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tv   Federal Reserve Chair Jerome Powell Testifies on Economic Outlook  CSPAN  November 15, 2019 2:48pm-4:14pm EST

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house intelligence committee hearing on the impeachment inquiry against president trump. former u.s. ambassador to ukraine marie yovanovitch is testifying. again, the hearing is live on c-span2. online at or listen live on the free c-span radio app. >> jerome chair talks about monetary policy and the economy before the joint economic
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committee. >> the meeting will be called to order. the chairman is on his way. he has asked me to gavel in and begin my opening statement and then hopefully he will be here. we are very, very honored to have chairman powell. we thank him so much for testifying today. i look forward to hearing your perspective on the current state of the economy, and the potential challenges ahead. i'd also like to thank you for your thoughtfulness as you help steer the economy through what in some ways are extremely challenging times. as you have said in your testimony, by some measures, our economy is strong. the national unemployment rate fell from 10% at its peak during the great recession to only 4.7% when president trump took office. and it has continued to fall.
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it now stands at only 3.6%. the economy has continued to add jobs now for 10 9 consecutive months. more than nine years. years. inflation remains low. below the fed's target. wages are moving up though not as fast as we would like. but it is weak in other ways. but other measures tell a very different story. gdp growth has slowed, falling below 2% in the third quarter. job growth is also slowing, in fact it has lagged behind the last years of the obama administration. about 35,000 fewer jobs have been added per month during the first 33 months of trump than the last 33 months of obama. manufacturing is in recession. business investments have been
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shrinking for the past two quarters. and productivity fell last quarter for the first time since 2015. some of these more troubling developments may be a sign of a possible end to our decade long economic expansion, or a slow fade from the sugar high of the 2017 tax cuts. but the most likely cause of economic uncertainty is the president's trade war. this leads to a fundamental question, how should the federal reserve act when one of the major challenges facing our economy is the erratic behavior of our president. i won't ask you to answer that question but it's on everyone's mine. you have an extremely difficult job. and not everyone has benefitted from this economy. in past months you have conducted a federal reserve list
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listening tour called fed listens. i want to thank you for taking time to hear from americans from all walks of life who experience our economy very differently. as you know the economy as a whole can be very strong, while entire segments of the u.s. population struggle. some regions still have not recovered from the great recession. not all democratic groups have shared equally in the economic growth of the past decade. as members of congress, we need to serve all americans. you have shown that this is your concern too. it used to be that a rising tide lifts all boats. but that has become less true and we know that the tide lifts some boats much more than others. that's why i have introduced legislation that would give us insight into whom the economy is working for. my bill with a lot of my
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colleagues the measuring real income growth act would require the bureau of economic analysis to report gdp growth by income and the top 1% alongside the top line number. it would tell us who is benefiting from economic growth. and that takes me back to the fundamental question before fed policymakers. how low should unemployment go? how does the fed weigh the benefits of very low unemployment versus the risk of inflation? we've had 11 straight quarters of an unemployment rate below what cbo tells us is a so-called natural rate of unemployment. yet, inflation remains uncomfortably -- remains comfortably below the fed target rate, which raises the question. has the traditional relationship between unemployment and inflation weakened?
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if it has, then why? is it downward price pressure from around the globe or increased market concentration in certain industries in the united states eroding worker bargaining power or are there other factors in play? what if unemployment is extremely low, suggesting that we're at full employment. that the unemployment rate for african-americans or latinos remain much higher. what if the unemployment rate for people in some communities are those who work in some occupations is stubbornly low. these are questions with wide ranging implications for both fiscal and monetary policy. i look forward to your testimony, and i yield back and our chairman is here. welcome. >> thank you very much for being here chairman powell and i appreciate your patience with
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our schedule. votes in committee and on the floor are often difficult to predict. welcome to the joint economic committee's annual hearing with the chair of the federal reserve board of governors. chairman powell, i would like to extend to you a warm welcome. i look forward to our discussion today. our economy is finally recovered from the financial crisis of 2008. unemployment has reached a 50 year low of 3.5%. it reached that in september and most recently stood at 3.6%. a share of working age adults with a job has returned mercifully to pre-crisis levels. however despite this welcomed return to normalcy within our economy and in terms of employment measures, many aspects of our economy remain
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unusual. particularly so for central bankers. inflation remains persistently low. in four of the past five quarters inflation has been below the federal reserve's 2% target. treasury yields also remain low with a ten year borrowing rate of just 1.9%. interest rates that were once considered extraordinarily low have become a long run expectation. these phenomenon of low inflation and low long term interest rates are not unique to the united states. but rather they are echoed in most of the developed markets around the world today. this moment brings with it some challenges such as building a framework for fighting recessions in a low interest rate environment. however, it also brings some significant opportunities. with inflation still in check, we may have yet room to expand employment even further.
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as ever it will be important for the federal reserve board the to communicate how it addresses these challenges, and these opportunities. in this regard the greater transparency demonstrated by the federal reserve during your chairmanship, mr. chairman, is to be commended. in particular, the fed has conducted a number of fed listen events around the country, including historic conference held in june to hear feedback on current policy conduct as well as to better understand the effects of monetary policy at the local level. not only will these initiatives promote trust in the federal reserve, and in its decision-making, they will provide important information relevant to monetary policy from americans who do not always get a seat at that table and in the past haven't been able to understand how these things operate as well as they are able to today.
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i'll introduce our witness, mr. powell as the 16th and currents chairman of the board of governors of the federal reserve system. serving in that role since 2018. he first joined the board of governors in 2012 prior to his employment at the board mr. powell was a visiting secular at the bipartisan policy center where he focused on federal and state fiscal issues. mr. powell previously served as an assistant secretary and is under secretary of the treasury under president george h.w. bush. with responsibility for policy on financial institutions, treasury debt market and related areas. prior to joining the administration he worked as a lawyer and investment banker in new york city. we thank chairman powell for attending today's hearing and look forward to hearing his insights. you're now recognized for your testimony, mr. powell. >> thank you, chairman lee, vice
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chairman and members of the committee. i appreciate the opportunity to testify before you today. let me start by saying that my colleagues and i strongly support the goals of maximum employment and price stability that congress has set for monetary policy. congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on facts and objective analysis. we appreciate that our independence brings with it an obligation for transparency and accountability. today i will discuss the outlook for the economy and for monetary policy. the u.s. economy is now in the 11th year of this expansion and the baseline outlook remains favorable. gross domestic product or gdp increased at an annual pace of 1.9% after rising around 2.5% last year and first half of this year. the moderate third quarter
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readings partly due to the transitory uaw strike at general motors. it reflects weakness in business investment which is being restrained by sluggish growth abroad and by trade developments. these factors have also he weighed on exports and manufacturing this year. in contrast household consumption has continued to rise solidly supported by a healthy job market, rising incomes and favorable levels of consumer confidence. and reflecting the he decline in mortgage rates since late 2018 residential investment turned up in the third quarter following an extended period of weakness. the unemployment rate was 3.6% in october. near a half century low. the pace of job gains has eased this year but remains solid. we had expected some slowing after last year's strong pace. at the same time participation in the labor force by people in their prime working years has been increasing.
