Thank you thank you I'm gonna do my best to enforce five minutes today this hearing will come to order welcome chair Powell thank you for uh doing your duty and seeming to enjoy it when you come to our committee thank you seeming to enjoy it today we examine the fed's.
Actions to combat inflation whether it's these actions are actually working including how those actions affect American jobs and their paychecks prices are still too high across many parts of the economy we know that who feels it the most when the cost of rent and groceries go up it's not the economic pundits and politicians who lecture us.
About discipline instability it's not the corporate Executives who pretend they're making tough choices about prices while reporting record profit increases quarter after quarter in doing more and more stock BuyBacks it's the people working hourly jobs to make ends meet it's seniors on fixed income and Social Security it's everyone who gets.
Their income from a paycheck each month not an Investment Portfolio it's those same Americans who stand to lose the most at the fed's actions to curb inflation go too far no matter what goes wrong in our economy a global pandemic a war in Eastern Europe weather disasters profits somehow always manage to go up workers are left paying the.
Price as you've noted share Paul the fed's tools are only one element in our fight against inflation it's a complex problem interest rates are a single we know blunt tool raising interest rates can't rebuild our supply chains and fix demand imbalances from the pandemic raising interest rates won't end Russia's brutal invasion of Ukraine.
Raising interest rates won't prevent avian flu from devastating one-third of our egg supply or weather disasters from destroying key crops and raising interest rates certainly won't stop big corporations from exploiting all of these crises to jack up prices far beyond the increase in their costs last year corporate profits at a record.
High corporate PR Chiefs assurance that these companies just have to raise prices their costs are going up the workers just want to be paid too much they have no other choice they tell us yet when you look at their profits and their executive salaries and their stock buyback plans sure doesn't look like corporations have exhausted every.
Available alternative it's so Brazen even Global Bankers call in the FED to identify this profiteering is one of the biggest drivers of inflation Paul Donovan Chief Economist of global wealth management at UBS wrote the FED should make clear that raising profit margins or spurring inflation companies have passed higher.
Costs onto consumers but they've also taken advantage of circumstances to expand profit margins the broadening of inflation Beyond commodity prices is more profit margin expansion than wage cost pressures think about that from a chief Economist at UBS I'll say it again they've taken advantage these companies have taken advantage of circumstances to.
Pro to expand profit margins the broadening of inflation Beyond commodity prices is more profit margin expansion than wage cost pressures unquote the FED understandably the FED can't force corporations to change their ways or rewrite the Wall Street business model on its own but the FED can talk about it high interest rates falling.
Wages increasing unemployment are all Hallmarks of failed policies that end up helping Wall Street the largest corporations in the country the wealthiest people in the country because let's be clear what we're talking about when people use the economic speak that can Cloud this conversation cooling the economy means laying off workers.
Lowering demand means workers get fewer raises of course there are times when the FED must act we can't allow inflation to become entrenched we've seen encouraging trends that is that that isn't happening and there are other ways we can bring prices down instead of lowering demand again making people poor laying people off denying worker raises.
We can speed up and strengthen our supply chains we can bring critical manufacturing back to the U.S we can rebuild our infrastructure it's what we're doing with the chip sack with the inflation reduction act with a bipartisan infrastructure bill for the first time in decades we're finally recognizing the damage that I and many.
Of my colleagues warned corporate of the corporate offshoring would do to our economy look at East Palestine Ohio about community that Senator Vance and I have visited a number of times recently America learned about this small town last month when a Norfolk Southern Train derailed and spewed hazardous material into this community East Palestine is.
More than just a disaster headline Columbiana County was once the center of American Ceramics manufacturing at one time producing 80 percent of Ceramics of dishware in this country one County produced 80 percent of it when I was there last week I was talking to the sheriff at the 1820 Candle Company he was talking about how the last one.
Closed just a few years back like so many Industries these jobs moved overseas and we know why the same reason Norfolk Southern cuts cost at the expense of safety eliminating one-third one-third of its Workforce in the last 10 years then you're surprised with these derailments it's the same reason corporations now keep prices High even.
As supply chain stabilize it's the Wall Street business model chair Powell knows that I know that my Republican colleagues and Democratic colleagues know that it's a Wall Street business model quarter after quarter corporations are expected to cut costs at any cost they skimp on safety they move production overseas the countries where.
They can pay workers less because of trade deals that they lobbied for in Wall Street demands they post profit increases even in the middle of a global pandemic that's the problem with our economies and not only will higher interest rates not solve it if they're overdone they'll make it worse we can't risk undermining one of the successes of.
Our current economy for the first time in decades workers are finally finally starting to get a little power in this economy unemployment's in a historic low 3.4 percent that's not just a number that means Americans have more opportunities more options even in places that have seen a lot in recent years it means people have the power to.
Demand raises and retirement security and paid sick days and some control over their schedules it means more Americans have the dignity have the dignity that comes with a good job that provides for your family we must hear ensure that all Americans have the opportunity for that Dignity of work it's a critical time the consequences of missteps could be severe.
Mr chairman two more things that affect affect your job it's not just monetary policy that threatens American pocketbooks some of my colleagues have threatened the nation's full faith and credit by holding the debt ceiling hostage for partisan politics instead of paying our bills on time they're threatening essentially threatening all.
Americans the fifth circuits Consumer Financial Protection Bureau ruling could also cause unimaginable instability and Chaos for families for consumers but also as the chair knows for a financial system the fifth circuit is wall Street's no doubt about it the fifth circuit is wall Street's favorite Courthouse.
It recently ruled the cfpb's independent funding if funding is unconstitutional if the Supreme Court upholds the fifth circuit's ruling it will not only devastate cfpb it will threaten the independent funding of many other federal agencies including the Federal Reserve I look forward today hearing today's hearing how the FED will.
Balance its dual mandate and continue to promote an economy where everyone who wants a good job can find one an economy that works for everyone Scott sorry sorry good morning Jeremiah sitting here looking at my repair my prepared remarks thinking about hey there's an opening.
Coming where Vice chairman brainer is moving on I think is really important for us to make sure that all the information that we need in order to make a good decision on the next knob that we have in a timely fashion so I would really implore the chair to make sure that happens that every question every question there that is uh asked.
From the person we get every member of this committee has their questions answered in a timely fashion and that the staff has their answers in timely fashion listening to Chairman Brown I thought to myself fascinating truly fascinating.
I concluded that well I know chairman Baum pretty well I am sure he is sincere in his rant but let me just say this spending and printing trillions of dollars caving to the radical left in this country seeing policies posited and then.
Implemented that led to the worst inflation in 40 years seeing our inflation at 9.1 percent seeing American families struggle because of the weight of the government on their shoulders seeing the devastation from South Carolina to Ohio is unbelievable that the progressives in this country.
Who caused a 9.1 percent inflation within turn somewhere besides in the mirror to see the absolute devastation caused by their out of control spending is remarkable remarkable to stop the out of control inflation caused by the out of control spending.
The FED steps in to cool the economy well the definition of cooling economy is necessary because we've seen the most radical approach to a problem that was in a rear view mirror being used as a trojan horse to bring in a level of socialism and spending that.
Our nation has not seen in my lifetime the facts are very simple when you get to 9.1 percent inflation in this nation as a kid who grew up in a single parent household mired in poverty a 40 today a hundred percent just a year ago increasing the gas prices devastates single mothers around this country for seniors on fixed income.
Whose savings are being depleted with an average cost just last month of a 433 dollar increase because of inflation for my friends on the other side of the aisle to look any place besides a mirror I find stunning the truth is that when your food prices go up over 20 percent when your electricity is up over 20 percent.
You have to ask yourself where in the world are they they cannot be in this universe it must be an alternate universe where in fact it's okay for us to see prices go through the roof and our economy not stumble but fall into a ditch why are we in the ditch because progressives used the pandemic.
As a way to usher in a form of spending that takes the money out of the pockets of everyday Americans and puts it in the coffers of the government there is a better way the better way is to trust the American.
People and when you do so we don't have to have the FED come in and raise interest rates so high to quell the challenges in our economy so that today versus 18 months ago the price of the same house for your mortgage payment is twice as high.
Why because of the runaway spending of our friends on the other side of the aisle I'm sure I do not have time for my opening comments but I will say without any question as I look around the country and I ask myself how devastating is it.
That today it costs 433 more dollars than it did a year ago the answer is it is a crisis when the average family in our country just a couple years ago didn't have four hundred dollars in their savings for an emergency to have prices go up.
By this amount it's devastating to have a conversation about rents around the country looking at the inflationary effect and the absolute devastation of a snarling supply chain that we haven't seen in my lifetime run by my friends in the progressives unbelievable.
But to get to you chairman Powell one of the comments that you've made that thing is really important and one of the speeches you gave in January and I apologize for my rant I just wanted to make sure my rant was consistent with my friend here um it is essential you said that we stick to our statutory goals and.
Authorities and that we resist the temptation to broaden our scope to address other important social issues of the day taking on new goals however worthy without a clear statutory mandate would undermine the case of our independence you further noted that and I quote without explicit.
Congressional legislation it would be inappropriate for us to use our monetary policy or supervisory tools to promote a Greener economy or to achieve other climate-based goals we are not and will not be a climate policy maker do you still stand by those comments I do thank you finally we're not in the question I know I get.
It finally it's in 12 seconds yes I knew the chairman would dock that from my time and I appreciate you uh doing so well the great humor great humor finally several of my Republican colleagues and I sent a letter to you discussing Vice chair supervisor Vice chair of supervision Michael Barr's plan to.
Conduct a holistic review of capital standards I look forward to discussing those Capital standards uh during my q a and I will thank you for our recent conversation that we had that uh helped illuminate some of the necessary challenges that we face as a nation and your answers to it thank you Mr thank you speaking of Illuminating thank you.
Senator Scott yes sir all right thank you for allowing me to use it today well yeah today we'll hear from chair of the Federal Reserve Jerome Powell monetary policy in the state of our economy and I don't expect chair Powell to weigh in on the mini debate we just had but I think we all know that the debt increase was much larger under President Trump and a.
Republican Senate than it has been since um chair Powell thank you for your service and your testimony today chairman Brown uh ranking member Scott and other members of the committee I appreciate the opportunity to present the federal reserve's semi-annual monetary policy report my colleagues and I are acutely aware.
That high inflation is causing significant hardship and we're strongly committed to returning inflation to our two percent goal over the past year we've taken forceful actions to tighten the stance of monetary policy we have covered a lot of ground in the full effects of our tightening so far are yet to be felt.
Even so we have more work to do our policy actions are Guided by our dual mandate to promote maximum employment and stable prices without price stability the economy does not work for anyone in particular without price stability we will not achieve a sustained period of labor market conditions that benefit all.
I'll review the current economic situation before turning to monetary policy the data from January on employment consumer spending manufacturing production and inflation have partly reversed the softening trends that we'd seen in the data just a month ago some of this reversal likely reflects.
The unseasonably warm weather in January in much of the country still the breadth of the reversal along with revisions to the previous quarter suggests that inflationary pressures are running higher than expected at the time of our previous fomc meeting from a broader perspective inflation has.
Moderated somewhat since the middle of last year but remains well above the fomc's longer run objective of two percent the 12-month change in total pce inflation has slowed from its peak of seven percent in June to 5.4 percent in January as Energy prices have declined.
And supply chain bottlenecks have eased over the past 12 months core pce inflation which excludes the volatile food and energy prices was 4.7 percent as supply chain bottlenecks have eased and Tighter policy has restrained demand inflation in the core Goods sector Has Fallen and while Housing Services inflation.
