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tv   Federal Reserve Chair Janet Yellen Testimony on Monetary Policy  CSPAN  February 10, 2016 10:00am-12:01pm EST

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when i took over at the beginning of the year we froze all price increases. >> have you returned price increases back to where they were before you raised them. that's the question. ile yield back. >> there is a vote on the floor. the committee will go into resesz with the intention of coming back to later than 3:15. the committee stands in recess until that time. we are live on capitol hill this morning with federal reserve chair janet yellen testifying before the house financial services committee
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chaired by texas republican jed henserling. committee members expected to ask about the fed's interest rate policies such as when the next rate hikes are coming and how many there will be. since the december rate hikes, stock markets have fallen and energy prices dropped while china and russia's economic problems continue. this is live on c-span3. should start in a moment.
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committee will come to order. the chair can declare a recess at any time. this is to receive the semiannual testimony of the chair of the board of governors of the fed reserve system and the state of the economy. i now recognize myself for three minutes for an opening statement. last month weal all heard president obama attempt to take an economic victory lap in his state of the union speech but the american people are having none of it. they are tired of hearing from
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out of touch ruling class in washington just how good things are when their realities are vastly different. so chair yellen, not with standing the fact that you are a presidential appointee. i hope you don't follow suit. the fed em barked on ze ro real interest rate policies and equal today ty easing family paychecks' and net worth has declined. approximately 1 in 6 is on food stamps and almost 15% live in poverty. there hasn't been a year when economic growth reached 3%. one published report on the failure noted there is no parallel for this since the end of world war ii. maybe not since the beginning of the repub welcome. last year less than 1% gdp growth punctuates the mat for
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struggling working families. i will not use this hearing to phrase or condemn the fed's decision to raise by 25 basis points interest rates in december. nor do i think it appropriate to advise the fomc on how to vote during the next meeting. given the article 1 section 8 of the constitution gives congress the power to coin money and regulate the value i feel compelled to demand that the fed adopt a monetary policy course that's predictable, transparent, sustainable and barring terribly ex-gent circumstances to stick with it. this is part of the rationale underlying the house-passed fed oversight reform and mode modernization act. it is fatal to believe the fed is capable of micro managing the economy to a state of economic nirva nirvana. we have eight years of history to prove otherwise oh.
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no amount of monetary policy can substitute for sound fiscal policy. unless and until the crushing regulatory onslaught of obamacare, dodd frank and the epa is replaced with greater opportunity, competition and inno vagin inno vags, the fed can't help the economy, only hurt it by continuing to serve as the financer and if ale sill today tor of the unsustainable federal debt. the congressional budget office again warned of unsustainable debt and the latest baseline release which references the debt 199 times. the fed can hurt the economy by continuing to force investors to chase yield inflating dangerous asset bubbles, the deflating of which we are likely seeing in our turbulent equity markets today. the fed can continue to hurt the economy by failing to unwind its unprecedented balance sheet. by growing at almost 500% the fed has become one of our
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largest sources of systemic ris . finally separate and apart from monetary policy the fed under dodd frank can now functionally control virtually every major corner with the financial services sector of the economy. not only does this harm economic growth it is nn affront to due process, checks and balances and the rule of law. the american people should be alarmed they could wake up to discover our central bankers have become our central planners. the chair recognizes the ranking member for three minutes for an opening statement. >> thank you, mr. chairman for this meeting here today. i would really like to thank chair yellen for being here with us today to discuss the state of the economy and the role in en suring that a full recovery is achieved for all. as a result of your efforts, the
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efforts of democrats in congress and the obama administration we have made tremendous progress since the darkest days of the financial crisis. over the past consecutive months our economy added more than 14 million private sector jobs and the unemployment rate has fallen by more than half. despite this commendable progress, significant work remains. wages have yet to see real gains. 7.8 million workers remain jobless. 6 million are involuntarily working part-time jobs. another 2 million americans indicate they would join the work force if only the economy was strong enough to support them. with inflation consistently running below target i wonder if the path for further raising rates over the course of 2016 may over emphasize concerns about inflation and under estimate the weakness in the
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labor market. i look forward to your comments on the issue. absent a full recovery, i fear further raising rates may be a step that takes us further away from what's needed to ensure that the needsle of vulnerable populations are met. at today's hearing we hope to explore the ramifications of an exit strategy that relies heavily on paying private sector banks not to hold the funds they hold in reserve and discuss reasonable alternatives that do not involve a massive transfer of wealth from the federal reserve to private sector banks. i just wondered if it is possible for these funds to be used for workers who are really worried about whether or not they are going to have a pension or if there will be some social responsibility investment before the funds to help workers in vulnerable populations? finally, many of us have been
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very patient about the implementation of the living wills. this is a requirement in theed to frank act. it is te signed to end too big to fail. i know you have to give careful consideration tole all of this. after one, not two, but five submissions the federal reserve has yet to impose consequences for living wills that are not krenl credible. it's time we understand we have to get it right. they haven't done that. i look forward to hearing your views on the economy. a safe and sound financial system. i want you to know our audience today is made up of workers who really want to hear you talk
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about this. ile yield back the balance of my time. >> the chair recognizes the gentlem gentleman, mr. mulvaney. >> when i sat down last night to get ready it occurred i could ask you a bunch of things. i could ask your plans on interest rates and how you arrived at the decisions you are going to make, what you used to arrive at those decisions. i could ask about your role at the fed and regulating financial institutions, dodd frank has given you regulatory powers over banks, nonbanks, clearinghouses and thrift holding companies. it struck me i could ask you about the role of the fed and specifically the new york branch in the possibly misleading statements made to two congressional committees regarding the fed and treasury's role in intentionally withholding information from congress about plans to
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prioritize debt payments during the last government shut. then i realized it's too much. not just to ask you in the few minutes we have today. it's too much for you to be doing. the fed has, like so many other parts of the government, grown way beyond its original intended scope. when congress chartered the bank in 1913 we asked it to do one thing, keep the financial system and primarily currency stable. today the fed is involved in everything from how much purchasing power these people have to where they can bank, how they can invest and save and to believe some whether or not they have a job. maybe you shouldn't be involved in trying to get us to full employment, something your own economics of orthodoxy says you don't have the ability to do but only fiscal policy. maybe you shouldn't be doing mortgages and credit cards or be involved in political decisions to intentionally keep congress
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in the dark about how this country will pay back its principle and interest on the debt. i hope we get a chance to talk about sound money, dual mandate, regulations, the debt ceiling, the impacted zero rates of retirees, asset bubbles in the hopes at the end we discover the time has come to get back to basics and one thing only. that's long term price stability. >> the time has expired. the chair recognizes the gentle lady from wisconsin, ms. moore, for two minutes. ranking member of the monetary policy and trade subcommittee. >> thank you very much. welcome back, chair yellen. as you canal tell from the opening statements there is plenty to discuss since your last appearance before the committee. i supported your rate increase in december. i still do. i think you are providing a lot of credibilitile to markets with the leadership.
