[applause] hillary: so, we have a lot to do. in the striped shirt. the microphone is working its way towards you. >> i would like to know your stance on immigration. how would you stem the flow of illegal immigrants into our country? hillary: i support controversy -- i support reform. i believe it is not only the smart path for us to take. it is economically smart and it will also help us get the labor

market working for everybody again. here is what i mean by that. i think the legitimate concerns the people have. people who are undocumented are doing jobs that used to be done by people who are american citizens. i deplore that. here is why it happens. it happens because if you are an undocumented immigrant with no legal rights and you are here among the 11 or 12 million who are here, employers can exploit you and pay you less than any minimum. they do not have to provide good working conditions, and they displace jobs. one of the positive results of comprehensive immigration reform is to remove that incentive. there would be no incentive because the rules would apply to everybody. i do not believe we are going to

deport 11 or 12 million people who live here. if someone says they want to do that, i think they are saying something that is not going to happen. maybe they can get people to not and agree and cheer. it is never going to happen. i believe we have to do a better job securing our orders. not just the southern borders, but airports and everything else. if we move towards comprehensive reform and provide a path to citizenship, the country will want to take a deep breath and say, let us figure out how we live with all of that and how we make sure people will be treated fairly and we have the right approach economically. remembered back in 2010, there was a senate compromise bill. republicans and democrats supported it. it had a comprehensive immigration plan with a path to citizenship and it never got a

vote in the house. i believe it would have passed in the house by both democrats and republicans. that was a lost opportunity but i think that particular bill still remains as a good foundation to start to try to get comprehensive immigration reform accomplished. [applause] >> secretary clinton, you mentioned earlier the opposition it would face. i was wondering if we could take that to a different issue. you said you would support a constitutional amendment on climate reform. -- on campaign finance reform. it is a very important issue. the question is, do you think given contemporary electoral conditions, is that a something that can happen during a presidency? if not, do you have any

approaches you can take towards that issue? hillary: that is a great question. i think we should do everything we should do legislatively and regulatory early. there is a debate going on. some experts say there are things the congress could do if you put the pressure on them to get it done. whether they will or not is up in the air. we still have a lopsided majority and the house. at least, it with the a path forward. -- at least it will be a path forward. some say, you have to change the constitution. i think we would have to make that a vote -- a voting issue. in every meeting, and every town hall, in every district across the country, incumbent would be asked. you could also go straight to the state. i think that would be a good

organizing tool. it was certainly raise the visibility of this issue and make it clear that we are serious about it. that is what i intend to do. [applause] hillary: yes, right there. here comes the microphone. >> climate is my issue. i am listening to all of the issues that people have here and what i am realizing is that the question is, the lopsided congress will stop what is the plan? hillary: i will tell you exactly what it is. first of all, i hope we do not have as lopsided of a congress. i really do. [applause] hillary: first of all, there are a lot of states that are far ahead of the federal government.

iowa gets 25% of its energy right now from wind. so does texas. it is not like nothing is happening, it is just that on the federal level not enough is happening. the more pecan incentivize states and local communities to do much more, the better off we will be. even if we cannot get the big solutions adopted by congress, getting other kinds of financial incentives to continue the expansions of wind and solar. let is not forget energy efficiency. that is the easiest path forward and there are hundreds of thousands of jobs within energy efficiency. there is a lot we can do the sides wait for the congress. >> it wasn't about energy.

you cannot work with a lopsided congress. hillary: i see what you are saying. you are talking about everything. the way i did when i was in the senate. i was in both the majority and the minority. there is no substitute for building relationships with people and trying to piece together answers to problems by one step at a time. i will go anywhere, anytime to meet with people about common ground. [applause] hillary: i did that in the senate and i sponsored legislation. i worked to pass legislation with people i had nothing else in common. i found that link that's what if i did as senator and a secretary of state. it is going to be fun in this campaign because a lot of republicans raise me as secretary of state. i will let you hear all of that

as the campaign goes forward. they will try to forget that they said that. i would work with them and listen to them. i know i do find common ground and i know how to stand my ground. on the positions of values i will stand my ground. [applause] hillary: so many hands. ok, one of you young men. anybody who still has a suit and tie on deserves to ask a question. >> thank you, secretary clinton. we mentioned rewarding citizens for their public service. i am an alumni of city air and americorps vista. i believe we need to invest in natural interest. not only did they enhance my personal and professional

development, but allowed me to make a difference in my community -- and help me complete my undergrad with a degree. if elected president, would you support the expansion of natural service programs -- national service programs? hillary: yes. and thank you for your service. i am very pleased that you took advantage of the financial aid to get your undergrad education. we need more national service linked to payments for college for training, for other kinds of advanced education. yes, i will definitely push the support of it. i think it is quite a tribute to how well the program has operated that it is still alive.

the congress has not -- they take whacks aitt it, but it is surviving. i support that. [applause] >> let me just say one thing. as you folks all know this election coming up, this residential election, is not about her. it is about us. you have a job interview here. i think you have a heck of a job. let us take what more question. -- one more question. [applause] hillary: i cannot believe it. i feel like i should shut my eyes. you have been in the back. ok, here comes the microphone.

>> thank you, madam secretary. represent the state legislature in my town. a couple years ago we lost our program for -- the early learning. test start. i am sorry. we had a program where children were going for education help, and now they cannot. hillary: thank you for asking that and it means a lot to me that as a public official you ask me a question about early childhood education. for me, that is where it all begins. i want to have universal prekindergarten. so that every child, all over

america, can have a good experience getting ready for school. i support headstart. as first lady i supported something called early head start. i intend to advocate strongly in favor of early childhood and have it be something that is a partnership between the federal government, states, and local communities like yours. not every community will want to do it the same and different communities have different numbers of kids that are eligible. i want to have a good partnership and i will make it a high priority. [applause] >> you are doing very well in your job interview today. hillary: thank you. >> i want to thank you and for the people for coming here.

you did a great job. hillary: thank you very much. >> they testify over the state of the economy. after that, question and answer with molly crabapple. tomorrow, u.s. and cuba debbie maddock -- diplomatic ties will officially be reopened. the cuban foreign minister is expected to speak and the american embassy in havana opens its stores tomorrow. cuban foreign minister goes to the state department for a minute -- 40 meeting with john kerry. after which, they hold a live news conference. both of those events are life here on c-span. >> monday night on " the

communicators" we will talk about why he thinks washington is a danger zone. >> i think if you back -- if you go back to earlier technology, those were regulated as common carriers. regulators said prices. they set terms and rules. we on the what happened. there was very little innovation. that was until they were all regulated. when it was so clear that innovation was being suppressed and the u.s. was falling behind that was the backdrop for the bipartisan consensus in the 1990's that it was going to be different.

a clear consensus democrats and republicans, that, unlike the earlier technologies, the internet was going to be largely, unregulated. >> monday night at 8:00 eastern on c-span 2. >> federal reserve chair janet yellen updated members on the current state of the economy. this is one hour and 45 minutes.

