tv Federal Reserve Chair Powell on Economy Monetary Policy CSPAN February 13, 2020 12:06am-2:01am EST
your uncensored view of government. created by cable in 1979 and brought to you by your television provider. >> live thursday on the c-span networks come on c-span the house returns at 9 a.m. to debate a bill that removes the seven year deadline for ratification of the equal rights amendment to the u.s. constitution. massachusetts senator elizabeth warren holds a townhall event in arlington, virginia. one c-span2 at 9:30 a.m., the senate continues debate on the war powers resolution that would limit u.s. action against iran with a final vote in the afternoon. and on c-span3, health and human services secretary alec cesar testifies before the senate -- azar testifies on the
senate budget request. that gets underway at 9:30 a.m. next, federal reserve chair jerome powell testifies on monetary policy and the state of the u.s. economy. he also spoke about banking institutions in real areas and digital currency. held by the senate banking committee, this is two hours. >> the hearing will come to water. delayed,rown has been but i will go ahead because most people realize we had to readjust the time of this hearing for those who have been called on the floor. that means the senators will need to really stick to their five minutes, and even then we may not get through for everybody and i apologize for that. i'm sure that senator brown and i will stick around 15, 20 minutes into the first vote so we can go around as long as we possibly can. i will wave my questions.
but i will start with my introductory statement. welcome, chairman powell. today the federal reserve chairman jerome powell will update the committee on monetary policy development and the state of the u.s. economy. the u.s. economy continued to expand in 2019 come exceeding 2% growth for the third straight year. the american people have enjoyed the longest continued economic expansion in american history. the labor market is strong, with the labor force at an all-time high of 164 million people. the most recent jobs report shows employers added 225,000 jobs in january alone with the ,nemployment rate at 3.6% remaining near a half-century low. wages also grew in january by 3.1% from a year earlier. monthsit 18 consecutive that pay has grown at an annualized pace of 3% or more.
personal view on their financial situations are increasingly optimistic a, according to polls. , 59%y six in 10 americans come say they are better off financially than they were a year ago, up from 50% a year ago. andreform in 2017 rightsizing regulations including under the economic growth, regulatory relief, and consumer protection act of 2018 has undoubtably helped fuel the strong economy and labor market. americans are said to benefit more when considering the effects of the usmca and the phase one trade deal with china. despite the substantial progress, there are several external factors that could have a meaningful impact on the economic activity in our financial markets that need to be better understood. including the fed's decision to maintain a significantly larger balance sheet in the future, including its recent decision to purchase treasury bills in response to volatility and short-term borrowing rates.
the fed's future plans to maintain to -- meeting stability short-term borrowing rates, including structural based market-based fixes. and risks of transition away from libor to alternative reference rates, steps that should be taken to ensure a smooth transition and curb risks to businesses and financial markets. and the financial mac it -- impact of the coronavirus. the fed has also taken a number of important supervisory and regulatory actions that merit attention. the fed and other financial agencies recently proposed amendments to the volcker rule that would improve, streamline and clarify the covered funds portion of the rule. proposal bills and the supplication of the vocal rule in 2019, standing to improve market liquidity and preserve diverse forces -- diverse sources of capital with balancing safety and soundness. many banking committee republicans and i have raised concerns in the past with the
agency possible and examination process, including the use of guidance as rules. in january, the fed vice toirman offered a roadmap foster transparency, accountability and fairness in bank supervision. including tailoring the supervisory framework to better align with categories developed under the fed's thomistic and foreign bank tailoring rules. putting significant guidance out for public comment and submitting it to congress. other improvements to the supervisory process, such as rulemaking, that would cover the agency's use of guidance in the supervisory process. this roadmap has greatly encouraging and i urge the fed to take steps to put it in motion. there is a constant innovation including in the financial services industry to increase resources to un-banked and under-bank populations, reduce friction in the delivery of
financial products and services. some recent examples are facebook's announcement of li bra, a stable cryptocurrency backed by real assets and block chain technology. work by global governments and central banks to explore the development of central bank digital currencies, especially amid rumors china has launched a imminent.an is the numerous applications of leisure technology, including clearing and settlement, identity verification, and cross-border transactions, and some financial institutions adoptions of public cloud technologies. as i've stated in past hearings, it seems to me technological innovations are inevitable and the u.s. should be leading and developing with the rules of the road should be. during this hearing i look forward to hearing your thoughts, mr. chairman, on these important issues and about the work the fed it has engaged into a purple invest in them.
and again, thank you for joining us today. senator brown? >> thank you, mr. chairman. chairman powell, nice to have you back. thank you for the accessibility and the conversations you have with both parties on this committee. before we start, i want say a few words about what happened last night, when we got word jesse loop nomination was withdrawn. she was to appear in front of this committee, was going to appear in front of the senate, when president trump withdrew her nomination. you, mysome of colleagues and friends, say the president was being chastened by impeachment. some told me you knew what the president did was wrong. some told me privately how much you think he lies. but you also said publicly that was not enough to rise to the level of removal from office, and many of you asserted he has
learned his lesson, he would not do these things again. to throught try illegal means try to change the 2020 election. presidenty clear the learned a lesson. the lesson as he can do whatever he wants, whenever he wants, can abuse his office and never be held accountable by the senate. that was the lesson. gone on aittal he has retribution tour, starting at the prayer breakfast. , prayer breakfast, mind you continuing through the east room where many of you were in the audience and applauded him as he -- attackedttacked people who have served this country. he removed colonel vindman, a pay. -- a patriot and purple heart recipient, who served his country. , mocking his accent his ukrainian action.
he removed ambassador sondland, a trump appointee, after he testified on quid pro quo. and he continued the tour come interfering with the department of justice, strong-arming political appointees to overruled career prosecutors. attorneys withdrew in protest, those professionals. i have no idea their political party, but they withdrew in protest of the case, and in at --st one case retired resigned entirely from the department. we cannot give him a permanent license to turn the presidency and the executive branch into his own personal vengeance operation. you all know what's happening very even the senator who just walked out knows it's happening. i'm afraid that's what we are seeing, a personal vengeance operation. no one should be above the law. and i includeing, everybody on this committee, including myself, if we say nothing, it will get worse.
