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tv   Bloomberg Markets European Close  Bloomberg  February 10, 2016 11:00am-12:01pm EST

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is appropriately constituted and filling its corporate governance functions. that is a part of supervision. >> my time is expired. >> the chair now recognize the gentle lady from new york, ms. malone. you raised interest rates in december and said any future interest rate increases that happened would be gradual. i would like to ask you about the recent oil and global markets. as you know, equity markets around the world led by china have longed since the beginning of the year as global economic growth has weakened. the u.s. has not been immune. stock markets have fallen over 9% since the beginning of the year and treasury yields have plunged
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23%. turmoilion is, has the in global markets changed your view about the appropriate pace of interest rate increases and hikes or will you wait to see how global market turmoil i fax the u.s. economy before raising rates again? >> we are watching very carefully what is happening in global financial markets. appear that stresses we have seen since the turn of the uncertainties regarding chinese exchange rate policy. there is uncertainty around the price of oil. shifts thatseen
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to havenificant enough driven the sharp moves we have seen in markets. there would seem to be increased fears of recession risk that is resulting in rises in risk premia. yet seen a sharp eitherf in growth globally or the united states, but we were certainly recognize that global market developments are close watching it as i've mentioned, the financial conditions have become less supportive to growth. that thesee developments may have implications for the outlook which we are in the process of assessing. i want to make clear that monetary policy is not on a
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preset course. likelyluation of the impact of those developments on the economic outlook and our ability to meet our employment and inflation objectives, those are the factors that were governed the future stance of monetary policy. it is not on a preset course. turmoil in global markets and the slowing u.s. economy, some analysts are now talking about the u.s. possibly falling into a recession this year. what would it take for you to consider cutting interest rates again? would it be a severe downturn in the economy or stubbornly low inflation? is to achieveent our congressionally mandated goals of maximum and employment and price stability.
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expect that the fomc is going to be soon in a situation where is necessary to cut rates. let's remember that the labor market is continuing to perform and i continuee to think that many of the factors holding down inflation are transitory. while there is always some risk of a recession and i recognize and just stated that global financial developments could produce a slowing in the economy, i think we want to be careful not to jump to a premature conclusion about what is in store for the u.s. economy. i don't think it's going to be necessary to cut rates but that
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said, monetary policy is not on a preset course, as i said. would bened out that necessary, obviously, the fomc would do what is needed to achieve our goals that congress has assigned to us. >> you said in december you were surprised by how far oil prices had fallen. and that you expected inflation to increase one's oil prices stabilize. since the fes december meeting, oil prices have fallen even further. sincere down about 25% the december meeting and they have fallen 7% since friday. at the same time, we have also seen inflation expectations fall since the december meeting to the lowest levels in quite some time. threeis caused due to do think inflation projections at all? >> we indicated in our statement
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in january that these developments led us to conclude that inflation will stay low for a while longer as these developments work through. clearly, we are watching inflation expectations and, as i mentioned, market-based measures of inflation, compensation have moved down to historically low levels. that is something we are evaluating carefully. in december when we raised rates, we indicated that with inflation so far below our objective, we would carefully watch incoming data and revise our expectations. i don't want to jump to a premature conclusion. my colleagues and i will issue in march updated projections for inflation, taking all the evidence we have at hand.into
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account gentle ladyof the has expired and the chair now recognize the gentleman from new jersey, chairman of the capital markets subcommittee. >> thank you for being here and i would like to begin on emergency lending under 13-3. a halfabout a year and ago that senator elizabeth warren and myself joined together and sent you a letter expressing our deep concern with what you are doing with regard to implementing, the limiting language in dodd frank at that time. you have come out now with a rule despite our admonition and christians in that letter, a role that would basically allow the fed to drive a mack truck through the various loopholes in with the is typical fed, lacking in clarity and transparency. fed is notsaid, the
