for those two bank reasons is permanent. -- two reasons is permanent. , orou look at the line dissipation has been coming down for 10 or 12 years. let's put a second chart up. that is the. bureau of labour statistics. 1998, for the fed until 2001, we have a dropping of participation. though that may be modify or amend your view? >> i would like to make clear that i think a significant part of the decline in labor force

participation is structural and not cyclical. are moving tors older ages where there is a dramatic drop-off in labor force participation. an aging population. we should expect to see a decline in labor force participation. as you noted, that has been going on for some time. that's no doubt in my mind in an portioned -- important portion is structural. i am may also be -- and inclined to believe -- there are cyclical factors at work. the decline has a structural component and also a cyclical component. there's no surefire way to separate that declined into those two components.

but we are seeing declining participation also amongst prime younger people. it seems to me based on the evidence i have seen that some portion of that reflects discouragement about job opportunities. but there is no clear scientific to say exactlynt what fraction of that is cyclical. >> the chair recognizes the lady from new york, for five minutes. >> i would like to begin by congratulating you, cherry ellen. len.hair yel in the history of the fed, there have been only 15 fed chairs. you are the first woman to lead the fed or any major central

bank. we are so proud of you. in your long and distinguished career, you have excelled at everything goal -- every single point of your career. i wanted to note that your appointment is a historic achievement. >> thank you. >> i would like to ask you about your reaction to the unexpectedly weak job report. which showed the economy only created 113,000 jobs in january. some of the markets are calling for a pause in the fed's tapering strategy. has the report caused you to the pace of the tapering? >> i was surprised that the december and january, the pace was running under what

i had anticipated. to be very careful not to jump to conclusions. reports mean. there were weather factors. be affecting economic activity in the job market and elsewhere. the committee will this is. i think the committee has said that -- >> well, can you describe what

would cause you to consider a tapering pause? in months of bad data reporting? what would cause you to consider pausing? >> i think what would cause the committee to consider a pause is a notable change in the outlook. the committee when it decided to begin the process of tapering measured steps believed that the outlook was one where we would see continued improvement in the labor market. if incoming data were to cause the committee -- >> what kind of data? jobs data? what kind of data? >> a broad range of data in the labor market including unemployment, job creation and other indicators of labor market performance.

we would also look at indicators of spending and growth in the economy because we do need to see growth at a pace in order to project continued improvement in the labor market. and we note that inflation is running well below the objective. >> well, what would it take for the fed to consider sin creasing the asset purchases again? instead of just slowing down reductions? what would it take? >> well, a significant deterioration in the outlook. either for the job market or concerns, you know, very serious concerns that inflation would not be moving back up over time. but we will continue to evaluate the evidence.

>> so fab they are reducing the bonds with mortgage backed securities. why did the fed choose to split it between mortgage backed securities and treasuries? >> well, both kinds of purchases have similar effects on longer term interest rates. >> now if the housing market starts the to slow down, would the fed consider maintaining the purchases of mortgage backed securities and only tapering treasury purchases? >> i think both kinds of purchases affect interest rates broadly. some evidence suggested different impact, but it's very hard to think of these being discreet. >> translator: the time of the gentle lady expired. the chair now recognizes the gentle lady from west virginia.

>> thank you, mr. chairman. i would like to add my voice to the course of congratulations to chair on her enl employment. i've been on the committee for many, many years and i've understood more of what you said than i have probably the last two folks that were in front of us. so thank you for that. >> well, thank you. >> i represent west virginia and energy state. in your report, you note the growth in the oil and gas development business, which i think has great promise for the country. it's also noted in notes for the richmond fed that the coal industry is suffering. low coal prices, regulation and a decrease in employment. energy has a great cause to bring jobs to this country and keep them here. what do you hear about energy policy and what effect would that have on economic growth? >> well, i think energy has been a great contributor to growth. and we've seen a huge shift in

the u.s. position in terms of net reports in terms of natural gas. and energy policy certainly plays an important role there. >> thank you. another question, again, coming from a state that has a large senior population one of the concerns i've had is a low interest rate and what concern this has on savers, particularly older savers trying to retire when they're relying on fixed income assets like bonds, cds or savings account. this has been difficult for them to plan for their senior years post retirement. what kind of thinking do you have as you're weighing the interest rate structure on the savings that's occurring in the country. particularly for the older saver? >> well, you know, certainly a

low-interest rate environment is a tough one for retirees who are looking to earn incomed in says investments like cds or bank deposits. i think it's important to recognize that interest rates are low for a fundamental reason. and that is because in the u.s. and in the global economy as a whole there's an excess of saving relative to the demand for those savings. for investment purposes. so, the rates of return that can -- that savers can expect really depend on the health of the economy and with a weak economy where there's a lot of saving and less demand for those savings, that's a fundamental drag on growth and what savers can expect.

we are to promote a stronger recovery and in a stronger economy savers will be able to earn a higher return because the economy will be able to generate it. so i recognize that this is difficult for savers. it's also important to recognize that any household, even if it's retired in addition to saving, people care about their work opportunities. they care about the opportunities of their kids. and a lot of people have exposure to the thought market as well. even if it's through a 401k or the health of a retirement plan, and so, this shouldn't be a one dimensional assessment. >> right. thank you. folks are working longer, too, and that's a concern for those who thought they planned well and they're finding it's not quite turning out for them. you already mentioned that 5% of

the labor force is exceptionally large portion for the part time. you know, we've learned with the president's affordable care act that part -- full-time job is now anybody who is working over 29 hours is considered full time. is that consistent with your assessments of what a full-time job is when you're looking at your calculations, and when you say exceptionally large portion as part time, is that anybody working under 29 hours? is that how you define that? >> i'm talking about part time for economic reasons. people who were working -- >> what's the definition of a part-time job? how many hours a week? how many hours pa week would you consider a part-time job when most people consider a full-time job 40 hours a week. is a part-time job -- the president has defined it as 29 hours and above. what do you define a part-time job as?

>> this is a definition by the bureau of labor statistics, not ours. >> do you happen to know what it is? can you get back to me on the that? >> what? 25? 35. under 35. >> 35. all right, thank you. >> thank you, mr. chairman. chair yellen, as you know, the median wage has failed to keep pace with a booming stock market and record quarter profits. is it possible that stagnant wage growth for american workers are not overly accommodating monetary policy as some has suggested is causing a slower recovery and decreased job creation? >> well, certainly for much of the workforce real wages have been stagnant in recent years.

but also unfortunately going back many years as far as the mid to late 80s. there has been some speculation -- i'm not sure we know for sure, but the speculation that the trend for so many households of weak labor market income growth did contribute to the economy, the idea there would be that wealthier families, higher income families spend less of their additional income than lower income families, and so, that shift in the distribution of income may have created a drag on growth. i don't know that we have any hard evidence on that, but that certainly is a hypothesis that has received some attention.

>> the housing sector has continued to see improvement with robust construction activity and higher home prices. how will continued reductions affect the housing market? >> well, i think that quantitative easing or purchases of securities did serve to push down mortgage rates, and other longer term interest rates quite substantially and was a factor underlying the strength of the housing market. and also promoted a recovery in house prices that's been good for so many families. we did see a backup in interest rates in the spring, and into the summer. in part, i think that was associated with the evaluation

of the strength of monetary growth. but although mortgage rates are still very low, we certainly have seen a slowing in the housing sector since mortgage rates have backed up. i'm hoping housing will continue to support the recovery. that was clear provided evidence of the impact that mortgage rates do have on the strength of housing. >> thank you. according to the adp national employment report, small businesses creates four in five new jobs in january. in your opinion, why are small businesses adding more jobs than the larger counterparts? >> well, we have seen over a longer time, not just the month, increases in jobs, in most sectors of the economy.

