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tv   Key Capitol Hill Hearings  CSPAN  February 17, 2016 10:00am-12:01pm EST

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is how we are built. we have developed a reputation and we expect ourselves to behave in a certain way. norwegians, very rich, not a member of the european union, but they follow and all as the of the european union. ..
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>> and the fourth one is no more permanent factors for refugees. you have temporary, emphasizing, punctuating the point that you are going to actually expect these people, some of these people to go back even when circumstances change. and then you have a group of the mostly uneffected states so far. two states again looking at the map that have is remained completely quiet.
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but if you look at the map, it's a big state. bulgaria and romania, people say and here i haven't traveled to romania to bulgaria so i'm not going to says that i know it. and i haven't talked to senior official there is, but bulgarian guards use draconian methods so nobody want to go u through there. but the biggest reason is because the next state is romania and they're not membering of the shangim system. so-so far, they're quiet, they don't have the game as it were. but who knows. the european union is trying to harden macedonia borders and god
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only o knows what may have happen. and you have other ones like france and weapon states that are basically sitting back. nobody wants to go there. everybody wants to go to the place and play to protections and benefits. and finally, you have all of these poor western countries, and they know that they are next mast macedonia has a border, so if you start making it harder over there, people are going to go either left or right. if they go left, all of these other west states get implicated. if they go right, bulger ya. so probably sitting,ing thinkinm i next how will i deal with
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that. so now that said far too many things about what's going on let me begin to say five things that we'd have to do, and these are all difficult things. in themselves, each one of them is an extremely difficult thing to do, and we also to do something else that makes each one of them more difficult which is we have to do them and we have to have a greater response. if the only thing is if you try to get people from getting into greece, only o thing you do is you basically create a holding pen, warehouse of millions of people in turkey and in lebanon and in there. if you're going to protect macedonia people steal all around macedonia.
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if you don't do something about syria, i'm already giving away, you know what needs to be done about syria. syria will keep producing more and more people bringing to question how many millions more will turkey be willing to take. so you have to do it all together. it doesn't mean that you have to have a coordinated approach, that you have to move some percent you know in each one of them in order to make progress. but you need to invest heavily in all of the responses, there are five them. now starting with the one that is most contentious because the town built. [laughter] i could tell you, you know, the number four who is all about -- [laughter] massive humanitarian resettlement. but that's easy. so let's put the hard stuff on table first.
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europe had better restore the borders if not there's absolutely no future on these particular issue. that has to be a complete priority and that is a collective responsibility. in europe, for an old guy, games , we need to stop playing games and start really acting like adults. it is a collect eve responsibility if these are european borders, and since greece doesn't have enough money to pay its whatever it is. retirees, okay, all expenses associated with border control et cetera, et cetera have to cool out of the european budget. now you want me to really make
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it even, you know, more controversial, where will the money come from? finance minister an probably second most powerful person in europe after marco has flown, you know, on the gasoline tax. a fascinating idea. one penny per liter four liter for a quart, anding actually come u up with an awful lot of money. nobody wants to have a trial that was a led balloon but money will have come from somewhere else. what is the biggest budget item in europe? agriculture, the the entire budget. so on the one hand, you have france farmers that rely on
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shafer all of this. blockade in paris for months. on the other hand, you have refugee crisis that affects the eastern part of europe. so money will have to be found, you know, different accounts will have to be raided. or more money will have to be produced indirectly. one of the three things that you need to do in regard to restoring mediterranean border, you need to u fully vet claims as far away from european borders as possible. that means turkey. that means jordan, that means lebanon. adjudicate them invest in them, and largely because we're all smart enough here is okay, somebody has vetted in the real refugee, what do you do? you have to send them somewhere.
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which takes you back to square one, what if all of these groupings are in eastern europe don't want to take anyone. we'll get back to that in a second. the second one is -- because resettlement for those people is an absolutely essential part of this had. next one is the european senior, senior european people. telling me and this will appeal to you because we're in washington how difficult it it s to remove people and what happened in the last month or so is it it shall removing children, and the fires from created. this is not necessarily about their children over there. but it is removal. because money, it's too long, it takes too long, and very few people actually ever get removed from europe.
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numbers lie because you'll find numbers of about 40% of an authorize migrant as they call them get removed. but most of this removal happened by pain. through by lat agreements that spain, but spain has with a bunch of countries around it. so europe will have to do the hard things. i mean, it's now beyond time of thinking that we conducted a way. we're now, now is team to do different thing. and the second, and this is equally difficult and controversial. we have to stop conditions from deteriorating in syria. and here, i can man pandemonium from colleagues here we need to step back and develop
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perspective. perspective is extremely important. because people hear something we need to do something about syria, they say yeah, you know, russians are bombing everyone. you know, assad is stronger day by day and who need to cooperate you're saudi arabia. you have et cetera, et cetera is that possible. and my answer is, it's possible. it's not going to happen tomorrow. going to hit -- to be coordinated. it has to be much closer in terms of corporation by war, but i want to give you an example to the first gulf or war where everybody paid dearly in different ways, you know, cash, material, people, et cetera, et cetera, in other words a global effort. that will basically focus on syria. and they're going to be again, you know, of this trial will inspire defense secretary, we
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all know the readiness of our president on this issue. all of those thengs, of course, multiplied in europe because you have 28 heads of state talking it be. you have some countries that are very much like us, the french or aggressive et cetera, et cetera and others that don't want to do much of anything but the fact remains again in times of extreme crisis, countries get to have the realize they have to do things that they don't want to do, and blame in brussels says no armies. it has no money. it has no foreign policy to speak of. it has no defense policy. so brussels won't do it. it has to be a coalition of number of states that will do that, and are we possibly getting into a war meaning europe with presumably united states a possible war with russia, probably not. but we already are in a approximatey war.
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so russia may have to in a sense be satisfied by the fact that now is part of the middle east. something that they had lost until recently. turkey it has to really curb ambitions some of the ambitions, particularly the ugly ambitions, iran yeah, it's very vested on the aye sad regime. but the fact remains that iran will have to also become a citizen of, you know, of the world as it were. there are new openings there. it may attack a while. now what about saudi arabia? saudi arabia willing to actually go to war with iran? we know that they sent airplanes or they're about to send airplanes to kirky. and there's talk about saad diez and troops in all of this. so all of those things will have
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to sort of come together. will have to be extra patient during the crisis, patience sort of goes out the window and constantly step back every couple of weeks, see where we are, and then go and invest some more energy into those kinds of things. and the third i think, the major actor in all of this is turkey. turkey holds the key to all of this. and here we have to understand what being sent is far too many yiewrns think because they have verbalization on the table, and the resumption of negotiations about european union, some time in the future incidentally -- no one has had promised turkey
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they have only promised resumption of negotiations towards succession because they still grade the level of opposition to turkey becoming a member of the french, in a big, strong, you know, influential people in germany. austria, et cetera, et cetera so this is going to be very difficult. but it is again one eve those things that would have to really work on. and we have to figure out what are the rest of the ambitions on the third? those two thing he is, you know, there was a delicious exchange as it were, and note from the meeting between them and head of the european console and commission and lots of foreign ministers, et cetera, et cetera. everyone around said -- three billion euro.
