tv Politics and Public Policy Today CSPAN February 18, 2016 3:16pm-5:17pm EST
for seven years to hold the federal funds rate both in nominal and inflation or real terms, inflation adjusted or real terms, at exceptionally low levels to achieve growth averaging 2% or a little bit above. >> i'm sorry to interrupt but i do want -- >> in that sense it's not normal. the economy is being held back by headwinds. i would point out that a tenet of the taylor rule is that it takes -- it assumes and embodies in it an assumption that the equilibrium level of the feds funds rate with a 2% objective is 4% or that the real equilibrium federal funds rate is 2% and that simply isn't the case. >> madam chair, i'm surprisingly not pushing the taylor rule. i'm simply asking about a general rule-based system because you have shown some
support for it in the past. and i guess my question is this -- what does the world have to look like? because i think admittedly employment is better. inflation it seems to be under control. yes, you say that the fed funds rate is extraordinarily low, which it is, but that's something under your control. what does the world have to look like in order for the federal reserve to start considering transitioning to a rule-based system? >> well, i think the benefit of a rules-based system is its systematic and understandable. and the federal reserve has attempted to engage in a systematic policy that takes a different form. >> i get that. what does the world look like? when you come back next year what does the world have to look like to say do you know what, we're considering a rules-based system? what has to change? >> the committee thinks as, looks address guidelines as rules for useful benchmarks as
it considers the appropriate stance of policy. but i believe, and i think most of my colleagues would agree, that we shouldn't mechanically follow that rule or any other rule, but that we need to take into account a large -- a large set of indicators of how the economy is performing. >> time of the gentleman has expired. the chair now recognizes the gentle lady from wisconsin, ms. moore, ranking member of the monetary policy and trade subcommittee. >> thank you so much, mr. chairman. and, again, welcome, chair yellen. i want to take us in a little different direction. many of us here on both sides of the aisle are really concerned about what's happening with our smaller banks. and we understand that because of basel 3, we had a lot of concerns, we debated dodd/frank and including provisions like volcker and fsoc, they were
driven by concerns of the large banks in active capital markets and i know that you're not the only -- the fed is not the only regulator overseeing implementation of dodd/frank. but i'd like your thoughts on how the rules may have been tailored or should have been tailored for small and community banks. you know, the stress test, the capital standards are killing our small banks. compliance. officers that where they don't have the additional staff. just your thoughts on what should have been done or how has it been tailored. >> well, let me say that i think community banks and their vitality is exceptionally important. they provide enormous benefits to the country and to the economy. i recognize that the burden on community banks is intense. >> they're shutting down. >> the regulatory burden.
for our part we're focused on doing everything that we conceivably can to minimize the burden on these banking organizations. we've been conducting a review to identify potential burdens that our regulations impose on these banks. and we will do everything that we can to respond to the concerns that are identified there to reduce burden. we're looking for many ways. first of all, we have tried to tailor our regulations to the size and complexity of institutions. the smaller community banks are not subject to stress testing requirements. many aspects of basel 3, capital requirements and liquidity rules, do not apply to those
banking organizations. we've tried to simplify those requirements. we're in addition to that trying to reduce the duration of the time that we spend reviewing banks during exams. we're trying to simplify and be more targeted in our requests for documentation. we try to identify for community bankers what is relevant to them and what they can safely ignore. and we're looking for ways to conduct exams that are more focused on the actual risks that are relevant to a particular organization. so, i recognize that the burdens on those banks have been very intense and pledge that we are doing and will continue to do all we can to reduce burdens on them. >> thank you, madam chair. you know, on this committee we spend a lot of time talking about moral hazard.
and so i guess i would like your view on whether or not you think there's any moral hazard on not a single person involved in the 2008 crash having gone to jail. they get fines. they get sort of compliance letters where they can clean up their act and avoid prosecution. and i'm wondering if you think that it's important for us to seek -- you know, so what? you pay a fine, that does not -- that doesn't stop anyone from doing the next crime unlike other of our criminal laws. >> well, i agree with you. i do not think that individuals who are guilty of wrongdoing should escape paying appropriate penalties.
for our own part, we are not allowed, obviously, to put in place criminal penalties. that's a matter for the department of justice. for our part, we can when we find individuals to be responsible for wrongdoing make sure that they are not allowed to work at the banking organizations where they committed misdeeds. and in many cases, we can make sure that they're banned from the business of banking. and when we've been able to identify individuals who are responsible, we have put in place those sanctions and will continue to do so. and we always cooperate with the department of justice in their investigations. >> time of the gentle lady has expired. the chair now recognizes the gentleman from north carolina, mr. mchenry, vice chair of the full committee. >> thank you, chair yellen.
so, does the federal reserve have the legal authority to implement negative rates? >> i'm sorry, do we have the legal authority to? >> implement negative rates. >> so, this is a matter that the federal open market committee considered around 2010. and we didn't fully -- as we were exploring our options to provide accommodation, we decided not to lower interest rates, either ioer to zero or into negative territory. and we didn't fully look at the legal issues around that. i would say that remains a question that we still would need to investigate more thoroughly.
>> in one of our document requests the 2010 memo that i assume is connected to that policy discussion. >> that's right, that's right. >> raised significant doubts about the fed's authority, that they currently have, to charge -- to pay interest on excessive -- on excess reserves. and whether or not that same authority would allow you to demand payment for that. >> so, congressman, i don't know of any restriction that would prevent us from doing that. that memo indicated -- was intended to indicate that the legal issues had not been seriously considered. >> have they been seriously -- >> the time it went to the fomc. >> have they seriously been considered since 2010? >> well, in the spirit of prudent planning we always try to look at what options we would have available to us either if we need to tighten policy more
rapidly than we expect or the opposite, to loosen policy. >> do you -- >> so, we would take a look at it. but the legal issues, i'm not prepared to tell you have been thoroughly examined at this point. >> so, at this point it's unclear whether or not the fed does have the legal authority to implement negative rates. >> i am not aware of any -- anything that would prevent us from doing it, but i'm saying that we have not fully investigated the legal issues that would -- that still needs to be done. >> so, let's move to regulation. right? significant part -- you run the largest regulatory organization in the united states of america, perhaps in the globe, likely in the globe. and as such, you know, i believe in the independence of the fed to make monetary policy, but as a regulator, congress should have significant oversight of
your regulatory actions, should they not? >> yes. >> okay.éhj- and as such, as a matter of regulation, the chairman raised this question with you the last time you were here about federal reserve regulators, bank examiners, demanding to be a part of board of director meetings at member banks. and you've exchanged multiple letters on this matter. we still hear that this is, in fact, taking place. would you pledge to this committee that you would direct your bank examiners and regional bank examiners to stop this practice? >> well, i will -- i will look in to -- >> well, you've already looked into it and you exchanged letters. and you gave the chairman assurance last time that you're not aware of it. i assume you are now aware of whether or not this is taking place, are you not? >> i think there are occasional situations in which that occurs. >> do you believe that's
appropriate? >> i'm not -- i'm not certain that it is inappropriate. i want to get back to you on that. >> okay. well, this was raised about six months ago by the chairman. >> i remember that. >> you've exchanged multiple letters. i'd like to have some greater assurance. this is not meant to be a gotcha. this is a well-worn question. and we're hearing -- and, in fact, there's a press report that the fed directed one of your member banks to incorporate two additional members of their board of directors. and the fed directing a private enterprise to change their board of directors seems somewhat perplexing. do you believe that's appropriate authority for the fed? >> well, i think it is appropriate as a matter of supervision to -- >> to direct -- >>-- ensure that a board of directors of a financial company that we supervise is appropriately constituted and
fulfilling its corporate governance functions. that is a part of supervision. >> my time has expired. >> time of the gentleman has expired. the chair now recognizes the gentle lady from new york ms. maloney, ranking member of our capital markets subcommittee. >> chairman yellen, you raised interest rates in december and said any future interest rate increases if they happened would be gradual. i'd like to ask you about the recent turmoil in global markets. as you know, equity markets around the world, led by china, have plunged since the beginning of the year as global economic growth has weakened. and the u.s. has not been immune. u.s. stock markets have fallen over 9% since the beginning of the year. and treasury yields have plunged 25 -- 23%. so, my question is, has the
turmoil in global markets changed your view about the appropriate pace of interest rate increases and hikes or will you wait to see how global market turmoil affects the u.s. economy before raising rates again? >> we are watching very carefully what's happening in global financial markets. it would appear that the stresses that we've seen since the turn of the year relate to uncertainties regarding chinese exchange rate policy. there is uncertainties around the price of oil. we have not seen shifts in -- that seem significant enough to
have driven the sharp moves we've seen in markets. there would seem to be increased fears of recession risk that is resulting in rises in risk premia. we've not yet seen a sharp drop-off in growth, either globally or the united states. but we certainly recognize that global market developments bear close watching. as i mentioned, that financial conditions have become less supportive to growth, and we recognize that these developments may have implications for the outlook, which we are in the process of assessing. and i want to make clear that monetary policy is not on a preset course. and so our evaluation of the likely impact of those
developments on the economic outlook and our ability to meet both our employment and inflation objectives, those are the factors that will govern the future stance of monetary policy. it's not on a preset course. >> and given the turmoil in global markets, and the slowing u.s. economy, some analysts are now talking about the u.s. possibly falling into a recession. what would it take for you to consider cutting interest rates again? a severe downturn in the economy or just stubbornly low inflation? >> our commitment is to achieve our congressionally mandated goals of maximum employment and price stability.