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these seem to be economic times that are destined to be interesting. since december we have witnessed a lot of global economic turle moil. now it is turning up in the u.s. and ises reflected in the stock market. banks are moving to ease rights as we are moving to tighten them. i'm not saying we need to harmonize the monetary policy but i'm interested in hearing how you and the fed are working to get in front of the trends. you have stated so many times on it is a limited tool. if we are going to put it on track and i look at the audie e audience, it causes me to realize if members of congress have to do their part, too. and not throw it in the lap of the fed. we have to embrace proven growth strategies like tackling poverty. especially among women by
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providing vocational training with a living wage. i would yield back the balance of my time. >> the gentle lady yields back. today we welcome the testimony of the honorable janet yellen. she's previously testified before the committee. i believe she needs no further introduction. without objection, chair yellen your written statement will be made part of the record. you are now recognized for five minutes to give an oral presentation of your testimony. thank you. >> thank you. chairman henser ddling and othe members of the committee i'm pleased to report the semiannual policy report to the congress. in my remarks today i will discuss the current economic situation and outlook before turning to monetary policy.
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since my appearance before this committee last july, the economy has made further progress toward the federal reserve's objective of maximum employment. while inflation is expected to remain low in the near term, in part because of further declines in energy prices, the federal open market committee expects that inflation will rise to its 2% objective over the medium term. in the labor market the number of payrolle jobs rose 2.7 million in 2015 and posted a further gain of $150,000 in january of this year. meanwhile the unemployment rate fell in january. a tenth of a percentage point
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above the level a year ago and in line with the median of fomc participants' most recentest mats of the longer run normal level. the decline in the last year in the number of individuals who want and are available to work but haven't actively searched recently and the number of people working part time would rather work full-time. these measures are above the levels seen prior to the recession suggesting that some slack in labor markets remain. while labor market conditions improved substantially there is room for further sustainable improvement. the strong gains in the job market last year were accompanied by a continued moderate expansion in economic
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activity. u.s. real fwrosz domestic product is estimated to have increased about one and three-quarters per event in 2015. over the course of the year subdued foreign growth in the appreciation of the dollar restrains net exports. to an annual rate of three-quarters percent. again, growth was held back by weak net exports as well as by a negative contribution from inventory investment. le while the private domestic final demand appears to have slowed in the fourth quarter. it has continued. aided in part by the declines in
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oil prices. one area of particular strength has been purchases of cars and light trucks. lower oil prices caused companies to slash jobs and sharply cut capital outlays. in most other sectors business investment rose over the second half of last year and home building activity has continued to move up unbalanced. although the level of new construction remains well below the longer run levels implied by democrat fwrafk trends. lt declines in longer term
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interest rates inle oil prices provide some offset. still, ongoing employment gains and faster wage growth should support global spending and global economic growthle should pick up over time supported by monetary policies abroad. against this backdrop the committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the coming years and labor market indicators will continue to strengthen. as is always the case, the economic outlook is uncertain. foreign economic development in particular although recent
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economic indicators do not suggest a sharp slow down in chinese growth, declines in the foreign exchange value have intensified uncertainty about china's exchange rate policy and the prospects for its economy. this uncertainty led to increase ed volatility in global financial markets. and against the backdrop of persiste persistent. these concerns along with strong supply conditions and high inventories contributed to the recent fall in the prices of oil and other commodities. in turn, low commodity prices could trigger financial stresses in commodity exporting economies particularly in vulnerable
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emerging market economies and commodity producing firms in many countries. should any of these down side risks materialize, foreign activity and demand for u.s. exports could weaken and financial market conditions could tighten further. of course economic growth could exceed our projections for a number of reasons. including the possibility that low oil prices will boost u.s. economic growth more than we expect. at present, the committee is closely monitoring global economic and financial developments as well as assessing their implications for the labor market and inflation and the balance of risk of the outlook. as i noted earlier, infliegs continues to run below the committee's 2% objectivity. overall consumers prices as measured by the price index for personal consumption
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expenditures increased just a half percent over 12 months of 2015. to a large extent the pace of inflation last year can be traced to steep declines in oil prices and in the prices of other imported goods. fut declines in the price of oil and other commodities as well as the further appreciation of the dollar, the committee expects inflation to remain low in the near term. however, once oil and import prices stop falling the downward pressure on domestic inflation from those sources should wane and inflation is expected to rise gradually to 2% over the medium term. in light of the current shortfall of inflation from 2%, the committee is carefully monitoring actual and expected
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progress toward the inflation goal. of course, inflation expectations play an important role in the inflation process. the committee's confidence in the inflation outlook depends importantly on the degree to which longer run inflation expectations remain anchored. it is worth noting in this regard that market-based measures of inflation compensation moved down to historically low levels. overall however they have been reasonably stable. turning to monetary policy, the fomc conducts policy to promote maximum employment and price
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stability as required by the statutory mandate from the congress. last march the committee stated that it would be appropriate to raise the target range for the federal funds rate when it had seen further improvement in the labor market and was reasonably confident that inflation would move back to its 2% objective over the medium term. in december, the committee judged that these two criteria had been satisfied. and decided to raise the target range for the federal funds rate one-quarter percentage point to between one-quarter and one-half percent. this increase marked the end of the seven-year period during which the federal funds rate was held near zero. the committee didn't adjust the target range in january. the decision in december to raise the federal funds rate reflected the committee's assessment that even after a
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modest reduction in policy accommodation economic activity would continue to expand at a moderate pace. labor market indicators would continue to strengthen. although inflation was running below the committee's longer run objective the fomc judged that much of the softness in inflation was attributable to transitory factors likely to abate over time and the slack in labor and product markets would help move inflation toward 2%. in addition the committee recognized it takes time for monetary policy actions to affect economic conditions. if the fomc delayed the start of policy normalization for too long it might have to tighten policile relatively abruptly in the future to keep the economy from overheating and inflation fr
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from. this could push the economy into recession. even after the increase the stance of policy is accommodative. the fomc thinks there will be gradual increase s in the federal funds rate. in addition, the committee expects that the federal funds rate is likely to remain for some time below the levels that are expected to prevail in the longer run. this expectation is consistent with the view that the neutral, nominal, federal funds rate defined as the value of the federal funds rate it would be neither expansion their, nor n constractionary is low by historical standards and will rise only gradually over time. the low level of the neutral
