T 7 00 a. M. Eastern on the washington journal. Meanwhile, they corporations and the wealthy, including provisions that would undermine the tax incentives that the administration relies upon to fund its public, private partnership. In this scenario, the flexibilities of the administration can just become ways to pass the buck for budget cuts to local communities and only low income families. Have seen that time and time again. Programs helping family and seniors i hope that mr. Montgomery and mr. Kurtz prove me wrong. I hope that under their these matters are far too important to too Many Americans. Thank you, senator brown. Thank you, senator brown. Any additional senator who wishes to make in a statement a do so, although we are not encouraging it. You may do so after the vote. Proceed with a rollcall vote on mr. Montgomery and separate voice votes on mr. Kurtz and missed tops. I would like to move forward on the voice votes first. , we wills point proceed to the nomination of Robert Hunter kurtz to be assistant secretary for public and indian housing. All in favor say ay. All opposed say no. The ays have it. It is reported favorably to the senate. On the notification of suzanne israel test, all in favor say ay. All opposed say no. Have it. The nomination is ordered reported favorably to the senate. We will now proceed to the rollcall vote on the honorable Brian Montgomery to be had assistant secretary for housing and federal housing commissioner. The clerk will call the role. Clerk calls roll]]]]]] 18 in favor, five opposed. The ays have it. The nomination is ordered reported favorably to the full senate. Are there any senators who wish to make a statement . Senator warren. I oppose the nomination of Brian Montgomery. The us is one of the worst cases of the revolving door that i have ever seen. As you know, fha provides taxpayer backed mortgage insurance, helping millions of americans buy homes they might not otherwise be able to afford, and if it is not managed well it could expose taxpayers to a risk of billions of dollars in losses. Fromontgomery ran the fha 2006 to mid 2009, and during his time in turn of the agency, take banks like wells fargo and u. S. Bank submitted thousands of fraudulent mortgages to the government for taxpayer backed insurance. Mr. Montgomery apparently did nothing about it. A month after leaving the fha, mr. Montgomery founded a new company which was known in the House Finance industry is a specialist in helping firms navigate fha related penalties and lawsuits. Companygomerys new advised wells fargo and u. S. Bank on how to pay the Government Back as little as possible for their fraud. Right, mr. Montgomerys company advised banks on how to pay as little as possible for fraud that occurred on his watch at the fha. Now he has been nominated to run the fha again. Are you kidding me . Fha means leaders the American People can trust, not people who let banks get away with defrauding the agency and then making money from those same banks. We cannot expect washington to work for working families if nominees like this are confirmed. I understand the committee has advanced mr. Montgomerys nomination, but i hope the full senate will reject this nomination. Thank you, senator warren any other senators wish to speak . With that, we will close our executive session. Mr. Powell, please take your seat at the table. The committee will come to order for the hearing. Morning we will consider the nomination of the honorable jerome or jay powell to be chairman of the board of governors of the Federal Reserve system. Governor powell, welcome, and congratulations on your nomination. I see friends and family behind you and i welcome them here today as well. Governor powell has had an accomplished public and private sector career in financial services. He served as an assistant secretary and under secretary of the treasury under george h w bush, where he was responsible for policy on Financial Institutions and the treasury debt market among other areas. The also has firsthand experience in Investment Banking , and was a partner at the Carlyle Group before being appointed to serve on the board of governors in 2012. During his years of service in government and the private sector, governor powell has proven he is qualified to lead the fed. If confirmed, he will play a role in striking the balance and the need to promote a vibrant economy. Over the past year, i have been encouraged to see the federal relay dealers regulators thoroughly and carefully go over loss. Governor powell has shared instances including the volcker rule, stress tests, and resolution plans. Several weeks ago, 13 members of this committee including myself introduced legislation to improve our nations financial legless worry like your tory framework. Regulatory framework. It benefit demonstrates strong bipartisan support for simplifying and tailoring regulations. Part of it tailors regulations for smaller institutions and Community Banks while at the same time improving access to mortgage credit and housing, and ensuring strong Consumer Protections. The legislation also addresses the 50 billion threshold for which governor powell, chair yellen, and others have expressed support. On the Monetary Policy front, i junencouraged by the feds announcement to reduce its Asset Holdings in a gradual and predictable manner. As the fed can send continues its path in normalizing Monetary Policy which i hope it does continue Clear Communication should be a central priority. I look forward to working with the Federal Reserve and welcome any additional thoughts or ideas that governor powell has on areas where it the fed and congress can reduce unnecessary burden and promote Economic Growth. Congratulations again on your nomination, mr. Powell, and thank you and your family for your willingness to serve. Senator brown. Brown welcome, governor powell. I would like to start off by thanking janet yellen. She has done an excellent job leading the fed. U. S. Experienced one of the largest economic expansions in our history, and expansion we still enjoy. Chair yellen was among the most qualified people to ever be nominated to be chair of the Federal Reserve. You do not have to have a doctorate in economics to lead the fed, but we were lucky that both she and chairman bernanke were students of the feds mistakes in the 1930s. Following thep worst financial crisis since the Great Depression and shirt we did not repeat those mistakes. Chair yellen is the first woman ever to serve as chair of the board of governors of the Federal Reserve. I am disappointed that President Trump has broken with the tradition of reappointing the last president s Federal Reserve chair. This administration has also broken with the tradition of trying to make the federal government more diverse. That said, those decisions, governor powell, were not yours. I congratulate you and your nomination. We have had a good working relationship since you were first nominated to be a member of the fed by president obama in 2012. You supported tougher rules for the nations largest banks as the fed implemented wall street reserve wall street reform. You worked for more diverse individuals. Done. Ore needs to be there has been some progress. You understand the importance of an independent central bank. He strongly impost misguided efforts to micromanage the fed and make other changes to i hope you will stick to those positions on these important matters and on others. If there are good reasons to be concerned, the good the Current Administration does not appear to value independence in the judiciary, the fbi, or Federal Reserve. It is unprecedented the way the president has made comments about the current fed chair. The search for the fed chair often seemed like an episode of the apprentice. I am concerned about the direction of financial reform under this Current Administration. While banks make record profits, paying executives big bonuses, the administration makes unfounded claims to justify the rollback the reforms put in place after the crisis. The new vice chair for supervision at the fed does not seem to be inclined to support the current Regulatory Framework put in place by the fed and the crisis. He has troubling views on stress test and more generally the role of watchdogs in the Financial System. Industry has an outsized and full lengths. Wall street particularly has an outsized influence on this administration. The individuals they have put in charge as financial watchdogs are far too often former bankers or former bankers lawyers. Some federal Bank Regulators seem willing to rather than combat arbitrary arbitrage. In formulating a report, treasury met with 17 industry representatives for every ansumer Group Representing ordinary american, 17 industry representatives for every consumer Group Representing ordinary americans. Mr. Powell, even your schedule indicates you were meeting far more frequently with industry than consumer groups. You met with wells fargos ceo more than all the other consumer groups on your schedule combined. Has forgottention the americans who lost their jobs and homes and Retirement Savings less than a decade ago. I take this personally. Members of this committee have heard me say, my wife and i live in cleveland, ohio. The zip code in the first half of 2007 experienced more foreclosures than any other in the United States of america. I see the blight 200 yards for my house that happened in large part because of wall street overreach. The loss to so Many Americans of retirement, and savings was particularly harmful to africanamerican and latino communities, who have not recovered from the financial crisis as quickly as white americans. There seems to be a collective amnesia in this room, in this committee, in this congress, a collective amnesia about what happened 10 years ago. Americans still struggle because of low wages, underemployment or unemployment, and lack of opportunities. Loosening the rules for the largest tanks is not the way to solve these problems. Her record has been strong on a number of these issues. We urge you to continue that record. I hope you will make your decisions based on facts independent from the political pressure from the president of the United States and the treasury secretary. Thank you. Brown. K you, senator at this point we will administer the oath. Governor powell, will you please rise and regime right hand . [the oath was administered] you may be seated. You are written statement will be made a part of the record in its entirety, and i invite you to introduce your family in advance of making your statement. Governor powell, you may proceed. Mr. Powell thank you, chairman crapo and Ranking Member brown. I will begin by introducing my , without whose loving support and counsel i would not be sitting here. I would introduce two of my five siblings, two of my sisters. The other three siblings