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tv   Bloomberg Markets European Close  Bloomberg  February 27, 2019 11:00am-12:00pm EST

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it is growing faster than gdp. that cannot grow faster than gdp forever. i don't know that i would say -- the accumulated trade deficit were every year we borrow over half $1 trillion .ust adds to our foreign debt some of my colleagues have found these hearings dry and asked me to spice things up by asking an accounting principles question. [laughter] >> we have cecil, the proposal for the current expected credit the system being proposed of this may be to increase reserves but you and the other bank regulators are supposed to determine the size of reserves.
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we should not increase or decrease preserves because of an esoteric accounting theory discussion which has gone awry. i wonder whether you believe we should make this major accounting change for banks that in economicending downturns without a quantitative impact study. >> we don't think it will have that effect but we will be watching carefully. looking at this it's been under discussion for a decade now. a decision we are just implementing. if we find it does have facts like that we will take it -- we will take appropriate action. >> thank you very much. the gentleman from florida, mr. posey, recognized for five minutes. >> thank you very much. chairman powell, thank you for
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being here. i would like to think everyone think everyone to than in this room is enjoying success in this country right now and i want to thank you for the contributions you made to that. it's great to have a chairman here who answers questions directly and we appreciate that. -- 38%008 we've seen -- to 4400 and nine banks on the spreadsheet i saw. ,ver the same period of time assets grew by 80%, to $18 trillion.
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mergers have been going on at a brisk pace as you are no doubt aware. i'd like you to share what your research shows about the economic implications of increasing concentration in the banking industry and how that might restrict or enhance the availability of credit to those who take risks on investments to grow our economy. >> the number of banks has been decreasing pretty steadily for more than 30 years. i remember 14,000 was the number when i was in the government. factors.nge of people leaving rural areas. also allowing interstate banking. for whatever reason you have seen the long run process. we know when a small bank goes out of business in a rural county or small-town that is not a good thing.
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that is bad for the country, bad for that town, the social fabric. we try not to add to the problems of community banks. we tried to be mindful of their important role in society. , 2018, theof mergers lowest in a long time. i asked the staff to go back and look, the lowest in 15 years. the last thing i will say i think we need banks of all sizes. small banks, banks across the spectrum, business models serving different communities. we want a diverse ecosystem to have a healthy economy. >> related to that same question could you share the criteria the fed uses in evaluating bank merger applications? >> i would be glad to. it's quite detailed. federal reserve section that
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lays out a lot of detail and there's also plenty of guidance on that issue. factors,t competitive banking community factors. managerial resources. we look at compliance with consumer and fair lending laws and cra record. we look at the combined financials of the companies. we also invite public comment. a pretty thoroughly worked out process. look at all those factors and make a decision. >> thank you very much. i was not going to dwell in this realm until we had a series of slides and someone else mentioned fannie and freddie. if you could give us an update on the amount of tax dollars that have been spent today on
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defending the crooks that mismanaged fannie and freddie and near bankrupted the whole operation the last time we got a report it was like eight years ago with spent 600 million dollars of taxpayer dollars. can you give us an update? >> i don't actually have an update. >> if you could communicate that to us i would appreciate it. >> thank you very much. the gentleman from new york recognized for five minutes. >> thank you madam chair. good morning mr. chairman. let me ask you a question. there was a study that was done by the new york fed that found that americans are borrowing more for cars while borrowing less for houses. the reason the statistic caught my eye is because of my belief