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let me live. takier money. there's a lnsdz for those of you. i know that many at the table who vice president -- haven't negotiated. knowing not only ambitions of your counterpart is a big advantage. so if this is important for turkey to play ball maybe we should think harder what it is for day one and what i think turkey wants is to be indeed the person of the country that has played traditionally for a thousand years if not more maybe i misspoke already at the meeting point between east and west to africa and europe. and if we can play in that kind of ambition, then perhaps we can make some progress. so three billion year is a down
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payment. people think that's a lot of money. i think it's a laughable amount. or more over mrs. marco only a week or so ago said that is the word down payment. but you want this is just a first touch of money because the things that turkey will have to do is cost an enormous amount of money and whatever it is that we do for turkey we do for lebanon and jordan. three things that turkey and lebanon and jordan have to do. allow people who are already there to resume their lives because there's a warehouse there. 400,000 children that are not getting education and been there for two or three years, a complete lost generation. would have to offer training to people and we have to offer work authorization for people.
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now, people will say, i've said, you will say, excuse me. why we're going to do this with refugees they are turks so you have to do this for not the refugee but also the local population. you're gong to have to invest in the least popular or least developed parts of turkey in which these people find themselves, and that becomes an absolute requirement. the next thing that the final thing that turkey can't do. it can do it tomorrow. but it has to be persuaded to do that smugglers, again, they've been far too many articles i've been reading about smuggling,rd far too many people in europe saying that these are the bad guys rather than take on a market reaction to what really is going on on the ground.
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smugglers operate aboveground. only way that they can actually move a million people from wherever it is all the the way to be gym you can only do it aboveground. well, if you do it aboveground, you also have the tonight, tucky a strong state has the opportunity to really make it very difficult for them. again, they'll need to be persuaded. they'll have to deal with local officials from making an awful lot of money and to pay all of the system that makes smuggling always possible, and you have to do really hard things in terms of legislation, you know, of operations, all of that. but that's the easy part as it were, and then smart people like you will say, oh -- smugglers go underdwrownd yes they go underground and that will take place, but guess what -- if the price increases and these people have to move people in
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the undergrounder, number of people who can be movable in a single year becomes dramatically small hadder. you cannot move a million people in six months. youmove 150,000, 200,000. so we're not powerless but we have to focus. the other one massive resettlement that was an i had a few months ago -- now it is what everybody is talking about the presence put on the table to 150,000 resettlement spots. i've always said half a million. why is resettlement such an important part of this? well, or for a number of reasons. the most important in my book is that they will give europe the
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backbone, the spine to do the hard things that i discussed earlier incoming the hard things about not allowing as many people to actually make it to europe. it gives them the moral high ground that allows them to say that over a period of time the only way that you can come to europe is if you're resettled and you're resettled by all of these agencies, assisted by our own refugee determination officers. if that happens, it disappears. what drives crisis in europe is the chaotic way in which people are coming in. it's not just about large numbers. it's about how people are getting there. if you just go and look at the thousands and thousands upon people you know as long as your eye can see of people walking okay. then you realize why everybody
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is shaky about this issue in europe.
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>> discussing refugee crisis in europe and next steps for handle hadding overflow of my migrants working to correct the problem. we hope to return to live korveg here shortly on c-span2.
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>> well it looks like we will not be able toughing back to the migration policy institute. we are recording that discussion and hope to have it for you later on the v c-span network. politico is writing about the rnc pushing back against allegations that audiences at its debates are primary donors, and that students at st. film college had in new hampshire have sold their tickets to donors in los angeles. donald trump is frequently chalk ed up booing to lobbyist and donors in the crowd in a memo released yesterday rnc chief operating officer shawn broke down the allocation of the 1600 tickets in last saturday's debate. 642 of which he said wents to the campaigns. the balance went to the south carolina republican party and broadcaster cbs news. on notion students were selling
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tibtses to lobbyists, he said that was incorrect. you can read the rest that have story from politico. we're following candidates on the campaign trail ahead of the upcoming primary in south carolina today at 5. donald trump holds an event in walter burrow live on c-span at 6 eastern senator marco rubio holds a town hall in south carolina, after that pebt we'll open our phone line to speak to town hall attendees. here on krshes span with congress out this week for the president's day recess featuring booktv in prime time and tonight it's a look at drone warfare with chott chain with a book called "objective troy" a rise of the drone followed by author mark, strategic failure, how president's drone warfare defense cuts and military amateurism has imperialed america and then at 10:30 p.m. unman haded drone data and
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illusion of perfect warfare coming up tonight at 8 eastern here on c-span2. >> this weekend c-span city store hosted by charter communications cable partner in greenville, south carolina to explore the city history and literary cull uture. on booktv, in 1939, september of 1939, when europe went to war, our allies primary england and france look to washington, d.c. for materials that they needed. so washington, d.c. looked it down to the textile capitol of the world and came funneling into this area asking the mills here to begin producing for the war effort initially for our allies, of course, o then the united states as well. >> and on american history tv -- >> we're standing right here at the falls and this was a nasty
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spots. hard to believe now one of the parks in the country but it was a depressed, nasty place, and it's a great story of how a community can get behind a park and start to cherish its river and waterfall again. >> watch the scrrks span city store saturday at noon eastern on c-span2 booktv and sunday afternoon at 2 on american history tv on c-span 3 city visiting cities across the country. >> federal reserve chair janet yellen appeared to present and discuss the central banks from monetary policy report, she delivered a cautiously optimistic overview and said that the economy is secure due
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to global economic factors. [inaudible]
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[inaudible] [inaudible] >> committee will come to order.
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>> today we will receive testimony from federal reserve chair janet yellen. semiannual monetary policy report to the congress is an important created by congress over 100 years ago is part of the federal reserve act. that grants the fed is certain to agree of independence but in no way does it -- in no way does it preclude joifer oversight or accountability to the american community. but it should communicate in a way that helps congress understand the monetary policy decision making. how the federal open market committee makes if his decisions remains a point of contention, however, soming for unfeterd discretion while others have a
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rule based construct. recently a statement released by 24 distinguished economists and other officials including john taylor, john, anna and three novel prize winners disputes the idea that adherence to a clearer more predictable ruler strategy would reduce fed independence. infact, their statement reports, quote, prevent policymakers from bending you under pressure and sacrificing independence. last year this committee favorably reported the public regular will story improvement act which included a provision that would not have establish a rule, but rather require the fed to disclose to congress any rule it may happen to use in its decision making process. able this represents a reasonable step toward increasedded transparency and
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accountability. it's my hope that this year we can reach groament on this and other banking reforms. never before has it been more important for congress to consider ways to strengthen fed transparency and accountability since the financial crisis fed has expanded its monetary policy actions to the extent that would have been unthubl ten years ago. as former fed chairman paul described during the crisis, the fed took and i'll quote him actions that extend the very edge of lawful and implied powers, transcending certain log and vetted principle and prabts. we're all too familiar with a successive round of qawn quantitative easing with no wind down in siewght. ening it begs the question, how will the feds shrink a balance sheet that exceeds 20% of the entire u.s. economy?
