twice. he has given all the money to the business owners. now they pay no taxes here in kansas. we are hundreds of millions of dollars short going into the coffers here in kansas. now, four years later, he still wrong.t say, hey i was this trickle down does not work. if you are building tables, a business owner building tables and nobody is buying tables you are not going to expand your business. you keep your tax money, you buy boats, cars, put it in your roth ira or whatever. trickle down is not working. host: that is brian from kansas. our last caller. we will be back tomorrow morning at 7:00 a.m. eastern, for a clock a.m. pacific. we are taking you live to the

hearing with federal reserve chair janet yellen king underway momentarily. yellen getting underway momentarily. [gavel strikes] >> today we received testimony from federal reserve chair janet

yellen regarding the fed semiannual report on monetary policy. while humphrey hawkins' testimony is a key part of congress's oversight of our nation's central-bank, it is not sufficient to provide congress and the american public with a full picture of said policymaking. best of said policymaking. i have often remarked on the importance of strength -- the importance of transparency. one of the fed's reasoning for maintaining independence is to avoid a little sizi avoid politicizing -- avoid politicizing its position. while the line between politics and policy can be fine, it should nonetheless be clear and unambiguous. the fed should act in a manner consistent with its statutory mandate in the interest of the stability of the u.s. economy.

whether or not such policies aligned with the goals of congress or the administration. our central bank is independent and should remain so. the desire to preserve the fed's independence should not preclude consideration of additional measures to increase the transparency of the board's actions. some have argued better disclosure of monetary policy strategy could actually bolster independence. earlier this year, a prominent group of economists, including three nobel prize winners, agreed in a statement. "publicly reporting a strategy helps prevent policymakers from bending under pressure and sacrificing independence." the fed continues to resist calls by congress to disclose monetary rules even though it rules it uses such

regularly. the fed has beard from data-driven analysis toward the exercise of even more discretion. for example, rather than adhering precisely to stated goals of inflation and employment, the federal open market committee appears to base certain decision on factors such as "financial and international developments that cannot be derived through quantitative analysis." the fed's regulatory conduct has become increasingly opaque and complicated. this is demonstrated by the inherent complexity and overlap in capital and liquidity rules, stressd testing -- testing and revolution -- resolution and recovery planning. a panel experts testified before this committee that conflicts -- complex regulations might increase, rather than decrease, risk in the banking system. criticized

transparency in the rulemaking process. this is true of the rules established by the international committee and him posed by domestic regulators on our two shins without -- our institutions without adequate tailoring. the fed did not do its own study 3. basel it relied on the committee's analysis which included data from only 13 u.s. banks out of the 249 banks that were studied. such an approach is concerning. the fed should perform rigorous analysis not only for each rule but also on a cumulative impact of capital and liquidity regulations. if our banking regulation -- making regulators are unwilling or unable to conduct such analysis we should consider mandating it.

european commission analyzed these factors in its ring tory framework. in a recent call for evidence, it selected feedback from the "to evaluate the interaction between financial regulations and ss their cumulative impact." we should expect no less from ssessegular -- and ac there can dilutive impact." -- cumulative impact." >> madam chair, welcome back to the committee. since her last appearance in economy has made only modest gains. inflation remains low. job creation seems to have slowed. economies of trading partners are struggling. uncertainty most notably with the possibility of britain's exit from the european union. uncertainty remains high. the face of these headwinds, you would think politicians here at

home would do everything we could to promote our economy. instead, many of them seem intent on doing the opposite. my colleagues on the other side of the aisle are failing to invest in infrastructure and public works and research and development and education and training. the very building blocks of our economic success. they are trying their level best to undermine the safeguards that dampen the economic crisis and were erected to prevent the next one. they would like to repeal dodd-frank and return our country to the casino capitalism that caused so much ruin for families and communities across our country. they are trying to politicize and undermine the federal reserve despite key actions it has taken to help the recovery. congress rated its reserves and reduced dividend payments in order to pay for a transportation bill. many of my colleagues are trying

to insert congress into monetary policy decisions. this committee has yet to hold a hearing on the two nominees to the board of governors of the federal reserve. bad legislative ideas continue to multiply. the presumptive nominee of the republican party is a factory of bad ideas. moody's analytics released a report that states that if adopted, his economic puzzles with leave our economy "significantly weaker." he suggested he replace the current fed chair based on imagined partisan political considerations. that is a bad idea. you might argue someone is failing to pursue the right course and monetary policy but partisan labels should never be part of that discourse. the presumptive nominee has suggested he would simply ,enegotiate or in a on our debt comfortable in the belief that the united states can never default because "you print the

money." he also things along with the runner up with the republican nomination that this country should return to the gold standard. when ron paul was promoting this idea a few years ago the wall street journal reported on a pole of a panel of economists and whether a return to the gold standard would improve price stability and unemployment. the response was split between those who disagreed and those who strongly disagreed. not one person thought it would help. we don't know if it's just a bad idea or a really really bad idea. as one university of chicago professor put it, love of the gold standard implies macroeconomic illiteracy. if your own very good brain is your top consultant i suppose unanimous opinion of a diverse group of economists does not count for much. for those of us in the evidence-based world, the prospect of this nominee trading

imagined for real authority gives added significance to what we do in the banking committee and congress. that's true in general and particularly true with maintaining the independence of the federal reserve and other regulators of the financial services industry. i think you have shown your commitment to an independent, data-driven federal reserve. i commend you for that. i hope we can work together to maintain it. >> your written testimony, and it's entirely, within a part of the hearing record. we welcome you today. you are no stranger to this committee. proceed as you wish. chair yellen: thank you. lby, rankingmie member brown, a number of members of the committee -- and other members of committee, in my remarks today i will briefly discuss the current economic situation and outlook before turning to monetary policy.

