[Senate Hearing 115-242]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 115-242


         THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

   EXAMINING THE FEDERAL RESERVE'S SEMIANNUAL REPORT TO CONGRESS ON 
              MONETARY POLICY AND THE STATE OF THE ECONOMY

                               __________

                             MARCH 1, 2018

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
                                
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas                  DOUG JONES, Alabama

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                      Joe Carapiet, Senior Counsel

                      Travis Hill, Senior Counsel

                 Elisha Tuku, Democratic Chief Counsel

           Corey Frayer, Democratic Professional Staff Member

          Amanda Fischer, Democratic Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Cameron Ricker, Deputy Clerk

                     James Guiliano, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 1, 2018

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    41

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
        Prepared statement.......................................    41

                                WITNESS

Jerome H. Powell, Chairman, Board of Governors of the Federal 
  Reserve System.................................................     4
    Prepared statement...........................................    42
    Responses to written questions of:
        Senator Scott............................................    45
        Senator Sasse............................................    47
        Senator Schatz...........................................    49
        Senator Cortez Masto.....................................    51

              Additional Material Supplied for the Record

The February 2018 semiannual Monetary Policy Report..............    66
American Banker article, ``SIFI Hike Could Kick-Start Bank M&A,'' 
  submitted by Senator Brown.....................................   124

                                 (iii)

 
         THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

                              ----------                              


                        THURSDAY, MARCH 1, 2018

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:01 a.m. in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. The hearing will now come to order.
    Welcome, Chairman Powell, for your first appearance before 
this Committee as Chairman of the Federal Reserve Board of 
Governors. Congratulations on your confirmation.
    Today's hearing is an important opportunity to examine the 
current state of monetary and regulatory policy.
    Over the past few years, the Humphrey-Hawkins hearing has 
often served as an opportunity for Members of this Committee to 
review the new regulations imposed in the wake of the financial 
crisis.
    While I did not always agree with former Chairman Bernanke 
and former Chair Yellen, I appreciated their willingness to 
engage with the Committee and to discuss possible improvements 
to the regulatory regime.
    These discussions were helpful in building common ground 
for our banking bill, Senate bill 2155, particularly for 
provisions like the threshold for enhanced standards under 
Section 165 of Dodd-Frank.
    This bipartisan bill now has 13 Republican and 13 
Democratic and Independent co-sponsors. The bill was the result 
of a thoughtful, deliberative process over several years that 
included hearings, briefings, meetings, and written submissions 
from hundreds of commentators and stakeholders.
    The primary purpose of the bill is to make targeted changes 
to simplify and improve the regulatory regime for community 
banks, credit unions, mid-size banks, and regional banks to 
promote economic growth.
    Economic growth has been a key priority for this Committee 
and this Administration and for this Congress.
    The U.S. economy has failed to grow by more than 3 percent 
annually for more than a decade, by far the longest stretch 
since GDP has been officially calculated. But now there are 
widespread expectations that growth is finally picking up.
    According to the January FOMC meeting minutes, the Federal 
Reserve increased its expectations for real GDP growth going 
forward after fourth quarter growth exceeded expectations.
    The Fed cited the recently enacted tax reform legislation 
as among the reasons economic growth is expected to rise.
    In addition to tax reform, President Trump's recently 
released Budget and Economic Report both emphasize that 
regulatory reform is a key component of rising productivity, 
wages, and economic growth.
    By right-sizing regulation, the Committee's economic growth 
bill will improve access to capital for consumers and small 
businesses that help drive our economy.
    Now that many are predicting a pickup in growth, a number 
of commentators have expressed sudden concerns about the 
economy overheating.
    While the Federal Reserve should remain vigilant in 
monitoring inflation risks, we must also continue to pursue 
common-sense, pro-growth policies that will lead to increased 
innovation, productivity, and wages.
    With respect to monetary policy, I am encouraged that the 
Federal Reserve is continuing on its gradual path to monetary 
policy normalization.
    The Fed has begun to reduce its balance sheet by steadily 
decreasing the amount of principal it reinvests as assets as 
its portfolio matures.
    I look forward to hearing more about the Fed's monetary 
policy outlook as part of Chairman Powell's testimony today.
    I also look forward to hearing about the Federal Reserve's 
ongoing efforts to review, improve, and tailor existing 
regulations.
    I know that you are working with Vice Chairman for 
Supervision Randy Quarles on all those issues, Mr. Chairman.
    Vice Chairman Quarles has done an excellent job so far, and 
I urge Congress to confirm him for his full term on the Board 
as soon as possible.
    With that, Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. And welcome to your 
first one of these, Mr. Chair. Nice to see you.
    Welcome back to the Committee. You are leading the Federal 
Reserve at a crucial time in our Nation's history as the Fed 
normalizes interest rates and shrinks the balance sheet.
    The country is in its ninth year of economic recovery, 
though, as we know, 2017 marked the worst year for job creation 
since 2010. And the recovery has not reached everyone. Wage 
growth has been slow and labor force participation has barely 
improved since 2014. Nine years of job growth have still not 
done much to narrow income inequality or address employment 
disparities.
    Nationwide, the unemployment rate for African American 
workers is double that for whites workers--equal to the gap at 
the start of the civil rights movement. Looking more broadly, 
labor force participation is down for all minorities.
    Statistics show that large pockets of people are waiting to 
share in the benefits from the recovery. Instead of addressing 
their
problems, Republicans are working hard to make sure that Wall 
Street banks rake in even bigger profits.
    Despite the fact that we are 9 years removed from the 
recession, the Administration has embarked on a substantial 
fiscal stimulus, permanently slashing the corporate tax rate, 
and providing the largest benefits to the wealthiest Americans. 
Over time, 81 percent of the benefits of that tax cut goes to 
the wealthiest 1 percent.
    Of course, Wall Street, which is making record profits, 
will do well.
    Instead of fighting for workers and making sure labor 
market opportunities are shared among those who have been 
struggling, Republicans push for tax cuts for corporations and 
the wealthy.
    Those tax cuts are not free. As you know, Mr. Chairman, 
they will add over $1 trillion dollars to the deficit. The once 
and future deficit hawks on the other side of the aisle were 
more like marshmallow Peeps when confronted with tax cuts for 
the wealthy.
    The ink was barely dry when we began to hear calls for 
spending cuts that will hurt families across the country. 
Eighty-one percent of the benefits going to the wealthiest 1 
percent, then, alas, there is a budget deficit we have to 
address. Let us look at ``entitlement reform'' that everyone 
should understand means cuts to Medicare, Medicaid, and Social 
Security. It is the same playbook we have seen for years.
    The claim was that it would all be worth it because workers 
would benefit.
    I am happy for any Ohioan who gets a bonus or a raise, but 
we have seen how banks and corporations have responded to the 
tax cuts, and the numbers are staggering. In January, Wells 
Fargo--they have been in front of this Committee a number of 
times, and we have spent lots of time talking about their 
illegal behavior. Wells Fargo in January announced a $22 
billion stock buyback--288 times what it will spend on pay 
raises for workers. A lot of discussion, a lot of news coverage 
on the benefits to workers on the bonuses or the pay raises, 
but 288 times that number went to stock buybacks for 
executives.
    Companies this year will start disclosing CEO-to-worker pay 
ratios, as required under the Wall Street Reform Act. Honeywell 
announced an $8 billion stock buyback in December and just 
disclosed that its CEO is getting a 61-percent pay raise and 
makes 333 times the average worker's pay.
    It is pretty simple: For each pay raise or bonus for 
workers, companies are spending 100, 150, 200 times as much on 
stock buybacks and executive compensation.
    And it gets worse.
    While the biggest banks lavish pay raises and stock 
giveaways on their executives, they continue to violate the law 
and abuse their customers. The Federal Reserve recently imposed 
an unprecedented--if belated--penalty on Wells Fargo following 
several scandals, including the opening of millions of fake 
accounts and improperly charging borrowers--even after that 
scandal was disclosed, charging borrowers for auto insurance 
they did not need.
    The Fed told Wells Fargo it cannot grow until it has 
demonstrated that it has improved board oversight and risk 
management. It sounds like the Fed has come to the conclusion 
many of us on this Committee reached a year and half ago: Wells 
Fargo, simply put, is ``too big to manage.'' I will be closely 
watching to make sure the new team at the Fed does not lift 
these penalties, as the Consumer Bureau did, without the bank 
making real changes.
    It is not just Wells Fargo. Last week, Citigroup announced 
it illegally overcharged 2 million credit card accounts for 
over 5 years; it will refund $335 million to consumers.
    Though Wall Street cannot seem to go a month without a new 
scandal, the Senate is set to take up a bill that would roll 
back critical financial stability protections and limit 
watchdogs' ability to police the largest banks.
    We can expect the banks to spend any savings from less 
oversight the way they spent their tax cuts: more dividends, 
share buybacks, and mergers.
    Many of us in this body are concerned about this 
deregulation bill that I mentioned a moment ago, especially 
when it comes to foreign banks, those banks that are huge, but 
their assets in this country are under $250 billion. They are 
both troubled and troubling banks in their international 
operations, yet Secretary Mnuchin sat at that table and said he 
plans to deregulate some of these banks, like Deutsche Bank and 
Santander. And we know the fines that they have paid and the 
problems that they have caused internationally.
    Chair Powell, Wall Street may be focused on whether there 
are three or four rate hikes this year. I think your focus 
needs to be on ensuring the Fed does not once again permit the 
buildup of risk in the market and hubris at the Fed. The Great 
Moderation turned out to be not so great. We forget that lesson 
at our peril.
    The Fed needs to take the side of consumers, making sure 
the financial system stays strong and regulations are enforced.
    I look forward to your testimony.
    Chairman Crapo. Thank you very much.
    Chairman Powell, once again we appreciate you being here. 
We look forward to your opening statement, and you may proceed.