are here in spirit and all will have claimed to watch the hearing live, which i am sure will be true. We will deem it true. Some stories are too good to fact check. Thank you again, chairman crapo and Ranking Member brown and , other members of the committee. Thank you for expeditiously scheduling this hearing and providing me the opportunity to appear before you today. I would also like to express my gratitude to President Trump for the confidence he has shown by nominating me to serve as chairman of the board of governors of the Federal Reserve system. The Federal Reserve has had a productive relationship with this committee over the years, and if you and your colleagues see fit to confirm me, i look forward to working closely with you in the years ahead. As you know, i have served as a member of the board of governors and the federal open Market Committee for more than five years, contributing in a variety of capacities, including most recently as chairman of the Boards Committee on supervision and regulation. My views on a wide range of Monetary Policy and regulatory issues are on the Public Record in speeches and testimonies during my service at the fed. Congress established the Federal Reserve more than a century ago to provide a safer and more flexible monetary and Financial System. And almost exactly 40 years ago, the dualned us Monetary Policy goals of maximum employment meaning people who , want to work either have a job or are likely to find one fairly quickly and price stability, meaning inflation is low and stable enough that it need not figure into households and businesses economic decisions. I have had the great privilege of serving under chairman bernanke and chair yellen and like them, i will do everything in my power to achieve those goals while preserving the Federal Reserves independent and nonpartisan status that is so vital to their pursuit. In our democracy, transparency and accountability must accompany that independence. We are transparent and accountable in many ways. Among them, we affirm our numerical inflation objective annually and we publish our economic and Interest Rate projections quarterly. Since 2011, the chairman has conducted regular news conferences to explain the fomcs thinking. Additionally, we are accountable to the peoples representatives through twice a year reports and testimony, as well as through oversight and audited financial statements. I am strongly committed to that framework of transparency and accountability and to continuing to look for ways to enhance it. In addition, in our federated system, members of the washingtonbased board of governors participate in fomc deliberations with the president s of the 12 regional Federal Reserve banks, which are deeply rooted in their local communities. I am a strong supporter of this institutional structure, which helps ensure a diversity of perspectives on Monetary Policy and also helps sustain the publics support for the Federal Reserve as an institution. If confirmed, i would strive, along with my colleagues, to support the economys continued progress toward full recovery. Our aim is to sustain a strong jobs market with inflation moving gradually up toward our target. We expect Interest Rates to rise somewhat further and the size of our Balance Sheet to gradually shrank. Shrink. However, while we endeavor to make the path of policy as predictable as possible, the future cannot be known with certainty. So we must retain the flexibility to adjust our policies in response to economic developments. Above all, even as we draw on the lessons of the past, we must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nations Financial Stability and economic prosperity, the original motivation for the founding of the Federal Reserve. As a regulator and supervisor of banking institutions, in collaboration with other federal and state agencies, we must help ensure that our Financial System remains both stable and efficient. Our Financial System is without doubt far stronger and more resilient than it was a decade ago, with higher levels of capital and liquid assets, greater awareness of the risks they run, and better ability to manage those risks. Even as we have worked to implement improvements, we also have sought to tailor regulation and supervision to the size and risk profile of banks, particularly community institutions. We will continue to consider appropriate ways to ease Regulatory Burdens while preserving the core reforms of strong levels of capital and liquidity, stress testing, and resolution planning so that banks can provide the credit to families and businesses necessary to sustain a prosperous economy. In doing so, we must be clear and transparent about the principles that are driving our decisions and about the expectations we have for the institutions we regulate. To conclude, inside the Federal Reserve, we understand that our decisions in all these areas matter for American Families and communities. I am committed to making decisions objectively and based on the best available evidence. In doing so, i would be guided solely by our mandate from the congress and the longrun interests of the american public. Thank you, and i will be happy to respond to your questions. Thank you, governor powell. The fed recently began its process of shrinking its Balance Sheet which currently sits above 4 trillion. You cited long run estimates of the appropriate size of about 2. 4 trillion to 2. 9 trillion by 2022. Would you clarify what you believe is an appropriate, stable size for the feds Balance Sheet and what factors determineocus on to the pace and ultimate scope of the Balance Sheet reduction . Mr. Powell i will. The feds Balance Sheet is about four and a half trillion now and we know it will be much smaller than that when it reaches its new sort of equilibrium size. It will be larger, however, than it was before the crisis. We have also said it will consist primarily mostly of treasury securities at that time, and it will be no larger than it needs to be to conduct Monetary Policy. Shrinking the Balance Sheet by allowing securities as they mature, to roll off passively, and that process should take three to four years before we reach our new sort of stable level of the Balance Sheet. The factors that will determine that will be really in the end, the publics demand for our liabilities, particularly cash and reserves. Those are principal factors that will decide what the final size of the Balance Sheet will be. We do not know what that demand will be, but my own thinking, it moves us to a Balance Sheet in the range of two and a half to 3 trillion. There is no certainty in that. The last time you appeared before the committee, you stated it is very important that the intensity of regulation be tailored appropriately for the risks the institutions present. There is bipartisan support to tail does tailor existing regulations to make sure they are appropriate. Are there specific areas you think could benefit most from tailoring . Me sayell first, let that tailoring of regulation is one of our most fundamental principles. We want regulation to be the most intense, the most stringent for the very largest, most complex institutions and we want to decrease in intensity and stringency as we move down. This is something we strive to achieve. We are taking a fresh look at that now. I would point out a couple of areas. Certainly capital, we require the largest banks higher capital and we have less stringent requirements as we move down, and more simple capital requirements. I would point out Something Like the volcker rule, where really it can apply in its most and strongest form to the banks that have very large trading books and much less stringently, we believe as we go through the ranks. Proposed billr exempted banks under 10 billion in assets from the vocal rule, which is something we have been in favor of. My next question is on that will. Bill. Two weeks ago, 20 u. S. Senators introduced the act. I am not going to ask you to get in the politics of that act with us, but i do want to know, if you had a chance to review it, ifyou believe that act enacted into law will provide significant regulatory relief to Community Banks, midsize banks, and regional banks while giving the federal of reserve the authority it needs to regulate those institutions . Mr. Powell i do, on both counts, i do, senator. Housing reform. After our Economic Growth mark up next week, housing and finance reform will be one of my Top Priorities for the remainder of this congress. Earlier this year you gave a speech in which you outlined principles for housing and finance reform. Change the system to attract large amounts of private capital. Number three, and a should be explicit in transparent and should apply to securities, not to institutions. Number four, identify and build upon areas of bipartisan agreement. I strongly agree with these points that you made an believe there is bipartisan support to seek a solution in that zone. Would you commit to work with the community on our efforts to powells housing and finance reform . Mr. Powell yes, i will. I will take my last 15 seconds to ask one more question. Housing reform is one of the most significant issues that we need to make. How would you rank it in terms of the importance that we move to it and get it resolved . Mr. Powell it is a highly important piece of Unfinished Business from the financial crisis, and i think there have been a lot of great proposals. This, at a time when the economy is healthy, is a great time to move forward and i look forward to working with you. Senator brown. Brown you stated the fed was created as an independent that better Economic Performance is achieved in the conduct of Monetary Policy is free from political control. What will you do if confirmed, to ensure the fed maintains its independence from outside political influence, especially from the white house . Be as specific as you can. Mr. Powell i am strongly committed to an independent Federal Reserve, and i would add nothing in my conversations with anyone in the administration has given me any concern on that front. I would plan, if confirmed, to follow in the footsteps of distinguished prior chairs and ensure weradition to conduct Monetary Policy and financial regulatory policy without a view to political outcomes, but with a view solely to the right answers. Brown the senate will vote on a tax bill that will reduce thenues substantially over next decade. The fed had to resort to extraordinary measures in part because of the tepid fiscal stimulus provided by congress. Nine years later, amidst one of the longest recoveries on record and low overall employment some of my colleagues think now is the time for 1. 