S. HRG. 115–149 THE ECONOMIC OUTLOOK WITH FEDERAL RESERVE CHAIR JANET YELLEN HEARING BEFORE THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION NOVEMBER 29, 2017 Printed for the use of the Joint Economic Committee ( U.S. GOVERNMENT PUBLISHING OFFICE 28–362 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 Sep 11 2014 10:03 Feb 13, 2018 Jkt 028423 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 C:\DOCS\28362.TXT SHAUN LAP51NQ082 with DISTILLER JOINT ECONOMIC COMMITTEE [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] HOUSE OF REPRESENTATIVES SENATE PATRICK J. TIBERI, Ohio, Chairman MIKE LEE, Utah, Vice Chairman ERIK PAULSEN, Minnesota TOM COTTON, Arkansas DAVID SCHWEIKERT, Arizona BEN SASSE, Nebraska BARBARA COMSTOCK, Virginia ROB PORTMAN, Ohio DARIN LAHOOD, Illinois TED CRUZ, Texas FRANCIS ROONEY, Florida BILL CASSIDY, M.D., Louisiana CAROLYN B. MALONEY, New York MARTIN HEINRICH, New Mexico, Ranking JOHN DELANEY, Maryland AMY KLOBUCHAR, Minnesota ALMA S. ADAMS, PH.D., North Carolina GARY C. PETERS, Michigan DONALD S. BEYER, JR., Virginia MARGARET WOOD HASSAN, New Hampshire WHITNEY K. DAFFNER, Executive Director KIMBERLY S. CORBIN, Democratic Staff Director (II) VerDate Sep 11 2014 10:03 Feb 13, 2018 Jkt 028423 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 C:\DOCS\28362.TXT SHAUN LAP51NQ082 with DISTILLER C O N T E N T S OPENING STATEMENTS OF MEMBERS Hon. Patrick J. Tiberi, Chairman, a U.S. Representative from Ohio .................. 1 Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico ..... 2 WITNESS Janet L. Yellen, Chair, Board of Governors of the Federal Reserve System ...... 4 SUBMISSIONS FOR THE RECORD Prepared statement of Hon. Patrick J. Tiberi, Chairman, a U.S. Representa- tive from Ohio ....................................................................................................... 34 Prepared statement of Hon. Martin Heinrich, Ranking Member, a U.S. Sen- ator from New Mexico .......................................................................................... 34 Prepared statement of Hon. Janet L. Yellen, Chair, Board of Governors of the Federal Reserve System ................................................................................ 36 Response from Janet L. Yellen to Questions for the Record Submitted by Chairman Tiberi ................................................................................................... 37 Response from Janet L. Yellen to Questions for the Record Submitted by Senator Hassan .................................................................................................... 38 Response from Janet L. Yellen to Questions for the Record Submitted by Representative LaHood ....................................................................................... 39 (III) VerDate Sep 11 2014 10:03 Feb 13, 2018 Jkt 028423 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 C:\DOCS\28362.TXT SHAUN LAP51NQ082 with DISTILLER VerDate Sep 11 2014 10:03 Feb 13, 2018 Jkt 028423 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 C:\DOCS\28362.TXT SHAUN LAP51NQ082 with DISTILLER THE ECONOMIC OUTLOOK WITH FEDERAL RESERVE CHAIR JANET YELLEN WEDNESDAY, NOVEMBER 29, 2017 CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, DC. The Committee met, pursuant to call, at 10:01 a.m., in Room 1100, Longworth House Office Building, Honorable Pat Tiberi, Chairman, presiding. Representatives present: Tiberi, Paulsen, Schweikert, LaHood, Comstock, Maloney, Delaney, Adams, and Beyer. Senators present: Heinrich, Lee, Cruz, Klobuchar, and Peters. Staff present: Theodore Boll, Daniel Bunn, Kim Corbin, Whit- ney Daffner, Alaina Flannigan, Connie Foster, Natalie George, Col- leen Healy, Matt Kaido, Paul Lapointe, Allie Neill, and Alex Schibuola. OPENING STATEMENT OF HON. PATRICK J. TIBERI, CHAIRMAN, A U.S. REPRESENTATIVE FROM OHIO Chairman Tiberi. Good morning, and welcome. I want to wel- come everyone to the Joint Economic Committee’s annual hearing with the Federal Reserve Chair on monetary policy and the pros- pects for our economy. The Federal Reserve is one of the most important institutions in the country and, indeed, the world. Chair Yellen served as Presi- dent of the San Francisco Fed, then as Vice Chair, then as Chair of the Federal Reserve Board. Her distinguished service at the Fed encompassed the most tumultuous period of the United States fi- nancial and economic systems since the Great Depression. Many books have already been written about the events of this period, and many more will certainly be written, from different points of view and with varying assessments. But one thing is cer- tain: The financial system and the economy have stabilized. We are no longer debating how to reconstitute them but, rather, how they might work even better. This hearing will review the developments since the crisis and especially since Dr. Yellen became the Chair of the Fed, in terms of the Fed’s dual