unsustainable path is that the debt, as a percentage of gdp, is at a high level, but much more important than that, it's growing faster than gdp. so debt cannot grow faster than gdp forever, whereas i don't know that i would say that about the -- >> the accumulated trade deficit, where every year we borrow over $500 billion just adds to our foreign debt but i want to go on -- you know, some of my colleagues find this hearing kind of dry, so they've urged me to spice things up by asking an accounting principles question we have cecil, the proposed -- >> we'll continue to monitor the hearing of michael cohen and ambassador lighthizer, chairman powell talking about the balance sheet, housing finance reform, rates and some other things. i'm carl quintanilla with morgan

brennan. three major hearings taking place in washington today, all potentially market moving, and we have seen some swings dow is down 128. it's day two of the fed chair taking questions from house financial services meanwhile, trade rep light haurz testi testifying and then the president's former attorney, michael cohen, is on the hill in some dramatic testimony against the president. we'll continue to monitor all three of those hearings for you and bring you the latest developments as they happen. but for now, let's get back to the fed chair, financial services >> it's been under consideration for a decade now if we find it, i want does have affects like that and we'll take appropriate action >> thank you very much the gentlemen's time has expired. the gentlemen, mr. posy, from florida, is now recognized for

five minutes >> thank you very much, ranking chair for holding this hearing and chairman powell, thank you for being here to present your semi-annual report i would like to think that everyone in this room, at one level or another is enjoying the success that we're seeing continue in this country right, and i want to thank you for the contributions that you have made to that. i saw recently some trends in banking, indicating that since 2008, we've seen a decline in the number of fdic insured banks of about 38% over the same period of time,

assets grew by 80% from 10 trillion to 18 trillion. mergers have been going on at a very brisk pace, as you're no doubt aware, and i would like you to share what your research shows about the economic implications of increasing concentration in the banking industry and how that might restrict or perhaps enhance the availability of credit of those who take the risks on investments to grow our economy. >> thank you the number of banks have been decreasing pretty steadily for a number of years. i remember 14,000 was the number when i was in the government 25 or 30 years ago. and it's a range of factors. it's people leaving rural areas. and allowing internet banking and things like that but for whatever reason, you've seen a long run process. we know when a small bank goes

out of business in a rural county or small town, that's not a good thing and that's bad for the country and bad for that town, bad for the social fabric. so we try not to add to the problems of community banks through excessive regulatory burden we try to be mindful of their important role in society. the number of mergers last year in 2018 was the lowest in at least 15 years so mergers and clarification are actually at a pretty low level the last thing i'll say is i think we need banks of all different sizes. we need small banks, we need banks across the spectrum, different business models serving different communities you know, we want a diverse ecosystem of banks out there to have a healthy economy >> related to that same question, can you share the criteria that the fed uses in evaluating bank merger

applications >> i would be glad to. it's quite detailed. there's a federal reserve act section that lays out a lot of detail and there's also plenty of guidance on that issue. actually, i have a picture of it here so we look at competitive factors, banking community factors, managerial resources, we look at compliance with consumer and fair lending laws and cra record and that kind of thing. we look at the combined financials, of course, of the two companies. we also invite public comment. we have a pretty thoroughly carefully worked out process we go through this process carefully for mergers and look at all of those factors and then make a decision. >> okay. thank you very much. i wasn't going to dwell in this realm until we had a series of slides appear overhead and somebody else mentioned fannie and freddie.

so i'm curious if you can give us an update on the amount of tax dollars that have been spent to date on defending the crooks that mismanaged frannie and freddie and doggone near bankrupted the whole operation the last time we got a report, i'm thinking it was like eight years ago, we had already spent over $600 million of taxpayer dollars defending these guys from stock holder suits. can you give us an update on that >> i don't actually have an update on that for you i can check into that, though. >> okay, if you could communicate that to us, i would appreciate it very much. and i yield back the balance of my time. thank you. >> thank you very much the gentlemen from new york, mr. meeks, is recognized for five minutes. >> thank you, madame chair >> do you want to bring it up? >> good morning, mr. chairman. >> good morning. >> let me -- you know, let me ask you a question there was a study that was done by the new york fed that found that americans are borrowing more for cars while borrowing

