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tv   Squawk Alley  CNBC  February 10, 2016 11:00am-12:01pm EST

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that we supervise is appropriately constituted and fulfilling its corporate governance functions. that is a part of supervision. >> my time has expired. >> time of the gentleman has expired. the chair recognizes the gentle lady from new york, ms. maloney. >> chair yellen, you raised interest rates in december and said that any future interest rate increases, if they happened, would be gradual. i'd like to ask you about the recent turmoil in global markets. as you know, equity markets around the world led by china have plunged since the beginning of the year as global economic growth has weakened. and the u.s. has not been immune. u.s. stock markets have fallen over d% since the beginning of the year. and treasury yields have plunged
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25 -- 23%. so my question is, has the turmoil in global markets changed your view about the appropriate pace of interest rate increases and hikes, or will you wait to see how global market turmoil affects the u.s. economy before raising rates again? >> we are watching very carefully what's happening in global financial markets. it would appear that the stresses that we have seen since the turn of the year relate to uncertainties regarding chinese exchange rate policy. there are uncertainties around the price of oil. we have not seen shifts in --
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that seem significant enough to drive -- have 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. we've not yet seen a sharp drop-off in growth, either globally or the united states, but we certainly recognize that global market developments bear close watching. as i mentioned that financial conditions have become less supportive to growth, and we recognize that these developments may have implications for the outlook which we are in the process of asse assessing. and i want to make clear that monetary policy is not on a
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preset course. our evaluation of the likely impact of those developments on the economic outlook and our ability to meet both our employment and inflation objectives, those are the factors that will govern the future stance of monetary policy. it's not on a preset course. >> and given the turmoil in global markets and the slowing u.s. economy, some analysts are now talking about the u.s. possibly falling into a recession this year. what would it take for you to consider cutting interest rates again. a severe down turn in the economy or just stubbornly low inflation? >> well, our commitment is to achieve our congressionally mandated goals of maximum
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employment and price stability. i do not expect that the fomc is going to be soon in this situation where it's necessary to cut rates. let's remember that the labor market is continuing to perform well to improve. i continue to think that many of the factors holding down inflation are transitory. while there is always a risk of a recession, 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. so i don't think it's going to be necessary to cut rates, but that said, monetary policy, as i
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said, is not on a preset course, and if it turned out that that would be necessary, obviously, the fomc would do what is needed to achieve the goals 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 once oil prices stabilize. since the fed's december meetding, oil prices have fallen even further. they're down about 25% since the december meeting, and they have fallen 7% since friday. at the same time, we've also seen inflation expectations fall since the december meeting to the lowest levels in quite some time. has this caused you to rethink your inflation projections at all? >> well, we indicated in our
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statement in january that these developments led us to conclude that inflation will stay low for a while longer as these developments work through. clearly we are watching inflation expectations. as i mentioned, market-based measures of inflation, compensation have moved down now to historically low levels. and that is something we're evaluating carefully. in december, when we raised rates, we indicated that with inflation so far below our objective, we would carefully watch incoming data and revise our expectations. so i don't want to jump to a premature conclusion. my colleagues and i will issue in march updated projections for inflation taking all the
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evidence we have at hand in account. >> the time of the gentle lady has expired. the chair recognizes the gentleman from new jersey, chairman of the capital markets subcommittee. >> i thank the chair. chair yellen, thank you for being here. i'd like to begin on emergency lending under 13-3. it was about a year and a half ago senator elizabeth warren and myself and mr. capuano and joined together and sent you a letter -- >> continuing the q&a with chair yellen in front of the house financial services committee. a lot of the questioning regarding the degree to which financial conditions have tightened and then steve liesman, this discussion about negative interest rates and whether the federal reserve act even allows the fed to do that. your thoughts. >> one answer, one nonanswer. she says the federal reserve, she sees nothing stopping the federal reserve from doing that but that has not finished the investigation as to the legality of it. there was a memo in 2010 that's