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some may worry that they have responsibilities beyond mandate and should be disclosed and justified. wool i agreed that feds should make independent decisions it should not be completely shielded from explaining its decisions and factors that he uses to guide them. at times it seems that the federal reserve officials resist even sensible reforms to have congressional oversight or public understanding of the federal reverse action. the need to preserve fed independent is real but surely does not object, and should not be viewed as mutually excessive concept. in fact, accountable is more
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crucial given the federal reserve role as a financial regulator. never before has a single entity held so much power over the direction much our financial system. notedly frank had large sectors of the economy including insurance companies, and other nonbank financial institutions. such regulatory authority and rule makingings issue as a result of it raise significant questions. recently, the federal reserve is issued a number of u new regulation selling from the capital rules such as a total loss of capital, liquid asset rating, these rule rule makings are based on requirements set by the international settlement and banking supervision. but instead of allowing bodies
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to serve as de facto feds should appropriately vet these rules and answer important questions. for example, are these -- are those intergnarl requirements proarpghtly tailored for our domestic financial institutions? are they even necessary given existing rules? are they harming our economy or placing u.s. firms at a disadvantage? i continue to encourage to exercise to tailer enhanced it crucial institutions. not arbitrary factors and where it does not have the authority to do so, congress o should step in with legislative changes. none of the federal reserves authorities are immune from reform. and many of us will either reform long overdue. chair had -- madam chairman i look forward to your testimony today and your thoughts on these important
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issues. senator brown. >> thank you mr. chairman. thank you madam chair nice to have you become here. it's good to see everyone back in the room. we have this as our first gathering since october o and welcome all of the you back. i can't help but think back to february, 2009. when then chair ben bernanke told our economy was suffering severe contraction, president obama had just taken the reigns in the middle of the financial crisis that would become the worst since great depression. tairms had just rescued the bank a and autoindustry. bit time we hit bottom, 9 million job have depressed. unemployment rate soared to 10% that we represent higher. 5 million families lost their home to foreclosure. i've mentioned to jerry ellen my wife and i live in cleveland which had more foreclosures than the first half 2007 than any zip
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code in the united states and household wiped out one of the dakest periods in the nations's economic history. 7 years later it's clear we've come a long way since the financial crisis. our economy is added 13 million jobs since 2010. we've had 71 consecutive that is almost six years of job growth, unemployment rates dropped to below 5%. low since 2008. average hourly earnings are up .5% since december. the second strongest monthly gain since crisis up 2.5% in the last year in the fed as we know increase the rates for first time in a decade that's the good news. but we still face severe challenges. wages have been too flat or too long, too many workers are still looking for jobs those that have one are not making as much as they should be. and some are benefiting from the recovery.
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mostly the top five percent benefiting from recovery far more than average workers. international economies are slowing. american exports are challenged by the strong dollar. oil prices are all time lows so they haven't provided economic boost that many analysts expected. inflation remains very low. the slow and steady progress of the economy is giving rise to what i fear and i hear, see that in this room what i fare is a collective amnesia for many on wall street and many in congress as if they forgot what happened in 2006, 7, and as if they didn't know about the human suffering in every -- in every one of our states the lost wealth. the lost job, foreclosed homes. i think that had few of us and none of us enough spend time talking to people who have lost their homes and have to explain to their child that they're
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going to have to move to a new nabbed neighborhood in a less house and move to a different school and the pain that causes, cause to millions of people who have seen their homes foreclosed on. they've seemed forgotten this amnesia far too many people that sit and have forgot how devastating crisis was for the entire generation of working in middle class americans. instead of working to strengthen our economy, and to bolster financial system safeguards some republicans want to unleash the forces that almost destroy the economy in the pus place. they want to go back to business as usual with wall street. instead of conducting oversights hearings to push for implementation, we all remember when president obama signed dot frank that chief financial service lobby it is in this town, said now it's halftime meaning they were going to go to work to try to stop the fed and
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weaken the fdic rules and do whatever had they can do on what behalf of wall street. so instead of conducting hear physician to push for implementation of wall street reform the committee would hold hearingsing on weakening the law for banks and nonbanks and how to make it impossible for regulators to finalize their rules. the banking comet has not in 13 months held a single hear hadding when strengthening consumer protections. we haven't talked about improving credit reporting and debt collection. we haven't examined how to curtail payday legending or rental housing more affordable and safe. there's a lot of work to do to ep sure we do not repeat mistakes that led to the great recession. i sent a letter to the chair to yellen this week urging federal reserve to do more to reduce the risks posed by big banks involvement in the commodities business. the fed, fdic need to make public determines if individual firms have haven't provided
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credible living wills that common it straw they can go out of business without wrecking the financial system. this is one of the ways we determine if too big to fail still actually exists. the regulators should finish rules related to compensation understanding when had americans who have not had a raise for years are just barely making it when they see these -- this kind of compensation on wall street and these kinds of bonuses for executives in in case who is help to get us into the bad situation we're in. if we learn anything from the crisises at wall street encourage behavior that caused the crisis at a sleep price to american homeowners and american rent terse fed has wok remaining on its regulatory frame wok for nonbanks and supervises as well as insurance companies that own o savings and loan holding companies and i hope you you'lly close attention madam chair to those business moldses. and while regulators have taken
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important steps to reign in risk and money market, mutual funds and triparty repo market makingers should continue to examine these and banks in the nonprivate sector and those that have taken place in the u.s. will put it at a competitive disadvantage this week is shown that they actually benefit our financial system. that is clear to me that as a result of a new regulation u.s. financial institutions, or or more resilient than other parts of the world. i look forward to your assessment of both the economy and where we are with efforts to strengthen and more stabilize our financial system all of this must do the necessary work to promote financial stability to protect consumers to help prevent what could be the next crisis. there's far too much at stake for american families to do otherwise. >> thank you madam chair your testimony is made part of this record in the entirety you proceed as you wish. welcome to the committee again.
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>> chairman shelby, ranking member brown, and both members of the committee i'm pleased to present the federal reserves semiannual monetary policy report to the congress. in my remarks today, i will discuss the current economic situation and outlook before turning to monetary policy. since my appearance before this committee last july, the economy has made further forgot toward the federal reserves objective of maximum employment. and while inflation is expected to remain low in the near term in part because of the further decline in energy prices, the federal open market had committee expects that inflation will rise to its superobjective over the medium term in the. in the labor market number of payroll jobs rose 2.7 million in
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2015 and posted gain of 150,000 in january of this year. the cumulative increase in employment since the trough in 2010 is now more than 13 million jobs. meanwhile, the unemployment rate fell to 4.9% in january it's 8 tenths of a percentage point below its level a year ago and in line with the median of participants most recent estimates of its longer, run normal level. other measures of labor market conditions have also shown solid improvement with noticeable declines over the past year in the number of individuals who want and are valuable to work but have not actively searched recently and in the number of people who were working part-time bowled rather work full-time. however, these measures remain above the l levels seen prior to the recession.