less for houses. and the reason why the statistic caught my eye is because of my strong belief in home ownership and that is the best value for low and moderate income households to build wealth over a long period of time. and i often have said, i want individuals to rent the car and own the home as opposed to owning the car and renting the home and in a separate report, the federal reserve described the link between rising student debt and an acute decline in home ownership, particularly among young americans. so my question is, what does declining home ownership rates, especially among young people saddled with student debt, say about the overall health of the united states economy? >> so i think the overall household picture of debt, if i can start with that, is basically a healthy one. there are a couple of areas of concern. and you touched on the main one, which i think is student debt. and there's a growing body of research that shows that

students who borrow for their education and wind up not getting the kind of value they thought they would get, so that their incomes are lower than they expected, can't pay the debt back. that debt can hang over their economic and personal lives for many years, meaning lower levels of home ownership and other, you know, other sort of measures of economic success so we're seeing more and more evidence of that, as debt grows. >> and on a -- i guess, a different column, same way you have identified that debt is also high among low-rated or unrated nonfinancial firms and that underwriting has intended -- from the individual to the business. this leverage lending. and obviously, we're wanting

american businesses, even those with existing debt but i don't want to go back to 2008 so does the fed believe that increased credit risk in the loan market pose systemic vulnerabilities, particularly in the event of an economic downtu downturn >> so this is an important su r supervisory focus, and the headline answer to your question is we don't believe it poses a systemic kinds of risks, but we do think it proposes a macroeconomic risk, particularly in the event of an economic downturn these are companies that have borrowed in good times and borrowed high amounts of debt. and if there is a downturn, they'll be less able to carry out their roles in the economy and that may have an amplification effect on a downturn our supervision of banks indicates that the banks do not have excessively high exposures

to these highly levered non-financial corporations and also don't have excessively large pipelines of commitments that they've made. those are two things that they did have before the financial crisis that they don't have now. so the actual -- the banks -- and that's our window into this, is largely through bank supervision. the banks have really changed the way they manage their involvement in this business, in a way that puts the risk out in the holder's hands, rather than the bank's hands >> so we tried to and we came up with dodd/frank, to deal with the mortgage crises back in 2008 and we tried to make sure that we're now watching with reference to living wills and other things to prevent. do you think we are prepared or do we have enough regulators or watching closely enough so that we can avoid leveraged lending ending up being the next bubble that bursts and causes us to have the same kind of financial crisis that we had in 2008 >> yes, so i think our financial system is so much better capitalized and has so much more liquidity. it has a better sense of its risks and a better ability to manage those risks, stress tests

require banks to take a forward looking, particularly with the largest banks, a forward-looking assessment of their capital qua adequacy they've also done resolution planning so our banking system is so much more resilient and stronger than it was before the financial crisis, so it should be able to withstand the kind of shocks we're talking about. so if there were, for example, unexpectedly high credit losses among non-financial corporates, yes, the banks should have plenty of capital and liquidity to absorb those losses it doesn't mean there wouldn't be disruptions and losses, because there would be, in the economy, but it would not, we don't think, the kind of thing that we saw in 2008. >> so by and large, dodd/frank did a lot to help us and there may be other avenues that we need to include to continue to protect ourselves? >> i think dodd/frank and the whole broader regulatory program which went beyond dodd/frank did serve its purpose in

strengthening our financial system, yes. >> the gentlemen from missouri, mr. lookameyer is recognized orp five minutes >> we'll take you back in a minute the dow is down 38 point, the s&p is down 10, as we continue to monitor this triple header of testimonies on capitol hill. let's get an update, speaking of, from another key hearing with the u.s. trade rep, robert lighthizer, who's testifying in front of the house ways and means committee. kayla tausche has been monitoring that for us and she is on capitol hill with the latest kayla? >> reporter: morgan, this hearing is billed as an update on the u.s./china relationship, but so far the conversation has touched on china in great detail, but also the canada/u.s./mexico trade agreement which lighthizer says if that doesn't pass, it would be a catastrophe for the country, and also some of the bilateral talks going on with japan, europe, and other allies of the united states but on that china deal, since i last spoke with you guys on the air, the ambassador has said that he hopes that any deal will have a fully enforceable

currency chapter and also, that there is much work to be done. he has noted that china is pushing for all tariffs to be removed, but has so far not committed that the u.s. would follow through on that certainly, that would be a key portion of any deal. but as for what happens this week, of course, the president made the decision to delay the automatic tariff hike on march 1st, this friday, from 10% to 25% on some $200 billion in goods imported from china. there's some worries that if this policy doesn't get entered formally into the federal register, that that hike would go into place regardless of what the president wants. ambassador lighthizer says they're working on a legal process for that they hope to have it turned around soon and that would effectively delay that tariff hike that would otherwise take place automatically this friday. >> kayla, thank you. some key commentary there on u.s./china trade talks that the market has been watching so closely. i know you'll continue to

