Congressional Testimony

MONETARY POLICY AND THE STATE OF THE ECONOMY VIRTUAL HEARING BEFORETHE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTEENTH CONGRESS FIRST SESSION FEBRUARY 24, 2021 Printed for the use of the Committee on Financial Services Serial No. 117–4 ( U.S. GOVERNMENT PUBLISHING OFFICE 43–967 PDF WASHINGTON : 2021 VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\HBA055.000 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 FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York BILL POSEY, Florida DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio ED PERLMUTTER, Colorado ANN WAGNER, Missouri JIM A. HIMES, Connecticut ANDY BARR, Kentucky BILL FOSTER, Illinois ROGER WILLIAMS, Texas JOYCE BEATTY, Ohio FRENCH HILL, Arkansas JUAN VARGAS, California TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio CINDY AXNE, Iowa TED BUDD, North Carolina SEAN CASTEN, Illinois DAVID KUSTOFF, Tennessee AYANNA PRESSLEY, Massachusetts TREY HOLLINGSWORTH, Indiana RITCHIE TORRES, New York ANTHONY GONZALEZ, Ohio STEPHEN F. LYNCH, Massachusetts JOHN ROSE, Tennessee ALMA ADAMS, North Carolina BRYAN STEIL, Wisconsin RASHIDA TLAIB, Michigan LANCE GOODEN, Texas MADELEINE DEAN, Pennsylvania WILLIAM TIMMONS, South Carolina ALEXANDRIA OCASIO-CORTEZ, New York VAN TAYLOR, Texas JESU´S ‘‘CHUY’’ GARCIA, Illinois SYLVIA GARCIA, Texas NIKEMA WILLIAMS, Georgia JAKE AUCHINCLOSS, Massachusetts CHARLA OUERTATANI, Staff Director (II) VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\HBA055.000 TERRI C O N T E N T S Page Hearing held on: February 24, 2021 ............................................................................................ 1 Appendix: February 24, 2021 ............................................................................................ 53 WITNESSES WEDNESDAY, FEBRUARY 24, 2021 Powell, Hon. Jerome H., Chairman, Board of Governors of the Federal Re- serve System ......................................................................................................... 4 APPENDIX Prepared statements: Powell, Hon. Jerome H. .................................................................................... 54 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Powell, Hon. Jerome H.: Monetary Policy Report of the Board of Governors of the Federal Reserve System, dated February 19, 2021 ................................................................ 60 Written responses to questions for the record from Chairwoman Waters ... 136 Written responses to questions for the record from Representative Hill .... 154 Written responses to questions for the record from Representative Steil ... 160 Written responses to questions for the record from Representative Timmons ........................................................................................................ 162 (III) VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\HBA055.000 TERRI VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\HBA055.000 TERRI MONETARY POLICY AND THE STATE OF THE ECONOMY Wednesday, February 24, 2021 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 9:59 a.m., via Webex, Hon. Maxine Waters [chairwoman of the committee] presiding. Members present: Representatives Waters, Velazquez, Sherman, Scott, Green, Cleaver, Perlmutter, Himes, Foster, Beatty, Gottheimer, Lawson, Axne, Casten, Pressley, Adams, Tlaib, Dean, Ocasio-Cortez, Garcia of Illinois, Garcia of Texas, Williams of Geor- gia; McHenry, Wagner, Lucas, Posey, Luetkemeyer, Huizenga, Stiv- ers, Barr, Williams of Texas, Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson, Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden, 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. As a reminder, I ask all Members to keep themselves muted when they are not being recognized by the Chair. This will mini- mize disturbances while Members are asking questions of our wit- nesses. The staff has been instructed not to mute Members except where a member is not being recognized by the Chair and there is inadvertent background noise. Members are also reminded that they may only participate in one remote proceeding at a time. If you are participating today, please keep your camera on, and if you choose to attend a different remote proceeding, please turn your camera off. If Members wish to be recognized during the hearing, please identify yourself by name to facilitate recognition by the Chair. I would also ask that Members be patient as the Chair proceeds, given the nature of conducting committee business virtually. Today’s hearing is entitled, ‘‘Monetary Policy and the State of the Economy.’’ I now recognize myself for 4 minutes to give an opening state- ment. Welcome back, Chair Powell. Since your last testimony before this committee, the COVID-19 pandemic has continued to have a devastating impact all across the country. Over 500,000 people in the United States have lost their lives to the virus, and there have been 27.9 million U.S. cases of the virus. The economy continues to be in a crisis. Millions of families are struggling to make rent (1) VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 2 or mortgage payments through no fault of their own. Roughly one- third of small businesses remain closed, and many more are at risk of permanently shutting their doors. I am so glad that we now have President Biden providing leader- ship from the White House and a real plan to tackle this crisis once and for all. With Democrats now in control of the Senate, Congress can carry out that plan and provide the nation with the relief it so urgently needs. This committee has advanced legislation in our jurisdiction to implement President Biden’s American Rescue Plan, and the full House will take up this legislation later this week. After the gross, if not criminal mismanagement of the crisis by the Trump Administration, Americans have shown that they want competent leadership and decisive action to crush this virus and put the economy on the road to recovery. But even after Congress passes the American Rescue Plan, the country still needs the Fed- eral Reserve to adapt and to stand ready to use all of the tools at its disposal to ensure an equitable and swift recovery. It is long overdue for the Federal Reserve to reconsider its nor- mal operating procedures and use its authorities to tackle the ra- cial wealth and employment gaps. The Fed must act vigilantly against ongoing signs of systemic stress, putting a stop to the de- regulation that preceded this crisis. The Fed must continue to be attentive to inequality as it oversees this recovery, taking the im- pact on consumers and small businesses into account when consid- ering mergers in the financial industry. And the Fed must proceed with greater alacrity regarding climate risk in its supervision of fi- nancial institutions. The Fed has recently taken a few steps in this regard, but much more is needed to combat the systemic and exten- sional treatment. I look forward to your testimony, and to dis- cussing these matters today. I now recognize the ranking member of the committee, the gen- tleman from North Carolina, Mr. McHenry, for 5 minutes. Mr. MCHENRY. Chairman Powell, I would like to commend you again for your swift response to the pandemic. The Federal Reserve was the fastest-acting part of the Federal response, thanks to your foresight and leadership. As we have discussed previously, Chair Powell, there is a clear distinction between what is fiscal policy within the purview of Congress and what is monetary policy within the purview of the Fed. I appreciate your work to protect the inde- pendence of the Fed, and I know that you will continue to do so. We have politicians who are talking down our economy, with even the Speaker of the House saying, ‘‘The economic crisis is ac- celerating,’’ and they are saying this specifically to pass their spending packages. Our economy is on the mend, despite what poli- ticians parrot as their preferred narrative. The first phase of the storm is passing. Now, we have to deal with the damage COVID wrought, and it did indeed bring significant damage. The virus, the shutdowns, schools not reopening, and the lack of child care all have had serious consequences. These are maladies which the Fed cannot fix. In fact, Congress doesn’t seem to have the power to do it either. It is Governors and the States they lead who are showing the path forward. Money alone will not fix it. Vac- cines, testing, treatment, and data-driven public health decisions will have a larger impact than either monetary policy or fiscal pol- VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 3 icy at this stage of the game. What is called for is targeted tem- porary relief directly related to COVID, not a typical stimulus bill in the name of COVID relief. To be clear, we know there are many Americans still suffering. Behind every statistic is a family that is still reeling from this cri- sis. For a year now, we have been working to reach those in need. As you have said, Chairman Powell, this is a tale of two recoveries. Employment for the top quartile of wage earners has fallen by 4 percent, while the bottom quartile has dropped by a full 17 percent, so let’s dig deeper here. More than 4 million Americans have been unemployed for almost a year. In the restaurant industry alone, 1 out of 6 businesses have been shuttered since last March. And while the Congressional Budget Office (CBO) projects the unem- ployment rate, which currently stands at 6.2 percent—which, by the way, is lower than the unemployment rate under the first 51⁄ 2 years of President Obama—will continue to fall this year and reach a pre-pandemic size in 2022 without any other additional fiscal ac- tion. There are millions of American families juggling work and child care, and just praying that their schools will finally reopen. Yes, personal incomes actually increased at the end of last year, and the personal savings rate stands at over 13 percent, a level not seen in 4 decades. Yet, child care costs have jumped by almost 50 per- cent since last year. A year ago, women outnumbered men in the workforce, and since the pandemic, 2.5 million women have left the workforce. Given the nature of the shutdown, the temporary aid that we provided last year and the Fed’s swift actions prevented the worst possible outcomes from occurring in this crisis. Now, we have to deal with the divide, the uneven recovery that has occurred, and as we exit this pandemic, we need to find innovative solutions that support finding employment for these Americans, and we need to bring those who exited the labor force completely back in. And the Fed must also focus on regulatory flexibility and provide flexibility to financial markets to ensure that we have a less choppy recovery. And indeed, Chairman Powell, there are new challenges and choppy waters ahead, and I am grateful for your steady hand and pragmatic leadership at the Federal Reserve and for our economy and for our Government. Thanks so much, and I yield back. Chairwoman WATERS. Thank you. I now recognize the gentleman from Connecticut, Mr. Himes, who is also the Chair of our Sub- committee on National Security, International Development and Monetary Policy, for 1 minute. Mr. HIMES. Thank you, Madam Chairwoman, and Chairman Powell, thank you for being here today. Let me echo our thanks for your incredible intervention and work in addressing the economic aspects of this pandemic. In 2008, the Federal Reserve took extraordinary actions, includ- ing the then-controversial use of its emergency lending powers, to rescue the financial sector, and the pandemic has shown us that the need for the Fed to engage in emergency intervention remains. When you last testified before this committee in December, we dis- cussed the wisdom, or lack thereof, of shutting down those emer- gency facilities before the pandemic was over. And then at the end VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 4 of last year, we saw troubling signs on the horizon of elevated un- employment numbers and an uptick in business bankruptcy. Clear- ly, we are not out of the woods, and if 2008 and 2020 have taught us anything, it is that crises happen and we need to prepare for them. Unlike in 2009, fiscal policy will be heavily deployed and our shoulders will be to the wheel. Nonetheless, the Federal Reserve is arguably the major player in our capital markets. I look forward to hearing from you today, Mr. Chairman, not just on where we are, but how this ends. How does it unwind? A look at page 43 of your Monetary Report shows the incredible interven- tions, and the question is, how does this unwind and where do we go from here? With that, I yield back. Chairwoman WATERS. Thank you. I now recognize the ranking member of the Subcommittee on National Security, International Development and Monetary Policy, the gentleman from Arkansas, Mr. Hill, for 1 minute. Mr. HILL. Thank you, Madam Chairwoman, and I want to echo the comments of my friend and chairman, Chairman Himes, of the subcommittee. We thank you, Chairman Powell, for the extraor- dinary actions of the Board of Governors during 2020 in monetary policy and your extraordinary facilities in using Section 13(3). And we also commend the Congress and the Executive Branch in 2020 for their fiscal response which gave us the resources we needed to fight the pandemic and get our economy to the point it is today to open. I agree with Chairman Himes that now, it is time to look on the other side of this pandemic. As we vaccinate America, as we get our businesses open, as we see State and local governments having far in excess of the tax rev- enues that they anticipated, and people getting back to work, how do we safely open this economy, get those jobs available for those 10 million Americans still seeking employment? I look forward to your testimony today. I yield back, Madam Chairwoman. Chairwoman WATERS. Thank you. I want to welcome to the com- mittee our distinguished witness, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System. Chair Powell has served on the Board of Governors since 2012, and as its Chair since 2017. Chair Powell has previously testified before this com- mittee, so I do not believe he needs any further introduction. With- out objection, your written statement will be made a part of the record. And I want to remind Members that Chair Powell has a hard stop, and will be with us for 3 hours, until 1 p.m. Eastern Time. Chair 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, and good morning to all. Chairwoman Waters, Ranking Member McHenry, and members of the com- mittee, I am pleased to present the Federal Reserve’s Semiannual Monetary Policy Report. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 5 At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us: maximum employment and price stability. Since the beginning of the pan- demic, we have taken forceful actions to provide support and sta- bility to ensure that the recovery will be as strong as possible, and to limit lasting damage to households, businesses, and commu- nities. Today, I will review the current economic situation before turning to monetary policy. The path of the economy continues to depend significantly on the course of the virus and the measures taken to control its spread. The resurgence in COVID-19 cases, hospitalizations, and deaths in recent months is causing great hardship for millions of Americans and is weighing on economic activity and job creation. Following a sharp rebound in economic activity last summer, momentum slowed substantially, with the weakness concentrated in the sectors most adversely affected by the resurgence of the virus. In recent weeks, the number of new cases and hospitalizations has been fall- ing, and ongoing vaccinations offer hope for a return to more nor- mal conditions later this year. However, the economic recovery re- mains uneven and far from complete, and the path ahead is highly uncertain. Household spending on services remains low, especially in sectors that typically require people to gather closely, including leisure and hospitality. In contrast, household spending on goods picked up en- couragingly in January after moderating late last year. The hous- ing sector has more than fully recovered from the downturn, while business investment and manufacturing production have also picked up. The overall recovery in economic activity since last spring is due in part to unprecedented fiscal and monetary policy actions, which have provided essential support to many households, businesses, and communities. As with overall economic activity, the pace of improvement in the labor market has slowed. Over the 3 months ending in January, employment rose at an average monthly rate of only 29,000. Con- tinued progress in many industries has been tempered by signifi- cant losses in industries such as leisure and hospitality, where the resurgence in the virus and increased social distancing have weighed further on activity. The unemployment rate remained ele- vated at 6.3 percent in January, and participation in the labor mar- ket is notably below pre-pandemic levels. Although there has been much progress in the labor market since the spring, millions of Americans remain out of work. As discussed in the February Monetary Policy Report, the eco- nomic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit. In par- ticular, the high level of joblessness has been especially severe for lower-wage workers and for African Americans, Hispanics, and other minority groups. The economic dislocation has upended many lives and created great uncertainty about the future. The pandemic has also left a significant imprint on inflation. Following large de- clines in the spring, consumer prices partially rebounded over the rest of last year. However, for some of the sectors that have been most adversely affected by the pandemic, prices remain particu- VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 6 larly soft. Overall, on a 12-month basis, inflation remains below our 2-percent longer-run objective. While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year. In particular, ongoing progress in vaccinations should help speed the return to normal activities. In the meantime, we should con- tinue to follow the advice of health experts to observe social distancing measures and wear masks. I will turn now to monetary policy. In the second half of last year, the Federal Open Market Committee (FOMC) completed our first-ever public review of our monetary policy strategy, tools, and communication practices. We undertook this review because the U.S. economy has changed in ways that matter for monetary policy. The review’s purpose was to identify improvements to our policy framework that could enhance our ability to achieve our maximum employment and price stability objectives. The review involved ex- tensive outreach to a broad range of people and groups through a series of Fed Listens events. As described in the Monetary Policy Report, in August the Com- mittee unanimously adopted its revised Statement on Longer-Run Goals and Monetary Policy Strategy. Our revised statement shares many features with its predecessor. For example, we have not changed our 2-percent longer-run inflation goal. However, we did make some key changes. Regarding our employment goal, we em- phasized that maximum employment is a broad and inclusive goal. This change reflects our appreciation for the benefits of a strong labor market, particularly for low- and moderate-income commu- nities. In addition, we state that our policy decisions will be in- formed by our, ‘‘assessments of shortfalls of employment from its maximum level’’, rather than by, ‘‘deviations from its maximum level.’’ This change means that we will not tighten monetary policy solely in response to a strong labor market. Regarding our price stability goal, we state that we will seek to achieve inflation that averages 2 percent over time. This means that following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve in- flation moderately above 2 percent for some time. With this change, we aim to keep longer-run inflation expectations well-anchored at our 2-percent goal. Well-anchored inflation expectations enhance our ability to meet both our employment and inflation goals, par- ticularly in the current low-interest rate environment in which our main policy tool is likely to be more frequently constrained by the lower bound. We have implemented our new framework by forcefully deploying our policy tools. As noted in our January policy statement, we ex- pect that it will be appropriate to maintain the current accom- modative target range of the Federal funds rate until labor market conditions have reached a level consistent with the Committee’s as- sessments of maximum employment, and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, we will continue to increase our holdings of Treasury securities and agency mortgage-backed securities, at least at their current pace, until substantial further progress has been made toward our goals. These purchases and the associated in- VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 7 crease in the Federal Reserve’s balance sheet have materially eased financial conditions and are providing substantial support to the economy. The economy is a long way from our employment in- flation goals, and it is likely to take some time for substantial fur- ther progress to be achieved. We will continue to clearly commu- nicate our assessment of progress toward our goals well in advance of any change in the pace of purchases. Since the onset of the pandemic, the Federal Reserve has been taking actions to support more directly the flow of credit in the economy, deploying our emergency lending powers to an unprece- dented extent, enabled in large part by financial backing and sup- port from Congress and the Treasury. Although the CARES Act fa- cilities are no longer open to new activity, our other facilities re- main in place. Finally, we understand that our actions affect households, businesses, and communities across the country. Ev- erything we do is in service to our public mission. We are com- mitted to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible. Thank you. I look forward to your questions. [The prepared statement of Chairman Powell can be found on page 54 of the appendix.] Chairwoman WATERS. Thank you, Chairman Powell. I now recog- nize myself for 5 minutes for questions. During our committee markup on February 10th, some members of our committee tried to suggest that further fiscal action was not needed because we are on a swift path to recovery. For example, it was noted that the unemployment rate in the United States is currently better than it had been for the first 5 years of the Obama Administration. On that same day, you gave a speech that warned against this sort of top-line assessment of employment, noting that, ‘‘Employment in January of this year was nearly 10 million below its February 2020 level, a greater shortfall than the worst of the Great Recession’s aftermath.’’ Chair Powell, do you believe our economy is in a healthier posi- tion right now that it was in 2014, several years into the recovery from the Great Recession? Mr. POWELL. I am reluctant to make that comparison without thinking about it further. I will just echo that we have 10 million fewer people working on payroll jobs than we had just 1 year ago today, and that the unemployment rate, the reported rate, is 6.3 percent, but if you include people who were in the labor force and indeed working in February, and a couple of other adjustments, you get to almost a 10-percent unemployment rate. So, there is a lot of slack in the labor market and a long way to go to maximum employment. Chairwoman WATERS. Thank you. In that same February 10th speech, you mentioned that, ‘‘Fully recognizing the benefits of a strong labor market will take continued support from both near- term policy and longer-run investment.’’ Certainly, it will take longer-run investments to achieve a true, full employment economy that lifts workers’ wages and finally closes the racial wealth gap. As Congress considers President Biden’s American Rescue Plan, some of my colleagues have said we should, ‘‘wait and see,’’ before VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 8 spending more. Chair Powell, does the economy need additional fis- cal support from Congress right now? Also, how critical is it for Congress to make longer-run investments if we want to eliminate the racial wealth gap? Mr. POWELL. What I was really saying, Madam Chairwoman, was that we have shown that, over the course of a long expansion, we can get to low levels of unemployment, and that the benefits to society, including particularly to low- to moderate-income people, are very substantial. We have shown that we can do that. But it is not really a great strategy to wait until the 8th or 9th year of an expansion to get those benefits. To really improve through this cycle, what I was saying in that set of remarks was that it will take the private sector, and it will take investments from the pub- lic sector, frankly, in the workforce, education and training policies that support workforce participation. That is what I was really get- ting at there. Chairwoman WATERS. Thank you for that response. And with that, I am going to yield back my time, and I am going to call on the ranking member of the committee, the gentleman from North Carolina, Mr. McHenry, who is now recognized for 5 minutes. Mr. MCHENRY. Thank you, Madam Chairwoman. And, in fact, I think your labor market speech was a very important one for all of us to take note of, and this recovery is different than the recov- ery from the financial crisis. It took much longer for us to get to this rate of unemployment than it did post-financial crisis. And as I mentioned in my statement that the chairwoman of the com- mittee was kind enough to quote from, the labor market now is bet- ter than it was in President Obama’s first term of office, so these recoveries are different. Also, you had a broad-based recovery that took almost a decade to come about with the post-financial crisis, but right now you have segments of the economy, like you men- tioned in your statement, Chair Powell, about hospitality, that are lagging because of State shutdowns. But in your testimony, you mentioned the Fed’s exit strategy is contingent on meeting the Fed’s goals for economic recovery. How close is the economy to meeting the Fed’s goals, and what does that look like? Mr. POWELL. What we have said is that we would be purchasing assets, at least at the current pace, until we see substantial further progress toward our goals. That is actual progress; that is not fore- casted progress, so we would want to see that we moved. It is what it sounds like. We would like to see incoming actual data that show us moving closer to our goals, both for inflation and for employ- ment, and that is what it will take. And I agree there is an element of judgment in that, but we will be communicating as clearly as possible and as far in advance as possible how we perceive the path of progress toward those goals. Mr. MCHENRY. Okay. Consistent with the mandate. Mr. POWELL. Very much so. Mr. MCHENRY. What does the labor market look like when the Fed has achieved this goal? Mr. POWELL. I think it is easier to say with liftoff; we have been very specific with liftoff. We have said in liftoff, we would need to see labor market conditions that are consistent with maximum in- flation at 2 percent, and inflation is expected to move laterally VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 9 above 2 percent for some time. Those are the conditions for liftoff, and they are quite specific. We haven’t tried to be very specific about the pace of asset purchases. Mr. MCHENRY. Okay. Chair Powell, yesterday you also spoke about the digital dollar being a high priority for the Fed. I think this is a national security issue and an economic security issue for sure. You said you are committed to transparency to look into the digital Dollar. I think that is important. I think that is very impor- tant for our system of government, I think it is a very important thing for an open society, but let’s get into a few specifics on that, if we can. What can the public expect in terms of learning the de- tails of this project going forward, and are you able to share with us today what we can expect from the Fed this year, over the course of this year, with the Digital Dollar Project? Mr. POWELL. Yes. This is going to be an important year, and this is going to going to be the year in which we engage with the public pretty actively, including some public events that we are working on, which I am not going to announce today, but there are things that we are working on. And the sense of this is not, ‘‘Here are the decisions we have made, what do you guys think?’’ It is going to be, ‘‘These are the tradeoffs.’’ There are both policy questions and technical questions that interrelate between those two, and they are challenging questions. And so, we are going to want to have a public dialogue about that with all of the interested constituencies, and that is the idea of what we are doing. In the meantime, we are working on the technical challenges and also collaborating with and sharing work with the other central banks around the world who are doing this. And depending on what we do, we could very well need legislative authorization for such a thing, but that isn’t clear until we see which way we are going. But we will be engaging significantly with you and your col- leagues on Capitol Hill as well. Mr. MCHENRY. I think the project is vital. I think it is vital for American competitiveness, but also there is a fear that some want to use the digital dollars as a way to kill private-sector innovation in our banking system, implementing modern monetary policy, modern monetary theory, for example, vis-a-vis Fed Accounts. What do you say to folks hoping to exploit the Digital Dollar Project in that way? Mr. POWELL. One thing we need to be very mindful about is that we have a functioning financial system, and a banking system, and capital markets which intermediate between savers and borrowers, and they are the best markets and, I would say, the strongest banks in the world. We need to be careful with our design of the digital dollar that we don’t create something that will undermine that very healthy market-based function. That is one thing for sure. Mr. MCHENRY. Okay. Final question here, you mentioned the labor markets. We talked about the labor markets. As far as the fiscal side of the house, what are what the things that we should be doing? What are the biggest challenges to getting people back to work? Mr. POWELL. As you well know, unemployment and low activity is concentrated in that sector of the economy, in the service sector VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 10 where people gather closely together: travel entertainment, leisure, hotels, those sorts of things. The single most important policy to getting those sectors reopened and getting people back to work, of course, is bringing the pandemic to a decisive end as soon as pos- sible. And we are on the path to that, but we haven’t done it yet, so I think it is important that we do that quite decisively this year. Mr. MCHENRY. Thank you, Chair Powell. Thank you for your leadership. Chairwoman WATERS. The gentlewoman from New York, Ms. Velazquez, who is also the Chair of the House Committee on Small Business, is now recognized for 5 minutes. Ms. VELAZQUEZ. Thank you, Madam Chairwoman. Chairman Powell, I heard you speak about the changes in the FOMC’s monetary policy framework in your opening statement. It is clear that the pandemic has had an outsized impact on women, minorities, and younger workers. How will the changes in the FOMC’s monetary policy framework benefit workers in these groups? Mr. POWELL. What we learned in the course of the last expansion was that we could have unemployment at historically low levels without seeing troubling inflation arise. So, we took that on board in creating our new framework, and as I mentioned in my remarks, that means that we won’t tighten monetary policy just because of a strong labor market. We want to see either inflation moving up in a troubling way or other risks to achieving our goals, and that puts us in a place where we can have low levels of unemployment again. And when we get to those low levels, we see that they do benefit low- and moderate-income communities who tend to benefit earlier in the expansion. That, plus what we said about maximum employment being a broad inclusive goal, I think is what I would point to. Ms. VELAZQUEZ. Thank you. Chairman Powell, in May 2020, the OCC finalized a rule substantially revising the Community Rein- vestment Act (CRA), which the Fed and the FDIC did not sign onto. In September 2020, the Fed proposed its own update to the CRA. With the change in the Administration, do you expect the Fed to re-engage with the OCC and the FDIC on CRA rulemaking, and do you think there is an opportunity for a harmonized role amongst all three agencies? Mr. POWELL. I think there is an opportunity for a harmonized role among the three agencies, and we are engaged, have been en- gaged, and continue to be engaged with the FDIC and the OCC, and we are working on that very thing. Ms. VELAZQUEZ. Do you have a timeline? Mr. POWELL. I think we are just getting started. Ms. VELAZQUEZ. Okay. Mr. POWELL. There will be a new Comptroller, but, nonetheless, we are working on it. And, by the way, it will be one that has broad support among the community of intended beneficiaries, which was always the Fed’s test and my test for what it would take for the Fed to support reform of CRA. Ms. VELAZQUEZ. I am glad to hear that, especially at this time when underserved communities, minority, and female businesses, and all that has been impacted by this pandemic, and CRA is a VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 11 way to lift up communities of color particularly. Chairman Powell, last week Fed Governor Brainard gave a speech on the role of fi- nancial institutions in tackling the climate challenge. In her speech, she stated, ‘‘Climate change is already imposing substantial economic costs on the economy, and it is projected to have a pro- found effect on the economy at home and abroad.’’ Would you agree with her statement, and can you give some examples of how you see that to be true? Mr. POWELL. I think climate change is a very important issue, and if you will allow me, I will start by saying that the nation’s policy on climate change really needs to be set, in the first in- stance, by you, elected Representatives in the House and Senate, and then by the Administration through the agencies that Con- gress has created. Our role is really that of ensuring that we are using our powers to carry out our mandate in supervising financial institutions to make sure that they are resilient to all risks, includ- ing that of climate change. That is what we are doing. Ms. VELAZQUEZ. And can you explain the steps the Fed will be taking over the next 18 to 24 months to ensure that the financial system can deal with the future financial and economic risks posed by climate change? Mr. POWELL. Yes. Right now, we are doing a great deal of out- reach and research and consultation, and, by the way, the larger and medium-sized banks are doing the same thing. It is really time to do this work and to try to understand climate change is a longer-run issue to deal with, and you will see that the financial institutions themselves are very focused on understanding how it will, over time, affect their business model. We are looking at the same thing from the standpoint of a regulator and supervisor, so research and basic work to lay out a framework which will take some time, but it is time for us to do that. Ms. VELAZQUEZ. Thank you. I yield back. Chairwoman WATERS. Thank you. The gentlewoman from Mis- souri, Mrs. Wagner, is now recognized for 5 minutes. Mrs. WAGNER. Thank you, Madam Chairwoman, and Chairman Powell, it is good to see you again. Thank you for being here today. Thank you for all that you and the Fed have done during this un- precedented pandemic. Under the Fed’s average inflation targeting, you are looking for inflation to be, ‘‘moderately above 2 percent for some time’’, to make up for undershooting inflation in the past. What does, ‘‘moderately above 2 percent for some time’’, mean spe- cifically, and why do we believe this is achievable if the FOMC’s 3-year projections for quite some time now have been forecasting inflation, in fact, of 2 percent or less? Mr. POWELL. On the first part, what does ‘‘moderately’’ mean, we don’t have a formula, and we are not going to have a formula. The sense of it, though, is that we want inflation to average 2 percent over time, and the reason we want that is that we want inflation expectations to be anchored right at 2 percent and not somewhat below 2 percent, which is arguably the case now. That is really how we are looking at it. In terms of, can we get there, I am confident that we can and that we will, and we are committed to using our tools to achieve that. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 12 The 3-year timeframe is actually an arbitrary 3-year timeframe chosen by us, and we are just being honest about the challenge. We live in a time where there are significant disinflationary pressures around the world and where, essentially, all major advanced econ- omy central banks have struggled to get to 2 percent. We believe we can do it. We believe we will do it. It may take more than 3 years, but we will update that. Every quarter, we update that as- sessment, and we will see how that goes. Mrs. WAGNER. Thank you. Chairman Powell, I know you were asked a number of times by my colleagues in the Senate yesterday whether the Fed intends to extend the exclusion of low-risk assets, such as Treasuries and Reserve balances, from the supplementary leverage ratio. I strongly supported the agency’s decision nearly a year ago to make this exclusion in recognition, I think, of the fact that thanks to receiving just an unprecedented amount of new de- posits, largely as a result of the Fed’s actions, that continues to put pressure on leveraged ratios. You indicated, sir, yesterday, that the Fed is still considering whether or not to provide an extension. Do you agree that the exclusion proved to be an important tool to pre- serve liquidity in the Treasury market? Chairman POWELL. Yes, I do agree with that, but we are just looking at this. I don’t really have anything for you on that deci- sion, and I didn’t have any yesterday, as you pointed out, so we are looking at that. We know when the deadline is, and we are working on that, and will come forth with something relatively soon. Mrs. WAGNER. I hope it is relatively soon, Mr. Chairman, be- cause, given that we are still considering a new stimulus and other accommodations to continue economic recovery, I am concerned, and I am wondering if you are concerned that arbitrarily removing the exclusion on March 31st could put additional pressure on the Treasury market? Making sure that the SLR is extended, I think, is very, very important as we continue this recovery, and, as I said, further stimulus actions are considered and put into law. March 31st is nearly upon us, Mr. Chairman. Mr. POWELL. Yes, it is. Mrs. WAGNER. Oh, come on. Surely you can talk to us a little bit more about how important that was over the past year in terms of our banking industry and to keep liquidity in the market, given the large number of deposits that were extended to our banking com- munity. Mr. POWELL. I am just going to say that we are having discus- sions on it right now internally here, and I really don’t want to go any further than that. I’m sorry, but we are making a decision and we are considering it, and when we have a decision, we will come forward. I’m sorry. Mrs. WAGNER. I respect that, and I look forward to the decision. And, Madam Chairwoman, I yield back. Thank you. Chairwoman WATERS. Thank you. The gentleman from Cali- fornia, Mr. Sherman, who is also the Chair of our Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, is now recognized for 5 minutes. Mr. SHERMAN. Thank you. Mr. Chairman, it is good to hear about your Fed Listens events, but I assure you, your best Fed Lis- tens event is right here today. You will not find 50 people in better VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 13 touch and more representative of 320 million Americans. I have grown old serving on this committee, and I have seen your prede- cessors come here and Republicans attack them for what they re- garded as a too-expansionary monetary policy, whether the expan- sionary system be the traditional or the relatively newfangled quantitative easing. It is good for me to live long enough to see that many of the Republicans are moving in our direction toward the need for a somewhat more expansionary monetary policy, and I would hope that you would be looking at 21⁄ 4 percent rather than 2 percent as your target. I also commend you for the quantitative easing. It has allowed you to remit to the Federal Government $50 billion to $100 billion in each of the last several years. And so, those who criticize your big balance sheet had been unwilling to identify which taxes they would raise in order to make up for that lost revenue. Also, your quantitative-easing big-balance-sheet approach is the only tool you have to influence long-term interest rates, which I think are much more important to our economy, since you have to borrow long term to build a factory or build a business. And I prefer monetary policy to an expansionary fiscal policy because all of your tools re- duce the Federal deficit, and all of our