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in homeownership and that is the best value for low and moderate income households to develop wealth over time. rent the car and on the home as opposed to renting -- owning the car in renting the home. my question is what does declining homeownership rates especially among young people saddled with student loan debt say about the overall health of the united states economy? >> the overall household picture of debt is basically a healthy one. a couple of areas of concern. , there's growing body of research that shows students who borrow for their notation and wind up
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getting the kind of value they thought they would get so their incomes are lower than they were expected cannot pay the debt act that debt can hang over their lives for many years meaning lower levels of homeownership and other sort of measures of economic success. we are seeing more evidence of that. >> you have identified the debt ratedo high among low financial firms and that underwriting has deteriorated in lending to highly indebted businesses. obviously we want to encourage prudent lending to businesses in those with existing debt but i
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don't want to go back to 2008. increaseded believe credit risk in the leveraged loan market pose systemic vulnerabilities particularly in the event of an economic downturn? >> this is an important supervisory focus. the headline answer to your question is we don't believe it poses systemic kinds of risks but we do think it poses a macro economic risk. these are companies that have borrowed in good times and if there is a downturn they will be less able to carry out their roles in the economy. that may have an amplification affect on a downturn. not have do excessively high exposures and also don't have excessively large pipelines of commitments
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they've made. two things they did have before the financial crisis that they don't have. banks have changed the way they manage their involvement in this business in a way that puts the risk in the holder's rather than the bank's hands. >> we came up with dodd-frank to deal with the mortgage crisis that we tried to make sure we are now watching to prevent best do you think we are prepared and have enough regulators watching closely enough so that we can avoid leveraged lending ending up being the next bubble that burst and causes us to have the same financial crisis we have in 2008? >> i think our financial system is so much better and has more liquidity. a better sense of his wrists and ability to manage those risks. a forward-looking assessment of
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their capital adequacy. they've also done resolution planning. our banking system is so much more resilient and stronger than it was for the financial crisis. it should be able to withstand the kinds of shocks we are talking about. if there were unexpectedly high credit losses along nonfinancial corporate the banks should have capital and liquidity to absorb those losses. it does not mean there would be disruptions and losses because there would be in the economy. it would not be the kind of thing we saw in 2008. >> so by and large dodd-frank did a lot to help us and there may be others we need to include to continue to protect ourselves. >> the broader regulatory program did serve its purpose in strengthening our financial system. yes. >> the gentleman from missouri is recognized for five minutes.
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>> thank you madam chair. good to see you again chairman powell. i would like to bring up one issue related to i fought to ensure difference between guidance and tool is clear. just last week i saw a letter c m senators tillis and repo. it appears the feds under the obama administration created a regime that forced banks to meet numerous requirements related to liquidity and capital without going to the rulemaking process. if this is true the fed have to second of guidance issue in release that in relation to licensing and ensure the proper rulemaking process is followed. i watch this issue closely in appreciate your attention. colleagueds to my from oklahoma mr. lucas, i
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wanted to add my thoughts to his regards to margin. this is an issue i watch carefully. takenk is important we action on this issue so i'm looking forward to working with you on that as well. issue most concerning to me this .orning is cecil we talked about this a number of times. there seems to be a growing concern for more not only bankers but consumers. asltors, the homebuilders they begin to understand the costs associated with this. i know you indicated it will not have much effect. my colleague said she's not concerned about how to affect banks. i'm very concerned how is going to affect banks.
