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


                        MONETARY POLICY AND THE
                          STATE OF THE ECONOMY

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 10, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-38
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
39-738 PDF                  WASHINGTON : 2020                     
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             PETER T. KING, New York
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
BILL FOSTER, Illinois                ANDY BARR, Kentucky
JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
DENNY HECK, Washington               ROGER WILLIAMS, Texas
JUAN VARGAS, California              FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
KATIE PORTER, California             TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah                    JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
                           
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 10, 2019................................................     1
Appendix:
    July 10, 2019................................................    61

                               WITNESSES
                        Wednesday, July 10, 2019

Powell, Hon. Jerome H., Chairman, Board of Governors of the 
  Federal Reserve System.........................................     4

                                APPENDIX

Prepared statements:
    Powell, Hon. Jerome H........................................    62

              Additional Material Submitted for the Record

Powell, Hon. Jerome H.:
    Written responses to questions for the record from 
      Representative Beatty......................................    68
    Written responses to questions for the record from 
      Representative Budd........................................    70
    Written responses to questions for the record from 
      Representative Cleaver.....................................    73
    Written responses to questions for the record from 
      Representative Hill........................................    89
    Written responses to questions for the record from 
      Representative Himes.......................................    92
    Written responses to questions for the record from 
      Representative McHenry.....................................    93
    Written responses to questions for the record from 
      Representative Scott.......................................    98

 
                        MONETARY POLICY AND THE
                          STATE OF THE ECONOMY

                              ----------                              


                        Wednesday, July 10, 2019

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:08 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Maloney, Sherman, 
Meeks, Clay, Scott, Green, Cleaver, Perlmutter, Himes, Foster, 
Beatty, Heck, Vargas, Gottheimer, Gonzalez of Texas, Lawson, 
Tlaib, Porter, Axne, Casten, Pressley, Ocasio-Cortez, Wexton, 
Lynch, Adams, Dean, Garcia of Illinois, Garcia of Texas, 
Phillips; McHenry, Wagner, King, Lucas, Posey, Luetkemeyer, 
Duffy, Stivers, Barr, Tipton, Williams, Hill, Emmer, Zeldin, 
Loudermilk, Mooney, Davidson, Budd, Kustoff, Hollingsworth, 
Gonzalez of Ohio, Rose, Steil, Gooden, and Riggleman.
    Chairwoman Waters. The Financial Services Committee will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    Today's hearing is entitled, ``Monetary Policy and the 
State of the Economy.''
    I now recognize myself for 4 minutes to give an opening 
statement. Today, this committee convenes for a hearing on 
monetary policy and the state of the economy.
    Chairman Powell, welcome back. I would like to start by 
addressing the current elephant in the room when it comes to 
monetary policy and the Fed.
    This President has made it clear that he has no 
understanding or respect for the independence of the Federal 
Reserve. He has said the Fed, ``doesn't have a clue,'' and 
called it the most difficult problem for the United States. 
According to media reports, he has discussed firing Chairman 
Powell just as he has fired others with whom he does not agree.
    Let's be clear. It is essential that the Federal Reserve 
maintain its independence from the Executive Branch. And so, I 
urge Chairman Powell and other Federal Reserve Board Governors 
not to submit to the high-pressure tactics of this President 
who continues to push reckless and harmful economic and social 
policies.
    Another issue I hope Chairman Powell will address today is 
Facebook's recently announced plan, along with 27 other 
companies, to develop a cryptocurrency and digital wallet. I 
and other Democrats on the committee have raised concerns that 
Facebook's planned products may ultimately be intended to 
establish a parallel banking and monetary policy system to 
rival the dollar.
    In a letter last week, we asked Facebook to agree to a 
moratorium on any movement forward on its plans to create a 
cryptocurrency or digital wallet. I believe that what Facebook 
is planning raises serious privacy, trading, national security, 
and monetary policy concerns for consumers, investors, the U.S. 
economy, and the global economy.
    But Facebook's foray into this field should signal to all 
of us that our current system of regulation lacks adequate 
coordination, safeguards, and attention to cryptocurrency.
    Chairman Powell, the Fed should be a leader on this issue 
and should not take a wait-and-see approach when it comes to 
examining a financial system involving 2.4 billion people. So, 
I look forward to hearing your views on Facebook's plans to 
create a cryptocurrency today.
    Another issue I would like to discuss is bank deregulation. 
I remain concerned about the Federal Reserve's actions to 
weaken safeguards that Congress and Chairman Powell's 
predecessors put in place following the financial crisis. 
Specifically, it appears that the Fed may be following the 
Trump Administration's deregulatory plan to weaken the capital 
and liquidity buffers of some of the largest banks.
    As I have said before, I believe this to be ill-advised, 
particularly when many economists, including economists at the 
Federal Reserve, believe that current bank capital levels are 
on the low end of what would be necessary to withstand another 
financial crisis. I look forward to your testimony and to 
discussing these matters with you today.
    The Chair now recognizes the ranking member of the 
committee, the gentleman from North Carolina, Mr. McHenry, for 
4 minutes for an opening statement.
    Mr. McHenry. I thank the Chairwoman for yielding. I would 
also like to welcome Chairman Powell back to the committee.
    Chairman Powell's prioritized outreach to Congress and 
Members of this body have benefited greatly from hearing his 
thoughts in February and in individual meetings since then. So, 
we thank you for your return. I know the markets are interested 
in your testimony, but we, as policymakers, are also interested 
in your testimony.
    As I stated at our hearing in February, the economy over 
the last 2\1/2\ years has witnessed remarkable growth, and 
unemployment has reached lows that many believed were 
impossible. Republican-led tax relief and regulatory reform 
have supported these trends with millions of Americans 
benefiting from our policies. We are seeing this in wage 
growth. We are seeing this in continued job growth. And all 
Americans are benefiting from this.
    These benefits continue to endure 5 months since your last 
testimony. And in the most recent FOMC statement, the Fed 
concluded that the labor markets remain strong and that 
economic activity is rising. Job gains have been solid, and the 
unemployment rate remains low.
    But we cannot take our foot off the pedal. In February, we 
discussed how the Fed was undertaking targeted rulemaking to 
provide regulatory relief that allows financial institutions to 
operate efficiently in the communities that they serve and 
compete globally as well.
    I hope that you, Chairman Powell, will continue to work to 
undertake these efforts with a sense of urgency, especially in 
the rulemaking category. I also encourage Chairman Powell to 
maintain his commitment to transparency and proactive 
communication with Capitol Hill, especially when the Fed is 
considering changes to its policies and operations.
    At our last hearing, for instance, the Chairman noted that 
the Fed continues to support its current inflation target. But 
as we know, there are numerous proposals that would affect how 
the Fed might pursue that target. I hope that the Fed will 
approach such proposals with an appropriate level of prudence, 
given the limitations of the central bank's tool kits at this 
point in our economic cycle, and also until we fully understand 
how those limitations have emerged and how they can reliably be 
overcome.
    Finally, let me reiterate my concerns, concerns shared by 
the Fed itself, that global economic uncertainty could result 
in headwinds here at home. Prior to our February hearing, the 
Fed made clear that Europe and China represent the risks that 
the Fed would continue to monitor and, where appropriate, work 
to mitigate. I hope we can touch on those things today.
    Let me highlight China in particular. When the Chairman 
last appeared before our committee, he noted that China's 
economy is State-run but that Beijing has also attempted to 
make certain market-oriented reforms. I am concerned that these 
reforms may not be deep enough.
    When the world's second largest economy is a one-party 
state without the rule of law, without transparent decision-
making, where monetary policy and allocation of capital bends 
to politics and cronyism, where 1 million citizens can be 
locked up in camps while another million take to the streets to 
defend their freedoms, then we all need to focus on that 
country and its regime as a unique source of risk to the global 
stability and global growth.
    So, I would encourage the Chairman to work with his 
colleagues both here and abroad so that we have a sufficient 
understanding of China, as well as a sufficient set of tools 
within central banks if something were to go wrong.
    And again, thank you, Chairman Powell, for returning today. 
Thank you for your responsiveness. Your candor is welcome and 
encouraged. And we thank you for attempting to speak like a 
normal human being even amidst very complex financial markets 
and complex decision-making within our independent monetary 
policy group called the Federal Reserve.
    Thank you.
    Chairwoman Waters. The Chair now recognizes the 
subcommittee Chair, Mr. Cleaver, for 1 minute.
    Mr. Cleaver. Thank you, Madam Chairwoman. And we are 
pleased to have you here again, Mr. Chairman. Thank you for 
being here.
    I wanted to discuss the impact of this trade war, over 500 
days in this trade war. But I can hardly move there because the 
number one concern I am having is that this Administration is 
very publicly trying to force financial markets and the Federal 
Reserve to lower interest rates to offset what I think to be an 
irrational trade war and poor fiscal policies.
    And the issue for me is that, in January, I will have been 
on this committee for 15 years, and I have never seen a 
President meddle in the Federal Reserve as this President has, 
and it is deeply disturbing. And the problem is that it seems 
to be working, because we are moving in a direction that he has 
been ordering. And hopefully, you can address some of this when 
we get back into the question-and-answer period.
    Thank you, Madam Chairwoman.
    Chairwoman Waters. The Chair now recognizes the 
subcommittee ranking member, Mr. Stivers, for 1 minute.
    Mr. Stivers. Thank you, Madam Chairwoman.
    Chair Powell, welcome back to the committee. Because of the 
tax cut and regulatory reforms, the U.S. has seen unprecedented 
economic growth, wage growth, as well as record low 
unemployment and stable prices. And since the last time you 
were here, we have seen a mostly steady economy with 
unemployment at 3.7 percent and consumer prices only edging up 
about 0.1 percent. But I have heard anecdotal evidence of 
slowing investment and price increases. I want to thank you for 
your steady hand on monetary policy. That is an important part 
of our economic success.
    And while acknowledging the recent success, I know the FOMC 
meetings have pointed to uncertainties in economic outlook, 
meaning that your data may be telling you the same thing that I 
have been hearing.
    I do agree with Chair Waters--I want to hear about your 
perspective on Facebook's cryptocurrency. I think they are 
attempting to undermine the dollar as the world's currency. I 
also am interested in hearing your views of where we are in the 
business cycle and what we can do to support you on fiscal and 
other policies.
    I yield back the balance of my time.
    Chairwoman Waters. Thank you very much.
    I want to welcome to the committee our distinguished 
witness, Jerome Powell, Chairman of the Board of Governors of 
the Federal Reserve System. He has served on the Board of 
Governors since 2012, and as its Chair since 2017. Mr. Powell 
has testified before this committee before, and I believe he 
does not need any further introduction.
    Without objection, your written statement will be made a 
part of the record.
    Mr. Powell, you are now recognized to present your oral 
testimony.

