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 JULY 14, 2021 Printed for the use of the Committee on Financial Services Serial No. 117–37 ( U.S. GOVERNMENT PUBLISHING OFFICE 45–384 PDF WASHINGTON : 2022 VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\HBA195.000 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 ANN WAGNER, Missouri ED PERLMUTTER, Colorado ANDY BARR, Kentucky JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas BILL FOSTER, Illinois FRENCH HILL, Arkansas JOYCE BEATTY, Ohio TOM EMMER, Minnesota JUAN VARGAS, California LEE M. ZELDIN, New York JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia AL LAWSON, Florida WARREN DAVIDSON, Ohio MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio RITCHIE TORRES, New York JOHN ROSE, Tennessee STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin ALMA ADAMS, North Carolina LANCE GOODEN, Texas RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas JESU´S ‘‘CHUY’’ GARCIA, Illinois SYLVIA GARCIA, Texas NIKEMA WILLIAMS, Georgia JAKE AUCHINCLOSS, Massachusetts CHARLA OUERTATANI, Staff Director (II) VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\HBA195.000 TERRI C O N T E N T S Page Hearing held on: July 14, 2021 ..................................................................................................... 1 Appendix: July 14, 2021 ..................................................................................................... 55 WITNESSES WEDNESDAY, JULY 14, 2021 Powell, Hon. Jerome H., Chairman, Board of Governors of the Federal Re- serve System ......................................................................................................... 5 APPENDIX Prepared statements: Powell, Hon. Jerome H. .................................................................................... 56 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Powell, Hon. Jerome H.: Monetary Policy Report of the Board of Governors of the Federal Reserve System, dated July 9, 2021 .......................................................................... 61 Written responses to questions for the record from Representative Jesu´s ‘‘Chuy’’ Garcia ................................................................................................ 137 Written responses to questions for the record from Representative Sylvia Garcia ............................................................................................................. 140 Written responses to questions for the record from Representative Vicente Gonzalez ......................................................................................................... 144 Written responses to questions for the record from Representative Jim Himes ............................................................................................................. 149 Written responses to questions for the record from Representative Trey Hollingsworth ................................................................................................ 152 Written responses to questions for the record from Representative Al Lawson ........................................................................................................... 155 Written responses to questions for the record from Representative John Rose ................................................................................................................ 158 Written responses to questions for the record from Representative Nikema Williams .......................................................................................... 160 (III) VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\HBA195.000 TERRI VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\HBA195.000 TERRI MONETARY POLICY AND THE STATE OF THE ECONOMY Wednesday, July 14, 2021 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 12 p.m., via Webex, Hon. Maxine Waters [chairwoman of the committee] presiding. Members present: Representatives Waters, Maloney, Sherman, Meeks, Scott, Green, Cleaver, Perlmutter, Himes, Beatty, Gottheimer, Axne, Casten, Torres, Lynch, Adams, Tlaib, Dean, Ocasio-Cortez, Garcia of Illinois, Garcia of Texas, Williams of Geor- gia, Auchincloss; McHenry, Lucas, Luetkemeyer, Huizenga, Wag- ner, Barr, Williams of Texas, Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson, Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil, Timmons, Taylor, and Sessions. 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. The staff has been instructed not to mute Members, except when a Member is not being recognized by the Chair and there is inadvertent back- ground 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. If you choose to attend a different re- mote proceeding, please turn your camera off. Members who were unable to ask questions in our February 24th hearing with Chair Powell will be given priority to ask their ques- tions today, and we will return to our normal order of recognition once those Members have asked their questions. Before we begin, I will recognize myself to call up the resolution offered by Ranking Member McHenry naming Republican Members to subcommittees. Copies of the resolution were made available in advance. So, without objection, the resolution is adopted. Today’s hearing is entitled, ‘‘Monetary Policy and the State of the Economy.’’ I now recognize myself for 4 minutes to give an opening statement. First, I would like to welcome back Chair Powell. We are de- lighted to have you with us today. Much has happened since the last time you testified on the Fed’s Monetary Policy Report in Feb- ruary. Since then, Democrats passed and President Biden signed (1) VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 2 into law the American Rescue Plan. Because of the American Res- cue Plan, more than 58 percent of adults in the United States have been fully vaccinated, and businesses are reopening. More than 3 million jobs were added to our economy in the Biden Administration’s first 5 months, the most in any President’s first 5 months, compared to just over 2 million jobs created during the first 12 months of Trump’s reckless tenure. And the latest jobs re- port shows that 850,000 jobs were added to the economy in June alone, a tremendous increase that beat market expectations. Simply put, without the American Rescue Plan and the extraor- dinary leadership from the Biden Administration and Democrats in Congress, our economy would not be on the track to recovery. But we still have more work to do to put this crisis firmly behind us and build a more resilient economy for the future. For example, while the unemployment rate continues to fall, joblessness remains higher for Black and Latinx workers than it does for White work- ers. To be clear, we will not have a full recovery without closing this gap. Also, while inflation has risen in recent months, Chair Powell, you and other experts have attributed this to short-term factors. Consumer demand is way up with people once again dining out, buying cars, and purchasing homes, but supply chains haven’t yet kept up with this pace, which as a result, has led to higher prices. I think the Fed is right when they say that this dynamic will sub- side, but I expect the Fed to continue to monitor high prices as it fulfills its dual mandate to promote price stability and full employ- ment. At the same time, Congress should be considering whether it is better to address semiconductor shortages and soaring home prices through smart investments or face higher interest rates from the Fed. The COVID-19 pandemic disrupted life for all of us and shifted the way we think about the economy. We see this in the huge num- ber of women and people of color who have left the workplace. We see this in a generation of young people weighed down by student loan debt. And we see this in the surprising percentage of workers who have quit their jobs, even as the unemployment rate remains elevated. We are in a moment of transformation that requires a fresh approach and investments that will close the racial wealth and income gaps, address climate change and our childcare crisis, and finally, end homelessness. The Fed must also play a central role in this economic trans- formation. The Fed must ensure that our economy recovers equi- tably, reverse deregulatory actions that rolled back rules for Wall Street, and shore up protections so that our financial system is less vulnerable to shocks. Whether by partnering with the Treasury to implement a frame- work focused on climate change and financial stability, exploring a Central Bank Digital Currency (CBDC), and implementing faster payments or strengthening its outdated approach to bank mergers, the Fed must fulfill its role in ensuring a strong and inclusive re- covery. Chair Powell, I look forward to your testimony this afternoon. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 3 And I now recognize the ranking member of the committee, the gentleman from North Carolina, Mr. McHenry, for 4 minutes. Mr. MCHENRY. Thank you, Madam Chairwoman. Chairman Powell, welcome back, albeit virtually. There is a great deal of uncertainty right now. What I am certain of is this: You have earned and deserve another term as Chair of the Federal Reserve. You have proven to be a steady hand through- out this pandemic and our ongoing recovery, and you have de- fended the independence of the Fed. Thank you for your service and your leadership. Now, we are going to spend the next 3 hours telling you every- thing you have done wrong, but you do deserve another term. In all seriousness, though, the Federal Reserve needs to be laser-fo- cused on our economic recovery. Instead, I am seeing more head- lines about the Fed’s actions to address issues like climate change. While a noble cause, this should be something originating in Con- gress, not in the central bank. As far as our economic rebound, we are facing some very serious challenges. Simply put, America has a jobs problem. Not long ago, there weren’t enough jobs, but that is not the case at this time. There are more than 9 million jobs waiting to be filled. Employers across the country are competing for labor, offering signing bo- nuses, back-to-work incentives, and higher wages. The National Federation of Independent Business (NFIB) released a survey yes- terday reporting that 63 percent of small businesses have already increased wages to attract workers. We should be seeing a boom in return to work, but we are not. Throughout the spring, job numbers continued to fall short of ex- pectations. Yes, the June report showed that 850,000 jobs were added, but this misses the larger picture. The labor force participa- tion rate remained unchanged at 61.6 percent. The number of long- term unemployed Americans has increased by 233,000, and compa- nies continue to struggle to hire enough workers to meet their busi- ness needs. We need a plan to get people back to work, not just in the short term, but in the long term. That is what we should be focused on. I wish my Democrat colleagues felt the same way. Instead, they want to continue the spending binge they are all about on a laun- dry list of progressive ideas that have no hope of bipartisan sup- port, and have nothing to do with getting Americans back to work. The $2 trillion COVID package that was passed in March wasn’t enough spending for them. Now, we are hearing that Senate Demo- crats want as much as $3.5 trillion in new spending, and to in- crease taxes on businesses of all sizes. And on top of that, another trillion for hard infrastructure. None of this is sustainable. This spend-first-and-ask-questions- later approach to fixing our economy will not work. Our economy simply cannot handle this level of spending. Long term, it will lead to sluggish growth, persistent unemployment, and a declining standard of living. Simply put, the Democrats are addicted to spending. Taxpayers, families, and business owners will bear the consequences. We should instead focus on creating the kind of real economic growth that has proven to be enduring and stable. That means a VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 4 focus on regulatory relief, sound money, and a competitive tax sys- tem. This will deliver the kind of broad prosperity that defines our uniquely American system of free enterprise. To have a recovery that works for all Americans, we need to get Americans back to work. Madam Chairwoman, thank you for holding this hearing. I would like to welcome our newest Republican member of the committee, a gentleman who is not new to Congress but is a re- turning Member of Congress, and has been on leave—he left the House Banking Committee, and he has been on leave with the Rules Committee. And under our Rules, he gets to come back to his home base that he left years ago. And so, we are grateful to have Pete Sessions back with us on this committee and in this room, and we look forward to his service. We have so many great Texans on this committee, and we are glad to have him on the committee as well. And, with that, Madam Chairwoman, I yield back. Chairwoman WATERS. Thank you very much. And welcome back, Pete Sessions. We are glad to have you back. At this time, I will recognize the gentleman from Connecticut, Mr. Himes, for 1 minute. Mr. HIMES. Thank you, Madam Chairwoman. And, Chair Powell, welcome once again before the committee. We are going to be hanging on your every word today with all that is going on out there. Mr. Chairman, 3 weeks ago, I had the privilege of being ap- pointed by the Speaker to Chair the Select Committee on Economic Disparity and Fairness in Growth. I have reason to believe that the ranking member may also come from this committee and that membership will come from this committee as well. Mr. Chairman, I was enormously gratified to see a statement you made in May to the National Community Reinvestment Coalition when you said, ‘‘The Fed is focused on these long-standing dispari- ties because they weigh on the productive capacity of our economy. We will only reach our full potential when everyone can contribute to and share in the benefits of our prosperity.’’ Mr. Chairman, as you know, we are seeing economic disparities in this country that we have never seen before, and I appreciate you making the case that apart from the moral issue, there is a profound economic reason to address those disparities inasmuch as it is damaging our productive capacity. The committee looks for- ward to working with you on this issue in a bipartisan way, and I really thank you for highlighting that. And we will ask you to continue to reflect on what the Fed can do to address those sorts of disparities. And, with that, I look forward to your testimony, and I yield back. Chairwoman WATERS. Thank you very much. I now recognize the gentleman from Kentucky, Mr. Barr, for 1 minute. Mr. BARR. Thank you, Madam Chairwoman. And, Chairman Powell, welcome back to the committee. I join the ranking member’s view that you have earned another term. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 5 The Consumer Price Index (CPI) data released yesterday, though, does paint a grim picture. Inflation is accelerating at the fastest pace in 13 years. The 5.4 percent year over year increase is the highest since August 2008. Core CPI surged to 4.5 percent, the sharpest increase in almost 30 years, and 47 percent of small businesses raised average selling prices in June, the highest share since 1981. Let’s be clear: Inflation is a tax hike on everyday consumers and small businesses. While accommodative monetary policies, supply chain bottlenecks, and increased consumer demand associated with reopening the economy are contributing to the rise in prices, reck- less government spending and the prolonged policy to pay people not to work are exacerbating the problem. The Biden Administra- tion’s desire to tax and spend compromises any hope we have that this inflation is transitory and paints us into a corner of lasting in- flation that will decrease the purchasing power of American con- sumers and small businesses. I look forward to today’s testimony about the real and immediate risk of higher inflation. I yield back. Chairwoman WATERS. Thank you very much. I would like to take this moment to welcome our distinguished witness for today, the Honorable Jerome Powell, the Chair of the Board of Governors of the Federal Reserve System. You will have 5 minutes to summarize your testimony. You should be able to see a timer on your screen that will indicate how much time you have left, and a chime will go off at the end of your time. I would ask you to be mindful of the timer, and quickly wrap up your testimony if you hear the chime. And without objection, your written statement will be made a part of the record. Chair Powell, you are now recognized for 5 minutes to present your oral testimony. STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIR- MAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. POWELL. Thank you, Chairwoman Waters, Ranking Member McHenry, and members of the committee. I am pleased to present the Federal Reserve’s semi-annual Monetary Policy Report. At the Fed, we are strongly committed to achieving the monetary policy goals that Congress has given us: maximum employment; and price stability. We pursue these goals based solely on data and objective analysis, and we are committed to doing so in a clear and transparent manner. Today, I will review the current economic situation before turn- ing to monetary policy. Over the first half of 2021, ongoing vaccinations have led to a re- opening of the economy in strong economic growth, supported by accommodative monetary and fiscal policy. Real gross domestic product this year appears to be on track to post its fastest increase in decades. Household spending is rising at an especially rapid pace boosted by strong fiscal support, accommodative financial con- ditions, and the reopening of the economy. Housing demand re- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 6 mains very strong, and overall business investment is increasing at a solid pace. As described in our Monetary Policy Report, supply constraints have been restraining activity in some industries, most notably in the motor vehicle industry, where the worldwide shortage of semi- conductors has sharply curtailed production so far this year. Conditions in the labor market have continued to improve, but there is still a long way to go. Labor demand appears to be very strong. Job openings are at a record high, hiring is robust, and many workers are leaving their current jobs to search for better ones. Indeed, employers added 1.7 million workers from April through June. However, the unemployment rate remained elevated in June at 5.9 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the last year. Job gains should be strong in the coming months as public health conditions continue to improve, and as some of the other pandemic- related factors currently weighing them down diminish. As discussed in the Monetary Policy Report, the pandemic-in- duced declines in employment last year were largest for workers with lower wages, and for African Americans and Hispanics. De- spite substantial improvements for all racial and ethnic groups, the hardest-hit groups still have the most ground left to regain. Inflation has increased notably and will likely remain elevated in the coming months before moderating. Inflation is being tempo- rarily boosted by base effects as the sharp pandemic-related price increases from last spring drop out of the 12-month calculation. In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to espe- cially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind. Prices for services that were hard hit by the pandemic have also jumped in recent months, as demand for these services has surged with the reopening of the economy. To avoid sustained periods of unusually low or high inflation, the Federal Open Market Committee (FOMC) monetary policy frame- work seeks longer-term inflation expectations that are well-an- chored at 2 percent, the FOMC’s longer-run inflation objective. Measures of longer-term inflation expectations have moved up from their pandemic lows and are in a range that is broadly consistent with the FOMC’s longer-run inflation goal. Two boxes in the July Monetary Policy Report discuss recent de- velopments in inflation and inflation expectations. Sustainably achieving maximum employment and price stability depends on a stable financial system, and we continue to monitor vulnerabilities here. While asset valuations have generally risen with improving fundamentals as well as increased investor risk appetite, and household balance sheets are on average quite strong, business le- verage has been declining from high levels, and the institutions at the core of the financial system remain resilient. Turning to monetary policy, at our June meeting, the FOMC kept the Federal funds rate near zero and maintained the pace of our asset purchases. These measures, along with our strong guid- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 7 ance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete. We continue to expect that it will be appropriate to maintain the current target range for the Federal funds rate until labor market conditions have reached lev- els consistent with the Committee’s assessment of maximum em- ployment, and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. As the FOMC reiterated in our June policy statement, with infla- tion having run persistently below 2 percent, we will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time, and longer-term inflation expectations remain well-anchored at 2 percent. As always, in assessing the appropriate stance of policy, we will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy, as appropriate, if we saw signs that the path of inflation or longer-term inflation expectations were moving ma- terially and persistently beyond levels consistent with our goal. In addition, we are continuing to increase our holdings of Treas- ury securities and agency mortgage-backed securities (MBS), at least at their current base, until substantial further progress has been made toward our maximum employment and price stability goals. These purchases have materially eased financial conditions and are providing substantial support for the economy. At our June meeting, the Committee discussed the economy’s progress toward our goals since we adopted our asset purchase guidance last December. While reaching the standard of substan- tial further progress is still a ways off, participants expect that progress will continue, and we will continue these discussions in coming meetings. