with vonnie quinn in new york. this is the european close on "bloomberg markets." it's a busy day in washington. vonnie:. it certainly is. all of those rooms are occupied. we also have public impeachment hearings underway on the health. markets are pretty flat, at least equity markets. the dow is up 10 points, the s&p up less than a point, and the nasdaq down a point. it's been treasuries were more of the action is. points,e now 23 basis the spread down about eight basis points from yesterday. a little movement in oil and gold as well. a few individual stories causing some individual stocks to move. guy: here in europe, stoxx 600 firming a little bit. still down by 0.3%. wavinge are seeing some in the market is in the auto sector. the president speaking yesterday at the economic club of new york

, not pushing back on the fact ont he will delay tariffs the european auto sector, as people had inspected. we are also seeing continuing weakness in the spanish market. wait for fed chair powell to address congress, let's bring in michael mckee. yesterdaytting here with me when the present was addressing the economic club of new york, and talking about fed chair jay powell and what he should do. will jay powell just get questions on that today? michael: he may come from both sides, but it is unlikely jay powell will rise to the bait. he will want to stay out of that whole thing. think the economy is in a good place, and that is partly because of us. this in about these fed appearances is they release the testimony early, so we've already reported it. the bad news is that he didn't say a whole lot.

he didn't add to what we know. basically, his line about the economy is that it is in a favorable place because of the fed cuts. as monetary policy operates with a lag, the full effect of adjustments on economic growth, the job market, and the inflation will be realized over time. we see the current stance of monetary policy is likely to remain appropriate as long as the economy develops as the fed thinks it will. he said the biggest threats to that are sluggish overseas growth and trade, which brings us back to the president. mike, this is the fed chair, so i don't want to pour too much cold water on this, but from a market perspective, it increasingly looks like the fed is a nonevent. at this point it is because the market seems to have been satisfied with what the fed has done so far. they had in their heads that they would do this midcourse correction, as they did in the 1990's, and each time in the 1990's, it was three moves.

now that they've done three moves, the market thinks, ok, that's great. yesterday, we barely had a 50% chance of another rate cut priced in the market by december of 2020. today we are up to about 60% for july of 2020, and even more going beyond that. it turned around when the president threatened to reimpose tariffs on china yesterday, and powell's testimony today only added to it a little bit, although it doesn't seem hawkish at all. it does suggest that the market hasn't given up on the idea of more rate cuts entirely. vonnie: we did get a little inflation data today. did we glean anything from the details? michael: not a whole lot. we were talking about this earlier. a number of economists say we are about where we are. energy helped boost to headline number. the core number remarkably, particularly for housing. it doesn't move the needle one way or another. jay powell does talk about inflation being a little bit too low, the threat of that, and his

testimony, the idea that that could push down on inflation breakevens, which means the fed has less room to cut rates in a recession. however, the good news has been that inflation breakevens have been rising in recent weeks. if that continues, less for the fed to worry about. guy: just talking about inflation, mike, the market seems to be in a really good place at the moment. look at what is happening with risk assets. they are rising strongly. there is belief at the beginning part of next year is going to look really starlit -- there is belief that the beginning part of next year is going to look really solid. the fed chair is sitting down now. you don't have a sort of symmetrical situation. the barrier to hiking rates at the moment seems so high versus the story on cutting. could that change? at the moment, the market just doesn't believe there's any possibility of a rate hike as far as the eye can see.

if the economy gets back into gear, if some of this optimism we are seeing starts to manifest itself in economic data, could that change? michael: of course it could change. you never say never, but it is term because inflation dynamics do seem to have changed, and we don't have the kind of pressures we use to. with 3.6% unemployment in the united states and no wage inflation to speak of, as long as that continues, there's no reason for the fed to react. the thing to watch for is in the coming year, as the fed completes its analysis of its change tohether they a system in which they want inflation to run above the 2% target for a while so they can average 2% over a period of time. that might lead to a reset in market thinking about inflation. if the fed is going to say 2.5% is ok, then you have to reprice for that. but the moment, it is a concept

rather than a reality. vonnie: mike, three things that the fed chair did point out at conferenceomc news were all really about the global economy, global growth, trade tensions, messy brexit. what else is the fomc talking about? it seems like quite a lot. michael: it all rebounds back to the united states. brexit is a unique issue for the united kingdom entirely, but for the united states, sluggish mobile growth in part is because the u.s. economy is slower. china is slowing down area both of those things have been influenced by the third, trade tensions, which is emanating from the united states. so it has an impact on what the fed is thinking, but in terms of what others are doing about it in europe, and asia, to boost growth, the fed can't worry about that at that point. the dollar has been an issue. the fed can't worry about that