5 trillion in attempted stimulus. What does the fed anticipate will be the impact on gdp growth over the next decade if the tax cuts are enacted along the lines of the bill before the senate . Mr. Powell we do not have an estimate of that. I would say these fiscal policies are important matters for you and your elected colleagues. Brown the feds projection for longterm growth is 1. 8 , the stated projection over the next three years. I have to assume with a staff of highly skilled, not tiny staff that the fed has, that you have all kinds of in different ways, different legislation, different ideas coming out of the house and senate. You have an fomc meeting coming up and maybe two weeks. Are you telling me the fed has not modeled any of the tax bill and these kind of tax cuts and what it will do to Economic Growth . Course, we are monitoring these discussions but it remains unclear exactly what will pass. In my view, it has been very difficult or impossible for us to start. Sen. Brown the overarching theme of this is 1. 5 trillion in tax cuts that will cause a larger deficit. You know that people on this side of the aisle claim as they always do, every time there is a tax bill that will grow out of that, dont you have a responsibility in an ongoing way to talk about the modeling you have done, for what this will mean for the fiscal situation of our country . Mr. Powell our responsibility is to carry out the mandate you have given us, to achieve stable prices and sen. Brown we rely on you for data all the time. Do powell respectfully, i not think he rely on us to score fiscal proposals. I do not have a forecast for you on that today. Sen. Brown we have discussed the need for an independent fed. Do you believe it is important for the other independent financial regulatory groups to be free from administration pressure . Mr. Powell i think it is good for all supervisory regulatory agencies to operate doing the best that they can with their mandates, and not to look at the politics of things. Sen. Brown i cannot tell if that is a yes or no. Mr. Powell i would not want to hypothetically sort of agree with your hypothetical. Sen. Brown i am not saying i am not asking that. I am asking, should regulators of the various independent agencies be free of administrative pressure . Im not asking if they are. Mr. Powell certainly on individual enforcement and matters like that, the administration is well within its rights to express its views on regulatory matters, but as it relates to supervision of individual institutions, absolutely. Independence well served by the appointment of an interim agency head who holds another position in the president s chief of staff . Sen. Brown that is not something that is in my bailiwick to deal with. Mr. Powell that is not something that is in my bailiwick to deal with. Sen. Brown then you have no opinion . Mr. Powell no. Sen. Brown i am concerneds about the administrations attempt to pull out i am concerned about that attitude infecting other independent agencies. I am concerned about the , thetion or the potential way that the president could look at this and begin to do this in other places, a nonconfirmed appointment like he is trying to do. Concerned, mr. Chairman, that one of the first things that mr. Mulvaney did as acting director was to stop payments to consumers, to Service Members , to veterans, payments where they were wronged, Civil Penalties were they were wronged by banks and they need to be made whole, and this director stopped it. , one, a lot of us in this country are very unhappy with what happened. I bring it up as a warning to all of us at independent agencies. I have watched your career. You have done things with integrity, but i do worry about white house pressure at a white house we have never seen the likes of in terms of not understanding the independent judiciary, the independence of the fbi, and the job you will have at the Federal Reserve. Mr. Powell i did give the Ranking Member a little latitude i did give the Ranking Member a little latitude on the clock. Senator rounds. Rounds thank you, mr. Chairman. Esther powell, congratulations on your nomination. Was when time we met you were visiting the Bipartisan Policy Center in washington, and i most certainly appreciated your thoughts and common sense approach to not only federal policy with regard to the budget, but i was very happy to see when you had been appointed as a member of the Federal Reserve, is one of the governors. The fact that you have worked with chairman yellen and worked through issues with her, i think that speaks in terms of how you would handle a board, and in terms of how you would approach policy. I am just curious. I was listening to your comments with regard to that which senator crapo was visiting you on. One of the most common criticisms that i have heard about our governments current regulatory structure is that financial regulations are not written according to the risks they are meant to mitigate. Treasury secretary mnuchin thisd at length about during his confirmation hearing, saying Bank Regulations should be tailored to activity, not just the size of the institution. Many of the recommendations and the treasury report that was released in june also discussed this issue with respect to a number of light regulations. I was able to reintroduce the regulatorsto enable based on the risk profile of the institution they are writing regulations for. In response to chairman crapo you agreed that tailoring regulations is important. Should we have asset thresholds to begin with . Decisionl so, the over whether to have a numerical threshold are not is clearly one for congress, and congress has. Ended it provides clarity a numerical threshold makes it very clear who is not covered above a certain level. Hat is nice if you go entirely with a discretionary approach, you are leaving the regulators a lot of room to decide things, so congress has generally come down and done both. Maybe both are appropriate. Fundamentally, size is only one indicator and i think it is healthy one indicator of the its,ness of a firm and of the possibility of it damaging the Financial System through its failure through its activities. The Business Model really matters, and all sorts of things really matter. We have a second a factors we look at set a factors we look at and i think it is healthy to look at those. We are willing to work with you on numerical thresholds, discretionary application of advanced standards, and we will work with you on any of those combinations. Sen. Rounds as the chairman has indicated, a number of my colleagues on both sides of the aisle and on and off of the Banking Committee every certainly come to an agreement on a regulatory package that would right size regulations for smaller Financial Institutions and improve our financial Regulatory Framework. I am pleased to see we were able to Reach Agreement on a number of priorities i had, such as the data reporting relief, the rightsizing of the enhanced , the way theratio visible that is treated in bank capital, and relief from the most arduous supervisory standards in dodd frank. From what you know about the agreement and i know you have had a chance to take a cursory look at it are there additional reforms that you would include in this agreement or future legislation . Did we miss some things that were obvious . For the bipartisan plan, that is what we wanted to be. Are there things that we have not looked that . Mr. Powell we did get the text of the bill, just before the thanksgiving break, and we have all looked at it quickly. Tohave agreed to come back the committee with our technical thoughts and policy thoughts as well. In response to your question, we will be happy to do that. Generally, we look at the framework as a workable one, is a sensible one. We will try to come back with constructed of on how to bring it forward. Sen. Rounds i look forward to supporting your nomination. Thank you, mr. Chairman. Thank you, senator rounds. Senator reid. Sen. Reed you have a dual mandate. One is maximum employment. We seem to be doing fairly well. Your comments with respect to maximum employment. Mr. Powell maximum employment is indeed our statutory goal, and i guess the thing i would say at the beginning as it is kind of an imprecise thing. You cannot look at one particular measure of what that is, so we look at a range of things. Unemployment4. 1 is at work around or even below many estimates of the natural rate of unemployment. That is one data point. There are other dimensions, for example labor force for dissipation. Participation. Particularly prime age males, that is the one measure that stands out now, suggesting there may be more slack. A wide range of other indicators suggest we are at or near or in the neighborhood of full employment. , weother one that was wages look at wages and wages in one sense are at appropriate levels given low productivity and low inflation, but at the same time, we do not see wages indicating any tightness in the market. It is no sense of an overheating economy or tight labor market. Sen. Reed those are insightful monetary but it raises policy and fiscal policy. We have this large number of people who seem to be out of the labor force but years ago would be in the labor force. We have a group of parttime workers who would like to be fulltime workers, and wages seem to be not rising at all. What can we do . I do not think we can claim victory as you suggest on unemployment, that we have to take steps, both monetary and fiscal. Any suggestion . Mr. Powell the steps that can be taken our steps for congress and not so much for us. We can manage demand through our business cycle, and we can try to achieve our goal of maximum employment, but these are longrunning trends. Among prime aged males, participation in the labor force has been declining for 60 years. Rolepioid crisis plays a and now is making it worse. These are issues we do not have the tools to deal with. Sen. Reed you do not have to respond to this, i think we have identified significant problems that affect every household in the country. The tax bill before the senate does not respond, in my view, to any of those. Back to theeople workforce and how to prepare for a future in which artificial intelligence, or taunus vehicles Autonomous Vehicles will be more and more competing with human beings for work. We have a lot of work to do. Let me ask another question. Could you explain why you think so Liquidation Authority is crucial and why it must be retained . Mr. Powell my view is that bankruptcy should be the preferred option for Financial Institutions. We have made tremendous progress through multiple living wills and such. However, there may come a time when bankruptcy is not going to work in a very stressful situation that really threatens the Economic Health of the inntry, just like happened 2007, 2008, 2009. In that case, we will need a backup in the form of Something Like orderly Liquidation Authority. It is not a perfect law or structure, but we need Something Like that as a backup