been at market -- markets have been and we have been quite surprised by movements in oil prices. i think in part they reflect supply influences, but demand may also play a role. the stronger dollar is something we anticipated because u.s. economy has been performing more strongly than many foreign economies and we have divergence in the stance of monetary policy that influences capital flows on the dollar. nevertheless, the strength of the dollar and the extent to which it has moved up since mid-2014 is not something that we anticipated. so, yes, we have been surprised in part by those developments and they have played a significant role in holding down

inflation. senator shelby: do you believe this economy although it is a number years old has peaked or near peaking or will start declining and put us into a recession or you just don't know and something you are watching? chair yellen: we are watching developments very carefully. there is always some chance of a recession in any year, but the evidence suggests that expansions don't die of old age. we are, as i mentioned in my testimony, looking very carefully at global financial markets and economic developments that create risk to the economy and we're evaluating them, recognizing that these factors may well influence the balance of risks or the

trajectory of the economy and thereby might affect the stance of monetary policy. at this point it's premature to make a judgment we will need in march and our committee will carefully deliberate about what impact these developments have had. today, i think it's premature to render judgment on that. senator shelby: are you saying basically, the fed will be careful looking at every aspect of the economy and international economy before it raises the federal rates, is that what you are saying? chair yellen: we will evaluate the outlook certainly taking these developments into account. and i want to emphasize, as i said, monetary policy is not on a preset course. we want to set the path of

policy and achieve the objectives that congress has september to us and making sure that the expansion doing what we can to make sure that the expansion continues. senator shelby: could you just take a couple of minutes and share with us your view as to banking gth of our system today -- we hope we won't go into a recession and we have cycles. what's the condition of our banking system? do you feel comfortable about is it king system or something you are working every day on? chair yellen: the steps we have taken over the last seven years have had very substantial payoffs in the form of a much more resilient and stronger

better capitalized, more liquid banking system. we have not only raised liquidity standards especially ramping those up for the most systemic firms. we have also used stress test methodology to see whether we think those firms -- and we do think that they can continue to support the credit needs of our economy even in this scenario of very significant stress. so i think we do have a strong banking system and seen marked improvement. senator brown: you said in response to your testimony and in response to chairman shelby, you said in regards to monetary policy, it is not on a preset course and if the economy were to disappoint that you would

that you would be less likely to raise interest rates. i have a couple of questions about wages that the dual mandate is so important. i so appreciate your emphasis always on it on restraining inflation and also equally importantly and to many of our constituents, i think even more importantly that the importance of job growth and i appreciate the importance to you of wage growth as you deliberate on these questions of raising interest rates. while job growth has been better than some might have expected with 71 consecutive months, wage growth hasn't and i saw good signs lately but not enough. average hourly earnings increased in 2015. my questions are these. three questions and answer them together. are other wage growth indicators

showing the same increases? are they occurring across race and gender and across economic sectors or certain groups doing better than others? and timely, can the economy reach full employment without labor force participation, increases for women and minorities and have widespread wage growth? sort of pull those together and answer, madam chair. chair yellen: so you asked about other wage indicators. as you indicated average hourly earnings have picked up. but it is a series that is volatile and while we see some evidence of wage growth there, i would still refer to that evidence as tentative. in compensation per hour, we lso see somewhat higher pace over the last 12 months in its

growth. but again this is a very volatile series. in terms of the employment cost index, compensation growth has really not shown any sustained pickup and that is significant. at best, i would say the evidence of a pickup is tentative. i do continue to envision that if the labor market continues to improve as we certainly hope it will, that there is scope and we will likely see some further pickup in wage growth. in terms of particular groups in he economy, i can't give you recent evidence on developments by -- i think you asked for race and gender, but -- senator brown: and sector.

chair yellen: i don't have those data at my fingertips. we know that in the u.s., we have had a long standing trend towards rising inequality, rising wage inequality in this country and more educated people have seen faster wage growth than those in the middle and at the bottom. and i believe that trend continues. a lot of jobs during the downturn, middle-income jobs were lost and although jobs across the occupational creation has ob perhaps been more heavily skewed towards sectors that have lower pay. and i think that there are deeper structural reasons that these trends continue.

they pre-date the downturn in the economy but the downturn probably accelerated those trends, perhaps relate to globalization and technological change that demand an increased skill. senator brown: i have one comment. i think we can't be satisfied that we have full employment without -- full employment across demographic lines, meaning women and minorities especially, that we don't have full employment until it's for them also. question on living wills, we discussed that process last year and you felt that the fed have provide clear feedback. and you would be willing to make formal determinations that certain plans are not credible. when do you anticipate providing feedback on last year's

submissions? when do you provide on last year's submissions? are you committed to making formal determinations about insufficient plans and will you differentiate between and among firms when you provide feedback or make determinations? chair yellen: so when we are actively engaged in far long evaluating these plans, the board has met regularly since august. i believe we have had seven board meetings to discuss these plans. we have worked closely with the fdic. we have not made final determinations, so it's premature for me to give you a definite time, but we will make these determinations in the not too distant future. we are very actively engaged. and yes, we are smile committed, as i indicated to finding the

plans that don't meet the specifications we outlined. we are certainly specifying what those deficiencies are. senator brown: does an aggressive living will process answer the question too big to fail? chair yellen: it certainly helps. we have also put in place re quirmentse for our tlac rules for adequate loss and sorp sensey and requiring that firms have workable plans how they would be resolved under bankruptcy. and dodd-frank -- so we want to make sure that there is a way they could be resolveable under bankruptcy and that the resources are there so that the taxpayer would not be at risk. and dodd-frank is a backup

authority to title 2 which if it is necessary, an additional tool which we can use. i think it's premature to say we have solved too big to fail but we have made very substantial strides toward dealing with addressing it. senator shelby: senator crapo. senator crapo: i appreciate your comments where we discussed the $50 billion trigger to determine when a bank is important and increasing the threshold and focusing on the flexibility that we need there. while congress continues to make progress on this effort and hopefully we will make some progress soon, you have previously noted that the federal reserve has the authority and discretion on its own to taylor these.

those covered by section 165 of dodd-frank. can you give us some specific examples of the kind that might be in the works as the federal reserve works on this? and will there be relief on stress testing and resolution planning? chair yellen: so we are actively engaged in reviewing our stress testing and capital framework for the bank holding companies ove $50 billion we are considering that risk burdensome that are close to the $50 billion asset line. along with that we might make it somewhat stricter for some of the gsibs. we are considering that as well .nd that would be tayloring

we are paying close attention to the cost and benefits of particular changes how they affect those institutions. we haven't made final decisions, but that's certainly on the drawing board. senator crapo: will we see that announced soon? chair yellen: certainly this year. but i think if we were to make changes, they would not take effect until the 2017 cycle of stress testing. senator crapo: and shifting topics, because of the of the liquidity issues that took place on october 13, 2014 in the treasury market there has been effort by the federal reserve to understand the factors that affect the liquidity of the

market. the concern i hear is that several factors including new regulations may have reduced market capacity and during stressed market conditions liquidity may be more prone to disappearing at times when it is most needed as it seemed to do. are you concerned that liquidity may be less available and we better understand all the factors including the impact of regulations on this? chair yellen: i agree with what you said. normal metrics, the ones we typically monitor on liquidity conditions haven't changed that much, but the perception and some experience as you cited suggest that under stress conditions, liquidity may disappear when it's most needed. so we are looking carefully at

that and all the factors that may be involved. regulation is on the list but there are other things as well. the prevalence of high frequency trading has increased. broker dealers have reconsidered in the aftermath of the crisis the appropriate models they want to use to run their businesses. there have been changes in disclosure that affect corporate bond markets and we want to disentangle the impact of all of those different influences. senator crapo: one last question, there have been several hearings on financial stability oversight council that focused on ways to improve transparency, accountability and communications. in the april subcommittee hearing that senator warner and i held, the witnesses agreed that the council needed to provide actionable guidance designated important financial

institutions on how they could derisk and shed their designation level label. what's been done -- this has been referred to as an off-ramp. do you agree further progress in this area is appropriate? and wouldn't our financial system be safer if companies knew what they could do to address the risks and add an incentive to become less risky? chair yellen: i would agree with u and designation is not intended to be permanent. they use these designations every year. and it is important for firms to understand the kinds of steps that they could take to shed their designation and to become less risky. -- they need to be careful not to micro manage

these firms and try to tell them exactly what their business models ought to be. those firms know exactly why they were designated. they have received detailed letters and analysis explaining what the factors were about their businesses that would give risk.o systemic they do understand why they have been designated and the things they would need to address. so designation is not intended to be permanent. we do have regular reviews. and i think those firms do have an understanding of the things that they need to be prepared to do. i just don't think it's appropriate for them to say we want you to do the following business plan.