monitor that and bring us the latest headlines thank you. we'll head back now to the house financial services committee's q&a with fed chair powell >> -- it's going to cost people, who no longer have the ability to have home loans we had in this committee back in december, the home pirlbuilders testified that for every $35,000 increased cost, it cost 100,000 people across this country the opportunity to have a home loan. and those will be the low-to-moderate income folks this is very concerning to me. and when you look at the banks to either have to pass that cost along or have to eat it, and therefore ensure that they spread costs out against other costs that they -- other incomes they have, or they just curtail their lending opportunities altogether, which in some cases have happened. in my district, i've got banks that no longer make home loans because of increased cost. so i guess my question to you this morning, chairman, is, you know, this to me is going to have a devastating effect on the home lending market, especially

when you start to talk about the gses and when we start having a dramatic effect on the gses, who no longer have -- if we lose 100,000 homeowners, that's going to affect the economy. you talk about the build that's going to go on, about all the sales of materials that's not going to go on this is going to have a devastating effect on our economy, which is directly in your purview so -- and in conversations with chairman abe, who now oversees fannie and freddie, he gave me some figures that are going to be out of this world, how he's going to have to reserve for this and have to pass those costs along. so can you tell me from just this conversation i'm having here with you, what your thoughts would be along those lines? would you have concerns about the gses having to pass those costs along and the inability of consumers to have access to credit as a result of that >> yes, sir, were you tying that

back to cecil? >> yes, yes. >> yes, i think we know that regulation does have a cost and that's why we try to make it as efficient as we can and no more burdensome than it needs to be again, i think on cecil, we have tried to -- we have put a lot of resources in trying to understand how it will affect the behavior of banks and we're going to be watching that very carefully. we've also, again, for our banks, we've allowed a three-year phase-in that doesn't even start until next year we'll see it coming in gradually and watching very carefully to see whether these effects happen >> i know in talking with banks from wall street to main street, especially small guys, nobody likes this rule. and it's going to be -- and the original -- to me, what was told by fasb, the original reason was to have with regards to home loans, but if you're an investor investing in a bank or a credit

union or a single individual owning a bank, there is no need for this sort of risk exposure and therefore it's unnecessary i'm very concerned about this. and there's a growing ground swell of concern out there and i hope you take this into consideration. i yield back >> the gentlemen from texas, mr. green, is recognized for five minutes. >> thank you, madame chair and i thank the chair for being here with us today honored to be in your company, again. i have great respect for your international prowess. and i say this because you have had to deal with the level of inanity that most fed chairs don't have to deal with. i like for you to hear now the

words of the president of the united states. he indicated, i'm doing deals and i'm not being accommodated by the fed that would be you. i'm not happy with the fed they're making mistakes, because i have a gut and my gut tells me more sometimes than anybody's brain can ever tell me you have access to some of the graes minds in the world you do research. i assume that when you're setting the federal funds rate that you rely on that research and not on the president's gut i assume that you this because you understand the impact that it can have on the economy and i would just like, for the record, just for the record, would you indicate that you do

have the level of research necessary to make these decisions without the benefit of the president's gut? >> i think we have quite adequate resources at the fed. we have terrific people. and we have a very strong culture, more than anything, which is a culture of commitment to making these decisions for the benefit of all americans, based on our best thinking, diverse perspectives and without considering political factors. that's our culture and it's a strong one >> thank you and you do quite a bit of research in various and sundry areas. you have done research in terms of african-american unemployment, unemployment of teenagers. is that a fair statement >> oh, yes, quite a bit. >> i would like to ask you, if i may, if the stock market is a fair asset test for the health of the economy should we rely solely on the stock market it seems that the president

does >> we, of course, look at a wide range of financial conditions, credit market conditions the stock market is one of many factors -- >> one of many, but not the sole factor >> one of many >> not the one that supersedes others >> no, it's one of many. >> why is it so important for the fed to be independent? >> i think it's important because you've given us an important job, which is to achieve maximum employment and stable prices. and we need to do that in a way that is strictly non-political you've given us protection from shorter term political considerations and you've ordered us to do our business that way and you know, the record is that central banks that are in independent, have a degree of independence from the rest of the government, do a better job at serving the general public.