since my last appearance before this committee in february, the economy has made further progress toward the federal reserve objective of maximal employment -- of maximum employment. while inflation has continued to run below are 2% objective the federal open market committee expects inflation to rise to that level over the medium-term. the pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach to adjusting an attorney policy remains appropriate. in the labor market, the cumulative increase in jobs since its trough in early 2010 has topped 14 million. the unemployment rate has fallen more than five percentage points from its peak. as we detail in the monetary policy report, jobless rates

have declined for all major demographic groups including for african-americans and hispanics. despite these declines it is troubling that unemployment rates for these minority groups remain higher than for the nation overall and that the annual income of the median african-american household is still well below the median income of what very -- of other u.s. household. during the first quarter of this year job gains averaged 200,000 per month. just a bit slower than last year's pace. while the unemployment rate held steady at 5% over this period, the labor force participation rate moved up noticeably. average and may, the taste of job gain slowed to only 80,000 per month or about 100,000 per month after adjustment for the effects of

the strike. the unemployment rate fell to 4.7% in may but that decline mainly occurred because fewer people reported that they were actively seeking work. a broader measure of labor markets slack that includes workers marginally attached to the workforce and those working part-time who would prefer full-time work was unchanged in may and remains above its level prior to the recession. overreactrtant not to to one or two reports. several other timely indicators of labor market conditions still look favorable. one notable development is that there are tentative signs that wage growth may be picking up. we will be watching the job market carefully to see whether the recent slowing in employment growth is transitory as we

believe it is. economic growth has been uneven over recent quarters. u.s. inflation-adjusted roast rustic product is currently estimated -- gross domestic product is estimate it to increase at an annual rate of -- .75%arters percent in the first quarter of this year. hitenergy sector was hard by the steep drop in oil prices made 2014. investment, business outside of the energy sector was surprisingly weak. the available indicators point to a noticeable step up in gdp growth in the second quarter. in particular, consumer spending has picked up smartly in recent months. supported by solid growth in real disposable income and the ongoing effects of the increases

in household wealth. in housing -- and housing has continued to recover gradually. by income gains in the low level of mortgage rates. the recent pickup in household spending, together with underlying conditions that are favorable for growth, lead me to be optimistic that we will see further improvements in the labor market and the economy more broadly over the next few years. monetary policy remains accommodative. low oil prices and ongoing job gains should continue to support the growth of incomes and therefore consumer spending. fiscal policy is now a small positive for growth. global economic growth should pick up over time, supported by a accommodative monetary policies abroad. as a result, the fomc expects that with gradual increases in the federal funds rate economic

activity will continue to expand at a moderate pace and labor market indicators will strengthen further. turning to inflation, overall consumer prices measured by the price index for personal consumption expenditures increased just 1% over the 12 months ending in april. up noticeably from its space through much of last year -- it's pace through months of last year -- through much of last year. much of the shortfall continues to reflect earlier declines in energy prices and lower prices for imports. core inflation, which in -- which excludes food and energy prices has been running close to 1.5% area as the transitory influences holding down inflation fade and the labor market strengthens further the committee expects inflation to

rise to 2% over the medium-term. in considering future policy decisions, we will continue to carefully monitor actual and expected progress toward our inflation goal. of course, considerable uncertainty about the economic outlook remains. the latest readings on the labor market and the week pace of investment illustrate one downside risk. the domestic amanda might falter. in addition, although i am optimistic about the longer run prospects for the u.s. economy, we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future. vulnerabilities in the global economy also remain. although concerns about slowing growth in china and falling commodity prices appear to have

eased from earlier this year, china continues to face considerable challenges as it rebalance is it economy toward domestic demand in consumption and away from export led growth. more generally, in the current environment of sluggish growth, low inflation, and already accommodative monetary policy, in many advanced economies investor perceptions are of an appetite of risk can change abruptly. one development that could shift investor sentiment is the upcoming referendum in the united kingdom. a u.k. vote to exit the european union could have significant economic repercussions. for all of these reasons, the committee is monitoring global economic and financial developments and their implications for domestic economic activity, labor markets, and inflation.

i will turn next to monetary policy. the fomc seeks to promote maximum employment and price stability as mandated by congress. given the economic situation i just described, monetary policy remains accommodative over the first half of this year to support further improvements in the labor market and a return of inflation to our 2% objective. specifically, the fomc has maintained the target range for the federal funds rate at one quarter to one half percent -- one quarter percent to one half percent. committee class actions assessmentarefully for the setting of monetary policy taking into account continuing below target inflation and the mixed readings on the labor market and economic growth seen this year.

proceeding cautiously in raising the federal funds rate will allow us to keep the monetary policy -- the monetary support to economic growth in place. while we assessed whether growth is returning to a moderate pace, whether the labor market will strengthen further in whether inflation will continue to make progress toward our 2% objective. another factor that supports taking a cautious approach in raising the federal funds rate is that the federal funds rate is still near its effective lower bound. if inflation were to remain persistently low or the labor market were to weaken, the committee would have only limited room to reduce the target range of the federal funds rate. if the economy were to overheat and inflation seems likely to move significantly or persistently above 2%, the fomc

could readily increase the target range for the federal funds rate. the fomc continues to anticipate that economic conditions will improve further and that the economy will evolve in a manner that will warrant gradual increases in the federal funds rate. in addition, the committee expects that the federal funds rate is likely to remain for some time below the levels that are expected to prevail in the ,onger run because headwinds which include restraints on u.s. economic activity from economic and financial developments abroad, subdued household formation, and meager productivity growth, mean that the interest rate needed to keep the economy operating near its potential is low by historical standards. if these headwinds fade over time as the committee expects

gradual increases in the federal funds rate are likely to be needed. in line with that view, most fomc participants, based on their projections prepared for the june meeting, anticipate the values for the federal funds rate of less than 1% at the end of this year and less than 2% at the end of next year will be consistent with their assessment of appropriate monetary policy. the economic outlook is uncertain so monetary policy is by no means on a preset course and fomc participants projections for the federal funds rate are not a predetermined plan for future policy. the actual path of the federal funds rate will depend on economic and financial developments and their implications for the outlook and associated risk. stronger growth or a more rapid increase in inflation than the

committee currently anticipates would likely make it appropriate to raise the federal funds rate more quickly. conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. we are committed to our dual objectives and we will adjust policy as appropriate to foster financial conditions consistent with attainment over time. the committee is continuing its policy of reinvesting proceeds from maturing treasury securities and principal payments from agency debt and mortgage backed securities. as highlighted in the statement released after the june fomc meeting, we anticipate continuing this policy until normalization of the level of federal funds rate is well underway. maintaining our sizable holdings of longer-term securities should help maintain accommodative

