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tv   Bloomberg Markets European Close  Bloomberg  July 15, 2021 11:00am-12:00pm EDT

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ash sen. cortez masto: thank you. -- sen. cortez masto: thank you. for purposes of the rescue plan, is that the soul because you see with respect to the minimum increase in inflation? chair powell: i think a lot of things go into it. the main thing is that we have demand rebounding very strongly. that is partly monetary policy, partly the fiscal policy, and what we see on the supply side is supply that just can't keep up with this demand and all of these bottlenecks, and it is happening everywhere in the world, so it is a combination of factors. sen. cortez masto: so unlike the last recession that we lived through in 2010 to 2014, i am curious, when our economy opened up from that, it was a gradual opening up of our economy. this is kind of a light switching on with the economy
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opening up quickly, and that is why we see some of the concerns with supply and demand on so many different areas, and that is why we see highly concentrated sectors where there is a demand like you have touched on today. is that accurate? chair powell: it is accurate, and i would add that the response from fiscal and monetary policy in this episode is just orders of magnitude different from what has happened in the past. we are back to pre-covid levels of economic output, and we are on a path to being above the prior trend within a year if forecasts prove out. sen. cortez masto: thank you. in nevada, our unemployment rate has fallen sharply since the pandemic last spring. as i watch our economy open up again, particularly with tourism in the travel industry's starting to rebound again, which is fantastic, last month more than 130,000 people applied for
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6000 positions at a new resort in las vegas. part five of the federal reserve monetary policy report notes that, and i quote, "payroll employment increased by 3.2 million jobs in the first half of 2021, driven by a 1.6 million job gain in the leisure and hospitality sector, where the largest employment losses occurred last year. the may 2021 federal reserve research paper found that the extra jobless benefits that were provided during the pandemic "likely had little or very small labor supply induced impact on the unemployment rate. can you elaborate on that? chair powell: i think that was reserve bank research referring to 2020. it is too soon to really say what the facts are going to be here. in fact, we will be able to learn something because many
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states, as you know, have stopped the additional benefits and will be able to look and see whether that had any affect on people going back to work. it is way too early to say. sen. cortez masto: thank you for saying that because that was my next question. you will be studying that data on those states that cut it off early, whether that was truly an impact or not. chair powell: yes, everyone is looking to see whether there will be a meaningful difference between the two, and it is too early to say. sen. cortez masto: finally, we touched on housing. we are seeing the home prices are up more than 15% since last year. how much of the rise in home prices do you think are due to the federal reserve's purchase of mortgage backed securities versus supply issues? chair powell: i think that our purchases of treasuries and mbs are what is holding down, and holding interest rates low. the overall picture of accommodative monetary policy is attributed -- is contributing to
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what is happening in the housing market. i think mortgage backed securities are contributing probably a little more than treasuries securities, but ultimately it is roughly the same order of magnitude. was that your question? sen. cortez masto: i appreciate that. that answers my question. thank you very much. sen. brown: senator daines of montana is recognized for five minutes. sen. daines: thank you. good to have you here today. thank you for keeping a steady hand during these tumultuous times. i want to start by joining my colleagues in expressing my concern with the inflation we are seeing in the economy. this week we received two inflation readings for the highest increases we have seen in over a decade to reflect what montana families were already feeling, and that is prices for everyday necessities are going up. at the same time, majority leader schumer, senator sanders, and senate democrats are proposing another massive partisan $3.5 trillion tax and spend package.
