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

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there really is a rule-based system that people understand so that it's not like the fed is the wizard of oz and nobody know what is will happen. market versus fallen 500 points, which is unusual after the last couple days after testimony, which i thought was good yesterday. but is there some other rule-based system that those of us that care about these kind of things could count on relative to what the philadelphia's actions are. >> so, senator, i would, if i might, i'd like to distinguish between a systematic approach to monetary policy which i believe we have and have put into place and the system that we use that's in line with what other advanced central banks do and a mechanic am mat mat cal rule-base aid proech, which i don't support and no central bank that i'm aware of follows,
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we are articulated in a clear statement what our objectives are. 2% inflation and our interpretation of maximum employment. every three months, all members, all participants of the fomc set out their explicit projections for key variables and also the monetary policy path that they regard as appropriate to achieve those variables and we publish these projections now it's not a single committee endorsed view but it does show the range of forecasts and assessments of what appropriate policy would be if line with those forecasts and we update those projections every three months in line with incoming data and i would regard that as quite a bit of information and a systematic
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approach. we are telling the public what the range of opinion is about appropriate policy and the associated path to the economy and, of course, there is uncertainty. so policy is not on a pre set bath. we update those pronls, but we are showing what we think in a systematic way. >> i would think we had a nice conversation the other day at length. i think one of the things the fed can do. you asked me questions along those lines would be to come in here in an off the record meeting and sort of lay that out and then contrast that with a rule-based system. i think that would be very helpful to the fed. i think very helpful to the committee members here. let me ask you, briefly on the balance sheet that the fed now has, as we look at where we are today, has there been any thought looking in the rear view mirror that might have been good to unload that earlier.
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so there was additional ammunition should that be needed in the future. >> well, i think the thinking about additional ammunition is that the best ammunition we have in the single most reliable and predictable tool for affecting the substance of monetary policy is variations in short-term interest rates so as the economy has now gotten to a point where we're slowly reducing accommodation, we have the choice between selling offer assets or raising interest rates. >> i'm talking as the economy goes the other direction. i guess the question then is, so you got a pretty loaded up balance sheet. i think people are beginning to observe that the fed is probably out of ammunition, unless you decide to go to negative rates. and if you could, briefly, i'll
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not proposing this, i'm observing what's happening around the world and in our own country. i think people are waking up, realizing that the federally has no real ammunition left i allude to this yesterday. i have one more question, are you considering if things go south, which none of us hope do, are you considering negative rates? i know you had that question yesterday. yes or no? >> so the answer is we had previously considered them and decided that they would not work well to foster accommodation back in 2010. in light of the experience of european countries and others that have gone to negative rates, we're taking a look at them again because we would want to be prepared in the event that
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we needed to add accommodation. we haven't finished that evaluation. we need to consider the u.s. institutional context and whether they would work well here. it's not automatic. >> yeah. >> there are a number of thungs to consider. we happened, so i wouldn't take those off the table, but we would have work to do to judge whether they would be workable here. >> i would evolve that where we would be is we were out of ammunition and it would be good for the markets to understand that we are out of ammunition and now it's up to other factors. but now as i hear it, potentially negative rates are something that could affect things over time. if i could just go down one more path. productivity. you've talked about that is the greatest driver for wage increases and i appreciated senator brown, some of for
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brown's opening comments. i want to say that you know the concern that we all have is the most vulnerable in our society are the ones hurt the most when we have downturns and the slowest to regain and there is no question there is a wealth gap in our country t. question is, what do we do about it? you've mentioned the most important factor determining productivity is if advances in living standards is productivity growth. defined at the rate of increase how much a worker can produce if an hour of work. overtime sustained increases in productivity are necessary to support rising household incomes. later on, we do know that productivity ultimately depends on many factors, including our work force knowledge and skills. by the way, does monetary policy affect work knowledge or skills?