financial conditions and should reduce the risk that we might have to lower the federal funds rate to the effective lower bound in the event of a future laws ever -- large and diverse shock. i would be pleased to take questions. years,m chair, in recent the fed has increasingly used forward guidance to shape market expectations. the fed's frequently incorrect predictions have caused it to lose credibility. how would you rate the utility of your forward guidance over the past several months? in the past: we have useds, forward guidance less than we did in the aftermath of the financial crisis when we named

calendar dates or gave explicit economic conditions that we would need to see prevailing in the economy before considering an increase in the federal funds rate. we used forward guidance in the aftermath of the crisis in order to help market participants understand how serious the crisis was and how long we thought we would need to maintain the federal funds rate. mr. shelby: are you saying you're not using forward guidance now or not relying on it is much as you are? chair yellen: we do publish every three months, participants' projections for the paths of the federal funds rate that they believe will be appropriate in light of their expectations about the

performance of the economy. sometimes, those paths, which participants discuss in their remarks, are thought to constitute forward guidance about policy. i do believe those projections are helpful to the public in the path of the economy participants think is likely and how if those conditions prevail they would see monetary policy is evolving. as i always emphasize on every occasion, including in my prepared remarks, those paths -- i think they are -- while i think they're helpful, are not in any way a commitment. we are constantly trying to evaluate in light of incoming information, the outlook and risks. you see those paths change over

evaluationupdate our of the economic outlook. i think that is a critical part of monetary policy. mr. shelby: as the slowing of the economy in certain areas caused you to hold back a little bit? at times the information that you see. chair yellen: for quite some time we have seen mixed development in the economy. slowing because of decline in energy prices. strong dollar, foreign growth. others providing an outside throughout until the last couple of months. progress in the labor market is held up extremely well. i mentioned -- a substantial

slowdown from the first quarter and from last year. it is important for us to see ongoing progress in the labor market. that is something we want to carefully evaluate and is the focus of our attention. economic growth has picked up from a week pace. if that slowdown is a reflection of weak growth earlier in the year i'm hopeful that we will see stronger job gains going forward. while it is an important report, i would emphasize that it is important never to overflow the significance of a single report or a small amount of data. other information about the labor market suggests it continues to perform well.

mr. shelby: these see a clear path ahead as far as your victory going forward -- as far as your trajectory on the economy picking up? chair yellen: it is our expectation that is what you see in projections that were provided in connection last week with our june fomc meeting. of coarse there is uncertainty about that. given that inflation remains low , we have the ability to watch try toc developments and make sure the economy is unfavorable path before raising rates. mr. shelby: the fomc's target for the fed funds rate has been since december 2008. a report from the bank of international settlements found that the prolonged period of

interest rates may be damaging the u.s. economy resulting in "too much debt and too little growth o." the report states that low rates may have contributed in part two costly financial booms and busts. do you agree that low interest rates can have negative long-term effects on the u.s. economy? that yellen: i believe persisted low interest rates we have had have been essential to achieving the progress. of course low rates can induce households for banks or firms to reach for yield and can stoke financial instability. we are very attentive to that possibility. i would not at this time say that the threat for low rates to

moderate to financial stability are elevated. i do not think they are elevated at this time. it is something we need to watch because it can have that impact. you mentioned debt. i do not think we are seeing an undue buildup of debt throughout the economy. leverage remains at moderate levels. well below where it was prior to the crisis. we are looking at credit growth, which has picked up but is not at worrisome levels. we are monitoring for potential impact of low rates on financial stability, which i think is appropriate. in an interview earlier this month governor tarullo stated that the fed is reviewing the application of stress tests to regional banks and he uses the word probably will exempt regional banks from the

qualitative or should of c car. the fed announced it was tailoring c car but the tailoring turned out to be a restatement of existing policy. what assurances can you give that this current review is a meaningful effort to tailor in a thethat recognizes different profiles of banks? when you expect to publish such changes? chair yellen: we are engaging in a serious review that has been informed by consultation with financial sector participants, outside economists. i do think you will see meaningful changes. the suggestion that governor betweenmade that banks $50 billion in $250 billion

subject to the stress test might be left out of the qualitative car.ions of c the stress test would be applied at all qualitative part of ccar that relates to capital planning, they might be exempted from that. . think that is very likely we will look at other changes as well that as you said are lysigned to appropriate tailor it so that its impact is most significant for the largest and most systemic firms. it will be a meaningful review. i believe we will be proceeding on it shortly. mr. shelby: my last observation has to do -- you eluded to the fact that come thursday there is a big referendum in the united kingdom on whether to stay in the european union or start leaving.

what is the real implication or can you tell it this point if the british were to leave the common market, on us? chair yellen: it is a very important relationship that would be significant for the united kingdom and for europe as a whole. in ank it would usher period of uncertainty and it is hard to predict. there could be a period of financial market volatility that would negatively affect financial conditions. and the u.s. economic outlook that is by no means certain. it is something we will be carefully monitoring. mr. shelby: thank you. senator brown. mr. brown: thank you mr. chairman. madam chair, i think you for your work on the recent insurance rules are you i'm pleased that the fed has put out

in advance notice of proposed rulemaking to implement capital standards for the large insurance companies. i appreciate how quickly you have moved on this and your constructive dialogue with stakeholders. i think your response to our efforts made a huge difference in doing this right. the banking committee will have a hearing on capital liquidity rules. please discuss for us the fed's approach to capital and liquidity rules. specifically how these rules made our financial system stronger. that yellen: i do believe the enhancement we have put in place to capital and liquidity by firments tailored size and systemic importance have made an enormous difference to the safety and soundness of

the u.s. financial system. the quantity of capital at the largest banking organizations is essentially double from before the crisis and the quality of that capital is very much higher. highertion to imposing risk based capital and leverage testingents our stress and capital planning exercises are very detailed forward-looking exercises that that theng to ensure largest firms in extremely stressful conditions would be able to go on supporting the credit needs of the u.s. economy, households and businesses. i think this has been a significant exercise and has resulted in superior understanding by the firms

