Congressional Testimony

S. HRG. 117–407 THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS HEARING BEFORETHE COMMITTEE ON BANKING, HOUSING, ANDURBANAFFAIRS UNITED STATES SENATE ONE HUNDRED SEVENTEENTH CONGRESS FIRST SESSION ON OVERSIGHT ON THE MONETARY POLICY REPORT TO CONGRESS PURSU- ANTTOTHEFULLEMPLOYMENTANDBALANCEDGROWTHACTOF1978 JULY 15, 2021 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: https://www.govinfo.gov/ U.S. GOVERNMENT PUBLISHING OFFICE 48–918 PDF WASHINGTON : 2023 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS SHERROD BROWN, Ohio, Chairman JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama JON TESTER, Montana MIKE CRAPO, Idaho MARK R. WARNER, Virginia TIM SCOTT, South Carolina ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana TINA SMITH, Minnesota BILL HAGERTY, Tennessee KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming JON OSSOFF, Georgia JERRY MORAN, Kansas RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota STEVE DAINES, Montana LAURA SWANSON, Staff Director BRAD GRANTZ, Republican Staff Director ELISHA TUKU, Chief Counsel TANYA OTSUKA, Counsel DAN SULLIVAN, Republican Chief Counsel LUKE PETTIT, Republican Economist CAMERON RICKER, Chief Clerk SHELVIN SIMMONS, IT Director CHARLES J. MOFFAT, Hearing Clerk (II) C O N T E N T S THURSDAY, JULY 15, 2021 Page Opening statement of Chairman Brown ................................................................ 1 Prepared statement ................................................................................... 43 Opening statements, comments, or prepared statements of: Senator Toomey ................................................................................................ 3 Prepared statement ................................................................................... 44 WITNESS Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System ................................................................................................................... 5 Prepared statement .......................................................................................... 45 Responses to written questions of: Senator Toomey ......................................................................................... 48 Senator Cortez Masto ................................................................................ 52 Senator Sinema ......................................................................................... 57 Senator Daines .......................................................................................... 58 ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD Monetary Policy Report to the Congress dated July 9, 2021 ............................... 61 (III) THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS THURSDAY, JULY 15, 2021 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 9:31 a.m., in room 538, Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of the Committee, presiding. OPENING STATEMENT OF CHAIRMAN SHERROD BROWN Chairman BROWN. The Senate Committee on Banking, Housing, and Urban Affairs will come to order. Today, our economy is growing because of the American Rescue Plan and the Biden–Harris administration’s leadership. We are putting shots in arms and money in pockets. Families have a little bit extra to help pay the bills. Beginning today, July 15th, most parents will see a 250 or 300-dollar monthly payment in their bank account for each child. In my State, 92 percent of children are eligi- ble. Small businesses are reopening their doors. Workers are safely going back to work, often at higher wages. Last month, we added 850,000 jobs to the economy. Since President Biden took office, we have gained three million jobs, more than any—more than in the first 5 months of any presidency in modern history. It is not only the jobs numbers; it is the quality of these jobs. For the first time in decades, workers are starting to gain some power in our economy: the power to negotiate higher wages, the power to get better working conditions, the power to have more control over their schedules and stronger benefits and more oppor- tunities for career advancement. The Washington Post reported in the past 3 months rank-and-file employees have seen some of the fastest wage growth since the early 1980s. Think about that. The fastest wage growth since Ron- ald Reagan said it was ‘‘Morning in America.’’ That is what hap- pens when we invest in our greatest asset, the American people. Instead of hoping money trickles down from large corporations— it never does, and pretty much every Senator sitting on both sides of the aisle here knows that—we invested directly in our workers and our small businesses and our communities. When workers win, our economy wins. When everyone—as one of Senator Smith’s pred- ecessors used to say, when everyone does better, everyone does bet- ter. (1) 2 Chair Powell, you said the Fed can help make the economy work for everyone by ensuring a strong and competitive labor market, one where everyone can get a job, one where employers actually compete for workers. I agree. Those efforts, combined with Presi- dent Biden’s recent actions to increase competitiveness, are in- creasing worker power in the economy. We must build on this progress with investment in infrastructure that creates millions of jobs, increases our economic competitiveness, and spurs growth in communities of all sizes, all over the country. I have been all over my State in the past few weeks, talking with local leaders, seeing mayors in both parties, in big cities and small towns. I have heard the same thing from all of them. They need more investment in infrastructure, like housing and transit, to build a stronger local economy. These are the places often over- looked or, worse, preyed on by large corporations and Wall Street banks. Many of these communities have watched for decades as invest- ment has dried up, as storefronts have emptied. Companies closed down factories and moved good-paying union jobs abroad—in Penn- sylvania and Ohio, especially. Private equity firms, big investors buy up the houses and jack up the rent. Small businesses struggle to compete against big-box chains. Big banks buy up smaller ones, only to close branches, leaving check cashers and payday lenders as families’ only options. Think about the opportunity and growth we can unleash in this country if we gave these communities the investment to fulfill that potential. Of course, we know what happens whenever the economy starts to grow. The largest corporations and biggest banks throw all their efforts and their resources in finding ways to direct those gains to themselves. Last year, during the global pandemic and deep, deep recession, CEOs paid themselves 299 times what their average worker made, an even bigger gap than before the pandemic. Now imagine the kind of windfall they will try to rake in during this boom. We have seen it over and over. Consumers spend, driv- ing up revenue for companies. They spend it on stock buybacks while complaining about workers’ demanding higher wages. Big banks rake in cash. They spend it on executive compensation and dividends and buybacks, and the Fed has usually allowed them to, Mr. Chairman, instead of lending in communities or increasing capital to reduce risk. The Fed should be fighting this trend, pro- tecting our progress from Wall Street greed and recklessness, not making it worse. During your tenure, Chair Powell, the Fed has rolled back impor- tant safeguards, making it easier for the big banks to pump up the price of their stock and boost their already enormous power in our economy. Wall Street would have you believe that removing those protections has increased lending in support of the real economy. We have been assured that the banks have plenty of capital to withstand a crisis. But, during the pandemic, it was community banks and it is credit unions, not the megabanks, that increased lending. The Fed supported the biggest banks to the tune of hundreds of billions of dollars. They spent it, shockingly, on themselves while small busi- 3 nesses trying to get PPP loans could not sometimes get their phone calls returned. We ought to try something different. We need a banking system that works for everyone. We cannot allow the biggest banks to fun- nel their extra cash into stock buybacks that juice their profits in- stead of investing in the real economy. We cannot let big banks merge into bigger and bigger megabanks, making it harder for small banks to compete and leaving rural and Black and Brown communities behind. We need to strengthen the Community Rein- vestment Act so that banks serve the communities still scarred— still scarred—by the legacy of Black Codes and Jim Crow and red- lining. And we cannot allow repeat performance of the years during the last recession. Wall Street destroyed our economy, cost families their jobs and their homes and their savings, then came roaring back. Families limped along behind them. For the vast majority of Americans who get their money from a paycheck and not a broker- age account, the economy never looked all that great in the years that followed. Stable prices, moderate long-term interest rates are not enough if every decade a financial crisis hits and strips away what people have worked so hard for. Low unemployment is not enough if the jobs pay rock-bottom wages and workers have no power. GDP growth is not enough if it only benefits those at the top and not the workers who made it possible. We need to create a different system, one that is stable for the long run, one where workers, not Wall Street, reap the benefits of a strong economy. Chair Powell, you are charged with ensuring both financial sta- bility and with overseeing the biggest banks. Both of those jobs are equally important. Each affects workers’ jobs and paychecks and communities. And as public servants, our responsibility—yours, mine, Ranking Member Toomey, our responsibility—is to the people who make this country work. It is up to us to grow an economy that delivers for them, not just those at the top. Ranking Member Toomey. OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY Senator TOOMEY. Thank you, Mr. Chairman. Welcome back, Chairman Powell. The economy certainly has come roaring back from COVID. GDP is above its prepandemic levels now, and the Fed forecasts GDP will grow by an amazing 7 percent this year. The unemployment rate is already at 5.9 percent, which the Fed expects to fall to 4.5 percent by the end of the year. And to put that in context, the aver- age unemployment rate for the last 20 years before the pandemic was 6 percent. So with these conditions, the Fed’s rationale for continuing nega- tive real interest rates and $1.4 trillion in annual bond purchases is puzzling. The Fed’s policy is especially troubling because the warning siren for problematic inflation is getting louder. Inflation is here, and it is more severe than most, including the Fed itself, expected. And it is more than offsetting the wage gains, so leaving workers worse off despite their nominal wage increases. 4 For the third month in a row, the Consumer Price Index was higher than expectations. Core CPI, which excludes volatile cat- egories like food and energy, was up 4.5 percent in June, the high- est reading in almost 30 years. And to be clear, this is beyond the so-called base effects. The 2-year change in core CPI was at a 25- year high. And with housing prices absolutely soaring in many places to completely unaffordable levels, I have to ask: Why on Earth is the Fed still buying $40 billion in mortgage-backed bonds each month? Now the Fed assures us that this inflation is transitory, but its inflation projections over the last year have not inspired confidence. Last June, the Fed projected that PCE, one standard measurement of inflation, would be 1.6 percent for the 12 months ending 2021. Then in December, the Fed raised that figure up to 1.8 percent. And now, the Fed’s most recent PCE forecast for 2021 year-end is 3.4 percent, more than double what the Fed thought inflation would be a year ago. But in coming months, the Fed is almost cer- tain to revise that projection up yet again because so far this year PCE has already risen by 6.1 percent on an annualized basis. So for the rest of the year, inflation would need to be nearly zero for the Fed’s latest projection to be proven correct. I am very concerned that the Fed’s current paradigm almost guarantees that it will be behind the curve if inflation does become problematic and persistent for several reasons. The first, as I point- ed out, the Fed has consistently and systematically underestimated inflation over the last year. Second, the Fed has announced that it will allow inflation to run above its 2 percent target level. Well, it is already well above 2 percent. And third, the Fed insists that the inflation we are experiencing now is transitory despite the fact that recent unprecedented monetary accommodation has certainly driv- en the inflation that we are witnessing. And since the Fed has proven unable to forecast the level of in- flation, why should we be confident that the Fed can forecast the duration of inflation? And after all, you can only know that something is in fact transi- tory after it has ended. What if it does not end? If it is wrong, by the time the Fed knows and acknowledges that it has gotten it wrong, we could have a big problem on our hands. And past experi- ence has shown it is very difficult to get the inflation genie back in the bottle once it is out. The Fed may have to respond by raising interest rates much more aggressively to rein in significant infla- tion, and that could have severe adverse economic consequences. So the Fed’s current monetary approach seems based on the premise that it needs to prioritize maximum employment over price stability despite the fact that employment policies enacted by Con- gress are clearly impeding our ability to get back to maximum em- ployment. But I would argue it is not the Fed’s job to attempt to offset flawed congressional policies at the expense of its price sta- bility mandate. And when the Fed subordinates its price stability mandate to try to maximize employment, the Fed runs the risk of failing on both fronts because you need stable prices in order to achieve a strong economy and maximize employment. This is not a partisan argument. Prominent Democratic econo- mists, including President Clinton’s treasury secretary, Larry Sum- 5 mers, President Obama’s CEA chairman, Jason Furman, and many others have expressed their concern about the risk—the risk—of rising and persistent inflation. Last, I just want to acknowledge the unique and crucial role played by the Fed in our economy and some of the responsibilities that attend to that. The ability to direct interest rates and control the money supply is, of course, an extraordinary power, and Con- gress has given the Fed a great deal of operational independence in order to isolate it from political interference. But Congress also gave the Fed a narrowly defined mission. I am troubled by the Fed, especially some of the regional banks, mis- using this independence to wade into politically charged areas like global warming and racial justice. I would suggest that instead of opining on issues that are clearly beyond the Fed’s mission and ex- pertise it should focus on an issue that clearly is its mandate, con- trolling inflation. If it does not, the Fed will find that its credibility and independence may also have turned out to be transitory. Thank you, Mr. Chairman. Chairman BROWN. Thank you, Senator Toomey. We have an 11 o’clock vote. I informed the Ranking Member and the Chair we will work straight through and not break during that 11 o’clock vote. So we will just figure that out. I will introduce today’s witness. Today, we will hear from Federal Reserve Chair Jerome Powell on the Fed’s monetary policy and the State of the U.S. economy. Under law, he comes in front of us twice a year at minimum. The Federal Reserve plays a key role in mak- ing sure our economy and banking system work for all Americans. Chair Powell, thanks for your years of Government service and for your testimony today. You are recognized. STATEMENT OF JEROME H. POWELL, CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. POWELL. Thank you. Chair Brown, Ranking Member Toomey, and other Members of the Committee, I am pleased to present the Federal Reserve’s Semiannual 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 sit- uation before turning to monetary policy. Over the first half of 2021, ongoing vaccinations have led to a re- opening of the economy and strong economic growth supported by accommodative monetary and fiscal policy. Real GDP this year ap- pears to be on track to post its fastest rate of increase in decades. Household spending is rising at an especially rapid pace, boosted by strong fiscal support, accommodative financial conditions, and the reopening of the economy. Housing demand remains very strong, and overall business investment is increasing at a solid pace. As described in the 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. 6 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 remains elevated in June, at 5.9 percent, and this figure understates the shortfall in employ- ment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year. Job gains should be strong in 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 the largest for work- ers 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 coming months before moderating. Inflation is being temporarily boosted by base effects as the sharp pandemic-related price de- clines from last spring drop out of the 12-month calculation. In ad- dition, 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 FOMC monetary policy framework seeks longer-term inflation ex- pectations that are well anchored at 2 percent, the Committee’s longer-run inflation objective. Measures of longer-term inflation ex- pectations have moved up from their pandemic lows and are in a range that is broadly consistent with the FOMC’s longer-run infla- tion goal. Two boxes in the July Monetary Policy Report discuss re- cent developments 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, household balance sheets are, on average, quite strong, business leverage has been declining from high levels, and the in- stitutions at the core of the financial system remain resilient. Turning now 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- ance on interest rates and our balance sheet, will ensure that mon- etary policy will continue to deliver powerful support to the econ- omy until the recovery is complete. We continue to expect that it will be appropriate to maintain the current target range for the Fed funds rate until labor market con- ditions have reached levels consistent with the Committee’s assess- ment of maximum employment and inflation has risen to 2 percent 7 and is on track to moderately exceed 2 percent for some time. As the Committee 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 ex- pectations remain well anchored at 2 percent. As always, in assessing the appropriate stance of monetary pol- icy, we will continue to monitor the implications of incoming infor- mation 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 materially and persistently beyond levels consistent with our goal. In addition, we are continuing to increase our holdings of Treas- ury securities and agency MBS securities at least at their current pace 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 sub- stantial support to 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. We will continue these discussions at com- ing meetings. As we have said, we will provide advance notice be- fore announcing any decision to make changes to our purchases. 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 hard- ships brought on by the pandemic. We at the Fed will do every- thing we can to support the recovery and foster progress toward our goals of maximum employment and stable prices. Thank you. I will look forward to our discussion. Chairman BROWN. Thank you, Chair Powell, for your testimony. Our economy looks a whole lot better today than it did last year. We still have a long way to go. Yet, many of my Republican col- leagues have been stoking inflation fears, demanding that we pump the brakes on our economic recovery, complaining that we are just investing too much money in the American people. If my colleagues are suddenly concerned about the costs that have been rising for workers and families for decades, they can join Democrats in the fight to raise wages, to lower the cost of health care, to make hous- ing more affordable, to pass the American Jobs Plan. Of course, most of them will not say aloud what all this inflation alarmism is really all about. It is simply they do not want workers to have more power. In reality, the biggest risk to our economy, Mr. Chairman, is not doing enough to empower workers and not doing enough to curb Wall Street greed and excess. So, Chair Powell, my question is you supported Vice Chair Quarles, as the Vice Chair of Supervision, his efforts to weaken capital requirements at the largest banks through revisions to the 8 stress capital buffer, and you oversaw weakened CCAR stress tests which only decide how leveraged the biggest banks are. Governor Brainard has pushed back against your efforts to weak- en financial regulations. President Rosengren of the Boston Fed made the case that strong financial regulation enables the Fed to be more aggressive in its full employment mandate. President Mester of the Cleveland Fed, President Kashkari of the Min- neapolis Fed are outspoken on the need for the board to keep its eye on financial stability. Weakening financial safeguards does not help working families. It just increases the risk of a financial crisis, wiping out everything they have worked so hard for. We are finally making progress, as I said earlier, and workers are getting a better seat at the table. We can make the economy safer and fairer with higher capital requirements for the biggest banks. My question, Mr. Chair, is: Why have you been against stronger capital requirements and using the countercyclical capital buffer in curbing runaway executive bonuses and stock buybacks? Mr. POWELL. So I guess I would say, with the stress tests, the severity of the stress tests has very much been maintained. The ef- fect of the stress capital buffer overall was to raise capital require- ments for the largest firms. And they did manage to get through the recent pandemic and the acute phase of it and the recovery and did their jobs during it. So I think by and large, our financial institutions are well cap- italized. We limited their distributions during the pandemic, and their capital levels actually rose quite materially during the course of the pandemic. So the financial system is strong, and the banks are strong. I have felt, and I have said on a number of occasions, that the level of loss-absorbing capital in the system is about right. I think the experience of the pandemic bears that out. I would be prepared to deploy the countercyclical capital buffer if I thought that the conditions we laid out were triggered, but I have not so far felt that way. Chairman BROWN. Every time the Fed has—thank you for that answer. Every time the Fed has taken action to lower capital standards, it claims that doing so would increase lending in the economy and otherwise promote economic growth. That has not been what has happened. Instead, buybacks, dividends, executive compensation have continued to go up even during the pandemic. We empower workers by maintaining tight labor markets and strong financial regulations. I believe strong financial regulation enables the Fed to be more aggressive in helping workers and that should be your mission. It is time, Mr. Chair, respectfully, you change the way you think about regulating the biggest banks. One other question, Mr. Chair. In addition to adopting pro-work- er financial stability policies, the Fed can further help communities of color by leading the push for a strong update to the Community Reinvestment Act. We have seen some good developments there with a different Comptroller of the Currency. Last year, the Fed unanimously released a framework for modernizing CRA that was well received by representatives of the civil rights community and by banks. 