>> next year -- >> got to make a decision whether or not to raise rates, don't you? i'm assuming that you have some forecast of gdp over the next three years. >> i do, i do. i would say -- let me say this year i expect gdp to come around 2.5%, in that range, plus or minus. as you look forward, i would expect something pretty close to that, and the reason is, we see -- we continue to see, you know, high confidence among businesses and households, accommodated financial conditions, stock market is strong it feels like we're going to see continued strength next year >> i want to continue to push on this tax bill that we have here. i'm assuming you're going to tell me the board doesn't have a position on the tax bill >> yes, i am >> how about personally, do you have a personal opinion on the tax bill >> no, senator, i don't. >> let me ask you this question, are you going to raise rates in december and next year >> you know, i've made it a practice to not talk really

specifically about individual meetings, because that's why we have the meeting we're all supposed to hold back on that final decision and then go in and listen carefully to each other's views, all the reserve bank presidents, all the governors. that's how we do it out of respect for each other i will say, senator, i think the case for, you know, for raising interest rates at our next meeting is coming together >> do you anticipate we will be raising rates in december? >> well, to repeat myself, senator, i am not going to give you a really specific answer >> i don't know what coming together means that's why i asked the question again. >> i think the conditions are supportive of doing that, but we need to go ahead and have the meeting and listen to each

other. >> before the 2008 crisis, the fed had a lot of authority to regulate and supervise the biggest banks in the country, but failed to use that authority. when times were good, looked like maybe we didn't need strong rules to protect the financial system, and then when things went south, the fed's failure to put strong rules in place ended up costing millions of people their jobs, millions of people their homes, and millions of people their savings under chair yellen's leadership for the last four years, the fed has adopted a number of rules to reduce the risk of another financial crisis, and you have supported those rules and helped implement them i understand that now if you are confirmed you intend to take another look at those rules. in your written testimony, you say that you will, and i'll quote you, "continue to consider appropriate ways to ease

regulatory burdens." so let me ask this, you specifically say that you'll look for ways to roll the rules back are there any rules you believe should be made stronger? >> i do, yes, i would say if you think of the four principle pillars of reform, i think they can all be made stronger and all be made more transparent, clearer, more efficient. i also said there are a number of things i wouldn't roll back >> so what are the rules you said you would make stronger >> well, i think about resolution we will expect firms to continue to make progress on resolvability. on stress testing. >> so you would want to see rules that are more aggressive on the living wills, for example? >> not so much thinking of more aggressive rules as our expectation. >> but that's the question i'm asking about if you're going to revisit the rules for roll back purposes, which is what you said in your testimony, the question i'm asking is the reverse.

i don't want to see a one-way street here where it's all about rolling back rules and it's not considering the places where the rules need to be stronger. >> okay. i get your question. i would say that there are a lot of problems that we need to address in the banking system. i do think we've had eight years now of writing new rules, and honestly, i can't really think of a place where we are lacking an important rule. i think we filled out the rules that we need, and it's really a question now of dealing with things from a supervisory standpoint >> so of all the rules the fed has issued during your time there, you've been there for five years, on capital, on leverage, on liquidity, on stress tests, you don't think a single one should be made tougher? >> honestly, senator, i think they are tough enough. >> well, okay. got to say this worries me, but let me take a look for just a minute here then at the rules you say you want to really back. a few years ago the fed and other agencies finalized the volcker rule with your support on that. it prohibits banks from trading

on their own account, unless it is directly related to customer service. and this addresses one of the main ways that banks got into trouble during the build up of the financial crisis that sent them to congress for a bailout do you support significant changes in the volcker rule that apply to big banks for example, by exempting additional forms of trading? >> i do support a rewrite of the volcker rule i do believe we can do that in a way that's faithful to both the language and intent of the law >> so you would favor exempting more trading, for example? >> i would favor tailoring the application -- >> i would call that weakening the rule, but tell you what, my time is nearly up, but i'm going to follow up with questions for the record here. but i am deeply concerned that you believe that the biggest

regulatory problem in the country right now is that the rules are too hard on wall street banks that kind of mindset led the fed to ignore the financial system risks before 2008. it helped lead to the financial crisis, and it helped lead to the recession that followed it so, i'm worried that we not go down this path again, because if we do, it's going to be the same thing. and that is that millions of families are going to pay the price while the banks end up once again getting bailed out and with record profits. so i'll submit additional questions for the record, mr. chairman, on this line thank you. >> thank you i note you had 15 seconds credit, but it only lasts for this hearing >> but we do have a second round. >> maybe, maybe. senator scott. >> thank you

thank you, mr. chairman. governor, good to see you again. thank you for your availability in the recent past we have talked about these issues before, and very much like mr. kennedy, i've had some concerns related to past performances but i do want to talk about specifically the interest rate environment that we have currently. senator heller asked a couple specific questions as it relates to increasing the interest rate in the next meeting. as opposed to asking that specific question, i want to paint a story, paint a picture, then ask a question about the interest rate environment overall. if you're a retiree in south carolina, by the way, a great place to retire whenever that time comes, it certainly has high quality of life, good economy, wonderful places to live, but if you're on a fixed income in saluda, south carolina, and you're retired, the current interest rate