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i truly believe this is reckless. it threatens short, medium, and long-term prosperity at our country, and i sincerely hope my colleagues on the others will reverse course. with that, i would like to turn to my questions. the unemployment rate is consistently that has consistently fallen since the height of the pandemic, not 5.9%, down from a pandemic high of 14.8% back in april of 2020. i am truly grateful, as i'm sure you are coming to see this rate fall, and more americans getting back to work. digging into this, we have concerns about the labor force participation rate, which now sits at 61 .6%. it has remained in a narrow band between 61 point 4% to 61.7% since june 2020. the current labor force participation rate is 1.7% lower than it was pre-pandemic, in
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february of 2020. the significant percentage of those folks who dropped out of the labor force are over the age of 55. recent data shows that they are not reentering the workforce. a lot of those folks, as they are already nearing retirement age, may never reenter the workforce. my question is do you expect the labor force participation rate for those 55 and older to recover to prepend him levels -- to pre-pandemic levels? and if so, why? sen. daines: you very accurately -- chair powell: you very accurately describe the situation. older people were staying in the labor force longer, and as a result, for years and years, we were seeing higher results than we anticipated, which was a good thing, we thought. the u.s. has a low part is rate compared to our peers, surprisingly. the question is what is this
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going to look like. 3 million left the labor force, actually retiring. the question is what is the equilibrium once the economy is going full bore again. labor force participation tends to lag recovery. it tends to lag unemployment recovery. so when labor markets get tight, we tend to see this. i would just say first of all, a lot of humility is appropriate here. we don't know what the trend labor force participation rate is. but we went through eight years of watching labor force participation be higher than we expected, and i fully took that on board. i think the u.s. can do much better in terms of labor force participation, so i am not going to close my mind to the idea that we will get back to it. sen. daines: i guess if that participation rate for those 55 and older permanently remains below the pre-pandemic levels, how might you see that impacting the time it might take the economy to get back to full
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employment, and what impact might that have two inflation? chair powell: there's less labor supply, then you will hit full employment earlier. we consider a broad range of indicators, not just unemployment. also purchase patient, wages, -- also participation, wages, and those things. you would see that in the form of higher wages and higher inflation. we would be able to see that. sen. daines: thank you. i want to get to my last question, and that is regarding the balance sheet of the federal reserve. it recently eclipsed $8 trillion, more than double where it was before the pandemic. when, if ever, do you think the fed's balance sheet will fall below $8 trillion? can you describe what the risks are if the balance sheet remains at this elevated level for an extended time? chair powell: we have the last cycle as an example. we slowed the pace of asset purchases and froze the size of
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the balance sheet for a period of years. as the economy grows relative to the balance sheet, the size of the balance sheet eligible the economy becomes smaller. we did quite a bit of that. for a couple of years, we let the balance sheet runoff and shrink as securities matured. we stopped reinvesting and let the balance sheet shrink at the margin. we haven't made those kind of decisions yet, but it is a reasonable starting place to think that we might hold the balance sheet constant for some time, and that perhaps allow it to shrink under $1 trillion. in the meantime, it becomes smaller as a portion of the economy, and that is the same thing as shrinking in a way. sen. daines: thank you, mr. chairman. sen. brown: thank you. senator van hollen of maryland is recognized for five minutes. sen. van hollen: welcome. i've heard the term unprecedented used describe the jump in inflation. i think what is truly
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unprecedented is the number of jobs we have seen generated since president biden took office. 3 million jobs, the highest rate of job growth of any president in united states history, as we work seriously to defeat the pandemic and as we passed the american rescue plan to give confidence to people in the future of the u.s. economy. i do want to dig a little deeper into the inflation issue because you have made the point clearly today that you believe it is a temporary increase, and if you look at long-term projections, they are closer to your targets. that is also the expectation of folks in the financial markets as well. isn't that the case? chair powell: yes, broadly speaking. sen. van hollen: it is interesting how a short public time changes things. i am looking at remarks you made in may 2019, when people were afraid that the inflation rate was too low low your targets. at that time, you made the point you thought it was transitory, and you were right. you used a different measure of
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trimmed mean cpi to describe your thinking. can you talk a little bit about that measure? chair powell: one thing that people do at times like this is they chop off the tales and just look at the middle of the distributional because sometimes , the overall inflation measure can be distorted by just a couple of categories. so if you did that here, this is the dallas trimmed mean, and cleveland is a version of this. it is going to show inflation in the low 2% because you're getting that small group of categories. the risk is that you shop for whatever inflation measure is appropriate at the moment. so we try not to do that. but clearly, trimmed mean is sending a signal that this is more idiosyncratic than broad across the economy. sen. van hollen: and is it the case that the increased prices of used cars rose by 10% in june alone and accounted for more than 1/3 of the entire increase
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in the cpi in june? chair powell: yes it is. sen. van hollen: so those are the kinds of anomalies you are referring to, right? chair powell: it is used cars, new cars, rental cars, airplane tickets, hotels, all things that have a story clearly related to the pandemic. at least, that is what it is now. sen. van hollen: i think rather than rush to create alarm about inflation, i think we should all be together and focusing on important increases in job growth and wages that we are seeing. i know you said yesterday that you expected we should be able to get back to 3.5% unemployment as we move forward. i know that secretary yellen has talked about maybe this time next year. i am worried, and we have discussed this in the past, about persistent long-term unemployment, and if you look at the june numbers, the long-term unemployed, and these are
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individuals who have been jobless for more than 27 weeks or more, increased by 233,002 4 million total. that followed a decline in long-term unemployment in may. so my question is is there anyway we can get back to 3.5% unemployment if we don't get this number down when it comes to the long-term unemployed? chair powell: we saw what a really strong labor market does is pull those people in, and also pulls people in who are on the sidelines keeps people from leaving. so there's so much to like about a really strong labor market. sen. van hollen: i agree with you, mr. chairman. if you look even before the pandemic in february, three point 5% unemployment, we had over one million americans long-term unemployed, so we hope that the growing economy will be a magnet, and i am sure it will. it is going to bring a lot of people into the job force. i think all of us are concerned about labor force participation.