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how effective banks will affect consumers. thanks to raise the cost is going to cause people to longer have the ability to have home loan. homebuilders testified for every $1000 it cost 100,000 across this country the opportunity to have a home loan. those will be the low to moderate income. this is very concerning to me. when you look at the banks having to pass that cost along, we have to eat it and ensure --er incomes they had four in some cases it has happened. i had banks that no longer make home loans because of increased costs in my district. this to me is going to have a devastating effect on the home lending market especially when you talk about the gsc and when
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you have a direct effect we no longer have -- if we lose 100,000 homeowners that's going to affect the economy. materials is and not going to go on this will have a devastating effect on our economy which is directly in your purview. -- theersations with chairman gave me some figures that will be out of this world how he's going to resolve for this and pass these costs along. can you tell me from this conversation i'm having with you what your thoughts would be along those lines? would you have concerns about the gst's having to pass those costs along? in ability of consumers to have access to credit as a result of that? >> were you time that back to cecil? >> yes. >> we know regulation has a cost
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. we try to make it as efficient as we can and no more burdensome there needs to be. on cecil we have tried and put a lot of resources in trying to understand how it will affect behavior of banks and we will watch that carefully. with allowed a three-year phase in that does not start until next year. we will see it coming and gradually watching very carefully to see whether these effects happen. >> talking with banks from wall street to main street noted likes this will. -- to see what was told the original reason was understanding risk with regards to online. if you're an investor investing a healthy bank or credit union there is no need for this
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risk exposure and therefore it's unnecessary. i'm concerned about this. there's a growing groundswell of concern and i hope that you take this into consideration. i yield back. >> the gentleman from texas mr. green is recognized for five minutes. >> thank you adam chair. i think the chair for being with us today. honored to be in your company again. i have great respect for your intellectual prowess. i say this because you have had to deal with a level of inhumanity that most fed chairs do not have to deal with. i was to hear now the words of the president of the united deals indicated i'm doing
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and i'm not being accommodated by the fed, that would be you. i'm not happy with the fed, they are making mistakes. my gut tells me more than anybody's brain can ever tell me . you have access to some of the greatest minds in the world. you do research. i assume that when you are setting the federal funds rate that you rely on that research ut. not on the president's go i assume you do this because you understand the impact it can have on the economy. record,like, for the would you indicate that you do have the level of research necessary to make these decisions without the benefit of
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the president's gut. >> i think we have adequate resources at the fed. we have two of in a very strong culture. a culture of commitment to making these decisions for the benefit of all americans based on our best thinking, diverse perspectives and without considering clinical factors. -- considering political factors. >> have you done research in terms of african-american unemployment? unemployment of teenagers? >> oh yes. quite a bit. >> i would like to ask you if i may if the stock market is a fair asset test for the health of the economy. should we rely solely on the stock market? it's the president does. ofwe look at a wide range>>
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financial conditions. credit market conditions. the stock market is one of many. only factor.e not the one that supersedes others. >> no. it is one of many. >> why is it so important for the fed to be independent? >> i think it is important because you have given us an important job. to achieve maximum employment at stable prices. we need to do that in a way that is strictly nonpolitical. you've given us long terms, protection from shorter-term political considerations and ordered us to do business that way. the record is central banks that are independent, that have a degree of independence from the rest of the government, do a better job at serving the general public. >> would it have a little bit to do with the fact that you want people to rely on what you do
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and you want people to assume that what you do is not predicated upon the lens of some political personality. >> it's important that the public understand who we are and how we do our business which is nonpolitical and based on the .est thinking we can muster >> let me get to the question i really wanted to ask. you've done many studies and acknowledged it. given knowledge you have some of the best minds in the world i want you to do a study to determine the impact that nvidia's discrimination -- racism, xenophobia, nativism, anti-semitism, the impacts that discrimination has economy this is a
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question this is a question that will help us to better assure that you can meet the mandates that have been accorded to you. it is unfortunate that we try our best to change the circumstance. we've been doing it without the benefit of this intelligence. how soon do you think you can help me with this intelligence? i will speak to some of my colleagues and come back to you. >> i look forward to hearing from you. >> thank you. the gentleman from michigan is recognized for five minutes. >> thank you. good seeing you, chairman powell. i've got four areas i want to go over. options specifically exchange listed options. fed inflation targeting
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increased discussion as possible and workforce participation you have brought up in your opening statement. the volcker rule. as ranking member of the capital markets subcommittee i've been very concerned how the rule has been detrimental to capital markets. myself chairman luke meyer and had schirling at the time sent you a letter. i don't believe we've received a response as of yet in this it was concerning. we raise concerns that the rule unnecessarily restricts banks ability to make investments on small business as a result of the covert funds provisions. such funds provide the same type of financing a bank is authorized do on its own balance .heet previously recognized that banks long-term investments in covered funds generally do not threaten
