house common lfinancial service committee. chairman powell is on the center of your screen.

committee will come to order. without objection, the chair is authorized to declare a recess of the committee at any time and all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. this hearing is for the purpose of receiving the semiannual testimony of the chair of the board of governors of the federal reserve system on monetary policy and the state of the economy. i now recognize myself for three and a half minutes to give an opening statement. notwithstanding the greatest monetary and fiscal stimulus in your nation's history, the economy has limped along for eight years, arch averaging only 1.6% gdp growth. savings failed to recover from the 2008 financial crisis. a new phrase was coined by left-leaning academics in an attempt to rationalize the phenomenon, namely secular stagnation. a far more accurate and descriptive phrase, though, is high taxes and heavy-handed regulatory policy.

fortunately, with the election of donald trump and the passage of the tax cuts and jobs act, that has all changed. unemployment is now at a 17-year low. wage growth is the fastest and almost a decade and companies all over america are now announcing bonuses to their employees and expansions in their communities. economic growth is once again averaging 3%. however, there are some concerns. we all recognize that there has been great volatile in our equity markets recently although i note the s&p 500 is still up more than 14%. there is clearly concern now whether the fed can successfully unwind a historically unbalanced balance sheet after a decade of radically unconventional monetary policy and artificially low interest rates. this was not particularly an issue when the economy was stuck in low gear, but now that the economic transmission has been shifted into high gear, it

clearly is an issue. so with that backdrop, we welcome you, chairman powell, to your first of many hearings. please note we are all rooting for you, for much is at stake and as we begin a new era in federal reserve leadership, i think it is a good time to reestablish congressional expect takes. now more than ever, the fed must commit to a credible, orderly, and well more communicated normalization plan. the fed must do an even better job of communicating clearly to market participants all the variables used to conduct monetary policy and their relative weightings and interactions and certainly it is a positive sign that had fed has begun to chair their policies with known policy rules so that the public can better evaluate their performance. next, monetary policy must remain independent, but the fed must also remain accountable to congress, which incidentally created it and has the responsibility of coining money

and regulating its value under our constitution. furthermore, it is critical that the fed stays in their lane. interest on reserves especially excess reserves is not only fuelling a much more improvisational monetary policy, but it is fueled a distortionary balance sheet that is clearly allowed the fed into credit allocation policy, where it does not have business. credit policies are the purview of congress, not the fed. when congress granted the power to pay interest on reserves, it was never contemplated or articulated that ioer might be used to supplant fomc and if the fed continuesed to so, i fear that its independence could be eroded. finally, in addition to its monetary policy responsibilities, we all know the fed has an outsize prudential regulator role.

this responsibility is clearly not designed to be independent of congress and must be made subject to appropriations as are our prudential regulators. additionally, formal rule making must not be eshoed fchewed for facto rule making. in closing, regardless of the exigencies of 2008, monetary policy is not and can never be a substitute for sound fiscal policy. chairman powell, we look forward to a prudent path to normalization where interest rates are once again market based and credit is allocated to its most efficient use. i now yield four minutes to the ranking member for an opening statements. >> thank you, mr. chairman, and welcome, chairman powell. i look forward to your testimony today on monetary policy.

i am concerned that the hard-earned economic recovery which came as a result of policies and reforms put in place by president obama and democrats in congress listen undermine b undermined by the reckless policies of this president and his allies in congress. they are working every day to roll back the critical protections for consumers, investors, and the economy that democrats put in place in the dodd-frank wall street reform and consumer protection act. as a move to take an ax to dodd-frank, they seemingly have forgotten about the tremendous economic harm that resulted from the financial crisis and appear to be perfectly willing to pave the way right to another crisis. with their tax scam, republicans have engineered a massive giveaway to corporations and the ultra-rich at the expense of hard-working americans. the tax scam balloons the national debt by $1.8 trillion,

gives corporations a $1.3 trillion tax break and will eventually raise taxes on 86 million american families. despite the huge windfall for corporations, most are not raising wages. but are instead buying back their own stock to boost share prices. some corporations are giving one-time bonuses for optics but these one-time bonuses represent a tiny fraction of the windfall the corporations will pocket. on top of that, the latest trump budget request is again a cruel, senseless proposal that would be deeply harmful to millions of families, seniors, veterans, and persons with disabilities. the budget request slashes the social safety net, cutting billions of dollars in funding for supplemental nutrition assistance and health care and housing programs. these policies show that donald trump simply has no interest in standing up for americans need a hand up.

instead, he has put forth a series of harmful policies that tell families and communities that they are on their own. our majority colleagues have also launched a full-fledged legislative assault on the federal reserve. the majority is pushing damaging legislative proposals that roll back constraints on the influence of commercial banks within the federal reserve system, eliminate tools that provided critical -- that proved critical to the federal reserve's support of the economy, following the financial crisis, undermine the federal reserve's focus on employment and eliminate its independence from the broken congressional appropriations process. the majority is also using the federal reserve as a piggy bank to pay for the cost of legislation like the latest short-term spending measure and now hr-4296, which will be on the floor today. these republican efforts to undermine the fed diminish its

ability to support american workers if we face another crisis. chairman powell, i look forward to hearing your views on the economy and the path to sustaining the economic progress that was set in motion during the obama administration. i yield back the balance of my time. >> gentle lady yields back. the chair now recognizes the gentleman from kentucky, mr. bar, the chairman of the monetary policy and trade subcommittee for one and a half minutes. >> welcome, chairman powell. since the 2007 and 2009 financial crisis, the federal reserve's distortionary balance sheet has exploded from just under $1 trillion to more than $4. $4.5 trillion, injecting new and unknown risks into the economy. clearly, whether you believe this unprecedented government intervention into our economy had merit or not, it has distorted prices of key assets like housing, stocks, bonds, and treasury. that was the intention. fortunately, the fed has begun to unwind these distortions and i hope that they stick to their plan, enabling a more free

market environment that will help foster economic growth and opportunity for all. over recent weeks, we have seen more than usual levels of market volatility. this volatility is attributable to the fact that no fed chairman has ever inherited the task you have before you. the job of unwinding the most unprecedented and unconventional monetary experiment in the history of central banking. your task is to continue to unwind the fed's asset purchases, gradually and predictably return to market based interest rates and remove monetary distortions from the economy without producing excessive market disruption. this is a serious responsibility. but at least the fed now has the backdrop of a strong economy and faster economic growth from tax cuts so that it can achieve this very difficult task. i personally want to commend you, chairman powell, for leading the way on normalization and i encourage you to continue in this pursuit. i also commend your commitment to tailoring financial regulations for community

financial institutions and right sizing our financial institutions. >> time of the gentleman has expired. the chair now recognizes jendge lady from wisconsin, the ranking member of the trade subcommittee. >> thank you so much, mr. chairman. thank you, chairman powell, for attending today. i look forward to your testimony and getting to know you through your tenure as chairman. you're taking over the federal reserve at a very precarious time, and your predecessor had talked about slowly tightening rates as employment has improved and thinking was a return to normalcy so i'm interested in hearing if that means an emphasis on increasing rates and/or unwinding the portfolio. your tenure comes at a time when the gop tax bill will only make your task more difficult, i believe. as changes to health care may increase inflation for coverage. the gop tax bill is a windfall for shareholders that will

unteth unteth untether the real economy that most of us live in, as opposed to wall street, leave you struck between competing problems, a contracting real economy and growing asset bubbles with minimum room to lower rates if necessary. i guess we should thank dodd-frank that it's buttressed the financial system and we should hold on a for a bumpy ride. i hope your term is successful and i look forward to your testimony. >> today, we welcome the testimony of the honorable jerome h. powell. this is the first time that chairman powell has appeared before this committee. it will not be the last time he appears before this committee. chairman powell took office as chairman of the board of governors of the federal reserve system on february 5th, 2018, for a four-year term. he has previously served as a member of the board of governors and took office on may 25, twifl.

2012. mr. powell also serves as chairman of the federal open market committee. prior to his appointment to the board, chairman powell was a visiting scholar at the bipartisan center as well as a partner of the carlisle group. he has served as an assistant secretary and undersecretary of treasury under president george h.w. bush. prior to joining the administration, he worked as an attorney and an investment banker in new york. chairman powell received an a.b. in politics from princeton university and earned a law degree from georgetown university where he was the editor in chief of the georgetown law journal. without objection, the witness's written statement will be made part of the record. chairman powell, again, welcome, and you are now recognized to give an oral presentation of your testimony. >> thank you very much. >> you're going to have to hit the microphone, though. >> thank you very much, mr. chairman. and thank you, ranking member waters and members of the

committee. i pleased to present the monetary report to the congress. on the occasion of my first appearance before this committee as chairman of the federal reserve, i want to be begin by expressing my appreciation for my predecessor, chair janet yellen, and her important contributions. the economy continued to strengthen and federal reserve policymakers began to normalize both the level of interest rates and the size of the balance sheet. together, chair yellen and i have worked tone sure a smooth leadership transition and provide for continuity in monetary policy. i'd also like to express my appreciation for my colleagues on the federal open market committee and finally, i want to affirm my continued support for the objectives assigned to us by congress, maximum employment and price stability, and for transparency about the federal reserve's policies and programs. transparency is the foundation for our accountability and i'm committed to clearly explaining what we are doing and why we're doing it.

today, i will briefly discuss the current economic situation and outlook before turning to monetary policy. the u.s. economy grew at a solid pace over the second half of 2017 and into this year. monthly job gains and payrolls rose an additional 200,000 in january. this pace of job growth was sufficient to push the unemployment rate down to 4.1%, about 0.75% below that of a year earlier and the lowes rate since december of 2000. in addition, the labor force participation rate remained roughly unchanged and that is a sign of job market strength, given that retired baby boomers are putting downward pressure on the participation rate. strong job gains have led to widespread -- for example, the

unemployment rate for adults without a high school education has fallen from about 15% in 2009 to 5.5% in january of this year. while the jobless rate for those with a college degree has moved down from 5% to 2% over the same period. in addition, unemployment rates for african-americans and hispanics are now at or below rates seen before the recession, although they are still significantly above the rate for whites. wages have continued to grow moderately with a modest acceleration in some measures although the extent of the pick-up in wages likely has been damped by the weak pace of productivity growth in recent years. turning from the labor market to production, inflation adjusted gdp rose at an annual rate of about 3% in the second half of 2017, a full percentage point faster than its pace in the first half of the year. economic growth in the second half was led by solid gains in

consumer spending, supported by rising household incomes and wealth and upbeat sentiment. in addition, growth in business investment stepped up sharply last year, which should support higher productivity growth in time. the housing market has continued to improve slowly. economic activity abroad has also been solid in recent quarters and the associated strengthening and demand for u.s. exports has provided considerable support for our manufacturing industry. against this backdrop of solid growth and a strong labor market, inflation has been low and stable. in fact, inflation has continued to run below the 2% rate that the fomc judges to be most consistent over the long run with our congressional mandate. overall consumer prices as measured by the price index or pce inflation as we say increased 1.7% in the 12 months ending in december, about the same as in 2016.

