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tv   Monetary Policy the Economy  CSPAN  February 27, 2018 10:03pm-1:23am EST

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news and policy issues that impact you. coming up wednesday morning, we will talk about the legacy of the late reverend billy graham and president trump's relationship with evangelicals with tony perkins, president of the family research council. then we are live in santa fe, new mexico for the next stop on the 50 capital store. joining us is former new mexico governor bill richardson on key issues facing his stay in the country. also, new mexico speaker of the discuss howe on to national issues are playing out in the state legislature. be sure to watch c-span's washington journal live at 7:00 eastern wednesday morning. join the discussion. federal reserve chair jerome powell testified before the house financial services committee to deliver the central bank's semi annual monetary policy report. he said the economic outlook remains strong and predicted more productivity and increase
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in wages. this was mr. powell's first appearance before a congressional committee since seceding janet yellen earlier this year. this is three hours and 20 minutes. >> committee will come to order. without objection, the chair is authorized to declare a recess of the committee at any time and all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. this hearing is for the purpose
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of receiving the semiannual testimony of the chair of the board of governors of the federal reserve system on monetary policy and the state of the economy. i now recognize myself for 3.5 minutes to give an opening statement. notwithstanding the greatest monetary and fiscal stimulus in your nation's history, the economy has limped along for eight years, arch averaging only 1.6% gdp growth. savings failed to recover from the 2008 financial crisis. a new phrase was coined by left-leaning academics in an attempt to rationalize the phenomenon, namely, secular stagnation. a far more accurate and descriptive phrase, though, is high taxes and heavy-handed regulatory policy. fortunately, with the election of donald trump and the passage of the tax cuts and jobs act, that has all changed. unemployment is now at a 17-year low. wage growth is the fastest and -- in almost a decade and companies all over america are now announcing bonuses to their employees and expansions in their communities. economic growth is once again averaging 3%. however, there are some
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concerns. we all recognize that there has been great volatility in our equity markets recently although i note the s&p 500 is still up more than 14%. there is clearly concern now whether the fed can successfully unwind a historically unbalanced balance sheet after a decade of radically unconventional monetary policy and artificially low interest rates. this was not particularly an issue when the economy was stuck in low gear, but now that the economic transmission has been shifted into high gear, it clearly is an issue. so with that backdrop, we welcome you, chairman powell, to your first of many hearings. please note we are all rooting for you, for much is at stake. and as we begin a new era in federal reserve leadership, i think it is a good time to reestablish congressional expectations. now more than ever, the fed must commit to a credible, orderly,
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and well-communicated normalization plan. the fed must do an even better job of communicating clearly to market participants all the variables used to conduct monetary policy and their relative weightings and interactions. and certainly it is a positive sign that had fed has begun to compare their policies with known policy rules so that the public can better evaluate their performance. next, monetary policy must remain independent, but the fed must also remain accountable to congress, which incidentally created it and has the responsibility of coining money and regulating its value under our constitution. furthermore, it is critical that the fed stays in their lane. interest on reserves especially excess reserves is not only fuelling a much more improvisational monetary policy, but it has fueled a distortionary balance sheet that has clearly allowed the fed into credit allocation policy, where
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it does not have business. credit policies are the purview of congress, not the fed. when congress granted the fed the power to pay interest on reserves, it was never contemplated or articulated that ioer might be used to supplant fomc, and if the fed continues to do so, i fear that its independence could be eroded. finally, in addition to its monetary policy responsibilities, we all know the fed has an outsize prudential regulator role. vastly expanded by dodd frank. this responsibility is clearly not designed to be independent of congress and must be made subject to appropriations, as are our prudential regulators. additionally, formal rule making must not be eschewed for de facto rule making. all formal rulemaking must be subject to rigorous analysis. in closing, regardless of the
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exigencies of 2008, monetary policy is not and can never be a substitute for sound fiscal policy. chairman powell, we look forward to a prudent path to normalization where interest rates are once again market-based and credit is allocated to its most efficient use. i now yield four minutes to the ranking member for an opening statement. >> thank you, mr. chairman. and welcome, chairman powell. i look forward to your testimony today on monetary policy. i am concerned that the hard-earned economic recovery, which came as a result of policies and reforms put in place by president obama and democrats in congress and the federal reserve will be undermined by the reckless policies of this president and his allies in congress. they are working every day to roll back the critical protections for consumers,
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investors, and the economy that democrats put in place in the dodd-frank wall street reform and consumer protection act. as a move to take an ax to dodd-frank, they seemingly have forgotten about the tremendous economic harm that resulted from the financial crisis and appear to be perfectly willing to pave the way right to another crisis. with their tax scam, republicans have engineered a massive giveaway to corporations and the ultra-rich at the expense of hard-working americans. the tax scam balloons the national debt by $1.8 trillion, gives corporations a $1.3 trillion tax break and will eventually raise taxes on 86 million american families. despite the huge windfall for corporations, most are not raising wages. but are instead buying back their own stock to boost share prices. some corporations are giving one-time bonuses for optics, but
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these one-time bonuses represent a tiny fraction of the windfall the corporations will pocket. on top of that, the latest trump budget request is again a cruel, senseless proposal that would be deeply harmful to millions of families, seniors, veterans, and persons with disabilities. the budget request slashes the social safety net, cutting billions of dollars in funding for supplemental nutrition assistance and health care and housing programs. these policies show that donald trump simply has no interest in standing up for americans who need a hand up. instead, he has put forth a series of harmful policies that tell families and communities that they are on their own. our majority colleagues have also launched a full-fledged legislative assault on the federal reserve. the majority is pushing damaging legislative proposals that roll back constraints on the influence of commercial banks within the federal reserve system, eliminate tools that
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provided critical -- that proved critical to the federal reserve's support of the economy, following the financial crisis, undermine the federal reserve's focus on employment, and eliminate its independence from the broken congressional appropriations process. the majority is also using the federal reserve as a piggy bank to pay for the cost of legislation like the latest short-term spending measure and now hr-4296, which will be on the floor today. these republican efforts to undermine the fed diminish its ability to support american workers if we face another crisis. chairman powell, i look forward to hearing your views on the economy and the path to sustaining the economic progress that was set in motion during the obama administration. i yield back the balance of my time. >> gentlelady yields back. the chair now recognizes the gentleman from kentucky, mr. bar, the chairman of the monetary policy and trade
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subcommittee for 1.5 minutes. >> welcome, chairman powell. since the 2007 and 2009 financial crisis, the federal reserve's distortionary balance sheet has exploded from just under $1 trillion to more than $4.5 trillion, injecting new and unknown risks into the economy. clearly, whether you believe this unprecedented government intervention into our economy had merit or not, it has distorted prices of key assets like housing, stocks, bonds, and treasury. that was the intention. fortunately, the fed has begun to unwind these distortions and i hope that they stick to their plan, enabling a more free market environment that like recent tax cuts, will help foster economic growth and opportunity for all. over recent weeks, we have seen more than usual levels of market volatility. without question chairman powell, this volatility is attributable to the fact that no fed chairman has ever inherited the task you have before you. the job of unwinding the most unprecedented and unconventional monetary experiment in the history of central banking. your task is to continue to unwind the fed's asset
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purchases, gradually and predictably return to market-based interest rates and remove monetary distortions from the economy without producing excessive market disruption. this is a serious responsibility. but at least the fed now has the backdrop of a strong economy and faster economic growth from tax cuts so that it can achieve this very difficult task. i personally want to commend you, chairman powell, for leading the way on normalization and i encourage you to continue in this pursuit. i also commend your commitment to tailoring financial regulations for community financial institutions and right sizing our financial -- are regulations. >> time of the gentleman has expired. the chair now recognizes gentlelady from wisconsin, the ranking member of the trade subcommittee for one minute. >> thank you so much, mr. chairman. thank you, chairman powell, for attending today. i look forward to your testimony and getting to know you through your tenure as chairman.
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you're taking over the federal reserve at a very precarious time, and your predecessor has talked about slowly tightening rates as employment has improved and thinking was a return to normalcy, so i'm interested in hearing if that means an emphasis on increasing rates and/or unwinding the portfolio. your tenure comes at a time when the gop tax bill will only make your task more difficult, i believe. as changes to health care may increase inflation for coverage. the gop tax bill is a windfall for shareholders that will untether the real economy that most of us live in, as opposed -- distinct as wall street, leaving you struck between competing problems, a contracting real economy and growing asset bubbles with minimum room to lower rates if necessary. i guess we should thank dodd-frank that it's buttressed the financial system and we should hold on a for perhaps a bumpy ride.
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i hope your term is successful and i look forward to your testimony. and i yield back. thank you, mr. chairman. >> today, we welcome the testimony of the honorable jerome h. powell. this is the first time that chairman powell has appeared before this committee. it will not be the last time he appears before this committee. chairman powell took office as chairman of the board of governors of the federal reserve system on february 5, 2018, for a four-year term. he has previously served as a member of the board of governors and took office on may 25, 2012. mr. powell also serves as chairman of the federal open market committee. prior to his appointment to the board, chairman powell was a visiting scholar at the bipartisan center as well as a partner of the carlisle group. he has served as an assistant secretary and undersecretary of treasury under president george h.w. bush.
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prior to joining the administration, he worked as an attorney and an investment banker in new york. chairman powell received an a.b. in politics from princeton university and earned a law degree from georgetown university where he was the editor in chief of the georgetown law journal. without objection, the witness's written statement will be made part of the record. chairman powell, again, welcome, and you are now recognized to give an oral presentation of your testimony. >> thank you very much. >> you're going to have to hit the microphone, though. >> thank you very much, mr. chairman. and thank you, ranking member waters and members of the committee. i'm pleased to present the federal reserve's semiannual monetary report to the congress. on the occasion of my first appearance before this committee as chairman of the federal reserve, i want to be begin by expressing my appreciation for my predecessor, chair janet yellen, and her important contributions. during her term as chair, the economy continued to strengthen and federal reserve policymakers began to normalize both the level of interest rates and the size of the balance sheet.
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together, chair yellen and i have worked to ensure a smooth leadership transition and provide for continuity in monetary policy. i'd also like to express my appreciation for my colleagues on the federal open market committee. and finally, i want to affirm my continued support for the objectives assigned to us by congress, maximum employment and price stability, and for transparency about the federal reserve's policies and programs. transparency is the foundation for our accountability and i'm committed to clearly explaining what we are doing and why we're doing it. today, i will briefly discuss the current economic situation and outlook before turning to monetary policy. the u.s. economy grew at a solid pace over the second half of 2017 and into this year. monthly job gains averaged 179,000 from july through december and payrolls rose an additional 200,000 in january.
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this pace of job growth was sufficient to push the unemployment rate down to 4.1%, about 0.75% below that of a year earlier and the lowest rate since december of 2000. in addition, the labor force participation rate remained roughly unchanged on net as it has the past couple years, and that is a sign of job market strength, given that retired baby boomers are putting downward pressure on the participation rate. strong job gains in recent years have led to widespread, for -- and all major demographic groups. for example, the unemployment rate for adults without a high school education has fallen from about 15% in 2009 to 5.5% in january of this year. while the jobless rate for those with a college degree has moved down from 5% to 2% over the same period. in addition, unemployment rates for african-americans and hispanics are now at or below rates seen before the recession, although they are still significantly above the rate for
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whites. wages have continued to grow moderately with a modest acceleration in some measures, although the extent of the pick-up in wages likely has been damped in part by the weak pace of productivity growth in recent years. turning from the labor market to production, inflation adjusted gdp rose at an annual rate of about 3% in the second half of 2017, a full percentage point faster than its pace in the first half of the year. economic growth in the second half was led by solid gains in consumer spending, supported by rising household incomes and wealth and upbeat sentiment. in addition, growth in business investment stepped up sharply last year, which should support higher productivity growth in time. the housing market has continued to improve slowly. economic activity abroad has also been solid in recent quarters and the associated strengthening and demand for u.s. exports has provided
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considerable support for our manufacturing industry. against this backdrop of solid growth and a strong labor market, inflation has been low and stable. in fact, inflation has continued to run below the 2% rate that the fomc judges to be most consistent over the long run with our congressional mandate. overall consumer prices as measured by the price index for pce inflation as we say increased 1.7% in the 12 months ending in december, about the same as in 2016. the core pce price index, which excludes the prices of energy and food items and is a better indicator of future inflation , rose 1.5% over the same period , somewhat less than in the previous year. we continue to view some of the shortfall in inflation last year as likely reflecting transitory influences that we do not expect will repeat. consistent with this view, the
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monthly readings were a little bit higher toward the end of the year than in earlier months. after substantially easing during 2017, financial conditions in the united states have reversed some of that easing over the past month. at this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, or inflation. indeed, the economic outlook remains strong. the robust job market should continue to support growth and household incomes and consumer spending. solid economic growth among our trading partners should lead to further gains in u.s. exports and upbeat business sentiment and strong sales growth will likely continue to boost business investment. moreover, fiscal policy has become more stimulative. we anticipate that inflation on a 12 month basis will move up this year and stabilize around the committee's 2% objective over the medium term. wages should increase at a
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faster pace as well. the committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely. turning to monetary policy, the congress has assigned us the goals of promoting maximum employment and stable prices. over the second half of 2017, the fomc continued to gradually reduce monetary policy accommodation. specifically, we raised the target rate for the federal funds rate by a quarter percentage point bringing the target to a range of 1.25% to 1.5%. in addition, in october, we initiated a balance sheet normalization program to gradually reduce our securities holdings, and that program has proceeded quite smoothly. these interest rate and balance sheet actions reflect the committee's view that gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2%.
