tv Federal Reserve Chair Powell Testifies on Monetary Policy CSPAN March 3, 2019 2:22am-4:53am EST
the things he is done to cut regulations, 22 regulations for everyone put in place. those are all things that are really impressive with regard to him delivering on campaign promises. and look at the growth. at the end of the day, it gets back to results. with nebraska governor pete ricketts, chair of the republican governors association sunday at a special time of 10:45 a.m. and 6 p.m. eastern on c-span. on tuesday, federal reserve chairman jerome powell testified on the state of the economy and monetary policy before the senate banking committee aired he also discussed the u.s. debt limit and the federal reserve's actions in relation to bank mergers. this is two and a half hours.
during the press conference following the most recent meeting, chairman powell provided additional clarity on the fence plans to normalize saying that the ultimate size of the balance sheets is led by financial institutions demand for reserves, plus a buffers that fluctuations do not require us to make frequent market estimates of the level of demand are quite uncertain, but we know that demand in the post crisis far far larger than before. high reserve holdings are an important part of the stronger liquidity position that financial is touche and must now hold. the implication is that the normalization of the size of the portfolio will be completed sooner, and with a larger balance sheet than previous .stimates
forncludes the demand reserve including the post crisis regulatory framework and what amount of reserves are estimated to be necessary for the fed to achieve its monetary policy objective. of the u.s. economy is a key consideration of monetary policy conditions. the u.s. economy remains strong with robust growth and low despite everyone telling us prior to tax reform that annual growth would be stuck below 2% as far as the eye could see, the economy expanded as we predicted. an annualized rate of 3.4% in the third quarter of last year 4.2% and growth of
2.2% in the second and first corners of 2018 respectively. according to the bureau of economic analysis. this strong growth, which is on track to continue, to exceed previous expectations, when now provide our policymakers with much greater flexibility to address other physical challenges than if we were continuing to struggle with insufficient growth. according to the bureau of labor statistics, the unemployment rate has remained low and study around 4% while the u.s. economy added 223 jobs for much on average in 2018, as well as 304,000 jobs in the first months of this year. continue to enter the labor force with the participation rate increasing to 63.2% from 62.7% over the last year. reinforcing the strong employment environment, the fed vice chairman said in a recent speech that the labor market remains health.
an unemployment rate in a close level recorded 50 meters and with average monthly job gains continue to outpace aided over the longer run to provide employment for new entrants into majorbor force legislation passed this committee enacted less congress supported economic growth and job creation. andregulatory relief consumer protection act passed congress with a significant bipartisan support and was to write regulation and .edirect important resources >> i appreciate the work he fed has done to introduce proposals and finalized rule required by the law. the fullg implementation of that law and federal rules to write size regulations will continue to be a top priority of the committee and this congress. otherticular, the fed and
regulators should consider whether the community bank leverage ratio should be set at 8%, as opposed to the current significantly tailoring regulations for banks between 100 million and $250 in total assets on particular emphasis on tailoring the stress testing regime. they provide a meaningful relief from the full parole for all institutions, including by revising the definition of covered funds and eliminating the proposed accounting test. it examines whether the regulations that apply to the u.s. regulations of foreign banks are tailored to the risk profile of relevant institutions and consider the existence of home country regulations that apply on a global basis. committee will also look for additional opportunities to support policies that foster economic growth capital formation and operation. moment to another issue, senator brown and i issued a press release on february 13 inviting stakeholders to submit feedback
on the collection, use, and protection of sensitive information by financial regulators and companies, including third parties that share information with regulators and other private companies. americans are rightly concerned about how their data is collected and used and how it is secured and protected americans need this kind of attention from this committee. and from the fed and our other financial regulators. exponential growth and use of data and the corresponding data breaches, it is also worth examining how the fair credit running act should work in a digital economy. whether certain data brokers and other firms serve a function similar to the original consumer reporting agencies. the banking committee has plans to make this a major focus in this congress and we encourage our stakeholders to submit their feet that. lastly, i want to take a moment
to recognize a staff member retiring this week. is the committee's chief clerk and she will be retiring, as i said, at the end of the week. she might not want me to say this, but she has been in the senate longer than most senators. she has dedicated 27 years and these hallways and has been with the senate banking committee since 2007. starting with their chairman chris dodd and working for chairman tim johnson, then chairman shelby, and that myself. she is a banking committee institution. she is incredibly knowledgeable, helpful, and professional, respected and well liked by everyone with whom she works. your work on the committee has truly made a lasting impact, and even though you will not be here following this week, you will not be forgotten anytime soon. we wish you the best of luck in your well-earned retirement. enjoy it. [laughter]
[applause] senator brown. >> thank you, chairman. thank you again for your service to our country to this committee, and to the senate heard. she has been instrumental in making this run smoothly for over a decade. we will all miss her, and congratulations. chairman powell, welcome back to the committee. this been a great week for wall street. banks made a record-breaking $237.7 billion in profits in a quarter trillion dollars in profits. corporations let by the nation's largest banks brought back a record one trillion in stocks, conveniently boosting ceo compensation. the president's tax bill put $30 billion in the bank's pockets
and continues to fuel even more buybacks and ceo bonuses. but that is never enough for wall street and it continues to demand weaker rules so that big banks can take your and more dangerous risks. from the proposals the fed has put out after the passage of s 2115 -- 2155, looks like the fed and you are going along. economy looks great from a corner office and wall street, but does not look so good from a house on main street. corporate profits are up, executive compensation has exploded. all because of the productivity of american workers, but workers wages have barely bunched. hard work simply does not pay off for the people fueling growth. seven of the 10 fastest growing occupations don't pay enough to afford rent on a modest one that room apartment, let alone saved for a down payment. household debt continues to rise, taking its toll on families. at the end of 2018, think about 7is, at the end of 2018,
million americans with auto loans were these 90 days past due. 7 million americans with auto loans were at least 90 days past due. even though the president brags about unemployment being at record lows. borrowers of color have not recovered financially. -- agess of all agents are saddled with mountains of student debt. the trump shutdown relieve -- showed a frightening reality, too many americans live paycheck to paycheck even with stable jobs. ,fter 35 days with no pay uncertainty and hardship, they went back to their jobs and received pay. but more than one million government contractors who were not so lucky. we're talking in many cases that custodians and security guards, cafeteria workers making 12-15 dollars an hour and going 35 days without pay and getting no compensation later like the 800,000 government workers.
of talkheard a lot about whether gdp will recover from the shutdown, not much about how workers will recover. special thanks to senator smith for her work on trying to remedy incredible injustice that dam near nobody talks about. we have question for quite a while whether economic recovery has been felt by all americans. wages, increasing income equality between wall street ceos and working americans points to an obvious answer. chairman powell, your comment at the february 6 town hall for educators confirm this. a teacher asked about your major concerns for the economy and your answer was we have some work to do to do more to make sure prosperity we achieve is median and lower levels of income have grown, but slowly and growth of the top has been strong. growth at the top has been very strong. in other words, ceos and folks on wall street are doing just
fine. powell, the fed has spent a decade bending over backwards to help banks and big corporations and profit for themselves rather than investing in the millions of workers who actually make our companies successful. itare late in the cycle can is clear that record wall street profits won't be trickling down to workers before the next downturn. before the last crisis, we heard over and over again from officials in the banks of the economy was doing fine. regulators in congress continue to weaken rules for wall street, continue to ignore the warning signs as families struggle to make ends meet. the crisisrity of became clear, the fed rushed to the aid of the biggest banks did not devote even a fraction of that firepower to helping the , ignoringerica working families was a policy failure then, is a failure now. mr. chairman, i hope we don't make the same mistake again. i look forward to your testimony
and the new ideas for making hard work pay off for everyone in our economy. >> thank you, senator. chairman powell, we welcome you here again. we appreciate your attention and the report you have provided to us. you may make your statement about that report and whatever information you would like to present and we will proceed to some questions. thank you. morning.you and good chairman, ranking member brown, i'm happy tobers, present the federal reserve's semiannual monetary policy report to congress let me start i say that my colleagues and i strongly report the goals congress has set for next -- for policy, maximum employment and price stability. we are committed to providing transparency about policy and programs. congress has entrusted us with an important degree of independent so that we can pursue our mandate without
concern for short-term political considerations. ourppreciate that independence brings with it the need to provide transparency so that americans and other representatives in congress understand our policy actions. we are always grateful for opportunities such as today's hearing to demonstrate our deep commitment to transparency and accountability. review the current economic situation and outlook before turning to monetary policy i will also describe several recent improvements to our communications practices. the economy grew at a strong pace last year employment inflation remained close to the federal deserves statutory goals of maximum employment and stable prices, our dual mandate. available data, we estimate that gdp rose less than 3% last year. growth was led by
strong gains in consumer spending and increases in growth wasvestment supported by optimism and fiscal policy action in the last couple of months, some data has soft and but still points to spending gains. while the shutdown. significant hardship for government employees and others, the negative effects are fair -- expected to be fairly modest and to largely unwind over the next several months. the job market remains strong. monthly job gains averaged 220,000 in 2018 and payrolls increased an additional 304,000 in january. the unemployment rate stood at 4% in january, a very low level by historical standards and job openings remained abundant. moreover, the ample availability of job opportunities appears to have encouraged some people to join the workforce and some who otherwise might have left to remain in it. as a result the labor force participation rate for people in their prime
working years which is to say the share of people ages 25 to 54 were either working or actively looking for work, has continued to increase over the past year. in another welcome development, we're seeing signs of stronger wage growth. the job market gains in recent years have benefited a wide range of families and individuals. indeed recent wage gains have been strongest for lower-skilled workers. that said, disparities persist across various groups of workers in different parts of the country. for example, unemployment rates for african-americans an hispanics are well above the jobless rates for whites an asians. likewise, the percentage of the population with a job is noticeably lower in rural communities than in urban areas and that gap has widened over the past decade. the february monetary policy report provides additional information on employment disparities between rural and urban areas. overall consumer
price inflation as measured by the 12-month change in the price index for personal consumption expenditures is estimated to have been 1.7% in december, held down by recent declines in energy prices. core pce inflation which excludes food and energy prices and tends to be a better indicator of future inflation is estimated at 1.9%. at our january meeting, my colleagues and i generally expected economic activity to expand at a solid pace, albeit somewhat slower than in 2018 and the job market to remain strong. recent declines in energy prices will likely push headline inflation further below the fomc's longer-run goal of 2% for a time. but aside from those transitory effects, we expect inflation will run close to 2%. while we view current economic conditions as healthy and economic outlook as favorable, over the past few months we have seen some crosscurrents and