at this point. it basically looks like the best thing for the u.s. and makes policy according to that. guy: is there expectation that the curve is going to steepen up? the fed is looking down the front end. people are feeling a little more rosy about what is going to happen with the economy. can i assume a steeper curve? michael: that seems to be the assumption in the market. it is just a question of how steep, how fast. the growth forecast and the inflation forecast that we get, even with the fed rate cuts, is not all that strong, especially for next year. there's a divergence of opinion about how fast it will grow, but nobody thinks it will even get to 2.5%. in that case, you probably won't get an overly steep yield curve, but at least you get out of inversion and take out that issue of is it simply link -- is it signaling a recession out of the pitcher. vonnie: michael mckee is staying with us. we will bring you jay powell's testimony as soon as it begins.

let's get a check of global markets for the moment. here's kailey leinz. kailey: we recovered a lot of our losses. the dow is marginally higher. investors not to stirred by jay powell's released testimony, but we will see how the session plays out as we hear from him on capitol hill. stocks are more decidedly lower in europe, the stoxx 600 down by about 0.3%. on the i'm not function on the s&p 500, rate sensitivity really is the name of the game. up top, we have bond proxies like utilities and real estate, financials,g is the now down about 0.5%. take a look at an intraday chart of the u.s. 10 year yield. you can see we are now down by about seven basis points. bonds holding onto that gains after mixed situation data earlier this morning.

finally, some quick movers on the day. take a look at a few laggards. the biggest under performer in the s&p 500 is mosaic, off the , afterpart of 5% j.p. morgan cut the stock the equivalent of a cell. hess also down. sky works still lie down -- skyworks still down 1.5% after other apple suppliers did so well. canada goose down by about 10.6%. hong kong really struggling for that company. vonnie: kailey leinz there. thank you for that check on global markets. as you can see, we are awaiting jay powell to begin his testimony on capitol hill. we already have the prepared remarks. we will bring you testimony as soon as it begins. opening statements are underway right now. this is bloomberg. ♪

♪ york, andve from new vonnie quinn. guy: in london, i'm guy johnson. this is the european close on "bloomberg markets." let's get the first word news with mark crumpton. mark: impeachment hearings getting underway on capitol hill. first up, the top u.s. diplomat in ukraine, william taylor. he's told lawmakers the administration withheld aid to ukraine over political investigations. while the impeachment hearings are underway, president trump meets with turkeys president erdogan, the first time that you have met since a diplomatic clash over turkey's offensive in northern syria. president trump is expected to

pressure president erdogan over buy a russian antiaircraft missile system. a warning today from hong kong officials and chinese state media. they say there will be consequences if violence continues. protests disrupted traffic across the city for a third straight day. for the first time, the government closed public schools. tesla will build an electric car factory not far from the birthplace of the internal combustion engine. elon musk says he will be setting up shop in berlin. the factory will make both cars and batteries, and probably won't be up and running until 2021. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm mark crumpton. this is bloomberg. vonnie: we are back now with bloomberg international economics and policy correspondent michael mckee.

obviously, we are waiting on jay powell's testimony. he has a lot to say, and there will be a lot of question and answers. i do want to ask about the impeachment inquiry. markets are going to be glued to that, but they won't necessarily move on any day of testimony, right? michael: i'm not sure they will be glued to it. this has been in the news with quite some time. it will register if there seems to be an actual threat to donald trump. beyond that, there aren't very many applications for investment. obviously, jay powell is going to have a much bigger impact on the markets, although maybe not today. investors i've talked to say it is way down their list of concerns at this point because the belief is no matter what happens on the house side, if he gets impeached, the senate won't convict. mike, i think we are about to hear from fed chair jay powell. i think he is being introduced now by the chair.