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

    Mr. Powell. Thank you, and good morning. Chairwoman Waters, 
Ranking Member McHenry, and members of the committee, I am 
pleased to present the Federal Reserve's semi-annual monetary 
policy report to Congress.
    Let me start by saying that my colleagues and I strongly 
support the goals of maximum employment and price stability 
that Congress has set for us for monetary policy. We are 
committed to providing clear explanations about our policies 
and activities. Congress has given us an important degree of 
independence so that we can effectively pursue our statutory 
goals based on objective analysis and data. We appreciate that 
our independence brings with it an obligation for transparency 
so that you and the public can hold us accountable.
    Today, I will review the current economic situation and 
outlook before turning to monetary policy. I will also provide 
an update on our ongoing public review of our framework for 
setting monetary policy.
    The economy performed reasonably well over the first half 
of 2019, and the current expansion is now in its eleventh year. 
However, inflation has been running below the FOMC's symmetric 
2 percent objective. And crosscurrents, such as trade tensions 
and concerns about global growth, have been weighing on 
economic activity and the outlook. The labor market remains 
healthy. Job gains averaged 172,000 per month from January 
through June. This number is lower than the average of 223,000 
jobs per month last year, but above the pace needed to provide 
jobs for new workers entering the labor force. Consequently, 
the unemployment rate moved down from 3.9 percent in December 
to 3.7 percent in June, close to its lowest level in 50 years. 
Job openings remain plentiful, and employers are increasingly 
willing to hire workers with fewer skills and train them.
    As a result, the benefits of a strong job market have been 
more widely shared in recent years. Indeed, wage gains have 
been higher for lower-skilled workers. That said, individuals 
in some demographic groups and in certain parts of the country 
continue to face challenges. For example, unemployment rates 
for African Americans and Hispanics remain well above the rates 
for whites and Asians.
    Likewise, the share of the population with a job is higher 
in urban areas than in rural communities. And this gap has 
widened over the past decade. A box in the July monetary policy 
report provides a comparison of employment and wage gains over 
the current expansion for individuals with different levels of 
education.
    GDP increased at an annual rate of 3.1 percent in the first 
quarter of 2019, similar to last year's pace. This strong 
reading was driven largely by net exports and inventories, 
components that are not generally reliable indicators of 
ongoing momentum. The more reliable drivers of growth in the 
economy are consumer spending and business investment.
    While growth and consumer spending was weak in the first 
quarter, incoming data show that it has bounced back and is now 
running at a solid pace. However, growth in business investment 
seems to have slowed notably. And overall growth in the second 
quarter appears to have moderated. The slowdown in business 
fixed investment may reflect concerns about trade tensions and 
slower growth in the global economy. In addition, housing 
investment and manufacturing output declined in the first 
quarter and appeared to have decreased again in the second 
quarter.
    After running close to our 2 percent objective over much of 
last year, overall consumer price inflation measured by the 12-
month change in the price index for personal consumption 
expenditures, or PCE inflation, declined earlier this year and 
stood at 1.5 percent in May. The 12-month change in core PCE 
inflation, which excludes food and energy prices and tends to 
be a better indicator of future inflation, has also come down 
this year and was 1.6 percent in May.
    Our baseline outlook is for economic growth to remain 
solid, labor markets to stay strong, and inflation to move back 
up over time to the committee's 2 percent objective. However, 
uncertainties about the outlook have increased in recent 
months. In particular, economic momentum appears to have slowed 
in some major foreign economies, and that weakness could affect 
the U.S. economy.
    Moreover, a number of government policy issues have yet to 
be resolved including trade developments, the Federal debt 
ceiling, and Brexit. And there is a risk that weak inflation 
will be even more persistent than we currently anticipate.
    We are carefully monitoring these developments and will 
continue to assess their implications for the U.S. economic 
outlook and inflation.
    The nation also continues to confront important longer-run 
challenges. Labor force participation by those in their prime 
working years is now lower in the United States than in most 
other nations with comparable economies.
    As I mentioned, there are troubling labor market 
disparities across demographic groups and different parts of 
the country. The relative stagnation of middle and lower 
incomes and low levels of upward mobility for lower-income 
families are also ongoing concerns. In addition, finding ways 
to boost productivity growth which leads to rising wages and 
living standards over the longer term should remain a high 
national priority.
    And I remain concerned about the longer-term effects of 
high and rising Federal debt which can restrain private 
investment and, in turn, reduce productivity and overall 
economic growth. The longer-run vitality of the U.S. economy 
would benefit from efforts to address these issues.
    Against this backdrop, the FOMC maintained the target range 
for the Federal funds rate at 2\1/2\ percent in the first half 
of this year.
    At our January, March, and May meetings, we stated that we 
would be patient as we determined what future adjustments to 
the Federal funds rate might be appropriate to support our 
goals of maximum employment and price stability.
    At the time of our May meeting, we were mindful of the 
ongoing crosscurrents from global growth and trade, but there 
was tentative evidence that these crosscurrents were 
moderating. The latest data from China and Europe were 
encouraging, and there were reports of progress in trade 
negotiations with China. Our continued patience stance seemed 
appropriate, and the committee saw no strong case for adjusting 
our policy rate.
    Since our May meeting, however, these crosscurrents have 
re-emerged, creating greater uncertainty. Apparent progress on 
trade turned to greater uncertainty. And our contacts in 
business and agriculture report heightened concerns over trade 
developments.
    Growth indicators from around the world have disappointed 
on net raising concerns that weakness in the global economy 
will continue to affect the U.S. economy. These concerns may 
have contributed to the drop in business confidence in some 
recent surveys and may have started to show through to incoming 
data.
    At our June meeting, we indicated that in light of 
increased uncertainties about the economic outlook and muted 
inflation pressures, we would closely monitor the implications 
of incoming information for the economic outlook and would act 
as appropriate to sustain the expansion.
    Many FOMC participants saw that the case for a somewhat 
more accommodative monetary policy stance had strengthened. 
Since then, based on incoming data and other developments, it 
appears that uncertainties around trade tensions and concerns 
about the strength of the global economy continue to weigh on 
the U.S. economic outlook. Inflation pressures remain muted.
    The FOMC has made a number of important decisions this year 
about our framework for implementing monetary policy and our 
plans for completing the reduction of the Fed's securities 
holdings.
    At our January meeting, we decided to continue to implement 
monetary policy using our current policy regime with ample 
reserves and emphasize that we are prepared to adjust any of 
the details for completing balance sheet normalization in light 
of economic and financial developments.
    In our March meeting, we communicated our intentions to 
slow, starting in May, the decline in the Fed's aggregate 
securities holdings and to end the reduction in these holdings 
in September. The July monetary policy report provides details 
on these decisions. The report also includes an update on 
monetary policy rules. The FOMC routinely looks at monetary 
policy rules that recommend a level for the Federal funds rate 
based on inflation and unemployment rates. I continue to find 
these rules helpful, although using these rules requires 
careful judgment.
    We are conducting a public review of our monetary policy 
strategy, tools, and communications, the first review of its 
kind for the FOMC. Our motivation is to consider ways to 
improve the committee's current policy framework and to best 
position the Fed to achieve maximum employment and price 
stability. The review has started with outreach to and 
consultation with a broad range of people and groups through a 
series of Fed Listens events. The FOMC will consider questions 
related to the review at upcoming meetings, and we will 
publicly report the outcome of our discussions.
    Thank you, and I will be happy to respond to your 
questions.
    [The prepared statement of Chairman Powell can be found on 
page 62 of the appendix.]
    Chairwoman Waters. Thank you very much, Chairman Powell. I 
now recognize myself for 5 minutes for questions.
    On June 18th, Facebook announced its plans to launch Libra, 
a new global cryptocurrency, as well as a new payment system, 
Calibra, which will facilitate Libra transactions. On June 
24th, the Federal Reserve's Vice Chairman of Supervision, 
Randal Quarles wrote a letter in his capacity as Chairman of 
the Financial Stability Board to the G20 leaders noting that, 
``a wider use of new types of cryptocurrency, of cryptoassets 
for retail payment purposes would warrant close scrutiny by 
authorities to ensure that they are subject to high standards 
of regulation.'' Thus, signaling that global regulatory 
coordination of Facebook will be a priority.
    Chairman Powell, did the Federal Reserve speak with 
Facebook about their Libra currency? And, if so, were any 
concerns raised? Does the Federal Reserve have any authority to 
supervise and regulate what could be the world's largest 
payment system? Does the Federal Reserve have any concerns 
about monetary policy with regard to Libra?
    Mr. Powell. Thank you, Madam Chair.
    We did actually have a meeting with representatives of 
Facebook a couple of months before the announcement. I think 
they made fairly broad set of visits to authorities around the 
world.
    But getting to your questions. Let me start by saying that 
we do support responsible innovation in the financial services 
industry as long the associated risks are appropriately 
identified and managed.
    And as we will discuss, while the project sponsors hold out 
the possibility of public benefits including improved financial 
access for consumers, Libra raises many serious concerns 
regarding privacy, money laundering, consumer protection, and 
financial stability. These are concerns that should be 
thoroughly and publicly addressed before proceeding. And that 
is why at the Fed we have set up a working group to focus on 
this set of issues. We are coordinating with our colleagues in 
the government in the United States, the regulatory agencies 
and Treasury. We are coordinating with central banks and 
governments around the world to look into this.
    And I will just add that the process of addressing these 
concerns we think should be a patient and careful one and not a 
sprint to implementation.
    Chairwoman Waters. So are you speaking of a working group 
within FSOC?
    Mr. Powell. Well, the Fed--we have our own working group. I 
believe FSOC has already got a working group at the staff 
level, or in effect, has a working group at the staff level.
    Chairwoman Waters. Well, FSOC does have a cryptocurrency 
working group. Is FSOC or this working group reviewing the 
extensive policy questions and potential impact that Libra and 
Calibra have? Do you know what they are doing?
    Mr. Powell. I do believe they are. I know there was a staff 
level meeting just last week to focus on Libra at FSOC. So all 
the agencies were there. So I think the answer to your question 
would be yes.
    Chairwoman Waters. Do you think that FSOC will designate--
or is FSOC considering designating the Libra association and 
Calibra either as systemic financial market utilities or 
nonbank financial companies and subject them to enhanced 
regulatory oversight? Are you aware of that?
    Mr. Powell. I think it is early to say. There hasn't been a 
principles meeting of FSOC since the Libra announcement. And 
while there have been conversations, I think it is highly 
likely that FSOC will be taking this on in a serious way. But 
that is in the hands of the Treasury secretary who chairs FSOC.
    Chairwoman Waters. Thank you very much.
    Mr. Chairman, if you got a call from the President today or 
tomorrow and he said, I am firing you, pack up, it is time to 
go, what would you do?
    Mr. Powell. Well, of course, I would not do that.
    Chairwoman Waters. I can't hear you.
    Mr. Powell. My answer would be no.
    Chairwoman Waters. And you would not pack up and you would 
not leave?
    Mr. Powell. No, ma'am.
    Chairwoman Waters. Because you think the President doesn't 
have the authority? Is that why you would not leave?
    Mr. Powell. I have kind of said what I intended to say on 
this subject. And what I have said is that the law clearly 
gives me a 4-year term, and I fully intend to serve it.
    Chairwoman Waters. Okay. So I hope everybody heard that.
    With that, I will yield to the gentleman from North 
Carolina, the ranking member, Mr. McHenry.
    Mr. McHenry. So, Chairman Powell, in your testimony you 
said you will use macroeconomic data to inform your decision on 
whether lower interest rates are required at the end of the 
month or not. What specific data would likely lead to you 
recommending a change in rates?
    Mr. Powell. Between now and the end of the month, there is 
data coming in on almost everything. You will have labor market 
data. You will have second quarter GDP. You will have retail 
sales. You will have a broad range of data coming over the next 
3 weeks. And we will be looking at all of that. I wouldn't 
point to any one data point or even any period. We try to look 
over longer periods of time and assess what is really going on 
on a more fundamental level, and that is what we will do as we 
evaluate the incoming data.
    Mr. McHenry. And there is also an understanding of the 
market assumption of what the Federal Reserve open markets 
committee will do as well, is there not?
    Mr. Powell. There is. So we look at a broad range of 
financial conditions. We don't focus on any one thing. But we--
our policy works through financial conditions, and so we will 
look at a broad range of things in the financial markets.
    Mr. McHenry. So a broad range of things. Macroeconomic 
data. Emotion?
    Mr. Powell. Emotion? Not on our part. We will try to be 
very rational and analytical and transparent about how we are 
thinking about these things.
    Mr. McHenry. So along the lines of that transparency, the 
velocity of the economy you speak to and the larger global 
macroeconomic issues that are at play here as well.
    So along those lines, does the Federal Reserve have the 
capacity to make independent monetary policy decisions under 
law?
    Mr. Powell. Yes, we do.
    Mr. McHenry. Is that impeded by people saying negative 
things about you?
    Mr. Powell. We--
    Mr. McHenry. Is that enhanced or diminished based off 
people saying positive or negative things about you?
    Mr. Powell. Neither. We will always focus on doing the job 
you have assigned us. And we will always do it to the best of 
our ability and based on objective analysis and facts.
    Mr. McHenry. So along those lines--so we have a significant 
change to LIBOR policy. And I wrote to Vice Chair Quarles along 
those lines. The Fed has spoken publicly about this as well, 
that there has been major progress made in terms of the swamps 
and derivatives contracts. I remain concerned about legacy 
retail contracts as well.
    Has the Fed undertaken analysis along those lines about 
legacy retail contracts and the use of LIBOR?
    Mr. Powell. Indeed we have. And that is a very important 
part of the project going forward. So we have reached out to 
representatives of retail users of LIBORfor some time now and 
are meeting with them regularly and developing plans to deal 
with that. Because as you know, as you pointed out in your 
letter, a significant quantity of LIBOR contracts are, in fact, 
mortgages and the like. So that is a really important area.
    We did the derivative things first because they were close 
to hand and quite large hard. But we are working hard on the 
retail side now.
    Mr. McHenry. So is there any estimate on the number of 
loans that have to be renegotiated because of this policy 
change?
    Mr. Powell. I don't have a number for you.
    Mr. McHenry. Okay. I also want to touch on project Libra. 
You have mentioned in answer to a number of those questions, it 
looked like you are quite prepared for that. You mentioned 
financial stability as a concern. Why? Why is project Libra a 
question of financial stability, in your view?
    Mr. Powell. Well, really due to the possibility of quite 
broad adoption. Facebook has a couple billion plus users, so 
you have, I think for the first time, the possibility of a very 
broad adoption. And if there were problems there associated 
with money laundering, terrorist financing, any of the things 
that we are all focused on, including the company, they would 
immediately rise to systemically important levels just because 
of the mere size of the Facebook network. And the company has 
said so explicitly.
    Mr. McHenry. Is it a problem that we don't have a 
regulatory regime that is permissive of these technologies to 
be developed here in the United States?
    Mr. Powell. I don't know that that is a problem. That is 
the question of whether we are impeding blockchain. I don't 
believe so, but I don't know the answer to that.
    Mr. McHenry. But there is an opportunity here for financial 
inclusion benefits and innovation benefits if this worked well, 
is there not?
    Mr. Powell. There is that possibility. And as I mentioned, 
that is the main benefit the company is holding out. And I also 
mentioned that we are open to financial innovation. We just 
want it to take place in a safe and sound way.
    Mr. McHenry. Thank you.
    Chairwoman Waters. The gentlewoman from New York, Mrs. 
Maloney, is now recognized for 5 minutes.
    Mrs. Maloney. Thank you, Madam Chairwoman, and Ranking 
Member McHenry. And thank you for your service, Chairman 
Powell.
    Chairman, in June the Fed decided not to cut interest rates 
and to take a wait-and-see approach instead. In your press 
conference, you said this approach was justified because, ``we 
will see a lot more on all of these issues in the very near 
term.''
    Last week we got the job numbers for June, and they were 
very strong with the employers adding 224,000 jobs. So my 
question is did the June jobs report change your outlook for 
whether a reduction in interest rates is appropriate in the 
near term?
    Mr. Powell. Well, a straight answer to your question is no. 
But I will give you the context. We look at a broad range of 
data. So let's start abroad where I think, since the June 
meeting and for a period before that, the data have continued 
to disappoint. And that is very broad across Europe and around 
Asia. And that continues to weigh. And by the way, 
manufacturing, trade, and investment are weak all around the 
world. We have a box that talks about that in the monetary 
policy report.
    In the United States, we did get a job report that was 
positive, and that is great news. And we had some other 
reasonably good news. I would say the U.S. data came in about 
as expected. And I would also say that--let's go to trade. We 
have agreed to begin discussions again with China. And while 
that is a constructive step, it doesn't remove the uncertainty 
that we see as overall weighing on the outlook.
    So I would say that the bottom line for me is that the 
uncertainties around global growth and trade continue to weigh 
on the outlook. In addition, inflation continues to be muted, 
and those things are still in place.
    Mrs. Maloney. Okay. Mr. Chairman, some economists and many 
markets participates believe that the Fed should cut interest 
rates by a full 50 basis points in July rather than a normal 
cut of 25 basis points. Personally, I don't see the case for 
cutting rates by 50 basis points because the economy is quite 
strong right now.
    What economic factors do you believe would justify taking 
the unusual step of cutting rates by a full 50 basis points?
    Mr. Powell. At our meeting, which is in 3 weeks, we will be 
looking at a full range of data. And I would just take you 
through the story I just told you. That will be what we are 
thinking about is the extent to which trade developments and 
concerns over global growth are weighing on the outlook and 
also the performance of inflation. Those are the factors that 
we have identified. And all of that will go into our 
decisionmaking.
    Mrs. Maloney. And also, Mr. Chairman, you have repeatedly 
stressed that uncertainty about trade policy is a major 
economic headwind and is one of the factors that could lead the 
Fed to cut rates this month. But as we have seen under the 
President, it is very unlikely that will ever get much 
certainty on trade policy. He keeps changing every day.
    So my question is what kind of progress in trade 
negotiations do you need to see in order to put your mind at 
ease about trade developments not being a headwind, to use your 
term, to economic growth?
    Mr. Powell. I guess I ought to start by saying that no one 
should interpret what I am saying about trade headwinds as, in 
any way, a criticism of trade policy. They do not play a role 
in assessing or criticizing trade policy. It is not something 
that is assigned to us.
    We react to anything that--in principle, anything that can 
affect our ability to achieve the dual mandate goals you have 
assigned us is something that could, in principle, call for a 
policy response.
    Right now that is global weakness and trade developments 
are things that are widely thought to have that effect. That is 
all. So I wouldn't want to be--I wouldn't want to try to 
prescribe a specific answer. And, again, it wouldn't be ours to 
do in the first place.
    Mrs. Maloney. Well, hopefully we will have some answers on 
trade soon. And thank you for your service.
    And I yield back.
    Chairwoman Waters. The gentlewoman from Missouri, Mrs. 
Wagner, is now recognized for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman, and thank you, 
Chairman Powell, for being here today to testify.
    Chairman Powell, Vice Chairman QUARLES just yesterday 
indicated the Federal Reserve would revise its stress capital 
buffer proposal in the near future. Vice Chairman Quarles 
indicated one option would be to look at an average of stress 
test results over a number of years.
    Are you in agreement with Vice Chairman Quarles that this 
is something that needs to be considered? And what factors 
might necessitate this change, sir?
    Mr. Powell. So we are in the process of evaluating--I think 
in the late stages of evaluating how to put into effect the 
stress capital buffer which merges the results of the stress 
test with the underlying overall capital framework. It is a 
complicated exercise. There are many moving pieces. That is one 
of them. I wouldn't want to single any single one out as 
important for our consideration, but that is--
    Mrs. Wagner. So the average--taking an average of stress 
test results over a number of years is something that is under 
consideration but is maybe a change that you are not 
necessitating just yet or--
    Mr. Powell. We are very much in the process of evaluating 
all of those ideas. And I wouldn't want to single that one out 
as either in or out. There are many pieces. But, yes, that is 
one of the pieces.
    Mrs. Wagner. Mr. Chairman, you said you are in the late 
stages. What is your timeframe, do you believe, for coming up 