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safety and soundness and said regulators would look for ways to encourage this important activity within the language and intent of the statue. the letter was addressed to secretary mnuchin, yourself, chair clayton, cultural or wondering when you are planning to address this issue. >> have received extensive comments on the proposal. you mentioned the covered funds part of it. we are looking carefully at ways to address some of the concerns that were raised and also -- >> how quickly can we expect clarity? >> i don't have a date for you but i can get you a better sense of that. >> that would be helpful. the federal reserve issue proposed it would -- on the size
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of a banking trading business rather than on the size of the .anks assets when you envision finalizing that tailoring rule? 2155.s is the>> that one, i think we have a dozen rolls out for comments. that was last may you initial the proposal -- you issued a proposal. this is not the volcker rule. it is dealing with the size of the firm's trading business rather than the size of its assets. i will come back to you with the time. options for centrally cleared exchange listed options margin to current exposure method is negatively impacted liquidity. last congress the options market stability act received unanimous
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support. not believe us when we say we can agree on something on occasion. i believe it would have solved some of these issues. issued aal reserve proposal in october of last year to replace the current exposure method proposed for purposes of exchange listed options the more risk sensitive methodology known as the standardized approach for calculating counterparty risk you can you indicate when banking agencies plan to finalize this rulemaking? >> that's another one of your comments on. i think that is coming soon. we will come back to you with a particular date. have aomething we will long meeting after this one. the flight inflation targeting increased, the dual mandate has been brought up. to quote it specifically, i've never quite understood why is called the dual mandate when it says the federal reserve
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congress mandated -- promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates. we forget the third part all the time when we have this discussion. news reports indicated the fed may be considering higher inflation target rather than the adopted.as been concerned that the fed is going to be rushing into some new approaches when we are not necessarily understanding what we are living with now and i'm wondering if you can comment on that. >> we are not looking at a higher inflation target. we are looking at a way to more credibly achieve our existing symmetric -- >> why is the labor participation rate for prime age workers falling? age.g prime
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>> that is a longer conversation and an important one. it's a range of things. largely in younger workers it has to do with globalization, technology, the opioid crisis, the flattening out of u.s. education -- this is an important issue and i would love to talk more about it. >> i look forward to our next meeting. >> the gentleman from missouri, mr. krieger, recognized for five minutes. moment theat this u.s. trade representative is testifying before the ways and means committee. one of the issues they're going to raise is china trade issues. according to the u.s. trade 2016 aboutive in
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are00 workers in missouri of our tradeuse that is -- trade is very critical because of their employment. 2017 the trade representative reported about $14 billion a in agricultural exports. missouri, 85,000 jobs. i do not want you to get into weigh thet how do you thertainty in trade with
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createually trying to healthy monetary policy? chairman powell: as you know, we have this thing called beige book, where we accumulate the comments of our array of contacts around the country, and for the last year or so a principal feature has been around uncertainty around trade. companies are concerned about higher prices, because they are importing materials, and some of them say that they are delaying investments and hirings. we cannot really see through to what the effect is, probably at the aggregate level it is not big. individual companies can be very much affected. so there is a lot of uncertainty, and it would be good to have trade issues
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resolved. that said, we do not have a role in trade. we do not comment on the tickler policies, as you indicated -- on particular policies, as you indicated. >> $14 billion comes into our state to support these jobs, much of that comes from my , celineional district county for example is one of the top spots in the nation for the export of beans to china. -- just tormers are accent what you said, farmers are even saying maybe we should just leave the beings in the ground -- beans in the ground. even though they have been getting some competition from the federal government, you know, they are saying we want trade, not aid. is a serious
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issue. but the u.s. deficit and physical concerns as it relates to the tax bill, something you have heard us speak about, and again i will try to ask a question so that it does not require policy, but it would be interesting to know what the economic impact of the tax mayage has been and continue to impact our economy. is there any data available that would give us an idea about that impact of the tax package? chairman powell: you know, i think cbo would be the best source to sort of score what is happening to the economy from a very -- from the viewpoint of a particular law. the effects of the tax package
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is mixed in with every thing else happening from our standpoint. >> so the fed wouldn't speak to that? chairman powell: we had estimates, but with a $20 trillion economy we do not look back and it is really not what we do. we made estimates at the beginning and i think we have adjusted them along the way. >> thank you. >> the gentleman from wisconsin, mr. duffy, is recognized for five minutes. >> welcome, good to see you. click question on insurance. indicatedat you have the u.s. insurance regulatory model has provided for strong solvency. insurance companies are well capitalized. is developing a new international capital regime. and i think that your colleague indicated it would be a challenge for us to implement
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that new regime in the u.s. and so my question for you, as you are part of these negotiations, is the u.s. going to agree to a new insurance capital set of regulations, or are we going to provide some get formald try to recognition of our u.s. based model? chairman powell: my understanding is we are working with that group internationally to make sure that whatever they do adopt works for our system, which we think is a good system. we are not going to implement something that does not work for us. and we are working with the international group to make sure that what is ultimately adopted does work for us. >> fair enough. in 2018 comey is said at the u.s. gdp growth -- in 2018, you said the u.s. gdp growth is what? chairman powell: a tiny bit under 3%. >> pretty good.