which we can guarantee will be there for a real emergency situation where bankruptcy will not work. Sen. Reed let me make two quick points. First of all, we talked about this. I was aided by one of your key Staff Members who worked with senator gray can at the time in trying to develop the clear platform for derivatives. As you so widely pointed out, we have taken bilateral risk and made it mutual risk but we still have the problem with those platforms. I would hope in your 10 your you would 10 year, you would look carefully at this potential for systemic risk. Final point, which unfortunately probably defines too much of what we do today, Cyber Security is an issue that is not going away. It will be even more dramatic in your tenure. Chairman clean of the sec pointed out clayton of the sec pointed out that we have to get along. I believe we are way behind, and the Federal Reserve has to take a strong position. Secondsan in a very few comment on your view of Cyber Security. Mr. Powell i agree with everything you said. It is a very, very important, may be the single most risk our Financial Institutions face. Towill provide the resources deal with it and make sure the financial a cute institutions address it. There can never be any sense of mission accomplished. Of those things we will always be feeling like we are doing as much as we can, but it is not enough. We are committed as it relates to the Federal Reserve and the institutions we supervise. Sen. Reed thank you. Senator kennedy. Kennedy thank you. I have read those media accounts in the past that you have met with 15 wall street executives. How Many CommunityBankers Trust you meet with in that time period . In. Kennedy mr. Powell do not have a number for you, but it would certainly be in the hundreds if you consider the state delegations and other meetings we have had. Sen. Kennedy what did the Community Banks do wrong to contribute to the meltdown in 2008 . Thepowell fair to say Community Banks did not contribute to the meltdown in 2008. Sen. Kennedy then why is the governor as the governor have you repeatedly voted to punish them and regulate them have to death . Mr. Powell i would quibble with that characterization of my votes and the things we have done. I would like to think and frankly, my colleagues on the board have been very focused on the boarding regulation for small Community Banks. Soleired the board thats job was to make sure the regulations we put in place for the larger institutions do not affect the smaller institutions. This is a battle you never win. You fight it every day. Sen. Kennedy i mean no disrespect, governor, in saying this, but you need to fight harder. I think you have been in 44 fed meetings. You have not dissented one time. And the Community Banks in america have had to pay the price with the overregulation. , given yourerstand public statements that you want to help our Community Banks i believe you, i think you are sincere but you have supported regulating them have to death over the last five years. Mr. Powell senator, i think we are well set up to make progress on that and i hope you hold us accountable. Sen. Kennedy do we still have banks that are too big to fail . Mr. Powell i think we have made a great deal of progress on that. As i mentioned earlier, if you think about where we were before the financial crisis where really no one had thought, what would happen if there is a run on one of these Big Money Center banks. Really, the regulators had no practical choice but to keep them from failing because it would have brought down the whole Financial System with them. You start from that place less than 10 years ago, and look at where we are now. We now have living wills. We have the banks that sen. Kennedy please forgive me for interrupting, but we are limited strictly to five minutes. Done,rstand what we have but i want to ask you again and we still have banks that are too big to fail in america . Mr. Powell i would say no. Sen. Kennedy i want to ask you about, in 1991, governor, you were working for the treasury department. By the way, while we are on that subject, what role did secretary mnuchin have in making decisions if you are confirmed . Mr. Powell he would have no role. Sen. Kennedy none . Mr. Powell i cannot think of any. A . Kennedy zero, nad in 1991 while working at treasury, you dont with the collapse of the bank of new england. You prevented a bank run. You decided to guarantee all deposits. How many of the bankers went to jail . There was some jail going. I cannot put a number on it for you. Sen. Kennedy in that same year, while you were treasury, there was an option rate bond big bid rigging scandal. Do you remember that . Mr. Powell very well. Sen. Kennedy maybe some other time we can talk about what an option rate bond is. You were in charge of dealing with the scandal by the salomon brothers, and you did iron out an agreement that penalized the bank. What about the people who did it, did anybody go to jail . Mr. Powell indeed they did. Sen. Kennedy that is good to hear. How many . Mr. Powell again, im not sure. One, it may be more than one. Sen. Kennedy isnt it true that throughout this entire auction rate auction rate bid rigging bid riggingte process which caused people billions of dollars, that less than five people who participate in these bids went to jail . Mr. Powell i am not sure which scandal you are referring to. Solomon scandal with something quite different than that. Sen. Kennedy do you know what an option rate . Mr. Powell ok. Sen. Kennedy i am over. I want to try to stick to my time. ,orgive me for being so direct but this is obviously an important job, governor. Mr. Powell thank you, senator. Senator menendez. Menendez you noted the average hourly wages are rising only about 2. 5 per year, slower than before the crisis, and while the nation has experienced the longest postwar economic expansion on record corporations have raked in record profits and many families in new jersey are waiting for a raise. Some claim if we give them a tax cut, families will see their wages rise by an astounding 9,000. I have not seen any evidence that is credible. A 2015 Federal Reserve by dashboard study unless they are implemented in midrecession. In reality, what this comes down to is hardworking families are really squeezed with rising housing, medical, and education costs whose paychecks will have to foot the bill for a bad deal. Assuming there is a plan in which families making less than 75,000 a year would collectively lose more than 59 billion in household income, and income lost that would be as high as 1350 per year for certain households, explain the potential negative Economic Impact of such an outcome for middleclass families. Mr. Powell senator, i guess i would start by saying that part of the deal when you are an economist at the Federal Reserve board, is you have time to do your own research. The paper you are referring to was a research of three to four individuals, and does not represent a position of the board. It is just someones research, so i do not associate that with a position of the board. More broadly, as i discussed earlier, we do not have a model of the effect of these tax bills. That is just not something we do. We will incorporate when it is done fiscal changes that will remain. Sen. Menendez my question, this is not a trick question. What i am asking very simply is d think it is good or bad for the economy of middleclass families lose 59 billion in income year over year . Mr. Powell yes, i think it would be bad. What do you view are the Economic Risks at a household and macro level if we add another 1. 5 trillion in debt . Mr. Powell without commenting on any particular bill, like all of us i and concerned about the sustainability of our fiscal path in the long run. It is something that needs to be attended to overtime. I am very concerned. Sen. Menendez it would be a negative consequence to further add to the debt which exists . Mr. Powell i think we need to be concerned about fiscal sustainability in the longterm. Sen. Menendez in a speech he gave in june you said the problem some commentators. Redicted have not come to task accommodate of policy did not generate high inflation or credit growth. Rather, it helped return inflation close to the 2 goal. Can you explain how the feds Monetary Policy stance of the last five years helped contribute to economic expansion , and how will this inform your approach to Monetary Policy decisions Going Forward . Mr. Powell thank you, senator. I think the fed remained committed after the financial crisis to provide significant accommodation to the economy as it recovered. When i joined in 2012, about five years ago, i think unemployment was still above 8 . I think we have been patient in removing accommodation, and i think that patients has served us well. I think now the economy is strong, unemployment is low, the economy appears to have bit depth picked up, so it is time to normalize Interest Rates and the size of the Balance Sheet. I do think that policy we have had in place has generally served as well. Sen. Menendez let me ask you this finally. Health care accounts for nearly 20 of the u. S. Gdp, including not only the delivery of lifesaving, life enhancing Health Services but fueling research and development. Earlier this year i asked chair yellen about the impacts at a house and macro level about the spike in the number of unemployed uninsured americans. She said it could have a Significant Impact on Household Spending for goods and services, as well as job mobility. Do you agree with her assessment . Mr. Powell i think she was referring to some research. If chair yellen was referring to research, we can be confident she was accurately reflecting with that research said. Sen. Menendez thank you so much. Senator heller. Sen. Heller glad to have you here. Glad to have your family here also. You are about to become the most important financial policy maker in the world. How do you feel about that . Mr. Powell i feel fine about it. Sen. Menendez glad to hear that. Historically, i did not support your nomination in 2012 nor 2014. Worried about the wall street bailouts and concerns about new bailouts in the regulations. What im trying to do as we talk personally is try to figure out how to get a yes on your nomination, and i will continue to look for that. Openinged in your statement about clarity and transparency with the fed. The question i have is, do you continue to oppose the fed legislation . Mr. Powell i do, and i will tell you why. The fed is audited. Of theed the Committee Board that oversees the audit of the reserve banks and the board of governors. Thate audited in the sense the general public would understand that word. It means something very different in the current context and in this context it Means Congress has chosen to shield Monetary Policy from a policy audit why the general accounting office, General Accountability Office we call it. I think that is a wise choice that has been made as a way of showing respect for the independence of Monetary Policy. The gao audit at the request of any member of congress would be a way for congress to insert monetary the making of policy and would not serve us well. Sen. Heller do you still largely support the dodd frank reforms . Mr. Powell that is a big, broad bill, 1000 pages of that is a bd bill. I may. Broaden it out if think that the things that we , higher liquidity, stress resolution, i think those are important pillars of reform. We can make them more transparent and efficient. Dohink other things we can is more tailoring, and that is what we are involved in right now. I think the Financial System is quite strong. Sen. Heller you sit on october 5 that more financial regulations are not the answer for every problem, do you continue to believe that . Would you consider changes on dodd frank . Mr. Powell i strongly believe that and i will work with you. Sen. Heller going back to what the Ranking Member was asking about gdp, what do you expect gdp will be for next year . Mr. Powell just to make a decision in december on whether or not to raise rates. I would say, this year, i expect gdp to come in around 2. 