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the answer is. does the quality of capital equipment, monetary policy does not affect that, is that correct? >> well, the only qualification i would make is that during a long deep downturn like we had, capital investment, in part because it wasn't needed was very slow and that leaves a legacy that has a negative impact and when people are out of work for a long period of time, their skills can erode to the point where it becomes difficult for them. >> i'm trying to help you here. if the teachers showed up. he will reprimand me for going over. >> mr. corker knows that would not be in order. >> does policy affect infrastructure investment? >> no. >> the point is productivity is
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sort of on this side of the dial, is that correct? >> yes. >> when people try to look at the fed through monetary policy to increase productivity, it's a ridiculous notion, is it not in. >> fundamentallys the not something we -- >> that's our job. we're not doing our job. let me ask one last question t. chairman is very nice, he came in today in a very food mood last year on a budget meeting, the head came in and said because federal barn reduces total savings over time the nation's capital stock would ultimately be smaller than it would be if that was smaller and productivity and total weight would be lower. so as we accumulate debt, we are actually hurting many of the people in this room that came today because they care about this, because we're really hurting productivity. is that a true statement? >> well, over long period of time, yes, i would agree with
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it. >> thank you, madam chairman. thank you, chairman. >> senator mendez. >> thank you, mr. chairman. madam chairman, let me talk about the challenges of families who still not withstanding the numbers don't see their incomes rising. i know that in some respect, the numbers are indisputable t. unemployment rate is at 4.9% t. lowest we seen in february of 2008. less than at the peak of 2010. 14 million jobs over 71 straight months. but those numbers in my mind don't tell the whole story. long-term unemployment persists with people unemployed for 27 weeks or longer, compromising more than a quarter of all of the total number of jobless individuals a. hard working families throughout the company have been waiting too long for incomes, increases to materialize.
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though the economy is partially healed and will continue to heal, to me, there is a clear indicator how much harm is inflicted by the financial crisis. mr. employers, due to market conditions, are paying low wages and offering limited benefits to their employees with little concern that these employees will leave because of the slack in the jobs market. employers have a sea of prospects every time an employee jumps ship. so talk to me about what need to be done at the fed and elsewhere to address long of term unploimtd ap foster policies that transform economic growth into growth for our hard working families? >> well, i think what we are trying to do to contribute to the solution of that problem is to keep the economy growing at a steady pace, to keep the labor
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market improving in the hope and expectation that a stronger labor market will improve the status of all groups in the labor market and go into bring down long-term employment, involuntary part-time employment and we have seen that. so unemployment rates have come down for almost all demographic groups. as high as it is, the incidents of long-term unemployment has declined, involuntary part terms part time unemployment, employment has also declined as the economies improve. but these are longstanding adverse trends, including structural factors like
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globalization. the very slow growth in middle income jobs, tech no logical trends that have favored higher skilled workers. i think for congress, there are any number of things that you might consider and might do that would be helpful in addressing these trends him some of them, many of them, would be related to training, education, increasing opportunity to make sure that those skills can be more readily required. >> let me ask you, how can the fed better account for full employment and thus enhanced proficiency and production in its analysis and planning? >> well, from my point of view and i think from the point of view of the fomc, more jobs are always good employment is good and when we think about maximum employment, we are really --
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>> interesting q and and a here. janet yellen tries to keep psalm of her options opened, nailed down by senator corker on negative rates, saying we previously considered it, decided it would not work well in 2010. we are quote taking a look at them again. steve leavem steve leishman, your thoughts. >> she was all over the place saying we will look at it. now she's thai saying we will take a look at it again. it makes a whole lot more sense. after japan went negative. it's something on an artificial basis. still some people are incredulous at the notion fed has not resolved this issue. you would think they would have some form of understanding of that already. but again, she's being very cautious because remember the last thing by the fed was the hike rates, carl t. expectations
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is they would hike further. now we're having a conversation about negative rates in the states. >> let's get back to capitol hill. thanks. >> so i know there is this sense among, i think among fed policy makers that they're eager to reach the point of the i economy where we can normalize the policy by raising rates. can you describe the risk to the economy. this is a collaboration i understand of tightening too soon? and do you take this global context into consideration when you are looking at them? >> we absolutely take the global context in consideration and normalization is not something we want to pursue and accomplish for its own sake. we only want to move to more normal levels of interest rates, if it's consistent with achieving our objectives of 2% inflation and maximum employment. we want to and intend to put in place the monetary policy that
