Far too fast an increase and far too slow a decrease. But we all make mistakes, dont we good wednesday morning, welcome to squawk alley. Im carpal kwinquint nilla with Morgan Brennan fed chair powell is expected to testify in just a few moments. Well bring you his testimony in full once it begins. Ahead of that weve got every angle covered. Steve liesman, rick santelli, bob pisani, tom porcoli. Fed chair powell is telling joint congress that rates are on hold unless there is a big change to the outlook. The operative sentence, we see the current stance of Monetary Policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our policies of moderate economic growth. What would it take to change course developments that would cause a material reassessment of our outlook, which is say the bar is kind of high bmo writing the chair stayed true to the patience script, confirming that rates are likely in an extended Holding Pattern powell also asserted that Monetary Policy is not on a preset course. While he said the Overall Economic outlook is good, risks do remain. Among the downside, biz investment is restrained by slow Global Growth and by the trade war, the federal budget is on an unsustainable path, the debt load of businesses is historically high, however, the Financial System, the risks remain moderate. Well see whether or not members of Congress Want to weaponize Monetary Policy the way the president appears to want to in the trade war. But the fed is where i think powell wants it to be, boring and in the background. Carl all right, steve. Lets kick this off as we await the fed chair. Mike, is the market happy with the status quo i think so. The market is looking for cover for the status quo to remain so the market likes this scenario of three quarterpoint rate cuts coordinated with a soft landing if thats enough, thats probably a good backdrop for markets. If its enough, it means youre still on this 2 growth path earnings can come back as people expect to some degree next year. I do think thats right. Credit markets are very, very firm as well, so yes, i think theyre in tune right now with powells preferences to do not much. I think the market is clearly happy. I think both powell and President Trump are engaged in that old wall street game, lowering expectations and then beating the bar. So if youre powell, how do you signal, hey, weve got to stop lowering rates here. We dont know. Were going to act as appropriate. Set the bar a little lower lower the expectations no rate cuts if youre President Trump, how do you react to that trial balloon where the chinese tried to say wed like all tariffs to be removed as part of the phase one negotiations well, if youre the president , thats way ahead of where the president wants to be. Maybe give a speech thats a little dour and accuse the chinese of cheating. Exactly what he did yesterday, lower the bar on the trade expectations so now youre going to try to beat that bar. The one thing that is a little worrisome is this hong kong thing which floats out there as a little bit of a wild card. We dont know whats going to happen there three or four days of like unrest over there. Maybe the chinese will act, maybe the president has to act and its certainly true the chinese are concerned about saving face. So is President Trump, hes very concerned and he may be forced to act so id just keep that out there as a wild card floating around that could change the calculus. Brian, to that point, it seems like its two buckets driving the Market Action more broadly overall and it is Monetary Policy and its trade what do you think is priced in here in terms of trade, especially given the comments we got from President Trump yesterday . Yeah, it was interesting watching the way that the market reacted to President Trumps speech it sold off just a little bit. You saw yields fall as well, which i think that just shifted the expectations a little bit. That may be the phase one deal isnt going to be as comprehensive as what people were thinking as we went into the weekend after there was a report that the chinese would push for this removal of tariffs. Larry kudlow had confirmed that could be part of a phase one deal right now its probably id flip a coin as to whether or not youd see a complete removal of the tariffs as part of phase on or just a reduction in the tariffs that have already been put into place so to an extent i believe that the risks are that the phase one deal is a little bit weaker than what a lot of people are probably expecting, and i think thats what the market is reflecting at the moment with just a mild amount of weakness here. Tom, i want to get you in here before we get the fed chair begin to speak how high does inflation need to get before it truly gets the feds attention, especially on a day like today where weve got cpi . I think it has to be significantly higher one of the things weve been fond of saying is lets define significant as getting to sort of 2. 5 on a consistent basis. You know, that is an incredibly high hurdle. Over the course of the last 20 odd years, weve been above 2. 5 twice. Not for two extended periods, literally two times. So i think the hurdle is incredibly high for the fed to respond from an inflation perspective, i. E. Taking back any of these cuts. So i think the market has a right looking for basically no action over the foreseeable future. Carl rick im sorry. I tell you what, its very fascinating, of course, to see todays cpi. Tomorrow well have ppi. Even though its been hotter than expected, i think the last guest is absolutely correct. Its not going to get to the point to leverage the fed into using it to do anything on the tightening side. But the fed has weighed in on just about everything. Their repo operations could hit 10 million cumulative by the end of the year. I would hope that some questions go to that weve discussed it at length today. Is it a takeover a market, is that operation going to be permanent . And the fed weighs in on brexit. Its starting to weigh in on Climate Change is anybody going to ask questions as these Democratic Candidates move forward, entire industries could be changed. Doesnt that rise to a higher level than some of the issues with trade and their small impact on gdp . I would like to see some questions outside the box, because the box is protected thats a good point, rick steve, ill let you in here, but that was a headline that got lost last week that they did raise the idea of integrating Climate Change in their policies. Yeah, the fed is well behind the