suggested that adding a financial stability mandate to the overall mandates of all the u.s. financial regulators could help improve financial stability. can you comment on the effect that adding an explicit financial -- i guess i'll get that in writing, my response. my time has expired. thank you. >> time of the gentlelady has expires. we recognize mr. backus, the chairman emeritus of our committee. >> cherry allen, let me begin by saying this will be my final federal monetary policy hearing that i'll participate in as a member of congress since i'm retiring at the end of this year. during my 22 years of service on this committee, including my six-year term as ranking member and then chairman, i have heard testimony from the federal reserve chairbernanke, and now

yourself. my observation during these times of both prosperity and during times of financial crisis is that we have leaders and a professional staff at the fed who have conducted themselves with honor and who have been true public servants. so let me thank you as well as your professional staff and as well as your predecessors for serving the people of america in this most important and tremendously demanding position. >> thank you, congressman. i appreciate that. >> thank you. we've seen that f-soc where the fed is a key player exercise the authority granted by dodd-frank to designate institutions as cifis or financially systemically important. this is included asset managers and insurance companies which

has been somewhat controversial. my experience is that there is often a greater resistance to a designation or a ruling when the parties feel they hadn't been consulted or the process is not transparent enough. so one of the approaches that is attracting some interest is to require that companies being considered for a sifi designation be provided with specific reasons why and also a description of steps they could take so they might not be named as sifis. and this would be between the particular company and the fed. it wouldn't be a public discussion. do you agree or would you consider that as a reasonable approach? it would bring greater transparency to the sifi designation process, and i think laying out a clear methodology

actually leads to more certainty and confidence in the process, and i think it would be accepted more readily. >> well, this is clearly a very important thing that happens to a company when it's designated. and i believe it utterly has to be given every opportunity to understand the logic of why the fsoc is thinking that it poses systemic risk and every opportunity to present its own analysis of the issues and to interact with the staff and having a very good and frank dialogue and back and forth. and i believe that that is part of the process. and the firms are given every opportunity to intensively interact with the committee and

its staff before any organization has -- is designated as a sifi. that is completely appropriate. now, in that process, there is a great deal of confidential information, so i don't feel it's appropriate for that to take place in the public domain. >> and i would agree with you. i'm talking about a give and take between the parties. >> i think that is absolutely appropriate. and to the best of my knowledge, i mean, i've not served on fsoc when any institution has been designated, but to the best of my knowledge, when the institution gets into the latter stages of the process, there is a great deal of back and forth. >> thank you. let me talk about some demographic influences on labor force participation because i know that concerns you, it concerns all of us. part of it is the rise in the service sector employment where

we have gone to a lot of part-time employment. some good reasons by choice, some not. but also many analysts think that it's being driven in part by aging u.s. population, particularly as retirees exit the work force. does the fed take that into consideration when they talk, you know, if labor force participation doesn't pick up and growth does, how does that affect your decision to keep rates low? >> a very brief answer, please? >> i fully agree with your point. demographics and an aging population is driving and should be expected to drive the labor force participation rate down. so the question is, has labor force participation fallen more than would be expected based on demographics? and my personal judgment is,

yes, it's fallen somewhat more than that, but aging is a very important downward force, and that's what i expect going forward. >> the time of the gentleman has expired. the chair now recognizes the gent gentlelady from new york, ms. velazquez for five minutes. >> thank you. madam chair, with the prospect of zero percent interest rates coming to an end, some have warned this could unduly hamper economic growth. yet, the low interest rates pose a real threat of creating asset bubbles. what has the fed seen in the markets concerning asset prices and does the threat of a bubble outweigh any slowdown in economic growth? >> so the federal reserve has been increasingly and intensely focused on financial stability and we understand that

maintaining interest rates at low levels for a long time can innocent reach for yield or asset bubbles so we are monitoring this very closely, and that's in part why i referenced some of these trends in my opening testimony. my general assessment at this point is that threats to financial stability are at a moderate level and not a very high level. some of the things that i would look at in assessing threats to financial stability to see if they're broadbased, broad measures of asset prices, of equities, of real estate, of debt, do they seem to be out of line with historical norms? and i think there the answer is

no. some things may be on the high side and there may be some pockets where we see valuations becoming very stretched, but not generally. >> thank you. >> the use of leverage is not broadbased. it hasn't increased in critic growth is not, you know, at alarming levels by any means. >> thank you. although the economy is recovering at an accelerated pace, many experts have warned of the disconnect between start market gains and overall economic growth. what impact are the fed's current monetary policies having on this phenomenon? >> well, low interest rates, an environment of low interest rates. interest rates are one factor that affect asset prices generally including equities, so a low interest-rate policy, i

think, partially accounts for why housing prices have rebounded and also is an influence on equity prices, but it's not the only influence. the economy is recovering, and earnings have been -- >> but do you find this to be concerning to you? is it concerning to you? >> the issue being that monetary policy affects asset prices? >> yes. >> that is one -- >> well, the disconnect between stuck market gains and overall economic growth. >> so i don't have a view. the federal reserve doesn't take a view as to what the right level of equity or asset prices should be. but we do try to monitor to see if they are rising outside of levels consistent with historic norms. and as i indicated in spite of the fact that equity prices

broad indices have risen substantially, price equity ratios and other measures are not outside of historical norms. and i don't know what the right level of prices is, but in that sense, i'm not seeing -- >> thank you. >> -- alarming warning signals. >> as we all know, the economy has been creating jobs at an accelerated pace recently despite fears that tapering the fed's qualitative easing could slow the recovery. in your opinion, is this strong evidence that the economy has turned the corner and now is healthy enough to self-sustain the recovery? >> i am optimistic about the economy, and that's reflected in the forecasts that are included in the monetary policy report. we had a very surprising negative growth in the first

quarter, which is a number that in a way doesn't seem consistent with the underlying momentum in the economy and many indicators of spending and production. and i do think the economy is recovering and that growth -- growth is picking up, and that we have sufficient growth to support continued improvement in the labor market, and we have seen, you know, maybe not progress over many years at a pace that would be ideal, but real progress that will continue. >> thank you. >> time of the gentlelady has expired. the chair recognizes the gentleman from new jersey. >> i thank you, mr. chairman. ms. chair. a couple questions, we finally over here. on this side. >> oh, sorry. >> that's okay. finally, after many, many months, we've got responses to the questions that we put to you months ago. one of them -- one of the questions came about because one of the fed governors have stated

they believe a failure of a large broker dealer would be destabling to the economy. so we asked you, do you support expanding the fed's discount window during turbulent economic times to expand your regulatory -- you said no, i do not favor expanding the window to broker dealers and nonbanks. you said you support stringent capital standards and liquidity requirements and also you said you support the resolution regimes. i get that. if those regulations and the resolution regimes do not work, do you then rule out access to broker dealers and other nonfinancial institutions to the discount window? is that what you're saying, you rule that out? >> well, under the terms of dodd-frank act, the federal reserve is barred from extending discount window lending to an