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federal funds rate may be partly attributable to a range of persistent economic head winds such as limited access to credit for some borrowers, weak growth abroad and the significant appreciation of the dollar that weighed on ago fwrat demand. of course monetary policy is by no means on a preset course. the path of the federal funds rate will depend on what incoming data tell us about the outlook and we'll reassess what level of the federal funds rate is consistent with achieving and maintaining maximum employment and 2% inflation. we'll take into account a wide range of information including measures of labor market conditions, indicators of inflation pressures and inflation expectations and readings on financial and
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international development. in particular, stronger growth or a more rapid increase than the committee currently anticipates would suggest the neutral federal funds rate is rising more quickly an expected making it appropriate to raise the federal funds rate more quickly as well. conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. we are committed to our duel objectives and we will adjust policy as appropriate to foster financial conditions consistent with their attainment over time. consistent with the previous communications, the federal reserve used interest on excess reserves and overnight reversed repurchase operations to move the federal funds rate into the new target range. the adjustment to the ioer rate has been particularly important in raising the federal funds
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rate and short terms interest rates more generally in an environment of abundant bank reserves. meanwhile, overnight rr operations complement the rate by establishing a soft floor on money market interest rates. the ioer rate and the overnight rrp operations allowed the fomc to control the federal funds rate effectively without having to first shrink the balance sheet selling a large part of the holdings of longer term securities. they judged removing accommodation by raising short term interest rates is preferable to selling longer term assets because such sales could be difficult to calibrate and couldn't generate un expect expected financial market
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reactions. the committee is continuing the policy of reinvesting proceeds from maturing treasury securities and principle payments from agency debt and mortgage backed securities. as highlighted in the december statement, the fomc anticipates continuing the policy until normalization of the level of the federal funds rate is well under way. maintaining holdings of longer term securities should maintain accommodative financial conditions and reduce the risk that we might need to return the federal funds rate target to the-effective lower bound in response to adverse shocks. thank you. i will be pleased to take your questions. >> the chair recognizes himself for five minutes for questions. i know you are familiar with the federal oversight reform and mo zern dernzation act passed by the house in november. it's designed to bring about
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greater transparency and accountability at the fed. we expect the fed's independence, but to ensure that the fed lets us know variables used in monetary policy and the reacti reaction function so families can plan their family economies. i know you are not a fan of the formac because i have a letter dated november 16 you said to the speaker. in that letter you call the act a grave mistake. i have another letter that tribes it as an important reform. your letter mentions or complains that monetary policy would be forced to be strictly adhered to by the prescriptions of a simple rule. my letter says the legislation doesn't chain the fed to any rule and certainly not a mechanicallele rule. your letter says the act would
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under mine the independence of the fed. my letter says in no way would the legislation compromise the fed's independence. on the contrary publically reporting a strategy helps prevent policy makers from bend ing under pressure and sacrificing independence. your letter states the formac would damage the economy rate to become law. my letter says the new legislation would improve economic performance. your letter is signed by you. my letter is signed by dr. lars hansen of the university of chicago nobel laureate in economics. it's also signed by robert lucas, university of chicago, nobel laureate in economics. ed ward prescott, arizona state university, nobel laureate in economics. georgele schultz, former
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secretary of the treasury. robert heller, formerle federal reserve governor. jerry jordan, former president of the cleveland federal reserve bank. william pull, former president of the st. louis federal reserve bank. former member of the council of economic advisers. michael boskin, stanford university, former chairman of the president's council of economic advisers. charles kalamaris, former consultant, federal reserve board of governors. marvin goodfriend, former research director for the federal reserve board of richmond, alan metzer, carnegie melon and john taylor of stanford university, former under it is secretary of the treasury, member of the council of economic advisers. there are about 15 other signatories to the letter. chair yellen, we have three
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nobel prize winners in economics, a host of former federal reserve officials, some of the most renowned and respected economists in the country pretty much disagree with everything that you asserted in your three-page missive against the act. i know you're not a fan but i would caution you that when you use such apocalyptic and hyperbolic language you might consider whether or not this undercuts your credibility as fed chair. i have one question on your testimony characterizing the fed strategy to increase policy rates you testified, quote, removing monetary accommodation by the traditional approach is preferable to shrinking the fed's balance sheet which now holds almost in much as treasury
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as china and japan do combined. i'm trying to figure out what's traditional about this current approach where the fed and the ranking member brought it up in her open ing statement. subsidizes the deposit rates for some of the biggest banks in our country which can distort as you know le real asset accommodation. it's about 40 basis points. excess reserves would be above the market rate. this doesn't involve a subsidy to the banks. it appears to be a subsidy and it appears to distort real asset allocation. what's traditional about this approach? >> the tools used to raise the
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target for short-term interest rates namely the key tool being interest on reserves is widely used by central banks. it is a critical tool that we need to rely on in order to adjust the level of short-term rates to what we regard as the appropriate stance to achieve congressionally mandated goals. i would point out that although we are paying interest to banks on reserves, those reserves are financing our holdings, a large portal folio of holdings, longer term treshy securities or mortgage backed securities on which we earn substantially greater interest. because of the large balance sheet this past year the fed
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transferred back to the american taxpayers. >> it is necessary for us to raise benchmark rates in order for ale whole host of short-term -- >> that would apply a subsidy. my time is long since expired t. chair recognize it is ranking member for five minutes. >> as you continue to embark on the path of raising rates i want to explore the alternative approaches that may exist for the federal reserve to do so in a manner that doesn't rely so heavily on paying massive sums to private sector banks to hold
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onto the reserves at the fed. while the fed paid close to $7 billion on reserves in 2015 as the economy strengthens and rates are further increased the amounts paid would increase dramatically into the tens of billions of dollars. can you expand on why you believe paying interest on excess reserves is particularly i want to hear more about that. i want to hear more about what you have the authority to do. >> prior to the financial crisis, the fed adjusted the level of short-term interest rates through small variations in this supply of reserves to the banking system.
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following the financial crisis is the balance sheet expanded reserves became abundant and the traditional old-fashioned approach was no longer feasible. congress debated the wisdom of giving us the tool of paying interest on reserves for many years. and decided to do so in 2006. and then speeded up the imple men tags in two2008. the knowledge we had the tool and could use it when we deemed it appropriate to begin to raise the short-term level of interest rates as we did in december, the knowledge that the tool was available as i just mentioned the tool that is in control of short-term rates and widely used globally. that was an important fact when
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we considered all of the actions that we took the unconventional actions that we took to. we would not be able to easily raise the level of short-term rates. >> if i may interrupt for a moment. are you saying you are limited only to that action or do you have the authority to make some other decisions relative to what the interest that you are paying to big banks. you have some flexibilitile here? >> we would likely to regain effective control of short-term interest rates, need to shrink our portfolio from the current large level back to the crisis.