i do not expect that the fomc is going to be soon in this situation where it's necessary to cut rates. let's remember that the labor market is continuing to perform well, to improve. i continue to think that many of the factors holding down inflation are transitory. so while there is always some risk of recession and i recognize and have just stated that global financial developments could produce a slowing in the economy, i think we want to be careful not to jump to a premature conclusion about what is in store for the u.s. economy. so i don't think it's going to be necessary to cut rates. but that said, monetary policy as i said, is not on a preset course.
and if it turned out that that would be necessary, obviously the fomc would do what is needed to achieve our goals that congress has assigned to us. >> you said in december you were surprised how far oil prices had fallen and you expected inflation to increase once oil prices stabilized. since the fed's december meeting, oil prices have fallen even further. they're down about 25% since the december meeting. and they've fallen 7% since friday. at the same time we've also seen inflation expectations fall since the december meeting to the lowest levels in quite some time. has this caused you to rethink your inflation projections at all? >> we indicated in our statement in january that these
developments led us to conclude that inflation will stay low for a while longer, as these developments work through. clearly, we are watching inflation expectations and as i mentioned, market-based measures of inflation, compensation, have moved down now. to historically low levels. and that is something we're evaluating carefully. in december, when we raised rates, we indicated that with inflation so far below our objective, we would carefully watch incoming data and revise our expectations. so i don't want to jump to a premature conclusion, my colleagues and i will issue in march updated projections for inflation taking all the evidence we have at hand into account. but the time --
>> the time of the gentle lady has expired. the chair recognizes the gentleman from new jersey, mr. garrett, chairman of the capital markets subcommittee. >> i thank the chair. chair yellen, thank you for being here. i would like to talk on emergency lending under 13.3. it was about a year and a half ago, senator elizabeth warren and myself and mr. capuano joined together and senator vitter as well, sent you a letter expressing our deep concern with what you were doing with regard to implementing the limiting language in dodd/frank at that time. of course, you've come out now with a rule despite our admonition questions in that letter. a rule that would basically allow the fed to drive a mack truck through the various loopholes in it. and also once again, as is typical with the fed, lacking in clarity and transparency. that being said, the fed is not always clear in what they want to do and the regulators are not
always clear in what they want to do. for example, came up with the volcker rule and in the volcker rule the fed was not shy on elaborating on concepts in that statute. it went so far to adopt prohibitions and trading assets that were never intended by the statute and the fed and other regulators came up with this part of the volcker rule, with defining what the words proprietary trading is. 800 pages for definitional clarity in the area of volcker improprietary trading. compare that to what you did with under the limitations, that should be in place under dodd/frank of 13.3. 47 pages of definition and lack of clarity throughout it. so the first question is, why in one area can you exact and precise and in precision when you're trying to limit what the private market is doing.
but when congress tells you to put limitations on yourself, you lack the clarity and give it a broad brush? >> well, i think we tried in the rule to be as clear as we possibly could. we -- >> well, let's take a look at that, then. >> we took, for example -- >> let me give you an example. the fed claims that it establishes a penalty rate under 13.3. you fail to provide any specifics whatsoever what that rate would be. compare that to what congress did. this committee passed a bill. would establish a penalty rate that would be commensurate with quote a distressed borrower. so why wouldn't the fed be clear on this? what is -- you know, what are the rates going to be? >> because what a penalty rate is depends on the specifics of a particular situation. a penalty rate is a rate that when conditions normalize -- >> we know what a distressed borrowers in the markets are.
that's clear. why didn't you define it that way? compare it to the regular markets, so that a distressed borrower in the markets would be charged the same if they're borrowing from the fed or related to it? >> well, in the type of situation that we found ourselves in -- >> yeah. >> -- during the financial crisis, market rates had shot up to extraordinary levels because liquidity had dried up in the financial -- >> i understand what the history of the market was at that time. but you could have provided clarity here. so basically you're telling us once again the fed is going to be in the position of picking winners and losers. by your prior answer it seems like you could charge borrower a one rate and borrower b a different rate under similar situated circumstances. is that not correct? >> well, i think what is an appropriate rate does depend on the circumstances. financial crises which is when
we would be using this authority to set up a broad-based program are always very unique. >> i think that's basically what you're telling us is that nothing really has changed despite the admonition and the law in dodd/frank to put a limitation, and it's not just me saying that, by the way. it's interesting while you're here testifying today, governor fisher is also making public statements as you speak. and we discussed part of his statement. he seems to be saying exactly what you are, that you have not limited 13.3. he said put in simple language, strengthening fire regulation does not imply that the fire brigade should be disbanded. he goes on to basically say in his comments today that we're not seeing the limitations that you're going to be able to do the similar things that you did back in -- or that before you were here, that the fed did the last time around. >> i want to make clear that i think our 13.3 powers and ability to lend to keep the
credit flowing in the economy during a financial crisis is a critical power and played a critical role during the financial crisis. >> is he wrong when he says that nothing really, my interpretation, he says that nothing has really change, your powers are the same? >> no, a lot has changed. congress put a in place a series of restrictions -- >> but your rule does not implement that, does it? >> yes, it does. our rule does implement those restrictions, we cannot lend to an insolvent borrower. we cannot lend to help one or more failing firms. we can only put in place broad-based programs and we have defined pretty clearly in that rule what constitutes a broad-based program so congress clearly changed what the fed can do. it also gave -- >> governor fisher is saying we have likely reduced the probability that of lender of last resort will be needed. but we have not reduced that probability to zero. it appears that in his opinion. some of those problems remain. >> the time of the gentleman has expired. the chair recognizes the
gentle lady from new york, ms. velasquez. >> thank you, mr. chairman. chairman yellen, the unemployment rate is down to under 5% for the first time in eight years. however, i remain concerned that unemployment rates remain elevated. in the hispanic and african-american communities. does the fed specifically take unemployment within this groups into consideration when making policy decisions surrounding the fed fund rate? >> so we track very carefully, the unemployment rates and experiences of different demographic groups. and we make a very careful assessment about whether or not the economy is meeting the objective of maximum sustainable employment or not.
which involves taking account of factors like our particular groups being discouraged from even participating in the labor force because of conditions. but it's important to recognize that our powers, which involve setting interest rates, affecting financial conditions, are not targeted and can't be targeted at the experience of particular groups. i think it always has been true and continues to be true that when the labor market improves, the experience of all groups does improve. i mean, roughly now the unemployment rate in the united states is close to where it was in the fourth quarter of 2007. now african-americans and hispanics at that time, back in 2007, had higher unemployment
rates than the population as a whole. you know, regrettably because of the disadvantages that these groups face in the labor market, they have historically tended to have higher unemployment rates. but as the economy has improved, and unemployment has come down, the unemployment rates for those groups, for hispanics and african-americ african-americans, have come down. they have fallen to roughly the same levels that they were in at the end of 2007. while again, remaining higher. so we do look at that. but we don't have tools to target -- >> i understand that. >> -- particular groups rather than others. >> you consider 8.8% unemployment rate among african-americans, today, too high? >> i do consider it too high. i think there are any number of reasons for that.
and i think that the reasons for it are ones that congress should be considering. broadly in designing a wide range of policies. it's -- it is something that we want to see a strong labor market. we want to see continued progress. and we will put in place policy that achieve that. but we cannot target the unemployment rate for a particular group. >> i heard you. as you know, chair, u.s. employers have created 14 million jobs during president obama's tenure. however, the labor force participation rate remains low, and discouraged people that want to work has stopped looking. how much of the decline in the rate can be explained by the trend of flat or declining wages for many american workers?