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engaging the appropriate path for monetary policy over the next few years, the fomc will continue to strike a balance between avoiding an overheating economy and bringing pce price inflation to 2% on a sustained basis. while many factors shape the economic outlook, some of the headwinds the u.s. economy faced in previous years have turned into tail winds. in particular, fiscal policy has become more stimulative. despite the recent volatility, financial conditions remain accommodative. at the same time, inflation remains below are 2% objective. in the committee's view, further increases will best promote attainment of both of our objectives. as always, the path of monetary policy will depend on the economic outlook as informed by incoming data. in evaluating the stance of monetary policy, the fomc routinely conducts monetary
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policy rules that connect prescriptions for the policy rate with variables associated with our mandated objectives. personally, i find these rule prescriptions quite helpful. careful judgments are required about the measurement of the variables used in these rules as well as about the implication of the many issues that the rules do not take into account, and i'd like to note that this monetary policy report provides further discussion of policy rules and their role in our policy process, extending the analysis we introduced last july. thank you very much, and i look forward to taking your questions. >> thank you, chairman powell. the chair now yields to himself for five minutes. chairman powell, in your statement, you used the term, normalization. so i'd like to explore that for a moment, in particular with respect to interest on excess reserves. is our expectation, should it be that ioer is the new primary monetary policy tool, or will
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it, instead, be the fire extinguisher behind the glass that you break out in times of emergency? what should be our expectation? >> mr. chairman, interest on excess reserves is currently, as you know, the principal policy tool that we use to keep the federal funds rate in the range that we designate. and we have not made a decision in the longer run whether that will continue to be our framework or whether we will return to something more like what we did before the crisis, and i don't have a schedule for, i don't expect to be returning to that decision in the near term. i would just say that our current approach seems to be working very well. it gives us control over rates and the market seems to understand it. >> so, it remains an open question? >> in the long run, the long run framework, operating framework, does remain open, yes. >> as you heard in my opening statement, it still remains a concern. you would be hard-pressed to find in the congressional record or any testimony from members of
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the federal reserve at the time congress granted this power that it would be used to supplant open market operations of the fomc, so i trust we will be having further discussions about that. with respect to normalization, i think you have said publicly that you expect the new normal with respect to the size of the balance sheet to be roughly $2.5 trillion to $3 trillion and get there over three to four years. do i understand that correctly, mr. chairman? >> yes. >> as i understand it, though, i've not been able to see in the public record the expectation with respect to the composition of the balance sheet, and i believe that currently, you're carrying $2.4 trillion of treasuries, $1.8 of mortgage backed securities, is our expectation, that is roughly one third, two third ratio. is it your intention to keep
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this, many of us are concerned, because right now i don't really see a glide path to a treasuries only balance sheet. >> no, sir, our intention over the long-term is that the balance sheet would be no larger than it needs to be to implement monetary policy and that it would consist primarily of treasury securities. as you know, we purchased the mortgage-backed securities in the aftermath of the crisis that was an unusual practice, and it was something that we did in unusual circumstances, and those will run off over time, and i don't expect that we would use that tool again other than in a very severe situation. >> the monetary policy report that came out days ago shows the balance sheet rolloff caps. what i'm having a little trouble with is, as i look at the charts in the report, mr. chairman, i don't know, you don't seem to
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have sufficient mbs redemptions that allow you to reach your $20 billion runoff pace. so, as i read the chart, i think the expectation is, by the end of the year, we're looking at a $50 billion balance sheet rolloff, but as of today, i don't think you have sufficient treasuries and mbs to do that. so how do you achieve it? >> well, in the case of mortgage-backed securities, the rolloff is less predictable. of course with treasuries, you know when they're going to which you were and you know when that rolloff will be. with mortgage-backed securities, rolloff will depend on the level of interest rates and the level of people refinancing their mortgages. so as rates go up, refis will go down and you'll see slower rolloff. >> should the public expect a $50 billion rolloff? >> no, i would say that the public should expect there will be a consistent, substantial rolloff this year and the next year that over the period of maybe four years will get us back to something approaching a new normal.
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i don't know that you can say -- >> but we don't know the exact pace. >> i don't think that the caps are not going to be binding in the case of the mbs. >> my time is starting to wind down. i'd like to explore inflation targeting. i'd like to explore inflation targeting. in your testimony, it appears the fed is keeping to their 2% inflation target. i'm still trying to -- i struggle with how this is commensurate with a statutory mandate for achieving price stability but i also saw from the fomc minutes the most recent minutes that there was atleast discussion about moving from the 2% target too a target range and at least 2% is a linear
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function, a range, obviously, is not. and so i'm really struggling with how is this commensurate with price stability and also as you know some commentators are calling for a 3%, 4% target, so two questions. number one, do we have an expectation the fed will move from its 2% target, and at some point, at 3%, 4%, 5% inflation targeting, have you violated your price stability mandate? >> our current framework says that the committee would be concerned with sustained or persistent deviations above or below 2%. so we understand that inflation is going to be buffeted by various factors and may not be exactly at 2%. it will be above and below and we see it as a symmetric objective. the framework is working.
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the market understands it. generally speaking, inflation's been low, and stable for 15 or 20 years now. >> the chairnow recognizes the ranking member for five minutes. >> thank you very much. chairman powell, with a permanent voting seat on the fomc and its role in supervising some of the largest and most complex financial institutions in the country, the president of the new york federal reserve has one of the most important economic policy making roles in the nation. as you know, bill dudley will step down this year andthe search for his replacement is under way. historically, the new york fed's
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proximity to wallstreet has led to the selection of an individual with close ties to the financial sector. in your view, how important is it that the individual chosen is a diverse candidate with demonstrated independence from wall street and a strong commitment to the fed's maximum employment mandateand regulatory responsibilities? what steps is the board taking to ensure that candidates from diverse gender, racial, and ethnic backgrounds are given due consideration? if diverse candidates are not afforded due consideration, are you prepared to exercise your power as chair to reject such candidates to serve as the next president of the new york fed? i know you have a lot on your plate, but i have to put this question to you because we've got to do better. about diversity. and particularly at the highest levels. not only am i looking at what's happening with the new york fed, and the possibility there, we have to look at our own fed and think about how diverse is it at the top levels, management levels. so help me out. what do you think about this? >> thank you, ranking member waters. i've been involved -- this is
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the seventh process to select a reserve bank president that i've been involved in since i joined the fed in 2012, so i'm very familiar with the way the process works, and so we always insist that the search committee, which is -- consists of directors of the reserve bank, hire a national search firm and we always insist and they don't need to be pushed into this, this is something they want to do, we always insist that there's a highly diverse candidate pool and that diverse candidates are given serious consideration and every chance to become the successful participant in that process. so, i can absolutely guarantee you that will continue to be the case. we will always have diverse candidates. i cannot in any individual case guarantee that there will be a diverse outcome but i can guarantee that the process will always be working in that direction.
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>> i appreciate that. and i'm sure that you're committed to that, but the diverse candidate question is a question that many of us have, and we don't know that there has been consideration for diverse candidates with these very, very important positions. and i'm wondering, where do the recommendations come from? how is the outreachdone? and how can you ensure that there are diverse candidates to be considered? >> different reserve banks have done new and different things and we've really raised our game in this area, so for example, the new york fed has done extensive outreach to community groups and, you know, of that nature, universities and all sorts of things around the new york region and around the nation. in addition, thenational search firms have a very large presence in the candidate population and
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know who's out there and know who would be a good candidate. they're always trying to find new candidates and we are too, so it's something we work very hard at, and are always interested in having new ideas for qualified candidates as well so we invite the general public, generally, to offer their thoughts as well as some of the interest groups. >> you know, thereis an organization, maybe more than one, that's made up of minorities in financial services services that include everything from those who are, you know, doing management in the financial services industry, working with hedge funds, with equity firms, et cetera. have you reached out to those -- not you, but do you know if those firms have been contacted >> i know that our search committees and our head hunters have reached out to many, many groups of that nature. >> how can i follow up on that and is it possible that those of us who know about these organizations can ask them if they have been contacted and if not, how can we refer them? >> well, we'll be happy to
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provide you with the contact person at the new york fed who's responsible for the current search and in case of any future searches, we'll be able to do the same. >> well, i will follow up on that and i thank you very much, and i yield back the balance of my time. >> the chair now recognizes the gentleman from kentucky, mr. barr, chairman of our monetary policy subcommittee, for five minutes. >> thank you, mr. chairman, and chairman powell, congratulations again on yourconfirmation. i appreciate your commitment and our conversations to transparency and your demonstration of that commitment to date to clearly communicate the fed's monetary policy trajectory. you have noted on numerous occasions that the remaining slack that may exist in the labor market is at least
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in part attributable to stagnant wage growth and in your confirmation hearing a senator on the banking committee cited a 2016 fed research paper concluding that corporate tax cuts do not translate into higher wages. but we have seen a wave of corporate announcements of bonuses and raises since the tax cuts were enacted, specifically over 4 million workers and counting have received over $3 billion in bonuses and raises during the last 8 weeks and the labor department recently announced the largest increase in wages since the end of the recession. based on these numbers, is the senator in question and are the fed researchers that he cites, are they wrong? and have tax cuts, in fact, helped increase wages as your testimony indicates that wages should be increasing at a faster pace as a result of a more stimulative fiscal policy. >> it's very hard to trace through the effects of a change in tax policy to things like wage growth in the economy but let me try. lower corporate taxes should lead to higher investment and the effect is not easy to estimate but you would think and the studies find that it should
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lead to higher investment. higher investment should lead to higher productivity over time. it's very hard to put your hands on exactly how much that would be. but higher productivity, of course, is very, very welcome and will be driven by higher investment. >> and clearly the wave of bonuses and raises and the announcements certainly suggest that there's upward pressure on wages as a result of these tax cuts. in a 2015 speech, you expressed concern that quantitative easing and unconventional monetary combination could fuel dangerous risk taking. specifically, you said, the current period calls for a high degree of vigilance. can you elaborate and what specific risks have been created that the fed now has to watch. >> well, i do think it's -- this is a time when we need to be alert to a build-up of either financial imbalances or to
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inflation building up. we don't really see those right now. i think i also said that in my 2015 speech. but if you look at the financial stability situation broadly, we do see some high asset prices. what we don't see is the build-up of leverage among households. we don't see -- we see the banking system and financial system generally as being very resilient so i think the financial stability picture shows at most modest risks. >> if i could point out maybe a possible risk that's out there and have you react to it. that was created by the unconventional monetary policy. as you know, some have blamed the fed for contributing to the 2008 financial crisis by producing an inverted yield curve. at the beginning of 2011, the spread between the 10-year and 2-year treasury notes was almost 3% but as of february of this year, that same spread has been whittled down to a mere 0.5%, a 450% drop. given a flattening yield curve and economic conditions that you can see call for raising the fed funds rate, how will the fed avoid another inverted yield curve and are there any plans within the balance sheet normalization strategy to roll off longer term assets more quickly to counteract that flattening yield curve. >> you know, flattening of yield curves in the past has been a
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precursor of recessions but largely because in manyprior recessions the fed had to raise rates quickly to hold inflation down. that's not the situation we have now. it's very typical for the yield curve to flatten asshort-term rates come up, as the economy strengthens and i don't see a particularly large -- there's always a risk of a recession at any given point in time. i don't see it as at all high at the moment. >> i don't either but it is a risk that normalization after
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this unprecedented policy has created and to dovetail off what the chairman's point was in terms of the rolloff strategy, it would be important if there are not enough maturing mortgage backed securities that mature in order for the fed to actually hit its monetary roleoff targets so to that end, to avoid an inverted yield curve, do you anticipate that perhaps selling assets. >> no, i think i certainly feel that our balance sheet normalization plan was carefully crafted and carefully rolled out and the markets took it without much of a reaction, and i think i would have little inclination to change thegeneral parameters of it. >> thank you. now my time has expired. >> time of the gentleman has expired. the chair now recognizes the gentle ladyfrom new york, ms. maloney. >> thank you. chairman powell, the fed's
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median projection is for three interest rate increases in 2018. what would cause youto raise rates more than three times this year? would you have to see a material increase in inflation, faster gdp growth, a higher wage growth? what would cause you to raise rates more? >> thank you, ms. maloney. you're right that every quarter, every participant in the fomc submits a projection of what they feel is going tohappen to the economy and also their projection for appropriate monetary policy and at the december meeting, the median participant called for three rate increases in 2018. now since then, we will submit another projection, all of us, in three weeks but since then, what we've seen is incoming data that suggests that strengthening in the economy. we've seen continuing strength in the labor market. we've seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. we've also seen continued strength around the globe, and we've seen fiscal policy become more stimulative. so i think each of us is going to be taking the developments since the december meeting into account and writing down our new rate paths as we go into the march meeting and i wouldn't want to prejudge that.
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>> and as you know, the last time the fed released its projections for the pace of interest rate increases was in mid-december and since then, we've had two major financial events, one was the tax reform legislation, and the other was the major budget agreement. so, my question is, has your outlook for how quickly the fed should tighten monetary policy changed in light of tax reform and budget agreement? >> i would say that the -- my personal outlook for the economy has strengthened since december, and again, each member of the fomc is going to be writing down a new set of projections and a new estimate of appropriate monetary policy as we go into the march meeting, which begins three weeks from today. and so, i wouldn't want to prejudge that new set of projections, but we'll be taking into account everything that's happened since december. >> thank you. and yesterday, the fed governor, who's leading the fed's review of post-crisis regulations, stated, and i quote, we are not looking to relax regulation, end quote. he also said, and i quote, we're not looking to reduce capital
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for banks, endquote. do you agree with the governor, that your goal is not to either relax regulations or to reduce bank's capital requirements and mr. chairman, i ask unanimous consent to place these comments in the record. >> without objection. >> the way i think about it is this. we have several sort of primary pillars of post-crisis financial regulation that we want to strengthen and protect, and those are high risk based capital, high liquidity, stress testing and resolution and we want to make sure that we keep those strong and by the way transparent as they play to our largest institutions.
