overnight and term loans, debt derivatives, and it is the standard that has been used internationally and extensively in the united states affecting individual small businesses, large corporations so we got a big issue here, but of pervasive manipulation now, it is apparent that libra is going to leave us or be removed within the next year or so, so this creates a big problem, and so i want to ask you because the most critical part of this is that parties to both sides of the financial contracts should be and must be concerned in the short-term about the potential ramifications of the end of libra, specifically in contracts that do not have a fallback

position and as you know, without a fallback language or some appropriately established safe harbor, until a new reference rate can be used significant legal problems and challenges are likely to occur. so with this in mind, as libra's scheduled end nears and so far -- and so far is a secured overnight financing rate apparently will take its place, tell us, chairman, what can we do -- what can be done to accommodate the numerous contacts that do not have fallback provisions? >> thank you, mr. scott. you said it very well. this is a -- i think there are 300 trillion-plus in contracts

referencing libor in five different currencies the manipulation was revealed really almost a decade ago, and i think the financial conduct authority, which supervisors the libor banks has said -- >> it's an important day as the fed chair testifies in front of the house financial services committee. i'm carl quintanilla with deer ra bow is a here got some record highs here the chair has discussed several things, facebook, libra, the jobs market, the experience of japan, u.s./china trade, but there was an interesting exchange between him and chair waters about what he would do if the president did ask for his resignation. take a listen. >> mr. chairman, if you got a call from the president today or tomorrow, and he said i'm firing you, pack up, it's time to go, what would you do? >> well, of course i would not do that. >> i can't hear you.

[ laughter ] >> my answer would be no. >> and you would not pack up and you would not leave? >> no, ma'am >> because you think the president doesn't have the authority? is that why you would not leave? >> i have -- i've kind of said what i've beintended to say on e subject. what i said is the law clearly gives me a four-year term and i intend to serve it. >> steve liesman, what you make of that? >> i think he fortified it pretty much there. i kept thinking of that bob dylan song, i ain't going nowhere i thought was the way he was answering that, and he's been pretty steady on that idea. he believes he has the right to finish that four-year term, i suppose unless removed by congress he doesn't believe the president has the authority to remove him from office. i also thought some of the things he said on the economy were fascinating, carl i'll go through some of them,

the idea that the jobs he was asking about specifically, the strong jobs report friday did not change the outlook of the federal reserve. that was one trade uncertainty remains. he's concerned about global economic weakness, and then the thing that stood out to me the most was the very dovish characterization he had of the jobs market. he said i just want to find this exact quote there. he said to call something hot, you need to see some heat. very dovish about the recent increase in wage gains being just -- really just 3.1% he says they could be higher, so he's really not concerned about any sort of wage push inflation out there, and does not see the jobs market as overheating that's another notch, carl that gives the fed scope to cut rates. >> what you're hearing is more caution than optimism? does that raise the chances for more rate cuts down the road >> yeah, i mean, if to use

another song here, bing crosby that song accentuate the positive he was accenting the negative. the data since june he said has continued to kdisappoint, abidin concerns about global economic weakness that was the emphasis he gave. he had an opportunity to push back against where the market was priced he chose to push them a little further along. >> from dylan to bing crosby, always framing it through music. we appreciate that let's get back to the hearing and see if they're still talking about libra versus libor. >> passage or non-passage of the usmca affects our leverage are china and negotiations, trade negotiations >> i don't i don't think it would be appropriate for me to comment on those negotiations, and i don't -- i don't really have an answer for you on that

>> in the next week, next several weeks purportedly we're going to be voting on a proposal to wait to raise the minimum wage to $15 an hour. there was a cbo report that came out in the last day or so that estimated that a raise in the minimum wage to $15 an hour could cut -- should cut 1.3 million jobs up to 3.7 million jobs what would the effect be to the economy if congress were to pass a minimum wage bill of raising the minimum wage to $15 an hour? >> the -- the question of the minimum wage is really one for you. i think the studies there are a range of studies that have different outcomes but like the cbo study, what they tend to show is that a number of people get higher wages, and a number of people lose their jobs, and

those numbers will change depending on what assumptions you make, and it really is something -- there is no consensus among economists economists are all over the place on this, so it's really a question for you to sort of look -- i would look at a range of studies and not take any single one and i would weigh that and say are the benefits worth the likely costs >> what is the effect to the economy if 1.3 million people lose their jobs or 3.7 million people lose their jobs as a result of the rise in minimum wage to $15 an hour? >> well, it would -- you know, it would depend on, again, there would be costs and benefits. we know that some people would get higher wages and they would presumably they'd be better off and they'd spend more, so it's not a judgment that we make on net. it's a judgment that you have to make there will be people that will be better off by it, and those are all the people who have the higher minimum wage, but there will be a number of people who lose their jobs because that's what will happen i think empirically.