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been construed to raise questions on whether or not the fed can do it. chair yellen sees nothing from stopping the fed from doing that. she said she does not see the federal reserve being on the verge of cutting interest rates. not on the verge of hiking them right now but saying she's very -- very skeptical that the next move of the fed will be to cut interest rates, carl. >> steve, we're off the highs. dow off 49 points. is the tone as you expected it to be? >> pretty much as i expected. i expected her to give a little to the doves and hawks but not please either side. she's not taking rate hike offs the table but has not suggested they are imminent. >> let's get back to congressman garrett and chair yellen. >> -- and lack of clarity throughout. so the first question is, why in one area can you be exact and previce and precision when you
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are trying to limit what the private market is doing, but when congress tells you to put limitations on yourself, you look that clarity and just give it a broad brush. >> well, i think we tried in the rule to be as clear as we possibly could. >> let's take a look at that then. >> for example -- >> let me give you an example. the fed claims it establishes a penalty rate under 13-3 but then you failed to provide any specifics whatsoever what that rate would be. compare that to what congress did. this committee passed a bill which would establish a penalty rate commensurate with a distressed borrower. so 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. a penalty rate is a rate that when conditions normalize -- >> but we know what a distressed
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borrower is in the markets are. that's clear. why didn't you define it that way, compare it to the regular markets so that a distressed borrower in the market will be charged the same if they are borrowing from the fed? or related to it? >> in the type of situation that we found ourselves in during the financial crisis, market rates had shot up to extraordinary levels because liquidity had dried up in the financial system. >> i understand what the history of the market was but you could have provided clarity here. once asgan the fed is going to be in the business of picking winners or losers. you can charge borrower a one rate and borrower b another rate under similarly situated circumstances. is that not correct? >> well, i think what is an appropriate rate does depend on the circumstances.
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financial crises, which is when we would be using this authority to set up a broad-based program are always very unique. >> right, and i think that's basically what you are telling us is nothing really has changed, despite the admonition and the law in dodd/frank to put a limitation. it's not just me saying that. it's interesting that while you're here testifying today, governor fisher is also making public statements as you speak and we just got part of his statement and he seems to be saying exactly what you are. that you have not limited 13-3 but in simple language, strengthening fire previcinient does not say the fire brigade should be suspended. he goes on to say we're not seeing the limitations that you'll be able to do the similar things you did, before you were here, that the fed did the last time around. >> i want to make clear that i think our 13-3 hours and ability to lend to keep credit flowing
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in the economy during a financial crisis is a critical power, played a critical role during the financial crisis. >> is he wrong when he says that nothing has really changed? your powers are the same? >> no, a lot has changed. congress put in place a series of restrictions -- >> but your rule does not implement those? >> yes, our rule does implement those restrictions. wree cannot lend to an insolvent borrower. we cannot lend to help one or more failing firms. we can only put in place broad-based programs and we have defined pretty clearly in that rule what constitutes a broad-based program. so congress clearly changed what the fed can do. >> but it did not -- >> it also gave -- provided -- >> governor fisher is saying we have likely reduced the probability that the lender of last resort will be needed but we have not reduced that to
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zero. it would appear some of these rules remain. >> the chair recognizes the gentle lady from new york, ms. velasquez. >> thank you, chairman. chairman yellen, the unemployment rate is down to under 5% for the first time in eight years. however, i remain concerned that unemployment rates remain elevated in the hispanic and african-american communities. does the fed specifically take unemployment within this group into consideration when making policy decisions surrounding the fed fund rate? >> so we track very carefully the unemployment rates and experiences of different demographic groups. and we make a very careful assessment about whether or not
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the economy is meeting the objective of maximum sustainable employment or not. which involves taking account of factors like our particular groups being discouraged from even participating in the labor force because of conditions. but it's important to recognize that our powers, which involve setting interest rates, affecting financial conditions are not targeted and can't be targeted at the experience of particular groups. i think it always has been true and continues to be true that when the labor market improves, the experience of all groups does improve, i mean, roughly now the unemployment rate in the united states is close to where it was in the fourth quarter of 2007.
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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. but as the economy has improved and 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 particular groups rather than others. >> you consider 8.8% employment rate among african-americans today too high? >> i do consider it too high.