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when is the last time we hit 3% growth? chairman powell: 2006. >> has been over 10 years. and i think some other people had indicated that the u.s. economy could never hit 3% again. what happened? why are we hitting 3%? we are long into this recovery, this is one of the longest expansions we've had since the great depression, fair enough? >> one of the longest. >> at the end of the expansion you should see this petering out, but you haven't, you have seen some of the highest growth in the expansion in over 12 years, what happened? chairman powell: it was a good year. >> what happened? chairman powell: a lot of things did. i think that the tax cuts and spending increases, the fiscal package supported demand in a meaningful way. >> lower taxes contributed to growth? chairman powell: they supported demand. i think the hope was that there
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would be supply affects over time, and that is something we hope will be big, but that takes more time to work its way through the system. >> and so tax cuts contributed to 3% growth, has any regulatory reform from the administration helped with the growth as well? chairman powell: it is hard to isolate that, it is a question that people struggle with. we do not want regulation to be anymore costly or burdensome than it needs to be to get its job done. did you make and commentary upon or about the unemployment rate of whites, latinos and african-americans? chairman powell: i did. >> is unemployment higher today or lower for those individuals? chairman powell: i think that we latinos andks and latinas, we are at historic
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lows. the data has not been kept more than 50 years. near historic lows. >> more people are working. everyone is working more, right? chairman powell: yes, the labor market is very healthy. they areeir wages, going down are going up -- or going up? chairman powell: wages have been moving up nicely. >> they are making more money. chairman powell: particularly for people at the lower end of the labor force. >> more people are working, more people are making more money, and more people -- i think you indicated with the lower education or lower skill sets -- they are making more money, is that correct? chairman powell: yes. >> i find it fascinating my colleagues bash the tax cuts and the president, and the economic policies that have come from this administration, but the net end result is more people are
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working, more people make more money, the economy grows at 3%, and when all of those great things are happening for all these americans, no matter where white,ther you are hispanic, latino, everybody is doing better under this, under these policies. but all the same, my friends try to bash the president on policies that have helped every single american. i think that is shameful. i yield back. >> the gentleman from illinois is recognized for five minutes. >> thank you. if youhe same vein, look at figure 1 in the report that you gave us, you look at the rate of job creation. it is remarkable how constant it
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has been with no visible change as a result of the policies of the last two years. and i think that is the relevant observation there. , thesaturday march 2 partially substitu -- the debt limit will come back into effect, unless we pass legislation or do something about it. now, we have some runway on a various, extraordinary measures that can be done by the treasury and others. do you have a feeling on how much runway we have before congress have to deal with the debt limit? and can you say anything about the implications of defaulting on that would be? chairman powell: i think there is uncertainty about when the actual date that the government will run out of cash and not be able to pay bills when they are be will come, but it could later this year, the summer or the fall. it remains to be seen. and i think that the main thing is we have never failed to pay
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all of our bills when due, and i think that can never happened. i think that her credit rating and credit as a country is such an important asset. that we need to stop short of letting that happen. i think it could have hard to predict, but possibly bad consequences, if we were to default on payments. >> when we have come close to the default income a walking up to the cliff on that, you know, what have been the effects to the markets, the credit rating, what were the implications for the general economy? chairman powell: very hard to quantify. i know that in 2011, that we were downgraded as a consequence of this. i know that there were costs going up for a period at the height of the crisis, significant cost imposed on the taxpayer for that. >> a few days ago, the president proudly announced he had
