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The numbers are irrefutable. We added two hundred twenty five thousand new jobs in January and the unemployment rate is essentially at its lowest level in half a century. This prosperity is being shared by all Americans from African-Americans and Hispanics, where their unemployment rate has reached record lows last year. The prime age labor force participation has reached 2.2 million people that were previously out of the workforce. And not surprisingly, consumer confidence has increased dramatically since the month before the president's election.
Every member of Congress should celebrate these remarkable outcomes, which have resulted from Republican leadership on pro-growth policies like tax reform and regulatory right sizing. But sustaining our economic prosperity also hinges on the Federal Reserve having good policy. The central bank is currently undertaking a review of its monetary policy framework to determine the tools it may need in the future. Chairman Powell, I raised the concern that we have regulatory policy that is impinging upon your capacity to make proper monetary policy.
And that is why I think it's important that you have a regulatory review of the limitations that those regulations can put on your broader monetary policy decisions. That includes systemic risk concerns that I have raised as well as open market operations. Well, especially the open market operations in the repo market. I thank you for your prompt response to my questions about the repo market operations, but I'm not sure there's been a satisfactory answer to what caused the market spike in the first place, and that's troubling.
I've also voiced my concerns with the transition from the Limbaugh reference, right? We have nine months later, I'm still concerned consumers will be impacted by the transition. We still have contracts written to the library, a reference. Right. And and I think given the recent volatility in the repo markets, I'm concerned about the subsequent volatility and consumer facing products, including mortgages, auto loans, business loans and other consumer loans. As his new reference rate is derived from secured overnight financing at previous hearings, I've spoken about the cyber threats posed to our financial institutions and your institution and China in particular.
Yesterday's news about the Equifax data breach is deeply troubling. And is that a wakeup call to every single policymaker that we need to take the threat of China and the Chinese communist regime quite seriously? If we're not taking them seriously, have no fear. They are taking us very seriously. And now they have basically all of our data, too. So the spillover effects of this question of Chinese policy is significant not just for cybersecurity, but what we're seeing with the Corona virus and the destabilizing, destabilising effects it has on global health.
I know you're not a global health expert, but you can give us some sense of your measurement techniques in response to these economic changes that are that are being driven out of the coronavirus challenge in China and the spillover effects it has to its neighbors in the supply chain as well that drive through China. The nature of China's regime may not fit neatly into the Fed's risk assessments. The Fed is acknowledged in its financial stability report that cyber risk don't fit neatly either.
But the risks are real. Even though our data is limited coming out of China and the limited data we have. We question still we should refract reflect appropriately upon what we know and how we respond as an American government and to the Western world in response to these threats, both cyber and health risks and the spillover effect it has on our economy. So, again, Chairman Powell, thank you for being here. Thank you for your openness. Thank you for your approach as chair of the Federal Reserve to be in the language of the people rather than simply that language of the p_h_d_ without a yell back.
I now recognize the chair of the Subcommittee on National Security, International Development and Monetary Policy. Mr. Cleaver, for one minute.
Thank you, Madam Chair. Mr. Chairman, first of all, appreciate very much your willingness to travel around the country to do 14 of those Fed Listens sessions. And one of them you did in Kansas City at the Fed building. And I think it's it's a rare opportunity for most people to get a chance to sit down in a room and discuss economics with the chairman. So thank you very much. When you came to Garden City, people were sitting around the table with you and and giving you a picture of their struggles and strives and trying to make it in the economy.
And people are also concerned about inflation. They believe that it's like toothpaste. Once it gets out of toilet, hard to get back in. So we're concerned about it. But also appreciative of your work. And and I look forward to getting a little further into this as we proceed with the hearing about your. I now recognize the subcommittee ranking member, Mr. French Hill, for one minute. Thank you, Madam Chair. You're a pal. Thank you for being here today.
We appreciate your willingness to come and field our questions and provide your provide your insights. I want to take just a moment and echo the comments of the ranking member on the Community Reinvestment Act. I know this. We've received a lot of attention. I read Governor Brainard. Very comprehensive views on the topic. And we had Mr. OD'ing here recently to discuss the o.c.'s C's point of view. As a former community banker, it's my view that we really should have ultimately one approach to CRH among the financial services regulatory agencies.
I've had 40 years of dealing with inconsistency in delivery of regulatory proposals, and so I do think ultimately would be productive for us to have one approach to that regulation and modernize it for the digital world that we live in today. I look forward to your presentation today. And Madam Chair, I yield back.
Thank you. I want to welcome to the committee our distinguished witness, Jerome Powell, chairman of the Board of Governors of the Federal Reserve System. He has served on the board of governors since 2012 and as its chair since 2017. Mr. Powell has testified before the committee, and I believe he does not need any further introduction. Without objection, your written testimony will be made part of the record. Mr. Powell, you now recognize to present your oral testimony.
Thank you very much. You're a woman Waters ranking member, McHenry and other members of the committee. I'm pleased to present the Federal Reserve's semi-annual monetary policy report. My colleagues and I strongly support the goals of maximum employment and price stability that Congress has set for monetary policy. Congress has given us an important degree of independence to pursue these goals based solely on data and objective analysis. This independence brings with it an obligation to explain clearly how we pursue our goals.
Today, I will review the current economic situation before returning of returning to monetary policy. The economic expansion is well into its 11th year and it is the longest on record. Over the second half of last year, economic activity increased at a moderate pace and the labor market strengthened further as the economy appeared resilient to the global headwinds that it had intense intensified last summer. Inflation has been low and stable, but has continued to run below. The FOMC is symmetric 2 percent objective.
Job gains averaged 200000 per month in the second half of last year and an additional two hundred twenty five thousand jobs were added in January. The pace of job gains has remained above what is needed to provide jobs for new workers who entered the labor force. Allowing the unemployment rate to move down further over the course of last year. The unemployment rate was 3.6 percent last month and has been near half century lows for more than a year. Job openings remain plentiful.
Employers are increasingly willing to hire workers with fewer skills and train them. As a result, the benefits of a strong labor market have become more widely shared. People who live in and work in low and middle income communities are finding new opportunities, employment gains have been broad based across all racial and ethnic groups and levels of education. Wages have been rising, particularly for lower paying jobs. GDP rose at a moderate rate over the second half of last year.
Growth in consumer spending moderated toward the end of the year following earlier strong increases. But the fundamentals supporting household spending remain solid. Residential investment turned up in the second half, but business investment and exports were weak, largely reflecting sluggish growth abroad and trade developments. Those same factors weighed on activity at the nation's factories, whose output declined over the first half of 2019 and has been little changed on net since then. The February Monetary Policy Report discusses the recent weakness in manufacturing.
Some of the uncertainties around trade have diminished recently, but risks to the outlook remain. In particular, we are closely monitoring the emergence of the Corona virus, which could lead to disruptions in China that spill over to the rest of the global economy. Inflation ran below the FOMC symmetric 2 percent objective throughout 2019. Over the 12 months through December, overall inflation based on the price index for personal consumption expenditures was 1.6 percent. Core inflation, which excludes volatile food and energy prices, was also 1.6 percent.
Over the next few months, we expect inflation to move up closer to 2 percent as unusually low readings from early 2019 drop out of the 12 month calculation. The nation faces important longer run challenges. Labor force participation by individuals in their prime working years is at its highest rate in more than a decade. However, it remains lower than in most other advanced economies. And there are troubling labor market disparities across racial and ethnic groups and across regions, regions of the country.
In addition, although it is encouraging that productivity growth, the main engine for raising wages and living standards over the longer term has moved up recently, productivity gains have been subpar throughout this long economic expansion. Finding ways to boost labor force, labor force participation and productivity growth would benefit Americans and should remain a national priority. I will turn now to monetary policy. Over the second half of 2019, the FOMC shifted to a more accommodative stance of monetary policy to cushion the economy from weaker global growth and trade developments and to promote a faster return of inflation to our symmetric 2 percent objective.
We lowered the federal funds target range at our July, September and October meetings, bringing the current target range to one and a half to one and three quarters percent and our subsequent meetings with some uncertainties surrounding trade having diminished and amid some signs that global growth may be stabilizing. The committee left the policy rate unchanged. The FOMC believes that the current stance of monetary policy will support continued economic growth. A strong labor market and inflation returning to the committee's symmetric 2 percent objective.
As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate. Of course, policy is not on a preset course. If developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Taking a longer view, there has been a decline over the past quarter century in the level of interest rates consistent with stable prices and the economy operating at its full potential. This low interest rate environment may limit the ability of central banks to reduce policy interest rates enough to support the economy during a downturn.
With this concert in mind, we have been conducting a review of our monetary policy strategy tools and communication practices. Public engagement is at the heart of this effort through our Fed Listens events, we've been hearing from representatives of consumer, labor, business, community and other groups. The February monetary policy report shares some of what we've learned. The insights we've gained from these events have informed our framework discussions as reported in the minutes of our meetings. We will share our conclusions when we finish the review likely around the middle of this year.
The current low interest rate environment also means that it would be important for fiscal policy to help, so help support the economy if it weakens putting the federal budget on a sustainable path when the economy is strong. Would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn. A more sustainable federal budget could also support the economy's growth over the long term. Finally, I will briefly review our planned technical operations to implement monetary policy.
The February Monetary Policy Report provides details of our operations to date. Last October, the FOMC announced a plan to purchase Treasury bills and conduct repo operations. These actions have been successful in providing an ample supply of reserves to the banking system and effective control of the federal funds rate. As our bill purchases continue to build reserves toward levels that maintain ample conditions, we intend to gradually transition away from the active use of repo operations also as reserves reach durably ample levels.
We intend to slow our purchases to a pace that will allow our balance sheet to grow in line with trend demand for our liabilities. All of these technical measures support the efficient and effective implementation of monetary policy. They are not intended to represent a chance sorry, a change in the stance of monetary policy. As always, we stand ready to adjust the details of our technical operations as conditions warrant. Thank you. I look forward to. Thank you.
I now recognize myself for five minutes for questions. In December 2019, when the RCC and FDIC issued a notice of proposed rulemaking on control outings proposal, the Federal Reserve did not join this proposal. FDIC board member Martin Gruenberg voted against comptroller outings proposal, describing it as, quote, a deeply misconceived proposal that would fundamentally undermine and weaken the Community Reinvestment Act, quote unquote. And in remarks last month, Federal Reserve Board Governor Brainard said that, quote, Given that reforms to the CII regulations are likely to set expectations for a few decades, it is more important to get the reforms done right than to do them quickly.
That requires, given external stakeholders sufficient time and analysis to provide meaningful feedback on a range of options for modernizing the regulations, unquote. Chair Powell, Governor Brainard also suggested in a speech last month that the Federal Reserve created a database of six thousand public CRB evaluations, looking at how barriers CRH investments support low and moderate income communities. As the Fed used this database to evaluate how bank activities would be assessed under the o.c.'s and the EP D-I sieze proposal İcra.
If I understood your question, it was whether we've used our database to evaluate their proposal. That's right. I'm not. Totally sure we have. Maybe I can provide a little context if that's appropriate. If I may. Which is which is just that we do agree that this is a good time to update İcra in light of changing technology and demographics. And we agree on on the goals over. We put a lot of work into this. We tried hard to get on the same page, weren't able to do that.
We have some different ideas. There's a fit in 10 to do this assessment. Excuse me. Do you? A 10 to do the assessment that I reference regarding the database to evaluate bank activities. You know how they would be assessed, assessed. So we under the 0C CS and DIA FDIC proposal. The CIA. Well, so real.
The real point of that of that database was for us to create our own set of metrics. We want to be very, very sure that that what comes out of this is a proposal that from us that will leave all major participants in CRH better off. And so we think it's important that each metric, each change that we make is grounded in data. And that was the purpose was to was to help us develop our thinking and our proposals. And that's essentially what we've been using it for.
So given the magnitude of reform and CREB regulations, do you think the comment period should be extended to allow the public to weigh in on such an important undertaking? That's really a decision for the SCC in the event I know it's a decision of lone survivor. What do you think? I think it's it's not our role to comment on their proposal where we have our own work and and our own ideas that we'd be happy to share. But it's really up to them to to make that decision.
So are you completing your assessment? Are you continuing to look until you come to a final decision? We are. We are. Don't you think the public should have an opportunity to have more time to do that also?
And they will. And when the time comes, I mean, I think for the time being, what we're doing is we are looking forward to reading the comments on the on the proposal. I think we'll all learn quite a lot from those comments and and we'll be able to incorporate that thinking and whatever changes are made to the proposal, there may be substantial changes to the existing proposal coming out of the comments. So I think we're we're ah, our view is that we want something that will leave everybody better off and we'll have broad support.
And that's what we're gonna be working on.
Well, as you may be aware, all of the Democrats on this committee urge regulators to provide a public comment period of at least 120 days on any major CBRE reform instead of the 60 days el-Sisi and FDIC has provided. Community bank, state regulators and community groups have called on these agencies to extend the comment period. And even though you said it is not your place to comment on whether or not that should be extended, and I wish you would think about this and I wish you would as you are doing the assessment and as you have said, it is important for the public to be able to comment, review what you are thinking, and if you change your mind, let us know.
About commenting on whether or not we should extend the comment period. You don't have to respond to that. Thank you very much. The gentleman from North Carolina, ranking member Mr. McEniry, is recognized for five minutes.
So it always is rich. Right. So when somebody else has a negative comment about the Federal Reserve, that's bad. But when I as a policymaker on the Hill, have a negative comment about the Fed, it's good. All right. So it's all about the eye of the beholder. When it comes to the political debate here in Washington.
Congress made a decision over 100 hundred years ago to outsource monetary policy to the Federal Reserve. You're a constructive law. You're given independent operations and you have a set term of office. And so the independence of the Fed for monetary policy is appropriate and is longstanding. Every president. In the last 100 years has had some private criticism, and we've found out at some point about that criticism either through press reports at the time or later or some biog or of biographers work about the president.
But here on the Hill, we can make negative comments about the Fed and attack the president for having negative comments about the Fed. All right. So all this stuff is just rich politics. Let's get down to the essence of this. You are the biggest regulator in town when it comes to the financial world. I have concerns that I want to address that. A regulatory nature that I think impinge upon monetary policy. The repo market, for instance, these operations, you said, are temporary in nature.
Is that still true? Yes, our expectation is that we will continue our bill purchases at least through through into the second, at least into the second quarter and continue rip up operations at least through into April and into April. Sense of that is, though, that we're we're building up a level of reserves to a level that will mean that we don't have to be involved in open market operations on an ongoing basis and that that's going to take that period of time.
And as as the underlying level of reserves rises due to our bill purchases, the need for repo will will decline. And sometime around the middle of the year we'll reach that level of ample reserves. And from that point forward, the balance sheet will grow at at trend. Demand for our liabilities will continue to expand with the economy. And what are you doing?
A review on your capital requirements for inst. financial institutions that should be participating in the repo market. Well, we I think we've reviewed supervisory and regulatory practices that may be affecting the flow of liquidity are our main focus of courses is is the federal funds market and and our ability to transmit our policy decisions smoothly into the money markets through the federal funds rate. What happened in last September or early September was that there was unusual tightness in volatility. And we attribute that to the fact that that what appeared to be ample levels of liquidity didn't flow where they were.