>> would the federal reserve be concerned if 1.3 million people lost their jobs because minimum wage was raised to $15 an hour >> again, we do not take a position we never have taken a position on the minimum wage, and we would take whatever decision you make as the decision that we would put into our models and we would just take it as a given. we wouldn't express either support or disapproval >> when i'm back home in west tennessee, what i hear generally from employers, small, medium and large, the economy's good. we're making money we're making more money than we made in 20 or 30 years we can't find enough employees we can't find employees with soft skills. we can't find employees who have the skills we need for the jobs. we can't find employees who can pass a drug test specifically and you've talked about this publicly, the effect of the opioid crisis on the --

on the work force, what is -- what is your feeling with that, and how does that -- how does the opioid crisis affect the work force >> an extraordinary number of people are taking opioids in one form or another, and it weighs on labor force participation, largely but not exclusively on younger males, also younger women, and it's a national -- national crisis really, and -- i mean there's the humanitarian aspect of it is completely compelling, but the economic -- the economic impact is also quite substantial. >> thank you, mr. chairman. >> thank you. >> the gentleman from colorado, m is now recognized for five minutes. >> thanks for your testimony today. let me just start with some questions that mr. scott was asking on libra. given sort of the uncertainties and the ability to kind of

manage this new currency, if you will, i mean, would the federal reserve, would you support some postponement in their implementing libra or any kind of a moratorium until we have a better understanding of the impact really on our economy and our ability to manage money? >> you know, i think that there are -- there are deep importance, serious questions across a range of issues here that will need to be addressed, and the process of doing that is going to have to be patient and thorough and not a sprint. that's what i would say, so i do think there's a lot of work going on at the fed and at other agencies and i think in the -- in the government to understand these issues, i think it's -- it's something that doesn't fit neatly or easily within our regulatory scheme. it does have potentially

systemic scale, and for all the reasons we've discussed, it needs a careful look and so i strongly believe we need to all be taking our time here. >> i'm going to take that as a yes, thank you now i really -- i got a couple other questions, and i don't know if you have your booklet in front of you, but i always like the graphs that you folks prepare because they're very informati informative, and especially graph 2, in my district in colorado -- graph 2 is really the unemployment rate and the fact that for about nine, ten years now there's been a steady decrease in unemployment in my district in colorado we've enjoyed under 3% for about seven years running, which is pretty remarkable so i want to thank you and i want to thank the federal reserve for the role you've been playing there, but one of your

answers really i think is important to what we face as members of congress is the fact that for most americans their wages still, they're struggling month to month, year to year to get ahead, to really be able to deal with the costs that we all see. so in your predictions in what the federal reserve is doing, do you see improvement in what everyday americans are making and sort of catching up and getting ahead where they lost a ton through the recession in the years right after that >> so what we're hearing -- we're hearing this quite a lot from people who work and live in low and moderate income communities is that there really hasn't be an recovery for these people until recently, but now they are feeling with this tight labor market, they are feeling

employers who are waiving, you know, issues that might have prevented people from being in the work force the they're willing to look past those they're recruiting people who have been outside the labor force. in fact, we've had people say to us that this is really the best feel that they've had for many years, if ever, and all of that really in my thinking and our thinking just says how important it is for us to continue to sustain this expansion this has really come together just in the last -- you know, we've had a long as you can see from that chart, the labor market has improved steadily for ten years now, but just in the last couple of years, it started to reach communities at the edge of the work force, and it's so important for us to continue that process for a couple of years. that's why we're so committed to using our tools to sustain the expansion. >> thank you my last question, the only graph that i saw that really is kind of perplexing and problematic is

on page 31 of your -- of the monetary policy report, and that's the one on trade policy uncertainty, and if there's a place that i think we as members of congress are concerned, and i think both democrats and republicans it is on trade policy, and this graph, if i read it correctly, shows that it isn't just members of congress that are concerned about the president's trade policy it's the people that you survey. can you tell me what that graph says >> well, it shows trade policy as quite elevated, and i think we know that you know, in our beige book, we report discussions from around the country from all kinds of business and community folks, and i think trade policy has been elevated, and it's been particularly elevated since may, by the way it spiked in may with those developments, and there's no question it's elevated. >> all right, thank you for your

testimony, sir. >> thank you >> mr. hollingsworth, the gentleman from indiana is now recognized for five minutes. >> good afternoon, i really appreciate you being here. good morning, rather i can tell time. does not bode well for my questions, huh so i wanted to talk a little bit about your use of the word throughout testimony and the written testimony semitree, at 1.5% core, 1.6% what do you mean by symmetry? >> in our statement of longer run policy goals and monetary policy strategy, we define smeert above or below 2% it's really a symmetry of concern or of intention as opposed to outcome. >> and so over the last ten

years, right, it's run persistently below 2%. does that imply a willingness or acceptability for inflation to run for a period of time moderately or slightly above 2% given some of the disinflationary pressures if around the world >> so under our current framework, all it says is if inflation is above 2% or below 2%, we would look at that similar metically and of course a central question we're asking as part of our monetary policy review is whether that's the right way to think about it when in fact, all of the deviations from 2% have been below, not above. so inflation has been averaging less than 2% >> i certainly, it's unmistakable when you look around the world, there's a lot of traps associated with very low inflation and how persistent that seems to be around the world. that's some concern you've expressed as well on many

