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WATCH: Fed Chair Jerome Powell testifies on Capitol Hill

Jun 07, 2021
the committee will come into order without objection the

chair

men are authorized to declare a committee recess at any time this hearing is titled monetary policy and the state of the economy now I take four minutes to make opening statements I would like to welcome you back to the Chairman Powell, as I discussed previously and in our last hearing with you, I remain very concerned about the president's efforts to interfere with the feds' independent monetary policy. A recent news story noted that Trump has tweeted more than 100 times about the Federal Reserve since his nomination. From those tweets they appear to be trying to put pressure on Federal Reserve Chairman Powell, you and the Federal Reserve Board of Governors should not be carried away by these aggressive tactics to defend past independence;
watch fed chair jerome powell testifies on capitol hill
They must also take public perception into account, of course, Trump continues to try to Claim credit for the economic growth that was set in motion by the policies of President Obama, Congressional Democrats and the Federal Reserve is an irresponsible trade war and the Republican tax may have blown up the national debt, slowed our economic growth and hurt working American families, Trump continues. to squander this legacy economy, let me note that I am nevertheless disappointed with the phase's efforts to deregulate megabanks. Most recently, by proposing a further rollback of the Volcker Rule, the Dodd-Frank Act made our financial system more sure, but it's up to agencies like the Federal Reserve to Prudential II uses available tools to monitor and mitigate threats to our economy the committee is carefully monitoring developments in the repo market and the feds the Fed should not arbitrarily reduce requirements of liquidity in response to the disruption of the repo market as some on Wall Street have called for because instead the Federal Reserve should make appropriate adjustments to ensure a well-functioning repo market while ensuring that we have rules strict capital requirements.
watch fed chair jerome powell testifies on capitol hill

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watch fed chair jerome powell testifies on capitol hill...

They cannot be fooled by a front practice, a practice in which banks alter their balance sheets to appear less risky and reduce their capital levels. Additionally, the risk of various financial assets is increasing as climate change poses a more serious risk to our economy. The Federal Reserve and other regulators should use financial stability tools under Dodd-Frank, such as incorporating Clement's climate-related losses into supervisory stress tests, or big banks to address this growing risk. I would also like to discuss the recent developments involved in the Community Reinvestment Act which is the CRA. We have had a number of hearings on this issue and I am very concerned about the OCC Comptroller's harmful canopy proposal to make the CRA community.
watch fed chair jerome powell testifies on capitol hill
Divestment Act and allow banks to escape their obligation to make responsible investments in the communities where they are licensed. I urge the Federal Reserve to take a careful and deliberate approach to any changes to the implementation of the CRA and not join the Comptroller's misguided efforts, Governor Brainard stated. and I will quote that it is more important to do reforms right than to do them quickly quote unquote is absolutely right, the OCC and FDIC should also heed that advice and extend the public comment period like community banks, state regulators, community and rights groups civilians. as well as the committee that Democrats have called for to give all interested parties the opportunity to voice their concerns.
watch fed chair jerome powell testifies on capitol hill
I also encourage the Federal Reserve to closely monitor Facebook's efforts to launch a cryptocurrency and digital wallet, which, as we discussed in our last hearing, have profound consequences. implications for monetary policy and competing with our own US dollar in light of the many risks involved in Facebook's plans to create I and other Democrats have called on Facebook to pause its plans until Congress can examine the issues associated with a large technology company that develops these digital products and take action. I look forward to your testimony today, Chairman, on how to discuss these matters and now recognize the ranking member of the committee, the gentleman from North Carolina, Mr.
McHenry for four minutes for his keynote address thank you to Chairman Powell for appearing before us once again under the Trump administration we have the best economy we have had in decades the numbers are irrefutable we added 225 thousand new jobs in January and the unemployment rate is At essentially its lowest level in half a century, this prosperity is being shared by all Americans, from African Americans to Hispanics, where their unemployment rate hit record lows last year. Prime-age labor force participation has reached 2.2 million people who were previously out of the labor force. And it is not surprising that consumer confidence has increased dramatically since the month before the president's election.
Every member of Congress should celebrate these remarkable results that have resulted from Republican leadership on pro-growth policies like tax reform and regulatory tightening, but maintaining our economic prosperity also depends on it. On the good policy of the Federal Reserve, the central bank is currently conducting a review of its monetary policy framework to determine the tools it may need in the future Chairman Powell, I raised concerns that we have a regulatory policy that is affecting their ability to make appropriate monetary policy decisions and that is why I think it is important that there be a regulatory review of the limitations that those regulations can impose on their broader monetary policy decisions, including the systemic risk concerns that I have raised , as well as open market operations, especially mocha. open market operations in the repo market.
I appreciate your prompt response to my questions about repo market operations, but I'm not sure there has been a satisfactory answer to what caused the market spike in the first place and that's worrying. I expressed my concern about the transition from the LIBOR reference rate that we have nine months later. I'm still concerned that consumers will be affected by the transition, we still have contracts written at the library reference rate and I think given the recent volatility and the repo markets. I am concerned about subsequent volatility and products facing consumers, including mortgages, auto loans, business loans and other consumer loans, as this new benchmark emerged derived from guaranteed overnight financing.
In previous hearings, I have spoken about the cyber threats posed to our financial institutions and their institutions in China, in particular, yesterday's news about the Equifax data breach is deeply concerning and is a wake-up call to all and sundry. from policymakers that we must take the threat from China and the Chinese communist regime very seriously if we don't take them Seriously, I'm not afraid that they are taking us very seriously and now they basically have all of our data, so the The indirect effects of this Chinese policy issue are significant not only for cybersecurity, but also for what we are seeing with the corona virus and the destabilizing effects. the destabilizing effects it has on global health I know you are not a global health expert, but can you give us some insight into your measurement techniques and response to these economic changes that are being pushed out by the corona virus and China challenge. and the indirect effects it has on its neighbors and also on the supply chain that flow through China, the nature of the Chinese regime may not fit neatly into the feds' risk assessments, the Federal Reserve has acknowledged in its report of file stability that cyber risk does not fit perfectly either way, but the risks are real even though our data coming from China is limited and the limited data we have raises questions for us, we still need to properly reflect on what what we know and how we respond as an American government and to the Western world in response to these cyber threats and health risks and the indirect effect that it has on our economy, so again, Chairman Powell, thank you for being here, thank you for your opening, thank you for your approach as

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man of the Federal Reserve to speak in the language of the people rather than simply the language of doctors with that I yield now I recognize the chairman of the Subcommittee on National Security International Development and Monetary Policy mr. klieber for a minute thank you madam president mr.
President, first of all, I really appreciate your willingness to travel around the country to do 14 of those feeding and listening sessions, and one of them was in Kansas City, at our Federal Reserve building, and I think it's a great opportunity. so that most people have the opportunity to surround him in a room and discuss economics with the president, so thank you very much when you found out that today people were sitting around the table with you and gave you a picture of their struggles and efforts . I'm trying to make it in the economy and people are also worried about inflation, they think it's like toothpaste, once you leave Harlech it's hard to get back in, so we're worried and we appreciate your work too, and I hope looking forward to getting a little further into this as we move forward with the cleanup.
Thank you, company. I now recognize the ranking member of the subcommittee, mr. French Hill, for a minute, thank you Madam President, friend, thank you for being here today. We appreciate your willingness to come and answer our questions and give us your ideas. I want to take a moment to echo the comments of the ranking member on the Community Reinvestment Act. I know this received a lot of attention. I read Governor Brainard very comprehensive opinions on the subject and we had Mr. Odden here recently to discuss the OCC's point of view as a former community banker. In my opinion, ultimately, we should have one approach for the CRA among the financial services regulatory agencies.
I've had 40 years of dealing with inconsistency and delivery of regulatory proposals and so I think ultimately it would be productive for us to have a one-size-fits-all approach to that regulation and modernize it for the digital world we live in today. I look forward to your presentation today and, Madam President, I give thanks. I want to welcome to the committee our distinguished witness Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System, has been a member of the Board of Governors since 2012 and has been its Chairman since 2017, Mr. Powell has testified before the committee and I believe he does not need any additional presentation.
Without objection, his written testimony will form part of the record, mr. Powell is now recognized to present oral testimony for him. Thank you so much. Certainly McHenry, ranking member for Waters, and other committee members. I am pleased to present the Federal Reserve's semiannual monetary policy report. My colleagues and I strongly support the goals of maximum employment and price stability that Congress has established for monetary policy. Congress has given us a significant degree of independence to pursue these goals based solely on objective data and analysis. This independence brings with it the obligation to clearly explain how we pursue our objectives.
Today I will review the current economic situation before resorting to monetary policy The economic expansion is in its eleventh year and is the longest on record during the second half of last year Economic activity increased at a moderate pace and the labor market strengthened further As the economy appeared resilient to the global headwinds that had intensified last summer, inflation has been low and stable but has remained below the FOMC. It is symmetrical at 2 percent. The target employment increase averaged 200,000 per month in the second half of last year and an additional two hundred and twenty-five thousand jobs were added in January.
The pace of job creation has remained above what is needed to provide employment for new workers entering the labor force, allowing the unemployment rate to continue falling over the course of the past year. The unemployment rate was three points. six percent last month and has been near half-century lows for more than a year Job openings remain abundant Employers are increasingly willing to hire lower-skilled workers and train them as a result the benefits of a market strong employment have been shared more widely among people who live and work in low- and middle-income communitiesare finding new opportunities employment gains have been widespread across racial and ethnic groups and education levels wages have increased, especially in lower-paying jobs GDP grew at a moderate pace during the second half of last year , consumer spending growth moderated toward the end of the year after previous strong increases, but the fundamentals supporting household spending remain strong.
Residential investment rose in the second half, but business investment and exports were weak, largely reflecting slow growth overseas and trade developments. The same factors weighed on activity in the country's factories, whose output declined during the first half of 2019 and has changed little on a net basis since then. The February monetary policy report analyzes recent weakness in the manufacturing industry. Some of the uncertainties around trade have eased recently, but risks to the outlook remain. In particular, we are closely monitoring the emergence of the coronavirus, which could cause disruptions in China that spread to the rest of the global economy.
Inflation was below the FOMC's symmetrical 2 percent target throughout 2019 for the 12 months through December. General inflation. based on the price index for personal consumption expenditures was 1.6 percent, core inflation, which excludes volatile food and energy prices, was also 1.6 percent for the next few months. We expect inflation to approach 2% as the unusually low readings of early 2019 fade from According to the 12-month estimate, the country faces significant longer-term challenges: people's labor force participation in their best working years is at its highest rate in more than a decade; However, it remains lower than in most other advanced economies and there are worrying disparities in the labor market in all countries. racial and ethnic groups and in all regions of the country, furthermore, although it is encouraging that productivity growth, the main driver for increasing wages and living standards over the long term, has increased recently.
Productivity increases have been lacking in throughout this long economic expansion. Finding ways to boost labor force participation and productivity growth would benefit Americans and should remain a national priority. I will now turn to monetary policy. During the second half of 2019, the FOMC shifted to a more accommodative monetary policy stance to protect the economy from weaker global growth and trade developments and to promote a more rapid return of inflation to our symmetrical target of 2 percent, we reduced the target range for federal funds in our July, September and October meetings, bringing the current target range to between one and a half and one and three-quarters percent and our subsequent meetings with some uncertainties around the trade have slowed and amid some signs that global growth may be stabilizing, the committee left the policy rate unchanged the FOMC believes the current monetary policy stance will change support continued economic growth strong labor market inflation to return to the committee's symmetrical 2 percent target as long as incoming information on the economy remains broadly consistent with this outlook the current monetary policy stance will likely remain appropriate, of course, policies that do not follow a preset course if events arise. that provoke a material reevaluation of our perspectives.
We would respond accordingly by taking a longer-term view. There has been a decline over the past quarter century in the level of interest rates consistent with stable prices and the economy operating at its full potential. This low interest rate. The environment may limit central banks' ability to reduce policy interest rates enough to support the economy during a downturn. With this concern in mind, we have been conducting a review of our strategic monetary policy tools and communication practices. Public participation is at the core of this effort. Through our Federal Reserve listening events, we have heard from representatives of the business, labor and consumer community and other groups, the February monetary policy report shares some of what we have learned, the insights we have gained from These events have informed our framework discussions, as reported in In the minutes of our meetings we will share our conclusions when we complete the review, probably in the middle of this year.
The current low interest rate environment also means it would be important for fiscal policy to help support the economy if it weakens. A more sustainable federal budget could also support the economy's growth in the long term. Finally, I will briefly discuss our planned technical operations to implement monetary policy. The February Monetary Policy Report provides details of our operations to date. Last October, the FOMC announced a plan to purchase Treasury bills and repurchase these stocks. have been successful in providing an ample supply of reserves to the banking system and effective control of the federal funds rate as our bill to continue accumulating reserves towards levels that maintain ample conditions, we intend to gradually move away from the active use of repo operations and, As stocks reach ample and durable levels, we intend to slow our purchases. at a pace that allows our balance sheet to grow in line with the trend in demand for our liabilities.
All these technical measures support the efficient and effective implementation of monetary policy. They are not intended to represent an opportunity. Sorry, a change in monetary policy stance. As always, we are ready to adjust the details of our technical operations as conditions warrant. Thank you. I hope to thank you. I now recognize myself for five minutes of questions in December 2019, when the OCC and FDIC issued a notice of proposed rulemaking on comptroller departures. proposal, the Federal Reserve did not join this proposal, FDIC board member Mark Gruenberg voted against the Comptroller's departures proposal, describing it as a deeply flawed proposal that would fundamentally undermine and weaken the Act of Community Reinvestment, quote, and in comments last month, Federal Reserve Board Governor Brainard said that quote, given that reforms to CRA regulations are likely to raise expectations for a few decades, it is more important to do reforms correctly than to do them quickly, which requires that external stakeholders have sufficient time and analysis to provide meaningful feedback on a variety of options for modernizing regulations President Paulo, Governor Brainard, also suggested in a speech last month that the Federal Reserve created a database of 6,000 public CRA evaluations, analyzing how various CRA investments support low- and moderate-income communities.
Has the Federal Reserve used this database to evaluate how? The bank's activities would be evaluated under the OCC and FDIC proposal, but the CRA, if I understood your question was whether we have used our database to evaluate your proposal, that's true, I'm not entirely sure that we have. , maybe you can provide some context if so. It is appropriate, if I may, that it is simply that we agree that this is a good time to update the CRA in light of technological and demographic changes and we agree on the objectives, we have worked a lot on this and we We have strived to achieve it. on the same page and we couldn't do it, we have some different ideas, what is the intention of doing this evaluation?