5 , plus or minus. As you look forward, i would expect something pretty close to that. The reason is, we continue to see high confidence among , theesses and households stock market is strong, it feels like we are going to see continued strength next year. Sen. Heller i want to continue to push on this tax bill that we have. Im going to assume that you are going to come in the board has no position on the tax bill . Mr. Powell yes. Sen. Heller what about personally, do you have an opinion . Mr. Powell no i dont. Sen. Heller are you going to raise rates in december . Mr. Powell i have made it a practice to not talk specifically about individual meetings, because that is why we have the meeting. We are all supposed to hold back on that found decision, then go in and listen to all the views of the reserve Bank Chairman and do the governors. I think that the case for raising Interest Rates at our next meeting is coming together. Sen. Heller you anticipate that we will be raising rates in december . Mr. Powell to repeat myself senator, i am not going to give you a specific answer. I think the conditions are supportive of doing that, but we need to have the meeting. We have a Communications Rule that we are not supposed to be saying exactly what we are going to do before we go in and listen to one anothers views. Sen. Heller i respect that. Sen. Warren before the 2000 a crisis, the fed had a lot of authority to regulate the biggest banks, but they failed to use that authority. When times were good it looks like we did not see need strong rules, but when things went south the feds failure to put strong rules in place ended up costing millions of peaceable how people their jobs, homes, and saving. Leadership,yellens the fed has adopted a number of rules to reduce the risk of another financial crisis. You have supported those rules and helped implement them. I understand that now, if you are confirmed, you intend to take another look at those rules. In your written testimony, you say that you will, you, continue to sitter daesch consider appropriate ways to ease Regulatory Burden consider appropriate ways to ease Regulatory Burden. If youre looking at ways to roll the rules back, are there any rules you believe should be made stronger . Saypowell yes, i would that if you think of the four pillars of reform they can all be made stronger and more transparent and more efficient. There also a number of things i would not roll back. Sen. Warren what are the rules you said you would make stronger . Mr. Powell i think about resolution, we will continue to expect firms to make progress. Sen. Warren so you want to see rules that are more aggressive on living wills, for example . Mr. Powell nothing so much rules, but our regulation. The question i am asking is, i dont want to see a oneway street where it is all about rolling back rules and it is not considering the places were the rules need to be stronger. Mr. Powell i get your question. That there are a lot of problems that we need to address within the Banking System. We have had eight years of writing new rules, and i cannot think of a place where we are lacking an Important Role. I think we have filled out the rules that we need, and it is a question of dealing with things from a supervisory standpoint. Sen. Warren of all the rules the fed has issued during your time there, five years, on capital leverage, on liquidity, on stress tests, you dont think a single one should be made tougher . Mr. Powell i think they are tough enough. Sen. Warren i have to say this worries me. Let me take a look at the rules you say you want to roll back. A few years ago, the fed and other agencies analyzed the volcker rule that prohibits banks from trading on their own account unless it is directly related to customer service. This addresses one of the main ways that banks got into trouble during the buildup of the financial crisis that sent them to congress for a 700 billion bailout. Do you support significant changes in the volcker rule that applies the big banks, for example by accepting additional forms of trading . Aowell i do support of rewrite of the volcker rule. I think we can do that in a way that is faithful to the language and intent of the law. Sen. Warren you would favor exempting more trading . Favorwell i would tailoring the application. Sen. Warren i think i recall that weakening the rule. My time is nearly out. Im going to follow up with some questions for the record. I am deeply concerned that you believe the biggest regulatory problem and the country right now is that the rules are too hard on wall street banks. That kind of mindset led the fed to ignore the Financial System risks before 2008. It helped to lead to the financial crisis and it helped lead to the recession that followed it. That we not go down this path again, because if we do, it will be the same thing. That is that millions of families are going to pay the price while the banks and up, once again, getting bailed out with record profits. Thank you. Mr. Powell thank you. Sen. Scott thank you mr. Chairman. Thank you, mr. Chairman. We have talked about these issues before, like mr. Kennedy, i have concerns related to past performances. I want to talk about the Interest Rate environment that we have currently. Senator heller asked questions about the raising of the Interest Rate. Thant to paint a picture ask a question about the Interest Rate environment overall. If you are a retiree in south , a great place to retire, it certainly has high quality of life, a good economy, wonderful places to live, but if you are on a fixed income in South Carolina and you are retired, the current environment cuts into your ability to live off of your interest income. As an example, someone with a 10,000 cd earns. 25 interest. If you extend that for five years, it is still less than 1 . Half 1nest date is million egg is half 1 million or 1 million, the Significant Impact of a low Interest Rate environment has a negative, unintended consequence in the current marketplace. I do realize that the advantage of a low Interest Rate environment helps spur Economic Activity, folks are more likely to buy homes, but that knife cuts both ways. I would love for you to talk to me about the principles of the characteristics of an economy that would require or encourage a normalization of our Interest Rate environment. Mr. Powell thank you, senator. I think we have that economy right now. We have low unemployment, 4. 1 unemployment, we have strong growth, the very low settings of Interest Rates that were appropriate during the crisis and after support Economic Activity are no longer appropriate, and that is why we are raising Interest Rates on a gradual path. I expect that will continue. I agree, as we discussed yesterday or the day before, that the Interest Rates are a blunt instrument that we have. Supportrest rates Economic Activity, they lower peoples interest bills, they support investments by businesses, and in general they supported a strong recovery, specifically in the labor market. If you are dependent on fixed income and bank deposits, shortterm Interest Rates, then it has been a burden for you. Overwhelmingly, i think people were helped by low Interest Rates. I would say that help is on the way and i expect that rates will continue to go up. Thank you. As it relates to the Balance Sheet, over the past decade we have seen that Balance Sheet balloon. We have talked a lot about creating a new starting place for the conversation about unwinding that Balance Sheet and getting to a number that would notur new normal, necessarily the 1 trillion it was before hand. Can you walk me through what you see is a snapshot of what you see happening with that Balance Sheet . Mr. Powell as we have announced, we are allowing, as bonds mature, we are allowing to give the money back to treasury, and our Balance Sheet is shrinking. Path, in three or four years, we will be down to a new normal. What will that new normal be . It will be much smaller than the Balance Sheet of today, but much bigger than the Balance Sheet of 10 years ago. Ultimately, that level will depend on the publics demand for cash, which is a liability for us and assets of them, and banks demands for reserves, which will be higher than it was before the crisis. Cash has doubled in 10 years. Those of the reasons why the Balance Sheet will be bigger. Be 2. 