>> i call this hearing to order. today we consider the nomination of the honorable janet yellin to be chair of the board of governors of the federal reserve system for a term of four years. dr. yellin is an extraordinary candidate to lead the federal reserve. she currently serves as a member and vice chair of the board of governors. she previously served as a member of the board of governors

in the 1990's. she was a chair of the -- of president clinton's council on economic advisors and she served six years as the president of the san francisco fed. in addition, dr. yellin has an impressive academic record. she is a professor at berkeley's school of business and was previously a professor at harvard university as well as a faculty member of the london school of economics. dr. yellin graduated suma cum laude and received her phd in economics from yale. the nomination is especially timely as our nation struggles with high unemployment in the wake of the great recession. she has devoted a large portion

of her professional and academic career to setting labor market, unemployment, monetary policy and the economy. dr. yellin also has a strong track record in evaluating trends in the economy. her academic analysis has been spot on. the "new york times" recently noted that she was "the first fed official in 2005 to describe the rise in housing prices as a bubble that might damage the economy. she was also the first in 2008 to say that the economy had fallen into a recession ." these forecasts were not an anomaly. the "wall street journal" recently analyzed 700 predictions made between 2009

and 2012 in speeches and congressional testimony by 14 federal reserve policy makers and found dr. yellin was the most accurate. this accurate economic judgment would be a tremendous quality of a fed chair. dr. yellin has proved through her extensive and impressive record in public service and academia that she is most qualified to be the next chair of the federal reserve. we need her expertise at the helm of the fed as the nation continues to recover from the great recession. complete wall street reform and continues to enhance the stability of our financial sector. i'm excited to cast my vote for -- to confirm her as first woman to serve as chair of the federal reserve and when we vote

on the nomination i urge my colleagues to do the same. i now turn to member crapo for his opening statement. >> thank you. today's hearing is an opportunity not only to examine governor yellin's qualifications but also her views on role and direction of the federal reserve. in recent years the fed has engaged in unprecedented policies including purchasing trillions of dollars in treasuries and mortgage-backed securities. current fed purchases total up to $85 billion a month. as a result, the next fed chair will inherit a balance sheet that currently stands at approximately $3.8 trillion, four times higher than before the financial crisis. as i think everyone knows, i have been a long-time critic of the fed's quantitative easing purchases.

now that a reduction in asset purchases seems to be on the horizon, i'm concerned that markets have become overly reliant on them. it is essential to know how dr. yellin, if confirmed, would manage the process of normalizing the monetary policy. the fed indicated it would hold short-term interest rates low for an extended period. governor yellin stated the policy rate should be held lower for longer. how long is too long? the extended period of low rates is hurting individuals. the international monetary fund cautioned that the actions taken by central banks are associated with financial risks that are likely to increase if the policies are maintained. how would the fed ensure that the risks are avoided under dr. yellin's chairmanship? in addition to unprecedented monetary policy, the next fed chair will finalize several regulatory reform rules that must balance the financial

stability with the inherent need for markets to take on and accurately price risk. they must be done without putting the u.s. markets at an undue competitive disadvantage or harming consumers with unintended consequences. the chair must understand how different rules interact and what impact they have on the affected entities and economy at large. just as some worried that we did not have enough regulations on the books to prevent the economic crisis, some of us worry that the post crisis response will result in a regulatory regime that stifles growth and job creation. the chair of the federal reserve must know and understand the need for that balance and how to carefully manage competing demands without harming the economy. u.s. banking system and capital markets must remain the preferred destination for investors throughout the world. during previous hearings i asked chairman bernanke what parts of dodd-frank could be revisited.

chairman bernanke also commented in july that legislation is needed to allow the fed flexibility to deal with the collins amendment and tailor appropriate capital requirements for insurance companies. i look forward to hearing dr. yellin's views on what dodd- frank fixes congress ought to consider and how she intends to achieve an appropriate balance between the regulation and economic growth in confirmed. in addition to the previously mentioned issues, the makeup of the board itself will change in the near future. governor sarah bloom raskin nominated. if governor yellin is confirmed as chair, the fed will need a new vice chair. moreover, dodd-frank created a vice chair of supervision which has not yet been officially filled. the appointments will shape the direction of the federal reserve policy making for years to come.

i look forward to working with the chairman to see that the positions are filled in a way that provides the proper balance and expertise at the fed. thank you, mr. chairman. >> thank you, senator crapo. we have agreed, to allow for sufficient time for questions, we are limiting opening statements to the chair and member. all senators are welcome to submit an opening statement for the record. we will now swear in dr. yellin. please rise and raise your right hand. do you swear or affirm that the testimony that you are about to give is the truth, the whole truth, and nothing but the truth, so help you god? >> do you agree to appear and testify before any duly constituted committee of the senate? >> i do. >> please proceed. >> please be sure that your

written statement will be part of the record and i invite you to introduce your family and friends in attendance before beginning your statement. dr. yellin, please proceed with your testimony. >> thank you. i would like to introduce my husband george, and my sister, and my friend and a former san francisco fed director carla chambers here with me today. chairman johnson, senator crapo and members of the committee, thank you for this opportunity to appear before you today. it has been a privilege for me to serve the federal reserve at different times and in different roles over the past 36 years. and i'm honored to be nominated by the president to lead the fed as chair of the board of governors. i approach this task with a

clear understanding that the congress has entrusted the federal reserve with great responsibilities. its decisions affect the well- being of every american and the strength and prosperity of our nation. that prosperity depends most, of course, on the productiveness and enterprise of the american people but the federal reserve plays a role, too, promoting conditions that foster maximum employment, low and stable inflation and a safe and sound financial system. the past six years have been challenging for our nation and difficult for many americans. we endured the worst financial crisis and deepest recession since the great depression. the effects were severe. but they could have been far worse. working together, government leaders confronted these

challenges and successfully contained the crisis. under the wise and skilled leadership of chairman bernanke, the fed helped stablize the financial system, arrest the steep fall in the economy and restart growth. today the economy is significantly stronger and continues to improve. the private sector has created 7.8 million jobs since the post crisis low for employment in 2010. housing, which was at the center of the crisis, seems to have turned a corner. construction home prices and sales are up significantly. the auto industry has made an impressive comeback with domestic production in sales back to near their pre-crisis levels. we have made good progress, but