individual firm. >> right. >> and we are confined to broadbased facilities. >> so would you rule out then extending 13-3 as well? >> so if there were general financial disruption and we were in a situation of systemic risk similar to what we saw during the financial crisis where we have a general panic -- >> then you would use 13-3 to allow broker dealers to have access to a 13-3 potentiality or access to the discount window is what you're saying under those circumstances? >> i believe a broadbased scheme in the situation of systemic risk -- >> so we would be -- >> -- is a possibility, but it's something that would have to be very seriously considered. >> we would be actually

extending the american public backstop to broker dealers under your administration potentially? under the right circumstances of what you just said, that's what i heard. >> it depends what the circumstances are. >> that's quite astounding that broker dealers and other nonbanks will now know or are on notice that they may have under the right circumstances 13-3. >> it would have to be unusual and exigent. >> understood. understood, but now we know. secondly, secretary lew was here sitting where you were sitting recently, talking about the fsb. after much questioning and answering, we asked what is the process. he said the fsb acts in a consensus manner. we said, well, did you secretary consent to the designation of specific globally systemic financial firms. he said, yes, he did consent to them. my question to you is very simply, did you agree with

secretary lew. did you also consent to those designations of globally systemic firms or did you take a contrary view? did you object? >> i have to say i was not at the time involved in any way with the fsb, and i am not -- i am not at this time either. >> so you do not take part in any discussions with fsb as far as the determination of globally systemic -- >> i have personally not been involved in those discussions. governor tarullo is our representative of the fsb. >> governor tarullo is our representative and not you? has he consented as far as you know? >> he may well have been involved in those discussions and consented. you would have to pose that question to him. >> okay. he doesn't come up to testify. that was one of the provisions of our bill to see whether we could get him to come up here to testify on that section, but

okay. do you believe that, speaking of -- sort of speaking of which, over with regard to fsoc, we sent a letter to the head of the new york fed, dudley, with regard to his involvement with fsoc. he's an active participant, is my understanding. is that correct, with fsoc? >> i believe he has the status of observer. >> well, my understanding is that you have given him active participation status. is that correct or is he just an observer? >> i am not in a position to make any rules about who can or cannot attend fsoc. those are done by the leadership which -- >> well, you allow him to attend. would you allow members of this committee to attend? >> it was not my decision. >> to allow him to attend? >> the time of the gentleman --

>> can i just get an answer, whether it was her decision. who allowed him to attend these meetings? >> brief answer, please. >> i believe the treasury secretary. >> thank you. >> the chair now recognizes the gentleman from california, mr. sherman. >> chairman yellen, we learn a lot from you. thanks for being here. you also have a chance to learn from us, not because we have any great economic theories worthy of your consideration but because we represent 60-plus districts from coast to coast. we're intensely aware of what's going on in our districts. and we prove that biannually. and the reports you get from members of this room as to what's happening in their districts are uniform even though our economic theories are disparate and in many cases unworthy of your attention. the economy is worse than your statement indicates. there isn't a person in this

room who has waxed eloquently about how everything is going spectacularly in their district. and many, many members have told me and spoken about how in a very large percentage of this country, we're still in recession. a second reason for you to push toward more quantitative easing and a continuation of low interest rates is that you have very few tools left if we slip back into recession. and you have all the inflation fighting tools still available to you. you, i think you understand that. there's a second area where i think you can learn from us, and that's not in the monetary policy area but you're a top bank regulator. we had an exchange back in february in which you described how important it was to loan money in local communities.

and i explained to you and i have talked to my colleagues here. your regulators haven't gotten the memo. you can send them a copy of the remarks you made in response to my question in february. many, many small businesses can't get loans even with an appropriate risk premium. in fact, if you're trying to borrow money at prime plus five, oh, my god, you're terrible. we can't talk to you, rather than the idea that you're going to make 100 loans and one is going to go into default, it's, you're going to buy 100 government bonds and that's not a way that a bank can contribute to the economy. you may remember back in february we talked about the financial accounting standards board lease accounting project which would capitalize all leases and add $2 trillion to the lieabilities of balance sheets of american business.

and at that time, you indicated that you would have your staff look at this, both in terms as to whether you would want to comment on something that other economists have said will cost $400 billion to our gdp, as companies try to rebalance their balance sheets and because nobody can build a big building without a long-term tenant. and if you penalize companies for signing long-term leases, you're not going to have long-term tenants. i wonder if you could at least recommit to having your staff look at that, perhaps be willing to comment on it because those folks at the financial accounting standards board, the slightest hint from you or your staff would be very instructive to them. and if they won't listen to you, at least you could price into your economic projections and economic risk that only an accountant would bring to your attention. i wonder if you could comment. >> we'll have a look at that and

try to get back at you. >> okay, as to designating sifis, i hope you would focus not on the size of assets but the size of their liabilities. it was leman brothers' inability to pay its liabilities that was the final straw. if you had some blue chip name that everybody loved so they were able to issue trillions of dollars of credit to fault swaps, i would say they would be a sifi, and particularly a sifi if they didn't have a lot of assets because their failure would have a substantial effect on our economy. i hope you would look at the liabilities and contingent liabilities, not indeed their assets. that would argue for not designating as a sifi an unleveraged mutual fund since they don't have liabilities. >> i mean, fsoc is in its

analysis just as you said, trying to identify whether there is specific and well defined channels by which the failure of a particular organization would have spillovers to the rest of the financial system that would be severe, and it's not just a question of size, and not just a question of the assets they hold, but, fraor example, if the are liabilities and if they're highly runable and they're a highly interconnected firm that would point in the direction of systemic risk as you indicate. >> time of the gentleman has expired. the chair recognizes the gentleman from texas. >> thank you, chairman. chair yellen, thank you for being here. i want to go back to something you said in 1995. you said this policy which fits the behavior of this committee is an example of the type of hybrid rule that would be

preferable in my view if we wanted to rule. i think the greenspan fed has done very well by following such a rule and this is sensible for central banks to do. but earlier, you said i'm not aware of any literature that establishes that a central bank adopting a rule, whether it makes it public or not, is the most desirable way to run monetary policy. so were you for it in 1995 and now you're against it in 2014? i'm having trouble reckonciling that. >> so, as i said also this morning, i think simple rules can be a helpful guide in starting point in thinking about the appropriate stance of monetary policy. i said that then, and i continue to think that now. and i will say that before every fomc meeting, i review the recommendations of a number of

sensible simple rules. and so as an input, i regard this as valuable. now, during the time period that i was referencing in that 1995 statement, that was the so-called great moderation. and there actually had been quite a lot of literature looking at the different ways to run monetary policy that established that simple rules like the tailor rule, really could do quite a good job, maybe not the best possible, but quite a good job of delivering good economic performance. and behavior during that time was not bound by your rule but i think it was good policy. and it had the characteristic that pretty systematically is the labor market tightens, the stance of policy became tighter, and as inflation rose, policy

