at the same time, within syria, countering isil you have some members of the coalition that are providing help to groups like the army of conquest which may include al qaeda affiliates. can you share your views on the potential perceptions that some of us of the coalition. on how these complexities i play in and how you're managing that. >> well that's an important question. and i think the first thing that comes to mind i -- as i said, this is the fifth coalition in which i have been involved.

one of the first things that's evident in any coalition that while states have come together usually sharing a desire to achieve a common purpose, achieving common values and common interest. seldom will those states in that process subordinate their personal or their national interest. so national interests will continue to be important to the individual members of the state. of the coalition. we have achieved i think, in a relatively short time a remarkable consensus within the coalition. ultimately for the defeat of daesh. that really -- that really was a very impressive effort i think on the part last year of the president's leadership but having watched secretary kerry very closely in this and the

real emergency of august and september, bringing this coalition together, so they have come to achieve an outcome with regard to daesh. but in the course of that they also continued to recognize the national interest of their own. for many of the members of the coalition, iran is one of the principal sources of threat to their national security. you see that in the gulf and in that region. i won't speculate on the outcomes of the announcement that was made this morning with respect to whether it will fund fundamentally change iranian behavior. but that is the of, course, a very important question to all of them. will iran's behavior change as a direct result of potentially being completed assimilated into the community of nations as a result of this agreement, remains to be determined.

but i will tell you that is clearly a point of interest and strong attention for our neighbors and allies in the region. it will become an important point over time. but, even though we are committed to the defeat of daesh, committed to the support of iraq and our greater iraqi ambassadors here this morning, not only are we committed to a political outcome in syria which sees in the end a transition to a government that is represented or is supported by the syrian people that does not include bashar al assad. that does sometimes create tensions as some states view individual entities in the syrian battle space differently than other members of the coalition, and i think we have a strong common view that the political outcome is what we seek. the modalities of that outcome may differ from one partner to another.

the alignments that had been formed early in the civil war in syria were strong alignments that supported various groups to seek to either liberate the syrian people or to take action against the central regime and those alignments have been enduring. but i think we have worked very hard to manage those alignments so that it doesn't create too great attention or the dissolution of the coalition. as time has gone on, i have seen greater congruents in that view no less. >> if i could follow one piece, you did mention that you're just back from ankara, the role and the relationship with turkey has been complicated, it's been vital, it's been seen as quite tense at times. it seems you're quite optimistic right now. so, one of my questions there,

you see for example the kurdish being an effective force fighting within syria, but again, this is sort of just to get to one area where there are differences potentially differences between coalition members on how to approach a particular on-the-ground partner, how do you see that kind of dynamic playing out? >> well, it's -- it's actually been naturally pretty remarkable what the kurdish elements in syria have done to eliminate daesh from a large segment of the border. there is still border which is in the hands of daesh and that's problematic and it's an issue for the whole coalition. but it's also important for us to take into account the very real concerns of the turks in this regard. you know, we're old friends with the turks. we're allies with the turks. we have been in, i think, very constructive conversations with them for some period of time, my

last opportunity to visit ankara was yet a continued affirmation of commitment together to achieve goals in the region. i left ankara with a continued sense of importance of our relationship with turkey as an bilateral relationship, my sense of the importance of turkey's relationship to the coalition, but also came away, again, once again, convinced of turkey's importance to the solution to the difficulties, both the region and in syria in particular. so, in that sense, we're very attentive to turkey's concerns about the issues with which they deal with regard to the kurds. so, we're attentive to their relationship with the pkk. and how they view the pkk.

we're attentive to their attention to what happened south of the border with the kurdish forces that were so successful against daesh, and in that regard, we have been very clear on the issue that we do not support the dissolution of syria, we support ultimately a syria that's territorily intact. we don't want to see broken into sectarian or ethnic flag -- fragments. in that regard, we don't support and i don't believe in fact the kurds support in northern syria a separate governmental entity. but we also have been very clear that the elements of the population that have found themselves liberated from daesh in the course of these military activities along the border in the last several months. we have been clear. the u.s. has been very clear, we expect populations that have been liberated will return to their own system of administration.

so turked amin will administer turks. it's important that as a partner that has ultimately been enabled to defeat daesh not become an occupying force but it has become an enabler to defeat daesh. they're able to return to the nature of their self-administration that we have seen before. so we're very attentive in how that has gone. undeniably it has been successful in rolling daesh back. in the course of doing that, kobani has been stabilize. while there was a large kurdish population there, there was a large free syria that fought inside kobani as well. the ability for us to motivate free syrians to be a credible sunni, arab partner in the future. but we also have taken off the battlefield one of the principal

crossing points for daesh. that denied raqqa, and forces have moved down towards raqqa. that's created immediate pressure on the capital of daesh and that's an important outcome for this. we're beginning to see the capacity ultimately for us to regionally synchronize military activities that can create a more comprehensive strategy across daesh. as an entity. it is a unified comprehensive, synchronized strategy, or sin synchronization, and that is beginning to take shape. that's why i'm optimistic. >> can i squeeze in one more? >> one more. >> thank you. you mentioned commitment to the territory integrity of syria. politics in iraq is always a

major question, and you know, in this report we come out saying that it is important not to give up on the iraqi state, that we need to see as you said about syria and iraq, able to maintain its integrity. that required getting the sunnis in. and you talked about there are some sunni fighters that are actually being recruited and actually joining the fight to retake ramadi. but there is a sense and there are people in this town that would say, you know, we have seen this show before, what is your thought on this concept of functional federalism and the real willingness for the hard political decisions to be made to sustain this. this is one of the reasons of the greatest skepticism when you step out of iraq and people just sort of look at the situation. >> well, i can understand skepticism. i think we need to give this a chance. the prime minister has been in office since the 7th or 8th of

september. he came into office, at the moment that iraq that daesh was determined to destroy iraq. most of the iraqi territory was already under its boot. thousands of iraqi troops and thousands of iraqi civilians had already been either displaced or slaughtered. so he came under a very, very difficult moment, and i think in stark contrast to previous systems of government in iraq, he sees the future of iraq as one that divests authority from the center in order to empower reliable government in the province. he talked about this, it's functioning federalism. he's been clear. but of course he has a skeptical power base that operates from a long history of concerns about what the other components within the iraqi society really intend to do over time. that skepticism is something that we have to recognize, it's

a skepticism that, by committing ourselves to the political process of iraq, in supporting the prime minister's effort at functioning federalism, in being quick in the process of stabilization, in the context of liberated populations, it creates the operationalization the real physical operationalization of functioning federalism. that ultimately achieves his publicly announced objectives. first i'd say, look, let's think about what has happened politically in iraq since the overthrow of the king, and we have not seen democracy in action there, democracy as we would like to see it and democracy as we know it, we have not seen it yet, as prime minister, operating under some of the most difficult,

political, economic -- economic very importantly and military challenges, as he seeks to make progress in a pressure cooker of political pressure in an economic environment that leaves iraq devoid of resources that it could apply otherwise. and under pressure to defeat daesh. to reunify the country and unite iraq. we have to recognize that he's making progess. that's why the coalition when we get together, whether it's at 62 or at small group level, the coalition has yet to walk away from a meeting without affirming the coalition's commitment to the prime minister and territorial integrity and the unification and the unity ultimately of iraq. >> thank you so much, john allen. thank you for your tireless dedication. to this on behalf of the nation,