>> would it also have a little bit to do with the fact that you want people to rely on what you do and you want people to assume that what you do is not predicated upon the whims of some political personality >> is it very important that the public understand that -- who we are and how we do our business, which is strictly non-political and based on the best thinking we can muster. >> now, let me get to the question that i really wanted to ask. and it's this. invidious discrimination you've done many studies, you've acknowledged it. you've acknowledged that you have some of the best minds in the world. i want you, mr. powell, to do a study to determine the impact that invidious discrimination, that would be racism, that would be sexism, that would be homophobia, that would be xenophobia, that would be nativism, that would be

anti-semitism, the impact that invidious discrimination has on the economy. the impact that invidious discrimination has on the economy. this is a question that would help us to better assure that you can meet the mandates that have been accorded you it is unfortunate that we try our best to change the circumstance, but we've been doing it without the benefit of this sblemintelligence how soon do you think you can help me with this intelligence, please >> i'll speak to some of my research colleagues and come back to you. come back to you quickly >> i will look forward to hearing from you >> great >> thank you >> thank you >> thank you the gentlemen from michigan, mr. hizinger is recognized for five minutes. >> thank you, madame chair and thank you, chair powell.

volcker rules options, specifically, exchange listed options. i would like to hit fed inflation target increase discussions. >> weapon continue to monitor the three hearings taking place on capitol hill, that's powell, lighthizer, and michael cohen. the market is still suffering some losses. to recap what we've heard from the market fed so far, steve liesman is back with hq. >> so stick with me and back me up on this did i miss some discussion of federal reserve monetary policy at this hearing on federal reserve monetary policy? did you hear anything? >> -- housing finance reform >> i heard that. i heard that i heard banking regulations. a lot of acronyms, but there was just the one thing where he said, you can expect a balance sheet plan pretty soon so the banking system should be able to withstand shocks, it's well capitalized, but really no questions about monetary policy. and very few questions on the overall economy. i will say that one thing, if i take the two days of testimony

that i've heard so far, worth investors thinking about, is this issue of banking regulations, community banks, the community reinvestment act, and bank mergers this idea from both republicans and democrats as to whether or not the banking industry is serving the poor and rural communities and how it's doing that and the regulations surrounding them does seem to be of interest in the senate and in the house and from both parties. whether or not that actually leads to them doing anything, i think that's probably a tougher hill to climb. but the issue is out there and worth taking note. i haven't seen much impact at all on, for example, bb&t and sun trust. those are two stocks that are kind of on the front burner, mentioned in both hearings today as to whether or not the merger of those two would serve the communities where they may overlap and there may be some issues but those are the two areas. there's been some talk about fannie mae and freddie mac, but don't hold your breath to think

that either the house or the senate with the current configuration have any real chance, i think, of reforming either one of those two gses carl z >> we'll see if he revisits mmt with ocasio-cortez in a few moments. steve, thanks. let's get back to the fed chair. >> this is the 2155. so we have comments. i think we have a dozen rules out for comment. >> that was last may that you issued a proposal. >> so if you're talking about the overall tailoring proposal this isn't the volcker rule, this is the volcker part -- >> correct it's dealing with the size of the firm's trading business rather than the size of its assets >> i'll come back to you with the timing on that >> i would appreciate that >> options for centrally cleared exchange-listed option, the current exposure method is negatively impacted liquidity and is increased cost to

customers. last congress, the options market's stability act received unanimous support, and i know america doesn't believe us when we actually say we can agree on something on occasion. but i believe it would help solve some of these. the federal reserve and fdic issued a proposal to replace the current method proposed for purposes of exchange listed options with a more risk sensitive methodology to be applied, known as the standardized approach for calculating counterparty risk. can you indicate when the banking agencies intend to finalize this rule making? >> i think that's coming soon. i'll come back to you with a particular date. >> i'm looking forward to that it sounds like we'll have a long meeting after this one and in my remaining minute, the fed inflation target increase, and the dual mandate has been brought up, and to quote it

specifical specifically, i've never quite understood why it's a dual mandate, when congressman daited that fed, quote, promote the goals of maximum employment, stable prices, and moderate long-term interests. we somehow forget that third part all the time when we have this discussion. law woo but last week, news reports indicated that the fed might be considering a higher rate than the 2% and i'm concerned that the fed will be rushing into some new approaches when we're not necessarily understanding what we're living with right now and i'm wondering if you could comment on that. >> we are not looking at a higher inflation target, full stop >> okay, excellent >> what we're looking at is a way to more credibly achieve our existing 2% inflation target >> and in the remaining seconds, why is the labor participation rate for, quote, prime-age workers, as you had said, in your opening statement falling we're seeing older workers, those labor rate increasing, but