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i think as we move down into smaller and smaller institutions down to the community banks, we want to make absolutely sure that we've tailored regulation so that we are not -- we're achieving our safety and soundness goals without creating excessive burden and that's really the way i think about what we're doing. >> and lastly, chairman powell, last week, several academics published a paper claiming tat fed's quantitative easing programs during the great recession were largely ineffective at stimulating the economy. new york fed president dudley and boston fed president rosengreen disagreed and said they thought quantitative easing had been effective so my question to you is, do you think the fed's quantitative easing program was effective and do you believe the fed should keep this tool in its toolbox for future challenges. >> i do think our post-crisis policies were effective. and i haven't carefully studied
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that report yet but let me say that what these reports try to do is they try to identify the surprise element in a particular fed announcement and isolate that from what was already priced into the market. so most things that happen on announcement day are already priced in. it's very hard to isolate that surprise element and this paper comes up with a different way of doing that. overwhelmingly, studies of the effects of asset purchase programs suggest that asset purchase programs did their job, which was to create downward pressure on longer term interest rates through theterm premium and so i would say that that is very likely the case. >> thank you. my time is up. >> the chair now recognizes the gentleman from missouri, chairman of our financial institutions subcommittee. >> thank you, mr. chairman, and welcome, chairman powell. congratulations and it's nice to
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see a banker actually being the chief banker of this country instead of an economist. to me, i think we get to look at some different policies and i think we have a different perspective and i think that's healthy. so, just want to start by talking about leverage lending a little bit. i want to follow up on the gao, which determined that agency leverage lending guidance is a rule under the congressional review act and is therefore ineffective because it was never submitted to congress. the same would presumably be true for other agency guidance. i've reports from banks that many of this have outstanding matters requiring attention or mra's based on such guidance and that they're still being told either by examiners or the compliance departments to treat guidance as binding regulations. so, although no one seems to be disputing the conclusion, the word does not appear to be getting out. would you agree that rules are rules and guidance is guidance and guidance is not binding. >> yes, mr. luetkemeyer, i would agree absolutely with that. in the case of a leverage lending guidance, we understand that's nonbinding guidance and since the gao ruling we'vemade it a point to go out and make
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sure that message is getting out to supervisors of banks and we're also thinking of -- we're in discussions and thinking about other ways we can underscore that, perhaps putting it out for further comment. >> just left another meeting before i got here of a group of bankers from one of the states around the country, and we were discussing issues similar to this with regard to the culture within agencies and the ability of change to be taking place, even though we changed the head of the agency, sometimes the message doesn't get all the way to thebottom,
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and when i made that comment, i saw a lot of heads nodding in the audience. there's concern that while the leadership as changed, good intentions may be there, that again, this needs to filter down all the way through the entire agency and an understanding needs to take place by everybody that this is a new way of doing business, that guidance is guidance, rules are rules, and there's a big difference between how they're adjudicated and administered and enforced bythe body itself so i sure appreciate you taking that into consideration. >> it's an important point and it's a feature of our distributed federal reserve system of which i'm a big supporter of the structure of our system. and i think we know how to manage that program and i think we do a pretty good job and we're going to continue to try to do the best job we can. the heads of supervision at all the reserve banks are in close and constant conversation and discussion with vice chair quarrels and others at the board and i do think -- i don't
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sense any reluctance to engage in those discussions and i think it's on us to communicate well and successfully and we'll try to do that. >> i look forward to working with you on that because i told the bankers when i left them, if you see a problem, let me now because i have a chance to talk to mr. powell here this morning. so we'll carry the message. thank you message. thank you for that. with regard to data security, cyber security, this is an issue we're working on right now. my committee, my subcommittee has a bill we're putting together. cyber security threats have the potential to wreck our economy, wreak havoc with it, subject financial companies to absurd maze of cyber security regulations. federal reserve is one of the many entities that examines for cyber security. there's zero harmonization between agencies. they spend thousands of hours complying with regulations rather than protecting systems and customers. do you see this as a problem? >> i do. i think cyber security overall is one of the really significant threats. we can never feel like we've done enough to deal with it. we try to harmonize through
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supervisory guidance what we expect from firms on cyber security issues and data safety and that kind of thing. i'm sure we can do a better job and we're committed to trying. >> i know that's an issue that financial institutions are right in the cross hairs of this because of the amount ofpersonal data they hold and risk, they're an easy target. we want to make sure we work on that issue and work with you. you sit in position to harmonize the rules and regulations easily with discussions and different groups of regulatory agencies that actually meet on a regular basis, discussing things, is this ever discussed in your meetings with the fed, treasury, fdic, comptroller, any of those meetings? is this ever discussed at length? >> yes, it is. in fact, there's a group chaired by treasury which focuses on cyber security issues which the chair, i haven't's attended one of those yet but as chair will attend those meetings. it is a big focus for treasury and us. >> my time expired. thank you. >> time of the gentleman expired. the chair recognizes mr. sherman.
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>> general powell, welcome. as the chair points out, you're required to be independent and accountable. you're also required to be tall and short. your opening statement mentions great exports but you don't mention that our trade deficit has gone up by $60 billion in the last year. and i would point out that the entire economic establishment in this country has made it almost prohibited to discuss the trade deficit and that's whywe elected, that's why the country elected donald trump president. now, the chair of the subcommittee boasts that we had a good economy in 2017. he's right. we had obama's fiscal policies, obama's tax policies, obamacare, dodd-frank, janel yellen and her big balance sheet and had a great year. as a matter of fact, we have been on a roll since 2011. we were closing in on having a high enough employment rate so we would have a labor shortage and higher wages. we were going well.
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and so instead of continuing to be on a roll, we've ban have abandoned those policies and have adopted a proflage tax and spend policy, throwing away budgetcaps, 1.5 trillion plus interest of the debt from the taxbill. but i think that we will still do well because ourscientists, entrepreneurs and workers are the best in the world. they'll makeup for all of the mistakes we're making here in washington. i see behind you, sir, the green shirts that call for full employment and it's not enough to go with the economist definition of full employment, say 4%. we need real full employment that causes a labor shortage and desperate employers bidding up the price of labor. and that is also consistent with the fact that many economists are saying you should be aiming not for 2% but 2.5% inflation.
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that's the kind of expansionary economy that allows folks to come back in fancy polo shirts with the same slogan on it in a couple of years from now. when we talk about some workers getting a thousand dollar bonus, yeah, a few have. but a family of five's share of the increase in the national debt from the tax bill is $26,000. what greater proof do we need of the need for financial literacy in this country than that some charlton can say here's the deal. i'll give you a thousand dollars, it's money in your pocket, and we'll slap a $26,000 mortgage on your future. now chairman powell, in your confirmation hearings you said i
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believe that no bank is any longer too big to fail. i would point out that the biggest banks are bigger now than in 2018 when they came to us and said they were too big to fail, they would pull the entire economy down. we had to bail them out with $700 billion, and i point out that the wall street prices in to the value of bank stock but more importantly to value of unsecured debt in implicit federal guarantee, an assumption they will be bailed out. so i have a number of questions for the record, but i will ask one for you to respond to. one for you to respond to. we have adopted these proflage fiscal policies, huge tax cuts leading to massive increase in the deficit number that's right behind you. then we busted the budget caps. is our monetary policy going to need to be more restrictive this year than it would have been had
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we not adopted these profligate fiscal and tax policies? >> ok. so, of course, when we're setting monetary policy, we're focused on achieving stable prices and maximum employment. in doing that we consider many factors, all around the global economy, et cetera. fiscal policy changes can have effect, changes of this size can have effect. and that can be seen of course in policy. it is hard to say what that would be. the answer to the question is generally we take all those things into account. >> the more profligate the fiscal and tax policies, the higher interest rates you have to set? >> all other things being equal?
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our job is to focus noton fiscal but monetary policy, that's the frame of reference. >> thank you for evading the question. >> time expired. the chair recognizes the gentleman from california, mr. royce, chairman of house foreign affairs committee. >> thank you, mr. chairman. chairman powell, thank you very much for being with us here today. i also wanted to thank you for another effort you undertook and that was in 2011 you spent considerable amount of time with members of the house trying to walk them through the debate that we had on raising the debt ceiling. you were trying to get us focused on all the unintended consequences which would occur if we did not raise that debt ceiling, and i very much appreciate the time and effort and facts that you put forward.
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so you've got a new voice now with the fed. and i assume your opinions on the severe consequences of failing to raise the debt ceiling remain. i know that in august, looks as though the federal government is going to have to borrow or have to roll over 500 billion ofdebt in august. and if we're in a quasi default situation in august, then clearly it's a real question. as who would want to purchase that debt and at what cost would they purchase that debt, and clearly a premium on that, 10% premium would be a $50 billion hit right there to the interest expense, but there's much more than that that would befall impact on the markets, maybe corporatedebt. maybe i could give you this opportunity to explain some of
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the concerns about that issue. >> thank you, mr. royce. of course, we don't do fiscal policy at the fed but i'll except george invitation and say it is very important that the federal government and government generally be on a sustainable fiscal path. meaning as the baby boomer retires, we will need to adjust the significant fiscal issues coming to us over time. thatnk it is important congress do that. at the same time, the debt ceiling should be something that we always raise in a timely fashion. there is no other country in the world that has a separate vote we'ver to pay bills
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already agreed to incur a and i think the united states has never defaulted on a principal or interest payment and never should. is something i would hate to see and could bring significant consequences. royce: well, i appreciate you articulating that. you have also said that raising the ceiling is only the first step. the job that must be attacked is deficit reduction and addressing the cost associated with mandatory spending and we heard a similar thing from chairman greenspan. we also heard that from chairman bernanke ian yellen. we are on an unsustainable path. as i raced with previous chairs come i do not think the american public really understands the magnitude of the problem we are
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facing. what you think we should do to raise the alarm that the biggest and fastest growing costs in mandatory spending must be addressed? powell? well i think i will follow the powell: well,mr. i think i will follow the path of my predecessors and not become a regular commentator on fiscal issues but limit myself to a couple points. we need to get on a sustainable path in the time to be really doing that is now. the second thing i will say is one physical changes are made is important to the extent possible they be directed at enhancing productive capacity of the economy. we cannot affect connectivity other the end keeping prices stable and regulation on a basis of productivity allows
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inspection to rise. we do not control the long-range growth rate. we can create incentives for more skills and aptitude among the labor force and greater investment in research and development. that is a healthy thing. >> thank you. as you know, the treasury department is undergoing a review of the community reinvestment act regulations and will recommend changes to banking agencies, including the federal reserve. mr. powell, and you believe of financial firms demonstrated pattern and practice of racial discrimination and lending should be considered during a cra examination? mr. powell: thank you, mr. meeks. so i'm familiar with that
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process and i take the point of it to be what i am understanding about it is to inquire into whether cra policies are in fact providing benefits to their intended beneficiaries, and i think we're part of that, we're providing our own input into that process. in terms of the answer to your question, i think it is currently the practice thatsuch considerations are considered in cra exams. >> it is currently, but i have concerned that some want to 2-d to defang cra and take away is part of the process the history as far as discrimination practices and patterns. that is why i'm asking you since the fed, since the treasury, will be looking at it it a new.
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i'm a fan. i think we need to update cra. i believe it we should take into consideration once practice and pattern of racial discrimination. i'm asking you what is your position on that. mr. powell: i have not take up position on that. i want to see the overall work that comes out of this and evaluated on that aces. >> i want to remind you, cra was congress plus response to widespread racial discrimination of redlining. that was one of the primary reasons of the implementation of cra. it seems to me that should not even be part of the dialogue. in fact, as has been given to me by the ranking member, we have an article of lending discrimination redlining still plaguing st. louis that all of the new data shows. we can go from city to city
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across america. so's about your answer just now, because to even think about removing that from the cra, as much as i am an advocate of renewing because i think when you look at we are now and how banking is done in financial services are rendered is completely different than the we initiated, but essence of it was to stop redlining and racial discrimination. that well: let me say take a very serious view of any kind of racial dissemination and lending and we look at it through a variety of our consumer affairs totals and it is something we take very seriously. >> now let me ask this question. i would like some follow-up on this matter particularly. let me ask you this. when we talk about these tax cuts, how much of corporate tax
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savings do you think will actually go toward wages as opposed to stock buybacks, capital investments, and mergers question mark i say this because i want to let you know before , morgan stanley estimated 43% of corporate tax savings will go to buybacks and dividends which enriches just the top 1% of those investors. 19% would go toward mergers and acquisitions. 17% would go toward investments. only 13% would go to one-time bonuses and scant races. there are nine pharmaceutical companies that of already announced over $50 billion in buybacks since the tax law was passed. how much of the taxes will go with the salaries and wages and how much of it will really help the income disparity to increase ?nd grow wider
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mr. powell: we have particular responsibilities. we do not have estimates of that kind of thing. there are many other estimates out there but honestly we do not have a fed estimate. the gentleman has expired. the chair recognizes the gentleman from minnesota. kris -- >> i want to go back to something i think was touched on when you began your testimony this morning. during your confirmation hearing you spoke about the importance of tailoring regulations to fit the specific scope and practices of the financial institution. i think your quote was, even as we have worked to implement improvements and that thinking at financial system, we have also sought to tailor regulation supervision of the size and rick -- risk profile of banks,
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particularly institutions. i want to make sure your view on continuing to tailor regulations to the specific institution has remained the same. you're still committed to doing now? mr. powell: very much so. it is at the heart of what we are doing. to focus on smaller institutions without losing safety and soundness. to try to make sure the regulation is no more burdens and then it needs to be dashboard and some than it needs to be and then work our way up the food chain. graduate agree then that we need everyone in the financial services food chain all the way from the largest banks in the world to the small family community banks on main streets across the country. mr. powell: indeed. small businesses create a lot of banks have al disproportionate share of small business lending although the biggest lead to small
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businesses. we want that credit to flow. we do not want regulation to an appropriately too much burden. >> earlier this month secretary mnuchin testified before this committee and expressed working with congress on the way they tailor regulations based on size and complexity of a financial institution. would you support this type of legislation effort to put these tailored regulations in statute? mr. powell: yes. we would. and we have. butdevil is in the details, as a general matter i think we should see some law changes that would enable us to better and further tailor regulation to smaller and medium sized institutions. >> i want to move to another toic but i also want continue the discussion on the importance of getting our regulations right to benefit a
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street and rural america. minnesota's sixth congressional district which i represent is home to some of the finest and most productive farmers and manufacturers in the world. many of these same individuals by thedvertently harmed current formulation of the supplemental leverage ratio that fails to recognize the exposure reducing nature of the initial client margin. this bank capital role as increasing clearance cost for farmers and manufacturers, making it more expensive for them to use the clear derivative market. i hope that is you and your colleagues review the slr you will come to the same conclusion that a coalition of republican and democratic members that we must recognize the exposure-reducing nature of client margin in a revised capital bank roll. when you commit to working with us and our colleagues who want their constituents to have access to affordable and competitive clear derivative
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markets? >> yes. we think we need the leverage ratio is a high-end hard backstop to risk-based capital. we think the current calibration of the ratio is not appropriate. we are looking at a recalibration that would address that exact concern. >> thank you. i want to move on to another topic. page one and five of your monetary policy report dated february 23 refers to the labor market. there are a couple of specific entries with respect to numbers unemployment rate is at 4.1. it is essentially full employment. but i believe it is on page five where it references the percentage of able-bodied working-age adults actually in the workforce. it is about 62%. this is abnormally low.