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is consistent with achieving those objectives in an economy that has been recovering, the committee felt that it could be in the path and would likely be on the path, where short-term rates would gradually rise over time consistent with that objective. but i want to emphasize that monetary policy is not on some pre-set course. monetary policy will be set and calibrated to do the best we can to achieve our congress ally mandated objectives. >> thank you. thank you, mr. chairman and madam chairman, thanks, for joining us again. i want to follow up on the line of discussion and senator corker was discussing and madam chairman, we've had this conversation before and you may recall i have been advocating the fed normalize interest rates for a long time now him one of
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my deep concerns is that central banks around the world, much including our own, seem to be trying to compensate for an inability of the political class around the world to address what's really holding back economic growth. which are fiscally unsustainable budgets in our case and i would argue in much of the rest of the world an avalanche of new regulations holding back economic growth. high tax rates that discover savings, investment and the fact is central banks, monetary policy, can fought make up for those problems. in fact, you could argue, in some case, they can make it worse. now we see the markets as of this morning are appear to be pricing in an expectation there will be no further increases in the interest rates that the central bank controls. they may be right. they may be wrong. that's the expectation now.
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there is this discussion, since the rest of the world is pursuing ever further this new chapter in radical monetary policy. we have this discussion about negative interest rates. i appreciate the fact that you in your discussion with senator corker pointed out that there might be some serious kempblts i find it very, very disturbing to even seriously consider moving in that direction and i hope we could talk about some of the potential risks of negative interest rates. because i think there is a qualitative difference i'd like to get your thought on this between say a 25 basis point movement in fed controlled rates a movement that takes you from a low positive rate to another positive rate, versus one that crosses the threshold into the negative. above and beyond the psychological, i think most of us have grown up our entire life with the expectation there is a
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floored interest rates. >> that would be shattered. >> that might have unanticipated consequences. but there are practical consequences, too. i'm hope you can count on some. for instance, it would seem it would crush net interest margins for banks and dramatically diminish their ability to provide capital. i don't know how a money market survives at all. i could see 5d verse effect on business investment. investors would be pressured to move further out the risk curve. further than they have already been pressured. it would put the u.s. deep in the midst of a global currency war. and i would suggest that the results, where it has been tried, have not gone so well. sweden had a negative interest rate since 2009. euro zone areas generally has had negative interest rates
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since june of 2014. gdp growth has been very, very weak. japan recently instituted negative interest rates. they among other problems had a completely failed auction on auctioning off jgbs. it seems to me there are a lot of potential problems. i wonder if you could first confirm that for a layman, are we talking about negative interest rates? we're talking about savers having to taiv save a bank to take their money on a deposit. isn't that equivalent to a tax on savings and could you comment on these other problems? >> so in the european countries that have taken rates to negative territory, weli will say i was surprised that it was possible to move rates as negative as some countries have done. i think we have not in those
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countries seen actual fees levied on depositors. i may be wrong about, there may be some experiences there that i'm not aware of, but i don't think there has been broad-based pass-through of negative rates to at least small depostors. but -- >> the banks resist that means their interest margins are crushed? >> their margins have been squeezed, low environment, interest rate environment, generally tends to push down that interest margins. now they adopted it because they were concerned act inflation rung very much below their objectives and wanted to stimulate the economy in order to achieve those objectives. so there were reasons that they adopted it. in our own context, when we considered this in 20 1k3w50er7b8g9sd impacts on money
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market functioning and didn't really think it would be possible to bring them to very negative levels and before with were to take a step like that, we would have to think through all of the institutional details and how they would work in the u.s. context. i think as a matter of due diligence and preparedness, these are things we need to work through but we don't know if payments and clearing and settlement systems in our context would be able easily handle negative rates. so, as a follow up, platform, i'll be finished, isn't it also true there is an internal memo from august 2010 raises doubts whether the fed has the legal authority to impose negative interest rates?