They might have. And so we're really doing two two things. One, we're raising the underlying level of liquidity to it to a bind by raising reserves to a level that's higher than we had thought we needed in that process, as I mentioned, will take to the middle of the year as part of that, as a supervisory assessment as well to make sure that this policy is being driven in terms of institutions. That's right.
OK. And so we've been doing that since September.
So I raised this in my opening statement about China. Now, you've spoken publicly about your assessment. You're thinking as you see, what is happening with China's response to the Corona virus. We wish them well. We have high hopes that they're going to be able to tackle this crisis there. This public health crisis they're facing.
But walk me through your thinking and assessing that the situation in China now in terms of economics and that potential spillover effect. So I'll just quickly start by by saying again that we find the U.S. economy in a very good place performing well, we see signs of global growth bottoming out. We see reduced trade policy uncertainty overall, the background, we see strong job creation, continued moderate growth. All of those things we see all of this happens in the context of a of a of a good strong U.S.
economy. And into that picture comes the coronavirus. And so the question is, how do we think about that? Of course, first we observe the human tragedy, which is terrible to watch. The question for us really is what will be the effects on the U.S. economy? Will it be persistent? Will they be material? That's really the question. I think we know there will be effects on China through. There's some part of the first half of the year and China's close neighbors and trade major trading partners in Europe as well as Asia.
And we know that there will be some very likely be some effects on the United States. I think it's just too early to say. We have to resist the temptation to speculate on this. And so we'll be watching that carefully again. And the question we'll be asking is, will these be persistent effects that could lead to a more material reassessment of the outlook?
A question of length and length of time and whether or not this is a temporary disruption.
Yes. Thank you. The gentle woman from New York, Ms. Velasquez, is recognized for five minutes.
Thank you, Chairwoman. Chairman Powell, I would like to follow up on Miss Waters question on theory. What aspects of the proposed changes to the CSA do you find most troubling? So, again, I would what what I'd like to do, if I may, as is, is not so much comment directly on the other proposal, but talk about how we are looking at this. And again, we think. And I will mentioned the areas in which we in which we have differences.
I hear that. I hear you on. I respect it. But I just would like to ask you, if the Fed is unable to reach an agreement, would they also see on the FDIC on a joint rule? Do you expect the Fed to issue its own proposal?
We haven't made a decision on that yet. Right now, our focus is on our focus has been on trying to get on the same page. We haven't been able to do that. Now, our focus is going to be on learning from the process. And I think we'll learn a lot, I think.
Are you meeting regularly with the Overseas 060 and FDIC on this issue?
We did for a long time. We're not currently meeting with them on this.
So would you agree with Goban? No brainers comment that is more important to get the rule right than to do it quickly?
Yes. I mean, I think that's been our approach and we'll continue to be. Thank you, Chairman Farwell. As you know, Representative Border and I have been concerned by banks growing reliance on cloud based service providers for data storage needs. Does the Fed have all the access authority it needs? Or are there any contractual or legal limitations restricting the Fed's ability to obtain the data? Hill by third parties that it needs to properly understand and manage this growing reliance.
So I think we do have the legal authority that we need. We are able to look into third party service providers and we're doing that more and more because of, as you mentioned, the prominence and size of these of these growing importance of these cloud service providers. Thank you. I yield back. The jilted woman from Missouri, Miss Wagner, is recognized for five minutes. I thank the chairwoman and thank you for being here, chairman POW Raul, very interesting as it just happened on January 29 to spike the repo spike.
I know that ranking member mentioned did. I know you're in the middle of your review and such, but could this I have a little more specific question. Could this re repo market turmoil, these symptomatic of deeper difficulties for the financial system? Really, it doesn't appear to be at all since since we took the measures we took in early September, repo markets and money markets have been functioning very smoothly. There hasn't been a return to the volatility. They're very functioning, very normal really without including over year end.
So we haven't had any return to that. It's pretty clear that the measures that we took directly address the problem. You know you know, when when the medicine is working, you can really see and it seems to be working well here.
And we had a confluence of things happening. Just I know at that time with the quarterly federal taxes do along with the Treasury auction of debt of still upwards of I think around seventy eight billion, wasn't it. Yes. I think that was a function of perhaps this this this fluke.
Would you call.
We knew all that debt. The thing is we knew that. And what we'd done what we had done was we'd ask banks to tell us what's your lowest comfortable level of reserves. Right. You got those numbers. We added them up. We put a buffer on top of it. And it's still suggested that there was plenty of reserves in the system. And then this happened. And I think that that makes us think because we knew about those big items.
Those were definitely on horizon. Well. And you're doing a review. You know, I hope that you will find that there isn't anything symptomatic of some deeper difficulties. And we look forward to that. I turn to Page Chairman Paul. In December of last year, I asked Vice Chairman Coral's for an update on the status of updating the GZ surcharge and plans for finalizing the stress capital buffer proposal, which I understand will be will require a re proposal with the comment period in January.
Vice Chairman Coral's delivered a speech where he spoke about bringing, quote, reasonable transparency to several aspects of the Federal Reserve's supervisory and regulatory framework. Last week, the Fed released the Sekar stress test scenarios. To my knowledge, there has been no progress or update on the status of the stress capital buffer. Apart from continued assertions by you and Vice Chair Coral's that aspects of the proposal will be incorporated in the 2020s see cars. Given the acknowledgement by principals at the Fed of the importance of transparency, I guess I'm I'm concerned about the lack of transparency in this process.
When can we expect progress on this proposal? That has gosh, it is been in process now, I think since April of 2018.
We do continue to expect and intend that the core of the stress capital buffer will be incorporated into the framework in time for the 2020 stress test. So we're we're moving along on that and we're on track to do that.
You do feel in track to do that, then? Yes. All right. Committee Republicans have underlined the importance of cyberthreats as a potential systematic risk. We have recently seen malware attacks undermine government infrastructure. And according to research last month by economists at the New York Fed, a simulated cyber attack on just one major U.S. bank could have spillover effects, impacting 38 percent of the wholesale payments network. What can the U.S. do better?
Chairman Powell, in order to prioritize these constant flow of cyber risks and strengthen the resilience of our financial sector, I think we can keep to and have to keep doing what we are doing, which is to make this really a top if not the top supervisory priority, not just for the banks, but for the Fed and for institutions across the American landscape.
We have very high expectations, particularly of the largest banks on their ability to to fend off cyber attacks. We're constantly meeting inside the government to to make sure that that our system is resilient and redundant and strong against against cyber attacks. But there's never a feeling that you have gotten to a place of comfort on that. We just have to keep working. And it's staying in the minute, learning what the new attacks are, making sure that the banks are doing the basic housekeeping.
And all of that is very much in train. And, you know, it will. We'll just have to keep at it. I think for a long time. Thank you.
My time's expired. Thank you so much for being here again. Jerome Powell and I yield back. The gentleman from California, Mr. Sherman, was also the chair for the Subcommittee on Investor Protection. Entrepreneurship and Capital Markets is now recognized for five minutes. Couple of responses to what the ranking member had to say. Yeah, the stock market's way up. Wages are up a bit more than 1 percent in real terms after inflation, wages at the bottom have risen.
Chiefly in those states where we raise the minimum wage and when we have a Democratic majority in both houses, we will raise the minimum wage nationwide and deal with it and deal effectively with those states that have not seen such an expansion of wages at the bottom.
I've grown. Not quite old, but I've spent many decades in this room.
I've seen your predecessors, predecessors, predecessor, and every time they come in and the Republicans attack them for expansionary monetary policy, both traditional and newfangled. And now we have a new president and all of a sudden they're pushing on the other side. All I'll say is that I've consistently, from the days of Mr. Greenspan, been pushing for somewhat lower interest rates and an expansionary policy, particularly quantitative easing, because you returned fifty five trillion billion dollars to the Treasury last year.
And that's I know not your purpose. But think of the kids that will get an education. Because we could fund aid to local education. Think of the medical research and the lives that will be saved because we were able to fund medical research. I don't think the 55 billion should be regarded as an irrelevancy or an embarrassment. And finally, as to the jobs growth we've seen recently, I do need to point out the jobs grew much faster in the last three years of the Obama administration than the first three years of the Trump administration.
It is as if Trump inherited a plane as he inherited so much else. The plane was on automatic pilot and it was going in the right direction. And he hasn't managed to completely screw it up. We've got an issue that I think is ought to be completely bipartisan and that is labor. It's going to hit us in a couple of years.
Chairman Powell, should Congress simply give the Fed the right to prescribe backup rates when the debt instruments do not do so? Or should we explicitly adopt sofor or or what can we do and hopefully do this year and actually solve a problem 12 months in advance?
So onlybe war, as you know, our process is ongoing and we're really committed to having the banks ready by the end of next year to switch over away from Lightbourne in case it is no longer published. That date is is.
Well, they they need to know legally what to switch over to.
And we want to avoid multi-billion dollar lawsuits when somebody can say it should be this instead of that, they not only have to have the technology to make the switch, they now have to know legally what they're supposed to do if we need a federal law change. We will let you know. I think we will.
It's. Now we've got less than two years. Devant you. Have you figured out whether you need a federal law change or. I don't think we think we do need a federal law change. Well, if you could get us an answer, because there are people who want to wait around until two or three months before things blow up and then come to Congress and say, now fix it.
Two years is actually too short a time because we're impairing the economy today, because you and I are talking about this and there is this slight risk out there of litigation and uncertainty with regard to legacy Limbaugh. And we ought to take that off. That's one of the things we can do to help the economy. So I hope that you would act within a month to let us know what you propose rather than wait till next year. Another area we've talked about before is the wire transfer system.
We've seen one hundred and fifty million dollars lost to scams. And those scams arise chiefly because when you're wire money, you do so to a number. But there's no payee identified. The British have gone to a confirmation of Pritt Payees System. The International Standards Organization has prescribed changes that would require at least identification of payee. We don't. I know you have raised issues of state law. I've analyzed it. I can't see what would prevent the Fed from prescribing what the wire transfer system would be.
And it looks like I'll have to ask you to get back promptly for the record on that question.
The witnesses are requested to provide an answer in writing for the record. The gentleman from Oklahoma, Mr. Lucas, is recognized for five minutes.
Thank you, Madam Chair. Encroaching. Chairman Powell, during your testimony before the Joint Economic Committee last year, you were asked about what steps the Federal Reserve is taking to the assess the impacts of climate change on our financial system. In your testimony, you made the distinction between the purely informative stress test for climate risk that the Bank of England does and what the U.S. stress testing regime under C car does, which is impact and inform capital requirements for capital distributions.
My understanding is the Bank of England is conducting research and asking financial institutions to think through their portfolios and how they could be impacted, but they're not currently integrating those measures into capital requirements. Would you outline some of what the Fed is doing in terms of research and engagement on global climate risk? Sure, so I should begin by saying that climate risk is very important. Climate change is a very important issue that Congress is largely assigned to other agencies. It does play into our work, however, as it relates to the public's very reasonable expectation that we would make sure that the financial sector, the banks, the utilities that we supervise are resilient against the longer term risks from climate change.
So we're doing that's that we're in very early days of understanding what all that means. And so where there's work going on around the around the world on the central banks to try to figure that out. You talked about the Central Bank of England. Stress tests. You know, those are not intended to inform current capital requirements, but more informed to understand what might be the effects on on banks from climate change.
Are you planning on joining the network for Greening the financial system?
We haven't made a decision about that. We've we've always attended their meetings. I mean, I guess my theory is, were you when you joined an organisation like that? There isn't. You're not necessarily, you know, signing up for everything that everybody there believes you can you can benefit from the work that's being done there. And we're kind of doing that now. We've not made a decision about about membership. Vice Chairman Coral's recently outlined changes that would increase supervision, transparency and accountability.
And I was encouraged by those comments and we'll be following this closely, of course. One change the vice chairman outlined is that the Federal Reserve should restore supervisory observations which will allow notice of a supervisory concern without it rising to the level of a matter requiring attention. Can you tell us what the timeline is that you see on those proposals to improve supervision? I'm lying. It's hard to say. I mean, I would just say what. Vice chair did was he pointed to this this tension that exists between, you know, very fundamental expectations of due process, transparency and fairness around everything the government does and should should it be associated with that, but also with supervision, which by its nature is private and somewhat discretionary, non-public and confidential, really.
So he pointed out that tension and the need to shed more light on that and to to ask whether there are places where where supervision needs to incorporate more of that due process thinking. I think that's a very healthy thing to think about and it's something we'll be working on. In light of the Corona virus chairman, I can't help but think about as a young man, as a boy, I spend a lot of time around my parents, my grandparents, I should say, and my great aunts and uncles.
They were born just before just after the previous century. So their tales of firsthand experience in the pandemic of 1918 and 1919.
We're very graphic as it rolled through rural western Oklahoma. And the reason I bring this up is their description of that particular virus at that particular time in that particular rural society. Was it literally it brought everything to a stop for weeks in rural western Oklahoma. Now, my mother's family, my father's family were very fortunate. No one died from what was called the Spanish flu, but it brought society to a stop. Reason I ask that is with 43000 cases worldwide and the critical impact in China.
Could you describe for a moment how China and its neighboring countries are responding to the economic impact of coronavirus in general and from the perspective of your fellow central bankers in those countries? I think they're they're really responding now to the outbreak and containing it. And the Chinese government is obviously taking very strong measures on that. You see businesses closing down in the affected areas. You see that sort of thing in terms of the economy. As you asked, the People's Bank of China has as done a number of things to support economic activity.
And I think you can expect the Chinese government to do lots of things to support economic activity. And they've said that they'll they're open to cushioning the economic effects. We're not we're not seeing that, you know, that we're not able yet to estimate the size of the economic effects. There are many estimates out there, but I think you'll see governments acting in Asia politically in China to offset those. Thank you as chairman, you back, Madam Chair.
The gentleman from New York, Mr. Meeks, was also the chair for the Subcommittee on Consumer Protection and Financial Institutions, is recognized for five minutes.
Thank you, Madam Chair. Welcome, Mr. Chairman. Let me touch quick initially on asymmetrical growth. It's been discussed at length and in my community and others that 40 percent of Americans don't have adequate savings for a $400 emergency. And similarly, one in five Americans skip essential healthcare or fail to pay important monthly bills due to the lack of funds. So finally, a large share of the population is also underbanked or unbanked.
And we've talked about that a lot in the community and on the committee, which I I chaired the subcommittee I chair. So my first question to you then is why haven't circumstances improved for low and moderate income Americans more rapidly in the past few years, given the so-called state of the economy?
Well, the pattern was that at the beginning it was more high, people who had just left the labor force perhaps made it right back in. Well, we really have seen, though, in the last two or three years has been wages moving up the most at the bottom end of the wage scale. So we do see, you know, during this very long expansion, significant effects now in low and moderate income communities. And it's great to see, as I mentioned, whether our Fed listens events.