i'd like toeveryone to thank john allen. thank you very much. [ applause ] [ applause ] good morning. i'm brian katulis, i'm the senior fellow here at center for american progress. thank all of you for coming. we want to thank general allen for sharing his wisdom and his thoughts on the status of the campaign. what we want to do here is

have a bit of discussion, reflecting on what general allen said. then also talk about a report that the center released this morning that assesses the status of the campaign, my role today is to simply moderate the discussion. i'll introduce the panel here. we;ll have a couple of remarks from the senior fellow hardin lang and then dr. steven walt, from harvard, and finally sarah margon, former colleague of ours here at the center for american progress. our goal here in having this discussion is be as wide ranging as possible. about halfway through, i'll draw you guys in, anyone who has questions into the dialogue and discussion. so, first, without further ado, hardin, the floor is yours, where are we, more than a year into this campaign, what does the report says, what are the highlights? what do you think about what general allen said? >> thanks, brian. before i get started

i want to commend folks, some of the work that the other panelists have put out, doctor walt has written an interesting piece. the staying power of isil. and what the implications are or are not for our national security. sarah margon, human rights abuse inside of iraq in real time and it's not just from a human rights perspective but it's quite important from a political perspective. they're doing a whole lot to sort further rend the sectarian fabric of the country apart. stepping back to our report, i guess there were a couple of things we were trying to say, the first one, probably was, look, let's take a deep breath, focus on recalibration, and see if we can work a little bit to

get the politics right. it's been a rough couple of months for the anti-isil coalition, no doubt about it. general allen is quite upbeat and optimistic about it. the events, the fall of ramadi, really did jolt the policy establishment. there's good reason to concern. but the first point we would like to make, there have been a lot of reactions to those events. and a number of critics have said, the fall of ramadi calls into question the strategy of relying on local partners to do this fighting. the u.s. has to look at deploying significant number of combat troops back into iraq. to stiffen the spine of iraqi and take this fight to isil. and one of our big takeaways, the time we have spent in iraq, going back and forth, the u.s. has the most efficient and fear-fighting machine on the planet. but tens and thousands of u.s.

troops aren't not going to fix what are fundamental problems and political crisis in iraq that led to the creation of isil. there are people on the other side who basically say, as we heard general allen said, look it, iraq is at a stage where it could -- in all likelihood it's going to disintegrate. it's going to break up into states, sunni, shia and kurdish. we need to readjust the u.s. policy against that. and what we're saying, none of us are yet convinced, we're at a point where it makes sense to short the iraqi state. iraq holding together as a balk work and having to work to fix the politics of iraq, really does provide the best opportunity for some sort of policy and stabilize the region. i mean, so, where does that

leave us, rather than -- rather than getting into discussions of tactics the additional troops, where they might go and belong, we wanted to focus on the wider politics of iraq, syria and the region. the first step we think at the regional level is to work a bit more on the unity in effort. general allen and his team have been doing a great deal of work to stabilize there, but there are still outstanding issues we need to address. only three are hitting targets in both iraq and syria. you have arab members of the coalition who have struck operations and most of our european allies are focused on iraq. there needs to be more to break this stove pipe and break the territory as a single theater. efforts to support local partners on the ground and from the air, need to be coordinated at a regional level.

so say, the iraqi security operation that we saw launched yesterday in anbar needs to be coordinated better with assistance going in to, say, the syrian kurds who have been doing a great deal of fighting in the north. if we can break the politics, though, by the short-term imperatives of defeating isis discuss to regional stabilities. one of the most interesting things here, if, in the short term we cannot let this crisis go to waste. it's possible that the coalition could provide the architecture for a regional security and par does or framework. it's not too soon to begin exploring this with our partners. getting into iraq, the general said things about his dedication to functioning federalism. and for us this really is the heart of the matter. something has to be done that's going to open the door to the

sunni arab population to make them feel as though they have a real stake in the future of the country. so far, there have been some important pieces of legislation, the concept of a national guard, but most of the stuff right now is still stuck in the political process and on its own it's not going to be enough to convince sunni arabs to come back in the political fold. so, we need to be supporting the prime minister to build out and make tangible this concept of functioning federalism. in the way sunni arabs feel that to come back in the fold. affect the way we conduct the campaign. the u.s. made a decision to withhold air support until the iraqi security forces were leading the fight. it's that kind of moment and that kind of posture and policy that we need to constantly reinforce to make sure that the

central government is driving the show and those populations that are in areas combat is under way they're representing them. syria remains the hardest part of the puzzle, and there's no doubt about this. the coalition itself is divided. general allen made some comments about this, i think he's walking a very delicate tight rope in trying to hold this together. the u.s. strategy has hinged on this program to train and equip 15,000 anti-isis fighters. if we're still at a number of 60 a year in there's clearly a need for review. general allen focused on what we'll need to do to get that process going. i don't think it's going to be sufficient. one thing we're arguing in the report, once we can get this program online, it's going to be necessary for the u.s.

government to not only defend those forces when they go back into syria against isil, but they also need to be able to defend against them the regime in damascus which is committed to destroying them. this is a step that we're not willing to make on our partners there. finally, i think if we are willing to step in a more direct way and assert a willingness to defend these partners, it may open up a window of opportunity to reengage a diploma diplomatic process. i don't think it's going to happen any time soon. at the moment, the diplomacy is largely stall. when there are moments we're willing to engage with the credible threat or use of force, we see that the diplomacy process starts to reignite. we don't see an end to the civil war any time soon.

but creating a framework that could to deescalation over time. support of its political strategy rather than focusing on deploying tens of thousands of additional troops. to the make this easier it's probably important to appoint one person, one commander, one envoy who's really going to be in charge of this effort. we have different commanders concerned about the effort inside of iraq. and being able to coordinate both the diplomatic and the military assistance aspects of this in a coordinated fashion is to be essential to success. the president has warned that it is going to take years for this battle to be won and but without proper recalibration of what we're trying to do, i suspect that the fighting against isis is going to prove more longer and drawn out than

it needs to be. thank you, brian. >> thanks, hardin. steve, i want to turn to you, first, hardin said, the strategy is fundamentally okay, we just need to recalibrate it. we heard general john allen earlier, your assessment whether you agree or disagree and how you see the snapshot right now. >> first of all, i think the strategy you heard here sounded very familiar to me. we have a coalition that's going to wage this particular conflict, it's going to do it by military training of local troops, it's going to do it with some elements of air power and some elaborate, political engineering in societies that we do not understand very well. i think we have seen this movie a couple of times in a couple of different places over the last 20 years. and it's yet to work out particularly well. it's going to take years. i think i heard that message

before. so, i would love to believe that this effort is going to succeed in ways that this previous effort had not. i second point is i think we thought about this problem in somewhat of a wrong way and it made us exaggerate the danger groups like daesh impose. we ought think of isil as a revolutionary organization, it's actually creating a revolutionary state, no matter what it calls, and we have seen that happen many points in history. going back to the french revolution. to revolutionary iran. the good news is that the history of those experiences actually suggest that this is a problem but it's not a mortal threat, because revolutions are really only a serious threat when they happen in a major