there are a lot of different ways in which a firm might decide to address those issues. senator crapo: thank you. i would like to discuss this ith you further. senator tester: thank you, chairman yellen for being here today. i wanted to follow up with senator crapo's questions. you just said that the companies understand why they are designated and therefore they understand what they have to do to get undesignated. is that what you just said? because that's new information to me. chair yellen: in the sense that they have been given detailed explanations of what aspects of their business gives rise to systemic risk that have caused them to be designated.

senator tester: is that information given as the process goes on or after the designation is done? chair yellen: there is a three-stage process and great deal of interaction during that process. so i believe before they are designated there is a sufficient amount of interaction they well they understand that are leading them to be designated. and then they are given a very detailed -- senator tester: could they make changes? if that information -- if that information is being given out early enough so the company can say, we are going to make some changes, not changes that they have demanded, but chosen -- do they have time to do that before the designation is made?

chair yellen: they certainly have lots of opportunities to .nteraction senator tester: i want to talk about the housing sector. could you give us your perspective on what the fed is seeing in the housing sector and what a hiccup would mean for the american taxpayer. chair yellen: so we are seeing a recovery i would say in housing. it's gone on now for a number of years, but it's very, very gradal. house prices are recovering. they have increased quite a bit and i think that's helping the financial situation of many households. the level of new construction, residential investment remains

quite low relative to underlying demographic trends. so it seems to me there is quite a significant way for housing to go before we could say it's at levels consistent with demographic trends. i think it will continue to improve. and it is the support of the economy. senator tester: hiccup in the housing industry, what would it mean to the taxpayer? what would a housing slowdown or perhaps -- not a collapse but a decrease in their growth mean to the american taxpayer vis-a-vis c -- e ma chair yellen: i'm sorry. senator tester: give me a sense of what the fed is doing to

ensure we are protecting consumers while at the same time differentiating between community banks and the big banks? chair yellen: when you say we are protecting consumers -- senator tester: while at the same time differentiating the regulations that impact the small banks versus the big guys. chair yellen: it is part of our supervision. and the cfpb examines the larger banks in terms of their consumer compliance and our responsibility is now with the smaller banks and community banks where we have consumer protection enforcement. our exams of or the community banks so they are

not too burdensome. senator tester: do you believe you have been successful? chair yellen: we are focused on regulatory burden on community banks and we are trying to do both in the safety and soundness side and on the consumer compliance side everything we can to reduce burden while still making sure that banks abide by consumer protection. senator tester: if i might, we are seeing consolidation of banks in montana pretty rapidly. is that true throughout the country and are you concerned about that? chair yellen: there has been consolidation. we are concerned about the burdens on community banks and trying to relieve that in a low-interest rate, net interest margins are also squeezed for many of these banks and that's a factor here.

senator corker: thank you for being here. i know we went through the confirmation hearings, i noted you were the first to head the fed and yet you honored the statements you made which were if the data showed that you were going to raise interest rates, you would do so and you just did it. you mentioned 2%. the question by many is, are there any other rules at the fed other than 2% inflation and full employment that guide, as you look at data that guide where you are going? i would like a not long answer. there have been criticisms whether there is a rule-based system so people understand so it's not like the fed is the wizard of oz and markets have

after 00 points, which testimony was good. but is there some other rule-based system that those of us can count on relative to what action ral's -- fed's is. chair yellen: i would like to talk about the system attic approach to monetary policy and the system that we use that's in line with what other advanced central banks do and a mechanical, mathematical rule-based approach which i don't support and no central bank i'm aware of follows. we have articulated in a clear statement. inflation and our maximum employment.

every three months, all participants in the fomc set out their explicit projections for key variables and also the monetary policy path that they regard as appropriate to achieve those variables. and we publish these projections. it's not a single committee endorsed view, but it does show the range of forecasts and assessments of what appropriate policy would be in line with those forecasts and we update those projections every three months in line with incoming data. and i would regard that as quite a bit of information and approach where we're telling the public what the range of opinion is about appropriate policy and the associated path to the economy. and there is uncertainty.

path. a pre-set we update those. senator corker: we had a nice conversation the other day at length and one of the things the fed could do would maybe to come in here and off the record meeting and lay that out and then contrast that with a rule-based system. i think that would be very helpful to the fed and very helpful to the committee members here. just briefly on the $4.5 trillion balance sheet that the fed now has, has there been any thoughts looking in the mirror that might have been good to unload that earlier so there was additional ammunition should it be needed in the future? chair yellen: the thinking of

additional ammunition, the best ammunition we have and the single most reliable and predictable tool for affecting the stance of monetary policy is variations in short-term interest rates. so as the economy has now gotten to a point where we are slowly reducing accommodation, we have the choice between selling off assets or raising -- senator corker: i'm talking about if the economy goes the other direction. and i guess the question then is, you have a pretty loaded up balance sheet and people are beginning to observe that the fed is probably out of ammunition unless you decide to go to negative rates. and if you could briefly, i'm not proposing this, but oak what is happening around the world and what is happening here in our own country. people are waking up and

realizing that the fed has no real ammunition left. you alluded to this some yesterday. and i have one more question so i don't want this to be too long. are you considering if things go south, are you considering negative rates? yes or no. chair yellen: so, the answer is that we had previously considered them and decided that it would not work well to foster accommodation back in 2010. in light of the experience of european countries and others that have gone to negative rates, we are taking a look at them again because we would want to be prepared in the event that we needed to add accommodation. we haven't finished that evaluation. we need to consider the u.s.

institution national context and whether they would work well here. it's not automatic. there are a number of things to consider. so i wouldn't take those off the table but we would have work to do to judge whether they would be workable here. senator corker: i would have thought where we would be is that we are out of ammunition and would be good for the markets to understand that we are out of ammunition and now it's up to other factors. but now as i hear it, potentially negative rates are something that could affect things over time. if i could go down one more path. productivity. you talked about that as the greatest driver for wage increases and some of senator brown's opening comments and the concern that we all have is the -- the most vulnerable in our society are the ones hurt most

and slowest to regain and there is a wealth gap, but the question is what do we do about it. way to important determine productivity defined as the rate of increase of how much a worker can produce in an hour of work. overtime and sustained increases in productivity fr necessary to support rising household incomes. we do know that productivity depends upon many factors including work force knowledge and skill. does monetary policy affect knowledge or skills? the answer is no. does the quality of capital equipment, monetary policy does not affect that, correct? chair yellen: the only qualification i would make is

that during a long deep downturn like we had, capital investment because it wasn't needed was very slow and that leaves a legacy that has a negative impact. and when people are out of work for a long period of time their skills can erode to the point where it becomes difficult for hem. is there anything about monetary policy -- senator shelby: senator corker knows that wouldn't be in order. senator corker: does monetary policy affect infrastructure investment? chair yellen: no senator corker: productivity is on this side, correct? and when people try to look at the fed through monetary policy to increase productivity, it's a