themselves of the risks they face and improved management of those risks. toital is not sufficient ensure financial stability. often liquidity is what disappears in the financial crisis and we have put in place, especially for the largest taking organizations, enhancements to liquidity through the liquidity coverage ratio and our proposed yet stable funding ratio. i think this also works to enhance financial stability. i think we have a much safer and sounder crisis prone system because the enhancements put in place. mr. brown: we have talked in the past about how the current labor market data do not reflect what has happened to minorities whose rates of unemployment are so

much higher than the average. in your testimony for the first time, thank you for that, you talked about minority unemployment rates and included a new section in the semiannual monetary policy report with this data and a discussion of whether the gains of the economic expansion has been widely enough shared. discuss why the fed made this addition to the report. chair yellen: the federal reserve's job is to try to achieve maximum employment and brought gains in the labor market that are as widely distributed as possible. i believe it's very important for us to monitor how different groups in the labor market are perceivesee if what we is broad-based labor market improvement as being widely -- there are very significant differences in success in the labor market across demographic

groups. i think it's important for us to be aware of those differences and to focus on them as we think about monetary policy and the broader work at the federal reserve does in the area of community development in trying to make sure that financial tovices are widely available those that need it including low and moderate income. mr. brown: that brings to mind a meeting i had a few minutes ago with three people from my hometown of cleveland. three community leaders about the lack of diversity in terms of gender and ethnicity and race and a lack of diversity in terms of ideas that are the class c directors in many of your federal reserve's. your reserves around the country including in cleveland. i would let to see -- and i

think many of us on this panel would like to see a more diverse federal reserve system including reserve bank residents, the border district directors, advisory committees and employees. discuss what you have done as chair of the fed. what more you can do to better address the financial needs of all americans as you reach into the community better. i know you have a goal of doing that. thoseularly serving unserved and underserved by the financial system. chair yellen: i am personally committed and the federal reserve as an organization is committed, to achieving diversity. within our workforce and within our leadership at absolutely all levels. i believe we have made progress. i'm committed to seeing us make further progress. in order to make sure that we

are taking all of the steps that we possibly can to promote diversity and economic inclusion, i have launched an interdisciplinary effort within the federal reserve to focus on all of our diversity initiatives both in terms of our own hiring, hiring throughout the federal reserve system, our work in community development to promote access to credit, our work in the patent system to foster better and faster payments that can promote financial inclusion. i do believe we're making progress but i want us to make greater progress. if the board, minorities currently represent 18%. women represent 37% of senior leadership. that is relatively common that throughout the federal reserve

system you would see similar numbers. we have worked very hard to increase diversity among the reserve bank directors and directors on the bridgeport and made quite a lot of progress. at this point minority representation is about 24% of reserve bank branch or directors . about 30% are women. it's a matter that the board focuses on annually in its oversight of the reserve banks. we regularly track our progress in increasing diversity in the boards of directors and it is something we will continue to focus on. diversity is an extremely important gold and i will do everything i can to further advanced article. mr. brown: i want you to share with us in a continual way the

progress you are making there, especially in the class c directors that they more represent the community. lookust in diversity of and background but diversity of ideas and all of that. currently, a record number of job openings. almost 6 million. may jobs data shows workers are not being hired for these jobs. what do we do to get americans who want to work into these jobs? what do we need to do better? chair yellen: there are an enormous number of job openings of there is a certain degree mismatch of workers who are looking for work with the job openings that are available. , andn the federal reserve i personally have been looking at workforce development ,rograms, job training programs some of which i think are doing a very good job of trying to

build the skills and that are needed to fill available jobs and work to match workers with jobs. i was recently in philadelphia and visited a very impressive places workers who have had trouble in the job are to into real jobs that can lead careerrd mobility in a in some of the philadelphia hospitals. i've seen such programs around the country that i think have been effective. obviously, our job at the fed is to make sure we have a strong job market. that there are enough jobs that are being created. helping that matching process, looking at a training programs and educational opportunities.

i think that is a piece of the puzzle as well. mr. brown: as you have from time to time mentioned that congress needs to do a better job in terms of investment in public works and infrastructure. also, you have made comments of job training. can you give us more instruction on what we should do here? chair yellen: i'm not going to give you detailed instruction. i think this is up to congress to decide. eithere looks at inclusion or inequality or more broadly the fact that we are suffering as a country from very low productivity growth, disappointingly low productivity growth, and we think about what the factors are that over time influence productivity growth, the things that are -- that have

long been identified as important our investments both private and public. if we have had private investment is the financial crisis very weak. private and public investment, education and workforce development and the pace of technological progress, which is influenced by the environment that contributes to innovation, the startup of new firms. research and development and other basic support. i think all of those areas should be on congress's list to focus on. mr. brown: thank you. mr. shelby: senator corker. mr. corker: i had numbers of conversations with your predecessor about qe2 and qe3. i know the fed announced in 2014 the normalization process and

both your predecessor and this process is to 2014 stated that they securities we had built up on the balance sheet would be held to maturity. and then they would run off the balance sheet. you basically announced today qe4.we are embarking on inreinvesting the proceeds new securities, which is a major policy change, is it not from where the that has been? allowing the securities to run off. maybe i'm misunderstanding what you're saying. i thought heard you say the fed is now, when we reach maturity on the securities, going to reinvest them, which is a pretty big policy change. chair yellen: it is not a policy change. that has long been our policy. ever since qe3 ended we made clear that we would continue to

reinvest maturing proceeds within -- we have been doing that ever since. we did say that as the economy recovers and the fed funds rate rises to a somewhat higher level than it is at present that a day would come when, based on economic and financial conditions, the committee would begin the process you just described of gradually allowing securities to run off our balance sheet so that we reduce our holdings to a more normal level. we fully intend to do that. i can't give you a precise timetable for when that policy will begin. going to depend on how the economy evolves. a long time ago we put out a set of normalization principles where we made clear that was how we would proceed.