i think both small and large businesses have by and large contributed to that. so of course there's a good deal of month-to-month variation. but there's been broad improvement in the labor market. it could further boost small business lending as the financial products due to general prohibition on risky and lucrative proprietary trading. what we saw during the financial crisis was a fact. we saw stories about small businesses having problems accessing capital. yet it is changing. do you think that the volcker rule has anything? >> i suppose i wouldn't tie trends in credit availability

for small businesses so much to the volcker rule. but certainly during the downturn, during the great recession lots of small businesses have had difficulty accessing credit. business conditions haven't been very good for many businesses during that period. in fact, the demand for credit by many small businesses given their prospects hasn't been that -- hasn't been that high. # and of course, equity in one's home for small businesses is an important source of financing, and the decline in home prices, i think, has also taken a toll there. >> time of the gentle lady has expired. the chair now recognizes the chairman of the housing and sub committee. >> chairwoman yellen, congratulations to you and thank you for being here today. would you say that the deficit that we have been experiencing

over the last few years have a negative impact on the future growth of our economy? >> i would say that long-run deficits that are projected to rise in an unsustainable way is a trend that has a negative effect on the economy. the larger deficits that we've had in recent years, in part reflect the weakness of the economy. >> but did you agree that long-term, these kind of deficits in the path way is not a positive thing for the economy? >> well, i think if we look at long-term projections, for example, of the congressional budget office, we see as we go out, 20, 30 years that the debt to gdp ratio will be rising over time in a way that looks unsustainable. >> i'm going to take that as a

yes. >> that is a negative for the economy. >> so here's a question. it looks like last year in 2013 the fed bought about what would be the equivalent of about 62% of the treasuries issued in 2013. and that you currently hold 18% of the outstanding treasuries. what a lot of people don't realize is you kind of bought down the yield curve for the treasury. i'm sure mr. lou will put you on his turkey list come christmas time because you're doing him a huge favor by buying down the yield curve. transferring $77 billion from the fed to the treasuries to obviously reduce the interest borrowing cost. so in my view, if these deficits are negative, the fed has almost become a deficit enabler in that

you're making it very easy to really mask, you know, what the real cost of these deficits are. speaking of the cbo, they said in a recent release that 74% of the budget deficit for the next ten years will be on interest alone. and so is this quantitative easing in the huge position that the fed has taken, i question -- i think it's almost become a deficit enabler. i would be interested to hear your response on that. >> so, we're very focused on achieving the objectives that congress has assigned the to the federal reserve. and that is maximum sustainable employment and price stability. we've had an economy with unemployment that is well above normal levels and inflation is

running well below our 2% objective, and the federal reserve is focused on putting in place a monetary policy that is designed to achieve those very important objectives that congress has assigned to us. because we have a weak economy, with some sense plentiful savings relative to investment, the fundamentals call for interest rates to be low, and we're allowing them to be low in fostering a low-interest rate environment to achieve those important goal ls that congress has assigned to us. i don't think it would be helpful, either in terms of achieving the objectives congress assigned to us, or in terms of congress' deficit reduction efforts to purposely raise rates in order to weaken the economy. the likely impact of that in a weaker economy would be larger

deficits. >> i hear what you're saying about the things that congress has challenged you with, and the employment and mandatory -- and monetary policy. but congress didn't pass a bill for quantitative easing. that was a choice that the fed made. and that very choice has really impacted, you know, the markets, but more importantly, it really, i believe is enable iing these deficits to continue. and for the real cost to be masked in the fact that you're make making huge transfers. as those interest rates go up, the deficit has as a percentage of what the interest rate applies to that will be much larger. the chair now recognizes mr.

sh sherman for five minutes. >> i'm sure one of your great regrets is you never get time to hang out with accountants. that being the case, you probably haven't focused on the proposal to force the capitalization of all releases. this would add $2 trillion to the balance sheets of america's businesses. adding 2 trillion of assets. 2 trillion of liabilities. you would think that would balance out. but in fact it destroys the debt ratios, violates their debt borrowing kov nans. it's estimated this will cost from 190,000 jobs to millions of jobs as corporations try to cut

back and regain their debt to equity ratio. and as those wanting to do real estate development without an anchored tenant with a long-term lease, you can't build a project. and so i won't ask a question here, except to ask you to take a look at this and perhaps it will affect your economic projections on the downside. and then in your role as bank regulator realize there will be hundreds of thousands of companies who in no fault of their own are in violation of what they signed with their banks and the pressure will be from the bureaucrats to call the loans because they're in violation. and perhaps looking at the macro

economic side and bank regulatory side could focus on that. you say that savings exceeds demand for investment capital. and i disagree with you a little bit on that. it exceeds effective demand. we're here for small businesses. they can't necessarily knock on your door. they're going to knock on our door whether we want them to or not. american small businesses can't get bank loans. part of the problem is bank executives. they all want to invest in the whale and like the whale until the money in london. but another part of the problem is the bank regulators. i hear from bankers if we invest in sovereign debt, turkey, heck, if we invest in zimbabwe

sovereign debt, we're not going to get dinged by the bank regulators near as much as if we make loans to people whose characters we know who have been with our bank for years, who are part of the community. what can you, and these loans shouldn't necessarily be made at pr prime. 1 out of 100 are going under. not every new restaurant is a good restaurant. what can you do so banks are making prime plus five, prime plus seven loans and having only modest increases in the demand for capital, and the the pressure is on them to stop investing. we need jimmy stewart banking back again. >> i think it's important to make loans in the communities and in our role as bank

supervisors we have tried to be very cognizant of the possibility that overwhelming supervision could dminiminish t willingness of the banks to make -- >> that may be the policy at the top. at the field level that's not what's happening. this is an important issue that we've been aware of now for a number of years. and we work carefully tw the supervisors to make sure we're not taking on policies to discourage lending to small businesses. >> you're going to have to work much harder to get your bureaucrats online on that ft and the proof of it is banks don't make prime plus five loans. one last thing, dodd frank gave you and the other systemic

regulators the authority to break up those too big to fail. any chance you're going to use the authority? >> we have a broad program that's designed to deal with too big to fail. it's the dodd-frank program. we are actively completing our work there and i'm very hopeful that is going to effectively deal with it. we will monitor as we go forward if more needs to be done. the committee will come to order. the chair now recognizes the man from georgia for five minutes, mr. westmoreland. >> thank you, mr. chairman. and thank you madame chair for being here. we've heard from the other side

of the aisle that the president's policies are not having any ill effect on the economy. yet, chair yelen, we have just recently all seen a report from the cbo that the obamacare affordable care act is estimated to cost 2.5 million jobs over the next decade. do you believe that regulation or overregulation has an impact on our economic growth and in the job creations? >> chair, yellen, i don't think your microphone is on. can you see if it's on, and if it is, please pull it closer to you. i apologize. i think certainly regulation has an impact on the economy, on economic growth. and there are many economic studies that have tried to document what it is. i think in the case of the

affordable care act, cbo has done important analysis and probably will continue to look at it, i think they've recognized that the impact of the act is likely to be come flex. i think they're still attempting to figure out what all of the different channels are by which it will affect the economy, and, you know, we'll look at that and try to look at their assessments going forward. >> you know, we had to pass it to find out what was in it. and so now that's all coming together. has the fed done any estimates on how many jobs the implementation of the dodd-frank and the effect of the obama administration's regulatory

policies are expected to cause the economy, or is it the feds not interested in that question because, you know, we feel dodd-frank is going to have just as much impact on the job market as the affordable care act did. >> well, you know, we lived through a financial crisis that has taken a huge toll on the economy, incruluding creating a period with very high unemployment. and most of the studies that have been done, for example, the basil committee in the united states participated in these assessments, as this is only one piece of dodd-frank, but in deciding to raise capital standards on financial institutions, try to assess what would be the net effect on the

econo economy, the overall impact that the study found is reducing the odds of a financial crisis would be the most important benefit, and when we see what a negative effect that has on jobs for such a prolonged period of time to my mind the regulatory agenda of trying to strengthen the financial system which we're trying to put into place to make it more resilient and reduce systemic risk will bring important long-term benefits to the economy. >> when you say long-term, what are you talking about? we always hear long term. what is long-term. when does long-term start? you know, we've been supposedly in a recovery now for a period

of time. and we keep hearing that dodd-frank and some of these other things that have gone in will have long-term pluses. when does long-term start? is four years not long term? when are we planning on this kicking in? five years, 20 years? >> i think it is kicking in in the sense that we're building a more resilient financial system and substantially mitigating the odds of another financial crisis that will take this kind of toll on households in the economy. >> okay, and one other question quickly. do you feel there's enough separation between the federal reserve and this administration in the fact that i know you meet with the secretary once a week, once a month.