occasions that we don't want to get mired in very low inflation. we want to have stable prices but stable around that 2%. as you think about where the economy is today, and think about where inflationary pressures are today, is there a desire to ensure we don't fall into the same trap by pushing the economy faster, being more accommodating in monetary policy to push that 2% as you said, if it's semimet ri cal to push that >> through the indirect means that you have available to you to manage inflation expectations going forward? >> i think we. >> that will -- lower inflation will ultimately work its way into expectations and short-term interest rates that will mean we have less and plus -- so we really do want to

have inflation similar metically at 2%. >> one of the things you've talked about is people's expectations for future inflation, which have been very much anchored by their recent history with inflation that recent history over the past ten years has been below 2% inflation, and in order to move people's expectations going forward they need to experience slightly faster paces of inflation. most research continues to indicate that research experience informs expectations going forward. i want to come back to and better understand what you were saying, like the goal is to push inflation up to 2% or have a willingness or tolerance up to 2%, and if it should run above 2% to bring it back down to 2% is that what you mean? >> i want to draw a distinction between our current framework is the one i described for you, where we would always be pushing back for 2%. we're looking at different ways to -- and that -- by the way, that framework seems to have

achieved errors on one side which are consistent with the framework. >> correct. >> and we're asking the question whether that's the right way to keep doing it or whether we should be looking at something which produces more symmetric outcomes that's one of the fundamental things we're looking at as part of this. >> one of the dialogues we've had in the past and i certainly want to continue to encourage you to continue that research and developing that framework. i think it is important given all the pressures we've seen around the world and some of the other developed countries that have fallen into this persistent low inflation, that we should think about how we continue to manage what we're doing on monetary policies and reflects those concerns what have we learned over the last ten years about the limits of monetary policy and how do those limits inform what you believe the next steps might be with regard to monetary policy. >> if you can answer that broad question in 12 seconds. >> i will. i would say it's not a good thing to have monetary policy being the main game in town, let alone the only game in town. fiscal policy is very powerful and more powerful and it's --

there come times, for example, after the financial crisis where you need fiscal policy to really lift the economy, so it's not a good thing to have monetary policy be responsible exclusively for things, and it shouldn't be >> thank you for being here, and thank you for your great work. >> mr. himes, the gentleman from connecticut is now recognized for five minutes >> thank you, chairwoman and thank you mr. chairman for being here good morning, thank you for your testimony. oouf got two questions, one on monetary policy, one on the broader regulatory environment around the banks let's wake up the room with a discussion of interest paid on excess reserves. the fed's policy obviously changed pretty dramatically in 2008 if the numbers i'm reading are correct, excess reserves today are in the neighborhood of $1.5 trillion. i have a couple sort of intuitive at least concerns with that that obviously has a pretty dramatic effect on liquidity in the system

it creates a business model for banks, obviously, who can essentially get risk free money from the fed in a way that is not available to my constitue s constituents, what really concerns me in the context of monetary policy, i'm sure you're awaur aware of a report published by the minneapolis fed, in which the individual who wrote it, what potentially matters about high excess reserves is that they provide a means by which decisions made by banks, not those made by the monetary authority could increase inflation reducing liquidity dramatically quickly my question is at a minimum if that is true, that could be a significant impairment of the fo many mc's ability to actually control monetary policy. my question is what is the future of the policy with respect to interest paid on excess reserves. >> i'm not familiar with that paper from the federal reserve bank of minneapolis. as i'm sure you're aware, during the financial crisis, we bought

a lot of assets, the way we paid for it is by issuing reserves. at the same time we vastly increased the required liquidity that financial institutions have to hold, and many of them choose to hold reserves so demand for reserves even after the balance sheet shrinks is so much higher, and we're actually trying to find what that demand is, and it might be somewhere a bit below the current range that it's in >> but sir, the demand obviously is to some extent driven by the rate that is paid on those reserves you control the demand for reserves above and beyond required reserves. >> to some extent we do. banks choose to hold -- they have to hold a certain quantity. they could also hold treasury, but they like reserves because they're highly liquid, and it's not -- they pay the same as treasuries, by the way, roughly the same in terms of ioar, though, the

thing is in our framework for conducting monetary policy, oier is the critical rate it's how we manage -- that's how we manage monetary policy. we've been doing this for really ten years now, and we decided earlier this year that we would remain in that system. getting to a system where instead of using an administered rate you manage the quantity of reserves on the edge of scarcity and set the price that way, which is what we did, would be very, very tough given the level of demand for reserves >> so should we -- i mean, as you know, there was a fairly dramatic policy shift in 2008. some have said that the amount of interest paid on excess reserves was well in excess of what congress envisioned in the time ask legislation of '06. is this now a status quo monetary policy tool that congress should anticipate works in conjunction with control of your other rates. >> absolutely. this is our principal tool. >> let me shift because time is

