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tv   Bloomberg Markets European Close  Bloomberg  February 11, 2020 11:00am-12:00pm EST

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we do is subject to gao audit. these are policy audits. it is not a financial audit. our business model is actually about a simple as that of a very small company. we are constantly audited. what this exemption does is prevents the gao from coming in and looking at and assessing individual monetary policy soffitns, which congress -- congress soffit to carve out. -- congress saw fit to carve out. i think it would be unwise to take a step back from that. i don't see any harm that it is doing. rep. posey: former chairpersons of the fed have indicated they did not want to be second-guessed in their decisions, that the public does not have a right to know. i find that illogical, quite frankly and that is why i ask
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you these questions. chair powell: we are very transparent. we publish minutes and transcripts. rep. posey: i know. we publish everything, but i think that the but exemption is overdue. the gentleman from missouri, mr. clayton, who is also the chair for the subcommittee on housing, community develop into, and insurance, is recognized for five minutes. rep. cline: thank you -- rep. rep. clayton: thank you for being here. people in my district are not maintaining the dial on a level, but some trying to make ends meet. as part of the demographics of wealth series, they examined the andection between race
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ethnicity on wealth accumulation. over the past quarter-century, it was the result of an analysis andata elected between 1989 2013. heads of households were interviewed over those years. hispanic and black wealth levels are about 90% lower than the median white wealth levels, yet median income levels of hispanics and blacks are only 40% lower. the larger racial wealth gap could be due to hispanics and blacks investing in low return asets like housing, as well borrowing at higher interest rates. hispanics and blacks could also
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feel less of a need to save for the future because society progressive old age safety net programs will replace a relatively larger share of the normal incomes they earned during their working years. could you comment on why many andunities continue to lag lag,he fed -- continue to and how the fed feels its monetary policy right continue to address inequality? chair powell: but we have been doing is take seriously your order to us to seek maximum employment. that is what we are doing. i think we have learned because we have been watching what has been happening that unemployment can be lower than many had expected without raising inflationary or other concerns. that is what we can do. we will continue to do it.
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i think that is showing up in communities everywhere. i think other governmental and other tools are necessary to address longer run problems. address theow do we pay inequity? how do we impress upon corporate america that it does this country no good to have a persistent pay inequity among its workers, especially when you in the the disparities races in the pay inequity? chair powell: i think it is important that those issues be addressed. it is really not for the fed to prescribe the measures to address them. we need to stay in our lane. we do have a history of independence, and i think to keep that, we need to stay with what you have given us to do,
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which is maximum employment, stable prices, supervise the banks, look after financials. rep. clay: will the federal reserve release its own proposal on the community reinvestment that takes into account the needs of low and moderate income communities? chair powell: we haven't made a decision on that yet. i think our focus right now is on the ongoing process of the other agencies' proposal in the comments. i suspect there will be changes to that proposal coming out of the comments. we have not made a decision about our own proposal. traditional on a tray policy works through -- traditional monetary policy works through a single, economy wide variable. a single rate, or perhaps the money supply. credit policy, by contrast, aims at directing credit in specific
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forms towards specific groups of borrowers. credit policy consists of a central bank operation targeting specific segments of the private .ebt and security what is your view of shifting from traditional monetary theory to one that uses more tools in order to enhance borrowing to segments of society? chair powell: i think that has historically not been a fun some of the fed and central banks generally. -- been a function of the fed and central banks generally. when you are talking about affecting different sectors of the business community or the population, that really should be another agency or congress itself in fiscal policy. witness is: the requested to continue to provide the answer for the record. meyer iseman mr. look
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recognized for five minutes. i amlucas: meyer -- >> sure you heard the speech by one chairman the need to reform. i clarify the use of guidance in 2018 from a 2018 interagency rulemaking that fits with the trumpet been astray should recent actions out of the office of management and budget. do you believe we need an official rulemaking out of the fed on the role of guidance? chair powell: we have not made a decision on that. we are evaluating the omb demo. as you know, guidance is not enforceable. we do understand that. rep. luetkemeyer: mr. quarles
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was here recently, and said he intended to look at all the guidance and separate what he believed needed to be under rule and the rest be clarified as strictly guidance. i think that is a great approach, but i think the question is, do you anticipate a rule to be able to enforce that in the future? so you are looking at trying to do that? chair powell: that is something we are looking at, and we are asking if some of it is more like a rule. rep. luetkemeyer: ok. howquarles also discussed policy has a framework, but there's no real framework for supervision. he used an example that was conducted without appropriate oversight and does not have specific guardrails. the gao said this should have been conducted as rulemaking. did you believe we need to change this, and what should we do to the firms under this regime? chair powell: i would agree that it is appropriate that we draw --ghter lines around
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around the membership, and that is the path we are on. rep. luetkemeyer: very good. something that is kind of concerning to me is the fact that we have a lot of banks and in the home mortgage lending space. nonbanks in general, we are 200hly lending about billion dollars. this year is expected to triple. in 2019, nonbanks originated 70% of all loans. mac --loans were freddie of loans for freddie mac and 50% of loans for fannie mae. non-bank mortgage originators were designated as a potential systemic risk. of are a member of a sock -- fsoc.