with an option in terms of the stress capital buffer proposal?
    Mr. Powell. I would have to come back to you with a date. 
But it would be soon, in the near future.
    Mrs. Wagner. Thank you.
    Chairman Powell, at your January press conference, you were 
asked whether a $4 trillion balance sheet gave you sufficient 
fire power to handle a future recession, and you answered yes. 
However, the Fed's balance sheet, as a share of GDP, is about 
where the Bank of Japan balance sheet was prior to the 
financial crisis.
    Today, the Bank of Japan has ended up with a balance sheet 
as large as a Japanese economy with mixed results on inflation 
and limited room to handle another downturn.
    Has Japan's experience, sir, affected your thinking on the 
appropriate size of the Fed's balance sheet?
    Mr. Powell. I think there are a lot of lessons to be 
learned from the experience of Japan, really, over the last 
quarter century. And all of us have looked very carefully at 
that.
    Mrs. Wagner. And to that point, if I may, why should we 
feel certain that the U.S. could avoid a similar fate? And 
perhaps you could elaborate.
    Mr. Powell. What Japan has found itself in a situation 
where inflation has gotten down close to 0 for a very long 
time. And they have tried many, many things, including, as you 
mentioned, extensive asset purchases and all sorts of forward 
guidance to move inflation back up and have not met with much 
success, although they continue to struggle to do that. So my 
main takeaway from that--and, by the way, the European central 
bank is fighting that battle as well.
    Mrs. Wagner. Yes.
    Mr. Powell. My main takeaway from that, honestly, is that 
the Fed needs to stand here and try to keep inflation 
symmetrically at 2 percent. We don't want to get on that road 
of declining it. To the extent inflation continues to decline 
and expectations decline, that will show up in lower interest 
rates which will give the central bank even less firepower to 
react. And we see that that road is hard to get off of.
    So I think it is quite important that we fight at 2 
percent, to keep inflation up to 2 percent, and use our tools 
to achieve that symmetrically. And we are strongly committed to 
doing that.
    Mrs. Wagner. The most recent monetary policy report stated 
that, ``consumer spending in the first quarter was lackluster 
but appears to have picked up.'' And you talked a little bit 
about this in your opening statement, Mr. Chairman.
    Can you, please, explain the possible variables behind 
lackluster consumer spending and why the recent turnaround?
    Mr. Powell. Well, I think the consumer part of the economy 
is 70 percent of the economy, and it is healthy. It is strong. 
It is good job creation. It is rising wages. Worker surveys 
show that they think jobs are plentiful. Business surveys show 
that they think workers are scarce. So this is a good place for 
the consumer part of the economy. And you see that in surveys. 
You see it in consumer spending and things like that.
    Mrs. Wagner. The concerns about workforce development and 
having enough able workforce is very key. You are right.
    Mr. Powell. They are. But I think a tight labor force is 
lifting all sorts of communities into the labor force, and it 
is good. The issue really is more now on the business side, 
where we see business--confidence in business investment 
weakening a bit.
    Mrs. Wagner. I thank you. I have run out of time.
    I yield back to the Chair.
    Thank you, sir.
    Chairwoman Waters. Mr. Clay, the gentleman from Missouri, 
is now recognized for 5 minutes.
    Mr. Clay. Thank you, Madam Chairwoman. And thank you, 
Chairman Powell, for your visit today.
    In its blog published just yesterday, the St. Louis Federal 
Reserve noted that a rise in uncertainty is widely believed to 
have detrimental effects on macroeconomic, microeconomic, and 
financial market outcomes and induced responses from monetary 
fiscal and regulatory policymakers, they wrote. Theoretical 
models suggest that rising uncertainty can affect economic 
activity and decisionmaking in various ways. The authors 
explained, in particular, they noted firms may delay investment 
and hiring. Households may reduce spending by increasing their 
savings rate if they anticipate possible changes in their 
income or wealth.
    Financing costs may rise if risk premiums increase. And 
even in your own testimony submitted to this committee, you 
noted that consumer spending has bounced back from a sluggish 
first quarter and is chugging along. And this uncertainty is 
exacerbated for consumers in Missouri when the President is 
gloating about how great the economy is, yet the Federal 
Reserve is considering a rate cut.
    How do you account for these mixed messages?
    Mr. Powell. Well, I haven't seen that blog post. But I 
would strongly agree with the sense of it. We do think that 
uncertainty can cause businesses to hold back on investment and 
hiring. In fact, we have been hearing that, in our FOMC-based 
discussions with businesses around the country, household 
confidence has remained high. But over time, uncertainty can 
cause households to hold back as well. So I think that is a 
pretty standard finding.
    Mr. Clay. What about the factor of savings? How does that 
play into--
    Mr. Powell. Savings?
    Mr. Clay. Yes.
    Is that good or bad?
    Mr. Powell. Sorry?
    Mr. Clay. Is that good or bad for families to save?
    Mr. Powell. Well, the savings rate has actually been fairly 
high lately. Well, it is good for people to save what they 
think they need to save. And I think as a general thought, as a 
general fact, Americans need to save more for retirement than 
they have. They are not oversaving, they are undersaving in the 
aggregate, so it is a good thing.
    Mr. Clay. Could they also be saving in anticipation of a 
calamity? An economic calamity occurring?
    Mr. Powell. Well, yes. I was going to say there is also--it 
is good to save. But at the same time, if there is a shock to 
confidence, you can see people pulling back from their regular 
consumption patterns, and that will show up in demand, and the 
economy will weaken.
    Mr. Clay. Okay. As far as the decisionmaking on the part of 
the Fed, are you relying on conventional economic data or being 
swayed by job owning of the President?
    Mr. Powell. We see the economy as being in a good place, 
and we are committed to using our tools to keep it there. As we 
have discussed, the overall economy is performing reasonably 
well, but we see what we call crosscurrents, principally trade 
developments and concerns over global growth. And we see those. 
And many FOMC participants at the last meeting saw those as 
weighing on the outlook and calling for, possibly, a more 
accommodative policy.
    Mr. Clay. Thank you for that response.
    And Chairman Powell, despite data proving that diverse 
companies perform more successfully, we still find that 
financial services industry is largely white and male at its 
highest level.
    What more can you do as Chair to incentivize diversity and 
equity within the Federal Reserve System?
    Mr. Powell. Thank you for that question.
    We put a very high value on diversity. I strongly believe 
that having diverse perspectives around the table leads you to 
better decisions. And I believe in having a culture where 
people are free to speak and will be heard. And that goes to 
all different dimensions of diversity.
    So we have made, I think, a lot of progress, at that, at 
the Fed. I would never say there isn't more to do. There is a 
lot more we can do. And I think we are very focused on that as 
an organization.
    I would say in my--most of my career was in the private 
sector. I saw that really successful companies, one of the 
things they do well is they do diversity well, because that is 
how you get--you get better results with diverse perspectives. 
So we are strongly committed to that.
    Mr. Clay. Thank you. And my time is up.
    I yield back.
    Chairwoman Waters. Mr. Stivers, the gentleman from Ohio, is 
now recognized for 5 minutes.
    Mr. Stivers. Thank you, Madam Chairwoman. And, Chairman 
Powell, I really appreciate you being here. I want to thank you 
for your transparency and accessibility as Fed Chair. And you 
have been available to all of us in our offices and your 
office, and I appreciate that.
    This committee hearing is about monetary policy and the 
state of the economy, and I will stay focused on those issues 
and leave the regulatory issues to when Vice Chair Quarles is 
here.
    And with regard to monetary policy, when I was in your 
office, I really appreciate you keeping the hundred million 
Venezuelan bolivars I gave you as you answered to the question 
on Japan. Once inflation starts rolling, it is really hard to 
get a control of, as the Venezuelans have found. And so the 
fact that you guys have a stable price target and are sticking 
to it I think makes a huge difference. I know that there is a 
lot of potential shocks, including tariffs and other things, 
that can impact that. But so far you guys have done a great job 
on monetary policy.
    And in another question about unemployment, and the tight 
labor markets, I think you talked about the fact that wages are 
starting to go up. It is starting to actually benefit people 
who have actually not benefited from this economic expansion 
over the last 10 years, which is a good thing. And I know some 
observers have been calling for a so-called hot monetary policy 
on the premise that further tightening of the labor market will 
benefit those demographics that have missed out on the 
expansion and drive up wages and make labor markets start tight 
and help those folks.
    Can you comment on whether the members of the FOMC have 
talked about those views and what the potential risks and 
benefits associated with a hot monetary policy might be?
    Mr. Powell. I guess I would start by saying that we don't 
have any basis or any evidence for calling this a hot labor 
market. We have wages moving up at a little above 3 percent, 
and that is good. It is good, because it was more like 2 
percent 5 years ago. But 3 percent barely covers productivity. 
It doesn't even really cover productivity increases and 
inflation. And it certainty isn't a high enough wage to put any 
upward pressure on inflation. And we haven't seen--as this long 
cycle has gone on, we haven't seen wages moving up as sharply 
as they have in the past.
    I do think it is very gratifying that, for the last 2 
years, the greater part of wage gains have gone to people at 
the lower end of the wage spectrum and education spectrum. That 
is a very positive thing.
    But, 3.7 percent is a low unemployment rate. But to call 
something hot, you need to see some heat. And while we hear 
lots of reports of companies having a hard time finding 
qualified labor, nonetheless, we don't see wages really 
responding. So I don't really see that as a current issue.
    Mr. Stivers. Great.
    And, if we want to see wages continue to grow, we are going 
to need economic growth. And one of the things that this 
Congress has in front of it is the USMCA. I know a lot of the 
questions you are going to get are going to be about a trade 
war with China. But can you comment about the importance of the 
USMCA and the North American investment that a lot of companies 
have made in a North American supply chain?
    Mr. Powell. So I wouldn't take a position on the details of 
the USMCA, though. But I will say that having it passed would 
remove a real bit of the uncertainty that is weighing on the 
outlook. And I think it would be quite a positive thing from 
that standpoint.
    Mr. Stivers. And I think that is what we all need to focus 
on is fighting the uncertainty. And there are things we can do 
with that. And I think as policymakers we need to come together 
and do that.
    The last question, because I have only got a minute left, 
is on Libra and Facebook.
    If Facebook can't sufficiently answer your questions about 
anti-money laundering, know your customer, what would your 
message be to the banks that provide banking to Facebook? And 
what would your advice to Facebook be?
    Mr. Powell. Well, I don't think that the project can go 
forward. And I don't think--I just think it cannot go forward 
without there being broad satisfaction with the way the company 
has addressed money laundering, all of those things. There are 
a number of concerns that I listed at the beginning, data 
protection, consumer privacy, all of those things will need to 
be addressed very thoroughly and carefully and, again, in a 
deliberate process that will not be a sprint to implementation.
    Mr. Stivers. And I want to echo your comments that we all 
want innovation, but we want innovation that protects data 
security and the know-your-customer anti-money laundering laws 
that are so important to our economy.
    Thank you.
    I yield back the balance of my time.
    Chairwoman Waters. Mr. Scott, the gentleman from Georgia, 
is now recognized for 5 minutes.
    Mr. Scott. Thank you very much.
    Welcome, Chairman Powell. It's good to see you again.
    The first thing I want to say to you is I want you to stay 
strong, be courageous. It is important for this nation and the 
economy of the world that the Federal Reserve remain strongly 
independent. The other thing I want to say to you is have no 
fear. The President can't fire you. And we in Congress, both 
Democrats and Republicans, got your back.
    Now, I want to go to what I think is--and it has been 
mentioned a couple of times. This LIBOR business is really 
disturbing, and it is a serious problem. And let me tell you 
why. First of all, I think we all know, LIBOR is the London 
Interbank Offered Rate. Very critical. It has and is the 
standard for the base rate for hundreds of trillions of dollars 
both overnight and term loans, debt derivatives. And it is the 
standard that has been used internationally and extensively in 
the United States affecting individuals, small businesses, 
large corporations. So we got a big issue here.
    But because of pervasive manipulation now, it is apparent 
that LIBOR is going to leave us--or be removed within the next 
year or so. So this creates a big problem.
    And so I want to ask you, because the most critical part of 
this is that parties to both sides of the financial contracts 
should be and must be concerned in the short-term about the 
potential ramifications of the end of LIBOR specifically in 
contracts that do not have a fallback position. And as you 
know, without a fallback language or some appropriately 
established safe harbor, until a new reference rate can be 
used, significant legal problems and challenges are likely to 
occur.
    So with this in mind, as LIBOR's schedule end nears, and so 
far and is a secured overnight financing rate apparently will 
take its place, tell us, Mr. Chairman, what can we do? What can 
be done to accommodate the numerous contacts that do not have 
fallback provisions?
    Mr. Powell. Thank you, Mr. Scott.
    I think you said it very well. I think there are 300 
trillion plus in contracts referencing LIBOR in five different 
currencies. And, the manipulation was revealed really almost a 
decade ago. And I think the financial conduct authority, which 
supervises the LIBOR banks has said it will not compel the 
banks to submit LIBOR past the end of 2021, and LIBOR could 
then end.
    So we have spent many years now looking at ways to make 
sure that contracts do have fallbacks. And we are working 
with--we have worked with the retail groups, in particular now, 
for mortgages and things like that to find a way so that if 
LIBOR is not published, there will be a rate that is the 
fallback rate. And that has to be put into contracts in one way 
or another. It is a vast project. It is one that many, many 
people are working on and working hard to meet that deadline.
    Mr. Scott. Yes. And LIBOR will be gone, am I right, are my 
calculations right, within the next year or so?
    Mr. Powell. It is actually I think the end of 2021. It 
won't necessarily be gone, but the banks will no longer be 
required to submit their estimates of their interbank borrowing 
rates. And so it may go away. And I think we are requiring 
people to assume that it will so that they will be ready if it 
does.
    Mr. Scott. Yes. When you say ready for the dust--
    Mr. Powell. Ready if it does go away.
    Mr. Scott. Oh, if it does go away.
    Mr. Powell. Yes.
    Mr. Scott. So if it does go away, what will the situation 
be like?
    Mr. Powell. Well ideally, the situation we are aiming for 
is one in which people have either moved their obligations to 
SOFR, as you mentioned, Security Overnight Funding Rate, or 
some other rate. Or failing that, they have a rate in their 
contract where, if LIBOR is no longer published, the other rate 
just seamlessly falls into place and the two parties to the 
contract, the consumer and the bank, let's say, they know what 
the rate is, and they know--so that is what we need to 
accomplish. Again, we are working hard on it.
    Mr. Scott. Yes. Thank you, Mr. Chairman.
    Mr. Powell. Thank you.
    Chairwoman Waters. Mr. Kustoff, the gentleman from 
Tennessee, is now recognized for 5 minutes.
    Mr. Kustoff. Thank you, Madam Chairwoman, and thank you for 
convening today's hearing.
    And thank you, Mr. Chairman, for appearing today.
    If I could, I would like to follow up on a line of 
questioning that Congressman Stivers had relating to the USMCA. 
If you could, could you--we are going to face the option of 
passing it or not passing it in this Congress.
    What is the effect to our economy if we do, in fact, pass 
the USMCA? And, conversely, what is the effect to the economy 
if we fail to pass the USMCA?
    Mr. Powell. I don't actually have a precise evaluation for 
you of what the effects of passage would be. Overall, it is 
pretty similar to NAFTA. So, I would imagine that the longer 
term difference--the differences will show up over the longer 
term.
    I think the effects of not passing it would really depend 
on what happens to NAFTA. If NAFTA were then to be terminated, 
there could be quite a lot of uncertainty. And I think there is 
some uncertainty now about what is going to happen. I think the 
passage of it would remove that uncertainty, and that would be 
a good thing.
    Mr. Kustoff. And it would also be positive for our farmers 
and our ag communities if USMCA were passed.
    Mr. Powell. Yes, I think it would.
    Mr. Kustoff. Do you have an opinion how the passage or the 
nonpassage of the USMCA affects our leverage with China in 
negotiations and trade negotiations?
    Mr. Powell. I don't. I don't think it would be appropriate 
for me to comment on those negotiations, and I don't really 
have an answer for you on that.
    Mr. Kustoff. In the next week, next several weeks, 
purportedly we are going to be voting on a proposal to raise 
the minimum wage to $15 an hour. There was a CBO report that 
came out in the last day or so that estimated that a raise in 
the minimum wage to $15 an hour could cut, should cut 1.3 
million jobs, up to 3.7 million jobs.
    What would the effect be to the economy if Congress were to 
pass a minimum wage bill of raising the minimum wage to $15 an 
hour?
    Mr. Powell. The question of the minimum wage is really one 
for you. I think the studies, there are a range of studies that 
have different outcomes, but like the CBO study, what they tend 
to show is that a number of people get higher wages and a 
number of people lose their jobs. And those numbers will 
change, depending on what assumptions you make. And it really 
is something that there is no consensus among economists. 
Economists are all over the place on this.
    So it is really a question for you to sort of look at--I 
would look at a range of studies and not take any single one 
and I would weigh that and say, are the benefits worth the 
likely costs?
    Mr. Kustoff. What is the effect to the economy if 1.3 
million people lose their jobs or 3.7 million people lose their 
jobs as a result of the rise in minimum wage to $15 an hour?
    Mr. Powell. It would depend on--again, there would be costs 
and benefits. We know that some people would get higher wages 
and they would--presumably, they would be better off and they 
would spend more. So it is not a judgment that we make on net. 
It is a judgment that you have to make that there will be 
people who are made better off by it and those are all the 
people who have the higher minimum wage, but there will be a 
number of people who lose their jobs because that is what will 
happen, I think, empirically.
    Mr. Kustoff. Would the Federal Reserve be concerned if 1.3 
million people to 3.7 million people lost their jobs because 
the minimum wage was raised to $15 an hour?
    Mr. Powell. Again, Mr. Kustoff, we do not take a position. 
We never have taken a position on the minimum wage, and we 
would take whatever decision you make as the decision that we 
would put into our models and we would just take it as a given. 
We wouldn't express either support or disapproval.
    Mr. Kustoff. When I am back home in west Tennessee, what I 
hear generally from employers, small, medium, and large, the 
economy is good. We are making money. We are making more money 
than we made in 20 or 30 years. We can't find enough employees. 
We can't find employees with soft skills. We can't find 
employees who have the skills we need for the jobs. We can't 
find employees who can pass the drug test.
    Specifically, you have talked about this publicly, the 
effect of the opioid crisis on the workforce, what is your 
feeling with that? And how does the opioid crisis affect the 
workforce?
    Mr. Powell. An extraordinary number of people are taking 
opioids in one form or another and it weighs on labor force 
participation, largely but not exclusively, on younger males, 
also younger women, and it is a national crisis really. And, 
the humanitarian aspect of it is completely compelling, but the 
economic impact is also quite substantial.
    Mr. Kustoff. Thank you, Mr. Chairman.
    Mr. Powell. Thank you.
    Chairwoman Waters. The gentleman from Colorado, Mr. 
Perlmutter, is now recognized for 5 minutes.
    Mr. Perlmutter. Chairman, good to see you. Thanks for your 
testimony today. Let me just start with some questions that Mr. 
Scott was asking on Libra. Given sort of the uncertainties and 
the ability to kind of manage this new currency, if you will--
would the Federal Reserve, would you support some postponement 
in their implementing Libra or any kind of a moratorium until 
we kind of have a better understanding of the impact really on 
our economy and our ability to manage money?
    Mr. Powell. I think that there are deep, important, serious 
questions across a range of issues here that will need to be 
addressed, and the process of doing that is going to have to be 
patient and thorough and not a sprint, and that is what I would 
say. So I do think there is a lot of work going on at the Fed 
and at other agencies and I think in the government to 
understand these issues. I think it is something that doesn't 
fit neatly or easily within our regulatory scheme. It does have 
potentially systemic scale, and for all the reasons we have 
discussed it needs a careful look and so I strongly believe we 
need to all be taking our time here.
    Mr. Perlmutter. I am going take that as a yes. Thank you.
    I have a couple of other questions, and I don't know if you 
have your booklet in front of you, but I always like the graphs 
that you folks prepare because they are very informative and 
especially graph 2. In my district in Colorado--so graph 2 is 
really the unemployment rate and the fact that for about 9, 10 
years now, there has been a steady decrease in unemployment. In 
my district, in Colorado, we have enjoyed under 3 percent for 
about 7 years running, which is pretty remarkable. So I want to 
thank you and I want to thank the Federal Reserve for the role 
you have been playing there.
    But one of your answers really, I think, is important to 
what we face as Members of Congress is the fact that for most 
Americans, their wages still, they are struggling, month to 
month, year to year, to get ahead to really be able to deal 
with the costs that we all see.
    So in your predictions in what the Federal Reserve is 
doing, do you see improvement in what everyday Americans are 
making in sort of catching up and getting ahead where they lost 
a ton through the recession and the years right after that?
    Mr. Powell. So what we are hearing, we are hearing this 