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases. To wrap up, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. The resumption of our Fed Listens initiative will further strengthen our ongoing efforts to learn from a broad range of groups about how they are recovering from the economic hardships brought on by the pandemic. We at the Federal Reserve will do everything we can to support the recovery and to foster progress toward our goals of maximum employment and sta- ble prices. Thank you. I look forward to our discussion. [The prepared statement of Chairman Powell can be found on page 56 of the appendix.] Chairwoman WATERS. Thank you very much, Chairman Powell. And I would like to clarify that the end time for this hearing is 3 p.m. Pacific time, and 12 p.m. Eastern time. So, thank you very much. And at this time, I would now like to recognize myself for 5 min- utes for questions. Chair Powell, I want to understand some of the data behind the recent inflation figures, specifically as they relate to housing and home prices. According to the Monetary Policy Report we are dis- cussing today, ‘‘New construction, home sales, and residential im- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 8 provements have all been well above pre-pandemic levels, and de- mand has outpaced supply, as construction has been limited by ma- terial shortages and sales have been constrained by low inven- tories.’’ Demand for housing clearly outweighs the supply of housing. Chair Powell, you said that this is a problem of first-time home buyers for sure. Can you elaborate on what you meant by that? Mr. POWELL. Housing prices are moving up across the country at a high rate, and I suppose the good news is that this is not driven by the kind of reckless, irresponsible lending that led to the hous- ing bubble, which in turn led to the last financial crisis. Those kinds of things are not happening, at least so far. Nonetheless, housing prices are moving up and, of course, that makes it more difficult for entry-level buyers to get into the housing market. So, that is a concern. I will also point out, though, that a number of things are driving up housing prices, and certainly, low rates are part of that. There are also changes in preference. Because of COVID, people have wanted to move out of cities and into surrounding areas. So, single- family housing demand has been quite high. In addition, prices have been driven up by material shortages and things like that, which we would hope would be alleviated. Chairwoman WATERS. Okay. So, Chairman Powell, a lack of sup- ply and constraints around the housing stock are a fact in the re- cent increase in the housing cost. If the Fed were to raise interest rates, what do you project the impact would be on addressing hous- ing supply challenges? Mr. POWELL. It wouldn’t have any affect on the supply side, as I think you are suggesting. There are limitations around the avail- ability of some raw materials and of labor and of zoning and things like that, and nothing we can do can really affect that. It is true that interest rates are one factor that is supporting demand, but we really can’t do much about the supply side. Chairwoman WATERS. Conversely, do you expect that increasing the housing supply would help alleviate inflation? Mr. POWELL. Sure, I do think that more housing supply, if de- mand were to remain constant, would certainly imply that prices would stop going up as much as they have been. Chairwoman WATERS. The Great Recession was long, slow, and inequitable in part because fiscal support provided by Congress was insufficient, and we left too much up to the Fed to stimulate the economy through low interest rates. I believe strongly that we cannot repeat that mistake. And as I look around at what is caus- ing surging prices, I see a lot of places where more investment will help with long-term economic growth, especially more housing. Congress and the Biden Administration have a job to do right now. It is for this reason I am reintroducing my Housing is Infra- structure Act this week, to ensure that Congress finally makes long-overdue investments in the housing market. This bill will pro- vide an historic investment of more than $600 billion to ensure that affordable housing is available all across the country. As you know, I am focused very much on housing, and I under- stand that there is a great need for affordable housing. Homeless- ness is increasing all over this country, and some cities have given VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 9 up on even trying to control the camps that are popping up on side- walks and under bridges. How important do you think investment in housing is to this economy? Mr. POWELL. The housing industry is a big one, and the problem of affordable housing is a big one too, albeit it is largely outside of the ambit of the Fed’s responsibilities, but it’s certainly a very im- portant issue. And I think, as you point out, the rise in homeless- ness in the face of a very strong recovery is actually evidence of the unevenness of the recovery, which is something we try to keep in mind as well. Chairwoman WATERS. Thank you very much. I will now recognize the ranking member of the committee, Mr. McHenry, for 5 minutes for questions. Mr. MCHENRY. Chair Powell, thank you for being back here. We have a lot of debate about monetary policy, but fiscal policy is also an important discussion. Chair Powell, I recognize that you have a say over monetary pol- icy but not fiscal policy. That is the responsibility of Congress. But, Chair Powell, when Congress enacts new spending, does the Fed incorporate that new spending into its economic projections? Mr. POWELL. Yes, we do. Of course, we don’t—as you know, we don’t comment on or try in any way to play a role in fiscal policy, in particular, fiscal policies; but, yes, we take it as an external fac- tor that we would factor into our models and into our assessment of the economy. Mr. MCHENRY. Okay. That spending impacts the course of the Fed’s decision-making. And the Fed will follow, in essence, right? You have no say over it, but you will incorporate that into your de- cision-making. Will adding another $4.5 trillion in new spending impact the Fed’s decision-making? Mr. POWELL. I should be clear, it is one of many factors that we consider. Our focus is on maximum employment and price stability. One thing would be—you would want to know how much of it is paid for and that kind of thing, but sort of the net deficit spending would enter into anybody’s projections of the economy, and ulti- mately into projections of the labor market, and of inflation over time. It is hard to say exactly how without knowing a lot of the de- tails, because it also matters what money is spent on and over what period of time and that sort of thing. Mr. MCHENRY. Sure. So, the spend rate matters, but fiscal pol- icy, both tax and spend policy, impacts the Fed’s decision-making. For those in Congress who are saying that irresponsible spending won’t impact the Fed’s decision-making, it won’t impact our econ- omy long term, that certainly is not in keeping with how these de- cisions are made. I want to switch subjects a little bit. Chair Powell, as you know, there has been great interest in central bank digital currencies (CBDCs). Many countries, like China in particular, are focused on establishing a CBDC. You indicated earlier this year that the Fed would study it and issue a White Paper on the subject. What is the status of that report? Mr. POWELL. We expect to publish a report around—it could be early September, plus or minus, right in that timeframe. And the VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 10 status of it is—and we are working hard on it right now, but let me tell you what it is really. We are going to address digital pay- ments broadly. So, that means stablecoins. It means crypto assets. It means the CBDC. That whole group of issues and payment mechanisms, which we think are really at a critical point in terms of the appropriate regulation, and in the case of a central bank dig- ital currency laying out, really, questions for the public to respond to about what good it can do, and what the cost and benefits of it would be. We want to begin, really, a major public consultation across many different groups, including Congress, of course, on a CBDC and also on stablecoins and crypto. Mr. MCHENRY. There are certainly advantages to a central bank digital currency or a faster payment system, but there are also risks. That is the case, right? This is not a riskless proposition; it is a pretty bold proposition for the Federal Reserve, is it not? Mr. POWELL. Yes. And we will lay out the possible potential ben- efits. We will put those out on paper, and also the potential risks that are undertaken. And I think those have been written up in many forums around the world, and I think both are real, and a lot depends on the U.S. institutional context and on why we would need a central bank digital currency and how you weigh those costs and benefits. That is really the nature of the exercise. Mr. MCHENRY. Stablecoins certainly have some advantages in terms of a faster payment system, and have some of the attributes of a CBDC, but there are some risks with stablecoins right now, are there not? Are there concerns you have about stablecoins? Mr. POWELL. Yes. I think the issue—stablecoins are a lot like money market funds or bank deposits or a narrow bank, depending on the terms of it and that kind of thing. But without the regula- tion—and I think we have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset. We have a pretty strong regulatory framework around bank depos- its, for example, or money market funds. That really doesn’t exist for stablecoins. And if they are going to be a significant part of the payments universe, which we don’t think crypto assets will be, but stablecoins might be, then we need an appropriate regulatory framework which, frankly, we don’t have. Mr. MCHENRY. Thank you. Chairwoman WATERS. Thank you very much. Clarification: This hearing will end 3 p.m. Eastern time, and 12 p.m. Pacific time. Why didn’t somebody say something? Mr. MCHENRY. It is a relief for all of us. Mr. POWELL. I am relieved, Madam Chairwoman. Ms. TLAIB. Yes. We don’t like interrupting our chairwoman. That is why. We knew you would figure it out. Chairwoman WATERS. Thank you. The gentlewoman from New York, Mrs. Maloney, who is also the Chair of the House Committee on Oversight and Reform, is now recognized for 5 minutes. Mrs. MALONEY. Thank you for that correction. Chairwoman WATERS. You are welcome. Mrs. MALONEY. Chair Powell, it is very good to see you again. Last month, when you testified before the House Select Sub- committee on the Coronavirus Crisis, you and I discussed the cur- rent economic recovery, and I expressed concern, along with other VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 11 Members, about prematurely cutting off this recovery by raising in- terest rates too soon. I want to touch on a related topic today, and that is the Fed’s asset purchases. As you know, the Fed is currently supporting the economy by purchasing $120 billion a month in Treasuries and mortgage securities, and the Fed has said that it will continue these purchases until, ‘‘substantial further progress has been made toward the committee’s maximum employment and price stability goals.’’ The minutes from last month’s Fed meeting stated that the Fed is continuing its asset purchases because participants generally did not believe that the goal of, ‘‘substantial further progress,’’ has been made yet. And I agree. I think it is far too early for the Fed to start tapering its asset purchases and holding back on its sup- port for the economy. So, Chairman Powell, would you please elaborate on what you believe, ‘‘substantial further progress,’’ looks like? What do you need to see happen before you will support tapering the Fed’s asset purchases? Mr. POWELL. I would say this: We didn’t try to write down a par- ticular set of numbers that would capture what we meant by that, and it would have been complicated and not particularly worth- while, so we thought. We said, ‘‘substantial further progress,’’ which is similar to what we did during the recovery from the global financial crisis years ago. We had a similar set of words for when we would taper asset purchases. The thing is, it is very difficult to be precise about it, because with maximum employment, there aren’t three or four or five or six metrics that you can point to; it really is a very broad range of things, including wages, unemployment, levels of employment, par- ticipation, all of those things. So we just said, ‘‘substantial further progress.’’ And we also said that we would provide advance notice, well in advance of actually tapering, understanding that this is somewhat of a discretionary test and that we don’t want to sur- prise the markets or the public. So, we will provide lots of notice as we go forward on that. By the way, we have another FOMC meeting a couple of weeks from today, and we will have another round of discussions on this very topic. Mrs. MALONEY. Great. Thank you. Chair Powell, in May, President Biden took action, through an Executive Order, to address the serious threat that the climate cri- sis poses to our economy, and we are seeing numerous examples of that changing climate in extreme weather events that resulted from this threat. For example, we saw extreme heat across the Pa- cific Northwest, which will have cascading effects on the U.S. econ- omy. And part of that Executive Order was tasking Secretary Yellen with assessing climate-related financial risks through the Financial Stability Oversight Council (FSOC), of which the Fed is a member. And I know the Fed presented on climate risk during the first FSOC meeting of this year. Can you provide us with an update on the Fed’s current work with FSOC on this topic, and the Fed’s broader work to address cli- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 12 mate change in our financial system, particularly how these risks can impact our broader economy through supply chain disruptions or disruptions to massive industries such as agriculture? Mr. POWELL. Sure. I would be glad to. The Fed’s work on climate change really exists as part of our preexisting mandates for super- vising financial institutions and for the overall stability of the fi- nancial system. As far as individual financial institutions are con- cerned, as supervisors, we want them to be aware of and capable of managing and understanding all of the risks that they run, in- cluding the risks to their business activities and business model from climate change. We are in the beginning stages of working up a program that will engage with the financial institutions and make sure that happens. On the financial system more broadly, we have an overlapping effort that looks carefully at the broader financial system and asks, how will climate change affect financial markets and other finan- cial institutions that are not banks, for example, insurance compa- nies and many others like that, asset managers? So, those are really two efforts that we are working on, and that is what we reported on to the FSOC. Mrs. MALONEY. My time has expired. Thank you very much. I yield back. Thank you. Chairwoman WATERS. The gentlewoman from Missouri, Mrs. Wagner, is now recognized for 5 minutes. Mrs. WAGNER. Thank you, Madam Chairwoman. And, Chairman Powell, thank you for being here with us again today. You and I have discussed at length my very grave concerns with higher inflation and the increased cost that consumers and businesses are experiencing today. In February, you appeared be- fore this committee and reiterated that the price spikes are only temporary and said they will decrease in time and inflation will move towards your goal of 2 percent. I can tell you that the families and businesses that I represent in Missouri’s Second Congressional District aren’t feeling that these price spikes are very temporary. I am concerned with the most recent Consumer Price Index data showing price increases that are much higher than expectations. Housing costs, as we have discussed here, are skyrocketing. Food costs are higher. Electricity and gas prices are up. Even travel and hospitality costs have seen a great increase. I understand that some of these increases are due to supply chain disruptions and labor shortages, but to have prices consistently higher across-the- board than they were forecasted to be is deeply troubling as we look toward a strong economic growth for the rest of the year and beyond as we pull out of this pandemic. Chairman Powell, is it the Fed’s policies or the Biden Adminis- tration’s policy that is surrounded with massive spending that is causing consumer prices to skyrocket? Mr. POWELL. I can’t really address that. I can tell you why I think we are having this inflation that we are having now. First of all, you are right, the incoming inflation data have been higher than expected and hoped for, but they are actually still consistent with what we have been talking about. The very high inflation readings are coming from a small group of goods and services that VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 13 are directly tied to the reopening of the economy. It is new cars, used cars, rental cars, hotel rooms, airplane tickets, things that we understand that connection, but— Mrs. WAGNER. With all due respect, Chairman Powell, it is hous- ing, it is appliances, it is food prices, it is electricity, it is gas. Tell me, to what extent is the Federal Reserve willing to see consumer prices increase before intervention is necessary? Mr. POWELL. We are monitoring the situation very carefully, and we are committed to price stability. And if we were to see that in- flation was remaining high, and remaining materially higher above our target for a period of timec, and that it was threatening to up- root inflation expectations and create a risk of a longer period of inflation, then we would absolutely change our policy as appro- priate. Mrs. WAGNER. Unemployment is still well above the 3.5 percent figure it reached prior to the pandemic, and the labor force partici- pation rate remains lower than in February of 2020. Now, a lot of that is because the Administration is still, frankly, paying people not to work, while job openings remain high, at 9.2 million. In the FOMC minutes from June, some participants believed that the unemployment rate of 3.5 percent that the previous Ad- ministration achieved is not feasible. Chairman Powell, with 9.2 million job openings, and many em- ployers raising wages and offering hiring bonuses, et cetera, what is causing some members of the FOMC to believe a 3.5 percent un- employment rate is not achievable? Mr. POWELL. I don’t know that anyone said that. I didn’t hear anyone say that 3.5 percent unemployment— Mrs. WAGNER. It is in the minutes. It is in the minutes from June. Mr. POWELL. No, it is not. It must be something else. It must be something that says—you might say that about labor force partici- pation, for example, or employment to population, but I don’t think—I didn’t hear anybody say that we couldn’t get back to 3.5 percent unemployment. In any case, I don’t believe that. Let me just say that. I don’t be- lieve that. I think it is a long road back. It took us quite a long— it took us 8 years of an expansion to get to 3.5 percent, but I think there is every reason to think that we can get back to that level. Mrs. WAGNER. With a vaccine readily available, and small busi- nesses with unfilled positions, what do you believe is causing the unemployment rate to remain steadily above 3.5 percent? Mr. POWELL. I think you are right that the demand for labor is very, very high, with all-time record job openings, and there are also significant numbers of unemployed people. The market doesn’t seem to clear, and I think some factors are weighing on labor sup- ply, people going back to work. We think that with those factors such as school reopenings and perhaps also unemployment insur- ance, those things will pass, and we do think that, as a result, there will be very strong job creation. Mrs. WAGNER. Thank you, Chairman Powell. My time has ex- pired. And I yield back. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 14 Chairwoman WATERS. The gentleman from New York, Mr. Meeks, who is also the Chair of the House Committee on Foreign Affairs, is now recognized for 5 minutes. Mr. MEEKS. Thank you, Madam Chairwoman. And welcome back, Chairman Powell. As you know, the Biden Administration recently issued an Exec- utive Order promoting competition in the American economy and encouraging the attorney general, in consultation with the primary Federal banking agencies, to update existing guidelines on bank mergers, to provide more robust scrutiny on these transactions. And I support this Executive Order, considering the impact that bank [inaudible] can have on communities of color. Now, compliance with the Community Reinvestment Act (CRA) is an important measure that the Department of Justice (DOJ) and the Fed considered during the bank merger review process. And as you know, I publicly supported the Fed’s direction in modernizing CRA regulations so that things like the bank merger review proc- ess can adequately reflect the economic needs of today. Can you please explain how the Fed plans to coordinate with the DOJ in light of the bank merger Executive Order, and will the Fed’s Community Reinvestment Act reform efforts and the DOJ’s bank merger updates happen in silos or in tandem? Mr. POWELL. Thank you. We actually coordinate pretty closely with the Department of Justice on banking and trust standards. We each look at each merger, and so we understand each other. And we would look forward, to the extent Justice, I think, under the Executive Order, is encouraged to take a fresh look at bank merger standards. We would, of course, closely coordinate and try to understand what is going on. We haven’t made any decision to change our merger standards, but we would certainly monitor that carefully and act appropriately. Again, I can’t presume to know what will happen out of this, but it is a process that we will go through in coordination with Justice. Mr. MEEKS. The coordination is important, I believe, to act in tandem so that there are not several different CRA rules and regu- lations that come out, as we have talked about with the OCC and others. So, I appreciate the Fed making sure that there is some continuity in that regard and working in tandem. Also, the pandemic has really disrupted the housing market, as was indicated by the chairwoman. I look at the disproportionate number of Black and Brown homeowners, particularly in my dis- trict, as well as in New York City at large. Now, in the pandemic’s early days, the Fed rightfully intervened and purchased mortgage-backed securities (MBS) in the billions, which helped keep the interest rates low, I understand. However, we have also experienced a rise now in housing prices, which some attribute to the Fed’s asset purchases, although others cite supply chain challenges. I understand the debate at the Fed as to how quickly it should taper its MBS purchases, but what are some of the economic fac- tors you are considering as you weigh both sides of this argument? Mr. POWELL. Housing prices are going up because of both de- mand and supply reasons. And you touched on them, Congressman. On the supply side, it is prices of raw materials and lack of labor, VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 15 labor costs, zoning difficulties, all of those things. So, it is not just a demand story. On the demand side, low interest rates are certainly making mortgages cheaper and, therefore, supporting prices in housing. That is certainly a factor. There are other factors too. Household balance sheets are very strong right now because people were kind of forced to save because they couldn’t go on trips, and they couldn’t go to restaurants for a year. So, there are big amounts of savings on people’s balance sheets. All of that goes into demand for housing. Sorry. Your question on that was what? Mr. MEEKS. What are some of the economic factors that you are considering, in that argument— Mr. POWELL. Mortgage-backed securities (MBS), in particular. Interest rates—our low interest rates and Treasury purchases and MBS all go into creating a low interest rate environment and go into mortgage rates. Mortgage-backed securities purchases really work a lot like Treasury purchases. They aren’t especially impor- tant in what is happening with housing prices. Nonetheless, they clearly are a factor among factors. This is one of the things that we will be considering as we go through this process of evaluating what to taper and in what form, what will be the composition of asset purchases going forward. Those are all issues that we will be discussing at this next meeting in a couple of weeks. Mr. MEEKS. Thank you. My time has expired. I yield back. Chairwoman WATERS. Thank you very much. The gentleman from Indiana, Mr. Hollingsworth, is now recog- nized for 5 minutes. Mr. HOLLINGSWORTH. Good afternoon, Chairman Powell. I appre- ciate you being here, and I certainly appreciate you answering our questions. I know this remains a tricky time in the recovery, and our collective understanding about the Fed’s effort and reasoning here is very important. I have a long preamble that I hope ends at a question, so take a little bit of a journey with me. First and foremost, I want you to know I am in no way besmirch- ing the good work the Fed has done over the last year. The extraor- dinary economic cessation necessitated extreme action, and you took that action with vigor. I am thankful for that, and my view on that is unchanged. Second, my question is not meant to imply that you need a hawkish stance. I think we can all agree that monetary policy is very accommodative at present, perhaps at the furthest end of the accommodative side of the spectrum as is conceivable. I am merely questioning the degree of accommodative stance, not asking to re- turn to a restrictive side of the spectrum. Third, I have on many occasion endorsed your new symmetrical approach to inflation target. I believe this is exactly the right an- swer. My question today is not tied to recent inflation numbers, nor would I prognosticate about whether it is transitory or not, wheth- er it is a monetary phenomenon, a demand phenomenon, nor the magnitude of what it may reach. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 16 But here is the crux of my question. I think there is a lot of data out in the economy showing that it is a wash in liquidity. A pan- oply of statistics indicate the tremendous/unprecedented increase in liquidity over recent years. In recent weeks alone, you have raised the reverse repo rate to .05 percent, and the uptake on that product has been tremendous, which in and of itself is a reaction to money markets being overwhelmed with liquidity, which in and of itself is a reaction to bank deposits being overwhelmed. Yet, the ultra, ultra accommodative stance by the Fed continues. And when asked about this over the last few months—and I think you indicated this in your earlier testimony—I have heard you say that there needs to be further healing in the labor market for that ultra, ultra accommodative stance to change. I agree with this. There is much room to go, but what I don’t un- derstand about that answer is that a cornucopia of evidence sug- gests that challenges in the labor market are not related to mone- tary policy and, frankly, aren’t susceptible to monetary policy’s aid. The Fed’s—and no indictment on the Fed—monetary policy writ large isn’t the right vehicle and doesn’t have the right tools to re- solve skills mismatch, to resolve work/no work incentive balancing, and to resolve geographic mismatch. As you said earlier, there isn’t a lack of demand in the job market. Getting to the specifics of my question, I believe the Fed is sig- nificantly distorting the financial economy for very little, if any, maybe marginal impact on the real economy. To couch specifically inside your mandate, are you jeopardizing long-term full employ- ment and price stability by virtue of extreme monetary policy and picking up very little short-term benefit in full employment? I wondered if you might talk about your reasoning and your col- leagues’ reasoning for remaining and retaining that extreme accom- modative stance, and using the labor market as justification, de- spite significant evidence indicating that the labor market needs are not monetary policy-related. Mr. POWELL. I would just say this: Policy is highly accommoda- tive. That is correct. We are a long way from full employment. We have, as you know, 5.9 percent unemployment, and the true num- ber is actually substantially above that. So, we have a ways to go. And we see everything that you see, but I guess what we see is that our task for tapering asset purchases is an appropriate one, and we are making progress toward that. We are, in fact, consid- ering— Mr. HOLLINGSWORTH. Just to needle into that for a second, we are making progress. I do not believe that progress is a result of that monthly asset purchases, and I think I have seen significant evidence which indicates that monetary policy isn’t making an im- pact on that. Other factors are making an impact on that. And I wonder whether the financial distortion that is occurring—and by its nature, monetary policy—isn’t causing long-term problems for very little short-term gain? Mr. POWELL. I guess that is where I would differ, is I do think monetary policy is supporting demand and demand broadly in the economy, and the recovery of the weak sectors and all of that. So, it is still appropriate that monetary policy be highly accommoda- tive. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 17 Mr. HOLLINGSWORTH. You believe that the difference between $60 billion and $120 billion or zero billion and purchasing $120 bil- lion is a material impact on the point at which we will reach full employment? Mr. POWELL. It is hard to say that with any specificity, but yes, I think our overall policy stance is appropriate. And as you know, we are very much in the process of walking down the road and ask- ing those very questions, and first on tapering. But I also think we are a good ways away from maximum employment. And one of the conditions for lifting interest rates is that we are at labor market conditions that are comparable in the range of maximum [inaudi- ble]. Chairwoman WATERS. Thank you very much. The gentleman’s time has expired. The gentleman from Massachusetts, Mr. Lynch, is now recog- nized for 5 minutes. Mr. LYNCH. Thank you, Madam Chairwoman. And, Chairman Powell, thank you so much for your willingness to help the committee with its work. I was very pleased to hear in your opening remarks that the Fed plans an open dialogue with the public and with stakeholders re- garding CBDCs, as well as cryptocurrency generally. I think that is much-needed. And I am very proud of the fact that the Boston Fed, under the leadership of Eric Rosengren, has been working with MIT in their cryptocurrency on this digital dollar for the United States and for the Fed. I am a little bit worried about the pace, though. We see—I think there are 86 separate central banks that are already engaged in this. Do we risk sacrificing the primacy and the reserve currency status by, I think some would argue, slowness in response to this? And does this dialogue that you envision stretch out the timeline for adopting, say, a digital dollar for the United States? Does it delay that considerably? Mr. POWELL. Actually, I think the opposite. I think this is the be- ginning of—we think—accelerating that decision process. We have a lot of work left to do on the technical side and on the policy side, but a critical part of it is just the public consultation. But on reserve currency, the U.S. is the reserve currency. There really isn’t a good competitor out there, because all of the things you need to be the reserve currency, really the United States has them. We are not in danger of losing it, certainly not to China, which doesn’t have an open capital account and that kind of thing. It is the kind of status that, as you well know, lasts for many, many years. I am really concerned about getting this right. It does carry risks, but it does have benefits. It is quite specific to the institu- tional context of each country, and I want to get it right. We are the reserve currency. We have first-mover advantage by virtue of that. So, I think it is way more important to get it right than it is to do it fast. Mr. LYNCH. Fair enough. Let me ask you another question. It is a little off topic, but re- cently, China has taken somewhat hostile action against initial public offerings (IPOs) being launched in the United States. Didi, VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 18 the ride-hailing business in China, is one of the recent examples. The Chinese government has offered several different reasons for wanting these Chinese companies to register in China versus in the United States. They have given various reasons for that, the secu- rity of data being one of them. I was wondering if you had—this is probably a better question for SEC Chairman Gensler, but I wondered if you had any thoughts on that, about what the ultimate reasons were for China taking that action? Mr. POWELL. Yes. I would pass that to my friend, Gary Gensler. I think it is right over his home plate there for him. I will just say it is important that we have open capital accounts and open capital markets and global rules that we all abide by. But I don’t know how to address that one, because it is really for the SEC. Mr. LYNCH. Okay. And, lastly, do you think that—I have 1 minute left. Do you think that maybe more swift action on a digital currency for the Fed would have a calming effect on the variety and the number of cryptocurrencies and stablecoins that we see are coming out? Wouldn’t that be a more viable and reliable alternative than having all of these hundreds and perhaps a thousand dif- ferent cryptocurrencies emerging? Mr. POWELL. I think that may be the case, and I think that is one of the arguments that are offered in favor of a digital currency, is that particularly, you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency. I think that is one of the stronger arguments in its favor. Mr. LYNCH. That is great. Madam Chairwoman, I yield back. Thank you. Chairwoman WATERS. Thank you very much. The gentleman from Ohio, Mr. Gonzalez, is now recognized for 5 minutes. Mr. GONZALEZ OF OHIO. Thank you, Madam Chairwoman. And thank you, Chairman Powell. I want to pick up where my friend, Mr. Hollingsworth, left off and focus specifically on the unemployment piece. And, frankly, when I talk to my businesses back home, where I am currently seated, the two biggest issues that they face, in particular small businesses, are employment, not being able to get people back to work, and inflation. So, this is a timely hearing right in your wheelhouse. First, with respect to unemployment, in the Monetary Policy Re- port, you cite several factors that are keeping people out of the workforce, most of which—or all of which—are virus-related, so, early retirements, caregiving responsibilities, fear of COVID, and expanded unemployment benefits. Using those factors which you cited in the Monetary Policy Re- port as responsible for diminished employment, would you agree that the zero interest rate posture is not a primary driver of get- ting people back into the workforce today? And maybe said differently, do you think if you lowered us to negative interest rates, that would materially change the unem- ployment rate? Mr. POWELL. Let me try to answer that this way. I would agree with you that the most important thing—it would be very impor- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 19 tant if we were to see a significant increase, as we expect we will see, in labor supply, just showing up in the form of better matching in the labor market. There are all these open jobs, and there are many, many unem- ployed people, but they just don’t seem to be matching up, and maybe there is a speed limit on that. But in any case, as those factors wane, we should see more of that, and that is probably of first order importance at this time. Mr. GONZALEZ OF OHIO. Okay. So, not the rate of interest. And I think that is important because the commitment is to keep rates at zero until we get back to full employment, but we know what is happening, is it is inflating asset bubbles, it is pushing people further and further out on the risk curve. I would argue it is creating systemic risk in a variety of markets. And so, I would just encourage you all to consider that. And now moving on to the inflation bit, the common refrain from the Fed has been that inflation is transitory, there is nothing to worry about, and you will maintain rates at zero until inflation is moderately above 2 percent for, ‘‘some time.’’ And you have said that a handful of times here. We are looking at 4 consecutive months now, including the pre- vious month, at over 5 percent. So, how long is, ‘‘some time,’’ and what factors are you looking at that will tell you whether this is transitory or something more systemic? Mr. POWELL. Okay. Let me say first on maximum employment, even after this expected wave of supply comes, it is likely that we will still be short of maximum employment, and at that time, sup- port for demand will be appropriate. That is why we wouldn’t see that it is time to raise interest rates now, because we think it will take some time, even after this, to get there. So, getting to your inflation question— Mr. GONZALEZ OF OHIO. Which is basically, how long is, ‘‘some time?’’ Because it keeps being used, ‘‘We will keep it low for some time.’’ Mr. POWELL. The answer really is, it depends. You are really asking about that part of the guidance and how do we think about that. Right now, of course, inflation is not moderately above 2 per- cent. It is well above 2 percent. And it is nothing like, ‘‘mod- erately.’’ So the question will be—and this will be a question for the com- mittee, where does this leave us in 6 months or so when inflation, as we expect, does move down, how will that part of the guidance work? And it will depend on the path of the economy. It really will. It may be that we will look back and see it as having been met. It may be that we won’t. We are not going to address that right now. But it is a good question. Mr. GONZALEZ OF OHIO. Okay. Thank you. I want to switch to stablecoins and pick up where Mr. McHenry left off, specifically on Tether. In recent months, there has been increased scrutiny of the stablecoin Tether due to concerns regarding the assets backing the VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 20 coin, particularly the amount backed by commercial paper, as op- posed to U.S. dollars, which is what they originally said. President Rosengren of the Boston Fed said that Tether does cre- ate a challenge and that we need to take seriously what happens when people run from these instruments very quickly. Do you share these concerns? And is that the sort of thing that you will be looking at and providing guidance on with the White Paper? Mr. POWELL. Yes. Absolutely, yes. Commercial paper is short- term overnight obligations of companies, and most of the time they are investment grade, most of the time they are very liquid, and it is all good. But in both of the last two financial—during the acute phase of the crisis, the market just disappears, and that is when people will want their money. It is really simple. These are economic activities that are very similar to bank deposits and money market funds, and they need to be regulated in comparable ways. That is how I see it. Mr. GONZALEZ OF OHIO. I yield back. Chairwoman WATERS. Thank you. The gentleman’s time has ex- pired. The gentleman from New York—I’m sorry, from New Jersey— Mr. Gottheimer, is now recognized for 5 minutes. Mr. GOTTHEIMER. Thank you, Chairwoman Waters, and it is defi- nitely New Jersey. Chairwoman WATERS. Yes. Mr. GOTTHEIMER. And thank you, Chairman Powell, for being here today. The State and Local Tax (SALT) deduction cap jammed through Congress in the 2017 tax hike bill raised taxes for the majority of families in my district. These are my community’s teachers and first responders, small business owners, young people trying to start a family, all groups who are struggling in this pandemic and now trying to get back on their feet. When you were before this committee earlier this year with Treasury Secretary Yellen, the Secretary said that the SALT cap led to, ‘‘disparate treatment,’’ and that she would work with me to ensure that the inequities caused by the cap would be remedied. Chairman Powell, is increasing disposable income for households a crucial tool to stimulate the economy and ensure that our com- munities see the economic activity necessary to help small busi- nesses come back from the pandemic? And do you think SALT is a part of that solution, reinstating the SALT deduction? Mr. POWELL. We have really important jobs and powerful tools, but one of them is not fiscal policy. We don’t really want to play a role on that. So, I would have to leave that with you. Mr. GOTTHEIMER. Okay. I figured that would be your answer, but I was going to ask it anyway. I will turn to inflation, since there have been lots of questions today about that. Given the movements we are seeing in inflation across commod- ities, housing, and wages, should we be concerned about what hap- pens to long-term interest rates once the Fed stops purchasing VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 21 long-dated Treasuries? And if long rates go up, what will happen, do you believe, to the economy? Mr. POWELL. I wouldn’t want to make a forecast. It is very hard to forecast long-term rates. If anybody had forecasted that we would be able to borrow the amounts we have borrowed in the last 10 years, and that the Federal funds rate would be at 1.