the core pce price index, which excludes the prices of energy and food items and is a better indica indicator of future inflation rose 1.5% over the same period somewhat less than in the previous year. we continue to view some of the shortfall in inflation last year as likely reflecting transitory influences that we do not expect will repeat. consistent with this view, the monthly readings were a little bit higher toward the end of the year than in earlier months. after substantially easing during 2017, financial conditions in the united states have reversed some of that easing over the past month. at this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, or inflation. indeed, the economic outlook remains strong. the robust job market should continue to support growth and household incomes and consumer spending. solid economic growth among our trading partners should lead to

further gains in u.s. exports and upbeat business sentiment and strong sales growth will likely continue to boost business investment. moreover, fiscal policy has become more stimulative. we anticipate that inflation will move up this year and stabilize around the committee's 2% objective over the medium term. wages should increase at a faster pace as well. the committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely. turning to monetary policy. the congress has assigned us the goals of promoting maximum employment and stable prices. over the second half of 2017, the fomc continued to gradually reduce monetary policy accommodation, specifically we raised the target rate for the federal funds rate by a quarter percentage point bringing the target to a range of 1.25% to

1.5%. in addition, in october, we initiated a balance sheet normalization program to gradually reduce our securities holdings, and that program has proceeded quite smoothly. these interest rate and balance sheet actions reflect the committee's view that gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2%. engaging the appropriate path for monetary policy over the next few years, the fomc will continue to strike a balance between avoiding an overheating economy and bringing price inflation to 2% on a sustained basis. while many factors shape the economic outlook, some of the head winds have turned into tail winds, in particular fiscal policy has become more stimulative. despite the recent volatility,

financial conditions remain accommodative. in the me the kcommittee's viewr increases will best promote attainment of both of our objectives. the path of monetary policy will depend on the economic outlook. in evaluating the the stance of monetary policy, the fomc routinely conducts monetary policy rules that connect prescriptions for the policy rate with variables associated with our mandated objectives. personally, i find these rule prescriptions quite helpful. careful judgments are required about the measurement of the variables used in these rules as well as about the implication of the many issues the rules do not take into account and i'd like to note that this monetary policy report provides further discussion of policy rules and their role in our policy process, extending the analysis we introduced last july. thank you very much, and i look forward to taking your questions. >> thank you, chairman powell.

the chair now yields to himself for five minutes. chairman powell, in your statement, you used the term, normalization. i'd like to explore that for a moment, in particular with respect to interest on reserves. is our expectation, should it be that ioer is the new primary monetary policy tool or will it, instead, be the fire extinguisher behind the glass that you break out in times of emergency? what should be our expectation? >> mr. chairman, interest on excess reserves is currently, as you know, the principal policy tool that we use to keep the federal funds rate in the range that we designate. and we have not made a decision in the longer are run whether that will continue to be our framework or whether we will return to something more like what we did before the crisis and i don't have a schedule for -- i don't expect to be returning to that decision in

the near term. i would just say that our current approach seems to be working very well. it gives us control over rates and the market seems to understand it. >> so, it remains an open question? >> in the long run -- the long run framework, operating framework, does remain open, yes e. >> as you heard in my opening statement, it still remains a concern. you would be hard pressed to find in the congressional record or any testimony from members of the federal reserve at the time congress granted this power that it would be used to supplant open market operations of the fomc, so i trust we will be having further discussions about that. with respect to normalization, i think you have said publicly that you expect the new normal with respect to the size of the balance sheet to be are roughly 2.5 to $3 trillion and get there over 3 to 4 years. do i understand that correctly, mr. chairman? >> yes. >> as i understand it, though, i've not been able to see in the public record the expectation with respect to the composition

of the balance sheet, and i believe that currently, you're carrying $2.4 trillion of treasuries, 1.8 of mortgage backed securities, is our expectation, that's roughly 1/3, 2 third rat 2/3 ratio. is it your intention to keep this -- many of us are concerned, because right now i don't really see a glide path to a treasuries only balance sheet. >> no, sir, our intention over the long-term is that the balance sheet would be no larger than it needs to be to implement monetary policy and that it would consist primarily of treasury securities. as you know, we purchased the mortgage backed securities in the aftermath of the crisis that was an unusual practice, and it was something that we did in unusual circumstances, and those will run off over time, and i don't expect that we would use

that tool again other than in a very severe situation. >> the monetary policy report that came out days ago shows the balance sheet rolloff caps. what i'm having a little trouble with is as i look at the charts in the report, mr. chairman, i don't know -- you don't seem to have sufficient mbs redemptions that allow you to reach your $20 billion runoff pace. so, as i read the chart, i think the expectation is, by the end of the year, we're looking at a $50 billion balance sheet rolloff, but as of today, i don't think you have sufficient treasuries and mbs to do that. so how do you achieve it? >> well, in the case of mortgage backed securities, the rolloff is less predictable. with treasuries, you know when they're going to mature. with mortgage backed securities,

rolloff will depend on the level of interest rates and the level of people refinancing their mortgages so as rates go up, refis will go down and you'll see slower rolloff. >> should the public expect a $50 billion rolloff? >> no, i would say that the public should expect there will be a consistent, substantial rolloff this year and the next year that over the period of maybe four years will get us back to something approaching a new normal. i don't know that you can say -- >> but we don't know the exact pace. >> i don't think that the caps are not going to be binding in the case of the mbs. >> my time is starting to wind down. i'd like to explore inflation targeting. in your testimony, it appears the fed is keeping to their 2% inflation target. i'm still trying to -- i struggle with how this is commensurate with a statutory mandate for achieving price stability but i also saw from the fomc minutes the most recent minutes that there was at least

discussion about movesing from the 2% target too a target range and at least 2% is a linear function. a range, obviously, is not. and so i'm really struggling with how is this commensurate with price stability and also as you know some commentators are calling for a 3%, 4% target, so two questions. number one, do we have an expectation the fed will move from its 2% target, and at some point, at 3%, 4%, 5% inflation targeting, have you violated your price stability mandate? >> our current framework says that the committee would be concerned with sustained or persistent deviations above or below 2% so we understand that inflation is going to be buffeted by various factors and may not be exactly at 2%. it will be above and below and we see it as a symmetric

objective. the framework is working. ma market understands it. generally speaking, inflation's been low, and stable for 15 or 20 years now. >> the chair now recognizes the ranking member for five minutes. >> thank you very much. chairman powell, with a permanent voting seat on the fomc and its role in supervising some of the largest and most complex financial institutions in the country, the president of the new york federal reserve has one of the most important economic policymaking roles in the nation. as you know, bill dudley will step down this year and the search for his replacement is under way. historically, the new york fed's close proximity to wall streetligstreet has led to the selection of an individual with close ties to the financial sector. in your view, how important is it that the individual chosen is

a diverse candidate with demonstrated independence from wall street and a strong commitment to the fed's maximum employment mandate and regulatory responsibilities? what steps is the board taking to ensure that candidates from diverse gender, racial, and ethnic backgrounds are given due consideration? if diverse candidates are not afforded due consideration, are you prepared to exercise your power as chair to reject such candidates to serve as the next president of the new york fed? i know you have a lot on your plate, but i have to put this question to you because we've got to do better. about diversity. and particularly at the highest levels. not only am i looking at what's happening with the new york fed, and the possibility there, we have to look at our own fed and think about how diverse is it at the top levels, management levels. so help me out.

what do you think about this? >> thank you, ranking member waters. i've been involved -- this is the seventh process to select a reserve bank president that i've been involved in since i joined the fed in 2012, so i'm very familiar with the way the process works, and so we always insist that the search committee, which is -- consists o. bnc directors of the reserve bank, hire a national search firm and we always insist and they don't need to be pushed into this, this is something they want to do, we always insist that there's a highly diverse candidate pool and that diverse candidates are given serious consideration and every chance to become the successful participant in that process. so, i can absolutely guarantee you that will continue to be the case. we will always have diverse candidates. i cannot in any individual case guarantee that there will be a diverse outcome but i can guarantee that the process will always be working in that direction. >> i appreciate that.

and i'm sure that you're committed to that, but the diverse candidate question is a question that many of us have, and we don't know that there has been consideration for diverse candidates with these very, very important positions. and i'm wondering, where do the recommendations come from? how is the outreach done? and how can you ensure that there are diverse candidates to be considered? >> different reserve banks have done new and different things and we've really raised our game in this area, so for example, the new york fed has done extensive outreach to community groups and, you know, of that nature, universities and all sorts of things around the new york region and around the nation. in addition, the national search firms have a very large presence in the candidate population and know who's out there and know who would be a good candidate. they're always trying to find new candidates and we are too,

so it's something we work very hard at, and are always interested in having new ideas for qualified candidates as well so we invite the general public, generally, to offer their thoughts as well as some of the interest groups. >> you know, there is an organization, maybe more than one, that's made up of minorities in financial services that include everything from those who are, you know, doing management in the financial services industry, working with hedge funds, with equity firms, et cetera. have you reached out to those -- not you, but do you know if those firms have been contact snd >> i know that our search committees and our head hunters have reached out to many, many groups of that nature. >> how can i follow up on that and is it possible that those of us who know about these organizations can ask them if

they have been contacted and if not, how can we refer them? >> well, we'll be happy to provide you with the contact person at the new york fed who's responsible for the current search and in case of any future searches, we'll be able to do the same. >> well, i will follow up on that and i thank you very much, and i yield back the balance of my time. >> the chair now recognizes the gentleman from kentucky, m mr. barr, chairman of our monetary policy subcommittee, for five minutes. >> thank you, mr. chairman, and chairman powell, congratulations again on your confirmation. i appreciate your commitment and our conversations to transparency and your demonstration of that commitment to date to clearly communicate the fed's monetary policy trajectory. you have noted on numerous occasions that the remaining slack that may exist in the labor market is at least in part attributable to stagnant wage growth and in your confirmation hearing a senator on the banking committee cited a 2016 fed

research paper concluding that corporate tax cuts do not translate into higher wages. but we have seen a wave of corporate announcements of bonuses and raises since the tax cuts were enacted, specifically over 4 million workers and counting have received over $3 billion in bonuses and raises during the last 8 weeks and the labor department recently announced the largest increase in wages since the end of the recession. based on these numbers, is the senator in question and are the fed researchers that he cites, are they wrong? and have tax cuts, in fact, helped increase wages as your testimony indicates that wages should be increasing at a faster pace as a result of a more stimulative fiscal policy. >> it's very hard to trace through the effects of a change in tax policy to things like wage growth in the economy but

let me try. lower corporate taxes should lead to higher investment and the effect is not easy to estimate but you would think and the studies find that it should lead to higher investment. higher investment should lead to higher productivity over time. it's very hard to put your hands on exactly how much that would be. but higher productivity, of course, is very, very welcome and will be driven by higher investment. >> and clearly the wave of bonuses and raises and the announcements certainly suggest that there's upward pressure on wages as a result of these tax cuts. in a 2015 speech, you expressed concern that quantitative easing and unconventional monetary combination could fuel dangerous risk taking. specifically, you said, the current period calls for a high degree of vigilance. can you elaborate and what specific risks have been created that the fed now has to watch. >> well, i do think it's -- this is a time when we need to be alert to a build-up of either

financial imbalances or to inflation building up. we don't really see those right now. i think i also said that in my 2015 speech. but if you look at the financial stability situation broadly, we do see some high asset prices. what we don't see is the build-up of leverage among households. we don't see -- we see the banking system and financial system generally as being very resilient so i think the financial stability picture shows at most modest risks. >> if i could point out maybe a possible risk that's out there and have you react to it. that was created by the unconventional monetary policy. as you know, some have blamed the fed for contributing to the 2008 financial crisis by producing an inverted yield curve. at the beginning of 2011, the spread between the 10-year and 2-year treasury notes was almost 3% but as of february of this year, that same spread has been whittled down to a mere 0.5%, a

