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MONETARY POLICY AND THE 

STATE OF THE ECONOMY 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 15, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–1 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

February 15, 2017 ............................................................................................ 1 

Appendix: 

February 15, 2017 ............................................................................................ 67 

WITNESSES 

WEDNESDAY, FEBRUARY 15, 2017 

Yellen, Hon. Janet L., Chair, Board of Governors of the Federal Reserve 

System ................................................................................................................... 5 

APPENDIX 

Prepared statements: 

Yellen, Hon. Janet L. ....................................................................................... 68 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Yellen, Hon. Janet L.: 

Monetary Policy Report of the Board of Governors of the Federal Reserve 

System, dated February 14, 2017 ................................................................ 74 

Written responses to questions for the record submitted by Representative Emmer .................................................................................................... 123 

Written responses to questions for the record submitted by Representative Hill .......................................................................................................... 127 

Written responses to questions for the record submitted by Representative Hultgren ................................................................................................. 128 

Written responses to questions for the record submitted by Representative Loudermilk ............................................................................................. 134 

Written responses to questions for the record submitted by Representative Luetkemeyer .......................................................................................... 136 

Written responses to questions for the record submitted by Representative Moore ...................................................................................................... 137 

Written responses to questions for the record submitted by Representative Sherman ................................................................................................. 140 

(1) 

MONETARY POLICY AND THE 

STATE OF THE ECONOMY 

Wednesday, February 15, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, McHenry, King, 

Royce, Lucas, Pearce, Posey, Luetkemeyer, Huizenga, Duffy, 

Hultgren, Ross, Pittenger, Wagner, Barr, Rothfus, Messer, Tipton, 

Williams, Poliquin, Love, Hill, Emmer, Zeldin, Trott, Loudermilk, 

Mooney, MacArthur, Davidson, Budd, Kustoff, Tenney, Hollingsworth; Waters, Maloney, Sherman, Meeks, Capuano, Clay, Lynch, 

Scott, Green, Cleaver, Perlmutter, Himes, Foster, Kildee, Delaney, 

Sinema, Beatty, Heck, Vargas, Gottheimer, Gonzalez, Crist, and 

Kihuen. 

Chairman HENSARLING. The Committee on Financial Services 

will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. 

Today’s hearing is for the purpose of receiving the semiannual 

testimony of the Chair of the Board of Governors of the Federal Reserve System on the conduct of monetary policy and the state of 

the economy. 

I now recognize myself for 3 minutes to give an opening statement. 

After 8 years of the largest monetary policy stimulus in our history, and the most unconventional monetary policy in our history, 

Americans recently received disappointing economic news yet 

again. It is official: The economy grew at a measly 1.6 percent in 

2016 when our historic norm is twice that. That makes 8 years of 

sub-par growth, 8 years of stagnant paychecks, and 8 years of 

unreplenished savings. 

Notwithstanding good intentions at the Fed, and notwithstanding good personnel, after 8 years there is zero evidence that 

zero interest rates and a bloated Fed balance sheet leads to a 

healthy economy. 

What also hasn’t changed in 8 years is that the Fed continues 

to unlawfully pay above-market interest rates to some of the Nation’s largest banks in order to prop up select credit markets. This 

very well could be fueling asset bubbles and is certainly harming 

the ability of market participants to accurately price risks. This 

2 

foray into fiscal policy clearly threatens the Fed’s monetary policy 

independence, which should be preserved. 

What also hasn’t changed in 8 years is that on the regulatory 

side the Fed figuratively, if not literally, is taking up seats in bank 

boardrooms. This means that unelected Washington bureaucrats 

can literally direct who gets credit in our society, as opposed to 

competitive markets. 

I will continue to say it: We must be vigilant to ensure that our 

central bankers do not one day become our central planners. 

Fortunately, there is something big that has changed in the last 

8 years, and that is an intervening election, and with it the prospect of three new members of the Board of Governors. The National 

Federation of Independent Business reports that optimism on Main 

Street soared in the wake of the election, with the Small Business 

Optimism Index jumping up to a 12-year high. Likewise, the number of Americans who say the Nation is now on the right track has 

risen by 15 percent since the election. 

Clearly, Americans have a newfound expectation that our economy will grow healthier with different policies coming out of Washington. I believe the last 8 years have shown that no amount of 

monetary policy stimulus can make up for the fiscal policy 

headwinds of a cumbersome failed regulatory state, an uncompetitive tax code, Obamacare, and the Dodd-Frank Act. All of these 

must be remedied and changed if we are to have a healthy economy for all and bank bailouts for none. 

Building that healthier economy for all clearly requires changes 

at the Fed. We must have a more predictable, disciplined, and 

transparent monetary policy. 

The Fed’s so-called data-dependent monetary policy of today says 

nothing about which data matter, let alone how they matter. This 

severely compromises the kind of policy transparency and predictability that is necessary for household wealth to grow and American companies to create jobs. 

Something else that has changed in the last 8 years is the introduction of the reforms included in the Financial Choice Act, which 

would begin to restore the Fed’s independence and promote economic growth. 

Several Nobel Prize-winning economists, former Treasury Secretaries, and former senior economic policy officers have said, when 

they endorsed the Financial Choice Act, that these reforms would 

ensure a monetary policy framework that is truly data-dependent, 

consistent, and predictable. The Financial Choice Act will help consumers and investors make better decisions in the present, and 

form better expectations about the future, and I look forward to its 

passage. 

I now recognize the ranking member for 4 minutes for an opening statement. 

Ms. WATERS. Thank you, Mr. Chairman. 

And thank you, Chair Yellen, for testifying here today. Each day 

as a new episode of chaos unfolds at the Trump White House, 

working families across the country are reminded that our hardfought gains to create more than 16 million private sector jobs, lift 

wages, stabilize the housing market, rein in Wall Street’s abusive 

3 

practices, and make affordable health care accessible are in jeopardy. 

Mr. Trump has already shown America what he is really all 

about. He has taken steps to roll back the Dodd-Frank Wall Street 

reform law based on the false premise that businesses do not have 

the ability to get loans, ignoring the National Federation of Independent Businesses survey showing that 96 percent of small businesses said their borrowing needs are satisfied. 

In addition to rolling back financial protections, Mr. Trump has 

moved to eliminate safeguards that protect Americans planning for 

retirement from being ripped off by financial advisers, repealed a 

plan to cut mortgage insurance premiums that would have saved 

homeowners $500 a year, called for tax cuts for the rich at the expense of the poor and middle class, vowed to eliminate health insurance for 28 million people, aligned himself with Republican 

leaders in Congress in cutting Social Security and Medicare, 

threatened a trade war with two of our largest trading partners, 

and adopted an anti-immigrant agenda. 

Taken all together, these policies will shrink our economy, worsen inequality, lift inflation, reduce exports, eliminate jobs, explode 

Federal budget deficits, and ultimately steer us in the direction of 

another Great Depression. Simply put, the Trump agenda is bad 

for America. 

Chair Yellen, on top of all of this and despite your important contributions to our economic recovery, my Republican colleagues continue to attack your policies, deflecting from their own failure to 

provide a fiscal stimulus that would have complemented rather 

than undermined the Fed’s bold efforts in recent years. 

Now Republicans are doubling down on their efforts to inject partisan politics into Fed decision-making. Indeed, Republicans on this 

committee have sought to weaken the independence of the Fed and 

have called for chaining policy decisions to a mathematical formula 

that would hamper the Fed’s ability to support the economy amid 

a severe and persistent shock. 

Their agenda makes you wonder: Do Republicans not remember 

the 11 million Americans who lost their homes, the $13 trillion 

taken from the savings of hardworking Americans, the nearly 9 

million Americans who lost their jobs, and when the unemployment 

rate hit 10 percent? While our economy has made significant gains, 

hardworking American families simply can’t afford another Great 

Recession. 

Despite the progress we have made, many communities across 

America continue to struggle, particularly minority communities, 

which were disproportionately hit by the crisis. On average, African-American households lost 52 percent of their wealth, Hispanic 

households lost 66 percent, and White households lost 16 percent. 

In these tumultuous times and with more progress that must be 

made for vulnerable communities, your steady leadership and an 

independent Fed that advocates for the interests of all Americans 

is now more important than ever. 

Mr. Chairman, I yield back the balance of my time. 

Chairman HENSARLING. The gentlelady yields back. 

4 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, the chairman of our Monetary Policy and Trade Subcommittee, for 2 minutes. 

Mr. BARR. Thank you, Mr. Chairman. 

In November, the American people delivered a loud and clear 

message that they want major changes in Washington. With Governor Tarullo’s resignation, President Trump will have an opportunity to make major changes at the Fed, filling three vacancies on 

the Board of Governors, including the Vice Chair for Supervision. 

Many financial institutions in my district and around the country 

are concerned that the Fed may cram through a new wave of regulations before these new Governors are confirmed. Given the avalanche of red tape produced by Dodd-Frank, and the disproportionate costs imposed on small community banks, it is imperative 

that the Federal Reserve refrain from issuing any new regulations 

until the new Governors are confirmed. 

New Fed Governors mean a new opportunity to examine the 

Fed’s unconventional monetary policies. Since the beginning of the 

recovery in 2009, the Fed’s improvisational policies, including nearzero interest rates, 3 rounds of quantitative easing, and a $4.5 trillion balance sheet, have failed to deliver their predicted result. 

GDP growth during the Obama Administration averaged a mere 

1.8 percent, well below the growth forecast by the Fed and not even 

close to the 3.5 percent to 4 percent growth average during previous recoveries. 

The American people are ready for a change—a change from the 

Fed’s unconventional and unpredictable policies, a change from the 

Fed’s inaccurate projections of growth, and a change from disappointing economic results. It is time for the Fed to begin prudently shrinking its balance sheet; end its easy-money policies that 

have fueled government borrowing; and shift to a more firmly 

grounded, strategy-based policy that will assure price stability, facilitate commerce wherever it shows promise, and create the conditions for strong economic growth. 

To paraphrase Milton Friedman, it is time we stop assigning to 

monetary policy a larger role than it can perform, asking it to accomplish tasks that it cannot achieve, and as a result preventing 

it from making the contribution that it is capable of making. 

I look forward to your testimony, Chair Yellen, and I thank you 

for your time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Michigan, Mr. Kildee, for 1 minute. 

Mr. KILDEE. Thank you, Mr. Chairman, and Madam Ranking 

Member. 

And welcome, Chair Yellen. 

The new Administration enters with a tailwind of economic 

growth at its back. With 83 months of continuous private sector job 

growth and an unemployment level of 4.8 percent, we do have a 

strong economic foundation to continue to build upon. 

So it is important that the growth of the last 8 years is not put 

at risk through wholesale repeal of the legislative framework that 

has protected consumers, strengthened the financial system, and 

helped our economy find its footing after the greatest financial crisis since the Great Depression. 

5 

So I look forward to hearing from you about how the Federal Reserve will continue to set monetary policies that will expand our 

economic progress and allow for growth in areas such as workers’ 

wages that have been more slow to recover, and in particular to address the uneven nature of growth. The United States still has 

pockets of poverty in urban and rural communities. 

I look forward to hearing your comments, and I appreciate your 

attendance here at the committee. Welcome back. 

With that, I yield back. 

Chairman HENSARLING. The gentleman yields back. 

Today, we welcome the testimony of the Honorable Janet Yellen, 

Chair of the Federal Reserve Board of Governors. Chair Yellen has 

previously testified before this committee on numerous occasions, 

so I certainly believe she needs no further introduction. 

Welcome, Madam Chair. Without objection, your written statement will be made a part of the record, and you are now recognized 

to give an oral presentation of your testimony. 

STATEMENT OF THE HONORABLE JANET L. YELLEN, CHAIR, 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mrs. YELLEN. Thank you. 

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 Congress. In my 

remarks today I will briefly discuss the current economic situation 

and outlook before turning to monetary policy. 

Since my appearance before the committee last June, the economy has continued to make progress toward our dual-mandate objectives of maximum employment and price stability. In the labor 

market, job gains averaged 190,000 per month over the second half 

of 2016, and the number of jobs rose an additional 227,000 in January. Those gains bring the total increase in employment since its 

trough in early 2010 to nearly 16 million. 

In addition, the unemployment rate, which stood at 4.8 percent 

in January, is more than 5 percentage points lower than where it 

stood at its peak in 2010 and is now in line with the median of the 

Federal Open Market Committee (FOMC) participants’ estimates of 

its longer-run normal level. A broader measure of labor under-utilization, which includes those marginally attached to the labor force 

and people who are working part time but would like a full-time 

job, has also continued to improve over the past year. 

In addition, the pace of wage growth has picked up relative to 

its pace of a few years ago, a further indication that the job market 

is tightening. Importantly, improvements in the labor market in recent years have been widespread, with large declines in the unemployment rates for all major demographic groups, including African-Americans and Hispanics. Even so, it is discouraging that the 

jobless rates for those minorities remain significantly higher than 

the rate for the Nation overall. 

Ongoing gains in the labor market have been accompanied by a 

further moderate expansion in economic activity. U.S. real gross 

domestic product is estimated to have risen 1.9 percent last year, 

the same as in 2015. Consumer spending has continued to rise at 

a healthy pace, supported by steady income gains, increases in the 

6 

value of households’ financial assets and homes, favorable levels of 

consumer sentiment, and low interest rates. Last year’s sales of 

automobiles and light trucks were the highest annual total on 

record. 

In contrast, business investment was relatively soft for much of 

last year, though it posted some larger gains towards the end of 

the year, in part reflecting an apparent end to the sharp declines 

in spending on drilling and mining structures. Moreover, business 

sentiment has notably improved in the past few months. 

In addition, weak foreign growth and the appreciation of the dollar over the past 2 years have restrained manufacturing output. 

Meanwhile, housing construction has continued to trend up at only 

a modest pace in recent quarters. And while the lean stock of 

homes for sale and ongoing labor market gains should provide 

some support to housing construction going forward, the recent increases in mortgage rates may impart some restraint. 

Inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import 

prices. Total consumer prices, as measured by the personal consumption expenditures, or PCE, index, rose 1.6 percent in the 12 

months ending in December, still below the FOMC’s 2 percent objective, but up 1 percentage point from its pace in 2015. Core PCE 

inflation, which excludes the volatile energy and food prices, moved 

up to about 1.75 percent. 

My colleagues on the FOMC and I expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2 percent. 

This judgment reflects our view that U.S. monetary policy remains 

accommodative, and that the pace of global economic activity 

should pick up over time, supported by accommodative monetary 

policies abroad. 

Of course, our inflation outlook also depends importantly on our 

assessment that longer-term inflation expectations will remain reasonably well-anchored. It is reassuring that while market-based 

measures of inflation compensation remain low, they have risen 

from the very low levels they reached during the latter part of 2015 

and the first half of 2016. 

Meanwhile, most survey measures of longer-term inflation expectations have changed little on balance in recent months. As always, 

considerable uncertainty attends the economic outlook. Among the 

sources of uncertainty are possible changes in U.S. fiscal and other 

policies, the future path of productivity growth, and developments 

abroad. 

Turning to monetary policy, the FOMC is committed to promoting maximum employment and price stability, as mandated by 

Congress. Against the backdrop of headwinds weighing on the 

economy over the past year, including financial market stresses 

that emanated from developments abroad, the committee maintained an unchanged target range for the Federal funds rate for 

most of the year in order to support improvement in the labor market and an increase in inflation toward 2 percent. 

At its December meeting the committee raised the target range 

for the Federal funds rate by one-quarter percentage point to 0.5 

to 0.75 percent. In doing so, the committee recognized the considerVerDate Nov 24 2008 17:47 Jan 24, 2018 Jkt 027200 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\27200.TXT TERI
7 

able progress the economy made toward the FOMC’s dual objectives. The committee judged that even after this increase in the 

Federal funds rate target, monetary policy remains accommodative, 

thereby supporting some further strengthening in labor market 

conditions and a return to 2 percent inflation. 

At its meeting that concluded early this month, the committee 

left the target range for the Federal funds rate unchanged but reiterated that it expects the evolution of the economy to warrant further gradual increases in the Federal funds rate to achieve and 

maintain its employment and inflation objectives. As I noted on 

previous occasions, waiting too long to remove accommodation 

would be unwise, potentially requiring the FOMC to eventually 

raise rates rapidly, which could risk disrupting financial markets 

and pushing the economy into recession. Incoming data suggest 

that labor market conditions continue to strengthen and inflation 

is moving up to 2 percent, consistent with the committee’s expectations. 

At our upcoming meetings, the committee will evaluate whether 

employment and inflation are continuing to evolve in line with 

these expectations, in which case a further adjustment of the Federal funds rate would likely be appropriate. 

The committee’s view that gradual increases in the Federal funds 

rate will likely be appropriate reflects the expectation that the neutral Federal funds rate—that is, the interest rate that is neither 

expansionary nor contractionary and that keeps the economy operating on an even keel—will rise somewhat over time. 

Current estimates of the neutral rate are well below pre-crisis 

levels, a phenomenon that may reflect slow productivity growth, 

subdued economic growth abroad, strong demand for safe longerterm assets, and other factors. The committee anticipates that the 

depressing effect of these factors will diminish somewhat over time, 

raising the neutral funds rate, albeit to levels that are still low by 

historical standards. 

That said, the economic outlook is uncertain and monetary policy 

is not on a preset course. FOMC participants will adjust their assessments of the appropriate path for the Federal funds rate in response to changes to the economic outlook and associated risks, as 

informed by incoming data. Also, changes in fiscal policy or other 

economic policies could potentially affect the economic outlook. 

Of course, it is too early to know what policy changes will be put 

in place or how their economic effects will unfold. While it is not 

my intention to opine on specific tax or spending proposals, I would 

point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies 

aimed at improving productivity. 

I would also hope that fiscal policy changes will be consistent 

with putting U.S. fiscal accounts on a sustainable trajectory. 

In any event, it is important to remember that fiscal policy is 

only one of the many factors that can influence the economic outlook and the appropriate course of monetary policy. Overall, the 

FOMC’s monetary policy decisions will be directed to the attainment of its congressionally mandated objectives of maximum employment and price stability. 

8 

Finally, the committee has continued its policy of reinvesting 

proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities. This policy, by keeping the committee’s holdings of longer-term securities 

at sizable levels, has helped maintain accommodative financial conditions. 

Thank you. I would be pleased to take your questions. 

[The prepared statement of Chair Yellen can be found on page 

68 of the appendix.] 

Chairman HENSARLING. Thank you, Madam Chair. 

The Chair now yields himself 5 minutes for questions. 

Madam Chair, as I know you are aware, on February 3rd President Trump issued an Executive Order of core principles to regulate the United States’ financial system. Section one, paragraph C 

says, ‘‘Foster economic growth and vibrant financial markets 

through more rigorous regulatory impact analysis.’’ 

You were quoted yesterday in your Senate testimony saying that 

you agree with these core principles. Were you quoted accurately? 

Mrs. YELLEN. Yes. I agree with the core principles that the President enunciated. 

Chairman HENSARLING. As you probably know, to date, DoddFrank has promulgated at least 22,000 pages of regulations as part 

of its 400 rules, I think only roughly three-quarters of which have 

been finalized, and certainly the weight and the volume, the complexity and the cost is one of the headwinds that we are facing 

now. 

I know that as an independent agency, you are not necessarily 

subject to the jurisdiction of the Executive Order, but we have had 

testimony in this committee for years about the challenges of the 

Volcker Rule and its deleterious impact on market illiquidity. 

On December 22nd of last year, just weeks ago, the Federal Reserve released a staff paper, an abstract of which says, ‘‘We document that the illiquidity of stress bonds has increased after the 

Volcker Rule. Since Volcker-affected dealers have been the main liquidity providers, the net effect is that bonds are less liquid during 

times of stress due to the Volcker Rule.’’ It goes on to say that the 

Volcker Rule may have serious consequences for corporate bond 

market functioning in stress times. 

Do you agree with the staff paper of the Federal Reserve? 

Mrs. YELLEN. This was the work of a particular staff member 

and not a finding of the Board as a whole. 

Chairman HENSARLING. I understand. I am just trying to figure 

out, do you agree or disagree with these conclusions? 

Mrs. YELLEN. I think the evidence on this matter is conflicting, 

and I think this paper did find evidence of an impact in one particular area. This is an important question. It is one we continue 

to look at. And there are a number of factors— 

Chairman HENSARLING. You have been looking at it for years, 

though, haven’t you, Madam Chair? Haven’t you been looking it for 

years now? 

