helping resolve the internal political debate. so i think one can imagine it going either way. >> let me just ask is the two big institutions or movements that we haven't talked about. and traditionally seem to have been quite important in recent years or even longer in turkish politics politics. one of course is the military. and whether anything is happening in the military that's significant or meaningful or we ought to keep our eyes on in the coming weeks and months, particularly as the uncertainty of these coalition politics now and the second is what erdogan is calling the parallel state in particular the gulenist movement inside of turkey is that it's his offensive and campaign to crush all remnants of theat movement in turkey. is that likely to continue? is it supported by other party

sns or in light of elections is he going to back off of that? >> i think the turkish military has been invited back into politics to e a limited extentjp by erdogan and his fight against the gulan community. and on the turkish military side i think this was a tactical acceptance of coming back into politics as erdogan's short-term ally in the fight against the gulan community. of course what this might bring in the mid to long-term is just aa anybody's guess. i think now that erdogan seems to be losing his single handed grip on power, this could possibly give the military relative upper hand in their tactical alliance with erdogan against the gulan community.

for the first time if i'm not mistaken six candidates associated with the gulen community. they did not receive a huge percentage of the votes. and one comment after the elections was the result could actually undermine erdogan's conspiracy theories. and people could simply say thatxt so the so-called parallel state controlling everything was actually just a couple hundred of thousand votes, which is yet another reflection of the inability of erdogan to deal with such a small kind of interest group in turkey. so the results of the elections were and mixed result. on the one hand it showed that

gulen community doesn't necessarily have mass support in terms of voters, but at the same time it also kind of undermined erdogan's conspiracy theory that the gul ens are everywhere and they have infiltrated the turkey state. >> i think turkish military) ez emerges from the last decade really a shadow of itself. i think one has,keo to have really some doubts about what the exact capabilities of the turkish military are. officers indicted in jail, some of them now being released or convictions overturned on appeal et cetera. it's very hard to imagine such a military having a great you know, great deal of capability. think about the soviet and the aftermath of the stalin.

remove that signature level of leadership in a military organization and it's very hard not to have considerable effects. you know, we'll know a aú little bit more at the end of this summer when the supreme military council meets and we see what military leadership that. and what you know what kind of view they have. i agree that the military has no/:as love for the gulen movement because they see the l$çfgulen movement more than erdogan even though erdogan clearly took advantage of it as the authors conspiracy trials which have laid waste to the military. what they do in a post you

know, kind ofj& parallel stateu/ environment remains to be seen. particularly if you start5q; o get9 cf1 o a lot of violence, i think the military was quite shocked by the hdp result and trying to absorb that and absorb what that means for them and for turkey. i think it's another one big uncertainties that's out there. and i think we're just going to have to see what it means over time. >> let me just try and get very rapid yes or no kind of responses, a little bit of elaboration would be å87y. eric mentioned these corruption scandals that occurred at the end of 2013 and 2014. erdogan and the akp managed towxmg bury those az stop those investigations from going 2xaeñ forward. allegedly former president gule was in favor of having those ministers, those investigations continue. what are the chances do you

think? are these investigations likely to be resurrected in the near future? >> there could be kind of horse trading. the opposition could ask for maybe two of the ministers of akp's choice and we have strong suspicions who those could be.)áq -- could be the ministers kind of going for an investigation. but another theory is that the investigations will not be part of the coalition agreements since party groups according to the turkish constitution are not

allowed to have binding decisions on the vote. on these investigation votes. so the parties could simply say it's up to the individual deputies to decide. and in the new parliament arrhythmia tick if the majority of the deputies decide+++p-/ i don't see thapg. >> one final quick yes or no question. does erdogan survive to the end of his first term as president?

>> i would say yes. but now he has the chance of not winning the second round. >> join me in thanking our guests. we'll see you at our next session. thanks. >> the federal reserve wraps up its two-day policy meeting today. fed chair janet yellen will talk to reporters following that meeting. that will happen at 2:30 eastern and we'll have live coverage. >> eliza johnson was 54 years old and invalid when thrust into the role of first lady determined to be a help meat to her husband andrew johnson. reconstruction in the south and his own impeachment eliza johnson, this sunday night at

8:00 p.m. eastern on cspan's original series "first ladies," examining the public and private lives of the women who were first lady from martha washington to michelle obama. >> the president of the world bank spoke yesterday at a "the wall street journal" forum on the world economy. jim kim talked about how the world economies connect with the u.s. this is about a half hour. >> dr. kim thank you so much for joining us today. >> thank you. it's great to be here. >> you've made headlines since taking over the world bank in 2012. you were strong on the ebola outbreak and the slow response there. you have very strong opinions about poverty and inequality and also about the role of the private sector. before we get to that i'd love you -- i know you just got back

from egypt. and i'd love you to take us on a little bit of a tour of the emerging economies. we started out the year feeling very pessimistic about their prospects. is that changing now? >> well for this year the expected rate of growth is 4.4%. and so what's happened is that you know, the impact of the low oil prices, at one point we thought it would spur growth, but still we're seeing it as a drag on the economy. also, there is currency uncertainty. and when you have the divergent monetary policies across europe the united states and japan especially with the rising dollar, you see a lot of currency movements of course towards the united states. and that effects the exchange rates in developing countries. you know, the impact of russia and brazil contracting has also been very serious. so it's different depending on different countries n. africa many of the kmod di exporting

countries the slowdown in china has had a big impact. whereas in 2000 china made up about 1% of total developing country exports. it's now the biggest trading in -- but there's a mixed picture. despite ebola it continues to grow and grew all through the period after the crisis. i think there are still great prospects in africa. china is going to grow at about 7% this year. we actually think that it's because they're going forward in a very controlled, very thoughtfully done shift of the growth model. it's really impressive to watch. my predecessor wrote this great report, china 2030, with them. and they talked through the things they're going to do. we're going to switch from investment and exports to focus more on services and consumption. and they're going through with

it. so we're not surprised they have a 7% growth rate. it's having a lot of knockoff effects. we're really impressed with india. it's going to have a higher gross rate than china. i met prime minister moti in early july when he just took office. and i have to say i was really impressed with how focused he was. we at first he was very generous to give us a meeting. it was going to be short. but then what we did is we took all the benefits of this new operating model we put in place at the world bank group and we said we're going to focus on your top ten problems. and we're going to show you the best most innovative solutions from all over the world that have been applied in tackling your stated priority problems. and because we did it in such detail, we spent an hour and we talked about everything from his public-private partnerships that are stuck to railways to cleaning up the gonga river.

this is a guy who's incredibly determined. and has done something that they wanted to do for decades which was to reform their tax laws. we did a little study. trucks in india they are stopped 60% of their day whereas in the united states it's about 25% of the day. why is that? because every time they cross the border of one state to the next they have to pay taxes. so he actually now got the reform done. there's now a goods and services tax. you pay once when you start once when you end. that's going to have a huge impact. i think confidence in his commitment to structure reform has really driven our own sense of the growth prospects of india. we can keep going, but let me stop there. >> so over the long-term are you optimistic enough about india where you see it's kind of supplanting a china role for many businesses? because india's perennially disappointed. are you optimistic enough we

should really start rethinking india? >> well we're optimistic so far. but the prime minister is in a very complicated country that has lots of big problems still. still the highest number of people living in extreme poverty are in that country in terms of any specific countries. there are lots of issues around education and health care. but i have to say you know the impact of this one leader on our own sense of where things are moving has been profound. i wouldn't go so far as to say supplant china but here's one thing that struck us as being very very different about prime minister modi. when i went to see him we have this thing called the doing business ranking. india is ranked 166. you can imagine the people -- >> out of how many? >> out of 180 or so. so you can imagine people in the