>> so, for the country as a whole, an important reason that labor force participation has fallen and will continue to fall is because of the aging of the population. so, that's not going to change, and the trend is downward. but it is also true that for certain subgroups in the population, for example, prime age but less educated men, the trend downward has been particularly steep. and you know, there's a lot of economic research that tries to understand why men have their labor force participation is declined. and it wouldn't surprise me if wage trends are part of the reason for that. >> correct. >> so, my guess is they have --
they have played a role in discouraging labor force participation. >> as wages begin to increase, do you anticipate the participation rate to increase as well? >> yes, i -- i anticipate that wage growth will move up somewhat. and i do think that labor force participation is somewhat depressed relative to where it will be in a really full employment economy. that's why i say i think there does remain some slack in the labor market, even though the aggregate unemployment rate is at 4.9%. so, i do -- >> the time of the gentle lady has expired. the chair recognizes the gentleman from texas, mr. nogabower, chairman of our financial institutions subcommittee. >> thank you, mr. chairman. and thank you, chair yellen, for being here as well. part of your remarks were about the state of the economy and i think you're trying to paint a little bit rosier picture.
and maybe there's a little bit of a rosier picture, but it's not a good picture. i'm looking at some stats here. we've still got 16 million american citizens that are unemployed. the fact that the number of long-term unemployed americans is 761,000 higher than it was at the start of the recession. we've got 94 million americans over the age of 17 that have abandoned the job market. real disposable income is paltry annual rate at 1.2%. i mean, the real gdp is growing just under 2.2%. we've got more americans living in poverty than ever before. 46.7 million people. and we've got 45 million people on s.n.a.p., i could read more and more. i think the issue that i've been thinking about this week is when you look at the original
purpose the fed was formed for and what the fed looks like today, and i think my good friend mr. mulvaney pointed to this, is that basically we've got a fed that's in charge of monetary policy. some other things have been added to it and then we've got the fed, the biggest and largest regulator, regulates more financial institutions than any other in the world. it kind of reminds me that while you all are working on one side of the fed to stabilize employment, keep inflation in check, and then on the other side of the fed you've got this huge regulatory structure that has grown substantially and continues to issue very complicated and some people think that you've become a micromanager of these financial institutions with the regulations. so, it reminds me of the statement, we've met the enemy and it is us. is it counterproductive you've got a fed working on one side to
create jobs and you've got a fed on the other side of the building that's doing things that a lot of people think are killing jobs and micromanaging financial markets and decreasing the availability of capital which is it self-defeating? >> i well i think we have to remember that financial crises are immensely costly to well being. and it's important to make sure that we do everything almost everything we can to reduce the odds of another devastating financial crisis. so we are working hard. we have worked hard in the aftermath of the crisis. to make sure that we have a financial system that is safer, sounder, has more capital, higher quality capital. more liquidity, is less
crisis-prone than the financial system. that we had that caused this financial crisis. >> i want to -- time is short. you mentioned the word liquidity. i think a lot of people think some of the things that the fed has done and some of the regulations that have actually reduced liquidity in a number of markets. you and i have had a conversation about the fact that y'all have shown some concern about liquidity. i wanted to see if you knew that the european commission has initiated a review process. they said that five years after instituting these additional regulations and capital requirements and piling on of regulation and i'm not against having adequate capital. but the problem is that we seem to have an add-on game here and the additional capital also comes with the additional regulations. the european commission has initiated review process, said time out here, let's go back and
look, we know what we've asked these entities to do. we know what we've impounded them with. the question is how are the markets responding to this and how have basically it's a cost benefit analysis. of all of the policies that are in place. has the fed thought about maybe we should stop and analyze what we've done here and see if it's positive. >> we have a few things to put in place the dodd-frank regulations that were called for and we hope to complete that work soon. and it certainly is appropriate to evaluate how the system is working and we do it on an ongoing basis. it's appropriate to see whether or not there are ways in which we can improve or simplify regulations. and we are in the process of doing that in some some very important areas.
>> the time of the gentleman has expired. the chair recognizes the gentleman from california, mr. sherman. >> mr. chairman, i feel like i'm at a ballroom dance on the deck of the titanic. the faith of the american people in our government and institutions is at an all-time low. i've been sitting in this room of 20 years and the room has the feel that it had 20 years ago. except we don't have alan greenspan in front of us. government institutions work better if they listen to the american people. first because the american people will accept the decisions and second because we get better decisions. yesterday in a small state that is doing better than most of the country, two-thirds of the people went out in a very, i think a record-setting turn-out with inclement weather. to say they're mad as hell,
particularly at the financial institutions that this committee deals with. and two-thirds of them voted for the most angry candidate they could find. too big to fail should be too big to exist. madam chairman, in response to the lady from wisconsin, you said it was basically the department of justice' failure to have a single criminal prosecution of those who had robbed the banks and more importantly robbed the american people. and i wonder whether you can really just put that at the feet of the department of justice? because we've learned institutions can get so big that they are too big to fail. your predecessor was in this room demanding that we bail them out. and god forbid you will be again, if you allow these too big to fail institutions to continue to exist.
and as they're too big to jail. as you point out, you may bar somebody from the banking world, gee whiz, in a country with more people incarcerated than any other country in the world, is it really adequate to those who steal hundreds of millions and billions to say well, you can't go back into the banking world? so i'll ask you as a member of f-soc, we need moral hazard to make sure that major economic decisions made by the giant banks are made correctly. they don't have a moral hazard in the sense of not being able to get capital. people are flooding them with capital at rates that are said to be up to 80 basis points less than they would pay if there wasn't a belief we would bail them out. so the too big to fail won't be allowed to fail as you point out. the doj won't put anybody in jail. the solution is use your power under f-soc to break them up. are you going to break up the too big to fail institutions?
i've asked you that before, i'll ask you it again. i think i know the answer. >> well the answer i'll give you is that we are using our powers to make sure that a systemic important institution could fail and it would not be, have systemic consequences for the country. we're doing that in a whole variety of ways, first of all, we've done many things to diminish the odds that they would fail. we're trying to make them, i think i can enumerate all the things -- >> are you willing to call the attorney general and say -- we've got this thing handled so well, that you can start criminal prosecutions? because they're not too big to jail any more? >> i said i am in favor of going after individuals who are guilty
of wrongdoing. >> with such penalties as barring them from the banking system. i want to move on -- >> i said those are the sanctions that the federal reserve can impose. >> i need to move on to another question. you're a governmental entity in some parts of the entity it's one bank, one vote. it's the only part of our constitutional system that puts governmental power in the hands, one bank, one vote. would you, are you going to use your considerable power to oppose legislative efforts to try to make the regional bank governors appointed exclusively by the president and to try to make the regional banks subject to the freedom of information act? >> congressman, i think the current structure of the fed is something that congress decided after a long debate, and weighing of a whole variety of considerations, i would say i think it's worked pretty well, but it's certainly something -- >> excuse me, madam chair.
are you saying that the fed in the having just lived through 2008, with people not getting raises that this whole system has worked well? >> i'm sorry i thought you were asking about our governance. >> your governance has led to the decisions that have nearly brought this country to its knees. i yield back. >> time of the gentleman -- has expired. the chair recognizes the gentleman from missouri, mr. lukameyer, chairman of our housing and insurance subcommittee. >> thank you, mr. chairman and welcome in madam chair. it's kind of interesting as discuss all the questions that have been asked you here with regards to your ability to micromanage the economy and as you make the decisions that the federal reserve to try and do something about unemployment. try to do something about the inflation rate.
i look at some of the things and i'm just kind of stunned. let's start off first with what happens if we have a down term and you've only got $4 billion on your balance sheet. what levers are available to you to do something? >> the fed has an away of tools. >> which are? >> most importantly the path of the short-term interest rates. >> madam chair, they're already down to almost nothing. how is lowering the rates going to help when they're almost nothing right now. >> well, one of the ways in which the market works is they form expectations about what the likely path of the fed funds rate will be over time. those expectations influence longer-term rates in the market. when the economy weakens market participants naturally expect
the fed in pursuing our mandate to follow a shallower path of interest rate increases. and that shift in expectations moves longer-term rates. i think you can see that just over the last several weeks, as i mentioned longer-term treasury yields have come down as market participants have become more fearful about a recession. and -- >> forgive me for intruding, are you saying that this is a good time to reduce your balance sheet? >> we -- >> or interest rates, it would be a nice time to shift that. wouldn't it? are you intending to do that? >> we have indicated we want to make sure that normalization is well underway before we begin to shrink our balance sheet. and our decision to do that
reflects the fact that we feel that moving short-term rates is a more reliable and understandable and predictable way to manage the economy. and so we're going to wait to shrink our balance sheet until a point when short-term interest rates are somewhat higher. >> so we may never get there is what you're saying. there's not much room to go down. >> let's -- >> we'll have to see -- >> let me go into your decision-making process here.b52 we have a labor market that continues to, the labor force participation rate continues to go down. and yet we had according to your report here, is the hourly rate of employees went up there should be more incentive for people to work. yet they're becoming less. and you use the demographics of our country to indicate that. so i'm concerned that if you look at the numbers, there's
minimal ability of the way you explain the answer to miss velasquez a while ago of you guys to be able to manipulate this. the second thing is, i'm concerned, what other factors do you take into consideration when you look at rates? for instance, do you look at what the congress is proposing? do you look at the court decisions? we had there's been a big discussion about trying to stop the inversion, the ability of our companies to go overseas. and be able to take advantage of those tax rates, the decision is to cut corporate tax rates to bring those dollars home. do you ever think about those sorts of implications about whenever you make decisions on your rates? yesterday we had a dramatic historic decision by the courts with regards to an epa ruling that would have dramatically changed the way that we cost of energy in this country. do you take those things into consideration when you make your rates?
