committee chair. >> committee will come to order without objection and the chair authorized -- and to submit materials to the chair for inclusion in the record. this hearing is for the purpose of the testimony of the chair of 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. now the monetary fiscal stimulus in the nation's history, the economy limped along eight years averaging 1.6% gdp growth. remains stagnant and savings failed to recover from the 2008 financial crisis. a new phrase coined, in an attempt to racialize the

phenomenon, namely secular stagnation. high taxes in heavy handed regulatory policy. with the election of donald trump and the passage of the tax cuts and jobs act, that has changed. unemployment is now at a 17 year low. wage growth is the fastest in almost a decade and companies all over america are announcing bonus to the employees and expansion in their communities. economic growth is once again, arching 3%. however, there are some concerns we all recognize that there's been great volatility in our equity markets recently and i notice the s and p five hundred up more than 14% sins last year. corn whether the fed can unwind a miss storeically unbalanced balance sheet after a decade of low interest rates. this was not a issue when the economy was stuck in low gear.

now that the economic transmission is shifted into high gear t clearly is an issue sochlt with that backdrop, we welcome you to your first of many hearings, note, we are rooting for you for much is at stake. as we begin a new era in federal reserve leadership, i think it is a good time to reestablish congressional expectations. now, more than ever, the fed must commit to a credible, orderly and well normalization plan. the fed must do a better job of communicating clearer to market participates, all of the variable used to conduct policy in their waitings and interactions. and certainly, it is a positive sign that the fed compares their policies with known policy rules so that the public can evaluate their performance. next, monetary policy must remain independent but the fed must remain account able to

congress which incidentally created it and has the responsibility of coining money and regulating itself value under our constitution. it they should stay in their lane, interest and reserves and excess reserves is not fuelling a much more improveization monetary policy but fuel add distortion ordinary balance sheet that 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 fed the power to pay interest on reseshs, it was never contemplated or articulated that ioer might be used to plant fo -- and if they continue to do so, i feel the independence can be eroded. finally, in addition to the monetary policy responsibilities, the fed has an

out size regulator role. this responsibility is not designed to be independent of congress and must be made subject to appropriations as are other regular lay tors. additionally, formal rule making, for de facto rule making through guidance and all formal rule making -- cost benefit analysis and not hamper economic growth and the hopes of dreams of millions. in closing, regardless of the 2008, monetary policy is not and can never be a substitute for found fiscal policy. jerome powell, we look forward to a prudent path of normalization. where credit is allocated to the most efficient use. i yield four moments to the ranking member. >> i look forward to your

testimony today on monetary policy and the out look for our economy. i'm concerned that the hard easterned economic recovery came as a result -- democrats in congress and the federal reserve will be undermined by the -- and misguided policy of the president and the our congressional republicans. this president and his allies in congress are working everyday to roll back the critical protection frs our consumers. investors and the km i that democrats put in place in the wall street reform and consumer protection act. -- they seemingly have forgotten about the tremendous economic harm that resulted from the financial crisis and willing to pay the reign to another crisis. with the tax scam, massive give aways to corporations and the

rich at the expense of hard working americans. the tax scam -- the national debt by $1.8 trillion and gives corporations a 1.3 trillion tax rate and raise taxes on 86 million american families. despite the huge win goal. most are not raising wages -- some corporations are giving one time bonus for optics but they represent a tiny fraction of the corporations -- on top of that the latest trump budget request is a skrul senseless proposal harmful to millions of families and persons with disabilities. the social safety net. cutting billions of dollars in funding with supplemental nutritional assistance and health care and housing programs. these policies show that donald

trump has no interest in standing up for americans who need a hand. he put forth a series of harmful policy that is tell families and communities they are on their own. a majority of cheegs launch-- dg legislative proposals that roll back constraint on the influence of commercial banks within the federal reserve system. eliminate tool that is provided critical -- that proved critical to the federal reserve support of the economy. following the financial crisis. undermine the federal reserves, focus on unemployment and eliminate the independence of the broken appropriation process. the majority using the federal reserve as a piggy bank tro pay for the cost of legislation. -- will be on the floor today

these republican efforts to undermine the fed diminish the ability to support american workers if we face another crisis. chairman powell i look forward to your views and the path to sustaining the economic process set in motion during the obama administration. i yield back the balance of my time. >> the chair recognizes the gentleman from ken tutucky mr. barr. >> welcome. sins the 2007 and 2009 financial crisis, the sheet has exploited from under 1 trillion tlars to more than $4.5 trillion. clearly, whether you believe this government intervention into our -- like housing, stocks bonds treasury, that was the intention. fortunately, the fed began to unwind these and i hope they

stick to the plan enabling a free market environment. like the reseent -- without question this is attributable to the fact that no fed chairman has inherited the task you have before you. the job of unnen winding the most unconventional monetary expeefrmt in the history of central banking. your tass south korea to continue to unwind the -- return to market base interest rates and remove monetary distortions from the economy without market disruption. this is a serious responsibility. at least the fed has the backdrop of a strong economy and faster economic growth from tax cuts so that it can achieve this difficult task. i personally want to commend you chairman powell to lead the way on normalization and i encourage you to continue.