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don't you have any concern about that number? this -- yought at talk about retirement being part of this. baby boomers leaving the marketplace. the labor force. doesn't this also have something to do with the disincentives created by our welfare system in terms of giving people an opportunity to get back into the job market? tracks time of the gentleman expired. refinance from the witness, please. mr. powell: we focus on labor force participation all the time. it is worthy of a longer discussion. >> time has expired. we now recognize the german from massachusetts. >> -- the gentleman from massachusetts. thank you. some of my colleagues have been talking about how the economy is getting better. we agree with that. we disagree on why and how.
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i think a lot of the good we have today is a result of the actions we took several years ago to stabilize, secure, and approved the economy and is now working its way through the system. with the associate comments made by mr. meeks. i would encourage as well to keep close eye on the cra. i presume the fed would not be interested in economy that just worked for wall street and didn't work for main street. iassume the fed would not be interested in an economy that just worked for texas and didn't work for new york. therefore, i presume the fed has some degree of interest, not in perfect equity but some equitable distribution of the benefitsof a good economy. is that a fair assumption i completely off? >> i would say i think we want
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prosperity to be high and broadly spread. >> i understand you have limited tools for a lot of things. i agree, that is obviously a good economy for three people doesn't help for the 300 some million that live here. thank you for that. are you familiar with a relatively new british law that's just been enacted and being opposed that requires companies of over 250 employees to report income and wages on the basis of gender. are you familiar with that at all? mr. powell: no sir, i'm not. >> the first company to do that was barclays. one of the largest banks in the world. women earn 26% less than men. they receive bonuses 60% lower than men. might be duesons
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to position but it certainly goes to the idea of equitable distribution through the benefits of the economy. roleou familiar with the that was proposed by the will opportunity commission that would require similar reporting by americans over 100 employees not just on the basis of gender racelso on the basis of and ethnicity? mr. powell: no sir. nothe reason you're familiar is because the trump administration stopped it. it was proposed in 2016, companies were given two years to work their way in. as of august, the trump administration said "no." "we don't want to know how you pay women, how you pay people of racial groups or at the city groups, we don't care about that ." now, i personally think that's maranda said i would actually say that again will stop if you
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are interested in the economy and then you need answers. i would ask, therefore, if something like that is new to britain, doesn't it seem to have impacted barclays in any particularly bad way and provides information to go forward to argue for pay equity across the board. i am a white male. i'm not interested in my success being at the expense of people men.ot white and i would ask him is the fed interested at all, would you be interested in pursuing something? you are busy 7000 entities. some large, some small. would you be interested in pursuing some degree of him and not intrusive, but some degree of investigation as to how they pay their employees, if it is equitable or not? mr. powell: first, i'm not at all familiar with either of these bills. these are the kind of things that congress should consider.
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you know, we have a really important job to do. that you assigned us to do. for now we are going to stick to that and try to achieve. >> i want you to stick to that but as we talked about earlier, some degree of equitable distribution of the benefits of a good economy is your job. equity, not every aspect. but in the one aspect you can control, overseeing 7000 financial institutions, do think it is a fair thing to ask how they pay women? how they pay african-americans? how they they hispanics? if it is based on some degree of discrimination, don't you think that is a fair thing for you to powell: ion mark mr. do not think it is a question for the fed. it is for other agencies. --?ou think it would be boy, that's great answer. i think we'll hear more about this. ask the time has expired. the chair recognizes the gentleman from north carolina.
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>> time has expired. the chair recognizes the gentleman from north carolina. you mr. chairman. congratulations on your confirmation. we look forward to working with you. it is my understanding the fed is actively involved in potential, is there potential to shift? >> let me say the situation with libor, financial conduct authority in london said they would no longer compel banks to submit submissions to libor panel after the end of four years. at that time the fca can no longer guarantee. if libor stops publishing, there are 300 plus trillion dollars
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worth of libor contracts in the world. that has potential liability. so solving it is a high priority. there are costs to doing so but they would be trivial in comparison to the failure to be ready for this change should it be necessary. >> what type of cost do you project for businesses as a result of the impact of this change? powell: we are seeking a a lot of impact from businesses that would be subject to this at the moment but honestly, the cost of failure to act would be potentially quite high. >> yes sir. since repo rates go the opposite directions to libor during anticipatest, do you any new systemic risk in the banking sector from shifting? do you expect any systemic risk inmoving the banking sector
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shifting? mr. powell: yes, i do. i think systemic risk would be decreased by moving to so for -- to sofer. out during the crisis and i think risk-free write which is used to price the derivative markets and not so much bank lending markets. it is more derivative-based. , ande rates committee 2014, were community and regional banks part of that process? mr. powell: some of the regional ranks were. i mean, it is principally affecting that derivatives in thes, especially first instance. we a lot of different groups around the table.
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we are broadening that circle to include other financial institutions including community banks and other parts of the financial system. >> do anticipate potential cost banksve to the validity in this shift? mr. powell: i do not think there should be meaningful cost. we which are like to know if there are. >> if banks continue to participate in the libor panel, which you encourage a multiple rate approach driven by market choice or support bank lending for derivatives? mr. powell: yes. we have always set of people want to continue to use libor that is fine as long as it continues to be published. we need to be ready in case that does happen. >> what do you anticipate will be the changes you will bring to the fed relative to transparency
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in the fed? mr. powell: we are committed to being as transparent as we possibly can about monetary policy and regulation. i think if i remember what it was like back when i was under secretary of the treasury and the 1990's, the fed did not even publish a post-meeting statement. now we're much more transparent. we can continue on that path. i think it is important we be transparent and regulation. we are working across a broad range of issues including stress testing. in general, think it is appropriate for us to always be working on that. >> one last question. i have 50% fewer banks in north carolina today the an end 2010. do you foresee fed policies that assistnd handstand community banks in particular? >> time of the gentleman has
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expired. a very brief answer from the witness, please. mr. powell: it is a long-running trend. and wet like to see it don't want to make it worse. i would be happy to continue this with you. the time has expired. the chair recognizes the gentleman from missouri. >> thank you. for your testimony today. chairman powell, do you agree housing is in recovery mode as far as transactions and housing in general? mr. powell: yes. it has been gradual but it is ongoing. >> on those lines, i want to questionhere mr. meeks two. i shared with your staff a recent article from my hometown newspaper about blackcomb buyers
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continuing to be denied conventional mortgage loans at a .uch higher rate than whites even when controlling for income, loan amount, and neighborhood. same lewis -- in the metropolitan area, african-americans who apply for 2.5entional mortgages are times more likely to be denied they are in non-hispanic whites and that is according to two years of research. there is loanhere activity, houses have a chance to sell. warehouses sell, people move in. where people move in, restaurants, community centers, and grocery stores are built. or very little of that is happening in low to moderate income neighborhoods in saint louis or elsewhere in this
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country. so my question is, what can the federal reserve due to ensure that africans for home mortgages are treated equally and the bad actors that steer and redline communities of color are from this process or change their policies question mark can you give me any direction in that area? be glad to,i would sir. first of all, racial discrimination in mortgage lending or any kind of lending is completely acceptable and wherever we have authority we will stop that from happening and punish and where does happen. the cfpb has quite a lot of authority in this area as well but where we haven't for the banks we supervise, we supervised carefully and aggressively to try and find these problems and address of. >> as you know, the fair housing
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act of 1968, law that has been on the book for 50 years, prohibited those practices of steering and red lighting. now, i share with you this article because i want you to give a more extensive response on what action we can take against bad actors like u.s. bank, who is cited in that .rticle the fifth-largest financial institution in this country who has denied mortgages across the board and the community i represent. that's stymies economic activity. it does not help. -- i would love to collaborate with your office on how we stop these policies and actresses that are discriminatory. you, and hopefully
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you will be willing to work with me on that. president trump recently tried to make -- take credit for december unemployment numbers showing african-american unemployment at its lowest recorded level. this, too, is part of a long-term trend that started under the obama administration and which african-american unemployment has steadily declined for the past seven years. in addition, racial disparities continue to persist with the unemployment rate for whites , unemployment.5% for african-american stands at 7.7%. with the african-american unemployment more than twice as high as white unemployment, clearly more progress is needed. vision forus your the fed attacking persistent
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unemployment among african-americans. mr. powell: what we can do on that front, sir, is we can take seriously our obligation to we understand fully that while the national unemployment rate is low and while it any region's unemployment as actually lower you meet a lot of congressmen and senators that come from places where unemployment is in the 2's. >> i would like to explore that with you. >> time of the gentleman has expired. the chair recognizes the oklahoma.from >> before he ask a broader question, i think you are the fourth chairman i've been able to visit within this environment since i've been a member of this committee. i would like to discuss an issue with you that we have already
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discussed. my good colleague, subcommittee -- mr.n mr. luca meyer luetkemeyer has a bill regarding. the supplemental clearing range ratio. it has strong bipartisan support. becauses those amounts the margin is inherently a risk management will. your predecessor showed willingness to look at the issue. i was hoping you might be willing to consider that situation. powell: what we are doing now is taking a careful look at the enhanced supplemental leverage ratio.
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i think our view is that the leverage ratio is very important. it should be a backstop. it should be a high-end hard backstop to risk-based capital. to thatenhancement leverage ratio we put in place in 2013 and that range went too far. i think our way of a dressing that is going to be, i think, to lower the calibration of the of the supplemental leverage ratio. that seems to get done what needs doing. >> clearly, something needs to be addressed. i represent the northwest half of the great state of oklahoma. commodity-driven economy. the price of commodities of course is a reflection of both supply and demand. not an issue for the fed to be concerned about, i represent industries where
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technology advancement has been successfullyy very . whether it is precision agriculture, increasing output of farms and ranches with fewer inputs, or on the energy side of the equation. horizontal drilling, the most of basing technological advances in the last 10 years. that has increased supply. sinceducers and see, 2014, whether it is oil in gas or wheat and cattle that prices are half of what they were in 2014. where you think the fed projections would have economic growth and demand in the year or two or three down the road. because we haven't supply equation. that is our challenge. of demand picks up, life gets better economically at home. powell: that's typically the
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case, as you know. i have not updated my projections but i will just say generally that it does feel to me that the next couple of years look quite strong. demanduld see strong from consumers. you should see businesses investing. i would expect the next two years on the current path to be good years for the economy. labor markets continued to markets labor continuing to improve and and place and moving up to 2%. i would think that should create a good environment for people in your district two are in the commodity business. >> the old adage about rising tide raising all ships. thank you mr. chairman. >> will the gentleman yield to the chairman? >> of course, mr. chairman. >> in the minute and a half he had remaining, i had a question, chairman powell, dealing back on excess reserves.
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i asked your predecessor this westin and the answer was not clear to me. i think, as you know, under must be --t the rate and i'm trying to find the exact language -- cannot be above the usual level of short term market interest rates. has beennow the fed paid a price over the fed funds rate. paying over libor. it is currently paid one hundred 50 basis points yet our constituents typically receive about 10 basis points on their savings account. what does the phrase "above the usual level of short-term market interest
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rates" mean? in your 2012 role-making that ioer, it allowed the rate to get pegged to your primary credit rate, but that is your administrative rate which meet you can set it where you want to set up. so, legally is 30 cap to the interest rate you can pay in ioer? mr. powell: issue suggested, the languages the general range of short-term interest rates. something like that. i would look at that and see a martial paper, wholesale deposits, short-term interest rates, money markets, things like that. less than a year. i think the whole idea of ioer is to move rates like that around. >> but you consistently pay 150
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basis points. constituents are getting 10. mr. powell: they generally come up with a lag. >> time has expired. we recognize the gentleman from massachusetts. >> thank you. thank you for your attendance. appreciate that. a couple weeks ago there was a story in the wall street journal around etf's. i wanted to get your thoughts on this. noted thatlar story shares of everything from manufacturers to banks to oil production companies are all rebounding together after tumbling in unison earlier and the month. the article noted one factor contributing to the close correlation among the snp various sectors was driven by the growing population of exchange-traded funds. i know etf's and best in wide swaths of the market and one invest all correlated --
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in widespread swathes of the market and when that is correlated, it can sometimes increase volatility. at least that is what the data would suggest. does the fed think there are risks to the broader financial system of association with etf's? mr. powell: i saw that article. we looked after the volatility came and subsided. we look carefully to try to understand what happened. it seems the markets were generally orderly through almost all of that time. etf's are particular form of find and i do not think they were particularly at the heart of what went on on those days. but something we are talking to her fellow agencies about, particularly the sc's -- the sec look be best-positioned to
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at this. it is something we are looking into. >> you talked about the historic low unemployment rate among people of color but again, you acknowledge the rate of unemployment for people of color as much higher than for white workers. fact that the participation rate, according to your testimony, has been fairly constant, does the fed have any suggestions to the trump administration about -- if the wind is at our backs, if we are putting more people to work, how do we close that gap? how do we get more people color to the workforce so that, again, we close that gap? mr. powell: our part of it is to take seriously our obligation to achieve dexcom -- maximum employment. i think we are doing that.