environment cuts really into your ability to live off of your interest income. as an example, someone with a $10,000 cd, 12-month cd today, earns about .25% interest. if you extend that for five years, it's still less than 1% said differently, if your nest egg is a half a million dollars or a million dollars and you're earning 1% or 2%, you're living off of $220,000 a year, so the significant impact of the artificially, in my estimation, low interest rate environment has a negative unintended consequence, i assume, in the current marketplace. i do realize that the advantage of a low interest rate environment helps spur economic activity, folks are more likely to buy homes, but that knife cuts both ways i'd love foryou to talk to me about the principles of the characteristics of an economy

that would require or encourage a more normalization of an interest rate environment. >> thank you, senator. so, i think we have that economy right now, and that is we have low unemployment, 4.1% unemployment, we've got strong growth the very low settings of interest rates that were appropriate during the crisis and after to support economic activity are no longer appropriate, and that's why we're raising interest rates now on a gradual path, and i expect that will continue but i agree as we discussed i guess yesterday or the day before, the interest rates are a blunt instrument that we have, and so while interest rates, low interest rates support economic activity, they lower people's interest bills, they support investment by businesses it generally has supported a pretty strong recovery, particularly in the labor market if you really are dependent on fixed income and bank deposits and, you know, short-term

interest rates, than it's been a burden for you, and, unfortunately, but i think overwhelmingly people are helped by lower interest rates and has been i would just say help is on the way. i do expect rates will continue to go up, and that will feed through into the interest rates that your constituent is having. >> thank you as relates to the balance sheet of the fed over the last decade we've seen that balance sheet balloon, and i know we talked a lot about starting -- creating a new starting place for a conversation about unwinding that balance sheet and then getting to a number that would be perhaps our new normal. not necessarily the $1 trillion i believe it was beforehand, but can you walk me through what you see as a snapshot in about 30 seconds or less, since my time is running out, of what you see happening with that balance sheet? >> sure. as we've announced, we are allowing as bonds mature we're allowing them to just give the

money back to treasury, so the market hasn't reacted to that, and on that path in about three or four years we'll be down to a new normal what will that new normal be it will be much smaller than the balance sheet today, much bigger than the balance sheet of ten years ago, and ultimately that level will depend on two things. it will depend on the public's demand for cash, which for them is a liability, us an asset, and banks' demand for reserves, which is going to be much higher than it was before the crisis. demand for crash more than doubled in ten years so those two things will be why the balance sheet will be bigger i said earlier my guess is that it will be somewhere in the $2.5 to $3 trillion range, but the truth is we don't really know. >> with my last 15 seconds, two points one, i'm encouraged by your thoughtfulness about taking a look at the asset thresholds that may be a part of senator

crapo's legislative package and looking for ways for us to perhaps increase the thresholds that have stringent, prudent regulations. the second thing i'd say is, i would encourage as we look at the designation in the nonbank arena, having spent a quarter of a century in the insurance industry, i would suggest that clarity on what makes you -- gets you designated and clarity on how you lose that designation would be credibly important. >> thank you, senator. >> thank you, senator shots? >> thank you, governor, for your willingness to serve thank you for the conversation we had last week i want to give you some data points according to the fdic, banks had record breaking profits in 2016 and the highest return on equity in years data from 2017 shows that banks are likely to do even better this year across the

board. banks have increased their dividends to shareholders by 17%. community banks' earnings have also been increasingly up almost 10% this quarter compared to last year. household credits such as home loans, car loans, credit cards, has surpassed prerecession highs, and according to the fed's sluggish loan growth in the commercial sector, is due to a lack of demand and so the question follows on senator warren's question, which is what problem are we solving with deregulation? >> i'm not going to characterize what we're doing as deregulation i would rather think of it as looking back over eight years of what is very innovative regulation in many cases, things that have never been done, like liquidity requirements, and resolution and stress testing. all of those are brand new and looking back, as i think it's our obligation to do, and making sure what we did makes sense

>> but isn't the objective to get all these metrics up, and aren't these metrics already up, so doesn't it make sense to err on the side of caution i understand in principle, some people in principle believe that too much regulation is a problem and it ought to be eliminated almost as an ideological precept, but if you're looking at as a practical matter, aren't these the data points you want aren't we where we want to be? in fact, isn't bank profitability not the problem, but to the extent that there was net income among the ten bank holding companies in the united states, 99% of their net income was distributed in the form of dividends and stock buyback, so i ask the question again, what are we fixing and for whom >> let me agree that the banking system is healthy. it's great to see. that was not the case a few years ago, and it's nice to see banks profitably serving their customers again.