Excuse me, you will attend to carry out the evaluation that I refer to regarding the database to evaluate the activities of the Bank, you know what they would be like. assessed asset, so under the proposal from the OCC and the D FDIC, the CRA, so the real goal of that database was for us to create our own set of metrics, we want to be very, very sure of what comes out from this. It is our proposal that will leave all the main CRA participants in a better situation, so we believe that it is important that every metric and every change we make is based on data and that was the purpose of helping us develop our thinking and our proposals. and that's essentially what we've been using it for, so given the magnitude of the reform and the CRA regulations, do you think the comment period should be extended to allow the public to weigh in on such an important task that is really an OCC decision?
In the other, I know it's a decision about what you think. I think it is not our role to comment on their proposal, where we have our own work and our own ideas that we will be happy to share, but it is really up to them. to make that decision, so are you completing your evaluation, are you going to continue looking until you reach a final decision, are we, are we, um, don't you think the public should have the opportunity to have more time to do that as well? When the time comes, I mean, I think at the moment what we're doing is we're looking forward to reading the comments on the proposal.
I think we will all learn a lot from those comments and we will be able to incorporate that thinking and whatever changes are made to the proposal, it is possible that substantial changes to the existing proposal will arise from the comments, so I think our view is that We want something that leaves everyone better off. and it will have broad support and that's what we're going to work on well, as you know, all Democrats on this committee urge regulators to provide a public comment period of at least 120 days on any major CRA reforms instead of the 60. days that the OCC and FDIC have provided, Community Bank state regulators and community groups have asked these agencies to extend the comment period and, although you said it is not your place to comment on whether or not it should be extended, I wish you would think about it.
This and I would like you to do it while you were doing the evaluation and as you said, it is important that the public can comment, review what you are thinking and, if you change your mind, let us know to comment if we should or not. extend the comment period, you do not need to respond. Thank you very much, the gentleman from North Carolina, ranking member, mr. McHenry is recognized for five minutes, so he is always rich, so when someone else has a negative comment about the Fed, that's bad, but when I, as a policymaker on the

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, have a negative comment about the Federal Reserve, it's good, so it's all about the eye of the beholder when it comes to the political debate here in Washington Congress made the decision over a hundred years ago to outsource monetary policy to the Federal Reserve you are a construct of the law , has independent operations and has a fixed term of office and, therefore, the independence of the Federal Reserve to mana, our policy is appropriate and its long history, every president in the last 100 years has received some criticism privately and in At some point we find out about those criticisms, either through press reports at the time or Later or some biographers work on the president, but here on the

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we can make negative comments about the Federal Reserve and attack the president for having comments negatives about the Federal Reserve, so this is all just rich politics, let's get to the essence of it.
We are the biggest regulator in town when it comes to the financial world. I am concerned that I want to address our regulatory nature that I think affects monetary policy, the repo market, for example, these operations that you said are temporary in nature, that is still true, yes. Our expectation is that we will continue our bill purchases at least through the second quarter and continue harvesting operations at least through April and into April, feeling that we are building up a level of reserves. to a level that will mean that we will not have to engage in open market operations on an ongoing basis and that will take that period of time and as the underlying level of reserves increases due to our bill purchases, the need for repo will decrease and in Sometime around mid-year we will reach that level of ample reserves.
From that moment on, the balance will grow to a trend demand for our liabilities. We will continue to expand with the economy and are doing a review of their capital requirements for institutions that should participate in the repo market. Well, I think we have reviewed the supervisory and regulatory practices that canbe affecting the flow of liquidity. Our primary focus, of course, is the federal funds market and our ability to seamlessly transmit our policy decisions to the money markets through the federal funds rate. What happened in September early September was that there was unusual tightness and volatility and we attributed that to the fact that what appeared to be ample levels of liquidity did not float where they could have, so we are really doing two things: first , we are raising the underlying level of liquidity towards us by raising reserves to a level that is higher than what we had thought we needed and that The process, as I mentioned, will take until mid-year and part of that is also a supervisory assessment to make sure that the policy is being driven in terms of the institutions.
Okay, so we've been doing that since September. I raised this in my opening statement on China, now that they have spoken publicly about their assessment, their thinking in seeing what is happening with China's response to the coronavirus, we wish them the best, we have high hopes that they can do it. address this crisis, this public health crisis that you're facing, but explain to me your thinking and assessment of the situation in China now in terms of the economy and that potential spillover effect, so I'll start quickly by saying again that we found the US economy .and in a very good place, performing well, we see signs that global growth is bottoming out, we see less uncertainty in trade policy in all contexts, we see strong job creation, continuous monitoring, the accredited contractor is in the US economy, will it be persistent, will it be? material, that's really the question.
I think we know there will be effects in China for part of the first half of the year and in China's close neighbors and in its major trading partners in Europe and Asia, and we know there will be some very likely effects in the United States. . I think it's too early to say that we have to resist the temptation to speculate on this, so we'll

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it closely again and the question we'll ask ourselves is: will they be persistent? effects that could lead to a more material reassessment of the outlook a question of duration and whether or not this is a temporary interruption yes, thank you, lady from New York, mrs.
Vásquez receives recognition for five minutes. Thank you, Chair, Chair Powell. I would like to follow up on Miss Waters' question about the CRA. What aspects of the proposed changes to the CRA do you find most concerning? So, again, I repeat what I would like to do, if I may. It's not so much about commenting directly on the other proposal, but talking about how we're looking at this and again we think and I'll mention the areas where we have differences, okay, but I'd just like to ask you if the Federal Reserve can't come to a agreement with the OCC and FDIC on a joint rule.
Do you expect the Federal Reserve to issue its own proposal? We have not made a decision on this yet. Right now we're focused on trying to get on the same page, we haven't been able to do that now our focus will be to learn from the process and I think we'll learn a lot if they meet regularly with the OCC, the OCC and the FDIC on this issue, so that We may have done this for a long time, we are not currently meeting with them about this, so would you agree with the governor's comment that it is more important to get the rule right than to get it done quickly?
Yeah, I mean, I think that's been our focus and we'll continue to do that. Thank you Chairman, as you know. Representative Porter and I have been concerned about banks' increasing dependence on cloud-based service providers for data storage needs. Does the Federal Reserve have all the access authority it needs, or are there contractual or legal limitations that restrict the Federal Reserve's ability to obtain the data it possesses? third parties you need to properly understand and manage this growing dependency. I think we have the legal authority that we need, we can look to third-party service providers and we're doing that more and more because of, as you mentioned, the prominence and the size of these, the growing importance of these cloud service providers.
Thank you, the lady from Missouri, sir, recognize yourself for five minutes. I thank the president and thank you for being here, friend president, we are all very interested, since it happened on January 29 to increase the peak of the repository. I know the ranking member mentioned it. I know you're in the middle. from reviewing him and stuff like that, but could this have a slightly more specific question? Could this turmoil in the repo market be symptomatic of deeper difficulties for the financial system? It really doesn't seem to be that way at all, as since we took the actions that we took in early September, the repo markets and the money markets have been performing very well, there has been no return to volatility, they were operating very normally, actually not including the end of the year, so we haven't had any return to that, it's pretty clear that the measures we take directly address the issue.
You know, you know, when the medicine is working. You can really see and it seems to be working well here. We had a confluence of things that happened, I know at the time, with the quarterly federal taxes. along with the Treasury debt auction of over 78 billion, I think it wasn't, yes, I think it was a function of maybe this, this coincidence, could you call it, we knew all that, the other thing is that We knew that and What we did was ask the banks to tell us what their lowest, comfortable or bullish reserves are, thank you.
We got those numbers, we added them up, we put a cushion on them and it still suggested that there were a lot of reserves in the system, but then this happened and I think that makes us think because we knew of those big nights that were definitely on the horizon, well, and you're doing a review, you know, I hope you do. I discovered that there is nothing symptomatic of deeper difficulties and we hope that the page will turn. Chairman Powell in December of last year I asked Vice Chairman Quarles for an update on the status of the g-sib surcharge update and plans to finalize the stress capital buffer proposal, which I understand will require a break with the comment period in In January, Vice Chairman Quarles gave a speech in which he discussed bringing reasonable transparency to various aspects of the Federal Reserve's regulatory and supervisory framework last week.
The Federal Reserve released the search for our stress test scenarios, as far as I know there has been no progress or update on the status of the stress capital buffer other than continued assertions by you and Vice President Corals of which aspects of the proposal will be incorporated into the 2020 report. C Orders Given the recognition by the Fed Directors of the importance of transparency I guess I am concerned about the lack of transparency in this process, when can we expect progress on this proposal? Oh my gosh, it's been in the works now, I think since April. 2018 we still expect and intend to have the core of the stress capital cushion incorporated into the framework in time for the 2020 stress test, so we are moving forward on that and we are on track to achieve what you feel. interact to do that, so yeah, okay, Republicans on the committee have underscored the importance of cyber threats as a potential systemic risk.
We've recently seen malware attacks undermine government infrastructure, and according to research last month by economists at the New York Federal Reserve, a simulated cyberattack on just one major U.S. bank could have indirect effects that would impact 38% of the wholesale payment network. What can the United States do? Do better, Chairman Powell, to prioritize this constant stream of cyber risks and strengthen the resilience of our financial sector. I think we can and we have to continue doing what we're doing, which is making this really a top, if not the top, supervisor. priority not only for banks but for the Federal Reserve and for institutions across the American landscape.
We have very high expectations, particularly of larger banks, regarding their ability to defend against cyber attacks. We are constantly meeting within the government to make sure that our system is resilient, redundant and strong against cyber attacks, but there is never a sense that it has reached a comfortable place, we just have to keep working and stay in the minute learning which ones it's the new attacks, making sure that the banks We're doing basic housework and all that is going on and you know you're going to have to keep it up. I think for a long time.
I thank you that my time has expired. Thank you very much for being here again. German Powell and me. Give me back the gentleman from California mr. Sherman also served as chairman of the Entrepreneurship and Capital Markets Research Subcommittee. Now a couple of responses to what the ranking member had to say are acknowledged for five minutes: yes, the stock market is going up, wages are up a little over 1% in real terms. after inflation, wages at the lowest levels have increased primarily in those states where we raised the minimum wage and when we have a Democratic majority in both chambers we will raise the minimum wage across the country and effectively address and address those states that have not seen such an expansion of wages at the bottom I have not aged completely but I have spent many decades in this room.
I've seen their predecessors predecessors predecessors and every time they come in and the Republicans attack them for both traditional and novel expansionary monetary policy and now we have a new president and all of a sudden they're pushing the other side. All I will say is that I have done it consistently since the days of mr. Greenspan has been pushing for somewhat lower interest rates and expansionary policy, particularly quantitative easing, because last year he returned 55 trillion dollars to the Treasury and that I don't know what his purpose is, but think about the children that they will receive an education because we could finance the aid. to local education, think about medical research and the lives that will be saved because we were able to fund medical research.
I don't think the 55 billion should be considered an irrelevance or an embarrassment and, finally, in terms of job growth. As I've seen recently, I should point out that jobs grew much faster in the last three years of the Obama administration than they did in the first three years of the Trump administration. It's like Trump inheriting a plane, like he inherited a lot of other things the plane was involved in. autopilot and he was going in the right direction and he didn't completely screw it up, we have an issue that I think should be completely bipartisan and there's LIBOR that's going to hit us in a couple of years, Chairman Powell, should Congress just give the Fed Federal the right to prescribe support rates when debt instruments don't or should we explicitly adopt Sofer or what can we do, hopefully, by this year and really solve a problem 12 months in advance, so with LIBOR as you?
We know that our process is ongoing and we are really committed to having banks ready by the end of next year to abandon LIBOR if that date is no longer published. It's good, they need to know legally what to switch to and we want to avoid multi-million dollar lawsuits when someone can say it should be this instead of that, not only do they have to have the technology to make the switch, they don't have to legally know what they are supposed to do. If we need a change in federal law, we will let you know. I think well, now we have less than two years.
You haven't figured out if you need a change in federal law or I don't think we think? We need a change in federal law, well if you could give us an answer because there are people who want to wait up to two or three months before things blow up and then they come to Congress and say fix it now, two years is actually a long time too short. time because today we are hurting the economy because you and I are talking about this and there is a slight risk of litigation and uncertainty regarding the legacy LIBOR and we should eliminate it, that is one of the things we can do to help. the economy, so I hope you will act within a month to tell us what you proposed rather than waiting until next year.
Another area we have talked about before is the bank transfer system. We have seen 150 million dollars lost due to scams and those scams arise mainly because when you transfer money you do it to a number but there is no identified beneficiary. The British have resorted to a beneficiary confirmation system. Theinternational standards organization has prescribed changes that would require at least identification of the beneficiary. We do not. I know you've raised state law issues that I've looked into and I don't see what would prevent the Federal Reserve from prescribing what the wire transfer system would be and it looks like I'm going to have to ask you to come back as soon as possible for the question on which witnesses are being asked. to provide a response and writing for the record the gentleman from Oklahoma mr.
Lucas is recognized for five minutes, thank you, Madam President, Ball Chairman, during her testimony before the Joint Economic Committee last year. In her testimony, she was asked what steps the Federal Reserve is taking to assess the impacts of climate change on our financial system. The distinction between the purely informational stress test for climate risk carried out by the Bank of England and that carried out by the United States. The underwater car's stress testing regime affects and informs capital requirements for capital distributions. As I understand it, the Bank of England is carrying out research and asking financial institutions to look at their portfolios and how they might be affected, but they are not currently integrating those measures.
In terms of capital requirements, could you describe some of what the Federal Reserve is doing in terms of research and engagement on global climate risk? Of course, I should start by saying that climate risk is a very important issue. Climate change is a very important issue that Congress has largely allocated. However, for other agencies it influences our work as it relates to the public's very reasonable expectation that we will ensure that the financial sector of the banks of the utilities we supervise are resilient to long-term risks. and climate change, so what we're doing is we're in the early days of understanding what that all means and that's why we're working around the world for central banks to try to figure that out, you talked about the central bank, the Bank of England.
The stress tests, you know, are not intended to inform current capital requirements, but they are more informed to understand what the effects on banks might be. Are you planning to join the network to green the financial system? We have not made a decision on this. we've always attended their meetings, I mean, I guess my theory is that it's you when you join an organization like that, you don't necessarily know how to sign up for everything that everyone there thinks you can benefit from. work that is being done there and in some ways we are doing it now that we have not made a decision on membership.