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>> so there is a memo from 2010. what it said is the legal issues haven't been studied. it was a memo that discussed market functioning and economic issues connected with it and the liam issues had not been vetted. i am not aware of any legal restriction that would mean that we could not establish negative rates. but i will say that we have not looked carefully at the legal side of this. >> i'd like to submit that memo to the record,, and quote very previously from, thank you, mr. chairman, among other things, the memo does say, i quote, there are several potentially substantial legal and practical constraints and another part of the letter, it says, and i quote, it is not at all clear the federal reserve act permits negative ioer rates.
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so, obviously, there was a question in somebody's mind. >> it had not been seriously studied and at this point i'm not aware of a legal constraint, but again, this, we have not, we have not run that through a careful analysis. >> thank you very much. >> thank you, mr. chairman. janet yellen, thank you for your service as we kind of go back and forth about effects of monetary policy or not and i share some of senator toomey's concerns about negative interest rates. i will little tongue in cheek make mention of one of your comments applied earlier to senator menendez, which i think will have 100% approval on this panel where you said more jobs are good for the economy. how we get those more jobs is some question. we can debate monetary policy or
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not. ur7 talking about productivity. i share your views on productivity. productivity gains are often driven by knowledge and skills and i think one of the things that we've talked about before but unfortunately this congress has not fully addressed is the rising challenge around student debt now at 1.3 trillion and rising greater than the credit card debt and the rippling effect that has across our whole economy. not just to those individual students or recent graduates and their families but i'd like you to comment upon that kind of wage box you are caught in not with rents, student debts, not enough rising wages and the effect that has beth on start-ups as someone we all know, 80% of our jobs are created by startups the last 30 years, start-up entrepreneurs numbers are down, a lot we believe due to student debt.
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first time home buyers are down often times to student debt. i know you and regulatory entities looked at this, i'd like you to comment on the effect if we continue to have this number grow and don't take a more comprehensive apro etch to student debt what that kind of drag that will be on the economy. again, echoing your comments that more jobs are better for the economy driving down that student debt i believe would lead to further growth in the housing market and further growth in entrepreneurial activities. >> so on the one hand, taking on that student debt to the extent it's successful in building skills that put people in higher wage jobs and qualify them for better work is really critic ale to their getting ahead. you know, on the other hand, there is a lot to worry about with student debt with people attending colleges or gaining
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education where they don't finish the reward isn't there to meet that major concern is that people may not be well informed about the benefits are of what they're taking on. and if an individual finds themselves in difficult financial straits for any reason, that because that debt is not dischargeable if bankruptcy can be a very severe burden that really holds people back. in terms of studies, there has been, it would appear, a decline in new business formation. i have not seen anything myself. but i might not be aware of studies that living it to student debt. i haven't seen that. it's certainly possible. i am not aware of that. i mean, with respect to housing, some economists say the fed tried to look at that and others
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have and i think the results are mixed. it isn't, it is not clear that stiemp students debt is a major factor responsible for inable to buy homes or get ahead in the housing market. although i understand it's quite logical they have a heavy student burden would make it. >> i would note that home build, across all sectors are indicating particularly the weakest part of the housing market is first time home buyers oftentimes people who because their lives are burdened with student debt don't make those investments. i think i would urge my colleagues, there are comprehensive approaches that senator warren and others suggested in terms of total refinancing. even there are other steps that can be taken, whether it is better transparency and we all know higher education may be the
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most expensive item you purchase, better transparency of outcomes, clearly the problem of not finishing is a huge issue. >> that income based payment. the interest rates made some movement there. there are more. there is low hanging fruit. businesses already can provide ongoing education to employees on a pre-tax basis. i scratch my head, bipartisan legislation would say if you go ahead and continue on a bring-tax basis, why shouldn't an employer be able to in concert with an employee to use pre-tax dollars to pay down student debt on both side of the balance sheet. good for attention. good, of course, for the employees as well. i won't go ahead and take the additional three, four minutes, most of my cliques had on the time line in respect to my other colleagues, i would like to submit for the record a couple questions about what happens as
