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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 FOURTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 25, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–4 

( 

(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 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

ROBERT DOLD, Illinois 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

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 

RUBE ́ N HINOJOSA, Texas 

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 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

February 25, 2015 ............................................................................................ 1 

Appendix: 

February 25, 2015 ............................................................................................ 55 

WITNESSES 

WEDNESDAY, FEBRUARY 25, 2015 

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

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

APPENDIX 

Prepared statements: 

Moore, Hon. Gwen ............................................................................................ 56 

Yellen, Hon. Janet L. ....................................................................................... 57 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Yellen, Hon. Janet L.: 

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

System to the Congress, dated February 24, 2015 .................................... 68 

Written responses to questions for the record submitted by Representative Duffy ....................................................................................................... 124 

Written responses to questions for the record submitted by Representative Hurt ........................................................................................................ 129 

Written responses to questions for the record submitted by Representative Luetkemeyer .......................................................................................... 132 

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

Written responses to questions for the record submitted by Representative Mulvaney ................................................................................................ 138 

Written responses to questions for the record submitted by Representative Sinema .................................................................................................... 146 

Written responses to questions for the record submitted by Representative Waters .................................................................................................... 149 

Written responses to questions for the record submitted by Representative Huizenga ................................................................................................ 158 

(1) 

MONETARY POLICY AND THE 

STATE OF THE ECONOMY 

Wednesday, February 25, 2015 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:01 a.m., in room 

HVC–210, Capitol Visitor Center, Hon. Jeb Hensarling [chairman 

of the committee] presiding. 

Members present: Representatives Hensarling, Lucas, Garrett, 

Neugebauer, McHenry, Pearce, Posey, Fitzpatrick, Luetkemeyer, 

Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman, Mulvaney, 

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

Schweikert, Dold, Guinta, Tipton, Williams, Poliquin, Love, Hill; 

Waters, Maloney, Velazquez, Sherman, Meeks, Capuano, Lynch, 

Green, Cleaver, Moore, Ellison, Perlmutter, Himes, Carney, Foster, 

Kildee, Delaney, Sinema, Beatty, Heck, and Vargas. 

Chairman HENSARLING. The Financial Services Committee 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 monetary policy and the state of the economy. 

We should advise all Members that today’s hearing will end at 

1 p.m., in order to accommodate the Chair’s schedule. I now recognize myself for 3 minutes to give an opening statement. 

As Chair Yellen delivers her semiannual report today, we have 

an opportunity to examine the state of the Fed’s balance sheet, but 

it is the precarious state of family balance sheets that must be foremost on our minds. That coincidentally is the title of a recent report by the Pew Charitable Trust, which rightly concludes that, 

‘‘Many American families are walking a financial tightrope.’’ Since 

the President embarked on his economic program, middle-income 

families have found themselves with smaller paychecks, smaller 

bank accounts, and further from financial independence. Millions 

have become so discouraged trying to find a job that they have simply given up and left the workforce. Although we have happily seen 

some recent improvement in our economy, Americans are still 

mired in the slowest, weakest recovery of the post-war era, this in 

spite of the single largest monetary stimulus in America’s history. 

Why is this recovery so anemic? No doubt, it is hampered by 

Obamacare, the Dodd-Frank Act, and the other roughly $617 billion in new regulatory costs imposed by the Administration. This 

is something monetary policy cannot remedy. On top of this is the 

2 

burden of $1.7 trillion in new taxes that fall principally upon our 

engines of economic growth: small businesses; entrepreneurs; and 

investors. Monetary policy cannot remedy this either. 

Then there is the doubt, uncertainty, and regulatory burden that 

grows as more and more unbridled discretionary authority is given 

to unaccountable government agencies. Although monetary policy 

cannot remedy this, it can help. 

During the most successful periods of our Fed’s history, the central bank appeared to follow a clear rule, methodology, or monetary 

policy convention. Today, however, it favors a more unpredictable 

and somewhat amorphous ‘‘forward guidance,’’ which creates uncertainty. 

For example, just moments after the Federal Open Market Committee (FOMC) released its policy statement on December 17th, the 

Dow surged over 300 points, seemingly based upon nothing more 

than the substitution of the word ‘‘patient’’ for the phrase ‘‘considerable time.’’ And when Chair Yellen’s predecessor once publicly 

mused about the mere possibility of tapering Quantitative Easing, 

markets took a deep dive. 

Thus, there does not appear to be all that much ‘‘guidance’’ in the 

Fed’s ‘‘forward guidance.’’ As one former Fed President recently 

wrote, ‘‘Monetary policy uncertainty creates inefficiency in the capital market. The FOMC gives lip service to policy predictability, but 

its statements are vague. The FOMC preaches that policy is datadependent, but will not tell us what data and how.’’ 

Many prominent economists believe that the American people 

will enjoy a healthier economy when the Fed begins to adopt a 

more predictable method of rules-based monetary policy, one of its 

choosing. 

Opponents argue any reforms threaten the Fed’s monetary policy 

independence, but the greatest threat to the independence of the 

Fed comes from the Executive Branch, not the Legislative Branch. 

While the Federal Reserve Chair testifies publicly before this committee twice a year, she meets weekly with the Treasury Secretary 

in private. And for decades, there has been a revolving door between Treasury officials and Fed officials, which continues even 

today. 

With respect to reform, accountability, and transparency on the 

one hand, and independence in the conduct of monetary policy on 

the other, these are not mutually exclusive concepts. After DoddFrank, a quadruple balance sheet, massive bailouts, unprecedented 

credit market interventions, and the financing and facilitation of 

trillions of dollars of new national debt, this is clearly a very different Fed. 

Chair Yellen, I will listen very carefully to constructive suggestions that improve Fed reform ideas, but I for one believe Fed reforms are needed, and I for one believe Fed reforms are coming. 

I now recognize the ranking member for 3 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

And welcome back, Chair Yellen. 

Since you last joined us in July, the economy has enjoyed a 

string of positive developments. In the past 3 months alone, we 

have seen the best stretch of hiring in 17 years, GDP growth is up, 

and the outlook for inflation continues to remain low. There is no 

3 

doubt now that the post-crisis policy of quantitative easing, which 

you have extraordinarily championed in the face of countless Republican attacks, has played a major role in turning the economy 

around. 

But while I could talk all day about the macroeconomic gains we 

have made, the brutal truth is that millions continue to teeter on 

the brink of severe poverty and financial collapse. People in my district are still struggling to recover from the crisis. Systemic inequities distort progress and opportunity for tens of millions of Americans, most especially low- and middle-income Americans, and communities of color. 

A look at the data presents a staggering picture of the racial 

wealth gap, which continues to widen. While some home values 

have increased, Black communities have failed to bounce back. In 

2013, the number of White families with underwater mortgages 

was 5.45 percent compared to 14.2 percent for African-Americans. 

One-in-nine White Americans have less than $1,000 in assets. But 

for Latino-Americans, that ratio is one-in-four; for African-Americans, it is one-in-three. The Federal Reserve Bank of St. Louis reports that the average wealth level for Whites is $134,000 as compared to an astonishing $14,000 for Latinos and $11,000 for African-Americans. And in retirement, there is a dramatic disparity. In 

2013, White families had over $100,000 more in average liquid retirement savings than African-Americans. 

Meanwhile, the rich get richer and Republicans push policies 

that would only exacerbate this inequity, not stem it. 

Chair Yellen, as you discuss the state of our economy, I am particularly interested in hearing how the least fortunate among us 

are faring in this time of unprecedented growth for big banks, Wall 

Street, and the wealthiest among us. And I would like to hear your 

view on how we can provide more opportunity to this often overlooked segment of our population. 

So, in light of this sobering wealth gap, I am basically astounded 

that Republicans continue politically to be motivated in the ways 

that they are. 

I welcome you, Chair Yellen, and I look forward to your views 

on these important issues. 

And I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Michigan, Mr. Huizenga, chairman of our Monetary Policy 

and Trade Subcommittee, for 2 minutes. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

And I will point out to our ranking member that what motivates 

me—and I think my fellow Members—is making sure that the Federal Reserve is doing its job properly. Last Congress, when we did 

a Federal Reserve Centennial Oversight Project looking at the last 

hundred years of the actions of the Fed, it became clear that the 

Federal Reserve has gone above and beyond its original mandate 

mission of maximum employment, stable prices, and moderate 

long-term interest rates. In fact, since the enactment of DoddFrank, the Federal Reserve has gained unprecedented power, influence, and control over the financial system, which was already 

quite strong, while remaining shrouded in mystery for the American people. 

4 

Additionally, given the interconnectedness of the global financial 

system, there is no doubt that the Federal Reserve’s monetary policies have significantly impacted the international markets and foreign economies as well. I am concerned how the Fed’s decisions are 

influencing other central banks and interested how it will shake 

out as we are seeing our friends and economic partners seemingly 

going in the opposite direction from where we are going. 

Needless to say, the Fed’s recent high degree of discretion and 

its lack of transparency in how it conducts monetary policy suggests, as the Chair had said, that reforms are needed. Likewise, I 

am also concerned that the Fed’s regulatory policies and development of these policies are sort of layered in one uncoordinated 

mandate on top of another without examining the impact on hardworking American families and small businesses on Main Street. 

The Federal Reserve has proven time and time again that its government-knows-best approach doesn’t hold the cure for what ails 

the economy. I know you were not here for the passage of DoddFrank. Much like me, you are just living with the echo effects of 

it. But not only are innovators, entrepreneurs, and job creators uneasy to invest because of the environment that has been created by 

this failed framework, hardworking middle-income families are 

paying the price, I believe. 

It is time we restore certainty as well as fiscal responsibility, and 

we must lift the veil of secrecy to ensure that the Fed is accountable to the people’s Representatives, the same people who created 

the Federal Reserve in the first place. It is time to bring the Federal Reserve out of the shadows and provide hardworking taxpayers with a more open and transparent government. 

I am excited for today’s hearing. And, frankly, I hope we do more 

of it. Thanks. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, Mr. Green, the ranking member of our Oversight and 

Investigations Subcommittee, for 2 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the ranking member. 

And I thank the Chair for appearing today. Thank you very 

much. 

I am very much concerned about many things. Obviously, with 

the Fed, we have to balance the transparency of the Fed with the 

independence of the Fed, and in so doing, there are some rhetorical 

questions that I think are appropriate. Do we want Congress to 

gain control of the Fed? The independence is an important aspect 

of the Fed’s existence since 1913, and the Fed has served us well. 

Do we want the same Congress—that cannot fund Homeland Security—to have control of Fed funding? Do we want the same Congress—that cannot draw conclusions as to how we should reform 

immigration in this country—to have control of the Fed? I think it 

is important for us to have opportunities to have transparency but 

not at the expense of the independence of the Fed. 

We understand the mandates, and the low interest rates have 

made a difference. I compliment not only you but also Chair 

Bernanke because he stood fast in some difficult circumstances. 

And I think the Fed has made a significant difference in the recovery that we find ourselves experiencing. 

5 

We have not come far enough. I join the ranking member with 

her comments with reference to certain segments of society that 

have been left behind. We have to do more, but I don’t want to sacrifice the independence of the Fed for transparency. 

I yield back. 

Chairman HENSARLING. Today, we welcome the testimony of the 

Honorable Janet Yellen, Chair of the Board of Governors of the 

Federal Reserve System. Chair Yellen has previously testified before this committee, so I feel confident that she needs no further 

introduction. 

Without objection, Chair Yellen’s written statement will be made 

a part of the record. 

Chair Yellen, you are now recognized for your oral testimony. 

Thank you. 

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 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 discuss the current 

economic situation and outlook before turning to monetary policy. 

Since my appearance before this committee last July, the employment situation in the United States has been improving along 

many dimensions. The unemployment rate now stands at 5.7 percent, down from just over 6 percent last summer and from 10 percent at its peak in late 2009. The average pace of monthly job gains 

picked up, from about 240,000 per month during the first half of 

last year to 280,000 per month during the second half. And employment rose 260,000 in January. 

In addition, long-term unemployment has declined substantially. 

Fewer workers are reporting that they could find only part-time 

work when they would prefer full-time employment. And the pace 

of quits, often regarded as a barometer of worker confidence in 

labor market opportunities, has recovered nearly to its pre-recession level. However, the labor force participation rate is lower than 

most estimates of its trend and wage growth remains sluggish, suggesting that some cyclical weakness persists. 

In short, considerable progress has been achieved in the recovery 

of the labor market, though room for further improvement remains. 

At the same time that the labor market situation has improved, 

domestic spending and production have been increasing at a solid 

rate. Real gross domestic product is now estimated to have increased to the 33⁄4 percent annual rate during the second half of 

last year. While GDP growth is not anticipated to be sustained at 

that pace, it is expected to be strong enough to result in a further 

gradual decline in the unemployment rate. 

Consumer spending has been lifted by the improvement in the 

labor market as well as by the increase in household purchasing 

power resulting from the sharp drop in oil prices. However, housing 

construction continues to lag. Activity remains well below levels we 

judge could be supported in the longer run by population growth 

and the likely rate of household formation. 

6 

Despite the overall improvement in the U.S. economy and the 

U.S. economic outlook, longer term interest rates in the United 

States and other advanced economies have moved down significantly since the middle of last year. The declines have reflected, at 

least in part, disappointing foreign growth and changes in monetary policy abroad. Another notable development has been the 

plunge in oil prices. The bulk of this decline appears to reflect increased global supply rather than weaker global demand. While the 

drop in oil prices will have negative effects on energy producers 

and will probably result in job losses in this sector, causing hardship for affected workers and their families, it will likely be a significant overall plus on net for our economy. 

Primarily, that boost will arise from U.S. households having the 

wherewithal to increase their spending on other goods and services 

as they spend less on gasoline. 

Foreign economic developments, however, could pose risks to the 

outlook for U.S. economic growth. Although the pace of growth 

abroad appears to have stepped up slightly in the second half of 

last year, foreign economies are confronting a number of challenges 

that could restrain economic activity. In China, economic growth 

could slow more than anticipated, as policymakers address financial vulnerabilities and manage the desired transition to less reliance on exports and investment as sources of growth. In the Euro 

area, recovery remains slow, and inflation has fallen to very low 

levels. Although highly accommodative monetary policy should help 

boost economic growth and inflation there, downside risks to economic activity in the region remain. 

The uncertainty surrounding the foreign outlook, however, does 

not exclusively reflect downside risks. We could see economic activity respond to the policy stimulus now being provided by foreign 

central banks more strongly than we currently anticipate, and the 

recent decline in world oil prices could boost overall global economic growth more than we expect. 

U.S. inflation continues to run below the committee’s 2 percent 

objective. In large part, the recent softness in the all-items measure 

of inflation for personal consumption expenditures reflects the drop 

in oil prices. Indeed, the PCE price index edged down during the 

fourth quarter of last year and looks to be on track to register a 

more significant decline this quarter because of falling consumer 

energy prices, but core PCE inflation has also slowed since last 

summer, in part reflecting declines in the prices of many imported 

items and perhaps also some passthrough of lower energy costs 

into core consumer prices. 

Despite the very low recent readings on actual inflation, inflation 

expectations, as measured in a range of surveys of households and 

professional forecasters, have thus far remained stable. However, 

inflation compensation, as calculated from the yields of real and 

nominal Treasury securities, has declined. As best we can tell, the 

fall in inflation compensation mainly reflects factors other than the 

reduction in longer term inflation expectations. 

The committee expects inflation to decline further in the near 

term before rising gradually toward 2 percent over the medium 

term as the labor market improves further and the transitory efVerDate Nov 24 2008 13:02 Aug 19, 2015 Jkt 095048 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\95048.TXT TERRI
7 

fects of lower energy prices and other factors dissipate, but we will 

continue to monitor inflation developments closely. 

I will now turn to monetary policy. The Federal Open Market 

Committee is committed to policies that promote maximum employment and price stability, consistent with our mandate from the 

Congress. As my description of economic developments indicated, 

our economy has made important progress toward the objective of 

maximum employment, reflecting in part support from the highly 

accommodative stance of monetary policy in recent years. 

In light of the cumulative progress toward maximum employment and the substantial improvement in the outlook for labor 

market conditions, the stated objective of the Committee’s recent 

asset purchase program, the FOMC concluded that program at the 

end of October. Even so, the Committee judges that a high degree 

of policy accommodation remains appropriate to foster further improvement in labor market conditions and to promote a return of 

inflation toward 2 percent over the medium term. Accordingly, the 

FOMC has continued to maintain the target range for the Federal 

funds rate at zero to a quarter percent and to keep the Federal Reserve’s holdings of longer term securities at their current elevated 

level to help maintain accommodative financial conditions. 

The FOMC is also providing forward guidance that offers information about our policy outlook and expectations for the future 

path of the Federal funds rate. In that regard, the Committee 

judged in December and January that it can be patient in beginning to raise the Federal funds rate. This judgment reflects the fact 

that inflation continues to run well below the Committee’s 2 percent objective and that room for sustainable improvements in labor 

market conditions still remains. 

The FOMC’s assessment that it can be patient in beginning to 

normalize policy means that the Committee considers it unlikely 

that economic conditions will warrant an increase in the target 

range for the Federal funds rate for at least the next couple of 

FOMC meetings. If economic conditions continue to improve, as the 

Committee anticipates, the Committee will at some point begin 

considering an increase in the target range for the Federal funds 

rate on a meeting-by-meeting basis. Before then, the Committee 

will change its forward guidance. 