those will have significant impact on our economy. >> we tried to take into account in making our decisions, any factor that we regard is important -- >> do you have in place right now some modeling with regards to the epa rule? >> not that i know of. >> do you in place any modeling with regards to potential tax cut for bringing dollars home? or for corporations? >> we routinely look at the stance of fiscal polecy -- >> you have a model in place if we cut corporate tax rates that would allow you to make a decision on that issue? >> if you were to decide that, our staff would attempt to evaluate -- >> you don't have one in place right now is what you just said? >> not to the best of my knowledge. >> thank you very much, i yield back. >> the time of the gentleman has expired. the chair recognizes the gentleman from new york, mr. meeks. >> thank you, mr. chairman and welcome chairwoman yellen.
>> i don't know, some of my colleagues may not have been here nine years ago, eight years ago. i got to tell you i feel better today than when i sat here eight or nine years ago. i feel much better today. than i did then. i can remember what was taking place then and the panic that was going on. and the pressure that this government was under. and though we've not completely done what we need to do because we do need to let wages grow. we do need to make sure we create more jobs. the position that we're in today, would you agree is much stronger than the position we were in in 2007 and 2008? >> i believe it is. and i believe we've made a lot of progress, while recognizing at the same time there are many households that are suffering and that there are a lot of challenges that people face and structural --
>> i think it's important to acknowledge that. how far we've come. and then i would hope we would focus on what else needs to be done. we do need to make sure that especially those individuals victimized by the financial crises -- for example, if you look at areas in, i think mrs. velasquez talked about it particularly in african-american and latino communities, they lost a great amount of wealth. many of them lost their homes, they lost their jobs, they need something so that they can get back. that's why you see this disparity that is very high right now so what my focus then is -- we had i guess because of what took place in the past, in 1977, we passed the community reinvestment act. the fed is in charge of cra and can enforce it. today, what we find still is that individuals in these, in communities that were deeply
affected, there's no investment going in. there's no job creation there. there's no access to credit. they don't have, because of primarily the crisis. i was wondering what can and since the fed overseas can enforce cra, what is the fed ah doing in helping implement cra, compelling some of the large banks to make these investments. in these communities. as well as into cdfis, who are focused on trying to make sure that the kind of investments are there to create jobs, to grow wages in communities that were devastated by the recession. >> i think cra is extremely important in making sure that financial institutions, depository institutions serve the needs of their communities. and particularly underserved communities. we take our enforcement and evaluation with banks cra
performance very seriously. we have a whole variety of community development activities and programs that are focused on working using our convening power and their cra obligations to try to understand and identify what the needs are in particular communities. and to try to tell banks what works, what kind of programs are worth supporting. that really seem to make a difference in terms of alleviating distress in low and moderate income communities. >> one thing i think is important because i want to know, maybe you have the answers, to show where the banks are making these investments, in compliance with cra. because i have found that those numbers have surely sunk and when i look at access to capital
in these communities, you have about 70 million people now who are under-banked or unbanked in these communities so cra could definitely help there. i would love to follow up with you to find out exactly where the enforcement, who is, in fact complying and giving. who is not. there's got to be some accountability therein. lastly, in the few seconds i have, the other thing that's important to look at in some of these communities, in the days well access to credit and absolutely key and essential. sometimes people's credits are looked at. there's alternative systems for example, you find people they pay their rent every day on time. not to be considered when reference to credit scoring models. is there other models that you're looking at with reference to how your credit scores are considered? that the fed could advocate. >> i'm not sure about credit
scores, we'd be glad to get back to you on that. >> the time of the gentleman has expired. the chair recognizes the gentleman from wisconsin, mr. duffy, chairman of the oversight investigations committee. >> welcome chair yellen. i want to take a trip down memory lane. because i think there was some rewriting of what happened in the crisis. there's a lot of people who bought homes and for lower-income folks, that's their investment. and a lot of them lost their investment walking into the crisis. devastating families. and i know we want to look to wall street and there's blame there. but i think there's a little bit of revisionist history, to say that fannie and freddie didn't have anything to do with the crisis. they allowed no doc loans. no income verification. allowing folks to buy homes they couldn't afford. and in dodd-frank that was passed by my friends across the aisle, fannie and freddie weren't touched at all. fannie and freddie were the ones allowing folks in this room to get homes they couldn't afford and they were hurt.
didn't touch them. the regulators had wild authority and power, they failed and instead of taking a look at the regulation and the regulators, we've reempowered regulators. so no wonder that big banks after dodd-frank haven't gotten smaller. big banks have gotten bigger. and the small community banks that i'm sure service a lot of the folks in this room and service folks in my community, they're going away. big problem. i just had to get it off my chest. a lot of exciting things to chat about with you, chair yellen, as the chair of the oversite committee i have concerns about your willingness to comply with our requests. we sent a letter in the medley investigation and in our oversight of the fed asking you for information regarding communication. no compliance. we sent you a subpoena in may, you did not comply with that.
we had partial compliance in, in october. we're now a year after my initial letter. i've asked you for excerpts of the fomc transcripts in regard to the discussion in regard to the internal investigation on medley. you have not provided those to me. is it your intent today to promise that i will have those, if not this afternoon, tomorrow? >> congressman, i discussed this matter with chairman hinterling and indicated we have some concern. >> why don't we talk about it right now. >> finding the transcripts? >> finding the transcripts? >> i said with providing transcripts, given their importance in monetary policy. >> and i received a note back from chairman hinterling last night, quite late, indicating your response to that. and we will consider it and get back to you as soon as -- >> i don't want you to consider it. i think the chairman would agree
with me, that this is a conversation, not about monetary policy. this is not market-moving stuff. this is about the investigation and the conversation of a leak inside of your organization. >> so this institution is entitled to those documents, wouldn't you agree? >> i will get back to you with the formal answer. i believe we have provided you with the relevant information. >> if i'm not entitled to it, can you give me the privilege that you're going to exert that's going to let me know why i'm not entitled to those documents? >> i said we received well after the close of business yesterday a letter, explaining your reasoning and i -- i will need some time to discuss this matter with my staff. before i give you a final answer. >> i don't want -- listen -- i sent you a letter a year ago on february 5th, i had to send you a subpoena. you knew that i'm looking for these documents.
you knew i was going to ask you about this today. so if you're not going to give me the documents, exert your privilege, tell me your legal authority, why you're not going to provide this to us. if this is market moving, i would be sensitive to that. this is not monetary policy conversations, this is about the internal working of the fed. i'm not asking for all the transcripts, i'm asking for the excerpts specific to our investigation and oversight of the fed. let me ask you this -- you get to oversee banks. if you make a request to a bank for information a year ago, and they say, let me review with my board. let me talk about it, but they never comply with your request for documents or information, what would the fed do? >> i think we have complied very fully with the requests that you've made. >> i'm asking what would you do if you made that kind of a request to a bank that you oversee? what would you do?
