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tv   Federal Reserve Chair Powell Testifies Before House Budget Committee  CSPAN  November 15, 2019 11:03am-1:01pm EST

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watch live coverage on c-span 2 on the impeachment inquiry against president trump. marie yovanovitch is testifying. the hearing is live on c-span2, or listen live on the free c-span radio app. federal reserve chair jerome powell testified on the u.s. economy and monetary policy before the house budget committee. he discuss the trade policy, income inequality, the debt and deficit and community outreach. this is two hours. the hearing will come to order. good morning and welcome to the budget committee's hearing on the economic outlook from the
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federal reserve. thank you, chair powell, for coming to our committee today to testify on the economy. we know you're on a tight schedule and in order to keep you on schedule and ensure all members have an opportunity to ask questions, i ask unanimous consent to deviate from the five-minute rule. members will be recognized during the question-and-answer succession for three minutes without objections and the ranking member and i will be recognized for five minutes instead of ten. so ordered. per agreement we will reduce our time for opening remarks and both be recognized for three minutes. i know yield myself three minutes which i will not use, but once again, thank you for being here. it's been seven years since the chair of the federal reserve has appeared before this committee and we are very grateful for your being willing to do that. and i want to say at the outset,
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i'm going to submit my written testimony for the record to save time. but i also want to make sure you know we wholeheartedly support the fed's infence and the president's repeated attacks on this critical institution are unacceptable and dangerous. i look forward to hearing your testimony on the state of our economy and discussing what ideas congress has to foster a healthy and sustainable economy. >> i thank the chairman and mr. chairman, it is a great honor to have you before this committee as the chairman of the committee has said that it's been many years since the reserve chairman has been here and we're delighted to have you. i too will submit my opening comment for the record so that we can expedite matters, hear your opening comments and get to the q&a. but once again, welcome. i yield back. >> i thank the ranking member, and if any other members have
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opening statements, they may submit those in writing for the record as well. once again, chair powell, thank you for being here this morning. the committee has received your written statement and it will be made part of the formal hearing record. you will now have ten minutes to givin give our overall remarks and may begin when you're ready. >> thank you both and members of the committee. i appreciate the opportunity to testify before you today. let me start by saying that my colleagues and i strongly support the goal of maximum employment and price stability that congress has set. we are committed to providing clear explanations about our policies and actions. congress has given us an important degree of independence so we can effectively pursue our statutory goals bases on facts and observive analysis. we appreciate that our indwens brings with it accountability. today i will zpus the outlook
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for the economy and monetary policy. the u.s. economy is now in the 11th year of this expansion in the baseline outlook remains favorable. gross domestic product increased at an annual pace of 1.9% after rising at around a 2.5% rate last year and in the first half of this year. the mod rad third quarter reading is partly due to the transitory effect of the strike at general motors. but it also reflects weakness in business investment which is being restrained by sluggish growth abroad and trade developments. these factors have also weighed on exports and manufacturing this year. in contrast household con suchls has continued to rise supported by a healthy job market, rising incomes and favorable levels of consumer confidence. and reflecting the decline in mortgage rates since late 2018,
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residential investment turned up following an extended period of weakness. the unemployment rate was 3.6% in october, near a half-century low. the pace of job gains has eased. we had been expecting slowing after last year. at the same time participation in the labor force by people in their prime working years has been increasing. ample job opportunities appear to have encouraged people to join and others to remain in it. this is a very welcome development. improvement has benefited a wide range of individuals and communities. indeed recent wage gains have been the strongest for lower paid workers, people who work and live in low and middle income communities tell us they are getting opportunities to add new and better dhapters to their lives. significant difference dozen persist against different groups of workers in different yards of the country.
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unemployment rates for african-americans and hispanics are above. inflation continues to run below the semmetric 2% objective. the total price increased 1.3% over the 12 months ending in september, held by declines in energy prices. core pce which excludes food and energy and tends to be a good indicator of future inflaipgs was 1.7%. my colleagues and i see a sustained expansion of economic activity, strong labor market, inflation near our 2% objective. this favorable baseline outlook partly reflects the policy adjustments we've made. however noteworthy risks to this outlook remain, in particular sluggish growth abroad and trade developments have weighed on the
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economy and posed ongoing risks. moreover, inflation pressures remain muted and indicators are at the lowe end of their historic ranges. persistent below target inflation could lead to a downward slide inflation expectations. we will monitor and assess their implications for u.s. economicic activity and inflation. we will also continue to monitor risks to the financial system. over the past year the vulnerabilities has remained at a moderate level. investor appetite for risk appears to be within normal range. debt loads of businesses are historically high by the ratio of household income to borrowing is low and has been gradually declining in recent years. the core of the financial system appears resilient with leverage
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low and funding risk limited. at the end of this week we will be releasing our third semiannual financial stability report which shares our assessment of the u.s. financial system. monetary policy, over the past year weakness in global growth, trade developments, have prompted the fomc to adjust its assessment of interest rates. since julie the committee has lowered the rate by 3 quarters of a percentage point and these adjustments put the rage at 1.5 to 1.75%. took these actions to provide insurance against ongoing risks. as monetary policy operates with a lag the full effect on economic growth, the job market and inflation will be realized over time. we see the current stance of monetary policy as likely to remain appropriate as long as
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incoming information about the economy remains broadly consistent with our out look of moderate growth, a strong labor market and inflation near our symmetric 2%. we'll be monitoring other information bearing on the outlook as we assess the appropriate path for the fed funds rate. if developments emench that cause a reassessment, we will respond accordingly. policy is not on a preset course. the fomc is admitted to ensuring that our framework remains positioned to meet our goals. we believe it's served us well, nonetheless the current low interest rate environment may limit the ability of monetary policy to support the economy. we are currently conducting a public review of our monetary policy strategy, tools and communications. the first review of its kind for the fed. with the u.s. economy operating close to maximum employment and
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price stability, now is an especially opportune time. through our fed listens events, we've been hearing a diverse range of perspectives from representatives of consumer, labor, business, community and other groups. we will draw on these insights as we assess how to achieve maximum employment and price stability. we'll continue to report on our discussions and share our conclusions when we finish. likely around the middle of next year. in a downturn it will be important for fiscal policy to support the economy. however as noted in the cbo's recent long-term budget outlook, the federal budget is on an unsustainable path with high and rising debt. over time this could restrain fiscal policymakers' willing necessary to support.
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i remain concerned that high and rising federal debt can in the longer term restrain investment and economic growth. putting the federal budget on a sustainable path would aid the long term vigor of the u.s. economy and help ensure policymakers have the space to assist in stabilizing the economy if it weakens. i will conclude with just a couple of words on the technical impolicementation of monetary policy. in january the fomc made the key decision to continue to -- in an ample regime. we'll continue to control the federal funds rate by setting administered rates and not through frequent interventions. in the transition to the efficient and effective level of reserves, we slowed the gradual decline in our balance sheet in may and stopped it in july.
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we decided to maintain a level of reserves at or above the level that prevailed in early september. to achieve this level we announced in mid october that we would purchase treasury bills at least into the second quarter of next year and would continue temporary open market operations through january. these are purely technical measures to support the effective implement tax of monetary policy as we continue to learn. they do not represent a change in the stance of monetary policy. thank you. i will look forward to our decisions. >> thank you very much for your statement. we will begin question-and-answer session. you can submit written answeques to be answered later. any members who with ish to submit questions may do so within seven days. as we normally do the ranking member and i will defer our questions until the end. we'll just admonish all the members that i will not be my
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normal accommodating self with the gavel. we're going to try to keep to the time limits so we can get mr. powell out of here. he's got a hard stop at noon. so with that, i now recognize the gentleman from massachusetts, mr. moulton, for three minutes. >> thank you very much for joining us here. we share your interests in conditioning this 11-year economic expansion. but we also have some concerns. and one of my concerns i'll be the first to say it is we in congress have not been good partners in doing our part. you mentioned that you were concerned about the high and rising federal debt. and the fact that in the long term it could retrain private investment and preduce productivity and overall economic growth. it's a typical to increase deficits as we are now doing, however according to the cbo the tax cuts and jobs act which primarily benefited wealthier
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americans and koefrp raigs, added $1.9 trillion to the deficit over ten years. republicans said this would lead to -- you testified that it reflects weakness in business investment impacted by sluggish growth abroad and trade developments. i'm hoping you can elaborate on what you mean by trade developments. >> trade developments, well, first of all let me say that we have no responsibility for trade policy and no one should think of us as commenting on trade policy or giving advice. it's not our role. we have a very narrow role. our role is the u.s. economy and supporting maximum stable prices and to to do that anything that can affect our achievement of those goals is relative for monetary policy pop we've been hearing for the last year and a half from businesses that uncertainty around trade policy and to some extent tariffs have been weighing on business
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sentiment. that's what i'm referring to. >> you also discussed policies and programs that could bring discouraged workers back into the workforce to address the fact that despite our growth we still have lagging workforce parts paigs. 63.3%. you mentioned mothers returning to the workforce after their children grow up. as a fathering with because my wife is on a business trip to dallas, i wondered if you could talk about the value of paid family leave to ensure that women who want to work while they're raising children can do so. >> labor force participation is a very important issue for the united states that needs urgent attention. we do lag other comparability countries, all of them now, in labor force participation. i can point you to research, talk about institutional differences, but it really is not appropriate for me to evaluate or support particular
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policies. we're not elected by anyone. we've been given a specific mandate. and i think it's really up to -- >> let's answer the question. would paid family leave help increase paid workforce participation? >> there's research that shows that those kinds of policies that support child care and family leave in other countries have supported higher participation among women in the workforce. >> thank you. >> gentleman's time has expired. now recognize mr. johnson for three minutes. >> thank you, mr. chairman and ranking member woe mak, for holding this important hearing. and mr. powell, thank you for being here. as the representative for eastern and south eastern ohio, i'm very concerned about the cons kwoenss of our growing narc debt and what that will have on the economic security of life for our children and grandchildren. the publicly held debt has averaged 42% of gross domestic product over the last 50 years.