ridiculous notion? chair yellen: fundamentally. senator corker: that's our job and we're not doing our job. let me ask me one last question. last year in a budget meeting the head of doug elmendorf said because of federal borrowing reduces savings, the nags' capital stock would ultimately be smaller than it would be and productivity and total wages would be lower. as we accumulate debt, we are actually hurting many of the people in this room that came today because they care about this, because they are really hurting productivity, is that a true statement? chair yellen: over a long period of time, yes, i would agree. senator shelby: senator menendez. senator menendez: let me talk about the challenges of families

who still, notwithstanding the numbers, don't see their incomes rising. i know in some respect, the numbers are indisputeable. the unemployment rate is 4.9%. less than half of what it was than at the peek of 2010. 14 million jobs over 71 straight months but those numbers don't tell the whole story. long-term unemployment persists with people unemployed for 27 weeks or longer, compromising more than a quarter of all the total number of jobless individuals. hardworking families have been waiting too long for increases to materialize and though the economy has partially healed and hopefully will continue to heal, there is an indicator of how much harm was inflicted by the financial crisis. many employers due to market conditions are paying low wages

and offering limited benefits to their employees with little concern that these employees will leave because of the slack in the job market. employers have a sea of prospect every time an employee jumps ship. so talk to me about what needs to be done at the fed and elsewhere to address long-term unemployment and to foster policies that transform economic growth into growth for hardworking families. chair yellen: what we are trying to do to contribute to the solution of that problem is to keep the economy growing at a steady pace, to keep the labor market improving in the hope and expectation that a stronger the market will improve

status of all groups in the labor market and begin to bring wn long-term unemployment, unvoluntary part-time employment, and we have seen that. unemployment rates have come own for almost all demographic groups. as high it is, the incidents of long-term unemployment has declined. involuntary part-time employment has also declined as the economy has improved. but these are long standing adverse trends, including structural factors like globalization, the very slow growth and middle-income jobs. technological trends that have favored higher skilled workers.

i think for congress, there are any number of things that you might consider and might do that would be helpful in addressing these trends. some of them, many of them would be related to training, education, increasing opportunity to make sure that those skills can be more readily acquired. senator menendez: how can the fed better account for full employment and thus enhance production in its analysis and planning? chair yellen: from my point of view and point of view from the fo mmp c, more jobs is always good. when we think about maximum employment, we are really considering is from a point at which pursuing that goal would lead to higher inflation and inflation above our 2%

objective. we try to estimate and all participants in the fomc every three months write down their estimate of the unemployment rate and the economy that would be sustainable and consistent with our inflation objective. the median of those estimates is 4.9%. most of us recognize that there are additional forms of slack that we certainly would like to see. senator menendez: final point i would like to hear from you is that context matters. when i sit on the foreign relations committee, context matters and here in the united we have urope and asia seen tight monetary policy can be toxic for an economy that is recovering. there is a sense among fed

policy makers that they are eager to reach the point where we can normalize monetary policy by raising rates. can you describe the risk to the economy of tightening too soon? and do you take this global context into consideration? chair yellen: we absolutely take the global context into consideration and normization is not something we want to pursue and establish for its own sake. we only want to move to more normal levels of interest rates if it's consistent with achieving our maximum employment. we intend to put in place the monetary policy that is consistent with achieving those objectives. in an economy that has been recovering, the committee felt that it could be in the path and

would likely be on a path where short-term rates would gradually rise over time consistent with that objective. i want to emphasize monetary policy is not on a pre-set course. monetary policy will be set and calibrated to do the best we can toll achieve our congressesally mandated objectives. >> i want to follow up on the line of discussion that senator corker was discussing. and we have had this conversation before. senator toomey: central banks around the world seem to be compensating for an inability of the politico class around the

world to address what is holding back economic growth which are physicianically unsustainable -- fiscally unsustainable budgets. and high marginal tax rates that discourage savings work investment and the fact is that central banks monetary policy cannot make up for those problems. you could argue, in some cases they could headache it worse. now we see the markets as of this morning appear to be pricing an expectation that there will be no further increases in the interest rates that the central banks control. they may be right or wrong. and there is this discussion since the rest of the world is pursuing this new chaptter in radical monetary policy, we have this discussion about negative

interest rates. and i appreciate you in your discussion with senator corker pointed out that there might be some serious concerns. i find it disturbing to riously moving in that direction and talk about the potential risks of negative interest rates because there is a difference and i would like to say there is a difference between 25 qualified basis points and movement that takes you from a low positive rate to another low positive rate versus one that crosses the threshold into the negative. beyond the psychological effect. most of us have grown up that there is an absolute flaw and that would be shattered. but there are practical consequences and comment on some. for instance, it would seem it

would crush net interest margins for banks and diminish their ability to provide capital. i don't know how money market business survives if there is a sustained period of negative interest rates. i could see adverse effect on business investment. investors would be pressured to move further out the risk curve. it would put the u.s. deep in the midst of a global currency debases is won by who it the most. sweden has had negative interest tes and massive property bubble. the euro zone has had negative interest rates since 2014. g.d.p. growth has been very, very weak. japan instituted interest rates and they had a completely failed

auction. so i guess theymon advertise the debt. there are a lot of potential problems and could you confirm that for a layman, when we talk about negative interest rates, savers will pay a bank. sn't that a tax on savings chair yellen: negative territory, i was surprised that it was possible to move rates as negative as some countries have done, i think have not seen actual fees on depositors. i may be wrong.

there are some experiences there that i'm not aware of, but i don't think there has been broad based pass-through of negative rates to small depositors. senator toomey: that means their margins are crushed. chair yellen: low interest rate environment tends to push down that interest margin. now they adopted it because they were concerned about inflation running very much below their objectives and wanted to stimulate the economy in order to achieve those objectives and there are reasons they adopted it. in our own context when we considered this in 2010, we were concerned about the potential impacts on money market functioning and didn't really think it would be possible to bring them to very negative

levels. and before we were to take a step like that, we would have to think through all of the institutional details and how they would work in the u.s. context. i think as a matter of due diligence and preparedness, these are things we need to work through, but we don't even know if payments and clearing and settlement systems in our context would be easily handle negative rates. senator toomey: isn't it true there is an interm memo at the fed from august of 2010 raises doubts about whether the fed has the legal authority to impose negative interest rates? chair yellen: so, there is a memo from 2010 and what it really said that the legal issues haven't been studied. it was silent on the legality. it was a memo that discussed

market functioning and economic issues connected with it and legal issues had not been vetted. m not aware of any legal restriction that would mean that we could not establish negative rates. but i will say that we have not looked carefully at the legal side of this. senator toomey: i would like to submit that memo for the record and quote very briefly from -- thank you, mr. chairman. the memo does say and i quote, there are several potentially substantial, legal and practical constraints. another part, it says and i quote, it is not at all clear that the federal reserve permits negative rates. obviously there was a question in someone's mind. chair yellen: it had not been seriously studied ap at this point i'm not aware of a legal

constraint. t again, we have not run through a legal analysis. senator shelby: senator warner. senator warner: thank you for your service. as we kind of go back and forth about effects of monetary policy or not and i share some of senator too many hey's concerns about neg i have -- negative interest rates. and 100% approval on this panel where you said more jobs are good for the economy. how we get those more jobs is some question and we can debate monetary policy or not and one of the things talking about productivity and i share your views on productivity. productivity gains are driven by knowledge and skills. and i think one of the things that we've talked about before

but unfortunately this congress s not fully addressed is the rising challenge around student trillion and .3 the ripple effect that has across our whole economy, not just to those individual students who are recent graduates and their families but i would like you to comment upon that kind of wage box you are andht on with student debts not enough rising wages and effect on startups. startup entrepreneur numbers are down. first-time home buyers oftentimes due to student debt. and i know you have looked at this but i would like you to comment the effect if we