power, all right, so, the cambodian tragedy was terrible but it didn't launch a movement across the rest of the world. the french revolution was a serious problem because it happened in a great power. but if you look at isis' actual capabilities, it's not likely to spread by conquest, because it's not powerful enough to do that and it's not likely to spread like contagion. it's not rich enough to support like-minded organizations elsewhere. the message, although it will attract foreign fighters, it's not going to be seductive enough or powerful enough to topple governments around the region. many terms of capabilities right, we hear a lot about the amount of territory they control. most of this territory is empty desert. if you calculate up the total gnp of the area isis controls

it's between $4 billion are and $8 billion. that puts it on par with barbados and on par with guyana. rich for a terrorist organization, it's very poor for a state. they appear to have $500 million of revenue per year, that's much smaller than the budget of harvard university. so, it's not going to spread by conquest because it doesn't have the capabilities to do it. i also don't think it's going to spread by contagion as i indicated. the message is not very attractive, even to most of the world's muslims. they're not going to be able to support like-minded groups with resources in the way, say, the soviet could to others. the act of violences that they already conducted are turning off other populations. and other states have lots of

way to try to imnice or insulate themselves against that particular danger. in the unlikely event that one or two isis clones might emerge in some other failed state, for example, in libya, i don't think they're going to take orders by al baghdadi and follow him because they'll have their own interests to pursue. again the history of other revolutions suggests that there actually deep divisions. whether it's the divisions in the french revolution, the sino-soviet split. or any other set of conflicts. we have seen, of course, isis at odds with a number of other extremist organizations as well. so, again, it's not likely to be the kernel of emerging of

a monolith that with have to worry greatly about. one reason we have coordinating efforts because other countries recognize that the threat is not that great and there are other concerns that they have that lead them not to coordinate activities against isis, whether it's turkey worrying as much about kurdish independence as they worry about isis. saudi arabia worrying as much about iran as they worry about isis. what i'm suggesting this is a problem, but this is not the kind of global revolutionary danger that it is sometimes depicted as. the bad news is, getting rid of it may not be that easy either. the more the united states does, the more kinetic our activities more, reinforce the isis message, we simply make themselves more popular. the more we appear to be backing some of the sectarian tendencies within the baghdad government as well.

i conclude from that, therefore that the american role should be -- the american goal should be patient containment and the u.s. role should be as minimal as possible, because the larger the american role is, the more popular we are likely to make this movement, and the larger the american role is the less actors are actually likely to do because most of them are extremely good at getting uncle sam to do the fighting for them. we can provide weaponry, we can provide intelligence and we can provide perhaps some modest degree of military training, this is ultimately a campaign the locals will have to fight and win. >> great. thank you, steve. so, sarah, if hardin says tweak the strategy, recalibrate it and steve says, no, we can contain it, patient containment is the order of the day, let's avoid these attempts at social engineering. what is your perspective? where are we and how do you see things. then, we'll get into the

discussion. >> i think we're somewhere in the middle. you know, i want to thank you for hosting this and thank you for doing this report. it's been a while since we have taken a look at where we are. from my perspective there are some gaps. general allen is open to tweaking things a bit. we have been looking very closely at the campaign in both iraq and syria. and i think what we find, while isis is incredibly brutal and horrific group, bringing in new recruits and using social moody in ways that has never been used. i think we're looking at the missing piece. in the campaign. it's very much on where the governments are both in the case of iraq and in the case of syria. i want to talk about iraq and then syria. in terms of the larger strategy. last fall we put out a report

on the town, which some of you may have seen what we saw in the aftermath of the u.s. coalition strikes, shia militias ended up ransacking the villages around the town with incredible destruction, none of the homes or residents that were targeted were military targets. it basically was revenge attacks for historic grievances and ongoing polarization. there has been very little accountability for those type of actions. while that operation in tikrit may seen as a success from isis. we have seen the destruction over a thousand homes in residential areas. so, while you may have the shia

militias doing a decent job of clearing -- dekrentd i sort in quotes, a problem of clearing and holding it's not tied to a larger strategy and the government of iraq hasn't been sufficiently present. we have documented these ongoing abuse and destruction that furthers a lot of the grievances and the polarizations that have already existed. the annihilation of the sunnis, the rise of isis. the prime minister has been very clear to his commitment in building a new government we have seen some backsliding on that. we have seen in part because there are a lot of challenges he faces in baghdad in terms of working with his ministers, we have seen a real challenge in moving forward to build an iraq

for everybody. you know, i think the other piece here is that, part of dealing with the militias is ending the cycle of impunity. it's the iraqi security forces as well that have a long history of abuse. and so what we have heard time and time again, during travels in iraq we'll deal with these other issues as soon as we destroy and defeat -- defeat and destroy isis. . 's parallel process. the political part that hardin talked about is so essential to defeating isis and bringing sunnis into the government. the justice ministry has been long known for holding detainees for a very long time and in many cases torturing them not adjudicating fair trials and balance processes. you have an imbalance.

while the threats are incredibly troubling, you know to your point, perhaps more so in the immediate term to the iraqi government and the iraqi people than it is to the united states nonetheless, the u.s. has engaged in the campaign and is providing significant support. and so, what we have heard a change in statements and some change in language about the need, you know to address undisciplined acts and for not to be any revenge it's about im ees's implementation. the concerns they had about the abuse that was going on by the militias and there was no accountability. and for the government to take very clear steps to try to bring some of those individuals into jail to reins in those militias

would be a good parallel to training them. so that's the iraq side of it. i think you know, that enables isis to have what some have said to me recently is a growing political constituency it grows after isolation from the government. what i have heard time and time again on my trip is, i don't like isis but the government is making me terrified as well. when you're stuck in that place you have to choose the best of two very, very bad options. on the syria side, you know i think we look consistently at the horrors of isis but what's missing is what the government is doing and when you look at our syria policy as you said,

it's really -- i mean i it's short. and you know, we see a m booing campaign that's going solely after isis if you really think about it, isis is the symptom not the root of the problem in syria, we're training the armed opposition, again, 60 people can only go after isis and have to sign a pledge in fact where they're going to be attacked from the air by barrel bombs and from the ground as well. and so i think the inattention in the case of syria to what thes asad government is doing is a gift to isis and the other abusive groups that are trying to manipulation the situation. it also enables assad to continue his attacks against civilians. if you look at civilian

population, attacks on civilian population they are far more deadly and far more consistently lily indiscriminately. again, this is not to undermine what isis is doing. the fact that has assad has been pushed to the side as the u.s. goes after isis isn't going to get us we need to go. we're looking at displacement of unprecedented levels. we're not actually addressing the root of the problem. it reminds of the obama administration returned to afghanistan and pakistan they said the core of al qaeda? s in pakistan so we're going to go to afghanistan, i said, well, i get it it's a long border and it's easy to get through but if the core of al qaeda is in pakistan shouldn't we be

shifting our focus to pakistan not prominent lyly afghanistan? you know, we have seen time and time again a lot of conversation about syria, we saw briefings up at the u.n., what the international community can do, we see as a positive step, i think i would just say in closing that the silence of the administration on potential next us is because it requires a broad military effort, maybe that's not the only way forward. i think, while the conversations is what else needs to happen has stopped as well. so, you know i would say that while they're looking to tweak and rejigger the anti-isis