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it is now at 79% of gdp. within three decades the congressional budget office projects that it will reach 144% of gdp which would be by far the highest level in american history. so chairman powell, in your view is the federal budget outlook sustainable? >> i think i would define sustainable as that the debt is not growing faster than the economy. our debt is growing faster than our economy by a margin, and so i think by definition that makes it unsustainable. >> okay. can the debt continue to indefinitely grow as a percentage of gdp? when do we reach that tipping point where we're unrecoverable? >> that's not a question where there's an answer. there's really examples of countries that have much higher levels. what you do know is that over time, as the debt builds up,
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you'll be spending more and more or more accurately our children and grandchildren will be spending more of their tax dollars to pay for interest on the borrowing we've done as opposed to education, health care, security. >> you answered my next question in your first response. what is the appropriate way to measure budget sustainability, and that's when your economy is growing faster than your debt, not the other way around. i'll skip that question. so if the federal budget outlook is unsustainable and i think we've established that it is, what challenges does this pose for the u.s. economy? >> so i would stress these are longer term challenges and i think ultimately we will have no choice but to get on a sustainable path. you don't have to pay down the debt. you have to have a economy growing faster than the debt and do that for ten or 20 years. that's how you handle this.
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that's how we've handled it in the past. if you don't do it you will, over time, not this year or next year, but over time, you will be crowding out private investment and things like that. >> okay, mr. chairman i yield back a whole 18 seconds. >> thank you, gentlemen. i recognize mr. jefferies for three minutes. >> thank you, thank you for your presence and your leadership as it relates to monetary aspects of the u.s. economy. is it fair to say that the manufacturing economy fell into a recession in the first half of this year? >> yes. well, in the sense that manufacturing output has declined over the coarurse of ts year. >> and in connection with that manufacturing recession that we are currently in, based on technical terms, have the trade developments here in the united states that you made reference to in your opening statements contributed to that recession? >> i think we would assess that
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there are a number of factors contributing to it. trade is one. not the whole story. slowdown in global growth around the world is another. >> as it relates to the trade developments, is it fair to say that those include the ongoing conflict and the retal tary tariffs being i am posed by the united states and china? >> that is our a7 and the asechlt of others. >> is there reason to believe that the manufacturing recession that we are currently in could actually present a risk of spilling over into the entirety of the economy? >> that's a risk that we monitor very carefully. we don't see that yet. the 70% of the economy that is the consumers' is healthy, low unemployment, labor force participation, that is whafz driving our economy and it seems to be continuing to do so.
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we monitor that carefully. >> as it relates to potential adverse impacts on consumer spending, to the extent that consumer goods have increased, and i believe there are some valuations that have suggested that the average american family is now paying at least a thousand dollars more than they had prior to this retaltory tariff approach to policy, that if that trend were to continue, is there a risk that the increased cost to consumers in paying for goods could adversely impact confidence which could then obviously hurt the economy? >> certainly possible. the amount of tariffs that have been put on our economy and that are now flowing through are not that large in relation to the overall economy. the ones some of the ones that are proposed it just gets largee and larger, if you put them all into effect that would have a bigger effect on the overall economy. trade policy unsent itself --
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>> i now yield to mr. >> our skreept a period of economic growth. the policies of president trump and the previous republican-led congress made a bet on the american workers who make up the strongest and hardest working workforce in the world but it concerns me when we see other countries, our competitors, continuing attract investment at lower or 0% rates. we need to ensure our monetary policy bets on our workers as well. since president trump's election, the united states has made waves. we have the lowest unemployment in 50 years with black and hispanic unemployment at record
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lows, wages are growing and president trump's deregulation efforts have saved the average american family $3,100 in household income. we must promise to continue enacting both fiscal and monetary policy that works for folks back home. would you agree that during the last three years our country has seen economic advances that helped low income americans? >> yes. i think as this expansion has continued we've started to see people at the lower end of the wage scale get the bulk of the benefits. that's great. >> i think in your testimony you made the comment that low and middle income wage growth was pretty significant in our economy over the last couple of years. is that correct? >> yes. it's been -- we're in our 11th year of this now. in the 9th and 10th and 11th, we are seeing that. and it's a positive thing to sigh. >> you said 11th, the 9th, 10th
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and lenth, are those the most significant? >> yes. what's happened is that as the labor market has tightened you're seeing more job openings than unemployed people. you're seeing historically good job markets now. companies start to raise the wages not just of those at the top but all the way through the income spectrum. positive development. >> that's good. also a common similarity of the years is a trump presidency in those three years, has been the common theme as well with economic policies that have helped with the largest tax cut in the history of the united states, which was passed by the house republican congress and donald trump, along with the most deregulation that any president has ever had in the history of this nation. so it's good to see that those
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policies are in effect there. the federal reserve board has pro posed changing its comprehensive capital analysis and review stress test program, and it indicated the new rule would be in place for the 2020 test. so far however no changes have been proposed. can you provide a stat us update on the stress capital buffer proposal and whether or not it will be ready for the 2020 stress test? >> so we're working on it, and that's still our intention. >> gentleman's time has expired. recognize the gentleman from new york. >> thank you. just for the record the past three years the national debt has increased from $19 trillion to $22 trillion. that means that $3 trillion has been added to the national debt since mr. trump has been president. mr. chairman, the white house counsel of economic advisers put out a report upon passage of the
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2017 corporate tax cut, saying that every american family would receive an increase in household income recurring increase in household income between $4,000 and $9,000. is there any evidence that that has actually occurred from a tax cut? >> i haven't looked at that precise question. that's something cbo would be equipped to do. >> if the white house counsel of economic advisers put out a report like that i would think the fed would want to monitor the progress it's made. is the united states economy growing currently at a rate that's higher than interest rates? >> higher than interest rates? well, actually so the long-term db it's about the same. if you think about it, the long-term sovereign rate of the united states it's roughly equivalent to the growth rate right now. >> what would investment -- the
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conservative economist from moody's analytics indicates that for every dollar that the federal government gave away in the corporate tax cut, it regained 32 cents. so that's a loss of investment of 68%. whereas if you invested that in infrastructure where for every dollar you invechted, you would get back in economic growth about a buck 60. which would give you a return of investment of 60%. given the fact that interest rates are low and economic growth is lower than we had hoped for, would it not make time -- wouldn't it now be the time to make a major investment in transportation infrastructure? >> well, i would say infrastructure, well financed and well thought through, infrastructure can contribute over long periods of time to productivity and can be a great things for countries to do.
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>> with low interest rates, given the rurch on investment, wouldn't that wipe out what you borrow to produce that growth? >> so those are the kind of questions that are really your job and not ours. i wouldn't want to comment on how you finance it. but infrastructure spending in general is something that can contribute to the economy and it's something that i think it would be very healthy for our economy. >> i yield back. >> i thank the gentleman. now recognize mr. florez for three minutes. >> thank you, thank you for joining us today to talk about the importance of fiscal responsibility. over the past several years as you've talked about in your testimony, the spending increases have by the federal government have increased substantially. at the same time our growth and federal revenues has been slower. we have had growth in federal revenues after the tax cuts bill. 19 is higher than '18 and '19 is higher than fiscal ''17.
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it's paced to increase by 2029. that's more than we spend on defense. our spending habits leave congress little room to maneuver. we have tools when we get into a fiscal downturn. you have tools that you can use in the case of an economic downturn. but to the extent that the deficit keeps growing and congress keeps failing to act on this, what does that do to the tool set the federal reserve has to deal with economic down turns? >> our tool set really is the issue we face is just it's a much lower interest rate environment. we have less room to cut. we used tools other than that during the financial crisis. some of those would work in future situations. but fiscal policy has always played a very important role in significant down turns through automatic stabilizers and
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sometimes through discretionary monetary policy. over time, not sort of for the ner term but over time, less fiscal policy space is going to make it harder for congress and make congress less willing to take steps to support the economy at times when that's needed. >> i'm going to submit a question for the record, ask you what you think are exogenous factors that could surprise us and adversely -- we'll do that for the record. the federal reserve had engaged in substantial repurchase activities beginning in september. and the fed was actively involved earlier this week. can you tell us what's causing the liquidity issues that are causing the fed to intervene? you said they're technical and i'm not disputing that. i'm wondering, can you tell us what's underneath that that's causing that activity? >> sure. these are not things that will affect economic outcomes.
