[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE ECONOMIC OUTLOOK:
THE VIEW FROM THE FEDERAL RESERVE
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, D.C., NOVEMBER 14, 2019
__________
Serial No. 116-17
__________
Printed for the use of the Committee on the Budget
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available on the Internet:
www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
36-976 WASHINGTON : 2020
COMMITTEE ON THE BUDGET
JOHN A. YARMUTH, Kentucky, Chairman
SETH MOULTON, Massachusetts, STEVE WOMACK, Arkansas,
Vice Chairman Ranking Member
HAKEEM S. JEFFRIES, New York ROB WOODALL, Georgia
BRIAN HIGGINS, New York BILL JOHNSON, Ohio,
BRENDAN F. BOYLE, Pennsylvania Vice Ranking Member
RO KHANNA, California JASON SMITH, Missouri
ROSA L. DELAURO, Connecticut BILL FLORES, Texas
LLOYD DOGGETT, Texas GEORGE HOLDING, North Carolina
DAVID E. PRICE, North Carolina CHRIS STEWART, Utah
JANICE D. SCHAKOWSKY, Illinois RALPH NORMAN, South Carolina
DANIEL T. KILDEE, Michigan KEVIN HERN, Oklahoma
JIMMY PANETTA, California CHIP ROY, Texas
JOSEPH D. MORELLE, New York DANIEL MEUSER, Pennsylvania
STEVEN HORSFORD, Nevada DAN CRENSHAW, Texas
ROBERT C. ``BOBBY'' SCOTT, Virginia TIM BURCHETT, Tennessee
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
PRAMILA JAYAPAL, Washington
ILHAN OMAR, Minnesota
ALBIO SIRES, New Jersey
SCOTT H. PETERS, California
JIM COOPER, Tennessee
Professional Staff
Ellen Balis, Staff Director
Dan Keniry, Minority Staff Director
CONTENTS
Page
Hearing held in Washington D.C., November 14, 2019............... 1
Hon. John A. Yarmuth, Chairman, Committee on the Budget...... 1
Prepared statement of.................................... 3
Hon. Steve Womack, Ranking Member, Committee on the Budget... 5
Prepared statement of.................................... 6
Hon. Jerome H. Powell, Chair, Board of Governors of the
Federal Reserve System..................................... 8
Prepared statement of.................................... 12
Hon. Sheila Jackson Lee, Member, Committee on the Budget,
statement submitted for the record......................... 54
Hon. Tim Burchett, Member, Committee on the Budget, questions
submitted for the record................................... 57
Hon. Janice D. Schakowsky, Member, Committee on the Budget,
questions submitted for the record......................... 58
Hon. Jimmy Panetta, Member, Committee on the Budget,
questions submitted for the record......................... 59
Hon. Ilhan Omar, Member, Committee on the Budget, questions
submitted for the record................................... 60
Answers to questions submitted for the record................ 61
THE ECONOMIC OUTLOOK: THE VIEW FROM THE FEDERAL RESERVE
----------
THURSDAY, NOVEMBER 14, 2019
House of Representatives,
Committee on the Budget,
Washington, D.C.
The Committee met, pursuant to call, at 10:00 a.m., in Room
210, Cannon House Office Building, Hon. John A. Yarmuth
[Chairman of the Committee] presiding.
Present: Representatives Yarmuth, Moulton, Jeffries,
Higgins, Boyle, Khanna, DeLauro, Price, Schakowsky, Kildee,
Panetta, Morelle, Horsford, Scott, Jackson Lee, Lee, Jayapal,
Sires, Peters, Cooper; Womack, Woodall, Johnson, Smith, Flores,
Holding, Stewart, Norman, Hern, Roy, Meuser, Crenshaw, and
Burchett.
Chairman Yarmuth. The hearing will come to order.
Good morning, and welcome to the Budget Committee's hearing
on The Economic Outlook: The View from the Federal Reserve.
Thank you, Chair Powell, for coming to our Committee today
to testify on the economy. We know you are on a tight schedule,
and in order to keep you on schedule, I am sure that all--and
ensure that all Members have an opportunity to ask questions, I
ask unanimous consent to deviate from the five-minute rule.
Members will be recognized during the question and answer
session for three minutes.
Without objection, so ordered.
And the Ranking Member and I will be recognized for five
minutes during the question and answer session, instead of 10.
Without objection, so ordered.
Per agreement with the Ranking Member, we will reduce our
time for opening remarks, and we will both be recognized for
three minutes.
I now yield myself three minutes, which I will not use.
But once again, Chair Powell, thank you for being here. It
is been seven years since the Chair of the Federal Reserve has
appeared before this Committee, and we are very grateful for
your being willing to do that.
And I want to say at the outset, I am going to submit my
written testimony for the record to save time. But I also want
to make sure you know that we wholeheartedly support the Fed's
independence, and the President's repeated attacks on this
critical institution are unacceptable and dangerous.
So I look forward to hearing your testimony on the state of
our economy and discussing what opportunities Congress and the
Fed have to support our workers and foster a healthy and
sustainable economy that works for all Americans.
With that, I yield to the Ranking Member.
[The prepared statement of Chairman Yarmuth follows:]
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Mr. Womack. I thank the Chairman. And, Mr. Chairman, it is
a great honor to have you before this Committee. As the
Chairman of the Committee has said, it has been many years
since the Reserve Chairman has been here, and we are delighted
to have you.
I too will submit my opening comment for the record so that
we can expedite matters, hear your opening comments, and get to
the Q&A.
But once again, welcome. I yield back.
[The prepared statement of Steve Womack follows:]
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Chairman Yarmuth. I thank the Ranking Member.
And if any other Members have opening statements, they may
submit those in writing for the record as well.
Once again, Chair Powell, thank you for being here this
morning. The Committee has received your written statement, and
it will be made part of the formal hearing record.
You will now have 10 minutes to give your oral remarks, and
may begin when you are ready.
STATEMENT OF THE HON. JEROME H. POWELL, CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you very much, Chairman Yarmuth and
Ranking Member Womack, and Members of the Committee. I
appreciate the opportunity to testify before you today. Let me
start by saying that my colleagues and I strongly support the
goal of maximum employment and price stability that Congress
has set for monetary policy. We are committed to providing
clear explanations about our policies and actions. Congress has
given us an important degree of independence so that we can
effectively pursue our statutory goals based on facts and
objective analysis. We appreciate that our independence brings
with it an obligation for transparency and accountability.
Today I will discuss the outlook for the economy and for
monetary policy.
The U.S. economy is now in the 11th year of this expansion,
and the baseline outlook remains favorable. Gross domestic
product increased at an annual pace of 1.9 percent in the third
quarter of this year after rising at around a 2.5 percent rate
last year and in the first half of this year. The moderate
third quarter rating is partly due to the transitory effect of
the UAW strike at General Motors. But it also reflects weakness
in business investment, which is being restrained by sluggish
growth abroad and by trade developments. These factors have
also weighed on exports and on manufacturing this year. In
contrast, household consumption has continued to rise solidly,
supported by a healthy job market, rising incomes, and
favorable levels of consumer confidence. And reflecting the
decline in mortgage rates since late 2018, residential
investment turned up in the third quarter following an extended
period of weakness.
The unemployment rate was 3.6 percent in October, near a
half-century low. The pace of job gains has eased this year but
remains solid. We had been expecting some slowing after last
year's strong pace. At the same time, participation in the
labor force by people in their prime working years has been
increasing. Ample job opportunities appear to have encouraged
many people to join the workforce and others to remain in it.
This is a very welcome development.
The improvement in the jobs market in recent years has
benefited a wide range of individuals and communities. Indeed,
recent wage gains have been the strongest for lower paid
workers. People who live and work in low- and middle-income
communities tell us that many who have struggled to find work
are now getting opportunities to add new and better chapters to
their lives. Significant differences, however, do persist
across different groups of workers and different areas of the
country. Unemployment rates for African Americans and Hispanics
are still well above the jobless rates for Whites and Asians,
and the proportion of people with a job is lower in rural
communities.
Inflation continues to run below the Federal Open Market
Committee's symmetric 2 percent objective. The total price
index for personal consumption expenditures increased 1.3
percent over the 12 months ending in September, held by
declines in energy prices. Core PCE inflation, which excludes
food and energy prices and tends to be a better indicator of
future inflation, was 1.7 percent over the same period.
Looking ahead, my colleagues and I see a sustained
expansion of economic activity, a strong labor market, and
inflation near our symmetric 2 percent objective as most
likely. This favorable baseline outlook partly reflects the
policy adjustments that we have made to provide support for the
economy. However, noteworthy risks to this outlook remain. In
particular, sluggish growth abroad and trade developments have
weighed on the economy and pose ongoing risks. Moreover,
inflation pressures remain muted, and indicators of longer term
inflation expectations are at the lower end of their historic
ranges. Persistent below-target inflation could lead to an
unwelcome downward slide in longer term inflation expectations.
We will continue to monitor these developments and assess their
implications for U.S. economic activity and inflation.
We will also continue to monitor risks to the financial
system. Over the past year, the overall level of
vulnerabilities facing the financial system has remained at a
moderate level. Overall, investor appetite for risk appears to
be within a normal range, although it is elevated in some asset
classes. Debt loads of businesses are historically high, but
the ratio of household borrowing to income is low relative to
its pre-crisis level and has been gradually declining in recent
years. The core of the financial system appears resilient, with
leverage low and funding risk limited relative to the levels of
recent decades. At the end of this week, we will be releasing
our third semiannual Financial Stability Report, which shares
our detailed assessment of the resilience of the U.S. financial
system.
Turning to monetary policy. Over the past year, weakness in
global growth, trade developments, and muted inflation
pressures have prompted the FOMC to adjust its assessment of
the appropriate path of interest rates. Since July, the
Committee has lowered the target range for the federal funds
rate by three-quarters of a percentage point. And these policy
adjustments put the current target range at 1\1/2\ to 1\3/4\
percent.
The Committee took these actions to help keep the U.S.
economy strong and inflation near our 2 percent objective and
to provide some insurance against ongoing risks. As monetary
policy operates with a lag, the full effects of these
adjustments on economic growth, the job market, and inflation
will be realized over time. We see the current stance of
monetary policy as likely to remain appropriate as long as
incoming information about the economy remains broadly
consistent with our outlook of moderate growth, a strong labor
market, and inflation near our symmetric 2 percent objective.
We will be monitoring the effects of our policy actions
along with other information bearing on the outlook as we
assess the appropriate path of the target range for the fed
funds rate. Of course, if developments emerge that cause a
material reassessment of our outlook, we would respond
accordingly. Policy is not on a preset course.
The FOMC is committed to ensuring that our policy framework
remains well positioned to meet our statutory goals. We believe
that our existing framework has served us well. Nonetheless,
the current low interest rate environment may limit the ability
of monetary policy to support the economy. We are currently
conducting a public review of our monetary policy strategy,
tools, and communications, the first review of its kind for the
Fed. With the U.S. economy operating close to maximum
employment and price stability, now is an especially opportune
time to conduct such a review.
Through our Fed Listens events around the country, we have
been hearing a diverse range of perspectives, not only from
academic experts, but also from representatives of consumer,
labor, business, community, and other groups. We will draw on
these insights as we assess how best to achieve and maintain
maximum employment and price stability. We will continue to
report on our discussions in the minutes of our meetings and
share our conclusions when we finish the review, likely around
the middle of next year.
In a downturn, it will also be important for fiscal policy
to support the economy. However, as noted in the CBO's recent
long-term budget outlook, the federal budget is not on--sorry--
is on an unsustainable path, with high and rising debt. Over
time, this outlook could restrain fiscal policymakers'
willingness or ability to support economic activity during a
downturn. In addition, I remain concerned that high and rising
federal debt can, in the longer term, restrain private
investment and thereby reduce productivity and overall economic
growth. Putting the federal budget on a sustainable path would
aid the long-term vigor of the U.S. economy and help ensure
that policymakers have the space to use fiscal policy to assist
in stabilizing the economy if it weakens.
I will conclude with just a couple of words on the
technical implementation of monetary policy. In January, the
FOMC made the key decision to continue to implement monetary
policy in an ample-reserves regime. In such a regime, we will
continue to control the federal funds rate primarily by setting
our administered rates and not through frequent interventions
to actively manage the supply of reserves.