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i think a stronger economy will address that. but there is this group of long-term unemployed, and my concern is that the longer you are unemployed, the harder it becomes to get back into the workforce, and then you get in at a lower wage, which stays with you throughout your career. do you believe it is worth congress considering, i know this is not your domain to be specific about what thomas -- about what, elaborate policies to make sure that the persistently unemployed, long-term unemployed can get back in the labor force? chair powell: without trying to endorse anything in particular, we lag all of our peers in labor force participation, which is not where we want to be as a country. i do think that is a classic supply-side policy, to try to find ways to connect people, to
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give them some help in connecting to the labor force. they need a strong john bark it -- strong job market to pull the men and keep the -- keep them there. sen. brown: senator kramer of north dakota is working night. sen. cramer: -- is recognized. sen. cramer: thank you for being here. let me add my voice to the chorus of people who thank you for your cool head through this process, particularly resisting the pressures to lower rates when it wasn't necessary, so we had some room when it became very necessary. i appreciate that very much. i was interested in a lot of the discussion going on, particularly your exchange with senator haggerty, where you used the line i have heard you use many times, when he asked a question about what congress ought to be doing, and you said, "we are not in the business of
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giving fiscal advice to congress either way. that is similar to what you have said many times. yesterday, thinking about this, i did a quick search engine review of the words "fed chair urges congress." this won't surprise you, and by the way, there's not a person in this room that doesn't have some some of the overhead lines that aren't quite accurate, or even quotes. but one report in may of last year said the fed chairman asks congress to consider more stimulus. october of last year, jerome powell is putting out the call to congress, more money now. november of last year, powell still thinks the u.s. needs more stimulus for full recovery. even in december of last year, fed chair treasury urged u.s. stimulus bridge. another words, you haven't always resisted the temptation to give us fiscal advice. and by the way, i think it was good advice.
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maybe we look back and say we did too much, but we were in a crisis read did what you needed to do. we did what we needed to do. i don't think there's a lot of regret about that. a number of my colleagues have pointed to what has gone on lately and what has been suggested going forward. in addition to the $3.5 trillion package that includes a lot of tax increases, seven times more than the cuts from 2017 that bill lee d -- that builds the foundation for this quick recovery, you add in the $1.9 trillion totally unpaid for earlier this year, the $0.6 trillion that is being discussed, you get to $6 trillion plus really fast. what people aren't talking about is if we end up at the end of this fiscal year passing a one year cr or something similar, we are going to spend another $6.84
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trillion, $3 trillion of which will be deficit spending. deficit spending. my question to you is very direct, and that is simply, does the economy need another $6 trillion plus another $6.8 trillion spent this year to enhance the recovery? and is there not a detriment to effect to all of that, including tax increases when we are in a whatever you want, and inflationary time, and there is concern, if not alarm? chair powell: if i can answer that by saying we did a lot of things last year that we had never done before, and that one in particular, i had a lot of encouragement from the administration and leadership from both parties, but i swore it off, and i do think we should go back to regular order, which is that the fed doesn't play a role in fiscal policies.