9 My question, Mr. Chair, is the Federal Reserve still committed to full, not piecemeal, full CRA modernization with an interagency approach, and what is the timing? Mr. POWELL. We are very much committed to that outcome, and I actually feel—I feel good about where we are on this. We are re- suming our interagency discussions on it. And I am optimistic that we will come out with something that has broad support among the community of intended beneficiaries and, by the way, also among the financial institutions, and that it will be a good, solid updating after many years into the more technologically enabled era that will help all—help the intended beneficiaries quite a bit. Chairman BROWN. And the timing, Mr. Chair? Mr. POWELL. Working on it now. I think you will see—you will see we are reacting to a very large—analyzing a very large quan- tity of comments and discussing that with—particularly with the OCC. But also, the FDIC, it is not clear what their role will be at this time, but we hope they will join in. I think we will be making visible progress in coming months. I cannot give you a finish date yet, but I think we are moving now. Chairman BROWN. Good. Thank you. We will be watching. Senator Toomey. Senator TOOMEY. Thank you, Mr. Chairman. Chairman Powell, in your testimony, you said that substantial further progress is still a ways off for the economic recovery, and I think you cite that as a justification for the extremely accom- modative policy that you have. I do not think you are referring to the need for substantial further progress in GDP growth. I think it is employment that you are thinking of. The unemployment rate has declined dramatically, but it has not reached the prepandemic lows. And I think that you have also made references to the work- force participation rate. I guess my question is: Is it not entirely possible that for a vari- ety of factors, not the least of which is legislation that we have passed, the labor force participation rate may not get back to the record highs that we recently saw and we have made it more dif- ficult for the unemployment rate to get back to the record lows that we were at before? And, do you take that into account when you determine how much progress we have made toward full employ- ment? Mr. POWELL. So what was happening toward the end of the very long expansion, longest expansion, was that people were staying in the labor force later into their careers, and so labor force participa- tion consistently remained above all estimates of where it was going to be. Then what happened in the pandemic was a lot of those people retired. Senator TOOMEY. Right. Mr. POWELL. So there have been really significant amounts of re- tirement. So the truth is we do not know where that is going to settle out, and it will take a period of years for us to really understand what the new trend is. I do not see that as a problem for the standard we have set for tapering asset purchases, which is substantial fur- ther progress. We are not going to need to know the answers to those questions to make a decision that we have made substantial 10 further progress. It will be more of a consideration for raising rates, where we have set a higher bar. Senator TOOMEY. OK. I just hope there is a focus on the distinct possibility that we are just not going to get to those levels anytime soon. Let me turn to housing prices a bit. The Case-Shiller Home Price Index showed housing prices across the U.S. as a whole increased in May by more than 15 percent from the previous year. And that was not a base effect. There was no big decline in May of last year. Fifteen percent clearly is making housing less affordable, more out of reach for more people. So a number of voices within the Fed seem to be increasingly concerned about this. The St. Louis Fed President, James Bullard, said just this week that he is ‘‘a little bit concerned that we are feeding into an incipient housing bubble.’’ Dallas Fed President Robert Kaplan said that the Fed should begin tapering to begin off- setting ‘‘some of these excesses and imbalances.’’ The Boston Fed President, Eric Rosengren, raised alarms that the Fed’s mortgage- backed security purchases may be contributing to the current boom in real estate prices, citing the potential financial stability implica- tions. I guess you know I have been clear for a long time. I have been very skeptical about the ongoing mortgage-backed purchases. Are you at all concerned about the unintended consequences that are associated with $40 billion worth of mortgage-backed security pur- chases that continue month after month? Mr. POWELL. So housing prices are going up, as you mentioned, around 15 percent. This is a very high rate of increase. A number of factors are contributing. Monetary policy is certainly one of those factors. There are also other factors. People have very strong bal- ance sheets, so they are able to make downpayments. There are also supply factors that are constraining the supply, at least tempo- rarily. So you know, our best—my best thinking is that the difference between Treasury purchases and MBS purchases for this purpose is not a large one. Probably MBS purchases are somewhat more supportive of housing. That is not their intent, but that may be the effect. Really, the larger point is that monetary policy is supporting this, and that is something—that is a discussion we are going to be having as—on an ongoing basis. We talked about some of these things at our last meeting, and we will talk at the next meeting in a couple of weeks. Senator TOOMEY. I think that is important. Let me close with a question on a central bank digital currency. During your testimony yesterday, I sensed what I was not sure but thought might be a change in your tone about the virtues of a cen- tral bank digital currency being issued by the Fed. One of the things you said yesterday is that one of the stronger arguments in favor of a CBDC is that, ‘‘You would not need stablecoins; you would not need cryptocurrencies if you had a digital U.S. currency.’’ Of course, is not the reverse also true? If you have stablecoins, cryptocurrencies in use, then maybe there is no need for a central bank digital currency. 11 I guess my—two points. One is it is my view that the develop- ment of a central bank digital currency by the Fed would require congressional authorization. I am wondering if you share that view. And second, it is still not clear to me what problem a central bank digital currency would solve, and I wonder if you think there are problems that only a central bank digital currency can solve. Mr. POWELL. First, I am legitimately undecided on whether the benefits outweigh the costs, or vice versa, on a CBDC. Yesterday, I was answering a direct question about a particular argument. I said, in favor, that would be one of the stronger arguments. Senator TOOMEY. OK. Mr. POWELL. I would agree that the more direct route would be to appropriately regulate stablecoins, which were not—we do not do right now, and that is going to be a very important thing that we do do. So in terms of congressional authorization, you know, there are different views on that. I have said publicly, and I think this is right, that we would want very broad support in society and in Congress, and ideally, that would take the form of authorizing leg- islation as opposed to a very careful reading of ambiguous law to support this. It is a very, very important initiative, and I do think we should ideally get authorization. In terms of what the problem is to solve, that is—I think that is exactly the right question. And you know, I think our obligation is to explore both the technology and the policy issues over the next couple of years. That is what we are going to do, so that we are in a position to make an informed recommendation. But my— again, my mind is open on this, and I honestly do not have a pre- conceived answer to these questions. Senator TOOMEY. Thank you, Mr. Chairman. Chairman BROWN. Senator Menendez of New Jersey is recog- nized. Senator MENENDEZ. Chairman Powell, as the Federal Reserve seeks to fulfill its mandate of maximum employment, I want to dis- cuss with you the tremendous impact that immigration has on the labor force. Is it not true that over the past 10 years the immigrant labor force participation rate has been consistently higher than that of native-born workers? Mr. POWELL. I believe that is right. Senator MENENDEZ. Yes. And let me help you verify that. The St. Louis Fed noted in their study that as of June 2021 the foreign- born labor force participation rate is 3 percent higher than the na- tive-born rate and that gap has not ever been lower than nearly 2 percent for the past 10 years. And an important, but often overlooked, characteristic of these immigrants is their youth. According to the Bureau of Labor Statis- tics, 71.8 percent of foreign-born workers are between 25 and 54 years of age compared to 62.2 percent of the native labor force. So as the American labor force ages, will immigrants and, there- fore, immigration policy play an increasingly important role in maintaining a healthy U.S. labor force, therefore, a healthy econ- omy? Mr. POWELL. Senator, I am going to stay away from making any recommendations on immigration policy. It is not in our wheel- 12 house. I will say that labor force growth is one of the two things that can drive the top line, the other being productivity growth. And you know, in recent years, immigration has been a significant part of—counted for a significant part of growth in the workforce. Senator MENENDEZ. Well, I appreciate that. I am not asking you about immigration policy. What I am saying is that one of the new- est studies shows that nearly 1 in 4 Americans is projected to be 65 years of age or older by 2060. So while America gets older, the overall population is growing at a slower rate than it has in almost a century, leaving unfilled job openings in a future American econ- omy. And I think we should be looking at our immigration policy, whatever that might ultimately be—I have my own idea, the U.S. Citizenship Act—as a source of dealing with the labor market. Now let me continue on the question of the labor market. One part of the Fed’s dual mandate is to maximize employment and un- derstanding what factors inhibited people’s ability to work as a key to helping achieve that goal. On page 7 of your Monetary Policy Re- port, and I will quote directly from it, ‘‘The effect of the pandemic on employment was largest for workers with lower wages, for work- ers with lower educational attainment, and for African Americans and Hispanics, and these hard-hit groups still have the most ground left to regain. And the pandemic seems to have taken a par- ticularly large toll on the labor force participation of mothers, espe- cially Hispanic mothers.’’ That is very much true. So have disrup- tions in childcare due to the pandemic had a negative effect on em- ployment? Mr. POWELL. Yes, they have, and also schools being closed. Care- takers generally are having a hard time getting back into the labor force for that reason. Senator MENENDEZ. Yes. The Federal Reserve’s data shows that the pandemic’s effects on childcare caused 9 percent of all parents to be unable to work late last year and an additional 14 percent of parents had to decrease their hours, and this effect was espe- cially pronounced among Black, Hispanic, and low-income house- holds. So is the effect of childcare on employment isolated only to the COVID pandemic? Mr. POWELL. Sorry? Senator MENENDEZ. Is the effect of the availability of childcare that is affordable on employment isolated only to the COVID–19 pandemic? Mr. POWELL. I am going to guess really that the answer to that would be ‘‘no.’’ Senator MENENDEZ. Yes. And it is ‘‘no.’’ Studies have shown that working families pay for childcare 35 percent of their income, on average, 5 times more than what the Department of Health con- siders affordable. So it seems to me that increasing the availability of high-quality, affordable childcare, like what President Biden pro- poses in the American Families Plan, has a positive effect on em- ployment, enables businesses to more easily find qualified workers, and ultimately helps address the supply bottlenecks. The same Fed study I just cited notes that reducing or offsetting the cost of childcare has a particularly strong employment effect on Black, Hispanic, and low-income families. The pandemic showed all of the inequalities in our Nation, highlighted in a way so dramati- 13 cally, and particularly communities of color. Now, the employment challenges. We all talk about wanting to get people to work. The employment challenges that people have in being able to work, and they, as I have shown in the St. Louis Fed’s statistics, more, more gainfully employment than native-born. It seems to me we should be working on making the pathway easier so that businesses can have qualified workers. Thank you, Mr. Chairman. Chairman BROWN. Senator Rounds of South Dakota is recognized for 5 minutes. Senator ROUNDS. Thank you, Mr. Chairman. Chairman Powell, once again, it is good to see you, sir, and I have most certainly appreciated the time that you spent trying to not only educate us but also to work with us. I understand that clearly you have made it your mission to adhere to the guidance for the Fed in which you work to maintaining 2 percent inflation over a period of time as well as full unemployment, or full employ- ment. And when we talk about it, it is always a combination of which one you are more focused on and how you maintain that while at the same time responding appropriately, and in a non- political way, to the actions of Congress and the Administration. I am just curious. With regard to today’s position, we are coming out of a pandemic. We have put a lot of fuel into the economy with direct payments and so forth, and people are trying to get back to work right now. And yet, we have got inflation which right now, in this current state, seems to be above a 2 percent rate. Can you talk a little bit about the measurement time period that you believe is appropriate for shooting for a 2 percent goal and if there is a concern that you would express, or that you follow up with, when we talk about over-inflating or perhaps putting fuel in, what concerns you would have and how you would respond to con- gressional activity? Mr. POWELL. So the inflation that we have today, what we said is that if inflation runs below 2 percent for an extended period we want inflation to run moderately above 2 percent for some time. This is not moderately above 2 percent by any stretch; this is well above 2 percent, and we understand that. And it is also not tied to, you know, the things that inflation is usually tied to, which is a tight labor market, a tight economy, that kind of thing. This is a shock going through the system associated with reopening of the economy, and it has driven inflation well above 2 percent. And, you know, of course, we are not comfortable with that. In terms of the test that we articulated, we said we wanted infla- tion to average 2 percent over time. We did not tie ourselves to a formula. What we really want is inflation expectations to be an- chored at 2 percent because if they are not there is not much rea- son to think that inflation will average 2 percent. So that is really how we are thinking about it. The challenge we are confronting is how to react to this inflation, which is larger than we had expected or that anybody had ex- pected. And to the extent it is temporary, then it would not be ap- propriate to react to it. But to the extent it gets longer and longer, we will have to continue to reevaluate the risks that would affect 14 inflation expectations and will be of a longer duration, and that is what we are monitoring. Senator ROUNDS. You have been very careful, and I have appre- ciated the fact that you have done your best to be apolitical in this regard. And yet, at the same time, we are going to have a debate about whether or not we need to add additional fuel to the economy in terms of additional payments to individuals. And as we make that discussion, recognizing that you are going to do your best to be apolitical and simply to respond based upon your goals of the long-term goal of 2 percent inflation and full employment, how do you see this right now? With inflation right now being the focal point and yet the possibilities of more dollars being put into this economy in this recovery stage, what concern would you express, if any? And I know that your job is not to give us advice, but rather to respond to. What are the tools available for you to try to maintain that long-term goal of 2 percent during a time in which Congress may very well be adding additional fuel to the fire, so to speak, for inflation? Mr. POWELL. So the way it works is we watch what Congress is talking about, and then it reaches a point at which our staff will say that looks like it has got a good chance of happening, and then we will put something into—the staff will put something into the forecast, and all of us will make our own judgment about whether that was the right thing to do, whether it is too big or too small. And we never then take that into the public sphere and say, you know, please do not do that for this reason or that reason. It is really not up to us to play a role, as you know. Senator ROUNDS. But the tool, the tool that you would use would be within monetary policy of the price of money. Mr. POWELL. Always, the tools we have are, you know, in mone- tary policy, is to raise interest rates, to tighten financial conditions more broadly, to slow demand down. And that is how you get con- trol of inflation, and that is—and that is what you do. At a time like this, though, policy is so accommodative. You know, it will still be accommodative after we slow asset purchases, ultimately stop them, and then raise interest rates. It will be ac- commodative for quite a while. But that is what we do, and that is what we will do when and as we need to. In the meantime, we are trying to understand. This particular inflation is just unique in history. We do not have, you know, an- other example of the last time we reopened a $20 trillion economy with lots of fiscal and monetary support. So we are just trying to— we are humble about what we understand, but we are—you know, we are trying to both understand the base case and also the risks. Senator ROUNDS. Mr. Chairman, thank you very much for your response. And, Mr. Chairman, thank you. Chairman BROWN. Thank you, Senator Rounds. Senator Warner from Virginia is recognized. Senator WARNER. Thank you, Mr. Chairman. And, Chairman Powell, it is great to see you. Thank you for your good work. 15 You know, one of the issues that we have, you and I, spent a lot of time talking about over the last year-plus has been access to capital issues. And as we know, COVID disproportionately hit com- munities of color. We lost 440,000 Black-owned businesses last year. And as we have discussed in the past, you know, I have been a big advocate with many on this Committee, on both sides of the aisle, to promote investment into minority depository institutions, into community development financial institutions. And actually, working with former Secretary Mnuchin, we got $12 billion into the relief package back in December. Some of that will go into, as you know, tier one capital into the CDFIs, which could actually in- crease their lending capacity by about 50 percent. But getting that access to capital to low and moderate-income communities is really, really important. Is there more that the Fed can do—let me give you a two-part question—the Fed can do to support CDFIs? And is there anything similar to programs like the Fed’s Paycheck Protection Program, the PPP program liquidity facility, which could also potentially be used? I know again we have discussed some of these things, but like to see if—what your current thinking has been on this issue. Mr. POWELL. So we do see, and we saw particularly during the pandemic, the good that CDFIs and also minority depository insti- tutions can do and were doing. And we try to provide whatever re- sources we can, and a lot of it is just engagement and things like that and also including the CDFIs in the PPP liquidity facility and doing everything we could to incorporate them in a way that was useful to them. So all of those things are good. I think if we could think of more things to do within our man- date, given our authorities, we would do them because we do see the good that they do in reaching communities that are not nec- essarily reached by other banks. Senator WARNER. And I do hope, you know, beyond CRA that we can, you know, look at—I have got a lot of community banks as well that want to try to get into this market. And I have got some ideas I would like to come back to you and the Fed on because I think sometimes there is a feeling that there is not enough regu- latory discretion if they want to kind of lean into lending to low and moderate-income communities. I want to raise one other issue I think we have all seen. We all know housing prices are up dramatically. Matter of fact, the Fed- eral Housing Finance Agency’s House Price Index showed that house prices were up 13.9 percent over the 12 months ending in March 2021. And there is a lot discussion around inflation here. Obviously, if the housing market is overheated, that poses a huge issue. You know, how overheated do you think the housing market is at this point, and what kind of tools do you have that could help deal with that problem? Mr. POWELL. Price increases are very strong in housing, and it is right across the country. And we see that; we hear that, every- where. And there—as I mentioned, there are a number of factors at work there, both demand and supply. There is a lot of demand because household balance sheets are just in very strong—in the aggregate, in very strong shape. 