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does that concern you? chair powell: it was mentioned that they thought being these are now very important channels through which mortgages are originated, and in the case of a downturn, the banks have high capital. if got lots of regulation, lots of liquidity, and that is a good place, but these institutions are operating sometimes under funding themselves with credit lines which might not be available. so there is risk there, and we are in the process of assessing that and determining what to do about it. we have highlighted it is a risk, and we are doing work on it. rep. luetkemeyer: do you have a timetable on when you will or will not? chair powell: i can come back to you. this is something the treasury has the lead on. rep. luetkemeyer: one of the things that concerns me is also with regards on lending, the stack of forms you have to go through. we had a gentleman who represented a credit union at
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the time, but the stack was literally the stall. he said we don't measure by the page. we measure by the pound. this is how off the charts we have gotten when you have a stack of papers this tall to do a home loan. i've talked to the fdic's in -- to the fdic's, and hopefully we can talk to you -- to the can, and hopefully we talk to you to reduce that and allow the banks and regulators to see yet, but this has got to change. this can't continue to grow. this is crazy. do you have an opinion on that? chair powell: a lot of that stuff is legally mandated by federal or state law. to the extent that it does not, we try to make assessments about what is necessary and what is not, but it is a big challenge, i would agree. rep. luetkemeyer: i want to note for the record i did not ask a question about cecil today. [laughter] the gentleman
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yields back. the gentleman from georgia is rignet for five minutes. >> welcome, chairman powell. good to have you. , therning libor alternative reference rate committee is pursuing in new york legislation to address legacy contracts in new york state. with the fed support federal action in that regard -- would the fed support federal action in that regard? chair powell: some members -- the committee is not seeking legislation itself, but some members approached the legislature. we have not reached a point where we think it is going to be necessary. that federaleve legislation is necessary, we will come tell you, and we understand that is not something you can do in 24 hours, so we know that the time for that is soon.
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rep. scott: very good. let's move over to great britain for a moment. u.k. regulators have been very direct with their financial institutions, and they recently established a goal for their institutions to cease libor-based lending by the third quarter of 2020. why has the fed not been so direct? setou have plans to guidelines for your regulated institutions? chair powell: we will do that at some point. you have seen that freddie may best that freddie mac or fannie mae won't accept them after some point this year, so that will happen well in advance of the deadline, which is the end of 2021. rep. scott: ok. and chairman powell, your fed
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board recently finalized its rule on tailoring the hopes of providing more clear and well defined risk indicators to determine the regulatory requirements that are placed on firms based on their size and risk, but the board has never clear andnor provided quantitative criteria under which firms are placed under its regime. supervisory and even your vice chairman mr. speech recently gave a where he said that he would like withign their portfolio the tailoring categories that make the designation criteria transparent. you recently in the skated --
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you recently indicated you agreed on the need for brighter lines. can you outline what changes the board is considering to make in this supervisory framework? chair powell: we are just in the process of working out the specifics, but i would agree that we should provide more around what it will for firms. rep. scott:rep. scott: let's move on -- rep. scott: let's move on. you're a great man and a good man, and i respect you tremendously, but chairman powell, the fed is the axle of our financial system. you are the most powerful regulator. toant you to stand back up mr. arden on this business of him coming with this rulemaking
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change to the community reinvestment act. let him know that you not only have a mandate for inflationary monetary policy, you have a dual mandate. employment, jobs. here's the other thing. you need to remind mr. otting that this piece of legislation, the community tonvestment act, is precious the nation, but it is precious to african-americans more than anybody. dashede civil rights act it wasn't the civil rights act, it wasn't the voting rights -- it wasn't the civil rights act, it wasn't the voting rights act that dealt with the biggest issue facing african-americans,