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we draw down this surplus account. obviously, the fed kicked in $5 spine billion over the last six years as you wind down that portfolio. we could see those obviously those dollars go down. i know you share some of the concerns as we unwind that $4 trillion balance sheet. how much cushion does the central banking system need particularly when congress most recently rated a part of that cushion. i would rate that for the record. thank you, mr. chairman. >> senator cotton. >> senior warince senator war y graciously gave back his eight or nine minutes. i'll try to be brief. maddal chair, welcome back. throughout much of history the federal reserve has raised interest rates when economic growth is strong and accompanying inflation is growing. hence, the cliche the federal reserve takes the punch party
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away when it's getting going. if december, we have economic growth and inflation was below the stated target. the open market committee raised interest rates. can you explain why this historical anomaly occurred? >> well, our focus is on the labor market and the path that it is on. and the fact that economic growth has been very slow. and this has been true for quite some time and yet the lo bar market is made more or less continuous improvements is a reflection of slow pace of productivity growth i would say. so we saw a labor market that where jobs were being created at the pace of around 225,000 of so a month. the unemployment rate had fell
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to very close to levels we would regard as sustainable in the longer run. although, in my view, there remains slack. there did and still remains some slack in the labor market. monetary policy was highly accommodative. the funds rate had been at zero for seven years and we had a large balance sheet. so we were not talking about moving to a restrictive stance of policy simply diminishing accommodation by a modest amount. and while inflation was running lower 2% objective. the committee judged the transitory factors, particularly, energy prices and the appreciation of the dollar were placing down significant downward pressure that that would eb over time and as the labor market continued to improve, that inflation would move back up to 2%.
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we want to make sure given the lags in monetary policy that we don't wait so long to begin the process of modest adjustments in the fed funds rate that we end up significantly overshooting beth of our objectives and allowing inflation to rise to the point where we would have to tighten policy in a more precipitous manner which could potentially place ongoing sustainable economic growth and improvement in the labor market in jeopardy. so we wanted to be able to move in a very gradual way and to make sure that the economy remained on a sustainable course of improvement. >> thank you. you used the term there, transitory factors. you also cite on page 5 of your
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testimony. you say, it was attributable to transitory factors likely to abate over time without specifying in a written testimony, you cited energy prices and appreciate racing of the dollar, are there other transitory factors? >> those are the main ones. of course, energy prices have continued to move down. >> yes, so now two months on, do you still expect energy prices and the appreciation of the dollar will halt or turn and on tear current trajectory? >> so you know energy prices have continued to move down. i feel eventually they will stop moving down and stabilize. factually when that will be, when that happens, when that eventually happens and the dollar stabilizes, inflation will begin to move up. it's hard to predict exactly
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when that will be and there can be and have been surprises. >> thank you. i want to turn to wages, several members of this committee expressed their concern about stagnant wages, especially for working class men and women in this country. i share that concern as do apparently many people in the audience judging by their tee shirts. what i haven't touched upon is immigration. legal immigration. we are now at record high levels of foreign important residents in this country. something like one-seventh of all american residents were born in a foreign country. do you think that level of mass immigration put pressure on the pages of working men and women in this country. native born americans? >> i'm not aware of that suggests. >> as the senate banking committee continues its question and answer session with fed chair janet yellen. the dow currently down 392
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points. boeing is responsible for a large part of. that cisco the only positive indicator on the dow at this moment. the s&p for its part is also sliding at this hour. it's been down all morning since the open. it is currently down 38 points from more than 2% t. in fact down as well. we will bring you back to capitol hill t. senate banking committee. fed chair janet yellen and senator elizabeth warren. >> and the fed has plenty of opportunities to hear from giant banks. it's good to hear from real people and get that reminder. thank you. >> i want to go back to another question here. as you know, dodd-frank requires financial institutions to submit living wills. these are the documents that describe how these banks could be liquidated in a rapid and orderly fashion in bankruptcy without bringing down the economy or meeting a taxpayer bailout. if the fed and fdic find those
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living wills are not credible, the agencies can take steps to reduce the risks posed by these banks by imposing higher capital standard, by lower, leverage ratios or breaking up the banks by forcing them to sell off assets. a year-and-a-half ago in august of 2014 the fed and fdic identified several problems with the living wills submitted by 11 of the biggest banks in this country. the fdic found that all 11 of those wills were not credible. while the fed agreed about the problems, but then refused to make any termination about whether the wills met the legal standard of credibility. the fed didn't say they were credible. the fed didn't say they weren't credible either. now that mattered a lot. because it's only a joint determination by the actions that has any legal force.