>> it's been tradition to meet almost once a week. there are many overlapping areas of interest between the federal reserve and the treasury that makes it desirable to have ongoing communication. it's completely independent in conducting monetary policy. >> time has expired. the chair now recognizes mr. meeks. >> thank you, mr. chairman. it's with great pleasure that i welcome you this morning, madame chair. your historic position speaks volume, i believe for our nation and the continued progress our nation is making in the inclusion of women and minorities to positions of leadership and will be another source of inspiration for young women, like my three daughters. especially those looking for career in the finance and banking industry. let me just say i'm pleeased tht you have the job. not just because you're the

rig -- a woman. because you're the right person for the job. >> thank you, congressman. i appreciate that. >> let me ask you something. i know mr. clay touched on this. this thing about the wealth gap and when you look at what that 95% of the income gain system recovery have gone to the top 1%, you know, there's always been a big question between the relationship between main street and wall street. for me it's been difficult, especially sitting on the committee to try to explain wall street to main street when you have this kind of inequality. today, for example, on average, there is the african-american household is 20 times less than the white household. the median net income of white households stands at $110,000 versus $6,000 for blacks and $7,000 for hispanics. largely because most people's wealth was in their homes.

and when you have the crisis because people were scared in the minority communities, they lost the closing. now it has gone to a tremendous level. so given that we know that there is no loans and it's staring into this community and has caused this disparity in wealth, is there anything the fed can do that will help middle class and more specifically, these individuals who were impacted at a great extent because of the inequality of what was going on in the system. is there something that we can do to help them get back on their feet? >> well, i think, congressman, the most important thing to do, which has been absolutely our focus is to promote a stronger recovery. that these same households that were hit so hard by what happened in the housing sector and by the subprime debacle, we

want to see those households get jobs so that they can rebuild wealth and have the income that they need to support their families. need to support their families. >> the problem, though, that we're having is that many have referred to this recovery as a jobless recovery. and when you look at technology today and you see that technology is, you know, a lot of business folks are saying it's for efficiency, et cetera, and thereby a lot of jobs that would have been gone to people, you know, are losing. i look at new york city. if you were a teller in a bank, atms have replaced you. bridge tolls, you have easy pass. you know, all of these jobs that used to be manual labor now are replaced because of technology. so -- now, i'm a big believer in international trade because that should create jobs. my question to you is, though, can we identify the jobs that will be created so that we can

then pinpoint where we should be training individuals so that they can get the jobs that are going to be created and not just randomly creating jobs, but creating jobs and then we can go back into the communities and train people specifically for the jobs that we feel will be created as a result of the current economy. >> well, a stronger economy is going to create jobs in virtually every sector of the economy. but a longer-term trend that ties in with the concerns that you have expressed is a growing skills gap, a growing wage inequality between more and less educated workers. technological trends that have reduced what used to be an important class of good, high-paying wage jobs. those jobs are being competed away because of technological

change and to some extent shifts in global competition. i think every economist that i know believes that we need to address that skill gap in order to make sure that we reduce inequality. >> but is there anything the fed can do specifically to help in that -- >> what we can do is to try to promote stronger demand, a stronger job market generally. we have seen that a lower-income individuals have been disproportionately harmed by the downturn and as the economy recovers. i'm by no means saying that this is a panacea, not by any stretch of the imagination for inequality, but i think we will see gains broadly shared throughout the economy. >> time of the gentleman has expired. the chair now recognizes the gentleman from north carolina, mr. mchenry, the chair of our oversight and nvgts

subcommittee. >> chair, yellen, congratulations on your appointment and being an important mark in the history books as well. >> thank you. >> i have a question. in 2010 you spoke that banks may be required in their debt stack, in their capital to use a convertible instrument that in good times has a debt nature and in bad times converts to equity. you said that they may be required to do this. is this your intention to use this instrument? >> so i think when i gave the speech at that time, i was broadly considering possible regulations or shifts in the focus of supervision that might be helpful. i think there still is focus on something like that. i think to improve the

resolvability of a large banking organization, something that the federal reserve and other regulators are contemplating, is a requirement that bank holding companies hold a sufficient amount of long-term debt. it would play a role similar to the contingent capital instruments you've described. >> you mentioned that in your opening statement, about this requirement on long-term debt. would it be your intention to have this contingent convertible capital as a part of that long-term debt requirement? >> well, i think it bears this type of -- this type of debt would bear some similarities. it's not exactly the same, but it bears some similarities to contingent debt in that it is a source of gone concern of value that would be there if an

organization got in trouble that would serve to recapitalize it. in the existence of such a class of debt, i think would give proper incentives to monitor risk taking in these organizations. >> so are you still broadly favorable towards these contingent convertible? >> i mean, there are a number of issues associated with that kind of debt, what would trigger it and so forth. but i think it remains an interesting possibility in this proposal >> an interesting possibility. well, that's a fair admission from a chair of the federal reserve. so i'll take that as somewhat favorable, if i may. and i was reading yesterday in "the financial times." we have this discussion about the volcker rule and the exception the volcker rule provides for sovereign debt, vis-a-vis corporate debt in the united states. i read in "the financial times" yesterday that danielle nuey,

who's the head of the bank supervisory agency in the european union, she said that they're really going in a different direction in the eu. and in light of, you know, their recent crises with sovereign debt, she said, one of the biggest lessons of the current crisis is there is no risk-free assets. sovereigns are not risk-free assets. that has been demonstrated. so we now have to react. in essence, the eu is going a different direction when it comes to sovereign debt than we are in the united states. how would you react to that? >> i believe the exemption for u.s. debt markets was built into dodd-frank. that was explicit in dodd-frank. >> okay. so what is your reaction to that? we're policymakers. we could remedy that if you think that is a flaw.

>> you know, we have tried to write a rule that is consistent with dodd-frank as it was legislated. >> so if we -- would you look favorably upon us saying that sovereign debt should not be exempt or should comparable to corporate debt? >> that's something i would have to look at more carefully. >> but did you not look more carefully at this subject matter when you wrote the volcker rule? >> well, we put into effect the allowance that congress included in dodd-frank to exempt treasury securities. >> well, no, that's treasury securities. i'm asking about sovereign debt, which was excluded from the volcker rule. written into the language of dodd-frank is exclusion of u.s.

sovereign debt, not the exclusion of other sovereign debt. i would call this a lack of enthusiasm from you. >> time of the gentleman has expired. the chair now recognizes the gentleman from massachusetts, mr. capuano, for five minutes. >> thank you, chair. thank you for being with us today. i have a couple different areas i'd like to pursue. in your confirmation hearing, you made a comment, at least it's reported you made a comment, addressing too big to fail is among the most important goals of the post-crisis period, which on some levels i would agree. though i happen to think we did address a fair amount of it. i also accept chairman bernanke once said, which is reality is in perception. the perception is we haven't done enough. therefore we have to do more. i'm just wondering if you have any thoughts on how to do that. particularly with relation to either reinstituting some form of glass stooeg l or instituting some sort of market-driven attempt to reduce the size of

some of these too big to fail programs. >> so i think we have a broad agenda that is intended to address too big to fail, and we are putting it into effect and i think have made meaningful progress. we have -- >> do you think it would be worth us considering reinstituting some form of glass stooeg l? >> i think if we continue on the path we're on of completing the dodd-frank rule makings beyond that of putting in place a rule that would enable a resolution by -- through orderly liquidation by requiring -- >> so you think we won't need it when you're all done? >> i think we have to keep watching whether or not we've succeeded in addressing this, but i believe we've -- >> fair enough. i would ask you also take a look at hr-2266, which is a market-driven attempt to reduce

