FEDERAL RESERVE DISTRICTS: GOVERNANCE, MONETARY POLICY, AND ECONOMIC PERFORMANCE HEARING BEFORE THE SUBCOMMITTEE ON MONETARY POLICY AND TRADE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION SEPTEMBER 7, 2016 Printed for the use of the Committee on Financial Services Serial No. 114–99 ( U.S. GOVERNMENT PUBLISHING OFFICE 25–878 PDF WASHINGTON : 2018 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 15:10 Mar 08, 2018 Jkt 025878 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\25878.TXT TERI HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. MCHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELA´ ZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts STEVAN PEARCE, New Mexico RUBE´ N HINOJOSA, Texas BILL POSEY, Florida WM. LACY CLAY, Missouri MICHAEL G. FITZPATRICK, Pennsylvania STEPHEN F. LYNCH, Massachusetts LYNN A. WESTMORELAND, Georgia DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin GWEN MOORE, Wisconsin ROBERT HURT, Virginia KEITH ELLISON, Minnesota STEVE STIVERS, Ohio ED PERLMUTTER, Colorado STEPHEN LEE FINCHER, Tennessee JAMES A. HIMES, Connecticut MARLIN A. STUTZMAN, Indiana JOHN C. CARNEY, JR., Delaware MICK MULVANEY, South Carolina TERRI A. SEWELL, Alabama RANDY HULTGREN, Illinois BILL FOSTER, Illinois DENNIS A. ROSS, Florida DANIEL T. KILDEE, Michigan ROBERT PITTENGER, North Carolina PATRICK MURPHY, Florida ANN WAGNER, Missouri JOHN K. DELANEY, Maryland ANDY BARR, Kentucky KYRSTEN SINEMA, Arizona KEITH J. ROTHFUS, Pennsylvania JOYCE BEATTY, Ohio LUKE MESSER, Indiana DENNY HECK, Washington DAVID SCHWEIKERT, Arizona JUAN VARGAS, California FRANK GUINTA, New Hampshire SCOTT TIPTON, Colorado ROGER WILLIAMS, Texas BRUCE POLIQUIN, Maine MIA LOVE, Utah FRENCH HILL, Arkansas TOM EMMER, Minnesota SHANNON MCGAHN, Staff Director JAMES H. CLINGER, Chief Counsel (II) VerDate Nov 24 2008 15:10 Mar 08, 2018 Jkt 025878 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\25878.TXT TERI SUBCOMMITTEE ON MONETARY POLICY AND TRADE BILL HUIZENGA, Michigan, Chairman MICK MULVANEY, South Carolina, Vice GWEN MOORE, Wisconsin, Ranking Member Chairman BILL FOSTER, Illinois FRANK D. LUCAS, Oklahoma ED PERLMUTTER, Colorado STEVAN PEARCE, New Mexico JAMES A. HIMES, Connecticut LYNN A. WESTMORELAND, Georgia JOHN C. CARNEY, JR., Delaware MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama ROBERT PITTENGER, North Carolina PATRICK MURPHY, Florida LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan DAVID SCHWEIKERT, Arizona DENNY HECK, Washington FRANK GUINTA, New Hampshire MIA LOVE, Utah TOM EMMER, Minnesota (III) VerDate Nov 24 2008 15:10 Mar 08, 2018 Jkt 025878 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\25878.TXT TERI VerDate Nov 24 2008 15:10 Mar 08, 2018 Jkt 025878 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\25878.TXT TERI C O N T E N T S Page Hearing held on: September 7, 2016 ............................................................................................ 1 Appendix: September 7, 2016 ............................................................................................ 41 WITNESSES WEDNESDAY, SEPTEMBER 7, 2016 George, Esther L., President and Chief Executive Officer, Federal Reserve Bank of Kansas City ............................................................................................ 6 Jones, Robert G., Chairman and Chief Executive Officer, Old National Bancorp ................................................................................................................. 8 Lacker, Jeffrey M., President and Chief Executive Officer, Federal Reserve Bank of Richmond ................................................................................................ 4 Spriggs, Hon. William E., Chief Economist, AFL-CIO, and Professor, Depart- ment of Economics, Howard University ............................................................. 9 APPENDIX Prepared statements: George, Esther L. .............................................................................................. 42 Jones, Robert G. ............................................................................................... 75 Lacker, Jeffrey M. ............................................................................................. 78 Spriggs, Hon. William E. ................................................................................. 