Vice President Quarles recently outlined changes that would increase oversight transparency and accountability and I was encouraged by those comments and we will be following this. Of course, one change that the vice president described closely is that the Fed should reinstate supervisory observations that will allow a supervisory concern to be reported without it rising to the level of an issue requiring attention. Can you tell us what the timeline you see in those proposals to improve the oversight timeline is hard to say. I mean, I would just say that what the vice president did was point out this tension that exists between very fundamental expectations of transparency and fairness of due process around everything that the government does and should do.
Should it be associated with that, but also with oversight that by its nature is private and somewhat discretionary, not public and really confidential? So he pointed out that tension and the need to shed more light on this and ask if there are places where supervision needs to incorporate more of those who do process thought. I think it's a very healthy thing to think about and it's something we will work on in light of the coronavirus. President. I can't help but think about that when I was young. a child I spent a lot of time with my parents, my grandparents, I should say, my great aunts and uncles were born just before the previous century, so their accounts of first-hand experiences in the pandemic of 1918 and 1919 were very graphic. as it moved through rural western Oklahoma and the reason I mention this is your description of that particular virus at that particular time in that particular rural society, it literally stopped everything for weeks in rural western Oklahoma, now my mother's family, my father's.
The family was very fortunate that no one died from what was called the Spanish flu, but that brought society to a halt. The reason I ask is that there are 43,000 cases worldwide and the critical impact in China. Could you describe for a moment how China and its neighboring countries are responding? to the economic impact of the coronavirus in general and from the perspective of their fellow central bankers in those countries, I think they are reallyResponding now to the outbreak to contain it, the Chinese government has obviously taken very strong measures in which you see the closure of companies in the affected areas.
You look at that kind of thing in terms of the economy, as you asked the People's Bank of China. has done a number of things to support economic activity and I think the Chinese government can be expected to do a lot of things to support economic activity and they have said that they will be open to cushioning the economic effects that we are not We are not seeing that you know that we cannot estimate the size of the economic effects. There are many estimates available, but I think you will see governments acting in Asia, particularly China, to compensate.
Thank my Lord. . president give way madam chair the gentleman from new york mr. Meeks also chaired the Subcommittee on Consumer Protection and Financial Institutions. He is honored for five minutes. Thank you Madam President. Welcome. Mr. President, let me briefly address asymmetric growth initially. It has been discussed that in my community and others, 40% of Americans do not have adequate savings for a $400 emergency, and similarly, one in five Americans skips essential medical care or misses important monthly payments. bills due to lack of funds so ultimately a large portion of the population is also underbanked or unbanked and we talk about that a lot in the community on the committee that I chair the subcommittee that I chair so my first question for you en Why haven't circumstances for low- and moderate-income Americans improved more rapidly in recent years, given the so-called "you know the state of the economy well"?
The pattern was that at the beginning there was a higher adjustment in the workforce perhaps. We have come back well, we have really seen it, although in the last two or three years wages have risen more at the lower end of the wage scale, so we see that during this very long expansion there are significant effects now in the lower and lower sectors. low. moderate income communities and it's great to see, as I mentioned, with our Federal Reserve listening events, we've heard a lot about that, so it's very positive that you know more about your point, although you know you're looking forward to year 10, 8 , 9, 10 and 11. of an expansion is not really a strategy, you know, we see those things now because the labor market is strong, but we really need it, really other programs to address the long-term needs of those communities in addition to just the business cycle and monetary policy, also during this period of time, would you say that several of us have been discussing and are finally moving towards a $15 an hour minimum wage for people at the bottom?
Would you think that has anything to do with it? They are also helped by the fact that many states have adopted a minimum wage that is $15 higher than what would have been established. I'll answer your question directly, but first let me say that no, of course, we don't take a position on this. The minimum wage is a classic, a stance that policymakers need to understand, which is why there is research into exactly what is driving wages at the low end; suggests that minimum wage increases play a role in states that have had minimum wage. Increases have been seen, you know there is a noticeably larger increase, but it is actually much broader than that and the most important factor is actually very low unemployment and a strong labor market and high job creation, that is the main driver, so the other concern I have because it also seems like you know that as unemployment goes down, let it be, still when you look at black unemployment it's still almost double that of lifetime unemployment and it seems to stay that way whether the cycle be it a descending cycle or an ascending cycle. so is there any sign of how we close those gaps and maybe because it's all these gaps that seem to occur between the African American community and white people, where you know it's a good economy, that gap remains the same, there are persistent gaps and they are very worrying and are not something that monetary policy can address in the long term.
It's really up to other government policies, state and local governments, the federal government and, frankly, businesses, to do what they can to close that gap. What we have is a tool for interest rates and what we can do is support the objectives they have given us of maximum employment and stable prices. We see positive effects from that, but in the long term broader education and other policies are really needed. things that would help with that problem, okay, let me ask, I know Chairwoman Waters asking some questions about C. Okay, some questions came up that maybe you can answer, you know, kid, Governor Brainard's proposed framework doesn't do a lot. is that the Federal Reserve Board's framework is just a saying, it's just their opinion and not the board's, so maybe you can clarify, it's that the board has a seat similar to Governor Brainard's, so that we actually have I haven't brought a proposal to the board yet, but it doesn't represent the idea that she's been working on this and I asked her to lead this effort for us.
She was ahead of that committee for some time. I'm very comfortable with the thinking that's in that speech and you know you support that set of ideas and that approach, but it's not in a place where we can say it's a Federal Reserve proposal because we haven't brought it to the table yet. board of directors, thank you gentleman. from florida mr. Posey is recognized for five minutes, thank you, Madam President, Mr. President, the world is experiencing dramatic growth in the space economy and many are indeed marveling at the expansion of civil space launches. I represent the Kennedy Space Center and we are obviously very excited about everything that various estimates now place at the current level of global space. economy to more than $400 billion a year with a growth rate of 8 percent from 2018 to 2019 In December, the Bureau of Economic Analysis announced the creation of a Space Economy Satellite Account, a new collaborative effort to measure the relative importance of the space sector in the US economy, with special emphasis on the growing commercial space segment, this effort will utilize input from industry experts and multiple government agencies, obviously I remember that over the years the Atlanta Federal Reserve has applied its expertise to report on the space district's economy.
The first question can you work with me to ensure that the Federal Reserve joins this multi-agency effort with an eye toward avoiding financial bottlenecks and keeping this important space industry on track for a healthy growth rate. I'm the first one I've heard of. Surely it was. I'm happy to assure you that we will look at it closely and if it is something that is productive, we will be very involved over the years. We have developed a fairly expansive policy of independence from the federal reserve and I believe in guaranteeing freedom. of the Federal Reserve to act independently on a day-to-day basis to manage our economy and critical payments system.
You wouldn't expect a member of Congress or another government official to get involved in a Federal Reserve decision, he chairs the board. The Open Market Committee or the enemy of Federal Reserve monetary policy, Congress does not direct day-to-day monetary policy and Congress does not direct generals on the battlefields, nor should we. However, the GAO routinely conducts audits of defense policy and strategy, but the GAO is restricted. After conducting policy audits of the Federal Reserve, I am challenged to understand how policy audits of the critical national defense strategy are fine, but policy audits of the Federal Reserve are off limits.
Surely the billboard industry is at least as sensitive as monetary policy? I'd like to know your opinion on this, so the GAO doesn't conduct policy audits on the Federal Reserve constantly everywhere in the world.the Federal Reserve, with one exception and that is our specific monetary policy function that Congress decided a long time ago to create a bit of a one-shot. away from the GAO to underscore our independence. I think it was a wise move. I think the change would be clearly seen by the public like Adam. If you know, a decrease in our independence, we look at this committee. and to the equivalent committee on the Senate side for oversight of monetary policy in our system of government.
You know, our path to oversight and transparency goes directly through this committee and also through the Senate Banking Committee, so that's us, but anyway, that's it. What would you say about the GAO? What do you think makes the Fed more immune to review than the defense? Well, what is the reason behind this again? Everything we do in payments and financial regulation, everything we do is subject to audit by the Gao. and you know these are policy audits, it is not like a financial audit, the public must understand that we are audited, our business model is actually as simple as that, being a very small media outlet, it is not complicated and we were constantly audited.
What the waiver does is prevent the GAO from coming in and analyzing when evaluating individual monetary policy decisions that Congress saw fit, you saw fit, your Congress saw fit to exclude from the law, and again, I think it was appropriate. and I think it would be unwise to take a step back. I don't see any harm in it being working fine. Former Federal Reserve chairs have indicated that they simply did not want to be second guests in their decisions. that the public really has no right to know. It seems illogical to me, frankly, and that's why I asked you these questions.
I mean, we were very transparent, we released minutes, we released transcripts, I know we released anything, we released everything, but and And I just think the exemption is overdue. The gentleman from Missouri, Mr. Clay, who also chairs the Subcommittee on Housing Insurance and Community Development, is recognized for five minutes. Thank you Madam Speaker and thank you Chairman Powell for being here today. Most voters in my congressional district are not focused on the maintained dial. at the 30,000 level but just trying to make ends meet, in fact, the st. Louis Fed in an essay as part of his series on the demographics of wealth examines the connection between race or ethnicity and the accumulation of wealth over the last quarter century, was the result of an analysis of data collected between 1989 and 2013 through from the Federal Reserve's consumer survey.
Finance More than 40,000 heads of households were interviewed during those years. The median wealth levels of Hispanics and blacks are about 90 percent lower than the median wealth level of whites, but the median income levels of Hispanics and blacks are only about 40 percent lower. The larger racial wealth gap could be due to Hispanics and Blacks investing in low-yielding assets like housing, as well as prohibiting borrowing at higher interest rates. Hispanics and blacks may also feel less need to save for the future because society's progressive old-age safety net program will replace a relatively larger proportion of the normal income they earned during their working years.
Could you please comment? why many communities continue to lag behind and how the Fed, through its monetary policy, might try to address some of the underlying factors that have led to high inequality? What can we do? and what we have been doing is taking seriously that we are ordered to seek maximum employment and that is what we are doing. I think we've learned, we've just learned because we've been

watch

ing what's been happening, that unemployment can be lower than many had expected without raising inflationary or other concerns, so that's what we can do and we will continue. doing and I think that is manifesting itself in communities around the world.
I think other government and other tools are needed to address longer-term problems. although, for example, how do we address pay inequality? How do we convince corporate America that it doesn't do any good for this country to have persistent wage inequality among its workers, especially when you look at the racial and pay disparities? I will say that I think it's important that As those issues are addressed, it's not really the Fed's place to prescribe actions, to address them we have to stay in our lane, we have this grant of independence, including the GAO waiver, and I think to maintain that we have to continue with what you has given us to do, which is maximum employment, stable prices, supervise the banks, take care of the finances there, on another topic, well, the Federal Reserve publishes its own proposal on the Community Reinvestment Act, one that takes into account the needs of low and moderate income Unity, we have not made a decision on this yet.
I think our focus right now is on the ongoing proposal process from other agencies and the feedback that I think we're going to learn. a lot of those comments and I suspect there will be changes to that proposal that arise from the comments and, as you know, we have not made a decision on our own proposal, well, traditional monetary policy works through a single economy. broad variable a single interest rate or perhaps the money supply of credit growth credit policy on the other hand aims to direct credit in specific ways towards specific groups of borrowers credit policy consists of central bank operations directed at specific segments of the private debt and securities market.
What is your opinion on the change from traditional monetary theory to one that involves the use of more tools to improve the indebtedness of two segments of society? I think historically that has not been a function of the Federal Reserve and central banks in general. pointed out a tool that is our interest rate policy when talking about affecting different sectors of the business community or the population that really should be another agency or Congress itself in fiscal policy instead of the witnesses requested to continue the Mr. Missouri mr. Luetkemeyer is recognized for five minutes, thank you Madam Chair and welcome Chair Powell.
It was a pleasure to see you, sir. I'm sure he sold the speech and probably read or listened to Vice President Quarles' speech about the need to reform banking supervision in one area. What I think needs clarity in the supervision regime is the role of guidance. I pushed regulators to clarify the path forward in using the guidance and in 2018 introduced an interagency statement on the guidance by Vice President Quarles in his speech as an additional step in rulemaking. guidance role this fits with the recent recent actions of the Trump administration from the office of budget management my question is: do you think we need an official rulemaking from the Federal Reserve on the guidance role which we have not made a decision on that?
The other agencies were evaluating the OMB memo because you know the guidance is not enforceable, it's not, so our understanding is that the guidance is not a rule, sir. Quarles was here recently. I think you made the comment that you intended to look at all the guidance and separate out what you thought should be under control and then clarify the rest as strictly guidance and I think that's a great approach, but I think I think the question is: Do you anticipate a rule to be able to do that and enforce it in the future? So you're trying to do that, that's something we're looking at and where we're looking at our guidance and asking if any of this should be more of a rule, okay sir.
Quarles also discussed how the regulations have a framework under the Administrative Procedures Act, but there is no real framework for supervision and you used AIESEC arles ik as an example of supervision that was carried out without adequate supervision and has no guardrails specific; in fact, the GAO said this. should have been carried out as a regulation do you think we need to change the ik lists and what should we do with the companies that are already under this regime? I agree that it is appropriate that we draw clearer lines around ik list membership and as Vice President Quarles mentioned in a recent speech that that is the path we are on.
Alright, one thing that worries me a little bit is the fact that we have a lot of banks and non-banks that are in the business of home mortgage lending. Non-banks overall assisted approximately around $250 billion in 2016 and are expected to triple next year to $750 billion in 2019. Non-banks originated 85 percent of all loans in securitization guaranteed by Ginnie Mae, 53 percent of Freddie Mac loans sold and Solo 60 percent, so Freddie Fannie Mae and non-bank mortgages make up 87% of the FHA portfolio and its most recent F sock report. Non-bank mortgage originators were designated as a potential systemic risk of which you are a member.
Can you explain that? Would you like to talk a little about that? Do you have any concerns or that F Sock obviously did what you mentioned? We've looked at that at F Sock and I think it was part of the recent annual report that the It's thought that these are now very important channels through which mortgages are originated and in the event of a recession, the banks have high capital, they have a lot of regulation, a lot of liquidity and that's in a good place, but these institutions are operating. Sometimes, you know, they are funded with lines of credit that might not be available, so there is a risk and we are in the process of evaluating that and determining what to do about it.
You know, the schedule, then I put it in and we've highlighted it. as a risk and we are working on if you have a timeline on what you could do with a statement and say you will or won't do and if you want to do something, whatever it may be, I can come back to you. This is something that the Treasury has the lead on, but okay, yeah, okay, very good, one of the things that worried me a little bit as well with regards to home loans is just the stack of forms that you have to fill out. .