Remains too high the flattening out in rents evident in recently signed leases points to a deceleration in this component of inflation over the year ahead that said there's little sign of disinflation thus far in the category of core Services excluding housing a category that.
Accounts for more than half of core consumer expenditures to restore price stability we'll need to see lower inflation in this sector and there will very likely be some softening in the labor market conditions although nominal wage gains have slowed somewhat in recent recent months they remain above what is consistent with two.
Percent inflation and current trends in productivity strong wage growth is good for workers but only if it's not eroded by inflation turning to growth the US economy has slowed significantly last year with real GDP rising at a below Trend pace of 0.9 percent although consumer spending appears to be.
Expanding at a solid Pace this quarter other recent indicators point to subdued growth of suspending of spending and production activity in the housing sector continues to weaken largely reflecting higher mortgage rates higher interest rates and slower output growth also appear to be weighing on.
Business fixed investment despite the slowdown in growth the labor market remains extremely tight the unemployment rate was 3.4 percent in January its lowest level since 1969. job gains remained very strong in January while the supply of labor has continued to lag as of the end of December there were 1.9.
Job openings for each unemployed individual close to the all-time Peak recorded last March while unemployment insurance claimed claims have remained near historical lows turning to monetary policy with inflation well above our longer run goal of two percent and with labor market remaining extremely tight.
The fomc has continued to tighten the stance of monetary policy raising interest rates by four and a half percentage points over the past year we continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary.
Policy that is sufficiently restrictive to return inflation to two percent over time in addition We are continuing the process of significantly reducing the size of our balance sheet we are seeing the effects of our policy actions on demand in the most interest-sensitive sex or sectors of the.
Economy it will take time however for the full effects of monetary restraint to be realized especially on inflation in light of the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation the committee slowed the pace of interest rate.
Increases over its past two meetings we will continue to make our decisions meeting by meeting taking into account the totality of the incoming data and their implications for the outlook for economic activity and inflation although inflation has been moderating in recent months the process of getting inflation back down to two percent has a.
Long way to go and is likely to be bumpy as I mentioned the latest economic data have come in stronger than expected which suggests that the ultimate level of interest rates is likely to be to be higher than previously anticipated if the totality of the data were to indicate that faster tightening is warranted we'd be prepared to increase.
The pace of rate hikes storing price stability will likely require that we maintain a restrictive stance of monetary policy for some time our overarching focus is using our tools to bring inflation back down to our two percent goal and to keep longer-term inflation expectations well anchored restoring price stability is a sense.
Essential to set the stage for achieving maximum employment and stable prices over the longer run the historical record cautions strongly against prematurely loosening policy we will stay the course until the job is done to conclude we understand that our actions affect communities families and.
Businesses across the country everything we do is in service to our public mission at the Federal Reserve we will do everything we can to achieve our maximum employment and price stability goals thank you I look forward to your questions uh thank you Mr chair there are 23 of us on this committee almost.
Everyone will be here today I ask each of us to stay as close to the five-minute Mark as we can because we have votes at 11 30. so uh thank you all for your cooperation chair Paul thank you job growth is strong as unemployment remains historically low you might not know that from the opening statements many drivers of inflation corporate.
Greed Rising inequality supply chain disruptions Russia's uh bestiality if you will in Ukraine won't get better because of interest rate increases every indication is that this post-pandemic economy is different should we be worried Mr chair that the FED is treating this economic period as it has in the past instead of reacting.
Differently thank you Mr chairman uh so we've been aware since the very beginning and have said have discussed this uh public on many occasions that there are some differences this time uh we in particular have not seen the kind of uh supply side collapse that we saw at the very beginning of the inflation outbreak.
Also the outbreak of a war which had significant effects on commodity prices a year ago so all that is different there are also there was some similarities there there is a mismatch between supply and demand you can see that uh in in the good sector still you saw it in in housing prices going up uh over 40 percent since the uh since.
Before the pandemic and you see it in the labor market where we have 1.9 job openings for every opening for every unemployed person so we're well aware that that this this particular situation involves a mix of cycles of sorry of forces not all of which are our tools can affect but there is a job here for us to do in in better aligning Demand.
With Supply okay understanding you have limited tools to address inflation in our conversations um in the past to show my concern about continued rate increases that that may not actually address the root cause of inflation they hurt workers and I just like many of us contend we can't follow.
The same old Playbook uh next question last year three banking Regulators issued proposed updates on the community reinvestment act to account for changes in our banking system my question is does the FED remain committed to work with FDIC and OCC to finalize a CRA Rule and when will that rule likely be finalized yes we do remain committed and.
Uh I believe we are in Broad agreement with the other two agencies on on on the revisions to the rule so now we're in the process of writing all that down and that'll take some time and then after that of course uh the it will come to the board of of Governors for a vote and that will involve briefings and and discussions and I I can't give you an.
Exact date but as quickly as possible yes but it will it will be some months thank you Banks weather the shock of the kova 19 shutdowns mostly because of the fiscal response provided by Congress we now see a spike in loan delinquencies an increase in overall risk banks are again plowing billions billions as many other corporate leaders always defended by.
People on that side of the aisle into stock BuyBacks which makes me concerned if there's a downturn in the economy Banks could end up with too little Capital that's why I'm worried about any potential rollbacks of safeguards or regulations can you assure me that the FED will keep Capital requirements strong and exercise more.
Long-term Forward Thinking than corporate CEOs that seem to be focused on the short term I can assure you as to the first part that will will keep Capital requirements strong I didn't expect you to comment on you give me an opinion about you're looking more forward than than companies that.
Look at the short-term benefits of stock BuyBacks uh Mr chair when you last testified to ask you about the risk posed by crypto assets stablecoin the fed and other regulated possibilities how's the FED evaluating the risks of crypto related activities by your by your supervised institutions.
So this is something we've been we've been quite active in this area and and I'll say that uh we we believe that Innovation is very important over time to the economy we don't want to stifle Innovation we don't want regulation to uh stifle innovation in a way that just favors incumbents and that kind of thing but like everyone.
Else we're watching what's been happening in in the crypto space and you know what we see is you know quite a lot of turmoil we see fraud we see a lack of transparency we see run risk lots and lots of things like that and so what we've been doing is is making sure that the that the regulated financial institutions that we supervise and.
Regulate are careful are taking great care in the ways that they engage with the uh you know with the whole crypto space and that they give us prior notice and we've issued along with the FDIC and the OCC a number of of you know issuances over of notices to that effect thank you and I will close with this I've long pushed for the FED.
To prioritize workers and for the leaders of the FED we reflect the diversity of our country we've made progress but our work is not done we have a new opening understand it's not your job to appoint the new fed fed member of we have it and we have a number of upcoming vacancies at the reserve banks I support Senator Reid.
From Rhode Island Senator Menendez from New Jersey and other colleagues who are pushing for more diverse uh diverse voices at the FED Senator Scott thank you chairman obviously the chairman and I both have strong passions about the challenges that we face as a country the one thing that I do believe that we agree on is.
The importance of having a strong Capital markets as it relates to making sure that Americans have the ability to continue to grow their businesses and to solve their challenges and frankly I hope that we get there building on the same comment that chairman had her own Capital standards is where I'm going to go with my.
Thoughts today when I think back on these last few years it's hard not to recognize extraordinary efforts our financial institutions of all sizes frankly I undertook to administer a program like the PPP all while weathering is shut down of our global economy I welcome your thoughts but from my viewpoint our banking system was.
Resilient our financial institution stepped up and delivered Aid to support families and businesses every single day that's why Vice chair bars broad comments around holistic review of our capital me so much.
We should be laser focused on our economy and addressing the needs of everyday Americans trying to afford a new future and helping them open the door to opportunity as you and I both know capital and its quality must be continually scrutinized but increased Capital does not necessarily provide an increased benefit.
And requiring Banks to hold Capital that is not risk based and appropriately tailored to a bank size scope and activities can cause more harm than good at a time of record inflation where everyday needs are more expensive we should not be pursuing actions that are harmful rather we should be supporting the.
Engine of our economy small businesses while I remain greatly concerned by the Vice chair's comments I am hopeful that you will ensure this review is appropriate keeping the impacts on our banking system front and center we must promote and further the growth of our economy and thereby our people anything less.
Should be unacceptable to that end will you commit that any ongoing Capital review by the Federal Reserve will follow the law and that any follow-on regulatory proposals will be risks based and tailored to an institution's activity size and complexity and not a one-size-fits-all yes I can easily commit to that you know.
We're very strongly committed to tailoring and uh that'll be I can say that anything we do will reflect uh tailoring which is a long-held principle for us and also now a requirement in the law yes sir thank you very much two weeks ago I sent a letter with chairman McHenry to chair ginsler regarding the sec's climate disclosure.
Rule urging him to rescind his proposal and reminding him that the SEC is a market regulator not a climate forecaster much like Congress designed the SEC to protect investors to maintain Fair orderly and efficient markets and to facilitate Capital formation and not to advance Progressive climate change.
Policies Congress designed the Federal Reserve to promote price stability and maximum employment not to play politics to that end I find worrying the fed's announcement of recent actions to consider climate related scenarios coupled with remarks by the Vice chair of supervision as attempts to incorporate broader aesg.
Policies into the financial Services System banks have and continue to account for weather related risks and their risk management but efforts that attempt to predict climate change far into the future fall outside the scope of the of their Authority importantly the level of speculation required in.
These models should highlight their arbitrary and capricious nature at a time when our economy is suffering from historically High inflation I expect our Central Bank to focus its time and resources on bringing inflation down not on policy outside of its mandate I noted in my opening statement a recent.
Speech that you've given about the state of the fed and how you should resist the temptation to broaden its scope and to address social issues do you agree that the Federal Reserve does not have the authority or statutory direction to use its monetary policy or supervisory tools to wade into the ESG or other climate policies.
I do I do as you know there is a there's a tightly focused role that we do have that I believe that we have but but I would agree with your statement yeah Miss German I have 20 seconds left I'm going to defer because of my earlier question developing a statement thank you Senator Scott uh Senator.
Menendez is close but not here yet so uh Senator someone else turned around so but nice try yes sir thank you Mr chairman uh Mr chairman first of all welcome um it's always good to have you in front of our committee as you know both core and headline inflation have remained persistently.
Elevated and over the past 12 months real average hourly earnings fell by 1.8 percent about four percent since President Biden took office to make ends meet as prices increase more Americans are leaning on credit cards at the end of 2022 credit card debt hit a record of.
930.6 billion dollars an 18.5 percent Spike from a year earlier and an average credit card balance Rose to 5805 dollars over the past year the FED has acted aggressively to tame inflation and yet we are still seeing price increases and as we've discussed this several times but I I recognize that.
It's been an ongoing discussion but I believe that this further proves that we have uh long been feeling the effects of a policy-induced inflation resulting from Decisions by the abide Administration primarily cutting off uh the the uh the resources necessary to improve and increase domestic energy production I continue to be concerned.
That if you attempt to use the tools that are available at this time for the FED uh then I believe that we're going to have a challenge of not being able to address specifically the challenges brought out when you have a policy is promoting higher prices with regard to to energy as opposed to what you're trying to do which is to bring down the.
Total overall cost and I just wanted to ask I guess in your going to think this is something that we've heard before but do you believe that you currently have the monetary policy tools to actually reduce inflation and I I just put it in this perspective in January of 2021 the CPI was 1.4 percent when the Biden Administration began in January of 2022.
And this is before the Russian invasion of of of Ukraine CPI was at seven and a half percent seven point five percent today March of 2022 CPI is 8.5 percent wouldn't it be fair to assess that a lot of the policy or the inflation that we've seen here may very well be due to policy Decisions by this Administration.