the chair unfortunately a little bit late, so the timing of this event a little offkilter. we would probably be end of the testimony right now, but fed chair jay powell being introduced right now. vonnie: and of course, we are keeping an ion stocks and bonds. more movement in bonds as we await the testimony. we have the 10 year yield around 1.86%, down from 1.94% yesterday. other indices relatively flat. thank you,l: chairman lee and vice chair maloney and numbers of the committee. i appreciate the opportunity to testify before you today. i colleagues and i strongly support the goals of maximum employment and price stability that conquers has set for monetary policy. we are committed to providing clear explanations about our policies and actions. congress has given us an

important degree of independence so we can pursue our goals based on fact and objective analysis. we appreciate that our independence brings an obligation for transparency and accountability. i will discuss the outlook for monetary policy. the u.s. economy is now in the 11th year of this expansion, and the baseline outlook remains favorable. gross domestic product increased at an annual pace of 1.9% in the third quarter of this year after rising at around 2.5% last year year. first half of this the moderate third-quarter reading is partially due to the transitory effect of the uaw strike at general motors, but also reflects weakness in business investment, which is being restrained by sluggish growth abroad and trade of elements. these have also weighed on exports and manufacturing this year. household consumption has continued to rise solidly,

supported by rising incomes and favorable levels of consumer confidence. reflecting a decline in mortgage rates since late 2018, residential investment turned up in the third quarter following an extended period of weakness. unemployment rate was 3.6% in october, near a half-century low. the pace of job gains has eased, but remains solid. we had expected some sloping after last year's strong pace. same time, participation in the labor force by people in their prime working years has been increasing. ample job opportunities appear to have encouraged many people to join the workforce and others to remain in it. this is a very welcome development. the improvement in the jobs market in recent years has benefited a wide range of individuals and communities. indeed, recent wage gains have been strongest for lower paid workers. people who live and work in low and middle income communities

tell us, many of them at these fed listening event's that the chair and vice chair referred to , that many who struggled to find work are now adding new and better chapters to their lives. significant differences persist across different groups of workers in different areas of the country. un-implement rates for african americans and hispanics are still well above the jobless rates for whites and asians, and the proportion of people with a job is lower in rural communities. inflation continues to run below the fomc symmetric 2% objective. the total price index for personal consumption expenditures increased 1.3% over the 12 months ending in september, held down by declines in energy prices. core pce inflation, which excludes food and energy prices and tends to be a better indicator of future inflation, was 1.7% over the same period. my colleagues and i see a

sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective is most likely. this favorable baseline partly reflects the policy adjustments we have made to provide support for the economy. however, know where the risks to this outlook remain. in particular, sluggish growth abroad and trade of elements have weighed on the economy and pose ongoing risks. moreover, inflation pressures remain muted and indicators of longer-term inflation expectations are at the lower end of their historical range. persistent, below target inflation could lead to unwelcome downward slide in longer-term inflation expectations. we will continue to monitor these developments and assess their implications for u.s. economic activity and inflation. we also continue to monitor the risks to the financial system. over the past year, the overall level of vulnerabilities facing the financial system has remained at a moderate level.

overall, investor appetite for risk appears to be within a normal range, although it is elevated in some asset classes. debt loads of businesses are historically high, but the ratio of household borrowing to income is low relative to its precrisis level and has been gradually declining in recent years. the core of the financial sector appears resilient, with leveraged low and funding risk limited to the levels of current decades. we will be releasing our third financial stability report, which shares our detailed assessment of the resilience of the u.s. financial system. policy, overnetary the past year, weakness in global growth trade of elements, growth,d --global s -- thevelopment policy adjustment but the current target range at 1.5% to

1.7 5%. the committee took these actions to help the u.s. economy, keep the u.s. economy strong, and provide some insurance against ongoing risks. as monetary policy operates with a lag, the full effects of these adjustments on i, growth, the job market, and inflation -- on effects of these income growth, the job market, and inflation will not be seen. other information is bearing on the outlook as we assess the appropriate path of a target range for the fed funds rate. policy is not only preset course. the fomc is committed to ensuring that is policy framework remains well

positioned to meet statutory goals. we believe our existing framework has served us well. nonetheless, the current low interest rate environment may limit the ability of monetary policy to support the economy. we are currently conducting public review of our monetary policy strategy, tools, and communication, the first of its kind for the fed. with the u.s. economy operating close to maximum employment and price stability, now is an especially opportune town to conduct such a review -- opportune time to conduct such a review. we've been hearing perspectives not only from academic experts, but also representatives from consumer, labor, business, and other groups. we will draw on these insights as we work to achieve maximum price sustainability. confusions --our our conclusions when we finish the review, likely in the middle of next year. in a downturn, there would also be import fiscal policy to support the economy.