>> we work with banks to make sure we have access to the information. >> and if they didn't, i can't imagine what the fed would do if someone didn't comply with your request. and guess what, we're entitled to the documents. we expect to get them unless you exert a privilege and there's no privilege that you have. so i expect they'll come over, i yield back. >> time of the gentleman is for what purpose is the ranking member seeking recognition? >> is it appropriate to ask for unanimous consent for clarification on a point of information that was just given by the gentleman? >> does the lady have a parliamentary inquiry? >> the inquiry could be considered parliamentary, i understand the gentleman to say that they subpoenaed the feds and did not, it was ignored. is that what he meant? >> the gentlelady is not stating a parliamentary inquiry and as i think the ranking member knows, the time of the chair is
limited, if other members wish to pursue that in their questioning, they may pursue that in their questioning. the chair now recognizes the gentleman from texas, enter hinajosa. >> thank you ranking member waters for holding this hearing today. chairwoman yellen, i thank you for meeting with our committee today and your steadfast leadership at the federal reserve. america has made great progress since the financial crisis of 2008. our recovery includes 70 consecutive months of job growth, the longest streak in our nation's history. resulting in an astounding 14 million private-sector jobs created. and an unemployment rate now extending below 5%. however, we continue to feel the hangover from the financial crisis started during president
george w. bush's second term. today the slower-than-average economic growth rate is fueling anxiety and weakening confidence in our nation's economic growth prospects. additionally, our economy appears to be sailing into strong headwinds, caused by slowing growth in the developing world. stagnant growth in europe. the dual effects of plunging oil prices and a strong dollar negatively affecting our manufacturing and export industries. addressing those challenges also requires to answer questions regarding the sustainability of our national debt and of the ability of congress and the federal reserve to act effectively to stimulate the economy. despite the market turmoil and economic uncertainty however, i'll note, i'll note that our nation's confidence in the safety and soundness of our financial system has not been shaken.
indeed we can contribute a much stronger and more resilient financial system in large part to the protections and improvements of the market oversight under the dodd-frank act. my first question, chairwoman yellen, what else should our nation be doing to help us return to normal growth rates? >> well one of the distressing aspects of the recovery we've seen, i agree with you, that we've made good progress in the labor market created a lot of jobs in the unemployment rates low. the growth in the economy that's been consistent with that, has been quite disappointing. so another way of saying what that implies is when output is growing at a very weak pace and you have a lot of job growth, that means that productivity growth has been very
disappointing. since the financial crisis and ultimately that determines living standards. >> you think we are dragging down the potential growth rate of our economy and doing a disservice, to our young men and women by saddling them with debt, just as they are setting out to become full contributing members of our work force and economic engine? >> i think the debt situation that faces this country over the longer-term is something that congress certainly needs to address. at this point the debt-to-gdp ratio looks like it should be sustainable at present level for a number of years. as the population ages, it will, this is evident from cbo projections, be on an unsustainable upward course. and this is something congress has known about for decades and
it's important to address. >> it seems to me that while congress must do its part to raise the minimum wage, expand the social safety net and provide a more progressive tax code, what steps are you taking at the federal reserve to address the historic level of inequality in the united states? >> well, congressman, the main contribution that it the fed can make to inequality given that we don't have policies that target particular groups in the labor force, the main contribution we can make is to make sure that the labor market is performing well, that we attain congress' maximum employment objective. i'm pleased with the progress we have made. but there's further to go. and we're committed to making sure that we stay on that course
of further improvement in the labor market. and it won't right every -- every disadvantage that workers face, but it has resulted and will continue to result in broad-based gains for all groups in the work force. >> my time has run out, and i yield back. >> the time of the gentleman has expired. the chair now recognizes the gentleman from california. mr. royce, chairman of the house foreign affairs committee. >> thank you. good to see you, thank you. the latest stress test scenario that was published by the fed includes this scenario where the rate on three month u.s. treasury drops below zero from the second quarter of 2016 through 2019. and i recognize that this in no way predicts any future action here. as a matter of fact, it was announced specifically in the document that this scenario does
not represent a forecast for the federal reserve. nonetheless, this timing is interesting, because it comes at a time when the european central bank and the bank of japan have both instituted these negative interest rate policies. so the question i was going to ask you -- let me make one other point. it may suggest that the federal reserve is not opposed to reducing its target rate below zero should economic conditions warrant, and may be employing the stress test process as a tool to consider its possible impacts. that strikes me as maybe the reason you deployed it in the scenario. you told the committee in november that if the economy were to deteriorate in a significant way, potentially anything, including negative interest rates, would be on the table. and i remember those remarks
were echoed in january by new north korea fed president bill dudly. assuming for a minute that the fed figures out this question about the legal authority, do you still believe that negative rates are a tool in the toolbox? and can we assume that the federal reserve would not include this scenario in a stress test if, in fact, it were not a potential future action? >> well, let me say that that was not what motivated the inclusion of this scenario in the stress test. we are in an environment whereas you pointed out where a number of other european central banks, the bank of japan have gone to negative rates. through much of europe, interest rates and in japan are negative way at the yield curve.
we had periods of market stress where we see a flight into u.s. treasuries as a safe haven. and the scenario that we ask banks to look at is one in which treasury bill yields go negative. this is something that could potentially happen without the fed actually setting negative interest rates. it is something that could happen. and we have seen it happen for limited periods of time in stressful situations. >> let me ask a clarifying point. because it has been kicked around since 2010 the possibility of the fed maybe setting negative interest rates. so i just -- quick question on looking at the fed authority. you haven't -- you haven't taken a serious look at the fed authority until now while it was kicked around then and you do the scenario in the interim.
>> back in 2010 when we were looking for ways to consider to add accommodation to have a tool kit available, it's something we looked at. we got only to the point of thinking that it wasn't a preferred tool. we were concerned about the impacts it would have on money markets. we were worried that it wouldn't work in our institutional environment. and we thought that zero was really the effective or very -- >> i got it. >> just very little was -- >> let me ask you then really quickly -- >> in the spirit of prudent planning, it's something that in light of european experience we will look at. we should look at. not because we think there's any reason to use it. but to know what could potentially be available. and it isn't just a question of legal authority.
it's also a question of could the plumbing of the payment system in the united states handle it? is our institutional structure of our money markets compatible with it? we have not determined that. >> okay. well let me personally just say that i think that the central banks in japan and europe are trying to overcompensate for irresponsible fiscal policy. i think that's what put them in this position. can we avoid the same mistake here in the u.s. if we get our fiscal house in order? in other words, do you agree that if we address the long-term structural problems with soaring mandatory spending, we would decrease the potential need for monetary policy actions that reverse course on interest rates? >> i think it is certainly desirable and important for the long run stability and growth of this country to take the measures that you have suggested and evaluating the stance of
fiscal policy, it is something that affects our monetary policy. >> thank you, chair yellen. thank you very much. >> the chair now recognizes the gentleman from georgia. mr. scott. >> thank you for coming. chair lady, you know i have a lot of respect for you. >> thank you. >> but i very vehemently disagree with you when you say that you can't target unemployment. let me just say this. it is very important for everyone to know that you have an equal mission. part of that mission, one half of it, is to curb inflation. but the other half is unemployment. and so just as surely as you go and you target inflation with movement of your interest rates, surely you've got to understand that you have the same authority to deal with the unemployment.
now let me tell you why this is important, ms. yellen. nobody is suffering from unemployment like the african-american community. and they are suffering from that because of the very laissez-faire attitude that the fed historically has dealt with just employment and unemployment all together. but when you look, yeah, we can claw 4.5 unemployment rate. do you know what the unemployment rate is for african-american men between the ages of 18 and 37? it's 36.5% unemployment. and in some communities like chicago and baltimore, atlanta, houston, any of these big cities, it's hovering at 50%. now, when you have this devastating situation, there is
nobody else, there is no other agency that has the mandate to deal with it as the fed. now, in order to deal with it, you've got to look at the economy like it is a wheel. the economy is a wheel. why is it that we have this high unemployment rate among african-american young men and african-american women in that same age group is 26%. so why is it that we can't -- a part of that reason is because the fed has historically downplayed unemployment. never in the history of the fed have you even seen fit to have an african-american president of a regional federal bank for the federal reserve. that's a part of the reason. we're not even a part of the conversation.
so my whole point is that i want the fed. nobody is better equipped to handle this rigid unemployment facing the african-american community in that most pliable age group. that is the child-producing age group, 18 to 37. can you imagine if that was the employment rate of 37.6% of white young men in that age group? all hell would be breaking loose right now to do something about it. we need that same compassion from you. when you look at the energy -- the sectors of the economy that are growing, transportation, energy, agriculture business, healthcare, construction, rebuilding the infrastructure, manufacturing, we need an advocacy from you to say automatically there must be on-the-job training programs for
african-americans in this group to go into these areas and earn as they learn. in agro-business we have 19 -- 1890 colleges, 19 colleges whose authority and mandate due to farm bill is to take the money that we give to the farm bill and spend in teaching, research and extension. why not create the other spending category for scholarships and loan forgiveness? students who will go in and take advantage of these job openings in agriculture and business? all i'm saying is that please, we have got to get the fed to get off the dime and put the issue of african-american unemployment on the front burner. that is the core of all of the domestic issues that we're facing. and that is the child-bearing
group. what are these fathers to do? what is there for them? that's why we have so many of the situations in baltimore, in chicago and other places. and it leads to a straight pipeline to why we got 1.2 million of them sitting in the prisons. would you help us with that? >> congressman -- >> i would love to work with you on it. >> i want to assure you that we recognize how serious the problems are that you have discussed. and we take our employment mandate extremely seriously. and have been doing everything that we can to promote a stronger labor market that will benefit african-americans. >> would you really consider getting an african-american for the first time in history to be a regional president of a
federal reserve bank for the first time in history? >> absolutely. it's our job to make sure that every search for those jobs is assemblies a broad and diverse group of candidates. and i regret that there hasn't been an appointment of an african-american. >> the time of the gentleman has expired. the chair now recognizes the gentleman from florida, mr. posey. >> thank you, mr. chairman. madam chair, the number one thing i hear from my local community banks and credit unions is the need for regulatory relief. that's not news to you, obviously, either. and these financial institutions provide critical services to our communities. and they are worried that the overregulation is hurting not only their ability to provide those services, but eventually, is clearly leading to increased industry consolidation.