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>> i'm not implying that. i think you're trying to do the right thing. i need to know what's causing it. >> we've been allowing the balance sheet to decline and we stopped that process back in july and it really comes down to the supply of reserves, which are something that we create. and we surveyed all the banks and said, how much -- what's your lowest comfortable level of reserves, we added and put a buffer. we thought we were well above the level of scarcity. and then in easterly september we had a situation where the liquidity -- where banks had much more liquidity than they said they needed and it didn't flow into the repo market where rates it gone up. it would have been nice returns for them. it don't do that. we're doing work to understand why. some of that may be reserve, just the level of reserves needs to be higher which means our balance sheet a little bigger. there may be aspect of our
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supervisor and regulatory process we can look at and allow the liquidity to flow more freely in the system without undermining safety and soundness. >> i'll follow up on that as you finish your studies. i yield back. >> now recognize the gentleman from pennsylvania, mr. boyle, for three minutes. >> thank you. thank you as well. it's said history doesn't repeat itself but it does rhyme. i'm reminded of something your predecessor three ago said in the late 1990s coined the phrase irrational exuberance. the reason i'm thinking about that is because chairman greenspan used that phrase to scribe what was going on in the late '90s in terms fd view of markets going up and the business cycle perhaps finally being solved. and i'm increasingly hearing that now, 20 years later, that
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we're ten years into this economic expansion and perhaps the normal business cycle of expansion and recession would not follow through. i have to say, i'm very skeptical of that view. and so i'm curious about what your thoughts are and specifically what your outlook is over the next 24 months, whether or not this record-long expansion is likely to continue? >> these long expansions that we're having now are a characteristic of the last 30, 40 years. we think that is because we are no longer facing high and followville inflation. so the business cycles used to end when inflation would get out of control and the fed would raise raids to get it under control. and you'd have a business cycle. that has not been happening really for more than a quarter of a century. what we've seen is three of the four longest business cycles in
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u.s. history are recent. we're seeing that. look at today's economy. there's nothings that really booming that would want to bust. it's a pretty sustainable picture. i pointed out the risks, and those are in manufacturing. manufacturing is declining but not sharply. manufacturing is more sensitive economically to cycles so it does decline. >> this is perhaps a good segue to the record that the philadelphia federal reserve, philly fed which i'm proud to represent and it plays an important role, the report that they released about a week or two ago citing declines in job numbers in a number of states including in my own, pennsylvania, that report is quite concerning. could you speak to that as well and what it possibly presents for 2020 and beyond? >> i don't know what you're reefrg to when you say declines in jobs. >> last quarter. the philadelphia federal reserve got some media attention,
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released a report, perhaps i can submit this question to you written and get a reply. but the report they released showing a decline in jobs, pennsylvania, michigan, west virginia as well as four other states. >> i would say at the national level, the employment report for october was very solid nationally. but that will vary state to state. i did see that. >> thank you. >> gentleman's time has exspooerd. now recognize the gentleman from north carolina, mr. holding. >> we're currently in the final gauchegations for the u.s., mexico, canada agreement. and usmca would create more than 170,000 jobs and increase gdp by 70 billion. hopefully congress will come together in the near-term and swiftly pass this agreement. we all know free trade has changed economies all over the world and the world's financial
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markets have become more intertwined and integrated. it's my belief if the united kingdom exits, we'll have a u nike opportunity to forge with the united kingdom. both of our economies are mature. this would also be an opportune time to integrate our financial markets. i'm sure you know the united kingdom and the united states have the most important capital markets in the world. given the importance, i believe that smoothing transactions and easing trade would incentivize billions more in cross-border investment. i'd be curious to get your thoughts on a potential u.s./uk trade agreement, these are the potential growth to our economy. >> let me say i generally share your perspective that trade can be beneficial to all countries.
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it can drive productivity, rising incomes and prosperity. zwrernlly free and fair trade is a good thing. i don't have a few for you on the uk trade. i think our capital markets are pretty integrated with the uk already. between the two of us we have a big share of the global finance markets. it's important that that continue. >> further, one of the reasons we have such large capital markets and important capital markets is the united states and the united kingdom, one of the last remaining entrepreneurial countries, and so i firmly believe that the more we yoke ourselves together, the more opportunity both of our countries will have. thank you for your thoughts. i yield back. >> gentleman yields back. i now recognize the gentlewoman.
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>> thank you very much. and welcome chairman powell. tax policy is one of the most important tools we have to address economic inequality and promote gender and racial equity but today it does too little. tax cuts have played a role in enabling and in some instances encouraging those with the highest income and most capital to accumulate outsized power and wealth. some women and particularly women of color are less likely to have wealth for a range of reasons and a tax code that preferences wealth over work exasser bates rather than rectifies these disadvantages. low effective tax rates on the highest earners widens pay and power disparities between executives and poorly paid workers. by preferencing from welgt over income from work including through a lower capital gains tax rate, the tax code amplifies
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these inqualities. should we think about restructuring the tax code, specifically treating capital gains as wages to close income inequality? >> i would say that is a question that is really not one for us, i'm sorry to say. we don't support or oppose particular fiscal policies. those are really for elected representatives. >> i might also add that there are other instances with regard the tax code. i'll put them on the record that really encourage a predatory financial practices that impact workers, private equities role in corporate bank rupsies, including retail chains like mer vinz and toys arus. the tax code helps to chap how companies structure their employment. and you've got in the recent tcja a 20% adjustment for certain pass through enacted in
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that bill, changes the employee/employer relationship, incentivizes employers to shift workers to independent contractors, so that the tax code in fact has a large impact. let me ask you, is there an economic case for reducing high levels of inequality in your view? >> you know, i would point to a couple of factors i think are of concern. one is the relative stagnation of medium and low incomes. the other aspect is low mobility. we think of ourselves and proudly so as a country where anybody can make it to the top. but the statistics show that people who are born in the bottom quin tile of income or wealth in the united states have less of a chance to make it to the third or the top. these are not issues that the fed can work on, but i think those are important goals that would be i think widely shared.
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>> i would think that our tax code compassioner bates the very point that you have made. thank you very, very much. >> i recognize mr. stewart for three minutes. >> thank you. thank you for coming. seven years is too long. let's not go another seven. please come back before that. two hours isn't enough. i wish i had two hours with you just myself. there's so many things i would like to discuss. i have a degree in economics. there are many things i would like to understand that i know you could teach me. and i'm going to make a comment, but i'm going to come to two questions if i could. if we don't have time to answer them, will you please provide written response because there are things i do want to understand. just in general, i want to quote from your a few sentences from your open statement. u.s. economy is in the 11th year, 2.5% economic growth last year, 1.9% this year. again continuing.
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household consumption continues to rise supported by healthy job market, rising incomes, favorable levels of consumer confidence, unemployment rate 3.6%. i think for the american people i wish they would take your opening statement and read it, because there's so much encouraging news there. for anyone to paint a picture other than this is a very, very positive economy is just nonsense. we appreciate your contribution to that. to my two questions, and they're just matters of interest to me, not necessarily policy related. you also talk about inflation near the 2% objective. and i wish you would explain to us why it is desirable and why does the goal of fed policy to have a 2% inflation rate? why not 1% or no inflation? why is that a good thing for our economy? the second question is i understand that your mandate is
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maximize employment and price stability. and i think that's been true since your inception. you about i know that other goals have kind of crept in from time to time where there's economic pressure for these. economic expansion. and could you address the conflict or whether you think that's a good thing tore a bad thing to have you maybe conflicted in what the fed's policies and objectives? >> on the first question, 2% has become the norm around the world. it's a stable eek lib raum. the rein reason is if the inflation is 2% there's a real return. nominal interest rates will be around 4%. that means we have a significant amount to cut in a down push. if you were in -- if you had zero target for inflation, that would mean that you'd be at the zero bound for interest rates. woe found when interest rates get low it can be difficult and sticky for economies to escape
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that. >> it's to provide that buffer for inflation? >> yeah. if you look at the evidence of the last post-crisis, we're the only major economy that's mainingfully escaped zorry. >> i yield back. >> you know, we're very committed to our statutory goals of maximum employment and price stability. we think they work well to serve the american people, and we don't see any need to change or expand or shrink them. >> gentleman's time has expired. now recognize the gentleman from michigan, mr. kildee. >> thank you. thank you chair powell for being here. two points that i'd like to you comment on. you know, we may not agree on everything but i strongly disagree with the president of the united states who has at times said that you are nigh eve. i don't believe you're naive. he has said you don't have a clue. you obviously do. he has also said that he does
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rnts know who is our bigger enemy, jay powell or chairman xi. i do. and i suspect most of the people in this room do and would separate ourselves from the president's obviously deranged view. i would like you to offer any opinion you'd like on how helpful it is for the president of the united states to on occasion attack the integrity of the fed. my second point which follows on some of the questions that have been asked has to do with the disparity even if we acknowledge that obviously we've been through a period of sustained economic growth, we have not seen that growth experience uniformly across either the economic sector itself, most of the benefit has gone to the people at the top, nor geographically, and some places are sentenced to be at the bottom of both of those scales. i happen to represent communities like flint and saga
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nau and bay city and others that are both poor and have been geographically disadvantaged. i'm curious about whether or not fed policy can in any way address the regional and economic disparity or somehow provide support for policy through information that the fed can provide to policymakers. i know that the regional banks, boston, cleveland and chicago, regional banks have spent a good deal of time looking at these questions, but i'm curious about whether big fed would be able to take a look at this question and address the disparities beegts regionally and across the economic spectrum. >> on your first point, i'm going to stick with my policy of not commenting other than to say that it's very, very important that the public understands that we do our work on a nonpartisan, nonpolitical basis based on the
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best thinking, the best analysis. we try to be transparent and explain ourselves. and we don't take political considerations in one way or another. we serve all americans in a completely nonpolitical in terms of the disparities, so i think monetary policy is famously a blunt instrument that operates at the national and international level. we don't have different policies for different regions. but as i'm sure you're aware, based on your comment, the reserve -- 12 reserve banks are deeply rooted in their communities and do -- they perform both a research role and also a convening role around -- we don't spend taxpayer dollars or give them away or anything, but we'll pull together interested groups around issues, regional poverty issues and things like that, and try to, you know, be a constructive force for that. and i think that has worked a lot.