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always not clear in what they want to do and the regulators are not always clear and what they want to do. they came up with the volcker rule and the fed was not china about elaborating on concepts in that statute. it went so far as to adopt prohibitions and trading assets that were clearly never intended by the statute. the fed and other regulators came up with the part of the volcker rule defining what the words proprietary trading is. some800 pages to make definition clarity in the area of the volcker in proprietary trading. compare that to what you did under the limitations that should be in place under dodd 47 pages of3, definition and lack of clarity throughout. why inst question is, one area can you be exact & when
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you are trying to limit with the private market is doing but when congress tells you to put limitations on yourself, you lack that clarity and give it a broad brush? tried to be as clear as we possibly could. >> let's take a look at that. let me give you an example, the that it establishes a multi-rate but then you failed to provide any specifics as to what that rate would be compare that to a congress did. this committee established a penalty rate that would be commensurate with a distressed borrower. why wouldn't the fed be clear on this? what are the rates going to be? >> what a penalty rate is depends on the specifics of a particular situation. rate is a rate that when conditions normalize -- know what is distressed
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borrower is in the market. that is clear. why didn't you do find it that way compared to the regular markets so that a distressed borrower in the market would be charged the same if they are borrowing from the fed? or related to it? situation type of that we found ourselves in, during the financial crisis, market rates had shot up to extraordinary levels because liquidity had dried up. >> i understand what the history of the market was at that time but you could have provided clarity in here. you are basically saying that once again the fed will be in the position of being winners and losers. a seems like you can charge borrower one rate and another borrower another rate under similar's circumstances. is that not correct? what is an appropriate rate depends on the circumstances. is when werises
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would use this authority. it sets up a broad-based program and they are very unique. >> i think that is basically what you're telling us is that nothing really has changed in dodd frank to a limitation and it's not just me saying that while you are here testifying today, governor fisher is making public statements as you speak. to be saying exactly what you are that you have not limited 13-3. strengthening fire prevention regulation does not imply that the fire brigade should be disbanded. he goes on to say that we are not seeing the limitations you will be able to do the similar things you did or before you were here that the fed did the last time around. >> i want to make clear that i think our 13-3 powers and ability to keep credit flowing in the economy during a
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power andcrisis is a played a critical role during the financial crisis. when he saysng nothing has really changed? >> a lot has changed. congress put in place a series of restrictions >> but your rule does not implement those. >> it does implement those restrictions. we could not lend to an insolvent borrower that we cannot lend to help one or more failing firms. we can only put in place broad-based programs and we have to find -- we have defined the clearly what constitutes broad-based programs. congress clearly changed what the fed can do and it gave -- >> governor fisher says we of likely reduce the possibility the lenders have a last resort and not reduce the probability to zero it in his
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opinion, some of the same things remain. and theime has expired chair now recognizes the gentle lady from new york. yellen, you, chairman the unemployment rate is down under 5% for the first time in eight years. concerned thatin unemployment rates remain elevated in the hispanic and african-american community. does the fed specifically take unemployment within this group into consideration when making policy decisions? surrounding the fed funds rate? o, we track very carefully the unemployment rates and experiences of different demographic groups. we make a very careful assessment about whether or not the economy is meeting the
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objective of maximum sustainable and climate or not which involves taking account of factors like our particular groups being discouraged from participating in the labor force because of conditions. but it's important to recognize that our powers which involve setting interest rates affecting financial conditions are not targeted and cannot be targeted at the experience of particular groups. i think it always has been true and continues to be true that when the labor market improves, the experience of all groups does in the. roughly now, the unemployment rate in the united states is close to where it was in the fourth quarter of 2007.
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african-americans and hispanics at that time back in 2007 had higher unemployment rates than the population as a whole. regrettably because of the disadvantages that these groups face in the labor market, they have historically tended to have higher unemployment rates. improved inmy has unemployment has come down, the unemployment rates for those groups for hispanics and african-americans has come down. they have fallen to roughly the same levels that they were in at the end of 2007 while again remaining higher. we do look at that but we don't have tools to target specific groups. rate amongmployment african-americans today, do you consider that too high? >> i do consider it too high.