strategy, looking at the role of the governments in both iraq and how and where you bring in the syrian government prong is hugely important. because otherwise you're going to be putting this band aid over this again. while millions and millions of people are dying, foreign fighters increase and continued to move through pipelines globally and while the u.s. spends a lot of money but isn't actually addressing the root of the problem. >> great, thank you, sarah. all three of you have set the table for an excellent discussion. we're running behind on schedule. we're going to run a few more minutes. the one question that i wanted to ask, i'll start with steve

is given the news this morning, we were talking about this over coffee, we'll start with steve the news of a nuclear deal, which the administration i think rightly this is about the nuclear program, and the most effective way of preventing iran from getting a nuclear weapon what's your analysis now on our topic the impact of the deal potentially on regional dynamics and how it could -- i know it's speculative analysis how it could effect the implementation of it. >> it's unlikely to have -- i think it's unlikely to have a substantial effect on what's going on with isil. i don't think you're going to see this deal then suddenly alter america's approach towards

dealing with the isil problem or syria. i also don't think you're going to suddenly see the iranian government get up and say, now that we have a nuclear deal with the united states we no longer have any equities in what's happening in baghdad. we're going to completely change our relationships with hezbollah, with assad, et cetera they have their own set of regional interests. and i think over time those may be modified, moderated, clearly what the administration is betting over the long term. you're not going to see a substantial shift in american policy or iraqi policy. >> agree or disagree? >> i think that's probably likely, i think may be a mistake, we're probably at a moment now where, you know now

that the deal it's no secret that iran has continued to engage in reasonably bad behavior. there's a question and many of our regional allies are looking can do a deal with iranians on the nuclear front and be tougher with warfare activities throughout the region. this is probably like the ideal moment for the administration once they sort of come through and done this deal to begin to quietly reinforce and show we're going to be a little bit more robust in how we allowed and managed iranian activities to spread in the region. i think one of the things that we can do on this, there's going to be a lot of attention to the amount of money that iran is going to bring back into its economy once the sanctions come off. and make sure that money doesn'tened funding stuff that

leads to additional destabilization in the region. lastly, steve, on your point about contagion and about isil i don't think it's a contagion in the traditional sense, it's more a question of -- isil's presence in syria and iraq is deeply destabilizing for those countries and we're broadly in the region. it's less a question of whether or not they're going to take over capture run jordan, for example, and destabilize the region. contained in syria and thchb last year it spread into iraq the question less of caliphate expansion than stabilizing -- >> one, most of these places were already quite unstable at the moment.

so, i don't think isil is going to be contributing to that substantially in libya. the amount of people killed in isis-related events outside syria and iraq, last time i looked was between 200 and 300 people that's tragic that's very unfortunate, but that is low level of violence, that's the kind of thing that's ultimately going to alter the political fate of those particular societies in my judgment. on the second point, this role of iran, notice how complicated all this is we're on the same side with iran vis a vis daesh. that gets to the sort of contradiction that's in the report and a few of the things that sarah said too. we can't decide if we want to

get rid of assad more than we want to get rid of isil if isil is the real part -- it illustrates again how tricky it's going to be to manage the various strategic objectives. >> very briefly, we take no position on the agreement as an organization, i do think what it may do, it was interesting, the president kept saying this is based on verification not based on trust. whether and how trust is able to be built is an important next step for the u.s. and iran. you're going to get this up and running what are the other issues, you got the regional role, more than a little more than a bad actor, they're an abusive actor. you have the domestic issues in iran that play a role and there's a real expectation from

many within iran many sort of average citizens that rouhani is going to be able to look at some of the commitments that he made when he became president. there's an expectation the u.s. administration has gotten this out of the way they'll begin to come circle with support from u.n. to look at the domestic issues within iran. the role they play regionally is also going to be part of that conversation, but a lot more of a difficult conversation, i could see them flexing their muscle, we're going to hold on this because we just lost that. >> you mentioned the domestic politics in iran. the last question how do you see the lack of action in terms of congress on authorization of the use of force? what's your evaluation all of you on what does that mean in terms of where the u.s. is at in

these campaigns and these are campaigns coming up on the 15th, your anniversary of the 9/11 next year, so how do you see sort of the politics here at home? >> i actually think it's a reflection of the fact that the body politics to include people on the hill ultimately do not regard isis as that serious of a problem, not something where they're getting phone calls every day the united states needs to do something about this, i think we have seen over the last ten years, for the understandable reason, the decline in america intervention. people on the hill would rather play politics with an authorization rather than get it through. it's forced the administration improvise their way towards action. i may be overly cynical.

>> anyone disagree or agree? >> to me it's more an indication or an illustration of the dysfunction of congress that anything else. there are some members of congress than anything else. there are some members very focused on making this happen. but it gets used as a political tool to start and stop conversations. >> we'll open it up to anyone with questions for the panel at this time. please tell us who you are and if you have an affiliation. >> john richardson. talking about the federal role that information operations played in the rise and hopefully in their fall later on, can you talk about what is needed and what is happening in that realm? >> pardon? this is one of the toughest parts of this to crack, right?

the state department has been engaged in an effort for quite some time to try to get a campaign up and running to sort of go toe to toe in this effort if is difficult for the united states because we don't have particular credibility with that audience. and the good news here is what we're beginning to see with the u.a.e., and putting in a in place where people can take a larger role in the counterinformation campaign. it will not solve this any time soon, but it is showing progress in the right direction. >> what at once? >> yeah, and then we'll wrap.

>> thank you very much. alexander kravitz. one question for mrs. margon. they talked about hundreds of displaced families returning. you spoke about thousands of homes being burned. what i would like to ask is do you have specific figures on the repopulation because i think that is a barometer for the success. and for mr. lang, they talked about the anarchy government.

usually there is a search, it is a multidimensional effort, and you would think that we could go in with usid supporting the government. i think that has not really come up in discussion. >> thank you one more question down front here? >> thank you, i'm the deputy chief of information for cypress. first, is it possible with the stalemate, what role do you see of iran and russia making such an effort. and also a neighbor of cypress and in a situation, what do you

see -- >> so on the numbers we don't have exact numbers of who has gone back. one of the things we watch very closely after the victory in te tikrit. many were not sure who the authorities were and what they would be going home to. we have slowly seen populations coming up. i can't give you a date but hopefully in the next month or so we will have some of this information and that's up with of the things that we continue to watch closely to see not just who goes back but what they're go back to and how they begin to regain their livelihoods and engage with the authorities and how they work with the central

government in baghdad. >> great question on usid. right now the money for assistance, one humanitarian going to peae people who are fleesing. and the two u.s. trust fund. the question is whether or not that can be responsive enough to support the initiatives on a community level. there is offices that can do this kind of work. it is not clear to me that they have been mobilized in a significant way. whether or not they have been brought fully into this effort. i think that you have ieed a court problem with the nature of the campaign and it's not u.s.

