Congressional Testimony

MONETARY POLICY AND THE STATE OF THE ECONOMY HEARING BEFORETHE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION FEBRUARY 11, 2020 Printed for the use of the Committee on Financial Services Serial No. 116–85 ( U.S. GOVERNMENT PUBLISHING OFFICE 42–819 PDF WASHINGTON : 2021 VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\HBA042.000 TERRI HOUSE COMMITTEE ON FINANCIAL SERVICES MAXINE WATERS, California, Chairwoman CAROLYN B. MALONEY, New York PATRICK MCHENRY, North Carolina, NYDIA M. VELA´ZQUEZ, New York Ranking Member BRAD SHERMAN, California ANN WAGNER, Missouri GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma WM. LACY CLAY, Missouri BILL POSEY, Florida DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio ED PERLMUTTER, Colorado ANDY BARR, Kentucky JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado BILL FOSTER, Illinois ROGER WILLIAMS, Texas JOYCE BEATTY, Ohio FRENCH HILL, Arkansas DENNY HECK, Washington TOM EMMER, Minnesota JUAN VARGAS, California LEE M. ZELDIN, New York JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia AL LAWSON, Florida WARREN DAVIDSON, Ohio MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee KATIE PORTER, California TREY HOLLINGSWORTH, Indiana CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio SEAN CASTEN, Illinois JOHN ROSE, Tennessee AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin BEN MCADAMS, Utah LANCE GOODEN, Texas ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas TULSI GABBARD, Hawaii ALMA ADAMS, North Carolina MADELEINE DEAN, Pennsylvania JESU´S ‘‘CHUY’’ GARCIA, Illinois SYLVIA GARCIA, Texas DEAN PHILLIPS, Minnesota CHARLA OUERTATANI, Staff Director (II) VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\HBA042.000 TERRI C O N T E N T S Page Hearing held on: February 11, 2020 ............................................................................................ 1 Appendix: February 11, 2020 ............................................................................................ 57 WITNESSES TUESDAY, FEBRUARY 11, 2020 Powell, Hon. Jerome H., Chairman, Board of Governors of the Federal Re- serve System ......................................................................................................... 5 APPENDIX Prepared statements: Powell, Hon. Jerome H. .................................................................................... 58 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Powell, Hon. Jerome H.: Written responses to questions for the record from Chairwoman Waters ... 63 Written responses to questions for the record from Representative Beatty 81 Written responses to questions for the record from Representative Budd .. 82 Written responses to questions for the record from Representative Cleaver ........................................................................................................... 83 Written responses to questions for the record from Representative Green . 95 Written responses to questions for the record from Representative Heck .. 96 Written responses to questions for the record from Representative Hill .... 99 Written responses to questions for the record from Representative Sher- man ................................................................................................................ 104 Written responses to questions for the record from Representative Tlaib .. 107 (III) VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\HBA042.000 TERRI VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\HBA042.000 TERRI MONETARY POLICY AND THE STATE OF THE ECONOMY Tuesday, February 11, 2020 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Maxine Waters [chair- woman of the committee] presiding. Members present: Representatives Waters, Velazquez, Sherman, Meeks, Clay, Scott, Green, Cleaver, Perlmutter, Himes, Foster, Beatty, Heck, Vargas, Gottheimer, Gonzalez of Texas, Lawson, Tlaib, Porter, Axne, Casten, Pressley, McAdams, Wexton, Lynch, Adams, Dean, Garcia of Illinois, Garcia of Texas, Phillips; McHenry, Wagner, Lucas, Posey, Luetkemeyer, Huizenga, Stivers, Barr, Tipton, Williams, Hill, Zeldin, Loudermilk, Mooney, David- son, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden, Riggleman, Timmons, and Taylor. Chairwoman WATERS. The Financial Services Committee will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. Today’s hearing is entitled, ‘‘Monetary Policy and the State of the Economy.’’ I now recognize myself for 4 minutes for an opening statement. I would like to welcome back Chairman Powell. As I discussed earlier, at our last hearing with you, I remain very concerned about the President’s efforts to interfere with the Federal Reserve’s (Fed’s) independent monetary policy. A recent news story noted that Trump has tweeted over 100 times about the Fed since your nomination. Many of those tweets appear to be attempting to exert pressure on the Fed. Chairman Powell, you and the Federal Reserve Board of Gov- ernors must not be swayed by these aggressive tactics. In uphold- ing the Fed’s independence, you should also be mindful of public perception. Of course, Trump continues to try to claim credit for economic growth that was put in motion by the policies of Presi- dent Obama, Congressional Democrats, and the Federal Reserve. His irresponsible trade war and the GOP tax scam have blown up the national debt, slowed our economic growth, and harmed hard- working American families. Trump continues to squander this in- herited economy. Let me note that I am, however, disappointed in the Fed’s efforts to deregulate megabanks, most recently by proposing to further roll back the Volcker Rule. The Dodd-Frank Act made our financial sys- (1) VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 2 tem safer, but it depends on agencies like the Fed to prudentially use the tools available to monitor and mitigate threats to our econ- omy. The committee is carefully monitoring the developments in the repo market and the Fed’s response. The Fed should not arbitrarily reduce liquidity requirements in response to the repo market dis- ruption, as some on Wall Street have asked for. Instead, the Fed should make appropriate adjustments to promote a well-func- tioning repo market, while ensuring we have strong capital rules that can’t be gamed through window dressing, a practice where banks alter their balance sheet to appear less risky and reduce their capital levels. In addition, the riskiness of various financial assets is increasing as climate change poses a more serious risk to our economy. The Fed and other regulators should utilize financial stability tools under the Dodd-Frank Act, such as incorporating climate-related losses into supervisory stress tests of big banks to address this growing risk. I would also like to discuss recent developments with Community Reinvestment Act (CRA). We have had a series of hearings on this issue, and I am very concerned about OCC Comptroller Otting’s harmful proposal to turn CRA into the Community Disinvestment Act and allow banks to escape their obligation to make responsible investments in the communities where they are chartered. I urge the Fed to take a careful, deliberate approach to any changes to the implementation of the CRA and to not join Comptroller Otting’s misguided efforts. Fed Governor Brainard’s statement that, ‘‘It is more important to get the reforms done right than to do them quickly,’’ is absolutely correct. The OCC and the FDIC should heed that advice as well and extend the public comment period as community banks, State regulators, community and civil rights groups, and committee Democrats have called for so that all stakeholders have an oppor- tunity to voice their concerns. I also encourage the Fed to keep a watchful eye on Facebook’s efforts to launch a cryptocurrency and a digital wallet, which, as we discussed at our last hearing, could have profound implications for monetary policy and compete with our own U.S. dollar. In light of the many risks Facebook plans to create, I, along with other Democrats, have called on Facebook to halt their plans until Con- gress can examine the issues associated with a big tech company developing these digital products and take action. I look forward to your testimony today, Chairman Powell, and to discussing these matters. I now recognize the ranking member of the committee, the gen- tleman from North Carolina, Mr. McHenry, for 4 minutes for an opening statement. Mr. MCHENRY. Thank you, Chairman Powell, for appearing be- fore us once again. Under the Trump Administration, we have the best economy that we have had in decades. The numbers are irrefutable. We added 225,000 new jobs in January, and the unemployment rate is essen- tially at its lowest level in half a century. This prosperity is being VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 3 shared by all Americans, including African Americans and His- panics, whose unemployment rate reached record lows last year. The prime-age labor force participation has reached 2.2 million people who were previously out of the workforce, and not surpris- ingly, consumer confidence has increased dramatically since the month before the President’s election. Every Member of Congress should celebrate these remarkable outcomes which have resulted from Republican leadership on pro-growth policies like tax reform and regulatory rightsizing. But sustaining our economic prosperity also hinges on the Fed- eral Reserve having good policy. The central bank is currently un- dertaking a review of its monetary policy framework to determine the tools it may need in the future. Chairman Powell, I raise the concern that we have regulatory policy that is impinging upon your capacity to make proper mone- tary policy, and that is why I think it is important that you have a regulatory review of the limitations that those regulations can put on your broader monetary policy decisions. That includes sys- temic risk concerns that I have raised, as well as open market op- erations, well, especially the open market operations, and the repo market. I thank you for your prompt response to my questions about the repo market operations, but I am not sure there has been a satis- factory answer as to what caused the market spike in the first place, and that is troubling. I have also voiced my concerns with the transition from the Lon- don Inter-Bank Offered Rate (LIBOR) reference rate. Nine months later, I am still concerned consumers will be impacted by the tran- sition. We still have contracts written to the LIBOR reference rate, and given the recent volatility in the repo markets, I am concerned about the subsequent volatility in consumer-facing products, in- cluding mortgages, auto loans, business loans, and other consumer loans as this new reference rate is derived from secured overnight financing. At previous hearings, I have spoken about the cyber threats posed to our financial institutions and your institution, and China in particular. Yesterday’s news about the Equifax data breach is deeply troubling and is a wake-up call to every single policymaker that we need to take the threat of China and the Chinese com- munist regime quite seriously. If we are not taking them seriously, have no fear, they are taking us very seriously. And now, they have basically all of our data, too. So, the spillover effects of this question of Chinese policy is sig- nificant, not just for cybersecurity, but with what we are seeing with the coronavirus and the destabilizing effects it has on global health. I know you are not a global health expert but you can give us some sense of your measurement techniques in response to these economic changes that are being driven out of the coronovirus challenge in China, and the spillover effects it has on its neighbors and the supply chain as well, that is derived through China. The nature of the Chinese regime may not fit neatly into the Fed’s risk assessments. The Fed has acknowledged, in its Financial Stability Report, that cyber risks don’t fit neatly either. But the VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 4 risks are real. Even though our data is limited coming out of China, and the limited data we have, we question still, we should reflect appropriately upon what we know and how we respond as an American Government and to the Western world in response to these threats, both cyber and health risks, and the spillover effect it has on our economy. Again, Chairman Powell, thank you for being here. Thank you for your openness. Thank you for your approach as Chair of the Federal Reserve, to be in the language of the people rather than simply the language of the PhDs. With that, I yield back. Chairwoman WATERS. I now recognize the Chair of our Sub- committee on National Security, International Development and Monetary Policy, Mr. Cleaver, for one minute. Mr. CLEAVER. Thank you, Madam Chairwoman. Mr. Chairman, first of all, I appreciate very much your willingness to travel around the country to do 14 of those Fed Listens sessions. You held one of them in Kansas City at the Fed building, and I think it is a rare opportunity for most people to get a chance to sit down in a room and discuss economics with the Fed Chairman. So, thank you very much. When you came to Kansas City, people were sitting around the table with you and giving you a picture of their struggles and strifes in trying to make it in the economy, and people were also concerned about inflation. They believe that it is like toothpaste; once it gets out, it is hard to get it back in. So, we are concerned about it, but also appreciative of your work, and I look forward to getting a little further into this as we proceed with the hearing. Thank you, Madam Chairwoman. Chairwoman WATERS. I now recognize the subcommittee ranking member, Mr. Hill, for one minute. Mr. HILL. Thank you, Madam Chairwoman. Chair Powell, thank you for being here today. We appreciate your willingness to come and field our questions and provide your insights. I want to take just a moment and echo the comments of the ranking member on the Community Reinvestment Act. I know this has received a lot of attention. I read Governor Brainard’s very comprehensive view on the topic, and we had Comptroller Otting here recently to discuss the OCC’s point of view. As a former community banker, it is my view that we really should have ultimately one approach to CRA among the financial services regulatory agencies. I have had 40 years of dealing with inconsistency in delivery of regulatory proposals, so I do think ulti- mately, it would be productive for us to have one approach to that regulation and to modernize it for the digital world that we live in today. I look forward to your presentation today, and, Madam Chair- woman, I yield back. Chairwoman WATERS. Thank you. I want to welcome to the com- mittee our distinguished witness, Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System. He has served on the Board of Governors since 2012, and as its Chair since 2017. Mr. Powell has testified before the committee before, and I do not believe he needs any further introduction. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 5 Without objection, your written testimony will be made a part of the record. Mr. Powell, you are now recognized to present your oral testi- mony. STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIR- MAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. POWELL. Thank you very much, Chairwoman Waters, Rank- ing Member McHenry, and members of the committee. I am pleased to present the Federal Reserve’s semiannual Monetary Pol- icy Report. My colleagues and I strongly support the goals of maximum em- ployment and price stability that Congress has set for monetary policy. Congress has given us an important degree of independence to pursue these goals based solely on data and objective analysis. This independence brings with it an obligation to explain clearly how we pursue our goals. Today, I will review the current economic situation before turning to monetary policy. The economic expansion is well into its 11th year, and it is the longest on record. Over the second half of last year, economic activ- ity increased at a moderate pace and the labor market strength- ened further, as the economy appeared resilient to the global headwinds that had intensified last summer. Inflation has been low and stable but has continued to run below the Federal Open Mar- ket Committee’s (FOMC’s) symmetric 2 percent objective. Job gains averaged 200,000 per month in the second half of last year, and an additional 225,000 jobs were added in January. The pace of job gains has remained above what is needed to provide jobs for new workers who entered the labor force, allowing the un- employment rate to move down further over the course of last year. The unemployment rate was 3.6 percent last month and has been near half-century lows for more than a year. Job openings remain plentiful. Employers are increasingly will- ing to hire workers with fewer skills and train them. As a result, the benefits of a strong labor market have become more widely shared. People who live and work in low- and middle-income com- munities are finding new opportunities. Employment gains have been broad-based across all racial and ethnic groups and levels of education. Wages have been rising, particularly for lower-paying jobs. Gross domestic product (GDP) rose at a moderate rate over the second half of last year. Growth in consumer spending moderated toward the end of the year following earlier strong increases, but the fundamentals supporting household spending remain solid. Residential investment turned up in the second half, but business investment and exports were weak, largely reflecting sluggish growth abroad and trade developments. Those same factors weighed on activity at the nation’s factories, whose output declined over the first half of 2019 and has been little changed, on net, since then. The February Monetary Policy Report discusses the recent weakness in manufacturing. Some of the un- certainties around trade have diminished recently, but risks to the outlook remain. In particular, we are closely monitoring the emer- VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 6 gence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy. Inflation ran below the FOMC’s symmetric 2 percent objective throughout 2019. Over the 12 months through December, overall inflation based on the price index for personal consumption expend- itures was 1.6 percent. Core inflation, which excludes volatile food and energy prices, was also 1.6 percent. Over the next few months, we expect inflation to move up closer to 2 percent, as unusually low readings from early 2019 drop out of the 12-month calculation. The nation faces important longer-run challenges. Labor force participation by individuals in their prime working years is at its highest rate in more than a decade. However, it remains lower than in most other advanced economies, and there are troubling labor market disparities across racial and ethnic groups and across regions of the country. In addition, although it is encouraging that productivity growth, the main engine for raising wages and living standards over the longer term, has moved up recently, produc- tivity gains have been subpar throughout this long economic expan- sion. Finding ways to boost labor force participation and produc- tivity growth would benefit Americans and should remain a na- tional priority. I will turn now to monetary policy. Over the second half of 2019, the FOMC shifted to a more accommodative stance of monetary policy to cushion the economy from weaker global growth and trade developments and to promote a faster return of inflation to our symmetric 2 percent objective. We lowered the Federal funds target range at our July, September, and October meetings, bringing the current target range to 11⁄ 2 to 13⁄ 4 percent. At our subsequent meet- ings, with some uncertainties surrounding trade having diminished and amid some signs that global growth may be stabilizing, the Committee left the policy rate unchanged. The FOMC believes that the current stance of monetary policy will support continued economic growth, a strong labor market, and inflation returning to the Committee’s symmetric 2 percent objec- tive. As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of mone- tary policy will likely remain appropriate. Of course, policy is not on a preset course. If developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Taking a longer view, there has been a decline over the past quarter-century in the level of interest rates consistent with stable prices and the economy operating at its full potential. This low in- terest rate environment may limit the ability of central banks to reduce policy interest rates enough to support the economy during a downturn. With this concern in mind, we have been conducting a review of our monetary policy strategy, tools, and communication practices. Public engagement is at the heart of this effort. Through our Fed Listens events, we have been hearing from representatives of con- sumer, labor, business, community, and other groups. The Feb- ruary Monetary Policy Report shares some of what we have learned. The insights we have gained from these events have in- formed our framework discussions, as reported in the minutes of VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 7 our meetings. We will share our conclusions when we finish the re- view, likely around the middle of the year. The current low-interest-rate environment also means that it would be important for fiscal policy to help support the economy if it weakens. Putting the Federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn. A more sustainable Federal budget could also support the economy’s growth over the long term. Finally, I will briefly review our planned technical operations to implement monetary policy. The February Monetary Policy Report provides details of our operations to date. Last October, the FOMC announced a plan to purchase Treasury bills and conduct repo op- erations. These actions have been successful in providing an ample supply of reserves to the banking system and effective control of the Federal funds rate. As our bill purchases continue to build reserves toward levels that maintain ample conditions, we intend to gradually transition away from the active use of repo operations. Also, as reserves reach durably ample levels, we intend to slow our purchases to a pace that will allow our balance sheet to grow in line with trend demand for our liabilities. All of these technical measures support the effi- cient and effective implementation of monetary policy. They are not intended to represent a change in the stance of monetary policy. As always, we stand ready to adjust the details of our technical oper- ations as conditions warrant. Thank you. I look forward to the discussion. [The prepared statement of Chairman Powell can be found on page 58 of the appendix.] Chairwoman WATERS. Thank you. I now recognize myself for 5 minutes for questions. In December of 2019, when the OCC and the FDIC issued a no- tice of proposed rulemaking on Comptroller Otting’s proposal, the Federal Reserve did not join this proposal. FDIC Board Member Martin Gruenberg voted against Comptroller Otting’s proposal, de- scribing it as, ‘‘a deeply misconceived proposal that would fun- damentally undermine and weaken the Community Reinvestment Act.’’ And in remarks last month, Federal Reserve Board Governor Brainard said that, ‘‘Given that reforms to the CRA regulations are likely to set expectations for a few decades, it is more important to get the reforms done right than to do them quickly. That re- quires giving external stakeholders sufficient time and analysis to provide meaningful feedback on a range of options for modernizing the regulations.’’ Chair Powell, Governor Brainard also suggested, in a speech last month, that the Federal Reserve created a database of 6,000 public CRA evaluations, looking at how various CRA investments support low- and moderate-income communities. Has the Fed used this database to evaluate how bank activities would be assessed under the OCC’s and the FDIC’s proposal for CRA? Mr. POWELL. If I understood your question, it was whether we have used our database to evaluate their proposal? Chairwoman WATERS. That is correct. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 8 Mr. POWELL. I am not totally sure we have. Maybe I can provide a little context, if that is appropriate, if I may, which is just that we do agree that this is a good time to update CRA in light of changing technology and demographics, and we agree on the goals. We have put a lot of work into this. We tried hard to get on the same page and weren’t able to do that. We have some different ideas. Chairwoman WATERS. Does the Fed intend to do this assess- ment? Mr. POWELL. Excuse me? Chairwoman WATERS. Do you intend to do the assessment that I referenced regarding the database to evaluate bank activities and how they would be assessed under the OCC’s and FDIC’s proposal for the CRA? Mr. POWELL. The real point of that database was for us to create our own set of metrics. We want to be very, very sure that what comes out of this is a proposal that, from us, will leave all major participants in CRA better off. And so, we think it is important that each metric, each change that we make is grounded in data, and that was the purpose, to help us develop our thinking and our proposals, and that is essentially what we have been using it for. Chairwoman WATERS. Given the magnitude of reform in CRA regulations, do you think the comment period should be extended to allow the public to weigh in on such an important undertaking? Mr. POWELL. That is really a decision for the OCC and the FDIC. Chairwoman WATERS. I know it is their decision, Mr. Powell, but what do you think? Mr. POWELL. I think it is not our role to comment on their pro- posal. We have our own work and our own ideas that we would be happy to share. But it is really up to them to make that decision. Chairwoman WATERS. Are you completing your assessment? Are you continuing to look until you come to a final decision? Mr. POWELL. We are. Chairwoman WATERS. Don’t you think the public should have an opportunity to have more time to do that also? Mr. POWELL. And they will, when the time comes. I think for the time being, what we are doing is we are looking forward to reading the comments on the proposal. I think we will all learn quite a lot from those comments, and we will be able to incorporate that thinking and whatever changes are made to the proposal. There may be substantial changes to the existing proposal coming out of the comments. Our view is that we want something that will leave everybody better off and will have broad support, and that is what we are going to be working on. Chairwoman WATERS. As you may be aware, all of the Democrats on this committee urge regulators to provide a public comment pe- riod of at least 120 days on any major CRA reform, instead of the 60 days that the OCC and the FDIC have provided. Community banks, state regulators, and community groups have called on these agencies to extend the comment period. And even though you said it is not your place to comment on whether or not this should be extended, I wish you would think about this. As you have said, it is important for the public to be able to comment, review what you are thinking, and if you change VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 9 your mind, let us know, about commenting on whether or not we should extend the comment period. You don’t have to respond to that. Thank you very much. The gentleman from North Carolina, Ranking Member McHenry, is recognized for 5 minutes. Mr. MCHENRY. It always is rich, right? When somebody else has a negative comment about the Federal Reserve, that is bad, but when I, as a policymaker on the Hill, have a negative comment about the Fed, it is good, right? So it is all about the eye of the beholder when it comes to the political debate here in Washington. Congress made a decision over 100 years ago to outsource mone- tary policy to the Federal Reserve. You are a construct of law, you are given independent operations, and you have a set term of office. And so, the independence of the Fed for monetary policy is appro- priate and is longstanding. Every President in the last 100 years has had some private criti- cism, and we have found out at some point about that criticism, ei- ther through press reports at the time, or later, in some biog- rapher’s work about the President. But here on the Hill, we can make negative comments about the Fed and attack the President for having negative comments about the Fed. Right? All of this stuff is just rich politics. Let’s get down to the essence of this. You are the biggest regulator in town when it comes to the finan- cial world. I have concerns that I want to address that are regu- latory in nature, that I think impinge upon monetary policy, the repo market, for instance. You said these operations are temporary in nature. Is that still true? Mr. POWELL. Yes. Our expectation is that we will continue our bill purchases at least into the second quarter, and continue repo operations at least into April. Mr. MCHENRY. Into April. Mr. POWELL. The sense of that is, though, that we are building up a level of reserves to a level that will mean that we don’t have to be involved in open market operations on an ongoing basis, and that is going to take that period of time. And as the underlying level of reserves rises due to our bill purchases, the need for repo will decline, and sometime around the middle of the year we will reach that level of ample reserves, and from that point forward the balance sheet will grow at trend demand for our liabilities, and will continue to expand with the economy. Mr. MCHENRY. Are you doing a review on your capital require- ments for financial institutions that should be participating in the repo market? Mr. POWELL. I think we have reviewed supervisory and regu- latory practices that may be affecting the flow of liquidity. Our main focus, of course, is the Federal funds market, and our ability to transmit our policy decisions smoothly into the money markets through the Federal funds rate. What happened last September, in early September, was that there was unusual tightness and vola- tility, and we attribute that to the fact that what appeared to be ample levels of liquidity didn’t flow where they might have. And so, we are really doing 2 things. One, we are raising the un- derlying level of liquidity, by raising reserves to a level that is VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 10 higher than we had thought we needed, and that process, as I men- tioned, will take until the middle of the year— Mr. MCHENRY. So, part of that is a supervisory assessment as well, to make sure that the policy is being driven in terms of the institutions? Mr. POWELL. That is right. Mr. MCHENRY. Okay. Mr. POWELL. We have been doing that since September. Mr. MCHENRY. I raised this in my opening statement, about China. You have spoken publicly about your assessment, your thinking as you see what is happening with China’s response to the coronavirus. We wish them well. We have high hopes that they are going to be able to tackle this crisis, this public health crisis they are facing. But walk me through your thinking in assessing the situation in China now, in terms of the economics, and that potential spillover effect. Mr. POWELL. I will just quickly start by saying again that we find the U.S. economy to be in a very good place, performing well. We see signs of global growth bottoming out. We see reduced trade policy uncertainty. Overall, in the background, we see strong job creation. All of this happens in the context of a good, strong U.S. economy. And into that picture comes the coronavirus, and so the question is, what do we think about that? Of course, first, we observe the human tragedy, which is terrible to watch. But the question for us really is, what will be the effects on the U.S. economy? Will they be persistent? Will they be material? That is really the question. I think we know there will be effects on China, through some part of the first half of the year, and China’s close neighbors and major trading partners in Europe as well as Asia, and we know that there will likely be some effects on the United States. I think it is just too early to say. We have to resist the temptation to spec- ulate on this. And so, we will be watching that carefully, again, and the question we will be asking is, will these be persistent ef- fects that could lead to a material reassessment of the outlook? Mr. MCHENRY. So, a question of length, length of time, and whether or not this is a temporary disruption? Mr. POWELL. Yes. Mr. MCHENRY. Thank you. Chairwoman WATERS. The gentlewoman from New York, Ms. Velazquez, is recognized for 5 minutes. Ms. VELAZQUEZ. Thank you, Madam Chairwoman. Chairman Powell, I would like to follow up on Chairwoman Waters’ question on CRA. What aspects of the proposed changes to the CRA do you find most troubling? Mr. POWELL. Again, what I would like to do, if I may, is not so much comment directly on the other proposal but talk about how we are looking at this. And I will mention the areas in which we have differences. Ms. VELAZQUEZ. Okay. I hear that. I hear you and I respect it. But I would just like to ask you, if the Fed is unable to reach an agreement with the OCC and the FDIC on a joint rule, do you ex- pect the Fed to issue its own proposal? VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 11 Mr. POWELL. We haven’t made a decision on that yet. Right now, our focus has been on trying to get on the same page. We haven’t been able to do that. Now, our focus is going to be on learning from the process, and I think we will learn a lot. Ms. VELAZQUEZ. Are you meeting regularly with the OCC and the FDIC on this issue? Mr. POWELL. We did for a long time. We are not currently meet- ing with them on this— Ms. VELAZQUEZ. Would you agree with Governor Brainard’s com- ment that it is more important to get the rule right than to do it quickly? Mr. POWELL. Yes. I think that has been our approach and will continue to be. Ms. VELAZQUEZ. Thank you. Chairman Powell, as you know, Rep- resentative Porter and I have been concerned by banks’ growing re- liance on cloud-based service providers for data storage needs. Does the Fed have all the access authority it needs, or are there any con- tractual or legal limitations restricting the Fed’s ability to obtain the data held by third parties that it needs to properly understand and manage this growing reliance? Mr. POWELL. I think we do have the legal authority that we need. We are able to look into third-party service providers, and we are doing that more and more because of, as you mentioned, the prominence and size of the growing importance of these cloud serv- ice providers. Ms. VELAZQUEZ. Thank you. I yield back. Chairwoman WATERS. The gentlewoman from Missouri, Mrs. Wagner, is recognized for 5 minutes. Mrs. WAGNER. I thank the chairwoman, and thank you for being here, Chairman Powell. We are all very interested, since it just happened on January 29th, despite the repo spike. I know the ranking member mentioned it. I know you are in the middle of your review and such. I have a little more specific question: Could this repo market turmoil be symptomatic of deeper difficulties for the financial system? Mr. POWELL. It doesn’t appear to be at all. Since we took the measures we took in early September, repo markets and money markets have been functioning very smoothly. There hasn’t been a return to the volatility. They are functioning very normal, really, including over year-end. So, we haven’t had any return to that. It is pretty clear that the measures that we took directly addressed the problem. When the medicine is working, you can really see, and it seems to be working well here. Mrs. WAGNER. And we had a confluence of things happening just, I know, at that time, with the quarterly Federal taxes due along with the Treasury auction of debt, of upwards of over, I think $78 billion, wasn’t it? Mr. POWELL. Yes. Mrs. WAGNER. Do you think that was a function of perhaps this fluke, would you call it? Mr. POWELL. We knew all that, though. The thing is, we knew that. And what we had done is, we had asked banks to tell us, what is your lowest comfortable level of reserves? Mrs. WAGNER. Right. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 12 Mr. POWELL. We got those numbers and we added them up and we put a buffer on top of it, and it still suggested that there was plenty of reserves in the system. And this happened, and I think that makes us think, because we knew about those big— Mrs. WAGNER. Right. Those are definitely on the horizon. And when you are doing your review, I hope that you will find that there isn’t anything symptomatic of some deeper difficulties, and we look forward to that. Turning the page, Chairman Powell, in December of last year I asked Vice Chairman Quarles for an update on the status of updat- ing the global systemically important bank (G–SIB) surcharge and plans for finalizing the stress capital buffer proposal, which I un- derstand will require a reproposal with a comment period. In January, Vice Chairman Quarles delivered a speech where he spoke about bringing, ‘‘reasonable transparency to several aspects of the Federal Reserve’s supervisory and regulatory framework.’’ Last week, the Fed released the CCAR stress test scenarios. To my knowledge, there has been no progress or update on the status of the stress capital buffer, apart from continued assertions by you and Vice Chair Quarles that aspects of the proposal will be incor- porated in the 2020 CCARs. Given the acknowledgement by principals at the Fed of the im- portance of transparency, I guess I am concerned about the lack of transparency in this process. When can we expect progress on this proposal that has been in process now, I think since April of 2018? Mr. POWELL. We do continue to expect and intend that the core of the stress capital buffer will be incorporated into the framework in time for the 2020 stress test. So, we are moving along on that and we are on track to do that. Mrs. WAGNER. You do feel on track to do that, then? Mr. POWELL. Yes. Mrs. WAGNER. Okay. Committee Republicans have underlined the importance of cyber threats as a potential systemic risk. We have recently seen malware attacks undermine government infra- structure, and according to research last month by economists at the New York Fed, a simulated cyber attack on just one major U.S. bank could have spillover effects impacting 38 percent of the whole- sale payments ne2rk. What can the U.S. do better, Chairman Powell, in order to prioritize this constant flow of cyber risks and strengthen the resil- ience of our financial sector? Mr. POWELL. I think we can keep, and have to keep doing what we are doing, which is to make this really a top, if not the top su- pervisory priority, not just for the banks but for the Fed and for institutions across the American landscape. We have very high ex- pectations, particularly of the largest banks, on their ability to fend off cyber attacks. We are constantly meeting inside the government to make sure that our system is resilient and redundant and strong against cyber attacks. But there is never a feeling that you have gotten to a place of comfort on that. We just have to keep working, and it is staying in the minute, learning what the new attacks are, making sure that the banks are doing basic housekeeping, and all of that is very VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 13 much ingrained, and we will just have to keep at it, I think, for a long time. Mrs. WAGNER. Thank you. My time has expired. Thank you so much for being here again, Chairman Powell, and I yield back. Chairwoman WATERS. The gentleman from California, Mr. Sher- man, who is also the Chair of our Subcommittee on Investor Pro- tection, Entrepreneurship, and Capital Markets, is now recognized for 5 minutes. Mr. SHERMAN. I have a couple of responses to what the ranking member had to say. Yes, the stock market is way up. Wages are up a bit more than 1 percent in real terms, after inflation. Wages at the bottom have risen, chiefly in those States where we raised the minimum wage. And when we have a Democratic Majority in both Houses, we will raise the minimum wage nationwide and deal effectively with those States that have not seen such an expansion of wages at the bottom. I have grown, not quite old, but I have spent many decades in this room. I have seen your predecessors. And every time they come in, and the Republicans attack them for expansionary mone- tary policy, both traditional and newfangled. And now, we have a new President, and all of a sudden, they are pushing on the other side. All I will say is that I have consistently, from the days of Mr. Greenspan, been pushing for somewhat lower interest rates and an expansionary policy, particularly quantitative easing, because you returned $55 billion to the Treasury last year, and that is, I know, not your purpose, but think of the kids who will get an education because we could fund aid to local education. Think of the medical research and the lives that will be saved because we were able to fund medical research. I don’t think the $55 billion should be re- garded as an irrelevancy or an embarrassment. And finally, as to the jobs growth we have seen recently, I do need to point out the jobs grew much faster in the last 3 years of the Obama Administration than the first 3 years of the Trump Ad- ministration. It is as if Trump inherited a plane, as he inherited so much else, the plane was on automatic pilot, and it was going in the right direction, and he hasn’t managed to completely screw it up. We have an issue that I think ought to be completely bipartisan, and that is LIBOR. It is going to hit us in a couple of years. Chair- man Powell, should Congress simply give the Fed the right to pre- scribe backup rates when the debt instruments do not do so, or should we adopt the Secured Overnight Financing Rate (SOFR), or what can we do, and hopefully do this year, and actually solve the problem 12 months in advance? Mr. POWELL. On LIBOR, as you know, our process is ongoing and we are really committed to having the banks ready by the end of next year to switch over, away from LIBOR in case it is no longer published. That date is— Mr. SHERMAN. They need to know legally what to switch over to and we want to avoid the multi-billion-dollar lawsuits when some- body can say, it should be this instead of that. They not only have to have the technology to make the switch, they have to know le- gally what they are supposed to do. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 14 Mr. POWELL. If we need a Federal law change, we will let you know. Mr. SHERMAN. You have less than 2 years. Have you figured out whether you need a Federal law change, or— Mr. POWELL. I don’t think that we think we need a Federal law change. Mr. SHERMAN. If you could get us an answer, because there are people who want to wait around until 2 or 3 months before things blow up and then come to Congress and say, ‘‘Now, fix it.’’ Two years is actually too short a time, because we are empowering the economy today because you and I are talking about this, and there is this slight risk out there of litigation and uncertainty with re- gard to legacy LIBOR, and we ought to take that off. That is one of the things we can do to help the economy. So, I hope that you will act within a month to let us know what you propose, rather than wait until next year. Another area that we have talked about before is the wire trans- fer system. We have seen $150 million lost to scams, and those scams arise chiefly because when you wire money, you do so to a number but there is no payee identified. The British have gone to a confirmation of payee system. The International Standards Orga- nization has prescribed changes that would require at least identi- fication of payee. We don’t. I know you have raised issues of State law. I have analyzed it. I can’t see what would prevent the Fed from prescribing what the wire transfer system would be. And it looks like I will have to ask you to get back promptly for the record on that question. Chairwoman WATERS. The witness is requested to provide an an- swer in writing for the record. The gentleman from Oklahoma, Mr. Lucas, is recognized for 5 minutes. Mr. LUCAS. Thank you, Madam Chairwoman. Chairman Powell, during your testimony before the Joint Economic Committee last year, you were asked about what steps the Federal Reserve is tak- ing to assess the impacts of climate change on our financial system. In your testimony, you made the distinction between the purely in- formative stress test for climate risk that the Bank of England does and what the U.S. stress testing regime under CCAR does, which is impact and inform capital requirements for capital distributions. My understanding is the Bank of England is conducting research and asking financial institutions to think through their portfolios and how they could be impacted, but they are not currently inte- grating those measures in the capital requirements. Would you out- line some of what the Fed is doing in terms of research and en- gagement on global climate risk? Mr. POWELL. Sure. I should begin by saying that climate change is a very important issue that Congress has largely assigned to other agencies. It does play into our work, however, as it relates to the public’s very reasonable expectation that we would make sure that the financial sector of the banks and the utilities that we supervise are resilient against the longer-term risks from climate change. We are in the very early days of understanding what all that means. And there is work going on around the world at central VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 15 banks to try to figure that out. You talked about the Bank of Eng- land stress tests. Those are not intended to inform current capital requirements, but more to understand what might be the effects on banks from climate change. Mr. LUCAS. Are you planning on joining the Ne2rk for Greening the Financial System? Mr. POWELL. We haven’t made a decision about that. We have always attended their meetings. I guess my theory is when you join an organization like that, you are not necessarily signing up for ev- erything that everybody there believes. You can benefit from the work that is being done there, and we are kind of doing that now. We have not made a decision about membership. Mr. LUCAS. Vice Chairman Quarles recently outlined changes that would increase supervision transparency and accountability, and I was encouraged by those comments and will be following this closely, of course. One change the Vice Chairman outlined is that the Federal Reserve should restore supervisory observations which will allow notice of a supervisory concern without it rising to the level of a matter requiring attention. Can you tell us what the timeline is that you see on those proposals to improve supervision? Mr. POWELL. The timeline is hard to say. I would just say that what the Vice Chair did was he pointed to this tension that exists between very fundamental expectations and due process, trans- parency, and fairness around everything the government does, and should be associated with that, but also with supervision, which, by its nature, is private and somewhat discretionary, nonpublic, and confidential, really. He pointed out that tension and the need to shed more light on that and to ask whether there are places where supervision needs to incorporate more of that due process. I think that is a very healthy thing to think about and it is something we will be work- ing on. Mr. LUCAS. In light of the coronavirus, Chairman, I can’t help but think about, as a young man, as a boy, I spent a lot of time around my grandparents, and my great-aunts and great-uncles. They were born just after the previous century, so their tales of first-hand experience in the pandemic of 1918 and 1919 were very graphic, as it rolled through rural western Oklahoma. And the reason I bring this up is their description of that par- ticular virus, at that particular time, in that particular rural soci- ety was literally—it brought everything to a stop for weeks in rural western Oklahoma. My mother’s family and my father’s family were very fortunate. No one died from what was called the Spanish flu, but it brought society to a stop. The reason I ask that is, with 43,000 cases worldwide, and the critical impact in China, could you describe for a moment how China and its neighboring countries are responding to the economic impact of coronavirus, in general, and from the perspective of your fellow central bankers in those countries? Mr. POWELL. I think they are really responding now to the out- break and containing it, and the Chinese government has obviously taken very strong measures on that. You see businesses closing down in the affected areas. You see that sort of thing. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 16 In terms of the economy, as you asked, the People’s Bank of China has done a number of things to support economic activity, and I think you can expect the Chinese government to do lots of things to support economic activity, and they have said that they are open to cushioning the economic effects. We are not able yet to estimate the size of the economic effects. There are many estimates out there, but I think you will see governments acting in Asia, par- ticularly in China, to offset those. Mr. LUCAS. Thank you, Mr. Chairman. I yield back, Madam Chairwoman. Chairwoman WATERS. The gentleman from New York, Mr. Meeks, who is also the Chair of our Subcommittee on Consumer Protection and Financial Institutions, is recognized for 5 minutes. Mr. MEEKS. Thank you, Madam Chairwoman. Welcome, Mr. Chairman. Let me touch quickly, initially, on asymmetrical growth. It has been discussed at length in my community and others that 40 per- cent of Americans don’t have adequate savings for a $400 emer- gency, and similarly, one in five Americans skips essential health care or fails to pay important monthly bills due to the lack of funds. Finally, a large share of the population is also underbanked or unbanked, and we have talked about that a lot in the sub- committee which I Chair. My first question to you is, why haven’t circumstances improved for low- and moderate-income Americans more rapidly in the past few years, given the so-called state of the economy? Mr. POWELL. The pattern was that at the beginning, it was more people who had just left the labor force, perhaps made it right back in. What we really have seen, though, in the last 2 or 3 years has been wages moving up the most at the bottom end of the wage scale. So, we do see, during this very long expansion, significant ef- fects now in low- and moderate-income communities, and it is great to see. As I mentioned, with our Fed Listens events, we have been hearing quite a lot about that. So, that is very positive. More to your point, though, waiting for the 9th, 10th, and 11th year of an expansion isn’t really a strategy. We do see those things now because the labor market is strong. But really, we need other programs to address the longer-run needs of those communities other than just the business cycle and monetary policies. Mr. MEEKS. During this period of time, would you say that—a number of us have been arguing, and finally we are moving toward a $15-an-hour minimum wage for individuals on the bottom. Would you think that has something to do with helping them also, the fact that many States have adopted a $15, or a higher minimum wage than what had been put in place? Mr. POWELL. I will answer your question directly. Let me first say, though, that we, of course, don’t take a position on the min- imum wage. That is a classic tradeoff that legislatures have to— Mr. MEEKS. I understand. Mr. POWELL. The research on exactly what is driving up wages at the lower end does suggest that there is a role there for the min- imum wage increases. States that have had minimum wage in- creases have seen—there is a noticeably higher increase. But real- ly, it is much broader than that, and the bigger factor just is very VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 17 low unemployment and a strong labor market, high job creation. That is the main driver. Mr. MEEKS. The other concern that I have, because it also seems as though, as unemployment goes lower, et cetera, it still, when you look at Black unemployment, it still remains nearly double that of white unemployment. And it seems to stay that way where the cycles are a down cycle or an up cycle. Are there any signs of how we close those gaps, because there are always these gaps that seem to happen between the African-American community and whites, where it is a good economy but the gap stays the same. Mr. POWELL. There are persistent gaps and they are very trou- bling, and they are not, in the long run, something that monetary policy can address. It really is up to other policies, by governments, State and local governments, the Federal Government, and frankly businesses, to do what they can to close that gap. What we have is an interest rate tool, and what we can do is support the goals you have given us: maximum employment; and stable prices. We see positive effects from that. But over the longer run, broader poli- cies of education and other things would help with that issue. Mr. MEEKS. Thank you. Let me ask, I know Chairwoman Waters asked some questions on CRA. There were some questions that came up that maybe you can answer. The framework that was put forward by Governor Brainard not too long ago, is that the same framework of the Federal Reserve Board? There are some saying it is just her opinion and it is not that of the Board. Maybe you can clear it up. Does the Board see similarly as Governor Brainard? Mr. POWELL. We actually haven’t taken a proposal to the Board yet, but no, that represents the thinking—she has been working on this; I asked her to lead this effort for us. She has been the head of that committee for some time. I am very comfortable with the thinking that is in that speech, and I support that set of ideas and that approach. But it is not at a place where we can say, this is a proposal from the Fed, because we haven’t taken it to the Board yet. Mr. MEEKS. Thank you. Chairwoman WATERS. The gentleman from Florida, Mr. Posey, is recognized for 5 minutes. Mr. POSEY. Thank you, Madam Chairwoman. Mr. Chairman, the world is experiencing dramatic growth in the space economy, and many are marveling, actually, at the expansion of civilian space launches. I represent the Kennedy Space Center, and obviously we are really excited about all that. Several estimates put the current level of global space economy at well over $400 billion a year, with a growth rate of 8 percent from 2018 to 2019. In December, the Bureau of Economic Analysis announced the creation of a Space Economy Satellite Account, a new collaborative effort to measure the relative importance of the space sector on the U.S. economy, with a special emphasis on the growing commercial space segment. This effort will use input from industry experts, and multiple government agencies, obviously. I recall, over the years, that the Atlanta Fed has applied its expertise to report on the economy of the space district. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 18 First question, can you work with me to ensure that the Federal Reserve joins this multiagency effort with an eye to avoiding finan- cial bottlenecks and keeping this important space industry on a path to a healthy growth rate? Mr. POWELL. It is the first I am hearing about it, but I am happy to assure you that we will take a close look at that, and if it is something that would be productive, we would take part in it. Mr. POSEY. Great. Over the years, we have developed a rather expansive policy of Federal Reserve independence, and I believe in ensuring the freedom of the Fed to act independently on a day-to- day basis to manage our economy and the critical payment system. I would not expect a Member of Congress or other officer of govern- ment to insert himself or herself into a decision by the Federal Re- serve Chair, the Board, the Open Market Committee, or the Fed monetary policy entity. Congress does not direct day-to-day mone- tary policy, and Congress also does not direct generals on battle- fields, nor should we. However, the U.S. Government Accountability Office (GAO) rou- tinely conducts policy audits of defense policy and strategy, yet the GAO is restricted from conducting policy audits on the Federal Re- serve. I am challenged to understand how policy audits of critical national defense strategy is okay but policy audits of the Fed are off limits. The defense industry is at least as sensitive as monetary policy, and I would like your thoughts on that. Mr. POWELL. Sure. GAO doesn’t do policy audits on the Fed con- stantly, all over the place at the Fed, just with one exception, and that is our specific monetary policy function. Congress chose, long ago, to create one step of distance away from the GAO in order to underline our independence. I think that was a wise move. I think changing that would clearly be seen by the public as a diminution of our independence. We do look to this committee and to the equivalent committee on the Senate side for oversight on monetary policy in our system of government. Our road to oversight and transparency runs right through this committee and the Senate Banking Committee, as well. Anyway, that is what I would tell you about the GAO. Mr. POSEY. What do you think makes the Fed more immune to review than Defense? What is the rationale behind that, do you think? Mr. POWELL. Again, everything we do, on payments and financial regulation, every single thing we do is subject to GAO audit. These are policy audits. It is not like a financial audit. The public should understand that we are audited. Our business model is actually about as simple as that, as a very small, not complicated, and we are constantly audited. What this exemption does is it prevents the GAO from coming in and looking at and assessing individual monetary policy deci- sion, which Congress saw fit, you saw fit, your Congress saw fit to carve out of the law. And again, I think it was an appropriate thing to do, and I think it would be unwise to take a step back from that. I don’t see any harm that it is doing. Mr. POSEY. The former Chairpersons of the Fed have indicated they simply did not want to be second-guessed on their decisions, VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 19 that the public really doesn’t have a right to know. I find that il- logical, quite frankly, and that is why I asked you these questions. Mr. POWELL. We are very transparent. We publish minutes. We publish transcripts. Mr. POSEY. I know. ‘‘We publish everything.’’ Mr. POWELL. We are not hiding anything. Mr. POSEY. We publish everything ‘‘but’’—I think that the ‘‘but’’ exemption is overdue. Chairwoman WATERS. The gentleman from Missouri, Mr. Clay, who is also the Chair of our Subcommittee on Housing, Community Development, and Insurance, is recognized for 5 minutes. Mr. CLAY. Thank you, Madam Chairwoman, and thank you, Chairman Powell, for being here today. For most of the constituents in my Congressional district, they are not focused on the dial maintained in the 30,000 level but sim- ply trying to make ends meet. In fact, the St. Louis Fed, in an essay, as part of this Demographics of Wealth series, examined the connection between race or ethnicity and wealth accumulation over the past quarter century. It was the result of an analysis of data collected between 1989 and 2013. Through the Federal Reserve Survey of Consumer Finances, more than 40,000 heads of house- holds were interviewed over those years. Median Hispanic and Black wealth levels are about 90 percent lower than the median white wealth level, yet median income lev- els of Hispanics and Blacks are only 40 percent lower. The larger ratio wealth gap could be due to Hispanics and Blacks investing in low-return assets like housing, as well as borrowing at higher in- terest rates. Hispanics and Blacks could also feel less of a need to save for the future, because society’s progressive old-age safety net programs will replace a relatively larger share of the normal in- comes they earn during their working years. Could you comment on why many communities continue to lag and how the Fed, via its monetary policy, might seek to address some of the underlying factors that have led to gross inequality? Mr. POWELL. What we can do, and what we have been doing, is to take seriously your order to us to seek maximum employment, and that is what we are doing. And I think we just learned, be- cause we have been watching what has been happening, that un- employment can be lower than many had expected, without raising inflationary or other concerns. So, that is what we can do, and we will continue to do, and I think that is showing up in communities everywhere. I think other governmental and other tools are nec- essary to address longer-run problems, though. Mr. CLAY. Such as, how do we address the pay inequity? How do we impress upon corporate America that it does this country no good to have a persistent pay inequity among its workers, espe- cially when you look at the disparities in the races and the pay in- equity? Mr. POWELL. I will say that I think it is important that those issues be addressed. It is really not for the Fed to prescribe the measures to address them. We need to stay in our lane. We do have this grant of independence, including the GAO exemption, and I think to keep that, we need to stay within what you have VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 20 given us to do, which is maximum limits, stable prices, supervise the banks, look after the financial space. Mr. CLAY. On another subject, will the Federal Reserve release its own proposal on the Community Reinvestment Act, one that takes into account the needs of low- and moderate-income commu- nities? Mr. POWELL. We haven’t made a decision on that yet. I think our focus right now is on the ongoing process of the other agencies’ pro- posal and the comments. I think we are going to learn a lot from those comments, and I suspect there will be changes to that pro- posal coming out of the comments. So, we have not made a decision about our own proposal. Mr. CLAY. Traditional monetary policy works through a single economy-wide variable, a single interest rate, or perhaps the money supply of growth of credit. Credit policy, by contrast, aims at di- recting credit in specific forms towards specific groups of borrowers. Credit policy consists of a central bank operation targeting specific segments of the private debt and security market. What is your view of shifting from traditional monetary theory to one that involves the use of more tools in order to enhance bor- rowing to segments of society? Mr. POWELL. I think that has historically not been a function of the Fed and of central banks generally. We have, as you pointed out, one tool, which is our interest rate policy. When you are talk- ing about affecting different sectors of the business community or of the population, that really should be another agency or Congress itself in fiscal policy, rather than— Chairwoman WATERS. The witness is requested to provide an an- swer in writing for the record. Mr. CLAY. My time is up. I yield back. Thank you. Chairwoman WATERS. The gentleman from Missouri, Mr. Luetke- meyer, is recognized for 5 minutes. Mr. LUETKEMEYER. Thank you, Madam Chairwoman, and wel- come, Chairman Powell. It is always good to see you, sir. I am sure you saw the speech and probably read or heard the speech by Vice Chairman Quarles on the need to reform banking supervision. One area I think needs clarity in the supervision re- gime is the role of guidance. I pushed regulators to clarify the use of guidance, and in 2018 they came out with an interagency state- ment on guidance. However, Vice Chairman Quarles, in his speech, urged an additional step, doing a rulemaking of the role of guid- ance. This fits with the Trump Administration’s recent actions out of the Office of Management and Budget (OMB). My question is, do you believe we need an official rulemaking out of the Fed on the role of guidance? Mr. POWELL. We have not made a decision on that. Like the other agencies, we are evaluating the OMB memo. As you know, guidance is not enforceable, and so we do understand that. Guid- ance is not a rule. Mr. LUETKEMEYER. When Mr. Quarles was here recently, I think he made the comment that he intended to look at all the guidance and separate out what he believed needed to be under rule and the rest of it then be clarified as strictly guidance. I think that is a great approach, but the question is, do you anticipate a rule to be VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 21 able to do that and enforce that in the future? Are you looking at trying to do that? Mr. POWELL. That is something we are looking at, and we are looking at our guidance and asking if some of it is more like a rule. Mr. LUETKEMEYER. Okay. Mr. Quarles also discussed how regula- tions have a framework under the Administrative Procedure Act (APA), but there is no real framework for supervision, and he used the Large Institution Supervision Coordinating Committee (LISCC) as an example of supervision that was conducted without appro- priate oversight and does not have specific guardrails. In fact, the GAO said this should have been conducted as a rulemaking. Do you believe we need to change LISCC, and what should we do to the firms that are already under this regime? Mr. POWELL. I would agree that it is appropriate that we draw brighter lines around LISCC membership, and as Vice Chair Quarles mentioned in his speech recently, that is the path we are on. Mr. LUETKEMEYER. Okay. Very good. Something that is kind of concerning to me is the fact that we have a lot of banks and nonbanks that are in the home mortgage lending space. Nonbanks, in general, were lending roughly $250 billion in 2016. This next year, it is anticipated to triple, to $750 billion. In 2019, nonbanks originated 85 percent of all loans sold into securitization guaran- teed by Ginnie Mae, 53 percent of loans sold to Freddie Mac, and 60 percent of the loans sold to Fannie Mae. And nonbank mort- gages make up 87 percent of the Federal Housing Administration’s (FHA’s) portfolio. In the most recent Financial Stability Oversight Council (FSOC) report, nonbank mortgage originators were designated as a poten- tial systemic risk. You are a member of FSOC. Can you explain that, or would you like to talk about that a little bit? Mr. POWELL. Sure. Mr. LUETKEMEYER. And do you have any concerns over that? Ob- viously, FSOC did. Mr. POWELL. As you mentioned, we have looked at that at FSOC, and I believe it was part of the recent annual report, the thought being that these are now very, very important channels through which mortgages are originated. And in the case of a downturn, the banks have high capital, they have lots of regulation, lots of liquid- ity, and that is in a good place. But these institutions are some- times funding themselves with credit lines, which might not be available. So, there is risk there, and we are in the process of as- sessing that and determining what to do about it. Mr. LUETKEMEYER. Do you have a timetable on that? Mr. POWELL. We have highlighted it as a risk, and we are doing work on it. Mr. LUETKEMEYER. Do you have a timetable on when you might come out with a statement and say what you will or will not do, and if you want to do something, what it might be? Mr. POWELL. I can get back to you on that. This is something that the Treasury has the lead on. Mr. LUETKEMEYER. Okay. Very good. One of the things that con- cerns me a little bit also, with regards to home lending, is just the stack of forms you have to go through. We had a gentleman here VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 22 who represented, it was actually a credit union at the time, but the stack was literally ‘‘this tall.’’ And I asked him how many pages were in there and he said, ‘‘Congressman, we don’t measure by the page. We measure by the pound.’’ And I said that this is how off the charts we have gotten, when you have a stack of papers ‘‘this tall’’ to do a home loan. I have talked to the FDIC and the CFPB, and hopefully we can engage you in a way to kind of reduce that down to where it is manageable, but there are protections in there for the consumer when he or she signs for a loan, and there is enough information that allows the bank and the regulators to see it. But this has to change. This can’t continue to grow. This is crazy. Do you have an opinion on that? Mr. POWELL. A lot of that stuff is legally mandated by Federal or State law. Mr. LUETKEMEYER. I realize that. Mr. POWELL. To the extent it is not, then we do try to make as- sessments about what is necessary and what is not. But it is a big challenge, I would agree. Mr. LUETKEMEYER. Thank you. I just want to note for the record that I did not ask a question about Current Expected Credit Losses (CECL) today. Thank you very much, Mr. Powell. [laughter] Chairwoman WATERS. The gentleman yields back. The gen- tleman from Georgia, Mr. Scott, is recognized for 5 minutes. Mr. SCOTT. Welcome, Chairman Powell. It’s good to have you here. Chairman Powell, concerning LIBOR, the Alternative Reference Rates Committee (ARRC) is pursuing, in New York, legislation to address legacy contracts in New York State. Would the Fed support Federal action in that regard? Mr. POWELL. Mr. Scott, actually, it is some members of the ARRC. The Alternative Reference Rates Committee itself is not seeking legislation, but some members have approached the New York Legislature. In terms of the need for Federal legislation, we have not reached a point where we think it is going to be necessary. We have no plans to do that. If we do believe that Federal legislation is nec- essary, we will come tell you, and by the way, we understand that that is not something you can do in 24 hours. So, we know that the time for that is soon. Mr. SCOTT. Very good. Let’s move over to Great Britain for a mo- ment. The UK regulators have been very direct with their financial institutions, and they recently established a goal for their institu- tions to cease LIBOR-based lending by the third quarter of 2020. Why has the Fed not been so direct, and do you have plans to set codes and guidelines for your regulated institutions? Mr. POWELL. Yes. We will do that at some point. You may have seen that Fannie Mae and Freddie Mac have said that they won’t accept LIBOR-referencing mortgages after some point later this year. So, that sort of thing will begin to happen now, I think well in advance of the deadline, which is the end of 2021. Mr. SCOTT. Okay. And Chairman Powell, your Fed Board re- cently finalized its rule on tailoring the hopes of providing more VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 23 clear and well-defined risk indicators to determine the regulatory requirements that are placed on firms based on their size and risk. But the Board has never disclosed nor provided clear and quan- titative criteria under which firms are placed under its enhanced supervisory regime, the Large Institution Supervision Coordinating Committee (LISCC). And even your Vice Chairman, Mr. Quarles, recently gave a speech where he said this. He said that he would like to align that portfolio with the tailoring categories and make the designation criteria transparent. And you even recently indi- cated you agreed on the need for brighter lines. Could you outline what changes the Board is considering making in this supervisory framework? Mr. POWELL. We are just in the process of working out the spe- cifics, but I would agree that we should provide more clarity around what is a LISCC firm, and that is really going to be the Category One firms— Mr. SCOTT. Thank you. Now, you are a great man and a good friend. I respect you tremendously. But Chairman Powell, the Fed is the axle of our financial system. You are the most powerful regu- lator. And I want you to stand back up to Comptroller Otting on this business of him coming with this rulemaking change to the Community Reinvestment Act. Let him know that you not only have a mandate for inflationary monetary policy, you have a dual mandate which includes employment, jobs. And here is the other thing: You need to remind Comptroller Otting that this piece of legislation, this law, the Community Rein- vestment Act, is precious to the nation, but is precious to African Americans more than anybody. Because it wasn’t the Civil Rights Act, it wasn’t the Voting Rights Act, that dealt with the big issue facing African Americans: Financial stability. The 2 anchors for fi- nancial stability are owning a home, and having a job. And this bill was the bill that outlawed redlining, which kept African Americans out. He needs to back off of that. You need to assume your power in this, and let him know we are serious, and to back off this rule change. Chairwoman WATERS. The gentleman from Ohio, Mr. Stivers, is recognized for 5 minutes. Mr. STIVERS. Thank you, Madam Chairwoman. I appreciate you holding this hearing. Good morning, Mr. Chairman. How are you doing today? Mr. POWELL. Great, thanks. Mr. STIVERS. Great. Thanks for being here. I want to do some yes-or-no questions. You covered them in your testimony, but just to remind everybody, the labor participation rate is now 83.1 per- cent, which has increased in the last 3 years. Is that correct? Mr. POWELL. I think that is prime age. Mr. STIVERS. Sorry. Prime age. That is the prime-age adults. Sorry. Yes. Has it increased or decreased in the last 3 years? Mr. POWELL. I believe it has, yes. Mr. STIVERS. And wage growth has outpaced inflation for work- ers in the last 3 years. Well, at least, it is currently outpacing infla- tion, correct? Mr. POWELL. Yes, it is. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 24 Mr. STIVERS. And wage growth has actually gone up by about 3 percent in the last few quarters, on an annualized rate. Is that cor- rect? Mr. POWELL. Over the last few years, if you look at a range of measures, then you would see wages moving up at about 3 percent. Mr. STIVERS. And we have record low unemployment rates for Af- rican Americans and Hispanics. Is that correct? Mr. POWELL. That is correct. Mr. STIVERS. So, the fundamentals of the economy are in pretty good shape. Would you say that is correct? Mr. POWELL. I would, and I did. Mr. STIVERS. And you did. Thank you for that testimony. Your colleague at the Atlanta Fed stated recently that, ‘‘an eco- nomic expansion does not die of old age.’’ I think that is a great quote. Given that the fundamentals of the economy are strong, do you think many businesses and investors are trying to talk them- selves into a recession? Mr. POWELL. I don’t think so, and I certainly hope not. There is no reason why the expansion can’t continue. There is nothing about this expansion that is unstable or unsustainable. Mr. STIVERS. Great. I think the fundamentals are strong, but I think a lot of people are worried, and I hope that they don’t talk themselves into a recession. I agree with you on that. Given that about two-thirds of all lending in capital formation oc- curs in the capital markets, I am curious to hear what the Federal Reserve is doing to actually coordinate with the Securities and Ex- change Commission (SEC) and the Commodity Futures Trading Commission (CFTC) as prudential regulators for the capital mar- kets, to make sure that there is actual coordination on the capital markets. Mr. POWELL. The SEC and the CFTC really have primary regu- latory authority for those markets, and we have supervisory regu- latory authority over the banks. Where we overlap really is in fi- nancial market utilities, where we regulate some, and the SEC reg- ulates some, and the CFTC regulates some, and we collaborate on all that. So, we collaborate pretty closely on that. Mr. STIVERS. I would urge you to increase that collaboration, be- cause the lines between securities, banking, and capital markets are blurring more than ever before, and I would ask you and Vice Chairman Quarles to redouble your efforts for that coordination, because I do hear from some of the firms that are regulated that they feel like it is not coordinated. If you could redouble those ef- forts, I think that would pay dividends to the American investor and the American economy. I have a couple of other quick questions. What do you think the most significant risk to the financial system is today? Mr. POWELL. I have to start by saying that I think the financial system is strong and has been materially strengthened since the fi- nancial crisis, particularly the banks—high capital, high liquidity, and stress tests keep them on their toes, and they have real resolu- tion plans. None of that was really in place before. So, I think the financial system is generally in a good place. The thing that we worry about a lot is cyber attacks. I think we have a great game plan for traditional issues like bad loans and VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 25 things like that. Cyber attacks is really the frontier where you should worry. And we work very, very hard on that. All of the agencies do. We all work together. The institutions themselves work very hard. But that, I would say, is a major focus. Mr. STIVERS. Thank you, and an interesting note, Mr. Chairman, you are in line with the CEOs of the biggest institutions. I asked them the same question, and the consensus, although not complete agreement, unanimous agreement, was that cyber attacks were the issue. I think Congress needs to focus on it, and I think our regu- lators need to focus on it. Two quick things, because I am running out of time. I know you are focused on the transition between LIBOR and SOFR. Some peo- ple have asked that question. I hope you will pay particular atten- tion to the impact on both small businesses and our community banks as we make that transition. They are particularly vulner- able. And with regard to the repo market, I hope you will continue to focus on the origins of the problem that caused it. Some are reg- ulatory, and some are market-based. And I know you are focused on it. You and I have had private discussions about it. But I would like to see that solved in a way that you don’t have to provide Fed- eral Reserve capital at the end of every quarter, at the end of every year, so if you can stay focused on those things, that would be good. I am out of time. Thank you, Mr. Chairman. Mr. POWELL. Thank you. Chairwoman WATERS. The gentleman from Texas, Mr. Green, who is also the Chair of our Subcommittee on Oversight and Inves- tigations, is recognized for 5 minutes. Mr. GREEN. Thank you, Madam Chairwoman. Thank you for ap- pearing today, Mr. Powell. Mr. Powell, this is an observation, not a criticism. You have indi- cated that the fundamentals are strong. However, you also indi- cated at the last FOMC press conference that you were a bit sur- prised that wages have failed to move up despite being well into an expanding economy, sustained levels of historically low unem- ployment, and increased labor force participation. The fundamentals are strong, yet nearly half, 42.4 percent, of working Americans in 2019 made less than $15 an hour. The fun- damentals are strong. A good many of the people in my Congres- sional district, Mr. Powell, are more concerned about the super- market prices than the stock market. When they go to the super- market, they are concerned about the price of Procter & Gamble products, not the stock market price of Procter & Gamble itself. The stock market means nothing to them. It is what they have to pay for products in the supermarket. This brings me to my question. Has there been a study to give us some sense of what a $15-an-hour wage will do for the economy? Has the Fed done such a study? Mr. POWELL. The Fed has not. That is not something we would do. Mr. GREEN. Let me just address that, if I may. I don’t mean to be rude, crude, and unrefined, but let me just call to your attention a study that I found quite interesting: The Carbon Disclosure Project, a good project. Based on thousands of disclosures, you have VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 26 concluded that the 500 largest companies, by market capitalization, are exposed to a trillion dollars in risk. Now, someone could argue that that is probably not something that you ought to do, although I understand that climate change is something that is important to the Fed because it will have a global impact. But I think you can take a closer look at this. You are the ultimate authority on price stability, on wages. Let’s have a study to determine what impact a $15-an-hour minimum wage will have on the economy, a wage disclosure project, if you will. Give me some thoughts, Mr. Powell. Can you help us, please? Mr. POWELL. There is a great deal of research that has been done on minimum wages, and I don’t know of a particular one, but there has to be somewhere research on what a Federal $15 wage in- crease— Mr. GREEN. I agree with you. I agree. I have read a few. But they don’t come from the Fed. They don’t come from the entity that has the dual mandate of price stability and employment. It would mean something to working people if we could get such a study, notwith- standing what others have done. And these are observations, Mr. Powell, not criticisms. I have enjoyed visiting with you. Notwith- standing what others have done, this would be meaningful to work- ing people. By the way, I think $15-an-hour is not enough as a minimum wage. I think it ought to be at least $20 now, but I will still settle for $15 if we can get that. So can we work with you, discuss with you the possibility of a wage project? Mr. POWELL. Again, I will go back and talk to our labor people who know this issue very, very well, and many of them have pub- lished on these issues. Mr. GREEN. I am going to thank you for that. I have 46 seconds left, and I am going to applaud you for it, personal applause. Madam Chairwoman, with that, I will yield back the balance of my time. Chairwoman WATERS. Thank you very much. Is the gentleman requesting to have an answer in writing for the record on this question to the Chairman? Mr. GREEN. Yes, Madam Chairwoman. Thank you. Chairwoman WATERS. The witness is requested to provide an an- swer in writing for the record. Thank you. The gentleman from Kentucky, Mr. Barr, is recognized for 5 min- utes. Mr. BARR. Thank you, Madam Chairwoman. Chairman Powell, welcome back to our committee, and I want to first touch on your testimony about the importance of fiscal policy in supporting the economy. In general, what would you say is the lag time associated with a major change in fiscal policy? Mr. POWELL. It can tend to be long, as you know. With monetary policy, we can go into a room and change interest rates, and we do. Obviously, fiscal policy tends to take a lot of work and some time. Mr. BARR. Let me ask the question this way. Fiscal policy has changed profoundly in the past 3 years. Tax cuts, deregulation, a less-restrained energy sector, a pullback from the Dodd-Frank Act, VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 27 repeal of the individual mandate, new trade deals. Are any of these policy changes impacting current economic conditions? Mr. POWELL. I am sure they are, but of course, we don’t try to assess that. That is not really what we do when we look at the economy. But yes, they would affect it. Mr. BARR. As you noted in your testimony, the U.S. economy is presently exceptionally strong. Since the 2016 election, 7 million new jobs have been created. The unemployment rate is at a 50-year low. More Americans are employed today than ever before. Wage growth is the highest in a decade, and the lowest-income workers have been seeing the fastest pay increase, growing at 16 percent since the 2016 election. And just over the weekend, this was the headline of the Wall Street Journal, which I am sure you follow. And the reporting was that a tight U.S. labor market is drawing Americans off the side- lines at a record rate. Despite this, after last week’s State of the Union speech, Speaker Pelosi said that it was ‘‘appalling’’ to hear the President, ‘‘try to take credit’’ for an economy he inherited. Chairman Powell, I am not going to ask you to weigh in or arbi- trate a domestic political dispute, but when the FOMC conducts monetary policy, given what you said about the lag time of fiscal policy, is it fair to say that this President’s policies are impacting today’s economic conditions? Mr. POWELL. At a high level, of course they are. Mr. BARR. Let me follow up on Representative Wagner’s question about the G–SIB surcharge. In your response to our letter, you maintained that you aim to have the ‘‘key components’’ of the stress capital buffer finalized in time for the 2020 CCAR. Can you describe in more detail what the key components are and a more precise timeline, given that the Fed announced last week scenarios for the 2020 CCAR? Mr. POWELL. I think the timeline is—we do intend, and we will put into effect, the core of the stress capital buffer in time for the 2020 CCAR cycle, so that is coming right up. I prefer to leave the exact details of that to—they are still being worked out. But it will happen in a timely way for the 2020 cycle. Mr. BARR. I understand. Let me try to get just a little bit more detail. Is it still the Fed’s view that the activation of the counter- cyclical capital buffer is a suitable replacement for the dividend add-on in light of the Board’s Financial Stability Report from No- vember, which stated that the vulnerabilities have not significantly changed? Mr. POWELL. We haven’t made a decision on that, on using the countercyclical capital buffer versus the other approach. We have not made a decision on that. Mr. BARR. Okay. Thank you for that. We are looking forward to that decision. Final question. The Business Roundtable, as you probably re- member, announced last summer that it was redefining a corporate purpose to elevate so-called stakeholders ahead of shareholders. A large investment firm recently announced its intent to divest of fos- sil energy, effectively limiting investment options for clients to a subset of sectors that check the environmental social governance box. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 28 I am concerned that firms which arbitrarily limit investment of- ferings based on social and political pressure may choke off capital to perfectly legal, productive, and profitable sectors of our economy and cause retail investors to miss out on returns that they need to fund their futures. As a leading voice on the Financial Stability Oversight Council, will you commit to raising this issue with your colleagues at FSOC and urge that body to examine the extent to which a misallocation of resources away from shareholders to serve unrelated political errants might stifle capital formation, compromise investor returns, and ultimately undermine financial stability? Mr. POWELL. I don’t know that I totally understand your concern, but I will be happy to discuss it with you. Mr. BARR. The concern is that if shareholders are not a prime concern of corporate boards of directors, if stakeholders who have no ownership interest in the company are the focus of a corpora- tion, then I would submit that there is a tremendous risk of misallocation of resources away from maximum shareholder re- turns. And I would like FSOC to take a look at that. Mr. POWELL. I will bring that to the authorities at the FSOC. Mr. BARR. Thank you. I yield back. Chairwoman WATERS. The gentlewoman from Ohio, Mrs. Beatty, who is also the Chair of our Subcommittee on Diversity and Inclu- sion, is recognized for 5 minutes. Mrs. BEATTY. Thank you to the chairwoman and to the ranking member, and thank you, Chairman Powell, for being here today. Let me also acknowledge the advocates in their green T-shirts for being here today, and thank you for coming to my office yesterday and sharing what I thought was valuable information with my team. I appreciate you sitting through the hearing. Chairman Powell, in the latest edition of the Federal Reserve Survey of Consumer Finances that was published in 2017, it gave the breakout between whites, Blacks, and Hispanics, as it related to their net worth. And we have heard the statistics. I think my colleague, Congressman Meeks, talked about it, and I am sure some others, so I will spare going through all of those details. But what is very interesting to me is, while that data seems great for those who are researching the issue, is there any way your office could break it down by regions or cities? Because when we go back home, this is one of the number one things that I am hearing. People are coming into my office, once you get through health care, and this couples in with jobs and education, they are saying, we look at the wealth gap that is getting wider. It is not coming in. And while we are talking about unemployment rates being better, many people have to work 2 and 3 jobs just to try to survive. Someone talked about the minimum wage. Certainly, as we are advocating for a higher number, it is not enough. In my dis- trict, you would have to make somewhere between $18.70- and $20- an-hour to be able to have a livable wage. The first question is, can this information be localized, to a re- gion or to a city, to help us as Members of Congress when we go back home? The second thing is, I just recently introduced a bill closing the racial wealth gap, which requires the Federal Reserve to further VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 29 break down the data. And this is something that I didn’t realize until really studying the Federal Reserve, listening to some of the individuals like the folks here today. They have some really good ideas. And my second question is, could you tell me if you would enter- tain having your folks look into wage as a measure? Because often- times, many folks don’t work a full-time job, but they have a wage. Could we be a little more creative in looking at the data based on some of the things that I am hearing from the group who came in? And I am sure they have met with your folks and you know some of their issues. I will start with, can it be localized? Can we entertain looking at some of the things that they think we should look at when we calculate or present all the good news, that is not the good news, for many of the individuals sitting here, or in my district? Mr. POWELL. I think you are probably making some of our data people very happy back at the Board of Governors. Mrs. BEATTY. Okay. Mr. POWELL. They love to cut the data different ways, and we do learn. Every time we do that, we learn things. I don’t actually know the precise answer to your question of whether we can do it regionally or in what dimensions we can, but we would be happy to look into that for you. Mrs. BEATTY. And what about some of the individual ideas about looking at wages in your calculation? Mr. POWELL. Yes. I think we can do that. Mrs. BEATTY. So, your folks would be willing to work with them on some of the ideas, for a starting point of discussing it? Mr. POWELL. Yes. Mrs. BEATTY. Because now, we are marrying the people with the power, and what a good win-win that would be for all of us, since we are really talking about all of our lives, and especially those who have to work a little harder than some of the rest of us. The next thing is, will your agency work with my office? I am so excited about this bill, and as I understand it, part of the reason for asking for the data is the Federal Reserve actually collects the data that sets the policies that then get married with the alloca- tions that come back to the districts. I want to make sure I am on the right path when I go back home and I say, ‘‘I have a bill that is asking the Federal Reserve to collect data that can help us in the end.’’ Is that in the ballpark? Mr. POWELL. Yes. We should actually get the experts to talk di- rectly to you and your staff and tell you what we do and how we do it and how that might be useful. I don’t know that we need leg- islation at all, but we certainly have excellent sources of data and we do cut them different ways. Why don’t we just follow up with you on that? Mrs. BEATTY. Thank you. Chairwoman WATERS. The gentleman from Colorado, Mr. Tipton, is recognized for 5 minutes. Mr. TIPTON. Thank you, Madam Chairwoman, and Chairman Powell, thanks for taking the time to be here this morning. I want to follow up a bit on the CRA. We have had a fair amount of con- versation on that, and I just wanted to be able to have the clarity VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 30 that the Fed has been involved with the CRA process, with the OCC and the FDIC. Is that correct? Mr. POWELL. From the very beginning. Mr. TIPTON. Great. And I also wanted to get some clarity. Were you comfortable not only with Governor Brainard making the speech but the content of her speech in regards to the CRA? Mr. POWELL. Yes. Mr. TIPTON. Okay. What extent has the Fed been—I know you are talking about doing some of the analysis of comments coming in—able to work on CRA modernization? Mr. POWELL. From the very beginning of the process we said yes, that sounds like a great idea. It is a good time to update CRA. Let’s try to make it more transparent, more objective. Let’s try to make it more effective in serving the intended beneficiaries. And so, we too went around the country. I think we had 29 events around the country where we talked to different groups of people about CRA, their experience with CRA. And it turned us in a particular direction. We had a bunch of ideas, and it is unfortunate that we weren’t able to get on the same page. We weren’t able to really agree completely with their ap- proach, and they weren’t able to completely agree with ours. But we continue to push, and we continue to learn. And I would agree with Mr. Hill’s earlier comment that ideally, you would have one agreed-upon set of standards. Mr. TIPTON. I would agree with that as well. I think that harmo- nization is something that we certainly ought to strive for. I was really encouraged reading your comments in your state- ment that people who live and work in low- and moderate-income communities are finding new opportunities. Wages have been ris- ing, particularly for lower-paying jobs. That is an area that I have a lot of concern on. In my State of Colorado, I represent the rural areas, and we oftentimes have 2 economies, where the metropolitan areas, resort areas have been doing well, but rural areas have con- tinued to often struggle. We are now starting to actually see some of that real movement. When we are looking at that CRA reinvestment back, talking about the community banks, I really would encourage you to look at the OCC and FDIC proposal. I believe they do reach farther into rural America. And you talked about policy. Have you done any assessment in terms of the Opportunity Zones that were included in the Tax Cut and Jobs Act? We are certainly seeing some benefits and some in- vestments coming into rural areas in my district. Are those some of the policies that we need to be looking at? Mr. POWELL. I am not aware of any research that we have done on Opportunity Zones, but we probably have, truthfully. In the Sys- tem, I would imagine we have done research on that, and we will be happy to share it with you. Mr. TIPTON. Great. Thank you. And Fannie Mae and Freddie Mac just took some steps, talking now about SOFR, to be accepting SOFR-based mortgages. And I have noted that other agencies have been taking this step separately. Is there any kind of uniform effort at a high level to coordinate the adoption of SOFR? VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 31 Mr. POWELL. Yes, there is, very much so, and we are doing that. We are coordinating with the other agencies and with the market participants as well. And you will see more of that. You will see more instances in which LIBOR will no longer work, will no longer be usable in particular contexts, and that is what Fannie and Freddie did this week, or announced this week. Mr. TIPTON. And to follow up on Mr. Stivers’ question in regards to community banks, do you see any pluses or minuses, in regards to using SOFR over LIBOR for community banks? Mr. POWELL. Yes. I think LIBOR itself is really a problem in the sense that there is no guarantee that the rate will continue to be published after the end of 2021. But there is a question about hav- ing a credit-sensitive rate in addition to SOFR. SOFR will be the main substitute for LIBOR, but we are working with the regional and some of the larger banks too, about the idea of also having a credit-sensitive rate, and that is something that is ongoing. Mr. TIPTON. Okay. We have had a little conversation about the coronavirus, China, the impacts on the economy. The President just signed into law the United States-Mexico-Canada Agreement (USMCA). Do you see that as creating a runway for further eco- nomic expansion in the U.S., for job opportunities and wage growth? Mr. POWELL. We don’t give advice on trade policy, but I would just say this, that I think the signing and the enactment and im- plementation of USMCA will be a positive, at least in the sense that it removes uncertainty around trade policy. And I think that has been part of the issue of the last year or so, not knowing what the rules of the game are going to be. And I think getting those rules settled is certainly a positive thing. Mr. TIPTON. Great. Thank you. My time has expired. Chairwoman WATERS. Thank you. The gentleman from Illinois, Mr. Foster, is recognized for 5 minutes. Mr. FOSTER. Chairman Powell, first off, I would like to thank you for facilitating our meeting with Governor Brainard, the meeting that Representative Hill and I had on digital currency. We really enjoyed that, as well as the meeting with the staff, who were excel- lent, and it is great to see how plugged in they were to this issue. In a speech last week, Governor Brainard highlighted, ‘‘The role of central bank digital currencies is in ensuring that sovereign cur- rencies stay at the center of each nation’s financial system.’’ Do you agree with her characterization? And, in particular, do you think that establishing a digital dollar would help ensure that the U.S. dollar continues to serve as the core of the U.S. and the world’s fi- nancial system? Mr. POWELL. To take the first part of that, I think having a sin- gle government currency at the heart of the financial system is something that has served us well. It is a very, very basic thing that really hasn’t been in question. And I think, before we move away from that, we should really understand what we are doing. So, I think preserving the centrality of a central, widely accepted currency that is accepted and trusted is an enormously important thing. I think whether a digital currency moves us along that path or not is an open question. As you know, every major central bank is VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 32 currently taking a deep look at that; we feel like that is our obliga- tion. Technology has now made this possible. The private sector is innovating. They are doing it. I think it is very much incumbent on us, and other central banks, to understand the costs and bene- fits and tradeoffs associated with a possible digital currency. Mr. FOSTER. How would you characterize your state of progress on this, compared to other countries—the Swedish central bank de- veloping an e-krona, well, the Chinese. One of the reasons there was so much concern about the Libra project is they would imme- diately have scale if they just rolled out the product. Another entity in a position to do that is the Chinese government, to roll out at scale, using their already established payment-by-cell-phone sys- tems. They would immediately have the scale comparable to Facebook, if they rolled that out. How would you characterize our ability to respond to this poten- tially competitive threat? Mr. POWELL. We are working hard on it. We have a lot of projects going on, a lot of efforts going on, on that right now. We haven’t had the problem that many—you mentioned Sweden. A lot of the northern European economies have moved away from cash, to a remarkable degree, and that really has not happened in the U.S. economy, even though it seems like it must have happened with our kids not using cash very much. Nonetheless, the amount of cash in the U.S. economy continues to grow at faster than nomi- nal GDP. Mr. FOSTER. But if you look at the curve of adoption of payment by cell phone, it starts slowly, and then all of a sudden, it just hap- pens. So, it seems like that transition can happen in a period of just a couple of years, and so we have to be able to respond. If that is the driving factor, then we have to be in a position where we can respond by rolling out, for example, a digital dollar, on a couple- of-year timescale. Mr. POWELL. I completely agree with that, and I think, frankly, Libra really lit a fire under that, and it was a bit of a wakeup call that this is coming fast, and could come in a way that is quite widespread and systemically important, fairly quickly, if you use one of these big tech ne2rks like Libra did. So, we are working hard on it. We fully appreciate the impor- tance of making quick progress. We have not decided to do this, though. I think there are many questions that need to be answered around a digital currency for the United States, including cyber issues and privacy issues. Many, many operational alternatives present themselves. And so, we are going to be working through all of that and doing that work early and responsibly. Mr. FOSTER. Do you feel as though you have adequate visibility into what the Chinese are doing on this? Do you have sort of work- ing-level contacts that give you some idea of what their rollout is likely to do, likely to look like? Mr. POWELL. Yes. We certainly have that. But they are in a com- pletely different institutional context. There are things that—for example, the idea of having a ledger where you know everybody’s payments, that is not something that would be particularly attrac- tive in the United States context. It is not a problem in China. But nonetheless, we are following— VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 33 Mr. FOSTER. But from a competitive point of view, they are claiming they are going to roll it out on the Belt and Road coun- tries sometime very quickly. And so, I urge you to keep the fire lit. Thank you. Mr. POWELL. Thank you. Chairwoman WATERS. The gentleman from Texas, Mr. Williams, is recognized for 5 minutes. Mr. WILLIAMS. Thank you, Madam Chairwoman, and thank you for coming back to our committee, Chairman Powell. We appreciate it. With baseball season slowly approaching, I wanted to make sure of one thing before I continue, that you still are on, ‘‘Team Cap- italism.’’ Mr. POWELL. Oh, yes. Mr. WILLIAMS. Thank you. I appreciate that. Experian recently released their 2019 Consumer Credit Review, and I wanted to read a section from the report because I think it accurately depicts the state of our economy. As you know, I am a Main Street business guy and the economy is really good right now. ‘‘Indeed, the U.S. economy exceeded expectations. Record job growth caused unemployment rates to drop to historic lows while the stock market flexed throughout the year. Consumers, in return, showed their confidence as they continued to borrow and spend en- ergetically, most recently evidenced by the strong 2019 holiday shopping season.’’ The report goes on to say that, ‘‘consumer credit scores reached an all-time high in 2019, at an average of 703. This translates to people being able to get better rates to borrow money, to buy a house, to get a small business loan, or whatever they need financ- ing for in order to live out their American dream.’’ Chairman Powell, what should we be focusing on in this com- mittee to continue the explosion in new jobs that we have seen over the past few years? Mr. POWELL. Honestly, I think the focus for me really ought to be on things that address, what are our longer-run issues that can be addressed by legislation? And there are really two important things. One is labor force participation. What are the things that you can do, that we really can’t do, that will help people stay more attached to the labor market? We still have low labor force partici- pation compared to essentially all of our economic competitors. And the other one is productivity, what is it that drives produc- tivity? It is a stable legislative environment. It is a legislative and administrative environment that supports growth and innovation and investment and those sorts of things. Those would be my main focuses. Mr. WILLIAMS. I know you are aware of the Fed’s work on the international insurance capital standard that is being developed for the world. I have had my reservations about entering into an inter- national agreement that does not conform with our current State- based approach to regulating our domestic insurance companies. One particular piece of the international standard that I want to ask you about is the flexibility that our government was given to VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 34 develop an equivalent solvency standard that would better fit our insurance ecosystems. My question to you is, how does the Fed plan on ensuring the standards being developed in the U.S. will be deemed equivalent by the international group, given this continued resistance you are facing from the Europeans? Mr. POWELL. I can just say that we will not be a part of approv- ing any international standard that doesn’t accommodate our own American insurance regulatory framework. Mr. WILLIAMS. That is great. We are leaders, not followers. Some of my colleagues on the other side of the aisle have called for a financial transactions tax. I think this is an extremely short- sighted approach to raising revenue that will greatly impact the amount and the ways that Americans save for the future. Addition- ally, the thought that adding an extra layer of taxation to other as- sets so redundant since capital gains taxes are already in place, and they should be lowered, that take away money from successful investments. If we want to further expand economic growth, we need to focus on continuing to lower the personal and corporate tax rate so Americans can keep more of their hard-earned income, and busi- nesses can invest that profit back into their operations. So, Chairman, can you explain how implementing a financial transaction tax would impact the U.S. economy? Mr. POWELL. I think I need to stay in my lane here. We don’t do fiscal policy, and if I start commenting on particular taxes, I am worried about where that might go. Mr. WILLIAMS. I understand that. But I will tell you, from a Main Street standpoint, it will really hurt the economy, an extra layer of tax. We need to actually cut taxes. Looking at financial trends across the world, and with being in business for over 50 years, like myself, one data point that catches my eye are negative interest rates. Can you help me understand the economics behind negative interest rates and talk about the po- tential threats that this phenomenon poses to financial stability? Mr. POWELL. A number of countries around the world, as you know, face the problem of what do you do when your policy rate gets to zero, and some of them actually went below zero. The United States chose not to. We chose not to at the Fed. We used other tools when we got to the lower bound, and those were for- ward guidance and large-scale asset purchases. I think, going forward, our inclination would be to rely on the tools that we did use as opposed to negative rates. So, that is our instinct, is that in the U.S. context, that is not a tool we are look- ing at. The question about intermediation is, when you have nega- tive rates, does it wind up creating downward pressure on bank profitability, which limits credit expansion? Mr. WILLIAMS. Right. Mr. POWELL. And there is some evidence of that. In any case, we are watching other institutions around the world who have done that and we will be able to see what the results are. Mr. WILLIAMS. Thank you for being here. Chairwoman WATERS. The gentlewoman from Michigan, Ms. Tlaib, is recognized for 5 minutes. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 35 Ms. TLAIB. Thank you, Madam Chairwoman. Chairman Powell, I don’t know if you know this, but in 2013, Detroit filed for Chapter 9 bankruptcy, which was marked as the largest municipal bank- ruptcy filing in U.S. history. In July, when you were here, I asked you why, if the Federal Re- serve is willing to backstop or support big banks and corporations during periods of credit market distress, we wouldn’t want to make equally sure that State and local governments had access to credit, as well. And you mentioned that you didn’t have the authority to lend to local and State governments. Madam Chairwoman, I would like to submit for the record, Sec- tion 14(2)(b) of the Federal Reserve Act, asserting that the Federal Government actually does have the authority to buy municipal debt. Chairwoman WATERS. Without objection, it is so ordered. Ms. TLAIB. Chairman Powell, given that you actually do have the authority, can you explain to me why the Federal Reserve shouldn’t ensure that State and local governments have access to funding during times of distress? Mr. POWELL. We have, as you know, limited authority, I think it is to buy short-term municipal obligations. We did do that in the 1970s briefly, and have not done it since. I think a series of FOMCs and Fed Chairs, in all kinds of different political environments, have thought of that as something that is not appropriate really for us, in the sense that it is government finance. That is to be dealt with by fiscal authorities rather than by the monetary authority. We focus on the job you have given us, which is maximum employ- ment and stable prices, and to some extent, also with other agen- cies, we work on financial stability and bank supervision, as op- posed to the solvency of State and local governments. Ms. TLAIB. Yes or no? The Federal Reserve reserves the ability to open emergency lending facilities? Is that accurate, in stabilizing the economy? Mr. POWELL. Well, yes, to financial institutions, we do. Ms. TLAIB. So when the Fed steps in to rescue banks in a crisis, is that because you believe their role in the economy is vital? Mr. POWELL. It is really because we had no choice. It was to pre- vent the financial system from collapsing in 2007 and 2008. Ms. TLAIB. No. My City filing bankruptcy was devastating to so many retirees, sir. For 40 or 50 years, they worked for the City of Detroit, and saw their pensions completely diminished, gone. Do you not believe that the governments of Detroit and Puerto Rico also play a vital role that should be preserved, even if a finan- cial crisis makes it hard for them to borrow money? Mr. POWELL. What I believe is that is not a job for the Fed, which has a particular role and particular authorities. And lending to State and local governments and supporting them when they are in bankruptcy is not part of our mandate. Ms. TLAIB. We are going to strongly disagree. I believe you do have the authority. Now, you have mentioned that in the face of another financial crisis, you would use the same tools of expanding the balance sheet and purchasing long-term bonds, in other words, more of the same. Correct? VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 36 Mr. POWELL. Yes. Ms. TLAIB. I am afraid that simply is not good enough, and I think your predecessors, former Chairs Yellen, and, I believe, Bernanke, seem to agree, based on remarks both gave last month. For instance, Chairman Bernanke has suggested a money-financed fiscal program might be helpful during the next recession. Do you agree that would be helpful? Mr. POWELL. I think that is really an untested and not widely- supported perspective. I don’t believe Chairman Bernanke said that a money-supported fiscal policy would be something that we should do. I know that there has been a group of people who have pushed that idea, but I don’t think it included former Chairman Bernanke. You may have seen something that I haven’t seen. Ms. TLAIB. I know, and Chairman, look, the Federal Government is supposed to be about people, and I don’t see that we are treating pensioners in a city like the City of Detroit, which is frontline com- munities that have really been hit hard by the financial recession— they keep saying Detroit is coming back. If I show you neighbor- hoods, they will tell you, ‘‘We don’t know what you are talking about,’’ because poverty has actually increased, and access to hous- ing has decreased. We need to start reflecting and understanding that I believe the Federal Reserve Act actually gives us authority to help and treat, just like we bailed out big banks, that we can do the same for our people, the residents of the City of Detroit. I thank you for that, and again, I would ask you and push you to look at this from a different lens versus the same old process, which I believe hasn’t really worked for working-class people. Thank you so much, and I yield back. Chairwoman WATERS. Thank you. The gentleman from Arkan- sas, Mr. Hill, is recognized for 5 minutes. Mr. HILL. Thank you, Chairwoman Waters. And again, Chair- man Powell, welcome back to the House Financial Services Com- mittee. I want to thank you for your discussion that you had with Dr. Foster a few minutes ago. I, too, want to thank you for your work with Governor Brainard and our discussion that we had with the Governor and the staff about the concept of a digital dollar and the work being done at the Treasury about that. I won’t belabor some of the points that Representative Foster made, but there are a couple of comments that I would have for you on that. Would you advise our committee, or ask the Fed to advise our committee, what legal authorities the Federal Reserve might require in order to consider the use of a digital dollar? Mr. POWELL. Yes. That is a good question, and it is one we are looking at. A lot of it would depend on the design of that currency. Mr. HILL. Exactly. And one thing we also talked about, and we have had a lot of discussions in our Fintech Task Force about, is Europe’s approach to this idea of a payment provider license, which is now part of their financial services code. Part of the open bank- ing movement, and the idea that one would have a regulatory li- cense here in the United States for being a payment provider—it might be a bank or it might be a nonbank—is that something that the Fed is looking at as well? Mr. POWELL. I wouldn’t say we are specifically focused on that, but more broadly, it is, we think, a good idea to look at the whole VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 37 landscape of oversight of our payment system, and that would be a piece of that. As you may know, Governor Brainard talked about that in another of her speeches last week. Mr. HILL. Right. Thank you for that. Last month, the Chinese regulators bailed out Hengfeng Bank. It was a $14 billion loan that they arranged through one of their sovereign wealth funds. The Chinese banking assets, at $41 trillion now, are 47 percent of world GDP. Does instability in the Chinese banking industry pose a financial threat to the global financial system? Is it a financial virus, like they have already contributed a physical virus? Mr. POWELL. Generally, as I am sure you are aware, China has had very high debt-to-GDP for an economy at its stage of develop- ment, and that includes the banking system. And the government has actually, for several years now, been taking measures, led, I think, by the central bank, to try to control the growth of debt, and they have stuck to that through the last couple of years, even though those were challenging years economically for them. So, it is something that they are addressing. The other thing to say is that they have plenty of fiscal power. If you look at it fiscally, they have plenty of power to respond to a downturn. I wouldn’t go so far as to say that their debt is a systemic threat to the world economy or anything like that, but it is something that they need to address, and they are addressing it. Mr. HILL. I think it is something that deserves review. Mr. Barr talked about their misallocation of resources. At 47 percent of glob- al GDP, that seems like an over-allocation in the banking sector in China, and it could pose a threat to our system. In your report, on page 24, you talk at length in your financial stability section about the decline in bond yields, about how, par- ticularly in the high-yield market, the ratings have fallen. And I was looking at a mutual fund annual report the other day and it says of particular concern is the continuing high rate of issuance of BBB bonds, the lowest category of investment-grade-rated bonds. If the economy stumbles, rating downgrades issues could be a flood of fallen angels. And this particular mutual fund said they are staying away from the lower end of the high-yield market. Are you concerned about the high-yield market? Mr. POWELL. That is the so-called BBB cliff, and the idea is that there are a handful of very large issuers, which, if they were down- graded, would then be non-investment grade, and the idea is that some holders are not permitted by the terms of their agreements with their investors to hold non-investment grade, and it would trigger sales. So, that is an issue we have been monitoring for some time now, really. With leveraged lending more generally, yes, we are monitoring it very carefully. You do see low compensation for risk taken. You see high leverage. You see a lack of covenants. You see all of that. I think it is a complicated picture, though. That paper is now largely held in CLOs and mutual funds and exchange-traded funds rather than on bank balance sheets, and those vehicles tend to be stably funded, in the sense that their liabilities are actually longer than the expected maturing of the underlying instruments. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 38 Mr. HILL. But it is still a source of financial concern to the FSOC, I would think, and therefore I commend you for noting it in the report, and I thank you for your continued attention to it. I yield back. Thank you. Chairwoman WATERS. The gentleman from Illinois, Mr. Casten, is recognized for 5 minutes. Mr. CASTEN. Thank you, Madam Chairwoman, and thank you, Chairman Powell. I appreciate you sticking around all the way to the bottom of the dais here. If I get elected 8 more times, fingers crossed, I will have as much experience in this line of work as I do in the energy sector. I still come here primarily as an energy nerd, and I have a real concern that we are not dealing with the realities of climate change sci- entifically. We understand this, really, what it means to have ris- ing sea levels, but we haven’t really thought about what it means to have an accelerating rate of change. Compound interest confuses people, and compound changes in the environment, we don’t even really think about it as well as we should. Just a couple of data points that I hope all of us can appreciate. The first evidence that hominids made fire is a cave a million years old. James Watt invented the steam engine 244 years ago and ush- ered in the Industrial Revolution, and 50 percent of all the CO2 we have ever emitted as a special is since Back to the Future came out in 1985. It is this massively accelerating shift, and if we went to zero CO2 tomorrow, we are looking at 2 feet of sea level rise coming. The more realistic trends we are on is at least 6 feet of sea level rise coming, and at that level, there is estimated about $23 trillion of economic loss to the system, $900 billion of U.S. property at risk, before factoring in debt losses and pulling out of insurance. And there are some serious systemic risks to the economy if we leave those unaddressed. I just want to understand a little bit how you and the Fed are thinking about those risks. Number one, given that the assets ex- posed to climate change exceed the entire subprime mortgage mar- ket prior to the global financial crisis, how, if at all, is the Fed thinking about climate change as a systemic risk to the economy? Mr. POWELL. Climate change, again, is a very important issue, one that is really the provenance of elected representatives to set the overall direction of society and how we will respond to climate change and its challenges. Nonetheless, we have a job to do, and that is to think about the potential implications for the financial system, for the economy, and I think we are at the very early stages of filling in what exactly that means. In terms of things like particular assets, these are longer-term considerations. We are essentially mainly concerned with business cycle issues. That is what we are focused on, is issues for the me- dium term. Climate change is a much longer cycle kind of thing. Mr. CASTEN. If I may, part of the concern I have is that the ac- tors in the space do not have planning horizons that match the re- ality that you do, and we do, right? There are people signing 30- year mortgages right now for properties in Miami Beach, and they may plan on reselling that mortgage a number of times, but some- body is going to be left holding the paper with that sea level rise VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 39 coming. The insurance industry typically has a one-year holding period. And even if the U.S. is successful at reducing carbon emissions, there still is a massive reallocation of capital. Have you looked at the transitional risks in thinking about how that starts moving around and dislocating the economy? Mr. POWELL. Those are the things that we are at the beginning stages of looking into. As you obviously know, there is a lot going on in the financial markets. There is a lot of disclosure happening and expectations around disclosure are changing significantly for publicly held companies, and that will have an effect. But that is not really what we do. We do monetary policy, bank supervision. To your point, our banks have to be taking into account the risk of severe weather events, and potentially, I suppose, of rising sea levels— Mr. CASTEN. Maybe, let me give a specific one that has been bug- ging me lately. If you look at the fossil fuel industry, the oil and gas companies, the coal companies, the debt that they hold relative to their assets, given that their assets are so heavily dominated by fossil fuel reserves, if they were to extract all of their fossil fuel re- serves, things are going to be way worse than the $23 trillion I just told you. Have you ever considered stress testing to see whether their fail- ure to fully monetize their reserves might effectively make them fiscally insolvent? Because that, to me, sounds like a materially ad- verse event, but I wouldn’t want to bet that the economy is going to commit suicide. But if I look at the financial statements of a lot of those companies, it is not clear to me that they can monetize those assets. That has a meaningful effect on the risk of money that is held today. I think there was $700 billion lent to fossil fuel companies in the last couple of years. Have you considered that as a systemic risk? Mr. POWELL. For us, it is a systemic risk to the financial system, and we would be stress-testing banks. As you know, the Bank of England is doing some of that now, and we are going to be watch- ing to see what they learn, and maybe that is the path we will fol- low. Mr. CASTEN. Thank you. Mr. POWELL. We haven’t made that decision. Mr. CASTEN. Thank you. I will follow up with you offline. I yield back my time. Thank you. Chairwoman WATERS. The gentleman from Georgia, Mr. Loudermilk, is recognized for 5 minutes. Mr. LOUDERMILK. Thank you, Madam Chairwoman. Chairman Powell, thank you again for being here. First of all, I kind of want to touch back on LISCC. I know that some have already touched on this subject, and as you know, sev- eral weeks ago, Vice Chairman Quarles gave a speech where he outlined a number of changes that he would like to make to the Fed supervisory and regulatory process. He said he intends to bring transparency to the LISCC regulatory regime by developing clear and transparent standards for designating firms. He also proposed aligning LISCC designation with the Fed’s tai- loring categories and limiting it to only Category 1 firms. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 40 My question is, at a press conference after last month’s Federal Open Market Committee meeting ,you said you generally agree with Vice Chairman Quarles in what he had articulated. I appre- ciate that. But can you give us an idea of when you expect LISCC designation to be confirmed with new tailoring rules? Mr. POWELL. I don’t actually have a sense of where that is in terms of the timing of it. At any given time, we have a bunch of things to do, and that is certainly one of them. Mr. LOUDERMILK. Okay. Hopefully, sooner rather than later. Mr. POWELL. I don’t want to commit to something that—there are a lot of things that we are working on at all times. But if the Vice Chair gave a speech about it, I am aligned with that, and I expect we will be moving forward. Mr. LOUDERMILK. That is very good to hear. I would like to quickly touch on the CRA. I believe that all 3 banking agencies need to have a unified CRA framework, and I know you are hesitant to speak on behalf of the other agencies, specifically the OCC and the FDIC and their proposals. If you don’t want to comment on that, and I understand that, what are some of your ideas, or the Fed’s ideas for CRA modernization? Mr. POWELL. Let me talk about the process. We kind of agree on the overall goals and the quesion of, how do you get after that? And so, our thinking was try to get to a set of improvements, really, that would lead to a more efficient, more effective CRA. We are looking at ways to make the assessment, the test clearer. In our thinking, at the retail level, there is a separate test for community development and for retail lending. And also, the other thing we are saying is, let’s make sure that it is all very grounded in data. We have, as the Chair mentioned earlier, 6,000 datasets that we look at. I think we really know when you make a change in the metrics, we kind of know what the effects are going to be, and we feel good about that. So, we tried to develop our proposal around that. There were a lot of overlaps, but there are a handful of differences that pre- vented us from getting to full agreement. Mr. LOUDERMILK. In the overall objective, do you believe that we can remove some of the ambiguity on what projects do and do not qualify? Mr. POWELL. Absolutely, transparency ex ante, more trans- parency ex ante as to what qualifies and where, more objectivity. All of that should help to encourage banks to do more, if they really know what is going to qualify and what is not, and I think that is all very constructive. It is really about how you implement it. It is a very important law, a very, very important law. We want to have a high level of confidence that what we change is going to have the desired effects, and that is what we are focused on. Mr. LOUDERMILK. I appreciate that, because I would like to see us make changes to where it is not financial institutions just check- ing boxes to get credit but actually investing in projects that do help revitalize these communities. As you know, the Fiscal Year 2020 appropriations law directs the Treasury Department, in consultation with the banking agencies, to study whether any changes in banks’ regulatory capital require- ments are needed because of CECL. If the study concludes that VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 41 that is the case, are you open to modifying regulatory capital re- quirements accordingly? Mr. POWELL. Well, yes. I think we have said that with CECL, we are going to be monitoring very carefully what the implementation is showing, because of some of the concerns that have been raised. Mr. LOUDERMILK. Okay. Thank you. I probably don’t have time to get into any other questions, so with that, I yield back the bal- ance of my time. Chairwoman WATERS. Thank you. The gentlewoman from Cali- fornia, Ms. Porter, is recognized for 5 minutes. Ms. PORTER. Thank you. Chairman Powell, you have frequently spoken about your belief in maintaining the independence of the Federal Reserve. Do you still have that belief? Mr. POWELL. I do. Ms. PORTER. Has anything changed in the New Year? Mr. POWELL. No. Ms. PORTER. Okay. Because we don’t want the Fed to be making decisions about things, like where to set interest rates, based on any factors other than the best interests of the country. And I know you have had some experience with the President publicly and aggressively attempting to lean on you to lower interest rates, and I appreciate your continually affirming the importance of the independence of the Fed. But it is not just our President. There are a lot of people out there who would love the opportunity to weigh in on Fed decisions. Outside of Administration officials, what other kinds of people might want to influence you in regard to the Fed’s decision-mak- ing? Mr. POWELL. What other people might want to influence us? Po- tentially, quite a wide range of people, I would think. Ms. PORTER. Major investors? Financiers? Mr. POWELL. I don’t know that people are really seeking to—you say, ‘‘might want to influence us.’’ I really don’t know the answer to that. Ms. PORTER. Okay. Mr. POWELL. Many people follow what we do and respect what we do. I think people often, when I meet them, really shy away from giving advice. They really do. They feel like they don’t pre- sume to give us— Ms. PORTER. So, you don’t feel undue pressure from political or special interests? Mr. POWELL. No, I really don’t. Ms. PORTER. Would you say that someone like Jeff Bezos, the CEO of Amazon, one of the richest men in the world, could benefit from having influence over the Fed’s decisions? Mr. POWELL. I wouldn’t know, actually. I don’t know. Ms. PORTER. What about Jared Kushner and Ivanka Trump? Mr. POWELL. I don’t know. Ms. PORTER. They are very wealthy people. Do they have savings and make different amounts of money depending on what the Fed does with interest rates? Mr. POWELL. Yes. Ms. PORTER. What about Kellyanne Conway? Does she, in her role as advisor to the President, and the President has expressed VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 42 these public views, does she potentially have an interest in ampli- fying the President’s messages? That is, after all, her job. Mr. POWELL. I suppose. I don’t know. Ms. PORTER. Okay. Mr. Powell, I am going to project a picture up here, so that the audience can see, but I am also going to hold it up for you. Is this you, Mr. Powell? Mr. POWELL. That is. Ms. PORTER. Where are you? Mr. POWELL. That is a party after the Alfalfa Club dinner, an after-party that I went to. Ms. PORTER. Where was that party held? Mr. POWELL. At Jeff Bezos’ home. Ms. PORTER. At Jeff Bezos’ home. And when was it taken? Mr. POWELL. Excuse me? Ms. PORTER. When was this picture taken? Mr. POWELL. Saturday night after the Alfalfa Club dinner. Ms. PORTER. Give or take, you will stipulate end of January 2020? Mr. POWELL. Yes. Ms. PORTER. Recently. Can you imagine how attending a lavish party at Jeff Bezos’ $23 million home, along with Jared and Ivanka and the CEO of JPMorgan Chase, Jamie Dimon, might give off the sense to the public that you are not, in fact, immune from external pressures? Mr. POWELL. I would certainly hope not. Ms. PORTER. What did you talk about at that party with them? Mr. POWELL. I didn’t. I didn’t talk to any of the people you named. Ms. PORTER. You didn’t talk to anybody? Mr. POWELL. I didn’t talk to any of the people you named. Ms. PORTER. Oh. Can you tell me who you did talk to? Mr. POWELL. I mainly escorted my son and his brand-new wife, and I actually introduced them to General Mattis. Ms. PORTER. Okay. Great. I would just suggest that attendance at this kind of event with these kinds of people is inconsistent with what I would otherwise commend you on for doing a very good job, I think, of reaffirming to the public. This plants in the public’s mind, I think, a seed that is counter to what you have been doing. Quickly, Mr. Powell, if you can just name a couple of the biggest drivers of economic growth in this country, since the recession in the 1970s. What has been making our economy grow? What fac- tors? Mr. POWELL. What factors have been making it grow? Well, the hard work of the American people. I think what you have seen is tremendous growth in some sectors and less in other sectors. Of course, the big technology companies weren’t around 40 years ago. So, I think we have seen lots of growth in some areas, and in other areas, much less so. Ms. PORTER. Mr. Powell, would it surprise you if I told you that women in the workforce are actually a bigger driver of economic growth than technology companies, and in a span of 4 decades since the 1970s, 38 million women joined the workforce, and with- out those women, our economy would be 25 percent smaller? VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 43 When we talk about the health of our economy and we talk about GDP growth, what I don’t hear a lot about, and I would like to hear more from you about, is about the economic effect of things like child-care availability. In those same 4 decades in which women grew the economy 25 percent, the cost of child care shot up 2,000 percent. Do you know, Mr. Powell, how much child care in America costs today? Mr. POWELL. How much it costs today in America? It costs a lot. Ms. PORTER. You are an economic expert. Could you put a little firmer number on that? Mr. POWELL. I don’t know. My kids are grown up. Ms. PORTER. Thank you. I yield back. Chairwoman WATERS. The gentleman from Ohio, Mr. Davidson, is recognized for 5 minutes. Mr. DAVIDSON. Thank you, Madam Chairwoman. Chairman Pow- ell, thank you so much for your time here today. Thanks for the good work you and so many of your colleagues are doing at the Federal Reserve. Just to address comments that came from my colleague recently, is it unprecedented for the Chairman of the Federal Reserve to at- tend a party or a reception? Mr. POWELL. No. Mr. DAVIDSON. It is certainly not the first time that a Fed Chair has attended a party. I am certain it is not the first time a Member of Congress has attended a reception or a party. And so, I don’t know that we want to say, hey, just because you were at an event, somehow this is nefarious. I mean, heck, you might have actually talked to a Russian on a subway or something. So, the way that these things are linked, for political motives, is embarrassingly par- tisan and bad, and I just thank you for resisting all of those pres- sures. Many of them are public, of course, but one that I am concerned about right now is the repo market. Back home, a lot of people don’t know that there is such a thing as repo, but it is a big factor for our economy. And I think some of the warning signs in it have given rise to the Fed, in kind of a blend between regulatory action and monetary policy, injecting a lot of cash into that market. Vice Chairman Quarles spoke recently about the need for that to continue for some time. Can you explain the process about how the Fed is going about reviewing the factors that are contributing to this repo spike, and what you have learned from the review? Mr. POWELL. Sure. What happened is in, as you know, early Sep- tember, there was a spike in repo rates, and the Federal funds rate moved slightly outside of our band, our target range for a day or so. And we didn’t see that coming. Market participants didn’t ei- ther. And so, we have been asking since, why is that? One clear reason is that the level of reserves, which is cash on deposit at re- serve banks, needs to be higher than we had thought, and so in that stream we have immediately set a plan and executed it, and it has worked fine to create that— Mr. DAVIDSON. Some have called this quantitative easing. I know you have objected. But essentially, we are artificially interjecting cash to produce an outcome that the market isn’t producing of its own accord. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 44 I think it is odd that our action is to inject cash from the Federal Reserve to grow the balance sheet at the Fed instead of looking at the underlying regulatory things. What have we talked about? What has the Board talked about in terms of regulatory factors that, instead of injecting cash to fix a problem, treating the root cause of the problem and changing the regulatory framework? Mr. POWELL. We are doing both things. The reason we are inject- ing the cash is to supply the demand for cash for basically banks that need to have a certain amount of cash for liquidity purposes. Turning to the second issue, though, we also said that without un- dermining safety and soundness, we would look at ways in which regulation and supervision might have interfered with the other- wise free flow of cash to where it was needed. And I think we have done a lot of work on that. And Vice Chair Quarles hit on a broad theme there, which I think is important, and that is the idea of making the treatment, the supervisory treatment really of cash the same as that of Treas- uries for this purpose. You could achieve a better flow of liquidity through the system without affecting the overall level of liquidity in the system, which is just what we are looking for. He broached some ideas for how to do that, and I think that is a very profitable line of inquiry. Mr. DAVIDSON. Okay. Thank you for that. One of the changes, as LIBOR is going away and market forces are coming, is we are talk- ing about replacing the benchmark rate. And, of course, ARC in- cludes 250 entities, but there is a concern that as you have done this, that the best rate isn’t necessarily being provided. Is the Fed taking the best proposed rate offered in these repo deals, or are we giving it out at a special rate to maybe the top 10 SOFR banks? Mr. POWELL. I’m sorry. I lost track of that. Mr. DAVIDSON. When this liquidity is injected— Mr. POWELL. I see, the repo rate. Mr. DAVIDSON. —into the repo rate, going into the repo rate. Mr. POWELL. I’m sorry. I missed that. The rate we have been of- fering on the repos, they have been settling at a level that is a cou- ple of basis points below the interest rate on excess reserves (IOER), but that won’t be a persistent issue. Mr. DAVIDSON. But are they settling at a rate that is when it is paid out at the high rate, is it paid to the best available offer or is it paid to the best available customer? Mr. POWELL. We don’t distinguish. Anybody who is eligible can bid, and as long as you are eligible, we will sell to the— Mr. DAVIDSON. Thank you. My time has expired. Chairwoman WATERS. Would the gentleman like to ask the wit- ness to provide a more complete answer in writing for the record? Mr. DAVIDSON. I appreciate the Chair’s suggestion. I would love to see a written answer for how that is actually working. Chairwoman WATERS. The witness is requested to provide an an- swer in writing for the record. Mr. DAVIDSON. Thank you. Chairwoman WATERS. The gentlewoman from North Carolina, Ms. Adams, is recognized for 5 minutes. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 45 Ms. ADAMS. Thank you, Chairwoman Waters, for convening the hearing today, and Chairman Powell, thank you for your testi- mony. FDIC Board Member Martin Gruenberg voted against Comp- troller Otting’s proposal, describing it as, ‘‘a deeply misconceived proposal that would fundamentally undermine and weaken the Community Reinvestment Act.’’ Can you comment on the defi- ciencies of Comptroller Otting’s misguided attempt to gut the CRA, an essential piece of civil rights and banking law? Mr. POWELL. I guess I feel like our role is not to be commenting on the other agencies’ proposals. The public is doing that now. We very much look forward to seeing the comments that they do make. I can talk about our own thinking about this, but it is not really for us to be publicly commenting on the other agencies’ proposals. Ms. ADAMS. Will the Federal Reserve release its own proposal on the Community Reinvestment Act, one that takes into account the needs of low- and moderate-income communities? Mr. POWELL. That, of course, was why we undertook this work, was to do that. We actually haven’t made a decision yet about whether or when to make a proposal, but nonetheless, the whole effort was undertaken with a view to creating a modernization pro- posal for CRA. Ms. ADAMS. Okay. As you know, the Federal Reserve has a dual mandate: price stability; and maximum employment. Will the Fed set a goal for wage growth, and are you considering this approach as part of the framework review? Mr. POWELL. I don’t see us targeting wage growth as an inde- pendent item. It is something we monitor very carefully. Our goal, as assigned by Congress, is maximum employment and stable prices. Those are our two statutory objectives, and those are the things that we target. I don’t see us targeting a particular level of wage growth. Ms. ADAMS. Okay. Have you considered adopting a floor for wage growth, for example, once we set a certain percentage increase in pay in wages, that the Fed may consider switching to a 2-percent inflation rate? Mr. POWELL. We have said that the sense of this project is we want to make the 2 percent symmetric inflation goal more credible, and we have been missing it, and central banks around the world have been missing their objectives for a decade now, on the low side. And we want to resoundingly achieve 2 percent inflation. That is really the objective of this review that we have undertaken. Ms. ADAMS. Okay. Let me ask a question about the Volcker Rule. Why has the Fed decided to support further changes to the Volcker Rule, given that banks enjoy certain benefits, including access to the Fed discount window, and that the Rule was intended to limit banks from engaging in risky investment activities that could con- tribute to a future financial crisis? Mr. POWELL. We did just put out a proposal on part of the Volcker Rule, and, of course, we think that proposal is entirely con- sistent with both the letter and the spirit of the law. But we are going to be reading the comments. It is out for comment now—we just put it out—and we are looking forward to reviewing those com- ments. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 46 Ms. ADAMS. Okay. I understand that you collect a large number of daily trading metrics from banks subject to the Volcker Rule, yet it has never been made clear exactly how these metrics are used to determine whether a bank is complying with the Rule, nor have any of the metrics been released to the public. Is that true? Mr. POWELL. I think it is true that the—so we published the first Volcker Rule, I want to say 6 or 7 years ago, and I think very wide- ly, regulators and financial institutions found it to be a bit unwork- able. And so, we set out to provide a simpler set of metrics and ways that companies could conduct perfectly legal activity and have more certainty that they were doing so without having to prove, for every single trade, what was in the mind and the heart of every trader, because there is going to be trading activity around legal activities that were not covered by the Volcker Rule. I think that is what we are doing. We are trying to make that Rule more effective and efficient, but we are doing it in a way that is consistent with the letter and the spirit of the law. Ms. ADAMS. Okay. Thank you, Madam Chairwoman. I yield back. Chairwoman WATERS. The gentleman from North Carolina, Mr. Budd, is recognized for 5 minutes. Mr. BUDD. Thank you, Madam Chairwoman. And Chairman Powell, again, welcome. I want to start by thanking you and Gov- ernor Quarles and your Fed staff in charge of insurance regulation for your collaborative work with the U.S. State insurance commis- sioners on solvency regulation. I also wanted to thank you for the pushback against the European efforts to try and force their sys- tem of insurance regulation onto our unique and sound 50-State in- surance regulatory regime. Notwithstanding the progress achieved to date, many in the industry are telling me that the Europeans are still resistant and they ultimately seek to change our regula- tions so that they mirror theirs. Given that, here is my question: Will you commit to directly reaching out to your peers in Europe to tell them explicitly that the U.S. will not be adopting a European-centric or international cap- ital standard (ICS), and that we have our own rules that work very well? Mr. POWELL. I will just say clearly that we have a State-based insurance regulatory system, and the Federal rule is what it is, and that is not something we are seeking to change, and we are committed to that going forward. Mr. BUDD. Chairman, they are seeking to change us, and so I fear that if we are passive, it will migrate towards them. But have you had any conversations with any senior European leaders yet on the ICS, international capital standard? Mr. POWELL. No, I haven’t. Mr. BUDD. Okay. Is there any reason why not, or is that some- thing that has been avoided? Mr. POWELL. No. I just am not involved directly in the insurance. There are senior people who are. I am sure Vice Chair Quarles is. Mr. BUDD. I would encourage you, again, and Governor Quarles, to continue to press that. We have a great system that continues to work well. Also, Mr. Chairman, as part of the Basel III finalization efforts, a number of changes to the capital rules will have the effect of rais- VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 47 ing capital requirements on capital market activities. Can you dis- cuss your views on the appropriate level of capital markets-related activity, such as market making or underwriting? Mr. POWELL. Sure. Those are critical activities in the functioning of our financial markets and our economy, and they do need to be appropriately capitalized. I would say that overall, I think that the level of capital in our banking system is about right, and I don’t see a need to further raise capital. I know we are pushing forward with the fundamental review of the training book and the other Basel III end-game things, but I don’t see them as needed to raise overall levels of cap- ital. Mr. BUDD. Chairman, can you share how your view on capital re- quirements and things like market making and underwriting, how they could affect the balance between bank-driven and market- driven finance in the U.S. system? Mr. POWELL. I think, to the extent you raise capital requirements and they become quite binding, they encourage activity to move outside of the banking system into less-regulated and supervised entities. Mr. BUDD. Very good. Mr. Chairman, there has been a lot of dis- cussion in recent months about leveraged loans, and FSOC and others monitoring the market. In fact, you have had a couple of questions on this topic today, but when people discuss the issue, sometimes I think they are referencing different things. To help us get on the same page here, in your opinion, how would you define leveraged loans? Mr. POWELL. You are right. There are a lot of different ways to think about it, but a reasonable ballpark would be something that is rated below BBB. Or you could also say an amount of leverage— typically, they will have a leverage of maybe 6 times cash flow EBITDA. There are different ways to think about it, but I think that the best way to think about it is probably not investment grade. Mr. BUDD. Do you think there is a difference in leveraged loans in the banking sector and in the nonbanking sector? Mr. POWELL. Yes. I think there has been a trend over time for leveraged loans to be held by longer-term holders outside the bank- ing system, and that has accelerated. So, far fewer of them are on the books of banks with deposit insurance and the safety net, as opposed to collateralized loan obligations or exchange-traded funds or mutual funds or pension funds or hedge funds. That is where those loans are going now. It is more like it has become a distribution business as opposed to a traditional lending business, where banks would make a loan, and they would put it on the balance sheet. That is not what is really happening. You have a bank performing an origination func- tion on behalf of a sophisticated investor that is stably funded, we hope, and in the case of the CLOs is, but that is something we need to keep monitoring. Mr. BUDD. Thank you, Chairman. Chairwoman WATERS. Thank you. The gentleman from Illinois, Mr. Garcia, is recognized for 5 minutes. VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 48 Mr. GARCIA OF ILLINOIS. Thank you, Madam Chairwoman, and thank you for being here, Chairman Powell. I would like to return to the topic of climate change for a bit. Extreme weather events have had a great impact on the Midwest and working-class commu- nities like those in my Chicago district, and they are often the hardest-hit during such disruptions. Climate change is also a risk to the financial sector. Jim Cramer, host of Mad Money on CNBC, in a discussion last week, said major institutional investors want nothing to do with fossil fuels because of concerns about climate change. To guard against climate change impacts, the Bank of England has decided to stress test the UK’s largest banks and insurance companies against the risks associated with climate change. Will the Federal Reserve follow suit and develop climate-related stress tests? Mr. POWELL. We are monitoring what the Bank of England is doing. By the way, those are stress tests that are not like our stress tests, in the sense that they would have direct effects on the bank’s ability to make distributions and things like that. They are really trying to make an assessment. So, we will be watching that carefully. We haven’t made a decision to proceed with something like that. Mr. GARCIA OF ILLINOIS. Good. I am encouraged. Looking ahead, incorporating climate change into economic forecasts will become more important. Climate disasters, such as Hurricane Maria in Puerto Rico or the wildfires that swept through California last year, are currently labeled transitory risks by the Federal Reserve. But we know extreme weather events will become more frequent and severe, with the likely result a corresponding increase in eco- nomic losses and physical risks, the brunt of which will be felt by communities of color and working-class communities. Chairman, when the Fed develops its economic forecasts, at what point should climate change shift from being considered a transi- tory factor to a structural factor? Mr. POWELL. Our forecasts, both the individual ones that FOMC people like me write down, and the staff forecasts, are not for the sort of longer term. What is important is the next year, the next 2 years, the next 3 years. And climate change just operates on a longer cycle than that. Of course, as you suggest, as severe weather becomes more com- mon, and that is connected to climate change, you will see those things entering the forecast period, and it is certainly entering our supervisory practices as well as our economic forecasting. Mr. GARCIA OF ILLINOIS. Okay. In a recent speech at the San Francisco Fed’s Conference on the Economics of Climate Change, Fed Governor Lael Brainard said, ‘‘By participating more actively in climate-related research and practice, the Federal Reserve can be more effective in supporting a strong economy and a stable fi- nancial system.’’ Do you agree with Governor Brainard’s state- ment? If yes, what more will the Fed do in the future to identify and mitigate the financial risks of climate change? Mr. POWELL. I do think it is incumbent on us to do the research and understand the implications of climate change for our super- visory roles and our roles in looking after financial stability, and that is what we are doing. I think it is early days for that, but the VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 49 public will expect that we do that and that we take the measures that we need to take to make sure that the financial system is re- silient. Mr. GARCIA OF ILLINOIS. Do you agree with her statement, gen- erally? Mr. POWELL. That statement I do, yes. Mr. GARCIA OF ILLINOIS. Okay. Thank you. Big bank mergers and market concentration—3 months ago, the Federal Reserve approved a merger between BB&T and SunTrust, which created the sixth-largest bank in the U.S., with more than $450 billion in total assets, and the Federal Reserve’s own research suggests that the failure of a single $250 billion bank would be far worse for the economy than the failure of 5 separate $50 billion banks. Furthermore, the former FDIC Chair, Mr. Gruenberg, has warned that the FDIC would not be able to wind down a bank the size of the combined BB&T/SunTrust without imposing significant losses on the deposit insurance fund, and potentially destabilizing the financial system. In this light, can the Federal Reserve justify its conclusion that, ‘‘this transaction would not appear to result in meaningfully great- er or more concentrated risk to the stability of the financial sys- tem?’’ Mr. POWELL. Yes, I think we can, and I think we did. We evalu- ate these mergers under a very clear statutory framework, very transparently. We had a number of public hearings on it and looked at all the statutory factors, and essentially, you have 2 banks coming together to form a regional bank that is akin to, or smaller than many of the other regional banks, and it doesn’t ap- pear to me to have significant financial stability implications at all. Mr. GARCIA OF ILLINOIS. Thank you, Mr. Chairman. I yield back, Madam Chairwoman. Chairwoman WATERS. The gentleman from Tennessee, Mr. Kustoff, is recognized for 5 minutes. Mr. KUSTOFF. Thank you, Madam Chairwoman, and thank you, Mr. Chairman, for appearing today. I heard your statements in your opening remarks about the coronavirus and certainly in regards to some of the questions that you have had today. I noticed this morning, in a report that Axios listed, they quoted from the Global Port Tracker, and it said that traffic at U.S. ports is expected to decline in February almost 13 percent, and in March, between 9 and 10 percent, year over year. Now assuming that those numbers are true and correct, what impact, if any, would that have on the retail sector, and what im- pact, if any, would that have on the overall economy? Mr. POWELL. I think there is a lot of uncertainty around what the ultimate economic effects will be outside of China, and particu- larly in the United States. We do expect, consistent with that re- port, that there would be some effects. The question really will be, what will be the size and scope of them, and also, will they be per- sistent, or will it be something that just passes through? And ulti- mately, the bottom-line question for us is, does it represent a mate- rial change in the outlook, something that we should react to with monetary policy? That is really the question for us, and it is really VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 50 too early to say. We will be monitoring it like everyone else will, very carefully, and that is where we are. Mr. KUSTOFF. Along those same lines, and also from Axios, they quoted from a Bank of America security report. They said they sur- veyed 3,000 companies about the global supply chain, and that many companies around the world are looking at relocating. The called it, in the report, a ‘‘tectonic shift’’ in global supply, looking to other areas of South Asia, India, and also North America. My question to you—first of all, I don’t know whether you are fa- miliar with the study, this Bank of America securities study or re- port? Are those numbers, or those anecdotal statements, consistent with anything that the Federal Reserve is seeing? Mr. POWELL. I am not familiar with that report, and therefore can’t comment on it. I would say there are a number of channels through which this could have an effect, the first of which is just tourism, really. The second is that our ability to export to China is less because there is just less going on there, so exports could go down. You mentioned supply chains. Many U.S. companies buy inter- mediate goods as part of creating their final product, so supply chain issues, we don’t have any real evidence on that yet. And I would say the last channel is really financial markets; financial markets themselves can be a channel for the transmission of risk off behavior, which can affect economic behavior. We will be looking at all of that. It is way too early to say what it will amount to. We are just going to have to wait and see. There is no way to be kind of confident of anyone’s assessment, and there are a range of assessments. Mr. KUSTOFF. Based on what you just said, I think I know your answer, but I will ask it anyway. The report mentioned a number of reasons. One is the tariffs between our country and China and the impact that it has had on China and subsidiary companies, but also automation and the increase in automation. Does that sound consistent with relocating these supply chains? Mr. POWELL. Yes, separate from the questions about the virus, there clearly has been, on the part of American companies, a lot of activity in moving to other jurisdictions. Vietnam, in particular, gets mentioned quite a bit. I saw a report last week. A number of other countries have had American businesses moving their pro- duction activities out of China to other locations, and that certainly has happened. Mr. KUSTOFF. Including the United States. Mr. POWELL. Yes. Mr. KUSTOFF. Thank you. Or relocating back to the United States. I guess, along those same lines, I represent part of Memphis and west Tennessee. In Memphis, just outside my district, there was an announcement Amazon made 2 or 3 weeks ago that they are locat- ing a new facility there. It will bring 1,000 jobs, and incidentally, we had questions on the minimum wage. They are going to start their wages at at least $15-an-hour, plus benefits. But it talked about these new jobs in combination with automa- tion, automation in terms of packing and shipping. You have talked about your concerns of automation and the effect that will have on VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 51 employment in the future. Can you see the two coexisting, for in- stance, like with this Amazon plant? Mr. POWELL. Over the last 21⁄ 2 centuries, we have seen advanc- ing technology, and there has been a concern that it would replace human labor, and that has happened. But what has happened, though, is it has made human labor, over time, more productive. So, there is displacement of current workers, but over time, ad- vancing technology has led to rising incomes. But that doesn’t mean there won’t be disruptions and a lot of pain for people in the short term, but nonetheless the process over time has led to rising incomes. Chairwoman WATERS. The gentleman from Florida, Mr. Lawson, is recognized for 5 minutes. Mr. LAWSON. Thank you, Madam Chairwoman. Mr. Chairman, welcome to the committee. And I would like for you to explain to me, for the past almost 3 hours, 2 hours and maybe 45 minutes, when you were talking, and members on the committee were speaking in terms of how well the economy is doing, how we have more opportunity for jobs in the economy, when you started speaking, the Dow was up 125 points, and while you were speaking, it went down. Can you tell me why, when something like this occurs, who is listening to your speech this morning in front of the Financial Services Committee that would cause the Dow to go down? Is it because of the cuts in the interest rate? How do you explain it? Mr. POWELL. I really can’t. I am not following the market, as I sit here answering your questions. Mr. LAWSON. Okay. I know that the President tweeted out some- thing similar, that when you started, the Dow was up, and then the Dow went down. Do you react to that, or it doesn’t really mean that much to you? Mr. POWELL. I’m sorry. Do I— Mr. LAWSON. Do you react to that? The President tweeted also about how the Dow went down and the cutting of interest rates. Do you react to that, or is it just something that happens? Mr. POWELL. My colleagues and I are completely focused on using our tools to support the American people, to support the achievement of our goals, and that is really all we are focused on. Mr. LAWSON. Okay. Explain to me, too, from a staff report they stated that starting in July of last year, about 3 different times, the interest rate was cut by a quarter percent. How do you make the decision? Did that stimulate the economy, when you made those cuts, all the way through October, a quarter percent cut in the in- terest rate? Mr. POWELL. We were really looking at a few things when we did that, and yes, the intention was definitely to support the economy. Part of it was to offset the effects of global factors, and there I would say just the slowdown in growth in the global economy just went on and on, and we felt the need to offset that and also take out some insurance against the effect that might have on the United States. Trade policy uncertainty was weighing on the U.S. economy. We tried to offset any potential effects and take out some insurance there. And the third reason was that we wanted to do what we VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 52 could to guard against a more prolonged shortfall of inflation from our symmetric 2 percent objective. We have supported growth to support inflation moving back up. So, those were the reasons why we did those 3 things, and that is the thinking that we had and that we announced. Mr. LAWSON. Okay. Could there be a correlation between the growing student crisis and the slowdown of the housing market, which we talked about a great deal, in the last couple of months? As you know, many borrowers of student loans are not able to get homes because of their high debt-to-income ratio. Could that be a signal that there is a great need to address, first, the mounting student debt crisis? Mr. POWELL. I would say that the rising student debt is certainly a concern. It has been rising fast and is now large. There is in- creasing evidence that shows that students who can’t pay that and can’t service that debt have difficulty having normal economic lives and buying homes and things like that. I haven’t seen any evidence that would suggest that it is an im- portant factor currently today, driving the housing industry. I would say the housing industry has actually been—activity in housing has been moving up here over the course of the last 7, 8 months, as the effect of lower rates and just an overall good labor market and things like that are showing up in more house building and also housing sales. Mr. LAWSON. My time is about to expire. I have a lot of students in my district, in the Fifth Congressional District, many of them coming out of school. One of the things they are concerned about is the housing issue, with going into the job market, how can they best share in the American Dream like their parents without get- ting help from their parents? And so with that, Madam Chairwoman, I yield back. Chairwoman WATERS. Thank you. The Chair wishes to remind Members that we have a hard stop at 1 p.m. today. The gentle- woman from Massachusetts, Ms. Pressley, will be the final Member to ask questions today. With that, the gentleman from Indiana, Mr. Hollingsworth, is recognized for 5 minutes. Mr. HOLLINGSWORTH. I appreciate the time, and I, both in pri- vate and in public, have been extremely complimentary of the work that you and your colleagues have done, not only in calibrating con- ditions to match the current economy but also in the framework by which you make many of your decisions and how you present that in public. I really appreciate that. And I know a cornerstone of what you have been trying to do at the Fed is bring even more transparency to the Fed in some of the decision-making, and the press conferences that you have had have added a lot of transparency to it. It is hard for me to understand some of the challenges in CCAR and the stress capital buffers and some of the more vague language or inability to pin down a timeline for changes to that, expectation of changes to that, especially when 2020 CCAR has already started. I know Mrs. Wagner also asked about this. I had asked Vice Chair Quarles about this in December. I think I sent a letter to you and Quarles, signed by every member on this side of the aisle on VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 53 Financial Services, just trying to get a feel for, what are the changes that are going to be made, what is the timeline for those that would undertake these stress tests, getting those changes. They are trying to make decisions with trillion-dollar balance sheets, multi-billion-dollar balance sheets, trying to make their plans. This time is now upon us and I feel like we are still being very vague about what is coming down the pike and when we can expect even, whatever that is that is coming down the pike, when we could expect that to arrive before us. And so, I wondered if you might give some more color on that, or give some reasons why you and your colleagues have been a lit- tle more hesitant to answer that? Mr. POWELL. I can’t give more clarity than exists, so I will just say again, we do expect that the core of the stress capital buffer will be incorporated into the stress test this year, and we will do that in a way that is timely for CCAR. Mr. HOLLINGSWORTH. Okay. In our previous conversations, I think we had had just kind of a general agreement, and don’t let me overstate that if that is incorrect, that some of the aspects of this needed to be calibrated. We put a lot of this into play post- Dodd-Frank. We felt like we were doing the right thing in doing so, but perhaps we either had unintended effects, maybe the in- tended effects were not as great as we thought they would be, or perhaps this wasn’t the area we needed to focus on. And I think we had agreed that some of this requires significant calibration going forward. Do you expect that there will be further review and calibration of these tests to reflect either current conditions, or, alternatively, what we have learned since the crisis about what works and what doesn’t work, and what may be adding to significant reserves at many of these institutions? Mr. POWELL. My strong view is that capital, the levels of capital, particularly in the largest institutions, are about right, and there is not a need to raise or to lower them, and that should reflect that. Mr. HOLLINGSWORTH. Just out of curiosity, tell me, when you say, ‘‘about right,’’ buttress that with data. Help me understand kind of what do you look at to say this means, ‘‘about right?’’ Mr. POWELL. Capital levels are much higher and the quality of our capital is much higher. Mr. HOLLINGSWORTH. That is undoubtedly true, but I think we all agree that during the crisis, or pre-crisis, capital levels weren’t adequate. So to say that they are higher isn’t definitive in terms of, are they too high? Are they still too low? Are they about right? What do you use to indicate this is the ‘‘about right’’ level of cap- ital? Mr. POWELL. The stress test, for one. You look at the stress test, and you throw a scenario that is equivalent or maybe even a little stronger than what happened during the global financial crisis, and you see, do these institutions have the wherewithal to remain rea- sonably well-capitalized and really well-capitalized enough to con- tinue to have the confidence of the markets? That is really the question. They have to be above certain minimums, and they do, but not by some giant margin. It doesn’t suggest that capital is too VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 54 high. It suggest that it is just about right. And the stress tests are probably a great test for that. Mr. HOLLINGSWORTH. Yes. I think you could see how it might be concerning for institutions that feel like they are caught in a bit of a circular logic, right? We can try these stress tests, and then if they chin the bar on the stress test then we believe that is right, that is exactly right, without going back and changing some of the underlying factors that go into the stress test. You can always say that, right? You can always say as long as they chin the bar that it is about right, no matter what the bar is. They want to go back and just look underneath the hood and say, gosh, are these assumptions still correct? The way that we have done these stress tests, is it the right way to do that? Right? Maybe in a relative sense, yes, it is higher, the capital is higher than what the stress tests have indicated, but in an absolute sense, we are not asking the question, is this testing the right thing and are we doing this test correctly, and does it include all the right variables? And I think that is what they are looking for, is just fur- ther clarification on when we can expect that review, comprehen- sively, that the Fed has talked about for so long. Mr. POWELL. I think we have been doing that all along. We had a conference on the stress test last summer with experts both in- ternal and external—academics, people from the banks. We are doing that all the time. Everything we do with the stress test is transparent, public, out for comment, things like that. Maybe not ex ante, but people can look back. It is not like we haven’t adjusted the stress test. Chairwoman WATERS. The gentlewoman from Massachusetts, Ms. Pressley, is recognized for 5 minutes. Ms. PRESSLEY. Thank you, Madam Chairwoman, and I also want to thank the activists in the room who have been organizing for a more responsive Fed. I know, having been raised by a tenants’ rights organizer, that activism can be a full-time job, and so we thank you for taking it on, and I thank the Chairman for testifying before the committee today. Just as with the Fed now, the decisions you make do impact ev- eryday working people. Your decisions impact how many jobs we have, who has what jobs, how much they are being paid, and who is most harmed when unemployment is higher. In the past, you have said, ‘‘We want prosperity to be widely shared. We need policies to make that happen.’’ However, the Fed’s approach has never successfully ensured enough well-paying jobs are available to everyone who wants to work, even for a small time. In a 1944 address, FDR called for a second Bill of Rights, which included the right to a useful and financially rewarding job. Justice Thurgood Marshall argued that the right to a job is secured by the 14th Amendment. And Dr. Martin Luther King called on the gov- ernment to guarantee a job to all people who want to work and are able to work. Dr. King’s legacy is often reduced to just one speech, and the March on Washington often mischaracterized. The March on Washington was actually the March on Washington for Jobs and Freedoms. It was a march for economic justice. And I take special claim to the fact that Dr. King and Coretta actually met in Boston. I represent Boston, and I don’t think that VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 55 she gets enough credit for the role that she played in the move- ment. And after Dr. King’s assassination, Coretta Scott King picked up the mantle, pushing the Fed to adopt a full employment mandate, and was actually standing behind President Carter as he signed the Humphrey-Hawkins Act into law, and that is the reason that you are here today. In the interest of time, if you would indulge me and answer as succinctly as possible, yes or no, Mr. Chairman, given persistent concerns about inflation, do you believe that the Federal Reserve can achieve full employment, and by full employment, I mean any- one who wants to work and can work will have a job available to them? Mr. POWELL. First, thank you for that history. I didn’t know that. That is our goal. That is what we are working to do at all times. And I think, we are never going to say we have accomplished that goal, but we certainly have made some progress. Ms. PRESSLEY. I will take that as a yes. Could a Federal jobs guarantee succeed where the Federal Reserve has not? Yes or no? Mr. POWELL. That is a hard one to answer. I don’t know. Ms. PRESSLEY. Guaranteeing a job, that is the history that I was providing, that anyone who wants to work and is able to work— Mr. POWELL. I think the numbers on that— Ms. PRESSLEY. Okay. Chairman Powell, by all indications, the U.S. economy has had output well below potential for 8 of the past 10 years, and for most of the decade prior. Is it true that most of that period has seen unemployment well above target, while we al- most never have seen inflation above target? Mr. POWELL. That is true. Ms. PRESSLEY. Okay. Meanwhile, Black unemployment remains double that of white unemployment. Now, the Fed began raising rates in 2016, even though inflation was still below target, and when rates go up, unemployment tends to as well. Did the Fed con- sider how raising rates would disproportionately impact those who were already struggling to secure employment, like communities of color, individuals who were formerly incarcerated, and our immi- grant neighbors? Mr. POWELL. I would say that unemployment has continued to go down quite significantly since we began to raise rates at the end of 2016, actually the end of 2015. Ms. PRESSLEY. But again, did the Fed consider how raising rates would disproportionately impact those who were already struggling to secure employment? Mr. POWELL. I think our consideration was really that the right thing to do was to get monetary policy back toward a place where it reflected an economy that had recovered quite a bit, for the ben- efit of all people, including low- and moderate-income people, in- cluding minorities. Ms. PRESSLEY. A lot of people are still recovering. But in the in- terest of time, given that there have been no signs of the economy overheating since then, and you are now cutting rates, is it possible you began cutting rates too soon? Mr. POWELL. I think history will judge that. We have to make the decisions in real time. Though we really have learned some- VerDate Nov 24 2008 15:51 Jan 16, 2021 Jkt 095071 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 K:\DOCS\HBA042.000 TERRI 56 thing since then, which is that unemployment can be lower than most people thought, without inflation. Ms. PRESSLEY. Bearing that in mind, knowing what you know now, would you still have supported raising the interest rates when the Fed did? Mr. POWELL. I did support it then, and hindsight is 20–20. I think you have to judge those decisions on what we knew at the time. Ms. PRESSLEY. Would more Americans have jobs today if the Fed had not increased rates over the past 3 years? Mr. POWELL. I don’t know. We are at a 50-year low. That is a fair question. Ms. PRESSLEY. Thank you. Mr. POWELL. Thank you. Chairwoman WATERS. I would like to thank Chairman Powell for his testimony today. The Chair notes that some Members may have additional ques- tions for this witness, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legis- lative days for Members to submit written questions to this witness and to place his responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous mate- rials to the Chair for inclusion in the record. Thank you all, and this hearing is now adjourned. 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Jerome H. Powell (2020, February 10). Congressional Testimony. Testimony, Federal Reserve. https://whenthefedspeaks.com/doc/testimony_20200211_chair_monetary_policy_and_the_state_of_the

@misc{wtfs_testimony_20200211_chair_monetary_policy_and_the_state_of_the,
  author = {Jerome H. Powell},
  title = {Congressional Testimony},
  year = {2020},
  month = {Feb},
  howpublished = {Testimony, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/testimony_20200211_chair_monetary_policy_and_the_state_of_the},
  note = {Retrieved via When the Fed Speaks corpus}
}