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i think of the living cities project up in the northeast where we're not spending, you know, taxpayer dollars but we're pulling together people who have private dollars around regions and problems that are important to that region. and i think we try to play a constructive role. i'm proud of that role. >> gentleman's time is expired. now recognize the gentleman from pennsylvania for three minutes. >> thank you, mr. chairman. chairman powell, great having you with us. the u.s. economy is growing at two times the rate of the eurozone and three times that of japan. our economy is strong. wages are up. we have a record low unemployment, as you've described. the fed has recently lowered rates from 2.25 to 1.75. with a strong u.s. economy and inflation below 2%, in your view, would the lowering of the fed rate postpone or perhaps avoid future recession? >> well, i'll say that the u.s.
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economy is the star economy these days. we're growing at 2%, right in that range. so, more than any of the other advanced economies are growing. there's no reason to think that can't continue. there's no reason to think, that i can can see, probability of a recession is at all elevated at this time. so, our forecast and our expectation is very much one of continued moderate growth, a strong labor market and inflation, you know, close to our 2% objective. >> thank you. >> the last two expansions were fueled by tech and real estate, primarily. in retrospect that seems to be excessive and set for a reversal in recession. i don't see any such excesses in this expansion. do you? >> i think that's very well said. this i think this expansion is notable for the parts of the
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economy that are really hot. for example, a hot housing market where prices are moving up and there will eventually be a slowdown in the case of the last economic downturn, you know, kind of a bust of a bubble. we don't have that. we don't see that in the real economy. we see a consumer sector that's very strong. i talked about manufacturing and export is weak but not sharply turning down. if you look in the financial markets, it's the same way. we don't have this notable buildup of leverage broadly across the economy, which is troubling from a financial stability standpoint. i would say this expansion is on a sustainable footing and that we don't see the kind of warning signs that appear in other cycles yet. of course, you never really know. but i would say we watch these things very carefully and that's what we're seeing now. >> it seems uniquely well balanced and could continue for a while. >> in principle there's no
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reason it can't last, at the risk of jinxing us, in principle there's no reason that i can see that the probability of a downturn is at all elevated. >> good. 1k with competitive interest rates and improved agreements, new china agreement improved, where do you see the current gdp goeing and sustained? >> our outlook is for continued moderate growth. you can think of growth consisting of two things in the long run, and that's growth in the labor force and productivity. we've seen productivity pick up, labor force growth has slowed down quite a lot as our population has grown older. if you add those two up, you get to a number around 2% as a sustainable rate. as a country we can raise that but we need policies to do that. i would say if we see growth in that range, that's kind of
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broadly my expectation. >> thank you, chairman powell. i yield back. >> i think your time expired. i'm not sure. thank you very much. now, yield three minutes to the gentleman from new york, mr. morelli. >> thank you, mr. chairman, for holding this hearing and thank you, chairman powell, for being here with us today. i want to focus to an interest that's important for people around the country, and that's health care costs. before the senate banking committee you said the u.s. government is on an unsustainable fiscal path, the thing that drives our unsustainability is health care spending. we spend 17% of gdp, everyone else spends 10%. it's not that benefits themselves are too generous. we deliver them in inefficient ways. i wonder if you can just comment on that, the inefficiencies you reference. if you give us more detail on that. and are there delivery methods more efficient or that the fed believes would enhance economic
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growth. >> so, i'm just -- i was just echoing there my long-time understanding of our overall budget situation and, you know, what really is driving the unsustainability of our budget. i wouldn't get into prescribing answers. no one elected us -- we're not in that role. if you look across countries, look across the advanced economy nations, you'll see that the average is about 10% of gdp. 10%, 11% of gdp is what countries spend on health care. we spend 17%. that's a lot. that's another 7%. that's close to trillion and a half dollars. what do we get for that? if you luke at the results, if you look at the health of our population, it's pretty broadly comparable to other advanced economies. so we're not getting health for this. it's easy to say, hard to fix, but it's about the way we deliver health care. it's not that, you know, we're
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just doing too well and giving people too good health and too good care. no, we're giving pretty average care across the whole population for an advanced wealthy country. and so i just was making that point. you know, that i think the focus very hard focus, but the focus on how to deliver health care more efficiently is up to you and a key issue for us. >> and you did, if i might, but you did mention that benefits themselves weren't the issue. somehow the way that we organize it and the way that we deliver it actually could dramatically, i assume, you meant could dramatically reduce the gdp spend of health care in the united states. >> studies that look at the benefit package that the united states offers compared to other wealthy countries don't suggest our benefits are better or have gotten better over time. it's more about the delivery mechanism, at least that's the -- that's my understanding of the research and the learning on the budget.
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>> well, i appreciate that. and perhaps i'll follow up. i'm just curious about the macro economic implications of spending if the country continues along these trend lines. >> over the longer term, the debt can't ultimately continue to grow faster than the economy. if something is unsustainable, it will eventually stop. >> thank you, sir. >> by definition. >> yeah, thank you, sir. >> gentleman's time is expired. now recognize the gentleman from south carolina. mr. norman for three minutes. >> thank you, mr. powell. i thank you for coming. i echo the comments of congressman stewart to come back more often. you speak -- thank you for your opening statements on the national debt. one of the issues that we're faced with is mandatory spending. it's grown from 34% up to 75% today. you hear a lot of talk on the
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other side, the green new deal with the price tag of being free, the free housing, free medical care. and the fact that from what you're statement was ten years, which is 120 months where we meet pretty much the deadline, what effect will all these basically free programs have and is it really free? >> i've not looked at and i'm not in a position to evaluate programs really. that's really not our role. i wouldn't be prepared to do that. i don't have the information. >> in ten years -- take that away. let's say that doesn't exist. is ten years continuing at our present rate, is that the d-day you would see as in greece, which i think 2008 was 100% of the gdp? >> you know, i hate to even say this, but i actually think it's
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much further out than that. we are the world's reseven currency. we are the best country. we have the best institutions. we have the best labor force. you know, we have such strengths that i think -- i think possibly the day of reckoning could be quite far off. you see countries with much, much higher levels of debt to gdp moving along. and what happens is kind of a slow-motion stagnation as opposed to a financial crisis. >> so far out meaning what? what would you mean? >> you know, it's -- it would be a guess. it really would. no one has been able to predict -- there doesn't seem to be a bright line. we know the united kingdom in its global empire had high to debt gdp. we know japan has very high debt to gdp. again, there isn't any -- there's no identifiable line that gets crossed. what we know is the more debt, the more debt service, even at these lower interest rate levels, you still have to
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service the debt. you may be able to service more debt. nonetheless, you have to service it. ultimately, you can't run big deficits indefinitely. >> in short, we don't have an income problem, we have a spending problem? >> yeah, that's really right across your plate, not mine. >> okay. thank you so much. appreciate your attendance. i yield back. >> gentleman's time is expired. this gives me a good segue to promote next week's hearing which is all about debt. you'll have ample opportunity to fully engage on that next week. i yield three minutes to the gentleman from virginia, mr. scott. >> thank you, mr. chairman. can we get the chart up? we've had a lot of comment about the trump economy. i just point out that you don't need a pointer to see where the ambassador stimulus package came in at about $800 billion.