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ample job opportunities appear to have encouraged many people to join the workforce and others to remain in it. this is a very welcomed development. the improvement in the jobs market in recent years has benefitted a wide range of individuals and communities. indeed recent wage gains have been strongest for lower paid workers. people who live and work in low and middle income communities tell us, many of them at these fed listen events that the chair and vice chair referred to tell us many who have struggled to find work or now getting opportunities to add new and better chapters to their lives. significant differences, however, persist across different group of workers in different areas of the country. unemployment rates for african-americans and hispanics are well above the jobless rates for whites and asians and proportion of people with a job is lower in rural communities. inflation continues to run below the fomc 2% objective. the total price index for
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personal consumption expenditures increased 1.3% in the 12 months ending in december held down by declines in energy prices. looking ahead, my colleagues and i see a sustained expansion of economic activity, a strong labor market, inflation near our 2% objective as most likely. this favorable baseline partly reflects the policy adjustments we have made to provide support for the economy. however, noteworthy risks to this outlook remain, in particular sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks. moreover inflation pressures remain muted and indicators of longer term inflation expectations are at the lower end of their historical range. persistent below target
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inflation could lead to an unwelcomed downward slide in longer term inflation expectations. we will continue to monitor these developments and assess their implications for u.s. economic activity and inflation. we also continue to monitor the risks to the financial system. over the past year the overall level of vulnerabilities facing the financial system has remained at a moderate level. overall investor appetite for risk appears to be within a normal range although elevated in some asset classes. debt load of businesses are historically high but ratio of household bar roger to income is low relative to it's pre-crisis level and gradually declining in recent years. the core of the financial sector appears resilient with leverage low and funding risk limited relative to the levels of recent decade. at the end of this week we'll be issuing our third financial stability report.
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turning to monetary policy. over the past year we've seen global growth, trade pressures have prompted fomc to adjust appropriate path i want to be rates. since july they lowered the target rate by three quarters of a percentage point. the 1.5 to 1.75 of a percent currently. it helps keep the u.s. economy strong and inflation near our 2% objective and provide some insurance against ongoing risks. as monetary policy operates with a lag, the full effects of these adjustments on economic growth, the job market and inflation will be realized over time. we see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate growth, a strong labor market and inflation near 2% objective. we'll be monitoring the effects
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of our policy actions along with other information bearing on the outlook as we assess the appropriate path of the target range for the funds rate. of course, if developments emerge that call a material reassessment of our outlook we would respond accordingly. spoil not on a pre-set course. the fomc is committed to ensuring our policy framework remains well positioned to meet its statutory goals. we believe our existing framework has served us well. the current low interest rate environment may limit the availability of monetary policy to support the economy. we're conducting a review. the first of its kind for the fed. with the u.s. economy operating close to maximum employment and price stability now is a great time to conduct such a review. the through our fed listen events we heard a diverse range of perspectives not just from academic experts but representative of consumer, labor, business, community and other groups.
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we will draw on these insights as we assess how best to achieve and maintain maximum employment and price stability. we'll continue to report on our discussions in the minutes of our meetings and share our conclusions when we finish the review likely around the middle of next year. in a downturn it would be important for fiscal policy to support the economy. however as noted in the congressional budget office long term outlook the federal budget is on an unsustainable path. over time this outlook could restrain fiscal policymakers willing to change. the high and rising federal debt can in the longer term restrain private investment and there by reduce productivity and overall growth. putting the federal budget on a sustainable path would aid in the vigor of the u.s. economy and ensure policymakers have the
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space to add fiscal policy to stabilize the economy if it weakens. i'll conclude with a few words on the technical implementation of monetary policy. in january the fomc made the key decision to continue to implement monetary policy in what we call an ample reserves regime. in such a regime we'll continue to control the federal funds rate primarily by setting our administered rates and not through frequent interventions to actively manage the supply of reserves. in the transition to the efficient and effective level of reserves in this regime we slowed the gradual decline in our balance sheet in may and stopped it in july. in response to the funding pressures in money markets that emerged in mid-september we decided to maintain a level of reserves at or above the level that prevailed in early september. to achieve this level of reserves we announced in mid-october we would purchase treasury bills at least into the second quarter of next year and
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continue open market operations at least through january. these actions are purely technical measures to support the effective implementation of monetary policy as we continue to learn about the appropriate level of reserves. they do not represent a change in the stance of monetary policy. thank you. i will be glad to answer your questions. >> thank you so much for your testimony. chairman, along with other senators are voting, as because the fed chair needs to leave at 12:30, at a hard stop, he is suggesting that we limit our questions to four minutes so that everyone gets a chance to question. so i will start and then go to representative marchan. the federal unemployment rate is well below the estimate of 4.2%. long term unemployment also are
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at a near decade low. yet the unemployment rate for some groups is substantially hire. for example, the black unemployment rate while at a historic low is still well above 5%. is the economy at full employment or could a tighter labor market draw more people back into the workforce? >> thank you. we're charged to achieve maximum employment. when we think about maximum employment we look at not just unemployment but labor force participation, we look at wages, we look at many, many data points. and i would say that what we have learned and what we continue to learn that the u.s. economy can operate at a much lower level of unemployment than many would have thought. and it's probably not surprising we would be learning that now. we're at level of unemployment we haven't seen in 50 years. the this is the first time we had unemployment meaningful
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below 4%. inflation is moving sideways and wages are moving at a healthy clip but not moving up in a way that would suggest that there are upward price pressures. so i think we're very open to the idea. i'm very open to the idea that we don't know where maximum employment precisely is. we have to have sn have signifi humility. the data is not sending any signal that labor market is so hot or inflation is moving up or anything like that. i think what we've learned is the current level of unemployment is consistent with a strong labor market. but it is not one that in any way presenting difficulties and has many beneficial side effects as well as pulling people back in the labor market, wages moving up for people at the
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lower end of the wage spectrum. woe like to see it continue strong and using our tools to try to make that happen. >> as you noted the economy has added jobs for 109 consecutive months. unemployment is well below 4%. however, the annual wage growth is just 3%. and why is wage growth still below what we would expect with a strong labor market? >> we might have expected wages to move up more this late in a lengthy, lengthy ongoing expansion particularly with very low unemployment and there are a number of possible explanations for why that hasn't happened. one is just productivity has been lower. so wages should ultimately equal inflation plus productivity. that's about where we are. we have 3% wage growth. that accounts for 2% inflation at around 1% wage growth. but there are other