became tighter and tighter enough that real interest rates that not all interest rates were raised more than inflation, and these are sensible ways to conduct monetary policy and policy wasn't bound by a formula. it didn't adhere exactly to a mathematical formula. there were sometimes other factors that were important and factored in, but it was sensible, but now in the more recent period, and i remain -- i continue to think it is useful to look at simple rules and think about their recommendations. what i oppose is tying monetary policy through a rigid mathematical formula to any rule, and we've now lived through a period where those rules would have performed just miserably. and if we had followed them, we would have had dreadful, even more dreadful macroeconomic

performance than the disappointing recovery we have enjoyed. and i think that if the kinds of analysis that had been performed earlier, that showed that these rules worked well, if you rerun this, that type of analysis through the period, the last six or seven years, you would find that they would not have performed well. even so, i mean, i hope that as the economy becomes more normal and as interest rates get back to more normal levels, that the world will be less volatile, and i continue to think that the recommendations of such rules are worthwhile to look at. i have given a number of speeches in recent years in which i have discussed those rules and their recommendations explicitly, and it's something i wouldn't do if i thought there wasn't some value in it. on the other hand, i have tried to explain in a number of speeches why i think there would not have worked and would not have been appropriate in the

circumstances -- >> i don't mean to be rude. what i hear you saying is that the rule structure is not totally unacceptable in the fed's scheme here, but you have some -- >> not rigidly tying our hands to something, but it's useful input. we have models. we have forecasts. we have a number of inputs into the policy process. and a rule -- rules, a collection of them, do provide useful input, and we do take it into account. but i just would not go further than that. >> thank you. i guess my time has expired, mr. chairman. >> chair now recognizes the gentleman from massachusetts, mr. lynch. >> thank you, mr. chairman. mr. chairman, i want to ask unanimous consent to submit a report for the record by the americans for financial reform dated july 10th, 2014, which i will refer to in my remarks. >> without objection. >> thank you, mr. chairman.

welcome, madam chair. thank you for your willingness to participate here and thank you for your patience. last month, federal governor tarullo gave a speech in boston and he described the stress test for major banks as the corner' stone of the regulatory response to the recent financial crisis. you tend to agree with that? >> i think they have been very important in strengthening supervision. >> the idea of the stress test as i understand them is that, well, the value in that annual stress test is that we inspect the capital reserves, we inspect the risk management policies within the banks, and when they pass, ideally, when they pass the stress test, there's actually value in passing that

stress test because they've got a stamp of approval. is that the idea behind this? >> well, i think it's really something more than what you just said. is we are using our own models and judgments to take a very detailed look at all of the asset holdings and transactions and exposures of a large financial firm, and we are attempting to assess in a well-specified, highly adverse stress scenario an economic scenario that is extremely difficult. we're making our own very detailed assessment of whether or not that bank would have sufficient capital to continue to meet the lending -- lending needs of the economy and to continue to function, and on top of that, we are insisting that

the firm demonstrate to us that they have the ability to do that kind of analysis themselves. >> okay. >> and judging their risk management capabilities. >> well, you put it much better than i could, but i agree with everything you just said. so the legislation that was offer offered called the federal reserve accountability and transparency act would require the fed in section 4, would require the fed to publish, to give the information to the major banks that are being tested, all of your methodologies, all of the -- i'll read it here. the hypothetical -- excuse me. all of the alternatives that are -- public notice and comment rule making in advance of any stress test, the detail, the

exact models and assumptions to be used in the stress test, so you would have to give that, under the new bill, you would have to give that to the banks. you would also have to allow them to comment and to help design the tests that you're going to give them. now, in my mind, if you're going to give the people the answers to the test, if you're going to let them design the test, won't there be an assumption they can now game this test? >> precisely, and that's exactly why we don't give them the models. we want them to, in a sense, show us their work and show us that they have the capacity in their organizations to make well reasoned judgments about the risks that they face. we absolutely don't want to give them the answers. and when you give the answers, then you don't get to see the work that demonstrates that the student has learned the material

and can apply that kind of logic in the unique circumstances that will face that firm as opposed to just the scenarios that we have laid out. those firms need to be able to analyze their own unique and specific risks that they face. we set out a couple of scenarios, and we do detailed analysis, but what are the unique stresses that could afflict a particular firm with particular characteristics, we want to make sure they have models that will serve to analyze those situations. and they can't just use our models for that. and they need to show us that they understand what the unique stresses are that could hit those firms as well. >> i thank you, and i yield back. >> the chair now recognizes the gentleman from georgia for five

minutes. >> thank you, chair yellen for being here. i want to follow up just on one of the things that mr mr. garrett -- one of your answers. you said that mr. tarullo is the federal reserve representative to the financial stability board. you're his boss, and you are the chairman of the federal reserve. and are we to really believe that the gentleman acts on his own without any direction or oversight from you? >> well, i think he -- congressman garrett referred to decisions that were made about naming global systemically important banks, and that occurred before i was chair. i'm sure that he consulted with chairman bernanke. >> okay, so he's not independent? >> well, no. the chairman obviously has responsibilities. >> just to go back to the

independence part of the federal reserve from the executive branch, i'm sure that you're aware of the 15 chairmen in the fed's history that 10 of them have either served at treasury or at the white house. and it seems to be a revolving door type policy between the federal reserve and the treasury department in that it actually continues today. and the fed's staff has gone back and forth into the treasury department, including into the current administration. so do you believe this revolving door poses any risk whatsoever to the fed's independence? >> so i think that the fed's independence is extremely

important. and i have never in my many years in the fed seen anything occur that led me to believe that it had at any time been threatened. and while i understand the point you're making, i mean, it is essential that the federal reserve remain independent. >> okay. >> i perceive -- >> i appreciate it. that kind of leads me to the next question. you know, we here in congress have been having a vigorous political debate about infrastructure spending and unemployment benefits, to continue. in your senate testimony, you dived into this political deb e debate, expressing your support for more infrastructure spending in response to questions from senator menendez in a recent letter to representative sunema

who is a member of this committee, you expressed the virtues of extending unemployment benefits. we will continue to debate the merits of this, but do you have any reservations that carrying the water for the democrats on this fundamentally political issue risks the fed's independence? impartiality and indeed, its credibility? >> so i don't think it's appropriate for me to weigh in on these issues. and i don't -- >> why did you? >> i do not interpret what i said about infrastructure to have been telling congress what i think it should do. i commented, as i recall, to senator menendez on the stance of fiscal policy and the way it had been affecting the economy. >> so you don't think we need to spend on infrastructure? that wasn't what you meant by

your comment? >> i believe it's entirely appropriate for congress to debate and decide that. >> okay. was it appropriate just to even talk about it? i mean, did you not answer senator menendez that that's up to you, it's not up to me? >> i believe that was the spirit, although i did comment on the fact that fiscal policy had posed a significant drag to economic growth over the last several years. >> okay, quickly. the chairman's staff and the committee staff discussed the federal reserve's role in operating a payment system for the treasury department with a new york fed staff. >> i'm sorry, what system? a what type of system? >> a role in operating a payment system for the treasury department. >> a payment -- okay. >> and they discussed it with