We've been hearing quite a lot about that. So that's very positive. You know, more to your point, though. You know, waiting for the 10th, 9th, 10th and 11th year of an expansion isn't isn't really a strategy. You know, we do see those things now because the labor market is is strong. But really, we need it really other programs to to address the longer run needs of those communities other than just the business cycle and monetary policy.
So also doing this period of time, would you say that number was I've been arguing and finally, we are moving toward a $15 an hour minimum wage for individuals on the bottom. Would you think that that has something to do with helping them? Also, the fact that many states have adopted a $15 or higher minimum wage, they would have been put put in place will answer your question directly.
Let me first say, though, that we don't we, of course, don't take a position on the minimum wage. That's a class that had a staff right off that legislatures have to. I understand.
So there's research on exactly what is driving up wages at the lower. And so it does suggest that there's a role there for the minimum wage increases. States that have had minimum wage increases have seen, you know, there's there's a noticeably higher increase. But but really it's much broader than that. And a bigger factor really just is very low unemployment and a strong labor market, high job creation. That's that's the main driver.
So the other concern that I have, because it also seems as though, you know, as unemployment goes low, etc., it's still well, you look at black unemployment, it still remains nearly double that of white unemployment. And it seems to stay that way, whether this cycle is a down cycle or an upcycle.
So are there any signs of how we close those gaps?
And maybe because that there's always these gaps that seems to happen between the African-American community and whites, where even though it's good economy, that gap stays the same.
There are there are persistent gaps and they're very troubling and they're not in the long run something that monetary policy can address. It really is up to other other policies by governments, state and local governments, the federal government and frankly, businesses to to do what they can to close that gap. Week, week, what we have as an interest rate tool and we can what we can do is support the goals you've given us maximum employment and stable prices. We see positive effects from that.
But over the longer run, it really needs broader policies of education and and other things that that would help with that issue.
Let me ask I know Chairwoman Waters asked some questions on C. All right. There was some questions that came up that maybe you can answer. You know. Can that the framework that was put forward by Governor Brainard not too long ago. Is that the. The same framework of the Federal Reserve Board. Is it just some saying it's just her opinion, is that that of the board, is it? So maybe you can clear it up. Does the board see it similarly as as Governor Brainard?
So we actually haven't taken our proposal to the board yet. But now that represents the thinking of that. She's been working on this. I asked her to lead this effort for us. She was the head of that committee for for some time. I'm very comfortable with with with the thinking that's in that speech and, you know, support that set of ideas in that approach. But it's it's not at a place where we can say this is a proposal from the Fed because we haven't taken it to the board yet.
The gentleman from Florida, Mr. Posie, is recognized for five minutes. Thank you, Madam Chair.
Mr. Chairman, the world's experiencing dramatic growth in a space economy and many are marveling actually at the expansion of civilian space launches. I represent the Kennedy Space Center and obviously we're really excited about all that. Now, several estimates put the current level of global space economy at well over 400 billion dollars a year with a growth rate of 8 percent from twenty eighteen to twenty nineteen. In December, the Bureau of Economic Analysis announced creation of a space economy satellite account.
I knew collaborative effort to measure the relative importance of the space sector on the U.S. economy with a special emphasis on the growing commercial space segment. This effort will use input from industry experts and multiple government agencies, obviously. I recall over the years that the Atlanta Fed has applied its expertise to report on the economy of the space district. First question can you work with me to ensure that the Federal Reserve joins this multi-agency effort with an eye to avoiding financial bottlenecks and keeping this important space industry on path to healthy growth rate?
First, I'm hearing about about I will surely I'm happy to assure you that we'll take a close look at that. And if it's something that would be productive, we'd take part.
Great. Over the years, we've developed a rather expansive policy of Federal Reserve independence. And I believe in assuring the freedom of the Fed to act independently on a day to day basis to manage our economy and the critical payment system. I would not expect remember Congress or other officer or government to insert himself or herself into a decision by the Federal Reserve chair, the board, the Open Market Committee or the Fed monetary policy entity. Congress does not direct day to day monetary policy, and Congress also does not direct generals on battlefields, nor should we.
However, the J.O. reteaming conducts policy audits of the defense policy and strategy. Yet the J.O. is restricted from conducting policy audits on the Federal Reserve. I'm challenged to understand how policy outcomes of critical national defense strategy is OK, but policy audits of the Fed are off limits. The defense industry? If Shirley is at least as sensitive as a monetary policy. And I'd like your thoughts on that. You're so J.O. doesn't do policy audits on the Fed constantly all over the place at the Fed.
Just with one exception, and that is our specific monetary policy function. Congress chose long ago to create a bit of one step of distance away from the J.O. in order to underline our independence. I think that was a wise move. I think changing that would would be seen would clearly be seen by the public as a diminution of our independence. We do look to this committee and to the equivalent committee on the Senate side for oversight on monetary policy. In our system of government, our you know, our road to to oversight and transparency runs right through this committee and the Senate Banking Committee as well.
So it's we it's that anyway, that's that's what I would tell you about the J.O.. What do you think makes the Fed more immune to review than the defense was? What's the rationale behind it?
Well, again, all of everything we do on payments and financial regulation, every single thing we do is subject to J.O. audit all. And it's you know, these are policy audits. It's not like a financial audit. The public should understand that we are audited. Our business model is actually about as simple as that, as a very small fee being not complicated. And we were constantly audited. What what what this exemption does is it prevents the J.O. from coming in and looking at and assessing individual monetary policy decisions which Congress saw fit.
You saw fit. Congress saw fit to to carve out of the law. And I again, I think it was an appropriate thing to do. And I think it would be it would be unwise to take a step back from that. I don't see any harm that it's doing.
Well, they the former chairpersons of the Fed have indicated they simply did not want to be second guessing their decisions, that the public really doesn't have a right to know. I find that illogical, quite frankly, and that's why I asked you these questions.
I mean, we were very transparent. We publish minutes. We publish transcript.
I know we publish anything. We publish everything. But. And I'm just you know, I think that the butt exemption is overdue. The gentleman from Missouri, Mr. Clay, who is also the chair of the Subcommittee on Housing, Community Development and Insurance, is recognized for five minutes.
Thank you, Madam Chair. And thank you, Chairman Powell, for being here today. For most of the constituents in my congressional district, they are not focused on the Dow.
Maintaining a thirty thousand level, but simply trying to make ends meet. In fact, the same laws fed in an essay.
As part of his Demographics of Wealth series examined the connection between race on our ethnicity and wealth accumulation over the past quarter century, it was the result of an analysis of data collected between 1999 and in 2013.
Through the Federal Reserve's survey of Consumer Finances, more than forty thousand heads of households were interviewed over those years. Median Hispanic and black wealth levels are about 90 percent lower than the median white wealth level. Yet median income levels of Hispanics and blacks are only 40 percent lower.
The larger racial wealth gap could be due to Hispanics and blacks investing in low return assets like housing, as well as to bar borrowing at higher interest rates.
Hispanics and blacks could also feel less of a need to save for the future because society's progressive Old-Age safety net programs will replace a relatively larger share of the normal incomes they earned during their working years.
Could you comment on why many communities continue to lag and how the fair VA is? Monetary policy might seek to address some of the underlying factors that have led to gross inequality.
What we can do and what we have been doing is to take seriously your order to us to seek maximum employment. And that's what we're doing. I think we've learned we've just learned because we've been watching what's been happening, that unemployment can be lower than many had expected without raising inflationary or other concerns. So that's what we can do and we will continue to do. And I think that's showing up in communities everywhere. I think other governmental and and other tools are necessary to address longer run problems.
So jerbs, how do we address the pay inequity?
How do we impress upon corporate America that it does this country no good to have a persistent pay inequity among its work workers, especially when you look at the disparities in in the in the races and the pay and inequity. I will say I think it's important that. That those issues be addressed. It's really not for the Fed to prescribe the measures to address them. We need to stay in our lane. We do have this grant of independence, including the J.O.
exemption. And I think to keep that, we need to stay with what you've given us to do, which is maximum limit stable prices, supervise the banks, look after financials in there.
On another subject, will the Federal Reserve release its own own proposal on the Community Reinvestment Act, one that takes into account the needs of low and moderate income communities?
We haven't made a decision on on that yet. I think our focus right now is on is on the ongoing process of the other agencies proposal and the comments. I think we're going to learn a lot from those comments. And I suspect there'll be changes to that proposal coming out of the comments. And, you know, we're. So we have not made a decision about it, about our own proposal. Well, traditional monetary policy works through a single economy wide variable, single interest rate or perhaps the money supply growth of credit.
Credit policy, by contrast, aims at directing credit in specific forms towards specific groups of BAHRI or borrowers. Credit policy consists of a central bank operations targeting specific segments of the private debt and security market. What is your view of shifting from traditional monetary theory to one that involves a use of more tools in order to enhance borrowing to segments of society?
I think that has historically not been a function of the Fed and of central banks. Generally, we have, as you pointed out, one one tool, which is our interest rate policy. When you're talking about affecting different sectors of the business community or of the population, that's really that really should be another agency or or Congress itself.
And in fiscal policy, rather than the witnesses requested to continue that and argue, by the way. Thank you.
The gentleman from Missouri, Mr. LookSmart, is recognized for five minutes.
Thank you, Madam Chair, and welcome, Chairman Powell. Always good to see you, sir. I'm sure you saw the speech and probably read or heard the speech by vice chairman quarrels on the need to reform banking supervision. One area I think needs clarity and the supervision regime is the role of guidance. I pushed regulators to clarify the that the use of guidance. And in twenty eighteen it came out with an inter-agency statement on guidance. However, Vice Chairman Coral's in his speech urged an additional step doing a rulemaking of the role of guidance.
This fits with Trump administration region at recent actions out of the Office of Management Budget. My question is, do you believe we need an official rulemaking out of the Fed on the role of guidance? We've not made a decision on that, were like the other agencies were evaluating the OMB memo, as you know, guidance is not enforceable. It's not. And so we do understand that guidance is not a rule.
You're Mr. Coral's was here recently and I think he made a comment that he intended to look at all the guidance and separate out what he believed needed to be under rule and the rest of it then be clarified as strictly guidance. And I think that's a great approach. But I think the question is, do you anticipate a rule to be able to do that and force it in the future? And so you're looking at trying to do that.
That's something we're looking at and we are looking at our guidance and and asking if some of it should be is more like a rule. Mr. Coral's also discussed how regulations have a framework under the Administrative Procedures Act, but there is no real framework for supervision. You use Lasik or lisick as an example of supervision that was conducted without appropriate oversight and does not have specific guardrails. In fact, the J.O.. So this should have been conducted as a rulemaking. You believe we need to change lisick.
And what should we do to the firms that are really under this regime?
So I would agree that it's appropriate that we that we draw brighter lines around lisick membership. And as vice chair quarrels mentioned in a speech recently, that's that's the path we we are on.
Okay. Very good. Something that is kind of concerning to me is the fact that we have a lot of banks and non-banks that are in the the the home mortgage lending space. Non-banks in general, we're roughly lending about 250 billion in 2016. This next year is anticipated to triple to 750 billion dollars in 2019. Non-banks originated 85 percent of all loans sold into securitization guaranteed by Ginnie Mae, 53 percent of loans sold at Freddie Mac and 60 percent of loan of Freddie Fannie Mae and non-bank mortgages make up 87 percent of FHA portfolio.
In her most recent FSR report, non-bank mortgage originators were designated as a potential systemic risk. You're a member of SRK. Can you explain that? Would you like to talk about that a little bit? And do you have any concerns with that? Obviously, I've selected as you as you mentioned, we we have looked at that at F SOC and I believe it was part of the the recent annual report that the thought being these are now very, very important channels through which mortgages are originated.
And in a case of of a downturn, the banks have high capital. They've got lots of regulation, lots of liquidity, and that's a good place. But these these institutions are are operating sometimes under, you know, funding themselves with credit lines, which might not be available. So there's there's risk there. And we're in the process of assessing that and determining what all to do about it. It's no timetable on that highlighted. We've highlighted as a risk and we're doing work on.
Do you have a timetable on what you might come out with a statement and say you will or will not do? And if you want to do something, what it may be, I can come back to you. This is something that the Treasury has the lead on, but. Okay. Okay. Very good. Well, the things that concerns me a little bit is also with regards to home lending is just the stack of forms you have to go through.
I mean, we had a gentleman here who represented was actually credit you at the time, but the stack was literally those tall and ask him how many pages were nerdy, said Congress, we don't know. And measure by the page, we measure by the pound. I said this. This is this is how off the charts we have gotten when you have a stack of papers this tall to do a home loan. I've talked to the FDIC and a CPB and hopefully we engage you in a way to kind of reduce that down towards manageable to us.
Still, there is protections in there for the consumer when he signs for a loan and there's enough information to allow the bank and the regulators to see it. But this has got to change. This can't continue to be continue to grow. This this is crazy. You have an opinion on it? Well, to the extent it is not legally mandated, a lot of that stuff is legally mandated by state law to make sense. Not then we do try to make assessments about what is necessary and what's not.
But it is a big challenge. I would agree. Thank you.
I just want to note for the record, I did not ask a question about Cecil today. Thank you very much.
The gentleman yields back the gentleman from Georgia, Mr. Scott, is recognized for five minutes. Welcome back. Chairman Powell. Good to have you. Chairman Powell concerning liber.
They are tentative reference rate committee is pursuing in New York legislation to address legacy contracts in New York State. What the feds support federal action in that regard.
Mr. Scott, so the. Actually, it's some members of the Ark or the Alternative Reference Committee itself is not seeking legislation. But some members have approached the New York legislature. You know, in terms of the need for federal legislation, we have not reached a point where we where we think it's going to be necessary. We have plans to do that. If we do believe that that federal legislation is necessary, we will come tell you. And by the way, we understand that that's not something you can do in 24 hours.
So we'll. We know that the time for that is soon. Very good.
Let's move over to Great Britain for a moment. The U.K. regulators have been very Derrek with their financial institutions and they recently established a goal. For their institutions to seize liber base lending by the third quarter of 2020. So why is the Fed not been so direct? And do you have plans to set clear goals and guidelines for your regulated institutions?
Yes, we will. We will do that at some point. You may have seen that Fannie Mae and Freddie Mac have said that they won't accept Limbaugh referencing mortgages after some point later this year. So that sort of thing will begin to happen now. I think well in advance of the deadline, which is the end of 2021.
OK. And Chairman Powell, your Fed board recently finalized its rule on tapering in the hopes of provide a more clear and well defined risk indicators. The chairman of regulatory requirements that are placed on firms based on their size and risk. But the board has never disclosed nor provided clear and quantitative criteria under which firms are placed under its enhanced supervisory regime. That is called. Large institutions such supervision, coordinate committee and even your vice chairman, Mr. Quals recently gave a speech where he said this.
He said that he would like to align their portfolio with the tailoring categories and make that designation quite criterion transparent. And you even recently indicated you agreed on the need for brighter lines. So could you outline what changes the board is considering to make in this supervisory framework?