curve of most Central Banks in this regard if you read i think it was this week, maybe it was last week, i cant remember anymore but a big speech that talked about this idea that if its going to affect outcomes for debt or the economy, then the fed ought to think about incorporating it i think its a sort of logical idea i do think that rick overstates the case maybe a bit i think the fed is very careful not to weigh in on a bunch of political areas here you know, powell really goes out of his way not to mention this you want to point out as susan malone is speaking right there, her staff put together a Research Report basically arguing that the fed could remain on hold and or perhaps test lower levels of unemployment and in this moment and time of hyperbipartisanship carolyn maloney, sorry about that. In this moment of hyperpolarization, it might be worth pointing out bipartisanship here that both sides agree on low Interest Rates from the Federal Reserve what i was going to say, one interesting thing in the prepared statement was, of course, the fed chair reiterates this idea fiscal policy is on an unsustainable path interestingly he says that perhaps it will mean that there wont be the political will to have al response in the next downturn, which is interesting in the sense that the fed has been criticized in terms of using up some of its recessionfighting ammunition by cutting rates three times here so both sides seem to say the other guy should be storing up the ammunition for when things get really poor here, but hes not endorsing the idea that this recent period with low rates and very wide deficits doesnt mean we dont have to worry about the longer term debt implications. I cant emphasize how different this is from last december where we were going into a period where the fed was talking about hiking Interest Rates. Now the fed has already cut rates three times and is neutral essentially. Thats the word thats more accurate than appropriate, i think. And we are looking at concerns about earnings dramatically coming down in 2019 compared to 2018 now were looking at earnings flattish, and there are some people saying the market is overestimating how low the earnings are going to be, that the Global Economic situation will stabilize so this is a very different situation than november and december of last year. Weve got the fed acting neutrally essentially. Weve got progress on trade. There is a belief there wont be any further tariff hikes and the Global Economy is at least perceived to be stable if not even perhaps a little bit better this is a very different situation and then we have kudlow sitting out there talking about or implying he might be working on a tax cut as well tom, i want to go back to this idea of lawmakers and low Interest Rates theres a big difference between low Interest Rates and negative Interest Rates, right . Certainly we have all this negative yielding sovereign debt around the world right now you have the comments from President Trump about that yesterday. Is that really the implied bottom here, where u. S. Rate policy is concerned, that at zero, were not going any lower than zero, heaven forbid the economy really hits the fan . Yeah, look, i think what has to be appreciated about negative rates is that theyre actually punitive from an Economic Perspective. Were seeing this play out in europe right now it literally causes capital flight you know, that is obviously from an Economic Perspective not a scenario under which you want to sort of create the ability for the economy to push forward. So i think what theyre going to realize in europe sooner than later is that this is actually the wrong direction for them and certainly within the fed, so if i bring it back to where we are from a Federal Reserve perspective, no one within the fed really believes in negative rates. Thats true from powell sort of straight on down i think what you have to wonder about is if powell is not sitting at the top if someone else is sitting at the top, do they believe in negative rates at the end of the day to see negative rates, you need an enabler. The enabler is always the central bank but at this point in the current construct, Federal Reserve officials do not believe in negative rates. Brian you know, theres one other thing rick, go ahead. Theres one other thing about negative rates if the central bank leaves themselves no plan b, and this is the issue its the issue the government uses to raise taxes. They overspending and there is no plan b but raising taxes. If there is no plan b and we weaken, where else are they going to go . This is why Crisis Management is its own policy tool because you get away with doing things that if you talked about today nobody would agree with back to the Climate Change, if the central bank is going to talk about it, it should tell the governors of new york, california and other states that are marketing municipal securities with no covenants about Climate Change that they should get their house in order first. Brian, i want to shift gears a little bit and talk about currency are investors are investors focusing enough here and where do you think the dollar goes from here . Our team believes that the u. S. Dollar might strengthen relative to the euro and even relative to the yen. When it comes to currencies, its always which ones are you talking about. If you look at the forward curve, it looks like the euro is priced to continue to appreciate even those negative yields that you see in europe are actually positive if you hedge your debt exposure over there from a u. S. Investors perspective so the market is pricing in some appreciation of the euro were actually anticipating that were going to see the dollar appreciate, mainly because youve got the fed on hold, ecb is probably a little bit more willing and able to go with additional accommodation at the moment chair powell is going to make it clear, he has made it clear that the bar is pretty high for them to have to cut more. Thankfully its higher for them to hike rates. Generally speaking, we think slightly positive growth in the United States relative to europe will favor the dollar over the euro steve, i wonder if powell is going, to as he has in past appearances, talk about the benefits of unemployment at these levels on the low end of the income spectrum, africanamerican, hispanic american employment levels which you have said in the past pretty much more than any Government Program could have accomplished. Low unemployment is the best government plan ever in terms of how its brought people back into the workforce, especially in the way in which it has prompted employers to look beyond certain things that they wouldnt that would be disqualifying in a tighter job market and he does actually mention that and the benefits of that, carl, in his prepared testimony. And i think theres an interesting question now and i dont know where rick stands on this but the question is how low do you let it go . Theres some scope for greater participation, theres some scope for bringing people back into the workforce, theres some scope to keep retirees in the workforce if they so choose to do so, hopefully out of choice and not out of financial necessity. And nobody really knows. We know that were okay cruising with a 3. 