quite a lot from people who work and live in low- and moderate-
income communities is that there really hasn't been a recovery 
for these people until recently. But now, they are feeling, 
with this tight labor market, they are feeling employers who 
are waiving issues that might have prevented people from being 
in the workforce, they are willing to look past those. They are 
recruiting people who have been outside the labor force. In 
fact, we have had people say to us that this is really the best 
deal that they have had for many years, if ever.
    And all of that really, in my thinking and our thinking, 
just says how important it is for us to continue to sustain 
this expansion. This has really come together just in the 
last--you know, we have had a long--as you can see from that 
chart, the labor market has improved steadily for 10 years now, 
but just in the last couple of years, it started to reach 
communities at the edge of the workforce. And it is just so 
important for to us continue that process for a couple of 
years. And that is why we are so committed to using our tools 
to sustain the expansion.
    Mr. Perlmutter. Thank you.
    My last question. The only graph that I saw that really is 
kind of perplexing and problematic is on page 31 of the 
Monetary Policy Report, and that is the one on trade policy 
uncertainty. And if there is a place that I think we as Members 
of Congress are concerned--and I think both Democrats and 
Republicans--it is on trade policy. And this graph, if I read 
it correctly, shows that it isn't just Members of Congress that 
are concerned about the President's trade policy; it is the 
people that you survey.
    Can you tell me what that graph says?
    Mr. Powell. Well, it shows trade policy as quite elevated, 
and I think we know that. We, in our Beige Book, report 
discussions from around the country from all kinds of business 
and community folks, and I think trade policy has been 
elevated. And it has been particularly elevated since May, by 
the way. It spiked in May with those developments, and there is 
no question it is elevated.
    Mr. Perlmutter. All right. Thank you for your testimony, 
sir.
    Mr. Powell. Thank you.
    Chairwoman Waters. Mr. Hollingsworth, the gentleman from 
Indiana, is now recognized for 5 minutes.
    Mr. Hollingsworth. Good afternoon. I really appreciate you 
being here. Good morning, rather. I can tell time. Does not 
bode well for my questions, huh?
    So I want to talk a little bit about your use of the word 
throughout testimony and the written testimony: ``symmetry,'' 
``symmetrical,'' around 2 percent, right? And I think you, in 
your opening statement, refer to total PCE for the trailing 12 
months at 1.5 percent core, 1.6 percent.
    What do you mean by symmetry around 2 percent? What does 
symmetry mean to you?
    Mr. Powell. So in our longer run--statement of longer run 
policy goals and monetary policy strategy, we define symmetry 
to mean that the committee would be concerned if inflation were 
to run persistently above or below--
    Mr. Hollingsworth. Right.
    Mr. Powell. --2 percent. So it is really a symmetry of 
concern or of intention as opposed to outcome.
    Mr. Hollingsworth. Right. And so over the last 10 years, 
right, it has run persistently below 2 percent. Does that imply 
a willingness or acceptability for inflation to run for a 
period of time moderately or slightly above 2 percent, given 
some of the disinflationary pressures from around the world?
    Mr. Powell. So under our current framework, all it says is 
that if inflation is above 2 percent or below 2 percent, we 
would look at that symmetrically, and we would use our tools to 
guide it back.
    Mr. Hollingsworth. To 2 percent?
    Mr. Powell. To 2 percent.
    Mr. Hollingsworth. Right.
    Mr. Powell. And, of course, a central question we are 
asking as part of our monetary policy review is whether that is 
the right way to think about it when, in fact, all of the 
deviations from 2 percent have been below--
    Mr. Hollingsworth. Correct.
    Mr. Powell. --not above.
    Mr. Hollingsworth. Right.
    Mr. Powell. And so inflation has been averaging less than 2 
percent.
    Mr. Hollingsworth. Right. Certainly, it is unmistakable, 
when you look around the world, right, there are a lot of traps 
associated with very low inflation and how persistent that 
seems to be around the world. I know that is some concern that 
you have expressed as well on many occasions, that we don't 
want to get mired in very low inflation. We want to have stable 
prices but stable around that 2 percent.
    As you think about where the economy is today and think 
about where inflationary pressures are today, is there a desire 
to ensure we don't fall into the same trap by pushing the 
economy faster, being more accommodating in monetary policy to 
push that 2 percent, as you said, if it is symmetrical, to push 
inflation to that 2 percent?
    Mr. Powell. Well--
    Mr. Hollingsworth. Through the indirect means that you have 
available to you.
    Mr. Powell. I am sorry?
    Mr. Hollingsworth. Through the indirect means that you have 
available to you to manage inflation expectations going 
forward.
    Mr. Powell. I think we want inflation to be symmetrically 
at 2 percent and not at 1.7 and 1.8 percent, because that will 
ultimately--lower inflation will ultimately work its way into 
expectations and into short-term interest rates, and that will 
mean we have less, and plus--so we really do want to have 
inflation symmetrically at 2 percent.
    Mr. Hollingsworth. Right. And so one of the things that you 
talked about is people's expectations for future inflation, 
which have been very much anchored by their recent history with 
inflation, right? That recent history over the past 10 years 
has been below 2 percent inflation. And in order to move 
people's expectations going forward, they need to experience 
slightly faster paces of inflation. I think most research 
continues to indicate that recent experience informs 
expectations going forward.
    So I just wanted to come back to and better understand what 
you were saying around that symmetrical. Like, the goal is to 
push inflation up to 2 percent or have a willingness or 
tolerance up to 2 percent, and if it should run above 2 
percent, to be able to bring it back down to 2 percent.
    Is that what you mean by that?
    Mr. Powell. Well, I am going to draw a distinction between. 
Our current framework, the one I described for you where we 
would always be pushing back for 2 percent, we are looking at 
different ways to--and that, by the way, that framework seems 
to have achieved errors on one side, which are consistent with 
the framework.
    Mr. Hollingsworth. Correct.
    Mr. Powell. And we are asking the question whether that it 
the right way to keep doing it or whether we should be looking 
at something which produces more symmetric outcomes. We have 
not made that decision.
    Mr. Hollingsworth. Right.
    Mr. Powell. That is one of the fundamental things we are 
looking at as part of this.
    Mr. Hollingsworth. And one of the dialogues I know that we 
have had in the past, and I certainly want to continue 
especially publicly, to encourage you to continue that research 
and developing that framework. I think it is really important, 
given all the pressures that we see around the world in some of 
the other developed countries that have fallen into this very 
low, persistent low inflation, that we should really think 
about how we continue to manage what we are doing in monetary 
policy and reflecting those concerns. So I appreciate the work 
that you are doing.
    One last question. What have we learned over the past 10 
years about the limits of monetary policy, and how do those 
limits inform what you believe the next steps might be with 
regard to monetary policy? If you can answer that broad 
question in 12 seconds.
    Mr. Powell. I will. I would say it is not a good thing to 
have monetary policy being the main game in town, let alone the 
only game in town. Fiscal policy is very powerful and more 
powerful, and it is--there come times, for example, after the 
financial crisis, where you need fiscal policy to really lift 
the economy.
    Mr. Hollingsworth. Right.
    Mr. Powell. So it is not a good thing to have monetary 
policy be responsible exclusively for things and it shouldn't 
be, and I--
    Mr. Hollingsworth. Well, I thank you for being here and 
thank you for your great work.
    Chairwoman Waters. Mr. Himes, the gentleman from 
Connecticut, is now recognized for 5 minutes.
    Mr. Himes. Thank you, Madam Chairwoman.
    And thank you, Mr. Chairman, for being here. Good morning. 
Thank you for your testimony. I have two questions, one on 
monetary policy, and one on the broader regulatory environment 
around the banks.
    Let's start with, just a couple of minutes, though, let's 
wake up the room with a discussion of interest paid on excess 
reserves. The Fed's policy obviously changed pretty 
dramatically in 2008. If the numbers I am reading are correct, 
excess reserves today are in the neighborhood of $1.5 trillion. 
I have a couple of sort of intuitive, at least, concerns with 
that. That obviously has a pretty dramatic effect on liquidity 
in the system. It creates a business model for banks, 
obviously, who can essentially get risk-free money from the Fed 
in a way that is not available to my constituents.
    But I suppose what really concerns me in the context of 
monetary policy is, I am sure you are aware of a report that 
was published by the Minneapolis Fed in which the individual 
who wrote it--and I will just quote the report: ``What 
potentially matters about high excess reserves is that they 
provide a means by which decisions made by banks--not those 
made by the monetary authority--could increase inflation 
inducing liquidity dramatically and quickly.''
    So my question is--at a minimum, if that is true, that 
could be a significant impairment of the FOMC's ability to 
actually control monetary policy. So my question is, what is 
the future of the policy with respect to interest paid on 
excess reserves?
    Mr. Powell. I am not familiar with that paper from the 
Federal Reserve Bank of Minneapolis. But as I am sure you are 
aware, during the financial crisis, we bought a lot of assets; 
and the offsetting liability, the way we paid for it is by 
issuing reserves. At the same time, we vastly increased the 
required liquidity that largest financial institutions have to 
hold, vastly increased that; and many of them choose to hold 
reserves. So demand for reserves, even after the balance sheet 
shrinks, is so much higher, and we are actually trying to find 
what that demand is and it might be somewhere a bit below the 
current range that it is in.
    Mr. Himes. But so the demand obviously is, to some extent, 
driven by the rate that is paid on those reserves. You control 
the demand for reserves above and beyond required reserves.
    Mr. Powell. To some extent we do, though, but banks choose 
to hold--they have to hold--they have to hold a certain 
quantity. They could also hold treasuries, but they like 
reserves because they are highly liquid, and it is not--they 
pay the same as treasuries, by the way, roughly the same.
    So in terms of IOER, though, the thing is in our framework, 
in our chosen framework of conducting monetary policy, IOER is 
the critical rate. It is how we manage. It is the administered 
rate. That is how we manage monetary policy. We have been doing 
that for really 10 years now, and we decided earlier this year 
that we would remain in that system.
    Getting to a system where, instead of using an administered 
rate, you manage the quantity of reserves on the edge of 
scarcity and set the price that way, which is what we did, 
would be very, very tough, given the level of demand for 
reserves.
    Mr. Himes. As you know, there was a fairly dramatic policy 
shift in 2008. Some have said that the amount of interest paid 
on excess reserves was well in excess of what Congress 
envisioned in the time in the legislation of 2006. Is this now 
a status quo monetary policy tool that the Congress should 
anticipate works in conjunction with your control of other 
rates?
    Mr. Powell. Absolutely. This is our principal tool for 
implementing monetary policy is interest on excess reserves.
    Mr. Himes. Okay. Let me shift, just because time is short, 
to a broader regulatory question. We have heard from CEOs of 
banks, we have heard from the Vice Chairman and others that, 
generally speaking, the banking system is safe and sound, well 
capitalized.
    When the CEOs of the large banks were in front of this 
committee a couple of months ago, they identified two things 
with some consistency as being of concern. One was leveraged 
lending, which is a bit odd, because most leveraged loans get 
put into CLOs which then get taken outside of the banking 
system. But interestingly, they also said shadow banking. Now, 
by definition, you don't have a lot of control over shadow 
banking, but given the consistency of that, given the fact that 
an awful lot of the risk from leveraged lending, which they 
identified as risky--concerning, I should say, not risky--
concerning, how are you thinking about potential risks bubbling 
up in the broader shadow banking system?
    Mr. Powell. Well, and particularly on leveraged lending, we 
have culled out the risk. The risk is not so much located in 
the banks; it is located, as you know, in CLOs, mutual funds, 
hedge funds, insurance companies, and all those things. So and 
it is not--it is not subject--those vehicles are not subject to 
runs in the same way that precrisis banks were and really no 
longer are. So the systemic risk question is not a prominent 
one. It is more a macroeconomic question.
    So if there are--if the corporate sector gets very highly 
levered, then in the event of a downturn, you will see 
companies that are--that have to lay off workers and stop 
spending and that kind of thing. So it could be a macroeconomic 
multiplier. This is a project that the Financial Stability 
Oversight Council is working on now. And also, the Financial 
Stability Board globally is looking carefully at leveraged 
lending and we think it is something that requires serious 
monitoring.
    Mr. Himes. Thank you. I am out of time.
    Thank you, Madam Chairwoman.
    Chairwoman Waters. Mr. Gonzalez, the gentleman from Ohio, 
is now recognized for 5 minutes.
    Mr. Gonzalez. Thank you, Madam Chairwoman.
    And thank you, Chairman Powell, for being here today.
    First, I want to thank you on your transparency and all the 
data that you provide. I think there is a sense that some of 
these decisions may be made behind closed doors, but I think 
when you are transparent and open about what the data is that 
you are looking at, I think that helps. It certainly helps me 
to understand.
    I want to kind of summarize two things that you have talked 
about with respect to all the data you are looking at currently 
in interest rate policy. And if I think I am understanding you 
correctly, I am hearing that trade uncertainty and persistent 
low inflation short of our 2 percent target are kind of the two 
biggest bogies for you, so to speak. Am I summarizing that 
correctly--
    Mr. Powell. That is correct.
    Mr. Gonzalez. --based on the current situation?
    Okay. I think we did a nice job covering the importance of 
passing USMCA to help, from a certainty standpoint. You didn't 
weigh in on the deal itself, but it certainly makes things more 
secure or more certain.
    On the inflation side, it seems to me that in a world where 
we are still short of our target and we have trade uncertainty, 
and those are the two biggest factors you are considering, that 
raising rates would certainly be irresponsible. I would argue 
for lowering them, but would it be fair to characterize, based 
on what we are seeing on those two factors specifically, that a 
strong case could be made for lowering? And not to commit you 
to that, but is that sort of where things seem to be headed?
    Mr. Powell. So, yes. As I mentioned, we think that 
uncertainty around trade policy and also global growth, it is 
not all down to trade policy. There is something going on with 
growth around the world, particularly around manufacturing and 
investment and trade. And so that uncertainty is, we think, 
weighing on the domestic economy. It is starting to show up a 
little bit, we think, in business sentiment readings, which 
have moved down, and also in weaker business fixed investment.
    And then as you pointed out, the other piece of it is 
inflation. We see the risk of a more prolonged shortfall of 
inflation from our target. That is not something we desire. It 
is something we want to avoid.
    Mr. Gonzalez. So you want to encourage a more accommodative 
policy?
    Mr. Powell. And those things do--many on the committee see 
those things as strengthening the case for a somewhat more 
accommodative policy.
    Mr. Gonzalez. Thank you.
    And then I want to shift to the balance sheet a little bit. 
We haven't really talked about that. So in January, you 
announced a major shift--I thought it was a major shift--in 
terms of how we were going to manage the rate going forward, 
which was the shift towards administered rates. We were going 
pause the drawdown of the balance sheet.
    Can you kind of walk me through the logic on that a little 
bit? My concern here is, are we going to still be prepared to 
handle another financial crisis if that sort of thing were to 
happen while we have an expanded balance sheet? And in the long 
run, do you see us moving more towards going back towards open 
market operations, which historically has been how we did this?
    Mr. Powell. So, actually, since the QE era began, reserves 
have been superabundant, and we haven't set monetary policy 
really by--
    Mr. Gonzalez. Right.
    Mr. Powell. We took monetary policy to zero and it couldn't 
go any lower, and so we didn't--we never--so we didn't have to 
have scarce reserves. We only had to have scarce reserves when 
we lifted off in December of 2015, and we didn't. So we used 
the administered rates, which is IOER. So we have been using 
them a long time. It wasn't really a change. What was new--you 
are right about this--what was new is we, after having thought 
about it really for years, we said, we decided after much 
deliberation that this would be our permanent framework. We 
think it works well. We think it has a lot of benefits.
    In terms of room for further quantitative easing, that is 
just what we would be buying would be treasury securities. And 
the manufacturers are busy, as I understand it. There are 
plenty of them out there, and it would be no shortage of them 
to buy. There are questions about the efficacy and there is a 
lot of research that has gone on in how much quantitative 
easing affects interest rates and thereby the economy, but I 
don't see the size of our balance sheet as limiting our ability 
to buy more, just as a practical matter.
    Mr. Gonzalez. Okay. Thanks.
    And then with my last sort of question, when you look at 
Libra specifically, I see it as three different things. I see 
it is a Libra, which is a currency; Calibra, which is the 
wallet--they seem to desire to be a bank--and then the Libra 
association itself. As we are evaluating how to approach this, 
one, are those the three buckets that we should be looking at; 
and, two, what gives you the biggest concern?
    You sort of said let's pause it broadly and maybe--I am 
running out of time. So we will submit this in written 
questions, but any feedback you have on that will be greatly 
appreciated by this committee.
    Thank you. I yield back.
    Mr. Powell. Thank you.
    Chairwoman Waters. Mr. Lawson, the gentleman from Florida, 
is now recognized for 5 minutes.
    Mr. Lawson. Thank you, Madam Chairwoman.
    Mr. Powell, welcome to the committee.
    Could you elaborate, how did the top 1 percent of U.S. 
families own 40 percent of the wealth in this country? How did 
we get to that particular point? Do you see any kind of balance 
coming in the future?
    The top 1 percent own 40 percent of the wealth in America. 
We say we are a very rich country compared to other countries. 
But how do we get to the point where 1 percent own 40 percent 
of the wealth in this country?
    Mr. Powell. What I have seen and what I have mentioned in 
my testimony that is troubling is a couple of things. First, 
median incomes and lower incomes have stagnated compared to 
those at the high end. So there was a time not so long ago 
when--you know, there is always a disparity between the 
wealthiest and the least, but it was nowhere near this large. 
So what has happened is those people in the middle and at the 
lower end of the wage and wealth spectrum have seen their 
wealth and wages move up but much less than those at the top. 
And that is--that is troubling.
    The other thing that is troubling, sort of a separate 
issue, is lack of mobility. So the chances of being born--if 
you are born in the bottom 20 percent of wealth or of anything, 
you can calculate what are the chances empirically that you 
will move into the middle quintile or the top quintile, and 
they are actually lower in the United States than they are in 
many other similar advanced economy democracies.
    These are troubling things. I would personally put them 
down to a combination of technology, globalization, and 
education really. It comes down to the education system needs 
to produce people who can take advantage of advancing 
technology and globalization. And what you have seen is a 
stagnation in educational attainment in the United States 
relative to other countries beginning about 40 years ago, and 
that has been, I think, the--an underlying force that is 
driving this phenomenon.
    Mr. Lawson. Okay. Another question is, recently in June, 
let's say, Ontario in Canada, minimum wage went to around $13 
and, let's say, 25 cents an hour. And earlier you stated that 
our minimum wage at the Federal level is around $7 and maybe 25 
cents. It hasn't been changed since maybe 2009 or something of 
this nature. And in your testimony, you said that it is up to 
Congress to really make that happen. And there has been a lot 
of discussion on whether what is going to happen to businesses 
and so forth.
    The reason why I say that is, in 2020, in Ontario, Canada, 
they will go to $15-plus per hour for the economy. Do you see--
and you talked about it before--by gradually increasing the 
minimum wage in this country is going to affect businesses to 
the point that they will be closing?
    Because what you see mostly at the end of the year is a lot 
of these businesses have a very big surplus to invest and pay 
taxes on. And so what is the difference in passing those 
increases to the employees, instead of giving it back to the 
Federal Government, doing it to--giving the money to some 
charity? How--do you weigh in any on the minimum wage increase 
as far as the stability of the economy?
    Mr. Powell. We don't really take a position on minimum 
wage, and the reason is that there is a lot of research and it 
shows costs and benefits. It tends to show costs and benefits, 
depending on what you assume and how fast you move. I think how 
quickly they move up is an important indicator. But when you 
raise the minimum wage, some people lose their jobs, and some 
people benefit. They get higher wages. And so you--I think you 
can look at a range of studies and they will come up with as 
many different economists that study this will have different 
answers and you can weigh that and that is a tradeoff that you 
make.
    We have never taken a position on minimum wage. It is the 
classic thing for a legislature to do and not for us to do.
    Mr. Lawson. All right. One quick question. Do you ever look 
at the way credit card companies increase their interest and 
finance charges compared to the way the economy's going, credit 
card companies?
    Mr. Powell. The way credit card companies, sorry, do what?
    Mr. Lawson. Increase their finance charges compared to the 
way the economy is going. Like, the economy is stable right 
now, but interest rates--I know I have to close--some of the 
credit card companies are 28, 29 percent and so forth. I might 
have to send you some information on that.
    Mr. Powell. I would be happy to follow up on that with you.
    Mr. Lawson. Okay. Thank you.
    Mr. Powell. Thank you, Mr. Lawson.
    Chairwoman Waters. Thank you.
    Mr. Rose, the gentleman from Tennessee, is now recognized 
for 5 minutes.