the new york fed staff who operate that system. and the staff of the new york fed described the fed's role there as treasury's agent and described the treasury department as the fed's client. is this characterization just a yes or no, is that a good characterization of your relationship? >> the federal reserve is the fiscal agent of the government? and in that sense, that's correct. >> time of the gentleman has expired. the chair recognizes the gentleman from georgia, mr. scott. >> thank you, mr. chairman. i'm over here in the yellen. i would like to just take us briefly in another direction because we don't operate in a vacuum in the united states. and to what extent are the developments in various parts of the world taking place now in

ukraine, you got the situation in iraq, possible caliphate there, the israeli-palestinian situation, syria. i mean, the world is aflame. and i'm wondering what extent this would have on our global economic growth and especially united states economic outlook. but something that's going a little bit unnoticed is another situation, and that situation is iran. and by sunday is the deadline, and the decision and agreement is supposed to come out. and collaboration with all of these other hot spots that's happening around the world, what would be the global impact in terms of economic growth and

where would the united states be? i know you in treasury talk in concert on this, particularly in treasury, which is basically the enforcer of our sanctions, which is based largely on quite honestly, the well being of the united states economy. so what would happen sunday if one, they don't come up with an agreement? and ask for an expansion? or they do come up with an agreement that has nothing to do with this meddling, and israel would not accept it? so sunday presents a very timely issue, and i thought we might benefit from your thoughts on that including the other things that are happening, iraq, syria, so forth, israel. >> well, certainly the

developments that you're talking about present risk to the united states through any number of different channels. in trying to focus simply on the potential economic impact of these developments on the united states, i would be thinking particularly about energy markets that we have seen some disruptions in energy supplies and obviously, there could be much larger disruptions in energy supplies. and such developments clearly would have an impact on the united states and in the global economy more broadly. we also look at whether or not there are significant direct financial exposures, for example, of our banking system,

two particular regions that are troubled in the case of the set of countries you mentioned, my assessment would be that the direct financial implications for our banking system would not be large, but in times of global unrest, it's very normal to see disruptions in risk aversion, rise in financial markets generally, and that would certainly were that to occur, have spillovers to the united states and our outlook. >> okay, thank you. now let me ask a question on your asset purchase program. and which i think has done a good job in two important areas. i think it's had -- played a very major contribution in lowering the unemployment and creating jobs. and very significantly in the housing market. in terms of reducing mortgage

rates. is that true? is that pretty much -- >> i believe it has made a positive contribution in the ways that you have mentioned, yes. >> okay, now, i understand that you are going to end that program within a couple months. so the issue is, would that have a downturn impact on the progress we've made in both unemployment and housing with this program? >> well, we're continuing to purchase assets, so in that sense, we're continuing to add stimulus. and even if we stop our purchases, our large holdings will be supporting lower, lower long-term interest rates, and i think keeping aeour mortgage ras lower and we'll continue to provide a positive for the housing market. if we lacked confidence that the labor market and the economy

will continue to improve, we probably would not have been comfortable winding down the asset purchase program. but i do think the economy is improving, the labor market has improved and will continue to do so. >> the time of the gentleman has expired. >> thank you very much. >> yield to the jenltalman, chairman of the oversight investigation committee, mr. mchenry. >> i thank the chairman. chair yellen, thank you for being here. >> thank you. >> i know these days are long, but i wanted to ask you about something that i care about. it's section 113, part d of dodd-frank. and what this in essence says is that you will have an annual review of the sifi designation, right? that there is a mandate under dodd-frank that no less than annually there will be an undertaking by fsoc to review the sifi designations for

nonbank financial institutions. you as well as secretary lew have both pledged that you're committed to that prausocess, ai assume that remains the case. the question i have is what metrics are you going to use for review, that annual review? >> so you know, i have not been involved in that. it hasn't come to fsoc yet. i'm not certain of exactly what they will look at. i would assume that they would look at some of the same metrics and whether or not those have changed, that they used in deciding to resonate those -- >> i would appreciate if you would follow up with me on this to give us an understanding of what that is. this is for -- the four-year anniversary of dodd-frank is next week, and for us to not have an annual review process set up on the sifi designation is concerning. now, related to that, you also

have under section 165, the opportunity for remedies after the c-car process and the living will process to seek remedies from firms. you know, both governor tarullo and former governor stein have told us that the c-car process is moving from a war time setting to more of a peace time setting and there's a bit of tension between customization and standardization under this c-car -- under the c-car metrics. so why don't you go through the c-car process, once you get the review of this process, at the end i'm sure you and your staff pore over the way to improve it for the next time. are there some key takeaways that we can understand from the c-car process? >> i'm sorry. you're talking about c-car? you mentioned living wills as well. >> my next question is about living wills. >> you're talking about the c-car process? >> my question is about the

c-car process. my next question, to give you a heads up, is on living wills. >> okay. i think we have learned a lot from the c-car process. we have refined our own modeling techniques, and i think worked with the firms to clarify over time what our expectations are for their risk management modeling capabilities and i think we've had good back and forth that's leading to improvements in how we conduct this. >> okay. about living wills, you said yesterday in front of the senate, i know one senator asked you this question rather directly. and apparently wasn't satisfied with your answer about living wills, that you continue to work to improve living wills. can you give us greater clarity on that? because you judge whether or not living wills are credible, right? and if you're continuing to work with firms on their living

wills, does that mean that they're currently not credible? >> we do not make some annual determination as to whether or not they're credible. we may make a determination. we are not required by the statute, but the fdic and the fed can make a determination at some point that the living will is not credible of a particular firm would not facilitate resolution. my own understanding of the process is that this is a difficult and new responsibility for the banking organizations and for us. and that we would have iterations back and forth with the firms and try to set out a set of expectations, look at what they're provided, give feedback, and set out a set of expectations we want to see. >> so if the living wills are

accepted, then therefore they are credible? >> it is accepted does not necessarily mean they are credible. we can determine -- >> that's disconcerted. that's disconcerted because if living wills are intended for that purpose to help unwind these firms and be a road map for unwinding these firms in the event of a cataclysmic event, then they should be credible. >> we will work with the fdic to give these firms feedback on what we want to see them do to facilitate resolution, and of course, that's the objective. but although we're close, we've not even finalized feedback to the firms on their second-round submissions. >> time of the gentleman has expired. the chair now recognizes the gentleman from texas, mr. green, rarnging member of our oversight investigation subcommittee. >> thank you mr. chairman. good morning, madam chair.