tools increase the long-term Federal debt. I want to focus your attention on LIBOR. It now appears as if the LIBOR Index will continue to be published until June of 2023. It is almost disappointing to get a reprieve in that it would reduce the pressure on us to actually solve this problem, but it does give us more time. And there is, of course, the Alternative Reference Rates Committee (ARRC), and we have legislation to facilitate how to deal with what will be $2 trillion of existing contracts that don’t have backup language. I wonder if you can confirm for me if, in your view, it is necessary to have Federal legislation to have a smooth transition after June 2023 when LIBOR is no longer pub- lished? Mr. POWELL. Yes, we think it will be. As you know, many LIBOR contracts are going to run out before then, but there will be a hard tail, as we say, and we do think Federal legislation is the best an- swer. Mr. SHERMAN. And there are those who think that the private sector can just invent a synthetic LIBOR and that would solve the problem. Is that as good a solution as Federal legislation? Mr. POWELL. No. Federal legislation creating a path for a backup would be the best solution, we think. Mr. SHERMAN. Thank you. Now, I want to move to something that we have talked about before and that some will regard as a small issue, and that is the system for avoiding wire fraud. We talked about this earlier this month, where usually it is somebody trying to buy a home for the first time ever and they will remit $10-, $20-, $30-,or $50,000 for their down payment. It is their life savings, and they are tricked into wiring the money to the wrong account number and they lose it forever. You are developing the new FedNow system, and your bureaucrats have told us that they don’t want to engineer that system to avoid this tragedy that oc- curred, as I said, affecting $150 million just last year, that they don’t want to do the really simple thing of just saying that when VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 14 you remit money, you identify not only the account number you are sending it to, but the name of the person you are sending it to. And I know your bureaucrats will tell you they don’t want to do it. I wonder whether you will go back to your agency and get per- sonally involved and push them to avoid this tragedy? The people at the next Fed Listens session maybe 10 years from now would have lost their homes as a result of this. Can you commit to getting personally involved in having a system that will hopefully protect homeowners or home buyers? Mr. POWELL. As you know, we have looked carefully at this and concluded that payee matching is not the best way to do it, and there are just problems in the U.S. system, but we have other ways to do it. I will be happy to go back and revisit that, though. Mr. SHERMAN. If there is another way, let me know what it is, because your staff just told me they don’t want to do it. I yield back. Chairwoman WATERS. The gentleman’s time has expired. The gentleman from Oklahoma, Mr. Lucas, is now recognized for 5 min- utes. Mr. LUCAS. Thank you, Madam Chairwoman. Chairman Powell, I have a tendency to focus on those things that affect my people back home up and down Main Street and across the 3rd District of Oklahoma. So, let’s discuss for a moment, when you were last before the committee in June, you noted that the U.S. banking sys- tem has been a source of strength during the pandemic. The Fed’s Monetary Policy Report released on February 19th reaffirmed this point, stating that, ‘‘Institutions at the core of the financial services system remain resilient.’’ Do you continue to believe that banks are a source of strength, and will you elaborate both on what that means for the economy and for banks’ abilities to lend, yes, absorb losses potentially, too, and provide liquidity in distressed markets? Mr. POWELL. Yes. As you know, we spent and the banks spent 10 years in a strengthening process—higher capital, better risk management, higher liquidity, all of those things—and then we re- ceived a world historical-sized shock in the form of the pandemic. And I think essentially, close to a year into it, almost exactly a year into it, what we see so far is that our banks have held up quite well, and their capital, big banks’ capital, has actually in- creased over the course of the last year, while they have also taken $100 billion-plus worth of reserves against losses. And so they are able to keep lending. At the beginning of the pandemic, they were very important be- cause they did absorb that huge flow of deposits, and they made all of those loans as companies pulled down their lines of credit. Those were paid back early on, but at the very beginning, when it mattered a lot, they were a source of strength, so I think all that is right. We have to always continue to be vigilant on those things, but a first draft of history is that the banks are strong. And I would say the same for small and medium-sized banks; they have generally held up well. There are going to be issues, and as we come out of this, there are going to be businesses that fail and there will be losses, but it is quite different, a very, very different situation than we had after the global financial crisis. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 15 Mr. LUCAS. Absolutely. And, Mr. Chairman, let’s discuss for a moment a topic that is very important not only to me, but to my friends in the Majority on the Financial Services Committee. The national unbanked rate has been falling steadily for the past dec- ade, and since last calculated in 2019, sets it at about 5.4 percent. Still, this represents more than 7 million U.S. households without a checking or savings account. Unfortunately, the COVID-19 pan- demic is likely to contribute to an increase in the rate of unbanked households. Chairman Powell, what would you suggest to reduce the adverse impact on the unbanked and underbanked in the after- math of the pandemic to ensure that no one is left out of the eco- nomic recovery? Mr. POWELL. I think it is a serious problem to address. We tend to address it through our community affairs and efforts to make sure we have fair lending policies and things like that. I also think that there is more that Congress can do, I am sure, to ensure that people have education around financial matters. And the other piece of it is there are people at the lower end of the income spec- trum who are living hand-to-mouth. We need a strong recovery, we need continued support for monetary policy, and we will be pro- viding that as well. Mr. LUCAS. One last question, Mr. Chairman, and it impacts the ability of every Main Street to function. According to the FDA, the United States administered more than 63 million doses of COVID- 19 vaccine. Chairman Powell, can you expand on how important to the economic recovery or how dependent the recovery is on ramping up that manufacturing and distribution? Mr. POWELL. Yes. The weakness we see in our economy now is unusually concentrated in a set of industries that involve people getting really close together—hotels, restaurants, travel, entertain- ment, all of those places. And that is millions of people who aren’t working and businesses that may have been in business for genera- tions going out of business. That is what it is, and the way to get after that is by successfully, decisively bringing the pandemic to an end as soon as possible. That is the single-best growth and economic- and prosperity-creating measure that any of us can un- dertake. And that is the vaccination, it is continuing to observe so- cial distancing and wearing masks, and hopefully we are on that road now. And if we are, there are grounds for optimism in the sec- ond half of the year for the economy. Chairwoman WATERS. The gentleman’s time has expired. The gentleman from Texas, Mr. Green, who is also the Chair of our Subcommittee on Oversight and Investigations, is now recognized for 5 minutes. Mr. GREEN. Thank you very much, Madam Chairwoman, and I thank the witness for appearing. I am always honored to have him here before the committee. My question has to do with the State Small Business Credit Initiative. This is an initiative that was started under a Republican Administration. It has served us ex- ceedingly well, and the chairwoman, with her insight and foresight, has expanded this program to make sure that it covers women and people of color to a greater extent. We are talking about having this initiative be funded with $10 billion, and this is in the COVID package. And this $10 billion can VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 16 drive up to $100 billion of private-sector investments into these small businesses. States would be required to submit a plan, as well as other jurisdictions, on how expeditiously these funds can be delivered to help small businesses respond to and recover from the pandemic. A plan to encourage the participation of Minority Depos- itory Institutions (MDIs), as well as Community Development Fi- nancial Institutions (CDFIs), would also be a part of this. Mr. Chairman, my question to you is simply this, how important is it that small businesses receive these capital investments? They sometimes find it exceedingly difficult to acquire funds of the type that we have in this package. How important is it that these funds during this pandemic get to these small businesses? Mr. POWELL. Small businesses are under a lot of pressure at the current time, more so than many of the larger businesses that had resources to get through this. I would say MDIs and CDFIs are very important channels for reaching them. It is not appropriate for me to take a position on this particular provision and its inclu- sion in legislation, but I would just say that it is important for small businesses, and you mentioned MDIs and CDFIs. As you know, we work very closely with those organizations and think highly of the contribution they make to our economy. Mr. GREEN. Yes, sir, and I concur with what you said about working closely with them. I happen to be aware of some of their good works, the community banks. As you know, I am very much concerned about them, and some of them are on the margins, and this type of assistance to some of these smaller banks can be a great help to them. I don’t want you to comment on a specific bank or specific banks, but I am concerned about the need to maintain these institutions that have a niche. They have a clientele whose needs won’t be met if they don’t have these institutions that are in the communities. Have you found that it is good to have these institutions in these communities where the need is not always met? Mr. POWELL. Yes. We think community banks are a very impor- tant part of the fabric of our society, and we see them under longer-term secular pressures. They have been declining, and we don’t want to do anything that adds to that through regulatory bur- den, and actually we have a subcommittee. We have a community banker on the Board of Governors, and we try to do everything we can to not be part of the problem, because people are leaving small towns and moving to cities and things like that, and that is putting pressure on rural community banks. But overall, they know their communities, and we want them to operate safely and soundly and successfully in their communities. Mr. GREEN. Thank you very much. I have very little time left, so what I would like to do is simply acknowledge the chairwoman for helping us to get this $10 billion into the COVID package. Mrs. Beatty also helped us to modify it, along with one of my Republican colleagues, so that the very small businesses will get some help. There are small businesses and then there are very small busi- nesses, and we don’t want to leave any of them behind. Madam Chairwoman, I thank you very much for the opportunity to ask these questions, and I yield back. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 17 Chairwoman WATERS. Thank you very much, and I appreciate your comments. I will now recognize the gentleman from Florida, Mr. Posey, for 5 minutes. Mr. POSEY. Thank you very much, Madam Chairwoman. I am pleased that we have this opportunity to hear Chairman Powell’s Semiannual Report on the State of Monetary Policy. We have all shared quite a year since the February 2020 hearing when the virus was just breaking over the horizon, and we continue to be motivated and preoccupied with this horrendous, unprecedented event. Through no fault of their own, our constituent families and their small businesses have experienced perhaps the worst economic downturn in our history and theirs. It was absolutely right to ad- dress the suffering of our workers and their families, and we can be proud of the bipartisan response in the public laws we have passed, such as the HEROES Act. We are now in a period of somewhat less consensus about the next thing to do. On the one hand, the Administration and others are saying that we need to go big on spending, and this week, the House is slated to vote on their $1.9 trillion big plan. Notably, the big plan spends money with a wide scope, and, of course, the money will likely all need to be borrowed. Others are saying that many sectors of the economy are doing well, but that in other sec- tors, like hotels, restaurants, and tourism, workers and businesses are still suffering. Thus, many people say that targeted relief will be a better approach and save us borrowing to the tune of $1.9 tril- lion, and I associate myself with the targeted approach, by the way. Mr. Chairman, I am wondering, you have been urging that mone- tary policy can’t fully restore the economy, and you have made that clear today, and that fiscal policy must play an essential role. Just after the Federal Open Market Committee meeting on January 29, 2020, you said, ‘‘The labor market continues to perform well. The labor market continues to be strong. We see strong job creation. We see low unemployment. Very importantly, we see labor force par- ticipation continuing to move up.’’ Now, fiscal policy includes taxes as well as spending. Things looked really good in January of 2020, in fact, far better than, say, 4 years earlier. Given your knowledge of fiscal policy, did Fed research suggest that the reduction of personal taxes and corporate tax and reduc- tions in regulation work to reduce unemployment to historic lows generally and among many diverse groups? [Inaudible] the answer here. Mr. POWELL. The longest expansion in our recorded history actu- ally began in 2009 and ended last year, as you point out, with the arrival of the pandemic. The labor market improved steadily and that gathered strength. Actually, the peak job creation year in that expansion was 2015. We did reach low levels of unemployment, and that includes, particularly, for minorities, and there was just a whole lot to like about where the labor market was last year. I will just say that many, many factors contributed to that long expan- sion, and I don’t know of any way to unscramble the omelet on that. Mr. POSEY. Thank you. Now, what does the effectiveness of fiscal policy of low-income and corporate taxes and the policy of con- VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 18 strained regulation that started in 2017 teach us about the poten- tial effects of increasing taxes and regulation as we try to recover from the pandemic? Mr. POWELL. It is not for me to comment on fiscal policy. We have a specific role and specific tools, and I am going to stick to that. Mr. POSEY. So, you don’t have any opinion on what lower taxes and less regulations do to help an economy recover from the pan- demic? Mr. POWELL. I think those are exactly the questions for elected officials. Those are right over home plate for you. You have given us a specific job—maximum employment and price stability—and we use our tools. And we don’t get involved in what are political judgments around fiscal policy. That is really for you and the Ad- ministration. Mr. POSEY. Okay. I just thought it was something that every per- son would have some opinion on one way or the other. I see my time has expired, Madam Chairwoman. I yield back. Thank you. Chairwoman WATERS. Thank you very much. The gentleman from Missouri, Mr. Cleaver, who is also the Chair of our Sub- committee on Housing, Community Development, and Insurance, is now recognized for 5 minutes. We will move on if he is not available. The gentleman from Colo- rado, Mr. Perlmutter, who is also the Chair of our Subcommittee on Consumer Protection and Financial Institutions, is recognized for 5 minutes. Mr. PERLMUTTER. Thank you, Madam Chairwoman. Mr. Chair- man, thanks for being here. And thanks for your service, especially during this past year. I am going to ask you about four different areas. The first is going to be on that supplemental leverage ratio, to see if I can get an answer out of you that Mrs. Wagner didn’t. The second will be on State and local governments and support for them. The third will be on the bubble that you may see existing, and the fourth will be on credit cards. Hopefully, I can get to all of these. Last year, in April, the Federal Reserve and the FDIC eased cap- ital requirements for financial institutions by allowing firms to ex- clude U.S. Treasuries and deposits held at the Federal Reserve from the supplementary leverage ratio (SLR). This was a welcome policy which helped stabilize the Treasury market and gave flexi- bility to financial institutions in a time of uncertainty. And I know, with respect to your answers to Mrs. Wagner as well as to the Sen- ate, that you all are sort of deciding what you want to do in that area. But I am going to ask you a more general question. If regu- lators do not extend the SLR relief, do you think the additional capital requirements will have a meaningful effect on the bank’s ability to lend into the recovery? Mr. POWELL. I am just going to say again that if I start answer- ing these questions and get pulled down that slope, you know where I am going to wind up. So, really, that is something that is under consideration right now and I am just going to have to leave it at that. Mr. PERLMUTTER. Okay. Let’s take the flip side and see if I can get you to answer this. I know that a number of institutions are VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 19 interested in expanding their dividend program. Is the Federal Re- serve considering allowing banks to offer more dividends? Mr. POWELL. We don’t have a decision on that. That is another thing that we will be looking at as well. What has been happening is we have been restricting banks from share repurchases and divi- dends, and as a result of that, they have actually built capital. And as time goes on, we will be looking at that on a quarter-by-quarter basis, and that is coming up. It is not today’s decision. Mr. PERLMUTTER. I know Mrs. Wagner is going to feel good that you didn’t answer either one of us, so I appreciate that, and I am sure she does, too. Let’s turn to State and local governments. On pages 24 and 25 of your report, and it is Graphs 27 and 28, there appears to be a precipitous drop-off in revenues and taxes collected and employ- ment at the State and local government levels. In the legislation that we are considering, there is substantial assistance to State and local governments. Is this one of the areas of the economy that the Fed has been concerned about? Mr. POWELL. We were quite concerned at the beginning because of the example of the global financial crisis, where weak revenues really weighed on the recovery through some years. I am not going to comment directly on the proposal that is under consideration right now, right in front of you this week. What we see is that reve- nues have performed better than expected. They are about flat overall. In some States, they are down a lot, and in other States, they are actually up. So, we have a good picture of revenues. We have a picture of employment, and employment is down 1.3 million or so. A lot of that is education, which means people who work in schools, and that should be addressed by the reopening of the schools. The thing we don’t have a great picture of, and you may be able to get it, is more the expenses. What are the COVID-related ex- penses? It is a complicated picture, and there are differences across the States. States have very different positions on this, and I know it is a question you are considering and I am sure your experts are focused on all of these. Mr. PERLMUTTER. In Colorado, and looking at your report, obvi- ously my State has a lot of leisure industry, tourism, and energy production, and it has hit us particularly hard in terms of employ- ment and revenues. Do you see any bubbles that are of concern to you, whether it is stock valuations or real estate? Because on page 30—and I know my time is about to expire—you say that you see real estate prices are at all-time highs but vacancy rates are at some all-time highs as well. Mr. POWELL. I see your time is actually up, according to my clock. But will I have time to answer this, Madam Chairwoman? Chairwoman WATERS. You have 10 seconds. Mr. PERLMUTTER. Go ahead and answer. Mr. POWELL. Okay. I can’t answer that in 10 seconds. We have a broad framework for financial stability, one of the four pillars of which is asset prices. And there are some asset prices that are ele- vated by some measures, yes. Other aspects of the financial sta- bility framework, leverage in the financial system is moderate, VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 20 funding risk is moderate. I would say leveraging the non-financial system has gone up because of the pandemic. It’s a very mixed pic- ture. Mr. PERLMUTTER. I thank you for your answers. And I thank the Chair for the extra time. I yield back. Chairwoman WATERS. Thank you. The gentleman from Missouri, Mr. Luetkemeyer, is now recognized for 5 minutes. Mr. LUETKEMEYER. Thank you, Madam Chairwoman, and wel- come, Chairman Powell. It’s great to see you again, and thank you for your great leadership during the pandemic and this past year. It has been a trying time for all of us, and I think you have done a good job of steering the Fed through this storm, as the ranking member talked about a while ago. One of the things that is concerning to me is I saw an article in a recent paper here with regards to the greening of the banking system, and my good friend, Congressman Barr of Kentucky, head- lined a letter to the Fed, and I was one of the other 45 Members who signed onto it, with regards to the Fed’s including climate stuff into their stress tests. And while I understand the need for that, to an extent, it cer- tainly is concerning for me, from the standpoint that in an article here, a gentleman by the name of Ike Brannon, who is an econo- mist and president of Capital Policy Analytics, was talking about the stress test and he said that it is a long-term goal of many who advocated that the Fed take this step, but he says, ‘‘I think they have designs that go beyond climate change. Creating a system whereby the government can use its financial regulatory power to direct the economy away from businesses and industries it dis- approves of is very much a goal of many Democrats in Congress and the administration.’’ Mr. Chairman, that sounds an awful lot like Operation Choke Point to me. Operation Choke Point was something that we put the dagger in the heart of several years ago, and to resurrect that, to use climate change as an excuse to go after businesses who are doing illegal business in an illegal way, producing products and services we need as an economy, is wrong. And I am just won- dering where you stand on that? Mr. Chairman? Mr. POWELL. Sorry. First, let me say that the climate stress sce- narios are completely different from the stress tests. It is not the same thing at all. But you really asked about a different question, sorry, which was—what was the question you asked? Mr. LUETKEMEYER. Basically, it is about how you are weaponizing the regulatory system to do choke points on banks that do not necessarily comply with what your climate agenda may be. Mr. POWELL. We are not climate policymakers. Climate policy- makers are democratically elected people and those they delegate that authority to. So, we are not thinking of it that way. As you know, as an institution, we have had a long-held reluctance, resist- ance, and unwillingness, really, to engage in the allocation of cred- it. We think that is for the private sector, and if Congress wants to allocate credit in particular ways, that is fine. We don’t want to get involved in that, and it is not something we are looking to do. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 21 What we are doing is—go ahead. I will let you go. Mr. LUETKEMEYER. I would just make the point that we found, during the Obama-Biden Administration, that Operation Choke Point was alive and well. It was instituted by them, it was carried out by them, and we tried to get rid of it during this past Adminis- tration. So, it is something that is there. It is something that we talked about a lot, but let me move on. With regards to the Executive Orders that are coming out of the Administration right now, they are very concerning to me from the standpoint that by taking one of the Executive Orders off the books that President Trump put in place, take two rules off the books for every one that he puts on, it is a signal to me that look out, here come the rules and regulations. And another one that they took off the books was one with regards to guidance, which is extremely im- portant to me. The Financial Stability Oversight Council (FSOC), of which you are a member, came out and supported the overall rule of not enforcing guidance and had a policy-wide FSOC policy with regards to enforcement of that guidance. The Administration came out with an Executive Order that said they are going to en- force guidance across the entire Administration. Now that Execu- tive Order has been rescinded as well. My question to you is, do you see yourself relaxing some of the constraints that were in place as a result of the rule with regards to guidance? Is this something you are thinking about, or are you going to continue to comply with the rule that says you are not going to enforce guidance? Mr. POWELL. We do not enforce guidance, and that is not some- thing we are changing. Mr. LUETKEMEYER. Okay. It is concerning to me in that respect because it is something that I think we have worked hard to push out, and now we have a new regulator at the Consumer Financial Protection Bureau (CFPB), who looks like Richard Cordray 2.0, but we will wait and see once that comes out. Chairwoman WATERS. Thank you. The gentleman from Missouri, Mr. Cleaver, who is also the Chair of our Subcommittee on Hous- ing, Community Development, and Insurance, is now recognized for 5 minutes. Mr. CLEAVER. Thank you, Madam Chairwoman, and thank you for this hearing. I look forward to this every year. Mr. Chairman, thank you for being with us today, and although I want to do the majority of my discussion with you about CRA, I have to go to this New York Times article and ask, what is your response to the article, which essentially is suggesting that particu- larly as it relates to economies, that African Americans are not even represented at the level they are in any other particular area? I think the quote was, in the article, ‘‘Black people are less rep- resented within the Fed than they are in the field, as a whole.’’ Can you give us your take on the article? Is it accurate? Is it fair? What do you think? Mr. POWELL. I am not the one to judge whether it is accurate or fair. It is not whether it is fair. I would say that we are not where we want to be on this. We do work hard at it. It is something that I am personally committed to, and all of the leadership of the Fed, and the whole Fed, is very focused on strengthening our workforce VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 22 diversity. We are out there aggressively recruiting, encouraging young minority kids to get interested in economics. I do that. I meet with people every year on that. Also, we go to Historically Black and Hispanic Colleges, and when we find candidates, we re- cruit them hard. It is challenging, and I would just say we are doing a lot, and I would be happy to come up and share it with you in a lot of de- tail. But the results are not where we would like them to be, and we are wide open to ideas and suggestions, as well, and we will just keep working on it, and believe me, we are working hard at it. Mr. CLEAVER. I appreciate your candor on that, and I know the Kansas City Fed, for example, annually, they were bringing up Black students from Kansas City to Washington, trying to give them this experience in hopes that some of them would eventually want to do this. And I don’t think there has been any intentionality on your part. I am just trying to figure out what we can do with you to be helpful, and maybe we could talk about that at a later point. I am very concerned about the CRA issue. It came about in 1977, I think, or somewhere around that time. The initial charge, of course, was that the litigant institutions, banking institutions, were not giving attention to certain areas of the city, and they were not investing, and in some cases not even depositing in those areas. We have CRA right now. But I am having difficulty, and I in- tended to talk to the Chair about this earlier and I didn’t do it. I am not sure that I can put my fingers on CRA projects, or what they are doing in my local community. Maybe they are more visible elsewhere. Are you convinced that CRA is where it ought to be, or should we have some 21st Century changes in CRA, because maybe, as our Chair has said, and I say it wherever I go, one of the issues we are having in that area is lack of affordable housing. And so, maybe it is time to look at a new way in which we can do CRA, where it would be more effective, and more visible. Mr. POWELL. We place a very high priority on CRA. We think it is an incredibly important law, and we want it to be as effective as it can possibly be. And that is really what is behind the effort that we put into our proposal. We took a tremendous amount of input from the groups who were intended to benefit from it, but also from the financial institutions, who were also eager to make their communities better. That is very much the spirit in which we approached this project. If you have particular ideas, we would love to hear them, though. Mr. CLEAVER. Regulatory is just having a coordinated approach on CRA, and maybe that is something that we ought to talk about when we have the time, because I think my time is running out. Madam Chairwoman, thank you very much. Chairwoman WATERS. Thank you very much. The gentleman from Michigan, Mr. Huizenga, is now recognized for 5 minutes. Mr. HUIZENGA. Thank you, Madam Chairwoman, and Mr. Chair- man, I am glad you are here. I want to do a quick, just sort of tech- nical check. There was a Washington Post article, and a number of other articles, talking about your time yesterday at the Senate. You talked about the 6.3-percent January unemployment, but that VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 23 it is closer to 10 percent. Are you talking about the U-6 number that is typically published by Department of Labor? Mr. POWELL. No, I wasn’t, although it is not dissimilar. I was really saying that if you haven’t looked for a job in the last 4 weeks, then you are not considered unemployed. You are consid- ered out of the labor force. A whole bunch of people, a couple mil- lion people dropped out of the labor force who were actually work- ing, and they are not counted as unemployed. But I am saying for this exercise, we should think of them as unemployed. They don’t want to come back in. Mr. HUIZENGA. Which I talked about extensively during the re- covery. You didn’t need to look at the unemployment level. You needed to look at the U-6 number that the Department of Labor publishes. Mr. POWELL. Same idea. Mr. HUIZENGA. Okay. I think it has been explored, and you have acknowledged that there is a completely uneven recovery hap- pening in the economy. You and I have had a chance to talk about this in person as well. My district, which is an agricultural pro- ducer—I am home to Gerber Baby Foods, I have the Heinz pickle plant, I have Tyson Foods, I have a number of specialty crops, blue- berries, pickles, asparagus, et cetera—we are heavily agriculture but we are also a heavy manufacturing district. But the third leg of our economic stool, throughout Michigan but especially con- centrated in my district, is in that hospitality and tourism area. Housing fully recovered, as you had said. Manufacturing, at least in our area, especially automotive, office furniture, those types of things, mining and other manufacturing, are very, very strong. What we are seeing, though, is a desperation in that hospitality area. And I guess it begs the question of whether the economy is actually in crisis, writ large, or do we have pockets of crisis within a reasonably healthy economy. I will give you a quick second to an- swer that, and then I want to move on to the real estate question that my friend, Mr. Perlmutter, was talking about, and I want to explore that a little bit more. Mr. POWELL. The losses are concentrated in those industries that we talked about, that you mentioned. It is also the case that a number of other industries are short of where they would be if there had not been a pandemic. So, there is an amount of slack around, but it is really concentrated in those industries, which, by the way, are a big chunk of people. There are 10 million fewer peo- ple working, so it is a big number. Mr. HUIZENGA. I will note that in Michigan, we have 25-percent occupancy allowed for a restaurant, for example. Theaters are very sparsely populated. You can’t do those types of things. At some point or another, this isn’t a Federal issue. It is a local and State issue as to allowing those concentrations of people, as you know. Can you elaborate a little bit more on what is happening in that commercial real estate space especially? We are seeing very strong residential but commercial spaces, that Mr. Perlmutter was going after. Mr. POWELL. Significant challenges certainly for hotels, clearly, but also for offices. And the question is going to be, how quickly can we get the pandemic over with and find out what equilibrium VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 24 demand is going to be after that? People will still be staying at ho- tels. They will be traveling. But office space, certainly in major cit- ies—there may be more commuting. We don’t know. Mr. HUIZENGA. I think there are going to be more hiccups within that business space, business traveling as well as what work is going to look like. And I have just a minute here, but one of the things I guess I am getting at is there is a concern a lot of us have with this addi- tional stimulus that is going to be getting put into the economy, certainly the stimulus that the Fed has been providing. I want to know, is there a risk of overheating the economy writ large by using these broad monetary tools and others to address under- performance in select areas such as hospitality and some of these more concentrated? In other words, are we creating a bubble in some of these other areas? Mr. POWELL. Our tools work in the aggregate, as you know, at the economy-wide level, and I would just say that we do expect in- flation to move up, both because of base effects, as I discussed yes- terday, and also because we could have a surge in spending as the economy reopens. We don’t expect that to be a persistent, longer- term force, so while you could see prices move up, that is a dif- ferent thing from persistent high inflation, which we do not expect. And if we do get it, then we have the tools to deal with it, and we will use them. Chairwoman WATERS. The gentleman’s time has expired. The gentleman from Connecticut, Mr. Himes, who is also the Chair of our Subcommittee on National Security, International Development and Monetary Policy, is now recognized for 5 minutes. Mr. HIMES. Thank you, Madam Chairwoman, and thank you, Chairman Powell. As you have noticed, we have a robust debate going on around here about a major fiscal package. I am certainly influenced by what I saw 10 years ago, when our fiscal response to another financial crisis was, in my opinion, deeply inadequate. I also believe that when thousands of Americans are dying every week still, it is far better to risk doing too much than to risk doing too little. Nonetheless, the concerns that are being raised about inflation, I think are valid, and need to be considered. I remember the early 1980s, late 1970s, when inflation destroyed the savings of the mid- dle class and reduced confidence in the economy, and it was very, very painful getting out of that. My question for you, Mr. Chairman, is, do you believe that there is some combination of expansionary fiscal and monetary policy that could lead to inflation? And I have two very specific questions: What, to you, are the leading indicators of that, and the other spe- cific question is, is there some combination of challenge supply chains and surging demand that leads to an unhealthy level of in- flationary pressure, and are you seeing any of those indicators at concerning levels at the moment? Mr. POWELL. We know that inflation dynamics evolve over time, but they don’t tend to change overnight. And I remember well. I was in college during the 1970s. I remember well high inflation and this feeling of powerlessness on the part of anyone to deal with VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 25 it, until finally Paul Volcker did exactly that. And we have been in a low-inflation, dis-inflationary mode ever since. What I see is an economy where there is still a great deal of slack. I see the prospect of really significant progress as we put the pandemic behind us. As we see that data, we have in place guid- ance that tells markets clearly when we will begin to taper asset purchases and when we will begin to raise interest rates, in that case, when the expansion is very far advanced. So, we have our tools, we have them in place, and we think that this is the appro- priate policy stance. As I mentioned, inflation is something I remember well, and I am very familiar with the history of the 1960s— Mr. HIMES. Mr. Chairman, sorry to interrupt, but my question is more about—I know where you are today, but I am curious about what you consider the leading indicators, and in particular, wheth- er you are concerned about supply chains, because, of course, they are a challenge? Mr. POWELL. Things like supply chains, unless they are perma- nently challenged, there could be a—take an example of the chips issue, the microchips issue right now. The automobile industry is having a hard time getting them. So, this is a significant economic issue, and if there is a shortage of cars, then prices of cars might go up. That doesn’t necessarily lead to inflation, because inflation is a process that repeats itself year on year on year. As we get back up to full economic activity, you could hit supply chain constraints along the way, but that doesn’t necessarily mean you will have a higher inflationary process, if the Fed maintains its credibility and if inflation expectations remain anchored, which they weren’t in the 1960s. Mr. HIMES. Thanks, Mr. Chairman. I have one more question, again sort of rooted in the experience of 10 years ago. As somebody who was closely involved in the Dodd-Frank Act, it is very grati- fying to hear you say—I think you said that the banking sector has held up quite well. I remember, 11 years ago, we were promised by some that Dodd-Frank was going to crush the American capital markets. We were promised by others that at the first sign of a stiff breeze, it would all come apart. And, son of a gun, it held up pretty well. But I am always concerned about the risk that we don’t see. Get- ting off of monetary policy, issuance volume in the high yield mar- ket, and I know these are a little bit outside of the banking sector, but in my remaining 40 seconds, give me a sense of what is con- cerning to you that could challenge the stability of the financial sector? Mr. POWELL. Our policy is accommodative because unemploy- ment is high and the labor market is far from maximum employ- ment. We think that is appropriate. We do monitor all of those things carefully. It is true that some asset prices are elevated, by some measures. It is true that overall asset prices, I would say, are somewhat elevated. At the same time, we have a very resilient banking system and we have spent a lot of time making the capital markets more resilient as well. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 26 Overall, we are in a situation where monetary policy is working through financial conditions to support economic activity, and that is an appropriate thing. Mr. HIMES. Thank you, Madam Chairwoman. Chairwoman WATERS. The gentleman’s time has expired. The gentleman from Ohio, Mr. Stivers, is now recognized for 5 minutes. Mr. STIVERS. Thank you, Madam Chairwoman. I appreciate it. Chairman Powell, thank you very much for being here today. I want to thank you for your steady hand of leadership during these very turbulent times. I also want to thank you for being the most accessible Federal Reserve Chair in the last decade. During my time here, through three Federal Reserve Chairs, you have been absolutely the most accessible to us as policymakers, and I really appreciate that. I want to acknowledge your comments earlier about an appro- priate direction forward for vaccinations, to ensure we can open up the economy, and job training if we want to create jobs and get peo- ple to your maximum employment target. I am not going to have you comment on whether the current COVID response bill focuses on that, because I know you don’t want to be put in the middle of that. But I think it is fair to say anybody who researches it will see that the job training money rounds to zero, and there is not enough focus on vaccinations, in my opinion. I do want to move to something that I think you can and will be willing to talk about, and that is in the hospitality, travel, and entertainment industries, do you believe banks in the capital mar- kets are currently able to serve their capital needs with the regu- latory flexibility you have given them? Mr. POWELL. Yes, I do believe that. Mr. STIVERS. Okay. Thank you. I think that one of the problems, though, let me ask, is when they are so shuttered and their capac- ity is reduced, are banks and the capital markets as willing to give them money? Mr. POWELL. Yes, I think what we see is banks are leaning in to businesses. They are working with their customers and leaning into businesses that look like they have good prospects. You get to a place, though, with some of the companies that are really under a lot of pressure where they may be having a hard time getting funding. Mr. STIVERS. Right. I understand. And I think that speaks to the fact that as policymakers, we have been very reluctant to do tar- geted relief to specific industries. But given the uncertain recov- ery—and I am not going to ask you to comment on this, because I think it is a question for policymakers—I do believe that we should focus a little more on some targeted relief to some of those industries. That is why I am a sponsor of the Restaurant Act and this new Gym Act, and some other things, in the hospitality, travel, and entertainment industries, and I think that would be smart of policymakers, moving forward. I do want to allow you, because I don’t think I have heard you say it, to comment on the Federal Reserve’s independence. Just re- mind us whether you work for any President or you are inde- pendent. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 27 Mr. POWELL. We have certain legal independence, and we think that has served the public well, and we are able to make decisions without considering politics, and our lives don’t change when elec- tions happen, until, of course, the President has the power of ap- pointment. Mr. STIVERS. Thank you. I do want to quickly move to digital currency. You had a great interaction with Ranking Member McHenry about some of your concerns on the policy questions. You brought it up, and I just want to quickly speak to the potential dis-intermediation that could occur with the digital dollar. While I think it is important to keep the dollar the reserve currency of the world, I think we need to take a special look at dis-intermediation, and I want to just remind you of something I showed you a few hearings ago, of one of the last bank notes from the Citizens National Bank of Ripley, in 1929, that my grandfather had to sign. I think our financial institutions might be able to play a role in a digital dollar, and I just want you to think through those things. I don’t want to ask you to comment on it without thinking about it, but I hope you are committed to working with our financial institutions. Mr. POWELL. Yes, for sure. Mr. STIVERS. Thank you. And the final thing I want to talk about is something Mr. Cleaver talked about, and I want to take a step back and not just focus on CRA but focus on the gap in home own- ership, the racial gap in home ownership. And I am curious if the Federal Reserve is paying attention to that as an issue as opposed to the four corners of a CRA document, but the issues related to reducing the racial gap in home ownership. I know Mr. Cleaver and I, on the Housing and Insurance Sub- committee, are very focused on that and trying to work on some things to build a sustainable model. The last time we did this, under Barney Frank, we created subprime lending that ultimately blew up the financial markets. I want to make sure that when we do it, we create a sustainable model that can bridge that gap and bring up the minority home ownership rates significantly. Is that something the Fed is willing to work on with us? Mr. POWELL. We would be happy to look at that. Our principal role there is to ensure, using our tools, that that gap is not a func- tion of discrimination, and it will be to some extent. But we use our tools to go after lending discrimination and try to minimize that. Mr. STIVERS. Thanks. Thanks for your great leadership. I yield back my time. Chairwoman WATERS. Thank you. The gentlewoman from Ohio, Mrs. Beatty, who is also the Chair of our Subcommittee on Diver- sity and Inclusion, is now recognized for 5 minutes. Mrs. BEATTY. Thank you, Madam Chairwoman, and thank you to Chairman Powell for being here today and providing us with your testimony on the state of monetary policy. I want to start by revis- iting a topic that I have raised with you several times over your tenure, and that is, of course, diversity at the Federal level. Cer- tainly, this is a topic that I think you can respond to and it won’t have an effect on the economy, as maybe some of the other ques- tions. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 28 Last month, The New York Times released an article entitled, ‘‘Why Are There So Few Black Economists at the Fed?’’, which found that of the 417 economists who are employed by the Board of Governors, only 2 were Black—that is 2 out of 417, or 0.5 per- cent. While I understand that many will say that something is dif- ficult to find or difficult to hire, just keep in mind, 2 out of 417. I also understand that we need to do more to increase the num- bers of Black Ph.D. economists in general, because they only make up 3 to 4 percent of the population, and the Federal Reserve’s rep- resentation is still lower than this number. Further, the Reserve Banks around the country only have about 1.3 percent economists who are Black. My question to you, Chairman Powell is—and let me just say, for the record, I appreciate you contacting me, meeting with me, and always making great strides with the Office of Minority and Women Inclusion (OMWI) and other things that you have done in this area—are there any concrete steps that the Federal Reserve can take, or that you are taking, to increase the number of Black economists within its ranks? And do you believe that the Federal Reserve’s role as the nation’s central bank has a role to play in en- couraging diversity and inclusion, and the word, ‘‘equity’’, is very important to me, in the economic field, in general? Mr. POWELL. I think we do have a role. We are a very larger hirer, I think by some measures the largest hirer of economists in the United States, including the 12 Reserve Banks and the Board of Governors. So, we are an important factor, and as you know, di- versity is a high priority for me, and for my colleagues, and for our staff. What we have been doing is recruiting very aggressively, and going to not just the old, traditional schools, but also Historically Black Colleges and Universities, and Hispanic ones as well, and re- cruiting hard when we find appropriate candidates. We also have, at different levels, an internship program, and we do the same thing there. Sort of more from an upstream perspective, we also want to increase the supply, because there is a fairly limited sup- ply. We don’t seem to be getting our share, and we don’t know ex- actly why that is but we are looking into it. So, we are doing everything we can. Nobody here is comfortable with these numbers, and we are wide open to suggestions on how to do better. Mrs. BEATTY. Thank you. I have one last question, if I have time. Over the course of next year, tens, and perhaps hundreds of mil- lions of Americans will be receiving the vaccinations and will fi- nally be hopefully placing this pandemic behind us. Looking out to an economic environment post-pandemic, in 2022, let’s say, what do you believe will be the potential lagging economic impacts of this pandemic? Who and what should the Congress be focusing on to address this from an economic standpoint? Mr. POWELL. Interesting. The parts of the economy that are not open right now, or not fully opened, will open up, and people will go back to work. But what we are going to find, based on some of the surveys we have heard about, is that not all of those jobs are going to come back, because people have started to implement au- tomation and things like that. These are service sector jobs, and VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 29 that has been an ongoing process. It will have been accelerated. So many of those people may find it hard to get back to work, and I think they are going to need further support, so I would be looking at that, over time, as the livelihood that they had in the service sector may not be easy to replace. There just may not be enough jobs. There is going to be a need for training and replacement sup- port in the meantime, so that these people can hang onto the lives that they have had and find new work. Mrs. BEATTY. Thank you, and I yield back. Chairwoman WATERS. Thank you very much. The gentleman from Kentucky, Mr. Barr, is now recognized for 5 minutes. Mr. BARR. Chairman Powell, thank you for your dependable lead- ership, especially during the pandemic, and, once again, we appre- ciate your accessibility to Members of Congress, especially during this tumultuous time in our economy. As Congressman Luetkemeyer pointed out, in December I led a letter to you with 46 of my House Republican colleagues, outlining the methodological challenges with injecting climate change sce- narios into supervisory stress tests. We urged you to take a meas- ured, thoughtful, data-driven approach as you study climate im- pacts, while some on the other side have urged the Fed to stray outside its mandate and take a more active role in fighting climate change. In your response, you stated that, ‘‘Congress has entrusted the job of directly addressing climate risks to a number of Federal agencies, not including the Federal Reserve’’, and that you will con- sider climate impacts only when doing so falls within our congres- sionally directed mandates. In January, the Fed announced the cre- ation of the Supervision Climate Committee (SCC), led by Kevin Stiroh. In a press release about the Stiroh announcement, New York Fed President Williams said, ‘‘Climate change has become one of the major challenges we face which impacts all aspects of the Fed’s mission.’’ President Williams’ statement seems contrary to the stated board position from your letter and your response to me. Can you please clarify his statement and how the new SCC fits within the Board’s limited mandate? Mr. POWELL. I am not familiar with the context of that state- ment. I will just say, though, that we do see the job of the Super- vision Climate Committee and our job, frankly, is to ensure that the institutions that we regulate and supervise are resilient to all the risks they face, and that includes climate risk. That is a con- versation that we are having, and by the way, all of the large and medium-sized financial institutions are already having that con- versation, too. Mr. BARR. Let’s drill down a little bit about how expansively the Fed would get into this, because, as you know, the Fed recently joined as a member of the Network for the Greening of the Finan- cial System (NGFS). The NGFS has made some recommendations that, if implemented in the United States, could have harmful ef- fects on U.S. banks and the businesses they serve. Our letter asked that you not import any NGFS standards that would harm the fi- nancial system or U.S. businesses, and in your response you com- mitted to this. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 30 How do you plan to evaluate NGFS proposals through the lens of upholding this commitment? Mr. POWELL. As I said in the letter, my colleague and I said in the letter that we are not going to import anything into the United States that we don’t think is appropriate for the betterment and support and safety and soundness of the U.S. financial system. But we are actually at a much earlier stage than any of that conversa- tion would suggest. We are really engaged in outreach and in thinking about frameworks. We are talking to these institutions. We are talking to supervisory institutions here in the United States and around the world. So, we are at an earlier stage. Mr. BARR. And that is good to hear, but I do worry that injecting climate risk scenarios into stress tests could perpetuate the trend of de-banking legally operating businesses like fossil fuels. In your letter, you commit that the Fed will not dictate what lawful indus- tries regulated firms can serve. Even without a directive from the Fed, climate scenarios and stress tests may compel firms to de- bank certain industries to satisfy the spirit of the tests. My comment here is that limiting capital allocations to specific industries may itself have implications on financial stability and economic growth through lost jobs, higher energy prices, and com- promised energy security. And my final point here, I would like the Fed to keep in mind that choking off capital to fossil energy will not only produce the kind of reliability challenges we saw last week in Texas; it will un- dermine the Fed’s maximum employment mandate. Final question on inflation, yesterday, you said you weren’t con- cerned about the threat of inflation, but some of the economic indi- cators are blinking warning lights for me—high asset prices, rap- idly rising bond yields, elevated commodity process, historically high year-over-year increase in the money supply as measured by M2—and these are on top of the unprecedented monetary and fis- cal stimulus enacted last year and the $2 trillion fiscal blowout this week. Within the bounds of the Fed’s new monetary policy frame- work for a long-term running average target for inflation, how high are you willing to let inflation get, and for how long, before you step in? Mr. POWELL. We don’t have a formula in mind. I would just say that, as I said earlier, we do expect inflation to move up, both be- cause of some technical calculation reasons called base effects, but also because we will have a surge in spending, perhaps later this year. We don’t expect that will be particularly large, or even more, that it will be persistent, because it is in the nature of a one-time [inaudible], whereas inflation is a process that gets going over a pe- riod of years. And we don’t think, and we are committed to the idea that it will not become a persistent thing. It is ultimately the credi- bility of the Fed and our commitment to our price stability man- date that holds inflation where it is. We have not changed that. Mr. BARR. Thank you for monitoring that closely. I believe my time has expired, and I yield back. Chairwoman WATERS. Thank you. The gentleman from Florida, Mr. Lawson, is now recognized for 5 minutes. Mr. Lawson? Mr. LAWSON. Can you hear me? VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 31 Chairwoman WATERS. Yes. I can hear you. Mr. LAWSON. Okay. Thank you very much. Thank you, Madam Chairwoman, for calling this hearing. The Federal Reserve warned of a significant rise in business bankruptcies and steep drops in commercial real estate prices in a report published on Friday. Com- mercial real estate, which I have a great deal of interest in, might be high again after the pandemic. Some economists say an increase in people working from home could result in less demand for office space, while stepped-up online purchases could force more shut- downs of brick-and-mortar retail and additional vacancies at shop- ping centers. My question to you, sir, is, what is the Federal Reserve plan for commercial real estate? Mr. POWELL. We don’t have a plan specifically for commercial real estate. I will say that we do see a number of sectors of com- mercial real estate that are under pressure, as you suggest, par- ticularly offices, hotels, things like that, which are directly affected by the pandemic. And the best thing that can happen for the com- mercial real estate sector is for the economy to get back to full op- erating status, by which I mean get the pandemic behind us. Mr. LAWSON. Okay. And there has been a lot of interest, even last year, in this particular situation, especially as it relates to ho- tels, the number of people who have been laid off in that industry, which is significantly higher in that particular area than maybe it is in bailing out the airline industry. Do you see any similarity in the retail industry as related to the airline industry that we bailed out? Mr. POWELL. Do I see a similarity between the retail industry— those decisions are not decisions for us. That was a decision made by Congress and the Administration as to the provision of the par- ticular funding for airlines. We are not part of that discussion. Mr. LAWSON. Okay. Thank you. It has been suggested by some that all of our challenges with unemployment, homelessness, and poverty will be solved if we simply lift local restrictions and open up our economy. But since the beginning of this crisis, you have stressed that the path of the economy continues to depend signifi- cantly on the course of the virus. Will you please elaborate on why this is the case, and will the economy fully recover so people don’t feel safe and comfortable that the virus is contained? Mr. POWELL. Yes, I will. The big parts of the economy that are not operating at full capacity are the ones that are affected directly by COVID. The rest of the economy has largely recovered, or even fully recovered. But that part of the economy has not, and that is travel and leisure, hotels, entertainment, all of those things. What those sectors really need is an end to the pandemic, and people will then become confident again that it is okay to stay in hotels, okay to go on vacations, okay to go to bars and restaurants. I frankly think that will take some time. And I think that is the single key factor in getting that done, that process started and then com- pleted, will be bringing the pandemic to a decisive end as soon as possible. Mr. LAWSON. Back in January, you stated that the winter months were going to be extremely hard on the recovery of the economy. Have you seen that your statement has been pretty much VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 32 right, in terms of where we stand at this point in the recovery of the economy? Mr. POWELL. Yes. We did go through a very large spike in cases, as you know. They are coming down sharply now. The economy did kind of go sideways through January. I mentioned in my testi- mony, 29,000 jobs a month; it was much higher last summer. And I think as the pandemic recedes, or it continues to recede— new cases are way down, hospitalizations are way down—then we will begin to see, maybe fairly soon, the job numbers start to creep back up, and hopefully this time, that will be consistent with keep- ing the virus under control, getting it really under control. Mr. LAWSON. Okay. Thank you. And with that, I yield back. Chairwoman WATERS. Thank you very much. The gentleman from Texas, Mr. Williams, is now recognized for 5 minutes. Mr. WILLIAMS OF TEXAS. Thank you, Madam Chairwoman, and also, Mr. Chairman, thank you for being before our committee today in this virtual setting. You mentioned that there could be 6 percent growth—we have talked about that all day today—by the end of the year. I com- pletely agree the [inaudible] are there for the economy to easily re- bound at this pace. The biggest obstacle I see that would prevent the level of growth from becoming a reality is individual States forcing businesses to remain closed. Now for States like mine, the great State of Texas, that have responsibly opened their economies, people are getting back to work, and in December, Texas added 64,000 jobs, while States that are still under heavy lockdowns, like California, had over 2,000 jobs lost over that same period. As we talk about the next step in COVID relief, it needs to be focused on getting people back to work. So, Mr. Chairman, what would be the best allocation of resources that would incentivize re- opening the economy? Mr. POWELL. I would again—as you know, I am reluctant to com- ment. I shouldn’t comment on the legislation that is under consid- eration, and I won’t do that. But I will say again that I think at this point, the single biggest thing is to get people vaccinated and get the pandemic under control, in a decisive kind of a way, and then the economy can fully reopen and people can get confident again that it is okay to resume their normal activities. Mr. WILLIAMS OF TEXAS. Okay. I will buy that. My district con- tains some very rural areas that do not have access to reliable broadband internet, and the COVID-19 pandemic has exposed how necessary