conflicting signals. financial markets have become more volatile toward year end and financial conditions are less supportive of growth than they were earlier last year. growth has slowed in some major foreign economies, particularly china and europe, and uncertainty is elevated around some unresolved government policy issues including brexit and on going trade negotiations. we will carefully monetary these issues as they evolve. in addition, our nation faces important longer-term challenges. for example, productivity growth, which is what drives rising real wages and living standards over the long term has been low. likewise, in contrast to 25 years ago labor force participation among prime age men and women is now lower in the united states than in most other advanced economies. other longer-run trends such as relatively stagnant incomes for many families and a lack of upward economic mobility among
people with lower incomes also remain important challenges. it is widely agreed that the federal government debt is on an unsustainable path. as a nation addressing these pressing issues could contribute greatly to the longer run health and vitality of the u.s. economy. over the second half of 2018 as the labor market kept strengthening and economic activity continued to expand strongly, the fomc gradually moved interest rates towards levels more normal for a healthy economy. specifically, at our december -- sorry -- september and december meetings, we decided to rangeise the target range for federal funds rate by .25% each putting the current range to 2.25 to 2.5%. at our december meeting we stressed the timing of any further increases would depend on incoming data and the evolving outlook. we also noted we would be paying close attention to global economic and financial developments and assessing implications for the
outlook. in january with inflation pressured muted, the fomc decided the cumulative effect of these developments along with on going government uncertainty policy warranted taking a patient approach with regard to future policy changes. going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve. for guideposts on appropriate policy, the fomc routinely looks at monetary policy rules that recommend a level for the federal funds rate based on measures of inflation and the cyclical position of the u.s. economy. the february monetary policy report gives an update on monetary policy rules and i continue to find these rules to be helpful benchmarks, but of course no simple rule can adequately capture the full range of factors the committee must assess in conducting policy. we do, however, conduct monetary policy in a systematic manner to promote our longer-run
goals of maximum employment and stable prices. as part of this approach we strive to continue to make clear our monetary policy decisions. we continue to gradually shrink the size of our balance sheet by reducing our balance of treasury and agency securities. the federal reserve's total assets declined about $310 billion since the middle of last year and currently stand close to $4 trillion. relative to their peak in 2014, bank reserve balances have declined by $1.2 trillion, a drop of more than 40%. in light of the substantial progress we've made in reducing reserves and after extensive deliberations, the committee decided at our january meeting to continue around the longer run to implement policy with our current operating procedure. that is, we'll continue to use our administered rates to control the policy rate with an ample supply of reserves so active management of reserves is not required. having made this
decision, the committee can now evaluate the appropriate timing and approach for the end of balance sheet runoff. i would note we're prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments. in the longer run, the size of the balance sheet will be determined by the demand for federal reserve liability such as currency and bank reserves. the february monetary policy report describes these liabilities and reviews the factors that influence their size over the longer run. i will conclude by mentioning further progress we have made in improving transparency. late last ye we launched two new public communications, the first, the financial stability resource shares the u.s. financial system and the second, supervision and regulation report provides information about our activities and bank supervisor and regulator. last month we began conducting press conferences after every fomc
meeting instead of every other one to allow me to more fully explain the committee's thinking. last november we announced a plan to of the -- to conduct a comprehensive review of the tools, communications and practices we use to pursue our congressionally assigned goals. this review will include a broad outreach to a range of stakeholders across the country. the february monetary policy report provides further discussion of these initiatives. thank you and i'll be happy to respond to your questions. >> thank you, chairman. as i mentioned, you said normalization may end soon with a larger balance than previously anticipated. , the ultimated it size will be principally driven by financial institutions demands. correct? >> that is correct. >> reserves have increased from
$43 billion in early 2008 to 2.8 trillion in 2014. before falling now down to 1.6 trillion currently. do you have an estimate for the amount of reserves that are estimated to achieve the monetary policy, and how does the post crisis regulatory policy affect this amount? >> the quantity of reserves before the financial crisis was 20 billion dollars in that range, plus or minus a relatively small amount. one of the important things we did after the crisis was required banking institutions, particularly the very largest to hold large buffers of highly liquid asset. one of the assets they like to hold his bank reserves. the demand for reserves is
substantially higher than it was before the crisis and will not go back to lower levels in any case. we only have estimates based on market intelligence and discussion with financial institutions, and those estimates have actually gone up substantially. we don't have a precise notion, but we believe public estimates are around $1 trillion, plus a buffer as you mentioned. it is a reasonable starting point and an estimate of where it white -- might wind up. as you know, i have been a strong critic of the quantitative easing and i appreciate your explanation of how you intend to reach the appropriate balance. >> i will continue to work with you on understanding the right spot as soon as we can. you mention in your statement
and your report that labor force participation rate has started to grow. reasons been one of the we have seen such low economic fulfillment in my opinion in the past years. do you expect that the labor force was actually a participation rate growth that we have seen. stabilizing or even possibly increasing as we move forward. . >> i can provide just a little bit of background, it was an area where they were at least comparable. it is high on one end, as far as labor force participation in we are now at the bottom end of the table for both men and women. it is a very troubling concern. a big part of it might be driven by something we cannot really change. as the country ages, workforce participation should decline.
nevertheless, even allowing for that, we are lower than we need to be. >> the gains we have seen have been very positive very welcome. >> we don't know how long they can be sustained, we hope for a long time. say that we need a broad policy focus on how to sustain labor force participation. i agree, that is a critical part of our ability to maintain the growth and strength of our economy. >> i have lots of questions, but just one i will have time for in the remaining amount of time. this will get to regulatory relief on the senate bill. billu know, the senate 2155 provides solid institutions with release from the volcker rule. regardless, there are still significant issues.
i and six of my colleagues wrote to financial regulars in october, earning further to the rule. definitions,ds, and broad applications. in addition, i'm concerned that the proposed accounting test may make the volcker rule more complex than is necessary. using yourmit to significant regulatory discretion provided by statute to properly address these outstanding issues? we received comments on these issues and more. we thought they were very well taken. we're working hard to try to address the and work hard to try to do that. .> >> we appreciate that yesterday, your predecessor>> janet yellen said she does not think .resident trump
>> has a grasp of macroeconomic policy i won't have any comment on that you come december -- any comment on that for you, saturday. reformer chair member tells the press point-blank that she does not think the president of the united states understands the economy. the american people continually, more and more, understand that believe he has the trade workers of this country let me shift to another question. the former fed chairman want a raise concerns that the culture of thinking only focuses on the process i share his concern. since 1979, you know these numbers, worker productivity has grown. compensation has grown by just meanwhile, the top 1/10 of
1% saw their earnings growth i this is very, as you know, is even worse for women and you think ther fed's employment mandate is just to ensure that people are employed, or do you think full employment implies a dignity of work that is meeting workers earn a salary that let them fully participate in? the economy in our country >> > our mandate is maximum employment and our tool to achieve that is monetary policy. we were at a 50 year low in unemployment. there are many other issues in the country, you have managed some of them, but honestly, to achieve some of the things you talk about, we need other tools.
the fed cannot affect every social problem, as you well know. >> this is not a social problem that fewer and fewer people, even though they are employed, wages are stagnant. is that just a social problem? wages do go into our session .f maximum employment there are now starting to move up in a way that is more consistent with past history. today, i know the chart you're talking about. over the longer run, looking at wages going up, little better than 3%. productivity has just been running, inflation is minute to. is about right from that narrow standpoint things to move out but we find it troubling
from this inflation standpoint. atdo look very carefully wages as we assess maximum employment. >> let me put it in a historical perspective. will rogers provided a lesson i think we can learn from. he said that unlike water, money trickles up. the government's response to that economic crisis of the great depression, he said that money was all appropriated to the top in the hopes it would trickle down to the needy, given to the people at the bottom, people at the top will have it at night anyhow, but it passed her hands. this observation is 89 years old, seems like the fed still thinks, from your answer the behavior of the fed, the best way to help workers is to shore up a big bank profits and help prosperity trickles down. of the last decade, it has been creative in how to
consciousness. -- it accomplishes this. i believe you have a duty to help workers share in the prosperity. my staff will follow-up with your staff on ways of doing that. one more question. it seems like too big to fail is alive and well. we are seeing a potential merger, growth in large subsidiary banks, regional banks, as you know, suntrust and bb&t. all each with over $200 billion in assets and decided to merge, saying was too difficult for them to compete. what message does the fed send to regional and community banks about their future if the fed eventually improves the merger? we have a process we go through evaluating any merger. it is set forth in great detail in the law and in our guidance.
we will go through that process carefully thoroughly and with transparency. when we get an application, we don't actually have an application, we expect to get it sometime in the next few weeks. we will do all of that. notll say that we have prejudged anything and will to work on that professionally, carefully, and fairly. >> ok. >> chairman powell. somebody is doing something right, i don't know if it is the president or you, a combination of everything. i think this is the best economy i have seen on my lifetime. the question is how do we keep it going? had we keep it going as part of your job? how do you gauge inflation, for example? there are lots of ways to do it.
stability, you're talking about stability of monetary policy and the value of our currency and everything that goes with it had we keep this .conomy going? in your judgment we want tote well, use our tools to sustain the expansion and keep the labor market strong and keep inflation or 2%. that is what we are trying to do. so we look around, and what do we see? we see a labor market that strong and continuing to strengthen. job creation is strong, wages moving up. it is a very healthy thing. with inflation, we see in muted inflation pressures even now with historically low unemployment and a great recovery, ongoing recovery in the labor markets. we still see muted inflation pressures and that gives us the ability to be patient and that is what we're going to do it the
committee has decided that with our policy rate in the range of inflationith muted pressures and some of the downside risks we have talked about, this is a good time to be patient and watch and wait and see how the situation of all .aps that situation we have found. the hydrocarbon we have found, how does that feed into the economy? >> a couple of ways. it is a big industry. we have a large energy industry. that employs a lot of people that is a big thing in certain areas of the country. of the countryas have a lot of employment and economic activity. inflation, if you look back to the 70's, a lot of what set off that inflation outcomes was an oil shock.