106 (V) VerDate Nov 24 2008 15:10 Mar 08, 2018 Jkt 025878 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 K:\DOCS\25878.TXT TERI VerDate Nov 24 2008 15:10 Mar 08, 2018 Jkt 025878 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 K:\DOCS\25878.TXT TERI FEDERAL RESERVE DISTRICTS: GOVERNANCE, MONETARY POLICY, AND ECONOMIC PERFORMANCE Wednesday, September 7, 2016 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MONETARY POLICY AND TRADE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 10:04 a.m., in room 2128, Rayburn House Office Building, Hon. Bill Huizenga [chair- man of the subcommittee] presiding. Members present: Representatives Huizenga, Mulvaney, Lucas, Pearce, Stutzman, Pittenger, Messer, Schweikert, Guinta, Love, Emmer; Moore, Foster, Perlmutter, Himes, Sewell, Murphy, Kildee, and Heck. Ex officio present: Representatives Hensarling and Waters. Chairman HUIZENGA. The Subcommittee on Monetary Policy and Trade will come to order. Without objection, the Chair is author- ized to declare a recess of the subcommittee at any time. Today’s hearing is entitled, ‘‘Federal Reserve Districts: Govern- ance, Monetary Policy, and Economic Performance.’’ I will now recognize myself for 5 minutes to give an opening statement. Economic performance couldn’t be stronger, especially in light of the deep hole that President Obama inherited. Well, that is the story that you are going to hear from my colleagues on the other side of the aisle, and they have been telling it for years, but the facts clearly contradict this situation. The fact of the matter is that we are mired in the slowest recov- ery since at least World War II. Historically, our Nation’s economy has grown at a 3 percent clip. The Obama Administration now pretends that a new normal of 2 percent counts as a success. Small on its face, the difference be- tween 3 and 2 percent is 50 percent. Unfortunately, economic opportunities are now disappearing even faster. And while my friends on the other side have been crowing about this recovery for years, Republicans have been call- ing out for what it really is: completely unacceptable situation. But today it will be different in at least one important respect. Our colleagues on the other side of the aisle will finally join us in acknowledging that our economy is underperforming. And together we will examine the important role that the Federal Reserve’s dis- (1) VerDate Nov 24 2008 15:10 Mar 08, 2018 Jkt 025878 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\25878.TXT TERI 2 tricts play in expanding economic opportunity—a role that is, un- fortunately, under heavy attack. This attack has been brewing beneath the surface for several years. In late July, the Democrat Party finally made their true objective clear. The party platform adopted at the convention in Philadelphia promises to increase opportunity for all. Instead, it has taken aim at the very foundation of opportunity, in my opinion—that is the governance of monetary policy and the subject of today’s hearing. Democrats have constantly resisted reforms that would mod- ernize the Federal Reserve, bringing much-needed transparency to what most Americans consider an impossibly opaque institution. While such reforms promise increased accountability, Democrats falsely claim that a better disciplined, more predictable, and clearly communicated monetary policy with Congress and the public would somehow jeopardize the Fed’s independence. Reforms such as these included in the FORM Act and the Draft Financial Choice Act would help insulate the Fed from any oppor- tunity-killing political pressures. However, my friends on the other side of the aisle would like to double down on what Dodd-Frank started, co-opting the Federal Reserve district banks by subjecting them to the same politics that has kicked economic opportunity to the sidelines in the name of re-inflating asset prices. Their plat- form promises to press the pedal to the metal in a drag race to printing money for the politics of those in office. They now have launched a hostile takeover of the Federal Re- serve itself. And I will note that this is a dual-edged sword that some might benefit now and will rue the day if this were to go through later. Real economic opportunity cannot return until Washington puts an end to the pretense of knowledge. We cannot promote economic opportunity for all through a monetary policy that targets assets that benefit only some. Oracles from the Eccles Building have been promising to do so for a decade, but where are the results? I am as fed up as anybody. We are fed up as anybody. Where is the promised opportunity? How could the Fed have cre- ated