Senator not our not for us to uh to point fingers our job is to use our tools you asked whether we have the tools to get this job done and we we do over time there are some things that we can't affect but over time we we can achieve two percent inflation and and we will in other words you've got a limited number of tools.
Available to you and The Limited number of tools that you have are designed to impact simply the reduction in prices and so forth and yet if there are competing interests out there that are pushing prices higher you don't have the wherewithal to decide one tool versus another based on whether.
It's policy induced or whether it is a matter of a shortage in supplies from outside or whether it's War related that's right our our tools essentially work on demand moderating demand and we so that's that's what we can do so if if there were policies in place that actually help to reduce inflation in other words and by that I'm just going.
To look at energy alone just as a good example if policies were in place that were actually allowing Energy prices to come down in the United States then you would have less of a need to use the very blunt tools that you do have right now with regard to to increasing rate increases is that a fair.
Statement sir in a sense it is but I would just say on energy we I'm not trying to get you to a policy discussion with with what the president's doing on his on his energy policy I just want to make it clear that you have to respond to what's in front of you and it doesn't matter where the inflation is coming from or what's.
Driving it up you're simply trying to bring it back down to that two percent number with with the only tools that you've really got yes but I will say on energy energy has tended over time time to fluctuate up and down and is not it's not mainly affected by our tools so um the things we look at are the thing.
Are really things that are tightly linked to demand in the US economy those we can affect and I think just the fact that you've been increasing inflate or you've been increasing interest rates and yet inflation continues to ride up would suggest just as you've just indicated that when you have high energy prices it's tough to impact that part of.
It with the power the monetary policy that you've got available to you so we're really we focus on everything but we also focus on core in particular which doesn't include Energy prices and what's happened is core core inflation has come down but nowhere near as fast as we might have hoped and it has a long way to go thank you one last question.
Last June Vice chairman of supervision Michael Barr testified before this committee that he would defend the use of the aggregation method as an alternative approach to the insurance Capital standards the ICS proposed by the iais as the final compatibility criteria set to come out later this year can you confirm that you share Vice.
Chair bars views on this am I will confirm that but I'll have to get back to you on the status of that okay thank you thank you Mr chairman thanks and around Center Menendez of New Jersey it's recognized thank you Mr chairman Mr chairman I want to take this moment uh to remind my colleagues that there are more than 62 million Latinos that call.
The United States home we are the largest minority group in the country we account for nearly 20 percent of the United States population we contribute almost three trillion dollars in GDP yeah Latinos have no representation in the federal reserve's leadership in the 109 year history of the Federal Reserve.
There has never never been a single member of the Board of Governors or Regional Bank president who has the lived experience of being Latino in the United States and in practice that means that the voices of nearly one-fifth of our country's people are repeatedly drowned out when the FED is.
Making critical decisions on economic policy decisions that affect whether a Latino family can afford their first home find a job that pays a living wage send their children to college save for a comfortable retirement or get a loan to expand their business right now the Biden Administration has a clear opportunity to make history with.
Its next nomination to the board of governments it has identified a number of Highly qualified Latino candidates who have dedicated their career to the fields of economics who are committed to the fed's Dual mandate who will preserve the independence of the Central Bank the Administration has rightly nominated and advocated for a number of diverse.
Candidates with similar qualifications both at the fed and elsewhere but despite having five opportunities over the past two years to nominate a qualified Latino Economist to serve at the Federal Reserve this Administration has repeatedly chosen not to representation or lack thereof does not happen by accident it is a choice and I.
Hope the administration makes the right choice with this nomination Mr chairman uh would you say that it is um uh uh a tourism that the United States dollar is the reserve of choice in the world yes I would and that brings those enormous benefits is it not.
Yes it does now 12 years ago Republican house brought us to the brink of defaulting on the debt for the first time in history of this country jeopardizing our credit and the world economy I'm getting a sense of deja vu because once again Republicans are recklessly demanding Draconian spending cuts to programs that hard-working U.S.
Families rely on in exchange for allowing the treasury Department to pay for spending that Congress including most of them have already voted to authorize if you want to talk about spending cuts it seems to me that the budget is the time to do that but not to put the full faith and credit of the United States as.
Risk chairman kapow can you talk about the catastrophic damage a debt default would inflict on the economy uh so I guess I will start if I can by saying that these are really matters between the executive branch and and Congress we we do not seek to play a role in these policy issues but at the end of the day there's only one solution.
That to this problem and that is Congress whatever else may happen will happen but Congress really needs to raise the debt ceiling that's the only only way out in a timely way that allows us to pay all of our bills when and as due and if we fail to do so um.
I think that the consequences are hard to estimate uh but they could be extraordinarily averse adverse and could do long-standing harm well it I I think that's a that's a mild statement of what would happen uh I understand I didn't ask you to engage in the Congressional executive branch roles I asked you about the the abstract question of what.
Happens if you have a debt default uh isn't even this constant fight putting into question the possibility that the United States will not honor its full faith and credit have consequences within the economy in principle it could I think markets tend and and observers tend to watch this and tend to think that it.
Will work out and it has in the past worked out so it needs to work out this time too now seeing your your testimony before the committee is it fair to say that you'll do whatever is necessary to tame inflation like we have a do we serve a dual mandate and we will we will do what we can everything we can to restore price.
Stability while also serving maximum employment and primarily that means uh additional rate increases would it not is what other tool do you have that's where we have the balance sheet the shrinkage of the balance sheet will continue to but it's principally rate hikes so the question is when does that part of doing anything necessary to tame.
Employment I mean to tame inflation come into conflict with your other Mandate of Maximum employment uh not now uh where when we have the lowest uh unemployment in 54 years and where we have you know a labor market that is uh extremely tight uh extremely so but in in that that time could come but it really isn't now where we're very.
Far from our uh uh from our uh price stability mandate and and in effect uh the economy is past uh most estimates of of uh of Maximum employment thank you Senator Menendez um Senator Kennedy of Louisiana is recognized thank you Mr chairman uh chairman Powell thank you for being here thank you for to you and your team.
For helping to save the economy during the pandemic meltdown for what it's worth I'm generally supportive of the actions of the FED right now and I'm not going to ask you to that today to blame anybody um when Congress spends money.
It stimulates the economy does it not well it would depend on whether that's funded by tax increases or not but so if there's a spending that's that's not accompanied by taxes would have a net at the margin stimulative effect well and when Congress borrows money to spend even more that stimulates the economy even more.
Does it not at the margin yeah okay if Congress reduced the rate of growth in its spending and reduced the rate of growth in its debt accumulations this is it would make your job easier in reducing inflation would it not.
Es I don't think fiscal policy right now is a big factor driving inflation at this moment but it's absolutely essential that we do slow the pace of growth particularly for the areas of the barn let's try to unpack this then I'm not trying to trick you you're raising interest rates you're raising interest rates to slow.
The economy are you not yes to cool the economy off um and one of the ways you measure your success other than fluctuation and gross domestic product is the unemployment rate is it not yes one of the measures okay so in effect this I'm not being critical when you're slowing the economy you're.
Trying to put people out of work that's your job is it not really we're trying to we're trying to restore price stability no you're trying you're trying to raise the wages you're trying to raise the unemployment rate that me I know you don't like the phrase so let me strike it you're trying to raise the unemployment rate are you not.
Now we're not trying to raise you we're trying to realign supply and demand which could happen through a bunch of channels like for example uh you know just job openings we put it another white okay The Economist did a did a wonderful study they looked at at 10.
Disinflationary periods in America going all the way back to the 1950s disinflation is what you're trying to do it's a slowing in the rate of inflation am I right yes in other words prices don't go down they just don't go up as fast deflation is when prices actually go down you're trying to achieve.
Disinflation are you not yes we are okay based on history in the ten times that we got inflation down disinflation since the 1950s in order to reduce inflation by two percent unemployment had to go up 3.6 percent now that's history is it not I don't have the numbers in front of me.
But yes the standard has been that there have been recessions and downturns when the FED has tried to reduce now right now the the current inflation rate 6.4 percent in the current unemployment rate is 3.4 percent now if history is right I'm not asking you to to again blame anybody but if history is Right unless you get some help.
In order to get inflation down from 6.4 percent to let's say 4.4 percent and the unemployment rate is gonna have to rise to seven percent based on history that's what the record would say okay and to get inflation down to 2 -2 percent based on your employer would have to go to 10.6.
Percent would it not no I wouldn't I wouldn't that's what the record that's what the history shows yeah I don't think that kind of a number is is at all I mean I know you're reluctant to admit it and you don't want to get in the middle of a policy uh dispute.
But I think it's undeniable it's undeniable that the only way we're going to get this sticky inflation down is to attack it on the monetary side which you're doing and on the fiscal side which means Congress has got to reduce the rate of growth of spending and reduce reduce the.
Rate of growth of death accumulation now I get that you don't want to get in the middle of that fight but the more we help on the fiscal side the fewer people you're going to have to put out of work isn't that a fact please answer good work out there right okay sir it could work out that way yes.
Sir thank you thank you sir Kenny Senator Reid of Rhode Island's recognized thank you very much Mr chairman uh thank you chairman uh for being here today uh we saw her in the wake of covert the globalized supply chain disrupted significantly and we're in the process in some respects of rebuilding a supply chain.
With emphasis on sourcing in the United States what extent did that disruptive supply chain contribute to inflation and to what extent will the new if you envisioned it the new supply chain that is located in the United States and other friendly countries affect inflation so the.
Initial outbreak of inflation was all about uh spending on Goods where people couldn't spend on services so good spending went way up and the the global supply chain many many goods are imported the global supply chain has collapsed and that was the source of the original inflation it is now spread.
Over the last two years to housing and also to the rest of the service sector so to your question we are seeing Goods prices Goods inflation has been coming down for some time now it's still too high but it's coming down Housing Services uh is is there's in the pipeline you see the new leases that are being signed and what that tells you is.
That in the next six to 12 months we will see that come down but this this big service sector that's everything else which is financial services medical services travel and Leisure all of those things that's really where this that's the source of the inflation we have now which had nothing to do with the supply not much to do with the supply chains.
That's where that's where the challenge is now and is there anything you can do that would Target that service area without affecting the other areas there's not really you know we are our monetary policy tools are are famously powerful but blunt uh a different topic than that is is you.
Probably aware the fifth circuit uh to live at a ruling in the Community Financial Services Association versus cfpb that the cfpb's funding mechanism is unconstitutional uh just like the Board of Governors the cfpb is a bureau of the Federal Reserve both the Board of Governors and cfpb rely on the same source of funds and draw on those funds.
In virtually identical ways if the Board of Governors funding structure will be found unconstitutional what would the implications be for the country and monetary policy well it would be very significant but I I have to say I am we have significant responsibilities but I would be reluctant to comment on a case that's.
Before The Supreme Court uh but it is a it is certainly something that you've had people examined for possible ramifications yes and you know the central banks tend to be self-funding because of the way that the way they work and that's a key factor of our independence uh.
Uh we've gone back and forth on the impact of rate Heights on on workers and uh you've indicated previously that wages uh have not been spiraling upwards necessarily and that inflation expectations are currently stable uh but the impact on increased interest rates are usually felt more by low to.
Moderate income people is there any way you can work yourself out of that dilemma um so where we are right now of course is very low unemployment wages have been moderating and they've been doing so without uh softening in the labor market without a rising unemployment really and that's a.
Good thing so um we we really don't know this the current situation is a combination of more typical supply and demand issues but also just things that we haven't seen before like like the war in in Ukraine like the like the supply chains that you mentioned so we have many unusual factors and I don't think.