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we do not have tools that are good at addressing these kind of disparities. >> i am not asking you to do it, i'm asking you to suggest recommendations to the white house. mr. powell: they have the power and tolls to do that. i don't want to resume -- presume to recommend policies that are way from our general mandate. i think the constructive thing in this area is really to focus is a long-running problem, to focus on education and training. we want everyone to have opportunity. we want this to be a society everyone has opportunities to succeed. part of that is reaching people to the educational system and i would point you and that direction. >> very good. >> the chernow recognizes the gentleman from illinois. >> thank you. chairman powell, good to see. thank you for big with us today.
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you testified before the senate taking committee and 2017 and you said, we believe the leverage ratio is important backstop for the risk-based capital framework but it is important to get the relative calibrations of the leverage ratio and risk-based capital requirements right. doing so is critical to mitigating incentives in preventing distortions another asset markets. changes along these lines would also address concerns of custody business modelr is disproportionately affected by the leverage ratio." i worked with my colleagues on this committee that was passed out of the committee 60-0 that would provide relief from the supplementary leverage ratio for institutions predominantly in providingss of custody services. the treasury department's june 2017 report recommends his changes to supplementary level for cash on deposit with central banks, which is in line with legislation reported by the committee.
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do support the treasury department recommendation and how would you work with people to make those changes? with you,: i agree sir, that leverage ratio can iner banks from engaging low-risk wholesale activities, particularly custody banks. we have looked carefully for sometime now and how to provide relief. our preference for the way to do that is to recalibrate the enhanced supplemental leverage ratio and custody banks would feel significant relief has they of the smallest surcharges. that is our preferred way to do that. , as youwing up on that know with these considered changes to the enhanced supplementary leverage ratio, they only cover some. do you believe changes to the leverage ratios are only sibs or wouldg
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you spark changes for larger supplemental leverage ratio? mr. powell: the supplemental leverage with financial institutions and custody banks is not until binding as it relates to custody banks. we chose to make this enhancement. i think we got the alvarez and a little wrong. our plan is to roll that act. >> ok. cbo recently provided a cost estimate for implementation of chart 2121. can commit tou sharing the correspondence between the fed and the cbo with my staff and committee about determination of cost for implementation of 2121. would you be willing to work with us on that? mr. powell: i would be willing. i would have to look into how we do that. >> that's great. my concern is the bank
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regulators are only looking at providing relief to g sibs. the less large banks are subject only to slr. northern trust as important in chicago. amazing institution. 120-some years. they are not a g7. thus, not subject to the esl ours. thus they are subject to capital binding constraints. adjustment to leverage ratios i want to ask you about the treatment of federally cleared options. the current report notes the current exposure method and model for example requires inions contracts to be sized their face value rather than to reflect thesk actual exposure associated with derivatives. cme does not permit delta
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adjusters. it also adds the cme may be responsible for reduction in willingness for facility access for market papers for clients who are primary liquidity providers. i understand this concern was realized by some market makers. i wonder if you agree with the treasury report recommendation, specifically, and you believe there should be a risk-adjusted approach for evaluating options exposure reflect the for waiting options either delta? mr. powell: i do believe there is a more risk-sensitive approach we are moving to. i want to check back. i will let you know. >> my time is up. thank you. i appreciate your willingness to work with us. >> time has expired. chair recognizes the gentleman from georgia.
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>> thank you. welcome to chairman powell. and whatisturbing me is remarkable and i think downright disturbing to me are the policies coming out of this trump administration. there are three specific areas that u.s. chairman of the fed are chief economic balancing officer of, shall we say. input on.ect did you know, for example, there .re three areas particularly first, the tax cuts of the president. or you aware that 83% of the presidents tax cuts go to the american1% of families? that is not fair.
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to budget cuts, and you know who is impacted most because of these budget cuts? it is the african-american community! draconian,o his 17.2ble proposals to cut billion dollars away from food stamp recipients. then, if that is not mean and ugly enough, they want to turn out and now stop food stamp recipients from even being able to go into the grocery stores. to buy groceries, just like you and i. this is mean, man. seem like a- you very reasonable person -- tax
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cuts going to 1%? the wealthiest people? then on the same token they want to send food? we can do a lot of things online but not food. they want to send food and boxes, canned food, dried milk, powdered milk, to the poor people in this country. chairman, you have got the dual mission of inflation, unemployment. on top of that, they are groupng the most primary that is being crushed. most primary group as african-americans, people of color. to tellr -- i am here you we are going to stand up and fight this administration and i want to ask you to get on our side. the side of the american people.
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because it is clear to me that this president trump is not on the side of the american people. you tell me. getting 83% of the benefits of the tax cuts to the 1%, the wealthiest, and then turn around cutting $17.2 billion out of the thing we need the most. food for the poorest people. then, on top of that shipping their food. -- and boxes to sit on their porch. dried milk for their babies. you tell me, mr. chairman, is this the way you think about america? mr. powell: thank you sir. i can only say these are very important issues. i take it to heart, but these are not issues we have authority
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over. >> no, i was waiting on you to say that, mr. chairman. there is nobody better suited. you are the chairman of the federal reserve. when you sneeze, wall street crumbles? that is why i am pointing this to you. i have looked at your background. you are well prepared for this. your experiences i have read it shows you have a deep compassion for people. do is toasking you to everyone so while if you say isd on mr. president, this not right to be shipping to the food to the poorest people in the country undo nine in the right to go to the grocery store just like you and me to buy
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food. right.ot >> time expired. chair recognizes the tournament from pennsylvania. >> thank you. recognizes ther gentleman from pennsylvania. >> thank you. welcome, mr. chairman. the fed advises several snarp insurance companies that own tlifts. an insurance company that's designated,congress has taken strong interest ensuring it reflects the business of insurance in the privacy ofstate regulation of insurance. most notably, congress passed legislation in 2014 to ensure that capital rules for insurance companies are tailored to the business of insurance. we appreciate all your work on this rule. separate from the pending capital rule, i believe that more could be done to ensure that cap capital rule, more could be done to ensure it's proportional to the risk these companies pose in terms of safety and soundness and reflect the existing system of state supervision. what are you doing to ensure?
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and what more could the federal reserve do here? >> thank you, sir. thank you for your comments. we tried hard to look at insurance is a new area where we need to develop expertise and where it is different from banking and needs to reflect the risks of the entrance business. incontinue to do that developing our capital requirement. we have tried to reflect that. i think we are very open to the views of experienced insurance regulators, some of whom we have hired. the industry.rom >> by my count, there are four vacancies on the board of elders. how did vacancies impact the ability of the fed to fill its mission? this to powell: i'm glad you mentioned that. we could really use some more faces on the hall. i do not think we have been down to three governors for an
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extended time. as you know, i warned off a lot of hats before it took over my current role. i offended those hats out to mike to colleagues. we are all ignorant to have more colleagues on board. we do not need also but immediately, but we would love to get there. drugs i want to talk a little bit about diversity of experiences. professor charles kalimires from columbia university has highlighted diversity when monetary he describes the culture of the federal reserve system as academic-dominated. while academics need to have an important force in these highly technical debates, i can also see how nonacademic tactician or perspectives can be hopeful. can i diversity of experiences support a more
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reliable monetary policy? mr. powell: i think we need great economists around the table, we need lots of them but people from other backgrounds. people with experience in business managing profit and nonprofit institutions, and from the financial markets and from law. this people bring difference perspectives and make our decisions better and our discussions better. know, our national debt exceeds $20 trillion and continues to grow. the same time, the fed has been engaged in an unprecedented monetary policy. some have argued that carrying out this experiment has stepped beyond what is necessary for the conduct of monetary policy and ventured into credit policy. do you worry unsustainable public debt may increase political pressures on the fed? mr. powell: it is a risk, but not a near-term risk.
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i would mention we are in the process of normalizing our balance sheet and shrinking. we are moving to a more normal level balance sheet and we will , four, or fiveee years. >> one thing that has always puzzled be as this target 2% inflation rate. it seems benign. you over 20 years, mentioned 20 years, if you had 100 bucks 20 years ago it had 2% every year, the purchasing power for that 100 bucks went down. can you educate us about this 2% target? by my count, $100 20 years ago i 2%, it might cost about $150 today. mr. powell: this was a big debate settled around 2% as opposed to 04 central banks to aim at. central banks are aiming at 2%. it has become a global standard.
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the reason why that was picked over to present is that it gives us more room to cut a real interest rate. if influence -- inflation rate is zero, then interest rates would be in the sort of 1%, 2%, to present range. when a recession comes, we would have little to cut. having to present inflation we think oils the wheels of the economy and give central banks more ammunition. yields back. the chernow recognizes the gentleman from texas. the ranking member of our oversight investigation subcommittee. >> thank you. i would like to thank the person's here who call themselves "full employment defenders." welcome. mr. chairman, what do you consider full employment? i have the number 1.5%.
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what is your number? >> if i do make an estimate i would say it is somewhere in the low floors. load petros. 4's.w but it could be five or it could be 3.5. >> let's take low fours or three and a half. when is the last time that african-american unemploymentwas in the low fours or three and a half? mr. powell: i do not think it ever has been none of the years we were measuring it. >> quite frankly speaking it hasn't been since slavery. that's the last time that was full employment for blackpeople. mr. chairman, 6.8 seems to be the lowest number i can find for since we been keeping numbers.
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since giving numbers, black unemployment has been twice that of white unemployment, do you agree? mr. powell: do i agree? >> yes, black unemployment has generally been twice that of white unemployment. >> i think that is what the numbers would be. agree question archives yes just i agree. it is a true statement. nvidia'sagree that discrimination also exists as he announces america question mark >> i would. >> do agree when we have that opportunity to test, that we are found that invidious discrimination exists in lending question mark >> yes. is anagree testing effective means by which we will can acquire empirical evidence necessary to show that discrimination exists? >> i do believe it is used in that way, yes. wouldthen mr. chairman, you support legislation to help
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us acquire the empirical evidence to show this exist so we can do something about it? charges promotion of full employment. i take that to mean not just full employment of white people. i take that to mean for everyone. at some point, black and employment has to be addressed because it is chronically twice that of white people. we have used terms like "black people" to "white make the point. we have to ask that our friends on the other side join black people are doing something about this. mr. chairman, that which we will tolerate we will not change. we have learned to tolerate african-american unemployment being twice that of white unemployment. i refuse to tolerate that. that is why i use language that is clear and concise. there is no question about what i say. the question is, what are we going to do about it?
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we know discrimination exists in baking in terms of lending. we know it exists in other areas as it relates to african americans. the question is, what will we do -- what will we do about it? i'm not a siding all of the responsibility to you. i'm a liberated democrat. republicans have to do more about black unemployment. and, unfortunately, when a black person challenges the system playingi do, it becomes the race card. so, let me say today that i am playing the race card because we have for too long allowed this condition to exist. so mr. chairman, i'm going to send you a letter. in the letter, i will request that covert and overt unemployment plays in this
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issue of lack unemployment being twice that of whites. identify theu to primary factors that limit african-americans access to employment opportunities in sectors that are protected from cyclical downturns in the economy. you, if going to ask i'll ask you to putthat in writing, mr. chairman. i respect you and i ask that you be of service to all americans. not just white americans. i yield back. >> the chair recognizes the gentleman from colorado, mr. tipton. mr. powell, i appreciate you taking the time to be here. one of the big challenges we've faced is the policies inthe
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previous administration had yielded a lethargic growth that impacted communities across the country and we're seeing policies step into place that will create job opportunities and put resources back into the pockets of the individuals who actually earn it. i want to make sure these policies are applied across the board in the country to each community and i'd like to be able to highlight one of the benefits i've seen in my district from tax cut and jobs act in colorado. the bank of colorado which has a significant presence in the western slopes of colorado. it was written after the passage of tax cuts and jobs act that they anticipate the passage of the reform is going to be having a positive effect on the growth of their businesses and our
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local economy. in fact, the bank of colorado added a special bonus at the end of the year for all 641 of their associates in colorado and new mexico. they're going to be receiving a thousand dollars in terms of a bonus and part-time associates are going to be receiving $250 to $500. mr. chairman, in my part of the country, that's real money. it's not a crumb. it's how we pay a mortgage. it's how we pay for the electric bill. it's how we provide literally for our children to be able to boost those opportunities for those employees it's actually helping main street right now. the bank of colorado's actions i think provide an example for us in terms of new possibilities that exist in the current economy and also looking forward. i guess what i'd like to speak to you on is in my state of colorado we have talked about
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the tale of two economies. urban colorado has been doingwell. however, in rural colorado we're just now seeing the signs of these opportunities for the people who live those rural areas. one of the challenges i've heard has been from our small community banks in terms of the trickle-down effect of overregulation that came out of dodd/frank. the best practices being employed that may not have been on paper but are implied in their feeling those real impacts and so i know mr. laudermilk brought up tailoring the rulesand regulations to meet the size, the risk portfolio, the institution. can you give us an idea of what you see as that real tailoring and when we could expect that to start to take place to open up those doors of economic opportunity for rural america? >> so in the regulatory space
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for smaller institutions, we're mindful that the number of banks in -- small banks in rural and non-urban areas has declined sharply other the years and we do not see that as a good trend and we do not want to be any part of making it worse, there are bigger forces at work there as people move to the cities. i think we've recently here we've dramatically reduced the scope and burden of the call report, we've made exam frequency longer so you have a longer gap between exams. i think we tried hard to find ways to simplify the capital requirements because you don't need the kind of -- you don't have the resources to bemanaging -- be managing these highly complex capital requirements so we went through and in a number of areas, we simplified, tried
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to address the shortage of appraisers in many rural areas but honestly you can go on forever. i think it's a lot of small things and i will tell you we're committed to doing more and i hope you'll hold us accountable for that. >> appreciate that, mr. chairman, i have a piece of legislation, the tailor act, to make sure we are going to have rules and regulations that will be read and meet the size and risk portfolio of the institution and appreciate your commitment and hopefully willingness to be able to work with us because the objective is to be able to open up those doors of economic opportunity for all of our communities across the country and one issue which has been brought up tome is also the community reinvestment act and if you would be willing to work with us on that as well. our banks want to make those contributions back in but we have outdated rules that i think we need to address. thank you and i yield back, mr. chairman. >> time of the gentleman has i -- expired. we recognize ms. moore, ranking member of the monetary policy and trade subcommittee.