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the fed's refusal to call the plans not credible meant the agencies couldn't use statutory tools to push these risky banks in the right direction. so i want to start by looking back at that decision by the fed. the fdiv stands behind insured deposits. the main mission is to stop bank failures before they happen. so they won't be on the hook. of all the regulators, the fdic has the most expertise in liquidating fails banks. so if the fdic found the plans were not credible and the fed agreed with the fdic on the basic problems with each of these plans, why did the fed refuse to join the fdic and designate these plans as fought credible? >> well, looking back to the
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decision we made last year, we had set out in the guidance pertaining to these living wills that we expected to go through a few rounds of submissions to clarify it, it's a completely new process. we felt the banks feed to understand what expectations were in terms of what we wanted to see and we felt that we had not given sufficiently clear guidance to make the decision at that time. we worked very closely with the fdic. as you noted, we have given detailed goinsz to these first about what we want to see in the round of living wills. we are spending a great deal of time. we have had seven full board meetings. to discuss these living wills.
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we are working closely with the fdic in evaluating them. we did make clear the says if this round of living wills doesn't satisfactorily address the short comings we identified last year, we are prepared to make a finding that a living will is sufficient. >> let me go to where you are going here. the fdic already thought the plans were not credible for the largest financial institutions. in august, 2014 the fed and fdiv required those 11 firms to resubmit the living wills they identified. firms resubmitted last judgment as you say, it is my understanding you are just about finished reviews thoeg plans.
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once again, i want to underline only joint determinations by both the fdic and the fed will carry the force of law. can you say today you will work with the fdic do insure the agency's issue joint determine ability on the 11 recent wills submitted? >> we are working closely with them to evaluate these living wills. >> i assume you did that last time that you worked closely with him. i think that's what you said in your testimony. >> we did. we wrote joint letters to these first. we will certainly try to do that again to identify short comings the living wills have and further steps we want to see. it is up to each member of the board of governors and members
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of the fdic board too, we are charged at arriving at our own individual judgments as to whether or not these living wills are credible to resolution. i cannot guarantee you that we will arrive at identical conclusions, we certainly working with each, you know vested by congress into making a judgment based on the merits. >> if you can't insure the actions will determine joint determinations, which is how we get to the effect of the law. let me ask if you will make another commitment. will you at least commit if the fed finds a living will credible and the fdic does not find a living will credible, that the fed will insure a written public
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explanation for why it is reaching a different conclusion? it seems like that is the least the fed can the to help the public to understand its position. >> well, my expectation is that we will release the letters that we send to the firms giving our evaluations. >> so you will be explain figure there is a difference between the fed and the fdi:. you will be issuing a written statement about why the fed decided something was credible that the fdic dpoupd was not credible? >> well, i want to be careful exactly what i say about this. >> go ahead. >> we expect to send letters, hopefully, they will be joint letters. hopefully, we will be able to agree on what the short comings are of the living wills and what
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further we, if we find, if either agency finds they're not credible. we need to identify specific deficiencies and my strong hope and expectation is that we will arrive at joint agreement with the fdic on those deficiencies and release letters that explain what we find them to be. there i very much hope that the fed and the fdic are on the same page. that's the only way we get the impact of this law. you know, living wills are one of the primary tooles that congress gave to regulators to make sure the taxpayers will not be on the hook if another giants bank fales and it is critical that the fed use this authority like the fdic has been willing to do to make our financial systems safer. thank you. >> i adry with you on that. we have been working with them all along through our
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supervisorsry process as well, which is separate, but we're also emphasizing recovery planning and resolution to our supervision. >> thank you. >> thank you, mr. chairman. >> senator rounds. >> thank you, mr. chairman. and welcome. i suspect now that you have had more than 60 different individuals asking questions, most of them have been asked. in looking at today's trnlgs i think a lot of the attention was paid on negative interest rates. i noted there were a couple items i suspect that you shared that you indicated while you would be looking at negative rates, the analysis is not yet done and it is not off the table. but you've also indicated the variations in short-term interest rates is one of the key tools you have. would it be fair, though, today as you answer these questions, that the current discussion and
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the current focus is not so much on reducing the interest rates that we have in effect today but rather whether they should remain stable or move up? >> yes. we have felt, we certainly felt in december when we made our decision to raise rates that the economy, was recovering. >> that inflation was move up and it would likely appropriate to gradually, gradually, continue do raise rates, not to kout them. are, we will, a lot has happened since then. as i've indicated, global, economic and financial developments impinge on the outlook. we're in the process of evaluating how those developments should affect our outlook or our assessment of the balance of risks.