i'd like to ask you what you consider to be the negative consequences, if any, that result from consolidation and the effects on the local and national economy. >> well, i think community banks play a vital role in supplying credit to groups of borrowers who larger banks often would not be able to serve. and that is a vital role in all communities throughout the country. so we want to see those banks thrive and are very focused on ways that we can reduce burden on those banks. i mentioned earlier some of the things that we have tried to do to reduce burden. and we will continue looking
through the agripa process and by the regular meetings and contact that we have with community bankers to address the burdens that they face and look for ways to simplify regulation and reduce burden. >> madam chair, do you think that relationship lending is important? >> it's been very important often for community banks in the kind of business that they do. so, yes. >> just a quick follow-up. can you identify some areas of priority at the fed for reducing regulatory burdens on community banks? >> yes. so we have been focusing, for example, on the duration of our on-site reviews and looking for ways to have our examiners spend less time on bank premises.
we have been looking at ways and have simplified and tried to tailor our pre-examination request for documentation. we have been conducting training for examiners to make sure our guidance is properly interpreted and applied in ways that are consistent. we have a number of foray in which we try to help community bankers understand what new regulations or proposals are relevant to them and which ones are not intended at all for their organizations. as i mentioned, the agripa process is ongoing and we have been holding this around the country to hear the concerns of banks with regulatory burden and we will take all of the steps that we possibly can to address
the concerns that surface. we meet regularly with community bankers through an organization called cdac, which is composed of representatives from each of the 12 federal reserve districts. they come to the board, and we meet with them twice a year, the full board of governors, to discuss their concerns. and we follow up on what we hear. >> thank you. you know, finally, this week the house is considering legislation that would require the administration to put forth a detailed plan to reduce the national debt when the dead limit is increases, a common sense concept, i believe. we also just received the president's budget request which would in the face of a $19 trillion -- we just passed the $19 trillion mark in the debt clock, increase spending by $2.5
trillion. when the president took office, the national debt was roughly $10 trillion. when he leaves office, debt is expected to have doubled to $20 trillion. you have often voiced your concerns about the impact of failing to raise the debt limit, failing to pay our bills, citing the impact it would have on the economy. i don't disagree. but i'm curious. do you have similar concerns about the impact on the economy of failing to address our national debt? how much debt do you think is too much? >> well, i think if you look at the path that the u.s. debt is on under current policies, it will rise from the present level to levels well above 100% of gdp and continue rising more or less indefinitely. and wherever you draw the line, you've got to conclude that that's an unsustainable economic
situation. so i think it's essential that congress address this budget deficit issue. >> time of the gentleman has expired. the chair now recognizes the gentleman from texas, mr. green, ranking member of the oversight investigation subcommittee. >> thank you, mr. chairman. i thank ms. yellen for appearing today, as well. and mr. chairman, and ms. yellen, and of course, ranking member, i want you to know that there has not been some sort of conspiracy among congressional black caucus members to bring up this issue of black unemployment. although, i think we do talk about it among ourselves quite regularly. but i do believe that a basic premise that may be of help to us is the notion that in the beginning was the word. and not enough talk takes place among those who have the power
to influence public policy with reference to african-american unemployment. to this end, i am concerned and would ask if you have in your statement given a specific reference to african-american unemployment and the statement that you made today? i apologize if i missed it. but was there a specific reference to african-american unemployment? >> i referenced in answer to a previous question, the very high rates of unemployment of african-americans that persist even with current -- >> if i may, let me share this thought with you. if it is and i believe you are in agreement that it is a serious problem. not just a problem but a serious problem. >> i certainly agree with that. >> if it is a serious problem, i would ask that you make it a part of your actual statement that you present and that you publish it and that you continue
to say to those of us who can make a difference and we should be able to make the difference here in congress. we have responsibilities here to focus as well. but if you would make it a part of your statement, and if you would publish this, i think it can have a meaningful impact on policymakers up and down the line. so just a small request, but i think it can make a really big difference. i'm going to ask that do you this. >> i'm certainly open to doing so. i will certainly take that seriously. >> thank you. let's move to the taylor rule for a moment. you have indicated that the taylor rule would be a grave mistake and that it would be detrimental to the economy and the american people. could you in about one minute give some examples or an example of how it would be detrimental to the economy? that's sort of a nebulous
term and i think you should provide some clarity. >> well, sometimes it provides recommendations for what monetary policy should be that clearly overlook important circumstances. >> if i may, madam chair, would you kindly explain the impact that it will have on the economy? what would the impact be if it causes us to do something inappropriate? i will let you decide what's inappropriate. >> well, either it would have us set a monetary policy that would result in much higher unemployment than would be desirable or, alternatively, there could be circumstances in which it would recommend and accommodative policy that would result in extremely high inflation. now, i would say right now is an example. the taylor rule would recommend an overnight, short-term interest rate that would be close to 2.5%.
and i think in light of the slow growth in the u.s. economy and the fact that we have needed to hold the federal funds rate for almost seven years at zero to achieve the progress that we have made that setting it at the level that it would now recommend would be highly damaging to the economic situation. and we have tried to provide some analysis in the monetary policy report we submitted about why that is, and in particular, this idea that the neutral fed funds rate, because of the damage from the financial crisis -- >> i regret i must reclaim my time. because i have one additional thing that i must say. i appreciate your commentary. i think that a good many people have the point. but i want to say this. we have some people who are visiting today. i don't want any response from them.