and welcome again to the committ committee. i have three questions, each of which could easily consume five minutes of your time. and i do not believe that i'll get through all three, but time. but i will ask if possible that you give a laconic answer to each. you used the term headwinds, unusual headwinds. can you describe some of those? >> tight fiscal policy is one of them. there was stimulus in the last few years, but more recent policy trying to reduce deficits has created drag on economic

growth. that's unusual in times like these. and the system of housing finance and the willingness of residential mortgage lends to provide credit, the standards should have escalated, they have escalated. but now, any borrower without a pristine credit rating finds it hard to get a mortgage. and there are a number of reasons for it. but i think that's a headwind. so, credit availability for some purposes i think is diminished relative to historical norms. and we also see that households have unusually depressed expectations about their future income gains. and i think that weighs on their

feels about their household finances, and those are some things that i see as headwinds from the crisis. and growth has been slow for a number of years. >> and i now have a follow-up for this one. you indicated that these fiscal policies are unusual for times such as these. what would you expect usual fiscal policies to be for times such as these? >> i think historically, when the economy has been weak, fiscal policy has on average provided greater stimulus than it has the last few years. and i understand the reasons why congress has chosen this course. but it's a factual matter, the degree of drag from fiscal

policy, high unemployment situation, it's been unusual. >> and could you kindly give an example or two of the kinds of fiscal policies that have been employed in times such as these? >> tax cuts and increases in spae spending, allowing automatic stabilizers to go into effect. it's been very rare, we haven't in the post war period had really a recession that's been as long and as deep as this one. so, it's been an unusual period. >> i'll take one more question and ask you about indicators.

i try to follow these. but what i'd like from you, as you look at them in general, could you give me just an assessment of where the indicators seem to indicate where we're going? >> i see most indicators that i look at in the economy as suggesting improvement. look at things like industrial production. the labor market. auto sales. what's happening in the housing sector, that may be an exception. not a lot of improvement there. but most measures of spending in the economy, consumer and business attitudes. through all of those, i think we see positive times. >> thank you. i yield back. >> now, mr. duffy.

>> thank you for being here. i want to commend you for the last time you were here, staying for as much time as we would kn need for everyone to be able to ask questions. but maybe it wasn't as pleasurable for you as it was for us. well, we wrote a letter to the president asking he appoint someone to the federal reserve -- i would ask that it be added to the record. community banking experience on the fed board. is that correct? >> yes, i would. >> and it's fair to say that

your role has expanded traditionally. and with dodd-frank, you've had an increased role, correct? >> yes. >> and is it almost fair to say there's an almost unwritten third mandate to protect the country from systemic risk? >> i think that's fair to say. but for the federal reserve, it doesn't necessarily apply to monetary policy. >> and talking about that. you have to monetary policy side. and you also have the regulatory side. and on the good government side for us, we get concerned not about the blackout period during

the foc meetings. we get concerned in congress when you take that blockout period when we talk about the regulatory side. you use the argument for that -- >> we have no blackout period that applies to anything other than monetary policy and the economy. with respect to supervision and regulation, there is no blackout period. it's conceivable that you asked someone to testify, i don't know what specifically you have in mind here. but a blackout period does not apply to supervision and regulation. >> we had a december 2012 meeting, we wanted to have a

hearing on voelker, and the blackout period was invoked. >> it does not apply. >> and we're concerned about the debt. that's why the chairman will put up the fact of our $17.6 trillion debt. and we today, i think the budget committee, paid historic low interest rates on our debt. have you taken a look at what it would cost if we went to historic norms? >> well, certainly, the congress should be thinking about the

fact that over time, as the economy recovers, interest rates will move back to normal levels. >> and if we were able to hold it at $17.6 trillion, the cost to service that debt is going to increase when interest rates go up, right? >> certainly, it will increase. >> and in some of the projections i've seen, it brings us to $500 billion, $550 billion a year. the social good of the country, i think it's important that the country understand that there is a consequence for the spending binge that this town has gone

on. it will have a significant impact. thank you for answering our questions. i appreciate that. with that i yield back. >> and now, mr. cleaver. >> thank you. madam chair, thank you for being here. i want to talk about unemployment. that continues to be a major concern of mine. and frankly, a major concern in the district i represent. and obviously, the macro economic situation is thriving. but when it comes to unemployment, particularly for minorities, it's still almost in recession levels. and i'm wondering if it's a

structural unemployment issue. or is it luddite? >> luddite? i think the labor market is afflicted both by weakness in the overall economy, so things should broadly improve as the economy strengthens. and the unemployment rate, and other broader indicators come down. but on top of that, there are also structural factors that are currently, and have for a long time been creating problems for many, many american families. and luddite tends to refer to technolo

technology. we've seen a widening of income and age distribution going back to the late '80s. economists have been debating the causes. they do see technological changes being one of the causes. to some extent, globalization probably plays a role. and many other factors. but when we think about all of the pressures that middle and lower income families in the united states are facing, some of it comes from the generale weak economy. and i think that's the part the federal reserve can contribute to. but there are deeper adverse trends at work, and perhaps have been exacerbated during this

downturn. >> and some believe that as technology expands, it will create more jobs. do you believe that. >> i think it's determined by macro economic policy. so, i wouldn't believe people have for centuries worried that advancing technology, for example, would destroy jobs. and people would become unemployed. and time and time again, we've seen that's not the case. that even with productivity growth and improving technology, we can have jobs with appropriate policy for people that want to work. so, i don't endorse that. but patterns of change --

economists have been writing about so-called skill bias, the use of new commuputers and information technologies has raised the income of skilled workers and lowered that of unskilled workers. >> in restaurants, for example, i went to a restaurant in missouri, and you order your

meal through the table on a computer. which means there is no waitress with a job now. but that still doesn't answer the question for me, about a cure for the unemployment levels that are so high in urban centers. even if you are a college graduate. if you're african-american or latino college graduate, you're still going to have a hard time. >> i think that will improve with a better economy. >> and now, mr. stutsman. >> thank you, mr. chairman. and thank you, chair yellen, for being here today. i'd like to talk about the dual mandate, and your comments that you're moving toward the

objectives of maximum employment and price stability. and we've seen demand for labor and even some wage increase. one of the concerns that i have is in the long term, how do you -- i believe that the dual mandate is conflicting. and would like to hear some of your thoughts on how do you decide when is the right time to increase the interest rates. how do we grow the economy, but keep inflation in check? one of the things i do believe is that the dollar is a unit of measure. we -- it's something that we use to measure a current value.

shouldn't it be stable just like any other measurement, a foot, hour, pound? >> almost every central bank that has an explicit inflation target has chosen a low positive number rather than zero. and there are a number of reasons for that. one reason, if zero is the target, one is bound to have episodes of deflation, which can be associated with highly adverse outcomes, which almost every country wants to avoid. >> let me get to inflation. the fed's favorite measure of inflation is the pec deflay

tors. is that a coincident, or a lagging indicator? >> i'm not sure what that means. >> what information are you gathering? >> the pec price indexes issued data on it. comes out every single month. produced by the bureau of economic analysis. we have monthly data on it. and so, we're measuring in the bure bureau of labor statistics is going out and collecting data on a wide range of goods and services that is incorporated into the index. >> is wage growth, is that part

of the calculation? >> it's not explicitly part of inflati inflation. one question is, what is the level now? another question is, what is its likely trajectory over time? and trying to forecast where it's going -- >> how much is wage increases enter into it? >> it doesn't directly enter into it. but the price of goods and services depend very heavily on the cost of labor. it's an important influence on the rate of inflation. >> so, we're trying to get wage increases, is that correct? >> we're trying to hold stable, have 2% growth in an indexeni -