what we have been a very large domestic oil industry is a shock absorb, because when oil prices go up, american oil producers will produce more oil. that offsets that shock. it will prevent that shock from driving inflation up it's been a real positive for our economy from a number of perspectives. mr. chairman, how important is the certainty of good trade agreements to our economy and to the world economy? >> uncertainty is the enemy of business, and businesses, they want a set of rules. they want an established transparent set of rules. they want to play by those rules, be able to make longer term investments and hiring and that kind of thing. at the same time -- of course, we're not responsible for trade, we don't comment on trade policy at all, but we've been hearing a lot from our contacts around the
country really all this year and last year about uncertainty. we do sense it's been holding back some decisions, probably had some minor effect on confidence and maybe activity. but overall, certainty around trade and other government policies is very important. >> as we look at our current account, the imbalance of trade with the most of the world, does that concern you? and if it does, why? >> the overall current account is set, economically, by the difference in savings and investment in our country. so it's really an identity that kind of works that way. it tends to go up in good times, when americans are at work and earning well and buying things and the economy is strong, we tend to buy things. some of those things tend to be imported. the trade deficit and account balance can go down quickly in bad states of affairs. of course, over time we'd like to see balance both in savings and investment and in trade
balance. >> i don't have much time left. but we've discussed this before. cost benefit analysis. last year, when you became before the committee, we discussed here the formation and the policy affecting an assessment unit to affect cost benefit analysis on regulations. could you provide here an update on the work of the entity here and what have you learned and what's going on? >> yes. so the -- that unit is up and running now, and it's relatively new undertaking. cost benefit analysis is something we've done always, particularly in the last decade or so we've upped our game. now we have a particular unit focused on it. we're very pleased with the progress it's making, and they're involved in the rule makings and assessment of everything we do. so it's a positive development and, you know, we look forward
to making it ever stronger. >> my last question to you in the few seconds i have left is what's the health of our banking system that you regulate at the federal reserve, our biggest i -- our biggest banks? >> i think our banking system overall is quite strong. record profits. no bank failures i think in 2018. much higher capital, much higher liquidity, better risk management. stress tests have really focused banks on understanding and managing their risks. we've got better resolution planning overall. i think our banking system is strong and resilient. we never take it for granted. we're always looking for problems and cracks, but i would say, overall, our banking system is strong. thank you. -- strong. >> thank you. >> senator menendez. >> welcome, mr. chairman. as the number of legitimate cannabis-related businesses grow
across the united states, the vast majority of banks and credit unions are not offering services to these enterprises for legitimate fear of legal and regulatory risk. my home state of new jersey is moving towards legalization of recreational marijuana. and i have concerns these new businesses as well as the existing medical marijuana businesses in the state will continue to find themselves shut out of the banking system. and when these businesses are forced to operate exclusively in cash, they create serious public safety risks in our communities. do you agree that financial institutions need clarity on this issue? >> i think it would be great to have clarity. of course, financial institutions and their regulators and supervisors are in a difficult position with marijuana being illegal under federal law and legal under some state laws. it puts financial institutions in a difficult place, puts supervisors in a difficult place, too. it would be nice to have clarity on that supervisory relationship. >> and in a corollary question,
related to the banking services is the ability for such businesses to insure service -- insurance products. those looking for financing. would it be helpful for congress to also consider the role of insurance companies as states move forward toward legalization? >> i believe so, yes. on a different question, february 7, bb&t announced it planned to purchase suntrust that would result in the combined bank becoming the sixth largest commercial bank in the country with $434 billion in total assets. as you may know, in 2008, bb&t's community reinvestment act rating was downgraded due to the most recent cra exam also included a substantive violation of fair lending laws, a violation which likely should have resulted in another downgrade to the bank's cra rating. i want to be sure that the federal reserve is not following the occ and deemphasizing its
treatment of fair lending violations when it comes time to evaluate a proposed merger. what assurance can you give us that the federal reserve will treat these violations with the seriousness they deserve? >> we haven't changed our policy on that. and we do consider it comes in in the law under convenience and needs of the community served. and that includes consumer compliance and fair lending records and the record of performance of cra. those are all things we do consider when we get a merger application. >> and when you're considering , can you give us a sense of what the federal reserve's review of this bank, community reinvestment bank, track record with compliance with fair lending laws will look like? >> we'll look thoroughly at it . we'll look at the rating, of course, which i believe it's satisfactory now. banks that have a less than satisfactory rating have a hard
time. we'll look at that and also consider public comments and a full range of information. any information that's presented to us we'll consider. >> i ask this question because it seems to me that particularly at the occ, who has released a proposal without input from the fed or fdic, contemplating sweeping changes to the implementation of the community reinvestment act. in a spaech last year, governor brainard say the community reinvestment act was, quote, "more important than ever." she stressed that branch and deposit atms remain an important way banks engage with the community. you also highlighted the importance of enforcing the cra and other laws that help ensure people have adequate access to financial services wherever they live. can we get your commitment to build consensus among the fed governors before moving forward with proposals to change implementation of the community reinvestment act? >> oh, yes. >> ok.
i think it's important you do everything in your power to try to achieve a unanimous vote on this issue should the fed decide to move forward. many of us find this an incredibly important part of our law and increasingly diminishing reality of financial institutions that somehow think that they do not really have to fully engage and implement the law and ultimately still get away with it. and so i think there has to be a strong message that that's not the case. i hope you'll be able to deliver that message. >> we are unified in our commitment to the mission of cra and to any revisions we do, we're going to want to see they preserve that mission and enable banks to serve it more effectively. >> thank you, mr. chairman. >> senator toomey. >> thank you, mr. chairman. chairman powell, welcome back. good to see you again.
let me just start by once again complimenting you and your colleagues, taking us a long way towards normalizing monetary policy. in my view, this was long overdue, but you have been pursuing what strikes me as a prudent, thoughtful and data-informed process of getting back to normal. so i want to thank you for that. quick regulatorily question if i could. i was pleased with the interagency proposal released by the fed and the other agencies dealing with 2155 and specifically the tailoring of capital and liquidity requirements enhanced prudential standards. i think the comment period closed in january on this proposal. can you assure us that it's a high priority to finalize these rules? >> it's a very high priority. 2155 implementation is probably our highest priority. >> any idea of a time frame by which we could expect to see a finalized rules there? >> i wouldn't want to put a date on it. there are a dozen rules we have
comments on right now. i can come back to you. >> ok. but i'm glad to hear it's a priority. obviously we're eager and i think you're heading in the right direction. unrelated, as you know, the private sector set up a realtime payment system. i think realtime payment system is very, very good for our economy. my understanding is all depository institutions have access to it on an equal footing , as they should. to the extent that's the case, do you believe it's necessary for the fed to develop a alternative or competing realtime payment system? >> that's a judgment that we haven't made that we sought comment on that question. and we had a range of views and it's something we're thinking about. we are mindful that we don't come under -- don't, under the monetary control act, for example, we have to find that the services we provide are
capable of being paid for and also not something that the private sector can adequately provide. we're looking at that very question. >> i'd be interested in hearing what your thoughts are as you go forward on that. it does seem to me that the private sector is providing a perfectly viable and affordable and reasonable mechanism here. on another topic, as you know, there's been recent discussions both, i think inside and certainly outside the fed about whether the fed ought ought to reconsider the way it thinks about inflation. specifically, i guess, the way i understand this discussion is whether the fed ought to target a price level rather than a change in the price level and specifically, if there were an extended period of time when inflation ran below a target, would it make sense for the fed to intentionally attempt to exceed the target modestly or by enough so that over a long period of time you'd hit the average? my first reaction is to be pretty concerned about that.
intentionally running at an inflation rate above the target rate worries me, given that historically, inflation has been much harder to control and high inflation has been a bigger problem than low inflation. but i wonder what your thoughts are about this topic. >> these are questions, as you know, that are going to be the subject of careful consideration over the course of this year and beyond in our thinking. the issue that we face is that rates have come down -- long and short rates have come down over the last 40 years and they're just much lower. real rates -- and of course inflation and nominal rates as well. the implication of that being that in a typical downturn, the odds are much higher that we'll wind up back at the zero lower bound again. and in that situation, that
fact there has the potential to drag inflation expectations down over time. in our thinking, inflation expectations are now the most important driver of actual inflation. so we're trying to think -- really, the economics profession has been 24ithinking about it -- been thinking about it for 20 years, since the experience of japan in the late 1990's, to make the 2% target highly credible so that inflation averages around 2% rather than only averaging 2% in good times and averaging way less in bad times. no decisions have been made. there are plenty of questions and concerns to be addressed, but there's also a problem that we -- i think we owe it to the public to try to think our way through the best possible way to address that problem so we can carry out our mandate. i >> yeah, i understand the logic. i understand the problem that you're wrestling with.
i would just urge great, great caution on this for many, many reasons, not the least of which, for whatever period of time the fed decided it would exceed the goal also that it averages the goal. first of all, during that period of time, you don't have price stability. certainly not zero. you'd be intentionally running above even the goal. so i've got other questions, but i see i'm out of time. i just want to urge caution on that one, mr. chairman. senator -- mr. chairman. >> senator tester. >> thank you, mr. chairman, ranking member brown. thank you for being here. chairman powell, i appreciate your service and the work you're doing. i want to talk a little bit about the government shutdown we just came through, cost the economy $11 billion. that's a conservative figure. there's at least one that wants to use these government services and employees as a pawn when they don't get their way. what i want to ask you about is we're faced with a deficit ceiling coming up march 1.
could you walk us through quickly, if you could, the economic impacts of failing to increase that debt ceiling? >> well, the failure to increase the debt ceiling creates a lot of uncertainty in the first instance. when you actually get up to the point where the government runs out of cash and doesn't -- we've never passed that point yet. that's a bright line. i hope we never do pass it. there's a lot of uncertainty that's generated and distraction from what is otherwise a pretty good economy. >> what would happen to our interest rates on $22 trillion of debt if we were not to do what we needed to do with the debt ceiling? >> it's beyond even considering. the idea that the united states would not honor all of its obligations and pay them when due is something that can't even be considered. >> would it double? >> it would go up. we have the best credit rating.
we borrow at very low rates and the world believes in our full faith in credit. i think that's not something i would -- >> it would have draconian effects on our economy overall. >> potentially. it would be very hard to predict. >> there's some in this body, quite frankly, that say it wouldn't be a big deal. do you agree with that? >> no, i don't. i think it would be a very big deal not to pay all our bills when and as due. i think that's something the u.s. government should always i -- should always do. >> i agree. senator shelby talked about the certainty of trade agreements. i won't ask you to grade this administration's trade policies, but from your perspective, how is this administration's trade policy affecting our economy? positively or negatively? >> again, we don't play a role in trade negotiations. i think it would be inappropriate for me to comment on their trade policy, either directly or indirectly. as i've mentioned, we've been hearing and i've been hearing,
everyone has been hearing from business, and particularly in your state. >> exactly. in my real job, i farm. i can tell you, as we prepare for planting this spring, i can't tell you any commodity or any livestock that's going to make as much money, if any. and so i believe the minneapolis fed came out and said bad egg loans were seeing a serious uptick in farm foreclosures. are you concerned about that? do you think it is a direct result of trade or is it something else? >> i actually did see that piece. as you know far better than i, the agricultural economy has been under a lot of pressure for really five years now. it's low crop prices, sustained
low crop prices, and that hasn't changed. that's driven up bankruptcies under chapter 12, foreclosures and all kinds of bad things. i think the bigger picture is just crop prices have been low. obviously, the trade issues haven't helped this year. ok. -- helped this year. >> ok. the federal reserve also suggests that farm bankruptcies haven't peaked yet, that we haven't seen the potential negative impact on rural america that these low commodity prices , and might i add, before that five years, we had some of the best ever when we had some trade going on. do you agree with the assessment that the federal reserve study suggests, that we haven't seen the peak of farm bankruptcies yet? >> i did read that. whether it was an article or blog post, it did say that. it sounded plausible to me. >> ok. we in agriculture got a bailout, pretty serious dollars overall,
but it didn't amount to much by the time it got to the ground , truthfully, compared to what production ag is losing in products. but we're also hearing from more than just agriculture. we're hearing from small businesses. the small businesses are telling me that the big guys can afford to stay in business with these trade wars but they're going to be out of business. and we're not talking about family farms now, which is absolutely affecting my previous question. but do you believe the trade policies impact smaller businesses greater than the big ones? >> i don't know the answer to that. it's a fair question. >> ok. well, i've got some other questions i'll put in for the record. i want to thank you for being here today. i will tell you that the economy is booming, but there are a lot of flags that are coming up that i'm seeing that are canaries in the coal mine, so to speak. you're a smart guy.