we have further to go to regain the ground lost in the crisis and the recession. unemployment is down from a peak of 10%, but at 7.3% in october it is still too high. reflecting a labor market and economy performing far short of their potential. at the same time, inflation is running below the federal reserve's goal of 2% and is expected to continue to do so for some time. for these reasons, the federal reserve is using its monetary policy tools to promote a more robust recovery. a strong recovery will ultimately enable the fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. i believe that supporting the recovery today is the surest

path to returning to a more normal approach to monetary policy. in the past two decades, and especially under chairman bernanke, the federal reserve has provided more and clearer information about its goals. like the chairman, i strongly believe that monetary policy is most effective when the public understands what the fed is trying to do and how it plans to do it. at the request of chairman bernanke, i led the effort to adopt a statement of the federal open market committee's longer run objectives including a 2% goal for inflation. i believe this statement has sent a clear and powerful message about the fomc's commitment to its goals and has helped anchor the public's expectations that inflation will

remain low and stable in the future. in this and many other ways, the federal reserve has become a more open and transparent institution. i strongly supported this commitment to openness and transparency and i will continue to do so if i'm confirmed and serve as chair. the crisis revealed weaknesses in our financial system. i believe that financial institutions, the federal reserve, and our fellow regulators have made considerable progress in addressing those weaknesses. banks are stronger today. regulatory gaps are being closed. and the financial system is more stable and more resilient.

safeguarding the united states in the global financial system requires higher standards both here and abroad. so the federal reserve and other regulators have worked with our counterparts around the globe to secure improved capital requirements and other reforms internationally. today, banks hold more and higher quality capital and liquid assets that leaves them much better prepared to withstand financial turmoil. large banks are now subject to annual stress tests designed to ensure that they will have enough capital to continue the vital role they play in the economy even under highly adverse circumstances. we have made progress in promoting a strong and stable financial system but here, too, important work lies ahead. i'm committed to using the fed's supervisory and regulatory role to reduce the threat of another

financial crisis. i believe that capital and liquid rules and strong supervision are important tools for addressing the problem of financial institutions that are regarded as too big to fail. in writing new rules, however, the fed should continue to limit the regulatory burden for community banks and smaller institutions, taking into account their distinct role and contributions. overall, the federal reserve has sharpened its focus on financial stability and is taking that goal into consideration when carrying out its responsibilities for monetary policy. i support these developments and pledge if confirmed to continue them. our country has come a long way since the dark days of the financial crisis, but we have

farther to go. i believe the federal reserve has made significant progress toward its goals but has more work to do. thank you for the opportunity to appear before you today. i would be happy to respond to your questions. >> thank you for your testimony. will the clerk please put five minutes on the clock for each member? dr. yellin, you know as i do that unemployment is not just numbers, we are real men and women who are ready to work if given the chance. if you are chair, how will you lead the fed to continue to reduce unemployment aggressively and improve the prospects of young americans and others who are unemployed?

>> thank you, senator. i would be strongly committed to working with the fomc to continue promoting a robust economic recovery. as you noted, unemployment remains high. a disproportionate share of that unemployment takes the form of long spells of unemployment, around 36% of all those unemployed have been unemployed for more than six months. this is a virtually unprecedented situation, and we know that those long spells of unemployment are particularly painful for households, impose great hardship and costs on those without work, on the marriages of those who suffer these long unemployment spells, on their families. so i consider it imperative that

we do what we can to promote a very strong recovery. we are doing that by continuing our asset purchase program, which we intend -- we put in place with the goal of assuring a substantial improvement in the outlook for the labor market. we are taking account of the costs and efficacy of that program as we go along at this point, i believe the costs exceeds -- the benefits exceed the costs. as that program gradually winds down, we have indicated that we expect to maintain a highly accommodative monetary policy for some time to come thereafter and the message that we want to send is that we will do what is

in our power to assure a robust recovery in the context of price stability. >> what are the dangers of tapering the asset purchases too early? if confirmed, how should the fomc move forward on an exit strategy? >> so, senator, i think that there are dangers, frankly, on both sides of ending the program or ending accommodation too early. there are also dangers that we have to keep in mind with continuing the program too long or more generally keeping monetary policy accommodation in place too long. so the objective here is to assure a strong and robust recovery so that we get back to

full employment and that we do so while keeping inflation under control. it's a port and not to remove support, especially when the recovery is fragile and the tools available to monetary policy should the economy falter are limited. i believe it could be costly to withdraw accommodation or failed to provide adequate accommodation. on the other hand it would be important to make sure we do withdraw accommodation when the time has come. my colleagues and i are committed to the longer run inflation goal of two percent. we will need to ensure that as

recovery takes home we will bring monetary policy back to normal in a timely fashion. i believe we have the tools to do so. we have been careful to make sure we have the tools available at our disposal and we also have the will and commitment, and i look forward to leading the normalization of monetary policy. >> thank you. >> i would like to follow-up up on the question with you. with regard to quantitative easing, you have indicated you feel as long as the economy remains fragile that we need to continue with the federal reserve.

the fed's balance sheet will reach almost 24% of gdp in the first quarter of 2014. i am concerned about the impact on the economy and the unintended consequences of these accommodations. it seems to me there is a disconnect between what the fed intended to accomplish and the results. even the fed zone economist estimate qe2 as only about .3% to real gdp growth in 2010, and another expert has indicated it contributes to bubblelike markets.

how do you respond to the concerns that quantitative easing is creating serious risks in our financial markets? >> a number of different studies have been done attempting to assess what contributions have been, and this is something we can't know with certainty, but my personal assessment would be based on all that work that they have made a meaningful contribution to improving outlook. the purpose was to push down longer interest rates. we have seen interest rates fall substantially. lower interest rates, lower

mortgage rates have been instrumental. it's not the only fact her, but it has been a positive factor in generating the economy of the housing sector. areas are moving up, and i think that is helping substantially, including a large fraction of household. it is improving household finances. i think we have seen recovery in automobile sales spurred by low interest rates. >> how can we operate monetary policy in such extreme levels of quantitative easing.