short to a broader regulatory question we have heard from ceos and banks, we've heard from the vice chairman and others that generally speaking the banking system is safe and sound, well capitalized. when the ceos of the large banks were in front of this committee a couple of months ago they identified two things with some consistency as being of concern. one was leverage lending, which is odd because most leverage loans get put into clos and taken outside the banking system interestingly they also said shadow banking dy definition you don't have a lot of control over shadow banking. given the consistency of that, given the fact that an awful lot of the risk from leverage lending which they identified as risky, concerning, i should say, not risky. how are you thinking about potential risks bubbling up in the broader shadow banking system we -- well, particularly on leverage lending, we've called out the risk the risk is not so much located in the banks it's located in clos, mutual

funds, hedge funds, insurance companies and all those things, and it's not -- it's not subject -- those vehicles are not subject to runs in the same way that precrisis banks were and really no longer are, so the systemic risk question is not -- is not a prominent one it's more a macroeconomic question if the corporate sector gets very highly levered then in the event of a downturn you will see companies that are -- that have to lay off workers and stop spending and that kind of thing. it could be a macroeconomic multiplier this is a project that the financial stability oversight council is working on now and also the financial stability board globally is looking carefully at leveraged legending and you know, we think it's something that requires serious monitoring. >> thank you, i'm out of time. >> thank you, mr. chairman. >> mr. gonzalez, the gentleman from ohio is now recognized for five minutes. >> thank you, madame chair and thank you chairman powell for

being here today first i want to that you think on your transparency and all the data that you provide. i think uksz, you know, there's a sense that some of these decisions may be made behind closed doors, when you're transparent and open about what the data is you're looking at, that certainly helps it helps me to understand. i want to summarize two things you've talked about with respect to all the data you're looking at currently and interest rate policy, and if i think i'm understanding you correctly, i'm hearing that trade uncertainty and persistent low inflation short of our 2% target are kind of the two biggest bogeys for you so to speak. am i summarizing that correctly? based on the current situation. >> yes, sir. >> i think we did a nice job of covering the importance of passing usmca to help from a certainty standpoint you didn't weigh in on the deal itself but it certainly makes things more secure or more certain. on the inflation side, it seems to me that in a world where

we're still short of our target and we have trade uncertainty and those are the two biggest factors you're considering that raising rates would certainly be irresponsible. i would argue for lowering them, but would it be fair to characterize based on what we're seeing on those two factors specifically that a strong case could be made for lowering and not to commit you to that, but is that sort of where things seem to be headed? >> so, yes, as i mentioned, we think that uncertainty around trade policy and also global growth, it's not all down to trade policy there's something going on with growth around the world, particularly around manufacturing and investment in trade. and so that uncertainty is, we think, weighing on the domestic economy. it's starting to show up a little bit, we think, in business sentiment readings

which have moved down and also in weaker business fixed investment and then as you pointed out, the other piece of it is inflation we see the risk of a more prolonged shortfall of inflation from our target. that's not something we desire it's something we want to avoid. >> encourage a more accommodative policy. >> and those things do -- many on the committee see those things as strengthening the case for a somewhat more accommodative policy. >> i want to shift to the balance sheet a little bit we haven't really talked about that in january you announced major shift, i thought it was a major shift in terms of how you were going to manage the rate going forward, which was to shift towards administered rates, pause the drawdown of the balance sheet. can you kind of walk me through the logic of that a little bit my concern here is are we going to still be prepared to handle another financial crisis if that sort of thing were to happen while we have an expanded balance sheet? and in the long run, do you see us moving more towards going

back towards open market operations, which historically has been how we did this >> actually, since the qe era began, reserves have been super abundant, and we haven't set monetary policy really by -- we took monetary policy to zero, and it couldn't go any lower, and so we didn't -- we never -- so we didn't have to have scarce resources. we only had to have scarce reserves when we lifted off in december of 2015, and we didn't so we used the administered rates. we've been using them for a long time it wasn't really a change. what was new -- you're right about this -- what was new is we -- after having thought about it really for years, we said -- we decided after much deliberation that this would be our permanent framework. we think it works well we think it has a lot of benefits in terms of room for further quantitative easing, that is -- just as a -- what we'd be buying would be treasury securities, and the manufacturers are busy,

as i understand it, there's plenty of them out there it would be no shortage of them to buy there are questions about the efficacy, and there's a lot of research that's gone on on how much quantitative easing affect interest rates and thereby the economy, but i don't see the size of our balance sheet as limiting our ability to buy more just as a prabt cpractical matt >> and with my last sort of question, when you look at libra specifically, i see it as libra which is a currency, ka libra, which is the wallet, they seem to desire to be a bank, and then the libra association its. as we're evaluating how to approach this, what gives you the biggest concern, sort of said let's pause it broadly and maybe i'm running out of time, so we'll submit this in written questions, but any feedback you have on that would be greatly appreciated by this committee.