I mean, we had a gentleman. here, who represented him, he was actually crediting at the time, but the stack was literally this high and he asked him how many pages are there and he said congressman, we don't know, I measured by the page, we measured by the pound, I said this, this it is this. It's how out of this world we've become when you have such a tall stack of papers to make a mortgage loan. I have spoken with the FDIC and CFPB and I hope we can get you involved to reduce that to where it is manageable.
There are still protections for the consumer when applying for a loan with science and there is enough information that allows the bank and regulators to see it, but this has to change, it cannot continue to grow. This is crazy, you have an opinion about it, well to the extent that it's not legally mandated, a lot of those things are legally mandated by state law to the extent that it's not and we try to make assessments on what is necessary and what is not, but it is. a great challenge. I agree. I just want to state for the record that I didn't ask any questions about Cecil today.
Thank you so much. The knight returns to the Georgia knight. Scott is recognized for five minutes, we welcome Chairman Powell. Good to have you from Chairman Pao regarding the library, the alternative benchmark rate committee is pursuing New York legislation to address legacy contracts in New York State, which the feds support federal action on that sense, mr. Scott, so it's actually some members of the arch, you are the alternative reference or the committee itself is not looking for legislation, but some members have approached the New York legislature, you know, in terms of the need for legislation federal, we have not gotten to a point where where we think it will be necessary, we have plans to do it, if we believe that that federal legislation is necessary, we will come to inform you and, by the way, we understand that that is not something that you can do in 24 hours, so we'll know.
The timing for that will soon be very good, let's move on to Britain for a moment. UK regulators have been very direct with their financial institutions and have recently set a target for their institutions to cease LIBOR-based lending by the third quarter of 2020. So why hasn't the Federal Reserve been as direct? Do you have plans to establish clear objectives and guidelines for your regulated institutions? Yes, we will, we will. At some point you may have seen that Fannie Mae and Freddie Mac have said they will win. I don't accept LIBOR referenced mortgages after or any time later this year, so that sort of thing will start to happen.happen now.
I think well before the deadline which is late 2020, okay, and Chairman Pao, the Federal Reserve Board recently finalized its rule on accommodation. hopes to provide clearer, well-defined risk indicators to determine the regulatory requirements imposed on companies based on their size and risk, but the board has never disclosed or provided clear, quantitative criteria under which companies have a place under its enhanced supervisory regime. That is called the Coordinating Committee for the supervision of large institutions and even its vice president, Mr. Quarles recently gave a speech in which he said he would like to align his portfolio with the tailoring categories and make the designation a fairly transparent criterion and even recently indicated that he agreed on the need for clearer lines, so could describe what changes?
Ford is considering creating this oversight framework. We are in the process of working out the details, but I agree that we should provide more clarity on what an allistic company is and those will really be the category one companies. No, thanks. You don't, let's move on to a and you are a great man and a good man, a good friend, I respect you enormously, but a president is around, the Federal Reserve is the axis of our financial system, you are the most powerful regulator and I want you to stay away. even mr. Adding that he comes with this rule making changes to the Community Reinvestment Act, let him know that you not only have a mandate for inflationary monetary policy, but you also have a dual mandate for jobs and here's the other thing you should remind the Mr.
Harding that this piece of legislation repealing the Community Reinvestment Act is valuable to the nation, but it is valuable to African Americans more than anyone else because unity civil rights is a law, the Voting Rights Act that addressed the big problem that African Americans face, financial stability and both. The anchors for that are a house, owning a home, and having a job, and this bill was the bill that outlined the red lines that kept African Americans out. He needs the return home, for that he must assume the power of him and this and let him know that we are. serious and to roll back this rule change the gentleman from Ohio mr.
Stivers is recognized for five minutes. Thank you Madam President. I thank you for holding this hearing. Good morning, Mr. President, how are you doing today? Great stuff, thanks for being here. I want to ask some yes or no questions that you covered in your testimony, but just to remind everyone that the labor participation rate is now 83 point 1 percent, which has increased over the last three years is that right, I think that's the optimal age, sorry primate, that's the optimal age for adults, sorry, yes, it has increased or decreased in the last few years, yes, and wage growth has outpaced inflation for workers in the last three years, well, at least it's currently outpacing inflation is correct, yes it is, and it's good, wage growth has actually increased in the last four about three percent in the last few quarters in terms of external rates and annualized, it's that correct over the last few years if you look at a variety of measures that We would see wages increase about three percent and we have historically low unemployment rates for African Americans and Hispanics.
Is it that correct? So the fundamentals of the economy are in pretty good shape. Would you say that is correct? I would and I would do it. He did and you thanked him for that testimony, which is why your colleague at the Atlanta Federal Reserve recently stated that economic and economic expansion does not die of old age. I think it's a great quote given that the fundamentals of the economy are solid. Do you think many companies and investors are trying to convince themselves to go into recession. I don't think so and I certainly hope not. There is no reason why the expansion cannot continue.
There is nothing in this expansion that is unstable or unsustainable. Great and I think the fundamentals are strong, but I think a lot of people are worried and, you know, I hope they don't talk themselves into a recession. I agree with you on that, given that about two-thirds of all lending and capital formation occurs in capital markets. I'm curious what the Fed is doing to coordinate this year an Exchange Commission and the CFTC as prudential regulators of the capital markets to ensure that there is real coordination in the capital markets hmm well I mean, so the SEC .
Really and the CFTC really has primary regulatory authority for those for those markets and you know we have supervisory regulatory authority over the banks where we really overlap is in the public financial market services where we regulate some and the SEC regulates some and the CFTC regulates some and we collaborate on all of that, so we collaborate quite closely in that well. I urge you to increase that collaboration because the lines between securities banking and capital markets are blurring more than ever and I would ask you and Vice President Quarles to redouble your efforts. for that coordination because I've heard from some of the companies that are regulated that they feel like it's not coordinated, so if they could redouble those efforts, I really think that would pay David, the American investor and the American economy, a Here's a couple Quick Questions: What do you think is the most significant risk to the financial system today?
I mean, I have to start by saying that I think the financial system is strong and has become materially stronger since the financial crisis, particularly the banks. The high liquidity and capital stress tests are keeping them on their toes and now they're there, they have real resolution plans, none of that was really in place before, so I think the financial system overall is in a good place, you know, so that worries us. There are many cyber attacks. I think we have a great game plan for traditional problems, you know, like bad loans and things like that.
It's more cyber attacks is really the frontier where you worry and we work very, very hard to get all agencies to do that. working together the institutions themselves work very hard but I would say it is an important approach thank you and an interesting note sir. President, you are in line with the CEOs of the largest institutions. I asked them the same question and the consensus, although not completely an agreement, was unanimous that the problem was cyber attacks. I think Congress should focus on that. I think our regulators need to focus. Two quick things about this because I'm running out of time.
I know you're focused on the library transition and so far a few people have asked that question. I hope you pay close attention to the impact on both small businesses and our community banks as we make that transition are particularly vulnerable and with respect to the repo market, I hope they continue to focus on the origins of the problem that caused it, some are regulatory, others are market-based and I know they are focused on You and I have had private conversations about this, but I would like to see that resolved so that I do not have to provide capital from the Federal Reserve at the end of each quarter, at the end of each year, so if you can stay focused on those things I ran out of time.
Thank you mr. President, thank you to the gentleman from Texas, Mr. Green also chaired the oversight subcommittee of an investigation, is recognized for five minutes, thank you Madam President, thank you for appearing today, mr.

powell

mr. Powell, this is an observation, not a criticism. You indicated that the fundamentals are solid; However, he also indicated in the latest Fmoc press conference that he is a little surprised that wages have not increased despite being in an expanding economy, sustained historically low levels of unemployment. and increasing labor force participation the fundamentals are strong, however, nearly half of the 42.4% of American workers in 2019 earned less than $15 an hour the fundamentals are strong, many of the people in my district of Congress, mr.
Powell is more concerned about Super Mark supermarket prices than the stock market. When they go to the supermarket, they are concerned about the price of Procter & Gamble products, not the stock market price of Procter & Gamble. The stock market means nothing to them. They have to pay for the products in this supermarket, this brings me to my question: has there been any study that gives us an idea of ​​what a wage of $15 an hour will do for the economy? A study of what a $15 an hour wage will do for the economy. The Fed has not done a study of this type.
That's not something we would do well. Let me address that, if I don't want to be rude and crude and unrefined, but let me draw your attention to one study. I found the Carbon Disclosure Project quite interesting. Good project based on thousands of disclosures. It has concluded that the 500 largest companies by market capitalization are exposed to a trillion dollars of risk. Now someone might argue that that's probably not something you should do. Although I understand that climate change is something important to the Federal Reserve because it will have a global impact, but I think that you can look at this more closely, you... you will be the ultimate authority on wage and price stability. study to determine what impact the $15 per hour minimum wage will have on the economy. a salary disclosure project if you give me some ideas, mr.
Powell, could you help us? There has been a lot of research done on minimum wages and I don't know of any in particular, but there has to be some research on what a $15 federal wage increase is. I agree with you. I agree. I have read some, but they do not come from the Federal Reserve or the entity that has the dual mandate of price stability, unemployment or employment. It would mean something to workers if we could get a study like this despite what others have done and these are mr observations. Powell, no, no, criticism. I have enjoyed visiting it despite what others have done.
By the way, this would be significant for workers. I think $15 an hour is not enough as a minimum wage. I think it should be at least 20 now, but I'll still settle for 15 if we can get it. So can we work with you? Talk to you about the possibility of a salary project. You already know it. I will go back and talk to our work staff who know this. very very good topic and if many of them have posted on these topics, let me come back. I will thank you. I have 46 seconds and I will applaud you.
Personal applause, Madam President, with that. I will give back the rest of my time. Thank you so much. This is a gentleman requesting a response and writing for the record about this question to the President. Yes, Madam President. Thank you. The witnesses requested to provide a written response for the record. Thank you. you the gentleman from kentucky mr. bars recognized for five minutes thank you madam president president friend welcome back to our committee and first I want to address your testimony about the importance of fiscal policy and supporting the economy in general, what would you say is the delay associated with a major change ?
In fiscal policy, well, it can tend to be long, as you know, with monetary policy we can walk into a room and change interest rates and do it, obviously, fiscal policy tends to take a lot of work and some time. I ask you this, let me ask you this way: tax policy has changed profoundly in the last three years. Tax cuts. Deregulation. A less restricted energy sector. Current economic conditions, I'm sure they are, but of course not, we don't try to evaluate that's not really what we do when we look at the economy, but yes, they would be affecting, as you pointed out in your testimony, the U.S.
The US economy is currently exceptionally strong since the 2016 election 7 million new jobs have been created the unemployment rate is at its lowest level in 50 years more Americans are employed today than ever before wage growth is the highest in a decade and the lowest-income workers have been seeing the fastest wage increases with 16 percent growth since the 2016 election and just over the weekend, this was the headline in The Wall Street Journal, which I'm sure they will continue, and the report was that a tight US labor market is pushing Americans off the bench. at a record pace despite this after last week's State of the Union Speaker Pelosi said it was, quote, appalling to listen to the president, quote, try, quote credit, for one economy he inherited.
Now President Powell. I'm not going to ask you to intervene or arbitrate an internal political dispute, but when the FOMC conducts monetary policy, given what you saidRegarding the delay in fiscal policy, is it fair to say that this president's policies are impacting current economic conditions at a high level? Of course, they let me follow up. Rep. Wagner's question about the g-sib surcharge in your response to our letter you maintain that your goal is to have the quote-unquote key components of the stress capital cushion finalized in time for the 2020 C car. Can you describe in more detail? what are the key components? are and a more precise timeline given that the Fed last week announced scenarios for the 2020 C car, so I think the timeline is that we believe we intend to and we will implement the core of the stress capital cushion in time for the 2020 C. car cycle, so that's coming.
I prefer to leave the exact details of that for you as well, you know, they are still being worked out, but it will happen in a timely manner for the 2020 cycle, understand well, let me try to understand it. A little more detail: Do the feds still consider activating the countercyclical capital buffer to be an adequate replacement for the dividend supplement in light of the board's November financial stability report that stated that vulnerabilities have not changed significantly? ? We haven't made a decision on using the countercycle rapid capital offering versus the other approach, we haven't made a decision on that.
Okay, thanks for that, we're waiting for that decision. Final question to the Business Roundtable like you like you. You probably remember that it announced last summer that it was redefining a corporate purpose to elevate so-called shareholders ahead of shareholders. A large investment firm recently announced its intention to divest from fossil energy, effectively limiting investment options for clients to a subset of sectors that control environmental impact. social governance box I am concerned that companies that arbitrarily limit investment offerings based on social and political pressures could suffocate capital from perfectly legal productive and profitable sectors of our economy and cause retail investors to lose the returns they need to finance their future as a leading voice on the Financial Stability Oversight Board, will you commit to raising this issue with your F sock colleagues and urge that body to examine the extent to which a misallocation of resources away from shareholders to fulfill political tasks could stifle the capital formation of the committed investor? returns and ultimately undermine financial stability.
I don't know if I fully understand your concern, but I would be happy to discuss it with you and I know the concern is that if shareholders are not the principals, a primary concern of corporate boards and directors is that stakeholders who do not have any ownership interest in the company are the center of a corporation, so I would say that there is a tremendous risk that resources are not allocated away from maximum returns to shareholders and I would like to analyze the stock to see that the gentleman gives way. I'll take it to the authorities for God's sake, thank you Ohio woman, Mr.
Beatty is also the chair of the Subcommittee on Diversity and Inclusion. He is recognized for five minutes. Thanks to the Chair and Ranking Member. Thank you Chairman Powell for being here today. Let me also recognize the advocates in their green shirts for being here today and thank you for coming to my office yesterday and sharing what I thought was valuable information with my team. I appreciate you sitting through Chairman Pao's hearing in the latest edition of the Federal Reserve's survey of consumer finances that was released in 2017 and broke out among whites, blacks and Hispanics in relation to their net worth and we have heard the statistics.
I think my colleague when Meeks talked about it and I'm sure a few others, so I'll spare you from going over all those details, but What's very interesting to me, while that data seems great for those who are researching the topic, is there Is there any way your office can break it down by region or city because when we get home this is one of the number one things I hear? People come to my office once you finish health care and this is combined with employment and education, they say if we look at the wealth gap that is widening, it is not reaching and while we talk about unemployment rates being getting better, many people have to work two or three jobs just to try to survive someone talked about the minimum wage, certainly, since we are advocating for a higher number, it is not enough in my district, you would have to earn between $18 and 70 cents and $20 to make a living wage, so the first question is: can this information be localized to a region or city to help us as members of Congress when we return home?