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and i think there are any number of reasons for that. and i think that the reasons for it are ones congress should be considering broadly in designing a wide range of policies. it is something that we want to see a strong labor market. we want to see continued progress, and we will put in place policies that achieve that, but we cannot target the unemployment rate for a particular group. >> i heard you. as you know, chair, u.s. employers have created 14 million jobs during president obama's tenure. however, the labor force participation rate remains low, and discouraged people that want to work has stopped looking. how much of the decline in the rate can be explained by the
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trend of flat or declining wages for many american workers? >> so for the country as a whole, an important reason that labor force participation has fallen and will continue to fall is because of the aging of the populati population. so that's not going to change and the trend is downward. it's also true that for certain subgroups in the population, for example, prime age but less educated men, the trend downward has been particularly steep. and there's a lot of economic research that tries to understand why men have -- their labor force participation has declined. it wouldn't surprise me if
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trends are a large part of that. so my guess is they have played a role in discouraging labor force participation. >> as wages begin to increase, do you anticipate the participation rate to increase as well? >> yes, i anticipate that wage growth will move up somewhat. and i do think that labor force participation is somewhat depressed relative to where it will be in a really full employment economy. that's why i say i think there does remain some slack in the labor market even though the aggregate unemployment rate sis at 4.9%. >> the chair now recognizes the gentleman from texas, chairman of our financial institutions subcommittee. >> thank you, mr. chairman. and thank you chair yellen for being here as well. part of your remarks were about the state of the economy, and i
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think you are trying to paint a rosier picture and maybe there is a little bit of a rosier picture but it's not a good picture. i'm looking at some stats here. we've still got 16 million american citizens that are unemployed. the fact, the number of long-term unemployed americans is 761,000 higher than it was at the start of the recession. we've got 94 million americans over the age of 17 abandon the job market. real dispossible income is a paltry annual rate of 1.2%. the real gdp is growing just under 2.2%. got more americans living in poverty than ever before. 46.7 million people. and we've got 45 million people on s.n.a.p. you read more and more, i think the issue that i've been thinking about this week is when you look at the original purpose
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of the fed was what the fed looks like today and i think my good friend mr. mulvaney pointedous out. we have a fed that's in charge of monetary policy. some other things have been added to that. and then we have the fed that's the biggest and largest regulator and regulates more assets than any other financial institution in the world. and it kind of reminds me that while you all were working on one side of the fed to stabilize employment, keep inflation in check, then on the other side of the fed you have this 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 with the regulations. it reminds me of that statement we've met the enemy and it is us. is it counterproductive you've got the fed working on one side
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to create jobs and you've got a fed on the other side of the building that's doing things that a lot of people think that are killing jobs, micromanaging the financial markets, increasing the cost of capital, the availability of capital, which has stymied the ability of this economy to grow. and so is it self-defeating? >> i think we have to remember that financial crises are immensely costly to well-being, and it's important to make sure that we do everything -- almost everything we can to reduce the odds of another devastating financial crisis. so we are working hard. we have worked hard in the aftermath of the crisis to make sure that we have a financial system that is safer, sounder, has more capital, higher quality
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capital, more liquidity, is less crisis prone than the financial system that we had that caused this financial crisis. >> i want to -- time is short. you mentioned liquidity. a lot of people think some of the things the fed has done and some of the regulations that have reduced liquidity in a number of markets. you and i have had a conversation about the fact that you all have shown some concern about liquidity. i wanted to -- if you knew the european commission initiated a review process. they said after five years of instituting all these regulations and additional capital requirements and kind of this piling on of regulation and capital, more capital and regulation. i'm not against having adequate capital, but the problem is that we seem to have an add-on game here and the additional capital also comes with additional regulations. so the european commission is
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initiating a review process. you know what? time out here. let's go back and look. we know what we've asked these entities to do and impounded them with. the question is how are the markets responding and how have -- basically, it's a cost benefit analysis of all of the policies that have been in place. has the fed thought about maybe we should stop and analyze what we've done here and see if it's positive? >> we have a few things we still need to finalize to put in place the dodd/frank regulations that were called for. and we hope to complete that work soon. and it certainly is appropriate to evaluate how the system is working. and we do that on an ongoing basis, and i think it's, of course, appropriate to see whether or not there are ways in which we can improve or simplify regulations. andy we are in the process of