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possibilities. one is just that there's still slack in the labor market. that could be part of the answer. we don't know with any precision. it also may be that the neutral rate of isn't it lower than we've been thinking and that, therefore, our policy is less accommodating than we've been thinking. we're letting the data speak to us, and, you know, carefully monitoring the situation and trying to get answers to that question. >> some have said it's the increased concentration in different industries is giving employers unprecedented power in keeping wages down. >> i think there are a number of other sort of institutional possible explanations and trend explanations. can you point to automation. point to globalization. point to concentration among industries where over time u.s. industries have tended to get more concentrated as the economy has matured. point to lower unionization. any of those factors can well be playing and all are playing some
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role in this, in this, what is a bit of a puzzle, why we haven't seen more of an uptick in wages. >> my time has expired. >> thank you, madam chairman. thank you for being here chairman powell. i would like to focus by questions today primarily on preparing for the next downturn whether it's three years from now, five years from now, whenever it comes. historically speaking, is the federal reserve positioned as well as it has been positioned in past recessions when the federal reserve was the primary go to agency where the federal government said, you know, we need help from you to stimulate
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the economy. are we positioned there? are we out of position? >> well, if you look at post-war, typical post-war recessions, what the fed has done is cut interest rates and on average those, the amount of those cuts has been 5% or so. so with the federal funds rate having peaked at 2.4% and now being at about a little above 1.5% we don't have that kind of room, and there are a couple of reasons for that. if you look at the longer term interest rates which are not directly affected much by our policy they've just been declining for 40 years now and that's because of inflation being lower and under control and less volatile and also just the ageing demographics means higher serving a, means more saving relative to interest. the new normal now is lower interest rates, lower inflation, probably lower growth and you're seeing that all over the world not justin united states.
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you're seeing it to a much greater extent in many parts of the world than we're seeing it here. so knowing that, that's one of the main reasons we have really the basic reason why we're having this public review of our monetary policy framework to see if there are ways we can alter our strategies, our tools and our communications in ways that would make us more effective in this world where we're too close, closer than we would like to zero when we run out of options. so that's one thing. we're looking hard how to use our tools when rates go to zero. fiscal policy has been a key part of the counter reciprocal reaction as well, though. >> next question, the disruption in the repo market that took plains september. anticipated, not anticipated, do
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you anticipate keeping the expansion at the level it is until you're sure that won't happen again? >> well, so anticipated or not, it's a different world post-crisis and really because of all the expansion in our balance sheet and what essentially what we've done now we now require financial institutions to have a lot more liquidity on their balance sheets so that the fed doesn't have to run in and with our own liquidity. so that's -- that i think is a big benefit to the financial system. but a lot of that liquidity is held in our reserves. we used to manage the interest rate by keeping reserves scarce and we had a total of 20 billion. right now we have in excess of 1.5 trillion in reserves. that means that we're trying to find that level as we allow the balance sheet to shrink where reserves would become scarce and there was no way to know. i think the data we had suggested we were not close to that point until september. i think we're still very much
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looking at what happened in september but i think we learned in september we needed to make sure that reserves didn't go under that level that were added in mid-september which is a little bit shy of 1.5 trillion. that's what we're doing. it's technical. we have it under control. we're prepared to continue to learn and adjust as we do this. but it's a process i would say -- it's one that doesn't have any implications for the economy or general public, though. >> thank you. >> representative beady for four minutes. >> thank you, chairman powell fork here. we have four minutes. i have three questions i want to get through. one on the cra. one on venture capital and one on climate change. the one on cra is very for me. i know recently the fed and the office of the comptroller and the fdic all have been working on a proposal to revamp that
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1977 cra act. it is my understanding that they wanted to do a joint but were not sure if one of the agencies would go along. cra is very important to me and to my 3rd congressional district in ohio, like across the nation because of the resources it puts back into communities and more importantly minority communities tend to benefit. do you have any insight on knowing where they are, or if they are working together and will be able to meet that end of the year goal? >> so we strongly submit the mission -- support the mission of cra which is to assure credit availability to banks that serve low to moderate communities. it's time to modernize given the technological developments. we've been working very hard with the other two bank agencies to find common ground. we're committed to making sure this reform actually makes, puts
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us in a better place to serve the intended beneficiaries of cra. we haven't gotten there yet. we'll keep trying. my hope is we ultimately will come together with a common answer which i think would be better for everyone if we can do that. >> my next question? federal reserve bank of san francisco recently held a conference entitled the economics of climate change and i believe this was the first-ever conference by the feds on climate change and the economy. can you discuss how the federal reserve views the impact of climate change on our economy and monetary policy and how the feds view have evolved over time? >> so, i guess i would say climate change is an important issue but not principally for the fed. it's really an issue that is assigned to lots of other government agencies not so much to the fed. nonetheless, over time it can
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affect us in some ways which i'll mention. one just is that we require financial institutions and financial market utilities, you know, large utilities that are so fundamental of the financial institution we require them to be resilient including severe weather. in a sense we're already to the extent severe weather is becoming more common, we're already incorporating that into our supervision and have to think ahead. we're doing a lot of research. thinking ahead of risk management perspective. our perspective is not -- we're not the one whose decide society's response. that's elected legislature. not us. in the terms of monetary policy it doesn't have any near term implication for monetary policy. over time, climate change could have effects but it's not something we would be considering. >> only because of my time, my last question is, there was a 2018 report by price waterhouse that found that 80% of the venture capital investments went
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to just four states california, new york, massachusetts and texas. i'm from the great state of ohio. and so i guess my question is, start ups throughout the rest of the country, especially the midwest are overlooked. are there any thoughts on the fact that an overwhelming majority of the venture capital is going to four states. what effect is this having on the regions like the midwest? >> i have to look at that study. i think, you know, a company that's in san francisco can invest in a company that's in ohio, though. so i would hope that they are not just investing in companies in san francisco, but -- >> we should maybe look at some partnerships and how that works? >> i do think -- look many successful companies in which venture capital firms invest are not located in those areas. some are but some are located anywhere in the country where there are entrepreneurs. >> thank you. >> representative swiker. >> chairman powell, more of a
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global question. if you look at much of the data from the fed, from the bls, from others, our society is actually in a sweet spot. a, do you agree with that. b, what do we do policy wise to stay there and for those of us up here how do we not screw it up and then how do we actually buy us towards the positive. what would you do? >> so, as i mentioned, 50 year low in unemployment. inflation low and under control. labor force participation ticking up. consumer confidence high. the outlook is good. i think households generally are focused on according to the surveys focused on this healthy job market and wages going up. it's a very good place from that standpoint. that's not to say every community has benefitted. we know that's not the case. how do we keep it there?