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i think there are any number of reasons for that. it are the reasons for ones that congress should be considering broadly in designing a wide range of policies. something that we want to see a strong labor market, we want to see continued progress and we will put in place that butthat achieve we cannot target the unemployment rate for a particular group. >> i heard you. as you know, u.s. employers have created 14 million jobs during president obama's tenure. however, the labor force participation rate remains low and discouraged people who want work of stop looking. how much of the decline in the rate can be explained by this trend of flat or declining wages
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for many american workers? so, for the country as a whole, an important reason that labor force participation has falln and will continue to is because of the aging of the population. going to change and the end is downward. it is also true that for certain subgroups in the population, for example, prime age but less educated men, the trend downward has been particularly steep. there is a lot of economic research that tries to theirtand why men have labor force participation has declined. me if waget surprise trends are part of the reason for that. my guess is that they have
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played a role in discouraging labor force participation. >> as labor force begins to anticipate -- increase, you anticipate the labor involvement to increase as well? >> i anticipate which group will move up somewhat. i think labor force participation is somewhat depressed relative to where it will be in a full employment economy. that's why i say i think there remains some slack in the labor market even though the aggregate unemployment rate is at .9%. >> the time of the gentle lady has expired and the chernow recognizes the gentle man from texas, chairman out our financial institutions of committee. .> thank you for being here part of your remarks were about
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the state of the economy and i think you are trying to paint a rosier picture. maybe there is a little bit rosier but it's not a good feature. i'm looking at some stats here -- we still got 16 million american citizens unemployed. the effective number of long-term unemployed americans is 700 62 1000, higher than it was at the start of the recession -- 762,000 americans. americans over the age of 17 have an abandoned the job market and real disposable income is one point percent -- 1.2%. under to 20%rowing and more americans are living in poverty than ever before, 46.7 million people. we've got 45 million people on snap. think the issue i have been thinking about this peak is when you look at the original purpose
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the fed was dated and what it looks like today and my good we've pointed out that got a fed that's in charge of monetary policy and some other things have been added to that and that we've got the fed, that is the biggest regulator and regulates more assets and other financed at -- financial in the while you are working to stabilize employment and keep inflation in check, on the other side of the fed, you've got the huge regulatory structure that has grown substantially and continues to issue very complicated and some people think that you have become a micromanager of these financial institutions as far as regulations. it reminds me of the statement that we have met the many -- met the enemy and it is us it is a
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counterproductive to create jobs and a federally other side of the building that is doing things that a lot of people andk are killing jobs micromanaging the financial markets and increasing the cost of capital availability to mark that has stymied the ability of this economy to grow? is that self-defeating? we have to remember that financial crises are immensely costly to well-being. sure important to make that we do everything, almost everything we can to reduce the odds of another devastating financial crisis. so, we are working hard. we have worked hard in the aftermath of the crisis to make sure that we have a financial that is safer, sounder,
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has more capital, higher-quality liquidity, is less crisis prone than the financial system that we had that caused this financial crisis. my time is short but you mentioned liquidity and many people think some of the things the fed has done and the regulations have reduced liquidity in the number of markets. you and i have had conversations about the fact that you have shown concerns about liquidity. europeanow the commission has instituted a review process. they say after five years of instituting these regulations and the additional capital requirements and piling on regulation and capital and i'm not against having adequate capital but the problem is, we game andave an add-on the additional capital also comes with additional regulations. the european commission has
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initiated a review process. and say timeout to go back look and we know what we have asked these entities to do. question is, how are the markets responding to this and it's a cost-benefit analysis of all of the policies in place. has the fed thought about maybe stopping and analyzing what we have done and seen as positive? >> we have a few things we still need to finalize and put in place like the dodd frank regulations that were called for and we hope to complete that work soon. it certainly is appropriate to evaluate how the system is working and we do that on an ongoing basis. i think it is up. -- i think it is appropriate to see whether we can improve or simplify regulations.
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we are in the process of doing that in some very important areas. hasime of the gentleman expired and the chernow recognizes the man from california. i feel like i am at a ballroom dance on the deck of the titanic. the faith of the american people in our government and institutions is at an all-time low. i have been sitting in this room for 20 years and the room has the feel that it had two years ago except we don't have alan greenspan in front of us. government institutions work better if they listen to the american people first, because the american people will accept the decisions and second, because we get better decisions. yesterday, in a small state that is doing better than most of the people went of the out with a record-setting now
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with inclement weather to say they are mad as hell particularly at the financial that this committee deals with. mostf them voted for the angry candidate they could find. too big to fail should be too big to exist. chairman, in response to youlady from wisconsin, said it was basically the department of justice's failure to have a single criminal prosecution of those who had robbed the bank's and rob the american people. i wonder whether you pimp that at the feet of the department of justice. we have learned that institutions can get so big they are too big to fail. your predecessor was in this room demanding that we bailed them out and, god for bid, you will be again if you allow these
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too big to fail institutions to exist. areoo big to jail and you may bar somebody from the banking world. in a country with more for incarcerated than any other country in the world, is it adequate to those still hundreds of millions of billions to say that you cannot go back into the banking world? we needber of fsoc, moral hazard to make sure that major economic decisions made by the giant banks are made correctly. they don't have a moral hazard in the sense of not being able to get capital. people are flooding them with capital at rates said to be up to 80 basis points last than they would pay if there was not a believer would build about. to fail or not be allowed to fail and doj will not anybody in jail. the solution is use your power to break them up.