thank you, i yield back. >> thank you >> mr. law sanson -- mr. lawson, the gentleman from florida. >> could you elaborate and 1% of u.s. families own 40% of the wealth in this country, how do we get to that particular point? do you see any kind of banners coming in the future the top 1% own 40% of the wealth in america we are a very rich country compared to other countries, but how did we g et to the point where 1% own 40% of the wealth in this country? >> what i've seen and what i've mentioned in my testimony that's

troubling is that a couple of thu things first, median incomes and lower incomes have stagnated compared to those at the high end there was a time not so long ago when, you know, there's always a disparity between the wealthiest and the least, but it was nowhere near this large. what's happened in those people in the middle and at the lower end of the wage and wealth spectrum have seen their -- their wealth and wages move up but much less than those at the top, and that is -- that's troubling. the other thing that's troubling, sort of a separate issue, is lack of mobility so the chances of being born -- if you're born in the bottom 20% of wealth or of anything, you can calculate what are the chances empirically that you'll move into the middle quinn tile or the top quinn tile. they're lower in the united states than many other similar advanced economy democracies

it comes down to the education system needs to produce people who can take advantage of advancing technology and globalization, and what you've seen is a stagnation in educational attainment in the united states relative to other countries beginning about 40 years ago, and that has been, i think, the -- an underlying force that's driving this phenomenon >> okay. another question is recently in june let's say ontario in canada, minimum wage went to around $13.25 an hour, and earlier you stated that our minimum wage at the federal level is around $7.25, it hasn't been changed since maybe 2009 or something of this nature and in your testimony, you said that it's up to congress to

really make that happen, and there's been a lot of discussion on whether what's going to happen to businesses and so forth. the reason why i say that is in 2020 in ontario, canada, they'll go to $15 plus per hour for the economy. do you see -- and you talked here before -- a gradual increase in the minimum wage in this country is going to affect businesses to the point that they'll be closing because what you see mostly at the end of the year is a lot of these businesses have a very big sur plus to invest or pay taxes on, and so what is the difference in passing those increases to their employees instead of giving it back to the federal government or doing it -- giving the money to some charity? how do you weigh in any on the

minimum wage increase as far as the stability of the economy >> we don't really take a position on minimum wage, and the reason is, you know, that there's -- there's a lot of research and it shows costs and benefits it tends to show costs and benefits depending on what you assume and how fast you move i think how quickly they move up is an important indicator, but when you raise the minimum wage, some people lose their jobs, and some people benefit. they get higher wages and so you -- i think you can look at a range of studies and they'll come up with as many different economists as study this will have different answers and you can weigh that that's a tradeoff that you make. we have never taken position on minimum wage it's a classic thing for a legislature to do and not for us to do. >> right, one quick question do you ever look at the way credit card companies increase their interest and finance charges compared to the way the economy is going credit card companies. >> the way credit card

companies, sorry do what >> increase their finance charges compared to the way the economy is going, you know, like the economy is stable right now, but interest rates -- and i know i got some of the credit card companies are 29% and so forth, i might have to send you some information on that. >> i would be happy to follow up on that with you. >> thank you mr. lawson. >> mr. rose, the gentleman from tennessee is now recognized for five minutes. >> thank you for being with us today chairman powell. i am a vocal advocate for putting our federal government on a more sustainable fiscal path our federal debt now stands at 22 trillion, more than 22 trillion the interest on that debt is a big federal spending item amounting to about 360 billion last year. that was approximately 8% of all federal spending interest on the debt is becoming the fastest rising element of our federal budget our net interest expense could increase substantially if and when interest rates eventually

return to more historically typical levels it seems possible that we might even soon spend more on interest than on our national defense because we have to in order to service our debt the president's own budget from 2018 forecasted that net interest expense will exceed defense discretionary spending by 2026. it looks like the federal deficit this year will exceed 1 trillion as it will in the next several years after that, based on current predictions it is hard to see how the federal government can issue that much new debt without further driving up interest rates. one of your predecessors once said there is no question that as deficits go up it does affect long-term interest rates he continued, a rise in the debt increases the amount of interest expenses, which in turn increases the debt still further and there is an accelerated pattern after you reach a

certain point of no return could you talk with us today a bit about some of the potential risks to financial stability posed by our current fiscal path and in particular, current federal spending >> i think the united states federal budget is on an unsustainable path in the sense that spending is growing faster than the economy and ultimately that becomes unsustainable at some point i think we're racking up greater and greater debt the debt is growing faster than the economy. debt is a percentage of gdp is going up, and that is unsustainable, i meant to say. it's something that we need to get back to and assess, and it's not up to us to say how to do that, what combination of spending and taxes that is of course totally the province of the legislature, but it's something that's important over the longer run, and what will

