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 course, we continue to watch

these developments, these global developments unfold and we will in the coming months. were we to judge that these developments did create substantial risks or were changing the outlook in some notable way then a change in the outlook is som affect monetary policy. as we have said all along, we have no judgment at this point about the appropriate date to raise the federal funds rate and our judgment about that will defend on unfolding economic developments and how they affect our forecast. >> you stressed in your testimony that the pace of rate increases is more important than the timing of the first rate hike and many economists, including the imf argued that the fed should wait longer to start raising rates possibly waiting until next year, but should then follow a slightly

steeper path of subsequent rate increases. so the question is, if the fed waits longer than currently forecasts to start raising rates will that mean a steeper path of rate increases? >> well, if we wait longer it certainly could mean that when we -- when we begin to raise rates we might have to do so more rapidly so an advantage to beginning a little earlier is we might have a more gradual path of rate increases. as i indicated, the entire path of rate increases does matter. there are many reasons why the committee judges in effect that an appropriate path of rate increases is likely to be gradual, but given that we have been at zero for over six years

it has been a long time since we have raised rates, doing so when we finally begin in a deliberate and graduate way, looking at what the impact of those decisions are on the economy strikes pha strikes me as a prudent approach to take. >> the markets have been anticipating a rate increase for quite sometime, and that it will follow one of the fomc meetings that has a press conference afterwards. currently there is a press conference after every other meeting, and the fed only has two other chances to raise rates this year in september or december, and even though there is a meeting later this month and one in october. would the fed feel comfortable raising rates at the first time at a meeting without a press

conference scheduled afterwards and are the july and august meetings on the table for rate increases? >> i try to emphasize every meet something a live meeting and we could make decisions at any meeting of the fomc, and we have emphasized if we were to make such a decision we would likely have a press briefing afterwards and we recently conducted a test to make sure that members of the media and press understand how technically they would participate in such a press brief that ainging briefing. >> and the time of the gentle lady has expired. i recognize the next senator. >> we had a discussion about a different number of topics, and i asked you or made mention of

the fact that i was very concerned from the standpoint that government oversight reform had this report that they put out with regards to the internal e-mails and memos that showed that the fdic was going well beyond their statutory authority and duties and trying to limit the ability of certain legal businesses to do legal business and was impacting a lot of banks in a very negative way and the fact that you over see some of the banks as well i felt you should be pushing back and have a meeting with the chairman and i asked you to do that and you have done that at this point? >> yes, i have done that. i have discussed with chairman grunburg operation choke point and our views on what proper policy is on the part of the banking agencies with respect to

how our examiners deal with banks and the services they offer. we both certainly agree on the importance of making sure that examiners and our policies don't discourage banks from offering services to any business that is operating within state and federal law. he and i agree that that is appropriate policy and -- >> did he indicate to you, though, how he is going to stop operation choke point within his own agency? >> i believe -- i don't want to speak about his policies -- >> i think it's important that you make the point to him that he has to stop. in this report, this report of his own e-mails, within his department, he is implicated as being part of the problem, and therefore it's important, i believe, that you have a discussion that he has to cease and assist those kinds of

activities and get assurance from him that he will make sure that's done. >> he explained to me a number of policies that he has put in place to be absolutely certain that his examiners are abiding by the policy that i indicated which is the banks we supervise that examiners in examining them do not -- >> if at some point you find that this is still continuing, will you confront him about that, if it's continuing in the banks you oversee, will you tell him we find this operational and therefore you need to stop it. will you stop him from doing it if you see it? >> i will continue to discuss with him this issue and to make sure our policies -- >> all right. with regards to another issue that we discussed with regards

to simply designation one of the concerns that i have especially with insurers and asset managers is as we were -- as they are designated, there doesn't seem to be a way for them to become dedesignated, and there is no path written out, and you can say well they need to change their business model but i would think it would be helpful whenever they are designated to say if you do this, this and this these are the problems that have caused you to become designated and if you change these things and do these things differently it would allow us to de-designate you, and i don't see a path to dedesignate dedesignate. can you elaborate on that? >> yes, and if they review every single year the designations of firms and considers whether or not they are appropriate or no longer appropriate, and firms

that are designated are given very detailed -- >> okay. >> -- material to enable them to understand -- >> i would just encourage you every year to be sure you put something like that in there so there is certainty on the part of those folks that are designated. i have 30 seconds left so let me get one quick question in. the capital standards are a concern that this is the first time the fed ever got involved and i know you are looking at international capital standards. would you commit to us prioritizing the domestic capital standards will take priority over the national capital standards? >> international, in the international capital standards would not become effective in the united states unless a regulation or rule were proposed --

>> that's my concern. >> -- and went through a full debate. >> that's my concern. i want to make sure this industry is protected. the chairman recognizes the gentleman from missouri, mr. clay ranking member of the financial institution sub committee. >> welcome back chair woman yellen. you were quoted in a june 17th american banker's article as stating that the federal reserve was examining ways to improve it's implementation of the community reinvestment act amid concerns that regulators are letting too many poor communities go unserved by banks. how would the federal reserve's effort seeking to improve implementation of the community reinvestment act encourage

investments in places like the ones that i represent, such as ferguson, missouri, and other communities throughout this country that are myerired in poverty? >> we have been working to improve implementation of the cra regulations with other banking regulators, and we have been doing that in part by trying to improve our guidance, adding to a set of interagency questions and answers on the community reinvestment. we came out with additional q & a in 2013, and we're working toward further additions. what this guidance does is try to clarify the ways in which basic banking services can help to meet the credit needs of low and moderate income people in

the context of cra and by doing that i hope what we will be doing is encouraging banks to consider providing the kinds of banking services that people in these communities need to be an important part of their cra program. >> along those same lines of questioning, you stated in your testimony your concerns about the limited availability of mortgage loans. as a supporter of dodd-frank, as the law given us unintended consequences and a tap down on the bank's ability to lend money in order for people to get mortgage loans? >> so it's hard to say. i mean, certainly lending standards are much tighter than

they were in the run-up to the financial crisis. i think most of us think appropriately so we don't want to go back to lax lending standards, but it may be that the steps we have taken are having some unintended consequences, and that you know, we need to work on that, make sure that credit is available. >> so do we need to tweak the law in order to allow banks to really get money out into our economy and allow people to realize the american dream and purchase homes? >> well, there are a number of obstacles that banks see to lending. some have to do with put-back risks, which are matters that the fhfa is working on with fannie and freddie, and you

know it remains uncertainty about securitization and the rules around securitization so we have not seen an active market come back for private residential mortgage-backed securities, and that could be part of what is happening. >> well, okay. the federal reserve released a report entitled strategies for improving the u.s. payment system. a follow-up to a 2013 consultation paper that signaled its intention to expand his presence in electronic payments. why has the fed embarked on this faster payments initiative? what does it hope to achieve? what is the federal reserve's plan? >> so our basic plan is that we want to see a faster and safer

payment system in the united states. we think that many steps can be taken to make that possible, and the main rule we expect to play is that of a convener, to bring a lot of private sector participants to the table to talk through these issues, and for them we have set up task forces on faster payments and safer payments and hundreds much private sector participants are discussing what they can do in order to bring this about, so we're trying to play the role of facilitator of bringing people to the table. >> thank you. >> the time of the gentleman has expired. the chair now recognizes the gentleman from wisconsin, mr. duffy, chairman of the oversight investigations sub committee. >> thank you, mr. chairman. welcome, mrs. yellen. i we have been doing an