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the key to this -- given the risks -- the risks we see are slowing global growth and weaker manufacturing and that affects u.s. manufacturing. the key to keeping this going and to it continuing are that we keep job creation at a solid level, that households retain their confidence, that wages keep mouchg. that seems to be the engine driving the u.s. economy forward at this time. but i want to go longer term with an answer. the u.s. faces longer term issues that really need your attention around labor force participation and productivity. those are the two things that we really -- labor force participation we lag most other advanced economies and that's something we can do something about that really the fed can't do much about. it's more about fiscal policy. >> the policy we engage here could push up labor force
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participation. we're at 63.3. which for our models, we didn't think we would get that far but we've demonstrated that there is slack out there. could you touch on what we could do in that demographic head wind that is in the united states? >> incentives for someone staying order, getting millennial males to start equal millennial females in the labor force. what would you do >> there's a range of policy and they would appeal across the political spectrum. some are about labor demand, some are labor supply. many would work. that's the great thing. i think for, you know, for young males it's going to be addressing the opioid problem, going to be skills and training and internships. we had a great meeting with a bunch of intern products.
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older people are staying in the workforce more and more. their participation is moving up. there's lots of programs which are pulling people, for example, women who have been out of the labor force back in after their kids have grown-up. you see that happening. at places as well. i think there's just so many things that can to be done and we, again, lag just about every other wealthy country in the world in labor force participation for prime age workers. this is not where we should be and there are things we can do about it. >> with the dual mandate, how often in conversations with your economists do you get into the discussion of currency differentials and head winds that actually creates both in export and capital coming in to the country? you know, where are we currency wise in your conversations? >> exchange rates are one financial condition and one assigned to treasury department for management. treasury has full responsibility
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for exchange rate policy. we don't. it's just another -- it's in all economic models when we change policy. >> just a model input. >> just a model input. no way a principle driver of the way we think of policy or other central banks do. >> thank you. thank you, madam chair. thank you for being here, mr. powell. i want to read you something that's just been recently posted by the national women's law center and get your comment on it. i have a couple of questions related to this. so, weaver all heard about the gender wage gap, women on the average make only 82 cents to average a man's dollar, much worse for women of color. but there are two sides to a family's budget. the income that comes in and expenses they pay out. and new research is finding that in addition to the wage gap there is rising inequality on
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how quickly prices are rising for families struggling the most in the economy. this concept known as inflation inequality the kind of products proportionally consumed by richer households, think organic goods and name brand goods rise slower than low and moderate income households. just released research by columbia university begins to quantify these impacts by updating property rates forced a justed inflation index that accounts for inflation inequality and the article goes on to suggest that an appropriate course of action would be to peg the federal poverty threshold to a higher rate of inflation given how many more people would be considered in poverty when looking at the expense size of the ledger. i would just ask you whether or not any of this enters into any of your decision-making whether
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you have any research on this or any comment on this? >> it's an interesting -- i did see that research which showed that -- different groups of people buy different baskets of goods and in principle inflation can be higher or lower. this was a piece of research that showed the basket of goods that are bought by people at the lower end of the income spectrum experienced higher inflation over time. the implication of that is that their real incomes are even lower than we think. so i would like to see a lot more research on that. that's a recent paper that's getting a lot of attention right now. there's no definitive answer. there's a series, i guess, that the government currently conducts for consumer price inflation that looks at a basic basket of goods that finds a much smaller difference. nonetheless an important issue that needs further research. >> is that something you would be doing or you think somebody else should be doing that research? >> our researchers would do it but you would tend to see, you
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know, the agency -- whoever does cpi, brauer of economic analysis, i guess, does, i think, does cpi. they would do that. we have researchers who do research on inflation all the time. i'm not sure whether the piece you -- i don't think the piece you mention was a fed piece but we have researchers -- >> it was at columbia university. >> yes. but co-authors, several co-authors. >> i want to ask you on another subject. could you explain the relationship of our immigration policy to employment rate and the economy in >> sure. so first we don't have responsibility for immigration policy. we don't comment on it. we don't advise anybody on it, on the immigration.. that's not our role. but it does kind of connect to our role in, you know, analyzing
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the economy. you can think of the economy's ability to grow as consisting of two things. one how fast is the labor force growing. secondly how much is output per hour growing. that's what growth consists of, those two things. in the united states the trend growth of our labor force has been very slow. it was 2.5% in the 1960s. now it's about half a percent. half of that is immigration. immigration is a key input into our longer term growth rate. i would say if you look to population growth as a way to support higher growth for the united states, then immigration would need to be in your thinking. again, something we don't comment on too much on. >> thank you. i yield back. >> thank you, madam vice chairman. chairman powell, thank you for being here very much. i had some questions also on labor market participation and i think you've addressed though as also on immigration how that
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could help us increase our labor pool. but i was thinking about the status of across the country now we got over 30 states that put in minimum wage laws from $13 to $16. there's something businesses affected with every where. how do you see that is going to address the situation on the mismatch between labor scarcity and yet this very low wage growth that we see and how does that tie into inflation? >> well, we don't take a position on minimum wage. it's really an issue have to balance. there are two things to balance. if i were you i would look at a broad range of research that comes from different perspectives. all the research you see when the minimum wage is raised a significant amount you'll see some job loss and see some wage gains. i would look at a range of that research and i would try to think what the right policy is.