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>> thank you, mr. chairman, and thank you again, mr. chairman, for appearing. i just want to appreciate the fact that in your written and your oral statement you have doubled down on your commitment to tend to your dual mandate to look at unemployment as well as monetary policy and i just want to appreciate you for that and given that, i guess i just want to focus a little bit on some of the things that i think previously mr. green just talked about and also my good friend urr talked about in terms of trying to figure out howthe fed is going to balance things. when we look at unemployment for the general public, i guess i'm wondering if we continue to have
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2% as our inflation rate, is that, in fact, sort of discouraging toward getting some of those groups like african-americans mobilized and moved toward more full employment. do you take any guidance from suggestions that perhaps the inflation target ought to be 2.5%. >> i think we're strongly committed to our 2% inflation goal. over time the level of employment in the economy is not a function of -- you can't increase it by increasing the inflation rate so we're committed to have a symmetric 2% goal so we'd be equally concerned with undershoots of that -- persistent undershoots of 2% and persistent overshoots. >> ok.
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well, given that, i'm wondering what your thoughts are about the increased income inequality we see in this country. according to the united nations report, the united states is on track for being the most unequal -- having the most inequality in the world and given the recent tax bill where we see, despite what mr. burr indicated about the bonuses and wage increases that about 43% of these monies are being spent in buybacks, another 1% merger 9% mergers and acquisitions. that's 67%. only 17% in capitalinvestment -- capital investment improvements and then 13% in bonuses and raises, we know
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bonuses are one time only events which pale in comparison to the economic benefit that the company gets. so what concerns does the fed incomeout the increased inequality. >> it's a big very complicated set of issues and i'll point to a couple things. the first is that we've seen a stagnation of incomes and that seems to be tied to the flattening out of educational attainment by our workers and we need to have the best trained work force and most highly educated work force that will translate into productivity and higher wages so i think that should be an important focus for us. >> before my time expires, mr. chairman, and thank you for your patience, i am wondering if you think is the chair that we're going to have this tremendous gdp growth as you might know the cbo and the jct put additional gdp growth of the
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tax bill like under 1% despite the $1.5 trillion tax cuts which will increase the deficits by that amount over 10 years. do you agree with the cbo and jct that this gdp growth is going to be under 1%? >> you know, the tax bill was passed about a week and a half after our december meeting and then the spending bill was about a week and a half after our january meeting so in each case we didn't have the full set of information. my personal view would be that there will be a meaningful acronym -- increment to demand. demand?ased although wages are not necessarily going to keep up with that, given the way these
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moneys are being spent. gentlelady of the has expired. thechair now recognizes gentleman from texas, mr. williams. >> thank you, mr. chairman, and chairman powell thank you for being here this morning. sound monetary policy is critically important to unleashing the economic opportunity of this great nation and her citizens and in 2018 i can tell you i'm a small business owner for 47 years on main street, we are off to a great start, with a booming economy, low unemployment and americans having more money in their pocket due to the tax cuts and jobs act so i'm encouraged by the strides we made in the last year, i do acknowledge that there's still much work to do. i look forward to working with you to ensure that our economy is fully empowered and never unnecessarily restricted. federal reserve bank presidents serve a critical role in providing local information to the fomc. this is one of the federal reserve's systems most important features.
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however some of the largest district economies cast a vote every three years while small economies are represented annually and every other year. so chairman, is it your opinion that each reason is properly -- region is properly represented under the current voting structure? >> let begin by saying i'm a strong supporter of our fed rated system and what the reserveback system does is guarantees we'll have perspectives around the table. i think you make mistakes when everybody agrees. when you have diverse perspectives so in terms of the structure i don't think it's broken and when we have an fomc meeting you look around the table, all 12 reserve bank presidents are there and honestly i have to find the list to remember who the voters are and who are not the voters. because it's not who has the
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vote but who has the most persuasive things to say. i think that has served us well and i do not see a reason to change it. >> i believe monetary policy would be better informed if the district voted consistently. san francisco, richmond and dallas vote every three years and new york votes every year, chicago and cleveland every other year. i figure this underrepresents certain economies and the needs of regions to vote more frequently could be unjustly prioritized. the presence of the federal reserve bank presence of the fomc helps to drive power away from washington and new york so i have introduced hr 4759 the fomc representation improve act -- improvement act that would provide every federal reserve
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bank president consistent voting rights. so mr. chairman do you support a policy that will allow them all voting rights and be as detailed as you want to be? >> i would say i think the currentsystem served us well. i think you have a great reserve bank president in texas and his voice is well heard, as it should be. >> mr. chairman, i yield my time back, thank you. >> thank you. yield to the chairman. >> following up on the gentleman from texas, mr. chairman, as we rely more on the ioer and less on the fomc, haven't we diminished the role of these regional fed presidents? i know the fomc is similar to the board of governors but it's the board of governors that said ioer, correct? >> it's always set consistent with the broader decision of the fomc. >> perhaps that's one more reason we should normalize monetary policy to ensure this
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diversity of view is represented at the table. last year in a speech new york fed reserve bank president william dudley commented on the volker rule and said, quote, the line between market making and proprietary trading is not always clear-cut which makes regulation in this space difficult. it may be worth considering given greater discretion to facilitate client business to intervene when markets are illiquid and volatile. we have seen historic volatility and illiquidity in our fixed income market since the addvent of the volker rule. do you agree or disagree with that analysis? >> i would agree. my view is that we can -- we're taking a fresh look at the volker rule to implement in the a way that's faithful to the spirit and letter of the law. >> we've had a lot of testimony in this committee about how this
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does inhibit job creation and economic growth in the financial choice act, we repeal the volker rule and have legislation to make the fed the lead regulator so there one one centralized regulator so would the fed be ready to take on that role should be signed into law? >> we would. i think we would probably take it on even without law. i think we're the natural group to have the pen there and it's a multiagency rule and someone needs to coordinate it and we'd be happy to do that. >>the time of the gentleman from texas has expired. the chair recognizes the gentleman from nevada. >> thank you, mr. chairman, thank you chairman powell for being here or for your testimony. i just have a couple quick questions. as you know, i represent nevada which had the highest unemployment rate in the country during the recession.
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so despite the progress in reducing the overall level of unemployment since the recession, wage growth has largely remained low and stagnant for the vast majority of americans. in fact the average american hasn't seen a real pay increase since the early 1990s. many working people have not seen once since the 1970s. according to the economic policy institute, middle aged workers hourly wage is up only 6% since 1979. low-wage workers wages have decreased by 5% while those with very high wages have seen an increase of 41% so basically piggybacking on what miss beatty was saying, we live in a country where the rich are getting richer at the expense of middle-class people and i say this from somebody who has been unemployed before who has woken
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up, gotten dressed up and having nowhere to go but knowing that if you keep your head up you'll find something and everything will be ok. but most of the people who are receiving tax breaks don't understand the struggle most americans have gone through so with that in mind what steps can the fed or congress take to help combat this wage inequality to piggyback on what ms. beatty was saying and ensure that further wage gains are shared by middle wage and lower wage workers. >> our part of this is to take seriously our obligation to maximum employment and that's what we're doing, i would say more broadly on wages over long periods of time the only sustainable way for wages to go up is for productivity to increase, productivity is a function of investment in people's skills by businesses
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and people so those are things congress should -- we don't have those tools. those are things congress and the administration would be well served to focus on. >> do you think the minimum wage requirements afford workers the livable wage? we've seen this discussion in the last couple years whether we should be raising the minimum wage nationally. people have been talking about $12 an hour, people have been talking about $15. do you think this is something that needs to happen here in america? >> minimum wage policy is a form of fiscal policy. it's not for us. there's research that shows, for example that people who provide less value than the minimum wage, entry level workers and that kind of thing, can be disadvantaged and there's a
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research that shows that they aren't so these are questions that are best left for you. >> well, mr. chairman, you're the chairman of the federal reserve and you probably know about this more than i do. i believe that when you increase the wages on working-class families, they spend more money and go out there and stimulate the economy, businesses make more economy, they expand open up a second and third store. whereas some of my colleagues believe that somehow you give these big tax breaks to millionaires and billionaires and somehow it trickles down to the workers. i don't believe in that. i represent part of las vegas where the folks are hard-working people. janitors, housekeepers, cooks, chefs, waiters, those folks are the people who make las vegas run. if you increase the wages to those folks they'll spend more money and stimulate the economy and that is the reason why i believe we've had the wages
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and equality in this country. my last question is why has the fed been so focused onpreempt preempting education in the 1980s when it'sbarely budged? -- when wages have barely budged? >> it serves all constituencies well, including people in the lower income groups to have low -- have inflation low and under control. it hits those groups the hardest when inflation goes out of control so it's a good thing we've managed to control other things. so the way we get at wages is by taking maximum employment seriously. i think for some years we have really done that. it will show up in wages. >> thank you, mr. chairman. >> time of the gentleman has expired. the chair recognizes the gentleman from arkansas mr. hill the majority whip of the committee. thank chairman
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powell for his testimony today and listening to the discussion thismorning. i think we need to be clear on the record both chairman, chairman of the committee, chairman of the fed that the biggest thief for working people in this country and across the world is inflation nothing depresses buying power more than inflation and nothing cuts into those at the hardest working part than inflation so minimizing inflation and having safe and sound capital markets are a worthy objective ofthe fed and so i thank you and your colleagues for fighting for modest inflation so that people have real wage increases and i do believe that one of the benefits of the restructuring of our tax system will be to increase productivity and productivity will see wagesgo up we have go up and certainly see that in the first two months of the year.
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company after company have talked about it. mrs. moore referenced it as well but i saw a morgan stanley research study that calls for earning projections of 2018 to be up 8% and other 44% of the companies expect to reinvest in their companies and training and capital expenditures and both these efforts will produce higher wages and another 30% of companies improve to increase companies to distribute more earnings so i view these things as positive for our economy. i want to follow up on chairman hensarling's comments a bit about your exchange on the volker rule. the chairman has talked about the bill i have introduced to harmonize regulatory oversight. you've noted in previous testimony president dudley has, even mr. tarullo has about the complexity of this rule, that
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we're not getting it done, not doing a good job of enforcing the rule. but on this harmonization bill, i've had some difficulty in getting members to understand that giving community banks relief is somehow letting those bills -- those community institutions off the hook of safe and sound banking practices and i'd like for you to respond to what i've told them. by saying the community banks are not subject to the volker rule doesn't mean they're not subject to the careful scrutiny of our bank regulators and isn't it true if they were doing something that you deemed unsafe and unsound related to coal volker types activities that they could be disciplined for those rules?
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>> yes, sir, it's true we don't need volcker to find unsafe and unsound practices. certainly in bill you mentioned that senator crapo introduced, you can't have a small trading book. even if you are under 10 billion. so we do not see significant implications at all from that. >> appreciate that, i think we need to be clear that we have the tools to enforce safe and sound banking practices for banks of all sizes, particularly those in the smaller size that's referenced in my legislation but that the real mission here by designating the fed as the principal regulator that will get better more discreet interpretive guidance on how to enforce the volcker rule. i think it is a big source of confusion around the capital market system. do you agree with that?
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>> i do. the volcker rule is complex and we can simplify it. >> you i think when you've testified previously said some trading people needed a ouija board and that freezes up cal -- freezes up capital markets that i'm the most concerned about is misinterpreting that rule by compliance department. have you seen that in your work with your district bank presidents about that exact thing where we're hurting illiquid securities? >> we do hear that. i think if you -- it stands to reason if you provide more certainty about where the law applies and doesn't you don't have to convene a giant meeting to figure out if you're complying with the law or not. you will have people able to do their business better. >> i wish you my best wishes for your service as chairman of the
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federal reserve. >> the time of the gentleman has expired. the chair recognizes the gentleman from minnesota, mr. ellison. >> thank you, mr. chairman. welcome to the committee, mr. chairman. the cato institute estimates ending the deferred action for childhood arrivals could cost the u.s. economy over $280 billion in reduced economic growth over ten years. the center for american progress puts that number $460 billion bigger but still a loss. the chamber of commerce doesn't put a number on it but they do say that ending daca would be a nightmare for america's economy. so what kind of economic impact would ending daca and making 700,000 dreamers deportable have on our economy?
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>> let me say that these are difficult and important issues and we don't do immigration policy at the fed. >> i'm not asking you about immigration policy. i'm asking you about the economic impact of taking 700,000 people, 90% of whom are employed, out of the economy suddenly. >> i don't want to wade into a hot political discussion but i will say this. economic growth can come fromtwo -- from two ways, it will either be more people working or higher productivity. the work force is now growing at about .5% per year and some of that has been from immigration so to the extent you care about potential growth, you need to be considering that in your discussions about immigration. >> so what i hear you saying is that taking 700,000 people, 90% of whom are employed, out of the
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work force, would be -- could cause problems? >> i'm not going to comment on that particular situation. >> i hear you but i'm asking about the economics of it. i'm asking you as somebody who lives in an institution that has a mandate not just to keep inflation down but to pursue full employment. you have a duel mandate and i'm asking you about employment and you're declining to answer myquestion. would you take like to talk about what it would mean to take 700,000 people out of the economy? let's say they all went to mars for some reason. >> in fairness, congressman, i am not going to get into the debate over daca, i'm not going to do that. >> i'm not asking you to, sir, i'm asking you to talk about the economics of it. >> well, i said -- >> let me see if you can answer this. what does it mean to have a group of people in their prime working years suddenly disappearfrom the economy?