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big you break up the too to fail institutions? i've asked you before and i will ask you again i think i know the answer. >> the answer i will give you is that we are using our powers to that a systemically important institution fail and -- it would not have systemic consequences for the country. we're doing that in a variety of ways. first of all, we have done many things to diminish the odds that they would fail. we are trying to -- i can enumerate all the -- >> are you willing to call the attorney general and say we've got this thing handled so well that you can start criminal prosecutions because they are not too big to jail anymore? >> i am in favor of going after
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individuals who are guilty of wrongdoing. as barringh counties them from the banking sector? i want to move on. >> those are the sanctions that the federal reserve can impose. --your governmental entity you are a governmental entity but in some parts of the entity, its one bank, one vote, if they only part of our constitutional system that puts governmental power in the hands of one bank, one vote. are you going to use your considerable power to oppose legislative efforts to try to make the regional bank governors appointed exclusively by the president and make the regional banks subject to the freedom of information act? i think the current structure of the fed is something that congress decided after a long debate and weighing a whole variety of considerations.
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i would say i think it has worked pretty well but -- >> excuse me, are you saying that the fed having just lived through 2008 with people not getting raises, that this whole system has worked well? >> i thought you were asking about our government's -- >> it has led to the decisions that nearly brought this country to its knees. i yield back. the time of the gentleman has expired and the general recognizes the gentleman from missouri. >> thank you. welcome, madam chair. , as youteresting discuss all the questions that have been asked with regards to your ability to micromanage the and as you make the decision the federal reserve can do something about unemployment or try to do something about the
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inflation rate, i look at some of these things and i am just stunned. with whatt off happens if we have a downturn when you've got $4 trillion in your balance sheet? what levers are still available to you to do something? >> the fed has an array of tools. >> which are? path ofimportantly, the the short-term interest rates. madam chair, they are already almost down to nothing how is lowering the rates going to help when they are nothing right now. >> one of the ways in which markets work is that they form thectations about what likely path of the fed funds rate will be overtime. those expectations influence longer-term rates in the market. weekends,conomy
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market participants naturally expect the fed, in pursuing our mandate, to follow a shallower path of interest rate increases and that shift in expectations moves longer-term rates. i think you can see that over the last several weeks, as i mentioned longer-term treasury yields have come down, as market participants have become more fearful about a recession -- for intruding -- are you saying that this is a o reduce your balance sheet? it will you good time to short shifter that, are >> you intending to do that? we want tondicated make sure that normalization is well underway before we begin to care balance sheet.
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our decision to do that reflects the fact that we feel that moving short-term rates is a more reliable and understandable and predictable way to manage the economy. we are going to wait to shrink the balance sheet on till time when short-term interest rates are somewhat higher. >> so we may never get there. there is not much room to go down. >> we will have to see if >> lets go into your decision-making process. we have a labor market that the labor force dissipation rate continues to go down and yet according to your report, the hourly rate of employees went up. there should be more incentive for people to work but it is becoming less and you use the demographics of the country to
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indicate that. i am concerned that if you look at those numbers, there is minimal ability of the way you explain this of you guys to be able to manipulate this. the second thing is, i am concerned -- what other factors do you take into consideration when you look at the rates? what the congress is proposing, do you look at the court decisions? there has been a big discussion about trying to stop the inversion, the ability of companies to go overseas and be able to take advantage of tax rates. the discussion is to try to cut corporate tax rates to bring those dollars home. think about those sorts of implications when you make decisions on your rates? dramatic and had a historic decision by the courts with regards to an epa ruling which would have dramatically changed the way that -- the cost country. in this
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do you take those things into consideration when you make those rates because that will have dramatic impact on our economy. accounty to take into in making our decisions and he factor we regard as important. place modelingin with regard to the epa rule? >> not that i know of. >> do you have any modeling with regards to potential tax cut for bringing dollars home? for corporations? >> we routinely look at the stance of fiscal policy. >> do you have a model in place right now if i cut corporate tax rates that will allow you to make a decision on that issue? >> if you were to decide that, our staff would attempt to evaluate -- >> so you don't have one in place right now. >> not to the best of my knowledge. >> the chair now recognize the