his behavior will get worse, the retribution tour will continue. we all know that. to theirman, now on issue at hand. back.ome chairman powell earlier this week, bloomberg reported in a profitable and fast-growing spanish company that has opened branches and 36 states. they buy and sell plasma, which means blood come as we know. americans who are struggling to make ends meet are lining up to sell their blood and put food on the table. the blood harvesting business is booming. the stock is doing great. it is hard to think of a better metaphor for the trump economy. and nasdaq both reach record highs, 2019 was the best year for u.s. bank's in history, $36 billion, 36,000 million in profit. big corporations are spending hundred's of billion's of dollars in stock buybacks and dividends, and the economy has been expanding uncorrupted over
10 years, although the grass -- the growth the last three years of the obama administration has been greater than the first three years of the trump administration. but you talk to the vast majority of people who rely not on invest in before those two are native living, they have a different story. they have been bleeding for years. what families don't understand why the harder they work, sometimes more than one job, the harder it gets to afford pretty much everything -- childcare, health care, rent, college tuition. the people in this room may remember last september when the financial industry took a panic over the benchmark rate passing 10%. wall street faced uncertainty, so we respond. the fed leapt into action. smart government employees came up with a plan that led to the federal reserve letting about to hunt a billion dollars to the financial markets -- lending about $200 billion to the financial markets that is not been used since the crisis. i don't get is wrong for the fed to be creative and make sure the economy keeps working. it is in everybody's interest
for the banks to keep lending money and credit to keep flowing so businesses can invest in manufacturing consumers can buy houses and cars. my problem is when main street faces uncertainty, nobody at the fed gets creative. the president does not criticize in person, but by name the chairman of the federal reserve when he's that she never demands corporations raise wages for workers. that is never his criticism. it is hard for families to understand why wall street gets worked up about a 2% interest rate when so many families are lucky if the payday lender down the street charges less than 400%. small businesses are having trouble making payroll and don't so-calleds to funding. the fed does not take action when its own research finds 40% of emergence don't have cash. 40% of americans don't have $400 downsh if their car breaks
to fix it, so they go to the payday lender and things spiral downward. nobody raises alarms when 40 million americans predict they will miss at least one credit card payment, which means $1.2 billion in late fees will flow from the pockets of struggling families to help j.p. morgan chase earned $36 billion last year. serious people have not dropped everything to bring down the cost of housing and raise wages once they found out one and four renters are paying more than half of their income towards housing. one thing goes wrong in their life, their lives turned upside down. people see different economies and different responses. we hear about the divides in this country between red and blue, rural and urban, the coast of the heartland. msnbc and watch people watch fox, but people feel no matter how hard they work, they cannot maintain real economic security. the real divide is between those whose problems are considered an
emergency and those whose struggles wall street and large parts of washington decided they can ignore. the fed needs to get creative for the people who make this country work, and particular it is clear the president and majority leader are not about to p president trump rubbed about restoring the stock market that he has pumped up with his billion dollar tax break for billionaires, the deficit exceeding a trillion dollars. don't hear much about that anymore, now he wants to pay for he said inuts, as davo's and in the budget, by cutting medicare and medicaid and social security. he lied about the blue-collar boom. when myirly incredulous own state of ohio job growth has been anemic or nonexistent. manufacturing jobs are stolen compared with when he took office. afterw in his budget come promising workers not to sell their homes, we will bring jobs back, to kill the loan program that was giving the community a little hope that some
manufacturing jobs would come back. german pal, you and your highly capable staff have been creative -- chairman powell, you and your highly capable staff have been creative, and we are all appreciative of that, bought i hope to hear from you today is how you might be proactive and use that same level of creativity to make this economy work for everyone else. chairman powell, i commend you for the work you are doing. i think there are terminus results that i'm expecting you will discuss today, from the efforts you have undertaken. you may now make your statement and we will proceed. powell: thank you very much. members of the committee, i'm pleased to present the federal reserve's semiannual monetary policy report. my colleagues and i strongly support the goals of maximum employment and priced ability congress has set for monetary policy. congress has given us an
important degree of independence to pursue these goals based solely on data and objective analysis. this independence brings with an obligation to explain clearly how we pursue our goals. today i will review the current economic situation before turning to monetary policy. the economic expansion is well into its 11th year and is the longest on record. over the second half of last year economic activity increased at a moderate pace and the labor market strengthen further as the economy appeared resilient from global headwinds that had intensified last summer. inflation has been low and stable but has continued to run below the fomc's symmetric 2% objective. job gains averaged 200,000 per month in the second half of last year and an additional 225,000 jobs added in january. the pace of job gains has remained above what is needed to provide jobs for new workers entering the labor force, allowing the unemployment rate to move down further over the course of last year.
3.6%nemployment rate was last month and has been near half-century lows for more than a year. job openings remain pliable. players are increasingly willing to hire workers with fewer skills and train them. as a result, the benefits of a strong labor market have become more widely shared. people who live and work in low and middle income communities are finding new opportunities. employment gains have been broad-based across all racial and economic groups and levels of education. witches have been rising for particularly lower pain jobs -- wages have been rising. gdp rose over the second of last year. growth in consumer spending moderated towards the end of the year following earlier strong increases, but the fundamental supporting household spending remains solid. residential investment turned up in the second half but is this investment and exports were weak, reflecting sluggish growth abroad and trade of elements. those same factors weighed on activity at the nation's factories whose output declined over the first half of 2019 and
has been little changed on net since then. the fig or monetary policy report discusses the recent weakness in manufacturing, some of the uncertainties around trade have diminished recently, but risks to the outlook remain. we are closely monitoring the emergence of the coronavirus, which could lead to disruption in china that spills over to the rest of the global economy. inflation ran below the fomc's metric 2% objective throughout 2019. over the 12 months through september, overall inflation based on the price index for personal consumption expenditures was 1.6%. core inflation which excludes the volatile food and energy prices was also 1.6%. over the next few months we expect inflation to move closer to 2% as unusually low readings from early 2019 drop out of the 12 month calculation. the nation faces important longer run challenges. labor force participation by
individuals in their prime working years is at its highest rate in more than a decade. however it remains lower than most other advanced economies and there are troubling labor market disparities across racial and ethnic groups and across regions of the country. in addition, although it is encouraging productivity growth, the main engine for raising wages and living standards long-term come has moved up recently, productivity gains have been so far throughout this long economic expansion. finding ways to boost participation and productivity growth would benefit americans and should remain a national priority. monetaryw turn to the policy. over the second half of 2019, the fomc shifted to a more, did have stance monetary policy to cushion the economy from weaker global growth and trade of the limits and promote a faster return of inflation to our symmetric 2% objective. we lower the federal funds rate the july,ge at
september, and october readings, bring it to one point -- 1.75%. with tray diminishing in some signs of global growth stabilizing, the committee left the policy rate unchanged. the fo mc believes the current stance of monetary policy will support continued economic growth, strong labor market, and inflation returning to the committee's of metric 2% objective. as long as incoming information about the economy remains broadly consistent with this outlook the current stance of monetary policy will likely remain appropriate. policy is not on a preset course. develop months -- if its emerge, we would respond accordingly. taking a longer view, there has been a decline over the past quarter-century the level of interest rates consistent with stable prices and an economy operating to its full potential. this low interest rate environment may limit the ability of central bank's to reduce policy interest rates
enough to support the economy during a downturn. with this concern in mind we have been conducting a review of our monetary policy strategy, tools, and key mitigation practices. public engagement as at the heart of the effort. through our fed listens events, we have been hearing from representatives of the consumer, labor, business, community, and other groups. the february monetary policy report share some of what we have learned. the insights we have gained from these events have informed our framework discussions as reported in our meetings. we will share our conclusions when we finished the review, likely the middle of this year. the current low interest rate environment means it will be important for fiscal policy to help support the economy if it weakens, putting the federal budget when a sustainable path when the economy a strong helping ensure policymakers can use fiscal policy to assist in stabilizing the economy during a downturn. a more sustainable federal budget would also support the economy's growth long-term.
finally, i will briefly review our plan technical operation to implement monetary policy. in the february report, it provides details of our operations to date. last october, the fomc announced a plan to purchase treasury bills and conduct repo operations. these actions have been successful providing an ample amount of reserves to the banking system and effective control of the federal funds rate. and billll purchases reserves have built to levels that maintain ample conditions, we intend to gradually transition away from the active use of repo operations. also as reserves reached durably ample levels, we intend to slow our purchases to a pace that will allow the balance sheet to grow in line with trend demand for liabilities. all of these technical measures support the efficient and effective implementation of monetary policy. they are not intended to represent a change in the stance of monetary policy. as always, we stand ready to adjust the details of our technical operations as conditions worn.