In the transition to the efficient and effective level of
reserves in this regime, we slowed the gradual decline in our
balance sheet in May, and we stopped it in July. And in
response to funding pressures in money markets that emerged in
mid-September, we decided to maintain a level of reserves at or
above the level that prevailed in early September. To achieve
this level of reserves, we announced in mid-October that we
would purchase Treasury bills at least into the second quarter
of next year and would continue temporary open market
operations at least through January. These actions are purely
technical measures to support the effective implementation of
monetary policy as we continue to learn about the appropriate
level of reserves. They do not represent a change in the stance
of monetary policy.
Thank you. I will look forward to our discussions.
[The prepared statement of Jerome H. Powell follows:]
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Chairman Yarmuth. Thank you very much for your statement.
We will now begin our question and answer session. As a
reminder, Members can submit written questions to be answered
later in writing. Those questions and Mr. Powell's answers will
be made part of the formal hearing record. Any Members who wish
to submit questions for the record may do so within seven days.
As we normally do, the Ranking Member and I will defer our
questions until the end.
We will just admonish all the Members that I will not be my
normal accommodating self with the gavel. We are going to try
to keep pretty strictly to the time limits so that we can get
Mr. Powell out of here during--he has got a hard stop at noon.
So with that, I now recognize the gentleman from
Massachusetts, Mr. Moulton, for three minutes.
Mr. Moulton. Chair Powell, thank you very much for joining
us here. We share your interest in continuing this 11-year
economic expansion, but we also have some concerns. And one of
my concerns--I will be the first to say it--is that we in
Congress have not been good partners in doing our part. You
just mentioned that you are concerned about the high and rising
federal debt and the fact that, in the long term, it could
restrain private investment and thereby reduce productivity and
overall economic growth.
It is atypical to increase deficits, as we are now doing,
during a prolonged economic expansion. However, according to
the CBO, the Tax Cuts and Jobs Act, which primarily benefited
wealthier Americans and corporations, added $1.9 trillion to
the deficit over 10 years.
Now, of course, Republicans claimed that this would lead to
increased business investment, yet you testified that moderate
third quarter GDP growth, quote, reflects weakness in business
investment, which is impacted by sluggish growth abroad and
trade developments. I am hoping you can elaborate on what you
mean by ``trade developments.''
Mr. Powell. Trade developments. Well, first of all, let me
say that we have no responsibility for trade policy, and no one
should think of us as commenting on trade policy or giving
anyone advice on trade policy. It is not our role. We have a
very narrow role. We try to stick to that. But our role is the
U.S. economy and supporting maximum employment, stable prices.
And to do that, anything that could affect our achievement of
those goals is, in principle, relevant for monetary policy.
So we have been hearing for the last year and a half really
from businesses that uncertainty around trade policy, and to
some extent tariffs, have been weighing on business sentiment.
So that is really what I am referring to there.
Mr. Moulton. Chair Powell, yesterday you also discussed
policies and programs that could bring discouraged workers back
into the workforce to address the fact that, despite our
growth, we still have lagging workforce participation. We are
currently at 63.3 percent. And you mentioned mothers returning
to the workforce after their children grow up.
As a father of a one-year-old, who is here with me in
Washington today because my wife is on a business trip to
Dallas, I wondered if you could talk about the value of paid
family leave to ensure that women who want to work while they
are raising children can do so.
Mr. Powell. So labor force participation is a very
important issue for the United States that needs urgent--urgent
attention. We do lag other comparable countries, essentially
all of them now, in labor force participation. And I can point
you to research. I can talk about institutional differences.
But it really is not appropriate for me to evaluate or support
particular policies.
Remember, we are not elected by anyone. We have been given
a specific mandate. And I think it is really up to----
Mr. Moulton. Well, let's just answer the question. Would
paid family leave help increase workforce participation?
Mr. Powell. So there is--there is research that shows that
those kinds of policies that support childcare and family leave
in other countries have supported higher participation among
women in the workforce.
Mr. Moulton. Thank you very much, Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Ohio, Mr. Johnson, for
three minutes.
Mr. Johnson. Thank you, Mr. Chairman and Ranking Member
Womack, for holding this important hearing. And, Chairman
Powell, thank you for being here today.
You know, as the representative for eastern and
southeastern Ohio, I am very concerned about the consequences
of our growing national debt and what that will have on the
economic security and quality of life for our children and
grandchildren.
The publicly held debt has averaged 42 percent of gross
domestic product over the last 50 years. It is now at 79
percent of GDP. Within three decades, the Congressional Budget
Office projects that it will reach 144 percent of GDP, which
would be by far the highest level in American history.
So, Chairman Powell, in your view, is the federal budget
outlook sustainable?
Mr. Powell. I think I would define sustainable as that the
debt is not growing faster than the economy. Our debt is
growing faster than our economy by a margin. And so I think by
definition that makes it unsustainable.
Mr. Johnson. Okay. Can the debt continue to indefinitely
grow as a percentage of GDP? At what point do we reach that
tipping point where we are unrecoverable?
Mr. Powell. That is not a question to which there really is
an answer, the specific tipping point. There is really--there
is examples of countries that have much higher levels.
What you do know is that over time, as the debt builds up,
you will be spending more and more--or more accurately, our
children and grandchildren will be spending more of their tax
dollars to pay for interest on the borrowing that we have done
as opposed to the things they need: education, healthcare,
security.
Mr. Johnson. Well, you answered my next question actually
in your first response. What is the appropriate way to measure
budget sustainability? And that is when your economy is growing
faster than your debt, not the other way around. So I will skip
that question.
So if the federal budget outlook is unsustainable--and I
think we have established that it is--what challenges does this
pose for the U.S. economy?
Mr. Powell. So I would stress, these are longerterm
challenges. And I think, ultimately, we will have no choice but
to get on a sustainable path. You don't have to pay down the
debt, you don't have to balance the budget; what you have to do
is have an economy that is growing faster than the debt, and
you have to do that for 10 or 20 years. That is how you
successfully handle this, other countries have--how we have
handled it in the past. And if you don't do it, then you will--
over time, not this year or next year--but over time, you will
be crowding out private investment and things like that.
Mr. Johnson. Okay. Mr. Chairman, I yield back a whole 18
seconds.
Chairman Yarmuth. I thank the gentleman.
I now recognize the gentleman from New York, Mr. Jeffries,
for three minutes.
Mr. Jeffries. Thank you, Mr. Chairman.
Thank you, Chairman Powell, for your presence and your
leadership as it relates to the monetary aspects of the U.S.
economy.
Is it fair to say that the manufacturing economy fell into
a recession in the first half of this year?
Mr. Powell. Yes. Well, in the sense that manufacturing
output has declined over the course of this year.
Mr. Jeffries. And in connection with that manufacturing
recession that we are currently in, based on technical terms,
have the trade developments here in the United States that you
have made reference to in your opening statements contributed
to that recession?
Mr. Powell. I think we would assess that there are a number
of factors that are contributing to it. Trade is one of them.
It is certainly not the whole story. The others would include
just slowdown in global growth around the world, which is
itself caused by a number of factors.
Mr. Jeffries. And as it relates to the trade developments,
is it fair to say that those developments particularly include
the ongoing conflict and the retaliatory tariffs being imposed
by the United States and China on each other?
Mr. Powell. So that is our assessment and the assessment of
many other analysts, that those developments are weighing on
manufacturing activity.
Mr. Jeffries. Is there reason to believe that the
manufacturing recession that we are currently in could actually
present a risk of spilling over into the entirety of the
economy?
Mr. Powell. That is a risk that we monitor very carefully.
We don't see that yet. The 70 percent of the economy that is
the consumers is healthy, with high confidence, low
unemployment, wages moving up, very low unemployment, labor
force participation. That is what is driving our economy now,
and it seems to be continuing to do so. But we monitor that
very carefully.
Mr. Jeffries. Now, as it relates to potential adverse
impacts on consumer spending, to the extent that consumer goods
have increased--and I believe there is some evaluations that
have suggested that the average American family is now paying
at least $1000 more than they had prior to this retaliatory
tariff approach to policy, that if that trend were to continue,
is there a risk that the increased cost to consumers in paying
for goods could adversely impact confidence, which could then
obviously hurt the economy?
Mr. Powell. It is certainly possible. The amount of tariffs
that have been put on our economy and that are now flowing
through are not that large in relation to the overall economy.
The ones--some of the ones that are proposed, it just gets
larger and larger that haven't been put into effect. If you put
them all into effect, that would have a bigger effect on the
overall economy. But remember, trade policy uncertainty itself
is a separate channel through which trade does affect the
economy.
Mr. Jeffries. Thank you.
Mr. Chair, I yield back 11 seconds.
Chairman Yarmuth. I thank the gentleman as well.
I now yield three minutes to the gentleman from Missouri,
Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman.
Our country is in a period of remarkable economic growth.
The policies of President Trump and the previous Republican-led
Congress made a bet on the American workers who make up the
strongest and hardest working workforce in the world. But it
concerns me when we see other countries, our competitors,
continuing to attract investment at lower or zero percent
rates. We need to ensure our monetary policy bets on our
workers as well.
Since President Trump's election, the United States has
made waves. We have the lowest unemployment in 50 years, with
black and Hispanic unemployment at record lows, 6.4 million new
jobs have been created, wages are growing, and President
Trump's deregulation efforts have saved the average American
family $3,100 in household income. We must promise to continue
enacting both fiscal and monetary policy that works for folks
back home.
Would you agree that during the last three years, our
country has seen economic advances that help low-income
Americans?
Mr. Powell. Yes. I do think that as this expansion has
continued, we have started to see people at the lower end of
the wage scale get the bulk of the benefits, and that is a
great thing to see.
Mr. Smith. I think in your testimony, you made the comment
that low and middle income wage growth was pretty significant
in our economy over the last couple of years. Is that correct?
Mr. Powell. Yes. So it is been--we are in our 11th year of
this now. And so in the 9th and 10th and 11th year, we are
seeing that. And, again, it is a very positive thing to see.
Mr. Smith. So you said 11 years. The 9th, 10th, and 11th.
Are those the most significant increases in the 9th, 10th, and
11th?
Mr. Powell. Yes. In fact, what has happened is, as the
labor market has tightened, you are seeing more job openings
than there are unemployed people. You are seeing historically
tight labor markets now. And one of the effects that can be
seen in that situation is that companies start to raise the
wages not just of those at the top, but all the way through the
income spectrum. Again, a very positive development.
Mr. Smith. That is good. Also a common similarity of the
9th, 10th, and 11th year is a Trump Presidency in those three
years has been the common theme as well, with economic policies
that have helped with the largest tax cut in the history of the
United States, which was passed by the House Republican
Congress and Donald Trump, along with the most deregulation
that any President has ever had in the history of this nation.
So it is good to see that those policies are in effect there.
The Federal Reserve Board has proposed changing its
Comprehensive Capital Analysis and Review stress test program
and indicated the new rule would be in place for the 2020 test.
So far, however, no changes have been proposed. Can you provide
a status update on the stress capital buffer proposal and
whether or not it will be ready for the 2020 stress test?
Mr. Powell. So we are working on it, and that is still our
intention.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from New York, Mr. Higgins,
for----
Mr. Higgins. Thank you, Mr. Chairman.
Just for the record, the past three years, the national
debt has increased from $19 trillion to $22 trillion. That
means that $3 trillion has been added to the national debt
since Mr. Trump has been President.
Mr. Chairman, the White House Council of Economic Advisors
put out a report upon passage of the 2017 corporate tax cut
saying that every American family would receive an increase in
household income, recurring increasing household income between
$4,000 and $9,000. Is there any evidence that that has actually
occurred from the tax cut?
Mr. Powell. I haven't looked at that precise question. That
is something CBO would be very well equipped to do.
Mr. Higgins. Well, if the White House Council of Economic
Advisors puts out a report like that, I would think that, you
know, the Fed would want to monitor the progress that is made
there.
Is the United States economy, is it growing--is it
currently growing at a rate that is higher than interest rates?
Mr. Powell. Higher than interest rates? Well, actually, so
the long term--it is about the same. If you think about the
long-term sovereign rate of the United States, it is roughly
equivalent to the growth rate right now.
Mr. Higgins. What would an investment--you know,
conservative economist Mark Zandi from Moody's Analytics
indicates that for every dollar that the federal government
gave away in the corporate tax cut, it regained 32 cents. So
that is a loss of investment of 68 percent. Whereas, if you
invested that in infrastructure, for every dollar that you
invest in infrastructure, you would get back in economic growth
about a buck-60, which would give you a return on investment of
60 percent.
Given the fact that interest rates are low and economic
growth is lower than we had hoped for, would it not make time--
wouldn't now be the time to make a major investment in
transportation infrastructure?