ministry finance were not very happy and had been very critical of our methodology, et cetera. but what i told him was, you know, prime minister modi if the ranking of india were based on your state in which he has instituted lots of structure reform, india would be ranked 50 in the world instead of 166. so instead of continuing to critique the methodology, he said we'll set a goal and be at 150. and i want everybody in this government to focus on getting us from 166th to 50th. it's a very different approach. there are lots of complexities in that system. he has a tough road to climb. but we really like what we see so far. >> you just returned from egypt where i guess you had quite an eventful trip. unfortunately there was a bombing in one of the cities where you were going to visit, you kept going. could you talk about the middle east? it's all in such turmoil but yet

you feel it's very important for both the world bank and private business to support egypt and the region. >> we have a designation conflict and fragile states. the entire region is in a sense fragile. egypt is really critical. people have said that the arab world is like a tent with two poles. one is saudi arabia and one is egypt and both have to be stable for the region to be stable. we've done a lot of work in egypt over time. and we focus on things like conditional cash transfer programs for poor women in some of the poorest areas. that's why i was going to luxor, the place where they had the bombing. i met with president el sisi. and i was very impressed with his commitment to tackling major

issues. youth unemployment is a major issue. sanitation is an issue. health care, the educational system as a whole. lots of major issues that he has to deal with. i was very impressed with his and his entire cabinet's commitment to tackling them. having said that there's a lot of challenges. i went to luxor and saw two things. one, egyptian anticquityies are one of the great resources for the entire world. i mean it's really stunning what i was able to see. but at the same time it's also one of the very poorest regions. and the conditional cash transfer program was making a transformative impact on the lives of very, very poor women. so there's a huge agenda with egypt. but we're committed to it because we've got to attack the situations of fragileityfragility. by 2020 our goal is to end extreme poverty by 2030. by 2020 half of all people living in extreme poverty will be living in tragic and conflict

situations. so i've asked my vice presidents who are working in the areas where there's a lot of fragility, do we have a new take? for example, even addressing the issue of radicalization. are there things we can do to help educational systems or governments tackle this issue? so we don't know yet but we're trying to ask questions in a very different way. >> and in terms of private investment, i understand that you're thinking of going on a road show creating different types of investment vehicles to actually entice the private sector into these countries. could you explain? >> so if you look at just say one particular need in developing countries and that would be the need for financing for new infrastructure. it's about $1 trillion a year. so if you look at all of the official development assistance put together it's about $130 billion. and then you add in all the

funding provided by the multilateral funding banks and it doesn't even get to half of what the need is. so there is no question that we need to get some of this capital city on the sidelines moving for these infrastructure investments. our sense based on our long history and even some analysis done by some of the raitings agencies that the infrastructure investments in developing countries are a great -- provide a great potential return on investment for sovereign war funds, for equity investors for just about anybody. but the perception of risk is holding people back. now, you know, we feel that we have a very good sense of risk and reward. and even some of the most difficult situations in central africa for example. but we feel that if we get together with all the other multilateral development banks with some of the private sector players who bid in those regions for a long time, we can

effectively de-risk those investments so even a teachers fund or pension fund will feel comfortable investing. that's really where we have to get to. we have to move past perceived risk and then be clear enough and present the picture clearly enough so that these funds that don't have people on their staff who can assess risk and reward in the democratic republic of the congo begin to trust the analysis that we can provide. >> i want to ask the cfos out there to answer a question about how willing you might be to invest in some of these more vulnerable areas particularly the mideast. i think there's a question if we could tee it up. should the private sector play a bigger role in development work especially in troubled regions like the mideast? it will take a couple of seconds. oh, seven seconds here now. these responses have been very interesting all morning. not exactly scientific. i think we have a pretty split opinion here. >> interesting. >> not sure 31%.

no 31%. and yes 38%. so i guess that means you have a little bit of work to do on this front. >> let me just say, okay, 41%. let me just say we'd like to talk with the 41% out there. the mideast is there's a tremendous amount of uncertainty even for us. i think that we would love to work more brooiftprivate sector everywhere. it is going to be the key for us for achieving the goal of ending extreme poverty by 2030. we have another goal to boost shared prosperity, meaning focusing specifically on income growth for the bottom 40%. we're simply not going to get there unless we can attract private capital. so it's something that you know, we've had a private sector group that's been working in developing countries for a very long time. but we're trying to now bring together more of the private sector and the public sector group. because there are things that the public sector can do that

can make it easier for the private sector to invest. and there are opportunities that private sector group can present to governments but they may not see otherwise. so that's really what we hope our value added will be over time. >> could we talk a bit about inequality? how concerned should we be about inequality around the world? you've spoken about the role of technology and really now if you're a student in africa you can see how the other half of the world is living. ask and that's changing the world in fundamental ways. >> it's happening everywhere. most dramatic story for me is i went to see the president in bolivia. i went to see him the week after his plane was brought down under suspicion he was traveling with edward snowden if you remember. he wasn't in a very generous mood toward americans right at that time. but he said i'll meet with you, but you need to go to 14,000 feet and we're going to play

soccer together. i never played soccer in my life. so it was a challenge. but as we were landing the helicopter at 14,000 feet the most remote village in all of bolivia they were taking pictures of us with their smartphones and they could see miami-based spanish language telenuvela. everyone knows how everyone else lives. it's not just the people who don't have access to jobs and education and income are resentful. it's the analysis is beginning to tell us that higher and higher levels of inequality are actually a drag on growth. so the imf just came out with a study saying that countries really should focus on improving incomes of the bottom 20% because that spurs growth much more than increasing the relative incomes of the top 20%. now, this is new. this is all new research that we're beginning to just get our heads around. but what does that really mean? for us it means trying to spur

the kind of investments that will lead to especially private sector growth that will create jobs that will lift the incomes of the bottom 20% to 40%. that's what we focus on everywhere. and there's without question we cannot do it just with donor assistance. we cannot do it just with loans to governments. we've really got to get private sectors moving in all those places. >> i know that you don't want to get involved in the negotiations ongoing about greece at the moment. but could you talk a bit about the difference between austerity and structural reforms.? and a sense that greece really may have done one part but they didn't do the important second leg of this. >> i'm not involved in the negotiations at all. we have been providing some technical support. but let me take a step back for just a second. and this is the discussion that's ongoing. there are different views of

austerity. others have a very dimptfferent view about the importance of austerity. the thing that everyone agrees on is that there's hardly a country in the world that doesn't need to go through structural reform. and it's the case everywhere. and so when i talked about prime minister modi changing the tax law i think it's given us all a sense of possibility that we just didn't have before in terms of indian bureaucracy. the fact he did that made a big difference. and so the thing that we keep saying to every country in the world is that you all need to go through a certain kind of structural reform. one of the big issues for japan are being open to immigrants and getting women in the workforce. but that's hard. that requires a political lift that's always difficult. but we would say is that whatever your view on austerity

focus on structural reforms. see if you can find a path toward getting there because the reaction of markets is pretty quick. when they see that you're serious about it, i think that the overall sentiment to your future prospects for growth and likely investment change -- can change pretty quickly. >> when you look at greece and europe as a whole do you think there's been not enough structural reform in general? >> you know, it's one of the things we talk about all the time. again, countries across europe, all of them are needing to do it. and there are some countries moved pretty quickly. spain's mufoved quickly, portugal. i think they're seeing the benefit. these things are always hard. and yet our role specifically what we did for prime minister modi is we said we know these changes are hard but just telling you that you need to do this is one thing. but giveing you ten examples of

how other countries have done this and then walking through it with you providing support spiems -- sometimes from the people who did these reforms or were involved in these reforms i think that's helpful. and that's how we want to be known. we want to be known as the group that if you have a difficult structure reform you need to go through, we're going to help you get there. let me give you an example of a structural reform that's needed everywhere that is difficult to do but has so many positive impacts. that's the removal of fossil fuel subsidies. in egypt it's a huge portion of their budget. and they've started to make movements. they're moving to go away from fossil fuel subsidies. one, we know that fossil fuel subsidies are regressive. the imf did a study the top 20% benefit six times more from fossil fuel subsidies than the bottom 20%. moreover it puts more carbon in the air.