seeing prime age >> that is a longer conversation and a really important one and i think it's a range of things it's people who -- it's largely in younger workers it has to do with globalization, it's got to do with technology and with the opioid crisis it's got to do with the flattening out of u.s. educational attainment over the years. so this is an incredibly important issue and i would love to talk more about it, but -- >> i like forward to our next meeting. thank thanks >> the gentlemen from missouri, mr. cleaver, is recognized for fife minutes >> thank you, madame chair mr. chairman, i think at this very moment, the u.s. trade representative is testifying before the ways and means committee and one of the issues they're going to raise is u.s./china trade issues and

according to the u.s. trade representative, in 2016, about 85,000 workers in missouri are employed because of our trade that is very -- that trade is very critical, because of their unemployment or their employment and then in 2017, the trade representative reported that about $14 billion a year in agricultural exports actually promote the employment situation in missouri. 85,000 jobs. i don't want you to get into policy, but how do you weigh the

uncertainty in trade with the fed actually trying to create healthy monetary policy? >> so as you know, we have this thing called beige book, where we accumulate the comments of our vast array of economic and other contacts around the country, and really for the last year or so, a principle feature of those comments has been on certainty around trade we have companies say that they're concerned about higher prices, about -- because they're importing materials as part of their product, and some of them saying that they're delaying investments of various kinds and higher of various kinds. we have -- we can't really see through to what to effect is, probably at the aggregate level, it's not big individual companies, of course, can be very much affected.

so there's a lot of uncertainty out there. and it would good to have trade issues resolved. that said, of course, we don't have a role in trade we can't advise the administration and we don't comment on particularly policies, as you indicated >> yeah, absolutely. $14 billion that comes into our state to support these jobs, much of that comes from my congressional district, celine county, for example. is one of the top spots in the nation for the export of beans to china and the farmers are, just to accent what you just said, the farmers, some of them are even saying, maybe we should just leave our beans in the ground. i mean, why go through the whole process. and even though thaey've been getting some kind of a little compensation from the federal government, they are saying, we

want trade, not aid. and so there is a serious issue. but the u.s. deficit and physical concerns as it relates to the tax bill is something you've heard us speak about. again, i'll try to ask a question so it doesn't require you to get into policy, but it would be interesting to know what the economic impact of the tax package has been and may continue to impact our economy is there any data available that would give us an idea about that impact of the tax package? >> you know, i think cbo would be the best source of -- to sort of score what's happening to the economy from a very -- from a

particular law we look at the aggregate economy and, you know, the effects of the tax package are mixed in with everything else that's happening from our standpoint. >> okay, so the fed doesn't -- wouldn't speak to that >> we have estimates, but with a $20 trillion economy, we don't spend a lot of time trying to look back and, you know, it's really not what we do. we made estimates at the beginning and i think we've adjusted them along the way. >> thank you, mr. chairman thank you, madame chair. >> thank you very much the gentlemen from wisconsin, mr. duffy, is recognized for five minutes >> thank you, madame chair welcome, mr. chairman. good to see you. just a quick question on insurance before we go to other topics i think you've indicated that the u.s. insurance regulatory model has provided for a strong solvency our insurance companies are well capitalized. but now the aias is developing a

new international capital regime i think your colleague, mr. quarles, indicated that it would be a challenge for us to implement that new regime in the u.s. and so, my question for you, as you're part of these negotiations, is the u.s. going to agree to a new insurance capital set of regulations, or are we going to provide some pushback and try to get formal recognition of a u.s.-based model? >> so my understanding is that we're working with that group internationally to make sure that whatever they do adopt in the end works for our system, which we think is a good system. so we're with of course, not going to implement something that doesn't work furs and we're, you know, we're working with that international group to make sure that whatever is ultimately adopted does work for us >> okay. fair enough. in 2018, you said the u.s. gdp

growth was what? zpl >> it might turn out being 3%, might be 2.9 >> pretty good when was the last time we had 3% growth for a year? >> 2006, i believe >> 2006, so it's been over ten years. >> 12 years. >> and i think some other people had indicated that the u.s. economy could never hit 3% again. what happened? why are we hitting 3%? i mean, we're pretty long into this oecovery, right this is one of the longest expansions we've had since the great depression, fair enough? >> so at the end of this expansion, you should see this petering out you've actually seen some of the highest growth in the whole expansion, in over 12 years. what happened? >> well, it was a good year. there were a lot of things that happened >> i know it was a good year what happened? >> well, a lot of things did and i think that the tax cuts and spending increases, the fiscal package certainly supported demand in a meaningful way. >> so lower taxes actually