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it is not a national emergency like it was at the time. i've been very -- i've been trying very hard this year, so far succeeding, in not getting involved in giving fiscal advice, so i am just going to have to -- whatever you do, we take into account in our policies, but we don't come out and comment on whether we thing this is a good or bad idea. sorry. [laughter] sen. cramer: well, ok. i appreciate that. maybe just one other quick question. i've noticed that the fed is continuing to pump in some liquidity through mortgage purchases, particularly fannie and freddie. do you see that is continuing to be necessary? obviously, you are it, but why? chair powell: we are looking up that right now. my colleagues and i are having a second meeting about that in a couple of weeks, and we are
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going to talk about the composition of our asset purchases and the path to beginning to reduce them. this is something that is very much on the table. sen. cramer: i might just add quickly, with regard to clement risk, which we heard up -- of climate risk, which we've heard a lot today which there is political, i just want to remind my colleagues that when we assess climate risk in terms of the u.s. economy or u.s. investment, do not forget that every time we don't invest in energy or manufacturing in the united states, another country is going to do it as well. climate change is a global issue, so let's think about risk in the global context. thank you. sen. brown: thank you, senator cramer. i am going to go vote. senator awsat is next -- center ossoff -- senator ossoff is
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next. senator ossoff it's working as for the next five minutes. sen. paul: soft -- senator ossoff is recognized for the next five minutes. sen. ossoff: thank you. stepping back, what do you assess to be the most significant systemic threats to financial stability over the medium-term, either limited to the u.s. or globally? chair powell: i would have to say that the thing that worries me the most is really cyber risk. it is a constant concern, and we spent lots of time and resources on it. so does the private sector. but that is the one where we have a playbook for bad lending and bad risk management. we have a lot of capital in the system. but the cyber, as you see with the ransomware issues now, it is just an ongoing race really to keep up. we haven't had to face a
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significant cyber event from a financial stability standpoint, and i hope we don't come but that is the thing i worry the most about. sen. ossoff: in terms of financial stability following cyber, what next preoccupy zero tension or concern? chair powell: you know, the economy is coming out of this pandemic, so i would worry about if we don't succeed in vaccinating people all over the world, we are creating time and space for the development of new strains of the virus, which can be more verlander -- more virulent and difficult to fight. the last thing i would say is that we are at the point in the risk cycle where people are looking out for five years and seeing a pretty good economy. we are heading to, i think, a
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strong labor market, the highest gdp and seven years. this is the time when risktakers can begin to forget that there is a bad state of the economy out there waiting for them at some point and take too much risk. from a supervisory and regulatory perspective, we are very mindful that it is the time when we need to keep people focused on risk management. sen. ossoff: that is a great segue to my next question. given the provision of liquidity over the last 15 years, how concerned are you that credit committees, that major financial institutions and others allocating capital are acting with sufficient prudence given the easy access to capital? chair powell: if financial conditions are highly accommodative, people are getting things financed, spac's and things like that. we see bitcoin going up and down in value. so at times, it has felt like a somewhat frothy market. you do worry about that.
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at the same time, we are very focused on the real economy. our jobs are maximum employment and price stability, and also financial stability, but we've got a long way to go, so we want to be careful about tending to our main mandate while we also think about financial stability issues. sen. ossoff: what is your level of confidence that there are not risks lurking in the non-bank financial system? hedge funds, private equity, spac's, given the provision of all of this liquidity and the reduced visibility that regulators have? chair powell: much of it can take care of itself. private capital can absorb losses, we know from the experience of the last crisis and the one before, that there are structural aspect of non-bank financial sector that really need better regulation
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and better structures. i think we saw that the treasury market really lost functionality . the most important financial market lost functionality during the acute phase of the crisis, and we are doing a very careful analysis on whether there needs to be structural strengthening their, and other aspects as well. sen. ossoff: the fed's recent financial stability report cited climate change as a threat to stability. the national oceanic and atmospheric association sites risks including changes to water resources, floods, challenges for farmers and ranchers, increases in waterborne diseases , rising sea levels that put coastal areas at greater risk. the departed defense identifies it as -- the department of
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defense identifies climate as a national security threat. how do you assess the threat to financial stability in the long run? chair powell: we are very focused on the risks that individual financial institutions are taking, and working with them to make for they understand the risks they are running in their business model. more broadly, in financial markets generally and non-bank financial institutions, it is much the same. we know that the transition to a lower carbon economy may lead to sudden repricing's of assets or entire industries, and we need to think about that carefully in advance and understand and be in a position to deal with all of that. we are doing all of that work as are other researchers and governments and central bank's around the world. there's a lot of work going on on this, and it is a high
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priority issue. in terms of financial stability, the issues are really coming. sen. ossoff: thank you, chairman powell. >> on behalf of chairman brown, let me recognize senator loomis. sen. thune:'s thank you -- sen. loomis: thank you. my first question is about digital assets. you testified yesterday in front of the house financial services committee that one of the stronger arguments in support of a central bank digital currency was its potential to render stable coins and virtual currencies unnecessary. but in march, you acknowledged that bitcoin, if eerie,, and other virtual currencies bitcoin -- bit going, -- bitcoin,
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ethereum, and other digital currencies are a substitute for gold. it is clear that virtual currencies are investment commodities and not payment instruments. the sec and cftc have set as much in court cases and regulatory actions. so i think what you were trying to get at is one of the best arguments for a central bank digital currency is that stable coins could be rendered on the very -- rendered unnecessary. but legally speaking, stable coins and virtual currencies are not synonymous because stable coins don't increase in value generally, and are used as substitute payment instruments, whereas bitcoin, ethereum, and other virtual currencies are investment assets. there's research at fidelity, deutsche bank, and credit suisse
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, among others, that call bitcoin an emerging store of value. goldman sachs has said the same about ethereum. so my question is, because stable coins and the central bank digital currency are more synonymous with the dollar as an instrument of payment, and bitcoin, ethereum, and other virtual assets are more and investment commodity like gold, when you spoke to the financial services committee in the house yesterday, did you mean that stable coin would be unnecessary if we had a central bank digital currency? chair powell: basically, you're right. let me say with cryptocurrencies, it is not that they didn't aspire to be a payment mechanism. it is that they completely failed to become one, except for people who desire anonymity, of course, for whatever reason. that is why i included them.