However, it is important to emphasize that a modification of the 

forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of 

meetings; instead, the modification should be understood as reflecting the Committee’s judgment that conditions have improved to the 

point where it will soon be the case that a change in the target 

range could be warranted at any meeting. 

Provided that labor market conditions continue to improve and 

further improvement is expected, the Committee anticipates that it 

will be appropriate to raise the target range for the Federal funds 

rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term 

toward our 2 percent objective. 

It continues to be the FOMC’s assessment that even after employment and inflation are near levels consistent with our dual 

mandate, economic conditions may for some time warrant keeping 

8 

the Federal funds rate below levels the Committee views as normal 

in the longer run. It is possible, for example, that it may be necessary for the Federal funds rate to run temporarily below its normal longer run level, because the residual effects of the financial 

crisis may continue to weigh on economic activity. 

As such factors continue to dissipate, we would expect the Federal funds rate to move toward its longer run normal level. In response to unforeseen developments, the Committee will adjust the 

target range for the Federal funds rate to best promote the achievement of maximum employment and 2 percent inflation. 

Let me now turn to the mechanics of how we intend to normalize 

the stance and conduct of monetary policy when a decision is eventually made to raise the target range for the Federal funds rate. 

Last September, the FOMC issued its statement on policy normalization, principles, and plans. The statement provides information about the Committee’s likely approach to raising short-term 

interest rates and reducing the Federal Reserve’s security holdings. 

As is always the case in setting policy, the Committee will determine the timing and pace of policy normalization so as to promote 

its statutory mandate to foster maximum employment and price 

stability. 

The FOMC intends to adjust the stance of monetary policy during normalization primarily by changing its target range for the 

Federal funds rate and not by actively managing the Federal Reserve’s balance sheet. The Committee is confident that it has the 

tools it needs to raise short-term interest rates when it becomes appropriate to do so and to maintain reasonable control of the level 

of short-term interest rates as policy continues to firm thereafter 

even though the level of reserves held by depository institutions is 

likely to diminish only gradually. 

The primary means of raising the Federal funds rate will be to 

increase the rate of interest paid on excess reserves. The Committee also will use an overnight reverse repurchase agreement facility and other supplementary tools as needed to help control the 

Federal funds rate. As economic and financial conditions evolve, 

the Committee will phase out these supplementary tools when they 

are no longer needed. The Committee intends to reduce its security 

holdings in a gradual and predictable manner, primarily by ceasing 

to reinvest repayments of principal from securities held by the Federal Reserve. It is the committee’s intention to hold in the longer 

run no more securities than necessary for the efficient and effective 

implementation of monetary policy and that these securities be primarily Treasury securities. 

In sum, since the July 2014 Monetary Policy Report, there has 

been important progress toward the FOMC’s objective of maximum 

employment. However, despite this improvement, too many Americans remain unemployed or underemployed; wage growth is still 

sluggish; and inflation remains well below our longer run objective. 

As always, the Federal Reserve remains committed to employing 

its tools to best promote the attainment of its objectives of maximum employment and price stability. 

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

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

57 of the appendix.] 

9 

Chairman HENSARLING. Thank you, Chair Yellen. 

The Chair now recognizes himself for 5 minutes for questions. 

Chair Yellen, I think I heard you say in your testimony that a 

modification of forward guidance will not necessarily lead to a 

modification of the target Fed funds rate. Is that what I just heard 

you testify? 

Mrs. YELLEN. Modification—not— 

Chairman HENSARLING. Forward guidance does not necessarily 

lead to a modification of your target Fed funds rate. Is that—I believe I read— 

Mrs. YELLEN. It means—a modification of the guidance would 

mean that we wish to consider whether or not to raise the Federal 

funds rate on a— 

Chairman HENSARLING. I am reading from your written testimony now: ‘‘It is important to emphasize that a modification of the 

forward guidance should not be read as indicating that the Committee will necessarily increase the target range.’’ 

Mrs. YELLEN. Yes. 

Chairman HENSARLING. Okay. 

Mrs. YELLEN. So— 

Chairman HENSARLING. I guess I just question, then, how much 

guidance there is in forward guidance. We have had this discussion 

before in private and public concerning a predictable rules-based 

monetary policy. Again, prior to becoming Chair, when you previously served as a Member of the Board, I believe you indicated 

that the Taylor Rule, in particular, ‘‘is what sensible central banks 

do.’’ 

In previous testimony, I believe your last testimony before our 

committee, I thought I heard you say that you still believed that 

but that the timing was not right because we are still in extraordinary times. Perhaps I am putting some words in your mouth, but 

that was the essence of what I thought I heard in your last testimony. And yesterday, before the Senate, you testified that, ‘‘I am 

not a proponent of chaining the Federal Open Market Committee 

in its decision-making to any rule whatsoever.’’ 

A couple of observations. I think you are familiar with the legislation that was furthered by Mr. Huizenga. Perhaps ‘‘rule’’ is an intimidating term, but under his legislation—call it rule, call it process, call it methodology—the Fed would set the rule, the Fed could 

waive the rule, the Fed could change the rule at will as long as it 

publicly told the rest of us what it was doing. 

I am not sure what, with respect to that proposal, the Fed would 

be chaining itself to, so I guess my question is this: Do you no 

longer believe that a rules-based policy like the Taylor Rule is what 

sensible central banks do? Is it a question of timing, or have you 

simply changed your mind? 

Mrs. YELLEN. What—the view that I was offering, that is a statement I made in 1995. I was comparing the Taylor Rule to other 

rules that were simpler and indicating that that was a rule that, 

up until that time, from the mid-1980s until the mid-1990s, had 

worked well. 

Chairman HENSARLING. Chair Yellen, it is just that your statement of yesterday doesn’t seem to leave a whole lot of wiggle room. 

10 

Mrs. YELLEN. I don’t believe in chaining—that the Fed should 

chain itself to any mechanical rule. I did not believe that in 1995; 

I do not believe it now. And I had the privilege to meet with Professor Taylor right after he proposed the Taylor Rule in 1993, and 

I agree with the views that he expressed then. If I could quote— 

Chairman HENSARLING. If we want the ability to— 

Mrs. YELLEN. He said, ‘‘Operating monetary policy by mechanically following a policy rule is not practical.’’ 

Chairman HENSARLING. Okay. Well, Chair Yellen, let me ask you 

this question. 

Mrs. YELLEN. —benchmarks that a central bank could refer to in 

deciding— 

Chairman HENSARLING. Let me ask you this question. It you had 

the ability— 

Mrs. YELLEN. And I continue to hold that view. 

Chairman HENSARLING. —to waive the rule and change the rule, 

how is one chaining themselves? 

Mrs. YELLEN. I don’t believe that any mechanical rule that links 

monetary policy to one or two variables, in the case of Taylor-Ruletype equations— 

Chairman HENSARLING. Okay. I understand— 

Mrs. YELLEN. —it is two variables. We take into account a wide 

range of factors that impact the performance over time of the economy and— 

Chairman HENSARLING. Chair Yellen, I think I understand your 

position. 

Mrs. YELLEN. —benchmark— 

Chairman HENSARLING. Forgive me, but I am beginning to run 

out of time here. 

The second and last question I will ask: Yesterday, you stated in 

Senate testimony that you are not seeking to alter Dodd-Frank, apparently in any way or form. This was in an answer to a question 

by Senator Warren, whom I believe may be fairly alone in believing 

that Dodd-Frank is sacred text. Your predecessor said, as a general 

matter, ‘‘Dodd-Frank is a very big, complicated piece of legislation 

that addresses many issues. I am sure there are many aspects of 

it that could be improved in one way or the other.’’ Your own General Counsel, Scott Alvarez, has indicated problems with the swaps 

pushout provision. Board Member Daniel Tarullo has indicated a 

concern for the SIFI designation level and expressed support for explicitly exempting institutions below a certain size from the Volcker 

Rule. Barney Frank himself has indicated a willingness and interest in changing nonbank SIFI designations, asset thresholds for 

automatic bank SIFI designations, Volcker Rule end-user margin, 

and QM treatment for loans held in a portfolio. 

And so my question is, particularly as the Fed is the prudential 

regulator for thousands of community banks that are withering on 

the vine, is there any context for the answer you give, or is it that 

you believe Dodd-Frank cannot be altered and should not be altered in any way? 

Mrs. YELLEN. We are not seeking, we are not asking the Congress to alter it. The Act provides considerable flexibility for the 

Federal Reserve and other regulators to tailor rules that are appropriate to the institutions that we supervise. And while if we were 

11 

starting from scratch, no doubt we would have suggestions for different ways of having formulated one thing or another, it has been 

a very useful piece of legislation. It has provided a roadmap for us 

to take strong action to improve the safety and soundness of the 

financial system. And we have found ways to use the flexibility 

that Act affords us— 

Chairman HENSARLING. Thank you. 

Mrs. YELLEN. —to appropriately tailor our supervision. 

Chairman HENSARLING. Okay. Contrary to your predecessor or 

Barney Frank himself, at the moment, you seek no modifications. 

The Chair is way past his time. 

The Chair now recognizes the ranking member. 

Ms. WATERS. Thank you very much, Chairman Hensarling. 

Madam Chair, since the chairman took that line of questioning, 

I think, prior to raising a question with you, it is important to 

know that the chairman and I have met on more than, I think, one 

occasion to talk about community banks and whether or not there 

were steps that could be taken that would ensure that the community banks are not overly burdened with regulations and to separate out the community banks from regionals and big banks. 

And so it is not that Mr. Barney Frank, or I, or others believe 

that there never, ever, ever, can be any modifications, any changes. 

We have always said that we are open to technical changes and to 

working in areas where there may be confusion or appears to be 

duplication. So I want you to know that some of what is being 

raised with you is in ongoing discussions. And certainly—hopefully—if we can get the cooperation from the opposite side of the 

aisle on some of these issues, then there may be some room for 

some technical changes or modifications. 

Having said that, I am interested in what is happening with our 

living wills. Under Title I of the Dodd-Frank Act—as you know, robust living wills under Title I of Dodd-Frank Act are crucial in 

order to ensure that we have truly ended too-big-to-fail. In the past 

few years, many members of the public wrote to the FDIC and the 

Federal Reserve expressing frustration that the public portions of 

living wills have been disappointing. Specifically, the lack of public 

information makes it difficult for members of the public to assess 

the progress that firms and regulators have made on achieving the 

goals of Dodd-Frank, which is to reduce the complexity of the 

world’s most significant financial institutions and allow them to be 

resolved under ordinary bankruptcy proceedings without endangering the broader economy. 

In an August 2014 press release, the Fed noted that both they 

and the FDIC will be working with large banks to explore ways to 

enhance public transparency of future plan submissions. 

I want you, if you can, to elaborate on this commitment. What 

additional information does the Fed plan on releasing to the public 

so that we can know whether or not you are doing what we intended in Wall Street reform? If each living will is thousands of 

pages long, does the public really have any transparency if the Fed 

is only releasing about 30 or so pages of the plans? 

Here is what I am concerned about: First of all, we understand 

that the submissions are certainly not adequate, that they are not 

what they should be in many instances. These banks are huge— 

12 

the big banks we are talking about. They are complex, and we believe that the very top—sometimes the CEOs don’t even know and 

understand the complexity of their institutions. And these living 

wills are extremely important if we are to have a plan by which 

we can resolve them in the event we determine that they are putting us all at risk. What can you tell us to update us about these 

living wills? 

Mrs. YELLEN. Let me say that we are taking the living wills process very seriously. We have worked closely with the FDIC, and last 

summer we issued a set of joint letters to the largest firms, establishing a clear set of criteria of things that we want to see in their 

next submissions. They are very significant steps that will improve 

the odds of resolvability under the Bankruptcy Code. We have told 

them, for example, that they need to establish a rational and less 

complex legal structure that would improve resolvability; that they 

need to develop a holding company structure to support resolvability; that they need to change the way in their—some of their 

derivatives contracts, stay provisions, include stay provisions that 

would aid resolvability. We have told them that they need to make 

sure that shared services that support critical operations in core 

business lines will be maintained throughout resolution. And we 

are working with the firms to make sure that by July of this year, 

when they make their next submissions, we see very meaningful 

improvements. 

And I will say that in some of the largest firms, we have seen 

very meaningful steps toward reducing the number of legal entities 

along the lines that we have suggested. 

If we do not see the kind of progress that we expect, we have told 

these firms that we expect to find their submissions not credible. 

So, we are taking this process very seriously. 

Now, these living wills, as you said, they are often tens of thousands of pages. They contain a great deal of confidential information that doesn’t really belong, I think, in the public domain. But 

we have insisted that they provide information to the public in the 

public portion of their submission. And we are working with them 

to try to increase the amount of information, the amount of detail 

that is in the public portion so that you would be able to get a better understanding of how they are proceeding on this. 

Ms. WATERS. Thank you very much. Let me just move to another 

subject area quickly, market manipulation. Paul Volcker, the architect of the Volcker Rule, has said that one key loophole that remains in his namesake rule is the merchant banking exemption, 

which allows our banks to engage in activity in the real economy. 

This includes activities like owning or controlling shopping centers, 

power plants, coal mines, even oil tankers. Traditionally, we have 

wanted to separate the business of banking from activities in the 

real economy because blurring these distinctions runs the risk of 

banks engaging in anticompetitive behavior, manipulating markets, 

driving up costs for consumers, or just accruing too much political 

power over our economy. Any thoughts about that? 

Mrs. YELLEN. With respect to physical commodities, the Fed is 

engaged in a very careful review of the activities that we have permitted along these lines. And with respect to the concerns they 

13 

raise about safety and soundness, we are likely to propose new 

rules during this year. 

With respect to market manipulation, where there have been allegations of banks in the commodity areas manipulating markets, 

market manipulation is something that the CFTC and the SEC are 

charged with overseeing. 

Ms. WATERS. I see. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Michigan, Mr. Huizenga, chairman of our Monetary Policy 

and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

And, Chair Yellen, I appreciate you being here again. 

Before I go into an issue of joint concern regarding political influence on the Fed, I do want to just briefly touch on where the chairman had gone regarding my Federal reform bill from last term 

with Congressman Garrett. And just to be clear, we don’t dictate 

a rule, we don’t say you can’t change a rule. What we are looking 

for are some clearer forward explanations about where you are 

going. And I do want to do this 4 times a year rather than twice 

a year. 

My friend from Texas had said that he was concerned about 

gaining control by Congress and that he was concerned that we 

might not be all that functional. I will note that the HumphreyHawkins Act, which was also viewed as draconian, having the Fed 

dragged up here twice a year, happened in that special Kumbaya 

era of Watergate, not exactly a time of great cooperation here on 

the Hill. But it was because of precisely making sure that the 

House and the Senate had proper oversight of an entity that they 

created, the Federal Reserve. 

And I am curious, shouldn’t we be equally or even more concerned about the threats posed by Executive Branch influence? And 

I think we have just hit on a perfect example of this: Sort of this 

absolutely no changes to Dodd-Frank sounds like a 1600 Pennsylvania Avenue policy rather than the policy that has been talked 

about by the ranking member or the former Chair, Barney Frank, 

or has been voted on by this committee. My friends across the aisle 

joined me in voting unanimously for two of my bills last term that 

changed Dodd-Frank: one dealing with points and fees; another 

dealing with derivatives reform. That was a nine-bill package that 

the Executive Branch officially opposed because it changed DoddFrank. And it sailed through this committee. 

You join us twice a year, but it is my understanding that you 

hold weekly lunches or near weekly lunches with Treasury Secretary Lew. In fact, last year, according to your public schedule in 

research done by The Wall Street Journal, from February through 

December alone you held 51 meetings with the White House and 

23 meetings with lawmakers. I don’t know exactly who those lawmakers were; I was Vice Chair of this particular committee. We did 

not—a meeting with me was not one of those 23 meetings. But that 

was 42 hours versus 18 hours of your time meeting with that. That 

is three-to-one that you were dealing with the Executive Branch 

versus the Legislative Branch, and again, that is bicameral. And I 

would be curious if you were willing to share any of the written 

summary of the items discussed with Secretary Lew—that would 

14 

help with transparency—and any of the agreements that were 

made during these meetings. And if not, I guess I just really want 

to discuss the Fed’s independence. Is it being unduly influenced by 

the Executive Branch? 

Mrs. YELLEN. The Federal Reserve is independent. I do not discuss monetary policy or actions that we are going to take with the 

Secretary or with the Executive Branch. We confer about the economy and the financial system on a regular basis. We participate 

jointly in many international meetings, including those of the G7 

and G20, and we confer on matters that are coming before those 

groups. 

Mr. HUIZENGA. I would love to have a summary of that, of those 

conversations. That would be wonderful. We do this in the open 

public. 

Mrs. YELLEN. Yes. 

Mr. HUIZENGA. You see our television cameras over here. This 

hearing is on C–SPAN and a number of other places right now. 

And I think my goal with that particular bill is to do more of this. 

I think this is healthy for us, and by ‘‘us,’’ I don’t mean us as a 

legislature; I mean us as a system. 

And as I said, I don’t want to see 1600 Pennsylvania Avenue 

policies getting pushed through the Fed because many of the Fed 

officials that the chairman talked about believe that we need to 

have changes to Dodd-Frank, Members across the aisle believe that 

we need to have changes to Dodd-Frank. And it is bothersome to 

me that it appears that you are taking the position of the White 

House. 

