Transcripts For CSPAN Federal Reserve Chair Confirmation Hearing 20171129

He took questions from members of the Senate Banking committee about his overall philosophy on Monetary Policy and the role of the fed chair. Senator mike crapo chairs the committee. And the committee will come to order for the hearing. [gavel pound] this morning we will consider the nomination for the chairman of the Federal Reserve system. The chairman system. Ederal reserve governor powell, welcome and congratulations on your nomination. I see friends and emily behind you and i welcome them here as well. Governor powell has had an accomplished public and private career in financial services. He served as an assistant secretary and undersecretary 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. Firsthand experience in Investment Banking and was a partner of the Carlyle Group before being appointed to serve on the board of governors and 2012. During his years of service and government and in the private sector, governor powell has proven he is qualified to lead the fed. If confirmed, he will plan a part role in striking the important balance the tweening need for a safe and sound Financial System and the need to promote the vibrant, growing economy. Of the past one year ive been encouraged to see federal regulators carefully and thoroughly violate current laws and regulations. Governor powell has shared in the past where the fed believes some laws can be changed to alleviate some burdens. Members ofks ago, 13 this committee including myself introduced legislation to improve our nations financial Regulatory Framework and to Economic Growth. Introduced by 10 democrats and republicans come the bill demonstrates strong partisan support for tailoring and simplifying regulations. Taylorshe bill regulations for smaller Financial 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 was encouraged by the feds june announcement to reduce its Asset Holdings in a gradual and predictable manner. As the fed 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. Sen. Brown welcome, governor powell. I would like to start off by thanking janet yellen. She has done an excellent job leading the fed. During her tenure as chair and as vice chair, the 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. Her stewardship following the worst financial crisis since the Great Depression ensured 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 reform. You worked for more diverse individuals. Much more needs to be done. There has been some progress. You understand the importance of an independent central bank. Opposedngly misguided efforts to micromanage the fed and make other changes i hope you will stick to those positions on these important matters and on others. If there are good reasons to be concerned, the Current Administration does not appear to value independence in the judiciary, the fbi, or Federal Reserve. In an 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 since the crisis. He has troubling views on stress test and more generally the role of watchdogs in the Financial System. Industry has an outsized influence. 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 abet rather than combat arbitrary arbitrage. In formulating a report, treasury met with 17 industry representatives for every Consumer Group representing an ordinary american, 17 industry representatives for every Consumer Group representing ordinary americans. 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. The administration has forgotten 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 from my house that happened in large part because of wall street overreach. The loss to so Many Americans of jobs, homes, and Retirement 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. Your 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, senator brown. At this point we will administer the oath. Governor powell, will you please rise and raise your right hand . [the oath is administered] you may be seated. Your 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 wife, elissa, 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 later claim to have watche i am sureg live which will be ture. 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, you assigned us the dual 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 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 you will focus on to determine 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. We will be 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 . Mr. Powell first, let me say 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. I saw that your proposed bill exempted banks under 10 billion in assets from the volcker rule, which is something we have been in favor of. My next question is on that 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, do you believe that act if 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. Sen. Brown you stated the fed was created as an independent agency 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 our long tradition to ensure we conduct Monetary Policy and financial regulatory policy without a view to political outcomes, but with a view solely to the right answers. Sen. Brown the senate will vote on a tax bill that will reduce revenues substantially over the 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. Sen. 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 done modeling in all kinds of different ways, different legislation, different ideas coming out of the house and senate. You have an fomc meeting coming up in 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 . Mr. Powell of 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. Mr. Powell respectfully, i do not think you rely on us to score fiscal proposals. That is not really a our role and 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 . The Administration Agencies 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. That there is clinical pressure. 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. Sen. Brown is independence well served by the appointment of an interim agency head who holds another position in the president s chief of staff . 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 concerned about that attitude infecting other independent agencies. I am concerned about the tradition or the potential, the 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. I am 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. I bring that up, 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. I did give the Ranking Member a little latitude on the clock. Senator rounds. Sen. Rounds thank you, mr. Chairman. Mr. Powell, congratulations on your nomination. The first time we met was when 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 talked at length about this 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 regulations. I was able to reintroduce the terror act to enable regulators 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. Can you elaborate on this view as it relates to asset should we have asset thresholds to begin with . Mr. Powell so, the decision over whether to have a numerical threshold are not is clearly one for congress, and congress has tended it provides clarity. A numerical threshold makes it very clear who is not covered above a certain level. That 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 of the riskiness of a firm and of its, the possibility of it damaging the Financial System through its failure through its activities. The Business Model really matters, and all sorts of things matter. We have a set a factors we look at and i think it is healthy to look at those. We have said we are willing to work with you on numerical thresholds, discretionary application of enhanced prudential standards for example, 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 have recently 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 supplemental ratio, the way the 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. We have agreed to come back to the committee with our technical thoughts and policy thoughts as well. I will just say 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 very constructive thoughts on how to bring it forward. Sen. Rounds i look forward to supporting your nomination. Thank you, mr. Chairman. Chair crapo thank you, senator rounds. Senator reed. Sen. Reed you have a dual mandate. One is maximum employment. But, right now we seem to be doing fairly well. Your comments on where we are 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. And i think for example, 4. 