but i want to acknowledge their presence because they're concerned about these wages. they are concerned about wages across the board, especially as they impact working people. people who are on salaries. people who make minimum wage. it's our desire to see policies that will have greater employment, greater opportunities, but also, policies that will target those who are hurt the most. i thank you, mr. chairman. i yield back. >> the gentleman's time expired. the chair now recognizes the gentleman from pennsylvania. mr. rothis for five minutes. >> thank you, mr. chairman. welcome chair. i want to talk briefly about custody banks, which you know follow a different business model from other financial institutions. custodians do not make consumer loans or engage in investment banking. for these reasons pose relatively little credit risk. i understand that custody banks whose customers would include
for example pension funds with millions of beneficiaries are finding it increasingly difficult to provide their core custody services, especially accepting large cash deposits. and this could worsen under a period of stress. one of the reasons appears to be regulatory reform such as the supplementary leverage ratio known as slr. they typically place cash received on deposit with the federal reserve. this is cash that comes from pension funds, endowments and municipalities and other clients. however, the federal reserve supplementary leverage ratio does not recognize the essentially riskless nature of fed deposits or the necessity of these placements by custodians. this may cause the leading custody banks to reject customer cash deposit. my question is, is the federal reserve aware of the impact that this may be having on custody banks? if so, what do you propose to do about it? >> well, this is something that was considered, what is the
appropriate treatment of central bank deposits when the supplementry leverage ratio was adopted. a decision was made at the time that the leverage ratio is not our main capital tool but backup capital tool that is intended to in a crude kind of way base capital requirements on the overall size of a firm's balance sheet and that for that reason it should be included. we have more recently put in place capital surcharges that apply to the eight largest u.s. banking organizations, including two custody banks. and it's likely that once those are in place, that they will become the binding capital requirement but --
>> i would encourage you to take a look at that. it's an issue for the banks. >> we have heard of the problem. i will address it. >> as you know, chair yellen, the bank of japan announced it would implement a negative interest rate policy in an effort to increase spending and investment and spur growth. the decision follows close on the heels of the european central bank's announcement it would launch stimulus in march. economists predicted that sweden, denmark, canada and norway and australia and china may follow suit. in a recent editorial in the "wall street journal," the former president of the federal reserve bank of st. louis argued these monetary policy gymities will not create the intended affects and they will only serve to divert attention from the actual structural problems that have plagued growth in the u.s. and around the world over the last decades, namely regulatory burden and tax policies that serve to constrain business investment and long-term growth. what do you say in response to mr. pole? >> i agree that there are structural factors that have
restrained u.s. growth and also been responsible for rising inequality in the labor market. and it's important to take steps to address those problems. they are steps in the domain of congress. but it's important for the fed to try to achieve its mandate of having -- ensuring a state of the labor market where people who want to work are able to find jobs, where there are a sufficient number of them. given the stress situations that exist in europe where there remains very high unemployment and in japan where inflation has for well over a decade undershot their inflation objective, it's a tool that has proven useful to them. >> i want to talk a little bit. you testified earlier over the past number of years the fed
kept federal rates at low levels. with that, you testified that even with this quote exceptional closed quote strategy, the economy achieved 2% growth. you added, quote, economy is being held back by headwinds. i'm wonder if any of these head winds are man-made or to borrow a phrase anthropagenic. here in the united states. i could identify some. the affordable care act. a lost reform bill that missed the market. frankly, epa regulations. these headwinds have hit folks in my district like a mom who now has to pay 400 bucks for allergy medicine for her kid who she used to pay 10. the coal miner who be able to pay for his mortgage. i wonder when the history -- economic history of this decade is written, are they going to say the fed tried to do with monetary policy what should have been done with fiscal policy? >> well, i think it's also
important for congress to address structural factors that are holding down growth. >> time of the gentleman has expired. the chair now recognizes the gentleman from missouri, mr. cleaver, ranking member of the housing and insurance subcommittee. >> mr. chairman, thank you for being here, madame chair. following through on some things that were said earlier, i have a bad knee, and i've had it operated on 11 times. but the weird thing is that whenever i go to the hospital for another surgery, they never operate on my shoulder or my fingers. for some strange reason they always operate on the same knee that's been hurt. i know that's weird. the issue is, we can't address unemployment in a certain sector
by saying we can operate on the whole body and it gets better. that has never been true. i differ a little from my colleagues in that i don't think it's your responsibility. i don't think the fed has the responsibility even with the dual mandate. i think it is to be handled legislatively. i don't think we're going to get that done. the other thing i have to say is that -- it has been said every time you come i have to say it because i have to get it off my chest. the, you know -- i do think that we're declaring minority unemployment too big to curtail. that's somewhat troublesome. but the wall street and the big six banks, you know, are too big to jail. and, you know, you rob a convenience store, you go to jail.
you rob 300 million americans, you get a cocktail. and i think that's what's creating all this anger around the country. i know you don't run the justice department. and i know you don't vote on legislation that could address some of these other issues. but i think we gotta say it as much as we can because i don't think -- i don't think the world is hearing us. now, i would like to yield now the remainder of my time to the ranking member of the financial services committee. >> thank you very much, mr. cleaver. as you know, originally, i was thinking about dealing with the question of the subpoena, except if you don't mind, i am so focused on all of this money that goes to these "too big to fail" banks.
trying to understand, number one, not only the fact that goldman sachs got $121 million, jpmorgan $910 million and that with the rise in interest rates from a quarter percent to a half percent, this will double. and this money keeps -- it's going to the big banks. it's a subsidy to keep them from lending money. and we have this big need that's been discussed by my colleagues about this high unemployment rate and the lack of creativity and thinking about how we could deal with this. and these banks too big to fail who we are fining every day because of the predatory lending et cetera, are getting support from the feds. please, please explain that. >> it's an essential tool that we need to adjust the level of short-term interest rates. from the standpoint of the taxpayer, our payment of those
interest on reserves -- we have very large reserve balances. we have $2.5 trillion roughly of reserves in the banking system as compared with $20 billion or $30 billion prior to the crisis. the counterpart of that on our balance sheet is that we hold a very large stock of assets on which we are earning a substantially higher rate of return than we are paying to the banks and that differential between what we earn on our holdings of long-term treasuries and mortgage-backed securities and the 25 or 50 basis points we pay to the banks, that differential shows up in the taxpayers' pocket.
it is money that congress can use to address all of the problems that you have discussed. >> i have heard -- okay. >> over last year, we transferred $100 billion because of that. now, if we don't pay interest on reserves and must use another technique to adjust short-term interest rates, likely we will be forced to greatly shrink our balance sheet in a rapid fashion and the total amount of money going from the federal reserve to congress will be significantly diminished. in addition to that, it would have very adverse affects on the economy. >> well, i want you to know that not only am i concerned -- it looks like we're about to have some bipartisan concern on this issue. >> i hear that. >> and while i understand the argument that you are making about the big banks, we cannot feel sorry for them in terms of the amount of interest rates, you know, that they are getting or not getting, et cetera.
we really do have to deal with this issue. i understand what you are trying to explain by short-term interest rates. but if i may, madam, let me just say this. that we have an opportunity with the discount window to allow for loans from some of these small community banks that they are not getting. and if that money went into the small community banks, they would be able to do job creation and to support small businesses, et cetera. and we just don't get why they are precluded from doing this and increasing the job opportunities in the community while we have given the subsidy to the big banks. we just don't get it. >> although i agree with much of what the ranking member has said, she has long since spent her time. the chair now recognizes the gentle lady from utah. ms. love. >> thank you, mr. chairman. thank you, chair yellen, for being here today. chair yellen, i'm increasingly
concerned about the impact of dodd/frank regulations on real economy, economic growth and especially job creation, which i'd like to just ask you a few questions about. if you look beyond the headlines, the headline numbers from last friday's job numbers and include discouraged workers and the underemployment, real underemployment -- real unemployment remains high, nearly 10%. in addition, millions of people have stopped looking for jobs. they have dropped out of the workforce. it's a dynamic that is driving the nation's workforce participation rate to an all-time low at 62.7%. i want you to know that i agree with my colleague on the other side of the aisle, representative scott, when he talks about the large number of unemployment with our young black americans. meanwhile, economic growth slowed to just .7% in the fourth quarter.
i'm concerned that the fed and other financial regulators may not have a firm grip on the cumulative impact on the real economy of thousands of pages of the new dodd/frank regulations, especially new capital and liquidity rules. i'm wondering if you share some of those concerns. >> well, i recognize that some of the new concerns are burdensome and do raise banks' cost of financial intermediation. in designing those regulations, we're always trying to achieve a balance between the benefits of creating a sounder and more resilient financial system that is less likely to be subject to the kind of devastating financial crisis that we had. we're balancing that against
burdens that can raise the cost of capital or diminish financial intermediation. and we have tried to strike a reasonable balance remembering that the financial crisis, nothing resulted in more harm for a longer period of time than the financial crisis that we lived through. and i think we now have a much safer and sounder financial system. >> okay. so another study by the american action forum found that consumer credit availability deteriorated 12% to 14% since the passage of dodd/frank. i'm concerned also that the growing number of borrowers unable to access affordable banking, bank financing, a lot of borrowers from districts -- low-income districts, low-income areas in my district, these are hard working americans that have -- that are turning to
high-cost and unregulated online lenders to be able to get the access to the credit that they need, whether it's purchasing a car or even starting a small business. they're finding that their ability to access this type of credit is unavailable to them. so i'm wondering if you also share some of my concerns about credit availability and the higher cost alternatives. >> i do share your concerns about credit availability. i think it's clear that credit availability has, in particular, segments been diminished. home loans, mortgages for example, for individuals without pristine credit ratings, is really difficult, remains difficult to obtain. in part, we have regulations that are meant to address harms. i think lending standards were too easy prior to the financial crisis. we don't want to go back to lending standards that are so
loose that they lead to the kinds of predatory lending and harms that we had that took a toll on the economy and on low-income households in communities. we need to achieve a reasonable balance. we're searching for that. >> being on the subcommittee of monetary policy, i wanted to ask you just a quick question on monetary policy and what's happening in europe. what are the implications, i may have stepped out of the room, i don't know if you addressed this. very quickly, implications of european financial instability on the american financial system. what are the implications of the federal reserve and the ecb pursuing divergent monetary policies? >> the ecb has been addressing high unemployment and inflation that slipped very meaningfully below their 2% goal by putting in place negative interest rates in large-scale asset purchase
programs. the u.s. has done better. we're among advanced economies about the strongest. so we have divergent monetary policies. it's put upward pressure on the dollar over a long period of time, which has harmed manufacturing and net exports. and so it has resulted in negative influences on a part of our economy. >> time of the gentle lady expired. the chair recognizes the gentleman from missouri. mr. clay, ranking member of the financial institution subcommittee. >> thank you, mr. chairman. thank you for being here. the federal reserve has a congressional dual mandate to seek maximum employment while limiting inflation. to limit inflation, the federal reserve raises interest rates which slows the economy by discouraging people from borrowing, to buy homes or cars, and discouraging businesses from investing.