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financial stability. and the anchor for that is a home, owning a house, and having a job. was the bill that outlined redlining that kept african-americans out. he needs to back off of that. you need to assume your power in this and let him know we are serious, and to back off this rule change. rep. waters: the gentleman from ohio is recognized for five minutes. >> thank you, madam chair. good morning, mr. chairman. how are you doing today? chair powell: great, thanks. >> i want to do some yes or no questions, just to remind everybody. the labor participation rate is now 83.1%, which is increased in the last three years. is that correct? chair powell: i think that is prime age. >> yes, prime age adults. chair powell: i do believe it
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has, yes. rs: and wage growth has outpaced demand for workers. currently outpacing inflation, correct? chair powell: yes it is. rep. stivers: and wage growth has gone up by about 3% the last few quarters at an annualized rate. is that correct? chair powell: if you look at a range of measures, then you would see wages moving up at about 3%. rep. stivers: and we have record low and up limit rates for african-americans and hispanics. is that correct -- low unemployment rates for african-americans and hispanics. is that correct? chair powell: that's correct. rep. stivers: thank you for that testimony. your colleague at the atlanta fed stated that economic expansion does not die of old age. i think that is a great quote. given that the fundament is of the economy are strong, using
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many businesses and investors are trying to talk themselves into a recession? chair powell: i certainly hope not. there is no reason why the expansion can't continue. there's nothing about this expansion that is unstable or unsustainable. rep. stivers: defund mental's are strong, but i think a lot of -- the fundamentals are strong, but i think a lot of folks are worried, and i hope they don't talk themselves into recession. of allhat about 2/3 lending and capital formation occurs in the capital markets, am curious what the federal reserve is doing to coordinate with the securities and exchange commission and the ftc for capital markets to make sure there is actual coordination on the capital markets. chair powell: the sec and the regulations have for those markets, and we have supervisory regulatory authority over the banks. where we overlap is in financial
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.arket utilities we collaborate on all of that, so we collaborate pretty closely on that. rep. stivers: i would urge you to increase that collaboration because the line between securities, banking, and capital markets are blurring more than ever before, and i would ask you in the vice chairman to redouble your efforts for that coordination because i hear it from some of the firms that they feel like it is not coordinated. if you can redouble those efforts, i think that would pay dividends to the american investor and the american economy. a couple other quick questions here. you think the most significant risk to the financial system is today? to start by: i have saying i think the financial system is strong, and has been materially strengthened since the financial crisis,
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particularly the banks. hi capital, high liquidity. stress tests keep them on their toes, and they have real resolution plans. i think the financial system is generally in a good place. the thing that we worry about a lot is cyberattacks. i think we have a great game plan for traditional issues like bad loans and things like that. it is more cyberattacks that are the frontier where you worry, and we work very hard on that. all the. . agencies do. . we work together -- all the agencies do. we work together, but that is a major focus. rep. stivers: and you are in line with the ceos of the biggest institutions. i asked the me same question, and the consensus was that cyberattacks were the issue i think congress and our regulators need to focus on. two quick things because i am running out of time, i know you
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are focused on the transition from libor. i hope you will pay particular attention to the impact on both small businesses and our community banks as we make that transition. they are particularly vulnerable. with regard to the repo market, i hope you will continue to focus on the origins of the problem that caused it. some are regulatory, some are market-based. i know you are focused on it. you and i have had private discussions on it. i would like to see that solved in a way that you don't have to provide federal reserve capital at the end of every quarter or every year. so if you could stay focused on those things, i am out of time. thank you. rep. waters: the gentleman from texas, mr. green, who is also the chair for the subcommittee on oversight and investigation, is rignet for five minutes. rep. green: -- is recognized for five minutes. rep. green: thank you. this is an observation, not a criticism.