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suggesting that some slack and labor markets remain hads. thus, while labor market conditions have improved substantially, there's still room for further sustainable improvement. strong gains were accompanied by expansion in economic activity. u.s. real gross domestic product is estimated to have increased about one in three quarters percent in 2015. over the course of the year, subdued foreign growth and the appreciation of the dollar restained in exports. in the fourth quarter of last year, growth in the gross domestic product is reported to have slowed more sharply to an annual rate of just three quarters of a percent. again, gross was held back by week net exports as well as by a naked contribution by inventory
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investments. although private domestic final demand appears to have slowed somewhat in the fourth quarter, it is continued to advance. household spending has been supported by city job gains and solid growth in disclosable income age in decline by oil prices. one area of particular strength has been purchases of cars and like trucks. sales of these vehicles in 2015 reached their highest level ever. in the drilling in miming sector, oil prices have caused companies so slash jobs and sharply cut capitol outlays but in other sectors business investment rose over second half of last year and home building activities continue to move up on balance although level of new construction remains well blue the longest run levels implied
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by demographic trends. financial conditions in the united states have recently become less supportive of growth. with declines in broad measures of equity prices, higher borrowing rates for riskier borrows and to further appreciation of the or dollar. these developments they prove persistent could weigh on the outlook for economic act and the labor market. although declines have longer term interest rates an oil prices provide some offset. still ongoing employment gains and faster wage growth should support the growth of real income and therefore consumer spending and global economic growth should pick up over time to support by highly accommodative policy abroad. against this back drop, the committee expects that with grand jury utility adjustments in the stance of monetary
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policy, economic activity will expand at a moderate come years that labor market indicators will continue to strengthen. as this always the case the economic outlook is uncertain. foreign economic developments in particular pose risk to u.s. economic growth. most notably, although recent economic indicators do not suggest a sharp slowdown in chinese growth, declines in the foreign exchange value of the b have uncertainty about the chinese exchange policy and prospect for its economy. this uncertainty has led to increased volatility in global financial market. and against the back drop of persistent weakness abroad concerns about the outlook for global growth . these growth concerns along with
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strong supply conditions and high inventories contributed to recent fall in the prices of oil in other commodities. in turn, low commodity prices could trigger financial stress it is in commodity exporting economies particularly in vulnerable emerging market economies and for commodity producing firms in many countries. should any of these downside risk materialize, foreign activity in demanding for u.s. exports could weaken and financial market conditions could tighten further. of course, economic growth could also exceed our projections for a number of reasons including the possibility of low oil prices will boost u.s. economic growth more than we expect. at present, the committee is closely monitoring global economic and financial developments as well as aseising
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implication through the labor market and inflation in the balance of risk to the outlook. as i noted earlier inflation helicopters to run below the committee's 2% october objective. overall consumer prices measured by the price index or for personal price expenditures increase one-half had percent over o the 12 months of 2015. to a large extent the low average price of inflation last year can be traced to earlier steep declines in oil o prices, and in the prices of other imported goods, and girch given further decline in prices of oil and other commodity website as well as the further appreciation of the dollar, inflation will be low in the near term. once they stop falling downward pressure on domestic inflation
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from those sources should wane as labor market strengthens further inflation is expected to rise gradually to 2% over the medium term. in light of the current shortfall of inflation from 2% been e, the committee is carefully monoor toking expected process towards its inflation goal. of course, inflation expectations play an important role in the tin flags f -- inflation process. in the inflation outlook depends importantly on the degree to which longer run inflation expectations remain well anchored. it is worth noting in this regard that market base measures have inflation composition have moved down to historically low levels. we have risk and liquidity premiums over the past year and a half contributed significantly to these declines. some survey measures of longer
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run inflation expectations are also at the low range of their recent rains. overall, however, they seem unreasonably stable. turning to monetary policy, conducts policyoto promote maximum employment and price stability as required by statutory from congress. important to raise tart range for the federal funds rate when it had seen further improvement in the labor market, and was reasonably confident to inflation would move back to its 2% objective over the medium term. in december, the committee judged that these two criteria had been satisfied and decided to raise the target range for the federal funds rate one quarter percentage point to between one quarter and one-half percent.
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this increase marked end of the 7-had year period during which the federal funds rate held near zero. committee did not adjust target range in january. decision in december reflected the committees assessment that even after a modest reduction in policy accommodation it would continue to expand at a moderate pace and labor market indicators would continue to strengthen. although inflation was running below committeeses longer run octave. folc judged that most of the softness in inflation was attributable to transitory factors likely to abate over o time, and the diminishing slack in labor and product market would help move inflation towards 2%. in addition committee recognized that it takes time for monetary
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policy actions to affect economic conditions. if the flmc delayed start of policy normalization for too long it might have to tighten policy relative lid abruptly in the future to keep the economy from overheating and inflation from significantly overshooting its objective. so abrupt tightening could increase rick of pushing the my into reseis. it's important to note that even after this increase, the stance of monetary policies remains accommodative. the economic conditions will evolve in a manner that will warrant increases in the fund rate. in addition the committee expects that it is likely to remain for some time below the levels that are expected to prevail in the longer run. this expectation is consistent with the view that the neutral
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nominal federal funds rate defines as value of the federal funds rate neither expansion or near potential is currently low by historical standards and is likely to rise only gradually over time. the low level of the neutral federal funds rate maybe partially attributable to a range of persistent economic headwinds such as limited access to credit or for some borrows, we close abroad and significant appreciation of the dollar that have weighed on aggregate demand. of course, monetary policy is by no means on the preset course. the actual path of the federal funds rate will depend on what had incoming data tell us about the economic outlook and we will regularly reassess what level of
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the federal funds rate is county with achieve and maintaining maximum employment and 2% inplaying inflation and take account a wide range of information including labor market conditions indicatorring of inflation pressure and inflation expectations, and readings on financial and international development. in particular stronger growth or more rapid increase in inflation in the committee currently anticipates would suggest that mutual federal fund rate was rising more quickly than xting making it appropriate to raise the federal funds rot more quickly as well. conversely, if the economy were to disappoint, a lower path of the federal fund rate would be appropriate. we're committed to objective and foster financial conditions
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doesn't with their attainment over time. consistent with its previous communications, the federal reserve used interest on excess reserves or ioer and overnight reverse repurchase r.e.p. operations to move federal funds rate into a new target range. the adjustment to the ioer rate has been particularly important in raising the federal funds rate and short-term interest rates more generally in an environment of abundant bank reserves. meanwhile r.p. operations complement the rate by establishing a soft floor on money market interest rates. the ioer rate of the flmc control the funds rate effectively without having to first slink balance sheet by
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selling longer term securities. the committee judged that removing monetary policy accommodation by the traditional approach of raising short-term interest rates is preferable to selling longer term assets because such sales could be difficult to calibrate and could generate unexpected financial market reactions. the committee is continuing its policy of renewscasting renewscasting and principle payments from agency debt and mortgage backed securities. it's highlighted it in the december statement, the flmc anticipates continuing this policy until normalization of the level of the funds rate is well underway. maintaining our sizable hold technician of longer term securities should help maintain had accommodative financial conditions and reduce the risk that we might need to return the federal funds rate target to
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effective lower bound in response to future adverse shocks. thank you i would be pleased to take your questions. madam chair, about we've with talked about this privately before, but there's a fed still use the phillips rule in a lot of its deliberations? >> well -- >> is that an important tool or just one of many tools? >> it is essentially a theory that fits reasonably but certainly not perfect explaining the inflation process, and it's a theory that says first inflation expectations play a key role in determines inflation. second, that various supply shocks such as movements in the price of oil or commodities or import prices also play an
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important role, and third that the degree of slack in the labor market had were degree of more generally a pressure on resource it is in the economy as a whole exert in influence on inflation as well. and that theory underlines the kind of statement that i've made that if inflation remains inflation expectations remain well anchored welcome and transitory influence of energy prices and the dollar fade over time, that in a tightening labor market with higher resource utilization, i expect inflation to move back up to 2%. it is consistent with that phillips curve theory. ..