continue to have this number grow and don't take a more comprehensive approach to student debt what kind of a drag that will be on the economy. echoing your comments more jobs re better for the economy. chair yellen: so on the one hand taking on that student debt is successful in building one's skills that put people in hire wage jobs which is critical to their getting ahead. there is a lot to worry about with student debt with people attending colleges the education where they don't finish. the reward isn't there. to me that's a major concern that people may not be well informed about what the benefits

are of what they are taking on. and if an individual finds themselves in difficult financial straits for any reason it's not because it isn't dischargeable in bankruptcy which can be a severe burden that really holds people back. in terms of studies, there has been a decline in new business formation. i have not seen anything myself but i may not be aware of studies that link it to student debt. i haven't seen that. it's certainly possible but i'm not aware of that. with respect to housing some economists at the fed have tried to look at that and others have and i think the results are mixed. it is not clear that student debt is a major factor

responsible for inability to buy omes or get ahead in the housing market. it's quite logical that a heavy student debt burden -- senator warner: home builders are indicating particularly the weakest point is that first-time buyers, people who because they have student debt don't make those investments. and i would urge my colleagues the comprehensive approach that terms of ggested in total refinancing and other steps can be taken whether it is better transparency and we know higher education next to buying a house, better transparency of outcomes and higher education come clean. and not finishing is a huge issue but we don't have much

transparency on top of that. and pre-tax basis. i scratch my head and i have bipartisan legislation which says if you can go ahead and continue your education on a pre-tax basis why shouldn't an employer use pre-tax dollars to pay down student debt on both sides of the balance sheet. good for the employee. i won't take the additional three or four minutes that my colleagues have taken. i would like to submit for the record a couple of questions about what happens when we draw down this account and the fed has kicked in $517 billion over the last five, six years as you wind down that portfolio.

and i know that you share some of the concerns as we unwind that $4 trillion balance sheet. how much cushion does it need particularly when congress has raided that. and i would take that for the record. senator cotton: senator warner yielded back his three, four minutes. i'll just add it to mine. welcome back. throughout much of history, the federal reserve has raised interest rates when economic growth is strong and accompanying inflation is growing since the federal reserve take the punch bowl aware. a ecember we had 7/10 of percent and the open market committee raised interest rates.

could you explain why this historical anomaly occurred. chair yellen: our focus is on the labor market and the path that it is on and the fact that economic growth has been very slow and this is true for quite some time and yet the labor market is made more or less making improvements is a reflection of slow pace of productivity growth i would say. so we saw a labor market that where jobs were being created at a pace of around 225,000 or so a month. the unemployment rate had fell very close to levels we would regard as sustainable in the longer run, although in my view there remains slack there still

remains some slack in the labor market. monetary policy was highly accommodated. the rates had been at zero for several years and large balance sheet. we were not talking about moving to a restrictive stance, simply diminishing accommodation by a modest amount. and while inflation was running below our 2% objective, we looked at energy prices and the appreciation of the dollar replacing significant downward pressure that that would ebb over time and as the labor market continued to improve that inflation would move back up to 2%. and we want to make sure given the lags in monetary policy that we don't want -- wait so long to

begin the process of modest djustments in the fed funds' rates and overshoot both of our objectives and allow it to the point and tighten policy in a more present sip to us manner, hich could potentially place ongoing sustainable economic growth and improvement in the labor market in jeopardy. so we wanted to be able to move in a very gradual way and to make sure that the economy remained on a sustainable course of improvement. senator cotton: on page five of your testimony, much of the inflation was attribute aable to transtower factors that are likely to abate over time. you cited energy prices and

appreciation of the dollar. are there any others? chair yellen: those are the main ones and energy prices have continued to move down. senator cotton: two months on, do you still expect that energy prices and appreciation of the dollar will halt or even turn around on the current trajectory? chair yellen: so, you know, energy prices have continued to move down. i feel eventually they will stop moving down and stabilize. exactly when that will be, when that happens, when that eventually happens and the dollar stabilizes, inflation will begin to move up and hard to predict when that will be and there can be and have been surprises. senator cotton: i want to turn briefly to wages. several members of this committee have expressed their concern about stagnant wages especially for working class men

and women and i share that concern and so do many people in the audience. we haven't talked about immigration, legal immigration. we are at high leefls of foreign-born residents. do you do you think that level of mass legal immigration has put downward pressure on the wages of working men and women in this country? native-born americans. ms. yellen: i'm not aware of evidence that suggests it has. but i'm -- would need to look into that. i'm not aware of evidence on that. mr. cotton: ok, thank you. >> thank you, mr. chairman. good to see you again here, chair yellen. it's also good to see people here from across the country, people who are fed up. i know that as chair you have done a lot of outreach.

but seeing people here who have come in from a lot of different places are a strong reminder that every fed decision affects every person in this country. and the fed has plenty of opportunities to hear from giant banks, it's good to hear from real people and get that reminder. so thank you. i want to go back to another question here. as you know, dodd-frank requires giant financial institutions to submit living wills. these are the documents that describe how these banks could be liquidated in a rapid and orderly fashion in bankruptcy without either bringing down the economy or needing a taxpayer bailout. if the fed and the fdic find that those living wills are not credible, the agencies can take steps to reduce the risks posed by these banks, by imposing higher capital standards, by lowering leverage rage yos or by breaking up the banks by

forcing them to sell off ssets. mr. warren: warn the fed and the fdic identified several problems with the living wills submitted by 11 of the biggest banks in this country. ms. warren: the fdic found that all 11 of those wills were not credible. while the fed agreed about the problems but refused to make any determination about whether the wills met the legal tandard about credibility. now, that mattered a lot because it's only a joint determination by the agencies that has any legal forlse. the fed's refusal to call the plans not credible meant the agencies couldn't use statutory tools to push these risky banks in the right direction. so i want to start by looking

back at that decision by the fed. the fdic stands behind insured deposits. so its main mission is to stop bank failures before they happen. so taxpayers won't be on the hook. for some kind of bank failure. of all the regulators, the fdic has the most expertise in liquidating failed banks. so if the fdic found that the bank's liquidation plans were not credible, and the fed agreed with the fdic on the basic problems with each of these plans, why did the fed efuse to join the fdic and designate these plans as not credible? ms. yellen: well, looking back to the decision we made last year, we had set out in the guidance pertaining to these living wills that we expected to go through a few rounds of

submissions to clarify it's a completely new process and we felt the banks needed to understand what expectations were in terms of what we wanted to see. and we felt that we had not given sufficiently clear guidance to make the decision at that time. we worked very closely with the fdic. we have given detailed guidance to these firms about what we want to see in this round of living wills. we are spending a great deal of time, we have had seven full board meetings so father -- so far since august to discuss and work through these living wills . we're working closely with the fdic in evaluating them and we did make clear and it continues to be the case that if this round of living wills doesn't