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-- disappear from the economy? >> well, you would lose some productivity from that. >> ok, thank you very much so there's a research group known as reveal. they did a study looking at mdaerally millions of h reports. i'd like to ask unanimous consent to have theirreport considered for the record. -- their report considered for the record. record. they looked at 31 million hmda records and found that 61 municipal areas across the united states had unfairly -- had denied people of color, black and brown people the right to take on a mortgage compared to equally qualified whites.
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what is the economic impact of that discrimination in your view? when people can afford a mortgage and are told you can't have one, what sort of impact can we expect to see when that happens on a systematic basis? >> i think it's so fundamental to our society that there should not be racial discrimination along the lines of credit availability. >> that's a moral position and i agree with you but i want to know how it affects the economy. >> well, start with those people. if people are denied access to credit then they're going to be less able to attend school, perhaps, let able to start a family, less able to move to a new job. all kinds of things, economic outcomes for individuals would be potentially significantly reduced and if you take that out across a broad population it would hurt the growth of a country. >> i want to get your views on whether you agree with fed
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chairman neel kashkari that increasing legal immigration would help our economy but i'll get to that another time. >> mr. bud? >> thank you, mr. chairman, chairman powell, congratulations. i know you've heard it many times but we're glad to have you here. would it be fair to say the current administration is willing to review and question decisions made by the fsb, the financial stability board, in the past? would you be willing to review and question those? >> sure. i mean, i think we always -- if fsb doesn't make decisions about u.s. regulation, they make recommendations and if we were to enact something in a regulation we would put that out for comment and anything like that could be reconsidered in principle.
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i don't think any anything that comes to mind but maybe you can help me. >> so as much as their opinions have influenced policy, there's one in particular i'm thinking about. in 2013, the fsb instructed the international association of insurance supervisors required them to have insurance groups. there seems to be concern among u.s. based insurers that this would be bad for the u.s. market and u.s. policyholders so many the leadership attempts to hide behind the fsb, they say fsb told us to do this, told us to do that, so it's my view if they don't move in a more positive direction we need to look at how the fsb is affected by this. so i want to have your thoughts about reviewing that with international capital standards.
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>> i served on the supervisory committee for several years but i haven't been involved with it for some time now and i'm not sure where that one is but i know that we had rolled out a capital requirement in broad form and i have to come back on where that stands if that's allright. >> sure. it may have the fsb involved, new directives. just can i have you confirm that you're willing to work through the fsb to redirect the -- excuse me, so many acronyms. with the iais if needed, would you have the fsb review that? >> can i confer with our people who do insurance regulations? >> no problem at all, thank you. >> thank you. >> i yield back. >> would you yield to the chairman? >> appreciate the gentleman for yielding. chairman powell, i want to revisit an area we've spoken
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about briefly during my questioning and i'm not sure i'm clear on the answer and this has to do with the runoff of the balance sheet. again the monthly cap on your security rolloffs, your treasury security rolloffs will rietsz to -- will rise to $30 billion in the report you released friday . to data from the system's open market account, you don't have $30 billion of month,y securing every so i am trying to figure out are you making up the short falls that i understand you to say these caps are flexible? i don't understand what you intend to do when you don't have enough treasuries that are actually maturing to hit the $30 billion? >> so the purpose of the caps
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was to gradually start the runoff. the caps won't be binding for treasuries and nbs. i think only for the treasuries in the big treasury financing months so you can think of them as not restraining either so we weren't saying -- our projections don't say we're going to roll off $50 billion per month, that's not how it was intended and we don't know how fast mbs are going to run off because they run off depending on where interest rates are. we know with treasuries and we know we're moving right along. these are significant reductions this year and next year in the size of the balance sheet. >> so as of a couple of weeks ago, the balance sheet if i saw it right was at $4.4 trillion and by years and at the current rate of rolloff it ought to be
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at $4 trillion and if you keep to the pace, $3 trillion, two additional years of rolloffs about two trillion four years from now, does that sound about right? is that the current expectation? >> that sounds about right. >> but do you expect it to stay there and do you not expect for ash to wayne -- wane interest rates rise? >> right now we have $2.2 trillion in non-reserve liabilities. when we shrink the balance sheet, what goes away is the reserves. that's the liability that goes away. so that 2.2 trillion liabilities, you have to add on whether the equilibrium demands whatever if reserves it and it will be at least $700 billion no matter what we do. >> the time of the gentleman is expired. the chair recognizes the
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gentleman from illinois, mr. foster. >> thank you for appearing here. this is an importantparent of communication with congress. i'd like to follow up on representative rice's dangers of default. i'd like to repeat his thanks to you for being involved in educating members of congress about the necessity of taking seriously our payments on principle and interest. there are two different kinds of defaults. they're driven by fundamentals. the country doesn't have the ability to repay its debt. if you think about iceland where there were debts from the banking crisis of 700% of gdp and no way for the people to pay it off, they're the ones that are self-inflicted wounds like our voluntary failure. a countrye -- when that has more than enough money to pay its debts simply for some
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political reason refuses to do it. over time, both parties have been guilty of weaponizing the debt limit. i want to encourage you that there is a bipartisan consensus that could be assembled to get rid of it. it's always abused by which ever party is in the minority and i think everyone should step back and -- you know, you're an important part of opinion making in washington and in financial circles so anything you can do to encourage that to happen, there may be a moment when the stars align and we can get rid of this uniquely dumb thing that we do of threatening to notpay -- not pay our debt. you hear there's not enough money and we have to cut medicare and that we have to cut all the things that poor people depend on so i'd like to go into that. the u.s. household net worth is
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going to go over $100 trillion. $100 trillion and that publicly held debt is 75% of gdp so it's around 16, 17. would you agree is that there's clearly enough money in the united states to pay off our national debt? will we ever reach a situation where the world says there is so much debt in the united states, public or private, that we cannot do it? we cannot cover our debts? >> i wouldn't want to run the test. wherek there would, time the global debt-buying public would come to the view that we either weren't prepared to honor our debts or couldn't service them. but we're a long way from that. >> but that's different -- for example, in japan where the debt is 200%, more than 200% of gdp
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the markets are not concerned because the amount of private wealth in japan is more than enough to cover that. the situation is different in china where there's a huge amount of often unacknowledged private sector debt and when you think of what will happen when the debt fails that will land first on regional banks and the main banks and basically on the government's balance sheet so there's a real danger in the case of china that there's not enough money in china and enough wealth in china to cover the debt, would you agree there's a fundamental difference in the united states that we do have the money to pay off our debts by a long margin? because of the large public wealth in this country and that really it's a political problem that we face rather than one of just not having enough money. >> we certainly have enough money to service our debts and honor them without question. but the issue is servicing them
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gets more and more expensive as they accumulate, as the numbers go up and those bills will be borne by our children. >> i agree completely and the wisdom of lowering taxes at a time when the economy doesn't need to be stimulated is something that is -- well is sort of elementary macroeconomics. when the economy recovers you pay a debt in order to smooth things out. you have a section on page 14 and 15 of your report that you're presenting on the low inflation in advanced economies which is something that's of widespread -- do you have any thoughts on really what's -- what your main suspicion is for why that is taking place? >> inflation has been coming down all over the world and it probably has something to do
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with the aging of the population and with low productivity. it probably also has to do with -- sorry. >> the time of the gentleman has expired. the chair recognizes the thank you chairman hensarling. it's wonderful to meet with you again chairman powell and thanks for being so direct and giving us the answers to the questions that we ask. sir, i represent probably the most stunningly beautiful part of the world, rural maine, and if you haven't been there, mr. powell, we are blessed with such natural beauty, we have 3600 miles of breathtaking coastline, we have thousands and thousands of lakes and ponds and hundreds of miles rivers and streams. we're also called vacationland. you look like a fellow that probably needs a vacation and i'm not sure if you booked your may vacation but if you have a problem, call up our office and we'll help you out.
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now, when you go on your maine vacation -- and this is a great time to go if you like snowmobile, or the summer -- you'll find throughout our district, the rural part of maine, mostly, that we have a lot of shutdown factories and mills. when i was a kid growing up we had maybe two dozen paper mills, we have six left and they're healthy. you look at a lot of our tax -- textile and tanneries and shoe factories, mostly shut down. and we -- in many cases we've done that to ourselves with trade agreements that were unfair and hurt our workers, high taxes that didn't allow us to be competitive, i know we partially fixed that problem in december and costly regulations. i'm sure you're familiar with a competitive enterprise institute that says -- and i summarize -- about $1.9 trillion a year cost is paid by our employers and through them passed through to
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some of our consumers. $1.9 trillion cost to comply with federal regulations. not state and local, just federal. is it fair to say mr. powell that unnecessary and costly regulatory burdens hurt the economy's growth and job creation? is that fair to say? >> yes. >> and would you look at the past year, 2017 and up until now when you have the economy growing at roughly 3% as compared to 1.7% the last roughly eight to ten years, is part of that increased economic growth the result of repealing unnecessary and expensive regulations? >> you know, intuitivety i would guess that it is but it's very hard to pin that down. >> i think anybody -- with all due respect mr. powell who's run a business as i have realizes that if it's lessburdensome to -- less burdensome to run my business and sell product or services that i'll be more competitive, be able to high
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-- to hire more people and do better. let me give you an example. this morning i met with 100 folks from our credit unions in maine. these are wonderful people that are spending more time or too much time dealing with compliance as compared to pushing money in the community so businesses can grow and hire more workers. can you commit that you will do everything possible within your purview to make sure the regulatory burden for our small financial institutions are controlled and hopefully repeal repealed? >> i will make you that commitment. >> you will or will not? >>will. >> thank you, sir. have you looked at senate bill 2155 which deals with part of the choice act that we sent over to the senate and they're dealing with issues,in particular with small credit unions and community banks that help them deal with the regulatory burden. have you looked at that, sir? >> i'm not so good on the numbers of the bills. does this bill have a name. >> i believe it is mr. crapo's bill. >> i am familiar with that. >> you're supportive of that, because that deals with what you and i are talking about. >> it's a big bill, there's a lot in there, i think the
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aspects you're talking about i certainly think are sensible. >> perfect. thank you very much. let's talk about what mr. foster was talking about and this is wonderful talking about the national debt. we have $21 trillion and chairman hensarling is good to put that number up and you can see it on both sides of the room. it makes me sick. we've had other folks in the last administration, mr.powell, have that that have come here and said this is no big deal, bruce. $21 trillion in national debt. i used to be the state treasurer in maine and we knew how to balance our books and spend only what we took in. when i was there the debt clock was unwinding. now we have $245 billion per year interest payments on that debt. do you take a different tack from the folks moothat were here earlier in the last administration? do you think this is a problem? this $21 trillion in debt?
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>> we're not on a sustainable fiscal path. >> i would agree. so we can agree this is a problem. with that said, sir, my second day here in congress i co-sponsored -- the first bill i co-sponsored was a balanced budget amendment to the united states constitution to finally force washington to live within its means and start paying down the debt. do you think that's a good idea? >> not a supporter of the balanced budget approach. i am a supporter of sustainable fiscal path. >> i'm going to come back to mr. powell on that. >> time ofthe gentleman has expired. the chair recognizes the gentlelady from ohio. >> thank you, mr. chairman, thank you, ranking member and thank you, mr. chairman. certainly as one would expect with you being the chair of the federal reserve that the questions would be centered around economic projections, economic developments, financial stability, monetary policy. but i'm going to keep in my true form of askin gyou the same
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asking you the same question that i've asked everyone who has sat in that seat. are you familiar with section342 of dodd/frank. >> yes, ma'am, i am. >> so with that, the office of minority and women inclusion can you tell me in your short time, which i recognize but you also have almost a half decade of being chairman of that board, tell me what you're proud about that's under your leadership with this group? >> i've been involved with my seventh reserve bank presidential search and we've been able to select diverse candidates and i'm proud of that. i think the reserve banks do a good job on this. i think at the board, cherry allen started a group of us to meet regularly and try to advance diversity and inclusion
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agendas at the board. >> so let me ask you this, who is your person? >> sheila clark. >> and do you think you can increase your numbers as chairman yellen had worked on rising them? while it was a fair job under her, i asked her the same question and she admitted it could be better. so while i'm saying you've --the entity has done something i want to hear how we can do more because it's still bragging rightes in my opinion. so i want to you to think about that. we have a lot of people in the audience today in green t-shirts who represent many of the people who i represent in the third congressional district. many of them women, many of them women of color who also are concerned -- the only difference is they put the people face, the human resources on the same monetary policy and all of the
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questions my colleagues on the other side asked you about numbers. have you met with these individuals? >> yes, i have. >> ok. and can you share with me some positive progress that you or the people who work with you are doing with them? >> so we met with a group with the green t-shirt as couple of years back. and wanted to tell us about what was going on in our communities. and frankly, i thought afs a proud day. we sat there and listened to what was going on in their communities. it was respective and useful. and we also have other meetings. >> would someone on your staff be able to send me a report so i would have something in writing to know some benchmarks? i know in meeting with them and their representatives, they have specific questions. and they're asking about interest rates and they're asking about how we can help
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improve the economy for what we call working middle-class americans. it a different way. i would like to get a report from your staff, sharing with me what kind of commitments you are going to work on. secondly, let me move to a financial question. i noticed in your report that there wasn't anything about the stock market. can you tell me if you think the stock market is one of the best or better indicators of the strength of the economy or of the financial conditions for everyday americans? and i ask you this because a lot of the colleagues have been bragging a lot about the stock market and how it is going up. >> so there was one reference in there about the recent volatility. i don't think we called it the
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stock market by name, but that's what we were talking about. we don't manage to stock market but stable prices to maximum employment. it's an important place for businesses to raise capital and investors to invest. >> is that a yes or no in your opinion? >> is it an important indicator? >> yes. >> the stock market is not the economy but it plays a factor. >> would you say only 50% of americans own stock -- and the other 50% who may be women and minorities don't? >> yes. >> the time of the gentlelady has expired. we now recognize mr. laddermilk . >> thank you for spending so much of your day was. -- so much of your day with us. it is important that we have
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this dialogue. i want to talk about something, i don't know if it has been talked about much year today. is important for me especially after spending over 20 years in the i.t. industry securing data. it's been on the mind of most americans and that's cyber security and protecting the data of americans. one of the areas of interest of mine and i've stated this in almost every hearing we have had on this topic. when i was in military and work in intelligence i worked on the technology side of it and when dealing with the nation's secrets, there's a huge responsibility to protect that information. we had a simple principle. you don't have to protect what you don't have. if you don't need it, get rid of it, otherwise it become as risk. i am sure you know the federal board of governors experienced several data breaches in 2011. it is alarming.