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>> would you say today that the precipitous decline in the price of oil and gas, plus the rise of the dollar, has surprised the fed to some extent, or could you have predicted all of this? >> i think we have been, markets
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have been and we have been quite surprised by movements in oil prices. i think in part they reflect supply influences but demand also play a role. the stronger dollar is partly something that we anticipated because the u.s. economy has been performing more strongly than many foreign economies, and we have a divergence indispensable auditor a policy that influences capital flows in the dollar. nevertheless, the strength of the dollar and the extent to which it's 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
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significant role in holding down inflation speed the do you believe this economy although it's a number of years old as you would say has peaked or isn't near peaking -- is near peaking or will start declining and put us into a recession of some type? or something you don't know, something you are watching? >> we are watching developments very carefully. i would say 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 come as i mentioned in my testimony, looking very carefully at global financial market and economic developments to create risks to the economy and we are evaluating them, recognizing that these factors
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may well influence the balance of risks or the trajectory of the economy and thereby might affect the appropriate stance of monetary policy, but it does point i think it's premature to make a judgment. we will meet in march in our committee will carefully deliberate about what impact these developments have had. today i think it's premature to render a judgment on the. >> are you saying basically that bed will be careful looking at every aspect of the economy and the international economy before it raises the federal fund rates? is that what you're saying? >> yes, we certainly will evaluate the outlook, certainly taking these developments into account. i want to emphasize that aspect said monetary policy is not on a preset course. we want to set the path a policy
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that will achieve the objectives that congress has assigned to us and that certainly entails making sure that the expansion, doing what we can to make sure that the expansion continues. >> trilogy just take a couple of minutes and share with us your view as to the strength of our banking system today? we hope we won't go into recession but we do have the cycles and we know that. what's the condition of our banking system quacks do you feel comfortable about our banking system quacks is it a work, working every day on? >> i think the steps that we have taken over the last seven years have had very substantial payoffs in the form of a much more resilient and stronger,
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that'll capitalized more liquid banking system. we have not only raise the capital and liquidity standards including 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 very significant stress. so i think we do have a strong banking system and we have seen marked improvement. >> thank you, mr. chairman. you said in response in your testimony at in your response to chairman shelby, you said in regard to monitor policy the committee is by no means on a preset course and then you later
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said if the economy were to disappoint that usage as they would be less likely to raise interest rates. i want to make one comment and then i have a couple questions about wages that the dual mandate is so important. i so appreciate your emphasis always on it on a course and restrain inflation but also equally importantly and too many of our constituents i think maybe even more importantly the importance of job growth, and i also 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 has an agenda. good science recent but not enough. data released earlier this month shows average hourly earnings increased in 2015. our other wage growth, three questions and entered into
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question if you would. our other wage growth indicator showing the same increases? our wage increases occurring in across race and gender and across economic sectors or are certain groups doing better than others in that wage growth? and finally came the economy reach full employment without labor force participation increases for women and minorities and have widespread wage growth? if you would pull those together in answer, madam chair. >> you asked about other wage indicators. as you indicated average hourly earnings have picked up that it is a series that is all the. while i think we see some evidence of faster wage growth there, i would still refer to that evidence as tentative. in compensation for our we also see a somewhat slightly higher pace over the last 12 months in
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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. that's a significant series. so 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 the economy, i can't give you recent evidence on developments by, i think you asked for race and gender, but -- >> and sector. >> so i don't have those data at
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my fingertips, but i mean we know that in the u.s. we have had a long-standing trend toward rising inequality, rising wage inequality in this country, and that 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 distribution have been created, job creation has perhaps been more heavily skewed toward sectors that have lower pay. and i think that there are deeper structural reasons that
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these trends continue. they predate the downturn in the economy, but the downturn probably accelerated those trends that perhaps relate to globalization and technological change that are demanding increased scale. >> thank you. just 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. we don't really have full employment until it's all for the also. i know you recognize. i know we don't have a lot of time because there's a boat called. question on living wills. we discussed the process left you. you said you felt the fed nstic provider companies are clear feedback on the deficiencies and to be willing to make formal determinations that certain plans are not credible.
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these three questions, we do anticipatanticipate providing fk unless your submissions? when she provide feedback unless your submissions? are used to commit to making formal determinations about insufficient plans? will you differentiate between and among firms when you provide feedback or make determinations? >> so when we are actively engaged in for long evaluating these plans, the board has met regularly since august. i believe we've had seven board meetings to discuss these plans. we were close with the fdic. we have not made final determination, 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 very actively engaged, and yes, we are still committed as i indicated to finding the plans
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that don't meet the specifications we outlined. we are certainly prepared to find them sufficient and to specify what those deficiencies are. >> one more quick question. and aggressive, thorough living will process answer the question of too big to fail? >> it certainly helps. we have also put in place requirements for adequate or so-called tlac rules, for adequate lost absorbency. we certainly are requiring that firms have a workable plans for how they would be resolved under bankruptcy. and dodd-frank. so we want to make sure that there is the way that they could be resolvable under bankruptcy and that the resources are there so that attacks they would not
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be at risk. and dodd-frank is a backup authority title ii which would be, if it's necessary, an additional tool that we can use. so i think is premature to say we have solved too big to fail but i do think we have made very substantial strides toward dealing with it, toward addressing it. >> thank you. senator crapo. >> thank you, mr. chairman. and, chair yellen, i appreciated your comments at our last humphrey-hawkins and when we discussed the $50 billion trigger been used to determine when a bank is systemically important and openness to 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 of the authority and discretion on its own to tailor the application of
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these rules as they apply to systemically important designated banks. those covered by section one cv-5 of dodd-frank. my question is can you give some specific examples of the kind of tailoring that might be in the works as the federal reserve works on this and will that be relief fund testing and resolution planning? >> so we are, for example, actively engaged in reviewing our stress test in capital planning framework for the bank holding companies above $50 billion. and we are considering ways in which we can make that less burdensome for the bank holding companies that are close to the $50 billion asset line. along with that we might make it stricter, somewhat stricter for some of the gsibs. we are considering that as well and i think that would be
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tailoring it both appropriately i think at both ends of the spectrum. we are paying close attention to the costs and benefits of particular changes, how they affect those institutions. so we haven't made final decisions but that's certainly something on the drawing board or help we can make progress. >> do you believe we will see any of those, any of tailoring announced soon or applied soon? >> certainly this year but i think if we were to make changes they would not take effect until the 2017 cycle of stress testing. >> thank you. shifting topics. because of the likud issues that occurred on october 15, 2014, in the treasury market there's been a lot of effort by the federal reserve and others to better understand the factors that impact the liquidity of the treasury market, especially
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during stressed market conditions. the concern i hear is several factors including new regulations may have reduced market making capacity in the market and the during stressed market conditions liquidity may be more prone to disappearing at times when it's most needed. as it seemed to do on october 15. are you concerned at the liquidity of the bond markets because less debatable in stressed market conditions and that we need to better understand and analyze all the factors including the impact of regulations on this? >> senator, yes, i agree with what you said. normal metrics, the ones we typically monitor on liquidity conditions in these markets haven't changed that much, but the perception and, of course, the experiences as you cited suggest that under stress conditions, liquidity may disappear when it's most needed. so we are looking very carefully
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at that, and at all the factors that may be involved. regulations on the list but there are other things as well. the prevalence of high-frequency trading is 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 want to try to disentangle the impact of all of those different influences. >> thank you and one last question. there have been several hearings on financial stability oversight council that focus on ways to improve transparency, accountability and communications. in the april subcommittee hearing that senator warner and i held the witnesses agreed to financial stability oversight council needed to provide actionable guidance designated, to designate systemically
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important financial institutions on how they could be risk and ultimately shed the designation level label. once -- this has been referred to as the offramp. do you agree that further progress in this area is appropriate and wooden our financial system be safer if companies knew what they could address, what they could do to address the risks and had an incentive the become less than systemically risky? >> i would certainly agree with you. they would be good if they became less systemically risky, and designation as not intended to be permanent. the fsoc reviews these designations every year. and it is of course important for firms to understand the kinds of steps that they could take to shed their designation and to become less risky. but i think the fsoc needs to be very careful not to micromanage
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of these firms and to 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 rise to systemic risk in the event of their failure. so they do understand why they have been designated and the things that they would need to address. so designation is not intended to be permanent. we do have regular reuse, and i think those firms do have an understanding of the kinds of things they need to be prepared to do. i just don't think it's appropriate for the fsoc to say we want you to do the following
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business plans. the are a lot of different ways in which a firm might decide to address those issues. >> thank you. i'd like to discuss this with you for the. thank you. >> certainly. >> senator tester. >> thank you. thank you, chairman joe for being here today. i want to follow up with senator crapo's questions because there's some information that you just gave i was not aware of and that is that, correct me if i'm wrong, come you just said the companies understand why there decade as a sifi and, therefore, they understand what they have to do to get undesignated. is that what you just said? because that's new information for me. >> well, in the sense they have been given very detailed explanations of what aspects of their business give rise to the systemic risks that have caused them to be designated.