1 unemployment 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 participation. It really matters. Particularly prime age males, that is the one measure that stands out now, suggesting there may be more slack. More people that can come back to work. A wide range of other indicators suggest we are at or near or in the neighborhood of full employment. We really cant be more precise than that. The other one that was wages, we 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. There is no sense of an overheating economy or tight labor market. So, that is what i would say about maximum employment. Sen. Reed those are insightful comments, but it raises Monetary 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, but 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 to 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. For example, among prime aged males, participation in the labor force has been declining for 60 years. Kind of thing, so, and you know the Opioid Crisis plays a role 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. Of how to raise wages, how to get people back to the workforce way, how to prepare for a future in which artificial intelligence, 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 the Liquidation Authority is so crucial and why it must be retained . Mr. Powell my view is that bankruptcy should be the preferred option for Financial Institutions. The failure of institutions, including very large Financial Institutions. I think 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 country, just like happened in 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 greg at the time in trying to develop a clear platform for derivatives. As you pointed out, we have and made itral risk mutual risk but we still have the problem with those platforms. I would hope in your tenure, 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 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 very proactive position with regard to Cyber Security. If you can come in a very few seconds, 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. We will provide the resources to deal with it and make sure the Financial Institutions address it. There can never be any sense of mission accomplished. It is just one 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. Chair crapo senator kennedy. Sen. Kennedy thank you. I have read those media accounts in the past that you have met with 15 wall street executives. How Many Community bankers did you meet with in that time period . Mr. Powell i 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 . Mr. Powell fair to say the Community Banks did not contribute to the meltdown in 2008. Sen. Kennedy then why as the governor have you repeatedly voted to punish them and regulate them half 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. I chaired the board thats sole 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. I do not understand, given your 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. I understand what we have done, 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. Sen. Kennedy zero, nada . Ok, in 1991 while working at treasury, you dealt 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 . Mr. Powell there was some jailgoing. 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 i do, too. 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. It may be just one, it may be more than one. For sure though, one in particular did jail time over that. Sen. Kennedy isnt it true that throughout this entire option rate bid rigging process which caused people billions of dollars and states, that less than five people who participated in this bidrigging went to jail. Mr. Powell i am not sure which scandal you are referring to. The salomon scandal with was 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. Forgive me for being so direct, but this is obviously an important job, governor. Mr. Powell thank you, senator. Chair crapo senator menendez. Governor, congratulations on your quote thank you mr. Chairman sen. 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. In fact, a 2016 Federal Reserve board study found there was no evidence that Corporate Tax cuts boost Economic Growth unless they are implemented in mid recession. So in reality, with this comes down to is that hardworking families already squeezed with rising housing costs, education cause, medical costs are going to have to foot the bill for a bad deal. Plan ining there is a which families making less than the new 5,000 a year would lose collectively more than 59 billion in Household Income and income loss could be as high as 1350 dollars per year for certain households, explain to us the potential negative impact economically of such an outcome for middleclass families. Mr. Powell senator, let me start by saying part of the deal when you are an economic study Federal Reserve board is you have to do your own research. The paper you are referring to was the research of three or four individuals. I do not associate that with a position of the board. More broadly, you know, as a discussed earlier i discussed earlier we do not have a model of the effect of the tax bills. It is just not something we do. We will incorporate, when it is done, fiscal changes that will be done that will be one of many factors. Im asking, very simply, is do you think it is good or bad for the economy of middleclass families were to lose 50 billion in Household Income year after year . Mr. Powell yes, i think it would be bad. Sen. Menendez 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 am concerned about the sustainability of our fiscal half in the long run. It is something that needs to be attended to overtime. I am concerned about that. 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 you gave in june you said the problem some commentators predicted 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. That is not it steady, that is not a study, those are your comments. 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 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 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. Chair crapo 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. You talked in your Opening 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. I chaired the committee of the board that oversees the audit of the reserve banks and the board of governors. We are audited in the sense that 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 by 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 itself in the making of Monetary Policy on a meetingbymeeting basis and this is something that 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 bill. Let me broaden it out if i may. \ to the postcrisis. Think the things we have done, our capital, liquidity, stress testing, resolution. Those are important polluters of report. We can make them more transparent, more efficient. We are that is what really involved in right now. Generally speaking, think it is quite strong. Cried you said in october that you regulation is said in october that were regulation is not the answer to every problem. Would you consider changes in doddfrank . I do think that and we would work with you. The gdp, do we need to split that next year . You have to make a decision whether or not to raise rates, and dont you . Powell let me say, this year i expect gdp to come around 2. 