 STATEMENT OF JEROME H. POWELL, CHAIRMAN, BOARD OF GOVERNORS OF 
                   THE FEDERAL RESERVE SYSTEM

    Mr. Powell. Thank you very much, Chairman Crapo, Ranking 
Member Brown, Members of the Committee. I am pleased to present 
the Federal Reserve's semiannual Monetary Policy Report to 
Congress today.
    On the occasion of my first appearance before this 
Committee as Chairman of the Federal Reserve, I want to express 
my appreciation for my predecessor, Janet Yellen, and her 
important contributions. During her term as Chair, the economy 
continued to strengthen, and Federal Reserve policymakers began 
to normalize both the level of interest rates and the size of 
the balance sheet. Together, Chair Yellen and I have worked to 
ensure a smooth leadership transition and provide for 
continuity in monetary policy.
    I also want to express my appreciation for my colleagues on 
the Federal Open Market Committee. And, finally, I want to 
affirm my continued support for the objectives assigned to us 
by the
Congress--maximum employment and price stability--and for
transparency about the Federal Reserve's policies and programs. 
Transparency is the foundation of our accountability, and I am 
committed to clearly explaining what we are doing and why we 
are doing it. Today I will briefly discuss the current economic 
situation and outlook before turning to monetary policy.
    The U.S. economy grew at a solid pace over the second half 
of 2017 and into this year. Monthly job gains averaged 179,000 
from July through December, and payrolls rose an additional 
200,000 in January. This pace of job growth was sufficient to 
push the unemployment rate down to 4.1 percent, about three-
quarters of a percentage point lower than a year earlier and 
the lowest level since December of 2000. In addition, the labor 
force participation rate remained roughly unchanged, on net, as 
it has for the past several years, and that is a sign of job 
market strength, given that retiring baby boomers are putting 
downward pressure on the participation rate.
    Strong job gains in recent years have led to widespread 
reductions in unemployment across the income spectrum and for 
all major demographic groups. For example, the unemployment 
rate for adults without a high school education has fallen from 
about 15 percent in 2009 to 5 \1/2\ percent in January of this 
year, while the jobless rate for those with a college degree 
has moved down from 5 percent to 2 percent over the same 
period. In addition, unemployment rates for African Americans 
and Hispanics are now at or below rates seen before the 
recession, although they are still significantly above the rate 
for whites. Wages have continued to grow moderately, with a 
modest acceleration in some measures, although the extent of 
the pickup likely has been held back in part by the weak pace 
of productivity growth in recent years.
    Turning from the labor market to production, inflation-
adjusted GDP rose at an annual rate of 2.8 percent in the 
second half of 2017, nearly a full percentage point faster than 
its pace in the first half of the year. Economic growth in the 
second half was led by solid gains in consumer spending, 
supported by rising household incomes and wealth and upbeat 
sentiment. In addition, growth in business investment stepped 
up sharply last year, which should support higher productivity 
growth in time. The housing market has continued to improve 
slowly. Economic activity abroad has also been solid in recent 
quarters, and the associated strengthening in the demand for 
U.S. exports has provided considerable support to our 
manufacturing industry.
    Against this backdrop of solid growth and a strong labor 
market, inflation has been low and stable. In fact, inflation 
has continued to run below the 2 percent rate that the FOMC 
judges to be most consistent over the longer run with our 
congressional mandate. Overall consumer prices, as measured by 
the price index for personal consumption expenditures, or 
``PCE,'' as we call it, increased 1.7 percent in the 12 months 
ending in December, about the same as 2016. The core PCE price 
index, which excludes the prices of energy and food items and 
is a better indicator of future inflation, rose 1.5 percent 
over the same period, somewhat less than in the previous year. 
And we continue to view that some of the shortfall in inflation 
last year was likely reflecting transitory influences that we 
do not expect will repeat. And consistent with this view, the 
monthly readings were a little bit higher at the end of the 
year than in earlier months.
    After easing substantially in 2017, financial conditions in 
the United States have reversed a bit of that easing, and at 
this point we do not see these developments as weighing heavily 
on the outlook for economic activity, the labor markets, and 
inflation. Indeed, the economic outlook remains strong. The 
robust job market should continue to support growth in 
household incomes and consumer spending, solid economic growth 
among our trading partners should lead to further gains in U.S. 
exports, and upbeat business sentiment and strong sales will 
likely continue to boost business investment. Moreover, fiscal 
policy has become more stimulative. In this environment, we 
anticipate that inflation on a 12-month basis will move up this 
year and stabilize around the FOMC's 2 percent objective over 
the medium term. Wages should increase at a faster pace as 
well. The Committee views the near-term risks to the economic 
outlook as roughly balanced but will continue to monitor 
inflation developments closely.
    I will turn now to monetary policy. The Congress has 
assigned us the goals of promoting maximum employment and 
stable prices. Over the second half of 2017, the FOMC continued 
to gradually reduce monetary policy accommodation. 
Specifically, we raised the target range for the Federal funds 
rate by a quarter percentage point at our December meeting, 
bringing that target rate to a range of 1 \1/4\ percent to 1 
\1/2\ percent. In addition, in October we initiated a balance 
sheet normalization program to gradually reduce our securities 
holdings. That program has been proceeding smoothly. These 
interest rate and balance sheet actions reflect the
Committee's view that gradually reducing monetary policy 
accommodation will sustain a strong labor market while 
fostering a return of inflation to 2 percent.
    In gauging the appropriate path for monetary policy over 
the next few years, the FOMC will continue to try to strike a 
balance between avoiding an overheated economy and bringing PCE 
price inflation to 2 percent on a sustained basis. While many 
factors shape the economic outlook, some of the headwinds the 
U.S. economy faced in previous years have turned into 
tailwinds. In particular, fiscal policy has become more 
stimulative and foreign demand for U.S. exports is on a firmer 
trajectory. Despite the recent volatility, financial conditions 
remain accommodative. At the same time, inflation remains below 
our 2 percent longer-run objective. In the FOMC's view, further 
gradual increases in the Federal funds rate will best promote 
attainment of both of our objectives. As always, the path of 
monetary policy will depend on the economic outlook as informed 
by incoming data.
    In evaluating the stance of monetary policy, the FOMC 
routinely consults monetary policy rules that connect 
prescriptions for the policy rate with variables associated 
with our mandated objectives. Personally, I find these 
prescriptions helpful. Careful judgments are required about the 
measurement of the variables used, as well as about the 
implications of the many issues these rules do not take into 
account. And I would note that this Monetary Policy Report 
provides further discussion of monetary policy rules and their 
role in our policy process, extending the analysis we 
introduced in July.
    Thank you again. I look forward to our discussion.
    Chairman Crapo. Thank you, Mr. Chairman.
    I am going to focus my questions on Senate bill 2155, which 
I referenced in my introductory remarks, but first, Mr. 
Chairman, you are familiar with that legislation, correct?
    Mr. Powell. Yes, I am.
    Chairman Crapo. In past hearings former Chair Yellen, 
former Federal Reserve Governor Tarullo, and former Comptroller 
of the Currency, among others, have all expressed support for 
changing the $50 billion threshold for enhanced prudential 
standards. Building on that feedback, Senate bill 2155 raises 
the threshold from $50 billion to $250 billion and requires the 
Fed to tailor regulations to a bank's business model and risk 
profile.
    I would like to ask you some questions about this bill if 
it does become law, and there are five or six of them, so I 
would like to have you respond as briefly as you can, but fully 
answer the questions.
    Is it accurate that the Federal Reserve would still be 
required to conduct a supervisory stress test for any bank with 
total assets between $100 billion and $250 billion to ensure 
that it has enough capital to weather economic downturns?
    Mr. Powell. Yes, it is.
    Chairman Crapo. And is it accurate that the Federal Reserve 
would still have sufficient authority to apply prudential 
standard to a bank with between $100 billion and $250 billion 
in total assets if the Fed determined that was appropriate?
    Mr. Powell. Yes, that is true.
    Chairman Crapo. Is it accurate that this provision does not 
weaken oversight of the largest globally systemic banks?
    Mr. Powell. That is correct.
    Chairman Crapo. Is it accurate that the Federal Reserve 
applies enhanced standards to international banks based on 
their global total consolidated assets, meaning this provision 
would not exempt banks such as Deutsche Bank and Santander from 
Section 165 of Dodd-Frank?
    Mr. Powell. That is correct.
    Chairman Crapo. Is it accurate that this provision does not 
in any way restrict the Fed's supervisory, regulatory, and 
enforcement authorities to ensure the safety and soundness of 
financial institutions?
    Mr. Powell. Yes.
    Chairman Crapo. And, finally, is it accurate that nothing 
in this provision would restrict the Fed's ability to ensure 
that large financial institutions are well capitalized?
    Mr. Powell. Yes.
    Chairman Crapo. Thank you. And to go on a little bit, as 
you know, the Dodd-Frank Act included a provision known as the 
Volcker rule, which placed restrictions on banks that trade for 
their own profit, otherwise known as ``proprietary trading,'' 
and on certain relationships with certain private funds. As you 
also know, financial companies have incurred significant costs 
attempting to comply with the rule. Do you support addressing 
this confusion by exempting community banks with less than $10 
billion in total assets and who are engaged in a small amount 
of trading activity?
    Mr. Powell. I think that is a sensible thing to do, yes.
    Chairman Crapo. All right. Thank you. And some have 
expressed concerns that this exemption would allow a community 
bank to purchase a hedge fund. Is it accurate that the Federal 
Reserve could use its existing authority to address any safety 
and soundness concerns arising from such an action?
    Mr. Powell. We would still apply all of our safety and 
soundness supervisory activities to that bank, and we would be 
looking for things like that and find them.
    Chairman Crapo. All right. Thank you. Finally--and I am 
shifting gears away from the legislation right now--I also 
mentioned in my opening statement that Randy Quarles has been 
confirmed as Vice Chairman for Supervision of the Federal 
Reserve but has not been confirmed for his full term as a 
Governor yet. I believe it is very critical that we do that 
confirmation and confirm Governor Quarles for his full term. Do 
you agree? And if you do, why is it critical for the Senate to 
confirm Vice Chairman Quarles as soon as possible?
    Mr. Powell. Thank you for raising this, Mr. Chairman. I 
absolutely agree. It is very important that Vice Chair Quarles 
get his full term. At this point he is working on an expired 
underlying Governor term, but he has a 4-year Chair term, and I 
think to have him fully installed, it is very important that he 
have this underlying Governor term.
    Chairman Crapo. All right. Thank you. I appreciate your 
emphasis on that, and hopefully that will help to encourage the 
full Senate to move more expeditiously on that nomination.
    Senator Brown.
    Senator Brown. Thank you. I appreciate my friend and 
colleague Chairman Crapo's skillful, narrow, and leading 
questions about his legislation. I think it is important to 
point out that the question particularly about foreign banks, 
Deutsche Bank and Santander and those banks that have been both 
troubled and troubling, will be mostly deregulated under this 
bill because they are under 250. That is not really my 
question. I want to get to questions. But I also want to point 
out, in spite of this Chair of the Federal Reserve's general 
satisfaction with this bill, there have been serious, serious, 
serious questions raised against it, raised about it by former 
Fed Chair Volcker, by former Fed Governor and Deputy Treasury 
Secretary Sarah Bloom Raskin, but Bush appointee former FDIC 
Chair Sheila Bair, by former Counselor to the Treasury 
Secretary Antonio Weiss, and by the former Deputy Governor of 
the Bank of England Paul Tucker. And I think it is important to 
note that it is not all candy and roses here.
    Let me talk about a couple other things. The unemployment 
rate has been steady at 4 percent, 4.1 percent; wage growth, as 
you know, Mr. Chair, has been slow to improve. At your 
confirmation hearing in November, you mentioned that labor 
force participation for prime-age workers was also lagging. I 
would like to see improvement across the board, as I know you 
would.
    Two questions related to that. Do you think it is possible 
to achieve further improvement in wages and employment among 
workers that have been left behind without causing higher 
inflation? And will you commit to looking at all the data and 
considering the workers who have struggled the most so as to 
avoid
raising rates preemptively and cutting off the chances for 
broader
economic gains?
    Mr. Powell. Thank you, Senator. As you mentioned, there are 
a couple places where it looks like there may be additional 
slack in the labor force, and the biggest of those is that 
participation by prime-age workers is a full percentage point 
below where it was before the crisis. We do not see any strong 
evidence yet of a decisive move up in wages. We see wages by a 
couple of measures trending up a little bit, but most of them 
continuing to grow at about 2 \1/2\ percent. So nothing in that 
suggests to me that wage inflation is at a point of 
acceleration, and so I would expect that some continued 
strengthening in the labor market can take place without 
causing inflation. We will, of course, be monitoring that, and 
I think the risks are much more two-sided than they were 2 or 3 
years ago when there was a great deal of slack in the labor 
market.
    Senator Brown. I appreciate, as I told you in person, your 
interest and commitment to both mandates of inflation and 
employment. One Fed nominee that is still in abeyance, may or 
may not have the votes on the floor, does not take that 
position. Your position there is crucial, as Chair Yellen 
understood, as Chairman Bernanke understood.
    Second question: Morgan Stanley and other Wall Street 
analysts have said that only 13 percent of the reduced taxes 
under the tax bill being paid by companies will go to workers' 
pay; 18 percent will go to mergers. If that ratio holds up for 
banks--18 percent will go to mergers, 13 percent for worker 
pay. If that ratio holds up for banks, whether it is the tax 
bill or the Chairman's bill he talked about, shouldn't we 
expect even more bank consolidation?
    Mr. Powell. First, I would say we do not really know yet 
how that will shake out, but taking your hypothetical, would it 
add to more consolidation among the banks? You know, bank 
consolidation has been going on for 30-plus years. It has got a 
lot to do with smaller banks and economic activity moving out 
of the rural areas into the city and interstate banking and 
things like that. I am not sure this would tend to change the 
trend.
    Senator Brown. I appreciate what you just said because I 
certainly heard the deregulators in this body, those that 
suffer this collective amnesia about what happened a decade 
ago, always blaming bank consolidation on Dodd-Frank when, as 
you point out, it has been going on for years.
    Mr. Chairman, here is an American Banker article from 
November that discusses your bill. The title is ``SIFI hike 
could kick-start bank M&A,'' and I ask to enter that in the 
record.
    Chairman Crapo. Without objection.
    Senator Brown. Thank you.
    Senator Brown. Last question. Most of the Wall Street--the 
big Wall Street bank offenders have--most of the Wall Street 
banks have been repeat offenders since the crisis. The Fed and 
other regulators have fined them. You were part of this, $243 
billion in combined penalties, money laundering, market 
manipulation, deceiving customers, you name it. The Chairman's 
bank deregulation bill would mandate that the Fed further 
tailor rules for the largest banks. Meanwhile, Vice Chair 
Quarles is talking about the Fed's plans to make living wills 
less frequent, to reduce leverage rules to weaken the Volcker 
rule.
    Why should big banks that have consistently failed to 
follow the rules benefit from statutory or regulatory 
rollbacks?
    Mr. Powell. I would just say that our focus is very much on 
the smaller and medium-size banks. We want the post-crisis 
regulatory initiatives like higher capital, higher liquidity, 
stress testing, resolution, we want those to apply in their 
strongest form to the largest institutions. We want to make 
sure we are doing that efficiently. And there are some changes 
we can make in that regard, but most of what we are doing 
really applies to banks----
    Senator Brown. Well, I hear you, but I sat with Senator 
Crapo and a number of others that are in this room on the 
Finance Committee, and I heard Republican after Republican say 
the tax cut was all about the middle class, yet 81 percent of 
the benefits went to the wealthiest 1 percent. I heard you and 
I hear the push for this S. 2155 being all about the community 
banks, but we know much of it is driven by what happens for the 
larger banks, the weaker stress tests, the periodic stress 
tests, what we are doing, instead of annual, what we are doing 
for the foreign banks. So I hear your talk about your interest 
primarily is the smaller banks, but I guess the question still 
stands. Why should anything in this bill--why should we do 
anything for the largest banks? As this bill does, why should 
we do anything for banks that have consistently failed to 
follow the rules? Why should they benefit from statutory and 
regulatory rules rollback?
    Mr. Powell. As I see the parts of the bill that I am 
familiar with, they really apply to banks 250 and under. And 
when you say ``largest banks,'' I think you are talking about 
either the eight SIFIs--by the way, one of which is below $250 
billion in assets, so we are very capable of reaching below 250 
to apply enhanced prudential standards when it is appropriate. 
But it is really those institutions that I would call the large 
and complex institutions, and the focus there, again, is on 
sustaining the four pillars that I mentioned of post-crisis 
regulation and maybe looking at making them more efficient. 
They do not need to be--they should not be more burdensome than 
they need to be, but----
    Senator Brown. I agree with that.
    Mr. Powell.----we are looking to strengthen and hold onto 
those.
    Senator Brown. Well, I hope in your conversations with the 
Chair of Supervision, Mr. Quarles, that you will insist that 
this is about the banks under 250 and insist on that, that it 
is not about the banks over 250, as some on this podium have 
suggested.
    Thank you.
    Chairman Crapo. Thank you.
    Senator Shelby. And I do remind our colleagues that we need 
to stick to the 5-minute rule.
    Senator Shelby. That is prospective, isn't it, Mr. 
Chairman?
    [Laughter.]
    Senator Shelby. Chairman Powell, you referred to price 
stability just a few minutes ago as one of the mandates for the 
Fed in your job. Let us talk a little about price stability and 
unemployment being real low. Prices, you mentioned earlier that 
inflation is, I assume, under control, whatever that is. You 
have got your eyes and you have got your hands on it, so to 
speak. But a lot of people believe that you will continue to 
raise interest rates at incremental levels in the future. Is 
that because of your concern about the specter of inflation, 
that being full employment, so to speak, you know, mostly, 
pressure on wages? Or where is it coming from, in other words? 
Or is it all of it?
    Mr. Powell. Senator, where we are now is we have got 
unemployment, as you know, at 4.1 percent, which is sort of at 
or near or even below most estimates of the natural rate of 
unemployment. But we have inflation that is still a little bit 
below, so by continuing to gradually raise interest rates over 
time, we are trying to balance those two things and, you know, 
achieve inflation moving up to target, but also make sure that 
the economy does not overheat.
    Now, there is not a lot of evidence that--there is no 
evidence that the economy is currently overheating, but that is 
really the path that we have been on, and my expectation is 
that that will continue to be the appropriate path as long as 
the economy performs this way.
    Senator Shelby. Well, I think that is a substantive path, 
too. I agree with you.
    Do you believe that there is going to be a push for higher 
wages? You know, you see a little of it now. The economy is 
good. People seem to be doing well. The tax cuts come in, which 
is probably going to help. We see that it is going to help at 
least confidence and everything in the economy. What do you see 
there?
    Mr. Powell. It is interesting. Unemployment has declined 
from 10 percent at the worst part of the crisis--and, actually, 
well after the crisis--down to 4.1 percent now, and wages have 
only really gradually started to track up. The increases are 
now up at about 2 \1/2\ percent if you blend the various 
measures we look at, and we look at a bunch of them. And I will 
be honest. I would have thought that you would see more wage 
increases by this point, and I do expect that we will see more 
wage increases. We have got an economy with strong momentum. We 
have got strong job creation as a result of it. We have got low 
unemployment. And I do think you will begin to see wages coming 
up, but we have been feeling that way, and that is kind of what 
we are waiting to see. I hope we see it soon, expect to see it.
    Senator Shelby. How important to the economy and to the 
monetary policy is price stability?
    Mr. Powell. Price stability is one of our two mandates, at 
the very heart of what we do.
    Senator Shelby. It is key, isn't it? One of the keys.
    Mr. Powell. Absolutely at the very heart of what we do.
    Senator Shelby. OK. I would like to switch over to your 
other job, and that is, dealing with regulatory issues. Cost-
benefit analysis unit, it is my understanding that the Fed has 
announced
recently its intention to create what they call a ``Policy 
Effectiveness and Assessment Unit'' to conduct cost-benefit 
analysis on regulations. If that is so, I applaud that effort. 
A lot of us on this
Committee have pushed that for years, believing that there 
should be an analysis, a real cost-benefit analysis to every 
regulation. What is the status of this group's development, Mr. 
Chairman? And what do you hope will come out of this?
    Mr. Powell. As you know, Senator, we always try to 
implement regulations in the way that is least burdensome and 
also faithful to the intent of Congress. In this particular 
case, we are trying to raise our game here by having a specific 
group of, you know, quantitatively oriented people who are 
focusing just on that. We have lately published cost-benefit 
analysis on specific regulations like the SIFI surcharge, the 
long-term debt, and things like that. So, you know, we are 
trying to raise our game here.
    By the way, whenever we go out for comment on a reg, we 
also ask for the public's view on costs and benefits. So it is 
really important to us, and as I said, as you pointed out, we 
are trying to raise our game.
    Senator Shelby. A lot of it, though, is letting the public 
know what all of this is about and what the costs will be to 
them as well as to the economy, is it not?
    Mr. Powell. It is, and that is our obligation, is to be 
transparent about those things.
    Senator Shelby. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Tester.
    Senator Tester. Yes, thank you, Mr. Chairman and Ranking 
Member Brown. I appreciate you having this hearing. And 
welcome, Governor Powell. It is great to have you here.
    There has been a perception being floated by some that the 
largest foreign banking organizations, such as Barclays, UBS--
Deutsche Bank has been talked about today already--will be 
released from enhanced prudential standards under the economic 
package brought forward called S. 2155. I fundamentally 
disagree with that. I think those views are a myth, and 
certainly not the text that is in S. 2155. But I am a dirt 
farmer, OK? I just kind of read things as they are and do not 
read a lot of extra stuff into it. You are the man on the Fed, 
and so I need to know your opinion. Does S. 2155 require the 
Federal Reserve to weaken any of the Dodd-Frank enhanced 
prudential standards for the FBO such as Deutsche Bank, UBS, or 
Barclays?
    Mr. Powell. It does not, according to my reading of the 
text.
    Senator Tester. Can you elaborate, briefly if possible, on 
how those standards are applied to the largest FBOs?
    Mr. Powell. Well, currently what the bill does is it moves 
up to 250 for these institutions, but it looks at their global 
consolidated capital. We now have intermediate holding company 
requirements for these companies, and none of those would be 
affected by this. And what that means is that they are required 
to keep capital and liquidity here in the United States that is 
commensurate with their activities. They are also subject to 
living wills and things like that. So, it is a range of 
enhanced prudential standards. The intermediate holding company 
thing is an extra one that we gave them.
    Senator Tester. OK. Thank you.
    I am also frustrated that some are jumping to conclusions 
about how or what might happen regarding international holding 
company requirements. So just to clarify, from your 
perspective, the creation of the IHS was not included in Dodd-
Frank, correct?
    Mr. Powell. That is right. That was something that we added 
on independent of Dodd-Frank.
    Senator Tester. And the legislative language in S. 2155, 
the bill that we have been talking about this morning a lot, 
does not require any change to the IHC, correct?
    Mr. Powell. It does not.
    Senator Tester. OK. Thank you for clearing that up.
    Now, I asked you this question during your confirmation 
right around the time that S. 2155 was released, and it has 
been nearly 3 month, and that bill has made its way through 
this Committee and has overwhelming bipartisan support and 
hopefully will see the floor next week. What I asked you at 
that juncture was: Do you believe S. 2155 puts our financial 
system at risk? At that moment in time you said no. So now you 
have had a little more time to get your feet on the ground. Do 
you continue to believe that?
    Mr. Powell. I do.
    Senator Tester. OK. Last--go ahead, go ahead.
    Mr. Powell. I can elaborate if you want.
    Senator Tester. Sure. Have at it.
    Mr. Powell. OK. The essence, probably the most significant 
piece of it is that you raise the threshold for enhanced 
prudential standards to 250, but you give us the ability to 
look below 250. We will publish a framework that addresses--and 
we will put it out for comment--that addresses how we will 
think about that. We have not been shy about reaching below 
250. One of the eight SIFIs, in fact, is below $250 billion in 
assets. So I think it gives us the tools that we need to 
continue to protect financial stability.
    Senator Tester. Thank you. Last, I think it is important 
that folks remember that the Federal Reserve and Chairman 
Powell have a number of tools in their toolbox when it comes to 
regulating our financial institutions well beyond that we even 
created in Dodd-Frank. I think it is important to remember that 
things like advanced approaches, CCAR, and Basel were not 
created by Dodd-Frank, and if I am not mistaken, advanced 
approaches and CCAR were put in place during a Republican 
administration.
    So I guess my question for you, Chairman Powell, is this: 
Can you remind folks what your safety and soundness authority 
means to the Federal Reserve and what authority it gives to 
you?
    Mr. Powell. Except in places where Congress has addressed 
particular areas, we have broad safety and soundness authority 
to do capital requirements of various kinds, liquidity 
requirements and things like that, and look after the safety 
and soundness of all depository institutions.
    Senator Tester. Thank you. I just want to close by saying 
that I do not for a second think that Dodd-Frank was the only 
reason we are seeing consolidation in banking. I think 
technology plays a big role in that, and population shifting 
plays a big role in that. On this Committee I can deal with 
Dodd-Frank.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Corker.
    Senator Corker. Thank you. Welcome, Mr. Chairman. It is 
good to have you here, and congratulations on your 
confirmation.
    You have talked about the accommodative fiscal policy that 
is in place right now, and just out of curiosity--I know people 
predict you all are going to raise rates four times this year. 
You are definitely going to raise rates some. How much of the 
tax bill that was put in place, how much of that is affecting 
your desire or your likelihood of raising rates over this year?
    Mr. Powell. I would not single it out, Senator. I would 
say----
    Senator Corker. No, no. I am not trying to single it out. 
But just out of curiosity, it is, in fact, something that is 
going to be stimulative, so how much of a factor is it in 
looking at raising rates?
    Mr. Powell. Fiscal policy is one of many, many factors. As 
you know, we are looking at stable prices and maximum 
employment. That is what we are looking at. And everything that 
happens in the economy and financial conditions and fiscal 
policy affects that. We cannot really isolate one thing, you 
know, like fiscal policy. But I think, you know, I would expect 
that fiscal policy this year is going to add meaningfully to 
demand, and that is going to put upward pressure on inflation 
and downward pressure on unemployment. It is hard to quantify, 
but it would not be the main factor. The economy is strong, and 
it is even stronger now.
    Senator Corker. So then as it relates to growth, you said 
it was going to increase demand. How much of a factor is it in 
your growth projections, the passage of the tax legislation?
    Mr. Powell. As I mentioned, I think it will add 
meaningfully to growth for at least the next couple of years. 
The real question is: How much will it add to--and the amount 
of that is subject to very different estimates by different 
approaches, but I guess the bigger question is: How much will 
it add to longer-run growth? There are a couple channels 
through which that might happen. Higher investment should lead 
to higher productivity, which would raise potential growth. 
Lower tax rates on individuals should increase labor supply. 
These are highly, highly uncertain, but we hope the effects are 
meaningful there as well.
    Senator Corker. You know, we have been through a decade 
now, I guess, since the crisis, and many of us were here during 
that time. It was a pretty heady time trying to resolve those 
issues. And yet we went through periods of time when we were 
worried about deflation. Obviously, we had really accommodative 
monetary policy during that time. And here we are again at 4.1 
percent unemployment, down from 10, as you mentioned, the 
economy is strong, and yet still, let us face it, 2 percent 
inflation--I know you all are combating anything getting out of 
control. Elaborate on the factors that in this day and age--in 
this economy in this world situation, what is it that is 
keeping inflation at such a low rate?
    Mr. Powell. It is a global phenomenon, and we do not 
perfectly understand it, but I would say since the crisis, a 
big factor that has been weighing down inflation has been just 
the weakness in the economy. You have had a lot of slack, and 
the economy has not been tight, and so it makes sense that that 
would press downward on inflation. We also had, you know, the 
strong dollar and lower oil prices in 2014 and 2015. That 
pushed down. So more lately, we would have expected inflation 
to come up by a few more tenths than it has, and we see 
identifiable idiosyncratic factors. There are other stories, 
though. There is the Amazon effect story. There is global 
slack, the idea that slack around the world is affecting, you 
know, the tightness of the U.S. labor market. It is really hard 
to tie those down from an empirical standpoint, but that may be 
having some sort of an effect on inflation as well. It is a 
global phenomenon, though, so it is not just tied to domestic 
factors.
    Senator Corker. I know that my friends on the other side 
tend to focus a lot on the tax bill, and there is hope that 
growth is going to overcome any kind of deficits there. It may 
or may not occur. But we are, in fact, getting ready to spend 
$2 trillion more that we do not have by passing the bill we 
just passed. We have got an omnibus coming up. Over the next 10 
years, it is a minimum of $2 trillion in additional spending, 
almost twice what the President requested, and we have $21 
trillion in debt today.
    How much does the deficit picture for our country come into 
play relative to the Federal Reserve? And how concerning is it 
to you that we continue just to party like there is no time 
ending here in Congress?
    Mr. Powell. We are not on a sustainable fiscal path. We 
need to get on one. This is a good time to be doing that when 
the economy is strong. But that is a longer-run problem. It is 
not really--it is not a problem for today's monetary policy or 
economy. It becomes a problem gradually over time as we spend 
more and more of our expenditures on serving--on interest rate, 
on debt service, and we have less and less to do the things 
that we really need to do and as we pass along bills to future 
generations. But the unsustainability of our fiscal path is not 
something that has too much of an effect in the near term on 
our policies.
    Senator Corker. Thank you.
    Mr. Chairman, thank you.
    Chairman Crapo. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Welcome, 
Chairman Powell. Good to see you.
    I want to follow up on some questions that my colleagues 
Senators Brown and Shelby asked you about. Inflation is 
continuing to run below the Fed's 2 percent target, which has 
prompted a majority of the regional Federal Reserve Bank 
Presidents to urge a study of the current inflation framework. 
And while we have seen significant economic gains since the 
worst days of the recession, most hardworking families are 
still waiting to see their paychecks rise. Real median wages 
increased by only 14 percent from 1979 to 2017, and any recent 
acceleration in wages is accruing to high-paid executives and 
managers with production and nonsupervisory workers simply not 
seeing those gains.
    The Fed is projecting a minimum of three interest rate 
increases in 2018, and after your testimony on Tuesday, the 
markets are now anticipating as many as four hikes.
    Do you agree that the achievement of full employment should 
be associated with strong and broad-based wage growth for 
average workers, not just increases for executives and 
managerial pay?
    Mr. Powell. I do, Senator.
    Senator Menendez. And if so, doesn't that argue for 
consideration of a monetary policy path that would allow wages 
to continue to grow prior to the Fed's pumping the brakes?
    Mr. Powell. I agree that it does, and I believe that is, in 
fact, the path we are on. These are gradual rate increases, and 
we do expect wages to move up.
    Senator Menendez. What would the cost to the economy of 
overshooting inflation in the 2 to 3 percent range versus the 
cost to the economy of choking off growth if the Fed continues 
to tighten without a clear indication that inflation is going 
to exceed its target be?
    Mr. Powell. The risk, one of the risk we are trying to 
avoid, I think as I mentioned earlier, the risks are more 
balanced than they used to be. For many years, it was clear 
there was a lot of slack in the economy, and, you know, I for 
one supported accommodative policy. At this point we have 4.1 
percent unemployment, and the thing we do not want to avoid--
that we do not want to have happen is to get behind the curve, 
have inflation move up, and have to raise rates too quickly, 
cause a recession. And recessions, they hit the most vulnerable 
groups, you know, the hardest, and so that is where 
unemployment goes up the fastest and that kind of thing. So to 
prolong the recovery, the Committee's view is that we should 
continue on this gradual path of rate increases which balances 
lower inflation and low wages against the need to make sure 
that we do not run too far past the natural rate of 
unemployment.
    Senator Menendez. Well, I hope you will continue to look at 
wage growth as part of your calibrations.
    Let me ask you this: During the confirmation hearing--and I 
was pleased to vote for you--I asked you about the economic 
risks of adding an additional $1.5 trillion to the deficit, and 
I just heard your responses to my colleague from Tennessee that 
we are not on a sustainable path, we need to get one. 
Obviously, we were not on a sustainable path before we added 
$1.5 trillion to the debt in the tax cuts that were generated. 
And you then said in response, and I quote, ``I think we need 
to be concerned with fiscal sustainability over the long 
term.'' And in the same hearing, you agreed with Senator Van 
Hollen when he asked you--you said adding $1.5 trillion to the 
deficit would make a bad situation worse.
    Now, your predecessor previously testified before this 
Committee when she said, ``I am personally concerned about the 
U.S. debt situation. Taking what is already a significant 
problem and making it worse is a concern to me.''
    Do you agree with former Chairman Yellen that there is 
reason to be concerned about mounting deficits and growing 
national debt?
    Mr. Powell. I do, and I will follow what my predecessors 
have done and not get too much into the details of fiscal 
policy, but I will say a couple things.
    One is that, as I mentioned, we need to get on a 
sustainable fiscal path in the longer run. We know that we are 
not in the longer run.
    The second thing is when we do fiscal policy, when you do 
fiscal policy, I think it is important to keep in mind measures 
that would increase the productive capacity of the United 
States of the economy, things that would increase productivity, 
that foster investment in people, in education and training, in 
R&D, and in plant and equipment as well. Those kinds of 
policies can help the whole economy grow faster on a 
sustainable basis.
    Senator Menendez. I agree with you. I would suggest that 
stock buybacks do not quite do that.
    Let me ask you a last question. In January, the New York 
Federal Reserve Bank president said that tax legislation is 
likely to generate frictional costs that will mitigate its 
effects on growth, namely disparate impacts regionally. In 
particular, president Dudley was pointing out the gutting of 
the State and local income and property tax deduction, which 
would raise the cost of ownership and adversely affect prices 
and construction activity in States like New Jersey.
    Do you agree with president Dudley's analysis that States 
like New Jersey will see regional economic disparities as a 
result of the tax bill?
    Mr. Powell. Senator, I hope you will allow me to say that I 
would rather not get into the particular details of any 
particular fiscal bill as Chairman, and I think that is--I am 
happy to talk about things at a high level, but getting into 