The second thing is that I recently introduced a bill that shuts down racial wealth. gap that requires the fed to break down the data further and this is something I didn't realize until I really studied the fed and listened to some of the people, like the people here today, who have some really good ideas So my second question could you tell me if you would like your people to consider salary as a metric because often when you look at a lot of people they don't have a full time job but they do have a salary so we could be a little bit more creative. ?
Looking at the data based on some of the things I heard from the group that came and I'm sure they met with their people and know some of their problems, so I'll start with: can they be located can we entertain ourselves by looking at some of the things that they think we should consider when we calculate or present all the good news that is not good news for many of the people sitting here or in my district? probably making some of our data people on the Board of Governors very happy. Well, you know, they love to slice the data in different ways and we learn every time we do it, things that I don't really know the precise answer to. your question is whether we can do it regionally or in what dimensions we can do it, but we'd be happy to look into that, that's for you and what about some of the individual ideas on how to consider salaries in your calculation?
Yes, we can, I think. We can do that. I think your people would be willing to work with them on some of the ideas to at least start from a starting point to discuss it because now we are marrying the people with the power and what a good wind. wind that would be for all of us, since we are really talking about all of our lives and especially those who know that they have to work a little harder than the rest of us and then the next thing will be your agency working with me I am very excited with this bill and as I understand it, part of the reason for requesting the data is that the Federal Reserve actually collects the data that sets the policies that are then married to the allocations that go back to the districts, so I want to make sure I'm on the right track when I come home and say I have a bill that asks the Federal Reserve to collect data that can help us the end is that yes, in the ballpark, we should get the experts to talk directly to you and your staff and tell you what we do and how we do it and make it useful.
I don't know if we need legislation at all, but we certainly have great sources of data and we cut them differently. ways, so why don't we try to get back to you about that Colorado German thanks, mr. Tipton is recognized for five minutes, thank you Madam President and friend President, thank you for taking the time to be here this morning. I wanted to follow up a little bit on the CRA. We've had quite a bit of conversation about that and we just wanted to. being able to have clarity that the Federal Reserve has been involved in the CRA process with the OCC and the FDIC is that correct from the beginning, great and I also want to clarify if you are comfortable not only with Governor Brainard's speech. but the content of his speech regarding the CRA yeah, okay, to what extent has the Fed been doing it?
I know you're talking about doing some of the analysis comments that come in, but being able to work on modernizing the CRA from the beginning of the process we said yes, it sounds like a great idea, it's a good time to update CRA, let's try make it more transparent, more objective. Let's try to make it more effective and serve the intended beneficiaries, so we also toured the country. I think we had 29 events across the country where we talked to different groups of people about the CRA, their experience with the CRA, and it made us an individual. direction that we created, we had a lot of ideas and I know it's unfortunate that we couldn't get on the same page, we couldn't completely agree with their approach and they couldn't completely agree. with ours, but you know, we keep pushing and we keep learning and I would agree with mr.
Hills previously commented that ideally you would want to know that you agreed 1:1, that you know a set of standards. I would agree with that too. I think harmonization is something we serve. We are in an effort to achieve this. I was very encouraged by reading his comments in his statement. that people who live working in low- and moderate-income communities are finding new opportunities, wages have increased, particularly in lower-wage jobs, that's an area that worries me a lot. In my state of Colorado, I represent rural areas and We often have two economies where the metropolitan areas, the tourist areas have done well, the rural areas often continue to struggle, now we are starting to see some that real move, but when we look at CRA reinvestment, we're talking about community banks.
I wouldn't really encourage you to look at the OCC and FDIC proposals. I think they go further in rural America and you talked about policy. Have you given me any evaluation in terms of the opportunity zones that were included in the tax cut? and the Jobs Act, we are certainly seeing some benefits and some investments in the rural areas of my district. These are some of the policies we should consider. I don't know of any research we've done on Opportunity Zones, but you know, we probably have this in the system. I imagine we haven't researched that and we'd be happy to share it with you.
Thank you very much and Fannie Mae and Freddie Mac just took some steps talking about Sofer now. accept it for basic mortgages and I have noticed that other agencies have been taking this step separately. Is there some kind of uniform high-level effort to coordinate the adoption of Sofer? Yes, there is a lot to do and we. In doing that, we are coordinating with the other agencies and also with the market participants and you will see more of that, you will see more cases where LIBOR will no longer work, will no longer be usable in a particular context and that is what Fannie and Freddie did it this week or announced it this week and to follow up with the gentleman.
Stivers' question regarding community banks: Do you see any advantages and disadvantages to the use of LIBOR so far for community banks? Yes, I think we are good, I think we are LIBOR itself. It is really a problem in the sense that the rate There is no guarantee that the rate will continue to be published after the end of 2021, but there is a question of having a credit-sensitive rate in addition to four, so four will be the main substitute , but you know, we are working with regional rates and some. from the larger banks about the idea of ​​also having a credit sensitive rate and that is something that is ongoing and we have had a little conversation about the coronavirus China, the impacts on the economy that the president just signed into law in the US MCA, do you think that as creating a runway for further economic expansion in the US, job opportunities and wage growth, we don't give trade policy advice on that, but I would say I would just say I think that the signing and enactment of an implementation of the US MCA will be positive, at least in the sense that it removes uncertainty around trade policy and I think that has been part of the problem of the last year , not knowing what the rules of the game will be I think setting those rules is certainly a positive thing Gregg, thank you my language experiment, thank you, gentleman from Illinois, mr.
Foster is recognized for five minutes, President Paul. Well, first of all, I would like to thank you for facilitating our meeting with Governor Brainard, Representative Hill and myself. I had a digital currency. We really enjoyed it, as well as meeting the staff there. excellent and it's great to see how connected they were to this issue now in a speech last week, Governor Brainard highlighted the citation of the role of central bank digital currencies toensure that sovereign currencies remain at the center of each nation's financial system, do you agree with her? characterization in particular, do you think establishing a digital dollar would help ensure that the US dollar continues to serve as the core of the US and world financial system?
Well, to take the first part of that, I think having a single government currency at the center. of the financial system is something that has been very useful to us, it is something very basic that has not really been questioned and I think that before we move away from that we should really understand what we are doing, so I think that preserving the centrality of a, already You know, a widely accepted central office that is accepted and trusted is something enormously important. I think whether a digital currency takes us down that path or not is an open question, as you know, all the major central banks are currently taking a deep look at that, we feel it is our obligation, technology has now made it possible, the sector The private sector is innovating, they are doing it, so I think it is up to us and other central banks to understand the costs, the benefits and the trade. -offs associated with a possible digital currency, so how would you characterize?
Know your status of progress in this compared to other countries. Meet the Swedish central bank developing an e Crona. Well, the Chinese. Know the reason why there was someone. One of the reasons there was so much concern about the Libre project is that they would have scale immediately if they just launched the product. The other entity and position to do it is that the Chinese government will implement it at scale using their already established plan. using cell phone systems would immediately have a scale comparable to Facebook if they implemented it and so how would you characterize our ability to respond to this potentially competitive threat?
That's why we are working hard on it. We have many projects underway. Of the efforts that are going on right now, we haven't had the problem that many of you mentioned in Sweden, is that many of the northern European economies have moved away from cash in that sense to a notable degree and that It hasn't really happened in the US economy, although it seems like it must have happened with our children who don't use much cash, however, the amount of cash in the US economy the cash in the economy of the U.S. continues to grow faster than nominal GDP, so if Look if you look at the cell phone payment adoption curve, you know that it starts off slow and then all of a sudden it just happens, and it looks like that transition It can occur over a period of more than one year. a couple of years, so we have to be able to respond, you know, if that's the determining factor, then we have to be in a position where we can respond by offering, for example, a digital dollar and within a couple of years of years, so I just completely agree with that and I think, frankly, that Libre really lit a fire under that and was kind of a wake-up call that this is coming quickly and could happen in a way that you know, It is quite widespread and systemic.
It's very important to pretty quickly if you use one of these big tech networks like Libra did, so we're working hard on it, we fully appreciate the importance of making rapid progress, we haven't decided to do this, I don't think there are many questions. that need to be answered around a digital currency for the United States, including cyber issues, you know, cyber issues, privacy issues, there are a lot of operational alternatives presented, so we will work on all of that and we will do it thoroughly and responsibly. but he feels he has adequate visibility into what the Chinese are doing in this.
Do you have any kind of contacts at the work level that will give you an idea of ​​what your implementation will likely do? It seems so, I mean, I know we. I certainly have, but you know they're in a completely different institutional context. There are things that, for example, the idea of ​​having a ledger where you can know everyone's payments, that's not something that would be particularly attractive in the US context. It's not a problem in China, so nonetheless, they probably designated it because they claim they're going to roll it out to Belt and Road countries at some point very quickly, so you know, I urge you to keep the fire burning.
Thank you. thank you the gentleman from Texas mr. Williams is recognized for five minutes, thank you Madam President and thank you for returning to our committee chairs, we appreciate it and with baseball season slowly approaching, I wanted to make sure of one thing before we continue: you are still in team capitalism, oh yes, thank you. I appreciate that Experion recently released their 2019 consumer credit review and I wanted to read a section of the report because I think it accurately describes the state of our economy, as you know I'm a Main Street businessman and the economy is really good at the moment.
In fact, the US economy exceeded expectations, record job growth caused unemployment rates to fall to record lows, while the stock market flexed throughout the year. The report goes on to say that the recent all-time high of consumer credit scores at 1921 with an average of 73 means people can get better rates to borrow money to buy a home, get a loan for small businesses or whatever. They need funding to be able to live their American dream, so, my friend Chairman, what should we or should we focus on in this committee to continue the explosion of jobs and new jobs that we have seen in recent years?
Honestly, I think the focus for I should really focus on the things that address what are our long-term problems that can be addressed through legislation and its two really important things: one is workforce participation, what are the things that they can do and what we really can't do. it will help people stay more attached to the labor market we still have low labor force participation compared to essentially all of our economic competitors and the other is productivity, so what drives productivity? It is a stable legislative environment. legislative and administrative environment that supports growth, innovation, investment and those kinds of things, so those would be my top priorities for me.
I know you are aware of the feds' work on the international insurance capital standard that is being developed for the world. I have had reservations about entering into an international agreement that does not fit our current state-based approach to regulating our national insurance companies. One particular part of the international standard that I want to ask you about is the flexibility that was given to our government to develop an equivalent solvency standard that would better fit our insurance ecosystems, so my question is how does the Federal Reserve plan to ensure that the standards being developed in the US be considered equivalent by International Group, given the continued resistance they face from Europeans?
I can only say that we will not participate in the approval of any international standard that does not conform to our own American insurance regulatory framework. That's fantastic, we are leaders, not followers, some of my colleagues across the aisle have called for a financial transactions tax. I think this is an extremely short-sighted approach to increasing income that will greatly affect the amount and ways Americans save for the future. Furthermore, the idea that adding an additional layer of Haitian taxes to other assets is redundant. Since capital gains taxes already exist and should be reduced, taking money away from successful investments, if we want to further expand economic growth, we must focus on continuing to reduce personal and corporate tax rates so Americans can keep a larger portion of their income.
Hard-earned income and businesses can invest those profits back into their operations, so President, can you explain how implementing a financial transactions and transactions tax would affect the U.S. economy? I think I should stay in my lane here. You know we don't do taxes. policy that I don't want to have if I start commenting on particular taxes. I'm concerned about where that might go, so I'm okay, I understand I'll tell you from a Main Street standpoint it's really going to hurt the economy and additional layer of taxes, we need to really cut taxes, so looking at the financial trends all over the world and having been in business for over 50 years like me, one data point is what captures my negative interest rates or can you help me understand the economics behind negative interest? and talk about the potential threats that this phenomenon represents for financial stability.
Well, as you know, several countries around the world face the problem of what to do when their official interest rate hits zero and some of them, in fact, fell below zero. The states chose not to do it, we chose not to do it at the Fed, we used other tools when we hit the lower bound and those were forward guidance and large-scale asset purchases. I think in the future our inclination would be to trust the tools that we do use. Opposite negative rates, so our instinct is that in the US context, that's not a tool that we're looking at, you know, the question about intermediation is when you have negative rates, you end up creating downward pressure on the bank profitability, which limits credit expansion, and there is some evidence of that, so in any In this case, we were looking at other institutions around the world that had done that and we will be able to see what the results are.
Thanks for being here. Michigan lady Mrs. Talib is recognized for five minutes. Thank you, Madam President. I don't know if you know that in 2013 President Detroit filed for Chapter 9 bankruptcy, which was marked as the largest municipal bankruptcy filing in US history. In July, when you were here I asked you why if the Federal Reserve is willing to support or support, you know that the big banks and corporations during periods of difficulty in the credit market we would not want to equally make sure that state and local governments also had access to credit and you mentioned that they did not had the authority to lend to local governments. and the state governments, Madam Speaker, I would like to put for the record section 14 2 B of the Federal Reserve Act which states that the federal government, the feds, actually have the authority to purchase municipal debt without objection, as you order, President, since you do indeed have the authority.
Can you explain to me why we should know? Why shouldn't the Federal Reserve ensure that state and local governments have access to financing in times of stress? As you know, we have limited authority. I think it's short term. municipal bonds we did it briefly in the 1970s and then we haven't done it since I think a number of FOMC and Fed chairs in all sorts of different political environments have thought that that's something that's really not appropriate for We in the 1970s. sense that it is about public finances, we know that this should be addressed by the fiscal authorities and not the Monetary Authority, we focus on the work that has been entrusted to us, which is maximum employment and stable prices and To some extent, we also work with other agencies on financial stability and banking supervision, so the Chinese are opposed to solvency, yes or no, the Federal Reserve retains the ability to open emergency lending facilities, It is that precise and it stabilizes the economy well, yes, the financial institutions.
I knew, uh, when the Federal Reserve steps in to bail out banks in a crisis it's because you think their role in the economy is vital, actually because we had no choice but to prevent the financial system from collapsing in 2000. No, I want That is, my city could finally declare bankruptcy. Devastating for so many retirees Mr. 4050 years old who work for the city of Detroit saw their pensions completely diminished disappear. Don't you think that the Detroit governments in Puerto Rico also play a vital role that must be preserved even if the financial crisis makes it difficult? ask them to borrow money.