hopefully you'll be able to pay attention to those to avoid any pitfalls. thank you. >> senator rounds. >> thank you mr. chairman. good morning, chairman powell. good to see you once again and thanks for coming in. before i begin my questions, i want to underscore the importance of the insurance policy advisory committee that the fed is required to establish pursuant to s 2155. as you're aware, south dakotans have a very strong interest in sustaining our regulation system -- the state based regulatory system. i look forward to find ways to promote the interest of our state-based system. appreciate that. i have a series of questions that i think i'll put in as questions for the record and ask you to respond later on. very seldom do we get an opportunity to have the chairman of the fed come in in front of literally the country and share his thoughts about the direction
of our country, in many cases, the financial systems that we have here and so forth. i got to thinking this is probably an opportunity that we shouldn't let go by to talk about the impact of the fire -- federal government and its spending. in particular, it seems that congress has a tendency to only make changes in the way it does business when there's a crisis at hand. and i'd like to give you an opportunity to perhaps visit with us and offer, if not direction, at least an observation as to what happens when congress fails to take care of some of the safety net programs that we have in this country. and i'm going to begin by simply recognizing that we have $22 trillion in debt. clearly that debt is being financed. that means there's competition for those dollars. the federal reserve, on the other hand, it actually manages through regular meetings and discussions, and quantitative easing is an example of one
where you, as an organization , have carefully selected how you will work it through, how you will refinance and so forth. you manage it on a regular basis. congress has a tendency with its budget and the money it spends , to not even look at a number of the expenditures. today, with our budget, we have about 31% of the budget that we actually vote on. we vote on defense and non-defense discretionary spending. we don't vote on, and nor do we appear to manage social security, medicare, medicaid or interest on the debt. close to 70% of all of that which we spend every single year. every single year, for as far as we can see, we're going to run significant deficits. would you care to comment on the way that congress manages or does not manage the safety nets, social security, medicare and
medicaid, and what the impact that has on our economy as a nation? >> i should start by saying that we try to stay in our lane, which is monetary policy, bank regulation, financial stability and we have no supervisory role or really role as a commentator. we don't score bills. there's jct, there's cbo, omb. and we don't do those jobs. but i will say that, as i said in my statement, that the u.s. federal government is on an unsustainable fiscal path, by which is meant that debt, as a percentage of gdp, is growing and now growing sharply, growing quickly, faster. that debt is unsustainable by definition. we need to stabilize debt to gdp. the timing of doing that, the ways of doing it, through revenue, through spending, all those things are not for the fed to decide. but, as perhaps, for lack of
a better term, one of the chief economists in the nation, to be able to give advice to the folks out there, to the country as a whole about a things we have in our future and about the threats to our future, social security will go bankrupt unless we start managing it. is that a fair statement, on the current projectry? >> i think what happens over time is that we wind up spending more and more of our precious revenues to service the debt to pay interest to people who own the debt, as opposed to investing in the things we really need, education -- all the things we need to be investing in so we can compete in the global economy. on the spending side, the thing in my personal thinking, again this is not the fed's role, and i think in many people's thinking, the thing that drives our fiscal sustainability, the
single biggest thing is just health care deliverability. we deliver health care outcomes that are pretty well average for a well-off country. we pay 17% doing it. everyone else spends 10% of gdp. that's way more than a trillion every year that we spend in delivering health care. if i were in your seats, and i'm not, then i think that's a good place to look. it's not that benefits themselves are too generous. it's that we deliver them in highly inefficient ways, particularly health care. if i -- particularly health care. >> and if i could, and i know i'm out of town. in other words, what you're saying is if we actually managed, if we actually managed the resources that we had, we could probably do a better job than what we do today where we just simply don't even include it in our regular budget that we vote on on a year-to-year basis? >> again, i'm not here to criticize congress, but i do think it's a profitable thing to do. >> thank you.
thank you, mr. chairman. >> i'll agree with you, senator rounds. >> senator smith. >> thank you. and it's wonderful to see you again. i appreciated very much our conversation in my office the other day. and i want to follow up a little bit on what senator tester was asking about regarding the economic issues in rule areas. -- in rural areas. i appreciate your interest in this discussion. this was featured in the monetary policy report that you put out. it strikes me that, if you look at the overall positive numbers in our economy, it's a good thing. but when you unbundle those strong numbers, you see inequities and gaps, as you pointed out, around race and gender, and also around rural areas. in minnesota, it's interesting. we have some rural counties where the unemployment rate is close to 2%. and then we have other rural counties where the unemployment rate is more like 6% or 7%. so, your monetary policy report
highlights the impact, what's happening with rural workers without a college degree in particular, and the impact on labor force participation and how employment-to-population ratios have recovered dramatically for college educated people, but less so for non-college people. and i'm really worried about this disparity that it's causing. so, can you tell us, in your judgment, why is this gap widening in rural areas? >> so, i thought that box was very interesting. you'll note that, like so many economic problems, there's no really clear or easy answer. the way i would say it is, the gap between rural and urban areas in unemployment is not so big. it really shows up in labor force participation. >> right.
>> so that's where it shows up. so when we think about low labor force participation, the first thing that comes to mind is education levels because people in the population, the broader population, lower educational levels tend to be associated with lower labor force participation. but even accounting for that, that doesn't account for much really of the disparity. so, you know, it can be that rural areas are more associated with manufacturing activities , which have had less recovery than the service sector, which is now much larger than the manufacturing sector. in addition, it all may be affected by people leaving rural areas. in other words, people who leave rural areas to go to an urban area where there are better job opportunities. so, it's something to -- that we're still working on understanding. it's a fairly stark disparity. i think we all see it. i was in mississippi a couple of weeks ago and certainly saw
it there in a rural area. so, when people are leaving, -- >> so, when people are leaving, does that suggest then that the population left is older or perhaps less able to find a job, less able to take part in the labor force. >> some of the people who have job skills may have left that area, leaving the remaining population with a lower labor force participation. that may be part of it. would -- part of it. >> would that not suggest that it would be smart on our part, this is not a fed policy but it is a policy, to increase our emphasis on our investment and career and technical education, the kind of training you need in order to fill those manufacturing jobs in rural areas? >> so i do think that we could use a national focus on labor force participation, and that would be certainly one piece of it. it's really -- we don't really have the tools. i can identify it as a problem, and it is a serious problem, but i think that's a profitable place to look. >> the other thing i wonder is maybe people aren't coming back into the workforce because they
can't afford. in rule minnesota, you can't afford child care and it's not readily available. i wonder if it isn't part of the problem that the jobs that are there aren't paying. how come wages don't go up? if there's a demand for labor people potentially are there. why don't wages go up? >> as i mentioned earlier, wages have moved up from their very low levels of increase earlier. i wouldn't say they're going up quickly now, but they're going up at a more healthy rate. there are some things in the federal tax code where people lose their benefits with their first dollar of earnings which again it's not our job, but that doesn't sound like -- you want people to go back to work. >> that's counterproductive. >> you want them to be rewarded for going back to work. it seems like that's something we can look at. you can look at.
>> thank you very much, chairman powell. i know i'm out of time. i want to note that i appreciated the question that senator tester was asking about farm bankruptcies which is a real concern in minnesota and across the whole northern swath of states. i'm going to follow up with a written question about how you see those farm bankruptcies potentially affect the overall economic strength of the country, especially in rural areas. thank you, mr. chair. >> senator mcsally. >> thank you, mr. chairman. chairman powell, good to see you again. i want to continue actually on the line of discussion that you've been on. in our conversation when we met, we talked about this labor force participation issue. everywhere i go in arizona in the more metropolitan areas anyway, companies are -- the economy is doing great, the optimism is there, but they are lacking for workers.
they are just screaming for workers. it's really up and down the skill set. it's not just in the trade craft, although that often tends to be those areas. and so what we're seeing is labor force participation rate is going up a bit, ticking up. there's clearly still this gap that is maybe holding back even more economic growth because of the mismatch of not having the workers for the jobs that are there. can you give additional perspective on that and what, within your power and within our power, do you think we can do in order to incentiveize increasing that number, get them on the sidelines, get them the skills we need in order to present more opportunities for the people we represent. >> sure. the stronger labor market and stronger economy that we have at the aggregate level is, as you mentioned, is pulling people back into the labor force or encouraging them to stay in the labor force and not leave. this is very, very positive for us. labor force participation has gone back up above 63%, and to be in the labor force, by the
way, you've either have to have a job or looked for a job in the last four weeks. if you haven't looked for a job in the last four weeks and you're not employed, you're not considered unemployed. so this is very, very positive. we hope it's sustained. that's sort of a strong labor market, pulling people back in. even with that, though, our labor force participation rates are lower than other countries that have anything like our level of wealth and income and economic activity. it's not easy to say why. but i do think -- i think that the fed's ability to -- our ability to address this is really just a function of trying to keep us at maximum employment. there are plenty of people, and it's younger people, particularly younger men, particularly less well educated younger men, but also people across the gender spectrum and the income spectrum and age spectrum.
we just have low labor force participation. we want the economy to grow and we want the prosperity to be widely spread. labor force participation gets those things almost better than anything. i think it's something that autd to be a high focus for people that have different tools than ours. >> i agree with you. not necessarily within your tools but based on your perspective, what do you think is holding that back? what's your perspective and what else can we do in order to remove those barriers for people to get back in the labor force, to be working to support their families, themselves and meet their full potential? >> part of it would be education in skills gaps. part of it would be the opioid crisis. there just would be a range of things. also as we were discussing a minute ago, there are disincentives to go to work built into benefit programs.
i met with a group of women in west virginia last year who were in an apprenticeship program for carpal tri, electrician, plumbing, steel work and that kind of thing. the hardest thing they had to do was to go to work in this program which had 100% placement and which paid nine or ten bucks an hour because that was less than the very meager benefits they were already getting. they had to take a pay cut to go back to work. they did it anyway which was pretty inspiring. but i think we ought to have policies that reward and support labor force participation. ben again, they're not hours. i think it's important for the country. >> thank up on the rural urban gap. we've got a lot of rural counties. i visited many of them this week in arizona. and we're seeing the same thing, where there is that disconnect in wage growth and in labor force participation in those rural areas. do you take that into account in fed policy? and, again, other perspectives
of what else we might be able to do on our side or your side in order to not have that gap widening for those in the rural areas. >> so we do in the general sense that we're learning and we have learned this year that there is more slack in the labor market because people were coming back in. if people weren't coming back in, the unemployment rate would be substantially lower. but they are. or they're staying in. so labor force participation is rising. and that tells us there is more room to grow. and that certainly has implications for monetary policy. in terms of urban and rural, we look at those disparities. all different kinds of disparities in a general way. they inform our thinking about the state of the economy, and particularly maximum employment, which is not -- there is no one number you can look at. you have to look at a range of indicators and that would be one of them. >> okay. thank you.