>> the semi annual hearings are an important part of the opportunities we have for public discussion. the federal government plays many roles in the economy. through its pastoral that through its special programs they have gone through $4.5 trillion. nearly 20% of all treasury securities 20% are on the federal balance sheet. furthermore, rather than using the proceeds to reduce its balance sheet, the federal reserve continues to reinvest these proceeds into even more mortgage backed securities.

in addition, the federal reserve continues to hold down interest rates, despite potential adverse effects on the u.s. economy including the negative impact on household savings. past announcements have stated that it will adjusted the interest rates policy. the federal government were showing 5.3% by 2015. and yet, interest rates remain unchanged. the monetary policy report released yesterday stated that the fed will keep rates low, even though the rate will be at or below its normal level -- whatever that means. this is concerning to a lot of people because pushing the economy beyond its normal level

can have negative effects, as we have seen with economic bubbles in recent history. more than ever, the financial markets have become heavily dependent on the federal monetary policy decisions. this makes transparency even more important. the fed is described as the world's most transparent central bank. or at least, one of the most transparent. it is worth noting that in recent respects, federal open market are less transparent then other banks -- including the bank of england. for example, the bank of england has more annual meetings. both banks issued more monetary reports per year. in addition, the european central bank has twice the number of press conferences. it seems that some aspects of

the fed's transparency can be improved. this is also applied to the regulatory authority. ccar stress the fate of u.s. banks, but the fed does not reveal exactly how the banks will be tested, or in what ways they have fallen short. similarly, many banks have been forced to file and refile their living wills without a thorough explanation from the fed on why this failed. i believe the fed will have to provide more detailed explanations so the u.s. economy can function effectively. yellen we look forward to your testimony and your appearance and hope you can shed some light on some of the questions i have raised.

senator brown? sen brown: five years ago last week, the wall street begin law. that serves as a important reminder of the crisis. 9 million jobs were lost. the unemployment rate reached 10% and the millions of americans lost their homes were erased. the ohio alone on employment was over 10%. my wife and i live in the city of cleveland and in 2007, that zip code had the highest number of foreclosures than any other in the united states. my state suffered 14 years in a row, from one year to the next.

every year, there was an increased number of enclosures -- of closures. behind each job loss, behind each foreclosure were painful conversations. parents telling their children they will have to share a house with their relatives, leaving their neighborhoods, schools, or friends, or they could normally afford their children's educations. it also took a psychological toll on the children, the workers, and their families. that is why we passed the wall street reform law. after unprecedented actions by the government to stabilize the economy by creating a regulatory framework to protect consumers the private sector created millions of new jobs household wealth has grown by trillions of dollars.

business lending has climbed over 30%. this is a reminder that the financial system remains well regulated for financial stability, consumer protection and to prevent the next crisis. wants to return to the days of 2008 and 2009. people continue to say that the law has not stabilize the economy and that new regulations will bring on the next financial crisis. wall street reform did not ruin the economy. wall street gambling did. since the wall street reform passage, it is less likely taxpayers will be stuck with the tab for another bailout. a poll taken last week shows that americans agree with that assessment. it is a product of the past

seven years. it is no surprise that all eyes are on the fed as it considers its first interest rate increase since 2008. although the economy has made progress since the crisis, we still have a ways to go. many americans have not benefited from it. premature wage increases -- will mean these people will not see new jobs. our economy makes cannot be divorced from what is happening overseas. our manufacturers and exporters are already contending with a strong dollar. i look forward to your assent -- with your assessment of the progress made from the implementation of wall street reform. chairman: your written statement will be made as you speak.

chair yellen: thank you chairman shelby, ranking member brown and members of the economy. i am pleased to present the monetary report to the congress. i will discuss is the current economic situation before returning to monetary policy. since my appearance before this committee in february, we have made further progress projection of maximum employment. the federal open market judges to be most consistent over the long run with the federal reserve statutory mandate to promote maximum employment and price stability. and the labor market, the unemployment rate now stands at 5.3%.

that is slightly below its level at the end of last year, and down more than 4.5 percentage points from it percentage peak in late 2009. meanwhile, monthly gains averaged about 210,000 over the first half of this dear. -- of this year. that is somewhat less of the average seen in 2014, but still sufficient to bring the total increase in employment to more than 12 million jobs. job market health is also trending in the right direction with noticeable decline in the last year. that is in the number of people suffering from long-term unemployment and those working part-time, that would prefer full-time. under these measures, it

continues to indicate that there is still some slack in the labor market. for example too many people are not searching for a job, but would do so if the labor market was stronger. although there are signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack. thus, while labor market conditions have improved substantially, they are not yet consistent with maximum employment. domestic spending and production softened notably within the first half of this year. world gdp is now estimating little change in the first quarter, after having risen of an annual rate of 3.5% over the second half of last year.

and production has declined a little bit since the turn of the year. some of the sluggishness seems to be the result of transitory factors, including unusually severe winter weather, labor disruptions and statistical noise. data suggests moderate pace and gdp growth in the second quarter. notably, consumer spender -- spending has picked up and sales of motor vehicles in may and june were strong. this suggests that many households have the wherewithal and conscience to purchase big-ticket items. in addition, home building has picked up lately. the demand for housing is still restrained by the limited availability of mortgage loans too many potential buyers.

business investments have been soft this year. that partly reflects the plunge and oil drilling. exports are held down by a weak economic growth in several of the major trading partners and the appreciation of the dollar. looking forward, prospects are favorable for further improvement in the u.s. market and the economy more broadly. prices and ongoing employment gains should continue to bolster consumer spending. conditions remain supportive of growth. the highly accommodative tendencies abroad should also help with the growth. including the effects of dollar appreciation on mid-exports, and the effect of lower oil prices on capital spending, should diminish over time. as a result, it is expected that

hugh is gdp growth will expand and strengthen over this year. over -- as always, however there are uncertainties. foreign developments pose risks to u.s. growth. most notably although the recovery of the-year-old area seems to have gained -- the recovery of the euro seems to have gained a strong footing, it brings on financial conditions. it can pick up more quickly than observers generate. the u.s. economy also might snap back more quickly if they transitory influences holding down first half growth fade and

the boost to consumer spending from low oil prices shows through more definitively. as i noted earlier, inflation continues to run below the committee's 2% objective with the personal consumption expenditures or pce price index up only one quarter percent over the 12 months ending in may and the core index which excludes the volatile food and energy components up only 1.25% over the same period. to a significant extent, the recent low readings on total pce inflation reflect influences that are likely to be transitory. particularly the earlier steep declines in oil prices and in the prices of nonenergy imported goods. indeed, energy prices appear to