What I think is that that's not a job for the Federal Reserve, it has a particular role in particular authorities and you know, lending to state and local governments and supporting them when they're bankrupt is yes, let's disagree. I think you have the authority now that you have mentioned that in the event of another financial crisis you would use the same tools of expanding thebalance sheet and buy long-term bonds; In other words, more of the same. Right, yeah, then. I'm afraid that's just not good enough. I mean, I think your predecessors, former Presidents Yellen and I think Vernon Ecchi seem to agree based on comments they both made last month, for example, President Bernanke suggested that a money-funded fiscal program could be helpful during the next. recession, do you agree with that?
It would be useful, you know? I think it's really an untested perspective and not widely supported. I don't think President Bernanke said that a phonetic tax policy backed by money, I think that would be something we should do. I know there was a group of people who pushed that idea, but I don't think it included former President Bernanke, how do you see something that I don't know, I know and the president looks, the federal government is supposed to be about people and I don't see that we're dealing with, you know, pensioners in a city like the city of Detroit, which are frontline communities that have really been hit hard by the financial downturn.
I mean, haven't we? Actually, they keep saying Detroit will come back if I show it. in your neighborhoods will tell you that we don't know what you're talking about because poverty is actually an increase in access to housing has decreased. I mean, all of those things that we started to reflect on and understand that I believe in the Federal Reserve Act. it actually gives us the authority to help beg, just like we bailed out the big banks, that we can do the same for our people, the residents of the city of Detroit, so I thank you for that and again I would ask and push for you to see this from a different lens versus the same old policy shaping process that I think hasn't really worked for working class people.
Thank you very much and I will give you the rest of my time, thank you, gentleman from Arkansas, mr. Hill gets a five-minute thank you, encouraging Waters again, Chairman, welcome back to the House Financial Services Committee. I want to thank him for the conversation he had with dr. Foster, a few minutes ago, I also want to thank you for your work with Governor Brainard and our discussion we had with the governor and staff about the concept of a digital dollar and the work being done at Treasury on that. I will detail some of the points that Representative Foster raised, but I would like to make a couple of comments to him about whether he would advise our committee or ask the Federal Reserve to advise our committee what legal authorities the Federal Reserve might require to consider use. of a digital dollar, yeah, I mean that's a good question.
When we look at it, a lot would depend on exactly the design of that curve and one thing that we also talked about and have had a lot of discussions and Our FinTech working group here is about Europe's approach to this idea of ​​a payment provider license that It's now part of their financial services code, part of their open banking movement and the idea that one would have a regulatory license here in the United States to be a means of payment. provider, it could be a bank or it could be a non-bank entity, it's something the feds are also looking at.
However, I wouldn't say we're specifically focused on that, but more broadly, we think it's a good idea. Look at the whole picture of oversight of our payment system and that would be a part of that and, as you know, the governor Brainard talked about that in another of his speeches last week. Thanks for that, last month Chinese regulators bailed out Hing Fang. Bank was a loan of fourteen billion dollars that they arranged through one of their sovereign funds the Chinese banking assets at forty-one trillion dollars now our 47 percent of global GDP is the instability in the Chinese banking industry that represents a financial threat to the global financial system.
It is a financial virus as if they have already contributed to a physical virus. They know this generally, and I'm sure they know that China has had very high debt to GDP for an economy in its development stage and that includes the banking system and the government. In reality, for several years now they have been taking established measures, I think by the central bank, to try to control the growth of the debt and they have stuck to that for the last few years even though those were difficult years economically for them, so that's something they're addressing.
The other thing Dayton needs to say is that they have a lot of fiscal room, if you look at the fiscal side, they have a lot of power to respond to recessions, so I don't go so far as to say that their debt is a systemic threat to the global economy or anything like that, but it is something that needs to be addressed in our report. I think it's something that I think deserves a review, sir. Barr talked about his misallocation of resources at 47 percent of GDP brilliantly, which looks like an overallocation in the banking sector in China and could pose a threat to our system.
In your report on page 24 you talk at length in your financial stability section about the decline in bond yields, particularly in the high yield market, ratings have fallen and the other day I was looking at a mutual fund annual report and says a particular concern is the continued high rate of issuance of triple B bonds, the lowest investment category. grade-rated bonds if the economy stumbles and the issuance of downgrades could be an avalanche of fallen angels in this particular mutual fund said they are staying away from the lower end of the high-yield market are you worried about the high-yield market performance?
Well, that is the so-called triple B cliff and the idea is that they are a handful of very large issuers that, if they were downgraded, then they would not be investment grade and the idea is that some holders are not allowed by the terms of their agreements with their investors to maintain the non-investment grade on their trigger sales, that's an issue that we've been monitoring for some time, really you know, with leveraged loans in general, yeah, we are. monitoring it very carefully, you see, you know, low, low compensation for the risk taken, you see high leverage, you see a lack of agreements to see all that.
I think it's a complicated picture, although that role is now largely held in CLOs rather than in and mutual funds and exchange-traded funds rather than on bank balance sheets, so those vehicles tend to have stable funding in the sense that their liabilities are actually longer than the expected maturity of the underlying instruments, still remains a source, I think. of financial concern for F shares. I think you know this and therefore I congratulate you for noting it in the report and thank you for your continued attention. Thanks to the gentleman from Illinois, Mr. Casten is recognized for five minutes, thank you Madam President and thank you President, friend.
I appreciate that he stayed until the end of Dyess Air. If I get picked for eight more fingers, I'll cross, I'll have the same experience. In this line of work as I do in the energy sector, I still come here primarily as an energy nerd and I have a real concern that we are not dealing with the realities of climate change scientifically, we viscerally understand what it means. we have rising sea levels, but we haven't really thought about what it means to have an accelerating rate of change. Compound interest confuses people and compound changes in the environment we don't even think about it as well as we should, just a couple of facts. points that I hope we can all appreciate the first evidence that hominids made fire is a cave a million years ago James Watt invented the steam engine and two hundred and forty-four years ago and marked the beginning of the Industrial Revolution and the 50 % of all the CO2 they have emitted as a species since Back to the Future came out in 1985, this is this massively accelerated change and if tomorrow we go to zero CO2, we will see two feet of rise in sea level, the most realistic trends that were A rise of at least six feet in sea level is looming and at that level some $23 trillion in economic losses are estimated for the system. $900 billion of U.S. property at risk before you factor in debt losses and, you know, pulling out of insurance and there are some serious systemic problems. risks to the economy if we don't address them and I just want to understand a little bit how you and the Fed are thinking about those number one risks, given that assets exposed to climate change exceed the entire subprime mortgage market before the financial crisis global.
How is it that the Federal Reserve is thinking about climate change as a systemic risk to the economy, so that climate change is once again a very important issue that is actually the purview of the elected representatives sent to set the general direction of society about how we will respond to When it comes to climate change and its challenges, we have a job to do and that is to think about the potential implications for the financial system for the economy and I think we are in the early stages of filling in what exactly that means in terms of you know things like particular assets, these are longer term considerations, you know we're essentially concerned primarily with business cycle issues, that's what we focus on, issues for the medium.
Long-term climate change is a much longer cycle if I'm part of the concern I have is that actors in the space don't have planning horizons that match the reality that you and we do well, there are people signed in 30 - one year mortgages right now for properties in Miami Beach and they may plan to resell that mortgage several times but someone will be holding the paper with sea level rise coming the insurance industry generally has a period of one year tenure, so and even if the United States. succeeds in reducing carbon emissions, there is still a massive reallocation of capital.
Have you looked at transition risks in thinking about how that starts to shift and dislocate in the economy? So those are the things that were in the early stages of the investigation as they moved forward. Obviously we know there's a lot going on in the financial markets, there's a lot of disclosure and expectations around disclosure or significant changes for listed companies and that will have an effect, but that's not really what we do, we do monetary policy. . banking supervision our banks you know to your point we our banks have to have to be giving, have to be taking into account the risk of severe weather events and potentially, I guess of increase, increase, well, I mean, let me give you, maybe Maybe let me give you a specific one that's been bothering me lately if you look at the the fossil fuel industry the oil and gas companies the coal companies the debt they have relative to their assets given that their assets are so heavily dominated by reserves of fossil fuels if they extracted all their fossil fuel reserves things would be much worse than the twenty three trillion dollars I just told you, have you ever considered doing stress tests to see if your inability to fully monetize your reserves could effectively turn you into fiscally insolvent?
I want to bet that the economy is going to commit suicide, but if I look at the financial statements of many of those companies it is not clear to me whether they can monetize those assets, which has a significant effect on the risk of money that has helped me today. I think seven hundred billion dollars have been lent to fossil fuel companies in the last few years if you consider that to be a systemic risk, well for us it is a systemic risk to the financial system and we would be stress testing the banks. As you know, the Bank of England is doing some of that now and we will be watching and seeing what they learn and I will follow up offline.
I give back my time. Thank you Jeremy, Gentleman from Georgia, Mr. Loudermilk is recognized for five minutes, thank you Madam President, friend, thanks again for being here, first of all, I want to touch on Lisak again. I know some have already touched on this topic and, as you know, several weeks ago, Vice President Quarles. He gave a speech in which he outlined a series of changes he would like to make to the Federal Reserve's regulatory and supervisory process. He said he intends to bring transparency to the lawful regulatory regime by developing clear and transparent standards for designating companies.
He also proposed aligning the lawful designation. with the feds tailoring categories and limiting them to just category one companies, so my question is at a press conference after last month's Federal Open Market Committee meeting, you said you generally agree with Vice President Quarles and I appreciate what he had expressed, but can you give us an idea of ​​when you expect the confirmation to be confirmed?lawful designation with new adaptation rules. I don't really have a sense of where that is in terms of timing where you know, at any given time we have a lot of things in the works to do and that's certainly one of them.
Well, I hope sooner rather than later. I don't want to commit to something that you know there are a lot of things we're working on all the time, but you know the vice president gave a speech about it. I am aligned with that. I hope we move forward. It's very good to hear it quickly. I would like to talk about the CRA. I think the three banking agencies need to have a unified framework from the CRA and myself. I know you're hesitant to speak on behalf of the other agencies, specifically the OCC and the FDIC and their proposals, if you don't want to comment on that and understand what some of their ideas or the feds' ideas are for modernizing the CRA.
Well then. I would say then let me talk about the process, you know, we agree on the general goals and the questions about how to get there after that, so our thinking was to try to come up with a set of improvements that would actually lead to a CRA. more efficient and effective, so we are looking at ways to make assessment and testing clearer in our thinking, there is a separate test for the retail level there is a separate test for Community Development and for retail lending and also that the other thing we're saying is let's make sure everything is very data-driven, so we have, as the president mentioned before, 6,000 data sets that we analyze, so I think we really know when it's done a change in the metrics, we know what the effects will be and we feel good about that, so we tried to build our proposal around the fact that there are a lot of overlaps, but it's just a handful of differences that have prevented us from reaching full agreement and at the same time general objective Do you think we can eliminate some of the ambiguity about which projects qualify and which do not qualify at all?
I mean ex-ante transparency, more ex-ante transparency as to what qualifies and where plus objectivity, all of that should help encourage banks to do more if they really know what qualifies and what doesn't. I think all of that is very constructive, it's really about how to implement it and we want to have a high level of very important laws very, very important laws we want to have a high level of confidence that what we change will have the desired effects and that's where we are, That's what we're focused on, I appreciate that because I'd like to see us make changes where it's not about financial institutions just checking boxes to get credit, but actually investing in projects that help revitalize these communities.
As you know, the FY 2020 appropriations bill directs the Treasury Department, in consultation with banking agencies, to study whether any changes and banks' regulatory capital requirements are necessary because of Cecil. If the study concludes that this is the case, are you open to modifying regulatory capital requirements accordingly? Well, yes, I think we have said that with Cecil we are going to monitor very carefully. what does the implementation show because because of some of the concerns that have been raised, okay, thank you, I probably don't have time to get into other questions, so with that I give you back the rest of my time, thank you, California lady, Mr.
Porter receives recognition for five minutes. Thank you, Chairman Powell, you spoke frequently about his belief in the importance of maintaining the independence of the Federal Reserve. Do you still have that belief? I don't expect anything to change in the new year, because we don't want the Federal Reserve to make decisions about things like where to set interest rates based on any factor other than the best interest of the country and I know you've had some experience with the president who publicly and aggressively tried to pressure him to lower interest rates and I appreciate that you continually affirm the importance of the independence of the Federal Reserve, but it's not just about our president, there are many people who would love to have the opportunity to weigh in on Federal Reserve decisions, outside of administration officials, which other types of people might want. influence you and regarding the decision making of the feds what other people might want to influence this could potentially influence a pretty wide range of people, I think they are big investors, but it's yours, I don't know if people are really looking to do it, I mean.
If you say you might want to come in to influence this. I don't know the answers. I really don't know the answer. Many people follow what we do and respect what we do. I think people often, when I meet them, they really avoid giving advice they really feel like they don't, they don't dare to do it so that they don't feel unduly pressured by political or special interests no, I would really say that someone like Jeff Bezos, the CEO of Amazon, could be one of the richest men in the world could benefit from having influence over federal decisions.
I don't know, and what about Jared and Ivanka Trump? They are very rich people, do they have savings and make different amounts of money depending on what they do? The Fed does with interest rates, yes, and what about Kellyanne Conway? In your role as advisor to the president and the president, did you express these public opinions? Do you potentially have interest in amplifying the president's message? After all, it's her job. I guess so, it's okay. mmm mr. Powell, I'm going to project an image here for the public to see, but I'm also going to show it to you.
Is that you, sir? Paul, that's, um, where are you? That's right, it's a party after the alfalfa dinner and after the party I went to UM, where was that party held and Jeff Bezos, his house? Jeff B, this was the house and it was what was taken. Excuse me, when was this? photo taken on Saturday night after the alfalfa dinner, more or less, you will stipulate that it will generate the end of January 2020, yes, recently, can you imagine how to attend a lavish party at Jeff Bezos is a twenty-three million house dollars along with Jared, Ivanka and the CEO of JPMorgan?
Chase Jamie Dimon could give audiences the feeling that you are, in fact, not immune to outside pressures. I certainly hope not. What did you talk about about the party with them? I did not do it. I didn't talk to any of the people you named you didn't talk to anyone I didn't talk to any of the people you named oh can you tell me who you talked to? I mainly accompanied my son and his new wife there and actually introduced them to him general mattis that's cool um I would just suggest that this attendance at this type of event with these type of people is inconsistent with what I would otherwise congratulate him for doing a very good job.