>> senator johnson. >> thank you, mr. chairman. chairman powell, thank you for being here today. really appreciate it. i want to stay on the urban versus rural divide a little bit. obviously, we see -- you've got senators on this committee who have a lot of urban areas. and it seems like there is one factor that may come into play that's not quite so obvious that we've talked about. and that's health care. in 2017, the atlanta feds set out to study the urban rural divide in the southeast. and one of the factors they kept noticing was the impact on residents' health on the economic output. to simplify what is obviously a very complex issue, according to that fed study in atlanta, while the portion of workers who say they're too sick or disabled to work is roughly 6% nationally, that rises to over 12% and higher in the rural south. so from your perspective, what role do you think that health outcomes play in economic
growth, particularly in rural america? >> i think, you know, poor health outcomes are very much associated with all of -- with a lot of social issues, including low labor force participation and lots of other economic issues. low -- you know, low lifetime earnings and many different things. and those are obviously more prevalent now in rural areas, as you pointed out. >> and i would assume you would agree that if health care is not accessible in those areas -- i mean, for instance, in alabama, we have seen rural hospitals closing left and right, seven or eight in the last seven or eight years. with the absence of health care, it may contribute to the people leaving those rural areas in urban areas. would you agree with that? >> it's hard to say whether the -- you know, people have been leaving for some time. some of these counties, as you obviously know, have lost half their population in the last -- in the last four or five decades.
>> if states -- individually, if the states were to develop policies that would expand health care in these communities, give affordable health care, access to health care, what would you expect the economic impact to be? >> i think people who -- health care is going to -- you know, in principle, would allow people to remain in the labor market, would get them back in the labor market and keep them from getting sick and being out of the labor market. that would be a positive for the economy. >> i appreciate that. i promise you, we are not going to ask you to testify in front of the health committee. senator tester made a comment as he was finishing up that despite an -- and there is a lot of good economic news. everybody agrees, there is a lot of great economic news out of there. but i think a lot of folks also -- as in senator tester's words, see canaries in the coal mine. do you see any, other than the obvious -- of the debt we have. do you see any canaries in the coal mine that we need to be looking for in this congress? >> i would say that the outlook
for the u.s. economy is a positive one. is a favorable one. there are always risks. and right now i would say that the predominant risks to our economy are slowing global growth, as i mentioned, particularly china and europe. we have seen a significant slowing in growth really over the course of the past year. and it seems to be ongoing. and that can create a headwind for the united states' economy. i talked about brexit. that's an event risk, which -- which could have implications for us. here domestically, again, i think the outlook is generally favorable. >> okay. thank you, mr. chairman. and on -- senator shelby asked you about the state of health of our big banks, which you gave a pretty favorable report on. but in december of this year, right as the government was shutting down, the secretary of the treasury issued a press release, and he had this -- a call with all of the big banks to discuss their liquidity and
to make sure that things were okay. the next day i think he had a call with you and some of the other regulators. and that sent some alarm bells, i think, throughout the country. and in folks up here. can you kind of walk through those two days and what was the purpose? what did you see was the purpose of the secretary of the treasury four days into the shutdown attempting to reassure folks, i guess, that the banking system was okay? >> let me say, i of course, would not comment on the secretary at all. but, you know, our financial system, as i mentioned earlier, is very strong. record profits. no bank failures last year. capital is much higher. liquidity is much higher. risk management is much better. we don't -- you know, we never take this for granted. we keep watching carefully and looking for problems. but i can say that what i was
thinking in those days was, you know, we had significant volatility in the markets. and i was, you know, just -- you know, wondering -- looking -- asking the question, does that have any broader i ammplications for the economy or for the financial system. and the answer, i felt, was no. but it's something that you are are -- part of the job is to ask that question. >> thank you, mr. chairman. appreciate you being here. thank you, mr. chairman. >> senator kennedy. >> mr. chairman, thank you for coming today. my good friend, senator brown, lamented the fact that our financial institutions are making profits now. that's a good thing, right? >> we need a profitable financial system to have a well capitalized financial system.
>> well, is it better if banks are making money or losing money? from macro economic standpoint? >> i think we want banks to be profitable and strong and well capitalized. and they have been. >> okay. i want to talk about the government shutdown. tell me if i get this wrong. cbo estimates $11 billion impact to our economy. we'll recover about $8 billion, so the net loss to our economy is $3 billion. does that sound about right? >> all i know about that is -- that's what i've read. >> okay. that's what i've read too. got to trust somebody. i'll take cbo at their word. we've got about a $21 trillion economy, is that right? >> sounds about right. >> okay. so as a percentage of our economy, that $3 billion loss is 1.5% of 1%. is that about right? >> you did that math very quickly, senator. >> no, i -- >> i believe you.
i'm going to trust you on that. >> good. okay. that's an infinitesimal impact, is it not? >> very small. >> some examinists said if we passed the tax cuts and jobs act, our economy would overheat. those economists were wrong, were they not? >> the economy did not overheat. has not overheated. >> we're having growth without inflation. is that correct? >> we have inflation right at our target. >> about 2.2%? >> right around 2%. 1.9%. >> okay. and we've had more business investment. is that correct? >> we have had solid investment, very solid, in the first part of last year. and reasonably good in the second half of this year. and i think the outlook is for continued -- you know, reasonable levels of business investment. >> and wages are up, is that correct?
>> yes, they are. as i mentioned, you have wages now -- all of our wage measures have moved up to 3% or a little better, which is a very good thing to see. >> i want to get your opinion on -- and i'm not trying to ask you to make policy. but i'm asking you as a fed chair, what could we have done in hindsight to encourage more business investment and plants and machinery and equipment and software? which would have created more jobs and hopefully increase productivity? specifically let me ask you about legislation to prohibit share buybacks. if -- is that a good thing? i know share buybacks have an economic -- a positive economic impact. but if you had legislation that cut business taxes, but also said you can't use that money to
buy back shares, you have to invest it in your company, our pay shareholders, dividends, what would you think about legislation like that? from -- just from an economic standpoint? >> i think it's -- first of all, that kind of a decision is really not in our hands. >> i know. >> it's really for you to make. >> i'm asking you as an economist. >> so as -- i would say the goal -- i guess i would just say the goal of having prosperity be widely shared i think is one we all share. i think the thing about share -- about -- when you talk about companies and what they do with their profits and how they allocate capital, in our system we've always left those decisions to the private sector, to private hands. >> right. >> and i would want to understand the consequences of changing that. and i would want to look at whether there aren't other ways to achieve the goals that i think we all want. which is to have prosperity be widely shared. >> okay. are there other ideas you might have to make sure prosperity is more widely shared?
>> i think it ties to some of the things we have been talking about here. you know, labor force participation is just a win for the overall economy, the economy will grow faster and the people who are not taking part tend to be the ones with lower education who are at the edges of the labor force. so we are underperforming as a nation on this, compared to our peer group. >> why? >> it's a good question. it just is a problem that stands out here compared to other countries. and -- >> is it because we pay people too much not to work or is it because people don't have the skills or is it because they don't have access to the jobs? this is my last one, mr. chairman. >> you know, i think there's a range of perspectives on this and a range of -- there is some wisdom in a lot of different ideas. and i think the best thing to do would be to get -- to get some proposals that would have broad support and work on those. i do think quite a bit of it is skills, education, aptitude and also not having disincentives in
the tax code where people lose their benefits, for example, with the first dollar of pay. that seems like a disincentive to work. and none of this, by the way, is in the fed's hands. but since you ask. >> you're doing a great job. thank you. >> thank you, senator. >> senator warren. >> child care. thank you, mr. chairman. thank you, chairman powell, for being here. earlier this month, two giant banks, suntrust and bb&t, announced they intended to merge. this new too big to fail institution would have about $450 billion in assets, and become the sixth largest bank in the united states. now, as you know, bank acquisitions and mergers don't go through on their own. they have to be approved first by the fed. so last spring i wrote you a letter asking for data on the number of merger and acquisition applications received by the fed, and the number that had been approved over the last ten years.
chairman powell, when you answered my letter in may of 2018, how many mergers and acquisition applications for the banks had you received since 2006? do you remember? >> no, i don't have the number. >> would 3,819 sound right? >> yes. >> good. okay. and do you remember how many of those 3,819 applications you denied? >> no, i don't. >> would zero sound right? >> if you say so. >> well, you said so. i -- it's your letter. chairman powell, has the board denied any applications since you responded to my letter in may? >> i would just -- if i can offer a little context. >> well, let's get this part out. because i'm -- what i'm trying to do is build some context. >> i don't believe we have. i think what happens is that we -- people don't apply or they withdraw their applications. >> that's exactly what i'm going to talk about. so zero percent of the applications for mergers and acquisitions since 2006 have been denied.
now, that doesn't mean that all potential mergers and acquisitions make it through the process. 13% of applications are withdrawn before they get a decision. according to your letter, chairman powell, quote, "prospective applicants may discuss a proposed transaction with federal reserve systems staff prior to filing and applicants will be discouraged from filing applications where it is apparent that the applications would not meet all of the statutory factors required for approval," end quote. so you think that if you think that a proposed merger won't be approved, you discourage the bank from following through. is that right? >> in some cases. i think that would be in cases where it's clear that there's a statutory problem. you know, for example -- >> okay. >> in some cases. >> but you prove 100%. if those -- that go ahead and apply. so i assume they're getting -- >> unless they're withdrawn.
>> that's what i said. so you encourage them to withdraw if they're not going to get an approval. >> but they can file and then withdraw. >> well, but the point is, they withdraw. if they're not going to get it. because of a conversation you have that's a nonpublic conversation. so this is a formal process required by regulation. in order to do an approval, people who object to the merger have an opportunity to file a protest. that's how the process is supposed to work. that would include, for example, communities that are worried that local banks may close following a merger or acquisition. employees who are concerned about losing their jobs, state officials that may be concerned about decreasing competition and so on. so chairman powell, you've explained that consultation with a bank starts -- can start before the merger is announced publicly. when is it that the public can actually file protests, before or after the merger is
announced? >> so i think the process is that we receive an application for a merger, which we have not received yet. we expect to receive it i'm told sometime next >> and when will the public have a chance -- >> then. certainly then. >> and that's true in all of these, right? the public doesn't get a chance to comment until after the application is already filed. but the application is only filed after the banks have had a chance to have this quiet conversation with the feds. so i just want to get this straight. you and the banks get together in the back room and grease the wheels before the merger is announced. and if you're not going to approve the merger, you tell the bank in advance, and then they go figure out something else. if the public wants a chance to weigh in, they have to wait until you've already made a decision. no wonder you approved 100% of the merger applications. not a single no.