have stabilized recently. although monthly inflation readings have firmed lately the 12-month change in the pce price index is likely to remain near its recent low levels in the near term. my colleagues and i continue to expect that as the effect of these transitory factors dissipate, and as the labor market improves further, inflation will move gradually back to our 2% objective over the medium term. market based measures of inflation compensation remain low although they have risen some from their levels earlier this year. and survey-based measures of longer term inflation expectsations have remained stable. the committee will continue to monitor inflation developments carefully. regarding monetary policy, the fomc conducts policy to promote maximum employment and price stability as required by our statutory mandate from the congress. given the economic situation

that i just described, the committee is judged at a high degree of monetary policy accommodation remains appropriate. consistent with that assessment, we have continued to maintain the target range for the federal funds rate at 0 to one quarter percent and have kept the federal reserves holdings of longer term facilities at their current level to help maintain accommodative financial conditions. in its most recent statement the fomc again noted that it judged it would be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term. the committee will determine the timing of the initial increase in the federal funds rate on a meeting by meeting basis. depending on its assessment of realized and expected progress

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

how much progress the recovery -- the economy has made in healing from the financial crisis. that said, the importance of the initial step to raise the federal funds rate target should not be overemphasized. what matters for financial conditions and the broader economy is the entire expected path of interest rates, not any particular move including the initial increase in the federal funds rate. indeed, the stance of monetary policy will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment 2% inflation. in the projections prepared for our june meeting, most fomc participants anticipated that economic conditions would evolve

over time in a way that will warrent gradual increases in the federal funds rate as the head winds that still restrain real activity continue to diminish and inflation rises. of course, if the expansion proves to be more vigorous than currently anticipated, and inflation moves higher than expected, then the appropriate path would likely follow a higher and steeper trajectory. conversely, if conditions were to prove weaker then the appropriate trajectory would be lower and less steep than currently projected. as always we will regularly reassess what level of federal funds rate is consistent with maintaining and achieving the committee's dual mandate. the federal reserve has continued to refine its operational plans pertaining to the deployment of our various policy tools when the committee judges it appropriate to begin normalizing the stance of policy.

last fall the committee issued a detailed statement concerning its plans for policy normalization. and over the past few months we have announced a number of additional details regarding the approach the committee intends to use when it decides to raise the target range for the federal funds rate. decides to raise the rates. it is improving the public communication concerning monetary policies. the board is delivering reports for years at the semiannual hearing such as this one and the fomc has long announced its monetary policy decisions by issuing statements shortly after its meetings followed by minutes

of the meeting with the full account of policy discussions and with an appropriate complete meeting transcripts. innovations include quarterly press conferences and projections for economic growth unemployment, and inflation and the appropriate path to the committee's interest rate bargain. in addition the committee adopted a statement in 2012 concerning its longer run goals and monetary policy strategy that included a specific 2% longer run objective for inflation and a commitment to follow a balanced approach in pursuing our mandated goals. transparency concerning the federal reserve conduct of monetary policy is desirable because public understanding enhances the effectiveness of policy. more important, however, is the

transparent communication to reflect the federal reserve commitment to accountability within our democratic system of government. our various communication tools are important means of implementing monetary policy and have many technical elements. each step forward in the practices has been taken with the goal of enhancing the effectiveness of monetary policy and avoiding unintended consequences. affective communication is also crucial to insuring that the federal reserve remains accountability but measures that affect the ability of policymakers to make decisions about monetary policy free of short term political pressure in the name of transparency should be avoided. the federal reserve ranks among the most transparent central banks. we publish a summary of our balance sheet over week our

financial statements are audited by an outside auditor and made public every security we hold is listed on the federal bank site of new york and in conforming with the dodd frank act behavior on the lending with the identity of borrowers and amount borrowed are published with a two-year lag. this to avoid unintended consequences that could undermine the ability to make policy in the long run best interest of american family and businesses. since the february 2015 monetary policy report we have seen despite the soft patch in economic activity in the 1st quarter that the labor market is continued to show progress toward our objective maximum

employment. inflation continues to run below the objective but we believe factories playing a big role. it will be appropriate to raise the federal funds rate when the committee sees further improvement in the labor debarmentde department and is con ty -- confidant inflation will rise. thank you and i yield back. >> thank you. some raised concern over the statutory divdened paid to the banks and the shares to pay for the new transportation bill. are you aware of some of these

proposals and do you have concern? >> chairman shelby i have heard about this proposal and i guess i would say i would be concerned reducing the divdened could have unintended consequences for bank's willingness to be part of the federal reserve system. and this might apply to smaller institutions. i would also say this is the change that likely would be a significant concern to the many small banks that receive this div dividend. i would say this is a change to the law that could have unintended consequences and i think it deserves serious thought and analysis. >> i agree with you. i don't see any nexus between the dividends coming from

members of the federal reserve system which a lot of small medium size banks, and funding the highway transportation system. i think that is pretty far reach because you know people look for money everywhere they can get it. that is something i think that is something we better work together on i hope. in another area the impact of regulations on liquidity. the issue of liquidity in the fixed market is a daily topic in the news and market. secretary lou testified in the house and i am quoting he does not believe that federal regulation is a significant factor contributing to any luquidity issues. do you think federal regulation is a significant factor impacting market liquidity in

any respect? and what has the federal reserve done to determine the impact of regulations on liquidity if you have fair markets? >> i would say we haveare studying this issue very carefully. we have certainly heard the market concerns on this topic. at this point i can give you a list of factors that may be causing this phenomenal event. i should say you see this decline in liquidity in some measures but not in others. >> isn't this an important issue to be watching? >> so there are a number of things that might be involved. first of all, there has been changes in the structure of the market. a larger share of bonds are held

by insurers and pension funds and do less training than leverage firms that used to be more dominant in this market. we have had higher capital requirements and other regulatory changes but firms are also changing their own risk management practices in some cases in a more conservative direction. we have seen an increase in algorithm algorithmic and high frequency trading that may be leading to changes in practices. in the corporate bond market, there have been increased reporting requirements they may be reducing the desired size of trade. i think all of these factors could account for what is going on but we have not been able to

figure out what the contribution of each is or just how serious it is. the concern is i think while day to day in normal times with most measures of liquidity seeming to be roughly unchanged there is a concern that in stress situations it may be and we have seen some cases where it is less available. >> in any market you need risk and liquidity do you not? >> yes. >> you don't have a market without it do you? >> we do need liquidity in markets. there may be changes, however, the precrises was highly leveraged -- pre-crisis -- were exposed to providing liquidity and vulnerable if liquidity were to be reduced. and now it seems like more of

that risk has moved to unleveraged, low leverage investors and that may be a saver situation. there are two sides to this. >> in the area of reducing systemic risk, which we are all interested in, did you believe that having fewer risky financial institutions could be a good thing? >> i mean, yes. >> should banks through regulations, like the fed, be encouraged to reduce systemic risk everywhere they can? >> we are certainly trying to put in place a set of incentives that will reduce the systemic footprint and risk of firms. i think entire capital requirements we plan to impose

surcharges capital surcharges on the most systemic firms, and other regulations that will diminish the risk create incentives for their footprint to be reduced in ways that will reduce their systemic risk to the financial system. >> senator brown? >> thank you, mr. chairman. chair, i continue to be concerned as i know you are that the economic recovery is not taking hold for all americans notablely large numbers of women and in communities of color. i know that conformation bias can be a problem in investing and some people might think it might exist on capitol hill as well. i see underemployment, no inflation and lots of sources of head winds for the economy.