Mrs. YELLEN. Yes, we have been— 

Chairman HENSARLING. Still no conclusion? 

9 

Mrs. YELLEN. It is difficult to come to a conclusion because by 

most metrics, liquidity in corporate bond markets still remains 

healthy, but there is— 

Chairman HENSARLING. So after a couple of years, not drawing 

a conclusion yet, I assume that there is no particular action the 

Board intends to take based upon the evidence of this paper, is 

that correct? 

Mrs. YELLEN. There is no action that we intend to take based on 

that— 

Chairman HENSARLING. Okay. 

Madam Chair, in the January 25th edition of The Wall Street 

Journal, Ms. Nellie Liang, whom I assume you are acquainted 

with, stepped down as the Director of your Financial Stability Division. In this article, she said that, ‘‘Congress should provide clarity 

for regulators on how to balance the safety of the financial system 

with economic growth.’’ 

Please know that Congress does not believe that you have found 

the proper balance and that the Volcker Rule is an incredibly important channel to fund jobs in America. Again, I don’t know how 

much stronger the evidence has to be for the Fed to take action, 

but please know the proper balance has not been struck. 

On January 12, 2017, the Financial Stability Board released its 

policy recommendations to address structural vulnerabilities from 

asset management activities. Governor Tarullo was quoted as saying the policies ‘‘will better prepare asset managers in funds for future stress events.’’ Many cannot see any association whatsoever 

with the terms ‘‘systemic risk’’ and ‘‘asset management.’’ 

So my first question is, are you aware of anybody in the Administration directing either you or Governor Tarullo to negotiate with 

the Financial Stability Board on asset management regulation? 

Mrs. YELLEN. It is done in negotiation with the Financial Stability Board. Any regulation that is put into effect in the United 

States has to go through a rulemaking process. 

Chairman HENSARLING. I understand that, but the question was, 

has there been any contact with the new Administration authorizing the Fed to carry on any negotiations with respect to the asset 

management question with the Financial Stability Board? 

Mrs. YELLEN. We participate regularly as part of our established 

responsibilities in discussions with colleagues in the— 

Chairman HENSARLING. As you know, Governor Tarullo was 

never confirmed by the Senate. Are you aware of any specific statutory authority he has to negotiate on behalf of the United States 

on the matter of asset management and systemic risk? 

Mrs. YELLEN. I don’t think it is a negotiation. The SEC is involved; Treasury takes part in those discussions. There are a number of U.S.— 

Chairman HENSARLING. Do you believe that the new Administration should have the ability to nominate a Vice Chair for Supervision, and if confirmed, that person would be the one to be officially tasked with these duties? 

Mrs. YELLEN. We look forward to a nomination to the position of 

Vice Chair for Supervision and— 

Chairman HENSARLING. Don’t we all, Madam Chair. Don’t we all. 

10 

My time has expired. I now recognize the ranking member for 5 

minutes. 

Ms. WATERS. Thank you very much. 

Madam Chair, we have frequently heard from members on the 

opposite side of the aisle that Dodd-Frank has had a significant adverse impact on our economy. To fact-check some of this gloomy 

rhetoric I ask that you provide some brief responses to the following questions: 

Since passage of the Wall Street reform law, has business lending by commercial banks expanded or contracted? 

Mrs. YELLEN. Expanded. 

Ms. WATERS. Roughly how many private sector jobs have been 

added to our economy? 

Mrs. YELLEN. Roughly 16 million since the trough in employment 

in early 2010. 

Ms. WATERS. Have wages increased or decreased in the past 

year? 

Mrs. YELLEN. They have increased, by most measures. 

Ms. WATERS. Has the trend in aggregate household net worth 

been positive or negative? 

Mrs. YELLEN. Positive. 

Ms. WATERS. Has the trend in Federal budget deficit risen or 

fallen over the past few years? 

Mrs. YELLEN. Deficits have declined since the financial crisis and 

its aftermath. 

Ms. WATERS. After the economy hit bottom, have the number of 

foreclosures increased or decreased in recent years? 

Mrs. YELLEN. They are, I believe, decreasing now. 

Ms. WATERS. What, in your view, are the key factors and policies 

that have contributed to these positive trends in the economy? 

Mrs. YELLEN. The economy is recovering from a very severe crisis. We have put in place stronger financial regulation that has 

armed four-star banks to build up their capital buffers to deal with 

problem loans and to strengthen themselves to the point where 

they have been able to support economic growth and recovery in 

our economy. The U.S. economy has recovered more quickly, for example, than the E.U. economies have in the aftermath of the crisis. 

And the Federal Reserve has put in place highly accommodative 

monetary policies meant to spur spending in the economy and restore low unemployment or to achieve the goal of maximum employment and price stability that have been assigned to us by Congress. As I indicated in my remarks, I believe we are coming very 

close to achieving those objectives and that monetary policy still remains accommodative. 

Ms. WATERS. Thank you. 

Chair Yellen, as the Nation’s leading economist, can you discuss 

how unraveling the fabric of our social safety net, such as through 

cuts to food assistance programs for families in poverty, eliminating access to affordable health care, eliminating the earned income tax credit and the child tax credit, cutting unemployment insurance benefits, and cutting funding for housing assistance programs could impact the short-term and long-term health of our 

workforce and our economy? Could these types of cuts do permanent damage to our economy’s ability to fulfill its potential? How 

11 

would cuts to these programs impact inequality and the chance 

that families have to escape poverty? 

Mrs. YELLEN. I don’t want to give detailed guidance to Congress 

on these particular programs. But I would say that the trend of rising inequality and the fact that, although low-income households 

have done well over the last couple of years as the economy has 

improved relative to before the crisis and even looking back a number of decades, they have clearly faced very severe problems that 

have left many American households struggling, and these kinds of 

programs are helpful, I think, in dealing with such distress. 

Ms. WATERS. Could you just give me a few more minutes on the 

earned income tax credit? Do you think that is important? 

Mrs. YELLEN. I think it does serve to support the incomes of 

many lower-income families. 

Ms. WATERS. And what about the child tax credit in particular? 

Mrs. YELLEN. That works in the same direction. 

Ms. WATERS. So, as you said, you don’t wish to tell Congress 

what to do, but these programs are important. And would you include in that cutting the unemployment insurance benefits as being 

beneficial to helping lift families out of poverty? 

Mrs. YELLEN. I think unemployment insurance benefits are important for families who face real distress in the labor market, and 

they also serve as automatic stabilizers that support spending in 

a the downturn and make our economy less subject to the fluctuations of the business cycle. 

Ms. WATERS. Thank you very much. 

I yield back. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. BARR. Thank you, Mr. Chairman. 

And, Chair Yellen, welcome back to the committee. This is the 

first time I have had an opportunity to visit with you as the new 

chairman of the Monetary Policy and Trade Subcommittee, and I 

look forward to visiting with you on a more informal basis to get 

your thoughts about monetary policy and your supervisory responsibilities. 

My intention is to be fair-minded in our oversight and also encourage an exchange of differing viewpoints, but we are also going 

to ask tough questions because the American people do deserve a 

Federal Reserve System that is transparent, accountable, and predictable. 

According to your monetary policy report from a couple of years 

ago, Chair Yellen, the Federal Open Market Committee expected 

that, ‘‘with appropriate policy accommodation, economic activity 

would expand.’’ The FOMC certainly pursued that accommodative 

policy, holding the Fed funds rate to near zero for almost a decade 

and growing the Fed’s balance sheet to one quarter of the size of 

our economy. 

You noted in your prepared testimony that labor market conditions are strengthening and that we are moving toward that inflation target of 2 percent. But despite all of the extraordinary measures and the unconventional policies, economic activity has still 

fallen short of FOMC expectations and has done so throughout the 

12 

recovery. What does the serial failure of the Fed’s forecasts tell us 

about the efficacy of Q.E. and the ballooning balance sheet? 

Mrs. YELLEN. The Congress’ instructions to the Federal Reserve 

are to try to achieve maximum employment and price stability. We 

have focused on those objectives—not economic growth per se, but 

maximum employment. 

The economic growth performance has been quite disappointing 

and growth is falling short of our expectations, but unemployment 

has come down substantially and we are quite close, I would say, 

to achieving our labor market objectives. 

Now, the reason for this is that productivity growth in the U.S. 

economy, which is what really determines in the long run the pace 

of growth— 

Mr. BARR. Right. 

Mrs. YELLEN. —our economy is capable of, has been very disappointing. 

Mr. BARR. Right. I understand that and I also recognize that we 

have seen a repetitive failure for—of the Fed to actually achieve 

the expected growth rates. 

And really my question that I am getting at is, doesn’t this underscore the failure of unconventional policies to deliver the expected results? And if you are a reasonable person looking at this, 

wouldn’t a reasonable person say, ‘‘Maybe we shouldn’t be expecting so much from unconventional policies, near zero interest rates, 

3 rounds of Q.E., a $4.5 trillion balance sheet?’’ 

Mrs. YELLEN. My reading would be that putting in place those 

policies has enabled us to add 16 million jobs to the U.S. economy 

and— 

Mr. BARR. And yet, Chair— 

Mrs. YELLEN. —bring the unemployment rate down to 4.8 percent— 

Mr. BARR. Sure, and I acknowledge that, and the ranking member made a big point of the declining unemployment rate. But we 

also have to recognize that almost 15 million people remain unemployed or underemployed 8 years after the recession. The labor participation rate is the lowest it has been since 1978. 

Mrs. YELLEN. The labor— 

Mr. BARR. President Obama is the only President in U.S. history 

since Herbert Hoover to not preside over a single year of 3 percent 

growth. And median household income remains nearly $1,000 

lower than the pre-recession levels. So we have a bit of a different 

viewpoint on that. 

And I recognize that you believe that the unconventional strategy 

has worked. But if it has worked so well, why are we still reinvesting and why are we not shrinking the balance sheet? 

Mrs. YELLEN. We are beginning to remove monetary policy accommodation and we expect to continue to do so, and we have decided that the best way to do that is by raising overnight interest 

rates—short-term interest rates—by raising our Federal funds rate 

target. We are committed to shrinking our balance sheet but consider it best, from the standpoint of sustaining the recovery, to do 

that in a gradual and orderly way. 

Mr. BARR. And I respect that, given the taper tantrum, and I recognize that viewpoint. But yesterday in the Senate Banking ComVerDate Nov 24 2008 17:47 Jan 24, 2018 Jkt 027200 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\27200.TXT TERI
13 

mittee you said you wouldn’t start to shrink the Fed’s balance 

sheet until the Fed funds rate was high enough that it could be reduced again in the event of economic turbulence. What is high 

enough? 

Mrs. YELLEN. It depends. There is no unique level that is high 

enough. It depends on the strength of the recovery and how robust 

it is, how worried we are about downside risk to the economy. The 

Federal Open Market Committee in our coming meetings will be 

discussing reinvestment policy in greater detail, and I hope to be 

able to provide— 

Mr. BARR. Thank you, Chair Yellen. I look forward to continuing 

to discuss that discretionary policy and the uncertainty it is creating. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. Mr. Chairman, we have had the—obviously I did 

not intend my picture to be up there on the board. My staff has— 

I will ask them to take this down. This is a beta version and we 

will go back to the—okay. 

I have always envied the Majority with their national debt clock. 

The gentleman from Kentucky tells us that he wants to blame the 

Fed for low interest rates, and that is why we have a national debt. 

We all know that the amount of the deficit is set by the spending. That is in Congress. It is set by the taxes. That is set by Congress. And in a pitiful attempt to deflect responsibility for the fact 

that we have a large national debt, we are told that the blame goes 

to the Fed because you haven’t charged us enough for the cost of 

borrowing. 

The national debt would be even higher if our interest rates were 

higher and if our cost of financing the national debt were higher. 

We are also told to blame President Obama for the fact that the 

catastrophe he inherited has not been rebounded enough. That is 

like blaming the firefighter for the fact that there was a fire. He 

found this country in freefall, we are now on the upswing, and 

those who were here at the time that the policies were set that created the freefall are saying, ‘‘Well, why isn’t the upswing bigger?’’ 

Finally, thank you for your large balance sheet. That creates a 

huge profit. That money goes to the general fund. So your low interest rates and your huge balance sheet are keeping that national 

debt clock that the Majority puts up from turning much, much faster. 

Now, I do want—at the next meeting we will have the technology 

done properly. We will have the national trade deficit clock. It stands at over $11 trillion of accumulated trade debt since 

1980, and that is including both goods and services. It would be 

higher if we just looked at goods. That clock is often turning faster 

and that clock is as a result of the terrible trade policies that have 

been embraced by both sides of Pennsylvania Avenue from time to 

time. 

Eric Holder pointed out that he hesitated to engage in criminal 

prosecutions of the biggest banks because they were so large that 

he feared for the effect on the national economy. You have been 

here before and I have urged you to break up the too-big-to-fail inVerDate Nov 24 2008 17:47 Jan 24, 2018 Jkt 027200 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\27200.TXT TERI
14 

stitutions. You have said you are going to achieve those goals 

through another means. 

So can you assure the current attorney general that we can enforce the criminal law fairly, we can let the chips fall where they 

may, and the economy will be just fine no matter how big the institution that faces criminal prosecution and no matter how big the 

figures are who are put in jail? Can you tell us that as of today, 

no one is too-big-to-jail? 

Mrs. YELLEN. Certainly, I agree that the Justice Department 

should pursue any criminal indictments— 

Mr. SHERMAN. Would the downfall of any one or two institutions 

have an adverse effect on our economy that should give a reasonable attorney general some pause before taking action? 

Mrs. YELLEN. Through the process that we have put in place, the 

living will process, the strengthening of the capital and liquidity 

positions of the largest firms— 

Mr. SHERMAN. Yes or no? Can we feel free to engage in criminal 

prosecutions of even the largest one or two institutions without an 

adverse economic effect? Yes or no? 

Mrs. YELLEN. I believe there is a very reasonable chance we 

would be able to— 

Mr. SHERMAN. One last question. The battle in Dodd-Frank is basically a battle to reduce the amount of capital that the big banks 

have to face. The Wall Street Journal reported that if we got rid 

of it or moved against it, that would liberate about $100 billion 

that the banks could pay out in dividends or share buybacks. 

Would it increase or decrease the risk that a giant institution 

would need a bailout if we told them that they should have less 

capital on hand and were free to take some of the capital they have 

and pay it out in dividends now? 

Mrs. YELLEN. We believe very strongly in high capital levels, especially for the largest and most systemic institutions, and we 

think it will support their ability to supply credit to U.S. households and businesses even in a very adverse scenario. It strengthens their resilience and vastly reduce their odds of failing. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce, chairman of our Terrorism and Illicit Finance Subcommittee. 

Mr. PEARCE. Welcome, Chair Yellen. Thanks for being here. I always appreciate your viewpoints. 

Now, as I read your report that you just gave to us, on page one 

you are talking about the progress towards maximum employment. 

And so you give—I am just trying to get the flow in my mind here 

correctly. 

So you have made progress and then later, you say that the 

FOMC believes that unemployment is pretty well at its normal 

level, that is, it is where it needs to be. Labor under-utilization is 

a little bit of a concern but it is kind a marginal concern, that it 

is these pockets of maybe minorities or things. 

Is that more or less kind of the summary? Am I reading your report correctly? 

Mrs. YELLEN. We think that the economy is— 

Mr. PEARCE. No. I didn’t ask about the economy. 

15 

Mrs. YELLEN. The labor market— 

Mr. PEARCE. I was talking the labor force and— 

Mrs. YELLEN. —is— 

Mr. PEARCE. —employment and the unemployment seems to be 

where you think it ought to be. 

Mrs. YELLEN. Essentially. There are— 

Mr. PEARCE. Essentially, okay. 

Mrs. YELLEN. As you said and as we say in the report, there are 

pockets of— 

Mr. PEARCE. Yes. I understand, but basically you are giving a 

fairly glowing, stable report. Okay. 

Mrs. YELLEN. Well— 

Mr. PEARCE. Now, my point— 

Mrs. YELLEN. But let me be clear, I am not saying that all workers or all individuals— 

Mr. PEARCE. You give those reservations there. We have pockets. 

We have seen large declines in employment for major demographic 

groups, but we have discouraging jobless highs for minorities. I 

give you your balancing statements there. 

My point is that this stable position that you have established, 

that we have done pretty well, then we have some pockets that we 

need to improve on, is highly discouraging because 4 out of 10 people who could be in the workforce are not. And for the 60 percent 

who are, it tells us that the highest economic body in the country 

says it is okay that you 40 percent are not there, that we don’t 

draw attention to the 62 percent labor force participation rate. It 

is just ignored and things are fairly stable according to your report 

and according to our questions. 

Yesterday, a New York Times article stated that—and I am trying to get at this if it is accurate—Mrs. Yellen and other Fed officials have suggested that the central bank would seek to offset 

such measures—that is, Mr. Trump calling for stimulating economic growth through tax cuts—but that you would seek to offset 

that because the Fed judges the economy to be growing at roughly 

the maximum sustainable pace already. 

Is that accurate news? Is that accurate, that you believe that we 

are pretty close to the maximum sustainable pace already? 

Mrs. YELLEN. I have urged Congress and the Administration to 

focus on measures that would raise the potential of the economy to 

grow, that would increase productivity growth and the capacity— 

Mr. PEARCE. So this statement in the New York Times is incorrect— 

Mrs. YELLEN. It is not— 

Mr. PEARCE. —that you all do not believe—you do not— 

Mrs. YELLEN. It is not quite accurate and I don’t believe that accurately reflects my words. 

Mr. PEARCE. So this would be some of the fake news coming out 

from the New York Times yesterday. 

Mrs. YELLEN. I think that there are policy measures that Congress and the Administration could consider— 

Mr. PEARCE. Okay. 

Mrs. YELLEN. —that would boost the capacity of the U.S. economy— 

16 

Mr. PEARCE. So is there a maximum rate at which you all do become concerned about economic growth? 

Mrs. YELLEN. I think faster economic growth, if it is supported 

by either faster labor force growth or productivity growth— 

Mr. PEARCE. The question is, is there a maximum? I am kind of 

running out of time. Is there a position at which the Fed gets uncomfortable with economic growth? Is there a number at which you 

get uncomfortable? If it goes to 7.4 percent you are going to be okay 

with that? 

Mrs. YELLEN. No. I think we would like to see fast growth, but 

we do have to control price inflation— 

Mr. PEARCE. You would do things, then, to offset—this idea that 

you would offset fast economic growth, then that has an element 

of truth to it? 

Mrs. YELLEN. Only if we think that it is demand-based and 

threatens our inflation objective— 

Mr. PEARCE. Yes. So let me wrap up here if I can— 

Mrs. YELLEN. —has assigned to us. 

Mr. PEARCE. Let me wrap up here, because when I look at employment figures and 16 million, it indicates that all jobs are created equal. And frankly, a retail job is not going to pay as well as 

a refinery job. And when the President is talking about expanding 

the economy and I see comments that indicate you all from the Fed 

might do things to sidetrack that growth rate when he is going to 

increase infrastructure and the $60,000 a year jobs, I worry about 

that. 

I worry about it being considered that small business growth is 

not as good as or maybe it is even equivalent as the economic 

growth by international corporations. So again, I worry when I see 

these things. 

I yield back the balance of my time, Mr. Chairman. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New York, Mr. 

Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Madam Chair, it is good to see you. And I can’t believe my ears 

as I stand here, or sit here, because I guess I am hearing revisionist history, and I wonder about my colleagues who claim that 

they are worried now. 

But if I recall correctly—and I think I do because I got elected 

in 1998, I came here in 2000—at that time we were talking about 

balanced budgets and a moving economy. And in the 2000 election, 

we had a Republican Majority in the House, a Republican Majority 

in the Senate, and a Republican President, similar to what we have 

right now. 

And as I recall, during that period of time all of a sudden we 

were not talking about balanced budgets anymore, we were talking 

about rising deficits. Democrats clearly had nothing to do with that 

because we had no control over anything, as it is right now. And 

we moved forward and we ended up in the greatest recession since 

the Great Depression. 

The fact of the matter is—and these are not alternative facts— 

that when Barack Obama became President of the United States 

of America, we were losing. You talk about slow growth—I figure, 

17 

you can correct me if I am wrong—we were losing about 700,000 

jobs a month, not gaining anything. Not because of Democrats. 