5 , in that range plus or minus. I would expect something ready close to that and the reason is we continue to see high confidence among businesses. Accommodative financial conditions. The stock market is strong. It feels like were going to see continued strength next her. Next year. Do you have a personal vision on the tax bill . No i do not. Mr. Heller the are you going to raise rates next year . Mr. Powell i have made it a practice not to talk specifically about individual meetings. That is why we have meetings. If we are supposed to hold back our final decisions and hold back and listen to each others point of use. That is how we do it out of respect for each other. I would say i think out of the case for raising Interest Rates out of our next meeting is coming up. Mr. Heller to enter his we will be raising rates in december . Mr. Powell to repeat myself, senator, i am not going to give you a really specific answer on december. I think the conditions are supportive of doing up and i think we have to have the meeting and listen to each other. We generally have a Communications Role that we are not supposed facing exactly what we are going to do before we go in and listen to one anothers roles. Mr. Heller i respect that. Thank you for being here and taking the time. Thank you. Senator warren. Senator warren congratulations on your nomination. Before the 2008 crisis, the feds had thethe authority to regulate the biggest banks in the country but they failed to regulate that. When things went south, the fence failure to put strong rules in place ended up costing millions of people their jobs. Millions of people their homes. Millions of people there savings. Under chair yellens leadership for the past four years, the feds adopted a number of rules to reduce the risk of another financial crisis. You have supported and helped implement those rules. I understand that now, if youre to taked, you intend another look at those rules. In your written testimony you say you will and i quote you. Look at continue to appropriate ways to ease revelatory burdens. Let me ask you this, you specifically say you will look at ways to roll the rules back. Are there any ways in which the rules should be made stronger . Powell yes. When you think of the four principal pillars of reform, think they can all be made transparent,more clear, efficient. There are a number of diggs it would not roll back. Are thewarren what rules you said you would make stronger . Mr. Powell i would expect to make progress on resolve ability, on stress test. Senator warren so you would want to see rules that were more strong on the living wage for example . That is the question im asking about. For rollback purposes, that is what you said in your testimony. See a onewayto street here where it is all about rolling back rules and not considering the places where the rules need to be stronger. Mr. Powell i would say that there were a lot of problems that we need to address in the banking system. I think we have had eight years now of writing new roles and i cannot think of a place where were lacking in appropriate roles. I think we still have roles we need. We need. Senator warren of all of the rules you have issued, capital, i think they are tough enough. This worries me. Let me take a look at the rules you say you want to roll back. The fed and other agencies finalized the vocal or rule vockler rule. Prohibits banks from trading on their own account. You support changes . Changes. Upport i would favor tailoring the application. I think i would call that weakening the rule. I am going to followup with questions for the record. That youly concerned believe the biggest regulatory problem is the rules are too hard on wall street banks. That kind of mindset led the fed to ignore the Financial System. The fourth 2008. It helped lead to to the recession that followed. Do not go down this path because it is going to be the same thing. Families are going to pay the price while the banks and up getting bailed out. Submit additional questions. Thank you. 15 seconds credit, it only lasts for this hearing. Maybe. Senator scott. Kwaks to see you again. We have talked about these issues before. Relate to concerns to past performances. I do want to talk about the Interest Rate environment we have currently. Senator asked questions relating to increasing Interest Rate in the next meeting. I want to paint a story, a picture and then ask a question about the Interest Rate environment to read if you are a retiree in south carolina. , it has a high quality of life. Good economy. Wonderful places to live. If you are on a fixed income, you are retired, the current cuts into the ability to live off of your interest income. Someone with a 10,000 cd. 0. 25 interest. If you extend that for five years, it is less than 1 rate if your nest egg is half 1 million or 8 million. 10,000 living off of dollars 20,000 a year. The impact of the Interest Rate environment has a negative, unintended consequence in the current marketplace. I do realize the advantage of a low Interest Rate environment helps spur economic activity, folks are more likely to buy but that cuts both ways. I would love for you to talk to the characteristics of an economy that would encourage more normalization of our Interest Rate environment. I think we have that economy right now. Low unemployment. Strong growth. The low settings of Interest Rates during the crisis and after, supporting economic activity, are gradual. As we discussed, i guess ratesday, the interest are a blunt instrument. While low rates support economic activity, the lower bills. Generally, it has supported a labor recovery in the market. If you are dependent on a fixed income and big posits, shortterm Interest Rates, it has been a burden. Overwhelmingly, people are helped and have then. I would say, help is on the way. That will feed through into the Interest Rates woul your constit is happening. We have seen the Balance Sheet of the fed to balloon. We talked about creating a new starting place for a conversation about unwinding that the Balance Sheet and getting to a number that would be our new normal. Not necessarily the 1 trillion beforehand. Can you walk me through what you see as a snapshot in 30 seconds or less . Happening with that Balance Sheet . We are allowing as bonds mature, we are allowing them giving the money back to treasury. The money is shrinking. On that path, 34 years, we will be down to a new normal. Smaller than the Balance Sheet of today. Ultimately, that level will depend on two things. Public demand for cash, a liability. Also on bank demand for reserves, much higher than before the crisis. Demand for crisis has doubled in 10 years. That is why the doll and be bigger. 2. 