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on adjusting short-term interest rates i believe if we were to follow the plan of selling off long-term assets to the expansion. it is a strategy that i think could harm the economic recovery and it certainly is not what we have set out to the public we said we would shrink our balance sheet in a gradual and predictable way to not be disrupted. >> you're saying it was congress starting in 2006. they have to design the approach and congress could decide to take it away as an approach that
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you would use though you do not think it would be helpful. >> i think it would be disruptive to the economy and i really want to point out several things about this. first of all, although the banks are earn ing this interest on the excess reserves as the level of short-term rates rises. first of all, on theirle wholesale funding that many of the banks relie on, they are also paying more to gain the funding. eventually, this will be the mechanism that would lead as well to higher deposit rates to reward savers. finally, i really want to emphasize that from the taxpayer point of view the federal reserve has transferred since 2008 through 2015 roughly $615 billion back to congress to the
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taxpayers, to the treasury funds that have contributed importantly to financing the government and that has only been possible because we have a larger stock of reserves on our -- in the banking system and correspondingly hold a far larger stock of interest bearing assets that pay in larger amounts. prior to the crisis of typical level of transfers from the fed to the treasury. for the past two years we have transferred $100 billion a year. >> thank you very much. we need to talk about it more. i yield back the balance of my time. >> the chair recognize it is gentleman from pennsylvania, mr. mulvaney. >> quick follow-up on the
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chairman's question. you mentioned that using the ioer and the rop were traditional tools and other central banks used them before. have you ever used them? >> no. >> has the federal funds rate which i understand is trading around 30 basis points ever been below the ioer which is set at 50 basis points? >> has it ever been below? >> yes, ma'am. >> since we set the -- when we were first given the power to pay interest on reserves we set it at 25 basis points and the fed funds rate traded below it. when we raised it to 50 the fed funds rate moved up by 25 basis points, the amount of the increase in ioer but continues to trade below it. >> so the testimony is those additional tools you have in the
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past been a proponent of a rules-based system. back in 2012 you gave a speech where you said, quote, why shouldn't the fomc use it as a guide post. the answer is the times are not normal and the simple rules that perform well under ordinary circumstances now won't perform well. two years ago to this committee you said something similar. you said in response to a question about rules, the conditions facing the economy are extremely unusual. i have tried to argue that while a taylor rule or something like it is a sensible approach in normal times, it is not appropriate. that's your testimony in 2014. you gave a speech in 2012. here we are in 2016. by your own testimony you are using traditional tools of monetary policy.
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your written testimony begins by saying that the economy has made further progress towards the federal reserve's objective of maximum employment and say in inflation is low but it will rise. are we in normal times? >> the economy is in many ways close to normal in the sense that the unemployment rate is declined to levels that most of my colleagues believe are consistent with full employment in the longer run and inflation, while it is below 2%, i do think there is a good reason to think it will move up over time. in that sense, things are normal. what's not normal is the so-called neutral level of the federal funds rate i refered to
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in my testimony and we discuss in the report is by no means normal. in other words, we have needed for seven years to pull the federal funds rate in nominal and inflation in real terms -- inflation adjusted or real terms at exceptionally low levels to achieve growth averaging 2% or a little bit above. >> i'm sorry to interrupt. >> and the next it is not normal. the economy is held back by headwinds. i would point out that a te net of thele rule is that it takes -- it assumes and embodies in it an assumption that the equilibrium level of the fed funds rate with the 2% objective is 4%. or that the real equilibrium fed funds rate is 2%. that isn't the case. >> i'm not actually pushing the
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tailorle rule. i am asking about a general rule-based system because you have shown support for it in the past. my question is this. what does the world have to look like. employment is better. inflation seems to be under control. you say the fed funds rate is low which it is. that's something urn your control. what does the world have to look like in order for the federal reserve to start considering transitioning to a rule-based system. >> the benefit of a rule-based system is the systematic and understandable. the federal reserve has attempted to engage in the systematic policy. it takes a different form. >> what does it look like? when you come back next year what should the world look like to say you are considering a rules based system. >> the committee thinks, looks
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at guidelines from rules as useful benchmarks as it considers the appropriate stance of policy. but i believe and i think most of my colleagues would agree that we shouldn't mechanically follow that rule or any over but that we need to take into account a large set of indicators of how the economy is performing. >> time of the gentleman expired t. chair recognize it is gentle lady from wisconsin. ms. moore, ranking member of the policy and trade subcommittee. >> thank you so much, mr. chairman. welcome, chair yellen. i want to take us in a little different direction. many of us here on both sides of the aisle are really concerned about what's happening with the smaller banks. we understand that because of vasl-3 and we had a lot of concerns when we debated dodd
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frank including provisions like vulker and f-soc. they were driven by concerns of the large banks in active capital and i know that you're not the only, the fed is not the only regulator overseeing implementation of dodd-frank, but i would like your thoughts on how the rules may have been tailored or should have been tailored for small and community banks. the stress tests, the capital standards are killing our small banks. compliance. officers that where they don't have the additional staff. just your thoughts on what should have been done or how has it been tailored. >> well let me say that i think community banks and their vitality is exceptionally important. they provide enormous benefits to the country and to the economy. i recognize that the burden on
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community banks is intense. >> they're shutting down. >> regulatory burden. >> for our part, we're focused on doing everything that we conceivably can to minimize and reduce the burden on these banking organizations. we've been conducting an agripra review to identify potential burdens that our regulations impose on these banks. and we will do everything that we can to respond to the concerns that are identified there, to reduce burden. we're looking for many ways. first of all, we have tried to tailor our regulations to the size and complexity of these institutions. the smaller community banks are not subject to stress testing requirements. many aspects of basel 3, capital
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requirements and liquidity rules do not apply to those banking organizations. we've tried to simplify those requirements. we're in addition to that, trying to reduce the duration of the time that we spend reviewing banks during exams, we're trying to simplify and be more targeted in our requests for documentation. we try to identify for community bankers what is relevant to them and what they can safely ignore. and we're looking for ways to conduct exams that are more focused on the actual risks that are relevant to a particular organization. so i recognize that the burdens on those banks have been very intense and pledge that we are doing and will continue to do all we can to reduce burdens on
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them. >> thank you, madam chair. on this committee we spend a lot of time talking about moral hazard. and so i guess i would like your view on whether or not you think there's any moral hazard on not a single person involved in the 2008 crash, having gone to jail. they get fines, they get sort of compliance letters where they can clean up their act and avoid prosecution. and i'm wondering if you think that it's important for us to seek, you know, so what? you pay a fine, that is not, that doesn't stop anyone from doing the next crime. unlike other of our criminal laws. >> well i agree with you. i do not think that individuals who are guilty of wrongdoing
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should escape paying appropriate penalties. for our own part, we are not allowed obviously to put in place criminal penalties. that's a matter for the department of justice. for our part, we can when we find individuals to be responsible for wrongdoing, make sure that they're not allowed to work at the banking organizations where they committed misdeeds. and in many cases, we can make sure that they're banned from the business of banking. and when we've been able to identify individuals who are responsible, we have put in place those sanctions. and will continue to do so. and we always cooperate with the department of justice in their investigations. >> time of the gentlelady.