Barack Obama wasn’t the President. 

So he inherited a economy that was falling. I can remember the 

Secretary of the Treasury coming over to the House begging Democrats to do something at the time because even the Republicans 

wouldn’t do anything, asking for our help to get something passed 

to save this economy. 

That is not revisionist history; those are facts that took place. 

And under Barack Obama we have made tremendous progress 

from where we were. To the fact that as opposed to losing jobs, as 

we were beforehand, I think you testified we have now gained over 

16 million jobs. I think that should be something that all of us as 

Americans should be applauding and not criticizing because we 

have come a mighty long way from an economy that was in the 

tank. 

And we had to do certain things because we didn’t want to get 

back there ever again. We wanted to make sure that we didn’t put 

the American people, the workers—whether you are Democrat, 

whether you are Republican, whether you are independent, whether you are Black, whether you are White, whether you are Hispanic—we didn’t want people to be put in that position again. So 

we had to come up with some new laws. 

One of them was called Dodd-Frank. And as a result of DoddFrank, we saw some stabilization in institutions and we began to 

move forward and we began to create jobs again. And here we are 

now creating some of the same kind of uncertainty. 

So let me just ask a question because I believe—I don’t know, 

maybe I am wrong, but I think that in the Fed’s monetary policy 

report you did with that, uncertainty hurts you with your report 

as well as it affects employers and business owners. And when you 

have uncertainty, whether or not it is dealing with immigration, 

whether or not it is dealing with trade, whether or not it is dealing 

with regulatory policy, that causes problems in the economy. Is 

that not correct? 

Mrs. YELLEN. It can be. That is for many years a problem that 

businesses have cited that has made them reluctant to make commitments. It is hard to quantify just how important that is. 

Mr. MEEKS. One of the things that I do know is that over the 

last 14 days, we certainly have had not anything certain with this 

current Administration. In fact, every day that we wake up it is 

something new and uncertain dealing with this Administration. 

Every day. Every day. I don’t know one day when we have not 

woken up and looked and read the papers or looked at the television or something and it has been something new. 

Now, there have been some excuses—but the fact of the matter 

is we have had anything but certainty for the last 14 days in the 

United States of America. We have had none, and that thereby will 

have an effect overall on the average everyday worker in the 

United States of America, our businesses, our small businesses, our 

banks, our regulations, and even, in fact, our credibility. 

Because guess what? In the current Administration they don’t 

even trust one another. We have a situation where the Vice PresiVerDate Nov 24 2008 17:47 Jan 24, 2018 Jkt 027200 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\27200.TXT TERI
18 

dent doesn’t trust this one, and the President has already said, ‘‘It 

is a matter of trust; I have to get rid of this one or that one.’’ 

And then you have the situation where one person comes in and 

says, ‘‘Oh look, the President didn’t do this; the person resigned by 

themselves.’’ Then the next hour someone says, ‘‘Oh, the President 

fired them.’’ 

Uncertainty. Our country is in an uncertain position right now, 

which will affect our economy and, unfortunately, the gains that we 

have made. So I am hoping that there is something that changes 

immediately so the gains that we have made over the last 8 years, 

we don’t go back to where we were, where we were losing 780,000 

jobs. 

My time is up and I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. McHenry, vice chairman of the committee. 

Mr. MCHENRY. Chair Yellen, thank you so much for being here 

today. 

I support the Federal Reserve’s function as an independent policymaker when it comes to our monetary policy. I think an independent Federal Reserve, for the purposes of monetary policies, is 

very important. 

You are also a regulator. And as I have asked you before, that 

is really what I am interested in what you do in terms of regulation. 

And so let me just ask, do you think it is appropriate for Congress to have oversight of the Federal Reserve’s rulemaking and 

regulatory policies? 

Mrs. YELLEN. Of course. 

Mr. MCHENRY. Okay. That is good. So do you think Congress 

should have oversight over the Federal Reserve’s regulatory discussions with international bodies, as well? 

Mrs. YELLEN. Congress has assigned the various regulatory 

agencies responsibilities, and in carrying those out— 

Mr. MCHENRY. And I am asking you as a— 

Mrs. YELLEN. —we have, and I believe should have, discussions 

with our international colleagues. 

Mr. MCHENRY. I will get to that question. I certainly understand 

that because Congress has given you this authority and given you 

this directive, should Congress not also have oversight over that 

authority in which we have given you? 

Mrs. YELLEN. Congress of course has oversight over our conduct. 

Mr. MCHENRY. So you agree that both domestically and internationally, we should have oversight over those rulemaking activities. Okay. 

In accordance with that, I sent you a letter a couple of weeks 

ago, and thank you for the reply. I don’t actually like the contents 

of it, but thank you for replying in a timely fashion before the hearing. 

I asked for your assurance about your participation in these 

international agreements, for you to pause until the new Administration, who has a markedly different approach to these standards, 

has actually gotten their appointees in before you finalize any discussions internationally. 

19 

Mrs. YELLEN. Congressman, you know that nothing is a rule that 

is effective in the United States until regulatory agencies have 

gone through a normal rulemaking process, and nothing in these 

international discussions binds the U.S. regulatory agencies, including the Fed, to carry out agreements in our own rulemakings 

in the United States. 

Mr. MCHENRY. I certainly understand that. 

Mrs. YELLEN. And we have, in important cases, indicated that we 

don’t agree with the outcomes of international discussions and have 

no intention of putting in place— 

Mr. MCHENRY. In other cases, we can’t even surmise whether or 

not your representative from the Fed has voted in the affirmative 

or in the negative on these agreements that we are then, as your 

agency comes back and foists upon us an international agreement 

that has not been apparently voted on because we can’t surmise if 

you voted yes or no. 

And so there is a great deal of opacity with that, and what we 

want is transparency in this. And transparency has been severely 

lacking. 

So my question is very simple: When it comes to the Basel IV 

package, do you intend to wait to see if the new Administration has 

an opinion on these matters before you would make some agreement on the Basel IV package? 

Mrs. YELLEN. These are all ongoing discussions in which U.S. 

regulators participate and, as I said, nothing is effective in the 

United States unless we go through a rulemaking process here. 

Mr. MCHENRY. Okay. So— 

Mrs. YELLEN. It is important— 

Mr. MCHENRY. —I will summarize that— 

Mrs. YELLEN. It is important for the United States. 

Mr. MCHENRY. —as probably not, that you will probably not wait 

for the new Administration to put regulators in place even if those 

new regulators are in place and move to counteract exactly what 

you have achieved within an international agreement. 

Yesterday, before the Senate Banking Committee, you seemed to 

endorse the core principles of President Trump’s financial regulation Executive Order. What steps are you taking to comply with 

the Executive Order directive to advance America’s interests in 

international forums, specifically as it relates to international 

standards like the net stable funding ratio and international insurance regulation? 

Mrs. YELLEN. In the case of the international insurance regulation we have indicated that the capital standard that was proposed 

is not one that we think is suitable to be put in place in the United 

States, and I think that is a good example of the fact that matters 

that are discussed and may be agreed on by others are not effective 

in the United States unless we have gone through a full rulemaking process with opportunity for comment and response. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

And thank you, Madam Chair, for being here today. 

20 

You said earlier, and it has been referenced now a couple of 

times, that you agree with the core principles enunciated in the 

President’s Executive Order. I just want to read a couple of them: 

to empower Americans to make informed choices; to prevent taxpayer-funded bailouts; to foster economic growth and vibrant financial markets; and to restore public accountability. 

Everybody agrees with those core principles, but I don’t see anything in here that specifically says that Dodd-Frank has been a 

failure and needs to be repealed. Did I miss it? I didn’t see anything here that said any specific regulation in any level needs to 

be repealed or amended. Did I miss that? Is that in the core principles? 

Mrs. YELLEN. The Executive Order asks the Treasury Secretary, 

working with FSOC— 

Mr. CAPUANO. Just to do these things? 

Mrs. YELLEN. —members to conduct a review. 

Mr. CAPUANO. So this is all about motherhood, apple pie, and 

puppy dogs. We all love this stuff, and therefore the Executive 

Order, though wonderful and very powerful, means nothing. 

Let me read a little bit more from it: It is to promote the financial stability of the United States by improving the accountability 

and transparency in the financial system, to end too-big-to-fail, to 

protect the American taxpayer by ending bailouts, and to protect 

consumers from abusive financial practices—financial service—oh, 

oh, excuse me. I was reading the wrong thing. That is actually the 

preamble to the Dodd-Frank bill. 

Sounds very familiar, doesn’t it? I could have mistaken that for 

the President’s Executive Order because, again, who could oppose 

any of that? 

So, that is wonderful. I am glad we all agree that the President’s 

Executive Order is very powerful. By the way, don’t you love Greg 

Meeks? 

[laughter] 

He hit that nail so hard and so well, that ball is still flying over 

Fenway Park, I will tell you. It was a great way to lead this in, 

and I have almost nothing further to say, but I will try. 

Just out of curiosity, Madam Chair, do you or any of your highranking staff own any banks? 

Mrs. YELLEN. No. 

Mr. CAPUANO. Do you own any stock in any banks? 

Mrs. YELLEN. No. 

Mr. CAPUANO. Do any of your immediate family members own 

any banks or any stock in any banks? 

Mrs. YELLEN. No. 

Mr. CAPUANO. So therefore, you have—I don’t know if it is formal 

or informal—you have no emoluments coming in to anybody at the 

Federal Reserve. Is that— 

Mrs. YELLEN. We have a stringent set of ethics requirements to 

which we adhere. 

Mr. CAPUANO. So you think it would be unethical if you, any of 

your high-ranking staff, or any of your family members were to financially benefit from the work that you do? 

Mrs. YELLEN. It would be a conflict of interest for us and— 

Mr. CAPUANO. That is good to hear because— 

21 

Mrs. YELLEN. —we have rules in place to— 

Mr. CAPUANO. —apparently, not everybody— 

Mrs. YELLEN. —prevent that. 

Mr. CAPUANO. —agrees with that approach, and to me it has 

been a little troubling. I am glad to know that you and your staff 

and your family have high ethical values. I wish everyone tried to 

do that, but I guess that is another discussion for another day. 

I also want to ask you, I know there have been a lot of concerns 

about making these banks—getting rid of all these regulations so 

they can get rid of all of that capital money that they are just sitting there doing nothing, which, of course, is not right, but that is 

okay. I will take that. 

As I understand the capital requirements—and correct me if I am wrong—if I go to a bank and deposit $100 in my checking account, I know there will be some dollar fees here and there that 

I have to pay, but effectively, pursuant to the general regulation, 

the bank is then required to pretty much hold 6 of those dollars 

in a capital account, roughly 6 percent of what I have deposited. 

That doesn’t mean it is just sitting there, but that is what they 

have to do. 

So if the bank goes belly up and there is a run, or if I just want 

my money back, the bank says—if they have a problem, they have 

made bad choices, the economy has gone south, something—maybe 

there is a President who cut taxes too much or got involved in too 

many wars that he didn’t want to pay for. But if anything happened and I went to that bank and there was a run, I could only 

get 6 of my dollars back based on those capital requirements. 

Do you think that is sufficient that 6 percent of their assets are 

held in capital? 

Mrs. YELLEN. Let’s see. We have liquidity requirements, which 

would take some of your deposit and require them to hold it in— 

Mr. CAPUANO. But my $100 isn’t it. They don’t have to sit on my 

$100 or, even 90 of those dollars, or 80 or 70 or 50 or 20. 

Mrs. YELLEN. What we want to make sure of is that the loans 

that the bank makes are— 

Mr. CAPUANO. Right, but you think—and I am not arguing; you are the professional—roughly $6 is sufficient to cover their needs 

in real times of crisis? 

Mrs. YELLEN. We have a number of different ways to gauge how 

much capital they should have— 

Mr. CAPUANO. But apparently some people on the other side are 

saying, ‘‘My God, that is too much. We can’t keep that $6. The heck 

with those depositors.’’ 

Thank you, Madam Chair. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, chairman of our Financial Institutions Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

And, Chair Yellen, thank you so much for being here today. Just 

kind of a refresher course. Some of my friends across the aisle have 

been talking about how wonderful and rosy things are. If you look 

at the GDP growth for the last several years, every year it is less 

than it was the year before. And if I recall, my high school math 

22 

teacher called that a negative trend line, which means you are 

going the wrong direction fast. 

So along that line, yesterday, Chair Yellen, your testimony in the 

Banking Committee over in the Senate tried to paint a very rosy 

picture of lending in the United States, especially for small business, and you cited independent national—the National Federation 

of Independent Business study confirming that thought. 

But what you have failed to mention was that 65 percent of the 

businesses that responded to the survey had no intention of borrowing. Why? 

Why did they not want to borrow any money? That is the question. That is the concern. 

Mrs. YELLEN. I think that is a legitimate concern that small 

businesses haven’t seen rapid enough growth in their sales and in 

business overall that they feel the need to borrow. Of course, that 

is a concern. 

Mr. LUETKEMEYER. As I go home every weekend and I talk to my 

small business folks, for the last several years it has been a regulatory onslaught for them, and part of it is banking regulation, 

which makes it difficult to get access to credit. And I will just give 

you one quick example. 

A banker friend of mine sold his bank to a larger bank and the 

executive officer stayed in the bank, and over the last year they 

made 3 loans—3 loans in the entire bank where he normally made 

30 per month. That is the kind of restriction of credit that is going 

on in the real world. 

So I guess my question to you is, when is the last time you 

talked to a small business owner? Do you talk to small business 

owners at all? 

Mrs. YELLEN. We do talk to small business owners. 

Mr. LUETKEMEYER. When was the last time you personally talked 

to a small business owner? 

Mrs. YELLEN. We have groups that come in regularly to meet 

with me and other Board Members. 

Mr. LUETKEMEYER. When was the last—can you give me a date? 

Last week? Last month? Last year? 

Mrs. YELLEN. Probably within the last several weeks. 

Mr. LUETKEMEYER. Okay. Have you talked to a farmer lately? 

Mrs. YELLEN. Talked to whom? 

Mr. LUETKEMEYER. Have you talked to a farmer lately? He is a 

small business person. 

Mrs. YELLEN. Not recently. 

Mr. LUETKEMEYER. Okay. One of the other concerns that I have 

is because of this onslaught of regulations, and especially in the 

banking community, you are one of the regulators, there are obviously other groups of them here that are—in my mind are problematic with the onslaught of rules and regulations. 

In my home State of Missouri, at the end of 2015, which is the 

year before last—I haven’t gotten the numbers for last year yet— 

there were 44 banks total that totaled under $50 million. Those are 

the little bitty guys, but they service a community, a very important small community someplace in my State. Twenty-six of those 

lost money—26 of those 44 small banks lost money in 2015. 

23 

Now, those are all targets for either closure or a merger, and 

that is very concerning because, as I just stated, you wind up with 

a small bank being absorbed by a larger bank. It cuts the ability 

of small businesses in those communities to be able to have access 

to credit as well as every consumer, whether it is home loans or 

what. 

And so that gets me then to my next concern, which is the clearinghouse came up with a study—a report on your CCAR. And in 

there it makes the statement that the Fed’s process—CCAR process—is restricting lending and thwarting economic growth, particularly in small business and mortgage lending. What would your response be to that? 

Mrs. YELLEN. I think that is a highly flawed study that was 

used. 

Mr. LUETKEMEYER. A highly flawed study? 

Mrs. YELLEN. Yes, and I would disagree with its findings. I could 

go into detail about what some of the flaws are with the methodology— 

Mr. LUETKEMEYER. No. Give me an example, please. 

Well, one flaw is that the clearinghouse estimates effective risk 

weights produced by stress tests by looking at the average quality 

of bank portfolios and not the quality of marginal or new loans. 

And that is a huge difference because the existing loan portfolio 

often has loans that were originated that are encountering problems and— 

Mr. LUETKEMEYER. I don’t disagree with you on risk weighting. 

I am not a big fan of risk weighting either, and as I go through 

the chart here it is amazing to me, you wound up having to have 

more capital when you risk weight for small business loans than 

you do for commercial industrial loans. Can you explain that? 

Mrs. YELLEN. Our stress-testing methodology tries to take a forward-looking and institution-specific approach and capture— 

Mr. LUETKEMEYER. Okay. Let me reframe the question. If you have a small business loan at $50,000 and you have a large industrial loan at $50 million, 100 times larger in size, tell me where the 

most risk is to the bank? 

Mrs. YELLEN. I don’t think that is the difference in risk weights 

implicit in our stress test. 

Mr. LUETKEMEYER. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Clay, ranking member of our Financial Institutions Subcommittee. 

Mr. CLAY. Thank you, Mr. Chairman. 

And thank you, Chair Yellen, for your appearance today. 

President Trump’s proposals would have far-reaching negative 

consequences for the economy. These harmful policies include rolling back the Dodd-Frank Wall Street Reform and Consumer Protection Act, cutting taxes for the wealthy, curtailing immigration 

and deporting undocumented immigrants, adopting a protectionist 

trade policy, eliminating the Affordable Care Act, and cutting back 

the social safety net for vulnerable population. 

And the President has also reversed a planned Federal Housing 

Administration mortgage insurance premium cut that would have 

saved homeowners $500 a year, which may not be much to some, 

24 

but for a lot of moderate-income Americans, that means something 

to them. 

I consider the Trump agenda to be harmful to hardworking 

American families, and ultimately catastrophic for the whole economy. 

Here is my question: After the recession of 2008, bringing in 

some kind of regulation over—and responsibility—over our financial institutions, including creation of the Consumer Financial Protection Bureau (CFPB), have we not learned anything since 2008? 

And now we have this effort to roll back these regulations. What 

do you think the impact will be on our economy if we do this in 

a willy-nilly way? 

Mrs. YELLEN. Looking back, I think we know that consumer 

abuses in lending and in securitization mortgage lending were an 

important contributor to the financial crisis and can be a source of 

financial instability in the future if we are not attentive to those 

areas and potential abuses. 

Mr. CLAY. Do you believe that the CFPB has done a pretty good 

job of protecting our consumer, of getting them money back, and 

has been the backstop for our consumers? Let me hear your opinion 

about the CFPB. 

Mrs. YELLEN. It is really for you to evaluate your judgment on 

their performance. But they have had a broad agenda and taken 

on attempts to regulate in many important areas. 

Mr. CLAY. Thank you for that response. 

And I know that unemployment is down; however, I think more 

work still needs to be done to reverse decades-long inequality that 

has left middle-class workers, low-income families, and minority 

communities behind. 

Generational and systemic inequities continue to distort progress 

and opportunity for tens of millions of Americans. What can we do 

to address some of those concerns? 

Mrs. YELLEN. I agree with that, and I think this ongoing inequality is something on which Congress should focus. 

I think there are many public policies that are relevant. They are 

largely not in the domain of the Fed, but they would, for starters, 

involve focus on education, training, community development, and 

other things that would improve the chances for success of communities that have had historically serious labor market problems. 

Mr. CLAY. And I appreciate that response, which tells me that 

Congress should be about helping this economy and going about 

the business of job creation and not looking to roll back regulations 

that are there to protect the American consumer. 

My time is up. Thank you so much for your engagement. 

Mrs. YELLEN. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Michigan, Mr. Huizenga, chairman of our Capital Markets 

Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

And, Chair Yellen, it’s good to see you. This is my first time not 

being able to engage you as Chair of the Monetary Policy and 

Trade Subcommittee, as I am now chairing the Capital Markets 

Subcommittee. I want to move on to a number of issues, but quickVerDate Nov 24 2008 17:47 Jan 24, 2018 Jkt 027200 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\27200.TXT TERI
25 

ly, do you plan to have lunch with Secretary Mnuchin as often as 

you did with Secretary Lew? 

Mrs. YELLEN. Yes, absolutely. I look forward to a very strong 

working relationship with him— 

Mr. HUIZENGA. Right. That is something that we had talked 

about previously. We pulled your public calendar, and over the last 

3 years—34 months, actually—there were 68 official meetings that 

you had with Secretary Lew. You had 32 meetings with Members 

of Congress, including 8 with the ranking member, 2 with the 

chairman, and one with myself as Chair of Monetary Policy, and 

I think that is one of the reasons why I have certainly advocated 

for you to come more often, and as part of the FORM Act we had 

put in place a requirement to come up 4 times a year rather than 

2 times a year. 