I plan to reaffirm to the public that this affects public opinion. Mind you, I think that goes against what you've been doing quickly, sir. Powell, if you could name just a couple of the biggest drivers of economic growth in this country since the recession of the 1970s, what has been growing our economy, what factors have made it grow well, the hard work of the American people, hmm, you know? I think what we've seen is tremendous growth in some sectors and less in other sectors, of course, big tech companies didn't exist 40 years ago, so I think we've seen a lot of growth in some areas, I think in other areas a lot. less mr.
Pugh, would it surprise you if I told you that women in the workforce are actually a major driver of economic growth and technology companies and in a four-decade span since the 1970s, thirty-eight million women they joined the workforce and without those women? our economy would be 25% smaller, so when we talk about the health of our economy and GDP growth, what I don't hear a lot and I would like to hear more from you is the economic effect of things. like the availability of child care in those same four decades that women grew the economy by 25 percent, the cost of child care skyrocketed by 2,000 percent, you know, sir?
Poe, how much does child care cost in the United States today? How much does it cost today in the United States? It costs a lot. Could you make your economics expert a little firmer? Could you put a number a little firmer? Of course, my children are older now. I will return the gentleman from Ohio mr. Davidson is recognized for five minutes, thank you Madam Chair, Chair Pao, thank you very much for your time here today, thank you for the good work that you and many of your colleagues are doing at the Federal Reserve, just to address the common points that came from my colleague.
Recently, isn't it unprecedented for the chairman of the Federal Reserve to attend a party or reception? I know, I mean, it's certainly not the first time Federal Reserve chairs have attended a party. I'm sure this isn't the first time a member of Congress has attended a reception or party, so I don't know if we want to say hello just because you're at an event, in some ways this is disastrous. I mean, you might have talked to a Russian on the subway or something so you know how it works. The way these things are linked for political reasons is embarrassingly partisan and bad and I just thank you for resisting all those pressures, many of them are public of course, but one that concerns me right now is the repo market, as They know in my country.
A lot of people don't know that there is something called a repo, but it is an important factor for our economy and I think some of the warning signs in it have led to the Federal Reserve getting into something of a mix. between regulatory action and monetary policy to inject a large amount of cash into that market. President Quarles, as you know, recently spoke about the need for this to continue for some time. Can you explain the process on how the Fed is going to review the factors that are contributing to this repo increase and what you've learned from the review, sure what happened is, as you know, in early September there was a increase in repo rates and the federal funds rate moved slightly outside our band, our target range for one day. more or less, and that's why we didn't see the next market entrants doing it either and that's why we've been wondering ever since, why?
One clear reason is that the level of reserves, which is the cash deposited in the reserve banks, must be higher than the We had thought and that is why we are in that current, we immediately established a plan and executed it and it worked well to create it, so which I mean some have called this quantitative easing. I know they have opposed it, but essentially we. We're artificially pumping in cash to produce an outcome that the market isn't producing on its own, so I think it's strange that our action is to pump in Fed cash to grow the Fed's balance sheet instead of looking at regulatory things. underlying issues, what we've talked about, and if, and if, what the board talked about in terms of, you know, regulatory factors that, instead of injecting cash to solve a problem, treating the root cause of the problem and changing the regulatory framework , we are We are doing both, the reason we are expelling the cash is to meet the demand for cash from basically the banks that need to have a certain amount of cash for liquidity purposes, moving on to the second issue, although we also said that without undermining safety and soundness, we would look at ways in which regulation and oversight might have interfered with the otherwise free flow of cash to where it was needed, and you know, we, I think we've done a lot of work on that. and Vice President Quarles touched on a broad topic that I think is important and that is the idea of ​​making the supervisory treatment of cash really the same as that of Treasury bonds for this purpose with this to be able to achieve better liquidity flow through the system without affecting the overall level of liquidity in the system, which is just what we're looking for, so I addressed some ideas on how to do that and I think that's a very profitable line of research, okay, so thanks for that one of the changes, you know, as LIBOR is disappearing and market forces are coming, we are talking about replacing the reference rate and of course the arc includes 250 entities, but you know there is a We are concerned that, by doing this, it's not necessarily giving the best rate, so is the Fed taking the best proposed rate offered in these repo agreements or are we giving it at a special rate maybe to the top 10, so for our banks, I'm sorry, I lost track of that, so, when, when, when this liquidity is injected, the repo rate there was a repo rate coming into the repo rate and I guess no, it's been kind of okay, sorry have lost me So the rate that we have been offering for those in the repos that have been liquidating at a level that is a couple of pointsbasics below IO ER and, but that won't be a persistent problem, at what rate are they being liquidated? that is, when you pay at a high rate, you pay at the best available offer or you pay the best available customer, we do not distinguish, I mean, anyone who is eligible can bid and we do not know, as long as you are eligible, What will we sell you?
Thank you, my time has expired. Could gentlemen ask the witness to provide a further written response for the record? I appreciate the president's suggestion. I would love to see a written response on how it is actually working, the witness is asked to provide a response and write and for the record. Thank you, President, Madam from North Carolina, Madam. recognized for five minutes Thank you Chair Waters for convening today's hearing and friend Chair thank you for your testimony FDIC Board Member Martin Buber voted against our team's proposal, describing it as a deeply flawed proposal that would undermine and would fundamentally weaken Community Reinvestment Take Action, can you comment on the shortcomings of the controller's announcements?
A misguided attempt to gut the CRA, an essential piece of banking and civil rights law, so I guess I feel like our role is not to comment on the other agency's proposal, the public is doing that now. We look forward to seeing your comments. Yes, I can talk about how you know our own thinking on this, but it's not really our place to comment publicly on the other agency's proposal, as the Federal Reserve will. his own proposal on the Community Reinvestment Act, one that takes into account the needs of low- and moderate-income communities, that was, of course, the reason we undertook this work, that we really haven't made a decision yet about whether or when to make a proposal, but still, the entire effort was made with a view to creating: a modernization proposal for Z.
Okay, as you know, the Federal Reserve has a dual mandate: price stability and maximum employment. So will the Fed set a target for wage growth? Are you considering this approach as part of the framework review? I don't see us targeting wage growth as a stand-alone element, it's something we monitor very carefully, our congressionally assigned goal is maximum employment and stable prices, those are our two goals. statutory and those are the things. I don't see us targeting any particular level of wage growth. Well, then, have you considered adopting a floor for wage growth or, for example, once we set a certain percentage increase in wages and salaries, the Fed might consider changing it to 2%? inflation rate, well, we have said that the point of this project is that we want to make the 2% symmetric inflation target more credible and we have been missing it and central banks around the world have been missing their targets for a decade. we are now on the low side and we absolutely want to achieve 2% inflation, that is really the goal of this review that we have done.
Let me ask a question about the Volcker rule, why did the Federal Reserve decide to support further changes to the Volcker rule? rule given that banks enjoy certain benefits, including access to the Federal Reserve's discount window, and that the rule was intended to limit banks from engaging in risky investment activities that could contribute to a future financial crisis, so we just put forward a proposal for the Volcker Rule and, of course, we believe that that proposal is completely consistent with both the letter and the spirit of the law and, but we're going to read the comments, it's available for a comment, now we just post it and we will be I hope Rishta reviews those comments.
I understand that you collect a large number of daily business metrics from the bank subject to the vocal rule, but it has never been made clear exactly how these metrics are used to determine what the bank is in compliance with the rule. nor have any of the metrics been made public, it is true. I think that's true, yes, so we published the first vocal paper, I want to say, six or seven years ago and I think, in general, the regulators and the financial institutions felt that it was a little bit unviable, so we set out to provide a simpler set of metrics and ways for companies to carry out perfectly legal activities and be more certain that they were doing so without having to demonstrate in each operation what they had in mind. the heart of every trader, because there was going to be trading activity around legal activities that were not covered by the Volcker Rule, so I think that's what we're doing, we're trying to make that rule more effective and efficient, but We are doing it in a way that is consistent with the letter and spirit of the law.
Well, thank you ma'am. How You Met the Gentleman from North Carolina, Mr. Bud is recognized for five minutes. Thank you, Madam President Jim Balligan, and welcome. I want to begin by thanking you and Governor Quarles and your federal staff in charge of insurance regulation for your collaborative work with the US state insurance commissioners on solvency regulation. I also wanted to thank you for rejecting European efforts to try force their insurance regulatory system into our single, robust 50-state insurance regulatory regime, despite the progress made to date in many industry sectors. They are telling me that the Europeans are still resisting and ultimately seeking to change our regulations to reflect theirs, so my question is: will they commit to communicating directly with their peers in Europe to explicitly tell them that the United States does not We will be adopting a European-focused ICS or an international capital standard and we have our own rules that work very well, so I will say clearly that we have a state-based insurance regulatory system and we let them know that the federal role is the one that is. and that is that we are not something, it is not something that we are looking to change and we are committed to that president in the future, they are looking to change us and that is why I am afraid that if we are passive, that will migrate to them, but have you had any conversations with some high-level European leader, but only the ICS international capital standard?
No, I haven't. Is there a reason why not? or it has been something that has been avoided. No, I'm simply NOT. I'm not directly involved in The Insurance, there are high level people who I'm sure are Vice President Quarles. Yes, I would encourage you again, Governor Quarles, to continue to insist that we have a great system that continues to work well, so also a mr. President, as part of efforts to finalize the three Basel accords, a series of changes to capital rules will have the effect of increasing capital requirements in capital market activities. Can you discuss your views on the appropriate level of capital markets-related activities, such as market making or underwriting?
I am confident that those are critical activities in the functioning of our financial markets and our economy and they need to be adequately capitalized. I would say that overall I think the level of capital in our banking system is correct and I think we don't see the need to raise more capital, so I know that we are moving forward with the fundamental review of the trading book and other final aspects of Basel 3, but I don't see them as necessary to increase overall capital levels. President, can you share with us how your views on capital requirements and aspects such as market making and underwriting could affect the balance between bank-driven and market-driven finance in the US? system well, I mean, I think if you increase capital requirements and they become quite mixed, they encourage activity to move out of the banking system to less regulated and supervised entities, well, then, sir.
President, there has been a lot of discussion in recent months about leveraged loans, F sock and others monitoring the market. In fact, you've had a couple of questions today about this topic, but when people discuss the topic sometimes I think they're referencing different things, so to help us with our being on the same page here in your opinion, would you? How would you define leveraged loans? Yes, you're right, there are many different ways to think about it, right? You know a reasonable ballpark would be something that's rated below triple B. or you could also say it could be a leverage amount, typically they'll have leverage of maybe six times cash flow EBIT.
You know, there are different ways to think about it, but I mean, I think the best way to think about it is probably non-investment grade, do you think there's a difference between leveraged loans in the banking sector and in the non-banking sector? Yes, I mean, I think before the crisis there were. I think there has been a trend over time for leveraged loans to be held by long-term holders outside the banking system and that is accelerating, so there are many fewer betting on the boring books of the banks than You know with deposit insurance and the safety net instead of collateralized loan obligations or exchange-traded funds or mutual funds or pension funds or hedge funds, that's where those loans are headed now, so it's more like it would have become a distribution business rather than a traditional lending business where banks would make a loan and put it on the scale. sheet, that's not where it's really happening, you have a bank performing an origination function on behalf of a sophisticated investor who has stable financing, we hope, and in the case of heaven it is, but that's something we have to continue monitoring, thank you, president, thank you. you the gentleman from Illinois mr.
García is recognized for five minutes, thank you, Madam President, and thank you for being here, President. I would like to return to the topic of climate change a little bit. Extreme weather events have had a huge impact in the West and in working-class communities like that. in my district of Chicago and are often the hardest hit during such disruptions crime climate change is also a risk to the financial sector Jim Cramer, host of Mad Money and CNBC, in a discussion last week said that major institutional investors do not They want nothing to do with fossil fuels.
Due to concerns about climate change, to protect against the impacts of climate change, the Bank of England has decided to stress test the UK's capital banks, the largest forgiveness banks and credit insurance companies. risks associated with climate change. Well, the Federal Reserve is following suit and developing climate-related projects. stress tests, so we are monitoring what the Bank of England is doing and, by the way, those are stress tests which are not like our stress tests in the sense that they would have direct effects on the banks' ability to distribute make distributions. and things like that, they are really trying to do an assessment, so we will be vigilant that we have not made the decision to proceed with something like that, encouraged, going forward, incorporating climate change into economic forecasts will become more important .
Disasters like Hurricane Marya in Puerto Rico or the wildfires that devastated California last year are currently labeled as transitory risks by the Federal Reserve, but we know that extreme weather events will become more frequent and severe, likely resulting in an increase corresponding in economic losses and physical risks. the brunt of which will be felt by communities of color and working class communities so presiding when the Federal Reserve develops its economic forecasts at what point should climate change go from being considered a transitory factor to a structural factor you know our The forecasts, both the individual ones that the FOMC people and I write down and the staff forecasts or not are for this type of much longer term, really the important thing is the next year or the next two years, the next three years and the climate changes they just operate on a longer cycle than that, of course, as you suggest, as severe weather becomes more severe and that's connected to climate change, you'll see those things that you know coming into the forecast period and it is certainly entering our supervisory practices as well as our economic forecasting.
Well, in a recent speech at the San Francisco federal conference and the economics of climate change, Governor Lael Brainard said that by engaging more actively in climate-related research and practices, the Federal Reserve can be more effective in supporting a strong economy and a stable financial system.system do you agree with which statement by Governor Brainard? If so, what else will the Federal Reserve do in the future to identify and mitigate the financial risks of climate change, so I think it is incumbent on us to investigate and understand the implications of climate change for our oversight functions and our functions. to ensure financial stability and that is what we are doing.
I think it's early days for that, but the public will expect us to do that and then take the necessary steps to make sure that the financial system is resilient. Do you agree with his statement in general? That statement, yes, is fine, thanks to the big banks and the market. concentration three months ago the Federal Reserve approved a merger between BB and T and Central that created the sixth largest bank in the US with more than 450 billion in total assets and the Federal Reserve's own investigation suggests that the bankruptcy of a single 250 billion bank would be far worse for the economy than the failure of five separate fifty billion dollar banks, furthermore, former FDIC Chairman Mr.
Gruenberg has warned that the FDIC could not close a bank the size of the combined BB&T SunTrust without imposing significant losses on the deposit insurance fund and potentially destabilizing the financial system. In this regard, can the Federal Reserve justify its conclusion that this transaction would not appear to be a significantly larger or more concentrated outcome for the stability of the financial system. Yes, I think we can and I think we did. We evaluate these mergers under a very clear legal framework, in a very transparent manner. We held a series of public hearings on it and we looked at all the statutory factors and essentially there are two banks coming together to form a regional bank that is similar or smaller than many of the other regional banks and does not seem to have significant implications for financial stability.