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in terms of inflation, it doesn't really play much into it. our mandate is price inflation not wage inflation. we don't see wages moving up in any kind of way that suggests that they would put unwelcomed upward pressure on prices, so i don't think it's an important part of the inflation discussion right now. >> in trying to translate this labor scarcity that we have into higher wages for the american workers, from 2012 to 2016 we had about $120 increase per month in average wages and then in 2016 to current that's been cut in half, about $56 a month. and yet this is in the time of the lowest inflation as you said in 50 years, these last 18 months. so what is that mismatch between wage growth and lower unemployment mean to our
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economy? >> well, we look at a wide range of wage and compensation measures and what they tend to show is if you go back five years wages and compensation were going up 2%. that has gradually moved up to about 3%. that's really trends has been upward. that's consistent with the thought that a tighter labor market, lower unemployment, and surveys that suggest the labor market is tight is consistent with that. we've seen wages moving up. we look -- i can tell you the principle ones we look at. that's true across all measure of wages over the last five, six years. >> why do you think they slowed so dramatically in the last two years? >> you know, i think it's hard to say. average hourly earnings is an important one at which peak at 3.4% earlier this year or at the end of last year and has been
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sort of trickling down. right at 3% now. fairly modest one. i'm not at all sure why that is. it may be compositional effect. as older workers retire younger workers come in. it's consistent with this idea that we're not seeing excessive tightness in the labor market that's generating outsize wage gains. we're seeing kind of nice wage gains given inflation and productivity but nothing that at all is out of line with that. >> thank you. >> chairman powell, borrowing as a country, as a government more than ever, with debt expected to reach 95% of gdp within the next five years but we're paying interest on that debt at an all time historic low with 30 year
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borrowing cost of just 2.4%. what's the reason for this, i guess, some would say fortunate fiscal reprieve at a time when congress as an institution has shown really no sign of fiscal discipline at all. so where does it come from? >> it really is a long term trend. for example, if you were to look at a graph of what the ten year treasury yield is. going back 40 years what you see a ski slope down. it's all the way down to today. the this is a long term trend, by the way it's true all around the globe. why is that happening? i think, first of all, it's inflation getting under control, becoming less volatile, and ultimately continuing to decline to the point where the risk of lower inflation is greater than the risk of higher inflation at the moment. that's part of it. ageing demographics. as people get into their later years they save more that creates more savings and per
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dollar investment and that tend to drive interest rates down. i don't know that, that trend shows no signs of reversing or anything like that. that's really what's going on with these longer rates. >> some have suggested because we in the united states, the united states government borrows in its own currency, this level of spending isn't a problem because the fed can just monetize the debt and keeping doing so indefinitely. there any risk in that? >> as i mentioned in my testimony the fact that interest rates are lower does mean that we will pay less in interest. it does not mean we can ignore deficits at all. we're going to have to get on a sustainable path. what does that mean? so, the debt is growing faster than the economy. it's as simple as that in nominal terms. and that is, quite
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unsustainable. ultimately you have to get it to where the debt is not growing faster than the economy and it's growing faster in the united states by a pretty significant margin. so even with lower rates and even with decent growth, there's still going to be a need to reduce these deficits. i would say, by the way, that's over time. we're not in the business of advising you how or when to do it but over time we'll have to do it. frankly if we don't do it what happens is our children will wind up spending their tax dollars on interest than on things they need like jaekeduca, security, health. >> over the last couple of years we've had a lot of trade measures going into effect, what has the fed learned about the interaction between trade and monetary policy? >> so, the first thing i need to
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say we never should be heard to be commenting on trade policy. that's not our job. we wouldn't express an opinion on trade policy. in principle anything that affects our ability to achieve our mandated goals is appropriate subject for monetary policy. we've been hearing for a year and a half from companies that tariffs but to an even greater extent uncertainty around future trade policy is for now, it has been weighing on business sentiment and part of the global slow down in manufacturing, in business investment, in exports, in trade. part of the story. there's a much bigger story out there but it's a part of that. >> i see my time is expired. senator amy klobuchar. >> thank you very much, mr. chairman. thank you to you mr. chairman for being here today. some of the issues that i was
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going to raise have been discussed. the challenges that i had with our economy including the deficit which i'll note was greatly exacerbated by the last tax bill, and as well as problems in some sectors sump as agriculture, which very important to us in the midwest. but i wanted to focus on a third issue i have which is income in equality and even if people have jobs, it's often hard for them to afford things and then you have the added problems and strains, "washington post" reported this year in september that income in equkom n ecome i america is the highest it's ever been. top 1% experienced income growth of over 200% in the last decade. and between 2007 and 2016 median
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wealth fell by 2%. in your opinion will widening inequality lead to expectations in the long term and what should we be doing about this? >> so, i guess i would start by saying i think we probably would all agree that prosperity should be as widely shared as possible. so i would just point to two aspects of the broader problem that i think are important and need attention. the first is a relative stagnation of incomes below the fairly high part of distribution. and that's even after allowing for taxes and benefits and things like that. that's one thing. we want to see incomes moving up broadly across the income spectrum. the second is mobility. i think you want to see people moving from the bottom to the top and vice versa, by the way. it has to happen. so, for example, the bottom 20%, what are the chances that if you're born in the bottom of 20% of income or wealth you'll make
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it to the middle or top. the united states lags most other wealthy countries in that measure. very much not our self-image as a country and those are things we need to address. i think those are important. >> that's one. and i think increasing the minimum wage i have my own views on this would be helpful. but as you talk about that, one of our challenges right now is hooking up our education system with the jobs that are available right now and making sure everyone has access to those jobs in a don't think it always means a four year degree. some of the fastest jobs is one or two year degrees. one thing i'm focused on is apprenticeships and trying the to make it easier for people to access those kinds of degrees. can you briefly talk about that? >> we just met last week with six people who run apprenticeship programs and funding of apprenticeship programs around the country.