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reached a deal with china, currency manipulation deal. have you been told what that deal is, has the federal reserve been informed? chairman powell: our staff -- we do not handle currency. that is the job of the treasury. the think that is our concern is we be allowed to conduct monetary policy with a free hand. >> have been informed of what the deal is? chairman powell: at the staff level, people are in contact and have major our interest has been addressed. >> was that a yes or no? chairman powell: yes. >> you have been informed? people in the fed know what the deal is. chairman powell: as it relates to our interest, yes. >> any other tail risks we should be worried about, hard srexit, what are your top risk
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we should be thinking about in congress? chairman powell: the outlook for the u.s. economy is a positive one. and i think that i would start with slowing global growth. we have seen global growth in china and europe through the course of 2018, and into 2019. growth in 2017 was a real tell went -- real tailwind for the economy. it was a green eyes growth. -- synchronized growth. we are feeling the headwind. event and itt an may pass without much implication for the united states, but it is unprecedented so it is hard to say, exactly what the implications will be. we are monitoring it carefully. >> last year, there were considerations you had for developing a real-time interbank settlement system. can you say a little bit about that or give us an update on
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what your current thoughts are on that and the schedule we might be looking at? chairman powell: we put the proposal out for comment and we are reviewing our comments. the idea that central banks can really provide immediate final settlement in real-time, real-time payments. >> some of them do. chairman powell: many of them do. the question is a should we take this on. i think it is a question we have to evaluate under our existing statute, and we will take our time in doing that. we have to conclude it is a viable. and also that it is something that the private sector can adequately handle.. so we will look at that. it clearly could support real-time payments, which would be a positive thing, but it has to work under our statute. >> on your back. -- i yield back. >> the gentleman from ohio is recognized for five minutes. >> thank you.
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chairman, thank you for being here. i want to follow up on questions that the german from wisconsin was talking to you about. -- present economic growth, the 3% economic growth, real wage growth growing. it was an incredible year for the american worker. chairman powell: yes, it was a good year. >> as a result of the tax cuts, one thing we want to see is supply-side growth over time, can you help us understand what that would mean -- it would mean capital investment, making the economy grow even faster, correct? chairman powell: yes, the first would be the one you mentioned, which is if you give more favorable treatment to capital expenditures, over time you will see more capital expenditures drive productivity. and productivity is what drives the rising living standards. but i think with supply-side
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initiatives, it takes time. it has to work its way into the thinking of businesses and into the capital stock, and we hope that the effects are large, but we will have to be patient to see them come in. there is a smaller possible effect in lower tax rates on individuals, which could call forth more labor supply. these are uncertain effects and they would take longer to emerge. >> k ask about the beginning parts on that? we have seen more people into the labor market who have given up on working, isn't that correct? chairman powell: yes, what we do not know is how much of it is cyclical, because the labor market is so tight. >> and we have seen capital expenditures go up in the last six months, but we have not seen those pay off yet. chairman powell: capital expenditures were very strong in the early part of 2018 and they have peter out a little bit -- petered out a little bit.