happen if we don't do it is that we'll wind up spending more and more on interest and less and less on the things that we really need to spend money on, educating our grandchildren, and all of the important things that we do, you know, for the benefit of the public with federal tax dollars. >> what are your views about the federal reserve's rolein monitoring financial stability risk posed by the deficits >> we have -- we do have a broad role in monitoring financial stability. i would say, you know, the four key pillars we look at are leveraging in the financial system, leverage away from the banks. funding risk, and asset prices we don't really think of longer run fiscal unsustainability as a financial stability risk it's more of a -- you know, we're the world's reserve currency we keep being able to borrow my predecessor who predicted that more debt would lead to higher interest rates would be

surprised to see that with the debt that we have, we still borrow at very low interest rates because we are the world's reserve currency so we haven't seen higher rates, but to the extent we -- we go on raising debt to gdp, we will -- we'll just wind up spending more and more money on interest and less on the things we need >> if you will, talk about the impact of higher interest rates, if, in fact, deficits lead to higher interest rates on the stability of the financial system in the aggregate? >> well, i think down the road at some point, rates -- i mean, ultimately there is a -- there's a price too to pay here in higher rates that has to be true at some point, although, you know, japan has far higher debt to gdp than we do and pays even lower interest rates it's hard to say, but ultimately i think the debt that we're

racking up is really going for essentially current consumption and we're passing the bills on to future generations. our generation is entitled to spend whatever money we think we need for ourselves during our lifetimes but we really ought to pay for it we ought to be paying for it before passing the bills along to the next generation. >> and finally in three seconds, is therea point of no return. >> thank you chairman for coming before our committee, as you know, i represent michigan, which faces strong headwinds in the current, you know, climate right now in the auto industry is at a disadvantage with the current trade war with china in addition, automakers have

been laying off workers as they adopt products to fit their, you know, emerging technologies and market trends and really at the core is corporate greed, but what we saw between i think in wayne county and the detroit area, we saw unemployment rose between april 2018 and april 2019 from 4.2% to 4.6% given that detroit area still hasn't fully recovered, why should we believe that the federal reserve has the tools to prevent another deep downturn? >> let me say we do understand that -- we talk about national level unemployment rates we completely understand that is not true in all parts of the country, in all regions of the country and all demographics of the country. when we do this at the fomc, we always have presentations that call out those disparities

and ultimately, if we were to face another -- your question really is do we have the tools to address another sever downturn we don't expect a severe downturn if we had one we would use our tools as aggressively as we needed to to do that, and that would include all the tools in our tool kit including interest rates, forward guidance, the balance sheet in various forms and whatever else we can -- we could devise, and i do think our tools would be adequate. >> if we had another recession, and interests will be low or cut to zero, and then we flounder, should we expect that it will take another ten years for unemployment to recover? should the people in my district be expected to wait for a decade for a job? i mean, we see this shift in certain parts, not only in detroit but even in the wayne county community surrounding the city of detroit. >> i would think not so remember that the great recession was the most severe in a very long time, and we saw --

we saw unemployment go to 10%. we hadn't seen that since the early '80s and i don't -- you're starting now at 3.7% if you take a typical recession, a more typical recession, not like the great recession. >> we're still at 5% in my district, so what additional tools or authority do you need to prevent another downturn? i mean, you talked about about too tools and so forth what specifically, direct us in what we can do to support making sure that our families are able to provide. >> i think we have the tools we need i think what we would hope for is support from fiscal policy, which is to say supportive fiscal policy that would, you know, support monetary policy in a downturn. >> well, in the last recession, the fed stepped in to ensure that the corporation's borrowing and the commercial paper market would get -- would still get credit when governments in places like detroit or puerto rico cannot

issue bonds at reasonable terms, that has real consequences, like the inability to provide safe water in my district, for instance a lot of infrastructure issues if the fed is responsible for ensuring that businesses have access to credit through the commercial paper maerrkets why isn't it equally important to ensure that state and local governments ahave access to credit >> you know, we don't have authority, i don't believe to lend to state and local governments. i think we tried -- >> that could be a tool. >> i don't think we want that authority. i think we want -- i think that's something for congress to do i think we don't want to be picking winners and losers we want to be helping the economy broadly to the maximum extent possible. in the financial crisis -- >> what's the difference -- we do it for corporations why is there a different standard and this is genuinely i'm really curious. >> so what you had was you had credit markets, for example, that financed auto receivables and commercial paper and things like that that were -- that were

failing and breaking down, and the economy was grinding to a halt, and so we devised programs to support -- to reopen the capital markets in a way, without regard to who the borrowers were or picking particul particular coop kind of borrowe >> but we could do something similar in state and local governments. >> you know, we can talk about this. >> i know. i come from a city, the first i think ever to file for bankruptcy the people that were actually directly hurt and still continue to hurt are pensioners we still haven't been able to really -- you know, the 7.2 miles of downtown and some of these surrounding neighborhoods have been able to get investments but you still see a deterioration, and it's directly tied to unemployment thank you, madame speaker. >> thank you >> mr. style, the gentleman from wisconsin is recognized for five