Mrs. YELLEN. We have come and made suggestions about 

changes to Dodd-Frank in situations where we felt it really hampered our ability to appropriately supervise an entity. A case in 

point would be the application of the Collins Amendment to our 

ability to design appropriate capital rules for insurance companies. 

Mr. HUIZENGA. I look forward to more of those conversations 

and— 

Mrs. YELLEN. I do also want to say that it is obviously critically 

important that the Federal Reserve be accountable to Congress. We 

are accountable to Congress, and I personally and the Federal Reserve as an institution seek to provide all of the input that Congress needs for appropriate oversight. My colleagues and I have 

testified 16 times during the last—over the past year. And staff 

have provided countless briefings, but it is clearly important for us 

to— 

Mr. HUIZENGA. Actually 23— 

Mrs. YELLEN. —it is clearly important for us to provide the— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Wisconsin, Ms. 

Moore, the ranking member of our Monetary Policy and Trade Subcommittee. 

Ms. MOORE. Thank you so much, Mr. Chairman. 

And, Madam Chair, it is such a delight to see you here today. 

I just wanted to start by pursuing an answer that you provided 

to the ranking member about the orderly liquidation facility implementation, and I just want to know about your—the cross-border 

mechanism for resolution. 

15 

Mrs. YELLEN. The orderly liquidation in Title II is a procedure 

set up in Dodd-Frank for liquidating a firm. We were discussing 

something different, which is Title I, which is the provisions that 

firms need to make in their living wills to be resolvable— 

Ms. MOORE. And right. So that is why I am saying— 

Mrs. YELLEN. —bankruptcy— 

Ms. MOORE. You just mentioned what is being done. Update us 

on what is happening with cross-border. 

Mrs. YELLEN. With respect to cross-border issues and derivatives 

contracts, one of the things that could make it difficult either in orderly liquidation or bankruptcy to resolve a firm or a contract provision that goes into effect, immediately requiring a firm to make 

payments to holders of derivative contracts, to be able to resolve a 

firm. It is important that there be at least a short time, a day or 

so, during which a stay is put in effect on those provisions. And we 

have asked the firms—it is one of the provisions of the living 

wills—the large firms, to change those contracts to provide for such 

a stay. And they have had discussions and we have with—the 

International Swaps and Derivatives Association is a private sector 

entity that has a master contract that governs this. 

Ms. MOORE. Thank you so much, Madam Chair. 

Mrs. YELLEN. We are making progress. 

Ms. MOORE. My time is eroding, and I am satisfied with that answer. 

Listen, let me congratulate you or thank you for your excellent 

speech on perspectives on inequality and opportunity from the Survey on Consumer Finances. The Dow Jones has hit 18,000, and we 

have had 59 months of private-sector growth, a record for the last 

18, 19 years. And then, when I try to give this kind of speech in 

front of my constituents, they just kind of scratch their head because they are not feeling it. 

So when you talked in your testimony about your mission at the 

Fed to reduce unemployment and—I guess I just wanted you to 

comment on inequality and what you think that does to our economy. 

Mrs. YELLEN. There are many factors that are responsible, I 

think, for rising inequality. And many of the factors are structural; 

they have to do with the nature of technological change in 

globalization. 

Ms. MOORE. What can the Fed do? 

Mrs. YELLEN. What we can do is try to assure a generally strong 

labor market where it is possible for those who want to work to 

find jobs in a reasonable amount of time. We can’t determine the 

wages associated with those jobs or what sectors those jobs will appear in, but the policies that we follow and the general state of the 

economy have an important influence on the overall strength of the 

job market. And we are trying to achieve a job market where individuals who seek to work and want to work are able to find work. 

Ms. MOORE. Thank you. 

Representative Sewell and I wrote you a letter expressing our 

concern that all municipal bonds were excluded from being highly 

qualified liquid asset rules under Basel III, but you said you were 

considering including certain municipal bonds at a later time. Can 

you tell me where you are at on that? 

16 

Mrs. YELLEN. Yes. We are working very expeditiously on that 

and hope to be able to identify some of those bonds that would 

qualify for different LCR treatment. We are in discussions with the 

other banking agencies on that. 

Ms. MOORE. Thank you so much. 

I see my colleague, Mr. Ellison, has arrived, and I am running 

out of time, so he might want to ask some questions about this too. 

I know you are taking an aggressive stance to deter and punish 

banks and bank employees that are involved with tax avoidance 

and money-laundering schemes to fight terrorism, which we are all 

for, but that does seem to impede on the ability to provide remittances and even the tithes that people are—and we are wondering 

why you can’t surgically—what efforts are you making to surgically 

cut off these illegitimate activities and to try to continue the remittances because people are starving. 

Mrs. YELLEN. This is an extremely important problem, and we 

are trying to work with other agencies and talk with interested 

members of this committee to see if we can’t devise some way to 

assure that remittances get, for example, to Somalia or to other 

places. This is a very difficult problem because the laws that Congress has passed on—the Bank Secrecy Act—have significant sanctions for violations, and banking organizations are very reluctant 

to engage in relationships where they think they are putting themselves at risk. 

The Federal Reserve, in our supervision, we want to make sure 

they have appropriate procedures in place. We can’t force them to 

take risks in this regard that they are unwilling to take. And so, 

this is a difficult problem. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. McHenry, vice chairman of the committee. 

Mr. MCHENRY. Thank you, Chair Yellen. Thank you for being 

here. 

I just want to go back to the chairman’s original question. The 

Fed is currently not seeking any changes to Dodd-Frank. Is that 

correct? 

Mrs. YELLEN. Yes. 

Mr. MCHENRY. Okay. You previously did seek changes to DoddFrank, though, did you not? 

Mrs. YELLEN. We indicated that it would be very helpful to see 

a change in the Collins Amendment that would help us with— 

Mr. MCHENRY. So you no longer need any help with DoddFrank? Is that the case now? 

Mrs. YELLEN. We are certainly finding it possible to use flexibility that we have to implement regulations in a way we think is 

appropriate. 

Mr. MCHENRY. You weren’t currently in your seat that you are 

holding now when Dodd-Frank was implemented, but— 

Mrs. YELLEN. I was not. 

Mr. MCHENRY. —the Federal Reserve is the largest regulator in 

Washington, the largest regulator in the financial marketplace 

broadly, and perhaps the largest regulator in the world. So when 

we have these discussions about Fed oversight, a significant function of the Federal Reserve is on this regulatory aspect that was 

17 

greatly enhanced through Dodd-Frank. Is that right? A significant 

amount of your time is on the regulatory front, not simply the monetary policy front? 

Mrs. YELLEN. Yes. 

Mr. MCHENRY. Okay. 

Mrs. YELLEN. Correct. 

Mr. MCHENRY. So, with these enhanced regulations and enhanced regulatory powers that we have been given, the Federal Reserve has been given through Dodd-Frank, do you have any concerns that that erodes your independence largely because your role 

is so much greater now in terms of financial regulation than it was 

prior to Dodd-Frank? Does that erode in any respect, or does it concern you that it would erode your independence going forward? 

Mrs. YELLEN. I think where independence is very important is in 

the day-to-day conduct of monetary policy. We operate supervision 

and regulation jointly with other regulators under the oversight of 

Congress. 

Mr. MCHENRY. But you are not concerned about the independence of the Fed when it comes to the regulatory piece? We have 

regulators in here regularly, many of them are on budget, and we 

have to appropriate money. The Fed is very different in that respect. 

So do you have any concerns about these enhanced powers you 

have been given and congressional oversight of those powers? 

Mrs. YELLEN. Oh, I think congressional oversight is appropriate 

in all those areas. 

Mr. MCHENRY. So no— 

Mrs. YELLEN. It certainly is. 

Mr. MCHENRY. Okay. So you are very fine with the Congress 

having intense oversight of your regulatory agenda and powers. 

Mrs. YELLEN. We testify regularly on our conduct of supervision 

and regulation. We put all regulations out for public comment 

and— 

Mr. MCHENRY. Does that in any way run counter to your independence on setting monetary policy? 

Mrs. YELLEN. I think monetary policy is different. 

Mr. MCHENRY. No, but I am asking a different question than you 

are answering actually. Does that run counter to the Fed’s independence broadly when we have intense oversight of the majority 

of the day-to-day operations of the Federal Reserve? 

Mrs. YELLEN. I don’t think it runs counter toward independence. 

Mr. MCHENRY. Thank you. I appreciate it. Along those lines, the 

Fed has not processed additional regulations when it comes to capital and liquidity requirements for community banks and large 

banks. Are you done with the rulemaking when it comes to capital 

and liquidity? 

Mrs. YELLEN. I think we are largely done. However, we have recently proposed a rule for so-called SIFI surcharges which would be 

additional capital requirements for the most systemic banks that 

we think should operate in the safer and sounder fashion given the 

likely spillover of distress at those institutions. 

Mr. MCHENRY. But in the short- and medium-term, are the Fed’s 

proposals, when it comes to capital and liquidity, sort of through? 

18 

Mrs. YELLEN. Largely through, but there is a net stable funding 

ratio that we will propose probably later this year as a rule which 

could be thought of as a liquidity requirement as well and to— 

Mr. MCHENRY. And is that— 

Mrs. YELLEN. —supplement the liquidity coverage ratio. 

Mr. MCHENRY. Okay. So along those lines, this capital buffer 

that you proposed, the Dodd-Frank requirements that have been 

imposed on lending and community banks, in particular, and the 

cumulative effect of Basel, Dodd-Frank, and these capital surcharges, has the Fed undertaken a cost-benefit analysis on these 

regulations and the cumulative effect on lending, economic growth, 

job growth? 

Mrs. YELLEN. At the outset of this regulatory process, there was 

a detailed cost-benefit analysis that was done by global regulators 

working through the Basel Committee, and the finding was that 

the benefits exceed the cost. 

Mr. MCHENRY. Sure, sure, but— 

Mrs. YELLEN. Because the cost— 

Mr. MCHENRY. —has the Fed— 

Mrs. YELLEN. —is so much greater but— 

Mr. MCHENRY. Has the Fed undertaken that analysis? 

Mrs. YELLEN. —we were part of that project, undertaking that 

analysis. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Ms. 

Velazquez. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Madam Chair, welcome. In a very positive sign for our economy, 

new jobs are being created at a rate not seen since the 1990s, averaging nearly 250,000 new jobs every month in 2014. To what extent has monetary policy been responsible for this improvement in 

our economy— 

Mrs. YELLEN. Well— 

Ms. VELAZQUEZ. —in the labor market? 

Mrs. YELLEN. Thank you. I think monetary policy has made a 

significant contribution. We found that the headwinds resulting 

from that financial crisis were really impeding the recovery of the 

economy, and we found that we needed to take extraordinary steps 

to get the economy moving. That is why, for example, we didn’t follow the dictates of the Taylor Rule or a rule like that. We put in 

place a great—well, in fact, a Taylor Rule would have called for 

negative levels of short-term rates which we couldn’t put in place. 

So we have used tools like forward guidance and our asset purchase programs to try to restore economic growth and job creation 

in this economy. And of course, it is many years after the financial 

crisis and households and businesses have gone through their own 

difficult adjustments, and to a great extent, restored their health 

and are now better positioned, but I think monetary policy played 

a critical role. 

Ms. VELAZQUEZ. On the other hand, Chair Yellen, the financial 

industry continues to complain that the new capital standards will 

negatively impact access to credit, especially for small businesses. 

However, banks are continuing to ease lending and expect robust 

growth in 2015. Is there any truth to that claim? 

19 

Mrs. YELLEN. We look very carefully at small business lending 

to try to determine what is causing it to grow so slowly. We hear 

both from the business side and from the banking side that, in fact, 

the demand for small business loans is not very high, and I think 

that the banking industry, at this point, is looking to give additional small business loans but is not faced with much demand. 

But I think the uncertainties caused by the crisis, also the fact that 

home values fell so much, often the value in a person’s home is an 

important source of funding for a new small business, so small 

business formation has been very weak, and I think individuals, in 

thinking about starting small businesses, given the uncertainty in 

the economic environment, have been risk-averse in their behavior, 

but we are trying to take the steps we can to make sure that funding is available. 

Ms. VELAZQUEZ. And that leads to my next question. You commented recently that rebounding housing prices have restored 

much of the housing wealth we lost during the recession with 

working families experiencing some of the largest gains. With the 

prospect of economically stimulating low interest rates coming to 

an end, does the Fed have other tools to help lower a middle-income family’s built wealth for the long term? 

Mrs. YELLEN. I think our main tool to help low- and moderateincome families build wealth, aside from making sure that banks 

satisfy their CRA obligations in making sure that they serve the 

needs of low- and moderate-income communities is that we need a 

strong job market and a strong economy where jobs are readily 

available for those who want to work. And we have provided a 

great deal of accommodation, even when the time comes to begin 

to raise our target for short-term interest rates, and we will continue to provide a great deal of support for the economy and make 

sure that we will continue to see a good job market that continues 

to improve over time. That is an important objective. 

Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentlelady yields back. The Chair 

now recognizes the gentleman from New Jersey, Mr. Garrett, chairman of our Capital Markets Subcommittee. 

Mr. GARRETT. Thank you, Mr. Chairman. And thank you, Chair 

Yellen. I am just going to follow up on Chairman Huizenga’s issues 

for the so-called independence of the Fed. There has been a lot of 

press focus on this issue recently, probably because of the likelihood of the Audit the Fed legislation moving now in the Congress. 

The main criticism by you and folks over at the Fed has been that 

this legislation will somehow subject the Fed to inappropriate political pressure and force you to make decisions on political grounds 

instead of sound fundamental market fundamentals. 

As a matter of fact, you just said over at the Senate yesterday 

that Audit the Fed is a bill that would politicize monetary policy, 

and would bring short-term political pressure to bear on the Fed. 

In theory, having a technocrat like the Fed simply implement monetary changes based on basic facts sounds appealing, but in practice, that is not anywhere close to what happens at the Fed. 

Now, the Chair just gave one example of this. Let me run 

through seven examples or more by you and the Fed which clearly 

20 

indicate that the Fed is already acting and making decisions clearly on a partisan political basis. 

He mentioned, one, about the fact you have weekly meetings 

with the political and partisan head of the Department of Treasury. 

Another one is a very clear revolving door between political appointees at the Treasury and over at the Board of Governors. 

Third, former Chair Bernanke made an unprecedented decision to 

formally endorse the President’s failed and wasteful fiscal stimulus 

plan, the reason some gave was because he was trying to seek political favor for his reappointment as Chair. Fourth, and also by 

Chair Bernanke, his decision to announce QE3 just weeks before 

the President was to face the election back in 2012. 

Fifth, your meetings at the White House the day before the 

President’s—this year’s election, and sixth, your speech on income 

inequality, a major political theme in this past election, just weeks 

before the election. And finally, your meeting in an open door policy 

with liberal advocacy groups. 

Taken separately, it is one thing. Taken collectively, it is unbelievable that each one of these things could just have been coincidental. It paints a pretty damning picture. I think the Fed has already been completely immersed and guided by partisan politics. 

Now, if the press reports are accurate, in addition to this, you are 

lobbying the other side of the aisle extremely hard, and do not 

agree to requiring agencies to be more accountable and transparent. You are lobbying hard against having more confines around 

your ability to use your bailout authority. You are lobbying hard 

against being required to do more economic analysis of your rulemaking, and you are also lobbying hard against additional public 

scrutiny and congressional oversight. 

When one thinks about it, I am not sure who is lobbying more, 

you or the banks that you oversee. As far as who you are seeing 

in Congress, it is a 2–1 ratio whom you are lobbying hard with, 

Democrats to Republicans. And on your monetary decisions, which 

are being praised by the Democrats and being criticized by Republicans, it would seem you have already made monetary policy a 

partisan political exercise. And so, having Congress oversee your 

agency more thoroughly will not make it more political than it already is. 

You see, the whole original idea here about having political monetary decisions was that the political push would be to juice the 

economy with low rates in the short term by Congress to win reelection, but the exact opposite is happening right now, Chair 

Yellen. The people pushing back on your decisions are those arguing for a tougher monetary policy, not a looser one. This flies in the 

face of the original stated rationale for political independence in 

monetary policy. 

So on that last point, as far as meeting with outside liberal organizations, I wonder whether you can agree today that you will meet 

with folks from the other side of this specter, and meet with some 

of them who have a different view on this. 

Mrs. YELLEN. We are meeting with such a group on Friday. 

Mr. GARRETT. Who is that? 

Mrs. YELLEN. What is it called? The Americans for Principles in 

Action. 

21 

Mr. GARRETT. I appreciate your willingness to do that, and— 

Mrs. YELLEN. I’m sorry. We meet with a wide range of groups. 

I think it is a complete mischaracterization of our meeting schedules, and my meetings are entirely public. My schedule is completely in the public domain. I think if you actually look— 

Mr. GARRETT. That is where I am actually taking this from, this 

was just— 

Mrs. YELLEN. Yes, but I— 

Mr. GARRETT. —handed to me, so I am sure— 

Mrs. YELLEN. I’m sorry, but I think if you— 

Mr. GARRETT. It is good that this much of it is in the public domain because all we are trying to do is make it a little bit more 

in the public domain with regard to the regulatory section as far 

as—which you admitted to right here, that you are willing to have 

a robust oversight as far as Congress, but you didn’t answer one 

question, and I will just close on this. I only have 10 seconds left. 