investigation into the 2012 leak. we kindly asked you to produce documents in regard to the leak and you failed to comply and there was a subpoena for the documents by which you failed to comply. i would ask, what is your legal authority? give me case law or statute that allows you not to comply with a congressional subpoena? >> first let me say that we have cooperated with the committee. >> no i have limited time. give me the legal authority you have to comply for a subpoena? >> we indicated that we fully intend to cooperate with you and provide the documents you requested, but we are not going to provide them now because this matter is the subject of an open criminal investigation by the board's inspector general and by the department of justice. they have indicated to us that

it will compromise -- likely compromise their investigation. >> you are the chair. you can read the statement all day long but i would like to know the legal authority that you have. basically you said in a letter that the oig basically requested that you don't give it to us. you are not bound by the doj or the oig. you said we are not going to give them to you. is it fair to say you don't have legal authority -- >> no we said we plan to give them to you as soon as we are able to do so and not compromise an open criminal investigation. >> compromising an open -- >> we want to see this investigation succeed. >> well, let's talk about the timeline. this happens in october of 2012. you don't follow your policy. the general council does an

expensive six-month investigation, and after that investigation the general council is supposed to make a referral to the ig, and that doesn't happen. general council gives a report to the committee, right? when you get that report, because you are so concerned about justice and you are so concerned about bringing the leaker to the forefront what do you do? nothing. you didn't make a referral to the ig. you didn't make a referral to the fbi the scc, the doj, you did absolutely nothing. zero. so you are trying to say congress is going to obstruct your investigation when you had information you did nothing to perpetuate an invest that would lead to the truth. congress said this is important stuff, and as elizabeth warren would say, we don't want that are well connected get

information through the leaks, we should know who the leaker is, and we pressured you and the aig, and now there is a second investigation, and they said no no, we can't give you that documentation because it's a pending investigation and you are concerned about jeopardizing it. madam chair, it looks like you are jeopardizing or the fed is jeopardizing the investigation. am i wrong? >> there is in place a clear set of rules that are to be followed when there are allegations of a leak. >> you didn't follow them? >> they call for a review of the incident by the general council and the fomc secretary. we have described to you how that review took place. it took place before the review was complete. >> did the general -- i want to

reclaim my time. did the general council per your guidelines, talk to the board or make a recommendation to the aig? the requirement is they do an initial review and solely determine whether they make a referral to the ig? >> before his review was complete he was informed by the ig that the ig had undertaken his own investigation and the ig was already looking at it before it was necessary for him to make a decision to refer it to the ig. >> my time is almost up. i reclaim my time. if anybody is trying to sweep this under the rug, it's the fed. it's congress that is trying to bring light to this. we have the right to the documents and you have the duty

to provide them to us, and you have no legal authority to deny that request and you are required to give us the documents and i hope you reconsider your denial. i yield back. >> the time of the gentleman expired. the chair will recognize the gentle woman from alabama, mrs. saoul. i want to bring your attention to the wages and what i see is income inequities going on and get your take on what we can do as far as monetary policies to close that gap. since the height of the financial crisis, the u.s. economy has made remarkable progress particularly in compared to other parts of the world, and here in the united states, the rate fell in june, and the president pointed out in his budget over the past four years that we put more people back to work here in the united states than europe has and in japan and other nations, however

despite the overall employment gains there are still some districts districts, mine included, have folks that want to work but cannot find work, and the compensation is lagging behind the growth, and the president's budget projects the share going to labor rather than to capital will remain at historic lows for years to come. what in your view can be done to reverse this trend and insure that the workers can get more gains for the economy, and i can tell you in my own district of alabama, while the overall nation has 5.3% unemployment our median average unemployment in a district that is disprau disproportionately african-american is 9 to 10%,

and i want to know how the monetary policies can go about changing that trend? >> monetary policy has been aimed at trying to achieve a strong recovery in the job market and while we are not there yet, i believe we have made substantial progress. as the economy improves and the labor market gets stronger i would expect to see the growth of wages pick up over time and at this point i think we're seeing at least some first tentative signs which growth is increasing and it has been running at a very slow pace. there are often lags between improvement in the labor market and a pickup in wage growth. >> do you think unemployment rates -- is it more because of structural changes or cyclical factors? >> both, cyclical and structural factors matter.

so sicki think the average rate of growth will pick up, and structural changes are important, and productivity growth matters over time to real wage increases and productivity growth in recent years have frankly been very disappointing and that may be holding wages down. across gaps, differences in wage trends across different groups in the labor market i think reflect a deeper set of longer term structural influences and go way back to the late '70s or mid-'70s where we have seen growing gaps by education. we have seen a persistent increase in the returns to high-skilled workers and

stagnation in the middle and at the bottom. >> do you think any changes in our tax or spending policies could help close that gap quicker? i get that you know systemic problems in persistent poverty cause lots of population to have their unemployment lag behind, sort of overall unemployment but are there substantive things we can do as far as tax policies or spending policies that would hasten the closer of that gap? >> well, there are suggestions about things that congress could consider that would address an inequality. a high return to education and skills being a very important factor in determining wage outcomes, and policies that address education at different levels would be relevant to

that. >> are there any outreach efforts the fed has made to understand the difference in communities of color with respect to the wage and the income inequality? >> we do have surveys. we are trying to collect information. household surveys that enable us to gain better insight into this, and we have community development efforts that are addressed to low and moderate income communities to try and see what could be done. >> thank you for your efforts and i hope you will continue them. >> time for the gentle lady expired. the chair recognizes the senator from tennessee. >> i appreciate you being here today, and i am going to get right to the point. we're going to talk a couple lines of business raising interest rates and what kind of impact they will have on

national debt versus personal debt, and i have been watching the tvs which are very informative and the charts that i think are being shown by my colleagues on the other side of the aisle if we could change the top of progress since republicans took the house so i appreciate my buddies on the other side and they ought to get a big kick out of that. back to costs benefit analysis. the small and medium-sized banks and lending institutions all over the country, the impacts of dodd frank being burdensome, overburdenen overburden overburdensome, and does it mean financial regulations are above the law and has anybody at the federal reserve does an an analysis on broader economic variables such as capital

formation and perhaps more importantly, job creation? the cftc and sec the other agencies do this. why aren't you doing this, and can you shed light on why you are not and would you be open to doing it? >> we do a great deal of analysis to try and understand the costs of regulations that we put in place and their benefits. for instance with example to the basal 3 capital requirements, we participated along with other countries in a very detailed cost benefit study of the likely impact of raising capital standards. we came to the conclusion that even though there might be a very modest burden on raising spreads and the costs of capital to the economy that the costs of

financial crisis had been so dramatic and so large that the impact that we would have of reducing the odds of a financial crisis passed to cost benefit test easily. we regularly make sure we comply -- >> not to interrupt, buy my time is slipping. would you be open to doing a cost benefit analysis and i know it's complicated, and you are saying in order to make sure we tonight hurt this one over here, we are doing this year but we are not going to give you the information -- it's not cut and dry which we need more than you are getting, and would you be open to doing a cost benefit analysis? >> we follow the analysis required by current law, and in some cases i think it would be difficult to do that. >> so no?

>> congress is for example, in dodd-frank, already made a judgment that they want to see us put certain requirements into place based on congress's judgment that it would make the financial system safer and sounder. we put out proposed regulations for comment to try and accomplish an objective that congress already assigned to us. >> reclaiming this. it seems like a common sense approach and i know it's complicated that we would have what other agencies are doing that we have a common sense approach cost benefit analysis, and i think you are saying that you are not in favor of doing it this time and maybe congress needs to do something else. let me move on. but you are not in favor of it. raising interests rates, and we see the concern the national debt and personally the debt that every -- many americans owe

in this country. when we start down this path of raising rates, i am afraid, you know there is a whole generation of people now that think the interest rate standard zero is the standard, and interest rates used to be 18 and 20% under the carter administration. when you start up the path of raising rates my fear is we go into another recession and you can't raise rates again because rates are already low, and the only answer is more dumping money into the economy and that gets very serious very quickly. what is your -- do you fear raising rates is going to do this? >> we are not going to raise rates if we think it's going to tip the economy into a recession. we will raise rates because we believe the economy is strong enough that it's appropriate to have higher rates to meet the objectives we have been assigned by congress. >> this is a concern for you as well?