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doing that in some very important areas. >> time of the gentleman has expird. the garrechair recognizes mr. sherman. >> i feel look i'm at a ball room dance on the deck of the "titanic." the faith of the american people in our government and institutions is at an all-time low. i've been sitting in this room for 20 years, and the room has the feel that it had 20 years ago, expect 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 then accept the decisions and second, because we get better decisions. yesterday in a small state that is doing better than most of the country, two-thirds of the people went out in the -- in i
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think a record-setting turnout with inclement weather to say they're mad as hell, particularly at the financial institutions that's this committee deals with. and two-thirds of them voted for the most angry candidate they could find. too big to fail should be too big to exist. madam chairman, in response to the lady from wisconsin, you said it was basically the department of justice's failure to have a single criminal prosecution of those who had robbed the banks and, more importantly, robbed the american people. and i wonder whether you can really just put that at the feet of the department of justice because we've learned institutions can get so big that they are too big to fail. your predecessor was in this room demanding we bail them out and god forbit you will be again
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if you allow these too big to fail institutions to continue to exist. and as they are too big to jail. and as you point out, you may bar somebody from the banking world. but in a country with more people incarcerated than any other country in the world, is it really adequate to those who steal hundreds of millions and billions to say, well, you can't go back into the banking world. so i'll ask you as a member of fsoc, we need moral hazard to make sure that major economic decisions made by the giant banks are made correctly. they don't have a moral hazard in the sense of not being able to get capital. people are flooding them with capital at rates that are said to be up to 80 basis points less than they'd pay if there wasn't a belief that we'd bail them out. the too big to fail won't be allowed to fail. doj won't put anybody in jail. the solution is use your power under fsoc to break them up.
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are you going to break up the too big to fail institutions? i have asked you that before. i'll ask it again. i think i know the answer. >> well, the answer i'll give you is we are using our powers to make sure that a systemically important institution could fail and it would not be -- have systemic consequences for the country. we are doing that in a whole variety of ways. first of all, we've done many things to diminish the odds that they would fail. we are trying to make them -- i think i can enumerate all the things -- >> are you willing to call the attorney general and say we've got this thing handled so well that you can start criminal prosecutions because they're not too big to jail anymore? >> so i said that i am in favor
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of going after individuals who are guilty of wrongdoing. >> with some penalties as barring them from the banking system? i want to move on -- >> those are the sanctions that the federal reserve can enforce -- >> i need to move on to another question. your governmental endi aal enti it's one bank, one vote. it's the 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 legislatesive efforts to try to make the regional bank governors appointed exclusively by the president and to make the regional banks subject to the freedom of information act? >> congressman, i think the current structure of the fed is something that congress decide ed after a long debate and weighing of a whole variety of
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considerations. i would say, i think it's worked pretty well, but it certainly -- >> excuse me. are you saying that the fed in the -- having just lived through 2008 with people not getting raises that this whole system has worked well? >> i'm sorry. i thought you were asking about our governance. >> your governance has led to the decisions that have nearly brought this country to its knees. i yield back. >> time of the gentleman has expired. the chair recognizes the chairman of our housing subcommittee. >> welcome madam chair. it's kind of interesting as you discuss all the questions that have been asked you here with regard to your ability to micromanage the economy and as you make the decisions at the federal reserve to try and do something about unemployment, try to do something about the
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inflation rate, i look at some of these things and i am just kind of stun ned. let's start off with first if we have a downturn and you have $4 trillion on your balance sheet. what levers are available to you to do something? >> well, the fed has an array of tools. >> which are? >> well, most importantly, the path of the short-term interest rates. >> madam chair, they're already down to almost nothing. i mean how is lowering the rates going to help when they are almost nothing right now? >> well, one of the ways in which markets works is that they form expectations about what the likely path of the fed funds rate will be over time. those expectations influence longer term rates in the market. and when the economy weakens,
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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 just over the last several weeks, as i mentioned longer term treasury yields have come down, as market participants have become more fearful about a recession. >> are you -- i have more questions here. are you saying that this is a good time then to sort of reduce your balance sheet? >> we -- >> lower interest rates would be a time to shift that? >> we've indicated that we want to make sure normalization is well under way before we begin
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to shrink our balance sheet, and our decision to do that reflects the fact that we feel that moving short-term rates is a more reliable and understandable and predetectible way to manage the economy. and so we're going to wait to shrink our balance sheet until a point when short-term interest rates are somewhat higher. >> so we may never get there is what you are saying. there's not much room to go down. so let's. >> -- we'll have to see. >> let me go into your thinking process here. we have a labor market that continues to -- the labor force participation continues to go down. yet according to your report here, the hourly rate of employees went up. there should be more incentive for people to work. and you use the demographics of our country to indicate that.