>> when we initiated it unemployment was 1.81%, and the committee was pessimistic about expectations over what it did see over the ensuing year. the community expected little or no progress brigade down unemployment. we indicated our goal was to see substantial improvement in the outlook for the labor market, so the process of this program is data to send and, but we have seen improvements in the labor market. >> can it continue indefinite lee? if the labor market does not continue to the point where it reaches its target, how long can this continue? >> i would agree this cannot continue forever.

we are monitoring very carefully. you noted potential risk of financial stability. those risks we take seriously. the committee is focused on a variety of risks and recognizes the longer this program continues the more we will need to worry about those risks, so i don't see the program as continuing indefinitely. >> do you have any estimate as to when there will be a beginning of tapering? >> we are attempting to assess. we have seen progress in the labor market. the committee is looking for signs we will have growth strong enough to promote continued progress.

as they indicated in a recent statement we see strength in the private sector are of the economy, and we are expect think progress going forward. while there is no set time that we will decide to reduce the pace of our purchases, at each meeting we are attempting to assess whether or not the outlook is meeting the criteria we have set out since the pace of purchases. >> thank you. >> of the federal reserve has engaged in measures to strengthen our economy, some critics have argued any growth might somehow be artificial or that low interest rates and

cheaper credit might lead to financial instability or asset bubbles if investors make riskier investments in order to "reach for the yield." and the current environment, isn't week demand a greater concern? i look at them polling back spending, businesses holding off on invest ng because of week consumer and demand. doesn't that change the risk of policy actions? >> i completely agree what we demand is a major drag on the economy. the purpose of the policies are to bring down interest rates in order to superearths bending,

and if we are capable of doing that, that will stimulate a favorable dynamic in which jobs are created or spending takes place, and that creates more jobs throughout the economy. i agree, and our programs are intended to remedy the situation of weak demand. on the other hand it is important to monitor financial risks that could be developing as a consequence of programs or low interest rates are even more broadly of developing financial risks in the economy.

the federal reserve is devoting substantial resources and effort to monitoring those risks. at this stage i don't see risks of financial stability, though there is limited yield. we don't see a buildup of development at risk that i think at this stage poses a risk. >> some commentators have suggested in addition to full employment the fed should also monitor asset bubbles. do you think it is a feasible job and something the fed should be doing? if so, what should be done about it? >> i think it's important for the fed to it time to detect asset bubbles -- to attempt to find asset bubbles.

we have done a good deal in different sectors. to try to see if there is evidence of price misalignments that are developing. by and large, i would say i don't see evidence in major sectors at least of a level that would threaten financial stability, but if we were to detect other threats to financial stability, as a first line of defense we have our first layer of tools we can use to attempt to limit.

i would not rule out using monetary policy as an attempt to address misalignments. because congress has asked us to use those tools to achieve the goals of maximum employment and price stability, which are important goals in their own right, i would like to see monetary policy directed to achieving those goals congress has given us, and to use other tools to try to address potential financial stability threats, but environment of low interest rates can reduce risky behavior, and i would not rule out monetary policy having a role.

>> welcome, governor. would you describe the portfolio of the federal reserve as unprecedented? >> yes. and you are also the chairman of economic advisers? looking back on recent history, have you noticed any portfolio of the fed approaching what it is today? >> not that the federal reserve. >> that's what i mean. >> but other central banks. >> i am asking about the federal reserve at the united states of america. >> no. >> would you describe what you are doing?

you describe quantitative easing. is that the stimulus for the economy? you use the term monetary tool. is that what you would use to stimulate the economy? >> it is attempted to push down longer-term interest rates and stimulate demand in spending in the economy. >> is this something they have espoused over the years when you have high unemployment? >> i don't know about if the canes thought about it.

they have written about something that is basically supply and demand, buying asset, then it may be possible to push down there yields. >> it was said several years ago that china was buying our bonds. isn't it true the federal reserve is a sickly the buyer of our bonds? for the most part? >> we are purchasing a substantial wanted tea of treasury and mortgage backed

securities, but we certainly are doing so for the sake of helping the government finance the deficit. in circumstances where we have run out of scope for conducting monetary policy when our overnight interest rate target has hit zero, we really have to rely on alternative techniques, and we are certainly not the only central bank that has recognized this and is undertaking similar programs. >> you allude to other central banks, and i don't know of any other central bank i think we should follow. we should set the example here, and the fed has darkly.

you mentioned unemployment. unemployment is seven point two or three percent. >> 7.2. >> what israel unemployment, people who have given up looking for a job, frustrated by the whole system? is it around tha >> you are right. >> we have seen a significant decline in participation.

part of it reflects an aging workforce, but some of it may be a reflection of a very weak labor market conditions, where people have been unemployed for a long time and feel frustrated about their job prospects. >> could you quickly manage your view on basel three, how important it is for banks to meet the standards of capital and liquidity? how important is that? >> it is extremely important for banks to have more capital. putting those into effect has been an important step. there are steps we have taken to make sure the institutions whose failure could create financial

distress will be used to meet higher standards of liquidity and prudential supervision to make sure they are more resilient. >> you were there during the housing bubble. you cannot let a bubble continue to continue to grow. >> i think in the aftermath of the crisis all of us have spent a great deal of time attempting to draw the appropriate lessons. there have been many.

the federal reserve is focused on monitoring the economy, attempting to understand the threats that exist in the financial system and to improve our supervision, especially of the largest institutions to make sure we are identifying the threats that can be risks to the economy. >> when the chairman came before this committee he noted two things. they were clearly aimed at housing. you have spoken about the real economy.

i hope that means an emphasis on manufacturing because of its ripple effect. one concern is the monetary policy doesn't do enough to serve americans. last year a journalist described it as trickle-down economics. we can enrich the wealthy on wall street, but it's not clear to me and the many americans who haven't seen a raise in a number of years that this policy increases wages and incomes for workers on main street. tell us how the monetary policy directly impacts families on main street and in ohio? >> to broadly benefit all americans, especially those who

were see a harm come to them and their families from high unemployment in a recovery, it has taken a long time and has been disappointing. it's true the policies the fed conducts when we implement monetary policy, drop-down interest rates affect assets prices. you use the term trickle-down. the ripple effects bring benefits to i would say all americans, those who are unemployed and find it easier to get jobs.

you mention wage growth has been weak or nonexistent. as the economy recovers my hope and expectation is that will change. if we can generate price stability all americans will see meaningful increases in their well-being. >> i spent a long time talking to bankers. some of the largest banks, and i hear a concern from so many bankers across the board that to be to fail still has not been solved.

in march ben bernanke said it is still here. it is said there are deep-seated failures. "they have lack of respect for the law and public trust. his view is reinforced by the fact that boj has eight separate investigations under a way. do you agree we haven't solved the problem? what do we do to address too big to fail?