commenting on particular sections in a fiscal bill which is not 
our responsibility for me is probably not a good idea.
    Senator Menendez. Your president of the New York Reserve 
made that observation, so I would hope that we would look at 
the consequences to regional growth as part of your overall 
growth path. The region that I am from generates nearly 20 to 
25 percent of GDP for the entire Nation. If we are going to 
have policies that ultimately affect the ability to be that 
engine for part of economic growth of the country, we should be 
considering that as well.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Cotton.
    Senator Cotton. Thank you, Mr. Chairman. And, Mr. Powell, 
welcome in your first appearance as Chairman, first of many. I 
am sure you have them all circled on your calendar and look 
forward to them with eagerness, as a child does to Christmas, 
right?
    Mr. Powell. Indeed.
    Senator Cotton. I want to talk about the labor market, in 
particular wage growth for America's workers. An article in the 
Harvard Business Review last October discussed wage trends 
since the 1970s and found that wage gains have mostly accrued 
to top earners while wages have declined or been stagnant for 
the bottom half of the income distribution. The bottom half of 
the income distribution is comprised of many Americans who do 
not have a 4-year degree, many who do not even have a high 
school diploma. Research from the Economic Policy Institute 
shows that American workers without a high school education 
have seen their wages decline by 17 percent since 1979 adjusted 
for inflation, and for workers with a high school education but 
no college, wages have declined by 2 percent.
    The chart to my left displays this, shows what I am talking 
about. You can see the massive wage growth for those with a 
college degree or an advanced degree and wage declines in real 
terms for those with a high school degree or less. One of my 
top priorities is to ensure that hardworking Arkansans can 
share in the
economic prosperity that we see in our country in ways that 
they have not over the course of my lifetime.
    Mr. Chairman, you write--or I should say the entire Board 
writes on page 2 and 3 of the Monetary Policy Report, 
``Although there is no way to know with precision, the labor 
market appears to be near or a little beyond full employment at 
present.'' What is your personal assessment of this matter? Is 
the economy at full employment today?
    Mr. Powell. As we say in our statement of longer-run goals 
and policy strategy, we look at a number of--there is no place 
you can directly observe. We look at a range of indicators, and 
I would say most of those indicators say that we are either at 
or beyond full employment. There are a couple that suggest 
maybe we are not. I would point to wages and I would point to 
labor force participation by prime-age males. This is a long 
answer. It is hard to give a really clear answer, but we do not 
actually know precisely where full employment is. Put it all in 
the blender, it seems to me we are very close to full 
employment.
    I would add that is not the case in every region.
    Senator Cotton. To pick up on your point about labor force 
participation, while our unemployment rate is a bit of good 
news at 4.1 percent and jobless claims seem to be continuing to 
trend downward, it is somewhat surprising, given those economic 
conditions, that over the last year labor force participation 
continued to decline from 62.9 percent in January of 2017 to 
62.7 percent in January of 2018. Even if you account for 
demographic change, for the aging of the baby-boom generation, 
many estimates say that 2 million workers are still missing 
from our economy.
    I also would note that job growth continues to outpace 
population growth, which suggests that there is still slack in 
the labor market. And a lot of the slack appears to be in part 
on the lower end of the economic scale of those workers who 
have a high school degree or less than that.
    Would you agree with that assessment?
    Mr. Powell. Generally, yes. Labor force participation has 
been essentially flat since the back half of 2013, so a little 
more than 4 years, and the downward trend might be 25 basis 
points a year. So I look at us as having made up probably the 
slack that emerged--probably fully made up the slack that 
emerged as part of the crisis.
    Senator Cotton. And the wage growth we have seen over the 
last year, while good, I would suggest is still not good 
enough, especially as long as we have those missing workers. So 
I would hate to see--putting aside all the other reasons why 
you might see rate increases in the coming months ahead, rate 
increases because of continued increases in wages, especially 
for working-class Americans. And the labor market, like any 
other market, is a market that is driven by supply and demand, 
correct?
    Mr. Powell. Yes.
    Senator Cotton. So if the supply of labor exceeds the 
demand of labor, then you would see downward pressure on wages. 
That is one reason why I and some other Senators, like Senator 
Perdue, have been so focused on our immigration system. You 
know, if you could magically convert a million high school 
graduates in this country to a million Stanford graduates that 
could go to work in our high-tech industry, then presumably 
that would be good for the wages of working-class Americans. 
Well, that is essentially what we do every single year in 
reverse as we bring in a million unskilled and low-skilled 
workers that are competing against the very people who have not 
shared in prosperity and, for that matter, competing against 
the previous generation of immigrants. I do not think that is 
good for American citizens. I do not think that is good for our 
economy, and I will continue to work hard to make sure that 
those workers share in the prosperity that all Americans in the 
upper-income brackets, college educated and more, have shared 
in the past.
    Thank you.
    Chairman Crapo. Senator Schatz.
    Senator Schatz. Thank you. Chairman, thank you for being 
here, and thank you for being willing to serve.
    I want to talk about student loan debt. There is currently 
$1.4 trillion in outstanding student loan debt, the highest 
category of consumer debt behind mortgages. It is also the most 
delinquent, with 11 percent of borrowers seriously delinquent 
or in default. The Fed estimates that this number is likely 
closer to 22 percent once you take into account the number of 
borrowers who are in forbearance.
    In contrast, at the height of the financial crisis, 
mortgage delinquency was just under 5 percent, and currently 
that rate is around 1 percent. According to the Federal 
Reserve's data, high levels of student debt have contributed to 
lower rates of home ownership and new business starts.
    So, in your view, does the high level of student debt 
create a drag on the economy?
    Mr. Powell. On student loan debt, I think it is important 
that people be able to borrow to make what may be the most 
important investment of their lives, which is in their 
education. So, overall, I think borrowing to invest in yourself 
is something we should foster, subject to a couple of important 
caveats.
    First, it is very important that people understand the 
nature of the borrowing and the risk that they are taking and 
the possible payoffs and that sort of thing so that they make 
informed decisions.
    The second thing is I think alone among all kinds of debt, 
we do not allow student loan debt to be discharged in 
bankruptcy.
    Senator Schatz. Right.
    Mr. Powell. I would be at a loss to explain why that should 
be the case. So it is something--and this is fiscal policy. 
This is something for you, not something for the Fed. But we do 
see and Fed research shows and other research shows you do 
start to see longer-term negative effects on people who cannot 
pay off their student loans. It hurts their credit rating. It 
impacts the entire path of their economic life.
    Senator Schatz. So that is the public policy argument for 
us to do something about student loan debt and the way we 
structure higher education financing. My question for you is: 
Do you see this as a macroeconomic risk?
    Mr. Powell. It will over time. It is not something you can 
pick up in the data right now, but as this goes on and as 
student loan continues to grow and becomes larger and larger, 
then it absolutely could hold back growth.
    Senator Schatz. OK. Thank you. And I want to thank you for 
your willingness to have an open mind on the question of the 
economic impacts of climate change. I appreciated your answers 
in the questions for the record, and so I am glad you are 
willing to talk about it. Your position is that the Fed is only 
concerned with, and I will quote, ``short- and medium-term 
developments that may change materially over quarters in a 
relatively small number of years rather than decades associated 
with the pace of climate change.''
    Now, there are experts within the Government that would 
strongly disagree that the problem of climate change is 
measured in decades. They would say we are seeing the economic 
impacts now. NOAA reported 16 separate billion-dollar climate 
events in 2017. Combined, these events cost the United States 
economy $300 billion, 1.5 percent of GDP. Two-thousand 
seventeen was a record-breaking year, but according to NOAA's 
science, it will get worse. The number and cost of these events 
has more than doubled over the last decade, and it has 
increased eightfold in the last 30 years.
    So I understand that your aperture is short- and medium-
term. That is sort of a premise of how you operate. What I am 
not accepting as a premise of how you operate is the assumption 
that climate change belongs in the long-term category because I 
think you are--you are analysts. You believe in data. And what 
I would like for you to do is challenge that assumption that 
climate only belongs in the long-term category, because the 
Federal Government scientists are starting to indicate that 
that is not the case.
    So the question is: Are you willing to relook at that basic 
assumption that climate is just outside of your window, to sit 
down with our office and with Federal Government researchers to 
at least examine the question of whether or not as you do your 
planning, it continues to belong in this long-term category 
which is outside of your aperture?
    Mr. Powell. Senator, as we discussed in your office, I 
guess last fall, you know, climate change is something that is 
entrusted to other agencies. We have particular 
responsibilities and particular tools: interest rate 
supervision, looking out for the financial system. It is just 
not clear that it is really in our ambit as opposed to in the 
ambit of other parts of the Government. But we are obviously 
always going to be willing to discuss it with you, but I do not 
know exactly how it would fit into what we do with our tools.
    Senator Schatz. I guess the question--I mean, I understand 
what you are saying, but I am trying to figure out why a 1.5 
percent hit to GDP last year and the agency that knows about 
such things is telling us to expect more and more of it, why 
that wouldn't be in your ambit? That is the first time I have 
ever used that word.
    [Laughter.]
    Mr. Powell. Well, our ambit involves, you know, moving 
interest rates up and down and supervising financial 
institutions, so I do not know--I am not sure how it would 
enter into that.
    Senator Schatz. OK. I look forward to continuing the 
discussion. Thank you.
    Mr. Powell. As do I. Thanks.
    Chairman Crapo. Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman. I am Googling 
``ambit'' over here in the meantime. Sorry.
    [Laughter.]
    Senator Perdue. Chairman, thank you for being here again. I 
have a question. You mentioned in your opening comments that 
foreign demand for U.S. exports is up, and I happen to believe 
that if we are going to be north of 3 percent GDP growth, we 
have got to grow our exports. And I think you have made those 
comments publicly as well.
    But the low interest rate environment over the last decade 
has shown a proliferation of new lending, really a binge of new 
debt issuance in the Third World, or developing world, let me 
say that. And just this year--and a lot of that is short term, 
so this year alone, there is some almost $2 trillion of that 
developing world debt coming due this year, and about 15 
percent of that is denominated in U.S. dollars.
    Do you see that as we normalize rates here in the United 
States, with the U.S. dynamics that we are talking about 
between inflation and unemployment, that the impact that that 
could have on the developing world could in effect have some 
systemic risk on not only the global economy but on our own 
recovery?
    Mr. Powell. Senator, what we can do is we can be 
transparent, we can be predictable, and the markets can, 
therefore, understand what we are doing and be ready for it. 
And I think if we do that, we use our tools to achieve stable 
prices and maximum employment here in the United States, and 
financial stability, and so what we try to do for the world 
financial markets is be really clear about what we are doing, 
predictable, transparent.
    As I look at the state of the emerging market countries and 
their financial markets and financial regulation, they are in a 
much better place than they were 10, 15 years ago, even 5 years 
ago. There is not as much dollar-denominated debt, foreign 
currency-denominated debt. They have better institutions--not 
everywhere, but it is a much better picture than it was 20 
years ago, let us say.
    Senator Perdue. So following up on that, you talked earlier 
about reducing the size of your balance sheet, and that has 
been an ongoing effort even before you took office, as I 
understand it. So the question is: The four big central bank--
China, Japan, United States, and the European Union--all have 
similar sized balance sheets, somewhere between $4 and $5 
trillion. As you normalize or as you begin to consider taking 
our balance sheet down to a more normal level, what actions do 
you monitor of these other central banks? Or is it totally 
independent when you make those decisions?
    Mr. Powell. Well, we monitor all financial conditions and 
economic conditions in what we do. The normalization plan that 
we adopted through the summer and then put into place in the 
fall has been accepted very well by the markets. There is no 
obvious reaction at all. It is a gradual decline. We have said 
we are not interested in deviating from that unless, you know, 
unusual circumstances arise. And I think that should be the 
path, and I think we get to a more normal balance sheet size 
within about 4 years, give or take a year, let us say.
    The other large central banks that are talking about 
normalizing their balance sheets, they are behind that 
schedule. Our economy recovered sooner. We are raising rates 
sooner. So, you know, there is going to be some--it is not 
going to be a synchronized thing. It is going to be something 
that is happening more seriatim. But we will be watching that 
very carefully. We are very mindful of the issue that you 
raise.
    Senator Perdue. Good. Thank you. One last question. It is a 
technical question, but it has to do with the leverage capital 
ratio that requires banks to hold capital against all assets, 
regardless of the risk of those individual assets, an operation 
that has created kind of a risk-blind rule. And I understand 
the overall rationale behind creating this risk-blind rule. But 
the question I have is ultimately I have a hard time 
understanding why assets like Treasury securities and funds on 
deposit in the Federal Reserve are also in that calculation. 
Can you defend that and answer the question if you are 
reviewing that practice?
    Mr. Powell. Sure. My view is that the binding capital 
requirement should be the risk-based capital requirement, and 
that would take into account Treasurys and reserves and how 
risky they are. The issue is that over time banks have figured 
out ways to game risk-based capital, so we want a hard 
backstop, and that hard backstop should be high and hard. It 
should be the leverage ratio. We do not want the leverage ratio 
to be the binding constraint most of the time because that, 
frankly, encourages people to take more risk. If you are bound 
by the leverage ratio, it is really saying you could probably 
use some riskier assets. So we like leverage--particularly 
risk-based capital has been vastly improved since the crisis. 
So that is how we think about it.
    Senator Perdue. So how would you view right now, in the few 
seconds we have got left, just very quickly, what is your view 
of the general health of the entire banking industry in the 
United States, the capital formation arm of our economic effort 
in a free enterprise system? What is your assessment of the 
health of that industry today?
    Mr. Powell. I think our banking system is quite healthy. I 
think we have high capital, high liquidity. We have banks that 
are much more aware of and capable of managing the risks that 
they face. They are much more ready to face failure if they do 
because they have living wills, and I think we are seeing 
profitability. We are seeing returns on capital. And I think it 
is a good time in our system.
    Senator Perdue. Thank you, sir.
    Thank you, Mr. Chairman.
    Senator Brown. [Presiding.] Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Ranking Member and Chair 
for this Committee. And welcome, Chairman Powell. It is good to 
see you again.
    I want to follow up on the conversation that you had with 
one of my colleagues, Senator Shelby, on the Policy 
Effectiveness and Asset Unit that you have created. Can you 
speak to how many
people will work in the unit and how the importance of data 
will inform the decisions you make?
    Mr. Powell. I think it is five or six people now. I do not 
know how big it will be, but it is going to be something in 
that range, maybe a little bigger. But the idea is that we will 
have, you know, a strong quantitative approach that is tightly 
focused on cost-benefit analysis. I would stress we already do 
cost-benefit analysis in everything we do, but we hear outside 
that there is interest in doing more of that, and we are 
actively pursuing it.
    Senator Cortez Masto. And the reason why you are doing this 
is so that it can inform your enforcement and policy decisions, 
correct?
    Mr. Powell. Well, yes. And the calibration of our 
regulations, you know, we want to be able to implement 
regulations in the least burdensome way we can, consistent 
with, you know, safety and soundness.
    Senator Cortez Masto. And the data is key for your ability 
to do so, correct?
    Mr. Powell. Very much so.
    Senator Cortez Masto. And so I am glad to hear you speak 
about the importance of data collection. I always support that, 
and that is critical to the work of the Federal Reserve. As I 
am sure you are aware, the legislation that we have been 
talking about that is pending in the Senate, it would exempt 85 
percent of depository institutions from full reporting of loan 
data under the Home Mortgage Disclosure Act. Can you speak to 
how this might impact the ability of the Federal Reserve to 
properly conduct its obligations under the Community 
Reinvestment Act and whether the loss of this data might hinder 
CRA supervisory exams?
    Mr. Powell. I will be glad to. As I understand it, the CFPB 
writes the HMDA rules and regulations, and we use that data in 
what we do, in supervising the banks we supervise, which is a 
smaller group. In addition to that, we--sorry. I lost my train 
of thought.
    What Dodd-Frank did was that it took the base of historical 
data collection and it significantly increased that. So my 
understanding is that what is being looked at in a bill is to 
create a broader exemption just from the Dodd-Frank additions. 
And so, you know, I think we traditionally get almost 
everything we need from the historical data, and I think we can 
continue to work on that basis.
    Senator Cortez Masto. Right, and that is my concern. The 
more data, the better. I mean, you are creating a data unit 
because data is key to your decisionmaking, and my 
understanding is that the data that is used in the CRA 
supervisory exams seems to exclude relevant data points. Loans 
under $1 million are designated small business loans, even if 
they were not loans administered to small businesses. There is 
no analysis made whatsoever of whether lending is occurring in 
communities of color, despite easing accessible data via the 
Home Mortgage Disclosure Act.
    And so my question is: Has the Fed considered broadening 
that criteria in its CRA supervisory exams? And what factors do 
you think would be helpful in determining whether small 
businesses, communities of color, and low-income areas are 
truly receiving the support that the law intended?
    Mr. Powell. Are we still talking about HMDA data?
    Senator Cortez Masto. Correct.
    Mr. Powell. Again, HMDA data is really an issue for the 
CFPB. They were given authority under Dodd-Frank to write the 
HMDA regulations, and we generally defer to them in terms of 
what their view is on that.
    Senator Cortez Masto. So you do not think that data is 
going to be informative in what you do with the Community 
Reinvestment Act and the oversight of that to ensure that that 
Act is being enforced under the law to protect communities of 
color, to make sure there is no discrimination, to make sure 
that the loans are being sent to small businesses, and ensure 
that the money gets where it needs to go? That data is not 
going to be helpful for you?
    Mr. Powell. I do not say that it would not be helpful. What 
I would say is that, first of all, that is an issue that the 
CFPB actually has the lead authority on. In addition, we will 
still have--my understanding is that we will still have under 
this bill the information that we have traditionally relied 
upon for just about everything we do under HMDA. So we may not 
have the additional data from some institutions, but we think 
we will be able to function.
    Senator Cortez Masto. Well, let me just tell you--and my 
time is running out, so I do not have enough time to ask the 
additional questions that I want to ask you. But let me just 
say this: As a former Attorney General in the State of Nevada, 
my concern was discrimination against certain communities of 
color, and the reason why we increased that data criteria is to 
ensure there was no discrimination and ensure that the money 
was going to where it was supposed to be going under the Act 
and Federal authorities. And so I do not understand why we are 
rolling back that data and those data criteria if we need--you 
have said it yourself--to be better informed. You are creating 
a data unit for analytical purposes to create and collect data. 
It informs us in everything we do. And so my concern is just 
that. How can we say we do not want the data when we know it 
informs every decision that we are making, particularly to 
ensure the money is going where it is going and there is no 
discrimination?
    Mr. Powell. We have been talking about data. Let me take a 
step back and say that any kind of discrimination by race or 
gender or any other unfair basis in lending is completely 
unacceptable, and we are committed as an institution to finding 
it and using all of our tools to stop it.
    Senator Cortez Masto. Thank you. I know my time has run 
out. Thank you very much.
    Senator Brown. Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman.
    Mr. Powell. Good morning.
    Senator Kennedy. Do stock buybacks contribute to economic 
growth?
    Mr. Powell. Well, if I can trace that out, when you buy 
back your stock, the money goes to the shareholder. They lose 
their stock. They could take that money, and they do with it 
what they will. They can spend it. They can reinvest it. It 
does not disappear. So there should be some effect. I have 
asked this question. It is
essentially impossible to really track that on a micro basis, 
but I would think intuitively it would go back into the economy 
and either be spent or reinvested.
    Senator Kennedy. Well, if a company buys back its stock and 
the value of the stock goes up, then somebody has extra money, 
right?
    Mr. Powell. That is right. There would be a wealth effect 
as well, as you point out.
    Senator Kennedy. And they could invest that money?
    Mr. Powell. They could. They could spend it, invest it, and 
you are right, there would be a wealth effect from higher stock 
prices, too.
    Senator Kennedy. And the stock going up is better than the 
stock going down in terms of economic growth.
    Mr. Powell. It is, although I am a little hesitant to--you 
know, I would want to say that it is not our job, as you know, 
to stop people from losing money or making money in the stock 
market.
    Senator Kennedy. Right. In the last 60 days, the bond 
market has been going down a little bit. What is that telling 
you?
    Mr. Powell. Well, I think longer-term interest rates have 
been going up, and, you know, there are probably many reasons 
behind that, and I would just offer a couple in my thinking. It 
is the expectation of higher growth. It is probably the 
expectation of inflation moving up a little bit closer to our 
target. It is probably also a realization that growth around 
the world is quite strong. So we have strong recovery in 
continental Europe and in Asia, and so, you know, we are not 
the only game in town now. If money goes to other kinds of safe 
assets, that will tend to mean higher rates here. But these are 
all generally positive signs.
    Senator Kennedy. Could it be a sign of inflation?
    Mr. Powell. It could be a sign of slightly higher 
inflation, and we seek slightly higher inflation. Inflation has 
been below our target since I joined the Fed almost 6 years 
ago.
    Senator Kennedy. You talked about us being at or near full 
employment. We are not at or near the optimum labor 
participation rate, though, are we?
    Mr. Powell. The truth is we are not far from the longer-run 
trend. We have models that--papers published 8 or 10 years ago, 
and they pretty much tell you that the labor force 
participation rate will be right about here. That is not really 
the answer to your question. Labor force participation by 
prime-age males, for example, has been declining for 60 years. 
And there may be some good reasons for that, but there are a 
significant number of reasons that are not good reasons for 
that. So we as a country----
    Senator Kennedy. What are good reasons for that?
    Mr. Powell. So we may be on our longer-run trend, but the 
trend is not a great trend. You know, there are many prime-age 
males, and women, out of the labor force whose lives would be 
better if they were in the labor force. And, you know, these 
are not--we do not have the tools to really address that, but 
it would be----
    Senator Kennedy. In 2008, the labor force participation 
rate was a tad over 66 percent. Today it is a tad over 62 
percent. That is not good for the economy, right?
    Mr. Powell. It would be great to have labor force 
participation at a higher level, as most advanced economy 
countries do. Our labor force participation rate is now, you 
know, not even at the median of comparably wealthy countries.
    Senator Kennedy. Right. And why is that?
    Mr. Powell. It really is this trend of prime-age workers 
leaving the labor force. A lot of that burden has been borne, 
as Senator Cotton was pointing out, by people with high school 
educations and below, the less skilled and lower-wage jobs. And 
it has been going on a long, long time. It is, as I said, a 60-
year decline.
    Senator Kennedy. But why, in your opinion?
    Mr. Powell. I think it probably has to do with, you know, 
the evolution of technology. It certainly has to do with the 
flattening out in the U.S. educational attainment. U.S. 
educational attainment went up for many, many years, and then 
it started flattening out in the 1970s. And right about that 
time, U.S. wages flattened out, and labor force participation 
starts to get weak. So we kind of reached a point as a country 
where we could not increase educational attainment, and really 
many things started happening right about then, the stagnation 
of median incomes, for example.
    Senator Kennedy. If we could jack the rate up to pre-2008 
levels, that would be an enormous stimulus to the economy, 
would it not?
    Mr. Powell. It would. And, of course, there is an 
underlying trend, too, of the aging of the population. So even 
though older people work more than they used to after the 
crisis, older people still work less than younger people. So as 
the population ages, that is going--that is why labor force 
participation goes down 25 basis points each year.
    Senator Kennedy. Thank you, Mr. Chairman. Thank you, sir.
    Chairman Crapo. [Presiding.] Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. And it is good to 
see you again, Chairman Powell.
    As you know, a few weeks ago, on Chair Yellen's last day in 
charge, the Fed issued a consent order against Wells Fargo 
prohibiting the bank from growing any larger until it made 
certain improvements. Now, the Fed also effectively forced 
Wells to remove an additional four board members this year. I 
have pushed the Fed for real accountability on Wells Fargo and 
its board for repeatedly cheating its customers, and I was glad 
to see the Fed take action. But I want to understand how the 
Fed intends to enforce the consent order now that you are in 
charge.
    The Fed requires Wells to submit two plans for approval by 
early April: one on improving the effectiveness of the board 
and one on improving the board's risk management practices. 
This is not clear from the order. Will the Fed Board of 
Governors vote on whether to accept these plans?
    Mr. Powell. So we have delegated that approval, I believe, 
to the head of Supervision, but, of course, that will----
    Senator Warren. Your staff?
    Mr. Powell. But that will take place--I assure you that 
will take place in serious consultation with the Board.
    Senator Warren. Consultation, but the Board is not going to 
vote on this?
    Mr. Powell. That is not the plan.
    Senator Warren. Well, you know, I do not understand this. 
The Fed has issued a major unprecedented consent order against 
one of the biggest banks in the world, and the Fed Board, the 
people who are actually appointed by the President and 
confirmed by the Senate, are not going to vote on whether the 
order is actually being followed?
    Mr. Powell. Well, of course, we did vote unanimously on the 
measures themselves.
    Senator Warren. No. Whether or not the order is actually 
being followed, because that is the big question here. In my 
view, staff is not good enough, Chairman Powell. Fed Board 
members are supposed to make the big decisions, and Fed Board 
members are supposed to be accountable for these decisions. 
Will you consider requiring a vote of the Fed Board before 
these plans are approved?
    Mr. Powell. Yes.
    Senator Warren. Good. Thank you. I appreciate it.
    The next steps it that an independent third party must 
review Wells' implementation of these plans by the end of 
September. Will you commit to making that independent review 
public, redacting any confidential supervisory information that 
is necessary? I think the public deserves a chance to 
understand how Wells is working to fix the mistakes that it has 
committed.
    Mr. Powell. I cannot make that commitment to you without 
discussing it with my colleagues and with staff who are 
implementing this thing.
    Senator Warren. Will you----
    Mr. Powell. I will look into it, yes.
    Senator Warren. Will you look into it? Will you urge your 
colleagues to consider making this public?
    Mr. Powell. If it can be made public----
    Senator Warren. I am fine about redacting confidential 
supervisory information. But my view here is that the American 
public, given all that Wells has done, the American public has 
a right to see it, and all of those Wells customers who were 
cheated have a right to see whether or not Wells is actually 
following through on its promises. You can see why some people 
might lack a little confidence in that?
    Mr. Powell. Right, so we will--I will look at that, and if 
there is a way to do it that is faithful to our obligations and 
our practices, then----
    Senator Warren. Thank you. Good. And, last, the consent 
order says that the growth restriction remains in effect until 
Wells Fargo ``adopts and implements'' the plans that were 
approved by the Fed. So I want to be really clear on this. To 
lift the growth restriction, the Fed needs to see that the 
plans have been fully implemented, right? It is not enough that 
Wells has taken some preliminary steps toward implementing the 
plans. Is that right?
    Mr. Powell. No. I do not think that is right. I think the 
thought was that once we have approved the plans and they begin 
to implement them, we see them on track, the growth restriction 
could then be addressed. No guarantee there, but we would then 
be prepared to look at it.
    Senator Warren. You know, I am actually--then tell me, how 
much progress along that line is enough to remove the growth 
restriction?
    Mr. Powell. Well, I think, again, we will have to be happy 
with the plan itself. We will have to be assured that the 
company has made these really significant measures and 
suffered, you know, a significant period of growth cap. And, 
you know, we will not lightly lift it, but I think that is our 
understanding of how we are going to do it.
    Senator Warren. You know, the growth restriction is your 
really big stick here, and I hope that you will not consider 
lifting it just because Wells makes some marginal progress. 
Wells should fix its problems before it is permitted to grow 
any bigger. The consent order sent a powerful message to big 
banks that there could be real consequences, including 
consequences for senior officials if they break the law. But 
that message will be lost if the Fed does not enforce the order 
strictly and show the public and the banking industry that they 
mean business. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chairman. Chairman Powell, 
welcome. Thank you, and our congratulations on your 
confirmation.
    Can you just explain--because I was watching a lot of the 
hearing in my office before I came up here, and you talked 
about global slack a couple of times. Can you explain to me 
what that really means?
    Mr. Powell. The thought is that it has become over the last 
30, 40 years during our adult lifetime possible to make just 
about anything just about anywhere. Technology has enabled 
that, and rising living standards and capabilities in emerging 
market countries has created that opportunity. And the thought 
is that that capacity outside the United States is in a sense a 
form of slack so that if you are, for example, a worker 
bargaining for higher wages, you are held back by this overhang 
of knowing that, you know, you can lose your job in that kind 
of thing.
    The issue is that, you know, globalization, most measures 
of globalization sort of plateaued out at about the time of the 
crisis, and yet it does not--that story makes a lot of 
intuitive sense, but it does not actually link up very well 
with the path of wages over the past few years. So it is 
something we have looked at, and it gets written about a lot.
    Senator Tillis. Actually, I think that is a very important 
point because there is a lot of latent productivity that could 
be globally deployed that, as we talk about wages and we want 
to do a good job of moving wages in the right direction, they 
reach a certain point to where we could plateau again because 
that capability to deliver could go outside of our 
jurisdiction. I think that is a very important point.
    On productivity, a couple of years ago I met with former 
Chair Greenspan, and he was talking about--the one thing that 
he was most concerned with at this time was the kind of static 
growth in capital investment, and he was saying, you know, a 
healthy percentage of GDP is somewhere around 8 percent, and we 
were trending down in the 4 percent range. Do you view that as 
a key indicator that we have to increase? And what, if any, 
trends are you seeing that give you some sense that we are 
getting to a healthy percentage of capital investment as a 
percentage of GDP?
    Mr. Powell. We do not know how to predict productivity 
growth very well, but we do think it links up over time with 
things like investment, investment in people but also 
investment in plant and equipment, R&D, and that kind of thing.
    Unfortunately, what the financial crisis did was it 
generated very weak demand conditions for a long time, and that 
created weak investment, and that itself then furthers weak 
demand. So it is kind of a bad, self-reinforcing cycle that we 
had there for a while. That is why it is so heartening to see 
investment, business investment, moving up last year and 
perhaps continuing a strong performance this year, is our 
expectation. It is ultimately only productivity that raises 
living standards, and investment is one of the keys, not just 
investment in plant and equipment, but certainly in the skills 
and aptitudes of our people as well.
    Senator Tillis. Do you get a sense that what we have done 
with tax reform is a potential positive contributor to seeing 
that investment move up?
    Mr. Powell. I do think it is a potential positive 
contributor in the sense that when you lower the corporate tax 
rate, you lower the user cost of capital. You know, like you, I 
have spent a lot of time working with private sector companies, 
and that is one of the factors they consider. It is not the 
only factor. But lower user cost of capital is something that 
should spur more investment over time, and that should add to 
productivity. Hard to quantify, but I think it is there.
    Senator Tillis. You and I talked about this once or twice 
in my office, and in my remaining time, I would like for you to 
talk a little bit about the job that Mr. Quarles has and post-
crisis regulatory right-sizing, I would be interested in your 
thoughts on Basel IV and regulatory tailoring. I know people 
asked you--I was watching in my office. On the Committee I 
think some asked you about the banking regulatory reform bill 
that passed out of here, which provides some regulatory and I 
think responsible regulatory relief for a portion of our 
banking sector. But what more can we expect to see that are 
within your lanes and within your authorities on right-sizing 
regulations?
    The other thing I remember with Mr. Greenspan, he said the 
most troubling job creation growth that he saw at that time--
this was 2 or 3 years ago, post-crisis, about 300,000 jobs that 
had been created under the tide of regulatory reform, which in 
my world that is by definition a nonproductive job. So I am 
kind of curious to see what kind of--how are we going to get to 
a more tailored--I think Senator Perdue asked this question. 
How are we going to get to a more tailored, more reasonable 
regulatory burden on this industry that still manages the risks 
that you have to be concerned with?
    Mr. Powell. I think our concern is to maintain and 
strengthen but make more efficient the big improvements we 
think we made after the crisis--that is, higher capital, higher 
liquidity, stress
testing, and resolution planning--and those are going to apply 
and continue to apply to the largest, most complex institutions 
in the strongest form. Our effort then is to tailor that at 
every level as we move down and make sure--and we did a lot of 
tailoring along the way, but we are now going back through each 
level to make sure that we have got that tailoring just about 
right. Not
everything that we need the eight systemically important 
institutions to do needs to be done by every bank, and many of 
them have much simpler business models that are much more 
traditional banking, and different regulatory strictures should 
apply to those companies. So it is something we are working on.
    Senator Tillis. Mr. Chairman, the only thing I would say, 
as somebody who worked in a firm that helped prepare CCAR and 
stress tests results, it still is unimaginable to me how a 
properly tailored environment could result in 60,000- and 
100,000-page submissions. There has got to be a better way to 
do it, even at the high end of the spectrum, and I just look 
forward to you all continuing to look at it and manage the risk 
but right-size it.
    Chairman Crapo. Senator Jones.
    Senator Jones. Thank you, Mr. Chairman. Chairman Powell, 
