tv Bloomberg Markets Americas Bloomberg July 11, 2019 10:00am-11:00am EDT
york, 3:00 p.m. in london, and 30 minutes into the trading day in the united states. i'm vonnie quinn. welcome to "bloomberg markets." a lot of action already this morning, including amazon hopping the $1 trillion capitalization mark. meantime, the dow tops 27,000. it is back below that. now just for our purposes, it is back above 27,000 once again, possibly due to pbm. after thewell as well white house said it won't intervene in that part of the drug pricing planning. however, it is still going to put pressure on drugmakers to reduce prices, according to the health and human services secretary jerry a czar -- jerry azar. it is basically the same story, all to do with drugs. the s&p 500 also higher, up about 1/4 of 1% at that 3000
mark. it did not manage to close above that yesterday after fed chair powell's testimony. we will get more of that today, and the cpi data. the two-year yield has been bouncing around, up 1.85% today. stories, bathher and beyond down 4.7%. we will see what kind of halo effect that has -- down 7.47%. we will say what kind of halo effect that has. not many analysts were looking for a great quarter from their. -- $60bove $60 of arable a barrel for wti on the news, including another attack. in europe, we have a green screen, but nothing huge to write home about. of stoxx 600 up about 1/4 1%.
really taking its lead from the united states. kidney companies as well holding those industries higher. coming up, we have fed chair powell's testimony, but first we want to get to michael mckee in idaho. we have a very special interview. that is all coming up next, so you don't want to miss all of that. this is bloomberg. ♪
richmond fed. yesterday chair powell went basically markets and said we are going to cut rates in july. did markets get the right idea? tom: i think he said the same thing we've been saying for the last month, which is we don't have forward guidance anymore in the memo. we are watching very carefully what is happening in the data, and we are looking very much at upside and downside risks. at this point, they are a little more tilted to the downside, which is why we are looking at that. michael: the market has basically priced in a 100% chance of a rate cut now. can you go against the markets? tom: we have a lot of time left before the meeting. we will see what happens. cpi came in this morning. we will get retail sales and consumer spending, and markets are smart, so if the data ends up with a different kind of outcome, the markets will
adjust. michael: what is your -- what is your view of the economy? tom: i still feel pretty good about the economy. on the consumer side, spending is great. on the labor side, markets are still quite tight. those are very healthy signs in our economy. what the chairman mentioned yesterday and what is clearly a concern on my mind is business confidence and business investment. the first quarter was fine, but the indicators for the second quarter are less strong. i've been asking questions about how you feel about the climate for business investment. folks haven't pulled back yet. i don't see folks laying folks off, cutting back existing plans, but they are also not leaning forward in the way you might, as strong as the numbers have shown in our economy. michael: you have a bit of a different background than the phd economists on the fed. you are a business -- you were a
business consultant for years. what is the general feeling about the economy, and where is it going? do they think we are headed down, or are they just really unsure? tom: confidence is very fragile. most everyone i've talked to says this is the longest upturn in my memory, and in recorded u.s. economic history. it's got to change at some point. mind's concern in their that things are close to changing. when you talk to them about their own businesses, with very few exceptions they are doing quite well. so today is good, but they are nervous about tomorrow. michael: what are they saying about demand going forward? have they seen any kind of falloff? tom: i was with a bunch of consumer company cfos. they couldn't have been clearer that demand hasn't fallen at all. i was talking to businesspeople, and they will tell me demand is still quite strong.
i don't see any issues on the consumer side. manufacturing has got some challenges. if you are in the equipment parts business, for example, you might have seen a little bit of a slowdown. that's what happens on the investment side. but 70% of the economy is consumer, and that part still seems to be quite fine. michael: jay powell kept coming back to the idea of trade. is that what ceos are telling you? tom: i definitely think the ceos would like to have the rules of the game made clear. they understand in many cases what we are doing and why, but they want the rules made clear, and if the rules include iteris regime or free trade regime, regime-- include a tariff or free trade regime, that's fine. but they just are interested in knowing what is going to happen. michael: how does a rate cut fix that lacks of confidence -- that lack of competence? -- that lack of confidence?
tom: a rate cut stimulus the economy in many ways, including investing by businesses. it is a pretty classic transmission vehicle. if you were to do one, and i think we shown over the last many years that if you keep rates low, it does stimulate activity in our economy in a broad-based way. i don't think it does it in a targeted way or goes after any particular issue like trade directly. michael: the other issue the fed has been concerned about is inflation, or lack thereof. from a company standpoint, what are people telling you about pricing and pricing power? tom: pricing is tough. when you are in a business, your pricing strategy is determined in part by how vibrant the market is, but in large part by the reactions of your customers, the reactions of your competitors. tothe businesses i talked are having a very hard time passing on price.