however, as noted in the congressional budget office's recent long-term budget outlook, the federal budget is on an unsustainable path with high-end rising debt. over time, this outlook could restrain fiscal policy makers' willingness or ability to support the economy during a downturn. ira main concerned that the high-end rising federal debt can the remain concerned that high-end rising federal debt can sustain. putting the federal budget on a sustainable path would aid the long-term vigor of the u.s. economy and help ensure policy makers have the space to use fiscal policy to assist in stabilizing the economy if it weakens. words conclude with a few on the technical implementation of monetary policy. fomc a the key decision to continue to we call an ample reserves regime. in such a regime, we continue to control the federal funds rate

primarily by setting our administered rates not through frequent interventions to actively manage the supply of reserves. in the transition to the efficient and effective level of reserves in this regime, we slowed the gradual decline in our balance sheet in may and stopped it in july. in response to funding pressures in money markets that emerged in mid-september, we decided to maintain a level of reserves at or above the level that prevailed in early september. to achieve this, we announced in mid-october we would purchase treasury bills at least into the second quarter of next year, and would continue a temporary open market operation at least through january. these actions are. -- these actions are purely technical measures to support monetary policy as we continue to learn about the appropriate level of reserves. they do not represent a change in the stance of monetary policy. thank you. i will be glad to answer your questions. >> thank you so much for your testimony.

chair needs to leave at 12:30 at a hard stop, he is suggesting that we limit our questions to four minutes so that everyone gets a chance to question. i will start, and then go to representative -- until the chairman comes back. thank you. the full unemployment rate is well below the feds long-run estimate of 4.2%. measures of underemployment and long-term unemployment are also .t a near decade low yet, the under limit rate for some groups is substantially higher. for example, the black unemployment rate, while at a historic low, is still well above 5%. is the economy at full employment, or could a tighter labor market draw more people back into the workforce?

chair powell: thank you. we are charged to achieve maximum employment, and when we about maximum employment, we look at unemployment, labor force for to the patient -- labor force participation, many data points. i would say that what we have learned and what we continue to learn is that the u.s. economy can operate at a much lower level of unemployment than many would have thought. it is probably not surprising they would building that now because we are at levels of unemployment we haven't seen in 50 years. this andserving seeing, as you point out, inflation is actually kind of moving sideways, and wages are moving at a healthy clip, but not moving up in a way that would suggest there are more price pressures. i think we are very open to the idea. i am very open to the idea that we don't know where maximum

employment precisely is. we have to have significant humility before we make estimate's of that, and we got to let the data speak to us. the data are not sending any signal that the labor market is so hot or that inflation is moving up, or anything like that. i think what we've learned is that the current level of unemployment is consistent with a strong labor market, but it is not one that is in any way presenting difficulties, and it has many beneficial side effects, including pulling people back into the labor market, including wages moving up for people at the lower end of the spectrum, so there is a lot to like about today's labor market, and we would like to see it continue strong, and we are using our tools to try to make that happen. rep. maloney: as you noted, the economy has added jobs for nine consecutive months. unemployment is well below 4%. however, the annual wage growth is just 3%. why is wage growth still below

what we would expect with the strong labor market? chair powell: we might have expected wages to move up more this late in a lengthy, ongoing expansion, particularly with very low unemployment. there are a number of possible explanations for why that hasn't happened. one is that productivity has been lower, so wages should ultimately equal inflation plus productivity, and that is about where we are. that accounts for 2% inflation and around 1% wage growth. but there are other possibilities. one is that there is still slack in the labor market that can be part of the answer. we don't know with any precision. it also may be that the neutral rate of interest is lower than we were thinking, and therefore, our policy is less accommodative than we have been thinking. i think we are leading the data speak to us -- are letting the data speak to us, and trying to

get answers to that question. rep. maloney: some have said it is the increased concentration in different industries, giving employees unprecedented power -- giving employers unprecedented power in keeping wages down. chair powell: you could point to automation, globalization, industries,n among where overtime, u.s. industries have tended to get more concentrated as the economy has matured. you could also point to lower unionization. any of those factors can dwell be playing, and are probably all playing some role in what is a bit of a puzzle, why we haven't seen more of an uptick in wages. rep. maloney: my time is expired. representative mershon for four minutes. for marchant: thank you being here today, chairman powell. i would like to focus my questions today primarily on

preparing on preparing for the next downturn, whether it be three years from now, five years from now, whenever it comes. historically speaking, is the federal reserve positioned as well as it has been positioned where thecessions federal reserve was the primary the federal where government said we need help from you to stimulate the economy. are we positioned there? look atwell: if you typical postwar recessions, what the fed has done is cut interest rates. on average, the amount of those cuts has been 5% or so.