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you indicated that the fundamentals are strong. however, you also indicated that the lest fomc press conference that you were a bit surprised -- indicated at the last fomc press conference that you were a bit surprised that wages have not moved up for such a well extending economy. sustained levels of historically low unemployment and increased labor force participation. fundamentals are strong. half, 42.4%nearly of working americans in 2019 made less than $15 an hour. the fundamentals are strong. many of the people in my congressional district, mr. powell, are more concerned about the supermarket prices than the stock market. when they go to the supermarket, they are concerned about the price of procter & gamble products, not the stock market
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price of procter & gamble itself. the stock market means nothing to them. it's what they have to pay for products in the supermarket. this brings me to my question. study to give a us some sense of what a $50 an hour wage will do for the -- a $15 an hour wage will do for the economy? has there been such a study? chair powell: that has not. -- there has not. our area.t rep. green: let me tell you something i found quite interesting, the carbon disclosure project. good project based on thousands of disclosures. you concluded that the 500 largest companies by market
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capitalization are exposed to $1 trillion in risk. someone could argue that is probably not something that you want to do, although i understand that climate change is something that is important to the fed because it will have an impact. a global impact. but i think you can take a closer look at this. you are the ultimate authority , on wages.ability let's have a study to determine what impact a $15 an hour minimum wage will have on the economy, a wage disclosure project. give us some thoughts. chair powell: there's a great deal of research that has been done on minimum wages. i don't know of a particular one, but there has to be somewhere research on what a
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federal $15 wage increase -- rep. green: and i agree with you. i've read a few. but they don't come from the fed, the entity that has the dual mandate, price stability, unemployment or employment. it would mean something to working people if we could get such a study, notwithstanding what others have done. these are observations, not criticisms. i've enjoyed visiting with you. notwithstanding what others have done, this would be meaningful to working people. by the way, i think $15 an hour is not enough as a minimum wage. i think it ought to be at least $20 now. but i will still settle for $15 to get that. can we discuss with you the possibility of a wage project? will go back and talk to more labor people who
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know this issue very well, and many of them have published on these issues. let me come back. rep. green: i thank you for it. i've got 46 seconds, and i'm going to applaud you for it. [applause] rep. green: personal applause. i will yield back the balance of my time. rep. waters: thank you. is the gentleman requesting to have an answer in writing for the record on this question to the chairman? rep. green: yes, madam chair. rep. waters: the witness is requested to provide an answer in writing. the gentleman from kentucky, mr. barnes, recognized for five minutes. rep. lawrence: welcome back to rep., rep. barr: earns -- s: what would you associated change with a change in fiscal policy? chair powell: obviously, fiscal
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policy tends to take a lot of work and some time. fiscal policy has changed profoundly in the past three years. tax cuts, deregulation, a less restrained energy sector, a pullback from dodd-frank, repeal of the individual mandate, new trade deals. are any of these impacting current economic conditions? chair powell: i'm sure they are, but of course, we don't try to assess that. that is not really what we do when we look at the economy. rep. barr: the u.s. economy is presently exceptionally strong. since the 2016 election, 7 million new jobs have been created. the unemployment rate is at a 50 year low. more americans are employed today than ever before. wage growth is the highest in a decade, and the lowest income workers have been seeing the fastest pay increase growing at 16% since the 2016 election. just over the weekend, this was
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the headline of "the wall street journal," which i'm sure you follow. "a tight u.s. labor market is drawing americans off the sidelines at a record rate." despite this, after last week's state of the union speech, speaker pelosi said it was "appalling" to hear the president "try to take credit" for an economy he inherited. i am not going to ask you to arbitrate a domestic political dispute, but when the fomc conducts monetary policy, given what you said about the lag time of fiscal policy, is it fair to say that this president's policies are impacting today's economic conditions? impacting today's economic conditions? high-levelwell: at a level, of course they are. yourr: you maintain aim to have the key components of the stress capital bumper finalized by 2020.
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can you describe what the key components are in a more precise timeline? powell: we do intend and will put into effect the core of the stress capital buffer can time for the 2020 c car cycle. i would prefer to leave the exact details, they are still being worked out. it will happen a timely way for the 2020 cycle. barr: is it still the fence view that the countercyclical capital buffer is a significant replacement for the capital add-on in light of the boards financial support for november which states the vulnerabilities have not changed. chair powell: we have not made a decision on using the countercyclical capital buffer versus the other approach. rep. barr: thank you for that.