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>> is about information given as the process goes on or after the process of designation is done? >> there's a three stage process, and there's a great deal of interaction with fsoc during that process. so i believe before they are designated there is a sufficient amount of interaction that they will understand. that are leading them to be designated and been very given a very detailed -- >> would they have a opportunity as the process goes on to make changes so they would change the direction the fsoc is going? if that information, where i'm getting at, is that information this thing given out early enough so the company can say we are going to make some changes, not change is the fsoc demands that they have chosen to make some changes to stop the designation. do you believe they have time to make that before the designation is made?
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>> they certainly have lots of opportunities to interact with fsoc and to explain their business model and the direction it's going. >> thank you, chairman. i want to talk about the housing sector. we are -- very, very briefly. could you give us your perspective on what the fed is seen in the housing sector right now and what they pick up in that sector would mean for the american taxpayer? >> 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 gradual. house prices are recovering. i think that's helping the financial household of many households. the level of new construction of
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residential investment remains quite low relative to the underlying demographic trends. so it seems to me there is quite a significant way for housing to go before we can say it's at levels consistent with demographic trends. so i think it will continue to improve, and it is a support to the economy. >> and they hiccup in the housing industry, what would that mean for the taxpayer right now? the american taxpayer, but what a housing slowdown or perhaps not a collapse, but a decrease in their growth mean to the american taxpayer, vis-à-vis fannie mae and freddie mac? >> vis-à-vis fannie mae and freddie mac? >> yeah. >> i'm not, you know, i don't have -- i'm sorry, i don't have numbers on --nse of at t
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>> give me a sense of what the to ensure that we are protecting consumers whilee at the same time differentiating between community banks and the big banks. >> well, would you say we are>> protecting consumers -- >> while at the same timeile, at differentiating the regulations that impact the small banks versus the big guys. >> so consumer protection is a r very important part of ourand supervision, and the cfpbxaminet examines the larger banks in terms of their consumer consumer compliance, and oure responsibility is now with the smaller banks and community banks where we have consumer protection enforcement.tailor or we try to tailor our examinations, our consumer exams, of the community banks se
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that they are not too burdensome and they are focused on real risks. >> do you feel you've been co successful in that detailing from a community bank standpoi standpoint? >> we are focused on regulatoryo burden on community banks and in tboheth to do bothh safety and sound aside and on the consumer complaints aside.pd everything that we can to reduce burden w burden while still making sure >> ks abide by consumer protection. >> if i if i might, mr. chair, just very quickly. we are saying consolidation and banks in montana pretty rapid.te is that true throughout thetry country and are you concerned about thanat?d are >> there has been consolidation we are concerned about theo burdens on community banks and trying to relieve that..in a in a low interest ratezed for environment, net interest margins are also squeezed for many ofhese these banks and thaa factor also.fa
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>> thank you, mr. chairman. thank you chair yellen. >> madam chairman, thank you for coing here i know we went to our confirmation hearings companyyou noted that you were the first to head the fed and yet you on thew statement you made which was, which were at the time that if o the data showed that you needed to raise interest rates you're going to do so. you ju d you just did that recently. and i noticed during this year and you're talking about 2% tal inflation in full employment. i think the question by many2% e days, are there any other roles% at the fed, other than 2% inflation and full employment, that guide as you look at data, that guide where you are going?t i would like not a particularly long and to do that. habeen as you know there's been criticism about whether therem really is a rule-based system that people understand so that it's not like the fed is the one "wizard of oz" and no one realls knows what is going to happen. h
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markets have fallen 500 points which is unusual in the last couple days after testimony which i thought was goodch i tho us who ca, but is there some other rule based system that those of us who care about the kind of things could count on relative to what the feds action ,re? >> i might i would like tomatic distinguish between a systematic approach to monetary policy i which i believe we have, have ut in place, and a system that wethat use that's in line with t other advanced central banks dod and a mechanical mathematical d' rule-based approach which i don't support and notd central h bank that i'm aware of follows. we have articulated in a clear we statement what our objectives are, 2% inflation and our interpretation of maximum
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employment. every three months all members, all parrticipants in al the fomc set out the explicit projections fo. key variables and also the monetary policy path that they regard as appropriate to achievu those variables, and we publish these projections. now, it's not a single committe. endorsed view, but it does showe the range of forecasts and assessments of what appropriate policy would be in line with upe those forecasts. and we update those projections every three months in line with incoming data. i would regard that as quite a ret of information and a apprche systematic approach. we are telling the public what the range of opinion is aboutppe appropriate policy and the associated have of the economy.
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so course, there is uncertainty, so it's not on a preset path. .e update those projections whas ee are showing what we think inv a systematic way. c >> i would think we had a niceg. conversation the other day at tl length, and i think one of thes things the fed could do, you to asked me questions along those lines, we be committee coming in year in an off the record that meeting and lay that out. out and then contrast that with ankd rule-based system. i think i would be very helpful to the fed and i think they'reh. helpful to the committee members here. his. let me ask you this. sheet just briefly on the $4.5 trillion balance sheet that the fed now has come as a look at where we are today, has to be in any thoughts looking in the rearview mirror that might haved been good to unload some of tha earlier so the was additional ammunition should that be needee in the future? >> i think that thinking about additional ammunition is that
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the best ammunition we have in the single most reliable and predictable tool for affecting the stance of monetary policy it variations in short-term soterest rates. as the economy has now gotten to a point where we are slowly reducing accommodation, we haveg a choice between selling off assets or raising -- >> on talk about as the economy goes the other direction.ou g i guess the question then is, s. you got a pretty loaded up think balance sheet entity people ared beginning to observe that the fed is probably out of go ammunition. and lest you decide to go to negative rates, and if you couli briefly, i'm nots, proposing th, i'm just observing what's happening around the world and what's happening in our ownkingp country.
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i think people are waking up and realizing that the fed really as no has no real ammunition left.lef. you alluded to this summitquestn yesterday, and i've one more uestion to do what is to be tog long but are you considering if things go south, which none of us hope deal, are you considering negative rates? i know you had that question >>sterday, yes or no? >> so the answer is that we briefly considered them and decided that they would not wort well to foster accommodation act in 2010. in light of the experience o the european countries and others that have gone to negativerates 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.n we haven't finished that evaluation. we need ev to consider the u.s.