i think we have grounded expectations so well over the years and procurement departments have enhanced their capabilities so significantly over the years that i think the nose and -- the notion that there is any sort of big wage increase in prices coming is very low likelihood. i think we have made a permanent change in inflation dynamics. if you go back to the world i grew up in, you had labor share of content much bigger, labor unions much stronger. you didn't have the transparency that's been created by the internet. you didn't have the power of big box retailers. you didn't have procurement departments that operate with very sophisticated people. i think that does make it hard to just take incoming costs and pass them on. the businesses i talk to our thinking about different ways to create margins. you will see add-on fees. you will see fewer threads in a sweater. you will see the introduction of
new products at a premium price. all of those things are done by businesses to try and capture price in a world where the direct pricing vehicle doesn't work the way it used to. guy: if you cut rates, it would probably have an effect on the value of the dollar. i know the fed doesn't target the dollar, but what about companies? do they want to see, as the president suggests, a weaker dollar to become more competitive? do they need that? tom: i think folks with more international exposure have a different view. in the press, there's a lot of talk about tariffs. in truth, there aren't that many tariffs as a percentage of the economy. the folks who have been in tariffed industries first of all have to decide whether it is temporary or permanent, whether it is industrywide or just hitting them. if they think it is temporary,
they are more likely to just wait and see. if they think it is going to be there for a while, as many people now think is going to be the case in places like china, then they are forcing the question of what to do with their supply chain. is industrywide, you often go to your customers and see if you can't raise price. is in chinaly chain and somebody else's is in vietnam, you've got to move. michael: we are talking on bloomberg television and radio worldwide with the president of the richmond fed. your district represent a lot of the many factoring that moved out of the south, moved to china , went to other places. how are trade wars playing their among the businesses -- playing there among the businesses? the administration plays it as short-term paying for long-term gain. are they willing to play that? tom: you've got folks who are directly affected and folks who aren't.
if you are not directly affected, i think people understand the idea of delivering fair trade packages, and are willing to take a little bit of uncertainty for that end, but they would like the uncertainty to be through. the folks directly affected react very much based on what is happening in their particular business. if it hits you directly, you're not happy. if it helps you directly, you are happy. michael: what do they tell you about being able to find labor? there's been an ongoing story of people out there not well trained for the jobs we have, or in some industries we can't find the people we need. do think the labor market is tight, and what it'-- and it is what you hear when you talk to any business in our district. i do think there is a difference between entry-level and more senior leaders. at the entry-level it is supertight. you are seeing difficulty finding people, whether it is
construction workers, truck drivers, nurses, waitstaff. your seeing wages increased quite significantly in that population. in the higher end, while it is also tight, investments that businesses have made over the last 10 or 15 years in worker experience have led to turnover that hasn't quite been as high as you might expect given the strength of the economy. people are willing to wait a month or two or three to find the right person in marketing or finance or someplace like that. where you really feel the tightness is at the entry-level, and in particular in places like construction. michael: do you think a rate cut helps because even if demand increases, companies might not be able to fill it? tom: one of the things we are watching very closely is are there still people on the sidelines of a strong economy that will still come in? i was in south carolina the last couple of days, a small town in my district, trying to understand what would it take to
bring more workers in off of the sidelines. a little bit of the answer to your question comes in. how many people are there on the sidelines who could still come in? michael: where can they find them? are people taking more than one job? are they cutting back on production because they can't meet demand because they don't have the people? tom: it depends on the industry. if you are in a production job or you really need the people, i think people are paying enough to get those people. where they are not paying enough is in the jobs where you can hold it together for a month or two or three, and they are delaying that sort of thing. but any manufacturing facilities, people are hiring what they can hire. with skilled labor, you can't create somebody overnight. i do talk to construction folks who are increasing their pipeline, their backlog, instead of doubling down on today. that is probably good for them in the longer-term, but it limits the growth somewhat today. michael: if we are coming up against the limits of the labor force, the only other way to get potential growth up is to
increase productivity, but we don't seem to be seeing that really happen. our companies not investing? do they think there's not enough game to be had yet? tom: the numbers are more positive on productivity than you just said. the first quarter number was extremely strong. if you look on a one-year or two-year basis, you see productivity in the upper ones were low -- up or ones or low twos, which is strong on a relative basis. i am quite interested in productivity because i think growth matters for our economy. i do think this issue of the climate for business investment and business confidence is a critical piece of this message. policymakerso as and all parts of the government to create stability and a sense of confidence so that businesses can invest, so we can innovate and get more productive, that is critical for us. guy: a lot of ceos saying that's