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as youiness roundtable, probably remember announced last summer it was redefining a corporate purpose to elevate so-called stakeholders ahead of shareholders. a large investment firm recently announced its attempt to divest of fossil energy, effectively limiting investment options for a subset of sectors that check the financial social governance box. i am concerned that firms which arbitrarily limit investment offerings based on social and political pressure may choke off capital to perfectly legal productive sectors of our economy and because retail investors to miss out on returns they need to fund their futures. as a leading voice on the financial stability oversight council, will you commit to raising this issue with your colleagues and urge that body to examine the extent to which a misallocation of resources away from shareholders to serve unrelated political errands
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might stifle capital formation, compromise investment returns, and ultimately undermine financial stability? i do not know that i totally understand your concern but i will be happy to discuss it with you. r: the concern is if shareholders are not a prime concern of the board of directors, if stakeholders who have no ownership interest in the company are the focus of a corporation, then i would submit their is a tremendous risk of misallocation of resources away from maximum shareholder returns. i would like caps off to take a look at that. chair powell: i will bring that to the authorities. ohio is alsofrom the chair of the subcommittee on diversity and inclusion and is recognized for five minutes. >> thank you to the chair and the ranking member and thank you
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chairman powell for being here today. acknowledge advocates in their green t-shirts for being here today and thank you for coming to my office yesterday and sharing what i thought was valuable information with my team. i appreciate you sitting through the hearing. chairman powell, in the latest edition of the federal reserve these, consumer finance -- consumer finances published in 2017 gave the breakdown between whites, blacks, and hispanics as it related to their net worth. we have heard the statistics. i think my colleague talked about it and i will spare those details. what is interesting to me is that while that data seems great for those who are researching the issue, is there any way your office could break it down by
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regions or cities? when we go back home, this is one of the number one things i am hearing. people are coming into my office once you get through health care and this couple with jobs and education, they are saying we look at the wealth gap that is getting wider. it is not coming in. while we are talking about unemployment rates being better, many people have to work two or three jobs just to try to survive. someone talked about the minimum wage. certainly, and for advocating for a higher number, it is not enough. would have to, he make between $18.70 and $20 to be able to have a livable wage. the first question is can this information be localized to a region or to a city to help us as members of congress when we
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go back home? the second thing is i just is i just recently introduced a bill closing the racial wealth gap, which requires the federal reserve to further break down the data. this is something i did not realize until studying the federal reserve, listening to some of the individuals like the folks today. and so mygood ideas second question is could you tell me if you would entertain at wage aso looking a measure, because often times many folks do not work a full-time job, but they have a wage. could we be more creative in looking at the data based on what some of the things i am hearing from the group that came in?
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i am sure they met with your folks and you know some of their issues. can it be localized? can we entertain looking at some of the things they think we should look at when we calculate or present the good news that is not the good news for many of the individuals sitting here or in my district? rep. beatty: i think you're probably making some of our data people very happy at the board of governors. they love to cut the data in different ways. we learn every time we do that. i do not know the precise answer to your question of whether we can do it regionally or in what dimensions we can, but we would be happy to look into that for you. rep. beatty: what about some of the individual ideas about looking at wages in your calculations? chair powell: i think we can do that. rep. beatty: your folks would be willing to work with them on some of the ideas to at least ?tart discussing it wes
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now we are marrying the people with the power. what a win-win that would be for all of us because we are talking about all of our lives, especially those that have to work harder than some of the rest of us. will your agency work with my office? i am so excited about the deal. as i understand it, part of the reason for asking for the data is the federal reserve collects the data that sets the policy that then get married with the allocations that come back to the district. i want to make sure i'm on the right path when i go home and say i have a bill that is asking the federal reserve to collect data that can help us in the end. is that in the ballpark? chair powell: we should get the