The chairman of the subcommittee asked if you would make 

available the transcripts or summaries of those meetings that you 

have. You didn’t answer that question. Would you make those summaries available? 

Mrs. YELLEN. These are private one-on-one meetings, and I don’t 

think it is appropriate. If I had breakfast with you, I would not 

make a transcript of what we discussed over breakfast available. 

Mr. GARRETT. When you are discussing monetary and regulatory 

policy with the Secretary of the Treasury, a political appointee, it 

is a private matter? Okay. 

Mrs. YELLEN. We have a common interest and responsibility for 

the economy, and I think it is entirely appropriate that we confer 

on— 

Mr. GARRETT. Thank you. 

Mrs. YELLEN. —what we see happening in the— 

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. I tell you, I am shocked, shocked, I 

tell you, that you were actually meeting with the President or the 

Secretary of the Treasury or anyone else. You should be sitting in 

a closet making these decisions on your own. I am personally 

shocked that you or anyone else would care about growing income 

inequality. What a terrible, terrible thing to care about. 

By the way, my schedule is private. What I say in meetings is 

private, with my constituents, with people I don’t agree with, with 

people I agree with. If you open that door, I challenge all my colleagues, Democrat and Republican, to do the same, open every 

meeting you have with everyone, including lobbyists. 

By the way, Madam Chair, have you donated any money to a 

Member of Congress? 

Mrs. YELLEN. No. 

Mr. CAPUANO. Have the banks donated any money to a Member 

of Congress to your knowledge? 

Mrs. YELLEN. I am assuming they have. 

Mr. CAPUANO. I think they have. By the way, Madam Chair, I 

hope I am on your Christmas card list because I would be very ofVerDate Nov 24 2008 13:02 Aug 19, 2015 Jkt 095048 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\95048.TXT TERRI
22 

fended if I don’t get a Christmas card. With all of that nonsense 

aside, all of that hypocrisy aside, that doesn’t mean I agree with 

you on everything. I can’t tell you how strongly I disagree with the 

Fed’s recent decision to take municipal bonds and declare them not 

high quality liquid assets. They are still the safest investment in 

this country, and to tell banks they can’t hold them as capital 

needs, other than the risky ones—of course there are some risky 

munis, but most of them are safe. To tell them not to—you may 

as well tell those banks they should take their cash and stuff it in 

a mattress. That is the only safer place for investment. 

Mrs. YELLEN. But it is not a question of safe. It is a question of 

liquid and how rapidly these assets can be converted into cash. 

Mr. CAPUANO. They have never been a problem. And what this 

does is simply drive up costs to taxpayers and simultaneously reduce investment in economic enhancements. That is what munis 

are used for. It is a shortsighted, wrong policy, in my opinion, even 

though I am not on your dance card for many different things. 

I also want to talk a minute about too-big-to-fail. The FDIC, and 

you both basically said the last—the second, not the first, the second submission of these living wills were inadequate. Yet, the 

FDIC was pretty clear about it. I want to read—as a matter of fact, 

I would like to submit a copy of the comments from Vice Chairman 

Hoenig for the record. 

But in his comments, he said the plans provide no credible or 

clear path through bankruptcy that doesn’t require unrealistic assumptions in direct or indirect public support, and on and on and 

on. My time is running out. 

I want to get to one simple question. You said earlier you are 

going to give them a third try. We won’t know the results of that 

third try until a year or so from now, maybe longer. If they don’t 

meet your requirements at the third try, what you said is—I wrote 

it down here somewhere, something along the lines of you would 

be upset. You would say, oh, my goodness, you failed. 

Honestly, if my mother or my teacher or my priest told me, if you 

do those terrible things, I will be very disappointed, I don’t need 

to tell you, but when I was irresponsible, it didn’t much matter. 

Mrs. YELLEN. Congressman— 

Mr. CAPUANO. What are you going to do with— 

Mrs. YELLEN. I said we would find the plan— 

Mr. CAPUANO. What does that mean? 

Mrs. YELLEN. We would find them to be not credible if we do not 

see progress— 

Mr. CAPUANO. What does that mean? 

Mrs. YELLEN. —that we have asked. 

Mr. CAPUANO. What is the practical result of finding them not 

credible? 

Mrs. YELLEN. If we find them not credible, we then, along with 

the FDIC, would be in the position to impose additional capital and 

liquidity and other requirements— 

Mr. CAPUANO. You would increase capital requirements? 

Mrs. YELLEN. —from these firms. They would then— 

Mr. CAPUANO. Would you break them up? 

23 

Mrs. YELLEN. They would then have 2 years to—I believe it is 

2 years to show us that they had made changes that we would then 

have to find— 

Mr. CAPUANO. So 5 years after Dodd-Frank, they still have potentially 3 years before there are any serious consequences to prove 

to you that they no longer operate a threat to the entire U.S. economic system? 

Mrs. YELLEN. We have put in place much higher capital standards and liquidity standards. 

Mr. CAPUANO. But they have been found insufficient by virtually 

everybody who studies these, except the Fed. 

Mrs. YELLEN. We issued a rule about how we would conduct the 

living will process. 

Mr. CAPUANO. The last line of Mr. Hoenig’s letter says, ‘‘In theory, Title I solves too-big-to-fail. However, in practice, it is not the 

passage of the law. Rather, it is implementation that determines 

whether the issue is resolved.’’ 

Madam Chair, I will tell you that it is insufficient at the moment. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman, and Chair Yellen, 

thank you for being here today. Over the last few years, there has 

been a lot of discussion about a financial institution being systemically important, and Section 165 of the Dodd-Frank sets an arbitrary threshold of $50 billion. That designation then triggers an enhanced prudential standards. 

Of course, as you and I have discussed, I am not a big fan of the 

SIFI designation because I believe it is an implicit designation of 

an institution being too-big-to-fail. And with that said, the $50 billion threshold that is currently in place isn’t, I don’t think, in my 

estimation, and I think a lot of other people’s, really working because it places an undue burden on the mid-sized banks that aren’t 

systemic to meet additional enhanced standards. And so, I want to 

applaud Congressmen Luetkemeyer and Stivers for their leadership in this issue. 

As you know, this month the Office of Financial Research (OFR) 

released a study examining, I think it is called systemic important 

indicators. It looked at five factors: size; interconnectedness; substitutability; complexity; and cross-jurisdictional activity. This came 

out of the Basel Committee, as you are aware. 

So does the Federal Reserve agree that these five factors that 

were used by the Basel Committee are the primary indicators of a 

financial institution’s systemic importance? 

Mrs. YELLEN. We would certainly look at factors like that and 

take those into account in deciding on an institution’s systemic importance. I completely agree that a $50 billion banking organization is very different in a systemic footprint than a $2 trillion organization, and Section 165 does allow the Board to differentiate 

among companies based on their capital structure, their riskiness, 

and their complexity, and we have done so in writing rules pertaining to the Section 165 standards. 

24 

So there is flexibility, not total, but a good deal of flexibility to 

tailor our supervision and requirements to the systemic footprint of 

the firms, and the requirements on the $50 billion firms are not the 

same as the requirements on the more systemic institutions. 

Mr. NEUGEBAUER. But basically the parameters that you have 

only let you determine what happens to people in the box. It does 

not let you determine who is and who isn’t in the box, and when 

you look at that study, what you realize is one of the least of the 

companies that has been determined to be systemic—there is a 

huge range between the firms that are larger and not systemic. 

I think if you look at that chart—and I am sure you have seen— 

we have a big gap there, and that big gap is problematic, and I 

think a lot of people think that we need to do better in that area. 

So if you think these standards are acceptable, then would you be 

receptive to accepting a different arrangement where you use 

standards that have been adopted by Basel, and if you—if the Fed 

has additional standards that you would like to include in that, so 

that everybody would know whether they were in the box or out 

of the box. 

Mrs. YELLEN. I think trying to draw any line and having some 

firms just below and some firms just above creates an element of 

arbitrariness, and wherever that line is, one retains that problem. 

So it is important that the statutes enable us to differentiate and 

try to tailor rules to different firms of different complexities that 

are important. There are some things that we must apply to every 

firm over $50 billion, and the same would be true if that were to 

change. 

Mr. NEUGEBAUER. The statute doesn’t allow you now to draw 

that line. The line is drawn for you, and so— 

Mrs. YELLEN. That is right. 

Mr. NEUGEBAUER. —do I hear you saying that you think that is 

a flawed process? 

Mrs. YELLEN. I am saying wherever you draw the line, there will 

be a kind of arbitrariness that is associated with it. If you drew it 

at $200 billion, I would still say that it shows most $200 billion 

firms are different than the very largest financial institutions, and 

we would still want the flexibility to be able to impose different requirements on those firms. 

Mr. NEUGEBAUER. So, requirements is what you should be drawing upon; is that what you are saying? 

Mrs. YELLEN. I am saying it— 

Mr. NEUGEBAUER. No, you said it was arbitrary, so should we not 

draw the line? 

Mrs. YELLEN. Congress chose to draw a line and to apply enhanced standards to a certain class of firms, and what I am saying 

is we absolutely recognize that within that large class of firms, 

they do differ in terms of their complexity and systemic footprint, 

and we need to tailor regulations that are appropriate and not 

identical for the largest and the ones that come closest to wherever 

that dividing line is. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, Mr. 

Lynch. 

25 

Mr. LYNCH. Thank you, Mr. Chairman. And thank you, Madam 

Chair. It is good to see you again. I was reading something recently 

in The Financial Times, Desmond Lachman of the American Enterprise Institute, and he talked about the appreciation of the dollar, 

we have a strong dollar, coupled with the substantial decline in 

international oil prices, and he said, ‘‘Those factors could very well 

reduce U.S. inflation to about zero by the end of the 2015.’’ He 

went on to write that it would seem reckless—this is his opinion— 

for the Federal Reserve to disregard such a prospect, especially at 

a time that recent political events in Greece and elsewhere are reminding us that the euro crisis is far from over. 

Can you speak to the concerns about the possibility that inflation 

could dip well below your 2 percent target over the next year? 

Mrs. YELLEN. Inflation is running below our 2 percent target 

even now. Total inflation over the last 12 months was seven-tenths 

of a percent, and we think that inflation is going to move lower before it moves higher for exactly the reasons you cited. Import prices 

have been falling in part because of the dollar, and declining oil 

prices have had a very major influence. 

And the committee has indicated that it expects that in its most 

recent statements. Now, we do think that the effects of these factors will be transitory, especially with an improving labor market 

that we expect inflation over the medium term, the next 2 or 3 

years, to move up to our 2 percent target. 

We have said we are monitoring these inflation developments 

very carefully, and it is one of the key factors that will be driving 

our decisions about appropriate monetary policy, but we do think 

that these factors are transitory, and if we gain confidence that is 

the case on the basis of incoming data and continue to see the labor 

market improve, we would consider still raising rates, but we are 

very focused on the developments you cite. 

Mr. LYNCH. ‘‘Transitory’’ is the key term there, though. 

Mrs. YELLEN. Correct. 

Mr. LYNCH. And you think medium term, 2 to 3 years, is that— 

Mrs. YELLEN. Every 3 months, participants in the FOMC submit 

their own individual projections for the economy and in the December projections, which are included in your monetary policy report, 

participants indicated that they thought that inflation would be 

running in the 1.7 to 2 range at the end of 2016. 

Mr. LYNCH. Thank you. 

Mrs. YELLEN. And move up. 

Mr. LYNCH. You have been very thorough. I appreciate that. The 

next question I have is, under Dodd-Frank—this is something I 

supported, so I am to blame here—we were concerned about proprietary trading, so we put a provision where banks and covered 

funds would have to disassociate, and we actually require that they 

change their name so that there would be no confusion by the consumer that banks and funds are affiliated. 

And so we are requiring a lot of these funds to change their 

names, which is visiting a significant cost on some of these funds. 

There is a reputational cost for the funds that have done well and 

now they have to change their names. Is there any less costly way, 

less damaging way to accomplish our goal which was to bifurcate 

these two entities? 

26 

Mrs. YELLEN. Let me—I need to confer, look into that a little bit 

more carefully. 

Mr. LYNCH. Okay. 

Mrs. YELLEN. We have tried to use the ability we have to minimize some of, diminish some of the burden associated with these 

investments in these funds but— 

Mr. LYNCH. Yes. 

Mrs. YELLEN. —let me get back to you on what possibility we 

have. 

Mr. LYNCH. I can certainly understand where if you have a bank 

and then the fund is the same name with something added, the 

confusion would be palpable, but in some cases you have a bank 

and the fund is named—I won’t use any examples, but there is no 

confusion between the bank and the fund, and yet there is still, because they were previously owned by the fund, excuse me, owned 

by the bank, they are being required to change their name, and 

there just has to be a better way about this, I think. 

Mrs. YELLEN. Let me look into that, and I promise to get back 

to you on that. 

Mr. LYNCH. I appreciate that. My time has expired. Thank you 

very much. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Missouri, Mr. Luetkemeyer, the chairman of our Housing and 

Insurance Subcommittee. 

Mr. LUETKEMEYER. Madam Chair, it is good to be with you this 

morning. Thanks for coming. As the chairman of the Housing and 

Insurance Committee, I want to follow up sort on the lines of Congressman Neugebauer with regards to SIFIs, and my specific question would be with regards to insurance SIFIs. 

It is kind of interesting that the Fed is involved with FSOC, and 

as a result, agreed that three of our big insurance companies need 

to be designated as SIFIs. I would like to know where do you believe that you get this authority from to be able to designate an insurance company a SIFI? 

Mrs. YELLEN. I believe it is directly contained in Dodd-Frank. 

Mr. LUETKEMEYER. That is interesting because the former Financial Services Committee chairman, the name of the coauthor of the 

bill, Dodd-Frank, made this statement. He says, ‘‘As a general principle, I don’t think that asset managers at insurance companies 

that just sell insurance as it is traditionally defined are systemically important. They don’t have leverage. Their failure isn’t going 

to have a systemic reverberatory effect.’’ The coauthor of the bill 

did not intend for anybody to designate an insurance company as 

a SIFI, and I am curious as to whether you believe that the bill 

went further than he intended or how do you come up with the authority— 

Mrs. YELLEN. The question that the FSOC has had to address in 

each case where it has designated a company a SIFI is would its 

failure or material distress, pose systemic consequences to the U.S. 

financial system, and that involves a case-by-case analysis of the 

specific activities that those firms engage in. And some of the largest firms that have been designated SIFIs engage in capital markets activities— 

Mr. LUETKEMEYER. Well, Madam Chair— 

27 

Mrs. YELLEN. —that go well beyond traditional insurance. 

Mr. LUETKEMEYER. I am curious, though, there is no bank in the 

country, according to the records that I have been told in testimony 

in some other committees, that has more than 2 percent of their 

assets involved in an insurance company. Tell me how that makes 

an insurance company systemically important? 

Mrs. YELLEN. We have—the FSOC has put out on its Web site 

detailed discussions of the specific findings for the companies that 

it has designated and— 

Mr. LUETKEMEYER. Is there written criteria somewhere on this? 

Mrs. YELLEN. There are criteria. 

Mr. LUETKEMEYER. Is there a written criteria on how to get yourself de-designated as a SIFI? 

Mrs. YELLEN. There is no— 

Mr. LUETKEMEYER. What is the procedure for doing that? 

Mrs. YELLEN. The FSOC, I believe, is required to revisit every 

year the designation, and if there were a significant change in the 

business structure activities of a firm, the FSOC certainly could 

and would consider de-designating that firm. 

Mr. LUETKEMEYER. Okay. There is nothing in writing then, there 

are no rules out there. It is all arbitrary with regards to FSOC, 

whether— 

Mrs. YELLEN. It is not arbitrary. It involves detailed case-by-case 

analysis of individual firms. 

Mr. LUETKEMEYER. You just said in a comment to Mr. Neugebauer a minute ago that Dodd-Frank creates elements of arbitrariness with regards to— 

Mrs. YELLEN. No, I said cut off. 

Mr. LUETKEMEYER. —the designation of a cutoff. So there is arbitrariness, obviously, within the designation of these SIFIs, is there 

not? 

Mrs. YELLEN. I’m sorry, that is a very different thing. I said any 

dollar cutoff, to say anything above a specific dollar cutoff— 

Mr. LUETKEMEYER. Okay. So if you are saying certain— 

Mrs. YELLEN. —is a SIFI and should all be treated alike, that is 

arbitrary. And there are differences. There will be differences 

among the firms that are over a given size threshold. 

Mr. LUETKEMEYER. Okay. This size then? 

Mrs. YELLEN. No, it is not just size. In the case of SIFIs, the 

FSOC has put out it is the criteria that it looks at in doing detailed 

investigations of individual firms, and it has published the detailed 

reasons why it chose these firms for designation 

Mr. LUETKEMEYER. One of the firms was designated a GSIF, in 

other words, the international folks designated as a SIFI. Was that 

the reason that it was designated a SIFI here in this country? 

Mrs. YELLEN. No, because international designations have no impact— 

Mr. LUETKEMEYER. They have absolutely nothing to do with us 

designating here in this country as a SIFI. 

Mrs. YELLEN. Correct. There is a detailed procedure that the 

FSOC goes through in analyzing a firm. The firm has every opportunity to provide information about its activities and to understand 

the analysis that has led to a decision— 

Mr. LUETKEMEYER. I just have a few seconds. 