450% drop. given a flattening yield curve and economic conditions that you can see call for raising the fed funds rate, how will the fed avoid another inverted yield curve and are there any plans within the balance sheet normalization strategy to roll off longer term assets more quickly to counteract that flattening yield curve. >> you know, flattening of yield curves in the past has been a precursor of recessions but largely because in many prior recessions the fed had to raise rates quickly to hold inflation down. that's not the situation we have now. it's very typical for the yield curve to flatten as short-term rates come up, as the economy strengthens and i don't see a particularly large -- there's always a risk of a recession at any given point in time. i don't see it as at all high at the moment. >> i don't either but it is a risk that normalization after this unprecedented unconventional policy has created and to dove tail off what the chairman's point was in

terms of the rolloff strategy, it would be important if there are not enough maturing mortgage backed securities that mature in order for the fed to actually hit its monetary roleoff targets so to that end, to avoid an inverted yield curve, do you anticipate that perhaps selling assets. >> no, i think i certainly feel that our balance sheet normalization plan was carefully crafted and carefully rolled out and the markets took it without much of a reaction, and i think i would have little inclination to change the general parameters of it. >> that you know, my time has expired. >> time of the gentleman has expired. the chair now recognizes the gentle lady from new york, ms. maloney. >> thank you. chairman powell, the fed's median projection is for three interest rate increases in 2018. what would cause you to raise rates more than three times this

year? would you have to see a material increase in inflation, faster gdp growth, a higher wage growth? what would cause you to raise rates more? >> thank you, ms. maloney. you're right that every quarter, every participant in the fomc submits a projection of what they feel is going to happen to the economy and also their projection for appropriate monetary policy and at the december meeting, the median participant called for three rate increases in 2018. now since then, we will submit another projection, all of us, in three weeks but since then, what we've seen is incoming data that suggests that strengthening in the economy. we've seen continuing strength in the labor market. we've seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. we've also seen continued strength around the globe, and we've seen fiscal policy become

more stimulative. so i think each of us is going to be taking the developments since the december meeting into account and writing down our new rate paths as we go into the march meeting and i wouldn't want to prejudge that. >> and as you know, the last time the fed released its projections for the pace of interest rate increases was in mid-december and since then, we've had two major financial events, one was the tax reform legislation, and the other was the major budget agreement. so, my question is, has your outlook for how quickly the fed should tighten monetary policy changed in light of tax reform and budget agreement? >> i would say that the -- my personal outlook for the economy has strengthened since december, and again, each member of the fomc is going to be writing down a new set of projections and a new estimate of appropriate monetary policy as we go into the march meeting, which begins three weeks from today.

and so, i wouldn't want to prejudge that new set of projections, but we'll be taking into account everything that's happened since december. >> thank you. and yesterday, the fed governor, who's leading the fed's review of post-crisis regulations, stated, and i quote, we are not looking to relax regulation, end quote. he also said, and i quote, we're not looking to reduce capital for banks, end quote. do you agree with the governor, that your goal is not to either relax regulations or to reduce bank's capital requirements and mr. chairman, i ask unanimous consent to place these comments in the record. >> without objection. >> the way i think about it is this. we have several sort of primary pillars of post-crisis financial regulation that we want to strengthen and protect, and those are high risk based capital, high liquidity, stress testing and resolution and we want to make sure that we keep

those strong and by the way transparent as they play to our largest institutions. i think as we move down into smaller and smaller institutions down to the community banks, we want to make absolutely sure that we've tailored regulation so that we are not -- we're achieving our safety and soundness goals without creating excessive burden and that's really the way i think about what we're doing. >> and lastly, chairman powell, last week, several academics published a paper claiming tat fed's quantitative easing programs during the great recession were largely ineffective at stimulating the economy. new york fed president dudley and boston fed president rosengreen disagreed and said they thought quantitative easing had been effective so my question to you is, do you think the fed's quantitative easing program was effective and do you believe the fed should keep this tool in its toolbox for future

challenges. >> i do think our post-crisis policies were effective. and i haven't carefully studied that report yet but let me say that what these reports try to do is they try to identify the surprise element in a particular fed announcement and isolate that from what was already priced into the market. so most things that happen on announcement day are already priced in. it's very hard to isolate that surprise element and this paper comes up with a different way of doing that. overwhelmingly, studies of the effects of asset purchase programs suggest that asset purchase programs did their job, which was to create downward pressure on longer term interest rates through the term premium and so i would say that that is very likely the case. >> thank you. my time is up. >> the chair now recognizes the gentleman from missouri, chairman of our financial

institutions subcommittee. >> thank you, mr. chairman, and welcome, chairman powell. congratulations and it's nice to see a banker actually being the chief banker of this country instead of an economist. to me, i think we get to look at some different policies and i think we have a different perspective and i think that's healthy. so, just want to start by talking about leverage lending a little bit. i want to follow up on the gao, which determined that agency leverage lending guidance is a rule under the congressional review act and is therefore ineffective because it was never submitted to congress. the same would presumably be true for other agency guidance. i've reports from banks that many of this have outstanding matters requiring attention or mras based on such guidance and that they're still being told either by examiners or the compliance departments to treat guidance as binding regulations. so, although no one seems to be disputing the conclusion, the word does appear to -- does not appear to be getting out.

would you agree that rules are rules and guidance is guidance and guidance is not binding. >> yes, mr. luetkemeyer, i would agree absolutely with that. in the case of a leverage guidance, we understand that's nonbinding guidance and since the gao ruling we've made it a point to go out and make sure that that message is getting out to supervisors of banks and we're also thinking of -- we're in discussions and thinking about other ways we can underscore that, perhaps putting it out for further comment. >> just left another meeting before i got here of a group of bankers from one of the states around the country, and we were discussing issues similar to this with regard to the culture within agencies and the ability of change to be taking place, even though we changed the head of the agency, sometimes the message doesn't get all the way to the bottom, and when i made that comment, i saw a lot of

heads nodding in the audience. there's concern that while the leadership as changed, good intentions may be there, that again, this needs to filter down all the way through the entire agency and an understanding needs to take place by everybody that this is a new way of doing business, that guidance is guidance, rules are rules, and there's a big difference between how they're adjudicated and administered and enforced by the body itself so i sure appreciate you taking that into consideration. >> it's an important point and it's a feature of our distributed federal reserve system of which i'm a big supporter of the structure of our system. and i think we know how to manage that program and i think duo we do a pretty good job and we're going to continue to try to do the best job we can. the heads of supervision at all the reserve banks are in close and constant conversation and discussion with price chair quarrels and others at the board and i do think -- i don't sense any reluctance to engage in those discussions and i think it's on us to communicate well

and successfully and we'll try to do that. >> i look forward to working with you on that because i told the bankers when i left them, if you see a problem, let me now because i have a chance to talk to mr. powell here this morning. so we'll carry the message. thank you message. thank you for that. with regard to data security, cyber security, this is an issue we're working on right now. my committee, my subcommittee has a bill we're putting together. cyber security threats have the potential to wreck our economy, wreak havoc with it, subject financial companies to absurd maze of cyber security regulations. federal reserve is one of the many entities that examines for cyber security. there's zero harmonization between agencies. they spend thousands of hours complying with regulations rather than protecting systems and customers. do you see this as a problem. >> i do. i think cyber security overall is one of the really significant threats. we can never feel like we've done enough to deal with it. we try to harmonize through

supervisory guidance what we expect from firms on cyber security issues and data safety and that kind of thing. i'm sure we can do a better job and we're committed to trying. >> i know that's an issue that financial institutions are right in the cross hairs of this because of the amount of personal data they hold and risk, they're an easy target. we want to make sure we work on that issue and work with you. you sit in position to harmonize the rules and regulations easily with discussions and different groups of regulatory agencies that actually meet on a regular basis, discussing things, is this ever discussed in your meetings with the fed, treasury, fdic, comptroller, any of those meetings? is this ever discussed at length? >> yes, it is. in fact, there's a group chaired by treasury which focuses on cyber security issues which the

chair, i haven't attended one of those yet but as chair will attend those meetings. it is a big focus for treasury and us. >> my time expired. thank you. >> time of the gentleman expired. recognize mr. sherman. >> general powell, welcome. as the chair points out, you're required to be independent and accountable. you're also required to be tall and short. your opening statement mentions great exports but you don't mention that our trade deficit has gone up by $60 billion in the last year. and i would point out that the entire economic establishment in this country has made it almost prohibited to discuss the trade deficit and that's why we elected, that's why the country elected donald trump president. now, the chair of the subcommittee boasts that we had

a good economy in 2017. he's right. we had obama's fiscal policies, obama's tax policies, obamacare, dodd-frank, janel yellen and her big balance sheet and had a great year. as a matter of fact, we have been on a roll since 2011. we were closing in on having a high enough employment rate so we would have a labor shortage and higher wages. we were going well. and so instead of continuing to be on a roll, we've b have aban those policies and have a tax and spend policy, throwing away budget caps, 1.5 trillion plus interest of the debt from the tax bill. but i think that we will still do well because our scientists, entrepreneurs and workers are the best in the world. they'll makeup for all of the mistakes we're making here in washington. i see behind you, sir, the green shirts that call for full

employment and it's not enough to go with the economist definition of full employment, say 4%. we need real full employment that causes a labor shortage and desperate employers bidding up the price of labor. and that is also consistent with the fact that many economists are saying you should be aiming not for 2% but 2.5% inflation. that's the kind of expansionary that allows folks to come back in fancy polo shirts with the same slogan on it in a couple of years from now. we talk about some workers getting a thousand dollar bonus, yeah, a few have. but a family of five's share of the increase in the national debt from the tax bill is