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boardroom. i have to tell you it's very, very impressive what they can do. they are focusing on low and moderate income communities. they are getting them in high schools and out of high schools and matching them up with employers who need those people. they are getting good jobs. it's really working. the thing that limits their ability to do this on a much wider scale is funding. >> exactly. >> i mean it's very impressive what they can do. >> a lot of this is how we use our resources for education and matching that you want. i'll ask you about retirement it's a challenge in our new economy with and senator coons and i have a bill to address that with up savings account which is great for small and medium businesses. back to income in equality very briefly how would reporting income statistics benefit our understanding of the economy? we don't have that right now. >> we're actually doing
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something with that at the fed. you know, we like to cut data up and look at it in new ways and this is one of the thing we're doing, is combining a couple of data sets that we have. quarterly publishing a financial account. >> when will we get that then? >> the next one comes out every quarter. it's a new thing we're doing. again, just a combination of two existing data sets we have. we think it's an interesting insight into the economy. there's a lot of different ways to look at what's happening with the economy. that's an important one. >> thank you. representative butler. >> thank you. so i apologize if i have already -- if some of this grounds has been covered but it's a pleasure to be here and have you. this is the number one, i would say the growth and the forecast of our economy is the number one thing that impacts the people i serve in southwest washington. so it's very -- it's helpful to
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hear from your perspective. specifically in rural communities where unemployment is higher than the national average, most of my areas are rural, although we're bundling up every where. i wanted to hear some of your biggest takeaways. i've gone through some of your testimony. again i jaapologize if you're repeating. in terms of outlook and some things we've done in most recent years with tax cuts, jobs act, different regulatory changes but to either maintain the growth we've seen or expand it, what recommendations would you give? >> well, first i think the outlook is still a positive one. no reason this expansion can't continue and there's a lot of value in continuing it. we're trying to use our tools to accomplish that. we're seeing this, in this 11th year of an expansion now the
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longest in u.s. recorded history. what we're seeing is that income gains are being, are the highest at the lower end of the wage schedule -- scale, and so it's very positive. we're also seeing people being pulled back into the labor market. there's a lot to like about this rare play of the 11th year of expansion. and i think we're certainly committed to doing what we can to extend it. >> in that vein i know your testimony touched on concerns with regard to the national debt. could you elaborate on that and how it should be addressed particularly as it relates to expanding or at least not contracting the economy? >> i think it's a longer term issue that i imagine we all realize will have to be addressed over time. it's just the case that now the debt is growing faster than the economy. than the nominal gdp.
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and ultimately in the long run that's not a sustainable place the to be. now how to fix that, it's easy to say that. how do you do that and when do you that is an issue that is up to you and not to us. but i would be remiss in not pointing out that the consequences of not addressing it are just that we'll be spending more and more our kids really and grandkids, they will be spending their tax dollars servicing debt rather than on the things they really need. as i mentioned earlier, education, health care, security, all the things that we need, that they will need, they will be spending more and more of their money on taxes. you don't need to balance the budget or pay down the debt or anything like that. you just need to get the economy growing faster than the debt and that should be the goal. by the way, successful programs for countries to get back on sustainable path tend to take place over a long period of time and relatively gradual.
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i would look at something that would work over time but really would not be giving you a lot of advice on how the to do it. >> with my final 30 seconds, do you anticipate maintaining the current fed rate through the next year? >> i wouldn't say that at all. what i've said here, i'll go right to the actual language is that we see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate growth, a strong labor market and inflation 2% object jennifer. that's a very data dependent statement. we do think monetary policy is in a good place. but we're going to be watching very carefully incoming data and if developments emerge that cause a material reassessment of the outlook then we'll act appropriately. >> context, context, context. thank you. i appreciate it. i yield back. >> representative bier.
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>> mr. chair thank you very much for your strong and stable leadership and for providing the most straightforward answers he ever talked to. yesterday at the economic club in new york the president continued his criticism of the fed saying it put u.s. in a competitive disadvantage and also floated the idea of negative interest rates. do you take comment from public officials into account when implementing monetary policy and is there any precedent in u.s. history for this kind of criticism or praise from an american president. >> we look exclusively at the data, at the research and at the performance of the u.s. economy. those are the things -- we have a very careful thoughtful process that's been developed over decades, over a century, really and that's how we try to set interest rates. we don't consider political factors and things like that in what we do. >> thank you. i have a friends in switzerland who went to brother $10 million and got a negative .3%.
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they are paying him $10,000 a year to borrow .3%. >> negative interest rates would not be appropriate in the current environment. our economy is in a strong position. we have growth. we have a strong consumer sector. we have inflation that's bit below target. very low and even negative rates we see around the world would not be appropriate for our economy. you tend to see negative rates in the larger economies at times when growth is quite low, and inflation is quite low. just not the case here. it's different for some of the smaller european countries. it's about keeping their currency from appreciating. >> from december 15th through december 2018 there's slow consistent increases in rates we turn that around with cuts this year. is there enough room to cut rates further if we get another
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slow down or recession. have we given up monetary policy as a tool for the moment for dealing with that? >> well, typical post-world war ii recession has involved rate cuts of close to 5%. the current federal funds rate is in the mid 150s. we're short of that 1.5%. it's a fact not just in the united states but around the world that central banks to ring to have less room to cut in the new normal of inflation. that's why we're conducting this external review of monetary policy at the fed. we're looking for ways to make sure we have the tools to do what we're assigned to do by you which is achieve maximum employment and stable prices even in downturns. and that's what we're going to be doing. fiscal policy is often a big part of the answer when there's a severe downturn.