with this reduced demand, businesses will hire fewer workers, and as a result, workers will have less bargaining power, meaning they will be less likely to get pay increases. the decision to raise interest rates is based on the assessment of the open market committee of the federal reserve about whether inflation or unemployment poses a greater threat to the american economy. unfortunately, the members of the fomc largely come from the financial industry. and as a result, tend to be more concerned about inflation than the population as a whole. and less concerned about unemployment. so, how do we square that, madam chair? >> so, first of all, i want to say that the committee is deeply focused on unemployment.
we have two objectives, not one, maximum employment and price stability, which we have interpreted as 2% inflation objective. i really take issue with the idea that we're not focused on achieving our maximum employment objective. we are. monetary policy has been highly accommodative. the fed funds rate was at zero for seven years. we also have a large balance sheet that has provided a lot of additional accommodation. so we're not talking about tightening monetary policy or a tight monetary policy. we have an economy that now has made substantial progress, creating 13 million jobs with the unemployment rate down to 4.9%. we took one small step to raise
short-term interest rates but continue to have an accommodative monetary policy which we see as consistent with further progress in the labor market. so it's not that we're trying to reverse progress. we continue to see even with modest increases in interest rates further progress. and we want to achieve it precisely because we think that although the unemployment rate is at levels that are probably normal in the longer run, it remains slack in the labor market. and we want to see more progress. >> although, not to cut you off, we could get to 4% unemployment. but, look, while we are pleased to see that new jobs are continuing to be created in our economy and to learn that the unemployment rate last month fell below 5% broadly, these
positive signs may lead some to ignore the persistent economic challenges faced by african-americans in this country. the current unemployment rate for african-americans, for example, remains at nearly 9%. it is a commonly accepted view that access to gainful employment is one of the most important factors in supporting economic mobility and improving health outcomes. it is also widely known that in areas with higher rates of unemployment there is a lack of consumption, increased crime rates, reduced school funding and reduced political influence. please discuss with us any specific actions that you have personally taken or directed your staff to take to identify solutions to help remedy the historical and continued racial
disparity between employment opportunity for african-americans and whites. >> so our staff produces statistics that are among the most important in documenting and highlighting disparities in the economic situations in terms of assets and income by demographic groups. and i have personally given speeches highlighting those statistics. so, our staff certainly looks at and does work to document those disparities. in our community development programs, in work we discussed earlier that relates to the cra, that's an area in which we have the capacity to try to identify particular programs that will be
helpful in low and moderate income communities that suffer from special disadvantage in the labor market and to try to identify programs that work, that we encourage to be adopted on a broader scale. >> the time of the gentleman has expired. >> i would like to work more with you in that area. >> the chair now recognizes the gentleman from north carolina. mr. pittinger. >> thank you, mr. chairman. i would like to just welcome those who have come today with your t-shirts on. what recovery? let our wages grow. whose recovery? very pointed and clear statements. i really commend you for being here and seeing this process. yes, the reality is that this recovery is the most dismal slowest, tepid recovery we have ever had from a recession in recorded history. and we look at the realities of this recovery. this last report of new jobs was
only 150,000 new jobs. we have a 2% dismal economic growth. we have the people who, frankly, demographic group that is the lowest recovery is the low income minority people in this country. that demographic group has moved up the ladder less than any other group, albeit an intense effort, well intended, i'm sure, by the obama administration, by chair yellen. but through it, what we have seen is very accommodative monetary policy. we have seen a high regulatory environment. we have seen obamacare. we've seen the highest corporate tax rates in the industrialized world. all of this has achieved this dismal recovery. i would say to you the contrast is back in the '70s, we had the
same type of dismal economic outlook, high inflation, high unemployment. and yet, what happened? we reduced regulatory environment, reduced the tax burden and the economy took off. we were creating 300,000, 400,000, 500,000 jobs a month. one month a million jobs. we were growing up to 6%. it seems to me that logic may come in that perhaps well intended policies have had an adverse effect, adverse outcome of what was ever intended. chair yellen, i commend you for your work and what you have sought to do. but it seems to me that these accommodative policies have contributed to where we are today. i would say, chair yellen, i would like to thank you. in your remarks that you made reference to the fact that there are those who are available to work but not actively searching for work.
you have also made reference to working -- those who are working part-time and can't get full-time jobs. now these numbers are not included in the current unemployment rate of 4.9%. so reality we're really talking around 10%, 11%, 12% are the stats i have seen, the real unemployment. would that not be correct, chair yellen? >> broader measures of unemployment are significantly higher. for example, a definition that the bls refers to as u-6 that includes both of the groups you mentioned, involuntary -- >> the point i want to make is the real numbers are higher than 4.9%. these policies have not contributed toward 4.9% unemployment. in reality, in the real world where people are living and we have some of them here today, it's far less. i think that should be understood and absorbed by these
wonderful people who have come, that the types of policies that have been enacted, been enforced, this last seven years, have worked against your interests. what grew the american economy were small businesses who could go get loans, that entrepreneur who has been the lifeblood of our economy, can't go to a bank today to get that new loan because of compliance requirements. they are the people who create those new jobs. on top of that, you have the burden of obligations of obamacare and small business. what are they doing? they are cutting jobs so they don't have to comply. what will grow your economy, what will create the jobs that you earnestly want, is an open market where companies can grow and not have this intense regulatory environment, whether it's through monetary accommodative policy or through
onerous regulatory environments placed upon them. i want to encourage you with that reality. we can find that type of opportunity economy. i would say to you, chair yellen, that the regulatory rule book, it has been in a constant state of revision for last six years. can you see the benefit then as a result of what we have discussed in pausing this process in order to assess the community impact of these regulations that are having on the economy before we proceed further? >> well, we have several regulations that we intend to put out during this coming year. in terms of the list of what was mandated by dodd/frank, we've made substantial progress toward the end. >> considering that outcome we're seeing today, i think it needs to be done. >> time. time of the gentleman has expired. the chair wishes to remind members, we expect to excuse the witness as close to 1:00 as possible. the chair anticipates getting
through perhaps four more members. the chair now recognizes the gentleman from the super bowl champion denver broncos, mr. perlmutter. >> thanks. chair yellen, thank you as always for being here today. i was going to go off topic with my first question to say how about those broncos. >> way to go. >> but the chair beat me to the punch. i do want to talk about the overall conversation today. i want to thank you and i want to thank the federal reserve. i want to start with the chart that we have on the board which is really -- shows what happened at the end of the bush administration when we went to 10% unemployment and under obama we're down to less than half of that. okay? so that's your chart number two in your monetary report. the republicans don't want to let the facts get in the way of their rhetoric. because then chart number four
shows that after some time -- that's on page 5, chair. wages are beginning to move up after we started getting people back into the job market. chart 6, oil prices way down. chart 7, inflation even. chart 13, wealth to income, disposable income up, quote, a robust 3.5%. chart 15, household debt service. way down. chart 20, mortgage rates, down. figure 1 on page 37, unemployment down looking at the long-term and core price inflation, even. those are your charts. those are the facts. now, have wages gone up as much as we would like to see? no. but we had to get a lot of people back working. now we're starting to see them move. so the chair went through a
whole list of economists. obviously, he didn't have a lot of questions. he wanted to list a lot of names. there were a couple guys there with the hoover institute. >> quite a number. >> so herbert hoover, grand old republican president, who led us into the great depression. not the kind of economy i would like to see. all right? george bush. we go from 5% unemployment to 10% unemployment. we lose millions of jobs. under barack obama, back down to 4.9%. in colorado, we're at 3.5%. so i just want to thank you and i want to thank the administration for getting this economy back on track. can we do better? you bet. how would you suggest that we do better, how this economy can get moving so that the folks here can see some real growth in wages, which i think are beginning to appear, but what would you suggest? >> so our objective in terms of
what we can do is to try to make sure that the picture that you have put up here shows continuing improvement in the labor market. i agree with you. i would say the signs of wage growth increasing, they are tentative at this point. there are some hopeful signs. but i think if the labor market continues to progress, we are very hopeful we will see faster progress on wages. and we will try to keep that progress going. that's our objective. inflation is running under our 2% objective. i expect that will move up over time as well with appropriate policy. but i appreciate your saying that some of the burden should also be on congress and others because there are so many problems in the labor market and particular groups we have talked a lot about african-america