[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]




 
                         THE ECONOMIC OUTLOOK:
                   THE VIEW FROM THE FEDERAL RESERVE

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

          HEARING HELD IN WASHINGTON, D.C., NOVEMBER 14, 2019

                               __________

                           Serial No. 116-17

                               __________

           Printed for the use of the Committee on the Budget
           
           
           
           
           
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                       Available on the Internet:
                            www.govinfo.gov
                            
                            
                           ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
 36-976                WASHINGTON : 2020                            
                            
                            
                            
                            
                            
                        COMMITTEE ON THE BUDGET

                  JOHN A. YARMUTH, Kentucky, Chairman
SETH MOULTON, Massachusetts,         STEVE WOMACK, Arkansas,
  Vice Chairman                        Ranking Member
HAKEEM S. JEFFRIES, New York         ROB WOODALL, Georgia
BRIAN HIGGINS, New York              BILL JOHNSON, Ohio,
BRENDAN F. BOYLE, Pennsylvania         Vice Ranking Member
RO KHANNA, California                JASON SMITH, Missouri
ROSA L. DELAURO, Connecticut         BILL FLORES, Texas
LLOYD DOGGETT, Texas                 GEORGE HOLDING, North Carolina
DAVID E. PRICE, North Carolina       CHRIS STEWART, Utah
JANICE D. SCHAKOWSKY, Illinois       RALPH NORMAN, South Carolina
DANIEL T. KILDEE, Michigan           KEVIN HERN, Oklahoma
JIMMY PANETTA, California            CHIP ROY, Texas
JOSEPH D. MORELLE, New York          DANIEL MEUSER, Pennsylvania
STEVEN HORSFORD, Nevada              DAN CRENSHAW, Texas
ROBERT C. ``BOBBY'' SCOTT, Virginia  TIM BURCHETT, Tennessee
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
PRAMILA JAYAPAL, Washington
ILHAN OMAR, Minnesota
ALBIO SIRES, New Jersey
SCOTT H. PETERS, California
JIM COOPER, Tennessee

                           Professional Staff

                      Ellen Balis, Staff Director
                  Dan Keniry, Minority Staff Director
                  
                                CONTENTS

                                                                   Page
Hearing held in Washington D.C., November 14, 2019...............     1

    Hon. John A. Yarmuth, Chairman, Committee on the Budget......     1
        Prepared statement of....................................     3
    Hon. Steve Womack, Ranking Member, Committee on the Budget...     5
        Prepared statement of....................................     6
    Hon. Jerome H. Powell, Chair, Board of Governors of the 
      Federal Reserve System.....................................     8
        Prepared statement of....................................    12
    Hon. Sheila Jackson Lee, Member, Committee on the Budget, 
      statement submitted for the record.........................    54
    Hon. Tim Burchett, Member, Committee on the Budget, questions 
      submitted for the record...................................    57
    Hon. Janice D. Schakowsky, Member, Committee on the Budget, 
      questions submitted for the record.........................    58
    Hon. Jimmy Panetta, Member, Committee on the Budget, 
      questions submitted for the record.........................    59
    Hon. Ilhan Omar, Member, Committee on the Budget, questions 
      submitted for the record...................................    60
    Answers to questions submitted for the record................    61


        THE ECONOMIC OUTLOOK: THE VIEW FROM THE FEDERAL RESERVE

                              ----------                              


                      THURSDAY, NOVEMBER 14, 2019

                          House of Representatives,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
210, Cannon House Office Building, Hon. John A. Yarmuth 
[Chairman of the Committee] presiding.
    Present: Representatives Yarmuth, Moulton, Jeffries, 
Higgins, Boyle, Khanna, DeLauro, Price, Schakowsky, Kildee, 
Panetta, Morelle, Horsford, Scott, Jackson Lee, Lee, Jayapal, 
Sires, Peters, Cooper; Womack, Woodall, Johnson, Smith, Flores, 
Holding, Stewart, Norman, Hern, Roy, Meuser, Crenshaw, and 
Burchett.
    Chairman Yarmuth. The hearing will come to order.
    Good morning, and welcome to the Budget Committee's hearing 
on The Economic Outlook: The View from the Federal Reserve.
    Thank you, Chair Powell, for coming to our Committee today 
to testify on the economy. We know you are on a tight schedule, 
and in order to keep you on schedule, I am sure that all--and 
ensure that all Members have an opportunity to ask questions, I 
ask unanimous consent to deviate from the five-minute rule. 
Members will be recognized during the question and answer 
session for three minutes.
    Without objection, so ordered.
    And the Ranking Member and I will be recognized for five 
minutes during the question and answer session, instead of 10.
    Without objection, so ordered.
    Per agreement with the Ranking Member, we will reduce our 
time for opening remarks, and we will both be recognized for 
three minutes.
    I now yield myself three minutes, which I will not use.
    But once again, Chair Powell, thank you for being here. It 
is been seven years since the Chair of the Federal Reserve has 
appeared before this Committee, and we are very grateful for 
your being willing to do that.
    And I want to say at the outset, I am going to submit my 
written testimony for the record to save time. But I also want 
to make sure you know that we wholeheartedly support the Fed's 
independence, and the President's repeated attacks on this 
critical institution are unacceptable and dangerous.
    So I look forward to hearing your testimony on the state of 
our economy and discussing what opportunities Congress and the 
Fed have to support our workers and foster a healthy and 
sustainable economy that works for all Americans.
    With that, I yield to the Ranking Member.
    [The prepared statement of Chairman Yarmuth follows:]
    
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    Mr. Womack. I thank the Chairman. And, Mr. Chairman, it is 
a great honor to have you before this Committee. As the 
Chairman of the Committee has said, it has been many years 
since the Reserve Chairman has been here, and we are delighted 
to have you.
    I too will submit my opening comment for the record so that 
we can expedite matters, hear your opening comments, and get to 
the Q&A.
    But once again, welcome. I yield back.
    [The prepared statement of Steve Womack follows:]
    
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    Chairman Yarmuth. I thank the Ranking Member.
    And if any other Members have opening statements, they may 
submit those in writing for the record as well.
    Once again, Chair Powell, thank you for being here this 
morning. The Committee has received your written statement, and 
it will be made part of the formal hearing record.
    You will now have 10 minutes to give your oral remarks, and 
may begin when you are ready.

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

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