Mr. Powell. Well, I would say infrastructure well financed
and well thought through, infrastructure can contribute, over
long periods of time, productivity and can be a great thing for
countries to do, including the United States.
Mr. Higgins. Would low interest rates, couldn't--even if
you deficit financed infrastructure, given the return on
investment, wouldn't that wipe out what you--what you borrow to
produce that growth?
Mr. Powell. So those are the kind of questions that are
really your job and not ours. I wouldn't want to comment on how
you finance it. But I would just say infrastructure spending in
general is something that can contribute to the economy and it
is something that I think would be very healthy for our
economy.
Mr. Higgins. I yield back.
Chairman Yarmuth. I thank the gentleman.
I now recognize the gentleman from Texas, Mr. Flores, for
three minutes.
Mr. Flores. Thank you, Mr. Chairman.
Chairman Powell, thank you for joining us today to talk
about the importance of fiscal responsibility. Over the past
several years, as you have talked about in your testimony, the
spending increases by the federal government have increased
substantially. At the same time, our growth in federal revenues
has been slower. That said, we have had growth in federal
revenues after the tax cuts bill. 2019 is higher than 2018, and
2019 is also higher than fiscal 2017.
As you know, the interest on the debt alone is on pace to
exceed $800 billion by 2029, and that is more than we currently
spend on either defense discretionary or non-defense
discretionary. Our spending habits leave Congress with little
room to maneuver in the face of a fiscal downturn. So we have
tools--when we get into a fiscal downturn, you have tools that
you can use in the case of an economic downturn. But to the
extent that the deficit keeps growing and Congress keeps
failing to act on this, what does that do to the tool set that
the Federal Reserve has to deal with economic downturns?
Mr. Powell. So our tool set really is--the issue we face is
just it is a much lower interest rate environment. We have less
room to cut. We used tools other than lowering interest rates
during the financial crisis. Some of those tools we think would
work in future situations when we are at the zero lower bound,
but fiscal policy has always played a very important role in
significant downturns through automatic stabilizers and
sometimes through discretionary fiscal policy.
And as I pointed out in my remarks, over time--not, you
know, sort of for the near term, but over time--less fiscal
policy space is going to make it harder for Congress and make
Congress less willing to take steps to support the economy at
times when that is needed.
Mr. Flores. Right. I am going to submit a question for the
record to ask you what you think are exogenous factors that
could surprise us and adversely affect the economy. We will do
that for the record.
The Federal Reserve had to engage in some substantial
repurchase market activities beginning in mid-September, and
then you were actively--the Fed was actively involved early
this week. Can you tell us what is causing the liquidity issues
that are causing the Fed to intervene? You said they are
technical, and I am not disputing that, but I am just
wondering. Can you tell us what is underneath that that is
causing that activity?
Mr. Powell. Sure. I want to stress that these are not
things that will affect economic outcomes or----
Mr. Flores. Right, and I am not implying that. I am not
trying to say that. I think you are trying to do the right
thing. I just need to know what is causing it underlying.
Mr. Powell. So one big thing is we have been allowing the
balance sheet to decline in size, and we stopped that process
back in July. And, really, it comes down to the supply of
reserves which are something that we create. And we surveyed
all the banks and said, how much--what is your lowest
comfortable level of reserves. We added that up, we put a
buffer on top of it, and we felt we probably were well above
the level of scarcity.
And then, in early September, we had a situation where the
liquidity--you know, where banks had much more liquidity than
they said they needed, and yet it didn't flow into the repo
market where rates had gone up quite a bit. It would have been,
you know, a nice return for them. They didn't do that. So we
are doing a lot of forensic work to understand why. Some of
that may be reserve, just the level of reserves needs to be
higher than we thought, which means our balance sheet a little
bigger. There may also be aspects of our supervisory and
regulatory practice that we can look at that would allow the
liquidity that we have, which we think is the appropriate
level, to flow more freely in the system without, though,
undermining safety and soundness.
Mr. Flores. Thank you. I will follow up on that as you
finish your studies. I yield back.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Pennsylvania, Mr. Boyle,
for three minutes.
Mr. Boyle. Thank you.
Chair Powell, thank you as well. It is said that history
doesn't repeat itself, but it does rhyme. And I am increasingly
reminded by something that your predecessor, I think three
predecessors ago, said in the late 1990s, coined the phrase
``irrational exuberance.'' And the reason why I am increasingly
thinking about that is because Chairman Greenspan used that
phrase to describe what was going on at the time in the late
1990s in terms of the view of markets constantly going up and
the business cycle perhaps, you know, finally being solved. And
I am increasingly hearing that now, 20 years later, that we are
10 years into this economic expansion, and that perhaps the
normal business cycle of expansion and recession would not
follow through. I have to say I am very skeptical of that view.
And so I am curious about what your thoughts are and
specifically what your outlook is over the next 24 months,
whether or not this record long expansion is likely to
continue.
Mr. Powell. These long expansions that we are having now
are a characteristic of the last 30, 40 years, and we think
that really is because we are no longer facing high and
volatile inflation. So the business cycles used to end when
inflation would get out of control, and the Fed would raise
rates to get inflation back under control, and you would have a
business cycle. So that has not been happening, really, for
more than a quarter of a century.
So what we have seen is three of the four longest business
cycles in U.S. recorded history have been quite recent. So we
are seeing that, and if you look at today's economy, there is
nothing that is really booming that would want to bust, in
other words. It is a pretty sustainable picture. I pointed out
the risks, and those are in manufacturing. Manufacturing is
declining but not sharply. Manufacturing is more sensitive
economically to cycles, so it does decline, so----
Mr. Boyle. This is perhaps a good segue to the report that
the Philadelphia Federal Reserve, the Philly Fed, which I am
proud to represent and play such an important role in the
overall Federal Reserve system. The report that they released
about a week or two ago citing declines in job numbers in a
number of states, including in my own Pennsylvania, obviously
that report is quite concerning. Could you speak to that as
well and what it possibly presents for 2020 and beyond?
Mr. Powell. I do not know what you are referring to when
you say declines in jobs. I mean, I know----
Mr. Boyle. Last quarter, the Philadelphia Federal Reserve
got some media attention released a report, and perhaps I can
submit this question to you written and get a reply, but the
report that they released showing a decline in jobs in
Pennsylvania, Michigan, West Virginia, as well as four other
states.
Mr. Powell. Okay. Yeah. I would just say at the national
level, you know, the employment report for October was very
solid nationally, but there are--that will vary State to State.
I did see that.
Mr. Boyle. Thank you.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from North Carolina, Mr.
Holding, for three minutes.
Mr. Holding. Thank you.
Chairman Powell, we are currently in the final negotiations
for the U.S.-Mexico-Canada agreement, and according to the
International Trade Commission, USMCA would create more than
170,000 new jobs and would increase GDP by about $70 billion.
So, hopefully, Congress will come together here in the near
term and swiftly pass this important agreement.
We all know that free trade has dramatically changed
economies all over the world, and the world's financial markets
have become more intertwined and integrated. And it is my
belief that if the United Kingdom exits the European Union, we
will have a unique opportunity to forge an ideal trade
agreement with the United Kingdom. Both of our economies are
mature, and we wouldn't be burdened with some of the issues
that are holding up USMCA. And this would also be an opportune
time to further integrate our financial markets. I am sure you
know the United Kingdom and the United States have the largest
capital markets, the most important capital markets in the
world.
So given, the shared importance of this sector, I believe
that smoothing transactions and easing trade between our
financial markets would incentivize billions more in cross-
border investment, which would significantly benefit the U.S.
economy. So, I would be curious to get your thoughts on a
potential U.S.-U.K. trade agreement vis-`-vis capital markets
in the financial sector and the potential growth to our
economy.
Mr. Powell. Let me say I generally share your perspective
that trade can be beneficial to all countries. It can drive
productivity. It can drive rising incomes and prosperity, so
generally free and fair trade is a good thing.
I don't have a view for you on the U.K. trade thing. I
think our capital markets are pretty integrated with the U.K.
already, but between the two of us, we really have a big share
of the global financial markets, and it is important that that
continue.
Mr. Holding. I think, further, one of the reasons we have
such large capital markets and important capital markets is the
United States and the United Kingdom are one of the last
remaining entrepreneurial countries. And so I firmly believe
that the more we yoke ourselves together vis-`-vis financial
services, the more opportunity both of our countries will have.
But thank you for your thoughts.
I yield back.
Chairman Yarmuth. The gentleman yields back.
I now recognize the gentlewoman from Connecticut, Ms.
DeLauro, for three minutes.
Ms. DeLauro. Thank you very much, Mr. Chairman, and
welcome, Chairman Powell. Tax policy is one of the most
important tools that we have to address economic inequality and
to promote gender and racial equity, but today it does too
little. Tax cuts for the wealthy and corporations have played a
role in enabling and, in some instances, encouraging those with
the highest income and the most capital to accumulate outsized
power and wealth.
Some women, and particularly women of color, are less
likely to have wealth for a range of compounding reasons. A tax
code that preferences wealth over work exacerbates rather than
rectifies these disadvantages. Low effective tax rates on the
highest income earners widens pay and power disparities between
executives and poorly paid workers. By preferencing income from
wealth over income from work, including through a lower capital
gains tax rate, the tax code amplifies rather than rectifies
these inequalities. Should we think about restructuring the Tax
Code specifically treating capital gains as wages to close
income inequality?
Mr. Powell. I would say that is a question that is really
not one for us, I am sorry to say. We don't support or oppose
particular fiscal policies. Those are really for elected
Representatives.
Ms. DeLauro. I might also add that there are other
instances with regard to the Tax Code, and I will just put them
on the record, that really encourage predatory financial
practices that impact workers: private equity's role in
corporate bankruptcies, including retail chains like Mervyn's
and Toys R Us. The Tax Code helps to shape how companies
structure their employment, and you have got in the recent TCJA
a 20 percent deduction for certain passthrough income enacted
in that bill, changes the employee-employer relationship,
incentivizes employers to shift workers to independent
contractors, so that the Tax Code, in fact, has a very, very
large impact on income inequality. Let me just ask you that. Is
there an economic case for reducing high levels of inequality,
in your view?
Mr. Powell. You know, I would point to a couple of factors
that I think should be of broad concern. One is the relative
stagnation of median incomes and lower incomes. We want
prosperity to be broadly shared.
The other aspect is low mobility. We think of ourselves,
and proudly so, as a country where anybody can make it to the
top, but the statistics show that people who are born in the
bottom quintile of income or wealth in the United States have
less of a chance to make it to the third quintile or the top
quintile. So these are not issues that the Fed can really work
on, but I think those are important goals that would be, I
think, widely shared.
Ms. DeLauro. I would think that our Tax Code exacerbates
the very point that you have made.
Thank you very, very much, Mr. Chairman. I yield back.
Chairman Yarmuth. The gentlewoman's time has expired.
I now recognize the gentleman from Utah, Mr. Stewart, for
three minutes.
Mr. Stewart. Thank you, Mr. Chairman.
And Chairman Powell, thank you for coming. Seven years is
too long. Let's not go another seven. Please come back before
that. Two hours just isn't enough. Oh, my gosh. I wish I had
two hours with you just myself. There are so many things that
we would like to discuss. I have a degree in economics. I don't
consider myself an economist, but there are many things I would
like to understand that I know you could teach me.
And I am going to make a comment, but I am going to come to
two questions, if I could. And if you don't have time to answer
them, will you please provide a written response because there
are things that I really do want to understand? Just in
general, I want to quote a few sentences from your opening
statement: The U.S. economy is now in the 11th year of
expansion, and the baseline outlook remains favorable: 2.5
percent economic growth last year, 1.9 percent this year.
Again, continuing, household consumption continues to rise
solidly supported by a healthy job market, rising incomes,
favorable levels of consumer confidence, unemployment rate 3.6
percent.
And I could keep going. And the reason I do this, I just
think for the American people, I wish they would take your
opening statement and read it because there is so much
encouraging news there. And for anyone to paint a picture other
than this is a very, very positive economy for the American
people is just nonsense, and we appreciate your contribution to
that.
Now, to my two questions, and they are really just matters
of interest to me. It is not necessarily policy related, but
you also in your opening statement talk about inflation near
the 2 percent objective, and I wish you would explain to us why
it is desirable and why it is the goal of Fed policy to have a
2 percent inflation rate. Why not 1 percent or why not no
inflation? You know, why is that a good thing for our economy?
