“We all know that economic growth is weak,” said Representative Andy Barr (R-KY) this Wednesday during a Congressional hearing that dragged on for more than three hours.
“The Bureau of Economic Analysis reports that GDP output in the first quarter of this year was only 0.8%, in the second quarter of this year only 1.1%,” he continued.
Barr questioned Federal Reserve Chair Janet Yellen about her recent comments suggesting a pickup in economic growth and improvements in the labor market. “I think I heard you say the labor force participation rate has not moved,” said Barr.
“Productivity, which is a real important indicator of economic growth, is in retreat,” he continued. “So the question is, on monetary policy, how do your comments about economic growth and progress in the labor market square with these stubborn facts?”
Fiddling with her glasses, Yellen admitted that the findings regarding GDP output are “extremely disappointing.”
“Productivity growth in particular has been really, very, very low and as you mentioned in recent years, negative… In that sense, the economy is not doing well.”
“But we are creating a lot of jobs,” she insisted, and “the unemployment rate has declined to the neighborhood of what most of us would consider to be full employment; and there’s a very significant downward pressure on labor force participation that’s coming from the aging of the population.”
Unemployment is currently at roughly 5%, and the labor force participation rate is 62.8%.
Barr interrupted Yellen to point out that unemployment is “coming down not for a good reason, but for the wrong reason – namely, that there’s a frustrated workforce out there that’s completely given up looking for work.”
Barr explained that this “drag on economy” has been caused by regulatory overreach, which “can cross purposes with your interest rate policies and the left hand may not know what the right is doing.” He explained that “in the post Dodd-Frank world,” financial institutions are supervised by a slew of agencies including the:
• Federal Reserve
“These agencies are promulgating regulations, they’re performing examinations. With respect to rule makings, the approach of market regulators sometimes conflicts with the safety and soundness regulators, which in turn can conflict with the consumer protection regulator,” said Barr.
In regards to supervision, he explained, while the substance of examinations tends to overlap, timetables do not. And thus data collection among these regulators can be uncoordinated. Not only is this an unnecessary burden on financial firms, but “it also may lead to gaps in supervision.”
He pointed to the Wells Fargo scandal as an example, where consumer fraud went on unpunished for five years. “The primary consumer protection agency is coming in on the tail end of that, again according to the timeline we’ve seen.”
“Do you acknowledge that maybe the lack of regulatory coordination and inefficiency may be a problem?” he asked Yellen. “What do you think about proposals to consolidate or at least reduce the number of financial regulators to reduce regulatory incompetence, to reduce regulatory duplication or conflicts, or at least consolidate examinations and data collection efforts?”
Smirking, Yellen admitted that yes, we have a “complicated regulatory system” and that these issues can create real burdens for small banks.
President Obama appointed Democrat Janet Yellen to the position of Federal Reserve Chair. She became the first female to hold the position on February 3rd, 2014.