u.s. government here but others that can do more to mobilize funds through the working group the coalition, and get it on the ground and get it working. there is not many shops that can operate these environments. we need to go to those that can and have them show proof of life. >> the administration is provide so much money and no other government comes close. if nothing else we do at least have that type of engagement. there is also a huge block on getting across the border and access populations. and the u.n. has tried to get cross border aide going there has been disorder and dysfunction at the u.n. there has been a real lack of will and inability to work closely with some of the local groups, and then of course you

have, you know iraq, you have certain area that's are just really hard to get to. in syria you have the potential for the syrian government to be siege communities so that no one can get access to them. >> you have a response on the lebanon question. i know you were there late last year and then we can turn, steve, to talk about iran and russia on syria. >> i think that no country in the region is baring the nature of the refugee load right now. the trains on the society i mean it is no street to any of us how severe they have become. and sarah is right. the u.s. government has done a lot in terms of providing humanitarian assistance to try to absorb some of these intentions. what is needed from what we can tell, is perhaps more support directly maybe to the lebanese

government to help maintain the sort of services of infrastructure, social economic, that are also taking a beating from the refugee populations. and i don't know if that should be coming from the united states, and maybe a bit more assistance coming from the region. there are a lot of country that's have a real stake, and it may be more incumbent on them to pull through this. >> the american priority, and it should have been from the beginning of the syrian civil war would be to end the war. the full stop. and i think the united states as erred by insisting they had to go and foreclose a deal where he might have retained a role. also by excludeing iran from that process. you recall back when the geneva

process was going on. it is possible that the deal allowanced today will open a door, and that might help facilitate a deal. we may see a slight difference in dynamics and the competitionkpe composition going forward. this had a tremendous impact on lebanon, and it is hard to believe they will not be continually buffeted by all of the turmoil in the rebeyond. i don't think this is much of an opportunity for isis to expand there. if you look at the composition, there is no reasonance. >> great thank you, steve,

sara and help me thank our panelists for the great discussion. >> thank you. here on cspan 3, we're live at the house where janet yellin is on capitol hill for the first of two days to deliver the feds semiannual monetary policy to congress. this morning she testifies before the house financial services committee and the senate banking committee tomorrow. the chairman of the committee is texas congressman jeb

hensarling. we are about to get under way.

the economy will come to order without objection. the purpose for this hearing so to receive the semiannual testimony of the conduct and monetary policy and the state of the economy. i now recognize myself for three minutes for an opening statement. last week we started an series of hearings for the dodd frank anniversary. in historically unprecedented ways. the evidence continues to mount that since the passage of dodd frank our nation is less stable, prosperous, and free. we continue to be mired in lackluster halting economic growth. middle income paychecks are less

than post war recovery, and has ms. waters told us a month ago is that millions continue to teeter on the brink of poverty and collapse. one way that our economy can be healthier is for our federal re reserve to be more predictable. like the great moderation of 1987 to 2003 the fed followed a more clearly communicated, understandable, and conventional rule. america prospered. today we're left with guidance that remains opaque and improve vagsimprove -- improveizational. they create a healthier economy for themselves and us all. one former fed president say it

creates inefficiency in the capital mark the fmoc gives lip service to policy predictability but it's statements are vague. the fmoc preaches that they are data dependent, but will not tells what data and how. following a monetary policy convention, a rule of the feds own choosing with power to amend it or deviate from it at the feds on choosing in to way interveers with the feds monetary independence. accountability and independence are not mutually exclusive concepts. >> next, we in congress would be negligent. again, dodd frank has sweeping now powers on the fed to regulate and control nearly every corner of the financial services sector of the economy completely ep rat and apartseparate

and apart. but they are properly cloaking them behind monetary policy independence. second, the fed is propping up select credit markets keeping interest rates near zero for almost seven years. by doing so they have blurred the lines between fiscal and monetary policy. recently the fed has crossed the line by ignoring a lawful subpoena for documents. it cannot be allowed to stand. the feds refusal to cooperate in a congressional investigation threatens it's reputation and credibility. the fed is not above the law if is a very serious matter and it must be resolved.

here now yields to the ranking member three minutes for an opening statement. >> welcome back chair yellin i'm pleased you're back this month. dodd frank was signed into law as we emerged from the worst economic collapse in our nation in a destroyed nearly $16 trillion in household wealth and nine million jobs. it doubled the unemployment rate. since those dark days we have seen improvement. dodd frank make significant progress correcting the practices that helped lead us through the crisis. it delivered billions to victimized consumers. to the once opaque banking practices that put in place clear rules of the road that foster stability in our financial system. that stability and the hope of

extraordinary monetary policy accommodation lead to growth, including the creation of nearly 13 million private sector jobs, unemployment falling to it's lowist rate since september of 2008 a recovering housing market, and significant increases in 401 k balances and the s&p 500. but these have not painted a dma is fully rebounded. a lack luster first quarter and strong dollar with economic instanlt and slowing growth abroad have sapped job creation and economic expansion here at home. i hope the board of governors will consider their slow and cautious approach to raising interest rates. as you know raising interest rates does not in itself,

create a strong economy if is a strong dma musteconomy that must be the impetus for raising rates. it is my hope that the federal reserve will fully consider the impact of any potential interest rate increase on the middle class and those community that's have yet to benefit from the economic recovery. so i thank you, and i look forward to your temperature here today. >> the gentle lady yields back. the chair now recognizes the gentleman from michigan. for two minutes. up here over sorry. it feels you're closer to the bo tannic botanic garden. today's hearing provides us with an opportunity to examine how

the federal reserve conducted monetary policy. needless to say the high degree of discretion, lack of transparency and how it conducts policy is more needed. adopting a rules based approach from the policy and communicate that rule to the public. the fed must be accountable to the people and congress themselves. the first hundred years of the monetary policy it operated more effectively if it followed simply understood woods. there is only two periods were they were close to operating under a rule. that was the best two periods in fed history if 1923-1998, and 1985 to 2003. they operated under the gold standard were and second under the tailor rule more or less.

those were the only two periods in federal history that have low inflation, relatively stable growth, small recessions and quick recoveries. i ask that you work with me and this committee to develop a foundation for a rules based monetary policy that will properly, not slavishly, to borrow a phrase, refrain the fed's discretion while also allowing the fed to be more transparent, formulating in communicating monetary policy for not only market participants but also to the american people. thank you, mr. chairman i yield back the balance of my time. >> the chair now recognizes ms. moore from wisconsin for two minutes. thank you, mr. chairman. madame chairwoman i'm so happy to welcome you back and i look forward to your testimony to the q and a period and i think this committee will benefit from your

strong background in economics. we're, of course, in the midst of a strong two-year job growth adding 5.6 million jobs but i have some concerns. you talk about slack in the labor market. it seems to me that that slack is disproportionately borne by african-americans and latinos. this brings me to the critical importance of the full employment part of your dual mandate. while we're plodding upwards, there are still many storm clouds. i want to see growth that will create jobs and decrease the national debt. now i cink as the austerity policies of this republican congress because i think it works with your prow growth policies. your predecessor ben bernanke came to us and said the sequester and the shut down were

examples of counter productivity. we want to get this slack, as you call it out of the labor market, but congress needs to embrace labor policies. but we need to invest in education and infrastructure. increase the minimum wage so we can get more consumers spending money. and you know i read in your testimony here that the u.s. exports are slumping but yet this committee has refused to reauthorize the export and inportin import bank. thank you and i look forward to hearing your testimony and i yield back the balance of my time. >> the gentlelady yields back. we are honored for the testimony of chairwoman yellin. i wish to inform all members i