And the second question is I understand that your mandate
is maximize employment and price stability, and I think that
has been true since your inception, but I know that other goals
have kind of crept in from time to time where there is economic
pressure for these other goals, for example, economic
expansion. And could you address the conflict of whether you
think that is a good thing or a bad thing to have you be maybe
conflicted in what the Fed's policies and their objectives are?
Mr. Powell. So, on the first question, 2 percent as an
inflation target has become the norm for central banks around
the world. It is a pretty stable equilibrium, if you will. And
the reason for that is, if the inflation target is 2 percent,
there is a real return in there too, and that means nominal
interest rates will be around 4 percent. That means we have a
significant, you know, amount to cut in a downturn.
If you were in--if you had a zero target, for example, for
inflation, that would mean that you could be at the zero or
lower bound for interest rates a lot, and what we have found is
that when interest rates get really low, it can be quite sticky
and difficult for economies to escape that. So that is why we
say 2 percent and not zero.
Mr. Stewart. So just so I understand, so it is just to
provide that buffer for deflation or for----
Mr. Powell. Yeah. I think if you look at the evidence of
the last post-crisis, we are the only major economy that has
meaningfully escaped zero.
Mr. Stewart. And my second question, again, if you would
elaborate in writing, I would appreciate it.
And, Chairman, I yield back.
Mr. Powell. You know, we are very committed to our goals,
our statutory goals of maximum employment and price stability.
We think they work, and they work well to serve the American
people, and we don't see any need to change other expand or
shrink them.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Michigan, Mr. Kildee,
for three minutes.
Mr. Kildee. Thank you, Mr. Chairman, and thank you,
Chairman Powell, for being here.
Two points that I would like you to comment on. You know,
we may not agree on everything, but I strongly disagree with
the President of the United States who has at times said that
you are naive. I don't believe you are naive. He has said that
you don't have a clue. You obviously do. He has also said that
he doesn't know who is our bigger enemy, Jay Powell or Chairman
Xi. I do, and I suspect most of the people in this room do, and
we would separate ourselves from the President's obviously
deranged view.
I would like you to offer any opinion you would like on how
helpful it is for the President of the United States to, on
occasion, attack the integrity of the Fed.
My second point, which follows on some of the questions
that have been asked, has to do with the disparity, even if we
acknowledge that, obviously, we have been through a period of
sustained economic growth. We have not seen that growth
experienced uniformly across either the economic spectrum
itself. Most of the benefit has gone to the people at the top
of the economic ladder, nor geographically, and in some places,
unfortunately, are sentenced to be at the bottom of both of
those scales. I happen to represent communities like Flint and
Saginaw and Bay City and others, that both our poor communities
and have been geographically disadvantaged during this period
of economic growth and the last. So I am curious about whether
or not Fed policy can in any way address the regional and
economic disparity or somehow provide support for policy
through information that the Fed can provide to policymakers.
I know that the regional banks, that the Boston, Cleveland,
and Chicago regional banks have all spent a good deal of time
looking at these questions, but I am curious about whether big
Fed would be able to take a look at this question and address
the disparities, both regionally and across the economic
spectrum. Thank you.
Mr. Powell. Great. Thank you. So, on your first point, I am
going to stick with my policy of not commenting other than to
say that it is very, very important that the public understands
that we do our work on a nonpartisan, nonpolitical basis based
on the best thinking, the best analysis. We try to be
transparent and explain ourselves, and we don't take political
considerations in one way or the other. We serve all Americans
in a completely nonpolitical way, and it is important that be
understood.
In terms of the disparities, so I think the monetary policy
is famously a blunt instrument that operates at the national
and international level. We don't have different policies for
different regions, but as I am sure you are aware, based on
your comment, the 12 Reserve banks are deeply rooted in their
communities and do--they perform both a research role and also
kind of a convening role around--we don't spend taxpayer
dollars or give them away or anything like that, but we will
pull together interested groups around issues, regional poverty
issues and things like that, and try to, you know, be a
constructive force for that, and I think that has worked a lot.
I think of the Living Cities project up in the northeast where
we are not spending, you know, taxpayer dollars, but we are
pulling together people who have private dollars around regions
and problems that are important to that region. I think we try
to play a constructive role, and I am proud of that role.
Mr. Kildee. Thank you very much. I yield back.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Pennsylvania, Mr.
Meuser, for three minutes.
Mr. Meuser. Thank you, Mr. Chairman.
Chairman Powell, great having you with us. The U.S. economy
is growing at two times the rate of the eurozone and three
times that of Japan. Our economy is strong. Wages are up. We
have a record low unemployment, as you have described. The Fed
has recently lowered rates from 2.25 to 1.75 with a strong U.S.
economy and inflation remaining below 2 percent. In your view,
would the lowering of the Fed rate postpone or perhaps avoid a
future recession?
Mr. Powell. Well look, I will say that the U.S. economy is
the star economy these days. We are growing at, you know, 2
percent, right in that range, so more than any of the other
advanced economies are growing, and there is no reason to think
that can't continue. There is no reason to think, that I can
see, that probability of a recession is at all elevated at this
time. So our forecast is and our expectation is very much one
of continued moderate growth, a strong labor market, and
inflation, you know, close to our 2 percent objective.
Mr. Meuser. Thank you. The last two expansions were fueled
by rapid growth in key sectors, tech and real estate,
primarily. In retrospect, this proved to be excessive and set
the stage for reversal and a recession. I don't see any such
excesses in this expansion. Do you?
Mr. Powell. I think that is very well said. I think this
expansion is notable for the absence of parts of the economy
that are really hot. For example, a hot housing market where
prices are moving up, and there will eventually be a slowdown.
In the case of the last economic downturn, you know, kind of a
bust of a bubble. So we don't have that. We don't see that in
the real economy. We see a consumer sector that is very strong.
I have talked about manufacturing and export. It's weak, but it
is not sharply turning down. If you look in the financial
markets, it is the same way. We don't have this notable buildup
of leverage broadly across the economy which is troubling from
a financial stability standpoint, so I would say that this
expansion is on a sustainable footing and that we don't see the
kind of warning signs that appear in other cycles yet. Of
course, you never really know, but I would say we watch these
things very carefully, and that is what we are seeing now.
Mr. Meuser. So it seems unique, well balanced, and perhaps
could last and continue for a while?
Mr. Powell. In principle, there is no reason why it can't
last. At the risk of jinxing us, I would say that, in
principle, there is no reason to think, that I can see, that
the probability of an downturn is at all elevated.
Mr. Meuser. Very good. And with competitive interest rates,
improved trade agreements, passing the USMCA, which we are
waiting on, new China agreement improved, where do you see the
GDP going and being sustained?
Mr. Powell. As I mentioned, our outlook is for continued
moderate growth, and you know, I think if you can think of
growth as consisting really of two things in the long run, and
that is growth in the labor force, and then it is productivity.
So we have seen productivity pick up. Labor force growth has
slowed down quite a lot as our population has grown older. If
you add those two up, you get to a number around 2 percent as a
sustainable rate. As a country, we can raise that, but we need
policies to do that. So I would say if we see growth in that
range, that is kind of broadly my expectation.
Mr. Meuser. Thank you, Chairman Powell.
Chairman, I yield back.
Chairman Yarmuth. I think your time has expired. I am not
sure. Anyway, thank you very much.
I now yield three minutes to the gentleman from New York,
Mr. Morelle.
Mr. Morelle. Thank you, Mr. Chairman, for holding this
hearing, and thank you, Chairman Powell, for being here with us
today.
I want to focus for a moment on an issue of obvious
importance to people throughout the country, and that is the
cost of healthcare delivery. In comments you made in February
before the Senate Banking Committee, you said the U.S. federal
government is on an unsustainable fiscal path. The thing that
drives our single unsustainability is healthcare spending. We
spend 17 percent of GDP. Everyone else spends 10 percent. It is
not that benefits themselves are too generous; we deliver them
in inefficient ways. I would not if you could just comment on
that. The inefficiencies you reference, if you could give us
more detail on that, and are there delivery methods that are
more efficient or that the Fed believes would enhance economic
growth?
Mr. Powell. So I was just echoing there my long-time
understanding of our overall budget situation and, you know,
what really is driving the unsustainability of our budget. I
wouldn't get into trying to prescribe answers for you. Again,
nobody elected us. We are not really in that role. But if you
look across countries, look across the advanced economy
nations, you will see that the average is about 10 percent of
GDP, 10 or 11 percent of GDP is what countries spend on
healthcare. We spend 17 percent, so that is a lot. That is
another 7 percent. That is close to a trillion and a half
dollars. What do we get for that?
So, if you look at the results, if you look at the health
of our population, it is pretty broadly comparable to other
advanced economies, so we are not getting better health for
this. It is about the way--it is easy to say, hard to fix--but
it is about the way we deliver healthcare. It is not that, you
know, we are just doing too well and giving people too good
health and too good care. No. We are giving pretty average care
across the whole population for an advanced, wealthy country.
And so I just was making that point, you know, that I think the
focus, a very hard focus, but the focus on how to deliver
healthcare more efficiently is up to you and a key issue for
us.
Mr. Morelle. And you did--if I might just, but you did
mention that benefits themselves weren't the issue, that it is
somehow the way that we organize it and the way that we deliver
it actually could dramatically--I assume you meant could
dramatically reduce the GDP spend of healthcare in the United
States.
Mr. Powell. The studies that look at kind of the benefit
package that the United States offers compared to other wealthy
countries don't suggest that our benefits are better or have
gotten better over time. It is more about the delivery
mechanism. At least that's my understanding of the research and
the learning on the budget.
Mr. Morelle. Well, I appreciate that, and perhaps I will
follow up, but I am just curious about the macroeconomic
implications of spending if the country continues along these
trend lines.
Mr. Powell. Well, I think over the longer term, the debt
can't ultimately continue to grow faster than the economy. If
something is unsustainable, it will eventually stop----
Mr. Morelle. Thank you, sir.
Mr. Powell.----by definition.
Mr. Morelle. Yeah. Thank you, sir.
Chairman Yarmuth. The gentleman's time has expired.
I recognize the gentleman from South Carolina, Mr. Norman,
for three minutes.
Mr. Norman. Thank you, Mr. Powell, and I appreciate you
coming, and I would echo the thoughts of Congressman Stewart to
come back more often. You speak--and thank you for your opening
statements on the national debt. One of the issues that we are
faced with is mandatory spending. It has grown from 34 percent
up to 75 percent today. You hear a lot of talk about,
particularly on the other side, the Green New Deal with the
price tag of being free, the free housing, free medical care,
and the fact that from what your statement was 10 years, which
is 120 months, where we meet pretty much the deadline, what
effect will all these basically free programs have, and is it
really free?
Mr. Powell. So, I haven't looked at and I am not in a
position to evaluate proposed programs, really. That is really
not our role, and I wouldn't be prepared to do that. I don't
really have the information, you know. I can----
Mr. Norman. And is 10 years--take that away. Let's say that
doesn't exist. Is 10 years, continuing at our present rate, is
that the D-Day that you would see as in Greece, which I think
2008 was 100 percent of the GDP?
Mr. Powell. You know, I hate to even say this, but I
actually think it is much further out than that. We are the
world's reserve currency. We are the strongest country. We have
the best institutions. We have the best labor force, you know.
We have such strengths that I think possibly the day of
reckoning could be quite far off. You see countries with much,
much higher levels of debt to GDP moving along, and what
happens is kind of a slow-motion stagnation as opposed to a
financial crisis.
Mr. Norman. So ``far out'' meaning what? What would you--I
mean----
Mr. Powell. You know, it would be a guess. It really would.
There is no--no one has been able to predict what it would--
there doesn't seem to be a bright line. We know that the United
Kingdom in its heyday as a global empire had very high debt to
GDP. We know that today Japan has very high GDP, debt to GDP.
Again, there is no identifiable line that is crossed. It is
just what we know is the more debt, the more debt service, even
at these lower interest rate levels, you still have to service
the debt. You may be able to service more debt. Nonetheless,
you have to service it, and, ultimately, you can't also run big
deficits indefinitely.
Mr. Norman. So, in short, we don't have an income problem;
we have got a spending problem.
Mr. Powell. Yeah, and that is really right across your
plate, not mine.
Mr. Norman. Okay. Thank you so much. I appreciate your
attendance, and I yield back.
Chairman Yarmuth. The gentleman's time has expired.
This gives me a good segue to promote next week's hearing,
which is all about debt, so you will have an ample opportunity
to engage fully on that question next week.
I now yield three minutes to the gentleman from Virginia,
Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman.
Can we get the chart up?