thank you, and i'm happy to take questions. >> thank you, chairman pal. i will not use my five minutes for questions. i will not use much of my five minutes at all, try to set a standard for the rest of the committee. before i turn my time over to senator brown, i yield my time. it has been brought to my attention, senator shelby, who unfortunately is not able to be here now, recently became the longest serving member of the senate banking committee in history. he began his service on the committee on january 6, 1987, and has now served approximately 33 years, one month, six days. sparkman,sses senator interestingly also of alabama, who previously served on the banking committee between january 6, 1947 and january 3, 19 79, almost 32 years. senator shelby has clearly seen dramatic changes in the
financial services industry over these years and himself has had a meaningful impact on financial institutions, markets, and consumers during his tenure on the i take this opportunity to thank him in his services and congratulate him on this significant milestone. senator brown. [applause] he's not here. i yield my time to you. >> thank you, mr. chairman. when the fed says it is nearing maximum employment, the labor market is strong, it can mean workers have one good paying job, or a worker is working under 40 hours and three part-time jobs at minimum wage. this highlights how the economic recovery has not benefited everybody. of people pay half of their rent -- half of their
income in rent. half of americans cannot come up with $400. it is not reaching everyone. if you are working a job in one of the 10 fastest-growing professions, seven out of 10 of those jobs you cannot still afford rent. something is wrong. you on tour, i have been looking to the report. who do you have working on bold and creative ways to use the fed's authority, some tools we probably don't know about, using your authorities to help working families that are benefiting from economic growth? what can you do to make sure most of our economic growth, not a sliver of it, most of our economic growth is an worker's pockets -- is in worker's pockets pockets? >> we do not have those tools. other agencies do.
elected officials hold the power to address those issues. our review of monetary policy, the first we have done of this nature, is to assure we have the tools to carry out the mandate you have given us of maximum employment and stable prices in a world where inflation is trending lower, where the phillips curve is very flat, so the connection between inflation and tightness of the economy is very low. and also, where interest rates are low. it creates a very challenging environment for us to carry out the job you have given us. that's why we are doing a deep dive on issues around our strategy tools and communications. these conversations can take place individually, but i ask you to be as creative as the fed. i have a list of extraordinary federal actions that did not require congress.
i'm not arguing congress is not doing its job, senator mcconnell and the president have refused to lift the minimum wage. for took away over time about 2 million or 3 million americans because of trump gaining the overtime rule. tax cuts for the rich and cuts from ed -- congress is not doing his job to redistribute income in any way that is fair to hundreds of millions of americans. list the maiden lane, the assets, the credit facility, converting investment banks to bank holding companies so they can borrow from a discount window. the fed has been creative to the countries benefit when wall street has reached difficult times, has run into difficult times. sometimes of their own making. some people with my political policy don't support the fed. you have stepped up. i ask you to be as creative in thinking of ways that this
2%,th is shared beyond 1%, or 5% who are doing well and are thrilled with the economy the way it is. it just doesn't reach so many. risks ined about other our economy, the fed taking leverage lending seriously. same time, we see the financial system get more exotic. wants to buyhase an electric plant in el paso. also a stake in a nuclear power plant. that means j.p. morgan chase could likely own a nuclear power plant. the japanese equivalent of amazon wants to form an industrial loan company in utah to get the benefits of being a bank without the regulation. recently, voted with other bank regulators to weaken the volcker rule about having protections in the 2013 rule allowing for more risky leverage investments. are we going in the right direction? it seems the financial system is getting more complex or exotic.
things people don't understand. what we are focused on is maintaining much higher capital, much higher liquidity requirements. stress test that keep the banks on their toes and address the issues of the day. also resolution planning. measures the important that we put into place after the financial crisis. we are focused on sustaining those, making them more effective and keeping them strong. back, mr. chairman. good to see you. i have several technical questions i would like to go over. some we have discussed to varying degrees in the past. one is the fed's real-time payment system. i was never convinced it was a great idea for the fed to pursue this, since we have a private sector system in place up and running and really encouraged by
the fed back in the day. of constituents expressed the concern that we are going to end up with two systems that are not fully operable. that employers, financial institutions, and other participants would be plugged into different systems, if they are not fully interoperable, there is a real concern that at a minimum, it will diminish the ability to innovate in these systems going forward. address theriefly, question of whether it is a priority of the fed to ensure the fed now system will be fully interoperable with the system? >> full interoperability is the goal. it will be hard to reach, but it is high on our priorities. it is something we are focused on in the design stage.
>> the clearinghouse system is committed to having flat fees and not providing discounts for volume and size of transactions provided that the fed now system does not provide those kind of discounts. that it willommit have uniform pricing on this platform? >> we haven't made that commitment. banksnot clear that the who really wanted us to do this are really looking for it. >> this is often cited as a reason for the fed to do this, because of the private system might discriminate on the basis of price. i think it's important the system has volunteered, they clearly have to be regulated, to ensure that this would occur. it would be really ironic and a shame if it turns out that it is the fed that makes it more expensive for the small banks to participate. let me move on to sofer. as we have discussed, one of the
challenges of replacing libor is libor has an embedded credit risk element. it's an interbank rate. sofer is a risk-free rate, because it is essentially a repo rate. that mismatch can create some problems, especially to the extent that banks are finding themselves in an interbank market subject to spreads. it may not reflect. a mismatch in assets and liabilities can become problematic. have, and iou may didn't see the transcript, you ay have suggested there is thought of trying to introduce a credit component, some kind of credit spread or credit risk component as either a compliment, alternative, or integrate it with sofer. did i get that right? is that something you are thinking about? are you concerned about it at all? we can'titself --
assume it will be published past the end of 2021. it will be challenged. sofer will be the rate a lot of the derivatives go to, and many across the broad financial system will. a number of banks have come forward and said they want to work on a separate rate, which would not replace sofer, but would be credit sensitive. they are doing that now. we are working to try and support that process. we are open to that. it doesn't mean the transition away from libor to sofer will stop. it has to go forward. last thing on my list. the glitch in the repo market, as we discussed, my concern is when banks choose to earn less than 2% on excess reserves when they could be learning up to 10%
in the repo market, it suggests something is going on. they chose not to. i'm not aware of an explicit rule that required that during the episodes when these rates happened. i'm concerned that there might be some kind of unspoken pressure on the part of regulators to favor cash on deposit with the fed over the liquidity in the form of repo transactions. that goes beyond what is actually in the rules. i'm wondering if you share that concern, what you think about it. the fed's response has been to provide liquidity. that works at the given moment, but if there is an underlying problem that has not been fixed, there is a risk the spike in repo rates could recur and you have to provide the liquidity again. >> there isn't a preference for
reserves over treasuries and the lcr, but there is in the internal liquidity stress test in the sense that it takes one day to turn the treasury into liquidity. of on equal footing so they can't achieve liquidity is a good goal, because we don't want to tilt banks in the direction of having more reserves than they really need. as long as the overall level of liquidity is appropriate. we don't want them in that direction. you may have seen the vice chair give a speech and talk about this issue. we're are looking at ways to address that. one way is to assume the discounted window is available in the stress test, which is a reasonable assumption to make. there are things to do. there was liquidity, but it didn't flow. it wasn't liquid. the question is why not? we are looking at ways to address that that will not
undermine the way, but make the operates -- markets operate better. you for yournk leadership. thank you for joining us. it was a wonderful evening. efforts totant here ensure the independence of the federal reserve. without the independent federal reserve, our national policymaking is really floored. keep up your efforts. have expandedwe the economy for 11 years, that would be eight years under president obama and three years under president trump. the expansion is good. there are still issues we should address. a few report in january, they indicated the sheer wealth held by middle income families has been falling for roughly 20 years. commentlike you to whether it continues to fall, despite the expanding economy?
in addition, they point out income inequality in the u.s. has increased since 1980. is it still increasing? and it is greater than the other countries that are similar to us in many aspects. economy, a expanding shrinkage of wealth in the middle class and income inequality, social, political, and economic trends i don't think are sustainable. are those trends continuing? what policy can we adopt to change them? trendse are longer-term that i think are driven by important underlying factors. many of them global. the data will continue to move in that direction. incomes have been moving across the income spectrum, particularly if you look at benefits and tax effects.