mandate of maximum employment and price sta- bility. By the standard measure of unemployment, which is 4.1 per- cent at last reading, and by the standard measure of inflation, which most recently stood at 1.6 percent, both the first and the sec- ond goals have been achieved. Although the standard metrics of unemployment and inflation are very good, all is not well in our economy. Economic growth has (1) VerDate Sep 11 2014 10:03 Feb 13, 2018 Jkt 028423 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\28362.TXT SHAUN LAP51NQ082 with DISTILLER 2 been slow, to the point that some economists have advised that we should try to lower our expectation for future growth by about a third from the average post-war growth rate. Wage growth has been surprisingly low, as has been business in- vestment. Labor force participation has remained low, and various measures of economic dynamism, such as new business formation, are way down from before the previous recession. Various explanations have been offered, including an aging popu- lation and decreased international competitiveness of U.S. busi- nesses that are impaired by taxes and regulation. But money and banking also seem to have a role. Commercial banks, rather than issuing more loans, are holding extraordinarily large amounts of reserves at the Fed, and the Fed has invested trillions of dollars in mortgage-backed securities and treasuries. So we have a condition in which businesses are investing less, workers are staying on the sidelines, and banks are lending less than they could. In short, the economy is not realizing its full po- tential. The Joint Economic Committee has devoted several hear- ings this year to determine why economic growth has been slow and is interested to hear Chair Yellen’s views. Taxes and regulation are major reasons for the reluctance of businesses to invest and hire more workers in the United States, which is why the current effort in Congress to reform the tax sys- tem is so very important. Both the House and the Senate versions of tax reform make crit- ical improvements—in particular, reducing the corporate tax rate to bring it more in line with those of other countries that we com- pete with. We are very interested to know how the Fed perceives such tax rate alignment and whether its policymaking will assume that it increases the economy’s productive potential. In closing, let me express my deepest appreciation for Chair Yellen’s service to the Nation in one of the most consequential posi- tions for the economy and Americans’ welfare. Chair Yellen, thank you so much. I will now yield to the ranking member, Senator Heinrich, for his statement. [The prepared statement of Chairman Tiberi appears in the Sub- missions for the Record on page 34.] OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, A U.S. SENATOR FROM NEW MEXICO Senator Heinrich. Thank you, Chairman. And, Chair Yellen, I want to begin by thanking you for your ex- traordinary public service. Your leadership at the Federal Reserve has played a key role in helping the economy recover from the fi- nancial crisis. The Nation owes you a debt of gratitude for your careful stewardship of monetary policy. Last year, when you appeared before this committee, I asked you about how we can get the economy delivering for more Americans. Unfortunately, the economic situation is probably even more polar- ized today. Economic growth, jobs, startups—all are increasingly concentrated by ZIP code. And while we have made real progress since the recession, some parts of the country are still being left be- VerDate Sep 11 2014 10:03 Feb 13, 2018 Jkt 028423 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\28362.TXT SHAUN LAP51NQ082 with DISTILLER 3 hind. Too many rural areas, too many tribal areas are struggling to get back to where they were a decade ago before the recession. I represent a State with an unemployment rate well above where it was when the recession began back in December of 2007 and that sure doesn’t seem to me like we have fully recovered from this recession. I know that the Federal Open Market Committee has not yet made a decision on an interest rate hike next month, but if ana- lysts are correct, the Fed is expected to raise interest rates, which would be the third rate hike this year. With many communities across New Mexico and the country still struggling, I am concerned that we may be putting the brakes on too soon. Wage growth remains weak, while healthcare, college, and child care are less affordable for working families, and this reality should inform both monetary and fiscal policy. We need targeted fiscal actions to grow the economy and to help these areas that have been left behind. But that is not what some of my colleagues are delivering in the current tax proposals. The Republican tax bill moving through the Senate adds 13 mil- lion to the ranks of the uninsured to pay for tax breaks for the wealthy and special interests.