Anybody knows with confidence how this is going to play out thank you very much Mr chairman thank you thanks Senator Reid uh Senator Brett Alabama is recognized thank you Mr chairman uh chairman Powell it's great to have you here today.
Over the past two years we've seen the highest inflation of my lifetime driving up costs for American families across the board according to the U.S Department of Labor the annual inflation rate in 2021 was 7 and in 2022 it was 6.5 percent according to the U.S department of Agriculture the cost of food went up 10 in 2022. and the real.
Effects of that is moms and dads across this nation that are working to put food on the table for their kids for their babies had a harder time doing that this has devastated hard-working Americans causing a kitchen table crisis in every corner of our country as the price of food energy and housing have all skyrocketed in response the Federal.
Reserve has raised the Federal Reserve fund rate more than four percentage points being far from transient inflation has remained persistent high and well above the fed's long run goal of remaining under two percent in the coming year what factors and indicators are you paying attention to.
As you and the Federal Open Market Committee decide on whether to increase rates so um I'd say a couple things to that um first uh we're looking we're going to be looking at inflation in the three sectors that I mentioned the good sector the housing sector and then the broader.
Service sector and we need the the inflation that's already underway in the good sector to continue and that's really important in in the in the housing sector we just need the time to pass so that that reported inflation comes down and it's effectively in the pipeline as long as as long as new leases are being signed at relatively.
Small increases so we'll be watching very very carefully though at at the larger service sector which is 56 of the of consumer spending and more than that of what of what's currently inflation so that's one thing we'll be we'll be watching that very carefully also we raised rates very quickly last year and we know that monetary policy tightening.
Policy has delayed effects it takes a while for the full effects to be seen in economic activity and inflation so we're watching carefully to see those effects coming uh into play so we're and we're we're aware that we haven't seen the full effect yet and we're taking that into account as we as we think about rate hikes.
So when you're looking at this obviously not to get into a policy discussion but if there were an increase of energy production in this country do you feel like that would help drive down inflation well it I think over time more energy would mean would mean lower energy prices but we we were very focused on on.
The on what we call Core inflation because that really is that is what is driven by you know really by demand and our tools are really aimed at Demand right understood but I feel like the cost of energy is not just what you pay at the pump but it ends up affecting every good across this great nation additionally I'd like to ask you about.
Labor participation so when you look at the unemployment rate and we've heard my colleagues discuss people having to be displaced in order for us to maybe get to the inflation rate that that we would like as a nation I'd like to focus on the labor participation rate so right now it's 62.4 percent if there were an increase and people coming back into the.
Workforce would that be a positive factor with regards to driving us down to the two percent rate that you would want to achieve I think that it would I mean remember those people coming into jobs that would be that would be great because the economy clearly wants more people than are currently working of course those people would then spend.
More so it wouldn't be a zero-sum game but it would be great for the country and great for them if they were to come into the labor force amen I believe that increasing in capital requirements on financial institutions would have a chilling effect on the economy and the availability of financial services and last week I joined many of my colleagues.
In sending you a letter that expressed concerns that if the Federal Reserve decides to conduct a quote holistic review of capital standards as we heard Senator Scott talk about earlier so is the Federal Reserve concerned that the impact to the economy of increasing Capital requirements on financial institutions at a time when inflation.
Remains persistently high would would cause an issue so I think it's always a balance we know that higher Capital makes Banks safer and Sounder we also know that you're you will at the margin provide less credit the more Capital you have to have I so but I think it's it's never exactly clear that you're a perfect equilibrium and it's a fair.
Question I think to look at that and I know I'm out of respect for the chairman and trying to stay in my time I will just end by saying um I heard what you said obviously as you have said the Federal Reserve Reserve is not and will not be a climate policy maker I just want to thank you for your public statement on that I agree with you that.
There's a difference between policy makers and financial regulators and certainly look forward to working with you in the future thanks everybody Senator uh Warner from from Virginia is recognized thank you Mr chairman chairman pellets good to see you again let me start by saying I depending on who's asking questions or.
Either pounding you for how quickly we're going to drive that inflation back to two percent or pounding you on making sure that we don't push the economy into a recession and drive up unemployment I got to tell you you know and it's uh these are maybe not the cheap seats uh but I actually think you've done a pretty good job in in terms of both.
Ratcheting uprights and then starting to tail tail off a little bit I think we all were concerned by the January numbers where it popped up a little bit more um I wish Mr chairman we're actually having this hearing two weeks from now because we're gonna have a lot more data later in this week and next week.
Um but I want to net net um it's we've still got ways to go and the January numbers were concerning but I do think your tailored approach we can all second guess but I think it has been the right approach I'm going to commend you on that I want to get into get two questions in one one of the.
Areas that I am very worried about is commercial debt I mean we've got a a Bloomberg story here showing you know we're going to hit a six trillion dollar wall this year on refinancing where I'm particularly concerned is the issue around commercial real estate um as we recover from covid a lot of things.
Are getting back to normal but clearly the transformation of where people work is going through a fundamental transition and I hope people do return more to the office but lots of folks prefer working working elsewhere that's going to fundamentally change the real estate.
Market uh in on the commercial side and I do believe we're going to hit potentially a cliff here of uh of of a totally unexpected problem in terms of commercial real estate how are you looking at that issue and recognizing there's lots of bumps coming out of covet this one seems to be more unique in nature and and how are you thinking.
About that issue so the first one on Commercial debt business debt generally the it's it's kind of been moving sideways as a percent of GDP so you don't see you don't see a big spike going on or anything like that um uh however of course there are pockets of of concern and particularly you pointed to.
Um see to uh the refinancing Spike that has to happen and I've seen those come and go before generally markets can absorb them maybe at a much higher rate this time but it's something that we were well aware of and watching carefully in terms of CRA I would agree with you the the the the the occupancy of um of office space in many major.
Uh cities is just remarkably low and and you you wonder how that can be now over time some of that's going to be made into Condominiums and things like that since we know we don't seem to have quite enough housing um in some places um but the question is what's the financial stability risk it's it's not.
Great for the largest institutions don't tend to have a lot of direct exposure to that some smaller Banks actually do medium and small size Banks do we carefully monitor it we we agree that that's a that's a an area that requires a lot of monitoring and um you know I'd say we're on the case so well that will morph me into my last question something.
We've talked about in a lot of my colleagues have talked about uh with the large institutions in other words I mean I I do think even some of the biggest critics um of Dodd-Frank I think would acknowledge our banking system is a heck of a lot stronger and then was able to withstand um uh coveted in a very.
Healthy way um but what we've also seen evolve is a vast amount of financial institutions move beyond the regulatory perimeter you know the fact that we now have way over half of the mortgage origination coming from non-financing institutions because a lot of the the large entities.
Hedge funds other funds that may be doing some of this commercial debt or some of the cre uh debt um I'd like you to talk generally in the last 40 seconds or so of you know how you think about this regulatory perimeter I'm a big believer I know some of my colleagues are that you know that.
We ought to look less at Charter and look at same risk same regulation maybe as a as a guiding principle and Senator Warren's been working on some work I've been working on some work around crypto around that that area but there's a vast amount of activity that's taking place outside the regulatory perimeter how should we be thinking.
About that and how do we make sure that doesn't create the kind of uh crisis sneak up that happened in 2008 on the non-regulated side of the house I think you articulated the principle very well it's same activity same regulation and that's that covers crypto and and all kinds of other activities people are going to assume when when they deal with.
Something that looks like a money market fund that it has the same regulations money market fund or a bank deposit and so stable coins need need some attention in that respect I just think that's that's the basic principle and you're right so much of our uh so much of intermediation has moved away from the regulated Banks really for a.
Long period of time and we got to keep an eye on that yeah well we can keep looking at it thank you Senator Vance Robert sorry Senator Hagerty of Tennessee thank you chairman Brown and um thank you very much ranking member Scott for holding this hearing chairman it's great to see you again here I appreciate your.
Presence and I appreciate the opportunity to talk with you about an item that I'm particularly concerned about and that's the holistic review that uh Senator Britt just brought up that Vice chair Bauer is conducting right now it's it's generating a sense that higher Capital requirements are on the horizon for us and as I think about.
That in the context of what we've weathered uh you think about the the situation uh in 2020 it was an acute real life stress test if you will and I think that our financial system navigated that admirably in the past chair pal you've told this committee that our financial system has proven resilient through 2020 and that the.
Capital levels at that point in time and I would note that those Capital levels are at multi-decade Highs are in aggregate adequate and I just wanted to follow up on those prior statements and see if you still feel that way so uh I guess I would say it to you this way we uh in our system we have a vice chair.
For supervision who has statutory responsibilities and when a new Vice chair for supervision comes in generally they're going to want to take a fresh look and that's what the former the one you know uh Vice chair Quarles did and that's the dantarulo kind of had the job on it on an informal basis and that's what he did so it's only natural that.
Someone would come in and and take a fresh look and I think that's that's part of the process the role of that person is to make recommendations on regulation supervision to the to the full board the role of the board is to consider those when made and this to me this just comes under under that heading well as as it as the review is underway.
And I appreciate that context one aspect of it it seems to us as an apparent willingness to undo the tailoring requirements that were enacted as part of s2155 and I understand that nothing has been finalized regarding the regulations uh it's a concerning Prospect if that's the case The fed's General Counsel just yesterday a alluded.
To undoing 2155 by quote pushing down the Basel requirements on banks that were intentionally given relief in that bill so I want to be perfectly clear that the banking Regulators themselves can't just simply ignore or selectively enforce the laws and again I realized that the the details of the study haven't been.
Finalized made public but if the proposal put forth by Vice chair bar is either unduly aggressive or appears to contradict the spirit of s2155 will you vote for it I'd have to I can't answer that in the abstract of course but I I would say we're as an institution very strongly committed to tailoring and uh anything.
We do is going to reflect uh you know tailoring of Institutions according to their risk and I mean that's that's a principle that we'll stick with I I think it's quite important again given the the legislative intent here and the the the concerns that we maintain that uh in the face of what general counsel said just yesterday I appreciate your.
Perspective in terms of keeping that in place um I'd like to come with my next German my next question Sharon pal with with uh starting the question by underscoring the importance of the independence of the fed's monetary policy right now the economic picture is about as uncertain as I can remember.
We've had large companies in the private sector who are in the midst of planning layoffs and forecasting serious economic weakness in the quarters to come yet on the other hand the current economic data seems to be robust inflation showed some signs of softening in the past several releases so I just hope chair Powell that you could briefly.
Tell us how you synthesize these seemingly contradictory data so just quickly at the end of last year we saw a couple of very promising modest increase modest inflationary readings in November and December but earlier this year those were some of that Improvement was revised away in addition we got a very strong reading on inflation in.
January also very strong jobs reading also very strong retail sales and so as I pointed out in my testimony we're looking at at a reversal really of what we thought we were seeing to some extent a partial reversal it's still true it's still the case that we're seeing progress on inflation we're seeing Goods inflation come has come.
Down significantly there's Improvement in housing inflation in the pipeline there's not a lot of improvement yet to be seen in the largest sector which is non-housing services so we uh inflation is running at core inflation is running at 4.7 percent on a 12-month basis I think nothing about the data suggests to me that we've tightened too much indeed.
It's suggest us that we still have work to do in the in that context thinking about where the tightening goes and when it might let you know where and when it might happen where do you see the terminal fed funds rate Landing in this cycle so we we last wrote down our uh our assessments individual sentence to that in December and and I think the.