We have had a lot of comment about the Trump economy, and I
would just point out that you don't need a pointer to see where
the Obama stimulus package came in at about $800 billion. It is
right there at the bottom. It stabilized things. In the last 33
months of the Obama Administration, 224,000 jobs were created.
In the first 33 months of the Trump Administration, 189, and
you can't see where the Trump stimulus package, $1.5 trillion
in tax cuts, you don't see any change in trajectory.
The next chart is the unemployment rate. If you look at the
red chart, you see the unemployment rate started going down
right--you can point to the Obama stimulus package. It has been
going down at a fairly good trajectory, and you can't see any
change in trajectory based on a $1.5 trillion Trump stimulus
package.
And the next chart. And if you look at the deficits, just
to show you the trend, every Democrat since Carter ended with a
better deficit than they started and actually a surplus. Every
Republican, including this administration, a worst deficit
after they finished, and we were able to do that fiscally
responsible.
Chairman Powell, at a hearing yesterday, you mentioned that
lower unionization rates was a potential driver of lower wage
growth. How does unionization affect wage growth?
Mr. Powell. I gave a kind of long answer on a list of
factors that would explain why wages haven't gone up more, so I
mentioned six factors, and that was one of the six that I
mentioned. I said it is a possible factor along with, for
example, concentration among industries along with
globalization and automation and also along with just changing
in the natural rate of unemployment, which has gone down as the
population becomes more educated, and also the neutral rate of
interest which may be even lower than we think it is, so
monetary policy.
Mr. Scott. How would unionization have an effect?
Mr. Powell. So I am not in a position to take a view on
that. I just know it is one of the things in the research that
people identify as possibly associated with wages.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Tennessee, Mr. Burchett,
for three minutes.
Mr. Burchett. Thank you, Mr. Chairman and Ranking Member.
Thank you, brother, for being here.
I have heard Congressman Ron Paul say we are in the biggest
bond bubble in history, and it is going to burst. Of course, he
was talking about interest rates being too low and below
market. What factors do you look at when you decide to decrease
or increase interest rates?
Mr. Powell. When we change our policy rate which is an
overnight interest rate that affects other short-term rates and
then those play out through the yield curve, we are really
looking at setting our policy rate at the level which in the
medium term will best support maximum employment and stable
prices, so that is what we are looking at. We are thinking
ahead because monetary policy works with a lag, and so we try
to take that into account. But those are the goals we are
always serving.
Mr. Burchett. All right. Thank you, Mr. Chairman, I have
submitted some questions for the record, but I also wanted to
note, since it was announced since this morning that you were
going to be here, that my Charles Schwab account went up $2.50.
I am not sure if that is an indicator, but I really appreciate
you, brother. Thank you.
I would note also that the Father on the floor, a Catholic
gentleman--of course, I am southern Baptist--I was asking him
about his stocks, and he said he took a vow of poverty, and I
told him: Have you seen my Charles Schwab account? Obviously, I
have too.
So thank you, brother, for being here.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentlewoman from Washington, Ms.
Jayapal, for three minutes.
Ms. Jayapal. Thank you, Chair Powell, for being here and
for your independent service to our country. What was the rate
of inflation in September, and how did that compare to your
target?
Mr. Powell. It is a little below our target, so I would
say--I will just talk about core inflation which is a better
predictor of the future. It is about 1.7 percent so just below
our target.
Ms. Jayapal. And the not core but the actual rate was 1.3--
--
Mr. Powell. 1.3, yeah.
Ms. Jayapal.----when you look at the core.
Mr. Powell. Yeah.
Ms. Jayapal. And is the fact that inflation is still below
your target a sign that we are not--that the economy is
operating below its potential, its full potential?
Mr. Powell. It is certainly a sign that in no way is the
economy under a lot of--inflation is not under a lot of upward
pressure from labor markets being too tight or the economy
being too strong, so no. There is no sign, you know, that
things are overheating or anything like that.
Ms. Jayapal. And some key economists have identified
several indicators, some of which you have mentioned in your
answers to other questions, that we are demonstrating that we
are not at full employment, things like labor share of income
remains below prior peaks; the employment rate for prime age
workers remains below prior peaks; racial wage gaps, which you
have spoken about, are wider than they were in the last
expansion. Are you concerned about those factors, and how are
you looking at those as you consider policy?
Mr. Powell. So our assignment from you is maximum
employment, so we don't put a number on that. We look at all of
the things that you mentioned, labor force participation by age
group, by gender. We look at wages. We look at countless, you
know, ways to cut wages. We look at all of those things and try
to reach a judgment about what is maximum employment.
If you go back 50 years, there was a tight connection
between unemployment and inflation. That is no longer the case
and really hasn't been the case for some time, so I think we
bring significant humility to the question of what is the level
of maximum employment. I think right now, we think we are in
the neighborhood, but we have no reason to think that the
current level of unemployment is unsustainable.
Ms. Jayapal. Your predecessor, Alan Greenspan, said this:
There is little doubt that unauthorized immigration has made a
significant contribution to the growth of our economy. Would
you agree with that statement?
Mr. Powell. So I will have to start by saying that we don't
do immigration policy. We don't give advice on immigration, but
I would say you can think, as I mentioned earlier, you can
think of potential growth as including labor force growth and
productivity, output per hour. That is really the two things
you can break down growth into.
In the United States. Labor force growth has declined
significantly. It is now about a half a percent, and about half
of that or a little more than half has been from immigration.
So, if we are going to grow more as a country, that is just
something those of you who do have responsibility for
immigration policy, not us, should know that that is a factor
worth considering.
Ms. Jayapal. And so, for example, if we were to have very
restrictive immigration policy, it would dramatically affect
our labor growth numbers and affect our economy. Is that
correct?
Mr. Powell. I think with an aging population, labor force
growth is moving down. And in a lot of countries around the
world that are further along in the demographic curve, labor
force growth is negative, and we don't want to be in that
place. We want to have a growing labor force, I think, and so I
will leave it at that.
Ms. Jayapal. Thank you very much.
Mr. Powell. Thank you.
Chairman Yarmuth. The gentlewoman's time has expired.
I now recognize the gentleman from Oklahoma, Mr. Hern, for
three minutes.
Mr. Hern. Thank you, Mr. Chairman, Ranking Member Womack.
Mr. Chairman, thank you for being here today. It was great
to hear that your grandmother is from Muskogee, Oklahoma, a
city in Oklahoma that I know very well. So it is great to hear
that. Great roots.
We talked a lot about the U.S. labor market, and as job
creator for my entire life, both entry level and executive
level, I know how important it is to put people to work. And we
have talked a lot about this low participation rate. While it
has ticked up a little bit, historically in the last 20 years,
it has basically been on a pretty steady decline from 67, which
is kind of our peak back in the 1999-2000 timeframe.
If we were to get back to that point in time because you
have mentioned how important it is to keep the labor force
working in full and wages or prices stagnant or at least
growing at a 2 percent rate or so, what would it look like for
us economically right now on our deficits and debts and
economic growth if we were back around that 67 percent level of
job participation?
Mr. Powell. Well, you would have a significantly bigger
economy. I mean, if you added 4 percent to, you know, your
participation rate, that is about a 6 percent increase in
output. It would be quite substantial if we were to find ways
to get back to that level. Of course, the population's a lot
older now, which means lower participation. On the other hand,
it is more educated, so we--you know, education links closely
to higher participation. So, I think it is a key goal.
Mr. Hern. So, really, we have only got really three
avenues. We have a lot of workers out there, 6 million plus, 7
million plus jobs available. We have either got to start having
more babies in America very quickly, or we have got to help our
folks that we have 20 million additional people we have that
are in the government assistance program from where we were
back in those days that could be very participatory in the job
participation rate, or we have to, as my colleague said, work
on our immigration policy so that we have more legal
immigration in America to help fill those jobs so that we can
accelerate our growth.
What actions would you anticipate the Federal Reserve would
need to take to accommodate this economic growth? Is there an
interest rate you have to look at, and how does that affect us?
Mr. Powell. So that is in the nature--if you had a
significant increase in participation, that would be a very
positive supply shock, which means there would just be a lot
more labor supply and growth coming on the market. It would be
very--the opposite of inflationary. It would--you know, I think
we would love to see that happen, and of course, it would lead
to higher growth and be a positive thing for everyone. It
wouldn't have any--we certainly wouldn't be tightening policy
in reaction to that.
Mr. Hern. You mentioned--and I have got 19 seconds. You had
mentioned that you don't ascribe to the theory, the modern
monetary theory, that deficits and debts do matter, and we need
to be fiscally responsible for those, and I appreciate your
comments to that as well because I, as a business person for
many years, believe deficits and debts do matter. Thank you,
sir.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from New Jersey, Mr. Sires,
for three minutes.
Mr. Sires. Good morning, Chair Powell, and thank you for
being here. Continuing on the theme of immigration, I think you
stated at the Senate Banking Committee hearing about the impact
of immigration on the housing shortage. I think the statement
was that you stated that immigration policies is one of the
factors that are holding back home builders and challenging
affordability. Can you expand a little bit on that?
Mr. Powell. I don't remember that comment, to be honest,
but it may be--honestly, I can't remember what the connection
would be.
Mr. Sires. Well, you have also in a written response to
Senator Cortez Masto stated that reducing immigration could
slow the economy over the long run by limiting growth in our
labor force.
Mr. Powell. Yes. Well, I think--and that could play into
housing, you know. Demand for housing is--I think the home
builders are, you know, always looking to build more homes, and
that is an important part of the economy, which is now, by the
way, contributing positively for the first time in a while.
Mr. Sires. And could you expand on the damage that could be
done to our economy if we drastically limit all immigration
from low skill to high skill?
Mr. Powell. Yes. So, as I mentioned, you know, we as a
country, there are really only two ways you can grow. You can
work more hours, which is really a function of growth in the
labor force, and you can have more output per hour,
productivity. You can really look at growth as consisting of
those two things.
If you go back to the 1960s, the U.S. labor force was
growing 2.5, 3 percent. So you start with that and you add
productivity, and you get these very healthy growth numbers
that we have. Now we have got trend growth rate, given our
aging population of about five-tenths per year. So you can add
productivity to that. Output per hour, the trend might be 1.5
percent, something like that. You add those two numbers up, you
get to a 2 percent growth economy.
Now, if we want to do better than that, there are two
things we can do. We can get higher labor force participation,
higher population growth, or we can get higher productivity. It
is harder to get higher productivity. It seems to follow its
own--you know, no one has had a great success in predicting
what drives higher productivity. It is the evolution of
technology, and technology being--you know, flowing through the
economy over time. That is what drives productivity. So you
need things that help that, but, ultimately, you know, a
growing workforce is a source of growth, and immigration can be
part of that.
Mr. Sires. Immigration--low-skilled immigration would add
to that.
Mr. Powell. I think--yeah. I mean, I think that there is a
lot of research on all of those issues, and I think generally
the finding is that, across the income spectrum, immigration
can have those effects, yes.
Mr. Sires. Thank you very much.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Texas, Mr. Crenshaw, for
three minutes.
Mr. Crenshaw. Thank you, Mr. Chairman, and thank you Mr.
Chairman, for being here.
I want to address three issues that were brought up, three
concerns: infrastructure, inequality, and trade. What is
interesting about the infrastructure issue is that the claim
earlier was that tax cuts effectively prevent the government
from investing in infrastructure. It begs the question, why
don't we just focus as a Congress on infrastructure? But in
your statement, you said that last year's growth was led by
strong gains in consumer spending and increases in business
investment. That is still true, according to your statement,
right?
Mr. Powell. Well, it was really led by consumer spending
rather than business investment.
Mr. Crenshaw. Okay. It turns out that business investment
can be something that drives the economy other than just
government investment.
Mr. Powell. Yes.
Mr. Crenshaw. On inequality, would it also be true that
wages have grown much faster in the bottom quintile of earners
than in the higher quintile in the last few years?
Mr. Powell. In the last two years, yes, that is the case.
Very welcome.
Mr. Crenshaw. And on trade, there was a lot of concerns
brought up about trade unpredictability associated with trade
confrontation with China. It brings up the issue of the USMCA
and what this Congress should focus on. According to the
International Trade Commission, passage of the USMCA would
create 176,000 new jobs and increase gross domestic product by
$68 billion. Can you expand on that comment, and how would
passage of the USMCA impact the U.S. economy?
Mr. Powell. I wouldn't comment on the particular estimates
on the bill. I will, though, say that passage of the USMCA
would remove uncertainty and I think would be a very
constructive thing for, you know, the economy from that
standpoint.