what is the risk of tightening monetary policy too soon and once rates are increased what is the impact of the gradual rate increase on every day americans? >> of course there are risks to the recovery of tightening too soon. we have been highly focused on those risks. that is an important reason why we have left rates as how as they are in over six years they have been effectively 0. we have had recovery that has been been. growth have been slower than in most recovery. i agree there remain groups

struggling in the labor department. we try to show in the monetary report the standard unemployment rate we looked at that is 5.3% may somewhat understate the real degree of slack that exist in the labor market. so we clearly want to see continued improvement in the labor market and we want to do nothing that would threaten that. on the other hand the labor market is getting closer in my view by almost any metric to a more normal state. the degree of monetary accommodation has been sufficient over a long period of time to generate pretty significant improvement in the labor market. they are diminishing and i think it does become appropriate to begin, we are not talking about tightening monetary policy but

we are talking about talking about slightly diminishing the high degree of accommodation we have in place. and of course we would not want to do so in a way at a pace that threatens continued progress in the labor market. we indicated a good share of the labor market being low is for reasons we believe transtory. and headline inflation is expected to rise to core levels. that is another reason we can be patient moving accommodation. it is important for risks on both sides. just like we don't want to tighten too soon to threaten the recovery or jeopardize the return of inflation back to our 2% target we want to be careful

not to tighten too late because if we do that we could overshoot both of our goals and be forced to tighten monetary policy in a sharp way that could be disruptive. my own preference would be to be able to proceed to tighten into prudent and gradual manner and there are many reasons why i would like to be able to do that. >> some people suggested recently that american works need to be willing to work longer hours. i don't think many americans work fewer hours by choice unless there are health issues

or child care limitations or other responsibilities. i think many americans working part time would like to work full time. the slack in the labor market seems to indicateu kateicate we have a ways to go. discuss the concern for the number of workers working part time but would like to be in the workforce. we have a larnl share of the workforce, believing it is around four and half percent working less hours than they would like to work. the broader measure is the measure of the unemployment rate we normally look at is 5.3%. broader measures that capture that part time for economic

reasons a measure like you six. we have a picture in the monetary policy report and we show how high that is and of course it is always higher than the narrowing concept of unemployment it is very much higher than you would expect historically given the narrower measure of unemployment. to my mind this suggests that our standard unemployment rate doesn't state the degree of slack we have in the labor department. >> senator corker. >> thank you, chairman and ranking member, i appreciate it. thank you for being here. i spent time with you when you were getting affirmed and enjoyed that and talking about views on monetary policy.

i know as you were coming in you were claimed to be the first "dove coming in as head of the federal reserve". i know you supported all of the rate hikes on the other hand that took place. >> this is true. >> i want to make sure everybody understand that. >> thank you. >> we did talk a lot about this moment in time we are in. the fed has become very affected by the market swings. much of that may actually be driving monetary policy. not just the stats. we have got you know, we had this was the first i guess we had two other times in modern

history of negative interest rates that i am aware of. so we had this long period of time where we have negative interest rates and it seems the fed continues to watch not just the stat but is affected by the market and worried about disruptions in the stock market. wondering if you might address that. >> i would push back against the notion we are undually affected by the ups and downs of the stock market. we are certainly very focused on the fundamental and economic statistics that describe where the economy is and in terms of the labor market and inflation, which are the two goals assigned to us by congress and a lot of different kinds of economic information go into the forecast

that drive our decision making. the forecast about where the labor market and inflation will be moving. but financial conditions broadly, and i am not talking about the stock market here uniquely but a wide range of financial variables that i would say go into assessing financial conditions, the ease for households and businesses of borrow borrowing that affect spending pattern whether it is consumer spending or our competitive position in the global economy that affects our ability to export and the competitiveness of import competing goods. the state of financial conditions broadly speaking is one variable that does affect our forecast of the economy. so we can't completely ignore what is happening in the markets

to housing and credit influences that affect borrowing cost. all of those factors feed into financial conditions and they are relevant to forecasting the economy. so it is one element of our evaluation but i don't think we pay undo attention to it and i don't think we should. >> the libing will process is something that i know ranking member alluded to dodd frank and senator warren and i worked on those and came to an agreement and i think senator shelby offered an amendment that passed 94 votes and made it stronger

and making sure it became law. we have questions about the living wills as they came up. the last round was a little concerning on my part and a few others there was a little regulatory capture taking place and these living wills were looking in substance and yet maybe the fed wasn't really you know putting the pressure on these organizations to deliver as they should. i had a good meeting this week with mr. trullo and my understanding is the substance of these living wills, i know you sent out statements regarding what happened and i think they are much better than they have been. there is clear the living wills have to be able to resolve an institution under bankruptcy and i wonder if you might speak to that for a moment. >> i agree with you. we worked closely with the fdic in this last round a year ago to set out a clear set of

expectations for what we want to see in the current round of submissions. we have worked closely with the fdic and the banking organizations to make sure that they have been very clear about what we expect in this round of subcommission. we instrictucted them to enhance their disclosure in the public part of the documents they produce and it looks like prelim preliminary reads suggests they have made progress there. and we are going to be evaluating them in the coming months. and we indicated that if we continued to see short comings in the living wills that we will use our authority to determine that these resolution plans don't mead dodd frank requirements. that is where we stand and that

is what we will do. >> thank you very much for your service. >> senator menendez? >> thank you mr. chairman. madam chair, thank you for your service to our country. i appreciate the work you have been doing. as you know and i stated many times the feds dual mandate directed to pursue maximum employment and stable prices. how the fed chose do is balance these goals has significant consequences for the quality of life of millions of americans. our labor market is improving but most americans peal like they have a lot of catching up to do for the financial crisis hole we were put in.