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we would look for that to be the case if needed. >> thank you. by bringing up the challenge the public debt faces all of us here. i w i was raised to believe that inflation was the result. but we're less than 2 % this year. you have muted expectations. is there no longer a connection between money supply growth and inflation? should i pay my attention to modern monetary theorys? >> the connection to monetary agates and -- it's something i learned in e con 101. it's thought to be a good relationship. i think about 40 years ago as the financial system developed all kinds of alternative forms of money, the relationship between monetary agates and growth has just gone away. we don't -- we look at the agates but they no longer are a driving part of the theory. it's the price of money as
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opposed to the quantity, which is interest rates. >> i'm out of time, but thank you very much. mr. chairman, i yield back. >> senator cotton. >> thank you, mr. chairman. chairman powell, welcome back. i want to start off by talking about china's economic growth. maybe i should say china's economic growth in quotes. they've reported most recently 6.5% growth that's down from most of the last 30 years. it's still probably somewhat inflated. in fact, michael tet us at the warrantee undoimt says economists find it hard to find any economic sec tar tor in chi finding any growth. gdp is not a useful measure for determining chinese growth because they have such massive investments in nonproductive activities. second, that china likely distorts the gdp dignity si. in a way that's systemically
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pushing it higher. and then third, that increasingly gdp as reported in china is not so much a measure of economic output but of political intent given the benchmarks china imposes on local governments as well as many state-owned enterprises as long as they have debt capacity. they could essentially achieve any growth target they wanted. what are your thoughts about this general question of chinese growth. and the specific points that mr. pettis's research had found? >> i think it's very hard. i certainly feel it's very hard to understand china, you know? you can read all you want, visit it all the time, but nonetheless, it's still very hard, i think for me, anyway, to really feel like you understand the way the economy works, the way the society works. so i think there's -- i think
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you have to as a general matter, just accept that it's really hard to know. i think on economic data in particular, you know, we don't -- and i'm familiar with michael pettis and his research and all that, but we haven't taken a view as an solution about that. i think a couple things are worth noting. one is that it may be there's more information in the change than there is in the level. if you know what i mean. the other is we've noticed in the last few years that the volatility of their economic reports has declined substantially. it was just kind of suggesting a little more management. nonetheless, we don't really know. the truth is we don't really know. we have to take the data and we take it with a bit of a grain of salt. >> you spend at the federal reserve, a lot of time looking at a lot of underlying indicators and statistics to try to assess the direction of your economy. when you look at not just how the chinese leadership and the
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communist party behave, but when you look at some of the i indicators how people are behaving or how other things like say, maybe energy inputs or shipping, so forth, do you see a country behaving as if they have almost 7% growth right now? >> it's hard to say. i would say that one thing that's notable is that they have not responded with massive stimulus to this current situation. they've had obviously over a longer period of time, growth has been slowing from three decades of 10% as an economy matur matures. they did put an awful lot of stimulus to work after the financial crisis. and that supported their growth. i think they have been much more cautious and careful. they have a deleveraging campaign as i'm sure you know. it's been going on now for one or two years. and they haven't really backed away from that. i think that's part of the global slowdown, actually, is
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trying to at least stop debt from growing inside china. they have unusually high debt as a society for any emerging market nation. i would say that they're behaving relatively thoughtfully and responsibly in response, they appear to be in response to this current slowdown. >> all right. thank you. my time has expired. senator hassen. >> thank you very much, mr. chair, and i appreciate your and the vice chair's convening of this meeting and to chair powell, thank you for being here and for your work. mr. powell, as you know, it's critical to the long-term safety and stability to the u.s. economy that the federal reserve makes data driven decision and remains independent from political influence. unfortunately, recent political pressure on the fed is having real world economic consequences. a recent study found markets react each time you're publicly
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pressured to intervene with a qualifiable change in investor's expectations that the rates will drop. can you tell the committee what actions you're taking at the federal reserve to not only insulate against political influence but to show the fed makes independent diecisions. >> politics plays no role. we use the best data. we're human. we'll make mistakes but we won't make mistakes of character and integrity. i am familiar with that research, and i would just say i think it's very hard to look at our incredibly complicated economy where many many things are driving results and pull out a one or two tiny effects. there's other research that points to different results, but i would -- it's absolutely essential that everyone
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understands that we are doing our jobs as we always have without regard to politics. we serve all americans. we do the best we can based on our analysis. we try to be as transparent as we can. we explain ourselves, put everything we do on the record. people dissent, put their dissent on the record. that's as it should be. >> i think it's important understanding that research is complicated, that we don't complicate it further with political actors putting pressure on the fed. that's been the norm and the tradition and it's one that i hope we can return to. i wanted to follow up on something that senator lee had talked to you about. as a member of the finance committee. i'm pushing for clear strategic trade policy that provides certainty to struggling small businesses. as we've talked about, i've heard from businesses all across my state targeted by china's unfair trade practices including the theft of intellectual property own the forced transfer
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of proprietary technology. the administration has manufactured endless trade uncertainty, and heaped damaging tariffs on new hampshire's businesses. i know you have repeatedly said, chair powell, this recent trade uncertainty has created risk for the u.s. and global economies. can you expand on the previous answer on how it's impacted the economic outlook and what you've used the fed's proper role in responding to the ongoing trade tensions with china. >> so we hear from businesses, and have been hearing them for a year and a half that this is a big issue for them, and that it's holding them pack from making decisions. i mean, in the first instance, businesses were looking at ways to rearrange their supply chains. almost all manufacturing businesses these days have supply chains. i think it's been a distraction for management. i think it's weighed on businesses' willingness and ability to invest and keep grow
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and that kind of thing. in terms of the appropriate response, our response is not to give advice on trade policy, but it's to react to whatever it is that is helping our hurting or ability to achieve our mandated goals. this is one of those things. we call it out as something that we are aware of, and as something that is weighing on business sentiment and ultimately on the economy. >> thank you for that, and i'll note we may submit to the record that i share a representative frankel's interest and concern about the inflation gap. it's not just a wage gap but the impact of inflation, particularly on working middle class families. i hope it's something we can learn more about from the fed. >> thank you. >> thank you. >> welcome, chairman, and thank you for coming to testify today. i had a chance recently to meet with a number of european central bankers, and they really outline for a group of us, the steps they're taking to
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understand and quantify and mitigate the risks that climate change is posing to the financial markets. so i wanted to ask you what the fed is doing to understand those risks and to look at their role in the economy as we're moving forward. >> climate change is an important issue, but it's not one that -- it is not one given principally to the fed to deal with. other agencies have that. >> clearly that's the case. i just want to understand if we're looking in a broad way at risk and understanding the data from that sort of lens. >> i think that is the right lens. the lens for us is risk management. so we are doing the researchers all through the federal reserve system thinking about the longer run implications of climate change for the economy, for financial institutions, and for all kinds of things. i think that's appropriate