$26,000. what greater proof do we need of the need for financial literacy in this country than that some charlton can say here's the deal. i'll give you a thousand dollars, it's money in your pocket, and we'll slap a $26,000 mortgage on your future. now chairman powell, in your confirmation hearings you said i believe that no bank is any longer too big to fail. i would point out that the biggest banks are bigger now than in 2018 when they came to us and said they were too big to fail, they would pull the entire economy down. we had to bail them out with $700 billion, and i point out that the wall street prices in to the value of bank stock but more importantly to value of unsecured debt in implicit federal guarantee, an assumption they will be bailed out. so i have a number of questions for the record, but i will ask one for you to respond to.

we have adopted threes fiscal policies, huge tax cuts leading to massive increase in the deficit number that's right behind you. then we busted the budget caps. is our monetary policy going to need to be more restrictive this year than it would have been had we not adopted these profligate fiscal and tax policies? >> okay. so of course when we're setting monetary policy, we're focused on achieving stable prices and maximum employment. in doing that we consider many factors, all around the global economy, et cetera. fiscal policy changes can have effect, changes of this size can have effect. and that can be seen of course

in policy. it is hard to say what that would be. the answer to the question is generally we take all those things into account. >> the higher interest rates you have to set, all other things being equal? >> our job is to focus not on fiscal but monetary policy, that's the frame of reference. >> thank you for evading the question. >> time expired. the chair recognizes the gentleman from california, mr. royce, chairman of house foreign affairs committee. >> thank you, mr. chairman. chairman powell, thank you very much for being with us here today. i also wanted to thank you for another effort you undertook and that was in 2011 you spent considerable amount of time with members of the house trying to walk them true the debate that we had on raising the debt ceiling. you were trying to get us focused on all the unintended

consequences which would occur if we did not raise that debt ceiling, and i very much appreciate the time and effort and facts that you put forward. so you've got a new voice now with the fed. and i assume your opinions on the severe consequences of failing to raise the debt ceiling remain. i know that in august, looks as though the federal government is going to have to borrow or have to roll over 500 billion of debt in august. and if we're in a quasi default situation in august, then clearly it's a real question. as who would want to purchase that debt and at what cost would they purchase that debt, and clearly a premium on that, 10% presumptive nominee would be a

$50 billion hit right there to the interest expense, but there's much more than that that would befall impact on the markets, maybe corporate debt. maybe i could give you this opportunity to explain some of the concerns about that issue. >> thank you, mr. royce. of course, we don't do fiscal policy at the fed but i'll accept your invitation and say it is very important that the federal government and government generally be on a sustainable fiscal path, meaning as the baby boomer generation retires, we'll need to address the significant fiscal issues that are coming to us over time, over time. and i think it is important that congress do that. at the same time, the debt ceiling should be something that we always raise in a timely fashion.

there's no other country in the world has a separate vote whether to pay bills we've already agreed to incur, and i think the united states has never defaulted on a principal or interest payment and never should and i think doing so would be, you know, something i would hate to see, and could bring significant consequences. >> well, i appreciate your articulating that. you've also said that raising the ceiling is only the first step, the job that must be attacked is deficit reduction and addressing the cost associated with mandatory spending and we heard a similar thing from chairman greenspan, we heard that from chairman bernanke and yellen, we're on an unsustainable path, and remarks that are traditionally shared with us. as i raised with previous chairs, i don't think the

american public really understands the magnitude of the problem we're facing and we certainly haven't galvanized the political action necessary to address it. what do you think we and what do you think you can do to raise the alarm that the biggest and fastest growing costs in mandatory spending must be addressed? >> well, i think as -- i think i'll follow the path of my predecessors and not become a regular commentator on fiscal issues but rather limit myself to a couple of overarching points. >> fair enough. >> that we really need to get on a sustainable fiscal path and the time to really be doing that is now. and the second thing i'll say is that when fiscal changes are made, it's important to the extent possible they be directed at enhancing productive capacity of the economy. we can't effect productivity

other than keeping prices stable and regulation on a basis, productivity allows inspection to rise. we don't control the long range growth rate, you have more authority on that. to the extent fiscal policy can focus on ways to increase attachment to the labor force, create incentives for more skills and aptitudes among the labor force, and greater investment in r&d, that's a healthy thing. >> thank you very much, chairman. time of the gentleman expired. the chair recognizes the gentleman from new york, mr. meeks. >> thank you, mr. chairman. mr. powell, welcome. as you know, the treasury department is currently undergoing review of the cra, community reinvestment acts regulations and will be recommending changes to the banking agencies including the federal reserve. so my question to you, mr. powell, is do you believe

that a financial firm's demonstrated pattern and practice of racial discrimination and lending should be considered during a cra examination? >> thank you, mr. meeks. so i'm familiar with that process and i take the point of it to be what i am understanding about it is to inquire into whether cra policies are in fact providing benefits to their intended beneficiaries, and i think we're part of that, we're providing our own input into that process. in terms of the answer to your question, i think it is currently the practice that such considerations are considered in cra exams. >> it is currently but i am concerned that some want to defang cra and take away as part of the process the history as far as discrimination practices

and patterns. that's why i'm asking you since the fed, since the treasury will be looking at a new, and i'm a fan, i think we need to update cra, but i believe in looking at cra you should take into consideration one's practice and pattern of racial discrimination and i'm asking you, sir, what is your position on that. >> you know, i haven't taken a position on that. i want to see the overall work that comes out of this and evaluate it on that basis. i may welcome to the vi-- may welcome to the view you have. i have to review it. >> i remind you, cra was congress' response to widespread racial discrimination in the form of red lining. that was one of the primary reasons of the implementation of cra. if you are even thinking about stripping out practice and patterns of discrimination, you are thereby gutting the reason

congress did cra in the first place. so it seems to me that should not even be a part of the dialogue. in fact, as given to me by the ranking member, we have an article lending discrimination red lining still plaguing st. louis that all the new data shows. and we can go from city to city across america. so i have real concerns about your answer just now because to even think about removing that from the cra as much as i am an advocate of renewing, because i think you look at where we are now, how banking is done and financial services are rendered is completely different than when it was done when we initiated it, but the essence of it was to stop red lining and racial discrimination. >> so let me say that we take a very serious view of any kind of

racial discrimination in lending and we look at it through a variety of our consumer affairs tools and something we take very seriously. >> now, i also, let me ask this question, and i will have some follow-up, i would like to follow-up on this matter particularly. but let me ask you this. and we can talk about these tax cuts. how much of corporate tax savings do you think will actually go towards wages as opposed to stock buy backs, capital investments and mergers? i say this because i want to let you know even before you answer, morgan stanley analysis estimated that 43% of corporate tax savings will go to buy backs and dividends which enriches just the top 1% of those major investors. 19% would go towards mergers and acquisitions, 17% would go toward investments, and only the crumbs, 13% would go to one time

bonuses and scant raises. in fact, there's nine pharmaceutical companies that already announced over $50 billion in buy backs since the tax law was passed. so how much of this taxes will go into salaries and wages or how much of it will really help income disparity to increase and grow wider? >> you know, we have particular responsibilities, maximum employment, stable prices, we don't have estimates of that kind of thing, there are many other estimates out there, but honestly we don't have a fed estimate what that number would be. >> time of the gentleman expired. the chair recognizes the gentleman from minnesota, mr. emmer. >> thank you, chair powell, for being here. good to see you. i want to go back to something that i think was touched on when you began your testimony this morning. during your confirmation

hearing, you spoke about the importance of tailoring regulations to fix the specific scope and practices of a financial institution. your quote was actually even as we have worked to implement improvements to the banking system, financial system, we have also sought to tailor regulation, supervision to the size and risk profile of banks, particularly community institutions. i just want to make sure that your view on continuing to tailor regulations to the specific institution has remained the same. you're still committed to doing that? >> very much so. it is at the heart of what we're doing at the moment which is to focus on smaller institutions and without losing safety and soundness, try to be sure the regulation is no more burdensome than it needs to be and work up the food chain. >> you would agree we need everyone in the financial services food chain all the way from the largest banks in the

world to the small family community banks on main streets all across this country. >> indeed. you know, small business create a lot of the jobs and small banks have a disproportionate share of small business lending, although the biggest lend to small businesses, but we want that credit to flow, we don't want regulation to inappropriately create too much burden. >> right. earlier this month secretary mnuchin testified before this committee and expressed working with congress to the way they tailor regulations based on size and complexity of a financial institution. would you also support this type of legislative effort where necessary to put these tailored regulations in statute? >> yes, we would, and we have so of course the devil's in the

details but as a general matter, i think we could see some law changes that would enable us to better and further tailor regulation to smaller and medium size institutions. >> i want to move to another topic, continuing the discussion on the importance of getting our regulations right to benefit main street and rural america. minnesota's sixth congressional district which i represent is home to some of the finest, most productive farmers and manufacturers in the world. many of these same individuals and businesses who are making such a positive economic impact on my district are inadvertently harmed by the current formulation of the supplemental leverage ratio that fails to recognize the exposure reducing nature of initial client margin. this bank capital rule is increasing clearance costs for farmers and manufacturers, making it more expensive for them to use the cleared deriftive market.