it would be a mistake on my view for the feds to shift the focus away from jobs at this critical time. with interest rates near 0 the feds have no room for error if they tighten too soon. if they tighten too late the risk is lower and the fed has plenty of ammunition to keep the rates anchored. in order to avoid choking off economic growth prematurely will the fed wait to raise interest rates after it has seen signs of actual inflation rather than based on a fear of future inflation which may or may not ever materialize actually? >> senator, i agree with your characterization of the risks that if there is a negative shock to the economy with interest rates 10-0 we don't

have great scope to respond by loosening policy further where ppwhereas with a positive shock, we can tighten monetary policy. we have the tools and know how to do that. that is a consideration that has been weighing on the decision making for quite some time. it has led us in part to hold interest rates at the very low levels for as long as we have. so that has been the factor we have been taking into account and it partly explains the policy that we have been following. there are lags and we need to be forward looking. on the other side that is the list from waiting too -- risk -- long to act as well. we have to balance those risks.

you asked if we would like raise rates before inflation that has risen substantially and i would point you to section three of the report that we gave to you and showed a summary of the forecast for each participant in the economy and policy. as i mentioned in my testimony, most participants envisions economic developments would proceed for the rest of the year in their view make it appropriate to begin the process of normalizing policy sometime this year. if you look at their inflation forecast at the endf of the

year on a year over year bases most participants envisioned total inflation is below 1% and that is below the 2% objective and envisioned the year as a whole at the end of 2015 as running in the neighborhood of 1-3 or 1-4 percent. you can see they are seeing it appropriate to tighten policy. but what we have said is we want to have reasonable confidence before we tighten the inflation over the medium term will move back to 2%. what is going on here is that we think there are transtory influences, namely the decline in oil prices and the strengthening of the dollar that

are holding inflation down. and that underlying inflation, even with core inflation, will import prices in declining import prices are a transtory factor holding that down. as we see the labor market improve and see the influences wash out we believe that inflation will move back to 2%. and so if we have that confidence, the committee would be likely to begin forcing inflation going back up to the target. >> normally in my experience i would have interrupted you a long time ago because i expired my time but because your response was so interesting and i am trying to grasp where your policy view is from it that i let it go. let me just make one more, if i may briefly chairman a comment, and i listened to you intently

and from my perspective, i think it is much less of a problem and the alternative which is cutting off much-noded job and in come growth and i will submit that for the record. >> want to come off job growth and income growth and we want to see inflation move up to 2%. we would not be pleased to see it linger indefinitely below 2%. >> madam chair, a meeting was held to examine the role of the financial board in the framework.

and international decision making was expressed overtaking u.s. decision making. i am curious if you agree it is important for the united states to set its own insurance capital and other standards before agreeing to any such standards internationally. >> we have working on u.s. standards. nothing applies to u.s. firms until we went through the formal rulemaking process with orders in the united states. so no international discussion or agreement applies to u.s. firms firms. discussions are taking place

internationally about appropriate standards. i think the standards other countries adopt need to work for our market and firms. we end up with a competitive firm that is competitive for our firms to compete in. we participate in those discussions with an understanding that nothing applies to u.s. firms or until we have gone through a full rulemaking process here. >> thank you. i would like to follow-up up with reducing systemic risk. do you support giving specific firms a specific road map for

direc direcde direc direc direcde decertify? >> i think firms should have the ability to decertify. the f-stock has to review and make sure they remain appropriate. that is an annual procedures. firms are given detailed information and interact with great deal with f-stock during the process of decembersignation and understand the business model and strategy that caused them to be designatureed. what about their business activity is responsible for

desigination and i don't think it is appropriate for f-stock or the regulators to try to run these businesses and micromanage what these firms do. i don't think there is any single appropriate off ramp and you should not be telling them exactly the following list of thinks. they understand what they need to do to change their profile in a way that would change the evaluation. if they were this happening -- they were thinking about makes these opportunities i am sure there are many opportunities to interact with the staff and gain perspective on whether or not the kinds of changes they were thinking of you know would significantly change their systemic footprint. >> thank you. one last question. as you know madam chair as well when you talk the markets

clearly listen. as you work with the federal reserve open markets committee you look at a balanced approach and you are looking at several goals. you clearly defined your goal is a 2% inflation rate. what about when we talk about maximum employment. where do we go? what do you lay out if the firms look at it in terms of what to expect from the committee? what is your goal in terms of the maximum employment? >> so as we say in our statement of longer run goals since monetary policy strategy there is something different about the goals. we have a goal for inflation, 2%. and maximum employment. the central bank can chose or determine what its inflation target should be. we chose 2%. we are in good company that is what most advance central banks

have chosen. ... submit their forecast to write

down what they regard as normal. that is something that can change and has changed over time. we report that publicly. >> we report that publicly. >> thank you madam chair. madam chair i know you share my concerns with income inequality and the trend of middle-class wage stagnation. you have said there are tentative signs that this has picked up it continues to be relatively subdued. as the economy improves how do you expect middle-class wages to

show substantial improvement? what are you looking at? >> we look at many measures of wage growth. three aggregate measures that we look at our employment cost index, hourly compensation and average hourly earnings. they don't always tell the same story. i think we have seen a meaningful pickup over the last year in the growth in the employment cost index. there was was less movement in other areas. there are early indications there. the levels of increase are still relatively low and inflation adjusted terms, compensation or wages are increasing rapidly. >> what you expect to see in the next year? >> i would it expect to see a

pickup in aggregate wages in the economy. i would expect to see some further upward movement. where they can go depends in part on productivity growth. for example if productivity grows and there's uncertainty about what it is, if it were to trend around one and a half% with 2% inflation, we would expect to see this growth. >> i guess the key to that is there would be some correlation between productivity growth and the growth in wages as well. >> there tends to be over long periods of time but it's not always true of a shorter. so there is some uncertainty about this. we have been through a period in which wages have been growing last less rapidly than

productivity. i would expect to see a pickup. it's not a certainty certainty here but it is in my mind evidence of some remaining slack in the labor market. that's my forecast is that we will see some pickup in wage growth. it is important to remember that there is increasing wage inequality in the united states over a long. of time. certainly going back to the mid- to late 70s. that reflects a deeper set of factors that the federal reserve doesn't have tools to combat. what we are looking for is an over all job market that is functioning in some sense well but we see big gaps and

increasing gaps between the wages and compensation of more skilled and less skilled workers. that has been holding down middle-class wage growth for a long time for other reasons. >> let me ask you about a different subject. i've voted for dodd frank because i wanted to see safety and stability in the system. it wasn't a desire to loaded up with regulations but a desire a desire to make sure we had safety and stability. now what we have seen is a growing shadow banking system which brings other concerns. as you look at this, since shadow banking entities are not held to the same regulations how concerned should we be with the potential risk involved here? that is what we are trying to drive out in the first place with dodd frank to eliminate some of the systemic risk. >> i think you have put your finger on a very important