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gentle man from new york. chairwoman yellen. some of my colleagues may not have been here nine years ago or so but i have to tell you that i feel better today than when i sat here in your nine years ago. i feel much better today than i did then. i can remember some of what was taking place and the panic going on and the pressure the government was under. have we not completely done what we need to do? we need to make wages grow and we need to make sure week the more jobs. the position we're in today, would you agree it's much stronger than the position we were in into thousand seven and 2008? i believe weit is, have made progress while recognizing at the same time that there are many households and there arering
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a lot of challenges that people face. >> i think it's important technology that. how far we have, and i would hope would also focus on what else needs to be done. we do need to make sure that especially those individuals who were victimized by the financial crisis. for example, if you look at in african-american and latino communities, they lost a great amount of wealth. many of them lost their homes or their jobs. they need something so they can get back. that's why you see this disparity that is very high now. , i guessocus is because of what placement past, in 1977, we passed of the community reinvestment act. andfed is in charge of cra can enforce it and what we find
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inay is individuals communities that were deeply affected, there is no investment and no job creation there. there is no access to credit because of the crisis. since the fed overseas and can enforce cra, what is the fed cra,in helping implement to compel the large banks to make these investments in these communities as well as into the cdfi's that are focused on the kind of investments are there to create jobs and grow wages and communities that were devastated by the recession? is extremelya important in making sure that financial institutions, depository institutions serve the needs of their communities and particularly underserved communities. we take our enforcement in the
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valuation of bank rate performance very seriously. have a whole variety of community development activities on programs that are focused working using our convening power and their cra obligations to understand and identify what the needs are, in particular communities and to try to tell banks what works and what kind of programs are worth supporting and that seemed to make a difference in terms of alleviating distress in low and moderate income communities. maybe you have the answer, i want to show where the banks are making these investments in compliance with cra. i have found that those numbers
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have surely sunk. when i look at access to capital in these communities come you have about 70 million people now in thesenbanked communities so cra can help there. i love to follow up with you to find out exactly where the enforcement is and is complying and giving and who is not. there has to be some accountability there lastly, the other thing i think that is important to look at in these communities and access to credit is key and essential. people's the way creditors is looked at, there are alternative systems. for example, some people that are rent every day on time and that should be considered when credit scoring models are created. models you are looking at with reference to how credit scores are considered? i am not sure about credit
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scores. we would be glad to get back to you on that. >> the time of the gentleman has expired. now, the gentle man of wisconsin. >> thank you and welcome. i want to take a trip down memory lane. i think there is some rewriting of what happened in the crisis. homes andeople bought for lower income folks, that is their investment and a lot of them lost their investment walking into the crisis. it was devastating families. we want to look to wall street and there is blame their but i think there is a little bit of revisionist history when we say fannie mae and nothing to do with the crisis that allowed no doc loans and income verification it they allowed folks to buy a home they could not afford. fannie mae and freddie mac were not touched at all.
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they were the ones allowing folks in his room to get homes that they could not afford and they were hurt. the regulators had wild authority and power. they failed. instead of taking a look at the regulation regulators, we re-and powered regulators and the wonder that big banks after dodd frank have not gotten smaller. big banks have gotten bigger. thatmall community banks service a lot of the folks in this room and folks in my community are going away. that's a big problem. i had to get that off my chest. about ita lot to chat as the chairman of the oversight committee, i have concerned about your willingness to comply with our requests. we sent a letter in investigation on the oversight of the fed asking you for information regarding communication. no compliance. then the send you a sip in may you did not comply with that.
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inhad partial compliance october. we are now one year after my initial letter. i have asked you for excerpts of ef multi transcripts in regard to the discussion and regards to the in home discussion on medley and mu have not divided those is your intent to promise that i will have those? congressman, i discussed this matter with chairmen answe said weng and i were concerned with providing an script given there is an monetary policy. i received a note from the chairman last night quite late indicating your response to that. we will consider it and get back to you >> i don't want you to
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consider it. i think the chairman would agree is ame that this conversation not about monetary policy or market moving stuff. this is about the investigation and the conversation of a leak inside of your organization. institution is entitled to those documents, would you agree? >> i will get back to you with a formal answer. i believe we have provided you with all relevant information. to it,'m not entitled can you give me the privilege that you will exert that will let me know why i am not entitled to those documents questio? letter welled a after the close of business yesterday expanding your reasoning. i wanted some time to discuss this matter with my staff before your final answer. >> i sent you a a year ago on february 5.