-- a living will doesn't satisfactory address the shortcomings that we identified last year, that we are prepared to make findings that a living will is deficient. ms. warren: let me go to where you're going here. the fdic already thought that the facts established, that the plans were not credible for 11 of the largest financial institutions. in august of 2014, the fed and the fdic required those 11 firms to resubmit living wills that addressed the problems they had identified. and the firms resubmitted their plans last july and, as you say, it's my understanding that you're just about finished reviewing those plans. so, once again, i want to underline, only joint determinations by both the fdic and the fed will carry the force of law. so, can you say today that you will work with the fdic to

ensure that the agencies issue joint determinations of credibility on each of the 11 living wills that were resubmitted? ms. yellen: we are working very closely with them to evaluate these living wills. ms. warren: i assume you did that last time. that you worked closely with them. i think that's what you said in your testimony. ms. yellen: we did. and we wrote joint letters to these firms and we will ertainly try to do that again, to identify shortcomings that the living wills have and further steps that we want to see. it is up to each member of the board of governors and members of the fdic board to -- we're charged with arriving at our own individual judgments as to whether or not these living

wills are credible or facilitate resolution. nd i cannot guarantee you that we will arrive at identical conclusions. -- certainly working vested by congress into making a judgment based on the merits. ms. warren: if you can't ensure that the agencies will issue joint determinations, which is how we get to the effect of the law, let me ask if you will make another commitment. and that is, will you at least commit that if the fed finds a living will credible and the fdic does not find a living will credible, that the fed will issue a written public explanation for why it is reaching a different conclusion? it seems like that's the least that the fed can do to help the public understand its position. ms. yellen: my expectation is that we will release the

letters that we send to the firms, giving our evaluations of their living will. ms. warren: you will be explaining if there is a difference between the fed and the fdic. you will be issuing a written statement about why the fed decided something was credible that the fdic found was not credible? ms. yellen: i want to be careful exactly what i say about this. ms. warren: good. yelwel we expect to send let -- ms. yellen: we expect to send letters. hopefully they will be joint letters. hopefully we will be able to agree on what the shortcomings are of the living wills and what further we -- if we find -- if either agency finds that they're not credible, we need to identify specific deficiencies that we wish to see remedied.

and my strong hope and expectation is that we will arrive at joint agreement with the fdic on those deficiencies and release letters that explain what we find them to be. ms. warren: i very much hope that the fed and the fdic are on the same page. that's the only way we get the impact of this law. living wills are one of the primary tools that congress gave to regulators to make sure that the taxpayers will not be on the hook if another giant bank fails. and it's critical that the fed use this authority. like the fdic has been willing to do. to make our financial system safer. thank you. ms. yellen: i agree with you on that and we have been working with them aye all along -- all along through our supervisory process as well, which is separate, but we're also emphasizing recovery planning and resolution to our

supervision. mr. rounds: thank you, mr. chairman. and welcome. i suspect now that you've had more than 60 different individuals asking you questions, most of them perhaps have been asked. in looking at today's testimony, i think a lot of attention was paid to the discussion on negative interest rates. and i noted that there were a couple of items that i suspect, as you've shared, you've indicated that while you would be looking at negative rates, the analysis is not yet done. and that it is not off the table. but you've also indicated that the variations in short-term interest rates is one of the key tools that you have. would it be fair, though, to say that today, as you've swered these questions, that the current discussion and the current focus is not so much on reducing the interest rates that we have in effect today, but rather whether they should remain stable or move up?

ms. yellen: yes. we have felt -- we certainly felt in december, when we made our decision to raise rates, that the economy was recovering, that inflation would move up. and it would likely be appropriate to gradually, gradually continue to raise rates. not to cut them. a lot has happened since then. as i've indicated, global economic and financial developments imping on the outlook. we're in the process of evaluating how those developments should affect our outlook or assessment of the balance of risk. we will meet in march and provide a new set of will sort of at

date markets on the -- our thinking on the outlook and risks. but i've not thought that a downturn sufficient to cause the next move to be a cut was a ikely possibility. and, we've not yet seen, i would say, a shift in the economic outlook that's sufficient to make that highly likely. but in saying that, i also want to make clear that policies not -- policies are not on a preset course. if the perception changes in a manner that did make that appropriate, certainly that's something the committee would have to take into account in order to meet its objectives. it's not what i think is the most likely scenario. round round very good.

let -- mr. rounds: very good. let me change focus and move to the regulatory side of the responsibilities which you carry. when the federal reserve rates -- writes its rules, i think it's important for the board to do a thorough cost-benefit analysis. before it creates any new red tape or negotiates international agreements like insurance capital standards. we talked a little bit in here about the fact that there is a regulatory impact on productivity. and the one thing on our side of the dice, we talk about is what we can do, most certainly to provide opportunity for productivity to increase within our economy. there are some areas in which you do have, on the regulatory side, an impact as well. with regard to the issue of international agreements, specifically on insurance capital standards, is the fed currently working on any cost-benefit analysis related to the insurance industry? either in the context of regulation or for international agreement? ms. yellen: so, we are very

carefully considering what capital standards we should pose on the designated firms that we need to create standards for or s&l holding companies that are primarily insurance focused. round round will do -- mr. rounds: will you do a cost-benefit analysis to those rules? ms. yellen: we are charged with putting in place appropriate andards to mitigate systemic risk in the event that one of those firms were to fail to make it operate in a safer and sounder way. and that is our charge. we will put rules out for comment. we will consider regulatory burden. and we will consider various

ways of designing rules and which might be least burdensome . mr. rounds: would that mean that you would consider then doing a cost-benefit analysis and the burden these may place on the individual entities that you're regulating? ms. yellen: we will certainly put out a notice of proposed rulemaking and consider comments on it. including those that pertain to costs. mr. rounds: so the answer is, i'd rather not answer the question on whether or not there's a cost-benefit analysis included. ms. yellen: i'm not going to commit to a cost-benefit analysis. mr. rounds: very good. with regard to -- one of the major concerns about the current insurance designation process is there's no real comparison with banks to determine systemic risk. because i would suspect that we

are in rather unchartered waters with regard to adding the insurance companies in with the banks and considering them. i'm concerned that we may not have the reliable data to compare banks to insurance companies in this regard. what is either the federal reserve or the fsoc done to compare the systemic risk of bank and nonbank companies against each other? has there been an analysis? ms. yellen: in the case of each of those designations, a very detailed analysis was done asking what would be the systemic consequences of the failure of that organization. in the case of the insurance companies that were designated, met life, -- metlife, prudential and aic, fsoc did determine and judge that the failure of those organizations

would potentially have systemic consequences that needed to be addressed. mr. rounds: are those publicly available analysis? ms. yellen: they're on the fsoc website. you can find the analysis and they don't include confidential firm information. the firms themselves will provide -- were provided with greater detail than what's on the website. but there is detailed information. mr. rounds: thank you. thank you, mr. chairman. mr. donnelly: thank you, mr. chairman. madam chair, thank you. yesterday was a really bad day for my home state of indiana. we had over 2,100 workers who were given pink slips yesterday. they lost their jobs at a company that had been in ndiana since the early 1950's. carriers indianapolis plant will be closing. moving their

manufacturing department from huntington, indiana, both part of united technologies, over 2,100 jobs. all of those jobs are being shipped to mexico. last year carrier had $58 billion in sales and $6.1 billion in earnings. so we have 2,100 people who have lost their jobs because apparently $6.1 billion in earnings is not enough. now, the promise of america has always been, you work hard, do you your job, you help your company be profitable and then in return you hope to have a decent retirement, to be able to maybe get a fishing boat, see your kids go to school. so how do we teleworkers who have put their whole heart and soul into a company, who have provided them with over $6.1

billion in sales, that that's not enough? i mean, the reason folks are here is because there's always been a promise. if you work hard, the company in return will stand up and do right by you. so how is doing right having $6.1 billion in earnings and shipping 2,100 indiana jobs off to mexico? when we also in indiana have been said, you have one of the best business climates in america. and these same folks said, if we put in tax extenders, things us in depreciation, -- bonus depreciation, research credit, ex-im bank. i sat here and fought for ex-im bank because these folks came and said, this will help american jobs stay in america. how do you provide the

confidence to these workers and others that this compact even exists anymore? ms. yellen: i mean, a great deal has changed in the job , in many families, during the down turn, particularly. but on a longer term basis have faced the kind of miserable situation that you have described, of losing a job that they held for the better part of their career. and expected would provide them a secure retirement. this is a miserable and burdensome situation that many households have faced. for our part, what we are trying to do and have tried to do is make sure that there are enough jobs overall in the

economy that those workers can find another job. and of course we know -- mr. donnelly: i understand. i'm just asking you. maybe this isn't as a fed chair , why should they have to find another job when they produced over $6.1 billion in earnings for a company that is doing extraordinarily well but it's still not enough? that we're going to ship your job to mexico because you created huge profits for us, you created incredible success for us. you created the opportunity for this company to grow and for our shareholders to do really, really well. but we just don't have room for you as the worker anymore. ms. yellen: you know that many firms have made that decision. that moving their activities elsewhere is a profitable course and have made those decisions. mr. donnelly: the question becomes, profitable for who?