Median range was basically people were clustered between five and five and a half we're going to write down those again uh as part of them we do it four times a year we'll do it around the March meeting which is on the 21st and 22nd of March and as I indicated in my testimony I think the the data we've seen so far and we still have other data.
To see we still have significant data to see before the meeting suggests that that the the ultimate rate that we write down Will May well be higher than what we wrote down in December got it thank you Mr chairman thank you thank you passenger warrant of Massachusetts uh thank you Mr chairman so the FED has raised interest rates eight times over.
The last year in what's been the most extreme rate height cycle in 40 years the fed's goal is to slow inflation and your tool raising interest rates is designed to slow the economy and throw people out of work so far you haven't tipped the economy into recession but you haven't brought inflation entirely under control either and maybe the.
Reason for that is that other things are also keeping prices High things you can't fix with high interest rates things like price gouging and supply chain Kinks and a war in Ukraine but you are determined to continue to raise interest rates so I want to take a look at where you're headed in December the FED released its projections on the.
State of the economy under your monetary policy plan according to the fed's own report if you continue raising interest rates as you plan unemployment will be 4 4.6 percent by the end of the year more than a full point higher than it is today chair pal if you hit your projections do you know how many people who are currently working going about.
Their lives will lose their jobs I don't uh I don't have that number in front of me I will say it's not it's just demanded consequences well but it is and it's people who would lose their jobs people who are working right now making their mortgages so chair pal if you could speak directly to the 2 million.
Hard-working people who have decent jobs today who you're planning to get fired over the next year what would you say to them how would you explain your view that they need to lose their jobs I would explain to people more broadly that that inflation is extremely high and it's hurting the working people of this country badly all of them not just.
Two million of them but all of them are suffering under high inflation and we are taking the the only measures we have to bring inflation down and putting two million people out of work is just part of the cost and they just have to bear it well they will will working people be better off if if we just walk away from our jobs and and inflation remains five.
Six percent let me ask you about what happens if you do this since the end of World War II there have been 12 times in which the unemployment rate has increased by one percentage Point within one year exactly what you're aiming to do right now how many of those times did the U.S economy avoid falling into a recession.
You know it's it's not as black and white as it varies written a book on this and there's been 12 times that we've been a one point increase in the unemployed in the unemployment rate in a year that's exactly what your fed report has put out is the projection and the plan based on how you're going to keep raising these.
Interest rates how many times did the economy fail to fall into a recession after doing that out of 12 times I think the number is zero I think the number is zero that's exactly right so then the question becomes we've got two million people out of work can you stop it at two million people um history suggests that the FED has a.
Terrible track record of containing modest increases in the unemployment rate once the economies starts shedding jobs it's kind of like a runaway train it is really hard to stop in fact in 11 out of the 12 times that the unemployment rate increased by a full percentage Point within one year unemployment went on to rise another.
Full percentage point on top of that if that's what happens this time we'd be looking at at least three and a half million people who would lose their jobs so chair Powell if you reach your goal and two million people get laid off by the end of this year and then just like an 11 out of 12 times that unemployment has risen by a point in a single year it.
Keeps on Rising and then we've got two and a half million people out of work we've got three million people who get laid off we've got three and a half million people who got laid off what's your plan well right now the unemployment rate is 3.4 percent which is the lowest in 54 years and we actually don't think that.
We need to see a sharp or enormous increase in unemployment to get inflation under control I'm looking at your do you I would say four and a half explain that to the two million families who are going to be out of work we're not again we're not targeting any of that but I.
Would say even four and a half percent unemployment is is well better than than most of the time for the last you know 75 years in other words you don't have a plan to stop a runaway train if it occurs you know chair pal you are gambling with people's lives and there's a pile of data showing that price gouging and supply chain Kinks and the.
War in Ukraine are driving up prices you cling to the idea that there's only one solution lay off millions of workers we need a Fed that will fight for families and if you're not going to lead that charge we need someone at the FED who will Senator Vance of Ohio thank you Mr chairman chairman Powell.
Thanks so much for being here I have a question that's slightly far afield but how often do you get to talk to the Federal Reserve chairman so I might as well ask it so to give some context here my family comes from Appalachia uh particularly my grandparents grew up in Southeastern Kentucky coal country and then moved to Southern Ohio where I now.
Have the honor of representing all of Ohio and you know one of the things that you hear a lot when you study the the regional history of Appalachia is it's often described as possessing a resource curse right so there's a lot of coal in central Appalachia that enables a certain amount of consumption obviously consumption is good people need food and.
Medicine and other things but there's also a good a pretty good argument that for a host of reasons it causes malinvestment in in the region and consequently you have lower productivity growth lower innovation in an economy that's much less Diversified and much less dynamic um I'm wondering when I when I hear.
About the history when I think about and read about the history of Appalachia and the resource curse uh I'm I'm struck by some of the by the idea that you could make a similar argument about the reserve currency status of the United States dollar Americans have enjoyed one of the greatest privileges of the international economy for the last.
Nearly eight decades a strong dollar that acts of course as the world's Reserve currency you know that better than I do now this has obviously been great for American purchasing power we we enjoy cheaper Imports uh Americans when they travel abroad benefit from lower lower costs but it does come at a cost to American Producers I think in.
Some ways you can argue that the reserve currency status is a massive subsidy to American consumers but a massive tax on American Producers now I know the strong dollar is sort of a sacred cow of the Washington consensus but when I survey the American economy and I I see our Mass consumption of mostly useless Imports on the one hand and our hollowed.
Out industrial base on the other hand I wonder if the reserve currency status also has some downsides and not just some upsides as well and let me just put a final point on this and I'd love to get your your thoughts on that chairman Powell we're of course now the main supporter of a massive land war in Europe between the Russians and the.
Ukrainians I read recently and I'm not going to you know comment on on how perfect or precise these estimates are but I read recently that the United States is trying to ramp up production from 14 000 artillery shells to 20 000 artillery shells that's per month while the Russians are firing twenty thousand artillery shells in Ukraine per day and.
When I look at the American economy we have a lot of financial engineers and a lot of diversity Consultants we don't have a lot of people making things and I worry that the reserve currency status and the lack of control we have of our currency is perhaps driving that I'd love to get your your feedback on that what are the upsides and downsides of.
The reserve currency that's a that's a big question two minutes chairman Powell so plenty of time I might I can't even get started on that so we are we are the world's Reserve currency of course and that's because of our Democratic institutions it's because of uh our control over inflation over many.
Many years the public the world trusts the rule of law in the United States and those are the things so once you're the World's Reserve Reserve currency it's used in all over the world in transactions and it's the place where people want to be in times of stress is in dollar denomination Assets Now um is it so of course we benefit by.
Being able to pay for our Goods all over the world pay for everything anywhere in the world mostly with dollars that's that's an advantage um you know there are there are there are some economic theory around that that it also has uh burdens of various kind but I I can't call it all back to mind but um.
You know the other thing is you know it's a very stable equilibrium but it's not a perfect one it's not a permanent one rather so there isn't any obvious uh candidate to replace the United States right now where you can have free flow of capital in and out of the country where you can really trust the rule of law and Democratic.
Institutions and and keeping uh you know keeping price stability which you can hear do you think it gives us less control over our own current currency the fact that it's become the world's Reserve currency you control over our currency um I'm not sure so essentially what we try to control is price stability and no.
It doesn't it doesn't make it harder for us to keep inflation under control the United States has a smaller external sector than most large economies where it's only about 15 so mainly what affects uh inflation in the United States is is domestic supply and demand do you think it makes it harder for us to affect can or and to fight back.
Against currency manipulation to control the export and import flows in a way that stabilizes our own manufacturing sector well I mean what's what's important there is really the level of the dollar and you know when the dollar is stronger obviously our price our our wears our more expensive abroad and that kind of.
Thing but we don't we don't have an opinion on WE that's matters of the level of the dollar really matters for the treasury Department and the elected government not for the FED thank you chairman Bill thank you advance servant Hall in Maryland's recognized uh thank you uh Mr chairman chairman Powell thank you for being here and for your service.
I know the FED is experiencing lots of challenges these days I've got a couple questions that are just I think basic yes or no's and then some longer uh questions um would you agree that changes in the size of corporate profits can be one of the factors that affects the inflation rate.
Let's see yes right now recently we saw that the employment cost index which as you know measures the growth of wages and benefit costs grew at roughly four percent on an annualized basis in the fourth quarter of 2022 is that right that's my recollection yes so if corporate profits were to decline from the extremely high levels that we saw.
Recently would it be possible to sustain the four percent growth rate in the employment cost index for an extended period of time even as we get inflation down to the Target of two percent depends on what you mean by extended period of time so you would not without a very very large increase in productivity which would be great but.
That we don't expect you wouldn't be able to sustain four percent uh wage inflation over over the longer term over over the shorter term though yes so over the shorter term that would not be a justification in and of itself for raising rates is that right in the short term well I I so I I think wages affect.
Prices and prices affect wages I think we do think that a some softening and labor market conditions will be will be will happen uh as as we try to get inflation under control and will need to happen right but that's that's more a prediction about your efforts to fight inflation are you saying that are you saying that simply looking at the.
Current four percent growth rate in the short term is an excuse for jacking up interest rates I think do you know what I would say is that the overall all the data we look at when in the labor market including uh not just that measure of wage but wages but others also unemployment also uh participation also job openings and.
Quits and things like that all of that you put that into a uh the picture and I think you see a labor market that is extremely tight and is probably contributing to inflation I I've never said it was the main cause right I think the larger Point here um based on your response to that first question about growth and profits is.
Right is corporations have a decision as to whether or not they're going to pocket more for profit which they can or provide higher wages uh to their employees and if you actually lowered your profit margins you could sustain a higher wage increase without without violating the two percent inflation isn't that isn't that right.
Yes I mean I when I hear profit margins what I'm what we're seeing in the economy is is a pretty much about shortages and uh you know supply chain blockages and when there's not enough of a product what happens then there's a lot of demand what you see is prices going up as the as the supply chains get fixed and shortages are alleviated you.
Will see prices inflation coming down you'll see margins coming down and that will certainly help with inflation right but but profits are the margin right they're they're going up beyond what they were before that means that even with the increase in cost because of Supply chains they're they're making more profits which which again uh that.
They can they can do that but my point is that as a contributor to inflation as you indicated uh in response to the first question let me ask you about the tight labor market because one of the issues uh in the tight labor market is parents with kids including a lot of moms who um would like to go back into to the.
Market but are not able to do so because of lack of affordable child care the other issue is immigration and I know that you've gotten some recent data on how some immigration figures actually have have softened a little bit the tightness in the labor market can you just talk broadly about those two factors affordable child care and.
Immigration more legal immigration and how they could affect labor force participation and therefore also reduce inflation pressures so on the on the first we don't we don't make recommendations or evaluate fiscal policy but I will say there's there's research that shows that um it helps keep women in the workforce.
When there's Child Care available which is I think kind of self-evident um sorry the second was impact of immigration aggression yeah so what I what I talked about with you is actually as part of the January Bureau of Labor Statistics report which comes the sorry the employment report for January which comes out in early February there is a.
Section in there about more more people the the census department has increase its estimate of the workforce by something like 870 000 and a significant part of that has been immigration so and that has moved up participation by a little bit but and it may be part of why we're here it may be part of why we're hearing from in you.
Know in the labor market that that the really intense labor shortage pressures that we were hearing about in 2021 and 22 may be alleviating so that would contribute to that clearly more people clearly the economy is calling for more people with two essentially two job openings for every unemployed person and this can be this can be a source of.