>> i would agree addressing too big to fail has to be among the most important goals of the post crisis period. that must be the goal we try to achieve. too big to fail creates a threat to financial stability, and it does unfairly advantage large banking firms over small ones. my assessment is we are making progress. it should make a very meaningful difference in terms of too big to fail. we have raised capital standards.

we will raise capital standards further. we have the possibility of requiring the largest banking organizations hold additional unsecured debt at the holding company level to make sure they are capable of resolution. right now they have the capacity and legal authority to resolve a firm that finds itself in trouble. this is very promising in terms of the able to accomplish that, so we are working with foreign

regulators to improve the resolution and continue to put in place higher standards, liquidity requirements. we put in subsidiary requirements. i think this will make a meaningful difference, and we are hoping to complete this in the months ahead. >> how will you assess the standards as they go into affect if you need higher capital requirements?

how will you assess the effectiveness of those. >> there are studies that attempt to estimate what the too big to fail subsidy is in the market, and while there are a lot of questions. >> do you believe there is a subsidy? >> i think there are different methodologies used in different studies, and it's hard to be definitive, but i would say most studies point to some subsidy that a reflect too big to fail, although other factors may also apply.

>> i want to pick up where my colleague left off. i share his and many other concerns about too big to fail being alive and well. the first study confirms this in general. there is a huge market advantage. specifically this recommended the federal reserve warned finalized policies and procedures related to the

emergency landing at doherty and established timelines to ensure compliance with dodd frank compliance. what that means is dodd frank if you the ability to wind down that emergency lending authority. the board has not acted on that or a established timelines to do that. will you do that as chairman, and when will you do it? >> i think that is in the works, and we will try to get it out soon. >> do you have a time frame in mind? >> i'm not sure, but i will try to make sure.

>> if i can ask you to supplement with moore's citrix on the feds attempt to act on dodd frank with regard to that. you also mentioned increased leverage ratios for the biggest banks. i agree the action you supported in july was very positive. i don't agree it was enough. would you support going further in terms of leverage ratio with the largest banks or not? >> i think we will have a very meaningful improvement in capital standards by going the

approach. frank has recommended, which is capital standards. there will be a surcharge. they are considering a surcharge that would add to that. they are contemplating additional ways of reliance on funding that could take the form of the capital charge relating to reliance on that kind of funding, or it could take the role of that kind of requirement. i think when we have compliance that serves as

act up, remember that we also have stress tests, which are yet another approach to assessing whether or not institutions have the wherewithal to be able to. >> i understand the other categories, but considering all those, i think you should go further with supplementary leverage ratio. would you support that as we speak or not? >> i want to see where we are when we have implemented dodd frank and requirements we need to put in place.

>> you have said in the past, i strongly believe monetary policy is most affect if when the public understands what the public is trying to do and how. a lot of us agree, and many think the best way is through openness and transparency at the fed. real openness and transparency. would you publicly support s209? if not, what specific changes would be required to earn your public support? >> i strongly support transparency and openness on the part of the fed. i think in terms of the timeliness of that, we are one of the most transparent central banks in the world. i would not support any

requirement that would diminish the independence of the federal reserve in implementing monetary policy. for 50 years congress has recognized there should be an exception to avoid interference. i think it is important for the economic performance of this country, and we have seen it around the world. allowing the fed to be independent in determining monetary policy is essential, and i would be very concerned about legislation that would subject the federal reserve to

short-term political pressures that could interfere with that. >> thank you. at the end of out over the federal reserve formally applied for membership. the united states has membership through the office created by dodd frank. can you tell me why the fed should have its own membership on that board, and furthermore, why there should the of focus on that when domestic oversight challenges seem to be a higher priority. >> my understanding is now that the federal reserve has been charged with supervising some of

the largest insurance companies that have been designated, that we want to be in a position to work with regulators in other countries to make sure we have internationally compatible and appropriate standards. >> they cannot fulfill that need for you? >> i'm not certain. i think it would still be beneficial to take part in that group. >> i have raised concerns. i have encouraged industry specific guidance for financial institutions. do you agree they have developed guidance and metrics rather than forcing insurers into a bank

centric regulatory model? >> i do believe one side to all should not he the model for regulation and that we need to develop appropriate models for regulation and supervision of different kinds of institutions. they certainly have unique features that make them very different from takes. -- from banks. we are taking the time. >> you are saying a bank centric model would not work in this country? >> they are very different in terms of is this models we want to expand.

>> i want to discuss the recent decision not to release the research regarding the asset management industry. while the council has publicly indicated he would release any guidance from this for public comment, it has declined to release this study. if you are confirmed as chairman of the fed, will you ensure the council lives up to its commitment of transparency, and will the fed support efforts for studies on which they might be available for public comment? >> i have not purchase abated, but if i do so, i will take such concerns seriously. >> if you are confirmed, you will, and the question is about transparency. people need to have the ability to comment before they are

applied. would you be willing to make that commitment to transparency? >> i will study this more closely in terms of her seizures, but i feel it should the clear why a particular firm should be designated. >> and the metrics? i just want to thank you for your willingness to work on the issue. >> a technical question on behalf of large insurers in illinois. to do a cost benefit analysis if we are to require them to switch, which they have warned me could cost a couple hundred million dollars.

