Thread by @JWMason1

In a few minutes, Jerome Powell will be testifying before the House Financial Services Committee. Expect some sharp questions from committee members @AOC, @RashidaTlaib and @RepChuyGarcia .

Powell endorses hysteresis: "A tight labor market is bringing all kinds of new communities into the labor market." If you take it seriously, the idea that the size of the laborforce is endogenous to demand is potnetially quite radical.

"There's no basis for calling this a hot labor market - wage gains are barely enough to cover inflation and productivity gains. We hear companies saying labor is scarce, but we don't really see wages responding."

More Powell: "In lower income communities there really hasn't been a recovery until recently. Only in the last few years have wages begun to rise at the lower end." Another potentially radical point - macroeconomic conditions have major distributional effects.

Asked about the limits of monetary policy for stabilizing the economy, Powell says: "It's not a good thing to have monetary policy solely responsible. Fiscal policy is also quite powerful and we need to have that as well."

Seems ambivalent on debt sustainability. "My predecessors who predicted that rising debt would lead to higher interest rates would be surprised ... but it has to be true at some point ... but Japan has much higher debt than us and still sees very low rates."

Miss Tlaib, the Gentlewoman from Michigan!

(The chair called her "miss" for some reason.)

Rep. Tlaib: "Given that Detroit has still not recovered fully from the last recession, why should be confident that the Fed has the tools to respond to another deep downturn?"

Powell: "We don't expect another deep downturn." Well that's comforting!

Tlaib asks what additional tools the Fed needs. Powell: "I think we have the tools that we did. What we need is more help from fiscal policy."

Tlaib: In the crisis, Fed intervened to help corporations borrow in commerical paper market. Why not do same for governments like Detroit?
Powell: We don't believe we have that authority.
Tlaib: So that is another tool you could use?
Powell: I don't think we want that authority.

Powell says he doesn't want to support state-local borrowing because Fed "doesn't want to pick winners and losers." But policy inevitably does that - commerical paper borrowers e.g. are specific subset of businesses. Fed pretending it doesn't allocate doesn't help those who lose.

Rep. Pressley: The payments system should be a public good. The Fed should take responsibility for ensuring that all Americans can make payments freely and quickly without charges. The absence of a public payment system creates space for financial predators.

AOC in the house!

AOC: Unemployment has fallen three full points since 2014 but inflation is no higher today than it was five years ago. Given these facts, do you agree that the Fed’s estimates of the lowest sustainable unemployment rate have been too high?

Powell: Absolutely.

So what happened to the Phillips curve?

Powell: "I think we have learned that the economy can sustain much lower unemployment than we thought without rising inflation."

AOC: You said that in a recession, you would like to see more fiscal policy. What exactly do you have in mind?

Powell: "Something like what was done in the last recession," I guess meaning the ARRA. "But I would reserve that for deep recessions."

Jerome Powell does not support returning to the gold standard, for some reason.