Those uh people right and that would reduce the tightness of labor market and reduce pressures on inflation right may already be doing so thank you uh uh Senator uh Senator Kramer of North Dakota is recognized thank you Mr chairman thank you chairman Powell for being here and I can't resist responding to a few things that.
Um my friends on the left have said for example in his opening statement chairman Brown had a long list of things that raising interest rates won't do interest rates interest raising interest rates won't fill in the blank I'm gonna fill in the blank with a couple things how about raising interest rates won't stop Senate Democrats and President.
Biden from over taxing overspending over borrowing over regulating chairman Brown said we should rebuild our supply chain by curbing offshoring corporate offshore I agree he talked a lot about corporate greed contributing to inflation okay but how about regulatory greed contributing to corporate greed how do you expect corporations to reinvest money if you.
Over regulate their ability to invest that money right here in the United States of America you want to onshore some things how about energy policy how about instead of looking to Venezuela or Iran for oil supply or Russia or rather than looking to China for electric vehicles and chips and and solar panels how about we have a strategy that.
Onshores those things by reducing regulation reducing taxes and letting those corporations reinvest their profits rather than than you know stock BuyBacks or or or dividends this idea that somehow the Federal Reserve is supposed to keep inflation in check while half of the government works against it.
Is mind-boggling now I know Mr chairman you don't like to comment on policy you and I went around and around about this you were anxious to to advise us to spend lots of money during the pandemic I don't think a lot of people blame me for that you wouldn't respond to to efforts by the Biden Administration after we were in a robust recovery from.
Not spending so much money okay I can appreciate the change but now we're in this debate between Republicans and Democrats between particularly the house speaker and the president on how to raise the debt ceiling and you've made some pretty strong comments about raising the debt ceiling absent from structural reforms that would actually.
Help us get back to a reasonable growth and so I I just I warn you again if you're going to make political comments if you're gonna if you're gonna advise us on policy be consistent with it now I want to get back to The Greening of the Federal Reserve and this these I call them stress tests you can come whatever we call them but I'm concerned that now.
The Federal Reserve is starting down this path maybe it's slightly at first uh about about climate stress testing I just want to ask you this if we're going to go down that path if the Federal Reserve is now going to become part of the federal climate police force are we going to consider the.
Ramifications of having entire communities and economies factories and manufacturers um you know whatever energy entities um large server Farms leaving them susceptible to a very unreliable very expensive energy source is that part of the stress test no that those are considerations for.
Elected people not for us we have a we have a narrow narrow role to play here but it's a real role and I can talk about that if you'd like well yeah I would like you to because again if we're gonna if we're gonna start doing stress tests for the six largest financial institutions related to climate which really is more weather.
Than climate then are we going to consider the effects of of uh unreliable energy source at several locations throughout our country so our only focus is on the safety and soundness of these institutions and do they understand and can they manage all of the risks that they that they run in their business model.
That's that's our our only goal we're not we're again we're not looking to be climate policy makers climate policy is clearly going to have effects on regions on companies on individuals on countries disparate effects and you know that is not for that is not for unelected people like us who have a narrow mandate but I think it does touch climate and your.
Your right to be concerned that we you know that we find ourselves in a slippery slope but honestly I I think the climate scenarios are something that the banks are already doing uh and themselves and and uh the climate guidance is something that that they're looking for they want to know how we're thinking about this but we we we will.
Try really hard not to get on a slippery slope and find ourselves becoming climate policy makers it's just not appropriate for an independent agency okay and I completely agree and I hope you stick to that and I think Yoda can you know ask the banks to consider what the overreaction might you know what kind of vulnerabilities that might.
Expose with that I just with regard to what Senator Warren was saying on her monologue one thing about ideologues they have the luxury of binary choices you have a really big job and and you have a single in my mind one at one and a half maybe two two um missions.
Um I think the first one handles the second one okay but it's got to be tough when the White House is working against you and you don't have to comment thank you thank you Mr chairman Senator tester of Montana is recognized uh chair Powell thank you thank you for being here today uh and thank you for serving it in this critical role at this.
Critical time I have talked many times in this committee uh and I especially right now uh cannot overstate the importance of the fed's independence um I've said it in the previous administration I say it now we cannot be playing politics with our economy and that is a fact.
From a climate standpoint I would just tell you it's entirely artificial right now anyway because if you look at the hundreds of billions of dollars this country puts out every year in disasters due to climate instability uh we ought to be asking our question is is that sustainable because quite frankly it has to be done and I don't think it's.
Sustainable so we've got to start looking for some Solutions on the climate side uh sooner rather than later um my the reserve has a tough job and I really appreciate how you've done it um reasonable working together making hard decisions for the good of the economy we have to get this right so the.
Question is how much is inflation decreased since its peak it depends on the measure but it's meaningfully at least a couple percentage points okay and and as Unemployment uh gone down as inflation has gone down unemployment has gone down yes it has to now a 54-year low yes so so so the question becomes and and I.
Always think back to uh in 1998 uh I bought some property in in the interest on that property was 10 in 1998 and I thought I got a hell of a deal by the way I thought it was just great but the truth is is interest rates have been artificially low for the last what 20 years probably um and and and the question becomes as.
You look at the economy and as you try to make the determination whether the inflation is caused by demand or Supply um where does all that fall in to you your your decision making moving forward well do you mean the level of interest rates so there's there in theory there's this thing called the neutral level of interest and we we know it only by its.
Works and neutral is is the level that neither pushes the economy up nor pulls it down and it changes over time this is the thing about these these important variables in economics so what's happened until now was that the neutral level of Interest went down and down and down to the point where you know many.
Countries had zero interest rates and very low inflation now we have this shock series of shocks associated with the pandemic and we have rates at four and a half percent our policy rate and we have the labor market very strong and inflation reacting somewhat but and it does raise the question of where's the neutral rate honestly we don't know I.
Think we look at the current situation and we see that there's not a lot of evidence that not a hard to make a case that we've over tightened it it means we need to to continue to tighten I think we're you know we're very mindful of of the lags with which our policy works we don't think we need a significant.
Increase in unemployment and we're certainly not aiming for one but we do think there'll be some softening in labor market conditions to get to two percent inflation when you're looking at interest rates uh I know we talk about energy prices here and the price of gasoline and and then if you go over in Europe is much much.
Higher are we comparable I'm just curious are we compare with our interest rates here is is is with say Europe we're very close to where Canada is we're a little bit higher than where Europe is Europe's traditionally had much lower inflation they now have very high inflation and they're still increasing rates but they're a bit lower.
In terms of uh of rates so if if we do not get the the inflation under control and like I said I think the steps you've taken have been reasonable and measured um if we don't get it under control what is that really what are the impacts of that well the social costs of failure uh is one way to think about it are very very high so if if inflation were to.
Continue at some point it will become that will become the psychology people will come and businesses will come to expect High inflation and that will make it more self-perpetuating that will mean an up and down economy it'll mean um uh you know it'll mean something that looks more like what we've seen in periods of.
High inflation cap capital allocation is difficult in a world like that it's not a good time for the economy what what we want to do is restore price stability firmly at back at two percent so that we can have the kind of strong labor market for a sustained period that we had before once again thank you for your work thank you for your Independence.
Senator dance thank you thank you Senator tester and I'll be handed off Senator Cortez masto when I'm finished up as well so uh chairman good to have you here today um when I am back in Montana the number one issue I hear certainly across the state is the high cost of gas the high cost of.
Groceries and overall how their paychecks are shrinking because of inflation um it's a it's a crushing blow it has real life impacts it's top of Mind issue for montanans it's also important to note the devastating impact it's going to have on.
Our nation's economic future in fact in October of last year I sent a letter to Congressional budget office director swagel regarding the impact that high inflation and the elevated interest rates would have on the cost of servicing the federal debt his response painted a less than Rosie.
Picture but then we got cbo's updated 10-year Baseline forecast in February and it confirmed the truly dire situation that we find ourselves in driven by interest payments on the debt the CBO now projects that cumulative deficits.
During the tenure window and I recognize where deficits come from it's it's irresponsible spending here in Washington but the cumulative deficits during the 10-year window will exceed 20 trillion dollars the human deficits not talking the debt because it's going to grow the total federal debt to more than 51 trillion dollars by 2033. now 2033.
Used to sound like a long ways away for 10 years away 10 years goes by very very quickly within five years we're going to spend more on annual interest on the national debt than we spend on National Defense you think about that for a moment and these are coming out of the CBO.
These absolutely shocking but quite frankly predictable projections go back to a debate we vigorously had here in the banking Community remember when uh Lawrence Summers of course former Secretary of Treasury under President Clinton economic advisor to President.
Obama he warned us he said he was practically warning my my colleagues across the aisle says you can't move forward with these purely partisan you know at that time of 1.9 trillion dollar spending Extravaganza we had a trillion dollars of unspent covered money in December of 2020. and that passed on a purely partisan.
Vote we said it's going to start to ignite the inflation fires so I certainly hope the president's budget which we expect to see later this week will propose pro-growth policies that can get us out of this mess and I would argue almost an existential crisis as we look at what's going to come at us here of.
Course the next 10 years with debt and service on that debt unfortunately as the president said in the State of the Union Address the president said he's going to raise taxes that's a recipe for disaster it's going to crush productivity Discord investment stifle economic growth even further I want to turn to my questions now.
Chairman Powell you're raising interest rates to combat the inflation we've seen in the economy over the past few years is that that correct yes and although this is the domain of Treasury a higher feds fund rate will mean higher borrowing costs is that correct.
Yes all else equal so I just wanted to connect the dots year-round inflation was sparked one of the big reasons was massive spending here in Washington and now we're going to be bearing the uh the challenges with higher debt service over the course the next several years where we're going to see Debt Service.
Exceeding defense spending which we see the threats of China threats around the world I think it's very very concerning now as a grandfather of four soon to be five grandchildren it's things you think about more and more as you look forward I want to change here and talk about American Energy when the organ Ukraine broke out many feared that Russia would.
Cut off Natural Gas exports and cause energy inflation to spike um prices didn't Spike as much as anticipated due in large part the fact that American companies stepped up to the plate as of late last year the European union now receives more liquefied natural gas from the United States producers than it.
Does from Russian producers that's a good thing for the world to see more U.S produced energy chairman Powell do you believe that European and American inflation would have been manageable if not for American Energy producers I certainly think that our particularly our Natural Gas have have helped Europe make the.
Transition any sense of how much worse the global energy picture would be if you would imagine a world where we're not producing and shipping energy to other countries I did be hard to hard to estimate probably worse yeah I mean I think it's a it's been a.
Clearly the Europe has managed better than expected and and a part of that story is is just U.S energy experts also the the winner wasn't as as bad and the Germans made some good decisions yeah we made some we made some prayers that says we need to pray for a warm winter for Europe and I think they got one which was uh someone's been helpful I'm out of.
Time hearing um send this back over Senator Cortez masto thank you chairman Powell it's great to see you thank you so much I know it's been a long morning always appreciate you coming to talk with us here on the committee um I I want to First align myself with.
The remarks from um uh chairman Menendez supporting a Latino nominee uh to the open seat on the Federal Reserve it's been more than 100 years and a Latino has never served on the Federal Reserve board and I know there are many strong Latino economists and economic experts who would capably serve so I want to put that out there.
Chairman Powell I am I also sit on Senate Finance right across the way we were talking about affordable housing um and uh I think for purposes of so many of us across the country including in Nevada when we talk about affordable housing it's also about Workforce housing it's about making sure families that are working so hard have an.
Opportunity to keep a roof over the head right now in Nevada if you're making minimum wage you have to work 75 hours a week just to be able to afford housing and so I want to talk to you about this I was distressed to see in the report that um that activity in the housing sector has contracted as a result of the.
