary policy. but we have tried to provide in the minutes a very good summary of the thinking in the committee as these discussions have taken place. one of the challenges we face is, as you mentioned in your opening remarks, the fed's balance sheet is very large. there are a very large quantity of reserves in the banking system and because of that, that poses some limits on our ability to precisely control the federal funds rate. we can't really use quite the same strategy of intervention we used prior to the crisis. so we have indicated that the main tool we will use is the interest rate we pay on overnight reserves. the overnight rrp facility that you referred to, i think of as a backup tool that will be used to

help us control the federal funds rate, to improve our control over the federal funds rate. i think it's a very useful and effective tool. we have gleaned that from the initial testing that we have done. but as you mention, we do have concerns about allowing that facility to become too large or to play too prominent a role, and for precisely the reason that you gave. if stresses were to develop in the market, in effect it provides a safe haven that could cause flight from lending to other participants in the money markets. so two tools that we can use and are discussing to control those risks, one would be to maintain a relatively large spread between the interest rate we pay

on overnight reverse rrps and the interest rate on excess reserves, the larger that spread, the less used that facility will be. also, we can contemplate limits on the extent to which it can be used either aggregate limits or limits that would apply to individual participants and all of that is figuring into our discussions. >> thank you. >> senator reed? >> thank you very much, mr. chairman. thank you, madam chairwoman. you pointed out obviously that the mandate or one of the mandates of the fed is full employment. we have seen some progress, but there has been variations regionally. my state still suffers from a significant unemployment crisis. also underlying the overall statistic is persistently high long term unemployment number. can you comment about what the fed is doing to try to address these two specific issues, and

further comment upon whether as i feel, congress can complement your efforts by reinstating long term unemployment benefits for these people? >> well, as you note, nationally long term unemployment is at almost unprecedented levels historically and the average duration of unemployment spells is extremely, extremely long. and also of course, there are variations from state to state in the level of unemployment with some states seeing much lower unemployment than the national average and the reverse. so our monetary policy really can't affect things at the level of individual states and we have no specific tools to target long term unemployment, but my

expectation is that as the national unemployment rate comes down and if the pace of job creation stays where it is or even rises, i expect to see improvements on all fronts and in fact, long term unemployment has declined, and the evidence that i've seen, although perhaps not utterly definitive, suggests that the long term, the decline in long term unemployment does on balance reflect those who have experienced long spells getting jobs and moving into employment and not simply becoming so discouraged that they move out of the labor force. so that is a healthy development and you know, while long term unemployment remains at exceptionally high levels and is a grave concern, i do think we are seeing improvements as the

job market is strengthening and i think in every state, we should expect to see, as confidence in the recovery grows and strengthens, we should definitely expect to see improvements. >> you point out that the federal reserve's monetary policies have limitations but fiscal policies of the congress can be much more proactive in terms of one unemployment benefits so that these people have some support as they look for and don't get discouraged in their quest for jobs, and second, infrastructure and a host of programs, and i would assume you would see these as complementary to your goal and necessary to your goal. >> well, senator, i think that these are really matters for congress to debate and decide with respect to long term unemployment benefits. obviously we have a situation where long term unemployment is

far more common in the population and imposing serious, serious tolls. >> yeah. you don't have to respond but my sense is that for the last several years, you've been the only game in town in terms of trying to deal with this issue, because we haven't taken some of the actions that we could that would have been beneficial and see us in a much better situation today. >> well, fiscal policy has been, i think, cbo would confirm, a significant drag on the recovery and fortunately, that's diminishing and in fact, i think that's one of the positives for the economic outlook for economic growth going forward. >> well, i hope you're right. just quickly, changing the subject, and probably making a point because my time is rapidly diminishing, the federal reserve in 2011 had a program independent foreclosure review process which they were trying

to help people who had been misserved by the foreclosure process services. that was scrapped shortly afterwards and essentially went to a direct payment about $3.9 billion. i am told that that program still has cash on hand, that you haven't been able to reach the people, people who have been receiving checks haven't cashed them or don't intend to. this residual money, can you reprogram to state agencies or local initiatives that are much more effective in getting the money out? would you consider that? >> no decision at all has been made at this point on what to do with residual funds, and so there may be a number of options we have yet to debate that. >> again, there are states, you know, and regions that need this help and if you could get the money to the people who can get it out, that would be i think positive. thank you, madam chairwoman. >> senator vitter.