16 Monetary policy is clearly supportive of people who want to get mortgages now although most of the people getting the mortgages have very high credit ratings. It is very different than it was before the global financial crisis. There are also, you know, both supply constraints on, and this predates the pandemic. And this problem is still going to be there when every other problem is solved, which is difficulty in getting zoning, in getting trained workers. The raw material shortages and high prices and bottlenecks will probably abate over time, but it was—it is not—I have heard from many of you that this was a problem before the pandemic, and I think that is probably going to remain the case. Senator WARNER. Well, I agree. I think the supply issue is some- thing we have to address, and you know, Chairman Brown has been working on this. I have been working on some ideas. I also think one of the things we have got to grapple with if we go back again to the kind of wealth gap issues, particularly racial wealth gap, 10 to 1 Black versus White families. A lot of that goes to home ownership. But I think it is also a challenge not only for Black fam- ilies but for first generation home buyers anywhere. You know, I have been working on an idea that somebody else brought to me that would say can we effectively using Ginnie Mae, with a slight interest rate subsidy, almost provide for the same payments you would have on a 30-year mortgage, a 20-year mort- gage product. We have called it the Lift Up Program. And I think my time has expired, but I would love to share more of that with you and as I will share with my colleagues. Thank you, Mr. Chairman. Chairman BROWN. Thank you, Senator Warner. Senator Kennedy from Louisiana is recognized for 5 minutes. Senator KENNEDY. Mr. Chairman, I want to begin by thanking you once again and your colleagues, some of whom are sitting be- hind you. We all remember well spring of 2020, when the world economy almost melted down. It did not in substantial part because of the actions that you and your colleagues took. You kept this thing in the middle of the road. Now some days you had to do it with spit and happy thoughts, but you kept it in the middle of the road. I remember particularly your currency swap lines. I did not read a lot about it. But I can understand when the world is melting down if other countries seek out treasuries, but when they do not like treasuries they want hard, cold, American dollars. That is scary. So I want to thank you. This is my question. We have spent—not just during the Biden administration, but during President Trump’s administration, we have spent an enormous amount of money. I mean, it is breath- taking. And now some agree, whether some disagree with it, but some say you should not have done it. Some say we had to do it. It is probably a little bit of both. A lot of it was not paid for. And I look around, and President Biden is asking us in the next, I do not know, 6 months to spend what? Another $5.5 trillion? And there is a lot of talk about pay-fors, but it will not all be paid for. We know that. 17 At what point do these deficits matter? Are we living in a dif- ferent world? I mean, it—I know you will probably say, well, defi- cits always matter. But at what point does the marginal benefit of the extra deficit spending become less than the marginal cost? Mr. POWELL. I do not think there is a precise point that I can identify. I will say that we are not on a sustainable path. We actu- ally have not been for a long time. That just meaning that the debt is growing substantially faster than the economy. In the long run, that is not sustainable. The laws of gravity have not been repealed. We will need to get back on a sustainable path at some point. I think the time to do that is when the economy is strong, unemployment is low, taxes are rolling in. That is the time to do it and to do it, you know, with a longer-term plan that matches up our spending needs and our revenues. That is what we are going to need to do. Senator KENNEDY. When do you think that will be? Mr. POWELL. We will eventually have to do that. Senator KENNEDY. When do you think that will be? Mr. POWELL. I wish I knew. I would say, you know, the dollar is the world’s reserve currency. People are buying our paper around the world. I do not think there is, you know, any issue of being able to fund our deficits in the near term, in the medium term. There is no evidence that there is, but you know, we should not wait until the urgent need arises. Senator KENNEDY. Yes. It is too late then. Well, I mean, every- body seems to be a Keynesian now, and that is fair. Dr. Keynes was brilliant. But some people forget about that chapter in one of his books where he said, OK, you deficit spend, and you borrow to stimulate your economy, but when it is better, you pay it back. He said that very clearly—you pay it back. The other thing that—none of us wants inflation, but it is not just inflation as you know much better than I do. It is inflation ex- pectations. I worry that if we spend this extra $6 trillion or $5.5 trillion that President Biden wants us to spend that the private sector is going to say, you know, we are going to have more infla- tion. I do not care what they say at the Fed. We are going to have more inflation, and we are going to start raising prices. I mean, you do not have to be Einstein’s cousin to figure that out. Do you not think that is something we have to consider? Mr. POWELL. Well, I would agree with you that inflation expecta- tions are really central to—what we think are central to what cre- ates actual inflation. We see them now being—they have moved up. They moved down at the beginning of the pandemic. They have moved back up roughly to where they had been in recent years. So they are not at a troubling level. Senator KENNEDY. OK. Mr. POWELL. But it is something we will be carefully watching. Senator KENNEDY. All right, last point. I am not expecting a re- sponse. Resist the pressure. You are going to be asked by a lot of people to get involved in social policy, in cultural matters, and in what some will call economic policy that really has nothing to do with the Fed’s mission. And it is not just happening here; it is hap- pening all over the world. Do not let us become Turkey, where the whole central banking system is politicized. Please resist. 18 Thank you, Mr. Chairman. Chairman BROWN. Thank you, Senator Kennedy. Senator Smith from Minnesota is recognized for 5 minutes. Senator SMITH. Thank you, Chair Brown and Ranking Member Toomey. And thanks so much, Chair Powell, for being with us. I appre- ciated the chance to have a longer conversation with you earlier this week. I want to try to touch on two issues that are important to me. The first is just following up briefly on Senator Brown’s questions around the Community Reinvestment Act, and then I want to go to the systemic risks that climate change poses. So earlier this week, you and I had a chance to talk about this, and you know, I see the Community Reinvestment Act as the main rules that govern how banks provide services in low and moderate- income communities and communities of color, which have experi- enced systemic and severe lack of access to capital and lending and financial services due to discrimination. I am glad to hear you think that you will be seeing some updates in the coming months, and I wonder if you could just tell us a little bit more about what the Fed has learned from all the comments that you have received from the CRA proposal that you released last year. Mr. POWELL. So quite voluminous comments, as you can imagine, from all corners. And you know, I think we are learning a lot, and we are going to incorporate improvements. But broadly speaking, this proposal, this approach, has the support of the intended bene- ficiary community and also, to a significant extent, the support of the banks, who want—you know, they are—they want CRA to be effective. They want it to be well measured. You know, they are committed to having it being an effective program, so I believe. And so generally, you know, we are in the middle of setting up to try to write something that reflects those—you know, the appro- priate comments, and then we will publish that again. But it will take some time, and we hope—we do hope to get all the banking agencies on board for that. As I mentioned, I am optimistic that this is going to a pretty good place. Senator SMITH. That is great. I am glad to hear that. I think that a well-functioning and modernized CRA is just absolutely crucial to making sure that all sectors of our economy, for all people, are growing and working. And as Senator Brown says, that you know, we fulfill that promise. That we all do better when we all do better, I think, is at the heart of the CRA. So thank you. Let me just move to this question of the risks posed by climate change. Yesterday, in your testimony before the House, you indi- cated that the Fed is in the beginning stages of working on a pro- gram that will engage with financial institutions on climate risk. And the last time you came before the Committee, you said that you believed it was important longer-term for firms to publicly dis- close their climate-related risks. And since then, the SEC has received hundreds of comments. Vice Chair Quarles has highlighted the importance of climate risk disclosure, and I believe SEC Chair Gensler has signaled his inten- tion to begin rulemaking around climate disclosure. 19 So can you comment on how you see the role of the Fed on cli- mate risk disclosure for financial institutions? Mr. POWELL. I guess I would start by saying that really the foun- dations of all of this are that we need to get good data on the impli- cations of climate change and how to think about that in terms of the risks that the financial institutions and other parts of the econ- omy are running. And so that is a very basic exercise, and you know, we do not have that yet. Once you have the data, then dis- closure is going to be important because markets are going to work. Markets are going to be very, very important, and the world inves- tor community will be very interested in this. So, those two things. And those are—you know, the Fed can help with research and data collection, things like that. The disclosure issues are really squarely in the province of the SEC, and I know they are working very hard on those. But around the world there is a lot of progress and focus on these things. I just think they are quite central to anything that we are ultimately able to accomplish here. Senator SMITH. So I think it is fair to say that the European cen- tral banks have led the way here. What can we learn from the ap- proach that they have taken? Mr. POWELL. I think one thing I would point to is the climate stress scenarios that have been developed by the Network for Greening the Financial System, and a number of the major Euro- pean central banks are running climate stress scenarios, very dis- tinct from stress tests. And what they are really trying to do is, with financial institutions, look at what the effect over a long pe- riod of time on their business and on their business model could be from, you know, reasonably plausible, you know, outcomes for the evolving climate. And it is proving to be, I think, a very profit- able exercise both for the financial institutions and for regulators. So that is one thing. We have—we have not decided to do that yet. We are in the proc- ess of looking very carefully at that. My guess is that is a direction we will go in that we are not ready to do yet. Senator SMITH. Thank you. Mr. Chair, I realize I am out of time. I want to just note that I think that some would say that climate risk is a political issue. I see it as a systemic financial risk just like other systemic finan- cial risks that big banks and small—medium-sized banks have to address. So I think that it is extremely important. I urge the Fed to continue to look at these impacts and to move with alacrity because I think, as you say, Chair Powell, I believe that the markets are looking for clarity about how to measure and how to assess these risks for the good of investors and for every- body. Thank you. Chairman BROWN. Thank you, Senator Smith. Senator Hagerty of Tennessee is recognized for 5 minutes. Senator HAGERTY. Thank you, Chairman Brown and Ranking Member Toomey. I appreciate your holding this important hearing that has to do with our critical job of overseeing the Federal Re- serve. And, Chair Powell, I want to thank you for being here with us again. Today, I would like to talk with you about inflation. Infla- tion is the insidious tax that the Biden administration is imposing 20 on everyday working people here in America right now, and it is a great concern. Back in February, I discussed with you about how the U.S. econ- omy at that point was forecast to see 6 percent growth this year, and at that point, I expressed serious concerns about the Demo- crats’ nearly $2 trillion of additional partisan spending on an econ- omy that was already recovering very rapidly thanks to the effects of Operation Warp Speed and also thanks to the policies that had been in place during the previous 4 years that had put our Nation on a solid footing in terms of tax cuts, fair and reciprocal trade, and deregulation. The Federal Reserve’s challenging and dual mandate is to realize price stability and maximum employment, but runaway Democrat spending and policies that they are imposing are making your job harder than it already is. The bill the Democrats ran through in March spent roughly 10 percent of our GDP, and now they are looking to spend maybe another 20 percent of U.S. GDP on a pure- ly partisan basis. They are throwing around trillions of dollars like it was simply Monopoly money when really what it is doing is tax- ing Americans’ hard-earned paychecks. It is very irresponsible. It is creating inflation outcomes that many of us have not seen in our adult lifetimes, certainly not since Jimmy Carter was President. Echoing what Ranking Member Toomey has said of the concerns that he has raised about inflation, I worry, too, that things may spiral out of control if we do not show some restraint. At the same time, President Biden and the Democrats are imposing policies that work against maximum employment. They are giving away employ- ment incentives. They are raising taxes on job creators, throwing away our energy independence, and freezing American investment. The Fed has more direct control over inflation and price stability than it does over employment. Businesses create jobs, and price stability allows American businesses and families to make business decisions and to plan their everyday finances. But now Americans have a sense of scarcity and, I believe, a sense of panic over inflation. The policies that are being imposed are causing families in my home State of Tennessee and all across America to make financial decisions with soaring inflation in mind. Price stability is not a 12 percent annualized inflation jump like the one we just saw from May to June. People in Tennessee are seeing their buying power eroded like never before, and they do not see this as transitory. And I am sure people in Chairman Brown’s home State of Ohio and Ranking Member Toomey’s home State of Pennsylvania are feeling exactly the same way. As you know, inflation expectations can be self-fulfilling. Infla- tion and price instability at this level is bad for America. Chairman Powell, this environment suggests to me that the emergency posture that I understand the Fed adopted back during the depths of the pandemic seriously needs to be reconsidered right now, and I am very worried that the Fed’s continued level of asset purchases and balance sheet expansion is facilitating this runaway spending that the Democrats are imposing upon us and adding to the inflationary pressures that these trillions of additional dollars are going to continue to add to our economy and continue to add to the debt that our children are going to continue to bear. And it 21 is amazing to me that not one Democrat in Congress is willing to speak out about this. So, Chairman Powell, why is the Fed maintaining its emergency monetary policy posture right now, and why do I understand that it may continue well into 2023? Mr. POWELL. So where we are is we are watching the evolution of the economy. We are noting that there is still an elevated level of unemployment. We note that inflation is well above target, and we have discussed that. And we have said that we would begin to reduce our asset purchases when we feel that the economy has achieved substantial further progress measured from last Decem- ber. So we are in active consideration of that now. We had a full meeting last June, last month, to discuss that. Then we have got another meeting coming up in 2 weeks. So we will be making that assessment, and as we assess the progress of the economy toward that goal, we will begin to reduce our asset purchases. We have set a separate test for raising interest rates, which is a higher test. And so that is how we are thinking about this today. Senator HAGERTY. The policy positions that have been under- taken by this Administration go far beyond the transitory nature that you described. And again, if I think about the expectations of the people in my home State, they are very, very concerned about inflation. So I would like to pass that along. I would also like to ask you just a very simple question. Does continued Government stimulus spending at this point make your job in terms of sustaining price stability more difficult? Mr. POWELL. So we are not in the business of giving Congress advice on fiscal policy, and I just have to leave that to you. We take whatever you do, and we put it into our considerations of policy, but we do not—we do not comment on it one way or another. Senator HAGERTY. Thank you, Mr. Chairman. Thank you, Chairman Brown. Chairman BROWN. Thank you, Senator Hagerty. Senator Warren from Massachusetts is recognized. Senator WARREN. Thank you, Mr. Chairman. So the Chairman of the Federal Reserve has two basic jobs: mon- etary policy, which everybody likes to talk about, and regulatory oversight, which is often way down in the weeds but keeps our economy safe from another banking meltdown. You have been Chair for 4 years now and have gone through the process of what you describe as, quote, tailoring the regulations put in place after the 2008 financial crisis. Now there were a lot of changes, but I want to talk about a couple in particular. To prevent taxpayer bailouts, banks are required to have living wills. This means that banks must be able to show every single year how they could be shut down without wrecking the entire economy. In 2019, you changed the rules so that the 13 banks with $250 billion to $700 billion in assets could submit full living wills only once every 6 years instead of every year. So that test is now weaker. Chair Powell, has the Fed done anything over the past 4 years to make living will requirements stronger? Mr. POWELL. To make living will—we have done a lot of things to strengthen regulation and capital, but I think—— 22 Senator WARREN. Yes, but on living wills. So just—— Mr. POWELL. Living wills. No. Senator WARREN. OK. Mr. POWELL. Maybe I can explain what we—— Senator WARREN. So let us move to another regulation, the Volcker Rule, the rule that works sort of like Glass–Steagall ‘‘light’’ to separate commercial banking from Wall Street risk taking. In 2019, you exempted more short-term trading holdings from the rules so banks could take on a little more risk. Now that weakened the rule. Then in 2020, you eased up the rules to let banks invest more of their assets in high-risk private equity and hedge funds. So the Volcker Rule got weaker again. So let me ask, Mr. Chairman, during the past 4 years, has the Fed done anything to make the Volcker Rule stronger and limit risky trading for the largest banks? Mr. POWELL. I think by clarifying it we made it more effective at what it is supposed to do, which is just what you said. Senator WARREN. Well, I have to say it is whether or not you did anything to make it stronger, not just whether or not you made it clearer. It is whether or not you made it stronger or harder for banks to engage in speculative trading. So I am taking it that the answer here is ‘‘no.’’ I have highlighted two examples of weakening regulations, but there are a whole lot more: reducing capital requirements, easing liquidity requirements, shrinking margin requirements, scaling back on supervision, weakening the stress tests. It is a long list. And I realize that you think these are good changes, but I am try- ing to look at this from a regulatory perspective. Is the Chairman of the Federal Reserve making banking rules stronger or weaker? So tell me, Mr. Chairman, is there a big rule change that I missed? Can you name a change that strengthened the rules and made the actual rules tougher? Mr. POWELL. Well, let me say we did not weaken capital require- ments for the largest banks, and we—I actively resisted any move in that direction. And in fact, the stress capital buffer which we im- plemented quite recently, after years of consideration, raises cap- ital standards—— Senator WARREN. So—— Mr. POWELL ——for the largest banks by the way. Stress tests. They are really bound by the stress tests. We maintained the very high stringency of the stress tests through this period. Senator WARREN. But I was asking about anything tougher. Look, what I am looking for is that the Fed’s record over the past 4 years, I see one move after another to weaken regulation over Wall Street banks, and that worries me. There is no doubt that the banks are stronger today than they were when they crashed the economy in 2008, but that is the wrong standard. The question is whether or not they are strong enough to withstand the next crisis and whether the Fed is tough enough to protect the American econ- omy and the American taxpayer. In 2020, the giant banks that are the beneficiary of these weak- ened rules made it through the crisis, but the researchers from the Minneapolis Fed found that the banks would have faced up to $300 billion in losses if not for fiscal stimulus from the Government. In 23 other words, the current Fed rules were not strong enough for the banks to withstand the pandemic without, once again, calling on American taxpayers to back them up. And that is the heart of my concern. I understand that the next crisis may feel far away, but like the pandemic, it may come at us fast and from an unexpected direction. It is the job of the Federal Reserve, and specifically the job of the Chair of the Federal Reserve, to use the regulatory tools that Con- gress has created in order to make sure that banks remain strong and that taxpayers will never be called on again for a bailout. Thank you, Mr. Chairman. Chairman BROWN. Thank you, Senator Warren. Senator Tillis from North Carolina is recognized for 5 minutes. Senator TILLIS. Thank you, Mr. Chair. Chairman, thank you for being here. I wanted to go back and maybe give you an opportunity to respond to one question. You were going to explain the work on living wills. Would you like to—— Mr. POWELL. Yes. Senator TILLIS ——explain the work you have done there? Mr. POWELL. I would just say we—you know, that was an incred- ibly labor-intensive and taxing issue that we went through, cycle after cycle after cycle, and really the marginal gains from doing it every year diminished quite a lot. So we concluded that for the largest banks we would not require a full resubmission except every other year. And—but they have to—anything that is material they must resubmit. I do not think in any way we have weakened our understanding of the resolvability or anything like that. I would also say we did—we raised capital standards on the larg- est banks, full stop, in the stress capital buffer. They are higher now than they were. I would say that. Senator TILLIS. And with respect to the Volcker Rule, you were talking about clarifications. I mean, is the Fed fully enforcing the Volcker Rule based on congressional intent? Mr. POWELL. Absolutely. Look, I think it is important. More broadly, I would completely agree that our job is to maintain the strength of these large financial institutions so that we never have to worry about bailing them out again, and I am strongly com- mitted to that. You know, we need them to be very, very strong so that they can perform the roles that they are supposed to perform even in a se- vere crisis. And I think that they, by and large, did, admittedly with a lot fiscal support and a lot of—a lot of monetary support, too. We can always—you know, we can always do better, but we are committed; I am committed to that. Senator TILLIS. Thank you. I have got to beat the inflation drum for just a minute here. The FOMC members insist inflation is tran- sitory, but it has not inspired a lot of confidence in me. There was a statement, a couple of statements, by President Mary Daly. In February, she declared the pressures on inflation now are down- ward. In May, when inflation readings were at 3.9 percent, she said the higher inflation readings would be—would mean 2.4 to 2.6 percent. In June, she was predicting that inflation could go above 3 percent. And despite months of relatively low-ball projections, in 24 response to Tuesday’s high inflation reading, she confidently de- clared we expect a pop in inflation like this. So I hope, from our perspective, you could see that we are skeptical about some of the inflation projections. And I have heard—I have spoken with a number of people in the financial services industry, and when I ask them the question about ‘‘transitory,’’ I am getting more of a response now of ‘‘transi- tory-ish.’’ So can you give me a reason why you believe the Fed’s position on it being transitory, that it will snap back, why that is still well founded? Mr. POWELL. Sure. So let me start by saying that no one has any experience of what it is to reopen the economy after what we went through, and so all of us are going to have to be guided by data and have—you know, our views are going to have to be—— Senator TILLIS. Yes, Chairman, let me interrupt you for a second. I would also like for you to answer that question in the context of the flow of money that has been passed in the prior COVID relief packages. And we had an announcement this week from the Speak- er of the House and Senator Schumer that they have an agreement on another 3.5 trillion. I am a part of a working group for infra- structure that could add about another 600 billion. So answer the question in the context of how that future, according to the leader- ship of Congress, outcome is going to occur. How does that all fit into the credibility of future inflation projections? Mr. POWELL. So when we look at inflation, we look in the basket of things that—and we say which of the hundred-plus things in the CPI basket are causing the inflation, high inflation reading. And it comes down to really a handful of things, all of which are tied to the reopening. It is used, rented and new cars. It is airplane tick- ets. It is hotel rooms, and it is a handful of other things. And they account for essentially all of the overshoot. So—and we think that those things are clearly temporary. We do not know when they will end, but they will go away. So we do not know when they will go away. We also do not know whether there are other things that will come forward and take their place. You know, if we—what we do not see now is broad inflation pres- sures showing up in a lot of categories. The concern would be if we did start to see that. We do not see that now. We will be watching carefully. And we will not have to wait, you know, a tremendously long time, I do not think, to know whether our basic understanding of this is right. We will know because we will see other more—if we see inflation spreading more broadly, that will give us information. Senator TILLIS. OK. I just want to get one more in. I appreciate that, and I listened to your responses from some of the other Mem- bers. With the LIBOR transition, do you still view—I think you publicly stated Ameribor is a reasonable choice for regional and community institutions. Do you still stand by that? Mr. POWELL. You know, we do not like to bless individual rates, but I would just say market participants have the freedom to choose—to choose the rates that they want to choose. We are not— we are not forcing them to use. This is for—this is for just use. Senator TILLIS. But I am confirming—— Mr. POWELL. And it uses LIBOR. 25 Senator TILLIS ——in some public comments, you have said it is an appropriate rate for banks and funds through the financial— American Financial Exchange. You still stand by that statement. Mr. POWELL. I saw—I saw that. I do not remember saying that, but if people—it was in a letter, I think. Senator TILLIS. OK. Mr. POWELL. So I must have done it. Senator TILLIS. Thank you, Mr. Chairman. Appreciate your work. Mr. POWELL. Thank you. Chairman BROWN. Thank you, Senator Tillis. Senator Tester of Montana is recognized for 5 minutes. Senator TESTER. Yes, thank you, Chairman Brown. And I want to thank Chairman Powell for being here today. A lot of chairmen around here. But look, I have appreciated you, and I have appreciated your work during your tenure and especially as we look back over an in- credibly difficult period of time, where you were having to take a lot of issues that we had not seen in, you know, 80 years under consideration, getting attacked, trying to politicize the Fed. I just want to thank you. I appreciate it. I think your expertise and your knowledge has shown through. The cream has risen to the top, so to speak. So thank you. Look, there is a lot of talk about infrastructure needs, and I think that you would probably agree that China is trying to take over our role in this world of being the economic superpower. And I am one that believes in infrastructure and investments in infra- structure is critically important if we are going to maintain our po- sition as a worldwide economic power. ‘‘The’’ worldwide economic power. My question for you is: As you look at infrastructure investments and how that affects our economy, where would you put your focus? Mr. POWELL. I do not have any—I mean, I would just say that well-spent, well-invested infrastructure money does have the abil- ity, and it is really up to you to make those decisions. But you know, it is the kind of thing that can actually raise the growth rate, the potential growth rate, of the country over time. But I guess I need to leave the details—— Senator TESTER. So I think that there are several proposals out there. There are proposals to invest in roads and bridges and broadband and grid, which some of us in this room are a part of, that I think is really, really important. I think there are other pro- posals that are also very important, but they are investing in a dif- ferent infrastructure, like childcare and workforce housing and those kinds of things. I do not mean to put you on the spot, but I do value your opinion. Where do you think those things fall? Are they equally as impor- tant, or do you think that—do you think the economy is fine with- out any investment in those kinds of things, like housing and childcare and, you know, that kind of stuff? Mr. POWELL. I do not want to get into—I would not get into the debate over whether those are—— Senator TESTER. No. Mr. POWELL ——infrastructure or not, but there is a—— 26 Senator TESTER. Right. No, no. Just from an economic stand- point. Mr. POWELL. You know, from an economic standpoint, take childcare. You know, we used to have the highest female labor force participation rate among the advanced economies. Now we are close to the bottom of the pack. And one of the differences eco- nomic researchers point to—there is a lot of research on this—is just a different approach on childcare. And it is really up to you to look at that and see whether that makes any sense in the U.S. context. We do not have an opinion on that. Senator TESTER. OK. Mr. POWELL. But that is a basic economic trend where we used to lead and we do not anymore. Senator TESTER. OK. So let me ask you this. I do not know. I know that many in the Fed have done some work on issues in In- dian Country, and one of the issues in Indian Country is housing. They have a different situation because of their sovereignty and be- cause of, you know, not having the kind of collateral that folks who own property have. The land under reservation I am talking about. Do you have any thoughts on that, on what we could be doing? Outside of the whole infrastructure conversation, just what can we do to impact Indian Country when it comes to housing? Because, man, it is woefully, woefully bad. Mr. POWELL. That is a hard question, and as you know, we have—we have four or five reserve banks that are—that are in- volved, particularly Minnesota, Minneapolis, in Indian Country issues. You know, we are not—we are not allowed to spend—we do not spend taxpayer money on things directly like that, but I think we would agree that there is a significant housing issue in Indian Country. And I—you know. I mean, I am not sure I have the an- swer—— Senator TESTER. So if you—look, if you have any ideas that pop into your head about how we can—I do not know if ‘‘incentivize’’ is the right word, but how we can engage the private sector to do some—to do some housing so that they would be more inclined. And look, I get their point of view. It is not traditional. You know, they do not have the kind of collateral that they would have with—you know, with, well, fee property. So it is an issue. Look, I appreciate what you are doing. I am about out of time, but I just want to thank you for your work. I appreciate you being in front of the Committee today and good luck. Mr. POWELL. Thank you, Senator. Chairman BROWN. Thank you, Senator Tester. Senator Shelby from Alabama is recognized for 5 minutes. Senator SHELBY. Thank you. Chairman Powell, we have been talking about inflation. And it is not going to go away, I think, for a while. So we are going to continue to talk about it, and you will be concerned with it. In June, U.S. inflation accelerated at its fastest pace in 13 years. Consumer prices increased by 5.4 percent from a year ago. Ameri- cans are now paying higher prices for many of the goods and serv- ices that they cannot do without. The buying power of the dollar has diminished over the past 40 years. Give me some—I will give you some examples. You know all this. 27 According to the Bureau of Labor’s Consumer Price Index, one dollar today is seven times less valuable than it was in 1970, three- and-a-half times less valuable than in 1980, half as valuable as 1990, and one-and-a-half times less valuable than 2000, which seems like yesterday. Recently, the price of commodities, as you know, has increased swiftly. The price of agricultural goods and commodities has in- creased corn by 50 percent from a year ago, wheat by 17 percent, soybeans by 54 percent. The price of metals has risen. For example, copper, which is used everywhere, has increased 43 percent. Alu- minum has increased by 47 percent. Energy prices, as you know again, have grown. The price of crude oil has increased by 70 percent. Gas prices are up 45 percent. In the automotive industry, prices for used cars rose 45 percent in the past year, 10.5 percent in June alone. Airline tickets are up 25 percent. The cost of milk is up 7.5 percent. All of this on the rise. At this point, the Biden administration continues to claim that the increases in inflation are temporary. I, along with others, believe that this could be the sign of things to come. We hope not. For instance, economists surveyed by the Wall Street Journal this month forecasted higher inflation for the next couple of years. Throughout the seventies, as you will recall, high inflation crippled consumers with rapid and sudden price increases. Many of those conditions exist today, such as loose monetary policy and significant Government spending. If we fail to take inflation seriously, Mr. Chairman, I am con- cerned that our Nation could be faced with the same challenges of years ago. Yet, in the midst of the increase in consumer prices, which I have just related, the Biden administration is proposing trillions more in Government spending. The Fed’s ability to main- tain price stability is threatened, I believe, by actual inflation or the expectation of inflation. Chair Powell, my question is this: Taking all this into consider- ation, which you have data that we probably do not have, do you believe that this Nation, our Nation, is facing a real problem with inflation, and if not, why not? How do you—how do you justify? Mr. POWELL. I think we are experiencing a big uptick in infla- tion, bigger than many expected, bigger than certainly I expected, and we are trying to understand whether it is something that will pass through fairly quickly or whether, in fact, we need to act. One way or the other, we are not going to be going into a period of high inflation for a long period of time because, of course, we have tools to address that. But we do not want to use them in a way that is unnecessary or that interrupts the rebound of the economy. We want to put—we want people to get back to work, and there are a lot of people who are not back to work yet. So—but we are—let me say, very well aware of the risks for in- flation, watching very carefully, and you know, if we come to the view that—or if we see inflation expectations or the path of infla- tion moving up in a way that is troubling, then we will react appro- priately. Senator SHELBY. Are you concerned about all of the things that I just related, all the price increases unprecedented in recent years, or are you just putting that aside? 28 Mr. POWELL. No. I mean, we are—of course, we are—we are— you know, night and day, we are all thinking about that—— Senator SHELBY. Sure. Mr. POWELL ——and really asking ourselves whether we have the right frame of reference, the right framework for understanding this. Senator SHELBY. Last, do you agree with the economists that I referenced, that the Wall Street Journal polled, who forecast higher inflation rates for the next couple of years, notwithstanding? Mr. POWELL. So that was—that was the headline writer really got a little carried away there because the actual forecast showed that the median for 2022 was 2.3 percent PCE inflation and for 2023, 2.2 percent PCE inflation, which is not at all different from the forecasts of really of the people on the Federal Open Market Committee. So those are higher than for the last 30 years, but they are not that high. So that forecast was not—was not really as prob- lematic as the headline suggested. Senator SHELBY. Thank you, Mr. Chairman. Chairman BROWN. Thank you, Senator Shelby. Senator Cortez Masto is recognized for 5 minutes. Senator CORTEZ MASTO. Thank you, Mr. Chairman. Chairman Powell, welcome back. Let me follow up on this. Are you confident that you have the tools that you need to address any type of inflation, whether it is transitory or for the future, that we are looking at right now? Mr. POWELL. Yes, I am. Senator CORTEZ MASTO. Thank you. And can I ask, in consid- ering inflation, how should we compare costs to last summer, when prices were well below their current levels because of the pan- demic? Mr. POWELL. I think it is actually—in the spirit of your question, it is better to compare prices to prices where they were in Feb- ruary. And if you look at inflation since then, that captures both the decrease and the increase, and you get much lower numbers if you do that. There are a lot of people doing that right now. So you get—you get inflation in the mid-2s, which is still above our target, but that sort of 16-month inflation on an annualized basis is a 2.5 percent kind of thing, not 5 percent. Senator CORTEZ MASTO. Thank you. And then for purposes of the COVID relief packages, all of them, including the most recent one, the American Rescue Plan, is that the sole cause for what you see with respect to the minimum increase in inflation? Mr. POWELL. I think a lot of things go into it. You know, the main thing is that we have demand rebounding very, very strongly. That is partly monetary policy. It is partly fiscal policy. And what we see on the supply side is the supply side just cannot keep up with this demand and all these bottlenecks. And by the way, it is happening everywhere in the world. So it is a combination of fac- tors. Senator CORTEZ MASTO. And so unlike the last recession that we lived through in 2014, 2010 to 2014, would you—I am curious. Would you—and this is my interpretation of it is that when our economy opened up from that it was a gradual, gradual opening- up of our economy again, and this is more of a kind of a light 29 switching on with the economy opening up quickly. And that is why we see some of the concerns with supply and demand on so many different areas, and that is why we see highly concentrated sectors where there is a demand like you have touched on tonight, or today. Is that accurate? Mr. POWELL. It is accurate, and I would add that this—the re- sponse, both from fiscal and monetary policy, in this episode is just orders of magnitude different from what has happened in the past. So we are back to pre-COVID levels of economic output, and we are on a path to be above the prior trend actually within a year, if fore- casts prove out. Senator CORTEZ MASTO. Thank you. You know, in Nevada, our employment rate has fallen sharply since the pandemic last spring. Unfortunately, we are still fourth in the Nation for unemployment. But as I watch our economy open up again, and particularly—you and I have talked about this—is the tourism and travel industry is starting to rebound again, which is fantastic. Last month, more than 130,000 people applied for 6,000 positions at a new resort in Las Vegas. Part 5 of the Federal Reserve Monetary Policy Report notes that ‘‘Payroll employment increased by 3.2 million jobs in the first half of 2021, driven by a 1.6 million job gain in the leisure and hospi- tality sector, where the largest employment losses occurred last year.’’ The May 2021 Federal Reserve research paper, however, found that the extra jobless benefits that were provided during the pandemic, quote, and I quote this, ‘‘likely had little or very small labor supply induced impact on the unemployment rate.’’ Can you elaborate on that? Mr. POWELL. So I think that was Reserve Bank research and I think it was referring to 2020. It is too soon to really say what the facts are going to be here. In fact, we are going to—we will be able to learn something because many States, as you know, have stopped the additional benefits, and we will be able to look and see whether that had any effect on people going to back to work. It is way too early to say. There is not enough data. Senator CORTEZ MASTO. And thank you for saying that because that was my next question. You will be studying that data to see the difference between those States that cut it off early versus those that kept it going, whether that truly was an impact or not on—— Mr. POWELL. Yes, we are—everyone is looking to see whether there will be a meaningful difference between the two, and again, too early to say on that. Senator CORTEZ MASTO. I appreciate that. Thank you. And then finally, we touched on housing. We are seeing these home prices are up more than 15 percent since last year. How much of the rise in home prices do you think are due to the Federal Reserve’s pur- chase of mortgage-backed securities versus the supply issues? Mr. POWELL. I think that our purchases of Treasuries and MBS are what is holding down and also holding interest rates low. The overall picture of accommodative monetary policy is contributing to what is happening in the housing market. I think mortgage-backed securities are contributing probably a little more than Treasury se- 30 curities, but ultimately, they—it is roughly the same order of mag- nitude. So, sorry, was that your question? Senator CORTEZ MASTO. Yes. Thank you. No, I appreciate that. That answers my question. Thank you very much. Mr. POWELL. Thank you. Chairman BROWN. Thank you, Senator Cortez Masto. Senator Daines of Montana is recognized for 5 minutes. Senator DAINES. Thank you, Mr. Chairman. And, Chairman Powell, good to have you here today and thanks for keeping a steady hand here during these rather tumultuous times. I want to start by joining my colleagues in expressing my concern with the inflation we are seeing in the economy. This week, we re- ceived two inflation readings. They were the highest increases we have seen in over a decade and reflect what Montana families are already feeling, and that is prices for everyday necessities, they are going up. At the same time, Majority Leader Schumer, Senator Sanders, Senate Democrats proposing another massive, partisan, $3.5 trillion tax-and-spend package. I truly believe this is reckless. It threatens short, medium, and long-term prosperity of our coun- try. And I sincerely hope my colleagues on the other side will re- verse course. With that, I would like to turn to my questions. Chairman Powell, the unemployment rate has consistently fallen since the height of the pandemic, now at 5.9 percent, down from a pandemic high of 14.8 percent back in April 20. I am truly grate- ful, I know you are, to see this rate fall, more Americans getting back to work. However, we are digging into this and have concerns about the labor force participation rate, which now sits at 61.6 percent. It has remained in a narrow band between about 61.4 and 61.7 percent since June 20. The current labor force participation rate is 1.7 per- centage points lower than it was prepandemic, in February 20. A significant percentage of those folks who have dropped out of the labor force are over the age of 55, and recent data shows that they are not reentering the workforce. A lot of those folks, as they are already nearing retirement age, may never reenter the workforce. And my question, Chairman Powell, is: Do you expect the labor force participation rate for those 55 and older to recover to prepandemic levels, and if so, why? Mr. POWELL. So you very accurately described the situation. Peo- ple—toward the end of the last expansion, older people were stay- ing in the labor force longer, and as a result, for years and years we were seeing higher readings on participation than we expected, which was a good, we thought. You know, we want the U.S.