Mr. Crenshaw. Can you expand on that? How so, exactly? I
mean, how does predictability and certainty provide benefits
for the U.S. economy?
Mr. Powell. I spent, you know, most of my career working
with companies and at companies in the private sector, and I
think companies generally like a private--they like a settled
rule book. They like to know what the rules are so they can
act. And if you are spending your time dealing with changing
rules, you are not spending your time growing your company or
thinking of what is the next--where do I need to do to get to
to beat my competition and that kind of thing. So I just
think--which is, again, not a comment on trade policy or
anything like that, but just reduction in uncertainty.
Uncertainty is huge for businesspeople making decisions, and
there is always the ability to wait, to just wait to make a
decision if you think something's going to be resolved. So a
lot of that probably gets--it happens around trade issues, and
then when it gets resolved, people will be able to over time,
you know, act on settled rule book.
Mr. Crenshaw. Thank you, Mr. Chairman, and thank you for
pointing out that our economy would be better off with the
passage of the USMCA, and our economy would be better off with
increased business investment, and our economy is better off
because the lower quintile of earners' wages are growing higher
than they have before and much higher than the higher quintile
of earners. Thank you.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from California, Mr. Peters,
for three minutes.
Mr. Peters. Thank you, Mr. Chairman, and Mr. Powell, thank
you for being here today. The recent expansion of the deficit
is a result of a mix of things: budget deals, an aging
population, and big tax cuts largely benefiting the wealthy. As
Congress considers policy changes in the next couple of years,
appreciating your focus is not policy, but where do you think
that should be on our list of priorities? And over what time
period would be most prudent for us to act on the deficit?
Mr. Powell. Well, I think that the most successful plans to
get back on a sustainable path are those that take place
consistently over a long period of time. It is not something
that it is wise to make sharp cuts and increase taxes, you
know, cut spending really sharply. It is something that should
be done consistently and stuck to over a long period of time,
and that is what seems to work over time.
Mr. Peters. Start now and be consistent would be----
Mr. Powell. Yes. I mean, ultimately, there is no substitute
for having a broad national commitment to being on a
sustainable path, and that has to have the public support, and
it has to--you know, there have to be leaders who are willing
to stick to that path over a long period of time.
Mr. Peters. The Treasury reported we spent $376 billion on
net interest outlays, which is about 8 percent of federal
outlays, 2 percent of the GDP, the highest level since 2001. We
risk spending more on paying off our debt than we spend on
children by next year, and we are projected to spend more on
interest than we spend on our national defense by 2025. What
are the consequences both lawmakers and the public face as our
debt rises and interest payments increase? And, particularly,
how does this affect our ability to react to emergencies?
Mr. Powell. Well, the first thing is that, over time, as
you spend more time servicing debt, those resources are not
going to be available to future generations to educate
themselves and their children, to maintain good health.
Mr. Peters. Build infrastructure.
Mr. Powell. Build infrastructure. All the things we want to
be using taxpayer dollars for to compete internationally and to
build a great country. So that was--sorry. What was the second?
Mr. Peters. The focus--the ability to respond to
emergencies----
Mr. Powell. So, the other--sorry. The other piece of is
that--and this is not the case today. There is fiscal space to
react today, and there will be for some time. But, over time,
fiscal policy has been a key way that the government has
reacted to support the economy in times of weakness. Over time,
as debt grows, it may be that lawmakers are less willing or
even less able to do so. And in a world of very low interest
rates, it is very important that Congress be able to support
the economy because, you know, we won't have as much room to
cut. We will be using all of our tools aggressively, but we
will need fiscal help, possibly.
Mr. Peters. Finally, in my last few seconds, I just want to
acknowledge the significant progress you have made in becoming
more transparent at the Fed but also to reinforce that it is
important for your continued independence to be maintained, and
you will certainly continue to get that support from me. Thank
you.
Mr. Powell. Thank you.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Georgia, Mr. Woodall,
for three minutes.
Mr. Woodall. Thank you, Mr. Chairman.
And thank you, Mr. Chairman, for being here with us today.
I want to pick up where Mr. Peters left off on debt. You
mentioned that we hadn't seen any booming sectors in the
economy that might lead to a bubble burst. I would have said
sovereign debt was one of those booming sectors over the last
decade, in our case, increasing from less than 70 percent of
GDP to north of 105 percent of GDP. You said no notable buildup
in leverage. I know you were talking about private sector
leverage. That is a substantial leveraging of the public
sector. Can you speak to that bubble and concerns about
sovereign debt around the globe?
Mr. Powell. Well, what is interesting about it is, as the
supply of U.S. debt, risk-free debt, the most risk-free debt in
the world has increased dramatically. The interest rate that
people are demanding has gone down. So models would have said
you provide more of the product, that will drive the price
down; that will drive the interest rate up. The opposite has
happened. So what you see is a situation where, frankly,
interest rates around the world have been declining for 30,
really, 40 years, and that includes ours, and it is a bunch of
things. It is just lower inflation. It is demographics where
people are saving more relative to investment, and that drives
the returns down. So we are in a world of much lower interest
rates, and I think there seems to be driven by long run
structural things, and there is not a lot of reason to think
that will change.
Mr. Woodall. We have had good partners in finding
purchasers for that debt, you all being one of those. You
mentioned changes as purely technical measures when referring
to increased purchases over the next two months. Dr. Stephen
Williamson observed that that reverses about two-thirds of the
unwinding in the next two quarters--pardon me--reverses about
two-thirds of the unwinding of the Fed balance sheet and offers
foreign repos as another place to look. If the answer to
maintaining stability is larger reserves, one can find those in
a number of different places. Sometimes you make our job very
easy here and mask some of our failures with your good work.
Can you speak to why being involved in treasuries was a
superior choice to going into the foreign repo market to deal
with the liquidity?
Mr. Powell. Well, so we buy--we are only allowed to buy
treasuries and--you know, treasuries and agencies is what we
can own, right, so we buy those. That is how we create reserves
as you know, obviously. So we do that. It is really nothing to
do with helping to fund the federal government. It is just that
what has really changed since before the financial crisis is
that we have imposed very high liquidity requirements on
particularly the largest banks, and they own--they have to own
lots of highly liquid assets. They choose to own reserves, or--
sorry--you know, treasuries and reserves which is just cash,
frankly. That is all a reserve is. It is just a cash on deposit
at a Reserve bank. And that is why the demand for revenues is
so high now is because of those reserve--I am sorry--those
liquidity requirements imposed on banks. It has never had
anything to do with financing the federal government, and our
ownership of treasuries is not a major part of the outstanding
Treasury debt.
Mr. Woodall. That speaks to our partnership, but does it
speak to the preference of----
Mr. Powell. Yeah.
Mr. Woodall. I suppose the Williams' comment would be that
if more reserves is the answer to controlling the overnight
interest rate, that could be achieved through reducing the size
of the foreign repo pool in the Treasury's general account,
which is twice the size of the Treasury buy that the Fed is
planning.
Mr. Powell. And those are things we are looking at. We are
looking at all of the--you are right. That is the liability
side of the Fed, and we are looking at everything. So the
Treasury general account and the foreign repo pool both are
beneficial to financial stability, so we are looking at things.
We are looking at things that we can do, and there are plenty
of things that we can do to match up the supply and demand for
reserves. And, again, this is not something that will have any
macroeconomic implications.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentlewoman from California, Ms. Lee,
for three minutes.
Ms. Lee. Thank you very much, Mr. Chairman.
Thank you, Chairman Powell, for being here. Let me go back
to follow up to what Congresswoman DeLauro mentioned in her
questioning. In what ways does the Fed--and recognizing you
don't comment on nor do you set policy--but in terms of just
your economic analysis as it relates to income and wealth
inequality, especially, and I want to talk about race a little
bit, communities of color. How do you see the long run economic
growth as it relates to the income gap between Black and White
Americans? For example, it remains almost at the same exact
level as in 1960. According to a report from the Institute for
Policy Studies, the median black family today owns $3,600, just
2 percent of the wealth of median White families. Also, the
median Latinx family owns about $6,600 in terms of the wealth,
which is about 4 percent of the median White family.
Of course, a lot of this may have to do and probably has to
do with the subprime crisis as it relates to the loss of equity
because that is primarily the way people of color acquire their
wealth. They don't play much in the stock market because we
don't have that kind of wealth. And so now, you know, we are
way at the bottom of the barrel.
And so, in terms of just economic policy, do you ever view
race as a factor when, in fact, the data has shown that the
greatest income gaps in wealth and equality lies within,
unfortunately, the black and Latino communities?
Mr. Powell. So, in our work, and you may have noticed this,
we don't just talk about the national aggregate numbers. We do
talk about those, and they are very good, but we also talk
about the disparities because we want to remind ourselves,
frankly, that, you know, prosperity isn't experienced in all
communities, you know. Low- and moderate-income communities in
many cases are just starting to feel the benefits of this
expansion, which is now in its 11th year. And we realize that,
and so we say that, and you know, we do serve all Americans. We
want to remind ourselves of that and also remind the public of
that.
I think you are exactly right about the housing. So what
happened in the housing crisis was an awful lot of people lost
their homes and lost their equity, in any case, and coming out
of that, that is the one place in the economy where we made
credit much less available, was to people with lower scores,
lower credit scores. And that did,--wasn't by intention, but
that was clearly a decision that was made, and it did--it seems
to have an effect. It has a disparate effect on minority
communities. So that is part of it.
In terms of broader policy, you know, I think economic
growth,--I think you are seeing very positive things happening
now because of this long expansion. That is what we are hearing
from low- and moderate-income communities, and so economic
growth can be a good thing.
Ms. Lee. It can be a good thing, but unless we view
economic growth with race as a factor, it is not going to work
because, as I just cited, African American families in terms of
the wealth gap, we are still where we were in 1960. And so, I
hope that yourself and the Federal Reserve really understand
that we can't just talk about income inequality without talking
about racial and income economic inequality. Secondly----
Chairman Yarmuth. The gentlewoman's time has expired. I am
sorry.
Ms. Lee. Oh, okay. Thank you very much, and thank you for
your response, Chairman Powell.
Chairman Yarmuth. I now recognize the gentleman from Texas,
Mr. Roy, for three minutes.
Mr. Roy. Thank you, Mr. Chairman.
Chairman Powell, I appreciate you taking time to be here
visiting with us today. My understanding--and, unfortunately, I
was over in another hearing over in the Veterans Affairs
Committee, so I came over here. But in getting an update, I
understand that my colleague from Texas, Mr. Crenshaw and you
had a bit of exchange on modern monetary theory. I wonder if
you can confirm for me that modern monetary theory is
problematic or just wrong in terms of this idea that we can
just continue to spend into oblivion. Is that--would you agree
with that?
Mr. Powell. I am not a student of the overall,--I mean, it
is hard to pin down exactly what is meant by the term, but I
would say the idea that countries that borrow on their own
currency can't get into trouble I think is just wrong, and the
idea that debt doesn't matter is also wrong if those are
appropriately ascribed to that theory.
Mr. Roy. Well, I appreciate that, and I do think they are.
You are aware, as much as anybody, that we have crossed the
threshold of $23 trillion of debt that we are currently
holding. Would you say roughly our annual budget is about two-
thirds mandatory and a third discretionary? Does that sound
right to you?
Mr. Powell. Yes.
Mr. Roy. And one thing that is often raised here is that we
have got to address mandatory spending, and I agree with that.
We have got to have reforms to so-called entitlement spending,
Social Security and Medicare and so forth, in order to get our
hands around spending. Are you aware of any serious proposals
today being pushed by the majority or this body that is likely
to be enacted into law that is going to impact mandatory
spending in a significant way over the next five to 10 years
that is going to seriously reform Medicare or Social Security?
Are you aware of anything like that going on today?
Mr. Powell. You know, it is not something,--I do not track
those kinds of things carefully, but I would say that, as I
mentioned earlier, the problem we have is really around
healthcare delivery. That is where we spend 17 percent of GDP.
Other comparable countries are spending 10 percent of GDP, and
we are getting broadly comparable results. Seven percent of
U.S. GDP is close to a trillion and a half dollars that we
spend every year, and we don't get anything for it. So that is
where I would be looking. It is not that we are delivering too
good health, by the way. We are delivering pretty average
health, and we are spending a trillion and a half more than we
need to spend to do that.