your approval process itself appears to be a rubber stamp. that everything is happening behind closed doors. so the question i have is about the sun trust and bb&t merger. is this one just going to be another rubber stamp? you've already made the decision behind closed doors before the public gets a chance to weigh in? >> no. not at all. no, we're going to conduct a very fair and open, transparent process. i think our -- you know, our obligations under this statute are clear and quite broad. we'll be hearing from groups of all kinds, and going through our process carefully and thoroughly. >> so it's just that in the last 3,819 merger applications, which were all approved without a single one for which you said no, this time you're going to be listening to comments from the public that might cause you to say no? you know, i just have to say, i'll bet that suntrust and bb&t
looked at that 100% merger success rate and saw what everyone else sees. and that is that the fed works for big, rich banks that want to get bigger and want to get richer and then everyone else pays the price for diminished competition, for worse service, for higher prices, for employee layoffs, for the risk that we have yet another too big to fail bank on our hands. and i just think it's time that we put down the rubber stamp and that we really let the public and everyone else weigh in before we create yet another too big to fail bank. thank you, mr. chairman. >> senator cotton. >> thank you, chairman powell, for being here. i want to start talking about distress tests for mid sized banks. reformulation at the congress passed to the dotdd/frank last congress and increased the threshold from $10 billion banks to $100 billion banks. can you tell us why so many of
us still hear from banks in that window who are larger than $10 billion but smaller than $100 billion? are still hearing from their examiners they need to undergo such stress tests? >> let me say the new law is that banks between 10 and 100 do not have to -- are exempt from the stress test. that should be crystal clear. i think you're referring to the guidance. >> yes. >> which we're in the process of looking at and revising and i would think addressing that issue. >> okay. but to be perfectly clear, banks between $10 billion and $100 billion are not required to undergo dodd/frank stress tests. >> correct. >> when i was in afghanistan and iraq, young soldiers used to complain about the rules of engagement. and if you looked at the rules of engagement that the four-star
commanders had issued, they were actually pretty flexible. that had been filtered down in a different way to the front lines, though. do you think it's possible that your guidance that you just gave gets filtered down to examiners on the front line in a slightly different way? >> i think that's -- that's something that happens, yes. and i think, you know, we are -- again, we're looking at -- there is this guidance that is still outstanding. some of these banks are still going to want to do stress testing. we're not going to discourage that. it's actually a good practice. but we're going to be looking at that guidance to make sure there is no question that banks between 10 and $100 billion in assets are not required by law to do stress tests. >> okay, thank you. because these examiners, they hold a lot of power in their hands, obviously, when they're on the front lines, and they're in one of these smaller community banks. and when they say something may be voluntary, you know, that is heard by the banker in a different way than they may intend it. reminds me of my old basketball coach, used to have voluntary shoot-arounded before school and on some afternoons. and so happened that the players that reported to those voluntary shoot-arounds are the ones that
got playing time on tuesday and friday night. >> we try to communicate and our examiners do a good job. but we know we need to work hard to make sure that the message gets out clearly. and we find that our people do listen. so we're alert to that. >> thank you. i want to turn now to a different question. i know there's been some talk here about the unemployment rate, which is pretty low and the labor force participation rate, which is increasing. we're talking about wages and wage growth. there was recent data out from the bureau of labor statistics highlighted in a recent "wall street journal" article that said that despite these factors that income to employees in the form of pay and benefits continues to decrease. down to 52.7% of our gross domestic income. it was as high as 59% in the 1970s and 57% in 2001. by the same token, business income, profits to businesses, whether they're the biggest corporations or small businesses, have gone from 12% to up to 20%.
can you give me your thoughts on why we're seeing more income going into the hands of owners in this country and less into the hands of workers? >> yes. so that's the labor share of income, what you're talking about. and really, if you look back through history, it zigs and zags, but it -- it generally zigged and zagged at a higher level. and right around the year 2000, labor share went down sharply for about ten years. and then broadly speaking has been about flat since then. you know, it goes up and goes down. but it's pretty -- it's basically flat. and the question is why. it's a really good question. and there are a lot of different answers. it may -- it -- honestly, there is no clear, easy answer. wait -- as a separate matter, wages are actually growing at a level that makes sense. the problem is, the level. it's not the growth rate. wages are growing -- wages and benefits are growing at around 3%, a little better. that's a healthy growth rate in the economy with 1% productivity
increase and 2% inflation. the problem is, there were ten years when that didn't happen, from 2000 until 2010. so, you know, it can have to do with a lot of -- globalization is a big answer there. that was right around the time of china joining the wto. some researchers will connect it to that. so in any case, you know, we welcome these wage increases for this reason. >> well, i do as well. and i hope we'll continue to see them and see more of that growing economic pie going into the hands of our workers. thanks. >> senator cortez masstell. >> thank you. chairman powell, thank you for being here again. i have concerns about discrimination in landing. i want to ask you a followup question to the record that i submitted last time you were here. and it involves the federal reserve's responsibility to enforce the fair lending laws. i asked you how the fed would improve its oversight of fair
lending rules. in your response, you mention that fed examiners evaluate each financial institution for fair lending compliance. so i guess my specific question is, how would examiners evaluate whether a lender might steer consumers to higher-priced loans? in your written response, you mention credit scores and lower lending products. can you expand on what the examiners would consider to ensure against consumers being steered to high-priced loans? >> so i think examiners who examine for that are -- i believe are trained to look for patterns of that nature. >> specific criteria. is there anything specific that they look to that you're aware of? >> you know, i have a general understanding of this. but i should come back to you with more details. >> okay. and thank you. i appreciate that. and i would also like to know, would examiners, as you come back and answer this question, would examiners consider incentive pay tied to higher-priced loans as a red
flag or a pattern with the existence of bonuses for bank staff that provided a loan with higher fees and interest rates be a red flag to these examiners? so if you could expand on that in writing, that would be fantastic. i appreciate that. >> happy to do that. >> thank you. the other issue that is important for me, because it's an issue in nevada and across the country, is affordable housing. questions for the record, i you asked you if the rapid rise of housing cost with a was was encouraging -- was encouraging your consumer price models to assume a higher threat of inflation than existed. do you think that the feds raising interest rates was a factor in rising housing costs? chairman powell: i think that higher interest rates certainly played into higher mortgage rates. that will have had an effect -- senator cortez masto: what about the cost of building that apartment or house? chairman powell: materials cost. what you hear from builders is labor shortages.
particularly skilled labor shortages. you also hear higher material costs, some of which affected by tariffs. you hear them under tremendous cost pressure. i think that was flowing through into higher prices. and that was making the affordability calculus more challenging for buyers. at the same time rates were going up you, i think that all together, that picture slowed down housing construction in the last year or so. rates are now down a little bit. about 50 basis points. so we're seeing a little bit of a pickup there. senator cortez masto: how would you compare the impact of higher interest rates on construction to that of the higher price force goods that may be caused by tariffs? chairman powell: i think that the higher costs -- it depends -- from the standpoint of the
consumer is what matters is the cost. i think you'll find that the interest rate is a very important thing from a consumer standpoint. but setting the price of the house it's not the interest rates, it's really the costs of materials and labor. senator cortez masto: could that higher cost of labor also be due to curbing immigration? and the lack of labor because of that? chairman powell: it certainly could in construction. particularly in some regions. i visited houston not so long ago and i think a big part of their construction labor force was from immigration. i think they were feeling shortages there for that reason. senator cortez masto: high levels of student debt last summer were noted to be preventing millennials from buying a home. other studies have found they faced housing supply constraints, beginning their careers in a poor labor market, and high student loan burdens which have made it difficult for them to buy a home. what was the response to the federal reserve's assertion that student debt prevented at least 400,000 millennials from buying a home?
chairman powell: what was the response? it's just research. i think there is a growing amount of research that shows that student loans have been growing very, very fast in the last few years. senator cortez masto: was that the right number? the 400,000? too high, too low? chairman powell: i don't know the number. i will tell you, it is $1.5 trillion in outstanding student loans, and there is research that shows that for students who cannot service their loans or discharge them, that those loans can weigh on them over a long period of time and have real effects on their economic and personal lives over time. senator cortez masto: and their ability to have home ownership? mr. powell: yes. chairman crapo: senator moran. senator moran: thank you very much, mr. chairman. we start with what i think is a straightforward question followed by a more complicated one.
18 of my colleagues joined me in a letter calling on regulators to provide a more significant reduction in the reporting burden of our smallest banks. in the first and third calendar as required by section 205 of 2155. we're looking for a greater difference in those reporting requirements than what has been proposed. according to the current proposal, banks with less -- smaller assets would save only an average of 71 minutes per quarter. so not a significant change
based upon the proposed rules. can you speak to whether you think our concerns about our smallest banks and call reports have been addressed? chairman powell: as you mentioned that rule -- we put that rule out for comment. we got a lot of comments. got your letter. and we're carefully reviewing those comments. we're trying to find the right balance. we'll certainly take into account the comments that we get. senator moran: i appreciate that. the end result of 2155 as modest as this appears to be, we have not achieved our goal. that can't be the congressional intent at least in this instance on this topic. let me reiterate that. let me talk about what i think is at least a difficult topic for me to talk about. just because of its complexity. a key goal of this legislation was to provide qualifying community banks relief from the complexities and burdens of current risk-based capital. but we want to ensure they maintain a high quality of capital consistent with the current rules. the recent interagency proposal for community bank leverage ratio allow certain banks with less than $10 billion in total assets to elect to use the cblr instead of the current risk-based capital requirements. if the cblr ratio is above 9%,
the current ratio required being 5%. so under the new proposed framework, a bank would be considered less than well capitalized if it fell blow 9% and hasn't opted out of the clbr, that would have been trigger certain restrictions and requirements. as currently written, the proposal dangs the regulatory burden but capital requirements 4% higher for our small banks to qualify. would it not make sense to leave the existing p.c.a. framework unchanged allowing small banks to maintain well capitalized status and begin reporting capital ratios under the current rules when cblr falls below the 9%? chairman powell: that's another rule we have out for comment. senator, can i ask is that a
comment that you have? senator moran: if we haven't, we can. chairman powell: i encourage you to do so. we think these are really important tailoring proposals they are obviously mandated by 2155 and we want to get them right. i understand your question. we'll look carefully at that. senator moran: all of the financial institution regulators working well together in implementation of 2155? chairman powell: i believe so, yes. i think we share the goal of -- first of all putting a very high priority for implementing 2155, but also on tailoring. for smaller banks i think all of us feel there is a lot we can do without understack safety and -- without undermining safety and soundness. we want to find those things and do them. senator moran: i have had many conversations with regulators for as long as i have been on this committee and in the senate. it is something that is always -- and i am not suggesting that
it is all about you, but it is always something that is highlighted when talking to me about its importance. but it's hard to find change that has occurred voluntarily by regulators to make the burdens less on our community banks. that's why 2155 was so appealing to me is that we failed generally to get regulators to change their behavior and 2155 seems to me to be the option, the only option that i have seen that actually might force change when it's been so reluctantly to arrive. i care a lot about that. in this 15 seconds i have left, i remind you that agriculture as you and i visited about last time we talked is in significant -- faces a significant challenge. i want to make certain that our community banks, our relationship bankers don't lose the ability to consider character and history. remind you that we have generational bankers along with generational farmers whose grandfather bankers have taken care of grandfather farmers down through the generation that continued and our community
bankers know who has character, who has ability to pay, who has the history to demonstrate that. and we can't tie their strings or the agricultural challenges the economy faces today. ag country's problems will be significantly exacerbated if you take away the ability to take into account those factors that are not crossing a t and dotting an i. thank you. chairman crapo: senator van hollen. senator van hollen: thank you, mr. chairman. chairman powell, thank you for your service. i want to focus for a moment on the impact of the tax bill, the that passed about a year ago.