I know some on the other side have thought that was burdensome and intrusive. I think it is good communication. So I appreciate you being here today. 

Does the economy still need improving? 

Mrs. YELLEN. That is a very broad question and it goes— 

Mr. HUIZENGA. That would seem either yes or no. 

Mrs. YELLEN. In many dimensions, yes. 

Mr. HUIZENGA. Okay. I will take that. 

Mrs. YELLEN. Many disappointing aspects of U.S. economic performance— 

Mr. HUIZENGA. Okay. I will take that. We have seen a lot of rosy 

scenarios painted by some. And I will fully admit, there are incongruent data points here. The conflicting information that comes, 

brings a couple of jokes to mind: 

Have you ever seen a one-handed economist? No. 

There are liars, damned liars, and statisticians. 

You can make a lot of numbers say a lot of different things, and 

I think we have heard some of those. But I am curious, what is the 

U6 unemployment rate right now? 

Mrs. YELLEN. I believe it is 9.4 percent. 

Mr. HUIZENGA. Yes. That is the information that I have, as well, 

and you talk about that on page one. You don’t talk specifically 

about it. You do talk about the unemployment rate being 4.8 percent. You don’t mention that it is the 9.4 percent. 

You do use a, I guess, charmingly phrased description here of 

those marginally attached to the labor force to describe the U6. I 

think that is quite problematic. 

And isn’t it true, Chair Yellen, that we are in the slowest, 

shallowest, and most tepid recovery in the modern era since World 

War II? 

Mrs. YELLEN. It took a long time for the economy to remove labor 

market slack and get unemployment down and close— 

Mr. HUIZENGA. Okay. That sounds like a yes, and for— 

Mrs. YELLEN. —growth has been slow in the process. 

Mr. HUIZENGA. —an economist, that is pretty direct. Okay. 

And is it not true that the Obama Administration is the first Administration since World War II in the modern era which has not 

returned the economy to pre-recession levels? 

26 

Mrs. YELLEN. I would say that the economy is at pre-recession 

levels now in terms of the unemployment rate and other measures 

of the labor market— 

Mr. HUIZENGA. Unemployment, not U6, according to the numbers 

that I have seen. And is it not true that there have been 30 quarters—not months—30 quarters of recovery? 

Mrs. YELLEN. Yes. 

Mr. HUIZENGA. Right? Okay. I think that was talked about. But 

pretty tepid recovery, don’t you think, that it has taken 30 quarters 

to recover to that level, even if it is close? 

Mrs. YELLEN. We have had a very deep downturn. 

Mr. HUIZENGA. I fully understand that. But isn’t it true that the 

labor force participation rates are at record lows? 

Mrs. YELLEN. The labor force participation rate is largely declining because we have an aging population— 

Mr. HUIZENGA. Whoa, whoa, whoa. 

Mrs. YELLEN. —and it will continue to do so. 

Mr. HUIZENGA. Hold on. Hold on. Hold on. I have to throw the 

flag on that one because there is an MIT economist report that just 

came out recently, which found that younger workers are not entering the labor force but older workers are, and that is the only 

growth area and the only demographic which is seeing increases is 

older workers. 

You are starting to sell a little flimflam here on, ‘‘No, no, it is 

because we are an aging demographic.’’ But the only demographic 

that is entering the workforce, according to this study, is the older 

worker. So— 

Mrs. YELLEN. The labor force participation rate of older workers 

is rising, but their prevalence—they work very much less, although 

they work more than previous generations did. Labor force participation— 

Mr. HUIZENGA. They are hard workers. I am the product of one 

of those. 

Mrs. YELLEN. —falls dramatically when people get into the retirement years— 

Mr. HUIZENGA. Well, in my— 

Mrs. YELLEN. —and their fractions in the U.S. population— 

Mr. HUIZENGA. Okay. 

Mrs. YELLEN. —are increasing. 

Mr. HUIZENGA. In my remaining 10 seconds here, I just want to 

know, isn’t it true that if we would have thrown off the shackles 

of unreasonable regulation, we would have had a faster, steeper recovery? 

Mrs. YELLEN. I would not generally agree with that. 

Mr. HUIZENGA. You would not generally agree with that. So more 

regulation would have caused faster recovery? 

Mrs. YELLEN. By cleaning up our financial institutions and requiring them to build their capital buffers— 

Mr. HUIZENGA. I did use the word ‘‘unreasonable.’’ 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. HUIZENGA. Unreasonable regulation. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

27 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Lynch. 

Mr. LYNCH. Good morning, Madam Chair. 

And thank you, Mr. Chairman, and Ranking Member Waters. 

Chair Yellen, welcome back to the committee. I do want to talk 

about a couple of the statements coming out of the White House 

that are similar to statements made by the chairman in his bill, 

the Financial Choice Act. There have been extensive complaints 

that the level of regulation created in Dodd-Frank has prevented 

small businesses and other businesses from getting loans. 

Now, I am in Massachusetts. I realize it is a—it may be an 

outlier. We have a very strong economy and the lending institutions there, I would say the environment is very robust. 

But is there any evidence—I talk to my colleagues from around 

the country. Is there any evidence that folks aren’t getting loans? 

Because that—I have not run into any evidence of that. 

Mrs. YELLEN. Loans, core loans, and C&I lending has certainly 

increased at a solid pace in recent years. Survey evidence that I 

have cited from small business owners suggests that they do not 

see inadequate access to credit as a significant problem— 

Mr. LYNCH. Can you talk about those surveys? 

Mrs. YELLEN. The National Federation of Independent Business’s 

most recent survey shows that only 4 percent of business owners 

regard themselves as not having all of the loans available to them 

that they would ideally like. I can’t remember the exact wording. 

Mr. LYNCH. So 96—that would imply— 

Mrs. YELLEN. So 96 percent are fully satisfied with their access 

to credit. And only— 

Mr. LYNCH. That would seem good to me. I don’t know, am I 

missing something? 

Mrs. YELLEN. No. And only 2 percent list inadequate access to 

credit as their most significant problem. 

Now, I think for some small businesses they do access credit, for 

example, not by taking out traditional business loans but, say, by 

borrowing against a home equity line of credit. 

Mr. LYNCH. Okay. 

Mrs. YELLEN. And I think that the decline in residential property 

prices may have impaired that borrowing route for some small 

businesses. It wouldn’t show up in these numbers, but generally access to business loans looks to me by most metrics to be quite adequate. 

Mr. LYNCH. Thank you. 

One of the other efforts in the Dodd-Frank repeal in the Financial Choice Act would be repeal of the orderly liquidation authority 

that was included in Dodd-Frank to preclude taxpayer bailouts in 

the future. I actually voted consistently against the bailouts for our 

banks because people in my district who didn’t even have bank accounts were being asked to bail out the banks which had put our 

economy in the toilet. 

What do you think about removing the orderly liquidation authority in Dodd-Frank? 

Mrs. YELLEN. I would not want to see it removed, although I do 

think that bankruptcy should be the main vehicle for resolving a 

firm in distress. We have put in place protections that both make 

28 

it much less likely that a firm would fail, would ensure that if it 

did that there would be sufficient debt and equity to recapitalize 

the firm. 

I know that the Choice Act proposes changes to the bankruptcy 

code that I think would be helpful in making bankruptcy work as 

a preferred option, but I think orderly liquidation is a backup procedure. We don’t know what the circumstances might be in which 

a firm might fail. 

An issue in bankruptcy is that firms commonly need liquidity; 

they need access to the equivalent of debtor-in-possession financing. Title II provides that kind of liquidity and puts the burden on 

the financial sector itself, not U.S. taxpayers, for bearing any burdens that may be incurred. 

And I do continue to worry with bankruptcy. Although we are 

working closely with firms to make sure they have liquidity plans 

that would enable an orderly bankruptcy, that is always a concern. 

Mr. LYNCH. Thank you. 

Mr. Chairman, my time has expired. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Housing and Insurance Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman. 

Chair Yellen, welcome. You have a wonderful poker face. You 

testify well, but I must say that your staff behind you does not. 

It is interesting to watch your staff as the political shots are 

taken. You can’t see them because they are behind you, but as the 

political shots are taken from the other side of the aisle, the little 

smiles and joy that they take behind you and the grimaces that 

come from our side, I just want to point that out. They do not have 

the poker face that you do. 

You talked briefly about regulation. I will just make this point, 

not a question. You don’t necessarily see regulation as a problem 

today with regard to economic growth. However, you did, the last 

time you testified, answer questions from me where you did note 

that they were a headwind to economic growth. 

So I am seeing a little difference in your testimony. I don’t know 

if that has anything to do with the election and Mr. Trump’s Executive Order to wind back some of the over-burdensome regulation 

or not. Just an observation. 

But a question for you: The size of a bank—is there any correlation with large banks and systemic risk, in your opinion? Or can 

there be a correlation between the size of a bank and systemic 

risk? 

Mrs. YELLEN. It is not the only measure of systemic risk— 

Mr. DUFFY. Right. 

Mrs. YELLEN. —but it is generally true that the largest banks 

give rise to the greatest systemic risk. 

And I would like to just clarify, I think we should be concerned, 

and I am concerned with regulatory burden. And if I haven’t made 

that clear, that is an oversight on my part. 

I didn’t agree that regulation was the key factor resulting in slow 

growth, but we are concerned about regulatory burden. I am committed to doing everything that we can— 

Mr. DUFFY. Thank you for the clarification, yes. 

29 

Mrs. YELLEN. —to reduce it, and I do want to clarify and make 

that clear. 

Mr. DUFFY. Thank you for the clarification. I appreciate that. 

So you will acknowledge it is a factor, the size of a bank as it 

relates to systemic risk. Since Dodd-Frank has passed, have the 

largest banks in America gotten bigger or smaller? 

Mrs. YELLEN. Probably bigger. 

Mr. DUFFY. It is easy. Bigger, that is right. 

Have we seen an increase in the number of small community 

banks that dot rural parts of the country, like from where I come 

from, or have we seen a contraction of smaller community banks 

and credit unions? 

Mrs. YELLEN. There is a consolidation— 

Mr. DUFFY. There is a consolidation, right. So since Dodd-Frank 

we have seen big banks get bigger and we have seen a consolidation or an eradication of small community banks and credit unions. 

Question for you in regard to the crisis: Did mortgage-backed securities have anything to do with the 2008 crisis? 

Mrs. YELLEN. Of course. 

Mr. DUFFY. Of course they did. And do you know what reform 

came from Dodd-Frank in regard to mortgage-backed securities, 

Fannie Mae, and Freddie Mac? Was there any reform to Fannie 

Mae and Freddie Mac? 

Any GSE reform in Dodd-Frank to address one of the great 

causes of the crisis, which was mortgage-backed securities? Did 

Dodd-Frank address GSEs? 

Mrs. YELLEN. It remains an open matter. 

Mr. DUFFY. It remains an open question. Right, because one of 

the main drivers of the crisis, GSEs, weren’t even addressed. They 

did nothing. On the root driver of the crisis they left it alone, which 

is concerning for us. 

Now, hopefully in the next year-and-a-half we are going to be 

able to address our GSEs, but the promises were great about all 

the good that would come from Dodd-Frank, but we can’t underestimate what has happened since it has been passed, where big 

banks have gotten bigger and we have seen the small community 

banks that serve my community—it is nearly impossible for them 

to survive, let alone thrive, with the regulatory burden. 

I want ask you about the labor participation rate based on Mr. 

Huizenga’s questions, the lack of President Obama hitting 3 percent growth. Not since President Hoover has that happened. 

But with the conversation about border adjustment tax, do you 

have any opinions on the conversation that is now taking place in 

the House and the Senate and the White House on what that does 

to bring jobs back to America, what that does to the economy? 

Mrs. YELLEN. I don’t think it is appropriate for me to weigh in, 

in detail, on a specific fiscal measure— 

Mr. DUFFY. So 30,000 feet. Not specifics, but 30,000 feet. Good 

idea? Well over 100 countries have some border adjustment, right? 

Mrs. YELLEN. It is a complicated policy, the effects of which— 

Mr. DUFFY. But many countries have this? 

Mrs. YELLEN. Yes. 

Mr. DUFFY. Yes. 

Mrs. YELLEN. In connection with VAT taxes. 

30 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott. 

Mr. SCOTT. Thank you. 

Welcome, Chair Yellen. First of all, I want to say thank you. I 

want to thank you for our work over the past 2 years together in 

dealing with and addressing this alarming high unemployment 

rate in the African-American community, and that is especially 

rampant within the African-American community of young AfricanAmerican men ages 18 to 39. 

I also appreciate your suggesting to us when we discussed it that 

inflation and unemployment is, indeed, your dual mission, but 

when it comes to targeted unemployment like this, you have only 

a blunt instrument. And what we should do is go and develop legislation. And in response to Mr. Clay earlier, you again reiterated 

that. 

So now we have done that, and we have two very important 

pieces of legislation that address that by myself and my co-sponsors, Kevin Cramer of North Dakota, Republican; my good friend, 

Reverend Emmanuel Cleaver, Democratic co-sponsor from Missouri; Mia Love, of Utah; Mrs. Beatty, of Ohio. And certainly, we 

believe—along with Pete Sessions, who is at the Rules Committee. 

But here is our issue right now: We need some help in getting 

a meeting with the President of the United States. This is why, as 

you know, the job component and training will be attached to his 

efforts to rebuild the crumbling infrastructure. 

Secondly, the administration of this part of our legislation will be 

through his Secretary of Labor. And then on our education piece, 

in which we are asking for $95 million to help these struggling, 

hardworking African-American 1890s land grant institutions like 

Tuskegee University and Florida A&M, Fort Valley, Prairie View 

A&M in Texas, Lincoln University up in Missouri. But we have 

been unable to get a meeting. 

We are at dead water, and I call upon you to ask President 

Trump if he would be kind enough just to give me and my co-sponsors an opportunity to come over to the White House and talk to 

him about these bills, because it has to be a partnership here. His 

Administration would have to administer it; we can only produce 

the policy. But if we can’t get a chance to get in to talk to the 

President, how are we going to get his buy-in? 

Chair Yellen, President Bush said on numerous occasions that he 

wanted to help the African-American community: ‘‘What the hell 

have you got to lose?’’ he said over and over. 

Well, give us that chance. 

I ask you to put the unemployment side of your mission hat on. 

Nobody, no Federal agency has unemployment as a mandate as the 

Fed does. So you have good credit to be able to go to President 

Trump and say, ‘‘Mr. President, I am not endorsing any legislation 

over there, but there is a very good package of bipartisan legislation that goes to the heart and the soul of the most devastating 

issue facing the African-American community today.’’ 

Tell him that we now have more African-American young men 

ages 18 to 39 in the prisons or on probation or parole with felony 

convictions. All hope is gone for them. But the problem is there is 

31 

a train leading more and more of these young men there. But if we 

can get those scholarships into these African-American colleges for 

these kids—the agricultural business and science and technology is 

reaching out. 

And I thank you for your efforts in doing that. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Missouri, Mrs. 

Wagner, chairwoman of our Oversight and Investigations Subcommittee. 

Mrs. WAGNER. Thank you, Mr. Chairman. 

Chair Yellen, thank you for joining us today. I, too, noticed yesterday before the Senate Banking Committee that you agreed with 

the core principles that were part of President Trump’s Executive 

Order calling for a review of the U.S. financial regulatory framework, and I thank you for that. 

I hope that you will work with newly confirmed Treasury Secretary Mnuchin on identifying some of the regulations on the books 

that conflict with these principles. We have had a robust discussion 

about regulations. 

This Executive Order requires you to consult with Treasury. 

What are you doing specifically, Chair Yellen, to identify the regulations that inhibit these core principles? 

Mrs. YELLEN. We look forward to working with the Treasury Secretary on this project and we will cooperate fully once it is under 

way. I think he has only been in office for a day. The process is 

not yet established, but we look forward to participating in it. 

Mrs. WAGNER. We look forward to hearing about that process as 

it goes forward and how you will be participating and coordinating 

with him. 

As you know, President Trump has signed a few other additional 

Executive Orders relating to regulations—most notably, an Executive Order issuing a regulatory freeze and an order repealing two 

regulations for each new regulation proposed. 

I understand that the Federal Reserve, as an independent agency, is exempt from these Executive Orders. However, Chair Yellen, 

do you plan on volunteering to comply in any capacity with these 

orders? 

Mrs. YELLEN. In the past when there have been similar freezes 

put in place the Fed has—when it has had a rulemaking that has 

been well-telegraphed, under way for a long time, it has continued 

with the regulatory process, and I would expect that—there is 

nothing that we have put in place recently that was not well understood or ready, or most of what we would be looking at would 

be notices of proposed rulemaking where there would be plenty of 

opportunity for comment by those who might be appointed to our 

Board, Members of Congress and others. 

Mrs. WAGNER. I thank you for that. I hope that you will be willing to voluntarily comply with these orders as you go forward when 

it comes to any additional rule-letting. As you know, and has been 

discussed in this hearing and to that point, the position of the Fed 

Vice Chair for Supervision has remained vacant since the passage 

of Dodd-Frank, and I hope that our President will be nominating 

a capable person to fill that position. 

32 

Since Governor Tarullo, who has been performing many of the 

regulatory coordination functions of that role in the meantime, has 

indicated that he is going to be resigning in April, what remaining 

regulatory agenda items, since we are discussing that, are being 

planned until he leaves? 

Mrs. YELLEN. We have a relatively light schedule. We do have 

one possible rulemaking. 

Mrs. WAGNER. And what is that, ma’am? 

Mrs. YELLEN. I don’t know what the timetable would be. It pertains to our stress tests and what is called the Stress Capital Buffer that came out of our 5-year review. I don’t know just what the 

timetable is—it has been in the works a long time and I think the 

financial community is aware— 

Mrs. WAGNER. Do you think that there is some benefit, ma’am, 

in waiting until we are able to nominate and confirm a Vice Chair 

for Supervision to weigh in before pressing on with further regulatory initiatives? 

Mrs. YELLEN. If we were to come out with it, it would be a notice 

of proposed rulemaking, and a new Vice Chair for Supervision 

would certainly have a chance, along with others, to weigh in on 

that. 

Mrs. WAGNER. Thank you, Chair Yellen. 

In my limited time, I applaud the Federal Reserve for recently 

providing some limited relief to financial institutions from the qualitative, I will say, portions of stress tests, or CCAR. 

As you know, the GAO issued a report late last year with several 

criticisms and recommendations regarding the stress testing process, particularly in regards to transparency. What are the Fed’s 

plans for considering and implementing the GAOs recommendations, ma’am? 

Mrs. YELLEN. We certainly value and accept those recommendations and intend to implement them in our— 

Mrs. WAGNER. Thank you. Does the Fed have any plans on doing 

a more comprehensive review of how it conducts stress tests? 

Mrs. YELLEN. We are completing a 5-year review that is comprehensive, and those changes that you mentioned that relieved 

burdens for a large number of medium or larger size banking organizations, that in one of the outcomes of that. 

Mrs. WAGNER. Thank you, Chair Yellen. 

I yield back my time. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the ranking member, as well. 

And thank you, Madam Chairlady. It is an honor to have you 

with us. You have done an outstanding job, in my opinion, and you 

have tried as best as you can to help us to maintain your mandate. 

I would just like to mention initially that President Obama has 

made efforts, and many Members of Congress—David Scott, the 

Member from Georgia, just mentioned his efforts to bring down unemployment as it relates to African-Americans, more specifically 

African-American males. Congressman Jim Clyburn has a plan 

that he calls 10-20-30. The President had a JOBS Act. We have 

tried to have summer job training programs. So there have been 

33 

efforts made to try to bring down the high rate of unemployment 

in the African-American community as well as in other communities. 

But it seems that some of the obstacles include this process or 

premise that we can engage in expansionary fiscal contraction and 

that will eliminate some of the problems. There is a fiscal austerity 

program that has been implemented by my colleagues on the other 

side. And these things have actually, in my opinion, been a hindrance. 

So, given that Congress has not acted appropriately and given 

that there is this high rate of unemployment in the African-American community, I am calling on the Fed to do a little bit more. 

And I ask that you do this because I have received an executive 

summary that I would like to share with you. It is styled, ‘‘Experiences and Perspectives of Young Workers.’’ 