i commend your commitment to tailoring financial regulations and rite sizing out regulations. i look forward to your testimony and wish you the best. >> time has expired and now the chair recognizes the gentleman from wisconsin the ranking member of the subcommittee for one minute. >> thank you so much mr. chairman and thank you chairman powell for attending today. i look forward to your testimony and getting to know you. you're taking over the federal reserve at a precarious time and your predecessor talked about -- i'm interested to hearing if that's an emphasis in increasing rates or unwinding the portfolio. your tenure comes at a time when the gop tax bill will make your task difficult. as changes to health care may increase inflation for coverage.

the gop tax bill is a wind fall for shareholders that will untether the real economy as distinct from wall street leaving you stuck from competing problems. and growing bubbles with minimal room to lower rates if necessary. i guess we should thank dodd/frank and we should hold on for a bumpy ride. i hope your term is successful and i look forward to your testimony and i yield back. >> time of the general lady has expired. today we welcome the testimony of jerome powell. this is the first time he appeared before this committee and will not be the last time he appeared. as the federal reserve system on february 5th 2018 for a four-year term and severed as

the board of governors, 2012. mr. powell serves a the chairman of the federal open market committee. prior to his appointment to the board, chairman powell was a visiting scholar at the bipartisan policy center and a partner of the carlisle group. as a secretary and undersecretary under george bush. he worked as an attorney and investment banker in new york. he received an ab in politics in princeton and a law degree from georgetown where he was the editor in chief at the george down law journal. his statement will be made part of the record and welcome and you are recognized to give an oral presentation of your testimony. >> thank you very much, mr. chairman. >> you're going to have to hit

the microphone. >> thank you and thank you ranking member and members of the committee. i'm pleased to present the semireserve semiannual monetary report to the congress. on my first appearance as the chairman of the federal reserve. i want to express my appreciation for chair, janet yell skpn her important contributions. the economy continued to strengthen and policymakers normalize the level of interest rates and the size of the balance sheet. together, we have worked to ensure a smooth leadership transition and provide for continuity in monetary policy. i would 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 transparency about the federal reserve policies and programs. transparency is the foundation

for our account spblt i'm committed to explaining what we're doing and why. today, i will briefly discuss the current economic sbags out look before turning to monetary policy. the u.s. economy grew at a solid pace into this year. monthly job gains, averaged 179 thou through july to december and in january. this pace of job growth was sufficient to push the employment rate down to 4.1% about three quarters below of the year earlier and the lowest rate sins december of two thousand. in addition, the labor force remained roughly unchanged as it has sins the past several years. a sign of job market strength. hiring baby boomers. strong job gains lead to recent

reductions and for all major demographic groups. for example, the unemployment rate for adults without a high school education fallen from 15% to 5.5% in january of this year. the jobless rate for those with a college degree moved down from 5% to 2% other the same period. in addition, unemployment rates for african americans and hispanics are -- they are still significantly above the rate for whites. wages have continued to grow moderately with a modest acceleration in some measures. the extent in pick up wages in part of the weak pace of productivity growth in recent years. turning from the labor market to production. inflation adjusted gep rose an annual rate of about 3% in 2017, a full percentage point faster

than the first half of the year. economic growth in the second half lead by solid gains and consumer spending, rising household income and wealth. growth in business investment stepped up which should support higher productivity growth in time. the housing market improving. abroad, solid in recent quarters and the associated strengthening in demand for u.s. exported provided support in our manufacturing industry. against this backdrop of solid growth and a strong labor market, inflation low and stable. in fact, inflation continue to run below the 2% rate, to be most consistent over the long run with our congressional mandate. overall, consumer prices measured by the price index for pc e inflation, increased 1.7%

many in the 12 months ending in december about the same in 2016. the core pc e price index, energy and food items and a better indicator, rose 1.5% in the same period. less than the previous year. we continue to view some of the short fallin inflation last year as likely reflecting transitory influences that we do not expect will repeat. consistent with this view, the monthly readings are higher toward the end of the year than earlier months. after a substantially easing during 2017, financial conditions in the united states have reversed some of that easing in the last month. a the this point, we don't see these developments as weighing heavy on the out look of economic activity, the labor market or inflation. the economic out look looks strong. the robust job market should continue to support growth and

household income and consumer spending. solid growth should lead to gains in exports and strong sales growth will likely to boost business investment. fiscal policy has become stimlative. in this environment we anticipate that inflation on a 12 month basis will move up and stabilize around the committee's 3% objective other the medium term. wages should increase at a faster pace as well. the risk to the economic out look balance spt continue to monitor inflation developments closely. during the 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 raising the target rate by a