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so i'm concerns that if you look at those numbers that there's minimal ability of your -- the way you explain the answer to ms. velasquez of your guys to be able to manipulate this. the second thuj is i'm concerned. what other factors do you take into consideration when you look at your rates? do you look at what congress is proposing? there's been a big discussion about trying to stop the inversion, the ability of the companies to go overseas and able to take advantage of those tax rates. the discussion is to cut corporate tax rates to bring those dollars home. do you ever think about those implications when you make decisions on your rates? yesterday we had a dramatic, historic decision by the courts with regards to an epa ruling that would have dramatically changed the way that we -- the cost of energy in this country.
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you take those into consideration when you make your rates because those will have dramatic increases or significant impact on our economy. >> well, we try to take into account in making our decisions in factor that we regard as important in -- >> do you have in place some modeling with regards to the epa rule? >> not that i know of. >> do you have in place any modemming with regards to potential tax cut for bringing dollars home? or for corporations? >> we routinely look at the stance of fiscal policy and -- >> do you have a model in place if we cut corporate tax rates that would allow you to make a decision on that issue? >> if you were to decide that, our staff would attempt torques vault -- >> you don't have one in place right now? >> not to the best of my knowledge. >> the time of the gentleman has
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rex pi expired. we recognize the chair from new york, mr. meeks. >> i don't know, some of my colleagues may not have been here nine years ooh eight years ago, but i feel better today than when i sat here eight or nine years ago. i feel much better today than then. i can remember weather forecast was taking place then and the panic going on and the pressure this government was under. and though we've got completely done what we need to do because we need to let wages grow and make sure that we create more jobs, the position we're in today, would you agree, is much stronger than the position we were in in 2007 and 2008? >> well, i believe it is. i believe we've made a lot of progress. while recognizing at the same time that there are many households that are suffering and that there are a lot of
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challenges that people face -- >> i think it's important to acknowledge that. how far we've come. and then i would hope we'd 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 crises. for example if you look at areas in, and i think mrs. velasquez talked about it particularly in african-american and latino communities, they lost a great amount of wealth. many of them lost their homes, their jobs. and so they need something so that they can get back. and that's why you see this disparity that is very high right now. and so what my focus then is, if we had, and i guess because of what took place in the past, in 1977, we passed the community reinvestment act. now the fed is in charge of cra and can't enforce it. and today one of what we find
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still is that individuals in these -- in communities that were deeply affected, there's no investment going in. no job creation there. there is no access to credit. they don't have -- because of primarily the crises. so i was wondering what can and since the fed oversees and can enforce cra, what is the fed doing in helping implement cra, compelling some of the large banks to make these investments in these communities, as well as into cdfis who are focused on trying to make sure the kind of investments are there to create jobs and grow wages in places devastated by the recession. >> i think cra is extremely important in making sure that financial institutions, depository institutions serve the needs of their communities and particularly underserved
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communities. we take our enforcement and evaluation of bank cra performance very seriously. we have a whole variety of community develop mement activis and programs focused on working, using our convening power and their cra obligations to try to understand and identify what the needs are in particular communities. and to try to tell banks what works, what kind of programs are worth supporting that really seem to make a difference in terms of alleviating distress, low and moderate income communities. >> one thing that's important because i want -- maybe you have the answers is to show where the banks are making these investments in compliance with cra because i have found that
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those numbers have surely -- when i look to access to capital in these communities, you have about 70 million people who are underbanked or unbanked in these communities. cra could definitely help there. i'd love to follow up with you to find out exactly where the enforcement, who is complying and giving because there's got to be some account believe there. lastly, in the few seconds i have because the other thing that i think that's important to look at in some of these communities, and today as well, access to credit is absolutely key and essential and sometimes the way people's credits are looked at, is there alternative systems. for example, some people pay their rent every day on time and that's not to be considered when referenced to the credit scoring models. they -- so is there other models that you are looking at with reference to how credit scores are considered, the fed could