and, you know, it is essentially a regressive tax that takes money away from governments so they can spend much more effectively in other areas. but you know if you do it, then taxi drivers and truck drivers block your streets and it's tough. but we've now found ways and we've been helping certain countries to get through it. and it's not intuitive that you could do these things altogether and get through a potentially very difficult structural reform like the removal of fossil fuel subsidies. but we want people to think of us like that. and we are going to literally scour the globe and look everywhere on the earth to find examples of others who've done this effectively. >> i just want to ask a final question about china. tell me backstage by just the discipline they have to take something that works in one province and immediately spread

it to the rest of the country. >> so with china 2030 report bob zelick worked with china for two years and wanted to be sure the chinese were comfortable with what was coming out in this text. things like greater flexibility in currency, all these things we wouldn't have thought china would commit to, they did. and now they're following that path. that was so successful that the first time i met the premiere he said we love that project, very helpful to us. now i want you to take on urbanization. so they had a lot of complex problems. if you were born in one province, you could only get services in that province. it's called the hoku law. and when they come to the cities, it's difficult because they can't get services in the city when they move there from the provinces. so one of the things we did with this urbanization study was to say here's a way you can move away from that. and they're beginning to do it. here are ways you can build smarter, cleaner more livable

cities. they're moving in that direction. and then they were happy with that. so the next issue that they asked us to take on is health care. i'm a medical doctor, i've worked in this field forever. they're at 5% of gdp. and they're saying do we really want to go to 17% of gdp like the u.s.? or do we want to go to 4% of gdp like singapore and have better health outcomes than anyone? so we are now, dpenagain, looking all over the globe bringing in experts from all these different places and trying to help them see if they can take that curve and move in a direction where they'll have better health outcomes for lower cost. and we know that if we come up with good ideas, they'll first of all implement for them on a small scale with like 100 million people. and then they'll go and they'll do it --

good afternoon. today the federal open market committee reaffirmed the current 0 to 0.25% target range for the federal funds rate. since the committee last met in april, the pace of job gains has picked up and labor market conditions have improved somewhat further. inflation has continued to run below our longer objective but some of the downward pressure on inflation resulting from earlier sharp declines in energy prices is abating. the committee continues to judge that the first increase in the federal funds rate will be appropriate when it is seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term. at our meeting that ended today the committee concluded that

these conditions have not yet been achieved. it remains the case that the committee will determine the timing of the initial increase in the federal funds rate on a meeting by meeting basis depending on its assessment of incoming economic information and its implications for the economic outlook. let me emphasize that the importance of the initial increase should not be overstated. the stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2% inflation. i will come back to today's policy decision in a few moments, but first i'd like to review recent economic developments and the outlook. the u.s. economy hit a soft patch earlier this year.

real gross domestic product looks to have changed little in the first quarter. growth in household spending slowed. business fixed investment edged down. and yet exports were a substantial drag on growth. part of this weakness was likely the result of transitory factors. despite the soft first quarter the fundamentals underlying household spending appear favorable. and consumer sentiment remains solid. looking ahead, the committee still expects moderate pace of gdp growth with continuing job gains and lower energy prices supporting household spending. the labor market data so far this year have shown further progress toward our objective of maximum employment. although at a slower pace than late last year. over the past three months job

gains have averaged about 210,000 per month. down from an average pace of 280,000 per month over the second half of last year. but still well above the pace consistent with trend labor force growth. although the unemployment rate at 5.5% in may was unchanged from the latest reading available at the time of our april meeting the labor force participation rate edged up. a broader measure of unemployment that includes individuals who want and are available to work but have not actively searched recently. and people who are working part time but would rather work full time has continued to improve. but it seems likely that some cyclical weakness in the labor market remains. the participation rate remains

below most estimates of its underlying trend, involuntary part time employment remains elevated and wage growth remains relatively subdued. so although progress clearly has been achieved, room for further improvement remains. inflation is continued to run below our longer run objective in part reflecting lower energy prices. declines in import prices have also restrained inflation. however, energy prices appear to have stabilized recently. my colleagues and i continue to expect that the effects of these transitory factors dissipate and ased labor market improves further, inflation will gradually move back toward our 2% objective over the medium term. market base measures of inflation compensation remain low though they have risen some

from their levels earlier this year. and survey based measures of longer term inflation expectations have remained stable. the committee will continue to monitor inflation developments carefully. this assessment of the outlook is reflected in the individual economic projections submitted for this meeting by fomc participants. as always each participant's projections are conditioned on his or her own view of appropriate monetary policy. for economic growth participants reduce their projections for this year in line with the disappointing data for the first quarter. the central tendency of the growth projections for 2015 is now 1.8 to 2%, down a little more than 0.5% point from the march projections. the central tendency rises to

2.4 to 2.7% next year somewhat above estimates of the longer run growth rate. the unemployment rate projections for this year are a little higher than in march. at the end of this year the central tendency for the unemployment rate stands at 5.2 to 5.3% a bit above participants estimates of the longer run normal unemployment rate. committee participants generally see the unemployment rate declining a little further over the course of 2016 and 2017. finally, fomc participants project inflation to be quite low this year, largely reflecting lower energy and non-energy import prices. the central tendency of the inflation projections for this year is below 1%, unchanged

since march. as the transitory factors holding down inflation abate, the central tendency rises to 1.6 to 1.9% next year and to 1.9 to 2% in 2017. returning to monetary policy as i noted the committee reaffirmed its view that the current 0 to 0.25% target range for the federal funds rate remains appropriate. as we said in our statement, the decision to raise the target range will depend on our assessment of realized and expected progress toward our objectives of maximum employment and 2% inflation. we continue to base that assessment on a wide range of information including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international

developments. and we continue to anticipate that it will be appropriate to raise the target range for the federal funds rate when the committee is seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term. on both of these fronts as i noted, we have seen some progress. even so the committee judged economic conditions do not yet warrant an increase in the federal funds rate. while the economycommittee views the disappointing economic performance in the first quarter as largely transitory, my colleagues and i would like to see more decisive evidence that a moderate pace of economic growth will be sustained. so the conditions in the labor market will continue to improve and inflation will move back to 2%. once we begin to remove policy

accommodation, we continue to expect that as we say in our statement, even after employment and inflation are near mandate consistent levels economic conditions may for some time warrant keeping the target federal funds rate below levels the committee views as normal in the longer run. in other words although policy will be data dependent, economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal funds rate. compared with the projections made in march most fomc participants lowered somewhat their paths for the federal funds rate consistent with the revisions made to the projections for gdp growth and the unemployment rate. the median projection for the federal funds rate continues to

point to a first increase later this year. with the rate rising to about 1.75% in late 2016 and 2.75% in late 2017. in 2016 and 2017 the median path is about 0.25 percentage point below that projected in march. the median projected rate in 2017 remains below the 3.75% or so projected by most fomc participants as the longer run value of the federal funds rate even though the central tendency of the unemployment rate by that time is slightly below its estimated longer run value. and the central tendency for inflation is close to our 2% objective. participants provided a number of explanations for the federal

funds rate running below its normal longer run level at that time. these included in particular the residual effects of the financial crisis which are likely to continue to constrain spending and credit availability for some time. i'd like to emphasize that the forecasts of the appropriate path of the federal funds rate are conditional on participants' individual projections of the most likely outcomes for economic growth employment, inflation and other factors. but our actual policy decisions over time will depend on evolving economic conditions. accordingly if the expansion proves to be more vigorous than currently anticipated, and inflation moves higher than expected then the appropriate path would likely follow a steeper and higher trajectory.