6, 3. 7 rate. We know its come down from 5 we thought that was the bottom or the place where inflation would kick up. I dont know, a 3 handle, a 2 handle. With the dow, it has to be almost flat. Heres the fed chair. 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 Monetary Policy. We are committed to providing clear explanations about our policies and our Actions Congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on facts and objective analysis. We appreciate that our independence brings with it an obligation for transparency and accountability today i will discuss the outlook for the economy and for Monetary Policy the u. S. Economy is now in the 11th year of this expansion and the baseline outlook remains favorable. Gross domestic product or gdp increased at an annual pace of 1. 9 in the Third Quarter of this year after rising at around 2. 5 rate last year and the first half of this year. The moderate Third Quarter reading is partly due to the tra transtorre effect of the uaw strike at General Motors it also reflects Business Investment which is being sustained by sluggish growth abroad and trade developments. These factors have also weighed on exports and manufacturing this year. In contrast, Household Consumption has continued to rise solidly, supported by a healthy job market, rising incomes, and favorable levels of Consumer Confidence. Reflecting the decline in Mortgage Rates since late 2018, residential investment turned up in the Third Quarter following an extended period of weakness the Unemployment Rate was 3. 6 in october, near a half century low. The pace of job gains has eased this year but remains solid. We had expected some slowing after last years strong pace. At the same time, participation in the labor force by people in their prime working years has been increasing. Ample Job Opportunities appear to have encouraged many people to join the workforce and others to remain in it. This is a very welcome development. The improvement in the jobs market in recent years has benefitted a wide range of individuals and communities. Indeed, recent wage gains have been strongest for lower paid workers. People who live and work in low and middle income communities tell us, many of them at these fed listens events that the chair and vice chair referred to, tell us that many who have struggled to find work are now getting opportunities to add new and better chapters to their lives. Significant differences, however, persist across different groups of workers in different areas of the country Unemployment Rates for africanamericans and hispanics are still well above the jobless rates for whites and asianis an the proportion of people with a job is lower in Rural Communities. Inflation continues to run below the symmetric 2 objective the total price index for personal consumption expenditures increased 1. 3 , held down by declines in Energy Prices core pce inflation, which excludes food and Energy Prices and tends to be a better indicator of future inflation was 1. 7 over the same period. Looking ahead, my colleagues and i see a sustained expansion of Economic Activity, a strong labor market, and inflation near our symmetric 2 objective as most likely. This favorable baseline partly reflects the policy adjustments that we have made to provide support for the economy. However, noteworthy risks to this outlook remain. In particular, sluggish growth abroad and trade developments have weighed on the economy and posed ongoing risks. Moreover, inflation pressures remain muted and indicators of longer term Inflation Expectations are at the lower ending of their historical range. Persistent below target inflation could lead to an unwelcome downward slide in longer term Inflation Expectations we will continue to monitor these developments and assess their implications for u. S. Economic activity and inflation. We also continue to monitor the risks to the Financial System. Over the past year, the overall level of vulnerabilities facing the Financial System has remained at a moderate level overall investor appetite for risk appears to be in a normal range, although it is elevated in some asset classes. Debt loads of businesses are historically high but the ratio of household borrowing to income is low relative to its precrisis level and has been gradually declining in eechrecent years the core of the Financial Sector appears resilient with leverage low and funding risk limited relative to the levels of recent decades. At the ending of this week we will relesiase our third financa stability report turning to Monetary Policy, over the past year weakness in Global Growth have prompted us to adjust the appropriate assessment the committee has lowered the range by 0. 75 of a percentage point. This puts the current target range at 1. 5 to 1. 75 . The committee took these actions toelp the u. S. Economy keep the u. S. Economy strong and inflation near our 2 objective and to provide some insurance against ongoing risks. As Monetary Policy operates with lag, the full effects of these adjustments on economic growth, the job market and inflation will be realized over time we see the current stance of Monetary Policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate growth, a strong labor market and inflation near our symmetric 2 objective well be monitoring the effects of our policy actions along with other information bearing october outlook as we assess the appropriate path of the target range for the funds rate if developments emerge that cause material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course the fomc is committed to ensuring that its policy framework remains well positioned to meet its statutory goals. We believe our existing framework has served us well nonetheless, the current low Interest Rate environment may limit