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but i completely agree. really, the question is stable coins, and my point was stable coins are like money funds, like bank deposits, and they are growing incredibly fast. but without appropriate regulation. if we are going to have something that regulation. if we are going to have something that looks like a money market fund or a bank deposit and it is growing fast, we ought to have appropriate regulation. sen. lummis: thank you for that. i would assume you would agree common definitions and a clear legal framework would help us understand the opportunities associated, and the risks associated with financial innovation. chair powell: yes, i certainly agree with that. sen. lummis: thank you so much. now i want to turn to monetary policy. i would like to draw your attention to this chart. the federal reserve and bureau of economic analysis data shows deposits and close substitutes
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held by households have generally averaged 51% of gdp from 1952 to 2021. data from the end of q1 of 2021 shows household are sitting on deposits and close substitutes of approximately 79% of gdp today. that is roughly 28%, or trillions of dollars above the historic average. going back to 1952, there has never been a higher percentage of households deposits to gdp. monetary policy has also been highly accommodative over the last 16 months, to the tune of 32% increase in the money supply. i have not heard anybody talking about this hidden stimulus. when households start to spend this cash, combined with the enormous liquidity already out there, it seems there is real
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potential for inflation to continue to overshoot. we have already seen it this week as the core consumer price index was nearly double what economists had predicted. here is my question. is it wise to continue to have accommodative policy when there are still trillions of household cash that will flow into the economy soon? chair powell: the main factor driving this up is that people have been sitting at home for a year and a half not able to travel and go on vacation and spend money in restaurants and things like that, and combine that with the major fiscal transfers. there is a lot of cash. a great deal of cash on household balance sheets. that is what this is representing. is it appropriate for us to continue accommodative policy? we think it is. we are in the process of
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evaluating when it will be appropriate for us to taper, which is to say reduce our asset purchases. we are having a second meeting that will address that topic directly. for the time being -- the other thing i would point out is there are a lot of unemployed people. we think it is appropriate for monetary policy to remain accommodative and supportive of economic activity for now. sen. lummis: thank you for your responses. i yield back. >> i will recognize myself and at the conclusion of my comments i will yield to senator warnock and at that time i assume senator brown will be back to conclude the hearing. first of all, thank you, mr. chairman, for your remarkable service over these many challenging months. i appreciate it very much. one of the aspects of the
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pandemic has been the potential for displacement of workers. i think we are all familiar with zoom. it is a blessing and a curse simultaneously. as you look forward, how are you factoring in this notion of displacement in terms of the workforce and employment? chair powell: we begin hearing very early in the recovery period that companies were looking at ways to use technology more aggressively in their business models. a lot of the people that lost their jobs during the pandemic were people in service industries, relatively low paid public customer faces business, hotels and entertainment and things like that. the technology coming into these
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industries has been a trend. we will see that accelerated. you'll see more technology and may be fewer people. the implication is we need to work as a society to make sure people find their way back into the labor force, even if they cannot find their way back to their old job. what i think that does is stress the need for improving human capital so they can be competitive in jobs that they might otherwise not be. that is education, that is a lot of things -- i know you do not comment on fiscal affairs, but a lot of the aspects of the president's american family plan, preschool education, two years postsecondary education, significant job-training. in terms of the future, we will have to make those investments.