conversely, if conditions were to prove weaker than the appropriate trajectory would be lower and less steep. finally, the committee will continue its policy of reinvesting proceeds from maturing treasury securities and principle payments from agency debt and mortgage backed securities. the committee's sizable holdings of longer term securities should help maintain accommodative financial conditions and promote further progress toward our objectives. thank you. i'll be happy to take your questions. >> hi. elan from "the washington post." as you mentioned almost all of the fomc participants believe that the first rate hike will come this year but two of your

colleagues believe that 2016 is the appropriate time the imf has called on 2016 as the appropriate time for liftoff as well. and markets seem to place a greater probability of liftoff in january than they do in september. so what is the misunderstanding here? what do they have wrong? and why do you think that waiting until 2016 is a mistake? >> well there are obviously a range of opinions both in the market and among committee members. at this time on what the appropriate stance of policy is likely to be later this year and next year, but importantly when the people write down their dots in the s.e.p. they're making forecasts about what unfolding data is likely to show. but the participants will all

be -- their views will evolve with unfolding data. for all of us the appropriate policy decision is going to be data dependent. and all of us will be looking at incoming data and our opinions about the appropriate timing of normalization are likely to shift as we look at how the data evolves. differences in the appropriate assessments of the appropriate stance of policy in addition to reflecting different views and the outlook there are a set of risks that all of us need to weigh in judging the appropriate time of the beginning of normalization. on the one hand waiting too long to begin normalization kris k

significantly overshooting our inflation objective given the lags in the operation of monetary policy. and on the other hand beginning too early could risk derailing recovery that we've worked for a very long time to try to achieve. and so we're trying to assess those risks. but i want to emphasize sometimes too much attention is placed on the timing of the first increase in the federal funds rate. and what should matter to market participants is the entire trajectory, the entire expected trajectory of policy and again while our actual policy decisions will have to evolve in light of what really does happen in the economy, the committee as you can see by the s.e.p. projections currently

anticipates that conditions will evolve in the economy in a manner that will make it appropriate to raise the federal funds rate gradually over time. >> madame chair, i wonder if you might characterize the progress made towards fulfilling the fed's two criteria? are you somewhat more confident, not confident at all that you're moving towards 2%? has there been a lot of improvement in the labor market, some improvement? and how should we judge when those two criteria have been fulfilled? >> well, it's a judgment that the committee is -- will have to make. and as i've said previously and as we've said in this statement it will depend on a wide range of data. and not on any simple indicator. so i can't provide you -- it would be wrong for me to provide you a road map that said something as simple as if the unemployment rate declines to x

then the labor market will have improved enough for us to begin to raise policy. obviously we have to look at the pace of job creation, we have to look at what's happening to labor force participation to part-time employment for economic reasons, to job openings, to the pace of quits, to wage inflation and other indicators of the state of the labor market. i did say and we agreed that labor market slack has diminished to some extent in the intermeeting period. and clearly over a longer span of time over the last several years obviously we've made considerable progress in moving toward our goal of maximum employment. so in spite of the fact that there is some progress on that front, the committee wants to see some further progress before

feeling that it will be appropriate to raise rates. on inflation, again there has been some progress in the sense energy prices appear to have stabilized. now, inflation is going to overall inflation is likely to run at a low level for a substantial period of time. the big declines in energy prices came toward the end of last year. and the beginning of this year. and they're not going to wash out of the inflation data until late in this year. but the fact that energy prices have stabilized means that the pressure from that source is diminishing. in addition the dollar appears to have largely stabilized. and with respect to core inflation it has been running under our 2% objective, but declining import prices have been reducing that pressure.

i believe that as the labor market continues to improve and as our confidence in that forecast rises, at least for me my at least for me my confidence will rise that inflation will move back up toward 2%. i expect that to over time, put upward pressure encore inflation. >> thank you. john hills raj from the "wall street journal." i want to ask you about a comment that john dudley make that the foed should have raised rates during the 2004 to the 2006 cycle and i wonder if you agree from that and whether there were lessons from the 2004 to the 2006 cycle that should be related today. and with regard to congress,

they have passed measures like an audit the fed bill or the measure to subject the fed to a policy rule and there is now a shelby bill out there and i wonder if there is anything in that that you can accept more broadly and whether there is anything that you can point to that congress can do to make the fed a more effective and accountable institution. thank you. >> so on the first question you asked about the 2004-06 rate increase cycle. throughout that period, the fed indicated that rates would rise at a measured pace and that turned out to be i believe 17 meetings with 25 basis point increases at each meeting. as i've emphasised previously, we absolutely two not expect to follow any mechanical 25 basis points meeting 25 basis points

every other meeting. no plan to follow any type of meck on cal approach to raising the federal funds rate. we will evaluate incoming conditions and move in the manner that we regard as appropriate. so that is one lesson. conceivably, i think with the benefit of hindsight is might have been better to raise rates more rapidly or more during the 2004-06 cycle. i'm not certain of that judgment. but i think there is a case to be made. you asked about audit the fed and the shelby bill. the shelby bill has a title in it that addresses a number of issues pertaining to the fed. i suppose i would ask what exactly is the problem?

we place high priority on being an accountable and transparent central bank and i think that if you compare the transparency of monetary policy decisions in the federal reserve with other central banks we are one of the most transparent central banks in terms of the information that we provide to the public in a whole variety of ways. to my mind, the fed is accountable and we work well as an institution. i'm not certain what the problem is that needs to be addressed. >> thank you very much. sam fleming from the financial times. first question is also referencing something that bill dudley said recently which is to due with the use of the balance sheet in tightening monday --

monetary policy and that the hikes should be hiked before the fed continues -- considers ending reinvestment and if you could give clarity on how the fed intends to ending the approach of the ending reinvestment on the balance sheet and would you see any end of tapering investments for the maturities in the portfolio. and the second question is the use of gradual and you used this term in the opening statement and is the term gradual on the official guidance from the fed and something we should expect to see popping up in official statements in the future? thanks. >> so let me start with the balance sheet and our reinvestment policy. we issued a normalization statement giving principals of normalizing policy.

and what we said at that time is that we expected to reduce or cease reinvestment at some time after we had begun the process of normalizing policy by raising our target for the federal funds rate. we said the timing of that would depend on economic and financial conditions. and the committee has really not made any further decisions about how it is going to go about doing that. so president dudley was expressing his own personal point of view but this is a matter that the committee has not yet decided and i can't provide any further detail. it is obviously something we'll be thinking about. let's see. you asked about gradual. so in a sense we already have a

statement, the last paragraph of the federal open market committee statement says, the committee currently anticipated that even after employment and inflation on near mandate consistent levels conditions may warrant keeping the target federal funds rate below levels the committee views as naturalal in the long run. that is a mouthful. it is a long sentence but i think the spirit of that sentence is consistent with my use of the word "gradual" and it is consistent with what you see in the summary of economic projections. participants are projecting and obviously there is a lot of uncertainty and they are projecting increases that average around 100 basis points per year. now that is not a promise.

it is conditional on their economic forecasts and those forecasts may prove to be wrong and may change. but at this time the assessment that participants have of the economy suggest to them that the appropriate pace of normalization to keep the economy on track to meet our objectives will be gradual in that sense. >> pete ore coke with bloomberg television. madam chair, if i could, gyp your discussions -- given your discussions over the last two days with your colleagues the state of the economy, the improvements that you've seen, do you think it is likely we'll see a rate increase this year and following that the comments from the ifm -- imf this month

and the comment to hold off raising rates until next month and madam la guard said even though there is a risk of inflation there is concern that a rate hike could trig market volatility and financial stability consequences that go well beyond the u.s. borders. are you factoring in that international context for your decision making and is it appropriate for the imf to make shoez kind of specific recommendations. >> and your first question was about a rate increase this year? again, the committee tries to give an indication in the summary of economic projections about how economic conditions will unfold their best projections of that. and what the appropriate policy will be given in light of those expectations. and clearly most participants are anticipating that a rate

increase this year will be appropriate. now that assumes, as you can see, that they're expecting a pick up in growth in the second half of this year and further improvement in labor market conditions. and we will all be -- we will be making decisions however that depend on the actual data that we see in the months ahead. so certainly we could see data in the months ahead that will justify the expectations that you see in the dot plot. but again no decision has been made by the committee about what the right timing is of an increase. it will depend on unfolding data in the months ahead. but certainly an increase in