especially taking a look at the banking industry. i think in no other sector is it clearer as to what a huge giveaway this tax cut was to big financial interests. i don't know if you saw the bloomberg analysis that was conducted earlier this month. they looked at the 23 u.s. banks that the federal reserve says are most important to our economy. and concluded that those 23 banks got a $21 billion tax break windfall. did you see that analysis? chairman powell: i don't know that i did. senator van hollen: would you be surprised to learn that they used much of that windfall for a major stock buyback? chairman powell: i honestly don't know. first of all i know that the tax cut reduced taxes for big companies that are very profitable. rep. van hollen: they did. it was a $21 billion windfall, and a lot of it was used for stock buybacks that helped a lot of executives. during that same period of time we saw a loss of 4,300 jobs among those 23 banks. does that surprise you, big
tax break and yet, a loss of jobs among the big banks? chairman powell: it must be several million people. senator van hollen: it was sold on the promise we would see these new jobs generated. i want to ask you about the increase in wages. it's always good to see an increase in wages. of course, nominal wages are only half the equation. you have to look at rising costs when you look at real wages. isn't it the case when you look at real wages and the rise in real wages during the last term of the obama administration, real wages rose faster during that period of time than they have since the beginning of the trump administration even with the tax cut, isn't that the case? chairman powell: i just don't look at in terms of those time frames. the way i would say about wages, if you look back at 2012, the
four major wage and benefit increases, things that we track, it was around 2%. all of them or read around 2%. now they are at 3% or a little better. part of that is just that the labor market has continued to improve. senator van hollen: as you testified you have also seen an uptick in inflation, costs, right, and -- the result for real american is how much of the increased wages coming in, what the purchasing power of that will be. if you could look at that and get back and confirm whether or not that's true. the figures i have got suggests that you saw more rapid increase in real wages again during the last term of the obama administration, which just gets to the point about there is a lot of hype about the tax cuts. let me ask you about student loans. my colleague just asked you about that. you just testified that we have got $1.5 trillion student loans. i think that the fed just reported that delinquent u.s. student loans reached a record $166 billion in the fourth quarter of 2018. you indicated this is putting a lot of stress on students who were trying to get out there and
buy their apartments or rent their apartments. would you be in favor of allowing students to discharge their debts in bankruptcy just like banks can? chairman powell: i think it's important that students be in a position to borrow, to invest in their education. it's important that they get proper disclosure what the risks are and success rates are. someone asked me at this committee a year or so ago that question, and i did answer it directly. i would say it's not really -- senator van hollen: is the impact of student debt in your view impacting the economy in a negative way? the fact that these students are stuck as soon as they graduate trying to pay back loans that they apparently can't repay?
chairman powell: i think for students who can't repay their loans, there is a growing amount of research that shows those people can have longer term negative economic effects. some people invest in their education and borrow money to do it and it works out well. for those who don't, it can be quite -- senator van hollen: a lot of people who can't right now. you just reported a record delinquency rate in the last quarter. the last thing i would say, mr. chairman, chairman of the federal reserve here, i'm going to keep after you and your colleagues on this faster payments issue. it makes no sense to me that mexico, south africa, soon the entire european union will have immediate ability to clear payments while we don't. cash checked on friday won't clear until the middle of next week and millions of americans are paying a lot more in terms of late fees and payday loan interest rates. loan shark rates because of that.
i hope you'll give the same attention to that issue as you are giving to some of the other issues you discussed this morning. thank you. chairman crapo: senator perdue. senator perdue: thank you for your perseverance. these are big committees. you have been here a long time. i have two questions for you. i am always amazed at the economic experts in this committee and the revisionist views of history. let me just throw some facts out leading to a question for you. this recovery is real. you are growing at about 100 basis points more than the last administration. just after two years. c.b.o. says if you grow .4% you more than pay for this tax bill. those are two facts. medium income is at an historic high. five million new jobs have been created. lowest unemployment in 50 years. lowest african-american employment ever measured. lowest hispanic unemployment measured.
my concern is with labor issues, with export issues. and interest rate issues. we have had nine fed fund increases over the last two years or so, 2 1/2 years. you know where i'm going. i appreciate the time you gave me recently in a private conversation. the federal debt bothers me and its overhang on our economy and ability to drive the economic wherewithal of every american. the national debt is the greatest threat to national security, according to our military experts. yet today, we just turned $22 trillion of national debt if you include you-all the debt that we have as a government. as i understand it about $200 trillion of debt in the world, $60 trillion sovereign. we have about a third of that. 5% of the world's population has a third of all sovereign debt. the question i have -- that projection is that the increase
of 2.25% with our size debt is about $450 billion in new interest that we have loaded in there. yet, on that $60 trillion of sovereign debt in the world, about $11 trillion of that is laid out at negative interest rates. much of that is in the eurozone. my question is, is are there care on contagion issues out -- carry-on contagion issues out there that could negative impact this recovery and continuation of this recovery independent of what we do fiscally or monetarily here in the u.s., due to these negative interest rates around the world? chairman powell: i think the negative interest rates that you are seeing are a reflection of a risk-off mood and slower growth in china and europe in particular. europe has had a good strong year in 2017 and then really slowed down over the course of '18, and we seeing more of that now. that is a big what you are seeing. i think it really is through slower global growth for the united states can be a headwind.
2017 was a year of synchronized strong growth around the world. very good year. we were feeling a tailwind from that. that has now turned into a bit of a headwind for us. our economy, i think the outlook is still favorable and positive. nonetheless this will be a headwind. senator perdue: there is a growing debate in congress now among some of my colleagues about advocating a change in how monetary and fiscal policy work together and they are advocating a monetary theory. they want to spin now, spin later, they use massive annual debts to fund these extremely -- they want to spend now, spent later, and use massive annual deficits to fund these extremely expensive policy proposal such as compare for all, free college for all, make every structure in the u.s. energy efficient in 10 years. and the universal basic income whether you are working or not . under this landscape the fed would keep interest rates
artificially low and fiscal policy would then be driven by congress. what obstacles do you anticipate and see, how successful has fiscal policy been in terms of managing either inflation or interest rates? chairman powell: i haven't really seen, carefully worked out the description of what is meant by m.m.t. it may exist. but i haven't seen it. i have heard some extreme claims attributed to that framework. don't know whether that's fair or not. but i will say this, the idea that the deficits don't matter for countries that can borrow in their own currency is wrong. i think u.s. debt is fairly high at a level of g.d.p. and more importantly than that, it is growing faster than g.d.p. fairly significantly faster. we're not even close to primary balance, which means that the deficit before interest payments. we're going to have to either
spend less or raise more revenue. in addition, to the extent people are talking about using the fed as a -- our role is not to provide support for particular policies. that's central banks everywhere. it is to try to achieve maximum employment and stable prices. that's really what it is. decisions about spending and controlling spending and paying for it are for you. senator perdue: thank you. chairman crapo: senator schatz. senator schatz: thank you for your service, chairman powell. thank you for your stewardship. pg and e filed bankruptcy last month partly as a result of liability costs from climate -related disasters. the damage from 2017 and 2018 wildfires exceeded $30 billion. more than pg&e's assets and insurance coverage combined.
climate risks threatened many sectors of our economy, real estate, agriculture, fisheries, industries with extensive supply chains. they are all at risk. take coastal real estate as one example. the u.s. government currently estimates that storms, floods, erosion, rising sea level threaten approximately $1 trillion in national wealth held in coastal real estate. -- some of the very impact of climate change may not be insurable. more than 300,000 coastal homes are at risk of chronic inundation by 2025. a time frame that falls well within the time frame of the 30-year mortgage. these properties are worth about $117 billion and contribute nearly $1.5 billion towards the property tax base. banks, insurance companies, other financial institutions are all exposed to these risks. that's why the bank of england
recently announced it is planning to include the impact of climate change in its bank stress test next year. here's the simple question not a gotcha question. do you agree climate change creates financial risks for the individual financial institutions and for our financial system as a whole? chairman powell: we don't formally or directly include climate change in our supervision. we do actually require financial institutions, particularly those who are more exposed to natural disasters and that kind of thing, we do require them to understand and manage that particular operating risk. for example if you are a bank in the southern coast of florida and you are subject to hurricanes, we require to you have plans and risk management things in place to deal with that. you would pick up natural disasters in that kind of thing associated with climate change. senator schatz: do you think
your processes and staff and approach to this, which has been built properly over many, many years and pursuant to the statute do you think you are moving fast enough to pack knowledge the accelerating risk of climate change as -- over the last two or three years? do you think there is room for you to do a scrub of wlont you are fulfilling your statutory mandate? i get you are supposed to pick up any risk related to snarl -- any risk related to natural disasters. the question is whether you are in on the latest information from the scientific community to go back to these banks torques go back to lenders who have either stranded assets or assets in the coastal area or supply chain is particularly dependent on a certain kind of weather pattern which is not materializing anymore. do you think you are doing enough in this space? or, let me phrase it another way. are you confident that are you
doing enough in this space? chairman powell: it's a little like cyber risk. should you ever be confident you are doing enough in that space? i you think we're open -- clear eyed about the nature of coastal risks and natural risks. it's a fair question. we'll go back and look at it again. senator schatz: could you respond in writing as it relates to this specific question. the bank of england and 29 central banks and supervisors from around the world are moving towards incorporating climate risk into their supervision of financial institutions. you know that another part of the federal reserve's mandate is to engage with its counterparts abroad to address systemic risks. do you think the federal reserve should be engaging with its international counterparts on this question? chairman powell: we're in those meetings. we're involved in those bodies. we don't, as i mentioned, we don't formally take climate change into account in our risks. i think the consequences are
things that we do provide for. senator schatz: i think you have been extraordinary in terms of your ability to withstand political pressure and look at the data and do what's right for the health of the economy. i don't want this to be an exception. i understand that talking about climate change is fraught with partisan peril and will attract the ire of a certain category of people and institutions, but your job is to measure risk. i would submit you are not measuring that risk sufficiently. one final question if you'll indulge me, chairman crapo, has -- has anybody either directly or indirectly communicated with you about rates from the white house? chairman powell: that's kind of a broad question. senator schatz: it is a broad question. it's probably not appropriate to discuss my private conversations with other government official,
any other government officials. i would say i'm completely committed to conducting monetary policy in a way that's nonpolitical and serves all of the american public. i'm very comfortable and confident that's what the fed's going to do. senator schatz: thank you. chairman crapo: senator reed. senator reed: mr. chairman. thank you for your service. senator brown brought up in his comments your february 6 town hall where you made it clear that we have to work to make prosperity more dispersed throughout the society. you also indicate the many of the policies are beyond the purview of the federal reserve. most of them are clearly in the purview of congress f you could can just give us one or two -- your top three issues that we have to deal with or can deal with to make equality much more
realized in this country? chairman powell: senator, i'll go back again to labor force participation, which, it's a big win for the overall economy and also the people who are not taking part in the labor force are by and large the less well educated. less skilled or people who may be in areas that were opioids are prevalent. i think a bipartisan focus, focus on labor participation would bring in a lot of policies that would help deal with what i see as problems which are sort of relatively stagnant growth in incomes, median incomes. also relatively low mobility. education of course would be at the top of every list, i think, in addressing these issues. senator reed: this would require resources that we would have to commit.