This is from December 2016, and this summary gives me information, including the following: ‘‘The Federal Reserve conducted its 

first survey of young workers over November and December 2013 

to develop a deeper understanding of the forces at play,’’ meaning 

the reasons why young workers may be having employment problems. 

‘‘In December 2015, the Federal Reserve conducted a second survey of young workers to further explore market issues and trends 

among this population.’’ You go on in this report to indicate some 

of the outlook expectations. Young adults with a paid job are more 

optimistic than those without a paid job. Among young adults, 

steady employment remains more important than higher pay— 

steady employment, important. 

You go on to indicate that many young adults gain early work 

experience during high school, college, or both. Early employment 

develops a good work ethic. 

And then full-time employment is also correlated with a positive 

outlook and job satisfaction. So what you have done with this survey, this report, is get some sense of what is happening with young 

adults. 

I have not seen a similar report for the African-American community. Does such a report exist? 

If it does, I would like to peruse it. If it does not exist, I believe, 

Madam Chair, that you have the mandate and the authority to 

produce such a report. 

At some point we have to study, and give empirical evidence, as 

to why African-American unemployment is almost always twice 

that of White unemployment. Pick any period of time, pick any 

President, pick any Administration, and this is a consistent number that you will find. Twice as much as White unemployment. 

We need the empirical evidence so that we can use that here in 

Congress to promote better legislation. Possibly, we have not given 

the proper legislative answer. 

Can the Fed do this? If it has already done it, I would love to 

read the report. 

Mrs. YELLEN. I am not aware that we have already done it, but 

we have a great deal of research going on in the Fed, and I would 

encourage people at the Fed and will discuss it with them, trying 

to look more carefully at this. 

34 

Mr. GREEN. Let me assure you that this will be a quantum leap 

forward to receive empirical evidence from the Fed as to why we 

have this constant number of 2 times White unemployment. That 

would be a quantum leap forward. 

I am going to beg, Madam Chair, that you do what you can to 

get this done such that maybe when you are back the next time 

we can discuss some of these issue related to why African-American unemployment is so high. 

And I would also add this: Much of what I read here explains 

some of what is happening in the African-American community— 

no summer jobs, no jobs early in life, no opportunity to develop a 

work ethic. These things are important, and I beg that you help us. 

Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New York, Mr. 

King. 

Mr. KING. Thank you, Mr. Chairman. 

Chair Yellen, I am concerned about proposals that would change 

the composition of the FOMC by removing the vice chairman position and the New York Fed’s permanent voting status. That strikes 

me as misguided, since the New York Fed has responsibilities that 

no other district bank has, including carrying out our country’s 

monetary policy on behalf of the FOMC and the entire Federal Reserve System. 

Could you discuss some of the differences between the New York 

Fed and the other district banks? And would you say that the New 

York Fed has unique institutional knowledge of the financial markets? 

Mrs. YELLEN. The New York Fed has long had a special and important role in the Federal Reserve System. It has long been the 

bank that is involved in the markets for us, conducts our open market operations, plays an important role in gathering market intelligence and understanding financial market trends, and because so 

many especially large banks are headquartered in New York, has 

very large supervisory staff that plays an important role in our supervision program. 

And the decision that the president of the New York Fed should 

serve as the FOMC vice Chair and vote at every meeting reflects 

that traditional role. I think it is something that has worked well. 

Mr. KING. Not to put you on the spot, but the presidents of the 

Federal Reserve Banks of San Francisco, Atlanta, Chicago, and 

Cleveland have all publicly stated that they support the current 

structure of the FOMC and a permanent seat for New York. Do you 

agree with that? 

Mrs. YELLEN. I think we have a structure that works well, and 

I am not seeking changes to that aspect of it. 

Mr. KING. I will not push my luck, and I will accept that answer. 

I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, ranking member of our Housing and Insurance Subcommittee. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

And thank you, Madam Chair. 

35 

Two Saturdays ago in Kansas City, Missouri, where I reside, I 

held a town hall meeting where the media said 1,000 people 

showed up, but it was probably about 1,100, on the Executive 

Order on immigration, and people showed up with great fear. And 

this past Saturday—I was in Baltimore on Saturday evening and 

all of a sudden my cell phone started ringing, just one call after 

another, and there was widespread panic in Kansas City in the 

clergy community. 

Across-the-board, Catholics, Protestants were all concerned— 

there is a pastors’ phone chain, so people were calling each other— 

that ICE would be at churches on this past Sunday arresting immigrants—undocumented immigrants. It was such a big deal that if 

your staff or if any of my colleagues’ staff would like to check, it 

is a front-page story in the Kansas City Star on the rumor. All 

three—well, four—networks did stories, and so they were calling 

asking me, ‘‘How many ICE agents are coming in?’’ 

It was just an awful kind of a thing, and I felt terrible because 

I was in Baltimore and was unable to be there. 

How this connects with you is, I am just wondering, if there is 

some success at deporting 11 million immigrants, do you think that 

will have any kind of impact on the U.S. economy? If we were able 

to just get rid of all of the undocumented workers by next Thursday, do you think there would be any impact on this economy? 

Mrs. YELLEN. Immigration has been an important part of labor 

force growth in the United States for some time now. We are in a 

period in which one factor responsible for slowing growth is slower 

labor force growth, and a radical change in immigration would certainly affect the potential of the economy to grow. 

Mr. CLEAVER. I will convey that. And the preachers were concerned because they had read about a guy who said, ‘‘I was a 

stranger and you took me in.’’ It was in a book. And so they—based 

on that, they thought they had an obligation to respond affirmatively. 

The other thing is that I think in 2012, the Fed did a study on 

the housing collapse that we experienced, which triggered the 2008 

economic recession. And over the years, for whatever reason, the 

GSEs have been blamed for the economic collapse, that they set 

policies that allowed them to give loans—actually they don’t give 

loans; they were buying loans. But they were blamed for the economic collapse. 

Your study says otherwise. Can you shorten that into a paragraph? 

Mrs. YELLEN. A wide range of problems in the mortgage market, 

I think, led to the crisis, and the GSEs were probably not the critical part of what caused it. 

Mr. CLEAVER. I have too many questions. In all the effort to repeal Dodd-Frank, there is a section in there where the wording is 

not as strong as I am saying it, but they are essentially saying that 

we are going to give oil companies the right to bribe elected officials or officials in company—in countries. So we are removing a 

section of Dodd-Frank so that—so bribery is now a part of—or it 

is again a part of the way in which U.S. companies operate in foreign countries. 

My time ran out. I apologize. 

36 

Chairman HENSARLING. The time of the gentlemen has expired. 

The Chair wishes to advise Members that I intend to recognize 

Mr. Royce, Mrs. Beatty, and Mr. Pittenger, and then declare a 10- 

minute recess. 

The gentleman from California, Mr. Royce, the chairman of the 

House Foreign Affairs Committee, is recognized. 

Mr. ROYCE. Thank you very much, Mr. Chairman. 

And, Chair Yellen, it’s good to see you. 

I would like to follow up on a question here about capital. We 

know on the one hand that over-leveraged institutions are vulnerable to market shocks, and we remember the consequences. If you 

look back at the over-leveraging of the investment banks, for the 

large ones 40-to-one. And if you look at the GSEs that were leveraged at that time, over 100-to-one. And that was in the lead-up to 

the financial crisis. 

And so we can see that capital standards must play a role in 

building resilience in the U.S. financial system. On the other hand, 

raising capital also has a cost to the economy and a cost in terms 

of what it does to the potential for growth. 

So what we have here is a classic cost-benefit test. There is a 

benefit to higher capital standards. They reduce the risk of a future 

financial crisis and bailouts as well as potentially increasing tax 

revenues. 

And while the cost will be borne by borrowers in the form of 

higher funding costs, and the economy as a whole with less capital 

formation and a lower GDP, you have that on the other side of the 

equation. 

So as you have said in the past, the cost-benefit analysis is difficult work. And I agree. It is not easy. 

But it is not impossible and it is important. In 2010, the Basel 

Committee did some work on this subject, and also researchers at 

George Mason recently published a paper on the benefits and costs 

of a higher bank leverage ratio. 

So how do we get to the right number? Should it be 5 percent? 

The 10 percent in the Choice Act? Or 23.5 percent, as proposed by 

the Minneapolis Fed President? 

There is quite a range there. And I don’t expect you to say a 

number today, but can’t you agree that a cost-benefit analysis could 

help us more effectively require that capital? And I will start with 

that question. 

Mrs. YELLEN. I do agree that in deciding on the appropriate level 

of capital standards, we are weighing costs and benefits—the benefit of a lower probability of a financial crisis that has incredible 

high costs against the cost of slightly higher intermediation and 

borrowing costs. And as you indicated, Basel III was partly informed by the Basel Committee’s analysis of those costs and benefits, and the Federal Reserve participated in producing that analysis. And I think it did inform our views as to what a reasonable 

level of capital requirements would be. 

The Minneapolis Fed study that you mentioned also contains 

cost-benefit analysis and draws the line differently. 

Mr. ROYCE. From my standpoint, it seems to me that the Fed 

would be best suited to conduct the analysis and the research on 

37 

this. And as you are explaining here, we have such a range of opinion, although we agree on the basic concept here. 

So my question would be, short of us mandating the Fed to do 

it, would there be a way for you to try to move forward and approximate what that ratio should be? 

Mrs. YELLEN. Through different aspects of it. As I said, we did 

do cost-benefit analysis, and it informed our judgments at the time. 

You have referred several times to a leverage requirement— 

Mr. ROYCE. Right. 

Mrs. YELLEN. —and I think our understanding of the risks facing 

banks lead us to think that a simple leverage requirement would 

not be an adequate way to determine capital. In particular, a simple leverage requirement treats the risk associated with the U.S. 

Treasury and a junk bond identically, and we think that capital requirements need to be risk-sensitive with a leverage ratio serving 

as a backup— 

Mr. ROYCE. No, I understand. It might not be sufficient, but in 

terms of having it be a component, it seems to me that—well, there 

is another question I wanted to ask you, too, and that is yesterday 

you told Senator Crapo that the goal of bringing private capital 

back into the mortgage market is important and that you hope that 

if there are guarantees in the secondary mortgage market, that 

they would be recognized as priced appropriately. 

It is my understanding, then, that you believe that the pre-GSE 

model of private gains and public loses did not price the government backstop appropriately. 

Mrs. YELLEN. I think that is correct. 

Mr. ROYCE. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Ranking Member 

Waters. 

And thank you so much for being here, Chair Yellen. In the form 

of me trying to be consistent with questions, I would like to repeat 

a question that was asked by me before. Certainly, as you know, 

I have a strong interest in making sure that we have equality and 

equity as it relates to employing women and minorities. 

So I want to start with first thanking you for responding in writing, and not only in writing but detail, to that question. I know in 

the Senate hearings that Senator Brown also posed some questions 

as we look at the Federal Reserve Bank and what is happening. 

I know we have a couple of openings since our last conversation 

here, but let me just say if there are any additional things for the 

first part—I have two questions—that hopefully you can share we 

are, if we are making any headway. Because I also pulled some 

facts, and according to the Fed Up campaign at the Center for Popular Democracy, it states that the board of directors was 83 percent 

White and 70 percent male. 

Under the Federal Reserve Act, the Board of Governors has the 

authority to appoint class C directors. Can you describe that process for appointing class C directors or give me any brief update on 

where we are? Because I am thinking about reintroducing my bill 

that was patterned after the Rooney Rule with the Beatty Rule, 

38 

that if there is an opening all we are asking is that you have a pool 

of candidates in there. 

Mrs. YELLEN. We are very focused on achieving diversity in our 

class C directors—more broadly, on the boards of directors of all of 

the Federal Reserve banks and their branches. We engage in ongoing at least yearly evaluations of the progress of the reserve banks 

in achieving diversity. We insist on recommendations from the reserve banks that will enhance diversity; make sure that there is 

adequate representation of women and of minorities; that we have 

sectoral diversity, as well; that consumers, labor, and nonprofits 

are represented. 

It is a constant focus and we give feedback to the banks to inform their search for directors. I do believe we have made progress 

on it and achieved greater diversity. I will say that it is a very high 

priority for us. 

Mrs. BEATTY. Thank you very much. 

Chair Yellen, I just learned that last month you did something 

which seems unique or different. The Federal Reserve held a teachers town hall meeting. And I thought that very interesting and 

very pleasing because financial literacy is something to which I 

have dedicated probably the last 2 decades of my career. 

And I am very pleased to say, Mr. Chairman, and Ranking Member Waters, that I have been appointed as the new co-Chair of the 

Financial and Economic Literacy Council, with my Republican colleague, Steve Stivers. 

Was there anything in this town hall that you can share as it 

relates to the financial literacy or it relates to something we should 

be looking at? And maybe this could be a bipartisan thread and we 

could get your staff to laugh or smile with that because it would 

be so positive that we would have a Democrat and a Republican 

working together. 

Mrs. YELLEN. Perhaps we can give you some more detailed feedback if that would be helpful. I mainly answered questions that a 

group of economics educators had for me about what they should 

be teaching their students about the Federal Reserve. I was asked 

about diversity in the economics profession and what could be done 

to foster diversity and shared some thoughts on that topic and why 

it is that perhaps women and minorities are not attracted into economics, even as a major in college, in the numbers that one would 

want and expect. 

But on financial literacy, maybe we can give you some more detailed feedback. 

Mrs. BEATTY. Okay. Thank you so much. 

Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Good afternoon, Chair Yellen. 

Chair Yellen, there has been much said today regarding the different economies, what is—I heard my good friend Mr. Meeks in 

his performance, and basically a diatribe of market-driven economies and lauding the highly regulatory policies of this last Administration. 

39 

But in North Carolina, we kind of have a way of conveying this. 

It is like trying to dress up a pig and put perfume on it. It doesn’t 

really look as good as it is. The outcomes really reflect something 

different. 

He had mentioned that there had been 16 million jobs created 

from this economy. And when you look at 8 years, that is 200,000 

jobs a month. 

So comparing that to the time that I lived in Washington back 

in the 1980s when Ronald Reagan was President, he inherited an 

economy that was very weak. There was 20 percent interest rates, 

high inflation, high unemployment. 

And after 2 years with an independent Fed, reduced regulatory 

burden, and reduced tax threshold, the economy grew and began 

to grow exponentially—300,000 then 400,000 and 500,000 jobs a 

month; 1 month a million jobs. And we were growing at one point 

at 6 percent growth. 

We look now at an economy that hasn’t even reached 3 percent 

economic growth, the only Administration since World War II that 

hasn’t been able to achieve that objective. 

I would say to you, Chair Yellen, given that and really the number of American people who are just living at the margins, just 

around the kitchen table, they are struggling. They came out in 

droves in this last election because they are upset. It hasn’t 

worked. 

Do you feel that there are different policies that should have 

been made in hindsight, that you missed something? In business, 

we have a way of assessing what we do right and what we do 

wrong. But have we missed the mark? 

Have we not—we clearly didn’t achieve the objectives that were 

intended. Low-income, minority people, frankly, that demographic 

group have moved the least up the economic ladder than any group 

in the country. And certainly that was a focus of the folks you were 

trying to help. 

So I would really like to get your analysis of what we missed. 

And is there something in our monetary policy we could have done 

differently? How about regulations and oversight? What would you 

do different today if you were given the chance? 

Mrs. YELLEN. I think that the trends that you described that 

have left so many Americans feeling frustrated with the labor market and their economic circumstances and success date back to well 

before the financial crisis, probably back to the mid-to late 1980s. 

And we saw the character and composition of jobs changing in the 

United States. 

Mr. PITTENGER. With all due respect, Chair Yellen, if I could interrupt, we don’t have a lot of time. This recession, the President, 

he was only in recession 2 months out of his 32 months. So, he had 

a chance. And these policies had a chance, and yet they didn’t 

work. 

I would like to ask you a couple of other things, though. 

Relative to community banks, you made the statement that you 

are concerned about what has happened with community banks in 

this country. In North Carolina, we have lost 40 percent of our 

banks since 2010. That is a major impact on our economy and access to capital and credit. 

40 

Do you believe that there should have been or should be today— 

would you advise us to reduce the regulatory burden on these community banks? 

Mrs. YELLEN. Yes. And I think we should be heavily focused on 

using every tool available to us to reduce regulatory burden on 

those banks. 

We ourselves and with other banking agencies have taken a 

number of important steps, and I think it is—and we will continue— 

Mr. PITTENGER. But you would advise the Congress to be fully 

engaged in trying to— 

Mrs. YELLEN. I would be, yes. 

Mr. PITTENGER. Yes, ma’am. Thank you very much. 

Chair Yellen, Secretary Lew argued that China has become, in 

his words, more adept at communicating its policy path in its analysis of its own economy, which will avoid confusion and instability 

in the global economy. Do you agree with Secretary Lew on his assessment of China? 

Mrs. YELLEN. I am not privy to all the detail that he may have 

given— 

Mr. PITTENGER. But in principle? 

Mrs. YELLEN. —on that. 

Mr. PITTENGER. The principle is there, the greater oversight, 

communicating policies. Do you think that is a healthy thing? 

Mrs. YELLEN. I do think it is a healthy thing, 

Mr. PITTENGER. In like manner, would you say that if it is true 

for China that it should be true also for our country, for our Fed, 

that maybe we could be more up front and the public could understand our policies? We have the FORM Act that lays out commonsense steps to achieve this, and I would just like to know your perspective on that. There are many Federal Reserve officers who concur, Nobel Peace Prize winners that agree, as well. 

Mrs. YELLEN. Transparency is an important objective, and we 

are always looking for additional steps. I think it has been improved. I think, as you know, I am not a supporter of the FORM 

Act that would chain the Fed to a simple rule. I think that would 

result in poor economic performance. And while understandability 

and predictability are important goals— 

Mr. PITTENGER. My time has expired, Chair Yellen. 

Mrs. YELLEN. —what matters most at the end of the day is economic performance— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair will now call a recess of the committee for 10 minutes. 

Members are advised that we anticipate reconvening in 10 minutes. 

We intend on adjourning the hearing at approximately 2 o’clock 

and we anticipate one intervening vote series. The committee 

stands in recess. 

[recess] 

Chairman HENSARLING. The committee will come to order. Members are requested to take their seats. 

The Chair now recognizes the gentleman from Connecticut, Mr. 

Himes. 

Mr. HIMES. Thank you, Mr. Chairman. 

41 

Chair Yellen, thank you for being with us today. I always appreciate your testimony and the very good work that is done and summarized in this report to us. 

I have a couple of questions for you, starting with, I want an opportunity just to sort of reflect on and maybe ask a question about 

the economic narrative that we are getting and that we have gotten 

for so long from the Majority. 

I was here 8 years ago, sworn-in, in a month when the economy 

lost almost three-quarters of a million jobs. We were handed—I 

think the technical economic term would be a ‘‘dumpster fire’’ of an 

economy, and took a number of measures, including the Recovery 

Act and then regulatory measures to stabilize the financial sector, 

which was on its knees. Every single one of those measures, of 

course, was opposed by my friends on the other side of the aisle. 

My question, though, is, we are now accused of—you are accused 

and we are accused, and I think we are probably properly accused 

of not doing enough to spur economic growth. The Fed certainly is. 

And we have heard that. 

Apparently, growth of 2 percent is not the 4 percent promised by 

President Trump. And apparently we could have done better. 

I guess my question to you is—my memory of economics is that 

economic growth in the end is a function of population growth and 

productivity growth. So I guess my question is—and I have looked 

at other industrialized countries’ OECD growth rates, and actually 

the growth of 1.9 percent over time is not inconsistent with other 

industrialized countries. 

So I wonder, as an economist, whether you agree that our growth 

rate has been in some way artificially held back or whether we are 

just sort of operating the way economies operate, growing at just 

below 2 percent? 

Mrs. YELLEN. When an economy suffers a deep recession and unemployment is very high, output is well below the economy’s potential, and it can grow more rapidly than the pace dictated by population or labor force and productivity. But once the economy is operating at its potential and unemployment is in the neighborhood 

of full employment, as it is now, then I would certainly agree that 

it is labor force growth and productivity that dictate the pace of 

growth. 

Unfortunately, that looks like it is a little bit under 2 percent for 

the U.S. economy. Labor force growth has slowed and productivity 

growth has been very disappointing. And to speed that up we 

would have to see an improvement in one or both of those things. 

Mr. HIMES. I have been reading these reports since I have been 

here, and the reports have always listed factors that have perhaps 

dampened growth. And I remember the housing hangover was cited 

some years ago, uncertainty, and issues of aggregate demand. 