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we expect them to continue to be at a healthy level. >> hopefully, what we have done on tax cuts will continue to pay dividends, but i want people to understand how that works. second, on monetary policy, it seems that there has been a change in the way the monetary policy has worked. the federal funds markets for non-gse's is at a four-year lower volume, so it seems that the interest on excess reserves is getting to be a more important part of what you do, can you talk about that shift since 2008? chairman powell: yes, the crisis -- pre-crisis there was a small amount of reserves and we could manage in the rate by making small adjustments. in the current era, where the demand for reserves is so high and frankly a little volatile, trying to manage scarcity in
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that kind of a large pool, we would have to have a large presence in the markets on an ongoing basis and we do not think that is something that we could do. so we decided to continue to use our existing framework, which is to use our administers rates. so the interest is very fundamental for the way that we manager policy now. it seems to work very well. >> two more questions. one, hopefully you can answer it quickly, but there is a new focus on modern monetary theory that says that taxes can better fight inflation than monetary policy, do you have a philosophical view of that? chairman powell: that aspect of it would be a complete change. the reason why the fed does that is we can move quickly with our tools. and to give the legislature that responsibility, impeccable you could do that -- in principle,
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you could do that, but we have checks and balances. >> assume that the two tools move equally, who can move faster? chairman powell: we can move immediately. >> that is assuming that they are equally effective, which i would argue monetary policy is far superior as well. one last thing on real-time payments, something you said is that i hope you will stay focused on is whether the free market and the private sector can actually provide real time payment system, because if they can there is no need for the federal reserve to do it. chairman powell: that is part of something we have to look at under the monetary control act. >> thank you. >> thank you. the gentleman from washington, mr. heck, is recognized. >> i always ask the same question, which is, when does america get a raise? i may have to resort is -- have to revise that, because we are
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beginning to see evidence of that, which i think is an indication of the full employment mandate that you have, so good job. i commend you for hitting the patient's button -- patience button. i am looking at payroll gains, north of 200,000 jobs added every month, and i do not think that looks like full employment, month in and month out. and, as minnesota fed president carrey has noted, the share of income going to labor. the share of income going to labor is not really reversing its long-term slide, so in the fomc is watching the data, what are you looking for in the labor market? how much slack do we have left? chairman powell: we look at a
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range of indicators. we can look at one indicator with inflation, we think central banks control that. the labor market is different. we look at labor force participation, we look at wages, job openings, i could go on. >> how much slack do we have left? chairman powell: you never know precisely and you are learning in real time. i think we have learned from labor force participation in the there areears that more people out there who will come back into the labor force, that creates more slack. >> more slack to come? chairman powell: we hope so. we do not really know. there is a long run aging trend in our country, by which my generation is now retiring. so you are going to have lower labor force because the patient, but the very strong labor market -- labor force participation,
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but the very strong labor market is keeping people from leaving. we hope it continues. >> once we get to full employment, the definition has been a moving target on the part of the fed, you will acknowledge, are you willing to 4% wage growth climbed to either to begin to recover some of the decline we have experienced or labor share of income, or alternatively, an idea not discussed often enough, to see if tight labor markets themselves can improve or boost productivity? are you willing to let wage growth hit 4%? chairman powell: we are targeting price inflation, now wage inflation. it so wages should equal to in any aggregate. >> as a follow-up, i have a couple charts. do we have them? these are the two mandates, full employment and price stability.