thank you for being here and welcome.
    I would like to go back to a couple questions. I think it 
is pretty obvious that folks on the Committee are concerned 
about wage growth in addition to unemployment. You said in your 
testimony that with the economy growing the way it is, you 
expect to see wage growth continue, but that has been on a 
fairly modest trend over the last few years. So you see that 
wage growth increasing over the next couple of years as opposed 
to the very modest trend that we have seen?
    Mr. Powell. That is my expectation, Senator. As we have 
moved from 10 percent unemployment down to 4.1 percent, we have 
seen some gradual increase in wages, but, frankly, not what I 
would have seen. I think as you look back over the last 3 or 4 
years, you can kind of tell the story about why that was the 
case. Now we are at 4.1 percent unemployment, labor force 
participation is higher relative to trend than it was, and I 
guess I would have expected to see higher wages now. And I do 
continue to expect them to rise as the labor market continues 
to tighten.
    Senator Jones. Well, assuming the economy continues to grow 
as you expect, are there factors that we need to be on the 
lookout for that could prevent the wage growth that you would 
anticipate as opposed to the very kind of--not flat but very, 
very modest wage growth? Are there factors that we need to be 
concerned about or looking about in the future?
    Mr. Powell. I think ultimately sustainable wage growth is a 
function of productivity. Wages should equal, you know, 
inflation plus productivity. And so to get wages to go up 
sustainably over a long period of time, we need higher 
productivity. That is a function of investment in people, 
investment in plant and equipment, R&D, all those things that 
drive us to be more productive. That is really the only way to 
have sustainable wage growth.
    Senator Jones. OK. Well, that kind of leads me to another 
area, and I do not want to misrepresent your testimony of the 
other day, so if I characterize something wrong, just please 
tell me. It will not be the first time I have been told I am 
wrong about things. But I think you said on Tuesday to some 
extent that limiting immigration could limit our productivity 
growth in the coming years. Chairman Yellen, your predecessor, 
also told this Committee in the past that limits on immigration 
could limit GDP growth. And so without putting you on the spot 
to try to get you to wade into very specific hot-button issues 
that we have got here, can you talk a little bit about why 
immigration may boost productivity and GDP growth?
    Mr. Powell. So to go back to what I was saying, you can 
think of growth being a function of growth in the labor force 
plus productivity. Those are really the only two ways the 
economy can grow--more hours worked and more output per hour.
    Now, if you look at our labor force growth, it used to be 
2, 2 \1/2\ percent, you know, 25 years ago, 30 years ago. Now 
it is about 0.5 percent as the population ages, and some part 
of that 0.5 percent is immigration. So I think those of you who 
have the decision rights around immigration, this is a factor 
that you ought to consider. It does not directly affect 
productivity, but it affects potential growth through the labor 
force.
    Senator Jones. All right. And I do not know if this would 
be an appropriate question, but is our current immigration 
policy in any way contributing to the lack of wage growth, as 
you see it today?
    Mr. Powell. You know, immigration is one of those issues 
that we do not really have authority over, and, you know, I can 
speak to it as it relates to things like potential growth, but 
I am loath to get into current policy and things like that. I 
think I will follow my predecessors in sticking to our knitting 
on that.
    Senator Jones. All right. I kind of thought that would be 
the answer, but I was going to ask anyway.
    Going back to wage growth, what can we do, as wage growth 
continues, to try to decrease the disparities that women have 
in the labor force, that the minority population, you know, 
whether they be Hispanic or the African American population, 
have in the labor force?
    Mr. Powell. Any kind of discrimination in our society, in 
our labor force, is, of course, unacceptable and not something 
that we can tolerate. Having said that, you know, we do not 
have the tools, broadly speaking, to address those things.
    The tools we do have, though, the biggest thing we can do 
is to take seriously our statutory mandate of maximum 
employment. As you can see, when we go into a recession, it is 
the most vulnerable populations whose unemployment rates go up 
the fastest and the highest, and you can see that they come 
down the most in the recovery. They tend to not get down as low 
as people with college degrees and things like that. But at the 
same time, that is really how we can contribute.
    Senator Jones. All right. Last, there were comments made in 
your testimony on the House side concerning the appropriations 
process and potentially having Congress appropriate your 
budgets for nonsupervisory type activities of the Fed, and I 
would like your quick opinion on that, and also how a potential 
Government shutdown might affect that should you have that 
appropriations--I have been fairly critical of the way that the 
budgetary process here has been taking place, and so we have 
had five--you know, we have had a couple of shutdowns in the 
last couple of weeks. How would that have affected your ability 
to supervise?
    Mr. Powell. Legislatures all around the world, governments 
all around the world have seen fit to give central banks an 
independent source of funding, and I would say that that is a 
wise decision. The things that we do may not always be 
politically popular, and I think it is wise to give us just a 
little bit of degree of separation. Of course, we are 
transparent; of course, we are accountable. And that is not 
just for monetary policy. Here in the United States, all three 
of the bank regulatory agencies have an independent source of 
funding. This is a decision for Congress, that Congress has 
made for the last 40 years. It has not stopped Congress from 
providing, you know, appropriate oversight of our activities 
and regulations. So I would just say that I do not see what 
problem we are solving here.
    Senator Jones. It seems to be working. If it is not broken, 
do not fix it.
    Thank you, Mr. Chairman. I appreciate that.
    Chairman Crapo. Thank you. And before I turn to Senator 
Moran, I would note to our Members we have a series of three 
votes being started in about 5 or 6 minutes, and we have four 
speakers left here. If you are all very concise and stick to 
your 5 minutes, I think we can probably wrap this up at the 
tail end of the first vote and go over. So please pay attention 
to the clock. We will not be able to go over and come back 
because of the three votes.
    Senator Moran.
    Senator Moran. I am glad I am next, Mr. Chairman.
    [Laughter.]
    Chairman Crapo. Five minutes.
    Senator Moran. Mr. Chairman, thank you very much for 
joining us today. You are new at your job. I would tell you 
that, listening to you in previous settings and today, you are 
reassuring, seemingly competent, perhaps exactly the right 
thing we need at the Federal Reserve in today's economic and 
political world. So thank you very much for your service to the 
country. I hope I do not have to change my comments about you 
in the future, so we look forward to working with you.
    Let me go through three things. A Treasury report recently 
indicated that the current exposure method, CEM, may not 
appropriately measure the economic exposure of a listed options 
contract, and that a risk-adjusted approach for valuing options 
for purpose of capital rules such as weighing the options by 
their delta might be in order. I think this issue need a 
quicker fix, and perhaps there is a long-term fix, but are you 
in a position to make the changes that you at least at times 
have said it is important to make?
    Mr. Powell. Yes, we are, Senator. I think we are in the 
middle of a changeover from CEM to SACCR, which is the other 
way to do it, and we are also looking at the calibration of the 
enhanced leverage ratio. Both of those things should help.
    Senator Moran. What kind of timeframe do you believe you 
are on?
    Mr. Powell. I would be loath to give you an exact date. Why 
don't we come back to your office on that? But this is an 
active thing, I think fairly soon.
    Senator Moran. Very good. I would welcome the follow-
through. Tomorrow I will meet with Esther George at the Kansas 
City Fed, and I look forward to that conversation. Part of what 
I will talk to her about is agriculture and particularly the 
rural economies of our region. Let me highlight for you 
something that I think is important for you in your regulatory 
role to remember.
    Farmers and ranchers often come to me and ask about the 
safety net that comes from a farm bill. Farm policy is designed 
to help farmers and ranchers in difficult times, generally 
difficult economic times. We are experiencing those times now. 
The challenge is significant for someone trying to earn a 
living in agriculture. But there is a safety net that I think 
is often forgotten, and that is the relationship between the 
lender in their community, a relationship banker, a financial 
institution, and that family farmer. And I just want to 
highlight once again the importance that we do not get to the 
circumstance in which the examiners, the regulations prohibit 
bankers from making decisions about lending or access to credit 
by agriculture based upon some very restrained, restrictive 
method. Let the issue of character, relationship, history 
between what is often a family owned bank and a family farm 
continue. That is one of the most important safety nets in 
difficult times, the relationship between our lenders and our 
bankers, and where I see the threat of that diminishing or 
being eliminated is through the regulatory process in which a 
bank is written up for making a decision that they feel 
comfortable with but a regulator may not.
    Any response to that?
    Mr. Powell. I will just take that very much to heart, 
Senator.
    Senator Moran. Thank you very much.
    And then, finally, let me ask a question about education. 
If we are looking for economic growth, it seems that a highly 
motivated, trained, and educated workforce is a significant 
component of that. Do you have in your understandings of the 
circumstance that we face in the employment market where we 
should be focusing our support for education or where we should 
be emphasizing for students and adults--those two things are 
not different--for those who need an education and additional 
training, where we ought to be focusing our resources to meet 
the economy's needs for that highly motivated, educated, and 
trained workforce?
    Mr. Powell. You know, I am probably not the right person to 
get down into the details of exactly where to focus. I will 
just say, though, that my view is that in the long run the only 
way we can sort of win in the international competition is by 
having the best educated, most productive workforce in the 
world. There is really no way to hide from that requirement, 
and that is education. It is also training. It is not just 
college education. It is also, you know, apprenticeship 
programs and that kind of thing, which also can be very 
successful.
    Senator Moran. Tax rates are an important component in 
making business decisions, but meeting workforce requirements 
is there as well. Is that true?
    Mr. Powell. Yes.
    Senator Moran. Thank you.
    Mr. Chairman, thank you.
    Chairman Crapo. Thank you.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman. Let the record 
show your timeliness in starting meetings meant that me being 6 
minutes late really was----
    Chairman Crapo. I noted that and felt bad for you.
    Senator Warner. It was quite a challenge. But I wanted to 
stay because I wanted to ask the Chairman two very important 
questions. Let me preface this by saying, you know, in my first 
year here, one of the most important pieces of legislation I 
have ever worked on was the Dodd-Frank legislation. I think 
Dodd-Frank, for all its challenges, has made our system 
remarkably stronger. But we are 8 years later, and there is a 
broad, bipartisan group of us who are going to debate on the 
floor next week legislation that would make some modifications.
    In this legislation, S. 2155, we have not changed the 
requirements that the Fed perform annual Dodd-Frank stress 
tests on banks above $250 billion. I think that is terribly 
important to maintain. We do give the Fed, after an appropriate 
period to do a rulemaking, the ability to look at those banks 
between $100 and $250 billion--and this is very important--to 
continue to undergo stress tests on a periodic basis. My view 
is that stress testing is the most important prudential 
standard and that frequent stress tests are some of the best 
tools we have to prevent another financial crisis.
    Can you give us your views on stress testing, including how 
rigorous they should remain and how frequent they should 
remain, on banks between $100 and $250 billion in assets if 
this legislation passed?
    Mr. Powell. I would be glad to. Let me just echo what you 
said. We do believe that supervisory stress testing is probably 
the most successful regulatory innovation of the post-crisis 
era. We are strong believers in this tool, including for 
institutions of $100 to $250 billion. So it would be our 
intent, if this bill is enacted, to continue, that these 
institutions would continue to have meaningful, strong, 
regular, periodic stress tests, frequent stress tests. And, 
again, we see it as a very important tool for these 
institutions.
    Senator Warner. I hope, again, folks will be listening to 
this. We are not touching anything on the largest institutions 
in terms of the annual stress test on folks above 250, and as 
the Chairman of the Fed has indicated, even amongst those banks 
between 100 and 250, we are still going to have frequent, 
periodic stress tests that are still going to be strong, and 
the legislation lays out in some detail some of the 
requirements that we would have in those stress tests.
    My last question is this: In terms of overall enhanced 
prudential standards, we do move in this legislation from $50 
billion to $100 billion. But we give you then in the group of 
institutions between $100 and $250 billion an 18-month period 
to essentially tailor those standards more appropriately. And 
as you have indicated, we already have an institution below 
$250 billion that still qualifies as a SIFI. So I would just 
like to say again for the record, for folks who are watching 
and who will watch the debate next week, that you will take 
this responsibility of this 18-month rulemaking and do a 
thorough examination of the banks that fall in that category, 
and those that are claiming that somehow all enhanced 
prudential regulations of banks that fall into that category 
are going to suddenly magically disappear sure as heck is not 
the intent of this
individual in terms of that legislation and I hope is not the 
intent of the Fed.
    Mr. Powell. What I see us doing is creating a framework--we 
will be looking at all the institutions that are in that area 
and all the risks that might arise in banks between 250 and 
100, and we will create a framework for assessing where 
systemic risk might be, where there might be regional risks. We 
will look at everything. And that framework will then be in 
place in 18 months, and if there are institutions that are 
currently in that population or that over time become 
systemically risky or even risky to themselves, the way the 
legislation gives us a lot of flexibility to do that, then we 
will have that in place. And as you point out, we have not been 
shy about finding systemic risk under 250. We are perfectly 
happy to do that. So we will feel comfortable doing this job, I 
believe.
    Senator Warner. Listen, I look forward to a fair and 
spirited debate next week. A lot of Members have different 
views. But I think it is very, very important when people go 
about talking about doing away with stress tests or eliminating 
any kind of enhanced prudential regulations, that is not our 
intent. There may be some tailoring that goes on in this new 
category, but particularly for the larger institutions, status 
quo is going to remain.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. And Senator Heitkamp is next. I 
will let our Senators know we are 5 minutes on our way to the 
vote, so we have got to really go.
    Senator Heitkamp.
    Senator Heitkamp. Thank you. I just want to follow up a 
little bit on HMDA and clarify what--I was not able to attend 
because I had other hearings, but what I understand has been 
discussed has been a clarification from you that nothing in 
this bill that will be debated next week undermines the Fed's 
ability to enforce fair lending laws. Is that correct, Mr. 
Chairman?
    Mr. Powell. That is generally right. CFPB really writes 
these rules, and you should seek comment from them, if you 
like.
    Senator Heitkamp. But you would acknowledge that our bill 
preserves the traditional HMDA data collection on race?
    Mr. Powell. It does, yes.
    Senator Heitkamp. So while the bill does not undermine fair 
lending, it does meaningfully reduce substantial costs imposed 
on small lenders from HMDA data collection. I think this is the 
motivation. These costs can reach into the hundreds of 
thousands of dollars per year. One small institution estimates 
that the cost of HMDA quality assurance for their bank equals 
approximately $400,000 per year and involves five associates. 
So when it comes to regulation, we have to look at the benefits 
and the costs.
    One of the things that I think I just want to impress on 
people is that when you do not respond to these kinds of 
concerns, legitimate concerns from small lenders, there is a 
resentment to the overall policy that, you know, we tend to 
throw the baby out with the bath water because of the level of 
frustration.
    Wouldn't you agree that we could, in fact, reduce costs to 
small lenders and still maintain the protections provided by 
HMDA?
    Mr. Powell. Yes, I do agree.
    Senator Heitkamp. So when we are looking at going forward, 
I think it is important that we have a very spirited debate 
about this, but I think it also is very important that we put 
it in perspective and that we not exaggerate the results here 
or the purpose of this bill. And so, Chairman Powell, just one 
question, and I know you have been answering a lot of questions 
about the economy, writ large, but I wanted to just get your 
sense of economic growth as we look at--again, no big surprise 
I am going to ask a question about trade. I know you guys do 
not always like answering those questions. But it seems to me 
that we are now looking at a potential of tariffs being imposed 
on aluminum and steel for which there will be retaliation. We 
have, in fact, retreated somewhat from the commitments on 
NAFTA, and we no longer have a pathway into TPP.
    How concerned are you about the impacts of this trade 
policy of this Administration on our opportunity for economic 
growth long term?
    Mr. Powell. I will not comment directly on the 
Administration's policies, but I will say about trade that I 
think the record is clear that over long periods of time for 
many, many countries, trade is a net positive. It spreads 
productivity. It forces our companies to compete. It gives 
businesses and people the ability to buy and sell things in the 
world market. So, overall, the studies all show and theory 
would suggest that it is a good thing.
    But the benefits do not fall equally. There can be 
communities, there can be individuals who are negatively 
affected by trade, and we have seen a fair amount of that. I 
think it is more of that than probably was expected. And I 
think it is important that we address that as well so that you 
can sustain public support for trade.
    I think, you know, as Chairman Bernanke said, the tariff 
approach is not the best approach there. The best approach is 
to deal directly with the people who are affected rather than 
falling back on tariffs, but, again, these are not measures 
that are consigned to us. They are really for you and for the 
Administration.
    Senator Heitkamp. But I think that these are measures that 
are going to have an effect on the kind of economic analysis 
that you do that is going to lead to monetary policy. I do not 
think there is any doubt that trade will have a dramatic impact 
on economic growth, and I am very, very concerned about making 
sure that our trade policy is consistent with economic growth 
and also very concerned about the speed at which systems today 
can react to trade policy as opposed to maybe 20 or 30 years 
ago when it was kind of, you know, plodding along. It was OK if 
the WTO took 10 years. Today I do not think that is true, and I 
do not think it is true that it is OK that it takes 10 years to 
get back into TPP. I think things will move a lot quicker, and 
they are going to have--it is going to have a dramatic effect 
on our ability to be competitive in this country and to 
encourage investment and growth.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman. And 
thank you, Mr. Chairman, for being here today.
    One of the things that we have noticed over the last many 
years is the decline in workforce participation of prime-age 
men. In fact, the Kansas City Fed has done a lot of good 
analytical work on this. One reason is automation. Those are 
particularly the types of jobs, it seems, that are easily 
replaced by some type of technology--machines and computers, et 
cetera. As we go forward, I would assume that that trend will 
continue, and it raises the question of how does the Fed plan 
to forecast these effects of automation with your mandate for 
full employment? We could find ourselves technically at full 
employment but with millions of Americans who are out of luck 
and out of jobs and technically not in the workforce. How are 
you going to deal with that?
    Mr. Powell. The long history of this, as I am sure you 
know, is technology comes in and it can displace people, but 
ultimately if society--if the people in society have the skills 
and aptitudes to benefit from technology, then the advent of 
technology lifts all boats. So for 200 years really, since the 
Industrial Revolution, we have faced this problem, and over 
longer periods of time, it has always been the case that 
technology lifts all boats in a way.
    Now, I do not think there is any law of nature that says 
that that has to continue, and the reason--the part of it that 
we control is skills and aptitude of our labor force. To the 
extent people have the skills and aptitudes to benefit from 
technology, to operate technology, then they will benefit from 
it. And to the extent they do not, it is people with the high 
school degree and less who have really experienced the worst of 
this. You know, that is where wages are low, that is where 
labor force participation is low, all those things.
    So it is a really easy thing to say and a really hard thing 
to do, but it comes down to education.
    Senator Reed. Do you think we are doing enough in terms of 
education, in terms of Federal, State, local investment? We 
just saw West Virginia shut down for 2 days because their 
teachers felt they were not being compensated well enough, and 
we have a situation I think in Oklahoma where they are only 
going to school 4 days a week because of budget problems. So I 
agree with you, education is a key. We just do not seem to get 
that message.
    Mr. Powell. There is nothing in the productivity data or 
any other economic data that suggests we are handling this 
problem well. All around the world, others are catching up and 
passing.
    Senator Reed. And exceeding us.
    Mr. Powell. Yes.
    Senator Reed. Yes. One other point, and this is sort of a 
passionate issue with me, and that is the Military Lending Act. 
The Federal Reserve has the responsibility among many agencies 
to enforce it. The Department of Defense promulgated 
regulations in 2015 which I think are tougher. It essentially 
says you cannot charge someone in uniform over 36 percent 
interest. That seems to me a pretty fair rule. And having just 
come back from Somalia and being with Special Forces people and 
their families back home, I think this has to be enforced 
aggressively. Can you tell me what you are doing to make sure 
that your responsibilities under this rule are vigorous and 
proactive and relentless?
    Mr. Powell. Well, we share your view about the importance 
and value of enforcing this, I assure you, and this is one 
where--as I think we have discussed, this is a very important 
regulation, and it will get aggressive enforcement from us.
    Senator Reed. And you will get the message out to your 
regulated entities that this is really at the top of your list?
    Mr. Powell. Yes, we will.
    Senator Reed. Thank you, sir.
    Chairman Crapo. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. And welcome, 
Mr. Chairman. Good to have you here in the Banking Committee in 
your official capacity.
    I know there has been some discussion about stock buybacks. 
Stock buybacks are primarily a way for corporations to increase 
the share price. Isn't that right?
    Mr. Powell. Yes. I mean, it works in that way, yes. It is a 
way for companies to distribute cash to shareholders as well.
    Senator Van Hollen. Exactly. So I do think it is worth 
pointing out that since the tax bill was passed, which was in 
large part advertised as a way to dramatically increase wages 
of workers--in fact, the predictions were $4,000-a-year pay 
increases. We have seen the overwhelming amount of the money 
that has gone to corporations used for stock buybacks, in fact, 
$200 billion of stock buybacks just in the first 2 months of 
this year alone, including a $20 billion stock buyback from 
Wells Fargo, a major financial institution that we have had a 
lot of discussion about in this Committee, primarily because of 
a violation of consumer protection issues.
    I do think it is also worth pointing out that over 35 
percent of the stock owned is actually owned by foreigners and 
foreign entities, which is why the Prime Minister of Norway, 
when she visited a short time ago, thanked President Trump for 
the tax bill because it dramatically boosted the stock value of 
the Norwegian Government and its holdings. But it means money 
not going into the economy, generally speaking, direct 
investment by those corporations.
    I wanted to ask you about the issue of cybersecurity and 
the impact of cyber attacks on our overall economy. We have 
seen big banks that have been victims of cyber attacks like 
JPMorgan. I believe the Fed in the past has been the victim of 
some cyber intrusions. And the Council for Economic Advisers 
just put out a report indicating that malicious cyber activity 
cost the economy between $57 billion and $109 billion in 2016--
a big number--and the Chairman of the Committee has spent a lot 
of time focusing on this issue, and we had a hearing 
specifically on the Equifax breach.
    This evening, I am going to be teaming up with our Maryland 
State Attorney General, Brian Frosh, to have a forum on 
consumer protection. Seven hundred people have already signed 
up for this, and we expect many of them to have been victims of 
the Equifax breach.
    My understanding is there has been reporting, first of all, 
just this morning, that Equifax found an additional 2.4 million 
people impacted by the breach, and there was also a February 
4th report saying that U.S. consumer protection official puts 
Equifax probe on ice, and the article says that the CFPB, under 
the leadership of Mr. Mulvaney, has ``rebuffed bank regulators 
at the Federal
Reserve, the FDIC, and the OCC when they offered to help with 
onsite exams of credit bureaus in connection with the Equifax 
investigation.''
    Can you confirm whether or not the Consumer Financial 
Protection Bureau has rebuffed offers by the Fed to help them 
get to the bottom of the Equifax----
    Mr. Powell. No, I cannot. I had not heard that.
    Senator Van Hollen. If you could get back to us--I mean, 
this is a publicly reported document. Would you be willing to 
get back to us and let us know, confirm or say one way or 
another?
    Mr. Powell. Sure.
    Senator Van Hollen. I appreciate that very much.
    In terms of the impact on banks, you have the direct 
impact--banks are also impacted when those that have less cyber 
protections--you know, Target, for example--are hacked, and as 
a result of that, the banks have to pay the credit card cost 
directly to consumers. And then they have got to go recoup that 
money from other entities. And so one of the things I have been 
focused on and the Committee has talked about is to try to get 
the SEC to increase its oversight with respect to cyber attacks 
and especially their responsibilities to disclose to the public 
in a timely manner. And I would just ask you if you could work 
with us and the other regulators in trying to come up with 
disclosure requirements that provide the public with adequate 
notice of these cyber breaches so they can protect themselves 
from the cost, not just the public but banks and others as 
well. I would appreciate that if you could do that.
    Mr. Powell. We would be glad to.
    Senator Van Hollen. Thank you.
    Mr. Powell. Thanks.
    Chairman Crapo. Thank you. And, Chairman Powell, Senator 
Brown has said----
    Senator Brown. I will be very brief, respecting your time 
and our getting to the vote. I heard you say a number of times 
in response to questions that there will be no relaxing of the 
rules for foreign banks, and I want to just--I just do not 
agree with that. A Treasury report last year, the 
Administration made it clear it wanted to lower standards. 
Secretary Mnuchin testified, sitting where you are right now, 
in January that he believed the bill would accomplish the goal. 
Paul Volcker has said it does. Sarah Bloom Raskin said that 
there will be less regulation of the foreign banks. Antonio 
Weiss said the same.
    I had an amendment during the markup on that issue, and it 
was defeated. Foreign banks lobbied against that amendment. The 
bill's supporters rejected it.
    I have three very related questions. I will ask the three 
consecutively, and you can either answer them now or get them 
in writing to me, if you would. Promises she will push back 
against foreign bank lobbyists and Secretary Mnuchin to ensure 
that no foreign bank with more than $50 billion in U.S. assets 
will benefit from any deregulation. I would like that promise 
from you that you will push back against foreign bank lobbyists 
and Secretary Mnuchin.
    I would like to know what you plan to do when a foreign 
bank sues the Fed for not treating it equally to a U.S.-based 
bank that falls in that 50 to 250 category.
    And I guess my final question: Wouldn't it better to amend 
this bill to avoid litigation and make sure it does not benefit 
large foreign banks? So if you want to respond now, or you can 
respond in writing.
    Mr. Powell. Why don't we take those under advisement and 
give you a clear response in writing quickly.
    Senator Brown. Fair enough. OK.
    Thank you, Mr. Chairman.
    Chairman Crapo. All right. Thank you. And that does 
conclude the questioning. Again, I want to thank you, Chairman 
Powell, for being here and for the service you are giving to 
our country.
    For Senators who wish to submit questions for the record, 
those questions are due on Thursday, March 8th, and I encourage 
you, Chairman Powell, if you receive additional questions, to 
respond to them promptly.
    I also apologize that because of the pressure we have on 
the vote I am going to have to conclude this hearing and then 
run to the floor, so I will not be able to visit with you 
privately or more personally after your testimony, but we will 
have plenty of opportunities to do so.
    With that, the hearing is adjourned.
    Mr. Powell. Thank you, Mr. Chairman.
    [Whereupon, at 12:06 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Welcome, Chairman Powell, for your first appearance before this 
Committee as Chairman of the Federal Reserve Board of Governors, and 
congratulations on your confirmation.
    Today's hearing is an important opportunity to examine the current 
state of monetary and regulatory policy.
    Over the past few years, the Humphrey-Hawkins hearing has often 
served as an opportunity for Members of this Committee to review the 
new regulations imposed in the wake of the financial crisis.
    While I did not always agree with former Chairman Bernanke and 
former Chair Yellen, I appreciated their willingness to engage with the 
Committee and discuss possible improvements to the regulatory regime.
    These discussions were helpful in building common ground for our 
banking bill, S. 2155, particularly for provisions like the threshold 
for enhanced standards under Section 165 of Dodd-Frank.
    This bipartisan bill now has 13 Republican and 13 Democratic and 
Independent co-sponsors.
    The bill was the result of a thoughtful, deliberative process over 
several years that included hearings, briefings, meetings and written 
submissions from hundreds of commentators and stakeholders.
    The primary purpose of the bill is to make targeted changes to 
simplify and improve the regulatory regime for community banks, credit 
unions, midsize banks and regional banks to promote economic growth.
    Economic growth has been a key priority for this Committee and this 
Administration this Congress.
    The U.S. economy has failed to grow by more than 3 percent annually 
for more than a decade, by far the longest stretch since GDP has been 
officially calculated.
    But now, there are widespread expectations that growth is finally 
picking up.
    According to the January FOMC meeting minutes, the Federal Reserve 
increased its expectations for real GDP growth going forward, after 4th 
quarter growth exceeded expectations.
    The Fed cited the recently enacted tax reform legislation as among 
the reasons economic growth is expected to rise.
    In addition to tax reform, President Trump's recently released 
Budget and Economic Report both emphasize that regulatory reform is a 
key component of rising productivity, wages and economic growth.
    By right-sizing regulation, the Committee's economic growth bill 
will improve access to capital for consumers and small businesses that 
help drive our economy.
    Now that many are predicting a pickup in growth, a number of 
commentators have expressed sudden concerns about the economy 
overheating.
    While the Federal Reserve should remain vigilant in monitoring 
inflation risks, we also must continue to pursue commonsense, pro-
growth policies that will lead to increased innovation, productivity, 
and wages.
    With respect to monetary policy, I am encouraged that the Federal 
Reserve is continuing on its gradual path to monetary policy 
normalization.
    The Fed has begun to reduce its balance sheet by steadily 
decreasing the amount of principal it reinvests as assets in its 
portfolio mature.
    I look forward to hearing more about the Fed's monetary policy 
outlook as part of Chairman Powell's testimony today.
    I also look forward to hearing about the Federal Reserve's ongoing 
efforts to review, improve and tailor existing regulations.
    I know that you are working with Vice Chairman for Supervision 
Randy Quarles on those issues.
    Vice Chairman Quarles has done an excellent job so far, and I urge 
Congress to confirm him for his full term on the Board as soon as 
possible.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Chairman Crapo, thank you for holding this hearing.
    Chair Powell, welcome back to the Committee, and for the first time 
in your new role. You are leading the Federal Reserve at a crucial 
time, as the Fed normalizes interest rates and shrinks its balance 
sheet.
    The country is in its ninth year of economic recovery, though 2017 
marked the worst year for job creation since 2010. And the recovery has 
not reached everyone. Wage growth has been slow and labor force 
participation has barely improved since 2014. Nine years of job growth 
have still not done much to narrow income inequality or address 
employment disparities.
    Nationwide, the unemployment rate for black workers is double that 
for whites-equal to the gap at the start of the civil rights movement. 
Looking more broadly, labor force participation is down for all 
minorities.
    Statistics show that large pockets of people are waiting to share 
in the benefits from the recovery. Instead of addressing their 
problems, Republicans are working hard to help Wall Street banks that 
are raking in profits.
    Despite the fact that we are 9 years removed from the recession, 
this Administration has embarked on a substantial fiscal stimulus, 
permanently slashing the corporate tax rate and providing the largest 
benefits to the wealthiest Americans. Of course, Wall Street, which is 
making record profits, will do well.
    Instead of fighting for workers and making sure labor market 
opportunities are shared among those who have been struggling, 
Republicans would rather push for tax cuts for corporations and the 
wealthy.
    Those tax cuts are not free-they will add over a trillion dollars 
to the deficit. The once and future deficit hawks on the other side of 
the aisle were more like marshmallow Peeps when confronted with tax 
cuts for the wealthy.
    The ink was barely dry when we began to hear calls for spending 
cuts that will hurt families across the country-the so-called 
``entitlement reform'' that everyone should understand means cuts to 
Medicare, Medicaid, and Social Security.
    The claim was that it would all be worth it, because workers would 
benefit.
    I'm happy for any Ohioan who gets a raise, but we have seen how 
banks and corporations have responded to the tax cuts, and the numbers 
are staggering. In January, Wells Fargo announced a $22.5 billion stock 
buyback-288 times what it will spend on pay raises for its workers.
    This year, companies will start disclosing CEO-to-worker pay 
ratios, as required under the Wall Street Reform Act. Honeywell, which 
announced an $8 billion stock buyback in December, just disclosed that 
its CEO is getting a 61 percent pay raise and makes 333 times the 
average worker's pay.
    It's pretty simple--for each pay raise or bonus for workers, 
companies are often spending a hundred or two hundred times as much on 
stock buybacks and executive compensation.
    It gets worse.
    While the biggest banks lavish pay raises and stock giveaways on 
their executives, they continue to violate the law and abuse their 
customers. The Fed recently imposed an unprecedented-if belated-penalty 
on Wells Fargo following several scandals, including the opening of 
millions of fake accounts and improperly charging borrowers for auto 
insurance they didn't need.
    The Fed told Wells Fargo it can't grow until it demonstrates that 
it has improved board oversight and risk management. It sounds like the 
Fed has come to the conclusion many of us on this Committee reached a 
year and half ago-Wells Fargo is ``too big to manage''. I'll be closely 
watching to make sure the new team at the Fed doesn't lift these 
penalties, without the bank making real changes.
    And, it's not just Wells Fargo. Last week, Citigroup announced it 
illegally overcharged nearly two million credit card accounts for over 
5 years, and that it will refund $335 million to customers.
    Though Wall Street can't seem to go a month without a new scandal, 
the Senate is set to take up a bill that would roll back critical 
financial stability protections and limit watchdogs' ability to police 
the largest banks.
    We can expect the banks to spend any savings from less oversight 
the same way they spent their tax cuts-more dividends, share buybacks, 
and mergers.
    Chair Powell, Wall Street may be focused on whether there are three 
or four rate hikes this year, but I think your focus needs to be on 
ensuring the Fed doesn't once again permit the buildup of risk in the 
market and hubris at the Fed. The Great Moderation turned out to be not 
so great, and we forget that lesson at our peril.
    The Fed needs to take the side of consumers-making sure the 
financial system stays strong and regulations are enforced. Chair 
Powell, I look forward to your testimony.
    Thank you, Mr. Chairman.
                                 ______
                                 