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advocate. >> i'm not sure about credit scores. we'd be glad to get back to you on that. >> the chair recognizes the gentleman from wisconsin, mr. duffy. >> thank you, mr. chairman, and welcome chair yellen. i want to take a trip down memory lane. i think there is some rewriting of what happened in the crisis. there's a lot of people who bought homes and for a lower income folks, that's their investment. and a lot of them lost their investment walking into the crisis. devastating families. and i know we want to look to wall street and there's blame there, but i think there is a little bit of revisionist history when we say fannie and freddie didn't have anything to do with the crisis. fannie and freddie that allowed no-doc loans, no income verification. allowing folks to buy homes they couldn't afford. in dodd/frank passed by my friends across the aisle, fannie and freddie weren't touched at
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all. fannie and freddie were allowing folks in this home to get homes they couldn't afford and they were hurt. didn't touch them. the regulators had wild authority and power. they failed. and instead of taking a look at the regulation and regulators, we've re-empowered regulators. so no wonder that big banks after dodd/frank haven't gotten smaller. big banks have gotten bigger. and the small community banks that i'm sure service a lot of folks in this room and in my community, they're going away. big problem. i had to get that off my chest. a lot of exciting things to chat about with chair yellen. i do have some concerns about your willingness to comply with our request. we sent a letter in the investigation, and our oversight of the fed, asking you for information regarding communication. no compliance. then we sent you a subpoena in may. you did not comply with that.
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we had partial compliance in octob october. we're now a year after my initial letter. i've asked you for exerts of the fomc transcripts in regard to he internal investigation on medley. you have not provided has to to me. is your intent now to promise that i'll have those if not this afternoon, tomorrow. >> well, congressman, i discussed this matters with chairman hensarling and indicated we have some concern -- >> why doint we talk about it right now. >> -- finding these transcripts? >> finding? >> i said with providing transcripts given their importance in monetary policy. and i received a note back from chairman hensarling last night quite late indicating your response to that. and we will consider it and get back to you. >> i don't want you to consider
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it. and i think the chairman would agree with me that's this is a conversation not about monetary policy. this is not market moving stuff. this is about the investigation and the conversation of a leak inside of your organization. so this institution is entitled to those documents. would you agree? >> i will get back to you with a formal answer. i believe that we have provided you -- >> that's not my question for you. >> -- with the rel vent information. >> if i'm not entitled to it, can you give me the privilege that you're going to exert that's going to let me know why i'm not entitled to those documents? >> i said that we received well after the close of business yesterday a letter explaining your reasoning, and i -- >> that's not -- >> -- and i will need some time to discuss this matter with my staff before i give you a final answer. >> listen, i sent you a letter a year ago, on february 5th.
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i had to send you a subpoena. you knew that i'm looking for these documents. you knew i was going to ask you about this today. so if you are not going to give me the documents, exert your privilege. tell me your legal authority why you're not going to provide this to us. if this is market move, ides be sensitive to that. this is not monetary policy conversations. this is about the internal workings of the fed. i'm not asking for all the transcripts. i'm just asking for the excerpts specific to our investigation and oversight of the fed. let me ask you this. you get to oversee banks. if you make a request for a bank for information a year ago and they say let me review it with my board. let me talk about if but never comply withi your request for documents. >> i think we've complied very fully. >> chair yellen -- i'm asking you what would you do if you made that request to a bank that
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you oversee. what would you do? >> we work with banks to make sure we have access to the information. >> and if they didn't, i can't imagine what the fed would do if they didn't comply with your request. we're entitled to the documents. we expect to get them unless you exert a privilege, and there is no privilege you have. >> time of the gentleman is -- for what purpose is the banking member seek -- >> it's important to ask for unanimous consent for clarification on a point of information that was just given. >> does the lady have a parliamentary inquiry? >> the inquiry could be considered parliamentary. i understand the gentleman to say they subpoenaed the feds, and did not -- it was ignored. is that what he meant? >> the gentle lady not stating a parliamentary inquiry.