minutes. >> thank you very much, chair waters, and thank you for being here, chairman powell. in your opening remarks you stated that you strongly support the maximum employment mandate and that overall the national labor market's healthy you noted the unemployment rate was 3.9% in december it has ticked down to 3.7% in june it's actually 2.8% in my home state of wisconsin you also noted that employers are hiring lower skilled workers and training them. i view this as a quite positive step also in your opening remarks, you identified key risks that you're tracking, including brexit, trade instability, and rising debt. what i did not hear you bring up is a proposed $15 national minimum wage that some of my colleagues are advocating. as you may know, the cbo recently analyzed this proposal to increase the minimum wage the report found that a federal minimum wage increased to $15 an hour may cause 1.3 million americans to lose their jobs, and in a worst-case scenario,

3.7 million americans could lose their job. that's even more than the entire civilian work force in the state of wisconsin, which is 3.1 million workers. how would the fed respond to the impact of a $15 minimum wage, both on inflation and real wages as well as the precipitous fall in employment outlined in that cbo report >> so we see the -- the question of minimum wage is one that is squarely in your court and not ours there are many, many studies of minimum wages and their effects on the economy there doesn't tend to be a consensus, but they do all tend to show to some degree some people will lose their jobs, and other people will benefit, and so if i were sitting in your chair, i'd be looking at 20 of these studies, and i would try to get a sense of what the right tradeoff is and whether you were willing to make it it's not a question for the fed, and you know, without knowing --

without -- we just don't take a position on that, so -- and it's not something i imagine that would be -- it would be challenging to make an aggregate assessment without sort of taking a point estimate in what is a highly uncertain range of possibilities. >> i appreciate that could you comment if the discussion on the $15 minimum wage would create the type of uncertainty that may slow hiring >> you know, i'm just not going to -- it's really not for us to be a referee on the question of the federal minimum wage we have not done that, and it's just not something we're going to do. >> fair enough let me shift gears, chairman powell i'd like to ask you about an issue that's been a major focus for many members of this committee. the international insurance capital standards. in previous appearances, you've assured us that the fed wants to negotiate an international agreement that works with our regulatory system. as you know, we expect the final version of the ics to be completed at an international association of insurance supervisors meetings this

november can you comment as to what instructions you're providing to your staff who are negotiating the ics to ensure that u.s. regulatory approach is formally recognized >> you know, so we coordinate very heavily with the office of insurance over at treasury and very much with the state insurance regulators which is where a lot of the regulation happens in our system. really all the regulation. i think we're all resoundingly agreed that whatever capital standard is adopted has to work for the u.s. system. u.s. has a success system of regulation for insurance companies based at the state level and anything that gets adopted internationally simply has to work for the united states system or we can't adopt it >> is the fed prepared to then oppose the ses if it was unsuccessful in achieve -- >> aboutinents to the top of the hour let's get recaps from steve liesman on the questioning, steve, which i would argue has been robust this time.

>> yeah, i mean, i think on the issue of race, everybody is on board, carl. the democrats, republicans and powell went further than i heard most other fed chairs go in the past. he was asked, do different factors out there, could a casing made for lowering and he said, so, yes, as i mentioned. we think that uncertainty around trade policy and also global growth, it's not all down to trade policy and he said the other piece is inflation, prolonged shortfall inflation, it's not something we desire it's something we want to avoid. those do -- many on the committee see those strengthening the case for accommodative policy so i think he said we're cutting, if i read that correctly. >> really quick, steve, what about the comment, we don't see any evidence of calling this a hot labor market >> yeah. it was even cooler than that he said to call something hot, you need to see some heat. that sounds almost like a motown song or something like that.

but he's not exercised at all or concerned about wage push inflation. he doesn't see the labor market as particularly hot even with the unemployment rate low. he's rationalizing the positives on the economy and accentuating the negatives. and all of that is sort of saying, hey, rather than pulling the market back at all, carl, i think powell has really pushed the market further towards a rate cut and, in fact, we've got a slight rise from almost 3% or 4% to around 28% now of the probability of 50 basis point cut in july. i don't think that's what he's saying, but i think the guys in the market are hedging that potentiality there >> yeah, on the heels of that morgan stanley call this morning. >> yeah. >> steve, thanks we'll get back to the chair. >> i assume you can see in your communities that the expansion is now reaching groups at the marginal labor force and that's because we're pushing ahead and, you know, having a very long

expansion with quite low unemployment and that's really benefiting these people at the margins. >> so you mentioneda couple of what i believe are possible solutions. you said education and training, i believe. can you expand on that, or what other solutions do you see to help us with this inequality >> i think -- i guess my underlying model of the problem is that there is no shortage in the world of good jobs we just have to produce qualified -- qualified workers who can live at the standard of a wealthy country and do the work they can do and that means better education. it's easy to say, it's very hard to do. but we need workers who can compete with the other advanced economies for the good jobs. it's manufacturing jobs. a lot of service economy jobs. and, you know, it's not easy to