what they -- michael: a lot of ceos saying that's what they want to do, or they want to manage where they are? tom: i think if i come back to the ceo mindset, they do very much want to invest in their businesses, but they've also been through the great recession. they are a little bit scarred. they know that you don't want to be caught leaning too far forward if things are going to go south. they are very interested in following closely what is going to happen. folks have said this year, what i'm doing is managing my customer mix. i'm going to trade out some of the lower profit customers for higher profit customers instead of expanding in the next facility. that doesn't mean that's what they are going to do next year. that's just where they are today. michael: a couple of questions about the mechanics around the fed. the balance sheet rundown is expected to go down for september -- down through
september, and that gradually tightens policy. if you cut rates, they would be working across purposes. would you change the schedule for balance sheet wind down? tom: if we decide to do something to do -- if we decide to do something with rates, i'm sure we would have that conversation. i'm concerned that what we've done on the balance sheet hasn't do an effect, but if we decide to do some thing with rates, of course we will have that conversation. michael: the economy is not in bad shape, and you said you are relatively optimistic, and yet the markets are suggesting that there is something wrong that needs to be addressed by the central bank. january,olicy pivot in the so call powell put -- the so-called powell put, set in place that if markets stomp their feet loud enough, the fed has to respond? tom: i try to stay close to the
data and figure out what we can do to help sustain expansion as much as we can. when we got to january of this year, it seemed pretty clear there were a set of uncertainties. you will remove the government shutdown, the international markets, and some credit spreads in the markets that meant we probably shouldn't be sending a message that we are on an unmanaged path to ever higher rates. that is what we did based on all of that data. i think that was a sensible thing to do. think ifral would not i were in the markets that we wake up every day just making sure you're going to be happy. that doesn't feel like the right way to go. i certainly spend my time focusing on the economic data, not the markets. michael: how do the ceos see it? are they following the markets closely? do they worry about what kind of reaction you get on wall street? or do you find more long-termism these days? morei think they are much
focused on their sector, their customers, their clients, their competitors, their business. to the extent of that what happens in the markets affects ther business, they will -- credit, stock price, they arm interested in that, but for them and may be for me, they understand that markets go down. they are trying to think through that cycle rather than react to it. michael: the president saying not so nice things about jay powell and people. if you tried -- and you all. if he tried to fire or demote the chairman, how would you react to that? tom: as jay said yesterday, we are going to stay focused. i expect that is not going to happen, and i hope and expect we will do the right job for the economy the same way we've been trying to do. go,ael: before we let you
chairman powell will start in a few moments. maybe there are some senators watching now as they prepare their questions. what should we know that maybe we don't think about, about the open market committee deliberations, and how you are thinking about the economy? tom: i hope that you know this, but just great seriousness of purpose in the preparation and in the room. you've got 17 people in the room. they are all thoughtful. they all bring a different perspective. there's two days of listening extremely hard to what one another does, and decisions are taken not in the heat of the moment, but after really deep and sober reflection. we are all just trying to do our best here, and we appreciate to the senators the support they give us. michael: and if you cut rates, 25 or 50? is it better to go stronger sooner? tom: let's visit that when we come. i think we will see in the next three weeks consumer spending,
retail sales, pce. we saw cpi today. there's a lot of important data to come. let's see what the situation is when we have to make that decision. michael: all right, thank you very much. thebarkin, president of federal reserve bank in richmond. i will send it back to you. vonnie: and thanks to you, bloomberg's michael mckee, international economics and politics correspondent. one of the things that stood out to me was that barkin said a rate cut doesn't stimulate the economy in many ways and is an mechanism. >> how much stimulus will you really get from a cut over the next year? primarily because interest rates are already so low. things like five-year notes and
tenure notes and mortgage rates. mortgage rates have come down quite substantially, where now you have is again people refinancing their mortgages that they took out just a couple of years ago thanks to those low interest rates. one thing that i cut could do is solidify the idea that those interest rates will stay low, and that could be what stimulates the economy and gets people borrowing more money in order to do things like capital investment, which mike had asked president barkin about quite effectively. vonnie: the other point about the mechanics of what is going on at the fed is that the balance sheet rundown will be done by september, and michael about thed tom barkin balance sheet rundown and suddenly an interest rate cut. he seemed to think that because he was never a fan of the balance sheet roundup in the first place.