28 

Mrs. YELLEN. —to designate it. 

Mr. LUETKEMEYER. I just have a few seconds left here. But there 

is no way that an insurance company can know how to get itself 

undesignated as a SIFI because there is no written criteria out 

there. You just have to come to the Fed and kind of by— 

Mrs. YELLEN. The FSOC. 

Mr. LUETKEMEYER. —trial and error decide to deleverage part of 

your portfolio— 

Mrs. YELLEN. The FSOC. 

Mr. LUETKEMEYER. —and change your business model. Do they 

come to you first and say, if this happens, can we get de-designated, or how does that work? 

Mrs. YELLEN. To the best of my knowledge, there are no formal 

criteria, but the firms understand— 

Mr. LUETKEMEYER. There is formal criteria with which to designate them. There needs to be some formal criteria to de-designate 

them; do you not believe that? 

Mrs. YELLEN. The firms certainly could be de-designated if they 

change their business structure, and the FSOC would certainly 

consider that. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. Sherman. 

Mr. SHERMAN. Thank you. Picking up on the gentleman from 

Missouri, I hope that in designating SIFIs, you would focus on the 

size of the liabilities, not the size of the assets. Lehman Brothers 

didn’t have a problem with too many assets. The problem was too 

many liabilities. 

When you focus that on an unleveraged mutual fund, they don’t 

have any liabilities unless you fear that their depository safeguards 

are inadequate and somebody has absconded with the securities. If 

I pick a particular fund and they invest, the ups and downs are 

mine, not theirs. And as to insurance companies, we saw in the 

greatest stress test ever, 2008, that every entity that was directly 

regulated by State insurance regulators came out fine. You compare that to all the other regulators, and it is quite a record. 

I have a parochial question for you here. The New York Fed represents under 20 million people. The San Francisco Fed represents 

65 million people, 3 times as many. One approach, and we have 

discussed this before, is breaking up the San Francisco Fed. We 

would like to have an L.A. Fed, but I want to bring up something 

else, and that is, could you go back to your Board and at least say 

that if you have more than 60 million people in your region, you 

get a permanent seat on the FOMC, not just New York? They are 

not more than 3 times more important than we are. 

Mrs. YELLEN. The structure at the Federal Reserve System was 

carefully debated by Congress when it established the Federal Reserve. 

Mr. SHERMAN. We were mining for gold back then. 

Mrs. YELLEN. I agree with you that there have been many 

changes in the economic landscape of our country since the Federal 

Reserve was established. 

Mr. SHERMAN. But you could establish a practice that any bank 

that represents over 60 million people always has a seat. 

29 

Mrs. YELLEN. This would be something Congress would need to 

do and— 

Mr. SHERMAN. It would be great if you could do it, but I am going 

to go to something else. 

Mrs. YELLEN. It is not something that we could do. I think— 

Mr. SHERMAN. We will. We will do a legal analysis on that. At 

least your heart is in the right place, and history will show you 

whether you can do it. 

Mrs. YELLEN. San Francisco is well-represented, and— 

Mr. SHERMAN. Let me move on to another issue. 

Mrs. YELLEN. Okay. 

Mr. SHERMAN. You have a bunch of economists who are telling 

you that maybe it is time to take away the punchbowl, maybe a 

couple of meetings from now. We are not economists here, but we 

all have districts that we are in touch with in a way your people 

can never—and let me tell you, it ain’t good out there. It is not 

ready. It is not a punchbowl. It is a lifeline. And whatever you are 

being told as to when to ‘‘take away the punchbowl,’’ add another 

6 months or spend some time in my district, one or the other. 

Your statutory mandate asked you to have maximum employment, but there are those who are saying that, oh, maximum employment, that is an unemployment rate of 5.2, 5.5 percent. There 

are two possible definitions of maximum employment. One is what 

Congress intended, because we speak our own language: Maximum 

employment means everybody who wants a job gets a job. Then 

there is the economist’s view that maximum employment is as low 

as you can get the unemployment rate without wage inflation. 

America needs a raise. Are you for maximum employment even if 

that means there is some wage inflation? 

Mrs. YELLEN. Certainly, faster growth in wages would be merited 

just on the basis of productivity growth, and I fully expect that as 

the labor market continues to strengthen, as I hope it will, that 

wage growth will move up and Americans will find that they are 

getting a raise that would be a symptom of a healthier job market, 

and it is certainly something that we would like to see occur. It is 

hard to define maximum employment. Beyond some point, we are 

likely to see inflationary— 

Mr. SHERMAN. I am out of time. 

Mrs. YELLEN. —developments increase, and that— 

Mr. SHERMAN. One more question 

Mrs. YELLEN. —is part of our mandate, too. 

Mr. SHERMAN. And finally, would you support legislation that 

says that money of insurance affiliates that are affiliated with a 

failing depository institution cannot be transferred to save the depository institution without the consent of the State insurance regulators? 

Mrs. YELLEN. I’m sorry, I haven’t had a chance to consider 

such— 

Mr. SHERMAN. Okay. I will ask you to respond for the record. 

Mrs. YELLEN. Okay. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Wisconsin, Mr. Duffy, chairman of our Oversight and Investigations Subcommittee. 

30 

Mr. DUFFY. Chair Yellen, you have testified today that you believe that there should be a level of transparency and oversight 

that comes from the Federal Reserve. And with Dodd-Frank, you 

have moved from monetary policy, and the last time you testified, 

it was almost a third mandate, the regulatory role now with the 

Fed. 

Today, do you have a hard stop? 

Mrs. YELLEN. At 1 o’clock. 

Mr. DUFFY. 1 o’clock. I would agree it is 1 o’clock. You started 

testifying at 10:30, so you are going to testify for—started—questions began at 10:30, I would say. So we are going to hear from you 

and you are going to answer questions for 21⁄2 hours twice a year 

probably, but now that you have a much larger role, don’t you 

think that we should spend more time actually engaging in a conversation with you, not just on the monetary side, but also the regulatory side? It is going back to Mr. Huizenga’s question saying 

maybe you should come in 4 times a year, or we should have a 

hearing where everyone in the committee gets to ask you questions, 

but because of the increased role that the Fed now plays, shouldn’t 

we have increased oversight, which means longer hearings or more 

hearings? 

Mrs. YELLEN. I am always open to testifying and want to make 

sure that I provide the information that you need to conduct oversight of the Fed. My colleagues also have specific expertise and 

have testified before congressional committees, including— 

Mr. DUFFY. But you are more fun. 

Mrs. YELLEN. —this one. 

Mr. DUFFY. So would you testify for— 

Mrs. YELLEN. I’m not sure. 

Mr. DUFFY. —longer periods of time or increased hearings, would 

you object to that or would you be okay with that? 

Mrs. YELLEN. We will try to work with you to do something that 

is reasonable. 

Mr. DUFFY. I will characterize that as a non-answer, but let’s 

move on. 

I know that the Fed has been concerned about the concern that 

we have had about it getting politicized, and Mr. Garrett asked you 

some questions on it, and I know you would be concerned because 

you are opposed to our efforts to audit the Fed, and you have been 

very resistant to that effort. 

Mr. Garrett asked you about a speech that you gave 2 weeks before the election. Do you remember what that speech was about? 

Income inequality, right? 

Mrs. YELLEN. Yes. I think that is the— 

Mr. DUFFY. Let me ask my question. I know you don’t live in a 

closet. You are out there and amongst the people. Was there one 

party that was pushing the idea of income inequality over the other 

party in the last election? Was there? 

Mrs. YELLEN. I think, I believe that it is a problem that— 

Mr. DUFFY. No, no, no, no, answer my question— 

Mrs. YELLEN. —everyone in this room— 

Mr. DUFFY. —Chair Yellen. 

Mrs. YELLEN. —should be concerned about. 

31 

Mr. DUFFY. I agree, but was one party pushing that idea over the 

other party? 

Mrs. YELLEN. I have heard politicians on both sides of the aisle 

lament rising income inequality in the— 

Mr. DUFFY. That is not my question, Chair Yellen— 

Mrs. YELLEN. —plight of middle-class Americans. 

Mr. DUFFY. You are a smart, smart Chair. Was one party pushing income inequality in the last election over the other party? 

Simple answer. 

Mrs. YELLEN. I don’t know. 

Mr. DUFFY. You don’t know 

Mrs. YELLEN. I have heard both raise concern about this. 

Mr. DUFFY. Chair Yellen, I would— 

Mrs. YELLEN. I don’t believe that it has— 

Mr. DUFFY. I would venture to guess, if I asked— 

Mrs. YELLEN. —concern for this— 

Mr. DUFFY. Reclaiming my time, I would venture to guess, if I 

asked all of your staff behind you and everyone on either side of 

this aisle what party made income inequality a political issue, I 

think we would all get it right. But today you are not willing to 

tell us the answer to that very simple question, and you want to 

tell us that you are not getting involved in politics. But then again, 

2 weeks before an election you are making political statements that 

are consistent with— 

Mrs. YELLEN. I am not making political statements. 

Mr. DUFFY. —the Democratic Party. 

Mrs. YELLEN. I am discussing a significant problem that faces 

America and— 

Mr. DUFFY. I would welcome that if you are talking about quantitative easing and how that has increased revenue at the top, or 

if you are talking about rules and regulations that keep the little 

guy from competing with the big guy. In Wisconsin, my biggest employers will tell me that if they were going to start their business 

that employs thousands of people today, they could never do it because there are too many rules and regulations. That they might 

not even get a bank to take a risk on them because of the pressure 

that they get from the regulators. This is tough stuff. 

And so I hear you taking a Democrat line as opposed to, look 

what has happened in the last 6 years. It has gotten worse with 

liberal progressive policies. It hasn’t gotten better, and maybe it is 

the liberal progressive policy that is the problem, not the answer. 

Maybe free markets and free enterprise are the answer to the problems of income equality. 

Mrs. YELLEN. I didn’t offer any policy recommendations whatsoever in that speech. 

Mr. DUFFY. But you offered a political backup. 

Mrs. YELLEN. I pointed to trends and— 

Mr. DUFFY. I only have 20 seconds 

Mrs. YELLEN. —discussed work that we do at the Fed. 

Mr. DUFFY. Have you heard of a program called Operation Choke 

Point? 

Mrs. YELLEN. Excuse me? 

Mr. DUFFY. Have you heard of a program called Operation Choke 

Point? 

32 

Mrs. YELLEN. Yes. 

Mr. DUFFY. Do you know what it is? 

Mrs. YELLEN. Yes 

Mr. DUFFY. Has the Fed been involved in Operation Choke 

Point? 

Mrs. YELLEN. No. The Department of Justice. 

Mr. DUFFY. Oh, I know, but—and also the FDIC, but are you 

telling me that the Fed has not been involved, whether it is called 

a different name, the program? 

Mrs. YELLEN. Not to the best of my knowledge. 

Mr. DUFFY. Not to the best of your knowledge. Okay. Do you 

guys look at encouraging banks to de-risk or use reputational risk 

as you analyze banks and how they do business with their clients? 

Mrs. YELLEN. We supervise them and look at how they manage 

their risks, including— 

Mr. DUFFY. Are you looking to de-risk? 

Me. YELLEN. —reputational risk—we tell them that they need to 

manage their risks. We never tell them— 

Mr. DUFFY. So you use up— 

Chairman HENSARLING. The time of the gentleman— 

Mrs. YELLEN. We never tell them not to do business with a client 

as long as they are— 

Mr. DUFFY. I yield back. 

Mrs. YELLEN. —controlling the risk of those relationships. 

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, thank you for being here today. I have a few questions that I want to ask about a few concerns that I have. The first 

is something that we work with very—and I was concerned about 

very much during the 2008 recession, and that is dealing with the 

problem of too-big-to-fail institutions. I understand today there are 

still 11 banks in our country that are perceived to be too-big-to-fail. 

Some are even bigger today than they were 5 years ago. 

Now, I also hear that many banks have seriously reduced their 

risky trading activities, but that either other risks remain, or there 

are new risks that have arisen. So can you please give us an update on the too-big-to-fail problem and the issues so that we—because I don’t ever want to go down that road again. 

Mrs. YELLEN. We don’t want to go down that road either. DoddFrank gave us numerous tools to deal with too-big-to-fail, and we 

have used them. To start with our supervision program, our supervision program for the largest institutions has been completely revamped, and we do take into account the systemic risks that affect 

these banking organizations. 

We now engage in extremely rigorous stress testing in which we 

make sure that these large institutions could survive an extremely 

severe set of shocks and have enough capital to go on serving the 

needs of the country in terms of providing credit. We have ramped 

up capital standards and liquidity standards for these firms and 

have a range of enhanced prudential standards. We have tools and 

orderly liquidation that we could use that we did not have during 

the financial crisis such that if a firm were to encounter distress, 

33 

we have a way to wind that firm down. And this morning we discussed the living wills process and the fact that we are going to insist on changes that would make these firms also resolvable under 

bankruptcy. 

For the largest of the systemically important firms, we have put 

out a proposal that they be forced to hold additional capital based 

on the size of their systemic footprint over and above what any 

other institutions hold because of the impact that their failure 

could potentially have on the economy, and we are beginning to see 

discussions on—that these capital charges are sufficiently large 

that is causing those firms to think seriously about whether or not 

they should spin off some of their enterprises to reduce their systemic footprint, and frankly, that is exactly what we want to see 

happen. That is the purpose of them. 

Mr. MEEKS. So I should feel, at least be comfortable, even though 

we have 11 banks, some who have gotten bigger, that you are— 

that the work and/or the principles within Dodd-Frank are being 

adhered to and they are working, that we are not on the verge of 

having another risky situation where there is contagion in the market, that we should—it is working and— 

Mrs. YELLEN. I believe the financial system is much safer. There 

is twice as much high quality capital among the largest firms now 

than there was before the crisis, and I believe this list of steps I 

just gave are very significant. I am not going to say that the last 

step has been taken in the process of dealing with this. There is 

more on the drawing board. We are going to put out a requirement 

later this year that they hold enough long-term debt to facilitate 

the resolution. 

Mr. MEEKS. I see I am almost out of time. Let me just ask one 

other question, and this is on the wage increases recently. Some of 

the biggest, largest American businesses have announced increases 

in minimum wage, and some of the States have gone up. Is this 

a—or can it be a reflection of a larger economic trend with increases, and will this have a positive impact on the overall U.S. 

economy? 

Mrs. YELLEN. We have seen announcements of wage increases, 

and in specific cases, I can’t say what was behind it, but in the 

stronger job market where firms find it more difficult to hire the 

kind of workers that they want, you should expect to see more upward pressure on wages, and in that sense, hopefully it is a good 

sign that the economy and the labor market are improving. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Oklahoma, Mr. Lucas. 

Mr. LUCAS. Thank you, Mr. Chairman. 

Chair Yellen, I would like to address the Basel III leverage ratio 

rule as it relates to the treatment of segregated margin. As you 

know, Congress requires that the margin received from customers 

for clear derivatives belongs to the customers and is to remain segregated from the bank affiliated shared members’ accounts. As a 

prudential regulator charged with implementing the new capital 

requirements for these institutions, why then does the rule treat 

this customer margin as something the bank can leverage when 

clearly they cannot? 

34 

Mrs. YELLEN. Leverage requirements were intended to be a 

measure to constrain the overall size, or sort of a backup to riskbased capital charges that would be based on the overall size of a 

firm’s activities, and the activities you describe do add to the size 

of the balance sheet, so the leverage ratio does apply. But we are 

involved in discussions with our counterparts in the Basel Committee about this feature. 

Mr. LUCAS. I would just ask you to note that from the customer’s 

perspective, if his or her money is already segregated, if the bank 

cannot use it in one of their affiliated institutions, yet they are required to have more capital on top of their existing capital to take 

into consideration these accounts they cannot use, it just would 

seem to raise the overall cost of doing business, and therefore discourage participation in the market and reduce the number of ways 

that customers out there in the real world could address their risk. 

Mrs. YELLEN. I understand the problem, and there are complicated issues here that pertain to different accounting standards, 

but we are working to understand and address this issue. 

Mr. LUCAS. Clearly, I appreciate your understanding, and note 

that it is something that should be addressed because the impact 

on these products from customers who are not using them to speculate but generally to try to protect themselves from being detrimental would be unfortunate. 

One other question, Chair Yellen, that I have to ask, and being 

the first lay member of the committee now to get to ask a question, 

we have had a lot of discussion about the impact of policies and 

quantitative easing and a variety of issues over the last 6 years. 

Would it be possible, or maybe such a number exists, but you and 

I both know in the most simple definition of economics, economics 

is about taking finite resources and most efficiently allocating them 

among implement demands, the most elementary description of economics. 

Over the course of the last 6 years where the policy decisions 

have been made to, some would say, artificially restrain interest 

rates, in effect, dramatically causing interest rates to be less than 

they would normally have been, and at the same time, have an aggressive buying program on certain assets that would, in effect, 

hold up their value above and beyond what they normally would 

be worth, that there is a cost there. 

I occasionally have constituents, especially in the older part of 

my constituency, who have money either in bonds or in bank deposits because they want absolute safety, absolute security, who question me about the cost to them of this program. Would it be possible for someone on your staff to quantitatively produce a number 

about what the transfer of value or wealth or whatever you want 

to describe it over the last 6 years has been from one class to another of asset holders? I think it would be a fascinating number because there is a price that has been paid for this technique to try 

and keep the economy alive. 