>> so we wouldn't do something that would jeopardize -- >> i yield back. >> unless inflation were at risk. >> the time of the gentleman has expired. the chair recognizes the gentleman from illinois, mr. foster. >> thank you, mr. chairman and mrs. yellen for appearing today. the trade imbalance has been a substantial drag on gdp growth. the house and senate will soon go to conference on a customs deal part of a trade package mostly passed into law last month so my concern is and continues to be around the potential for our trade partners to undermine the value of free trade agreements can have without probations on currency manipulation. the administration put forth the position and insisted it was impossible to define currency manipulation, and with the imf definition of currency

manipulation in a way that would have have impinged on your ability to have kwan tau taeufive policy. do you agree with that? >> so i do agree with the concerns that were expressed about currency manipulation. first let me make clear that i am opposed and the g-7 and g-20 weighed in that intervention in currency markets by government for the sake of changing the competitive landscape and purposely trying to -- >> agreed. >> -- put that to another country is wrong and inappropriate and --

>> i understand. the question is is it possible to make actionable objective criteria of the currency manipulation which would not have impinged on what we had to do? >> i believe it's difficult because many factors influence the value of concernurrencyies traded in markets. >> it does not talk about the value but talks about the action. you have to be running a persistent trade surplus and accumulating foreign exchange reserves and holding excess foreign reserves and none of those three would have been triggered by all of our responses, and the administration's perception was wrong, and -- >> so my concern with this is that i think it's important for

countries to be able to conduct monetary policies that best pursue domestic objectives. those policies are not intended to impact currencies, but because they do affect interest rates and interest rates affect global capital flows they have impacts on currency values and all i have said about this topic is that i would worry about any type of legislation that could cripple monetary policy from achieving the objectives that congress has assigned to us? >> the question the precise question is is there anything you did that would have triggered the imf definition -- >> i have not studied that carefully enough. >> would it be possible to get back with an answer of that

precise question? thank you. i really appreciate that. i have a little time left. are you familiar with albert einstein's quote any theory should be made simpler and are you reminded of the quote when you talk about things like the taylor rule, and you can manage everything could be reduced to -- >> i think that's a very good point, and i think it is apropos of the taylor rule. it would be nice to be able to reduce appropriate policy to the concern values of two simple variables and the world is more complicated than that. we can't take everything into account but there are important things that need to be considered, and that's why we have an fmoc that has been asked to bring a great deal of information to the table. >> and the last sort of a

mathematical core larry of that something that is changing over a period of time in response to a single one of the variables that obviously does not mean that the real response funktion is a single function of the single variable. >> time of the gentleman has expired. the chairman recognizes the gentleman from california. >> in your first appearance before the committee, you commented on the need to move forward with housing financial reform and do you continue to believe the current state of our secondary mortgage market poses a stau testimonyystemic risk, and should they take steps to share that public risks backed by taxpayers with the private sector?

secretary lou suggested such an approach that would have his support? >> i have long said and my predecessors have as well we would be desirable to see congress address reform to decide what is the appropriate role of the government in the mortgage market and to try and bring private capital back into the market, and there are a number of different ways, different strategies congress could take to accomplish that, but i do think it's important for congress to try to resolve those issues? >> i along with other members of the houses committee copied you regarding our concerns about the lack of a formalized process for reviewing non-bank financial institutions facing designation, and we shared concerns about the need to conduct a thoughtful review of the insurance industry

before moving to designated individual insurers. since sending that letter, there have been additional steps taken to understand the industry which were clearly needed after the flawed office of financial office report, and one governor inendorsed an activity's based systemic review, and so do you think it would be appropriate to conduct a thorough study and analysis of the insurance industry as well? shouldn't all nonbank financial institutions face a similar process for review? >> so i mean the asset management industry is one where if thought it appropriate to focus on activities and to look at whether or not there are

systemic risks associated with some asset management activities examples would include liquidity and redemption risk and risk of off balance sheet leverage. with respect to insurance, i mean, this is not a matter of going from a review of individual companies to the activities type of approach. it's not something that they to the best of my knowledge, have discussed. >> let me go to my last question. in february of 2014 i asked about the deepening economic crisis in the commonwealth of puerto rico, and you said the federal reserve was monitoring and would continue to look at the stability of the events, and you thought it would be best not to step in as a credit tur of the state or phaou tpheusmunicipality

and you said it was more appropriate for congress. do you believe that the best out come would be that puerto rico electorate power of authority would come -- >> without what? >> without government intervention, and instead work it out between the power of authority and the creditors? >> so this is not a matter in which i have an opinion. i mean, the federal reserve -- that's something the federal reserve can't and should not the be involved in and i think it's important for congress to figure what is best to do in this case and it's not a question on which i have formed -- i have an informed judgment. what we have been doing is

obviously monitoring developments in puerto rico which are very difficult, and we are looking to see are there risks that are being transmitted to the broader municipal debt market and we are not seeing signs of contagion, and that's another topic that is obviously important. exactly what should be done in this situation, i think is a matter for congress to consider. >> and the past you have said it's best not to have the federal reserve to step in as a credit turitteredit yesterday -- yesterday yesterday tur. let me just say that we were very proud to have you last week in the great state of ohio. >> thank you. >> although it was not columbus the capital we would look forward to having you come just

a few miles north to visit us. my first question is to follow-up on congresswoman water's question when she asked about discrimination and the loss of wealth base on sub prime lending, and i am not sure you got to finish when you said there were other policies that congress could pursue to address discrimination and inequality. can you elaborate on what those policies are? >> well i meant more broady in terms of inequality among households in terms of wealth and income, and there are many factors that affect inequality and they tend to be deeper structural forces, including technological change that is

increasingly up the skill demands for our workforce and raise the return to skilled workers relative to those that are less skilled. certainly education training are matters that are within congress's domain to consider how to make sure that individuals have access to a world class education that is going to enable them to earn a higher wage policies affecting infrastructure and entrepreneurship and other things also affecting trends in inequality and i was referring to all of those factors where congress could potentially play a role. >> thank you. when you were here in february before this committee january's unemployment rate was about 6.6% overall, about four months after that the rate decreased to about