the size of some of these institutions. i also want to talk about an editorial i read in "american banker" last week that basically n my opinion, coined a new phrase but one that's accurate. too big to jail. and it was about the concern that not enough of these people that have foisted their inappropriate activities on us in '08 have paid a penalty on a personal basis. some of these biggest corporations simply write a check to stay out of jail free. because it's not even their money. it's corporate money. and when i read it in "american banker" it kind of puts a big underscore to me. i'm just wondering, do you have any concerns about the lack of personal accountability in some of the largest institutions in this world when it comes to some of the activities they participated in, not just before 2008 but after 2008 as well. >> well, i do have concerns about those activities, and the federal reserve cooperates with the department of justice as

appropriate when they take actions that are criminal in nature. the federal reserve's focus is on safety and soundness. we're -- >> but isn't the safety and soundness of the entire economy based on trust and good activity? and my concern, to be perfectly honest, if people are not held personally accountable when they're allowed to write corporate checks, not personal checks, to just push away their ill-gotten gains and they get to keep that money and continue on and actually get raises and bonuses from those institutions, the moral hazard says to the next guy coming down the street, the people you have to regulate, it's okay. don't worry about it. do anything you want, and all we have to do is the corporation, not you, will pay a few hundred million dollars of shareholder money, by the way, not your money. you don't have a concern with that, with the federal reserve

by not having -- not you, but by not having other entities holding the personal account that it will make your job tougher going forward? >> well, i a gree with you there certainly should be accountability within these organizations. >> thank you. i appreciate that. and the last point, i want to talk about fannie and freddie. i have always wanted to amend and reform them. however, i've also thought it's wrong. fannie and freddie has now pretty much paid back the money they've borrowed from the taxpayer. i don't know if they're exactly there, but they're close to it and on their way. yet, at the moment, they have been allowed by our own laws to pay one penny towards the payment of that principal. there are lawsuits going on, as i'm sure you're aware. i'm just curious. do you think that it is fair or wise or equitable to keep any entity in a de facto bankruptcy state once they've paid back their debt? >> i think -- you know, with respect to gse's -- i think it

is really very important for congress to put in place a new system to address gse reform. i think we still have a system that has systemic risk, that government funding remains critical to the mortgage sector. and i think to really get housing back on its feet, it's important for congress to put in place a new system and to explicitly decide what the role of the government should be in helping the housing sector. >> time of the gentleman has expired. the chair now recognizes the gentleman from new jersey, mr. garrett, chairman of our capital markets subcommittee. >> i thank the chair, and i thank chair yellen. congratulations on your position. welcome to the committee. thank you also. i understand the rules here that

you are waiving a little bit and staying a little longer, since there are a whole host of members on congress on both sides who would like to dig in. we do very much appreciate that. i'm going to step aside from some of the monetary discussions some people have made and otherwise get into, to start off with, your prudential supervision role, which of course under dodd-frank and others have been expanded greatly. i'm not going to run through the list of all the expansions. you know well what they are. let me just begin to go back, reference a letter you may -- a report back in november 2011. president gao came up with a report on dodd-frank regulation and implementation of cost benefit and analysis. and in that report, just to brief you, fed reserve general council responded to it with a letter. that was scott alvarez and james lyon responding to that. what they said, what the fed response was, that the federal

reserve will consider appropriate ways to incorporate these recommendations into rule making procedure. i have the letter. they even go further. to seek, to follow the spirit of benefit-cost requirements. cost-benefit analysis, basically. my first question to you is, you know, what progress are you all making? this is two years ago this letter was written. what progress are you making on completing and complying with more than the spirit of cost-benefit analysis and rule making? >> well, the federal reserve strongly supports analyzing the cost and benefits of rules that it puts into effect, and we've done a great deal of that. an example i could give you is in connection with our basal rule making where we participated in extensive cost-benefit analysis, with other regulators. >> would you say you're satisfied with how it wake out with volcker?

we had no indication that a cost-benefit analysis was done. i asked the governor where it is. we have not seen it. so two years later, it seems like on something that's important as that, it was not done. do you believe it was done in that situation? >> i think what's important in the case of volcker is that dodd-frank required the federal reserve in essence the decision about the cost and benefits of putting those restrictions in place were decided by congress, taking account of what the likely cost and benefits would be. and our job has been to implement it. we have certainly taken into account, issued a proposed rule, received a wide range -- thousand z and thousands of comments. >> i appreciate that. my time is very limited. i would encourage a true cost-benefit analysis, one where could say please submit to for the record, that it be submitted to congress, which i think in anyone's estimation was not done

fully in volcker. speaking of governor, the president has not appointed anyone to fill the position of supervisory division vice chair. would you say that governor is effectively holding that position until that is completed? until the appointment is made. >> well, we operate the board through a committee system. >> yeah. >> i usually have three governors and a chair. and governor ter rue low heads the board's banking supervision committee. so in that sense, he certainly takes the lead. >> takes that role. >> but all of us are involved and all of us are responsible. >> but would you commit, then, to have goff te rue low come and testify on federal rule making before this committee, since he seems to be filling that role? >> he has done a great deal of testifying on these topics. >> just on that topic, we can

ask him? >> on all topics. >> i understand. i guess i'm asking for a commitment we can have him come back in that role and testify before the committee on rule making. >> well, you know, i don't want to commit as to what he's going to do, but he has certainly taken the lead role in testifying on these topics. >> sure. with regard to international agreements that you negotiate, you probably see some ideas floating out there that market participants should have a better ability to chime in, comment on them. prior to and in the process of making those agreements. would you commit today to making -- allowing for market participants to engage in that process while you're making those international agreements? >> well, when we turn to putting rules into effect for the united states, which is what affects those firms, we always have

consultation and take comments in a rigorous process of evaluating comments. >> thank you. >> time of the gentleman is expired. care now recognizes the gentleman from texas, mr. hinojosa for five minutes. >> thank you. thank you, chair yellen, for sharing your testimony and for your time with us today. since the height of the 2008 financial crisis and the deep recession that followed it, the economy has made significant progress, as you and i know. the unemployment rate declined from a high of 10% in 2009 to the current rate of 6.6%. in the most recent quarter, gdp grew at an annual rate of 3.2%. and further more, despite some recent volatility, equity markets have substantial, have seen substantial gains with the s&p index increasing by 30% last

year, 2013. many economists and policymakers fear that the nature of the recent recovery may indicate that the u.s. economy could be a major infliction point where the ability of the private sector to create wealth is now outstripping its ability to create jobs. i've seen that in the region that i represent in deep south texas. for most of the post-war period, u.s. policymakers assumed that growth and employment went hand in hand, and the u.s. economy's performance had largely confirmed that assumption. but the structural evolution of the global economy and its effects on the u.s. economy today could mean that growth and employment in the u.s. are starting to diverge. chair yellen, can you discuss with us why we appear to be undergoing what many have referred to as a jobless recovery?

what explains the disparity between fairly weak employment growth in recent months and the fact that equities and corporate earnings are at an all-time high? >> well, congressman, it certainly has been a slow recovery by the standards of u.s. history from downturns, but 7.8 million jobs have been created since the trough in employment, i believe in the beginning of 2010. and while we still have a ways to go in the job market, is not by any means back to full strength, we're not back to maximum employment. there has been substantial job creation so that i think we have made -- we have made progress. clearly, we have further to go. we're trying to promote a faster

recovery and a fuller recovery, but i do see, and not only in terms of the number of jobs, but across a broad range of labor market indicators, i do think there's progress even though certainly there's a significant way to go. >> in past speeches, you have indicated a concern about rising inequality. many members on this committee are concerned due to moral beliefs. additionally, many economists have expressed worry that it will impact the recovery. do you believe that rising inequality might affect the stability of the economy? >> well, i am very concerned. i share your concern about rising inequality. i think it's one of the most important issues and one of the most disturbing trends facing the nation at the present time.