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institutional context ander they whether they would work well here.>> there a it's not automatic. thi there are a number of thingsng o consider.>> i go we haven't, so i wouldn't take those off the table but we woult have work to do to judge whether they would be workable here. >> i would've thought that where we would be is we were out of ammunition and it would be good under for the markets to understand that we are out of ammunition. t bud now it's up to other factors.t but now as i hear it, a poten if intially negative rates are something that could affect things over time to if i could just go down one moreld pass. producti productivity. you have talked about that as the greatest driver for wage ser increases, and i appreciated senator brown's, some of theay senator brown's opening commentw and i want, t o say that the concerned we all have is thee in most vulnerable in our societyty aresoc the ones that are hurt mt
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when we have downturned.there'ss the the slowest to regain and there's no question there's a qo wealth gap in our country. the question is what do we do youut it.. you have mentioned the most important factor determining importan productivity, advances the living standards is productivitf growth. on defined as rate of increase on how much a workerr can produce n an hour of work the overtime sustained increases in productivity are necessary to hd support rising household incomes. and then later on. we do know that productivitymans ultimately depends upon many factors including our workforcey knowledge and skills. by the way does monetary policyl affect work knowledge or skills? the answer is no. does the quality of capitalry ps equipment, monetary policy does. -t affect outcome is that correct? >> the only qualification,ifica
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qualification i wouldon make isp that during a long deep downturn like we had, we capital investmv in part because itestm wasn't ns was very slow, and that leaves t legacy that has a negativet impact.work for and when people are out of work for a long period of time, their t skills can erodehe to the pointe where it becomes difficult for them but -- >> the teacher has now shut up and he's going to reprimand me for going over.etary is there anything about monetars policy -- >> mr. corker knows that would not be in order. >> does monetary policy affect>> infrastructure investment? >> no. is >> the point is productivity is eo this side of the dice,hher p correct? to >> yes. >> when people try to look at the fed to monetary policy,
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increase productivity is a ridiculous notion, is it not? >> fundamentallyn it is. that'so >> that's our job and we are not doing our job. let me ask one last question.a that chairman has been very very nice. moodame in today and a very good mood.in last year in a a budget meeting the head of, doug elmendorf came in and said because reduces -- and nation's capital stock would ultimately be smaller than it would be if that were smallertyn and productivity and total wages would be lower. be l so as we accumulate debt, we are people actually hurting many other came people in this room that came today because they care about this because really hurting w of te, ivity.e is that a true statement? >> over long periods of time yes, i would agree. men >> thank you, madam chair. thank you, mr. chairman. >> senator menendez. >> thank you, mr. chairman. madam chairman, let me talk talk
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about the challenges of families who still, notwithstanding thete umbers, don't see their incomet rising. rpect i know that in some respect the numbers are indisputable. the unemployment rate is at 4.9 the lowest since february 2008, less than half of what it was at the peak of october 2010. 14 million jobs over 71 straight months but those numbers don'the tell the whole story. long-term unemployment persistsr with people unemployed for 27 weeks or longer compromise inlog more than a quarter of all of the total number of jobless individuals.ard-workinfamily hard-working families throughout the country been waiting too long long for incomes increasesy materialize. and though the economy has will con partially healed and hopefullysr will continue to heal, to me there's a clear indicator of how much harm was inflicted by the a financialnc crisis.ployers due
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many employers due to marketns a conditions are paying low wages and offeringng limited benefitso their employees with little thee concern that these employees will leave because of a slack in the job market. pr employers have a sea of prospects every time an employee jumps ship. so talk to me about what needs to be done at the fed, andlo elsewhere, to address long-termt unemployment and to foster eco policies that transformed economic growth into growth for our hard-working families. we're >> i think what we are trying to do to contribute to the solutios of the problem is to keep thet a economy growing at a steady pace, to keep the labor market improving in the hope and a expectation that a stronger labor market will improve the st
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status of all groups in the labor market, and begin to brin own long-term unemployment,oym, involuntary part-time employment, and we have seen. that. unemployment rates have come down for almost all demographic groups.raphic i as it is, the incidence of long-term unemployment has invoyned. involuntary part-time unemployment, employment haslind also declined as the economy has but improved but these are long-standing adverse trends,cld including structural factors like globalization, the very slow growth and middle income j, favo, technological trends that have favored higher skilledlled
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workers. mean come i think the congress migre are any number of things that you might consider andthato might do that would be helpful in addressing these trends. some of them, many of them would be be related to training, education, increasing opportunity to make sure that those skills can be more readily to anoth acquired. how >> at me ask you before turn to another subject, how can the fed better account for full ememployment andpthus, thus enhe efficiency of production in its analysis and planning?and i tnk >> from my frpoint of your editg from the point of view of thear fomc, more jobs are always good. employment is good.lood. when we think about maximummum employment we are really considering is there a point at which pursuing that goal would lead toto higher inflation and r
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inflation about our 2%ject sni objective? so we triedo we to estimate andn fact, all participants in the fomc every three months right down there estimate of the unemployment rate in the economy jeat would be sustainable andob consistent with our inflation objectives. at the moment the median of those estimates is 4.9% but most of us recognize that the our additional formsms of slack thao we would certainly like to seel. diminished. >> context matters. which i sit on the senateina foreign relations with tennesser was happening in china and othe places in the world, context sen matters. here in the united states and in europe and asia i think we've seen the combination of fiscal austerity and tight monetary policytight can be toxic for ann economy that is recovering. i know thatthat there is distane
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the month i think there is a sense among fed policymakers int that there'd be good to reach the point where we can quotery y normalized on a tray policy byi raising rates. but can you describe the risks toto the economy out of this is always a calibration understand, but of tightening too soon? whe you take this global context into consideration when you're looking at that? in >> would actually take the global context into normaion consideration, and normalization is not something we want to pursue in accomplish for its ow sake. we only want to move to more normal levels of interest ratess if it's consistent with achieving our objectives of 2% inflation and maximum employment. we want to end intend to put in place that monetary policy thatn is consistent with achieving those objectives. rn an economy that has been
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recovering, the committee felt a that it could be on a path that would likely be on a path where short-term rates would gradually rise over time, consistent with the objective. netary but i want to emphasize that monetary policy is not on some preset course. set and monetary policy will be sent ane calibrated to do the best we ca to achieve our congressionally mandated objective. >> thank you, mr. chairman.thk o >> thank you, mr. chairman, and madam chairman, thanks for joining us again.us. i want to follow up on the line of discussion that senator corker was discussing, and madam chairman, we've had thismay cal conversation before.i' you may recall i've been advocating that the fed noblest interest rates for a long time now. one of my deep concerns is that central banks around the world very much including our own seem to be trying tot compensate for an inability of the political
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addr class around the world to address what's really holding fisk economicback econ growth, e fiscallyca unsustainable budget. in our case, and i would argue in much of the rest of the world, an avalanche of newowth,h regulations is holding back r economic growth. high marginal tax rates that discourage savings, work, investment. for the fact isnvestment and ths monetary policy cannot make up o for those problems. in fact, you could argue in some cases they can make it worse.wo. now we see the markets as of morni this morning appeared to be pricing in and expectation that there will be no further increases in interest rates that the central bank controls.hat'se they may be right or wrong but that's the expectation no.ince e but isn't this discussion since the rest of r the world ispursug pursuing ever for this newradicl chapter in radical monetary
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policy. neg we have this discussion about negative interest rates. i appr iecia appreciatedte the fact thu in your discussion with senator corker pointed out that there might be some serious concerns.i i find it very, very disturbing to even seriously consider moving in that direction. i hope we can talk about some of the potential risks of negative interest rates because i think there's a equally take tqual take t equally take theive difference and i'd like to get your take on this in 25% basis point movement and fed controlled rates and movement that takes from you a low positive rate to another low positive rate versus one that crosses the threshold into the negative. beyond the psychological infect, i think most of us have grown up our entire life with the expectstation that there is an absolute floor to interest rates. that would have shattered and have consequences. i hope can you comment on them.