>> why wouldn't we let the market drive wage increases. >> we don't have a target for wage increases. we have a target for increases in prices. >> but then wage increases would then factor into inflation pressure? >> we have an objective for a price index that is a broad measure of the cost of a basket of consumer goods to the typical american consumer. that is, we're trying to achieve a longer-term objective of 2% for that. we don't have a target for wage increases. but wage increases can be a

determinant of inflation of goods and services and have predictive power for inflation in the future. >> now, mr. ellison. >> good morning, ma'am. good to see you again. the situation of wage increases, and the implication that they could be a driver of inflation. could you speak on the relation between increase in wages with productivity? >> it's true, and often, instead of looking at just wages, we would look at unit labor costs. which compounds together both productivity or output per hour

and wage or compensation costs. and that's a broader measure, taking account of productivity. how is the cost changing over time of what firms need to pay to produce a certain amount of output. productivity is a key factor in not only wages. over the last several years, we've seen real wages, wages in real terms are not growing as fast as productivity. >> thank you for makiing that point. you anticipated my question. we have room for wage increases given our rate of productivity in this economy. and i would argue that wages are depressed and sometimes you need

government to intervene in order to catch up. because there's no equality of bargaining power given the decline of -- i'm proud to represent the community of people from somalia. the regulatory, i hate to use the term regulatory burden, because that sounds so republican. but the regulatory burden is on banks, because money wire transfers, they're opting out of that market. the banks tell me it's

expensive, and the liability associated with making a mistake is high when it comes to doing all the documentation. what can be done? our government is trying to stop terrorism financing, which i support. but many folks are hard-pressed to get money back home. can you speak to this issue? >> this is an issue that has been discussed. and we're aware of it. it's certainly a legitimate need to make remittances to somalia. and part of the issue is to manage money laundering and

terrorist financing risks. i think it's important to understand, the federal reserve absolutely does not prohibit businesses from provided remittances to somalia. to the extent that the banks we supervise are involved with customers who are in this business. we supervise to make sure they're abiding with the requirements. but we're not prohibiting banks from serving the needs of these customers. it's a decision they make, whether or not they want to take these risks. and i know this isn't the only area where these risks come up.

>> forgive me, because time is running short. i think one of the way is for some developed government like ours to engage with the somali government and help with their central banking system so it meets international standards. i think this will be good money, very well-spent to help them get things in order. every penny that somalian families send them is a penny we won't have to send them in aid. >> the chair would note for the record, he's aware of many accusations for my friend from minnesota, but sounding like a republican is not one of them. now, ms. barta.

>> continuing on with the line of questions, my question for you, and thank you again for coming before this committee today, as of july 9th, my understanding is that the bank reserves of the federal reserve are something close to $2.8 trillion. why is this number so high? does this show that businesses are leery of investing in the u.s. economy? and if these reserves enter the economy too quickly, what is your assessment of the impact on inflation if they come in too quickly? and what, if anything, will the federal reserve do to stop this inflation? >> the reason the reserves are

so high, we're creating them when we purchase longer-term assets. we've been involved in a program of purchasining longer-term mortgage-backed securities to provide financial conditions appropriate to stimulate the economy. and that creates those reserves. in the agagregataggregate -- no economy recovers and we come closer to our goals of maximum employment, it will be appropriate for the fed to

tighten monetary policy to avoid inflation picking up to undesirable levels. and we can do that with a balance sheet that's as large as we have, with reserves at these high levels. and we've been discussing the exact procedures to use to normalize policy. we've had a number of discuss n discussio discussions. we will move to raise short-term interest rates when the time is appropriate. we will use tools like ability to pay interested excess reserves, and a host of subsidiary reserves to move up

to the level of short-term interest rates. eventually, the committee sees it as appropriate to operate with a smaller balance sheet and reserves than we have now. looking into the distant future, i think it's predictable that the balance sheet will shrink in size. >> you have touched on the issue of recovery. we've been in recovery for approxima approximately six years. that's a long time for the united states to be in a so-called period of recovery. normally, if we have a recession, usually, we see the economy grow at a rapid pace.

we haven't seen that. can you tell the committee why we do not see a robust recovery now? >> i think because this downturn was caused by a financial crisis. when this occurs, the downturns and the recoveries take a long time. and they have a pronounced effect on the economy. the typical postwar recession -- >> isn't it true that so many of the recoveries, the further down you go, the quicker move up? >> i think it's because those aren't caused by a financial

crisis. we had a tightening of monetary policy. inflation had risen to unacceptable levels. and then we stepped on the gas with monetary policy. can sectors like housing, that had been suppressed, immediately began to grow, and bring the economy back. and this is of course a very different situation. >> now, mr. heck. >> thank you very much. i want to follow up on a question that mr. velasquez asked. your increasing concern about reach for yield activity. i effectively have concluded you placed it on your watch list and

your amber light is on. and the follow-up question, can you, without speaking to broad policy, nonetheless, what it would take it to a red light from amber, and what action step you would take? is that clear? >> yes. i would look at broad measures of leverage, and credit growth, and asset prices generally, broad measures. if i saw leverage growing rapidly, asset prices rising to levels outside of historic valuations. >> and what's an example of what

you might then do? >> it's an important thing that we have done is to take steps to make the financial system stronger. so, all the steps coming out of dodd-frank, to increase the quantity and quality of capital. and all the things, liquidity rules, i won't go through the full list of them. but they do two things. first of all, if we were to have an unwinding of imbalances that occurred, it means that financial institutions would be in a much stronger position to withstand the shocks and go on meeting the credit needs of the economy than they were in the run-up to this crisis.

and second of all, amid the collection of rules we've put into effect, and are now completing. we're working our way through them. will work to restrain the buildup of these imbalances. we will expect to put in place measures that will require capital holdings against short-term wholesale financing. >> i got it. thank you. financial institutions should be put on notice as of now. and i want to ask a question about the output gap. -- that which would be sustaining at peak industrial out put.

it's somewhere around $720 billion, what is your personal opinion about what it is? >> we don't have any official -- >> i asked your personal opinion, madam chair. >> can i put it in a slightly different metric? the unemployment rate is 6.1%. there would be a more longer-term unemployment rate from 5.2% to 5.5%. so, you know, taking the lower end of that range is, say, a

nine-te nin nine-tenths of a percent gap. it's called oaken's law. it would say the output gap tends to be on the order of two or two and half times in terms of percentage of gdp. that puts us a little bit over 2 2%. that's, i think that probably is in line with what you said. but i'm not sure. >> mr. mull vany? >> last time, we talked about

the debt ceiling, and the possible prioritization of payments. do you actually read those, are they done by staff and you sign them? >> i actually read them. >> i didn't get an answer to many of my questions. i asked, you had invoked a certain privilege. i asked you for a specific legal justification for the privilege. without wasting a lot of time to get the answers, do you think it's appropriate not to answer congressional inquiries on qfrs.