i hope as you review that, you come to the same conclusion that a coalition of republican and democrat members have that we must recognize the exposure reducing nature of client margin in a revised capital bank rule. will you commit to working with us and our colleagues who want their constituents to have access to affordable and competitive cleared deriftive markets? >> yes. we need that as a high and hard back stop to risk based capital, we think the current calibration of that ratio is not appropriate. we are looking at recalibration that would address that exact concern. >> thank you. i want to move on to one other topic before my time runs out. page one and five of your monetary policy report dated february 23rd refers to the labor market. there's a couple of specific entries with respect to numbers

of people, unemployment rate is 4.1, it is essentially full employment, but i believe it is on page five where it references the percentage of able bodied adults in the work force. 62%. this is still abnormally low. don't you have any concern about that number? why don't i add this. you talk about retirement being part of this, baby boomers leaving the marketplace but the labor force. doesn't this also have something to do with the disincentives created by our welfare system in terms of giving people an opportunity to get back into the job market? >> time of the gentleman expired. a brief answer from the witness, please. >> we focus on labor force participation all the time. it's a really important thing and certainly worthy of longer

discussion which i would be delighted to have with you. >> time the the gentleman expired. recognizes the gentleman from massachusetts. >> thank you for being here. welcome. some of my colleagues have talked about how the economy clearly is getting better, we all agree with that. we will disagree on why and how. i personally think a lot of the good we have seen today is a result of actions we took several years ago to stabilize, secure, improve the economy and is now working its way through the system. i'll leave that debate for another day. i want to associate with comments by mr. meeks. i encourage you as well to keep a close eye on the cra. i want to take that and expand it a little more. i presume the fed would not be interested in economy that just worked for wall street and didn't work for main street. i assume the fed would not be interested in an economy that just worked for texas and didn't work for new york. therefore, i presume the fed has

some degree of interest, not in perfect equity but some equitable distribution of the benefits of a good economy. is that a fair assumption or am i completely off? >> i would say i think we want prosperity to be high and broadly spread. >> i understand you have limited tools for a lot of things. i agree, that is obviously a good economy for three people doesn't help for the 300 some million that live here. thank you for that. are you familiar with a relatively new british law that's just been enacted and being opposed that requires companies of over 250 employees to report income and wages on the basis of gender. are you familiar with that at all? >> no, sir, i'm not. >> the first company to do that

was barclays, wuchb tone of thet banks in the world. women earn 26% less than men, receive bonuses 60% lower than men. some reasons might have reasons to who owns which position, but it certainly goes to the idea of equitable distribution of the benefits of the economy. are you familiar with a rule that was proposed by the equal opportunity commission that would require similar reporting by american companies, over 100 employees, not just on the basis of gender but also on race and ethnicity. >> no, sir. >> the reason you're not familiar with it is because the trump administration stopped it. it was proposed in 2016, companies were given two years to work their way in. as of august, the trump administration said no, we don't want to know how you pay women,

how you pay people racial groups or ethnicity groups. we don't care about that. now, i personally think that's horrendous and i would actually say that again, if you're interested in the economy that has some degree of equity abili ability, you need answers. i would ask, therefore, if something like that that is new to britain, doesn't seem to have impacted barclays in any particularly bad way, provides us information to go forward to argue for pay equity across the board. now, i am a white male, i am not interested in my success being at the expense of people who are not white men. and i would ask, is the fed interested at all, would you be interested in pursuing something? you oversee 7,000 entities. some of them large, some small, most of them pretty large.

would you be interested in pursuing some degree of not intrusive, but some degree of investigation as to how they pay their employees if it is equitable or not? >> first, i'm not at all familiar with the british bill or the eeoc proposed rule. not familiar with either of those. these are the kinds of things congress sheriff's departme congress should consider. we have an important job to do. for now, we're going to stick to that, try to achieve. >> i respect that. i want you to stick to that. as we talked about earlier, some degree of equitiable distribution of benefits of a good economy is your job. not perfect equity, not every aspect, but in one aspect you can control, overseeing 7,000 financial institutions, don't you think it is a fair thing to ask how they pay their women? how they pay african-americans? how they pay hispanics? if it is based on fairness or based on some degree of

discrimination? you don't think that's a fair thing for you to ask? >> i don't think it is a question for the fed. i think that's a question for other agencies. >> you think it would be -- boy, that's a great answer. i think we'll hear more about this. >> the time has expired. chair recognizes gentleman from north carolina. >> thank you, mr. chairman and chairman powell for coming before the committee. congratulations on your confirmation. we look forward to working with you. chairman powell, it is my understanding the fed is actively involved in developing potential potentialal -- is there for the consumer impact, shifting from liable. >> let me say the situation with libor, financial conduct authority in london said they'll

no longer compel banks to submit submissions to libor panel after the end of four years, and at that time fca can no longer guarantee. if libor stops publishing, there are 300 plus trillion dollars worth of libor contracts in the world, that has all of the potential of being a financial stability problem, so solving issa high priority for us and for financial regulators. there are costs to doing so but trivial in comparison of failure to be ready for the change should it be necessary. >> what type of cost do you project for businesses as a result of impact of this change? >> we're seeking a lot of input from businesses. they'll be subject to this.

cost of failure to act would be potentially quite high. >> yes, sir. since repo rates go the opposite direction to libor during market stress, do you anticipate any systemic risk from shifting. >> i didn't catch the last part. >> do you suspect systemic risk in the banking sector shifting? >> i do. i think systemic risk would be decreased moving to sofer. libor spreads out during the crisis, and i think risk free rate which is used to price the deriftive markets and not so much bank lending markets, it is more deriftivative based.

>> the rates committee in '14, were community and regional banks part of that process? >> some of the regional banks were. it is principally effecting the derivatives business in the first instance, so it was -- we had a lot of different groups around the table. at this point we are broadening that circle to include other financial institutions, including community banks and other parts of the financial system. >> do you anticipate potential cost relative to community banks in this shift? >> i don't think, shouldn't be meaningful costs, we would sure like to know if there are. >> if banks continue to participate in that libor panel, would you encourage multiple rate choice driven by market choice or support bank lending through sofer for derivatives?

>> yes, sir. we always said if people want to keep using libor, that's fine, as long as it continues to be published. what we're doing is preparing for risk it wouldn't be published. we're not saying that's what will happen, but need to be ready in case it does happen. >> yes, sir. on another subject, what do you anticipate will be changes that you'll bring to the fed relative to transparency in the fed? >> i think we're committed to being as transparent as we can about monetary policy and regulation. i think if i remember what it was like when i was undersecretary of treasury in the 1990s, the fed didn't publish a post meeting statement. now, you look at the massive number of things we publish, we're much more transparent. i think we can continue on that path, we're never done with that. in regulation, i think it is important that we be transparent. we are working across a broad range of issues, stress testing,

transparency regulations, and in general it is appropriate for us to always work on that. >> one last quick question. i have 50% fewer banks in north carolina today than in 2010. do you foresee fed policies that would entrance and assist community banks in particular? >> time of the gentleman expired. a very brief answer from the witness, please. >> it is a long running trend. we don't like to see it, don't want to make it worse. i would be happy to continue this with you. >> the time has expired. the chair recognizes the gentleman from missouri, mr. clay, ranking member of financial institution subcommittee. >> thank you for holding the hearing, and thank you, chairman powell, for your testimony today. chairman powell, do you agree that the u.s. housing is in a recovery mode as far as

transactions and housing market in general is healthy? >> yes, sir, it has been a gradual recovery but it is on-going. >> along those lines, i want to pick up where mr. meeks questioned you. i shared with your staff a recent article from my hometown newspaper about black home buyers continuing to be denied conventional mortgage loans at a much higher rate than whites, even when controlling for income, loan amount, and neighborhood, and in the st. louis metropolitan area, african americans who apply for conventional mortgages are two and a half times more likely to be denied than nonhispanic whites, according to two years

of recent data. as you know, where there's loan activity, houses have a chance to sell. where houses sell, people move in. where people move in, restaurants, community centers and grocery stores are built. and none or very little of that is happening in low to moderate income neighborhoods in st. louis or elsewhere in this country, so my question is what can the federal reserve do to ensure africans for home mortgages are treated equally, and bad actors that red line communities of color are eliminated from this processor change their policies? can you give me any direction in that area? >> i would be glad to, sir. first of all, racial discrimination in mortgage lending and any kind of lending is completely unacceptable.

and wherever we have authority, we will use it to stop that from happening and punish it when it does happen. we have some authority here, the cfpb has a lot of authority in this area as well, where we have it for banks we supervise, we supervise carefully, aggressively to try to find these problems and address them. >> as you know, the fair housing act of 1968, a law has been on the books for 50 years prohibiting those practices of steering and red lining. now, i shared with you this article because i want a more extensive response from you on what action we can take against bad actors like u.s. bank who is cited in that article, the fifth largest financial institution in this country who have denied

mortgages across the board in the community that i represent. and that stymies economic activity. i want to know how we stop these policy and practices that are dis d discriminatory. let me ask you, and hopefully you will be willing to work with me on that. >> yes, sir. >> president trump recently tried to take credit for december unemployment numbers showing african-american unemployment at its lowest recorded level, this too is part of a long term trend that started under the obama administration. in which african americans have steadily declined the past seven years. in addition, racial disparities continue to persist with the

unemployment rate currently for whites 3.5%. unemployment for african americans stands at 7.7%. with the african-american unemployment more than twice as high as white unemployment, clearly more progress is needed. share with us your vision for the fed attacking persistent unemployment among african americans. >> what we can do on that front, sir, is we can take seriously our obligation to pursue maximum employment. we understand fully that while the national employment rate is low, while in many regions unemployment is actually lower than 4.1%, you meet a lot of congressmen and senators that come from places where employment is in the 2s. >> i would like to explore that with you. >> time of the gentleman expired. the chair recognizes the

gentleman from oklahoma, mr. lucas. >> thank you, mr. chairman, and chairman powell, thank you for being here. and before i ask a general question and broader question, i note that i think you're my fourth chairman to be able to visit with in this environment since i have been a member of this committee. and i would like to discuss an issue with you today that you and i have already discussed, and my good colleague, subcommittee chairman mr. luetkemeyer has a bill regarding, that's the supplemental clearing range ratio. it has strong bipartisan support from members of this committee and ag committee, it off sets those amounts because margin is inherently a risk management tool, legally must be kept from banks' own funds. fed can effect this change without legislation, however, and your predecessor showed willingness to look at the issue. i was hoping you might be willing to consider that situation, that sort of a fix

yourself. >> thank you, mr. lucas. what we're doing now is taking a careful look at the enhanced supplemental leverage ratio, and i think our view is that the leverage ratio is very important requirement for banks but it should be a back stop, should be a high and hard back stop to risk based capital, and i think enhancement to that supplemental leverage ratio we put in place in i guess 2013 in that range went a little too far and it unfortunately seems to be deterring some low risk wholesale type activities that we want financial institutions to engage in, and one of those is client clearing, and not counting margin. i think our bway of addressing that is to lower calibration of the enhancement of the supplemental leverage ratio. that seems to get done what needs doing there.