the ability of Monetary Policy to support the economy. We are currently conducting a public review of our strategy, tools and communications with the u. S. Economy operating close to maximum employment and price stability, now is an especially opportune time to conduct such a review. Through our fed listens events, weve heard a diverse range of perspectives not only from academic experts but representatives of consumer, labor, business, community and other groups we will draw on these insights as we assess how best to achieve and maintain maximum employment and price stability. Well continue to report on our discussions in the minutes of our meetings and share our conclusions when we finish the review, likely around the middle of next year in a downturn, it would also be important for fiscal policy to support the economy. However, as noted in the congressional budget offices recent longterm budget outlook, the federal budget is on an unsustainable path with high and rising debt. Over time this outlook could restrain fiscal policy makers willingness or ability to support Economic Activity during a downturn i remain concerned that the high and rising federal debt can in the longer term restrain private investment and there by reduce productivity and overall growth. Putting the federal budget on an a sustainable path would aid the longterm vigor of the u. S. Economy and help ensure policy makers have the face to use fiscal policy to assist in stabilizing the economy if it weakens. Ill conclude with a few words on the technical implementation of Monetary Policy ine fomc made the key decision to continue to implement Monetary Policy in what we call an ample reserves regime in such a regime, we will control the federal funds rate primarily by setting our administered rates and not through frequent interventions to actively manage the supply of reserves in the transition to the efficient and effective level of reserves in this regime, we slowed the gradual decline in our Balance Sheet in may and we stopped it in july in response to the funding pressures in money markets that emerged in midseptember, we decided to maintain a level of reserves at or above the level that prevailed in early september. To achieve this level of reserves, we announced in midoctober that we would purchase treasury bills, at least into the Second Quarter of next year, and would continue temporary open Market Operations at least through january these actions are purely technical measures to support the effective implementation of Monetary Policy as we continue to learn about the appropriate level of reserves. They do not represent a change in the stance of Monetary Policy thank you. I will be glad to answer your questions. Thank you so much for your testimony. The chairman along with other senators is voting and because the fed chair needs to leave at 12 30 at a hard stop, he is suggesting that we limit our questions to four minutes so that everyone gets a chance to question so i will start and then go to representative marchant until the chairman comes back. So thank you the full Unemployment Rate is well below the feds long run estimate of 4. 2 measures of underemployment and longterm unemployment also are at a near decade low yet the Unemployment Rate for some groups is substantially higher for example, the black Unemployment Rate while at an historic low is still well above 5 is the economy at full employment or could a tighter labor market draw more people back into the workforce . Thank you so were charged to achieve maximum employment when we think about maximum employment, we look at not just unemployment but also Labor Force Participation, we look at wages, we look at, you know, many, many data points and i would say that what we have learned and what we continue to learn is that the u. S. Economy can operate at a much lower level of unemployment than many would have thought and its probably not surprising that wed be learning that now because were at levels of unemployment that we havent seen in 50 years this is the first time that weve had unemployment meaningful below 4 for 18 months so we are observing this and were seeing, as you point out, that inflation is actually moving sideways and wages are moving at a healthy clip, but theyre not moving up in a way that would be that would suggest there are upward price pressures. So i think were very open to the idea im very open to the idea that we dont know where maximum employment precisely is. We have to have significant humility when we make estimates of that. Weve got to let the data speak to us. The data are not sending any signal that the labor market is so hot or that inflation is moving up or anything like that. So i think what weve learned is that the current level of unemployment is consistent with a strong labor market but it is not one that is in any way presenting difficulties and it has many beneficial side effects, including pulling people back into the labor market, including wages moving up for people at the lower ending of the wage spectrum. Theres a lot to like about todays labor market and wed like to see it continue strong and were using our tools to continue to make that happen as you noted, the economy has added jobs for 109 consecutive months unemployment is well below 4 . However, the annual wage growth is just 3 why is wage growth still below what we would expect with a strong labor market . We might have expected wages to move up more this late in a lengthy, lengthy, ongoing expansion, particularly with very low unemployment. There are a number of possible explanations for why that hasnt happened one is just that productivity has been lower so wages should ultimately equal inflation plus productivity and thats right about where we are. We have 3 wage growth that accounts for about 2 inflation and around 1 wage growth. But there are other possibilities. One is just that theres still slack in the labor market. That can be part of the answer we dont know with any precision. It also may be that the neutral rate of interest is lower than weve been thinking and that, therefore, our policy is less accommodative than we have been thinking so i think were letting the data speak to us you know, carefully monitoring the situation and trying to get answers to that question. Some have said its the increased concentration in different industries, giving employers unprecedented power in keeping wages down i think there are a number of other sort of institutional possible explanations and trend explanations you could point to