ira: the balance sheet expansion did work and do what it was supposed to do, which is give confidence and financial stability. i don't think that two months worth of runoff really matters in the grand scheme of things when you think about financial stability, when you think about the fact that the federal reserve has other tools that they use to effectively control short-term interest rates, like the interest paid on those excess was herbs. the fact that those excess -- on those excess reserves. the fact that those excess reserves are falling doesn't really make that much of a difference. more interestingly, what happens in the future when they have to do quantitative easing again? vonnie: ira, thank you. that is i read jersey with bloomberg intelligence -- that is ira jersey with blumberg intelligence. federal reserve chair -- with bloomberg intelligence.
federal reserve chair jay powell is now speaking in front of the senate banking committee. we will get to that now. i think we agree that libra raises a lot of serious concerns, and those would include around privacy, money laundering, consumer protection, financial stability. those are going to need to be thoroughly and publicly assessed and evaluated before this proceeds. we've set up a working group to focus on this at the fed, and we are in contact with the other regulatory agencies and central banks and governments around the world on this. we are really just getting started, and i would just stress it is a great thing that you are having a hearing on this next week. i think it is important that this process of understanding be evaluating this proposal
a patient one and not a sprint to implementation. in terms of the u.s. specifically about data privacy, one of the features of this project is you would want to see a particular regulatory body that has oversight over the whole project. that doesn't appear to be the case. there isn't any one agency that can stand up and have oversight over this. we do not have oversight over facebook. the privacy rules we apply to the banks, we have no authority to apply them to facebook or to libra or the libra association. we are just in the process of thinking this through, but i think one of the notable features is that the supervision and regulation would fall in front of many different agencies, state, national, and
international, and we need to get our arms around that for starters. sen. crapo: thank you. you've actually lead into my second question on that. i was going to talk about how we fit in all of our banking sec, and frankly going beyond even financial regulators to capture the entire scope of not just this, but many other aspects of the data collection going on in the global experience we are having come of the human experience we are having on the internet -- we are having, the human experience we are having on the internet. do we need to look at the possibility of creating a new regulator for data protection? chair powell: i think that is exactly the question we need to be focused on, one of many we need to be. focused on. it isn't clear -- need to be focused on. it isn't clear from our current regulatory system that we have what it need -- what we need to
provide regulation and oversight on this. sen. crapo: thank you. i'm glad to hear you have a working group together and are reaching out to other regulators who have a piece of this issue in the broader issue of data collection, and i look forward to working with you on this. senator brown. sen. brown: thank you, mr. chairman. thank you for your questions about facebook. clearly this alternative banking system and legates monetary policy, payments and regulatory issues. i appreciate they have concerns. talk in alone more detail about what kind of risks this alternate facebook currency would pose a ordinary people -- would pose to ordinary people. chair powell: you start with privacy, and the privacy of financial data. then it moves quickly into the question that seems to become is blockchain going to be so private that it becomes a
vehicle for somehow evading money laundering rules and that kind of thing. there's a balance to be struck there. in addition, the very potential scale of this, given the size of facebook's network, means it could be essentially immediately systemically important, and i think the company has acknowledged that. i would echo what you quoted, what governor carney said. that means this should be subject to the highest level of expectations for privacy and also potential regulation. the question is how and when. i wish we had an easy answer, but that's the question. been in touchu've with central bank counterparts. can you tell me what you are hearing from them, whatever , fromly you can tell us
indochina, japan, and britain? chair powell: i think everyone wants to start with the proposition that we want there to be innovation in the financial system. we don't want to be just reacting negatively to innovation. we want to find a way to incorporate it, but there are serious concerns around the table on how this will fit into a regulatory system and what it will literally mean. i think we will be making quite a bit of progress. there's a g7 meeting next week in paris, and i know it will be a topic there. i think we are at the early stages of understanding. i think we understand what's in the white paper, but what are the right ways to assure that the public is protected and the financial system? sen. brown: the working group the two of you talked about, certainly let us know. give us regular updates on where you are going and what u.s. adjusting. the fed's latest monetary policy
supports as credit standards for new leveraged loans are weak and have deteriorated. a slowdown in economic activity could pose risks to barring firms and their creditors -- to borrowing firms in their creditors, firms that employ millions of people. how would a crash in the leverage lending market decreased productivity and affect employment? chair powell: the thought is that if the business sector has a lot of debt, companies that are highly levered will be more affected by an economic downturn should one happen. they will be more likely to cut back on capital expenditures and may be hiring, that sort of thing. highly levered companies are more vulnerable to economic shocks. i think that is the nature of the risk we see around leverage lending. the risks before the financial crisis were risks to the financial system as such.