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the chair now recognizes the gentleman from north carolina, mr. mchenry, the vice chairman of the full committee. >> thank you. does the federal reserve have the legal authority to implement negative rates. >> i'm sorry, do we have the legal authority to --? >> implement negative rates. >> so, this is a matter that the federal open market committee considered around 2010. and we didn't fully as we were exploring our options to provide accommodation, we decided not to lower interest rates, either ioer into zero or into negative territory. and we didn't fully look at the legal issues around that.
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i would say that remains a question that we still would need to investigate more thoroughly. >> one of our document requests, the 2010 memo that i assume is connected to that policy discussion -- >> that's right. >> raised significant doubts about the fed's authority that they currently have, to charge, to pay interest on excessive, on excess reserves. and whether or not that same authority would allow you to demand payment for that. >> so congressman, i don't know of any restriction that would prevent us from doing that, that memo indicated, was intended to indicate that the legal issues had not been seriously considered. >> have they been seriously considered since 2010? >> well, in the spirit of prudent planning, we always try
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to look at what options we would have available to us, either if we need to tighten policy more rapidly than we expect, or the opposite, to loosen policy. so we would take a look at it. but the legal issues, i'm not prepared to tell you have been thoroughly examined at this point. >> so at this point it's unclear whether or not the fed has the legal authority to implement negative rates. >> i'm not aware of any, anything that would prevent us from doing it. but i'm saying that we have not fully investigated the legal issues. that would, that still needs to be done. >> so let's move to regulation. all right? significant part, you run the largest regulatory organization in the united states of america. perhaps in the globe. likely in the globe. and as such, you know i believe
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in the independence of the fed to make monetary policy. but as a regulator, congress should have significant oversight of your regulatory action, should they not? >> yes. >> and as such, as a matter of regulation, the chairman raised this question with you at last time you were here. about federal reserve regulators, bank examiners demanding to be a part of board of director meetings. at member banks. and you've exchanged multiple letters on this matter. we still hear that this is in fact taking place. would you pledge to this committee that you would direct your bank examiners and regional bank examiners to stop this practice? >> well i will look -- >> well you've already looked into it and you've exchanged letters and you gave the chairman the assurance last time, you're not awaur of it. i assume you're now aware of
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whether or not this staking place. are you not? >> i think there are occasional situations in which that occurs. >> do you believe that's appropriate? >> i'm not -- i'm not certain that it is inappropriate. i want to get back to you on that. >> well there was raised about six months ago by the chairman, you've exchanged multiple letters, i would like to have some greater assurance, this is not meant to be a gotcha. this is a well-worn question. and we're hearing, and in fact there's a press report that the fed directed one of your member banks to incorporate two additional members of their board of directors. and the fed directing a private enterprise to change their board of directors seems somewhat perplexing. do you believe that's appropriate authority for the fed? >> well i think it is appropriate as a matter of supervision -- >> to direct -- >> to insure that a board of
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directors of a financial company that we supervise, is appropriately constituted in fulfilling its corporate governance functions, that is a part of supervision. >> the time of the gentleman has expired. the chair recognizes the gentlelady from new york, miss maloney, ranking member of our capital markets subcommittee. >> chairman 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 immum. stakts have fallen over 9% since the beginning of the year and
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treasury yields have plunged 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've seen since the turn of the year relate to uncertainties regarding chinese exchange rate policy. there's uncertainties around the price of oil. we've not seen shifts in, that
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seem significant enough to have driven the sharp moves we've seen in markets. there would seem to be increased fears of recession risk, that is resulting in rises in risk premium. 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're in the process of assessing. and i want to make clear that monetary policy is not on a
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preset course. and so 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. >> given the turmoil in global markets, and the slowing u.s. economy, some loimts 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 downturn in the economy or a stubbornly low inflation. >> our commitment is to achieve our congressly mandated goals of
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maximum 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. so while there is always some risk of recession and i recognize and have just stated that global financial developments could produce a slowing in the economy. 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.
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but that said, monetary policy as i 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 our goals that congress has assigned to us. >> you said in december you were surprised how far oil prices had fallen and you expected inflation to increase once oil prices stabilized. since the fed's december meeting, oil prices have fallen even further. they're down about 25% since the december meeting. and they've 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
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all? >> we indicated in our 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 and 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
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inflation taking all the evidence we have at hand into account. but the time -- >> the time of the gentlelady has expired. the chair recognizes the gentleman from new jersey, mr. garrett, chairman of the capital markets subcommittee. >> i thank the chair. i would like to talk on emergency lending under 13.3. it was about a year and a half ago, senator elizabeth warren and myself and mr. capuano joined together and senator vitter as well, sent you a letter expressing our deep concern with what you were doing with regard to implementing the limiting language on dodd-frank at that time. you've come out now with a rule despite our admonition in questions in that letter, a rule that would basically allow the fed to drive a mack truck through the various loopholes in it. and also once again, as is typical with the fed, lacking in clarity and transparency.