automation, you could point to globalization, you could point to concentration among industries where over time u. S. Industries have tended to get more concentrated as the economy has matured. You could point to lower unionization so any of those factors can well be playing and probably all are playing some role in this what is a bit of a puzzle why we havent seen more of an uptick in wages. My name has expired representative marchon for four minutes. Thank you i would like for focus my questions today primarily on preparing for the next downturn, whether it be three years from now, five years from now, whenever it comes. Historically speaking, is the Federal Reserve positioned as well as it has been positioned in past recessions when the Federal Reserve was the primary goto agency where the federal government said, you know, we need help from you to stimulate the economy. Are we positioned there . Are we out of position well, if you look at postwar typically postwar recessions, what the fed has done is its cut Interest Rates. On average those the amount of those cuts has been 5 or so. So with the federal funds rate having peaked at 2. 4 and now being at a little above 1. 5 , we dont have that kind of room there are a couple of reasons for that if you look at the longer term Interest Rates, which are not directly affected much by our policy, they have just been declining for 40 years now and that is because of inflation being lower and under control and less volatile and also just the aging demographics means higher saving, means more savings and that puts downward pressure on Interest Rates i think the new normal now is lower Interest Rates, lower inflation, probably lower growth youre seeing that all over the world, not just in the United States youre seeing it to a much greater extent in many parts of the world than were seeing it here so knowing that, that is one of the main reasons we have really the basic reason why we are having this public review of our Monetary Policy framework to see if there are ways we can alter our strategies, our tools and our communications in ways that would make us more effective in this world where were too close, closer than we would like to zero when we run out of options. So thats one thing. Fiscal policy will also be important, though. I think from the standpoint of Monetary Policy, were looking hard at ways to make sure that we can use our tools even after rates go to zero ultimately fiscal policy has been a key part of the Counter Cyclical reaction as well, though. The next question, the disruption in the repo market that took place in september anticipated, not anticipated do you anticipate keeping the expansion at the level it is until youre sure that wont happen again well, so anticipated or not, its a different world post crisis and really because of all the expansion in our Balance Sheet and essentially what weve done now is weve now required Financial Institutions to have a lot more liquidity on their Balance Sheet so the fed doesnt have to run in with our own liquidity. And thats, i think, a big benefit to the Financial System. But a lot of that liquidity is held in our reserves we used to manage the Interest Rate by keeping reserves scarce and we had a total of 20 billion. Right now we have in excess of 1. 5 trillion in reserves that means were trying to find that level as we allowed the Balance Sheet to shrink where reserves would become scarce there was really no way to know. I think the data that we had suggested that we were not close to that point until september. I think were still very much looking at what happened in september, but i think we learned in september that we needed to make sure thatt go un level that we were at in midseptember, which is a little bit shy of 1 spok. 5 trillion. Its technical, i think we have it under control were prepared to learn and adjust as we do this but its a process id say that doesnt have any implications for the economy or for the general public, though. Thank you representative beaty for four minutes. Thank you, mad am vice chair, and to the chair and thank you, chairman powell, for being here. We have four minutes, ive got three questions i want to try to get through. One on cra, one on Venture Capital and one on Climate Change the first one on the cra that weve talked about is very important to me. I know the feds and office of the comptroller and fdic have all been working on a proposal to revamp that 1977 cra act. It is my understanding that they wanted to do a joint but were not sure if one of the agencies would go alone cra is very important to me and to my third Congressional District in ohio, like across the nation, because of the resources it puts back into communities and more importantly minorities communities tend to benefit. Do you have any insight on knowing where they are or if theyre working together and will be able to meet that ending of the year goal so we strongly submit the mission of support the mission of cra which is to reassure Credit Availability in the areas that banks serve, particularly low and marred rod communities. We think its a good time to modernize. Weve been working very, very hard with the other two Bank Agencies to try to find Common Ground were committed to making sure this reform actually puts us in a better place to serve the intended beneficiaries of cra. We havent quite gotten there yet. Were going to keep trying, though my hope is that we will ultimately come together with a common answer, which i think would be better for everyone if we can do that. Okay. My next question is the Federal Reserve bank of San Francisco recently held a conference entitled the economics of Climate Change i believe this was the firstever conference by the feds on Climate Change and the economy. Can you discuss how the Federal Reserve views the impact of Climate Change on our economy and Monetary Policy and how the feds view has evolved over time. I guess i would say Climate Change is an important issue but not principally for the fed. Its really an issue thats assigned to lots of other government agencies, not so much to the fed nonetheless, over time it can it can affect us in some ways which ill mention one just is that we require Financial Institutions and Financial Market utilities, large utilities that are so fundamental to the Financial System, we require them to be resilient against all kinds of things, including Severe Weather. Theres a link between Severe Weather and Climate Change so in a sense were already to the extent Severe Weather is becoming