with the federal funds rate having a 2.4% and now being a little above 1.5%, we do not have that kind of room. there a couple of reasons for that. look at the longer-term interest rates, which are not likely -- which are not directly affected by our policy, they have been declining for 40 years because of inflation being lower and less volatile and also the aging demographics means higher savings means more savings relative to investment and that puts downward pressure on interest rates. is lower interest rates, lower inflation, probably lower growth, and you are seeing that all over the world, not just in united states. you're seeing it in many parts of the world. knowing that is one of the main reason we areasic having this public review of our monetary policy framework, to see if there are ways we can alter our strategies, our tools, and our communications in ways

that would make us more effective in this world where we are closer than we would like to zero, where we run out of options. that is one thing. policy will also be important. from the standpoint of monetary policy, we are looking hard at ways to ensure we can use our tools even after rates go to zero. ultimately, fiscal policy has been a key part of the countercyclical reaction as well. rep. marchant: next question. the deception -- the disruption inthe repo market took place december -- in september. anticipated or not anticipated? do you anticipate keeping the expansion at the level it is until you are sure that will not happen again? chair powell: anticipated or not, it is a different world postcrisis. because of all of the expansion in our balance sheet and what we have done is we have now required financial institutions

to have a lot more liquidity on the balance sheet so the fed does not have to run in with their own liquidity. that is a big benefit to the financial system. a lot of that liquidity is held in our reserves. we used to manage the interest rate by keeping reserve scarce. we had a total of $20 billion. now we have in excess of $1.5 trillion in reserve. we are trying to find that level, as we allow the balance sheet to shrink, where reserves will become scarce. there was no way to know. we had suggested we were not close to that point until september. we are still very much looking at what happened in september. i think we learned in september we needed to make sure reserves to not go under that level we were at in mid-september, which is shy of $1.5 trillion. that is what we are doing. it is technical. i think we have it under control. we are prepared to learn and adjust as we do this.

nots a process that does have any implications for the economy or the general public. rep. marchant: thank you. >> thank you, madam vice chair and to the chairman. thank you, chairman powell, for being here. i have four minutes, i have three questions. cra, one inis the venture capital, and one on climate change. the first on the cra is very important to me. i know recently that the fed and the office of the comptroller and the fdic's have all been working on a proposal to revamp the 1977 cra act. it is my understanding that they wanted to do a joint but are not sure if one of the agencies would go away. the cra is very important to me and my first congressional district in ohio because of the resources -- my third congressional district in ohio

because of the resources it puts back into communities, in particular minority communities. do you have any insight on knowing where they are or are they working together to be able to meet that end of the year goal? chair powell: we strongly support the mission of cra, which is to assure credit availability in the areas bank serve, particularly low and moderate income communities. we think it is a good time to modernize, given technological developments and all kinds of developments. we've been working hard with the other banking agencies to try to find common ground. we are committed to making sure puts us in a better place to serve the intended beneficiaries of cra. we have not quite gotten there yet. we will keep trying. my hope is we will ultimately have a common answer, which would be better for everyone if we could do that. rep. beatty: my next question is the federal reserve bank of san francisco recently held a

"therence entitled economics of climate change." i believe this was the first ever conference by the fed on climate change and the economy. can you discuss how the federal reserve views the impact of climate change on our economy and monetary policy and how the fed's view has evolved over time? chair powell: i would say climate change is an important issue but not principally for the fed. it is an issue that is assigned to lots of other government agencies, not so much the fed. nonetheless, over time, it can affect in some ways, which i will mention. is that we require financial institutions and financial markets utilities, the large utilities fundamental to the financial system, we require them to be resilient against all kinds of things, including severe weather. there is a link between severe