5uess, it will be in the 3 trillion range. But we do not know. Encouraged by your thoughtfulness about taking a look at the thresholds that may be a part of the legislative package. Looking for ways to increase the thresholds. Having prudent regulations. I would look for, as we look at the designation in the nonbank arena, having spent a quarter century in the industry, i would suggest clarity on what makes , get you designated. How you lose that designation, would be important. Thank you. Thank you for your willingness to serve. The conversation we had last week. I want to give you some data points. Had recordbreaking profits. The highest return on equity in years from 2017. Data shows banks are likely to do even better this year across the board. They have increased dividends. Bank earnings have been increasing. They were up 10 . Has surpassedit prerecession highs. It is due to a lack of demand. The question follows on senator warren. Withproblem are we solving deregulation . Im not going to characterize what we are doing as deregulation. I would think of it as looking back over eight years of innovative regulation, look with the requirements liquidity requirements. Looking back, making sure what we did it makes sense. Is in the objective to get these metrics up . Arent they already up . To errort make sense on the side of caution . Regulation ought to be limited. Arent we where we want to be in terms of Bank Profitability . Not thenk profitability problem . Income,nt there was net was justeir income sugar did in the form of dividends and stock . What are we fixing and for whom . System isking healthy. It is great to see. That was not the case a few years ago. Banksnice to see profitably serving their customers can read we are not looking to change that read i would add, we do want to air on err on the the side of caution. It does not help anyone for banks to waste money, if you well. Those costs will fall on customers and borrowers and such. Our obligation to make sure regulation is efficient. You are saying it is too much papers work paperwork . You hear that on different issues. Lot of regulatory burden. A certain amount is unavoidable. Our job is to be efficient and effective. Bank, wanting to make profits, you want to reduce burdens. When you lay down a new matrix of regulation, there are going to be instant it is in which it is a pain. For a bank to comply. Recordve managed profitability despite whatever burdens there may be. There is zero evidence if we reduce the paperwork artan, compliance burden, we will pass on those savings. Increased lending or renumeration. Have 50 seconds left. When the fed formulates monetary ill see, it takes a broad look at the economy and identifies risks and trends. I have a copy of minutes. There is a brief discussion of hurricane related disruptions. Indicate in the past, they have only had a temporary impact. Answer for the record. How many events would it take to have a Material Impact . Has the Federal Reserve considered what number that would be in terms of the total cost . Have you worked with science agencies. The number of Severe Weather events . I understand this is difficult to quantify, but youre in the the business of analyzing things. I will take those for the record. Us to read thank you for being here. Also, being so generous. The meetings you have had. This. Covered some of i want to go back to it again. You have been nominated to a position where you are going to be the boss. You also said in our meeting in the office, you are going to rely to take a look at Regulatory Reform issues. The first meeting anybody has, they try to give them some direction. The medically, what are you going to talk about when it comes to recalibration of rags post crisis . Four. Called basel regulations, it is not about repealing them. Some of them need to be repealed. If they had been in place 2008. We have two many people regulating the same relations. Really clean in our executions, making it costly. Distracting from what they want to do. Compound question. I will start by saying, my relationship goes back so far, i cannot think of what a first meeting would be like. Has been a close friend. We are aligned. You asked about him. There areanding, significant progress toward an agreement among all the principal persistence participants around uniform floors in particular. Risk categories. Give us a way to wrap up and be in our interests. It is other countries that have lower floors. I came from a press Conference Promoting the tax plan we hope creates economic activity. The two things that combine great economic activity, tax reform and Regulatory Reform. I am hopeful over the course of this year, you are doing everything you can to question how regulations get executed. Right sizing them to the lightest touch necessary so we are producing what is an increasing cost. With all due respect to my friends and colleagues, many of those jobs are nonproductive. All they do is count whether the productive activities hopefully we can see some leadership. With respect to the fact. About clarity. The more tip of the spear, regula atirs saying in their lane. Has a more corrosive impact on the middle class, low inflation or growth . Low growth. Of the things you are responsible, what should we be looking at two help stimulate growth . Our mandate is inflation and maximum employment. It is not growth. The things that can increase the Sustainable Growth rate are muchs in your lane, not so hours. I would boil it down. Forceere labor participation. You want as many people as possible taking place in the labor force. For their own good. People happier and healthier. Policies that can affect participation. And comes down to technological advance. Aptitudes the labor force springs. It can affect policies that remote investment. These policies are in the hands of congress. It is important we have a focus on increasing Sustainable Growth rate. Tax burden,d the will there be more or less investment and productivity . Support are ways to activities. Nds of investment is one. Thank you, mr. Chairman. On your nomination. Both your immediate predecessors the chairman, repeatedly testified before congressional committees about the concern and the rising debt. What bernanke told the Economic Committee in june, 2012. He said, large deficits and debt raise Interest Rates above levels where they normally would be. They are bad for growth and productivity. Borrowing frome foreign lenders, a drain on current u. S. Income. Statement . E with the flex i do. Here what chairman yellen 12, this year on july onore the House Committee financial services. She said current spending and taxation decisions will lead to an unsustainable situation. Will further harm productivity growth and living standards. Do you agree . I do. If we increase the national debt, we are going to make those problems worse. The longterm debt impact. Harming Economic Growth. Get gdpdea would be to growing faster than the debt over a long time. You have any reason to doubt of the debts increase that would result from the bill that has been proposed by republican senators . That. Avent looked at it is not something we are responsible before. You have no doubt to doubt those numbers . Books i have no reason to know them, let alone them. Any concerns about the . Ctions i am hoping i can walk the fine line. Needs to be onbt a sustainable path. On the other hand, it is not for us to be taken part in a discussion colleagues are having over this. Is not our role for us. T really your immediate predecessors commented about their concerns over the impact of Rising National debts. You shared their concern. Agreed with their statement. Not cboaside whether or analysis is correct or not, if there was another addition to the debt, it would make a bad situation worse. And as bernanke said, a number of years ago, he said, at some point, congress is going to make a tradeoff . It is willing to raise. We are talking about reducing the amount of revenue coming into the treasury. The basic math remains the same . If you want to avoid making the are going tond you add a 1. 