intend to adjourn the meeting at 1:00 p.m. this afternoon. your written state will be made a part of the record, you're now recognized for five minutes for a presentation of your testimony. >> thank you chairman hensarling members, i'm pleased to report the annual federal reserve monetary report. i will discuss the current economic situation and outlook. since my appearance before this committee if february the economy made further progress toward the federal reserve's objective of maximum employment. while inflation has continued to run below the level that the fmoc judges to be most consistent over the longer run with the federal reserves statutory mandate to promote

maximum price stability. the unemployment rate now assistanted at 5.3%. slightly below it's level at the end of last year and down more than 4.5% percentage points from the 10% peak in late 2009. meanwhile monthly gains and nonfarm payroll employment averaged about 210,000 over the first half of this year, somewhat less than the robust 260,000 average seen in 2014. it is still sufficient to bring the total increase in employment to more than 12 million jobs. other measures of job market health are also trending in the right direction with noticeable declines over the past year and the number of people, and the numbers working part-time that

prefer full-time employment. these measures and the unemployment rate continue to indicate there is still slack in labor markets. for example, to many people are not searching for a job but would likely do so if the labor market was stronger. although there are signs that wage growth has picked up, it continues to be regulartively subdued, consistent with other indicators of slack. this while labor market conditions have improved substantially, they are in the fmoc's judgment not yet consistent with maximum employment. even as the labor market was improving, domestic spending and production softened notably in the first half of this year. real g.d.p. is now estimated to have been little changed in the first quarter. after having risen in an average annual rate of 3.5% over the

second half last year. an industrial production is declined on balance since the turn of the year. while these developments bear watching, some of the sluggishness seems to be the result of transitory factors including unusually severe winter weather, labor disruptions at west coast ports and statistical noise. the available data suggest moderate pace of gdp growth in the second quarter as these influences dissipate. noticeably consumer spending has picked up and sales of motor vehicles in may and june were strong. suggesting that many households have the wherewithall and the kft -- where with all to purchase big ticket items. it is still being restrained by the limited availability of

mortgage loans to many potential home buyers. business investments have been soft this year partly reflecting the plunge in oil drilling. and exports are being held down by weak economic growth in several major trading partners and the appreciation of the dollar. looking forward, prospects are favorable for further improvement in the u.s. labor market and the economy more broadly. low oil prices and ongoing employment gains should continue to bolster spending. conditions generally remain supportive of growth, and the highly accommodative monetary policies abroad should work to strengthen global growth. in addition, some of the head winds hit restraining economic growth including the effects of dollar depreciation on exports

and capital spending that should diminish overtime. as a result, they expect the usjdp growth to strengthen over the next year. as always, there is some uncertainties in the economic outlook. foreign developments in particular pose some risks. most notably the situation in grease remains difficult. in china, they continue to grapple with the challenges posed by high debt weak markets, and volatile conditions. but providing additional support for u.s. economic activity. the u.s. economy also might snap

back more quickly as the transitory influences holding down first half growth fade, and the boost to consumer spending from oil prices shows through more definitively. as i noted earlier, inflation continues to run below the 2% objective. with a personal consumption expenditures or pce price index up only a quarter of a percent over the 12 months ending in may. and the quarter index that excludes the volatile food and energy components up only 1.25% over the same period. to a significant extent, the recent low readings on total p.c.e. inflation reflect influence that's are likely to be transitory. particularly, the early or steep declines in oil prices, and in the prices of nonenergy imports

goods. energy prices appear to have stabilized recently. monthly inflation readings have firmed lately the 12 month change in the pce price index is likely to remain near it's recent low level in the near term. my colleagues and i continue to expect that it is the effects of these transitory factories dissipate, and as the labor market returns further, inflation will move gradually back over the medium term. market based measures of inflation compensation remain low but they have risen some from levels earlier this year, and longer term expectations have remained stable. the committee continue to monitor developments carefully. the fmoc conducts policy to promote maximum employment and

price is stability as required by our statutory mandate by the congress. given the economic situation that i just described the economy is judged at a higher policy. consistent with that assessment we have continued to maintain the target range for the federal funds rate at 0 to .25%. and they have kept at the current level to maintain financial conditions. in the most recent statement, the fmoc again noted that it would be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and it is confident that inflation will move pack to it's 2% objective to the medium term.

and the increase in the federal funds rate on a meeting by meeting basis defendpending on the assessment of maximum employment and 2% inflation. if the economy evolves, economic conditions would likely make it appropriate at some point this year to raise the federal funds rate target. there by beginning to normalize the stance of monetary policy. indeed most participants in june projected that an increase in the federal funds target range would likely become appropriate before year end. let me emphasize again these are projections based on the anticipated path of the economy not statements of intent to raise rates at any particular time. the decision by the committee to raise it's target range for the federal funds rate will signal

how much progress the economy has made in healing from the trama of the financial crisis. that said the importance of the initial step to raise the funds right target should not be over emphasized. it is the entire expected path of interest rates not any particular move, including the initial increase in the federal funds rate. indeed the stamps of monetary policy will remain highly accommodative for quite some time after the first increase in the federal funds rate to support continued progress toward our objectives of maximum employment and 2% inflation. in the projections prepared for our june meeting most fmoc participants anticipated that economic conditions would evolve overtime in a way that will

warrant gradual increases in the federal funds rate as the head winds that still restrain real -- if the expansion proved to be more vigorous than anticipates, and it goes higher than expected the path would likely follow a higher and steeper trajectory. as always, we will regularly reassess what level of the federal funds rate is consistent with achieving and maintaining the committees dual mandate. i also would like to note that the federal reserve has continued to refine their plans pertains to the deployment of our various policy tools when it

is deemed appropriate to for the stance of policy. over the past few months we have announced a number of additional details regarding the approach that the committee intends to use when they decide to race the target for the federal funds rate. the statements pertaining to policy normalization on constitute examples they have taken over the years. as this committee well knows, the board for many years has delivered a report on monetary policy and economic developments at semiannual hearings like this one. they have long announced their

decisions by issued statements after meetings and minutes with full account of policy decisions and with an appropriate complete meeting transcripts. innovations include quarterly press conferences and the quarterly release of fmoc participants projections for economic growth on employment inflation, and the appropriate path for the committee's interest rate target. in addition, the committee adopted a statement in 20126 regarding the monetary strategy regarding a 2% longer run objective for inflation and a commitment to follow a balanced approach in pursuing their mandated goals. transparency is desirable because better public understanding enhances the

effectiveness of policy. more important however, is the transparent communications that reflect the federal reserve's commitment to accountability within our democratic system of government. our various communications tools are important means of implementing monetary policy and have many technical elements. each step forward has been taken with the goal of enhancing the effectiveness of monetary policy and avoiding unintended consequences. effective communication is also crucial to ensuring that the federal reserve remains accountable. what measures it affects the ability of policy makers to make decisions about monetary policy free of short-term political pressure in the name of transparency that should be avoided. the federal reserve ranks among

the most transparent of central banks. our final statements are audited annually by a outside auditor, and in conformance with the dodd frank act, the identity of borrowers and the amounts borrowed are published with a two-year lag. efforts to increase transparentcy must avoid unintended consequences that could hurt the federal reserve's ability to make monetary policy in the lon term best interest in families and american businesses. we have seen despite the soft patch in of economic activity in

the first quarter, that the labor market continued to show progress toward our objective of maximum employment. we believe transitory factors have u played a major role. we anticipate it will be appropriate when the committee has seen inpolice station move back as always the federal reserve remains committed to employing it's tools to best promote the attainment of it's dual mandate. thank you, i would be pleased to take your questions. >> thank you chair yellin, the chair recognizes himself for questions. chair yellen, i hate to take time to ask this.