Mrs. YELLEN. It has been a tough period for savers, and I have 

certainly heard from and interacted with many groups of retirees 

especially who were looking to supplement their retirement income 

with interest from safe assets, and it hasn’t been possible for them. 

35 

Mr. LUCAS. It reminds me of my period as a college student in 

the late 1970s and early 1980s when we went through what some 

would define as a superinflationary period where there was a dramatic shift from dollar-denominated assets over to anything that 

was real estate or stocks and bonds, that kind of a thing, and there 

was a price paid by that part of our society who was most thrifty, 

most careful, most cautious, most concerned about their old age, 

and I see that scenario again, and I would like to have, if it is possible, a number. 

Mrs. YELLEN. I agree with the fact that it has been hard for savers, but I don’t think it is right to think about this as some arbitrary policy the Federal Reserve put into effect. There is an underlying economic reality that we have to address, and that underlying 

reality is that there are many people who were looking to save and 

they would like to save in a way that is safe, but the rates of return they can earn depend on the strength of demand for those 

funds to borrow and spend and— 

Mr. LUCAS. But Chair Yellen, somebody has paid for— 

Mrs. YELLEN. —that just hasn’t been there. 

Mr. LUCAS. —the economic methadone that we have been existing on for 6 years. 

Mrs. YELLEN. I don’t think it is methadone. I think it is a reflection of an economy where the demand to borrow has been weak, 

and we are living in a market system, and the rates of return that 

savers get have to depend on the strength of demand for the funds 

they want to supply. Think about— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank you again, 

Madam Chair. Madam Chair, it is my belief that prior to 2008, AIG 

was an insurance company. Is that a fair statement? 

Mrs. YELLEN. Yes. 

Mr. GREEN. And as an insurance company, who knew that AIG 

was a part of the glue that was holding the world together? AIG, 

an insurance company by definition, under some standards, might 

not be declared a SIFI, but by virtue of what AIG was doing, AIG 

was clearly a SIFI in 2008. Would you please elaborate for just a 

moment on why you look to see what businesses are doing so as 

to determine whether or not they are a SIFI? 

Mrs. YELLEN. I think you have pinpointed it. You just answered 

the question, which is that firms may engage in activities that— 

capital market activities, whether it is derivatives activities or involvement in securities lending or wholesale financing that would 

create a situation where their material distress would create systemic consequences for the U.S. economy, and AIG is a case in 

point, and that is precisely the analysis that the FSOC is doing of 

individual companies when it decides whether or not to designate 

them. 

Mr. GREEN. Let’s talk about income inequality. Why is it important for us to pay some attention to the chasm that is developing 

between the very, very rich and those who have been not so fortunate in life? Why is this important, Madam Chair? 

Mrs. YELLEN. I think all of us treasure living in an economy 

where we feel that people who work hard and play by the rules can 

36 

get ahead and can see themselves succeed and advance, and we 

have been accustomed to that in this country generation after generation. And when we, over the last 25 or 30 years, realize that income inequality is increasing and it has been an inexorable rise, 

that is really, I think, a concern to—about the quality of life and 

the ability to get ahead and to see improvements. 

Mr. GREEN. And for the edification of people in general, would 

you give a working definition or a simple definition, as simple as 

you can, of income inequality? 

Mrs. YELLEN. There are many different measures of income inequality, but we can look at—one common ratio would be to look 

at the ratio of income earned at the 90th percentile of the income 

distribution to that at the 10th, or there are measures called Gini 

coefficients, other measures of income inequality. Regardless of 

what measure you look at, I believe what you see is rising inequality since the late 1980s. 

Mr. GREEN. Let’s simplify what you have said to a certain extent. 

I greatly appreciate it, but would we look at, for example, what a 

CEO, the average CEO was making compared to the worker, say 

in 1950, and then compare that to what the CEO is making today, 

maybe in 1950, let’s just use an arbitrary number, say about 50 

times what the worker was making, and now the CEO makes 500 

times what the worker is making? That kind of comparison, is that 

done? 

Mrs. YELLEN. That is another kind of comparison that one can 

look at. And I don’t know the numbers there— 

Mr. GREEN. No, no. The numbers— 

Mrs. YELLEN. —exactly, but they are pretty dramatic. 

Mr. GREEN. Yes, they are dramatic. And I use those numbers to 

illustrate just how dramatic things can be, not to contend that they 

are the exact numbers. But that is some of what we are experiencing, this unusual expansion of the chasm between workers and 

the CEOs. That is just one aspect of it. 

Let’s move now to meetings. How many meetings have you and 

your staff persons attended over the last year? 

Mrs. YELLEN. I’m sorry. How many meetings? 

Mr. GREEN. Yes, ma’am. 

Mrs. YELLEN. Have I attended? 

Mr. GREEN. Yes, ma’am, and your staff people. We were talking 

about meetings. 

Mrs. YELLEN. With Members of Congress? 

Mr. GREEN. Yes, ma’am. 

Mrs. YELLEN. I am not— 

Mr. GREEN. No way to know. 

Mrs. YELLEN. I am not sure. I have been to— 

Mr. GREEN. No way to know. 

Mrs. YELLEN. —many, many meetings. 

Mr. GREEN. How many meetings have you attended regarding 

Congress and congressional business, leaving your staff out of it? 

Mrs. YELLEN. I have had many individual meetings with Members of Congress. I don’t have an exact count, but— 

Mr. GREEN. Do you decline meetings with— 

Mrs. YELLEN. —beyond testimony, I— 

37 

Mr. GREEN. Do you decline meetings with Members of Congress? 

When Members ask for meetings, do you decline them? 

Mrs. YELLEN. No, I have not declined a meeting with a Member 

of Congress. 

Mr. GREEN. Finally, I would like to get a written response from 

you on how the President of a Federal Reserve Bank is appointed 

and how the public can have access to that process and input into 

that process. 

Mrs. YELLEN. Federal Reserve Bank Presidents are appointed by 

their boards of directors. The banking members, the so-called Class 

A directors, cannot participate in that process. So it is the directors 

who represent the public interest and not banks that run that process, and they make recommendations after thorough national 

searches, and the Board of Governors must approve those appointments. 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. GREEN. Thank you. 

Chairman HENSARLING. And—bless somebody. 

The Chair wishes to advise all Members also as a reminder that 

once the Chair and the ranking member complete their questioning, the Chair’s eyesight becomes far more acute on the clock, 

and Members are requested to leave the witness sufficient time to 

answer their questions in the 5-minute block. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick. 

Mr. FITZPATRICK. Madam Chair, first off, thanks for your participation in today’s hearing. Last Friday, I joined business owners 

and community leaders back in my district in Pennsylvania to discuss the state of the Nation, and joining me at that meeting was 

a research analyst from the Philadelphia Federal Reserve, and she 

gave a detailed and very informative presentation about the status 

of our local economy, southeastern Pennsylvania, and the national 

economy. And while her presentation was great, I would say riveting even, from looking at the business leaders who were there, 

the takeaways from it were not always so. 

Here is how my hometown newspaper, the Bucks County Courier 

Times, put it in the lead sentence of their Sunday story, ‘‘Welcome 

to the new normal of slow but steady economic growth and higher 

‘natural’ unemployment across the Philadelphia region.’’ 

Later in the same article, and this was a quote from the analyst, 

‘‘We are in a new normal of lower growth in the long run, and we 

just need to get used to that.’’ 

This trend of lower levels of growth, slower growth, and higher 

levels of unemployment in the future is one that troubles me, and 

it is one that I hope Members of Congress and the Federal Reserve 

have not resigned themselves to. 

So my question to you is this: Do you think that this new normal 

that was discussed in Philadelphia this past week of slower growth 

that is being predicted, is that acceptable? 

Mrs. YELLEN. The recovery from the financial crisis has been 

very slow and painstaking, and only now are we getting close to 

what I would call full employment or operating at potential. And 

there are a number of reasons for that, including serious 

headwinds from the crisis. 

38 

Over the longer run, the pace of growth of an economy is determined by essentially three factors: the growth rate of the labor 

force; the growth rate of the capital stock; and the pace of productivity growth. So I think we don’t yet know what the new normal 

is in terms of what will be the levels of GDP growth over long periods of time. 

We do see, because of demographics, the population, the labor 

force is likely to grow more slowly going forward. And already we 

are seeing labor force participation rates drop for that reason. Productivity growth has also been very slow. And that would be a very 

depressing aspect if that turns out to be the new normal. 

Mr. FITZPATRICK. The question is, Chair— 

Mrs. YELLEN. We don’t yet know if that is the new normal. 

Mr. FITZPATRICK. Should we, on either side of the aisle, settle for 

that, what is being predicted by the Federal Reserve as slower 

growth and a higher normal rate of unemployment? 

Mrs. YELLEN. We are not predicting a higher normal rate of unemployment. The current range of estimates among FOMC participants about the longer run normal rate of unemployment is in the 

5.2 to 5.5 range, and that is pretty similar, not much higher, than 

it was prior to the crisis, so— 

Mr. FITZPATRICK. But a much, a much lower participation rate, 

correct? 

Mrs. YELLEN. I think that mainly will be because of demographics. Labor force participation is probably depressed somewhat 

because of weakness in the economy, but in the long run, that is 

a trend reflecting demographics and aging population. 

Mr. FITZPATRICK. Madam Chair, many of us are concerned about 

the growth of entitlement spending and its effect on spending here 

in Washington and the debt. Entitlement spending is rising faster 

than the economy is being predicted to grow. Would you agree? 

Mrs. YELLEN. The long-run trends in entitlement spending are 

that they will grow substantially really as a share of GDP. 

Mr. FITZPATRICK. The demographics are not on our side. 

Mrs. YELLEN. Correct. It is partly because of an aging population. 

Mr. FITZPATRICK. The deficit is coming down, but the truth is the 

bubble of retirees has not hit us yet. Is that correct? 

Mrs. YELLEN. That is right. 

Mr. FITZPATRICK. What are you prepared to recommend? 

Mrs. YELLEN. My predecessor and I have consistently urged Congress to try to look at the long-run fiscal situation in a timely fashion to be able to deal with it. This is something we have known 

about for—there are no surprises here. We have known about this 

for the last 20 years at least, and the problem remains with us and 

I would urge Congress to address it. 

Mr. FITZPATRICK. I thank the Chair. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, for 5 minutes. 

Mr. CLEAVER. Madam Chair, thank you for being here. 

Mr. Chairman, I thank you and the ranking member. 

Let me first of all, before I get into questions, I am convinced 

that there will always be those who exploit the paranoia of the 

public with regard to the Federal Reserve. So I think it is imporVerDate Nov 24 2008 13:02 Aug 19, 2015 Jkt 095048 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\95048.TXT TERRI
39 

tant that from time to time we erase the mystification around the 

Fed with the sterilization of exposure to the public. I am from— 

I represent Kansas City, Missouri. We have, of course, two Feds in 

our State because we are better than the other States. But what 

I think is very important, about 45 days ago, Esther George from 

the Kansas City Fed agreed to a meeting with a variety of people, 

including the head of the AFL–CIO, the mayor, the county executive, and me. We had activists in the community, economists, 

chamber of commerce. It was a fabulous meeting and an opportunity for a very good exchange—although we centered primarily 

on interest rates. But I just wanted to share with you that I think 

that is a way in which we can at least attempt to push aside some 

of the tension that is, I think, created by those who just don’t like 

the fact that we have a central bank. 

Mrs. YELLEN. I appreciate that. And I think that is something 

that is absolutely appropriate for all the Federal Reserve Banks to 

be doing. And those of us at the Board also meet routinely with a 

very wide range of groups representing all segments of American 

society: banks; business interests; consumer groups; representatives of low- and moderate-income groups; and unions. We have 

met with unemployed workers, and we really need to hear from all 

those who have a stake in the American economy and understand 

their perceptions and concerns. 

Mr. CLEAVER. I appreciate that. They also bring a large group of 

high school students here in the fall of the year. 

Mrs. YELLEN. Yes. I believe I met with that group of students 

when they came to Washington. 

Mr. CLEAVER. Now, I am a former mayor of Kansas City. Mike 

Capuano is a reserved person, who also served as mayor, and so 

I associate myself with the comments he made earlier, because I 

think munis are the mother’s milk for municipal development, and 

they are the safest of all bonds. And I think when the Fed and 

FDIC approved the liquidity coverage ratio rule, I am not sure— 

I would hope that the Fed and the FDIC would look at this issue 

that—municipal bonds may appear to be less liquid, and I think it 

is because liquidity should be measured on the insurer basis as opposed to the security basis. And I think if you factor this new look, 

munis are still the best thing going. And, I think every city in the 

country trembled at the approval of the liquidity ratio coverage 

that you and FDIC did. 

Mrs. YELLEN. We are working with the FDIC and the banking 

agencies to have a look at this. 

Mr. CLEAVER. Now, let me go to a question. Oh, my goodness. 

The chairman is probably going to give me another 2 or 3 minutes, 

but I won’t even get started. 

Thank you, Madam Chair. 

I yield back my 13 seconds. 

Chairman HENSARLING. The gentleman can submit his questions 

in writing. 

And as tempting as it was to give the gentleman an extra 2 minutes, the Chair will decline. 

The Chair now recognizes the gentleman from Virginia, Mr. 

Hurt. 

Mr. HURT. Thank you, Mr. Chairman. 

40 

And Chair Yellen, thank you for appearing before us this afternoon. 

The last time that you were here, I talked to you a little bit 

about our district. I represent Virginia’s Fifth District, a very rural 

district. Agriculture is the primary part of our economy, which 

helps make up the primary part of the Virginia economy, which is 

agriculture and forestry together. At that time, I asked you about 

my concerns relating to the community banks and what is being 

done specifically to help them. You said when we talked last that, 

‘‘We want to listen to their concerns and understand them, and we 

are doing our very best to listen and try to tailor an appropriate 

set of capital requirements and other regulations.’’ 

You went on to say that, ‘‘We want to do our very best to make 

sure that community banks aren’t burdened with all that regulation.’’ 

And I am sure you are familiar with the recent Harvard study 

that came out that tells us now what those of us back in the Fifth 

District already knew, which is that the community banks are 

hurting. For the last 20 years, we have seen their share of lending 

drop from 41 percent to 22 percent, I think. Since Dodd-Frank was 

enacted, we have seen their share drop 12 percent alone. 

I guess what I would like to hear from you today, because you 

didn’t get into the specifics at our last meeting, specifically what 

are we doing to stop this and what are we doing to reverse this 

trend so that we can have capital access for working families in 

places and districts like mine, capital access for small businesses 

and for our farmers? 

Mrs. YELLEN. I completely agree about the importance of community banks and the critical role that they play in providing credit 

to businesses and households in their communities. And, of course, 

they do suffer from significant regulatory burdens. In the EGRPRA 

reviews that we are doing, we are looking at the set of regulations 

that we have in place. We will be taking public comments and trying to identify ways in which we can reduce burden on those and 

other depository institutions. We have taken— 

Mr. HURT. Can you talk specifically about proposals that you 

think that will help stop this trend and in fact reverse it? 

Mrs. YELLEN. We have just begun that process and we are having public meetings and we will be taking comments and we will 

look to identify such initiatives. 

In terms of things we can do on our own, we are trying to improve the efficiency of our exams. We are conducting much more 

work offsite so that examinations are less burdensome to firms. We 

are simplifying and trying to tailor our pre-exam requests for documentation from these institutions. We are trying to help community bankers figure out what regulations they do have to pay attention to because they apply to community banks and which regulations just have nothing to do with them and they can ignore them. 

Several years ago, we formed a group called CDIAC, which is representatives of community banks from around the country from 

each of the 12 Reserve districts. 

Mr. HURT. Has that been useful? 

Mrs. YELLEN. It has been useful. 

Mr. HURT. Has it resulted in any— 

41 

Mrs. YELLEN. We have had very— 

Mr. HURT. —concrete proposals? 

Mrs. YELLEN. —detailed discussions to try to understand what 

their concerns are, and we have followed up on them when issues 

have arisen about the way in which our examiners conduct exams 

or practices that they may have that they see as impeding lending. 

We try to follow up, both internally and also with other banking 

agencies, to make sure that we are not imposing undue burden and 

are addressing the specific questions they have. 

At the Board, we have formed a new committee that focuses explicitly and exclusively on supervision of community banks to try 

to look for ways to speed up application processes and to reduce 

burden. 

So I know many of these banks are suffering with low interest 

rates. They also have compressed net interest margins. And that 

has hurt their profitability. That is a— 

Mr. HURT. Right. 

Mrs. YELLEN. —a part of the environment. 

Mr. HURT. My time is about to expire, but I would ask that you 

do everything that you can to continue to make this a front-burner 

issue because it is deeply affecting working families, small businesses, and family farmers all across my district. Thank you. 

Mrs. YELLEN. I hear you, and I promise to do so. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Minnesota, Mr. 

Ellison. 

Mr. ELLISON. Welcome, Chair Yellen. And I also want to thank 

the chairman and ranking member of our committee. 

The last time we were together in this committee hearing, I 

think I raised the issue of Somali remittances, and at that time, 

I think I pointed out that as banks drop out of this business space, 

it is going to create a whole lot more pressure. I think, on February 

6th or right around there, the last big bank that facilitates these 

remittances dropped out, and then an Illinois bank dropped out. At 

this point, I am told that there are no money service businesses 

providing remittances to Somalia. 