phenomenon. we were well well aware when we put these regulations in place in dodd frank that wherever you draw the regulatory perimeter there will be a tendency for activity to migrate beyond it to what we say the shadow banking system. we clearly need to be very vigilant about monitoring risks that are migrating to that system and certainly in the federal reserve we have hugely ramped up our attention to shadow banking system. the ex-stock is focused on risks developing broadly through the financial system in shadow banking and the financial stability board has a large work program devoted to shadow banking. we are thinking about regulations we might address like minimum margin requirements

that would apply not only to banking organizations but more broadly. that might address some potential risks in the shadow banking system. of course we have seen some heightened attention to risks but the fcc and money market funds which was an important piece of the shadow banking system where risk developed leading to the crisis, but you are absolutely right to focus on that and we are attempting to address those as best we can. >> thank you madam chair. thank you mr. chairman. >> chair yellen think you for being here today. as i travel across south carolina and people express concerns about america leading from behind whether it has been about the administration's failure to enforce their own redlines or the ill advised deal

with iran they have the sense that our nation's timid, comfortable sitting back and taking keys from foreign actors rather than occupying our traditional role as leader of the world. i'm certainly not suggesting that you somehow are in charge of literary policy or middle east diplomacy, but you are in charge of our regulatory policy for some of the countries most successful businesses. sometimes it seems to me like our u.s. regulators are leading from behind especially when it comes to our involvement in international bodies like the financial stability board or the international association of insurance supervisors. for example they designated domestic insurers shortly after the sb did. that suggests that they were happy to follow that lead. we saw something similar happened with capital buffers for money market funds.

they seem to take their cues from the fsb. i would encourage you to break from the tradition from leading from behind by developing a capital standard that first works for our domestic insurance companies rather than letting international standard setting bodies like the one i mentioned are ready write rules and export them back to our country. i would also encourage you to take the lead in that body in promoting activity -based regulations of insureds as a group that reconsiders its methodology later this year. i haven't yet heard him say that he would do the same for insurers.

can you commit today that the fed will take the lead and follow these two course of action both on insurance company capital standards and on promoting the replacement of entity-based insurance with activity-based activity -based regulation? i think senator rounds was starting down this road when he asked this question. it appears appears to me that the european regulators are concerned about the creditor protections we at home are far more concerned about protecting the policyholders. the difference yields different philosophies. i'd bike like a commitment to use our domestic approach and exported as exposed to importing their philosophical disposition on these standards. >> i guess all i can really say is that we are playing an active role internationally with insurance which is why we joined the ia i s which is why we are

participating jointly with the insurance office and the state insurance commissioners. we are collaborating to think through what is in the appropriate system of capital and liquidity standards for globally active firms. we have a strong interest in doing that and it's important for us to have our voices heard in that process so i don't think it's accurate to say we are sitting back and not trying to play a leadership role. i think we are. domestically you've been given increased flexibility to design and tailor a set of insurance regulations, capital standards

that we think are appropriate for our institutions. we want to carefully tailor them to be meeting the unique characteristics of the firms we are supervising. we are taking the time and interacting with those firms to make sure we understand what an appropriate insurance set of capital standards would look like. >> thank you. i. i think at the end of the day they all speak and sound pretty academic but what it boils down to is the advice americans have for retirement. >> mr. chairman it's good to see you again.

i want to follow up on the question. dodd frank requires institution to have a plan for how they can be liquidated. i want to close in and wrap pretty rapid and orderly fashion how are they supposed to determine whether these plans are credible or not credible. if they're not credible do they have to simplify or sell off their assets. last august they identified significant problems with living wills submitted by 11 of the biggest banks in the country the fdic determined that these living wills but the feds didn't. the fed said if they can't reflect those improvement in the

new living wells they expected to find new living wills but they were not credible. the 11 banks submitted their living wills at the beginning of this month and i know you haven't finished reviewing them yet but i want to make sure we are really clear on this point. will the fed find living wills not credible if the bank has not fixed each of the problems that the agencies identified lost august? >> we are certainly prepared to make those determinations. we will work with them as we have been doing to analyze the living will to see whether or not we feel the responses to the directions that we gave to these firms are satisfactory and not,

and if we find that they are not we are certainly prepared to say they are not credible. >> okay good, i'm glad to hear that. two of the agencies they were addressed were establishing a rational and less complex legal structure and developing a holding company structure that supports resolve ability. j.p. morgan chase, just to pick one example has over 3000 subsidiaries. it would subsidiaries. it would take a lot of work to establish a rational structure that permits j.p. morgan to be resolved quickly as required by law. but to be clear again, the fed will find j.p. morgan's living will not credible and the other ten banks not credible if they have not taking concrete steps to significantly simplify their structures and are not sleek enough to be resolved quickly?

>> well we have given him those directions and we will evaluate that. i would simply say that the regulatory report that we receive indicate that these firms, since 2009 have reduced the number of legal entities in their structures by approximately one fifth. >> you will note that number i gave you is not from 2009. it's over 3000 subsidiaries at latest count. i just want to be clear that you are willing to say not credible if they don't meet the legal standards that they could be quickly resolved and that includes how complex their structure is. >> agreed that they need to be less complex and we've given him that direction. i'm not sure we can determine exactly how complex they are by just counting the number.

>> fair enough. >> there all not equal. some are are set up for very narrow purposes and are not really material parts or wouldn't represent serious impediments to resolving the firm. i don't want to determine this by a count of legal entities. >> okay i understand that, but do remember the statute says rapid and orderly liquidation and that goes to the question of complexity. i raise this because the living wills are one of the primary tools the fed has to make sure the taxpayers won't be on the hook if one of these giant banks fail. it's critical that that the fed uses this authority and to make our financial system safer.

i want to ask one other question. in dodd frank, congress directed the fed to enforce tougher rules on banks. that covers roughly 40 of the biggest banks in the country, about one half of 1% of the 6500 banks that we have in the u.s. together this one half of 1% holds more than $14 trillion in assets about 95% of all the banking assets in this country. forty banks, 95% of all the assets. the tougher scrutiny is designed to reflect regulatory scrutiny. so this means more scrutiny on these 40 banks than on community banks and credit unions. there's been talk about raising the 50 billion threshold to a hundred billion threshold. i

just want to ask a question, we learned we learned or should have learned in 2008 that in a crisis, several banks can find themselves on the verge of failure at the same time. do you think it could pose a systemic threat if two or three banks with about $50 billion dollars in assets were on the verge of failure? >> when the significant number of firms is at the risk of failure, often it's because they have highly correlated positions. we always have to worry about that resulting in a drying up of the economy. during the great depression the banks that failed were small. they were a lot smaller than $50 billion or adjusted or adjusted for that time period when many banks fail, of course we have to be concerned. that's 11 reason

why, for all institutions, even community banks, regular regulatory requirements are higher. we want to see safety and soundness throughout the entire financial system. although the most systemic firms, as you pointed out need the greatest scrutiny. >> it's the top 40. i just want to say there are two approaches to this issue. the first which every republican supported is to raise the threshold to 500 billion. then hope for the best and if it doesn't work out the taxpayers can pick up the tab again. the other approaches to play it safe. keep the threshold where it is and rely on the feds to tailor the rules for these different banks. that is the approach i supported since the taxpayers are on the hook when the economy implodes.