Mr. Roy. Well, that is fair, and there are a lot of reforms
that we can embrace to fix healthcare, and we should, but
currently I would say and suggest that I am unaware of any
serious proposals to deal with Medicare and Social Security
spending that arrives to that end. Therefore, do we not need to
address the one-third of our annual budget that is
discretionary spending? Would you agree that it would make
sense for our country, for us to be freezing spending or
holding spending in check while we try to grow the economy
dramatically in order to increase revenues and grow out of our
debt, much like we did after World War II, and then be able to
deal with reforming mandatory spending in the long run, but
that we need to check spending in order to have a strong--be
able to manage and grow out of our debt through economic
growth?
Mr. Powell. You know, those are issues you have got to
face, and I would not,--you know, there are different items in
discretionary spending. A lot of those are things that add to
the longer run economic growth of the United States, but those
are not issues for us. They are really issues for you.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Nevada, Mr. Horsford,
for three minutes.
Mr. Horsford. Thank you, Chair Powell. You have been very
vocal recently about the threat of income inequality and
declining of economic mobility. In February, you identified
income inequality as the biggest economic challenge facing the
United States in the next 10 years, noting that income growth
for low- and middle-income Americans has slowed while growth at
the top has been strong. You note this chart here at the top 1
percent has seen nearly 300 percent increase in wealth since
1989 while the bottom 50 percent has remained flat. That is a
pretty clear chart despite my colleagues on the other side. I
think they tend to mistake wages for overall wealth.
You said yourself that we need policies that make sure
prosperity is widely shared among everyone, and while research
has shown that low wage workers are especially responsive to
labor market conditions, both in terms of their wages and their
hours worked, these workers really have the most to gain in
tight labor market conditions and also the most to lose. So,
while I understand the Fed may not set policy regarding income
inequality, what are some steps you believe Congress can take
to address this issue?
Mr. Powell. Well, I do think, broadly speaking, we need
to--we want prosperity to be widely shared across all spectrums
of society, and I think a lot of that comes from education and
training. There are a million things, and I am not the person
to advise you on those. I will mention one, though, that--we
had a group visit us last week at the Board of Governors. It
was six or seven people who were involved in apprenticeships,
and they had partnerships with major manufacturers in their
States, and these are very successful programs. They really
are. They are taking kids out of high schools and starting them
there. They get good jobs. They keep those jobs. They grow up
to be adults.
Mr. Horsford. Thank you, Mr. Chairman. I am very familiar
with those programs. I ran them for 10 years before I came to
Congress, and I agree----
Mr. Powell. Perfect.
Mr. Horsford.----those are what will achieve, but the
training leads to better paying jobs and future career
mobility, and that is really what can get to this issue, which
is the stagnant wage growth.
I want to turn to another issue really quick. Trade
tensions with China continue to threaten the health of our
economy. The U.S. Chamber of Commerce indicated that Nevada has
incurred extremely significant damage to its economy because of
the President's trade war with China. In fact, $510 million of
Nevada's exports have been targeted for retaliation by China
including copper, milk, and measuring instruments. On average,
American households are being impacted about $1,000 because of
this trade war. Are you aware that Nevadans and other families
across the country are feeling the impacts of the trade war
through higher prices? And what specifically is the Fed
prepared to do if this trade war continues to hurt the people
that I represent in Nevada and those across the country?
Mr. Powell. We don't comment on particular trade policies.
We are not an advisor to anybody on trade. It is not our
mandate. Our mandate is maximum employment and stable prices.
Anything that can interfere with or promote our ability to
achieve those mandates, though, is relevant for monetary
policy. So, this year we have been calling out--along with
slowing global growth and below target inflation, we have been
calling out trade developments as something that seems to be
weighing on economic activity, particularly around
manufacturing and export. The tariffs that we are feeling at
the local level can be very painful for people, but they
haven't really been affecting the overall economy in a large
way at this point.
Mr. Horsford. I yield back. I know it is affecting the
thousand people who are losing their jobs in Yerington in the
northern part of my district.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentlewoman from Illinois, Ms.
Schakowsky, for three minutes.
Ms. Schakowsky. Thank you, Chairman Powell, for being here
today. As you noted in your testimony, the economic expansion
is being driven by and sustained by consumer spending. We have
seen the Federal Reserve cut interest rates three times since
this summer to boost demand, or consumer,--and has this helped
to boost consumer spending?
Mr. Powell. We do think that our rate cuts, and more than
that, really, we have been shifting to a more accommodative
stance all year long, first of all, by not cutting rates at all
and then by being patient and then cutting rates. And so you
see that in housing. You begin to see housing contribute. You
see it in durable goods purchases, automobile purchases,
spending generally by consumers. So we do think our policies
are supporting consumer spending.
Ms. Schakowsky. Thank you. I understand that cutting
interest rates is a main tool used to boost demand, but there
are other approaches that we could take. For example, a higher
minimum wage, I am talking about us, would raise the income of
low-income families who are more likely to spend whatever they
earn. So, given the need for increased demand, do you think
that increases in the minimum wage have macroeconomic benefits
and help the economy operating at its potential?
Mr. Powell. I think questions about the minimum wage are
really for you. We don't take a position on that, you know. The
research shows that, as some people get higher wages and some
people, there will be some job loss, particularly from a large
increase in the minimum wage. So I think that is a balancing
thing that really is for elected people rather than for us.
Ms. Schakowsky. So, besides the one tool that you have
used, lowering interest rates, what else can best support
household spending going forward that is within your purview?
Mr. Powell. Well, I think we try to keep the financial
system on a sustainable, highly capitalized basis so banks can
continue to provide credit in communities. We think that is an
important thing. I think not now, but if there were to be a
significant downturn, we would have tools other than interest
rates to use to support demand, including the tools that we use
during the financial crisis, forward guidance and large-scale
asset purchases, potentially others.
Ms. Schakowsky. I have another question that I may be able
to get the question in, but I can put it in writing to you to
get the answer. I was heartened by the Fed's recent
announcement that it will finally create its own real-time
payment system which will help low-income families save
billions of dollars each year in overdraft fees and exploitive
check cashing and payday lending costs. At the same time, I am
discouraged that there is a five year delay in implementing the
system. So,--maybe a couple of seconds,--why would it take five
years?
Mr. Powell. We don't think it will take five years.
Ms. Schakowsky. Oh, okay.
Mr. Powell. We are thinking three or four. We want to do it
right, you know. This is a complicated project. It is very
important. It is a very high priority for us. Getting it right
the first time is key, so we want to have it up and running
within, you know, three to four years.
Ms. Schakowsky. Thank you.
Mr. Powell. Thank you.
Chairman Yarmuth. The gentlewoman's time has expired.
I now recognize the gentleman from California, Mr. Khanna,
for three minutes.
Mr. Khanna. Thank you, Mr. Chairman.
Thank you, Chair Powell, for your service to our country. I
appreciated your eloquent comments earlier about how your only
agenda is nonpartisan in the interest of what is in the
national well-being. Given some of the disinformation on social
media, I thought you could take this time to assure the
American public that you have America's interest more at heart
than Chairman Xi Jinping.
Mr. Powell. Well, I will just say that I think it is
important that Americans understand that we serve all Americans
in a nonpartisan, nonpolitical way, that we try to deploy the
best thinking and the best analysis, and we will make mistakes.
We are human, but we will not make mistakes of character.
Mr. Khanna. According to the Federal Reserve data,
financial accounts for the United States, 87 percent of wealth
invested in the United States by Americans is in the U.S. Only
2 percent of U.S. wealth is in the Cayman Islands. Only 1.5
percent of U.S. wealth is in U.K. Only 13 percent of U.S.
wealth is actually overseas.
A second statistic from the Federal Exchange is that U.S.
debt and equity markets, global U.S. debt and equity markets,
are about 38 percent of world markets. This is more than the
EU, and it is four times more than China. Given these comments,
would you agree with me that the United States is by far the
best place for investment?
Mr. Powell. Yes. Absolutely.
Mr. Khanna. Now, I know you can't comment on particular
policies, and I respect that, but you know, when I have friends
who, when President Trump was elected, said: If President Trump
ever gets elected, we are going to leave the United States.
Guess what? They are still in the United States. And you
hear all of these people saying: If we ever have a wealth tax,
we are going take all our money outside the United States.
My view is they are still going to have their money in the
United States because it is the best place for investment. And
without commenting on whether a wealth tax is a good idea or a
bad idea, just as an economist, could you comment on if there
were a 1 or 2 percent wealth tax, do you really think that 87
percent number would drop dramatically?
Mr. Powell. You know, there is kind of a bright line that
we have to observe with something like that. That is clearly
something that is in the mix politically right now, and it just
would be really a disservice to my institution for me to weigh
in on that, I am sorry to say, Mr. Khanna.
Mr. Khanna. I appreciate that. But you would agree that we
have a lot of comparative advantages compared to other
countries in terms of investment here?
Mr. Powell. Strongly agree.
Mr. Khanna. That is my questions.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from California, Mr. Panetta,
for three minutes.
Mr. Panetta. Thank you, Mr. Chairman.
And, Chairman Powell, good morning. Thank you for doing
this Capitol Hill tour. I know you were up here yesterday as
well. Obviously, a big topic that you have been talking about
today and yesterday was reducing the nation's debt, and I
appreciate you addressing that topic. It is understandable
considering that, as a share of the economy, the debt held by
the public is projected to grow from 87 percent this fiscal
year to 95.1 percent in fiscal year 2029. What you said
yesterday was it is just the case now that the debt is growing
faster than the economy, the nominal GDP. You then went on to
say and ultimately in the long run, that is just not a
sustainable place to be. Can you elaborate on that?
Mr. Powell. Yes. I mean, the point is that you don't have
to pay the debt off. You don't have to balance the budget in
any particular year. You just have to have the economy growing
faster than the debt. And that should happen over a long period
of time, and that is how you successfully de lever.
Mr. Panetta. When you say ``long period of time,'' what are
you talking about? Narrow that down.
Mr. Powell. Ten, 20, 30 years. If you look at the United
States after World War II, a great example. The U.S. after
World War II spent a lot of money to win World War II, right.
Appropriately so. A multigenerational benefit from that. But it
took until, you know, 30, 40 years, I guess, to--well, I am not
sure where debt troughed out as a percent of GDP, but it went
down gradually over a long period of time.
Mr. Panetta. Now, as you know well, I am sure there is an
economic theory that says that we need to spend money during a
recession to return our economy to normal. But if cutting
spending or raising taxes during a recession is unwise, when is
an appropriate time to be making structural reforms to reduce
debt growth?
Mr. Powell. Well, I think it is when the economy turns
down, spending goes up because all the benefit programs and
things like that and tax revenue goes down. That is just
natural. And when the economy is strong, I think those are the
times when we can take a longer view and make structural
changes, you know, that will put us on a better footing longer
run.
Mr. Panetta. Okay. In the six quarters since the 2017 tax
law was passed, the GDP grew at an annualized rate of 2.5
percent. But over the six quarters before the tax law was
passed, the GDP grew at a slightly faster pace of 2.6 percent.
If you could, Mr. Chairman, in your view, what were the major
factors that caused that slowdown since the tax law was passed?
Mr. Powell. You know, it is very hard to identify, you
know, the factors overall, but I would say that one of the
biggest things that has changed is that the global economy was,
2017 was a year of synchronized global growth around the world.
Europe actually grew,--it was a great year for Europe, a little
bit faster than we did. Since the middle of 2018, we have had a
synchronized global slowdown in growth, and we feel that
through trade and other channels, financial. So that is a big
piece of it, of the story. And so it is hard to break,--it is
hard to say this caused this part and this caused the other
part.
Mr. Panetta. Okay. Thank you, Mr. Chairman.
Mr. Chairman, I yield back.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from North Carolina, Mr.
Price, for three minutes.
Mr. Price. Thank you, Mr. Chairman.
Welcome, Mr. Chairman, to the Budget Committee. We
appreciate your candor and forthrightness in helping us
understand the fiscal and monetary scene that is opening before
us these days.
I want to harken back for a moment historically to the
comprehensive budget agreements that we concluded in the
nineties, the bipartisan agreement of 1990, the Democratic
heavy lifting in 1993, and a much lesser but still important
bipartisan agreement in 1997. On the face of it, those budget
deals had a good impact. The economy was very healthy. We
balanced the budget for a four-year period, paid off something
like $500 billion of the national debt. I wonder if you wish to
comment on that, the impact of those budget agreements on our
fiscal health, on our capacity to compensate for an economic
downturn when it came, on our economy generally, I would
welcome that. But I want to also ask you about the consequences
of not having comprehensive agreements for now 20 plus years.