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and as i think as the ranking member knows, the time of the chair is limited if other members wish to pursue that in their questioning, they may pursue that in their questioning. the chair recognizes the gentleman from texas. >> thank you for holding this hearing today. chairwoman yellen, i thank you for meeting with our committee today and your steadfast leadership. at the federal reserve. america has made great progress since the financial crisis of 2008. our recovery includes 70 consecutive months of job growth, our longest streak in history resulting in an astou astounding 14 million private sector jobs created and an unemployment rate standing below 5%. however, we continue to feel the hangover from the financial
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crisis started during president george w. bush's second term. today the slower than average economic growth rate is fueling anxiety and weakening confidence in our nation's economic growth prospects. additionally, our economy appears to be sailing into strong headwinds caused by slowing growth in the developing world, stagnant growth in europe, the dual effects of plunging oil prices and a strong dollar negatively affecting our manufacturing and export industries. addressing those challenges also requires to answer questions regarding the sustainability of our national debt and of the ability of congress in the federal reserve to act effectively to stimulate the economy. despite that market turmoil and economic uncertainty, however, i'll note, i will note that our nation's confidence in the safety and soundness of our
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financial system has not been shaken. indeed, we can 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. my first question, chairwoman yellen, what else should our nation be doing to help us return to normal growth rates? >> well, one of the distressing aspects of the recovery we have seen, i agree with you that we have made good progress in the labor market, created a lot of jobs and the unemployment rate is low, but the growth in the economy that's been consistent with that has been quite disappointing. so another way of saying what that implies is when output is growing at a very weak pace and you have a lot of job growth
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that means that productivity growth has been very disappointing since the financial crisis. ultimately, that develops living standards. >> you think we are dragging down the potential growth rate of our economy and doing a disservice to our young men and women by saddling them with debt just as they are setting out to become full contributing members of our workforce and economic engine? >> well, i think the debt situation that faces this country over the longer term is something that congress certainly needs to address. while at this point the debt to gdp ratio looks like it should be sustainable, at present levels for a number of years. as the population ages, it will, as is evident from cbo projections, be on an unsustainable course and this is
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something congress has known about for decades and it's important to address. >> it seems to me that while congress has done its part to raise the minimum expand the soy safety net and provide a more progressive tax code what steps are you taking at the federal reserve to address the historic level of inequality in the united states? >> well, congressman, the main contribution that the fed can make to inequality given that we don't have policies that target particular groups in the labor force, the main contribution we can make is to make sure that the labor market is performing well, that we attain congress' maximum employment objective. i'm please with the progress we have made, but there's further to go, and we're committed to
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making sure that we stay on that course of further improvement in the labor market. and it won't right every disadvantage that workers face, but it has resulted and will continue to result in broad-based gains for all groups in the world. >> my time has run out. i yield back. >> time for the gentleman has expired. the chair now recollection nices the gentleman from california. >> thank you, mr. chairman. chair yell len, good to see you. thank you. the latest stress test scenario that was published by the fed includes this scenario where the rate on three-month u.s. treasuries drop below zero from the second quarter of 2016 through 2019. and i recognize that this in no way predicts any future action
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here. as a matter of fact, c-car pronounced specifically the scenario does not represent a forecast in the federal reserve. none the less, this is interesting because it comes at a time when european central bank and the bank of japan of both instituted these negative interest rate policies. so the question i was going to ask you -- and let me make one other point. it may suggest that the federal reserve is not opposed to reducing its target rate below zero should economic conditions warrant and may be employing the stress test process as a tool to consider its possible impacts. that strikes me as maybe the reason you deployed it in this scenario. you told the committee in november that if the economy were to deteriorate in a significant way, potentially anything including negative interest rates, would be on the