contributed to growth? >> yes, they supported demand. >> yeah. >> the real hope would be that there would be supply-side effects over time, and that's something that we hope will be big. but that takes longer, that takes more time to work its way through the system >> and so tax cuts have contributed to the 3% growth has any kind of regulatory reform from the administration helped with that growth as well? >> you know, it's really hard to isolate that that's a question that people really struggle with the way i think about it is, we really -- we don't want regulation to be anymore costly or burdensome than it needs to be to get its job done >> so 3% growth and did you make some commentary upon -- about the unemployment rates of whites, latinos, and african-americans? >> i did >> what are -- are they -- is unemployment higher today or is it lower for those individuals >> i think we're for -- for

blacks and latinos and latinas, we are at historic lows since the data -- >> historic lows >> you're near historic lows there. >> so more people are working, in all, if we want to look at all of the races, everyone's working more, right? >> yes, labor market is very healthy. >> very healthy. and their wages, did you testify, was what? their wages are going down or up >> wages have been moving up nicely in the last -- >> they're making more money, right? >> particularly for people at the lower end of the labor force. >> so more people are working, more people are making more money, and more people, i think you indicated, with the lower education or lower skill sets are making more money. is that correct? >> yes, that is right. >> and so i find it fascinating that some of my colleagues across the aisle bash the tax cuts, they bash the president, and the economic policies that

have come from this administration and a republican congress, but the net end result has been that more people work, more people make more money, the economy grows at 3% and when all of those great things are happening for all of these americans, no matter whether you're a republican or a democrat, whether you're african-american, you're white, you're hispanic, you're latina -- everybody's doing better under this -- these policies, but all the same, my friends across the aisle try to tap me down as they also bash the president on policies that have helped every single american i think that's shameful. i yield back >> thank you the gentlemen from illinois, mr. foster, is recognized for five minutes. >> thank you, madame chair and let's see, along the same vein, if you look at figure one in the report that you gave us, you look at the rate of job

creation, and i think it's remarkable how constant it has been with no visible change as a result of any of the possibilities of the last two years. and i think that's the relevant observation there. now, this saturday, march 2nd, the currently suspended debt limit, ceiling on the debt limit is going to come back into effect, unless we pass legislation or do something about it now, we have some runway on various extraordinary measures that can be done by the treasury and others do you have a feeling, first off, on how much runway we have before congress has to deal with the debt limit and can you say a little bit about what the implications of defaulting on that would be? >> i think there's real uncertainty about when the actual date that the government will are up out of cash and not be able to pay all bills when they are due will come, but it will be later this year. could be late in the summer, could be in the fall i think it remains to be seen at

this point and i think the main thing is, we've never failed to pay all of our bills when and as due, and that can never happen. that's not something we can allow to happen. i think our credit rating and our credit as a country is such an important asset, that we need to stop short of letting that happen very hard to predict, but possibly quite bad consequences if we were to default on our payments >> now, in the past, when we've come close to defaulting, sort of walked up to the cliff on that, you know, what have been the effects to markets, ratings, the whole -- what were the implications for the general economy? any way to quantify that >> very, very hard to quantify and i know in 2011, that we were downgraded as a consequence of this and i know that financing costs went up for a period right at the height of the crisis, and that significant cost imposed on the taxpayer more that

>> a few days ago, the president proud lly announced that he had reached a currency manipulation deal with china, which i understand, you indicated that you consult with the administration on this have you been told what that deal is? has the federal reserve been informed >> i think our staff is basically our point is, we don't handle currency. that's really the treasury's job. the thing that is our concern is that we be allowed to conduct monetary policy with a free hand >> but have you been informed of what that deal is? >> i think at the staff level, we, i think people are in contact and made sure that that limited interest has been addressed. >> was that a yes or a no or -- >> yes >> so you have been informed so people in the fed know what that deal is, although i understand -- >> as it relates to our interest, i believe so, yes. >> okay, are there other tail risks that you think we should be worrying about, you know, things like hard brexit.