>> thank you, mr. chairman. thank you, madam chair, for being here for your work. this week on the senate floor, the senate is expected to adopt and pass my amendment to mandate that at least one member of the federal reserve board have direct community bank or community bank supervisory experience. what is your reaction to that mandate? >> senator, i would welcome the appointment of a community banker to our board. i think a community banker can add a great deal to the work that we do and i have worked with community bankers like governor duke or community bank supervisors like then governor rask, and seen how much that

experience can contribute to our work. so i am very positive on the idea of having a community banker appointed to the board. that said, i don't support requiring it via legislation. there are seven governorships, the board has many different needs. i think if we were to sit down and make a list of all of the kinds of expertise that are needed and are useful, there would be more than seven items on that list, and i would, you know, prefer to see appointments made in light of the priorities, including for a community banker, rather than for the indefinite future locking in and earmarking particular seats for particular purposes. i feel that's a road that could

go further in a direction that would worry me if we are earmarking, we could end up earmarking each seat for a particular kind of expertise and i think greater flexibility needs to change over time. but that's not in any way to diminish my support for seeing a community banker appointed to the board. >> well, we look forward to this community bank experience being more forcefully put on the board through this legislation so we'll agree on that and look forward to it. madam chair, we have talked a lot over your various visits about too big to fail. it's a concern of mine and other members of the committee on both sides of the aisle. what i have personally heard is your agreeing with that general concern, but i have not really seen that translate into

concrete policy moves to curb and change the continuation of too big to fail. that's my opinion. so in that context, you were last before us on february 27th. what if any specific policy changes, initiatives, movement, has the fed or other regulators taken to curb and help end too big to fail? >> so we have finalized our basel 3 capital requirements that significantly increase the quality and quantity of capital in the banking system. even before we did that through our stress tests, we have worked to ensure that especially the largest and most systemic institutions have the ability to not only survive a very adverse

stress to the system, but also to lend and support the needs of the economy through such a stress. the amount of capital in the banking system has basically doubled since 2009. we have put in place, we have put out for comment, a liquidity coverage ratio rule that we hope to finalize this year. we are in the process of working through a regulation that will implement so-called sifi surcharges or surcharges for the largest, most systemic firms. we have finalized an enhanced and higher leverage standard for the eight largest firms in the united states, and we are working very hard to make sure

that these firms are resolvable in the event they should encounter a stress that overwhelms those substantial defenses so the fdic under its orderly it has established an architecture for doing so and the united states is working with other global regulators to think through how that authority could be exercised to deal with cross border issues. we are discussing in the united states and globally, a requirement for the largest and most systemic organizations to hold sufficient, unsecured long-term debt at the holding company level to enable a resolution that would be smooth in the event that such a firm had to be resolved.

we are working with those firms also on living wills to enhance their ability to be resolved under the bankruptcy code. >> thank you, mr. chairman. >> senator schumer. >> thank you, mr. chairman. thank you, madam chair. you've done a very good job. you make brooklyn proud. i'm so glad to have these hearings. i've been sitting at humphrey hawkins hearings since 1981 in the house and senate. they are very elucidating. my first question deals with probably your most difficult issue as fed chair, the anal-old balancing test between fighting inflation and going to full employment. it's a hard tight rope to walk, particularly as conditions change. we are now in a period of change. obviously, unemployment declined, thankfully. obviously, the economy is beginning to pick up. as a result there's a lot of

pressure coming from many for you to not only accelerate the end of qe-2 quantitative easing and to raise rates. i would urge caution very strongly. to me the greatest problem this country still faces is lack of good-paying jobs, decline of middle class incomes. that's with us very, very strongly. worldwide labor markets still keep a lid on inflation. your stated target of 2% ten years ago, if people heard the stated target was 2%, your predecessors, their jaws would drop, but we're not even at that. i would just ask you to be very cautious before you taper the qe-3 program too quickly and entertain the prospect of raising rates.

