Key highlights of Fed Chair Jerome Powell’s testification before the congress

US unemployment is at 3.7% the lowest in 50 years
Longest period of economic expansion at 11 years
Philips curve is dead – Inflation rate and unemployment rate seems to be decoupled and no longer correlated

US inflation rate has fell below 2%
slowing global growth
- manufacturing
- investments
- trade
- business fixed investments
international trade volume slow down
slowing US business investments
lots of central bank with low interest rates have little wiggle room if recession were to occur

US economy is 70% consumer driven
Responds to congress policies
Responds to fiscal policies
reopens market when economy grinds to a halt
resilient to president’s (executive branch) meddling
utilizes framework and the tools available to achieve symmetrical 2% inflation rate
Fiscal policy is more powerful than monetary policy
- becomes critical during a severe downturn
4 key pillars of monitor
- Asset price
- leverage in financial system
- leverage away from banks
- funding risks
Fed will negotiate with other countries and will reject terms if international terms cannot be expected to work within the US system – Insurance Capital Standards
Will look for more tools to pursue mandate since interest rate is already very low
Can handle counter cyclical policies
- buying US treasuries to increase supply of money in circulation

Income inequality
- 1% owns 40% of wealth in America
US has less social mobility than other more developed countries
- since 40 years ago US education system has not be able to train people to capitalize on technology and globalization
Median and lower income has stagnated (those without a degree)
- Only increased 3% wage increase despite low unemployment rates
- does not make up 2% inflation rate and productivity gains
- chief causes
  - technology: automation has severely increased individual productivity and thus throughput capacity while production demand has not yet caught up with this increased capacity
  - globalization: more and more qualified workforce is coming online around the world that can be employed
community in the fringes finally getting to join the workforce in recent years after 2008 recession
employers having problems finding qualified people to fill positions – 7 million open positions within the US
- good people skills
  - service economy
  - manufacturing economy
- opioid crisis

US 3.7% unemployment rates
Michigan
- layoffs due to trade war
- 2018 April – 4.2% unemployment
- 2019 April – 4.6% unemployment
- cannot raise bonds at competitive rates
- infrastructure on the rocks
Wisconsin – 2.8% unemployment rates
Economic development is increasing moving to the coast
- young people are moving to the coast and to cities
- able people are doing the same
Policies need to solve problem by increasing productivity
- technology savviness
- basic research skills and aptitude

expected to happen again this year
has caused substantial buildup of federal reserves
22 trillionUSD Federal debt in total
corporate tax rate cuts leads to another expected 1trillion USD deficit this year
interest on government debt expected to become largest category of federal government expense by 2026 – government has less money to spend on anything else expect paying debts
Higher debt should have lead to higher interest rates, due to the special case of US being a reserve currency, government has been able to continue borrowing at low interest rates
- Japan has higher debt to GDP ratio and low interest rates
Debt will get past on to next generation
If does not occur will undermine USD as the world’s reserve currency

A very stable equilibrium for a long time
Can potentially have multiple currencies
On going back to the gold standard
- will undermine the Dual mandate
- Federal reserve will be forced to managed the price of gold instead – which sometimes fluctuate wildly
Currently USD was the British Pound a while back
Conditions for a sustained reserve currency
- being the largest economy
- best institution
  - democracy
  - rule of law
  - open to commerce with international trading nations
- fiscal sustainability

Going off LIBOR rate at end of 2021
- Banks will no longer be required to offer a LIBOR rate at the end of day
- will present a coordination problem especially for assets that do not have a predefined rate – mortgages
potential reduction of banks stress buffer
banks prefer to hold reserves versus treasury
bank CEOs areas of worries
- leveraged lending
- shadow banking
  - CLO/Hedge funds/ Mutual funds – area Global Financial Stability board is actively looking into
works closely with the Federal reserves

use case: allowing cheques to clear faster so that mum can cash in salary to pay for food at home
participants
- regional banks
- big banks
- technologists
Federal Reserve will enter the market directly to be the settler
inter-operability with legacy system is a concern

Currently wire to an account
proposes to wire to an account with a name match
- UK based system
- conflicts with some state laws
organized crime primarily carried out within the real estate sector