5 trillion to the that, the only way to deal with that is to cut Social Security . There are a lot of moving pieces. With the country really needs is growingdebt closing faster than gdp. It is the ratio. Growth enters and. The Congressional Budget Office has their own projections. The projected growth pattern. There are things you may or may not be able to do. There is no analysis that when you have a massive tax cut going to major corporations, the result is actually going to be a growth that makes up for the lost revenue in terms of debt . I have not been following the analysis. Do you know of any credible analysis that indicates the tax cut would pay for anything . Any expert about what analysis is out there. The senate proposals. I would urge you to follow of yourition predecessors who were careful not to way into the specifics of this decision made by congress but did express concern about rising debt. I think you for your time. You. Thank being willing to take on this responsibility. I encourage the conversation you have had privately. Unlike your considerations. And like to remind the committee, we have added 14 join dollars to a debt. Trillion under president bush, and 10 under their latest administration. If we do nothing from today, the government will add 11 join dollars in dollars to the current debt. We will end up the current reduction is we will add 11 trillion to the debt. The size the federal government constanttrillion in dollars. There is our problem. We collected more taxes at any time that in our history. Globally, 200 trillion of debt. 60 of that is sovereign debt. A number of countries have Interest Rates in their sovereign debt putting out negative Interest Rates. Seent think the world has a situation where we have seen the four major Central Banks with 18 trillion on their Balance Sheet, 200 trillion of sovereign. Ich 60 is as you restructure your Balance Sheet, what concerns you relative to the size of Government Debt around the world . The u. S. Being one third of that . You are going to manage the Central Banks Going Forward . We have a good plan. I think the market agrees. We have laid out very clearly in a series of public minutes over the last year, i think we were careful to socialize the plan and the market has accepted it. It will lead to a smaller Balance Sheet. Short will lead to a time. There assumptions of the freeing of capital on the private side . Is withheld from being active in the economy . Dollars not000,000 at work in the u. S. Economy because of fiscal policy . What happened, when we allow a security to roll off, ry will roll off a comparable one in bulk. That is what will happen. To capital. Add you point to the other Central Banks. They are behind us. Balance sheets can shrink. 4. 5 trillion 5 trillion. Applaud your background. I want you to talk about technology. Im beginning to be concerned we have another bubble, 4. 5 times thesize of the. Com dotcom bubble in the 1990s. Assuming that this continues, talking about that bubble, the size, growth of these crypto currencies, if that continues to grow, will that affect your affect results from your options you typically have . In the long run, things of that nature could matter. But they do not really matter today, we are nowhere near enough volume that happen on the. Com bubble too. Interested, the same as the bitcoin area to the growth of that area was much faster than what anyone thought at the time as well, in the 90s. I will there is no question that bitcoin valuations have gone up a lot. Again, from our standpoint, crypto currencies or something monitor closely. We look at block chains as something that could have implications in the economy, they are part of the economy that we pay close attention to so you are watching what is going on in asia today in relative to watch a technology . Yes, it is something that we have to do and it is Something Interesting to drink. Thank you for doing that. Reactnk you, mr. Chair to thank you for taking the time with me and welcome to your family, it is great to see you here as well. Of the cleveland Federal Reserve give a speech this month where she noted that more immigration is needed to drive the u. S. Economy at a time when the population is aging and stalling. We need more,hat not less immigration to help drive our countries longterm Economic Growth . Powell senator, as the mentioned earlier, the size of the labor force is an important determinant of growth. The Labor Force Growth is slow these days, and 5 . If you go back 30 euros, it was. If you go back 30 years, it was 2. 5 . Having said that, immigration is on of those issues that is not an hour lane. Right now it is. 5 . I appreciate that, we have been talking about growing the economy and part of your purview is labor. I appreciate you saying that immigration is art of the labor force that grows the economy. As chairman of the Federal Reserve you would this being a lot of important information. Inhave seen some improvement transparency, and better interactions with advocacy groups in the bank communities. Is confirmed, what will you do to increase diversity of the leadership, workforce and opinions in the Federal Reserve system . I am a as a mentioned, big supporter of the Federal Reserve system and also of 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 and at that banks. That is something i have been deeply involved in and all my time there. This is something people have been working on for decades, now. You begin to see what works. My viewpoint is that private companies have been very successful in advancing diversity, and what seems to work is holistic learning sticking over a long time frame, it is about recruiting and going out of your way to bring people pathsving them half for the success. Having a culture that allows them to take with that focus for a long time. It is not something you can do overnight. You mentioned the reserve ranks, that is something that i would be responsible for and i would assure you that we would be very diverse. Senator i agree, it is a cultural change. Thank you for your comments there. Congressional republicans are to cured towardl large corporations and at the same time, this committee is about to consider legislation to roll back rules for certain banks. What do you think of the bill and how do you think we can what tools do you have that would actually help this . Taking your suggestion, some of that is going to go to shareholders, some of it to customers, some of it to employees. We do not really have tools which affect the distribution of profit. Senator so you do have a component of Consumer Protection . Powell we do. Senator and you have a concern about the workforce and growing the workforce number of making sure it is stronger, correct . Powell yes. Senator part of the concern i have, i have heard what you will be doing to address Consumer Protection issues, in particularly protecting the workers in the workforce. Consumer protection, we have not really talked much about. We have been assigned an Important Role in Consumer Protection which we take seriously. Chair as ited as have been as governor, with responsibility for our budgets, that Consumer Protection would have the resources it needs to do its job. We will try to do what ever congress assigns us well and aggressively. Senator i appreciate that. I will submit the rest of my questions for the record. I would like many of my colleagues i, like many of my colleagues have concerns. Horrific, we had a crisis, and the deregulation of dodd frank and many of the regulations put in place to protect individual consumers are very important, and i am concerned about rolling back any regulations which will open the door and less than any Consumer Protection. Especially with all the work we have done in nevada to protect individuals. So i look forward to having further conversations with you with respect to the idea of tailoring your regulations as well. Thank you . Powell thank you, senator. . Senator shelby tomr. Powell, i look forward working with you. I think he will be over at the fed as the chairman and you will have our full complement over there with whatever you need. You have got your stamp on the side, and i hope you will do so in a good way, these on your experience in the past. You have talked about a lot of things here, but i would like to to basic installation scares if any, price stability which is very important. Are youonomies that there was no real pressure on wages which is always a big factor. I do not see myself, a lot of pressure from energy costs and so forth. We are in a different economy, some of us grew up in a different economy, with localization of things, you alluded to the fact that you have an open market meeting soon. You could bump up the Interest Rate. Ook theyou will not sp bond market doing that. So, where do you see the specter of inflation . The psychology of inflation out there, which is a dangerous thing. I do not see wage what do you see there that we do not see, maybe. That you can tell us about . Powell thank you, senator. Inflation has been below our 2 objective, i think every single month that one since i joined the board of the runners in may of 2012. For most of the time, it has been 1. 