weather and climate change. to the extent severe weather is becoming more common, we are already incorporating that into our supervision. we are doing a lot of research in this area to think ahead from a risk management perspective. we will not be the ones who decide society's response. that will be elected legislatures but not us. in terms of monetary policy, it does not have any near-term application for monetary policy. over time, climate change could have effects, but it is not something we will be considering. question,y: my last there was a 2018 report by price waterhouse who found that 80% of the capital investments want to just four states. i am from ohio. is startups throughout the rest of the country, especially the midwest, are overlooked. are there any thoughts on the fact that an overwhelming of the venture capital

is going to four states? what effect does this have begun regions like the midwest? chair powell: i would have to look at that study. a company in san francisco can invest in a company in ohio. i would hope they are not just investing in companies in san francisco. rep. beatty: we should look at partnerships and how that works? chair powell: many of the successful companies in which venture capital firms investor not located in those areas. some are located anywhere in the country where there entrepreneurs. rep. beatty: thank you. >> thank you, madam vice chairman. chairman powell, more of a global question. if you look at much of the data from the fed, from others, our society is in many ways a sweet spot. that? agree with what we do policy wise to stay there, and for those of us up

here, how do we not screw it up? go towards the positive? what would you do? chair powell: as i mentioned, 50 year low in them unemployment. inflation under control. patientrce quotation kicking up -- labor force participation kicking up. the outlook is good. households are focused on the healthy job market and wages going up. very good place from that standpoint. that is not to say that every community has benefited. we know that is not the case. how do we keep it there? this, given the risks -- slowing global growth and weaker manufacturing and that affects u.s. manufacturing. goingy to keeping this and to it continuing our that we keep job creation at a solid households retain

their confidence, that wages keep moving up. that seems to be the engine driving the u.s. economy forward. i want to go longer-term with an answer. the u.s. faces longer-term issues that need your attention around labor force participation and productivity. -- andre two things labor force participation, we lag other advanced economies. that is something we can do something about that the fed cannot do much about. policy.re about fiscal >> so much of the policy we engage in here could be pushing up labor force participation? about 63.3%.are for some of our models we did not think we would get that far. we demonstrated there is slack. could you touch on what we could headwindt demographic that is where we are in the encouragetes to also

that labor force participation? chair powell: incentives for someone to stay in the labor force. getting millennial males to equal millennial females in the labor force. chair powell: there is a range of policies and it would appeal across the political spectrum. neighbor demands and some are about labor supply. i think many would work. for young males, it will be addressing the opioid problem, it will be skills and training and internships. we had a great meeting with a bunch of experts on internship programs recently. are seeing older people stay in the labor force more and more good their participation is moving up. seeing lots of programs pulling people -- for example women who've been out of the labor force -- back in after their kids have grown up. you see that happening. there are so many things that can be done. other just about every

wealthy country in the world and labor force participation for primate workers. this is not where we should be. there are things we can do. >> a slight non sequitur. oftenhe dual mandate, how in your conversations with your economist you get into the discussion of currency differentials and headwinds that exports and capital coming into the country? where are we currency wise in your conversation? chair powell: exchange rates are one condition among many and it has to be one assigned to the treasury department for management. the treasury has full responsibility for exchange rate policy. it is in all economic models. >> it is just a model input. chair powell: it is just a model input. in no way is it a principal driver in the way we think about policy. >> metta vice chair?

chair?me vice >> thank you. four minutes. >> thank you for being here. read you something recently posted by the national women's law center and get your comments g. have all heard about the gender wage gap. $.82 for thely man, much worse for women of color. sides to awo family's budget. the income that comes in and the expenses they pay out. in addition to the wage gap, there is an imbalance to how expenses are rising. this means the kind of products disproportionately consumed by richer households -- organic products and namebrand drugs -- rosen prices at a slower rate

than the kind of products consumed by low and moderate income households. a just released research by columbia university to quantify these impacts by updating for an adjusted inflation index to account for inflation -- the article goes on courseest an appropriate of action would be to pick the federal poverty threshold to a higher rate of inflation given how many people would be considered in poverty looking at the expense side of the ledger. i would ask you whether or not any of this enters into any of your decisions, whether you have any research on this or any comment on this? chair powell: i did see that research, which showed -- different groups of people by different baskets of good, and in principle inflation can be higher or lower. this was research that shows the basket of goods bought by people

at the lower end of the income spectrum has experienced higher inflation, and the implication would be the real incomes are lower than we would think. i would like to see more research on that. that is an interesting paper getting a lot of attention. there is no definitive answer. there is a series the government currently conducts for consumer at a inflation that looks basic vasek of goods and finds a much smaller difference. -- a basic basket of goods and finds a month -- a much smaller difference. >> is that something you would do? chair powell: our researchers would do it but you would see whoever does cpi at the bureau of economic analysis -- they would do that. we have research on inflation all the time. the piecere whether you mentioned was a fed piece.