This report has never highlighted regulation as a material—and 

I do mean material; I understand that overregulation can, in fact, 

have a quashing result—but this report has never cited regulation 

as a material factor in dampening U.S. growth. 

Is it the opinion of the economists at the Federal Reserve that 

regulation has really been a material brake on the U.S. economy 

in the last 8 years? 

42 

Mrs. YELLEN. Investment spending has been quite low, and we 

have tried to understand what some of the factors are that are responsible for it. Businesses in surveys do cite regulation, taxes, and 

uncertainty as factors that are holding back investment. 

So we understand it could be contributing to slow growth in investment spending, but there are also other factors, namely the 

economic growth overall has been slow, sales growth for those firms 

have been slow, and that, I think, has been important as well. 

Mr. HIMES. Thank you. 

Last question, I don’t have a lot of time. I am a big believer in 

preserving monetary independence or independence for the monetary authorities. You have been vocal on this, most notably in your 

letter of November of 2015. 

I wonder, in my remaining time can you talk a little bit about 

some of the initiatives—Audit the Fed, the FORM Act in particular, GAO access to the Fed? Do you think that these initiatives 

could over time compromise the independence of the FOMC and of 

our monetary policy? 

Mrs. YELLEN. Yes, I do. And this goes beyond the issue of a rule 

in the FORM Act. It goes to asking the GAO to come in on a realtime basis and make policy judgments that would second guess the 

decisions of the FOMC. 

I think that involves very detailed intervention in monetary policymaking the compromises independence, and I think central 

banks all over the world have recognized that an independent central bank that can focus on the long-run health of the economy, 

maintaining low and stable inflation and steady employment 

growth, gives rise to a better economic environment and has been— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross. 

Mr. ROSS. Thank you, Mr. Chairman. 

Chair Yellen, it’s good to see you again. And I want to put in a 

word, as I have done in the past, with you concerning the momand-pops, the fixed-income people who have really suffered a lot in 

their savings and eating into principal. And I am hoping that monetary policy will be such that they will have an opportunity that 

they can survive again and not just those on Wall Street. 

My question to you is, and following up on my colleague, Mr. 

Himes, in the FORM Act we passed, the Centennial Monetary 

Commission Act, which I am sure you are familiar with. It was 

Chairman Brady’s idea to have the commission to overlook oversight of the Fed. In fact, the committee would highlight opportunities for improvement. 

Given our economy’s somewhat unconventional and anemic recovery over the last 6 years, would you agree that it might be a 

nice idea to have such a commission as a centennial commission for 

oversight? 

Mrs. YELLEN. I don’t think such a commission is needed. It is, 

of course, up to Congress to decide if you want to look at the structure of the Federal Reserve, but my own assessment is that the 

Federal Reserve has performed well. We have adapted to changes 

and— 

Mr. ROSS. And if they have there is nothing really to be concerned about an independent commission reviewing. If you have set 

43 

the Fed on the path that you have chosen, then I think that this 

would just confirm your suspicions that you are on the right path, 

would it not? 

Mrs. YELLEN. It is a decision that is up to Congress if you want 

to make that. I would urge you to decide what the problem is that 

needs to be addressed, and I believe we have a structure that 

works well. 

It was one that was decided on by Congress, and I think we have 

adapted to changes in the economy over 100 years. So our structure 

is not broken, but it is— 

Mr. ROSS. So you don’t think it is a good idea to have an extra 

pair of eyes, just to see? 

Mrs. YELLEN. We have lots of pairs of eyes and lots of— 

Mr. ROSS. How far they can see— 

Mrs. YELLEN. —analysts all over who are looking at the Fed 

structure, and it is not a topic that hasn’t received a great deal of 

attention. 

Mr. ROSS. Yet. 

Let me move on to another topic with regard to State insurance 

regulation. Despite its proven track record, our State-based insurance regulatory structure has faced many challenges in recent 

years, especially with dealing with the IAIS and international 

standards. 

Today, we are faced with potentially more intrusion in insurance 

regulation by the Federal and international financial regulators. 

With your engagement in international negotiations, I have just a 

few questions. 

One, would you agree that our State-based form of regulation in 

insurance, risk-based capital, is probably doing its job and is doing 

a good job? 

Mrs. YELLEN. State-based regulation is very important. Its focus 

has always been on protecting policy holders, which is one important focus— 

Mr. ROSS. In fact, we have probably, I think, what is recognized 

as the best system of regulation in the insurance industry through 

our State-based programs. Would you agree? 

Mrs. YELLEN. I think those programs have been successful. But 

we certainly saw in the financial crisis that we had a large insurance company that was heavily involved in capital market activities that were a source of systemic risks. And I do think— 

Mr. ROSS. And that was a federally regulated subsidiary of AIG, 

though, that had that problem, and not necessarily State—we have 

never seen a run on insurance companies, so I guess that is my 

concern, because we have a good system in place. 

And with that in mind, you have a seat at the table of the International Association of Insurance Supervisors and the Financial 

Stability Board. Are you now working with State regulators, insurance regulators, commissioners to develop a consensus before entering into negotiations on an international basis? 

Mrs. YELLEN. They all participate in that forum, as we do, and 

our participants meet and confer with them and try to understand 

what is in the interest of U.S. insurance firms and to try to influence— 

44 

Mr. ROSS. And I would hope that you take the position as an advocate on behalf of our insurance regulation system. 

Mrs. YELLEN. We are always trying to see other countries establish regulatory frameworks— 

Mr. ROSS. Similar to ours? 

Mrs. YELLEN. —that will be consistent with ours and result in 

strong regulation, but a level playing field for our firms. 

Mr. ROSS. Thank you, Chair Yellen. I appreciate that. 

And I yield back. Thank you. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Maryland, Mr. 

Delaney. 

Mr. DELANEY. Thank you, Chair Yellen, for being here and for 

your wonderful service to the country. 

Mrs. YELLEN. Thank you. 

Mr. DELANEY. I have three questions. I will try to get them out 

all up front so you can think about them. 

The first is, if policies coming out of Washington across this next 

several years fall into the category of protectionist by nature, putting through unpaid-for tax reductions that increase the deficit and 

foreign policy that might cause foreign investors to recalibrate 

down their investment in the United States, how much of an impact—negative impact—do you think that will be on long-term economic growth? That is my first question. 

My second question is about the labor market. Do you think the 

biggest issue in the labor market is employment, or jobs, or is it 

pay? What is the real structural problem with the labor market 

right now? Is there not enough jobs or is the pay not good enough, 

in your opinion? 

And my third question is, as you think about the Fed balance 

sheet and running off the mortgage investments that you have, has 

there been discussions within the Fed about considering other asset 

classes, such as infrastructure asset classes, if eligible bonds were 

to be created that perhaps the Fed could invest in? 

So those would be my three questions. 

Mrs. YELLEN. Your first question pertained to protectionism, the 

deficit in capital flows and what impact they would have on 

growth? 

Mr. DELANEY. Yes. 

Mrs. YELLEN. And honestly, without knowing more about the details of the policies it is really difficult for me to render a judgment. 

In general, we understand that many different economic policy 

shifts are under consideration, that they may well affect economic 

growth, inflation, have repercussions for our policy stance. But 

without knowing something more about the timing, composition, 

and details of those changes, I honestly can’t—there are many different effects both positive and negative. 

On labor, in some sense I think we have enough jobs, and that 

is what a 4.8 percent unemployment rate tells you is we have created a lot of jobs, but pay in real terms is not rising rapidly. And 

the composition of those jobs over many decades and even more recently continues to shift in ways that are leaving particular classes 

of workers disadvantaged. 

45 

Mr. DELANEY. So if I could, Chair Yellen, this is my view, that 

we have more of a pay issue than a jobs issue, and when you look 

at what is happening to the labor market, particularly the effect of 

technological innovation, do you see this pay issue being a persistent enduring issue that we really do need to think differently 

about? 

Mrs. YELLEN. We have had very slow growth in real income. And 

going back to the late 1980s, the bottom—probably the bottom half 

of the income distribution in terms of pay have seen no real wage 

increases. 

Disproportionate gains have gone to those at the high end of the 

income distribution. That goes to the composition of jobs and the 

trends that different jobs have in terms of pay, and I think it is 

a serious problem and what we are hearing from dissatisfied Americans. 

Mr. DELANEY. And then as it relates to the Fed’s balance sheet, 

which you don’t really need to shrink theoretically. You are not 

structured like a normal bank, and as you run off your mortgage 

investments in your current portfolio have you thought about other 

asset classes for the Fed to invest in that might be more— 

Mrs. YELLEN. We are restricted to Treasury and agency debt. We 

have not— 

Mr. DELANEY. Have you ever discussed internally what other investments might allow you to pursue your mandate? 

Mrs. YELLEN. I have mentioned that other central banks have 

broader authority to purchase different assets and have sometimes 

used that authority. We have not. We are not asking for that authority. I have said that if Congress were to ever to consider changing that authority there would be both costs and benefits to consider. 

So I do want to be clear, it is not something the FOMC is looking— 

Mr. DELANEY. Has it been successful in other countries, do you 

think? 

Mrs. YELLEN. Excuse me? 

Mr. DELANEY. Has it been a successful policy in other countries 

that have done it, pursued it? 

Mrs. YELLEN. I have not seen detailed studies, but arguably yes, 

it may have been. 

These are only policies that are used in exceptionally difficult 

times. It is not normal monetary policy in countries like Japan or 

the euro area that have used it—have done it in times that called 

for exceptional monetary policy accommodation. 

Mr. DELANEY. Great. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Oklahoma, Mr. 

Lucas. 

Mr. LUCAS. Thank you, Mr. Chairman. 

Chair Yellen, I, probably along with maybe a half a dozen of my 

colleagues here, date back to the old days of when this was the 

Banking and Urban Affairs Committee. And we used to have these 

great glorious discussions about Karl Marx and Adam Smith. It 

was just awesome in the old days. 

46 

But you know, it has always been my policy to try and focus on 

the issues that have a direct impact on the constituents and the 

people I serve back home. So in that spirit, I would like to ask you 

a question, and if you can answer it I would be most appreciative. 

I would like to turn to the Fed’s role in uncleared swaps markets 

for a moment since Dodd-Frank had an effect on that above and 

beyond the jurisdiction of the committee, but also the Financial 

Services Committee. 

On March 1st of this year, participants in that market will be 

required to post variable margin with each other. Updating those 

existing swap agreements for these variable margins involve a complicated process according to market participants. It takes a lot of 

time. 

I saw a figure that only 0.16 percent, less than two-tenths of a 

percent, of all swap agreements have been updated to meet these 

various margin requirements. And that is with a deadline only 2 

weeks away. 

That instability concerns me because many of the smaller end 

users enter in the swaps markets to legitimately hedge against the 

market and thus confronting these legal puzzles with few resources. Turning to your role in this process, 2 days ago the CFTC 

instituted a temporary grace period, and under that relief, market 

participants affected by these requirements have a 6-month period 

for compliance. They must be ready by September 1st. 

In addition, regulators in Asia have provided a similar grace period and the European regulators, it seems, have stated they are 

open to similar wiggle room on the March 1st deadline. With all 

of that, can you share with me whether the Fed intends to coordinate with the CFTC on providing relief to entities under its jurisdiction that are a part of this market? 

Mrs. YELLEN. We are aware of the problems that you describe. 

We have been monitoring trends in compliance very closely. We are 

in touch with some of the firms that are involved, and we will be 

in discussions with other banking regulators to discuss what response may be needed to this. 

Mr. LUCAS. But it is being analyzed that the circumstances are 

evolving as they are and the potential impact on the participants. 

From my perspective, it is those end users that matter to me. 

And I guess I would have to say thank you for taking that note, 

and I hope, like the CFTC and the Asian regulators and perhaps 

our European friends, we will see a similar response. 

With that, I think, Mr. Chairman, in the brevity I will yield back 

the balance of my time. 

Chairman HENSARLING. The gentleman yields back. 

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. 

Let’s talk housing. Often—in fact I would say usually—the housing market is kind of the big swing industry in the economy. In recessions you cut interest rates and that leads more people to buy 

homes, developers cut ground, building trades hire up to engage in 

all of that. The people who buy the homes go into the local Lowe’s 

47 

and buy furniture or whatever, and it usually has a materially 

stimulative effect on the economy. 

Not this time, certainly compared to the past. Housing starts are 

now the same they were at the depth of the 2001 recession; and 

in fact, they are near where they were at the bottom of the great 

savings and loan crisis about a quarter of a century ago. 

So my question is, Chair Yellen, as you raise rates do you worry 

about choking off an already weak housing recovery, or do you 

think housing is just less sensitive to interest rates than it was 

pre-bubble? 

Mrs. YELLEN. I think there is still sensitivity there of housing to 

interest rates. And of course, this was a very different cycle in 

which it was housing-related problems that were part and parcel 

of the crisis. And so when we cut rates we didn’t get the usual response that you would have of housing quickly responding positively to the rate cut. 

So, as I mentioned in my testimony, higher interest rates—and 

mortgage rates have gone up some over the last several months— 

may play a retarding role in restricting the recovery of housing. 

But the other positive side of it is we have good employment 

growth, income growth; consumer spending is solid; house prices 

have been rising. And all of those are positives. 

So on balance, we have seen a very slow but continued recovery 

in housing, and I would expect that to continue even in the context 

of somewhat rising mortgage rates. And they are very low, by historic standards. 

Mr. HECK. So you mentioned wages in passing. I will mention before I ask my next question, wages have ticked up in growth, but 

only to about 2.5 percent. 

The last recovery, they were at 4 percent. I think America is still 

wanting to know when they are going to get a raise, but that is 

not my question. 

One of the things about the housing market that I find really 

confusing is that prices seem to be rising in markets all over the 

country. In many cities they have even eclipsed where they were 

before the bubble. 

In the Chair’s home State, where, frankly, some would characterize land as infinite and home prices have historically always followed inflation, we are now seeing significant real increases. 

It used to be that markets would more quickly balance supply 

with demand, and now they seem to have sustained imbalances. 

Prices keep rising. 

I am privileged to chair a task force that is going to take a look 

at this more closely, and I am really interested in your perspective. 

My basic question is why are we seeing such weak home construction, despite the fact that we have rising prices? 

Mrs. YELLEN. That has been a surprise as well, why construction 

remains so weak with house prices— 

Mr. HECK. And the answer is? 

Mrs. YELLEN. We do have robust growth in multifamily. Many 

young people, millennials, are delaying buying homes, and I think 

that has impacted single-family construction. We have seen very 

depressed pace of household formation, a remarkably large fraction 

of young people who continue to live with their families. 

48 

And even as the economy has recovered, household formation has 

remained quite depressed for reasons that are difficult to understand. 

Mr. HECK. You seem to be implying that they are—they want to 

be living in the basement, as opposed to they are unable to get out 

of the basement. 

Mrs. YELLEN. We have seen that continue even as the job market 

has strengthened and unemployment rates have come way, way 

down. So it is historically low. From builders we hear about shortage of workers, their skilled workers, and buildable lots. And there 

may be some supply issues there, as well. 

Mr. HECK. I yield back, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren. 

Mr. HULTGREN. Thank you, Mr. Chairman. 

And thank you, Chair Yellen. I appreciate you being here today. 

I know we are in agreement on the need to prevent bailouts of 

our Nation’s financial institutions from ever happening again. 

However, the Fed has implemented some controversial policies that 

I am concerned may have some unintended consequences that, in 

fact, could increase systemic risk. 

AEI Resident Scholar Paul Kupiec has noted that coordinated supervisory stress tests encourage a group-think approach to risk 

management that may increase the probability of a financial crisis. 

If the systemically important banks are all following the same capital requirements, and they all are being tested against the same 

stress scenarios, then isn’t the Fed creating a herd of banks that 

can easily be pushed off the cliff? Don’t we want a mechanism that 

is truly capable of increasing financial resilience, such as real-market discipline? 

Mrs. YELLEN. I haven’t read Paul’s work, but I think that is an 

issue. We don’t want group-think in management of risk at banks. 

We want banks to be focused on understanding their own idiosyncratic risks and modeling it. And one reason to avoid what we 

would refer to as a model mono-culture, which is this sort of herd 

approach, we have consistently resisted sharing with the banks 

subject to stress tests our models. 

One consideration, gaming it is changing their portfolios so that 

they look good on our models is one reason— 

Mr. HULTGREN. I want to ask you about that quickly, if I could. 

Mrs. YELLEN. —but we want to make sure that they don’t all 

say, ‘‘Okay, this is the way to manage your risk.’’ We want them 

to develop their own models. 

Mr. HULTGREN. Yes. Governor Tarullo has emphasized that the 

Fed does not want banks to game the model, as you say, for Fed 

stress tests. 

Can you give us an example of how a bank would game a stress 

test? 

Mrs. YELLEN. Understanding what the particular areas of risk 

and scenarios might look like and how we would evaluate them in 

our models could induce banks to understand that they could make 

portfolio changes that would enable them to fare better. 

49 

Mr. HULTGREN. I guess, following up on that some more, if banks 

were able to game the Fed’s stress test, wouldn’t they have to 

change their risk profile in a manner that addresses the very concerns that you and your colleagues have about systemic risk? And 

don’t you want them to make chose changes? 

Mrs. YELLEN. No, not necessarily, because banks have their own 

individual sources of risk. 

Mr. HULTGREN. It seems ironic to me. It would seem transparency in how stress tests are designed would help you achieve 

your objective while at the same time reducing regulatory costs. 

Since the enhanced supervisory framework of financial institutions was put in place, what analysis, if any, has the Fed done to 

determine if the increased compliance costs to financial institutions 

is commensurate with the risk? And how about an analysis on the 

ability of these banks to provide access to credit? 

Mrs. YELLEN. Are you talking about with the stress tests? 

Mr. HULTGREN. Right. 

Mrs. YELLEN. We have completed a 5-year review of our stress 

tests. The GAO has also done a review of our stress testing methodology. And, as was noted earlier today, we recently finalized a 

rule that takes over 20 smaller institutions and exempts them from 

the qualitative portion of our program. 

We did conclude that the regulatory burden exceeded the benefits 

and changed our rule to diminish regulatory burden in what I 

think is a significant and responsive way. 

Mr. HULTGREN. Earlier in the hearing today, you said that the 

Fed is thinking about incorporating a G-SIB surcharge in CCAR 

before Governor Tarullo departs. A new Vice Chair for Supervision 

nomination is likely weeks away, so why is the Fed moving ahead 

on these changes before the nomination and confirmation of this individual? 

Mrs. YELLEN. I don’t know what the timing is going to be of 

those changes. I think we would want to make sure that we had 

notice out and an ability to finalize such changes probably before 

our 2018 stress tests go into effect. 

We look forward the appointment of a Vice Chair. If we go at it 

with the— 

Mr. HULTGREN. I think it makes sense to hold off some, just— 

Mrs. YELLEN. —with the notice of proposed rulemaking— 

Mr. HULTGREN. I have 20 seconds left. Let me ask one more, 

quickly. 

There are currently three White House orders affecting potential 

new rulemakings. Additionally, last year the GAO found deficiencies with stress testing already affecting growth. Do you agree 

that the Fed should act cautiously regarding any CCAR changes? 

Mrs. YELLEN. I’m sorry. What? 

Mr. HULTGREN. Do you agree that the Fed should act cautiously 

regarding any CCAR changes? 

Mrs. YELLEN. In line with GAO recommendations, did you say? 

Mr. HULTGREN. Last year, the GAO—my time has expired. We 

will follow up with a letter. 

Chairman HENSARLING. The time of the gentleman has expired. 

I wish to inform Members that votes are currently pending on 

the Floor. I anticipate clearing two more Members, having a brief 

50 

recess, and then reconvening. Members are encouraged to come 

back promptly after votes. 

The gentleman from Pennsylvania, Mr. Rothfus, is recognized. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Chair Yellen, last year I asked you about the custody banks and 

their concerns about the supplementary leverage ratio. As you acknowledged, these institutions face unique challenges in meeting 

requirements like the SLR. 

Former Governor Tarullo has made similar statements acknowledging the problem. At a conference in December he stated that, 

‘‘As part of our efforts to tailor our regulations according to the 

business models of firms we are considering ways to address the 

special issues posed for the large custody banks by certain elements of our regulatory framework.’’ 