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it's right there at the bottom. it stabilized things in the last 33 months of the ambassador administration. about 224,000 jobs were created in the first 33 months of trump administration administration, 189. you can't see where the trump stimulus package, 1$1.5 trillio tax cuts, you don't see any change in trajectory. next chart is the unemployment rate. if you look at the red chart, you see unemployment rate started going down right -- you can point to the obama stimulus package. it's been going down at a fairly good trajectory. you can't see any change in trajectory based on $1.5 trillion trump stimulus package. and the next chart, if you look
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at the deficits, just to show you the trend, every democrat since carter ended with a better deficit than they started. clinton actually a surplus. every republican, including this administration, worse deficit. we were able to do that fiscally responsible. chairman powell, at a hearing yesterday you mentioned that lower unionization rates was a potential driver of lower wage growth. how does unionization affect wage growth? >> i gave a kind of long answer on a list of factor that would explain why wages haven't gone up more. so, i mentioned six factors. that was one of the six i mentioned. i said it's a possible factor along with, for example, concentration among industries, along with globalization and automation, and also along with
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just changing in the natural rate of unemployment, which has gone down as the population becomes more educated, and also the neutral rate of interest, which may be lower than we think it is. >> how would unionization have an affect? >> i'm not in a position to take a view on that. i just know it's one of the things in the research that people identify as possibly associated with wages. >> thank you, mr. chairman. >> gentleman's time has expired. now recognize the gentleman from tennessee, mr. burchett, for three minutes. >> thank you, mr. chairman. thank you for being here. i've heard rand paul say we're in the biggest bubble and it's going to burst. he was talking about interest rates and below market. what factors do you look at when you decide to increase or decrease interest rates? >> when we change our policy rate, which is an overnight
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interest rate that affects other short-term rates, and then those play out through the yield curve, we're really looking at setting our policy rate at the level which in the medium term will best support maximum employment and stable prices. that's what we're looking at. we're thinking ahead because monetary policy works with a log. we try to take that into account. those are the goals we're always serving. >> thank you. mr. chairman, i submitted some questions for the record. i also wanted to note since it was announced since this morning that you were going to be here that my charles schwab account went up $2.50. i don't know if that's an indicator, but i really appreciate you, brother. >> thank you. >> i would note also that the -- our father -- the father on the floor, a catholic gentleman, of course i'm southern baptist, i was asking him about his stocks and he said he took a vow of poverty and i told him, have you seen my charles schwab account?
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obviously, i have, too. so, thank you, brother, for being here. >> gentleman's time has expired. i now recognize the gentle woman from washington, miss jayapal, for three minutes. >> thank you for being here and your service to our country. what was the rate in september and how did that compare to your target? >> it's a little below our target. i'll just talk about core inflation, which is a better predictor of the future. just below our target. >> and the not core but the actual rate was 1.3 but you look at core? >> yes. >> and is the fact that inflation is still below your target that we're not -- the economy is operating below its potential, its full potential? >> it's certainly a sign that in no way is the economy under a lot of -- inflation is not under a lot of upward pressure from labor markets being too tight or the economy being too strong.
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no, there's no sign that things are overheating or anything like that. >> and some key economists have identified several indicators, some of which you mentioned in your answers to other questions, that we are demonstrating we're not at full employment. things like labor share of income remains below prior peaks, racial wage gaps, which you have spoken about, are wider than they were in the last expansion. are you concerned about those factors and how are you looking at those as you consider policy? >> our assignment from you is maximum employment. so, we don't put a number on that. we look at all of the things you mentioned. labor force participation by age group, by gender. we look at wages, we look at countless ways to cut wages. we look at all those things and try to reach a judgment about what is maximum employment. if you go back 50 years there was a tight connection between unemployment and inflation. that is no longer the case and hasn't been the case for some time. so i think we bring significant
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humility to the question of what is the level of maximum employment. i think right now we think we're in the neighborhood but we have no reason to think that the current level of unemployment is unsustainable. >> your predecessor alan greenspan said this, there is little doubt unauthorized immigration has made a significant contribution to the growth of our economy. would you agree with that statement? >> so, i'll have to start by saying we don't do immigration policy. we don't give advice on immigration, but i would say you can think -- as i mentioned earlier, you can think of potential growth as including labor force growth and labor productivity per hour. that's the two things you can break growth into. in the united states labor growth force has declined significantly. it's about 0.5%. a little mother than half has been from immigration. if we're going to grow more as a country, that's something -- those who do have responsibility for immigration policy, not us, should know that's a factor worth considering. >> so, for example, if we were
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to have very restrictive immigration policy, would dramatically affect our labor growth numbers and affect our economy, is that correct? >> i think with an aging population, labor force growth is moving down in a lot of countries in the country that are farther along the demographic curve, labor force growth is negative. we don't want to be in that place. we want a growing labor force so i'll leave it at that. >> thank you very much. >> thank you. >> gentle woman's time has expired. >> thank you, mr. chairman. ranking member. chairman, thank you to being here today. it's great to hear your grandmother is from muskogee, oklahoma. great roots. as a job creator my entire life, entry level and executive level, i know how important it is to put people to work. we talked about this low
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participation rate, while it's ticked up a bit, historically in the last 20 years it's been on a steady decline from '67 our peak back in the 1990s, time frame. if we were to get back to that time frame because you mention the how important it is to keep labor force full, what would it loob like for us if we were back around that 67% level of job participation? >> well, you'd have a significantly bigger economy. i mean, you added 4% to, you know, your participation rate, that's about a 6% increase in output. it would be quite substantial if we were to find ways to get back to that level. of course, the population is a lot older now, which means lower participation. on the other hand, it's more educated, so we -- education links closely to higher
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participation. so i think it's a key goal. >> really we've got only three avenues. we have a lot of workers out there. 6 million plus, 7 million jobs available. we either have to start having more babies in america very quickly, we have to help our folks that we have 20 million additional people we have that are in the government assistance program from where we were back in those days that could be very participator to or work on our immigration policy so we have more legal immigration in america to fill those jobs so we can accelerate our growth. what actions do you think the federal reserve would need to take? is there a interest rate you'd look at and how does that affect us? >> that's in the nature -- if you had a significant increase in participation, that would be a very positive supply shock, which means there would be a lot more labor supply and growth
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coming on the market. it would be very -- the opposite of inflationary. we would love to see that happen. of course, it would lead to higher growth and be a positive thing for everyone. it wouldn't have -- we certainly wouldn't be tightening policy in reaction to that. >> you mentioned, and i've got 19 seconds, you mentioned that you don't ascribe to the theory of the -- the monetary theory, deficits and debt do matter and we need to be fiscally responsible for those. i appreciate your comments to that as well because i as a business person for many years believes deficits and debt do matter. thank you, sir. >> gentleman's time expired. recognize the gentleman from new jersey for three minutes. >> good morning, chairman powell. continuing on the theme of immigration, i think you stated at the senate banking committee hearing about the impact of immigration on the housing shortage.
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>> i don't remember that comment, to be honest. it may be -- honestly, i can't remember what the connection would be. >> well, you have also in a written response to senator cortez ocasio said limited growth could limit our labor force? >> that could play into housing. demand for housing is -- i think the home builders are always looking to build more homes. that's an important part of the economy which is now contributing positively for the first time in a while. >> could you expand on the damage that could be done to our economy if we drastically limit all immigration from low skill to high skill? >> yes. as i mentioned we -- as a country there are only two ways you can grow. you can work more hours, which
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is really a function of growth in the labor force and you can have more output per hour, productivity. you can look at growth as consisting of those two things. if you go back to the 1960s, the later force was growing 2%. you and you get the healthy growth numbers. now we have trend growth of 0. 5% per year. you get a 2% growth economy. now, if we want to do better than that, there's two things we can do. we can get higher labor force participation, higher population in growth or get higher productivity. it's higher to get higher productivity. it seems to follow its own -- no one has had great success in predicting what drives higher productivity. it's the-e lugs of technology and technology flowing through the economy over time. that's what drives productivity. you need things that help that.