                 PREPARED STATEMENT OF JEROME H. POWELL
       Chairman, Board of Governors of the Federal Reserve System
                             March 1, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
I am pleased to present the Federal Reserve's semiannual Monetary 
Policy Report to the Congress.
    On the occasion of my first appearance before this Committee as 
Chairman of the Federal Reserve, I want to express my appreciation for 
my predecessor, Chair Janet Yellen, and her important contributions. 
During her term as Chair, the economy continued to strengthen and 
Federal Reserve policymakers began to normalize both the level of 
interest rates and the size of the balance sheet. Together, Chair 
Yellen and I have worked to ensure a smooth leadership transition and 
provide for continuity in monetary policy. I also want to express my 
appreciation for my colleagues on the Federal Open Market Committee 
(FOMC). Finally, I want to affirm my continued support for the 
objectives assigned to us by the Congress--maximum employment and price 
stability--and for transparency about the Federal Reserve's policies 
and programs. Transparency is the foundation for our accountability, 
and I am committed to clearly explaining what we are doing and why we 
are doing it. Today I will briefly discuss the current economic 
situation and outlook before turning to monetary policy.
Current Economic Situation and Outlook
    The U.S. economy grew at a solid pace over the second half of 2017 
and into this year. Monthly job gains averaged 179,000 from July 
through December, and payrolls rose an additional 200,000 in January. 
This pace of job growth was sufficient to push the unemployment rate 
down to 4.1 percent, about \3/4\ percentage point lower than a year 
earlier and the lowest level since December 2000. In addition, the 
labor force participation rate remained roughly unchanged, on net, as 
it has for the past several years--that is a sign of job market 
strength, given that retiring baby boomers are putting downward 
pressure on the participation rate. Strong job gains in recent years 
have led to widespread reductions in unemployment across the income 
spectrum and for all major demographic groups. For example, the 
unemployment rate for adults without a high school education has fallen 
from about 15 percent in 2009 to 5 \1/2\ percent in January of this 
year, while the jobless rate for those with a college degree has moved 
down from 5 percent to 2 percent over the same period. In addition, 
unemployment rates for African Americans and Hispanics are now at or 
below rates seen before the recession, although they are still 
significantly above the rate for whites. Wages have continued to grow 
moderately, with a modest acceleration in some measures, although the 
extent of the pickup likely has been damped in part by the weak pace of 
productivity growth in recent years.
    Turning from the labor market to production, inflation-adjusted 
gross domestic product rose at an annual rate of about 3 percent in the 
second half of 2017, 1 percentage point faster than its pace in the 
first half of the year. Economic growth in the second half was led by 
solid gains in consumer spending, supported by rising household incomes 
and wealth, and upbeat sentiment. In addition, growth in business 
investment stepped up sharply last year, which should support higher 
productivity growth in time. The housing market has continued to 
improve slowly. Economic activity abroad also has been solid in recent 
quarters, and the associated strengthening in the demand for U.S. 
exports has provided considerable support to our manufacturing 
industry.
    Against this backdrop of solid growth and a strong labor market, 
inflation has been low and stable. In fact, inflation has continued to 
run below the 2 percent rate that the FOMC judges to be most consistent 
over the longer run with our congressional mandate. Overall consumer 
prices, as measured by the price index for personal consumption 
expenditures (PCE), increased 1.7 percent in the 12 months ending in 
December, about the same as in 2016. The core PCE price index, which 
excludes the prices of energy and food items and is a better indicator 
of future inflation, rose 1.5 percent over the same period, somewhat 
less than in the previous year. We continue to view some of the 
shortfall in inflation last year as likely reflecting transitory 
influences that we do not expect will repeat; consistent with this 
view, the monthly readings were a little higher toward the end of the 
year than in earlier months.
    After easing substantially during 2017, financial conditions in the 
United States have reversed some of that easing. At this point, we do 
not see these developments as weighing heavily on the outlook for 
economic activity, the labor market, and inflation. Indeed, the 
economic outlook remains strong. The robust job market should continue 
to support growth in household incomes and consumer spending, solid 
economic growth among our trading partners should lead to further gains 
in U.S. exports, and upbeat business sentiment and strong sales growth 
will likely continue to boost business investment. Moreover, fiscal 
policy is becoming more stimulative. In this environment, we anticipate 
that inflation on a 12-month basis will move up this year and stabilize 
around the FOMC's 2 percent objective over the medium term. Wages 
should increase at a faster pace as well. The Committee views the near-
term risks to the economic outlook as roughly balanced but will 
continue to monitor inflation developments closely.
Monetary Policy
    I will now turn to monetary policy. The Congress has assigned us 
the goals of promoting maximum employment and stable prices. Over the 
second half of 2017, the FOMC continued to gradually reduce monetary 
policy accommodation. Specifically, we raised the target range for the 
Federal funds rate by \1/4\ percentage point at our December meeting, 
bringing the target to a range of 1 \1/4\ to 1 \1/2\ percent. In 
addition, in October we initiated a balance sheet normalization program 
to gradually reduce the Federal Reserve's securities holdings. That 
program has been proceeding smoothly. These interest rate and balance 
sheet actions reflect the Committee's view that gradually reducing 
monetary policy accommodation will sustain a strong labor market while 
fostering a return of inflation to 2 percent.
    In gauging the appropriate path for monetary policy over the next 
few years, the FOMC will continue to strike a balance between avoiding 
an overheated economy and bringing PCE price inflation to 2 percent on 
a sustained basis. While many factors shape the economic outlook, some 
of the headwinds the U.S. economy faced in previous years have turned 
into tailwinds: In particular, fiscal policy has become more 
stimulative and foreign demand for U.S. exports is on a firmer 
trajectory. Despite the recent volatility, financial conditions remain 
accommodative. At the same time, inflation remains below our 2 percent 
longer-run objective. In the FOMC's view, further gradual increases in 
the Federal funds rate will best promote attainment of both of our 
objectives. As always, the path of monetary policy will depend on the 
economic outlook as informed by incoming data.
    In evaluating the stance of monetary policy, the FOMC routinely 
consults monetary policy rules that connect prescriptions for the 
policy rate with variables associated with our mandated objectives. 
Personally, I find these rule prescriptions helpful. Careful judgments 
are required about the measurement of the variables used, as well as 
about the implications of the many issues these rules do not take into 
account. I would like to note that this Monetary Policy Report provides 
further discussion of monetary policy rules and their role in the 
Federal Reserve's policy process, extending the analysis we introduced 
in July.
    Thank you. I would be pleased to take your questions.