it is to be connected to the internet if you want to run a business, take advantage of telehealth capabilities, or educate your children. We have some strange stories of people having to find hotspots in my district, and drive for hours to get there. Mr. Chairman, can you tell us what it would mean for the econ- omy or the economic recovery if we were able to get investment in broadband infrastructure for the thousands of American people who are currently being left behind in this digital world? Mr. POWELL. Again, without commenting on the bill, I would say that broadband is just an essential piece of 21st Century infra- structure, and having good broadband everywhere in the country will help people in rural areas, and poorer people who may not VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 33 have access, and things like that. It is a very important piece of infrastructure for us to have as a nation. Mr. WILLIAMS OF TEXAS. Well, it is. Like I said, in my district, a lot of rural America still does not have it and we need to get that, and I think we agree on that. Lastly, during the Trump Administration, you were applauded for maintaining the independence of the Federal Reserve and focus- ing on your dual mandate of price stability and full employment. You are going to be pushed once again, during the Biden Adminis- tration, to use the power of the Federal Reserve to pursue addi- tional political goals, such as addressing income inequality or cli- mate changes. And I just want to reiterate that some of my col- leagues have already brought that up, and Congress is the body that must debate and act on these ancillary issues, not the Federal Reserve. In closing, Mr. Chairman, can you tell us why it is important for the Federal Reserve to stay independent and not act on the polit- ical needs of the moment? Mr. POWELL. I will be happy to. The independence of the Fed from direct political control is an institutional arrangement that we think has served the country well, and that is why we have it. It is not something that is in the Constitution. It is a practice that we have. We don’t engage in political discussions over here. We don’t take politics into consideration, or election cycles, or anything like that. Nonetheless, we try to be extremely transparent and really work hard to stay in contact with the body that has over- sight responsibility in our system of government, which is the two committees on Capitol Hill. That is where our oversight responsi- bility is, and we take that very seriously. Mr. WILLIAMS OF TEXAS. I want to thank you for the job you are doing, and I appreciate the hard work that you have generated these last several years. Thank you very much. And, Madam Chairwoman, I yield back. Chairwoman WATERS. Thank you. The gentlewoman from Iowa, Mrs. Axne, is now recognized for 5 minutes. Mrs. AXNE. Thank you, Madam Chairwoman, and thank you, Chairman Powell, for being here. It is good to see you. I want to focus on the labor market a little bit here. You said a couple of weeks ago that published unemployment rates have dramatically understated the deterioration in the labor market. And as I understand it, that difference is mostly about the decline in labor force participation, is that correct? Mr. POWELL. Yes, that is correct. Mrs. AXNE. That is something that I clearly see in Iowa. Our un- employment, in December, actually fell back below 3.5 percent, but that ignores about 130,000 Iowans who have just left the labor force completely. Is that something that you will be looking at closely when it comes to determining if the economy is at full em- ployment, those folks who have literally just left the market? Mr. POWELL. Yes, it is. We say that we look at a broad range of things, and it is important to say that we look at the employment rate and employment-to-population, in particular, as a statistic that combines labor force participation and unemployment. Mrs. AXNE. Okay, good. I am happy to hear that. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 34 Changing course here a little bit, we have seen about 4 million people leave the labor force. Almost 60 percent of those have been women, despite them making up, of course, less of the labor force before the pandemic hit. And then, we hit a 33-year low last month, and more than 1 million more women have lost their jobs than men. I would ask you, Chairman Powell, what do you think is the reason for this kind of disparity, and is that something you are going to consider when you are evaluating full employment? Mr. POWELL. It is a combination of two things, I believe, one of which is that women in the labor force are overrepresented in those public-facing, service-sector jobs. The other just is with the closure of many schools, parents are staying home, and that burden has fallen more on mothers than it has on fathers. Those are the two pieces of that, I think. Both of those should dissipate, and we should go back to hope- fully something closer to where we were, where people worked if they wanted to work and they did child care if they wanted to do that instead. As the pandemic comes to an end, we hope that peo- ple will once again be able to make those choices without taking into account the fact that the schools are closed, for example. Mrs. AXNE. Thank you. Listen, I am so glad to hear you bring up child care, because apparently more than $50 billion a year is what the lack of child care costs our country. Do you think that helping families find affordable child care could help the economy, and do you think that would help us get back to full employment more quickly? Mr. POWELL. I do think that is an area that is worth looking at. And again, I don’t want to comment on the—I don’t know what is in your discussions, but I don’t want to comment on that. I will say many other countries, our peers, our competitors, advanced econ- omy democracies, have a more built-up function for child care and they wind up having substantially higher labor force participation among women. We used to lead the world in female labor force par- ticipation a quarter century ago, and we no longer do. And it may just be that those policies have put us behind. Mrs. AXNE. I appreciate you saying that. Countries like Ger- many, the UK, and Canada have moved forward with higher levels of that participation because of those programs, and it is absolutely something we need to address in this country. Obviously, even be- fore the pandemic, it was prohibitively expensive for families. I have been there. I have 2 boys, and at the most expensive time, even 15 years ago, you had to save $20,000 after taxes, and that was 15 years ago, for a couple of kids. So, I know that this is really hurting Americans and there are child care deserts. The lack of child care and paid leave, as well, really limits the choices for women in America, and every time one of them leaves the workforce to take care of a child, it sets their career back mul- tiple years. I just want to be clear; this isn’t just a women’s issue. It is a family issue. It is an economic issue, and I worry that the current crisis for child care could get even worse. It is why it is so important to address these types of long-term issues if we are going to be back to where we need to be as a country. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 35 I would also encourage you to look at how paid family leave, paid sick leave, all of those issues impact opportunity for women and for families, which, in turn, of course, impacts our overall economy. I want to thank you for the work that you are doing. I appreciate everything that you are doing to make sure that we are informed and keeping our country moving forward. And I would encourage you to take a look at those issues. And lastly, I would say, on the paid family leave, is that something else that you would be consid- ering looking at when it comes to the labor market? Mr. POWELL. Yes. Those are decisions that lie in your hands, but I do think it is worth looking at these. As the United States falls behind in labor force participation, we need to be asking why that is the case, and what are the ways we can be more competitive? Mrs. AXNE. Thank you. Chairwoman WATERS. Thank you. The gentlelady’s time has ex- pired. The gentleman from Arkansas, Mr. Hill, is now recognized for 5 minutes. Mr. HILL. Thank you, Madam Chairwoman. Chairman Powell, it is great to see you. Thanks for your time on Capitol Hill this week, and we do appreciate, as everyone has said, your extraordinary leadership of the Board of Governors during this tough past year. Since last March, the Fed has purchased more than $1.8 trillion of U.S. Treasury securities, and last week you reiterated, as you did yesterday in the Senate, that the Fed remains patiently accom- modative in its monetary policy position. But this extraordinary ac- commodation is now coupled with the decision that the Treasury has recently announced, Chair Yellen, that they are planning on drawing down their cash account they hold at the Fed by almost $1 trillion, and would inject that directly into the economy. Chairman Powell, has Secretary Yellen discussed with you draw- ing down the Treasury account? Mr. POWELL. As a matter of long practice, I don’t discuss my pri- vate conversations with elected representatives or with the Treas- ury Secretary. But, of course, we are well aware—there is an ongo- ing staff-level dialogue between Treasury and the Fed and the New York Fed about the Treasury general account and what the plans are for that. So, we are well aware of it. Mr. HILL. If $1 trillion was drawn out of that account and in- jected, do you think that could cause short-term interest rates, something you are very concerned about at the Board of Governors and a very keen focused monetary policy, could that cause short- term rates to go negative? Mr. POWELL. It could put downward pressure on short-term rates. Of course, our principal concern is that the Federal funds rate be within the range that the FOMC has wanted it to be. And we have the tools to make sure that is the case, and if that is the case, and it will be the case, then it will be within our range and we will be where we need to be, that is going to tend to work against the other short-term money market rates going too low. Mr. HILL. No, it is a key point and that is why I am concerned about that impact in the market, understanding it. For example, I assume the Board of Governors, from a monetary policy reaction to that, if short-term rates went negative, that you could raise the VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 36 rates on the interest rate on excess reserves (IOER) range that you have. Would that be a tool that you could take into effect? Mr. POWELL. Yes. I haven’t made any decisions about this at all, but, of course, that and also the rate on the reverse repo facility, are the two things that we can move. Those are our two adminis- tered rates, and so those would be the tools that we could use, among others, frankly, but those are things that we can do. Mr. HILL. Certainly, in light of what Ann Wagner asked about a few minutes ago, on the supplemental leverage ratio, these things kind of come together in the banking system, and managing those expectations, either the level of short-term rates or the dislocation in rates and the Fed’s reaction to it, or that kind of cash coming out into the banking system and thus aggravating that supple- mental leverage ratio, these are important issues, and I would en- courage the Board to consider action sooner rather than later, be- cause of that March 31st date. Chairman Himes raised a really interesting question, and Mr. Barr did as well, about the indicators you look at when you are evaluating this inflation move. We have mentioned the raw com- modity index, and I think other Members have mentioned that. It is up 18 percent year over year. Gold is up 15 percent year over year. But the one I always watch, and we saw it come into play in the run-up to the last financial crisis, is residential real estate. As you know, 24 percent of the Consumer Price Index (CPI) is an imputed rent that the Bureau of Labor Statistics uses. I have never bought it. I don’t know if you have ever bought it. But it is up about 3 percent right now. But if you look at the prices of existing homes, I think they are up 12 percent. New home prices are up 8 percent. Is that one that you particularly focus on, that imputed residential rent, since it is about 25 percent of the CPI, and how do you look at that issue? Mr. POWELL. We do, of course, follow a broad, broad range of prices. Half of our mandate is price stability, so we have a lot of attention paid to many different things. And the most important thing, really, is that inflation expectations are the anchor, and we have great tools for looking at that, including a new common index of inflation expectations. You asked about real estate housing, residential real estate prices, and the high levels of increases we saw this year, and there were a bunch of one-time factors. There was a suppression of de- mand at the beginning and an increase in demand as that industry reopened. Rates are low. People are working at home. All of those things tend to—rates will be low for some time. But it won’t be for- ever, and all of those things tend to push up demand. Our best es- timate is that we will see these increases but at a much lower level. Chairwoman WATERS. Thank you. Mr. HILL. Thank you, and I yield back. Thank you, Mr. Chair- man. Chairwoman WATERS. The gentleman from Illinois, Mr. Casten, is now recognized for 5 minutes. Mr. CASTEN. Thank you, Madam Chairwoman. Chair Powell, it is so nice to see you again, and I mean this genuinely. You have a hard job and you are always biased in favor of clarity rather than VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 37 opacity as you balance some of the political tensions of your job. And we appreciate that, and the country appreciates that. It makes our jobs easier. I mention that at the start because I want to sail into issues that are political but shouldn’t be, and it has been the subject of a lot of my colleagues’ questions, around climate change. The transition to a greener economy, as lots of smart people have said, imposes physical risks and transitional risks. The physical risks I don’t think present much of a political challenge. What has happened in Texas, nobody suggests that we shouldn’t be dealing with those types of physical risks to our economy. The transitional risks are hard, though, because converting to a clean energy system means converting to an energy system that has lower marginal operating costs, which leads to a rising tide. It is good for the economy, but the fact that a rising tide lifts the av- erage boat doesn’t mean it lifts every boat, and at core that trans- fer is a—the transitional risk is a wealth transfer from energy pro- ducers to energy consumers. You pay less for energy but now some- body has to write off their fossil fuel reserves. That, in my view, informs much of the political conversation that exists. I will get to it in a minute, why I start that way, but first I just want to follow up on what Chair Velazquez asked. On Monday, Secretary Yellen said that climate change is a part of the broader mandate of the Treasury Department. Do you agree that the eco- nomic risks of climate are part of your broader mandate as well? Mr. POWELL. I think that we have a mandate to ensure the safe- ty and soundness of financial institutions, and that involves mak- ing sure that they manage and understand all of the risks that they face, which includes climate change risks. Mr. CASTEN. Okay. Well, I certainly do. I think some of the esti- mates are north of $20 trillion a year, a year of loss. Last week, Fed Governor Brainard noted that there had been over $5.2 trillion in losses associated with the physical risks of cli- mate change. Since 1980, 70 percent of that, which is not [inaudi- ble], and, of course, that is accelerating. What is the Fed doing spe- cifically about the exposure that the financial sector has to those physical losses from climate change? Mr. POWELL. As I mentioned, we are really in the early stages of understanding this. Right now, we are doing a lot of outreach. We are talking to different size financial institutions and other ex- ternal constituencies, our fellow regulators here in the United States and around the world, to try to—we don’t have a framework for thinking about this. There are tremendous data gaps. It is just early days. And, by the way, if you talk to certainly the large and medium-sized financial institutions, you will find that they are very actively doing the same thing. They are trying to think about what are the implications, longer-run implications, and near-term implications of this? How do I think about it? And so, I would just stress that it is early days, and I also want to stress that the nation’s climate policy has to be decided by elect- ed people. We are not climate policymakers here who can decide the way climate change will be addressed by the United States. We are a regulatory agency that regulates a part of the economy, and VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 38 part of that job will be to ensure, as I said, but we are not the [in- audible] here. Mr. CASTEN. I don’t meant to be rude, but I have more questions I want to get to. I completely agree, and that is why I led off by noting that there is this political challenge because of the wealth transfer, because we are political creatures on our side of the dais here. And you noted to Mr. Luetkemeyer that stress tests and sce- nario analysis are very different, and I totally agree. The beauty of scenario analysis is that it is flexible, and it can accommodate more information, particularly as we get into some of these transi- tion risks. The downside is that they are flexible, and, therefore, they are going to be subject to political pressure. We can’t do those very well from our end, but as you think about how to build the modeling infrastructure in the Fed, how are you thinking about how to build that in a way that is accurate, that captures the risks, but allows you to maintain the political inde- pendence you need? Mr. POWELL. That is a good way to capture it. It is quite a chal- lenging exercise. These are scenarios, and, by the way, some of the banks are already running these scenarios. They are already think- ing about it. They are supposed to be informative. They are sup- posed to be an illustrative kind of thing. They are not at all like stress tests. And it is just worth this level of thinking, how do we model this and what are the implications of how we model it for our business today? One thing worth mentioning is that the Bank of England is ahead on this. They are working on this, so we are very closely monitoring and in ongoing discussions with them. I just think there is a lot of work to do here before we can really make progress. Mr. CASTEN. Thank you. I yield back. Chairwoman WATERS. Thank you. The gentleman from New York, Mr. Zeldin, is now recognized for 5 minutes. Mr. ZELDIN. Thank you, Madam Chairwoman, for holding today’s hearing, and Ranking Member McHenry. Chairman Powell, you are one of the unsung heroes of responding to the pandemic. I want to thank you and your team for your efforts throughout 2020. That has also included standing up and fine-tuning the liquidity facili- ties. For example, the original Municipal Liquidity Facility (MLF) had excluded Suffolk County, which is my home County, but the Federal Reserve and Treasury listened to the concerns that I and others raised, and lowered the population thresholds for the eligible issuers. This provided an important possible backstop for local gov- ernments concerned about liquidity when they issue debt. I appreciate the Federal Reserve’s attention to this critical mar- ket, and the commitment to remain vigilant of any problems as they arise, because we do need all levels of government working to- gether. Another issue with which I am concerned is the rising national debt, which now stands at over $27 trillion. The scariest part of this issue is that the fastest-growing part of our Federal budget is paying interest on our national debt, and that is right now oper- ating at a time when interest rates are historically low. You testified before the Joint Economic Committee, on November 13, 2019, and you said, ‘‘In a downturn, it would also be important VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 39 for fiscal policy to support the economy. However, as noted in the Congressional Budget Office’s recent long-term budget outlook, the Federal budget is on an unsustainable path with high and rising debt. Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a down- turn. In addition, I remain concerned that high and rising Federal debt can, in the long term, restrain private investment and thereby reduce productivity and overall economic growth. Putting the Fed- eral budget on a sustainable path would aid the long-term vigor of the U.S. economy and help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy if it weakens.’’ The national debt stood at roughly $23 trillion at that time. Since then, we have gone through a downturn due to widespread lockdowns as a result of the pandemic, and Congress has passed five bipartisan COVID-19 response bills. We are still struggling with a fragile economy, and many restaurants, small service-indus- try businesses, and others still need assistance to succeed in re- bounding from the pandemic. I have been supportive of targeted help. This can’t be an across- the-board handout, because someone is going to have to pay the bill. We definitely shouldn’t be appropriating more funding in areas where they haven’t even used the funding that has already been appropriated. Chairman Powell, I wanted to ask you to talk a little bit more about what you said in November of 2019, and why it still matters at this time for the future. Mr. POWELL. I would be glad to. We are all on an unsustainable fiscal path, which just means that even in good times, the debt is growing faster than the economy. That is kind of one definition of unsustainability, and we need to get off that path. We will get off that path. I would say the time to prioritize those concerns is not now. The time to prioritize those concerns is when we are close to full employment, when the taxes are rolling in, and we can do it without so much pain. Right now, fiscal policy is, I think, appro- priately working, as I suggested in those remarks. Fiscal policy really came to the rescue in this episode with the CARES Act and the subsequent things that have been done. I do think it is important to save that firepower for big times, times when it is really needed, and this is one of those times. Mr. ZELDIN. At this time, Congress is about to pass a $1.9 trillion COVID-19-related bill, but a lot of that spending won’t be until 2022 or later. Some of that spending isn’t even to be spent until 2024 or later. And I just want to know what your thoughts are on so much of that funding in this week’s bill not even being used this year? Mr. POWELL. I don’t think it is appropriate for me to insert my- self into these discussions, which are really the province of you and your elected colleagues. We have a narrow and important mandate, and we are generally not consulted or part of these discussions, and that is appropriate. Mr. ZELDIN. Chairman Powell, I appreciate your leadership. You really did a fantastic job responding to the pandemic, and I yield back. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 40 Chairwoman WATERS. Thank you. The gentlewoman from Massa- chusetts, Ms. Pressley, is now recognized for 5 minutes. Ms. PRESSLEY. Thank you, Madam Chairwoman, and thank you, Chairman Powell. When you last appeared in front of this committee, one year ago, you thanked me for sharing the history of the Humphrey-Hawkins hearings and the legacy of Coretta Scott King and her advocacy for a Federal jobs guarantee. Today, we are in the midst of the great- est economic disaster since the Great Depression, and during the height of that crisis, the Federal Government created 4 million job in the winter of 1933. Chairman Powell, you have noted that the goal of maximum em- ployment will require more than supportive monetary policy. Would a Federal jobs program succeed where monetary policy and the private sector have been unable to meet the need? Mr. POWELL. I was speaking really about the longer term and the need to have policies that support people, that give them the skills and training that they need to take part and also policies that sup- port participation in the labor market. I think it is up to you to pick the particular policies, but I do think it can’t just be a matter of monetary policy, because we can help, over the course of an ex- pansion, but there are longer-term issues that will support max- imum employment over time that are really in your hands. Ms. PRESSLEY. Agreed, and the Federal Government can create jobs that meet the scale and speed necessary, I think, to meet this need. Last week, I introduced H.R. 145, a Federal jobs guarantee, call- ing for just that. A central demand of the Civil Rights Movement, a job guarantee is about more than just jobs and the dignity of work. It is about the necessary public services and critical but long- neglected physical and care infrastructure we can provide. A Fed- eral job guarantee is our opportunity to achieve a just recovery as well as long-term economic equity. In this pandemic, as you are aware, Mr. Chairman, women have lost 5.3 million jobs, 1 million more than men. Women of color have sustained the highest unemployment rates. In fact, in December alone, 154,000 women, Black women, left the workforce, the result of lost jobs and the caregiving crisis. The reality is devastating, but you recently noted that even the sobering unemployment data that we have has incredible gaps in measurements, specifically that if we considered the near 4 million people who have stopped looking for jobs, the actual unemployment rate would not be 6.3 percent, as reported by the Bureau of Labor Statistics, but close to 10 per- cent. Chairman Powell, how does the undercounting of unemployment prevent us from achieving an equitable economic recovery, and what does this mean for women of color specifically? Mr. POWELL. I think that the numbers—by the way, this is not a criticism of the Bureau of Labor Statistics. They are very trans- parent about what they do. Conceptually, I think that you include those people who were in the labor force working and now they are out of the labor force but they are actually unemployed, from my way of thinking. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 41 Women, and women of color in particular, are overrepresented in those public-facing, service-sector jobs, which have been so hard hit. Think hotels and restaurants. And so, this downturn has just been terrible from the standpoint of affecting a group that already was financially less able to withstand those kinds of things, from that standpoint, particularly since we had begun to make some progress on those issues, those long-standing disparities. So, we are in a situation where the best thing we can do is get those sectors open as soon as possible, and in the meantime give people the support they need so they can continue the lives that they have had. Ms. PRESSLEY. Sure. That undercounting, though, I do believe is just another way that our economy renders invisible and further marginalizes those workers consistently, who are the last ones hired and the first ones fired, which is particularly true for our dis- abled workers, LGBTQ, Black women, those who have been dis- proportionately, to your point, employed in the service sector, low- wage jobs, that have been deemed essential but are often treated as if they are dispensable. And that is not true only in a pandemic. So, Chairman Powell, looking to past recoveries for the workers shouldering the heaviest burdens of this pandemic, will they re- cover their jobs as quickly as they lost them? What are your projec- tions there? Mr. POWELL. We don’t have great confidence in our ability to project that, but I would say as the economy reopens there should be a wave, really, of people going back to work in those sectors. The question is going to be, some of them will not be able to go back to work because, we are hearing, there are surveys suggesting that those companies have been figuring out ways to do their business with fewer workers. They are doing that all the time, but that proc- ess may have been accelerated because of this episode. So, it is pretty likely that some of those people will not be able to go back to their old jobs, and they are going to need continued support and help to find their way in this post-pandemic economy, which will be a different economy. Chairwoman WATERS. The gentlelady’s time has expired. The gentleman from Georgia, Mr. Loudermilk, is now recognized for 5 minutes. Mr. LOUDERMILK. Thank you, Madam Chairwoman, and Chair- man Powell, thank you for being here. And let me tell you, in the 4 years that I have been on this committee, it has been a roller coaster ride, especially with the pandemic, and I appreciate how you have worked with us during that time. I also want to thank you for the final rule that the Fed issued with the OCC and the FDIC back in November, that provided tem- porary relief for community banks from asset thresholds. As you know, pandemic relief programs, particularly PPP, have resulted in rapid growth of our financial institutions’ balance sheets, and as a result, several hundred community banks were on the verge of being subject to additional regulations because of having PPP on their books. I appreciate you and the other agencies addressing that, and I think that is an illustration of how we can put partisan- ship aside and do what is best for the American people and for our banks. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 42 I would also like to discuss the Community Reinvestment Act, as others have done today as well. I appreciate your comment earlier today that you are working with the OCC and the FDIC to get on the same page. As you know, the pandemic has accelerated the use of digital platforms such as mobile and online banking. What I would like to know is, will you and the Fed take that into account during the CRA reforms? Mr. POWELL. Yes. That is very much part of our—we understand that banking has changed, and that is one of the important ways in which it has changed, and that requires a rethink. It has been a quarter of a century since we had one, and that is a big part of why we are at the table. Mr. LOUDERMILK. I appreciate that. Last week, we had a markup on this huge bill that is coming to the Floor, and I would appre- ciate it if our colleagues on the other side would have the same out- look of addressing the changes in technology as we attempted to have fintech included in the package but were not able to do so. Hopefully, going forward, that will also become a bipartisan issue that we can work on together. Another question, Chairman Powell, could you remind us what you see for the economic outlook for 2021? I believe you said that the economy should bounce back strongly, and may grow at a rate of 6 percent this year. Is that true? Mr. POWELL. Someone asked a question yesterday, ‘‘Could it be 6 percent?’’, and I said, ‘‘Yes, it could be 6 percent.’’ There is a range of estimates. We are constantly updating things, but we will be doing another round of estimates for growth this year at our March meeting. We do quarterly updates. Of course, we are updat- ing in real time, in the meantime. But the bigger point is it all depends on getting the pandemic under control and getting people vaccinated, and it depends, to some extent, on these other strains that may be around. They haven’t really had much of an effect yet, apparently, on infection rates, and we hope that continues. But as I mentioned in my testi- mony, there is reason for optimism about the second half of the year, if we do get the pandemic under control, and that is what many people are forecasting now. Of course, we are going to wait and see the actual data before we act on it. We are not acting on forecasts when it comes to our policies at this point. Mr. LOUDERMILK. So, whether it is 4.5 percent, 5 percent, or 6 percent, you still believe that we should bounce back strongly? Mr. POWELL. Yes, I do. I think that is the base case. I think there is plenty of risk, but I would say that is certainly the base case. Mr. LOUDERMILK. That is good to hear. I think we have laid the foundation over the past 4 years of a strong economy, as long as we don’t undo a lot of that. But I want to take a step back and think about, really, the economy in general and our ability to re- cover and the fact that you think that we are going to have a strong recovery. As I mentioned earlier, later this week the Majority party in the House will attempt to pass a $2 trillion bill that economists are saying is 6.5 times bigger than what is actually needed. In fact, less than 9 percent of it would go to actually combatting the virus VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 43 through public health spending, which, as you have indicated al- ready, is really what the key to this economy is, getting the virus itself, the health care aspect, under control and constraint. And only 9 percent of this bill is dealing with that. I am not going to ask you to comment on fiscal policy, because I know that is not your job. But Congress should take the Fed’s economic projects into account and recognize the economy is on a strong track to recover, and recover strongly. The bill is many times bigger than it should be, and it will spend trillions on items that have nothing to do with COVID, and continue to accelerate the debt that this nation has, that is running quickly out of control And with that, Madam Chairwoman, I yield back. Chairwoman WATERS. Thank you. The gentlewoman from Texas, Ms. Garcia, is now recognized for 5 minutes. Ms. GARCIA OF TEXAS. Thank you, Madam Chairwoman, and thank you for hosting Chairman Powell for this very important hearing. Chairman Powell, it is a pleasure to see you again, and thank you for all the work that you have done to get us through this pandemic. I mentioned to someone that you just about threw everything but the kitchen sink at the issue, and, quite frankly, that is what was required to make sure that all parts of the econ- omy will get back on track. As a former local city official—in fact, I was city controller in Houston—I am always concerned about the municipal bond mar- kets and what is happening for cities in terms of maybe their obli- gations on any debt, being able to continue to issue debt, and get- ting past this pandemic. And I know that all of us have called for the extension of the Municipal Liquidity Fund (MLF), but because it was shut down at the end of 2020, States and cities can no longer rely on the MLF as a backstop. According to recent analysis from the Philadelphia Fed, State and local government employment has lowered by 1.3 million since the pandemic, nearly double the losses from the 2008 recession, and States are using reserves, Federal aid, and the capital markets to contend with budget deficits prior to the extreme austerity. I spoke to my mayor during our district work week this last couple of weeks, and the City of Houston was already at about a $120 mil- lion shortfall, and that is not even looking at the decrease in plum- meting collections on property taxes, because the City of Houston, about 40 percent relys on property taxes. What can we do, given the absence of the MLF and the precar- ious fiscal conditions that States and cities face, what sorts of steps can be taken to avoid further public sector job losses or disruption in the municipal bond market? Mr. POWELL. The municipal bond market, I am happy to say, has continued to function very well, even after the Facility closed. And again, I am happy to say that I was concerned that it was serving a purpose as a useful backstop, and it ended at the end of Decem- ber, and nonetheless, the market is working just fine. In terms of other support, it is not for us to say. I would say that the disparities between different cities and States are enormous in this situation. Some cities and States are actually better off. The ones that are leveraged to either energy or tourism are not better off, because those are the areas that have been hit by the pan- VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 44 demic. But that is really a question for fiscal authorities, in terms of where their help would be appropriate. In terms of access to fi- nancing, it is really there, that the municipal bond market is open, and right across the credit spectrum and the maturity spectrum there has been the ability to finance. Ms. GARCIA OF TEXAS. Okay. Thank you. Also, in one of our pre- vious visits, I had asked you about—I was curious as to why the poverty rates were not looked at more closely, just like we look at unemployment. Because as you have noted already, the unemploy- ment number is not perhaps the best true number of the people who are out of jobs, and certainly there are a lot of poor people who are not included in those numbers because they not only do not have jobs—not only part of the labor market, they are also not on unemployment. And I did note in your February report, on page 19, that you noted that food pantries saw a significant increase in demand in 2020, and there was a sharp increase in the number of families re- porting that they did not have sufficient money to buy food. What else do you all do to track that in terms of poverty rates, the num- ber of people who are reliant on the SNAP program, the number of people who are reliant on other public benefits, to get us a better picture of how many people may not be working? Mr. POWELL. We do look at all of that data. We don’t collect that data. Other parts of the government do. And I think we have all been struck—how could you not be struck by the uptick in the food area, where people are standing in line, these miles-long car lines, to get food. Some families are clearly in a place where they need help from the government just to feed their families. It is a sign that support is needed, and we really need to get the economy opened up as soon as possible. Ms. GARCIA OF TEXAS. Thank you. I believe my time is up. I yield back. Chairwoman WATERS. Thank you. The gentleman from Ohio, Mr. Davidson, is now recognized for 5 minutes. Mr. DAVIDSON. Thank you, Madam Chairwoman. Chairman Pow- ell, thank you for your time. And I want to commend the Federal Reserve for the work that was done at the end of March to provide liquidity and stability to our economy to deal with the massive surge in demand for U.S. dollars. And we are just so grateful that the U.S. dollar has become the world’s reserve currency. In a time of crisis, not just Americans but people all around the world want our dollar. It is indeed a source of our strength as a country, to have a strong dollar that has become the world’s reserve currency. It does great things for our capital markets, and, frankly, it helps enable the deficit spending that we have continued to do, because we certainly haven’t saved for bad times. We are able to navigate them because we still can borrow. I wonder, sir, do you have a definition of sound money? Mr. POWELL. We target inflation that averages 2 percent over time. That is what we consider to be— Mr. DAVIDSON. That is the policy, but when you talk about sound money, what would you say constitutes sound money? Mr. POWELL. The public has confidence in the currency, which they do, and which the world does. That is really what it comes VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 45 down to, that people believe that the United States currency is per- fectly reliable and stable in value. Mr. DAVIDSON. Okay. As a store of value, it clearly isn’t stable in value. It is not. But as a store of value, the U.S. dollar really, is it diluted as a store of value when M2 goes up by more than 25 percent in one year? Does the printing of more U.S. dollars some- how diminish the value of the dollars that others hold? Mr. POWELL. There was a time when monetary aggregates were important determinants of inflation, but that has not been the case for a long time. You will see, if you look back, the correlation be- tween movements in different aggregates—you mentioned M2—and inflation, is just very, very low. And you see that now, where infla- tion is 1.4 percent for this year. Mr. DAVIDSON. Yes, you keep using that, and you keep using it to talk about inflation, and I don’t think that is the only proxy for whether the dollar is a store of value and an efficient means of ex- change. It is clearly still the world’s reserve currency, but we are putting it under a pretty big stress test by diluting the value of the dollars. And I think one of the indicators of that is when the U.S. Government issues debt, all of this spending that we have done as a country isn’t really funded, is it? There is not a true market de- mand for this much debt. It is being lent. When there is borrowing, there is actually a lender. How much has the Federal Reserve had to purchase to bridge the gap between market demand for Treas- uries and the actual need to finance the spending? Mr. POWELL. That is not at all what is happening. We don’t have to purchase any of this. We purchased it because it is providing and supporting the economy in keeping with our mandate. There is plenty of demand for U.S. Treasury paper around the world. Mr. DAVIDSON. So, all of it would sell? Are you bidding up the price then? Is it your contention that you are inflating