5 . It is important that we achieve our 2 target, because our credibility is important on that front. Lately, inflation was moving up and it got close to 2 at the beginning of this year. Then this year came and we saw stronger growth, a healthy labor market, but to my surprise, to all of our surprise, i believe, inflation readings started to come in weak. That was a surprise. There are multiple explanations, one being that these are just idiosyncratic factors there was a big drop in pricing for mobile Telephone Services because of a rice war and a change in the way that is calculated; in addition, from a basicallyices, underlying inflation is a slowly changing and evolving trend but there are many factors which move around. We had to effectively push it down. We have been public about this debate we have been having in remarks, and in public are there more fundamental things at work here . I think we are all watching carefully to see and we will be guided as the data comes in. Senator you really dont know yet, do you . Powell you dont. Senator is that a larger trend that you will be watching a by day . Powell well, and that is what dictate the path of all policy. You will determine is inflation is going to perform lower than we thought and we can move quickly. Senator let us talk of the Balance Sheet for a minute. I think you are on the right , but i think you used a term that you might draw the Balance Sheet down to 3. 5 trillion, Something Like that. Is that the new norm . Because it is still a very high threshold. If you did draw it down to 3. 5 trillion, does that hamper you down the road, in case you have to do some drastic things . Powell senator, i would say that we do not really know with certainty what the new normal would be. My own guess would be, and this depends on a number of things i would mention, it would he in trillion,of 2. 5 1. 5trillion dollars smaller. What would dictate the size of the Balance Sheet would do the public demand for liabilities, which is cash, which has been growing, in a world where everyone seems to use electronics, nonetheless people prefer using cash a lot and also the demand for reserves, which are going to be higher because of the permanent for banks to hold highquality liquid asset. Somewhere in the range of 2. 5 trillion to 3 trillion would be my answer. Senator in the area of the other mandate you are involved in his regulatory, the regulatory area. Is it important when you come through the fed or the fdic or anyone, to come through the regulation or proposes a regulation, that they have some type of serious costbenefit analysis before they implement a regulatory change it is, senator implement a regulatory change . Powell it is, senator. We try to do it in the most efficient, least costly way that we can do it. Three or four years, we have raised our game significantly and we are doing more of that. Putting up for example, white papers, in connection with big rules. Solicit explicitly comment on costbenefit analysis. Have also started a unit of policymakers which will focus particularly on costbenefit analysis. I think were always trying to be better at that and we regarded as a very fundamental heart of what we do fundamental part of what we do. Senator that is important for any financial institution, pizza bank and financial survival we think it is key to any financial survival. Liquidity is important. That toportant to have have a Strong Institution . Powell liquidity, as you have suggested, that is really what killed banks. Having higher capital, makes it less likely that there will be a run on the bank in the first lace. I agree with you, they are both important. Senator thank you. Thank you senator. Thank you mr. Chairman, thank you for being here, governor powell. I would like to start my comments by echoing janet yellen, i think she has done an incredible job over a very difficult situation, when it came when she came on board, and she needs to be recognized for that. I thank you for being here today. The debt is about 20 trillion. Can you give me the idea of what , the 2 trillion, how that would impact the economy . Governor powell all other things equal. Yes . Governor powell he would have taxes interest cost and would have to go up to pay for that or he would have even more debt which would crowd out in the capital. Any numbersthere you have on the potential impact to the economy, the higher the that goes,. 25 , i have to percent or. 5 . Governor powell i do not. Senator about a third of our current debt with the last tax cut done during the bush administration, that is when we got it. I think it is important, and i do not think there is anyone who does not want to see a simplified tax code, but i think the reason the Ranking Member , there is nottion a lot of information out there on what the impact will be, and after it is done, it will be too late. Buts not in your portfolio, this is something that will impact your portfolio very significantly moving forward. You have a bipartisan bill out address, have you had a chance to look at it. It is a bipartisan bill with 20 cosponsors 10 democrats, 10 republicans. Have you looked at it . Governor powell yes, senator. Senator if it has been asked before, i allege as. When you look at i apologize. When you look at the bill, are we doing anything that could be putting our Financial System at risk with the regulatory things in the bill . Governor powell we are looking at the bill carefully and we will offer technical comments but i do not the anything. Senator part of the bill is eliminating the volcker rule, regarding liabilities. Any concern there . Powell none. Cowan there is a review that came out, that talks about rules, something that i hear a lot from Community Banks the have any plans as chairman, to update and modernize the examination process between regulators, so there is no duplication . Governor powell assuming, that i am confirmed, that is something that i am committed to try to be better on. A lot ofessed with regulatory agencies in our system, and some of it is good, but it leads to overlapping and duplication. I would be committed to improving on that. Senator as you look at your position, you are new at this, you and around. Would you say thei would be como improving on that. Senator number one job that you have to do as chairman of the fed is make sure that consumers are not harmed without harming the safety and soundness of our Financial System . Governor powell i cannot disagree with that. Senator good. Real quick, i have about 50 seconds here. Another senator and i introduced an act, to create an Advisory Committee on International Insurance standards which would require transparency surrounding the process when standards are being set. As chairman of the fed, how would you work with potential regulators to ensure that fed understands these entities and their current