kind have were already incorporating that into our supervision. Well have to think ahead and sort of from a Risk Management perspective. Our perspective is not were not going to be the ones who decide societys response to it. Thats going to be elected legislators, not us. In terms of Monetary Policy, it doesnt have any new term implication for Monetary Policy. Over time Climate Change could have effects but its not something that wed be considering. And only because of my time, my last question is, there was a 2018 report by pricewaterhouse that found that 80 of the Venture Capital investments went to just four states, california, new york, massachusetts and texas. Im from the great state of ohio so i guess my question is startups throughout the rest of the country, especially the midwest, are overlooked. Are there any thoughts on the fact that an overwhelming majority of the Venture Capital is going to four states . What effect is this having on the regions, like the midwest . Id have to look at that study. I think a company thats in San Francisco can invest in a company thats in ohio, though so i would hope that theyre not just investing in companies in San Francisco. So we should maybe look at some partnerships and how that works . I do think many of the Successful Companies in which Venture Capital firms invest are not located in those areas some of them are, but some are located anywhere in the country really where there are entrepreneurs. Okay. Thank you. Representative sweigart, four minutes. Thank you, madam vice chairman chairman powell, more of a global question. If you look at much of the data from the fed, from the bls, from others, our society is actually in, in many ways, a sweet spot a, do you agree with that . B, what do we do policywise to stay there and for those of us here, how do we not screw it up and how do we bias it towards the positive what would you do . Asi mentioned, 50year low in unemployment. Inflation low and under control. Labor force participation ticking up Consumer Confidence high the outlook is good. I think households generally are focused on, according to the surveys, are focused on this healthy job market and wages going up so its actually a very good place from that standpoint thats not to say every community has benefited. We know thats not the case. How do we keep it there . So the key to this, given the risks, the risks that we see are slowing Global Growth and particularly weaker manufacturing. That affects u. S. Manufacturing. So the key to keeping this going and to it continuing are that we keep job creation at a solid level, that households maintain their confidence, that wages keep moving up that seems to be the engine thats driving the u. S. Economy forward at this time but i want to go longer term with an answer here. I mean the u. S. Faces longer term issues that really need your attention around Labor Force Participation and productivity those are the two things that we really in Labor Force Participation, we lag most other advanced economies, and thats something we can do something about that really the fed cant do much about. Its more about fiscal policy thats more attached to the labor force. So much of the policy that we all engage in here could be pushing up Labor Force Participation. Were at 63. 3 . Which for some of our models we had as a committee a couple years ago didnt think wed get that far but weve demonstrated that there is slack out there could you touch on what we could do in that demographic headwind that is where we are in the United States to also encourage that Labor Force Participation in se incentives to keep older people in the labor force theres a range of policies that would appeal. Some are about labor demands, some are about labor supply and many of them would work. Thats the great thing i think for young males, its going to be addressing the opioid problem its going to be skills and training and internships we had a great meeting with a bunch of experts on internship products programs recently. I think youre seeing older people stay in the labor force more and more. Their participation is moving up but you also see there are lots of programs which are pulling people, for example, women who have been out of the labor force back in after their kids are grown up. You see that happening at places as well. So i think there are just so many things that can be done again, we lag just about every other wealthy country in the world in Labor Force Participation for prime age workers. This is not where we should be i think there are things we can do about it. And in my last 20 some seconds, slight non sequitur how often in discussions with your economists do you get into the discussion of currency differentials and the headwinds that creates both in export and capital coming into the country. Where are we currencywise in your conversations Exchange Rates are one Financial Condition among many and it happens to be one assigned to the Treasury Department for management of, so treasury has full responsibility for Exchange Rate policy we dont its just another its in all economic models when we change policy. So its just a model input . Its a model input. In no way is it a principal driver in the way we think about policy or the way other Central Banks do. Thank you, mr. Chairman madam vice chair, thank you. Thank you for being here, mr. Powell i want to read you something thats just been recently posted by the National Womens law center and get your comment on it i have a couple of questions related to this. So weve all heard about the gender wage gap, women on the average make only 82 cents to average a mans dollar, much worse for women of color but there are two sides to a familys budget, the income that comes in and the expenses they pay out. New research is finding that in addition to the wage gap, there is rising inequality on how quickly prices are rising for families struggling the most in the economy. This concept known as inflation inequality means the kinds of products disproportionately consumed by richer households, think organic products and name brand drugs, rose in price at a slower rate than the kinds of products consumed by low and moderate income households just released research by Columbia University begins to quantify these impacts by updating poverty rates for an adjusted inflation index that accounts for inflation inequality the article goes on to suggest that an appropriate course of action would be to peg the federal poverty threshold to a higher rate of inflation given how