>> i am aware there is an issue around different accounting standards and insurance companies. i have not had the chance to study that myself, but i would agree this is something we need to consider very carefully and pledge to do so. >> tank you. >> thank you for being here. i want to ask a series of quick questions. i would like to make a comment. i understand some of the concerns about quantitative easing. i would make a comment.

part of our dysfunction in terms of the grant bargain or actual budget, if we were able to meet our functions, wouldn't that allow you to move ahead in the appropriate manner? >> it is certainly the case the economy has suffered a substantial drag from fiscal policy. the cbo estimates the drag amounts to something like one and a half percent on growth. as we commented, taking account of that large amount of fiscal drag, the economy is growing at two percent and showing greater

momentum. i would expect if there were less fiscal drag the economy's growth rate is going to pick up. certainly that has been a headwind on the economy and they we have tried to offset. >> the government shutdown would cost $24 billion or potential default threats don't provide predictability. i want some follow-up as well. i have been disappointed in the ability to be the arbiter around regulatory conflicts.

i simply would say i hope as you move into this role, there will be institutions. it did seem to me that the ofr report did not have a lot of clarity, and i would hope in your role -- one of the reasons i wish we ended up with an independent chair, but we try to give some clarity that we realize we give some clarity about how we are going to evaluate those non-bank institutions. >> i think that is a fair and reasonable object to. -- objective.

our staff has been working been trying to facilitate the works of those groups. >> we would like to see that transparency, so we all know the rules going forward. one thing is we think about balance sheets and stimulation, i know the fed pays interest on excess reserves.

i believe you are holding 2.4 trillion. we have seen other central banks start to lower those payments. would you consider extending that to get this capital back into the market place to stimulate more private capital into the market? >> that is something they have discussed and the board has considered on past occasions. it is something we could consider going forward. i think they were worried if we were to lower the rate to close to zero it would impair market function, and that has been a

consideration, but it certainly is a possibility. >> i just want to ask you to look at that as well. some of my colleagues have expressed concern. >> thank you for being here today. i want to thank your family for taking the time to show support. i think that makes a difference. do you follow gold prices? >> to some extent. >> do you think there is an economic indicator behind the rise and fall of gold prices? >> certainly it is an asset evil want to hold when they are very fearful about potential financial market catastrophe or economic troubles and tail risk.

often we see gold prices rise as people flee. >> that was something i got from ben bernanke. i asked him the same question, and he said no one understands gold prices, and i don't pretend to understand them either. >> beyond what i shared, i don't have strong views. >> you talked about the role of the federal reserve, promoting conditions, maximum employment, a safe and sound financial system. do you believe we have a safe

and sound financial system today? >> i think we need to do more. we are not at the end of the road in terms of putting in place regulation and enhanced supervision. >> the reason i raise the question, we had this discussion when you were in my office about community banks. do you have a pretty good understanding of what is going on out west? we have lost half the community banks and credit unions in our communities, making it difficult for housing recovery, getting

loans for small businesses. i guess the question is what steps will you take to avert a culture of consolidation? >> to the extent the large banks have an advantage because they benefit from too big to fail, i think objective should need to put in place liquidity standards so we level the playing field. we should be making it tougher to compete and encourage them to be smaller and less systemic. we need a model that is different and has less

regulatory burden and is appropriate to their business model. we are proposing much more onerous standards. >> i believe one-size-fits-all is a disadvantage. do you see that cause an equity bubble in the stock market? >> stock prices have risen robustly, but if you look at the ua should and measures, the kinds of things we monitor akin to price equity ratios, you would not cede territory that suggests bubblelike ad additions.

when we think about assets like bonds, the premium is somewhat elevated historically, which suspects valuations not in bubble territory. >> do you think there is a federal role to support the stock market? >> no. >> i do not think anything has come with such substantial qualifications. it's fascinating to read your writing. a number of issues have arisen

in the international banking community just since the meltdown in 2000 and eight, including energy market manipulation, issues relating to money laundering. the said plays an important role in supervision. can the fed help support public faith? >> i think that is an important goal and one i am happy to work toward. i feel that is essential and appropriate, yes. >> i want to ask you to address the rules completed on the folk or rule, which creates a wall on the hedge funds that make risky bets with private investors and

commercial banks that have played in them ported role in businesses. there has been a lot of concern the firewall will be compromised. can we count on the fed to work with regulators, to implement it in a fashion keeping up with this goal of systemic risk. >> we are working very closely on this rulemaking with other agencies. we are trying to be faithful to the intent of this rule, which is to eliminate short-term financial speculation in

institutions that enjoy the brick action of the safety net. the devil here is in the he tells. it does hermit appropriate hedging and market making act committees, and we are trying to devise a rule that will permit those act 70s but be faithful. >> they put their thumb on the scale through the ownership of electric power, pie plants, warehouses for key metals, and there is certainly a history in terms of grandfather commodity

investments, and in terms of related activities. that there is concern the ability to influence will affect price and creates a conflict of interest that provides essentially a hidden tax on the american economy, and the fed does have regulatory powers relating to this. we can maybe chew on this a little bit in terms of your perspective. let's we are involved in a comprehensive review of like devotees in financial holding companies. as you indicated, we allowed some activities we deem to be complementary to financial activities, and we are reviewing what is appropriate. in addition, congress

grandfathered certain activities. we want to make sure these are conducted in a safe manner, and we want to consider this. with respect to market manipulation, it is also the role and responsibility of market regulators to be looking into possibility of market regulation error, and we would certainly cooperate. our main rule is safety and soundness. >> thank you for being willing to take on this role at the fed. i certainly wish you well.

>> senator. >> think you. i appreciate this time in your transparency today. if you would share with all of us how many rate increases you have voted for during your term on the federal reserve. >> i served as a governor from 1994 until 1997, and we had a cycle of rate increases at that time. 20 or more. how many have you voted against? >> none. >>i thought that was just good to get into the record.

i appreciate you so much for being here. we spoke about monetary policy and one of the things that we discussed was my concern. and i think it was yours too. easy money is an elitist policy. it is the ultimate trickle down. it is based on the premise that you are going to have this wealth creation. the hardest wall street institution is not the best. fund managers made a lot of money. it certainly has not trickle down to the economy. it is a blunt object. would you agree that although it has been an attempt to stimulate the economy, and has not been much better than those at the lower end of the spectrum? >> to the extent that low interest rates have an impact on asset prices, the policy is to some extent with the stock

market, which may be an example of what you are talking about. it is also played in a port role by helping the housing sector and losing housing prices. -- boosting housing prices. i think it has been largely beneficial to all those americans who own homes and has improved to their financial well-being. that is broad-based. >> we talked a little bit about this in the early summer. when the fed began to think about moderating the pace at which it would make paid -- purchases. the market had a stringent reaction. the federal reserve appeared as if it had touched the hot stove and that this policy was going to greatly affect the wealthy you are trying to create. the policy of moderating.