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT FROM JEROME H. 
                             POWELL

Q.1. Unemployment is at 4.1 percent. Wages are up 2.9 percent 
compared to a year ago--that's the biggest hike since June 
2009. The economy's growing at a healthy rate--3.2 percent 
during Q3 and 2.6 percent in Q4. Tax reform is going to boost 
that number back above 3 percent. Despite all the positive 
indicators, the market had several down days last month. Most 
of them were around your swearing in. If look back at the 
recent past, the Federal Reserve and your predecessors have 
cited stock market volatility as a reason to not raise interest 
rates. The Fed backed down so many times that this became 
learned behavior: stock market volatility means no hike in 
interest rates. Congress says to seek maximum employment and 
stable prices . . . no more and no less. Please answer the 
following with specificity:

Q.1.a. Is a rising stock market a pillar of monetary policy?

A.1.a. My colleagues on the Federal Open Market Committee 
(FOMC) and I set monetary policy with the sole purpose of 
achieving and sustaining our statutory objectives of maximum 
employment and price stability. Because monetary policy affects 
the economy and inflation with a lag, we need to be forward 
looking in
setting policy. That is why, each time the FOMC meets, we 
assess the implications of incoming information, including 
information about financial conditions broadly defined, for the 
economic outlook. Our current assessment, based on all 
available information, is that further gradual increases in our 
target for the Federal funds rate will prove most appropriate 
for achieving and sustaining the objectives the Congress has 
assigned to the FOMC. We do not have a target for asset prices 
and we recognize that asset price fluctuations do not 
necessarily alter the economic outlook. Moreover, financial 
conditions are only one of many factors that can affect the 
outlook for the economy.

Q.1.b. Has recent stock market volatility deterred you from 
your plan to raise rates later this year?

A.1.b. After carefully considering all available information 
necessary to assess where the economy stood relative to the 
goals of maximum employment and price stability, and how it was 
likely to evolve, the FOMC concluded, on March 21, that it 
would be appropriate to raise the target range for the Federal 
funds rate by a further 25 basis points. Moreover, FOMC 
participants generally saw the economic outlook as somewhat 
stronger than was the case in December, and continued to judge 
that further gradual increases in the Federal funds rate are 
likely to be warranted if the economy continues to evolve as 
expected. Indeed most participants anticipated that, in light 
of the stronger outlook, the Federal funds rate might rise 
slightly more, in coming years, than they had
anticipated in December. Please bear in mind that we do not 
have a fixed plan for the path of the Federal funds rate. We 
will be watching how the economy evolves in the months and 
years ahead relative to our maximum employment and price 
stability objectives. If the outlook changes, we will adjust 
monetary policy appropriately.

Q.2. I sold insurance for over 20 years, and I've said it many 
times: our State-based system of insurance regulation is the 
best in the world. The President's Executive order on financial 
regulation and other Administration reports favor a deferential 
approach by the Fed to working with primary financial 
regulators. When it comes to the business of insurance that 
means State-based insurance regulators. Please answer the 
following with specificity:
    How will you and the Federal Reserve integrate State-based 
insurance regulators into your work?

A.2. The State-based system of insurance regulation provides an 
invaluable service in protecting policyholders. The Federal 
Reserve's principal supervisory objectives for all of the 
insurance holding companies that we oversee include protecting 
the safety and soundness of the consolidated firms and 
protecting any subsidiary depository institution, which 
encompasses protecting the depositors and taxpayer-backed 
deposit insurance fund. The Federal Reserve also undertakes 
supervision, through reporting, examination, and other 
engagement, of entities in an insurance enterprise that are not 
subject to financial regulation in order to protect against 
extant or emerging threats to the consolidated enterprise's 
safety and soundness.
    The Federal Reserve's consolidated supervision thus is 
complementary to, and supplements, existing entity-level 
supervision by the primary functional regulators, with a 
perspective that considers the risks across the entire firm. We 
conduct our consolidated supervision of all insurance firms in 
coordination with State departments of insurance (DOIs), who 
continue their established oversight of the insurance 
subsidiaries. In order to maximize efficiencies and eliminate 
supervisory duplication or ``layering,'' we rely upon the work 
and supervisory findings of the State DOIs to the greatest 
extent possible. We intend to continue to do so. Federal 
Reserve supervisors regularly meet, share supervisory 
information, and collaborate with State DOIs. We remain open to 
input from supervised firms, State DOIs, and other interested 
parties on how we can further tailor and better coordinate our 
supervision while achieving our supervisory objectives.
    Moreover, in the ongoing development of a Federal Reserve 
capital standard for savings and loan holding companies 
significantly engaged in insurance activities (described as the 
Building Block Approach (BBA) in the Federal Reserve's advance 
notice of proposed rulemaking of June 2016), Federal Reserve 
staff have
engaged, and continues to engage, with State regulators and the 
National Association of Insurance Commissioners in their 
development of the group capital calculation, a capital 
assessment that is structurally similar to the BBA. This 
ongoing dialogue aims to achieve harmonious frameworks to the 
greatest extent possible and minimize burden upon insurance 
firms supervised by both the States and Federal Reserve.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE FROM JEROME H. 
                             POWELL

Q.1. As you know, the Administration has invoked Section 201 of 
the Trade Act of 1974 to impose significant tariffs on solar 
panels and washing machines.

Q.1.a. As Federal Reserve Chairman, your job is to stay abreast 
on the state of our economy. These tariffs will almost 
certainly impact our economy, I believe for the worse. What 
economic indicators are you consulting to evaluate the economic 
impact of these tariffs?

Q.1.b. What has been the international response to these 
tariffs and the initial economic impact of these tariffs?

A.1.a.-b.The Federal Reserve is entrusted to achieve its 
congressionally mandated objectives of price stability and 
maximum sustainable employment. Matters of trade policy are the 
responsibility of Congress and the Administration.
    Although the implemented trade actions do have consequences 
for specific industries, these trade actions are targeted 
enough that they are likely to have small effects on aggregate 
price stability and national employment. Federal Reserve staff 
closely monitor data on U.S. trade flows as well as domestic 
price developments, both of which could be affected by tariff 
rate increases.
    The international response has been consistent with World 
Trade Organization (WTO) rules. Canada, China, the European 
Union, Japan, South Korea, and Taiwan have been holding 
consultations with the United States under the World Trade 
Organization rules to protest the measures. China has claimed 
the right to suspend tariff concessions immediately equal to 
the amount of trade affected, and did so the week of April 2. 
The affected countries will likely proceed with the filing of 
WTO cases against the United States.

Q.2. The Administration has announced that it will impose 25 
percent tariffs on steel and 10 percent tariffs on aluminum 
under Section 232 of the Trade Expansion Act of 1962.

Q.2.a. Can you identify any historical examples where tariffs 
have helped the United States economy or otherwise fixed the 
problem it was intended to address?

Q.2.b. Based on the record of the Bush administration's 2002-
2003 steel tariffs and other historical examples, how would you 
expect this 25 percent tariff on steel and aluminum to impact 
the U.S. economy?

Q.2.c. Would this answer change if countries responded with 
economic retaliation against the United States, such as through 
tariffs? For example, I hear constantly from Nebraskan 
agriculture and manufacturing stakeholders of their concern 
that other countries will respond to the potential trade 
barriers by retaliating against agriculture.

Q.2.d. Historically, what industries would be most impacted by 
this economic retaliation? For example, would agriculture be 
impacted?

Q.2.e. In 12 months, what economic data would you consult to 
evaluate the net economic impact of these tariffs in the United 
States?

A.2.a.-e. International trade, facilitated by low barriers to 
trade, is likely beneficial to the U.S. economy on net. History 
has shown that countries that are open to trade often are more 
productive and grow faster than countries that are relatively 
closed to trade. The challenge is that the gains from trade are 
not guaranteed to be distributed as to make everyone better 
off. It is important to realize that openness to trade can 
cause dislocation and impose costs on some industries and 
workers. In part because of these costs, effort should be taken 
to ensure that trade occurs on a level playing field.
    Higher tariffs on products such as steel and aluminum would 
tend to reduce imports of these products, and shift demand 
toward U.S.-produced steel and aluminum. Although U.S. 
producers may benefit from increased domestic demand, other 
U.S. firms likely would have to pay more for these products 
when used as an intermediate input, increasing their production 
costs. Currently, most of the major exporters of steel and 
aluminum to the United States are subject to exemptions from 
the tariffs, including Canada, the European Union, and Mexico. 
As such, the effects may be muted.
    The granted exemptions are more extensive than in past 
episodes. For example, during the 2002 safeguard tariffs on 
steel, the European Union, a significant supplier of steel to 
the United States, was not excluded. Even so, the effects on 
employment and inflation from the 2002 measures were fairly 
muted.
    If countries retaliate by increasing their tariffs on U.S. 
goods, this will likely hurt exporting industries in the United 
States by reducing their competitiveness and demand for their 
products. Retaliation is typically equivalent in size to the 
affected sales to the United States.
    China's announcement of retaliatory tariffs on products 
such as fruit and pork on April 1 were in direct response to 
the steel and aluminum tariffs, and the total amount subject to 
tariffs was picked to match the total amount of Chinese exports 
of these products (about $3 billion). China also has threatened 
to retaliate against a larger list of products, depending on 
what measures the United States Government takes in response to 
its investigation under section 301 of the Trade Act of 1974 
into China's policies related to technology transfer, 
intellectual property, and innovation.
    In calibrating retaliation, foreign countries often target 
industries in which the United States has a comparative 
advantage, such as agriculture. In part, this reflects that the 
United States tends to export more from sectors in which it is 
relatively productive. In addition, agriculture can make an 
appealing target for retaliation as agricultural products tend 
to be relatively homogenous, allowing the retaliating country 
to shift purchases away from the United States toward 
alternative producers with less disruption to local consumers.
    The Federal Reserve looks at a wide range of data to assess 
the state of the economy. Data which might be used to evaluate 
the effects of the tariffs would include import and export 
data, as well as the prices of imports and exports. In 
addition, domestic employment and overall retail prices might 
be informative.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ FROM JEROME H. 
                             POWELL

Q.1. I would like to follow up on our ongoing conversation on 
the economic impacts of climate change. I understand that the 
Federal Reserve's mandate and tools are entirely focused on 
monetary policy. However, the Federal Reserve's implementation 
of monetary policy is informed by its assessment of the U.S. 
economy, including future economic trends and risks. According 
to your answer to a question I posed during your confirmation, 
your position is that the Federal Reserve is only concerned 
with ``short- and medium-term developments that may change 
materially over quarters and a relative small number of years, 
rather than the decades associated with the pace of climate 
change.''

Q.1.a. How did you arrive at the determination that there are 
no short- or medium-term impacts of climate change?

Q.1.b. Have you or your staff considered or reviewed data from 
our Government's scientific agencies about the rate of climate 
change?

Q.1.c. In 2017, NOAA reported 16 separate billion-dollar 
climate events. Combined, these events cost the U.S. economy 
over $300 billion--roughly 1.5 percent of U.S. GDP. Do you 
think that severe weather events that cost the equivalent of 
1.5 percent of GDP qualify as short- and medium-term 
developments that the Federal Reserve should be concerned 
about?

Q.1.d. Will you commit to having a staff-level conversation 
about these data sources to consider whether they should be a 
resource the Federal Reserve uses when assessing the national 
economic outlook and future economic risks?