namely, continue reinvestment until after we had begun the process of raising the federal funds rate and achieved sufficient progress that remains our intention. corker: thank you for clearing that up. last time you were here we alluded to negative rates and i know that is what has happened in japan and the eu. you are looking into the you felt youhether have the legal basis to pursue negative rates. have you come to conclusion relatives of that? chair yellen: i believe we do have a legal basis to pursue negative rates. i want to emphasize it is not something that we are considering. this is not a matter that we are actively looking at, considering. when we have looked at it or look at that in the past, we have identified significant

shortcomings of that type of approach. i don't think we will have to provide accommodation and if we do that is not something on our list. mr. corker: very good. i appreciate you clearing that up. japan and the eu have not had good benefits from that. at least not a benefit we can see that has been good for them. i appreciate you clearing that up. we look at the taylor rule from time to time and i know the fed has not adopted the taylor rule. if you look at it, bloomberg has a chart that tracks it. fed rates and the taylor rule have been -- have been within a range. biggest dichotomy we have seen in years and years between fed funds rates and what they would be if the taylor rule was being employed. today is is at 25 to 50 basis points to it under the taylor rule we would be at 3.7%. that will be a target fed rate today.

big range difference. is that because of the had -- the headwind? chair yellen: i believe it is because of the headwinds. one of the numbers in the taylor rule reflects professor taylor's estimate of what we sometimes refer to as the neutral level of the fed funds rate. it's a level of the fed funds rate that is consistent with the economy operating at full employment. that is something that, by our estimate, has been very depressed in the aftermath of the financial crisis. discussions about secular abouttion are very much what is the level of interest rates that is consistent with the economy operating at full employment.

i'm hopeful that rate will rise over time although i am uncertain area most of the divergence between our settings and what would be the higher levels that would be called for merely reflect the headwinds facing the economy since the financial crisis. mr. corker: the labor -- the employment rate is misleading relative to where we are in the labor market today. meaning that there is still a lot of excess capacity. i know ranking member brown was alluded to that. that a claim is a little bit off just because you're not really feeling the employment levels even though the rates that we show our there. the involvement by the labor market is not what we would like to be. .iving wills i know under section 165 of dodd-frank of the larger

institutions are supposed to present living wills. you all are supposed to ensure they can be resolved in bankruptcy and i know we're going through hopefully the final iteration in the next several months but i was confused in that governor powell recently mentioned that if the fed just keeps raising capital levels these institutions will own their own downsides or become less complex. a confused by that. is the federal reserve, if these institutions cannot be resolved in bankruptcy, going to section 165 of dodd-frank allows them to do call on the banks to do it themselves? chair yellen: we are assisting -- insisting that the firms address deficiencies in some cases and in other cases shortcomings we have found and numerate it in living wills and the last submission.

there's a timetable for doing that you if the firms fail to address decisions or if later on , by the summer of 2017, they fail to address the shortcomings, we have identified and refined them deficient, dodd-frank doesn't say the fdic and the fed can impose higher capital requirements, liquidity requirements, or ultimately structural changes. don't expect to have to go there . we are insisting that the firms address the deficiencies in short, we have carefully identified. mr. corker: thank you madam chairman. as to chairman. mr. shelby: senator reid. reid: it shuts me over the last several years you had a difficult challenge.

we have been operating in some respects with one hand tied behind our back. had a complementary fiscal policy that invests in infrastructure and other things it allows you the room to raise rates if necessary or to complement your activity with what we are doing. point you just made in response to senator brown is that this productivity gap, some of that is regulated to decrepit infrastructure. it takes two hours to get someplace, two lost hours for someone delivering a package. if it takes 10 minutes into superhighway, that is productivity increased. that you a position are doing all you can but it is not enough and we have to step up. is that something you attend to

sympathize with? chair yellen: i think in the united states and many other advanced nations where interest rates are at very low levels it is common to say that monetary policy, central banks, who is carrying the load in many parts has,e world, fiscal policy because of concern about large debt or deficits, not played a supportive role. i think we have achieved a lot in the united states. we have created over 14 million jobs. the unemployment rate is come down to 4.7%. inflation is still under 2% but up.lieve moving we are making good progress but if there was to be a negative shock to the economy, and i mentioned this in my testimony, starting with very low levels of .nterest rates

we don't have a lot of room using traditional tried and true method to respond. if fiscal policy were more expansionary this neutral level of interest rates, one of the factors that affects what level of interest rates is neutral for the economy keeps it on an even keel. the level would be higher with a different stance of fiscal policy. progress we have made but i think the sense is not only could we have made more progress that we're at a point where you have exhausted most of your leverage in a nonfinancial sense. your leverage and if there was a shock, you have very little to respond with. chair yellen: we have the same tools we use earlier. asset purchases, forward guidance. maturity distribution. duration of our portfolios.

those are the tools we would rely on. mr. reed: the other part of this somema is the sense that places, because interest rates have been so low there is a possibility of creating a bubble. driving people into equities because there is no return and the price is driven up not because of the underlying quality of the equity but simply that is where they can get some money fast. are you concerned about the? chair yellen: yes. , i don't seelier signs of extreme threats to financial stability at this time. this is something we monitored very closely. it is something that can happen when a low-interest rate environment. i don't think i see any broad-based evidence of those financial stability concerns but it is something that is possible. mr. reed: with respect to cyber

security, we had a discussion last time you were here. it is an increasing problem. federal reserve and public reports that you have been breached in some respect. do you have the authority to companiesur regulator to put people on their boards that have cyber security expertise?and also to publicly disclose what their cyber security general for evidence are or something to indicate to the public that they are taking this seriously? chair yellen: it is a focus of our supervision. we do have standards that we expect financial institutions to meet. just what's expected depends on the complexity and importance of the firm. we do regard this as a significant threat.

on your question of boards of directors, i don't know that we looked at that. any to get back to you on the. we are certainly supervising financial institution ability to address cyber threats. >> thank you for your service. in april the fed finally released the results of a 2015 resolution plan of eight systematically important domestic banking institutions. and five of the nation's largest banks failed, including j.p. morgan chase and bank of america. that.questions related to first, the new york times in the fed release as stating, that's just that if

there were another prices today, the government would need to prop up the largest banks if it wanted to avoid financial chaos. ?irst question is, do you agree the first question is, what do the banks need to do on october 1 to fully remediate their deficiencies? thirst don't buy october should the fed take more systemic action like raising the levels? ms. yellen: that been preparing living wills, greatly increased their ability to be resolved in , byevent of trouble bankruptcy or alternatively title ii, is available.

i could not guarantee at this point. it depends on the circumstances in which a bank fails, that bankruptcy would work at this point as a means to resolve one of these firms. we have identified deficiencies and have an extremely careful spelling out in detail what those deficiencies are, that we want to see remedied by october 1. listedtion, we have jointly with dia a large number of specific short not -- that the firms have until 20 17 to remedied.