has been a particularly good time to be at the top end of the income spectrum. problems, one is low mobility. theave lower mobility from bottom quintile to the middle quintile in many other advanced economies. this is not our self images country. stagnation of income in the low-end, we want prosperity to be broadly shared. it comes down to education and training. things that enable people to do well in the modern economy, which is a globalized economy that is less about manufacturing and manufacturing jobs are more technical than they were. we need a workforce that can benefit from technology and globalization. those are policies that the fed doesn't have our hands on. >> you don't have the policies, but if we sit back, the trends
will continue and go even further. -- a further merger -- divergence between a vast majority and small majority of americans. it's incumbent upon congress executives to take steps, is that fair? and u.s.k so, businesses get this very much. business leaders see the workforce and the need for -- one -- we wanted to be as shared as possible. we hear from business and government leaders, as well. it's an important national priority. >> the community reinvestment massaged by the currency and the fdic. there have been comments critical of their efforts. not just by affordable housing advocates, but some banking institutions that they are not doing a proper cost-benefit analysis, that the proposal
could unintentionally discourage revitalization in neighborhoods that need it most. can you let us know what role you might play and you would help get it right? >> we are not going to comment on their proposal. i think all of us, including the fbi see and occ are looking forward to those comments and learning more. ofdo share the goal modernizing cra. technology and demographics have changed the delivery of banking services, particularly in rural areas. that hasn't been done in 25 years. we agree on the goal, we want it to be more effective. it would help if it were more transparent or objective. we share objectives with the agencies. we worked closely with them for a long time to get on the same page. we developed our own approach, which was a bit different.
we weren't able to get together in the end. we should look at it as an ongoing process, where we will continue to learn. >> thank you, mr. chairman. chairman powell, thanks for being here. you have been consistently raising warning bells about what you call the greatest threat to the financial system. us inlk to many of private about cyber issues. you said yesterday on the house side that you don't think it's breaking through. can you summarize where you are worried about cyber attacks on our financial system? >> they kind of pay us at night to be worried about things. if you look at the financial crisis, we had a game plan, we implemented it over the course of 10 years. i won't say it's perfect, but we have a plan meant to address those kinds of things. what is new in the threat environment is the ongoing level
of cyber threat and the increasing sophistication of it. we spent a ton of time worrying about it. the treasury department has really taken the lead on that. we are very focused on it. we are focused on making sure the financial institutions we supervise are doing the best they can to stay the state-of-the-art, good cyber hygiene. a lot of these things are people failing to implement updating their software and things like that. that's where a lot of breaches happen. it is an intense focus. supervisors invite financial institutions, nonfinancial all kindsn companies, of businesses are having this. it's in an arm's focus. it never feels like we have done enough. it is something we keep trying to get better at. a lot of resources in all of the
agencies and companies. >> give us maybe two examples of the way you think the attack could have spillover effects. how do the dominoes work without giving somebody a template or roadmap? you talked about ways that this could cause bigger consequences than 2008, how would that happen? >> i would just say that the confidence in the financial system is really important. the public has to have confidence in the financial system. a successful cyber attack on a payments utility, for example, would be challenging. we can address it, isolate it, but you would want to avoid broader blows to confidence. weakens, people will take money out, stop acting, things like that. uncertainty and lack of confidence are the reason. >> we need to recognize that
many different conversations we have with the chinese government tend to have a benign diplomatic flavor. we should underscore what's happening this week with the equifax hack having new headlines. -- 2017 heck of a for fax equifax that come from my the financial records of more than 39% of all americans. the justice department indicted for chinese communist party officials affiliated with military intelligence in china. this isn't an accident. it is the same communist party that has records and has moved on to equifax. can you envision scenarios where the chinese communist party was hacking into the u.s. banking system? >> we need to be resilient against all cyber threats. certainly state actors are a big part. we are well aware of those. we have help from the intelligence agencies and others in the country in keeping our
eyes out for that. >> the president's budget came .ut this last weekend some of us will be in the finance committee discussing the larger budget. we have headlines that focus on whatever the discretionary programs are that tend to be more hot button and current in the news. you talked about health entitlements and -- may be more broadly than health entitlements, the inefficiencies of our health care delivery system. for a developed nation, we have mediocre health outcomes. we have high-priced things. can you talk about the consequences of u.s. health and competitiveness on our larger economy? >> i should start by saying -- we don't do fiscal policy or give you advice on fiscal asked, the since you biggest issue of our federal budget is health care spending. it is not that our benefits are too strong, we delivered them in
a way that is measured by the outcomes. the outcomes are perfectly average for a first world nation, but we spend six or 7% of gdp more than other countries. it is about the delivery. that is a lot of money every year that you are spending and getting nothing. i have to leave it with you there. me to fixup for us or this, but that really is what it's about. the discretionary things are very high-profile. they get a lot of reporting. that's what is driving it. it is not that the benefits are fabulously generous, they are just what people get in western economies. we deliver them at the cost of 17%, 18% of gdp. others do it at 11%. that's what we should focus on. thank you for having this hearing. i want to thank you, chairman powell, for your work. i didn't hear all of the questions, what if it has to do with the independence on the fed
, count me on that block. it is important you maintain independence. i applaud you on your efforts. both the fed, through lower rates in congress, through entry spending, through increased debt, have taken actions to boost the economy during a long stretch of growth. i'm concerned that if we do approach a downturn, and there are a number of indicators that are concerning to me, that our options to address a downturn are limited. i want to hear your perspective on what the fed has as ability to react to the downturn. >> our traditional tool is interest rates. low rates are not really the choice anymore. they are a fact of reality. we will have less room to cut. that means it is more likely will have to turn to the tools we use in the financial crisis when we hit the lower bound.
it is forward guidance. it says we will keep rates low. it is also large-scale asset purchases of longer-term securities to drive longer-term rates down and support the economy. we will use those tools aggressively. should the need arise to do so. there's no need to do that now. we will use them aggressively. of view we are undertaking strategy tools and communications, in which we , isk inclusions in midyear we are looking to make sure in this low rate environment, difficult environment for central banks and those we work for, that we are using tools as best we can, we have explored every possible way to find every scrap of policy space to support the economy. importantress is for the fed to support the economy in downturn, as well.
the debt is at $23 trillion, is that right? at what point in time do you get concerned? president put out is another $1 trillion to the debt. >> it's hard to say what level you get concerned. i would say beer concern now. -- we are concerned now. we need to have the debt grow slower than the economy is growing. if the economy is growing faster than the debt, effectively, leverage is going down. what's happening is debt to gdp is going up quickly as these things move. other countries have managed to get to very high levels. now, we 20 years from will be spending those tax dollars, our children will be spending those tax dollars on servicing the debt rather than on the things they need. we are sending them those bills.
>> the debt doesn't go down if the economy downturns? >> not at all, quite the opposite. >> it becomes much bigger of an issue. i want to talk about housing. it's a big issue everywhere, rural and urban america. when you see the housing challenges impact individuals and the economy. >> housing is generally facing difficulties and affordability. the housing industry is doing better, building more houses that are profitable, but from the standpoint of the public, you have a squeeze going on to , just supplside constraints keeping the quantity of housing down. lack of skilled labor, regulations of various kinds. what you see in many places, not just big cities, you see housing and affordability challenges. it is a fairly widescale problem.