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it would seem that it would crush net interest margins for banks and perhaps dramatically diminish their ability to provide capital. i don't know how a money market business survives at all. i can see adver adverse effect. they can move out further than they've been pressured. it would put the u.s. deep in the midst of a global currency war which is won by he who the basis the currency the most. and i would sugtd that the results where it has been tried have not gone so well. sweden had negative interest rates since 2009. they have a massive property bubble. the euro zone area generally has had negative interest rates since june of 2014. gdp growth is very, very weak. japan recently instituted negative interest rates. as you saw among other problems,
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they recently had a completely failed auction. they had to give up on auctioning off jgbs. it seems to me there are a lot of potential problems. i wonder if you could first confirm that for layman, we talk about negative interest rates, if that's imposed on savers, we're talking about savers having to pay a bank in order to take the money on deposit. isn't that he quif tloeequivale on savings? and could you just comment on some of the other problems? >> so in the european country that's have taken rates to negative territory, i will say i was surprised that it was possible to move rates as negative as some countries have done. i think we've not -- we have not seen actual fees levied on depositors. i may be wrong about there may
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be some experiences there that i'm not aware of. but i don't think there's been broad based pass through of negative rates to at least small depositors. >> and if banks resist that, then it means their margins are crushed. >> their margins have been squeezed. low environment, interest rate environment generally tends to push down net interest margins. now, they adomented it because they were concerned about inflation running very much below their objectives and wanted to stimulate the economy in order to acleave those objectives so there were reasons that they adopted it. in our own context, whether we consider this in 2010, we were concerned about potential impacts on money market functioning and didn't really think it would be possible to bring them to very negative
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levels. and before we were to take a step like that, we would have to think through all of the institutional details and have they work in the u.s. context. i think that is a matter of due diligence and preparedness. these are things we need to work through. but we don't even know if payments in clearing and settlement systems in our context would be able to easily handle negative rates. >> just very quick follow up, mr. chairman. i'll be finished. but isn't it also true that there's an internal memo at the fed from i think august of 2010 raises doubts about whether the fed has the legal authority to impose negative interest rates? >> no. there is a memo from 2010 and what it really said is that the legal issues haven't been studied. it was silent on the legality.
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it was a memo that discussed market functioning and economic issues connected with it in the legal issues had not been -- had not been vetted. i am not aware of any legal restrictions that would mean we could not establish negative rates. but i will say that we have not looked carefully at the legal side of this. >> i just -- i'd like to submit that memo to the record, mr. chairman, and just quote very briefly from -- thank you, mr. chairman. among other things, the memo does say, there are several potentially substantial legal and practical constraints. another partst letter it says, and i quote, "it is not at all clear that federal reserve act permits negative ioer rates." so obviously, there was a question in somebody's mind. >> right. it had not been seriously studied. and at this point, i'm not aware
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of a legal constraint. but, again, this -- we have not -- we have not run that through a careful legal analysis. >> thank you. >> thank you very much. >> senator warner. >> thank you, mr. chairman. chairman yellen, great to see you. thank you for your service. as we kind goof go back and for about effects of monetary policy or not and i share some of the concerns about negative from rates. i have to little tongue and cheek make mention of one of your comments replied earlier to senator menendez would have 100% approval on this panel where you said more jobs are good for the economy. how we get those more jobs is some question. we can debate monetary policy or not. one of the things, and we were talking about productivity, again, i share your views on productivity, productivity gains often are driven by knowledge and skills. and i think one of the things
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that we've talked about before but unfortunately this congress has not fully addressed is the rising challenge around student debt now at $1.3 trillion and rising greater than credit card debt and the ripple effect that has across our whole economy, not just to those individual students or recent graduates and their families, but i'd like you to comment upon that kind of wage box you're caught in with rents, student debts, not enough rising wages and the effect that has both on start-ups as someone we all know will 80% of our net new jobs are create bid startups over the last 30 years, start-up entrepreneur numbers are down. a lot thereafter is due to student debt. first time home buyers are down, often due to student debt. i know you and other regulatory entities have looked at this. i'd like you to comment on the
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effect we continue to have this number grow and don't take a more comprehensive approach to student debt, what trag that will drag that will have on the economy. more jobs are better for the economy, driving that student debt down would lead to further growth in the housing market and entrepreneurial activities. >> on the one hand, taking on that student debt to the extent it's successful in building skills that put people in higher wage jobs and qualify them for better work is really critical to their getting ahead. you know, on the other hand, there's a lot to worry about with student debt, with people attending colleges or gaining education where they don't finish the reward isn't there. to me, that's a major concern is that people may not be well
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informed about what the benefits are of what their taking on. and if an individual finds themselves in difficult financial straits for any reason, that debt because it's not dischargeable in bankruptcy can be a very severe burden that real holds people back n term. 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 is certainly possible. i'm not aware of that. with respect to housing, some communi economists at the fed have looked at that and i think the results are mixed. it is not clear that student debt is a major factor,
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responsible for and built to buy homes or get ahead in the housing market although i understand it's quite logical that a heavy student debt burden would make it -- >> i would simply note that home builders across all sectors are indicating, particularly, the weakest part of the housing market is first time home buyers, oftentimes people who, because their lives are burdened with student debt don't make the investments. i would urge the comprehensive approach is that senator warren and others suggests in terms of total refinancing, but there are other steps that can be taken, whether it is better transparency. we all know higher education, that may be most expensive item you purchase. but transparency about outcomes. that would force higher education to be cut clean a little more. clearly, the problem of not finishing is a huge issue.
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but we don't have very much transparency and higher education. on top of that, income based repayment. they made some movement there's. i think there is more. i mean, there is low hanging fruit, businesses already can provide on going education to employees on a pretax basis. i scratch my head and i have bipartisan legislation that would say if can you continue your education on abasi basis, why shouldn't an employer use pretax dollars to pay down student debt on both sides of the balance sheet? good for retension, good for the employees as well. i won't go ahead and take the additional three or four minutes that most of my colleagues have had beyond the time line in respect to my other colleagues. i would like to submit to the record a couple questions about what happens as we draw down this capital surplus account and obviously, the fed is kicked in about $517 billion over the last six years as you wind down that
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portfolio, we can see those obviously those dollars go down. and i know that you share some of the concerns as we unwind that $4 trillion balance sheet, how much cushion do they need when congress rated part of that cushion? and i would take that for the record. thank you, mr. chairman. >> thank you. senator cotton? senaner,ou. >> senator warner, graciously yielded back israel foreign minister i will add that to mind. i will try to be brief. madam chair welcome back. throughout much of history the federal reserve has raised interest rates when economic growth to strong and accompanying inflation is going. the cliché the federal reserve takes the punch bowl away right as the party is getting going. and the semper we were in the middle of the quarter with seven-tenths of a percent of economic growth and inflation was below the stated target of
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the open market committee raised interest rates. could you explain why this historical anomaly occurred in? >> well, our focus is on the labor market, the path it is on. and the fact that economic growth has been very slow, and this has been true for quite some time and yet the labor market has made more or less continuous improvements is a reflection of slow pace of productivity growth i would say. so we saw a labor market where jobs were being created at a pace of around 225,000 or so a month. the unemployment rate had fell to very close to levels we would regard as sustainable in the longer run. although in my view, there remains slack here there did and
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still remains some slack in the labor market. monetary policy was highly accommodative. the funds rate had been at the zero for seven years and we had a large balance sheet. so we were not talking about moving to a restrictive stance of policy, simply diminishing accommodation at a modest amount. and while inflation was running below our 2% objective, the committee judged the transitory factors, particularly energy prices and the appreciation of the dollar, replacing significant downward pressure that that would am over time. and as the labor market continued to improve, that inflation would move back up to 2%. we want to make sure given the lags in monetary policy that we don't wait so long to begin the
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process of modest adjustments in the fed funds rate, that would end up significantly over shooting both of our objectives and allowing inflation to rise to the point where we would have to tighten policy in a more precipitous manner. which potentially place ongoing sustainable economic growth and improvement in the labor market in jeopardy. we wanted to be able to move in a very gradual way, and to make sure that the economy remains on a sustainable course of improvement. >> thank you. he used the term transitory factors that your site on page five of your testimony where you say the committee judged much of the inflation was pivotal to transitory factors are likely

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