if the deficiencies are not remedied, pay attorney to deficiencies that would lead us of other remedies. we have learned a lot over the about whathe years it takes to resolve bankruptcy. i do think we have made substantial advances. >> in terms of the new york times quote to prop of the largest banks, you would not category we refute that possibility? well, i would not

that all ofpoint them are prepared for resolution on bankruptcy and >> would you soon thereafter considered a more stomach? yes.ellen: >> the second and last question is about the report -- the puerto rican crisis here you can i think the fed should be involved that i appreciate and agree. my concern is the fed has to be involved. do you think that has the to issue emergency loan or not?

ms. yellen: i think our authority is extremely limited and it would not be appropriate or us to give loans to puerto rico. we have very limited authority to buy municipal. -- municipal debt. the authority we have, i do not think it would be helpful to puerto rico and we do not have the ability to make a emergency loans. we cannot extend the loans of puerto rico and i do not think it would be inherently a matter , and it is not something that is appropriate for the federal reserve. >> thank you, madam chair, for your service and insight. i always appreciate it. recently international public

discourse, there are those who nationalwe reduce the debt by persuading creditors to take a haircut on their investment. policies like that would drive our economy off a cliff and endanger working families. i'd do not know of anyone more qualified to answer the question than you. what would be the consequences if the president of the united states would uphold with holders and less of the face value of their investments? this is a topic i whenspoken on many times we are faced with a debt ceiling type situation. consequences for the united states and a global economy of defaulting on treasury debt, that would be very severe.

u.s. treasury securities are the -- they play a critical and in financial markets the consequences of such a ifault, while uncertain, think there would be no doubt it would be harmful in the long run to u.s. interests and, at a would result in much higher borrowing costs for american households and businesses. >> saying you should take a haircut, it is a default because you're not paying the full amount you are obligated? for clarification purposes, and u.s. citizens such as state and local governments, and the federal reserve, own the

vast majority estimated at approximately six and 7%? u.s. entities and foreign entities. sen. menendez: ok. my understanding is just u.s. citizens in american -- and funds,n entities, mutual federal reserve, own the majority of u.s. debt and that would be 67 percent. for the record, if you could submit that, i would appreciate that. take aority would haircut for mr. trump, it would mean state local governments. that is outrageous. in the nearly eight years since the start of the financial economy has shown signs of progress but many data points indicate we are far from the full recovery in the labor market are you have advocated for the federal reserve passes use of a metric called the labor market conditions index.

that pulls data from 19 sources. labor market workers classified as part time has fallenc reasons, nearly 15 points over the last five months. has fallen to its lowest level since 2010 and my understanding is every other time the index has turned negative for five months or longer over the last 25 years, the fed has moved to ease monetary policy and not pay in it. i am concerned that given the for that has been laid out later this year and next, the fed will neither have the ability nor the will to temper the impact of the slowdown in the labor market. shouldn't the fed weight to consider additional rate hikes until we see growth in the labor market? releasedn: the numbers the level ofto

index but rather the change and the move that you have mentioned in the index suggests not that the labor market is not operating, it is operating at a according to the level of that index, which we do not publish. ande is loss of momentum that is what the negative numbers show and we have seen the recent jobin reports that i referred to in my testimony. for the last several months, a number of different metrics suggest a loss of momentum, not a deterioration in the labor market, but a loss of momentum in terms of the pace of improvement and that is an important consideration, as i mentioned. we believe that will turn around

and we expect it to turn around, but we are taking a cautious approach and watching very carefully to ensure that expectation is borne out before we proceed to raise interest rates. >> the final point, i want to and thet the letter other hundred 24 members of congress sent to you with improve and representation at regional banks, 83% of federal reserve what members are white. 92% of regional bank members are white. there is not a single president who is african-american or someone like me, latino. it is fundamentally wrong and i would share some diversity effort because the leadership on the issue always ofes to the top regardless

the institution. as a woman, we seem to be doing in the system but not much better with people of color and i hope you seriously consider such an effort. is yellen: i agree it extremely important and i will thaterything i can to see our performance improves in that dimension. >> thank you. your present -- predecessor discussed some of the limits of what monetary policy is and is not capable of. on numerous said occasions is that accommodative limit ofpolicy as the being only stimulative in the sense that it brings economic activity forward in time. it does not create new wealth goods or services but it shifts the timing of economic activity.

with chairman bernanke in that respect? ms. yellen: sometimes it brings forwardms. yellen: a decision that might have been made later. i think the stance of policy also has repercussions with more on thelasting impact state of demand. it is not only a matter of shifting purchases early by have a more accommodative financial conditions. there are repercussions i can be longer-lasting than that. you may disagree, but my sense of the academic consensus is the main effect of accommodative monetary policy is to induce economic activity that was going to occur later, at an earlier time and that was the

principal activity. but you are acknowledging there is some of that. ms. yellen: there is some but it is not the only thing. toomey: isn't it very likely the case that some of the economic activity that would be was trackedday forward in years gone by and it has already occurred in the past? it is very hard to know how large the effect is but i continue to thank our policy, fore example low mortgage rates, is continuing to boost activity in the housing sector. it has not only pulled activity forward to suppress it now. sen. toomey: the housing sector

has not recovered previous eyes. ms. yellen: it has undergone substantial shocks. sen. toomey: have you attempted to quantify how much economic would be occurring in 2017, 2018, and 2019, is happening now because of the ongoing activity of having these unnaturally low interest rates? we have tried to determine that and we have in the past looked at whether or not low rates have had less impact on spurring economic past,ty than in the whether or not there might be some continuation in the impact ourolicy but in the past, analysis suggested it is not the a matter of shifting timing of the economic activity but also stimulating investment and spending decisions. even if that is so

and my guess is the effect is shifting the timing and you may disagree, i got your impression from your predecessor that his view was that it is shifting and timing. i would think it is something the fed ought to be looking at because to the extent that is a significant effect, what you're doing today is damaging economic growth going forward to some extent. concerned, it seems from what you and others have said, there has been a great of then the demand side effect on monetary policy and not so much on the supply side. a concern i have is the danger you have beenall, missing the estimates on the supply side as well as economic growth overall. we now have 12 consecutive years in which the fed has systematically overestimated

economic growth, overestimated the supply side phenomenon such as workers improving productivity level that has not been having -- not been happening to the extent hoped. is to expandcerns a natural and assess capacity, it could get the fed into a vicious cycle where all of that excessy creates commodities and downward pressure on prices and makes it that much harder to hit your 2% inflation goal, and it creates a dilemma that is difficult to get out of. is there a danger that ultralow interest rates are contributing to that? i think investment has been running at a slow pace and we have really not have the -- not had the creation of a lot of excess capacity.