Elevated mortgage rates and you've been talking about that I often hear from nevadans who say I don't know if I'm ever going to own a home and many field resigned being stuck in a cycle of renting so chairman how do the Federal Reserve economists and leaders think about the balance between keeping interest rates low to Spur that.
Affordable home building and home buying while addressing inflation we have a dual mandate from Congress as you as you well know which is maximum employment and price stability and that's really what we take into account we don't um and of course intra-sensitive spending is the thing that gets the most support when we cut.
Rates and and the thing that is most affected when we raise rates and that that means housing to a significant extent that's not a choice that we make that's just the way it works and we only have really one tool which is monetary policy so you know we don't we don't really try to use our tools to affect broader housing.
Policy uh but really just to achieve our statutory goals it happens to just unfortunately be in effect as you TR try to achieve your statutory goal is that yes yes and so I want to have you have you have the opportunity to address Senator uh uh uh Warner Warren's conversation with you earlier about uh the tools that you have and the impact.
It has on causing potentially more people to be unemployed and this obviously has an impact on their ability to afford homes as well can you address that I'd be glad to I want I want to be clear that we do do not seek and we don't believe we need to have a very significant downturn in the labor market and it's not just hope I think if you.
Look at the situation in the labor market you've got all these job openings and in principle you could reduce the job openings without seeing a really significant increase in unemployment also you're starting from such a strong labor market it seems as though there's you're a long way away from anything that looks like like a recession just.
Looking at the labor market by itself so honestly we we don't we don't know we don't know that we need that there will that there will need to be a really significant uh downturn other other business Cycles had quite different uh you know backstories than this one and we're going to have to find out whether that matters or not but I do think that.
I've said all along my colleagues and I have too that we believe that um we can there's there's a path to restoring two percent inflation with less significant effects on the labor market than have typically been seen in downturns and for purposes of the general public people in events that I know that are struggling we have one of.
The highest we've talked about this and thank you for always um being willing to talk with me we have one of the highest unemployment rates in the country our service sector was hit so hard uh we're still at over five percent just in southern Nevada we have high gas prices we have grocery prices we have housing prices that are high so.
Uh one of the things in that you have commented on and you just did again but I know it was in your opening remarks that and it's quoted right here and let me just say our overroach our you say our overarching focus is using our tools to bring inflation back down to our two percent goal and to keep longer term inflation expectations well anchored for.
The general public for those Working Families of people why two percent why is getting it to two percent so important um so that's that has become the globally agreed essentially all major central banks Target two percent inflation one form or another um and uh how does that help my Nevada.
Families how does that help people I'll tell you how it does and it it's um I guess it's it's obviously not uh it's not obvious how that is but what a two percent inflation to have people believe that inflation is going to go back to two percent really anchors inflation there because you know the evidence is is and and the the modern.
Belief is that people's expectations about inflation actually have a real an effect on inflation if you expect inflation to go up five percent then it will you know if everyone kind of expects that because that's what businesses and households will be expecting and and it'll kind of happen because they expect it so having a two.
Percent inflation goal where which we had for many years it de facto we had it then we formally adopted it in in 2012 but for years before that we were effectively targeting two percent inflation and what that meant was that inflation once one of the reasons why inflation was low and predictable is having a real Target and.
Sticking to it not changing it you know at convenient moments so that's we think it's really important that we do stick to a two percent inflation Target and not consider changing it we're not going to do that um it just is it people will be better off if if the whole question of high inflation is just not part of their.
Lives that's kind of the definition of price stability is if people live their lives without having to think about inflation all the time thank you I noticed my time is up thank you so much Senator Senator Lamas thank you very much Madam chairman and welcome chairman Powell um.
When you're setting these rates and making these decisions uh and seeking that two percent magic number are you considering the cost of borrowing for the United States knowing that Congress has over borrowed and that we have overspent and that the national debt is at now at.
Least 97 percent of GDP and that were um going to face challenges of our own making this is not about what the FED has done this is what about the Congress has done that you have to factor in to your decisions do you think about the costs of borrowing for the United States itself no we do not and we're not going.
To in other words that's that would be fiscal dominance if we were you know constrained in our in our monetary policy by the budgetary situation of the United States and we're not we're clearly not the the path we're on is not sustainable but the level of debt that we have is not unsustainable is not just is not is sustainable put it that.
Way so we don't think about about interest costs when we make monetary policy we think about maximum employment and price stability it's your opinion that the level of debt we have is sustainable yes I mean we could clearly we we have the you know the largest economy in the world we can service this debt that's.
Not the that's not the problem the problem is that we're we're on a path where the debt is growing substantially faster than the economy and that's kind of by definition in the long run unsustainable and the way countries have gotten or fixed that is is with long longer term programs that have bipartisan support.
And that address the actual problem in the budget that that's really the the the formula thank you I'm going to switch to stable coins uh you're a member of the president's working group on financial markets uh the working group called for Bank like regulation of stable coins in late 2021 then on January third of this year in a joint.
Staff statement uh the Federal Banking agencies stated that even after the bank's Capital BSA AML and risk management uh a bank issuing a stable coin on a quote open public or decentralized network is highly un excuse me highly likely to be inconsistent with safe and sound banking practices I'm going to say.
That again even after A bank's Capital BSA AML and risk management a bank issuing a stable coin on an open public or decentralized network is highly likely to be inconsistent with safe and sound banking practices so I'm a little confused about where we're heading on stable coins does the January third statement mean that the FED has decided.
That stable coins on a permissionless distributed Ledger have no place in Banks so I I think that there are real concerns about permissionless public blockchains and the reason is that they've been so susceptible to fraud to money laundering and all of those things so I think what you heard from the.
Federal Banking agencies in one of their reports was that they were there that they would tend to look at those as not consistent with safety and soundness and what about upperly regulated stable coins do you think they could have a place in our banking system I I certainly think that in a world of.
Appropriate regulation where the same activity where stable coin activity gets the same regulation as comparable products in different places then then there certainly could be a place for stable coins in our in among in our financial services sector thank you um the European Union UK Australia Switzerland Singapore and others have.
All moved over the last few years to create a legislative framework for digital assets the European Union in particular is attempting to be a standard Setter again like it was with its data protection rule is the United States in danger of being a rule taker not a rule maker when it comes to digital assets.
I do think it would be important for us to have a workable legal framework around around digital activities I think that's that is important and something congress in principle needs to do because we can't really do that yeah thank you Senator gillibrand and I agree with you one area we've already seen.
Um is in the Basel committee on Bank supervision uh they propose Prudential treatment for crypto assets framework setting forth Banks Capital standards for digital assets the Basel committee's framework does not impose a capital charge for digital asset custody whereas the sec's staff accounting bulletin 121 imposes a.
Prohibitive capital charge through the back door and places consumers at risk in bankruptcy similarly the Basel committee framework allows Banks to issue or hold digital assets on their balance sheet if the requisite capital is set aside so back to January 3rd 23 the fed and other bank Regulators have said that it is forbidden for a U.S Bank.
To conduct these activities no matter the capital so my question is what does the rest of the world know about digital asset regulation that we do not that the FED does not so as we discussed this is a an SEC staff accounting bulletin and it's it's uh it's not something that the FED issued and I'd be loath to uh.
Comment directly on it concerns me is that the fed and other Federal Banking agencies are not following International Norms on digital asset regulation that's just my comment um thank you chairman Powell for being here I now recognize Senator Smith well thank you and uh chair Powell it looks as if uh Senator Britt and I are.
The last people standing at this Committee hearing uh thank you for uh thank you for passing on the the gavel 2 um Senator lemus and I want to thank you for your service and for our recent conversation and before I get into my questions I would just like to know there's been a good back and forth amongst our committee.
Um around um some of the big economic challenges and opportunities we face in this country and I would just like to note that the programs and the spending that the ranking member and some of our colleagues have blamed for inflation provided critical relief that kept Working Families and small businesses.
Afloat during a global pandemic and in fact many of these policies were passed on a bipartisan basis and signed into law by both Republican and Democratic presidents and I also just want to add that the laws that the Democrats passed a lower prescription drug costs and health care costs and to lower energy costs for Americans are helping to lower.
Basic costs for families all of which by the way was fully paid for so I returned Mr chair to what you have said to me privately and to all of us publicly which is what we ought to be looking for is striving for bipartisan solutions to find a path forward and in fact Senator lemus and I were just talking about this yesterday when it came to housing policy.
So I just want to put that out there when you and I spoke yesterday briefly we talked about the community reinvestment act and I know that I appreciated the chair I'm raising this point earlier in the hearing and so but I want to just return to that briefly I am very glad to see it's been about a year since the fed and the OCC and the.
FDIC issued the proposed rule to modernize implementation of the community reinvestment act you know I don't think that the proposal was perfect by any means but it does make really important improvements to how through the CRA Financial Services organizations can serve and meet the needs of communities that are full of.
Assets but lack the resources to make it happen like wealthy communities can so I think chair Powell you in indicated that the you expect this new CRA rule to be finalized in in the coming months is that what you're you indicated yes that's right and um can you just tell us with the departure of Dr Brainerd who will be spearheading the CRA efforts so.
I've asked um Vice chair uh Barr to to be responsible for moving the project forward of course it has to go to the whole board right and and everyone everyone gets a vote on that but he'll be he'll be uh pushing it forward that's great thank you um and um I was glad to see that disaster preparedness and climate.
Resiliency were added to the definition of Community Development activities that would be eligible for the CRA credit and this is important of course because low and moderate income folks and the communities that they live in often face some of the worst impacts of climate change and extreme weather events this isn't social engineering this is dealing.
With the actual costs and challenges that people experience because of climate change so chair pal can you talk to us a little bit about how you see that change and how it fits with the cra's overarching objectives so I think it fits for the reasons that you said I um honestly I'm a week or so away from getting a.
Briefing on where the proposal lies so I'm I'm reluctant to touch on I mean I I again I'd rather wait till after I'm fully briefed on on where that agreement came out after the fomc meeting so thank you that's fine I'll look forward to continuing this conversation with as well and um and uh with Mr Barr and um just appreciate this I think you know my.
View of this is that climate change and the economy are inextricably linked and the reality is that climate related action or inaction has a direct Financial impact um on on people and our economy um and um I was wondering if you would just be willing to update us briefly on some of the next steps that the FED is.
Going to be looking at as you evaluate evaluate the resilience of financial institutions to um with respect to climate risk there's this pilot project that just was started in January I think it was of this year and I'm curious to know how you see next steps there so we um we're doing really two things one is we are doing a climate stress.
Scenario which uh the banks are already doing the large Banks the six that we're working with and that's really just to understand to begin the process of understanding the risks that are associated with this over the longer term there again they're already doing it and then and uh it's something that uh there's a lot of learning going on uh.
Around the world actually the other thing we're doing is is providing guidance that Banks want clear guidance they were actually want one set of rules globally the big banks that you know do business around the world they're hoping that they aren't in a world where there's just different regulatory regimes everywhere they go so we're.
We're kind of working on that as well great thank you very much Mr chair thank you uh thanks Senator Smith uh Senator Tillis from North Carolina is recognized thank you Mr chairman chair Powell thank you for being here uh in your opening statement I was I was here for that I think you touched on some of the uh um interest rate sensitive components of.
GDP and non-interest rate sensitive components of GDP I think you said that we do have a concern in the latter group inflation expectations labor market tightening Etc can you tell me a little bit about how you're looking at the interest rate sensitive and non-interest rate sensitive.