    Mr. Rose. Thank you for being with us today, Chairman 
Powell. I am a vocal advocate for putting our Federal 
Government on a more sustainable fiscal path. Our Federal debt 
now stands at $22 trillion, more than $22 trillion. Interest on 
that debt is a big Federal spending item amounting to about 
$360 billion last year. That was approximately 8 percent of all 
Federal spending. Interest on the debt is becoming the fastest 
rising element of our Federal budget. Our net interest expense 
could increase substantially if and when interest rates 
eventually return to more historically typical levels. It seems 
possible that we might even soon spend more on interest than or 
our national defense, because we have to in order to service 
our debt.
    The President's own budget from 2018 forecasted that net 
interest expense will exceed defense discretionary spending by 
2026. It looks like the Federal deficit this year will exceed 
$1 trillion, as it will in the next several years after that, 
based on current predictions. It is hard to see how the Federal 
Government can issue that much new debt without further driving 
up interest rates.
    One of your predecessors once said: There is no question 
that as deficits go up it does affect long-term interest rates. 
He continued: A rise in the debt increases the amount of 
interest expenses which, in turn, increases the debt still 
further, and there is an accelerating pattern after you reach a 
certain point of no return.
    Could you talk with us today a bit about some of the 
potential risks to financial stability posed by our current 
fiscal path and, in particular, current Federal spending?
    Mr. Powell. I think the United States Federal budget is on 
an unsustainable path in the sense that spending is growing 
faster than the economy, and ultimately that becomes 
unsustainable at some point. I think we are racking up greater 
and greater debt. I say the debt is growing faster than the 
economy. Debt as a percentage of GDP is going up; and is that 
unsustainable, I meant to say.
    It is something that we need to get back to and assess. And 
it is not up to us to say how to do that, what combination of 
spending and taxes. That is, of course, totally the province of 
the legislature, but it is something that is important over the 
longer run. And what will happen if we don't do it is that we 
will wind up spending more and more on interest and less and 
less on the things that we really need to spend money on, 
educating our grandchildren and all of the important things 
that we do for the benefit of the public with Federal tax 
dollars.
    Mr. Rose. What are your views about the Federal Reserve's 
role in monitoring financial stability risks posed by the 
deficits?
    Mr. Powell. We do have a broad role in monitoring financial 
stability. I would say the four key pillars we look at are 
leverage in the financial system, leverage away from the banks, 
funding risk, and asset prices. We don't really think of longer 
run fiscal unsustainability as a financial stability risk. It 
is more of a--you know, we are the world's reserve currency. We 
keep being able to borrow. My predecessor, who predicted that 
more debt would lead to higher interest rates, would be 
surprised to see that with the debt that we have, we still 
borrow at very low interest rates because we are the world's 
reserve currency. So we haven't seen higher rates, but to the 
extent we go on raising debt to GDP, we will just wind up 
spending more and more money on interest and less on the things 
we need.
    Mr. Rose. If you will, talk about the impact of higher 
interest rates, if, in fact, deficits lead to higher interest 
rates, on the stability of the financial system in the 
aggregate.
    Mr. Powell. I think down the road at some point, rates--I 
mean, ultimately there is a price to pay here in higher rates. 
That has to be true at some point, although, Japan has far 
higher debt to GDP than we do and pays even lower interest 
rates. So it is hard to say but, ultimately, I think the debt 
that we are racking up is really going for, essentially, 
current consumption and we are passing the bills on to future 
generations.
    I think our generation is entitled to spend whatever money 
we think we need for ourselves during our lifetimes, but we 
really ought to pay for it. We ought to be paying for it, 
rather than passing the bills along to the next generation.
    Mr. Rose. And finally, in 3 seconds, is there a point of no 
return?
    Mr. Powell. Somewhere way out in the future there has to 
be, I think, in principle.
    Mr. Rose. I yield back.
    Chairwoman Waters. Ms. Tlaib, the gentlewoman from 
Michigan, is now recognized for 5 minutes.
    Ms. Tlaib. Thank you, Madam Chairwoman.
    Thank you, Chairman, for coming before our committee. As 
you know, I represent Michigan, which faces strong headwinds in 
the current climate right now, and the auto industry is at a 
disadvantage with the current trade war with China. In 
addition, automakers have been laying off workers as they adapt 
to products to fit their emerging technologies and market 
trends, and really at the core is corporate greed.
    But what we saw between, I think, in Wayne County and the 
Detroit area, we saw unemployment rose between April 2018, and 
April 2019, from 4.2 percent to 4.6 percent. Given that Detroit 
area still hasn't fully recovered, why should we believe that 
the Federal Reserve has the tools to prevent another deep 
downturn?
    Mr. Powell. Let me say, we do understand that we--when we 
talk about national level unemployment rates, we completely 
understand that that is not true in all parts of the country, 
in all regions of country, in all demographics of the country, 
and we try to--when we do this at the FOMC, we always have 
presentations that call out those disparities.
    And ultimately, if we were to face another--your question 
really is, do we have the tools to address another severe 
downturn? We don't expect a severe downturn. If we had one, we 
would use our tools as aggressivity as we needed to to do that, 
and that would include all the tools in our toolkit, including 
interest rates, forward guidance, the balance sheet in various 
forms, and whatever else we could devise. And I do think our 
tools would be adequate.
    Ms. Tlaib. So if we had another recession and interest will 
be lower, cut to zero, and then we flounder, should we expect 
that it will take another 10 years for unemployment to recover? 
Should the people in my district be expected to wait a decade 
for a job? We see this shift in certain parts, not only in 
Detroit, but even in the Wayne County community surrounding the 
city of Detroit.
    Mr. Powell. I would think not. So remember that the Great 
Recession was the most severe in a very long time; and we saw 
unemployment go to 10 percent. We hadn't seen that since the 
early eighties, and I don't--you are starting now at 3.7 
percent. If you take a typical recession, a more typical 
recession, not like the Great Recession--
    Ms. Tlaib. Yes, but we are still at 5 percent in my 
district. So what additional tools or authority do you need to 
prevent another downturn? You talked about tools and so forth. 
What specifically? And, again, direct us to what we can do to 
support making sure that our families are able to provide for 
themselves.
    Mr. Powell. I think we have the tools we need. I think what 
we would hope for is support from fiscal policy, which is to 
say support in fiscal policy that would support monetary policy 
in a downturn.
    Ms. Tlaib. Well, in the last recession, the Feds stepped in 
to ensure that the corporations borrowing in the commercial 
paper market would get--would still get credit. When 
governments in places like Detroit or Puerto Rico cannot issue 
bonds at reasonable terms, that has real consequences, like the 
inability to provide safe water in my district, for instance, a 
lot of infrastructure issues.
    If the Fed is responsible for ensuring that businesses have 
access to credit through the commercial paper markets, why 
isn't it equally important to ensure that State and local 
governments have access to credit?
    Mr. Powell. We don't have authority, I don't believe, to 
lend to State and local governments. I think we tried--
    Ms. Tlaib. That could be a tool.
    Mr. Powell. I don't think we want that authority. I think 
we want--I think that is something for Congress to do. I think 
we don't want to be picking winners and losers. We want to be 
helping the economy broadly to the maximum extent possible. In 
the financial crisis--
    Ms. Tlaib. Well, what is the difference between corporate--
we do it for corporations. Why is there a different standard? 
And this is--and genuinely really curious.
    Mr. Powell. So what you had was you had credit markets, for 
example, that financed auto receivables and commercial paper 
and things like that, that were failing and breaking down, and 
the economy was grinding to a halt. So we devised programs to 
support, to reopen the capital markets in a way without regard 
to who the borrowers were or picking a particular kind of 
borrower. We just--we had to do that, and that is really what 
got the economy back on track.
    Ms. Tlaib. But we could do something similar in the State 
and local governments.
    Mr. Powell. We can talk about this.
    Ms. Tlaib. I know. I come from a city, the first, I think, 
ever to file for bankruptcy. The people who were actually 
directly hurt and still continue to hurt are pensioners. We 
still haven't been able to really--you know, the 7.2 miles of 
downtown and some of these surrounding neighborhoods have been 
able to get investments, but you still see a deterioration and 
it is directly tied to unemployment.
    Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you.
    Mr. Steil, the gentleman from Wisconsin, is recognized for 
5 minutes.
    Mr. Steil. Thank you very much, Chairwoman Waters.
    And thank you for being here, Chairman Powell. In your 
opening remarks, you stated that you strongly support the 
maximum employment mandate and that, overall, the national 
labor market is healthy. You noted the unemployment rate was 
3.9 percent in December. It has ticked down to 3.7 percent in 
June. It is actually 2.8 percent in my home State of Wisconsin. 
You also noted that employers are hiring lower skilled workers 
and training them. I view this as a quite positive step. Also 
in your opening remarks you identified key risks that you are 
tracking, including Brexit, trade instability, and rising debt.
    What I did not hear you bring up is a proposed $15 national 
minimum wage that some of my colleagues are advocating. As you 
may know, the CBO recently analyzed this proposal to increase 
the minimum wage. The report found that a Federal minimum wage 
increase to $15 an hour may cost 1.3 million Americans to lose 
their jobs, and in a worst-case scenario, 3.7 million Americans 
could lose their job. That is even more than the entire 
civilian workforce in the State of Wisconsin, which is 3.1 
million workers.
    How would the Fed respond to the impact of a $15 minimum 
wage both on inflation and real wages, as well as the 
precipitous fall in employment outlined in that CBO report?
    Mr. Powell. So we see the--the question of minimum wage is 
one that is squarely in your court and not ours. There are 
many, many studies of minimum wages and their effects on the 
economy. There doesn't tend to be a consensus, but they do all 
tend to show some degree some people will lose their jobs and 
other people will benefit.
    And so if I were sitting in your chair, I would be looking 
at 20 of these studies, and I would try to get a sense of what 
the right tradeoff is and whether you would be willing to make 
it. It is not a question for the Fed, and without knowing, we 
just don't take a position on that, and I imagine that it would 
be challenging to make an aggregate assessment without sort of 
taking a point estimate in what is a highly uncertain range of 
possibilities.
    Mr. Steil. I appreciate that.
    Could you even comment if the discussion on the $15 minimum 
wage would create the type of uncertainty that may slow hiring?
    Mr. Powell. I am just not going to--it is really not for us 
to be a referee on the question of the Federal minimum wage. We 
have not done that, and it is just not something we are going 
to do.
    Mr. Steil. Fair enough.
    Let me shift gears, Chairman Powell. I would like to ask 
you about an issue that has been a major focus for many members 
of this committee, the international insurance capital 
standards. In previous appearances, you have assured us that 
the Fed wants to negotiate an international agreement that 
works with our regulatory system. As you know, we expect the 
final version of the ICS to be completed at an International 
Association of Insurance Supervisors meetings this November.
    Can you comment as to what instructions you are providing 
to your staff who are negotiating the ICS to ensure that U.S. 
regulatory approach is formally recognized?
    Mr. Powell. We coordinate very heavily with the Office of 
Insurance over at Treasury and very much with the State 
insurance regulators, which is where a lot of the regulation 
happens in our system, really all the regulation, and I think 
we are all resoundingly agreed that whatever capital standard 
is adopted has to work for the U.S. system. The U.S. has a 
particular system of regulation for insurance companies based 
at the State level, and anything that gets adopted 
internationally simply has to work for the United States system 
or we can't adopt it.
    Mr. Steil. Is the Fed prepared to then oppose the ICS if it 
was unsuccessful in achieving formal equivalency for the U.S. 
regulatory system?
    Mr. Powell. Yes, I think we are clear that whatever is 
adopted has to work for our system.
    Mr. Steil. I appreciate that. I appreciate your time today.
    And I yield back. Thank you.
    Mr. Powell. Thank you.
    Chairwoman Waters. Mrs. Axne, the gentlewoman from--where 
is she from--is now recognized for 5 minutes.
    Mrs. Axne. Thank you, Madam Chairwoman. And thank you, 
Chairman Powell, for being here. And I am loud and proud about 
Iowa, the great State that it is.
    Chairman, you said that in February, that income inequality 
would be our economy's biggest challenge for the next 10 years, 
and I couldn't agree with you more. You also said that income 
decreased for people in the middle and bottom end of the income 
spectrum, while growth at the top has been very strong, and 
that is something I hear a lot when I am talking to folks in 
Iowa.
    And to make that disparity even more clear, the Fed 
recently put out its Distributional Financial Accounts showing 
that over the last 30 years, the total wealth of the top 1 
percent has increased by more than $21 trillion, while the 
total wealth at the bottom half of Americans has actually gone 
down.
    My colleague, Mr. Lawson, asked why this was happening. I 
would like to expand on that and ask you, is that inequality 
something that should be considered when setting monetary 
policy?
    Mr. Powell. We try to inform ourselves about what is really 
happening in the economy. That is just--that is a lot of what 
we do. And so that is--and this is an important factor. We 
don't actually have the tools to directly address these issues. 
I think they are more around education and skills.
    The principal way we can get at this issue, though, really 
is to take seriously Congress' order that we achieve maximum 
employment. Because as you can see, I assume you can see in 
your communities that the expansion is now reaching groups that 
are at the marginal labor force, and that is because we are 
pushing ahead and having a very long expansion with quite low 
unemployment and that is really benefitting these people at the 
margins.
    Mrs. Axne. So you mentioned a couple of what, I believe, 
are possible solutions. You said education and training, I 
believe. Can you expand on that a little bit, or what other 
solutions do you see to help us with this inequality?
    Mr. Powell. I guess my underlying model of the problem is 
that there is no shortage in the world of good jobs. We just 
have to produce qualified people, qualified workers who can 
live at the standard of a wealthy country and do the work they 
can do, and that means better education. It is easy to say; it 
is very hard to do. But we need workers who can compete with 
the other advanced economies for the good jobs. It is 
manufacturing jobs. It is a lot of service economy jobs, and it 
is not easy to do. Fixing the educational system and improving 
it is a very challenging thing. I spent no small amount of time 
on that earlier in my life.
    But I think that, ultimately, that is it. At the end of the 
day, the country is its educational system, and the people who 
are in the country, they are a product of that system, and we 
need to get ours producing people who can compete in the global 
economy, and I think that is at the bottom of the pile. That is 
an important driver.
    Mrs. Axne. I appreciate that.
    Let's pivot slightly to look at regional differences. 
Iowa's per capita income is more than $1,500 below the national 
average, while New York's is almost $5,000 higher. I am 
concerned that too much of the discussion focuses strictly on 
the rural-urban divide, and I certainly know that. My district 
has rural and urban in it. But I would also like to raise the 
issue of regional shifts within the economic growth moving to 
the coasts.
    Could you talk a little bit about how that income 
inequality that you have mentioned as one of our biggest 
challenges interacts with regional inequality?
    Mr. Powell. Yes. We actually had a box in the February 
Monetary Policy Report on disparities between rural and urban, 
if that goes to your question, and they have gotten worse over 
time, since the financial crisis. And, there are just these 
underlying drivers that we are not at all sure of. There is no 
widely accepted explanation, but younger generation appears to 
want to live in cities and so they are moving into cities. They 
are moving out of rural areas, and it is leading to--in other 
words, people who can move to cities do, and they get--because 
that is where the jobs are and that is where the growth has 
been. It is a phenomenon that we have been seeing for some 
time, and it has gotten worse in the last decade.
    Mrs. Axne. So do you have any particular solutions that we 
should be looking at?
    Mr. Powell. I don't, unfortunately.
    Mrs. Axne. Okay. Well, fortunately, several of us from 
these rural areas are working on this, so I am hoping that we 
can make an impact there. But I thank you.
    One thing that you didn't quite get to, you mentioned 
rural/urban again, but a little bit more about the regional 
shift. So, we have a lot of opportunity in States that are in 
the Midwest, but we don't have as much access to that 
opportunity that some of our coastal areas have. What are your 
solutions there?
    Mr. Powell. I don't know that we have those tools. I will 
say we have researchers who are doing a lot of good work in 
this area that we would be happy to connect you with them. I 
would be happy to connect you with them.
    Mrs. Axne. Appreciate that.
    Mr. Powell. That would be able to help.
    Mrs. Axne. Thank you.
    Mr. Powell. Thank you.
    Chairwoman Waters. The gentleman from Virginia, Mr. 
Riggleman, is now recognized for 5 minutes.
    Mr. Riggleman. Thank you, Madam Chairwoman.
    Thank you, Chairman Powell, for appearing here today. It is 
good to see you, sir.
    We were talking little bit earlier about fiscal policy--and 
one of the good things about going near the end is I get to 
hear a lot of good things--talking about fiscal policy and 
trying to prevent a downturn. Had a couple of questions.
    We talk about incentivizing investment, sort of for the 
average American. And looking at policy, just some thoughts 
about, looking at, is it higher taxes, lower taxes? Is it the 
USMCA or something like CECL that we have discussed before? 
What are some of the quick take on some of the policies that 
would help as far as economic growth for the average American? 
And I just wanted to get some of your thoughts on that.
    Mr. Powell. I think, generally, we need policies that will 
support labor force participation, policies that will qualify 
people to hold jobs and progress through their careers. That is 
a big thing. That is a place where the United States lags other 
comparable economies, and it is really something we need a 
national strategy to work on is how can we raise labor force 
participation? It won't be any one thing; it will be a range of 
things.
    The other piece of it is productivity, and productivity is 
really a combination of a couple things. One is incentives for 
investment and technology which drives productivity. I think 
basic research by the government has actually been an 
underlying driver over long periods of time. In addition, it is 
skills and aptitudes of the workforce, which we have been 
talking about. It is that more productive workers have more 
skills and more training and that kind of thing.
    You can break it down into labor force participation and 
productivity. Those are the two things that really determine 
the country's longer run growth, of course, population growth 
as well. But assuming a level of population growth, it is labor 
force participation and productivity.
    Mr. Riggleman. Thank you. I think when we talked to you, 
you said 62.8 percent of the people really probably support a 
hundred percent of the population, which I thought was a very 
interesting stat when we discussed that.
    I also want to commend you and thank you and your 
colleagues at the Fed for the very substantial support, 
guidance, and collaboration you provided to the private sector 
in the area of faster payments. And this successful public-
private partnership has been critically important, I think, in 
making real-time payments a reality in the U.S. So thank you 
for that.
    And I also want to commend the Fed for its proposal to 
facilitate private sector real-time payment solutions by 
providing additional liquidity services, which I understand can 
be effectuated by extending the operating hours of the Fedwire 
Funds Service.
    But I do have some concerns, Mr. Chairman, regarding the 
other part of your proposal that envisions the Fed itself 
entering the market for faster payments as a direct competitor 
of the private sector. And my understanding is that the Fed 
seeks to justify this potential action, in part, on perceived 
need for resiliency, which I believe raises several important 
questions.
    And I would say, first, it is the notion that having two 
systems would provide resiliency necessarily assumes that every 
bank in the country or at least an overwhelming majority of 
them would have to connect to two systems--the private sector 
system and the yet-to-be-built government-run system--and this 
is just based on my experience and big data when you are 
talking about what I have had to do in the military with 
electronic warfare and looking at this and actually trying to 
interoperate systems. And I think this would create enormous 
inefficiencies and impose needless costs on the American 
taxpayer in the private sector, unless, of course, the Fed-run 
system would be fully interoperable with all the private sector 
alternatives.
    So my question is, if I am a community banker in Virginia 
where I am from and I participate on the Fed's system, what 
guarantees can you give that community bank today and the two 
systems will be fully operable? And if there are none, then 
what is the purpose of having a second government-run system?
    Mr. Powell. So as I think you know, this was based on a 
proposal from the Faster Payments Task Force, which had very 
broad representation, including the smaller banks who were 
quite supportive of this idea. We asked for public comment on 
this. We are reviewing that comment. We got, I don't know, 400 
comment letters or 900 or something, a lot of comment letters, 
and so we are in the middle of that decisionmaking process.
    In terms of interoperability--and, again, it was the 
community banks who strongly pushed the Fed to move forward 
with this. In terms of interoperability, it is a good issue, a 
good question, and we will need to work to make that happen at 
least to the level that it is functional. It may not be 
perfect, but we will certainly be--if we move forward with 
this, we would be certainly looking at that as a characteristic 