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you referenced price stability. can we go to the second slide? or not. the second slide. i am burning daylight. chairman powell: they are both on there. >> this shows the record over the last 25 years with respect to the fed's price stability target of 2%. i think what is important to note is that we have underperformed 85 months versus overheating two months. 213 months within a half percent of target. good on you for that as well, but clearly the long-term record of the fed has been to underperform. so there is a relationship between wage growth and price stability, and on the issue of
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price stability, the fed has been underperforming way more. a multiple of i do not know how many. this speaks to the issue of, when are we going to get wage growth that begins to compensate for years of decline. i know that you are engaged in a healthy exercise to review the tools and communications. what i would hope is this will be taken into account, frankly, some more transparent advancing of the historic record as a means of informing policy going forward, because i think this data speaks very clearly that we have a need to place a greater emphasis on wage growth and factors it affected. chairman powell: if i can take him a are right about the inflation data and a number of us have commented on that recently, so i like the charts. >> thank you. the gentleman from kentucky is
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mechanize for five minutes. >> welcome -- is recognized for five minutes. >> welcome back. when you first confirmed, you made a commitment to improve can medications and i want to thank you for our conversations and i think that you have fulfilled that commitment to improve fed can make asians. to improve- fed communications. i will talk about the negative net worth. the former ceo of the chicago home loan bank recently observed that the federal reserve is a solvent on a mark to market basis. you may have read his commentary . his analysis is as of the end of september, the federal reserve had a $66 billion in unrealized losses on its before lou -- on its portfolio. this equates to 170% of the fed's capital and it means on a
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marked market basis the fed had a net worth of -$27 billion. if you just rates continue to rise, the unrealized loss will keep getting better and of the market market network -- net with will keep getting negative. does it matter that the federal reserve is insolvent? chairman powell: it does not matter for any purpose. the unrealized losses have no effect whatsoever on her ability to contact -- to conduct monetary policy. we have been given close to $100 billion every year in our profits back to the treasury at the end of the year or during the course of the year, so in no sense are we functionally insolvent. >> does the market market negative net worth make it more difficult to raise the federal funds rate? chairman powell: absolutely not. >> another discussion on the balance sheet. and the reduction program.
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in your testimony can be stated the fed had made substantial progress on reducing reserves and the fed is prepared to ad just the program. this is a shift from comments in december when you said he believed the rough of the balance sheet has been smooth and you do not see "us changing that." i recognize that currency has doubled from $850 billion to $1.7 trillion, but please explain what caused the shift in the fed's balance sheet reduction plan and give us a better understanding of the final destination between the $4 trillion size right now and the $1.7 trillion currency level. chairman powell: in our november meeting, we began a series of meetings to engage on just this set of issues. and what is balance sheet
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normalization going to look like. i do not want to get ahead of the committee in december. and also i think the markets became much more sensitive to these issues. they had been insensitive for some years. we have now had three consecutive meetings on the balance sheet and we have worked at, i think, the framework of plan better hope to be able to announce soon, that will light the way all the way to the end of balance sheet normalization and will result in the end of asset runoff sometime at the end of the year. >> i would urge you and your colleagues to remain mindful of the fact that there are critics who continue to express concern about the size and composition of the balance sheet, as remaining fairly unconventional t could pose.tha the surcharge in july, i sent a letter with 28 of my colleagues to the vice chair regarding the
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surcharge. we express concern in the letter that the surcharge puts u.s. banks at a disadvantage when it comes to international competitiveness, it is more stringent than was adopted in other areas. yesterday, before the banking committee, you stated the financial system has much higher capital, much higher liquidity and better risk management, and stress tests have helped banks understand managing the risks. bankingsaid that our system is strong and resilient. given these enhancements, would it be appropriate to re-examine the calculation of the surcharge, since it was theulated in 2015 prior to offer mentioned improvements? chairman powell: i think the overall level of our capital is about right. therepen to evidence that
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are problems with that. i do not see u.s. banks having difficulty placating -- having difficulty competing. they seem to be profitable and a stock prices are fine. but in terms of the surcharge in particular, it is one of a bunch of pieces, but the overall level i think is just about right. >> i appreciate it. >> the gentleman is recognized. >> thank you. you mentioned in your introductory remarks that a significant amount of the recent growth we have seen has been the business investment. and i want to focus on the second of those, specifically on the impact of energy prices. i want to read a couple quotes from you to a recent article. the chief economist at ub securitiess -- ubs secret is
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said that there was fixed investment, noting how oil and us and shale have now made very dependent on the price of oil to drive fixed investment. gonender arnone has further to say that former oil prices accounted "for almost all of the growth investment in 2018." the article mentions how several of the fed officers have been concerned with the softening of oil prices and what it reflects. do you agree that the rise in oil prices over the years, over the prior year and a half, have been a contributor to capital investment in the united states? chairman powell: yes, as oil prices go up, it makes it more economic for more drilling and you see more capex. i do not know if it accounts -- that was the case in 2017,

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