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that being said, the fed is not always clear in what they want to do and neither are the regulators. for example, came up with the volcker rule and in the voeckler rule, the fed was not shy about elaborating on concepts in that statute. it went so far to adoesn't prohibitions and trading assets that were never intended by the statute and the fed and other regulators came one this part of the voeckler rule, came dealing with defining what the words o proprietary trading is. 800 pages for definitional clarity. compare that to what you did with under the limitations, that should be in place under dodd-frank of 13.3. 47 pages of definition and lack of clarity throughout it. >> so the first question is why in one area can you exact and
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precise and in precision when you're trying to limit what the private market is doing. but when congress tells you to put limitations on yourself, you lack the clarity and give it a broad brush? >> well i think we tried in the rule to be as clear as we possibly could. >> well let's take a look at that then. >> now let me give you an example. >> the fed claims that it establishes a penalty rate under 13.3. you fail to provide any specifics what so much what that rate would be. claire that to what congress did. this committee passed a bill. would establish a penalty rate that would be commensurate with quote a distressed borrower. so why wouldn't the fed be clear on this? what is you know what are the rates going to be? >> because what a penalty rate is depends on the specifics of a particular situation. a penalty rate is a rate that when conditions normalize --
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>> we know what a distressed borrower 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 markets would be charged the same if they're borrowing from the fed? >> well -- or related to it? >> well 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 -- >> i understand what the history of the market was at that time. but you could have provided clarity here. so basically you're telling us that the fed is going to be in the position of picking winners and losers. by your prior answer it seems like you could charge borrower a one rate and borrower b a different rate under similar
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circumstances, is that not correct? >> it depends on the circumstances, financial crises when we would be using this authority to set up a broad-based program are always very unique. and -- >> i think that's basically what you're telling us is that nothing really has changed despite the admonition and the law in dodd-frank to put a limitation and it's not just me saying that, by the way. it's interesting while you're here testifying today, governor fisher is also making public statements as you speak. and we discussed part of his statement. he seems to be saying exactly what you are, that you have not limited 13.3. he said put in simple language, strengthening fire regulation does not imply that the fire brigade should be disbanded. he goes on to say we're not seeing the limitations that you're going to be able to do the similar things you did back in, or that before you were here, that the fed did the last time around. >> i want to make clear that i think our 13.3 powers and alkts
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to lend, to keep credit flowing 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 really, my interpretation, he says that nothing has really change, your powers are the same? >> no, a lot has changed. congress put a in place a series of restrictions -- >> but your rule does not implement that, does it? >> yes, it does. our rule does implement those restrictions, we 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. it also gave -- >> governor fisher is saying we have likely reduced the probability that of lender of last resort. but we have not reduced that
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probability to zero. it appears that in his opinion. some of those problems remain. >> the time of the gentleman has expired. the chair recognizes the gentlelady from new york, ms. velasquez. >> chaunk, mr. 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 groups 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
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assessment about whether or not 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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now african-americans and hispanics at that time, back in 2007, had higher unemployment rates than the population as a whole. you know, 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 -- >> i understand that. >> you consider 8.8% unemployment rate among african-americans, today, too
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high? >> i do consider it too high. i think there are any number of reasons for that. and i think that the reasons for it are ones that congress should be considering. broadly in designing a wide range of policies. it it's, it is something that we want to see a strong labor market. we want to see continued progress. and we will put in place policy s that achieve that. 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 population. so that's not going to change. and the trend is downward. but it is also true that for certain subgroups in the population for example, prime age but less educated men, the trend downward has been particularly steep. and you know, there's a lot of economic research that tries to understand why men have their labor force participation is declined. and it wouldn't surprise me if wage trends are part of the
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reason for that. >> so my guess is they have, 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, i anticipate that wage growth will move up somewhat. and i do think that labor force participation is what 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 is at 4.9%. so i -- >> the time of the gentlelady has expired. the chair recognizes the gentleman from texas, mr. nogabower, chairman of our financial institutions subcommittee. >> thank you chair yellen for
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being here. part of your remarks were about the state of the economy and i think you're trying to paint a little bit rosier picture. and maybe there's a little bit of a rosier picture, but it's not a good picture. i'm looking at stats here, 16 million american citizens that are unemployed. the fact that 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 that have abandoned the job market. real disposable income is paltry annual rate at 1.2%. i mean, the real gdp is growing just under 2.2%. we've got more americans living in poverty than ever before. 46.7 million people. and we've got 45 million people on snap, i could read more and more. i think the issue that i've been thinking about this week is when
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you look at the original purpose, the fed was falling for and what the fed looks like today. think my good friend mr. mulvaney pointed this out. is that basically we've got a fed that's in charge of monetary policy. some other things have been added to it and then we've got the fed, the biggest and largest rergt regulator, regulates more financial institutions than any other in the world it reminds that he while y'all are working on one side of the fed to stabilize employment, keep inflation in check. on the other side of the fed you've got this huge regulatory structure. that has grown substantially. and continue 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 the statement
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that we have met the enemy and it is us. is it counter productive that you've got the fed working on one side to create jobs and a fed on the other side of the building is doing things that a lot of people think is killing jobs, micromanaging the financial markets. increasing the availability of capital which has stymied the ability of this economy to grow. is it self-defeating? >> i well 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,
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sounder, has more capital, higher quality 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 the word liquidity. i think a lot of people think some of the things that the fed has done and some of the regulations that have actually reduced liquidity in a number of markets. you and i have had a conversation about the fact that y'all have shown some concern about liquidity. i wanted to see if you knew that the european commission has initiated a review process. five years after instituting these additional regulations and capital requirements and piling on of regulation and 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 the additional
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regulations. the european commission has initiated review process, said time out here, let's go back and look, we know what we've asked these entities to do. we know what we've impounded them with. the question is how are the markets responding to this and how have basically it's a cost benefit analysis. of all of the policies that are 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 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 it on an ongoing basis. it's appropriate to see whether or not there are ways in which we can improve or simplify