We have had massive tax cuts, most recently in 2017 with a net
cost of $1.9 trillion to the Treasury over 10 years. I wonder
if you could comment in particular on that question of the kind
of slack we have to deal with a downturn. This cut came during
a period of economic recovery. It gave what some people have
called a sugar high, but where has it left us now when a real
downturn comes?
Mr. Powell. I will just briefly comment that I was actually
serving in the Treasury Department in 1990 under President
George H.W. Bush when the tax--when that agreement was reached.
It wasn't my area of the Treasury, but it was politically
unpopular, but I think history has treated President Bush very
well, and appropriately so, and others who were involved in
that process for stepping up and setting things up on a much
more sustainable basis. And I think that flattered,--you know,
that put the incoming Clinton administration in a better place
than it would have been without it, so that's one----
Mr. Price. And the Clinton Administration learned in its
own way that this was not popular. This kind of activity was
unpopular. I certainly learned it in my district, but I think
those votes,--I look back on that, and I think those are among
the best votes we ever cast.
Mr. Powell. I think history has been kind to those who do
those kind of things. I think in terms of slack, we have less
slack. Sorry. In terms of--I think you were asking what, you
know, ability to respond to a downturn, really, not slack, but
the ability to respond to a downturn. We have a little bit less
because rates are lower now. We can use our unconventional
tools and will do so aggressively as appropriate, if
appropriate, but I think it is also important that Congress
retain a level of fiscal space so that you can react with
fiscal policy, particularly in the event of a larger downturn,
which we don't foresee right now. But congressional action has
been a part of those kinds of things, and fiscal policy is very
powerful in supporting demand in a weak economy.
Mr. Price. Wouldn't you think that a tax cut that nets $1.9
trillion in losses would--or shouldn't be enacted at a time of
economic health and growth, or should it? I mean,--where is our
capacity now to respond to those downturns, both in terms of
compensatory spending and tax cuts? Where is this capacity
because of this tax cut?
Mr. Powell. Well, I don't comment on particular pieces of
legislation. I do think that the United States has fiscal space
to respond now to a downturn were it to be necessary.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentlewoman from Texas, Ms. Jackson
Lee, for three minutes.
Ms. Jackson Lee. Mr. Chairman, thank you so very much.
And, welcome, Mr. Chairman, and thank you for your service
to the nation. I am going to try and get in two questions and a
half, and so I am going to read one question quite quickly, but
this impacts my constituents. The cost of childcare, housing,
higher education, other essentials have been rising much faster
than headline inflation and wages over the last two decades.
This speaks to wage stagnation, but more in particular of those
working men and women who need those essentials. When making
monetary policy, does the Fed consider price inflation in these
critical goods and services that disproportionately weigh on
working families' pocketbooks?
Mr. Powell. We really look at the overall inflation and the
price level, but as I mentioned earlier,--we always look at the
effects of what is happening in the economy and different
income spectrums, including those at the lower end of the wage
spectrum.
Ms. Jackson Lee. Does that help move policies that might
give relief to some of these working families who need these
essentials?
Mr. Powell. I think all of that informs our making of
policy. I think right now, we are particularly encouraged by
the progress we are seeing among lower wage workers, and I
think that strengthens our commitment to want to see this
expansion continue.
Ms. Jackson Lee. But you do admit that wage stagnation does
exist?
Mr. Powell. Well, overall, wages are moving up at a healthy
clip now and have been--they have moved up to about a 3 percent
growth rate. We look at a number of different measures. We have
wondered why they haven't moved up further, but 3 percent is a
healthy wage growth overall.
Ms. Jackson Lee. In the work of the Federal Reserve, though
it looks to the future, historically have you ever assessed the
economic impact that unpaid labor provided for the United
States during 250 years of slavery?
Mr. Powell. I don't believe we--you know, so we have many,
many economics Ph.D.s who do research. I am not aware of any
Fed research on that. I will come back to you.
Ms. Jackson Lee. Very good. Let me officially ask for that
to be done. Would you assume just that that was a great
contributor to the wealth of the nation?
Mr. Powell. Yes. Inevitably, yeah.
Ms. Jackson Lee. And at this point in time, even as you
have indicated wages have gone up, there is a huge disparity in
wealth with African Americans, I am looking at 2019 now--in
income and the wealth possession, if you will. That is separate
and apart from individuals having a job, low unemployment,
which has been something that has been in the headlines. How
devastating is that, and how can we add research to the Federal
Reserve that deals with this seemingly,--continuing systematic
divide in terms of income and wealth ultimately in the African
American population?
Mr. Powell. Well, first and foremost, any form of
discrimination on the basis of race or other inappropriate
categories is simply unacceptable. And in all of the places
where we--are not the main agency to enforce that, but we do
touch those issues in our supervision of banks and in our
implementation of fair lending laws and that kind of thing.
Ms. Jackson Lee. Well, I would like to,--I know there are
many financial entities that we deal with here on the Budget
Committee, but I would certainly like to work with your staff
on the kind of research that may be done because it is
systematic; it is continuous; and we have not seemed to find a
way to leap into a moment when that gap does not exist. And I
think it impacts all Americans. It certainly impacts those
Americans of all backgrounds, but it has been persistent in the
African American community. And I want to applaud the Fed for
recognizing the importance of data, and so I want to be engaged
with you on securing more data on this issue. I thank the
chairman for your service to the nation. I yield back.
Mr. Powell. We will look forward to engaging with you and
your staff.
Chairman Yarmuth. The gentlewoman's time has expired.
I now recognize the Ranking Member, Mr. Womack, for five
minutes.
Mr. Womack. Thank you. Once again, I want to thank the
Chairman of the Federal Reserve for being with us today. And
you know, if this were a periodic health assessment, any
patient would, I think, be pleased with the results of what you
have talked about today, if the economy were the patient. A few
places here and there where maybe we could do some improvement,
others that seem to be doing pretty well. So, if our blood
pressure was consumer confidence, we ought to be happy with
that. Doesn't need medication. If our heart rate was the job
market, it is a very strong job market. I mean, there are some
other places, business investment as you have indicated, maybe
the elixir there would be, you know, some trade relief that
would help. But, overall, the health assessment of the country,
as you have articulated here today, is pretty good, don't you
think?
Mr. Powell. I do. The U.S. economy is in a very strong
position, historically low unemployment, longest expansion on
record, and I think the outlook is still a very positive one.
Mr. Womack. So what would you say to the patient today on
their exit interview after doing the health assessment? Would
it be not to do anything terribly out of the ordinary, change
your lifestyle desperately? And when I am saying that, to be
fair, I am talking about the assertion that maybe we ought to
just raise taxes, you know. Those are the kinds of things that
I know my friends on the other side have complained about.
There have been many references to Tax Cuts and Jobs Act today.
But my assessment, and this is--not my assessment, but I think
the CBO assessment was if you did something to the Tax Cuts and
Jobs Act, if you pull that back, that you will lose a million
jobs. I think you would agree that losing a million jobs for--
whatever result would cause a job loss of a million jobs would
be harmful to this economy, would it not?
Mr. Powell. Losing a million jobs would be bad. I hasten to
add, though, we are not in the business of evaluating proposals
at all.
Mr. Womack. So, back to the patient, what is the
recommendation, Dr. Powell?
Mr. Powell. You know, I think the part of the health of the
economy that is key here is the consumer, and so what we are
looking for is a continued strong labor market, and that seems
to be driving this very virtuous circle with consumers where
wages are going up, incomes are going up, confidence is high.
They are spending, and it is just really good.
We would like to see some improvement on, and you will see,
I think, improvement on manufacturing, business investment, and
trade over time as demand continues to grow and also as
hopefully we reach a period of higher certainty around trade
policy.
Mr. Womack. So, in my discussion with the physician, I
would say that one of my big concerns is more long term, and
that is the consequences of the failure of Congress to address
matters of deficit and debt, and I think it is an
administration issue. I think it is a Congress issue. I think
it is a people issue that we have to agree that what we are
doing right now is unsustainable. I mean, just today, we find
out that in October, it was a $134 billion gap deficit that was
run up by this country in the first month of the quarter, and
so terribly unsustainable.
So my question for you is this: Because we do not have a
balanced budget agreement, an amendment to our Constitution, is
a debt-to-GDP target a rational target? Should a Congress
accomplish some kind of budget process reform, would that be
helpful in the overall health and well-being of our economic
future?
Mr. Powell. I can't really advise you on the budget
process, and you know, how you should go about this. In the
end, I don't think there is any substitute for having a
national consensus around the need to get on a more sustainable
path over time, and that takes leadership. That takes risk.
And, you know, it is not so much about having a particular
provision in the law because the law can be changed, you know.
We had all of those things in place in the 1990s, and we
actually had a period where we were doing very well on the
budget overall. So, I think we have got to get back to that
place where there is bipartisan support for doing these things,
and that is really the key.
Mr. Womack. Mr. Chairman, I appreciate your comments here
today. Thank you.
Mr. Powell. Thank you.
Chairman Yarmuth. I thank the gentleman, and we have got
three minutes, so I will use some time now. I yield myself five
minutes for questioning, and I want to once again thank you for
your appearance and for your testimony.
Several times in the discussion today, you have mentioned
that our debt is growing faster than the economy and that that
by definition makes it unsustainable. As I mentioned, we are
holding a hearing next week on debt, and one of the witnesses,
Olivier Blanchard, has new research that suggests that as long
as our interest rates are lower than our growth rates, our
debt-to-GDP ratio could actually decline even if we did nothing
to offset the higher debt levels. Has that affected your
thinking in any way about debt, and have you had an opportunity
to analyze that research?
Mr. Powell. Yes. I am very familiar with his work, and you
know, he is one of the greats, frankly. That would be true if
we were in primary balance, but we are not, and he says this--
in his remarks to the American Economic Association is where he
started this. So, it is true that lower interest rates, you
know, you spend less money paying interest and also that you
can probably sustain higher levels of debt. That is true. And
it is true that if the economy is growing, that if the growth
rate is higher than the interest rate over time, as long as you
are in primary balance--and primary balance means that the
revenues that are coming in are enough to cover everything but
interest. If that is the case, then--and you make those other
assumptions--then yes, you can delever over time without
actually paying down debt. That is not the case for the United
States. We are way out of primary balance. We are a couple
percentage points and more below primary balance. So it is
relevant for a lot of countries, but right now, we are not in
primary balance, and it is not that close.
Chairman Yarmuth. Thank you for that. When we met
informally some time ago, the thing that impressed me most
about you was your recognition that things are changing very
rapidly, and it is very tough to make policy in that
environment. And I love the line in your statement: Policy is
not on a preset course. And I don't think it could be.
One of the things that I am kind of obsessed with, and the
Ranking Member and other Members have heard me say this a
number of times, is the increasing pace of change. And a few
months ago, the chief technology officer for Microsoft was in
my district and made the statement, over the next 10 years, we
would experience 250 years' worth of change, which, you know,
even if she is a 100 percent off, that is still a lot of
change. And I am thinking specifically about artificial
intelligence and the impact that many people think the dramatic
impact it is going to have on the economy. Has the Fed spent
any time in analyzing the potential impact of artificial
intelligence on labor, the labor force, and on the economy?
Mr. Powell. Yes. We have a number of economists across the
system who are very active in looking at technology and
productivity and the implications for the labor force. And, you
know, it is going to depend over time on workers having the
skills and aptitudes to benefit from technology. The history
for 250 years has been that technology enables higher
productivity and that those who have the skills and aptitudes
to operate and benefit from that technology, their wages go up,
you know, their standard of living goes up. But, you know, you
are at a place here where there may be a period, and there have
been periods in the past, where there could be several decades
where that is not the case, where evolution in technology leads
to periods of bad distributional effects. But over time, it has
always led to rising, to lifting all boats. But I think this
particular period is one that is of concern for that.
Chairman Yarmuth. So, as a Congress, we ought to be
thinking about the potential impacts and whether there are any
policy moves we ought to make to anticipate, or to at least try
to accommodate, artificial intelligence and other technologies.
Mr. Powell. I think it is hard to imagine that you can stop
the march of technology, right? It is going to be about having
a workforce that benefits from it. I think people who are on
the right side of globalization and technology have benefited
enormously. It is the people who, again, don't have the skills
and the aptitudes to benefit from it.
Chairman Yarmuth. Well, I am going to yield back the
balance of my time, and thank you once again for your
appearance here today and your responses.
And if there is no further business before the Committee,
this hearing is adjourned.
[Whereupon, at 12:00 p.m., the Committee was adjourned.]
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