there has been some discussion about the possibility that inequality is holding back the recovery because the gains have been so unequally distributed. i think we don't have certainty about that. but certainly rising inequality is not -- is partly a matter of a weak job market that we're trying to address. but there are deep and disturbing longer term structural trends, rising disparity between the wages earned by more and less skilled workers, shifts in global competition that have diminished jobs for less educated people. >> i'm very concerned about the percentages of unemployment in our 18 to 29-year-olds. not only in our country but in other countries in europe, as

examples. what can we do so that we can bring those jobs, those rates down to a single digit? >> so we are working hard. the purpose of our monetary policy is to promote a stronger recovery that will see young people who are in school come out into stronger job market that can affect their entire future career. it's a key goal of the federal reserve, and i think congress could also consider ways of helping as well. >> time of the gentleman has expired. chair now recognizes the gentleman from california, mr. miller, for five minutes. >> thank you, mr. chairman. chair yellen, glad to have you here today. i've enjoyed your testimony. there's been a considerable amount of discussion. i was pleased you indicated your

agreement that insurance has unique features that make it different from banks and that a tailored regulatory approach for insurances would be inappropriate. i think it would be devastating to apply the same standards to an insurance company that we did it a bank. so what are you going to do to make sure that insurance companies are not subject to inappropriate bank-centric rules? >> we explicitly decided when we put in effect our capital rules to defer their application to savings and loan holding companies with substantial insurance activities and to the other nonbanks that were designated. we wanted to have a chance to study what an appropriate regime would be, recognizing there are important differences between the insurance business and banking. we understand that the risk

profiles of insurance companies really are materially different, and we are trying our best to craft a set of capital and liquidity standards that will be tailored to -- to the risk profiles of insurance companies. i would say that we do face constraints in our ability to do that because the collins amendment requires us to establish consolidated minimum risk based leverage and capital requirements for these entities that are no lower than those that apply to depository institutions. within that constraint, we're working as best we can to tailor and appropriate regime. >> i'm concerned on the asset designation and how the feds look at assets of banks versus assets of insurance companies. governor te rue low said, quote,

the liability structure of financial institution affect the amount of capital it needs. it doesn't affect how risky a particular asset is. it doesn't matter who holds it. an asset is an asset. i guess my concern i'd like you to take into consideration is banks hold assets different than insurance companies do. insurance companies generally buy asset for the long term. banks will buy asset for short term. so to me, there's a difference in the way institutions hold assets and the difference in the reasons institutions buy assets. so i hope at some point in time you will take that into consideration when you're reviewing the asset held by a bank versus an insurance company. last fall treasury offices of financial research published a report on asset management, financial stability at the direction of fsoc. asset managers, as opposed to financial institutions, act as an agent on behalf of their clients where investment gains and losses are solely the clients do not flow through to

the asset manager. i'm concerned the asset management firms might be designated and put under bank-centric regulations. i think it would be harmful to financial sector if that happened. do you agree that with the study that asset management and banks are different? >> i think, of course, they are different. designation is something that's very important to any company and deserves very thorough review if fsoc considers these entitie entities. i think it will be appropriate to do very careful analysis of whether they do pose systemic risk. >> and as it applies, the regulations imposed on asset managers should be tailored and taken into account the fundamental difference between the business of the asset and the management and banking. do you agree with that also? >> i definitely believe that our supervision in regulation should be tailored to the unique features of any entity we regulate. >> okay. i would hope that the fed in the future can try to make it -- to

create more of a comfortable environment for insurance companies. there's been considerable unease in the industry, as you know, in the past year over what their future might be. some have sold off assets such as they might have held a small bank for a courtesy to their clients because they thought they were going to be drug into the regulation of the banks. i hope that we can be more clear. i know in your position it's very difficult to be clear sometimes because the market misreads that clarity. but there needs to be some clarity, i believe, for insurance companies so they're not concerned in the future what their future might be. i yield back. thank you, mr. chairman. >> chair now recognizes gentleman from massachusetts, mr. lynch, for five minutes. >> thank you, mr. chairman. madam chair, i want to just start off by welcoming you and congratulating you. i wish for your every success in your, for us, a new position.

i do have a couple of questions. recently there's a fair amount of attention that's been paid to the commodities activities of some of our bank holding companies. for many years, american law and our regulatory framework recognized there should be a healthy separation between banking and commerce to ensure that we have the safety and soundness of banks, to ensure fair, inequitable credit flows to economically beneficial activity and also to prevent excessive concentration of power and wealth in the financial sector. however, over the last 15 years, this wall between banking and commerce has begun to crumble with serious negative consequences. in july of last year, the global risk manager for miller coors testified before the senate banking committee that the commodity activities of banks

cost that company tens of millions of dollars and more than $10 billion for all aluminum buyers globally in 2012. similarly, jpmorgan chase, deutsch bank, and barclays recently paid fines to the federal energy regulatory commission, which has won more than $8 million in civil penalties from banks since 2005 for manipulating electricity and natural gas markets. and then recently, "the new york times" documented aluminum warehouses owned by goldman sachs that used obscure exchange rules to drum up hefty fees while contributing very little tangible benefit to the economy. so what all of this shows is that there's a move away from the traditional business of banking by banks and into more risky and, you know, potentially more lucrative but certainly

more dangerous activities that seem to produce very little economic benefit while these banks are chasing profits and exposing themselves to steep fines and swings in commodity prices. so the bottom line for me is, do you support pulling back and getting the banks back into traditional banking business? do you support restricting or prohibiting altogether these expanded commodities activities by banks? and what does the federal reserve plan to do to curb these abuses? >> we're thoroughly reviewing our supervision in these areas. we have recently put out an advance notice of proposed rule making in this area, highlighting a number of different issues that we want to consider. we will carefully look at the comments. i expect that we will be

reviewing and likely making changes in these areas to address some of these concerns. i would say, though, that the federal reserve's main focus in our supervision of these areas is to make sure that banks operate in the commodities activities in a safe and sound manner. you referred in your remarks to allegations of market manipulation. and i would point out that it's the responsibility of market regulators, the cfts, the s.e.c., in some cases the firk, to pursue actions with respect to market manipulation. we would, of course, cooperate in any investigation, but they do have primary responsibility. but yes, we're thoroughly reviewing our policies in this area. >> all right. that's great to hear.

one other quick question. section 956 of the dodd-frank wall street reform and consumer protection act requires that the federal financial regulators issue a rule requiring big banks to disclose the incentive-based compensation agreements for employees who can expose the banks to excessive losses. in other words, an article, i believe, by gretchen morganson in "the times" a couple weeks ago. where are we on that? i know you're in the rule making process. do you agree with that approach? and where are we on that -- on the rule making process? >> well, we did put into effect supervisory guidance with respect to compensation in the banking organizations that we supervise. we have engaged in horizontal reviews and are -- i believe there have been improvements in

the compensation, incentive compensation practices of the organizations that we supervise, and we intend to be active in that area. >> time of the gentleman has expired. the chair now recognizes the gentleman from california, mr. royce, chairman of the house foreign affairs committee. >> chair yellen, it's good to have you here. congratulations. >> thank you. >> on your appointment. i was going to ask you about a speech you gave as president of the san francisco fed some years ago. as chairman of the federal reserve there, you made some observations as sort of a warning, a wake-up call to the situation as it relates to the federal budget deficits not being sustainable. and your words were, we begin to look at numbers that are truly staggering, frightening. and you were talking about entitlements. you said, i'm concerned that the people take it as a given, that

they have social security and medicare and support from medicaid to pay for nursing home care. and you explained then it was 8% of gdp. i think it was in about 2006 you gave that speech. 2005 maybe. you said that looking forward, the numbers showed that it would double that. it would be 16% of our entire gdp that would go to pay for entitlements. now i guess we're at 12 today, they tell me. and i was going to ask you about this because it's a very similar thing that we've heard after the federal reserve chairman ben bernanke retired. he made some comments about this. and also allen greenspan. your thoughts today on this? >> well, i agree with my predecessors that when you look at these long-run trends -- at that time, i think we were looking over the next 30 to 40 years with unchanged programs,

an ageing population, and at that time health care costs that were rising more rapidly than the general price level. you would see a very, very substantial -- i believe i said roughly doubling of the share of gdp that would go to those three programs without revenues rising in tandem. of course, that is the key dynamic that underlies cbo's long-term budget projections that show the united states to be on an unsustainable budget path. and this is something we have known about for decades. and we need to -- >> but this is a question i have. i'm not sure everybody's gotten the message. i heard the leader in the senate say we have got a generation before we have to deal with this. and i guess my question to you is, if we don't deal with it now

in order to bend this curve, what will be the result for young americans coming into the work force a generation from now? what will they face? >> well, we'll face a situation in which rising budget deficits begin to crowd out private investment and begin to lead to an environment of higher interest rates, slower growth, crowd out productive private investment. >> and economists agree with this. regardless whether economists are left, right, or center, they're all warning us of the same consequence. so the question i have is, is there a way for you basically to sell the american public -- because i don't berealieve thate public really understands the magnitude of it -- in order to bring the pressure to bear to get an agreement that will address entitlement reform?