—the U.S. has a low participation rate compared to our peers, surpris- ingly, but it does. So the question is: What is this going to—and then a lot of those people retired. Three million people left the labor force, and it tend- ed to be older people actually retiring. And the question is: What is going to be the equilibrium once the economy is going full bore again? Labor force participation tends to lag—recovery tends to lag, you know, unemployment recovery. So when labor markets get tight, we tend to see this. 31 So I would just say, first of all, a lot of humility is appropriate here. We do not know what the trend labor force participation rate is, but you know, we went through 8 years of watching labor force participation be higher than we expected. And I fully—I fully took that on board, and I think the U.S. can do much better in terms of labor force participation. So I am not going to close my mind to the idea that we might get back, though. Senator DAINES. Yes. Well, thanks for the thoughtful answer. I guess if the—if that rate, participation rate, for those 55 and older permanently remains below the prepandemic levels, how might you see that impacting the time it might take the economy to get back to full employment, and what impact might that have as it relates to inflation? Mr. POWELL. Well, if there is less labor supply, then you will hit full employment earlier. As you know, obviously, we consider a broad range of indicators, not just unemployment, also participa- tion, wages, and those things. But presumably, if there is less labor supply and lower participation structurally, then you would see that in the form of higher wages and higher inflation. We would be able to see that. Senator DAINES. Chairman Powell, thank you. I want to get to my last question here, and that is regarding the balance sheet of the Federal Reserve. It recently eclipsed $8 trillion, which is more than double where it was before the pandemic. When, if ever, do you think the Fed’s balance sheet will fall below $8 trillion, and could you describe what the risks are if the balance sheet remains at this elevated level for an extended period of time? Mr. POWELL. So we have the last cycle as an example. What we did was we slowed the pace of asset purchases and then we froze the size of the balance sheet for a period of years. And as the econ- omy grows relative to the balance sheet, you know, the size of the balance sheet relative to the economy becomes smaller. So we did quite a bit of that. And then for a couple of years, we actually let the balance sheet run off and shrink. As securities matured, we stopped reinvesting them, and we let the balance sheet shrink at the margin. We have not made those kinds of decisions yet, but it is a reason- able starting place to think that we might hold the balance sheet constant for some time and then perhaps allow it to shrink under 8 trillion. In the meantime, it becomes smaller as a portion of the economy, and that is the same thing as shrinking in a way. Senator DAINES. Good. Thank you, Mr. Chairman. Chairman BROWN. Thank you, Senator Daines. Senator Van Hollen of Maryland is recognized for 5 minutes. Senator VAN HOLLEN. Thank you, Mr. Chairman, Ranking Mem- ber Toomey. And, Mr. Chairman, welcome. I have heard the term ‘‘unprece- dented’’ used to describe the jump in inflation. I think what is truly unprecedented is the number of jobs we have seen generated since President Biden took office, three million jobs, the highest rate of job growth of any President in United States history, as we work seriously to defeat the pandemic and as we pass the American Res- cue Plan, to give confidence to people in the future of the U.S. econ- omy. 32 I do want to dig a little deeper into the inflation issue because you have made the point clearly here today that you believe it is a temporary increase and if you look at long-term projections they are closer to your targets. And that is also the expectation of, you know, folks in the financial markets as well. Is that not the case? Mr. POWELL. Yes, broadly speaking. Senator VAN HOLLEN. And it is interesting how a short period of time changes things. I am looking at remarks you made in May 2019, when people were afraid that the inflation rate was too low and below your targets. And at that time you made the point you thought it was transitory, and you were right. And you used the different measure of trimmed-mean CPI to describe your thinking. Can you just talk a little bit about what that measure is? Mr. POWELL. Sure. So there—one thing that people do at times like this is they chop off the tails and just look at the middle of the distribution because sometimes the overall inflation measure can be distorted by just a couple of categories. So if you did that here—this is the Dallas trimmed-mean, and the Cleveland does a version of this—you know, it is going to show inflation that is in the low 2s because you are getting rid of that small group of cat- egories. You know, the risk is that you shop for whatever inflation measure that is appropriate at the moment, so we try not to do that. But, just clearly, trimmed-mean is sending a signal that this is more idiosyncratic than broad across the economy. Senator VAN HOLLEN. Right. And is it not the case that the in- creased prices of used cars rose by 10 percent in June alone and accounted for more than one third of the entire increase in the CPI in June? Mr. POWELL. Yes, it is. Senator VAN HOLLEN. Right. So I mean, those are the kind of anomalies you are referring to, right? Mr. POWELL. It is used cars, new cars, rental cars. It is airplane tickets. It is hotels. It is all things that have a story that is clearly related to the pandemic. At least, that is what it is now. Senator VAN HOLLEN. Right. So look, I think rather than rush to create alarm about inflation I think we should all be together in focusing on important increases in job growth and wages that we are seeing. I know you said yesterday that we—you expect that we should be able to get back to 3.5 percent unemployment as we move forward. I know Secretary Yellen has talked about maybe this time next year. I am worried—and we have discussed this in the past—about persistent, long-term unemployment. And if you look at the June numbers, the long-term unemployed—and these are individuals who have been jobless for more than 27 weeks or more—increased by 230,000 to 4 million total. That followed a decline in long-term unemployment in May. So my question is: Is there any way we can get back to 3.5 percent unemployment if we do not get this number down when it comes to the long-term unemployed? Mr. POWELL. We saw that what a really strong labor market does is it pulls those people in and also pulls people in who are on the sidelines or keeps people from leaving. So there is just so much to like about a really strong labor market. 33 Senator VAN HOLLEN. And I agree with you, Mr. Chairman. If you look even before the pandemic, though, in February before the pandemic, 3.5 percent unemployment, we had over a million Ameri- cans who were long-term unemployed. So, yes, we hope that the growing economy will be a magnet. I am sure it will. It is going to bring a lot of people into the job force. I think all of us are con- cerned about labor force participation. I think a stronger economy will address that. But there is this, you know, group of long-term unemployed. And my concern is, as you well know, the data shows the longer you are unemployed the harder it becomes to get back into the workforce, and you know, then you get in at a lower wage which stays with you throughout your career. Do you believe it is worth the Congress considering—I know this is not your domain to be specific about what—deliberate policies, like wage subsidies, which we used successfully back in 2008, those kinds of deliberate policies to make sure that the persistently un- employed, long-term unemployed, can get back in the labor force. Mr. POWELL. I would—again without trying to endorse anything in particular, we lag all of our peers in labor force participation now, which is not where we want to be as a country. And I do think that is a classic supply side policy is to try to find ways to connect people to—give them some help in connecting to the labor force, and then you need a strong job market to pull them in and keep them there. Senator VAN HOLLEN. Right. Mr. POWELL. But I do think those things are worth looking at. Senator VAN HOLLEN. No, I appreciate that. Thank you, Mr. Chairman. Hope we will do that. Chairman BROWN. Thank you, Senator Van Hollen. Senator Cramer of North Dakota is recognized for 5 minutes. Senator CRAMER. Thank you, Chairman Brown and Ranking Member Toomey. Thank you, Chairman Powell, for being here. First of all, let me add my voice to the chorus of people to thank you for your cool head through this process, particularly for resisting the pressures to lower rates when it was not necessary so we had some room when it became very necessary. Appreciate that very much. Now I want to—I was interested in a lot of the discussion going on. I was particularly interested in listening to your exchange with Senator Hagerty, where you used the line that I have heard you use many times, when he asked a question about what Congress ought to be doing, and you said—and I think this is a direct quote—‘‘We are not in the business of giving’’ fiscal advice to Con- gress either way. And again, it is similar to what you have said many times. Yesterday, thinking about this, I did a quick search engine re- view of the words ‘‘Fed Chair urges Congress,’’ and this will not surprise you. And by the way, there is not a person in this room that does not have some sympathy over headlines that are not quite accurate or even quotes. But one report in May of last year said: The Fed Chairman asked Congress to consider more stimulus. October of last year: Jerome Powell is putting out the call to Con- gress. More money now. November of last year: Powell still thinks 34 U.S. needs more stimulus for full recovery. Even in December of last year: Fed Chair, Treasury, urged Congress to give U.S. a stim- ulus bridge. In other words, you have not always resisted the temptation to give us fiscal advice. And by the way, thank you for it. I think it was good advice. Maybe we look back and say, well, maybe we did too much, but we were in a crisis. You did what you needed to do. We did what we needed to do. And I do not think there is a lot of regret about that. Now a number of my colleagues have pointed to what has gone on lately and what has been suggested going forward. In addition to the $3.5 trillion package, it includes a lot of tax increases, like 7 times more increase than the cuts from 2017, that built the foun- dation for this quick recovery, I might add. You add in the 1.9 tril- lion, totally unpaid for, earlier this year, the 0.6 trillion in new spending as part of the $1.2 trillion bipartisan package that is being discussed. You know you get to 6 trillion-plus really, really fast. What people are not talking about is if we end up at the end of this fiscal year passing a 1-year CR or something similar to a 1- year continuing resolution, we are going to spend another $6.845 trillion, 3 trillion of which will be deficit spending. Deficit spending. Now my question to you is very direct, and that is just simply: Does the economy need another 6 trillion-plus, another $6.8 trillion spent this year to enhance the recovery, and is there not a detri- mental effect to all of that, including the tax increases, when we are in fact in—call it whatever you want. Type of an inflationary time. But it is uncertain, and there is concern, if not alarm. Mr. POWELL. If I can answer that by saying, you know, we did a lot of things. I did a lot of things last year that we had never done before, and that one in particular had a lot of encouragement from the Administration and the leadership on both sides of the Hill and both parties. But I swore it off, and I do think we should go back to regular order, which is the Fed does not play a role in fiscal policies. It is not a national emergency like it was at the time, and I just—I do not—I have been trying very hard, so far this year suc- ceeding in not getting involved in giving fiscal advice. So I am just going to have to—whatever you do, we take it into account in our policies, but we do not—we do not come out and then comment on whether we think this is a good idea or bad idea. Sorry. Senator CRAMER. Well, OK. I appreciate that. Maybe just one other quick question. We notice that the Fed is continuing to pour some or pump in some liquidity through the purchases, mortgage purchases, particularly, the obviously, Fannie and Freddie. Is that—do you see that as continuing to be necessary? Obviously, you are doing it, but why? Mr. POWELL. So as you know, we are looking at that right now. We are looking at—my colleagues and I on the Federal Open Mar- ket Committee are having a second meeting about that in a couple of weeks, and we are going to talk about the composition of our asset purchases and the path to beginning to reduce them. And I would not want to prejudge that—— 35 Chairman BROWN. I am going to go vote. Mr. POWELL ——but this is something that is very much on the table. Senator CRAMER. I might just add real quickly, with regard to climate risk that you have heard a lot about today, whether it is political or true risk, I would just want to remind my colleagues that when we assess climate risk, in terms of the U.S. economy or U.S. investment, do not forget that every time we do not invest in energy or climate manufacturing issues in the United States an- other country that does not do it as well as us does not do it as well. And this is—climate change is a global issue, so let us think about risk in the global—in the global context. Thank you, Mr. Chairman. Chairman BROWN. Thank you, Senator Cramer. I am going to go vote. Senator Ossoff is next, and Republican Senator Lummis we think is coming back, or perhaps Senator Crapo maybe, and then Senator Reed will go. But Senator Reed will chair, and Senator Ossoff is recognized for 5 minutes. Senator OSSOFF. Thank you, Chairman Brown, Ranking Member Toomey. Thank you, Chairman Powell, for your service and your testi- mony today. Obviously, over the last 18 months, the COVID–19 pandemic has been the most significant shock to our economy and the financial system. But stepping back, what do you assess to be the most significant systemic threats to financial stability over the medium term, either limited to the U.S. or globally? Mr. POWELL. I would have to say that the thing that worries me the most is really cyberrisk. You know, it is a constant concern, and we—you know, we spend lots of time and resources on it, so does the private sector. But that is the one where we have a play- book for—you know, for bad lending and bad risk management, and we have a lot of capital in the system. But you know, the cyber, as you see with the—with the ransomware issues now, is just an ongoing race really to keep up. And we have not had to face a significant cyberevent from a financial stability standpoint, and I hope we do not, but that is the thing I worry the most about. Senator OSSOFF. And in terms of threats to financial stability fol- lowing cyber, what next preoccupies your attention or concern? Mr. POWELL. You know, the economy is coming out of this glob- ally, coming out of this pandemic. So I would worry about if we do not succeed in vaccinating people all over the world really we are creating time and space for the development of new—of new strains of the virus, which can be more virulent and more difficult to fight. And I worry that could—that could undermine the econ- omy and, ultimately, financial stability. The last thing I will say is, you know, we are at the point in the risk cycle where people are looking out four or 5 years and they are seeing a pretty good economy. You know, we are heading to, I think, a strong labor market, highest GDP in 7 years. This is the time when risk takers can begin to forget that there is a bad state of the economy out there, waiting for them at some future date, and take too much risk. And so from a supervisory and regulatory perspective, we are very mindful that it is time to—it is a time when we need to keep people focused on risk management. 36 Senator OSSOFF. That is a great segue to my next question, which is: Given the extraordinary provision of liquidity, not just since COVID–19 but over the last 15 years, how concerned are you that credit committees at major financial institutions and others al- locating capital are acting with sufficient prudence given the easy access to capital? Mr. POWELL. You know, financial conditions are highly accom- modative. People are getting things financed. SPACs and things like that are getting done. We see Bitcoin going up in value and down in value. So it is—you know, it is a—at times, it has felt like a somewhat frothy market, and you know, you do worry about that. At the same time, you know, we are very focused on the real economy. Our jobs are maximum employment and price stability, and also financial stability, but we have got a long way to go. So we want to be careful about, you know, tending to our main man- date while we also think about, you know, financial stability issues. Senator OSSOFF. What is your level of confidence that there are not risks lurking in the nonbank financial system, hedge funds, pri- vate equity, SPACs you mentioned, given the provision all this li- quidity and the reduced visibility that regulators have into some of those institutions? Mr. POWELL. So there is lots of risk-taking going on in the nonbank financial sector. Much of it can take care of itself. Private capital can absorb losses. We know from the experience of the last crisis and the one before that there are structural aspects of nonbank—of the nonbank financial sector that really need some— you know, need better regulation and better structures, and that is particularly money market funds, which twice have had to be bailed out in the acute phase of the crisis. I think we saw that the Treasury market really lost functionality. The most important financial market, it lost functionality significantly during the acute phase of the crisis, and we are doing a, you know, very careful analysis and thinking about whether there needs to be some structural strengthening there, and other aspects as well. Senator OSSOFF. Turning finally to climate change, the Fed’s most recent Financial Stability Report cited climate change as a potential threat to financial stability. The National Oceanic and At- mospheric Administration, our country’s foremost meteorological agency, states that impacts from climate change are happening now. They cite risks, including changes to water resources, floods, and water quality problems, challenges for farmers and ranchers, increases in waterborne diseases, rising sea levels that put coastal areas at greater risk. The Department of Defense identifies climate change as a critical national security threat. What is your assess- ment of the risk that climate change may pose to financial stability or to your dual mandate of full employment and price stability in the long run? Mr. POWELL. I think it has implications for all of those things in the long run. We are very focused on the risks that individual fi- nancial institutions are taking and working with them to make sure they understand the risks they are running and can manage them and address them in their business model. 37 More broadly, in financial stability, financial markets generally, and nonbank financial institutions, it is much the same. We know that, you know, the transition, for example, to a lower carbon econ- omy may lead to sudden repricings of assets or entire industries, and we need to think about that carefully in advance and under- stand and be in a position to deal with all of that. We are—you know, we are doing all of that work as are other researchers and central banks and Governments around the world. There is a lot of work going on, on this end. You know, it is a high priority but a longer-term issue in terms of the financial stability. I mean, I think the manifestations of climate change are here now, but the financial stability issues are really coming. Senator OSSOFF. Thank you, Chairman Powell. I yield, Mr. Chairman. Senator REED [presiding]. Thank you. On behalf of Chairman Brown, let me recognize Senator Lummis. Senator LUMMIS. Thank you very much, Mr. Chairman. And, welcome. Good to see you again. My first question, as you might guess, is about digital assets. You had testified yesterday in front of the House Financial Services Committee that one of the stronger arguments in support of a central bank digital currency was its potential to render stablecoins and virtual currencies un- necessary, but in March, you acknowledged that Bitcoin, Ethereum, and other virtual currencies are essentially a substitute for gold rather than the dollar. So I want to talk a little bit about the dif- ference between the two. So it is pretty clear that Bitcoin, Ethereum, and other virtual currencies are investment commodities and not payment instru- ments. The SEC and CFTC have said as much in court cases and regulatory actions. So I think what you were trying to get at is one of the best argu- ments for a central bank digital currency is that stablecoins could be rendered unnecessary. But legally speaking, stablecoins and vir- tual currencies are not synonymous because stablecoins do not in- crease in value generally and are used as substitute payment in- struments, whereas Bitcoin, Ethereum, and other virtual cur- rencies are investment assets. There is research from Fidelity, Deutsche Bank, and Credit Suisse, and others that call Bitcoin an emerging store of value. Goldman Sachs has also said the same about Ethereum. And so my question is: Because stablecoins and a central bank digital currency are more synonymous with the dollar as an instru- ment of payment and Bitcoin, Ethereum, and other virtual assets are more an investment commodity, like gold, when you spoke to the Financial Services Committee in the House yesterday, did you mean that stablecoin would be unnecessary if we had a central bank digital currency? Mr. POWELL. Basically, you are right. But let me say, though, with cryptocurrencies it is not that they did not aspire to be a pay- ment mechanism; it is that they have completely failed to become one except for people who desire anonymity, of course, for whatever reason. So that is why I included them. But I would completely agree. Really, the question is stablecoins. And my point with stablecoins was that they are like money funds, 38 they are like bank deposits, and they are growing incredibly fast but without appropriate regulation. And if we are going to have something that looks just like a money market fund or a bank de- posit or a narrow bank, and it is growing really fast, we really ought to have appropriate regulation, and today we do not. Senator LUMMIS. And I would—thank you for that. I would as- sume that you would agree that some common definitions and kind of a clear legal framework would help us understand the opportuni- ties associated, and the risks associated, with financial innovation. Mr. POWELL. Yes, I could certainly agree with that. Senator LUMMIS. Thank you. Thanks so much. Now I want to turn to monetary policy, and I would like to draw your attention to this chart. Federal Reserve and Bureau of Economic Analysis M2 data shows that deposits and close substitutes held by house- holds have generally averaged 51 percent of GDP from 1952 to 2021. But then data from the end of quarter one of 2021 shows that households are sitting on deposits and close substitutes of ap- proximately 79 percent of GDP today. So that is roughly 28 percent or trillions of dollars above the historic average. So going back to 1952, there has never been a higher percentage of household depos- its to GDP. Monetary policy also has been highly accommodative over the last 16 months to the tune of 32 percent increase in the M2 money supply. So I have not heard anybody talking about this hidden stimulus. And when households start to spend this cash, combined with the enormous liquidity already out there, it seems there is real poten- tial for inflation to continue to overshoot. We have already seen it this week as the core Consumer Price Index number was nearly double what economists had predicted. So here is my question: Is it really wise to continue to have ac- commodative policy when there is still trillions of household cash that will flow into the economy soon? Mr. POWELL. So this—I think the main factors driving this up are really that people have been sitting at home for a year-and-a- half not able to travel and go on vacation and spend money in res- taurants and things like that, and also, combine that with the major fiscal transfers that Congress made. And that is—so that there is a lot of cash. As you know, there is a great deal of cash on household balance sheets, and that is what—that is what this is representing. You know, is it appropriate for us to continue accommodative policy? We think it is, but as you know, we are looking now. We are in the process of evaluating, you know, when it will be appro- priate for us to taper, which is to say reduce, our asset purchases. We are having a second meeting that will address that topic di- rectly in a couple of weeks. So—but for the time being, the other thing I would point out is there are still a lot of unemployed people out there that are—and we think it is appropriate for monetary policy to remain, you know, accommodative and supportive of economic activity for now. Senator LUMMIS. Thank you for your responses. Thank you, Mr. Chairman. I yield back. Senator REED. Thank you, Senator. 