>> it was from columbia university. chair powell: there were several co-authors. >> i want to ask you another subject. could you explain the relationship of our immigration policy to employment rate in the economy? chair powell: sure. we do not have responsibility for immigration policy, we do not comment on it, we do not advise. connect to our role in analyzing the economy. you can think of the economy's ability to grow as consisting of two things. one is how fast is the labor force growing and secondly is how much output per hour. that is what growth consists of. . trend united states the

growth of our labor force has been slow. it was 2.5% in the 1960's and now it is .5%. half of that is immigration. immigration is a key input into our longer-term growth rate. look at population growth as a way to support higher growth in the united states, immigration we need to be in your thinking. back.ield >> representative to roane? -- representative trone? >> thank you for being here. i had questions on labor market participation. i think you have addressed those, and also on immigration and how help us increase our labor pool. , was thinking about the status across the country we have 30 states put in minimum wage laws from $13 to $16. businesses ishing

affected with everywhere. dz that will address the situation between the mismatch between labor scarcity and the slope growth we see and how that ties into inflation? chair powell: we do not take a position on minimum wage. it is an issue you have to balance. if i were you, i would look at a broad range of research. research comes from different perspectives. all of the research you see when the minimum wage is raised a significant amount, you will see some job loss and some wage gains. i would look at a range of that research and try to think what the right policy is. in terms of inflation, it does not play much into it. our mandate is price inflation, not wage inflation. indo not see wages moving up unwelcomewould put pressure on prices.

i do not think it is an important part of the health care discussion. trying to translate this labor scarcity into higher wages for the american worker. from 2012 to 2016, we had about $120 increase per month than average wages, and then 2016 to current, that has been cut in half, about $56 a month. yet this is in the time of the lowest inflation in 50 years, the last 18 months. is that mismatch between wage growth and lower unemployment into our economy? we look at a wide range of wage and compensation measures. if you go back five years, wages and compensation were going up 2%. that has gone up to 3%. that is the trend. upward.

that is consistent with the thought that a tighter label market and lower unemployment and surveys that suggest the labor market is tight is consistent with that. we have seen wages moving up. tell you the principal once we look at. that is true across all major measures of wages over the last five or six years. chair powell: -- rep. trone: what you think they have slowed so dramatically the last two years? chair powell: it is hard to say. average hourly earnings is --ortant and peed got 3.4% and pete at 3.4 -- and peaked at 3.4% earlier this year. i am not sure why that is. it may be compositional effects. some argue that his older workers retire, younger workers come in. it is consistent with this idea that we are not seeing excessive tightness in the labor market

generating outsized wage gains. we are seeing nice wage gains giving inflation and productivity, but nothing at all out of line with that. rep. trone: thank you. arehairman powell, we borrowing as a country and a government more than ever. with debt held by the public expected to reach 95% of gross domestic product within the next 10 years. interest onpaying that debt at an all-time historic low, with a 30 year borrowing cost of 2.4%. for thishe reason fortunate fiscal reprieve at a time when congress as an institution has shown no sign of physical discipline at all? discipline at all?

chair powell: if you look at a graph of what the 10 year treasury yielded back 40 years, you would see a ski slope down. all the way down to today. a long-term trend. it is true all around the globe. why is that happening? underinflation getting control, becoming less volatile, and ultimately continuing to decline to the point where the risk of lower inflation is greater than the risk of higher inflation. that is part of it. it is also aging demographics. as people get into their later years, they save more and that creates more savings and per dollar investment and that tends to drive interest rates down. trendot know that that shows signs of reversing or anything like that. that is what is going on with these longer rates. sen. lee: some have suggested

that the united states borrows in its own currency. this level of spending is not a thatem because the fact you can monetize the debt and keep doing so indefinitely. what is reaction to that top? aren't there risks inherent in that? chair powell: yes. the fact that interest rates are lower does mean we will pay less in interest. it does not mean we can ignore deficits. we are going to have to get on a sustainable path forward. what does that mean? the debt is growing faster than the economy. it is as simple as that, in nominal terms. that is unsustainable. ultimately, you will have to get it where the debt is not growing faster than the economy. it is growing faster in the united states by a significant margin. even with lower rates and even with decent growth, there is still going to be a need to reduce these deficits. time.s a need over