> there has been a lot of debate for a number of years. much of it started by the senator to my left on gse reform. reform have impacts on the housing situation? >> in the long run, it is important it happens, that we move forward. it is a big unfinished piece of business from the financial crisis. it is not ideal to have the entire housing finance system writing on the federal government in the long run. it would be better to move forward with something. in the long run, it is a more sustainable basis for housing. >> thank you for your work. i have other questions for the record. thank you for your service. >> thank you, mr. chairman. first of all, welcome. i want to echo what some of the colleagues had to say. on both sides of the aisle, you
will find strong support for the fed. i'd like to ask you about a rule that i filed a comment letter on, the fed's building blocks -- building blocks approach. it doesn't seem to make sense for the fed to resurrect the original section 171 calculation from dodd frank. this particular calculation unintentionally imposed bank centric capital rules. insurance saving and loan holding companies, which have a totally different business model. congress spoke clearly to the passage on insurance capital standards curve cajun act that it's intent was for banks to be regulated like banks, and insurance companies to be regulated like insurance companies. given the clear intent of congress, why has the fed chosen to revisit section 171? how does the fed intend to move forward? >> we got a number of comments
on that issue. we have looked at the law change. the question we are asking is what is the nature of the change made in the law? does it apply here? we will be reviewing those inments and considering them getting to a view on that. >> one of the reasons for having these open discussions is to bring attention to it. i think it is a very serious issue. it needs full attention of the fed. hopefully you get it resolved as quickly as possible to avoid questions that may be lingering. i would also like to talk about -- vice chair carlos recently remarked that business investment -- business fixed investment continues to be weak. having declined over the course of 2019. do you think it's fair fair to y this is driven by uncertainty with regard to trade and that
businesses are waiting to see how trade tensions resolve before they are prepared to make further investments? >> i would say there are abundant of -- there are a bunch of factors we need to look at. one is lower oil prices. the united states, that is a big swing factor. our work and that of many outside of congress does suggest there is also a role for trade policy and uncertainty around trade policy. the short answer to your question would be yes, i think there is upside to the extent businesses see the trade uncertainty -- around the trade situation as having declined. there has been a discussion about groupthink and about how the fed approaches it within meetings. do you think it is important for the fed board to reject groupthink and consider a variety of viewpoints?
i do.powell: i am strongly inclined to think you need to hear all sides of the case. i used to speak against my own deal just to force people to defend them. so i would really get a sense i believe in things. it is critical to have diverse perspectives. i think we do. if you think about it, the reserve bank system guarantees from an institutional standpoint we will have diverse perspectives on monetary policy. on regulation, where we get it is from comments and the group of people on the board. have privates sector backgrounds, and we bring that to the table. quits fair to say you could have people from varying points of view that could have very lively discussions and yet at the end of the day still be part of a very strong team?
chair powell: absolutely. i think it makes you stronger. have had plenty of dissent at the fed over the years. >> when the board voted on its rule for tailoring resolutions planned last fall, the vice chair gave a statement saying there's more that can be done when it comes to tailoring from these supervisory standpoint. can you elaborate on how the fed intends to move forward with this? chair powell: the vice chair gave a speech on that and laid out quite a number of aspects of that. ideas, they are not at the stage of proposals yet, but we are going to be looking at those. >> how will they be manifested? as rulemaking? as guidance? chair powell: some of it will be rulemaking, some of it will be guidance, some of it will be changes to guidance.
the key thing is, he highlights this the tension between the right to due process and clarity that we depend upon from our government. but also with supervision there is a role for discretion. processvery thoughtful of looking at that and asking, how can we make it more transparent with more due process, but still effective, because supervision has to be firm, but fair. chair.hank you, mr. >> i think a lot of our institutions are under assault these days. i share some of the concerns about the independence of the justice department. on a regular basis, to make sure the intelligence community can
maintain their independence. i would ask and frankly plead with you that if you see efforts made to undermine the fed's independence that you keep this committee fully apprised. the fed's independence is more important than ever. on my to also follow-up good friend's comments about equifax. i share with you the belief, the challenge that china poses, but i also think in the case of equifax and the credit rating agencies broadly, none of us choose to be an equifax customer or any credit rating agency. that cyberattack wasn't due to sloppy behavior by equifax, and the fact we have not put in place any, frankly, enhanced rules of liability around credit reporting agencies is something i hope, i know i have talked
with the chairman, i hope we will come back to, because i think all we have to be on guard, if we don't have the to make thisards obscene break into the cost of business, i don't think that is good for anyone. for you asuestions well. yesterday in your testimony, you talked about this movement toward digital currency, something i'm very interested in. you indicated it was possible there might be a united states digital currency. my question is, would that be desirable? i get the component parts around a digital currency might provide convenience and potentially even lower friction costs in terms of credit to consumers. but how do we wait -- weigh
privacy and cyber concerns? how would that deal with our retail banking system? do you think the fed has the capacity to do this without congressional approval? i have one last question about china's role. talk to me first about the domestic implications. chair powell: you have listed the potential costs and benefits. the benefits would include perhaps greater financial inclusion, lower cost, more convenience. the risks or costs would include cyber risk and fraud risk and privacy risk, things like that. there is a lot to work on there. every major central bank in the world right now is doing a deep dive on digital currencies and we think it is our responsibility to be at the very forefront of knowledge and thinking about a central bank digital currency.
>> would you take positive action on that? it would depend a lot on the design choices. it's a good question. i would say we are working very broadly, including with other central banks around the world, on this. there is just a lot of thinking and experimentation and understanding that we are gaining. if we conclude we need more authority and this is appropriate to due, we will ask for the authority. >> one of the things you mentioned yesterday, and a number of us on the intel community share concern about china in a series of areas. it is clear china may move quicker on a digital currency. you said you have some visibility into what china might be doing on digital currency. i would love you to spell out a little bit. do you think they will use their belt and through their
road investment strategy in a number of countries that have bought into that system that they might also be buying into ?hat chinese digital currency what would that do in terms of cross-border, dollar supremacy? any further guidance you might have on your insight into china's actions in the space with the help. assumeowell: we have to -- we have to ask, what would it mean if china had a currency, including two other countries. we have to ask, what if a private-sector entity, a large company with a large network of users, has a digital currency. baby -- a pretty bipartisan concern on that one. chair powell: i would say libra was something that lit a fire. we have been focused on digital currencies for a couple decades.
we are doing a great deal of work. >> i would urge, having seen china's ability to move aggressively in a series of forge that, that you coalition among other central banks sooner rather than later. >> senator purdue. >> mr. chairman, thank you for being here. i have one quick question. we have two dynamics right now driving the economy in different directions. labor is a limiting factor. we have roughly 7 million job openings. it is a limiting factor. on the other hand we have low energy costs. have doubled our output of oil. we are a net exporter of oil and gas, the largest producer in the world. 8% of our economy is energy.
15% of our is going to that today. we produce more oil than saudi arabia. my question is, are we in a low energy price environment, and what sense of that do you make over the next decade? what impact you think that will have on inflation, deflation, i know you have talked about concerns in the past. where are we on that big factor in our economy, energy? >> it has been transformational. if you think back when we were in college, energy spiked, there were long lines at the gas pump. we now have very large domestic energy industry which amounts to a shock absorber. u.s. drilling goes up with the price of oil, puts people back to work, it controls prices, it controls inflation. we are in a situation where that particular mechanic for inflation going up is just not
happening anymore. supply response from the u.s. industry is quick. you will not see that, you know, having sustained effect on inflation and also you will not see it having sustained negative effects on growth. it roughly offsets the effect of lower energy prices at the pump. the new supply will put people to work. >> are you concerned about the work participation rate with the growth of jobs in the last few years? workforce participation has bumped up, but not as much as one might have thought. chair powell: it is greatly a surprise to the upside, which is a great thing. the prediction, basically just because of demographics, labor force participation should drop by a quarter of a percent per year. it has been flat since 2013. is a is tight, but there
supply response. nobody had that in their model seven years ago, but that's what we have. it is a positive thing. >> thank you. i yield back. >> thank you, chairman powell for being here. how does income inequality impact economic growth? there is a lot of talk on the policymaking side of the impact on families. how does it hit your analysis, and what can be done on your side of the shop? obviously, people who are at the bottom end of the income spectrum whose incomes are not growing, consumption will be constrained. will be constrained and their marginal propensity to consume and add new dollars will be high to the extent gains are
going to the people at the top. they will not be hitting gdp, it will be going into savings. those are effects that will show up quite gradually over time. inequality is a gradually moving phenomenon. talk to me about the relationship between productivity and on employment. relationship that is emerging? is there new thinking along those lines? the traditional analysis is productivity goes up. that is basically good for the economy. but it seems to me the way people perceive it is those things are decoupled. i'm wondering if that is a change or if that is a political overlay to say, things may look good, but we are still on the bottom eating your scraps. i'm wondering if it is more than
that and that there is actually a change in the way you have analyzed this. chair powell: we are always learning and we have seen relatively low productivity in the wake of the financial crisis. it appears to be persistent. that means lower rates. to need rising productivity create higher standards of living. it does not mean in any given year you will see that, but you see a tight connection between if you add benefits, not just wages, but look at the full cost of employment, you see a --nection between >> are they no less correlated than they used to be? chair powell: i would not say that. wages look at the moment, 3%, productivity growth has been low. it has just moved up.