so we're not looking to change that and i would also agree that we do want to err on the side of caution, and we think we're doing that, but, you know, even consistent with that, it doesn't help anyone for banks to waste money, if you will, spend more money than they reasonably need to spend to accomplish these safety and soundness objectives. those costs will fall on customers and borrowers and such, so it's our obligation, among other obligations, to make sure regulation is efficient >> you're just saying it's too much paperwork too much compliance? >> yes, you hear that a lot from, you know, from different -- on different issues different things on different issues, but there's certainly just a lot of regulatory burden, and a certain amount of it is unavoidable, but our job is to be efficient and effective, as well as protecting safety. >> i guess my concern is if

you're a bank both sort of dispositionally and from the standpoint of wanting to make profits, you want to reduce paperwork burden, and no doubt when you lay down a whole new matrix of regulation, there are going to be instances in which it's a pain for a bank, small or large, to comply but again, they've managed record profitability even despite whatever paperwork and compliance burdens there may be, and there is zero evidence that if we reduce the paperwork burden or the compliance burden, that they will pass on those savings in the form of increased lending or increased renun ration in whatever form to their customers. i only have 50 seconds left, and i just want to follow up on a question that i asked you in private. when the fed formulates monetary policy, it takes a broad look at the economy and identifies short

and medium run risks and trends. i have a copy from the minutes from the most recent meeting and there's a brief discussion of the economic impact of hurricane-related disruptions, as well as dislocation from wildfires. the minutes indicate that in the past these have only had a temporary impact, so i'll take these -- i'll offer the questions and then take the answer for the record. how many events would it take to have a material impact on the economy, has the federal reserve considered what number that would be in terms of the number of events or the total cost of the damage and have you worked with noaa or other science agencies about the likelihood of the number of severe weather events increasing my basic point is, that i understand this is difficult to quantify, but you are in the business of analyzing things that are difficult to quantify, and i think we now believe that this is material, and i'd like you to consider it, and i'll take those for the record. >> senator tillis.

>> thank you, mr. chairman, mr. powell, thank you for being here also thank you for being so generous with your time and the meetings that you've had in my office i covered some of this in the meeting that we had in my office, but i want to go back to it again you're going -- you've been nominated to a position where you're ultimately going to be, i believe when you're confirmed, randy coral's boss you also said in our meeting in the office that you're going to rely a lot on him to take a look at regulatory reform issues, regulatory right sizing. in that first meeting that any boss has with somebody they are working with, they try to give them some direction, so what are you going to talk about when it comes to recalibration of regs post crisis? kind of curious your comments on basel committee and the so-called basel four, and actually just if we could start with that and a general discussion about how regulations, it's not about repealing regulations.

some of them need to exist and if they'd been in place in 2008, we probably wouldn't have had a crisis the magnitude that we had, but now it's almost as if we either have too many people regulating the same regulation, or too many organizations, or we're not really clean in our executions, which is making it very costly, very difficult for businesses and distracting from what they want to do, which is run their business that's a compound question you can answer any part of it or all of it. >> okay, i'll start by saying my relationship with randy goes back so far, i can't think of what a first meeting would be like i actually hired him at treasury 25 years ago, and he's been a close friend all that time i think we're very well aligned on our approach to the issues that he'll face as vice chair for supervision. you asked about basel. my understanding, you know, vice chairman has the lead on this now, but my understanding is that there's significant

progress towards an agreement among all the principal participants at basel around uniformed floors, in particular, risk categories, and that would give us a way to wrap up basel three and i think that would be very much in our interest to do so it's other countries that have lower floors and lower risk waitings on their assets, so this really helps us >> i just came from a press conference promoting the tax plan that we hope creates economic activity, but in my own personal experience in north carolina, the two things that really combine created great economic activity were tax reform and regulatory reform, so i'm hopeful over the course of this year within your lanes, you're doing everything you can to question how regulations get executed, right sizing them to the point, to the minimum

lightest touch necessary so that we are reducing what is an increasing cost in regulatory compliance and by definition with all due respect to my friends and colleagues at price waterhouse, many of those compliance jobs are by definition nonproductive jobs. all they do is count whether or not all the productive activities were cross tied right. so hopefully we can see some leadership on your part with respect to the fed and the other regulatory agencies about more clarity, and i think more tip of the spear, we had the discussion about tip of the spear, regulators staying within their lanes and relying on other ones to the extent they need the information to complete their responsibilities now, i have a question about the goal of the fed over the last nine years it's been increased inflation and not growth, but what has a more corrosive impact on the middle class, low inflation or low growth >> well, low growth. >> and so outside of the things that you're directly responsible

for on the supply side, what sorts of things should we be looking at to help stimulate growth >> let me just amplify our mandate is inflation and maximum employment, stable prices and maximum employment, it's not growth so really the things that can increase the stable -- sustainable growth rate of the u.s. economy are things that are in your lane, not so much ours and i would boil that down into, one, labor force participation, and the other is productivity. if you think about it, really the -- you want as many people as possible taking part in the labor force, not just for, you know, the overall u.s. economy's good, but for their own good people are happier and healthier if they are in the labor force productivity is very, very difficult to forecast, and it comes down to, you know, technological advance and its effect on economic growth. very hard to forecast. it's also the skills and