to achieve.
    Mr. Riggleman. Thank you. And I think it goes back to 
resiliency for me, and I know--and I think it is a concern 
about resiliency that I had and we had our discussions here in 
committee is that if there are concerns about resiliency--and 
it is just based on my experience in the private sector when it 
comes to big data--couldn't you probably address those concerns 
through the regulatory and supervisory authority that already 
exists in your space? And that is what I was getting to here is 
we are talking about resiliency with the multiple data centers 
and redundant systems that actually could be a problem with 
inoperability.
    Do you think resiliency could be something that is a 
function of what you are doing right now in keeping with one 
sort of faster time payment system?
    I think I am done.
    Chairwoman Waters. The gentlewoman from Massachusetts, Ms. 
Pressley, is now recognized for 5 minutes.
    Ms. Pressley. Thank you, Madam Chairwoman.
    And thank you, Chairman Powell, for appearing before the 
committee today.
    The Federal Reserve can do more to support the needs of 
hardworking American families. As it stands, working families 
wait days at a time just to have their checks cleared. And when 
you are living paycheck to paycheck and rent is due the first 
of the month, there can be no room for error. As the central 
bank in America, the Federal Reserve has a responsibility to 
speed up the process of clearing payments.
    I want to bring up a report that was issued 2 years ago, 
the Faster Payments Task Force. In that report, the task force 
called for a payment system in the United States that is 
faster, ubiquitous, broadly inclusive, safe, highly secure, and 
efficient by 2020.
    Mr. Chairman, 2020 is less than 6 months away. Yes or no, 
will we have a faster payment system by then?
    Mr. Powell. No. We are working on it, but we are not going 
to be done by 2020, I would say, but we are getting there.
    Ms. Pressley. The task force also concluded that broad 
access to settlement services will help level the playing field 
and enhance competition among providers of faster payment 
services. Yes or no, do you agree that this is an issue of 
accessibility and equality?
    Mr. Powell. I do agree with that. That is one of our 
principal motivating factors.
    Ms. Pressley. Okay. And so would the Fed like to see a 
world where all Americans have access to faster, secure 
payments?
    Mr. Powell. Yes, we would. That is why we have been working 
on--you mentioned that report. This is a project that has been 
going on for 5 years and goes on.
    Ms. Pressley. Right. If you can instantly clear payments 
between the accounts of commercial banks held within the Fed, 
why not consumers writ large? What is the delay?
    Mr. Powell. Well, it is not a--it is a service that hasn't 
existed. It has existed for banks. Immediately available funds 
has existed for banks. We don't have plenary authority over the 
payment system as some other central banks do, but we convened 
a group of people and institutions maybe 5, 6 years ago and we 
said let's work toward this. And so that is--the report you saw 
was, I think, the last report that we issued, and we are now 
working to implement some of the recommendations, including the 
one that I was--
    Ms. Pressley. Yes, Mr. Chairman, just trying to better 
understand the delay in the implementations of this report.
    Have you received any pushback from any businesses, 
particularly the credit card industry?
    Mr. Powell. I think we are determined to do what we see as 
the right thing. We are not looking--
    Ms. Pressley. Have you received any pushback specifically 
from the credit card industry?
    Mr. Powell. I personally--I have not personally, no. I 
think that--
    Ms. Pressley. Okay. So--
    Mr. Powell. --businesses to advocate for their own well-
being, though.
    Ms. Pressley. Sure. Do you agree that our country's 
continued lack of a real-time payment system is being exploited 
by credit card companies like Mastercard and Visa and also 
outside of that industry by Facebook to create a digital 
currency?
    Mr. Powell. I wouldn't want to use those terms, no. I think 
people operate in the environment that they have. We are trying 
to create an environment that does have faster payments broadly 
available, and we think that is a better environment, for the 
reasons you articulated.
    Ms. Pressley. Yes. I really do see a faster payment system 
simply as a public good, and the lack of action here creates a 
real void in the lives of consumers everywhere and these voids 
are increasingly being exploited by companies looking to 
operate as financial institutions without the guardrails.
    Facebook's Libra is being trotted as a solution to the 
unbanked. However, I struggle to see how ceding the functions 
of a central bank to a private company solves an issue of 
resources. Instead, we should be using preexisting 
infrastructure to ensure that all people have the ability to 
safely and securely and with no cost access and move their 
money 24/7, 365 days a year.
    So, again, let's not lose sight of the plot, Mr. Chairman, 
and the plot is the American people. And I hope to see your 
organization become more reflective of the lived experiences 
and the everyday needs of Americans.
    Thank you, and I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Wisconsin, Mr. Duffy, is now recognized 
for 5 minutes.
    Mr. Duffy. Thank you, Madam Chairwoman.
    Mr. Chairman, up on your left-hand corner. Welcome.
    One of my colleagues in their statements said that the 
President has implemented harmful economic policies. In your 
assessment, I think you said the economy is doing quite well; 
is that correct?
    Mr. Powell. Yes. I would say the economy has performed--I 
said reasonably well so far this year. Yes.
    Mr. Duffy. Right. Last quarter was 3.1 percent growth. 
Pretty great, isn't it?
    Mr. Powell. If you take it through the middle of the year, 
we will have growth probably in the mid 2's. And yes, that is 
solid performance.
    Mr. Duffy. Okay. Great.
    Where I come from, obviously, we like our rural communities 
to grow as well as our urban communities. But by and large, the 
biggest complaint that I hear from my employers is that they 
don't have enough labor. They can't get people in to their 
shops to fill the positions that are open. And then there are 
some that will come in, and they don't actually want to work, 
which leads me to immigration. But I am not going to go there 
with you. We have some problems in immigration.
    But there is competition for labor. And when there is 
competition for labor, don't you see the salaries rise, hourly 
wages rise when there is competition for labor?
    Mr. Powell. Yes.
    Mr. Duffy. Or am I wrong on that?
    Mr. Powell. It is very interesting. We have seen wages 
moving up. And we do hear lots of reports like what you just 
said about labor shortages and can't find qualified people. We 
would have expected to see wages move up more. They are moving 
up at a healthy level, on average, a little more than 3 
percent. That is a good thing.
    But, yes, you would want a tight labor market to produce 
solid wages.
    Mr. Duffy. Is this a fairly tight labor market?
    Mr. Powell. It is by almost every measure. I would say 
that--the thing that doesn't really show the tightness through 
is the wages, which could be higher.
    Mr. Duffy. In a tight labor market, if I have a person who 
is making 12 bucks an hour but they are actually worth $15 an 
hour, what do you think happens?
    Mr. Powell. In economic theory, they should be earning $15 
an hour. If their marginal product is $15--
    Mr. Duffy. They will leave one job and probably go to 
someone else that will pay them 15 bucks an hour, right?
    Mr. Powell. They will. Yes.
    Mr. Duffy. Because everyone is looking for labor. But if a 
guy is making 15 bucks an hour but maybe only worth 11, what 
happens?
    Mr. Powell. Well--
    Mr. Duffy. They might get fired, right?
    Mr. Powell. Yes.
    Mr. Duffy. Or you might automate.
    So the markets actually work to pay people the value of the 
services that they provide the company, and that especially 
happens in a tight labor market, which I know you won't make 
the point on a $15 minimum wage. But my concern is that if we 
increase that too high and we have people who aren't at a value 
of $15 an hour, they will lose their jobs and fall into deeper 
despair. That is my concern.
    I am going to switch gears on you. In regard to trade, you 
are not commenting, I know, on the policies of the President 
with regard to trade. But you look at our long-term horizon. 
You have mentioned debt and the problems we are going to have.
    But with regard to trade, if we have countries that will 
steal our technology--so you have a company that invests $500 
million in a new technology and someone steals it from you and 
just has to pay a hacker in a basement, and then you come to 
market with the same product at 0 cost versus your 500 million, 
how do we compete in the long run with that environment?
    Or if you have a country that manipulates their currency to 
make sure we can't have some equilibrium with regard to our 
trade, how do you deal with countries like that but for the 
policies that the President has pushed?
    Mr. Powell. Those are entirely appropriate considerations 
for those who have responsibility for trade policy.
    Mr. Duffy. Would it concern you for the long-term health of 
the American economy if people are stealing our technology? Are 
cheating us? Are manipulating their currency? Would that 
concern you?
    Mr. Powell. I have to say, we are very unusual in 
democracy, that we have this independence, that we--to do our 
jobs. And I think that means we need to stay in our lane. I try 
very hard not to get pulled into--
    Mr. Duffy. I know you do you do.
    Mr. Powell. --things that we are not responsible for. So I 
am just going to have to say that.
    Mr. Duffy. So with regard to--someone mentioned corporate 
greed. We want to see companies and individuals behave 
responsibly and honorably. But we also want them to make a 
profit, right? Do you have an objection to companies and 
individuals making a profit, making money?
    Mr. Powell. Well, we do have a market-based system.
    Mr. Duffy. And if they make too much, is that a problem for 
you?
    Mr. Powell. It is not--
    Mr. Duffy. And if so, how much is too much?
    Mr. Powell. Not for us to judge.
    Mr. Duffy. Okay. So do you support a market economy? Do you 
think it is a good thing?
    Mr. Powell. I think our economy has been market-based, and 
I think that has served the public well.
    Mr. Duffy. And probably the greatest economy that has 
existed on the face of the earth. Fair to say?
    Yes?
    Okay. I yield back.
    Chairwoman Waters. Ms. Ocasio-Cortez, the gentlewoman from 
New York, is recognized for 5 minutes.
    Ms. Ocasio-Cortez. Thank you, Madam Chairwoman. And thank 
you so much, Mr. Powell, for coming in today.
    The Federal Reserve's mandate, one of their mandates is to 
maintain price stability and maximum employment. Is that fair 
to say?
    Mr. Powell. Yes.
    Ms. Ocasio-Cortez. And a lot of folks would interpret that 
as meaning to aim for the lowest unemployment rate possible 
without runaway inflation, correct?
    Mr. Powell. Yes. Generally.
    Ms. Ocasio-Cortez. So I kind of wanted to dig in today with 
you a little bit about this relationship between unemployment 
rates and inflation.
    In early 2014, the Federal Reserve believed that the long-
run unemployment rate was around 5.4 percent. In early 2018, it 
was estimated this was now lower, around 4.5 percent. Now the 
estimate is around 4.2 percent.
    What is the current unemployment rate today?
    Mr. Powell. 3.7 percent.
    Ms. Ocasio-Cortez. 3.7 percent.
    So what we had previously thought of, perhaps as far back 
as 2014 as the long-run unemployment rate, is around 5.4 
percent. What we are currently experiencing is 3.7, lower than 
that estimate. But unemployment has fallen about three full 
points since 2014, but inflation is no higher today than it was 
5 years ago.
    Given these facts, do you think it is possible that the 
Fed's estimates of the lowest sustainable unemployment rate may 
have been too high?
    Mr. Powell. Absolutely.
    Ms. Ocasio-Cortez. So we overshot in what our long-run 
employment rate is?
    Mr. Powell. I think we have learned,--as you pointed out, I 
think we have learned that you can't identify--this is 
something you can't identify directly. I think we have learned 
that it is lower than we thought--substantially lower than we 
thought in the past.
    Ms. Ocasio-Cortez. And I have been seeing lately that 
economists are increasingly worried that the idea of a Phillips 
curve that links unemployment and inflation is no longer 
describing what is happening in today's economy.
    Have you been considering on that? What are your thoughts 
on that?
    Mr. Powell. Yes. Very much so. We spend a great deal of 
time on that. The connection between slack in the economy or 
the level of unemployment and inflation was very strong if you 
go back 50 years. And it has gotten weaker and weaker and 
weaker to the point where it is a faint heartbeat that you can 
hear now. It is still there. You can see it at the State level 
data and things like that.
    But I think we really have learned, though, that the 
economy can sustain much lower unemployment than we thought 
without troubling levels of inflation. I would look at today's 
level of unemployment as well within the range of potential 
estimates, of plausible estimates, of what the natural rate of 
unemployment is.
    Ms. Ocasio-Cortez. So why do we think that we are seeing 
this decoupling in a relationship that we had seen in the 
economy decades ago?
    Mr. Powell. So one reason is just that inflation 
expectations are so settled that--and that is what we think 
drives inflation that--for example, when unemployment went way 
up, you didn't see inflation go down. And so you don't see 
inflation reacting to unemployment the way it has, because 
inflation just seems to be very anchored.
    Ms. Ocasio-Cortez. Do you think that that could have 
implications in terms of policymaking? That there is perhaps 
room for increased tolerance of policies that have historically 
been thought to drive inflation or increase inflation?
    One of the arguments about minimum wage or other policies 
that directly target middle class Americans is that can they 
can drive inflation. Do you think that that decoupling is 
something that we should consider in modern policy 
considerations?
    Mr. Powell. Yes. Again, I wouldn't want to get into the 
minimum wage discussion directly. But I think we have learned 
that inflation--that really downward pressure on inflation 
around the globe and here is stronger than we had thought. You 
see countries all over the world not getting--being below their 
inflation targets whereas, when I was young, they were always 
above, and now they are always below. And the United States has 
done better than other countries, but we are still below our 
target.
    Ms. Ocasio-Cortez. And thank you. I have one last question.
    Earlier you had suggested that, in the event of a recession 
or a contraction, we like to see more fiscal policy that 
supports monetary policy.
    Can you further articulate what some of those fiscal 
options and considerations should be, in terms of specific 
options that we should consider?
    Mr. Powell. I was referring, really, to a severe or 
significant downturn. And if that were to happen, then I think 
it would be important that fiscal policy come into play. So 
there are automatic stabilizers that happen. But in addition, 
things were done at the beginning of the financial crisis in 
terms of spending increases and tax cuts that help to replace 
the demand that had been lost in the private sector and get us 
through a really rough patch, something like that. But those 
are things I would reserve for pretty severe downturns.
    Ms. Ocasio-Cortez. Thank you very much.
    Mr. Powell. Thank you.
    Chairwoman Waters. Mr. Barr, the gentleman from Kentucky, 
is now recognized for 5 minutes.
    Mr. Barr. Thank you, Madam Chairwoman. And Chairman Powell, 
welcome back to the committee. Let me first just say I 
appreciate my colleague from New York recognizing that the 
strong Trump economy has not produced inflation challenging the 
credibility of the Phillips curve. Let me also say, without 
quibbling about the details, I think that you are doing an 
outstanding job, Chairman Powell. And I want to especially 
appreciate the much improved communications with Congress about 
the direction of monetary policy.
    And so I do want to take up this issue of Fed independence, 
because so much has made in the media of President Trump's 
criticism of Fed policy in recent months and his reference to 
quantitative tightening, his criticism of so-called 
quantitative tightening. As you will recall, many members of 
this committee, especially on this side of the aisle, 
criticized your predecessors for overly accommodative monetary 
policy for an extended period of time, so-called quantitative 
easing.
    And so what I want to just say is that my view is that all 
of this feedback from both the Executive Branch and the 
Legislative Branch is a necessary and constructive part of 
oversight and is simply part of holding the Fed accountable and 
that it in no way compromises Fed independence since you and 
the other Governors were given 14-year terms with a provision 
that makes you removable only for cause.
    Do you agree or disagree with that?
    Mr. Powell. I would just say it this way, that we are 
completely and totally focused on carrying out our jobs. And 
nothing really will distract us from that.
    Our accountability in our system really does lie, though, 
with this committee and with the other committee on the Senate 
side. So you have oversight over us and a lot of other systems 
that is the finance ministry. But in our system of government, 
it is Congress.
    Mr. Barr. My only point is that criticism from Congress or 
the President does not, in my view, in any way, compromise your 
independence.
    Mr. Chairman, I heard economist Arthur Laffer say over the 
weekend that the Fed really doesn't set interest rates, that it 
follows interest rates. I thought this was an interesting 
comment especially in light of low long-term rates and the 
inverted yield curve.
    Has the case for lowering the Fed funds rate strengthened 
because the Fed is actually following rates as oppose to 
setting them?
    Mr. Powell. I wouldn't say that. I didn't see that comment, 
so I can't react to it. But I wouldn't say it quite that way.
    Our focus is on real economy values. In particular, maximum 
employment and stable prices. So we use our monetary policy 
tools to achieve that, and we know that our policy works 
through financial conditions. So we look at a broad range of 
financial conditions. They do matter for us. What really 
matters is if there are big changes in financial conditions and 
they are sustained for a period of time.
    Mr. Barr. Where are we today in terms of the proximity of 
the Fed funds rate to the neutral rate?
    Mr. Powell. That is another one where we--we can only 
estimate the neutral rate, as you well know. And it is 
interesting. Estimates of that have come down as well. I would 
point out that we published the medians of the--in our summary 
of economic projections every quarter, we publish the medians 
of the committee. And that number has come down by 50 basis 
points since September of last year. So the median estimate is 
now 2.5 percent nominal, which would be about a half a percent 
real, whereas it was 3 percent back in September.
    So we are learning. We are always learning about the 
natural rate of unemployment and about the neutral rate of 
interest. And right now, understand that it is estimated within 
fairly broad uncertainty bounds.
    Mr. Barr. As you know, I have been critical of previous Fed 
positions--or policy that I would characterize as overly 
improvisational.
    As you communicate and forecast where Fed policy is going 
and you talk about, in your testimony, that the case for a more 
accommodative policy, that argument is strengthening, I 
appreciate that because I think it is habituating the markets 
as opposed to surprises. And I think that is very important for 
the stability of our financial system.
    Last question. You obviously cite in your testimony 
uncertainties in trade developments as, perhaps, one of the 
reasons why the case for a more accommodative policy has 
strengthened in recent months.
    What would passage by the Congress of USMCA and enactment 
of USMCA do in terms of the overall economic outlook and also 
the future trajectory of monetary policy?
    Mr. Powell. I think it would remove uncertainty about our 
trade policy with Mexico and Canada to have that pass. And I 
think that would be a positive thing. Of course, I wouldn't 
comment on the particular merits of it. It wouldn't be 
appropriate. But I would say the passage of it would remove 
uncertainty, and I think that would help in the current 
environment.
    Mr. Barr. I do have, actually, one final question, and that 
is you had responded to my question about the G-SIB surcharge. 
And you said that a proposal to simplify capital requirements 
for banking firms by integrating a banking firm supervisory 
test results into regulatory capital requirements, where are we 
on that?
    Mr. Powell. Moving forward. Working on it. Working on it.
    Mr. Barr. Thank you.
    I yield back.
    Chairwoman Waters. Ms. Wexton, the gentlewoman from 
Virginia, is now recognized for 5 minutes.
    Ms. Wexton. Thank you, Madam Chairwoman. And thank you, 
Chairman Powell, for joining us today.
    Chairman Powell, do you think that the U.S. should go back 
to the gold standard for our currency?
    Mr. Powell. Let me say I wouldn't--this could feasibly be 
considered commenting on a particular nominee who has 
recommended that. And, of course, I would not do that. I will 
answer your question, but I want to make sure that this isn't 
interpreted in that way.
    So, no, I don't think that would be a good idea. The idea 
would be Congress would have to pass a law, and that law would 
say that our job with monetary policy is to manage the level of 
the dollar--stabilize the dollar price of gold. And we would 
then not be looking at maximum employment or stable prices. And 
there have been plenty of times in the fairly recent history 
where the price of gold has sent signals that would be quite 
negative for either of those goals. So I don't think that is 
something that would be attractive. No other country uses it.
    Ms. Wexton. Because it is much more volatile. Linking it to 
gold would be very volatile, or could be.
    Mr. Powell. Well, it is really that it is not connected to 
or direct--you have assigned us the job of two direct real 
economy objectives: Maximum employment; stable prices. If you 
assigned us stabilize the dollar price of gold, monetary policy 
could do that. But the other things would fluctuate, and we 
wouldn't care. We wouldn't care if unemployment went up or 
down. That wouldn't be our job anymore. So I think that would 
be difficult to--
    Ms. Wexton. And that is not a positive mission for the Fed?
    Mr. Powell. Sorry?
    Ms. Wexton. A much better mission for the Fed is what you 
are doing right now?
    Mr. Powell. Well, this is why every country in the world 
abandoned the gold standard some decades ago.
    Ms. Wexton. Okay. Well, and that reluctance or that desire 
not to go back to the gold standard is something that you have 
in common with the CEOs of the seven--seven of the world's 
global systemically important banks who were before us in April 
and said the same thing.
    But it is worth noting that last week the President 
nominated Judy Shelton for a seat on the Fed. And she is 
similar to two of his other would-be nominees in that she does 
favor a return to the gold standard. So I assume, from your 
earlier answers, that you don't share that view.
    Mr. Powell. I don't share that view, but I would never 
comment on the views or any particular nominee. We do not play 
a role in the nomination process. It is totally up to the 
President and the Senate in that, and we just are completely on 
the sidelines there.
    Ms. Wexton. Okay. My concerns about Ms. Shelton are not 
just her questionable views about monetary policy. But she also 