for an america that we have forever had the promise that do you your job like i said, you work hard. i mean, that's what my dad did every day. he took the train to work every day so he could feed us kids. i was the fifth of five. but his company never told him, sorry, you made a ton of dough for us, we're moving to mexico. and if they did, i don't know what we would have done. now we're facing the same thing in the steel industry as well. we've been facing for a while. and you've probably heard there's actually questions about the ongoing viability of a number of the american steel companies. a big part of that is currency manipulation, illegal dumping, all of these kind of things. as we look at this, i know the treasury department monitors currency manipulation. other agencies monitor illegal trade activities. but as head of the fed, are you concerned that the united

states tries to play by the rules while other countries dump steel here, dump other products here, manipulate currency, and we seem to be unable to provide our companies who are doing this with a level playing field? ms. yellen: u.s. policymakers, the treasury has prime responsibility for exchange rate policy. but they have made clear and the -7 has made very clear currency manipulation to attempt to gain advantage for a country's products and global markets and to shift the playing field through currency manipulation is unacceptable policy. i know that the treasury department, in their conversations with foreign officials in other countries, is vigilant about looking for and addressing currency

manipulation. on the other hand, we all recognize that countries should be allowed to use tools of domestic policy like monetary policy to stimulate domestic demand in situations where inflation is running well below a country's inflation objective or domestic spending, unemployment is high and domestic spending is weak. we've used monetary policy for this purpose. other countries have done the same. there is some impact of monetary policies on exchange rates. we recognize that. but it also works through other channels that tend to have broadly shared benefits. mr. donnelly: as fed chair, i hope you keep in mind as you set rates, as you set other things, the importance to our

families of the chance to go to work. and i feel in particular very burned today. after having fought so hard for the ex-im bank. that some of the very same folks who told me it was critical for jobs in the united states, to be there when they needed something, and then to walk away now. thank you, madam chair. thank you, mr. chair. mr. heller: thank you. thanks for holding this hearing. i want to thank the chairwoman for being here also and taking the time. i want to raise some questions about how the fed communicates with the general public. specifically their policies. and specifically how you communicate those. let me give you an example here. it led up to the increase of the interest rates back in december. you had people from the fed, like the head of the san francisco fed, saying that they're pretty hawkish. that interest rates were going to be increased and those increases were coming and the market reacted to it. then there were others like the head of the chicago fed that

were calling for rates to stay near zero. and the markets reacted to it. then we had some fed officials implying that any rate increases would be data-driven and the markets responded to that. then we had some saying there was no formula. even today we seem to have a new person each day giving their thoughts about future rates. i don't have a problem with broad questions and a variety of view points and coming from fed members. but what it's causing though is confusion and instability in the markets today every time someone has something to say. feeling like they have to walk in front of a mike and make a comment. my question to you is, do you think there's a problem here? and how these markets are reflecting every time one of these fed members opens their mouth, by hundreds of points, hundreds of points. and in general, i'm not sure most of them know what they're talking about. ms. yellen: so, i would say that congress purposely created

a system with a large monetary policymaking committee where there would be a diversity of views so that we did not fall into a group-think type of mentality. nd we do have at the moment 17 members who come to the table with a range of views. mr. heller: you're comfortable with where we are today? ms. yellen: we have guidelines for communications because it is important to explain to the public what our policy is about. mr. heller: can i see a copy of that guideline? ms. yellen: yes, i'd be glad to. first of all, the guideline says that everyone shares a joint objective of explaining the committee's decisions. they can explain their own views, but should be explaining that they are not speaking for

the committee, that they are speaking for themselves. mr. heller: do you have a special capacity that carries waters. you raised rates on december 16 by .25%. at that point the markets closed. the s&p closed at 2,073. yesterday it closed at 1,851 and i think it's down another 34, 35-plus points today. do you feel that you or the fed's responsible for this decline? ms. yellen: well, the immediate market responds and for a number of weeks to the fed decision -- response and for a number of weeks to the fed decision was quite tranquil. it was a decision that i believe had been welcome -- well communicated and was expected and there was very little market reaction. around the turn of the year we began to see more volatility in

financial markets. some of the precipitating factors seemed to be the movement in chinese currency and the downward movement in the oil prices. i think those things have been the drivers and have been associated with broader fears that have developed in the market about the potential for weakening global growth -- so i don't think it's mainly our policy. mr. heller: let's go back to oil prices again. since it's not your policies that are causing the market decline. you told us last year here in this meeting that a drop in oil prices was a good thing for the economy and for the consumer. that's what you said a year ago. and yet since then we've seen thousands of jobs lost, we see oil companies in bankruptcy. and consumers that are not spending their gas savings. do you still feel the same way about oil prices?

ms. yellen: clearly declining oil prices have had some negative consequences. there have been sharp job cuts and cutback in drilling activity and capital spending. mr. heller: do you think you made a mistake a year ago when you said it would be good for the economy and good for the consumers? ms. yellen: on balance i would say it's still true for the united states. of oil, in importer spite of our large production. and the gains to households from lower oil prices, they average about $1,000 per household. now, whether they spend or don't spend those gains, those are substantial gains. from the standpoint of growth, what's been dominant so far i would say is the negative consequences on spending from the cutback in drilling activity. mr. heller: do you think that banks here in america are overregulated or underregulated?

ms. yellen: i recognize that regulatory burden is a significant issue for many banks. and it's something we will do our very best and have been working to mitigate, particularly for community banks that are vital to the health of their communities. but i do think for the larger banks that -- whose failure would have systemic consequences, it's critically important to make sure that they hold more capital, liquidity are held to higher standards, to address the threats that they pose to the financial stability of our country and the global economy. mr. heller: is it fair for me to say that you believe smaller banks are overregulated, large banks are underregulated? ms. yellen: i don't want to say as a blanket matter that community banks are

overregulated. what i do think is that we need to do everything in our power to look for ways to simplify d control regulatory burdens for them. mr. heller: one more question. one more question. thank you for being -- mr. shelby: we have to vote but let him ask the question. mr. heller: in a recent "wall street journal" survey, the odds of a recession in the next 12 months have climbed to 21%. and that's double what it was a year ago. what are your thoughts on that? ms. yellen: well, as i mentioned in my testimony and my answers this morning, we have seen global economic and financial developments that may ell affect the u.s. outlook. financial conditions have tightened and that can have consequences for the outlook. i think it's premature at this point to decide exactly what

the consequences of those shocks will be. and it depends on, in part, on whether they -- whether they persist. and that's something we will be looking at closely going forward. we are looking at closely. mr. heller: thank you very much for being here and thank you for the time. is human is human thank you, mr. chairman -- mr. schumer: thank you, mr. chair. i'm glad we have another daughter of brooklyn doing well. i see that we have some people in the audience from a group called fed up. any from new york. i welcome them. the people from new york left just before i spoke. tell them i said hello. some of the shirts say, let our wages grow. that relates to my first question. i was pleased to see that wages rose .5%. oh, they came back. hi, new york city people. i believe -- i saw that wages

grew .5% in the month of january. i hope recent data we have seen is a sign that middle class incomes and people trying to be in the middle class, their incomes are growing again. because wages have been stagnant for too long. but i have to be honest with you. given the fact we're in a deflationary environment globally, and our own inflation rate is continuing to run well below the fed's 2% target, i'm concerned that further movement by the fed to raise rates in the near term could snuff out the embers of real wage growth before they're even given a chance to catch fire. if you believe that the flat and decline of wages is the number one problem our economy faces, that it's harder to stay in the middle class, it's harder to get to the middle class, than it has been in a very long time, you make that a very high priority. which i do and i know you do. so going forward, do you still