5.3%. however, in african-american communities, while it declined it went from 12.1% to 9.5% over that same period. while african-americans' unemployment rate did decrease the number is still high. in fact it's double the national unemployment rate. i think most and you included would agree that that's unacceptably high. my question is as you assess the health of the labor market to what extent are you taking into account the fact that minority communities still face unexceptacceptable high rates of unemployment and is there any outreach or anything that the federal reserve engaged in to understand the extent in the communities i represent? >> so there really is not anything directly that the federal reserve can do to effect

the structure of unemployment across groups and unfortunately that has long been the case that african-american unemployment rates tend to be higher than those of on average among the nation as a whole, and it reflects a number of different sources of disadvantage that are operative there in our national monetary policy and we're trying to achieve a situation where jobs are broadly available in the economy to those who want to work but we seek the maximum sustainable level of employment or we have to be careful not to try to push the economy to a point we have to worry about inflation remaining under

control, and given our focus on inflation, there is certainly limits on what we can do for any particular group? >> thank you. i have a few seconds left. let me continue on the theme on the other side as i talk about the office of minorities and women inclusion. certainly you know section 342 that created the office and part of the thing that we have struggled with is the whole reporting authority and the standards for reporting back what those federal regulation offices are doing. do you have any oversight? >> we make each of the federal agencies or entities covered by this make annual reports to the congress so the board has reported annually on our efforts. we are very -- let me just say, we are very committed to doing what we can to facilitate inclusion of minorities and

women and we have many programs and have tried to detail them in those reports. >> time of the gentle lady expired. the chair recognizes the gentle lady from missouri mrs. wagner. >> thank you, mr. chairman and chair yellen and thank you for joining us today. i want to touch on issues that some of my colleagues also brought up and keeping in that vain particularly with the news coming out of greece for the past few weeks i think it's important for countries to take a hard look at their own debt time for us to look in the mirror and address our own problems including the over $18 trillion debt we have accumulated. we are now nearly seven years ma'am, out with the federal funds rates still at the lower

zero bound both quantitative easing and low interest rates made financing easier and has relieved pressure to the fiscal reforms to solve our long-term debt problem. both you and your predecessor, chairman bernanke, argued that fiscal reform is important over the long term however you have also stated that fiscal prudence could hamper economic recovery. it has now been seven years and we can no longer say we are looking at the short term when we are looking at our country's debt problem, can we? >> so i, like my predecessor i believe the nation faces a very serious debt problem in the years ahead.

at the moment deficits mainly because of congressional actions and those by the administration have succeeded in lowering deficits to the point where for the next deficits where for the next several years the debt to gdp ratio was stable but over time under cbo projections as the population ages and especially if health care costs rise above trend as has been historically typical, the country will face an unsustainable debt path in which debt to gdp rises and that requires further actions. that's mainly released to retirement programs, to social security and to medicare and health care cost trends. and so we've known about this for decades. and there remains a need for

action on this front. >> there does remain a need for action. and signing the longest budget outlook reports on some of the consequences of large and growing federal debt. this comes from the cbo's long-term budget outlook. things like less national savings, lower income pressure for larger tax increased or spending cuts reduced ability to respond to the next fiscal crisis. are these all things you consider at the federal reserve with regard to monetary policy? >> i agree with the set of consequences that's you just read to me. and ultimately, when we see those things being manifest those consequences. so in the years ahead if deficits aren't addressed and become very large they will put

pressure on the economy that not right now but in future years, likely will cause us to have higher levels of interest rates than we otherwise would have had. diminished levels of investment and productivity growth in this economy. we would have to offset those forces by having a tighter monetary policy. so we're not in that situation now. >> particular lie relating to long-term death leading to a greater chance of fiscal crisis is this something you discuss when you are looking at systemic risk? >> i've not been part of a discussion of this but it obviously is a significant issue for the long term. >> i have a short amount of time. when do we get to the long term? when are we there after seven

years and adding $8 trillion in debt over the last handful of years? >> the economy is recovering. i'm pleased by its progress. as i indicated, my colleagues and i think if the economy progresses as we expect, we probably will begin to raise interest rates some time this year, and that takes us toward the long term. >> how does that affect our current date chair yellen? >> well, two ways. higher interest rates will raise the cost of servicing the debt but a stronger economy, which is -- what will cause us to raise interest rates, a strong economy whose tax receipts and is favorable for the federal budget. >> time of the gentle lady has expired. chair now recognizes the gentleman from michigan, mr. tildy. >> thank you, chair yellen, for being here.

i'm blocked slightly by mr. emmer who is functioning as a polling guard right now. got good coverage. the work that i did before i came to congress and a lot of the work i've been focused on since i've been here relates to the economic health of america's cities and towns. i know a lot of the regional banks, cleveland boston, chicago, and in some ways philadelphia have been focusing some attention on this issue of the fiscal health of communities within their supervisory area. and i've raised this with your predecessor and with you. i'm curious as to whether the board of governors might in the near future take up this question. what we have, and i've talked about this before, other members have heard me go on about it, we have an institutional pending

looming institutional failure in this country. there's often a tendency to think about cities facing significant municipal stress as being anomalies or having that problem as a result of significant mismanagement or an episodic sort of fiscal stress situation. but what we're seeing what the data shows, is there's a structural problem. municipal governments of all types are facing enormous stress. hundreds of millions of dollars in general fund revenues and expenditures in many, many dozens of these municipal institutions that are facing potential failure. and while i know the fed has involved itself in the question of municipal bonds as a source of liquidity for banks looking at the municipal financial situation from the investor side is only one half of the equation. and i think it is overdue that

the fed with its strong voice and dual mandate particularly its mandate related to employment, take a look at the potential employment impacts of the failure of dozens potentially of american cities that are really central to our economy. and i wonder if you might comment on the problem and offer any thoughts as to whether you think the board of governors might take this question up. i think it would be an important issue to take up. >> that's something i'm happy to raise with my colleagues. i am well aware of the work that's gone on in a number of reserve banks. reserve banks all have active community development functions and many of them have been very focused on often older cities or cities that have suffered declines.

some cases because of the decline of manufacturing and trying to help them work toward strategies that would lead to their revitalization. and they've done some very creative work. a number of them have. so i can discuss with my colleagues what we might do in that space. i am pleased to see the efforts and the good work that many of the reserve banks have undertaken. i think it's been helpful to community leaders as they you know try to devise strategies. >> i would encourage you to look at this as potentially a part of the work of the board of governors itself and looking at the role that the banks, regional banks have done. it's important. but often what happens is when it's looked at from a perspective of a region it is

seen as an anomaly. i think if the fed would be willing to use its research capacity to help allucidate to many policymakers that not only does it have an impact on unemployment but it's a pervasive problem that normally goes beyond what had been seen as an anom liealy or episode based on management failure or unforeseen circumstance. i think it really fits within the role of the fed to look at. >> i know a number of years ago the reserve banks collaborated. they chose a number of communities around the country, cities that were hard pressed and tried to work on understanding what strategies worked to revitalize these

different kinds of communities. and it could be collaborative work the reserve banks take together. >> thanks. i appreciate it. >> the chair now recognizes the gentleman from kentucky. >> welcome back to the committee. i wanted to talk about the low rate policy that the federal reserve has pursued now for -- effectively almost a zero short-term interest rate policy that the federal reserve has pursued now for six years. one of the original targets the fed set to begin raising rates was when unemployment reached 6.5%. we're well below that rate today. 5.3% unemployment. i appreciate your testimony that you expect to raise the target federal funds rate by the end of this year but i want to explore why they've delayed it beyond the point you originally targeted and what that says

about a few issues. first of all, what does it say about the unpredictability of fed policy? i appreciate that effective communication is critical transparency is desirable. doesn't the fact we're below 6.5% unemployment now for almost a year and a half and you haven't raised rates doesn't that undermine the commitment to transparency and to communication? >> i want to make clear that the 6.5% was never a target that we never said we intended to raise rates when unemployment fell to 6.5%. instead, we said it was a threshold and if unemployment was above that level and inflation was well under control we'd not raise rates. once unemployment fell below that level we'd then begin to consider whether it was appropriate to raise rates, and

we've followed that policy. and we never said that it was a target, which we would -- >> i understand that and i appreciate the caveats and the -- >> it's more than a caveat. >> you are very good at caveats. i appreciate that. that brings me to my second point. a full 6 1/2 years after the recovery even though we've seen a decline in unemployment, as you acknowledge there's slack in the labor market and significant weaknesses in the labor market, in the overall economy. in fact a recent investors business daily article said the overall growth in the 23 quarters of the obama recovery has been 13.3%. that's less than half the achievement rate in the previous ten recoveries. had the obama recovery been merely average, gdp would be $1.9 trillion larger than today. that translates into $16,000 per household. i think you recognize this in your report saying that the

measure of labor under utilization remains relative to the unemployment rate. that would explain why you've invoked that rate and haven't raised the rates even though you came bilowelow the 6.5%. let's talk about that underlying weakness. it's clearly not monetary weakness because you've engaged in these extraordinary measures. six years of zero rates. very accommodating policy. bond buying, quantitative easing. shouldn't we start looking at fiscal policy? obamacare which is retracting employment by 2.5 million jobs. the 30-hour workweek which is forcing people to go part time. epa's rationing of energy. 8,000 lost coal miners in my state and we're losing employment by the day. dodd/frank, american action forum says over the next ten years, dodd/frank will reduce gdp output by almost a trillion.

