Congressional Testimony

MONETARY POLICY AND THE STATE OF THE ECONOMY HEARING BEFORETHE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION FEBRUARY 11, 2014 Printed for the use of the Committee on Financial Services Serial No. 113–64 ( U.S. GOVERNMENT PRINTING OFFICE 88–526 PDF WASHINGTON : 2014 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\88526.TXT TERRI HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman GARY G. MILLER, California, Vice Chairman MAXINE WATERS, California, Ranking SPENCER BACHUS, Alabama, Chairman Member Emeritus CAROLYN B. MALONEY, New York PETER T. KING, New York NYDIA M. VELA´ZQUEZ, New York EDWARD R. ROYCE, California BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts SCOTT GARRETT, New Jersey RUBE´N HINOJOSA, Texas RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri PATRICK T. MCHENRY, North Carolina CAROLYN MCCARTHY, New York JOHN CAMPBELL, California STEPHEN F. LYNCH, Massachusetts MICHELE BACHMANN, Minnesota DAVID SCOTT, Georgia KEVIN McCARTHY, California AL GREEN, Texas STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri BILL POSEY, Florida GWEN MOORE, Wisconsin MICHAEL G. FITZPATRICK, Pennsylvania KEITH ELLISON, Minnesota LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado BLAINE LUETKEMEYER, Missouri JAMES A. HIMES, Connecticut BILL HUIZENGA, Michigan GARY C. PETERS, Michigan SEAN P. DUFFY, Wisconsin JOHN C. CARNEY, JR., Delaware ROBERT HURT, Virginia TERRI A. SEWELL, Alabama MICHAEL G. GRIMM, New York BILL FOSTER, Illinois STEVE STIVERS, Ohio DANIEL T. KILDEE, Michigan STEPHEN LEE FINCHER, Tennessee PATRICK MURPHY, Florida MARLIN A. STUTZMAN, Indiana JOHN K. DELANEY, Maryland MICK MULVANEY, South Carolina KYRSTEN SINEMA, Arizona RANDY HULTGREN, Illinois JOYCE BEATTY, Ohio DENNIS A. ROSS, Florida DENNY HECK, Washington ROBERT PITTENGER, North Carolina ANN WAGNER, Missouri ANDY BARR, Kentucky TOM COTTON, Arkansas KEITH J. ROTHFUS, Pennsylvania SHANNON MCGAHN, Staff Director JAMES H. CLINGER, Chief Counsel (II) VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\88526.TXT TERRI C O N T E N T S Page Hearing held on: February 11, 2014 ............................................................................................ 1 Appendix: February 11, 2014 ............................................................................................ 103 WITNESSES TUESDAY, FEBRUARY 11, 2014 Calabria, Mark A., Director, Financial Regulation Studies, the Cato Institute . 81 Kohn, Donald, Senior Fellow, Economic Studies, the Brookings Institution ...... 85 McCloskey, Abby, Program Director, Economic Policy, the American Enter- prise Institute ....................................................................................................... 83 Taylor, John B., Mary and Robert Raymond Professor of Economics, Stanford University ............................................................................................................. 80 Yellen, Hon. Janet L., Chair, Board of Governors of the Federal Reserve System ................................................................................................................... 7 APPENDIX Prepared statements: Calabria, Mark A. ............................................................................................. 104 Kohn, Donald .................................................................................................... 124 McCloskey, Abby ............................................................................................... 130 Taylor, John B. ................................................................................................. 141 Yellen, Hon. Janet L. ....................................................................................... 147 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Yellen, Hon. Janet L: Monetary Policy Report to the Congress, dated February 11, 2014 ............. 154 Written responses to questions submitted by Chairman Hensarling .......... 208 Written responses to questions submitted by Representative Garrett ........ 217 Written responses to questions submitted by Representative Luetke- meyer ............................................................................................................. 227 Written responses to questions submitted by Representative Mulvaney .... 231 Written responses to questions submitted by Representative Royce ........... 280 Written responses to questions submitted by Representative Sinema ........ 282 (III) VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\88526.TXT TERRI VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\88526.TXT TERRI MONETARY POLICY AND THE STATE OF THE ECONOMY Tuesday, February 11, 2014 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10:03 a.m., in room 2128, Rayburn House Office Building, Hon. Jeb Hensarling [chair- man of the committee] presiding. Members present: Representatives Hensarling, Bachus, Royce, Lucas, Miller, Capito, Garrett, Neugebauer, McHenry, Bachmann, Pearce, Posey, Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Grimm, Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Cotton, Rothfus; Waters, Maloney, Velazquez, Sherman, Meeks, Capuano, Hinojosa, Clay, McCarthy of New York, Lynch, Scott, Green, Cleaver, Moore, Elli- son, Perlmutter, Himes, Peters, Carney, Sewell, Foster, Kildee, Murphy, Sinema, Beatty, and Heck. Chairman HENSARLING. The committee will come to order. With- out objection, the Chair is authorized to declare a recess of the committee at any time. This hearing is for the purpose of receiving the semi-annual tes- timony of the Chair of the Board of Governors of the Federal Re- serve System on monetary policy and the state of the economy. Before we get started—I am not sure I would call this a point of personal privilege—I would like to point out to the committee that we are blessed again with the appearance of the gentlelady from New York, Carolyn McCarthy, and what a blessing it is to have her back with us. [applause] Chairman HENSARLING. The Chair will now recognize himself for 6 minutes to give an opening statement. We welcome Chair Yellen for her first of many semi-annual Humphrey-Hawkins appearances before our committee. Chair Yellen, you may recall that just 2 months after Alan Greenspan became Fed Chairman in 1987, the stock market crashed. And at that time, Paul Volcker sent him a short note that read, ‘‘Congratulations. You are now a central banker.’’ Chair Yellen, you face the daunting prospect of unwinding a Fed balance sheet, the size and composition of which we have never seen before. All of this in the face of an economy that is underper- forming at best. So allow me to paraphrase: Congratulations. You are now the Chair of a central bank. (1) VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 2 Chair Yellen, we look forward to working with you to ensure that the Federal Reserve has the tools it needs to operate effectively into the next century. We also look forward to working with you closely as this committee embarks upon its year-long Federal Re- serve Centennial Oversight project. Any agency or bureau of government that is 100 years old prob- ably needs a good checkup, especially one as powerful as yours. And I remind everyone that independence and accountability are not mutually exclusive concepts. Perhaps the most critical issue we must examine is the limita- tions of monetary policy to actually promote a healthy economy. We have now witnessed both the greatest fiscal and the greatest mone- tary stimulus programs in our Nation’s history, and the results could not be more disappointing. Despite being almost 5 years into the so-called Obama recovery, we still see millions of our fellow citizens unemployed or under- employed, shrinking middle-income paychecks, and trillions of dol- lars of new unsustainable debt. Why is the non-recovery recovery producing only one-third of the growth of previous recoveries? By one estimate, the Obama Admin- istration has imposed $494 billion in new regulatory cost upon our economy. From the 2.5 million net jobs the CBO has now announced Obamacare will cost us, to the incomprehensible Volcker Rule, business enterprises are simply drowning in regulatory red tape as they attempt to expand and create more jobs. Monetary policy can- not remedy this. What else is different from previous recoveries? The single larg- est tax increase in American history: More than $1.5 trillion in higher taxes from both the fiscal cliff agreement and Obamacare. And these taxes principally fall upon small businesses, entre- preneurs, and investors, again, as they try to bring about a healthier economy and create jobs. Monetary policy cannot remedy this either. What else is different? Fear, doubt, uncertainty, and pessimism that has arisen from the erosion of the rule of law. Never before in my lifetime has more unchecked, unbridled discretionary author- ity been given to relatively unaccountable government agencies. We are slipping from the rule of law to the rule of rulers. To punctuate this point, the President recently reminded us that he has a pen and a phone to essentially enact whatever policy he alone sees fit. Regrettably, he does not seem to have handy a copy of the Con- stitution. I suppose the Fed could send him one, and perhaps throw in a copy of Milton Friedman’s ‘‘Capitalism and Freedom,’’ although I doubt it would do much good. There are clearly limits to what monetary policy can achieve, but much it can risk. Thus, the roughly $3.5 trillion question remains whether QE3 will continue to taper slowly, whether it will end abruptly, or whether it will simply morph into QE-infinity. We look forward to hearing the Chair’s thoughts and intentions on the matter. As part of our Centennial Oversight project, QE will also cause our committee to thoroughly examine the Federal Reserve’s unprec- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 3 edented role in credit allocation, a focus distinct from its traditional role in monetary policy. Should the Fed pick distinct credit markets to support while ignoring others? This clearly creates winners and losers, and under the Fed’s current policies, seniors on fixed in- comes are clearly losers as we continue to witness the blurring of lines between fiscal and monetary policy. This committee will also examine the Federal Reserve’s role as a financier and facilitator of our President’s unprecedented deficit spending. Since the Monetary Accord of 1951 between the Federal Reserve and the Treasury, it has been clear that the Federal Re- serve should be independent of the President’s fiscal policy. But, is it? We will also consider how the Federal Reserve has undertaken the expansive new banking regulatory powers it obtained under the Dodd-Frank Act and why it fails to conduct formal cost-benefit analysis. We will also consider whether Dodd-Frank has con- strained the Fed’s Section 13(3) exigent powers properly, and pre- cisely what its role of lender of last resort should be. We will closely examine an old debate in monetary policy be- tween rules and discretion. During successful periods in the Fed- eral Reserve’s history, like the great moderation of 1987 to 2003, the central bank appeared to follow a clear rule. Today, it seems to favor more amorphous forward guidance, shifting from calendar-based to tight thresholds to loose thresholds, which arguably leaves investors and consumers lost in a hazy mist as they attempt to plan their economic futures and create a healthier economy. Chair Yellen, I look forward to working with you as we examine these issues, and to ensuring that in the 21st Century, the Federal Reserve has a well-defined, specific mission that it has both the ex- pertise and resources to effectively accomplish. The Chair now recognizes the ranking member of the committee, Ms. Waters, for 5 minutes for an opening statement. Ms. WATERS. Thank you, Mr. Chairman. I would like to take a moment of personal privilege to just say how proud, pleased, and honored I am to have our colleague, Mrs. McCarthy from New York, back with us today. [applause] Ms. WATERS. Thank you, Mr. Chairman. It is with great pleasure that I welcome you, Chair Yellen, to de- liver your first ever Humphrey-Hawkins Act report and testimony. Chair Yellen, your presence here today is both historic and well- deserved. Your record of distinguished service in government, aca- demia, and at the Federal Reserve make you uniquely qualified to navigate the considerable economic challenges that lie ahead. Your career in public service has been marked by high praise from economists and policymakers across the political spectrum. And in the face of an increasingly complex and interconnected glob- al economy, your sound judgment on the risks to economic growth and stability has been validated time and time again. In the run-up to the 2008 financial crisis, you accurately identi- fied the looming risks to the economy and spoke up, telling col- leagues, ‘‘The possibilities of a credit crunch developing and of the economy slipping into recession seem all too real.’’ When the crisis VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 4 hit as you predicted, you pushed to challenge conventional thinking about the limits of monetary policy and appropriately encouraged the Fed to act forcefully to stabilize the economy. Today, as mixed economic data seems to suggest that the recov- ery is still fragile and millions of Americans continue to be unem- ployed, your willingness to think outside the box is more important than ever. Like many of my colleagues, I remain concerned that more needs to be done to address the long-term unemployment crisis. As you know, 3.6 million Americans have been out of work for 27 weeks or more. And I fear that any further delay in addressing the prob- lem could permanently damage the labor force and slow the econo- my’s ability to grow over the long term. As you weigh the costs, benefits, and risk of further large-scale asset purchases, I hope you will press your colleagues on the Fed- eral Open Market Committee (FOMC) to take into account the on- going impact that this long-term unemployment crisis is having on millions of American families. Of course, the Republicans’ ideologically driven austerity agenda, protracted political debt ceiling brinksmanship, and failure to ex- tend basic unemployment insurance benefits has only made this situation more dire. Ironically, Republican unwillingness to provide the short-term fiscal assistance that the economy needs has put more pressure on the Federal Reserve to continue the same stimu- lative policies that many in their party oppose. Although monetary policy is indeed a powerful tool, the responsi- bility for putting the economy on more stable footing cannot and should not fall exclusively on the Federal Reserve. Congress, too, must do its part. One issue on this front, which I hope the Congress can work on in concert with the Federal Reserve to address, is a growing issue of income inequality. As you know, the gains accrued during the economic recovery have disproportionately benefited the wealthiest in our society, leaving the middle class and most vulnerable be- hind. I believe that the income gap is one of the most pressing threats to our economic potential. I look forward to your views on how we can work together to close it. Finally, there are a number of pending issues related to the Fed’s role in implementing the Dodd-Frank Act. And although we won’t be able to discuss all of them today, I hope to learn more about the Fed’s role in identifying and reducing systemic risk across the fi- nancial system. This includes your proposed rules to enhance prudential stand- ards for large U.S. and foreign banking firms, and your views on risks that continue to exist in the repo markets. As the 2008 financial crisis made all too clear, growth and pros- perity are inextricably linked to financial stability. And therefore, your diligence on these matters is critically important. So I thank you, Chair Yellen. Thank you again for being with us today. And I will yield back the balance of my time. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 5 Chairman HENSARLING. The Chair now recognizes the gentleman from Michigan, Mr. Huizenga, the vice chairman of our Monetary Policy Subcommittee, for 2 minutes. Mr. HUIZENGA. Thank you, Mr. Chairman. And Chair Yellen, congratulations on being confirmed as the first woman Chair of the Board of Governors of the Federal Reserve. And I think, as you see with this group of cameras ahead of you, buckle up and hang on. This is going to be an interesting ride, I am sure. As we were preparing for this, I sent out a Facebook and Twitter tweet about what I should ask you. A number of things came back: our U.S. competitiveness; auditing the Fed; and a number of other things. But I have a couple of other ideas, as well. Today, I am particularly eager to hear your insights on monetary policy and the state of the economy, specifically your views of the new, highly touted Volcker Rule. I am not the first to note that since the creation of the Fed in 1913, the Fed’s power has signifi- cantly expanded over the last 100 years. Ranking Member Waters just thanked you for ‘‘thinking outside the box.’’ Some of us are trying to determine what exactly the box is these days. And I think we all have a responsibility to explain that to the American people. While originally created to supervise and monitor the banking systems in the United States, the Fed’s role has continued to grow, seemingly unchecked, some of that through acts like the Dodd- Frank Act, and for other reasons. But certainly, its current position of being a lender of last resort to banking institutions that require additional credit to stay afloat is something that we need to con- tinue to explore. Given the interconnectedness of the global financial system, there is no doubt that the Federal Reserve’s monetary policies have also significantly impacted the international markets and foreign economies, as was explored right at that table last week, when there was discussion of the fragile five countries out there, as well as our own country. And I look forward to hearing your comments on these topics. So thank you very much. And with that I yield back, Mr. Chairman. Chairman HENSARLING. The Chair now recognizes the gentleman from Missouri, Mr. Clay, the ranking member of our Monetary Pol- icy and Trade Subcommittee, for 3 minutes. Mr. CLAY. Thank you, Mr. Chairman. And welcome, Chair Yellen. As you report to this committee for the first time in your new position—and, Chair Yellen, I want you to know that like you, I believe that the actions of the Federal Re- serve should always consider the impact and well-being of Main Street as well as Wall Street. That means actively pursuing the twin goals of full employment and controlling inflation, and it also means advancing the vital work of closing the income inequality gap, which is hurting so many working families and threatening America’s economic future. Like you, I believe in fundamental financial reform and real transparency to protect American consumers. That includes main- taining a Consumer Financial Protection Bureau (CFPB) with real teeth and the authority to act swiftly against financial abuses. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 6 I strongly oppose the Majority’s efforts to cripple the Consumer Financial Protection Bureau, and it shocks and saddens me that the Majority is more concerned about bringing comfort and relief not to struggling consumers but to some of the same financial pred- ators who caused the Great Recession. In 1977, Congress amended the Federal Reserve Act to promote price stability and full employment. The Consumer Price Index (CPI) rose 1.5 percent in 2013 after a 1.7 percent increase in 2012. And that is actually lower than the 2.4 percent average annual in- crease in CPI over the last 10 years. As a response to the financial emergency in 2008, the Federal Reserve Bank purchased commercial paper, made loans, and pro- vided dollar funding through liquidity swaps with foreign central banks. This action significantly expanded the Federal Reserve’s balance sheet. The Fed has gradually tapered its asset purchases from an initial $85 billion per month to this month’s $65 billion purchase in Treas- ury and mortgage-backed securities. In terms of supporting full em- ployment, let’s look at the data. And because of the positive leadership under former Chairman Bernanke, the unemployment rate in the United States is 6.6 per- cent, but the number of long-term unemployed is 3.7 million peo- ple. And that is even more compelling evidence why this Congress should extend emergency unemployment benefits without delay. My time has run out, Mr. Chairman, but I look forward to the Chair’s testimony. Chairman HENSARLING. The time of the gentleman has expired. Today, we welcome the testimony of the Honorable Janet Yellen, the Chair of the Board of Governors of the United States Federal Reserve, a position she was confirmed to by the Senate on January 6th of this year. She took office on February 3rd, just last week. We congratulate Ms. Yellen for her confirmation—her historic confirmation—as the first female Chair of the Board of Governors. Prior to her accession to the Chair, Ms. Yellen served as the Vice Chair of the Board of Governors for 4 years, and from 2004 to 2010, Ms. Yellen was the President and CEO of the Federal Re- serve Bank of San Francisco. During the Clinton Administration, Ms. Yellen served as Chair of the President’s Council of Economic Advisers. She has taught at Harvard and the London School of Economics. She holds a Ph.D. in economics from Yale. Chair Yellen, I want to personally thank you for cooperating with us to ensure that every member of the committee has an oppor- tunity to ask you questions as part of this hearing today. I hope the Members are paying careful attention. I would also say to the Members that the Chair, unsolicited, offered to stay all day. Madam Chair, you are in luck. We are not staying all day. This committee has a bill on the Floor later this afternoon. You will be spared that. I peeked at your testimony to where you pledged to be account- able. You are off to a very good start by agreeing to do this. Because of the anticipated length of the hearing, I wish to alert Members that the Chair does expect to call a couple of recesses VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 7 during Chair Yellen’s testimony. And indeed, the Chair will also wield a very strict gavel. Without objection, Chair Yellen’s written statement will be made a part of the record. Again, Madam Chair, welcome. You are now recognized for your oral presentation. STATEMENT OF HONORABLE JANET L. YELLEN, CHAIR, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mrs. YELLEN. Chairman Hensarling, Ranking Member Waters, and other members of the committee, I am pleased to present the Federal Reserve’s semiannual monetary policy report to the Con- gress. In my remarks today, I will discuss the current economic situa- tion and outlook before turning to monetary policy. I will conclude with an update on our continuing work on regulatory reform. First, let me acknowledge the important contributions of Chair- man Bernanke. His leadership helped make our economy and fi- nancial system stronger and ensured that the Federal Reserve is transparent and accountable. I pledge to continue that work. The economic recovery gained greater traction in the second half of last year. Real gross domestic product is currently estimated to have risen at an average annual rate of more than 3.5 percent in the third and fourth quarters, up from a 1.75 percent pace in the first half. The pickup in economic activity has fueled further progress in the labor market. About 1.25 million jobs have been added to pay- rolls since the previous monetary policy report last July, and 3.25 million have been added since August 2012, the month before the Federal Reserve began a new round of asset purchases to add mo- mentum to the recovery. The unemployment rate has fallen nearly a percentage point since the middle of last year and 1.5 percentage points since the beginning of the current asset purchase program. Nevertheless, the recovery in the labor market is far from com- plete. The unemployment rate is still well above levels that Federal Open Market Committee participants estimate is consistent with maximum sustainable employment. Those out of a job for more than 6 months continue to make up an unusually large fraction of the unemployed. And the number of people who are working part- time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market. Among the major components of GDP, household and business spending growth stepped up during the second half of the year. Early in 2013, growth in consumer spending was restrained by changes in fiscal policy. As this restraint abated during the second half of the year, household spending accelerated, supported by job gains and by rising home values and equity prices. Similarly, growth in business investment started off slowly last year but then picked up during the second half, reflecting improv- ing sales prospects, greater confidence, and still favorable financing conditions. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 8 In contrast, the recovery in the housing sector slowed in the wake of last year’s increase in mortgage rates. Inflation remained low as the economy picked up strength, with both the headline and core personal consumption expenditures, or PCE price indexes, ris- ing only about 1 percent last year, well below the FOMC’s 2 per- cent objective for inflation over the longer run. Some of the recent softness reflects factors that seem likely to prove transitory, including falling prices for crude oil and declines in non-oil import prices. My colleagues on the FOMC and I antici- pate that economic activity and employment will expand at a mod- erate pace this year and next; the unemployment rate will continue to decline toward its longer-run sustainable level; and inflation will move back toward 2 percent over coming years. We have been watching closely the recent volatility in global fi- nancial markets. Our sense is that at this stage, these develop- ments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation. Turning to monetary policy, let me emphasize that I expect a great deal of continuity in the FOMC’s approach to monetary pol- icy. I served on the committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve’s statutory mandate of maximum em- ployment and price stability. Prior to the financial crisis, the FOMC carried out monetary pol- icy by adjusting its target for the Federal funds rate. With that rate near zero since late 2008, we have relied on two less tradi- tional tools—asset purchases, and forward guidance—to help the economy move toward maximum employment and price stability. Both tools put downward pressure on longer-term interest rates and support asset prices. In turn, these more accommodative finan- cial conditions support consumer spending, business investment, and housing construction, adding impetus to the recovery. Our current program of asset purchases began in September 2012 amid signs that the recovery was weakening and progress in the labor market had slowed. The committee said that it would continue the program until there was a substantial improvement in the outlook for the labor market in the context of price stability. In mid-2013, the committee indicated that if progress towards its objectives continued as expected, a moderation in the monthly pace of purchases would likely become appropriate later in the year. In December, the committee judged that the cumulative process toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases, from $45 billion to $40 billion per month of longer-term Treasury securities, and from $40 billion to $35 billion per month of agency mortgage-backed securities. At its January meeting, the committee decided to make additional reductions of the same magnitude. If incoming information broadly supports the committee’s expec- tation of ongoing improvement in labor market conditions and in- flation moving back towards its longer-run objective, the committee will likely reduce the pace of asset purchases in further measured steps at future meetings. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 9 That said, purchases are not on a preset course and the commit- tee’s decisions about their pace will remain contingent on its out- look for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. The committee has emphasized that a highly accommodative pol- icy will remain appropriate for a considerable time after asset pur- chases end. In addition, the committee has said since December 2012 that it expects the current low-target range for the Federal funds rate to be appropriate at least as long as the unemployment rate remains above 6.5 percent, inflation is projected to be no more than a half percentage point above our 2 percent longer-run goal, and longer-term inflation expectations remain well-anchored. Crossing one of these thresholds will not automatically prompt an increase in the Federal funds rate, but will instead indicate only that it had become appropriate for the committee to consider whether the broader economic outlook would justify such an in- crease. In December of last year, and again this past January, the com- mittee said that its current expectation, based on its assessment of a broad range of measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on fi- nancial developments, is that it likely will be appropriate to main- tain the current target range for the Federal funds rate well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the 2 percent goal. I am committed to achieving both parts of our dual mandate: helping the economy return to full employment; and returning in- flation to 2 percent while ensuring that it does not run persistently above or below that level. I will finish with an update on progress on regulatory reforms and supervisory actions to strengthen the financial system. In October, the Federal Reserve Board proposed a rule to strengthen the liquidity positions of large and internationally ac- tive financial institutions. Together with other Federal agencies, the Board also issued a final rule implementing the Volcker Rule, which prohibits banking firms from engaging in short-term propri- etary trading of certain financial instruments. On the supervisory front, the next round of annual capital stress tests of the largest 30 bank holding companies is under way, and we expect to report results in March. Regulatory and supervisory actions, including those that are leading to substantial increases in capital and liquidity in the banking sector, are making our financial system more resilient. Still, important tasks lie ahead. In the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We also are working to finalize the proposed rule strengthening the leverage ratio standards for U.S.-based, systemically important global banks. We expect to issue proposals for risk-based capital surcharge for those banks as well as for a long-term debt require- ment to help ensure that these organizations can be resolved. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 10 In addition, we are working to advance proposals on margins for non-cleared derivatives consistent with the new global framework and are evaluating possible measures to address financial stability risks associated with short-term wholesale funding. We will con- tinue to monitor for emerging risks, including watching carefully to see if regulatory reforms work as intended. Since the financial crisis and the depths of the recession, sub- stantial progress has been made in restoring the economy to health and in strengthening the financial system. Still, there is more to do. Too many Americans remain unemployed, inflation remains below our longer-term objective, and the work of making the finan- cial system more robust has not yet been completed. I look forward to working with my colleagues and many others to carry out the important mission you have given the Federal Re- serve. Thank you. I would be pleased to take your questions. [The prepared statement of Chair Yellen can be found on page 147 of the appendix.] Chairman HENSARLING. The Chair will now recognize himself for 5 minutes for questions. Chair Yellen, you just testified that, ‘‘I expect a great deal of con- tinuity on the FOMC’s approach to monetary policy.’’ So I will ask the obvious question: In forward guidance, which has been some- what anchored in the Evans Rule, it seemingly said monetary pol- icy will not tighten until unemployment drops below 6.5 percent. Now Chairman Bernanke announced that—or he described this as a Taylor-like rule, although Professor Taylor, whom we will hear from later, may not agree. Be that as it may, we stand on that threshold. And so I also see in your testimony where you said, ‘‘Crossing one of these thresh- olds will not automatically prompt an increase in the Federal funds rate.’’ I guess to some extent the editorial writers in the Wall Street Journal anticipated this and opined 2 days ago, in respect to the Evans Rule, ‘‘Perhaps the Open Market Committee should have called it the Evans Suggestion.’’ ‘‘The mistake was telling markets there was a fixed rule when the only sure thing at the Fed is more improvisation.’’ So, who is right here? Is The Wall Street Journal correct that these thresholds are illusory, and we are seeing more improvisa- tion, or do we have something that is rule-like? Mrs. YELLEN. After the Federal funds rate hit its effective lower bound— Chairman HENSARLING. I’m sorry, Chair Yellen, could you pull the microphone a little closer to you, please? Thank you. Mrs. YELLEN. After the Federal funds rate reached its effective lower bound, close to zero, at the end of 2008, the Federal Reserve was forced to provide additional accommodation through tools that were new and novel. And an important tool that had been used to some extent in the past but we have relied on quite heavily since that time is our forward guidance concerning the likely path of monetary policy. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 11 Chairman HENSARLING. But, Madam Chair, if you reach a threshold and then you ignore that threshold, what good is the for- ward guidance? Mrs. YELLEN. What the Fed indicated in December of 2012 is that we did not think it would be appropriate to consider raising the Federal funds rate as long as unemployment was over 6.5 per- cent and inflation was projected to run under 2.5 percent, as long as inflation expectations were also well-anchored. So, we have followed that guidance. It has been very— Chairman HENSARLING. I would say this, if I could— Mrs. YELLEN. —useful to markets. Chairman HENSARLING. Madam Chair, the Fed may say one thing, but markets may hear another. My time is running out. I want to cover a little other ground as well, dealing with a rules-based monetary policy. I think if I have read some of your statements properly—and I don’t want to put words in your mouth—you consider times 5 years after the financial crisis still extraordinary, and it is not nec- essarily an appropriate time for a rules-based approach? Is that a fair assessment of your views? Mrs. YELLEN. I have always been in favor of a predictable mone- tary policy that responds in a systematic way to shifts in economic variables— Chairman HENSARLING. In fact, earlier in your career, in ref- erence to the Taylor Rule, you said it is, ‘‘what sensible central banks do.’’ So that begs the question today, using your words, are you a sen- sible central banker? And if not, when will you become one? Mrs. YELLEN. Congressman, I believe that I am a sensible cen- tral banker, and these are very unusual times in which monetary policy for quite a long time has not even been able to do what a rule like the Taylor Rule would have prescribed. For several years that rule would have prescribed that the Federal funds rate should be in negative territory, which is impossible. So, the conditions facing the economy are extremely unusual. I have tried to argue and believe strongly that while a Taylor Rule—or something like it—provides a sensible approach in more normal times, like the great moderation, under current conditions, when this economy has severe headwinds from the financial crisis and has not been able to move the funds rate into the negative ter- ritory that rule would have prescribed, we need to follow a different approach. And we are attempting through our forward guidance to be as systematic and predictable as we can possibly be. Chairman HENSARLING. Madam Chair, my time has expired, and I am going to attempt to set a good example for the rest of the com- mittee. The Chair now recognizes the ranking member of the committee for 5 minutes. Ms. WATERS. Thank you very much, Mr. Chairman. Ms. Yellen, you alluded to continuing the policies that were initi- ated by the committee that you served on with Mr. Bernanke. Mrs. YELLEN. I can’t hear you. Ms. WATERS. I am a supporter of quantitative easing, and I would like to hear from you what you think quantitative easing did VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 12 to stabilize this economy. Can you tell us not only what you think happened with quantitative easing, but how, again, you intend to continue the policy on tapering as it is today? Mrs. YELLEN. Thank you, Congresswoman Waters. We have been buying longer-term Treasury securities and agency mortgage-backed securities. The objective has been to push down longer-term interest rates. And I believe we have succeeded in doing that. And also, to more broadly make financial conditions ac- commodative. The purpose is to spur spending in the economy and to achieve more rapid economic growth. And I believe we have been success- ful. Some examples would be that as mortgage rates fell to histori- cally low levels, we certainly saw a pickup—a very meaningful pickup—in housing activity off the very low levels it had fallen to. We also have seen a very meaningful increase in house prices, and I think that has improved the security of a very large number of households. Many households have been underwater in their mortgages, and that fraction has diminished substantially, which means that those households are in a better position to spend and to borrow. In addition, low interest rates have also stimulated spending in other intrasensitive sectors like automobiles. We have seen a de- cided pickup in that sector as well. When spending and employ- ment increase in those sectors, the availability of jobs increases, unemployment tends to come down, and growth picks up. And as I mentioned, since the beginning of this program we have seen the unemployment rate decline 1.5 percent, and I think this program has contributed to that. When the committee began this policy it did so at a time when it looked like the recovery and progress in the labor market was stalling. We began these asset purchases as a secondary tool, a supplementary tool to our forward guidance to add some momen- tum to the recovery, and we said we would continue those pur- chases until we had seen a substantial improvement in the outlook for the labor market in the context of price stability. As I noted, there have been a substantial number of jobs created and unemployment has come down, and in December the com- mittee judged that enough progress had been made in the labor market to begin a measured pace of reductions in the pace of our asset purchases. We purposely decided to act in a measured and deliberate way to take measured steps so that we could watch to see what was happening in the economy, and we have indicated that if the out- look continues to be one in which we expect and are seeing contin- ued improvement in the labor market that implies growth strong enough going forward to anticipate such improvement, and infla- tion, which is running below our objective, if we see evidence that will come back toward our objective over time, we are likely to con- tinue reducing the pace of our purchases in measured steps. But we have also indicated that this program is not on a preset course, which means that if the committee judges there to be a change in the outlook, that it would reconsider what is appropriate with respect to the program. Ms. WATERS. Thank you very much. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 13 I yield back the balance of my time. Chairman HENSARLING. The Chair now recognizes the gentleman from Michigan, Mr. Huizenga, the vice chairman of our Monetary Policy and Trade Subcommittee. Mr. HUIZENGA. Thank you. Chair Yellen, did short-term proprietary trading cause the finan- cial crisis? Mrs. YELLEN. I wouldn’t say that short-term proprietary trading was the main cause of the crisis. Mr. HUIZENGA. I’m sorry, it was not? Mrs. YELLEN. I would not see that as the main cause of the cri- sis. Mr. HUIZENGA. Okay. I think we would be in agreement on that. You have noted, I think on December 10th—just this past year— at the open meeting board, you had some concerns about the Volcker Rule, as well, and to quote you, you specifically asked for an ‘‘assessment of what impact do you—and I am assuming that is your own internal economists—think this will have on U.S. banks in terms of: Do they face potential competitive disadvantages vis-a-vis foreign banks in various global capital market activities?’’ I have some of those same concerns, and I am not sure, as we had the five regulators—the Fed, the SEC, the OCC, the FDIC and the CFTC—for those of you watching out there, that is the alpha- bet soup of regulators that look at all of this, the discussion of the Volcker Rule and the impact, Governor Tarullo seemed to indicate that the Fed was very concerned about that, that we were not going to somehow be at a disadvantage. And I am not sure we have made ourselves any safer. Do you mind chatting a little bit about that, please? Mrs. YELLEN. I think the impact of the rule is something that we will monitor over time as it goes into effect. The agencies have worked hard jointly to write a balanced rule that will permit bank- ing organizations to continue to engage in critical market-making and hedging activities. And we will be very careful in how they supervise institutions to make sure— Mr. HUIZENGA. I am sure you are aware that we are the only sort of major economy, major government that has put anything like this into effect. You are comfortable saying—I think the quote was—‘‘monitor over time to see its effect.’’ How long are you comfortable waiting to see what will happen? Is that 3 months? Six months? A year? How long will we see liquidity leave the United States and us lose that market share? Mrs. YELLEN. I think that banks will be able to go on as we im- plement this rule to engage in those activities, particularly market- making and hedging, that are really vital to a well-functioning fi- nancial system. Mr. HUIZENGA. But is there a length of time? That is what I am looking for. How long are you interested in waiting to see its effectiveness? It is 932 pages, 297,000 words. There is a lot to wade through and a lot of interpretation. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 14 Mrs. YELLEN. We will be involved with the OCC and the SEC and other agencies in using supervision to make sure that firms do comply with the rule. Mr. HUIZENGA. So, but an undetermined amount of time to see its effectiveness? Mrs. YELLEN. It will certainly take time to see the effects of the rule. Mr. HUIZENGA. Okay. I will follow up with a letter because I would like you to put a little thought into exactly how much time. How long are we going to be at a competitive disadvantage, is what I am concerned about. All right. We are going to have to move along, because I have just over a minute left. In response to quantitative easing, foreign governments have adopted measures that have closed foreign markets to U.S. inves- tors and companies in many ways. And it is what was talked about at that very table, the fragile five. Indonesia, India, South Africa, Turkey, as well as Brazil have been affected by our monetary pol- icy, and now it is just sort of the reversing of our easing, I guess, as you would say, as we are not purchasing as many. Do you have any concerns that poorly managed tapering that we are trying to do, or exit of QE, might cause capital flight in some of these other economies as well? And what would that mean for investors and firms here in the United States? I am concerned that it—not to mention our diplomatic and trade relations, we are in an interconnected world economy, so— Mrs. YELLEN. Certainly, capital markets are global, and the mon- etary policies of any country affect other countries in such a world. But we have been very clear at the outset that we initiated our program of asset purchases and an accommodative monetary policy more generally to pursue the goals that Congress has assigned to the Federal Reserve, namely supporting economic growth and em- ployment in the context of price stability. We have tried to be as clear as we possibly can about how we would conduct this policy. And it has been quite clear at the outset that as our recovery advanced, we would wind down or reduce the pace of our asset purchases, and as growth picks up and inflation comes back toward our objective over time, eventually we will nor- malize our policy stance. Chairman HENSARLING. The time of the gentleman has long since expired and the— Mr. HUIZENGA. Thank you, Mr. Chairman. Chairman HENSARLING. —Chair would advise all Members per- haps to ask that last question with at least 30 seconds to go on the clock. The Chair now recognizes the gentleman from Missouri, Mr. Clay, the ranking member of our Monetary Policy and Trade Sub- committee. Mr. CLAY. Thank you, Mr. Chairman. I will be cognizant of time. Madam Chair, the U.S. unemployment rate is 6.6 percent. For African-Americans, it stands at 12.1 percent; for Hispanics, it is 8 percent; and for Asians, it is a little over 4 percent. And for young adults, it is 20 percent. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 15 What can this Congress do, working in conjunction with the Fed- eral Reserve, to lower unemployment rates for African-Americans, for young people, for the Latino community? Any suggestions? Mrs. YELLEN. For our part, we are trying to do what we can with monetary policy to stimulate a faster economic recovery to bring unemployment down nationally. And because high unemployment disproportionately affects many of the groups that you mentioned, if we are successful it will have a great benefit to the groups that you mentioned. Of course, monetary policy is not a panacea, and I think it is ab- solutely appropriate for Congress to consider other measures that you might take in order to foster the same goals. Some of those groups have been adversely affected as well by longer-term trends in the economy that have led to very stagnant wage growth for those at the middle and bottom of the income spectrum; we have seen rising inequality. Certainly, all economists that I know of think that improving the skills of the workforce is one important step that we should be tak- ing to address those issues. Mr. CLAY. So Congress could also assist by taking a look at, say, infrastructure and starting a jobs program in that area where we rebuild our roads, bridges, and other infrastructure and put Ameri- cans back to work? Mrs. YELLEN. These are certainly programs that Congress could consider and debate. Mr. CLAY. Thank you for that response. In a speech you gave to the AFL-CIO last year, you stated that the evidence you had seen showed that the increase in unemploy- ment since the onset of the Great Recession has been largely cycli- cal and not structural. You cited the fact that job losses were wide- spread across industry and occupation groups and went on to say construction, manufacturing, and other cyclically sensitive indus- tries were hard hit as well. Do you continue to believe that a significant component of our unemployment situation continues to be the result of cyclical fac- tors? Mrs. YELLEN. I do continue to hold that view. I think most of the increase we have seen and the decline we have seen—while a small portion of it may be related to structural issues and there may be some reduction in structural mismatch, better matching as the re- covery has proceeded—mainly we have seen a decline in cyclical unemployment. Every 3 months, members of the committee offer their personal views as to what a longer-run normal unemployment rate end is, and the range of opinion in the FOMC in December ranged from 5 percent to 6 percent. So at 6.6 percent, we remain well above that. And I guess I would point out, too, some broader measures of the labor market—we shouldn’t only focus on the unemployment rate. The degree of involuntary part-time employment remains excep- tionally high, at 5 percent of the labor force. So broader measures of unemployment are even more elevated relative to normal than our standard unemployment rate. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 16 In addition, there is an unusually high incidence of long-duration spells of unemployment. So by a number of measures, our economy is not back. The labor market is not back to normal in terms of our maximum employ- ment goals. Mr. CLAY. Thank you for your responses. I yield back. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Alabama, our chairman emeritus, Mr. Bachus, for 5 minutes. Mr. BACHUS. Thank you. Chair Yellen, last week Governor Tarullo appeared before the committee and he said that the CLO ownership issue was at the top of the agenda for the interagency working group, which is the Fed and four other members, I believe. What additional information do you need to resolve the CLO issue and clarify how legacy securities will be treated under the Volcker Rule? Mrs. YELLEN. This is something that a number of banking orga- nizations have asked the regulators to look at. The regulators re- cently issued a ruling concerning TruPS, and this is something they are jointly engaged in looking at, and I will hopefully have something on that reasonably soon. Mr. BACHUS. Okay. I was going to ask you how soon do you think we can expect you to issue some guidance, but— Mrs. YELLEN. I don’t have a definite— Mr. BACHUS. But you are saying maybe soon? Mrs. YELLEN. Hopefully. Mr. BACHUS. Okay. Do you know what remedy the group is suggesting? Mrs. YELLEN. I don’t. This is something they are going to have to look at. Mr. BACHUS. Do you agree with me that this is something that needs to be addressed with some sense of urgency? Mrs. YELLEN. It is certainly something that the regulators will look at and should look at. Mr. BACHUS. All right. The Fed has long suggested—and I know Mr. Clay and your re- sponse to him mentioned this—and has held the view that a large portion of the recent decline in the labor force participation rate has been attributable to cyclical factors, which would become struc- tural if unaddressed, and therefore, because you considered it cycli- cal, part of the reason for aggressive quantitative easing. And let me put this up: That is the Philadelphia Fed’s recent em- ployment study. If you look at that you can see, number one, there is evidence that there may be a smaller gap between full employ- ment and current employment than we previously expected. And let me just read two of the—they said almost 80 percent of the decline in participation since the first quarter of 2012 is ac- counted for by an increase in nonparticipation due to retirement. This implies that the decline in the unemployment rate since 2012 is not due to more discouraged workers dropping out of the labor force. And the likelihood of those who have left the labor force due to retirement and disability rejoining the labor force is small and has VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 17 been largely insensitive to business cycle conditions in the past, suggesting, at least to me, that the decision to leave the labor force for those two reasons is more or less permanent. If you look at that line, participation has really been coming down for 10 years—10 or 12 years. And let me put a second chart up, which is very consistent with that. That is the Bureau of Labor Statistics, and you can see that—I think since maybe 1998, yes, 1998 on the Fed and 2001, we have a consistent dropping of par- ticipation. Does that maybe modify or amend your view on the structural versus cyclical debate that we have been having? Mrs. YELLEN. I would like to make clear that I think a signifi- cant part of the decline in labor force participation, as you have mentioned, is structural and not cyclical. The baby boomers are moving into older ages where there is a dramatic drop-off in labor force participation, and in aging populations, we should expect to see a decline in labor force participation. And as you noted, that has been going on for some time. So there is no doubt in my mind that an important portion of this labor force participation decline is structural. That said, there may also be—and I am inclined to believe this myself, based on the evidence—cyclical factors at work. So that de- cline has a structural component and also a cyclical component. There is no surefire way to separate that decline into those two components, but it is important to realize that we are seeing de- clining participation also among prime-age workers and among younger people. And it seems to me, based on the evidence that I have seen, that some portion of that does reflect discouragement about job opportunities. But there is no clear scientific way, at this point, to say exactly what fraction of that decline is cyclical. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentlelady from New York, Mrs. Maloney, for 5 minutes. Mrs. MALONEY. Thank you. Thank you, Mr. Chairman. I would like to begin by congratulating you, Chair Yellen. In the 100-year history of the Federal Reserve—it has existed for 100 years—there have been only 15 Fed Chairs. You are the first woman to lead the Fed or any major central bank. We are so proud of you. Mrs. YELLEN. Thank you. Mrs. MALONEY. And in your long and distinguished career, you have excelled at every single point of your career. And I just want to note that your appointment is a tremendously important historic achievement in the women’s movement. Congratulations. Mrs. YELLEN. Thank you. Thank you, Congresswoman. Mrs. MALONEY. I would like to ask you about your reaction to the unexpectedly weak job report last week, which showed that the economy only created 113,000 jobs in January. Some in the mar- kets are now calling for a pause in the Fed’s tapering strategy. Has the weak jobs report caused you to consider slowing the pace of the Fed’s tapering? Mrs. YELLEN. I was surprised that in the jobs reports in Decem- ber and January, the pace of job creation was running under what VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 18 I had anticipated. But we have to be very careful not to jump to conclusions in interpreting what those reports mean. We have had unseasonably cold temperatures that may be affect- ing economic activity in the job market and elsewhere. The committee will meet in March. We will have a broad range of data on the economy to look at, including an additional employ- ment report, and I think it is important for us to take our time to assess just what the significance of this is. I think the committee has said— Mrs. MALONEY. Can you describe what would cause you to con- sider a tapering pause? What would cause it? Many months of bad data reporting? What would cause you to consider pausing? Mrs. YELLEN. I think what would cause the committee to con- sider a pause is a notable change in the outlook. The committee, when it decided to begin this process of tapering in measured steps, believed that the outlook was one where we would see continued improvement in the labor market and inflation moving back up to- ward a 2-percent target. And if incoming data were to cause the committee, looking broad- ly at all of the evidence— Mrs. MALONEY. What kind of data? Mrs. YELLEN. —question that— Mrs. MALONEY. Jobs data? What kind of data? Mrs. YELLEN. We would be looking at a broad range of data on the labor market, including unemployment, job creation, and many other indicators of labor market performance. We would also be looking at indicators of spending and growth in the economy because we do need to see growth at an above-trend pace in order to project continued improvement in the labor mar- ket. And we note that inflation is running well below our objective, and we want to be sure that is moving back toward our objective. Mrs. MALONEY. What would it take for the Fed to consider in- creasing its asset purchases again instead of just slowing down its reductions? What would it take? Mrs. YELLEN. I think a significant deterioration in the outlook, either for the job market or very serious concerns that inflation would not be moving back up over time. But the committee has em- phasized that purchases are not on a preset course and we will con- tinue to evaluate the evidence. Mrs. MALONEY. So far, the Fed has been reducing its total bond purchases by $10 billion a month, with reductions split evenly be- tween Treasuries and mortgage-backed securities. Why did the Fed choose to split it between mortgage-backed securities and Treas- uries? Mrs. YELLEN. Both kinds of purchases have similar effects on longer-term interest rates. Mrs. MALONEY. Now, if the housing market starts to slow down, would the Fed consider maintaining the purchases of mortgage- backed securities and only tapering Treasury purchases? Mrs. YELLEN. I think that both kinds of purchases affect interest rates broadly. Our purchases of Treasuries tend to push down mortgage rates as well. Some evidence suggests a differential im- pact, but it is very hard to think of these being discreet. Mrs. MALONEY. My time has expired. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 19 Chairman HENSARLING. The time of the gentlelady has expired. The Chair now recognizes the gentlelady from West Virginia, Mrs. Capito, the Chair of our Financial Institutions Subcommittee. Mrs. CAPITO. Thank you, Mr. Chairman. I would like to add my voice to the chorus of congratulations to the Chair on her appointment. I would also like to tell you that I have been on the committee for many, many years, and I have understood more of what you said today than I have probably from the last two folks who were in front of us, so thank you for that. Mrs. YELLEN. Thank you. Mrs. CAPITO. I represent West Virginia, an energy State. In your report, you note the growth in the oil and gas development busi- nesses, which I think has great promise for the country economi- cally. But it is also noted in notes from the Richmond Fed that the coal industry is suffering low coal prices, regulation, and a decrease in employment. Energy has a great promise to bring jobs to this country and keep them here. What do you think about an all-of-the-above en- ergy policy? And what effect would that have on our economic growth? Mrs. YELLEN. I think energy has been a great contributor to growth. And we have seen a huge shift in the U.S. position in terms of our net imports of oil and natural gas. And, energy policy certainly plays an important role there. Mrs. CAPITO. Okay, thank you. Another question: Again, coming from a State that has a large senior population, one of the concerns I have had is low interest rates and what impact this has on savers, particularly older savers who are trying to retire when they are relying on fixed-income as- sets like bonds or CDs and savings account. This has been difficult for them to plan for their senior years post-retirement. What kind of thinking do you have as you are weighing the inter- est rate structure on the savings that is occurring in the country, particularly for the older saver? Mrs. YELLEN. Certainly, a low-interest rate environment is a tough one for retirees who are looking to earn income in safe in- vestments like CDs or bank deposits. But I think it is important to recognize that interest rates are low for a fundamental reason, and that is because in the United States and in the global economy as a whole, there is an excess of saving relative to the demand for those savings for investment purposes. So the rates of return that savers can expect really depend on the health of the economy, and with a weak economy where there is a lot of saving and less demand for those savings, that is a fun- damental drag on growth and on what savers can expect. Our objective in keeping interest rates low is to promote a stronger recovery. And in a stronger economy, savers will be able to earn a higher return because the economy will be able to gen- erate it. So I recognize that this is difficult for savers. It is also important to recognize that any household, even if it is retired, in addition to saving, people care about their work opportunities; they care about the opportunities of their kids. And lots of people have exposure to VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 20 the stock market as well, even if it is through a 401(k) or the health of a retirement plan. And so, this shouldn’t be a one-dimen- sional assessment. Mrs. CAPITO. Right. Thank you. Folks are working longer, too, and I think that is a concern for those who thought they had planned well and they are finding it is not quite turning out for them. Another question: You already mentioned that 5 percent of the labor force is exceptionally high for the part-time—an exceptionally large portion for the part-time. We have learned with the Presi- dent’s Affordable Care Act that anybody who is working over 29 hours is considered full-time. Is that consistent with your assessments of what a full-time job is when you are looking at your calculations? And when you say an exceptionally large portion is part-time, is that anybody working under 29 hours? Is that how you define that? Mrs. YELLEN. I am talking about part-time for economic reasons. People who were working— Mrs. CAPITO. What is the definition of a part-time job? How many hours a week? How many hours a week would you consider a part-time job? When most people consider a full-time job 40 hours a week, is a part-time job—the President has defined it as 29 hours and above. How do you define a part-time job? Mrs. YELLEN. This is a definition that is used by the Bureau of Labor Statistics, not ours. Mrs. CAPITO. Do you happen to know what it is? Or can you get back to me on that? Mrs. YELLEN. Under 35 hours. Mrs. CAPITO. Thirty-five. All right, thank you. Chairman HENSARLING. The Chair now recognizes the gentlelady from New York, Ms. Velazquez, for 5 minutes. Ms. VELAZQUEZ. Thank you, Mr. Chairman. Chair Yellen, as you know, the median U.S. wage has failed to keep pace with a booming stock market, and record corporate prof- its. Is it possible that stagnant wage growth for American workers and not overly accommodative monetary policy, as some have sug- gested, is causing a slower recovery and decreased job creation? Mrs. YELLEN. Certainly, for much of the workforce, real wages have been stagnant in recent years, but also, unfortunately, going back many years as far as the mid-to late 1980s. I am not sure we know for sure, but there has been some specu- lation that trend for so many households of weak labor market in- come growth did contribute to the troubles in the economy. The idea there would be that wealthier families—higher-income fami- lies spent less of their additional income than lower-income fami- lies, and so that shift in the distribution of income may have cre- ated a drag on growth. I don’t know that we have any hard evidence on that, but that is certainly a hypothesis that has received some attention. Ms. VELAZQUEZ. The housing sector has continued to see im- provement with robust construction activity and higher home prices. How will continued reductions in QE affect the housing market? VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 21 Mrs. YELLEN. I think that quantitative easing, or purchases of securities, did serve to push down mortgage rates and other longer- term interest rates quite substantially and was a factor underlying the strength of the housing market, and also promoted a recovery in house prices that has been good for so many families. We did see a backup in interest rates in the spring and into the summer. In part, I think that was associated with a reevaluation of the strength of economic growth and the likely cause of mone- tary policy. Although mortgage rates are still very low, we certainly have seen a slowing in the housing sector since mortgage rates have backed up. I am hopeful housing will continue to support the recovery. There are good fundamentals there, but that provided clear evidence of the impact that mortgage rates do have on the strength of housing. Ms. VELAZQUEZ. Thank you. According to the ADP National Employment Report, small busi- nesses created four of five new jobs in January. In your opinion, why are small businesses adding more jobs than their larger coun- terparts? Mrs. YELLEN. I think we have seen over a longer time, not just the month, increases in jobs in most sectors of the economy. I think both small and large businesses have by and large contributed to that. So of course there is a good deal of month-to-month variation. But there has been, I think, broad improvement in the labor mar- ket. Ms. VELAZQUEZ. Is it possible that the Volcker Rule could further boost small business lending as banks seek out revenue in tradi- tional financial products due to the general prohibition on risky and lucrative proprietary trading? What we saw during the financial crisis was a fact. We saw anec- dotal stories about small businesses having problems accessing cap- ital. Yet, it is changing. Do you think that the Volcker Rule has any- thing to do with that? Mrs. YELLEN. I suppose I wouldn’t tie trends in credit avail- ability for small businesses so much to the Volcker Rule, but cer- tainly during the downturn, during the Great Recession, lots of small businesses have had difficulty in accessing credit. Business conditions haven’t been very good for many small businesses dur- ing that period. In fact, the demand for credit by many small businesses, given their prospects, hasn’t been that high. And of course, equity in one’s home for small businesses is an important source of financing and the decline in home prices, I think, has also taken a toll there. Ms. VELAZQUEZ. Thank you. Chairman HENSARLING. The time of the gentlelady has expired. The Chair now recognizes the gentleman from Texas, Mr. Neuge- bauer, chairman of our Housing and Insurance Subcommittee. Mr. NEUGEBAUER. Chair Yellen, again, congratulations to you and thank you for being here today. Would you say that the deficit that we have been experiencing over the last few years has had a negative impact on the future growth of our economy? Mrs. YELLEN. I would say that long-run deficits that are pro- jected to rise in an unsustainable way is a trend that has a nega- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 22 tive effect on the economy. The larger deficits that we have had in recent years in part reflect the weakness of the economy. Mr. NEUGEBAUER. But you would agree that long-term—these kind of deficits, in the pathway we are on, is not a positive thing for the economy? Mrs. YELLEN. I think if we look at long-term projections, for ex- ample, of the Congressional Budget Office, we see as we go out 20, 30 years that the debt-to-GDP ratio will be rising over time in a way that looks unsustainable— Mr. NEUGEBAUER. I am going to take that as a yes, you think it is— Mrs. YELLEN. —and that is a negative for the economy. Mr. NEUGEBAUER. Yes. So here is a question: It looks like last year in 2013, the Fed bought what would be the equivalent of about 62 percent of the Treasuries issued in 2013, and that you currently hold about 18 percent of the outstanding Treasuries. And what a lot of people don’t realize is that you kind of bought down the yield curve for the Treasury. And I am sure Mr. Lew will put you on his turkey list come Christmas time because you are doing him a huge favor by buying down that yield curve, and so have transferred $77 billion from the Fed to the Treasury, obviously reducing the interest borrowing cost. So in my view, if these deficits are negative, the Fed has almost become a deficit enabler in that you are making it very easy to really mask the real cost of these deficits. Speaking of the CBO, they said in a recent release that 74 percent of the budget deficit for the next 10 years will be on interest alone. And so is this QE, quantitative easing, and this huge position that the Fed has taken, I question—I think it has almost become a deficit enabler. I would be interested to hear your response on that. Mrs. YELLEN. We are very focused on achieving the objectives that Congress has assigned to the Federal Reserve, and that is maximum sustainable employment and price stability. We have had an economy with unemployment that is well above normal levels and inflation is running well below our 2 percent ob- jective, and the Federal Reserve is focused on putting in place a monetary policy that is designed to achieve those very important objectives that Congress has assigned to us. Because we have a weak economy with, in some sense, plentiful savings relative to investment, the fundamentals call for interest rates to be low and we are allowing them to be low and fostering a low-interest rate environment to achieve those important goals that Congress has assigned to us. I don’t think it would be helpful, either in terms of achieving the objectives that Congress assigned to us or in terms of Congress’ deficit reduction efforts, for us to purposely raise interest rates in order to weaken the economy. The likely impact of that in a weaker economy would be larger deficits. Mr. NEUGEBAUER. I hear what you are saying about the things that Congress has challenged you with and the employment and VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 23 mandatory—and monetary policy. But Congress didn’t pass a bill for quantitative easing; that was a choice that the Fed made. And that very choice has really impacted the markets, but more importantly, I think it really, I believe, is enabling these deficits to continue and for the real cost to be masked in the fact that you are make making huge transfers, and that as we go out and as you talk about interest rates going up, as those interest rates are going up, the deficit, as a percentage of what interest applies to that, is going to be much, much larger. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from California, Mr. Sherman, for 5 minutes. Mr. SHERMAN. Chair Yellen, you have a very busy job and a lot of things you can’t do, and I am sure one of your great regrets is you don’t get enough time to hang out with accountants. That being the case, you probably haven’t focused on the FASB proposal to basically force the capitalization of all leases. This would add $2 trillion to the balance sheets of America’s businesses, adding $2 trillion of assets, $2 trillion of liabilities. You would think that would balance out, but in fact it destroys the debt ratios, violates their borrowing covenants. It is estimated that this will cost anywhere from 190,000 jobs up to millions of jobs as corporations try to cut back and regain their debt-to-equity ratio. And as less of us refuse to sign long-term leases, and then as those wanting to do real estate development without an an- chored tenant with a long-term lease, you can’t build a project. So I won’t ask a question here except to ask you to take a look at this, and perhaps even it will affect your economic projections on the downside, and then, in your role as bank regulator, realize that there are going to be hundreds of thousands of companies who, through no fault of their own, are in violation of the cov- enants they have signed with their banks and the pressure will be from your bureaucrats to call the loans because they are in viola- tion. Perhaps you could, both looking at the macroeconomic side and bank regulatory side, focus on that. You say that savings exceeds demand for investments—capital. And I disagree with you a little bit on that. It exceeds effective de- mand. We here all deal with small businesses. They can’t necessarily knock on your door. They are going to knock on our door whether we want them to or not. And American small businesses can’t get bank loans. Part of the problem is bank executives, because no one ever got a huge bonus for making a bunch of quarter million dollar loans. They all want to invest in the Whale—or like the Whale, until the Whale ate all the money in London. But another part of the problem is the bank regulators. I hear from bankers, ‘‘If we invest in sovereign debt—Turkey—heck, if we invest in Zimbabwe sovereign debt we are not going to get dinged by the bank regulators near as much as if we make loans to people whose character we know, who have been with our bank for years, who are part of the community.’’ VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 24 And these loans shouldn’t necessarily be made at prime. One out of 100 of these businesses going under. Not every new restaurant is a good restaurant. What can you do so that banks are making prime-plus-five, prime-plus-seven loans and having only modest increases in the de- mand for capital, and that the pressure is on them to stop invest- ing in high-flying securities and instead make local loans? We need Jimmy Stewart banking back again. Mrs. YELLEN. I think it is very important for banks to make loans in their communities. And in our role as bank supervisors, we have tried to be very cognizant of the possibility that over- zealous supervision could diminish the willingness of banks to make loans to creditworthy borrowers, so for— Mr. SHERMAN. That may be your policy at the top, but down at the field level, that is not what is happening. Mrs. YELLEN. This has been an important issue that we have been aware of now for a number of years, and we have worked carefully with our supervisors to make sure that they are not tak- ing on policies that would discourage lending to small businesses. Mr. SHERMAN. You are going to have to work much harder to get your bureaucrats online on that, and the proof of it is that banks don’t make prime-plus-five loans. One last thing: Dodd-Frank gave you and the other systemic reg- ulators the authority to break up those who were too-big-to-fail. Any chance you are going to use that authority? Mrs. YELLEN. We have a broad program that is designed to deal with too-big-to-fail. It is the Dodd-Frank program, and we are ac- tively completing our work there. And I am very hopeful that is going to effectively deal with it. We will monitor as we go forward if more needs to be done. Chairman HENSARLING. The time of the gentleman has expired. The Chair now declares a 5-minute recess. [recess] Chairman HENSARLING. The committee will come to order. The Chair now recognizes the gentleman from Georgia, Mr. Westmoreland, for 5 minutes. Mr. WESTMORELAND. Thank you, Mr. Chairman. And thank you, Madam Chair, for being here. We have heard from the other side of the aisle that the Presi- dent’s policies are not having any ill effect on the economy. Yet, Chair Yellen, we have just recently all seen the report from the CBO that the Obamacare Affordable Care Act is estimated to cost 2.5 million jobs over the next decade. Do you believe that regulation or overregulation has an impact on our economic growth and job creation? Chairman HENSARLING. Chair Yellen, I don’t think your micro- phone is on. Can you see if it is on? And if it is, please pull it closer to you. Mrs. YELLEN. I apologize. I think certainly regulation has an impact on the economy, on economic growth. And there are many economic studies that have tried to document what it is. I think in the case of the Affordable Care Act, CBO has done an important analysis and probably will continue to look at it. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 25 I think they have recognized the impact of the Act is likely to be complex. I think they are still attempting to figure out what all of the different channels are by which it will affect the economy. And we will look at that and try to look at their assessments going for- ward. Mr. WESTMORELAND. We had to pass that to find out what was in it, and so now that is all coming together. Has the Fed done any estimates on how many jobs the imple- mentation of Dodd-Frank and the culmanative effect of the Obama Administration’s regulatory policies are expected to cost the econ- omy? Or is it that the Fed is not interested in that question? Be- cause we feel that Dodd-Frank is going to have just as much im- pact on the jobs market as what the Affordable Care Act did. Mrs. YELLEN. We lived through a significant financial crisis that has taken a huge toll on the economy, including creating a period with very high unemployment. And most of the studies that have been done, for example, the Basel Committee, and the United States participated in assessments, which is only one piece of Dodd-Frank, but in deciding to raise capital standards on financial institutions, and tried to assess what would be the net effect on the economy. And while there may be some impact in terms of raising the cost of capital, the overall impact that these studies found is that reduc- ing the odds of a financial crisis would be the most important ben- efit. And when we see what a negative effect that has on jobs for such a prolonged period of time, to my mind, the regulatory agenda of trying to strengthen the financial system, which we are trying to put into place to make it more resilient and reduce systemic risk, will bring important long-term benefits to the economy. Mr. WESTMORELAND. When you say long-term, what are we talk- ing about? Because we always hear long-term. What is long-term? And when does long-term start? Because we have been sup- posedly in a recovery now for a period of time, and we keep hearing that Dodd-Frank and some of these other things that have gone in will have long-term pluses. When does long-term start? Is 4 years not long-term? When are we planning on this kicking in? Five years, 10 years, 20 years? Mrs. YELLEN. I think it is kicking in, in the sense that we are building a more resilient financial system and substantially miti- gating the odds of another financial crisis that will take this kind of toll on households in the economy. Mr. WESTMORELAND. Okay. And one other question, just quickly: Do you feel like there is enough separation between the Federal Reserve and this Adminis- tration in the fact that I know you meet with the Secretary of the Treasury, what, once a week, once a month? Mrs. YELLEN. It has been the tradition, I think, to meet almost once a week. There are many overlapping areas of interest between the Federal Reserve and the Treasury that I think makes it desir- able to have ongoing communication. But— Chairman HENSARLING. The time of the gentleman has expired. Mrs. YELLEN. —the Federal Reserve is completely independent in conducting monetary policy. Chairman HENSARLING. The time of the gentleman has expired. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 26 The Chair now recognizes the gentleman from New York, Mr. Meeks, for 5 minutes. Mr. MEEKS. Thank you, Mr. Chairman. It is with great pleasure that I welcome you this morning, Madam Chair. Your historic ascension to the position speaks vol- ume, I believe, for our Nation and the continued progress our Na- tion is making in the inclusion of women and minorities to posi- tions of leadership and will be another source of inspiration for young women, like my three daughters, and especially those who are looking for careers in the finance and banking industry. And let me just say that I am pleased you have the job not be- cause you are a woman, because you are the right person for the job and you have done it the old-fashioned way—you have earned it. Mrs. YELLEN. Thank you, Congressman. I appreciate that. Mr. MEEKS. Let me ask—and I think the ranking member touched on this, and I know Mr. Clay touched on this—about the wealth gap. And when you look at what the—that 95 percent of the income gains since the recovery have gone to the top 1 percent, there has always been a big question about the relationship be- tween Main Street and Wall Street. And for me it has been dif- ficult, especially sitting on this committee, to try to explain Wall Street to Main Street when you have this kind of inequality. Today, for example, on average there is—the African-American household is 20 times less than the White household. The median net income of White households stands at about $110,000 versus $6,000 for blacks and $7,000 for Hispanics, largely because most people’s wealth was in their homes. And when you have the crises, most—because people were steered, in minority communities, they lost a large part of that wealth when it was closing. Now, it has gone to a tremendous level. So, given that we know that there were no-doc loans and there was steering into these communities and it has caused this kind of disparity in wealth, is there anything that the Fed can do, and/or is doing, that will help the middle class in general, but even more specifically, these individuals who were impacted to a great extent because of the inequality of what was going on in the system? Is there something that we can do to help them get back on their feet? Mrs. YELLEN. I think, Congressman, the most important thing to do, which has been absolutely our focus, is to promote a stronger recovery. These same households that were hit so hard by what happened in the housing sector and by the subprime debacle, we want to see those households get jobs so that they can rebuild wealth and have the income that they need to support their fami- lies. Mr. MEEKS. The problem, though, that we are having is that many have referred to this recovery as a jobless recovery. And when you look at technology today and you see that tech- nology is—a lot of business folks are using it and saying it is for efficiency, et cetera, and thereby a lot of jobs that would have gone to people—are losing some of the common person. I look at New York City. If you were a teller in a bank, ATMs have replaced you; bridge tolls, you have EZ-Pass. All of these jobs VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 27 that used to be manual labor now are replaced because of tech- nology. Now, I am a big believer in international trade because that should create jobs. My question to you is, though, can we identify the jobs that will be created so that we can then pinpoint where we should be training individuals so that they can get the jobs that are going to be created and not just randomly creating jobs, but creating jobs and then we can go back into the communities and train people specifically for the jobs that we feel will be created as a result of the current economy? Mrs. YELLEN. A stronger economy is going to create jobs in vir- tually every sector of the economy. But a longer-term trend that ties in with the concerns that you have expressed is a growing skills gap, a growing wage inequality between more- and less-edu- cated workers, technological trends that have reduced what used to be an important class of good, high-paying jobs. Those jobs are being competed away because of technological change and, to some extent, shifts in global competition. I think every economist that I know believes that we need to ad- dress that skill gap in order to make sure that we reduce inequal- ity. Mr. MEEKS. But is there anything the Fed can do specifically to help in that regard? Mrs. YELLEN. What we can do is to try to promote stronger de- mand, a stronger job market generally. We have seen that lower- income individuals have been disproportionately harmed by the downturn, and as the economy recovers—I am by no means saying that this is a panacea, not by any stretch of the imagination for in- equality—but I think we will see gains broadly shared throughout the economy. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from North Carolina, Mr. McHenry, the Chair of our Oversight and Investigations Sub- committee. Mr. MCHENRY. Chair Yellen, congratulations on your appoint- ment and being an important mark in the history books, as well. Mrs. YELLEN. Thank you. Mr. MCHENRY. I have a question: In 2010, you said that banks may be required in their debt stack, in their capital, to use a con- vertible instrument that in good times has a debt nature and in bad times converts to equity. You said that they may be required to do this. Is it your intention to use this instrument? Mrs. YELLEN. I think when I gave the speech at that time, I was broadly considering possible regulations or shifts in the focus of su- pervision that might be helpful. I think there still is focus on some- thing like that. I think to improve the resolvability of a large banking organiza- tion, something that the Federal Reserve and other regulators are contemplating is a requirement that bank holding companies hold a sufficient amount of long-term debt. It would play a role similar to the contingent capital instruments you have described. Mr. MCHENRY. You mentioned that in your opening statement, about this requirement on long-term debt. Would it be your inten- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 28 tion to have this contingent convertible capital as a part of that long-term debt requirement? Mrs. YELLEN. I think this type of debt would bear some similar- ities. It is not exactly the same but it bears some similarities to contingent debt in that it is a source of gone concern of value that would be there if an organization got in trouble that would serve to recapitalize it. And the existence of such a class of debt, I think, would give proper incentives to monitor risk-taking in these organi- zations. Mr. MCHENRY. So are you still broadly favorable towards these contingent convertibles? Mrs. YELLEN. There are a number of issues associated with that kind of debt, what would trigger it, and so forth, but I think it re- mains an interesting possibility in this proposal— Mr. MCHENRY. An interesting possibility. That is a fair admis- sion from a Chair of the Federal Reserve. So, I will take that as somewhat favorable, if I may. I was reading yesterday in the Financial Times—we have this discussion about the Volcker Rule and the exception the Volcker Rule provides for sovereign debt, vis-a-vis, corporate debt in the United States. And I read in the Financial Times yesterday that Daniele Nouy, who is the head of the Bank Supervisory Agency in the European Union, she said that they are really going in a dif- ferent direction in the E.U. And in light of their recent crises with sovereign debt, she said one of the biggest lessons of the current crisis is that there are no risk-free assets. So, sovereigns are not risk-free assets. That has been demonstrated, so we now have to react. In essence, the E.U. is going in a different direction when it comes to sovereign debt than we are in the United States. How would you react to that? Mrs. YELLEN. I believe the exemption for U.S. debt markets was built into Dodd-Frank. That was explicit in Dodd-Frank. Mr. MCHENRY. Okay. But what is your reaction to that? We are policymakers. We could remedy that if you think that is a flaw. Mrs. YELLEN. We have tried to write a rule that is consistent with Dodd-Frank as it was legislated. Mr. MCHENRY. Would you look favorably upon us saying that sovereign debt should not be exempt or should comparable to cor- porate debt? Mrs. YELLEN. That is something that I would have to look at more carefully. Mr. MCHENRY. But did you not look more carefully at this sub- ject matter when you wrote the Volcker Rule? Mrs. YELLEN. We put into effect the allowance that Congress in- cluded in Dodd-Frank to exempt Treasury securities. Mr. MCHENRY. Yes. Well no, that is Treasury securities. I am asking about sovereign debt, which was excluded from the Volcker Rule. Written into the language of Dodd-Frank is exclusion of U.S. sov- ereign debt, not the exclusion of other sovereign debt. I would call this a lack of enthusiasm from you, I would surmise. Chairman HENSARLING. The time of the gentleman has expired. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 29 The Chair now recognizes the gentleman from Massachusetts, Mr. Capuano, for 5 minutes. Mr. CAPUANO. Thank you, Mr. Chairman. Thank you, Madam Chair, for being with us today. Madam Chair, I have a couple of different areas I would like to pursue. I don’t know how far we will be able to get. But in your confirmation hearing, you made a comment—at least it is reported that you made a comment: ‘‘Addressing too-big-to-fail has become among the most important goals of the post-crisis pe- riod,’’ which on some levels I would agree with, although I happen to think we did address a fair amount of it. I also accept what Chairman Bernanke once said, which is, ‘‘Reality is in perception, and the perception is we haven’t done enough. So therefore, we have to do more.’’ And I am just wondering if you have any thoughts on how to do that, particularly with relation to either reinstituting some form of Glass-Steagall or instituting some sort of a market-driven attempt to reduce the size of some of these too-big-to-fail programs. Mrs. YELLEN. I think we have a broad agenda that is intended to address too-big-to-fail and we are putting it into effect and I think have made meaningful progress. We have— Mr. CAPUANO. Do you think it would be worth us considering re- instituting some form of Glass-Steagall? Mrs. YELLEN. I think that if we continue on the path that we are on of completing the Dodd-Frank rulemakings, beyond that of put- ting in place a rule that would enable a resolution through orderly liquidation by requiring— Mr. CAPUANO. So you think we won’t need it when you are all done? Mrs. YELLEN. I think we have to keep watching whether or not we have succeeded in addressing this, but I believe we have— Mr. CAPUANO. Fair enough. I would ask you to also take a look at H.R. 2266, which is a market-driven attempt to reduce the size of some of these institutions. I also want to talk about an editorial that I read in the American Banker last week that basically, in my opinion, coined a new phrase, but one that is accurate, ‘‘too-big-to-jail.’’ And it was about the concern that not enough of these people who have foisted their inappropriate activities on us in 2008 have paid a penalty on a per- sonal basis. Some of the biggest corporations simply wrote a check to stay out of jail free because it is not even their money; it is cor- porate money. And when I read it in the American Banker, it kind of puts a big underscore to me, and I am just wondering, do you have any concerns about the lack of personal accountability in some of the largest institutions in this world when it comes to some of the ac- tivities they participated in, not just before 2008 but after 2008 as well? Mrs. YELLEN. I do have concerns about those activities, and the Federal Reserve cooperates with the Department of Justice as ap- propriate when they take actions that are criminal in nature. The Federal Reserve’s focus is on safety and soundness. We are super- visors of these organizations— VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 30 Mr. CAPUANO. But isn’t the safety and soundness of the entire economy based on trust and good activity? Mrs. YELLEN. It certainly is. Mr. CAPUANO. And my concern, to be perfectly honest, is if people are not held personally accountable when they are allowed to write corporate checks—not personal checks—to just push away their ill- gotten gains, and they get to keep that money and continue on and actually get raises and bonuses from those institutions, that the moral hazard says to the next guy coming down the street, the peo- ple that you have to regulate, ‘‘It is okay. Don’t worry about it. Do anything you want, and all we have to do is, the corporation—not you—will pay a few hundred million dollars of shareholder money, by the way, not your money.’’ You don’t have a concern with that with the Federal Reserve, by not having—not you, but by not having other entities hold them to personal account that it will make your job tougher going forward? Mrs. YELLEN. I agree with you that there certainly should be ac- countability within these organizations. Mr. CAPUANO. Thank you. I appreciate that. And the last point, since we only have a minute, is I want to talk about Fannie Mae and Freddie Mac. I personally have always wanted to amend and reform them. However, I have also thought it is wrong. Fannie and Freddie have now pretty much paid back the money that they have borrowed from the taxpayer. I don’t know if they are exactly there, but they are close to it and on their way. And yet, at the moment, they have not been allowed by our own laws to pay one penny towards the payment of that principal. There are lawsuits going on, as I am sure you are aware, and I am just curious, do you think that it is fair or wise or equitable to keep any entity in a de facto bankruptcy state once they have paid back their debt? Mrs. YELLEN. I think with respect to the GSEs, it is really very important for Congress to put in place a new system to address GSE reform. I think we still have a system that has systemic risk, that government funding remains critical to the mortgage sector. And I think to really get housing back on its feet, it is important for Congress to put in place a new system and to explicitly decide what the role of the government should be in helping the housing sector. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from New Jersey, Mr. Garrett, the chairman of our Capital Markets Subcommittee. Mr. GARRETT. I thank the Chair. And I thank Chair Yellen. Congratulations on your position, and welcome to the committee. Thank you also—I understand the rules here that you are waiving a little bit and you are staying a little longer since there is a whole host of Members of Congress on both sides who would really like to dig in to some of these questions. So, we do very much appreciate that. I am going to step aside from some of the monetary, some discus- sions some people have made and otherwise get into, to start off with your prudential supervision role, which of course, under Dodd- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 31 Frank and others, has been expanded greatly. And I am not going to run through the list of all the expansions; you know very well what they are. But let me just begin to go back. I will reference a letter you may or may not—from a report back in November 2011. The GAO came up with a report on Dodd-Frank regulation and implementation of cost-benefit and analysis. And in that report, just to brief you, the Fed Reserve General Counsel responded to it with a letter. That was Scott Alvarez and Senior Adviser James Lyon responding to that. And what they said, what the Fed response was, that the Federal Reserve will con- sider appropriate ways to incorporate these recommendations into the rulemaking procedure. And I have the letter. I will put it in the record later. They even go in further to—where is it—seek to follow the spirit of cost-benefit analysis. So my first question to you is, what progress is the Fed making— and this is 2 years ago since that letter was written—on actually completing and complying with this cost-benefit analysis and rule- making? Mrs. YELLEN. The Federal Reserve strongly supports analyzing the costs and benefits of rules that it puts into effect, and we have done a great deal of that. An example I could give you is in connec- tion with our Basel re-capital rulemaking, where we participated in extensive cost-benefit analysis— Mr. GARRETT. Would you— Mrs. YELLEN. —hopefully with other regulators. Mr. GARRETT. Would you say you are satisfied with how it came out with Volcker? Because we had no indication that a cost-benefit analysis was done, and I asked Governor Tarullo, when he was here, where it is, because we have not seen it. So 2 years later, it seems like on something that is important as that, it was not done. Do you believe it was done in that situation? Mrs. YELLEN. I think what is important in the case of Volcker is what Dodd-Frank required of the Federal Reserve. In essence, the decision about the costs and benefits of putting those restric- tions in place were decided by Congress, taking account of what the likely cost and benefit would be. And our job has been to implement it. We have certainly taken into account—issued a proposed rule, received a wide range— Mr. GARRETT. Right. Mrs. YELLEN. —thousands and thousands of comments. Mr. GARRETT. I appreciate that. My time is very limited, and so I would encourage that a true cost-benefit analysis be submitted to Congress, which, I think in anyone’s estimation, was not done fully in Volcker. Speaking of Governor Tarullo, the President has not appointed anyone to fill the position of Supervisory Division Vice Chair. Mrs. YELLEN. Vice Chair. Mr. GARRETT. Would you say that Governor Tarullo is effectively holding that position until that is completed, until the appointment is made? Mrs. YELLEN. We operate at the Board through a committee sys- tem. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 32 Mr. GARRETT. Yes. Mrs. YELLEN. I usually have three Governors and a Chair. Mr. GARRETT. Right. Mrs. YELLEN. And Governor Tarullo heads the Board’s banking supervision committee. So in that sense, he certainly takes the lead. Mr. GARRETT. So would you— Mrs. YELLEN. But all of us are involved and all of us are respon- sible. Mr. GARRETT. But in light of your comment, would you commit, then, to have Governor Tarullo come and testify on Federal rule- making before this committee, since he seems to be filling that role until the President makes the— Mrs. YELLEN. He has done a great deal of testifying on these top- ics. Mr. GARRETT. Just on that topic, can we ask him? Mrs. YELLEN. On all topics, he has done— Mr. GARRETT. I understand. I guess I am asking for a commit- ment that we can have him come back in that role and testify be- fore the committee on rulemaking. Mrs. YELLEN. I don’t want to commit as to what he is going to do, but he has certainly— Mr. GARRETT. I guess that is what I was hoping for— Mrs. YELLEN. —taken the lead role in testifying on these topics. Mr. GARRETT. Sure. With regard to international agreements that you negotiate, you have probably seen some ideas that are floating out there that market participants should have a better ability to chime in or comment on them prior to in the process of making those agree- ments. Would you commit today to allow market participants to en- gage in that process while you are making those international agreements? Mrs. YELLEN. When we turn to putting rules into effect for the United States, which is what affects those firms, we always have consultation and take comments in a rigorous process of evaluating comments. Mr. GARRETT. Thank you. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Texas, Mr. Hino- josa, for 5 minutes. Mr. HINOJOSA. Thank you. Thank you, Chair Yellen, for sharing your testimony and for your time with us today. Since the height of the 2008 financial crisis and the deep reces- sion that followed it, the U.S. economy has made significant progress, as you and I know. The unemployment rate declined from a high of 10 percent in 2009 to the current rate of 6.6 percent. In the most recent quarter, GDP grew at an annual rate of 3.2 percent. And furthermore, despite some recent volatility, equity markets have seen substantial gains with the S&P index increas- ing by 30 percent last year, 2013. Many economists and policymakers fear that the nature of the recent recovery may indicate that the U.S. economy could be a major inflection point where the ability of the private sector to cre- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 33 ate wealth is now outstripping its ability to create jobs. I have seen that in the region that I represent in deep South Texas. For most of the postwar period, U.S. policymakers assumed that growth and employment went hand in hand, and the U.S. econo- my’s performance had largely confirmed that assumption. But the structural evolution of the global economy and its effects on the U.S. economy today could mean that growth and employment in the United States are starting to diverge. Chair Yellen, can you discuss with us why we appear to be un- dergoing what many have referred to as a jobless recovery? What explains the disparity between fairly weak employment growth in recent months and the fact that equities and corporate earnings are at an all-time high? Mrs. YELLEN. Congressman, it certainly has been a slow recov- ery, by the standards of U.S. history, from downturns, but 7.8 mil- lion jobs have been created since the drop in employment, I believe, in the beginning of 2010. And while we still have a ways to go, and the job market is not by any means back to full strength, we are not back to maximum employment, there has been substantial job creation. So, I think we have made progress. Clearly, we have further to go. We are trying to promote a faster recovery and a fuller recovery, but I do see—and not only in terms of the number of jobs, but across a broad range of labor market in- dicators, I do think there is progress even though certainly there is a significant way to go. Mr. HINOJOSA. In past speeches, you have indicated a concern about rising inequality. Many members on this committee are con- cerned due to moral beliefs. Additionally, many economists have expressed worry that it will impact the recovery. Do you believe that rising inequality might affect the stability of the economy? Mrs. YELLEN. I am very concerned. I share your concern about rising inequality. I think it is one of the most important issues and one of the most disturbing trends facing the Nation at the present time. There has been some discussion about the possibility that in- equality is holding back the recovery because the gains have been so unequally distributed. I think we don’t have certainty about that. But certainly, rising inequality is partly a matter of a weak job market that we are trying to address. But there are deep and disturbing longer-term, structural trends rising—a rising disparity between the wages earned by more- and less-skilled workers, shifts in global competition that have dimin- ished jobs for less-educated people. Mr. HINOJOSA. I am very concerned about the percentages of un- employment in our 18- to 29-year-olds, not only in our country but in other countries in Europe, as examples. What can we do so that we can bring those rates down to a sin- gle digit? Mrs. YELLEN. We are working hard. The purpose of our monetary policy is to promote a stronger recovery that will see young people who are in school come out into a stronger job market that can af- fect their entire future career. It is a key goal of the Federal Re- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 34 serve, and I think Congress could also consider ways of helping as well. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from California, Mr. Miller, for 5 minutes. Mr. MILLER. Thank you, Mr. Chairman. Chair Yellen, it is good to have you here today. Mrs. YELLEN. Thank you. Mr. MILLER. Congratulations on your confirmation. Mrs. YELLEN. Thank you. Mr. MILLER. I enjoyed your testimony. There has been a consid- erable amount of discussion regarding the problems that were a re- sult of bankcentric standards which were applied to insurance com- panies. And I was pleased that at your confirmation hearing, you indi- cated your agreement that insurance has unique features that make it different from banks, and that a tailored regulatory ap- proach for insurances would be inappropriate. And I think it would be devastating to apply the same standards to an insurance company that we did to a bank. So what are you going to do to make certain that insurance companies are not sub- ject to inappropriate bankcentric rules? Mrs. YELLEN. We explicitly decided, when we put in effect our capital rules, to defer their application to savings and loan holding companies with substantial insurance activities and to the other nonbank SIFIs that were designated. We wanted to have a chance to study what an appropriate regime would be, recognizing that there are important differences between the insurance business and banking. We understand that the risk profiles of insurance companies really are materially different and we are trying our best to craft a set of capital and liquidity standards that will be tailored to an appropriate—to the risk profiles of insurance companies. I would say that we do face constraints in our ability to do that because the Collins Amendment requires us to establish consoli- dated minimum risk-based leveraging capital requirements for these entities that are no lower than those that apply to depository institutions. Within that constraint, we are working as best we can to tailor an appropriate regime. Mr. MILLER. I am concerned about the asset designation and how the Fed looks at assets of banks versus assets of insurance compa- nies. Governor Tarullo said, ‘‘The liability structure of a financial in- stitution affects the amount of capital it needs. It doesn’t affect how risky a particular asset is. It doesn’t matter who holds it; an asset is an asset.’’ I guess my concern I would like you to take into consideration is, banks hold assets different than insurance companies do. Insur- ance companies generally buy assets for the long-term. Banks will buy assets for the short-term. So to me, there is a difference in the way institutions hold assets and the difference in the reasons institutions buy assets. So I hope at some point in time you will take that into consideration when VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 35 you are reviewing the asset held by a bank versus an insurance company. But last fall, the Treasury Office of Financial Research (OFR) published a report on asset management, and financial stability, at the direction of the Financial Stability Oversight Council (FSOC). The report recognized that asset managers, as opposed to other fi- nancial institutions, act as an agent on behalf of their clients, whereas investment gains and losses are solely the client’s, and do not flow through to the asset manager. And I am concerned that the asset management firms might be designated as SIFIs and put under bankcentric regulations. I think it would be harmful to the financial sector if that happened. Do you agree with the study that asset management and banks are different? Mrs. YELLEN. I think, of course, they are different. Designation is something that is very important to any company and deserves a very thorough review. If FSOC considers these entities, I think it will be appropriate to do very careful analysis of whether they do pose systemic risk. Mr. MILLER. And as it applies to the regulations imposed on asset managers, should it be tailored to take into account the fun- damental difference between the business of the asset and the management and banking? Do you agree with that also? Mrs. YELLEN. I definitely believe that our supervision and regu- lation should be tailored to the unique features of any entity that we regulate. Mr. MILLER. Okay. I would hope that the Fed, in the future, can try to make it—to create more of a comfortable environment for in- surance companies. Because there has been considerable unease in the industry, as you know, in the past year, over what their future might be. Some have sold off assets, such as they might have held a small bank for courtesy to their clients, because they thought they were going to be dragged into the regulation of the banks. I hope that we can be more clear. I know in your position it is very difficult to be clear sometimes because the market misreads that clarity, but there needs to be some clarity, I believe, for insur- ance companies, so they are not concerned in the future with what their future might be as far as it applies to assets. I yield back. Thank you, Mr. Chairman. Chairman HENSARLING. The gentleman yields back. The Chair now recognizes the gentleman from Massachusetts, Mr. Lynch, for 5 minutes. Mr. LYNCH. Thank you, Mr. Chairman. And, Madam Chair, I want to just start off by welcoming you and congratulating you. And I wish you every success in your—for us— new position. I do have a couple of questions. Recently, a fair amount of atten- tion has been paid to the commodities activities of some of our bank holding companies. For many years, American law and regu- latory framework have recognized that there should be a healthy separation between banking and commerce to ensure that we have the safety and soundness of banks, to ensure fair and equitable credit flows to economically beneficial activity, and also to prevent excessive concentration of power and wealth in the financial sector. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 36 However, over the last 15 years this wall between banking and commerce has begun to crumble with serious negative con- sequences. In July of last year, the global risk manager for MillerCoors tes- tified before the Senate Banking Committee that the commodity ac- tivities of banks cost that company tens of millions of dollars and more than $10 billion for all aluminum buyers globally in 2012. Similarly, JPMorgan Chase, Deutsche Bank, and Barclays re- cently paid fines to the Federal Energy Regulatory Commission (FERC), which has won more than $800 million in civil penalties from banks since 2005, for manipulating electricity and natural gas markets. And then recently, the New York Times documented aluminum warehouses owned by Goldman Sachs that used obscure exchange rules to drum up hefty fees while contributing very little tangible benefit to the economy. What all of this shows is that there is a move away from the tra- ditional business of banking by banks and into more risky and po- tentially more lucrative, but certainly more dangerous, activities that seem to produce very little economic benefit while these banks are chasing profits and exposing themselves to steep fines and swings in commodity prices. So the bottom line for me is, do you support pulling back and getting the banks back into traditional banking business? Do you support restricting or prohibiting altogether these expanded com- modities activities by banks? And what does the Federal Reserve plan to do to curb these abuses? Mrs. YELLEN. We are thoroughly reviewing our supervision in these areas. We have recently put out an advanced notice of pro- posed rulemaking in this area highlighting a number of different issues that we want to consider. We will carefully look at the comments and I expect that we will be reviewing and likely making changes in these areas to address some of these concerns. I would say, though, that the Federal Reserve’s main focus in our supervision of these areas is to make sure that banks operate in the commodities activities in a safe and sound manner. You re- ferred in your remarks to allegations of market manipulation, and I would point out that it is the responsibility of market regu- lators—the CFTC, the SEC, and, in some cases, the FERC—to pur- sue actions with respect to market manipulation. We would, of course, cooperate in any investigation, but they do have primary responsibility. But yes, we are thoroughly reviewing our policies in this area. Mr. LYNCH. All right. That is great to hear. One other quick question: Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the Fed- eral financial regulators issue a rule requiring big banks to disclose the incentive-based compensation agreements for employees who can expose the banks to excessive losses. In other words, an article, I believe, by Gretchen Morgenson in the Times a couple of weeks ago. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 37 Where are we on that? I know you are in the rulemaking process. Do you agree with that approach? And where are we on the rule- making process? Mrs. YELLEN. We did put into effect supervisory guidance with respect to compensation in the banking organizations that we su- pervise. We have engaged in horizontal reviews and I believe there have been improvements in the incentive compensation practices of the organizations that we supervise, and we intend to be active in that area. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from California, Mr. Royce, chairman of the House Foreign Affairs Committee. Mr. ROYCE. Chair Yellen, it is good to have you here. Congratula- tions— Mrs. YELLEN. Thank you. Mr. ROYCE. —on your appointment. I was going to ask you about a speech you gave as President of the San Francisco Fed some years ago. As Chairman of the Federal Reserve there, you made some observations as sort of a warning, a wakeup call to the situation as it relates to the Federal budget deficits not being sustainable. And your words were, ‘‘We began to look at numbers that are truly staggering, frightening.’’ And you were talking about entitle- ments. You said, ‘‘I am concerned that the people take it as a given that they have Social Security and Medicare and support from Medicaid to pay for nursing home care.’’ And you explained, ‘‘Then it was 8 percent of GDP.’’ I think it was in about 2006 that you gave that speech—maybe 2005. You said that looking forward, the numbers showed that it would dou- ble that. It would be 16 percent of our entire GDP that would go to pay for entitlements. Now, I guess we are at 12 today, they tell me. And I was going to ask you about this, because it is a very simi- lar thing that we have heard after former Federal Reserve Chair- man Ben Bernanke retired. He made some comments about this. And also, former Fed Chairman Alan Greenspan. Your thoughts today on this? Mrs. YELLEN. I agree with my predecessors that when you look at these long-run trends—at that time we were looking, I think, over the next 30 to 40 years at, with unchanged programs, an aging population, and at that time health care costs that were ris- ing more rapidly than the general price level. You would see a very, very substantial—I believe I said roughly a doubling of the share of GDP that would go to those three pro- grams without revenues rising in tandem. And of course, that is the key dynamic that underlies CBO’s long-term budget projections that show the United States to be on an unsustainable budget path. And this is something we have known about for decades and— Mr. ROYCE. But this is a question I have, because I am not sure everybody has gotten the message. I heard the leader in the Senate say we have a generation before we have to deal with this. And I guess my question to you is, if we don’t deal with it now in order to bend this curve, what will be the result for young Amer- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 38 icans coming into the workforce a generation from now? What will they face? Mrs. YELLEN. We will face a situation in which rising budget deficits begin to crowd out private investment and begin to lead to an environment of higher interest rates and slower growth, and crowd out productive private investment. And so— Mr. ROYCE. Economists agree with this. Regardless of whether economists are left or right or center, they are all warning us of the same consequence. So the question I have is, is there a way for you basically to sell the American public—because I don’t believe that the public really understands the magnitude of it—in order to bring the pressure to bear to get an agreement that will address entitlement reform? How could you do that? How could you take your job as Chair of the Federal Reserve and go out and explain the consequences of inaction in order to get Washington moving and doing the right thing? Mrs. YELLEN. My predecessors, Chairman Greenspan and Chair- man Bernanke, have consistently testified that these long-run budget trends— Mr. ROYCE. But I am sharing with you— Mrs. YELLEN. —are highly problematic. Mr. ROYCE. I know. We have heard the testimony here. What I am sharing with you is that it is not doing the trick. Somehow, we have to figure out a way to get you, as Chair, out among the public to build support, and maybe with the support of former Fed Chairmen who are saying today what you are saying today, in order to galvanize the political action necessary, because describing the consequences of inaction here isn’t doing it. Mrs. YELLEN. I believe that this is something that is essential for Congress to address, and I anticipate consistently sending this message that this is a critical issue facing— Mr. ROYCE. Anything you can do to figure out a way to turn up the heat and get the facts out to the public on the consequences— people used to live to be 65. It is going to be 85 and they are hav- ing two children instead of four. This has to be addressed in terms of reforms. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Georgia, Mr. Scott, for 5 minutes. Mr. SCOTT. Chair Yellen, welcome. I am over here. Let me just ask you, because I need to ask you if you will be bold. We need bold leadership here. You have a dual mission: fighting price stability, inflation, but employment. That part of the dual mission has always been like a stepchild for the Fed. It has been like a second-class citizen. And we have a national crisis on unemployment. This is riveting. The 6.6 percent figure is misleading. College graduates right now getting out of college is 22 percent. Young veterans is 24 percent, not to count young males at 30 per- cent. One-third of all the working-age women have already slid into poverty. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 39 We need you to be bold. We need you to take us not around the docks with the little boats. We need to you to us out where the big ships go on this issue. And I want to ask you, will you do that? Will you lift this up and make the employment part of your mandate on an equal plateau with fighting inflation? Mrs. YELLEN. Congressman, I strongly support both parts of the Federal Reserve’s dual mandate: price stability; and maximum em- ployment. I have led the committee to produce a statement con- cerning its longer-term policy strategies and goals that puts both of these on an equal footing. And in terms of bold policy, with the economy seemingly stuck looking— Mr. SCOTT. Ms. Yellen, my time is short. I want a yes-or-no an- swer. Mrs. YELLEN. Yes, I will. Mr. SCOTT. Will you lift employment up? This Nation is in trou- ble. We have 50-year-old men who are being laid off in desperate situations. We have jobs being shipped overseas. In other words, what I am saying is we need more than just zero rate interest rates. Your agency is the only one that has the man- date of dealing with unemployment. That is a dual mandate and it has never been dealt with, with the level of importance that it should be. And let me ask you this just to give you an idea: Right now, did you know that legislation has been introduced in this Congress to eliminate your employment mandate away from that? Are you aware of that? Mrs. YELLEN. Yes, I am. I strongly support the Federal Reserve’s dual mandate. Both parts of it, both price stability and— Mr. SCOTT. But why— Mrs. YELLEN. —the employment mandate matter enormously to American households. I think it serves this country well. And there is no conflict—most of the time and especially now—between pursuing both pieces of this. We have acted boldly in order to promote a stronger recovery. Mr. SCOTT. What do you say to Congress? Why would Congress, at this most critical time, when the future of this country is at stake—this is a national crisis—the depth of unemployment when you look at it structurally. And here in this Congress they are try- ing to take away a part of your dual mandate, to eliminate your employment mandate at this critical time. What do you have to say to Congress about that? Mrs. YELLEN. I feel very strongly that the Fed’s dual mandate to focus on both employment and price stability has served this coun- try well. We are committed to pursuing both parts of that mandate and we are doing so. Mr. SCOTT. Chair Yellen, would you make it a part of the Fed’s policy and objectives to fight this legislation, to speak out against this legislation? All I am saying here is that you have a great opportunity here. This country needs leadership on fighting this unemployment—this structured unemployment and every factor. It is a shame that our young people have this rate of unemployment. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 40 Many are giving up. They don’t even calculate that into the workforce where they have given up. And Ms. Yellen, I am so proud of you but I am going to be even more proud if you become that Chair of the Fed to right the wrong and take us— Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentlelady from Minnesota, Mrs. Bachmann, for 5 minutes. Mrs. BACHMANN. Thank you, Mr. Chairman. I also want to thank and welcome to this committee the new Chair of the Federal Reserve. We are extremely grateful for you being here and also good luck on your service— Mrs. YELLEN. Thank you very much. Mrs. BACHMANN. —as the head of the Federal Reserve. We want you to be successful. Mrs. YELLEN. Thank you. Mrs. BACHMANN. We asked our constituents what their number one question would be today. This is an historic opportunity to have a new Federal Reserve Chair and we had a plethora of re- sponses from constituents with questions. But it was interesting that there was a commonality of the ques- tions that came forth. One was really from our financial institu- tions and businesses, and the first was from individual constitu- ents. And so I would like to give you, first of all, the question that we received most from our individual constituents, and it was this: It was you and other opponents of the Audit the Fed legislation who said that it threatens the independence of the Federal Reserve. Could you please point to a specific section of the bill that allows Congress to interfere with the ability of the Federal Reserve to de- termine monetary policy? My constituents absolutely can’t understand why the Federal Re- serve would push back against having the Federal Reserve audited. Mrs. YELLEN. I strongly believe that the Federal Reserve should be audited; it should be open; it should be transparent. We are au- dited. We are audited by the GAO in almost every aspect of our fi- nancial affairs and the programs that we run. We have outside independent accounting firms that audit the Fed. We publish our balance sheet weekly. All of this is completely appropriate. What I don’t agree with and would strongly oppose is interfering with the independence of monetary policy by bringing political pressures to bear on the committee’s judgment about what is the appropriate way to implement monetary policy. We are given objectives by Congress. That is completely appro- priate. We report to Congress. You should hold us accountable and ask us to explain how our policies advance the goals that you have assigned to us. But if you pass a bill that would have the GAO come and take documents, second-guess every decision that we make, or permit them to do that within a short time of our making those decisions and bring political pressures to bear—Congress wisely made the Fed independent in the implementation of policy because it was un- derstood that we sometimes have to make difficult decisions that VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 41 would be hard for the Congress to make in the best long-run inter- ests of the country, and enabling us to make those decisions free of short-term political pressure is critical to maintaining our inde- pendence. Mrs. BACHMANN. Thank you. And I hear what your response is. Our former colleague, Ron Paul, who had introduced the legislation to audit the Fed, contained within the language of that bill there is no section that deals with giving Congress the right to determine monetary policy. If the House and the Senate were to pass the Audit the Fed leg- islation, if the President of the United States would pass that legis- lation—this is very strong bipartisan legislation—if that happened, would we hear from all of you at the Federal Reserve opposition to that bill that enjoys very strong support from the American pub- lic? Mrs. YELLEN. You would hear opposition to that bill because Congress has for many, many years—for decades—exempted from GAO audits our monetary policy decisions, and it is really critical that our monetary policy decision-makings, not other aspects of Federal Reserve operations, remain free of GAO audits. Mrs. BACHMANN. And I think that is part of the reason why we are here in this hearing today, because the American people are feeling less and less empowered to be able to hold the Federal Re- serve responsible and accountable, because they are seeing the Federal Reserve’s balance sheet escalate to a level never before seen in American history. And the people know that eventually they will be the ones called upon to meet the bills and payments that are accumulated by the Federal Reserve. What means do the American people have to hold the Federal Reserve accountable? Mrs. YELLEN. In hearings like this, it is entirely appropriate for you to demand accountability from me and from my colleagues, and that is— Chairman HENSARLING. The time of the gentlelady has expired. The Chair now recognizes the gentleman from Texas, Mr. Green, for 5 minutes. Mr. GREEN. Thank you, Mr. Chairman. I thank the ranking member as well. Ms. Yellen, if you will look over this way—yes, here I am—we are over here. Thank you. And welcome to the committee. Mrs. YELLEN. Thank you. Mr. GREEN. You have acquitted yourself well today. I am sure this will be one of many visits that you will have with us and I look forward to continuing this relationship. We are in our genesis today, but there is much we can do together. I want to ask just two—go into two areas. The first has to do with how much of the 2008 crisis was cyclical as opposed to struc- tural. Because if you apply cyclical remedies to a structural prob- lem, you don’t get the desired results. So have you been able to quantify the amount of it that was cy- clical as opposed to structural? Mrs. YELLEN. When you say that, we had serious problems in the financial sector of the economy. We are certainly trying to put in VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 42 place changes that will make the financial system structurally sounder. But the crisis that resulted from those weaknesses produced a marked downturn in spending in the economy and raised unem- ployment, lowered employment. And much of that shortfall is cycli- cal in the sense that it represents a shortfall of our economy pro- ducing well below what it is capable of. And we have been trying, through our own policies, to boost spending in the economy to create jobs and get the economy back to operating closer at its potential, at its capacity. Mr. GREEN. The theory of expansionary fiscal contraction is one that many of my colleagues have bought into, and it is the notion that if you cut government spending that will stimulate the private sector and create more jobs, more businesses will come into being. Where do you stand on this theory of expansionary fiscal contrac- tion? Mrs. YELLEN. I think the stance of government in the economy and its role in the economy in the long term influences growth. It influences capital formation. Dealing with budget deficits can have a favorable effect on economic growth in the long run. But in the short run, particularly in a weak economy, when gov- ernment cuts spending or raises taxes, it almost invariably has the impact of lowering growth and raising unemployment, and I believe that is what has been going on. Mr. GREEN. Do you think we have reached a point where cutting a loan is not going to give us the desired results? Mrs. YELLEN. My predecessor, Chairman Bernanke, routinely ad- vised Congress to address long-term budget deficit issues, thought it was critical, as I do, to the long-run well-being and functioning of this economy, but to avoid cuts in spending or increases in tax- ation that would diminish the ability of the economy to recover. So, there are ways of addressing long-term budget deficits that wouldn’t weaken the recovery, and I share his view. Mr. GREEN. Thank you very much, Mr. Chairman. I yield back. Chairman HENSARLING. The gentleman yields back. The Chair now recognizes the gentleman from New Mexico, Mr. Pearce, for 5 minutes. Mr. PEARCE. Thank you, Mr. Chairman. And thank you, Chair Yellen, for being here, and congratulations not only on your nomination but the confirmation, so— Mrs. YELLEN. Thank you. Mr. PEARCE. One of the articles refers to you as the champion of Main Street, and I think it is Senator Brown of Ohio who says, ‘‘She will be a Fed Chair who gets out and sees the real economy more and talks to people.’’ I had submitted a request for Mr. Bernanke to come to the dis- trict and we would host a town hall together and I am still waiting on pins and needles for him to answer. And maybe I am giving up that eternal hope now, but I would reissue that invitation to you. Mrs. YELLEN. Thank you. It is much appreciated. I will try to do that. [laughter] Mr. PEARCE. I will start waiting on pins and needles for you. Thank you. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 43 Okay. And the reason that I would make that offer is that in this hearing room there have been references by people sitting at that desk as the seniors as being collateral damage, that the low inter- est rate is acceptable collateral damage. And I would like someone who sits on that side of the table to come out and explain that to the seniors who show up at my town hall meetings who say that, ‘‘We lived our life correctly. We saved. We paid for our homes. And now we are caught in policies that reduce our ability to live on our savings,’’ and they are eating up their principal just trying to get by. And that does not seem acceptable, because many of them don’t have the capability to go back to work. In a previous testimony somewhere, you have said that there are other instruments available. But those instruments bring a higher risk, and the last thing an 85-year-old wants is more risk. They are just looking for that 2 percent or 3 percent coupon that does not exist anymore, and that explanation to them of why, that they should understand that this is for the greater good, sort of runs a little bit thin as they try to pay for increasing costs of food and gas- oline, which don’t show up in our inflation rates because we don’t include them anymore, but the price of both are squeezing the poor and the seniors more than anything else, giving us a de facto war on the poor coming from Washington right now. And that is prob- ably the recurring theme that I see there. Now, I would like to discuss just a little bit of the logic. You said at one point that interest rates are lower because of too much sav- ings. And yet, you have a policy—the Fed has a policy of paying interest on excess reserves, which would be a de facto way of en- couraging more savings. So has any discussion ever come up in the Fed about why are we doing this, why are we paying this if we think there is too much savings? Mrs. YELLEN. The Fed is paying an extremely low rate on inter- est on reserves— Mr. PEARCE. It is higher than zero, though, because zero is what—one quarter of 1 percent is what seniors are getting right now, and so banks can make more than seniors. So again, they see the advantage going to the rich, not to the poor. And again, I just repeat that there is sometimes the appearance of a war on the poor. My district is also very low income. Manufactured housing is a big deal; 50 percent of the homes in my district are manufactured housing. And yet, the QM policy has really made it very difficult for banks to lend on that. I suspect that your staff has made known to you that these pres- sures exist. Have you all discussed that in any greater detail that we would need to look out for the people on the low end of the in- come spectrum? Mrs. YELLEN. Well, QM was a policy adopted by the Consumer Financial Protection Bureau. I think they are trying to address a set of practices that resulted in unsafe and unsound— Mr. PEARCE. Okay. Thank you. Mrs. YELLEN. —lending. But it is very important to monitor their impact on credit availability. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 44 Mr. PEARCE. One of the reasons that we have been able to get by with the QE is that we are the world’s reserve currency. Has the Fed thought at all about what is going to happen when more nations are expressing discontent that we are printing money and that we are devaluing what they are holding, and so we have seen countries trade with other currencies this past year? Any thoughts about what happens if the world says, ‘‘You are not the world’s re- serve currency anymore?’’ Mrs. YELLEN. The dollar plays a critical role in the global econ- omy and it is the Federal Reserve’s job to make sure that inflation remains under control so that the dollar remains a safe and sound currency and can continue to play that role. Mr. PEARCE. Thank you. I have— Chairman HENSARLING. The time of the gentleman— Mr. PEARCE. —the other countries. And I yield back, Mr. Chairman. Thank you. Chairman HENSARLING. Okay. The time of the gentleman has ex- pired. The Chair now recognizes the gentleman from Missouri, Mr. Cleaver, for 5 minutes. Mr. CLEAVER. Madam Chair, thank you for being here. I want to talk consumer spending and jobs. Five percent of our population is doing about 35 percent of the consumer spending. And if you exclude food and energy, consumer spending would rise 1 percent, 2 percent, 3 percent, something in that area? Mrs. YELLEN. The distribution of spending across households is very unequal. Mr. CLEAVER. Yes. So my concern is, so how do we increase con- sumer spending, raise GDP, unless we are able to get a larger share of the population spending? And for them to spend, they need to have some form of income. So what is the impact, or what would be the predictable impact if we had unemployment benefits and a number of other programs that we are—we have backed away from in Congress? Mrs. YELLEN. With respect to unemployment benefits, they cer- tainly were serving to support the spending of individuals who had long unemployment spells and ending those will have some nega- tive effect on spending in the economy and on growth. Mr. CLEAVER. Because they will spend everything they receive? Mrs. YELLEN. More or less— Mr. CLEAVER. Yes. Mrs. YELLEN. —that is true. That is right. Mr. CLEAVER. Yes. Several people have talked about the structural unemployment situation here in the country, but what do you think—6.6 percent, I guess, is unemployment and that is not necessarily good but it is better than what it has been, but I am interested in real unem- ployment, the U6 rate. What do you think it is? Do you have a good estimate? Mrs. YELLEN. The U6 rate includes discouraged— Mr. CLEAVER. Yes. Mrs. YELLEN. —workers and those on part-time. It is substan- tially higher. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 45 Mr. CLEAVER. More than double the— Mrs. YELLEN. It is close to 13 percent, and that is a much broad- er measure of shortfall in our economy from what we would like to see. Certainly, there are discouraged workers, those who are margin- ally attached. We have 5 percent of the workforce that is part-time. For economic reasons, they are not able to find full-time work and so that is a measure that is disproportionately elevated in compari- son with the 6.6 percent or U3 unemployment rate. Mr. CLEAVER. So are there jobs available and people just won’t take the jobs? Mrs. YELLEN. I think there is a shortfall of jobs and hiring in the economy. The rate of hiring remains well below normal levels and there is a shortage of demand in the economy that propels busi- nesses to see that their sales are rising sufficiently to want to take on enough additional workers in order to lower unemployment back to normal levels. And that is what we are trying to address. Mr. CLEAVER. I drove down to the Bootheel of Missouri—I am from Missouri—to speak at an event, and on the way back I stopped at a Chili’s restaurant and there were no waiters or wait- resses coming over to the table. They had a little box on the table and you speak in the box to order your food and then somebody will bring it out, and they give you a certain number of minutes before it is brought out. The point I am making is, we are taking jobs away, and then we are criticizing people for not taking the jobs that don’t exist. Thank you. Chairman HENSARLING. The Chair wishes to alert all Members that I intend to recognize two more Members, after which the Chair intends to call a 30-minute recess. The Chair now recognizes the gentleman from Florida, Mr. Posey, for 5 minutes. Mr. POSEY. Thank you, Mr. Chairman. I originally—and I do want to ask about the volatile three pigs, but the questions by Mrs. Bachmann, I think, deserve a little bit more response. As you well know, Dr. Paul’s legislation to audit the Fed was the most cosponsored bill in the 112th Congress, very bipartisan, passed by an overwhelmingly bipartisan vote, and it did not talk about interfering with the day-to-day management and decision- making of the Fed. It was post-decision-making audits. And seeing where all government and official agencies under our dominion are subject to audit, it just seems very strange that the Fed would object to having the logic behind their decisions and the many other of the litany of items you are exempted from being au- dited for deemed to be reasonable. Mrs. YELLEN. I think if Members of Congress can ask the GAO to come into the Federal Reserve shortly after a meeting where we have made a difficult decision and to perhaps review transcripts and look at the debate that took place around a particular decision, we release transcripts. We release minutes of our meetings. But to come in, review materials and say, ‘‘No, we don’t agree with a decision that was made at the last meeting,’’ will stifle de- bate in meetings and bring to bear short-term political pressures VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 46 in the decision-making in the Federal Open Market Committee, and I do believe that independence of the Federal Reserve in mak- ing monetary policy means that we need some scope for delibera- tion and exercising our best judgment and then explaining to Con- gress and the public what the logic of that was. And the purpose, as I have understood it, of my appearing at a hearing like this, is to give Members of Congress exactly that op- portunity. Mr. POSEY. I understand that. Some of us believe in the old adage, ‘‘trust but verify,’’ and that is what an audit would do. And so, would it be reasonable to assume you would not object to an audit if it was post-30-days or 60-days? Is there a time limit when you would be totally unafraid to be audited in retrospect? Mrs. YELLEN. An audit is different than second-guessing policy judgments that were made by— Mr. POSEY. I am not talking about guessing—we do that as it is now. We don’t agree with all of the decisions you make now. I think that is clear from at least one side of this aisle. But I would just like to think that at some point, the Fed could be audited, like all official Federal agencies, much less one that is not a government agency but has the run of our entire economy. Mrs. YELLEN. This is an exemption that has been granted the Federal Reserve that is central to our independence for decades by Congress and I think— Mr. POSEY. We have changed a lot of policies trying to make it more transparent and accountable. I like to think that government gets less corrupt every day, not more corrupt, and— Mrs. YELLEN. I don’t believe that the Federal Reserve is in any way corrupt, and I believe that the confidence of markets in the Federal Reserve and in our monetary policymaking would not be enhanced by that type of audit. Mr. POSEY. By historically being able to audit things that every other agency is subject to review for but you should not be—let me get over to Basel III. Starting in 2015, Basel III’s liquidity coverage ratio will require enough banks to hold enough high-quality liquid assets to cover net cash outflows for 30 days. The problem is that Basel III’s definition of high-quality liquid assets includes the sovereign debt of vulner- able countries like Portugal, Ireland, Italy, Greece, and Spain. Don’t you think that is a little bit like leading sheep to slaugh- ter? Mrs. YELLEN. We have designed a rule in the United States that would have stricter definitions. It is a minimum. Mr. POSEY. So you think that is not the same as rating agencies with high-risk mortgages as AAAs, which triggered the 2008 crisis? Mrs. YELLEN. What we want is for our banking organizations— we have proposed this in our rule—to hold assets that can be quickly converted into cash. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Colorado, sans his Broncos cap, Mr. Perlmutter, for 5 minutes. Mr. PERLMUTTER. Thank you, Mr. Chairman. And I will wear my Broncos cap next week. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 47 Madam Chair, thank you for your testimony today. I had the pleasure to hear Mr. Bernanke testify a number of times at these very same hearings, and I really appreciated three things about him: one, he is very smart; two, he is very steady; and three, he is not very exciting. And I want to say, you are following in his footsteps. Mrs. YELLEN. Thank you. I appreciate that. Mr. PERLMUTTER. What I would like to talk to you about a little bit is the FSOC and what is happening just in terms of numbers of meetings. Generally, are you concerned about bubbles? Have you seen anything that would cause you some concern? We hear that student loans are awfully high and that may be a difficult issue coming up. And so, can you tell us a little bit about what you see as the role of the FSOC, and how often you all meet? Mrs. YELLEN. I have to say that I am new to FSOC. I have only been in office for 11 days, and I have not attended FSOC meetings previously, but there will be one this week and FSOC does meet regularly. There are deputies and staff who meet very frequently. Clearly, a major focus is to address potential threats to financial stability, to identify those threats, and to assess them. This is something the Federal Reserve is very focused on. We have built very substantially our capacity to assess threats to the financial system. We bring that expertise to FSOC. We also use it in thinking about monetary policy and in supervising the largest institutions. We recognize that in an environment of low interest rates, like we have had in the United States now for quite some time, there may be an incentive to reach for yield, and that we do have the potential to develop asset bubbles or a buildup in leverage or rapid credit growth or other threats to financial stability. So, especially given that our monetary policy is so accommoda- tive, we are highly focused on trying to identify those threats. We could potentially take them into account in monetary policy, but certainly in our supervision and regulation, we would try to ad- dress those threats. Broadly speaking, we haven’t seen leverage credit growth asset prices build to the point where generally I would say that they were at worrisome levels. The stock market broadly has increased in value very substan- tially over the last year. And our ability to detect bubbles is not perfect, but looking at a range of traditional valuation measures doesn’t suggest that asset prices, broadly speaking, are in bubble territory or outside of normal historical ranges. There are a few areas where we do have concerns, but nothing broadly speaking. So student loans, again, you mentioned the growth there has been very, very large. That is mainly government-backed student loans rather than private. And I would say the concern there is this is debt that will be with students for a very long time. If they get into financial difficulties, that debt stays with them. It is important that they be getting a good return for the bor- rowing that they are doing, and it is important that they under- stand what the burdens will be on them when they take out those loans. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 48 Of course, it is very important. Education is critically important. We want to see that. But the burdens are very high, and it is important that the edu- cation that students are getting pay a return and that they under- stand what it is they are getting for the debt that they are taking on. Mr. PERLMUTTER. Thank you. And then, I will just finish where I started. So Mr. Bernanke— very smart, very steady, not very exciting. The markets must agree because the markets are up today. We appreciate your testimony. Thank you for taking on this job. It is still a difficult economy out there even though it is getting bet- ter, and we thank you for being at the helm. Mrs. YELLEN. Thank you, Congressman. Chairman HENSARLING. The time of the gentleman has expired. The Chair now declares the committee to be in recess for half an hour. [recess] Chairman HENSARLING. The committee will come to order. The Chair now recognizes the gentleman from Virginia, Mr. Hurt, for 5 minutes. Mr. HURT. Thank you, Mr. Chairman. And, Chair Yellen, thank you very much for appearing before our committee. Welcome, and I look forward to your tenure. Obviously, we recognize in Virginia’s 5th District how important your task is, and we appreciate your commitment to that task. To tell you a little bit about our district, it is a very rural district in central south side Virginia. It is a district that historically was dependent upon textiles, furniture, and tobacco. It still is a very large agricultural producer in our State and in our Nation. But we have seen hard times with the changes in—especially in manufacturing. And I know as an economist you are well aware of the terrible effects that has had in many parts of our country, and south side Virginia is no exception. We have had over the years—in the last 10 years, we have had unemployment in parts of our district as high as 25 percent, so you can imagine what we really want are jobs, and what we want is a booming economy. And so I guess one thing that strikes me as—and I think we hear it on the other side—we have heard it a few times this morning, and in fact, I think you have even used this word of—the word of inequality, talking about, I think, income inequality, and is that something that we need to focus on? Is that something the Federal Reserve needs to specifically focus on? I would suggest to you that obviously my view is that we need to focus on economic opportunity for all people, for everybody. We want to see that prosperity. And I would suggest that at least what contributes in part to that inequality are one-size-fits-all, top-down policies that come out of Washington that make it more difficult for people in rural and south side Virginia to make it, whether it be an energy policy—on Keystone, for instance, one that is—has—the Keystone policy that has come out of this Administration has been one that has been an obstacle to jobs, not promoted jobs. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 49 If you look at the President’s health care law, again, we see more people in our district who are losing full-time jobs, going to part- time work. Obviously, it is very, very, very difficult for my constitu- ents as a consequence. And I guess what I would ask is, as you take on this new, very important responsibility, can you talk a little bit about your view of the rulemaking that comes from the Federal Reserve? If you look at the Volcker Rule, for instance, and you see that is—was a rule that certainly in the beginning was designed to get at the biggest banks, but because of the TruPS issue, inadvertently perhaps, it ended up affecting a lot of smaller banks. Can you talk about this—the one-size-fits-all mentality that I feel pervades Washington and how that affects our community banks all across Main Streets in Virginia’s 5th district and leads to the inequality, let’s say, of the access to credit from our community banks? Mrs. YELLEN. As a general philosophy, I don’t agree with one- size-fits-all. I think we ought to be designing regulation that is ap- propriate for each institution we regulate, and community banks clearly do not pose the kind of systemic risks to financial stability that the larger banking organizations do. And the kind of super- vision and regulation that is appropriate for those systemically im- portant banking institutions, I think we really want to do our very best to make sure that community banks aren’t burdened with all that regulation. And I know we meet regularly with community bankers, and we have felt it particularly important to do so coming out of the finan- cial crisis. We supervise them. We know they are different. We want to listen to their concerns and understand them, and we are doing our very best to listen and try to tailor an appropriate set of capital requirements and other regulations. Mr. HURT. And from the standpoint of the supervisory role that you play, likewise, we hear from our community banks from time to time that sometimes it feels like there isn’t the responsiveness that is needed; there is micromanagement that prevents them from being able to find a meeting of the minds with them and the cus- tomer, and that is caused by the supervisory relationship. And so I hope, as my time expires here, that you all will continue to make that a top priority— Mrs. YELLEN. I pledge to do so. Mr. HURT. —at the Federal Reserve. Thank you. Mrs. YELLEN. I pledge to do so. Absolutely. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentlelady from Wisconsin, Ms. Moore, for 5 minutes. Ms. MOORE. Thank you so much, Mr. Chairman. And welcome, Madam Chair. It is so wonderful to be able to say ‘‘Madam Chair.’’ And thank you for your indulgence in really sitting through a lot of questions. I don’t remember the former Chair indulging us this way. Maybe things will change after you are here for a time or two. I have some questions. Let me start out with a macroeconomic question. There is a lot of criticism about quantitative easing and the positions that the Fed has taken with that policy, and on the VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 50 other end of the street here, Congress has been engaging in more and more and more fiscal austerity. Is it fair to say that we are kind of working at cross purposes here? On one end, we are forcing really austere cuts, the economy is slowing while you are doing quantitative easing. My friend here coming in the door, it is my thought that we might be able to slow down on quantitative easing if we weren’t forcing such austerity on the economy. Your thoughts? Mrs. YELLEN. I agree. I basically agree with your point. Chairman HENSARLING. Madam Chair, I don’t think your micro- phone is on or you need to pull it closer, please. Mrs. YELLEN. Is that better? Chairman HENSARLING. Yes. Mrs. YELLEN. As an example, over the last year—I’m sorry, dur- ing 2013—the CBO estimated that fiscal drag depressed growth by about a percentage point and a half, which is really a pretty signifi- cant drag on growth. And our policies have been trying to offset that to boost the recovery. So yes, in that sense we have been working at cross purposes. Ms. MOORE. Thank you, Madam Chair. One of the things is that we would like to think that the current high unemployment is just cyclical. Can you tell us, have we reached the tipping point? Are we getting to a tipping point where this could be structural? Mrs. YELLEN. I’m sorry, where it could be structural? Ms. MOORE. Yes. Mrs. YELLEN. We are very much worried about the possibility that it could become structural. Something on the order of 36 per- cent of all unemployment is in long-term spells of 26 weeks or greater, and we know when people are unemployed for that long, they surely must get discouraged. They begin to lose their net- works that enable them to find jobs, they may decide to drop out of the labor force permanently, they may begin to lose the skills that are necessary to find new jobs or, as we can see, employers tend not to want to hire people who are long-term unemployed. And so the notion that something that should be temporary can become a source of permanent job loss is a huge problem for the economy and, of course, for the households. Ms. MOORE. Thank you, Madam Chair. Just quickly, inequality, another thing that is very controver- sial—people think that inequality is just something that should be left to market forces, but would you—is it fair to say that inequal- ity is really very harmful to our future economic growth and job creation, and what tools in the toolkit does the Fed have to address this threat? Mrs. YELLEN. Our toolkit, I am afraid, is more limited than I think what is necessary to deal with these trends. The major contribution that we can make is to try to promote a strong recovery. Many of the unemployed, particularly those with the most serious spells, are lower-income people, and if we can get a good, strong recovery going, not only will they get jobs, firms will probably promote people faster and be more willing to engage in training— Ms. MOORE. Thank you, Madam Chair. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 51 Just very quickly, I am very concerned about the Fed continuing to work with the cross-border solutions on the orderly liquidation facilities, and I am—we have worked on this on my subcommittee and I hope that is a priority of the Fed. Mrs. YELLEN. We are working very closely with foreign super- visors to try to be able to affect a cross-border resolution—those are if, God forbid, it should come to that, but these are challenging issues, but we are very focused on them. Ms. MOORE. Thank you so much. My time— Chairman HENSARLING. The time of the gentlelady has expired. The Chair now recognizes the gentleman from Oklahoma, Mr. Lucas, chairman of the House Agriculture Committee. Mr. LUCAS. Thank you, Mr. Chairman. And, Chair Yellen, it is a pleasure to be with you today to visit a little bit about the pressing issues out there. Sitting on the Agriculture Committee and having worked on what were the 2012 and 2013 and 2014 farm bills, now signed into law, there are several things that we look at in the committee, and some of them are directly or indirectly related to the activities of the Fed. For instance—and not so much an Agriculture-related issue—but the observation from some of my constituents that after the finan- cial problems in 2008, the dramatic downturn in the stock market, and now over the course of the last 5 years, going from losing half its value, basically, back to where it was and a little bit on the positive side—not just that but, for instance, in farmland prices we watched over the course of the last 5 years a rather dramatic ap- preciation in the value of farmland. Now, some might say that part of the rebound in the stock mar- ket reflected the simple fact that the equities should not have col- lapsed that far in value 5 years ago, but—and some would also say that a big part of the takeoff in farmland values reflected the re- newable fuel standard, a new government mandate consuming 40 percent of the crop, driving a demand in price responses that hadn’t been there before. But in both cases it would seem, as an observer—and your opin- ion of course on this, Madam Chair—that once these effects oc- curred, it would seem that both land prices and maybe stock mar- ket values have continued on in a trend that would reflect more than the initial effect of either a rebounding stock market or the effect of the renewable fuel standard. In your opinion, how much effect has quantitative easing, the ef- fort, of course, to try and address the housing market and the Fed- eral financial obligations—how much of that extra money, that li- quidity, has bled over into these other areas? Is part of the rise in land price values attributable to things like the quantitative eas- ing? Mrs. YELLEN. I will not profess to be an expert on land prices, but— Mr. LUCAS. And nobody is, but you are exactly right. Mrs. YELLEN. —I think land prices have been going up at a re- markable rate even before the stock market began to recover, and certainly have caught our attention as an area where we would be VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 52 concerned about valuations. We have been watching that very closely. Mr. LUCAS. But if resources becoming so plentiful spread out into the other parts of the economy away from housing, if it distorts the decision-making process—in the farm bill this time we did away with the old direct payment program, basically taking $4 billion a year out of the farm economy in an effort part of which to address that issue, but if all of this money is churning and once these rates of return that appear to be so dramatically greater than anything else you can invest in—whether it is farmland or the appreciation of stock—I guess what I am asking you is: one, of course, as you noted, the Fed watches all of these things, but when we undo quan- titative easing, what is the effect going to be on things like farm- land prices or stock market prices, for that matter—equities? Mrs. YELLEN. I would agree that one of the channels by which monetary policy works is asset prices, and we have been trying to push down interest rates, particularly longer-term interest rates. Those rates do matter to the valuation of all assets—stocks, houses, and land prices—and so I think it is fair to say that our monetary policy has had an effect of boosting asset prices. We have tried to look carefully at whether or not broad classes of asset prices suggest bubble-like activity. I have not seen that in stocks, generally speaking. Land prices, I would say, suggest a greater degree of overvaluation. Mr. LUCAS. Because from the perspective of a number of us, Madam Chair, the concern about the old analogy about the—put your finger in the balloon and it pops out somewhere else are con- cerns that we would potentially, unintentionally of course, create a bubble similar to what we went through in housing a decade ago, either in farmland prices or somewhere else, and then the con- sequences of that would just be most unnerving. Your predecessor once, in response to a question from me when I asked, ‘‘When will you know to undo the quantitative easing,’’ his response was, ‘‘We will know.’’ And my question then was, ‘‘Well, if you didn’t know when the problem was coming, how are you going to know when the problem is fixed, to undo?’’ So, I appreciate the challenges you face. I certainly wouldn’t want your job. But then it took us 21⁄ 2 years to do a farm bill too. Mrs. YELLEN. We will watch asset prices very closely and recog- nize they can be a sign of excesses that are developing. Mr. LUCAS. Thank you, Madam Chair. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Connecticut, Mr. Himes, for 5 minutes. Mr. HIMES. Thank you, Mr. Chairman. And welcome, Madam Chair. Mrs. YELLEN. Thank you. Mr. HIMES. It is a pleasure to say that. As a guy who grew up with a mom and two sisters, and now lives with a wife and two daughters, it is a real privilege for me to see it here when, after 100 years, the Federal Reserve is chaired by a woman. It is a— Mrs. YELLEN. Thank you very much. It is much appreciated. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 53 Mr. HIMES. I want to follow up on a line of questioning by my friend from Wisconsin and just read you a portion of this—of your report here, which reads, ‘‘Fiscal policy was a notable headwind in 2013 relative to prior recoveries. Fiscal policy in recent years has been unusually restrictive and the drag on GDP growth in 2013 was particularly large.’’ I think you quantified that at 1.5 percent. So my questions are— and I—maybe keep it to a minute or so—unusually restrictive. I wonder what you mean by that. And number two, 1.5 percent of GDP growth given up to unusu- ally restrictive fiscal policy. Can you quantify that for me in terms of number of jobs? Mrs. YELLEN. I guess it is—we are a little reluctant to try to quantify it, but a percentage and a half less GDP growth would, probably over the course of a year, raise the unemployment by sev- eral tenths of a percent. So it is significant. The economy succeeded in growing in 2013 at a reasonable rate, nevertheless, in creating jobs. But presumably, it would have grown faster without that drag. And when you say it is unusually restrictive, I think if you look back historically in periods like this, where we are recovering from a deep downturn and unemployment as as high as it is, the typical stance for a contribution of fiscal policy to growth would be sub- stantially larger, and that is what it means to say it is an unusual drag. It is not only absolutely a large negative number, but it is unusual, given the economic conditions. Mr. HIMES. Thank you. So you did say that several tenths of a percentage point added to the unemployment rate. It is not unrea- sonable, I think, if I am doing the math right, to assume that would equate to something on the order of magnitude of hundreds of thousands of jobs. Is that unreasonable to assume, based on sev- eral— Mrs. YELLEN. I haven’t done the math, but it is probably— Mr. HIMES. Okay, so several hundred thousands worth of jobs that are attributed by the Federal Reserve to the unusually restric- tive fiscal policies, which, of course, are generated in this institu- tion. I appreciate you clarifying that. I have been through—not carefully, but I have been through all 51 pages of this report, and I don’t see mention of something that our chairman identified as a huge drag on the economy—I think he said, ‘‘regulatory costs and regulatory red tape.’’ Am I misreading this, or is there a reason why regulatory costs and regulatory red tape are not identified as a drag on the econ- omy? Mrs. YELLEN. That probably is a drag on the economy. There are certainly studies that suggest that regulation sometimes does de- press economic growth, and it is hard to quantify but it depends on exactly what we are talking about. Mr. HIMES. But in excluding that from this report, did the Fed- eral Reserve make a judgment of materiality perhaps? Or why was the judgment made to, if in fact it does depress employment, not include it in the report? Mrs. YELLEN. We are mainly focusing on macroeconomic factors. Mr. HIMES. Okay. Thank you. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 54 I just had the opportunity to spend a little bit of time with Mark Zandi of Moody’s Analytics, and he suggested or said that he thought you might estimate the employment effects of the mone- tary policy carried out by your predecessor at roughly a million jobs that exist in the face of that monetary policy. Is that a number with which you would agree? Mrs. YELLEN. There are a number of different studies and it is hard to quantify exactly what the effects are, but that is a signifi- cant study. Mr. HIMES. Okay. Thank you. Just in my remaining time, we had the opportunity to speak with the regulators on the topic of the Volcker Rule, which is a rule that I think is a very good idea. It is obviously a very complex rule and I asked, and I will forward my question to you, that I think the success of the implementation of the Volcker Rule will reside large- ly in the ability of the regulators to give timely interpretive guid- ance on what you know is a very complicated internal adjustment they will have to make. So I am hopeful that this interagency group that has been formed will put in place a system to provide rapid interpretive guidance to financial institutions around that very complicated rule, and I will say, again, thank you. It is a privilege to have you here. And I yield back the balance of my time. Mrs. YELLEN. Thank you. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from South Carolina, Mr. Mulvaney, for 5 minutes. Apparently, the Chair doesn’t. The Chair recognizes the gen- tleman from Wisconsin, Mr. Duffy, for 5 minutes. Mr. DUFFY. You were throwing us for a loop here. Thank you, Mr. Chairman. And, Madam Chair, thank you for your testimony today and I ap- preciate your generosity with your time. All of us are grateful for that, especially those of us who are low on the dais. During his last testimony before our hearing—it was in July of 2013—Chairman Bernanke testified that in about 5 years we can expect a spike in our debt-to-GDP ratio, arising mostly from long- term entitlement programs and a bunch of other things, including interest payments on our debt. President Obama has also acknowl- edged that the major driver of our long-term liabilities—and he said everybody knows this—is Medicare and Medicaid and our health spending, and ‘‘nothing else comes close,’’ I think was his quote. So I guess to you, Chair Yellen, do you agree that there are seri- ous economic consequences and risks associated with the failure to address our Nation’s fiscal imbalances? And do you agree with the President and your predecessor that the principal driver of our unsustainable national debt is our long-term entitlements? Do you agree with that? Mrs. YELLEN. I do. Mr. DUFFY. Great. We are on the same page. It is wonderful. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 55 And we also agree that we are not here to address this 5 years from now, or 1 year from now. The real time to address these enti- tlement issues really starts today, doesn’t it? Mrs. YELLEN. It is often difficult to make adjustments in these programs and retirement programs that people count on and re- quire if their adjustments require planning over their lives, and so, yes, it is important to address them earlier. Mr. DUFFY. Right. And address them fairly for those who are in their retirement or near retirement. Mrs. YELLEN. Of course. Mr. DUFFY. But we should, as a body, start to address them. And you would also agree that it is pretty hard, from your position, to address these imbalances through monetary policy. We really have to do them through the legislative process, right? Mrs. YELLEN. Yes. Mr. DUFFY. Now, if you look at long-term entitlement spending, and the CBO’s report that just came out saying that the Affordable Care Act, or Obamacare, is going to cost another trillion dollars over the next 10 years, you have to agree, then, that the Affordable Care Act isn’t bringing us closer to balances in regard to our enti- tlement system; it is actually taking us further away from balance, right? Mrs. YELLEN. CBO was really the agency that has done the greatest, most careful assessment of the fiscal consequences, and I don’t have anything to add to what they have said about the likely fiscal— Mr. DUFFY. So you don’t dispute it but you are not necessarily agreeing with it either. Is that your position? Mrs. YELLEN. That is really their domain of expertise and not ours. Mr. DUFFY. And if we are going to spend an extra trillion dollars on the Affordable Care Act, I would have to imagine that entitle- ment is going to take us further away from balance, but let me move on. One of the concerns I have is the high rate of unemployment, and oftentimes after a downturn we will see pretty aggressive growth and recovery, and we haven’t really seen that in this recov- ery. I think all of us on both sides of the aisle can agree that we wish the economy would grow faster and more jobs would be cre- ated. Our concern also goes to labor participation. It is at a pretty low rate. We wish more people were participating in the labor market. I know we will disagree on this across the aisle, but we are con- cerned that the President’s Affordable Care Act has full-time work defined as 30 hours, and the CBO came out and said it is going to cost 2.3 million jobs—all a concern for us. But specifically, my concern goes to the young in America, the youth, ages 16 to 24. They have an unemployment rate—I think the number is 24 percent, which is really high. And it is this time in a young person’s life when they learn skills to show up on time, how to follow directives of your boss—all life skills that we use to probably move up the economic ladder. I don’t know. I had to bag groceries at the IGA. I don’t know if you had a minimum wage job. I did. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 56 My question is, if we increase the minimum wage for these young workers maybe from $7.25, if we got them up to $12, $13, $15 an hour, would that help create jobs for them in your opinion? Mrs. YELLEN. I think standard economic theory suggests that changing the minimum wage has two effects. It raises the incomes of those people who get the higher wage and have jobs, and it may to some extent discourage job creation. And there are a variety of different studies on how large that effect is, some of them sug- gesting that it is small, but others taking a different view. Mr. DUFFY. So those who keep the jobs get a little better wage, but it is not creating jobs; it may cost jobs. Is that right? Mrs. YELLEN. That is what a range of studies suggest, but differ on the magnitude. Mr. DUFFY. Thank you, Madam Chair. I appreciate it. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Michigan, Mr. Peters, for 5 minutes. Mr. PETERS. Thank you, Mr. Chairman. And, Chair Yellen, first I would like to congratulate you on your historic nomination and your confirmation as the Fed Chair and thank you for appearing with us here today and being so generous with your time. It is not easy to be in the so-called hot seat for as long as you are, so thank you for doing that. We appreciate it. Mrs. YELLEN. Thank you. Mr. PETERS. Just last week, as you know, new data came out showing that 2 years after the Korea-U.S. Free Trade Agreement was passed, we now have a record trade deficit with Korea. In fact, our trade deficit with Korea has increased 56 percent since 2011, which was the year before the trade agreement took effect. And without question, this certainly hurts American manufacturers and American workers. Congress, I believe, can’t ignore the impact of trade pacts on our middle class. I voted against the Korea Free Trade Agreement and I now oppose fast track authority for the Trans Pacific Partnership (TPP) unless that agreement includes some very strong, enforce- able mechanisms to address currency manipulation. I have serious concerns that Japan has been included in the TPP, while maintaining the world’s most closed auto market and having a history of currency manipulation. The yen recently had a 5-year low against the dollar, and today’s monetary policy report notes that the dollar has appreciated sharply against the Japanese yen since October. It is estimated that the recent fall in the yen puts roughly a $2,000 per export vehicle into the pockets of Japan’s automakers, a significant disadvantage for our local companies. Now, I don’t need to tell you that every country certainly has a right to conduct sound monetary policy, but in this increasingly interconnected global economy, monetary policy facilitating the di- rect manipulation of currency, I believe, simply cannot be tolerated. And while it can be argued that Japan’s Abenomics policies are not direct intervention, I believe it is unsustainable. When Japan can no longer continue the policies, I think that they will—you will see, inevitably, a revision to direct currency interventions, a policy that they have used as late as 2011. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 57 So, Madam Chair, it certainly—I think it can be argued that the Fed’s quantitative easing program helped American manufacturers, it has helped boost exports and our ability to compete abroad. How- ever, I am curious to know if you believe that Japanese monetary policy has potentially weakened the beneficial effects of the Fed’s quantitative easing program for the American manufacturing sec- tor and for middle-class families? Mrs. YELLEN. I would say that this is a topic that the G-7 has considered and generally come to the conclusion—one that I agree with—that countries should be allowed to use monetary policy to pursue domestic aims—certainly not to target the value of a cur- rency or to attempt some improvement in their competitive situa- tion, but to address broad macroeconomic concerns. Japan has had almost 20 years of deflation—mild, but chronic and debilitating deflation. And I think it is natural and logical that after such a long period of deflation, the government and the Bank of Japan should want to put in place a set of policies to end that. As you said, in a global economy, economies are interconnected. Monetary policy does have exchange rate impacts. I see the Bank of Japan’s policy is intended, and at least it looks favorable for now—seems to be moving inflation out of deflation territory and to- ward their 2 percent objective. To the extent that the policy is designed to stimulate domestic demand—and it looks like it has raised growth in the Japanese economy—of course, they have continuing problems and the need to put in place policies to address their high debt and budget defi- cits—but to the extent that they are successful and Japan grows more quickly, I think that will be something that will re-down to the benefit of Japan’s neighbors. If Japan has stronger domestic spending growth, there will be benefits throughout the global economy. But there are exchange rate implications of those policies, as well. Mr. PETERS. Certainly, if they have closed markets, even if you have stronger domestic markets but you are not allowing American autos, for example, to be sold in Japan, it really has a detrimental impact. So my question was on the detrimental impact to the United States. It may be good for Japan, but it is bad for the United States. Mr. DUFFY [presiding]. The gentleman’s time has expired. The Chair now recognizes the gentleman from South Carolina, Mr. Mulvaney. Mr. MULVANEY. Thank you, Mr. Chairman. Chair Yellen, it appears that the FOMC has had at least two special hearings over the course of the last several years regarding the debt ceiling. We have the minutes of the October 16th meeting, and I will read part of them to you. It says, ‘‘The staff provided an update on legislative develop- ments bearing on the debt ceiling and the funding of the Federal Government, recent conditions in financial markets, and technical aspects of the processing of Federal payments.’’ That falls on a similar meeting in August of 2011 where the notes reflect the following: ‘‘The staff provided an update on the debt limit status, conditions in financial markets, and plans that VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 58 the Federal Reserve and the Treasury had developed regarding the processing of Federal payments.’’ Both of the minutes that we have from those meetings contain similar language then on the conclusions that the committee re- ceived from the staff and amongst themselves regarding the debt ceiling status at this time, and I will read you the minutes from 2013: ‘‘Meeting participants saw no legal or operational need to make changes to the conduct or procedures employed in currently authorized desk operations such as open market operations, large- scale asset purchases, or securities lending, or the operation of the discount window. They also generally agreed that the Federal Re- serve would continue to employ prevailing market values of securi- ties in all of its transactions and operations under the usual terms.’’ So in light of the fact there have been at least two hearings where the technical aspects or the plans regarding the processing of Federal payments have been raised, and the conclusions in both of those that it would not materially impact the conduct or proce- dures of the Fed, I will ask you a simple question: Is there a con- tingency plan in place regarding the making of Federal payments in the event the debt ceiling is not raised? Mrs. YELLEN. Not to the best of my knowledge. Mr. MULVANEY. Then I will ask you, Ms. Yellen—thank you for that—in the 2011 minutes, which read, ‘‘The staff provided an up- date on the debt limit status, conditions in the financial markets, and, most importantly, plans that the Federal Reserve and the Treasury had developed regarding the process of Federal pay- ments.’’ What were those plans that had already been developed as of at least August 2011? Mrs. YELLEN. We were discussing very technical issues connected with the payment system. For example, would the Treasury put through in the morning ACH payments that they might not have sufficient balances in their account to pay? Mr. MULVANEY. And what would happen in such a circumstance? Mrs. YELLEN. In such circumstances, if they did that banks would receive instructions in the morning to pay customers amounts that the Treasury wouldn’t have in their checking account to make good on, and so their checks would bounce, leaving those institutions in a very difficult situation— Mr. MULVANEY. Are the plans that are referenced in the 2011 hearing in writing? Mrs. YELLEN. There are briefings that staff made to the Federal Open Market Committee when we met about what our plans would be in terms of the responsibilities we have in dealing with finan- cial— Mr. MULVANEY. I understand that, but are the briefings based upon a written document? Are they based on some verbal history at the Fed or the Treasury? Or is there a written plan on these payments? Mrs. YELLEN. To the best of my knowledge, there is no written plan on— Mr. MULVANEY. Given the fact that coming up with a contin- gency plan would have a great deal of impact on calming the mar- kets in the face of a debt ceiling difficulty, do you think it is a good VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 59 idea to develop a contingency plan for prioritization of Federal pay- ments in the event the debt ceiling is not raised? Mrs. YELLEN. That is a matter that is entirely up to the Treas- ury. That is not the domain of the Federal Reserve. Mr. MULVANEY. But you perform the functions for the Treasury through the New York Fed, don’t you? Mrs. YELLEN. We are the Treasury’s fiscal agent. Mr. MULVANEY. If they asked you to do it, could you? Mrs. YELLEN. It is not up to us to develop a plan concerning what bills would be paid. Mr. MULVANEY. If the Treasury asked you to create a prioritization program to put into place through the New York Fed, could you do it? Mrs. YELLEN. I don’t know that we could do that. Mr. MULVANEY. Do you think it would be a good idea to do that? Mrs. YELLEN. Treasury submits to us every day a set of pay- ments to make, and we can either make them or not make them. Mr. MULVANEY. I understand. Let me finish with this, Ms. Yellen. I appreciate that. We have asked for the records from the Fed, from specifics re- lated—identified in the meeting from the New York Fed. The New York Fed has told us we cannot have them until they get permis- sion to give them to us from the Treasury. In light of your earlier comments to Mrs. Bachmann and Mr. Posey regarding Fed inde- pendence, are you concerned about having to ask the Treasury for permission to give information to Congress? Mrs. YELLEN. The Federal Reserve acts as the Treasury’s fiscal agent, and in that case we take instructions from the Treasury and are merely acting as their agent. That is one of our roles, to serve as the fiscal agent of the Treasury. Mr. DUFFY. The gentleman’s time— Mrs. YELLEN. It is not a monetary policy role. Mr. MULVANEY. Thank you, ma’am. Mr. DUFFY. The gentleman’s time has expired. The Chair recognizes the gentleman from Delaware, Mr. Carney, for 5 minutes. Mr. CARNEY. Thank you, Mr. Chairman. Thank you for the op- portunity to ask some questions of the new Chair of the Fed. Welcome, Chair Yellen. Thank you for coming. I know it has been a very long day. We do appreciate your coming twice a year as part of the Hum- phrey-Hawkins Act testimony, and we appreciate your report. I have found these meetings very useful with your predecessor, Chairman Bernanke, and I have asked him each time this ques- tion, which I will ask you, which is, what is the most important thing we can do—we talk a lot here as Members of Congress about our focus on creating an environment where businesses can be suc- cessful and create jobs. What is the most important thing we can do within our purview to help there? We have this debt ceiling clock that—well, it is not running right now, but it has been looming over us. Are there a couple of things in your mind that Congress should be doing or could be doing? VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 60 Mrs. YELLEN. It is Congress’ job to put in place legislation that best advances the economic development of the country. There are a broad array of— Mr. CARNEY. So what are those kinds of things? One of the things that frustrates me is the fact that we have been unable to reach agreement across the aisle on a meaningful fiscal plan that gets our longer-term liabilities under control and makes the kind of investments in the short term that are important for future eco- nomic growth. Do you have any comments there? Mrs. YELLEN. I would agree with that. I think that is one of Con- gress’ most important responsibilities, and my predecessors and I have all emphasized the importance of putting in place budgets that are responsible, not only from a short-term but particularly from a long-term perspective. When we look at the CBO’s 75-year projections and see an unsustainable debt path, that is a great con- cern. Mr. CARNEY. That is the one thing your predecessor used to—he was kind of unwilling to give us policy advice, which I think is probably appropriate, but he would always say that the focus maybe ought to be on doing the things, frankly, that are a little bit harder, in terms of getting particularly health care liabilities over the long term, given the demographics and aging of our population. Your thoughts on that? Mrs. YELLEN. I completely agree with that. I think the combina- tion of demographics are aging and a health care trend and cost trend that has been outstripping other prices in the economy is what leads to long-term deficits and debt that is unsustainable, and so wouldn’t want to give advice on how to deal with that, but this is something— Mr. CARNEY. Deal with it, right? Mrs. YELLEN. —you have known about for decades, and I think it is important to do so—to deal with that. Mr. CARNEY. One of the Fed Governors, Mr. Tarullo, was in here last week, and talked about systemic risk. And one of the pieces of unfinished business from the near financial collapse is what we have or haven’t done with respect to Fannie Mae and Freddie Mac and housing mortgage finance reform. You are buying $85 billion a month of MBS. Do you have any advice to us as to what we should do there with respect to housing finance reform? Obviously, it is a very important part of the economy and— Mrs. YELLEN. I think the time has come. I hope that you will deal with reform of the GSEs. And there are a variety of different ways to do it, but I think the government should make its role and intended role explicit— Mr. CARNEY. More explicit. Mrs. YELLEN. —and make sure that whatever entities are set up to deal with housing finance don’t create systemic risk to the finan- cial system. Mr. CARNEY. Right. Mrs. YELLEN. The mortgage market is highly dependent on Fannie and Freddie at this point to provide credit, and there are uncertainties about what will happen with them. I think some res- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 61 olution of that is necessary to get private capital back in the sector and— Mr. CARNEY. So is it your view that a more explicit Federal guar- antee is important for liquidity and for the mortgage markets? Mrs. YELLEN. I think there are a variety of possible approaches that you can take depending on what you think the role of the Fed- eral Government will be in hard times in the housing market, and it is simply important for Congress to decide what you want to do here and to do it in a way that doesn’t create systemic risk. Mr. CARNEY. My time is running out. Again, I want to congratu- late you for your new position. I wish you well, and thank you for coming, again. Mrs. YELLEN. Thank you. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Florida, Mr. Ross, for 5 minutes. Mr. ROSS. Thank you, Mr. Chairman. And thank you, Chair Yellen, not only for being here but also for your endurance and for agreeing to be here to take questions from all of us. I don’t envy your job because it is quite a balance. Your mone- tary policy has to make sure that we not only allow for enough li- quidity in the markets at an affordable rate, but we also have to make sure that there are those who are reliant upon investment income, seniors predominantly, whose savings accounts can survive in this environment. And when your predecessor was here before, Chairman Bernanke, he talked about the effect on the seniors who have fixed incomes and aren’t concerned about home appreciation; they are more concerned about CD rates, savings accounts, because that is their livelihood, that is their income. Can you comment at all as to any hope or suggestion for those seniors of mine back home who are on a fixed income, who are de- pendent upon not a zero interest rate but at least some return on their investment as being able to allow them to live an affordable life? Mrs. YELLEN. I know that this is a difficult situation for seniors in that position, and I would simply say that our objective is to get the economy moving and into a state of full recovery as rapidly as we can. And when we have accomplished that, rates of return will come back to more normal levels— Mr. ROSS. Do you feel that— Mrs. YELLEN. —and they will see higher returns. Mr. ROSS. —the reduction in the asset buying, do you think that may have a positive impact on some of these fixed-income ac- counts? Mrs. YELLEN. I would say the reduction in our asset purchases in part reflect—importantly, reflect a stronger economy. We see an economy that is now meaningfully recovering, the labor market im- proving, and as that process plays itself out, I think seniors can look forward to higher interest rates; that is our objective. Mr. ROSS. Let me quote you something. There is a commentary that was in The Wall Street Journal just recently by Mr. E.S. Browning, an investment adviser, and he states that, ‘‘If you don’t VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 62 invest in U.S. stocks, the thinking goes, where else are you going to invest? Developing country markets have turned unstable. Eu- rope is struggling. Cash and high-grade bonds offer the tiniest of yields. Many experts consider junk bonds overpriced. Hedge funds are struggling. The Fed is determined to get people investing again by keeping rates down and forcing them to take risks. Anyone who refuses to buy stocks, in other words, is fighting the Fed.’’ So I guess my question is, it seems that the Fed policy is not only affecting my seniors but all investors, and I guess, should we be concerned about families trying to save for college education, be- cause now they are going to be risking—or investing in more risky options? Is that what we see to come? Mrs. YELLEN. Interest rates are low, and they are low not just because the Fed arbitrarily decided to set them at a low rate but because the fundamentals of the economy are generating low inter- est rates that—normally we think of interest rates as reflecting the balance—a balance between savings and investment, the strength of those forces in the economy. And in the aftermath of the downturn, the desire to borrow money for private investment is weak and a reflection of that is low rates. If we were to try to keep interest rates above the levels called for by fundamentals we would have a yet weaker economy, it would be harder to get a job, and the children and grandchildren— Mr. ROSS. But aren’t we already limiting— Mrs. YELLEN. —of those retirees would be coming home even more than they already are to live with their parents and grand- parents because they would find it even more difficult to get jobs— Mr. ROSS. But haven’t we already limited the investment oppor- tunities? Mrs. YELLEN. —and that wouldn’t be good for those seniors. Mr. ROSS. Hasn’t Fed policy already limited investment opportu- nities for many out there, other than leaving for high-risk invest- ments? Mrs. YELLEN. In an environment of low interest rates, there is an incentive to move to higher-yielding investments, and it is im- portant for the recovery of the economy that people be willing to take some moderate risks. Mr. ROSS. Let me ask you really quickly about the SIFIs, because you have talked about this in your opening and on other questions. There seems to be confusion regarding the process involved and what constitutes or designates an SIFI, but there must be some methodology involved. So if a firm is, hypothetically speaking, des- ignated an SIFI, is there some action that they can take to be re- moved to that designation? Mrs. YELLEN. They have absolutely. It is an important—impor- tant for them, and they have the opportunity to have very serious consideration or—before the FSOC and to protest the status and have it reconsidered. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Illinois, Mr. Fos- ter, for 5 minutes. Mr. FOSTER. Thank you, Mr. Chairman. And congratulations, again— VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 63 Mrs. YELLEN. Thank you. Mr. FOSTER. —Chair Yellen. I would like to speak for a moment and ask you a couple of ques- tions about the crosstalk between wealth distribution and offshore capital flows. This is something that is not usually captured in the macroeconomic models that you get a lot of your guidance from, but I believe it is a very important and overlooked effect. It is well-known and appreciated that the middle class has a much lower propensity to consume than high-net-worth individ- uals, so policies that exacerbate the concentration of wealth at the top reduce consumption. And since we are in a demand-limited point in our economy, that is a very relevant fact. But less appreciated is what I believe is the increased propensity of high-net-worth individuals to move their money offshore. You can see this is, for example, hurting China, where the top 1 percent who owns a big fraction of that country is frantically moving their money to safer locations, but I believe it is also true, from what I have been able to dig up, that high-net-worth individuals in North America move their money offshore with a—roughly a third of their investments actually go offshore. This, for example, may be an important explanation for why, for example, the Bush tax cuts created no jobs, that they affected the wealth distribution, but instead of reinvesting that money onshore, it was reinvested offshore. And so I was just wondering, first, do you, when you look at macro models for guidance, look at the wealth distribution and its effects both on consumption and on offshore capital flows? Mrs. YELLEN. Consumption is very important in terms of our forecasting, and so we are constantly trying to understand what the forces are that determine consumption and its growth over time. We have looked to see—research has been done in the Fed and outside the Fed to try to see if we can identify differences—system- atic differences—in marginal propensities to consume across dif- ferent income groups, and I would say the evidence on that—I am certainly aware of the hypothesis that you put forward. I would say the evidence is not crystal clear, but certainly— Mr. FOSTER. In the case of consumption— Mrs. YELLEN. —some prominent people have made the argument that you expressed, that shifting distribution of income has reduced consumption and made it harder for the economy to grow. Mr. FOSTER. I would like to have you look—in addition to con- tinuing to look into that, which I believe is fairly widely accepted, maybe not universally—look at the effect of offshore capital flows, because I think this is also a large effect. And I think both parties tend to have a one-country model in their minds when they talk about changes in things like tax policy, and it is more complicated than that. Second, you had mentioned earlier in your testimony a secular shift in the labor market. And I was wondering if you think or have been considering what we may be seeing as a secular shift in the housing market. And I would also like to congratulate you on your increasing at- tention paid to the housing market in your report, which is—I VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00067 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 64 think we all learned that the housing market was a very big dog in this fight. But what I hear from REALTORS® more and more is that younger kids—or, well, what I think of as kids now—are less inter- ested in—they grew up looking at TV screens; they no longer want a riding lawn mower and a big house in the suburbs. And so, the fraction of our investments that will be made in housing may be going down over time, and when you see the big—what looks to me like a secular shift—I guess it is on page 16, plot 27, the big shift in the housing starts—that it—we may be actually seeing a secular shift in that. And I was wondering if that is a sort of thing you track, because it has big implications if that is the way things are evolving in the country. Mrs. YELLEN. We are looking at that. Household formation has been very low in part because of the weak economy, but to the ex- tent that this shift that you have described exists, we are certainly seeing robust activity in the multifamily sector that if people want to live more in apartments, what may not be single family housing so much, but if they don’t want to own homes and there is a shift in that direction, it may give rise to a greater growth in rental properties than in single family housing. And we are certainly see- ing that pattern in the recovery. Mr. FOSTER. I would just like to encourage you, despite your his- tory in the banking business, to pay a lot of attention to the real estate markets and their health. Chairman HENSARLING. The time of the gentleman has expired. The Chair advises all Members that there are votes currently taking place on the Floor. The Chair will recognize two more Mem- bers, and then recess the hearing. The Chair recognizes the gentleman from North Carolina, Mr. Pittenger, for 5 minutes. Mr. PITTENGER. Thank you, Mr. Chairman. And, Chair Yellen, congratulations to you. I have three daugh- ters and I am encouraged by your success, as I am by theirs. Chair Yellen, I would make reference to your testimony where you stated that the growth in consumer spending was restrained by changes in fiscal policy. Given that a broad tax increase was part of that change in fiscal policy, it seems that reversing some of those tax increases would spur growth and consumer spending. Would you agree with that? Mrs. YELLEN. The payroll tax— Mr. PITTENGER. Yes. Mrs. YELLEN. —cut was ended at the beginning of the year and taxes went up on higher-income households. Mr. PITTENGER. That is right. Mrs. YELLEN. And so, that cut into the growth of consumer spending. That is what we were trying to say there. Mr. PITTENGER. Exactly right. So then, do you believe that if we were to reverse some of those tax increases, that would spur the growth in consumer spending? Mrs. YELLEN. That if you were to reverse them, that would spur growth? Mr. PITTENGER. Yes, reverse the tax increases. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 65 Mrs. YELLEN. Certainly. Mr. PITTENGER. Thank you. Madam Chair, the Fed proposed a rule for comment in December to implement the Dodd-Frank Act limitations and the Fed’s 13(b) emergency lending authority. Chairman Hensarling wrote to Chair- man Bernanke last month to express this concern, and I just want to ask today for your commitment to give this letter your personal attention and to provide a substantive response to that letter be- fore the rulemaking comment period closes out, and to also provide an opportunity for the other Members of the Board to similarly pro- vide their individual views of this letter. Would you do that on our behalf? Mrs. YELLEN. We have put out a proposed—I want to make sure I understand what you are saying. We have put out a proposed rule to implement what is in Dodd-Frank on 13(3)— Mr. PITTENGER. 13(3) the— Mrs. YELLEN. —and we very much welcome comments on that and we will take them into account when we come out with a re- vised proposal—hopefully, a final proposal. Mr. PITTENGER. Chairman Hensarling wrote a letter to Chair- man Bernanke, and in the letter he wanted to give a commitment in that for—just a substantive response to that letter. Would you take a look at that letter of Chairman Hensarling’s and kind of re- spond to that? Mrs. YELLEN. We certainly will, but as I understand it, it is a letter that was submitted as part of the set of comments on and during the comment period on 13(3), and we will collect all of the comments and then consider— Chairman HENSARLING. Would the gentleman yield to the chair- man— Mr. PITTENGER. Yes. Chairman HENSARLING. —since the chairman’s name is being used here? Madam Chair, I sent a letter to your predecessor. We have con- cerns about the 13(3) rulemaking. We have waited for 3 years and what we see now is a rule that largely parrots the language of the statute illuminating essentially very little. And so, the letter goes into much greater detail about our con- cerns. Given that I sent it to your predecessor, I would be happy to send it to you, as well. If not, if you could give it your personal attention, I would be most appreciative. I thank the gentleman for North Carolina for yielding to the Chair. Mrs. YELLEN. I will do so. Mr. PITTENGER. Madam Chair, in just the minute or so we have left, regarding the Volcker Rule, there are five agencies involved. We have talked some about this already. But in this rule there are different positions taken by these agencies that provide for a dif- ferent perspective, and right now the rule that they have adopted, that they have a consistent point of view. What formal or public coordination can you commit to in the future where they would not agree? Mrs. YELLEN. We tend to coordinate, and plan to do so very close- ly with the other financial regulatory agencies. We are accustomed VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 66 to working very closely with them, and I think more broadly, we will try to cooperate and ensure that there is a similar approach to implementing this rule with the SEC and the CFTC as well. Mr. PITTENGER. It is a burdensome challenge, I am sure. We did see a recent report from CBO that we have lost 2.5 mil- lion jobs through Obamacare. Has the Fed done any estimates of job loss as a result of Dodd-Frank in our economy? And could you give us a response if you would anticipate that—looking into that? Mrs. YELLEN. I think it is very difficult to estimate in total what the implementation of Dodd-Frank will mean. On balance, I feel that Dodd-Frank was passed to make the financial system safer and sounder and to avoid— Mr. PITTENGER. Do you think it would be worth that review to see what job losses occurred? Mrs. YELLEN. Well— Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Michigan, Mr. Kil- dee, for 5 minutes. Mr. KILDEE. Thank you, Mr. Chairman. And thank you, Chair Yellen, for being here, and I know others have said this, but having a daughter and a granddaughter who will now grow up in world where the president of General Motors is a woman, and the Chair of the Fed is a woman, it is something to celebrate. And I just want— Mrs. YELLEN. Thank you very much. Mr. KILDEE. —to thank you. Mrs. YELLEN. I appreciate that. Mr. KILDEE. I wonder if you would comment briefly—later today, presumably, the House will vote to extend for another year the Na- tion’s debt limit to ensure that we meet the obligations that we have already made, and I wonder if you might comment on what effect, if any, you think positive action by Congress on the debt limit might be? And I know your staff loves it when you speculate, but if you might speculate on what the effect of the failure of Con- gress to take that action before the February 27th deadline or date set by the Treasury Secretary might have on domestic and global markets, if you could just comment on that subject? Mrs. YELLEN. I think fiscal policymakers should never put our Nation in this situation where there is a risk of defaulting on the Federal debt. It would be an extremely destructive thing to do from the point of view of our economy, of our financial markets, of global financial markets, and even in the run-up to the last debt ceiling crisis we could see the beginnings of market participants beginning to worry and protect themselves and to take steps even in advance of that limit coming into place that could cause us problems in the financial system. So I believe, frankly, it would be catastrophic to not raise the debt limit. Mr. KILDEE. Thank you for that. That is good guidance and I hope that Members of Congress on both sides of the aisle will listen closely to your thoughts on that. I wonder if I might take a different tack for a moment and ask you, in the report that you supplied you do make reference to labor markets, particularly in the context of the dual mandate of the VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 67 Federal Reserve, and I wonder if you would comment on two points: one, you make reference in the document to the length of time that those who have been out of work—basically the long-term unemployed—have had on the economy; and two, you make ref- erence also to the fact that while productivity over the long period has increased, recent gains in wages—in real wages—have not kept up with productivity, despite the fact that we may have not seen productivity gains recently, but over the long term we have cer- tainly seen productivity gains far in excess of what we have seen in real wages. Why are those two factors important in terms of the mandate of the Federal Reserve? Mrs. YELLEN. The fact that we have very long spells of unem- ployment—that almost 36 percent of those unemployed who are in very long spells of 26 weeks or more—really suggests that the job market is not strong enough to be able to provide people with jobs who want to work, which is roughly another way of stating what our employment goal is, and so it is a mark that there is a great deal of slack in the labor markets still that we need to work to eliminate. The fact that wages have not kept up with productivity, for the last number of years we have seen a shift in the distribution of in- come more away from what is called labor share and more towards capital share. And I think it is not fully understood what accounts for that trend, but it is a disturbing trend because it suggests that workers aren’t—even though they are being more productive, their wages in real terms aren’t keeping up with that. And so, it is a very worrisome trend from the point of view of living standards. Mr. KILDEE. I think both are important, and I am glad you in- cluded them. Certainly what Congress and what other policy- makers have to consider is the effect of long-term unemployment, especially on those who are unemployed and are losing unemploy- ment benefits and the effect on wages not keeping up with produc- tivity and having a minimum wage in this country that puts a fam- ily below the poverty wage is something that is not sustainable. And I wonder, just before I close, if I could follow up with you at some point in time—I pursued this line of questioning with your predecessor. The effect of fiscal insolvency in America’s municipali- ties, I think, is a significant issue and I think that it is one that poses a real threat to our overall economy, and I would certainly like to engage the Fed in the question. I think it is something that we are going to have to take on. Chairman HENSARLING. The time of the gentleman has expired. The Chair will now declare a recess pending the conclusion of Floor votes. The committee stands in recess. [recess] Chairman HENSARLING. The committee will come to order. The Chair now recognizes the gentleman from Pennsylvania, Mr. Rothfus, for 5 minutes. Mr. ROTHFUS. Thank you, Mr. Chairman. And let me echo the congratulations to you, Chair Yellen, and thank you for coming today and spending your day with us. Chair Yellen, we have seen the Fed take a leadership role at the FSOC in exercise of its authority to designate systemically signifi- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 68 cant financial firms. What we have unfortunately not seen is any transparency on how the SIFI designation process works. During your confirmation hearing, you committed to Senators Tester and Warner that you would provide more transparency in this area. What have you done to make that process more trans- parent? And will you commit to demanding that the FSOC provide guidance to firms being considered for SIFI designation with a clear indication of what they could do to ensure that they will not be so designated? Mrs. YELLEN. Let me first say that my first FSOC meeting is on Thursday, so I haven’t been very involved to this point. But the FSOC, as I understand it, has come out with this set of criteria— metrics that they are using when they consider designation. When they have designated firms I think they have provided—their Web site is full of information on those firms and the analysis that was done in connection with designation. Certainly, if FSOC decides on additional criteria or uses other criteria or develops other metrics I think it is completely appro- priate that they should be made public so that the public under- stands what the criteria are that are being used. And in that sense, I certainly will support having FSOC provide the public with ade- quate analysis both of the criteria that they are using for designa- tion and the analysis that they have done that supports the deci- sion to designate particular firms. And I should say that those firms have many opportunities to have hearings before FSOC. It is obviously very important to them—designation—and they are given extensive opportunities to appear before FSOC groups and question analysis and— Mr. ROTHFUS. Thank you. I want to talk a little bit about stress testing. You have pre- viously expressed your support for stress testing banks using ex- treme worst-case scenarios, such as those seen in recessions occur- ring decades ago which are highly unlikely to recur. Wouldn’t it also be appropriate to stress test the Fed’s exit strat- egy for QE to estimate the exit strategy’s effect on the Fed’s ability to fulfill its mandate as well as the Fed’s balance sheet, the upper ranges of interest on excess reserves the Fed might be required to pay, and how increases in the Federal funds rate might impact the relationship between the government’s interest payments on Treas- ury obligations and the deficit? So again, I am looking for a com- mitment to stress testing what is going on with the Fed and the withdrawal from a QE Mrs. YELLEN. We of course do extensive analysis of our balance sheet under alternative scenarios, both about what exit would look like and under alternative interest rates scenarios. And an update of a paper by a Fed staffer by the name of Seth Carpenter and his colleagues, which came out in September, provides a great deal of that analysis. It shows, for example, what would happen if there were an in- crease in interest rates of a couple hundred basis points higher than what markets are assuming to be most likely. And that, of course, is important analysis and we have purposely put it in the public domain. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 69 But I must say that our ability—you refer to our ability to achieve our dual mandate. I see no reason why our ability to achieve our dual mandate or to conduct monetary policy— Mr. ROTHFUS. One of my concerns is, I consider it a distorting effect that QE has had, for example, on the bond market. Have you considered the value of the securities held by the Fed, what would happen in the event of an interest rate spike, for example, what if the securities held by the Fed dropped by 2 percent—the value of them dropped because of interest rates going up? Mrs. YELLEN. That is exactly what we have looked at, and I would urge you to have a look at the Carpenter paper, where we analyze what the impact would be on our balance sheet and our re- mittances. Mr. ROTHFUS. Thank you. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Ohio, Mr. Stivers, for 5 minutes. Mr. STIVERS. Thank you, Mr. Chairman. Chair Yellen, thank you for being here. Congratulations on your sort of record-breaking appointment to be the Chair of the Fed. I want to thank you very much for your time today. You have given us an extended amount of time. I also want to thank you for your candor. I think your answers have been very honest and you haven’t tried to pull any political punches. You have just told it like it was, and I appreciate that. Mrs. YELLEN. Thank you. Mr. STIVERS. I want to ask you a couple of questions, one about sort of the business of insurance. As you know, since the McCarran-Ferguson Act in the 1940s, the States have really regu- lated the business of insurance and the Federal Government has had a very, very limited role in insurance. And now that we have Dodd-Frank and some big insurance com- panies are—could be and are being demonstrated as systemically important financial institutions, they come under the Fed’s pur- view. And because of the limited amount of insurance expertise at the Fed, it gives me some cause for concern. And I guess I am curious, I want to make sure you don’t impose sort of bankcentric capital standards on insurance company SIFIs, because frankly, they have a different role. Their investments are for a purpose. They focus on the maturities based on their needs. So, I am really worried about the capital standards you might impose, and I am curious, first, what your timetable for making any ruling on insurance company capital standards might be; and second, if you will work with industry experts and the State-based regulators to get their input, because they know the industry better than folks at the Fed? I have lots of respect for folks at the Fed and your experience in the financial markets, but because of the limited exposure on insurance, I am curious if you will work with those State regulators and some insurance experts and try to defer to some of their opinions, including Mr. McRaith, with the Federal Office of Insurance? Mrs. YELLEN. We have consulted with others with greater insur- ance expertise. And of course, we are building our own expertise as is appropriate. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00073 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 70 But we absolutely recognize that it is important to tailor rules to the specific and different business model of insurance companies. They are not the same as banking organizations. We recognize a number of special issues, including the long-term nature of most in- surance company liabilities, the fact that they have asset liability matching practices, risks associated with separate accounts, and so forth. Mr. STIVERS. Can you update me on what you think your timeline will be there? Or do you know yet? Mrs. YELLEN. I am not certain exactly. I— Mr. STIVERS. Okay. Maybe you can get back to me when you know or— Mrs. YELLEN. —can get back to you on what our timeline is. Mr. STIVERS. That would be great. Mrs. YELLEN. But I do want to say, though, that in spite of the fact that we understand they are special, and we want to tailor an appropriate regime, there are some limits to what we can do. The Collins Amendment requires us to establish a consolidated min- imum risk-based capital and leverage requirements for these hold- ing companies that are no lower than those that apply to insured depository institutions, and— Mr. STIVERS. Sure, and I understand that. And if we can move on, because I have limited amount of time. Mrs. YELLEN. Sure. Mr. STIVERS. You referred earlier to employment and your con- cern that there are changes in employment going on—some people are moving more to part-time. There have been a lot of people who have given up. Unemployment stayed steady at 6.6 percent. But I am worried you are using the wrong look at unemploy- ment, the traditional view. Because of all the changes going on, shouldn’t you look at U6 for your view of what full employment is, because it takes into account the underemployed and people who have given up? Mrs. YELLEN. We are absolutely looking at U6. We see that, for example, the extent of part-time employment for economic reasons is unusually elevated. You see that— Mr. STIVERS. And it is going to increase, so I hope you will take a look at what is appropriate and— Mrs. YELLEN. Absolutely. Mr. STIVERS. —consider that. And I am running out of time, but the last thing I want to ask you about is—and you may not be able to say this because I don’t— you may not want anybody to think you are trying to grab power, but if we were going to redo our regulatory framework—we had an- other chance to re-look at it—wouldn’t it make sense, whether it is the Fed or somebody else, to have one systemic regulator and then functional regulation regardless of who you are, regulate you based on what you do, and then one systemic regulator that sort of de-conflicts things? We had six regulators in here last week about the Volcker Rule and it is very confusing where there could be contradictory things that different enforcers of the same rule say. Don’t you think that would be a better way to regulate? VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 71 Mrs. YELLEN. There are pros and cons and Congress has consid- ered this. We certainly have a complex system and I would agree that sometimes coordination is quite challenging. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Florida, Mr. Mur- phy, for 5 minutes. Mr. MURPHY. Thank you, Mr. Chairman. And, Chair Yellen, thank you for your time. It has been a long day for you. Thank you for sticking it out for us. The collapse of the housing bubble and resulting financial crisis devastated the global economy and cost Americans $17 trillion worth of wealth. Many have assigned responsibility for low interest rates and lax capital and leverage standards to the Federal Re- serve and then Chairman Greenspan. While I do not believe the Fed caused the crisis, its policies certainly helped fuel the bubble. In June 2009, you said that higher short-term interest rates might have slowed the unsustainable increase in housing prices. With the benefit of hindsight, would measures to slow the housing bubble have been appropriate? Mrs. YELLEN. Certainly, the collapse of housing in the bubble was devastating and at the heart of the financial crisis, so of course, yes, with the benefit of hindsight, policies to have ad- dressed the factors that led to that bubble would certainly have been desirable. I think a major failure there was in regulation and in supervision, and not just in monetary policy. So I would say going forward, while I certainly recognize, as do my colleagues, that an environment of low interest rates can incent the development of bubbles and we can’t take monetary policy off table as a tool to use to address it, it is a blunt tool. And macro- prudential policies—many countries do things like impose limits on loan-to-value ratios, not because of safety and soundness of indi- vidual institutions but because they see a housing bubble form and they want to protect the economy from it. We can consider tools like that, and certainly supervision and regulation should play a role and their more targeted policies. Mr. MURPHY. The reason I ask is, would you be willing and open to pushing for policies to prevent another catastrophe if it means slowing or deflating an asset bubble? And as a sort of follow-up to that, are you seeing any bubbles out there now or anything you are concerned about? Mrs. YELLEN. Nothing is more important than avoiding another financial crisis like the one that we just lived through, so it is im- mensely high priority for the Federal Reserve to do what we can to identify threats to financial stability. One approach that we are putting in place, in part through our Dodd-Frank rulemakings, is simply to build a financial system that is much more resilient to shocks. The amount of capital in the larg- est banking organizations has doubled. We do have a safer and sounder system, and that is important. But detecting threats to financial stability—we are looking for those threats. I would say my general assessment at this point is that I can’t see threats to financial stability that have built to the point of flashing orange or red. Mr. MURPHY. Okay. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 72 Mrs. YELLEN. We don’t see a broad-based buildup, for example, in leverage or very rapid credit growth. Asset prices generally do not appear to be out of line with traditional metrics. But this is something we are looking at very, very carefully. Mr. MURPHY. Okay. I have about a minute left. Wall Street reform designated bank holding companies with com- bined assets above $50 billion as SIFIs and therefore enhanced su- pervision. Is asset size alone the best way to measure a bank’s sys- tematic importance? Mrs. YELLEN. No. We have a whole variety of different metrics. And we strive to differentiate within that category of $50 billion and above and the largest banking organizations. For example, we have singled out the eight largest bank holding companies for higher capital requirements, supplementary leverage ratios. Those things do not apply to the $50 billion banking organi- zation. We are trying to tailor our regulations even within that $50 billion and above category and certainly below it. Mr. MURPHY. Could you just touch briefly on some of your efforts regarding examination processes that you are doing with some of the smaller community banks to ensure that you get the right in- formation, but that you are not burdening some of the community banks—some of your efforts? Mrs. YELLEN. First of all, we have formed a new organization called the Council of Community Banks (CDIAC), that we meet with 4 times a year to understand their concerns, and we have a special new committee of the Board to focus on issues with commu- nity bank supervision. So we are listening and we are trying to be very sensitive and attentive to those concerns. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Kentucky, Mr. Barr, for 5 minutes. Mr. BARR. Thank you, Mr. Chairman. And thank you, Madam Chair. Congratulations on your appoint- ment. And again, thank you for your generosity with your time, particularly for us who are at the end of the line of questioners. Madam Chair, you have stressed in your written and in your verbal testimony here today the Fed’s statutory mandate of max- imum employment. Should the objective of U.S. fiscal policy also be to maximize employment? Mrs. YELLEN. Fiscal policy has many different objectives. It af- fects the economy in a whole variety of different ways. And so, I wouldn’t have stated that is the main goal of fiscal policy, but it is a goal that fiscal policy should take into account. Mr. BARR. Last week, as you know, the Congressional Budget Of- fice issued this report, and that report projected that the Presi- dent’s health care law—Obamacare—will reduce the size of the U.S. labor force by 2.5 million full-time equivalent workers over the next decade. That is about triple what the CBO originally projected after the Congress passed Obamacare 3 years ago or 4 years ago. In commenting on that report, CBO Director Elmendorf testified that the Act creates a disincentive for people to work, and it does this against a backdrop where the labor force participation rate is already the lowest it has been in 35 years. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 73 The White House responded to this bad news by claiming that 2.5 million Americans leaving the workforce was actually a good thing, saying that these people would no longer be ‘‘trapped in a job.’’ My question to you is, I think, a pretty straightforward one: Is a shrinking workforce a positive or a negative development for the economy? Mrs. YELLEN. It has different effects. I don’t think there is a sim- ple answer to that question. In the CBO analysis, they focused on this not being a matter of creating unemployment, but of people withdrawing from the labor force. And there are some good and bad aspects to that. Mr. BARR. Let me ask you the question this way: It is the statu- tory mandate of the Fed to maximize employment, so why would it be a complex question? Why shouldn’t the goal of U.S. fiscal pol- icy be equally dedicated to maximizing employment, and shouldn’t this concern all of us? Mrs. YELLEN. I think the CBO recognized when they produced this analysis that the effects of this Act are extremely complex, and while it has effects on labor supply, the Act also may have an ef- fect, for example, on the growth of health care costs, and a number of different impacts on the growth of economy over time that go in different directions. Mr. BARR. And, Madam Chair, will a declining labor force—how would that impact deficits? Mrs. YELLEN. I am not sure. It is not— Mr. BARR. Okay. Let me move on to a different subject. Just as an economist and also as Fed Chair, as you assess the fiscal health of the Nation, which is a more meaningful statistic for you, the total debt figure or the ratio of debt-to-gross domestic product? And why would you choose one or the other? Mrs. YELLEN. I would look at the debt-to-GDP ratio both cur- rently and its projected path over time under assumptions that cur- rent policies continue. I think you can’t assess the debt of an econ- omy in how if you were looking at the debt of a household you would need to assess it to know what the household’s income is, what is a bearable or serviceable level of debt, given the income of the household or the economy. What is important here is that according to any projection, par- ticularly the CBO’s over a longer horizon, the U.S. debt is unsustainable relative to GDP. Mr. BARR. I appreciate your comment and your testimony there. I have introduced legislation that would replace the existing debt ceiling law with a new debt ceiling that ties the new ceiling to a declining debt-to-GDP ratio, so I appreciate the testimony. One final question: I often hear the argument that quantitative easing effectively enables our fiscal deficits by lowering the cost of borrowing for the government and by artificially fueling the market for U.S. Treasuries. Is there a reason to be concerned that QE crosses the line from monetary to fiscal policy because it implicitly finances government? Mrs. YELLEN. Not in my opinion. I believe the Fed is focused on its mandate that was given to it by Congress, namely maximum VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00077 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 74 sustainable employment and price stability, and I think you should hold us accountable to meeting those goals. Mr. BARR. Thank you. I yield back the balance of my time. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty, for 5 minutes. Mrs. BEATTY. Thank you, Mr. Chairman, and Ranking Member Waters. First, let me say to Chair Yellen that I certainly join my col- leagues in congratulating you, and to also say it is quite an honor on this historic day for me to have the opportunity to pose ques- tions to you. My first question is somewhat similar to Congressmen Meeks and Clay as they talked about diversity and minority participation. Certainly, as you and your staff will know, in the 2013 GAO re- port it talked about the decline of diversity representation. But on a very good note, when you look at what Dodd-Frank did to create the Office of Minority and Women Inclusion (OMWI), which is an avenue that will allow women and minorities to be more included not only in supplier development, but also in policy making. Thanks to Congresswoman Waters, she has allowed me the op- portunity to meet with the OMWI directors throughout your area. So my question as it relates to that is, how will you help to pro- mote and to elevate OMWI within all of the divisions? Mrs. YELLEN. The divisions at the Federal Reserve? Mrs. BEATTY. Yes. Mrs. YELLEN. So we have a very active program intended to pro- mote diversity and bring in minority-owned businesses and women- owned businesses as suppliers. We have incorporated supplier di- versity language into all of our contracts. We are now requiring that contractors confirm their commitment to equal opportunity in employment and contracting, fair inclusion of minorities and women in the workforce. We are engaged, both at the Board and in the Federal Reserve Banks, in a number of different programs to attract an increase in employment of minorities and women, and we are tracking our suc- cess. In the Board, at the officer level, we have increased our staff. I believe the last year for which we have full data in 2012, there are seven new officer positions and six of them were minorities. And female representation in the manager and officer ranks has also in- creased. We are taking many of the steps, including affiliations with re- cruiting organizations that are heavily minority-based, in order to improve our networks from which we can hire. And we are trying to understand what best practices are in this area and to move for- ward vigorously. Mrs. BEATTY. Okay, thank you. Let me try to quickly shift gears. In your confirmation hearing, you indicated your agreement that the insurance industry has unique features that make it different from banking, and you agreed that a tailored regulatory approach for insurers would be appropriate. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 75 One of the things that my constituents are asking is, how could the Federal Reserve develop a timetable for rulemaking for insur- ance companies subject to Federal Reserve supervision, and how would you ensure that the Federal Reserve works with the indus- try and other insurance experts to develop an insurance-based cap- ital framework? Mrs. YELLEN. We have been working very hard to understand the special characteristics of insurance. We are personally taking our time to develop standards so they can be tailored to the needs of the industry. We are consulting with experts in the insurance industry and building our own expertise. And we are committed to devising an appropriate regime that is different than that we apply to banks and that recognizes their special features. I will say again, though, that the Collins Amendment is con- straining in terms of what we can do in terms of capital and liquid- ity requirements. Mrs. BEATTY. Thank you very much. And let me just end by again thanking you for being so generous with your time today and for having such stellar answers. I am a big fan of when women succeed, America succeeds, and you are cer- tainly setting the light for women across this Nation. Mrs. YELLEN. Thank you, Congresswoman Beatty. Mrs. BEATTY. Thank you. Chairman HENSARLING. The time of the gentlelady hasn’t— Mrs. BEATTY. I yield back. Chairman HENSARLING. —quite expired, but it has now. The Chair now recognizes the gentleman from Arkansas, Mr. Cotton. Mr. COTTON. Ms. Yellen, thank you very much for staying all day with us today, and congratulations on your recent confirmation. Mrs. YELLEN. Thank you. Mr. COTTON. At a hearing with your predecessor, Mr. Bernanke, my mother sent me an e-mail in the middle of the hearing. My mother is a retired school teacher and my dad is a Vietnam veteran and a farmer. And my mom said, ‘‘Tell Mr. Bernanke that we would like some more interest on our savings.’’ And this is something I hear from my constituents a lot in my rural Arkansas district in places like Hot Springs Village, on one of the biggest plan retirement communities in the country of large- ly middle-income retirees who are prudently investing in things like CDs and money market accounts and other fixed-income inter- ests and falling behind because of the low interest rates of the last 5 or 6 years, and feel that it would be unwise to invest in riskier assets that are more suitable for younger people. So I had some questions about that but I think maybe the best way to raise them is through this video that retired Navy Com- mander Joe Fahmy has made expressing some of the same con- cerns, so if we could roll the video? [Begin video clip.] ‘‘Mr. FAHMY. My name is Joe Fahmy. I served in the Navy from 1960 to 1983, with 3 combat tours to Vietnam in 1968, 1969, and 1972, and the Arab-Israeli War in 1973. Then in civilian work, I developed defense electronic systems for 25 years. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00079 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 76 Now, semiretired, I use my experience to help other companies grow and to supplement my retirement income. We have three chil- dren, plus a foster daughter from Vietnam, and nine grandchildren. In retirement, our financial obligations include ourselves as well as our son, age 52, with Downs Syndrome, living with us in Arling- ton, and our daughter and our high-school-aged granddaughter in another State, as our daughter lost her job and her apartment in 2007. I am still working at age 76 because our family savings were rav- aged in the stock market collapses of 2000 and 2006. Now, having recovered much of our losses from the previous two downturns, there is talk of another successive bear market, as many big money investors have recently taken their profits. At age 76, it is very stressful to endure the Fed’s easy money policies. On the Fed’s current course, our retirement savings will not be restored until I am age 83, assuming I can continue contrib- uting to our retirement accounts. Perhaps then, I can retire. Chair Yellen, many seniors who are living on fixed incomes from CDs and money market funds are suffering. When Chairman Bernanke was asked about these concerns, he always changed the subject to talk about younger workers or home prices. What will you do to address our concerns? And will you commit today to attend a town hall meeting of retired seniors later this year to hear from folks who share these concerns?’’ [End video clip.] Mr. COTTON. I can’t ask it any better. Mrs. YELLEN. The concerns are very well-expressed, and of course they are very valid concerns, and I would like to see retirees earn more on their safe investments. I believe that if we get the economy back on track—after all, in- terest comes from earning returns on investments even in a bank. The bank tends to pay more for deposits and pay higher interest when its investments are faring better, and in a stronger economy that will be more possible. So I would very much like to see inter- est rates go up. He did note, however, that he has a daughter who lost her job, and I think it is also important to remember that an individual who is a retiree also has children and grandchildren. His daughter lost her job. We are trying to make it possible for his daughter to regain employment and for the grandchildren, when they graduate from school, to enter a healthy job market He also noticed— Mr. COTTON. Can I reclaim my time, which is running out? In the meantime, though, focusing specifically on these seniors who do depend on these fixed-income instruments, is the harm caused to them just a necessary byproduct of the Federal Reserve’s current monetary policy? Mrs. YELLEN. Congress has assigned to us the objectives of max- imum employment and price stability. We are not at maximum em- ployment. Inflation is running below our 2 percent longer-run ob- jective. So I would say that those conditions dictate an accommoda- tive policy. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 77 Mr. COTTON. Thank you. And to follow up on the town hall invi- tation, they would love to have you in Hot Springs Village in Ar- kansas and I would love to host you. Mrs. YELLEN. Thanks for the invitation. Chairman HENSARLING. The time of the gentleman has expired. The Chair now recognizes the gentleman from Washington, Mr. Heck. Mr. HECK. Thank you, Mr. Chairman. Chair Yellen, thank you so much for being here. Mrs. YELLEN. My pleasure. Mr. HECK. I have heard several adjectives attached to you today: intelligent; articulate; plain-speaking; and, not very flatteringly, unexciting— Mrs. YELLEN. That is good. Mr. HECK. —to which I would like to add, possessing an extraor- dinary amount of stamina. Mrs. YELLEN. Thank you. Mr. HECK. No, the gratitude is all ours. Mrs. YELLEN. Thank you. Mr. HECK. As has been noted, your current policy is to purchase both Treasuries and mortgage-backed securities. And that has been going on for a while. In your report I note that you even call out the fact that mortgage rates are probably lower than they would have otherwise been as a result of this policy. Mrs. YELLEN. Yes, I think so. Mr. HECK. So are you considering targeting other sectors of our economy? Mrs. YELLEN. I wouldn’t say that we are targeting housing as a sector of the economy. It is an important sector. In the past it has contributed a good deal to recoveries, and it would be nice to see housing get back on its feet. It would contribute to the recovery. But generally I would say our policies are designed to lower longer-term interest rates on a broad range of private assets. Mort- gages, yes— Mr. HECK. So, Chair— Mrs. YELLEN. —corporate borrowing— Mr. HECK. —that begs a couple of observations and questions. First, why would you call it out in your report if you weren’t tar- geting it? Second, are you saying that it would not have been pos- sible to lower overall interest rates by just lowering the—or just by purchasing Treasuries? Mrs. YELLEN. I would say that by purchasing Treasuries, we would bring down interest rates throughout the economy, not only on Treasuries, on mortgages as well. Mr. HECK. Okay, then— Mrs. YELLEN. Probably we have a slightly bigger impact on mort- gage rates by buying mortgage-backed securities. Mr. HECK. Then, with all due respect, if it walks like a duck and quacks like a duck, it seems to me that there is some targeting going on. Here is where I am going. Mrs. YELLEN. Okay. Mr. HECK. I have long wondered why it is the Fed couldn’t target another sector of our economy that cries out for it, and that is in- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 78 vestment in infrastructure. In fact, in the 1970s, as has been noted in this committee, the Fed purchased the bonds that helped build the DC Metro, so I know that there is a precedent for that having occurred. And I know, looking around for help—true statement, Madam Chair. And the fact of the matter is the evidence about our infrastruc- ture deficit, the evidence about what kinds of increase in both short-term and long-term jobs would be created, it seems to me is at least as strong a case as it is for targeting mortgage-backed se- curities and the resultant salutary effect on housing industry. What would you need in order for the Fed to positively consider doing this again, as occurred in the 1970s? Mrs. YELLEN. Our desire is to stimulate interest-sensitive sectors of the economy; pushing down interest rates does that. Our author- ity that the best of my knowledge for the Federal Reserve is to buy government- and agency-backed debt and nothing else. Mr. HECK. So if we have— Mrs. YELLEN. I am not aware of any authority that we would have to buy—for example, I am not sure what kind of bonds you are talking about, but we buy government and agency debt in the open market and we are not allowed to buy a broader range of as- sets, to the best of my knowledge. Mr. HECK. But if your dual mandate, which I support whole- heartedly—in fact, I am not going to have time to ask the question what the world would look like if they took away the keep unem- ployment down mandate, which I find, frankly, unfathomable—but if your mandate is to reduce unemployment and the evidence is so empirically overwhelmingly strong in favor of the rule of improved infrastructure, both short-term and long-term, why wouldn’t you put some of these large numbers of people to work at—what would we have to do in order to be able to purchase bonds? Would it require a national infrastructure bank? Could you just work with banks in some kind of direct way, where you backed their purchase of infrastructure bonds? Mrs. YELLEN. I am not aware of any authority that we would have under existing law have to pursue that avenue, but if Con- gress is interested in doing that, that is something you could cer- tainly think about. But I am not aware of any authority that we have. Mr. HECK. Thank you. Chairman HENSARLING. The time of the gentlemen has expired. If there are any Members who are not presently in the hearing room who are listening, notwithstanding the Chair’s generous offer to stay, it has been quite some time after votes on the Floor. It is my intention to excuse the Chair of the Fed at 4 o’clock. The gentleman from Minnesota got in under the wire, and per- haps one other. The Chair now recognizes the gentleman from Minnesota, Mr. Ellison, for 5 minutes. Mr. ELLISON. Chair Yellen, thank you so much, and congratula- tions. Mrs. YELLEN. Thank you. Mr. ELLISON. I only have one question for you, and the question is this: You have made the point that there are limitations to what VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00082 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 79 monetary policy can do to help put Americans back to work and im- prove the economy, but if you had a magic wand and you could pre- scribe what we should do to lower the unemployment rate, to put our economy on a healthy trajectory, what would it be? Mrs. YELLEN. You are asking me what more broadly could be done? Mr. ELLISON. Yes. Mrs. YELLEN. I think Congress can certainly consider any num- ber of measures that— Mr. ELLISON. Like what? Mrs. YELLEN. Training measures, job creation measures, a num- ber of measures to deal with the skills gap and other factors that are related to stagnant real wages, especially in the lower part of the income distribution. Mr. ELLISON. What about public investment? Mrs. YELLEN. It is a possibility Congress could consider as well. Mr. ELLISON. Yes. Would that help stimulate the economy in a way that maybe monetary policy can’t reach? Mrs. YELLEN. Certainly, we have a set of tools. They are limited, and there is much more that Congress can do depending on what Congress’ priorities are. Mr. ELLISON. Thank you. Chairman HENSARLING. The gentlemen yields back his time. I want to thank Chair Yellen for her cooperation—her generous cooperation with this committee today. And we also thank you for your stamina. You may have to use it on Thursday as well, as I understand that you will be appearing before the other body. Again, we thank you for your testimony. We will excuse you at this time. The Chair will declare a 5-minute recess pending the seating of the next panel. The committee stands in recess. [recess] Chairman HENSARLING. The committee will now come to order, and we will turn to our second panel of witnessess. Dr. John Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University. In a 1993 paper, Dr. Taylor pro- posed what is now commonly referred to as the ‘‘Taylor Rule,’’ a rules-based approach to determining nominal interest rates. Dr. Taylor holds a Ph.D. from Stanford in economics. Dr. Mark Calabria is the director of financial regulation studies at the Cato Institute. Prior to his tenure at CATO, Dr. Calabria spent 6 years as professional staff on the Senate Banking Com- mittee, which is, regrettably, not as prestigious as the House Fi- nancial Services Committee. Dr. Calabria holds a Ph.D. in econom- ics from George Mason. Abby McCloskey is the program director of economic policy at the American Enterprise Institute (AEI). Before joining AEI, Ms. McCloskey was the director of research for the Financial Services Roundtable. She, too, did a tour of duty on the Hill, regrettably, yet again, on the other side of the Capitol. She received her bachelor’s degree from Wheaton College. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 80 Last but not least, Dr. Donald Kohn is a senior fellow in eco- nomic studies at the Brookings Institution. Dr. Kohn also serves on the advisory committee of the Office of Financial Research. He pre- viously served as the Vice Chair of the Fed’s Board of Governors from 2006 to 2010. And we are beginning to wonder if all former Chairmen and Vice Chairmen of the Fed end up at Brookings. Dr. Kohn holds a Ph.D. in economics from the University of Michigan. Without objection, each of your written statements will be made a part of the record. Each of you, I believe, has testified before, so you are familiar with our system. Please bring your microphone close to you. And you know about the green, yellow, and red light- ing system. I would ask each of you to observe the 5-minute rule. Dr. Taylor, you are now recognized. STATEMENT OF JOHN B. TAYLOR, MARY AND ROBERT RAY- MOND PROFESSOR OF ECONOMICS, STANFORD UNIVERSITY Mr. TAYLOR. Thank you, Mr. Chairman. Thanks for inviting me to this hearing. I would like to use my opening remarks to refer back to the ini- tial set of questions and answers to Chair Yellen with which you began. They have to do with the role of policy rules in formulating monetary policy. It seems to me that the case could be made that monetary policy would have been far better in the last few years had it been based on a predictable set of policy rules. Moreover, I think if policy moved in that direction, we would more quickly move to a more sustainable higher growth rate. There has been a tremendous amount of research, historical work on policy rules. There continues to be interest in what you refer to as the Taylor Rule, based on research of many people over many years, not just me. This research has indicated that when the Fed has followed rules close to that, performance has been very good. The historian Allan Meltzer in particular notes the period from 1985 to 2003 as one where the performance of the U.S. econ- omy was extraordinarily good in historical comparison, and that was a period when the Fed adhered pretty closely to one of these rules. I think if in the last 10 years, policy had been guided this way, the performance would have been much better. If during 2003, 2004, and 2005, the Fed had followed a rule like this, we would not have had the excess risk-taking, we would not have had the search for yield, we would not have had as much of a housing boom as we had, and therefore, the financial crisis and the Great Recession would have been much less severe. If during the period since the financial crisis, the Fed had ad- hered to this kind of a policy rule, we would not have had to have the quantitative easing that has been so questionable. We would not have had to have the forward guidance that has been so debat- able in its effects. And the predictability of the economy, I think, would have been much better and, therefore, economic growth would have been better in those circumstances. And I want to emphasize that such a rule would certainly not preclude the very important actions the Fed took during the panic VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 81 of 2008, its classic lender of last resort role, which helped stabilize the financial markets. It is because of the success of policy rules that I recommend that legislation be put in place to require the Fed to report on its policy rule. It would be a rule of its own choosing. That is the responsi- bility of the Fed. But if it deviated in an emergency or for other reasons, the Fed, through the Chair, would be required to report to this committee and to the Senate Banking Committee about the reasons why. We are not close to that right now. Some argue that could be done in a procedural way rather than through legislation. But I think there are some promising signs that we could be going in that direction. Number one, the Fed recently adopted a 2 percent inflation target. That is exactly what the Taylor Rule recommended 20 years ago. Moreover, the European Central Bank, the Bank of England, and the Bank of Japan have also adopted that target. There is an international congruence which adds durability to that. Number two, the forecast of the current FOMC, long-term fore- cast for the interest rate is 4 percent. Combine that with the 2 per- cent inflation target, and you have a 2 percent real interest rate, which is exactly what that rule recommended 20 years ago. Number three, there is a consensus now that the reaction of the central banks, and the Fed in particular, should be greater than one when inflation picks up. There is debate about what the reac- tion should be in the case of a recession. Some argue it should be larger, some smaller. And that is a difference of opinion. But the fourth reason why I think we are in a position to move in this direction more so in the past is statements of Chair Yellen herself. She has indicated that policy rules like this are sensible, they are good, and they work well. She emphasizes that is in nor- mal times. She would also argue these are not yet normal times. There is debate about when we will get back to normal or wheth- er we are already back to normal. It seems to me, therefore, the debate is not over whether we should follow a policy rule like this. It is about when. Thank you, Mr. Chairman. [The prepared statement of Dr. Taylor can be found on page 141 of the appendix.] Chairman HENSARLING. Dr. Calabria, you are now recognized. STATEMENT OF MARK A. CALABRIA, DIRECTOR, FINANCIAL REGULATION STUDIES, THE CATO INSTITUTE Mr. CALABRIA. Chairman Hensarling, distinguished members of the committee, I want to thank you for the invention to appear at today’s important hearing. Before I begin, let me first commend the Chair on the establish- ment of the Federal Reserve Centennial Oversight Project. Cer- tainly, the opinion that every government program should be re- viewed regularly and subject to vigorous oversight—the American people deserve nothing less. Quite frankly, I can think of no part of the Federal Government more deserving of oversight right now than the Federal Reserve. Had vigorous oversight of the Federal Reserve been conducted in the past, we may very well have been able to avoid the creation of VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00085 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 82 a massive housing bubble. I will not repeat Chair Yellen’s assess- ment of the economy, as I agree with much of it, but will highlight a few issues, touch upon the conduct of monetary policy, and wrap up with a few comments on regulatory policy. The release last week of January’s establishment survey revealed continued weakness in the job market. The 113,000 job estimate was considerably below expectations. For instance, the Dow Jones consensus was 189,000. It was also considerably below the monthly average for 2003 of 149,000. The unemployment rate, however, dipped slightly to 6.6 percent. Despite these trends, there are very bright spots in January’s labor market. The labor force participation rate rose to 63 percent. The unemployment population ratio increased to 58.8 percent. We also witnessed, importantly, a decline in the long-term unemployed by 232,000. The marginally attached to the labor force, including discouraged workers, remained essentially flat. So the point I would emphasize with these numbers is, while the improvement in the labor market was modest, it was quite real. We did not see these improvements driven by people leaving the labor market. So I do want to emphasize a broad agreement with the emphasis on the job situation. However, where I will depart with some of the remarks of Chair Yellen and others is that I think our current monetary, fiscal, and regulatory policies have not been conducive to job creation. In fact, I would go as far to say that those policies have retarded job creation, and that the unemployment growth we have seen has been in spite of policies coming out of Washington, not because of them. For example, the Federal Reserve’s low interest rate policies have driven up asset prices without adding significantly to job cre- ation. They have also transferred from savers to borrowers. Per- versely enough, extremely low interest rates may have increased the incentive for firms to replace labor with capital. Low rates also reduced the penalty for holding cash balances, which reduces the velocity of money, weakening the impact of the Fed’s own provision of liquidity. In sum, I think the Fed’s policies over the last few years have delivered little in terms of improving our labor market and broader economy. This would be bad enough had not these policies also placed the Federal Reserve in a very precarious position. In my opinion, its exit strategy lacks credibility. Once we start to see an increase in interest rates, I think we are going to see a reversal in the inflation and asset prices that has distributed. I think there were a number of distortions in our financial mar- kets we have yet to see that will only become clear once we remove these policies. I usually try to go by a good rule of thumb, which is that if you have long periods of time where you pay people to take money—that is, you have a negative interest rate—I think it is fairly certain they are going to do some dumb things with it, and that will come back to haunt us at some point. Turning to regulatory policy, I believe there was probably no big- ger force pushing the passage of the Dodd-Frank Act than the public’s anger with the financial bailouts. I believe much of the cur- rent distrust toward the Federal Reserve among the public is driv- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00086 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 83 en by the public’s surprise that the Federal Reserve could essen- tially rescue anyone almost—on almost any terms it deemed. Title 11 of the Dodd-Frank Act attempts to address these con- cerns by eliminating the Federal Reserve’s ability to engage in ar- bitrary bailouts. While I believe the correct solution is an alto- gether repeal of paragraph 13 through the Federal Reserve Act, Dodd-Frank’s Title 11 does offer a modest avenue for limiting bail- outs. The Federal Reserve was late in promulgating a rule to imple- ment these provisions. As Chair Yellen is aware, a notice of pro- posed rulemaking was released just days before Christmas last year. Let me briefly mention a couple of issues that I have with the rule. Probably the foremost is the determination of insolvency. I find that the rule’s definition of insolvency is exceedingly narrow and actually does nothing to limit the Federal Reserve’s discretion beyond what is already included in Title II of Dodd-Frank. The no- tion that a firm is only insolvent once it is already in bankruptcy resolution or receivership contradicts both common sense and his- torical practice. I think we also need to be concerned about the Fed’s ability to provide assistance to insolvent firms by passing that assistance via solvent firms, as was the purchase of Bear Stearns by JPMorgan. The final issue I have with the rule, the final top-level issue I have with the rule—there were a number of other minor issues, I would say—is also the definition of ‘‘broad-based.’’ While I am per- sonally against any bailouts, whether they are individual firm or broad-based, I believe the intent of Dodd-Frank is pretty clear that you are only supposed to assist classes of firms, not individual firms. I believe the language in the Fed’s proposal falls short of that. I will say, however, it is a notice of proposed rulemaking. The Fed has offered to take comment. And so I, at this point, will be optimistic that hopefully these issues will be addressed in the rule- making process. Thank you. [The prepared statement of Dr. Calabria can be found on page 104 of the appendix.] Chairman HENSARLING. Ms. McCloskey, you are now recognized for 5 minutes. STATEMENT OF ABBY MCCLOSKEY, PROGRAM DIRECTOR, ECONOMIC POLICY, THE AMERICAN ENTERPRISE INSTITUTE Ms. MCCLOSKEY. Chairman Hensarling, members of the com- mittee, thank you for the opportunity to testify today. I will lead with my conclusion: The Dodd-Frank Act substantially increased the regulatory authority of the Federal Reserve. As such, it has never been more important for the Fed to be transparent and accountable in its rule-writing. The Federal Reserve is one of the primary implementers of Dodd- Frank. It is involved in over 50 rulemakings, such as the Volcker Rule and the Durbin Amendment. The Federal Reserve houses and funds the newly created Consumer Financial Protection Bureau VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 84 and has taken a prominent place in the Financial Stability Over- sight Council. Perhaps most significantly, the Fed is charged with regulation and supervision of some of the largest banks and nonbanks in the country. The new rules promulgated by the Federal Reserve will no doubt have an impact on the economy and businesses and con- sumers. Yet the Fed has no requirement to disclose cost-benefit analysis on its rules, nor are the Fed’s rules subject to challenge on the basis of their economic impact. Former Chairman Bernanke, and today Chair Yellen, have prom- ised that the Fed considers the economic cost of its regulation, but the GAO and the Board’s Inspector General have found otherwise. In 2011, they reported that economic analysis is not standard or routine at the Federal Reserve. The need for such analysis is espe- cially poignant when examining the impact of recent rules on low- income Americans. I detailed the literature and empirical evidence for this in my written testimony, but I will go over it briefly now. Since the Dodd-Frank Act was passed, the cost of a basic bank account has increased considerably, as banks offset decreased rev- enue and increased costs. Bank fees reached record highs in 2012, and the proportion of bank accounts qualifying for free checking de- clined from 76 percent in 2009 to 39 percent in 2012. Credit cards have become more difficult and expensive to access. Forty percent of low- and middle-income Americans reported tight- er credit conditions over the last 3 years. And hundreds of commu- nity banks, which are often the most convenient banking option for low-income rural consumers, have closed their doors in part due to growing compliance costs. As a result, many low- and middle-income families have been shut out of mainstream banking or have turned to alternative fi- nancial products, such as payday loans or check cashers, which can be more expensive. Now, these trends are clearly an unintended consequence of the Dodd-Frank Act, which set out to protect consumers. So the ques- tion is, what can we do about it? Some may propose capping fees, which is what the CFPB appears to want to do with overdraft and payday loans. Others may want to subsidize credit for low-income households. But history shows us these options may end up doing more harm than good by raising fees elsewhere or by saddling households with debt they can’t repay, as we witnessed during the 2008 housing crash. I propose considering the impact on consumers during the rulemaking process and adjusting the final rule accordingly to maximize consumer choice and opportunity. This could be accom- plished through a statutory requirement for cost-benefit analysis at the Federal Reserve. The analysis, among other things, should ex- amine if a rule disproportionately impacts a traditionally under- served population such as low-income consumers. I also propose a retrospective evaluation for major rules. People may raise any number of concerns with economic anal- ysis, that it is rarely done well or it may slow down the regulatory process. But cost-benefit analysis is routine in most other parts of the Federal Government. Federal agencies have been required to disclose cost-benefit analysis for more than 30 years under execu- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 85 tive orders. And the OMB has developed detailed guidance on what good regulatory analysis entails. Cost-benefit analysis is also an effective check on regulatory overreach. The D.C. Court of Appeals struck down the SEC’s first rule promulgated under Dodd-Frank because the SEC failed to thoroughly consider economic consequences. The risk of not requir- ing a cost-benefit assessment is that the impact of the Federal Re- serve’s new rules on the economy and consumers will go unac- counted for. And this is especially troubling for low-income house- holds who traditionally have borne the brunt of credit regulation and appear to be doing so again. To conclude, I am reminded of the saying, ‘‘To whom much is given, much will be expected.’’ The Federal Reserve’s regulatory au- thority grew tremendously under the Dodd-Frank Act, and this has increased the need for statutory cost-benefit analysis. Thank you for your time. [The prepared statement of Ms. McCloskey can be found on page 130 of the appendix.] Chairman HENSARLING. Dr. Kohn, you are now recognized for 5 minutes. STATEMENT OF DONALD KOHN, SENIOR FELLOW, ECONOMIC STUDIES, THE BROOKINGS INSTITUTION Mr. KOHN. Thank you, Mr. Chairman. Although economic growth has picked up, Federal fiscal policy will be much less of a drag on growth next year. The U.S. economy is still very far from where it can and should be. The unemployment rate is a little over 6.5 per- cent. That is still well above the 5.5 percent level that many econo- mists estimate to be its sustainable level. Utilization in U.S. indus- tries is a percentage point below its long-term average. Unemployed labor and capital are wasted resources that can be utilized to raise standards of living, especially, but not only for the workers and business owners involved. Slack in labor and capital use has resulted in very competitive conditions for businesses and workers, and this has been reflected in very low inflation rates, well below the 2-percent target set by the Federal Reserve. We are in a risky zone for inflation. Expectations start to decline, real short-term interest rates will rise, hurting growth, and a downward surprise in demand could push us into or close to a destructive zone of deflation. With unemployment of labor and capital too high and inflation too low, a highly accommodative stance of monetary policy would seem to be called for, for some time to come. The Federal Reserve has decided it can dial back its security purchases, but it has cho- sen also to strengthen its articulation of its intent to keep short- term rates close to zero until the unemployment rate and inflation are closer to their objectives. This seems about the right policy mix to me. The Fed faces considerable challenges in the execution of mone- tary policy over the coming years. The most important challenge will be deciding when to begin raising interest rates and at what pace they should rise. Unfortunately, there are no reliable formulas for making this decision. We are in uncharted waters with respect to economic circumstances and policy responses. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00089 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 86 When the economy behaves in unprecedented ways, policy must respond in unprecedented ways. And the financial crisis, resulting Great Recession, and sluggish recovery were unprecedented in postwar U.S. economic history. In these circumstances, there is no substitute for judgment and flexibility in the conduct of policy. The most important way the Federal Reserve can reduce uncer- tainty is by achieving its congressional mandates for employment and prices. Households and businesses, in planning for the future, care far more about their prospective income sales and the rate of inflation than they do about the size of the Fed’s portfolio or the level of interest rates. The Fed should be as predictable as possible, but it and we as outside observers should recognize the limits of predictability under current circumstances. And that brings me to the second challenge, which is communica- tion about policy. The short-term rates at the zero lower bound in- fluencing expectations about future rates and future inflation in economic activity are among the few ways the Federal Reserve has to accomplish its objectives, but communication must recognize the inherent uncertainty in policymaking, and, in my view, it didn’t do this last summer. It tried to give too much certainty. In its interest rate guidance, the Federal Reserve needs to ex- plain what it will be looking at to judge when to raise rates after the unemployment rate falls through 6.5 percent. Our economy is a complex mechanism. State is not readily summarized in one or two variables, and policy needs to react to the whole array of indi- cators pointing to the evolution of economic activity and prices. This complexity presents challenges for communication and guid- ance about interest rates, but it is a reality. The third challenge is associated in part with monetary policy, maintaining financial stability. Unconventional policy by driving down yields on safe assets does encourage people to take more risk than they might otherwise have done. The issue is, what problems might ensue as security purchases come to an end and interest rates were subsequently raised? The Fed is clearly monitoring these risks, as we heard this morn- ing, and close monitoring—closely using a variety of methods and regulation supervision of discovering and dealing with this poten- tial source of instability, and I agree with this approach to safe- guarding financial stability under the current circumstances. I think it is superior to one in which interest rates are raised, be- cause raising interest rates might discourage some kinds of risk- taking, but they would also keep unemployment high and elevate the risk of deflation. The final challenge, and it is really for this committee, as well as the Federal Reserve, is preserving the short-run operational independence for monetary policy. Congress has set the overall goals, and should hold the Fed accountable for achieving these goals, should be required to explain who its policy actions will lead to achieving those objectives, and if they don’t, why they haven’t. And this committee’s intention to revisit whether the Congress had set the appropriate goals for the Federal Reserve, whether the structure of the Fed is best suited for meeting those goals is appro- priate and welcome. But we need to be very careful to safeguard VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00090 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 87 the arm’s-length relationship of the Federal Reserve to the political process when it comes to setting the instruments of policy. Much evidence over time and across countries strongly indicates that leaving the setting of policy to technical experts with some separation from day-to-day political pressures produces much bet- ter outcomes than when elected officials whose focus is on the next election cycle can influence how policy is conducted in the pursuit of the agreed goals. Thank you, Mr. Chairman. [The prepared statement of Dr. Kohn can be found on page 124 of the appendix.] Chairman HENSARLING. Thank you. I thank all the panelists. The Chair now recognizes himself for 5 minutes for questions. Dr. Taylor, among other things we heard from Chair Yellen today was her concern over the unsustainable level of entitlement spending. I have heard the President say he was concerned. Most economists are concerned. I just can’t find anybody really to say we should begin to reform it today. So I hear her also say, in some respects, she supports the Taylor Rule, but these are extraordinary times. So when is the right time to employ the Taylor Rule? I am reminded—I think there was a C&W song, everybody wants to go to Heaven, just nobody wants to go today. So what is the day that we take up the Taylor Rule? I believe I saw an exchange with you and Chairman Greenspan not long ago where he said that the Taylor Rule, I think, would have gone negative after the crisis. I think I heard Chair Yellen say something similar. So would it have been appropriate then? Is it appropriate now? Please elaborate on your views. Mr. TAYLOR. The first part of your question, I think that if we had stuck to—the Fed had stuck to—a rule like that, as it was fol- lowing pretty closely for a long period, that we would have had a much better performance. And so my view is, we should have stuck with this long ago. I indicated that in my opening remarks and in my written testimony. With respect to going negative, that refers to a situation where a policy rule like that would suggest a negative interest rate. And it certainly doesn’t suggest that now. It would be closer to 1.25 per- cent. And so you can’t really rationalize all of this extraordinary other activity of the Fed based on that. Would it ever have gone negative during this period? Perhaps, depending on how you measure it. A little bit in 2009, I think by a small amount. But certainly not by enough to justify this extraor- dinary action that went beyond 2009, 2010, 2011, 2012, 2013, and 2014. Moreover, it is not like all this research I referred to on policy rules never considered a negative rate. All of the work considered that for many, many years. And the main recommendation, when that happened, was to keep money growth steady. Do the kind of things that economists had recommended for a long time, rather than these extraordinary interventions, unprecedented, that we have never seen before. Chairman HENSARLING. I assume all of you listened to Chair Yellen’s testimony, perhaps the first few hours of it. But I asked VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00091 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 88 her to comment in my own question to her concerning the current state of forward guidance. I quoted the recent piece from The Wall Street Journal, and I would like to quote it to you again: ‘‘Perhaps the Open Market Committee should have called it the Evans sug- gestion.’’ The mistake was telling markets there was a fixed rule, when the only sure thing at the Fed is more improvisation. Now that you have heard Chair Yellen’s response, Dr. Taylor, what side do you come down on? Do we have more improvisation or, as Chairman Bernanke said, current forward guidance is Taylor Rule-like? Mr. TAYLOR. The current forward guidance and the forward guid- ance that has been used thus far has the problem that it keeps changing. Originally, it was somewhat vague. In fact, it began, really, in 2003, 2004, and 2005, when the Fed talked about ‘‘meas- urable pace’’ and ‘‘a prolonged period’’ as forward guidance. And then in more recent periods, it was a fixed date, like 2012. And then there was an unemployment rate, 6.5 percent, and now kind of—well, a little bit more than 6.5 percent. We will have to wait a little longer. So I think the problem with this has been the changes back-and- forth. It is hard to do forward guidance. I think anyone recognizes that. Even the people who support it recognize that. And what you have seen here—and I think it was demonstrated again today—is it is a moving concept. It is not a rule, in the sense you stick to it as best you can. Of course, you are always going to have to change and adapt, but this one seems to me particularly erratic, if you like. Chairman HENSARLING. In the time I have remaining, Dr. Calabria, you have advocated jettisoning the Fed’s 13(3) exigent powers. So how would you define—or if you had our jobs and could write the law, what—how should the lender of last resort function for the Fed? What would you see as its purpose? Mr. CALABRIA. Let me preface my answer with, I am also skep- tical of even having a lender-of-last-resort function, but if you are going to have one, I would limit it to discount window lending to commercial bank members of the Federal Reserve System based on good collateral with penalty rate, sufficient haircut— Chairman HENSARLING. Classic Walter Bagehot. Mr. CALABRIA. Absolutely. And the I think deviations from that have been the problem. Mr. KOHN. May I comment, Mr. Chairman? Chairman HENSARLING. Yes, Dr. Kohn? Mr. KOHN. I think when Bagehot wrote about this in the late 19th Century, he viewed lending not only to commercial banks, but all elements in the money market and financial markets. When people thought about commercial banking as far back as the 19th Century, Bagehot himself said that lending should be to this man and that man, not just to commercial banks, but to all the key ele- ments in the money market, because at that time in the U.K., it wasn’t just banks that were key elements to the money market. There were many other brokers and things like that. So I think as the U.S. financial market has developed, and these other elements of our market—it is a strength of our market that it is not just commercial bank-dependent, the way the European VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00092 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 89 banks are. But as these other elements become more integral into the market, it is important that a central bank be able to support their liquidity in emergency circumstances. So I would be very reticent to—I would be opposed to suspending 13(3). I think it is right that it needs—the Fed needs to think about how it is going to implement it. Maybe these rules aren’t suf- ficient. They should work on them. But I think they have to be part of preventing a run at liquidity, a panic in the financial markets from bringing down the financial system. Chairman HENSARLING. I have long since exhausted my own time. The Chair now recognizes the gentleman from Michigan, Mr. Huizenga, the vice chairman of our Monetary Policy Subcommittee. Mr. HUIZENGA. Mr. Chairman, I will just point out that it is good to have the gavel and give yourself as much time as you would like. So—yes. And to the witnesses, I appreciate your time and patience, as well, today. I know it has been a long day for everybody. But, Dr. Taylor—I guess kind of for everybody—we talked about the Taylor Rule. I am kind of curious about the $10 million—or sorry, $10 bil- lion. Sorry, I forgot I was in Washington, not back in Lansing when I was in the state legislature—$10 billion per month taper that has been proposed. It appears that the FOMC is going to be continuing that based, at least as I was reading the tea leaves with Chair Yellen today—seems a little too neat and tied up with a bow to me. It is kind of like betting that the next Powerball winner is going to be 1-2-3-4-5-6. Do you know what I mean? To have them be able to predict that this is just going to be taken down in $10 billion increments as we are moving forward—I wonder if anybody wants to comment on that? And then I would like to get Ms. McCloskey— I would like to talk a little bit about the impact on low- and mod- erate-income, and, Dr. Calabria, if we can get onto a couple of other issues, so quickly. Mr. TAYLOR. That is their strategy. And I think it is good to have a strategy. You saw what happened last May and June when there wasn’t really much of a strategy for the tapering. You could quarrel whether that is too specific, but I congratulate them on moving ahead with some kind of strategy, and I— Mr. HUIZENGA. But you would rather have—basically, you would rather have a strategy laid out like that than having what had happened before? Great. Mr. TAYLOR. Yes, I think it is much better for the markets—you have seen a better reaction than last May and June, absolutely. Mr. HUIZENGA. Okay. Would anybody else care to comment quickly? Mr. CALABRIA. Let me also echo that. I would prefer to see taper- ing at a faster rate, but I think that the fact that they have laid out a series and you have expectations of how much tapering you are going to get, is very helpful. So the fact that this is less ad hoc than it would be otherwise I think is the appropriate direction. Mr. KOHN. I agree. I think a gradual taper withdraws that extra—caps that portfolio very slowly, gives the markets something to anticipate, gets already built in, and gives the Fed a chance— Mr. HUIZENGA. Well, the markets seemed surprised. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00093 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 90 Mr. KOHN. I think they were a little surprised in December when it was announced, but not that surprised. And then in January, when the next tranche came, there was no surprise. So, I think Dr. Taylor is right. Mr. HUIZENGA. Certainly, people have been trying to tie it to that, as we have seen some dips in the market. But I am not con- vinced, either. Mr. KOHN. I think the emerging markets— Mr. HUIZENGA. If they are not paying attention, our friends in New York, pay attention. Mr. KOHN. I think those emerging market economies face lots of challenges, and the taper is a small part of their problem. Mr. HUIZENGA. Okay. Ms. McCloskey, let’s talk a little bit about the impact on low- and moderate-income households. I wish there was a single colleague over on the other side of the aisle who was here right now. They could participate in this conversation, as well. This is something that my side of the aisle often gets accused of not caring about, but I can tell you, representing one of the 10 poorest counties in the Nation, Lake County, Michigan, this is very high on my list. And I am very concerned—having a background in real estate and developing myself, I am very concerned about what is happening to those hard-working, working-class families who feel like they are just getting the short end of the stick time and time and time again, and here they go. Community banks are getting harder and harder to work with. The big guys don’t, frankly, want to deal with them. Now they are turning to their credit unions and, frankly, now other alternatives. So if you can talk a little bit about that? Ms. MCCLOSKEY. Sure. There has been a lot of discussion in Washington about income inequality and economic mobility. And we know that access to savings and credit opportunities are really important for economic advancement for families. And what con- cerns me is that, as an unintended consequence of new rules that we have put into place, albeit with perhaps good intentions fol- lowing the financial crisis, is that those opportunities are becoming more expensive or more rare for low-income families. And this could end up exacerbating the inequality and the lack of mobility that we are seeing. And so I think having some sort of economic analysis at the Fed- eral Reserve, some requirement to take these impacts into consid- eration would be a good first step in improving mobility. Mr. HUIZENGA. What would you identify as the most egregious? Ms. MCCLOSKEY. Certainly, the Durbin Amendment, which lim- its debit interchange fees. There is a very clear correlation between that and reduced free checking and higher bank fees. The Univer- sity of Chicago has suggested the Durbin Amendment alone has re- sulted in $25 billion in higher fees and reduced services for con- sumers. But I think the danger with just pulling out one or two rules is that we miss the broader impact of 400 new rules on companies and on consumers and we can’t overlook the impact that is going to have in decreasing credit and savings opportunities. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 91 Mr. HUIZENGA. Two wrongs don’t make a right. Or maybe in this case, 400 wrongs don’t make a right on trying to get this put to- gether. Ms. MCCLOSKEY. Exactly. Mr. HUIZENGA. I see my time has expired, Mr. Chairman. Thank you. Chairman HENSARLING. At the moment, we have a little bit of a supply of time, but at this time, the Chair now recognizes the gen- tleman from Indiana, Mr. Stutzman. Mr. STUTZMAN. Thank you, Mr. Chairman. And thank you to the panel for being here. Dr. Taylor, I would like to follow up just a little bit. You have mentioned the comment that caught my ear today from Chair Yellen, and that was, what we are facing today is very unusual. I think that the economy goes through changes, and we could all say they are unusual. I guess my question is, what are normal times? Looking at what we have today, I am not sure that the economy is necessarily abnormal as much as Washington is abnormal. You look at Obamacare, Dodd-Frank, the Durbin Amendment, QE, easy monetary policy, regulations upon regulations. Would you like to comment on that? Are we overreacting and causing more problems than we are fixing problems? Mr. TAYLOR. I very much agree that a major problem in the U.S. economy is policy. We have talked about monetary policy here, and I have indicated that. I think for fiscal policy, the Chair mentioned getting entitlements under control. Regulatory policy, a great deal of uncertainty and increase in intervention. If I look at all those things, it is quite remarkable how many there are, and I think they are a significant drag on the economy. I think that is really why we have had this weak recovery. And in that sense, it doesn’t need to be normal. We can change it. If the policy is the problem, we can change policy. And that is what I be- lieve. And so, the idea that the economy itself is not normal doesn’t add up to me. First of all, the financial crisis is in the past quite a bit now. It was a problem, a serious problem. But we are going away from that. We can’t argue forever that the economy is not ready for a good kind of normal policy. So I very much think we are ready to go with improved policy, and I hope we can do that. Mr. STUTZMAN. Yes, with almost $2 trillion on balance sheets in the private sector, people are just waiting. I have talked to small businesses in northeast Indiana, and they are waiting to know what the rules are, letting the dust settle a little bit before they can move forward. I would like to talk a little bit about the dual mandate. How does the Fed respond to the current conditions that we are facing with the dual mandate? We see unemployment numbers dropping, but I tell you, when you get outside of the Beltway, we are hurting. We are seeing more people out of the workforce. What should the Fed do? And, Dr. Calabria, maybe you would like to respond and, Ms. McCloskey or Dr. Kohn, if any of the three of you would like to re- spond to that. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00095 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 92 Mr. CALABRIA. Let me first emphasize something asked in the earlier question, which I do think policy has been a tremendous drag. Chair Yellen mentioned earlier the tax increases, whether— and you recall we have seen that in the fiscal cliff. Mr. STUTZMAN. Yes. Mr. CALABRIA. And so I do think it is important to keep in mind, all the talk about austerity, almost all of the deficit reduction has come from revenue raisers, not spending cuts. It has been quite modest, and I think that has been a mistake. Certainly on the regulatory side, I also think that has been a mistake, as well. So I think we need to fix policy that is outside of the realm of the Fed, and we need to recognize that you can only do so much. As you alluded to, there is a tremendous amount of cash on corporate balance sheets, $2 trillion. There is almost $2 trillion, about $1.7 trillion in cash on bank balance sheets. So it is not a deficit of liquidity in the financial system or in the corporate system. It is costs facing the labor markets, costs facing the regu- latory markets. I will repeat something that Chair Yellen said earlier, which is that monetary policy is not a panacea. And I think that is what we need to recognize and believe that it can’t fix a number of things. So to go back to your question of, what would I have the Fed do, I would have the Fed follow something like the Taylor Rule, where our short-term Federal funds rate was something like 1.25 points, somewhere around that. I don’t think anybody is suggesting that we go to 3 percent or 4 percent or 5 percent Federal funds rate. So even at 1.25 percent would still be, in my opinion, highly accom- modative, certainly would not be tight by any stretch of the imagi- nation, and to begin to taper in a much quicker way. Mr. STUTZMAN. Ms. McCloskey, I have 30 seconds. Would you like to comment? Ms. MCCLOSKEY. Sure. I do think there is a burden on Congress to address the 11 million people who are unemployed, 4 million of whom who have been unemployed for over 6 months. Aside from providing some level of stability, we have seen that the Fed is very limited in its ability to encourage businesses to hire. And so I am in favor of more creative solutions from Congress, such as relocation vouchers or cash bonuses for people who get a job. I think programs like this are our best hope of moving the long-term unemployed back to work. Mr. KOHN. I believe this current very accommodative policy of the Federal Reserve is appropriate and will be appropriate at least for a little while longer. Among the policy issues has been not only the increase in taxes, but the decline in Federal spending, which took about 1.5 points off of growth last year. I ask myself, what would the economy look like or what would our financial markets look like if the fed funds rate was 1.25 points instead of essentially zero right now? And I have to think that the stock market would be lower, that housing starts would be slower, because interest rates would be higher. We saw the results of a modest increase in interest rates, a percentage point, from 1.7 per- cent to 2.7 percent this summer, and it slowed the recovery in the housing market. Automobile sales would be less, because the abil- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00096 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 93 ity to borrow very inexpensively to buy a car must be encouraging sales. So I think higher interest rates would have produced an even slower economic recovery. This is a very difficult discussion about the counterfactual. The Federal Reserve is saying, we are not satis- fied. We haven’t been satisfied with the recovery. We think it would have been worse without it. Other people say, no, if you had had higher interest rates, it would have been better. I am just myself convinced that by and large, higher interest rates are associated with less demand, not more demand. And that is a pretty robust empirical finding. Mr. CALABRIA. If I could make a point, because, first, I want to agree. I think there are a lot of points here that we don’t know. I think there are a lot of uncertainties. What I would say—take the housing market, for instance. Housing starts are about a third of what they were at the peak, so it seems to me that the data sug- gests that most of the boom for the buck we have gotten in the housing market has been refinancing, and it has been higher prices. But refinancing—which I have done, and I am glad to have taken care of that—doesn’t put any construction workers back to work. It is great for mortgage lenders, but not necessarily really good for the overall economy. So we have yet, in my opinion, to see the actual construction market turn around in a very big way from that. I do think it is important to keep in mind that lending doesn’t seem to be getting out there. And ultimately, having that move is far more important, in my opinion, than just pushing housing prices up. Mr. STUTZMAN. Thank you. I guess I would just say, as we see families across the country with dollars being taken away from— to put towards insurance, health insurance, cost of banking, they just have less money to spend to be buying new cars and new homes. So thank you, Mr. Chairman. I will yield back. Chairman HENSARLING. The Chair would like to alert the Mem- bers in the hearing room and those who may be listening in their offices that votes are expected on the Floor any time within the next 15 minutes. It is the Chair’s intention to continue this round of questioning until we need to go to the Floor to vote. At that time, we would excuse the panel and adjourn the hearing. Now I would like to recognize the gentleman from South Caro- lina, Mr. Mulvaney. Mr. MULVANEY. Thank you. And let’s stay right there on a couple of different topics. Following up on what Mr. Stutzman said, Dr. Kohn, I hear what you are saying about how, if interest rates were higher, if we were at 1.25 percent, as the Taylor Rule might call for right now, that we would be selling fewer cars and selling fewer houses. But doesn’t that imply, sir, that the recovery that we have is, to a certain extent, illusory anyway? Isn’t the Fed artificially depress- ing the price of interest—the cost of money right now anyway? Mr. KOHN. It is certainly keeping it lower than anyone thinks it will be over the long run. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00097 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 94 Mr. MULVANEY. It is lower than the equilibrium, right. We would— Mr. KOHN. Yes, that is the deliberate policy. Mr. MULVANEY. The equilibrium rate right now for the cost of money is higher than what the market is charging. Mr. KOHN. If by equilibrium rate, do you mean what might pre- vail over 15 to 20 years? Mr. MULVANEY. No, I am talking about what might prevail with- out the active intervention of quantitative easing. Mr. KOHN. The Federal Reserve has to set the short-term rate and has to establish in this— Mr. MULVANEY. Right, and it has set it at zero, and that didn’t have the desired impact— Mr. KOHN. It set it at zero. Mr. MULVANEY. —so it added to that, printing money, what we call quantitative easing. Mr. KOHN. Right. It could set it at 1, 2, 3, 4, 5, whatever it want- ed to set it at, so it is not—there isn’t a mechanism here, given the central bank and the kind of money facility we have. We are not on a gold standard. There isn’t a natural way to establish a natural rate. Mr. MULVANEY. Let me ask you this way: If tomorrow Janet Yellen says that quantitative easing is going to zero, what would the prevailing rate of interest be on the 10-year Treasury? Mr. KOHN. It would go up, I don’t know, 50, 100 basis points. Mr. MULVANEY. And we have heard in this committee between 150 and maybe as many 300 basis points. I think it is subject obvi- ously to a bunch of different interpretations. But that is my point when I say that the equilibrium rate, the natural rate—call it or- ganic, I don’t care what you call it—if the Fed was not actively in- tervening in the markets, interest rates would be higher. And that means to me that the equilibrium rate of car sales is being—would be lower than it is today, that housing sales is lower than it is today. And I am worried, sir, I guess the long way of saying this is that we are creating asset bubbles, in housing, in stocks, in automobiles. Would you agree with that or not? Mr. KOHN. I think it is something to be watchful and careful about, but I don’t see evidence of it. I think we are leaning against some other forces that are holding back the economy. Last year, it was increases in taxes and decreases in spending and problems in Europe and other places. Some of it we don’t understand. Mark was absolutely correct. Our understanding of the economy is rudimentary. We keep try- ing—things like the Taylor Rule keep pushing back the frontier, but it is a long way to go. Mr. MULVANEY. Let me go to another line of questioning that Mr. Stutzman had asked about—and I apologize for cutting you off— which is the dual mandate, because one of the things that I heard today, and I was a little bit surprised to hear from Chair Yellen was her vociferous support for the dual mandate. I think that was different than what we heard out of her prede- cessor. I had a chance to ask him about the dual mandate 3 or 4 times in the last several years. And while he certainly played lip VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00098 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 95 service to it, every single time I asked him about it, he asked—he also said, but I acknowledge that in the long run, monetary policy cannot influence the long-term unemployment rate. So I guess my question is, Dr. Kohn, if that is economic ortho- doxy right now, why are you and Mrs. Yellen paying such—putting such a dramatic faith in the dual mandate, if it is orthodoxy that we cannot influence the labor markets in the long run with mone- tary policy? Mr. KOHN. I agree about the long run. That is influenced by the structure of labor markets, competitive conditions in labor markets, matching skills to jobs, et cetera. But in the short to intermediate run, monetary policy can influence the labor market. And— Mr. MULVANEY. Has it? Mr. KOHN. And— Mr. MULVANEY. Has it? Mr. KOHN. —the Federal Reserve recognizes this. And the policy statement they put out in January of every year recognizes that they don’t have control over the longer run, but they do have influ- ence over the short run. Mr. MULVANEY. Okay. Now, you talk about counterfactual. Let me ask you this. We have been doing this now for 5 years. Has the zero interest rate policy, has quantitative easing added jobs in the short term? Mr. KOHN. Yes. Mr. MULVANEY. You wouldn’t agree with me that most, if not all of the decline in the unemployment rate we have seen is by people leaving the job market, not by new jobs being created? Mr. KOHN. I think we have had some of both. And it depends on which survey you look at, et cetera, but certainly on the survey of businesses, they have added many more jobs, 200,000 a month— Mr. MULVANEY. No, no, no. As far as 200,000 jobs a month, I think we have done that maybe 5 or 6 times in the last 4 or 5 years. Mr. KOHN. Over the last year, it has been, what, about 175,000, something like that. Mr. MULVANEY. It was 130,000 last month and 75,000 on ad- justed basis the month before that. Mr. KOHN. Right. So it is the last 2 months. But I—no, I think the—we have added to employment, so as she noted, I think 7.5 million or 8 million jobs since the bottom of the recession. But still— Mr. MULVANEY. And in fairness to her— Mr. KOHN. —the unemployment is still very high, I agree. And the Federal Reserve itself is disappointed. It wouldn’t have en- gaged in several rounds of QE and guidance if it had been satisfy with the outcome. Mr. MULVANEY. No. And in fairness to her and to Dr. Bernanke—and he said this several times—that even if he had a single mandate, his policies probably would not have been demon- strably different over the course of the last several years, because you could take the same policies towards fighting deflation, so I ap- preciate that. I am sitting there looking at my time, waiting for my chairman to bang down on the gavel. I did want to ask one—oh, goodness me. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 96 Chairman HENSARLING. You brought that up. Mr. MULVANEY. And since several of my colleagues have come in, now I won’t get a chance to ask any— Chairman HENSARLING. The gentleman from South Carolina asked for it; the gentleman from South Carolina got it. The Chair now recognizes the gentleman from Pennsylvania, Mr. Rothfus, for 5 minutes. Mr. ROTHFUS. Thank you, Mr. Chairman. And thank you to our panel for being with us this afternoon. I would like to go to Dr. Calabria. Chair Yellen appeared comfortable with the Fed’s staff study in regards to stress testing. Do you have an opinion on that staff study and whether it was adequate to do a stress test of what the Fed has been doing? Mr. CALABRIA. I have not fully looked at it, so I don’t want to pass judgment on it. I will say I have been skeptical of some of the rounds of stress testing, both here and in the E.U. I think much of them have not been all that stressful, but, again, I will empha- size that I have not read them— Mr. ROTHFUS. What would you look for in a stress test? What kind of variables would you— Mr. CALABRIA. For instance, one of the things that I am most concerned about is I think we are all in agreement that rates are going to go up at some point, and so I do worry that as the yield curve steepens, which is necessary to encourage lending, but that you are encouraging an amount of maturity mismatch within the banking system that I worry about. And so, we do need to keep an eye on that when rates go up. After all, that is what really drove the savings and loan crisis, so I think at that degree of mismatch in assets and liabilities needs to be observed quite closely. I also think we need to be a bit more stressful about sovereign risk. Certainly, it is more of a case in the E.U., but the treatment here—I guess it is worth noting that there still is no Federal statu- tory guarantee of Fannie and Freddie. And so the treatment of bank regulators of Fannie and Freddie debt, in my opinion, has been far too generous, and it certainly has embedded that risk in the system. And I think we also need to look at the treatment of municipal debt on banks’ balance sheets, as well. So I think there is some credit risk, I think there is interest rate risk across the board that we really need to take very seriously. Mr. ROTHFUS. What would your consideration be, for example, if interest rates did go up 100 basis points, 150 basis points, and what that would do with the value of the securities that the Fed is holding right now? Mr. CALABRIA. We certainly know that increases in interest rates will lower the value of long-dated assets on both bank balance sheets and the Federal Reserve’s balance sheet. I think that is a very real concern for me in terms of monetary policy. The entire exit strategy seems to assume that you will not have to conduct open market operations where you would sell the long- dated assets off. The Federal Reserve’s position so far has been we will let those assets mature, and I think that is a feasible strategy if we don’t see any inflation. The fallback to that is, of course, the desire to raise interest on reserves, and this is where I am a little VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00100 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 97 more skeptical, not in a mechanical sense, because you certainly can raise interest on reserves and constrain lending. What I am skeptical is that, my back-of-the-envelope is on the $2.4 trillion or so in reserves, we are probably paying somewhere around $6 billion a year to the banks via the Federal Reserve. In an inflationary environment, I could easily see that approach $30 billion, $40 billion, and it just strikes me as politically unsustainable for the Federal Reserve to cut a $30 billion to $40 billion check to the banking industry. So I do worry that open market operations might be on the table—off the table, because you can’t sell the assets at par, and I might—and I might be worried that the level of interest reserves you have to pay is just simply not politically feasible. Mr. ROTHFUS. Would you consider broader impacts, for example, interest rate spikes on the stock market? We just had this experi- ence about a month ago when we saw a correction in the market after—whether it was related at all to pulling back on QE. Any thoughts there? Mr. CALABRIA. I certainly think we are going to start to see rates go up. The earlier numbers we talked about, 100, 150 basis points. So certainly, as the tapering continues, we are going to start to see long-term rates go up, and I think we will also start to see the yield curve steepen, which is an important aspect of this, as well. I think it is going to moderate the stock market. I think it is also going to moderate prices in the real estate market, all else being equal. So, of course, we do hope that you start to have economic recovery so that the fundamentals start to drive those markets, rather than liquidity. Mr. ROTHFUS. Is there any historical precedent for what the Fed has done over the last 4 years, the way it has expanded its balance sheet, and then to have an environment where you could just do a proper stress test? Mr. CALABRIA. I don’t want to push the comparison too much, be- cause I don’t think QE plays into this, but I do worry that we are in a sort of 2003–2004-style situation. We saw a tremendous amount of refinancing bank fees in 2003. As that went away, when interest rates started to go up, and you started to see a reduction in credit quality, in—so, again, I worry that we are going to start to see that cycle play out again. And, of course, it is also worth remembering that when you look back at the 1980s, we had a boom and bust in the housing market at the beginning and at the end of the 1980s. So I do think that we are in a situation where the housing market represents some risk, again. Certainly, 2 to 3 years out, I think that is something that needs to be taken quite seriously. Mr. ROTHFUS. Thank you. If I can just quickly go to Ms. McClos- key, we all heard Chair Yellen suggest that there has been a cost- benefit analysis done with respect to the Volcker Rule. Do you have an opinion with respect to any cost-benefit analysis that the Fed may have done with respect to the Volcker Rule, the preamble of the Volcker Rule? Ms. MCCLOSKEY. There is no economic analysis disclosed by the Fed on the Volcker Rule, which is grievous, considering the impact that the Volcker Rule could have on the economy and on busi- VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00101 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 98 nesses. So I think Volcker is actually a great example as to why having a requirement of statutory cost-benefit analysis would be an important step forward for the Fed. Mr. ROTHFUS. Thank you. Thank you, Mr. Chairman. Chairman HENSARLING. The Chair now recognizes the gentleman from North Carolina, Mr. Pittenger. Mr. PITTENGER. Thank you, Mr. Chairman. Thank you all for being here today. How do you believe the Volcker Rule will affect mainstream America? And is there any- thing that the regulators can do to calm the fears that we are hear- ing in the financial industry? Mr. Calabria, we can start with you, if you would like. Mr. CALABRIA. Sure. One of the issues that I don’t think gets dis- cussed enough in the Volcker Rule is the exemptions for Treas- uries, agencies and municipals. And so I do worry that you combine that with the liquidity coverage requirements and the new capital rules that we are seeing under Basel, I do worry that we are put- ting our thumb highly on the scale toward essentially government debt versus the private sector. I think one of the things we need to do is actually quite interesting. If you took bank balance sheets and you graphed lending to business versus lending to government, they almost kind of mirror each other. So the fact is, banks haven’t stopped lending. They have just changed who they are lending to. And in my opinion, they are lend- ing to the least productive sectors of society. So I do think that we need to keep that in mind in terms of long-term growth that we don’t want to push the financial system away from lending to the private sector. We have not had financial crises caused by small- business lending. We have had financial crises globally caused by lending to governments. Mr. PITTENGER. Does anybody else want to comment on that? Ms. MCCLOSKEY. I haven’t seen any studies that specifically look at the consumer impact of the Volcker Rule, but theory would sug- gest that banks could seek higher yields elsewhere and actually in- vest in riskier assets, which might make the system more unstable, or that they may offset reduced revenue from Volcker by raising the cost of credit on consumers. So while there was no economic analysis before Volcker was passed, this also raises the need for retrospective analysis 2, 3, 5 years out to consider how it is really impacting the economy. Mr. PITTENGER. With the unemployment rate trending down- ward, do you believe that this is an indication of a strong economy? Or do you believe this rate is indicative of people just leaving the labor force? Would any of you like to comment on that? Mr. CALABRIA. I will note that the January number has really been driven not by people leaving the labor force. It is a weak num- ber, so I wouldn’t use the word strong, but it is a real number, and I think it is a modest improvement. You have certainly seen in pre- vious months where declines in the unemployment rate have been driven by departures from the labor market. So the point I would emphasize is, I think we are in a recovery. I just don’t believe we are in a strong recovery. Mr. PITTENGER. Yes, sir? VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00102 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 99 Mr. TAYLOR. Yes, I think a significant part of the unemployment reduction is labor force participation declining. One way to think about that is to look at projections of labor force participation be- fore this recession. And they are much higher than what has turned out, so the demographics really can’t explain a lot of the de- cline, some, of course, but a major part of it must be the recession itself and people dropping out of the labor force. And if you adjust for that, the actual unemployment rate would be higher than what is reported. Mr. CALABRIA. One thing I will note, we saw the declines in un- employment rate pretty much broad categories, December to Janu- ary, with one glaring exception to me, which is teenagers. The un- employment rate significantly increased for African-American teen- agers, to an almost 40 percent unemployment rate in January, which to me is quite shocking. I think one of the really, really bad policy mistakes we made going into this recession, and it is worth certainly recognizing that this happened under President Bush, we put in place a series of minimum wage increases that I think have hurt the teenaged labor market in a very serious manner, and that certainly should be con- sidered in the current debates. Mr. PITTENGER. And they are trying to do that again today. Yes? Ms. MCCLOSKEY. Pardon. I didn’t hear your question. Mr. PITTENGER. No, I said—I just made the comment that they have the same proclivity to continue in that venture today, to make it more difficult for teenagers to get jobs, by raising the minimum wage. Looking at Fed policies over the past few years, I would just like to get your opinion on how this has affected the current fiscal issues facing our country. Mr. KOHN. Current fiscal issues? Yes, so I think the—as has been said before on this panel and was discussed by Chair Yellen, the country still faces some very, very serious long-term fiscal issues, in terms of the demographics interacting with the promises that past Congresses and Presidents have made and enacted into law— Mr. PITTENGER. But do you think Fed policies have exacerbated that problem? Do you think that they have— Mr. KOHN. No, I don’t think Fed policy has exacerbated that problem. I think that problem results from acts of Congress— Mr. PITTENGER. What is your take? Let’s just go down the line— Mr. KOHN. —and— Mr. PITTENGER. We have 20 seconds. Just go down the line. Do you think Fed policies have been a help or a hindrance? Ms. MCCLOSKEY. The Federal Reserve policies have made it easi- er for the government to borrow money at a cheaper rate, but I do think that politicians have shown a proclivity to pass spending bills regardless of the price of borrowing. Mr. PITTENGER. Thank you. Ten seconds. Keep going. Mr. CALABRIA. While the primary cause is, of course, fiscal policy, not the Fed, I do think the Fed has facilitated. Mr. TAYLOR. Yes, I agree. Mr. PITTENGER. Thank you very much. I yield back the balance of my time. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00103 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 100 Chairman HENSARLING. The Chair now recognizes the gentleman from Kentucky, Mr. Barr, for 5 minutes. Mr. BARR. Thank you, Mr. Chairman. And thanks to the panel. I appreciate your testimony. Just to follow up on Mr. Pittenger’s last question, and this was a subject that I was exploring with Chair Yellen a little bit, but I would like your thoughts on this. Obviously, as the Fed begins to taper or continues to taper the asset purchase program, and as interest rates begin to normalize and elevate, the cost of borrowing to the government is going to rise. What counsel do you have to Congress in terms of the urgency and the time sensitivity of getting our fiscal house in order, in light of Fed monetary policy and tapering and the impact that will have on government costs of borrowing? Mr. KOHN. I think this is more a medium- to longer-term prob- lem, but it is important to act soon, because this is a problem hav- ing to do with what people are going to count on, in terms of sup- port for their health care, support for their income, when they re- tire. So in order to deal with a problem that is coming in 10, 15, 20 years, if you are going to reduce the trajectory of that support, you have to do it now. It is not fair to do it to people who are going to retire in 5 years. Ms. MCCLOSKEY. I would add, I think there is a tendency to kick the can down the road on the debt, especially because some of the most astounding numbers, when GDP is 100 percent of—or Federal debt is 100 percent of GDP don’t come for 25 years based on cur- rent projections by the CBO. But there is substantial economic lit- erature, including by the IMF, that says countries with levels of debt-to-GDP that the United States currently has right now experi- enced slower growth, they experienced less job creation, there is a crowding out of investment. And so when you look at it through that lens, I think it is an urgent requirement for Congress to fix the debt. Mr. CALABRIA. I would emphasize, as well, that I agree with— basically with both what Don and Abby had said, and I will empha- size, as well, we can address long-term fiscal issues now without having any impact—without having any negative impact on any short-term stabilization goals. And while I am skeptical on our ability to stabilize in the short run, dealing with our long-term entitlement problem will be a posi- tive in that return, not a negative. Mr. TAYLOR. I think it would be a positive to address it sooner rather than later. It is part of the uncertainty about the debt and how it is going to get resolved. It is still lingering around. CBO’s projections of long-term debt are as pessimistic as they were 4 or 5 years ago. So the sooner this can be addressed—it is mainly look- ing down the road—I think the economy will respond positively. Mr. BARR. Ms. McCloskey, I was reading with interest your writ- ten testimony about the impact that financial regulation has on low-income Americans. And there have been some voices in Wash- ington that have been pretty vociferous and aggressive recently in advocating an increase in the minimum wage. I would be interested to hear—and I was—I noted your testi- mony about how the consolidation in banking is forcing low-income VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00104 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 101 consumers to be underbanked or unbanked and moving into alter- native outlets. And while at the same time they are being forced into alternative services like payday lenders or check-cashers, at the same time, we are anticipating the Consumer Financial Protec- tion Bureau clamping down on that industry, as well, leaving a lot of these low-income folks with no other alternatives to access to credit. Can you speak to the negative impact that has relative to a $7 minimum wage? Ms. MCCLOSKEY. Sure. I will take your questions, actually, one at a time. First, there is a lot of debate about the disemployment effects for the minimum wage, but what we do know is that the minimum wage is—even if it worked perfectly—a really ineffective way to lift the poor out of poverty. This is because most people who are impoverished don’t have a job at all, and the proportion of peo- ple who are low-income, very few of them actually are in the min- imum wage. Minimum wage is predominantly given to part-time workers, younger workers, and workers 3 or 4 times above the pov- erty line. So the minimum wage, I don’t think, is the best answer we could have for the challenges facing low-income people. Per new rules on alternative credit products, such as payday loans, if the CFPB goes forward with that, I think that the goal of the CFPB should be to maximize options for low-income consumers, not to limit them, and that would be a great guiding principle for them going forward. Mr. BARR. Thank you. Ms. MCCLOSKEY. Thank you. Chairman HENSARLING. I yield back. The Chair is going to take the privilege of asking the last ques- tion. We do have votes on the Floor now. And, Dr. Taylor, I am under the impression you have traveled the greatest distance, so like it or not, you are getting the last question. I think at least one of the things I have heard from Chair Yellen and this entire panel, at least there is consensus that there are limits to what monetary policy can achieve in our economy. And so we know that banks are sitting on $1.6 trillion, $1.7 trillion of ex- cess reserves. So I am trying to figure out what further rounds of quantitative easing can achieve for us today? What is $2 trillion in excess reserves going to do for us that $1.7 trillion hasn’t done? And, Dr. Taylor, what there hasn’t been is a discussion today about what is it going to take to unwind this balance sheet? And even if we taper each and every month—I am not leaving this hearing today with a clear understanding of where Chair Yellen in- tends to take us. Maybe there will be further tapering, and maybe not. But even if there is, we are still adding to the balance sheet. I know that you and my mentor, Senator Phil Gramm, have writ- ten about this subject in the past, but what are the risks associated if she and the other Members of the FOMC choose not to taper, and what are the risks associated with unwinding this balance sheet? And if you had the job, how would you go about it? Mr. TAYLOR. I have been warning about the unwinding since the winding up began. It is one of the big concerns I have had about it. So the only thing I can say is, the unwinding has to be done as strategically, as predictably as possible. VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00105 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI 102 I don’t think it should be postponed. I don’t think the purchases are doing much good. Look at QE3 as a program. When it began, the 10-year bond rate was 1.7 percent. It is now 2.7 percent. How can you say that program worked? If you can say, oh, it was the problem of unwinding. There was always the problem of unwinding. I think it would be a mistake never to unwind, because ulti- mately that is going to be inflationary. That is the two-edged sword we have always worried about. It could be risk on the downside, the fear of tapering too much, or just the fear of tapering. We have experienced that downside, I think, already. That is one of the rea- sons the economy has grown more slowly. But there is always the other side. And so, it has to unwind at some point. The strategy is probably going to involve, for a while, paying higher interest on reserves. Mark is quite right. That is going to be hard for the Fed itself. And there is the question of capital losses, how that is going to be treat- ed, but ultimately, as I answered to Mr. Huizenga, you have to get on with it. And at least, they are getting on with it. That is a posi- tive. Chairman HENSARLING. I want to thank each of our witnesses for testifying today. The Chair notes that some Members may have additional ques- tions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legis- lative days for Members to submit written questions to these wit- nesses and to place their responses in the record. Also, without ob- jection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. This hearing stands adjourned. [Whereupon, at 5:09 p.m., the hearing was adjourned.] VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 K:\DOCS\88526.TXT TERRI A P P E N D I X February 11, 2014 (103) VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00107 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 104 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00108 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 100.62588 105 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00109 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 200.62588 106 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00110 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 300.62588 107 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00111 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 400.62588 108 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00112 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 500.62588 109 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00113 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 600.62588 110 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00114 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 700.62588 111 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00115 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 800.62588 112 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00116 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 900.62588 113 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00117 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 010.62588 114 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00118 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 110.62588 115 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00119 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 210.62588 116 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00120 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 310.62588 117 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00121 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 410.62588 118 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00122 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 510.62588 119 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00123 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 610.62588 120 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00124 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 710.62588 121 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00125 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 810.62588 122 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00126 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 910.62588 123 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00127 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 020.62588 124 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00128 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 120.62588 125 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00129 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 220.62588 126 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00130 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 320.62588 127 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00131 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 420.62588 128 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00132 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 520.62588 129 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00133 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 620.62588 130 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00134 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 720.62588 131 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00135 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 820.62588 132 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00136 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 920.62588 133 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00137 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 030.62588 134 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00138 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 130.62588 135 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00139 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 230.62588 136 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00140 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 330.62588 137 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00141 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 430.62588 138 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00142 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 530.62588 139 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00143 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 630.62588 140 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00144 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 730.62588 141 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00145 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 830.62588 142 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00146 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 930.62588 143 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00147 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 040.62588 144 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00148 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 140.62588 145 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00149 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 240.62588 146 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00150 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 340.62588 147 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00151 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 440.62588 148 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00152 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 540.62588 149 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00153 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 640.62588 150 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00154 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 740.62588 151 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00155 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 840.62588 152 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00156 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 940.62588 153 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00157 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 050.62588 154 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00158 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 150.62588 155 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00159 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 250.62588 156 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00160 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 350.62588 157 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00161 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 450.62588 158 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00162 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 550.62588 159 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00163 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 650.62588 160 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00164 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 750.62588 161 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00165 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 850.62588 162 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00166 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 950.62588 163 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00167 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 060.62588 164 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00168 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 160.62588 165 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00169 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 260.62588 166 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00170 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 360.62588 167 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00171 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 460.62588 168 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00172 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 560.62588 169 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00173 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 660.62588 170 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00174 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 760.62588 171 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00175 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 860.62588 172 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00176 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 960.62588 173 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00177 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 070.62588 174 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00178 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 170.62588 175 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00179 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 270.62588 176 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00180 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 370.62588 177 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00181 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 470.62588 178 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00182 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 570.62588 179 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00183 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 670.62588 180 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00184 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 770.62588 181 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00185 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 870.62588 182 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00186 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 970.62588 183 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00187 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 080.62588 184 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00188 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 180.62588 185 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00189 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 280.62588 186 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00190 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 380.62588 187 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00191 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 480.62588 188 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00192 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 580.62588 189 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00193 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 680.62588 190 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00194 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 780.62588 191 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00195 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 880.62588 192 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00196 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 980.62588 193 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00197 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 090.62588 194 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00198 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 190.62588 195 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00199 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 290.62588 196 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00200 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 390.62588 197 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00201 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 490.62588 198 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00202 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 590.62588 199 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00203 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 690.62588 200 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00204 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 790.62588 201 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00205 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 890.62588 202 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00206 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 990.62588 203 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00207 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 001.62588 204 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00208 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 101.62588 205 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00209 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 201.62588 206 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00210 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 301.62588 207 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00211 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 401.62588 208 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00212 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 501.62588 209 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00213 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 601.62588 210 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00214 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 701.62588 211 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00215 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 801.62588 212 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00216 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 901.62588 213 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00217 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 011.62588 214 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00218 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 111.62588 215 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00219 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 211.62588 216 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00220 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 311.62588 217 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00221 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 411.62588 218 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00222 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 511.62588 219 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00223 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 611.62588 220 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00224 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 711.62588 221 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00225 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 811.62588 222 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00226 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 911.62588 223 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00227 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 021.62588 224 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00228 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 121.62588 225 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00229 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 221.62588 226 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00230 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 321.62588 227 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00231 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 421.62588 228 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00232 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 521.62588 229 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00233 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 621.62588 230 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00234 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 721.62588 231 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00235 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 821.62588 232 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00236 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 921.62588 233 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00237 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 031.62588 234 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00238 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 131.62588 235 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00239 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 231.62588 236 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00240 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 331.62588 237 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00241 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 431.62588 238 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00242 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 531.62588 239 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00243 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 631.62588 240 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00244 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 731.62588 241 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00245 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 831.62588 242 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00246 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 931.62588 243 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00247 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 041.62588 244 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00248 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 141.62588 245 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00249 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 241.62588 246 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00250 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 341.62588 247 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00251 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 441.62588 248 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00252 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 541.62588 249 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00253 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 641.62588 250 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00254 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 741.62588 251 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00255 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 841.62588 252 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00256 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 941.62588 253 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00257 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 051.62588 254 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00258 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 151.62588 255 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00259 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 251.62588 256 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00260 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 351.62588 257 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00261 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 451.62588 258 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00262 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 551.62588 259 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00263 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 651.62588 260 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00264 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 751.62588 261 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00265 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 851.62588 262 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00266 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 951.62588 263 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00267 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 061.62588 264 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00268 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 161.62588 265 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00269 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 261.62588 266 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00270 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 361.62588 267 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00271 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 461.62588 268 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00272 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 561.62588 269 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00273 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 661.62588 270 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00274 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 761.62588 271 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00275 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 861.62588 272 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00276 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 961.62588 273 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00277 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 071.62588 274 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00278 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 171.62588 275 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00279 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 271.62588 276 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00280 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 371.62588 277 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00281 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 471.62588 278 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00282 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 571.62588 279 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00283 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 671.62588 280 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00284 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 771.62588 281 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00285 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 871.62588 282 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00286 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 971.62588 283 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00287 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 081.62588 284 VerDate Nov 24 2008 16:19 Oct 31, 2014 Jkt 088526 PO 00000 Frm 00288 Fmt 6601 Sfmt 6601 K:\DOCS\88526.TXT TERRI 181.62588

Janet L. Yellen (2014, February 10). Congressional Testimony. Testimony, Federal Reserve. https://whenthefedspeaks.com/doc/testimony_20140211_chair_monetary_policy_and_the_state_of_the

@misc{wtfs_testimony_20140211_chair_monetary_policy_and_the_state_of_the,
  author = {Janet L. Yellen},
  title = {Congressional Testimony},
  year = {2014},
  month = {Feb},
  howpublished = {Testimony, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/testimony_20140211_chair_monetary_policy_and_the_state_of_the},
  note = {Retrieved via When the Fed Speaks corpus}
}