believe that given the room for growth in the labor market, considerable evidence of consistent wage growth is still important for you to see before the fed considers raising rates further? and secondly, will the fomc be particularly cautious in its decision making so as to protect against the prospect of stifling wage growth before it even gets going? ms. yellen: so, congress has assigned us maximum employment and price stability objectives. our focus is on inflation and trying to achieve a 2% objective for inflation. the behavior of wages, so, first of all, we have seen substantial improvement in the labor market and we, at the time we raised rates, expected that improvement to continue, fully expect that as that

occurred, that wages would move p at a somewhat faster pace. mr. schumer: we've just begun to see it. it's hardly sufficient, wouldn't you agree? we haven't made up for the loss in wage growth over the last decade yet. ms. yellen: productivity growth has been extremely slow. and the state of the labor market and the pace of inflation are not the only factors feeding into wage growth. for the last eight quarters productivity in the nonfarm business sectorer has barely grown at a quarter of a percent. that's a substantial drag on wages as well. i would not say that wage growth is aly the muss test for -- is aly the miss it test for changes in monetary policy. but it is something that is indicative both of likely inflationary pressure going forward. it's not a sure sign of it, but

it's relevant and it's also relevant in assessing whether or not we are at maximum employment. mr. schumer: i see it just the other way. that i am less worried about inflation and more worried about slow wage growth, which has picked up a little bit lately. but if you look at the last decade or even the last three decades, productivity is considerably further up than wage growth is. one of our great challenges is tying the two together. i'll just say, i hope that you and the fomc will look at growth in wages, it may not be the only issue for sure, but it's a very important issue. i'm going to move on here. you can comment further on what i said if you want. but it's related. now, another thing that's going on is the strength of the dollar. it's been critical in the interplay. so i want to get your specific thoughts, given the strength of the dollar and the influence of the global deflationary environment, couldn't one argue

that the dollar's strength has essentially served as another increase to the federal funds rate, if you look at manufacturing it's not doing well because of all of those issues, and, again, it seems to me that efforts by the fed to raise rates further could end up being a double whammy to our economy because here you have the strength of the dollar hurting our export businesses, which are still vital to us, and another wages added onto that. so, have you seen the strength of the -- you have seen that the strength of the dollar has influenced -- has influence on whether you should raise rates further? ms. yellen: the strength of the dollar is certainly something we take account of in deciding on monetary policy. i agree with you, net exports have declined. it's been a drag on the economy. and for that reason does facter

into our thinking. it's one of the reasons we think that the so-called neutral level of the fed funds rate is low at the moment. but remember that in spite of that drag, and the impact it's having on manufacturing, the economy has continued to create bs at a pace of 220,000 or more a month. and so we can't just look at secretarial impacts. we have to look at the overall performance of the labor market. but certainly the dollar and the drag that it implies -- it is a symptom and in part a signal of the strength of the u.s. economy in comparison with many others. shuthshuth which possibly could make -- mr. schumer: which

possibly could make things worse. ms. yellen: it is both things. mr. reid: thank you very much, mr. chairman. thank you, madam chairman. thank you for your leadership and your endurance. mr. reed: we expect nothing less from a brown graduate. i'm not at all surprised. sometimes when you try to fix a problem, you unwittingly create other problems. i know in dodd-frank, we were concerned about the bilateral nature of derivatives. so we have now required them to be on a clearing platform. which creates not a bilateral issue but a multilateral issue. but that in itself introduces the possibility of systemic risk. and frankly one of the lessons of the crisis was always be on the watch for the next fault line and take proactive steps to prevent it. the council t, noted there are still a number of central clearinghouse platform issues. can you give us your comments

now about how close you're watching, is there any developments concerning you and is this going to be a constant area of emphasis and investigation? ms. yellen: so i completely agree with you. creating those central clearing platforms has importantly diminished risk in the financial system. but they are a source of risk. fsoc has pointed out that this is making sure that they're appropriately supervised and operated subject to very high standards. because they are platforms that concentrate risk. this is a very high priority for us. we are very focused on it. these platforms are now supervised, the s.e.c. and cftc have significant authority

here. we have backup authority, globally there is focus on ensuring comprehensive and strong supervision of these platforms. so, you know, we're not ready to rest and say everything is done. but we are very focused on it. mr. reed: the international is very important because of the ability and willingness of entities to ash tragedy sort of regulatory environment. moving from here to someplace that doesn't have quite the same oversight. ms. yellen: that's right. mr. reed: you're trying in many ways, including margin requirements, to level the playing field internationally. ms. yellen: that's exactly right. mr. reed: thank you very much. the issue of federal reserve bank presidents, we've talked about this. know you've got 12 that are e for reassignment or change

at the end of february, 2016. a few weeks from now. they will be elected by the class b directors who are elected by local financial institutions to represent the public. and then the class c director's appointed by the board. general issue is, how do you ensure that there is real public participation in this process? one of the imprellingses -- impressions that we had in 2008, 2009, crafting dodd-frank, was this sort of is an inside game. in which in fact the class a director's direct route, appointed by the banks, was influential. how do you assure there's a real public purpose and public scrutiny of these directors? ms. yellen: so, the governance around this was established in the federal reserve act and we try to make sure that the reserve banks and the board

adhere to that. we try to make sure that the class c directors that are appointed by the board are broadly represented -- representative of the public and all sectors mentioned in the federal reserve act. i think we have, among federal reserve bank directors -- mr. reed: i've been corrected by my very intelligent staff, presidents. ms. yellen: presidents. mr. reed: presidents of the federal reserve banks. that's the focus of my question. ms. yellen: yes. so, the presidents are appointed by the class b and c directors. we try to make sure that those class c's and that the directors more broadly are -- represent not only business interests but also community interests, that there's sufficient diversity. the board is constantly attentive in its oversight of the reserve banks to the issue

of diversity, of representation on those boards. and it has improved considerably at the moment. i believe something like 45% of bank directors are either women or minorities. now, they are charged with making recommendations about appointment and reappointment of reserve bank presidents. and the board of governors is charged with reviewing those recommendations and deciding. and we will take that obligation seriously. we have a regular process, an annual process, in which the board, through its bank affairs committee, not bank affairs committee, oversight of the reserve bank, oversight committee, we review each reserve bank every year and in particular the performance of the president.

and the members of this committee discuss with the boards of directors, the chair and deputy chair, the performance of the president. so there is ongoing monitoring of the performance of the president. there's feedback to the boards of directors on it. when we come up to the five-year point to review these appointments, we'll act on the recommendations of the boards of directors. but we will have in place -- it's not as though we're just looking at that for the first time when we make those decisions. mr. reed: thank you. thank you. >> i don't know if she saved the best for last. but, you know. we're hanging in there. the first thing i want to say, and it troubles me every time this happens. in your exchange with senator warner, when you talk about working people, you know, the answer is always, let's improve their job skills.