This is important for a lot of reasons. One is that people in my 

district rely on that, and they send their hard-earned moneys to 

their loved ones. And I believe this helps to stabilize Somalia as 

a country. They send way more remittances than we do foreign aid 

over there, and it is already a fragile state. It does have a government. It is not a failed state anymore, but it is a fragile one, and 

if we pull that rug out, I fear for national security issues. We just 

heard threats by Al Shabaab to our homeland, which is something 

that I am very much concerned about. And as we destabilize that 

country, I think it is bigger than just the humanitarian needs of 

individuals. We are now dealing with a really serious problem. So 

what can be done? 

Mrs. YELLEN. Congressman, I agree with you, it is a very serious 

problem. And it is causing a great deal of hardship. And we are 

meeting with interested Congressmen, including yourself, and with 

other banking agencies, the Comptroller of the Currency, and the 

Treasury, to see what we can do to try to address this problem. It 

is a difficult problem to deal with, because BSA/AML rules impose 

42 

heavy sanctions. And banks have been penalized for violating those 

rules, so many of them are really very reluctant to want to take 

risks in their dealings when it may bring them in violation of those 

rules. As banking supervisors, we can’t insist or force them to do 

that. So I think this is—we need to have broad-based discussions, 

and conceivably it is something that Congress needs to look at also 

the way in which BSA/AML is— 

Mr. ELLISON. Forgive me for interrupting, Chair Yellen, but I 

would just like to point out that last time this Congress, which has 

been kind of known for its polarization, actually came together and 

passed legislation to try to reduce the regulatory burden and expense associated with compliance. I think we can do it again, but 

it would be nice if we could get some indication where exactly legislating would make a difference. 

As I understand it, there are some banks—or some regulators 

who believe that in Somalia, you not only have to know your customer; you have to know your customer’s customer. That is not the 

law. And I think clear guidance on this point would be important, 

and I think the Fed would be able to offer some good guidance to 

help banks understand what really is their obligation to know your 

customer; how far does it go? Is that something you think could 

happen? 

Mrs. YELLEN. I think we can certainly sit down and go over all 

of this with you and other interested Members and try to see where 

there is some scope to do something constructive to address this 

problem. 

Mr. ELLISON. Now, what about the Federal Reserve Federal— 

Fedwire? Could that be used to provide wire transfers to Dubai? 

Mrs. YELLEN. Well— 

Mr. ELLISON. I don’t want to put you on the spot now, but I just 

want to introduce the idea. Maybe you and your staff could go 

back— 

Mrs. YELLEN. It— 

Mr. ELLISON. Yes. 

Mrs. YELLEN. It is something that is only open to depository institutions, that individuals don’t deal with those systems. 

Mr. ELLISON. Right, but my point is we have a state where we 

have an active terrorist organization that is threatening us; we 

have a state that is fragile and has come out of 2 decades of civil 

war; and we have a humanitarian crisis. It seems to me if there 

is an occasion to try to get creative, this would be it. I am just coming up with some ideas here. 

What about third-party verification? There are some nongovernmental organizations on the ground in Somalia who might be able 

to verify the identity of the recipient of the remittances? Could a 

group like that be utilized? 

Mrs. YELLEN. I can’t give you definitive answers to these, but we 

certainly can sit down and talk about each of your suggestions in 

detail and try to work through them with you, and I believe the 

State Department will be involved in these discussions as well. 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. ELLISON. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Ohio, Mr. Stivers. 

43 

Mr. STIVERS. Thank you, Mr. Chairman. 

Chair Yellen, thank you for being here. I really appreciate the 

time you are spending with us today. I have a quick question on 

monetary policy, and then I will spend most of my time on regulatory policy. 

To follow up with the gentleman from Oklahoma’s line of questioning, do you believe the Fed’s permanent or long-term low interest rates along with quantitative easing have encouraged both retirees and institutional investors in some cases to chase more risk 

in their investments? And if you could give me a yes-or-no answer, 

it would be great. 

Mrs. YELLEN. Yes. There— 

Mr. STIVERS. Thank you. 

Mrs. YELLEN. There has been some search for yield. 

Mr. STIVERS. And I would just hope you would take that concern 

and problem seriously when you look at your policies going forward. 

With regard to your regulatory role, the first thing is you have 

sensed some frustration maybe over the transparency issue with 

you coming here a couple of times a year and spending 5 hours. 

You probably know that, under Section 1108, the Federal Reserve 

Vice Chair for Supervision is also supposed to be appointed, confirmed by the Senate, and then come to us twice a year. I know 

that job has apparently been deemed unimportant by the Administration and they have not filled it for 6 years, but, given that Governor Tarullo is filling that role temporarily, would you commit to 

us today that you would let him come here twice a year in his acting role to share with us what the Fed is doing on regulation? 

Mrs. YELLEN. I would certainly discuss with him— 

Mr. STIVERS. I would ask you to look at that. We would appreciate it. I know it might take away some of the sense of frustration 

that you are feeling today, and I appreciate if you would take that 

under advisement and figure out if you can do it. 

I want to talk about your role in regulation with regard to small 

firms and then big firms. You talked about community banks. You 

had a robust dialogue with the gentleman from Virginia a minute 

ago. Are you familiar with the term that many community bankers 

have now coined called ‘‘trickle-down regulation?’’ 

Mrs. YELLEN. I have heard that term, but— 

Mr. STIVERS. Okay. Do you want me to define it for you, or would 

you like to define it in a very few words? 

Mrs. YELLEN. You can define that. 

Mr. STIVERS. Essentially, it is inappropriate regulation for the 

size or complexity of the bank. So what happens is, at every level, 

the regulator or supervisor in that area adds a little bit to what 

the law was or what to the person above them added, and by the 

time you get done—I will give you a couple of quick stories. In one 

case, and the former Governor of Oklahoma, Governor Keating, 

tells this story, but a bank that is about a billion dollars was told 

by its regulator that they need to do the same stress test that a 

$10 billion bank should do, because, at every level, they added 

more stuff. So it leads to extra cost and it really causes problems 

where these small banks have to merge, and it really creates problems for them. In one case, the banks did merge. A $2 billion bank 

44 

merged with another bank of about the same size. They had one 

guy who dealt with money transfers and things like that, and the 

regulator came in and said, ‘‘Well, at your size, you had one; now 

that you have doubled, you should have two people.’’ And they were 

doing it to try to get economies of scale. 

So I would ask you to take that trickle-down regulation seriously, 

and what the gentleman from Virginia already talked about. Please 

listen to these guys. They provide a lot of liquidity, a lot of money 

in our local communities for people to live their American Dream. 

You probably read The Wall Street Journal, but I gave you the 

article. I think my staff member just handed it to you. Did you 

happen to see The Wall Street Journal on February 11th, where 

the chairman of Goldman Sachs said that regulation is good for 

Goldman Sachs? And I will summarize it really quickly because I 

don’t want to read the whole thing. Essentially, he said that this 

heavy overregulation and heavy regulation will result in large global giants like Goldman Sachs gobbling up even more market share, 

making our too-big-to-fail problem greater—which he doesn’t say, 

but it is implied—and make it harder for new people to gain entry 

to the system. I would hope you would look at things like that as 

well. And now I will transition to a question, but I wanted to raise 

that as a concern. 

The gentleman from Texas and the gentleman from Missouri 

talked to you about the SIFI thing. So I gave you the OFR study 

that the gentleman from Texas referred to, and I understand there 

is a line-drawing problem, but it is pretty clear when you look at 

the complexity you have as a total risks, or at the highest, is 5 percent of overall risk in the system, which is the biggest one, but 

when you move below banks of about $250 billion, that risk goes— 

in fact, below $500 billion, that risk goes below 1 percent for all 

those folks. It seems to me we are wasting a lot of regulatory resources on smaller firms. I have a bill that would take the tailored 

living will approach and allow you to do some things with it, but— 

I am getting gavelled down here, but the one thing I would ask you 

is you said you already had the authority, but the CCAR stress test 

and the DFAST stress test, today you don’t have the authority to 

get rid of one of those. And, for a $50 billion institution, it creates 

a lot of burden. And so I would allow you to allow us to help you 

in this battle to have appropriate regulation. 

I am sorry for going over my time, Mr. Chairman. 

Chairman HENSARLING. The gentleman is right. His time has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. 

Perlmutter. 

Mr. PERLMUTTER. Madam Chair, it is great to have you in front 

of our committee again. Thank you very much. And I just came in, 

I am sort of bouncing between two committee hearings. We had 

Secretary Ernest Moniz testifying over in the Science Committee. 

So I am going to ask you some questions about oil and gas in just 

a second, but what I would like to do is start with your report. I 

always enjoy taking a look at the graphs that the Federal Reserve 

prepares. And I would like to start with page 3, your first graph 

basically, and to talk about the increase in employment that we 

have seen pretty much on a monthly basis. The report says that 

45 

about 280,000 people per month additional employment. Is that 

right? 

Mrs. YELLEN. For the last 6 months, it has been 280,000 a 

month; for the last 12 months, 267,000. 

Mr. PERLMUTTER. Okay. So just to put things back in perspective, at the end of the Bush Administration, the beginning of the 

Obama Administration, we were losing in the neighborhood of 

700,000 to 800,000 jobs a month, were we not? 

Mrs. YELLEN. Yes. 

Mr. PERLMUTTER. So we basically have a swing of almost a million jobs a month? 

Mrs. YELLEN. We do. 

Mr. PERLMUTTER. Okay. I would say that is pretty successful, 

given where we were and where we are today. 

And looking at your chart No. 4, which is found on page 5, that 

is what is reflected in that chart, is it not? 

Mrs. YELLEN. Yes. Chart 4 is an index that our staff produced 

of labor market conditions. It takes many different aspects of the 

job market into account. And the size of the bar shows essentially 

the extent of improvement, and you see, it varies from month to 

month but a pattern of improvement. 

Mr. PERLMUTTER. The reason I am asking this is just some of the 

questions and some of the sort of approaches that have been taken 

would lead you to believe that we have struggled gaining jobs, but, 

at this point, we are on average almost 300,000 jobs a month. 

Mrs. YELLEN. Yes. For the last 3 months, we have actually had 

336,000 jobs a month. 

Mr. PERLMUTTER. Some of my colleagues’ areas may be suffering—and I am sorry for that—but I can say, in Colorado, we are 

at a very good employment rate of in the neighborhood of 3.5 percent, which is better than we have been in many, many years. So 

we are feeling pretty good, which brings me, though, to a concern 

that I have and you discussed early in your testimony. And that 

is the effect of the recent decline in oil prices on economic activity. 

In Colorado, we have a pretty diverse economy, but we certainly 

are an energy-producing State. Texas is. A number of the States 

are. And so my concern is, given the dramatic drop in price—and 

this is what I talked to Secretary Moniz about—of oil, what effect 

do you think that is going to have? You said you thought the net 

effect would be positive on the U.S. economy. I guess my fear is 

back when I first started practicing law, the Saudis were—oil 

prices were at 30 bucks a barrel. They dropped to 10. It hurt Texas 

badly, it hurt Colorado, it hurt oil-producing and energy-producing 

States pretty substantially. And so my fear, looking out for my 

State, is I don’t want to see that happen again. And if it is coupled 

with a fragile Europe, which you talked about, I would be worried 

about the overall effect on the economy. And I would just like you 

to comment on that. 

Mrs. YELLEN. I indicated in my testimony this huge decline in oil 

prices is going to result in job loss, I think, in the energy industry. 

And if you wanted to turn to page 9 of our testimony of the Monetary Policy Report, you would see a graph of what has happened 

to domestic oil drilling rigs in operation, and you see that just 

plummeting over the last 3 to 6 months. So there is going to be reVerDate Nov 24 2008 13:02 Aug 19, 2015 Jkt 095048 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\95048.TXT TERRI
46 

duced drilling, reduced capital expenditures in the energy sector, 

and it will have a negative impact on several States where that is 

important. 

Mr. PERLMUTTER. And I would just ask the Federal Reserve to 

continue to keep an eye on this sphere of the economy for the effects it might have overall. 

Mrs. YELLEN. Yes. We will. 

Mr. PERLMUTTER. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from South Carolina, 

Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

Madam Chair, I am going to do something I don’t usually do, 

which is talk for most of my 5 minutes today, to try and take advantage of the opportunity to try and explain why many of us here 

on both sides of this building are interested in more oversight of 

the Federal Reserve and why we are interested in the Audit the 

Fed Bill and similar types of measures. 

Earlier today you gave us your testimony, and you said something I thought was interesting, that one of the ways you plan on 

ending accommodation or at least tapering off of accommodation 

was to raise the rates that you pay on excess reserves. That surprised me. You weren’t going to choose to shrink your balance 

sheet. We could probably and should probably have an entire hearing on that, but by articulating that policy, that is a huge wealth 

transfer. I think that one of your Fed economists said it could be 

as much as $20 billion to $60 billion in money that will flow to the 

large banks that have the excess reserves. The President of the St. 

Louis Fed just said it could be about $50 billion, so in the same 

range, which I think would be more money in that single transfer 

than those banks made last year collectively. This includes foreign 

banks. 

So you come in and you talk very publicly about your feelings on 

wealth inequality and income inequality, yet at the same time, in 

the same moment, you articulate a policy that is actually going to 

transfer money from the taxpayers, which would go to them in remittances if you didn’t give it to the banks, and transfer it to large 

financial institutions, including foreign banks, and you add to that 

policy the policy which we have had for the last several years of 

this ultimate—this extremely low interest rate policy, which we 

know hurts savers. We have talked about that today with Mr. 

Lucas. We know that it devalues the dollar. So it hampers an ordinary family’s ability to run itself. And it discourages savings by discouraging—which hurts small business. So, at every turn so far, 

the policy you have articulated about how you are going to unwind 

and the policy that got us here in the first place, the policies that 

the Fed has adopted are actually making income and wealth inequality worse. 

Yesterday, you had a chance to talk a little bit about this with, 

I think it was Senator Brown. He asked you what you thought was 

causing wealth inequality and income inequality in this country. 

And you listed a couple of things. You talked about the global production chain depressing wages. You talked about the fact that the 

lack of organization of labor, which I assume means unions, was 

47 

also depressing wages. And previously I know that you have commented on the structural role of education and technology in expanding the inequality of wealth and income distribution in the 

country. 

And my simple point to you on those points is that monetary policy has nothing to do with any of that. Monetary policy has nothing 

to do with the global supply chain, nor should it. It has nothing to 

do with the organization of labor, goodness gracious, nor should it. 

And it certainly has nothing to do with the role of technology in 

education. In fact, I had a chance to have a very similar conversation with your predecessor about 2 years ago on something similar 

to this when I asked him about the role of monetary policy when 

it comes to the labor markets and the ability of the Fed and the 

labor—and monetary policy to drive labor markets, and this is 

what he said, ‘‘With respect to employment, monetary policy as a 

general rule cannot influence the long-run level of employment nor 

unemployment.’’ And that is certainly correct. I know that happens 

to be economic orthodoxy. In the long run, you all can’t have an impact on the labor markets. I know— 

Mrs. YELLEN. I— 

Mr. MULVANEY. I’m sorry, but let me finish. And if I do have 

time, I will let you comment at the end. 

So that, Madam Chair, is why we are interested in being more 

involved because you are sticking your nose in places that you have 

no business being. You have no business in the long-term labor 

markets. And to the extent you claim to want to help fix income 

inequality and wealth distribution in this Nation, in the view of 

many of us, you are actually making it worse. You are making it— 

Mrs. YELLEN. I— 

Mr. MULVANEY. You are—and, again, I will give you the opportunity at the end and the chairman may as well. 

You are favoring capital over labor and you are favoring Wall 

Street over the folks back home, and that, Madam Chair, is why 

we want to know more about how you operate, and that is why 

many of us support the policies contained in the Audit the Fed bill. 

Now, with that—and, again, I apologize for taking too much 

time—I would be happy to have your comments. 

Mrs. YELLEN. I strongly disagree that I have taken the positions 

that you have described. I have described trends in income inequality in the United States. I have never said that the Federal Reserve is the right agency to deal with those. When asked what contribution— 

Mr. MULVANEY. Then why are you talking about it? 

Mrs. YELLEN. Because I— 

Mr. MULVANEY. You are one of the most powerful organizations— 

Mrs. YELLEN. I have also— 

Mr. MULVANEY. —in the world. 

Mrs. YELLEN. I’m sorry. I have also talked about long-run budget 

problems and deficit problems— 

Mr. MULVANEY. But you— 

Mrs. YELLEN. —in this country, and they are your responsibility— 

Mr. MULVANEY. But you went to great lengths— 

48 

Mrs. YELLEN. —not mine. 

Mr. MULVANEY. —before, Madam Chair—and I think correctly 

so—to point out that you are not political. 

Mrs. YELLEN. I— 

Mr. MULVANEY. And when you start to talk about items that are 

outside of your jurisdiction— 

Mrs. YELLEN. Every Federal Reserve Chair— 

Mr. MULVANEY. —outside your portfolio, you are being political. 

Mrs. YELLEN. —all of my predecessors have talked about large 

important economic trends and problems affecting the country— 

Mr. MULVANEY. Well, you— 

Mrs. YELLEN. —whether it has to do with trade or productivity— 

Mr. MULVANEY. —agree with your predecessor— 

Mrs. YELLEN. —or developments in energy markets. 