year is possible we could certainly see data that would justify that. in terms of the imf guidance i believe the imf plays a useful role by undertaking reviews of the economic policies of all of its members. obviously there is a range of opinion among outside observers and market participants as well as among the committee participants as you can see in the s.e.p. about how economic conditions are likely to unfold and consequently the appropriate timing of an in ishl rate hike -- initial rate hike. and i think we all agree and the imf agrees that the policies should be dependent and the committee is always doing its best to assess the implications of incoming data and i would

point out that we have had incoming data since that report was written. but again, i want to emphasize and i think the imf would agree with this, that the importance of the timing of the first decision to raise rates is something that should not be overblown whether it is september or december or march. what matters is the entire path of rates. and, as i've said, the committee anticipates economic conditions that would call for a gradual evolution of the fed funds rate toward normalization. with respect to international spillovers, this is something that we've been long attentive to. obviously we have to put in place a policy that is appropriate to evolving conditions in the u.s. economy. but we -- we can't promise that

there will not be volatility when we make a decision to raise rates. what we can do is to do our very best to communicate clearly about our policy and our expectations to avoid any type of needless misunderstanding of our policy that could create volatility in the market and potential spillovers as well to emerging markets. and i've been trying to do that now for sometime. i've been doing by best to make good on that pledge. >> marty sclutsinger with the associated press. you just talked about the fact you can't promise there won't be volatility in the markets. there are two schools of thought. one is the fed learned from the mistakes made in the 2013 with the temper tantrum and you are going to telegraph this so well

that will limit it and the more pessimistic school of thought is when you do start raising rates they have been low for so long it will make the temper tantrum seem mild by comparison. which camp are you falling in on that? >> i think our experience suggests that it is hard to have great confidence in predicting what the market reaction will be to fed decisions and there have been surprises in the past. i don't think the committee anticipated that its decision would cause the taper tantrum. and all i can say is that uncertainty in the market at this point about loepg rates doesn't appear to be unusually high. and we can only do what is in our power to attempt to minimize

needless volatility that could have repercussions for other countries or for financial stability more generally and that is to attempt to communicate as clearly as we can about our policy decisions what they will depend on what we're looking at. we will be responding to incoming data. we've tried to make that clear. and i think it is clear that the market is also responding to incoming data. and you can see that in daily market reactions to surprises in the economic data. and of course none of us can quite forecast what quite incoming data will be. >> your latest economic projections show that you expect the unemployment rate to fall more slowly this year and then to fall by implications more quickly next year.

can you talk about what changed in your assessment of the laibor market and how that impacts the policy. >> so our productivity growth is a factor that affects the pace of improvement in the labor market. productivity growth has been extremely slow for the last couple of years. and i think in part the pace of improvement in the labor market that we're projecting reflects the notion that there is likely to be some pick up in the pace of productivity growth. obviously that is something that is quite uncertain and it is conceivable that if productivity growth disappoints something, i hope that is something that we won't see because that has implication for living standards

we could see faster improvement in the labor market. but in addition there are other margins of slack that don't slow up in the unemployment rate labor force participation that has -- at least appears to be depressed at least to some except because of cyclical weakness. and the fact that labor force participation rate has remained roughly stable for the last year or so when there is an underlying downward trend that suggests that some slack is being taken up by, in a sense improved or diminished cyclical impact on participation, i expect that to continue and i would also to see some improvement in the degree of part-time employment that is for economic reasons.

>> jonathan spice with reuters. to your point on needing more decisive evidence in order to initiate the first rate hike, how close to you feel the economy is to full capacity now and given that employer costs and monthly wages are at a pace that is at a six-year high now, what is the risk -- how has the risk changed and that inflation could strengthen quicker than you are expecting? >> so the committee estimates that the longer run normal level of the unemployment rate is 5.0 to 5.2. at 5.5% we have an unemployment rate that still exceeds the committee's best attempts to estimate what is normal unemployment rate for this economy. and as i mentioned, there appear

to be unusually large elements of slack over and above that in the form of somewhat still depressed labor force participation and part-time work for economic reasons. so i think it is fair to say that most members -- most participants in the committee wouldn't judge yet, although some might that most wouldn't judge us to be at, quote, maximum employment. wage increases are still running at a low level but there have been some tentative signs that wage growth is picking up. we've seen an increase in the growth rate of the employment cost index and a mild uptick in the growth of average hourly earning. i would call these tentative signs of stronger wage growth. i think it is not yet definitive but that is a hopeful sign.

still, however inflation not only headline, but stripping out food and energy, underlying inflation, core inflation, is still running below the committee's objective. so i think we need to see additional strength in the labor market and the economy moving somewhat closer to capacity the output gap shrinking in order to have confidence that inflation will move back up to 2%. but we have made some progress. >> greg rob from market watch. i would like to turn your attention to the housing market for a question. both rents and house prices have been rising rapidly recently. wheesing americans on both

sides. how comfortable are you with this and does it impact monetary policy? thank you. >> well, i mean the increase in house prices is restoring wealth of many households who have that as their major asset. it is an important part of the wealth of american household -- the american household sector. and for all of the households that were under water, those house price increases are improving their financial condition. although, of course, at the same time, it is making housing less affordable for those who look to buy. at the same time housing over all, given the low levels, the low level of mortgage rates remains quite affordable. i think credit availability remains quite constrained for

mortgages. anyone who doesn't have pristine credit rating is -- finds it very difficult at this point to quality for a mortgage. and i think we're seeing quite a bit of reluctance given the job market and given what the history of what has happened to house prices of young people to want to buy homes. we've seen them delay marriage and wanting to have the flexibility to move. and so the demand for multi-family housing to rent is very high and rent prices are moving up, i think because of that. >> hi jeremy, [ inaudible ]. from the press. in europe, there is gridlock in greece and it is getting every

day for likely and so how concerns are you by these developments. do you feel it could effect the global and the u.s. economy and could it influence in any way -- in any way, sorry, when you will decide to increase the interest rates? >> well, unfortunately, greece and its creditors are faced with very difficult and consequential decisions at this point and in the days ahead. and my hope is that they will continue to work together to try to find a solution to the current difficulties and impasse. obviously european leaders place great value on preserving european monetary economic and political integration and the greek people have made clear it is important to them to remain in the euro area so this is a very difficult situation. in the event that there is not

agreement, i do see the potential for disruptions that could effect the european economic outlook and global financial markets. i would say that the united states has very limited direct exposure to greece, either through trade and financial -- or financial channels, but to the extent that there are impacts on the euro, where the economy or on global financial markets, there would undoubtedly be spillovers to the united states that would affect our outlook as well. >> thank you. chris conner from bloomberg news. madam chair, i would like to come back to the topic of consumer spending. consumer spending has been very disappointing for many months in the u.s. economy.

i'm wonder do you think there has been a meaningful shift and one that will persist in the behavior of households in respect to spending and saving or would you be more inclined to look at the more recent encouraging recent retail sale figures and return of the american consumer there? >> so i think in recent weeks we have received data that suggests that consumer spending is growing at a moderate pace. i would say car sales for example, were very strong. most of it probably represents payback for weak sales during the winter months but nevertheless the pace of car sales has been strong and recent

readingsond retail sales and on spending on services have suggested an improvement in the pace of consumer spending. there are questions at this point about just how much impact we've seen of lower energy prices on consumer spending. the decline in oil prices translates into improvement in house hold income on average of something like $700 per household. and i'm not convinced yet by the data that we've seen the kind of response to that, that i would ultimately expect. and i think it is hard to know at this point whether or not that reflects a very cautious consumer that is eager to add to savings and to work down borrowing or in part some survey

evidence suggests the consumers are not yet confident that the improve that they've seen, the decline in their need to spend for energy, for gasoline, that that is going to be something that will be permanent. they may think it is a transitory change and not yet be responding. so i think the jury is out there. but i think we have seen some pick-up in house hold spending. >> peter barnes. fox business. madam chair, i want to shift over to the decision in the aig case this past monday and in it the judge in the case said in his opinion, quote, there is nothing in the federal reserve act or any other forward statute that would permit a federal reserve bank to take over a private corporation and run its business as if the government were the owner, yet that is precisely what the federal