many more people would be considered in poverty when looking at the expense side of the ledger i would just ask you whether or not any of this enters into any of your decisionmaking, whether you have any research on this or any comment on this . Its an interesting i did see that research which showed that so different groups of people buy different baskets of goods. Principal inflation can be higher or lower. This was a piece of research that showed that the basket of goods bought by people at the lower end of the income spectrum has experienced higher inflation and their real incomes are lower than we think. Id like to see more research on that thats an interesting paper thats getting a lot of attention right now. Theres no definitive answer theres a series that i guess the government currently conducts first for Consumer Price inflation that looks at a basic basket of goods that finds a much smaller difference. Nonetheless, its an important issue that needs further research. Is that something that you would be doing or do you think somebody else should be doing that research . Well, we our researchers would do it, but you would tend to see, you know, the agency, whoever does cpi, the bureau of economical analysis i guess does i think does cpi and they would do that we have researchers who do research on inflation all the time im not sure whether the pcu i dont think the pcu mentioned was a fed piece. It was at Columbia University. Yeah, but there were several coauthors. And i wanted to ask you another subject. Could you explain the relationship of our immigration policy to employment rate and the economy . Sure. So first, we dont have responsibility for immigration policy we dont comment on it, we dont advise anybody on it, immigration policy its completely not our role but it does kind of connect to our role, you know, in analyzing the economy. So you can think of the economys ability to grow as consisting of two things one is how fast is the labor force growing, and secondly is how much is output per hour growing. Thats what growth consists of, really just those two things in the United States, the trend growth of our labor force has been very slow it was 2. 5 in the 1960s now its about half a percent and half of that is immigration. So immigration is a key input into our longer term growth rate i would say if you look to population growth as a way to support higher growth for the United States, then immigration would need to be in your thinking but again, its something we dont comment too much on. Thank you i yield back. Thank you representative traun. Chairman powell, thank you for being here very much i had some questions also on labor Market Participation i think youve addressed those and also on immigration, how that could help us increase our labor pool i was thinking about the status of across the country now weve got over 30 states that have put in minimum wage laws from 13 t affected with everywhere how do you see thats going to address th between labor scarci and yet this very low wage growth that we see and how does that tie into inflation . Well, we dont take a position on minimum wage its really an issue you have to balance. There are two things to balance. If i were you, id look at a broad range of research that comes from different perspectives in essentially all the research you see when the minimum wage is raised a significant amount, youll see some job loss and youll see some wage gains i would look at a range of that research and i would try to think what the right policy is thats how i would do it in terms of inflation, it doesnt really play much into it first of all, our mandate is price inflation, not wage inflation. We dont see wages moving up in any kind of way that suggests that they would put unwelcome upward pressure on prices, so i dont really think it is an important part of the inflation discussion right now. In trying to translate this labor scarcity that we have into higher wages for the american workers, from 2012 to 2016 we had about a 120 increase per month in average wages and in 2016 to current, thats been cut in half, about 56 a month. And yet this is in the time of the lowest inflation, as you said, in 50 years, these last 18 months so what is that mismatch between wage growth and lower unemployment mean to our economy . Well, so we look at a wide range of wage and compensation measures what they tend to show is if you go back five years, wages and compensation were going up about 2 that has gradually moved up to about 3 and so thats really the trend has been upward. Thats consistent with the thought that a tighter labor market, lower unemployment, and surveys that suggest the labor market is tight is consistent with that. Weve seen wages moving up i can tell you the principal ones we look at but i think thats true across all major measures of wages over the last lets say five, six years. Why do you think they have slowed so dramatically the last two years . You know, i think its hard to say i think average Hourly Earnings is an important one which peaked at 3. 4 earlier this year or at the ending of last year and has been sort of trickling down. Its right at 3 now so its its at 3 now so its model it may be compositional effects. Some argue as Older Workers retire, younger wo eer ones com, but its consistent with this idea this were not seeing xezive tightness in the labor market thats generating outsized wage gains. Were seeing nice sized gains, but nothing thats at all out of line with that thank you chairman powell, were borrowin as a country more than ever with debt expected to reach 95 of Gross Domestic Product in the next ten years and yet were also paying interest on that debt at an all time historic low. 30year borrowing cost of just the 2. 