inflation is 2%. >> if most of the increase in total compensation is just that the employer absorbed a 7% increase in health care costs, that is not really an increase in wages in the traditional sense. your standpoint it seems like an increase in wages, but if you're trying to maximize compensation, it means nothing .o a regular person let me move on to climate. i have a couple of questions. regard the fed doing in to climate related financial disclosures? i think like others, other central banks, we are at the beginning of the process of understanding how climate change affects our work. one way we know it will affect our work is that the public will
count on us to make sure financial institutions regulate betral counterparties will dashed to the risks from climate change. we are at the beginning of understanding what all that means. in terms of disclosure, it is an fdic's issue. they regulate disclosure and they have been doing work on this lately. with a memberge of the house, i think it was yesterday, the question was whether we ought to be stress testing for climate risk. you said you are watching the bank of england. i'm wondering if you can elaborate. chair powell: they are doing stress tests which are not at all connected to the process that relates to the amount of dividends and distributions that a company can have. this is more just exploratory.
we are very closely monitoring that. we have good relationships with the major central banks, especially the bank of england and others. it is something we will be thinking about. these are early days. we are actually doing a fair amount of work through the federal reserve system on understanding this emerging risk. >> thank you. >> thanks for being here. our labor force participation rate is much better, but compared to other oecd countries, we lagged. why? chair powell: that is a great question. it is a combination of things, no doubt. attainment which was once the highest has fallen
relative to our peers. andicularly among lower middle income people, the level of education attainment has plateaued. that is the key thing. >> what else? chair powell: i would say the opioid crisis is not helping. , globalization in technology, advantaged people of relatively higher education and people in manufacturing, you think about what has happened to the manufacturing base in many countries, a lot of those jobs have been automated or moved abroad. the manufacturing we have now is very efficient and does not use as many people. >> what else? does trade have an impact? chair powell: i would say trade tariffs -- through this period,
we really have had declining tariffs since world war ii. we have had increasing labor force participation. >> does the richness of our social programs play apart? chair powell: it is very hard to make that connection, and i will tell you why. if you look at real terms, the benefits people get, it has declined during this period of declining labor force participation. it is not better or more comfortable to be on public benefits. it is worse than it was. >> it seems to me, and there is going to be a question, i promise. i know sometimes you never get one. chair powell: that's ok. >> it seems to me any fair-minded person would have to conclude our economy is better. i am biased, of course, but i
think the tax cuts and jobs act worked. we have seen wage increases, including, but not limited to, the bottom quartile. we have seen unemployment go down. but we still have a problem in america. is one the root, this person's opinion, but the root of a lot of that anger is that tooave -- we still have many people in this country who are not participating in the great wealth of this country. not economically, not socially, not culturally. i think sanders supporters and trump supporters have more in common than they realize. becomerican dream has the american game.
i think it is fixed. the elites are doing fine, but i'm talking about ordinary people. what, if any, role do you think the fed should play in helping us address that? >> there is a lot in what you said. the single most important thing we can do is take seriously your order to us to achieve maximum employment. that is what the law says and that is what we are doing. we are using our tools to keep an eye on maximum employment. thee is no reason why current situation of low unemployment, rising wages, high job creation, there is no reason it cannot go on. there is nothing about this economy that is out of kilter or imbalanced. that is the main thing we can do. we do other things in the nature of convening -- we do a lot of
research in your state and others. the federal reserve bank will have an operation where they are trying to convene resources around issues of education and poverty and things like that in poor communities, but we do not have the ability to spend money on it. we get community people around a table and try to organize things that help the community, as i'm sure you know. it is not something we can do a lot about other than research and do our jobs on monetary policy. >> if i could have another 10 seconds, mr. chairman, i was distracted because you were talking. stay independent. jobink you're doing a great and all of us in politics are going to give you plenty of advice, but call them like you see them. thank you. powell, it is great to see you again.
thank you for being here and always being responsive, but let me follow-up on this line of discussion of maximum employment. you keep talking about level of educational attainment that is so important. what do you a finance that -- to finance that education -- define as that education? chair powell: it includes the kind of training people are getting out of high school. it is not meant to be limited to college as such or getting a liberal arts degree. in acquisition of skills society. >> do you think we have changed in society -- it is very difficult to just graduate from high school and get a job that pays a decent wage for your family without getting some sort of additional education? chair powell: yes, it is.
you see that very much. for people with high school degrees, incomes have stagnated badly. what happens with technological higher is that it wants and higher levels of skill. if society provides those people and those skills, incomes can go up across the board and inequality can go down. that was the american story for a long time. >> isn't part of that -- this is why i'm curious. part of that also has to do with wages, the increase in wages, and the level of wage you are paying. are you saying because you graduate from high school and you want that job, whatever that job is you are able to do, it should be a minimum level of wage that should never increase even with gains in productivity we have seen? chair powell: i am not saying that at all. >> good, because i agree with you. there are people in this country and i am pleased with the high unemployment rate, but they live
in my state, they are working two jobs. they are actually working two jobs because the wages are so low. there is a disparity that we have to do a better job of understanding. i was looking through the monetary report you gave. i'm curious, do you identify those individuals who are actually working two jobs? chair powell: those are identified in the data collected by the bureau of labor statistics. >> is that data you can provide that gives a better understanding of how many americans across this country are working two jobs? chair powell: a very high level right now. >> that's what i would like to see. -- one final question. votes have been called. you note in your opening remarks there are troubling labor market disparities across racial and ethnic groups and across regions of the country. can you go into more specifics with that statement? box in her monetary
policy report a year ago about the rural and urban disparities which are just getting wider and wider. it talked about what might be causing that. hereave a long-term trend that is challenging for people in rural areas. in terms of racial and ethnic disparities, the african-american unemployment rate is roughly twice that of the overall unemployment rate. you see different groups -- so it is troubling these things persist this way. we don't have the ability to operate directly on that other than by carrying out our mandate of maximum employment and stable prices. >> why is there that disparity? what can you point to? chair powell: what disparity? >> the racial disparity you just talked about. chair powell: it is tied into history, our history. there are higher levels of poverty in the african-american community, as you know. history,ecause of our
but we would like to see those gaps declining more than they are. not tools that we have, tools that you have. >> what i'm looking for is the data. there are no data sets you are collecting that help us identify that racial disparity and how we can collect it -- corrected. chair powell: there's lots of research on that. >> that's what i'm looking for. thank you. -- senatorillis tillis. >> i have a few questions. the first i want to talk about we have seen in the fdic, a real stepped up effort to take a look at guidance and other actions tort of apa promulgated rule revise or rescind. can you give us an idea of how that is going at the fed?
said josh for rightly forthrightly said it is not the basis and we have made that clear to our supervisors. seen the vice chair's speech where he addressed these issues. we are working on that as well. >> i know you are aware of the gao ruling. there's a lot of talk that you need to remain independent, but there is something that concerns me that came out after you received word from the gao. it relates back to i think a letter your general counsel wrote in june of last year, which, i have it into front of me now. it says you are continuing to assess the scope of the federal
reserve's obligation to send supervisory guidance documents to congress. does that mean you are exempt from oversight? >> the question is whether we are required to send guidance. we do send some guidance. --s is another one renthat is the cur stance? chair powell: what we are going to do is articulate clear standards for what firms should be in the sick. the vice chair has laid out an approach that i think makes sense. to really try to tie the whole approach more to the tailoring of categories we set up. a, that is ther cr
community reinvestment act. question. rumors swirl around this building the way they do in the fed and all of government. -- itestion i have is relates to the fed's plans for either joining with the fdic and the occ on rulemaking. some have said you provide an assurance that without governor brainard's support, you would not join. is that a rumor or an assurance you have given chair waters? chair powell: that is not how we are looking at it. what we are doing is trying to develop our own thinking on cra reform, as did the occ. they took a lot of our ideas but we were not able to get on the same page. >> what would be the rational basis for two standards? chair powell: there are going to be two standards under the fdic's occ proposal.