Regulatory Oversight . Governor powell for insurance companies, i think we have acquired a significant amount of insurance talent at the fed and other agencies, and we would be committed to understanding the industry as best we can. Our regulation of insurers and the insurance industry, we would like to be as transparent as we can make it. Senator would agree that insurance capital standards would be different than Financial Capital standards . Governor powell the risks to those institutions are quite different, we are aware of that. Senator thank you. Senator there have been other senators who have asked for a second round. This concludes the first round. I am going to go immediately to our Ranking Member, senator brown. Senator thank you senators, thank you for being here, governor. I would like to follow up on someone elses questions and comments. Since 2008, bank profits are up but wages are stagnant and the wealth gap between whites on one hand and the africanamericans and latinos in one hand has not mirrored. Are people in my state still to feel the effects of this recovery. It is not only humanitarian problem as noted by former fed chair bernanke, but it is also a income inequality and wage inequality is a drag on growth. What do you do to address income inequality . Governor powell i do agree with it senator, and i would say to factor,most compelling there are a number of factors at work but if you look at the flattening of the u. S. Educational attainment in the 70s and 80s, and if you look at the rising inequality and stagnation of middleclass incomes, those two stories fit together so well. The way for u. S. Workers to compete in the global economy, is to have the best skills and education in the world. In a sense, that is a big part of the story behind inequality the question is what do you do, if you are not president , a member of congress, in Early Childhood education, what do you do to address income in a holiday . Governor powell we do not have a lot of tools to address income inequality or distributional effects at all, i would say to you that our commitment to our mandate in particular, to the maximum employment mandate, is to make sure that anyone who wants a job it or has one or can find one relatively easily. Senator does that give you pause when someone says you can raise Interest Rates because we are at full employment knowing that full employment may be for people who look like me, who got to go to college . If full employment is full employment, the people of color, on jobsho have given up or have left the workforce, it is not full employment for them. Does in that give you pause when thinking about increasing Interest Rates yes, of course yes, of course. Pockets of people for whom the yet, theis not there groups who have higher Unemployment Rates than others, pretty rates and other things, we deal with the aggregate level and i think it is important to we are. To say thatg, not we are waiting too long now, the economy could overheat. He would raise rates and the that would bring a recession, which would not help those people. So the best way to sustain recovery is continue on this path of raising Interest Rates. Senator i would like to ask you about coming to cleveland as your predecessor did and coming and seeing ohio manufacturing. I would ask what pope francis said in an sorting his parish andsts, he said go out smell like the flock. I would ask you to really talk to people and see people who still are not in this economy which has been pretty good for People Like Us them about not good for others. One other question. The financial crisis, as we know, was not as a result of one decision, but due to many choices by regulators to change the rules. The fdic chairman greenberg once said, a certain sense of deja bankers and policymakers becoming complacent to risk to the Financial System. This committee is set to allr a legislation that deregulation and the works by the administration and the regulators, look. The president has put on some of these boards and regulators, were in course to weaken the rules for financial banks and on course to insert less protection. Are you sure all of these changes are paving the way for the next financial crisis . Governor powell it is a high standard, but im confident that we are not. That is not our intent. I do not see how the things were talking about doing would push as in that direction. Senator what about that test that stress test . Governor powell i think it is an important postcrisis innovation, and they are successful, angst would say that to you. Senator so should we be considering pulling away from stress test and even in the regional banks . Governor powell i would go back we really want it to be happening at the most important banks, the most stringent ones, and we would love them to taper as they become less since as we had over to the less systemically important. Nstitutions senator for his which are smaller than some of these regional banks, with a have a less frequent test or ace less rigorous test . That is what is included in the bill that congress is looking at i think you are . I think you are talking about the importance of less regular tests. I have not had a chance as we discussed, it is not something we have looked at yet. Senator you are coming to this committee, with all due respect, that you support the legislation, and now youre saying you have not had time to look at it. I guess that means youre not publicly yet supporting the legislation, after digesting it as chairman . Governor powell it is not the legislation, it is what we do with the legislation after it is past. If i understand it correctly, it is on us to decide how frequent a stress test would be. I do not know what will decide about that. We are going to exempt banks 100 i guess it is billion, from stress testing. That makes sense to me, those banks are not systemically important. From banks between 100 billion to 250 billion, we would do something different. Successful tool, stress testing. Senator senator warren . Thank you, mr. Chairman. I would like to follow up on his questions about full employment. As you know, there was a mandate to pursue maximum employment and keep prices stable. The official Unemployment Rate is 4 and many economists are predicting the rate will go below 4 in the near future. Inmployment rate this low the past, would have been considered for employment, which would be good news for the workers, that should be accompanied by higher wages, but we just have barely budged. At least not by asking, mr. Powell, given that wage growth is so weak, do you believe the labor market is currently at full employment . Governor powell full employment is not a precise concept in our thinking, in my thinking. A number of indicators would suggest that we are at or around full employment, but i will point to a couple that suggest that there is room for growth in the labor market, and those would be wages in particular, which is cited. There is no indication that the market is overheating or hot in the wage sector. Senator how about hot or cold . Livee are trying to on these wages, so i think that is how they would feel . Governor powell nonetheless, it is not as fast as it was in peaks. Senator is there a possible explanation for the breakdown in relationship between no unemployment and increasing wages, is it that the labor market is not actually that tight. Individuals were not actively looking for jobs as you know, are not counted as unemployed under the traditional u3 unemployment measure the Federal Reserve relies on. A better measure would be the prime age employment rate which is simply the population aged 2554 who actually hold a job. As of last month, the prime is employment rate was only 78. 