aptitudes that our labor force brings to the job, and that is something you can effect it's policies that promote investment, investment in infrastructure, private investment by companies, and i think all of those policies are really in the hands of congress and i think it's important that we have a long run focus on increasing our sustainable growth rate. >> so it's outside of your lane. just a quick question, if you reduce the regulatory burden on businesses, would there be more or less investment and produ productivity >> i think there are clearly ways in the tax code to support different kinds of activity and certainly investment is one of those. >> thank you >> thank you senator van hollen >> thank you, mr. chairman, and to the ranking member. and congratulations, mr. powell, on your nomination you know, both your immediate predecessors at the fed,

chairman yellen and chairman r bernanke repeatedly testified about their concern and the impact of the rising debt, national debt, on the economy. here's what chairman bernanke said in 2012 he said, large deficits and debt over a long period of time raise interest rates above levels where they normally would be and crowd out private investment and are bad for growth and productivity they also may involve borrowing from foreign lenders, which is also a drain on current u.s. income, unquote. do you agree with chairman bernanke's statement >> yes, i do >> here's what chairman yellen said this year on july 12th before the house committee on financial services, expressing her concerns about rising debt she said, "current spending and taxation decisions will lead to

an unsustainable debt situation with rising interest rates and declining investment in the united states that will further harm productivity growth and living standards." do you agree with that statement? >> i do. >> now, obviously, if we increase the national debt, we're going to make those problems even worse. in other words, the long-term debt impact, harming economic growth, isn't that the case? >> yes, i think that the idea would be to get gdp growing faster than the debt over a long, long period of time. >> do you have any reason to doubt the congressional budget office's analysis of the debt increase that would result from the bill that's been proposed here in the senate by republican senators >> to tell you the truth, senator, i haven't looked at that it's not something that we're responsible for. >> so you have no reason to doubt those numbers, do you? >> i have no reason to know those numbers, let alone doubt

them >> do you have a concern about what the debt impact of actions the senate and the house take, whether on the tax side or spending side, with respect to the economy? >> so, it's a bit of a fine line that we have to walk on this, and i'm hoping i can walk it, and that is, you know, clearly the debt needs to be on a sustainable path we all know that i think we all agree on that on the other hand, it's not for us to be taking part in the discussion that you and your other elected colleagues are having over this that's not our role, and, you know, there are agencies who have that role it's really not for us >> okay. both your immediate predecessors commented repeatedly about their concern over the impact of rising national debts, and you just indicated that you shared their concern and agreed with their earlier statements so, putting aside whether or not you think the cbo analysis of $1.5 trillion additional debt is

correct or not, if there was another $1.5 trillion addition to the debt, it would make a bad situation worse, would it not? >> it would. all else equal >> and as chairman bernanke said a number of years ago, he said, and i quote, "so at some point congress is going to have to make a tradeoff between what its spending programs are and what taxes it's willing to -- he said at that time raise." we are now talking about reducing the amount of revenue coming into the federal treasury, but the basic math remains the same, doesn't it >> it does >> so if we want to avoid making the debt even worse, and you're going to add $1.5 trillion to the debt, the only way to deal with that is to then cut things like social security, medicare, medicaid isn't that the case? >> you know, there are a lot of moving pieces in it. as i mentioned earlier, what the country really needs is to have

debt growing faster than gdp what matters is our debt to gdp ratio. that's what makes us on an unsustainable path, so growth also enters into the equation. >> that's right, and the congressional budget office, they have their own projections, as you do, as was indicated earlier what the projected growth path would be there are things we may or may not be able to do to prove that, but there's no analysis out there, no credible analysis, that suggests that when you have a massive tax cut primarily going to major corporations, that the result is actually going to be a growth that actually makes up for the lost revenue in terms of debt do you know of any credible analysis that shows that >> senator, honestly, i've not been following the analysis. >> do you know of any credible analysis that indicates that this tax cut would, quote, pay for itself >> i am not an expert what analysis is out there about this tax bill, this proposal.

this set of proposals. >> all right well, i would urge you to follow the tradition of your predecessors, who were very careful not to wade into the specifics of the fiscal decisions made by congress, but did express this concern about rising debts and i thank you for your time. thank you, mr. chair >> thank you senator purdue >> thank you, mr. chair, and thank you, governor powell, for being willing to take on this responsibility i'm encouraged that we're having a conversation about our debt. and i appreciate the conversation you and i had privately about it, and i like your considerations on that. i'd like to remind the committee, you know, in the last 16 years we've added $14 trillion to a $6 trillion debt, the end of 2000. four under president bush and ten in the last administration and in that last administration, we had the lowest economic

growth in united states history. in the next ten years if we do nothing from today, this federal government will add $11 trillion in current dollars to the current debt, so we'll end up right now the current projection is if this government doesn't change how it does business, we'll add $11 trillion to the debt in 2000 the size of the federal government, governor, was $2.4 trillion in constant dollars last year it was $4 trillion there is our problem we collected more tax last year than any time in our history and the year before that we collected more tax than any other time in our history. globally, $200 trillion in debt. of that $60 is sovereign debt. of that, $20 trillion is u.s. debt and yet a number of countries have interest rates in their sovereign debt that actually are put out at negative interest rates. and i don't think the world's ever seen a situation where we had the four major central banks with somewhere around $18 trillion on their balance sheets