height height let's, -- ms. heitkamp: let's, you know, get them more training and they'll get a better job someone has to be a c.n.a. someone has to drive a garbage truck. those jobs don't pay a living wage. and that's why so many people are frustrated. because these jobs aren't going to go away. these jobs are essential. whether it's being wait staff in a restaurant or whether it is being a c.n.a. in naursing home or whether it is in fact, you know, delivering pizza. and so we need to be really careful when the response to wage inequality or income inequality is more skills for the workers. because i think it doesn't focus the attention on the value of work. and what we need to do to improve the opportunities for people who work every day. and i know you don't intend that by i just felt like i had to get that off my chest. the challenge that i have in north dakota is we're

countercyclical, as you know. we're fundamentally a commodity-driven state. commodity prices have taken a toll. whether it's in our agricultural sector or whether it is in the energy sector. and that's been exacerbated by high dollar value. i had a gentleman once ask me, i said, i can't figure out in north dakota if a high dollar value is good or bad. i said, let me help you with that. it's bad. because we're fundamentally an export state. but i will tell you, we are deeply concerned about currency manipulation. we're deeply concerned about the challenges of having to compete against other currencies and other markets. and that has national and i think international ramifications. but i also want to point out that in production, oil production, gas production, we have lost probably globally about 250,000 jobs and about 100,000 jobs in this country. that's a huge hit. and it really was that

production sector, whether we're talking about agriculture or whether we're talking about oil and gas, that voided this economy during the tough times. there has been so little attention to the challenges of commodity producers. not just, you know, -- not people who invest in commodities, but the challenge of commodity producers. what is the fed doing to analyze the challenges for commodity producers and to analyze what the dollar value increase and potential currency manipulation means going forward to production of commodities in this country? ms. yellen: we're looking critically. commodities, their prices and trends are a huge global driver and driver for the united states. we look carefully at the factors that are resulting in low commodity prices and trying to understand the extent to which low prices reflect supply

or shifts in demand in various emerging markets. ms. heitkamp: what impact do you believe the dollar value has had on profitability of commodity production in this country? ms. yellen: well, i -- the strong dollar, when the dollar appreciates, it typically tends to push down oil prices. so, the link that you're suggest something certainly there. -- suggesting is certainly there. we have a global economy in which there is considerable weakness in many parts of the world. including europe and japan. countries are adopting expansionary monetary policies in order to bring inflation up to their desired target levels. and to address weakness in their own economies. the u.s. is a 4.9% unemployment

rate, it's far more advanced in that process of recovery. and the different cyclical positions of our economy, our different economies are a factor that is pushing up the dollar. the dollar in part reflects disproportion at strength in the u.s. economy -- disproportionate strength in the u.s. economy. that's a natural response to it . currency manipulation is something that -- the u.s. treasury is responsible for currency policy and it's something that they would not sanction. the g-7 has spoken out against it. but we do believe that countries should be able to use tools of policy, like monetary policy, for domestic ends. ms. heitkamp: obviously one person's monetary policy is another person's currency manipulation. i think we need to be very cautious in how we characterize

monetary policy in other countries, least we not limit our access to the tools we may need. ms. yellen: i think that's very important. ms. heitkamp: in the time that i have remaining. i want to thank you for your patience and you sat through a lot of hours here. i want to talk about something that i've been working on that has caused some concern within the fed organization. and that is cost-benefit analysis and review of cost-benefit analysis of independent agencies. senator warner and portman have pursued a bill for a number of years which in fact asks that there be an independent review of cost-benefit analysis of independent agencies. you've been subject to an executive order, that really is advisory, near as i can tell. we're trying to figure out how we can get a second opinion on your cost-benefit analysis. and i think that's an essential piece of this, if we're going

to do the appropriate oversight. and so i would just like a commitment that the fed will work with us to try and understand your need for independence, but to please appreciation and understand our need for legitimate oversight and tools that help us with legitimate oversight. ms. yellen: we're certainly willing to work with you on that. as your comment indicated, you recognize the importance of independence for regulatory agencies, that we not be subject to executive branch review. ms. heitkamp: and we have worked to try and figure out how we replace oira as the reviewing agency, how we engage even to the point where contract with independent economists to actually look at this analysis and get a second opinion. and i think, you know, you're kind of caught in the middle here. people who don't think you do enough and people who think you do too much. and one of the ways that i think we can broaden support

for the fed is broaden transparency. you know, to live the best point, tell us why you're making a decision, if you believe that the living will is appropriate. tell us why you made this decision on cost-benefit. i know you have been very interested in being more transparent without being disruptive to markets. i appreciate the difficulty of the lane that you're in. but we need these tools in order to do our oversight and we need these tools kind of going forward. so i look forward to working with you. this is not an idea that's going to go away. it's an idea that has been introduced over and over again and we would appreciate any input so that we can accomplish what we want, which is to not set monetary policy, but give us the tools that we need to review what decisions you make. thank you, mr. chairman. i'm done. mr. shelby: thank you. the chairman will return in a moment. he has three or four questions, in the second round.

i'll ask a couple of questions now and i think we can dismiss you, madam chair. i want to ask a question about senator heitkamp's views on cost-benefit. mr. brown: a lot of us have re-- are very concerned about these efforts on cost-benefit analysis and where it could take us as a nation. i recall as you do, and we've talked about this before, when the president or when the president signed dodd-frank, the leading financial services lobbyists in this town said it's halftime. like an alarm to a lot of us, that we knew they were going to do -- wall street was going to do everything possible to slow walk and delay and lobby and push back against any of the dodd-frank implementation that we all cared about. and that we -- the reason we passed dodd-frank. this whole cost-benefit analysis idea frankly -- i'm not questioning anybody's motives, particularly senator

heitkamp's, but is best way to weaken dodd-frank and it's really kind of the dream of wall street to keep this slow walk going and slow it down even more. it's not just financial regulation. you've done good work at the fed. i wish the fed in the past had done more. but generally regulators are trying. but this will undercut your efforts, this cost-benefit analysis bill. and ultimately lead to weakening health and safety rules, which has been the long-time battle in this institution. talk about the battle between the conservators and the innovators. the conservators wanted to preserve their privilege and power and the innovators wanted to move the country forward. cost-benefit analysis just helps the powerful people in this town resist any kind of regulation that makes people's lives better. whether it's health, whether it's safety, whether it's safety and soundness of the banking -- of the financial system.

so i want to ask a question about that and about your letter. senator rounds also asked you a question earlier about cost-benefit. how can you be against regulatory reform, how can you be against cost-benefit analysis? but it's obviously, how do you calculate the benefit of a rule that contributes to safety and sound snns it's so much harder to quantity -- soundness? it's so much harder to quantify the benefits than it is the cost. that's not even counting the slow walk that this will require and how easy it is to delay things by the cost-benefit analysis. you sent a letter out signed by .any other agency heads explain why that's so important. ms. yellen: we were very concerned that the bill under consideration, first of all, would have a severe impact on the independent agencies' ability to put out rules that

would involve executive branch presidential involvement. i agree with you, it would cause very significant delays in implementing regulations and probably result in unnecessary and unwarranted litigation in connection with our rules. as you said, congress, we're putting out rules very often in situations where congress has decided there is a safety and soundness issue. they want us to address by imposing safeguards in a particular areament and our job is to figure out how to do that where congress has already judged that the benefits are worthwhile. as you said, the financial and s took a huge toll amazing economic cost to the ountry and the global economy.

we tried to create a safer and sounder financial system, what we've done, for example, in connection to capital rules. there has been cost-benefit analysis. while there are some costs, the benefits of reducing the probability of a financial crisis overwhelm those costs. o our job is to find the least burdensome way of putting out rules to implement what congress has told us to do. we publish advanced notices of proposed rulemaking, notices of proposed rulemaking, take comments, look for and discuss alternative ways that we might approach promulgating a rule to reduce burden and take comments into account. so, it's not as though there is not a weighing of benefits in

cost -- and cost that are involved. mr. brown: how long typically is that process? ms. yellen: the processes can take years. and especially when there are multiagency rules that have to be put in place. i mean, we we are coming close to completing the dodd-frank agenda of rule making but it's taking a very long time and we have been very actively engaged in trying to do this as rapidly as we possibly can. mr. brown: it's taken half a decade for the regulator, you o.e.c. and the others it's take an decade plus to do dodd frank, can you guess what it would have taken if there'd been a cost-benefit analysis like this? ms. yellen: clearly it would be much more burdensome and take much longer. there's no doubt about it. i