one of the reasons that productivity growth has been so slow and disappointingly slow is we have had very weak investment in the aftermath of the crisis and more recently in recent months, it has turned negative and is extremely low even out side of that productivity growth has been so slow and disappointingly slow is energy we havey substantial cutbacks in journaling activity. i do not think an impact of low interest rate has been to stimulate an investment boom. i think that is largely true in the united states and globally, everyone is in the business of ultralow interest rates, if you talk to people in the steel industry, they would suggest there is a not just incapacity steel but other commodities as well here and i worry we have encouraged companies to take on massive amounts of debt and it is one of many distortions.

i thank you for your time and i thank you, mr. chairman. on, thank you for being here. i have got a couple of questions i have asked before and i will do it again. , i'menter in myself about they concerned level of regulation to match the risk they pose to the economy and to the depositors and borrowers. we are seeing consolidation in montana and probably across the country with small banks. capitalism good for or for rural america as we see small banks combining with eger banks and bigger banks. my question is, do you see a problem with the process now of banks?ion on our small

if so, what are we doing about it? we are heavily focused on trying to find ways s andlieve community bank our tailoring of our provision risk is asuit the core principle for us and proper supervision. effortsmade meaningful of ource the burdens examinations on community banks, to reduce the complexity of capital requirements that they face. we are taking that process seriously and we will come out with meaningful proposals for relief and we are looking at amething that might be

significant simplification of the regime for those community banks. important.cation is are you happy with where the fed is right now? ms. yellen: we will continue to focus on it. sen. tester: do you think it is not a good thing across the board? the regulatoryk issues have contributed to the consolidation? i think there have been a number of factors that have contributed to it. this has been challenging and profitability is important. some of these small banks are putting out millions in the regulatory issues brought up. i want to get your commitment

that you will continue to work. the consolidation piece really bothers me big time especially when applied to montana. i do not necessarily think that is good for the consumer coming down the line. international insurance rules, the fed has proposed rules for fed is moving forward with the international insurance rules. give an idea of when you think these will be complete? there are some ways to go in terms of international ongoing work. we put out two weeks ago a proposed rulemaking for the to takek that we intend in the united states. advancingdiscussions

the idea but we are ahead of the process here in the united dates. havetester: i'm a not afforded it correctly. do you have any idea when they will be done? will it be done in this administration? ms. yellen: no, i will have to get back to you. i do not know what the timetable is. and how those will impacted ge, for example. just curious to figure out how that will come down the pipe. we already published a rule. it is not insurance. sen. tester: what happens to those guys? does the insurance will have no impact on them? they are not an insurance company. sen. tester: i know. they have invested the banking part of the business. what happens to them moving forward?

that is something the stock will take up. sen. tester: thank you. >> madam chair, i want to take you to, you are just talking about the advanced rulemaking for the insurance industry. i am speaking on behalf of of insurance makers like us. allstate would say senator collins and i have been working hard to make sure the fed has recognized the great difference between the business of banking and insurance. i would say the proposed rulemaking heads in the right direction there and i would ask you, as we look forward and i essence, it seems like the key stress test was a 90 day window of liquidity that, if i look at the details, i would say, if you look at someone like state farm with 80 million families, you would say , given the two

thousand eight drop in various sales of various products, do , over 90enough money days, to sustain the enterprise? i wanted to explore this with you, a commonsense way to let you know this is the way we should go. urge you to follow in the direction of senator collins and i of making sure that the normal fed culture of bank regulation does not impinge on the uncertainty in the insurance industry. ms. yellen: we have tried to do that very much in developing a proposal. you put forth conceptual frameworks and will be looking very carefully at comments before we proceed with more and it was very

helpful with us in having flexibility to design something that was appropriate for insurance and not bank centric. thank you. i think we got 60 days of and i will approach members of this committee and i want to make sure we have a robust and strong insurance center. ms. yellen: we are trying to proceed in a thoughtful and careful way based on a great deal of consultation with state regulators, the naic, the industry, we have taken a lot of comments and we look forward to more. pretty well-received, reflecting nicely. thank you. click thank you. great to see you. i will try to respect the five-minute rule to make sure that all of our colleagues get a

chance to ask questions. i will go back to the point about cyber. ae cyber caucus, this will be challenge for every institution. senator reid raised the question about whether under prudential regulations we could make sure that bank boards and others have cyber expertise. i would hope you would move forward with that good i to move slightly on the question to the issue around what happened with the new york fed with the encourage and -- the incursion. attack,d by the cyber it has some challenges, and enormously important baking regime. likethe overall fed feel you have been not -- enough of an ability for cyber protections? ms. yellen: we are part of an

oversight group that left its -- it is led by the national bank of belgium. many supervisors from different countries participate in that group and we also participated in that group, swift, and the -- york fed are working sen. warner: this area will exponentially grow him -- in importance in terms of internal expertise and ensuring we are working more closely with the overall banking industry to up their game. i think it is important. abouter of us have talked how we could generate additional job growth. one concern i have is particularly inside the public markets, that we have seen an enormous rush over the last

decade really over the last few years, even more particular word short-term in terms of use versus long-term value creation and this is undermining basic tenets of american capitalism. more and more people and institutions choose to invest in financial instruments rather lending business institutions. i have seen some data that says as low as 15% financial institutions activities are geared toward supporting businesses making investments in communities. 80% in seen a shift from the 1980's with 50% of profits were reinvested back into employees in r&d, and now we are corporate office used for stock buybacks and dividends.