in a situation where we have $200 trillion in debt of which $60 is sovereign and of that a significant number is let out at negative interest rates. as you think about restructuring your balance sheet, what concerns you relative to the size of government debt, sovereign debt, around the world and of that the united states being one-third of that sovereign debt in terms of how you are going to manage one of the four major central banks going forward? >> thank you, senator. so i think we have a good plan, and i think the market agrees to shrink our balance sheet we've laid out very clearly in a series of public minutes over three meetings over the last year i think we were quite careful to socialize the plan and the market has accepted it, and it will lead to a much smaller balance sheet, and it will do so over, you know, what in these matters is a fairly quick period of time, three, four, five years kind of a range. >> sorry to interrupt, are there any assumptions in that

calculation, or in that thought process, of the freeing up of capital on the private side in terms of the money that's withheld from being active in the economy today? some estimates as high as $6 or $7 trillion, does that weigh into that decision >> actually, it doesn't. what happens, senator, is that when we allow a security to roll off, treasury will reissue a comparably sized security or in bulk the same amount the u.s. government debt will remain the same, it will just be issued to the public, rather than being on our balance sheet. that's what will happen. so it doesn't add to capital you point to the other central banks and their big balance sheets, but they are some way behind us, and so, you know, ideally over time all of our balance sheets can shrink. >> but all four of the balance

sheets are around $4.5 to $5 trillion right now it's the highest they've ever been so i applaud your background and i applaud your ability to deal with that. i'd like to, in the minute i have left, to talk about block chain technology little bit off the wall, but i'm beginning to be very concerned we have another bubble that is some four or five times the size of the dot com bubble in the late '90s, and that has to do with the crypto currencies like bitcoin. bitcoin's market value now is bigger than all but 29 of the s&p 500 corporations in america. you know, assuming that this continues, and talking about that bubble, and the size -- the growth of the use of these crypto currencies, if that continues to grow, to what extent will that affect your ability to effect results from your typical monetary policy options that you typically have as a central bank? >> you know, in the long, long

run, things, crypto currencies of that nature could matter. they don't really matter today they are just not big enough not anywhere near close to enough volume to matter. >> that was the problem with the dot com volume, too, on a different level. there was so few entities and so much money interested in chasing it and that's what's happening right now in the bitcoin area, but the growth of that area was much, much faster than anybody thought at that time, too, in the late '90s. >> yes, there's no question the valuations have really gone up quite a lot in the last year or soment so i don't have a view on the appropriate level of the valuation, of course, but from our standpoint, crypto currencies are something we monitor very carefully we actually look at block chain as having significant applications in the wholesale payments in the economy, something we pay close attention to >> so you're watching what alibaba is doing in asia today, relative to block chain

technology >> we are watching all of those technologies it's something we have to do, i think, and something that's actually kind of enjoyable and interesting to do. >> well, thank you for being willing to do this thank you. >> thank you, senator. >> senator cortez masto? >> thank you, mr. chairman thank you, governor powell, thank you for taking the time with me. welcome to your family it's great to see you here, as well so i'm going to start with a topic a little different president messer of the cleveland federal reserve gave a speech earlier this month where she noted that more immigration is needed to drive the u.s. economy at a time when the population is aging and productivity is stalling governor powell, do you agree with president messer we need more, not less immigration to help drive our country's long-term economic growth? >> senator, as i mentioned earlier, the size of the labor force is an important determinant of our potential growth over time labor force growth is slow right now, so it's a big reason why

our economy has slowed down, and immigration has been a real contributor to that. having said that, immigration is another one of those issues that's really not in our lane, and really those decisions are for you and your elected colleagues >> no, i appreciate that, but we've been talking about growing the economy and part of your purview is labor, and i appreciate your comments that immigration is an important part of that labor force that grows our economy, so thank you. as chair of the fed's committee overseeing the federal reserve bank's operations, including the presidential search process, we have seen board of directors, bank work forces, and better interaction with advocacy groups in the bank's communities. if confirmed, what will you do to increase the diversity of the leadership, workforce, and opinions in the federal reserve system >> thank you as i mentioned, i am a big supporter of the federal reserve system and also of diversity

i think we make better decisions when we have diverse voices around the table, and that's something we're committed to at the federal reserve, both at the board of governors and the reserve banks. that's something i've been deeply involved in during all my time there, and i would say that -- so i've had a chance to -- this is something people have been working on for decades now, and you begin to see what works, and so my view of what works is a lot of private companies have been very successful in advancing diversity, and what seems to work is to have wholistic plan that you stick with over a long period of time, and it's about recruiting, it's about going out of your way to bring people in once they are in, it's about giving them paths for success, and it's about having an overall culture and company that is very focused on diversity and it sticks with that focus for a long period of time. that works >> i appreciate that >> it's not something you can do overnight. you mention the reserve bank president searches, that's something i have been responsible for and i assure you