what are your top few sources of tail risk that you think we should be thinking about in congress >> so i think the outlook for the u.s. economy is a positive one. and i think that i would start with, you know, slowing global growth we've seen global growth, particularly in china and europe, through the course of 2018 and right into 2019 growth in 2017 was a real tail wind for the united states economy. it was synchronized global growth around the world, as the global economy slows outside the united states, it becomes a headwind, so we're feeling that. brexit is just an event, and it may pass without much implications for the united states, but it's unprecedented and so, it's hard to say exactly what the implications. of course, we're monitoring it very closely >> more from the fed chair, jerome paul, in just a moment. major averages continue to trade in the red with the dow down about 108 points right now,

trading below that 28,000 mark again, this morning, the s&p and nasdaq also modestly lower, but let's get an update on another hearing taking place right now, robert lighthizer is testifying before the house ways and kmeme committee. >> ambassador lighthizer, the top trade official from the trump administration, has outlined a deal in which he says the u.s./china relationship will be changed going forward, but any tenants of that agreement, if it happens, would take a long time to execute. listen >> let me be clear much still needs to be done, both before an agreement is reached and more importantly, after it is reached, if one is reached. >> so, if an agreement is reached, that is certainly a different way than the president is talking about the potential deal with china.

he was asked multiple ways about this divergence of views between he and the president, his boss he answered a multitude of different ways, before landing on this euphemism to describe the president's unorthodox trade policy >> without question, the president has been imaginative, right? the whole 301 approach we've used has been something that people haven't used before and it's had a huge difference so i feel very comfortable that i pass my own standard of imaginative and i might say in the case of the president, gritty he had the grit to get the don ? >> so imaginative and gritty while this hearing was billed as one about the china trade talks, he also took a moment to lobby for the passage of the u.s./mexico/canada agreement he said that it would be a catastrophe if that did not pass and that if that is not passed by congress, everything else the administration does on trade is just a footnote.

carl >> kayla, i'll take it thank you for bringing us those latest hearings from that hearing. we'll continue to monitor that as well as the michael cohen testimony over in the house committee overn oversight and reform, but for now, back to the fed chair for q&a. >> we'll have to be patient to see them come in there's also a smaller possible effect on lower tax rates on individuals which could call forth more labor supply. so these are highly uncertain supply-side effects and they'll take longer to emerge -- >> and we've seen new people enter the labor market in the last six months that had given up on work organize staying in the market that were starting ig to leave, isn't that correct >> yes, so what we don't know is how much of that is cyclical in other words, because the labor market is so tight right now. and the second question, we've seen capital expenditures go up in the last six months, but not seen those pay off yet >> so exit poll expenditucapita

very strong in the early part of '18, they petered out a little bit, and it may be because -- >> but in the total year, they were up, correct >> yes, and we expect them to continue to be at a healthy level. >> so hopefully what we've done on tax cuts will help to pay dividends into the future. but i want people to understand how that works second quickly on monetary policy, it seems that there's been a change in the way that monetary policies worked the federal funds markets for non-gses is at a 40-year low of volume and it so seems that the interest on excess reserves is getting t ting to be a more imp part of what you do. can you talk about that shift since 2008 >> yes, so pre-crisis, there was a small amount of reserves and we could manage the federal funds rate by making relative small adjustments in the quantity of reserves in the current era where the

demand for reserves is so high and frankly a little bit volatile, too, trying to do that, trying to manage scarcity in that kind of a very large pool, we would have to have a very large presence in the markets on an ongoing basis. we don't think that's something -- we think -- we've decided to use our economisting framework. so the interest on excessive reserves is very fundamental for the way we manage our policy right now and seems to work very well >> and two more quick questions. there is a new focus on modern monetary theory that says that taxes can better fight inflation than monetary policy do you have a basic philosophical view of that >> so that aspect of it would be a complete change. i would say the reason why the fed does that is we can move quickly with our tools and to

give the legislation that possibility and in principle, we can do that, but we have a system that has lots of checks and balances >> so let's assume those two tools can move equally, who can move faster? the federal reserve or congress? >> much faster >> that's assuming they are equally effective, which i would argue that our monetary policy is far superior, as well real quickly, one last thing on realtime payments, something you said that i hope you'll stay focused on is whether the free market and the private sector can actually provide a realtime payment system, because if they can, there's no need for the federal reserve to do it >> that's part of the thing we have to look at under the monetary control act >> thank you i yield back the balance of my time, madame chair >> thank you, the gentlemen from washington, mr. heck >> thank you, madame chair >> is recognized for five minutes. >> mr. chairman, i am always asked the same question of the chair, the federal reserve board, which is, when does

measuring get a raise? i may have to revise that slightly, because, obviously, we're beginning to see some evidence of that, which i think is an indication of the full employment objective mandate that you have, so good job in fact, i commend you for your hitting the patience button of late but i'm looking at these payroll gains of, i think you indicated, an average north of 200,000 job added every month and i don't think that looks like full employment, month in and month out, and as minnesota fed president kashkari has noted, the share of income going to labor, the share of income going to labor isn't really reversing its long-term slide. so when the fmoc is being patient in watching the data, what are you looking for in the

labor market how much slack do we have left >> we look at a very broad range of indicators. with inflation, we can look at one indicator and we actually, we think central banks control that the labor market is different. so we look at the unemployment rate wages, we look at job openings that can go on you never know you're learning in realtime. there will more people that will come back in labor force there's a long run iaging trend in our country my age group is retiring