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we will meet in march and provide a new set of projections that will sort of update markets on the thinking on the outlook and the riskings, but it's not thought that a downtown sufficient to cause the next move to be a cut was a likely possibility. so and we've not yet soon i would say a shift in the economic outlook that's sufficient to make that highly likely, but if saying that, i also want to make clear that policies not on a pre set course and a far perception of the risk and outlook changes in a manner that did make that aploept proept, certainly, that's
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something the committee would have to take into account in order to meet its objectives. it's not what i think is the most likely scenario. >> very good. let me change focus a bit and move into basically the regulatory side of the responsibilities, which carry but when the federal reserve writes its rules. i think it's important for the board to do a cost benefit analysis before it creates red tape or negotiates international agreements, like insurance capital standard. we talked about the fact there is a reg thattory impact on productivity and the one thing that on our side of the day, we talk about this is what we can do, most certainly to provide opportunity for productivity to increase within our economy. there are some areas in which you do sister on the regulatory side as well. with regard to international agreements, specifically on insurance capital standard.
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is the fed currently working on any cost benefit analysis related to the insurance industry, either in the context of regulation or for international agreements. >> so we are very carefully considering what capital standard we should impose on the designated firms that we need to create standards for or "snl" holding companies primary focused. >> will you do a cost analysis to those rules? >> you know, what we arage charged with putting in place appropriate standards to mount gait systemic risk in the event that one of those firms were to fail to make it operate in this safer and tound sounder way and
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that is our charge. we will put rules out for comment. we will consider regulatory burden and we will, you know, consider various ways of designing rules and which might be the least burdensome. and. >> kwoumd that mean that you would consider then a cost analysis and the burden that these may place on the individual entities that you are regulating in. >> well, we will certainly put out notice of proposed rule-making and consider comments on it, including those that pertain to costs. >> so the answer is, is that i'd rather not answer the question on whether or not there is a cost benefit analysis included? >> i will not commit to a cost benefit analysis. >> with regard to up with of the major concerns about the current
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insurance siffys designation process is there is no real connection with banks to determine systemic risc. because iunchartered waters with regard to adding insurance companies in with the bank and considering them. i'm concerned we may not have the reliable data to compare banks to insurance companies in this regard. what is the federal reserve to compare the systemic risks. has there been an analysis. >> in the case of each of those designation, a very detailed analysis was done asking what would be the systemic consequences of the failure of that organize. in the case of the insurance companies that were designated,
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metlife, prudential and aig, it was determined and judged with very careful work done that the failure of those organizations would potentially have systemic consequences that needed to be addressed. >> are those publicly available analysis? >> they're on the website. you can find the analysis and they don't include confidential firm information. the firm themselves were provided with greater detail than what's on the website, but there is detailed information. >> thank you. >> thank you, mr. chairman. yesterday was a really bad day for my home state of indiana. we had over 2100 workers who were given pink slips yesterday. they lost their jobs at a company that had been in indiana
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since the early 1950s. carriers indianapolis plant will be closing. both party of united technologies over 2100 jobs. all of those jobs are being shipped to mexico. last year carrier had 58 billion in sales and $6.1 billion in earnings. we have 2100 people who have lost their jobs because appar t apparently $6.1 billion in earnings is not enough. the promise of america has always been you work hard, you do your job. you help your company be profitable.