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otherwise my sense would be we will have a lot of people who want to work but whose skills are not up to the new technological opportunities. is that fair? chair powell: it may well be. it has been a long long -- a long-run trend. if people can keep up with technology it lifts their incomes if they cannot they tend to fall behind. sen. reed: labor force participation. one of the other illustrations from the pandemic was that many, particularly women, were unable to continue in the workforce because of their childcare responsibilities. have you in the fed looked at this factor as one of those inhibiting issues for labor force participation? is it a factor? chair powell: it is a factor. if you include caretaking it is a big factor. if you include children and
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schools being closed and caretaking, it is still a medium-size factor holding back participation. sen. reed: if there is a reasonable and available daycare, that should contribute to increased labor force participation? chair powell: daycare coming back and reopening being available, it is also schools reopening in the fall. sen. reed: all of us touched one way or another on the inflation issues. some of these seem to be one-off effects of the pandemic. lumber went out of sight because people were sitting at home and decided to redecorate and renovate. lumber futures are down. we can see that leveling off in the future. there was a chip shortage, which caused new cars to be expensive, which drove up the price of used cars.
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my sense is your view is these are transitory effects that are somewhat related to the pandemic or other causes, but they do not represent a trend. is that fair? chair powell: yes. we have identified a half-dozen things just like that and they look like temporary factors that will abate over time. what we do not know is are there other things coming to replace them? we hear of pressures across the economy. we do not see prices moving up or broadly across the economy at this point. we are watching carefully for that. sen. reed: a final point. climate change every day becomes much more pronounced. the impact on the economy is something that is not transitory. it will be with us. simple things like food when there is no water for irrigation
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, more complicated things like displacement of homes or our lack of water. i am pleased to say you're are beginning to focus on that. my senses every day there will be another challenge and the news will be more upsetting. i hope that is a fair comment. thank you, mr. chairman. sen. brown: thank you, senator reed. thank you for presiding. senator warnock from georgia is recognized for five minutes. sen. warnock: thank you, chairman brown and chairman powell. i'm a strong advocate for working families and have successfully pushed, along with senator brown and senator booker and others an expansion of the
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vital child tax credit program and the american rescue plan. the expanded child tax credit provides a tax-cut for middle-class families, cutting childhood poverty nearly in half nationwide, and is generally available to most american families with children, including families with little to no income. today is a great day because many of them will see that tax-cut in there account today. i am happy to see hard-working families across georgia and across the country see the benefit of this to help with the rising costs of raising our children. in my state of georgia alone more than 1.2 million families will receive payments providing much-needed relief to over 2 million children across the state. in previous remarks, chariman
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powell, you stated "the widespread vaccinations come along with unprecedented fiscal policy actions are providing strong support to the economic recovery." with families now beginning to receive their child tax credit payments, how does direct financial support to families help sustain an ongoing economic recovery? chair powell: we try not to comment on fiscal policy measures such as the one you mentioned, but i will say generally come in the recovery from the pandemic, fiscal policy did stepien strongly and support people -- did step in strongly and support people in their time of need and i think the record will show that. sen. warnock: i have another question about the housing bill i am currently working on which i hope will be a bipartisan bill. one of the other challenges i've worked hard to address is the
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rising racial wealth gap in our country. a wealth gap that has been further exacerbated during the pandemic. in particular, i have focused on the persistent disparities that exist in the undervaluation of black and brown homeowners within our appraisal market, which as we all know is a key contributor to creating generational and middle-class wealth. people's wealth is in their homes. this is directly tied to the value of their homes and thus their ability to pass on wealth to their children. i am glad to see the biden administration, the fed, another federal banking and housing agencies taking action, as well as banks, credit unions, the appraisal industry and other stakeholders, leading in collectively to help resolve this long-standing issue. now it seems it is time for congress to join the effort. chairman powell, do you agree that addressing racial disparities within the appraisal