I appreciate the Fed’s understanding of the unique regulatory 

issues custody banks face, and I would like to continue to work 

with you on the issue. Can you tell me what progress the Fed has 

made on addressing this issue over the last year? 

Mrs. YELLEN. I can’t give you details but I can tell you that we 

have continued to engage in conversation with those banks to try 

to understand in detail the issues they face and possible strategies 

that they or we could undertake to mitigate some of those burdens. 

Mr. ROTHFUS. Thank you. 

Mrs. YELLEN. I promise we will continue to work with them. 

Mr. ROTHFUS. Thank you. 

As you know, the President recently issued the Executive Order 

laying out core principles for regulating the U.S. financial system. 

This order includes a list with the following core principles: enable 

American companies to be competitive with foreign firms in domestic and foreign markets; and advance American interests in international financial regulatory negotiations and meetings. 

When Senator Crapo asked you about the core principles yesterday you expressed support, saying, ‘‘I certainly do agree with the 

core principles. They enunciate very important goals for our financial system and for supervision and regulation of it, and I look forward to working with the Treasury Secretary and other members 

of FSOC to engage in this review.’’ 

I appreciate your support for the principles, but I would like to 

get a better understanding of how you foresee the Fed putting 

them into action. Specifically, how should the United States alter 

its approach to international insurance regulatory discussions in 

response to these core principles? 

Mrs. YELLEN. We have been involved with State regulators, the 

NAIC, the Federal Insurance Office, and others in international— 

Mr. ROTHFUS. What about with designating G-SIBs? Would allowing a firm that is not a SIFI in the United States to be designated as a global systemically important insurer be consistent 

with American interests? 

Mrs. YELLEN. Our designation of firms for special supervision for 

SIFI status in the United States takes account of their threats to 

U.S. financial stability. In foreign countries where those firms operate, the regulators are also concerned about their impact on financial stability in their countries. And the two perspectives may not 

always line up. 

51 

Mr. ROTHFUS. You testified earlier today that the FORM Act 

would ‘‘chain the Fed to a simple rule.’’ But the FORM Act permits 

the Fed to deviate from the rule, does it not? 

Mrs. YELLEN. Every deviation involves review by GAO of our decision-making— 

Mr. ROTHFUS. Wouldn’t every deviation, though, provide an opportunity to educate the American people and Members of Congress as to what you are doing? 

Mrs. YELLEN. I believe it is important to provide that education, 

and I try to do so in my testimony, and press conferences, and our 

minutes, and our monetary policy report. 

Mr. ROTHFUS. And you could do that to explain your deviation 

from the rule. Because right now we are looking at the policy over 

the last 6, 7, 8 years, and it is like, I blew up the balance sheet, 

and all I got was 6 years of substandard growth. 

Mrs. YELLEN. I am prepared to explain our policies. And as I 

have said previously, we routinely look at rules as useful guidelines. I recently gave a speech just a few weeks ago at Stanford 

where I explained in detail—I would really recommend it to you— 

reasons why the recommendations of some simple rules would not 

have been a good guide for us over the last several years or currently. 

Mr. ROTHFUS. But you would still be permitted to deviate from 

them. 

Mrs. YELLEN. I think that bringing GAO into routine real-time 

reviews of our policy decisions simply compromises the independence of monetary policy. 

Mr. ROTHFUS. Let me shift gears a little bit. The CFPB receives 

its funding from the Fed, correct? 

Mrs. YELLEN. I’m sorry? 

Mr. ROTHFUS. The CFPB receives its funding from the Fed? 

Mrs. YELLEN. Yes. 

Mr. ROTHFUS. Does the Fed have any oversight responsibility for 

the CFPB? 

Mrs. YELLEN. No. 

Mr. ROTHFUS. Has the Fed ever denied a disbursement request 

for the CFPB? 

Mrs. YELLEN. No. 

Mr. ROTHFUS. I guess I am running out of time, but you talked 

about the 2 percent target for inflation. And we talked a little bit 

about some financial literacy; you had a teachers’ town hall. 

I am curious, do teachers in financial literacy teach that a pound of ground beef at $6 is going to cost $6.60 in 5 years, or a gallon 

of milk that costs $4 now is going to cost $4.40 in 5 years if you 

hit that target? 

Mrs. YELLEN. I don’t know what— 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. ROTHFUS. I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Colorado, Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. 

Chair Yellen, thank you for taking the time to be here. 

When we previously had an opportunity to be able to visit you 

had cited in the past that you recognize the trickle-down effect of 

52 

regulations that are going on. And I have a primary concern of 

community banks. And I believe we share—you believe that community banks are important for the economic health of the country? 

Mrs. YELLEN. I do. 

Mr. TIPTON. And in recognizing that, and in view of your past 

statements, I will speak actually to my colleague, Mr. Himes’, comment when he was referring to your report. He had noted that he 

is concerned that you are not addressing or you have not addressed 

regulatory burden in regards to your report. You had recently had 

a meeting in St. Louis, I believe in September, being able to meet 

with a variety of people in the banking industry, and they had 

cited and discussed with you at this conference the number one 

reason for community banks to stop offering some products was an 

ongoing concern of the regulatory burden. 

So I guess my question to you is, you have stated to us in the 

past that you recognize the trickle-down effect. You have heard 

from community bankers that you cite or is important to our economy and the country. What is the Fed doing to actually help resolve some of the challenges that they face? 

Mrs. YELLEN. We have taken many steps that I think—based on 

my regular meetings with community bankers—they see as quite 

positive. 

We are coming into many banks less frequently, extending exam 

cycles. We have heard from them that having large groups of examiners on their premises for long periods of time is burdensome, and 

so we are giving them the opportunity to let us do much more work 

off site. We are risk-focusing our exams so that for well-managed, 

well-capitalized firms, we are spending less time and focusing on 

real sources of risk to those banks. 

We are reducing the frequency of consumer compliance exams for 

well-run and well-managed banks. We have gone through the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) 

process. There are a number of changes that are going to come out 

of that that will simplify burden. We are looking at reducing— 

Mr. TIPTON. If I may, since we are going to run out—and I appreciate the extensive list that you are putting out, but I have to be 

able to actually look at the results. When we go back to the September meeting that you had had with community bankers, they 

are still citing regulatory compliance. 

I just received an e-mail yesterday from a small bank on the 

western side of Colorado. And going a little bit to your unemployment numbers, I guess the good news is they created three jobs. 

The bad news is for that small community bank, it is all in compliance. 

So are we really seeing the results for the community banks in 

terms of everything that you were just citing? We continue to hear 

out of our community banks it is regulatory burden that is inhibiting their ability to be able to provide the liquidity, to be able to 

grow the communities, and to be able to create jobs. 

Mrs. YELLEN. Community banks labor under a number of burdens, not all of which reflect compliance burden. But I think that 

if you— 

Mr. TIPTON. But it is the number one thing that they cite to us. 

53 

Mrs. YELLEN. We do meet regularly with a council, so-called 

CDIAC, community development, community banks, and discuss 

with them how they experience our supervision. And I would say— 

Mr. TIPTON. Can we look at maybe just some outcomes? How 

many new bank charters were requested last year? 

Mrs. YELLEN. There are virtually no new bank charters. 

Mr. TIPTON. No new bank charters. How many consolidations 

were there? 

Mrs. YELLEN. There are a lot. They are a fundamental— 

Mr. TIPTON. How many shut down? 

Mrs. YELLEN. I don’t know the numbers of how many shut down. 

Mr. TIPTON. I know that you understand the problem. I guess 

what I am questioning is, are the results actually yielding the desired result? 

We have the lowest labor participation rate in this country in 

decades. We have more small businesses that are shutting down. 

You had cited that NFIB report, hey, they aren’t really even asking 

for loans. 

But you cited earlier today that they are looking for alternative 

methods, going to second mortgages on homes, to be able to get a 

loan out of the bank. So is this impacting the economy, job creation, and the overall health for rural America, which is of deep 

concern to me? 

Chairman HENSARLING. The time of the gentleman has expired. 

The committee stands in recess. 

[recess] 

Chairman HENSARLING. The committee will come to order. 

The Chair now recognizes the gentleman from Texas, Mr. Williams. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

And thank you, Chair Yellen, for your testimony this morning. 

Mr. Chairman, before I begin my questioning I wanted to briefly 

discuss Chair Yellen’s testimony from yesterday’s Senate Banking 

hearing and some comments by Senator Elizabeth Warren, whom, 

I might add, must live in a different business climate environment 

than I do; and also, for the record, remind my colleague on the 

other side that when we talk about hitting homeruns out of 

Fenway Park, the fences are very short in Fenway Park. 

[laughter] 

Senator Warren, in an exchange with you, Chair Yellen, noted 

that, ‘‘Our banks have thrived since we passed Dodd-Frank. Both 

big banks and community banks are literally making record profits.’’ 

Now, Chair Yellen, while I don’t know about the big banks and 

their record profits, what I do know is this: I am a Main Street 

America guy; I am a small business owner. Main Street America 

is hurting. Community financial institutions are hurting. And they 

both see no relief in sight. 

So I would be interested to hear what Texas community bankers 

would say to Senator Warren’s comments. I would also like to know 

what Senator Warren would say to the 126 banks in my home 

State of Texas that have closed since 2010. What would she say to 

the community bankers who have, since 2007, been hit with over 

150 new regulations with over 100 rules still to be considered? 

54 

In fact, every time a rule is changed these same community financial institutions incur a cost. Even the simplest change can cost 

thousands of dollars and hundreds of man-hours to comply with. 

Sure, some community financial institutions have consolidated to 

survive, swallowed by the larger banks. But others have not been 

so lucky. According to the FDIC, more than 1,200 counties in the 

United States, encompassing 16.3 million people, would have limited physical access to Main Street banking without a presence of 

a community bank. As someone who represents a large rural district in Texas, that is a large section of my constituency. 

So, Chair Yellen, while I do not expect my colleague from Massachusetts to understand Main Street America’s burdens, I truly hope 

that you do understand those, that the position of many of these 

community banks, financial institutions find themselves in, and 

that you stay true to your word in finding a way to provide meaningful relief. 

Now, I want to briefly go back and touch on the Federal Reserve’s balance sheet. You seem to have indicated yesterday that 

the Fed was in no hurry to reduce its massive $4.5 trillion balance 

sheet, and you said that today. 

So following up on some questions from Mr. Barr, we have heard 

a lot of talk the last couple of days from you and others on the 

strength of the economy and, again, how banks are making record 

profits, but you also stated that the Fed wouldn’t reduce the balance sheet until it has confidence the economy is on a solid course. 

So I guess my question to you is, which is it? And if our economy 

is headed in the right direction, as you have said, why wouldn’t the 

Fed reduce its balance sheet? So my question would be, what is 

stopping the Fed from naturally winding down its balance sheet, 

let alone offering a clear and credible strategy for doing so? 

Mrs. YELLEN. I think the economy is doing well, but it has required a highly accommodative policy from the Fed to accomplish 

that. So our overnight Federal funds rate at 50 to 75 basis points 

remains quite low. If the economy were to now be hit by a negative 

shock—not something I expect, but we have to prepare for—we 

would not have a great deal of scope to support the economy by cutting that overnight rate. 

My colleagues and I have said we want to wait to start running 

off our balance sheet until normalization is well under way. That 

means we would like to have a bit more buffer room to cut our 

overnight rate in the event that there is a negative shock because 

once we start running off the balance sheet it creates some drag, 

and we want to make sure that the economy is robust enough and 

we have enough policy space. 

Mr. WILLIAMS. My next question is, in terms of opportunities 

that American households have gone without during this lackluster 

recovery, does the Fed’s oversized and distortionary balance sheet, 

as well as the uncertainty that follows from the lack of a credible 

exit plan, create an unacceptable economic risk? And should it? 

Mrs. YELLEN. What do you mean by economic risk from our balance sheet? We added to our balance sheet to push down interest 

rates and spur spending to ease financial conditions at a time when 

the economy was very weak, and it has strengthened substantially. 

And I think we have made a contribution to that, so I don’t think 

55 

that is a significant risk. And we have indicated that we intend to 

contract our balance sheet substantially, but in a gradual way that 

is not risky. 

Mr. WILLIAMS. Okay. Thank you. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Maine, Mr. 

Poliquin. 

Mr. POLIQUIN. Thank you, Mr. Chairman, very much. 

And thank you very much, Chair Yellen, for being here. You 

know, we got about 2 feet of snow, Chair Yellen, in Maine on Monday, and we have another 2 or 3 feet coming this weekend, so if 

you haven’t made your vacation plans for the great State of Maine, 

this is something you ought to consider, especially since it was Valentine’s Day yesterday, and I am sure your husband would love to 

go up there with you, and we need the business. 

Mrs. YELLEN. I am sure. Thank you for the invitation. 

Mr. POLIQUIN. Yes, ma’am. 

Chair Yellen, across my district and across America we have 

been very concerned about the weakest economy we have had in 

decades—and the recovery, I should say. The GDP is growing at 

about 1.5 percent roughly instead of 3, which has been the average. 

Folks are living paycheck to paycheck in my district. They are having a hard time saving. Millions of folks have just given up looking 

for work. 

And earlier in this hearing I remember, in response to a question 

from Mr. Huizenga, I believe what you said is that our labor participation rate has been so high because there are so many people 

who are aging out of the workforce. Well, let me tell you a little 

story if I may, Chair Yellen, with all due respect. 

Mrs. YELLEN. It has been falling for that reason. 

Mr. POLIQUIN. I beg your pardon. 

A few months ago I was at a shoemaker in Lewiston, Quoddy 

Shoes, one of the greatest shoemakers still left in America, and I 

ran into a fellow who was working part time, at 80 years old—80 

years old and he is making shoes. And he was very concerned 

about running out of money before he runs out of time. 

Now, I happen to think, Chair Yellen, that we ought to do everything we can to grow this economy because that is just not fair and 

it is not right. 

Now, I am sure you look at the same data we do. In December 

we saw that consumer confidence was at a 15-year high. Now, I 

know it ticked down a little bit in January, but it was at a 15-year 

high. Business confidence is at about a 2-year high. And so this is 

all good when people are buying and businesses are investing and 

creating jobs, and we have more opportunity for our families. 

And I talk to job creators all the time. That has been my background. And I will tell you why they are so confident is because 

they are no longer worried about another layer of regulations and 

taxes falling on their shoulders that is making it hard for them to 

succeed and create jobs. 

So can’t we agree, Chair Yellen, that this overregulation that we 

have seen in this economy for the past 7 or 8 years has been stifling growth and opportunity? 

56 

Mrs. YELLEN. We even noted in our FOMC statement the pickup 

we have seen in recent months in business and consumer confidence. That is very real and— 

Mr. POLIQUIN. Would you attribute that in part to overregulation 

or going in a different direction now? Less regulations, lower taxes, 

more confidence, more spending, more jobs. 

Mrs. YELLEN. I think we should do everything we can to relieve 

regulatory burden, and I pledge to do so and to focus intensely with 

it to work with the new Administration. 

Mr. POLIQUIN. Thank you for that. 

I noticed yesterday in front of the Senate you mentioned that you 

were very supportive of adjusting financial regulations, especially 

for small community banks, and I am thrilled about that. 

But you know, it is not only the financial regulations that you 

folks are responsible for that permeate our economy, but it is also 

regulations at the EPA. For example, we have a great paper mill 

in Skowhegan with 850 jobs, and they are worried about biomass 

energy being carbon neutral or not and the additional regulations 

that come with it. 

So it is in all different sectors of the economy, Chair Yellen. 

During your June 22nd testimony, when a question was asked of 

you by Representative Barr about the economy being underperforming, your response was, ‘‘Our growth has been disappointing. 

I am not sure of the reason why.’’ 

Now, can’t we agree here today that part of the reason is overregulation and that you and everybody else in a position of influence in this town can support what is going on now, which is less 

regulation, more jobs? 

Mrs. YELLEN. Productivity growth has been quite weak for the 

last 6 years, and even going back before the financial crisis. It 

seems as though there has been a step down in the pace of productivity growth. It is not only something that we have seen in the 

aftermath of the crisis. 

So I think there may be deeper trends there that are depressing 

productivity growth than just regulations. 

Mr. POLIQUIN. Let me shift gears a little bit in my remaining 

time, Chair Yellen. 

We now have almost $20 trillion in debt. The interest payments 

on that debt with rates at a historic low are about $240 billion a 

year, which is about twice what we spend on veterans’ benefits. 

Do you think, Chair Yellen, if this town can ever get its spending 

act together, balance the books, and start paying down the debt, it 

will give us additional confidence in the business community and 

among our consumers, which will lead to a growing economy and 

more jobs? 

Mrs. YELLEN. I am not sure what the bottom line would be, but 

we have had a looming problem of an unsustainable— 

Mr. POLIQUIN. Do you think if we are able to balance our books, 

ma’am, and start paying down our debt, that would help our economy grow? 

Mrs. YELLEN. It could. 

Mr. POLIQUIN. Thank you very much. 

Chairman HENSARLING. The time of the gentleman has expired. 

57 

As the Chair advised Members earlier, we plan to adjourn this 

hearing in approximately 30 minutes. If any Member wishes to utilize less than their 5 minutes of allotted time, I am sure other people farther down the dais would be appreciative. 

The Chair now recognizes the gentlelady from Utah, Mrs. Love. 

Mrs. LOVE. Thank you, Chair Yellen, and thank you for being 

here today. I always find myself pinching myself whenever we are 

in a hearing with you because of the importance of what we are 

doing here. And so I want you to know how sincere I am with respect to the questions and the answers that we get here. So thank 

you for being here. 

Mrs. YELLEN. Thank you. 

Mrs. LOVE. In creating the Federal Reserve in 1913, Congress 

charged the new central bank with the authority to set monetary 

policy, with the objective of ensuring price stability—that is, avoiding inflation that could undermine economic growth. 

In 1978 the Humphrey Hawkins Act expanded the Fed’s mandate to include goals of maximum employment, stable prices, and 

moderate long-term interest rates. And of course, along with its responsibilities over monetary policy, the Fed also enjoys very significant powers and responsibilities with regards to bank supervision 

and now also systemic stability. 

This array of powers has left Congress, the markets, and the 

public looking to the Fed for progress and assurance on nearly 

every conceivable topic having to do with the Nation’s financial and 

economic well-being. So just listening to the range of questions that 

you have been asked and the Humphrey Hawkins hearing shows 

that it is true, including questions about topics like income inequality with African-American unemployment. 

This is my question to you: Do you agree with my observations 

in how much the Fed is doing, along with Representative Barr’s observations and his testimony, to the extent in which Congress is 

looking to the Fed for answers and guidance? 

Mrs. YELLEN. I do see that and we have, as you pointed out, a 

huge range of important responsibilities which we try to carry out 

as best we can. 

It is also important for you to understand that there are limits 

on what we can do. We are not able to address every problem. If 

there is slow productivity growth in the United States, that is not 

something that the Fed has much ability to address. 

Mrs. LOVE. Do you think— 

Mrs. YELLEN. If there is income inequality, or the composition of 

jobs has changed in an adverse way— 

Mrs. LOVE. I get it. 

Okay, do you think that we are looking to the Fed for too much, 

in your opinion? 

Mrs. YELLEN. Sometimes I do feel that, yes. 

Mrs. LOVE. If so, how do you think we can pare down our expectations of the Federal Reserve? 

Mrs. YELLEN. You have set forth your expectations in legislation 

very clearly and you described them. You said our responsibility for 

monetary policy is stable prices, maximum employment, and moderate long-term interest rates— 

58 

Mrs. LOVE. Do you think that there is room here to pare down 

or to eliminate the dual mandate that is set on— 

Mrs. YELLEN. No, I don’t think that would be a good idea. Those 

two goals of maximum employment and stable prices are rarely in 

conflict— 

Mrs. LOVE. Okay. So we talked about a couple of things. One of 

the things that we have talked about was our regulation and the 

regulatory burdens. 

Here is my problem: In April of 2011, the Fed predicted a 3.25 

percent real annual growth rate. Actual real GDP growth rate for 

that year was 1.6 percent, according to official BEA data. 

Fed forecasts for 2012 and 2013 were both close to 4 percent. Actual for 2012 was 2.2 percent; 2013 fell even further short of original predictions. I can go on and on. 