a nonmonetary policy role of the fed, through no fault of your own, there has not been a vice chair appointed. my counter part, chairman shelby in the senate requested that you come on a semiannual basis until such a time as the president fills that position and testify on the macro prudential regulatory role of the if the answer is noly give you brief moment to explain. >> i stand ready to temperature. >> thank you,ly take yes for an answer, and we will certainly

issue those invitations. i want to discuss with you chair yellen, there seems to be a growing consensus on both sides of the aisle among the left and right that dodd frank's intentions to constrain 13-3 did not hit the mark. and they have legislation on the senate side in this regard. setting aside the arguments of whether or not aig bailout was a good thing or a bad thing. that the fed retains the power to do a similar bailout of aig where counter parters erer eryies

and creditors -- >> let me start by saying the role of lender of last resort is a credible responsibility that they fulfill around the table. it's why the federal reserve was created. i do believe this is a very important power. we need to address liquidity and pressures at times there is unusual financial stress. congress did amend section 13 three in dodd frank. . the financial system only through facilities that have broad based eligibility, but the answer is no that we could not use those powers to address the needs of a single firm like the

aig situation. >> several other firms if an aig bailout was made available. but they made sure that parties and creditors got 100 cents on the dollar is that correct? >> section 13-3 was amended -- >> i'm familiar with the statute statute. >> if we have failing financial firms we would not be able to put in place a broad paced facility intended to rescue those firms. >> let me ask you this question. there is obviously a difference

of opinion there federal reserve president was dealing with the lender of last resort function but also is moral hazard and cysticic risk, they said a final step may be requires before stability is insured. and further retraining the fed's ability to lend to failing institutions. are you aware of his views on this topic? >> i aware of his views but i i did agree. dodd frank has been limited to bailout a single firm or a failing firm or an insolvent -- >> when do you expect that we will have the final rule of

13-3. there was pages devoted to proprietary trading but we are not finding insol advance and broad baited and are seeing no real constraint. when would we expect to see that final rule? >> we put out a draft rule and we received a number of comments and we're working hard to come out with a revision and i expect that if will certainly be out in the fall. >> thank you the chair's time has expired, i now recognize a ranking member for five minutes. >> thank you, mr. chairman. i am -- chair yel yellin, this morning i woke up to yet another story about discrimination against minorities. it seems honda has been caught

charging higher interest rates i guess on their loans to african-americans and latinos. when i hear those kinds of stories, and i'm reminded about the predatory lending practices that took place in this country in 2008, et cetera, and how these predatory practices were targeted to minority communities, and minorities were charged higher interest rates. and when they compared the income and the credit that blacks and minorities -- their credit records to the credit records of whites, they could be the same but they were paying more interest rates on many of these predatory products. and when i look at the loss of wealth in these communities, based on the sub prime lending, i cannot help but wonder when is

this going to stop. and while we have you here today, and we're talking about monetary policy and we're talking about interest rates quality daytive easing, i don't know if there is anything you can do that discrimination and racism. and deals with income inequality. that deals with the problems of the big wealth gap that is so big now it will not be closed. we talk about income inequality and wealth gab, and we look at the high unemployment rates and the african-american and latino communities. and sometimes you just think

that despite all of the work and the challenges some of the stuff will just never go away in this country. you some responsibility for what happens in regard to some of these. what can you do about honda, the banks, and the predatory practices that continue to gouge, you know latinos, african-americans, and target these products to our communities? what do you say about all of this? >> so let me start by saying that the practice issue described and the trend toward rising inequality the impact that it has on african-americans, and disadvantaged groups, is

something that greatly concerns me. and i think is of tremendous concern. to all americans. in terms of what we can do when it comes to lending, we're responsible for super vision of financial of financial substitutions to make sure they adhere to fair lending and practices and we test regularly in our consumer compliance exams to make sure that and what pertains to the equal opportunity act to make sure there are not unfair credit practices being directed towards minorities or any americans. so that is an important goal.

we of course work to make sure that of the banks we supervise they meet their cra responsibilities which i think has been of benefit to low and moderate income communities. and more broadly in terms of our monetary policy responsibilities maximum employment along with price stability are the two major goals that congress has assigned to us. the downturn that we experienced, unemployment rose to over 10%, was particularly punishing to african-americans and lower skilled workers, more broadly. and a strong economy getting the economy recovering. trying to get it back to maximum employment. lowering the unemployment rate.

traditionally african-americans and other minorities have had higher unemployment rates. we -- there is -- we don't have the tools to be able to address the structure of unemployment but across groups, but strong economy generally i think, really does tend to be beneficial to all americans. so that's what we're warkorking toward, and there are other policies that i think congress could consider that would address these issues. >> the full-time for the gentlelady has now expired. >> thank you, mr. chairman, chair yellin, i think we share a respect for rules based monetary policy as you put it when you serve on the fed board the tailor rule was what central banks do.

we look like we're in good company. and they expressed support saying one of the most important ways to promote creditability is to practice it as part of a systematic policy framework. i believe that indicating the evolution of the economic varieties shapes future and current economic policy decisions is critical to policy frame work. the former director of the congressional budget office also said certainly i would like to see a more rules based approach that does not rule out discretion because they can pick the rule they want to operate. if they provide it to congress and the american people the american people will know what they're up to and they themselves said forward guidance is critical. rules provide that. i'm curious when you and your

colleagues at the fed will adopt a a rules based policy. >> so you used the term systematic policy. and i want to say that i strongly endorse, and the fmoc strongly endorses following a systematic policy. during my term as vice chair and chair, i tried to promote a systematic monetary policy. and i believe that we do follow a systematic monetary policy. >> but not with a rule that you're willing to share. >> not a simple rule based on two variables, but let me point you to the second page of the report, we have a clear statement of our longer run goals in monetary policy strategy. any systematic policy has to begin by articulating what the

goals are very clearly, and the strategy that will be followed. and that is what we do there -- >> but you agree that a rule based policy is a better way to go. >> i don't agree that a rules based policy is a better way to go. there is not a single central bank in the world that follows a rule that would rely on only two variables. what duo is take into account wealth of information, informing our judgments about the economic outlook, and the way that we make policies systematic is we provide and you can see this in section three in part 3 of the monetary policy report, each individual, each participant writes down their own forecast for the economy and the appropriate policy that goes along with that, and from that you can get a clear sense of how we expect to conduct policy if