i would suggest the congress be careful as well. >> mdm. chair some people propose we don't have any threshold but the regulator has the power to do their job. you've seen some of that i'm sure. thank you very much mr. chairman and i want to follow-up on exactly the same question that senator warren just just finished on. last september i asked the federal reserve to rule about raising the trigger when a bank is systemically important from the $50 billion level. in hearings we heard that the asset threshold should be raised or change because it's arbitrary, includes institutions that are not systemically important focuses only on size and produces undesirable incentives. they said several years of testing and assessment have given regulators a better understanding of the threshold and given the intensity and complexity of around stress

testing, regulators haven't felt the additional regulations don't warrant the expenditures associated with those large institutions. i guess my question to you is another way of asking the same question that senator warren just asked, do you agree with that analysis that there would be a benefit if congress change the threshold and focused more on substance of evaluation of true risk rather than an arbitrary number? >> so i would be open to a modest increase in the threshold and i guess the reason that i would be open to it is as he indicated and she just stated, we do have some smaller institutions that under section

165, are required to do supervisory stress testing and resolution planning. for some of those institution it does look, from from our experience, like the cost exceed the benefits. but, if there were to be a modest increase in the threshold, i think what is essential is that the federal reserve retain the discretion to subject an institution that might fall below the new threshold to higher supervisory requirements. for example we would be able to insist that it perform supervisory stress testing if in our view view, the risk profile of that firm in spite of its size led us to believe that it had systemic import that

made us think it was appropriate. that is possible that we might feel we would need that discretion but at present, every firm over $50 billion has to do things like supervisory stress testing and i think what we found is in some cases the burden is associated with that for many of those firms exceeds the benefit to systemic stability. retaining that discretion requires them to do that if we thought it appropriate that would be very important for me to support that change. >> thank you i appreciate your openness to increasing the threshold and focusing on the flexibility we need there. what i'm hearing you say, let me put this differently. it seems seems to me a principle we should follow is tanks with

similar risk profiles should not be subject to different standards. that applies on both sides of any arbitrary number which we might pick. the question what i think i heard you say is the real issue is the risk profile. the regulator should have the ability to evaluate the risk profile of our financial institutions and regulate them appropriately. >> did i hear you appropriately? i think that's a fair statement. >> there was a study published that uses a mark multi-factored approach to grading these risks. each institution is subjective to the regulations of dodd frank. are you familiar with that study was to mark. >> no, i haven't read that. >> i have learned to ask. i appreciate that. the study showed that different banks that are subject to the

5,050,000,000,000-dollar trigger have vastly different risk profiles. the question i was going to ask you is whether this study has validity and showing that there are vastly different risk profiles among banks that are above the 50 billion-dollar trigger. isn't it correct that there are very different risk profiles in this pool of banks that are above the 50 billion-dollar trigger? >> yes there are very different risk profiles. some are large community banks that are not especially risky but on the other hand we have a couple of u.s. firms that are designated as g sibs. there are certainly a lot

smaller than the larger firms but they have business models that make their activity systemically important. so firms of the same size can have very different risk profiles and the appropriate supervision of those firms can be quite different. >> thank you. this is not a question but i'll conclude with this comment. i thing we would be better served if our regulatory system allowed our regular tour's to focus on risk and relate to that rather than forcing them to use arbitrary numbers. >> thank you. i just quickly because i had the opportunity to listen to these questions, the position would be that a threshold is appropriate but then discretion to look at different banks over that threshold differently is what you think is the ideal? >> within limits, we can tailor

our supervision to the profiles of the firm. i would be concerned if the threshold is raised your now saying that banks that used to be above the threshold now fall below the new threshold and no longer automatically subject to a number of requirements. >> they might be involved in risky behaviors. >> those two firms need to continue doing that. we know they are below the threshold but we want to subject them to it anyhow because it's right for them. now there may be many other firms that have now been relieved from what was a burden that isn't appropriate for them. >> so just to be clear this issue of threshold is not to essentially get below threshold you you don't have any response. you want to follow the risk even

below the threshold. >> that's correct. we have observed a number of firms that are that it's not clear the benefits exist. >> there is a function of value of having a threshold or however you want to characterize it, because if you don't, you have to have a contest with each institution about whether they fit within your criteria. whether they truly have risks and you don't have the entre you need to basically make your evaluation. you have to fight the way to the door, is that right. >> yes. >> my real question is with the now ubiquitous issue of cyber security. one is, cyber security in the federal reserve and as

importantly or more importantly, how effective you are in ensuring that your regulated institutions have cyber security protections. this is the issue of the moment and of the next decade or more millennia maybe. >> absolutely agreed. we internally are highly focused on cyber security. i believe we have a robust and comprehensive cyber security system in place. we realize the nature of the threats we face are constantly evolving. we are routinely doing self-evaluations of our vulnerabilities and engaging third parties to review what we are doing. we have a national incident response team that is

constantly 247 responsible for intrusion detection incidents response, vulnerability assessment, assessment, trying to do their own penetration test to see how secure we are. we have business continuity plans for all of our business lines including our most systemically important payment system like fed wire open market and operations. if the primary operators of these systems were to suffer an attack, we have backup facilities that could take over the operations. >> switching to the regulated industry, are you testing them as hard? are you going in with routines to assess, are you trying to sort of break in, in

terms of a regulator, looking to see if they are conducting operation appropriately? >> so i don't think we are breaking in and doing our own detection test but it is an important aspect of our supervision to ensure financial institutions of appropriate measures are in place. we have specialized teams of supervisors that are trained in it security who examine the institutions to make sure they are appropriately taking the appropriate steps. we work jointly with other regulators for the financial sector more broadly under the leadership of treasury and we support efforts throughout the government to make sure that were addressing these threats. >> thank you very much.