and governor lail brainerd made a comment. they've gone to extraordinary lengths to produce robust economic growth and yet we've seen this lag. shouldn't we start diagnosing the problem differently? this is a fiscal policy disaster? >> of course it's appropriate to look at why we've had such a slow recovery. it really has been painstakeingly slow getting the economy to the point where unemployment is 5.3%. remember we had a devastating financial crisis. it took a huge toll on households. left many of them struggling with debt with massive losses in wealth, under water on their mortgages. they've been trying to get that debt under control. businesses have been very cautious about investing.

we are -- >> i've got 15 seconds left. just one final point. low rates are not the problem. what i'm concerned about now is that because we've delayed raising rates below that 6.5% rate now whye have no tools left. and what's your response? we have no tools to address the next recession. >> the time of the gentleman has expired. the chair recognizes the gentleman from florida mr. murphy. >> thank you chair yellen. thank you for being here. one of the biggest problems we have is the disappearing middle class. and one of the factors that isn't addressed in that conversation is often housing. and in a state like mine in florida, you go to areas like miami, coral gables a lot of growth. a lot of the numbers there for growth are through the roof, way

better than ever expected. unfortunately that is not for folks that have the 700-plus credit scores and lower to middle-income families. they are not experiencing this bounce back. nor are they building that equity, i think, is important to getting to that middle class. so my question relates to regulation. and curious as to when you think the federal reserve will be able to finalize its list of domestic systemically important banks so that this committee can have an idea better than just the $50 billion line which american banks are the vanilla, sort of making that 30-year fixed rate mortgage and the small business loans in our community versus the ones that are truly risky. >> so i'm not sure exactly what your --

>> when do you intend to finalize the list of systemically important banks? >> we have eight domestic banks that have been designated globally as gsibs. among the banks over $50 billion and subject to the enhanced prudential standards in dodd/frank. and those banks we have, for example, subjected to a higher leverage requirement than other banks. we supervise them in a different process, and we will be proposing enhanced capital standards or surcharges for those eight systemically important banks. but others that are not in that group also are important and have systemic significance and are subject to enhanced prudential standards and

supervision. >> will you be putting that list out? >> the list exists. i'm not sure -- what list? i mean -- >> for the domestic systemically important banks. there's been a lot of questions as to whether it's just a $50 billion, what i would say arbitrary line that's being considered verse things like interconnected derivatives, suitability, et cetera, and if that's going to be taken into consideration. >> we give special attention to all banks over that threshold. they differ in terms of their characteristics. and we have tried throughout to tailor supervision and regulation to the systemic footprint of the bank. so there is no list of banks that meet this criteria. and there are several that have

been designated for supervision by fsoc that -- or you know, also subject to enhanced supervision. >> switching gears. we've already had some discussion on this as it relates to employment. 5% is full employment. right now 5.3%. so we're pretty close there. why do you think we haven't had and felt that wage growth yet, and what do you think needs to be done to feel that? >> first of all, i think there is more slack in the labor market than you would think by the 5.3% measure, somewhat more. and i've pointed to the very high levels, unusually high and we detail this in the monetary policy report. the fact that involuntary part-time employment is unusually high given the unemployment rate. so that's one factor. in addition i think that labor

force participation, while it's mainly declined for demographic reasons, there seems some component of suppressed labor force participation that does reflect a weak economy, a weak labor market that many would rejoin the labor market if it were stronger. to my mind, the 5.3, somewhat overstates just how strong the labor market is. but there are also lags in the time the labor market strengthens and wage growth picks up. >> what rate do you think policymakers should -- >> the -- >> what? >> the time of the gentleman has expird. the chair ecrecognizes the gentleman from pennsylvania. >> last week, they proved the merger of a $188 billion bank with another bank. in the federal reserve's final

order, it analyzed the financial stability of the merger. the federal reserve noted the merger did not present a meaningful greater risk to the stability of the united states financial sector. in analyzing the stability, they used a factor-based model. based on the analysis in the final order should we consider this an endorsement of a factor based approach to measuring systemic sustainability? >> staff looked at the detailed circumstances surrounding the characteristics of this particular merger and tried to arrive at a reasoned judgment taking many factors into account of whether or not this would create a financial stability threat. and they didn't use just a formulaic approach but looked at the details of -- >> so the factor-based model

worked in this case? >> they listed a number of factors they took into consideration, and that's a useful -- that's a useful list but the detailed analysis -- >> thank you. this month marks five years since the enactment of the dodd/frank act. president obama claimed it would help lift our economy and lead all of us to a stronger more prosperous future. sentence that since that time it's resulted in new legislature. $3,346 for each working age person. these costs are a large reason why more than 17 million americans are still unemployed or underemployed. why the percentage of adults who are unemployed is just 62%, the lowest in 37% and why even bernie sanders has admitted an honest assessment of real

unemployment in the u.s. is 10.5%. in your speech last week you said growth in real gdp has averaged only 2.25% suns 2009. 1% less than the average rate seen over the 25 years preceding the great recession. the gdp growth rate for a comparable period after the reagan recovery was 4.8%. that was marked by less regulation, lower taxes compared to higher taxes, higher regulation environment we have here. the average 2.25% per year since 2009 that hides quarters where we actually contracted. in the first quarter in 2014 and in the first quarter in 2015 the economy actually shrank. is that correct? >> according to the statistics we have, yes. >> in light of the negative growth in those quarters i'd like to draw your attention to the slide shown by my colleagues from across the aisle.

i don't see any negative growth quarters. do you think that's an accurate reflection of the economy's gdp growth? >> well, it looks like the numbers you have on this chart are year over year rather than quarterly. >> the bars between 2011 and 2015. i sighee more than four bars. it's hard to see what is represented here. what i don't see are the negative quarters we've had in there. >> this isn't my chart, but -- >> would you agree the chart does not show the negative quarters. >> i don't see the negative quarters. your label says year over year. >> but you see more than four or five years between -- more bars that would represent -- >> year over year often means the fourth quarter of one year over the fourth quarter of the

previous year or the third quarter over the third quarter of the previous year, and because negative quarters are infrequent typically -- >> negative quarters and near zero quarters which we also missed in that chart. i'd be interested in your perspective when you compare 2.25% growth since 2009 and that's a percentage less than -- this is the more accurate slide which shows the negative or near zero growth in some of the quarters. given that near anemic growth and you compare the lower tax environment in the 1980s where we had 4% growth. do you think dodd/frank has lifted the economy? >> i think dodd/frank has led to a stronger and more resilient financial system, and the years you showed on your previous

graph that were negative and year over year negatives that was what we suffered in the financial crisis. a huge loss in output and in jobs. and to have a stronger, more resilient financial system means the odds of -- >> i yield back. >> time has expired. the chair recognizes the gentleman from washington. >> thank you chairman and madam chair, thank you for being here. there's an accumulating amount of research and scholarship tracking the declunine of entrepreneurship. fewer businesses are being started and few are surviving past the first year. as we all know there's a declining number of community banks in this country. so my question to you is, what's can you do, and what can we do

to help community banks serve their local economies? >> well, community banks are really vital to local economies. i've seen this first hand when i was in san francisco and president of the reserve bank there. it's something we're very focused on at the federal reserve. we want to see community banks thrive and know that for many different reasons, this is a very difficult environment for community banks. the slowed pace of economic growth and recovery that we have had. the low interest environment is squeezing their margins, and the regulatory burdens that they face have been really quite high and they're struggling with it.