—the 10- year, sorry, the 10-year Treasury would be at 1.4 percent—no one would have forecast that. So, it is really hard to say. There is tremendous demand for U.S. Treasuries around the world. We are the safe asset. We are the reserve currency. And in any case, our role is to do maximum employment and price sta- bility, and not fiscal policy. Mr. GOTTHEIMER. Since the Fed is by far the largest buyer, you don’t think that long-term rates will go up meaningfully when this occurs, when you stop? Mr. POWELL. Honestly, they may or may not. Markets, as you know, work through expectation. So if markets foresee what we are going to do, then presumably, to some extent at least, what we are going to do should already be baked in. And it is very hard to pre- dict markets’ reactions to these things. But one of the reasons we are being so very transparent is that markets will incorporate the timing and the form of the taper that we are going to ultimately undertake here, because we will have sort of communicated it well in advance. Mr. GOTTHEIMER. Thank you. Chairman, you said that one of the causes of the inflation that consumers are experiencing is from supply bottlenecks. Some of these supply issues are being attributed to strains on supply chains because America’s infrastructure is unable to take on the increased demand as our economy reopens. Would you agree that these bottlenecks would be alleviated in part through the robust direct investment in infrastructure, ad- dressing our issues with roads and bridges, rails and ports, and that spending in long-term infrastructure projects would help in keeping inflation under control? Mr. POWELL. Again, I wouldn’t want to be seen as supporting any particular bill or form of spending. I do think it is clear, though, that investments in infrastructure, in good infrastructure, can add to economic potential, provided the money is well spent. But, again, I don’t want to—it is not appropriate for me to get involved in these discussions you are having. Mr. GOTTHEIMER. I understand. I will espouse one, a bipartisan infrastructure package from the Problem Solvers Caucus in the House, working with a bipartisan group in the Senate, to try to get investment in infrastructure into law and our economy back on track, and set up for long-term success. I believe that will obviously help deal with some of the chal- lenges we are facing in making these investments in roads and bridges and rail and energy infrastructure and broadband connectivity, all crucial to ensure that America remains competitive on the global stage. Last question there on the global stage, China spent about $3.7 trillion in infrastructure outside of the United States last year. Are VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 22 you concerned at all about China’s activity on this front and the spending they are doing outside the United States? Mr. POWELL. The issues of international economic relations are really with the Treasury Department and the State Department, not with us. Mr. GOTTHEIMER. I will yield back, Madam Chairwoman. Thank you so much, Chairman Powell, for being here today. Mr. POWELL. Thank you. Chairwoman WATERS. Thank you very much, Mr. Gottheimer, and you forgot to add housing— Mr. GOTTHEIMER. Sorry. I meant to add it. Pardon me. You are right, Chairwoman Waters. Chairwoman WATERS. The gentleman from Tennessee, Mr. Rose, is now recognized for 5 minutes. Mr. ROSE. Thank you, Chairwoman Waters, and Ranking Mem- ber McHenry. And thank you, Chairman Powell, for being here today and for your leadership throughout the pandemic and now during our eco- nomic recovery. I am going to go ahead and dive right in. Chair Powell, in November the Fed took important steps to pro- vide temporary relief for certain community banking organizations which experienced an unexpected and sharp increase in assets due to their participation in Federal coronavirus response programs, such as the Paycheck Protection Program. That regulatory relief is in effect until December 31st of this year, and since that deadline was put into place, the Biden Admin- istration, along with House Democrats, passed a $2 trillion bill that will have an impact that extends past the end of the year. Do you believe that the end-of-year deadline is sufficient, and would you be open to extending the regulatory flexibility past that date? Mr. POWELL. I don’t know, to be perfectly honest. I would be happy to take a look at that and get back to you. I am well aware of the programs and of the deadline, but I don’t have an informed view of whether they would be need to be ex- tended. But I will look into it. Mr. ROSE. In building off of that, I hear constantly as I visit with community banks back here in middle Tennessee, that regulatory compliance continues to be one of their top expenses or costs. I think this brings up the broader question of whether we should be looking into permanently raising the threshold for increased reg- ulatory and reporting standards for community banking organiza- tions? What are your thoughts on that, Chair Powell? Is that something you would support? Mr. POWELL. Again, I would have to look at that. I will say that we are very well aware of the pressures that are added to community banks because of fixed regulatory costs. You need to be bigger with fixed costs, and we try hard not to be part of the problem. We see community banks under pressure. We see the number di- minishing. And we have a whole subcommittee, led here by Gov- ernor Bowman, a former banker, that is designed to stop that sort VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 23 of thing from happening. But it is something we work on all the time. Mr. ROSE. I would just encourage you to do that, and to look at those thresholds, because what I hear repeatedly, and as a former director of a small national bank, community bank here in my com- munity, it appears that the dramatic increase in assets resulting from the fiscal stimulus and other measures may not be as transi- tory as we would have first expected, and has increased the bal- ance sheets of these banks dramatically. So, I hope you will take a look at that. In June, the unemployment rate was 5.9 percent, a far cry from the 3.5 percent pre-pandemic. Labor force participation has not moved up from the low rates that have prevailed for much of the past year. In the Monetary Policy Report you submitted to the committee, you write that enhanced unemployment benefits have allowed workers to reduce the intensity of their job search. Chair Powell, do you believe that the most recent stimulus in the American Rescue Act is the reason for prolonged high unemploy- ment rates? And has it, in fact, slowed down our economic recov- ery? Mr. POWELL. There are a bunch of factors, there are four or five—I think Mr. Gonzalez or somebody went through them—and it is very hard to untangle them. But it may be that unemployment insurance, for example, enables people to look a little bit longer and try to find a better job. And in the long run, that will be better for the economy. We are going to find out, though, because the enhanced unem- ployment insurance will be gone within 60 days, and in many States, it is gone already. We will be able to look at the data. And it is too early to say, by the way. We can’t really see a difference between States that have and haven’t eliminated that. So, we are going to be able to see. My own suspicion is, it is one of a number of factors and it inter- acts with the other factors, and it will be really hard to get a clear answer on exactly how important that is. Mr. ROSE. How could another $3.5 trillion, as proposed by Senate Budget Committee Chair Sanders, further stifle our economic re- covery? Mr. POWELL. That would seem to be a question for you really. Again, I don’t comment on fiscal policy, and I would really leave that one with you, if I could. Mr. ROSE. Switching gears a little in my remaining time, I want to talk about the Global Systemically Important Bank (G-SIB) sur- charge. Throughout the pandemic our largest banks remained strong and stable due to high asset quality and robust capital and liquidity po- sitions. I believe that over the years, the G-SIB surcharge has worked as it was intended, and if the G-SIBs do not maintain a sufficient cap- ital cushion to absorb losses, it could undermine our economy. It seems that I am out of time, but I would welcome your response for the record to the questions I will submit. Mr. POWELL. Thank you. I am happy to do that. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 24 Mr. ROSE. I yield back, Madam Chairwoman. Chairwoman WATERS. Thank you very much. The gentlewoman from Pennsylvania, Ms. Dean, is now recog- nized for 5 minutes. Ms. DEAN. Thank you, Madam Chairwoman. And, Chairman Powell, it is always good to be with you and to learn from what you are doing in your role. I, too, thank you for your steady leadership and stewardship over the course of your tenure, but maybe never so important as over the course of the last 18 months and moving forward. I also thank you for your recognition that this recovery has not been even. While we are enjoying a regrowth in our economy in really robust ways, I appreciate that you recognize it has not been even across all sectors. I wanted to continue the conversation around inflation, and I say this as somebody who wants to be able to translate this to my con- stituents, I prefer plain English whenever possible I really appreciate your testimony around inflation. But if we talk about supply chain and the vulnerabilities that come in as a result during this economic reopening, the supply chain with man- ufactured goods, driving what is called transitory inflation. You cite, in your own testimony, the car industry. The biggest ex- ample may be the price of used cars, up 10 percent in April alone, and a number of factors, one of which is a particular worldwide shortage of semiconductors, slowing down the rate of new car man- ufacturing, therefore, causing dealers to have fewer cars on the lot, and buyers moving more toward pre-owned. All of these things are inflationary. What are your thoughts? And how can I explain this to my con- stituents? Around this level of inflation, in these smaller groups of goods and services, what should we be watching? And if you could, again in plain English, what is the Fed doing in terms of this tem- porary, or what might be called transitory inflation? Mr. POWELL. We always have the issue, and central banks gen- erally always have the issue of looking at price increases and ask- ing whether they are really threatening inflation. By inflation, we mean year after year after year prices go up. And if something is a one-time price increase, then you don’t react to it with monetary policy because, frankly, the way monetary policy works would be by slowing down the economy, slowing down the recovery and, therefore, reducing inflationary pressure. So, you wouldn’t react to something that is likely to go away. We have to look at this current situation where we have a num- ber of categories of goods and services where inflation is moving up, as I mentioned, higher than we expected, and a little bit more persistent than we had expected and hoped. But we look at them and we look at the story, and the story, as you mentioned, around used cars and new cars and rental cars is all kind of the same story; it is a shortage of semiconductors. There is also very high demand for various reasons. People are using less public transportation. They have money because they haven’t been able to spend it. And it is just a perfect storm of high demand and low supply. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 25 And it should pass. Unless we think there is going to be a multiyear shortage of used cars in the United States, we should look at this as temporary. And we very much think that it is, and so do all of the forecasters I have seen think that these price in- creases for used cars and new cars will top out. And then, in all likelihood, at some point in the future, and we can’t say exactly when, they will decline, because supply will come back. Ms. DEAN. And do you think rather than—I appreciate that, those recommendations and what your actions are. Is this a time, when you see this kind of transitory inflation, of a need for greater public or private investment? Mr. POWELL. I think what investment does is, it raises the poten- tial growth rate of the country and makes workers more productive and companies more productive and countries more productive and that raises living standards. And more of it is generally better. As long as it is money well- invested, then it is worth looking seriously at, at any time. Ms. DEAN. I agree, and I would not call any of the things that we are trying to do irresponsible spending. I think you have dem- onstrated and the economy is demonstrating that our investment has been responsible spending, to the growth of our economy, and to the growth of working-class families. I want to pivot to another thing that I care very much about, which is credit rating agencies. Last session, in a bipartisan way, I had the opportunity to work with Chairwoman Waters and Rep- resentative Barr, to introduce H.R. 6934, the Uniform Treatment of NRSROs Act, which requires the Fed to treat all nationally rec- ognized statistical rating organizations (NRSROs) uniformly so that more creditworthy companies could have access to the emer- gency lending. I knew I would run out of time. I don’t know if you would be able to speak to the NRSROs’ expansion? Mr. POWELL. Just briefly, I guess. At the very beginning of the crisis, we really had to get these fa- cilities up and running, and we just kind of worked with the Big Three. We then consistently expanded, over and over again expanded the group of agencies that we work with, as you know. I would be happy to talk about this more offline, if you would like. Ms. DEAN. Thank you so much. Thank you. I yield back. Chairwoman WATERS. Thank you. The gentleman from Wisconsin, Mr. Steil, is now recognized for 5 minutes. Mr. STEIL. Thank you, Madam Chairwoman. And thank you, Chairman Powell, for being here today. I want to stay on the topic of inflation. As you know, I have been a bit of a broken record on this issue because it is so important to families in Wisconsin and across our country. In fact, the prospect of rising inflation—I brought this up in our committee last July, and again last December, and in those hear- ings, you continued to suggest that you are not ready to take action VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 26 to head off inflation. And yesterday, we received more data con- firming that prices are continuing to rise. And inflation is not an abstract concern. Although the White House social media team put out information that a Fourth of July barbecue went down 16 cents from last year, and the Biden Admin- istration can claim what they want, but families are seeing rapid price increases with their own eyes. Now, I know it is not your role to comment on fiscal policy, but I am very concerned about President Biden’s spending plans and its impact on inflation. Last month’s increase in consumer prices of 5.4 percent was the largest jump that we have seen since August of 2008, right before the financial crisis. And over the past year, used cars have gone up 30 percent. Plane tickets have gone up 24 percent. Shoes are up 7 percent. We have seen increases in coffee, sugar, cotton, and propane, all double dig- its, and higher material costs have added $36,000 to the price of a new home. I know you have responded to inflation concerns by saying that the price increases we are seeing are temporary and they will sub- side as supply chain and labor markets return to normal after COVID. But even if it is partially the case that inflation expectations may be changing and rising, the prospects of a more persistent impact— in fact, a poll conducted recently showed that 87 percent of Ameri- cans said they are concerned about inflation. And on Monday, the New York Fed reported that consumers expected to see higher in- flation over the medium term. Can you comment on how the Fed responds to signs that con- sumers are beginning to expect more persistent inflation? Mr. POWELL. Sure. We monitor that. We think inflation expecta- tions are very, very important. In a way, if businesses and house- holds think that inflation should be 2 percent, then it probably will be 2 percent, because they will expect that, and they will demand that, in fact. We monitor inflation expectations through surveys of households, surveys of experts, and the market. As you know, you can get infla- tion compensation readings out of the difference between Treasury Inflation-Protected Securities (TIPS) and regular Treasuries. We look at all of those things. I would say that they all went down as a group at the beginning of the pandemic, which is not good, and they have all moved back up as a group just about to a level that is in the range of consistent with our 2 percent infla- tion goal over time. We watch this very carefully, and we would be very concerned if they were to move persistently and materially above 2 percent, and we would react to that. Mr. STEIL. Let me build on this discussion. I want to just build on the distinction between transitory and persistent inflation, in particular how it impacts home prices. According to the Case-Shiller Index, home prices have risen more than 14 percent over the past year. That is a very significant in- crease, and it is enough to put home ownership out of the reach of some Americans. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 27 Meanwhile, the Fed is continuing to buy around $40 billion in mortgage-backed securities. And here is my concern. If inflation is, in fact, as you suggest, temporary, does the potential abatement of inflation present a po- tential for a reset of housing prices? And if so, what are the likely impacts on homeowners, and what will be the impact on the Fed’s MBS holdings? Mr. POWELL. Housing prices, as I am sure you know, don’t go di- rectly into inflation. Housing is an asset, and housing prices are not a factor in inflation. What is a factor are rents. And then, in effect, what the economists do is they take the value of a home and they impute a rental cost to it. They add it in. It is just the way they do it. Housing prices went up 15 percent overall last year. That is too much. That is much higher than would be a normal level for hous- ing prices to go up. I don’t know what housing prices will do in the future. But there is just a lot of demand. As you know, people want to live in the suburbs now, they want to move out of cities, they want bigger houses. They have saved all this money because they couldn’t travel and go to restaurants. There is a lot of demand. So, even if mortgage rates go up, as they ultimately will, I think we will be looking at a lot of demand. Then the question will be, how much supply can be brought to the market? And that is really out of our control. But, as you know, when you look around your district, it is a question of zoning, it is a question of materials, labor, all of those things. Mr. STEIL. But if I could, if we zero in the material costs, we have seen about a $36,000 increase in costs due to the material cost, largely inflation—look at lumber and other areas—maybe we can continue this discussion offline, but I appreciate your time, as I am out of time, and I will yield back. Mr. POWELL. I would be glad to do that. Chairwoman WATERS. Thank you. The gentlewoman from North Carolina, Ms. Adams, is now recog- nized for 5 minutes. Ms. ADAMS. Thank you, Madam Chairwoman. And thank you, Chairman Powell, for being back with us. Like my colleagues, I want to touch on inflation. You have described current inflationary pressures as transitory and cited supply bottlenecks and temporary factors like the high price of lumber as the reason why inflation has been high in recent months. And though this may be temporary, these bottlenecks have had real-world consequences. For example, my local housing partner- ship had to pause the construction of an affordable housing site be- cause of a funding gap caused by the spike in lumber prices. And while lumber prices can be tied to the previous Administra- tion’s actions, I know that many are still concerned about the rise in core prices. So, I am hoping that you can help us put some of these concerns to bed. Would you tell us why you believe that the recent inflation trends are temporary as the economy reopens, and what other fac- tors are playing into the upward pressure on prices? VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 28 Mr. POWELL. I would be glad to try. As you know, all of these industries kind of shut down a little more than a year ago on the expectation that we were looking at a really bad, difficult time. And then, sooner than expected, the economy has reopened, and demand for housing and demand for many other things—cars, you name it—is really high, because peo- ple saved money. With all of the congressional fiscal support, more than 100 percent of income lost was replaced. Really, the consumer is in very good shape to spend. And what is happening is, there is a lot of demand. But on the supply side, it is just hard. They can’t build enough houses. There isn’t enough lumber. You mentioned lumber prices. Lumber prices went way up, and they have gone way down. They are still twice as high as they were before the pandemic came, but they are way off their high. We don’t know it, but we think that will be the pattern at least for some of these things, where they go very, very high and then they come down as supply and demand come together, as more supply comes online to meet the higher demand. So, we have a very large but ultimately very flexible economy. It will adapt, we believe. It is not one of those economies that is rigid and has a lot of structural rigidities in it. It will adapt, and fairly quickly, just as it adapted to the pandemic much more quickly and better than, frankly, people expected. So, I think that will happen. And when that happens, we should see—I don’t say that prices will come back down, but the level of inflation will return to more normal levels. Ms. ADAMS. Okay. Yes. Even with the unemployment rate still elevated near 6 percent, there are reports that employers are offer- ing higher wages and incentives to attract workers back to work in the workforce. And I have always said that working hard isn’t enough if you don’t make enough. So, Chairman Powell, to what do you attribute the trend of work- ers receiving incentives to reenter the workforce? And does the Fed view these conditions as favorable even if the reasons for them are not? Mr. POWELL. We are seeing this particularly in service industries where there are still lots and lots of job openings. And for many people who used to work in service industries, in relatively low- paid jobs, what we are seeing is incentives to go back. There clearly is a very, very high level of demand for people to come into these jobs. And for whatever reason, people are taking a little bit of time to maybe look for a better job. And knowing that they are going to go back—these are people who were working in February 2020. They want to work. These are people who want to work. But they may be taking a little bit of extra time in many cases to look for a job that pays better or that they like better. Or their preferences for working from home may have changed. They might want to find a job where they can work from home. Who knows? But in any case, we are seeing difficulty in matching jobs and people up. And there really isn’t a precedent. We can’t look back and see the last time that this happened; there is no last time that this happened. So, we are kind of finding out as we go. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 29 But I really do think, come back in 6 months, and there will be a whole lot of these people back to work, and wages will have moved up a little bit for people at the low end, and that is not a bad thing. Ms. ADAMS. Okay. Great. Thank you so much, and thank you for joining us today. Madam Chairwoman, I yield back. Mr. POWELL. Thank you. Chairwoman WATERS. Thank you very much. The gentleman from South Carolina, Mr. Timmons, is now recog- nized for 5 minutes. Mr. TIMMONS. Thank you, Madam Chairwoman, for holding this hearing. And thank you, Chair Powell, for being with us today and shar- ing your insight on recent developments in our economy. We have all seen the inflation numbers. Some may say it is only temporary, that this was bound to happen coming out of the pan- demic, and there may be some truth to those arguments. But I think any economic observer realizes that usually with things like this, there is not a singular issue causing our trouble but rather several converging factors. What is most frustrating, I think to me, is that despite the very real inflation we are experiencing, temporary or not—and that is yet to be truly determined—and it seems that while you, Mr. Chairman, are still firmly in the transitory inflation camp, the Fed- eral Open Market Committee minutes showed that there is an in- creasing amount of disagreement on the Board of Governors on just how temporary it may be. And what is most frustrating to me about this entire episode is that after all of the fiscal stimulus that Congress has provided for the economy since March of last year, and now even with the great- est levels of inflation that we have seen since the financial crisis, this Congress is seriously considering spending several trillion dol- lars more, and most likely it will nowhere near be paid for. And I know you will not speak to the merits, or lack thereof, of any specific pieces of legislation, and I am not asking you to. But as the Chair of the Federal Reserve, where one of your statutory mandates is inflation control, could you provide us an expectation of the type of inflation we should be prepared for if Congress was to spend another $3 trillion in the next few months? And let’s just say that only $1 trillion of that would be paid for with an assort- ment of tax increases. Mr. POWELL. No, I wouldn’t really be able to provide you a real time. That is what the Congressional Budget Office will be happy to do, is make that forecast for you. That is not something I can do here on the spot. Mr. TIMMONS. I had a feeling that would be the answer, but I think the answer to this question is obvious. The high levels of in- flation we are seeing would only increase and stick around longer. We would certainly not have transitory inflation if we poured that amount of fiscal gas on the fire. I also think the labor shortage we are seeing is a big piece of this puzzle, as several of my colleagues have already alluded to. Dozens and dozens of businesses in my district cannot get people to return VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 30 to work, and have critical businesses in their supply chain with the same problem. This is creating scarcity, which results in higher in- flation. In South Carolina, we are returning to work at a drastically higher rate than the rest of the country. Our unemployment claims are down 93 percent from the pandemic high last year, leading the country in this regard. A recent survey showed that 1.8 million people have turned down work because of the overly-generous unemployment benefits, and that is a large chunk of that 9 million person labor gap we keep mentioning. Could this problem be avoided if Congress simply removed dis- incentives to return to work, such as the unemployment benefits that in many States are in place through September? Mr. POWELL. I think that has already happened. Those will be expiring in September. By the end of September, essentially all of those benefits are gone. And in many States, they are already gone, as you know in South Carolina. So, we will see that. I think whatever effect those things are having now, it won’t last much longer. Mr. TIMMONS. Well, South Carolina depends on businesses in other States, and when those States are not able to produce what- ever is being supplied to South Carolina, it is creating a problem for my State. So, I just think that we have created a disincentive to return to work, and that is not good. One last question on inflation. If the Fed were to move to in- crease interest rates, one result would be the increased debt service cost to the Federal Government’s $30 trillion-plus debt. Is that a factor that you would take into consideration when de- ciding to potentially change the benchmark rate? Mr. POWELL. No, absolutely not. Mr. TIMMONS. So, hundreds of billions of dollars in increased cost to our debt service is not a factor in that? Mr. POWELL. No. First of all, the market will anticipate that we are raising rates, so it is probably baked in to some pretty signifi- cant extent. Second, we borrow all across the curve. So, when we raise short- term rates, it doesn’t necessarily have a big effect on the govern- ment’s borrowing costs very quickly. In any case, we are here to achieve maximum employment, price stability, financial stability, supervise the banks, and look out for the payment system. We are not in a position of considering the— and the United States doesn’t have to be in a position where that kind of consideration gets into monetary policy, and it will not. Mr. TIMMONS. The United States doesn’t have to right now, so I guess, hopefully, we will always be in that position. I have a couple of questions on cybersecurity, but I will submit those for the record. And thank you for your time. With that, Madam Chairwoman, I yield back. Thank you. Chairwoman WATERS. Thank you very much. The gentleman from Massachusetts, Mr. Auchincloss, is now rec- ognized for 5 minutes. Mr. AUCHINCLOSS. Thank you, Madam Chairwoman, and thank you, Chairman Powell, for being with us this afternoon. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 31 Many of my colleagues have asked some really terrific, probing questions about inflation in the short term and the effects on our economy and on getting back to work. I want to zoom out a little bit and ask about more long-term effects. One of the trends over the last, at least 25 years, has been the increasing returns to capital relative to the returns to labor, and there have been a lot of good theories about why that is happening, from undermining workers’ organizing power to increased automa- tion and technology. But it is clear that it would require sort of a discontinuous event to break that trend, and this pandemic seems like it could be. We are seeing that businesses that are striving to get people back into the labor force and back to work are offering higher wages, more flexibility, and better benefits, really both quantitative and non- quantitative remuneration for employment. Do you think that the COVID-19 pandemic could be a discontin- uous event that could actually change the balance between returns to labor versus returns to capital, whether it could give sort of a secular jolt to workers’ bargaining power in the long-term? Mr. POWELL. I don’t know. There are so many things that are possible, and there will be things that cut in different directions. A lot of what we have seen is just increasing returns to edu- cation, and people with relatively low skills and education having stagnant incomes and wages, and people at the high end, with lots of education, receiving very high levels of compensation. And a lot of that is just that productivity is amplified by tech- nology and knowledge and the ability to use it and by globalization, too. So, there are a lot of factors that go into that. The pandemic will do a number of things, but it would hard to assess which way it will point. It is a good conversation to have. Mr. AUCHINCLOSS. I hear your point about the increasing returns to education and technology. Certainly, that has been evident in Massachusetts in the life sciences and clean energy and cybersecu- rity spaces. But there is also a huge portion of the workforce, primarily serv- ice economy workers, whose jobs are not automatable, they are not routine either manually or cognitively, and they can’t be auto- mated. And even they have had downward pressure on their wages in the preceding decades. But now we are starting to see an uptick in what they can com- mand in the labor market. And for them in particular, do you think that they can have persistent wage increases over the next few years as we recover? Mr. POWELL. I know the research you are referring to, and that is very important research that shows exactly what you suggest. And if you saw people at the lower end getting paid more, it would be hard for anybody to be against that. Could we be seeing that? What we are seeing is sort of entry level—people going into jobs in the service sectors, which tend to be relatively low paid, we are seeing—that is where we are seeing the pay increases. It would be hard to say that is a bad thing in and of itself. You would want to see people getting paid well who are at the bottom end of the income spectrum. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 32 Everyone was celebrating when wages were going up for people more in the bottom quartile in the last couple of years of the last expansion. I don’t know anybody who didn’t celebrate that. So, it is possible, and we will have to see. Mr. AUCHINCLOSS. Let’s put forward as a premise that we do see some of that wage inflation for the service economy—how con- cerned should we be that inflation for basic staples would eat up that increased purchasing power and actually be, on net, a nega- tive? Mr. POWELL. It is hard to say. Service companies, a lot of them, do operate on a relatively modest margin and have a tendency to pass those wage costs along over time. These are hard questions to answer in the abstract. Part of what is happening, though, is there will be more automa- tion in these jobs, and we are seeing that. For a lot of these jobs, we are going to find out how much those jobs can be done with au- tomation because businesses—we have been hearing this for a year and a half—are really looking hard at that now. Over time, though, that can make the people who remain in those jobs more productive, and their wages can go up as a result. Mr. AUCHINCLOSS. I appreciate your time, Chairman Powell. I yield back. Chairwoman WATERS. Thank you very much. The gentleman from Oklahoma, Mr. Lucas, is now recognized for 5 minutes. Mr. LUCAS. Thank you, Madam Chairwoman, and I appreciate that. Chairman Powell, it has been my observation that we are all the product of our experiences, and the things that happened to us in our younger lives tend to scar us forever. My grandparents were young men and women in the Great De- pression of the 1930s. The Dust Bowl in western Oklahoma and the Southwest scarred them for life. My grandparents, to the day they died, were afraid the Great Depression was coming back. My parents were young men and women in the 1950s, and expe- rienced a horrendous drought in the Southwest United States. To the day he died, my father was convinced that this rain was the last rain, it would never rain again. I was a beginning farmer and a college student in the 1978 to 1982 period when we went through the last, what I would describe almost as super inflation spike, coming out of the Carter years, and when your predecessors decided to strangle inflation out of the sys- tem, it was really hard on me and a lot of people across this great country. So, like my parents and grandparents, as I see this 5.4 percent year-over-year number in the June Consumer Price Indexes, I am nervous about this. When I borrowed cow seed money in 1981 at 20 percent, that made an impression on me. I am nervous, and I guess my question to you is, how much longer can we sustain numbers like this before you become nerv- ous? Mr. POWELL. As I have said before, we do expect that we will be able to see whether the narrative we are feeling turns out to be VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 33 right, and I would say we would be able to see that. It won’t take forever for us to be able to see that. And if we do see that inflation expectations are moving up or in- flation is on a path to remain well above our goals and at risk of setting us off on a period of high inflation, then we will use our tools to guide inflation back down to 2 percent. In the end, it will be transitory, and people need to have faith in the central bank that we will do that. But we won’t do it just because—honestly, it would be a mistake to do it at a time when we really do believe—and virtually all fore- casters do believe—that these things will come down of their own accord as the economy reopens. It would be a mistake to act pre- maturely. We really have to weigh the risks of the two things, and at a cer- tain point, the risks may flip. But right now, the risks to me are clear. Mr. LUCAS. I appreciate that, Mr. Chairman. And just under- stand, like my elders of two generations before, I will sleep with one eye open until these numbers begin to come down. And if they do not, then I realize, like your predecessors, you will have to take the necessary action. Along that line, Chairman, you made clear that the Federal Re- serve expects the labor force participation to gradually improve, and we are all optimistic and hopeful about that. And the Mone- tary Policy Report also highlights that maximum employment could look much different than it was prior to COVID-19. Can you discuss with us what you see as the potential long-last- ing effects on the labor market, and how the FOMC will approach the question of what maximum employment should be moving for- ward in the new norm, whatever the new norm is in the post- COVID world? Mr. POWELL. Sure. I would say that patience will characterize our approach on that. But what we saw at the end of the last expansion was people staying in the labor market more than would have been predicted by the numbers. And so, labor force participation kept moving up, up, up, to num- bers that people didn’t think we would see again, well above 63 percent, and sustained there for a couple of years, which was an upside surprise. What we have seen since the pandemic is a wave of retirements. And we won’t really know the implications of that for some years, but it could just be that it was a catch-up for the people who stayed in the labor market. I guess the point is, we can’t really know what labor force par- ticipation is going to be and what the trend will be, and what the right number is going to be. Ultimately, though, you will be able to tell with wages. One of the features of our new framework is that we think if we don’t see upward pressure on inflation and on wages, then we are not going to say that the labor market is tight, even if unemployment is real- ly low and participation is high. We won’t see that. But if we do, then that will tell us that maybe it is, and we will have to see where those numbers are. I think that, as I mentioned VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 34 earlier, there is a degree of humility that forecasters need to have. We have much to be humble about. And this is another area where that is appropriate. Mr. LUCAS. Thank you, Chairman Powell. And thank you, Chairwoman Waters. I yield back. Chairwoman WATERS. The gentlewoman from New York, Ms. Ocasio-Cortez, is now recognized for 5 minutes. Ms. OCASIO-CORTEZ. Thank you so much, Madam Chairwoman. And thank you, Chair Powell, for being here with us today. As has been alluded to throughout this hearing, we have seen that supply bottlenecks and pandemic-related factors have been one of the primary reasons that have led to price increases. Whether it is computer chip complications delaying the produc- tion of new vehicles, and prompting a rush on used vehicles, the price of lumber, shipping container logistics, et cetera, we know that these price increases were not caused by changes in interest rates. They were caused by supply chain complications. Now, just to reiterate, you have said that these price increases are transitory, correct? Mr. POWELL. Yes. We said that we think they will be. Of course, we lack certainty on that. But we do believe that is the case. Ms. OCASIO-CORTEZ. Thank you. And if drivers of rates of infla- tion are supply chain issues and potential areas of underinvest- ment, do you think that these issues are best resolved through in- vestments, making that supply chain more resilient, or higher in- terest rates? Mr. POWELL. If we see things that are temporary or transitory, and that should move through and go away because they are asso- ciated with an event, the opening of the economy, then it would be inappropriate for us to tighten policy, which really the point of is to slow down economic activity and slow the recovery. It would be inappropriate. It is a difficult judgment to make, though, is the thing. Ms. OCASIO-CORTEZ. Thank you. Recently, the Bureau of Labor Standards (BLS) reported that the first 3 months of 2021 were the best quarter of wage growth since at least 2001. Now, my concern, just to be frank, is that a misplaced diagnosis playing out with inflation could cause the Federal Reserve to pre- maturely raise rates and constrain wage and employment gains that have been beneficial to millions of Americans. This means that if we do take that step back, millions of Ameri- cans, especially marginalized communities, will be left with limited opportunities to be employed at an adequate and livable wage. In fact, the FOMC is projecting multiple interest rate increases before the end of 2023 and before they project achieving the pre- pandemic unemployment rate. And at the June FOMC meeting, the median FOMC members’ projection of the longer-run employment rate was about 4 percent, correct? Mr. POWELL. Yes, that is right. Ms. OCASIO-CORTEZ. Yet before the pandemic, the unemployment rate reached 3.5 percent without triggering inflation, correct? Mr. POWELL. That is right. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 35 Ms. OCASIO-CORTEZ. And in fact, in 2019, despite some pick-up in wage growth, especially at the bottom, there didn’t appear to be any signs of the economy overheating. And as you said in November 2019, the benefits of long expan- sion are only now reaching many communities, and that there is plenty of room to build on the impressive gains achieved so far. If indeed there was still room to expand in the months before COVID, that suggests that with time, the economy can return to a trend of GDP and employment above the one it was experiencing before the crisis. Now, do you believe this to be the case? Do you believe that the long-term longer run implies that 3.5 percent is too low, and do you think that we will be able to reach lower unemployment and higher labor force participation levels than the pre-pandemic ones? Mr. POWELL. Oh, I have every reason to think, and I do think, that we will be able to get back to 3.5 percent unemployment. Participation is very much affected [audio malfunction]. I am quite sure we can get to high levels of participation again. Ms. OCASIO-CORTEZ. Okay. Thank you. And to disaggregate a little bit kind of on this line between mon- etary and fiscal policy, what we saw was that [audio malfunction] The World Bank recently summarized estimates from market fore- casters that the United States may be the only country that will leave the pandemic with higher GDP than pre-pandemic projec- tions have estimated. It is enormous success, and that is, GDP will actually be higher as a result—or after COVID [audio malfunction]. Would you say that some of the fiscal policy interventions, like the American Rescue Plan, stimulus checks, et cetera, have played a role in that outcome? Mr. POWELL. Oh, yes, I think so. The forecast of many is that by the middle of next year, we will be above the prior trend, not the prior level, but the prior growth trend, which is an incredible achievement. And I attribute that to the CARES Act. And the fiscal policy that went so far so fast I think will in history [audio mal- function]. Ms. OCASIO-CORTEZ. Thank you very much. Chairwoman WATERS. Thank you. The gentlelady’s time has ex- pired. The gentleman from Texas, Mr. Sessions, is now recognized for 5 minutes. Mr. SESSIONS. Thank you. Thank you very much, Madam Chair- woman, and it is good to see you, Chairman Powell. Thank you very much for joining us today. I wanted to have you take the majority of my time to talk with us about your 12 regional banks and what they are seeing across the country for recovery, as you see it, and these banks’ reporting of their successes and the things that they see as perhaps things that are inhibiting or causing you to think about your national plan around the country. Thank you. Mr. POWELL. You would like me to talk about that a little bit? Mr. SESSIONS. Yes, sir. Mr. POWELL. Okay. I would be glad to. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 36 One of the great features of our system is that we have 12 Re- serve Banks around the country, and they are in every community in the country. And they come back, and they extract a lot of data, a lot of information on not just businesses, but also universities, health centers, and everything. The story they are telling is like what we have been talking about today. You have very fast growth and a lot of money out there to spend on the part of people. You have a lot of churn in the labor market. People are quitting their jobs at incredibly high rates. Typically, that happens when labor markets are really tight. This happens to be happening while there are a lot of unemployed people. So, we have never seen anything like this, and they bring back reports about that. Businesses have a hard time finding people. People are looking for better jobs. They are taking a little bit more time to find it, to find the appropriate job. That is one thing. There is also a lot of unevenness. You still have sectors of the economy that are struggling to get back to where they were. A number of them are above where they were. Housing, for exam- ple—we are building more houses. We have been building more houses than we had really seen since the global financial crisis. People see price pressures broadly across the country, as we have discussed here today, that comes back. If you look at our Beige Book, you will see that broadly. It is in raw materials and to some extent in wages. You will see that as well. It is all of the things we have been talking about. It would be hard to summarize it. But we really do get a very nuanced picture around different areas of the country, different sectors of the econ- omy, which I think is a tremendous benefit to our policymaking process and also to the public. I hope that is helpful. Mr. SESSIONS. Waco, Texas, that I represent, was the first City in Texas to get back to its employment rate pre-COVID, and it was done through a series of things, but I think mostly because people really did not have an opportunity to have an underpinning of money that was coming in. They had to go to work. We are not a big government town. People get out and work. And I want to join my colleagues in saying, first of all, thank you for taking the time to be before the committee again today. But in that process, I hope that there is healthy debate that you not only encourage within your system, but you also recognize that there are a good number of Republicans who believe that the gov- ernment propping up the system is inhibiting actually people tak- ing jobs, getting back to GDP as opposed to Consumer Price Index raises, and that we really see that the short- and long-term answer would be people getting jobs, going back to work, schools reopening, and the success of not only the marketplace, but the stability of America as we have known her. I will be interested over the next few months in your evaluation about what is working and what is not working, if you are able to spot that in the markets and actually give feedback to States and Governors and the President and certainly this committee on the facts and factors that seem to be successful. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 37 I think that success that you have said today is getting us to a 2 percent inflation rate. I don’t have any problem with that at all. I could buy that. But getting to necessarily us, because we want to say somebody wants a better job, but we have record numbers of people leaving, I think we need to point to successes. And I hope one of those fac- tors is also employment. I want to thank you again for taking the time to be here And, Madam Chairwoman, I yield back. Chairwoman WATERS. Thank you very much. The gentleman from New York, Mr. Torres, is now recognized for 5 minutes. Mr. TORRES. Thank you, Madam Chairwoman. And Chairman Powell, thank you for being with us. I have a few questions for you based largely on a recent New York Times op-ed written by Karen Petrou. In the op-ed, Ms. Petrou points out that lower interest rates benefit those with assets rather than those with savings, thereby deepening inequality. Do you agree with that assessment? Mr. POWELL. No, I don’t agree with that assessment. The bottom line with interest rates is that low interest rates sup- port a strong labor market. They support demand and they support a strong labor market. And you saw this during the course of the last long expansion, a very strong labor market. And all of the people that we talk to—and we talk to many, many people out in the country who either live in or represent low- and moderate-income communities or both, and they never come in and say, ‘‘Wow, you really should raise interest rates because you are increasing [inaudible].’’ We literally never hear that from them. What we hear is, they really like our policy, they like our focus on maximum employment. To say you want to focus on maximum employment, that goes in the direction of having a supportive mon- etary policy. That is really what I would say to that. Wealth inequality is something that goes up, by the way, over the course of a business expansion, because people who own homes and businesses and stocks and bonds and things like that, as the economy is healthy for a period of 10 years, they are going to ben- efit in their wealth. Does anyone seriously argue that we should try to stop that from happening by raising rates at the cost of putting people at the bot- tom end of the income spectrum back to work? No, of course we wouldn’t do that. So, I think we are doing the right thing with what we do. And we are ultimately giving people a shot to get a good job and get a good wage and accumulate that wealth. Mr. TORRES. I am going to quickly interject. In the same op-ed, Ms. Petrou points out that companies are taking out cheap debt not to finance investments and infrastructure and workforce alone but, rather, to finance larger profits and stop buybacks. What is your response to that argument? Mr. POWELL. I think businesses make rational decisions gen- erally about what they should invest in, and when they should give money back to their shareholders. What that has to do with mone- tary policy is not clear to me. I see an economy that created 3.5 VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 38 percent unemployment and wage gains for the lowest-paid people over the last 2 years or so of the last expansion, and all of that in the context of low interest rates and accommodative monetary pol- icy. So, I guess I am just not seeing that. Mr. TORRES. I know the Fed has a statutory obligation to pro- mote price stability and maximum employment. What are your thoughts on the relationship between monetary policy and inequal- ity? What do you take to be your obligations with respect to wealth inequality in America? Mr. POWELL. We don’t take inequality as a mandate. We have these disparate outcomes in the economy over the years, which have, frankly, in some cases, gotten worse and we see those as weighing on the potential for the economy. I think everyone does. If you don’t have a chance to take part in contributing to, and then benefiting from the economy, then the economy is not all that it can be. Now, what can the Fed do? We can support maximum employ- ment. That is what we can do. We can push the job market to a place where—consistent with our price stability obligations where jobs are widely available. Really, though, we can’t be the lead on that. It is fiscal policy, education, and things like that, that are really going to matter much more over time than monetary policy, but I think it is appropriate for us to call it out and to use our tools as we can. Mr. TORRES. And my final question before my time expires is about the multifamily housing market. In New York City, we draw more than half of our revenues from real estate, and when real es- tate fails, it has implications for a wide range of actors. It has im- plications for tenants who suffer from deferred maintenance. It has implications for property owners. It has implications for local gov- ernments, which depend heavily on property taxes and sewer and water fees. And it has implications for the financial system that might have an interest in those properties. What role can the Fed play in shoring up multifamily properties and real estate [inaudible]? And that will be my final question. Mr. POWELL. We really can’t directly operate on that. I would say what we do is we supervise banks who do lending and we make sure that they have good risk management practices and conduct themselves professionally and with appropriate care in the loans that they make, and have capital for losses, should they have them. Chairwoman WATERS. Thank you very much. The gentleman’s time has expired. The gentleman from Missouri, Mr. Luetkemeyer, is now recog- nized for 5 minutes. Mr. LUETKEMEYER. Thank you, Madam Chairwoman. And welcome, Chairman Powell. It is good to see you again. I al- ways enjoy our conversations. You have been asked a lot of questions today on a wide range of topics, and by the time you get to the end of the day here, it seems like everything has already been asked. I have a whole bunch of questions here and you pretty well got them all. Let me go back and kind of clarify a few things that I have on my end from the standpoint of concerns, also, as the ranking member on the House Small Business Committee. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 39 These things affect small businesses as well, a lot of things you have been talking about today. And one of them that has really been harmful is this $300 unemployment benefit. This morning, there was a Morning Consult poll that came out which said that 1.8 million people turned down jobs due to the unemployment ben- efits. Recently, there was another poll which said that 40 percent can make more staying home and drawing this benefit than they can by going to work. You indicated a while ago that you look at all vulnerabilities. It would seem to me that this would be a vulnerability that you need to be factoring into your equations for the economy and the projec- tions. Would you agree with that? Mr. POWELL. The thing is, those enhanced unemployment bene- fits are lapsing now, in many States already lapsing, and lapsing at the Federal level by September. In macroeconomic time, that is a short period of time. I do think that unemployment insurance has been interacting with other things, like the lack of childcare, like schools being closed in a lot of places, fear of COVID, various things, and I think you will see that is no longer a factor come the fall. It may take a while for things— Mr. LUETKEMEYER. I would agree with that, but I would hope that you would agree also that it is a factor. Right now, in your projections, when you see that some States—and, in fact, I have an article right here from the The Wall Street Journal just a couple of weeks ago which indicates that Americans are leaving unemploy- ment rolls more quickly in States cutting off benefits. That is the headline. So, it seems to me that would be an extraneous variable or vulnerability that you would be taking into consideration. I guess that is just my point, that small businesses are directly affected by this. The number of folks is staggering when you start looking at those sort of things with the concerns that they have. I have another issue that I want to talk to you very quickly about here with regards to the International Monetary Fund (IMF). I don’t know if you saw this article, but I saw an article today with regards to—it said the Biden Administration backed an IMF pro- posal to issue an unprecedented $650 billion worth of special draw- ing rights this year alone, which will also help reshape the inter- national financial system. Would you like to comment on that? That seems to be—have you seen the article or are you aware of it? Mr. POWELL. I am familiar with the issue, and it is very much an issue for the Treasury Department and maybe for you, but it is not an issue for the Fed. We don’t have any role in that at all. Mr. LUETKEMEYER. The article goes on to talks about affecting the reserve currency status of the United States. So, I would think that would be a pretty important take on that for you, would it not? Mr. POWELL. Yes. Again, the Special Drawing Rights (SDR) issue has to do with funding the IMF. It would be hard to say that single action will be the thing that threatens our status as the reserve currency. And the Fed doesn’t own the reserve currency issue; that is an issue we share with other parts of the government as well. Mr. LUETKEMEYER. Just quickly, I know the Chinese are trying to compete economically with us. Would you say that they are try- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 40 ing to weaponize their economy against us to try and take us over? Would that be a fair statement? Mr. POWELL. I would go so far as to say we certainly are in a strategic and economic competition with China, but ultimately, these questions about competition with other countries are really for the Administration, not for the Fed. Mr. LUETKEMEYER. With respect, sir, this hearing is about mone- tary policy and the state of the economy. It would seem to me that things that would affect the economy, challenges to our economy, would be something that we would talk about, especially when it is monetary policy. And it would seem that the Chinese—if our money and investment money is going over there to empower and help their economy against our economy, it seems to me that would be something of interest to you, would it not? Mr. POWELL. Those are issues that are absolutely in the province of the Treasury Department and the Administration and the Con- gress. You have given us helpful tools and independence and all that, and if we wander all over the landscape taking on issues that are really not assigned to us, then I would have a hard time ex- plaining to you why we should be independent. Mr. LUETKEMEYER. Okay. Mr. Chairman, I appreciate your con- versation this morning. You and I are really going to disagree on this one, but I think it is a very important issue with regards to our economy. Thank you very much. And I yield back, Madam Chairwoman. Chairwoman WATERS. Thank you. The gentleman’s time has ex- pired. The gentlewoman from Ohio, Mrs. Beatty, who is also the Chair of our Subcommittee on Diversity and Inclusion, is now recognized for 5 minutes. Mrs. BEATTY. Thank you so much, Madam Chairwoman, for hold- ing this hearing today, and I thank our ranking member as well. But also, let me just thank my friend, Chairman Powell. Thank you so much for being here and for always being willing to reach out and discuss, whether it is monetary policy or if we are looking at forecasting of what the future looks like, on the state of the economy. First, I know you don’t weigh in directly, but I think it is worth me noting that as I have been looking at the vacant seats, there is a vacant Governor seat at the Federal Reserve that has not been appointed yet. I know it is appointed by the President, but just as an FYI to you, I would like to see someone nominated with more diversity. We have had long and ongoing conversations about diver- sity. We have heard a lot because of the pandemic, and as you stated in your Monetary Policy Report—which I have had an opportunity to go through, thank you—we have heard a lot about housing costs, lumber, et cetera, but housing is so important to us. I serve on the Housing Committee, and purchasing homes has continued to have an upward trajectory, especially in cities in the Midwest, like my city. And despite the strong housing market, the Federal Reserve has continued to purchase mortgage-backed securities at $40 billion per month. Can you briefly explain the Federal Reserve’s thought proc- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 41 ess on the need for these purchases and if these purchases will have any effect on the cost of housing? Mr. POWELL. Sure. We buy Treasuries and mortgage-backed se- curities, and we really buy them for the same reason. They are not intended to provide support directly to any industry, including the housing industry. That said, low interest rates and asset purchases like that do keep longer-term interest rates low. They do support low mortgage rates, which does directly support the housing indus- try. But it is not that we are looking at the housing market and thinking, this is for the housing market; it is really more that we want to support overall demand, and we want to support demand because we are still a long way from maximum employment. And we think it is appropriate. Even once people start going back to work at higher rates, which we expect later this year, we still think it will be—some time will have to pass for us to get all the way back to that place where we were in February of 2020, or a place like that [inaudible] Mrs. BEATTY. Let me quickly go to my second question. In the first few months of 2021, the price of lumber—as we heard ear- lier—skyrocketed to more than $1,730 per thousand board feet in May. But in the last few months, as suppliers have come back on- line, prices have plunged 60 percent, and now are negative for the year. Is this the type of transitory inflation that the Federal Reserve was anticipating? And how do you differentiate between the rising prices due to supplier constraints as a result of the pandemic and the potential long-term inflation? Mr. POWELL. Broadly, yes. That is the kind of thing that I wish we had seen more of. Lumber, of course, is a great example, but we would like to see a bunch more examples. But it is the same story. It is a situation where there is a shortage, there is a lot of demand, supply can’t react, and prices go up. In the case of lumber, there is just a lot of buying, almost panic buying. We may be see- ing some of that with used cars right now where we have very, very high rates, but that is one of the things we expect is that our very flexible economy will equilibrate supply and demand and you will see inflation move down and maybe even have the prices them- selves move down as we get here. Mrs. BEATTY. And that is a great answer, because that is another reason when we talk about infrastructure, we should be talking about housing and the supply and demand for housing. My last is basically a statement, in my last 30 seconds. In your report, you have an area that is called, ‘‘Special Topics,’’ and it talks about the uneven recovery in the labor force participation. You might want to take a look at it, because it makes a true state- ment that factors are still contributing to the disparities with cer- tain populations, whether it is age, poverty, or race. Black Ameri- cans are not listed. And let me make it very clear, when we talk about unemploy- ment rates, when we say it is great for America, it is double in the negative for Black folks; we are still struggling. You mentioned Hispanics, but there is no mention of Black Americans. So, I would like somebody to take a look at that, because we still are dealing with very high unemployment rates. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 42 Mr. POWELL. Thank you. Chairwoman WATERS. Thank you very much. The gentlelady’s time has expired. The gentleman from Michigan, Mr. Huizenga, is now recognized for 5 minutes. Mr. HUIZENGA. Thank you, Madam Chairwoman. There has been a lot of discussion about lumber from my col- league from Ohio, who just discussed that as to whether that may or may not indicate transitory inflation [inaudible] Actually buys lumber. One of the things that I do is, we have a real estate devel- opment firm as a family, and we are also in the sand and gravel operation, so I am intimately involved in construction. I can tell you that the lumber that I had to buy at the beginning of this year, which is currently being used to build a home that is hopefully going to be occupied—it was going to be at the beginning of August, but now it looks like it is going to be more like the mid- dle of September because of supply constraints, labor constraints, demand, and all of the things that are going on. I am not going to be able to lower the price of that condominium because of current lumber prices. Those are baked in and fixed. And that is why I think a lot of my colleagues aren’t really un- derstanding the effects of what those price increases mean in the longer run. And at the end of the day, I wish I could go back and rewrite that contract, but when it is already stick and concrete in the ground and it is going up and it is has a roof on it, I can’t do that. So, that is going to be a problem with which I think this Ad- ministration is going to have to wrestle. And, Mr. Powell, I know you have had a lot of discussions about inflation today. I am not going to dive too deep into it, but I needed to make sure that I lent my name, and as people are having the tally of who was bringing up inflation, I wanted to be one of those people. I didn’t think I would find myself in agreement with Larry Summers on some of his concerns about what has been going on with inflation, but whether it is Larry Summers or the National Federation of Independent Business (NFIB), which is saying that nearly half of their members—by the way, I am also a member of the NFIB—have had to do price increases, which are affecting their customers. We have to keep an eye on inflation. And my parting thought on this is, and what I am afraid of is, we won’t know it is too late until, frankly, it is too late. And that is the problem with having such a retrospective look-back when you are diving into those num- bers. You don’t have to respond to that. You are welcome to, if you would like to. But I do want to hit on the London Interbank Of- fered Rate (LIBOR). That is something that has not been brought up today. You have been very committed in your support, as well as other financial regulators, of completing the conversion away from the LIBOR [inaudible] benchmarks. It is absolutely essential, I do believe, to provide a little certainty for those tough legacy LIBOR contracts, and you have expressed that in the past. You have also stated in previous testimony that although the Secured Overnight Funding rate (SOFR) will serve a significant part of the market, you said, ‘‘Market participation VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 43 should seek to transition away from the London Interbank Offered Rate (LIBOR) in the manner that is most appropriate given their specific circumstances.’’ Now, I have heard from many financial institutions in Michigan and across the country that the Secured Overnight Financing Rate (SOFR) doesn’t necessarily fit all of their needs for their various sized institutions. In the last few weeks, we have heard rhetoric coming out of members of the FSOC about the need to put param- eters on the choice that financial institutions have to determine which benchmark replacement works best for their institution, their customers, or their lending activity. And while I agree there needs to be a standard for qualified labor replacement rate, I am concerned that some of the most re- cent statements sound like the Federal Reserve and other U.S. fi- nancial regulators may be changing their previous views before this committee suggesting that SOFR, based on the repo market, a mar- ket dominated by the largest money center banks, should be im- posed on every institution and borrower as a one-size-fits-all solu- tion. So, Chair Powell, is the Federal Reserve’s view that there should be a choice among qualified benchmarks as it relates to those re- gional and community institutions that believe they are more ap- propriate options, other than SOFR, given their business model, lending activity, size, and customer base? Mr. POWELL. Yes. Honestly, I think we have been pretty clear on that. We think the use of SOFR is voluntary and market partici- pants can use other suitable replacement rates if they see fit. Mr. HUIZENGA. So, SOFR needs to be put into legislation or does there need to be more of that hard legacy escape and certainty on that? Mr. POWELL. I do think we need legislation for the hard tail, as you say. I think it would be appropriate to have SOFR in the legis- lation, but not as an exclusive thing. It is going to be the rate for— at least for capital markets and derivatives and things. Mr. HUIZENGA. I look forward to continuing this conversation. Mr. POWELL. I would be glad to. Mr. HUIZENGA. Thank you. Chairwoman WATERS. Thank you very much. The gentleman from California, Mr. Sherman, who is also the Chair of our Subcommittee on Investor Protection, Entrepreneur- ship, and Capital Markets, is now recognized for 5 minutes. Mr. SHERMAN. Thank you. I want to thank and agree with the ranking member that our witness deserves a second term. I want to thank Josh Gottheimer for bringing up the importance of the State and local tax deduction. And Mr. Huizenga focused our attention on LIBOR and its great importance. And, Mr. Chairman, I know you have testified just how critically important it is that we have Federal legislation in that area. I do want to correct any misconceptions about the legislation that I am proposing. It is not the purpose of the Federal Government to impose SOFR on any institution anywhere in the country that writes a good instrument and specifies whatever rate they want. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 44 I am old enough to remember that most mortgages that were ad- justable were 11th District cost of funds, whatever they want to use. The question is, do we want to have a voluntary system where the instrument doesn’t specify what rate to use? And if voluntary means, well, the creditor volunteers one rate and the debtor volun- teers another rate, then my friends in the trial lawyer field will have a heyday. The focus here is not to force anything on anybody if they draft an instrument that specifies what they want. But if they have an instrument from which no one can determine what is the amount of interest to be paid, we need to provide that answer. We have to do it in a way that we are not indicating that SOFR is the stand- ard to be used in instruments going forward. It is not the Federal rate, it is not the preferred rate, it is not the rate that small banks will choose to use in many cases in their instruments in the future. I want to thank Chairman Powell for his testimony in the past on the importance of wire fraud. I am disappointed that you are not moving toward a payee-named system for wire fraud, but I am pleased that you are looking at other ways to make sure that we don’t have people who wire their money to account, ‘‘12345,’’ think- ing it is going to the person they are buying a house from and in- stead it is going to a Nigerian prince. I also want to applaud the Fed for consistently, year after year, remitting $50- or $100 billion to the Federal Treasury and, in ef- fect, profit. And I know that this is unintentional but I think you should focus on it because it is very important. As to a Federal digital currency, Chairman Powell, is it the in- tention that any such currency would fully implement the know- your-customer and anti-money laundering standards? Mr. POWELL. We are at the very early design stages, but the an- swer to your question is going to wind up being yes. Mr. SHERMAN. Good. And you have said that crypto wouldn’t be- come a currency. Crypto means hidden, and that is the great ad- vantage that cryptocurrencies will have over a Federal digital cur- rency, because they are designed to be crypto, hidden from the U.S. Government, especially the IRS. And, of course, that pleases what I call the anarchists, pseudo-patriots, who half of the time are tell- ing us that the Federal Government needs to enforce laws and have a strong foreign policy and enforce our sanctions and achieve our national security goals without deploying our troops, and spend the other half of their time being delighted whenever anyone strikes a blow for liberty by evading our tax laws or sanctions laws, et cetera. Looking at fiscal policy, you can’t determine or project monetary policy without some guess as to what our deficit will be. What do you use when you tell us what you are intending to do with the monetary policy? What is your expectation on the level of the Fed- eral debt? Mr. POWELL. It is not so much the level of the Federal debt. What we are looking at is basically spending and deficit spending and that kind of thing. And by the way, the assumptions we make are in the middle of the road. It is just what the Congressional Budget Office (CBO) said. Mr. SHERMAN. My time has expired. Thank you. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 45 Chairwoman WATERS. Thank you very much. The gentleman’s time has expired. The gentleman from Kentucky, Mr. Barr, is now recognized for 5 minutes. Mr. BARR. Good afternoon, Chairman Powell. It’s good to see you. Thanks again for your leadership. Inflation is the topic of the day. I want to talk a little bit about timing and communication of normalization, with the backdrop of accelerating inflation. And I understand your position that some of this is transitory, and supply chain bottlenecks that could work itself out. I also recognize the slight change in the inflation-tar- geting framework under which you are working. But I do worry that if inflation expectations continue to rise, re- gardless of these supply chain issues that resolve themselves, you could have a self-fulfilling prophesy and inflation could get away from the Fed. My question is, given the fact that the FOMC has committed to communicating any shift in the pace of asset purchases well in ad- vance to ensure market stability and clarity for market partici- pants, I worry that these movements in CPI and other inflation metrics in recent months have proven to be pretty rapid and sig- nificant. Is there a risk of upward price pressures outpacing the Fed’s preferred timeline for communicating adjustments in its bal- ance sheet policy and when you start the tapering process? Mr. POWELL. No, there is nothing in the guidance or in our framework that would prevent us from doing the right thing at the right time. Mr. BARR. Okay. So, you do not believe that inflation could move so quickly that the Fed would be forced to make asset purchase ad- justments or even increase the Fed funds rate precipitously without the requisite communications runway? Mr. POWELL. That is a separate question. I am just saying we can deal with whatever happens with inflation within the context of our framework and within the context of our guidance. I don’t expect the outcome that you are talking about, which would be very surprising if something like that happened, where we really had to move very quickly. It doesn’t tend to work that way, but I think we are in a good position to move as is appropriate no matter which way things go. Mr. BARR. You probably saw, Chairman Powell, The Wall Street Journal article today, ‘‘Higher Inflation is Here to Stay For Years, Economists Forecast.’’ What do these economists have wrong, that the Fed has right? In other words, why is the consensus at the FOMC that, maybe with the exception of Mr. Kaplan with the Dal- las Fed, that this is transitory as opposed to a sticky inflation? Why, in your judgment, or the FOMC’s judgment, are these econo- mists wrong? And speak to this issue about self-fulfilling inflation expectations and why that is not a concern. Mr. POWELL. Okay. I will come back to that. I don’t have that survey in front of me, but I think that, and you can correct me here, the median estimate for inflation for 2022 was less than 2.5 percent, and that is CPI, or maybe it was PCE, I don’t know. But that would be much more consistent with our framework than with what our critics are saying. That would be very much in the range VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 46 of what FOMC participants are expecting, or at the high end of it, but within that range. So, I think that is what you may have in front of you, Congress- man, I don’t know. I don’t have that. Mr. BARR. Here is what we as Members of Congress are hearing, and I know you get this data and also anecdotal evidence filtering up through your district banks. But I just spoke to the Chamber of Commerce in central Kentucky at lunchtime today. This inflation concern is real. It is not just that lumber prices are up and the home builders are upset. And it is not just that the fixed-income seniors are upset because the price of food is up, and the restauranteurs are having to pay more for food, and the trucking companies and the commuters are having to pay more for fuel costs. We are hearing, according to the National Federation of Inde- pendent Business (NFIB), that 47 percent of small businesses raised average selling prices in June. That is the highest since 1981. I hope this is transitory, but I hope the Fed is hearing the same thing that we are hearing. Mr. POWELL. We are. As you know, we have a great network through the Reserve Banks. We hear that through a loudspeaker every day. We are absolutely hearing that. Let me get to your earlier question. If you want, I can go back to expectation. Mr. BARR. Sure. Mr. POWELL. That is absolutely the thing we monitor carefully, and we don’t see any problems on that front. But if expectations do move up in a way that is troubling, which is to say materially above and for a persistent time, we would be concerned and we would react to that. Mr. BARR. I appreciate your vigilance, Mr. Chairman. And I yield back. Chairwoman WATERS. Thank you very much. The gentleman from Missouri, Mr. Cleaver, who is also the Chair of our Subcommittee on Housing, Community Development, and Insurance, is now recognized for 5 minutes. Mr. CLEAVER. Thank you, Madam Chairwoman. And thank you, Chairman Powell, for being here with us today. And let me preface my one question by saying that we have been working with your staff on the issue of the Community Reinvest- ment Act (CRA). Our chairwoman has made affordable housing ap- propriately and necessarily the major issue of our time, and hope- fully the whole nation is going to be focused on it even as we are struggling with the short-term inflation. So, thank you for your participation and support. I hope the OCC can participate as seri- ously as your staff has done. But my one question is, although I represent Missouri’s Fifth Congressional District, I was born and raised—and all of my family members are still—in Texas. A local TV station down in Dallas did an investigation, and it was very alarming because they found that the lack of banking services in low-income and minority commu- nities in Dallas County south of I-30—I don’t expect you to be fa- miliar with that—but the Community Reinvestment Act requires that banks draw assessment areas that meet the credit needs of VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 47 entire communities. And this TV station, WFAA, found that 20 per- cent of banks in Dallas County drew maps that exclude all or parts of southern Dallas County. And in one example, a bank in Dallas County was found to service all of Ellis County, where I was born, and Somervell, Hood, Parker, and Tarrant Counties, which are Fort Worth counties, but only the half of Dallas County which is above I-30. And the Federal Reserve identified no evidence of dis- crimination. The CRA, though, requires that the assessment areas contain en- tire counties, cities, or towns, and not arbitrarily exclude low- to moderate-income geographies. I am just rambling on, but let me ask you the question, and that is, what more needs to be done to ensure that bank assessment areas incorporate not only tracts where banks have significant activity, but also low- to moderate-in- come or minority communities which are within the same geo- graphical areas, where lower bank activity actually may reflect a legacy of redlining or discrimination in the housing and finance sectors? I apologize for going on and on, but I needed to go through all of that to get that question to you. Mr. POWELL. Thank you. And you or your staff brought this arti- cle to the attention of our staff, who brought it to my attention, and I have had a chance to look at it. And, yes, it is very troubling on its face, the article. And it just shows that we need real vigilance in making sure that banks honor their obligations to serve minority communities, low- and moderate-income communities and minority communities within their operating areas. So, that one got our attention, and we can’t talk about individual institutions, of course, but we take this very seriously, and we ap- preciate your bringing it to our attention. Mr. CLEAVER. Thank you, Mr. Chairman. I yield back, Madam Chairwoman. Chairwoman WATERS. Thank you very much, Mr. Cleaver. The gentleman from Texas, Mr. Williams, is now recognized for 5 minutes. And we are certainly going to hear about what is hap- pening in the automobile industry. Mr. WILLIAMS OF TEXAS. Thank you for that lead-in, Madam Chairwoman. Chairman Powell, I am actually sitting here in one of my car dealerships in Texas and listening to how used car prices are driv- ing inflation, which they do, but with that in mind, I cannot say that this is the very best time to trade your car in. You are going to get more than you ever thought you would get. But it is an issue. The idea that used cars are appreciating is something that you would have never thought