the policy was pulled back. it seems to me, and you discussed this a little bit, the fed has become a prisoner to its own policy. to step away from qe3 was going to shatter the markets and take away from the wealthy fact. can you talk a little bit about some of the escutcheons that were taking place during that time? >> i do not think we should be or can be a prisoner of the market. market. >> do you agree that it affected the fed? >> we do have to take account of what is happening in the markets. market conditions and the effect that they are likely to have on spending in the economic outlook. it is the case and we highlighted this in our statement when we saw the

picture of interest rate jump greater than we would have anticipated from the statements we made in may and june. in particular, we saw mortgage rates increase and rise in the space of a few months by over 100 base points. we had to ask ourselves whether or not the tightening of conditions in a sector where we were seeing a recovery, and a recovery that could really drive a broader recovery in the economy, we did have to ask ourselves, whether or not that could potentially threaten what we were trying to achieve. overall, we are not a prisoner of the markets. i continue to feel that we are seeing an improvement in the labor market.

that was a goal of the program. we will continue to evaluate that through incoming data and make decisions on the program going forward. >> thank you. i want to make sure i fully understand. my last question is, you talked a little bit about monitoring the financial markets. you spoke about using monetary policy as a blunt instrument. you are credited in 2005 that the house is that housing market was bubbling in that part of the country, the question is, do you believe that under your leadership the fed would have the courage -- i know you only have one instruments -- what the fed have the courage to print those bubbles and ensure that we do not create another crisis to mark -- create another crisis? >> no one who lived through that financial crisis would ever want to risk another one that could subject the economy to what we are painfully going through and

recovering from. we have a variety of different tools that we could use if we saw something like that occur. they include supervision, and monetary policy. >> you would have the courage to do that? >> i believe that i would. i believe that this is the most important lesson learned from the financial crisis. >> mr. chairman, thank you for having this hearing. i very much appreciate your candor and transparency. i really do. i appreciate the conversation, both in the office and -- i want to thank you for giving us the same answers today that you gave in the office. >> thank you very much senator. i appreciate that. >> senator hagan?

>> i want to echo what everyone has stated. the depth of your background, your experience and expertise. we are very honored to have you here. thank you for your testimony. i wanted to talk about the section in dodd frank where it is required that banks would access deposit insurance and what if it, federal reserve discounts. an plain vanilla derivatives such as equity, to push them out, to separately affiliate them. this move would raise costs without significantly reducing risks to the financial system. when i spoke to ben bernanke, he has consistently stated that the federal reserve had concerns about the swap push out rule prior to the enactment of dodd frank.

they still have concerns about it today. are your views on this issue consistent with chairman bernanke's? would you share the view that it is a good idea to repeal parts of this? if that did not take place, what would be the -- what would the markets to? >> senator, as you indicated, the federal reserve and other agencies did have concerns about this role. they expressed them when dodd frank was being considered. we are working very hard to address the concerns around this role -- this rule. we didn't wear likely to be able to do so. -- we think that we are likely to be able to do so. we want to address the concerns

that people have so that it won't be necessary to repeal the rule. that is my hope. they're certainly trying to do that. >> what is your timeframe on that? once you are confirmed? >> this is something we hope to get out hopefully later this year. >> you said you could do that without changing the section in question? >> i believe that is the case. we will be able to address those concerns. i understand the concerns. we are trying very hard. i've see share chairman bernanke's viewpoint? >> i believe so about those concerns that are there. we need to address them. we need to do so and we will. >> since the start of the qe,

the financial markets have responded to pronouncements by the fed. are you concerned that the markets are too driven by speeches and pronouncements from central banks around the world? if the suggestion of tapering can contributed to volatility, can we expect more volatility in the future? >> well, the federal reserve, and i think this is true of other central banks, we are trying as hard as we can to communicate clearly about monetary policy and our goals. we are trying to communicate about our intentions and how we carry out programs. this is challenging. we are i in unprecedented circumstances. we're using policies that have never been tried before. multiple policies. we are trying to explain to the public how we intend to conduct these policies. so it is a work in progress and sometimes miscommunication is

possible, but i think we certainly want to diminish any unnecessary volatility. sometimes there is volatility because we all hear news about the economy that changes our views over the course of the economy and policy. it is natural to see a response. to diminish unnecessary volatility, i think we have to redouble our efforts to communicate as clearly as we possibly can. that will be my emphasis. >> thank you, mr. chairman. senator to me >> thank you for being here. i want to go back to some of the issues that senator corker was raising regarding monetary policy. first i think it is important to

stress and you are very well aware of this, but the adverse consequences that were rd experiencing -- at we are already experiencing as a result of the monetary policy. they are problematic. we continue to have this artificially suppressed cost of funding these excessively large deficits that we run. it contributes, i would argue to fiscal imbalances. we are punishing middle-class savers for years now. people who said -- spent their entire working class lifetimes to forego consumption so that they would have a little bit of income in their retirement. now they have no income because they have earned nothing on their savings. they have watched it gradually get a road it, even by a low level of and ration. -- inflation. we have exacerbated the problems of underfunded pension plans. these are all the things that have been occurring and continue to occur.