quarter percentage point bringing a target to -- we initiated a balance sheet potentialization program to reduce the securities holdings and that program has proceed the smoothly. these interest rate and balance sheet actions gradually reducing monetary policy accommodation will sustain a strong labor market and foster an inflation of 2%. engaging the appropriate path for monetary policy over the next few years, the fomc will strike a balance to avoiding an over heated km i and bringing price inflation to 2% on a sustained basis. while many factors shape the economic out look. some of the wins turned into tail wince. fiscal policy became more stimlative and foreign demand for u.s. exports on a firmer

trajectory. financial conditions remain accommodative. inflation remains below the 2% object i have. in the committee's view. further gradual increases will promote attain meant of both objectives. as always, the path of monetary policy will depend on the economic out look as informed by incoming data. in evaluating the stance of monetary policy, they routinely conducts rule that is connect prescriptions for the policy rate with variables associated with the mandated objectives. personally, you find these prescriptions helpful. careful judgments required of the measurement of the variables used in these rules and the implication of the many yieshs the rule don't take into account. this monetary policy reports proves roles and the 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. in your statement, you used normalization. i would loo i can to explore that for a moment. in respect to interest on excess reserves. should our expectation that ioer is the new primary monetary policy tool or will it instead be the fire extinguisher behind the glass that you breakout in times of emergency? what should be the expectation? >> mr. chairman, interest on reserves is currently as you know, the principle policy tool we use to keep the federal fund rate in the range that we designate. and we have not made a decision in the longer run whether that will be the framework or return to something more like what we

did before the crisis. i don't have a a schedule -- i don't expect to return to that decision in the near term. our current approach seems to be working well and gives us contr rates and the market seems to understand it. >> so it remains an open question? >> in the long run, the long run operating frame work does remain open, yes. >> 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 and that it would be used to sub plant open market operations of the fomc so i trust we're having further discussions about that. with respect to normalization you have said publicly that you expect the new normal with respect to the size of the balance sheet to be roughly 2.5 to 3 trillion and get there over 3 or 4 years. do i understand that correctly mr. chairman?

>> yes. >> okay as i understand it, i have not been able to see the expectation with respect to the competition of the balance sheet and i believe that currently your carrying 2.4 trillion of treasuries, 1.8 of mortgage backed securities. that's roughly back of the envelope, 1/3, 2/3 ratio. is it your intention to keep that same ratio of mortgage backed securities? again many of us are concerned about the possibility of the fed involved in credit allocation decisions because right now i don't 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 implemented monetary policy and that it would consist of treasury skurecurities. 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 years ago shows the balance sheet roll off caps. what i'm having a little trouble with, as i look at the charts in the report, mr. chairman you don't seem to have sufficient redemptions that lou you to reach your $20 billion run off pace so as i read if charts, i think the expectation is by tend of the year we're looking at a $50 billion balance sheet roll off but as of today i don't think you have sufficient treasuries to do that. so how do you achieve it? >> in a case of mortgage backed securities the role is less predictable.

with treasuries you know when they're going to mature and you can see when it's going to be. with mortgage backed securities it will depend on the level of interest rates and people refinancing their mortgages. as rates go up, they'll go down and you'll see slower roll off should the public expect a $50 million roll off. >> i think they should expect that over four years we'll get back to a new normal. >> but we don't know the exact pace. >> i don't think that, the caps are not going to be binding. >> my time is starting to wind down. i'd like to explore inflation targ targeting i struggle with how this is like the statutory mandate but i also saw from the

fomc minutes the most recent minutes that there was discussion about moving from the 2% target to a target range. at least 2% is a linear function. a range is obviously not. so i'm really struggling on how is this with price stability and some are calling for a 3%, 4% targ target. so two questions, number one, do we have the thought that they will move from this target. at some point, have you violated your price stability mandate. >> our current frame work said they'll be concerned above or below 2%. we understand that inflation is going to be buffeted by various

factors and may not be exactly at 2%. it will above and it will be below and we see it as an objective. we have been trying to get up to 2% but generally speaking inflation has been low and stable for 15 or 20 years now. >> my time has expired. the chair now recognizes the ranking member for 25 minutes. >> thank you very much. the permanent voting seat on its role in supervising some of the largest and most complex unnatural institutions in the country. the president of the new york federal reserve southern land one of the most important economic powers in the nation. as you know, had he will step down this year and the search for his replacement is underway. historically the new york feds close proximity to wall street has lead 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 who demonstrated independence from wall street and maximum employment mandate and regulatory responsibilities. what steps has the board taken to ensure that the candidates from diverse, gender, racial and ethnic backgrounds are given due consideration. if they are not afforded due consideration are you prepared to exercise your power as chair to reject such candidates to serve as such presidents of the new york fed? you have a lot on your plate but have to put this question to you because we have 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. what do you think about this? >> have been involved. this is the 7th process to select a reserve bank president that i've been involved in since 2012. i'm very familiar with the way the process works and so we always insist and we always insist there's always a highly diverse candidate pool and they're given serious consideration and chance to become the participant in that process. we will always have diverse candidates and always have a fair shot.