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ultimately a growing workforce is a source of growth. immigration can be part of that. >> low skill immigration could add to that? >> yeah, i think there's a lot of research on all of those issues and i think generally the finding is that across the income spectrum, immigration can have those effects, yes. >> thank you very much. >> gentleman's time expired. i now recognize the gentleman from texas, mr. crenshaw, for three minutes. >> thank you, mr. chairman. thank you, mr. chairman, for being here. i want to address three issues brought up, three concerns. infrastructure inequality and trade, what's interesting about the infrastructure issue is the claim earlier was that tax cuts effectively prevent the government from investing in infrastructure. begs the question, why don't we just focus on infrastructure? in your statement you said last year's growth was led by strong
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gains in consumer spending and interest in investment. that's still true, according to your statement, right? >> it was led by consumer spending rather than business investment. >> turns out business investment can be something that drives the economy other than just government and investment. on inequality, would it also be true that wages have grown much faster in the bottom quintile? >> last two years. >> on trade there was a lot of concerns about trade and predictability associated with trade confrontation with china. brings up the issue of the usmca and what this congress should focus on. according to the international trade commission, passage of the usmca would create 180,000 new jobs and increase gdp by $68 billion. can you expand on that comment and how would passage of the
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usmca impact the u.s. economy? >> i wouldn't comment on the particular estimates on the bill. i will, though, say that passage of usmca would remove uncertainty and i think would be a very constructive thing for the economy from that standpoint. >> can you expand on that? how so exactly? i mean, how does predictability and certainty provide benefits for the u.s. economy? >> i spent most of my career working with companies and at companies in the private sector. and i think companies generally like a private -- they like a settled rule book. they lead like to know what the rules are so they can act. if you're spending your time dealing with changing rules, you're not spending your time growing your company or thinking what's the next -- where do i need to get to to beat my competition and that sort of thing. which is not a comment on trade policy or anything like that, but just reduction in uncertainty. uncertainty is huge for business
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people making decisions. and there's always the ability to wait. to wait to make a decision if you think something is going to be resolved. a lot of that probably happens around trade issues. when it gets resolved, people will be able to, over time, you know, act on settled rule book. >> thank you, mr. chairman. thank you for pointing out our economy would be better off with the passage of the usmca and our economy would be better off with increased business investment and our economy is better off because lower of workers' ages are growing higher than they were before and much higher than the higher quintile of earnings. >> i now recognize mr. peters for three minutes. >> thank you, chairman. the recent expansion in deficits as a result of a mix of things. budget deals and aging population and big tax cuts largely benefiting the wealthy. as congress considers policy
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changes in the next couple of years, appreciating your focus is not policy, but where do you think that should be on our list of priorities? and over what time period would be most prudent for us to act on the deficit? >> well, i think the most successful plans to get on a sustainable path are those that take place consistently over a long period of time. it's not something that it's wise to make sharp cuts in increased taxes, cut spending really sharply. it's something that should be done consistently and stuck to over a long period of time. and that's what seems to work over time. >> start now and be consistent would be -- >> ultimately, there's no substitute for having a broad national commitment to being on a sustainable path. that has to have public support and there have to be leaders who
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are willing to stick to that path over a long period of time. >> the treasury report we spent $376 billion on net interest outlays, which is about 8% federal outlays, 2% of the gdp, highest level since 2001, we risk spending more on paying off our debt than we spend on children by next year and we're projected to spend more on interest than we spend on our national defense by 2025. what are the consequences both lawmakers and public faces in interest rates increase and how does this affect our ability to react to emergencies? >>. >> all the things we want to use tax dollars for to compete internationally and build a
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great country. so, that was -- sorry, what was the -- >> the focus -- the ability to respond to emergencies whether -- >> the other -- >> financial security -- >> the other piece of it is, and this is not the case today. there is fiscal space to react today, and there will be for some time, but over time, fiscal policy has been a key way the government has reacted to support the economy in times of weakness. over time as debt grows, it may be that lawmakers are less willing or even less able to do so. in a world of very low interest rates, it's very important that congress be able to support the economy because, you know, we won't have as much room to cut. we'll be using all of our tools aggressively but we'll need fiscal help possibly. >> last few seconds i want to acknowledge the significant progress you made in becoming more transparent at the fed and also to reinforce it's important for your continued independence to be maintained. certainly you'll get that support from me. thank you. >> thank you. >> gentleman's time expired.
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>> thank you, mr. chairman, for being here with us today. i want to pick up where mr. peters left off on debt. you mentioned we hadn't seen any booming sectors in the economy that might lead to a bubble burst. i would have said sovereign debt is one of those booming sectors over the last decade, in our case increasing from less than 70% of gdp to north of 105% of gdp. you said no notable buildup in leverage. you were talking about private sector leverage. that's a substantial part of the financial sector. can you speak to that bubble and concerns about sovereign debt around the globe? >> well, what's interesting about it is as the supply of u.s. debt, risk-free debt, the most risk-free debt in the world has increased dramatically. the interest rate people are demanding has gone down. models would have said, you provide more of the product,
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that will drive the price down, the interest rate up. the opposite has happened. so, what you see is a situation where, frankly, interest rates around the world have been declining for 30 -- really, 40 years. and that includes ours. it's a bunch of things. it's lower inflation, it's demographics where people are saving more relative to investment and that drives the returns down. so, we're in a world of much lower interest rates. and i think there's -- seems to be driven by long-run structural things and there's not a lot of reason to think that will change. >> we've had good partners and finding purchasers for that debt. you being one of those. you mentioned changes as purely technical measures. when referring to increased purchases over the next two months, dr. steven williamson observed that reverse is two-thirds of the unwinding the next two quarters -- pardon me,
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two-thirds of the unwinding of the fed balance sheet and offers farr and repos is another place to look. sometimes you make our job very easy here and mask some of our failures with your good work. and you speak to why being involved in treasury was a superior choice to going into the farr and repo market to deal with liquidity? >> we buy -- we're only allowed to buy treasury -- treasuries and agencies is what we can own. that's how we create reserves, as you know, obviously. we do that. it's really nothing to do with helping to fund the federal government. it's just what's really changed since before the financial kritsz is we have imposed very high liquidity requirements on
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particularly the largest banks. they own -- they have to own lots of highly liquid assets. they choose to own resefshs -- sorry, you know, treasuries and reserves, which is just cash. and that's why the demand for reserves is so high now. it's because those liquidity requirements we imposed on banks. it has nothing to do with financing the federal government and our ownership of treasuries is not a major part of the outstanding treasury debt. >> that speaks to our partnership, but does it speak to the preference for -- i suppose, the williamson comment would be if more reserves is the answer to controlling the overnight interest rate, that could be achieved through reducing the size of the foreign repo pool and the general reserve account, which is twice the size of the treasury buy the fed is planning -- >> those are things we're looking at. we're looking at -- to go
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down -- that's the liability side of the fed. we're looking at everything. so, treasury general account and the foreign repo pool are both beneficial to financial stability. we're looking at things we can do. there are plenty of things we can do to match up the supply and demand for reserves. again, this is not something that will have any macro economic implications. >> gentleman's time expired. now recognize the gentle woman from california for three minutes, miss lee. >> thank you, chairman. thank you, chairman powell, for being here. let me go back to follow up on what congresswoman de laura mentioned in her questioning. in what ways does the fed -- recognizing you don't comment nor do you set policy, but in terms of just your economic analysis, as it relates to income and wealth inequality, especially -- and i want to talk about race a little bit, communities of color.
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how does -- do you see the long-run economic growth as it relates to the income gap between black and white americans, for example? it remains almost at the same exact level as in 1960. according to a report from the institute for policy studies, the median black family today owns $3600, just 2% of the wealth of median white family. also the median latin family owns about $6,600 in terms of the wealth, which is about 4% of the median white family. of course, a lot of this may have to do -- probably has to do with the subprime prices as it relates to the loss of equity because that's primarily the way people of color acquire their wealth. they don't play much in the stock market because we don't have that kind of wealth. so now, you know, we're way at
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the bottom of the barrel. so, in terms of just economic policy, do you ever view race as a factor when, in fact, the data has shown the greatest income gaps in income inequality lies within, unfortunately, the black and latino communities? >> so, in our work, and you may have noticed this, we don't just talk about the national aggregate numbers. we want to remind ourselves that prosperity isn't noticed in all communities. low and moderate communities are in many cases, just starting to feel the benefits of this expansion, which is now in its 11th year. we realize that. we say that. we do serve all americans. we want to remind ourselves of that and also remind the public of that. i think you're exactly right about housing. so, what happened in the housing
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crisis was an awful lot of people lost their homes and lost their equity in any case and coming out of that, that's the one place in the economy where we made money much less available, to people with lower scores, lower credit scores. and that did -- wasn't by intention, but that was clearly a decision that was made and it did -- it seems to have an effect, a disparate effect on minority communities. that is part of it. in terms of broader policy, you know, i think economic growth, i think you're seeing positive things happening now because of this long expansion. that's what we're hearing from low and moderate income communities. economic growth can be a good thing in this. >> it can be a good thing but unless we have economic -- unless we view economic growth with race as a factor, it's not going to work because, as i just cited, african-american families
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in terms of the wealth gap, we're still where we were in 1960. so, i hope that yourself and the federal reserve really understand that we can't just talk about income inequality without talking about racial and income economic inequality. >> the gentle woman's time has expired. >> oh, okay. thank you very much, chairman. thank you for your response, chairman powell. >> now recognize the gentleman from texas, mr. roy, for three minutes. >> thank you, chairman. chairman powell, appreciate you taking time to be with us here today. my understanding -- unfortunately, i was at another meeting in the veterans affairs committee but i understand my colleague from texas, mr. crenshaw, had an exchange on modern monetary theory. i wonder if you can confirm for me that modern monetary theory is problematic or just wrong in terms of this idea that we can just continue to spend into oblivion. would you agree with that? >> i'm not -- i'm not a student
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of the overall -- it's hard to pin down exactly what is meant by the term. but i would say the idea that countries that borrow in their own currency can't get into trouble, i think, is just wrong. and the idea that debt doesn't matter is also wrong. if those are appropriately ascribed to that theory. >> i appreciate that. and i think -- i do think they are. and you are aware, as much as anybody, we have crossed the threshold of $23 trillion debt we're currently holding. would you say roughly our annual budget is two-thirds mandatory and a third discretionary, that sound right to you? >> yes. >> and one thing that is often raised here is that we have to address mandatory spending. i agree with that. we have to have reforms to so-called entitlement spending, social security, medicare, so forth, in order to get our hands around spending. would you agree -- let me put it this way. are you aware of any serious proposals today being pushed by the majority or this body that is likely to be enacted into law that's going to impact mandatory spending in a significant way
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over the next five to ten years, that's seriously going to reform medicare or social security? are you aware of anything like that going on today? >> you know, it's not something -- i don't track those kind of things carefully. i would say, as i mentioned earlier, the problem that we have is really around health care delivery. 7% of u.s. gdp is $17 trillion and we don't get anything for it. that's where i'd be looking. it's not that we're delivering too good health, by the way. we're delivering pretty average health and spending a trillion half more to do that. >> there's a lot of reforms we can embrace to fix health care, and we should, but currently i would say i'm aware of any proposals to deal with medicare and social security spending to ratchet that in.