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experts to talk directly to you and your staff and tell you what we do and how we do it and how that might be useful. i do not know that we need legislation at all. we certainly have excellent sources of data and we do cut them different ways. what we try to follow up with you on that? rep. beatty: thank you. >> mr. tipton is recognized for five minutes. pton: thank you madam chair and chairman powell. i want to follow up on the cra. we had a fair amount of conversation on that and want to be able to have the clarity that the fed has been involved with the cra process with the occ and the fdic's, is that correct? chair powell: from the very beginning. rep. tipton: also, are you comfortable not only with the governor making the speech but the content of her speech in regards to the cra? what extent has
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the fed been doing. i know you are talking about analysis and comments coming in, but to be able to work on the cra modernization? chair powell: from the beginning of the process we said that sounds like a great idea. it is a good time to update the cra. let's try to make it more effective in serving the intended beneficiaries. we went around the country. i think we had 29 events where we talked to different groups of people about the cra, their experience of cra. it turned us in a particular direction. we had a bunch of ideas. it is unfortunate we were not able to get on the same page, we were not able to agree with their approach and they were not able to agree with hours. we continue to push and we continue to learn and i would agree with mr. hill's earlier you wouldat ideally have one agreed set of standards. i would agree with
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that. something we should strive for. encouraged reading your comments and statement that people that live and work in low and moderate income communities are finding new opportunities. wages have been rising for lower paying jobs. that is an area we have a lot of -- i have a lot of concern on. my state of colorado, i represent the rural areas, and we often times have two economies good metropolitan areas, resort areas have been doing well. rural areas continue to struggle. we are now starting to see some of that movement. when we are looking at that cra reinvestment, talking about the community, i would encourage you to be able to look at the proposals. i believe they do reach further into rural america and you talked about policy. have you done any assessment intern of the opportunities out -- in terms of the opportunity zones including in the jobs act
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where we are seeing opportunities coming into rural areas where my district is? are those some of the policies we need to be looking at? chair powell: i'm not aware of any research we have done an opportunity zones, but we probably have done research. i would be happy to share with you. rep. tipton: thank you. fannie mae and freddie mac just took steps to be accepting sofer-based mortgages. i noticed other agencies have been taking the steps separately. is there any kind of uniform effort at the high level to be able to cordon eight the adoption of sofer? there is.ll: very much so. we are coordinating with the other agencies and the market participants. instances inore which libor will no longer work, will no longer be usable in a particular context and that is what fannie and freddie did this week.
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with regards to community banks, do you see pluses and biases with regards to using sofer versus libor? problemwell: libor is a in the sense there is no guarantee the rate will continue to be published after the end of 2021, but there is a question about having a credit sensitive rate in addition to sofer. sofer will be the main substitute for libor. we are working with regional and larger banks about the idea of also having credit sensitive rate. that is something that is ongoing. have had a: we conversation about the coronavirus and the impact on the economy. the president signed into law the usmca. do you see that as creating a runway for further economic expansion in the u.s., job opportunities and wage growth? chair powell: we do not give
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advice on trade policy. i would say this. the signing in the implementation of usmca will be a positive in the sense it removes uncertainty around trade policy. that has been part of the issue of last year, not knowing what the rules of the game will be. i think getting those rules settled is a positive thing. rep. tipton: my time has expired. ,> the gentleman from illinois mr. foster, is recognized for five minutes. rep. foster: i would like to thank you for updating our meeting with governor brainard with representative hill and i had on digital currency. we enjoyed that, as well as the meeting with the staff, who are excellent and it is great to see how plugged in they work. in a speech last week, governor brainard highlighted the role of central bank digital currencies
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in ensuring sovereign currencies stay at the center of each nation's financial system. do you agree with her characterization, and you think establishing a digital dollar would help ensure the u.s. dollar continues to serve as the core of the u.s. and the world's financial system? chair powell: to take the first part, i think having a single government currency at the heart of the financial system is something that has served us well. it is a very basic thing. it has not been in question. before we move away from that, we should understand what we are doing. of arving the centrality central, widely accepted currency accepted and trusted is an enormously important thing. whether a digital currency moves us along that path is an open question, as you know. every major central bank is currently taking a deep look and we feel like that is our obligation.