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regulations. and we are in the process of doing that in some some very important areas. >> the time of the gentleman has expired. the chair recognizes the gentleman from california, mr. sherman. >> mr. chairman, i feel like i'm at a ballroom dance on the deck of the titanic. the faith of the american people in our government and institutions is at an all-time low. i've been sitting in this room of 20 years and the room has the feel that it had 20 years ago. except we don't have alan greenspan in front of us. government institutions work bet fer they listen to the american people. first because the american people will accept the decisions and second because we get better decisions. yesterday in a small state that is doing better than most of the country, two-thirds of the people went out in a very, i
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think a record-setting turn-out with inclement weather. to say they're mad as hell, particularly at the financial institutions that 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' 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 that we bail them out. and god forbid you will be
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again, if you allow these too big to fail institutions to continue to exist. and as they're too big to jail. as you point out, you may bar somebody from the banking world, gee whiz, 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 f-soc, 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 would pay if there wasn't a belief we would bail them out. so the too big to fail won't be allowed to fail as you point out. the doj won't put anybody in
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jail. the solution is use your power under f-soc to break them up. are you going to break up the too big to fail institutions? i've asked you that before, i'll ask you it again. i think i know the answer. >> well the answer i'll give you is that we are using our powers to make sure that a systemic atty important constitution could fail and it would not be, have systemic consequences for the country. we're 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're 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
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jail any more? >> i said i am in favor of going after individuals who are guilty of wrongdoing. >> with such penalties as barring them from the banking system. i want to move on -- >> i said those are the sanctions that the federal reserve can impose. >> i need to move on to another question. you're a governmental entity in some parts of the entity it's one bank, one vote. it's the only part of our constitutional system that puts governmental power in the hands, one bank, one vote. would you, are you going to use your considerable power to oppose legislative efforts to try to make the regional bank governors appointed exclusively by the president and to try to make the regional banks subject to the freedom of information act? >> congressman, think the current structure of the fed is something that congress decided 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's certainly something -- >> excuse me, madam chair. 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 gentleman from missouri, mr. lukameyer, chairman of our housing and insurance subcommittee. >> thank you, mr. chairman and welcome in madam chair. >> it's kind of interesting as discuss all the questions that have been asked you here with regards to your ability to micromanage the economy and as you make the decisions that the federal reserve to try and do
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something about unemployment. try to do something about the inflation rate. i look at some of the things and i'm just kind of stunned. let's start off first with what happenes if we've got a down term and you've only got $4 billion on your balance sheet. what levers are available to you to do something? >> the fed has an away of tools. >> which are? >> most importantly the path of the short-term interest rates. >> madam chair, they're already down to almost nothing. how is lowering the rates going to help when they're almost nothing right now. >> once of the ways that the market works is they form expectations about what the likely path of the fed funds rate will be over time. those expectations influence
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longer-term rates in the market. when the economy weakens 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. and -- >> forgive me for intruding, are you saying that this is a good time to reduce your balance sheet? >> we -- >> or interest rates, it would be a nice time to shift that are you intending to do that? >> we have indicated we want to make sure that 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 predictable 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're saying. there's not much room to go down. >> let's -- >> we'll have to see -- >> let me go into your decision-making process here. we have a labor market that continues to, the labor force participation rate continues to go down. and yet we had according to your report here, is the hourly rate of employees went up there should be more incentive for people to work. yet they're becoming less. and you use the demographics of
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our country to indicate that. so i'm concerned that if you look at the numbers, there's minimal ability of the way you explain the answer to miss velasquez a while ago of you guys to be able to manipulate this. the second thing is, i'm concerned, what other factors do you take into consideration when you look at rates? for instance, do you look at what the congress is proposing? do you look at the court decisions? we had there's been a big discussion about trying to stop the inversion, the ability of our companies to go overseas. and be able to take advantage of those tax rates, the decision is to cut corporate tax rates to bring those dollars home. do you ever think about those sorts of implications about whenever 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 cost of
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energy in this country. do you take those things into consideration when you make your rates? those will have significant impact on our economy. >> we tried to take into account in making our decisions, any factor that we regard is is important -- >> do you have in place right now some modeling with regards to the epa rule? >> not that i know of. >> do you in place any modeling with regards to potential tax cut for bringing dollars home? or for corporations? >> we routinely look at the stance of fiscal polecy -- >> 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 to evaluate -- >> you don't have one in place right now is what you just said? >> not to the best of my knowledge. >> the time of the gentleman has
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expired. the chair recognizes the gentleman from new york, mr. meeks. >> thank you, mr. chairman and welcome chairwoman yellen. >> i don't know, some of my colleagues may not have been here nine years ago, eight years ago. i got to tell you i feel better today than when i sat here eight or nine years ago. i feel much better today. i can remember what was taking place then and the panic that was going on. and the pressure that this government was under. and though we've not completely done what we need to do because we do need to let wages grow. we do need to make sure we create more jobs. the position that we're in today, would you agree is much stronger than the position we were in in 2007 and 2008? >> i believe it is. and i believe we've made a lot of progress, while recognizing at the same time there are many households that are suffering
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and that they're a lot of challenges that people face and structural -- >> i think it's important to acknowledge that. how far we've come. and then i would hope we would focus on what else needs to be done. we do need to make sure that especially those individuals victimized by the financial crises -- for example, if you look at areas in, 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, they lost their jobs, they need something so that they can get back. that's why you see this disparity that is very high right now so what my focus then is -- we had i guess because of what took place in the past, in 1977, we passed the community reinvestment act. the fed is in charge of cra and can enforce it.
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today, what we find still is that individuals in these, in communities that were deeply affected, there's no investment going in. there's no job creation there. there's no access to credit. they don't have, because of primarily the crisis. i was wondering what can and since the fed overseas 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 that the kind of investments are there to create jobs, to grow wages in communities that were 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 with banks cra performance very seriously. we have a whole variety of community development activities in programs that are 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 i leave yating distress in low and moderate income communities. >> one thing i think is important because i want to know, maybe you have the answers, to show where the banks are making these investments, in compliance with cra.