asset prices by increasing this purchase? Mr. POWELL. No. I think that we could sell all of our debt. The reason we do it—by the way, we issue debt—we issue United States obligations in the form of reserves when we buy Treasuries. We are not actually changing the amount of obligations out- standing on the part of the Treasury. What we are doing is we are substituting an overnight reserve for a Treasury bill. It has no ef- fect on the overall outstanding obligations of the United States when we do that. Mr. DAVIDSON. Right. The growth of the Federal Reserve’s bal- ance sheet, you don’t think that has anything to do with the dis- connect between Wall Street and Main Street? Let’s just take, as an example, the confidence people have expressed in Bitcoin and other cryptocurrencies. And well-respected, proven investors like Ray Dalio, who said, ‘‘Cash is trash,’’ isn’t it because the U.S. dollar is being destroyed by fiscal and monetary policy? Mr. POWELL. It is hard to say that it is being destroyed. Another way to look at the dollar is, you can ask, domestically, what can it purchase, and that is a question of inflation. You can also look at it in terms of a basket of other currencies, and— Mr. DAVIDSON. Yes, I understand, but if you look at— Mr. POWELL. —the dollar is— VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 46 Mr. DAVIDSON. —the key to this is the Fed has done a horrible job at predicting asset bubbles. They have. And if the pensions are going up because the market prices are going up—people with mar- ketable securities have their basket of wealth going up—and wages aren’t, teachers, for example, they have a great pension but their current consumption isn’t going up. So, CPI lags what is going on in the investment. I think it is a big concern, and I would just im- plore you and the other members of the Fed to pay attention to monetary inflation, not just price inflation. Chairwoman WATERS. The gentleman’s time has expired. The gentlewoman from Georgia, Ms. Williams, is now recognized for 5 minutes. Ms. WILLIAMS OF GEORGIA. Thank you, Madam Chairwoman, and thank you, Chairman Powell, for joining us today. Chairman Powell, the American people are looking to us to de- liver a strong economic recovery, and as we work to vaccinate more Americans and end this pandemic, we are going to need smart fis- cal and monetary policy to combat our country’s economic down- turn. So, Chairman Powell, you previously credited the past stimulus payments and unemployment benefits for helping jumpstart the economy. Given the current state of the economy, do you still be- lieve these are tools that can both boost aggregate economic activ- ity as well as help those disproportionately impacted by the pan- demic? Mr. POWELL. In principle, yes, I think that is what those tools do. I am not commenting on the bill, though, that you are working on right now. I don’t want to be heard to be supporting or not sup- porting the fiscal package that you are voting on this week. Ms. WILLIAMS OF GEORGIA. Understood. Do you believe that deci- sions made about fiscal and monetary policy can help determine the speed of a full economic recovery? Mr. POWELL. Very much so. Ms. WILLIAMS OF GEORGIA. Could failure to use these tools delay our return to full employment, even if we get folks vaccinated quickly? Mr. POWELL. Again, I am not going to comment on fiscal policy. We are committed to using our tools until the economy is fully re- covered. Ms. WILLIAMS OF GEORGIA. Chairman Powell, in your expert opinion, in what ways could monetary and fiscal policy be employed at this time to ensure our economic recovery is inclusive of commu- nities of color and addresses racial economic disparities? Mr. POWELL. Our tools lift the entire economy and aren’t tar- geted toward particular groups. But I will say that what we saw in the last couple of years of the long expansion, was that at very low levels of unemployment, very high levels of employment, high levels of participation, we saw benefits going to those at the lower end of the spectrum, which means disproportionately African Americans, other minorities, and women. And we saw that hap- pening pretty consistently over the last 2 years. With our tools, what we can do is try to get us back to that place where we have a strong labor market, high levels of employment, high levels of participation, wages are moving up, and those bene- VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 47 fits can be shared really broadly. That is really the main thing. It is not the only thing, but it is the main thing that we can do. Ms. WILLIAMS OF GEORGIA. Thank you so much, Chairman Pow- ell. And, Madam Chairwoman, I yield back the balance of my time. Chairwoman WATERS. —is recognized for 5 minutes. Mr. BUDD. Madam Chairwoman, the sound cut out. Would you verify that it is me, the gentleman from North Carolina? Chairwoman WATERS. Yes. The gentleman from North Carolina, Mr. Budd, is now recognized for 5 minutes. Mr. BUDD. Thank you, Madam Chairwoman. Chairman Powell, again, thanks for being here today. [Inaudible] massive $1.9 trillion COVID relief bill. So, based on past relief bills, it would be safe to assume that we are going to see an increase in deposits stemming from that $1.9 trillion, but [inaudible] SLR, the temporary supple- mental ratio, leverage ratio, would that be beneficial for banks to handle these deposits? Mr. POWELL. The temporary exemptions from the SLR that we put in place last year expire at the end of March, and we are in the process of looking at that right now. I have nothing to an- nounce on that today. It is a conversation my colleagues and I are having. I am reluctant to get into the merits of the arguments at this point, because it is something that I don’t want to presume or get ahead of that conversation. Mr. BUDD. I understand, and I understand you may not want to commit to this part, but have you considered finalizing the 2018 interagency proposal? Mr. POWELL. We are looking at what to do on the supplemental leverage ratio, and I really would rather just leave it at that for now, if I can. Mr. BUDD. Understood. Chairman Powell, yesterday you men- tioned that the digital dollar is a high-priority project for the Fed. I appreciate that. You also went on to mention that the Fed is more focused on getting it done right rather than getting it done fast. So, getting it done right, especially for a project like this, we can all appreciate that. Now, I know the U.S. dollar is the reserve currency of the world, and we hope that doesn’t change any time soon. But with that being said, a lot of other countries are just leaps and bounds ahead of us when it comes to digital currency. A couple of them, I think, are the digital Yuan, Sweden’s krona, also in Ukraine, and even in Uruguay, in the e-peso. Is there any worry that the U.S. is falling way behind the rest of the world in the de- velopment of a central bank digital currency (CBDC), and does this staggered start put the U.S. at a disadvantage? Mr. POWELL. No, I don’t. We are the reserve currency of the world, and that is because of our great democratic institutions, our vibrant economy, and just that we are the incumbent and we have relatively low inflation. The value of the dollar has been relatively stable for some years now. And so, I think we will be that. I think it is a very, very important decision that we make, and there are potential pitfalls. There are issues around privacy and how you structure it. And, again, to do it as quickly as possible and get it wrong would be a very bad idea. We are going to be careful. I do think that we have the time to think this through carefully. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 48 I am not concerned that other countries are experimenting with this. But I have to say, it is possible now. Technology has made it possible, and it is happening, and the private sector is doing it too. We understand that we need to be in a position of really under- standing it and doing it, if it is the right thing for Americans. Mr. BUDD. Thank you. We are quickly approaching the one-year mark of the first implementations of the lockdowns, and since then we have been battling the continuing public health crisis and the economic fallout that has come from that. How much longer can our economy sustain the current level of unemployment, and also on top of that, the lack of economic growth, before we really begin to suffer even more negative economic impacts? Mr. POWELL. A major concern since the very beginning has been people out of the labor market for too long. They lose their skills. They lose touch with the industry they worked in. ‘‘Scarring’’ is the technical term. But really, it is just people losing the lives and live- lihoods that they have had. We have been very concerned that we look after those people, and also that we get the economy reopened as quickly as it safely can be, and, of course, that does rely heavily on the pandemic being brought to a decisive end as soon as pos- sible. Mr. BUDD. Any timeline? We are now in February. If we continue as is, how long before this scarring, as you called it, really has a negative economic impact that is even more permanent? Mr. POWELL. It is very hard to say. I would say that we seem to be on a path to avoid. We haven’t seen the kind of scarring, ei- ther among smaller businesses or among people, that we have been concerned about. We haven’t seen that. The labor market has come back faster. The level of bankruptcies has been lower. It is hap- pening, but it is happening at a much slower pace. You see the cases coming down. You see vaccinations happening. We have the prospect of getting back to a much better place in the second half of this year. Mr. BUDD. I understand. Thank you, Madam Chairwoman. I yield back. Chairwoman WATERS. Thank you. The gentlewoman from Michi- gan, Ms. Tlaib, is now recognized for 5 minutes. Ms. TLAIB. Thank you, Madam Chairwoman. And thank you, Chairman Powell, for being with us this afternoon. I wanted to start by talking a little bit about my district. When we did discuss the state of the economy, I believe our hyperfocus on the stock market always has us forgetting the dire situation for our low-wage workers. And let’s remember that half of the Amer- ican people do not own a single share of stock. And we continue to hear about how the stock market is booming, and the economy is bouncing back, but where I come from, Mr. Chairman, we are not seeing that recovery. The national unemployment rate in December was 6.7 percent, nationally again. But in Wayne County, Michigan, the district I represent, it was nearly double, 12.4 percent. We know that soft- ware engineers, investment bankers, and attorneys might be able to do their jobs remotely, but if you are a taxi driver, a restaurant server, or a barber, you cannot work from home. As of last month, unemployment in the lowest-paying job tier was at 20 percent, VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 49 below pre-pandemic levels. This is why I continue to call for recur- ring monthly payments of $2,000. Chairman Powell, in your opinion, what would sending a $2,000 check, a $2,000 survivor check to every American mean for the health of our economy, and what would it mean for our nation’s most economically vulnerable? Mr. POWELL. I am very sorry. I don’t want to talk about a provi- sion that is actually in the current bill. I will echo, though, that, yes, we see the unemployment rate. Your situation is not uncom- mon. There are many communities where the unemployment rate is 20 percent now, and higher. So, we do get it that some parts of the economy have a long way to go. Ms. TLAIB. And I think this is why the majority of Americans ac- tually support monthly $2,000 checks that would lift and help mil- lions out of poverty. Our immediate priority, as you all know, should be taking care of our American people struggling to make ends meet. The Federal Reserve’s own Monetary Policy Report shows that Black and Brown communities are overwhelmingly left behind dur- ing this economic recovery, Mr. Chairman. What is the Federal Re- serve doing specifically to address both the racial and socio- economic disparities that exist in the economic fallout from the COVID pandemic? Can you speak about that? Mr. POWELL. Sure. Our monetary policy tools really lift the whole economy, but we made fundamental changes in our monetary pol- icy framework last year, and did so in part because of what we saw happening in low- and moderate-income minority communities in times of very low unemployment. We have said that we won’t tight- en monetary policy just because of a very tight labor market. We would want to see actual inflation or other issues that would poten- tially derail the recovery. That, I think, will, in the long run, because it’s something that does benefit lower-income people, communities of color. Ms. TLAIB. So, specifically direct payments? Is that what I am hearing? Mr. POWELL. No. Really just that we will keep our rate, our pol- icy rate low, and encourage the economy to become very strong be- fore we start tightening policy, and that is the guidance that we have given, by the way. Ms. TLAIB. I don’t know. My residents at home want to be able to pay their rent, their water bill, their utilities. I am not sure if that is going to work in Black and Brown communities, Mr. Chair- man. But last month, over 100 leading economists urged Congress to pass a strong stimulus package, as you know, with comprehensive recovery from the pandemic. Though I think we need to look at some of these economists who are saying that direct checks to indi- viduals, like many other countries have done a number of times, and that is also very much tied into the unemployment rate. There are different kinds of triggers. I think we need you to take a lead in how we can really, truly help address some of the racial and so- cioeconomic disparities. Many of these communities, Mr. Chairman, were already in survival mode before this pandemic, and now are really, truly suffering. VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 50 And Chairwoman Waters knows the stories in my district. I even mentioned one woman who said, ‘‘Please, Rashida, help me find an- other place to put my child in an early childhood education pro- gram.’’ I said, ‘‘Don’t worry. I will find you a different place that can do it virtually.’’ She said, ‘‘You don’t understand. I need to be able to send her somewhere physically so that she can eat twice a day.’’ So, we need to understand the dire need on the ground. And, Mr. Chairman, I know that you have to look at it more as a bigger pic- ture, but understand that your Federal Reserve’s own report says that you are failing in servicing, again, communities like mine, and we need to do more and be much more aggressive. Thank you so much, and I yield back. Chairwoman WATERS. Thank you very much, Ms. Tlaib. The gen- tleman from Tennessee, Mr. Kustoff, is now recognized for 5 min- utes. Mr. KUSTOFF. Thank you, Madam Chairwoman. Thank you for calling today’s hearing along with the ranking member. Chair Pow- ell, thank you very much for your leadership over this last year, during the tenure of your chairmanship, but especially the last year, because the economy really is performing much better than probably any of us would have thought a year ago, at the onset of the pandemic. And your leadership is, in large part, a result of that. I do want to ask you, though, and I realize that we can all selec- tively pick out economic data, but on the heels of two things, one the retail sales numbers that came out last week, they were much stronger than I think anybody expected, and also, Chair Powell, with the CBO report that came out several weeks ago that pre- dicted that the economy would grow by 4.6 percent in 2021, with- out any stimulus. So, before I continue with the question that you won’t ask, I am going to ask you, what are some of the reasons that you think the economy has—would you agree that the economy has performed better than we would have thought? Mr. POWELL. I just think, as a matter of fact, it has performed better. If you look at where generally private sector and our fore- casts were in April or May of last year, what has happened is the economy has recovered more quickly, generally, continually. And even as waves of COVID have happened, the economy has proven able to deal with those. People have found ways to cope. Businesses have found ways to cope. So, we are still a long way from our goals, but we are not living the downside cases that we were so concerned about in the first half of last year, and that is something to be very grateful for. Mr. KUSTOFF. Chair Powell, with that, with the CBO report, with the economic data that we have seen, the fact that in the other stimulus packages that we passed last year we have roughly $1 trillion that hasn’t gone into the economy that we have appro- priated, from a timing perspective—and I know you have advocated to go big—from a timing perspective, would we be better off, would we, as a nation, be better off waiting for some of that money to start circulating through the economy before approving another stimulus? VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 51 Mr. POWELL. That is an important question for people who are elected to deal with those issues, and it is really not something that you want your Federal Reserve, which we have this independ- ence and I think the other side of it is stick to your job. And I think I just would defer to those of us who have stood for public election, which nobody elected us. Mr. KUSTOFF. Fair enough. If I could, one thing I think every- body can agree on is the need to get our children back into schools. We know all the concerns the parents have, that students have, that teachers have, that educators have. I do want to ask you, though, has the Federal Reserve done any analysis on what school closures have done to employment in the United States? Is there any data on that? Mr. POWELL. Yes, there is quite a lot of data on that, and there is also research that people are doing that tries to quantify—it is very difficult to do this with confidence, but tries to quantify the burden that kids who miss a year of in-person schooling will bear through their economic lives and the effect that will have on the economy. There is a lot of data and a lot of research. If you have something specific, we will be happy to find that for you. Mr. KUSTOFF. I was going to ask you about where you were just going a moment ago. But in terms of the school closures on par- ents, grandparents, family members, the fact that their children, relatives are at home, is that affecting employment in any way, these school closures? Mr. POWELL. Yes, in particular for women. Women’s labor force participation dropped more, and is still below that of men. The net drop went down and then moved back up, but the net drop is still larger than that for me, and that is because women have taken on more of the child care duties than men have, in this time when kids are going to be at home. They are not going to be at school, in many places. Mr. KUSTOFF. Thank you, Chair Powell. And last, if I could, is my China question. About a month ago, China released some sta- tistics that showed that their economy in fact grew 2.3 percent last year in the face of a pandemic. Very quickly, do you believe that data? Mr. POWELL. It is always a good question, and I don’t have any- thing new to say on that. We don’t have the kind of transparency into their data collection that we have for many other nations. But directionally, it is probably about right. We don’t know how precise it is or how accurate it is in measuring activity, but it is probably better at measuring the change than the level, if you know what I mean. Mr. KUSTOFF. Thank you, Chair Powell. My time has expired. I yield back. Thank you, sir. Chairwoman WATERS. Thank you all, so very much. And I would like to thank our distinguished witness for his testimony here 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, VerDate Nov 24 2008 16:06 Jul 22, 2021 Jkt 095071 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\HBA055.000 TERRI 52 Members will have 5 legislative days to submit extraneous mate- rials to the Chair for inclusion in the record. This hearing is adjourned. 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Jerome H. Powell (2021, February 23). Congressional Testimony. Testimony, Federal Reserve. https://whenthefedspeaks.com/doc/testimony_20210224_chair_monetary_policy_and_the_state_of_the

@misc{wtfs_testimony_20210224_chair_monetary_policy_and_the_state_of_the,
  author = {Jerome H. Powell},
  title = {Congressional Testimony},
  year = {2021},
  month = {Feb},
  howpublished = {Testimony, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/testimony_20210224_chair_monetary_policy_and_the_state_of_the},
  note = {Retrieved via When the Fed Speaks corpus}
}