how could you do that? how could you take your job as chair of the federal reserve and go out and explain the consequences of inaction in order to get washington moving and doing the right thing? >> you know, my predecessors, chairman greenspan and chairman bernanke, have consistently testified that these long-run budget trends -- >> but i'm sharing with you -- >> are highly problematic. >> i know. we've heard the testimony here. what i'm sharing with you is that it's not doing the trick. somehow we have to figure out a way to get you, as chairwoman, out among the public to build support and maybe with the support of former fed chairmen who are saying today what you're saying today in order to galvanize the political, you know, action necessary because describing the consequences of

inaction here isn't doing it. >> i believe that this is something that's essential for congress to address, and i anticipate consistently sending this message that this is a critical issue. >> anything you can do to figure out a way to turn up the heat and get the facts out to the public on the consequences -- i mean, people used to live to be 65. it's going to be 85, and they're having two children instead of four. this has to be addressed in terms of reforms. >> time of the gentleman has expired. chair now recognizes the gentleman from georgia, mr. scott, for five minutes. >> chair yellen, welcome. i'm over here. let me just ask you, because i need to ask you if you will be bold. we need bold leadership here. you got to do a mission, fighting price instability, inflation. but employment, that part of the mission has always been like a stepchild for the fed. it's been like a second-class

citizen. and we have a national crisis on unemployment. this is riveting. the 6.6 figure is misleading. i mean, college graduates right now getting out of college is 22%. young veterans, it's 24%. not to count young males at 30%. one-third of all the working-age women have already slid into poverty. we need you to be bold. we need you to take us not around the docks with the little boats. we need you to take us out with the big ships on this issue. i need to ask you, will you do that? will you lift this up and make the employment part of your mandate on an equal plateau with fighting inflation? >> congressman, i strongly support both parts of the federal reserve's dual mandate.

price stability and maximum employment. i have led the committee to produce a statement concerning its longer term policy strategies and goals that puts both of these on an equal footing. and in terms of bold policy, with the economy seemingly stuck -- >> my time is short. i want a yes or no answer. >> yes, i will -- >> will you lift employment up? i mean, this nation's in trouble. we have 50-year-old men who are being laid off in desperate situations. we have jobs being shipped overseas. in other words, what i'm saying is, we need more than just zero-rate interest rates. your agency is the only one that has the mandate of dealing with unemployment. that is a dual mandate.

and it has never been dealt with, with the level of importance that it should be. and let me ask you this, just to give you an idea. right now, did you know that legislation has been introduced in this congress to eliminate your employment mandate away from that? are you aware of that? >> yes, i am. i strongly support the federal reserve's dual mandate. both parts of it, both price stability and the employment mandate matter enormously to american households. i think it serves this country well. and there's no conflict between most of the time, and especially now, between pursuing both pieces of this. we have acted boldly in order to promote a stronger recovery. >> what do you say to congress?

why would congress, at this most critical time, when the future of this country is at stake -- this is a national crisis. the depth of unemployment, when you look at it structurally. and here in this congress, they're trying to take away a part of your dual mandate to eliminate your employment mandate at this critical time. what do you have to say to congress about that? >> i feel very strongly that the fed's dual mandate to focus on both employment and price stability has served this country well. we're committed to pursuing both parts of that mandate, and we are doing so. >> chair, would you make it a part of the fed's policy and objectives to fight this

legislation, to speak out against this legislation? all i'm saying here is that you have a great opportunity here. this country needs leadership on fighting this unemployment, this structured unemployment. in every factor, it is a shame that our young people have this rate of unemployment. many are giving up. they don't even calculate that in the work force, where they've given up. and ms. yellen, i am so proud of you, but i am going to be even more prouder if you become that chairman of fed to right the wrong and take us -- >> time of the gentleman has expired. the chair now recognizes the gentle lady from minnesota, ms.

bachman. >> thank you, chairman. we're extremely grateful for you being here. also, good luck on your service as the head of the federal reserve. we want you to be successful. >> thank you. >> we asked our constituents what their number one question would be today. this is a historic opportunity to have a new federal reserve chair, and we had a plethora of responses from constituents with questions. but it was interesting that there was a commonality of the questions that came forth. one was really from our financial institutions and businesses. and the first was from individual constituents. so i would like to give you, first of all, the question that we received most from our individual constituents, and it was this. it was, you and other opponents of the audit the fed legislation have said that it threatens the independence of the federal reserve. could you please point to a specific section of the bill that allows congress to interfere with the ability of the federal reserve to determine monetary policy?

my constuents absolutely can't understand why the federal reserve would push back against having the federal reserve audited. >> so i strongly believe that the federal reserve should be audited. it should be open. it should be transparent. we are audited. we're audited by the gao in almost every aspect of our financial affairs and the programs that we run. we have outside independent accounting firms that audit the fed. we publish our balance sheet weekly. all of this is completely appropriate. what i don't agree with and would strongly oppose is interfering with the independence of monetary policy by bringing political pressures to bear on the committee's judgment about what is the appropriate way to implement

monetary policy. we're given objectives by congress that's completely appropriate. we report to congress. you should hold us accountable and ask us to explain how our policies advance the goals that you have assigned to us, but if you pass a bill that wouldn't have the gao come and take documents, second guess every decision that we make or permit them to do that within a short time of our making those decisions and bring political pressures to bear, congress wisely made the fed independent in the implementation of policy because it was understood that we sometimes have to make difficult decisions that would be hard for the congress to make in the best long-run interest of

the country and enabling us to make those decisions free of short-term political pressure is critical to maintaining our independence. >> thank you. and i hear what your response is. our former colleague, ron paul, who had introduced the legislation to audit the fed, contained within the language of that bill, this is no section that deals with giving congress the right to determine monetary policy. if the house and the senate were to pass the audit the fed legislation, if the president of the united states would pass that legislation, this is very strong bipartisan legislation. if that happened, would we hear from all of you at the federal reserve opposition to that bill that enjoys very strong support from the american public? >> you would hear opposition to that bill because congress has for many, many years, for

decades, exempted from gao audits our monetary policy decisions. and it's really critical that our monetary policy decision makings, not other aspects of federal reserve operations, remain free of gao audits. >> and i think that's part of the reason why we're here in this hearing today. because the american people are feeling less and less empowered to be able to hold the federal reserve responsible and accountable. because they're seeing the federal reserve's balance sheet escalate to a level never before seen in american history. and the people know that eventually they will be the ones called upon to meet the bills and payments that are accumulated by the federal reserve. what means do the american people have to hold the federal reserve accountable? >> in hearings like this, it's entirely appropriate for you to

demand accountability from me and from my colleagues. >> and that's -- >> time of the gentle lady has expired. chair now recognizes the gentleman from texas, mr. green, for five minutes. >> thank you, mr. chairman. i thank the ranking member as well, ms. yellen. if you'll look over this way. yes, we're over here. thank you. and welcome to the committee. >> thank you. >> you have acquitted yourself well today. i'm sure this will be one of many visits that you'll have with us, and i look forward to continuing this relationship. we're in our genesis today, but there's much we can do together. i want to ask just two -- go into two areas. the first has to do with how much of the '08 crisis was cyclical as opposed to structural. because if you apply structural, cyclical remedies to a structural problem, you don't get the desired results. so have you been able to quantify the amount of it that was cyclical as opposed to

structural? >> well, when you say that we had serious problems in the financial sector of the economy, we are certainly trying to put in place changes that will make the financial system structurally sounder. but the crisis that was resulted from those weaknesses produced a marked downturn in spending in the economy and raised unemployment, lowered employment. much of that shortfall is cyclical in the sense that it represents a shortfall of our economy producing well below what it's capable of. and we've been trying through our own policies to boost spending in the economy to create jobs and get the economy

back to operating closer at its potential, at its capacity. >> the theory of expansionary physical contraction is one that many of my colleagues have bought into, and it is the notion that if you cut government spending, that will stimulate the private sector and create more jobs, more businesses will come into being. where do you stand on this theory of expansionary physical contraction? >> so i think government, the stance of government in the economy and its role in the economy in the long term influences growth. it influences capital formation. dealing with budget deficits can have a favorable effect on economic growth in the long run.