for our part, we're looking in the way that we supervise community banks to do everything within our power to reduce the regulatory burden. and i could give you a list of things we are trying to do to minimize the burden. more off-site exams more tailoring of our exams to the risk profile of the bank. >> if i could reclaim my time thank you. kind of in the spirit of this, congressman beatty asked you what you could do to help communities of color who have disproportionately high unemployment rates. you indicated you don't have specialized tools. i'm going to respectfully disagree. and i would encourage you and others to take note of recent research done by a graduate student at mit who indicates

when community banks branches leave census tracks where there is a concentration of either low-income or communities of color that local business lending declines precipitously, even when there are other national or international bank branches retained in that community. he tracks it's not true with mortgage lending, but it is true with small business lending. and with all due respect you have merger approval authority oftentimes when community banks are purchased and could make conditional the continuing presence of branches in those census tracks or in those neighborhoods where we have begun to document a decline. so with the little amount of time i have left i'm always interested in your opinion about

what you see as the threats to our continuing recovery. and i'll use this toont to suggest that i don't think it's as robust as it can be. you and i have had the conversation about the output gap and the dire need for the fed to think of itself differently as it relates to investment and infrastructure. what do you see as the threats that could induce or the factors that could contribute to another down turn in the economy? what are you worried about? what keeps you up at night? >> so let me first start by saying that i do think the economy has improved a great deal. and in a way i'm focused on the economy's strength and its good performance, rather than mainly lie awake at night and worrying about a further downturn. >> the fed has reduced the projected growth rate of the gdp

by 20% in the last few years from 2.5 to 2.8 to 2.3. that's a material downward projection. >> it's -- >> but the question is what's out there that worries you. >> let me just say the writing down for projections on growth in part reflects the fact that productivity growth is consistently disappointed now for a number of years. so our unemployment projections have proven more accurate than our output projections. in essence we've had decent job growth and better job growth than you would have anticipated, or we would have anticipated with weaker growth. in part it's a reflection of quite disappointing productivity growth. >> the time of the gentleman has expired. the chair recognizes the

gentleman from arizona. >> you've always been very kind to me, particularly on some of the more abstract questions i've thrown at you. in a couple of the conversations here there's been a discussion of interest rate policy ultimately what it does to us and our fiscal policy. in an fmoc meeting, does it ever reach the level of conversation as interest rate goes back to some level of normalization, what it actually means to our debt and deficit and the projection of our financing costs? >> well, that is something that our staff looks at. i've looked at. it's -- we -- congress should expect and this is embodied in cbo projections that as the economy recovers, short-term interest rates will rise. long-term interest rates already reflect that and as the years go by, if short-term interest

rates do indeed rise with the recovering economy long rates will move up further and this will affect the interest burden of the debt and other things equal will add to deficit. so that's clear. but it's also true that a strengthening economy means stronger tax receipts. >> you and i see that somewhat as obvious. i see many discussions around here where reports are telling us in a few years interest is going to equal our entire defense budget and that's what the new normal interest rate models we're heading towards. my great fear is current monetary policy ultimately emboldens us to engage in bad fiscal policy. and we're going to pay a price for that. i think particularly if we keep seeing the revisions on our gdp growth we may have to deal with

this sooner than later. >> interest rates are likely to rise and that that will raise the interest cost of the debt. that should be part of the calculation that you're making. >> sort of a one-off type question. you and i touched on this earlier. you were very kind to engage in conversation with me. i have an interest in the distortion of the price of money. and more than just what the fed does in its liquidity and claim on bank reserves. it's what we do tax policy wise on what interest is deductible, what isn't. what is guaranteed. we sat down with some richmond said folks a while back and tell'ing us the vast majority of total debt not including student loan has full faith or implied credit. are we in the time of an absolute distortion of the price

of machineoney, and does that make your job more difficult to use money as a communication of activity in the markets? >> so it's absolutely true that when -- whether it's a student or business or household considers what the relevant cost of borrowing or debt is to them, they look not only at the interest rate they have to pay, but what the other terms are of that borrowing. and if, for example it's tax advantage that has an impact on what the relevant cost of money is to them. so, of course, it's true that many things other than just the headline interest rate matters and the incentives facing borrowers. >> my thesis on that is that ultimately hits to your concern of our savings rate. we've created so much distortion on the price of money that we've

disincentivized proper savings. you've always been very good at bringing up entrepreneurship. one of the things that seems to be working in the economy is some of the alternate iveive access to capital platforms, whether they be crowd sourced lending or crowd sourced equity. much of the regulatory environment is about the systemic risk to the banking, financial systems. when they are crowd sourced they have almost no cascade effect. do you believe they'll take a light regulatory touch to the alternative financing models out there that are much safer? >> so happy to see innovation in the financial sector that makes new forms of financing

available. i'm not aware of regulatory issues at this point that affects those vehicles. but i can get back to you if we do have concerns. >> time of the gentleman has expired. the chair recognizes the gentleman from floridacalifornia, mr. sherman. >> i've got five minutes to try to convince you not to raise interest rates until the spring. spring is when things naturally are risen. that's when plants come out of the ground. it's a better time than winter to. and there is some reasons that i think you're already aware of. the imf study argues that things should be delayed until early next year. you have more economic experience than all of us in this room, of course, but on the

political side you should not underestimator the ability of politicians in europe to screw things up. you should not underestimate the ability of politicians in washington to screw things up. you need to price in the prospect that we do not pass all the appropriations bills that we do not raise the debt limit. china, i'm sure you factored in, but it's not just beijing and washington to worry about. you need to worry about norwhackalk, connecticut. i'm hoping you can get your staff to do a study on this for two purposes. one, to let the country know how important this is and what its economic effect will be and the second to inform your own decision so if this perspective

terrible decision does occur you factor in the fact it's going to shave half a point away from our economic growth. i'm referring to the argument that we're going to capitalize all leases. this would add $2 trillion to the corporate balance sheets liabilityies of america. $2 trillion increase in liabilities. not because anything has happened in the economy but just because, as a matter of theological esotaric accounting that i have to confess i actually understand and no one should but for no benefit to our economy. we may add $2 trillion. when you do that, you throw all the balance sheet ratios out of whack and force companies to entrench and make their balance

sheets look better. and you strongly disincentivize interesting into long-term leases. companies will say, gee, yes you can open that shopping center. why don't we sign a one-year lease for the anchor store. we'll renew it later but we can't sign more than a one-year lease because our balance sheet will look tir ibleerrible. mab that will push you in the right direction, but there are more. the reason to raise interest rates, the one other you're aware of our unemployment rate doesn't capture all of those who have dropped out of the labor market. an all-time low labor participation. the unemployment rate does not justify an increase. the reason given to raise interest rates is to deal with the prospect of inflation. you have a 2% target.