the economy evolves in line with our forecast. >> i'm not convinced that is clear, others in the market don't believe that is clear. other exists don't believe that is clear. we're not trying to handcuff you, but we're asking that you white a rule in descriptive parameters to use as a reference point. i know you expressed that we could find ourselves if we had a rule, we could find ourselves in negative interest rates. just say we're going to zero and no lower or maybe .25. we'll call it the yellen rule. we can have things that gives us predictability. that predictability and that transparency is the way to go. so i know you know that we have a good discussion draft floating

around that has some of that information in there. and so you, just so i'm clear you don't believe there is a time that will be right to, again, go towards a rule based policy? >> i think we need a systematic policy, but i would strongly resist agreeing to follow any rule where the stance of monetary policy depends on the current readings of two economic variables which is what your reference rule relies on. >> that's what the reference rule does but it doesn't say that's the rule you have to follow. the imf is saying you should not be raising interest rates for international settlements. lower rates beget lower rates and we have confusion out there for the direction we're going. >> i strongly believe in the

systematic policy. >> we now recognize the jentgentle lady of wisconsin. >> thank you, the chair of the monetary policy and trade sub committee has been discussing with you the tailor rule. i would like to pursue that a little bit more. the imf is warning that if growth leaves the euro zone, it might slow growth internationally. and impact the u.s. much harder than expected. i guess i would like you to just sort of speculate about how, if you were handcuffed, how would that impede your response to such a crisis? >> the tailor rule would tell us that the current setting of monetary policy should depend on

only two variables. the current level of gdp or the output gap and the current level of inflation. so it obviously would not take into account in any way our judgements about the likely growth in the global economy how we expected that the european economy would be affected or global financial markets by such developments. so in that sense it really restricts any simple rule, the settle of monetary ols to a very short list and typical values. that is one of the reasons that we spend a great deal of time and the forecasts that we

include in our monetary policy report, we present it to the public every three months and we incorporate all of the kind of information that going to happen in the global economy and other economic developments, those factor into our economic forecasts and our view is to the appropriate role of policy. we are providing a great deal of information to the public by providing these participants forecasts because participants are telling the public how, in light of their economic forecast concretely with numbers they think monetary policy should be set, so that is information about the so-called reaction function namely the relationship between the economy and monetary policy that is incorporated in something like

the taylor rule. >> thank you so much. can you provide us with a quick update on the fed's implementation of the so-called collins fix governorning and practices? >> in light of that we have a great deal of flexibility now to design capital standards that we think will be appropriate for the firms that we supervise including the insurance based savings and loan holding companies and the insurance siftees, and we are working hard and we will put in the public domain either orders or a proposed rule -- >> thank you. >> when we figure that out. >> thank you so much. the five-year lookback of dodd frank, and our colleagues say we have inshrined too big to fail and wonder if you can say

whether or not dodd-frank inshrined too big to fail. >> i don't believe it inshrined into big to fail so it gave us tools to raise capital and liquidity, to impose capital surcharges on those firms that we deem most systemic to use stress testing as a methodology, to make these firms much less likely to firm and the amount of capital and liquidity increased massively since the crisis. in addition, dodd-frank gave us both two ordinarily liquidation authority which would be a new rule -- >> i have ten seconds left, so i think you covered it.

back to my idea about the labor market. do you think ending the sequester and raising the minimum wage would be good strategies for getting our labor markets -- >> i think that's for congress -- >> i knew you would say that, and that's why i saved that for last. >> and the chairman recognizes mr. garrett from the sub committee. >> in front of me last night i read through what is called the joint staff report, the u.s. treasury market on october 15th 2014. it's the staff report that looked at the -- what happened in the markets back in mid october. are you familiar with that report and do you adopt that report even though the name of it is staff support, so is this staff's opinion or your opinion,

so i understand that? >> i am certainly aware of its intensive staff work by staff and a number of agencies -- i certainly support the report. >> i assume so. i thought there was one seminal question, and i guess there are two, and i read your testimony and the addendums to your testimony which only came in this morning. first of all, is there a problem, and secondly, what was the cause? i thought we all concluded there was a problem but that's not clear at looking at the addendum to your report where it talks about the disruptions and a nominal treasury markets do not indicate notable deteriorations and you said there was not elsewhere problems in the liquidity of the market and you talk about that. i think there's a problem and

other people think there's a problem, and we had hearings on this, and it was told to this committee there have been dramatic changes to the income market in recent years. is kitchen right that there is dramatic changes to it or is your staff and you right that there is not a problem in the deterioration in the marketplace? let's find out what is happening first of all. >> it's not clear what is happening in the markets -- >> what is causing the problem, though? >> the report that you mentioned was just released and looked at a 12-minute window -- >> overall he was saying there has been a deterioration and other panelists say there is a problem, and your staff is saying there isn't any? >> it's not clear whether there is or is not a problem.

by some matrix liquidity looks adequate, and by creating volumes -- >> i only have -- >> some matrix suggests there is a problem so this is something that we need to study further. >> so you studied it so far and had an 80-page report and i find it troubling it doesn't come to much conclusion. i was looking for the second seminal question that the chair and i asked lou and others, what was the cause of this? this still fails to come up with any particular explanation and runs through half a dozen of explanations and says this is not the problem, and one of them that it does say -- one that it does refer to it says the growth and electronic trading and competitive pressures and other factors and regulation, and that word regulation only appears twice but your staff

says regulation is an indicator to the changes in the volatility and liquidity in the marketplace, so it says regulation is part of the problem, right? >> well, we just don't have a conclusion about what happened in the treasury market at this point. >> no you -- >> regulation could have contributed in some way to this but there are many other things going on as well. >> but it doesn't say that in your addendum at all, and nowhere did i see where it looks to regulation being the problem and all other factors, size, order trade size or electronic trades or competitive pressures, and it doesn't say that in here and we never could get that from secretary lou or anybody else in the administration, and so are you saying yes regulation are poetential problems in this area?

>> well during this window -- >> somebody -- let me ask you -- may i ask you this. did you direct your staff to look into see where that was a potentialality? did you direct them to look at that as a factor and will you in the future? >> we asked them to take a look at what caused this very unusual movement in treasury yields -- >> but they didn't. >> and they were unable to find any single cause. they pointed to a number of factors that could have been at play and it needs further study and it's right for regulation to be on that list of things that we look at. there's no evidence -- >> the time of the gentleman has expired. the chair now recognizes the

gentle lady from new york, mrs. maloney, ranking member of the sub committee? >> welcome chairman yellen and i know some of my colleagues have been critical of your performance but i, for one, think you have done a tremendous job and i want to publicly thank you. you have been responsive to congress and you managed to wind down the quantitative easing program smoothly and on schedule without causing any major disruptions in the financial markets, so thank you. i want to ask you questions about monetary policy. in your testimony today you said foreign developments, including the turmoil in greece and china, in your words, posed some risks to united states growth. has the turmoil in china and greece changed your view about the appropriate timing for the first interest rate hike?

>> so we look at international developments very carefully in developing our forecast. we've been tracking closely developments in greece and china and other parts of the world. the issues that exists are not new, for example the committee in june was aware of these developments, and in june when the participants wrote down their views of the economy and appropriate policy taking into account these developments and the the risks they pose, they still thought the overall risks in the out look were balanced and they judged it would be appropriate sometime this year to begin raising our target range for the federal funds rate. of