but in the short run, particularly in a weak economy, when government cuts spending or raises taxes, it almost invariably has the impact of lowering growth and raising unemployment. i believe that's what's been going on. >> do you think we have reached a point where cutting a loan is not going to give us the desired results? >> well, my predecessor, chairman bernanke, routinely advised congress to address long-term budget deficit issues, thought it was critical, as i do, to the long-run well being and functioning of this economy. but to avoid cuts in spending or increases in taxation that would diminish the ability of the

economy to recover. so there are ways of addressing long-term budget deficits that wouldn't weaken the recovery, and i share his view. >> thank you very much, mr. chairman. i yield back. >> gentleman yields back. the chair now recognizes the gentleman from new mexico, mr. pierce, for five minutes. >> thank you, mr. chairman. thank you, chair yellen, for being here and congratulations, not only your nomination but the confirmation. >> thank you. >> the -- one of the articles refers to you as the champion of main street. i think it's the senator brown of ohio says she'll be a fed chair that gets out and sees the real economy more and talks to people. i had submitted a request for mr. bernanke to come to the district and we'd host a town hall together. i am still waiting on pins and needles for him to answer. maybe i'm giving up that eternal hope now, but i would reissue that invitation to you.

>> thank you. much appreciated. i'll try to do that. >> well, i'll start waiting on pins and needles for you. okay. and the reason that i would make that offer is that in this hearing room, there have been references by people sitting a the that desk as seniors being collateral damage. that the low interest rate is acceptable collateral damage. and i'd like someone that sits on that side of the table to come out and explain that to the seniors that show up at my town hall meetings who say that we lived our life correctly. we saved. we paid for our homes. and now we're caught in policies that reduce our ability to live on our savings, and they're eating on their principal, just trying to get by. that does not seem acceptable, because many don't have the capability to go back to work. in a previous testimony

somewhere, you have said that there are other instruments available. but those instruments bring a higher risk. and the last thing an 85-year-old wants is more risk. they're just looking for that 2% or 3% coupon that does not exist anymore. that explanation to them of why they should understand that this is for the greater good sort of runs a little bit thin as they try to pay for increasing cost of food and gasoline, which don't show up in our inflation rates because we don't include them anymore, but the price of both are squeezing both the poor and seniors more than anything else, giving us a de facto war on the poor coming from washington right now. and that's probably the recurring theme that i see there. now, i'd like to discuss just a little bit the logic. you said at one point that interest rates are lower because

of too much savings. yet, you have a policy -- the feds have a policy of paying interest on excess reserves, which would be a de facto way of encouraging more savings. so any discussion ever come up why we're doing this, why are we paying this if we think there's too much savings? >> well, the fed is paying an extremely low rate on interest on reserves -- >> it's higher than zero, though, because zero is what -- one quarter of 1% is what seniors are getting right now so banks can make more than seniors. again, they see the advantage going to the rich, not to the poor. again, i just repeat there's sometimes the appearance of a war on the poor. my district is also very low income. manufactured housing is a big deal. 50% of the homes in my district

are manufactured housing. and yet, the policies really made it very difficult for banks to lend on that. i suspect that your staff has made known to you that these pressures exist. have you all discussed that in any greater detail that we'd need to look out for the people on the low end of the income spectrum? >> well, qm was a policy adopted by the consumer financial protection bureau. i think they are trying to address a set of practices that resulted in unsafe and unsound -- >> okay. well, thank you. >> -- lending. but it is very important to monitor their impact on credit availability. >> one of the reasons that we've been able to get by with a qe is that we're the world's reserve currency. has the fed thought at all about what's going to happen when more nations are expressing

discontent that we're printing money and we're devaluing what they're holding? so we've seen countries trade with other currencies past year? any thoughts about what happens if the world says you're not the world's reserve currency anymore? >> the dollar plays a critical role in the global economy and it's the federal reserve's job to make sure that inflation remains under control so that the dollar remains a safe and sound currency and can continue to play that role. >> thank you. i have nothing further the other countries. i'm going to yield back, mr. chair. >> the chair now recognizes the gentleman from missouri, mr. cleaver, for five minutes. >> madam chair, thank you for being here. i want to talk consumer spending and jobs. 5% of our population is doing about 35% of the consumer spend

i ing, and if you exclude food and energy, consumer spending would rise 1, 2, 3%, something in that area? >> with the distribution of spending, it's very unequal. >> yes. so i'm -- my concern is how do we increase consumer spending, raise gdp unless we are able to get a larger share of the population spending? and for them to spend they need to have some form of income. so what is the impact or what would be predictable impact if

we -- if we had an employment benefits and a number of other programs that we are -- we've backed away from in congress? >> well, with respect to unemployment benefits, they certainly were serving to support the spend iing of individuals who had long unemployment spells, and, you know, ending those -- we'll have some negative effect on spending and in the economy on growth. >> because they'll spend everything they receive? >> more or less -- >> yes. >> -- that's true. that's right. >> yes. so several people have talked

about the structural unemployment here in the country. what do you think -- 6.6, i guess, is unemployment, and that's not necessarily good but it's better than what it's been, but i'm interested in real unemployment. the u-6 rate. what do you think it is? do you have a good estimate? >> well, the u-6 rate includes discouraged workers. >> yes. >> and those on part time, it's substantially -- it's substantially higher. >> more than double the dosh. >> it's close to 13%, and that is a much broader measure of shortfall in our economy from

what we would like to see. so, you know, certainly there is discouraged workers, those who are marginally attached. we have 5% of the work force that's part time. for economic reasons they're not able to find full-time work and so that's a measure that is disproportionately elevated in comparison with the 6.6% or u-3 unemployment rate. >> so are there jobs available and people just won't take the jobs? >> well, i think there is a short fall of jobs and the hiring remains well below normal levels and there's a shortage of demand in the economy that

propels businesses to see that their sales are rising sufficiently that they're wanting to take on enough additional workers in order to lower unemployment back to a normal level. that's what we're trying to address. >> i drove down to the boot hills in missouri, i'm from missouri, to speak at an event. on the way back i stopped at a chili's restaurant and there were no waiters or waitresses coming over to the table. they had a little box on the table and you speak in the box and -- to order your food and then somebody will bring it out. and they give you a certain number of minutes before it's brought out. the point i'm making is, we're taking jobs away and then we're criticizing people for not taking the jobs that don't exist. thank you. >> the chair wishes to alert all members, i intend to recognize two more members at which time the chair intends to call a