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i had to send you a subpoena. you knew i was looking for the document and you i would ask you about this today. if you're not going to give me the documents, exert your published. tell me the legal authority what you do not buy this to us. if this is market moving, i would be sensitive to that but this is not monetary policy conversation. this is about the entire workings of the fed and i am not asking for all the transcript, just the excerpts specific to our investigation and oversight of the fed. let me ask you this -- you oversee banks. if you make a request to a bank for information i year ago and they say let me review of my board, let me talk about it but they never comply with your request for documents or information, what with the fed do? >> i think we have complied very fully with the request you have made. >> what would you do if you made that request to a bank you
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oversee? what would you do? work with banks to make sure we have access to the information. >> i can't imagine what the fed would do someone did not comply with your request. we are entitled to the documents. we expect to get them unless you exert a public and there is no pledge you have so i expect they will come over. i yield back. is it appropriate to ask for unanimous consent or clarification on it give information that was just given? does the lady have a parliamentary inquiry? be considered parliamentary. i understand the gentle man to say that they subpoenaed the fed and did not -- it was ignored, is that what he meant? lady is note stating at the mentoring inquiry
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to as the ranking member knows, the time of the chair is limited if other members wish to pursue that in their questioning. they may do that and now the chair recognizes the gentle man from texas. >> thank you. thank you for holding this hearing today. llen, i thank you for meeting with us today and your steadfast leadership at the federal reserve. america has made great progress since the financial crisis of 2008. recovery includes 70 consecutive months of job growth, the longest streak in our nation's history, resulting in an astounding 14 million private sector jobs created and an unemployment rate now below 5%. feel thewe continue to hangover from the financial
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started during president george w. bush's second term. today, the slower than average economic growth rate is fueling anxiety and weakening confidence in our nation's economic growth prospects. additionally, our economy appears to be failing -- sailing into strong headwinds caused by slowing in the rest of the world and the dual effects of funding oil prices and a strong dollar negatively affecting our manufacturing and export industries. addressing those challenges also requires to answer questions regarding the sustainability of our national debt and the ability of congress and the federal reserve to act effectively to stimulate the economy. despite that market turmoil and economic uncertainty, i will note that our nation's confidence in the safety and soundness of our financial system has not been shaken.
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attribute a much stronger and more resilient financial system in large part to the protections and improvements to the market oversight under the dodd frank act. question, what else should our nation be doing to help us return to normal growth rates? >> one of the distressing aspects of the recovery we have seen, i agree with you that we have made good progress in the labor market, create a lot of jobs and the unemployment rate is low but the growth in the economy that has been consistent with that has been quite disappointing. another way of saying what that growing atan out is a very weak case and you have a
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lot of job growth, that means that activity growth has been very disappointing since the financial crisis. i think that determines living standards. do you think we are dragging down the potential growth rate of the economy and doing a disservice to our young men and women i saddling them with debt just as they are setting out to become full country members of our workforce and economic engine questio? situation the debt over the longer-term term the faces this country is something congress needs to address. at this point, the debt to gdp ratio looks like it should be sustainable at present levels for number of years. ages, as isation evident from cbo projections, go beyond an unsustainable up for
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us and this is something congress has known about for decades and it's important to address. >> it seems to me that while congress was do its part to raise the minimum wage, expound the social security safety net and provide a more progressive tax code, what steps are you taking at the federal reserve to address the historic level of inequality in the united states? congressman, the main contribution the fed can make to inequality given that we don't targetlicies that particular groups in the labor force, the main contribution we can make is to make sure that the labor market is coming well, that we attain the maximum congress employment objective. i am pleased with the progress we have made but there is further to go and we are committed to making sure that we
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stay on that this of further improvement in the labor market. everyl not right disadvantage that workers face but it has resulted and will continue to result in broad-based gains for all groups. >> my time has run out. >> the chair now recognize the gentleman from california, chairman of the house foreign affairs committee. >> thank you. good to see you. the latest stress test scenario that was published by the fed includes this scenario where the rate on the month u.s. treasuries drops below zero from the second quarter of 2016 through 2019. that this no right seacarture action
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announced specifically that this does not represent the best federal reserve. nonetheless, this news is interesting because it comes at a time when the european central bank and the bank of japan have both instituted these negative in straight policies. to askstion i was going -- let me make one other point, it may suggest that the federal reserve is not opposed to reducing its target rate below zero should economic conditions warrant and maybe employing the stress test process as it will to consider its possible impact. that strikes me as maybe the reason you depleted in this scenario. you'd all the committee in november that if the economy were to deteriorate in a significant way, potentially anything including negative interest rates would be on the table.