most of this risk is now held in market-based vehicles which have stable funding. not all of it, but most of it is held in that. it is really in a chrome economic -- a macroeconomic risk. we are looking at those vehicles and ensuring that they do have stable funding, as we believe they do for the most part. sen. brown: and we need you to pay special attention to those risks, as you know. the fed recently approved capital distributions from the largest banks, not surprisingly. you can expect the largest banks will spend tens of billions of dollars rewarding themselves and their investors with dividends and stock buybacks. that's been their history. that is likely to be their future. this clearly doesn't help workers and consumers. why does the fed continue to approve these kind of exorbitant capital plans and direct so much money away from the real economy? chair powell: the sense of the stress test is that after the shock we apply, the global
market shock in the case of many of the largest institutions, the banks have to exceed certain minimum capital requirements, even after this shock. those requirements are higher than the actual level of capital that the banks had in 2007, so they are quite high, and the shocks are quite large. the stronger the economy, the bigger the shock. that is their obligation. above that, if they have capital that is well in excess of that, they have the ability to pay dividends as long as they meet that test. it as a consequence of the fact that we spent a decade with stress tests and requirements, having the banks raise capital higher and higher, and they are now in a position where they can pay out all of their earnings for that year and still be in compliance with the tests with a margin of error. that is really where we are. sen. crapo: senator shelby. sen. shelby: thank you. chairman powell, thank you for
your service and your work to keep the federal reserve independent of both parties and do your job for what it was set up to be. we salute you for that. several things you've touched on. before i get into a few questions, i will try to stay within the five minutes, i have a number of questions i would like to ask for the record, without objection. sen. crapo: without objection. sen. shelby: thank you. as a clouded trade perhaps on the economy. know the economy is the best that i've seen in my lifetime at the moment. we want to sustain that. trade is one way to sustain it if we have certainty there. would you elaborate on how important that is to the economy? chair powell: i will. i should start by saying we play no world in setting trade policy, and no one -- no role in
setting trade policy, and no one should construe -- sen. shelby: but it plays a role, yes? chair powell: correct, but what we get from our business contacts, and i imagine this is fairly the same as what you are hearing, if you are a manufacturing company in the united states of any size, you've probably got a supply chain that goes across international lines. that is a really important part of your business. so the trade negotiations that have been going on have injected uncertainty for those businesses into their supply chains. many of them have moved their supply chains. some moved them to mexico and found that exit might be the target of tariffs. others are considering what to do. at a minimum, it is a distraction from going out there and rolling out new products and that sort of thing. so it shows up a lot in the beige book, just overall concerns, and i think it is
weighing on the outlook. manufacturings in , investment, and trade in the united states. that is where it shows up. sen. shelby: your mandate as chairman of the fed is to do what you can for full employment , and also price stability. sometimes you've got to balance that, as we know, in the monetary system. i think overall, you are doing a good job on that. i do worry down the road about inflation, as you do. it seems to be fairly tame at the moment and so forth, but we've observed in the past that there has been some type of relationship in previous years between inflation rates and unemployment rates. ,s unemployment goes way down there's pressure on wages and so
forth. is there a new paradigm out there as far as evaluating this today, and is it because of the global economy? we have low and employment, but at the moment, not a lot of pressure on inflation. chair powell: the relationship between slack in the economy or unemployment and inflation was a strong 150 years ago. in the 1960's, there was a close correlation. that has gone away. sen. shelby: we had a different economy then, did we not? chair powell: a very different economy in so many ways. atould say that period, least 20 years ago that period was over. that relationship has become weaker and weaker. in addition, i think we are ,earning that interest rates
that the neutral interest rate is lower than we had thought. i think we are learning that the natural rate of unemployment is lower than we thought. monetary policy hasn't been as accommodative as we thought. i think we are learning all of those things. at the end of the day, there has to be a connection because low unemployment will drive wages up, and higher wages will drive inflation, but we haven't reached that point. the connection between the two is quite small these days. sen. shelby: what is your take on the ability of the german nation to borrow money in their bund at a lower rate than we do? is it based on what we traditionally know in economics, the least likelihood of default? they are borrowing money around 2% lower than we are. chair powell: i think it is a range of factors, and i wouldn't know them for sure, but i would say it is low inflation in europe. that goes into rates.