We're just in the process of working out specifics, but I would agree that we should provide more clarity around around what is a lisick firm. And that's really gonna be the category one firms. Thank you.
Now let's move to and you're a great man and a good man, a good friend. I respect you tremendously. But Chairman Powell, the Fed is the ex-football of our financial system.
You are the most powerful regulator. And I want you to stand back up to Mr. OD'ing.
On this business of him coming with this rule making change to the Community Reinvestment Act, let him know that you not only have a mandate for inflation, their monetary policy, you have a dual mandate, employment jobs.
And here's the other thing you need to remind Mr. OD'ing that this piece of legislation, this law, the Community Reinvestment Act, is precious to the nation. But is precious to African Americans more than anybody. Because, one, the Civil Rights Act won the Voting Rights Act that dealt with the big issue facing African-Americans. Financial stability.
And the two anchors for that is their home owning a house and having a job. And this bill was the bill that outlined redlining that camp African-Americans out. He needs to back off of that.
You need to assume your power in this and let him know we're serious and to back off this rule change. The gentleman from Ohio, Mr. Stivers, is recognized for five minutes.
Thank you, Madam Chair. Appreciate you holding this hearing. Good morning, Mr. Chairman. How are you doing today? Great, thanks. Great. Thanks for being here.
I want to do some yes or no questions. You covered them in your testimony. But just to remind everybody, the labor participation rate is now eighty three point one percent, which has increased in the last three years. Is that correct?
I think that's prime age. Sorry, primate. That's a prime age adults. Sorry.
Yeah. Has it has it increased or decreased in the last two years? Has. Yes.
And wage growth has outpaced inflation for workers in the last three years.
Well at least is currently outpacing inflation, correct? Yes it is.
And and it's got wage growth has actually gone up the last four about by about 3 percent the last few quarters on four and an annualized rate. Is that correct?
Over the last few years, if you look at a range of of measures than you would see wages moving up at about 3 percent. And we have record low unemployment rates for African-Americans and Hispanics. Is that correct?
That is correct.
So the economy's in the fundamentals of the economy are in pretty good shape. Would you say that's correct?
I would. And I did. And you did. Thank you for that testimony. So your colleague at the Atlanta Fed stated recently that economic and economic expansion does not die of old age. I think that's a great quote, given that the fundamentals of the economy are strong. Do you think many businesses and investors are trying to talk themselves into a recession?
I don't think so, and I certainly hope not. There's there's no reason why the expansion can't continue. There's nothing about this expansion that is that is unstable or unsustainable. Great. And I think the fundamentals are strong.
But I think a lot of people are worried. And, you know, I I hope that they don't talk themselves into a recession. I agree with you on that, given that about two thirds of all lending and capital formation occurs in the capital markets. I'm curious to hear about what the Federal Reserve is doing to actually coordinate with this year.
It is an exchange commission and the CFTC as prudential regulators for the capital markets to make sure that there is actual coordination on the capital markets.
Well, I mean, the S.E.C. really and the CFTC really have primary regulatory authority for it, for those for those markets. And, you know, we have supervisory regulatory authority over the banks. Where we overlap really is in financial market utilities, where we. We regulate some and the S.E.C. regulates some in the CFTC regulate some. And we we collaborate on all that. So we collaborate pretty closely on that.
Well, I would urge you to increase that collaboration, because the lines between securities, banking and capital markets are blurring more than ever before. And I would ask you and vice chairman quarrels to redouble their efforts for that coordination, because I do hear it from some of the firms that are regulated that they feel like it's not coordinated. So if you could redouble those efforts, I'd really, really think that would pay dividends to the American investor and the American economy.
A couple other quick questions here. What do you think the most significant risk to the financial system is today?
So, I mean, I had to start by saying that I think the financial system is is strong and has been materially strengthened since the financial crisis, particularly the banks. High capital, high liquidity stress tests keep them on their toes and they're there now. They have real resolution plans. None of that was really in place before. So I think the financial system is generally in a good place. You know, the thing that that we worry about a lot is cyber attacks.
I think we have a great game plan for traditional, you know, issues like bad loans and things like that. It's more cyber attacks is really the frontier where you worry. And we worked very, very hard on that. All the agencies do. We all work together. The institutions themselves work very hard. But that, I would say, is is a major focus.
Thank you. And an interesting note, Mr. Chairman, you are in line with the CEOs of the biggest institutions. I asked him the same question. And the consensus, although not complete and agreement, unanimous agreement, was that cyber attacks were the issue I think Congress needs to focus on, and I think our regulators need to focus on it. Two quick things, because I'm running out of time. I know you're focused on the transition between labor and sofor.
Some people have asked that question. I hope you'll pay particular attention to the impact on both small businesses and our community banks as we make that transition. They are particularly vulnerable. And with regard to the repo market, I hope you will continue to focus on the origins of the problem that caused it. Some are regulatory, some are market based. And I know you're focused on it. You and I have had private discussions about it, but I'd like to see that solved in a way that you don't have to provide Federal Reserve capital at the end of every quarter, at the end of every year.
So if you can stay focused on those things, I'm out of time. Thank you, Mr. Chairman. Thank you. The gentleman from Texas, Mr. Green, who is also the chair for the Subcommittee on Oversight and Investigation, is recognized for five minutes.
Thank you, Madam Chair. Thank you for appearing today, Mr. Powell. Mr. Powell, this is an observation, not a criticism. You've indicated that the fundamentals are strong. However, you also indicated that the last FOMC press conference that you were a bit surprised that wages have failed to move up despite being well into an expanding economy. Sustain levels of historically low unemployment and increased labor force participation. Fundamentals are strong. Strong yet? Nearly half. Forty two point four percent.
Of working Americans in twenty nineteen made less than $15 an hour. Fundamentals are strong. Good many of the people in my congressional district, Mr. Powell. More concerned about the. Supermarket. Supermarket prices. Then the stock market. When they go to the supermarket, they're concerned about the price of Procter and Gamble products, not the stock market price of Procter and Gamble itself. The stock market means nothing to them is what they have to pay. For products in the supermarket.
This brings me to my question. Has there been a study? To give us some sense of what a $15 an hour wage will do for the economy. A study for what a $15 an hour wage will do for the economy. Has the Fed done such a study?
The Fed has not. That's not something we would do.
Well, let me just address that, if I may. Don't mean to be rude, crude and unrefined. But let me just let me just call to your attention. A study that I found quite interesting. The carbon tax, this disclosure project, good project based on thousands of disclosures, you've concluded that the 500 largest companies by market capitalization are exposed to a trillion dollars in risk. Now, someone could argue that that's probably not something that you ought to do, although I understand that climate change is something that is important to the Fed because it will have an impact, global impact.
But I think you can take a closer look at this. You are the ultimate authority on price stability. On wages. Let's have a study to determine. What impact a $15 an hour minimum wage will have on the economy? A wage disclosure project, if you will. Give me some thoughts. Mr. Power, can you help us, please? There is a great deal of research that's been done on minimum wages and I don't know of particular one, but there has to be somewhere research on what, a federal $15 wage increase.
And I agree with you agree? I've read a few, but they don't come from the Fed. They don't come from the entity that has the dual mandate price stability, unemployment or employment. It would mean something to working people if we could get such a study notwithstanding what others have done. And these are observations, Mr. Powell Not not criticisms. I've enjoyed visiting with you. Notwithstanding what others have done, this would be meaningful to working people. By the way.
I think $15 an hour is not enough as a minimum wage. I think it ought to be at least 20 now, but I'll still settle for fifteen if we can get that. So can we work with you? Discuss with you the possibility of a wage project. You know, again. I'll be I'll go back and talk to our labor people who know this issue very, very well and many of them have published on these issues.
So let me let me come back and I'm going to thank you for it. I've got 46 seconds and I'm going to applaud you for personal applause. Madam Chair, with that, I will yield back the balance of my time. Thank you very much.
It's the gentleman requesting to have an answer in writing for the record on this question to the chairman. Yes, Madam Chair. Thank you. The witness requested to provide an answer in writing for the record. Thank you. The gentleman from Kentucky, Mr. Barnes, recognized for five minutes.
Thank you, Madam Chairwoman. Chairman Powell, welcome back to our committee. And I want to first touch on your testimony about the importance of fiscal policy in supporting the economy in general.
What would you say is the lag time associated with a major change in fiscal policy?
Well, it can tend to be long as you know we can with monetary policy. We can go into a room and change interest rates and do obviously fiscal policy tends to tends to take a lot of a lot of work and some time.
Let me ask you this. Let me ask the question this way. Fiscal policy has changed profoundly in the past three years. Tax cuts, deregulation, a less restrained energy sector, a pullback from Dodd-Frank, repeal of the individual mandate, new trade deals. Are any of these policy changes impacting current economic conditions? I'm sure they are. But of course, we don't we don't try to assess that. That's not really what we do when we look at the economy.
But yes, they would be affecting, as you noted in your testimony, the U.S. economy is presently exceptionally strong. The since the 2016 election, seven million new jobs have been created. The unemployment rate is at a 50 year low. More Americans are employed today than ever before. Wage growth is the highest in a decade and the lowest income workers have been seeing the fastest pay increase growing at 16 percent since the 2016 election. And just over the weekend, this was the headline of The Wall Street Journal, which I'm sure you follow.
And the reporting was that a tight U.S. labor market is drawing Americans off the sidelines at a record rate despite this after last week's State of the Union speech. Speaker Pelosi said that it was, quote, appalling to hear the president, quote, try to take credit, unquote, for an economy he inherited.
Now, Chairman Powell, I'm not going to ask you to weigh in or arbitrate a domestic political dispute. But when the FOMC conducts monetary policy, given what you said about the lag time of fiscal policy, is it fair to say that this president's policies are impacting today's economic conditions? At a high level, of course, they are. Let me follow up on representative Wagners question about the GCB surcharge.
In your response to our letter, you maintained that you aim to have the, quote, key components, unquote, of the stress capital buffer finalized in time for the 2020 car. Can you describe in more detail what the key components are and a more precise timeline, given that the Fed announced last week scenarios for the 2020 see car? So I think the timeline is we do believe, we do intend and we'll put into effect the core of the stress capital buffer in time for the 2020 C car cycle, so that's coming right up.
I'd prefer to leave the exact details of that to to, you know, the the there's still being worked out, but it will happen in a timely way for the 2020 cycle.
Understand? Well, let me try to get just a little bit more detail. Is it still the Fed's view that the activation of the countercyclical capital buffer is a suitable replacement for the dividend? Add on in light of the board's financial stability report from November, which stated that the vulnerabilities have not significantly changed.
We have made a decision on that on us using that countercyclical capital buffer versus the other approach. We've not made a decision on that.
OK. Thank you for that. We're looking forward to that decision. Final question. The Business Roundtable, as you as you probably remember, announced last summer that it was redefining a corporate purpose to elevate so-called stakeholders ahead of shareholders. A large investment firm recently announced its intent to divest of fossil energy, effectively limiting investment options for clients to a subset of sectors that check the environmental social governance box. I am concerned that firms which arbitrarily limit investment offerings based on social and political pressure may choke off capital to perfectly legal, productive and profitable sectors of our economy and cause retail investors to miss out on returns that they need to fund their futures as a leading voice on the Financial Stability Oversight Council.
Will you commit to raising this issue with your colleagues at F SOC and urge that body to examine the extent to which a misallocation of resources away from shareholders to serve unrelated political errands might stifle capital formation? Compromise investor returns and ultimately undermine financial stability. I don't know that I totally understand your concern would, but I'll be happy to discuss it with you.
And the concern is that if shareholders are not prime, prime concern of corporate boards and directors, if stakeholders who have no ownership interests in the company ah ah ah ah the focus of a corporation, then I would submit that there is a tremendous risk of misallocation of resources away from maximum shareholder returns. And I would like to fsr to take a look at that. The gentleman yields back. I will bring that to the to the authorities at the FSR. Thank you.
I yield to a woman from Ohio. Miss Baty is also the chair of the Subcommittee on Diversity and Inclusion is recognized for five minutes.
Thank you to the chair and to the ranking member. And thank you, Chairman Powell, for being here today. Let me also acknowledge the advocates in their green t shirts for being here today. And thank you for coming to my office yesterday and sharing what I thought was valuable information with my team. Appreciate you sitting through the hearing.
Chairman Powell in the latest edition of the Federal Reserve's Survey of Consumer Finances that was published in Twenty Seventeen and it gave the breakout between whites, blacks and Hispanics as it re laid it to their net worth. And we've heard the statistics.
I think my colleague, Congressman Meeks talked about it and I'm sure some others. So I'll spare going through all of those details. But what's very interesting to me.
While that data seems great for those who are researching the issue. Is there any way your office could break it down by regions or cities?
Because when we go back home, this is one of the number one things that I'm hearing. People are coming into my office.
Once you get through health care and this couples, even with jobs and education, they're saying is we look at the wealth gap that is getting wider. It's not coming in.
And while we're talking about unemployment rates being better, many people have to work two and three jobs just to try to survive.
Someone talked about the minimum wage, certainly as we're advocating for a higher number. It's not enough in my district.
You'd have to make somewhere between $18 and 70 cents and dollars to be able to have a livable wage.
So the first question is, can this information be wise to a region or to a city to help us as members of Congress?
When we go back home. The second thing is I just recently introduced a bill closing the racial wealth gap, which requires the Federal Reserve to further break down the data.
And this is something that I didn't realize until really studying the Federal Reserve, listening to some of the individuals like the folks here today.
They have some really good ideas.
And so my second question is, could you tell me if you would entertain having your folks look in to looking at wage as a measure?
Because oftentimes when you look at many folks not work a full time job, but they have a wage.
So could we be a little more creative in looking at the data based on what some of the things that I'm hearing from the group that came in? And I'm sure they've met with your folks and, you know, some of their issues. I'll start with two. Can it be localized?
Can we entertain looking at some of the things that they think we should look at when we calculate or present all the good news?
That is not good news for many of the individual sitting here or in my district.
I think you're probably making some of our data people very happy. Back at the board of Governors. OK. I know they'll be love to cut the data different ways. And we do learn every time we do that, we learn things. I don't actually know the precise answer to your question of whether we can do it regionally or in what dimensions we can, but we'd be happy to to look into to that for you.
And what about some of the individuals ideas about looking at wages in your calculation?
Yes, we can. We think we can do that. I think, well, you what your folks would be willing to work with them on some of the ideas to at least start at a starting point of discussing it. Because because now we're measuring the people with the power.
And what a good win win that would be for all of us, since we're really talking about all of our lives and especially those who, you know, have to work a little harder than some of the rest of us.
And so then the next thing, will your agency work with my office? I am so excited about this B0. And as I understand it, part of the reason for asking for the data is the Federal Reserve actually collects the data that sets the policies that then get marry with the allocations that come back to the districts. So I want to make sure I'm on the right path. When I go back home and I say I have a beeld is asking the Federal Reserve to collect data that can help us in the end.
Is that yes, in the ballpark.