5s is that it will trillion or 3 trillion range. Sen. Scott two points. I am encouraged by your thoughtfulness of how taking a look at the asset thresholds that may be a part of senator crapos legislation, and looking at ways for us to increase the thresholds that have stringent regulations. The second thing i would say is, i would encourage, as we look at the designation and the foring arena insurance designation in the nonbanking arena, i would suggest clarity on what gets you designated and clarity on how you lose that designation would be incredibly important. Mr. Powell thank you, senator. Sen. Schatz thank you. According to the fdic, accept recordbreaking profits and the highest return on equity. Data from 2017 shows that banks are likely to do even better this year across the board. Banks of increased dividends was shareholders by more than 17 . Community banks earnings have been increasing, they were up almost 10 this quarter as compared to last year. Household credits like car loans and credit cards have suppressed surpassed prerecession highs. Growth in the commercial sector is due to a lack of demand. My question follows senator warrens question, what problem are we solving with deregulation . Mr. Powell i am not going to character lies characterized what we are doing is deregulation, i would characterize it as looking back over eight years of very innovative regulation. Things that have never been done, like liquidity requirements, and resolution, and stress test. Looking back, i think that is our obligation to do that and make sure what we did make sense. Sen. Schatz s and the objective to get these metrics up, and also are these metrics already up. Does it make sense to air on the side of caution . Some people believe that too much regulation is a problem and believe that it should be illuminated as an ideological concept. Are these the data points you want . Arent we where you want to be in terms of Bank Profitability . Isnt Bank Profitability not the problem, but to the extent that there was that income among the 10 Bank Holding Companies in the United States, 99 of their net income was distributed in the form of dividends and stock buybacks. What are we fixing, and for whom . Mr. Powell let me agree that the Banking System is healthy, it is great to see, and that was not the case a few years ago. It is nice to see banks profitably serving customers again. We are not looking to change that. I would also agree that we do want to air on the side of caution err on the side of caution. It doesnt help anyone for banks to waste money, to spend more money than they reasonably need to spend to accomplish safety and soundness. Those costs will fall on customers, borrowers, and such. It is our obligation to make sure the regulation is efficient. Sen. Schatz you are saying, it is too much paperwork . Two much compliance too much compliance . Mr. Powell you hear a lot on different issues. You hear that a lot on different issues. A certain amount of Regulatory Burden is unavoidable. Our job is to be efficient. Sen. Schatz my concern is that if you are a bank you want to reduce paperwork burden, and when you lay down a whole new , there areegulation going to be instances in which it is a pain for a bank, small or large, to comply. Toin, they have managed record profitability, even despite whatever paperwork and compliance burdens there may be. There is zero evidence that if we reduce paperwork burden on a compliance or a compliance burden, that they will pass on those savings in forms of increased lending or increased renumeration of whatever form back to their customers. Seconds and i want to followup up on a question i asked you in private. Formula to Monetary Policy, it takes a broad look at the economy. That identifies short and medium run risks, ive a copy of the minutes from a recent meeting. Of thes a discussion Economic Impact of hurricane related disruptions as well as dislocation from wildfires. That, ines indicate the past, these of only had a temporary impact, i will take the answer for the record. How many of answer would it take to have a Material Impact on the economy, has the Federal Reserve considered what number that would be in the term of numbers of events or total cost of damage, and have you worked with noaa or other scientific agencies to determine that . I know you are in the business of quantifying things that are difficult to quantify, and i believe that we think this is material and i would like you to consider it. I will take that for the record. Senator tillis. Sen. Tillis i covered some of this in the meeting we had my office. You have been nominated to a position where you are ultimately going to be, when you are confirmed you also said in private that are going to rely thate first meeting anybody has with someone they are working with, they try to give them some direction. Thematically, what are you going to talk about when it comes to ,ecalibrations of rags regs im come i am interested in your opinion on the Basil Committee it is not about repealing regulations, some of them have to exist. We probably would not of had a crisis of the magnitude that we had. Now, it is a must as if we either have too many people regulating the same regulations, are not organizations really clean and their executions, which is making it costly and difficult for businesses, distracting them from running their businesses. That is a compound question. Mr. Powell lemay just start by let me let me sit just start by saying, i dont know when my first meeting with tillis wouldve been. I think we are well aligned on our approach to the issues that he will face as vice chair for supervision. Basel. Ed about my understanding is that there at baselicant progress around uniform floors in particular. That would give us a way to wrap asel3 and i think that would be in our interest to do so. It is other countries that have lower floors and lower weight risks on assets. Sen. Tillis i just came from a press conference for promoting the tax wind that we hope will create Economic Activity. In my own personal experience in north carolina, the two things that combined to create great Economic Activity were tax reform and regulatory reform. I am hopeful, over the course of this year, that you are doing everything you can to question to regulations get executed the minimum, lightest touch necessary so that we are reducing what is an increasing cost of regulatory compliance, with allinition respect to my colleagues at price waterhouse, many of those compliance jobs are nonproductive job. All they do is count whether nonproductive activities cross is right. Right about toe discussion book this beer regulators staying within their lanes or relying on other once to the extent they need the information. O complete their i have a question about the goal of the fed for the past nine years. It has been increased inflation, not growth. What has a greater impact on the middle class, lowinflation or low growth . Mr. Powell low growth. Sen. Tillis outside of what you are directly responsible for, on the supply side, what should we be looking at to stimulate growth . Mr. Powell let me just amplify stable prices and maximum employment. The things that can increase the Sustainable Growth rate of the u. S. Economy are things that are in your lane, not so much hours. I would boil that into a couple things. One is Labor Force Participation and the other is productivity. If you think about it, you want as many people as possible taking part in the label force labor force, for their own good. There are policies that can affect that. Productivity is very difficult to forecast. It comes down to technological effects on thes economy are hard to forecast. There is also the skill and aptitude that our labor force brings to the job, and that is something that you can affect. It is policy that promote investment, investment in infrastructure, private investment, i think all those policies are in the hands of congress and i think it is important that we have a longrunning focus on increasing Sustainable Growth rate. If you reduce the tax and Regulatory Burden on certain businesses, and your opinion, will there be more or less investment and productivity . Mr. Powell i think there clearly are ways in the tax code to support different kinds of activity and certainly investment is one of those. Sen. Tillis thank you. Sen. Van hollen your immediate predecessors that the fed testified before congressional committees about their concern about the impact of the rising debt, national debt, on the economy. Here is what chairman bernanke told the joint Economic Committee in june of 2012. He said, large deficits and debt over a long period of time for raise Interest Rates above levels were they would normally be and crowd out right investment and are bad for theyh and productivity. Also may involve borrowing from foreign lenders which is also a dream on current u. S. Income. Do you agree with chairman bernanke hes statement . Mr. Powell yes i do. Sen. Van hollen here is what chair yellen said this year before the House Committee on financial services, expressing her concern about rising debt. Current spending and taxation decisions will lead to an unsustainable debt situation with rising Interest Rates and declining investment in the United States that will further harm productivity growth and living standards. Do you agree with that . Mr. Powell i do. Increasedollen if we the national debt, we are going to make those problems even worse. In other words, they longterm debt impact, harming Economic Growth, isnt that the case . Sen. Van hollen mr. Powell i think the idea would be to get gdp growing faster than debt over a long period of time. Sen. Van hollen seo any doubt in the Congressional Budget Offices analysis of the debt increase that will result from the bill that is the proposed by republican senators . I haveell to be honest not looked at that, it is not something we are responsible for. Sen. Van hollen you have no reason to doubt those numbers. Mr. Powell i have no reason to know those numbers, much less doubt them. Sen. Van hollen you have no concern over the debt impact of decisions by the house or senate make . Mr. Powell it is a bit of a fine line that we have to walk. Im hoping i can walk it. Clearly, the debt needs to be on a sustainable path. I think we all agree on that. On the other hand, it is not for us to be taking part in the discussion that you and your other elected colleagues are having over this. It is not our role, and there are agencies that have that role. Sen. Van hollen both of your immediate predecessors commented , repeatedly, about their concern over the impact of Rising National debt. You just indicated that you shared their concern and agreed with their earlier statements. Putting aside whether or not you think the cbo analysis of one point 5 trillion of Additional Debt is correct, if there was another one point 5 trillion addition to the debt, it would make a bad situation worse, would it not . Mr. Powell it would, all else equal. Sen. Van hollen as chairman bernanke he said a number of years ago, he said, and i quote, at some Point Congress will make a tradeoff between what its spending programs are and what taxes they raise. We are now we are now talking about reducing the money coming into the federal treasury. If we want to avoid making the debt even worse, and you are going to add 1. 