>> clearly something needs to be addressed. let me ask a broader question. i represent the northwest half of the great state of oklahoma. its ag and energy business. we are a commodity driven economy. price of commodities is reflection of supply and demand, and while supply is not an issue for the fed to be concerned about, i represent industries where technology advancement has been used amazingly very successfully, whether precision agriculture, increasing output of farms and ranches or on the energy side, 3d size mow graph. and that increased supply. but my producers see since 2014 whether it is oil and gas or wheat and cattle that literally prices are half what they were in 2014. let's discuss for a moment

expand on comments earlier about where you think the fed projections would have economic growth and demand in the year or two or three down the road in the united states. because we have a supply equation. that's our challenge. but if demand picks up, life gets better economically at home. >> that's typically the case as you know. so i haven't updated my projections, but i will say generally it feels to me the next couple of years look quite strong, you should see strong demand from commerce, should see businesses investing, i expect the next two years on the current path to be good years for the economy, labor markets continuing to improve, inflation moving up to 2%, and i would think that that should create a good environment for people in your district who are in the commodity business as well. >> old adage about the rising tide raises all ships.

thank you, mr. chairman. >> the gentleman yield to the chairman? >> of course, mr. chairman. >> in the minute and a half that he had remaining, i had a question, chairman powell dealing back on the interest on excess reserves. i asked your predecessor this question and the answer was not clear to me. i think as you know, under statute that the rate must be, and i'm trying to find the exact language, above, cannot be above the usual level of short term market interest rates. and yet we know that the fed has been paying a price over the fed

funds rate, paying over libor. and i think currently paying 150 basis points, yet our constituents typically receive ten basis points on their savings account. so i'm just curious on what does the phrase above the usual level of short term markets interest rates mean? in your 2012 rule making, implemented ioer, it allowed the rate to get pegged to your primary credit rate, but that's an administered rate which means you can set it where you want to set it. so legally is there any cap to the interest rate you can pay in ioer? could you pay 300 basis points, 400, 500 basis points? >> i think as you suggested we're not permitted under the law to pay general level of short term interest payments,

something like that. i would look at that and see commercial paper, i would see repo, wholesale deposits, short term interest rates, money market funds, things like that, less than a year. i think where ioer is set, the idea is to use it as a tool to move the rates around. >> you pay 150 basis points, constituents are getting 10. >> retail deposits as you know are sticky on the way up and they're -- they generally come up with a lag. >> time of the gentleman has expired. the chair recognizes gentleman from massachusetts, mr. lynch. >> thank you, mr. chairman. thank you, mr. chairman. thank you for your attendance. appreciate that. couple of weeks ago there was a story in "the wall street journal" around etfs. i wanted to get your thoughts on this. the particular story noted that shares of everything from manufacturers to banks to oil production companies are all

rebounding together after tumbling in unison earlier in the month. the article noted one factor contributing to the close correlation among s & p sectors was on the growing population of traded funds. etfs invest in wide swathes of the market, and when that's all correlated, it can sometimes increase the volatility, at least that's what the data would suggest. i am just wondering, does the fed think there's risks to the broader financial system associated with complex etfs, and is the fed concerned about that? any ideas? >> it's an interesting question. i saw that article, and of course we looked after the volatility came and subsided, we looked carefully to try to understand really what did happen. it seems the markets were generally orderly through almost all of that time.

and etfs are a particular form of fund and i don't think they were particularly at the heart of what went on those days but something we're talking to fellow agencies, particularly the sec would be best position to look at this. it is a question we're looking into. >> okay. thank you. on a completely different topic, in your remarks you talk about the historically low unemployment rate among people of color but again, you acknowledge that the rate of unemployment for people of color is much higher than for white workers. given the fact that the participation rate according to your own testimony has been fairly constant, does the fed have suggestions to the trump administration about if wind is at our backs, if we put more

people to work, how do we close that gap? how do we get more people of color into the work force so that again we close the gap? >> as mentioned, our part is to take seriously our obligation to achieve maximum employment, i think we're doing that. we don't have tools that are good at addressing these kind of disparities. >> i'm not asking you to do it, i am asking you to suggest recommendations to the white house. they have the power and the tools to do it. >> right. i wouldn't want to, you know, presume to recommend policies that are away from our general mandate, but i'll say generally i think that -- >> say we try to reduce unemployment, that's certainly part of your -- >> i think the constructive thing in this area is really to focus on, long running problem, focus on education and training. we want everyone to have opportunity. we want this to be a society where everyone has opportunities

to succeed. and part of that is reaching people through the educational system, i would point you that direction. >> very good. >> thank you, mr. chairman. i yield back. >> gentleman yields back. chairman recognizes the gentleman from illinois. >> thank you. chairman powell, good to see you. thank you for your work and thank you for being with us today. on june 22nd, 2017, you testified before the senate banking committee and you said and i quote we believe the leverage ratio is an important back stop for risk based capital framework but it is important to get the relative calibrations of the leverage ratio and risk based capital requirements right. doing so is critical to mitigating incentives and preventing distortions in other asset markets. changes along these lines address concerns of custody banks that business model is disproportionately effected by the leverage ratio, end quote. i worked with my colleagues on

this committee that was passed out that would provide relief from the supplemental leverage ratio for institutions predominantly in the business of providing custody services. the treasury department's june, 2017 report recommends changes to supplementary level for cash on deposit with central banks, in line with legislation reported by the committee. do you support the treasury department recommendation and how will you work with them to make those changes? >> i agree with you, sir, that leverage ratio can deter banks from engaging in low risk wholesale activities, particularly custody banks. so we've looked carefully for some time how to provide relief. and our preference for the way to do that is to recalibrate the enhanced supplemental leverage ratio, and custody banks would

feel significant relief because they have the smallest surcharges, so that's our preferred way to do that. >> following up on that, as you know, have you considered changes to supplemental leverage ratio, they only cover the g sibs. do you believe changes to basal coverages are only necessary for g sibs or would you spark changes for larger supplemental leverage ratio? >> the supplemental leverage ratio, based on my conversation with financial institutions and custody banks is not particularly binding as relates particularly to custody banks. we chose to make this enhancement and i think we have the calibration a little wrong. the plan is to roll that back. >> okay. one last thing on this and i'll move on. cbo provided cost estimate for implementation of chart 2121. they often rely on input from

the executive branch for such estimates. could you commit to sharing correspondence between the fed and cbo with my staff and committee of determination of cost for implementation of 2121? would you be willing to work with us on that? >> i would be willing. i have to look into how we do that. >> that's great. my concern for this is that the bank regulators are looking at providing relief to g sibs. those are subject to advanced slr, and less large banks are subject to slr. northern trust is important in chicago. amazing institution. 120 some years. more than that that they have been around but not a g sib, and thus not subject to the eslrs, but still subject to binding capital constraints, so it is a concern of mine. moving on, similar to my question regarding adjustment to bassal leverage ratios, the

options of treasury department 2017 report on capital market notes, the current exposure method model, for example, requires options, contracts to be sized in their notion or face value rather than allowing for risk value to reflect actual exposure associated with these derivatives. particularly, does not permit delta adjustment for measurement of options. end quote. also notes the cme may be responsible for corresponding reduction and bank's ability and willingness to facilitate access for market makers clients who are the primary liquidity providers in these markets. i understand this was realized by some market makers during volatility incurred by markets in recent months, wonder if you agree with treasury report recommendation, specifically do you believe there should be risk adjusted approach for valuing options for purpose of capital rules to better reflect exposure, such as potentially

wae weighting options. >> i believe there's an approach in that area, i want to check with experts and follow up. >> if you could let us know that, my time is up. appreciate your willingness to work with us. i yield back. >> the time of the gentleman expired. recognize the gentleman from georgia, mr. scott. >> thank you very much, mr. chairman. welcome, chairman powell. you know, what's disturbing me and what's remarkable and i think downright disturbing to me are the policies coming out of this trump administration in three specific areas, that you as chairman of the fed, our chief economic balancing officer shall we say, has direct input on. and did you know, for example, there's three areas

particularly. first, the tax cuts of the president. are you aware that 83% of the president's tax cuts go to benefit just 1% of the american families. that's not fair at all. if you go to his budget cuts, you know who is impacted the most because of his budget cuts? it's the african-american community. and let me go to his draconian, terrible proposals to cut $17.2 billion away from food stamp recipients. and then if that's not mean and ugly enough, they want to turn out and now stop food stamp

recipients from even being able to go into the grocery stores and buy groceries just like you and i. this is mean, man. and i want you, you seem like a very reasonable person. taxes going to the wealthiest people, and on the same token want to send food. we can do it on a lot of things but not food. they want to send food in boxes, canned food, dried milk, powder milk to the poor people in this country. now mr. chairman, you have dual mission of inflation, unemployment, on top of that, they are crushing the most

primary group that's being crushed are african-americans and people of color, and i'm here to tell you we are going to stand up and fight this administration and i want to ask you to get on our side, the side of the american people because it is clear to me that this president trump is not on the side of the american people. you tell me getting 83% of the benefits of the tax cuts are the 1%, the wealthiest, and then turn around, cutting $17.2 billion out of the thing we need the most, food for the poorest people, and then on top of that shipping their food in boxes that sit on their porch,

dried milk for their babies. you tell me, mr. chairman, is this the way you think about america? >> thank you, sir. i can only say these are very important issues and i take it to heart, but these are not issues that we have authority over. >> i was waiting on you to say that, mr. chairman. there's nobody better suited. you are the chairman of the federal reserve. do you know when you sneeze, wall street crumbles. that's why i am asking you. i looked at your background. you are well prepared for this. you're experienced as i have

read, it shows that you have a deep compassion for people. all i'm asking you to do is to every once in a while if you could say hold on, mr. president, this isn't right to be shipping the food to the poorest people in this country and denying them a right to go in the grocery store just like me and you and buy food. >> time of the gentleman expired. the chair recognizes the gentleman from pennsylvania, mr. rothis. >> thank you. and welcome, mr. chairman. good to have you here. the fed advises several sna insurance companies that own tlifts. an insurance company that's designated, congress has taken strong interest ensuring it reflects the business of insurance in the privacy of state regulation of insurance. most notably, congress passed legislation in 2014 to ensure

that capital rules for insurance companies are tailored to the business of insurance. we appreciate all your work on this rule. separate from the pending capital rule, i believe that more could be done to ensure that c capital rule, more could be done to ensure it's proportional to the risk these companies pose in terms of safety and soundness and reflect the existing system of state supervision. what are you doing to ensure? what more could the federal reserve do here? >> thank you, sir, thank for your comments. from the beginning, we've tried hard to look at insurance as a new area for us where we needed to develop expertise and where it's different from banking and needs to reflect the risks of the insurance business so we've invested in that and tried to be open with it. we'll continue to do that in developing our capital requirement. we've tried to reflect that. i think we're very open to the

views of experienced insurance regulators, people we've hired, and also people from the industry. >> by my count there are four vacancies on the board of governors. how do they impact the ability of the fed to fulfill its mission? >> i'm glad you mentioned that. we could really use some more faces on the hall. i don't think we've been down to three governors, certainly not for an extended period, so i'm eager to have more colleagues. as you may know, i wore an awful lot of hats before i took over my current role so i've handed those hats to my two colleagues and we're eager to have more people on board. we don't need all seven immediately but we'd love to get there. >> we've talked about first back grounds. i'd like to talk about diversity of experiences. professor charles kalimires from columbia university highlights diversity when discussing monetary and regulatory policy. he describes the culture of the