we always have a diverse pool of candidates >> i agree, i appreciate it. it's not just check the box, it is a cultural change that is constant, so thank you for your comments there congressional republicans are set to pass, as we've discussed today, a tax cut bill geared towards large corporations at the same time, this committee is about to consider legislation to roll back rules for some of the nation's largest banks what can you do at the fed to ensure that this tax windfall and this deregulation actually benefits workers and doesn't just translate into more executive bonuses and stock buybacks >> well, our tools are what they are, so we have monetary policy, which can shove the economy in the direction of stable prices and maximum employment, and we have regulatory policy, which can ensure safety and soundness of institutions. when institutions become more profitable, it just -- taking your suggestion, you know, some of that is going to go to shareholders, some is going to

go to customers, some is going to employees so -- but we don't really have tools that affect the distribution of profits. >> right and so -- but you do have a component of consumer protection >> we do >> and you do have concern about the workforce and growing that workforce and making sure there's a strong workforce, correct? >> yes >> so part of the concern that i'm hearing, and i didn't -- i really haven't heard a lot of that discussion, is what you're going to do to address specifically those consumer protection issues and particularly also protecting the workers. and that workforce >> consumer protection, we haven't actually talked much about. so we've been assigned, you know, an important role in consumer protection. we take it very seriously. i'm committed as chair, as i have been as a governor, that with responsibility for our budgets that consumer protection will be -- will have the resources it needs to do its job. whatever congress assigns us, we will try to do well and

aggressively, and that's my undertaking to you >> i appreciate that and i know my time is running out, and i will submit the rest of my questions for the record, but i like many of my colleagues do have concerns i come from nevada, dodd/frank was there for a reason, because we had a horrific crisis as you well know we talked about this and the deregulation of dodd/frank and many of these regulations that were put in place to protect individual consumers are so important and i'm concerned about rolling back any regulations that is going to open that door and lessen any type of consumer protection, any type of work that we have done, particularly in nevada and across this country to protect individuals so, look forward to having further conversations with you with respect to the idea of tailoring your regulations, as well thank you. >> thank you >> thank you senator shelby >> governor powell, congratulations. i look forward to voting for

you, help in my way i can to get you confirmed. i think you will not be long, hopefully, that you'll be over at the fed as the chairman and you'll have a full complement over there, which you'll need. you'll put your stamp on the fed. i hope it will be in a good way, based on your experience in the past we've talked about a lot of things here, but i'm going to get back to basic inflation scares, if any, price stability, which is so important as one of your mandates. a lot of economists are puzzled by the outlook of inflation statistics you've mentioned or eluded to that there's not real -- these are my words, not yours, not real pressure on wages, which is always a big factor. i don't see a lot of, myself, a lot of pressure from nrenergy costs and so forth

we are in a different economy than some of us grew up in with the globalization of things. you eluded the fact that you would have an open market meeting soon, and you could bump up the interest rate some. i hope you will not spook the bond markets, you know, in doing this gradually but certainty is important in the economy and predictability so where do you see the specter of inflation i don't see the psychology of inflation out there, which is dangerous thing. i don't see the wage stuff and other things i already mentioned. what do you see there that maybe we don't, that you can tell us about? >> thank you, senator. so, inflation has been below our 2% objective i think every single month or maybe every single month but one since i joined the board of governors in may 2012 and for most of that time it's been in the range of 1.5%.

it is actually really important that we achieve our 2% target, because our credibility is important on that front. and lately, inflation was moving up and it got pretty close to 2% the beginning of this year, and then this year came and we have actually stronger growth, we have, you know, a healthy labor market, but to my surprise, to all of our surprise, i believe, inflation readings started to come in weak and that was a surprise. and the question is why. there are multiple possible explanations one is that these are just idiosyncratic factors, like the ones you hear about that was a big drop in pricing for mobile telephone services because of a price war and also a change in the way they calculate that. in addition, pharmaceutical prices basically, you know, underlying inflation moves according to a slowly changing, evolving trend, but then there are these factors that move around a lot, and we

happen to have had a number of factors that push it down, and there are different views. we've been very public about this debate that we've been having in the fomc and public remarks, as you mentioned, and, you know, one question is, is it transitory, or are there more fundamental things at work here? i think we're all watching carefully to see, and we'll have to be guided by the data as they come in. >> we really don't know yet, do we >> no, we don't. >> is it transitory, or is it a larger trend but you'll be watching it day by day, right >> we will and that's what will dictate the path of our policy we can afford to go more slowly if we determine inflation is going to perform lower than we thought, and we can move more quickly. >> let's talk about the balance sheet just a minute. you -- i think you're on the right trajectory, but i think you used the term that you might

draw the balance sheet down to $3.5 trillion, something like that, whatever is that the new norm because that was not the norm. that's still a pretty high threshold, and if you did draw it down to, say, $3.5 trillion, does that hamper you down the road in case you had some drastic things to do >> senator, i would say that we don't really know with any certainty what the new normal will be. my own guess would be, and this is -- depends on a number of things i would mention, but would be more in the range of $2.5 to $3 trillion, which is $1.5 to $2 trillion smaller than our current balance sheet. ultimately what will dictate the size of the balance sheet will be the public's demand of our liabilities, particularly cash, which has been growing surprisingly fastly, quickly, in a world where everyone seems to use electronic cash. nonetheless, people like paper cash a lot, and also demand for