Annual growth came in far less, at 1.9 percent in 2016, when it 

was predicted at 3 percent. So I am asking if you think—do you 

think that these numbers underscore the failures of unconventional 

policies to try and deliver expected results? 

Is there too much going on? Is there a way that through both 

paring down the dual mandate and also paring down regulations 

that we can actually bring that growth rate up? 

Mrs. YELLEN. Our unemployment rate forecasts prove much closer to being accurate. You have asked us to focus on maximum employment. We have, and I believe we have succeeded in meeting 

Congress’ goal for us. 

Mrs. LOVE. But we are still looking at— 

Mrs. YELLEN. The fact that economic growth— 

Mrs. LOVE. We— 

Mrs. YELLEN. —has been so disappointing, been so low— 

Mrs. LOVE. Okay. I have about 2 seconds, and I just wanted to 

say that we are still not happy with the rate of employment when 

it comes to African-Americans. We can do a lot better. We can do 

a lot better in our— 

Mrs. YELLEN. As you just recognized, there are limits on what 

the Fed can accomplish— 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. Thank you, Mr. Chairman. 

Chair Yellen, it’s nice to have you back before the committee. 

Thank you for your patience today. 

One of the great compromises back in 1913 on the formation of 

the Federal Reserve regarded the importance and political decision 

to have the district banks, how they were owned, how they were 

spread around the country, and that—do you agree generally that 

they provided a good, diverse, strong voice in both supervisory and 

monetary policymaking over that 10 decades? 

Mrs. YELLEN. With respect to monetary policy, I feel it has been 

very good to have the diversity, the input from around the country, 

and a large group of people with diverse views trying to form a consensus. That has been very healthy. 

On supervisory policy, the reserve banks execute a great deal of 

supervision. They have responsibility, particularly for community 

banks. But it is the Board of Governors that is charged with setVerDate Nov 24 2008 17:47 Jan 24, 2018 Jkt 027200 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 K:\DOCS\27200.TXT TERI
59 

ting supervisory policy and putting regulations into effect, and so 

that policy guidance comes from the Board of Governors that is carried out in the reserve banks. 

Mr. HILL. But you do believe the Board of Governors listens to 

the members of the boards of the district banks, even on their supervisory suggestions, don’t you? 

Mrs. YELLEN. I’m sorry, the members of the Board or— 

Mr. HILL. The members of the Board of Governors in Washington, they do listen to the views of the district bank board members as it relates to supervisory policy, do they not? 

Mrs. YELLEN. The directors of the reserve banks don’t weigh in 

on bank supervision and— 

Mr. HILL. Should they? 

Mrs. YELLEN. —that supervision policy. 

Mr. HILL. Should they have that added to their list of suggestions? You have— 

Mrs. YELLEN. No. I think that the directors, especially given the 

role of banks on the boards and the fact that there are bank directors, it has been important to wall them off from— 

Mr. HILL. There are a lot of district bank directors that are not 

bank directors. They are citizens, just from various industries. 

Mrs. YELLEN. Yes. 

Mr. HILL. Do you think that the supervisors in the district banks 

have a good handle on their banks, their bankers, their bank asset 

quality, their bank supervision within the confines of their district? 

Mrs. YELLEN. Yes. 

Mr. HILL. So wouldn’t it be a good idea to try to have merger and 

acquisition applications and expansion-type applications and business combination applications all handled at the district bank 

level? 

Mrs. YELLEN. The Board has responsibility ultimately for those 

decisions, and much of the work on them is done at the reserve 

banks. But in some cases, the Board has legal authority to make 

decisions. 

Mr. HILL. Do you think it is a decent policy to defer to the local 

reserve bank as a general statement and only in special instances 

have decisions come to the Board of Governors level for approval? 

Mrs. YELLEN. I think in many cases decisions are routine, and 

the recommendations to the Board come from the reserve banks. I 

wouldn’t favor changing the governance structure around that. 

Mr. HILL. Thank you. 

On the subject of Mr. Williams’ questions about the size of the 

Federal Reserve balance sheet, obviously during the crisis you 

owned a lot of nontraditional assets as a function of getting 

through the crisis period. 

And you have, through the payment of reserves, built a large 

portfolio of government securities. It looks like you have 40 percent 

of the mortgage-backed—your portfolio is 40 percent in mortgagebacked securities; you have 20 percent of the balance sheet with a 

maturity greater than 5 years in Treasuries; and that you, at last 

count I saw, owned 15 percent of the world’s total supply of U.S. 

Treasuries. 

Do those numbers sound generally right? 

60 

Mrs. YELLEN. I don’t have them in front of me, but they sound 

generally right. 

Mr. HILL. When banks have to go through a bank examination, 

there is a section of the CAMELS rating that has an S for interest 

rate sensitivity. And it would seem to me that you have a very substantial concentration of risk in that balance sheet and the size 

that it is and a significant sensitivity to risk because you have extended duration. 

When I was looking at the numbers I was reminded of two of my 

favorite quotes. One was old—Mr. Oakley Hunter, who used to be 

the CEO of Fannie Mae back in the late 1970s, described his own 

company when he was president as the world’s largest crap game. 

And then Mr. Buffett in 2008 described the Federal Reserve as history’s greatest hedge fund. 

And so my concern is that through Operation Twist, as you try 

to undo the portfolio, that you have a real interest rate sensitivity 

problem. I hope you will address that and move quickly to reduce 

the size of the Fed’s balance sheet. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Gonzalez. 

Mr. GONZALEZ. Thank you. 

I have a couple of questions. 

Chair Yellen, President Trump has stated he intends to create 25 

million new jobs. However, given Trump’s anti-immigrant stance, 

where would the President get 25 million people to fill these jobs? 

Mrs. YELLEN. Immigration has been a very important source of 

labor force growth. I would estimate that with the economy having 

a 4.8 percent unemployment rate, looking forward job growth mainly has to come from additions to the labor force. There might be 

some increase in labor force participation, but we would need labor 

force growth. 

Given our projections on labor force growth, something like 

75,000 to 125,000 jobs a month would be consistent with a stable 

unemployment rate. And so if immigration were to reduce labor 

force growth, the pace of job growth consistent with our staying 

with roughly 4.8 percent unemployment would move down, not up. 

Mr. GONZALEZ. Right. What role does immigration into the 

United States have on the growth and competitiveness of our economy? 

Mrs. YELLEN. That is a broad question I am not sure that I can 

answer, but it has been an important support for labor force 

growth, and it has been important in many sectors. 

Mr. GONZALEZ. Thank you for your response. 

Chairman HENSARLING. The gentleman yield back. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Trott. 

Mr. TROTT. Thank you, Mr. Chairman. 

And, Chair Yellen, thank you for your time today and for your 

service. 

I want to follow up on a question that Mr. Lynch was asking earlier regarding the OLA under Title II of Dodd-Frank. And I think 

you said that you preferred a bankruptcy alternative but wanted 

61 

to maintain the OLA just in case there was a scenario that couldn’t 

be anticipated. 

I think you also said, though, that under OLA, the taxpayers 

wouldn’t be put at risk. Did I misunderstand, or do you stand by 

that statement? 

Mrs. YELLEN. Yes. The way it is set up is that if the FDIC realized any losses they would be passed onto the banking industry, 

which would chip in to compensate. 

Mr. TROTT. So if the FDIC borrows trillions of dollars to compensate creditors it is not going to put taxpayers at risk? 

Mrs. YELLEN. I’m sorry, if the what? 

Mr. TROTT. If the FDIC borrows trillions of dollars to compensate 

creditors, the bank, it is not putting taxpayers at risk? 

Mrs. YELLEN. I think there is a limit on what they can borrow 

and it wouldn’t be trillions of dollars. 

Mr. TROTT. But taxpayers would be at risk under that scenario 

if they were borrowing, wouldn’t they? 

Mrs. YELLEN. It is structured so that the costs would be borne 

by the financial sector. 

Mr. TROTT. Okay. 

In December I was back home and I went to a holiday party at 

the Bank of Birmingham, which is a community bank in Birmingham, Michigan. And the CEO pulled me in his office and he 

said, ‘‘I just want to let you know we are selling. We can’t continue.’’ And they have since sold to the Bank of Ann Arbor. 

So I would like to know what you are doing today and what we 

can do to help save our community banks. Because I really see it 

as an obstacle to growth in our economy, and I really believe it is 

one of the reasons why no one is starting small businesses and 

young people under 30 aren’t owning businesses. The lack of credit 

for small business is a big issue, and I would like to hear your 

thoughts on that. 

Mrs. YELLEN. So small businesses don’t by and large report in 

surveys when they are asked that lack of access to loans or credit 

is one of the significant problems that they face, and we have seen 

pretty solid growth of credit overall from the banking sector, including small business loans. 

Banks are under a great deal of pressure for a number of different reasons. We have a low interest rate environment. Their net 

interest margins have been compressed and that tends to reduce 

profitability. 

Still, I believe community banks in the United States last year made profits of something like $5.5 billion. But there are banks 

that are under pressure and, of course, consolidation is a trend. 

For our part, I have emphasized repeatedly today that regulatory 

burdens on community banks need to be reduced. I would be very 

pleased to see Congress take steps in that direction, and we will 

also do all that we can to cooperate in reducing those burdens. 

Mr. TROTT. Great. 

I want to save some time for my colleagues, so my last question 

is, we have heard a lot of nice speeches from my friends on the 

other side of the aisle today about all the problems that President 

Trump has created in the last 25 days. Why is the stock market 

doing so well? Why do we have a record high in the stock market? 

62 

Mrs. YELLEN. I think market participants likely are anticipating 

shifts in fiscal policy that will stimulate growth, perhaps raise 

earnings, maybe tax cuts that will boost earnings. We have seen 

longer-term interest rates go up and the dollar strengthen, and 

that is consistent with expectations of an expansionary fiscal policy. 

Mr. TROTT. Would it be fair to say then, the prospect of easing 

the regulatory burden created by Dodd-Frank is causing investors 

and businesses to feel more optimistic about our economy? 

Mrs. YELLEN. I have no idea what portion Dodd-Frank plays in 

that. I have no way of knowing that. 

Mr. TROTT. Thank you, Chair Yellen. 

I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Loudermilk. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. 

Chair Yellen, as many have discussed here today, the Fed currently holds about $1.7 trillion worth of mortgage-backed securities, which, surprisingly, equates to about 21 percent of all the 

mortgage-backed securities. This has been unprecedented because 

in the decades before the recession, the Fed had virtually zero 

mortgage-backed securities on its book. 

But yesterday at the Senate Banking Committee hearing when 

this issue was brought up, why such a large number of mortgagebacked securities are currently on the books of the Fed, you stated 

that, ‘‘After the financial crisis, at a time when the economy was 

very depressed, unemployment was very high, inflation was running below the Fed’s objectives and extraordinary support was 

needed.’’ 

And that is how you explained why you purchased so many mortgage-backed securities when prior to that, you had none. 

Mrs. YELLEN. Treasury securities. 

Mr. LOUDERMILK. Right. 

Mrs. YELLEN. Both. 

Mr. LOUDERMILK. However, today, we have heard from you and 

some others in here about how well we are doing now. The economy is going well, unemployment is going down. 

If the reason that you bought those, and you said that you are 

going to divest yourself of those via attrition over time, but my 

question is just last week the Fed purchased $8.5 billion of mortgage-backed securities. 

Mrs. YELLEN. All we do is reinvest proceeds of maturing principal to keep the size of our balance sheet unchanged. We are not 

doing any net purchases of either Treasuries or mortgage-backed 

securities. 

Mr. LOUDERMILK. But is this in any way divesting yourself? 

Mrs. YELLEN. We have not started the process of divesting ourselves. We are maintaining at a constant level the size of our portfolio and leaving the composition unchanged for now. But we anticipate at some point beginning the process you described of allowing maturing principal—we will stop reinvesting it and our balance 

sheet will gradually shrink. 

63 

Mr. LOUDERMILK. So what you are telling me is the Reuters report that came out on Thursday which reported that you bought 

$8.5 billion worth of mortgage-backed securities isn’t exactly accurate? 

Mrs. YELLEN. If we had, I don’t know the details, but to the extent we have principal repayments on mortgage-backed securities, 

we would take those principal repayments and reinvest in mortgage-backed securities to keep our holdings at a constant level. 

So that is our reinvestment. We are reinvesting maturing principal and it might have amounted to the number that you cited. I 

don’t know for sure. 

Mr. LOUDERMILK. $8.5 billion, that is a pretty significant number, especially holding 21 percent of all mortgage-backed securities. 

Mrs. YELLEN. We are not— 

Mr. LOUDERMILK. Does that not put you and the taxpayers at a 

significant risk? 

Mrs. YELLEN. We are not adding to our holdings of mortgagebacked securities. We are maintaining our holdings unchanged in 

dollar terms. And these are securities that have essentially no credit risk. And of course, there is interest rate risk in our portfolio— 

Mr. LOUDERMILK. And can you remind me, what was the significant factor in causing the crash in 2008? Wasn’t it the same idea 

that these have very little credit risk, but yet, that was the impetus with what brought us into the recession? 

Mrs. YELLEN. These are government-guaranteed mortgages. And 

we are entitled, again, in the terms of our charter to invest in 

Treasury and agency debt, and these are agencies— 

Mr. LOUDERMILK. In your opinion, then, this doesn’t put the 

American taxpayer at risk or the Fed at significant risk by holding 

21 percent of mortgage-backed securities, and you are not divesting 

at this time? 

Mrs. YELLEN. I don’t see that there is significant risk. A central 

bank operates in a very different way than a normal commercial 

bank. Our ability to conduct monetary policy, which is our prime 

responsibility, doesn’t depend on if they reflect—the value of those 

securities may fluctuate, but that has no impact on our ability to 

conduct monetary policy. 

We could have unrealized losses in those portfolios, but we have 

no intention and we have stated for a long time that we do not intend to sell mortgage-backed securities, so we would not realize 

those losses. 

Our holdings of them have swelled since the financial crisis. The 

payments that we are making to the Treasury that positively impact the Federal budget—prior to the crisis our payments to the 

Treasury ran around $20 billion to $25 billion, and last year they 

came close to $100 billion. And— 

Chairman HENSARLING. Time— 

Mrs. YELLEN. —we have supported growth in the economy. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair wishes to advise Members that currently, I intend to 

recognize the gentleman from Ohio, Mr. Davidson, and the gentleman from North Carolina, Mr. Budd, and we will adjourn at that 

time. 

The gentleman from Ohio, Mr. Davidson, is recognized. 

64 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

And thank you, Chair Yellen. It is an honor to speak with you, 

and thanks for taking a big chunk of time to talk with us today. 

What we have raised on the screen here is a trade-weighted U.S. 

dollar index. And for an extended period of time, your time as 

Chair of the Fed, you have emphasized a desire to raise rates. To 

what extent has currency appreciation impacted your ability to do 

that? 

Mrs. YELLEN. I think the appreciation of the dollar partly reflects 

market expectations that we would be raising rates faster than 

many other advanced countries. Our economy has been growing 

more strongly and we have had stronger economic performance. 

The expectation that rates would diverge with the United States 

moving to higher rates than other counties has induced capital 

inflows, which have served to push up the dollar, as your chart influences shows. And that is one of the ways in which monetary policy normally works. 

Mr. DAVIDSON. Right. 

Mrs. YELLEN. Of course, it has tended to diminish net exports. 

It has had a negative effect on our exports. It has diminished 

spending in the economy, and it is part of how a tighter monetary 

policy or perceptions that there will be works to slow aggregate demand. 

Mr. DAVIDSON. Right. And so in that sense, it is holding down 

the same pressures that you would hope to do, so the strong dollar 

is doing some of the same things you would hope to do with the 

rate appreciation. 

Mrs. YELLEN. That is right. 

Mr. DAVIDSON. But the effect for the saver, then, with the currency appreciating, is that rates are still low, so time, value, and 

money, the rates are still held low, and it has an impact on hardworking families trying to save for retirement. While it might have 

a similar effect for monetary policy, the effect on Americans in the 

domestic economy. Would you agree with that? 

Mrs. YELLEN. Yes, how the dollar moves is a factor. As I say, it 

is part of a response to monetary policy, but it is not mechanical 

and that does affect the interest rate path we put in place that is 

appropriate. 

Mr. DAVIDSON. Thank you for that. 

Now, one of the things that you had talked about as—you were 

commenting on policy so I won’t ask you a specific policy question, 

but in theory, if there were an adjustment that had an effect of 

raising the cost of imports by, say, 20 percent, and there was something that had the effect of lowering the cost of exports, would the 

currency market fully clear? Do you believe that would happen? 

And if so, would that still resolve in a net change in our balance 

of trade? 

Mrs. YELLEN. I would note that there have been discussions and 

academic work in connection with the border tax that suggests that 

an appreciation of the dollar could fully offset, as you have said, 

a tax change that raised the cost of imports and provided a comparable export subsidy. And in principle that could provide a full 

offset. 

65 

The problem is there is great uncertainty about how, in reality, 

markets would really respond to these changes, and a strong set 

of assumptions is needed to believe that markets would fully offset 

those changes. 

It is very difficult to know just what would happen. There is 

more than trade that affects a country’s exchange rates. 

Market participants’ expectations matter and there is a great 

deal of wealth. There would be shifts in wealth. The value of U.S. 

assets held in foreign currencies would be greatly diminished by 

that— 

Mr. DAVIDSON. Thanks. I think you anticipate my next question, 

which is $2-plus trillion of U.S. assets held offshore, one of the desires would be to see some of that put to work in the U.S. economy. 

To what extent over the past several years of high appreciation 

of the U.S. dollar does that affect the value of the repatriation, and 

do you feel that currency would have an impact in the present context of relatively high rates in anything we would do policy-wise 

with fiscal policy to drive those balance of payments? 

Mrs. YELLEN. That was a complicated question and I am not sure 

I have— 

Mr. DAVIDSON. Sorry. And you have been answering them for a 

long time, so the net effect of the currency appreciation on repatriation. Is there a fiscal policy that we would do that you feel that 

would be offset by the strong dollar? What would happen in that 

context? 

Mrs. YELLEN. I am not sure I have a simple answer for you to 

that complicated question. 

Mr. DAVIDSON. My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Budd. 

Mr. BUDD. Thank you, Chair Yellen, for joining us today. 

I will shorten the question. Something has changed in our economy since 2009, and I want to know if you think that in the last 

8 years, the expansionary monetary policy or the financial regulations have played a role in the growing populations of both the poor 

and the very wealthy by hurting middle-class savers? 

Mrs. YELLEN. Are you referring to the fact that we have had low 

interest rates and it has hurt middle-class savers? 

Mr. BUDD. I would say that combined with the financial regulations and how it has had an effect on those middle-class savers, if 

you see a correlation there. 

Mrs. YELLEN. I am not sure I see how—I think financial regulation has resulted in a stronger financial system and less risk substantially than we have had before the crisis. I think it has enabled 

us to have stronger growth and a faster recovery than some other 

advanced nations, including European nations. And in that sense, 

I think it has been beneficial. 

But, of course, savers have been impacted by the low interest 

rate environments, and I hear from them every day, as I am sure 

you do. They would welcome higher interest rates, and if the economy continues to move along a solid path, it is my hope that we 

will be able to raise interest rates more rapidly and they will see 

66 

some of that pass through to their savings earn higher returns on 

them. 

Mr. BUDD. Thank you. So the next part of that—so when I do 

talk to the community banks in my district they keep telling me 

that the fastest-growing department in their business, in their 

bank, is the compliance department. So this seems to be borne out 

of the fact that we are now near zero as far as it comes to new 

bank charters, where it used to be hundreds of new bank charters 

a year. 

Do you think the fact that banks have had to massively increase 

their spending on regulatory compliance is helpful or harmful to 

banks’ abilities to make loans for individuals and small businesses? 

Mrs. YELLEN. I agree with everyone this morning who has expressed concern about regulatory burdens on community banks, 

and I pledge to do everything in our power to attempt to look for 

ways to mitigate those burdens. 

Mr. BUDD. Thank you. 

I yield back my time. 

Chairman HENSARLING. The gentleman yields back. 

I would like to thank Chair Yellen for her testimony today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place her responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

I would ask, Chair Yellen, that you please respond as promptly 

as you are able. 

This hearing stands adjourned. 

[Whereupon, at 2:11 p.m., the hearing was adjourned.] 

(67) 

A P P E N D I X 

February 15, 2017 

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