>> are you willing to let wage growth, wage growth climb to 4% either to begin to recover some of the decline that we have experienced or labor share of income or alternatively, an idea i don't think is discussed often enough to see if tight labor market themselves improve or boost productivity are you willing to let wage growth >> we're talking price inflation and not wages. wages should equal to it in the aggregate. >> as a follow up, i have a couple of charts

these are your two mandates. full employment and price stability. you reference the price stability. can we go to the second slide or not? the second slide i'm burning daylight we can't go to the second slide. this shows the record over the last 25 years with respect to the feds price stability target of 2%. what's important to note is we have under performed 85 months versus two months. 213 months within a half percent of target and good on you for that as well clearly, the long term record of the fed has been under performed. there is a relationship between

wage growth and price stability and on the issue of price stability, the fed has been under performing way more. i don't know how many. this speaks obviously to the issue of when are we going to get wage growth that begins to compensate for years and years of decline i don't know you're engaged in a healthy exercise to review the tools of communication what i would hope is that would be taken into account some more transparent advancing of the historic record as a means of informing policy going forward i think this data speaks very clearly that we have a need to place a greater emphasis on wage growth and the factors of it thank you. >> if i can say you're absolutely right about the inflation data i think a number of us are on that ourselves

>> thank you you did make a commitment to improve communications i want to compliment you and thank you for our conversations and i think you have fulfilled that commitment to improve fed communications i suppose it's my job to held the fed accountable. the first is the fed negative net worth.

this equates to a 170% capital and means on a market to market basis, the fed had a net worth of negative $27 billion. if interest rates continue to rise, the unrealized loss will keep getting bigger and the net worth will keep getting more negative chairman powell, does it matter that the federal reserve is insolvent? >> no. it doesn't matter at all for any purpose. in no sense are we functionally insolvent. >> does the mark to market negative net worth make it difficult to raise the federal rates? >> absolutely not. >> next question is, another

discussion on the balance sheet and the balance sheet reduction program. in your testimony you stated the fed made quote, substantial progress on reducing reserves and that the fed is quote prepared to adjust the balance sheet normalization program. this does seem to be a shift from your comments in december when you said you believed the run off of the balance sheet has been smooth and served its purpose and i don't see us changing that. i think i heard you explain that banks demand for reserves on the increase and i recognize that currency is doubled from about 850 billion to $107 trillion explain what caused the shift in the feds balance sheet reduction plan and give us a better understanding of the final destination between the four trillion dollar size right now and the $1.7 trillion dollar currency level

>> we began a series of meetings to engage on the set of issues i departments want to get ahead of the committee in december i think the markets became much more sensitive to these issues we worked out the frame work of a plan that we hoped to be able to announce soon it will result in the end of asset run off sometime later this year >> thank you thanks for that explain. i would urge you and your colleagues to remain findful of the fact that critics that continue to express concern about size and komcomposition of the balance sheet as remaining fairly unconventional. final question is related to a

regulatory matter. i sent a letter with 28 of my colleagues we expressed our concern that surcharge puts u.s. banks at a disadvantage it's more stringent than the one adopted by the international bosil committee. yesterday you stated the financial system has much higher capital, liquidity, better risk management and the stress test that helped banks understanding the risk >> i think that the overall level of our capital with the

largest firms is about right the stock prices seem to be in line in terms of the surcharge in particular, it's one of a bunch of pieces. the overall level is just about right. >> i appreciate your testimony thank you. >> you mentioned that a significant amount of growth is in consumer spending i'd like to focus on the impact of energy crisis i want to read a couple of quotes to a recent article

chief economist of ebs securities has said the increase in oil prices was responsible for much of the rebound in fixed investment in 2017 noting specifically how oil and gas shale plays have now make us very depenitedent on the price f oil to drive u.s. fixed investment >> our breaking news continues good afternoon i'm scott wapner we're following three major stories. all of which unfolding on capitol hill testimony by the chairman of the financial reserve. largely what jay powell told the senate on tuesday. in another room, the administration's point person on trade. robert lighthizer giving a