i think we will be having this conversation for a long time. >> senator warner. >> thank you mr. chairman i'll go ahead and start. the other senator came back. he was here earlier. he came back i'm sorry. >> i want to start by complementing the chairman on one of his first questions to chair yellen about the notion of

taking some of these funds that are used to shore up the financial system and using them for purposes not related to the financial system, the way some people have proposed related to highways. this is what happens when you skip a line on on the hierarchy of the democratic side. >> those of the big banks. >> although i would acknowledge that while i have great sympathy for the fact that our community-based banks, close to 7000 of them are buying into this and getting the 6% return 6% return, some of the money market funds that can access the emergency funds, if they have to then get this ability to invest that 6%, that's a pretty good trade for the banks that the community banks don't have yet. >> i am going to forgo my line. [laughter] >> the one thing i know that i

think senator warren and senator brown offered, actually do believe on a resolution plan that we've made progress and we are seeing plans with greater rigor and candidly even some of the plans in terms of the capital standards that are being put in place might even get close to meeting those requirements. the one area area we still don't have the regulations on is the regulations on long-term debt. we have to make sure that long-term debt is clear that it could be convertible in the event of a challenge so that we can use bankruptcy so that we can meet the goals that they so carefully articulated.

i think what i would love to hear is some assurance that we are going to see those final legs by the end of the year so we can have this full guidance out about these resolution plans. >> so i can't give you a specific date but i want to assure you it is a very high priority item for us. >> chairman eulian i didn't give you a specific date. i just said by the end of the year. >> i can't promise a date. this is really important to us. this is not something we are just letting slip and it is right at the top of our. >> when we look at the capital structures and increased ability for these large banks to withstand trauma having those rules out on the long-term debt

and conversion component really. >> totally agree. >> i'd like to be able to respond to senator brown that his approach may have been solved with title i entitled to on this issue. >> we completely agree there is a need for a long-term debt requirement. most of these firms in their living wills proposed a resolution strategy that is similar to the fdic's single point of entity strategies that they would use under title ii. in either case it requires adequate long-term debt. we are working jointly with fdic trying to figure out better parameters. we are working on other agreements. we want to see this globally and promised to to get it done as soon as we can.

>> end of the year sounds like a great time. >> we will make every effort to do so. >> he has spoken. >> one of the things we have seen, let's switch to world monetary regulations for a moment. as we see the bank of japan and others continue to deal with their currencies which indirectly obviously makes their products cheaper our products more expensive do you worry at all that the actions of these other central banks are putting more undue pressure on america to be the engine that drives and affects the whole world

policies? >> monetary policy for domestic purposes often has some impact on the country's exchange rate. the fact that we are the stronger economy are likely to raise rates sooner and continuing to ease policy in their country, those factors have ten to push push up the dollar. that has tended to create a drag for net exports and to diminish our growth prospects. that is something that affects the stance and appropriate future stance of monetary policy. even taking taking all of that into account the very significant appreciation we have seen of a dollar, we need to take that in the context of the overall strength in domestic spending in the u.s. economy. our committee concluded that

even taking that into account the continuing drag bear we still think the u.s. economy will grow. >> this will be a factor that they look at. my times up but they are continuing to look at that and putting the burden on our economy to carry the world forward. >> it is a factor and we are constantly looking at it. that is essentially what is happening. >> the floor recognizes the senator. the bill that was reported out of here for the banking legislation back in may does not raise the threshold in section 165 of dodd frank to 500 billion as a lot of people think. in fact the language the legislation keeps the $50 billion threshold in place while all institutions to be considered are enhanced through regulation and gives the

regulators the fed generally, the discretion to determine what institutions above $50 billion should be subject to it. banks above 500 billion would receive no such discretion. i just wanted i just wanted to clear the record for this. >> could i speak for a moment? the chairman is correct. the difficulty was made much greater so i believe what senator warren said is correct. it doesn't protect the safety and soundness of our debt. we can debate this for a long time. >> we will. thank you mr. chairman. >> no problem. thank you.

as you stated in your testimony they will look to raise the federal funds rate at some point before the end of the year. you and the others on the fm oc must make this decision weighing all the information at your disposal. i understand that. that. but as we have discussed previously i am still troubled by sluggish wage growth in america. we continue to see depressed labor force of participation and inflation runs well below the 2% target. unless the question, if there is still slack in the labor market views made different here and i've heard from experts on both sides, but but i refuse to let the loud voices of those screaming for the fed to act drown out the voices of the middle-class families who continue to wait quietly for economic recovery to show up in their take-home pay. the question of when the fed will raise rates has received a lot of attention. as i've said before i think the single biggest problem facing

the decline of middle-class income. as you know know they have decreased by 6.5%. median income adjusted for inflation is $3600 lower. what can we do to increase productivity? what what is a catalyst for stronger wage rose because it feels like were pushing on a noodle. >> we've seen structural forces over a long. of time push down on middle-class middle wages. the economic research that has been done suggests a continuing high demand for skilled labor and declining demand for less skilled labor. we we see an increasing wage gap between those who were more skilled and less skilled, partly reflecting

the nature of technological change and globalization and productivity growth as you mentioned has certainly slowed down since 2007. we seven. we point this out in the monetary policy report. it has has been decidedly slower than before that. i think it's important to focus on policies that would improve productivity growth. they have to to do with making sure that every american child is able to get a world-class education and is able to succeed in this economy and that we take actions to promote innovation and entrepreneurship and capital investment both public and private, that are necessary to

drive that. those are the the kinds of policies that congress and the public need to consider to address these deeper structural trends. they are not just related to the cyclical state of the economy and they have been around for a long time. >> there's certainly a limit what monetary policy can do. we understand that. here we are facing sequestration in the congress. current spending bills current spending bills proposed by my colleagues on the other side of the aisle would slash funding for key resources pell grants opportunity grants, 300 million from training and job programs. these are the kind of programs you mentioned in part as catalyst to stronger wage growth. i don't want you to weigh in on specific programs. obviously that's not your job. let me ask you this, as we look to the end of the year, can you

the year, can you talk about the broader impact to our economic recovery that drastic automatically triggered budget cuts would have? as well as the potential for government shutdown and the uncertainty surrounding the debt ceiling? do you believe these events could create fiscal headwinds for our economy? >> in recent years physical policy has gone from creating a significant drag on the economy to being roughly neutral and that shift in the favorable direction has helped promote economic recovery. i would be concerned about something that was large fiscal shift. i i don't know whether or not this would be but policies that or governmental actions that create uncertainty, whether it's a government shutdown or running up against the debt ceiling, they reduce the confidence of households and businesses on the ability of

their never meant to function in an effective way and create fear and loss of confidence. honestly that's not helpful to recovery. >> getting to the wage growth conundrum, wouldn't cutting education and training programs that make workers more able to be productive the counter to that? >> i don't want to weigh in on specific programs but i do think education programs, programs to promote training and skills acquisition are very critical in addressing wage inequality. >> we thank you again for your appearance and your willingness to come. we hope we can work with you on some of the post legislation because i think there is some misperception of what we are

trying to do. we we are trying to give you a lot of power and you have some power but none of us want to weaken the bank system. >> thank you i look forward to working with you and the committee.