>> i think we've answered -- >> let get to the substance of the answers. you gave me a very interesting answer, one i've heard from members of the administration several times. you distinguished between a default on debt -- and you changed the language, and continued that verbiage to say -- other obligations as they come due, will be publicly held as a default of the united states on its obligations.

-- would not doing that be called a default by the united states? >> i can't comment on that. i would simply say that the government has a wide range of obligations to contractors, and social security -- >> they do. would you argue that some are more important than others? >> that's not my judgment to make. when the government has incurred purchased goods and services and is presented with a bill that has some due, and fails to pay bills that have come due --

>> so, if we have an expense we're going to incur next month, and is not about to come due, it's not a default in your definition. >> the treasury -- >> let's move on. we received a letter from a incoming head of the fdic and other questions have been raised. two questions, as quickly as i can. why did you not come to congress to seek authority to create that facility? >> this is a repurchase agreement, which is a standard tool that we use in open market operations. it's long been -- >> true, but this is a dramatic

expansio expansions. which is why you're doing it on a test basis. this is a new facility for you. so, i guess the answer is, you didn't think you needed author to go to to congress? >> we do have authority under the federal reserve act to purchase and sell securities, and i believe it falls under standing authority that the federal reserve has. and we will use this facility only for the purpose of -- >> fair enough, and do you think that this facility needs to be limited in its size and application? >> we have discussed this, and

if it can be expanded and contracted. and we absolutely intend to make sure we address the risks. >> now, mr. horseford. >> thank you. thank you madam chair for being here today. it's been a very informative session on the state of the american economy. one thing i wanted to explore from the report is the issue of the slow recovery of the housing market. i'm from nevada, we have the most unstable housing market in the country. in the report, it indicates that while there was a slight increase in values and an uptick in the housing market, we're

beginning to see a decline or slowdown in that. and i wanted to ask, what forces are contributing to this lackluster housing recovery. >> well, you know, housing did seem to be recovering throughout most of the recovery. and looked like it was on a reasonably solid course. and then a cessation when rates rose. i thought that would be temporary. and with a period of very weak

household for mamation, i expec a pickup by now. frankly, it appears to be sluggish, and i can't give you a precise reason why that's occurred. we're certainly aware that mortgage credit remains very, very tight. and that may be part of it. we also hear about some supply constraints that builders face. perhaps that's contributing. but i have to say i'm somewhat surprised. >> so, what do you think the fed can do to stimulate recovery? for those upsid down as well as helping new entrants to homes?

>> well, i think particularly in the markets that saw the worst booms and busts, particularly in nevada, a very large fraction of homeowners that are underwater. but just the increase of house prices we've seen, that's in part reflecting our accommodative monetary policy. the numbers of underwater homeowners is very diminished. but i know that nevada has about the highest numbers on this. but i really think that's helping. and i think eventually, we will see greater progress in the housing market. but there are many impediments that servicers face in the

aftermath of the problems we've had during the crisis. and things have not yet settled out there. >> definitely. and at yesterday's senate banking committee, you said that too many americans remain unemployed. inflation is below what we want. what benchmarks are you looking at to determine if a full recovery has taken place? what does that look like? >> well, we're not just looking at one or two statistics. we're talking into account many different measures of performance. probably the unemployment rate is the single best indicator. it's come down to 6.1%, and

other indicators. discouraged workers, they've come down as well. but that's not at levels that most members of our committee would consider full employment. we're looking at long term unemployment. if there are groups dropping out of the labor force. participation has declined so much. i hope that reverses, and the economy strengthens. >> the time to the gentleman has expired. now, the gentleman from florida,

mr. ross. >> thank you. you're balancing the metaphorical gold standard of our money, and that's very, very difficult. and trying to keep this as clear as possible for my constituency back home, what prognosis can you give, as clearly as possible, to those on fixed incomes? is it positive? is there a opportunity to see greater returns on their investments? people in central florida, there are a lot of them. >> i know it's been a really hard time for savers trying to exist on the returns you would earn on the safe investment like a savings account. and that's been a heavy toll for

those households. but they can be hopeful that as the economy recovers. and interest rates in a sense, they're not arbitrary. they reflect fundamental forces. >> and which you control. >> well, not much demand on the savings in the form of investment. >> as you discontinue the buyback, that should hopefully put some pressure on the rates, don't you agree? >> well, as the economy recovers, eventually interest rates will go up. so, if the recovery continues, i would envision rising interest

rates over time, and we try to spell out what we envision. >> let talk about, i think you would agree, that the fewer systemically, financial institutions that we have, the better off we are. now, a few companies being designated sifis. >> well, sure. there has to be clear evidence. >> when they're at that level, should we not allow for some opportunity for self-correction so they can keep from being designated as a sifi. they don't know it until it's too late. should there be some role for

the fed to come in there and keep them from being a sifi? and wouldn't that be a message to keep others from being designated that? >> well, i think they've tried to make clear what the criteria are. and i don't really think it was any surprise to these institutions that they're on the list, and after they're designated, if they want to change their structure substantially enough, that situation could potentially change. >> real quickly, i see you have just engaged tom sullivan to assist. i think that's a good move. i want to make sure we're adequately representing the insurance industry.

especially with international capital standards. >> well, i said that if international standards are agreed to, nothing becomes -- >> we're not compelled to do it. >> nothing happens in the united states until we go through a full regulatory -- we're sitting at the table, and state commissioners are there with us. >> good. >> we consult with the federal insurance office. >> i've got one little quick question. the president said, if you're one of the big banks, you can make big bets. that's going to require some further reforms. take an additional step. have you talked to the president

about further reforms? >> no. >> do you think that dodd frank is appropriate in terms of what the market has changed so far? >> now, mr. royce. >> chair yellen, how are you? >> i'm good. >> glad you're with us. i want to go back to the question of the unsustainable path, as you mentioned, of entitlement spending. we've known about it for decades. there's a new report that just came out that releases new numbers. the long term debt will equal 100% of the economy in the coming years.

this is a critical issue facing the country. i talked to ben bernanke, and asked, isn't there a way to ring the bell a little bit louder? >> well, i believe this is a critical problem that congress should try to address and the administration. it's one we've known about for decades. there's nothing fundamentally new here. we've just come closer to the problem without taking the necessary steps. i think it relates to trends in health care costs. combined with an ageing population. that is certainly not news. there are many, you know,

organizations that have been trying to explain to the american people how serious this problem is. >> i want to encourage you to continue what you're doing. if i might recommend, open up every speech with comments about this problem. and i also have a fiscal policy question for you. we must do more to discourage the inversion transactions. the use of mergers to avoid paying higher taxes in the united states. and in your confirmation hearing, you said the tax structure -- i'm wondering on the corporate tax part of this,

if you've looked at this inversion, or been involved in any discussions about this, tax rates, impact on job loss. and on comprehensive tax reform, including a reduction of u.s. corporate tax rates. that's one solution to this problem. i wish we had more than a letter calling for the words here, that he used, a new sense of economic patriotism. we're going to need more than that. we need leadership. only reagan made it possible in