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market can help our economy and help close the racial wealth gap? chair powell: i do think there is no place for racial discrimination in our banking sector, in our housing sector, certainly in the appraisal. there is a big focus on appraisals. we will use the authorities we have in supervising institutions, enforcing cra, to try to eliminate that kind of discrimination. sen. warnock: you think it will help close the racial wealth gap. chair powell: i think over time. a lot of the racial wealth gap is traceable to housing. that should be the outcome. sen. warnock: in april our colleagues on the house financial services committee unanimously passed a real estate valuation fairness and improvement act on a bipartisan voice vote. not only with this bill be a great step in improving appraisal practices and
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mitigating racial bias. it seems it would also help increase and diversify the appraiser pipeline and increase the number of trained appraisers in rural communities. i am planning to introduce this legislation, along with senator klobuchar and chairman brown in the senate. i hope to do so with a few of my colleagues from across the aisle because i believe we can work together in a bipartisan manner to tackle this critical issue that affects not only these homeowners impacts the economy as we close the racial gap. we all have a stake in that. one final question on a topic i'm also very interested in. chairman powell, the community reinvestment act addresses how banks must meet the credit and capital needs of the communities they serve. i ask your colleague mr. quarles about the fed in tension to issue a joint rule along with the fbi see -- the fdic in that
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it was the fed's objective to work with the lcc at the fdic to issue a joint rule that protects and strengthens our most vulnerable communities. can you provide us with update on the status of the rulemaking? chair powell: i would be glad to. we are working through the process of reviewing an extensive group of comments, and now engaging with the occ to go forward and try to sort through that and come out with the appropriate changes to what we proposed. i cannot speak exactly to the fdic. they are considering whether to take part in the process. we would like to get the three agencies together on a cra proposal and i'm optimistic that the product will be a good one. chair powell: -- sen. warnock: thank you so much. sen. brown: i understand the
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chair cannot comment on the importance of the child's tax credit that i can come and i thank senator were not for bringing it up even in his first six months in the senate on an issue that will make difference to 39 million families, 92% of children in my state will benefit from it. we do not quite have everybody getting checks today or direct posits today. we encourage people to go to, people that have not been eligible -- 92% of children in my state. senator warner, thank you for my work -- thank you for your work on that. chair powell, thank you for being a witness and providing testimony for senators who wished to summit questions for the record, this questions are due one week from today, thursday, july 22. chair powell, u of 45 days to respond to any questions. with that -- you have 45 days respond any questions. with that the hearing is
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adjourned. chair powell: thank you. alix: you been listening to fed chair jay powell testifying before the senate, answering questions about inflation, fiscal and monetary policy, and the role of the fed. in terms of her market reaction, not a lot happening -- in terms of a market reaction, not a lot. here in the u.s., you have banks it hard, tech outperforming, and bond yields moving lower. stronger dollar. a different story in europe. we did see a bit of a selloff. it seems a bit murkier. guy: a bunch of things going on that are worth spending time on. the biggest compare and contrast between europe and the united states comes from the comments you saw earlier from michael saunders. the bank of england seems to be accelerating its view of when it may need to taper. it is starting to see inflation
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data which i would argue is in some way similar to the data we are seeing in the united states. there is a keen emphasis from the senators today on the inflation impulse and strong hands starting to emerge from the bank of england that maybe we are going to see tapering being brought forward. the market is starting to price in rate hikes. powell sticking to his line. i wonder if you get a few more prints of the kind of data we have seen recently if that line starts to come under pressure. alix: i never thought we would have senators turn into commodity experts, but i can count on multiple hands the number of times they were talking about, or lumber. it is like they are talking my language. guy: which is not something alix can normally say. alix: [laughter] something i never say. guy: if you look at lumber story, you can argue the time the senate starts talking about it the story as ever.
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that commodity has seen a significant decline in prices. chair powell: which is what jay powell was saying. those are specific issues but it is more of a transitory thing. it is unique and it will be transitory. i want to get more reaction. vincent, anything stand out to you? vincent: you mentioned the transient. you mentioned lumber prices, they have fallen dramatically. we've also seen a drop in food prices, energy prices, gasoline prices. now we are starting to see a drop in used vehicles which is something the fed leaned heavily on as one of the reasons prices have gone up. the problem is core cpi and core pce have searched. cpi is at a third or -- is that a 30 year high and pce is searching also.