Thank you, thank you Jeremy, now yield, ma'am, lawyer, gentleman, the gentleman from Tennessee, mr. Custer is recognized for five minutes, thank you, Madam President, and thank you, Mr. president for appearing today, I heard your statements in your opening remarks about the corona virus and certainly with respect to some of the questions you had today, I noticed this morning in a report that Axios listed and they quoted from the global port tracker report and said that traffic at US ports is expected to decline in February by almost 13 percent and in March by nine to ten percent year over year, now assuming those numbers are true and correct, what impact would that have on the retail sector and what impact, if any, that would have on the broader economy, so I think there's a lot of uncertainty about what the ultimate economic effects will be outside of China and particularly in the United States, and the question will be do we expect that to be consistent.
With that report that there would be some effects, the question really will be what their size and scope will be and also whether they will be persistent or will they be something that just happens and ultimately the fundamental question for us is: does it not represent a material change in the outlook is something we should react to with monetary policy that is really the question for us it is really too early to say we will monitor it as everyone else will very carefully and that is where we are in the same line and I am also of Axios.
They cited a Bank of America security report they surveyed. They said they surveyed 3,000 companies about the global supply chain and that many companies around the world are analyzing. in the relocation they called it in the report, in quotes, tectonic shift and global supply looking at other areas of South Asia, India and North America. My question to you, first of all, I don't know if you're familiar with the study. This study or Bank of America securities report are either not those numbers or those anecdotal statements are consistent with whatever the Fed was looking at. I am not familiar with that report and therefore cannot comment on it.
I would say there are a number of channels through which this could have an effect, the first of which is simply tourism, actually the second is that our ability to choose to export to China is less because you know there will be less activity there, so exports could go down, you actually mentioned the supply chain, so many American companies buy intermediate goods as part of creating their final product, so we don't have any real evidence about the problems of the supply chain still and I would say the last channel is really the financial markets. what financial markets can be a channel for the transmission of risk averse behavior what can affect economic behavior so we'll see all that, it's too early to say if that will just mean I'll have to wait and see if there's no way to have confidence in someone's evaluation and there are a variety of evaluations based on what you just said.
I think I know your answer, but I'll ask for the full report anyway. I mentioned several reasons, one of them is the tariffs between our country and China and the impact they have had on China and subsidiary companies, but also automation and the increase in automation sounds consistent with the relocation of these supply chains, well , that's separate from The questions about the virus there clearly has been a lot of activity by US companies to move to other jurisdictions like Vietnam in particular, it's mentioned quite a bit. I saw a report last week on several other countries where American companies have moved. their manufacturing activities out of China to other places and that has certainly happened, including the United States, yes, thank you, or relocate back to the United States.
I guess in the same vein I represent part of Memphis and Western, the headquarters in Memphis. outside my district was an announcement that Amazon made two or three weeks ago that they were putting in a new facility there, thousands of jobs and by the way, you had questions about the minimum wage, they're going to start making wages of al less $15 an hour plus benefits, but He talked about these new jobs in combination with automation in terms of packaging and shipping. He spoke about his concerns about automation and the effect that will have on unemployment in the future.
Can you see the two coexisting risks like with this Amazon? Over the last two and a half centuries we have seen the advancement of technology and there has been concern that it would replace human labor and that has happened, but what has happened is that it has made human overtime work more productive. , so there is an offset from the current one. workers, but the advancement of technology over time has led to an increase in income, but that does not mean that there will not be disruptions and a lot of pain for people in the short term, but still the process over time has led to an increase in income, the gentleman from Florida.
Sir. Lawson is recognized for five minutes, thank you Madam Chair and Miss Chair, welcome to the committee and I would like you to explain to me the last almost three hours, two hours in maybe 45 minutes, that you were speaking and the members only committee I was talking. in terms of how well the economy is doing, you know we have more job opportunities in the economy when you start talking, the Dow Jones is up 125 points, why are you a speaker, it's down, can you contribute? Tell me why something like this happens? Who is listening to your speech this morning in front of the financial services committee that will call the Dow Jones down?
It's because of interest rate cuts. How do you explain that I really can? I'm not following you. the market as I sit here answering his questions, well I know the president tweeted something similar that when you started, the Dow Jones went up and then down, do you react to that? It doesn't really mean much. to you, sorry, yeah, do you react to that? The president also talked about how the Dow Jones fell and the interest rate cut. Do you react to that? Something just happens that falls. You know we are my. My colleagues and I are completely focused on using our tools to help the American people achieve our goals and that's really all we're focused on or explained to me as well in a staff report that they claimed began in July of last year. that four times three different times the interest rate was reduced by a quarter percent, you know, how are decisions made?
That stimulated the economy when you did that throughout October, quite a percentage cut in the interest rate, yes, we were really looking at some things when we did that and yes, the intention was definitely to support the economy, part of that was to offset the effects of the global factors and there I would say that just the slowdown, the slowdown and the growth and the global economy just continued and and we felt the need to compensate for that and also take out some insurance against the effect that it could have on US trade policy .uncertainty was weighing on the US economy we tried to offset any potential effects and take out some insurance there and the third The reason was that we wanted to do everything we could to protect ourselves against a longer inflation shortfall relative to our symmetrical targets 2%, so we have supported growth to support the decline in inflation, so those were the reasons why we did those three things and that is the thinking that we had and that we announced.
Well, could there be electricity coming? And that would be a correlation between a growing student debt crisis and a slowdown in the housing market, which we've talked about a lot in recent months. I know many student loan bars can't get housing due to high debt to income ratio. Could there be a sign that there is a strong need to first address the number of student debt crises? So I would say that rising student debt is certainly a concern that has been growing rapidly and is now big. There's more and more evidence that shows that students who can't pay off that debt have a hard time having a normal financial life and buying houses and things like that that I haven't seen. any evidence to suggest it is a major factor currently driving the housing industry.
I would say that the housing industry is actually in business; housing has been going up here over the last seven eight months as a result of lower rates and Overall, there's a good job market and things like that are showing up in the Morehouse building and more, and also in home sales. My time is about to expire. I have a lot of students in my district and in the 5th Congressional District, and a lot of them are coming out of school, one of the things that concerns them is the housing issue, you know, entering the job market, you know how they can share better an American dream like his parents without receiving help from his parents, so with that chair, I give in.
Back, thank you, the Chair would like to remind members that we have a tough stop at 1:00 p.m. m. Today, the lady from Massachusetts will be the last member to ask questions today and the gentleman from Indiana, Mr. Hollandsworth is recognized for five minutes. I appreciate the time and, both privately and publicly, have been extremely complimentary of the work you and your colleagues have done not only to calibrate the conditions to match the current economy but also the framework through which I make many of his decisions and how he presents them in public, I can really appreciate that.
I know that a cornerstone of what you've been trying to do with the Fed is to bring even more transparency to the Fed and some of the decisions and the press conferences that you've had have added a lot of transparency to it, so it's difficult for me to understand some of the challenges in the C car and the stress capital buffers and some of the more vague language or the inability to pin down a timeline for changes. that expectation of change, especially when the 2020 C car has already started. I know Miss Wagner asked about this too.
I asked for laurels about this in December. I believe I sent you a letter and chorales signed by everyone on this side of the aisle. in Financial Services I'm just trying to get an idea of ​​what changes are going to be made what the timeline is for those who will be doing these confidence tests getting those changes they're trying to make decisions with balance sheets in the trillions of dollars, balance sheets in the thousands. of millions of dollars leaves trying to make their plans this time is now upon us and I feel like we are still being very vague about what is coming and when we can expect even whatever is coming, when we could expect that to happen. came before us and so I was wondering if you could give more color to that or give some reasons why you and your colleagues have been a little bit more hesitant to answer that you know I can't give more clarity than existence so I just I repeat, we hope thatthe core of the stress capital cushion will be incorporated into this year's stress test, yes, and we will do it in a way that is timely for car C.
Well, in our previous conversations, I think we just had. It's kind of a general agreement, don't let me overstate that, if that's incorrect, that some of the aspects of this need to be calibrated correctly, we put a lot of this into practice after Dodd-Frank, we felt like we were doing the right thing in doing so. but maybe we had unwanted effects, maybe the predicted effects weren't as big as we thought they would be or maybe this wasn't the area we needed to focus on and I think we had agreed that some of this requires important calibration going forward.
And do you expect there to be further review and calibration of these tests to reflect current conditions or, alternatively, what we have learned since the crisis about what works and what doesn't work and what may be increasing significant reserves in many of these institutions , so my strong opinion is that at Capitol the capital levels, particularly at the larger institutions, are correct and there is no need to increase or decrease them and you tell us that it should reflect that just out of curiosity, tell me when you say about the buttress right that with the data helps me understand what it looks like to say this means about the right, well, the capital levels are much higher and the quality of our capital. is much higher, well that is undoubtedly, but I think we all agree that during the crisis or before the crisis the correct capital levels were not adequate, so saying that they are higher is not definitive in terms whether they are too high. they are still too low, are they more or less correct?
What is used to indicate that this is the correct level of capital? Well, stress testing, you look at the stress test and you know that it returns a scenario that is equivalent or maybe even one. a little bit stronger than what happened during the global financial crisis and, you see, do these institutions have the means to remain reasonably well capitalized and well enough capitalized to still have confidence that the markets are correct? That's really the question. I have to be above certain minimums. and they do, yes, but not by a giant margin. It doesn't suggest that equity is too high, it suggests that it's okay and stress testing is probably a great test for that.
Yeah, so I think you could see how it could be. It is worrying for institutions that feel trapped in a kind of circular logic. We come up with these stress tests and then if they clear the stress bar, then we think it's right, it's exactly right, without going back and changing some of the underlying factors that go into the stress test, you can always say it's right. , you can always say, as long as they get over the bar, that okay, no matter what the bar is, they want to go back and just look under the hood and say, Oh my gosh, These assumptions still correct the way we've done these stresses.
Is it the correct way to do it? So maybe in a relative sense yes, it is higher, the capital is higher than the stress tests have indicated, but in an absolute sense, we are not. asking the question is whether this test is the right thing to do and whether we are doing this test correctly and it includes all the right variables and I think that's what they're looking for is simply more clarification on when we can expect that comprehensive review that the Federal Reserve does. that we're talking about for so long. I think we've been doing that all the time, we had a conference on stress testing last summer with internal and external experts, you know, academics, people from the banks, we're doing that all the time, everything we do with stress tests is, you know, transparent public to comment on things like that, maybe not ex ante, but people can look back, not like we haven't adjusted this, trust us, gentleman from Massachusetts , Mrs.
Wesley is recognized for five minutes, thank you Madam President and I also want to thank the activists in the room who have been organizing for a more responsive party. I know the rights-of-care organizer brought it up to me that activism will be a full-time job. And so we thank you for taking it on and I think the president for testifying before the committee today just like with the Fed now, the decisions you make impact workers every day, your decisions impact how many jobs we have, who has what jobs, how many. Who gets paid and who is hurt most when unemployment is high?
In the past you have said that we want prosperity to be widely shared. We need policies to make that happen; However, the feds' approach has never succeeded in ensuring that there are enough good-paying jobs available for everyone who wants to work even for a short time. In a 1944 speech, FDR called for a second Bill of Rights that would include the right to a useful and financially rewarding work. Justice Thurgood Marshall argued that the right to a job is guaranteed by the Fourteenth Amendment and Martin Luther King Dr. King called on the government to guarantee a job to all people who want to work and can do so dr.
King's legacy is often reduced to a single speech and the march on Washington is often mischaracterized. The march on Washington was actually the march on Washington for jobs and freedom. It was a march for economic justice. In fact, King and Coretta met in Boston. I represent Boston and I do not believe she received enough oxygen for the role she played in the movement and therefore after dr. The Assassination of King Coretta Scott King took it upon himself to pressure the Federal Reserve to adopt a full employment mandate and actually stood behind President Carter when he signed the Humphrey-Hawkins Act and that is why you are here today, for reasons of time.
If you allow me to answer as succinctly as possible, yes or no, mr. President, given persistent concerns about inflation, do you believe the Federal Reserve can achieve full employment? And by full employment I mean that anyone who wants to work and can work will have a job available first. Thanks for that story. I didn't know. So that's our goal, that's what we're working towards all the time and I think you know we'll never say we've achieved that goal, but we certainly made some progress. I'll take that as a yes. Federal job guarantees succeed where the Federal Reserve has no yes or no.
It's difficult to answer. Do you mean I don't know? I'm guaranteeing a job. That's the story I was providing. I did it, but anyone who wants to work. and is capable of working well, so by all indications the US economy has been producing well below its potential for eight of the last ten years and for most of the previous decade, is it true that during For most of that period unemployment has been well above target, while we have almost never seen inflation above target, that's true, okay, meanwhile, black unemployment remains twice as high as the of the white.
Now the Fed started raising rates in 2016 even though inflation was still below target and when rates rise, unemployment tends to rise as well. Did you consider the Federal Reserve? how increasing rates would disproportionately affect those who were already struggling to get a job, like communities of color, formerly incarcerated people, our immigrant neighbors, so I would say unemployment has continued to decline quite a bit significant since we started raising rates in late 2016, actually late '15, but did the Fed again consider how raising rates would disproportionately affect those who were already struggling to secure employment? I think our consideration was really that the right thing to do was to get monetary policy back on track to a place where it reflected an economy that had recovered quite a bit for the benefit of all people, including low- and moderate-income people, including mine, a lot of people.
It is still recovering, but in the interest of time, given that there has been no sign of the economy. has overheated since then and is now reducing raids, is it possible that it started reducing rates too soon? I think history will judge that we have to make decisions in real time, although we have really learned something since then and that is that unemployment can be lower and then most people thought about cellular inflation, so taking that into account , knowing what you know, would you still have supported raising interest rates when the Fed did? I supported him then and, looking back in 2020, I think you have to judge those decisions. about what we knew at the time, how many Americans are employed today if the Federal Reserve had not raised rates in the last three years.
I don't know where the minimum of 50 years is. I'd say that's a fair question, thank you, thank you. I would like to thank Chairman Powell for his unchallenged testimony today. All members have five legislative days to submit additional written questions for witnesses to the President, which will be forwarded to the President for his response. I asked him to respond as soon as possible. may, without objection, all members will have five legislative days to submit superfluous materials to the president for inclusion in the minutes. Thank you all and this hearing is suspended.

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