We should we should actually get the experts to talk directly to you and your staff and tell you what we do and how we do it and how that might be useful. I don't know that we need legislation at all, but we certainly have excellent sources of data and we do cut them different ways. So why don't we just try to follow up with you on that? Thank you, gentlemen, from Colorado, Mr. Tipton is recognized for five minutes. Thank you, Madam Chairman.
Chairman Powell, thanks for taking the time to be able to be here this morning. Do you want to follow up a bit on the CIA? We've had a fair amount of conversation on that and just one to be able to have the clarity that the Fed has been involved with the CRB process, with the FCC and the FDIC. Is that correct? From the very beginning. Great. And also on to get some clarity, are you comfortable not only with Governor Brainard making the speech, but the content of her speech in regards to the CIA?
Yes. OK. What extent has the Fed been doing? I know you're talking about doing some of the analysis comments coming in. But to be able to work on CIA modernization. So from the very beginning of the process, we we said, yes, that sounds like that sounds like a great idea. It's a good time to update CRH. Let's try to make it more transparent, more objective. Let's try to make it more effective in serving the intended beneficiaries.
And so we we, too, went around the country. I think we had 29 events around the country where we talked to different groups of people about Sciarra, their experience of CIA. And it turned us in a particular direction. We create we had a bunch of ideas. And, you know, it's unfortunate that we we weren't able to get on the same page. We weren't able to really agree completely with their approach and they weren't able to completely agree with ours.
So but, you know, we we continue to push and we continue to learn. And I would agree with Mr. Hildes earlier comment that ideally you would have, you know, one one agreed set of standards.
I would agree with that as well. I think that harmonization is something that we certainly want to strive for to was really encouraged reading your comments and your statement that people who live in work in low and moderate income communities are finding new opportunities. Wages have been rising, particularly for lower paying jobs. That's an area that I have a lot of concern on with in my state of Colorado. I represent the rural areas. And we've oftentimes had two economies where the metropolitan areas, resort areas have been doing well.
Rural areas continued to often struggle. We're now starting to actually see some of that rural movement. But when we're looking at that C.R., a reinvestment back, talking about the community banks, I really would encourage you to be able to look at that HCC and FDIC proposals. I believe they do reach further in to rural America. And you talked about policy. Have you done any assessment in terms of the opportunity zones that were included in the tax cut and Jobs Act?
We're sorry, certainly seeing some benefits and some investments coming into rural areas. My district is those some of the policies that we need to be looking at.
I'm not aware of any research that we've done an opportunity zones. But, you know, we probably have truthfully in the in the system, I would imagine we have done research on that and we'll be happy to share it with you. Thank you. And Fannie Mae and Freddie Mac just took some steps, talking now about sofor to be accepting silver based mortgages. And I've noted that other agencies have been taking this step separately. Is there any kind of uniform effort at a high level to be able to coordinate the adoption of Sauveur?
Yes, there is very much so. And we're doing that. We're coordinating with the other agencies and with the market participants as well. And you will see more of that. You will see more instances in which Loblaw will no longer work, will no longer be usable in particular contexts. And that's that's what Fannie and Freddie did this week or announced this week.
And to follow up on Mr. Stivers question in regards to community banks, do you see any pluses, minuses in regards to using sofor over labor for community banks? Yes, I think we're well, I think we're library itself is is really a problem in the sense that at the rate there's no guarantee that the rate will continue to be published after the end of 2021. But there's a question about having a credit sensitive rate in addition to sofor so far will be the main substitute for Limbaugh.
But, you know, we are working with with regional and some of the larger banks to about the idea of also having a credit sensitive rate. And that's something that that's ongoing. And we've had a long conversation about the Corona virus, China, the impacts on the economy. President just signed into law the USMC. Do you see that as creating a runway for further economic expansion in the U.S., job opportunities and wage growth?
We do. We don't. We don't give advice on trade policy in that. But I would say that I would just say this, that I think the signing and the enactment of an implementation of USMC a will will be a positive, at least in the sense that it removes uncertainty around trade policy. And I think that's been part of the issue of the last year or so has been not knowing what the rules of the game are going to be. I think getting the.
All settled is certainly a positive thing. Thank you, my time's expert. Thank you. The gentleman from Illinois, Mr. Foster, is recognized for five minutes. Chairman Paul. Well, first off, I'd like to thank you for facilitating our meeting with Governor Brainard. Representative Hill and I had a digital currency. We really enjoyed that, as well as the meeting with the staff who were our excellent and it's great to see all plugged in. They work to this issue.
Now, in a speech last week, Governor Brainard highlighted, quote, the role of central bank digital currencies in ensuring that sovereign currencies stay at the center of each nation's financial system. Do you agree with her characterisation? And in particular, do you think that establishing a digital dollar would help ensure that the U.S. dollar continues to serve as the core of the U.S. and the world's financial system? Well, to take the first part of that, I think having a single government currency at the heart of the financial system is something that has served us well.
It's a very, very basic thing that it really hasn't been in question. And I think, you know, before we move away from that, we should really understand what we're what we're doing. So I think preserving the centrality of a bit of a, you know, a central, widely accepted currency that is accepted and trusted is an enormously important thing. I think whether a digital currency moves us along that path or not is an open question. As you know, every major central bank is currently taking a deep look at that, that we feel like that's our obligation.
Technology has now made this possible. Private sector is innovating. They're doing it. So I think it's very much incumbent on us and other central banks to to understand the costs and Bennets and benefits and tradeoffs associated with a possible digital currency. So how would you characterize the, you know, your state of progress on this compared to other countries? You know, the Swedish central bank developing an E krona, the well, the Chinese you know, the reason that there was one of the reasons it was so much concern about the LIBOR project is they would immediately have scale if they just rolled out the product.
The the another entity in a position to do that is the Chinese government to roll out at scale using their their already established payment by cell phone systems. They would immediately have a scale comparable to Facebook if they rolled that out. And so how would you characterize our ability to respond to this potentially competitive threat? So we're working hard on it. We have a lot of projects going, a lot of efforts going on on that right now. We haven't we haven't had the problem that many of you mentioned Sweden.
A lot of the northern European comedy economies have moved away from cash in to a remarkable degree. And that really has not happened in the U.S. economy, even though it seems like it must have happened with our kids, not not using cash very much. Nonetheless, the amount of cash in the U.S. economy, cash in the U.S. economy continues to grow at faster than nominal GDP.
So it's that if you look at the if you look at the the curve of adoption of payment by cell phone, you know, it starts slowly and then all of a sudden it just happens. And so then it seems like that can that transition can happen in a period of a bubble just a couple of years. And so we have to be able to respond. You know, if that's the driving factor, then we have to be in a position where we can respond by rolling out, for example, a digital dollar in a couple of your time scale.
And so I just you know, I completely agree with that. And I think, frankly, Libra really lit a fire under that and was a bit of a wakeup call that this is coming fast and could come in a way that is, you know, it is quite widespread and systemically important fairly quickly if you use one of these big tech networks like like like Lieber did. So we're working hard on it. We fully appreciate the importance of making quick progress.
We have not decided to do this, though. It is not. I think there are many questions that need to be answered around digital currency for the United States, including issues of cyber, you know, cyber issues, privacy issues, many, many operational alternatives present themselves. And so we're gonna be working through all of that and doing that work thoroughly and responsibly. But what do you feel as though you have adequate visibility into what the Chinese are doing on this?
Do you have sort of working level contacts of that to give you some idea of what their rollout is likely to do look like?
It'll look like. Yes. I mean, we certainly have that. But, you know, they're a completely different institutional context. There are things that, for example, the idea of having a ledger where you where you know, everybody's payments. That's not something that would be particularly attractive in the United States context. It's not a problem in China. So but nonetheless.
But so far, I have made a point of view. They're claiming they're going to roll out, roll it out on the belt and road countries sometime very quickly. And so this you know, I urge you to keep keep the fire lit. Thank you. Thank you.
The gentleman from Texas, Mr. Williams, is recognized for five minutes. Thank you, Madam Chairman. And thank you for coming back to our committee chairman. We appreciate it. And with baseball season slowly approaching, I want to make sure one thing before I continue that you still are on team capitalism. Oh, yes. Thank you.
Appreciate that. Experion recently released their 2019 consumer credit review. And I want to read a section from your report because I think it accurately depicts the state of our economy. As you know, I'm a main street business gang. The economy is really good right now. Indeed, the U.S. economy exceeded expectations. Record job growth caused unemployment rates have dropped to historic lows while the stock market flexed throughout the year. Consumers in return showed their confidence as they continue to borrow and spend energetically, most recently evidenced by the strong 2019 holiday shopping season.
The report goes on to say that consumer credit scores recent All-Time High and do nineteen twenty nineteen at an average of seven hundred and three. This translates to people being able to get better rates, to borrow money, to buy a house, get a small business loan or whatever they need financing for in order to live out their American dream. So, Chairman Powell, what would or what should we be focusing on in this committee to continue for jobs explosion and new jobs that we have seen the past few years?
Honestly, I think the focus for me really ought to be on things that address our what are our longer run issues that can be addressed by legislation, and it's really two important things. One is labor force participation. What are the things that you can do that we really can't do that will help people stay more attached to the labor labor market. We still have low labor force participation compared to essentially all of our our economic competitors. And the other one is productivity.
So what is it that drives productivity? It's a it's a stable legislative environment. It's a it's a legislative and administrative environment that supports growth and innovation and investment in those sorts of things. So that's those would be my main focus.
I know you're aware about the Fed's work on the international insurance capital standard that is being developed for the world. I've had my reservations about entering into an international agreement that does not conform with our current state based approach to regulating our domestic insurance companies. One particular piece of the international standard that I want to ask you about is the flexibility that our government was given to develop an equivalent solvency standard that would better fit our insurance ecosystems. So my question to you is how does the Fed plan on assuring the standards being developed in the U.S.
will be deemed equivalent by the international group? Given this continued resistance you're facing from the Europeans?
I can just say that we will we will not be part of approving any international standard that doesn't accommodate our own American insurance regulatory framework. That's great.
We're leaders, not followers. Some of my colleagues on the other side of aisle of the aisle have called for a financial transactions tax. I think this is an extremely shortsighted approach to raise revenue that will greatly impact the amount and the ways that Americans save for the future. Additionally, the thought that adding an extra layer of tax Asian to other assets is redundant since capital gains taxes are already in place and they should be lowered that take away money from successful investments.
So if we want to further expand economic growth, we need to focus on continuing to lower the personal and corporate tax rates so Americans can keep more of their hard earned incomes and businesses can invest that profit back in their operations. So, Chairman, can you explain how implementing a financial transaction and transaction tax would impact the U.S. economy?
I think I need to stay in my lane here. You know, we don't do fiscal policy. I don't want to get it. If I start commenting on particular taxes, I'm worried about where that might might go. So I'll have to.
Well, I understand that. I'll tell you from a from a mainstream standpoint, it will really hurt the economy. An extra layer of tax. We need to actually cut taxes.
So looking at financial trends across the world and with a been in business for over 50 years like myself, one data point is that catches my eye are negative interest rates. Can you help me understand the economics by negative interest rates and talk about the potential threats that this phenomena poses to financial stability? Well, a number of countries around the world, as you know, face the problem of what do you do when your policy rate gets to zero. And some of them actually went below zero.
The United States chose not to. We chose not to at the Fed. We used other tools when we got to the lower bound. And those were forward guidance and large scale asset purchases. I think going forward, our inclination would be to rely on the tools that we did use as opposed to negative rates. So that that's that's our instinct is that in the U.S. context, that's not a tool we're looking at. You know, the question about intermediation is when you have negative rates, you you wind up doesn't wind up creating downward pressure on bank profitability, which limits credit expand.
Right. And there's some evidence of that. So in any case, we were watching other inst. other institutions around the world who've done that. And we'll be able to, you know, to see what the results are.
Thank you for being here. The gentlewoman from Michigan is to leave is recognized for five minutes. Thank you, Madam Chair.
I don't know if you know what, in 2013, Chairman Detroit filed for Chapter 9 bankruptcy, which was marked as the largest municipal bankruptcy filing in U.S. history.
In July, when you were here, I asked you why. If the Federal Reserve is willing to backstop or support, you know, big banks and corporations during periods of credit market distress that we would want to make. Equally sure that state and local government also had access to credit as well. And you mentioned that you didn't have the authority to lend to local and state governments.
Madam Chair, I'd like to submit for the record Section 14 to be of the Federal Reserve Act asserting that the federal government. The feds actually do have the authority to buy municipal debt without objection. Such as who?
So, Chairman, given that you actually do have the authority.
Can you explain to me why we it? You know, why shouldn't the Federal Reserve ensure that state and local governments have access to funding during times of stress?
We have, as you know, limited authority. I think it's to buy short term municipal obligations. We did do that in the 1970s briefly and then have not done it since. I think a series of FOMC, US and Fed chairs in in all kinds of different political environments have have thought of that as something that's not appropriate really for us in the sense that it's government finance. We know that that's to be dealt with by fiscal authorities rather than by the monetary authority.
We focus on the job you've given us, which is maximum employment and stable prices. And to some extent also we're with other agencies who work on financial stability and bank supervision. So it as opposed to the solvency if state and local girl.
Yes or no. The Federal Reserve retains the ability to opus open to open emergency lending facilities. It is it is that accurate and stabilizing the economy? Well, to yes, to.
To financial institutions, we do so when the Fed step in to rescue banks in a crisis. Is that because you believe their role in the economy is vital? Really, because we had no choice to prevent the financial system from collapsing in 2008. No. I mean, my city filing bankruptcy was devastating to so many retirees are 40, 50 years. They work for the city of Detroit. Saw their pensions completely diminished. Gone. Do you not believe that the governments of Detroit.
In Puerto Rico also play a vital role that should be preserved even if financial crisis makes it hard for them to borrow money.
What I believe is that that's not a job for the Fed. It has a particular role in particular authorities and lending to state and local governments and and supporting them when they're in bankruptcy.
Yet, as do you mean, we're going to strongly disagree. I do believe you do have the authority. Now, you've mentioned that in the face of another financial crisis, you would use the same tools of expanding the balance sheet and purchasing long term bonds. In other words, more of the same. Correct. Yes. So I'm afraid that's simply not good enough. I mean, I think your predecessors, former chairs Yellen and I believe it's Bernard Mekki, seem to agree based on remarks both they gave last month.
For instance, Chairman Bernard Eki has suggested a money financed fiscal program might be helpful during the next recession. Do you agree with that? Would be helpful. You know, I think that's that's really an untested in and not at least supported perspective, I don't believe Chairman Bernanke's said that a money supported fanatic fiscal I see policy would be would be something that we should do. I know that there was there's been a group of people that have pushed that idea.
But I don't think it included former Chairman Bernanke. Well, obviously, something I haven't. I know. And Chairman.
Look, the federal government is supposed to be about people. And I don't see that we're treating, you know, pensioners, a city like the city of Detroit, which is front line communities that have really been hit hard by the financial financial recession. I mean, we haven't actually they keep saying Detroit's coming back. If I show you neighborhoods, they'll tell you we don't know what you're talking about because poverty is actually increased. Access to housing has decreased.