you would have said, but we are see- ing it as we speak, and that is the truth. I want to thank you for coming today. And yesterday, I had the pleasure of speaking with some Main Street American business leaders, of which I am one, as you know, and how they have been recovering from the COVID-19 pandemic in the Small Business Committee where we talk to them. Some of the issues that were brought up were that these busi- nesses were having trouble finding workers, as we talked about today; inflation increasing and the cost of goods, and that they are VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 48 purchasing from their large suppliers, they are paying more; and then the threat of tax increases. Now, one business owner in my district from Cleburne, Texas, and Congressman Cleaver knows where that is, reminded us that this isn’t very complicated. Small businesses operate on very tight margins and any increase in the tax rate is detrimental to their ability to operate. Specifically, he mentioned that they were looking to plan out their capital expenditures for next year. They have al- ready begun investing less simply because of the threat of higher corporate and capital gains taxes coming in 2022. I want to make sure that the factors that the Federal Reserve is tracking, which could be a drain on the economy, are aligned with what Main Street America’s fears are that we are hearing from business people all over the country and certainly in our States and our districts. So, Chairman Powell, as you look at the economic outlook of our small businesses and the country moving forward, can you talk about some of the factors that could be limiting growth, to which the Federal Reserve is paying attention? Mr. POWELL. I would be glad to. I have to say, the first thing that comes to mind is difficulties, challenges in hiring. We are hearing that very, very widely. If you look at our Beige Book, in all districts, small businesses are having a hard time hiring. And it is, again, widespread, and we think that will abate, though, as the factors that I talked about today passing will be gone later this year and we will see a lot of hiring. That is one. I think there is a lot of optimism. There is a lot of demand. Peo- ple have money to spend, so we are hearing positive things about that. I know people are very worried about inflation too. We hear that loud and clear from everybody. It is really going through the economy and through every business. And as we have discussed a lot here today, it does have the feeling of something that is associ- ated with the reopening of the economy and that things should set- tle down as the economy is fully reopened and supply and demand recalibrate and maybe prices move around and people get into their new jobs and we are in a new normal, I hope, soon. But as of right now, this is something that is on every small businessperson’s mind. Mr. WILLIAMS OF TEXAS. Thank you. I wanted to get your quick take on the speed with which the private sector was able to get COVID relief money to those in need. We have not seen the same success through the SBA’s shuttered venue program, which was created back in December, and still hadn’t gotten out the money to many of these struggling businesses. Moving forward, do you think we should be looking to get the private sector more involved as we deal with distributing govern- ment aid? Mr. POWELL. That is a question for you. I will say, if I may, the real way that our emergency lending programs worked was they agitated or they supported as a backstop private markets to work. And having the private markets step in and make the loans was just so much better than having us make the loans and having those done. In that sense, it really worked, the backstops did. They VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 49 didn’t have to make the loans because the market started working and that is always a better answer. Mr. WILLIAMS OF TEXAS. Thank you. Quickly, can you elaborate on what the Financial Stability Board (FSB) means when it says that climate-related risk might be transferred or amplified, and can you give me a quick potential scenario or example? Mr. POWELL. Without having it in front of me, I think what the FSB would mean about that is that the financial sector, financial institutions could amplify a risk and it would be along the lines of changes in the climate that had very bad effects on a particular ag- ricultural area, for example, over time, and that bank failures have a way of amplifying shocks rather than absorbing them. Mr. WILLIAMS OF TEXAS. Okay. Thank you. I yield back, Madam Chairwoman. And just in closing, this is a great time to buy a car. Chairwoman WATERS. Thank you very much. The gentleman from Georgia, Mr. Scott, who is also the Chair of the House Agriculture Committee, is now recognized for 5 minutes. Mr. SCOTT. Madam Chairwoman, I just want to say that my great colleague, Congressman Williams, is not only just a great en- trepreneur in the car business, he is also one of the great all-star third basemen for my Atlanta Braves in Major League Baseball. Chairwoman WATERS. That is right. Mr. SCOTT. Yes, indeed. Chairwoman WATERS. That is right. Thank you for reminding us. Mr. SCOTT. He is a good man. Chair Powell, it is good to have you back. Last month, you stated before the House Select Subommittee on the Coronavirus Crisis that, ‘‘A recent decline in commodity prices was evidence that price pressures will cool as supply bottlenecks from reopening the economy are worked out and stimulus fails, maintaining that our concurrent inflation is temporary and would eventually move back to a 2 percent target.’’ I want to ask you, while there is no doubt that soaring prices for commodities have fueled a sense of optimism for our farmers, our agriculture producers, this growing season, given the volatility around the price of commodities, are your views on price pressures still the same today? Mr. POWELL. I would say, we continue to see prices come in and, this week, exceed our expectation. And that is not what we are hoping to see, but this latest CPI reading was above where fore- casters thought it would be, pretty much all forecasters. But, yes, it is still the same story. It is still the same parts of the economy that are producing this inflation. It is a pretty narrow group of things that are producing these high readings. But we are anxious, like everybody else, to see that inflation pass through. Mr. SCOTT. Thank you for that answer. And I agree that a return to a more stable inflation rate would indeed be advantageous to our economy. But as we know, the increase in commodity prices drives up consumer prices over the long-term, even after inflation returns to normal. And, unfortunately, wage increases will not keep pace, creating real hardship for people on fixed incomes, retirees, and many of our low-income households. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 50 Let me ask you this: Considering how the incremental wage in- creases failed to keep pace with the rising costs of living, can you elaborate for us on what trends the Fed expects to see between commodity inflations and earnings, at least until we have returned to a 2 percent inflation rate? Mr. POWELL. We don’t have any ability to forecast commodity prices any more than anyone else does. They do what they are going to do. Again, our expectation is that, over time, the reopening of the economy will be a process that we go through and that these imbalances that we are seeing will abate, and we hope that hap- pens sooner—it is very difficult to say exactly when that will hap- pen. It seems likely that it will happen, but the amounts by which inflation will move up and the timing of it passing through are very hard to predict. Mr. SCOTT. How much time do we have? How much longer will we be in this thrust? You feel confident it will happen. What is your best estimate about when we will be back to normal? Mr. POWELL. Before we get fully vaccinated, I think we will know generally whether this framework for understanding it is the right one. So, we would want to begin to see more things like what hap- pened with lumber. We would want to begin to see more of these prices flatten out and then perhaps come down, hopefully as lum- ber did. That is what we would like to see. Ultimately, though, price stability is half of our mandate. And if we see inflation moving up in a way that is really troubling and that risks a period of troublingly high inflation, then we will use our tools to bring inflation back down to 2 percent. Mr. SCOTT. Thank you very much, Chairman Powell. And you are doing a great job. Keep it up. Chairwoman WATERS. Thank you very much. The gentleman’s time has expired. The gentleman from Arkansas, Mr. Hill, is now recognized. Mr. HILL. Thank you, Madam Chairwoman. And it is great, Chair Powell, to see you, to have you back before the committee. All of our members really appreciate the chance to visit and seek your wisdom on all of these topics. I do hope the Fed is right that this persistent inflation that we are experiencing—record high inflation for many, many years is, in fact, transitory. It’s super important, too, for families here in cen- tral Arkansas who only have $48,000 in median income, and they are all telling our offices that they are seeing such persistent and large price increases from their grocery cart to their gas to their home improvement projects. And it is a bigger difference for them than it is for some economist at the Federal Reserve who makes $175,000 a year, and gets to work from home, and doesn’t bear all of those normal challenges that a family here in Arkansas does. So, I hope the FOMC is right that it is transitory. Since the beginning of January 2021, the balance sheet of the Fed has increased by $750 billion. We are now over $8 trillion at the Federal Reserve. And as we have talked about today, you con- tinue to purchase about $120 billion in assets per month: $80 bil- lion in U.S. Treasuries; and $40 billion in agency MBS. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 51 Of the total balance sheet, that makes up about 29 percent of agency MBS and about 63 percent in the U.S. Treasury securities. Is that approximately right? Mr. POWELL. That sounds about right. Mr. HILL. And, Chair Powell, isn’t it true that the recent July Monetary Policy Report outlined that, ‘‘the housing sector remains remarkably strong.’’ I know you have testified some about housing, but do you agree that is what the Monetary Policy Report says? Mr. POWELL. Yes. Mr. HILL. Given the acceleration of home prices that you and I talked about back in February when you were before the com- mittee, and the vigorous expansion of mortgage lending, is it really necessary to be buying the $120 billion of assets a month, particu- larly as it relates to the MBS portion? What is the logic in main- taining that MBS portion? Mr. POWELL. Really, we look at the whole things that we are buying. It is Treasuries and mortgage-backed securities, and they have roughly the same kind of effect on the economy, either of them. MBS maybe have very modestly greater effects on housing, and that is not why we were buying them in the first place. But as you know, we are in a process of looking at tapering those purchases. We had a meeting about it back in June. We have an- other one in a couple of weeks. And if we continue to make progress toward our goal that we articulated last year, then you will see us begin to reduce those purchases. Mr. HILL. I noted that Fed Governor Waller made some com- ments after the recent meeting, saying that right now, the housing markets were on fire and don’t really need any other unnecessary support. Will that be taken into consideration as you look to that taper and the potential design of how one would taper? Mr. POWELL. Yes. I would say the timing and the composition of the taper are the two main things, along with whether we are meeting our goal of substantial further progress in December. Those will be in the conversation for sure. Mr. HILL. And help me with something that is a flow of funds contradiction for me. We have this massive—I know you don’t refer to it as QE, so I won’t; I will be differential to you—stimulus, and buying $120 billion of securities monthly, and yet we have seen huge spikes in the Federal Reserve’s reverse repos, which in turns drains that liquidity back out of the system, soaking it up. How does that make sense to an ordinary review? And I do think your description in the Monetary Policy Report was good, but how does that make sense to the markets? Mr. POWELL. The first repo facility is really there to keep the Federal funds rate in the target, and for a couple of big reasons, there has been downward pressure on short-term rates. Mr. HILL. Wouldn’t that indicate that there is just not that much demand to take those liabilities and invest them in assets in the banking system, that maybe we have essentially way, way too much liquidity on the books of the banks? Mr. POWELL. You could say there is a shortage of safe short as- sets, you know [inaudible], and so that is why that is happening. There is just a shortage of T-Bills, not a lot of T-Bills, and the Treasury general account is shrinking down too, so— VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 52 Mr. HILL. Last topic, and we can answer this offline, but Con- gressman Himes and I have introduced the 21st Century Dollar Act to help our strategy for the U.S. dollar. I am interested if you are going to maintain the cut-off date for our international swaps through December 31st. Mr. POWELL. Those swaps really work. They did a great job, as you know. They were a fundamental part of our program to sta- bilize the global financial markets and dollar funding markets, in particular, which are really important for our economy. We have extended them to December 31st. I made a decision not to extend them beyond that. I don’t know that we would unless conditions change. Mr. HILL. Thank you. I yield back. Chairwoman WATERS. Thank you very much. The gentleman from Illinois, Mr. Foster, is recognized for 5 min- utes. Mr. FOSTER. Thank you, Madam Chairwoman. I would like to, first, extend my apologies for having missed most of this hearing. We have actually found something more interesting than Fed Monetary Policy, which is a hearing I was chairing in the House Science Committee on the origins of the coronavirus, which was, I have to say, a rather interesting subject. And I also would like to thank my colleague from Arkansas for stealing the question that I intended to ask about the differential effects of buying mortgage-backed securities versus other govern- ment-guaranteed assets. And I appreciate your answer to that. One of the good things the Fed has been doing for the last sev- eral years is instead of just publishing household net worth as if there was only one consumer in the country, actually publishing it by wealth slices. And you can see in your numbers, for example, that the top 1 percent wealthiest have about a third of the wealth in our country; the next 9 percent have about another third; and then between 50 percent and 90 percent have pretty much the last third; and the bottom half, according to the numbers by the Fed- eral Reserve, have only 2 percent of the wealth. And this is very much related to how you model the economy, because there are many of the policies that we are thinking of implementing and many of the effects of your policies that have very different effects on the top versus the bottom. For example, things that affect stock market valuations essentially only affect the top 10 percent of the United States. Do you incorporate that in your modeling, when you are trying to look into the future? Are you now using economic models that look at the different behavior of the different wealth strata in the United States? Mr. POWELL. Yes, where it is appropriate. For example, those are much higher marginal propensities to consume among people at the lower end of the income spectrum, and lower at the top, we do incorporate those. Again, where it is appropriate, we do that, yes. Also, in modeling monetary policy, it matters as well. Mr. FOSTER. Certainly. If you have, sir, some sort of write-up on that, that you could get to us, I would very much appreciate it. Be- cause I think that getting the coefficients there correct is really im- VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 53 portant to understanding how your policy decisions are going to af- fect not just the American economy. Do you have any general feelings on the apparent disconnect of the stock market with the feelings of ordinary families? There were instances during the COVID crisis where there was a scream of pain from the general public, and yet the stock market was hitting record highs. What is your thinking on that? Mr. POWELL. I never express an opinion on the level of the stock market, but remember what the stock market is doing, it is pricing in future cash flows, as you well know. So, it is thinking ahead and, I think, in this particular—what happened last year was pret- ty early on. At the beginning, there was this crash, and then pretty early on, after the CARES Act passed and the things that we did, markets really recovered very quickly, beginning pretty early, look- ing ahead to what became a pretty strong recovery. And markets were more right than a lot of forecasters were, because the recov- ery did exceed expectations. I can’t comment on the actual level, though. Mr. FOSTER. And are you fairly satisfied with your response to the stress on the Treasury’s market? Do you need any new tools? Would you like to have any more—what is the current—or the thinking in retrospect on that? Mr. POWELL. I think the work is not done there. I think we are in the middle of bringing that work to a conclusion about what went wrong, what are the right tools, how deep out into the tail do we need to insure, and all of those questions, I think, will come around. I don’t think we are done with that project at all. I think this will be over the next 12 months, probably. There will be a lot of ideas and discussion. The idea of central clearings is out there. There are a lot of ideas. Mr. FOSTER. Just the imbalance of supply and demand may have been one of the critical factors there. And what you did there may actually have been very important in preserving the dollar’s posi- tion as the currency that you want to have your country’s economy connected to. And so, that was well done. Anyway, thank you, again. You are doing a heck of a job, and the end of the tunnel is in sight, and I hope we will all come out of this in good shape. Mr. POWELL. Thank you. Chairwoman WATERS. Thank you very much. Ladies and gentlemen, Members, we have a hard stop that we negotiated with Mr. Powell, and he is going to have to leave now, and so we will not be able to call on any more Members at this time. But those who were not able to raise their questions or to make their statements will be first in line when he returns. I would like to thank Mr. Powell for his testimony today. VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI 54 The Chair notes that some Members may have additional ques- tions for this witness, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legis- lative days for Members to submit written questions to this witness and to place his responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous mate- rials to the Chair for inclusion in the record. With that, this hearing is adjourned. [Whereupon, at 2:57 p.m., the hearing was adjourned.] VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\HBA195.000 TERRI A P P E N D I X July 14, 2021 (55) VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00059 Fmt 6601 Sfmt 6601 K:\DOCS\HBA195.000 TERRI 56 VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00060 Fmt 6601 Sfmt 6601 K:\DOCS\HBA195.000 TERRI 100.48354 ereh 1 oilof tesffo tresnI 57 VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00061 Fmt 6601 Sfmt 6601 K:\DOCS\HBA195.000 TERRI 200.48354 ereh 2 oilof tesffo tresnI 58 VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00062 Fmt 6601 Sfmt 6601 K:\DOCS\HBA195.000 TERRI 300.48354 ereh 3 oilof tesffo tresnI 59 VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00063 Fmt 6601 Sfmt 6601 K:\DOCS\HBA195.000 TERRI 400.48354 ereh 4 oilof tesffo tresnI 60 VerDate Nov 24 2008 18:51 Mar 03, 2022 Jkt 095071 PO 00000 Frm 00064 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Jerome H. Powell (2021, July 13). Congressional Testimony. Testimony, Federal Reserve. https://whenthefedspeaks.com/doc/testimony_20210714_chair_monetary_policy_and_the_state_of_the

@misc{wtfs_testimony_20210714_chair_monetary_policy_and_the_state_of_the,
  author = {Jerome H. Powell},
  title = {Congressional Testimony},
  year = {2021},
  month = {Jul},
  howpublished = {Testimony, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/testimony_20210714_chair_monetary_policy_and_the_state_of_the},
  note = {Retrieved via When the Fed Speaks corpus}
}