A.1.a.-d. Each and every severe weather event reported by the 
National Oceanographic and Atmospheric Administration (NOAA) is 
consequential for the individuals and communities that are 
directly affected. The most severe of these events can 
seriously damage the lives and livelihoods of many individuals 
and families, devastate local economies, and even temporarily 
affect national economic statistics such as GDP and employment. 
In that sense, severe weather events do have important short-
term effects on economic conditions. And in assessing current 
economic conditions, such as our published statistics on 
industrial production, we take into account information on the 
severity of weather events. For example, we relied on 
information from the Federal Emergency Management Agency and 
the Department of Energy to gauge the disruptions to oil and 
gas extraction, petroleum refining, and petrochemical and 
plastic resin production caused by last fall's hurricanes. 
Likewise, we frequently use daily measures of temperatures and 
snowfall at weather stations throughout the country from the 
NOAA to assess the short-run economic impact associated with 
unusually large snowfall events.
    However, severe weather events are difficult to predict 
very far in advance. Moreover, the historical regularity has 
been that these type of events have not materially affected the 
business cycle trajectory of the national economy, both because 
the disruptions to production have tended to be relatively 
short-lived and because such events tend to affect specific 
geographic areas rather than the United States as a whole. In 
contrast, monetary policy has
broad-based effects on the U.S. economy and tends to influence 
macroeconomic conditions with a lag. As a result, monetary 
policy is not well suited to address the economic disruptions 
associated with severe weather events. That said, the most 
severe of these events have imposed a significant drain on 
public resources. If such events become much more frequent or 
more severe, the fiscal cost would likely mount, and that would 
be an important issue for the Congress to consider.
    My staff is available to discuss these issues further if 
you would find that helpful.

Q.2. There is currently $1.4 trillion in outstanding student 
loan debt, the highest category of consumer debt behind 
mortgages. It is also the most delinquent, with 11 percent of 
borrowers seriously delinquent or in default. The Federal 
Reserve Board of New York estimates this number is likely twice 
that rate, once borrowers who are in forbearance are taken into 
account. At the hearing, you agreed that student loan debt 
could create a drag on the economy as student loan debt 
continues to grow.

Q.2.a. What indicators should we track to determine when 
student loan debt is starting to have a real impact on the 
economy?

Q.2.b. What are the ways in which student loan debt could hold 
back the economy and how much of an effect do you think it 
could have?

A.2.a.-b. Student loan debt can potentially hold back the 
economy through several mechanisms. First, high levels of 
student loan debt (and the financial burden associated with 
repaying such debt) may hold back student loan borrowers' 
savings and therefore affect decisions such as home purchases, 
investment, marriage, and starting a family. Second, high 
levels of student loan debt may increase debt-to-income ratios 
or reduce credit scores, leaving some borrowers with more 
limited access to mortgage, auto, and credit card loans. In 
addition, unlike other types of household debt, student loans 
are not dischargeable in bankruptcy, which can make these loans 
more burdensome in times of financial hardship. Third, if 
student loan debt becomes exceedingly burdensome, students may 
be discouraged from taking loans to go to college, thereby 
dampening human capital accumulation in the economy.
    One important caveat to underscore is that if student loan 
borrowers earn more over their lifetimes as a result of 
obtaining more education, student loans would likely help 
strengthen the economy, instead of holding it back.
    Accordingly, there are several indicators one could track 
to gauge the possible impact of student loan debt on the 
economy. Such indicators include auto purchases, home ownership 
and household formation rates, as well as savings and 
investment behavior, especially among young adults with student 
loan debt. In addition, one could track the credit performance 
of student loan borrowers, not only on their student debt, but 
also on other types of debt.

Q.3. So far, companies benefiting from the recent tax cuts have 
announced over $200 billion in stock buybacks. In contrast, 
companies have announced only $6 billion in worker bonuses and 
raises.

Q.3.a. As far as possible investments go, do you think stock 
repurchases offer the greatest potential for boosting 
productivity and economic growth?

Q.3.b. How do they compare to investments in capital, 
innovation, or worker compensation in terms of the potential 
for increases in productivity and economic growth?

Q.3.c. If companies put the vast majority of their gains from 
the new tax law into stock repurchases, would you expect to see 
an increase in economic growth and wages from the tax law?

A.3.a.-c. Investments in new capital equipment or innovative 
technologies are important factors for improving productivity 
and economic growth. Similarly, increased worker compensation 
can be a factor in encouraging individuals to join or remain in 
the labor force and to develop new skills, which can further 
increase productivity and growth. Comparing the economic 
effects of these investments to the eventual effects of stock 
buybacks is difficult because we cannot be sure where the gains 
from buybacks will ultimately turn up. When a company buys back 
its shares or pays higher dividends, the resources do not 
disappear. Rather, they are redistributed to other uses in the 
economy. For instance, shareholders may decide to invest the 
windfall in another company, which may in turn make 
productivity-enhancing investments. Or they may decide to spend 
the windfall on goods and services that are produced by other 
companies, who may in turn hire new workers. In these ways, 
stock repurchases would also be likely to boost economic 
growth.
    Companies themselves are the best judges of what to do with 
their after-tax profits, whether it is to invest in their 
business, raise worker compensation, or increase returns to 
shareholders through dividends or share buybacks.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                        JEROME H. POWELL

Q.1. The Federal Reserve has the responsibility for monetary 
policy. The Congress has the responsibility for fiscal policy. 
In the past few months, Congress spent more than a trillion 
dollars. The majority did not spend it on investments to build 
our outdated bridges, roads or electrical grids. The majority 
did not spend it on transit to reduce gridlock and reduce 
pollution and improve our air quality. The trillions of dollars 
did not provide housing for families struggling to pay rent. Or 
subsidies to help parents afford the cost of child care. Nor 
did we invest in pre-K education. Or research and development.
    Instead, multi-national corporations will see their incomes 
go up substantially: Warren Buffet's Berkshire Hathaway will 
make $29 billion more in profit. The seven largest banks will 
increase their income by 12 percent or more. Meanwhile, some 
families will see big tax increases because they can't deduct 
their alimony payments or all of their property and State 
income taxes.
    Our national debt is already twice the historic average and 
higher than it has been at any time in history since World War 
II. Today, it consumes more than 77 percent of the economy. The 
President's proposed budget would increase that level to as 
much as 93 percent of our entire economy by 2028 according to 
the Committee for a Responsible Federal Budget.
    If we had chosen to invest $1.5-$2.3 trillion in rebuilding 
our infrastructure, investing in research and development and 
in our children and families, what is the Federal Reserve's 
estimates of the effect on wages, productivity and economic 
growth?

A.1. The Federal Reserve has not prepared an estimate of the 
economic effects of a large investment of the kind that you 
describe. Any such estimate would depend critically on the 
particular assumptions one made about the allocation of the 
investment among the purposes that you describe, as well as the 
efficiency with which investments could be targeted to high-
rate-of-return projects. The Congressional Budget Office is 
well situated to provide economic analysis of this kind.

Q.2. I appreciated your statements opposing discrimination in 
mortgage lending during your testimony. However, I remain 
concerned that if the Economic Growth, Regulatory Relief, and 
Consumer Protection Act, (S. 2155), becomes law the Federal 
Reserve will not have adequate information on the quality of 
mortgage loans made by 85 percent of the banks and credit 
unions in the United States. At the hearing, you told me the 
Federal Reserve relies primarily on historical Home Mortgage 
Disclosure Act data but that data does not include specific 
information on mortgage loan quality or borrower 
characteristics. In the run up to the Financial Crisis, the 
Federal Reserve and other regulators missed rampant 
discrimination in the mortgage market; African Americans and 
Latinos were more than twice as likely as a white family to 
receive a subprime mortgage. Even if Latinos and African 
Americans had higher incomes and credit scores, they still 
received worse loans.
    The Federal Reserve has oversight authority of banks with 
fewer than $10 billion in assets.

   LHow will you ensure that those banks are not 
        engaged in redlining or other types of discrimination 
        if you do not have information about the loan 
        characteristics, the borrower's credit score or other 
        information in the expanded HMDA requirements?

A.2. With respect to fair lending, the Fair Housing Act (FHA) 
and Equal Credit Opportunity Act are critical to ensuring 
consumers are treated fairly when offered financial products 
and services. Discrimination has no place in a fair and 
transparent marketplace. Discriminatory practices can close off 
opportunities and limit consumers' ability to improve their 
economic circumstances, including through access to home 
ownership and education.
    The Federal Reserve's fair lending supervisory program 
reflects our commitment to promoting financial inclusion and 
ensuring that the financial institutions under our jurisdiction 
fully comply with applicable Federal consumer protection laws 
and regulations. For all State member banks, we enforce the 
FHA, which means we review all Federal Reserve-regulated 
institutions for potential discrimination in mortgages, 
including potential redlining, pricing, and underwriting 
discrimination. For State member banks of $10 billion dollars 
or less in assets, we also enforce the Equal Credit Opportunity 
Act, which means we review these State member banks for 
potential discrimination in any credit product. Together, these 
laws prohibit discrimination on the basis of race, color, 
national origin, sex, religion, marital status, familial 
status, age, handicap/disability, receipt of public assistance, 
and the good faith exercise of rights under the Consumer Credit 
Protection Act (collectively, the ``prohibited basis'').
    We evaluate fair lending risk at every consumer compliance 
exam based on the risk factors set forth in the interagency 
fair lending examination procedures. The procedures include 
risk factors related to potential discrimination in redlining, 
pricing, and underwriting. While we find that the vast majority 
of our institutions comply with the fair lending laws, we are 
committed to identifying and remedying violations when they 
have occurred. Pursuant to the Equal Credit Opportunity Act, if 
we determine that a bank has engaged in a pattern or practice 
of discrimination, we refer the matter to the U.S. Department 
of Justice (DOJ). Federal Reserve referrals have resulted in 
DOJ public actions in critical areas, such as redlining and 
mortgage pricing discrimination. For example, in our redlining 
referrals, the Federal Reserve found that the banks treated 
majority-minority areas less favorably than nonminority areas, 
such as through Community Reinvestment Act (CRA) assessment-
area delineations, branching, lending patterns, and marketing. 
For our mortgage-pricing discrimination referrals, the Federal 
Reserve found that the banks charged higher prices to African 
American or Hispanic borrowers than they charged to similarly 
situated non-Hispanic white borrowers and that the higher 
prices could not be explained by legitimate pricing 
criteria.\1\
---------------------------------------------------------------------------
    \1\ See, e.g., DOJ public fair lending settlements with Midwest 
BankCentre; SunTrust Mortgage Inc.; and Countrywide Financial 
Corporation. The public actions were based on referrals from the 
Federal Reserve, and can be found at: https://www.justice.gov/crt/
housing-and-civil-enforcement-section-cases-1#lending. More information 
about recent referrals to the DOJ can be found in the Federal Reserve's 
annual report at www.federalreserve.gov/publications/2016-ar-consumer-
and-community-affairs.htm#14890.
---------------------------------------------------------------------------
    We also work proactively to support financial institutions 
in their efforts to guard against fair lending risks through 
outreach efforts that actively promote sound compliance 
management practices and programs. The outreach efforts include 
Consumer Compliance Outlook, a widely subscribed Federal 
Reserve System publication focused on consumer compliance 
issues, and its companion webinar series, Outlook Live.\2\ For 
example, in 2017, we sponsored an interagency webinar on fair 
lending supervision with almost 6,000 registrants. Several of 
the webinars and articles described the key risk factors 
related to redlining and pricing discrimination, as well as 
information about what banks should do to mitigate those risks.
---------------------------------------------------------------------------
    \2\ See https://www.consumercomplianceoutlook.org/ and https://
www.consumercompliance
outlook.org/outlooklive/.
---------------------------------------------------------------------------
    With respect to potential discrimination in the pricing or 
underwriting mortgages, if warranted by risk factors, the 
Federal Reserve will request data beyond the public Home 
Mortgage Disclosure Act (HMDA) data, including any data related 
to relevant pricing or underwriting criteria, such as applicant 
interest rates and credit scores. The analysis then 
incorporates the additional data to determine whether 
applicants with similar characteristics received different 
pricing or underwriting outcomes on a prohibited basis (for 
example, on the basis of race), or whether legitimate pricing 
or underwriting criteria can explain the differences.\3\
---------------------------------------------------------------------------
    \3\ A recent study of publicly available HMDA data conducted by The 
Center for Investigative Reporting and published by Reveal News 
concluded that African Americans, Latinos, and other individuals of 
color were more likely to be denied loans for home purchases and home 
remodeling than white borrowers. See Aaron Glantz and Emmanuel 
Martinez, ``Kept Out,'' Reveal News, Feb. 15, 2018, available at: 
https://www.revealnews.org/article/for-people-of-color-banks-are-
shutting-the-door-to-homeownership/. Studies such as these put much-
needed focus on racial disparities and Federal Reserve staff carefully 
review them. However, as noted, HMDA data have limitations. These data 
do not include important underwriting criteria, such as credit scores 
and loan-to-value ratios. If concerns arise regarding a Federal 
Reserve-regulated institution, we will request additional data beyond 
the publicly available HMDA data to fully evaluate whether applicants 
with similar characteristics received different underwriting outcomes 
on a prohibited basis (for example, on the basis of race), or whether 
legitimate underwriting criteria can explain the differences.
---------------------------------------------------------------------------
    With respect to potential redlining discrimination, the 
current data analysis does not rely on an evaluation of the 
additional data fields, but rather the number of HMDA mortgage 
applications and originations generated in majority-minority 
tracts by the bank and similar lenders. More specifically, the 
analysis reviews whether the bank's record of HMDA mortgage 
applications and originations in majority-minority tracts \4\ 
shows statistically significant disparities when compared with 
the lending record of similar lenders. Thus, although 
additional fields from the exempted institutions could enhance 
the data analysis, provisions in the recently enacted bill, S. 
2155, related to HMDA data collection requirements would not 
impact the Federal Reserve's ability to fully evaluate the risk 
of redlining discrimination. Moreover, as explained further 
below, the data analysis is only one aspect of the redlining 
analysis.
---------------------------------------------------------------------------
    \4\ Majority-minority tracts are defined as census tracts that are 
more than 50 percent African American and Hispanic.

Q.3. Historical HMDA data does not collect information on 
certain racial and ethnic populations at a finer level of 
granularity. For instance, expanded HMDA requirements that 
would be rolled back by S. 2155 require reporting within the 
Asian community (Asian Indian, Chinese, Filipino, Japanese, 
Korean, and Vietnamese, among others) and within the Hispanic 
or Latino communities (Mexican, Puerto Rican, among Cuban, 
---------------------------------------------------------------------------
among others).

Q.3.a. How will you monitor and ensure that banks are not 
engaged in redlining specifically against some of these 
subgroups without collecting this data?

Q.3.b. With historic HMDA data only, do you have the capacity 
to discern whether lenders are charging single female borrowers 
higher interest rates or more expensive points and fees on 
mortgages compared to single men?

A.3.a.-b. Consistent with the interagency fair lending 
examination procedures, the Federal Reserve's redlining review 
evaluates whether the bank treated majority-minority census 
tracts less favorably with respect to the following risk 
factors:

   LCRA assessment area,

   Lbranching strategy,

   Llending record for HMDA-reportable mortgage 
        applications and originations,

   Lmarketing and outreach, and

   Lcomplaints.

    With respect to the lending record, the data analysis 
reviews the HMDA-reportable mortgage applications and 
originations generated in majority-minority census tracts. The 
definition of majority-minority tract is based on the census 
data classifications for the race and/or ethnicity of the 
residents of the census tract, rather than on HMDA data 
classifications. Thus, although the additional data fields from 
the exempted institutions could enhance the data analysis, 
provisions in the recently enacted bill, S. 2155, related to 
HMDA data collection requirements would not impact the Federal 
Reserve's ability to fully evaluate the risk of redlining 
discrimination.
    Also consistent with the interagency fair lending 
examination procedures, the Federal Reserve's pricing review 
evaluates the following key risk factors:

   Lfinancial incentives to charge higher prices,

   Lloan originator discretion to determine pricing 
        criteria and set the price,

   Ldisparities in pricing on a prohibited basis, and

   Lcomplaints.

    The analysis of potential pricing disparities includes the 
review of potential disparities in the annual percentage rate, 
interest rate, and fees. Although not included in the public 
HMDA data, if warranted by risk factors, the Federal Reserve 
will request these data as well as any other data related to 
relevant pricing criteria, such as the interest rate and credit 
score.
    Also, the Federal Reserve analyzes the disparity on a 
prohibited basis, including potential discrimination for single 
females. The current HMDA data classifications allow for an 
analysis of potential discrimination against single females. 
Thus, provisions in the recently enacted bill, S. 2155, related 
to HMDA data collection requirements would not impact the 
Federal Reserve's ability to fully evaluate the risk of 
mortgage pricing discrimination, including for single females.
    Please also see the response to question 2.

Q.4. In your testimony, you stated that data collected under 
HMDA's original requirements was adequate for the Federal 
Reserve when examining financial institutions for compliance 
with the Community Reinvestment Act. Wall Street Reform's 
expansion of HMDA requirements included a number of critical 
requirements that were motivated by the financial crisis, 
including quality of loan, interest rate and providing the 
legal entity identifier (LEI) of the lender.
    Without the expanded requirements under Wall Street Reform, 
how is the Federal Reserve examining the quality of the loans 
being given to borrowers, particularly female borrowers and 
borrowers of color?

A.4. To determine the risk of potential pricing or underwriting 
discrimination in mortgages on a prohibited basis (such as, 
sex, race, color, or national origin), the Federal Reserve 
evaluates State member banks for compliance with the FHA (and 
the Equal Credit Opportunity Act for State member banks with 
$10 billion or less in assets). Although not included in the 
public HMDA data, if
warranted by risk factors, the Federal Reserve will request any 
data related to relevant pricing and underwriting criteria, 
such as the interest rate and credit score. Thus, provisions in 
the recently enacted bill, S. 2155, related to HMDA data 
collection requirements for certain institutions would not 
impact the Federal Reserve's ability to fully evaluate the risk 
of mortgage pricing or underwriting discrimination, including 
for female borrowers or borrowers of color.
    While we find that the vast majority of institutions 
regulated by the Federal Reserve comply with the fair lending 
laws, we sometimes find violations of the laws and regulations. 
If we determine that a bank has engaged in a pattern or 
practice of discrimination, we refer the matter to the DOJ, 
pursuant to the Equal Credit Opportunity Act. We also take 
evidence of discrimination into account when assigning consumer 
compliance ratings and CRA ratings, consistent with regulations 
and supervisory guidance.
    Please also see the response to questions 2 and 3.

Q.5. Wall Street Reform also expanded on requirements when 
reporting ethnicity. For example, for Asian American Pacific 
Islander, lenders should also provide an ethnic breakdown.
    Without this specific data of race and ethnicity, will the 
Federal Reserve be able to identify discrimination against 
specific ethnic groups, such as Filipino or Hmong?

A.5. Reviews of potential pricing or underwriting 
discrimination based on the race or ethnicity of the borrower 
may be impacted by HMDA data classifications, but other risk 
factors can be used to evaluate potential discrimination, such 
as loan policies and procedures, marketing, and complaints.
    Please also see the response to question 2.

Q.6. A 2014 analysis of OneWest Bank--which was then owned by 
Treasury Secretary Steve Mnuchin--found that the Bank had a 
``low satisfactory'' on its last CRA evaluation; that only 15 
percent of the banks' branches were located in low- and 
moderate-income census tracts; and that the majority of ``small 
business'' loans made by OneWest were to businesses with more 
than $1 million in revenue.

Q.6.a. What recourse does the Community Reinvestment Act give 
to the Federal Reserve and other regulators when banks have 
this kind of record?

Q.6.b. How can banks that consistently receive low ratings for 
their lending to small businesses and communities of color be 
better incentivized to improve their record?

A.6.a.-b. The CRA regulations define the ratings and recognize 
that a ``low satisfactory'' rating under the CRA lending test 
and/or service test is indicative of ``adequate'' performance 
in responding to the credit needs in its assessment areas(s), 
taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, as well as an 
adequate geographic distribution of loans in its assessment 
area(s).
    The CRA ratings are publicly available, which motivates 
some institutions to seek to improve their rating. Regulators 
encourage and support banks in this aim by pointing out ways 
they can
improve their CRA performance, which would meet supervisory 
expectations and enhance how their record is viewed by the 
public. Further, an overall CRA rating of less than 
satisfactory can be an impediment to favorable action on an 
application or notice submitted to the Federal Reserve.

Q.7. I agree with you that sound data is critically important 
in informing the policy and enforcement decisions you'll be 
making. However, I am very concerned that such analysis fails 
to capture the human and economic cost of massive financial 
system failure. For example, in 2009, when I was Attorney 
General, Nevada had 165,983 people unemployed. Also that year, 
in a State of 3 million people, we had 28,223 personal 
bankruptcies, 366,606 mortgage delinquencies and 421,445 credit 
card delinquencies.\5\ In addition, 121,000 Nevada children's 
lives and educations were disrupted by the foreclosure crisis. 
And, we had more than 219,000 foreclosures between 2007-2016.
---------------------------------------------------------------------------
    \5\ See Center for American Progress. ``10 Years Later: The 
Financial Crisis State by State.'' February 22, 2018. Available at: 
https://www.americanprogress.org/issues/economy/news/2018/02/22/447031/
10-years-later-financial-crisis-state-state/.

Q.7.a. Do you agree the Fed underestimated the human costs of 
---------------------------------------------------------------------------
the financial crisis prior to 2008?

A.7.a. The recent financial crisis took a devastating toll on 
consumers, families, and businesses, as well as revealing 
weaknesses in our financial system. The fragilities that arose 
in the U.S. financial system by the mid-2000s resulted in the 
worst U.S. recession since the Great Depression and a painfully 
slow economic recovery.
    We have worked hard in the aftermath of the crisis to make 
sure we have a financial system that is safer, sounder, has 
more capital, higher quality capital, and is less prone to 
crises. Financial crises are immensely costly to the well-being 
of households, families, individuals, and businesses. It is 
important to make sure we do everything we can to reduce the 
odds of another devastating crisis.