reserves, which are going to be higher than they were for requirements for banks to hold the highest quality liquid asset, our reserve so somewhere between 2.5 to 3 might be the answer, might be a little higher, little lower. >> in the area, the other mandate you're all involved in is regulatory area is it important when you come through the fed or fdic or anybody comes through with a regulation, proposes a regulation, that they have some type of serious cost-benefit analysis before they implement a regulatory change? >> it is, senator, and, you know, we always try to implement the laws that you pass we try to turn them into regulations as appropriate, and we try to do it in the most efficient, least costly way that we can that's consistent with congress' intent and over the last three or four years we've really raised our

game significantly on this, and we're doing more of that we've been putting out, for example, white papers in connection with big rules, like the surcharge or others i could mention, and they explicitly solicit comment on cost-benefit analysis we've also started a unit of economists and policy makers that's going to focus very particularly on cost-benefit analysis, so i think we're always trying to be better at that we regard it as a very fundamental part of what we do >> you also mention the word capital, which is very important to any financial institution, and i think it's key to banks' survival, financial survival, but liquidity is important, too, isn't it you can have all the capital in the world, if you can't have liquidity, don't they kind of go together to have a strong institution? >> they do, and, in fact, liquidity, as you suggested, liquidity runs is really what kills banks. you know, when they die.

but having higher capital makes it much less likely there will be a run on the bank in the first place. that's where i agree with you, they do work together, they are both important >> thank you >> thanks, senator >> senator tester? >> thank you, mr. chairman and thank you for being here, governor powell. i want to start my comments by echoing the ranking member's comments on janet yellen i think she's done an incredible job in a very difficult situation when she came onboard, and she needs to be recognized for that governor powell, i appreciate you being here today i guess the debt is about $20 trillion could you give me any idea on what an additional $2 trillion would impact, how that would impact the economy, another $2 trillion in debt >> holding all else equal? >> yep >> well, you'd have higher interest costs, obviously. if you hold all else equal, you have higher interest costs and either taxes will have to go up to pay for that, or you'll have

even more debt, and that will crowd out private capital -- >> is there any numbers that you have on potential impact to the economy, the higher the debt goes, half a percent, quarter percent, full percent per trillion, do you know? >> i don't have that handy, no >> okay. the reason it's important is because about a third of our current debt is due to the last tax cut that was done in the bush administration, so i think we need the right information. i don't know there's anybody on this side of the aisle that doesn't want to see a more simplified tax code and tax code that wants to make -- asked you the reason, i asked the question because there's not a lot of impact, and after it's done it's too late, and i want to make that point it's not in your portfolio, but it will impact your portfolio very significantly moving forward. there's a bipartisan bailout that we're probably going to address later this week or next

week called the economic growth regulatory relief and consumer protection act have you had a chance to take a look at that bill? it's a bipartisan bill i think there's 20 cosponsors, have you had a chance to look the a it at all? >> yes, it >> yes, i was, sir. >> i wasn't here earlier and if this was asked before i apologize. as you look at this bill, are we doing anything that's putting our financial -- since i'm a co-sponsor, i say we, putting our financial system at risk with the regulatory relief that's in that bill? >> i really don't see anything you know, we're looking at it carefully. we'll offer technical comments, but i don't see anything, no. >> okay. part of that bill is eliminating the volcker rule compliance for community banks of less than 10 billion trading assets and liabilities. any concerns there >> none. >> okay. there's a process that the fed completed earlier this year.

a portion of that review talks about syncization and streamlining and something that everybody can get behind i think it's key that regulators need to work together so they are not being duplicative, something i hear a lot from community banks. do you have any plans as chairman, because i think you will be confirmed, but do you have any plans as chairman to update and modernize the examination process between regulators >> between regulators? >> yeah, so that there isn't that duplication. >> assuming that -- if i can assume for a second that i will be confirmed. >> yes. >> that is something that i am committed to trying to do better on we're blessed with a, you know, a lot of regulatory agencies. >> yeah. >> in our system, and -- and some that have is good, but it does lead to overlap and duplication, and i'll be committed to improving on that. >> as you look at your position,

and you're no rookie to this you've been around the block a time or two. would you say that the number one job that you have to do as chairman of the fed is to make sure that consumers aren't armed without harming the safety and the soundness of our financial system >> i can't disagree with that? >> okay, good. >> just real quick and i've got about 50 seconds here. senator heller and i introduced the national standards insurance accounting which would ask the federal reserve to create an advisory committee requiring more transparency surrounding the process when the standards are being set. as chairman of the fed, how would you work with prudential regulators to understand that the fed successfully fully understands? >> we have acquired a significant amount of insurance talent at the fed and in the other agencies and on the fsoc

and we'd be committed to understanding the industry as best we can and for the regulation of the insurance industry to be as transparent as we can make it. >> so you would agree the insurance capital standards would be different than the financial institutions >> yes the risks of those institutions are quite different. we're aware of that. thank you very much, thank you, mr. chairman >> thank you that concludes a first round there have been several senators who have asked for a second round, and so we will do that. i will forgo, although i reserve the right to jump back in, but i'm going to go immediately to our ranking member, senator brown. >> thank you, mr. chairman again, thank you for being here, governor i want to follow up somewhat on senator cortez mastos questions and comments and other senators mentioned this since 2008 bank profits are up, executive compensations have rebounded but wages for working people are stagnant. the wealth gap between whites on