do fixing the educational system and improving it is a very challenging thing. i spent no small amount of time on that earlier in my life but i think that's ultimately that is it at the end of the day, the country is its educational system and people who -- the people who are in the country, they are a product of that system and we need to get ours producing people who can compete in the global economy and that's -- i think that's at the bottom of the pile that's an important driver >> i appreciate that let's pivot to look at regional differences. iowa's per capita income is more than $1500 below the national average while new york's is almost $5,000 higher i'm concerned that too much of the discussion focuses strictly on the rural urban divide and i know that my district has rural and urban in it. but i'd also like to raise the issue of regional shifts within the economic growth moving to the coast. could you talk a little bit about how that income inequality that you've mentioned is one of

our biggest challenges, interacts with regional inequality >> yes, we actually had a box in february monetary policy report on disparities between rural and urban, if that goes to your question and they've gotten worse over time since the financial crisis. and there are just these underlying drivers that we're not at all sure of there's no, you know, widely accepted explanation but younger generation appears to want to live in cities. and so they are moving into cities moving out of rural areas. and it's leading to people -- in other words, people who can move to cities do and they get -- because that's where the jobs are that's where the growth has been it's a phenomenon we've been seeing for some time and it's gotten worse in the last decade. >> so do you have any particular solutions that we should be looking at >> i don't, unfortunately. >> okay. well, fortunately, i think several of us from these rural areas are working on this, so i'm hoping we can make an impact

there. but i thank you. one thing you didn't get to. you mentioned rural/urban again, but a little more about the regional shift so we've got a lot of opportunity in states that are in the midwest but we don't have as much access to that opportunity that some of our coastal areas have what are your solutions there? >> i don't know that we have those tools. i will say we have researchers who are doing a lot of good work in this area we'd be happy to connect you with them. i'd be happy to connect you with them >> i appreciate that thank you. >> the gentleman from virginia is now recognized for five minutes. >> thank you, madam chairwoman and chairman powell for appearing here today good to see you, sir we were talking earlier about fiscal policy. and one of the good things is i get to hear a lot of good things talking about fiscal policy and trying to prevent a downturn had a couple questions to talk about incent vising investment for the average american looking at policy, just some thoughts about -- you know, looking at, is it higher taxes,

lower taxes, the usmca or something like cecil that we've discussed before what are some of the quick take on some of the policies that would help as far as economic growth for the average american? just want to get some of your thoughts on that >> i think, you know, generally, i think we need policies that will -- pardon me -- policies that will support labor force participation, policies that will qualify people to hold jobs and progress through their careers. that's a big thing that's a place where the united states lags other comparable economies. and it's really something we need a national strategy to work on is, how can we raise labor force participation? it won't be any one hing it will be a range of things the other piece of it is productivity and productivity is really a combination of a couple of things one is, incentives for investment in technology which drivers productivity i think basic research by the government has actually been an

underlying driver over long periods of time. in addition, it's skills and apt ought aptitudes of the workforce they have more kills and training and that kind of thing. you can break it down into labor force participation and productivity those two things determine the country's longer term growth as -- of course, population growth as well but assuming a level population growth >> i think we talked you said 62.8% of the people really probably support 100% of the population which i thought was a very interesting stat when we discussed each other. and also, i want to commend you and thank you and your colleagues at the fed for the substantial support, guidance and collaboration you provided to the private sector in the area of faster payments. and the successful private/public partnership has been critical in making realtime payments a reality in the u.s. thank you for that and i want to commend the fed for its proposal to facilitate

realtime payment solutions by providing additional liquidity services which can be affectuated by extending the hours of the fed wire service. but i have some concerns regarding the other part of your proposal that envisioned the fed entering the market for faster payments as a direct competitor to the private sector. the fed seeks to justify this potential action on perceived need for resiliency which raises several important questions. i'd say, first, it's the notion that having two systems would provide resiliency assumes that every bank in the country or an overwhelming majority would have to connect to two systems. the private sector and yet to be built government-run system. this is just based on my experience and big data when talking about what i've had to do in the military with electronic warfare and looking at this and actually trying to interoperate systems i think this would create enormous inefficiencies and unless, of course, the fed-run system would be interoperable with the private sector

alternatives if i'm a community banker in virginia and participate on the fed system, what guarantees can you give that community bank today and the two systems will be fully interoperable and if there are none, what's the purpose of having a second government-run system? >> as i think you know, this was based on a proposal from the faster payments tax task force which had very broad representation, including the smaller banks who were quite supportive of this idea. we asked for public comment on this we're reviewing that we got 400 or 900 comment letters. a lot of comment letters we're in the middle of that decision-making process. in terms of interoperability, and it was the community banks to strongly pushed the fed to move forward with this in terms of interoperability, it's a good issue, a good question and we'll need to work to make that happen. at least to the level that it's functional it may not be perfect, but