39 On behalf of Senator Brown, I will recognize myself, and in con- cluding my comments I will yield to Senator Warnock, and by that time I presume Senator Brown will be back to conclude the hear- ing. I will ask first—so first of all, thank you, Mr. Chairman, for your remarkable service over these many challenging months. I appre- ciate it very much. One of the aspects of the pandemic has been an indication of the potential for technological displacement of workers. I think we are all now familiar with Zoom. In fact, it is a blessing and a curse, simultaneously. But as you look forward, how are you factoring in this notion of technological displacement in terms of the workforce and employment? Mr. POWELL. We began hearing very early in the recovery period that companies were looking at ways to use technology really more aggressively in their business models. And a lot of the people who lost their jobs during the pandemic, of course, were people in serv- ice industries, relatively low-paid, public, customer-facing busi- nesses: hotels, travel, entertainment, and things like that. So I think we are going to see—and that—by the way, the tech- nology coming into these industries has been a trend. I think we are going to see that accelerated, and you will see more technology and maybe fewer people. And I think the implication of that is that we need to be—we need to work as a society to make sure that peo- ple find their way back into the labor force even if they cannot find their way back into their old job. Senator REED. What I think that does is stress the need for im- proving human capital, so that they can be competitive in jobs that they might otherwise not be. That is education. That is a lot of the things that—and I know you do not comment on fiscal affairs, but a lot of the aspects of the President’s American Family Plan: pre- school education, 2 years post-secondary education, significant job training, et cetera. But just in terms of the future, we are going to have to make those investments. Otherwise, my sense would be we are going to have a lot of people who want to work but whose skills are not up to the new technological opportunities. Is that fair? Mr. POWELL. It may well be, and that has been a long-run trend. If people can keep up with evolving technology, that lifts all in- comes and lifts their incomes. And if they cannot, they tend to fall behind. Senator REED. Let me change subjects slightly here. Labor force participation. One of the other illustrations from the pandemic was that many, particularly women, were unable to continue in the workforce because of their childcare responsibilities. Have you and the Fed looked at this factor as one of those inhibiting issues for labor force participation, and is it a factor? Mr. POWELL. It is a factor. If you include broadly caretaking, it is a big factor. If you just include children and schools being closed and caretaking at home and that kind of thing, it is still a medium- size factor that is holding back participation. Senator REED. So with reasonable and available daycare, that should contribute to increased labor force participation. 40 Mr. POWELL. I think it is daycare coming back and reopening, being available. It is also schools reopening in the fall, which should help as well. Senator REED. Right. We have all—I think all of us touched one way or the other on inflation issues, and some of these seem to be sort of one-off effects of the pandemic. Lumber went out of sight be- cause people were sitting home and decided to redecorate and ren- ovate. Lumber futures are down now, I believe. So we can see that leveling off hopefully in the future prices. There was a chip short- age which caused new cars to be expensive, which drove up the price of used cars. My sense is your view is that these are transi- tory effects that are somewhat related to the pandemic or other causes, but they do not represent a trend. Is that fair? Mr. POWELL. Yes. We can identify a half-dozen things just like that, and they look very much like temporary factors that will abate over time. What we do not know is are there other things coming along to replace them. We do hear of pressures across the economy. We do not really see price pressures, prices moving up broadly across the economy at this point, but we are watching care- fully for that. Senator REED. And just a final point and echoing something Sen- ator Ossoff said, climate change every day becomes much more pro- nounced and much more obvious to all of us, and the impact on the economy is something that I think is not transitory. It will be with us. Simple things like food when there is no water for irrigation, more complicated things like the displacement of homes because of rising waters or a lack of food—water, rather. And I am pleased to see that you are beginning to focus in on that. My sense is, though, every day there will be another challenge and it will be more—the news will be more upsetting; let me put it that way. I hope that is a fair comment. Thank you, Mr. Chairman. Chairman BROWN [presiding]. Thank you, Senator Reed. Thank you for presiding. Senator Warnock from Georgia is recognized for 5 minutes. Senator WARNOCK. Thank you so much, Chairman Brown. And thank you, Chairman Powell. I am a strong advocate for working families and successfully pushed, along with Senator Brown and Senator Booker, Senator Bennett, and others, expan- sion of the vital child tax credit program in the American Rescue Plan. The expanded child tax credit essentially provides a tax cut for middle-class families, cutting childhood poverty nearly in half nationwide and is generally available to most American families with children, including families with little to no income. Today is a great day because many of them will see that tax cut hit their bank accounts today, and I am happy to see hardworking families across Georgia and across the country see the benefit of this to help with the rising costs of raising our children. In my home State of Georgia alone, more than 1.2 million families will re- ceive these payments, providing much needed relief to over 2 mil- lion children across the State. In previous remarks, Chairman Powell, you stated that, quote, ‘‘The widespread vaccinations, along with unprecedented fiscal pol- icy actions, are providing strong support to the economic recovery.’’ 41 With families now beginning to receive their child tax credit pay- ments today, how does direct financial support to families help sus- tain an ongoing economic recovery? Mr. POWELL. Well, of course, we try not to comment on fiscal pol- icy measures, particularly such as the one you have mentioned. But I will just say generally, in the recovery from the pandemic, that fiscal policy really did step in strongly and support people in their time of need, and I think the record will show that. Senator WARNOCK. Thank you. I have another quick question about a housing bill I am currently working on, which I hope will be a bipartisan bill. One of the other challenges that I have worked hard to address is the widening racial wealth gap in our country, a wealth gap that has been further exacerbated during the pan- demic. In particular, I focused on the persistent disparities that exist in the undervaluation of Black and Brown homeowners within our appraisal market, which, as we all know, is a key contributor to creating generational and middle-class wealth. Most people’s wealth is in their homes. This is directly tied to the value of their homes and, thus, their ability to pass on wealth to their children. I am glad to see the Biden administration, the Fed, and other Federal banking and housing agencies taking action, as well as banks, credit unions, the appraisal industry, and other stake- holders, leaning in collectively together to help solve this long- standing issue. Now it seems to me it is time for Congress to join the effort. Chairman Powell, do you agree that addressing racial disparities within the appraisal market can help our economy and help close the racial wealth gap? Mr. POWELL. Well, I do think that there is no place for racial dis- crimination in our banking sector, in our housing sector, certainly in the appraisal, and there is a big focus now on appraisals, as you point out. And you know, we will use the authorities that we have in supervising institutions, enforcing CRA, to, you know, try to eliminate that kind of discrimination. Senator WARNOCK. Do you think it will help close the racial wealth gap? Mr. POWELL. I think over time. I think a lot of the racial wealth gap is traceable to housing, as you point out. So that should be the outcome. Senator WARNOCK. Thank you. In April, our colleagues on the House Financial Services Committee unanimously passed the Real Estate Valuation Fairness and Improvement Act on a bipartisan voice vote. Not only would this bill be a great step in improving ap- praisal practices and mitigating racial bias, it seems to me it would also help increase and diversify the appraiser pipeline, and in- crease the number of trained appraisers in rural communities. And so I am planning to introduce this legislation, along with Senator Klobuchar and Chairman Brown here in the Senate, and I hope to do so with a few of my colleagues from across the aisle because I believe we can work together in a bipartisan manner to tackle this critical issue that impacts not only these homeowners but impacts the economy as we close the racial gap. We all have a stake in that. One final question on a topic that I am also very interested in. Chairman Powell, as you know, the Community Reinvestment Act 42 addresses how banks must meet the credit and capital needs of the communities they serve. Back in May, I asked your colleague, Mr. Quarles, about the Fed’s intention to issue a joint rule along with the OCC and FDIC, and he expressed that it was the Fed’s objec- tive to work with the OCC and the FDIC to issue a joint CRA rule that protects and strengthens our most vulnerable communities. Could you please provide us with an update on the status of this CRA rulemaking? Mr. POWELL. I would be glad to. We are working through the process of reviewing a really quite extensive group of comments and now engaging with the OCC to go forward and try to sort through that and come out with appropriate changes to what we proposed. I cannot speak exactly to the FDIC. I think they are con- sidering whether to take part in this process. We, of course, would really like to get the three agencies together on a CRA proposal, and I am very optimistic. There is a lot of work to do, but I am very optimistic that the work product will be a very good one. Senator WARNOCK. Thank you so much. Chairman BROWN. Thank you, Senator Warnock. I understand the Chair cannot comment on the immense impor- tance of child tax credit, but I can. And I thank Senator Warnock for bringing it up and thank him for his leadership, even in his first 6 months in the Senate, on an issue that is going to make a huge difference to 39 million families, 52 million children. Ninety- two percent of children in my State will benefit from it. We do not quite have everybody getting checks today or direct deposits today, tomorrow, and Saturday. We encourage people to go to ‘‘taxcredit.gov,’’ the people that have not—that are eligible. And that is, as I said, 92 percent of the children in my State. So, Senator Warnock, thank you for your work on that. Chair Powell, thank you for being a witness today and providing testimony today. For Senators who wish to submit questions for the record, those questions are due 1 week from today, on Thursday, July 22nd. Chair Powell, if you would, you have 45 days to respond to any questions. Thank you again. With that, the hearing is adjourned. [Whereupon, at 11:46 a.m., the hearing was adjourned.] [Prepared statements, responses to written questions, and addi- tional material supplied for the record follow:] 43 PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN Today, our economy is growing because of the American Rescue Plan and the Biden–Harris administration’s leadership. We’re putting shots in arms and money in pockets. Families have a little bit extra to help pay the bills—beginning today, most parents will see a $250 or $300 month- ly payment in their bank accounts for each child. Small businesses are reopening their doors. Workers are safely going back to work—often at higher wages. Last month, we added 850,000 jobs to the economy. Since President Biden took office, we’ve gained three million jobs—more jobs than in the first 5 months of any presidency in modern history. And it’s not only the jobs numbers—it’s also the quality of those jobs. For the first time in decades, workers are starting to gain some power in our econ- omy—power to negotiate higher wages, better working conditions, more control over their schedules, stronger benefits, opportunities for career advancement. The Washington Post reported that, ‘‘In the past three months, rank-and-file em- ployees have seen some of the fastest wage growth since the early 1980s.’’ Think about that—the fastest wage growth since Ronald Reagan said it was ‘‘morning in America.’’ That’s what happens when we invest in our greatest asset: the American people. Instead of hoping money trickles down from large corporations—it NEVER does, and pretty much every senator knows that—we invested directly in our workers, small businesses, and communities. When workers win, our economy wins. When everyone does better, everyone does better. Chair Powell, you’ve said that the Fed can help make the economy work for every- one by ensuring a strong and competitive labor market—one where everyone can get a job, and employers compete for workers. I agree, and those efforts, combined with President Biden’s recent actions to in- crease competitiveness, are increasing worker power in the economy. We must build on this progress, with investment in infrastructure that creates millions of jobs, increases our economic competitiveness, and spurs growth in com- munities of all sizes, all over the country. I’ve been all over Ohio over the past few weeks, talking with local leaders—may- ors of both parties, in big cities and small towns. And I heard the same thing from all of them: they need more investment—in infrastructure, like affordable housing and reliable transit—to build a stronger local economy. These are the places that are too often overlooked or preyed on by large corpora- tions and Wall Street banks. Many of these communities have watched for decades as investment has dried up and storefronts emptied. Companies close down factories and move good-paying, union jobs abroad. Private equity firms and big investors buy up the houses and jack up the rent. Small busi- nesses struggle to compete against big box chains. Big banks buy up smaller ones, only to close branches, leaving check cashers and payday lenders as families’ only options. Think about the opportunity and the growth we could unleash around the coun- try, if we gave these communities the investment to fulfill their potential. Of course, we know what happens whenever the economy starts to grow—the largest corporations and the biggest banks throw all their efforts and their resources into finding ways to direct all of those gains to themselves. Last year, during a global pandemic and deep recession, CEOs paid themselves 299 times more than their average workers—an even bigger gap than before the pandemic. Now imagine the kind of windfall they’ll try to rake in during a boom. We’ve seen it over and over. Consumers spend, driving up revenue for companies—and they spend it on stock buybacks, while complaining about workers demanding higher wages. Big banks rake in cash—and they spend it on executive compensation and divi- dends and buybacks, instead of lending in communities or increasing capital to re- duce risk. The Fed should be fighting this trend, protecting our progress from Wall Street greed and recklessness—not making it worse. Chair Powell, during your tenure, the Fed has rolled back important safeguards, making it easier for the biggest banks to pump up the price of their stock and boost their already enormous power in our economy. 44 Wall Street would have you believe that removing those protections has increased lending and supported the real economy. We’ve been assured that the banks have plenty of capital to withstand a crisis. But during the pandemic, it was community banks and credit unions—not megabanks—that increased lending. The Fed supported the biggest banks, to the tune of hundreds of billions of dollars—and they spent it on themselves, while small businesses trying to get PPP loans couldn’t get their phone calls returned. It’s time to try something different. We need a banking system that works for everyone. We can’t allow the biggest banks to funnel their extra cash into stock buybacks that juice their profits instead of investing in the real economy. We can’t let big banks merge into bigger and bigger megabanks, making it harder for small banks to compete and leaving rural and Black and Brown communities behind. We need to strengthen the Community Reinvestment Act, so that banks serve the communities still scarred by the legacy of Black Codes, Jim Crow, and redlining. And we cannot allow a repeat performance of the years following the last reces- sion. Wall Street destroyed our economy, costing families their jobs and their homes and their savings—and then came roaring back, while families limped along. For the vast majority of Americans who get their money from a paycheck and not a brokerage account, the economy never looked all that great in the years that fol- lowed. Stable prices and moderate long-term interest rates aren’t enough, if every decade a financial crisis hits and strips away what people have worked so hard for. Low unemployment isn’t enough, if the jobs pay rock-bottom wages and workers have no power. GDP growth isn’t enough, if it only benefits those at the top, and not the workers who made it possible. We need to create a different system—one that’s stable for the long-run. One where workers—not Wall Street—reap the benefits of a strong economy. Chair Powell, you are charged with ensuring both financial stability and with overseeing the biggest banks. Both of these jobs are equally important, and both affect workers’ jobs and pay- checks and communities. As public servants, our responsibility is to the people who make this country work. It’s up to us to grow an economy that delivers for them—not just those at the very top. PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY Thank you, Mr. Chairman. The economy has come roaring back from COVID. GDP is above its prepandemic level, and the Fed forecasts GDP will grow by a robust 7 percent this year. The un- employment rate is already at 5.9 percent, which the Fed expects to fall to 4.5 per- cent by the end of the year. To put that in context, the average unemployment rate for the 20 years before the pandemic was 6 percent. With these conditions, the Fed’s rationale for con- tinuing negative real interest rates and $1.4 trillion in annual bond purchases is puzzling. The Fed’s policy is especially troubling because the warning siren for problematic inflation is getting louder. Inflation is here, and it’s more severe than most—includ- ing the Fed itself—expected. For the third month in a row, the Consumer Price Index was higher than expecta- tions. Core CPI, which excludes volatile categories like food and energy, was up 4.5 percent in June—the highest reading in almost 30 years. And to be clear, this is beyond so-called base effects: the 2-year annual change in core CPI was at a 25- year high. With housing prices soaring—in many places to unaffordable levels—I’m led to ask: why on earth is the Fed still buying $40 billion in mortgage-backed bonds each month? Although the Fed assures us that this inflation is transitory, its inflation projec- tions over the last year do not inspire confidence. Last June, the Fed projected that PCE—one standard measure of inflation—would be 1.6 percent for the 12 months ending 2021. Then in December the Fed revised that figure up to 1.8 percent. And now the Fed’s most recent PCE forecast for 2021 year-end is 3.4 percent more than double what the Fed thought inflation would be a year ago. 45 But in coming months, the Fed is almost certain to revise that prediction up- ward—again—because so far this year PCE has risen by 6.1 percent on an annualized basis. For the rest of the year, inflation would need to be nearly zero for the Fed’s latest projection to be proven correct. I’m concerned that the Fed’s current paradigm almost guarantees that it will be behind the curve if inflation becomes problematic and persistent—for three reasons. First, the Fed has been consistently and systematically underestimating inflation over the past year. Second, the Fed has announced it will allow inflation to run above its 2 percent target level—it’s already well above 2 percent. Third, the Fed insists the inflation we’re experiencing now is transitory, despite the fact that recent unprecedented monetary accommodation has certainly caused the inflation we’re witnessing. But since the Fed has proven unable to forecast the level of inflation, why should we be confident that the Fed can forecast the duration of inflation? You can only know that something is, in fact, transitory after it ends. What if it isn’t? By the time the Fed knows that it’s gotten it wrong, if it does get it wrong, we could have a big problem on our hands. As past experience shows us, it’s very dif- ficult to get the inflation genie back in the bottle once she is out. The Fed may have to respond by raising interest rates much more aggressively to rein in significant inflation. Doing so would have severe economic consequences. The Fed’s current monetary approach seems based on the misguided premise that it must prioritize maximum employment over controlling inflation. Employment policies enacted by Congress are inhibiting our ability to get back to maximum em- ployment. But it’s not the Fed’s job to attempt to offset flawed policies at the ex- pense of its price stability mandate. When the Fed subordinates its price stability mandate to try and maximize em- ployment, the Fed runs the risk of failing on both fronts because you need stable prices to achieve a strong economy and maximum employment. This is not a par- tisan argument. Prominent Democrat economists, including President Clinton’s Treasury Secretary Larry Summers and President Obama’s CEA Chair Jason Furman, have expressed their concerns about the risk of rising inflation. I’d like to end by acknowledging the crucial role played by the Fed in our econ- omy. The ability to direct interest rates and control the money supply is extraor- dinarily important. As a result, Congress has given the Fed a great deal of oper- ational independence to isolate it from political interference. However, Congress also gave the Fed narrowly defined monetary mission. I’m troubled by the Fed, especially the regional Fed banks, misusing this independence to wade into politically charged areas like global warming and racial justice. I’d suggest that instead of opining on issues that are clearly beyond the Fed’s mis- sion and expertise, it should focus on an issue that is in its mandate: controlling inflation. If it doesn’t, the Fed will find that its credibility and independence were also ‘‘transitory.’’ PREPARED STATEMENT OF JEROME H. POWELL CHAIRMAN, BOARDOFGOVERNORSOFTHEFEDERALRESERVESYSTEM JULY15, 2021 Chairman Brown, Ranking Member Toomey, and other Members of the Com- mittee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report. At the Federal Reserve, we are strongly committed to achieving the monetary pol- icy 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 com- mitted to doing so in a clear and transparent manner. Today I will review the cur- rent economic situation before turning to monetary policy. Current Economic Situation and Outlook Over the first half of 2021, ongoing vaccinations have led to a reopening of the economy and 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 rate of increase in decades. Household spending is rising at an especially rapid pace, boosted by strong fiscal support, accommodative financial conditions, and the reopening of the economy. Housing demand remains very strong, and over- all business investment is increasing at a solid pace. As described in the Monetary Policy Report, supply constraints have been restraining activity in some industries, 46 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 participa- tion in the labor market has not moved up from the low rates that have prevailed for most of the past year. Job gains should be strong in 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-induced declines in em- ployment last year were largest for workers with lower wages and for African Amer- icans and Hispanics. Despite 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 coming months before moderating. Inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month cal- culation. In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially 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’s (FOMC) monetary policy framework seeks longer-term inflation expectations that are well anchored at 2 percent, the Committee’s longer-run infla- tion 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 re- cent developments in inflation and inflation expectations. Sustainably achieving maximum employment and price stability depends on a sta- ble 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, household balance sheets are, on average, quite strong, busi- ness leverage has been declining from high levels, and the institutions at the core of the financial system remain resilient. Monetary Policy I will now turn to monetary policy. At our June meeting, the FOMC kept the Fed- eral funds rate near zero and maintained the pace of our asset purchases. These measures, along with our strong guidance 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 levels consistent with the Committee’s assessment of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. As the Committee reiterated in our June policy statement, with inflation 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 monetary policy, we will continue to monitor the implica- tions of incoming information for the economic outlook and would be prepared to ad- just the stance of monetary policy as appropriate if we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persist- ently beyond levels consistent with our goal. In addition, we are continuing to increase our holdings of Treasury securities and agency mortgage-backed securities at least at their current pace until substantial further progress has been made toward our maximum-employment and price-sta- bility goals. These purchases have materially eased financial conditions and are pro- viding substantial support to 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 ‘‘substantial further progress’’ is still a ways off, participants expect that progress will continue. We will continue these discussions in coming meetings. 47 As we have said, we will provide advance notice before announcing any decision to make changes to our purchases. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. The re- sumption 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 eco- nomic hardships brought on by the pandemic. We at the Federal Reserve will do everything we can to support the recovery and foster progress toward our statutory goals of maximum employment and stable prices. Thank you. I am happy to take your questions. 48 RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM JEROME H. POWELL Q.1. At the Banking Committee’s July 15, 2021, hearing, you testi- fied that the Treasury markets lost functionality during the worst phases of the market turmoil resulting from the COVID–19 crisis last year. In your view, what are the most immediate concerns with respect to the efficiency and resiliency of the Treasury cash and futures markets? A.1. Treasury markets are currently functioning in the efficient manner that we expect and that the stability of the financial sys- tem requires. Given the importance of Treasury markets, the Fed- eral Reserve Board (Board) is actively working with the other agen- cies in the Inter-Agency Working Group on Treasury Market Sur- veillance (IAWG) to ensure that these markets remain resilient.1 The IAWG has publicly set out several areas of work on Treasury market resilience, focusing on five specific areas:2 1. Improving data quality and availability. 2. Improving resilience of market intermediation. 3. Evaluating expanded central clearing. 4. Enhancing trading venue transparency and oversight. 5. Examining effects of leverage and fund liquidity risk manage- ment practices. The related work streams are still at a preliminary stage. The Federal Reserve is committed to working with other agencies and with market participants to ensure a resilient market for U.S. Treasury securities. Q.2. What are the Federal Reserve’s intentions with addressing those concerns? A.2. In addition to its work with the IAWG, the Federal Reserve is actively examining steps that we can take to improve Treasury market resilience. As you are aware, the Federal Open Market Committee (FOMC) recently established both a domestic standing repo facility and a standing repurchase agreement facility for foreign and inter- national monetary authorities (the FIMA Repo Facility). We believe these facilities can help address pressures in money markets that could impede effective implementation of monetary policy. By act- ing as a backstop, these facilities can also reduce stresses in U.S. Treasury securities and Treasury repo markets and help promote Treasury market resilience while helping prevent these stresses from spilling over more broadly to other U.S. financial markets. The Federal Reserve also continues to consider ways to adapt the supplementary leverage ratio to the current higher-reserves envi- ronment. The Board has long preferred for leverage requirements to be a backstop to risk-based capital requirements. When leverage requirements instead are a firm’s most stringent capital require- 1Members of the IAWG include the Board of Governors, the Commodity Futures Trading Commission, the Federal Reserve Bank of New York, the Securities and Exchange Commission, and the U.S. Department of the Treasury. 2See, https://home.treasury.gov/news/press-releases/jy0116#3. 49 ment, it may create incentives for the firm to substitute out of low- risk assets and toward higher-risk assets and could also disincentivize intermediation in Treasury markets. The Federal Reserve is also working to finalize a rule that would require certain banks to report their Treasury and agency debt and mortgage-backed securities transactions to the Financial Industry Regulatory Authority’s Trade Reporting and Compliance Engine to help increase resilience of Treasury markets. Q.3. Are there reforms or actions that other Federal financial regu- lators with oversight responsibilities for the Treasury cash and fu- tures markets should be pursuing? A.3. Several of the workstreams proposed by the IAWG will largely involve other agencies. The Securities and Exchange Commission (SEC) has primary oversight of many Treasury market trading venues and has already proposed and received comment on poten- tial rule changes that would subject certain trading platforms that are dedicated to trading in Treasury or agency debt to more strin- gent reporting and disclosure requirements. The IAWG is also con- sidering whether expanded central clearing of Treasury cash and repo transactions would promote greater resilience. The SEC will play a key role in this workstream as well given its role as the pri- mary regulator of the Fixed Income Clearing Corporation—the en- tity that centrally clears both Treasury cash and repo transactions. Q.4. SEC Chairman Gary Gensler has stated that his agency is ex- amining whether the settlement cycle for equities securities should be faster than the current T+2 standard. Reducing the settlement time would decrease risks associated with the settlement process and reduce the amounts needed to be posted as collateral. Do you support efforts to reduce the settlement cycle timeframe for equities? A.4. The Federal Reserve recognizes the critical role that pay- ments, clearing, and settlement activities play in the functioning of the financial system, and we support efforts that promote the safe- ty and efficiency of core infrastructure supporting these markets, including equities. We will continue to monitor developments by market participants and the Depository Trust and Clearing Cor- poration (DTCC) as this effort moves forward. Q.5. Will there need to be any changes to coordinate with the pay- ments settlement cycle overseen by the Federal Reserve? A.5. At this time, we are not aware of any necessary changes with the payments systems overseen by the Federal Reserve needed to facilitate a move from a T+2 to a T+1 settlement cycle for equities. Q.6. During the Banking Committee’s July 15, 2021, hearing, you distinguished climate scenario analysis (i.e., an exercise not tied to capital requirements) from traditional stress testing, which the Federal Reserve uses to set minimum capital requirements for large banks. While I was glad to hear you do not intend to change capital requirements based on climate-related risks, I remain con- cerned that you believe climate scenario analysis is ‘‘a direction we’ll go in.’’ Too often, proposals to assess climate-related risks are based on highly uncertain climate models. In July 2021, the Finan- cial Stability Board acknowledged this uncertainty, stating in a re- 50 port that ‘‘financial institutions’ exposures to climate-related risks are generally subject to greater uncertainty than those relating to other financial risks.’’ This report underscores the fact that finan- cial regulators have neither the experience nor expertise to develop accurate climate scenarios. Given these limitations, what benefits do you believe would be generated by climate scenario analysis conducted by the Federal Reserve that could not be produced by similar exercises conducted by private institutions? A.6. Congress has assigned the Federal Reserve narrow but impor- tant mandates around monetary policy, financial stability, and su- pervision of financial firms. Consistent with our statutory man- dates, the Federal Reserve expects supervised firms to manage all material risks, including those relating to climate change. We are taking a transparent, data-driven approach in assessing the poten- tial for these risks to impact the macroeconomy, financial institu- tions, and the financial system more broadly, and observing how supervised firms are identifying, assessing, and monitoring these risks. Climate scenario analysis is one of many tools that certain large banks and certain international supervisory authorities are devel- oping to better understand the resiliency of banks to a range of po- tential climate-related risks. As I stated at the hearing in July, cli- mate scenario analysis is distinct from existing regulatory stress tests for banks. Regulatory stress tests are used to assess capital adequacy under specific shocks in the short term and have specific consequences for capital and supervisory ratings. By contrast, cli- mate-related scenarios analysis is typically longer-term and explor- atory in nature and used to understand and evaluate the potential impact of climate change on a bank’s risk profile and strategy across a range of plausible scenarios. Just as it is proving useful for large financial institutions and other central banks, climate scenario analysis could be useful in re- lation to our supervisory mandate and our focus on financial sta- bility by informing our own understanding of the potential eco- nomic and financial impact of different Government policies and technological innovation related to climate change. There are, how- ever, many challenges to this work. For example, the links between emissions, temperature rise, and economic impact are all uncertain and difficult to model, especially over a long-time horizon. We are building our understanding in this area by engaging with financial institutions, academics, and other central banks and insti- tutions. Q.7. During the first round of quantitative easing (QE) in the wake of the 2008 recession, Federal Reserve Chairman Ben Bernanke made it clear that QE was not monetizing the debt. He said ‘‘Mone- tizing the debt means using money creation as a permanent source of financing for Government spending. In contrast, we are acquir- ing Treasury securities on the open market and only on a tem- porary basis, with the goal of supporting the economic recovery through lower interest rates. At the appropriate time, the Federal Reserve will gradually sell these securities or let them mature, as needed, to return its balance sheet to a more normal size.’’ How- 51 ever, as we know, the Federal Reserve did not return its balance sheet to its precrisis trend. Is the current period of QE somehow different or is it fair to characterize the current use of QE as having been used to monetize the debt? A.7. Our asset purchases are neither intended nor designed to monetize the Federal Government debt. They have been and will continue to be determined by the needs to foster smooth market functioning and accommodative financial conditions, in order to promote our dual-mandate objectives. In early to mid-March 2020, amid extreme volatility across the financial system, the functioning of Treasury and agency mortgage-backed securities (MBS) markets became severely impaired. The Federal Open Market Committee (FOMC) recognized that continued dysfunction in these markets would have led to an even deeper and broader seizing up of credit markets and ultimately worsened the financial hardships that many Americans were experiencing as a result of the pandemic. The FOMC responded quickly and decisively with substantial pur- chases of Treasury securities and agency MBS. These purchases helped market conditions to improve significantly over the spring of last year and, with these improvements, the Federal Reserve slowed its pace of purchases. Then, to help foster continued smooth market functioning and accommodative financial conditions, there- by supporting the flow of credit to households and businesses as the economy recovered from the pandemic shock, the FOMC contin- ued securities purchases over the past several quarters. After the FOMC’s most recent meeting, I said that the Committee reviewed some considerations around how our asset purchases might be ad- justed, including their pace and composition, once economic condi- tions warrant a change. In coming meetings, the Committee will again assess the economy’s progress toward our goals, and the tim- ing of any change in the pace of our asset purchases will depend on the incoming data. As we’ve said, we will provide advance notice before making any changes to our purchases. Q.8. Many have raised concerns that the Federal Reserve’s pur- chases of Treasury bonds and mortgage-backed securities have con- tributed to increased inflation, especially in the housing market, while others argue that it has boosted affordability through lower mortgage rates. In your view, which effect is stronger? A.8. Our purchases of Treasury securities and agency mortgage- backed securities have led to a material decrease in mortgage rates, reducing the cost of borrowing to purchase a home. The re- sulting increase in housing demand has contributed to strong house price growth over the past year-and-a-half. Shortages of labor and materials have constrained the housing supply in many parts of the United States. Although the decline in rates in 2020 was a sig- nificant factor boosting home sales and residential investment last year, the impact would have been greater absent these supply con- straints. Housing activity has remained elevated in 2021 relative to prepandemic levels. House prices do not affect inflation directly because they are not used in calculating commonly used price indexes such as the Con- sumer Price Index or the price index for Personal Consumption Ex- 52 penditures. That said, strong housing demand may have boosted inflation through other channels. RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM JEROME H. POWELL Q.1. What research initiatives are underway at the Federal Re- serve to consider the impact of the expansion of the Earned Income Tax Credit and the Child Tax Credit on families, local commu- nities, and the national economy? A.1. Decisions on the appropriate size and structure of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are the re- sponsibility of Congress and the Administration. Federal Reserve system staff in recent years have researched various ways in which the EITC and CTC can affect families, local communities, and the national economy. Publications focused on these topics can be found on the Board’s public website and websites of the Reserve Banks, and a sample of recent writings is provided below: Aladangady, Aditya, Shifrah Aron-Dine, David Cashin, Wendy Dunn, Laura Feiveson, Paul Lengermann, Katherine Richard, and Claudia Sahm (2018). ‘‘High-Frequency Spending Responses to the Earned Income Tax Credit’’, FEDS Notes, June 21. Board of Governors of the Federal Reserve System. Anderson, Nathan (2021). ‘‘Advance Child Tax Credit Payments: Increasing Support for Families With Children’’, Community De- velopment and Policy Studies Blog, July 14. Federal Reserve Bank of Chicago. Isaacson, Maggie, and Hannah Rubinton (2021). ‘‘Childhood Income Volatility’’, Economic Synopses, iss. 8. Federal Reserve Bank of St. Louis. McGranahan, Leslie (2016). ‘‘Tax Credits and the Debt Position of U.S. Households’’, Working Paper Series, WP-2016-12. Federal Reserve Bank of Chicago. Neumark, David, and Peter Shirley (2020). ‘‘Long-Run Effects of the Earned Income Tax Credit’’, Federal Reserve Bank of San Francisco Economic Letter, vol. 2020, iss. 1. Q.2. What research initiatives are underway regarding the hospi- tality sector during and after the pandemic? A.2. The leisure and hospitality sector was hard-hit by the pan- demic, as activity in this industry was particularly affected by the spread of COVID–19. Specifically, employment in this sector dropped by more than 8 million jobs in the early stages of the pan- demic. Moreover, despite seeing notable gains since then, employ- ment in the leisure and hospitality sector in July 2021 remained 1.7 million jobs below its prepandemic level and accounted for more than one-third of the overall difference in private employment rel- ative to its February 2020 level. In light of the important role that this industry has played in driving swings in overall employment during the pandemic, the Federal Reserve staff’s regular monitoring and analysis of labor 53 market conditions has paid particularly close attention to develop- ments in this sector. Some of this analysis was presented in the February 2021 Mone- tary Policy Report.1 In addition, a number of research efforts across the Federal Reserve System have focused on various aspects of the leisure and hospitality sector. A sample of recent writings is listed below: Sly, Nicholas, and Bethany Greene (2021), ‘‘Recovery in Rocky Mountain Leisure and Hospitality Employment’’, Federal Reserve Bank of Kansas City. Knotek II, Edward S., Michael McMain, Raphael Schoenle, Alex- ander Dietrich, Kristian Ove R. Myrseth, and Michael Weber (2021), ‘‘Expected Post-Pandemic Consumption and Scarred Ex- pectations From COVID–19’’, Federal Reserve Bank of Cleveland. Garcia Luna, Erick (2021), ‘‘Hospitality and Janitorial Workers in the Twin Cities Have Faced Disproportionate Challenges During COVID–19’’, Federal Reserve Bank of Minneapolis. Q.3. What research initiatives are underway regarding job qual- ity—jobs with living wages, good benefits, stable hours and flexi- bility—during and after the pandemic? A.3. There are several research initiatives within the Federal Re- serve System that touch on various aspects of job quality. One par- ticularly relevant example is the initiative ‘‘Increasing the Quality of Jobs’’ that was led by the Federal Reserve Bank of Boston. The initiative involves both research and outreach activities aimed at promoting improvements in job quality.2 As part of its research ac- tivities, the initiative convened a Job Quality Research Consortium that was composed of scholars working on this topic, with the goal of sharing ongoing analysis and identifying areas for further study. Some of the analysis the initiative has generated (listed below for reference) include, respectively, a study on the potential for more- equitable paid sick leave, a study on the downstream benefits of higher incomes and wages, and a study on access to health care among essential frontline workers in the early stages of the pan- demic. Chaganti, Sara (2021), ‘‘Pandemic Response Reveals Potential for More Equitable Paid Sick Leave Coverage in the Northeast’’, Community Development Issue Briefs 21-2, Federal Reserve Bank of Boston. Godoy, Anna, and Ken Jacobs (2021), ‘‘The Downstream Benefits of Higher Incomes and Wages’’, Community Development Discus- sion Papers 21-1. Chaganti, Sara, Amy Higgins, and Marybeth J. Mattingly (2020), ‘‘Health Insurance and Essential Service Workers in New Eng- land: Who Lacks Access To Care for COVID–19?’’ Community Development Issue Briefs 20-3, Federal Reserve Bank of Boston. 1See the boxes ‘‘Monitoring Economic Activity With Nontraditional High-Frequency Indica- tors’’ and ‘‘Disparities in Job Loss During the Pandemic’’ in the February 2021 Monetary Policy Report, available at https://www.federalreserve.gov/monetarypolicy/2021-02-mpr-summary.htm. 2See, https://www.bostonfed.org/community-development/expanding-employment-opportuni- ties/increasing-the-quality-of-jobs.aspx. 54 Q.4. The Federal Reserve’s Monetary Policy Report does not men- tion poverty. What research has the various Federal Reserve Banks published on the impact of fiscal policy in response to the COVID– 19 pandemic—the American Rescue Plan, CARES, the appropria- tions bill, etc.—have on poverty rates for American families? A.4. The Federal Reserve has devoted considerable effort to under- standing how the recession caused by the COVID–19 pandemic has affected low-income U.S. households. For instance, the June 2020 Monetary Policy Report contains analysis documenting the dis- proportionately large employment losses suffered by low-wage workers during the pandemic.3 Another example is the Federal Re- serve’s Survey of Household Economics and Decisionmaking (SHED). The results of a supplemental version of the SHED, field- ed in April of 2020, reveal significantly greater job loss among households with incomes of less than $40,000 as compared to all households.4 The 2020 annual edition of the survey reveals that adults with less than a high school degree fell further behind those with higher levels of education in terms of financial well-being; the 2020 SHED also shows that the financial hardship caused by the pandemic appears to have been importantly counterbalanced by fi- nancial relief and stimulus measures, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).5 Unfortunately, both data and research tend to lag events on the ground and the official U.S. poverty statistics are currently only available through 2019—a fact which limits the amount of research currently available on U.S. poverty since the onset of COVID–19. Below is a selected list of research publications by Federal Re- serve System staff on fiscal policy and low income/poverty in the COVID era: Dettling, Lisa J., and Lauren Lambie-Hanson (2021). ‘‘Why Is the Default Rate So Low? How Economic Conditions and Public Poli- cies Have Shaped Mortgage and Auto Delinquencies During the COVID–19 Pandemic’’, FEDS Notes, March 4. Board of Gov- ernors of the Federal Reserve System. Falcettoni, Elena, and Vegard Nygaard (2021). ‘‘Acts of Congress and COVID–19: A Literature Review on the Impact of Increased Unemployment Insurance Benefits and Stimulus Checks’’, FEDS Notes, February 24. Board of Governors of the Federal Reserve System. Larrimore, Jeff, Jacob Mortenson, and David Splinter (2021). ‘‘Earnings Shocks and Stabilization During COVID–19’’, Finance and Economics Discussion Series 2021-052. Board of Governors of the Federal Reserve System. Lee, Donghoon, Rajashri Chakrabarti, Andrew F. Haughwout, Joelle Scally, William Nober, and Wilbert Van der Klaauw (2020). ‘‘Debt Relief and the CARES Act: Which Borrowers Ben- efit the Most?’’ Liberty Street Economics, August. Federal Re- serve Bank of New York. 3See the box titled ‘‘Disparities in Job Loss During the Pandemic’’ in Monetary Policy Report, Federal Reserve Board, June 12, 2020. 4See, ‘‘Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supple- mental Data From April 2020’’, Federal Reserve Board, May 2020. 5See, ‘‘Economic Well-Being of U.S. Households in 2020’’, Federal Reserve Board, May 2021. 55 Mattiuzzi, Elizabeth, and Eileen Hodge (2020). ‘‘COVID–19 Im- pacts on Housing Stability in the Twelfth Federal Reserve Dis- trict’’, Community Development Research Brief, vol. 2020, iss. 06. Federal Reserve Bank of San Francisco. Rajan, Aastha, and Ezra Karger (2020). ‘‘Heterogeneity in the Mar- ginal Propensity to Consume: Evidence From COVID–19 Stim- ulus Payments’’, Working Paper Series, WP-2020-15. Federal Re- serve Bank of Chicago. Tran, Thao, and Ying Lei Toh (2020). ‘‘Pandemic Relief Has Aided Low-Income Individuals: Evidence From Alternative Financial Services’’, Economic Bulletin, December. Federal Reserve Bank of Kansas City. Q.5. Some analysts anticipate economic growth as high as 7 per- cent. If we experience an economic boom, which reports has the Federal Reserve published—or currently writing—which provides some options of approaches that could give us a unique chance to experience robust economic growth that benefits all workers, fami- lies, and the environment? A.5. Our new monetary policy framework is designed to promote the achievement of price stability and maximum employment, the dual mandate assigned to us by Congress. In particular, the Fed- eral Open Market Committee (FOMC) has a broad-based and inclu- sive goal for maximum employment that focuses on minimizing shortfalls of employment from its maximum level and reflects our belief that a robust labor market can be sustained without causing an outbreak of inflation.6 As we observed in the latter stages of the 2009 to 2019 expansion, pushing the economy toward maximum employment allows all workers and families, especially the eco- nomically disadvantaged, to benefit from economic growth. Mate- rials describing the review of monetary policy strategy that led to our current framework can be found on our website.7 The Federal Reserve publishes a number of reports assessing the economic well-being of Americans that can be informative for pol- icymakers designing economic policies to benefit all workers and families. The Survey of Household and Economic Decisionmaking, for example, asks individuals about important economic events and decisions in their lives. It is the source of the often-cited statistic on the share of households that would not be able to use liquid sav- ings to cover an unexpected $400 expense. The SCF provides high- quality data on household wealth, income, and consumption and is the source of much of the recent research on increases in inequality in wealth and income in the United States. In addition, we have combined data from the SCF with our Financial Accounts data to produce the Distributional Financial Accounts (DFAs), which pro- vide quarterly updates on the wealth of low-, middle-, and high-in- come households. The DFAs also report quarterly data on house- hold wealth by age, education, and race. 6See the FOMC’s Statement on Longer-Run Goals and Monetary Policy Strategy for a de- scription of the Federal Reserve’s monetary policy framework. 7See, ‘‘Review of Monetary Policy Strategy, Tools, and Communication’’. 56 Q.6. Please provide any research from the Federal Reserve Banks regarding best practicesin helping homeowners recover from delin- quency and avoid foreclosure? A.6. Over the years, the Federal Reserve System has dedicated sig- nificant research efforts regarding mortgage delinquency and fore- closure, including best practices to support homeowners in recov- ering from delinquency and avoiding foreclosure. Many of the stud- ies analyze the impacts on homeowners and implications of policies and practices designed to support mortgage borrowers who are struggling to make payments. Research related to these issues is publicly available on the Board’s and the Reserve Bank’s websites. Please see below, a sam- ple of recent research published by economists and researchers at the Board and Reserve Banks: An, Xudong, and Lawrence R. Cordell (2019). ‘‘Mortgage Loss Severities: What Keeps Them so High?’’ Working Papers 19-19. Federal Reserve Bank of Philadelphia. Calem, Paul S., Lauren Lambie-Hanson, Leonard I. Nakamura, and Jeanna Kenney (2018). ‘‘Appraising Home Purchase Apprais- als’’, Working Papers 18-28. Federal Reserve Bank of Philadel- phia. Garriga, Carlos, and Aaron Hedlund (2019). ‘‘Crises in the Housing Market: Causes, Consequences, and Policy Lessons’’, Working Pa- pers 2019-33. Federal Reserve Bank of St. Louis. Lazaryan, Nika, and Urvi Neelakantan (2016). ‘‘Monetary Incen- tives and Mortgage Renegotiation Outcomes’’, Economic Quar- terly, vol. 102, no. 2, pp. 147–168. Federal Reserve Bank of Rich- mond. Q.7. The Monetary Policy Report mentions retirements from baby boomers as a reason for a lower workforce participation rate. An employment-to-population ratio that adjusts foraging could capture those that are undercounted by the unemployment rate. Would the Federal Reserve consider incorporating an age measure into their quarterly projections and public assessments of maximum employ- ment? A.7. When the FOMC revised its Statement of Longer-Run Goals and Monetary Policy Strategy (consensus statement) in August 2020, we unanimously agreed that our statutory goal of ‘‘maximum employment’’ is ‘‘a broad-based and inclusive goal that is not di- rectly measurable and changes over time owing largely to non- monetary factors that affect the structure and dynamics of the labor market.’’ The role of the retirements of baby boomers in con- tributing to the reduction in the labor force participation rate is one example of such a nonmonetary factor. It is, however, just one example. In the pursuit of maximum employment as a broad-based and in- clusive goal, we routinely consult research, analyses, and com- mentary on a wide range of indicators about different aspects of the labor market. In judging the performance of the labor market relative to our goal of maximum employment, the lengthy list of variables the FOMC might assess includes measures of unemploy- ment, labor force participation, wages, and other variables both at 57 the aggregate level and across different demographic groups.8 Be- cause the list is long, and because the variables that deserve the most weight can change over time, adding prominence to one par- ticular variable could hinder the FOMC’s communications, and in- directly, its policy deliberations. Moreover, while the Summary of Economic Projections (SEP) is helpful for conveying information to the public regarding individual FOMC participants’ views of the economic outlook, participants can differ on the importance they at- tach to various labor market indicators. RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM JEROME H. POWELL Q.1. How is the current rise in coronavirus cases, primarily driven by the delta variant, factoring into the Fed’s outlook for economic growth? What, if any, epidemiological modeling is the Fed using to inform that outlook, if applicable? A.1. Throughout the pandemic, my colleagues and I at the Federal Reserve have said that the economic outlook importantly depends on the course of the virus; that remains the case. In addition, we have observed that the economic implications of successive waves of COVID–19 infections have tended to diminish. At least two fac- tors may be at play here. First, vaccinations appear to reduce its severity among the vaccinated, leading to increased comfort with resuming normal activities. Second, we are learning how to better cope with the virus in our everyday life. For example, many people have adjusted their behaviors to reduce the risk of infection, and many businesses have found new ways of operating. Even so, it is plausible that the spread of the delta variant could be having an adverse effect on economic activity (or that other variants could do so in the future). The spread of the delta variant and the associated increase in case counts may be leading some people to pull back from travel or dining out because of the risk of infection, and it may be leading some people to delay their re- turn to the labor force, particularly if schools alter their plans for reopening in the coming weeks. To inform our thinking about the economic outlook, we continue to closely monitor data on COVID–19 cases, hospitalizations, and deaths in the U.S. and abroad, as well as a variety of high-fre- quency economic indicators. We pay considerable attention to what epidemiologists are saying about the transmissibility and the sever- ity of the COVID–19 variants, the efficacy of vaccines in the face of those variants, and the pace of vaccinations. We also monitor the responses of public health authorities, as the actions they take may have economic consequences. Although a significant share of the population has been vac- cinated, further progress on this front is key, as the economy is un- likely to fully recover until most people are confident that it is safe to resume activities involving groups of people. 8See, https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20210728.pdf. 58 RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES FROM JEROME H. POWELL Q.1. Many have raised concerns that the Federal Reserve’s pur- chases of Treasury Bonds and Mortgage Backed Securities have fed inflation, especially in the housing market. Other argue that those actions have boosted affordability. Can you say which effect is stronger? The limited supply of housing is a national issue and is also feed- ing inflation. Would the Fed’s efforts to ease rates have a more ro- bust effect if supply was in balance? A.1. Our purchases of Treasury securities and agency mortgage- backed securities have led to a material decrease in mortgage rates, reducing the cost of borrowing to purchase a home. The re- sulting increase in housing demand has contributed to strong house price growth over the past year-and-a-half. Shortages of labor and materials have constrained the housing supply in many parts of the United States. Although the decline in rates in 2020 was a sig- nificant factor boosting home sales and residential investment last year, the impact would have been greater absent these supply con- straints. Housing activity has remained elevated in 2021 relative to prepandemic levels. House prices do not affect inflation directly because they are not used in calculating commonly used price indexes such as the Con- sumer Price Index or the price index for Personal Consumption Ex- penditures. That said, strong housing demand may have boosted inflation through other channels. Q.2. Given positive changes to bank balance sheets throughout the pandemic-induced downturn, and their strong state today, how do you think the leverage ratio and other regulatory requirements based on balance sheet size and growth should be adjusted? A.2. The Federal Reserve Board (Board) has long maintained that leverage capital requirements are most effective as a backstop to risk-based capital requirements. Where a leverage requirement serves as a firm’s binding capital requirement, it can skew incen- tives for the firm to substitute low-risk assets for high-risk ones. Prior to the onset of COVID–19, the levels of capital and of over- all loss absorbency in the banking system were generally appro- priate. Strengthened by a decade of improvements in capital, li- quidity, and risk management, banks have continued to be a source of strength during the pandemic. We continuously evaluate the re- siliency of banks and monitor financial and economic conditions to help determine the effectiveness of the regulatory framework. As we continue to engage in these efforts, we will consider changes in balance sheet size and growth while aiming to maintain the overall strength of bank capital requirements. Q.3. What potential threats do you see to America and to the world from China’s development of a Digital Yuan? Will this topic be ad- dressed in the Fed’s upcoming research report on digital cur- rencies? A.3. Every country approaches decisions about whether and when to issue a central bank digital currency (CBDC) based on dynamics unique to its own context. For example, many of the motivations 59 cited by other jurisdictions, such as rapidly declining cash use, weak financial institutions, and underdeveloped payment systems, are not shared by the United States. The global appeal of the dollar is rooted in the United States’ transparent and accountable institutions, reliable rule of law, deep financial markets, flexible exchange rate, and open capital account. New technological designs of other currencies will not alter the im- portance of nor change these features, especially in the near term. That said, given the dollar’s important role globally, we recognize that it is essential that the United States remain on the frontier of research and policy development regarding CBDC. We continue to closely monitor many central banks’ progress on CBDC, includ- ing that of China. Our forthcoming discussion paper will cover a broad range of issues related to digital payments and CBDC and will invite public comment. We are committed to hearing a wide range of voices to inform any decision on whether or how to move forward with a U.S. CBDC, taking account of the broader risks and opportunities. Irrespective of the conclusion we ultimately reach, we expect to play a leading role in developing international standards for CBDCs, engaging actively with central banks in other jurisdictions as well as regulators and supervisors here in the United States throughout that process. Q.4. You mentioned during the hearing that cyberthreats to the fi- nancial system are among your biggest worries. Could you provide an overview of what recent actions the Federal Reserve has taken, and what the Fed is currently doing, to ward off future cyberattacks? A.4. The Board views the security of the financial system as a high priority and recognizes the risks posed by malicious cyberactors to the Federal Reserve, other financial institutions and the broader fi- nancial system. The Board actively engages on cybersecurity issues with key stakeholders including the Federal banking agencies, other Govern- ment agencies, and industry. We routinely monitor cybersecurity threats and ensure appropriate responses to incidents that could affect the operations of the Federal Reserve or supervised institu- tions. The Board is also an active participant and leader in inter- national groups addressing the cyber resiliency of the global finan- cial system, including the Financial Stability Board, the Basel Committee on Banking Supervision, the Committee on Payment and Market Infrastructures (and its joint efforts with the Inter- national Organization of Securities Commissions), the Inter- national Association of Insurance Supervisors, and the Group of Seven. The Board closely coordinates with other international agencies, governance bodies, financial regulators, and industry, to share information and best practices. Additionally, the Board regulates and supervises certain finan- cial institutions to ensure that they operate in a safe and sound manner and comply with all applicable laws and regulations. We continue to emphasize that financial institutions should monitor and mitigate cyberthreats and remain vigilant and resilient. 60 Recent examples of supervisory policies include: • In October 2020, the Board together with other Federal bank- ing agencies, published a paper outlining sound practices to as- sist the largest and most complex financial institutions with the development of comprehensive approaches to operational resilience, including resilience to cyberthreats. The paper leverages existing regulations and provides information on how to detect, defend against, and respond to common cyberthreats, such as data destruction, theft, malware, and denial of service. The guidance is aligned with common industry standards such as the National Institute of Standards and Technology Cyber- security Framework and best practices managing cyberrisk. • In January 2021, the Federal banking agencies proposed com- puter-security incident notification requirements for banking organizations and their bank service providers. In general, the proposed rule would require a banking organization or bank service provider to provide notice of an incident that could ma- terially disrupt, degrade, or impair its business operations or services. The timely notification of incidents would enhance Federal banking agencies’ abilities to assess and quickly re- spond to potential risks such incidents may pose to the super- vised entity and the banking system as a whole. • The Board contributed significantly to the effort to update the Federal Financial Institution Examination Council (FFIEC) Architecture, Infrastructure, and Operations (AIO) booklet of the IT Handbook which was published on June 30, 2021. The booklet is designed to assist examiners from each of the FFIEC member agencies when assessing the risk profile and adequacy of an entity’s information technology architecture, infrastruc- ture, and operations. 61 ADDITIONALMATERIALSUPPLIEDFORTHERECORD 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130

Jerome H. Powell (2021, July 14). Congressional Testimony. Testimony, Federal Reserve. https://whenthefedspeaks.com/doc/testimony_20210715_chair_the_semiannual_monetary_policy_report

@misc{wtfs_testimony_20210715_chair_the_semiannual_monetary_policy_report,
  author = {Jerome H. Powell},
  title = {Congressional Testimony},
  year = {2021},
  month = {Jul},
  howpublished = {Testimony, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/testimony_20210715_chair_the_semiannual_monetary_policy_report},
  note = {Retrieved via When the Fed Speaks corpus}
}