I mean, all the all of those things that we start reflecting in an understanding that I believe the Federal Reserve Act actually gives us authority to help and treat just like we bailed out big banks that we can do the same for our people, the residents of the city of Detroit. So I thank you for that. And again, I would actually ask and push you to looking at this from a different lens versus what, the same old Paul, you know, the same old process, which I believe hasn't really worked for working class people.
Thank you so much. I yield the rest of my time. Thank you. The gentleman from Arkansas, Mr. Hill, is recognized for five minutes. Thank you, Shearwaters again. Chairman, welcome back to the House Financial Services Committee. Want to thank you for your discussion that you had with Dr. Foster a few minutes ago. I, too, want to thank you for your work with Governor Brainard and our discussion that we had with the governor and the staff about the concept of a digital dollar and the work being done at the Treasury about that.
I won't belabor some of the points that Representative Foster made, but a couple of comments that I'd have for you on that. Would you advise our committee or ask the Fed to advise our committee what legal authorities the Federal Reserve might require in order to consider the use of a digital dollar?
Yes, I mean, that that's a good question. And when we're looking at a lot of it, it would depend on the design of that. Exactly. And one thing we also talked about and we've had a lot of discussions in our fintech task force here is about Europe's approach to this idea of a payment provider license, which is now part of their financial services code, part of their open banking movement. And the idea that one would have a regulatory license here in the United States for being a payment provider might be a bank or it might be a non-bank.
Is that something the feds are looking at as well? I wouldn't say we're specifically focused on that, though, but, you know, more broadly, it's, we think a good idea to look at the whole landscape of oversight of our payment system, and that would be a piece of that. And as you may know, Governor Brainard talked about that in another of her speeches last week.
Right. Thank you for that. Last month, the Chinese regulators bailed out Hang Fang Bank. It was a 14 billion dollar loan that they arranged through one of their sovereign wealth funds. The Chinese banking assets at forty one trillion dollars now are forty seven percent of world GDP. Is instability in Chinese banking industry pose a financial threat to the global financial system? Is it a financial virus like they've already contributed a a physical virus? You know, generally, as I'm sure you're aware, China has had very high debt to GDP for an economy at its stage of development, and that includes the banking system and the government is actually for several years now and taking measures and I think by the by the central bank to try to control the growth of debt.
And they've they've been they've stuck to that through the last couple of years, even though those were challenging years economically for them. So that's something that they're addressing. The other thing is data to say is that they have they have plenty of fiscal space. If you look at fiscal, they they have plenty of power to respond to downturns. So I wouldn't go go so far as to say that their debt is a systemic threat to the world economy or anything like that.
But it and it's something that they they need to address.
And are I think it's something that I think deserves a review. Mr. Barr talked about their misallocation of resources at 47 percent of global GDP. That seems like an over allocation in the banking sector in China and could pose a threat to our system. In your report on page 24, you talk at length on your financial stability section about the decline in bond yields, particularly the high yield market. The ratings have fallen and I was looking at a mutual fund annual report the other day and it says a particular concern is the continuing high rate of issuance of triple-B bonds, the lowest category of investment grade rated bonds if the economy stumbles and writing down grades issue could be a flood of fallen angels.
And this particular mutual funds said they're staying away from the lower end of the high yield market. Are you concerned about the high yield market? Well, that's the so-called triple-B cliff. And the idea is that there are a handful of very large issuers which if they were, you know, downgraded, would then be non-investment grade. And and the idea is that some holders are not permitted by the terms of their their agreements with their investors to hold non non-investment grade in the domain trigger sales.
So that's that's an issue we've been we've been monitoring for for some time now, really, you know, with leverage lending more. More generally. Yes, we are. We're monitoring it very carefully. You do see, you know, low, low compensation for risk taken. You see high leverage. You see a lack of covenants. You see all of that. I think it's a complicated picture, though. That paper is now largely held in Ciello is and not on end mutual funds and exchange traded funds rather than on bank balance sheets.
So and those vehicles tend to be stable funds in a sense that their liabilities are actually longer than expected maturity of the of the underlying instruments there.
It's still it's still a source, I think, of financial concern to the upside. I would think it. You know, and therefore, I commend you for noting it in the report. And thank you for your continued attention to it.
You bet. Thanks. The gentleman from Illinois, Mr. Casten, is recognized for five minutes. Thank you, Madam Chair, and thank you, Chairman Powell, the I appreciate you sticking around all the way to the bottom of the diocese here. The I if I if I get elected eight more times.
Fingers crossed. I'll have as much experience in this line of work as I do in the energy sector. So I'm so I still come here primarily as an energy nerd. And I have a real concern that we are not dealing with the realities of climate change. Scientifically, we understand viscerally what it means to have rising sea levels, but women really thought about what it means to have an accelerating rate of change. Compound interest confuses people and compound changes in the environment.
We don't even really think about it as well as we should.
Just a couple data points that I hope all of us can appreciate. The first evidence that hominids made fire as a cave a million years old.
James Watt invented the steam engine and turned 44 years ago and ushered in the industrial revolution. And 50 percent of all the CO2 we have ever emitted as a species since Back to the Future came out in nineteen eighty five. This is this massively accelerating shift. And if we went to zero CO2 tomorrow, we're looking at two feet of sea level rise coming. The more realistic trends we're on is at least six feet of sea level rise coming in. At that level, there's estimated about 23 trillion dollars of economic loss to the system, $900 billion of U.S.
property at risk before factoring in debt losses and pulling out of insurance. And there are some serious systemic risks to the economy if we leave those unaddressed. And I just want to understand a little bit how you and the Fed are thinking about those risks. No one given that the assets exposed to climate change exceed the entire subprime mortgage market prior to the global financial crisis. How, if at all, is the Fed thinking about climate change as a systemic risk to the economy?
So climate change, again, a very important issue, one that is really the province of elected representatives and for to set the overall direction of society in how we will respond to climate change and its challenges we have. Nonetheless, we have a job to do and that is to think about the the potential implications for the financial system, for the economy. And we're I think we're at the very early stages of filling in what what exactly that means in terms of, you know, things like particular assets.
These are these are longer term considerations. You know, it's we're essentially mainly concerned with business cycle issues. That's what we're focused on is issues for the medium term. Climate change is a much longer cycle kind of thing, if I may.
A part of the concern I have is that the the actors in the space do not have planning horizons that match to the reality that that you and we do. Right. There's people side in 30 year mortgage is right now four properties in Miami Beach. And they may plan on reselling that mortgage a number of times. But somebody is going to be left holding the paper with that sea level rise coming. The insurance industry typically has one year holding period. So even if the U.S.
is successful at reducing carbon emissions, there still is a massive reallocation of capital. If you looked at the transitional risks in thinking about how that starts moving around and just look at in the economy. So those are the things that were at the beginning stages of looking into. As you obviously know, there's a lot going on in the financial markets. There's a lot of disclosure happening. And expectations around disclosure are are changing significantly for publicly held companies.
And that that will have that will have an effect. But that's not really what what we do. We do monetary policy, bank supervision, where our banks, you know, to your point, at which our banks have to have to be giving that to be taking into account the risk of severe weather events and potentially, I suppose, a rising. Rising.
Well, let me let me give it. Let me maybe give a specific one that's been bugging me lately. If you look at the the fossil fuel industry, the oil and gas companies, the coal companies, the debt that they hold relative to their assets given as their assets are so heavily dominated by fossil fuel reserves. If they were to extract all their fossil fuel reserves, things are going to be way worse than the twenty three trillion dollars I just told you.
Have you ever considered stress testing to see whether their failure to fully monetize their reserves might effectively make them fiscally insolvent? Because if they do that, that to me sounds like a materially adverse event, but I wouldn't want to bet that the economy is going to commit suicide, but if I look at the financial statements of a lot of those companies, it's not clear to me that they can monetize those assets. That is a meaningful effect on the risk of money that's held the day.
I think there was $700 billion lending to fossil fuel companies in the last couple of years.
If you consider that as a systemic risk, well, for us, it's systemic risk to the to the financial system. And we'd be we'd be stress testing banks. You know, the Bank of England is doing some of that now, and we're going to be watching to see what they learn. And maybe that's a path we'll follow. I've made that decision.
Thank you. I'll follow up the off-line. I yield back my time. Thank you.
The gentleman from Georgia, Mr. Loudermilk, is recognized for five minutes.
Thank you, Madam Chair. Chairman Powell, thank you again for being here. First of all, I kind of want to touch back on lisick. I know that some have already touched on this subject. And as you know, several weeks ago, Vice Chairman Coral's gave a speech where he outlined a number of changes that he would like to make to the Fed's supervisory and regulatory process. He said he intends to bring transparency to the lisick regulatory regime by developing clear and transparent standard for designating firms.
He also proposed aligning lisick designation with the Fed's Taylor and categories and limiting it only Category 1 firms.
So my question is, at a press conference after last month's Federal Open Market Committee meeting, you said you generally agree with Vice Chairman Coral's and what he articulated. Appreciate that. But can you give us an idea of when you expect lisick designation be confirmed with new tailoring rules?
I don't actually have a sense of where that is in terms of the timing of it. You know, at any given time, we have a bunch of things in train to do, and that's certainly one of them.
Okay. Hopefully sooner rather than later.
I don't want to commit to something that, you know, there are a lot of things are working on at all times. But, you know, vice chair gave a speech about it. I'm I'm aligned with that. And I expect we'll be moving forward.
That that's very good to hear. Real quickly, I'd like to touch on the the CIA. I believe that all three banking agencies need to have a unified C.R., a framework. And I know you're hesitant to speak on behalf of the other agencies, specifically SCC and FDIC and their proposals. If you don't want to comment on that and understand that, what are some of the your ideas or the Fed's ideas for a modernization? Well, so I would say them.
Let me talk about the process. You know, we we kind of agree on the overall goals and the questions. How do you get after that? And so our thinking was to try to get to, you know, a set of. Improvement's really that would lead to more efficient, more effective CROI. So we're looking at ways to make the the the assessment, the tests clearer in our in our thinking. There's a separate for at the retail level as a separate test for for community development and for retail lending.
And also that the other thing we're saying is let's let's make sure that it's all very dated and data grounded in data. So we've got, as the chair mentioned earlier, six thousand data sets that we look at. So I think we really know when you make a change in the metrics, we kind of know what the effects are going to be and we feel good about that. So we tried to develop our proposal around that. There are a lot of overlaps, but there are just there are a handful of differences that have prevented us to get to full agreement in the overall objective.
Do you believe that we can remove some of the ambiguity on what projects do and do not qualify?
Absolutely. I mean, you transparency, ex-ante, more transparency, ex-ante as to what qualifies and where more objectivity, all of that. It should help to, you know, encourage banks to do more. What they really know, what what's going to qualify and what's not. I think that's I think that's all very constructive. It's really about how you implement it. And we want to have a very high kind of very important law, very, very important that we want to have a high level of confidence that what we change is going to have the desired effects.
And that's what we're that's what we're focused on. Well, I appreciate that, because I I would like to see us make changes to where it's not financial institutions, just checking boxes to get credit, but actually investing in projects that do help revitalize these communities. So as you know, the fiscal year 2020 appropriation law directs Treasury Department in consultation with the banking agencies to study whether any changes in banks regulatory capital requirements are needed because of Cecil. If the study concludes that that that is the case.
Are you open to modifying regulatory capital requirements accordingly? Well, yes, I think we've said that with C. So we're gonna be monitoring very carefully what what the implementation is showing because of some of the concerns that have been raised.
Thank you. Probably don't have time to get into the other questions. So with that, I yield back to my time. Thank you. The gentle woman from California, Mrs. Porter, is recognized for five minutes. Thank you, Chairman Powell.
You frequently spoken about your belief in men and the importance of maintaining the independence of the Federal Reserve. Do you still have that belief?
I do. Anything changed in the New Year? No, because we don't want the Fed to be making decisions about things like where to set interest rates based on any factors other than the best interest of the country. And I know you've had some experience with the president publicly and aggressively attempting to lean on you to lower interest rates. And I appreciate your continually affirming the importance of the independence of the Fed. But it's not just our president. But there are a lot of people out there who would love the opportunity to weigh in on Fed decisions outside of administration officials.
What other kinds of people might want to influence you and in regard to the Fed's decision making. What other people might want to influence is some. Potentially quite a wide range of people, I would think, major investors, financiers. I don't know that. People are really seeking to end. I mean, you say might want to influence this, I don't answers. I really don't know the answer that many feel, follow what we do and and respect what we do.
I think people often when I meet them, really shy away from giving advice. I really do that. And then they feel like they don't. They don't presume to do so.
So you don't feel unduly pressured by political or special interests? No, I really am. Would you say that someone like Jeff Bezos, the CEO of Amazon, could one of the richest men in the world could benefit from having influence over the Fed's decisions?
I I I wouldn't know, actually.
What about Jared and Ivanka Trump? They are very wealthy people do. Do they have savings and error and make different amounts of money depending on what the Fed does with interest rates? Yes.
What about Kellyanne Conway? Does she, in her role as adviser to the president, at the president's expense, these public views? Does she potentially have an interest in amplifying the president's message, that is, after all, her job?
I suppose. OK. Mr. Powell, I'm a projector picture appear so that the audience can see, but I'm also going to hold it up for you. Is this here, Mr. Paul? It is. Where are you?
That's it. That's a party after the Alfalfa dinner and after a party that I went to. Where was that party held at? Jeff Bezos is home. Jeff Beezus is home.
And was what was it taken? Sees me. When was this picture taken?
Saturday night after the Alfalfa dinner.
Give or take your stipulate. January and the January 2020? Yes, recently.
Can you imagine how attending a lavish party at Jeff Bezos is $23 million or home? Along with Jaradat, a banker and the CEO of J.P. Morgan Chase, Jamie Dimon might give off the sense to the public that you are not, in fact, immune from external pressures.
I would certainly hope not. What did you talk about at that party with him? I didn't I didn't talk to any of the people you named. You didn't talk to anybody. I didn't talk to any of the people you named. Can you tell me who you did talk to?
I mainly escorted my my son and his brand new wife in their night, actually introduced them to General Mattis. OK, great.
And I would just suggest that this attendance at this kind of event with these kinds of people is inconsistent with what I would otherwise commend you on for doing a very good job, I think, of reaffirming to the public. This plant's in the public's mind, I think. See, that is counter to what you have been doing. And quickly, Mr. Powell, if you can just name a couple of the biggest drivers of economic growth in this country since the recession in the 1970s, what's been making our economy grow?
Factors have been making it grow? Well, the hard work of the American people. You know, I think what you've seen is tremendous growth in some sectors and less in other sectors. Of course, the big technology companies are they weren't around 40 years ago. So I think we've seen lots of growth in some areas. I think other areas much less so.
Mr. Powell, would it surprise you if I told you that women are actually women in the workforce or actually a bigger driver of economic growth and technology companies? And in a span of four decades since the 1970s, 38 million women joined the workforce. And without those women are economy would be 25 percent smaller. So when we talk about the health of our economy and we talk about GDP growth, what I don't hear a lot about and I'd like to hear more from you about is about the economic effect of things like child care availability in those same four decades in which women grew the economy.