reserve bank of new york did and the judge went on to cite the replacement of the aig chief executive officer and taking control of the business operations. i wanted to ask you, did the fed break the law in assisting aig back in the crisis? and if this decision is upheld on appeal, how does that effect the fed's tool box and effect its ability to help firms in trouble in the future financial crisis, would it make that kind of assistance illegal or would you have to get congress to change the law and make a fix? thank you? >> so the federal reserve strongly believes that its actions with respect to aig in 2008 were legal, proper and effective and believes that they were necessary given the threat that a disorderly failure of

that company would have had likely implications for the economy, for the flow of credit to households in businesses in the economy. and it believes that the -- we believe that the terms of that intervention were tough and appropriately so in order to protect taxpayers from the risks that those rescue loans presented at the time they were made. now, i should emphasize that dodd frank changed our 13-3 authority and said that the federal reserve may not in the future crisis intervene to attempt to address the issues of

a particular company. at the same time it gave the government a set of new tools that it could use in a situation like the aig situation or lehman to try to resolve such a situation that poses systemic risks in an orderly way. i just say at this point the federal reserve under dodd frank can continue, if necessary, in some future crisis to engage in broad based programs similar to the program we had in effect -- the programs we had in affect in 2008 to provide support for the issuance of asset-backed securities that enabled loans to small businesses and to students and for credit cards and for

credit throughout the economy or to support the issuance of commercial paper. at this point i believe we are working with the department of justice to decide on next steps. >> madam chair, mark hammeric with bank rate.com. so much discussion about rising rates seems to focus on the potential negatives and i'm wondering if you could talk a little bit if you envision possible unintended benefits of higher rates and one of the things i'm thinking about is the fact that savers have suffered through so many years of miserly returns and many may be actually anticipating in a better way seeing a better return on their investment. thank you. >> so let me say to my mind, the most important positive is that i believe a decision to raise rates would signify very

clearly that the u.s. economy has made great progress in recovering from the trauma of the financial crisis and that we're in a different place. i think hopefully that would be something that would be confidence-inducing for some households and businesses. from the point of view of savers, of course this has been a very difficult period. many retirees and i hear from some almost every day, are really suffering from low rates that they had anticipated would bolster their retirement income. this obviously has been one of the adverse consequences of a period of low rates. we have a good reason for having kept rates at the levels that we have. we are charged -- our charge

from congress is to pursue the goals of maximum employment and price stability. that is what we've been doing. and obviously there are benefits from a strong economy to every household in the economy, including savers from having a better job market and more secure economy. but, yes, when the time comes for us to raise rates i think there will be some benefits that flow through to savers. >> jim pus from the l.a. times. to follow up, i think savers, people on fixed incomes were hopeful they would see a rate increase if not this meeting, soon. what kind of assurances can you give them and people out there who think the fed is never going to raise rates? i got some e-mails today saying they are never going to raise

rates. what kind of assurance can you give to people who are waiting for that to happen? >> i can't give an ironclad promise but i think it is clear from our summary of economic projections that we anticipate that the economy will grow, that the labor market will improve that inflation will more back up to 2%, is our objective over the median term and if economic conditions unfold in the way most of my colleagues and i anticipate, we see it appropriate to raise rates and the largest number of participants anticipate that those conditions should be in place later this year. obviously, we have to -- there can be surprises. that might not happen. it is not an ironclad guarantee. but we anticipate that that is

something that will be appropriate later in year. >> mike derby with dow jones news wires. can you shed some additional light on how large reverse repo operations are likely to be in the initial face and additionally how important are financial conditions to the pace of the feds tightening cycle. how important is the market reaction in determines how fast and slow and the ultimate end point of a fed tightening cycle? >> so with respect to -- you asked first about overnight reverse repos. and we communicated in our minutes that the committee has an intention to make sure that they are available -- overnight repos are available in large quantity at liftoff to ensure

that we have a smooth liftoff that there will be an elevated level of provision of overnight rrp. however, it is our expectation and plan that fairly quickly after liftoff, we will reduce the level of the overnight rrp facility and we have a variety of ways in which we can do that. with respect to market reactions, we always, in evaluating the economic outlook have to take account of financial conditions whether it's the level of long-term interest rates or the value of the dollar in assessing the economic outlook. to the extent that there are market reactions and market movements, whether they are in reaction to decisions of ours or in reaction to other events

foreign events or unfolding economic conditions, we'll always take those into account in deciding on the appropriate path of policy. >> steve beckner of mmi. madam chair, good to see you. you mentioned that the dollar has stabilized and in fact since mid-march, i believe its given up a good bit of its gained from last summer. to what except now do you think that there will be an ongoing drag from the dollar taking into account this dollar retreat? and over all how important is the dollar exchange rate in monetary policy these days, relative to the past? >> well i think we still are, since last summer, have seen an

appreciable increase in the value of the dollar vis-a-vis most of our trading partners including emerging markets. so it is a significant appreciation of the dollar. and i think we've seen that it has had a negative effect on net exports and so served as something of a drag on the economy and probably that drag is going to continue for some time to come. so it is a factor affecting the outlook. in addition, import prices for non-oil imports continue to fall and i think that is serving to push down core inflation a little bit. eventually i expect that impact to ebb. but it is a factor effecting the outlook that said we obviously

have no target for the dollar, we take movements in the dollar and its economic impact is one of many factors affecting the outlook and in spite of the appreciation of the dollar the committee obviously thinks that the economy is likely to do well enough to call -- likely call for some tightening later this year. >> john helpman from men banker. would like to ask a regulatory question if i could. last month senator elizabeth warren and congressman elijah cummings sent a letter asking about an in choiry into the fed and other regulators of the community reinvestment act concern being that the cra as it is implemented now is not giving blighted communities and others

like baltimore enough access to basic banking services. do you think that the fed is doing everything it can in the cra implementation giving access to these kind of services or do you think it needs to be doing more? >> we take c.r.a. very seriously and evaluate for those banks that we supervise. we have a set of guidelines and are very conscientious in attempting to evaluate c.r.a. performance. it is something that we certainly take into account in assessing applications that we receive for mergers and we have very active programs to try to bring together community groups with banking organizations to try to provide them with

information about how they can assess community needs and best address them. but we are looking at c.r.a. and continue to look to see whether there are ways in which implementation can be improved. >> thank you very much. >> when congress is in session c-span 3 brings you more of the best access, can live coverage of hearings news conferences and every weekend it is american history tv traveling to historic sights and discussions with authors and historians and eyewitness accounts of events that define the nation. c-span 3 coverage of congress and american history tv.

>> some are sitting kind of front left of the chamber, if you will and so when brooks comes into the chamber, he comes into the center doors, sits down and is almost looking directly at sumner. the problem is sumner is not looking at him. his head is bowing, he is literally signing copies of the crime against kansas. he gets up and walks down the center aisle with his cane and sumner again with head bows signing copies of the speeches and brooks reaches him and lifts his cane over his head and he said mr. sumner, i read your speech twice and it is a libel to my state and my relative and brooks is blurred through his classes because he is so slow and brooks strikes sumner on the top of his head with a crane and sumner's head explodes in blood

immediately. the caned of sumner by preston brooks that drove the country closer to civil war. on sunday night on c-span's q&a. office of personnel management director katherine archuleta said two recent cyber breeches are likely to grow. she testified before the house over site and government reform committee yesterday. he said more than 4 million federal personnel are effected. this hearing is about 2.5 hours. >> this hearing will come to order. the chair is authorized to

declare a recess at any time. mr. couplings will be with us momentarily as another committee assignment is also pressing on his schedule. last week we learned that the united states of america may have had what may be the most devastated cyber attack in ore nation's history and this may have been happening over a long period of time. as we sit here this morning there is confusion over exactly what information for millions of federal employees and workers were exploded through the latest data breech at the office of personnel management. opm reported that the personnel information of 4 million federal employees was exposed during this attack. some suggest the breach was worst than that. and it is unclear what information was exposed. we would like to know what information was exposed, over what period of time and who has

this vulnerability. and it would be great to know who conducted this attack. we need to have kabdor with the federal employees and the american people as well. and it included highly sensitive personal background information collected through the security clearance applications and we would like clarity on that as well. and this puts our intelligence officers and others working on sensitive objects throughout the globe and we concerned those who interacted through the government and entrusted this information to the government. wed into to understand why the federal government and opium in particular is struggling to guard our nation's most important information. the fact that opm was breached should come as no surprise given the troubling track record. this has been going on for years and it is inexcusable. each year the inspector general rates the compliance with the federal information security standards.