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would you agree it would make sense for our country to be freezing spending or holding spending in check while we tried to grow economy dramatically to increase revenue and growth out of our debt much like after world war ii and then deal with mandatory spending in the long run, that we need to check spending in order to have strong -- be able to manage and grow out of our debt? >> those are issues you have to face. i wouldn't -- you know, there are different items in discretionary spending. a lot of those are things that add to the longer run economic growth of the united states. but those are not issues for us. those are really issues for you. >> gentleman's time expired. now recognize the gentleman from nevada for three minutes. >> thank you, chair powell. you've been very focal recently about the threat of income inequality and declining economic mobility. in february you identified income inequality as the biggest economic challenge facing the
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united states in the next ten years indicating income growth for low to middle americans has been slow and those at the top has been strong. if you noticed this chart, the top 1% has seen nearly 300% increase in wealth since 1989 while the bottom 50% has remained flat. that's pretty clear chart, despite my colleagues on the other side, i think they tend to mistake wages for overall wealth. you said yourself that we need policies that make sure prosperity is widely shared among everyone. and while research has shown low wage workers are especially responsive to labor market conditions both in terms of their wages and their hours worked, these workers really have the most to gain in tight
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labor market conditions and also the most to lose. so while i understand the fed may not set policy regarding income inequality, what are some steps you believe congress can take to address this issue? >> well, i do think, broadly speaking, we need -- we want prosperity to be widely shared across all spectrum of society. and i think a lot of that is -- comes from education and training. there are a million things. i'm not the person to advise you on those. i will mention one, though. we had a group visit us last week at the board of governors. it was six or seven people who were involved in apprenticeships. they had partnerships with major manufacturers in their states. these are very successful programs. they really are. they're taking kids out of high schools and starting them there.
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they get good jobs. they keep those jobs. they grow up to be adults. >> thank you, mr. chair. i'm very familiar with those programs. i ran them for ten years before i came to congress and i agree. >> perfect. >> those are what will achieve but the training leads to better paying jobs. and future career mobility, and that's really what can get to this issue, which is the stagnant wage growth. trade tensions with china continue to threaten the health of our economy. the u.s. chamber of commerce indicated never neff has incurred extremely significant damage to its economy because of the president's trade war with china. in fact, $510 million of nevada's exports have been targeted for retaliation by china, including copper, milk and measuring instruments. and on average american house house he woulds are being impacted about $1,000 because of this trade war. are you aware that nevadans and other families across the
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country are feeling the impacts of the trade war through higher prices? and what specifically is the fed prepared to do if this trade war conditions to hurt the people that i represent in nevada and those across the country? >> we don't comment on particular trade policies. we're not an adviser to anybody on trade. it's not our mandate. our mandate is maximum employment and stable prices. anything that can interfere with our promote our ability to achieve those mandates is relative to monetary policy. this year we've been calling out, along with slowing groelob growth, we call out trade. the tariffs that we're feeling at the local level can be very painful for people but they haven't really been affecting the overall economy in a large way at this point. >> i yield back. i know it's affecting 1,000
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people losing their jobs in the northern part of my district. >> gentleman's time expired. the chair recognizes the gentleman from illinois for three minutes. >> thank you, chairman powell, for being here today. as you noted in your testimony, the economic expansion is being driven by -- and sustained by consumer spending. we have seen the federal reserve cut interest rates three times since this summer to boost demand or consumer -- and has this helped to boost consumer spending? >> we do think our rate cuts, and more than that, really, we've been shifting to a more accommodating stance all year long. first of all, by not cutting rates and then being patient and cutting rates. you see that in housing. you begin to see housing contribute. you see it in durable goods purchases, automobile purchases, spending generally by consumers. we do think our policies are
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supporting consumer spending. >> thank you. i understand cutting interest rates is the main tool used to boost demand, but there are other approaches we could take. for example, a higher minimum wage, i'm talking about us, would raise the income of low income families who are more likely to spend whatever they earn. so, given the need for increased demand, do you think that increases in the minimum wage have macro economic benefits and help the economy operating at its potential? >> i think questions about the minimum wage are really for you. we don't take a position on that. research shows some people get higher wages and there will be some job loss in particular from a higher minimum wage increase. i think that's for elected people rather than us. >> beside the one tool that
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you've used, lower interest rates, what else can support household spending going forward that is within your perview? >> i think we try to keep the financial system on a highly sustainable capital system so banks can continue to provide credit in communities. we think that's an important thing. i think not now but if there were to be a significant downturn, we would have tools other than interest ratings to use to support demand, including the tools that we use during the financial crisis, forward guidance and large scale asset purchases. potentially others. >> i have another question that i may be able to get the question in, but i can muput itn writing to you to get the answered. i was heartened by the fed's recent announcement that it will finally create its own real-time payment system which will help low income families save billions of dollars each year in overdraft fees and exploitive check cashing and payday lending
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costs at the same time i'm discouraged there's a five-year delay in implementing the system. so, maybe a couple seconds of, why would it take five years? >> we don't think it will take five years. >> oh, okay. >> we're thinking three or four. we want to do it right. this is a complicated project. it's very important. it's very high priority for us. getting it right the first time is key. so, we want to have it up and running within three to four years. >> thank you. yield back. >> gentle woman's time expired. now recognize the gentleman from california, mr. coniff, for three minutes. >> i appreciate your service to our country. i appreciated your eloquent comments earlier about how your only agenda is nonpartisan in the interest of what's in the national well-being. given some of the disinformation on social media, i thought you could take this time to assure the american public that you have america's interests more at
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heart than chairman xi jinping? >> well, i'll just say it's important americans understand we serve all americans in a nonpartisan, nonpolitical way. that we try to deploy the best thinking and the best analysis and, we'll make mistakes. we're human. but we will not make mistakes of character. >> according to the federal reserve data, financial accounts for the united states, 87% of wealth invested in the united states by americans is in the u.s. only 2% of the u.s. wealth is in the cayman islands. 13% of u.s. wealth is overseas. a second sat sat from the federal exchange is that u.s. debt and equity markets of u.s. global debt and equity markets are about 38% of world markets. this is more than the eu.