Twenty five percent, the cost of childcare shot up two thousand percent. Do you know, Mr. Powell, how much child care in America costs today?
How much it costs stay in America cost a lot. Could you put a little bit firmer? You're an economic expert. Could you pull off from a number on that? I do. And my kids are grown up. If we all get back. The gentleman from Ohio, Mr. Davidson, is recognized for five minutes. Thank you, Madam Chairwoman. Chairman Powell, thank you so much for your time here today. Thanks for the good work you and so many of your colleagues are doing at the Federal Reserve.
And just to address the comments that came from my colleague recently.
Is it unprecedented for the chairman of the Federal Reserve to attend a party or reception? I mean, it certainly not the first time that a Fed chairs attended a party. I'm certain it's not the first time a member of Congress has attended a reception or party. And so I don't know that we want to say, hey, just because you're at an event, somehow this is nefarious. I mean, heck, you might have actually talked to a Russian on a subway or something.
So, you know, the way the way that these things are linked for political motives is embarrassingly partisan and bad. And I just thank you for resisting all those pressures. Many of them are public, of course. But one that I'm concerned about right now is the repo market. You know, back home, a lot of people don't know that there is such a thing as repo, but is a big factor for our economy. And I think some of the warning signs in it, you know, have given no rise to the Fed in kind of a blend between regulatory action and monetary policy to inject a lot of cash into that market.
Chairman quarrels. You know, spoke recently about the need for that to continue for some time. Can you explain the process about how the Fed is going about reviewing the factors that are contributing to this repost bike and what you've learned from the review? Sure.
So what happened is in as you know, in early September, there was a spike in repo rates and the federal funds rate moved slightly outside of our of our band, our target range for a day or so. And so we didn't see that coming. Market participants didn't either. And so we've been asking since, why is that? One clear reason is that the level of reserves, which is cash on deposit of reserve banks, needs to be higher than we had thought.
And so we've we've been in that stream. We have. Immediately set forth a plan and execute it, and it's worked fine to to create. So so I mean, some have called this quantitative easing. I know you've objected, but essentially were artificially interjecting cash to produce an outcome that the market isn't producing of its own core own accord. So I think it's odd that our action is to inject cash from the Federal Reserve to grow the balance sheet at the Fed instead of looking at the underlying regulatory things.
What have we talked about?
What what what is the board talked about in terms of, you know, regulatory factors that instead of injecting cash to fix a problem, treating the root cause of the problem and changing the regulatory framework, we're doing both things. We are we're the reason we're getting the is to supply the demand for cash for basically banks that need to have a certain amount of cash for liquidity purposes. Turning to the second issue, though, we also said that without undermining safety and soundness, we would look at ways in which regulation and supervision might have interfered with the otherwise free flow of cash to where it was needed.
And, you know, we we think we've done a lot of work on that. And Vice Chair Coral's hit on a broad theme there, which I think is important. And that is the idea of making the treatment of supervisory treatment, really of cash the same as that of treasuries for this purpose. So you could you could achieve a better flow of liquidity through the system without affecting the overall level of level of liquidity in the system, which is just what we're looking for.
So he broached some ideas for how to do that. And I think that's a very profitable line of inquiry.
OK. So thank you for that. One of the changes in, you know, is libraries going away and market forces are coming. We're talking about replacing the benchmark rate. And of course, ARC includes 250 entities. But, you know, there is a concern that as you've done this, that the best rate isn't necessarily being provided. So is the Fed taking the best proposed rate offered in these repo deals or are we giving it out at a special rate to maybe the top 10 so far banks?
I'm sorry I lost track of that. So when when when these when this liquidity is injected at the repo rate, that the repo rate going into the repo rate and I guess now it's been a couple, but. Okay. I'm sorry I missed that. So the the rate we've been offering on those on the repo that they've been selling at a level that's a couple of basis points below. We are. And but that won't be a persistent issue.
What are they settling at a rate that is when it when it's paid out at the high rate? Is it paid to the best available offer or is it paid to the best available customer?
We don't distinguish. I mean, anybody's eligible can bid and we don't you know, as long as you're eligible, we'll we'll sell to that. Thank you.
My time's expired. Would the gentleman like to ask to witness to provide more enter in writing for the record.
Appreciate the chair suggestion.
I'd love to see a written answer for how that is actually working.
The witnesses requested to provide an antin writing for the record. Thank you, Chairman. The gentlewoman from North Carolina, Miss Adams, is recognized for five minutes.
Thank you, Chairwoman Waters, for convening the hearing today. And Chairman Powell, thank you for your testimony. The FDIC board member, Martin Bloomberg, voted against Comptroller Hardings proposal and describing it as a deeply misconceived proposal that would fundamentally undermine and weaken the Community Reinvestment Act. So can you comment on the deficiencies of comptroller outings, misguided attempt to get the C.R. a central piece of civil rights and banking law? So I guess I feel like our role is not to be commenting on the other agencies proposal.
The public is doing that now. We very much look forward to seeing the comments that they do make. I can talk about how, you know, our own thinking about this, but it's not it's not really for us to be publicly commenting on the other agency's proposal.
So will the Federal Reserve release its own proposal on the Community Reinvestment Act, one that takes into account the needs of low and moderate income communities?
That that, of course, was why we undertook this work, was to do that. We actually haven't made a decision yet about whether or when to make a proposal. But nonetheless, the whole effort was undertaken with a view to creating a modernization proposal for CROI.
OK. As you know, the Federal Reserve has a dual mandate, price stability and maximum employment. So will the Fed set a goal for wage growth? And are you considering this approach as part of the framework we view? I don't see us targeting wage growth as an independent item, it's something we monitor very carefully. Our our goal as assigned by Congress is maximum employment and stable prices. Those are our two statutory objectives and those are the things that we target.
I don't see us targeting a particular level of wage growth.
OK, so have you considered adopting a floor for wage growth for for example? Once we set a certain percentage increase in pay in wages that the Fed may consider switching to 2 percent inflation rate. Well, we are. We've said that we. Sense of this project is we want to make the 2 percent symmetric inflation goal more credible and we've been missing it. And central banks around the world have been missing their objectives for a decade now. On the low side and we want it we want to resoundingly achieve 2 percent inflation.
That's really the objective of this review that we've undertaken.
Let me ask a question about the Volcker Rule. Why has the Fed decided to support further changes to the Volcker Rule, given that banks enjoy certain benefits, including access to the Fed discount window, and that the rule was intended to limit banks from engaging in risky investment activities that could contribute to a future financial crisis?
So we did just put out a proposal on part of the Volcker Rule. And of course, we think that that proposal is. Entirely consistent with both the letter and the spirit of the law and what we're gonna be reading the comments, it's out for comment. Now we just put it out and we'll be looking forward to risk to reviewing those comments.
I understand that you collect a large number of daily trading metrics from banks subject to the Volcker Rule, yet it's never been made clear exactly how these metrics are used to determine whether a bank is complying with the rule, nor have any of the metrics been released to the public. Is that true? I think it's true that the so we publish the first vocal rule and want to say six or seven years ago and I think very widely regulators and financial institutions found it to be a bit unworkable.
And so we set forth we set out to to provide a simpler set of metrics and ways that companies could conduct perfectly legal activity and have more certainty that they were doing so without having to prove every single trade, what was in the mind, in the heart of every trader. So because there are there is going to be trading activity around around legal activities that were not covered by the Volcker Rule. So I think that's what we're doing. We're trying to make that rule more effective and efficient, but we're doing it in a way that's consistent with the letter and the spirit of the law.
OK. Thank you, man. How you met the gentleman from North Carolina. Mr. Bud is recognized for five minutes.
Thank you, Madam Chairman. Jim Balagan, welcome. Want to start by thanking you, Governor Quarrels and your federal staff in charge of insurance regulation for your collaborative work with the U.S. state insurance commissioners on solvency regulation.
Also want to thank you for the pushback against the European efforts to try and force their system of insurance regulation onto our unique and sound 50 state insurance regulatory regime, notwithstanding the progress achieved to date, many in the industry are telling me that the Europeans are still resistant and they ultimately seek to change our regulations so that they mirror theirs.
So given that here's my question is will you commit to directly reaching out to your peers in Europe to tell them explicitly that the U.S. will not be adopting a European centric ISIS or international capital standard and that we have our own rules that work very well?
So I'll just say clearly that we have a state based insurance regulatory system and we have, you know, the federal role is what it is, and that's not something that's something we're seeking to change and we're committed to that going forward. Chairman, they're seeking to change us.
And so I fear that if we're passive, that it will migrate towards them. But have you had any conversations with any senior European leaders let yet only the ISIS international capital standard? No, I haven't. OK. Is there any reason why not?
Or is that been something that's been avoided? No, I just I'm not I'm not involved directly in the insurance there. Their senior people who are, I'm sure, vice chair quarrels.
Yes. I would encourage you again, Governor Quals, to continue to press that. We have a great system that continues to work well. So also, Mr. Chairman, as part of the Basel 3 finalization efforts, a number of changes to the capital rules will have the effect of raising capital requirements on capital market activities. So can you discuss your views on the appropriate level of capital markets related activities such as market making or underwriting? Sure, those are critical activities in the functioning of our financial markets and our economy.
And they do. They need to be appropriately capitalized. I would I would say that overall, I think and and that the level of capital in our banking system is is about right. And I don't see a need to further raise capital. So I know we're we're we're pushing forward with the fundamental review of the trading book and the other Basel 3 end game things. But I don't see them as as needed to raise overall levels of capital.
Chairman, can you share how your views on capital requirements and things like market making and underwriting, how they could affect the balance between bank driven and market driven finance in the U.S. system?
Well, I mean, I think if you the extent you raise capital requirements and they become quite binding, they'd encourage activity to move outside of the banking system into into less regulated and supervised entities.
Good. So, Mr. Chairman, there's been a lot of discussion in recent months about leveraged loans and FSR and others monitoring the market. In fact, you've had a couple of questions on this topic today. But when people discuss the issue, sometimes I think they're referencing different things.
So to help us with our get on the same page here, in your opinion, how would you define leverage loans? You're right. There are a lot of different ways to think about it, right? You know, a reasonable ballpark would be something that's rated below triple-B. Or you could also say it could an amount of leverage. Typically they'll have leverage of maybe six times cash flow EBITDA. You know, they're different ways to think about it. But I mean, I think that the the best way to think about it is probably not investment grade.
Do you think there's a difference in leverage loans in the banking sector and in the non-banking sector sector? Yes.
I mean, I think before the crisis there were they they I think there's been a trend over time for leverage loans to to be held by longer term holders outside the banking system. And that has accelerated. So there are far fewer of them are on the back, on the boat, the the books of of, you know, banks with deposit insurance and the safety net as opposed to collateralized loan obligations or exchange traded funds or mutual funds or pension funds or hedge funds.
That's that's where those loans are going now. So it's it's more like it's become a distribution business as opposed to a traditional lending business where banks would make a loan. They put it on the balance sheet. That's not where it's really happening. You have a you have a bank performing an origination function on behalf of a sophisticated investor that stable a funded, we hope. And and in the case of this, yellow's is. But that's something we need to keep monitoring.
Thank you, Chairman. Thank you, the gentleman from Illinois, Mr. Garcia, is recognized for five minutes.
Thank you, Madam Chair. And thank you for being here, Chairman. I'd like to return to the topic of climate change for a bit. Extreme weather events have had a great impact on the Midwest and working class communities like those in my Chicago district. And they're often the hardest hit during such disruptions, crime. Climate change is also a risk to the financial sector. Jim Cramer, host of Mad Money and CNBC, in a discussion last week, said major institutional investors want nothing to do with fossil fuels because of concerns about climate change to guard against climate change impacts.
The Bank of England has decided to stress test the u.k.'s capital banks largest banks. Pardon me, and insurance companies against the risks associated with climate change. Will the Federal Reserve follow suit and develop climate related stress tests?
So we're monitoring what the Bank of England is doing. And those are, by the way, those are stress tests that are not like our stress tests in the sense that they would have direct effects on the on the banks ability to distribute, make distributions and things like that. They're really trying to make an assessment. And so we'll be watching that carefully. We haven't made a decision to proceed with something like that. Godamn encouraged. Looking ahead, incorporating climate change into economic forecasts will become more important.
Climate disasters such as Hurricane Maria in Puerto Rico or the wildfires that swept through California last year are currently labeled transitory risks by the Federal Reserve. But we know extreme weather events will become more frequent and severe. The likely result, a corresponding increase in economic losses and physical risks. The brunt of which to be felt by communities of color and working class communities. So, Chairman, when the Fed develops its economic forecasts, at what point should climate change shift from being considered a transitory factor to a structural factor?
You know, our forecasts, both the individual ones that FOMC people like me write down in the staff forecast are they're not for the sort of much longer term. They're really, really what's important is the next year or the next two years, the next three years. And climate change is just operates on a on a longer cycle than that.
Of course, as you suggest, as severe weather becomes more common and that's connected to climate change, you will see those things of, you know, entering the forecast period and certainly entering our our supervisory practices as well as our economic forecasting.
In a recent speech at the San Francisco Fed's conference on the economics of climate change, Fed Governor Lael Brainard said, quote, By participating more actively in climate related research and practice, the Federal Reserve can be more effective in supporting a strong economy and a stable financial system. Do you agree with Governor Brainard statement? If yes, what more will the Fed do in the future to identify and mitigate the financial risks of climate change? So I do think it's incumbent on us to do the research and understand the implications of climate change for our supervisory roles and our roles in looking after financial stability.
And that's what we're doing. I think it's early days for that, but the public will expect that we do that and that we take the measures that we need to take to make sure that the financial system is is resilient. Do you agree with her statement generally? That statement? I do, yes. Thank you. Big bank mergers and market concentration. Three months ago, the Federal Reserve approved a merger between Beeby and T and SunTrust, which created the sixth largest bank in the U.S.
with more than 450 billion in total assets. And the Federal Reserve's own research suggests that the failure of a single two hundred and fifty billion bank would be far worse for the economy than the failure of five separate $50billion banks. Furthermore, the former FDIC chair, Mr. Gruenberg, has warned that the FDIC would not be able to wind down a bank the size of the combined Beeby and T SunTrust without imposing significant losses on the deposit insurance fund and potentially destabilizing the financial system.
In this light, can the Federal Reserve justify its conclusion that, quote, this transaction would not appear a result to result in meaningfully greater or more concentrated risks to the stability of the financial system?
Yes, I think we can, and I think we did. We evaluate these mergers under a very clear statutory framework, very transparently. We had a number of public public hearings on it and looked at all the statutory factors. And essentially you have to 2 banks coming together to form a regional bank. That's that's akin to or smaller than many of the other regional banks. And it doesn't appear to me to have significant financial stability implications at all. Thank thank you, Chairman.
I yield back, man.