you aren't hitting it. you have to keep interest rates low. but that's too low a target. larns lawrence ball and others have argued for a lower interest rate. where things stick where you may have an employee who gets fired who may not get fired if there was an easy way to reduce their cost by 2% or 3%. and finally you have all the baby boomer retirees. it's not in your mandate but it is in the declaration of independence happiness. there are many for whom a 1% real interest rate is always a 1% real interest rate. that's way less than 1% of the people. for everyone els they live in a nominal world. if you are a retiree in a zero inflation rate 1% real interest

rate world you're living on 1% because you psychologically cannot invade principle. if you are in a 3% inflation 4% interest rate you are deliriously happy. you are earning 4% and nominally, you're not invading principle. this works for everybody except economists and cpas which means just about everybody. so please give -- wait until spring. >> time of the gentleman has expird. the chair recognizes the gentleman from colorado, mr. tipton. >> we've heard comments from our colleagues across the aisle in terms of the impact we're seeing in a failed aspect. the economy isn't moving.

one key component is obviously access to capital through our community banks. you just cited it's been a difficult period for community banks. regulatory burdens have been high. and i guess what my question is, this follows up on comments you made earlier in the year then supplemented by sheila bair as well. it's um pactimpacting some of the community banks. what policies are you going to be putting forward? it seems through dodd/frank it's a matter of shoot, then aim. now we're trying to be reactive but at home our people are feeling the pain of bad policy that's come out of dodd franck. what are you going to be doing at the fed to alleviate this? >> we are very focused on community banks. >> that's what they're worried

about, by the way. >> we formed a council that consists of community bankers and they come to see us twice a year. the board meets with them. they are also in each of the 12 federal reserve districts versions of on a regional square of a counciler council to advise the reserve banks on factors affecting community banks. so we are listening. we are taking seriously the complaints that we hear and the specifics about our supervision and trying to be responsive. >> i appreciate that. if i can put a little exclamation point on that. sat down with community banks in my district. they feel they're working for the federal government. they are working just to be able

to comply with regulations currently in place. while we may have hearings, they don't feel anyone is actually listening. this is stagnating that growth in those community banks. >> we are listen, and we are taking a series of steps that i believe are meaningful to reduce burden including reducing the amount of time we spend in these banks. disrupting the other activities that they want to be doing by reducing our demands for documentation, taking a more risk-focused approach to reduce the burdens of exams. we try to make clear to the community banks what's relevant to them and so many of the regulations under dodd/frank we've put in effect only affect larger banks and the most system

systemically important banks. >> a lot of our community baunks de facto feel they still have to comply with the dodd/frank regulations even though you say we're going to look the other way. it doesn't really apply to you. they are still feeling the impacts coming out of dodd/frank. >> there are some things dodd/frank imposed on all firms, for example, the volcker rule could envision their community banks being exempt from volcker. we're trying to tailor our implement ags of volcker to minimize the burden on community banks, but they are subject to it. there may be some steps -- >> we just introduced legislation for tailoring it. 55 banking organizations have endorsed it and we hope you will, too. when we're looking at that 5.3 and talking about as mr. roth

lgs pointed out, real unemployment level that's 10.5%, is part of the problem when you aren't raising interest rates right now is what you're really saying is our economy stinks right now. we're just not seeing real movement and what tools do you have left to be able to stimulate this? >> i would say we've gotten our economy is in a much better state. low interest rates have facilitated it, and decision on our part to raise rates will say, no, the economy doesn't stink. we're close to where we want to be and we now think the economy cannot only tolerate but needs higher rates. there have been head winds and we've tried to use monetary policy to overcome them. but i want you to know that we share the goal of minimizing burden on community banks and

will remain very focused on it. we have the process that is in play at the moment and it is focusing particularly on burdens -- >> time has expired. the chair recognizes the gentleman from machineinnesota, mr. ellison. >> thank you, mr. chair, and also chairwoman yellen for being here. isn't regulation from dodd/frank that's keeping our economy -- for the people who haven't been able to benefit from the economy, the recovery is it regulation that's causing the problem? >> well, to my mind, there has been an increase in regulatory burden on banks. what we're doing is trying to create a healthier safer sounder financial system that

will keep credit flowing to the economy and particularly if we ever experience a stress situation where in this financial crisis we saw banks just withdraw credit for the economy which took a huge toll on economic activity by having more capital and liquidity and safer and sounder financial system. we hope we are preventing future episodes like the devastating one we just lived in. and if there is some burden that's associated with that and some cost, the benefit is a far reduced chance of a financial cost that will take the kind of toll you've just described. >> we have a high library a loy labor participation rate. is it because of dodd/frank? >> no. and also there are very -- we

are going to have over time a declining labor force participation rate. first and foremost because we have an aging population, more individuals in the retirement years. this is going to continue. now i've said, and my colleagues have, that over and above that we think there's something holding labor force participation back that reflects weakness in the economy and that as things strengthen we would expect some people who have been too discouraged to look for work to move back into employment. but the major reason that we're seeing a trend downward in labor force participation is because much of demographics and it will continue. >> has the cfpb been harmful to the u.s. economy in the

recovery? >> well i mean, congress created the cfpb to enhance consumer protection, and they've been very focused on doing that. >> i just ask because some of my good friends complain about it a lot. and i just trying to get an expert opinion on whether it's a good thing or bad thing for our economy. so it is addressing potential consumer abuses and trying to enhance consumer protection. >> does that help -- does addressing consumer issues like the problems that the mortgage issues that we saw in the 2008 period and before that, does that help the overall economy? does that help markets operate more accurately? does it help employment? >> well, we certainly saw that

the subprime criseis where there was irresponsible blending had a harmful effect on the economy and on low-income communities and that burden continues to exist. so we're going through a period in which we are trying to address all of the issues, including improper securitization and mortgage underwriting practices that led to that devastating experience. it's difficult to get the balance right and to figure out what the best way is to design regulations. there are always consequences in terms of unintended effects of regulation. we need to be vigilant about trying to address that. >> what about student debt? you know how big it is. is it a drag on the overall fnksing offnks

ing functioning of the economy? >> it's increased enormously. i'm worried about the high levels of student debit, and it's debt if an individual can't repay it never goes away. it can't be written off in bankruptcy. but on the other hand education is really critical to succeeding in this economy. and it's critically important to make sure that students have access to quality education so they can get ahead. they need good information about programs and their success rates in order to avoid mistakes. >> the chair recognizes the gentleman from texas, mr. williams. >> thank you for being here today. i'm a small business owner from texas. i'm a main street guy. i'm a car dealer, one of your favorites. and i can tell you small business is hurting. main street america is hurting, and it's hurting because

regulations which you have talked about today are literally choking the heart out of small business. and i think too we talked earlier about inequalities. and i would say that competition is the key. competition in business takes care of inequalities, not the federal government. my colleague was asking for an expert opinion on whether dodd/frank and cfpb are good for the economy. i can tell you they are bad for the economy, the worst. with that said in 2014 in comments before the joint economic committee, you stated in questioning from senator coats, my own discussions with businesses i hear exactly the same things you are citing. concerns with regulations about taxation, about uncertainty about fiscal policy. you said there is more work to

put fiscal policy on a susstaunable course. that progress has been made over the last several years in brng brnging down deficits buthe structure of entitlement programs, we can see that over the long term deficits will rise to unsustainable levels relative to the economy. my constituents back home, we have great things going but it can still be better. in texas, a state somewhat recovered, 115 fewer community banks and 105 fewer credit unions. a lot of uncertainty about where the economy is headed. what do you say to those community based edd institutions that's bernanke say were being penalized by your policies particularly when these policies have at the same time failed to produce meaningful economic

growth in the communities those institutions serve which further erodes their profitability? >> what i've said is we're trying to do everything we possibly can to relieve burdens on community banks. they've been through very difficult first of all, a period that's been very rough for the economy and a slow recovery and that's taken a toll on their profitability and that of the businesses, as you noted. and in a low interest rate environment environment, net margins tend to be low. i think the low interest rate environment we've had and accommodative monetary policies have served to help our economy overall and get it moving and moving back to full employment. if you compare the united states with any number of other