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and it's four times more than china. given these comments, would you agree with me that the united states is, by far, the best place for investment? >> yes, absolutely. >> now, i know you can't comment on particular policies, and i respect that. but when i -- i had friends who when president trump was elected said, if president trump ever gets elected, we're going to leave the united states. guess what. they're still in the united states. you hear all of these people saying, if we ever have a wealth tax, we're going to take all of our money outside of the united states. my view is, they're still going to have their money in the united states because it's the best place for investment. without commenting on whether it's a good idea or bad idea as an economist, could you comment if there were a 1% or 2% well tax, do you believe that 87% number would drop dramatically? >> you know, that's -- there's kind of a bright line we have to observe with something like that. that's clearly something that's in the mix politically right
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now. it just would be really a disservice for my institution to weigh in on that, i'm sorry to say. >> i appreciate that. but you would agree we have a lot of comparative advantages compared to other countries in terms of investment here? >> strongly agree. >> that's my questions. >> gentleman's time expired. now recognize the gentleman from california, mr. pin etta, for three minutes. >> thank you, chairman. chairman powell, good morning, and thank you for doing this capitol hill tour. i know you were up here yesterday as well. obviously a big topic that you've been talking about today and yesterday was reducing the nation's debt. it's understandable as a share of the economy, the debt held we the public is projected to grow from 80.7% this fiscal year to 95.1% in fiscal year 2029. what you said yesterday was, it's just the case now that the debt is growing faster than the
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economy, the nominal gdp. you then went on to say, and ultimately in the long run, that's just not a sustainable place to be. can you elaborate on that? >> yes. i mean, the point is that you don't have to pay the debt off. you don't have to balance the budget in any particular year. you just have to have the economy growing faster than the debt. that should happen over a long period of time. that's how you successfully delever. >> when you say long period of time, narrow that down. >> ten, 20, 30 years. if you look at the united states after world war ii, great example. the u.s. after world war ii spent a lot of money to win that war. a multigenerational benefit from that. but it took until 30, ho years, i guess -- well, i'm not sure where debt troughed out as a percentage of gdp but it went down gradually over a long period of time. >> there's an economic theory that says we need to spend money during a recession to return our
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economy to normal, but if cutting spending or raising taxes during a recession is unwise, when is it an appropriate time to be making structural reforms, to reduce debt growth? >> well, i think it is -- when the economy turns down, spending goes up because all benefit programs and things like that -- and tax revenue goes down. that's just natural. when the economy's strong, i think those are the times when we can take a longer view and make structural changes, you know, that will put us on a better footing longer run. >> okay. in the six quarters since the 2017 tax law was passed, the gdp grew at an annualized rate of 2.5%. but over the six quarters before the tax law was passed, gdp grew at a slightly faster pace, of 2.6%. if you could, mr. chairman, in your view, what were the major factors that caused that slowdown since the tax law was
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passed? >> it's very hard to identify, you know, the factors overall, but i would say one of the biggest things that's changed is the global economy was -- 2017 was a year of synchronized global growth around the world. europe actually grew faster than we did. since the middle of 2018 we've had a synchronized global slowdown in growth. we feel that through our -- through trade and our channels, financial. that's a big piece of it, of the story. and it's hard to say this caused this part and this caused the other part. >> thank you, mr. chairman. you yield back. >> the gentleman's time expired. now recognize the gentleman from north carolina, mr. price, for three minutes. >> thank you, mr. chairman. welcome, mr. chairman, to the budget committee. we appreciate your candor and for
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forthrightness in helping us understand the fiscal and monetary scene that is opening before us these days. i want to harken back for a moment historically to the comprehensive budget agreements that we concluded in the '90s, the bipartisan agreement of 1990, the democratic heavy lifting in 1993 and a much lesser but still important bipartisan agreement in 1997. on the face of it, those budget deals had a good impacted. the economy was very healthy. the balance -- we balanced the budget for a four-year period, paid off something like $500 billion of the national debt. i wonder, if you wish, to comment on that shg the impact of those budget agreements on our fiscal health, on our capacity to compensate for an economic downturn when it came on our economy generally. i'd welcome that. but i want to also ask you about the consequences of not having comprehensive agreements for now
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20-plus years. we have had massive tax cuts. most recently in 2017 with a net cost of $1.9 trillion to the treasury over ten years. i wonder if you could comment in particular on that question of kind of slack we have to deal with the downturn. this cut came down a period of economic recovery. it gave what some people have called a sugar high, but where has it left us now when a real downturn comes? >> i'll just briefly comment that i was actually serving in the treasury department in 1990 under president george h.w. bush, when the tax -- when that agreement was reached. it wasn't my area of the treasury, but it was politically unpopular but i think history has treated president bush very well and appropriately so for, and others, involved in that process. for stepping up and setting things up on a much more sustainable basis.
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and i think that flattered the -- you know, that put the incoming clinton administration in a better place than it would have been without it. >> and then the clinton administration learned in its own way that this was not popular, this kind of activity was not popular. i certainly it in my district, but i think that those votes, and i look back, and i think that those are the best votes that we have cast. >> i think that history has been kind to those who do those kinds of thingthings. in terms of the slack, and i think that you were asking in terms of what ability to respond to the downturn really, and not slack, but the ability to respond to the downturn and we have less, because the rates are lower now, and we can use the unconventional tools if appropriate, but i think it is also important that congress retain a level of fiscal space so that you can react with fiscal policy, and particularly in the event of the larger downturn which we don't foresee right now, but congressional action has been a part of those kinds of things, and fiscal
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policy is very powerful in supporting the demand in a weaker economy. wouldn't you think that a tax cut that nets $1.9 trillion in losses shouldn't be enacted at a time of economic health and growth. or should it? i mean, is there, where is our capacity now the respond to those downturns, both in terms of the compensatory spending and the tax cuts, and where is this capacity by which, because of this tax cut? >> well, i don't comment on the particular pieces of legislation, but the united states has fiscal space to respond now to a downturn were it to be necessary. >> the gentleman's time has expired and i recognize the gentlewoman from texas for three minutes, mrs. jackson lee. >> thank you, mr. chairman. and thank you for your service to the nation and i will try to get in two questions and half, and so i want to read one question quite quickly.
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but this impacts my constituents, the cost of child care, housing, higher education, and other essentials have been rising much faster than headline inflation, and wages over the last few decades. this speaks to wage stagnation, and more important of those working men and women who need those sense shalls and when making monetary policy, does the fed consider inflation to be for the goods and services that are disproportionately weigh in the pocketbooks? >> we look at the overall inflation in the price level, but as i mentioned earlier, we look at, we always look at the effects of what is happening in the economy and different income spectrums including those at the lower end of the wage spectrum. >> does it help move policies that might get relief to some of these working families who need these essentials? >> i think that all of it informs our making a policy, and i think that right now, we were
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particularly encouraged by the progress that we are seeing among the lower wage workers and this is going to strengthen our encourage to see this expansion to continue. >> you do agree that wage stagnation exists? >> overall, the wages are moving up at a healthy clip now and they have moved up to 3% growth rate and we are looking at a number of different measures. we have wondered why they have not moved up farther, but 3% is a healthy wage growth overall. >> in the work of the federal reserve, though it looks to the future, historically, have you ever assessed the economic impact that unpaid labor provided for the united states during 250 years of slavery? >> i don't believe that -- you know, so we have many, many econ phds who do the research, but i am not aware of the research and i will get back to you. >> let me officially ask for
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that to be done, and would you assume that, that was a great contributor to the wealth of the nation? >> yes. inevitably, yes. >> and so at this point in time, and even as you have indicated the wages have gone up, there is a huge disparity in wealth with african-americans, and i'm looking at 2019 now, and in income and the wealth possession if you will that is separate and apart from the individuals having a job, low unemployment, and which has been something that has been in the headlines. how devastating is that? what, and how can we add research to the federal reserve that deals with this seemingly continuing systemic divide in terms of the income and wealth ultimately in the african-american population? >> well, first and foremost, any form of discrimination on race or any other inappropriate
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categories is simply unacceptable, and in all of the places that we are not the main agency to enforce that, but we do touch those issues in the supervision of the banks and our implementation of the fair lending laws and that kind of thing. >> i would like to, even though there are many financial entities that we deal with here in the budget committee, but i would like to work with your staff on the kinds of research that may be done, because it is systemic. it is continuous. we have not seemed to find a way to leap into a moment when that gap does not exist. and i think that it impacts all americans, and certainly impacts those americans of all backgrounds, but it has been persistent in the african-american community, and i want to applaud the fed for recognizing the importance of that data. so i want to be engaged with you on more data in this issue, and i thank the chairman for the
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service of the nation. >> i look forward to working with you and your staff. >> and the time has expired for the gentle wowoman, and we will recognize the ranking member mr. woma womack. >> i want to thank the chairman of the federal reserve for being with us today. if this were a periodic health assessment, any patient would, i think, be pleased with the results of what you have talked about today if the economy were the patient. a few places here and there where maybe we could do some improvement, and others that seem to be doing pretty well. so if our blood pressure was consumer confidence, we should be happy with that. it does not need medication. if our heart rate was the job market, and it is a very strong job market, i mean, there are other places, business investment as you have indicated that maybe the elixir there is
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some trade relief that would help, but overall, the health assessment of the country as you have articulated here today is pretty good, don't you think? >> i do. the u.s. economy is in a strong position with historically low unemployment, and expansion on record and the outlook is still a positive one. >> so what would you say to the patient on the exit interview after doing the health assessment? would bit it be to not do anyth terribly out of the ordinary and change your lifestyle desperately and when i say that to be fair, i am talking about the assertion that maybe we ought to just raise the taxes, and those are tings that my friends on the other side have been critical of the job rates and the tax rates to date, and the cbo says that if you did
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something to the tax cuts that if you pull it back, you would lose 1 million jobs and you would agree that losing 1 million jobs for whatever result would cause a job loss of 1 million would be harmful to the economy, would it not? >> losing 1 million jobs would be bad, but i hasten to say that we are not the business of evaluating proposals at all. >> and so what is the prognosis of the patient, dr. powell? >> well, the health of the economy that is key here is the consumer. what we are looking for is continued strong labor market, and that is going to be seeming to drive this virtuous circle where the wages are going up, and the confidence is high, and spending and it is really good. i would like to see some improvement, and you will see some improvement on the manufacturing business investment and trade over time as demand continues to grow, and also as hopefully we reach a
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period of higher certainty around trade policy. >> so, in my discussion with the physician, i would say that one of my big concerns is more long term, and that is the consequences of the failure of congress to address matters of deficit and debt and it is an administration issue and a congress issue, and i think that it is a people issue. and it is a part that is unsustainable and we found out it is a 1$134 billion gap defict run up by this country in the first month of the quarter, and so, terribly unsustainable. so my question for you is this. because we do not have a balanced budget agreement, amendment to our constitution, is a debt to gdp target a
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rational target should congress accomplish some kind of budget process reform. would that be helpful in the overall health and well-being of our economic future? >> i can't really -- we will leave this recorded program right now, and you can watch it at cspan.org. c-span3 is live at the national press club where stacy ey abram former democrat -- good afternoon. welcome to the national press club. my name is allison fitzgerald koj kojak, and i'm the 112th president of the national press club. we have a terrific program ahead, and we invite you listen or watch or follow along on twitter using

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