General Djimon, the gentleman from Tennessee, Mr. COSTof is recognized for five minutes. Thank you, Madam Chair.
Thank you, Mr. Chairman, for appearing today. I heard your statements in your opening remarks about the Corona virus. And certainly in regards to some of the questions that you've you've had today, I noticed this morning in a report that that axios listed, they quoted from the Global Port Tracker, and it said that traffic at U.S. ports is expected to decline in February almost 13 percent and in March between 9 and 10 percent year over year. Now, assuming that those numbers are true and correct, what impact, if any, would that have on on the retail sector and what impact, if any, would that have on the overall economy?
So I think there's a lot of uncertainty around what the ultimate economic effects will be outside of China and particularly in the United States. And the question will be, we do expect that consistent with that report, that there would be some effects. The question really will be what will be the size and scope of them? And also, will they be persistent or will it be something that just passes through? And and ultimately, the bottom line question for us is, does it does it represent a material change in the outlook, something that we should react to with monetary policy?
That that's really the question for us, since it's really too early to say, we'll be monitoring it like everyone else will very carefully and. That's where we are. Along those those same lines and I'm also from from Axel's, they've quoted from a Bank of America security report and they survey they said they surveyed 3000 companies about the global supply chain and that that many companies around the world are looking at it relocating there. They called it in the report a quote unquote, tectonic shift in global supply.
Looking to other areas of South Asia, India, also North America. My my question to you. Firstly, I don't know whether you're familiar with the with the study, this Bank of America securities study, a report or not. Are those numbers or is that those anecdotal statements? Is it consistent with anything that the Federal Reserve is saying? I'm not familiar with that report and therefore can't comment on it. I would say there are a number of channels through which this could have an effect.
The first of which is just tourism, really. The second is that the our ability to use to export to China is less because, you know, there will be just less going on there. So exports could go down. You mentioned really supply chains, so many U.S. companies by intermediate goods as part of creating their final product. So supply chain issues, we don't have any real evidence on that yet. And I'd say the last channel is really financial markets.
They which which financial markets themselves can be a channel for the transmission of of risk off behavior, which can which can affect economic behavior. So we'll be looking at all of that. It's way too early to say whether what that what it will amount to. We're just going to have to wait and see if there's not there's no way to be kind of confident about anyone's assessment and their range of assessments based on based on what you just said.
I think I know your answer, but I'll ask it anyway. The report all mentioned a number of reasons. One is the tariffs between our country and in China and the impact that it's have had on China and subsidiary companies, but also automation and the increase in automation. Does that sound consistent with with relocating these supply chains? Well, that's yes, separate from the questions about the virus. There clearly has been on the part of American companies a lot of activity in moving to other jurisdictions like Vietnam in particular gets mentioned quite a bit.
I saw a report last week, a number of other countries have have had American business moving their production activities out of China to other to other locations. And that that certainly has happened, including the United States. Yes. Thank you. Or relocating back to the United States. I guess along those same lines, I represent part of Memphis and in western the sea in Memphis, just outside my district. There was an announcement Amazon made two or three weeks ago that they are locating a new facility.
There be a thousand jobs. And incidentally, you had questions on the minimum wage. They're going to start their wages at least $15 an hour plus benefits. But it talked about these new jobs and in combination with automation, automation, in terms of packing and in shipping. You've talked about your concerns of automation and the effect that that will have on unemployment in the future. Can you see the two co-existing versus like with this Amazon plant? Well, over the last two and a half centuries, we've seen advancing technology and there's been a concern that it would replace human labor and that has happened.
But what has happened, though, is it has made human labor over time more productive. So there's displacement of current workers. But over time, advancing technology has led to rising incomes. But that doesn't mean there won't be disruptions and a lot of pain for people in the short term. But nonetheless, the process over time has led to rising incomes.
The gentleman from Florida, Mr. Lawson, is recognized for five minutes. Thank you, Madam Chair. Mr. Chairman, welcome to the committee.
And I will let FUTA explain to me. For the past almost three hours, two hours in a row, 45 minutes when you were talking and members on the committee was speaking in terms of how well the economy is doing, you know how. We have more opportunity for jobs in the academy. When you start speaking. The Dow was up one hundred and twenty five points. And why are you speaking? It went down. Can you contribute? Tell me why something like this occurs.
Who is listening to your. You know, speech this morning in front of the Financial Service Committee that will call it the Dow to go down. It is because of the cuts in interest rate. How do you explain it? I really, really can't.
I'm not following the market as I sit here answering your questions. OK.
Well, I know a the president tweeted out something similar. That when you started off, the Dow was up and then the Dow went down. Do you react to that? It doesn't really mean that much to you. I'm sorry, do I? Yeah. Do you react to that? The president tweet about also about how the Dow went down in it and the cutting of interest rates. Do you react to that? You just it just something that happens, you know?
Were my colleagues and I are completely focused on using our tools to support the American people, to support the achievement of our goals. And that's really all we're focused on.
All right. Explain to me, too, from his staff report. They stated that starting in July, July of last year, that four by three different time, the interest rate was was cut by a quarter percent. You know, how do you make decision that did stimulate the economy when you made those all the way through October? A quarter percent cut in the interest rate.
So we were really looking at a few things when we did that. And yes, the intention was definitely to support the economy. Part of it was to offset the effects of global factors. And there I would say just the slowing the slowdown in growth in the global economy just went on and on and we felt the need to offset then also take out some insurance against the effect that might have on the U.S. trade policy. Uncertainty was weighing on the U.S. economy.
We tried to offset any potential effects and take out some insurance there. And the third reason was that we wanted to do what we could to guard against a more prolonged shortfall of inflation from our symmetric 2 percent objective. So we've supported growth to support inflation moving back up. So those were the reasons why we did those three things. And that's the thinking that we had and that we announced.
OK. Now, could there be a lag free to come in and be a correlation between the growing student debt crisis and slowdown of the housing market, which we talked about a great deal in the last couple of months? As you know, many bars of student loans are not able to get homes because of the high debt to to income ratio. Could there be a signal that there is a great need to address first demand in student debt crisis? So I would say that the rising student debt is certainly a concern.
It's been rising fast and is now large. There is increasing evidence that shows that students who can't pay them can't service that debt, have difficulty having normal economic lives and buying homes and things like that. I haven't seen any evidence that would suggest that it's an important factor currently today driving the housing industry. I would say the housing industry has actually been activity and housing has been moving up here over the course of the last seven, eight months as the effect of lower rates and just overall good labor market and things like that are showing up in in in more house building and more and also housing sales.
My time is about to expire. I have a lotta students in my district in the 5th Congressional District and many I'm coming out of school, one of the things they are concerned about is the housing issue. You know, with going into the job market, you know, how can they best share an American dream? Like their parents without getting help from their parents. And so with that, Madam Chair, I obey. Thank you. The chair wishes to remind members that we have a hard stop at 1 p.m.
today. The gentlewoman from Massachusetts will be the final member to ask questions today. With that, the gentleman from Indiana, Mr. Hollandsworth, is recognized for five minutes.
Well, I appreciate the time. And I, both in private and in public, have been extremely complimentary of the work that you and your colleagues have done, not only in calibrating conditions to match the current economy, but also the framework by which you make many of your decisions and how you present that in public. I can really appreciate and I know a cornerstone of what you've been trying to do at the Fed is bring even more transparency to the Fed.
And some of the decision making and the press conferences that you've had have added a lot of transparency to it. So it's hard for me to understand some of the challenges in Sekhar, in the stress capital buffers and some of the more vague language or inability to pin down timeline for changes to that expectation of changes to that, especially when 2020 CE car has already started. I know Miss Wagoner also asked about this. I had ask quarrels about this in December.
I think I sent a letter to you and coral's signed by every member on this side of the aisle on financial services, just trying to get a feel for what are the changes that are going to be made.
What's the timeline for those that would undertake these? Trust us getting those changes. They're trying to make decisions with trillion dollar balance sheets, multi-billion dollar balance sheets, trying to make their plans. This time is now upon us. And I feel like we're still being very vague about what's coming down the pike and when we can expect even whatever that may be, that's coming down the pike when we could expect that to arrive before us. And so I wondered if you might give some more color on that or give some reasons why you and your colleagues have been a little more hesitant to answer that.
I can't give more clarity than exists. So I'll just say again, we we do expect that the core of the stress capital buffer will be incorporated into the stress test this year. Yeah, and we'll do that in a way that's timely for Sekar. In our previous conversations, I think we'd had kind of a general agreement. Don't let me overstate that if that's incorrect, that some of the aspects of this need to be calibrated right. We put a lot of this into place post Dodd-Frank.
We felt like we were doing the right thing in doing so. But perhaps we either had unintended effects. Maybe the intended effects weren't as great as we thought they would be, or maybe perhaps this wasn't the area we needed to focus on. And I think we'd agreed that some of these require significant calibration going forward. And do you expect that there will be further review and calibration of these tests to reflect either current conditions or alternatively, what we've learned since the crisis about what works and what doesn't work and what may be adding to significant reserves that many of these institutions.
So my my strong view is that capital, the levels of capital, particularly in the largest institutions, are about right now. And there's not a need to raise or or to lower them. And he tells us, should reflect that just out of curiosity. Tell me, when you say about right. Buttress that with data helped me understand kind of what do you look at to say this means about. Right. Right. Well, capital levels are much higher and the quality of our capital is much higher.
Right. Well, that's undoubtedly true. But I think we all agree that during the crisis or pre-crisis. Right. Capital levels weren't adequate. So to say that they're higher isn't definitive in terms of are they too high? Are they still too low or are they about right. And what do you use to indicate this is the about right level of capital while the stress tests for longer.
Look at the stress tests. And, you know, you throw up a scenario that's equivalent or maybe even a little stronger than what happened to in the global financial crisis. And you see these institutions have the wherewithal to remain reasonably well capitalized and really well capitalized enough to to continue to have the confidence of the markets. And that's really the question. They have to be above certain minimums and they do, but not by some giant margin. It doesn't suggest that capital is too high.
It suggests that it's just about right. And the stress tests are probably a great test for that. So I think you could see how it might be concerning for institutions that feel like they're caught in a bit of a circular logic. Right. We can try these stress tests. And then if they chin the bar on the stress test, then we believe that's right. That's exactly right. Without going back and changing some of the underlying factors that go into the stress test.
You can always say that, right? You can always say as long as they change the bar, that it's about right. No matter what the bar is, they want to go back and just. Look underneath the hood and say, gosh, are these assumptions still correct the way that we have done these stresses? Is it the right way to do that? Right. So maybe in a relative sense, yes, it's higher. The capital is higher than what the stress tests have indicated.
But in an absolute sense, we're not asking the question, is this testing the right thing and are we doing this test correctly and does it include all the right variables? I think that that's what they're looking for. Just further clarification on when we can expect that review comprehensively that the Fed has talked about for so long.
I think we've been doing that all along. We had a conference on the stress tests last summer with experts, internal external academics, people from the banks. We're doing that all the time. Everything we do with the stress tests is, you know, transparent public out for comment, things like that. Maybe not ex-ante, but but people can look back and it's not like we haven't adjusted distrust us to a woman from Massachusetts.
Mysteriously, it's recognized for five minutes.
Thank you, Madam Chair. And I also want to thank the activists in the room who have been organizing for more responsive. That am I know, having been raised by a tenants rights organizer, that activism is a can be a full time job. And so we thank you for taking it on. And I think that the chairman testified before the committee today. Just as with Fed now, the decisions you make do impact everyday working people. Your decisions impact how many jobs we have, who has what jobs, how much they're being paid, and who is most harmed when employment is high.
Now, in the past, you've said we want prosperity to be widely shared. We need policies to make that happen. However, the Fed's approach has never successfully ensured enough well-paying jobs are available to everyone who wants to work, even for small time. In a 1944 address, FDR called for a second Bill of Rights, which included the right to a useful and financially rewarding job. Justice Thurgood Marshall argued that the right to a job is secured by the 14th Amendment.
And Martin Luther King, Dr. Martin the King called on the government to guarantee a job to all people who want to work and are able to work. Dr. King's legacy is often reduced to just one speech in the march on Washington. Often mischaracterized. The march on Washington was actually the march on Washington for jobs and freedoms. It was a march for economic justice. And it take special claim to the fact that Dr. King and Coretta actually met in Boston.
I represent Boston, and I don't think that she gets enough oxygen for the role that she played in the movement. And so after Dr. King's assassination, Coretta Scott King picked up the mantle, pushing the Fed to adopt a full employment mandate and was actually standing behind President Carter as he signed the Humphrey-Hawkins Act into law. And that's the reason that you are here today. So in the interest of time, if you would, indulge me an answer as succinctly as possible, yes or no?
Mr. Chairman, given persistent concerns about inflation, do you believe the Federal Reserve can achieve full employment and by full employment? I mean, anyone who wants to work and can work will have a job available to them. First, thank you for that history. I didn't know that. So that's our goal. That's what we're working to do at all times. And I think, you know, we're we're never going to say we've accomplished that goal, but we've certainly made some progress.
I'll take that as a yes. Could a federal jobs guarantee succeed where the Federal Reserve has not? Yes or no? That's a hard one to answer. You mean by. I don't know. And guaranteeing a job that that's the history that I was providing. I did.
Anyone who wants to work and is able to work, who fits? OK. So Chairman Powell, by all indications, the U.S. economy has had output well below potential for eight of the past 10 years. And for most of the decade prior. Is it true that most of that period has seen unemployment well above target, while we almost never seen inflation above target? That is true. OK. So meanwhile, black unemployment remains double that of white unemployment.
Now, the Fed began raising rates in 2016, even though inflation was still below target. And when rates go up, unemployment tends to as well. Did the Fed consider how raising rates would disproportionately impact impact those who are already struggling to secure employment like communities of color, individuals who were formerly incarcerated? Our immigrant neighbors.
So I would I would say that unemployment has continued to go down quite significantly since we began to to raise rates in in. At the end of 2016, actually, the end of 15.
But again, did the Fed consider how raising rates would disproportionately impact those who were already struggling to secure employment?
I think or consideration was really that the right thing to do is to get monetary policy back toward a place where it reflected a economy that had recovered quite a bit for the benefit of all people, including low and moderate income people, including a lot of people still recovering.
But in the interest of time, given that there have been no signs of the economy overheating since then and you're now cutting rates. Is it possible you began cutting rates to some? I think history will judge that we have to make the decisions in real time. We have, though we really have learned something since then and that is that unemployment can be lower than than most people still.
Some inflation. So bearing that in mind, knowing what you know, would you still have supported raising the interest rates when the Fed did?
I did support it then. And, you know, hindsight's 20/20.
I think you have to judge those decisions on what we knew at the time when more Americans have jobs today if the Fed had not increased rates over the past three years.
I don't know where the 50 year low. I'd say it's a fair question. Thank you. Thank you. I would like to thank Chairman Powell for his testimony today. Without objection, all members have five legislative days within which to submit additional written questions for the witnesses to the chair, which will be party to the chairman for his response. I ask you to please respond as promptly as you're able. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record.
Thank you all. And this hearing is adjourned.