5 trillion of debt, the only way to deal with that is to cut things like social security, medicare, medicaid, isnt that the case . Mr. Powell there are a lot of moving pieces. As i mentioned earlier, with the country needs is to have debt growing faster than gdp. T matters is our debt go debt to gdp ratio. Sen. Van hollen the Congressional Budget Office has their own projections, as you do. There are things that we may or may not be able to do to improve that. There is no analysis out there, no credible analysis that suggests that when you have a massive tax cut, primarily going to major corporations, that the result is going to be a growth that actually makes up for the lost revenue in terms of debt. Do you know of any credible analysis that shows that . Honestly, isenator, have not been following the analysis. Sen. Van hollen do you know of any credible analysis that indicate that this tax cut would mr. Powell i am not an expert on what analysis is out there about this tax bill, proposal. I would urgeen you to follow the tradition of your predecessors who were very carefully very careful not to wait into this the specifics of decisions made by congress, but make concerns known about rising debt. I thank you for your time. En. Crapo sen. Perdue ator purdue sen. Perdue i would like to remind the committee, and the last 16 years we have added 14 trillion to a 6 trillion. And that Left Administration we had the lowest Economic Growth in United States history. In the next 10 years, if we do nothing from today, this federal government will add a living trilliondollars 11 to the current debt. The current rejection is that, if we do not change, we will at 11 trillion to the debt. Size of the federal government was 2. 4 trillion. Last year it was 4 trillion. There is our problem. We collected more tax last year than any time in our history. Globally, we have 200 trillion of debt. Of that 60 is sovereign debt, 23 is u. S. Debt. A number of countries have Interest Rates in their sovereign debt that put out a negative Interest Rate. I dont think the world has ever seen a situation where we had the four major Central Banks with somewhere around 18 trillion on their Balance Sheets. In a situation where we have 200 trillion dollars of debt, of which 60 is sovereign, and of that ace a significant number is let out at a sick opinion a negative Interest Rate. What concerns you, relative to the size of sovereign debt around the world, and the United States being one third of that sovereign debt, in terms of how you are going to matt manage one of the major Central Banks . Mr. Powell i think we have a good plan, and i think the market agrees, to shrink our Balance Sheet. We have laid out, in a series of public minutes in meetings over the last year, i think we were quite careful to socialize the plan and the market has accepted it. It will lead to a much smaller Balance Sheet and it will do so over, but in these matters, is a very quick. Of time quick period of time. Sen. Perdue are there any assumptions and that calculation of the freeing up of capital on the private side . In terms of the money that is withheld from being active in the economy. There are some estimates that 6 trillion or 7 trillion that are not active because of fiscal policy. Does that way into your decision . When we allow a security to rolloff, the treasury will be us you a comparably sized security in bulk in the same amount. The u. S. Government that will remain the same, able belong to the pup gasquet will belong to the public instead of being on our Balance Sheet. It will belong to the public instead of being on our Balance Sheet. Ideally, over time, all of our Balance Sheets will string. Sen. Perdue all of the Balance Sheets are 4 trillion or 5 trillion. That is the highest they have ever been. I applaud your background and ability to deal with that. I would like to talk about blocking technology. It is a little off the wall block chain technology. Im concerned that we have a bubble that is for or five times the size of the. Com bubble. Cassidy with crypto currencies like that going. It has to it has to do with crypto currencies like bitcoin. , inming that this continues the size and growth of these crypto currencies, if that continues to grow, to what extent will that affect your ability to affect results from your typical Monetary Policy options that you typically have as a central bank . ,r. Powell in the long run crypto currencies of that nature could matter. They do not matter today, they are not big enough or have enough volume to matter. Sen. Perdue that was the problem with the. Com bubble. There were so few entities and so many people trying to chase it. The growth of that era was much faster than anybody thought at that time too. Mr. Powell there is no question that valuations of gone a lot desktop a lot gone up a lot. Standpoint, crypto currencies are something that we monitored very closely, we actually look at block chain as something that may have significant applications in the wholesale payments part of the economy. Are you watching what allie baba is doing in asia relative to block chain . Mr. Powell we are watching all of those technologies. You for beinghank william to do this. Sen. Cortez masto resident master of the cleveland Federal Reserve gave a speech really thatmonth where she noted more immigration is needed to drive u. S. Economy at a time where the population is aging and productivity is stalling. Do you agree that we need more, not less immigration to help drive our countrys longterm Economic Growth . Mr. Powell as i mentioned earlier, the size of the labor importantn determination of Labor Force Growth over time. It is a big reason why our economy has slowed down. Migration has been a real contributor to that. Having said that, immigration is an issue that is not in our lane and those decisions are for you and your collective colleagues. Sen. Cortez masto we have been talking about growing the economy, and part of your purview is labor. I appreciate your comment that immigration is an important part of the labor force that grows our economy. As chair of the Effect Committee fedf the Bank Committee committee, we have seen diversity in the bank commissions and advocacy rubes in the bank communities. What will you do to in increased diversity to increase diversity of the labor force and the Federal Reserve system . I am a big supporter of the Federal Reserve system and diversity. I think we make better decisions when we have Diverse Voices around the table. That is something we are very committed to at the Federal Reserve, but that the order of governors and the reserve banks. Board oft the governors and the reserve banks. This is something people have been working on for decades. You begin to see what works. My view of what works is, a lot of private companies have been asked have been successful in advancing diversity. What seems to work as having a holistic plan to stick to overtime. It is about recruiting and bringing people in. Once in, it is not given paths to success. It is about having a culture and company that is focused with adversity and sticks with that overtime. It is not something you can do overnight. You mentioned the reserve Bank President s, i assure you we always have sen. Cortez masto thank you for your comments. Congressional republicans are set to pass a tax cut bill to years towards large corporation. At the same time, this committee is going to consider regulation to rollback rules for some of the largest banks. What can you do to ensure that this tax windfall and this deregulation actually benefits workers and doesnt just translate into more executive bonuses and stock buybacks . Mr. Powell our tools are what they are. Whiche Monetary Policy can shove the economy in the direction of stable prices and the maximum employment, and we regulatory policy which and sures some of that will go to shareholders, some will go to customers, some will go to employees, we do have tools that affect the distribution. Sen. Cortez masto but you do have a component of Consumer Protection . Mr. Powell we do. Sen. Cortez masto and you do have a concern about the workforce, growing the workforce and making sure it is strong, correct . Strong, correct . Mr. Powell yes. Sen. Cortez masto i want to know what you are going to do to address those consumer protective issues. In particular, protecting the workforce. Sen. Cortez masto consumer protect mr. Powell Consumer Protection we have not talked a lot about. We have been assigned an Important Role in Consumer Protection. We other is possibility for our budgets that Consumer Protection will have the resources if needed to do its job. Whatever they recommend, we will try to do well and aggressively. Sen. Cortez masto i appreciate that. I know my time is running out. Like many of my colleagues, i have concerns. I come from nevada, dodd frank was there for a reason. The deregulation of dodd frank, and the many deregulation that were put in place to protect individual consumers are so important. Im concerned about rolling back any regulation that will open that door and lessen any Consumer Protection or any type of work that we have done, particularly in nevada, to protect individuals. I look forward to having further conversations with you. Sen. Crapo senator powell, daesch senator shelby. Senator shelby. I hope you will put your stamp on the fed. Hope it will be in a good way based on your experiences in the past. We have talked about a lot of things here, i want to get back basic inflation scares if any. Price stability, which is so important as one of your mandates. A lot of economists are puzzled by the outlook of inflation statistics at times. You mentioned earlier that there , these are my words, not real pressure on wages. I dont see a lot of pressure from energy costs and so forth. We are in a different economy than some of us grew up in, with the globalization of things. That youed to the fact have an open market meeting soon , you could bump up the Interest Rate some. I hope you will not spook the bond markets in doing this. Certainty is important and predictability. Where do you see the specter of inflation . I dont see the psychology of inflation out there, which is a dangerous and. What do you see, that we dont, that you can tell us about . Mr. Powell inflation has been below our 2 objective every since ionth but one joined in 2012. Importantally really that we achieved our 2 target, because our credibility is important on that front. Lately, inflation was moving up, and it got close to 2 . This year came, and we have stronger growth, we have a healthy labor market, but to my surprise, inflation readings are starting to come in week. That was a surprise. The question is, why. The question is, why . Factors, idiosyncratic there was a big drop in pricing for mobile Telephone Services because of a price war and a change in the way they count that. Underlying inflation moves according to a slowly changing, and evolving trend. There are factors that move around a lot. There are different views. We have been very public about this debate that we have been having. One question is, is it transitory or are there more fundamental things at work here . I think we are all watching closely to see. Well be got it by the data as they come in. We really dont know yet, do we sen. Shelby we really dont know yet, do we . You will be watching it day by day . We will determine if inflation is going to perform lower than we thought, and we can perform more quickly. Sen. Shelby something about the Balance Sheet. I think you are on the right trajectory, but i think he used the term that you might draw the Balance Sheet down to 3. 