30-minute recess. the chair now recognizes the gentleman from florida. mr. posy for 5 minutes. >> thank you, mr. chairman. i originally -- and i do want to ask about the volatile three pigs, but the questions by ms. bachman i think deserve a little bit more response. as you well know, dr. paul's legislation to audit the fed was the most co-sponsored bill in the 112th congress. very bipartisan. passed by an overwhelmingly bipartisan vote, and it did not talk about interfering with the day-to-day management and decision making of the fed, it was post-decision making audits. and seeing we're all government and official agencies under our dominion are subject to audit, it just seems very strange that the audit would object to having the logic behind their decisions and the many other of the litany

of items you're exempted from being audited for deemed to be reasonable. >> so i think if members of congress can ask the gao to come into the federal reserve shortly after a meeting where we've made a difficult decision and to perhaps review transcripts and look at the debate that took place around a particular decisi decision, we release transcripts. we release minutes of our meetings, but to come in, review materials and say, no, we don't agree with a decision that was made at the last meeting will stifle debate in meetings and bring to bear short-term political pressures in the decision making in the federal open market committee, and i do

believe that independence of the federal reserve in making monetary policy means that we need some scope for deliberation and exercising our best judgment and then explaining to congress and the public what the logic of that was. and the purpose, as i've understood it as mia peering at a hearing like this, is to give members of congress exactly that opportunity. >> i understand that. some of us believe in the old adage, trust but verify, and that's what an audit would do. and so would it be reasonable to assume you would not object to an audit if it was post 30 days or 60 days? is there a time limit when you would be totally unafraid to be audited in retrospect? >> well, an audit is different than second-guessing policy judgments than made. >> i'm not guessing -- we do that as it is now. i mean, we don't agree with all

decisions you make now. i think that's clear from at least one side of this aisle, but i would like to think that at some point the fed could be audited like all official federal agencies, much less one that is not a government agency but has the run of our entire economy. >> well, this is an exemption that has been granted the federal reserve that's central to our independence for decades by congress and -- >> we've changed a lot of policies trying to make it more transparent and accountable. i'd like to think that government gets less corrupt every day, not more corrupt. >> well, i don't believe that the federal reserve is in any way corrupt, and i believe that the confidence of markets in the federal reserve and in our monetary policy making would not be enhanced by that type of audit. >> by knowing -- by historically

being able to audit things that every other agency is subject to review for but you should not be -- let me get over to baso 3. starting in 2003 the recovery ratio will require enough banks to have net cash outflows for 30 days. the problem is that baso 3's definition includes the solve voern debt of countries like portugal, ireland, italy and spain. don't you think that that's like leading sheep to slaughter? >> well, we have designed a rule in the united states that would have stricter definitions to minimum. >> so you think that that's not the same as rating agencies with high risk mortgages as aaas which triggers a 2008 crisis?

>> one is for our banking organizations and we've proposed this in our rules to hold assets that can be quickly converted into cash. >> time of the gentleman has expired. the chair now recognizes the gentleman from colorado, wears his broncos cap. >> thank you, mr. chair, and i'll wear my broncos cap next week. madam chair, thank you for your testimony today and i had the pleasure to hear mr. bernanke for a number of times come testify at these very same hearings and, you know, i really appreciated three things about him. one, he's very smart, very steady, and not very exciting. and i want to say you're following in his footsteps. >> thank you.

appreciate that. >> so -- what i would like to talk to you about a little bit is the epsock and what is happening just in terms of numbers of meetings, what generally are you concerned about bubbles? have you seen anything that, you know, would cause you some conce concern? we hear that student loans are awfully high and that might be a difficult issue coming up so can you tell us a little bit about what you see the role of the epsoc and how often you meet? >> i have to say i'm new to epsock. i've only been in office 11 days and i've not attended epsock meetings previously, but there will be one this week. epsock does meet regularly. there are deputies and staff who meet very frequently. clearly a major focus is to

address potential threats to financial stability, to identify those threats, and to assess them. this is something the federal reserve is very focused on. we have built very substantially our capacity to assess risk to the system. we bring that to epsock. we also use it in thinking about monetary policy and in supervising the largest institutions. we recognize that in an environment of low interest rates like we've had in the united states now for quite some time there may be an incentive to reach for yield and that we do have the potential to develop asset bubbles or a buildup in leverage or rapid credit growth or other threats to financial

stability, so especially given that our monetary policy is so accommodative, we're highly focused on trying to identify those threats. we could potentially take them into account in monetary policy, but certainly in our supervision and regulation we would try to address those threats. broadly speaking, we haven't seen leverage credit growth, asset prices build to the point where generally i would state that they were at worrisome levels. the stock market broadly has increased in value very substantially over the last year and, you know, our ability to detect bubbles is not perfect, but looking at a range of traditional valuation measures doesn't suggest that asset

prices broadly speaking are in bubble territory or outside of normal historical ranges. there are a few areas where we do have concerns but nothing pr broadly speaking. so student loans, you mentioned again that the growth there has been very, very large, that mainly government-backed student loans rather than private, and i would say the concern there is this is debt that will be with students for a very long time if they get into financial difficulties, that debt stays with them. it's important that they be getting a good return for the borrowing that they're doing, and it's important that they understand what the burdens will be on them when they take out those loans. of course, it's very important, education is critically important, we want to see that,

but the burdens are very high and it's important that the education that students are getting pay a return and that they understand what it is they're getting for the debt that they're taking on. >> thank you. and then i'll finish where i started. mr. bernanke, very smart, very steady, not very exciting. the markets must agree because the markets are up today so we appreciate your testimony. thank you for taking on this job. it's still a difficult economy out there even though it's getting better, and we thank you for, you know, being at the

you back live to the hearing room. the chairman nizes the gentleman from virginia, mr. hurt, for five minutes. >> thank you, mr. chairman. chair yellen, thank you very much for appearing before our committee. welcome, and i look forward to your tenure. obviously we recognize gnat virginia fifth district how important your task is, and we appreciate your commitment to that task. tell you a little bit about our district. it's a very rural district in central south side virginia. it is a district that historically was dependent upon textiles, furniture, tobacco. still is a very large agricultural producer in our state and in our nation, but we've seen hard times with the changes in -- especially in manufacturing. i know as an economist you're

aware -- well aware of the terrible effects that has had in many parts of our country and south side virginia is no exception. we've had over the years, in the last ten years, unemployment in parts of our district as hide as 25% so you can imagine what we really want are jobs and what we want is a booming economy. and so i guess one thing that strikes me, we hear it on the other side and we've heard it a few times this morning, in fact i think you've even used this word, the word inequality talking about i think income inequality, is that something that we need to focus on? is that something the federal reserve needs to specifically focus on. i would suggest to you that obviously my view is that we need to focus on economic opportunity for all people, for everybody. we want to see that prosperity. and i would suggest that at least what contributes in part to that inequality are one size

fits all, top down policies that come out of washington that make it more difficult for people in rural south side virginia to make it, whether it be an energy policy, keystone, for instance, one that -- the keystone policy that has come out of this administration has been one that has been an obstacle to jobs, not promoting jobs. the president's health care, we see more people in our district who are losing full-time jobs going to part-time work. obviously very, very difficult for my constituents as a consequence. i guess what i would ask as you take on this new very important responsibility, can you talk a little bit about your view of the rule making that comes from the federal reserve if you look at the vokle rule and you see that that was a rule that certainly in the beginning that was designed to get at the biggest banks but because of the trupps issue inadvertently

perhaps ended up affecting a lot of smaller banks. can you talk about this -- the one size fits all mentality that i feel pervades washington and how that affects our community banks all across main street in virginia's fifth district and leads to the inequality, let's say, of the access to credit from our community banks. >> well, as a general philosophy, i don't agree with one size fits all. i think we ought to be designing regulation that's appropriate for each institution we regulate and community banks clearly pose -- do not pose the kind of systemic risks to financial stability that the larger banking organizations do and the kind of supervision and regulation that's appropriate

for those systemically important banking institutions, i think we really want to do our very best to make sure that community banks aren't burdened with all of that regulation. and i know we meet regularly with community bankers, and we have felt it particularly important to do so coming out of the financial crisis. we supervise them. we know they're different. we want to listen to their concerns and understand them and we're doing our very best to listen and try to tailor an appropriate set of capital requirements and other regulations. >> and from the standpoint of supervisor, the supervisory role that you play, likewise, you know, we hear from our community banks from time to time that sometimes it feels like there isn't the responsiveness that is needed. there is micromanagement that prevents them from being able to

find a meeting of the minds with them and the customer and that's caused by the supervisory relationship. and so i hope as my time expires here that you all will continue to make that a top priority. >> i pledge to. >> at the federal reserve. >> i pledge to do so. absolutely. >> time of the gentleman has expired. the chair now recognizes the gentle lady from wisconsin, ms. moore, for five minutes. >> thank you very much, mr. chair. it is so nice to be able to say madam chair. and thank you for your indulgence in really sitting through a lot of questions. i don't remember the former chair indulging us this way. maybe things will change after you're here for a time or two. i have some questions. let me start out with some macro economic questions. there's a lot of criticism about quantitative easing and the positith