70% of institutions will be able to opt out, so there's going to be the existing standard and the new standard assuming they go forward with it. there will be two systems. if we don't do anything, it will just be like the 70% of institutions they supervise. is the vice chair on point for this? chair powell: is he on point for this? >> with the community reinvestment act be within his lane? chair powell: we all have to vote on this. this has always been handled by , whichrent group, dcca governor brainard chaired. i am very comfortable with where we are on this. questionsoing to ask similar to senator toomey's. i will not. i'm only going to send out some
questions for the record which are about the mechanics of implementation. thank you. >> senator jones. >> thank you mr. chairman. chairman powell, thank you for being here. let me echo other colleagues on both sides of the aisle regarding the independence of the fed. i concur it is extremely important that we maintain that independence. i want to ask you about homeownership. it follows up a little bit with what senator kennedy was talking about, wealth gaps between so many americans. nationwide, homeownership is relatively stable, but there is also massive disparities in homeownership by age, race, ethnicity. african-american homeownership rates fell to a 50 year low. 30% -- 30 points below white homeownership area -- homeownership.
millennials are less likely to own a home by age 34 than their parents or grandparents. i am concerned that if trends continue, i mean to some extent, we have relatively -- wages are rising, but they have not been we would like. homeownership rates are increasing. i'm concerned if trends continue , a growing number of americans are going to get locked out of homeownership. what are the economic consequences in terms of wealth building for minorities and a broader economy of leaving this disparity in the realm of homeownership on addressed? do you have suggestions of how we in congress or the fed can address homeownership? me say first,let i would agree with you there is -- there are pressures on affordability which are very widespread to do with difficulty
in getting land is owned and difficulty in acquiring workers and costs, regulatory costs, material costs, putting pressure on house prices, upward pressure. it is quite widespread around the country. in terms of the level of homeownership, i think we don't want to be back in a situation where we push the idea of homeownership passed what is financially sustainable for people. we kind of did that in the pre-crisis era. what has happened is credit is much less available now for people without spotless credit records. that is a lot of what is behind the data you cited. i think it is a good question. did we move too far? i do not have a view that we did, but it is a good question to make sure people who should have access to credit and can handle borrowing that size get it. sen. jones: i know senator
cortez has asked, i would like to get some of that same information about the racial disparities. i assume there is some connection with that and economics as well. the lower rateto of labor force participation. how can we encourage that? how can we get more participation and get those numbers up? folksan we do to get more in that participation in the market? continue toan do is support a strong labor market. it is very good to see participation rates rising to the levels people -- economists did not think we would see those levels again. is, you know, longer-term, that is not really a strategy. that will --ies ultimately people need skills
and aptitudes that will keep them in the labor force and ways they can take part in the labor force. that is where other government policies come into effect. it is a lot of education and training and also policies that will support attachment to a labor force. we would be happy to sit down and talk about that. other countries that have leapfrogged us do those things and also have had more rising educational attainment. i think all of those things will help. sen. jones: thank you for that and i look forward to discussion. i yield back. >> senator mcsally. >> thank you, mr. chairman. the american banker published an article titled, when a small town loses its only bank. the article mentions duncan, arizona, which had only one bank and recently closed its doors. the residence are forced to drive approximately 40 miles to
conduct any banking. have businesses no longer a place to make daily deposits or get change. any customer service issues require driving long distances. the article states, quote, the economic implications are enough of a concern the federal reserve has been studying what happens in areas where residents no longer have access to a local branch. what has the fed learned in that study? it is not just happening in duncan, arizona, but across rural america. chair powell: we publish to the study, as you mentioned. we had meetings all around the country and did research and i think we did find the loss of a branch in rural communities can be a serious blow. it is the availability of financial service, but also a bank is an important civic citizen and contributes in many ways to that town.
i think duncan -- we had an event in duncan. we learned that. .ou see it happening -- and it more in rural people in rural areas are more likely to -- more inclined to use a bank branch rather than electronic banking. the effects are significant. we saw that and it is quite a negative effect. sen. mcsally: these are banking deserts. how does the fed to find banking desert? is it about geographic distance? number of customers? statisticsconomic more people in urban areas may be using electronic banking. less withoutre rural broadband -- are less
likely to do that, but also we have connectivity issues without rural broadband. chair powell: it is one of those things you know it when you see it. people do not have access to basic services. duncan would be a classic example. you have to drive 40 miles, that is a banking desert. many of these are in the desert, by the way. it is a real issue in rural america. sen. mcsally: do you have any ideas? chair powell: we cannot be in the business of ultimately telling banks they cannot close branches. cra reform maybe one vehicle.