the one hand and african-american and latinos on the other has narrowed many people in my state have yet to feel the impact of the economic recovery. you know all those things. i hope they are central to your chairmanship past fed chairs cited inequality not just as a -- as a humanitarian personal problem but also a pressing economic problem. there's nearly a consensus among economists that are income inequality and wage inequality is a drag on growth. do you agree with that, and if so what do you do to address income inequality? >> i do agree with that, senator, and -- and i would say to me the most compelling factor, i think a number of factors are at work here, but if you look at the flattening out of u.s. educational attainment in the '70s and '80s and you look at -- at the rise in inequality, the stagnation of middle class incomes, median incomes. those two stories fit together

so well that i think that, you know, the way for u.s. workers to compete in the global economy is to through having skills, the best skills and education in the world and in a cents that's a big part of the story behind inequality. >> but question is what do you do you're not president what -- you're not a member of congress that should do more to invest in retraining and education and, you know, earl el childhood education. what do you do to address income inequality >> you know, we don't have a lot of tools to address inequality we don't have tools to affect distributional effects as all, but i would say that our commitment to the dual mandate and the maximum employment mandate is, to you know, is to make sure that anyone who wants a job, either has one or can find one relatively easily that should help. >> does that give you pause when some say you can raise interest rates because we're at full employment knowing full

employment may be for people that look like me that get to go to college if full employment is full employment and people that -- that -- people of color, people that are -- that left the workforce, have given up on a job, that it's not full employment for them. doesn't that -- doesn't that construct give you pause for thinking about increasing interest rates >> you know, we -- yes, of course, and we are very focused on pockets of people and different -- pockets of people for whom they are discovery is not real yet and people who have groups who have higher unemployment rates than others and higher poverty rates and other sort of things i think we do deal at the aggregate level, an it's important to say that, you know, we're raising interest rates now because the economy is strong, and if we wait too long, i'm not saying we're waiting too long, but if we were to wait too long, the economy could overheat, we'd have to raise rates and the economy would have a recession

and that won't help those people so the best way is to continue on this path of gradual interest rate increases >> as i asked you privately about coming to cleveland as your predecessor did and seeing ohio, high tech, good, strong, productive, efficient. ohio manufacturing, i would echo what pope francis said in exhorting his parish priests when he assumed the papacy and said go out and smell like the flock, and i would ask you to do some of the things that you did, not that you pattern your chairmanship after any one of your predecessors but to really talk to people and see people who still aren't in this economy that's been pretty good for people like us but not others. one other question the financial crisis wasn't the result of a single bad decision. dozens of small choices, including by regulators, to change the rules and weaken supervision for the big banks. we know that earlier this month the fdic

chairman grunberg sailed he's feeling a certain sense of deja vu with bankers and policy-makers becoming complacent of the risk in the financial system between this legislation this, committee is set to consider that the chairman that you talked about, and all the deregulation in the works by the administration and regulators, look whom the president has put on some of these boards and regulators were on course to -- were on course to weaken the rules for large regional banks, were on course to make stress tests and livings wills easier for global banks and were on course to insert yet more exemptions into the volcker rule are you certain that all these changes aren't paving the way for the next financial crisis. >> certainty is kind of a high standard, but, you know, i'm confident that we're not that's really not the intent i don't think how the kinds of things we're talking about doing would push us in that direction particularly. >> potentially fewer stress tests don't? >> well, that's not something we've decided.

i think stress testing is, you know, a really important post-crisis innovation maybe the single most successful and the banks also say that to you privately. >> i know you've said it and i know the banks have said it. >> yeah. >> so should we be even considering pulling away from stress tests and even the regional sfwhanks. >> well, you knyou know, i think to tailoring we want the most stringent things to be happening at the systemically important banks, the most stringent stress tests in particular, and we want to tailor or taper as we go down into the less significant, less systemically important institutions. >> weren't some institutions like countrywide smaller and i think wash move, am i right, smaller than some of these regional banks in a will have a relaxed stress test or a less than annual stress test? >> that's not something you decided. >> something you weighed in a moment ago on a bill that

congress is looking at. >> you think you're referring to the idea of having regular stress tests as opposed to annual. >> periodic i think is the word which is a very different word from annual. does that concern you, or does that give you discretion to decide >> i haven't had a chance to -- to as we've discussed, you know, not something that we've looked at yet. >> but you're coming to this committee, with all due respect, saying you support this legislation and now you're saying you haven't had really time to look at it so i guess that means you're not publicly yet supporting this legislation that you might after digesting it as the chairman decides to support. >> it's not the legislation. it's -- it's what we do with the legislation after it's passed. i think it will be in our discretion, if i understand the legislation correctly, proposed legislation, to decide how frequent stress tests would be they would be pirkd, aeriodic. we haven't decided we haven't looked at the question we're goin