it is also the amount of quantitative easing and asset purchases the european central bank has done. it is also expectations of slower growth. all of those i think go into driving those extraordinarily low european sovereign rates. sen. shelby: thank you, mr. chairman. sen. crapo: thank you. senator menendez. sen. menendez: during your testimony in front of the house financial services committee, you stated that any problems that would emerge through libra "would arise to systemic levels just because of the mere size of facebook." is facebook too big to build its own digital currency? chair powell: i think it is still early to say that. i think the size of their network does focus your attention on the very likely systemic importance of this currency, and that doesn't mean that they shouldn't do it. it means that at a minimum, the standards that need to be applied to it will be the highest. sen. menendez: as such, if libra
moves forward, is it possible that our concerns rise, that we will have another too big to fail institution tethered to the u.s. economy? chair powell: i certainly hope not, senator. again, we are at the very beginning of assessing all of this. i don't know that this would be facebook itself. libra is actually 28 companies, including facebook. i don't know that facebook would be too big to fail, no matter what happens with libra. sen. menendez: if libra moves forward as a cryptocurrency, consider classifying it as a non-bank? chair powell: it is a very good question. we haven't had a principals since this has been announced, but we will be focusing on it. the treasury is lead there. sen. shelby: i'm assuming you have --sen. menendez: but i'm
assuming you have some comments on that. we've seen what happens to countries like venezuela when central banks stop making decisions based on economic data , and instead change monetary policy to suit political goals of those in power. the results are pretty ugly. of course, i don't always think the fed gets things right, but our system is infinitely superior to one where the president dictates interest rates, especially when we are heading into elections. president trump has on several occasions threatened to either fire or demote you in what is clearly an attempt to intimidate you into taking certain actions. i thing i speak for all of my colleagues when i say that we applaud your efforts to keep the federal reserve as an independent and nonpartisan institution. policy on a terry report, you talk a lot about how uncertainty -- your monetary policy report, you talk about holding usinty is
back. i think we are really referring to uncertainties around trade and global growth in what we said in the monetary policy report. sen. menendez: ok. so let's turn to that. , you notedade several times that uncertainty over trade policy is weighing on the economy. i can tell you not a week goes by that i don't hear from folks in new jersey that they are finding it harder and harder to grow their businesses and hire more workers because of the administration's unpredictable trade policy. so when you talk about "uncertainty in trade policy," isn't what you are really talking about the president's unthinkable behavior and his obsession with tariffs, which
are really just taxes on americans?probably the most stark example is when the president put tens of thousands of american jobs at risk by threatening to put tariffs on mexico for an issue completely unrelated to trade? would you agree that threatening to put tariffs on imports from our second-largest trading partner in the world for an issue completely unrelated to trade has increased uncertainty and held back our economy in the past few months? chair powell: i think businesses like a settled rulebook. they like to know what the rules are so they can act as aggressively or carefully as they want to. i think when you go through a series of trade negotiations with your major trading art news, inevitably there will be uncertainty around that. that is not to judge whether -- not toersations judge them in anyway. sen. menendez: i am not talking about trading negotiations in general.
i am talking about using tariffs for non-trade purposes. that creates uncertainty. every ceo i have when we were talking about tax reform, they would say to me, regardless of what policy you come up with, give me protect ability and certainty, and i will figure out a way to make any. certainly it becomes unpredictable when tariffs are used for nontrade issues. chair powell: i think the reaction to that was pretty strong in the business community. sen. menendez: thank you. sen. crapo: senator toomey. sen. toomey: tank you, mr. chairman. -- thank you, mr. chairman. good to see you here. i just want to follow up on a point senator menendez was making. i followed parts of your testimony before the house financial services committee yesterday, and noted that you are asked whether you intend to serve out the entirety of your term, and you said that you definitely are intending to do that.