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i would argue the fed is saying yes they are coming off, but core prices, which they usually measure, is sticky. if that continues, their argument about transient prices falling is moot. what they need to watch for are the metrics they always watched for, and that may bring them to the table as tapering a lot faster and a lot sooner. guy: the other thing we should mention, to your point, the ppi data, which is also fairly hot at the moment, which would imply there is a degree of stickiness out of factories in terms of the inflation they are delivering. the stuff we are buying is going up fast and continuing to go up. it is not a one time change. i am fascinated to see what we get out of the investment goals as we work our way through the earnings season because i think we have already heard from pepsico. there is deftly a shortage of
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workers, shortage of staff, trucks. i'm wondering at what point you think the fed will have to start recognizing this. i wonder whether we are starting to witness it already? i appreciate that he is sticking to the transient line, that this will be a temporary phenomenon. i am listening to all the others around him and i'm starting to detect cracks in what jay powell is saying as well. vincent: you make a really good point. it is producer prices here and producer prices abroad that are declining drastically. the side of the equation they are talking about is interesting. when we saw cpi data we saw a big drop. we have seen a big drop in real hourly earnings and that is because that is adjusted for inflation. when the stimulus ends, the forbearance for mortgages, when that ends, one would expect workers will try to demand money because they have lost their support structure. if they do, then you will see
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the pressure you're talking about on earnings because companies that can will raise prices but companies that cannot will take a big hit. the question is what kind of power to consumers having demanding more wages? on the lower end, they have a substantial amount of power to demand more wages. on the upper end, probably not so much. you see that going into the end of the third quarter. interesting how that plays out. wage demand does not pick up and prices pick up, disposable income drops. we will not see the pickup and the economic growth into the fourth quarter everybody is predicting. alix: when you talk to traders, where is the policy mistake? is it in what the bond market is pricing? or is the policy mistake the inflation running hot scenario, getting out of control, having to hike fast later? vincent: both of those come and
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also in the fx space. the fixed income space has been complacent because they are buying the transient argument. personally they are missing the boat by not looking at the core argument. the same is true for the fx side. a lot of people are the dollar to fall because they have seen the fed staying lower for longer. i think they're missing this argument in the core inflation rate that if the fed needs to move more quickly, the dollar is well underpriced, as is the situation where treasuries may be overpriced. that risk is out there and i think it is more of a third quarter going into the fourth quarter trade. it is something a lot of traders are talking about. just a little reluctant to get on board because i think it is too soon. very ready to pull the trigger if they see a drop. guy: how do you see the timeline working out in terms of the
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positioning we need to make in the markets? is it jackson hole? do we start to get the lay of the land then -- in danger of being too late? vincent: i think it starts at jackson hole. they are starting to talk about mortgage backed securities. that is not tapering as we would talk because the housing market is hot. it does not need to that support. i see it in the areas i live in, holmes gone the market and five days they are gone. that is how good prices are. the market will take that as a form of tapering. at least a knee-jerk reaction we will see a big risk off move inequities and treasuries and a bounce in the dollar. i do not see that theory lasting
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for a long time in the weeks after that. i think the markets will get a hold of themselves and realize mortgage backed securities are something the fed cannot be in at this time, but the next iteration, what comes after september, when the stimulus rolls off, when forbearance rolls off, we would then start to see where is the economy. our wages going up? is inflation going up? then you might see the real tapering into effect before the year end for the fed will start tapering bond purchases and treasury purchases. that is when i think the market will react rather drastically. guy: good to catch up -- alix: good to catch up. bloomberg's vincent cignarella. you can get him on your terminal. i think it sets up a conversation tomorrow for retail sales. will we see inflation damper retail sales and what that means for growth going forward? you may not need the taper conversation if the higher
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prices will do it on its own. guy: we will get that data tomorrow. something will be watching carefully. everybody is talking about the strength of the consumer. is there an impact of the delta variant? that is something people are talking about. whether it will impact behavior. i think the states is a different kettle of fish. i think consumer is in pretty good shape right now. alix: i have stopped buying a lot of stuff, so anecdotally we should note that. that wraps it up here. "balance of power" is next. richard trumka will be joining tom keene and annmarie hordern. guy and i on the cable on dab digital radio. this is bloomberg. ♪
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>> from the world of politics to the world of business, this is "balance of power" with david
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westin. ♪ tom: this thursday on radio and television, we welcome all of you. annmarie hordern and tom keene in for david westin. eventful week in washington and pageantry tonight. not a full state dinner but it meeting of the president with the german chancellor and onto festivities this meeting. annmarie: certainly an outgoing chancellor. that will be angela merkel. this is not exactly a celebratory end of her reign in germany. there is tough negotiations, notable china and nord stream 2. tom: some of the distinction on china to be noted. talk about celebratory meetings. that occurred with the chairman of the federal reserve surviving the house and this morning surviving the senate. what did you learn from chairman powell?


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