federal reserve system as academic dominated. while academics need to have an important voice in these highly technical debates, i can also see how non-academic practitioner perspectives can be helpful. can diversity of experiences like yours help support a more reliable monetary policy? >> i think we need great economists around the table, we need lots of them. but we need people from other backgrounds, people with experience in business and managing profit and nonprofit institutions and from the financial markets and from the law, those people bring diverse perspectives and make our decisions better and our discussions better. >> as you may know, our national debt exceeds $20 trillion and continues to grow rapidly. at the same time, the fed has been engaged in an unprecedented monetary policy. some have argued in carrying out this experiment the fed has stepped beyond what is necessary

for the conduct of monetary policy and ventured into credit policy. do you worry unsustainable public debts may increase political pressures on the fed? >> it's a risk but not a near-term risk. i would mention that we are now in the process of normalizing our balance sheet and shrinking it so we're moving back to a more normal level balance sheet and we'll be there in three, four, five years. one thing that's always puzzled me is this target 2% inflation rate a a layman looking at this. it seems benign. you mentioned 20 years. if you had 100 bucks 20 years ago and you had 2% every year, the purchasing power for that hundred bucks went down. can you educate us a bit from your perspective about this 2%

target? my count, $100, 20 years ago at 2%, it might cost about $150 today. >> this was a big debate which was settled around 2% as opposed to 0% for central banks to aim at and it's now become a global standard all around the world, central banks are aiming at 2% and the reason why that was picked over 2% is that it gives us more room to cut real interest rates. if inflation is zero, then interest rates would be in the sort of 1%, 2%, 3% range then when a recession comes we would have little to cut. so having 2% inflation we think oils the wheels of the economy and gives central banks a little more ammunition and it has now become the global standard so it would be hard for any bank to diverge from it. >> i yield back. >> gentleman yields back. the chair now raises the gentleman from texas, mr. green,

the ranking member of our oversight investigation subcommittee. >> thank you, mr. chairman, thank the ranking member. also, i'd like to thank the persons who are here who call themselves full employment defenders. welcome. mr. chairman, what do you consider full employment? i have the number 5.5%. but what is your number? >> if i had to make an estimate it's somewhere in the low fours b -- fours but it could be five or it could be three and a half. >> let's take low fours or three and a half. when is the last time that african-american unemployment was in the low fours or three and a half? >> i don't think it ever has been in the years we've been measuring it. >> quite frankly speaking it hasn't been since slavery. that's the last time that was full employment for black people. mr. chairman, 6.8% seems to be

the lowest number that i can find since we've been keeping numbers. since keeping numbers, black unemployment has been twice that of white unemployment, do you agree? >> do i agree? >> yes, black unemployment has generally been twice that of white unemployment. >> i think that's what the numbers would be. >> do you agree. >> yes, i agree. it's a true statement. it's a true statement. do you also agree that invidious discrimination also exists in the united states of america? >> i would. >> do you agree that when we've had an opportunity to test banks we have found that invidious discrimination exists in lending? >> yes. >> >> do you agree testing is an effective means by which we can acquire empirical evidence

necessary to show that discrimination exists? >> i do believe it is used in that way, yes then mr. chairman would you support legislation to help us acquire the empirical evidence to show that this exists so that we can do something about it? we now know the facts, what are we going to do about it? your charge is the promotion of full employment i take that to mean full employment not just for white people, i take that to mean for everyone and at some point black unemployment has to be addressed because it is chronically twice that of white people. we have to use terms like "black people and white people" to make the point. and we also have to ask that our friends on the other side join black people in doing something about that.

mr. chairman, that we have learned to tolerate will not change. we have learned to tolerate black unemployment being twice that of white unemployment. i refuse to tolerate it. that's why i use language that is clear and concise. what are we going to do about it? we know discrimination exists in banking in terms of lending, we know it exists in other areas of the economy as it relates to african-americans. the question is what will we do about it? and by the way, i'm not assigning all of the responsibility to you. that's why i mention my friends on the other side and my friends on this side. i'm a liberated democrat. democrats and republicans have to do more about black unemployment and unfortunately when a black person challenges the system such as i do it

becomes playing the race card so let me say today that i'm playing the race card. we have for too long allowed this condition to exist. so mr. chairman, i'm going to send you a letter and in thel letter i will request you explain the role that covert and overt unemployment plays in this issue of black unemployment being twice that of whites. i will ask you to identify the primary factors that limit african-americans' access to employment opportunities in sectors that are protected from cyclical downturns in the economy and i'm going to ask you if allowed with testing provide beneficial empirical data -- you've already said you think it would -- i'll ask you to put that in writing, mr. chairman. i respect you and i ask that you be of service to all americans.

not just white americans. i yield back. >> the chair recognizes the gentleman from colorado, mr. tip on the. -- mr. tipton. >> one of the big challenges we've faced is the policies in the previous administration had yielded a lethargic growth that impacted communities across the country and we're seeing policies step into place that will put resources back into the pockets of the individuals who actually earn it. i want to make sure these policies are applied across the board in the country to each community and i'd like to be able to highlight one of the

benefits i've seen in my district from tax cut and jobs act in colorado. the bank of colorado which has a significant presence in the western slopes of colorado. it was written after the passage of tax cuts and jobs act that they anticipate the passage of the reform is going to be having a positive affect on the growth of their businesses and our local economy. in fact, the bank of colorado added a special bonus at the end of the year for all 641 of their associates in colorado and new mexico. they're going to be receiving a thousand dollars in terms of a bonus and part-time associates are going to be receiving $250 to $500. mr. chairman, in my part of the country, that's real money. it's not a crumb. it's how we pay a mortgage. it's how we pay for the electric bill. it's how we provide literally for our children to be able to boost those opportunities for those employees it's actually helping main street right now.

the bank of colorado's actions i think provide an example for us in terms of new possibilities that exist in the current economy and also looking forward. i guess what i'd like to speak to you on is in my state of colorado we've talked to the ta tale of two economies. urban colorado has been doing well. however, in rural colorado we're just now seeing the signs of these opportunities for the people who live in those rural areas. one of the challenges i've heard has been from our small community banks in terms of the trickle-down effect of overregulation that came out of dodd/frank. the best practices being employed that may not have been on paper but are implied in their feeling those real impacts and so i know mr. lauderlauderm

brought up tailoring the rules and regulations to meet the size, the risk portfolio, the institution. can you give us an idea of what you see as that real tailoring and when we could expect that to start to take place to open up those doors of economic opportunity for rural america? >> so in the regulatory space for smaller institutions, we're mindful that the number of banks in -- small banks in rural and non-urban areas has declined sharply other the years and we don't see that as a good friend and we don't want to be any part of making it worse, there are bigger forces at work there as people move to the cities. i think we've recently here we've dramatically reduced the scope and burden of the call report, we've made exam frequency longer so you have a

longer gap between exams. i think we tried hard to find ways to simplify the capital requirements because you don't need the kind of -- you don't have the resources to be managing these highly complex capital requirements so we went through and in a number of areas we simplified, tried to address the shortage of appraisers in many rural areas but honestly you can go on forever. i think it's a lot of small things and i will tell you we're committed to doing more and i hope you'll hold us accountable for that. >> appreciate that, mr. chairman, i have a piece of legislation, the tailor act, to make sure we have rules and regulations that will be read and meet the size and risk portfolio of the institution and appreciate your commitment and hopefully willingness to be able to work with us because the objective is to be able to open up those doors of economic opportunity for all of our communities across the country and one issue which has been brought up to me is also the

community reinvestment act and if you would be willing to work with us on that as well. our banks want to make those contributions back in but we have outdated rules that i think we need to address. thank you and i yield back, mr. chairman. >> time of the gentleman has i can pyre -- expired. we recognize ms. moore, ranking member of the monetary policy and trade subcommittee. >> thank you, mr. chairman, and thank you again, mr. chairman, for appearing. i just want to appreciate the fact that in your written and your oral statement you have doubled down on your commitment to tend to your dual mandate to look at unemployment as well as monetary policy and i just want to appreciate you for that and given that, i guess i just want to focus a little bit on some of the things that i think

previously mr. green just talked about and also my good friend mr. brr talked about in terms of trying to figure out how the fed is going to balance things. when we look at unemployment for the general public, i guess i'm wondering if we continue to have 2% as our inflation rate, is that, in fact, sort of discouraging toward getting some of those groups like african-americans mobilized and moved toward more full employment. do you take any guidance from suggestions that perhaps the inflation target ought to be 2. 2.5%. >> i think we're strongly committed to our 2% inflation

goal. over time the level of employment in the economy is not a function of -- you can't increase it by increasing the inflation rate so we're committed to have a symmetric 2% goal so we'd be equally concerned with undershoots of that -- persistent undershoots of 2% and persistent overshoots. >> okay. well, given that i'm wondering what your thoughts are about the increased income inequality we see in this country. according to the united nations report, the united states is on track for being the most unequal -- having the most inequality in the world and given the recent tax bill where we see, despite what mr. burr indicated about the bonuses and wage increases that about 43% of these monies are being spend in

buybacks, another 1% merg9% mer and acquisitions. that's 67%. only 17% in capital investment improvements and then 13% in bonuses and raises, we know bonuses are one time only events which which pale in comparison to the economic benefit that the company gets so what concerns does the fed have about the increased income inequality? >> it's a big very complicated set of issues and i'll point to a couple things. the first is that we've seen a stagnation of incomes and that seems to be tied to the flattening out of educational attainment by our workers and we need to have the best trained work force and most highly educated work force that will translate into productivity and

higher wages so i think that should be an important focus for us. >> before my time expires, mr. chairman, and thank you for your patience i am wondering if you think is the chair that we're going to have this tremendous gdp growth as you might know the cbo and the jct put additional gdp growth of the tax bill like under 1% despite the $1.5 trillion tax cuts which will increase the deficits by that amount over ten years. are you -- do you agree with the cbo and jct that this gdp growth is going to be under 1%? >> you know, the tax bill was passed about a week and a half after our december meeting and then the spending bill was about a week and a half after our january meeting so in each case

we didn't have the full set of information. i think our view -- my personal view would be that there will be a meaningful increment to demand, at least for the next couple of years from the combination of those two things. >> there will be increased demand. >> yes. >> although wages aren't necessarily going to keep up with that given the way these moneys are being spent. >> i'd expect wages to increase this year, too, as i mentioned. >> time of the gentlelady has expired, the chair recognizes the gentleman from texas, mr. williams. >> thank you, mr. chairman, and chairman powell thank you for being here this morning. sound monetary policy is critically important to unleashing the economic opportunity of this great nation and her citizens and in 2018 i can tell you i'm a small business owner for 47 years on main street, we are off to a great start, with a booming economy, low unemployment and americans having more money in their pocket due to the tax cuts and jobs act so i'm encouraged by the strides we made in the