we are not in the business of advising you when to do that or how to do that. it is inevitable over time that we will have to do it. if we do not do it, what happens is our children will wind up spending their tax dollars more on interest than the things they need like education, security, health. past you've the mentioned uncertainties in the area of international trade as posing something of an economic headwind. had a lot of trade measures going into effect, what has the fed learned about the interaction between trade and monetary policy? chair powell: the first thing i need to say is we should never be heard to be commenting on trade policy. it is not our job. we try to stay in our lane. our lane is the economy. we do not have any view at all, we would not express one on trade. our lane is the economy. anything that affects our ability to achieve our goals is an appropriate subject for

monetary policy. year been hearing for a companies that tariffs, but to an even greater extent uncertainty around future trade policy has been weighing on business sentiment and is probably part of the global slowdown in manufacturing, in business investment, in exports in trade. there is a much bigger story, but it is a part of that. sen. lee: i see my time is expired. senator klobuchar? klobuchar: thank you very much, mr. chairman, for being here today. some of the issues i were going to -- i was going to raise have been discussed. the challenge to our economy with the deficit which was greatly exacerbated by the last tax bill as well as problems in some sectors such as agriculture , which is very important to us in the midwest.

i want to focus on the third issue, which is income inequality and even if people have jobs, it is often hard for them to afford things. problemshave the added -- the washington post reported in september that income inequality in america is the highest it has been since the census bureau started tracking it more than five decades ago. the top 1% have experienced income growth of 200% in the last decades. 2016, the07 and median wealth of lower income families fell by 42%. in your opinion, will widening inequality lead to lower growth expectations over the long term, and what should we be doing about this? chair powell: i would start by saying we would all agree that prosperity should be as widely shared as possible. i just pointed two aspects of

the broader problem i think are important and need attention. the first is the relative below the of incomes high part of the distribution. that is even after allowing for taxes and benefits. that is one thing where we want to see incomes moving up broadly across the income spectrum. the second is mobility. you want to see people moving from the bottom to the top and vice versa. it has to happen as a matter of arithmetic. 20%,xample, the bottom what are the chances if you are born in the bottom 20% you'll make it to the middle 20% of the top 20%? mostnited states lags other wealthy countries and that measure. that is not our self-image as a country. those are things we need to address. sen. klobuchar: that is one. i think increasing the minimum wage -- i have my own views on

this -- would be helpful. one of our challenges is hooking up our education system with the jobs available right now and making sure everyone has access to those jobs. i do not think it always means a four year degree. some of the fastest growing job areas are one or two your degrees. there are 64,000 openings for electricians. one of the things i'm focused on is apprenticeships and trying to make it easier for people to access those kinds of degrees. could you talk about that? chair powell: i just met last week with six people who run apprenticeship programs and funding of apprenticeship programs around the country in our board room. low ando tell you itthey are fn moderate income communities. they are getting them in high schools and out of high schools and matching them up with employers who need those people. they are getting good jobs. it is working.

the things that limits their ability to do this on a wider scale is funding. sen. klobuchar: exactly. chair powell: it is very impressive what they can do. sen. klobuchar: a lot of this is how we use our resources for education. i will ask you in writing a question on retirement. i think it is becoming such a challenge in our new economy. senator kunz and i have a bill to address that called split up savings account which i think is a great idea for small and medium businesses. back to the income inequality, how would reporting economic statistics by income bracket to fit our understanding of the economy? we do not have that right now. chair powell: we are doing something with that at the fed. we like to cut data up and look at it in new ways. this is one of the things we are is combining a couple of data sets we have an quarterly publishing a distributional financial account. sen. klobuchar: when will we get that? chair powell: it comes out every quarter. it is a new thing we are doing.

is the combination of two existing data sets. we think it is an interesting insight into the economy. there are a lot of ways to look at what is happening in the economy, and that is an important one. sen. klobuchar: thank you. butler?sentative >> thank you. i apologize if some of this ground has already been covered. it is a pleasure to be here and to have you. our economy is probably the number one thing that impacts people i serve in southwest washington. it is helpful to hear from your perspective. specifically, in rural communities where unemployment is higher than the national average, most of my areas are rural, although we are popping up