i for 1 am glad to hear that that is your conclusion, in part because i think it is important the fed remain insulated from political pressure, but i also want to say or the record that i think you've done an outstanding job. i would remind my colleagues on the date you were sworn in, the fed funds rate was still on a real basis very close to zero. we had an enormous balance sheet. we had not yet exited the extremely abnormal monetary policy we had pursued for about a decade. i think that was a very dangerous experiment, and the unwind of that had no roadmap. there was no precedent. we had never experienced this before. the central banks in other parts of the world were not in the process of normalizing. so you had to figure out a way to do that because i think you believed that it was important to normalize. about doing that, and we went about doing some things
on our side. we did major tax reform. we rolled back some regulation we thought was excessive. and what is the result? what are the results of that work? the result is the strongest economy of my lifetime. 3% economic growth last year, 3% in the first quarter of this year. record low unemployment, record job creation. we have more job openings than we have people looking for work. we helped expand the productive capacity of the economy. now we are seeing an acceleration of wage gains which are the strongest at the low end of the income spectrum, so this economy is narrowing the income gap, the wealth gap. mr. chairman, we used to have an expression for an economy like this. we used to call it the goldilocks economy. strong growth, very low unemployment, rising wages, and very low inflation. that's exactly what you hope for
in an economy. i'm not's adjusting you get all the credit for it. we certainly don't get all the credit for it. but you were able to normalize from this very strange experiment, and here we are with some terrific consequences. that leads me to my question. in light of the fundamental strength of the economy, and i acknowledge that there are doubts and uncertainties, but i have to confess i've been a little surprised to see over recent weeks that the market has estimated about a 100% certainty that we are going to get a reduction in the fed funds rate. i am not asking you to tell us what the committee is going to decide to do at the end of this month, but in light of the fundamental strength, it is surprising to me breadth of the consensus that we are going to lower interest rates. one of the things i wonder about is to what extent is this driven by market-driven interest rates?
as you know, virtually the entire treasury yield curve is trading below the fed funds rate. i think you've got to go out to the 20 year maturity to get to close -- to get close to where fed funds are. maybe that is the private market telling us the price of money should be lower than it is. i just wonder how you think income markets, especially the treasury markets. to what extent does that influence the judgment of you and your colleagues in determining where interest rates should be? chair powell: thank you, senator. we see it quite similarly to the way you described it. the u.s. economy is in a very good place, but we also see those uncertainties i mentioned is weighing on the outlook. we also see some weakness in the united states economy that have mentioned housing, any factoring, trade. i think we have signaled, and
central banks around the world are seeing weakness everywhere and are also providing more accommodation, that we are open to doing that. you are seeing that in the curve now. you are seeing that in bedded in the united states interest rate curve, the fact that we have said we -- sen. toomey: it seems to me that the yield curve was suggesting that even before. what does that reflect? i think itl: confidence shock. we have recovered, in part because we have stepped forward and indicated that. we addressed that through our policy and indicated at our last meeting that we were looking at changing rates. the bottom line is the economy is in a very good place, and we
want to use our tools to keep it there. it is very important that this expansion continue as long as possible. sen. toomey: thank you very much, mr. chairman. sen. crapo: senator tester. sen. tester: thank you very much. i want to echo what many have said already and thank you for the job you're doing. i very much appreciate it. i think i'm going to start here. it was into thousand seven or 2008 that we had a hearing in here with the secretary of the treasury when he said that we were on the cusp of a total financial meltdown. we are looking at an economy that is flying right along. we are racking up debt of $1 trillion a year. we have a president that puts tariffs on at whims without any exit strategy. we have allies that have been pushed away. we are witnessing china's influence internationally that's
been incredible, plus their investment infrastructure in their own country. we are seeing health care becoming unaffordable. we are seeing higher education being unaffordable. we've invested virtually nothing in infrastructure in this country, especially in we look at the 21st century economy. that hearing that we had in this banking committee very vividly because the question i asked of the treasury is how come we hear about this when it is such a crisis situation that we are looking at a financial meltdown situation worldwide? he had been in front of our committee. you are not secretary of the treasury, but you have a very important job. he had been in front of the committee and never said a word about it. your job is very important in looking at the underlying factors.