last year, i do acknowledge that there's still much work to do. i look forward to working with you to ensure that our economy is fully'm plowered and never unnecessarily restricted so question, federal reserve bank presidents serve a critical role in providing local information to the fomc. this is one of the federal reserve's systems most important features however some of the largest district economies cast a vote every three years while small economies are represented annually and every other year. so chairman, is it your opinion that each reason is properly represented under the current voting structure? >>. >> let begin by saying i'm a strong supporter of our fed rated system and what the reserveback system does is guarantees we'll have perspectives around the table. i think you make mistakes when

everybody agrees generally when diverse perspectives so in terms of the structure i don't think it's broken and when we have an fomc meeting you look around the table, all 12 reserve bank presidents are there and honestly i have to find the list because it's not who has the vote but who has the most persuasive things to say. >> i believe monetary policy would be better informed if the district voted consistently. san francisco, richmond and dallas vote every three years and new york votes every year, chicago and cleveland every other year. i figure this underrepresents certain economies and the needs of regions to vote more frequently could be unjustly prioritized. the presence of the federal reserve bank presence of the fomc helps to drive power away

from w washington and new york so i have introduced hr 4759 the fomc representation improve act that would provide every federal reserve bank president consistent voting rights. so mr. chairman do you support a policy that will allow them all voting rights and be as detailed as you want to be? >> i would say i think the current system served us well. i think you have a great reserve bank president in texas and his voice is well heard, as it should be. >> mr. chairman, i yield my time back, thank you. >> thank you. >> yield to the chairman. >> following up on the gentleman from texas, mr. chairman, as we rely more on the ioer and less

on the fomc, haven't we dimin h diminished the role of these regional fed presidents? i know the fomc is similar to the board of governors but it's the board of governors that said ioer, correct? >> it's always set consistent with the broader decision of the fo fomc. >> perhaps that's one more reason we should normalize monetary policy to ensure this diversity of view is represented at the table. >> last year in a speech new york fed reserve bank president william dudley commented on the volker rule and said, quote, the line between market making and proprietary trading is not always clear-cut which makes regulation in this space difficult. it may be worth considering given greater disdlaegs facilitate client business to intervene when markets are illiquid and volatile. we have seen historic volatility

and illiquidity in our fixed income market since the advent of the volker rule. do you agree or disagree with that analysis? >> i would agree. my view is that we can -- we're taking a fresh look at the volker rule to implement in the a way that's faithful to the spirit and letter of the law. >> we've had a lot of testimony in this committee about how this does inhibit job creation and economic growth in the financial choice act, we repeal the volker rule and have legislation to make the fed the lead regulator so there one one centralized regulator so would the fed be ready to take on that role should be signed into law? >> we would. i think we would probably take it on even without law. i think we're the natural group to have the pen there and it's a multiagency rule and someone needs to coordinate it and we'd be happy to do that.

>> the time of the gentleman from texas has expired. the chair recognizes the gentleman from nevada. >> thank you, mr. chairman, thank you chairman powell for being here or for your testimony. i just have a couple quick questions. as you know, i represent nevada which had the highest unemployment rate in the country during the recession. so despite the progress in reducing the overall level of unemployment since the recession, wage growth has largely remained low and stagnant for the vast majority of americans. in fact the average american hasn't seen a real pay increase since the early 1990s. many working people have not seen once since the 1970s. according to the economic policy institute, middle aged workers hourly wage is up only 6% since 1979. low-wage workers wages have

decreased by 5% while those with very high wages have seen an increase of 41% so basically piggybacking on what miss beatty was saying, we live in a country where the ritch are getting richer at the expense of middle-class people and i say this from somebody who has been unemployed before who has woken up, gotten dressed up and having nowhere to go but knowing that if you keep your head up you'll find something and everything will be okay but most of the people who are receiving tax breaks don't understand the struggle most americans have gone through so with that in mind what steps can the fed or congress take to help combat this wage inequality to piggyback on what ms. beatty was saying and ensure that further

wage gains are shared by middle wage and lower wage workers. >> our part of this is to take seriously our obligation to achieve maximum employment and that's what we're doing, i would say more broadly on wages over long periods of time the only sustainable way for wages to go up is for productivity to increase, productivity is a function of investment in people's skills by businesses and people so those are things congress should -- we don't have those tools. those are things congress and the administration would be well served to focus on. >> do you think the minimum wage requirements afford workers the livable wage? we've seen this discussion in the last couple years whether we should be raising the minimum wage national ly people have ben

talking about $12 an hour, people have been talking about $15. do you think this is something that needs to happen here in america? >> minimum wage policy is a form of fiscal policy. it's not for us. there's research that shows, for example that people who provide less value than the minimum wage, entry level workers and that kind of thing, can be disadvantaged and there's a research that shows that they aren't so these are questions that are best left for you. >> well, mr. chairman, you're the chairman of the federal reserve and you probably know about this more than i do. when they stimulate the economy, businesses make more economy, they expand open up a second and third store. whereas some of my colleagues believe that somehow you give these big tax breaks to

millionaires and billionaires and somehow it trickles down to the workers. i don't believe in that. i represent part of las vegas where the folks are hard-working people. janit janitors, housekeepers, cooks, chefs, waiters, those folks are the people who make las vegas run. if you increase the wages to those folks they'll spend more money and stimulate the economy and that is the reason why i believe we've had the wages inequality in this country. my last question is why has the fed been so focused on preem preempting education in the 1980s when it's barely budged? >> it serves all constituencies well, including people in the lower income groups to have low -- have inflation low and under control it hits those groups the hardest so it's a good thing we've managed to

control other things. so the way we get at wages is by taking maximum employment serious seriously. >> thank you, mr. chairman. >> time of the gentleman has expired. the chair recognizes the gentleman from arkansas mr. hill the majority whip of the committee. >> >> i think that chairman powell for his testimony today and listening to the discussion this morning. i think we need to be clear on the record both chairman, chairman of the committee, chairman of the fed that the biggest thief for working people in this country and across the world is inflation nothing depresses buying power more than inflation and nothing cuts into those at the hardest working part than inflation so minimizing inflation and having safe and sound capital markets are a worthy objective of the fed and so i thank you and your

colleagues for fighting for modest inflation so that people have real wage increases and i do believe that one of the benefits of the restructuring of our tax system will be to increase productivity and productivity will see wages go up a mrs. moore referenced it as well but i saw a morgan stanley research study that calls for earning projections of 2018 to be up 8% and other 44% of the companies expect to reinvest in their companies and training and capital expenditures and both these efforts will produce higher wages and 330% of companies improve to increase companies to distribute more earnings so i view these things as positive for our economy.

i want to follow up on chairman hensarling's comments a bit about your exchange on the volker rule. you've noted in previous testimony president dudley has, even mr. tarullo has about the complexity of this rule, that we're not getting it done, not doing a good job of enforcing the rule but on this or monoization bill, i've had some difficulty in getting members to understand that giving community banks relief is somehow letting those bills -- those community institutions sort of off the hook of safe and sound banking practices and i'd like for you to respond to what i've told

them. by saying the community banks are not subject to the volker rule doesn't mean they're not subject to the careful scrutiny of our bank regulators and isn't it true if they were doing something that you deemed unsafe and unsound related to coal volker types activities that they could be disciplined for those rules? >> yes, sir, it's true we don't need foal kerr to find unsafe and unsound practices. certainly in bill you mentioned that senator crapo introduced, you can't have a small trading book. so. >> appreciate that, i think we need to be clear that we have the tools to enforce safe and sound banking practices for banks of all sizes, particularly those in the smaller size that's

referenced in my legislation but that the real mission here by designating the fed as the principal regulator that will get better more discreet interpretive guidance on how to enforce the volcker rule. do you agree with that? >> i do. the voguer rule is complex and we can simplify it. >> you i think when you've testified previously said some trading people needed a ouija board and that freezes up cal capital markets that i'm the most concerned about is misinterpreting that rule by compliance department. have you seen that in your work with your district bank presidents about that exact thing where we're hurting illiquid securities? >> we do hear that.

i think if you -- it stands to reason if you provide more certainty about where the law applies and doesn't you don't have to convene a giant meeting to figure out if you're complying with the law or not. >> i wish you my best wishes for your service as chairman of the federal reserve. >> the time of the gentleman has expired. the chair recognizes the gentleman from minnesota, mr. ellison. >> thank you, mr. chairman. welcome to the committee, mr. chairm chairman. the cato institute estimates ending the deferred action for childhood arrivals could cost the u.s. economy over $280 billion in reduced economic growth over ten years. the center for mesh progress puts that number $460 billion bigger but still a loss. the chamber of commerce doesn't

put a number on it but they do say that ending daca would be a nightmare for america's economy. >> so what kind of economic impact would ending daca and making 700,000 dreamers deportable have on our economy? >> let me say that these are difficult and important issues and we don't do immigration policy at the fed. >> i'm not asking you about immigration policy. i'm asking you about the economic impact of taking 700,000 people, 90% of whom are employed, out of the economy suddenly. >> i don't want to wade into a hot political discussion but i will say this. economic growth can come from

two ways, it will either be more people working or higher productivity. the work force is now growing at about .5% per year and some of that has been from immigration so to the extent you care about potential growth, you need to be considering that in your discussions about immigration. >> so what i hear you saying is that taking 700,000 people, 90% of whom are employed, out of the work force, would be -- could cause problems? >> i'm not going to comment on that particular situation. >> i hear you but i'm asking about the economics of it. i'm asking you as somebody who lives in an institution that has a mandate not just to keep inflation down but to pursue full employment. you have a duel mandate and i'm asking you about employment and you're declining to answer my question. would you take like to talk about what it would mean to take 700,000 people out of the economy? let's say they all went to mars for some reason. >> in fairness, congressman, i am not going to get into the

debate over daca, i'm not going to do that. >> i'm not asking you to, sir, i'm asking you to talk about the economics of it. >> well, i said -- >> let me see if you can answer this. what does it mean to have a group of people in their prime working years suddenly disappear from the economy? >> well, you would lose some productivity from that. >> okay, thank you very much so there's a research group known as reveal. they did a study looking at literally millions of hmda report reports. i'd like to ask unanimous consent to have their report considered for the record. >> they looked at 31 million

hmda records and found that 61 municipal areas across the united states had unfairly -- had denied people of color, black and brown people the right to take on a mortgage kpaired to equally qualified whites. what is the economic impact of that discrimination in your view? when people can afford a mortgage and are told you can't have one, what impact cans we expect to see when that happens on a systematic basis. >> i think it's so fundamental to our society that there should not be racial discrimination along the lines of credit availability. >> that's a moral position and i agree with you but i want to know how it affects the economy. >> well, start with those