February 14, 2007

Opening Statement of Chairman Chris Dodd - Hearing on the Federal Reserve's Semi-Annual Monetary Policy Report

The Committee will come to order. This morning the Committee is pleased to welcome Federal Reserve Chairman Bernanke to deliver the Fed’s Semi-Annual Monetary Policy Report. I want to congratulate you for completing your first year as Chairman. Following in the footsteps of a very successful Chairman can be difficult – and is something that I can relate to. But I believe that you have done a very good job in gaining the respect and confidence of the markets and your colleagues on the Federal Reserve Board. The Fed’s monetary policy – most notably its decision to stop raising rates in June – has played an important role in some recent positive economic developments. During 2006, the economy grew at a sustainable rate and unemployment was kept to under 5 percent. While this is not quite as strong as the late 1990s – when growth was higher and unemployment fell below 4 percent, with much higher labor force participation – this economic news is welcome. Long-term interest rates have remained at modest levels, despite a large federal budget deficit, a historic current account deficit and the cumulative effect of the Fed’s two-year cycle of raising interest rates that ended in June. While these developments are, as I said, positive, there are other facts that in my view raise questions about our nation’s long-term ability to provide economic security, opportunity, and prosperity to our people. I am traveling quite a bit these days and talking to many people from all walks of life. What I am hearing, from people of all backgrounds, is that they are concerned about many of the same things: * Health care costs are rising at a rate that is unsustainable for businesses and employees. Over the last 6 years, health care costs have increased by 30 percent. More than 46 million Americans have no health insurance today – an increase of 6 million over the past 6 years. * The price of gas, home heating oil and other forms of energy has skyrocketed over the past few years. This past summer gasoline cost over three dollars per gallon in many parts of the country. While lower now, it is still twice as high as it was five years ago. * Families are concerned that they can not afford to send their kids to college. College tuition has risen by more than twice the rate of inflation over the past twenty years. Room, board, and tuition at many private universities now costs over $50,000 per year. As these costs rise, working Americans are experiencing more and more uncertainty about their future. People are wondering whether their home is losing value as they see houses in their neighborhood sell for less today than they did a year ago. And millions of Americans are in exotic and subprime mortgages, with the potential for sharp increases in monthly payments right around the corner. Several credible reports say that that we are facing a tidal wave of defaults and foreclosures, which would strip these families of their major, if not only, source of wealth and economic security. Despite some recent gains in household incomes, the real median family income – what a family right in the middle of the middle class earns in a year – is lower today than what it was six years ago. People are working longer and harder but many are not bringing home enough money to keep pace with what they need. And for those who lose their job, the prospect of falling out of the middle class is far greater today. Americans are more than twice as likely to experience a precipitous drop in income as Americans of a generation ago, according to recent research by Jacob Hacker at Yale University. As we worry about some Americans falling out of the middle class, we must also be concerned about those working hard to climb into the middle class. Over 10 million Americans today do not have access to mainstream financial institutions – such as banks or credit unions. For these entrepreneurs and workers, affordable credit and capital services are scarce if not impossible to find. As a result, millions of our fellow citizens lack the financial tools they need to build more secure and prosperous futures for themselves. Finally, our nation finds itself with trade policies that are unsustainable. We learned this week that last year, we ran a record trade deficit of over $763 billion. Our nation’s current account deficit will approach 7 percent of our GDP. We are relying on over $2.4 billion a day from foreign investors – who are increasingly foreign governments – to finance our economic growth, because of a lack of savings at home. Our Administration has an official trade policy that is in key respects out of touch with reality. For instance, it is widely believed that China manipulates its currency. Yet, the Administration refuses to officially recognize that fact. When Chairman Bernanke was in China, as part of the Strategic Economic Dialogue, he gave a speech that pointed out the “effective subsidy that an undervalued currency provides for Chinese firms that focus on exporting.” While this subsidy is not the sole cause of either our record international trade deficit or our loss of over 3 million manufacturing jobs – including about 1 million in critical national defense related industries – the distortion of Chinese currency manipulation is having a significant negative impact on American manufacturing jobs. As policy makers, we need to ask ourselves a fundamental question: Are we satisfied with America’s place in the world at the beginning of the new century? I don’t think that any one can look at all the facts and reach any conclusion other than that we can do better. And for the sake of the people we serve and generations coming after them, we must do better. There are steps we can and should take to build a stronger foundation for a more secure and prosperous future. Today’s hearing provides the Committee with an opportunity to discuss some of these steps. We can start by keeping interest rates at modest levels. Monetary policy is obviously an important component of our economic future. The Fed’s dual mandate is to promote full employment and price stability. This is a vital and difficult mission and we look forward to hearing from the Chairman about what steps the Fed has taken since its last report to fulfill that statutory mandate. In addition, we need our federal financial regulatory agencies to be vigilant in assuring not only the safety and soundness of our financial institutions but that those institutions are serving, not thwarting, the aspiration of Americans to build more secure and prosperous lives for themselves and their families. I look forward to discussing this aspect of the Fed’s mission, as well, with you today, Mr. Chairman. I now turn to my colleague and the Committee’s Ranking Member, Senator Shelby, for his opening statement.