Mr. MULVANEY. —that monetary policy— 

Mrs. YELLEN. And I feel— 

Mr. MULVANEY. —has an impact— 

Chairman HENSARLING. The time— 

Mrs. YELLEN. —I am entitled to do the same. 

Mr. MULVANEY. —on labor rights. 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. MULVANEY. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Connecticut, Mr. Himes. 

Mr. HIMES. Thank you, Mr. Chairman. 

And, Madam Chair, thank you so much for being here and for 

your patience over this lengthy period of time. I am actually going 

to pick up on this idea of commenting on large macroeconomic 

themes, which may be slightly outside of your purview, but nonetheless, obviously, the Fed and you have a view. 

We have had an interesting disconnect over these last many 

years on this committee and particular in this testimony in that as 

we were working through an economic recovery, my friends in the 

Majority have consistently demanded very substantial cuts, which 

would obviously translate into fiscally contractionary policy whereas consistently these reports under your predecessor identified fiscal policy as a very real risk to the recovery. And though your predecessor was careful about not overstepping his bounds, the implication was clear that being overly contractionary on the fiscal side 

would actually damage the recovery. 

Now we have experienced a pretty robust recovery. I actually 

asked your predecessor probably a year ago whether he could point 

to an industrialized country that had combined a recovery in GDP 

growth with a decline in the deficit in a more constructive and salubrious way than the United States, and he toyed momentarily 

with Germany but, at the end, said, no, he couldn’t point to another industrialized country that had gotten it right, by the way, 

perhaps in spite of us. 

So my question is, that is really pretty impressive testimony with 

respect to the economic recovery. We still see, if you check the 

shrines to the religion of debt on either side of the room, we still 

have this debate. So I guess my question is, looking back on fiscal 

policy, is it your belief that GDP would have grown more and employment would be higher if we had, in fact, been more expanVerDate Nov 24 2008 13:02 Aug 19, 2015 Jkt 095048 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\95048.TXT TERRI
49 

sionary? And, conversely, if we would been more contractionary, 

would this recovery have been weaker? 

Mrs. YELLEN. I think in the early years after the financial crisis, 

fiscal policy provided considerable support to the recovery. 

Mr. HIMES. By which you mean, among other things, the American recovery, the stimulus. 

Mrs. YELLEN. Right, the stimulus. 

Mr. HIMES. Thank you. 

Mrs. YELLEN. And then the successful efforts to bring down the 

deficit by combinations of changes in taxes and spending have led 

to several years in which there has been a considerable drag on 

spending and on growth coming from fiscal policy. 

At this point this year, I think fiscal policy is relatively neutral. 

In a sense, it has become a plus for growth, because when something is a negative and then switches to being neutral in growth 

accounting terms, that is a contributor to growth. So, at this point, 

I think fiscal policy is roughly neutral. For a number of years, it 

was a drag on economic growth, and— 

Mr. HIMES. Is it fair for me— 

Mrs. YELLEN. —the Federal Reserve— 

Mr. HIMES. —to extrapolate—is it fair—I am sorry to cut you 

off— 

Mrs. YELLEN. Sure. 

Mr. HIMES. —but is it fair for me to extrapolate—you say it has 

been a drag on economic growth. Is it fair for me to extrapolate 

that the policies of this Congress have actually reduced potential 

employment? We would have more jobs had we been less 

contractionary fiscally? 

Mrs. YELLEN. I think it has been a drag in that sense. The Federal Reserve in conducting monetary policy has tried in a sense to 

take fiscal policy as a given and do what we can to stimulate job 

growth. And, I think we have had some success in that. 

Mr. HIMES. Thank you. One more question. 

I was interested to hear you say that you and your predecessor 

correctly have urged action by Congress to address the long-term 

unfunded liabilities associated with what we call the entitlements. 

You are not in the practice of speaking intuitively or qualitatively. 

I wonder if the Federal Reserve or if you have any estimates as to 

what the cost is of not acting to make Social Security and Medicare 

long-term sustainable. Is there a cost, either in terms of dollars or 

in terms of increased risk, to the full faith and credit that you can 

quantify for us? 

Mrs. YELLEN. I don’t want to say that there is a cost to full faith 

and risk. We look at CBO projections, and you can see that, over 

the next 15 to 30 years, debt-to-GDP ratios will rise in an 

unsustainable fashion without some changes in the pattern of 

spending or taxation that will, over time, in a full employment 

economy put upward pressure on interest rates and tend to crowd 

out private investment that contributes to productivity growth. And 

I think that is something that is a serious concern. 

Mr. HIMES. Thank you. 

And I do suspect that this institution will act because eventually, 

obviously, the growth in those programs will constrict discretionary 

50 

spending, but I am out of time. If the Fed could provide any sort 

of estimate to costs associated with inaction, that would be terrific. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross. 

Mr. ROSS. Thank you. 

Chair Yellen, thank you for being here, and I appreciate your 

service and your patience today. 

I want to address my first part of questioning with regard to systemically important financial institutions, specifically with 

nonbank institutions. Recently, FSOC came out with a statement 

with regard to greater transparency, which I think is a very important step in the right direction. However—and as a voting member, 

I know you can appreciate this, and we look to you for guidance 

on this—I am very concerned that there are not guidelines being 

issued to mitigate the risk for nonbank financial institutions. 

For example, these institutions don’t know they are being considered and have no method or manner or notice to take corrective action. And my question to you first is, don’t you think that if we are 

going to start looking at nonbank financial institutions as systemically important institutions, we should at least not only offer 

transparency but should also offer them notice that they are being 

considered and offer them a path or at least an opportunity to get 

out? 

Mrs. YELLEN. I believe the new guidelines that were recently approved will give earlier notification to firms when they come under 

consideration so that they have an earlier opportunity to interact 

with staff and with the FSOC. I believe the new guidelines also 

will more clearly indicate what the metrics are, how they are computed, result in— 

Mr. ROSS. So you give them essentially due process, if you will— 

Mrs. YELLEN. Yes. 

Mr. ROSS. —to have notification that they are being considered, 

to allow them to take corrective action, and then to have the opportunity that if they are so designated, to get out of that designation 

and have it up for review every, say, 5 years? 

Mrs. YELLEN. It is, I believe, reviewed every year after a firm is 

designated. So we are reconsidering, I believe, every year. 

Mr. ROSS. Would you agree, in addition to the regulations, that 

we ought to just codify that as part of the Dodd-Frank Act so that 

we know that these nonbank financial institutions have a clear 

path of transparency and procedure to avoid and maybe even get 

out of being considered a SIFI. 

Mrs. YELLEN. So, we have tried to, through FSOC, create due 

process—I think there is due process—for firms to have input, to 

understand they are being considered, and to interact and provide 

the information. We are trying now to provide that in an earlier 

way so that they can have input earlier in the process. But we do 

reconsider every year firms can interact with— 

Mr. ROSS. But specifically nonbank financial institutions— 

Mrs. YELLEN. Yes. 

Mr. ROSS. —because there is a different standard, of course. 

Mrs. YELLEN. Yes. I am talking about— 

Mr. ROSS. For example, let’s take asset managers. What risk 

would an asset manager group pose to the financial system that 

51 

would constitute them to be considered a systemically important financial institution? It is not their assets that they are managing, 

it is others. 

Mrs. YELLEN. So if you are—recently the FSOC has put out a notice and asked for comments. It has shifted its focus to certain activities of asset management in general, not specific firms that 

could potentially pose risks. For example, there are a growing 

share of assets under management that provide liquidity to the investors and yet hold primarily illiquid assets. And the notice asks 

questions about whether or not there can be financial stability 

risks associated with that type of structure. So— 

Mr. ROSS. With regard to— 

Mrs. YELLEN. —the focus is not on individual firms. 

Mr. ROSS. Governor Tarullo thinks, I think, that we need to have 

a Collins Amendment fix to this. Would you agree with that? 

Mrs. YELLEN. I wouldn’t— 

Mr. ROSS. That there needs to be some clarification as to what 

constitutes a systemically important financial institution when it 

comes to asset managers. 

Mrs. YELLEN. There is a definition and a set of criteria about 

what constitutes a systemically important organization, and the 

FSOC is— 

Mr. ROSS. But it is not that clear. 

Mrs. YELLEN. —supplying that. Of course, it is not clear, and 

that is why— 

Mr. ROSS. We should clarify it. 

Mrs. YELLEN. —when any—I don’t think it can be just clarified 

in a very general mechanical way. It involves analyzing the activities of specific firms and asking the question, if those firms were 

to encounter distress, what would be the repercussions? And a 

great deal of analysis goes into understanding those issues before 

designating a firm. 

So, at the moment, on asset managers, the focus is on a different 

place, it is an activity-based analysis and not a firm-based analysis. 

Mr. ROSS. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair, taking note of the time, and knowing that Chair 

Yellen will be departing at 1 o’clock, that will allow us to clear two 

more Members. Presently, I have Mr. Carney on the Democratic 

side in the queue and Mr. Pittenger on the Republican side in the 

queue. 

The gentleman from Delaware, Mr. Carney, is now recognized. 

Mr. CARNEY. Thank, Mr. Chairman. Right under the wire here. 

Madam Chair, thank you for coming in today and for sticking 

with us for so long. I would like to talk briefly, if I could, about 

Dodd-Frank, rulemaking and implementation, and compliance. 

I looked through your report, and other than on pages 24 and 

25—of course, this is a report on monetary policy—there is not a 

lot of discussion about it. And I wonder if you could direct me to 

some other document maybe that you have or if you could provide 

something in writing about kind of a scorecard: What rules have 

been implemented and done; what might be outstanding; and kind 

of characterize that work in some kind of way. 

52 

Mrs. YELLEN. I would be glad to do that. It is also the case that 

Governor Tarullo and others have testified even pretty recently 

about where things stand, but we would be glad to provide it for 

you. 

Mr. CARNEY. It may just be me that I haven’t seen all that and 

been able to compile it, but I would like to see it in one place just 

to kind of get a scorecard. There has been a lot of discussion 

about—today even in some of these things, and— 

Mrs. YELLEN. I will be glad to provide that. 

Mr. CARNEY. Yes. So I would like to go to the thing that you 

were just talking about in terms of SIFI designation. Governor 

Tarullo, you mentioned, he has spoken about it publicly, about the 

$50 billion threshold, that he didn’t think that is an appropriate 

threshold. I think in his speech he referenced a hundred billion dollars. As a practical matter, you can go down the financial institutions and say, yes, no, yes, no, that is not the way we do legislation, but there has been a lot of conversation about that, although 

today you seem reluctant to suggest a change on the threshold, 

even mentioning that it is—even though you mentioned that it is 

somewhat arbitrary. 

Could you just restate that? I know you probably said it a number of times. I have been in and out of the hearing; I haven’t heard 

all that. So, that is the first part. And the second part is, is there 

a better approach? And I know that others have asked that as well. 

Mrs. YELLEN. I don’t know if there is a better approach. It is natural, when designating that a certain set of enhanced prudential 

standards need to be put in place, to try to define what institutions 

they will apply to. And the simplest cutoff, there are many ways 

of defining a cutoff, but the simplest way is to choose some asset 

threshold and say, above this level, it applies. And, in a sense, any 

cutoff is arbitrary. It could have been different. 

I think recognizing that within Section 165, the Board is given 

a good deal of flexibility to tailor the actual provisions to accord 

with—obviously a $50 billion institution is not as systemically important, or unlikely to be, as a $2 trillion institution. And DoddFrank recognized that by giving the Board flexibility to tailor the 

rules to the specifics of the institution, its footprint, and within— 

there are some places where we don’t have such discretion, but 

where we do, we have tried to use that. 

Mr. CARNEY. Great. So moving along to the Volcker Rule and its 

implementation and bank compliance, how would you characterize 

that generally in terms of the rule itself and then compliance 

among particularly the big banks? 

Mrs. YELLEN. Volcker does apply to all institutions— 

Mr. CARNEY. I understand that. 

Mrs. YELLEN. —as a— 

Mr. CARNEY. I understand that. 

Mrs. YELLEN. —rule. When you say how will we—the rule has 

been finalized. 

Mr. CARNEY. Right. 

Mrs. YELLEN. The regulators, the banking institutions are working together jointly to figure out how to supervise in a consistent 

way across firms to make sure they are in adherence. And there 

53 

is a regular set of meetings among the supervisory agencies to respond to questions that arise in connection with— 

Mr. CARNEY. Recently, I think you issued an extension, if you 

will, on CLOs and their compliance. What was the rationale behind 

that? 

Mrs. YELLEN. It looked like there would be significant cost to a 

number of institutions and not just large institutions but also 

many smaller institutions. 

Mr. CARNEY. Losses because they would have to sell and— 

Mrs. YELLEN. Have to sell at a loss, that they had legacy holdings of these assets, which would be difficult to sell. Now, clearly, 

the rule went into effect that regulates all new acquisitions, all 

new investments. So this was a question of legacy investments. 

Mr. CARNEY. Right. Nothing going forward? 

Mrs. YELLEN. Nothing going forward is affected by that decision. 

Mr. CARNEY. And no delay with respect to going forward? 

Mrs. YELLEN. No. There is no delay in it. The rule affects everything going forward. 

Mr. CARNEY. I see my time is up. Thank you very much. 

Chairman HENSARLING. The time of the gentleman has expired. 

The last questioner will be the gentleman from North Carolina, 

Mr. Pittenger. You are now recognized. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Chair Yellen, there has been considerable commentary today 

about the current economic status and climate in the country. We 

heard from the ranking member about the plight of the minorities 

and low-income people and how they were suffering and the rich 

were getting richer. Mr. Sherman’s statement was that it is really 

nasty out there, not a pretty sight. 

We are in the highest regulatory environment that we have ever 

been in in modern history, a very high tax burden. And we have 

very strong Fed policies, very accommodating, frankly, to our current debt and the interest on the debt and the spending levels that 

are being sustained right now. Unemployment, as you stated, was 

5.7 percent. That really doesn’t include those who have given up 

and includes part-time workers. Many analysts believe that is truly 

about 11 percent unemployment. So it isn’t a pretty sight by any 

real measure, and yet the Fed has played a part in that. 

Do you look back on that and feel that these policies have had 

outcomes that have been adverse to what was intended, have not 

reached your desired objectives, that perhaps the strong hand of 

the Fed and this high regulatory environment has not reached the 

intended desires that you would like to have seen? 

Mrs. YELLEN. I’m sorry. Are you referring to our own regulations? 

Mr. PITTENGER. Yes. 

Mrs. YELLEN. I think our own regulations are—they are certainly 

mandated by Dodd-Frank, and they are necessary to create a 

sounder and safer financial system. I think— 

Mr. PITTENGER. But the outcomes—you would say the desired objective, we haven’t reached that with these, with the current policies? 

Mrs. YELLEN. I think some of the distress in the country results 

from the fact that we had a financial crisis, and it was very severe. 

54 

And part of the reason we had that financial crisis is that we 

were—our supervision and regulation of the financial system 

wasn’t sufficiently rigorous and didn’t sufficiently take account— 

Mr. PITTENGER. On the other hand, you could say— 

Mrs. YELLEN. —of systemic risk that was building, and that is 

what we are addressing now. 

Mr. PITTENGER. Thank you. I would say to you that many could 

say the opposite, that it is the extended hand of the Federal Government that has tried to centralize and control the policies without rulemaking, without an open economic environment. 

I would like to ask you, Dodd-Frank created the Office of Women 

and Minority Inclusion. Are you familiar with that? 

Mrs. YELLEN. Yes. 

Mr. PITTENGER. In it, it was defined to provide a cost-benefit 

analysis on the impact of women and minorities. Has there been 

such a cost-benefit analysis? 

Mrs. YELLEN. Cost-benefit analysis? 

Mr. PITTENGER. On the regulations that have come out of DoddFrank and the impact on women and minorities. 

Mrs. YELLEN. Has there been a cost-benefit analysis? I’m sorry. 

I am going to have to get back to you on that. I need to look at 

that more carefully. 

Mr. PITTENGER. To my knowledge, there hasn’t been one to date, 

and I think that is—if that was the intended objective, I think it 

should be reached. 

One thing that was brought up, Madam Chair, was that the Fed 

has some of the brightest minds, economic minds, in the country, 

and I think I would like to just beg the question why there hasn’t 

been an effort to—by the use of these individuals, considering the 

very radical regulatory environment that we are in and the transition that has taken place, the impact of this on the economy and 

what you believe that the variables have created in terms of our 

economic growth and job creation—do you believe that there has 

been an adequate analysis of the impact of these regulations? 

Mrs. YELLEN. A careful impact study was done at the outset as 

capital and liquidity standards were being thought through, and 

the economic analysis showed that, given how very costly a financial crisis is, that the role of heightening standards in diminishing 

the odds of a financial crisis, that because of that, because of the 

serious costs associated with such crises, that the benefits exceeded 

the costs, at least within the range of capital and liquidity standards that we were contemplating. 

Chairman HENSARLING. The time of the gentleman has expired. 

I wish to thank our witness for her testimony today. I only wish 

she would stay a little longer. 

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. 

This hearing stands adjourned. 

[Whereupon, at 1:04 p.m., the hearing was adjourned.] 

(55) 

A P P E N D I X 

February 25, 2015 

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