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you hope to have a decent retireme retirement, get a fishing boat and see your kids go to school. how do we tell workers who put their whole heart and soul into a company and provided them with over $6.1 billion in sales that that's not enough. the reason folks are here is because there's always been a promise, if you work hard, that the company in return will stand up and do right by you. how is doing right having $6.1 billion in earnings and shipping 2100 indiana jobs off to mexico when we also, in indiana, have been said you have one of the best business climates in america. these same folks said if we put in tax extenders, things like
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bonus depreciation. xm bank. i helped them because they said it will help american jobs stay in america. how do you provide the confidence to these workers and others that this compact even exist anymore? >> a great deal has changed in the job market in many families during the downturn, particularly, but on a longer term basis of faced the kind of miserable situation that you have described of losing a job that they held for the better part of their career and expected would provide them secure retirement and this is a miserable and burdensome situation that many have to
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face. for our part, what we are trying to do and have tried to do is make sure there are enough jobs overall in the economy that those workers can find another job and we know -- >> i understand. i'm asking you and maybe this as a fed chair, why should they have to find another job when they produced over $6.1 billion in earnings for a company that's doing extraordinarily well, but it's still not enough. we're going to ship your jobs to mexico because you created huge profits for us. you created incredible success. you created the opportunity for the company to grow and our share holders to do really, really well, but we just don't have room for you as the worker anymore. >> you know that many firms make
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that decision that moving -- >> janet yellen addressing the conundrum of cost cuts. we hit it and started to bounce from there. it's the best quarterly rise for gold in 30 years. let's get back to the fed chair. >> sorry. you made a ton of dough for us. we're moving to mexico. if they did, i don't know what we would have done. now we're facing the same thing in the steel industry as well. you probably heard there's questions about the ongoing viability of a number of american steel companies. a big part is currency manipulation, illegal dumping. all of these kinds of things.
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as we look at this, i know the treasury department monitors currency manipulation. as head of the fed, are you concerned that the united states tries to play by the rules while other countries dump steel here, dump other products, manipulate currency and we seem to be unable to provide our company who is are doing this with the level playing field. >> u.s. policy makers, the treasury as primary responsibility for exchange rate policy but they've made clear in the g-7 has made very clear the currency manipulation to attempt to gain vant for a countries products and global markets and to shift the playing field through currency manipulation is unacceptable policy.
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i know the treasury department is vigilant about looking for and addressing currency manipulation. we all recognize that countries should be allowed to use tools of domestic policy like monetary policy to stimulate demand in situations where inflation is running well below countriecoun. inflation objective were domestic spending, unemployment is high and domestic spending is weak. we have used monetary policy for this purpose. other countries have done the same. there is some impact of monetary policies on exchange rates. we recognize that, but it also works through other channels
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that tend to have shared benefits. >> as fed chair, i hope you keep in mind as you set rates and other things, the importance to our families of the chance to go to work. i feel very burned today after having fought so hard for the xm bank that some of the very same folk who is told me it was critical for jobs in the united states to be there when they needed something and to walk away now. thank you. >> thank you. thanks for holding this hearing. i want to thank the chairwoman for being here and taking the time. i want to raise some questions about how the fed communicate with the general public. their policies and how you communicate thoeds. let me give you an example here.
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they say that interest rate will be increased and the increases were coming and the market reacted to it. then there were others like the head of chicago fed calling for rates to stay near zero and the markets reacted to it. we had some officials implying that any rates would be data driven. even today we seem to have a flu person giving their thoughts about future rates. i don't have a problem with broad questions and variety of viewpoints and coming from fed members but what it's causing is confuse and instability in the markets today every time someone has something to say. feel like they got to walk in front of a mike and make a comment. my question to you is do you think there's a problem here and how the markets are reflecting every time up with of these fed


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