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i remember those remarks were echoed in january. by the new york fed president. assuming for a minute that the fed figures out this question about the legal authority, do you still believe that negative rates are eight in the box and can we assume the federal reserve not include this fact, it weren not a potential future action? >> let me say that that is not what motivated the inclusion of this scenario in the stress test. we are in an environment where, as you pointed out, a number of the ecb and other europe and central banks, the bank of japan, have gone to negative rates. through much of europe, interest rates in japan are negative.
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haderiods of market stress where we see a flight into u.s. treasuries as the safe haven. the scenario that we asked banks to look at is one in which treasury bill yields go negative. this is something that could potentially happen without the fed actually setting negative interest rates. it is something that could happen and we have seen it iods offor limited per time and stressful situations. >> that has been kicked around since 2010 the possibility the fed may be setting negative interest rates. on looking aton you have notority- taken a serious look at the fed authority until now while it was
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kicked around then? >> back in 2010 when we were looking for ways to consider to add accommodations and have a toolkit available, it's something we looked at. ofgot only to the point thinking that it was not a preferred tool. theere concerned about impact on money markets and we were concerned it would not work in our institutional environment very little would be gained. in the spirit of them planning, it is something that, in light of european experience, we were look at and we should look at, not because there is any reason to use it, but to know what could potentially be available.
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it's not just a question of legal authority. it's also a question of could the plumbing of the payment system in the united states handle it? institutional structure of our money markets compatible with it? we have not determined that. >> personally, let me say that i think the central banks in japan and europe are trying to overcompensate for irresponsible fiscal policy. i think that's with them in this position fit can we avoid the same mistake in the u.s. if we get our fiscal house in order? do you agree that if the address the long-term structural problems with soaring mandatory spending we would decrease the potential need for monetary policy actions that reverse course and interest rates? >> i think it is certainly desirable and important for the long-run stability and growth of this country to take the
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measures that you have suggested and evaluate the stance of fiscal policy. it is something that affects our monetary policy. >> thank you very much. >> the chair now recognizes the gentleman from georgia. >> thank you for coming. youve a lot of respect for but i vehemently disagree with lookhen you say you cannot at unemployment. let me just say this, it is very important for everyone to know that you have an equal mission. part of that mission, one half that, is to curb inflation. the other half is unemployment. just as surely as you target inflation with movement of your interest rates, surely you have to understand that you have the same authority to deal with the
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unemployment. let me tell you why this is an and. -- why this is important. no one is suffering from unemployment like the african-american community. they are suffering from that because of the very laissez-faire attitude that the fed historically has dealt with just employment altogether. go about a 4.5% on opponent do you know what it is for african-american men? 18-37? the ages of it's 36.5% unemployment. in some communities like chicago and baltimore, atlanta, houston or these big cities, it's hovering at 50%.
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when you have this devastating situation, there is nobody else, there is no other agency that has the mandate to deal with it has the fed. in order to deal with it, you've got to look at the economy like it is a wheel. the economy is a deal - wheel why is it we have this high and employment rate as well as african-american men and women are at 26%. a part of the reason that we can't is because the fed has historically downplayed unemployment. never, in the history of the fed, have you seen the fed to have an african-american president of a regional federal bank for the federal reserve. that is a part of the reason. we are not even for the
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conversation. my whole point is that i want the fed, nobody is better equipped to handle this rigid unemployment facing the that is the child producing age group, 18 to 37. can you imagine if that was the employment rate of 37.6% of white young man in that age group? all hell would be breaking loose right now to do something about it. we need that same compassion from you. at the sectors of the economy that are growing, transportation, energy, agriculture business come health care, construction, rebuilding the infrastructure, manufacturing, we need an advocacy fromyo


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