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technology has now made this possible. the private sector is innovating. it is very much incumbent on us and other central banks to understand the cost and benefits and trade-offs associated with a possible digital currency. would your: how characterize your state of progress on this compared to other countries. the swedish central bank, or the chinese? one of the reasons there was so much concern about the libor project is they would immediately have scale if they -- the libra project is they would immediately have scale if they rolled out the project. another entity in position to do that is the chinese government using their already established cell phone systems, they would have a scale comparable to facebook if they rolled that out. how would you characterize our ability to respond to this potentially competitive threat? chair powell: we are working
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hard on it. we have a lot of projects going on on that right now. ofhave not had the problem sweden and a lot of the northern european economies that have moved away from cash to a remarkable degree. that is not happened in the u.s. economy although it seems like it must have happened with our kids not using cash very much. nonetheless, the amount of cash in the us economy continues to grow at a faster than nominal gdp. rep. foster: if you look at the curve of adoption of payment by cell phone, it starts slowly and then it just happens. that seems like that transition can happen in just a couple of years. we have to be able to respond. that is the driving factor. we have to be in a position where we can respond by rolling out a digital dollar on a couple of your timescale. chair powell: i completely agree
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with that. libra lit a fire under that and was a bit of a wake-up call that this is coming fast, and could come in a way that is widespread and systemically important quickly if you use one of these big tech networks like libra did. we are working hard and we fully appreciate the importance of making quick progress. we have not decided to do this. there are many questions that need to be answered around digital currency for the united states, including issues of cyber issues, privacy issues, many operational alternatives present themselves. we will be working through all of that and doing that work early and responsibly. rep. foster: do you feel as though you have adequate visibility into what the chinese are doing on this? you have working level contacts that give you some idea of what their rollout is likely to do,
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likely to look like? chair powell: yes. we certainly have that. are in a completely different institutional context. for example, the idea of having a ledger where you know everybody's payments is not something that would be particularly attractive in or problemes context for china. rep. foster: they are claiming they will roll it out on the belt and wrote countries sometime quickly. i urge you to keep the fire lit. thank you. waters: the gentleman from texas is recognized for five minutes. williams: thank you for coming back to our committee, chairman. i want to make sure one thing before i continue. you are still on team capitalism. chair powell: yes.
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williams: experience on recently released their 2019 consumer credit review that i want to read an excerpt from the report because i think it reflects the state of our economy. i am a main street business guy and the economy is good right now. indeed, the u.s. economy exceeded expectations. growth caused unemployment rates to drop to store close while the stock market -- consumers show their confidence as they borrowed and energetically in the 2019 holiday shopping season. the report goes on to say consumer credit scores reached an all-time high in 2019 at an average of 703. this translates to people being able to get better rates to borrow money, buy a house, and get a small business loan to live out the american dream. what should we be focusing on in this committee to continue for
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jobs explosion, new jobs we have seen in the past few years? chair powell: i think the focus for me ought to be on things that address our longer run issues that can be addressed by legislation. it is two important things, one is labor force participation. what can you do that we cannot do that will help people stay more attached to the labor market. we still have low labor force participation compared to all of our economic competitors and the other one is productivity. what drives productivity? it is a stable legislative environment. it is a legislative environment that supports growth. i know you are aware of the fed's work on the international capital standard. i have had my reservations entering into an international agreement that does not confirm that our current state based
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approach to regulating our domestic insurance companies. one piece on the international standard i want to ask you about is the flexibility our government was given to develop an equivalency solvent standard that would better fit our insurance ecosystems. how does the fed plan on ensuring the standards being developed in the u.s. will be deemed equivalent by the international group given its continued resistance you are facing from the europeans? we will not be part of approving any international standard that does not accommodate our own american insurance regulatory framework rep. williams: that is great. we are leaders, not followers. some of my colleagues have called for a financial transaction tax. i think this is an extremely shortsighted approach to raise revenue that will greatly impact the amount and the ways americans save for the future. additionally, the thought of adding an extra layer of taxation to other assets is redundant since capital gains
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taxes are already in place and they should be lowered. if we want to further expand economic growth, we need to focus on continuing to lower the personal and corporate tax rates so americans can keep more of their hard-earned incomes and businesses can invest that profit back into their operations. can you explain how implementing a financial transaction tax would impact the u.s. economy? i think i need to stay in my lane. we do not do fiscal policy. taxes irt commenting on am worry where that might go. rep. williams: i understand that. from a main street standpoint, it would hurt the economy. we need to cut taxes. looking at financial trends across the world, and we've been in business for over 50 years like myself. one data point that catches my eye are negative interest rates. can you help me understand the