support more activity of a cra nature in rural areas. it is challenging. people havewhile, been leaving rural areas and moving to the cities. these are longer-term demographic pressures. sen. mcsally: i would look forward to following up. chair powell: glad to do it. sen. mcsally: i also want to touch on labor force participation and wage growth. many members have already asked, but it is great to see so many americans coming off the sidelines and getting into the workforce. we are starting to see wages go up as well for the lower levels of the economic spectrum. can you just touch on more the dynamics you are seeing, the positive nature of that, where you are seeing people coming off the sidelines, and how wage
increases are impacting? chair powell: it is a combination of people not leaving as much as people coming back. unusually, at this point, most of the people who are newly employed do not come out of unemployment. they come out of the labor force. we break down everybody into different categories. the biggest flow is from out of the labor force to employment, which is clearly a sign of relatively low unemployment. fewer people who are unemployed, but also people outside the labor force having job opportunities. the thing is, we did not expect this. it is very positive. we want to do everything we can to foster this trend. job tos nothing like a get people's lives right and get them on a good track. our tools to make
sure we can foster that. sen. mcsally: thank you. chairman.ou, mr. i want tolleagues, thank you for your accessibility. always appreciate the opportunity to have a fact-based conversation. before i get to my questions, i want to thank you and the fed for moving ahead on the fed now system. it will save americans billions of dollars when it is implemented. we passed a huge tax cut in 2017 . it dramatically increased the annual deficits and the long-term debt. at that time, here is what president trump tweeted out. he said his tax cuts were going to rock the economy to growth rates of 4%, 5%, maybe even 6%. haschairman, the economy
not gotten anywhere near 6% growth in the last three years, has it? chair powell: no, a little better than 2%. >> we have not had growth at 5% or 4%. the trump administration has not hit 3% annual growth, has it? marked atll: 2018 was 3%, but then got marked down to 2.5%. you never know. sen. van hollen: but we are having a reality-based conversation. it did not hit 3%, is that right? chair powell: according to current statistics chair powell: sen. van hollen: if you look at the budget just submitted, they are protecting 2.8% growth very far from what president trump was talking about. even at that number, 2.8%, that than the most optimistic projections for the 2020 gdp from fomc members,
right? chair powell: we do not have a unified forecast, but we do show a dot plot. the median forecast would be in twos.ow sen. van hollen: the median forecast is 2% and the most optimistic was 2.3%. still below the president's projections. let me now turn not to the aggregate numbers, but the real wages. there has been a lot of hype lately, but i want to get a sense of where people really are. it is good news the unemployment numbers continue to come down, when president was sworn in, but when you look at real from an earlier
hearing, your view is that the employment cost index is the best measure of compensation. is that right? >> in a sense. they all have their virtues. sen. van hollen: i'm looking at the numbers. grouped by anor average of 0.9% by president obama's second term, that per year, this3% is an inflation adjusted term. in fact, the real compensation workers were getting in the workforce was actually higher during obama's last term compared to now. is this a reflection of how difficult it has been to translate overall economic growth into higher real wages
for americans? >> it is. part of that really is that inflation has moved back up a bit, something we have been trying to accomplish. more broadly, wages have moved up from 2% to 3% now. expansions,at other adjusting for productivity, you have expected them to move higher than that. it is a surprise we have not seen real unit labor costs move up, which is to say people are getting paid more than productivity and inflation in what should be a tight labor market. inflation went up, that was the intention. when it comes to real purchasing i careor americans, about whether wages are able to make purchases. we don't have time to get into thebut the budget --
chairman of the budget committee has announced he does not want to have a hearing on the budget. i hope he will change his mind. a lot of the cuts that were made include cuts to student loan opportunities and some of the things you mentioned that could lead to higher productivity. i will follow up on that. thank you. >> senator cotton. to speak today about coronavirus as a central impact on the global economy. yesterday i and a couple other senators introduced a resolution honoring a chinese doctor who died last week of coronavirus, what makes him unusually notable among the victims of the coronavirus's he was one of the first persons to blow the whistle on the wuhan coronavirus in december. he was silenced by the chinese communist party. he was summoned in the dark of night and forced to sign a
statement announcing his warnings, and unfortunately, he contracted it. leaving behind as i understand it a wife and a small child and another child on the way. another example of these practices i want to cite is the chinese lawyer and journalist who was known for reporting on the conditions in wuhan. he has since disappeared. as ase these examples simple illustration of chinese dishonesty and lack of transparency in trying to handle effects of this outbreak. obviously, it's most important impact is on our ability to understand the virus and develop and test a vaccine. what effects does it have on you and the fed's ability to try to understand the economic impact of it dealing with such on transparent conditions --
parent conditions out of beijing? chair powell: the real question for the fed is, what is the likely effect on the u.s. economy? we will begin to see it in economic data coming out fairly soon. it is too uncertain to even speculate what the level of that will be and whether it will be persistent or whether it will lead to meant -- material change in the outlook. the effects should be substantial in china. important, but less substantial in their immediate trading partners. we will be looking at the economic data. i cannot really comment on the other kinds of data. we look at that, too. >> i would not expect that from the federal reserve. i would expect that from hhs and other agency like that. our chinese economic or central bank officials in contact with
the federal reserve or counterparts around the world to help you understand that economic impact, though? andgnizing the dishonesty lack of transparency health officials and political leaders? chair powell: i am absolutely sure that will be the case. i think it is too early to say. no one really knows. a big focus is containing the outbreak. and theral bank government itself, the rest of the government, have been undertaking lots of measures to support economic activity. more, we as they know will, too. we have that kind of a relationship with their central bank. trumpant to commend the administration for taking decisive action to stop travel from china, other actions getting testing kits to the
front lines. we only have 13 confirmed cases in the united states. hopefully there will not be many more. if there is not a widespread outbreak in the united states because of actions the united states government took, is the main economic risk the fragility of supply chains that originate in china and what happens at the very beginning of those chains in factories which may not have sufficient workers? chair powell: supply chains is an important issue. we import a lot of intermediate goods from china and final goods, too. . it will also be our own exports there suppressed during this period. we will not get as much chinese tourism. the other channel is financial markets, which can create their own transmission into the areomy to the extent there strong reactions in financial markets. we will be looking at that.
we expect to pick it up relatively soon. sen. cotton: thank you, mr. chairman. the top priority of our government must be the health and safety of our people, but we don't want to lose sight of economic harm to our people's well-being and prosperity. >> senator menendez. >> thank you for your service. let me ask you something. the corridor i come from in the new jersey, new york region generates 20% of gdp for the nation. if we had a major infrastructure failure, for example, the closing of one or both of the trans-hudson tunnels into new the bridgethe end of which is the linchpin that takes boston to washington throughout the northeast corridor, would that not create a significant economic risk? chair powell: if it were sustained.
you are talking about a sustained closing. things happen and we fix them and they don't show up in gdp, but if they are sustained, yes. sen. menendez: let me share something i would like to bring to your attention as you look at these issues. amtrak estimates a shutdown of the northeast corridor for a single day, a single day, would cost our economy $100 million. that is just one day. get thisnot infrastructure to ultimately be it during we saw superstorm sandy, the trans-hudson tunnel, a century old. we have a century plus bridge that does not close correctly that stops the entire traffic across the northeast corridor. every medical patient, every business that does intercity
rail travel across from boston to washington gets stopped, it loses time, and if it cannot be closed successfully, they take sledgehammers to close it. that has a significant economic impact and i would urge the fed to look at that as a question about our infrastructure needs. that is why i am frustrated by the administration not seeing the importance of what we call the gateway project. two new trans-hudson tunnels, the rebuilding of a 109-year-old bridge. we just got good news on that. overall, this is a project of national significance in a region of the country that generates 20% of gdp for which intercity rail traffic is important. let me turn to the community reinvestment act, which i think is an essential tool as one of the minority members in the senate against discrimination, curbing redlining, meeting the needs of families. instead of strengthening this
civil rights law, the occ and fdic released a proposed rule that relies heavily on a dollar ratio metric for measuring all value and gives little to community impact. why is it important to focus on loan count rather than on dollar value of a loan? thinking,ll: in our loan counts are important because they go to the very purpose of the statute, which is to assure the provision of credit to low and moderate income individuals and to their communities. we think loan counts are an important aspect of that. sen. menendez: do you agree that focusing on loan value as the updated proposal does, quote, runs the risk of encouraging some institutions to meet expectations primarily through a few large community development loans or investments rather than
meeting local needs? chair powell: it is a risk. as you know, we work to try to get fully aligned with the proposal. they were not able to get to our proposal. we are going to be looking to see the comments on all of those provisions which will be coming. we will be carefully looking at those. sen. menendez: when you say that, did the reserve share concerns about emphasizing metrics that placed too much value on loan value and not community impact? >> we shared all of our work and they took many of our ideas. they incorporate a lot of our ideas. you able toz: are send us what items were incorporated that you shared? chair powell: sure. comptroller has identified many of them in his testimony. ideas they incorporated from our
work. sen. menendez: the key concern seems to have been ignored. chair powell: i think their proposal looks at both counts. there are a number of differences. have either you or governor brainard taken the cra proposal to the federal reserve board yet? wasr powell: no, our focus on one proposal with the occ and fdic. now we see ourselves as waiting to learn more from that process. sen. menendez: this is critically important and i hope the fed will show leadership in this regard and make sure the community participation continues to be a hallmark of what the cra is all about. >> that concludes the questions, though i am going to come back and ask one question that was not on my list to start with. you have been asked a lot about wages.
i just want to verify a statistic with you. my understanding is that wage growth was 3.1% last year. chair powell: average hourly earnings for 12 months ending december 31. >> did that make 18 straight months the wage rate was about 3%? the wage growth rate? chair powell: i have to check that. you are not looking at each month, you are looking at over the last -- the levels, 3.1% higher -- we can fact check. that sounds right. -- >> if you: would fact check that i would appreciate it. questions are due by wednesday, february 19. chairman powell, we ask you respond as properly as possible. thank you for being here. i am sure you have other business to conduct. this committee is adjourned.
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