could you comment? >> yes. so i certainly agree and tried to emphasize while we are making progress in the labor market, we haven't achieved our goal. it's also the case that inflation is running under our 2% objective. so both of those facts plus the fact that there have been substantial head winds holding the recovery back, and those head winds, while we are effectively overcoming them and making progress, until they are completely gone, it calls for an accommodative monetary policy to offset that. i would say even if you consider our forward guidance we put in place in march, the committee indicated that even after we think the time has come to raise rates, that we think it will be

some considerable time before we move them back to historically normal levels. that reflects, well different people have different views, but to my mind it, in part, reflects the fact head winds holding back the recovery do continue. productivity growth has been slow. of course, we need to be cautious to make sure the economy continues to recover. we have tried with respect to our asset purchases to set out a clear objective that we had to see a significant improvement in the outlook for the labor market. to put in place a process by which reductions in the pace of our purchases would be measured, deliberate and allow us time to assess how the economy is recovering and we followed, i think, a very deliberate course.

so i also emphasize this is not a preset course. if we were to judge the conditions had changed significantly, it's not locked in stone. >> thank you. i'm glad and somewhat relieved to hear. i know there are pressures. i would like to tease each side of that question. we are seeing improvement in job growth and seeing declines in medium income and middle class incomes and lower incomes. what it means is the number of jobs created that really pay well isn't growing quickly enough. poor paying jobs are growing more quickly. how can the fed, if in any way deal with that. on the other side one of the things you worry about are bubbles. qe-3 pushed a lot of money into corporate bonds, the stock market. i don't think there are bubbles there yet. but i hope you are considering ways to reduce the possibility of bubbles without wholesale

increases in rates. can you comment on both sides of that? >> well, with respect to wages, most measures of compensation have been running roughly in line with inflation so that real gains in compensation adjusted for prices or in real terms have been nonexistent. so while rising compensation or wage growth is one sign that the labor market is healing, we are not even at the point where wages are rising at a pace that they could give rise to inflation. in fact, real wages have been rising less rapidly than productivity growth and what we've seen is a shift in the distribution of national income away from labor and toward capital. so there is some room there for

faster growth in wages and for real wage gains before we need to worry that's creating overall inflationary pressure for the economy. that's something we are watching closely. with respect to bubbles, i've stated my strong preferences to use macroprudential and supervision policies to address areas where we see concerns. as i mentioned, we are doing that in the face of, for example, leveraged lending. but i would never take off the table totally the idea that monetary policy might be needed to address financial stability concerns. to me, i don't see financial stability concerns at the level at this point where they need to be a key determinant of monetary policy. it's not my preference as a first line of defense by any means, but i would never want to

take off the table that in some circumstances, particularly if macro-prudential tools failed monetary policy might be called on to play a role, but we're not there. >> thank you. >> senator johans. >> thank you, mr. chairman. madam chair thank you for being here today. this is the first time you've been before the committee. one as nominee, now twice as role in chair. when you came to the committee last fall i was concerned about the lack of progress to deal with the $4 trillion balance sheet. i worry that the risk of quantitative easing outweighs the benefits. since that time, i want to say to you, i think you've moved in the right direction.

in fact, you've moved at a pace that maybe i did not anticipate. you're down to $35 billion per month. but the reality is there is still a $4 trillion balance sheet out there, which is concerning. in your testimony you speak of your concerns about false dawns. there's been some fits and starts with the fed in terms of tapering. so my question gets to this issue. you're anticipating that by october this program will cease, come to an end. what could happen in that period of time that would cause you to recalibrate and decide that october is not the appropriate date, maybe the program should

go on for a period of time. tell me what metrics you are looking at to make these judgments as you go along. >> well, the committee indicated that the path of purchases is not on a preset course. and all along at each of our meetings where we had to decide whether or not to cut the pace of purchases or to stop that or even to increase purchases, we've asked ourselves two questions. is the labor market continuing to improve, and do we remain confidence that going forward it will continue to do so? and do we see evidence that inflation is moving and will continue to move back to our 2% objective over time? and at every one of our meetings since last december when we started to taper