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economics behind negative interest rates and talk about the potential threats this phenomenon poses to financial stability? chair powell: the number of countries around the world face the problem of what you do when your policy rate gets to zero. some of them went below zero. united states chose not to. we chose not to with the fed. we used other tools when we got to the lower bound. those were forward guidance and large-scale asset purchases. going forward, our inclination would be to rely on the tools we did used as opposed to the negative rates. that is our instinct. in the u.s. context, that is not a tool we are looking at. the question about intermediation is when you have negative rates, does it wind up creating downward pressure on bank profitability, which limits credit expansion. there is some evidence of that. we are watching other institutions around the world
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who have done that and we will be able to see what the results are. rep. williams: thank you for being here. rep. waters: the gentleman from michigan is recognized for five minutes. in 2013, detroit filed for bankruptcy, which was marketed as the largest units of filing in u.s. history. in july, i asked you why the federal reserve is willing to backstop or support big banks and corporations during periods of credit market distress we would not want to make equally sure that state and local government also had access to credit as well. you mentioned you did not have the authority to lend to local and state government. i would like to submit for the 14 iib of the federal reserve act asserting has theral government
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ability to buy debt. rep. waters: without objection. rep. tlaib: given that you do have the authority can you explain why shouldn't the federal reserve ensure state and local governments have access to funding during times of stress? chair powell: we have limited authority to buy short-term municipal obligations. 1970'sdo that in the briefly and have not done it since. i think a series of fomc and fed chairs and all kinds of different political environments have thought of that as something not appropriate for us governmente that finance is to be dealt by fiscal authorities rather than by monetary authorities. we focus on the job you've given us, which is maximum employment and stable prices, with other agencies work on financial
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stability and bank supervision as opposed to this awful -- the sovereignty of state and local governments. rep. tlaib: the federal reserve retains the ability to open federal lending abilities? is that accurate? in stabilizing the economy? chair powell: two financial institutions, we do good rep. tlaib: when the fed stepped into rescue banks, is that because you believe their role in the economy is vital? we had no choice. it was to prevent the financial system from collapsing. city filingfor my bankruptcy was devastating for so many retirees. they worked for the city of detroit and saw their pensions completely diminish, gone. do you not believe the government of detroit and puerto rico also play a vital role that , even if preserved financial crisis makes it hard for them to borrow money? chair powell: i believe that is
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not the job for the fed. the fed has a particular role and particular authorities. lending to state and local governments and supporting them when they are in bankruptcy. rep. tlaib: we will strongly disagree. i believe you have the authority. chair powell: you mentioned that in the case of another financial crisis you would use the same tools of expanding the balance sheet and purchasing long-term bonds. more of the same, correct? chair powell: yes. rep. tlaib: i'm afraid that is not good enough. agreeredecessors seem to -- sherman bernanke had suggested -- chairman bernanke suggested a physical program might be helpful next recession. do agree that would be helpful? chair powell: that is an untested and not supported perspective. i do not believe chairman bernanke said supported fiscal
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policy would be something we should do. there's been a group of people that have pushed that idea, but i do not think it included former chairman bernanke. good theb: look federal government is supposed -- look. the federal government is supposed to be about people. i do not see that we are treating pensioners, front-line communities that have been hit hard by the financial recession, they keep sick detroit -- they keep saying detroit is coming back. if i show you neighborhoods, they will say we do not know what you're talking about. access to housing has decreased. we start reflecting an understanding that i believe the federal reserve act actually gives us authority to help and treat, just like we bailed out big banks that we can do the same for our people, the resident of the city of detroit. i thank you for that. i would ask you to push you to looking at this from a different lens versus the same old process
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, which i believe has not worked for working-class people. thank you so much and i yield the rest of my time. rep. waters: thank you. the gentleman from arkansas, mr. hill, is recognized for five minutes. hill: thank you. i want to thank you for the discussion you had with dr. foster. i want to thank you for your work with governor brainard in our discussion with the governor digitalstaff about the dollar and the work being done at the treasury. i will not belabor some of the points representative foster made. a couple of comments i have. would you advise our committee or ask the fed to advise our community what legal authorities the federal reserve might require in order to consider the use of the digital dollar?
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chair powell: that is a good question and it is one we are looking at. a lot would depend on the design of the currency. rep. hill: one thing we also talked about and we have had a lot of discussions in our task force is about europe's approach to this idea of a payment provider license, which is now part of their financial services code. part of their open banking movement. the idea one would have a regulatory license in the united states for being a payment provider, it might be a bank or a non-bank. is that something the fed is looking at as well? chair powell: i would not say we are focused on that, but more toadly, it is a good idea look at the landscape of oversight of our payment system. that would be a piece of that. governor brainard talked about that in another of her speeches last week. rep. hill: last month the chinese regulators bailed out a bank, a $14 billion loan they


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