4 whats the reason for this i guess some would say fortunate fiscal reprieve when congress has shown really no sign of fiscal discipline at all so what does it come from . It really is a longterm trend. For example, if you were to look at a graph of what the tenyore treasury yield and if you went back 40 years, what you would see is a ski slope down. L and its all the way down to today. Its a longterm trend its true all around the globe why is that happening . First of all, inflation getting under control, becoming less volatile and ultimately continuing to decline point where the risk of lower inflation is greater than higher at the moment. Part of it also just ageing demographics. So as people get into the their later years, they save more. The that creates more savings and tends to drive Interest Rates down i dont know that that trend shows no signs of reversing or anything like that so really whats going on with these lower rates. Some suggest that the United States government borrows in its own currency this level of spending isnt a problem. Because the fed can just monotize the debt and keep doing so more or less indefinitely whats your reaction to that talk u the risks inherent in it the fact Interest Rates are lower does not mean we wont pay spres. We have to get on a sustainable path what does that mean . The debt is growinger than the economy. Simal as that simple as that in nominal terms. Ultimately, you will have to get to where the debt is not growing faster than the economy and growinger in the United States by a significant margin. So even with lower rates and decent growth, theres still going to be a need to reduce these deficits i would say by the way, thats a need over time were not in the business of advising you when or how to do it, but it is inevidefvitable tt over time, we have to do it if we dont, our children will wind up spending their tax dollarings more on interest than education, security, health in the past, youve mentioned uncertainties in trade, economic head wind for us over the last couple of years, a lot of trade measures going into effect, what has the fed learned about the interaction between trade and Monetary Policy . The first thing is that we should never be heard the to commenting on trade policy its not our job we try to stay in our lane, but our lane is the any. We dont have a view on wouldnt express one on trade policy. Our lane is economy. Anything that affects our ability to achieve our mandated goals is is appropriate for policy weve bb been hearing for a year and a half from companies and the its fairly widely accepted, but tariffs to a greater extent, uncertainty around future trade policy is for now, it has been weighing on Business Sentiment and is probably part of the global slowdown in manufacturing, in Business Investment, in exports in trade. Part of the story. Theres a much bigger story out there, but its a part of that i see my times expired senator klobuchar. Thank you very much mr. Chairman thank you, to you, mr. Chairman for being here today some of the issues that i was going to raise have been discussed. The challenges i had with our economy including the deficit, which i will note were greatly exacerbated by the last tax bill as well as problems in some sectors as well as agriculture, which is very important to us in the midwest but i wanted to focus on a third issue i have which is income e inequality and if people have jobs, hard for them to afford things then you have u the added problems and strains, Washington Post reported this year in september that income inequality in america is a highest its been since the Census Bureau started tracking it more than five decades ago. The top 1 of experience Income Growth of over 200 . In the last decades. And between 2007 and 2016, the median wealth of lower income families fell by 42 in your opinion, will widening inequality lead to lower growth expectations over the longterm and what should we be doing about this. So i guess i would start by saying that i think we probably would all agree that prosperity should be as wide shared as possible so i point to two aspects of the broader problem that i think are important and need attention the first is just the relative stagnation of incomes below the fairly high part of the distribution and thats even after allowing for taxes and benefits and things like that one thing where we want to see incomes moving up broadly across the income spectrum. The second is mobility i think you want to see people moving from the bottom to the top and vice versa, by the way it has to happen just as matter of arithmetic. The bottom 20 , what are the chances if youre born in the bottom 20 youll make it to the middle of the top 20 . The United States actually lags most other wealthy countries in that measure now very much not our selfimage as a country and those are things we need to address thats one. And i think increasing the minimum wage, i have my own views on this, would be helpful. But as you talk about that, one of our challenges right now is hooking up our Education System with the jobs that are available right now. And making sure everyone has access to those jobs and i dont think it always means a four year degree. Some of the fast Fastest Growing job b areas are one u and two degrees, 64 or 74,000 openings for electricians and one of the things im really focused on is aprenticeships and trying to make it easier for people to access those kinds of degrees. Could you talk about that . We met with last week with six people who run a aprenticeship programs around the country in our board room and i have to tell you, its very, very impressive what they can do theyre focusing on low and moderate income communities. Theyre getting them in high schools and out of high schools and matching them up with employers who need those people. Theyre getting good jobs. Its really working and the thing that limits their ability to do this on a much wide scale is fund iing. Exactly i think a lot of this is how we use our resources for education b and matching that up ill ask you in writing a question on retirement i think its becoming such a challenge in onew economy and we have a bill to address that with upsavings accounts which i think is a great idea nor smafor mauld medium businesses. Back to income inequality. How would reporting Economic Statistics by income bracket benefit our understandi ining oe economy . We dont have that right now were doing Something Like that at the fed. We like to cut data up and look at it in new ways and this is one of the things were doing is combining a couple of data sets that we have or quarterly publishing a financial account when will we get that the next one comes oevery quarter. Its a combination of two exist data sets. There are a lot of different ways to look at whats happening in the economy and thats an important one. Thank you representative butler thank you so, i apologize if i have already, if some of those ground has been covered, but its a pleasure to be here and to have you. I would say the growth in the forecast of our economy is probably the number one thing that affects the people i serve in southwest washington so its helpful to hear from your per specktive specifically, in Rural Communities where unemployment is higher than the national average, most of my area