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it requires private sector businesses to collect and they have to protect it as well. your predecessor chair yellen said when i ask these types of questions that the fed follows cyber security framework and was working on minimizing access to sensitive data. i'd like to follow up. what are you working onto strengthen the fed cyber security profile and protect the data that you have? >> thank you. i'm getting started on this. i'm going to place a high priority, i think chair yellen and others before her did too. we need to protect the sensitive information that we have and we don't need to collect sensitive information we don't need. i think we've done a good job and we can do better. it's going to be a high priority.
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>> i appreciate that and that's one of the areas and i'm glad to hear you say that you're looking at disposing or not keeping certain data unless you need it. that's something we overlook as a government because access to information is power. when you have it, you have to secure it. transition over into another area that we've been dealing with here and understand that you're supportive of the regulatory relief proposals pending in congress. such as increasing the threshold to 250 billion from the current 50 billion and while the reform bill takes as thought full approach to measuring and designating systemic risk. it's a step in the right direction. can you help explain why banks under 250 billion in assets don't pose a systemic risk to the economy? >> as a general matter. banks under 250 bill -- 250
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million are more engaged in the traditional aspects of banking. and they have smaller footprints. the way the bill works is we have the ability to create a framework to look below 250 down to 100 billion institutions to identify places anden -- identify places where standards may need to be applied. i think our view has been that that combination of raising the threshold and giving theability to go below gives us the tools that we need. >> and from what i understand, $50 billion was the wrong threshold and we need to adjust it. one last question. what is the fed doing with the private sector on faster payment technologies? are you engaged in that at all? >> i'm glad you asked that. i was in the middle of that in my prior life at the fed.
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this came out of the thought that we are falling behind other countries and widely available of mobile payments. that sort of thing. so we convened a group of companies and consumer groups and regulators and customers around the table and tried to make progress toward faster mobile payments. i'm proud of what we've done. the kansas fed has had a lead and done a great job. we're continuing to work on it and think it is important. >> thank you for your leadership and i look forward to working with you over the next few years. thank you, i yield back. >> the chair recognizes the gentleman from washington, mr. heck. >> thank you. i'm going to ask you the same question that i've asked each of your predecessors. when does america get a raise?
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the reason i'm asking is because we've been through a protracted period of time where wage growth has been fairly stagnant. answer, i know you are going to make indication of the up tick and latest report of the wage growth of 2.9%. i want to qualify your response by reminding you that that 2.9% was impacted by some tran sen -- transitory or one time bonus payment and if you disaggregate the data between supervisor and nonsupervisory employees, didn't get anywhere near that. it was below. and 2.9% in and of itself despite how encouraging we may or may not put it in the context of the last 18 months. it is below modern historical ages closer to 4%. when is this economy going to function and grow in a fashion that enables americans to get a
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meaningful raise? >> so over time, wages should grow in keeping with basically, the sum of inflation and increased productivity. so if we assume inflation comes down to 2% it comes to wages have been increasing at about 2.5%. that is because productivity was 1.5%. we really need, if we want wages to go up on a sustainable basis over a long. of time, we need to have more productivity. unfortunately that is not the things we have the tools for. >> is that true?
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it seems to me that they are not youted to the degree that keep your self the brake and allow unemployment to fall. i'm going to return to this issue about some things you have to the degreest that we keep our foot off the break and allow u-3 or u-6 to continue to drop and continue to create pressures in the economy. does that not in and of itself incense vise businesses and employers to invest in saving devices? is it not possible to improved wages can help to lead to improved productivity and create a cycle with wage growth over time? >> yes. and that is exactly what we hope is happening right now so --.
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>> so you're committing to keep your foot off the break? >> when i was getting ready for this hearing i went back and read something you said on your first year of the committee the first meeting. one of the bank presidents mentioned title labor markets. -- tighter labor markets. you said you didn't see anything in the wage data to support that. it struck me as interesting. it got me into thinking about u3 and you six in my frustration with both. it has been two and a half years since we hit the supposedly .efinition of unemployment and it made me wonder, why don't we just use wages data to help define what full employment is? wheeze as a factor to look
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at. i think it is important to see that for a long time, there was slack in the labor market. we have reached the point where the risks are really two-sided now. we need to keep that into account because if we do get , economy the market tosn't as he, we will have raise rates faster and that raises a chance of a recession and recessions tend to hit vulnerable populations. that is why we are raising rates on a gradual path. >> fair. i would only observe that you of the brakes at the expense the people who have over a long. --time not received a raise
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period of time not received a raise. thank you mr. chairman and thank you mr. powell. appreciate your time here. i think i am the end of the line here today. just a couple of quick question to deal with in the weeds policy. i would like to ask you about the federal open market committee and their role in determining interest on nexus reserves -- excess reserves. when the bill got amended, the federal's in determining those interest rates were left to the board of governors and not the entire federal open market committee. it we know this is a valuable tool using the entire committee to determine monetary policy. my question for you is would you support an initiative or legislation that would give the full role of determining what
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the excess reserve amount -- interest on access to an entire expanded fmo, fomc and the federal reserve? >> i guess i would say this is less of a problem than it seems to be. the voting members of the fomc that this side that -- decide that. i am always loath to support interest because it opens up the the voting members of the fomc that this sideact. this is not a problem we need to solve because there is no difference between the two things. you be supportive or not supportive of legislation that would allow the district president to weigh in on a
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decision as well? if not, why not? >> i don't think we're looking legislation. >> in this case, we are looking for more stakeholders to be a part of the decision process. >> think the real decision that is made is the one that bank residents do take part in. they make that decision with us under the law. if i thought it was really unfair or a problem, i would support a change. i don't really think it is a problem. it is less so than it would appear. >> has been expressed from them that they would like interest on the. -- that. let me go to the federal open market blackout. -- period. that? you feel about just so we know and have an ability to find out what is ofng on during that period
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eight times the year where the committee is meeting and we do have an opportunity to hear from the stakeholders. you want to look at what are proposing. the whole idea of that period is that we don't speak publicly to participants are anybody about monetary policy during that period. that gives us a chance to keep our mouth shut for a while and let us get in a room and do our thinking. we come out of that and make an announcement. there is a day or two and then people give speeches and that kind of thing. >> do think there would be thatere in their -- there would be better off with more transparency? obviously there is some that you would like to keep in the negotiating process, the others that we could speak on? >> we have to discuss this with you. ardently commit to that?
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-- why don't we commit to that? >> thank you. >> concerned that when we are actually thinking about what to do at the next meeting that we take a step away from our public conversations. that is generally seen by us as a healthy thing. >> one other quick question on another topic. the "wall street journal reported that the act calls for governors to have access to two senior advisers. would you be willing to allow two senior advisers to help a more diverse set of perspectives to your committee's monetary policy deliberations? >> i do remember that provision in the bill.
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the board has really changed in the time since i have been there. we are back to wherever governor has one or two advisers and we don't elect a space on that. >> so that is something you would support? >> time has expired. >> thank you. >> thank you so much for your testimony today. before i get into my prepared questions, i have two follow-ups to previous questions. intervention about in terms of selling assets. in a particular scenario where the yield curve may become monetary whether policy might be appropriate up to and including selling assets in order to prevent a yield clarity, ifion, for yield curve inversions are generally seen as bad, why wouldn't intervention to prevent a yield curve and version be seen as good?
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in terms of yield curd -- curve inversions, i think history is what it is. that is not where we are right now. i think most observers of this environment don't see that problem. oryou look at projections likelihood of recession in the next year or so, they are very low. at the current yield curve situation is a problem needing a solution. going into the issue of selling assets, i really like our theset plan of allowing treasury securities to roll off passively. market has accepted it. four years is not a long time. it will be back to some sort of new normal and another four years.
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thank you. also, you are asked about the i/o er payments, i think your that they are constrained by commercial rates. things that are available in the marketplace. i would note that an interest-rate consists of generally of two parts. one is time value and money and the other is default risk. don't have aers default risk. could you comment on that? >> the law says that we should not pay interest on reserves later than the general level of short-term interest rates. it as a needsee for clarification on the law because the short-term interest time value money risk, but also default risk.
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alternative for a financial institution in the a one-for-one rate, it can make loans out in the marketplace and it -- inherently have default risk that the ioer does not have. >> or we are trying to settle to do is set short-term interest rates for the public. have af those will credit risk component. the short-term interest rates don't have a big one. >> thank you chairman. i do have a question about the two roles of the fed. with that because a set of how you see the structure of the fed? >> yes. >> do you actually tracked the budget of the two activities separately?
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other people generally involved in regulatory activity and a different body of people involved in monetary policy? >> different divisions of do have different budgets and we do look at a more functional basis. it is pretty intertwined. we do call upon what we learned in a supervisory and regulatory state going to get a lot of input. and informs our monetary policy. i think our knowledge of transition mechanism -- there is quite a lot of intertwining their. re.the bill that we put together 4755. hr this up with the regulatory component of the federal reserve on appropriations which of the a compromised position because we could propose putting the entire
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federal reserve on appropriations. the purpose would be to focus on the regulatory side so the all the standard strings attached to an executive agency that is engaged in rulemaking applied to the regulatory side of the federal reserve and the same with the others do. thate that we can enact later in the year. my time has expired. >> the chair recognizes the gentleman from indiana. i appreciate you being here and i've heard great things about the testimony you have given so far. looking forward to the opportunity to interact with you. i wanted to ask some questions i hear a lot about industry. as a continued to see unemployment ticked lower and one of theower,
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questions i get is why we not seeing more wage growth across the country? on whatthat reflects the phillips curve theory is correct -- incorrect or whether it is kings and a nonlinear curve and what your views are on that. >> when way to think about it is for wages to go up, you need higher productivity. we are in low productivity since the crisis. we need to get up if we want wages to go up sustainably. as you get this close to full employment, you would think that there would be some tightness in the labor market. we are going to be looking at that as one of many indicators as to where the natural rate of unemployment is. i would not say it is a great mystery, but i would have expected to see more of an increase in wages. i do expect to see more increases in wages of the next
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two years or so. market, a shadow labor the great number of people that are not currently participating in the labor market might be tempted to come back and. do still think it is the case that more and put the opportunities might lead to more people getting into the workforce or is there a decay in their skill set if they have been unemployed for a period of time and it's about getting back into the workforce? we have seen labor force participation rate goes sideways for four straight years. that is a big gain. we have seen people either not live -- leaving are coming back as it has gotten tighter. how much more can there be? a help a lot more. individuals less employed or less likely to be looking for
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employment maybe 20, 30 or 40 years ago. i've certainly heard the democratic argument is that holding onto current labor force participation is actually a gain. it seems like working age population individuals are still challenge to get back into the workforce. ore you seen some anecdotal statistical evidence as to what that might be leaning to or what the cause might be? >> labor force participation by primate workers is still more than a full percentage point below where it was before the crisis. there are two things we think we are getting a signal or there is more slack. there are many others that suggest we are at or above full employment. a portion oft those people can come back in. the only way to know is to find out.
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think with relatively low unemployment, we are close to full employment now and should be finding out whether we can keep these people and get them back into the labor force. >> i read in other comments that you have made, please do let me misconstrue them, that there might be a tolerance to continue to see more tightening in the run aboutet and maybe historical average of inflation and a goal to try to drive smart wage growth and get more people back into the workforce. is that their characteristic of what you said before? >> i think we are engaged in a natural process of finding the natural rate. mid-4s. it is in the that sounds about right to me. that we would look at persistent deviations from inflation both above and below target as being undesirable and we will conduct
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policy to move inflation back to target. >> one must question. when you think about the economy today, do you think about monetary policy today and maybe its future as well, what keeps you up at night? where you most worried about in regard to the economy? think right now the economy is in the best shape it has been in a while. that is to around the globe. the problems associated with stronger growth and that is a great relief. my hope is that we can sustain that for as long as possible. >> time of the gentleman has expired. -- there being no ue, ier members and the c chairman powell for his testimony.
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hearing now stands adjourned.
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>> life wednesday on the c-span networks, on c-span at 11:00 a.m., numbers of congress on her the reverend billy graham at a memorial service at the u.s. capitol. at 1:00 p.m., they look at efforts to combat the opioid crisis. on c-span two, at 10:00 a.m., the islamic council hosts a discussion on economic change in saudi arabia. 12:45 p.m.returns at to discuss omb deputy director. on c-span3, what is ahead for the fbi headquarters and plans to build a new building on the current site. wednesday morning, we are live in santa fe new mexico for the next stop on this -- c-span bus
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's 50 capitals tour. >> former federal reserve chair byet yellen was interviewed ben glenn. this is 90 minutes.


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