according to theest -- the last eight years of ig reports the opm data security posture was akin to leaving all of the doors and windows open and akin to nobody would walk in and take any information. how wrong they were. apm data security was rated as a material weakness, end quote. because the agency had no it policies or procedures that could come anywhere close to something to be used as an excuse for securing the information. it is unclear that the all information for all and current employees would have no policies or procedures in place. let me read through some of the reports that have happened through the course of the years. this is from -- this is the inspector general from fiscal year 2009. this year we are expanding the

material weakness to include the agency's over all information security governance incorporating our concerns about the agency's information security management structure. the continuing weakness at the security program result directly from inadequate governance. most, if not all, of the exceptions we noted this year resulted from a lack of necessary leadership policy and guidance. go to fiscal year 2010. we continue to consider the i.t. security management structure insufficient, insufficient in the lack of policy and procedures in a weakness of the i.t. security program. in fiscal year 2011. we continue to believe that the information security governance represents weakness at the i.t. security program. fiscal year 2012. throughout the fiscal year 2012 the ocio the office of the chief information officer continued to operate with a

decentralized i.t. security structure that did not have the authority or the resources to adequately implement new policies, however the material witness is open in this report as the agency's i.t. security function remain decentralized during the fiscal year 2012. the reporting period. and because of the continued instances of noncompliance with requirements. it goes on later. however, the ocio statement is inaccurate as there were in fact -- let me go back. the ocio's response to our draft audit report indicated that they disagree with the classification of the material weakness because of the program that opm has made with the i.t. security program and because there was no loss of sensitive data during the fiscal year. but as the inspector general pointed out, however the ocio statement is inaccurate as there were numerous information security incidents in 2012 that

led to the loss or unauthorized release of mission sensitive data. they couldn't even decide and agree they lost the data back in 2012 in the fiscal year 2012. let alone actually solve the problem. go to fiscal year 2013. again, the inspector general, the findings in this audit report highlight the fact that the opm decent ralized governance show noncompliance with requirements and thereafter we are again reporting this as a material weakness in fiscal year 2013. fast forward to fiscal year 2014. this is november of 2014. 11 major opm information systems are operating without valid authorization. this represents a material weakness in the internal control structure opm's i.t. security program. it goes on. opm does not maintain a comprehensive inventory of servers data bases and network devices. they don't even know what they

have. they don't even know what is in the inventory. they are not incorporating plans of action into milestones and the majority of systems contained are over 120 days overdue. opm continues to implement the continuous monetary program and security controls for all opm are not adequately tested in accordance with their own policies. not all opm systems have conducted contingency plan tests in fiscal year 2014. certainly security agreements between opm and contract operated information systems have expired. multifactor authentication is not required in accordance with the opm memorandum. this has been going on for a long time and yet when i read the testimony that was provided here, we're about to hear some -- hey, we're doing a great job. you're not.

it's failing. this went on for years and it did not change. the inspector general found that 11 of the 47 major information systems or roughly 23% at opm lacked proper security authorization, meaning the security of 11 major systems was out dated and unknown. five of the 11 systems were in the office of the chief information officer, miss see more. they were in your office. which is a horrible example to set as the person in charge of the data security. they only recently updated to quote a sufficient deficiency, end quote. in november of 2014, over 65% of all systems operated by opm reside on two of the systems without valid authorization. sitting on two systems no valid authorization, 65% of the

information. and for any agency to consciously disregard the data security for so long is grossly negligent. and the fact that the agency that did this is responsible for maintaining highly sensitive information for almost all federal employees, in my opinion, is even nor egregious. opm isn't alone. a number of agencies suffered breaches in the last year. the latest cyber hack is across the government, including the post office, the state department, the irs the nuclear regulatory commission and even the white house. and at the same time government is spending more and more on information technology. last year across government we the american people, spent almost $80 billion on information technology, and it stinks. it doesn't work. $80 billion later and the person in charge of security the person who is in charge of

making sure there is authentication of our systems, even if her own office, there is authorization needed. opm is not alone in the blame for this failure. the office of management and budget has the responsibility for setting standards for federal cyber security practice and it is opm's job for holding and complying with enforcing these standards. the department of homeland security has been given the lead responsibility for serving as the government's so-called geek squad to monitor day-to-day security practices but the daily tools to protect federal networks apparently isn't doing the job. while the dhs has developed einstein, only protected known intruders proving that it is completely useless in latest opm hacks. the status quo cannot continue.

we have to do better. we're talking about the most vital information of the most sensitive nature of the people that we care about most. the people that trust that information to opm. and through the years it has been a complete and total utter failure. to the point we find ourselves where millions of americans are left wondering, what somebody knows about them, what are they supposed to do? and i've read the letter that you've been sending out to employees and it is grossly inadequately. it is grossly inadequate. and that is why we are having this hearing today. we appreciate you being here. and what we're going to do now. i would like to recognize the gentleman from texas, the chairman of the sub-committee that we have in i.t. we at the over site and government reform committee have set up a new sub-committee that deals just with i.t. issues.

we're honored and pleased to have mr. herd from that committee and i'll read the gentleman from texas mr. heard for five minutes. >> thank you mr. chairman. not only as the head of the sub-committee but as a former intelligence officer and been through background information and whose information who probably resided with opm, i'm concerned and today's hearing is another show of the fact that america is under constant attack. it is not bombs dropping or missiles launching it is the bomb of cyber aimed at our data, our enemies are attempting to rob this country on a daily basis an unfortunately they are succeeding. the worst are not coming from the caves of afghanistan or syria but from air-conditioning office buildings in china, iran and russia, far from battlefields. they work with impunity knowing their actions have no consequences. this is not only a question of how to protect our networks and

data but of how we define the appropriate responses for digital and digital attacks. this is a question i've asked for years and continue to ask in my role as chairman of the sub-committee. it is no secret that agencies need to improve the cyber security posture and we have for years and years highlights legacy systems to poor compliance and while there have been improvements they have not kept pace with the nature of the threats we are facing. but until agency leadership takes control of the basic cyber security measures things like strong authentication anden crypting data and segmentation we will be playing catch up against our well resourced adversaries and i welcome the witnesses here today and look forward to their testimony. thank you mr. chairman. i yield back. >> thank you to the gentleman. will now recognize the gentle woman from illinois, the ranking member, miss kelly, for five

minutes. >> thank you mr. chair. i want to thank our expert witnesses for their participation today and i thank the chairman and ranking member for holding this important hearing on the opm data breach. as you know, i have the privilege of serving as a ranking member of the i.t. sub-committee and the issue of data breach is something that chairman herd and i are quite concerned with and we're looking forward to working with our colleagues to be active in addressing this issue. all of us here today should be quite concerned. the opm breach has raised significant questions about how adequately the personnel information of government employees is stored on government networks. we know that every day our government and american businesses face a barrage of cyber threats. we're reminded of the high-profile breaches on some of our nation's most important companies but there are every day cyber intrusions of our data that aren't making the headlines. whether it is crimes beyond our borders profiting from fraud and identity theft to domestic competitors who steal intellectual property to gain

advantage or hackers looking to make a statement against government, cyber crime threatens our national security and economic prosperity. data breaches probably won't end any time soon but they are something we can be more aggressive in addressing. as we catch on to cyber attackers methods, these bad actors will look to innovate the way around newly integrated cyber defenses and this is why we must be just as innovative and have a frank conversation today and prepare a multi front strategy to thwart off and diminish the future data breaches so i thank the economy and our witnesses again for this commit to examine the opm attack and with that i yield back. >> thank the jebtsle woman. it is our intention to hear mr. coupling's statement but i think we'll now swear in the witness and hear their statements and then go to mr. kumming before we get to questions. if that is okay with everybody. i will also hold the record open

for five legislative days for anybody to submit a written statement. will recognize the first panel of written witnesses. leased to welcome katherine archuleta. dr. andy oz met, from the office of cyber security and communications at the national programs at the united states department of homeland security. mr. tony scott u.s. chief information officer of the office of government and information technology at the u.s. office of management and budget. and miss ville via -- silvia burns at the united states department of interior. donna seymour, from the united states office of personnel management and mr. michael esser, assistant inspector general for audits office of the inspector general at the united states office of personnel management. we welcome you all.