and i think you are aware, we are on the cost of another debate about sequestration and the share of resources to defense and nondefense. in fact, we're looking at very draconian numbers in terms of situation at the b.c.a. you would argue that we do have an obligation to make a significant investment in domestic programs in order to provide this equality? chairman powell: i think that -- it would be great for our country and for our economy if we could address these issues. easy for me to say. i don't have to find the resources. senator reed: thank you. let me turn to another topic which i'm very much involved in. the military lending act. as you know, it puts a 36% cap on interest rates being charged to men and women in uniform in the united states. the federal reserve is one of the independent regulators charged with its enforcement. unfortunately, what we have seen from the cfpb particularly is a retreat.
they are no longer using this in their supervisory activities. they'll enforce a complaint, but the complaints are seldom made. most young soldiers don't realize that they have this ability to complain. we're looking at d.o.d. and o.m.b., exempting an insurance product for auto dealers which might result in interest payments far in section he of 36%. -- far in excess of 36%. can you commit your continued strong and persistent enforcement to the letter of the military lending act? chairman powell: yes. it will be a priority for us. senator reed: thank you very much. the is another issue that i think you have touched upon, and that is cyber security. it seems to be the ubiquitous complaint of everyone. not just the financial sector, but every sector. it seems to me, too, that typically those who are going to play cyber look for the backdoor
, not the front door. they look for the small institution, not the big wall street bank that's spending $200 million a year in cyber protections. how are you dealing with that? how are you and your colleagues dealing with that? going out and making sure that community banks, that other smaller institutions that might be more vulnerable are taking the appropriate steps? is that part of your procedures? are you looking closely at cyber security? chairman powell: yes, we're. it's hard because of course the big banks are attacked, too, but they have the resources to deal with it. return to our body of regulators for guidance. we supervise the guidance. with the smaller banks it's very important. that is a way that we see that as a real vulnerability for the payment system. we have also got to be mindful of the burden on smaller banks. but it is something that we are very focused on.
senator reed: are you focused on the extent of conducting red on blue exercises, i.e. seeing what's working out there, seeing where all the connectivity exists, or doesn't exist? exist, or doesn't exist. are you doing that or getting any access to organizations that are doing that? senator reed: we do table top exercises. these are led by the treasury department. this has been major focus for treasury. and appropriately so. we take part in them. there is always the feeling with the issue that you are just not doing enough. senator reed: that feeling is justified. unfortunately. thank you again for your service, mr. chairman. appreciate it very much. chairman powell: thanks, senator. quitenk you, named not done yet. mr. chairman, i have a couple of other questions. issue of wages, which has been discussed by a number of senators.
testimony you indicated that which growth is at about 3% there was some comment by one of the senators that the nominal wage growth, the current rates of which growth may or may not be keeping up with inflation. if i understand your answer is, isn't wage growth growing at a faster rate than inflation today? chairman powell: you have to look at the average over a year or so, and the broad indicators. there's no question that wages are going up. your use of the term wages, do you include benefits, or is there a separate calculation? >> there are countless measures of wages, of compensation. one includes wages and benefits,
is of the employee compensation index, it might be our single favorite one. it is one of four major ones we at. it is also showing growth in excess of about 3% and may be in the low threes now. >> thank you. i have discussed with your leaders some aspect of the labor force participation rate. i understand that there are baby boomers retiring, it is another biggest downward pressures on our labor force participation rate. i started to have a discussion with you in my earlier question about, now that we have seen that labor force participation rates start to increase, whether it would be stable or not? can you discuss a little bit more with me your evaluation of what it looks like for us in terms of labor force participation in general, and i'm a follow-up on that a little bit? chairman powell: i would say gratifying toit
see level force participation % in the past year. that has been a great thing to see. given the level of job creation if labor forced, participation had not gone up, the unemployment rate would be much lower than it is. the unemployment rate has gone up and that means that people are coming back into the labor force. evenhing, is that with all these increases, we still lag behind other countries. he pointed out correctly that the aging of the population is decreasing. it is decreasing labor participation at a trend rate of about .25% every year. hold participation
flat is again. it is really since 2013, since that labor force participation has been flat. isch is good to see, but it just a consequence of having a really good labor market. if you will have that be sustained through good times and bad and put us on more competitive footing with other countries, it will need more than a good labor market, it will need policies that give people the skill and aptitudes to the input to be sustainable in the labor market. i can't remember where i read this, but somebody commented that today, the way our labor market is working, if a person wants to work, that is a job for them. you tend to agree with that observation? chairman powell: generally
speaking. although, in some regions, there are regions of a country that are very poor and have no job creation. job comes from the level of openings, it is now at or above the level of unemployed people. that if you are looking for a job, there is at least numerically one job, but there are probably millions of people who are out of the labor force. that in a perfect world, would be in the labor force. they are in their prime working years and are not in the labor force is of some kind of problem or issue. those are the people we want to get back. sen. reed: thank you. , iswitch topics for a minute think you indicated that a little under 3% growth in our gdp in the last year. i guess on thursday ruled get some economic analysis that will give us some statistics on that.
one of my colleagues indicated today that with regard to the passed, -- i was will not ask you to comment on this, just putting some facts that the tax bill would generate a deficit. that projection assumed somewhere in the neighborhood of 2% growth in the economy. it was indicated at the time from all the analysis we got that if we just had .4% growth above that, there would not be in a deficit involved with the tax legislation. we have seen for more than that .in growth so far that links to my question. i know that you don't have a crystal ball, but you analyze what it looks like for the economy. my question relates to, given what we have seen, growth of
about a percentage point in the gdp in the last 12 months, or previous growth rates, if i understand it right, do you have a projection, anything you can share with us about where you have been moving forward as to whether the economy will continue to perform? i know you said it would slow down a little bit this year, but do have a projection as to what it would look like over the next few years in terms of gdp growth? chairman powell: effinger good place to start with the question is what makes up growth. it boils down to more hours worked and more output per hour. more hours worked is really a function of ovulation growth. population growth -- trend growth in the labor force, given aging, immigration and everything we is in the about .5% right now.
immigration will be lower, and it will be below .2%. immigration is made up of half of that 5! /10. the rest is just productivity. nobody can forecast productivity growth, all we can really do is create policies that will encourage investment, innovation and all those sorts of things and less productivity happen. but if you look at longer-term averages, it has been very difficult to predict. he would have to have sustained high productivity. labor force5/10 growth, you would need higher productivity to get really high levels of growth. that is why it is important to focus on those two things, and it participation and also productivity. that is the closest thing we can focus on to raise our potential
growth rate. sen. reed: in terms of increasing they were force participation, one factor that has been brought up today is to policy at the our policy level so that a person who takes a job who is not currently employed, a person who is willing to go and take one of those jobs and become productive in the labor force does not actually economically suffer from that decision based on the that thet programs government deserted providing. i will not ask you to comment on policy, but is it not correct that if we were to eliminate or reduce the incentive to stay unemployed because of the thisvantage of disadvantage economically of relying on wages rather than
benefits, it would increase labor force participation? >> i think incentives matter. if you go back to work, your patient only go up, in my perfect world thinking. that is how i would say it. >> thank you. switching gears one more time than i will wrap it up. reform.finance as i am sure you have seen, there is a very significant increased emphasis on housing finance reform both in this committee and also at the administration level. in 2017 you give a speech in which are outlined a few principles for how we should approach housing finance reform. we can to make the possibility of future housing bailouts as remote as possible, to change the system to attract large amounts of that anyapital and guarantee should be explicit and
transparent and should apply to securities, not to institutions, and to identify and build upon areas of the partisan agreement. you still agree on those principles and how to approach them? chairman powell: i do. r goodapo:, i agree with them too. you,ld just like to ask first of all, if you will commit to work with this committee in their efforts to build the right , andion to this issue secondly, any other comments you ourt want to make about how nation should approach housing finance reform? and i would ask you also to fixeds how getting this could impact our economy and impact growth? in those remarks, that i think this is one of the
big unfinished pieces of business. in the post-crisis reform period, fannie and freddie had to be taken over by the government. it was a big part of the financial crisis. i think we have either the proposals you have had in the past, and i'm sure the one you have this year, i think they have the right elements. it is just a question of getting something done. i think it would be really good for the economy to get this off of the federal government's balance sheet and get a lot of private capital between the and housing risk, if will. i figured would be positive for the economy. we would be delighted to work you. we have some very strong, experienced staffers in the housing area and we would be happy to provide whatever expert help we can.
this ispo: really the last one. , you testifiedts today that there are some pretty positive things going on in our , that we are now in a relatively good position on a lot of factors. in terms of risks to our economy, can you tell me what you think are some of the bigger risks we should keep in mind? that the baseline outlook is a favorable one. there are always risks, though, and as i mentioned, i do see the foreign risks as particularly relevant right now. , it hasrowth has slowed slowed in china, are generally in the advanced economies and particularly in europe. when growth is booming around the world, we feel that as a tailwind. slowing, we feel that
as a tailwind. i think we may feel more of it, so that is a risk. brexit is an event risk which should not in the end have much of an effect on our economy, but it is something we are monitoring very carefully. domestically, i think we are in good shape an. , confidence is low is still a positive levels. so i feel that we have the , andgs of a good outlook as i said, our community is monitoring the crosscurrents, we call them, which are really the risks. for now, we will be patient with our policy and allow things to take time to clarify. sen. crapo: thank you. committee, wehe appreciate your dedication you and your fellow governors of the federal reserve -- we all want to have this economy stay strong
and grow stronger. we look forward to making sure we can achieve the right policies and help to make that happen. my last closing, it would be that i echoed the concerns -- not the concerns, really, but the issues raised by some of my colleagues about the implementation of 2155. i know you just said it was the highest priority at the fed right now, but i just encourage you to move ahead expeditiously on those issues. a number have been raised already, i will reiterate our concern that we move this quickly as we can on the implementation of the requirements and the principles with regard to those financial facilities and banks under the 100 billion dollars, getting the stress testing levels for them at the right point. if you would like to comment on
.he, you may do so chairman powell: i would add one thing to my last comment. i would leave you with the thought that when i say we are going to be patient, what that really means is that we are in no rush to make a judgment about changes in policy. we will be patient, we will allow the situation to evolve. also the balance of risks, and allow the data to come in. i think we are in a good place to do that. sen. crapo: thank you. i appreciate that perspective. that concludes the questioning for today's hearing. for senators who wish to submit questions for the record, those questions are due on march 5, tuesday. chairman powell, we ask that you respond to those questions as promptly as you can. once again, thank you for being here. this hearing is adjourned. chairman powell: thank you, senator.
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