Readings and whether the Fed what what sort of fed actions can take place to avoid a zero Landing sure so on you know the um the housing sector of course is intersensitive spending is is that is the thing that they're very directly affected by our policies almost right away and and the poster child for that.
Is housing and so you've seen mortgage rates now go up back up over six percent you've seen housing starts come down activity in housing has declined as people are reluctant to get out of their their you know the low mortgages low rate mortgages had before so housing activity is is slowing down on the other hand housing prices went up in the.
Aggregate more than 40 percent since the beginning of the pandemic so uh we may be seeing some price correction on that too so that's coming along and and housing housing inflation uh which is a a big part of the CPI a little bit smaller part of the pce the the inflation measures we uh we follow where we rely on uh that will be coming down.
Because of the slowdown in the housing market the I guess I would say the service sector is probably less interest sensitive than that and that's you know that's restaurants it's um travel Services travel and Leisure it's Healthcare it's Financial Services Healthcare Services all those services and that's that's a big big part of our.
Economy it's this sector is 56 it is is 50 54 I guess 56 of the of consumer spending on non-energy and food so it's very important and it's you know it's um it's about having a little bit softer demand and about having some softening in labor market conditions we think our tools will work on that but we do expect that that will take time.
Thank you I I know uh the chairman uh in his opening comments mentioned uh I believe I don't want to misquote them but I believe that we have two little capital in the banking sector may be true of a couple of banking institutions but how do you feel about the the current capital uh that are broader banking sector you're irrespective of.
Where they are and and size what concerns of any do you have about the uh the capital that we see out there already right so I supported all of the capital raising that we did I joined the FED in 2012 and we were in the middle of of implementing all those Dodd-Frank increases and I supported all of them um after careful thought and discussion.
With my colleagues I think um we the new Vice chair is doing what new Vice chairs do which is to to take a fresh look and ask the question um even though I think we all agreed capital is strong certainly that Vice chair does the question is is it is it at the right level and I think that's that's what happens with a new Vice.
Chair for supervision and we don't have any proposals yet but uh at some point we will yeah I'm going to be meeting with the vice Jared we'll drill down in that topic but I do know I was over in finance committee so I wasn't here but I do know that several members uh well first off we know that uh Vice chair bar is looking at a holistic review of.
Capital requirements I think that that's a good idea but I have to ask a question um do you think does the FED consider the bipartisan past Senate Bill 2155 which is currently the law of the land to Superior to any of the Basel requirements are any holistic review process in other.
Words it is the law of the land how does that weigh into how these reviews go so 2155 was um I think you're talking about about um tailoring so Dodd-Frank actually called for tailoring and and um uh what 2155 did as it was it said changed May Taylor to Shell Taylor and it also changed the thresholds but tailoring is.
An absolutely Bedrock aspect of our of our bank regulatory system and anything that we do is going to reflect what we think is appropriate tailoring between you know the different sizes and risks and of the financial institutions that we that we supervise and regulate what we were trying to accomplish as a part of that I don't.
Expect you to respond I know that we're coming to the end of the the hearing is that a holistic review of financial services institution is going to reveal the fact that many of these financial institutions are very different based on the activities that they're most um uh most involved in and those sort of holistic reviews may actually result in.
Increasing Capital requirements for two banks that look like peers but not for another because the inherent risk associated with their business focus does that make sense to your earlier point though the law that Dodd-Frank language and as amended actually requires that we take those things into consideration so we certainly will we.
Will thank you thanks Senator Senator uh ornok is recognized from Georgia thank you so very much Mr chairman before I begin my questions um I know that this committee will soon consider a new nominee to serve on the Federal Reserve Board of Governors and while it has not historically been the case.
Um it seems to me that the board should reflect uh the diversity of our nation that those things are connected policy and uh representation uh are connected and I I hope uh that we will see sitting before this committee a nominee that pushes us closer uh towards our ideals of e pluribus unum out of many um one and I I support Senator Menendez.
And others who have uh called uh for a diverse nominee specifically the fact that we've never had a Latino person serve on the Federal Reserve board I think it's a huge oversight and I hope we can move uh quickly in that direction that said my state of Georgia is in a housing crisis like much of the country the Federal Reserve Bank of Atlanta has.
Designated owning a home in Atlanta as unaffordable to the average home buyer but this is not just a city problem Harris County Georgia with a population of less than 35 000 sitting on the border of Alabama is also rated as unaffordable in the midst of this housing crisis the Federal.
Reserve continues continues to raise interest rates this makes mortgages a lot more expensive for families especially young families looking to buy a house according to the National Association of Realtors the share of first-time home buyers is at an all-time low.
While the average age of a purchaser purchaser is at an all-time high chair Powell you have said that there has been quote an imbalance in the housing market but if you're a Georgia family parents in the mid-30s young children and all you want is to be able to afford your first home.
And place and build equity to one day pass that Equity onto your kids how are the fed's actions uh helping that family afford a home How are um our mandate is to provide maximum employment use our tools to Foster maximum employment and price stability and we're using those tools really now to restore price stability in.
At a time of the highest inflation in 40 years I think that the same people who are having high mortgage costs if they have a floating rate mortgage are also experiencing high costs for all the all the basic necessities of life and and one of our most fundamental roles at the central.
Bank is to is to keep price stability so we have to prioritize that in in what we do yeah I understand that the tools and and the Mandate but my concern is that we could have a cure uh that's worse than the the than the disease it doesn't do families any good if if we stabilize housing prices while mortgage rates uh continue to Skyrocket.
It doesn't matter to me why a house is unaffordable maybe the house is unaffordable maybe the mortgage is unaffordable unaffordable is unaffordable how does the Federal Reserve continue to consider the total price the total price of home ownership including costs of mortgages and executing that mandate to keep prices.
Stable it um housing inflation is a is a very important uh component of various uh inflation indexes and uh so and the way that's calculated is it's the economists look at rents and then for people who own a home they impute a rent depending on the value of the home so it actually does factor in and I would say the.
Measures of um of uh new leases that are being signed and new housing prices show significant declines in in inflation not in price but in inflation and that that will play through so that overall inflation over the course of the next six months or a year will uh will decline if if we're seeing mortgage rates go up.
Yes or no does this discourage folks who may have a low interest mortgage rate from putting their home on the market and then possibly paying double the cost or the mortgage for their new house it certainly could and people who are in a low mortgage a fixed rate low rate mortgage I would assume many of them are not moving does.
Raising the federal interest rate change the cost of borrowing for a company hoping to develop new housing yes does it make it more expensive for suppliers to finance expanding production and meet Supply needs it does it give businesses less wiggle room to offer higher wages and attract qualified.
Workers indeed yeah so all of these actions uh have to be taken into account Federal Reserve does not control housing Supply but its actions do have a massive effect on on housing Supply and some of these Supply effects it seems to me will be felt for many years well beyond when interest.
Rate hikes have slowed or rates have even gone down and I know you've got a difficult job and a tough situation but I I just hope that the FED will think more about his actions and and how they affect housing Supply even as it attempts to control housing demand thank you thanks sir we're not Gus the last question I believe is the.
Questioner is um Senator Cinema is uh remote from Arizona thank you Mr chairman and chairman thank you for being here today and everything interesting race last month by 25 basis points Ukraine as a key contributor to elevated Global uncertainty the war has serious implications for Global energy and.
Agricultural markets and as you know energy inflation in particular can appear in the form of higher prices of other goods and services this feels like a substantial driver of inflation overall and in my mind you can't understand the global economy fully without assessing the range of possible outcomes in Ukraine as we've also seen.
The war created new supply chain problems overnight and has caused abrupt price swings and select committees how is the fomc assessing the economic impact of the war and the range of potential outcomes in order to inform how it sets monetary policy so the principle um I guess there are two things to say.
One is the principal way that the war has affected our economy is really through commodity prices grain and particularly Energy prices that is uh that's the the main thing I think really and those those have both flattened out Energy prices globally have settled down and they're at a.
Higher level and and food prices as well to some extent so the second thing I would say is that that it represents a significant risk so the war in Ukraine uh the outcome is uncertain developments there are uncertain and uh you have to think of it as a source of potential risk to the global economy and to to our economy.
We don't um and we look at alternative scenarios and things like that we don't really do it from a geopolitical standpoint but we do of course model scenarios work where commodity prices are higher and and things that that would look like uh like what could happen from Ukraine thank you.
The fair prices are making it more difficult to afford groceries gas rent and airfare but on the other hand Rising interest rates are crowning out investment and making it more difficult for first-time home buyers to buy a home inflation has also slowed Housing Development to a halt in Arizona and as you know chairman housing is a major.
Economic contributor in my state it's also clear that more spending comes with trade-offs and it's why tackling inflation has historically been so difficult and yet it's more important than ever that we get it under control there's been much debate about a soft Landing where we get inflation under control without triggering a recession.
Versus a hard Landing where inflation comes down but triggers a painful recession some economists are currently saying they see no Landing right now that growth is actually accelerating and that more aggressive actions will be needed to get inflation under control if true that would be problematic what do you think about that assessment.
Well as I mentioned uh earlier I think if you look at the data that's been coming in since earlier this year you have seen uh Stronger labor market conditions higher inflation stronger consumer spending and also we saw some of the low inflation readings from the fourth quarter of last year were revised away if you take all of those uh they.
Kind of all they may be to some extent related to things like seasonal adjustments or or a warm January but nonetheless they all point in the same direction and they do suggest that the possibility that we that ultimately would need to raise rates higher than had been expected of course we have uh two or three more uh very important data.
Releases to analyze before the time of the FMC Meeting those are going to be very important in in the assessment we have of this relatively recent data we'll be looking carefully at that and uh and all of that will go into making the decision which we have not made but making the decision that we'll make about what to do at the March meeting.
But thank you on February 23rd I fed the FDIC and the OCC released another joint statement on crypto assets and liquidity risk posed to banking organizations it is clearly regulated receipt undue risk for banks in the current environment and are taking a more conservative approach do you believe these risks are inherent to crypto assets and how they behave or.
Some of the risk of the product of the current regulatory policy landscape for crypto assets in the U.S so we're seeing um really in the last close to a year now we've seen just a remarkable um set of events in the crypto space lots of companies collapsing we've seen massive fraud we've seen all kinds of.
Things I think you know we we have to be open to the idea that it somewhere in there there's technology that can that can uh can be uh the feature can be featured in productive Innovation that that uh that that makes people's lives better however in the near term we see in crypto activity lots of things that suggest that regulated financial.
Institutions should be quite cautious and that's in in doing uh things in the crypto space and that's what we've we've issued three or four uh releases to to the banks along with the OCC and the FDIC the FED has and and they essentially say you really need to be careful here you need to be careful it's it's early days with crypto there isn't.
The appropriate regulation we're learning Lots about the risks and they are many of the same risks that that run or run in other parts of the financial system but without appropriate regulation thank you senator Paul thank you thank you Senator Cinema we conclude the hearing the FED must make sure that.
Workers and families are at the center of our of every decision it makes to strengthen our economy we've heard a lot today about the role that Wall Street plays in our economy too as you've said Mr chair we know that higher Capital requirements make Banks safer and stronger it allows them to make investments in their workers and their.
Communities and our economy that's what they should be doing instead of of spending billions on BuyBacks I I look forward Jared Powell to working with you to strengthen our economy for senators who wish to submit questions for the hearing record these questions are due one week from today Tuesday March 14th to chair Powell please submit your.
Responses to questions for the record 45 days from the day you receive them I I thank my colleagues for the very very good attendance today only one member on each side was not here one for health reasons the other just because he's doing 12 different things so I appreciate all that and thanks for your testimony your public service Mr.
Chairman thank you Mr chairman foreign