seems to be, by most accounts, a political opportunist who 
thinks low rates are bad under Democratic Presidents and good 
under Republican Presidents. And that I would caution concern 
when looking into the nomination and confirmation of this 
candidate.
    I do want to talk for a minute about debt. There have been 
a lot of questions about it. In particular, the debt ceiling.
    On Monday, the Bipartisan Policy Center projected that the 
U.S. Treasury could run out of money by early September if 
Congress doesn't raise the debt ceiling. And that is actually 
because the government brought in far less in corporate tax 
revenues than--less this year than was projected as a result of 
the tax cuts, because spending is only one side of the ledger, 
right? We need to look at the revenues. And there is a 
possibility that the U.S. could default on its debts.
    What would Congress' failure to raise the debt ceiling--
what would that mean for the U.S. economy?
    Mr. Powell. So I think it is essential that Congress raise 
the debt ceiling in a timely way so that the United States 
continues to pay all of its bills when and as due. I think any 
other outcome is unthinkable.
    We have never failed to pay our bills when due. And so I 
assume and believe that the debt ceiling will be raised in a 
timely fashion.
    Ms. Wexton. What would it mean for the economy and for 
interest rates if we failed to do so?
    Mr. Powell. I think it is--it would be very uncertain 
territory if the United States were to stop paying its bills. 
It would be--I wouldn't be able to capture the range of 
possible negative outcomes from that. The loss of confidence in 
our ability to run our fiscal house could be substantial. It 
would be about a lot of uncertainty. And I just think it is 
beyond contemplating that.
    Ms. Wexton. Well, and yet we must contemplate it, Mr. 
Chairman.
    Thank you. And I agree. And I want to encourage leadership 
on both sides of the aisle in both chambers of Congress to not 
wait until the last minute to make sure we raise that ceiling.
    Thank you.
    I yield back.
    Chairwoman Waters. Thank you.
    Mr. Gooden, the gentleman from Texas, is now recognized for 
5 minutes.
    Mr. Gooden. Thank you, Madam Chairwoman.
    Chairman Powell, the Board has done a great deal of work 
with regard to foreign banking organizations. But I am 
concerned there is a lack of harmonization across jurisdictions 
with respect to these foreign banking jurisdictions. And I just 
want to make sure that you all are working to ensure that our 
U.S. firms are not disadvantaged in the foreign marketplace and 
could hear a little more about your plans for that.
    Mr. Powell. So I think here we want to give national 
treatment equal treatment to foreign institutions, and we fully 
expect and anticipate that we will get that in foreign 
jurisdictions. That is why we give it here. Plus, we want 
foreign institutions to come in and do business here and lend 
capital to people and take part in the capital markets. That 
only helps our economy. And we want our institutions to be able 
to take part in foreign economies. Many banks work across 
national--international lines now. So it is essential that 
there be fair treatment for nonnative banks all around the 
world.
    Mr. Gooden. Thank you. I appreciate that stance.
    Also, in your written testimony, you mentioned trade 
tensions and slowed global growth as potential threats to the 
U.S. economy.
    Between these and the debt ceiling and the lack of 
consensus in Congress, what would you say are your biggest 
concerns out of those?
    Mr. Powell. Out of those, I really think that the most 
important thing is the--what we have been calling the 
crosscurrents, which are the--really, trade tensions and 
concerns over slowing growth, global growth, around the world. 
Those are interrelated. There is a box in our monetary policy 
report that I recommend to you about slowing global growth and 
manufacturing and investment, which is something we are seeing 
not just in the United States but around the world. And, that 
is the thing that weighs on our outlook. We see it here. We see 
weak manufacturing here. We see confidence surveys among 
businesses. And fortunately, the consumer part of the economy 
is doing very well. But that is where the weakness is. And that 
is where the concern--the other things are concerns too, but I 
would put those at the top of the list, along with low 
inflation. That is a concern--that is the other half of our 
mandate. And, we are concerned that inflation not run below 2 
percent more persistently than we thought it would.
    Mr. Gooden. So putting all that together, the current state 
of the economy where you see us going, on a scale of one to 
ten, how would you rate where we are with respect to an 
economy, one being bad, ten being great?
    Mr. Powell. I don't think I will give you an actual grade. 
But I will say this. We are in the eleventh year of this 
expansion, that is a first, since we began to keep records on 
this. We are at 3.7 percent unemployment. That is a 50-year 
low, 50-year low. And we have been there for 15 months. And 
there is no reason why that can't continue. We are committed to 
using our tools to make sure that it does continue.
    And I just would again point out, though, that this 
expansion is now reaching groups that hadn't been reached in 
the first few years, and there was a box on that as well in the 
monetary policy report. All the more reason why it is so 
important that we keep the expansion going to the maximum 
extent we can.
    Mr. Gooden. I agree with you, and I thank you.
    And I yield back.
    Chairwoman Waters. Ms. Adams is now recognized for 5 
minutes.
    Ms. Adams. Thank you, Madam Chairwoman. Thank you for 
convening the hearing. And, Mr. Powell, thank you for being 
here, for your thoughtful testimony. And you and the rest of 
the Board of Governors have a very monumental task. And you 
have made some good decisions. And I am also heartened to see 
that you are maintaining your independence and not allowing 
yourself to be bullied.
    Let me just put a couple of things on the record. We have 
had a lot of discussion here about the CBO report and the 
minimum wage. And I just want to add something else to the 
equation. That is that, yes, there has been some discussion 
about losses. But I think we need to consider the fact that 
raising the wage will elevate 27 million low wage workers. And 
we really need to be concerned about the fact that so many 
people are really living at the poverty level. A lot of those 
folks live in my State of North Carolina.
    So when you look at the fact that we are going to raise 
people up, when we look at this $15 that we keep hearing about, 
I have done the math on it, and it is like $1.55 a year.
    But anyway, let me move on, having said that, to a question 
about the inequality in terms of black unemployment. The 
overall unemployment rate is about 4 percent. The unemployment 
rate for African-Americans was about--almost 7 percent in this 
recent bureau of labor statistics report, which almost doubles 
the unemployment rate for whites, which is about 3.5 percent in 
the same report. And these unemployment rates have been 
steadily falling since 2011.
    So what, if any, analysis does the Federal Reserve do to 
evaluate the degree to which economic inequality affects the 
African-American unemployment rate?
    Mr. Powell. Affects the African-American unemployment--
well, let me say, as a feature of our labor markets, African-
American unemployment has often run at double. And so that 
means it comes down faster when times are good, and it goes up 
faster, twice as fast. So that is not a good feature of our 
employment market.
    Ms. Adams. Thank you.
    So what more do you think can be done to ensure that 
unemployment among minority groups gets as low as white 
unemployment? And what role can the Federal Reserve play, if 
any, in reducing these disparities?
    Mr. Powell. The tools that we have--and, actually, there is 
a box in the monetary policy report that talks about 
different--it is not by African-Americans. It is by different 
levels of education, which we can show you. But it does talk 
about the disparate outcomes for people.
    In terms of what we can do, I think, again, it goes back to 
taking seriously the job you have given us, which is maximum 
employment. So we are seeing--in these tight labor markets, we 
are seeing communities, including African-American communities, 
that are being reached by the jobs market in a way that they 
haven't felt really ever, or certainly, a very long time ago 
when we had 3.7 percent unemployment. It was the late 1960s, 
which you and I can remember.
    Ms. Adams. Absolutely.
    Mr. Powell. Not everybody here can.
    Ms. Adams. That is right. I am a child of the 1960s. I am a 
baby boomer, and I do remember that.
    What is supposed to come out of the monetary policy review 
that happened earlier last month? Were there any important 
takeaways? And will there be changes to the way that you and 
the Board conduct the monetary policy because of this review?
    Mr. Powell. There may be changes. We haven't decided that 
yet. We are just into the phase of taking a close look. And we 
are really looking at the question, are there ways we can 
change our toolbox or our strategy or our communications that 
will enable us to better serve the public. And one of the key 
motivators for that is that rates are so much lower, we are 
closer to 0, that means we have less room to cut. And are there 
ways we can--the people have been thinking about this problem 
for more than 20 years. So we want to get the best thinking and 
come out of this with the best ways to serve the public with 
our toolkit. We may make changes, but that discussion lies 
ahead of us.
    Ms. Adams. Great. Thank you very much for your service. And 
again, thank you for not allowing yourself to be bullied. I 
think that is really important in terms of the job that you are 
doing.
    And, Madam Chairwoman, I yield back my time.
    Chairwoman Waters. Mr. Williams, the gentleman from Texas, 
is now recognized for 5 minutes.
    Mr. Williams. Thank you, Madam Chairwoman. And thank you, 
Mr. Chairman, for being here today. And just as a reminder, as 
you know, I am a small business owner, Main Street America, and 
very much interested in what has happened at the Fed. I wanted 
to also reiterate my past statements about interest rates. Even 
the slightest changes can have significant impacts on many 
parts of the economy.
    We both remember a time when interest rates were 20 
percent. And the principal balance for these rates compared to 
today was relatively low. And when a new car cost $6,000 in the 
1970s, now the same vehicle can be $60,000. And with this 
principal so high, just even a bit of slight increases to the 
interest rate can really crush businesses with high inventory 
costs, and it results in lower sales.
    And we discussed this before, you and I. But I wanted to, 
once again, commend you for you having a good pulse on the 
economy and making the appropriate interest rate adjustments. 
So before I begin my questions, I want to make sure nothing has 
changed since you last came before this committee.
    Are you still a capitalist, or have you undergone a drastic 
change of thought and now believe socialism would be a better 
economic system for our country?
    Mr. Powell. No drastic change.
    Mr. Williams. Thank you.
    So yesterday in Boston, you stated if the stress tests do 
not evolve, they risk becoming a compliance exercise breeding 
complacency from both supervisors and banks. You continue to 
say that banks will need to be ready not just for expected risk 
but for unexpected ones. You obviously understand the 
importance of these stress tests to ensure our financial system 
is resilient. Even so, I heard some criticism that the Fed 
stress tests have been watered down over the past few years in 
order to let the biggest banks off easy.
    So do you believe these stress tests have been made easier 
since you took over as Chairman of the Federal Reserve? And how 
do these simulated stress scenarios compare in scale relative 
to the 2008 financial crisis?
    Mr. Powell. I don't believe we have made them easier. We 
have no intention of making them easier. We do have the 
intention of having them evolve, though. We are 10 years into 
this. I think we have done nine cycles now. And I think there 
is a risk that if we don't continue to adapt to the markets and 
to the institutions and to the state of the economy that they 
will become stale and people will get complacent, and you come 
back in another 10 years, and they are not really a factor 
anymore. They have been a very successful innovation in--maybe 
the most successful regulatory innovation since the financial 
crisis. And I think even the banks would agree to that. So we 
intend them to be--continue to be strong going forward.
    Mr. Williams. Thank you.
    In February when you were in front of this committee, I 
asked you about the labor force participation rate, even though 
there are over 7 million job openings. As an employer, it is 
hard to hire people right now. You mentioned some factors 
keeping this number around 63 percent, such as a skills gap, 
poor education, and the opioid crisis. Obviously, the Fed has 
no control over any of these factors, and we must deal with 
them here in Congress.
    With that being said, you have noticed--have you noticed 
any of these factors improving in getting more people back in 
the workforce since you were last here in February?
    Mr. Powell. I think labor force participation--the labor 
force participation rate has held up pretty well. There is a 
declining trend due to aging in the population. It is at 62.9 
percent now. That is where it was in late 2013. So that is a 
big gain against the trend. That is a good thing.
    More anecdotally, we are hearing a lot from folks who live 
and work in low- and moderate- income communities that there 
are work opportunities. And there are companies that are coming 
in and really want workers, and they are going to look through 
some of the problematic things people may have had in their 
lives and hire them anyway.
    And so we think that is really healthy. In a tight labor 
market--if you have a tight labor market that lasts for quite a 
long time, that is what you are going to get. So we think it 
is--we do think that that is a relatively new development and a 
very positive one.
    Mr. Williams. All right. And according to the most recent 
monetary policy report, consumer spending was down at the 
beginning of the first quarter, which you touched on earlier 
this morning, but appears to have picked up. And I can tell 
you, as a business person, we have seen it pick up.
    So what factors do you see as contributing to this 
turnaround?
    Mr. Powell. I think it is strong job creation. It is wages 
moving up. It is, as you mentioned, a tight labor market. It is 
workers who work--we survey workers, and they say that jobs are 
plentiful. We survey businesses; and they say we can't find 
workers. So that is a world where the worker and the family is 
feeling--people are quitting their jobs. It is a world where 
they are feeling good about the economy, relatively.
    Mr. Williams. And when you have more jobs than workers, it 
has a tendency to drive up wages, and we see that on Main 
Street America.
    Mr. Powell. Yes.
    Mr. Williams. Thank you for your service. I appreciate you 
being here today.
    I yield back.
    Mr. Powell. Thank you, sir.
    Chairwoman Waters. Thank you.
    The gentlewoman from Pennsylvania, Ms. Dean, is now 
recognized for 5 minutes.
    Ms. Dean. Thank you, Chairwoman Waters. And thank you, 
Chairman Powell, for your expertise, your service, and for 
coming and explaining things to us. I learn a lot when I hear 
you speak, and I thank you for that.
    I wanted to examine a little more closely some of the 
things you talked about. Consumer side looking strong; the 
business side weakening. And I want to compare that and ask you 
what are some of the triggers to the weakening on the business 
side? As I look at the chart, trade policy uncertainty, you 
said it is no question. Uncertainty is elevated. What would 
greater certainty look like? What are some of the things 
creating the uncertainty? What would greater certainty look 
like? And then what would the impact be on the economy?
    Mr. Powell. So we think that the place where uncertainty 
showing up is in business investment. Businesses make 
investments, and those have to work for a longer period of 
time. When businesses become uncertain about the future and 
about a future demand, they may hold off. They may decide to 
wait before they build something or buy something. And they may 
just hold off.
    So what we are seeing is business fixed investment, which 
was quite strong. Business investment was very strong right 
through 2017 and most of 2018. It has really slowed down now in 
the middle of the year. And we do connect that. There is no 
perfect way to identify these things, but we do connect that to 
trade policy uncertainty and also uncertainty about global 
growth and weak manufacturing around the world.
    Ms. Dean. What specifically in trade policy do you think is 
connected to that pulling back on investment?
    Mr. Powell. I think it is just--there have been trading--
you know, the people who are responsible for trade--and that is 
not us. We don't criticize them for what they do. We have a 
broad series of trade discussions going on.
    If you are a manufacturing company in our economy of any 
size, the chances are pretty good that your supply chain goes 
across national borders to Canada, or Mexico, or China, or 
Vietnam, or someplace. And that supply chain is really part of 
the way you do business. And you just assume that it is 
working, and you can focus on your clients.
    When the supply chain is called into question--we hear this 
a lot from businesses, by the way. When it is called into 
question, you pull back, and you have less certainty about how 
this is going to work. You may have to change it. Many 
companies have changed their supply chain away from China now--
    Ms. Dean. Because of the tariffs.
    Mr. Powell. --had moved to Mexico or Vietnam. So I just 
think that that uncertainty is something that we call out for 
the economy. But, again, I wouldn't want to suggest that that 
in any way is a criticism of those who are conducting the 
policy. We don't have a responsibility for evaluating that. 
That is for them.
    Ms. Dean. I understand and appreciate your independence 
there.
    I am hearing the same thing on the ground from my 
businesses in Montgomery and Berks Counties, Pennsylvania. The 
uncertainty, the fickle trade policy, fickle tariff policy, the 
punitive tariff policy is driving their conservatism in their 
own areas.
    Let me shift to something else that you talked about. And I 
care deeply about gun violence, the opioid crisis. And I am 
wondering, through your complex lens, could you talk about the 
opioid crisis and/or gun violence. One of the recent reports on 
gun violence says that gun violence in this country cost our 
economy somewhere in the area of $230 billion a year. And I 
know you are not involved in gun policy or the opioid crisis 
policy. But through your lens and through the tools that you 
are using, what are you seeing? What could we in Congress learn 
about how we could minimize, reduce that economic impact?
    Mr. Powell. I can probably do a little better talking about 
opioids where there has been some great research including by 
the late labor economist Alan Kruger, who sadly passed away 
last year, or maybe earlier this year, about the effect of the 
opioid crisis.
    So if you take the prime age, men, in certain age groups 
who are out of the labor force, an extraordinary percentage of 
them--I think the number was 44 percent--are taking some kind 
of painkiller. So it is a big number. It is a big number of 
people that are on opioids and, for the most part, missing from 
the labor force.
    We all want the U.S. economy to grow faster and be larger. 
And we want prosperity to be broadly shared. There are people 
who are in the prime working years who are on opioids. And it 
is a national crisis. And I know people are working on it. But 
it is out there, and it is just--there is a human tragedy, but 
there is also an economic motivation to get these people into 
the labor force where they can lead healthy lives.
    Ms. Dean. I appreciate that, in terms of direct cost to 
labor and also if you think about the number, 72,000 people in 
a single year dying of overdose. Think of the lost economic--or 
the impact--the economic impact, obviously, to the individual 
family but then to the communities, to their children and 
elsewhere.
    So I thank you very much for your work. And I always learn 
something from you.
    Thank you I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Oklahoma, Mr. Lucas, is recognized for 5 
minutes.
    Mr. Lucas. Thank you, Madam Chairwoman. And thank you for 
being here today, again, Chairman Powell.
    We have discussed, many times, the nature of my district. 
It is agriculture. It is energy. It is capital intensive. So 
the actions that the Fed takes, the actions the Treasury takes 
has a very direct impact on my constituency. I am very, in 
particular, sensitive about Fed actions because my part of the 
world suffered the most at the end of the 1920s and the 1930s 
before we became far more sophisticated in how we handle these 
policies.
    You are the fourth Fed Chairman who has appeared before 
this committee in this capacity since I have been a Member. And 
there are just a handful of us on the back row who go all way 
back to Mr. Greenspan. And I found you to be as upfront and as 
straightforward as anyone could be in your position and, in 
some ways, really quite impressive compared to the things in 
the past.
    Now, that said, I have also learned in my time to try and 
focus on things that matter to my people back home that would 
make a difference to them even if sometimes it appears to be 
done in the weeds. I have a suspicion, very bright fellow that 
you are, that you know where we are going with this next 
question. But I have been raising the issue of inter-affiliate 
initial margin for nearly 5 years now. And while regulators 
have agreed that the inter-affiliate initial margin 
requirements are an issue to be addressed, we have not yet been 
given any indication of timing.
    When in Congress can we expect some action, Chairman?
    Mr. Powell. I wish I could be here to give you perfect 
clarity on that. But neither am I completely empty-handed. So I 
do know that this is a subject of active inter-agency 
discussions at the moment, and I am hopeful that those will be 
fruitful.
    Mr. Lucas. And Mr. Chairman, like a birddog on point, that 
I would reiterate that the U.S. is the only G20 country to 
impose these initial margin requirements. And this has created 
what I fear is an unlevel playing field for United States 
institutions. And I believe it is time we come to focus.
    So my second very respectful question. Last month the Basel 
Committee on banking supervision agreed to provide an offset 
for client cleared initial margin under the leverage ratio. And 
the bipartisan CFTC commissioner support this offset, and I am 
looking forward to the Fed and the other prudential regulators 
implementing this global revision.
    Can you give me a sense about timeline on that, perhaps?
    Mr. Powell. I will have to get back to you on that one. And 
I will do so promptly.
    Mr. Lucas. Fair enough, Mr. Chairman.
    You are following in those fine traditions dating back to 
Mr. Greenspan. And I respect that. And I say that respectfully.
    So, once again, one final question. And I want to again 
voice my concern about the SA-CCR proposal. I am worried that 
higher capital charges under SA-CCR will cause banks to pass 
those costs on to commercial end users engaged in OCT 
transactions. And Congress clearly sought to provide relief for 
end users as a part of Dodd-Frank.
    This proposal, I fear, threatens to undermine congressional 
intent and would deter end users from engaging in risk 
management activity. So I suspect you are aware of these 
concerns. And I hope that we will see them addressed. Just 
noting, from my perspective again, as a Member of Congress from 
third district of Oklahoma, the food we produce, the energy we 
provide--those resources need these kind of risk management 