economies that also suffered in the aftermath of the crisis, we're among the leaders in terms of how we're doing economically. and other countries are now pursuing the same kinds of monetary policies that we put into place earlier which in a way is an endorsement of their effectiveness. >> it's stull very hard to borrow money for small businesses. and banks are having to hire more compliance officers than loan officers. that talks money out of the system that could be used to hire jobs. i asked if he'd slow down this dodd/frank legislation because a lot of it is not completed. and because we're losing so many banks and credit unions. he said we're going to go 100% and take a look at it. that's a bad policy. you stated the community banks

shouldn't face the same scrutiny. i agree. if the fed will tailor its supervision to reduce regulatory burden. in 2014 i heard you say i had communeity bankers asking me what do i do. we say the right thing but what do we do? they are fearful of things that can happen of what they may not do. they don't know what to do. what do you tell these people? we talk a good game but we don't come through. >> we're trying to make clear our supervisory expectations and work with them to know what rules and regulations apply and how and what don't to try to shield them from many of the things that larger banks have to -- >> i hope you'll understand. mr. chairman, i'll yield back. >> the chair recognizes the

gentleman from maine. >> thank you chair yellen for being here. everybody wants the same thing. we want more jobs. we want higher paying jobs. i'm a business owner like others in this room. i love talking to business owners because they grow our economy and create jobs for our kids. if you are in my district they say the same thing. that they are spending so much time and so much money to comply with government regoolgsulations that they can't afford to grow their business and hire more workers. the cost of businesses in america in one year to comply with just federal government regulations is $1.9 trillion. $1.9 trillion. these businesses pass on the cost of these regulations in the

price of their products. so our families are spending about $15,000 a year for businesses to comply with government regulation. now i'm sure we can agree miss chair, that businesses need to be fairly regulated, but when they, those regulations are killing jobs, it's just not right. now several years ago, with a highly partisan vote with very little republican support, the 2300-page dodd/frank bill was passed. since then there have been mountains and mountains of regulations and rules that are starting to smother our financial services industry. and one part of dodd/frank, there's a great concern of mine, is the too big to fail regulations. the cifi designation. when they are trying to determine who should be

determined as too big to fail it means the taxpayers, if they fell wul have to step in and bail them out. we all know there's a huge difference between large center banks with all kinds running through our economy and asset managers mutual fund, pension fund managers that handle the retirement savings for millions of americans. with no systemic risk. director of nonpartisan congressional office cal lates if asset managers have to comply with too big to fail with no systemic risk imposed to the mark, it will drive up the cost of their operation to the extent -- they can generate for millions of americans in this country saving for their retirements will be dinged by

about 5%25%. i don't know about you but where i come from 25% is a lot of money. can't we agree chair yellen right now that it just doesn't make any sense for nonbank financial institutions that pose no systemic risk to the market like asset managers they should escape this dodd/frank that penalizes. >> the fsoc is charged with attempting to identify tlebts tohreats to our country. the issue of public notice indicating what they're going to do is to look at particular activities -- >> okay. so they're still looking at it. >> -- not firms but asset management activities that pose risks. >> i appreciate that. >> that's the focus. >> he would like to switch gears in my remaining minute. you stated on a number of occasions that you're very concerned about unstable deficit

spending in this country how it might impact economic growth. and i agree. without getting into trouble. but that's exactly what congress has done. that's why we have an $18 trillion national debt. now, we have some folks that come, ms. yellen, before our committee, including secretary of the treasury mr. lew, said it's only 3% of our gdp. i disagree with that. i was a state treasurer in maine and i can tell you that high levels of public debt caused by long periods of deficit spending can do great damage on our economy because we need to pay the interest on that rising debt therefore, we're not able to spend it to build roads and bridges and educate our kids.

this yeeshgs chair yenlllen this year we're spending $230 billion interest payments on that debt. in ten years it's projected to be $800 million, more than we pay to defend our country. can't we agree that's about time you help us and congress gets its act together? >> wshlgsell, i did indicate my concern with the stability of the debt path the united states is on. >> i hope you use your influence in this town chair yellen to make sure -- >> time. >> -- with the administration to make sure -- >> time, time time of the gentleman has expired. >> thank you, sir. >> the chair wishes to nft remaining members that the chair is clearing two more members in the queue. at that point i anticipate adjourning the hearing. gentlemen fra arc aarc, mr. hill

s recognized. >> chair yellen thank you for being here very much. mr. hecht talked about the study. i think that's concerning. speaks to his point. two things on that item i want to call to your attention that relates to merger approval issues at the fed. one is the herfendchltd al index, which was adopted in the '60s discriminate against rural areas. i think the idea of using county designations and deposits for trade area sin correct. and i want to give you many examples of this.

i would ask the board staff to reconsider how to do bank mergers, not based on deposits only not on herfendal particularly in the rural county. second is issue of comment letters in mergers. mergers between bank -- if you get one comment letter, that extends to 206 days for approval which reduces efficiency, reduces productivity of that. i would like to see the board adopt a new approach on comment letters and distinguish between real comment letters from the geographies connected for the merger and just promotional fishing expedition comment letters and let the reserve banks have more power and not force a board of governors merger. i'm going to write you about this. you don't need to comment on it today. i would like you to comment on

labor force participation rate. younger people are who dropped out of the labor force. i really take issue with your point that those of us in the baby boom generation are retiring. i think if you go back and look at those numbers, you'll find it's actually yoirng people being forced out -- or not having the opportunity to participate in the labor force. >> i agree with you, younger cohorts are working more than their parents and grandparents did. that's absolutely true. it's just that there is such a substantial drop-off in labor force participation when people retire that when you look at the

joint effect of an aging population more people in each brackets where they do retire, that the working more is only an offset. it's not the same order of magnitude as the demographic effect of aging. i don't disagree with what you've said about that. >> let me change subjects and go back to liquidity. secretary lew talked about the factors including technology and competition reducing liquidity in the market. he said the business models and risk appear tight of traditional broker/dealers have changed with some reducing their inventories and in certain case exiting certain markets. notwithstanding the study a roundtable where a participate

jpmorgan, i believe, stated in the treasury market it used -- you could do a $500 million trade and not have a bid ask spread move. the market would not move. now her estimate is it's down to $292 million. there's an indication in the treasury, the most liquid market we have significantly reduced liquidity. in the fq svment oc report the primary security dealings show since the crash and implementation of dodd/frank treasury holdings have gone up to high levels and all other categories, corporates and even agent securities have dropped. which shows people holding treasuries holding liquidity and not making a market. i think regulation is being short-changed in its impact. i would like you to comment on

basel, liquidity. >> we've simply not been able to understand through a lot of different factors and we need to look at it more to sort out just what's going on with the different influences are. i'm not ruling that out. >> chair now recognizes the gentleman from oklahoma mr. lucas. >> i appreciate your indulgence and chair we tried to move in aen expeditious sort of fashion. as we discussed before, my part of the country is economically dependent on the oil and gas industry. i'm hearing from those involved in energy lending about regulatory pressure. crude oil in the ground, proven reserves during this current period of low prices. i'm concerned if banks have election flexibility dealing with these countries that accumulate impact of all the factors as we move toward the

end of the year could result in loans potentially being defaulted on or -- so i just ask that we be understand of those proven barrels in the ground. the last time we were together before this committee we discussed. basel 3 leverage ratio rule as it relates to the treatment of segregated margin. i appreciated your response of on-balance sheet accounting treatment. i would like to go a little further today and specifically talk about the basel leverage ratio extending to off-balance sheet exposure. in this off balance sheet context, why is customer margin collected by a bank affiliated member of a clearing house being treated as something the bank can leverage? when congress very explicitly required such margin be