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because i have found that those numbers have surely sunk and when i look at access to capital in these communities, you have about 70 million people now who are under-banked or unbanked in these communities so cra could definitely help there. i would love to follow up with you to find out exactly where the enforcement, who is, in fact complying and giving. who is not. there's got to be some accountability therein. lastly, in the few seconds i have, the other thing that's important to look at in some of these communities, in the days well access to credit and absolutely key and essential. sometimes people's credits are looked at. there's alternative systems for example, you find people they pay their rent every day on time. not to be considered when reference to credit scoring models. they, is there other models that you're looking at with reference to how your credit scores are
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considered? that the fed could advocate. >> i'm not sure about credit scores, we'd be glad to get back to you on that. >> the time of the gentleman has expired. the chair recognizes the gentleman from wisconsin, mr. duffy, chairman of the oversight investigations committee. >> welcome chair yellen. i want to take a trip down memory lane. because i think there was some rewriting of what happened in the crisis. there's a lot of people who bought homes and for 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's a little bit of revisionist history, to say that fannie and freddie didn't have anything to do with the crisis. they allowed no low-doc loans. allowing folks to buy homes they couldn't afford. and in dodd-frank that was passed by my friends across the
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aisle, fannie and freddie weren't touched at all. fannie and freddie were the ones allowing folks in this room 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 the regulators, we've reempowered regulators. so no wonder that big banks after dodd-frank haven't gotten st. pauler. big banks have gotten bigger. and the small community banks that i'm sure service a lot of the folks in this room and service folks in my community, they're going away. big problem. >> i just had to get it off my chest. a lot of exciting things to that the about with you, chair yellen, as the chair of the oversite committee i have concerns about your willingness to comply with our requests. we sent a letter in the medley investigation and in our oversight of the fed asking you for information regarding communication. no compliance. we sent you a subpoena in may,
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you did not comply with that. we had partial compliance in, in october. we're now a year after my initial letter. i've asked you for excerpts of the fomc transcripts in regard to the discussion in regard to the internal investigation on medley. you have not provided those to me. is it your intent today to promise that i will have those, if not this afternoon, tomorrow? >> congressman, i discussed this matter with chairman hinterling and indicated we have some concern. why don't we talk about it right now. >> finding the transcripts? >> i said with providing transcripts, given their importance in monetary policy. >> and i received a note back from chairman hinterling last night, quite late, indicating your response to that. and we will consider it and get
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back to you as soon as -- >> i don't want you to consider it. i think the chairman would agree with me, that 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, wouldn't you agree? i will get back to you with the formal answer. >> if i'm not entitled to it, can you give me the privilege that you're going exert that's going to let me know why i'm not entitled to those documents? >> i said we received well after the close of business yesterday letter, explaining your reasoning and i -- i will need some time to discuss this matter with my staff. before i give you a final answer. >> i don't want -- listen -- i
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sent you a letter a year ago on february 5th, i had to send awe subpoena. you knew that i'm looking for these doumtsz, you knew i was going to ask you about this today. so if you're 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 moving, i would be sensitive to that. this is not monetary policy conversations, this is about the internal working of the fed. i'm not asking for all the transcripts, i'm 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 to a bank for information a year ago, and they say, let me review with my board. let me talk about it, but they never comply with your request for documents or information, what would the fed do? >> i think we have complied very fully with the requests that you've made. >> i'm asking what would you do if you made that kind of a
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request to a bank that 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 someone didn't comply with your request. and guess what, we're entitled to the documents. we expect to get them unless you exert a privilege and there's no privilege that you have. so i expect they'll come over, i yield back. >> time of the gentleman is for what purpose is the ranking member seeking recognition? >> is it appropriate to ask for unanimous consent for clarification on a point of information that was just given by the gentleman? >> does the lady have a parliamentary inquiry? >> the inquiry could be considered parliamentary, i understand the gentleman to say that they subpoenaed the feds and did not, it was ignored. is that what he meant? >> the gentlelady is not stating
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a parliamentary inquiry and as i think the ranking member knows, the time of the chair is limited, if other members wish to pursue that in their questioning. the chair now recognizes the gentleman from texas, enter hinajosa. >> thank you ranking member water force 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, the longest streak in our nation's history. resulting in an astounding 14 million private-sector jobs created. and an unemployment rate now extending below 5%. however, we continue to feel the
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hangover from the financial 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 and the federal reserve to act effectively to stimulate the economy. despite the market turmoil and economic uncertainty however, i'll note, i'll note that our nation's confidence in the
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safety and soundness of our financial system has not been shaken. sin deed we can contribute a much stronger and more resilient financial system in large part to the protections and improvements of 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've seen i agree with you, that we've made good progress in the labor market created a lot of jobs in the unemployment rates low. 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
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you have a lot of job growth, that means that productivity growth has been very disappointing. since the financial crisis and ultimately that determines 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 were setting out to become full contributing members of our work force and economic engine? >> i think the debt situation that faces this country over the longer-term is something that congress certainly needs to address. at this point the debt-to-gdp ratio looks like it should be sustainable at present level force a number of years. as the population ages, it will, this is evident from cbo projections, be on an
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unsustainable upward course. and this is something congress has known about for decades and it's important to address. >> it seems to me that while congress must do its part to it raise the minimum wage, expand the social security safety net and provide a more progressive tax code, what steps are you taking at the federal reserve to address the historic level of inequality in the united states? >> well, congressman, the main contribution that it 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 to make sure that the labor market is performing well, that we attain congress' maximum employment objective. i'm pleased with the progress we have made. but there's further to go.
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and we're committed to making sure that we stay on that course of further improvement in the labor market. and it won't right every -- every disadvantage that workers face, but it has resulted and will continue to result in broad-based gains for all groups in the work force. >> my time has run out, and i yield back. >> the time of the gentleman has expired. the chairman recognizes the gentleman from california. >> thank you. good to see you, thank you. the latest stress test skep ace that was published by the fed includes this skep air includes this scenario where the rate drops 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, it was announced specifically in the document that this skcenario dos not represent a forecast for the federal reserve. nonetheless, this timing is interesting, because it comes at a time when the european central bank and the bank of japan have both instituted these negative interest rate policies. so the question i was going to ask you -- let me make one other point. it may subject 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 the 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 table.
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and i remember those remarks were echoed in january by new york fed president bill budly -- bill dudly. 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 toolbox? and can we assume that the federal reserve would not include this scenario in a stress test if, in fact, it were not a potential future action? >> well, let me say that that was not what motivated the inclusion of this scenario in the stress test. we are in an environment whereas y you pointed out where a number of other european central banks, the bank of japan have gone to negative rates. through much of europe, interest
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rates and in japan are negative way at the yield curve. ze had periods of market stress where we see a flight into u.s. treasuries as a safe haven. and the scenario that we ask banks to look at is one in which treasury bill yields go negative. this is something that could potentially happen without the fed actually setting negative interest rates. it is something that could happen. and we have seen it 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 negative interest rates. so i just -- quick question on looking at the fed authority. you haven't -- you haven't taken
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a serious look at the fed authority until now while it was kicked around then and you do the scenario in the interest im. >> when we were looking to add accommodation to have a tool kit available, it's something we looked at. we got only to the point of thinking that it wasn't a preferred tool. 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 then really quickly -- >> in the spirit of prudent planning, it's 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
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potentially be 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 have not determined that. >> okay. well let me personally just say that i think that the central banks in japan and europe are trying to overcompensate 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 that reverse course on interest rates? >> i think it is certainly desirable and important for the long run stability and growth of
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this country to take the measures that you have suggested and evaluating the stance of fiscal policy, it is something that affects our monetary policy. >> thank you, chair yellen. >> the chair now recognizes the gentleman from georgia. >> thank you for coming. you know i have a lot of respect for you. >> thank you. >> but i very vehemently disagree with you when you say that you can't target unemployment. let me just say this. it is very important for everyone to know that you have an equal mission. part of that mission, one half 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
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that you have the same authority 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 are suffering from that because of the very laissez-faire attitude that the fed historically has dealt with just employment and unemployment all together. yeah, we can claw 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%.
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now, when you have this 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-american young men and african-american women in that same age group is 26%. so why is it that we -- 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 reason.
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we're not even a part of the conversation. so my whole point is that i 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 to 37. can you imagine if that was the 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, healthcare, construction, rebuilding the infrastructure, fa


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