pursuant to committee rule, all witnesses will be sworn before they testify. if you will please rise and raise your right hand. do you solemnly swear or affirm that the testimony you are about to give will be the truth, the whole truth and nothing but the truth. thank you. please be seated. let the record reflect that all witnesses answered in the affirmative. in order to allow time for discussion, we would aappreciate you limiting your testimony to five minutes. we will -- again please limit your comments to five minutes. i'll be a little bit generous but five minutes if you could and then your entire written statement will be entered into the record. at the conclusion of those we'll hear from mr. cummings and go to questions from there. with that, we'll recognize miss archuleta, the director of the office of personnel management and you are now recognized for

five minutes. >> chairman, ranking member cummings and members of the committee, i'm hear today to talk to you about two successful intrusions into opm systems and data. but first, i want to deliver a to dlufr a message to federal employees and their families, the security of their personal data is of paramount importance. we are committed to full and complete investigation of these incidents and are taking actions to mitigate vulnerabilities exposed by these intrusions. when i was sworn in as director 18 months ago, i recognized that in order to build and manage an engaged inclusive and well-trained workforce, that we would need a thorough assessment of the state of information technology at opm. i immediately became aware of vulnerabilities in our aging legacy systems and i made the

modernization and the security of our network one of my top priorities. government and non-government entities are under constant attack by evolving and advanced persistent threats and criminal actors. they're sophisticated, well founded, and focused. these attacks will not stop, if anything, they will increase. within the last year, we have undertaken an aggressive effort to update our cyber security posture, adding numerous tools and capabilities to our networks. as a result, in april of 2015 an intrusion that pre-dated the adoption of these security controls was detected. we immediately contacted the department of homeland security and the fbi, and together with these partners initiated an investigation to determine the scope and the impact of the

intrusion. in may, the inner-agency response team concluded that the exposure of personnel records had occurred and notifications to affected individuals began on june 8th and will continue through june 19th. as part of our ongoing notification process, we are continuing to learn more about the systems that contributed to individuals' data potentially being compromised. these individuals were included in the previously identified population of approximately four million individuals and are being appropriately notified. for example, we have now confirmed that any federal employee from across all branches of government, whose organization submitted service history records to opm, may have been compromised even if their full personnel file is not

stored on opm's system. during the course of the ongoing investigation, the inner-agency incident response team concluded later in may that additional systems were likely compromised. this separate incident which also pre-dated deployment of our new security tools and capabilities, remains under investigation by o opm and our inner-agency partners. however, this is a high degree of confidence that systems related to background investigations of current, former and perspective federal government employees and those for whom a federal background investigation was conducted may have been exfiltrated. while we have not yet determined its scope or its impact, we are committed to notifying those individuals whose information may have been compromised as soon as prakticable. throughout these investigations

we have provided regular updates to congressional leadership and the relevant committees of these incidents. but for the fact that we implemented new more stringent security tools we would have never known that malicious activity had previously existed on that network and would not have been able to share that information for the protection of the rest of the federal government. in response to these incidents and working with our partners at dhs, we have immediately implemented additional security measures to protect sensitive information and to take steps toward building a simplified modern and flexible network structure. we continue to execute on our aggressive plan to modernize opm's platform and bolster security tools. our 2016 budget request includes

an additional $21 million above 2015 funding levels to further the support of the modernization of our i.t. infrastructure, which is critical to protecting data from the adversaries we face. this funding this help us sustain the network security upgrades and maintenance initiated in fiscal year 2014 and fiscal year 2015, to improve our cyber posture including advanced tools such as database encryption, stronger fire walls storage devices, and masking software. the funding will also support the redesign of opm's legacy network. thank you for this opportunity to testify today and i'm happy to address any questions you may have. >> thank you. dr. ozment? >> chairman chaffets ranking member cummings and members of the committee i appreciate the opportunity to appear before you today. like you, my fellow panelists and countless americans i'm

deeply concerned about the recent compromise at opm. ip personally dedicated to ensuring that we take all necessary steps to protect your federal workforce and to drive forward the cyber security of the entire federal government. director archuleta and my written statement spoke to the facts of the opm incident top so i want to focus my remarks on how we're accelerating efforts to protect the federal government. this morning i will discuss how the department of homeland security is protecting civilian, federal agencies and helping those agencies better protect themselves. under legislation passed by this congress last year federal agencies are responsible for their own cyber security. however, dhs provides a common blane of security across the civilian government and helps agencies better manage their cyber risks through four key efforts. first, we protect agencies by providing a common set of capabilities through the einstein and cdm programs.

we motivate them to implement best practices. third, we serve as a hub for information-sharing and finally we provide incident response assistance when agencies suffer a cyberin trution. i would focus on hue dhs provides a baseline of security through einstein and cdm. i'm described the other three areas in my written statement and am happy to take your questions. our first line of defense is the einstein system which protects agencies at the perimeter. a useful analogy is that of a fizz physical government facility. einstein one is similar to a camera at the entrance of the facility that records the traffic coming and going and identifies anomalies in the number of cars. einstein two, adds the ability to detect suspicious cars and to alert security cars when the prohibited vehicle is identified. einstein two does not stop cars

but it does set off an alarm. einstein one and two are fully deployed in screening of all federal civilian traffic, all of the traffic that goes through trusted internet connections. einstein 3-a is akin to a guard post at the highway for multiple government facilities. it uses classified information to look at the cars and compare them with the classified watch list. it then actively blocks prohibited cars from entering the facility. we are accelerating our efforts to protect all civilian agencies with einstein 3-a. it now covers 9 930,000 federal personnel. that is about double the coverage we had just nine months ago. during this time, einstein 3-a, has blocked over 550,000 attempts to access malicious websites which is one of our two

countermeasures. einstein played a keel role in identifying the recent compromise. as we accelerate einstein deployment, we recognize security cannot be achieved through only one type of tool. einstein will never be able to block every threat. for example, it musting complemented with systems and tools to monitor inside agency networks. our cdm program addresses this challenge. cdm phase one allows agencies to continuously check building locks and security cameras to ensure they're operating as intended. continuing the analogy, the next two phases will monitor personnel at the facility to ensure they are not engaged in unauthorized activity. and it will assess to detect unusual patterns. eight agencies covering over 50% of the federal government and expect to cover 97% by the end of the fiscal year.

the deadlines are when dhs will provide the capability and will takes additional months to agencies to deploy einstein and cdm once available. agencies must supplement with additional tools appropriate to their needs. i'd like to conclude by noting that federal agencies are a rich target and will continue to experience frequent attempted intrusions. this problem is not unique to the government. as our detection methods continue to improve we will detect more incidents. incidents that are already occurring and we didn't know it yet. the recent breach is emblematic of this trend. we are facing a major challenge in protecting our most sensitive information against economist kated, well resourced and persistent adversaries. further, the entire nation is now making up for 20 years of underinvestment in our nation's