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research. we're just globally at the beginning of understanding that, and there's a lot of research going on including a significant amount at the fed. i think honestly for monetary policy, t not a current consideration. it would not be something that would have any effect on the current setting of monetary policy. over time, though, it could, for example, effect the neutral rate of interest or the volatility of economic interest. those are things that we're thinking about for the longer term. i think the public will expect us to assess any risk and use that assessment in the way we supervise and regulate financial institutions and also just potentially over the longer term in terms of monetary policy. >> do you have an opinion on robustness of how u.s. banks broadly are analyzing that risk? and basically, what i'm asking is do we need to start thinking through whether or not we need to either self-impose or at some
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point impose some sort of stress test to look at the assets that banks are holding, and whether they're not -- whether they don't have some concentration of risk, if they're not thinking through that appropriately. >> well, what we're doing now is we are trying to make sure that financial institutions that are in regions that may be subject to severe weather have plans to -- to have redun tant systems and be able to be resilient. i think -- the bank of england it sounds like you're aware is doing a stress test based on climate scenarios. but it's not -- t a stress test that's meant to be purely informative. it wouldn't do what our c car stress tests do. that's an interesting idea. we'll be monitoring it, and i think we're going to benefit from some of the activity around the world that we're seeing whether central banks, we'll try to learn from what they're
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doing. >> we're seeing some places where it's harder to turn over a house in flood-proned areas, and if you had a concentration of mortgages you were holding in areas like that, obviously that could pose a real financial risk. do you think that gdp data adequately gives us enough of a picture about who is benefitting from the economy and i guess in other words, should we be looking at how economic growth is being distributed across the quinn tiles of the economy? >> i think it's hard to capture gdp in a $22 trillion economy. i think it's -- i think our -- the people who do that do a great job at it, but it's quite difficult. we actually -- it's interesting to try to cut the income data. we're doing some of that now with our distribution financial accounts. other agencies are doing the same thing. i think when you have the data, we have a tendency to want to
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cut it different ways. we're doing that. i think it's informative about the way income and wealth are shared broadly speaking in the country. it's an important perspective. >> we're certainly looking forward to seeing that data. >> great. >> senator cruz. >> thank you, mr. chairman. chairman powell, welcome. thank you for your testimony. we are right now experiencing remarkable economic growth across the country. we have the lowest unemployment in 50 years. we have the lowest african american unemployment ever recorded. we have the lowest hispanic unemployment ever recorded. in your judgment, what economic policies have played the most important part in generating that economic growth that we're seeing right now? >> well, i think i'd be reluctant to single out particular policies. i'll just say this. it's been a long, slow recovery, but it's come a long way.
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we're now in the 11th year, the longest since we began keeping credible records of the u.s. economy in the mid 1800s. the longest one, and we hope a significant way to go. we've just seen continued improvement, and i think i would point to a couple things. these long expansions are common now. and that really is because we conquered the high inflation. we've seen three of the four longest ebs pangss have been in the last four expansions. it's been the norm. i hope everyone takes credit for the good economy. it's a good place. i think it's worth noting, you know, as you mentioned, 50 year low in unemployment. wages moving up at the bottom of the scale more than anywhere else. growth continuing at a solid pace in the 11th year of the expansion. i think it's a really good time. i want everybody to get credit for that. not us. >> i have real concerns that going into 2020 that we may see
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a slowdown in investments as those allocating capital look at the political scene. and look at some of the economic proposals being put forth by democratic candidates for president, and i have concerns that that may cause people to tap the brakes in terms of deploying capital until at least after the election, and finding out whether these policies, if they might be i wemplemented. in your judgment, what would the likely economic impact be of the federal government implementing a massive tax increase? >> senator, i'm pretty reluctant to be pulled into the 2020 election, if you will forgive me. >> i don't expect you to comment on the election, but you can
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comment on the economy, and if a massive tax increase is good or bad for the economy. >> again, that's -- indirectly, as you started out your question, it's about proposals of candidates, and i just -- you know, honestly, don't want to get into that business, if you'll forgive me. >> well, let me ask you a number of candidates are proposing a wealth tax. not just on income, but on wealth. do you have any views on the economic behavior that would likely follow from a wealth tax, scaling as high as 8%? >> it is really not our role to score or evaluate campaign proposals. and that's what the cbo does and lots of other people do. we try to stay out of that business. >> let's try a different thing. former chairman ben bernanke in 2014 calls the shale revolution one of the most beneficial economic developments in the
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country. do you share that assessment? and conversely, do you have concerns about the impact on the economy if the federal government shut down the shale revolution? >> i would agree. i think the energy independence of the united states is something that we -- people have been talking about for 50 years and i never thought it would happen, and here it is. it's in the nature of a miracle, it seems to me. it's a great thing, i would say. it's not to say there aren't issues to manage. environmental issues, all kinds of other issues, but i think it's been a great thing for the country. >> and would it be harmful to end it? >> i -- >> economically? >> well, i wouldn't be looking -- i wouldn't be -- i think to shut down the shale industry, yeah, that would probably be not a good thing for the economy. >> thank you. >> thank you very much, mr. chairman. we know you have a hard stop
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here in about two minutes. i wanted to use my prerogative as chairman to ask one final question. we're in the middle of some pretty strong economic activity, very low unemployment. almost unprecedented economic stability. what policy or policies should we pursue to keep that going? >> well, i think that the -- if you're asking for my views on that, i think that the thing to focus on, if i were in your shoes, are the longer-run issues we face, particularly around labor force participation and growth. it's about the potential growth of the united states. we are seeing now how important it is and how good it is to have a long expansion with a lot of growth. and how it benefits people across the income spectrum. i can't overstate the importance of that. i think in the longer run, the things we need to address are labor force participation and productivity which is closely
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linked to education. so i think our workers need to have the skills and aptitudes to win in a global economy, and those are the things that are going to matter for our children and our grandchildren is what can we do now to keep the u.s. sustainable longer-term growth rate as high as it can be going forward. >> thank you very much. thank you so much for joining us today, and thank you for your service on behalf of our country. a record remains open for two weeks. we stand adjourned. >> thank you very much.
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more open hearings on the inquiry against president trump. tuesday jennifer williams an aide to vice president pence and a lieutenant colonel are scheduled to testify first. followed in the afternoon by
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kurt volker, the former u.s. special envoy to ukraine, and tim morrison, a national security council aide. watch live coverage beginning at 9:00 a.m. eastern on c-span3. you can also watch online at, or listen on the free c-span radio app. the house will be in order. >> for 40 years c-span has been providing america unfiltered coverage of congress, the white house, the supreme court, and public policy events from washington d.c. and around the country. so you can make up your own mind. created by cable in 1979. c-span is brought to you by your local cable or satellite provider. c-span, your unfilters view of government. >> next, lawny bunch, the new secretary of the


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