8 percent. In other words, almost one in four primary age workers, 24 million americans, do not have a job prime age workers. Prime agetion of workforce who actually have jobs is well below the high that was set back in 2000. Mr. Powell, there are a lot of reasons why prime age employment rate is where the Unemployment Rate is so low, but i would like to focus one that is not on your radar or the reader of the Federal Reserve. According to a research by ofnceton economist, over 40 prime age workmen say they have taken pain medication within the preceding 24 hours and about two thirds of them are taking prescription pain medications. Mr. Powell, if you are confirmed as chair of the fact, how does this affect what you will do as the chairman to achieve full ment let me age participation, that is the other place i was going, it is a full percentage point lower than it was before the crisis. There is a reason for that, it also suggests some slack. In terms of participation by prime age males, and ,ugers research what we can do is push harder on maximum employment. I think we are working on that, but ultimately the tools for dealing with the opiate crisis, and the longterm 60 year decline in participation by prime age males, those are tools that Congress Really has two wheels, let me make sure, it is your opinion that in order to ensure the United States labor market is reaching its full employment, Congress Needs to deal with the Opioid Crisis . Governor powell yes. Senator another Factor Holding back prime age workers, more than twice as many prime age women are out of the labor force as prime age man. According to a study by the hamilton project, more than half of women who were on the sidelines of the labor market say they are not working because of caregiving responsibilities either for children or for seniorsp. How can the fed helped women who are not working back into the labor market . Governor powell we really do not have those tools. Senator good. That is the point i am trying to make here. The point that i lack of childcare release and the Opioid Epidemic are holding back workers, and congress has to do thing. I hope he will promise as fed chair to come before congress and advocate on these policies to make our labor market and economy stronger for everyone. Thank you, mr. Powell, i will take that as a yes. Senator you will be our final questioner. Governor powell, large banks have been said to have combined 156 billion, since the crisis in yet recidivism has continued and lenders take for example wells fargo who has a news handle which arises it seems, every week. To you view the post Crisis Response on the part of regulators to work the largest banks as being too harsh . Governor powell i guess i would regard the fact that we are still seeing things like what you referred to in the paper as very disturbing. I do not think i would characterize our reaction to these kinds of problems as too harsh. I think it is appropriate that we strike a professional tone in our supervision or regulation and we always strive to do that. But no, my main reaction to what you referred to is one of can thatthat concern institutions are still having problem with bad behavior and conduct toward consumers. Senator can we then address the issue . I am looking at this, the conversation we just had with senator brown regarding stress testing and the changing of the threshold which would then diminish any type of stress test for wells fargo as well as bank of america and some of the others. Is that true . Governor powell know, i do not think it would have any effect on stress testing for wells fargo or any of the other larger institutions, it would only affect institutions between 100,000,000,000200 50 billion in assets. Senator if it did, would you have any concerns . Governor powell it would depend on what the effect would he, but i do not see any case for legislation of that nature which would affect the largest and most complex institutions. Senator thank you. Senator i know that i would say senator cortez the last, but i will take the chairmans prerogative and ask you a couple of quick questions. I wanted to go back and clarify my understanding on the answer you gave to senator heller. One of the senators asked you what your understanding was of the current gdp rate of growth in the United States today . Governor powell for the year 2017, about 2. 5 . For the last three quarters of the year, it has been about 3 . Senator you mentioned what your expectation was as to what we could expect in the next year or two, didnt you . Governor powell i would say in manyange of there are forecast but my starting point for next year would the in the , Something Like that, better than what it has been for the last few years. That is just where i would start. Senator do you have any i for theeep pushing you, next year or the following year, would you expect them to stay in the same range or not . Governor powell i would have no confidence on the forecast three years out, ultimately as we are dealing with full employment and everyone is back to work, at that point it will come down to productivity and it is hard to see growth not quite as high. You might see a little bit lower growth. Lower than 2. 5 . It would be more like 2 . Senator so it could be 22. 5 . Governor powell hard to say. Senator thank you very much. I appreciate the fact that you have been here and answered all the questions and your willingness to serve the country, governor powell. Four senators, all the questions for the record need to be submitted friday by new. Governor powell, we will ask for your is ounces to those questions by monday at 10 a. M. , so these was want quickly. With that, this hearing is adjourned . Governor powell thank you, mr. Chairman. Gavel] [ bangs thank you. Announcer cspans washington journal, live every day with that impact issues you. Discussing republican tax Reform Efforts and the possibility of it a government shutdown. Then, wall street journal congressional reporter joins us to talk about the tax debate. Be sure to watch cspans washington journal live this morning at 7 00 a. M. During that discussion. Join the discussion. Now, taking questions at eight confirmation hearing. From thee coverage Senate Health committee starting at 9 30 a. M. Eastern on cspan3. On cspan2, and up they on the economy from outgoing Federal Reserve chair janet human. Researchers talk about global efforts to combat alzheimers disease and some of the latest research. That is live at 2 00 p. M. Eastern. You can follow all three live with the cspan radio app. Cracks in the cspan buses traveling across the country. We recently stopped in baton rouge, louisiana. What is the most important issue in your state . Had abaton rouge we historic flood in 2016. In my district right now, we are dealing with issues of loans. Considersl government the loans to be a duplicate benefit. Without the program, they have to deduct the amount they received through the fda loan. Are working with our congressional delegation but this is an issue and our community. The most important state issued to me is restoration. E are losing land i would like for our state to focus on restoring and replenishing coastline so future generations can see it. I think the most important issue we face and one that we have been since the pastor has been our fiscal budget situation. Not uncommon to a lot of other states, i think ours is a little 2018e but what we face in is the loss of revenue in the form of taxes. Findbility to be able to solutions on the revenue side and diligently coming up with solutions. Announcer voices from the state on cspan. Lawmakers traveled to Johns Hopkins hospital in baltimore to hold a hearing on the u. S. Opioid crisis. You will hear from the governor of the hospital and governor chris christie. Congressman trey gowdy chairs the committee. Ranking him a cut is elijah cummings