what worries me perhaps more is the point that senator corker was getting to i think. what happens when does morphine drip starts to add? at some point, some time, we are going to move away from this i assume. everybody believes that. the assumption seems to be that the markets will behave very benignly when this occurs. we have seen some worrisome glimpses that maybe that is not a safe assumption. back in june, at the mere suggestion that members of the fed might be contemplating stepping back a little bit earlier and the treasury goes back 100 basis points. yesterday, with the release of your testimony, doesn't this feel like there's something a little artificial here? isn't it possible that well you have many tools available, the market may not respond very well. we could end up creating a real

problem as we try to exit from this. >> senator, you made a number of different points. i think the first point you mentioned is the low rates -- low rates give rise to fiscal irresponsibility. that puts pressure on congress. we have established low rates in order to get the economy moving. that is the country's mandate to us. it is important for congress to recognize that as the economy recovers, both short and long- term rates will go up. a situation in which the government's funding cost relate remains as low as it is, we must achieve our goal of getting the economy back on track. this is a very temporary situation. i believe members of congress should be looking out a few

years to a time when rates are going to be higher. low interest rates, that is absolutely true. this is a burden on people who are trying to survive on the income rom -- income from cds. there's not much they can get. when you think about how we will get things back to normal, i would argue that we cannot have normal rates unless the economy is normal. we do not have very much investment. there are fundamental reasons here when rates are low. i think pursuing a policy of low rates to get the economy moving will best enable us to normalize policy and to get rates back to normal levels over time. in terms of rates, as the economy recovers, we will need to withdraw monetary

accommodations that we have put in place. we will make every effort to do so at a pace that is appropriate for continued recovery and to maintain price stability. we will continue to communicate that plan to markets. as we've seen and as you've indicated, it is possible for rates to jump. that is not as true now, but in previous tightening cycles like the one we had from 1994-1995. low rates moved up over the span of six months over 100 basis points. we have tried to make sure the financial system is more resilient. we have contested and continue

to do so to make sure that banks are appropriately managing interest rate risk. that is a risk that we will try to mitigate, but it is inherent in any tightening cycle. >> i know i am running out of time, but two quick points i would like to make. i would like to express my concern which is the exact opposite of the concern that was raised by the other senator. the danger of the implementation of the vocal role -- vogel rule. i think the decision by congress to exempt u.s. treasuries it knowledge is that when you ban trading you make it less liquid and more expensive for issuers. the next rule may exempt others. that is another implicit acknowledgment of this problem. it is a problem for corporate

issuers in america. i am concerned that we do not unnecessarily raise their cost of borrow him. i am also deeply concerned about the consolidation that is happening in small banks and the lack of new small banks. we used to routinely launch hundreds of new community banks. i was told by the fdic that there is not a single community bank that has been launched since 2010. the systemic risk to the economy is way overboard. i hope you will make an effort to diminish that burden. >> i promise to do so. >> senator warren? >> there's been a lot of talk today about the fed's use of quantitative easing to help the economy get on its feet. the truth is, if the regulators had done their jobs and reigned in the banks, we would not need to be talking about quantitative easing. we could've avoided the 2008

crisis altogether. i want to focus on the fed's regulatory responsibilities to keep the big banks and check. i am concerned that those responsibilities are just not a top priority for the board of governors. earlier this year, the fed reached a settlement with 13 mortgage south -- servicers in a long lease -- long list of illegal foreclosure activity. the settlement was for the sum of $9 million and directly affected more than 4 million families. they never voted on whether to accept the settlement. the fed has smart, hard-working staff, but the board of governors would never delegate critical monetary policy to them. even now, after the biggest

financial crisis in a generation, the board things less than willing to delegate critical regulatory and supervisory decisions. i think we need to make raining in the banks a top priority for the board. i know the board meets regularly to discuss monetary policy. do you think the board should have regular meetings on supervisory and regulatory issues as well? with that make it clear that both of those are clear to the important to the fed? >> i absolutely believe that our supervisory responsibilities are critical. they are just as important to monetary policy and we need to take them just as seriously and devote just as much time and attention to them. the board operates under a variety of restrictions.

you may know about the government sunshine rule. when you suggest that the board meets to discuss regulatory matters, our ability to do so outside of open meetings is very limited. we tend to handle those issues by meeting individually with staff or meeting in small groups. we have a committee system where committees are put in charge of managing particular areas and making recommendations to the board. i remember in the 1990's, the board did meet regularly to discuss i supervisory issues. there are confidential supervisory information in those issues, and it is easier for us to have a meeting. i consider those very valuable. it is a worthwhile idea.

i should just say that when there are delegations to staff in the board of governors, that does not mean that the board members are not consulted. those with the expertise may have played a critical role with important input, even when there is no formal involvement. >> fair enough. but i think it is an important signal here. i'm glad to hear that you are thinking about this and the question of the appropriate delegation and when it is appropriate. i would just like to say something briefly about that. when it is appropriate to delegate to staff and when you have to retain the board itself. very briefly, because i would like to get onto one other question. >> under lock on whether certain matters the board must vote on. supervisory mergers and so forth.

rule changes. typically we delegate enforcement matters to the staff in the area of supervision. >> i'm glad to hear that you want to continue to think about that. i want to ask you one other fundamental question here. that is, do you think the fed's lack of attention to regulatory and supervisory responsibilities helped lead to the crash of 2008? >> you know, i think in the aftermath of the crisis, we went back and tried to look carefully at what he should have been doing differently. there have been important lessons learned. we have massively revamped our supervision, particularly of the largest institutions. we now organize those

institutions through a process called the list in which we are simultaneously reviewing all of the largest institutions simultaneously. the federal reserve system works jointly on these reviews. we no longer delegate to individual reserve banks the supervision of 1 or 2 of these large institutions. it has become an interdisciplinary matter. with economists, lawyers, and others involved in this. we have learned a lot about supervision. one of our top priorities now is ramping up our monitoring of the financial system is able -- as a whole. that is something we were not doing on an adequate basis before the crisis.

we miss some of the important links by which problems and mortgages went through the financial system. >> thank you very much. i just want to say, dr. yellen, when you are can armed, i am glad to hear that you will make it a top priority of the federal reserve to engage in supervisory and regulatory responsibilities that help keep our financial system safe. that cannot be something that is merely an afterthought. it has to be a primary effort on your part. >> thank you senator. i completely agree with that. >> thank you very much. mr. chairman and governor, you have demonstrated your rest them wisdom earlier. everything else is anti- climatic. when you are confirmed as the chairman of the federal reserve,

it will be consistent with your record, selections, and wise choices. chairman bernanke has indicated that many times our fiscal policy and monetary policy have been working at opposite purposes. they've been trying to get an expansive policy in place. we anticipate, and i hope we can avoid this, unemployment trends. how would your job and obviously the size and scope of your purple eel and everything else be affected if our -- portfolio and everything else be affected by our decisions today? >> i agree that fiscal policy has been working across hall --

cross purposes to monetary policy. i recognize the importance of the objective of putting the deficit and debt on a sustainable path. congress is worried about that and i think it is important to do so. some of the near-term reductions in spending that we have seen have certainly detracted from the momentum of the economy and from demands. it makes it harder for the fed to get the economy moving and make our path -- and it makes our path more difficult. it would be helpful going forward if it were possible for deficit reduction efforts to focus on achieving gains in the medium-term horizon.