Q.7.b. How will your analysts accurately ensure you'll get it 
right this time?

A.7.b. The Federal Reserve has substantially increased its 
efforts to assess risks to financial stability on an ongoing 
basis, in conjunction with other U.S. agencies (through, for 
example, discussions at the Financial Stability Oversight 
Council). These efforts may provide insight into the buildup of 
risks and allow the appropriate regulatory agencies to take 
steps to mitigate risks to financial stability.
    At the same time, we are aware of the challenges facing 
anyone trying to predict rare events such as financial crises. 
In part because of these challenges, the Federal Reserve has 
focused on increasing the resilience of the financial system, 
so that when detrimental, unforeseen events occur, the system 
absorbs, rather than amplifies, them. An important part of 
increased resilience is a set of higher standards for key 
institutions. These standards are higher for the largest, most 
systemic firms and include capital regulation, liquidity 
regulation, steps to enhance the resolvability of large bank-
holding companies, and stress testing of large bank-holding 
companies.
    We have implemented these standards as a response to the 
increased awareness among economists of the risks and costs of 
financial crises. Research, including research by staff within 
the Federal Reserve System, has documented the large adverse 
effects of financial crises and the benefits associated with 
regulatory standards that raise the resilience of the financial 
system.\6\
---------------------------------------------------------------------------
    \6\ For example, the following research paper discusses these 
issues and related research: Firestone, Simon, Amy Lorenc, and Ben 
Ranish (2017). ``An Empirical Economic Assessment of the Costs and 
Benefits of Bank Capital in the U.S.,'' Finance and Economics 
Discussion Series 2017-034. Board of Governors of the Federal Reserve 
System (U.S.).

Q.7.c. What concerns do you have that cost-benefit analysis 
requirements allow financial institutions the ability to sue 
---------------------------------------------------------------------------
regulators to avoid regulation?

A.7.c. The Federal Reserve Board (Board) takes seriously the 
importance of evaluating the costs and benefits of its 
rulemaking efforts.
    Under the Board's current practice, consideration of costs 
and benefits occurs at each stage of the rule or policymaking 
process. Before the Board develops a regulatory proposal, the 
Board often collects information directly from parties that it 
expects will be affected by the rulemaking through surveys of 
affected parties and meetings with interested parties and their 
representatives. In the rulemaking process, the Board also 
specifically seeks comment from the public on the costs and 
benefits of the proposed approach as well as on a variety of 
alternative approaches to the proposal. In adopting the final 
rule, the Board seeks to adopt a regulatory alternative that 
faithfully reflects the statutory provisions and the intent of 
Congress while minimizing regulatory burden. The Board also 
provides an analysis of the costs to small depository 
organizations of our rulemaking consistent with the Regulatory 
Flexibility Act and computes the anticipated cost of paperwork 
consistent with the Paperwork Reduction Act. Increasingly, the 
Board has published quantitative analyses in connection with 
its rulemakings. Recent examples include the global 
systemically important banks surcharge rule, the single-
counterparty credit limit rule, and the long-term debt rule. To 
further these efforts, the Board recently established an office 
and hired additional staff to focus on analyzing the costs and 
benefits associated with its rulemakings.
    The Administrative Procedure Act (APA), which the Board 
follows, provides for judicial review of final regulations. 
Affected firms have the right to challenge the actions of an 
administrative agency under the APA, including whether the 
agency has engaged in reasoned decisionmaking. Litigation, of 
course, imposes certain costs on the litigants including an 
agency and delays the rulemaking process.

Q.8. I am very concerned about forcing more than 800,000 men 
and women--Dreamers--out of the country. It is a cruel betrayal 
of the promises we've made to them. In Nevada, we have more 
than 13,000 Dreamers. If our neighbors, friends, and colleagues 
are deported, some estimate that Nevada would lose more than 
$600 million in annual economic growth.

Q.8.a. Organizations, on both sides of the spectrum, estimate 
that detaining and deporting DACA recipients could cost the 
U.S.
economy between $280 and $460 billion a year. The United States 
Chamber of Commerce called ending DACA ``a nightmare for 
America's economy.''

Q.8.b. Has the Federal Reserve published any information on how 
the deportation of the Dreamers will affect our Nation's 
economy?

Q.8.c. What do you think the economic impact of deporting 
800,000 Dreamers--90 percent or about 720,000 of whom are 
employed--would be on labor force participation, economic 
growth and productivity?

A.8.a.-c. Over long periods of time, economic growth generally 
reflects the trend rate of growth of the population, the trend 
in labor force participation, and the trend in productivity 
growth. A large deportation of individuals currently living in 
the United States would probably reduce the level of economic 
output, for the simple reason that the population--and hence 
the workforce--would be smaller. That being said, the Federal 
Reserve has not published information pertaining to your 
questions. The manner in which economic output per capita would 
be affected is a more difficult question; the answer would 
depend on such factors as how the labor-force participation of 
the deported individuals compared with that of the remaining 
population; how the productivity of the deported individuals 
compared with that of the remaining population; and the 
question of whether problems of job matching would arise (if, 
for example, deported individuals were concentrated in 
particular industries, occupations, or geographic areas, and 
whether nondeposited individuals were available and willing to 
fill the resulting vacancies).

Q.9. Neel Kashkari, the president of the Federal Reserve Bank 
of Minneapolis recently wrote an op-ed in the Wall Street 
Journal on why immigration is the key to economic growth. The 
Minneapolis Fed estimates that boosting legal immigration by 
one million people a year would grow the economy by at least 
0.5 percent a year, even under the most conservative 
assumptions.
    Do you agree with the president of the Federal Reserve of 
Minneapolis that increasing legal immigration will grow our 
economy?

A.9. Growth in the labor force is all important determinant of 
the longer-run growth rate of the U.S. economy. Because many 
legal immigrants actively participate in the workforce, 
challenges in the pace of immigration can affect economic 
growth. Having said that, however, the issue of immigration is 
well outside of the remit of the Federal Reserve System, and it 
would be more prudent for others to decide how best to address 
that issue.

Q.10. I represent Nevada, which is within the San Francisco 
Federal Reserve District. We are one of the most diverse 
districts in the Nation--with many Latino and Asian Pacific 
American families.
    We value that diversity because it leads to innovation, 
economic growth and stronger connections with other nations in 
our globally connected world.
    A recent report by Fed Up, Working People Still Need a 
Voice at the Fed: 2018 Diversity Analysis of Federal Reserve 
Bank Directors, found that there is inadequate diversity at the 
Federal
Reserve. It specifically cited the San Francisco Federal 
Reserve as one of system's least diverse regional banks. The 
report states, ``Despite covering some of the most 
demographically diverse counties in the United States, 100 
percent of the San Francisco Fed's Board of Directors come from 
the banking and financial sector. The directors are 78 percent 
white and 78 percent male.''

Q.10.a. How will you work with Director Clark to improve the 
gender and racial diversity of the Board of Directors at the 12 
regional Reserve Banks? And specifically the San Francisco Fed?

Q.10.b. How will you work to end the outsized representation 
and influence of the banking and business sectors among the 
Regional Bank Boards of Directors?

Q.10.c. Have you identified directors with nonprofit, academic, 
and labor backgrounds that could also serve?

A.10.a.-c. Diversity is a critical aspect of all successful 
organizations, and I am committed to fostering diversity and 
inclusion throughout the Federal Reserve System. In my 
experience, we make better decisions when we have a wide range 
of backgrounds and voices around the table. I assure you that 
diversity is a high priority objective for the Federal Reserve.
    The Federal Reserve Board (Board) focuses particular 
attention on increasing gender, racial, and sector diversity 
among directors because we believe that the System's boards 
function most effectively when they are constituted in a manner 
that encourages a variety of perspectives and viewpoints. 
Monetary policymaking also benefits from having directors who 
effectively represent the communities they serve because we 
rely on directors to provide meaningful grassroots economic 
intelligence. Because all directors serve in this role, we 
believe it is important to consider the characteristics of both 
Reserve Bank and Branch boards.
    Each year, the Board carefully reviews the demographic 
characteristics of Reserve Bank and Branch boards. This 
information is shared with Reserve Bank leadership, including 
the current Chair and Deputy Chair of each board, and areas for 
improvement are highlighted.
    The Board thoroughly vets all candidates for Class C and 
Board-appointed Branch director vacancies, taking into 
consideration factors such as professional experience, 
leadership skills, and community engagement. The Board also 
evaluates a candidate's ability to contribute meaningful 
insights into economic conditions of significance to the 
District and the Nation as a whole. As part of this process, 
the Board focuses considerable attention on whether a candidate 
is likely to provide the perspective of historically 
underrepresented groups, such as consumer/community and labor 
organizations, minorities, and women.
    Although there is room for improvement, the System has made 
significant progress in recent years in recruiting highly 
qualified women and minorities for director positions. For 
example, in 2018, approximately 56 percent of all System 
directors are diverse in terms of gender and/or race (with a 
racially diverse woman counted only one time), which represents 
a 16 percentage point increase in the share of directors since 
2014. With respect to the San Francisco District, 21 of 37 
directors, or approximately 57 percent of all
Reserve Bank and Branch directors, are diverse. On the Reserve 
Bank's head-office board, 4 of 9 directors, or approximately 44 
percent of Reserve Bank directors, are diverse. We also have 
numerous directors who represent consumer/community and labor 
organizations serving on boards throughout the System. In 
addition, we gain invaluable insight and perspective from 
directors who are affiliated with other types of organizations, 
including major health care providers, universities and 
colleges, and regional chambers of commerce, among others.

Q.11. Chair Yellen was the first chair in Federal Reserve 
history to share data with this Committee about racial economic 
disparities during her semi-annual testimony. When she 
presented that data, she touted significant progress, and 
indeed, black unemployment fell from 11.8 percent at the 
beginning of her term to the current historically low figure of 
6.8 percent.

Q.11.a. What do you attribute this trend to?

Q.11.b. Do you think the attention that Chair Yellen paid to 
this issue and the policies of the Federal Reserve deserve some 
credit for the progress that has been made?

A.11.a.-b. The improvement in the black unemployment rate in 
recent years reflects the general strengthening in labor-market 
conditions during that time period; and the credit for the 
general strengthening, in turn, goes to the millions of 
individuals who go to work day in and day out and work hard, 
and to those who run businesses, take risks, and generate 
creative new ideas and new products.
    Chair Yellen deserves great credit for shining light on the 
important differences in economic well-being across different 
segments of the population; I intend to continue that practice. 
As a Nation, we have a long way to go before we will have 
achieved the objective of full economic inclusion of all 
segments of the population.

Q.12. At that same testimony where Janet Yellen presented 
information about racial economic disparities, she said, quote 
``it is troubling that unemployment rates for these minority 
groups remain higher than for the Nation overall, and that the 
annual income of the median African American household is still 
well below the median income of other U.S. households.''
    Though African American unemployment is lower today, Chair 
Yellen's point remains true.

Q.12.a. Do you think the recent progress is sufficient?

Q.12.b. What more can be done to ensure that unemployment among 
African Americans is equal to white unemployment?

Q.12.c. And, how do you plan to respond to reports that African 
Americans with a college degree have lower employment and 
wealth than whites with the less education? African American 
women and Latinos are graduating from college in record numbers 
but are still having a harder time finding a job.

A.12.a.-c. I do not think that recent progress has been 
sufficient. As I noted earlier, we have a long way to go before 
we will have achieved the objective of full economic inclusion 
of all segments of the population. The steps that will be 
necessary to attain full
economic inclusion span virtually the entire spectrum of 
economic policy areas. These are important issues for Congress' 
consideration.

Q.13. For years, many of my colleagues have suggested that the 
Fed is unfairly hurting savers through low interest rates. On 
the subject of seniors, savers, and depositors, I want to ask 
about a proposal by a nominee to the Board of Governors, Marvin 
Goodfriend. For decades, Mr. Goodfriend promoted the Fed to 
incentivize spending by placing a tax on currency. He does 
admit that ``the regressivity of the tax'' is a concern.
    If Mr. Goodfriend's proposal were to be implemented, can 
you estimate what the impact would be on savers and low-income 
depositors?

A.13. Nominations to serve on the Board of Governors are made 
by the President and require consent of the Senate. It is up to 
the President and Senate to evaluate the views and 
qualifications of potential members of the Board. I do not want 
to comment on a specific nominee.
    The Federal Reserve has not considered and is not planning 
to consider a tax on U.S. currency. Our Nation's currency plays 
an important role as a means of payment and store of value 
worldwide and taking any action that could diminish its role in 
the domestic or global economy would need to be very carefully 
thought through after a thorough review and analysis of 
relevant data.

Q.14. Chair Powell, at your nomination hearing, you told me 
that you supported strong consumer protections. Since that 
time, the Consumer Financial Protection Bureau has endured new 
leadership that is hostile to its mission.

Q.14.a. If the Bureau continues to drop lawsuits against 
predatory online loan companies, like Golden Valley Lending or 
drop investigations against companies like World Acceptance 
Corporation, one of the biggest payday lenders, will the 
Federal Reserve's consumer protection staff pick up the slack 
and protect people from fraud and abuse?

Q.14.b. If the Consumer Financial Protection Bureau's 
leadership refuses to ask for adequate funding, will you let us 
know if predatory and deceptive practices start going 
unaddressed by a weaker Consumer Financial Protection Bureau?

Q.14.c. Has the Federal Reserve weighed in on the impact from 
the Consumer Bureau's decision to weaken fair lending 
enforcement, suspend the civil penalties fund and stop 
investigating the hack of 145 million people's information held 
by Equifax?

Q.14.d. What have you shared with the leadership of the Bureau?

A.14.a.-d. While the Board plays a consultative role in CFPB 
rulemakings and coordinates in the examinations as appropriate, 
we do not have any oversight of the CFPB organizational or 
structural design, which is defined in statute, nor of CFPB 
enforcement priorities. By statute, the organizational 
structure and prioritization of the CFPB's fair lending work is 
up to the CFPB's director to decide.
    For our part, the Federal Reserve continues to carry out 
our supervisory and enforcement responsibilities for the 
financial institutions and for the laws and regulations under 
our authority.
We remain committed to ensuring that the financial institutions 
under our jurisdiction fully comply with all applicable Federal 
consumer protection laws and regulations. For example, in the 
last few years, the Federal Reserve has addressed unfair and 
deceptive practices through public enforcement actions that 
have collectively benefited hundreds of thousands of consumers 
and provided millions of dollars in restitution. In addition, 
our examiners evaluate fair lending risk at every consumer 
compliance exam. Pursuant to the Equal Credit Opportunity Act, 
if we determine that a bank has engaged in a pattern or 
practice of discrimination, we refer the matter to the DOJ. 
Federal Reserve referrals have resulted in DOJ public actions 
in critical areas, such as redlining and mortgage-pricing 
discrimination.
    With respect to the Equifax data breach, the Federal 
Reserve's authority is limited. The Board, the Federal Deposit 
Insurance
Corporation, and the Office of the Comptroller of the Currency 
(agencies) have authority to examine and regulate bank service
companies under the Bank Service Company Act (BSCA).\1\ 
Additionally, the BSCA provides the agencies with limited 
authority to regulate and examine the activities of other films 
that provide certain services to the institutions we 
supervise.\2\ The three largest credit reporting agencies in 
the United States (Equifax, Experian, and TransUnion) are not 
owned by insured depository institutions and are thus not bank 
service companies. Accordingly, any authority the agencies have 
under the BSCA with respect to the activities of these 
companies would arise under the BSCA in so far as insured 
depository institutions (or their subsidiaries or affiliates) 
are outsourcing services authorized under the BSCA. To date, 
none of the agencies has concluded that the credit reports that 
credit reporting agencies sell to the institutions we supervise 
are services within the scope of the BHCA.
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    \1\ See 12 U.S.C.  1867(a). A ``bank service company'' is defined 
as a company that is organized to provide services authorized under the 
BSCA and that is owned exclusively by one or more insured depository 
institutions. 12 U.S.C.  1861(b)(2).
    \2\ Whenever an insured depository institution, or any subsidiary 
or affiliate of such insured depository institution, causes to be 
performed for itself services authorized under the BSCA, such 
performance is subject to regulation and examination to the same extent 
as if such services were being performed by the insured depository 
institution itself on its own premises. 12 U.S.C.  1867(c).
---------------------------------------------------------------------------
    However, the Federal Reserve expects financial institutions 
to follow vendor management guidance issued by the Board and 
the Federal Financial Institutions Examination Council, which 
includes conducting an assessment of the relationships with 
third parties and their handling and protection of sensitive 
personal information of individuals. As such, the Federal 
Reserve holds the institutions we supervise accountable for 
conducting appropriate due diligence and risk management with 
respect to their relationships with third-parties, including 
credit reporting agencies. Our examiners regularly assess 
banking organizations' programs for due diligence, contract 
management, ongoing monitoring, and overall risk management of 
third-party and vendor relationships as part of Federal Reserve 
examinations. In addition, the Board, along with the other 
banking agencies and the Federal Trade Commission have jointly 
issued rules under the Fair Credit Reporting Act that require 
financial institutions to maintain identity theft prevention 
programs. These programs must include policies and procedures 
for detecting, preventing, and mitigating identity theft, and 
we examine the banks we supervise for compliance with these 
rules. Finally, under the Gramm-Leach-Bliley Act, the Board and 
other banking agencies have issued guidelines to institutions 
containing standards for safeguarding their customers' data.

Q.15. In recent years, Federal Reserve policymakers have warned 
that we should raise interest rates to counter asset bubbles 
destabilizing the financial system. Board of Governor nominee 
Marvin Goodfriend has suggested replacing liquidity coverage 
ratios and a host of other regulations with tighter monetary 
policy.

Q.15.a. Do you believe that the blunt tool of monetary policy 
can be a substitute for sound financial protections? What is 
your reading of the historical evidence surrounding the 
relationship between monetary policy and asset bubbles?

A.15.a. As stated above, it is up to the President and Senate 
to evaluate the views and qualifications of potential members 
of the Board. I do not want to comment on a specific nominee.
    Strong regulatory and supervisory standards are critical 
for financial stability. In the years leading up to 2007-2008, 
excessive leverage and maturity transformation left the U.S. 
and global economy vulnerable to a deterioration in the U.S. 
housing market and an increase in investor concerns regarding 
the solvency and liquidity of large, interconnected financial 
institutions. Reforms since that time, enacted by Congress and 
implemented by the appropriate agencies, have raised loss-
absorbing capacity within the financial sector and reduced the 
susceptibility of the financial system to destabilizing runs. 
Monetary policy, already tasked with the goals of price 
stability and full employment, should not be considered a 
substitute for strong financial and supervisory standards. 
Moreover, asset-price swings owe to many factors, and monetary 
policy has not generally been a prime factor in historical 
episodes involving large movements in asset prices.

Q.15.b. Besides monetary policy, what other tools are available 
to temper asset bubbles?

A.15.b. It is difficult to identify whether an asset price has 
reached an unsustainably high (or low) level. For this reason, 
it is important to monitor asset price developments and to 
consider whether, for example, unusually rapid increases in 
asset prices are leading to vulnerabilities in the U.S. economy 
that could jeopardize financial stability, price stability, or 
full employment. If a rapid increase in nonfinancial borrowing, 
leverage in the financial sector, or maturity transformation 
accompanied a rapid rise in asset prices, tools aimed directly 
at mitigating such vulnerabilities could be appropriate. For 
example, the Countercyclical Capital Buffer is a regulatory 
tool that requires the largest, most systemic bank-holding 
companies to build additional loss absorbing capacity when the 
Board identifies a need for such additional resilience.
    However, the difficulties associated with the detection of 
vulnerabilities as they emerge highlight the need for strong
regulatory and supervisory standards at all times. The capital 
and liquidity regulations and supervisory policies adopted by 
the
Federal Reserve, including stress testing, represent such an 
approach to maintaining resilience at a level that limit 
excessive risk.

Q.15.c. Isn't it true that countries with tighter monetary 
policy than the United States also experienced housing bubbles 
in the early 2000s?

A.15.c. The housing boom during the early 2000s was global in 
nature, with house prices rising across most advanced 
economies. Although the availability of mortgage financing at 
favorable rates coincided with strong housing markets in some 
countries, there were particularly rapid house price gains in 
several economies whose key monetary policy rates never 
declined below 3 \1/2\ percent, including Australia, New 
Zealand, Norway, and the United Kingdom. Each of those 
economies experienced house price declines, to varying degrees 
of severity, during the global financial crisis that followed. 
Subsequent studies, including at the International Monetary 
Fund, have found that the stance of monetary policy is not 
generally a good leading indicator of future house price 
bubbles and busts.

Q.15.d. Can you speak to the scale of interest rate increases 
that would be needed to rein in an asset bubble?

A.15.d. As noted in the second answer to question 15, it is 
difficult to detect whether an asset price has reached an 
unsustainable level. A corollary of this challenge is that it 
is hard to determine what factors are driving unsustainable 
asset-price movements. The condition of markets is one of many 
factors that could influence the underlying economy, but 
efforts to influence asset prices in a manner that is not 
consistent with the Federal Reserve's employment and price-
stability objectives could compromise the achievement of those 
objectives.


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