5 trillion or Something Like that. Is that the new norm, because that was not the new norm, that is a high threshold. If you did bring it down to 3. 5 trillion, does that hamper you down the road . In case you had some drastic things to do . I would say that we dont know if any certainty what the new normal will be. My own guess would be, and this depends on a number of things, would be 3. 5 trillion, which is one and a half 1. 5 trillion smaller than our current Balance Sheet. What will indicate the size of the Balance Sheet will be the publics demand for our liabilities, especially cash. In a world where everyone seems to use electronic cash, people like to get cash. Also, demand for reserves, which will be higher because there are demand for banks to hold highquality liquid assets. Somewhere in that range of 2. 523 toht be the answer 2. 5 three might be the answer. Other mandatehe you are involved in is the regulatory area. Is it important, when you come from the fed or fdic, come through with regulation proposals or regulation, that they have some type of serious costbenefit analysis before they implement the regulatory change . Mr. Powell it is. Thelways try to implement laws that you passed, we try to turn the been to regulations as appropriate, and we try to do it in the most efficient, least costly way we can. 3. 5 or four years, we have made gains significantly on this. We have been putting out white papers in connection with big rules and they explicitly solicit comments on costbenefit analysis. Ofhave also started a net economists and policymakers that will focused on costbenefit analysis. We are trying to be better at that. You also mentioned , i think it isl key to bank survival, but liquidity is important to, isnt it . You can have all the capital in the world, but if you dont have liquidity, dont they go together . Mr. Powell they do. Liquidity runs is what really kills banks. Capital makes it much less likely there will be a run on the bank in the first place. That is a sense where i agree with you. Sen. Shelby thank you. Tester. Po senator i want to start my comments by echoing the Ranking Member comments by janet yellin. I think she is done an incredible job in a very difficult situation when she came on board and she needs to be recognized for that. Governor powell, i appreciate you being here. Trillion,s about 28 could you give me an idea of an additional 2 trillion would impact the economy . Mr. Powell holding all else equal, you would have higher interest costs. Taxes will either have to go up to pay for that or you will have even more debt. That will crowd out private capital. Sen. Tester is there any number that you have a potential impacts to the economy the higher that goes, is it a half a percent, a full percent per trillion . Mr. Powell i do not have the handy. Sen. Tester the reason it is important is that because the recent third of our debt is because of a tax cut during the bush and bush administration. I dont know if there is anyone on this side of the aisle who does not want to see a more simplified tax code and wants to see a task of it is not dry the economy in a positive direction code thatde tax does not drive the economy in a positive direction. I want to make that point. It is not in your portfolio, but it will impact your portfolio very significantly moving forward. There is a bipartisan bill out that we will probably address later this week called the Economic Growth regulatory protection. Have you had a chance to take a look at that bill . Bill, itipartisan is cosponsored. Have you had a chance to look at it . Mr. Powell yes i have. Sen. Tester are we doing anything that is going to put riskinancial system at with the regulatory relief and that bill . . Mr. Powell i really do not see anything. We are going to look carefully, but i do not see anything. Part of that bill is a limited vocal role of compliance for Community Banks as long as they have less than 5 . Trading assets and liabilities, any concerns there . Mr. Powell none. Sen. Tester there is a gripper process of effect completed earlier this year. The portion of that review is organizational streamlining. I think it is key that regulators work with organization so they are not it is something i hear a lot from Community Banks. Do you have any plans, as chairman, to update to update and modernize the examination process between regulators . So that there is not that duplication . Mr. Powell if i can assume that , that is confirmed something that i will be committed to trying to do better on. A lot ofessed with regulatory agencies. That is good, but it does lead to overlap. I will be committed to improving on that. Sen. Tester as you look at your position, would you say that the number one job that you have to do as chairman of the fed is to make sure that consumers are not harmed without harming the safety and soundness of our Financial System . Mr. Powell i cannot disagree with that. Sen. Tester good. Real quick, senator heller and i introduced the international which would require the Federal Reserve to create an Advisory Committee on International Standards and create more transparency around the process what the standards are being set. As chairman of the fed, how would you work with credential regulators to make sure the fed fully understand the nature of these . Insurance for companies, we have acquired a significant amount of insurance talent at the fed and other agencies. We would be committed to understanding the industry as best we can. For our regulation of insurance, we wanted to be as transparent as we can make it. Sen. Tester you agree that insurance capital standards . Mr. Powell the risk is of institutions are very different the risks of those institutions are very different. This concludes the first round, but several senators of asked for a second round. To going to go immediately our Ranking Member, senator brown. Sen. Brown thank you mr. Chairman. Thank you for being here, mr. Governor. I want to followup on senator Cortez Mastos questions, in 2008 since 2008 bank profits are up, executive profits have risen, but the wealth gap between whites and africanamericans and latinos have narrowed. Many people in my state have yet to feel the impact of economic recovery. Chairs cited any quality inequality, not just as a humanitarian problem, but as a pressing economic problem. Amongis an assessment economists that wage inequality and wealth inequality is a drag. This is a drag on our economy. Economy, do on our you agree with that . Mr. Powell to me, the most compelling factor, there are a number of factors at work. At the rise in inequality and stagnation of middleclass incomes, those two stories spin together so well that i think that the way for u. S. Workers to compete in the Global Economy is by having the best skills and education in the world. That is a big part of the story behind inequality. Sen. Brown the question was, what do you do, you are not president or a member of congress. She would do more to invest in training and education should we do to invest more to invest in training and education . What would you do. Mr. Powell we do not have a a lot of of tools to address income inequality, but i would say that our commitment to our dual mandate of maximum employment is to make sure that anyone who wants a job either has one or can find one relatively easily. Sen. Brown does that give you pause when some say, you want to raise Interest Rates because we are a full employment of unknowing that full employment may be for people that look like me they get to go to college. People of color, people that have left the workforce and given up on a job, it is not full employment for them. Doesnt that construct give you pause for thinking about increasing Interest Rates . Mr. Powell yes, of course. On the typesocused of people for whom the recovery has not hit. Some groups of higher unemployment rates than others. Have higher unemployment rates than other. Weis important to say that are raising Interest Rates now because the economy is strong. , i would sayo long were waiting too long now, the economy could overheat and we would have to raise rates in the economy would have an over session what have a recession. Tohink the best thing is continue on this path of gradual increase rates gradual increase rates. Ohio strong seeing whatfficient, i would echo , go out and said smell like the flock. I would ask you to do some the things she did. People and seeto people who still are not in this economy that is been pretty good for people like us, but not so good for others. One other question. The financial crisis was not a result of a single bad decision, dozens of small choices, including by regulators, to change the rules and we can supervision. Earlier this month, the fdic chairman said he is feeling a certain sense of deja vu with bankers and policymakers becoming complacent with the risk of the system. This committee is set to sider that the chairman look with the president has put on some of these boards and regulators. We are a course to weaken the. Ules for large regional banks to make stress test and living wills easier for large banks. Are you certain that all of these changes are paving the way for the next financial crisis . Mr. Powell i am confident that we are not. That is not the intent. Pushng we are doing would us in that direction. Sen. Tester particularly fewer stress tests . Mr. Powell that is not something we have decided. I think stress tests are a an are eight important regulation. Sen. Tester should we consider pulling away from stress tests . I would go back to tailoring, we really want the most stringent things to be happening systemically. Important banks get the most stringent dress tasks stress to taper as went go down to the less systemically important institution. You can continue watching this confirmation hearing for fed chair for governor powell. Now, we take you to the floor of the u. S. House of representatives on their first day back from their break. They are set to consider several bills, including one on Mental Health programs for Police Officers and another that would direct the Cabinet Department to use updated terms to refer to racial minorities. Live now to the floor of the u. S. House of the u. S. House of representatives here on cspan. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] [captions Copyright National cable satellite corp. 2017] 28, 2017. I hereby appoint the honorable roger w. Marshall to act as speaker pro tempore on this day. Signed, paul d. Ryan, speaker of the house of representatives. The speaker pro tempore pursuant to the order of the house of january 3, 2017, the chair will now recognize members from lists submitted by the majority and minority leaders for morning hour debate. The chair will aernate recognition between the parties. All time