those aspects of fiscal policy that give rise to concern about sustainability in the medium- term, while not detracting from the impetus that we need to keep financial recovery moving forward. >> such a fiscal policy would help you in terms of what we all anticipate is the point at which you have to begin your tapering. basically this balance would allow you more flexibility and more confidence that when you start to taper, it will lead to a reverse in the economy. >> that is fair senator. we are worried about a financial recovery. we need a fiscal policy that has less tried and does no harm -- that would make life easier. >> let me shift gears.

a few years ago -- we were discussing the possibility of default. the markets were beginning to react. given the central role that the treasury securities play, not just in funding the government, but also the markets, the collateral markets across the globe, were you beginning to see in the fed, ominous signs of a potential catastrophic impact of default? >> i do not believe that a default would be catastrophic. we did see some signs in the run-up to the debt ceiling. they suggested that financial markets were taking notice. there were preemptive protective actions that market participants

were beginning to do. they were trying to protect themselves from what could have been catastrophic consequences. more generally, we did see an impact on consumer and business confidence. we also saw a general willingness to make investments and the economy. >> a final point. we've been talking a lot about the size of your portfolio. essentially, the benchmarks that typically you are looking at is an inflation and deflation and unemployment. for a while, under chairman bernanke, there was a big shift and deflation which would have had adverse consequences. we have avoided that. we have avoided inflation pressures. will we have not done is get the employment numbers to a level.

the focus, the traditional and appropriate focus, is on those measures. not the absolute size of your portfolio. is that sensible? >> that is sensible. we are focused on achieving -- avoiding deflation. we have an objective. we're trying to get the economy back to old when met. i think we have made progress, but we are not there yet. if we recognize from the outset from the accident purchase program, there are costs and risks associated with a large balance sheet -- as it purchase program, there are costs and risks associated with large balance sheet. >> thank you. >> nice to see you again. >> thanks for stopping by the office.

i think we had a good conversation. i would like to continue, if i would, with a few questions along the lines of what we spoke about in my office. i found her testimony about asset levels to be interesting. just before the chairman turned to me i looked at where the dow jones is out. it's about 15,850. an economy that thomas quite honestly, everyone would recognize as too much unemployment as an economy where people continue to struggle. it is economy where we will continue to see where the growth will be. we are continuing to see real estate wars just like we had in the old days now that is

confined to cities and a certain areas of the country. we are now starting to see private equity firms who i think are very good. that is a shocker to me, having owned a few rentals in the past. dr. yellen, i kind of look at these factors and i wish i could going on with other items. what am i missing here? i see asset bubbles. you're going to bring the asset balance sheet down from $4 trillion to zero even if you said over the next four years we

would bring it down from from $ 4 trillion to $0. >> with respect to real estate, you mentioned real estate markets and we are seeing, as you mentioned, private investors come in to invest often in the all cash in certain markets in the country. is this evidence of an asset bubble? if you look at the markets where that's occurring, it's some of the hardest hit markets where prices dropped the most, las vegas, phoenix, the areas that had the biggest crashes with the largest number of foreclosures with houses being put on the market and the borrowers where

many of these housing markets where the investments are taking place are ones where you have a substantial fraction of underwater borrowers and individuals who have bought houses, whose credit is impaired, who are not in a position to be buying houses. these investors are taking very low prices for cash and renting them out over a reasonable time.

>> dr. yellen, i don't want to be rude and interrupt you but i'm running out of time. i think you would agree with me that you probably would not in a public setting, but if i were to say to you, why don't you announced today that you are going to draw this down over the next 24 months from $4 trillion to zero, i think you would see the impact of your policies on the value of real estate all across the united states, not just of the hardest hit areas. i think the real estate that i and others own would go down in value. i think the stock market would have the same sort of reaction that it has had when chairman bernanke just suggested that there might be a phase down here.

here's what i'm saying because i am now out of time. i think the economy has gotten used to the sugar you put out there and i'm just worried that we are on a sugar high. that's a very dangerous thing for the person out there just trying to change the bills and maybe put a dollar away for retirement. the flipside of your policies that you are advocating for are very hard on certain segments of our society. explain to the senior citizen who was just hoping the cd will learn some money so they don't have to dig into the principal what impact you are having on a policy that says we are going to, for as far as the perceivable future, keep interest rates low. >> i agree.

savers are hurt by the policy, but if we want to get active business as usual in the normal interest rates, i would say would need to do that by getting the economy back to normal. that is what this policy, i hope, will succeed in doing. the savers play many different roles. they may be retirees who are hoping to get part-time work in order to supplement their income. there may be people who have children who are out of work and you are suffering because of that or grandchildren who are going to college, coming out of college, and hope to be able to put their skills to work on finding jobs in the market when

it strong. when they think about themselves as savers, taking into account the broader array of interests they have and a strong economy, they would see that these policies, even though it may harm in one respect, are broadly beneficial to them, as i believe they are to all americans. >> my time has expired. thank you, mr. chairman. >> thank you, mr. chair, and thank you, dr. yellen, sticking through so the end of the desk and ask you some questions as well. i went to get to the fed goal of unemployment. give me a picture on what you consider to be full employment. >> i don't have a precise

estimate, but every three months all of the participants in the fomc turn at and indicate what they think normal, long-term levels of unemployment is. in our most recent survey in september, the range of opinion was 5%-6%. >> what you believe the real unemployment rate is today? >> the measured unemployment rate is 7.3%. >> the measured unemployment rate is 7.3%. as discussed previously, we have very high incidence of involuntary part-time employment. we have all too many people who appear to have dropped out of the labor force. >> would you agree that it is close to or probably over 10%? >> by broader measures, if that high. >> would you also agree that right now in america we have the greatest income disparity that we have had since the great depression?