1986 in engagement with tip o'neil. what can we do? >> i'm sorry to say, this is an issue, i'm aware of it, but i'm not an expert on it. it's a complex set of issues, and i think it's entirely appropriate for the congress and administration to frame policy to deal with it. but i don't think it's appropriate for me to give specific advice about it. >> i understand. but we're going to continue to lose ground if companies continue to change their domicile. we're going to lose receipts and jobs. and that compounds the problem,

now the long term debt equals 100% of the economy in 25 years. >> i think it's entirely appropriate to try to frame appropriate policies to deal with this issue. >> thank you. the chair wishes to announce that we have three members left. and if there are members wanting to hasten over here to ask questions, do not bother. now, mr. pittenger for five minutes. >> thank you for being here with us again today. >> thank you. >> alice rivlin endorsed the

cost-benefit analysis requirement of the fed act. the bill the bill that we've been discussing today. do you agree with her? >> well, i believe the federal reserve does do cost/benefit analysis where it's appropriate when we -- >> do you believe it's appropriate in this case? >> i mean, i don't endorse the version of what's required in the fratt act but i think we do do appropriate and detailed and careful analysis of alternative ways to implement a law or a regulation that implements a law that's passed by congress. rules -- >> i appreciate what you're saying ms. yellen so the bottom line is that you would not agree

with ms. rivelin on this. >> well, i didn't have a chance to review her remarks but i wouldn't endorse what's in the fratt act. >> chair yellen, we saw a recent report from the cbo that obamacare is estimated to cost 2.5 million jobs over the next decade. has the fed done any estimates that any jobs with the implementation of dod frank expected to cost the economy or is the fed even interested in this? >> well, as in evaluating a number of different regulations, we've attempted to do cost/benefit analysis. the overall conclusion we came to for example when we looked at our capital rules was that the reduced probability of a financial crisis which takes an enormous toll on jobs. we've just lived through that so

we can see how large that can be, that the reduction in the odds we would live through a period like this again resulted in benefits that exceeded the costs of implementing higher capital standards. >> wish we were seeing it in north carolina. in my district alone the building permits aren't even up to 50% what we they were in 2008. that's a lot of lost jobs. the same is true with community banks. the consolidations. there's been a lot of impact. i would think that a measurable effect of dod frank would certainly be warranted. chair yellen, with the lackluster growth we've had is bright spots one particularly in the energy sector in the dakotas, texas, oklahoma and other energy producing jobs have had great job growth particularly as it relates to the energy revolution that has

come from fracturing and other production of fossil fuels. chair yellen, what effect would opening up other resources, the ocs, expanded drilling areas on land and water across the u.s. have on the gdp? what type of impact would that have on job growth? >> well, i would agree that we've seen a remarkable growth in the energy industry in a transformation of energy, our dependence on the rest of the world for energy. we don't do calculations in the federal reserve of the type that you've asked about, what impact it would have on gdp. >> but it is common sense you would agree that if we opened it up to the ocs it could make an even greater measurable difference. >> as you know there are complicated policy issues and a

number of different factors that come into play. you know, i think that's not in the domain of the federal reserve to think about what's the right public policy in this area. >> given the right political atmosphere, it would create jobs. chair yellen, the federal reserve is now in the business of regulating insurance companies and currently supervises two insurance companies which have been designated. nearly a dozen insurance companies that have knowned depository institutions. chair yellen other than one appointee that is now on that board recently hired senior advisor with extensive background in insurance. how many full time employees has the fed hired with insurance expertise in the last year. do the hire ees has particular insurance expertise. >> i can't give you a number but i can tell you we've worked hard

both at the board and reserve banks to increase our expertise. we're working closely with the federal insurance office, with state regulators, and we are trying to tailor supervision. >> thank you. we're out of time. it does make sense though doesn't it. thank you. >> time has expired. the chair recognizes the gentleman from pennsylvania. >> thank you mr. chairman. thank you chair yellen for being with us today. i'd like to talk a little bit about the federal reserve accountability and transparency act which has been in some discussion today. what i'm hearing from across the aisle with our colleagues, i've heard talk of a straightjacket. then i think i heard you testifying about a quote, rigid rule that you described in the proposed legislation. is it your testimony that this bill requires the fed to follow a rigidity rule for monetary policy? >> well, it rirks us equires us specify a rule. when we don't follow it to explain exactly what the logic

is or how we've changed the rule and then calls for very rapid goa involvement in overseeing the conduct of monetary policy if for any reason we were to deviate from the rule and -- >> i look at the act and i see two rules described. directive policy rule and a reference policy rule. now the reference policy does set forth parameters for calculating a funds rate but there's no requirement that would require the fmoc to follow the policy rule, correct. >> well, that's what i see in the legislation. >> so don't we have a directive policy rule that simply requires the fed to identify an interest rate? i mean that's what the fed is already doing when it announces a policy. it identifies an interest rate and an explanation of what the

fmoac is doing. if we were to boil down the policy rule we're saying there's going to be an interest rate and an explanation of what fmoac is doing. is that right? >> well, i think we rrd regard it as incumbent upon ourselves to explain why we adopted the policy we have. >> that's what we're talking about here and the added requirement that you would explain or educate the members of congress and the american people why you would deviate from a standard that was in place similar to what was happening during the great moddmo modder ramod modd modderation. it requires models that go much further in straightjacketing how we would set monetary policy then setting interest rate and providing congress an the public

with an explanation for the rational of our policy or decision very quickly in real time oversight from the gao and congress. i believe we bring in to the process of federal reserve decision making essentially short term political influences. >> i'd like to talk a little bit about independence of the fed another focus of our hearing today. does this apply to the fed's regulatory responsibilities as well as this monetary policy. >> it is an exception that congress made for monetary policy. >> okay. when we talk about writing a cost/benefit analysis requirement into law to ensure the benefits of the fed's regulations are grater than their costs. the same requirement that applies to the fcc we hear that

it would compromise the fed's independence. does the fed's independence require that it be exempt of its rules by the courts? >> i mean the term to me fed independence applies to monetary policy. i feel the cost/benefit analysis is adequate but that's separate matter. >> other than hiring thomas s l sulliven what other steps have they taken. >> we've hired other individuals with expertise especially when we took on the oversight of supervision savings and loan holding companies, some of which have heavy insurance involvement including the ones that congress

mentioned. we've really greatly built our expertise in understanding the insurance industry and its unique characteristics. we have explicitly when we came out with our 165 rules refrain from putting in effect capital rules that would apply to heavily insurance based companies in order to make sure that we thoroughly understand their unique characteristics. >> thank you chairman. >> the time has expired. last but not least another gentleman from pennsylvania. >> we want to thank chair yellen for the investment of time here. i think you've been very generous with your time which we all appreciate. the number one issue in my district back in buck, pennsylvania is jobs and the economy. there's been much saidbo