tools because of the sheer capital intensive nature of the 
businesses.
    So focus, Mr. Chairman. I know you will. I appreciate you 
very much.
    Mr. Powell. Thank you.
    That last one, I think you are probably aware, is out for 
comment after a lot of work.
    Mr. Lucas. Progress, Mr. Chairman. I like that.
    I yield back, Madam Chairwoman.
    Chairwoman Waters. Thank you.
    The gentlewoman from Texas, Ms. Garcia, is recognized for 5 
minutes.
    Ms. Garcia of Texas. Thank you, Madam Chairwoman. And thank 
you, Chairman Powell, for your endurance. We are almost at the 
end of the tunnel, it looks like.
    And I just wanted to focus a little bit on the widening 
income inequality gap that we have been talking about. And I 
wanted to followup on your answers to Mr. Lawson and Mrs. Axne.
    You said that we have seen the gains of the past decade 
accruing to the upper income groups in passing the middle and 
lower income groups. Can you expand on the long-term systemic 
risks that such inequality would introduce in the economy of 
such skewing of benefits if it continues on the present course 
and into the future?
    Mr. Powell. So I think the tradition has been--or the 
history has been that people have generally been able to 
progress and, through time, be economically better off than 
their predecessors and their parents and grandparents, and that 
kind of thing. And I think that is how people think about 
that--that have thought about life in our system.
    And I think the data show that that is less and less true. 
It is still true for many, but it is true for fewer than it 
used to be. And that is not good.
    We want prosperity to be spread as broadly as it possibly 
can, and we want there to be progress upward for lots of 
people. And we want mobility from the bottom to the top, and 
vice versa. We want the outcomes to be fair.
    And if you don't have that, you ask what is the cost of it, 
really. I think the costs are big. And that would include kind 
of a loss of faith in our institutions to deliver that in our 
society.
    So I think it is a very important problem to address. And I 
also--by the way, I see lots of businesses and people coming 
around to that view that maybe weren't thinking that way 5 
years ago. You hear that a lot. You hear a lot of discussion 
about this now in the business community, and they see it in 
terms of good employees and things like that, but also in terms 
of people to buy their products. So I think this is a national 
problem. And I--
    Ms. Garcia of Texas. So what happens to the bottom? It is 
not as simple as haves and have nots. If it is shifting and the 
goal is always to move up, if you will, what happens to the 
bottom? Do you all track and look at the poverty rates? Do you 
all look and track at the lower income levels?
    Mr. Powell. Researchers do, yes.
    Ms. Garcia of Texas. Are the people who are living as 
Representative Pressley said, paycheck to paycheck?
    Mr. Powell. We do, and lots of economists outside the Fed 
do track all of that.
    Ms. Garcia of Texas. Unless I missed it, I didn't see any 
data on poverty rates or what it is doing. Your book talks 
about the inflation rate goal of 2 percent, and the 
unemployment rate as low as possible.
    But what is the bottom that we can reach in terms of a 
poverty rate?
    Mr. Powell. I don't have a number for you. We have all that 
data. We don't put it in every monetary policy report. You 
probably saw the box, though, that talked about disparate labor 
market outcomes for people with a lot of education, people with 
less education which kind of goes--
    Ms. Garcia of Texas. Where do you find it is unacceptable 
in terms of a poverty rate before it skews everything else?
    Mr. Powell. Any positive number.
    Ms. Garcia of Texas. Any positive number?
    Mr. Powell. Yes. I think our goal should be to not have 
poverty. What is an acceptable number? In our country, no 
amount of poverty should be acceptable, seems to me. Now, I 
know we have a lot of poverty. But if you ask me that question, 
I would say--
    Ms. Garcia of Texas. Well, that would be my goal too. But 
for others who may not--I don't know if you follow, but the 
President wants to change the poverty line and how we index it 
to the CPI, where they change CPI. And there is a proposed rule 
change. And some people would rather just pretend that there is 
no poverty or that they have done something to reduce poverty. 
And changing the rule somehow in how to calculate it, it 
doesn't get us anywhere. I just wondered if you looked at that 
proposal and whether you favor it or disfavor it.
    Mr. Powell. I have not looked at it. I wouldn't have an 
opinion on that.
    Ms. Garcia of Texas. You wouldn't?
    Well, I am glad that you agree with me that the goal should 
be 0. That is something that I have worked with my entire life, 
and will continue to do that. And I think that the minimum wage 
increase would be a step in that direction and a number of 
other initiatives that I hope that we will be able to get 
through Congress.
    I appreciate your time. Thank you.
    Mr. Powell. Thank you.
    Ms. Garcia of Texas. Thank you. Madam Chairwoman, I yield 
back.
    Chairwoman Waters. Thank you.
    The gentleman from Minnesota, Mr. Phillips, is recognized 
for 5 minutes.
    Mr. Phillips. Thank you, Madam Chairwoman.
    And welcome, Chairman Powell. When you get to me, you have 
reached the finish line.
    My first question: Why is the U.S. dollar the world's 
reserve currency?
    Mr. Powell. The U.S. dollar is the world's reserve 
currency. There tends to be one, so if you have the country 
with the best institutions, the largest economy, the rule of 
law, and relatively open to commerce, a trading nation, you can 
be that.
    So what happens is there tends to be one reserve currency, 
and it tends to be a stable equilibrium for a period of time, 
but it is not infinite, right? The pound, of course, was the 
reserve currency for many, many years, but now the dollar has 
been for some time.
    Mr. Phillips. So what do you consider risks to that 
changing at some point in future?
    Mr. Powell. It is a very long-run thing. It is a fairly 
stable equilibrium. You have to think what currency out there 
would compete with the dollar, and there really--it would be 
the Euro or--it is hard to see the dollar not being in the 
reserve currency for quite some time.
    That doesn't mean that every--there can be multiple reserve 
currencies. So there can an equilibrium where there are two or 
three, and that would be fine. But right now it really is the 
dollar. And I don't see that under threat right now. Of course, 
in the long run, it will come down to fiscal sustainability. It 
will come down to maintaining our rule of law and Democratic 
institutions and prosperity and being a relatively open trading 
nation. All of those things are essential.
    Mr. Phillips. In your opening remarks, you talked about 
concerns relative to our high and rising Federal debt. Would 
that be a concern relative to the U.S. dollar maintaining--
    Mr. Powell. In the long run, absolutely.
    Mr. Phillips. Okay. Second question. When you contemplate 
rate changes, how much weight to you give to the ongoing 
strength of current economic data versus the forward-looking 
weakness implied by the inverted yield curve?
    Mr. Powell. I think monetary policy is always about the 
outlook. You have to understand and take into account the 
current position of the economy which, in our case, is very 
strong, low unemployment, and relative price stability. But we 
are always about looking forward, because monetary policy works 
with a lag.
    You asked about the yield curve. And that is something we 
do look at, of course, because there is a message in there--
there are a couple of messages in there. You have to think 
carefully about what they might be. And it is not a single 
thing that is a dominant financial condition. There are many, 
many things that we look at in financial markets. And that is 
just one of them, but it is certainly one.
    Mr. Phillips. Okay. And lastly, do you believe that the 
Federal Reserve has the requisite tools to fulfill its mandate 
at the ZLB without assistance of fiscal policy?
    Mr. Powell. Well, as I mentioned earlier, first of all, we 
do have the tools that we have, and we will use them 
aggressively. And we believe they will be adequate.
    As I mentioned, though, in a severe downturn, there comes a 
time when fiscal policy support is necessary and appropriate. 
And one of those times was during the global financial crisis 
and the Great Recession. So fiscal policy is very powerful, and 
I think it is important to have. I think for the most part the 
Fed can handle countercyclical policy. But in a steep downturn, 
there will always be an important role for fiscal policy.
    Mr. Phillips. Okay. So is the authorization to buy a wider 
range of assets at the lower bound? Would that be helpful or 
important or not at this time?
    Mr. Powell. I don't think we are seeking that. We are 
really not looking at that. We will have plenty of Treasuries 
to buy if it comes to that.
    If it comes to buying assets, there will be no shortage of 
U.S. Treasury securities. I don't think we are looking at--you 
are referring to the fact that other central banks have the 
ability to buy equities, all kinds of different things. It is 
not an authority we are seeking or looking at or think that we 
need.
    Mr. Phillips. Okay. Thank you, Mr. Chairman.
    And I yield back.
    Chairwoman Waters. Thank you very much.
    Now, we have the gentleman from California, Mr. Sherman. We 
are trying to honor your 1:00 time that we agreed upon, and we 
are just running a few minutes over. But we only have two 
Memberw left: Mr. Sherman and Mr. Heck.
    So, Mr. Sherman, would you--
    Mr. Sherman. I thank both the Chairwoman and the Chairman 
for their indulgence. I spent a couple of decades in this room. 
I have watched Republicans come here and condemn the Fed for 
overly loose money and condemn you for quantitative easing. I, 
for one, have been pushing in the other direction. It is 
interesting to see how, with Trump's--I think one of our 
colleagues said the Republicans seem to be in favor of loose 
money only when there is a Republican President.
    The fact is that you haven't hit your 2 percent inflation 
goal. And as we have talked earlier, it should be at 2.5 
percent inflation goal, because--and while unemployment is low, 
we haven't had the big wage increases. You have told us that 
wages have grown, but basically by 1 percent over inflation, 
which doesn't make up for 30 years of negative or stagnate wage 
growth in this country for those without a college degree.
    On trade I have seen the reverse roles in another way. 
Democrats voted against MFN for China, against NAFTA, CAFTA, 
and SHAFTA. But now that Trump is just flailing at the trade 
deficit, I hear an occasional Democrat saying we should just 
ignore the trade deficit. I don't think that flailing or 
ignoring is the right approach.
    I know that there has been significant discussion here 
about cryptocurrencies. This constitutes cryptocurrencies, an 
attempt, I hope unsuccessful, to transfer power from the United 
States Government to sanctions evaders, terrorists, tax 
evaders, and drug dealers while reducing the importance, as the 
Chairman indicated, of the United States dollar as the reserve 
and trade currency.
    Madam Chairwoman, I know that we have an executive from 
Facebook coming to join us. But ultimately, it is time to bring 
Mark Zuckerberg here. He is the one that has made billions of 
dollars out of us, relies on the U.S. Government to protect his 
billions, and now wants to undermine the system. But I see his 
problem, and that is he wants to invade the privacy of the 
average American and sell our data. And in order to compensate 
for that, he wants to provide privacy to drug dealers and 
terrorists thereby establishing how dedicated to privacy he is.
    So I look forward to bringing him here, because the Libra 
is an attempt to create a cryptocurrency that you could 
actually use to buy things. Right now we can kind of monitor 
the bitcoin, because to actually buy something, you need to 
convert it to the dollar.
    Mr. Chairman, I want to shift to another issue. We have 
talked last time you were here about wire fraud. Mr. Kustoff 
and I got 40 of our Members to write you. And we just got the 
response today about the need for a name matching system so 
that when you wire money, you wire money not just to an account 
number but to a name, because especially in real estate 
transactions, we have had a lot of people tricked into wiring 
money into an account because hacking and spoofing has caused 
them to do that.
    The United Kingdom is moving to a safeguard system where, 
when you wire the money, you wire it not just to an account 
number but that you match it with a name. Your response 
indicated that there would be some difficulty in doing that 
here. I know that we have State laws here that establish some 
rules, but you certainly have the capacity to regulate the 
financial institutions. You have regulations in this area. You 
could adopt regulations that say, if you are going to accept a 
wire transfer, is has to be wired to an account name not just 
to an account number.
    How do you plan on addressing this issue where people are 
conned into wiring money into an account number thinking that 
is the owner of the property that they are trying to buy?
    Mr. Powell. So we understand it is a serious issue and that 
it is something that they do in a very organized crime kind of 
a way. Hacking into--they get a list of the real estate 
transactions. They try to hack into the players, and they try 
to divert these payments. It is organized crime.
    You accurately, obviously, summarized the contents of that 
letter. And I would say, we have concerns about the matching 
name idea, because it conflicts with some State laws. We think 
that really the way to get after it is to get banks to have 
appropriate ID from customers.
    But what I will propose, though, is--let me get the people 
who are the experts on this to talk to you and your staff and 
try to--
    Mr. Sherman. And I would point out, this is clearly 
interstate commerce. This is clearly Federal jurisdiction, 
legal, and we have granted you the power. Please use it
    Mr. Powell. Great. Thank you.
    Chairwoman Waters. Thank you very much.
    The gentleman from Washington, Mr. Heck, is now recognized 
for 5 minutes.
    Mr. Heck. Thank you very much, Madam Chairwoman.
    And, Mr. Chairman, thank you so much for staying.
    I have a straightforward question. Five days ago, the 
President of the United States said we have a Fed that don't 
know what they are doing.
    So for the record, sir, do you?
    Mr. Powell. I would say let's take a look at the economy 
and let that be the report card. So, again, we are--the economy 
is into its 11th year of expansion.
    Mr. Heck. The longest in modern history.
    Mr. Powell. Since we kept records, which began I think in 
the mid 19th century. Unemployment is at a 50-year low and has 
been for 15 months, and we expect that to continue. So, I think 
inflation is below where we would like it. As you know, we are 
concerned about uncertainties and other factors that are 
weighing on the outlook and looking at changing our policy, but 
overall, I would say that our economy is on a solid footing.
    Mr. Heck. So despite disagreements you and I may have had 
in the past about the actions I think the Fed should have taken 
with respect to interest rate raises, I want to state for the 
record I do think that you know what you are doing.
    I thank you for being here. I thank you for your 
willingness and courage to stay independent. I thank you for 
your accessibility. You are only the third Fed Chair that I 
have had the privilege to work with, but you are amazingly 
accessible. And I thank you especially for your remarks earlier 
in conversations with various members, notably Mr. Stivers and 
Mr. Perlmutter, regarding wage growth, and in particular, not 
being tempted to characterize recent wage growth as adequate, 
because it is inadequate.
    And, as you know, I have been asking since I came to this 
committee, when does America get a raise? And it is long 
overdue; but it sets up a bit of, as it were, a dilemma for me. 
You have characterized here today that the crosscurrents 
confronting the American economy are trade and global growth. I 
want to know why it is, given that the Fed and you have 
accurately pointed to the fact that our economy is 70 percent 
consumer driven, why hasn't the Fed called out more than a 
generation of lack of wage growth a threat to this economy? If 
we want to have a healthy economy that is 70 percent consumer 
driven, we have to have some decent wage growth, and we 
haven't. We have to have a prosperous growing middle class, and 
we haven't.
    So why doesn't the Fed explicitly call out this lack of 
wage growth as a threat to the growth of this economy and the 
health of this economy?
    Mr. Powell. Well, I think we do. I think we have been 
trying to promote--
    Mr. Heck. You were asked and you said the crosscurrents are 
trade and global growth. The other crosscurrent, the other 
downward factor is the absence of wage growth, is it not?
    Mr. Powell. I think it is really, if you look at the last--
go back to your point. Go back to the turn of the century. What 
you saw was a decline in labor share. And that has not been 
reversed. So we are focusing on the change in wages but really 
the level, they are missing--wages are missing 10 years of 
growth. So I think that is really the underlying problem. We 
are getting reasonable wage growth, but we missed all of those 
years, beginning again at the beginning of this century. So I 
think it is a very serious problem, and we should do a better 
job of calling it out.
    Mr. Heck. I look forward to you doing just that.
    Phillips curve, there was a recent article in The Wall 
Street Journal said that in Japan, the Phillips curve is dead. 
And obviously, the connection, as was discussed here, alluded 
to here earlier, has become more tenuous, even in this country. 
I would posit and ask for your reaction that the fact is that 
if you measure the Phillips curve in terms of U3, the 
connection has been more tenuous, but if you do, as you just 
now indicated, in terms of percentage of especially 25- to 64-, 
25- to 54-year-olds participating in the workforce, then the 
Phillips curve isn't dead and that is, in part, why we are 
beginning to see some traction.
    Why would we continue to use U3 when it clearly isn't 
reflective of what has gone on, especially in the aftermath of 
the Great Recession, where people keep coming out of the 
woodwork to join this workforce, and as a consequence, that 
unemployment rate keeps going lower and lower but we keep 
adding hundreds of thousands of people to the workforce? Is it 
not--have we repealed the law of supply and demand, or can we, 
if we continue to add people to the workforce, expect continued 
wage growth?
    Mr. Powell. So U3 is just a number to us. It isn't the 
number. We refer to it quite a bit, but obviously, we look at a 
broad range of employment indicators. I am not sure I took your 
question, though, on this.
    Mr. Heck. Well, I think my point is that we haven't reached 
full employment as long as people keep coming out of the--
    Mr. Powell. No, that is--
    Mr. Heck.--woodwork.
    Mr. Powell. Okay. That is where I thought you were--yes. 
That is where we are learning. We are learning this. A lot of 
the margin where we have seen the improvement has been in labor 
force participation rather than unemployment, and that is 
great. People come in--you could actually see--and you have 
seen--in some months you've seen labor force participation 
going up, go--enough labor force participation increased, but 
the unemployment rate actually ticks up, but that is a good 
thing.
    Mr. Heck. So I am way over, and the Chair indulged me to 
even allow me to ask questions today, again, for which I am 
grateful.
    Two things. We need more wage growth. Secondly, I believe 
you know what you are doing, sir, and I thank you for it.
    Mr. Powell. Thank you.
    Chairwoman Waters. Thank you very much.
    Mr. Powell, we have one more Member, the gentleman from 
Georgia, Mr. Loudermilk, and then we will wrap it up.
    Mr. Loudermilk. Thank you for indulgence, Madam Chairwoman.
    Chairman Powell, thank you. I will try to be quick and 
concise. I do have just a few questions, and so I won't make 
any statements.
    First one, real-time payments, you and I have had this 
discussion before. Do you have any idea when you may announce 
the decision of whether to get into real-time payments or not?
    Mr. Powell. We are in the middle of--we haven't actually 
gotten to a place where we are getting ready to make a 
decision, but I think there has been a ton of work and so we 
are moving forward to try to make a decision on when it is 
ready to do.
    Mr. Loudermilk. Okay. What are the factors you are 
weighing?
    Mr. Powell. As you know, this was something that came out 
of the Faster Payments Task Force, and that was a group of 
involved small banks, large banks, community activists, 
technologists, card companies, all of that, and there was broad 
support, particularly among the smaller banks, as I mentioned 
earlier, for us to play a role in final settlement. And that 
was a recommendation that came out of that. So we put out a 
proposal last year and we asked for comment. We got, I think, 
400 comment letters, and we are piling through those and 
working our way through assessing the issues.
    We have to look at two things. One is just the requirements 
under the Monetary Control Act, and there is also just a big 
policy question which is, is there a role here? There are 
people who feel strongly that there is a role here for us, and 
there are others who feel not. So we are having to make a 
decision on that, and we will be doing that.
    Mr. Loudermilk. Okay. I appreciate it if you would keep us 
in the loop on that. We have several parties, especially in 
Georgia, very interested in the direction you are going.
    And so another issue regarding the tailoring of proposals--
or the tailoring of regulation for domestic and foreign banks. 
Now that the comment period is closed, when do you expect final 
rules on that to be issued on the tailoring of regulations for 
domestic and foreign banks?
    Mr. Powell. Let me look for foreign--domestic and foreign. 
Okay. So the comment period for domestic and--I don't have a 
date for you. I know the--
    Mr. Loudermilk. I think the comment period has recently 
closed. I am just wondering--from my understanding, the comment 
period recently closed on that.
    Mr. Powell. Foreign, it closed in June. For domestic, it 
closed in January.
    Mr. Loudermilk. Okay.
    Mr. Powell. I would have to get back to your office on--I 
think Vice Chair Quarles said that we see most things being 
wrapped up by the end of the third quarter and darn near 
everything wrapped up by the end of the year.
    Mr. Loudermilk. Okay. Do you anticipate the domestic and 
foreign will be done together?
    Mr. Powell. I don't know--
    Mr. Loudermilk. Okay.
    Mr. Powell. --to be honest.
    Mr. Loudermilk. Okay. With the remaining time, one other 
issue. This is important, especially back in Georgia, small-
dollar lending. When the FDIC Chair McWilliamstestified back in 
May, I asked her if they plan to address a small-dollar lending 
issue for banks, and she said that she was going to work with 
the other regulators to get this done.
    Is the Fed committed to working with the FDIC and OCC to 
come up with a plan for the small-dollar lending?
    Mr. Powell. I think we are doing that actually. I think 
there is an interagency group that is carrying that forward 
right now.
    Mr. Loudermilk. Okay. With that, I think we are all ready 
to end a very long morning. So, I appreciate that.
    Madam Chairwoman, thank you for your indulgence, and I 
yield back.
    Chairwoman Waters. Thank you very much.
    I would like to thank Chairman Powell for his testimony 
today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
     I thank you very much for your patience, Mr. Powell.
    This hearing is adjourned.
    [Whereupon, at 1:14 p.m., the hearing was adjourned.]

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                             July 10, 2019
                             

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