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table. and so -- and i remember those remarks were echoed in january by new york fed president bill dudley. so assuming for a minute that the fed figures out this question about the legal authority, do you still believe that negative rates are a tool in the tool box and can we assume that the federal reserve would not include this scenario in a stress test if, in fact, we were not a potential future action? >> well, let me say that that was not what motivated the inclusion of this scenario in this stress test. we are in an environment where, as you pointed out, number of the ecb, other european, central banks, the bank of japan, have gone to negative rates. through much of europe, interest rates and in japan, are negative
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way out the yield curve. and we have had periods of market stress where we see a flight in to u.s. treasuries as a safe haven. and the scenario that we asked banks to look at is one in which treasury bill yield goes yet negative. this is something that could potentially happen without the fed actually setting negative interest rates. it is something that could happen and we've seen it happen for limited periods of time in stressful situations. >> let me ask a clarifying point because it has been kicked around since 2010, the possibility of the fed maybe setting the -- >> so let me -- >> quick question on looking at the fed authority. you haven't -- >> so -- >> you haven't taken a serious look at the fed authority until
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now while it was kicked around then and you do this scenario in the interim? >> so back in 2010 when we were looking for ways to consider, to add accommodation, to have a tool kit available, it is something we looked at. >> i see. >> we got only to the point of thinking that it wasn't a preferred tool. >> right. >> we were concerned about the impacts it would have on money markets. we were worried that it wouldn't work in our institutional environment, and we thought that zero was really the effective or very -- >> i got it. >> -- just very little was -- >> let me ask you -- >> we would -- in the spirit of prudent planning it is something that, in light of european experience, we will look at, we should look at. not because we think there's any reason to use it but to know what could potentially be
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available. and it isn't just a question of legal authority. it's also a question of could the plumbing of the payment system in the united states handle it? is our institutional structure of our money markets compatible with it? we've not determined that. >> okay. well, let me -- personally, let me just say that i think that the central banks of japan and europe are trying to over compensate for irresponsible fiscal policy. i think that's what put them in this position. can we avoid the same mistake here in the u.s. if we get our fiscal house in order? in other words, do you agree that if we address the long-term structural problems with soaring mandatory spending we would decrease the potential need for monetary policy actions? to reverse course on interest rates? >> i think it is certainly desirable and important for the long run stability and growth of this country to take the
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measures that you have suggested. and evaluating the stance of fiscal policy it is something that effects our monetary policy. >> thank you, chair yellen. >> time with the gentleman has expired. the chair now recollection nices a gentleman from georgia. >> chair lady, you know i have a lot of respect for you. >> thank you. >> i disagree with you when you say that you can't target unemployment. let me just say this. it is have been important for everyone to know that you have an equal mission. part of that mission, one half of it is to curb inflation. but the other half is unemployment. and so just as surely as you go and you target inflation with movement of your interest rates, surely you've got to understand that you have the same authority
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to deal with the unemployment. now, let me tell you why this is important, ms. yellen. nobody is suffering from unemployment like the african-american community. and they're suffering from that because of the very laissez-faire attitude that the fed historically has dealt with just employment -- unemployment all together. but when you look, yeah, we can curb 4.5 unemployment rate. do you know what the unemployment rate is for african-american men between the ages of 18 and 37? it's 36.5% unemployment. and in some communities, like chicago and baltimore, atlanta, houston, any of these big cities, it's hovering at 50%. now, when you have this
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devastating situation, there is nobody else, there is no other agency that has the mandate to deal with it as the fed. now, in order to deal with it, you've got to look at the economy like it is a wheel. the economy is a wheel. why is it that we have this high unemployment rate among african-americans? african-american women in that same age group is 26%. so why is it that we can't? and a part of that reason is because the fed has historically downplayed unemployment. never in the history of the fed, have you even seen fit to have an african-american president of a regional federal bank for the federal reserve. that's a part of the reason. we're not even a part of the
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conversation. so my whole point is that i'd want the fed, nobody is better equipped to handle this rigid unemployment facing the african-american community in that most pliable age group. that is the child-producing age group. 18-37. can you imagine if that was employment rate of 37.6% of white young men in that age group? all hell would be breaking loose right now to do something about it. we need that same compassion from you. when you look at the energy -- the sectors of the economy that are growing, transportation, energy, agriculture business, health care, construction, rebuilding the infrastructure, manufacturing, we need an advocacy from youo


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