seen some of america's largest iconic tech firms with huge balance sheets going into the markets, billions of dollars to use not for r&d, but share buybacks. i think there is an increasing consensus between ceo's and investors that this is a long-term, destructive to real value creation in business and consequently to job growth. on the fed had any views challenge about short-term is him? is it a challenge in the movement among public companies away from investment banks and their businesses and dividends and prognosis here? ms. yellen: we have looked closely at investment spending and tried to understand why it has been so very depressed in the aftermath of the crisis.

for it is the economy has been growing slowly. sales growth has been slow. firms have found they do not need to invest much in order to satisfy the demand growth they are seeing. the workforce has been expanding less quickly than it had been and you have a rapidly expanding workforce and firms are hiring those people and they need to invest to equip a new entrance with the tools to be productive that others already in the , in the workforce has also played a role, but beyond that, i would agree >> i would as there has been a level of investors who say the first thing you shutdown are your worker training programs, your investment in infrastructure, and i believe that is a negative long-term. for the public

record that you come back. i am concerned, on the living wills, we have got to move the process along. i am concerned about the level of disagreement between the fed and the fdic. i will take it for the record. sen. heller: i want to go back to grexit for a minute. you mentioned it in your opening comments. you said the u.k. vote to exit european union's has a significant economic repercussion. could you go more into detail andt what that means perhaps with the plan of attack with the feds are in the last two days from now? i. yellen: i said it could it would but ithat it

could have significant economic theequences, possibly future of european economic integration, it would have negative economic consequences for the u.k. and more broadly speaking. i think the financial market would be unleashed by the fed decision and could sentimenta risk off that we would see him pass on financial markets, that we might other safeflows and haven currencies. i do not want to over 12 the likely impacts but we are aware of them and we will watch them

as wensider those impacts make future decisions on monetary policy. is there any reason to believe that if grexit were to pass, it would have an effect on the u.s. economy? ms. yellen: i do not think that is the most likely case. we do not know what would happen and we have to watch carefully. chanceller: what is the of the economy being in recession by the end of the year? ms. yellen: i think it is quite low. i have indicated we are watching this recent slowdown in the job market carefully, my expectation is the u.s. economy will continue to grow. we have seen a strong -- strong pickup in spending.

the weakness in the labor market months,ast couple of beat looks to embarrassing. that is optimistic and the kinds in theitions associated past with u.s. recessions. that often occurs when inflation , the economy is overheated and the inflation has been quite high, the fed has been tightening the monetary policy. we do not have any conditions in play now, households are in much improved shape. there are negative influences in the economy, particularly on manufacturing stemming from slow growth abroad, lower commodity hiring very seriously causing job loss in the energy and slowing investment

in drilling and mining, and still, overall, the u.s. economy is progressing even with the negatives. the law is not what i would expect. a week ago, friday, i think the 10 year yield on , what impact will that have on treasury yields -- ing for any kind ms. yellen: in absolute terms, they are very low. in the stance of monetary policy, also put impacts on the value of the dollar.

the dollar has gone up around 20% against a broad basket of currencies since mid 20's and and that has had a negative effect on our trade with the rest of the world and put down pressure on corporate profits and hiring and manufacturing. are you concerned it feds raise rates, that reverses what you're trying to achieve by raising rates? ms. yellen: one of the factors that influence is bond pricing, the anticipated path of rates. there is a further increase built into market expectations and often, the response of bond onkets to what we do depends how are out -- how our actual reactions are.

>> good to see you, chair yellen. to follow up on questions raised by senator corker. as you know, that frank requires financial institutions to submit wills, documents on how the giant can be liquidated in an andrly and rapid way bankruptcy without either bringing down the economy or requiring a taxpayer bailout. a few months ago, the fed and the fdic currently determined that the living will submitted by five of the biggest banks in the country were not credible. those banks must resolve the problem identified in living wills by october 1, 14 weeks from now. if the banks fail to do that, the fed and the fdic have the power to reduce the risks posed by these giant banks, by raising higher capital standards or stricter leverage ratios.

these changes are critically important to avoiding another 2008 crisis. the banks are not likely to make them unless they believe the fed and the fdic are serious about enforcing. frank. know by law you must consider increasing capital and higher lever -- higher level ratios p what i want today is to ask, can you covenant that if any of the giant banks fail to resolve the problems in their living wills, by october 1, that the fed will use the tools that congress gave you to reduce the risks posed by the too big to fail banks? ms. yellen: we have been very review of living wills and we have clearly stated changes well identified by october 1. the decision about what we do if those are not met, those are

decisions my colleagues and i will need to look at carefully, what is the appropriate sanction for doing that. seriousrly, we are about wanting to see these deficiencies remedied in well aware that we have at our disposal the tools that you , so i cannot pre-commit today to tell you precisely what our response will be, and we will work closely with the fdic, as we have all along, but we are extremely serious about wanting to see progress and we will consider using those tools. are required by law to consider them. i am asking for a commitment here it i do not fully understand why you would not make that commitment. known this was

coming since. frank was passed in 2010. ago and theyears have been submitting living wills since 2013. there is no provision for all of the extensions that you have given them so far. if any of the banks fail the credibility test on their fifth try, they need to face some real consequences. otherwise, why would they ever make changes if there were no consequences? ms. yellen: there will be consequences. sen. warren: i very much hope so. when you find the banks were submitting living wills that were not credible, he said quite explicitly that these remain tuesday to fail and if they crashed, they would risk taken down the entire economy unless they got a government bailout. the entire goal of the living wills process is to push the banks to fix this fundamental problem. finally the fed

determined that some of these living wills were not credible. it will not mean anything if you're not willing to use the tools that congress gave you to force the banks to reduce the risk that their pushing off onto the taxpayer. a second issue i want to cover if i can briefly, and then i senatorfollow up on brown and sen. menendez:'s questions about diversity. diversity is important. there is a growing body of

the speaker pro tempore: the house will be in order. the chair lay b.c.s. the house a communication from the speaker. -- the chair lays before the house a communication from the speaker. the clerk: the speaker's rooms, washington, d.c. june 21, 2016. i hereby appoint the honorable garrett graves to act as speaker pro tempore on this day. signed, paul d. ryan, speaker of the house of representatives. the speaker pro tempore: pursuant to the order of the house, january 5, 2016, the chair will now recognize members from lists submitted by the majority and minority leaders for morning hour debate. pursuant to clause 12-a of rule