what is the thing you are looking at, or two or three things you are looking at, that would tip the scale? i think there's a lot of things going on right now that's very concerning, even as we talk about low unemployment. we also failed to mention the fact that many of these families work multiple jobs to be able to afford even to rent a house. could you tell me what the underlying factors that you are looking at that would give me assurance that the strong economy is actually as strong as we think it is? chair powell: in terms of our economy in the near and immediate term, i think we really are in a good place. mainly, the consumer part of the economy is pretty much intact. that is 70% of the economy. you've got low unemployment, good job integration, rising wages, people spending. housing is more or less sideways , and you don't see the kind of
risky problems you saw before the crisis. those are all good things. you see some weakness in the business sector. that is really tied to manufacturing around the globe. that is the thing i worry about. if you talk to international economic authorities, people are very concerned about global growth, and we will feel that over time. that's the main thing i worry about. the other thing i worry about is just the longer run issues that we face as a country. we don't want to be at the bottom. we don't want to have an opioid problem that keeps -- sen. tester: so i guess there are a lot of things out there that are cruising along as we look at it. i would tell you that the infusion of trillion dollars off the credit card every year into this economy has a pretty significant effect on its ability to grow. you give me $20,000 a year
extra, i guarantee i'm going to spend more money and things are going to happen, but i've got to pay that off at some point in time. come into this equation at all? if you want to address the debt limit, potential playing games with that, you can address that. chair powell: household debt is actually -- sen. tester: i'm talking about national debt. chair powell: it is on an unsustainable path. it is something that will have to be addressed. at the same time, we are the world reserve currency. we borrow very cheaply, and there is no competitor at the current time in terms of another reserve currency. what will happen i think as we will spend more and more of our precious resources paying interest on debt as opposed to investing in the stuff that we really need. sen. tester: ok. i'm out of time. thank you very much. i do have some questions for the record. i want to talk about the impact
these tariffs are having on ags and what you are seeing with the banks, but thank you mr. chairman. sen. crapo: senator cotton. sen. cotton: welcome back, mr. chairman. we spoke about the labor share of income and why more profits aren't going down to regular workers. today i would like to explore a related concept on economic mobility on that front. i am pleased to be chairing next week a hearing of the economic policy subcommittee on economic mobility, the american dream in crisis. there was an interesting article out today in "the wall street journal" based in part on your semiannual report that mentions the record expansion surprise winner, the low skilled. it talks about how sony people who had been on the sidelines have gotten back into the economy, including some of the groups you mentioned that traditionally have been hurt the worst in recessions.
it also says that it takes on average eight years for less educated workers to recover the wages they lost in a recession. it is much shorter for college-educated and the more highly educated. mr. chairman, i want to get your take on whether upward mobility depends in part on strong economic recovery making it all away into the eighth or ninth inning, so to speak. are we currently in that state of this recovery, the eighth or ninth inning? is i powell: the good news think we are in those innings, and it is very gratifying to speak to people in low and moderate income communities who work or live there or both, and say they haven't seen a labor market like this really ever. it is very tight. that means employers are looking through all kinds of blemishes on resumes and hiring people and training people up, things like that. that is really good.
the bad news is, as that box indicates, that started about eight years into this recovery. that hasn't -- that isn't really a great strategy. we don't have that many expansions. we need a better strategy than that. it is working now, but ultimately the last time we had an expansion this long was 50 years ago. they don't tend to last this long. it also underscores how important it is for us to keep this going. a couple more years of this is going to be very beneficial to those communities. i want to highlight yours marks -- highlight your remarks a couple of months ago. directly from your speech to illustrate how wide that gap has become. 50% the 1960's, well over of working men held a job, and
there is very little of rings and implement for those with or without a degree. those hasshare of fallen to around 90% in 2017, it has plunged for others. 95% of male high school graduates were working in 1967, but only about 80% of them were working in 2017. among working age men without a haskell diploma, about 90% had a job in 1967 -- without a high school diploma, about 90% had a in 2017."7 versus 70% what explains this new situation? chair powell: the way i think about this is what is really a couple of major trends, and those are really globalization and the advance of technology. for many of us, both of those things are advantages.
if you are on the right side of those trends, this is probably the best time in human history for you. but there are people who, because they don't have the training and skills and background to benefit from advancing technology, they fall on the other side of the divide, and that's what you are seeing. you are seeing similar patterns, maybe not as extreme, but similar patterns. at the end of the day, it comes down to an educational system that produces people with the skills and aptitudes to benefit from technology, increasing technology, more complicated technology. you can have declining inequality and widespread prosperity. without it, it will be hard to achieve. china had a complete open market for american manufactured goods for the past 30 years but closed the market for investment banking, we might be hearing a
different tune -- out of those on the right side of globalization right now. i will not ask you to comment on that but i think immigration plays an important role here. you were talking about the 1950's and the late 19 -- and the late 90's, less than 10% of the american workforce was foreign-born. right now we are reaching a point of our highest in over a century and i think it is important we focus on immigration policy and the role it plays in blue-collar jobs. >> senator warner. >> thank you. mr. chairman, it is good to see you again. an editorial comment first. i was proud to support you when you became chair. you made a commitment to me that the job andalize role required an independent chair that would not be subject to pol