Congressional Testimony

THE FEDERAL RESERVE’S SEMI-ANNUAL MONETARY POLICY REPORT HEARING BEFORETHE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTEENTH CONGRESS FIRST SESSION MARCH 8, 2023 Printed for the use of the Committee on Financial Services Serial No. 118–5 ( U.S. GOVERNMENT PUBLISHING OFFICE 52–361 PDF WASHINGTON : 2023 HOUSE COMMITTEE ON FINANCIAL SERVICES PATRICK MCHENRY, North Carolina, Chairman FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking PETE SESSIONS, Texas Member BILL POSEY, Florida NYDIA M. VELA´ZQUEZ, New York BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York ANN WAGNER, Missouri DAVID SCOTT, Georgia ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts ROGER WILLIAMS, Texas AL GREEN, Texas FRENCH HILL, Arkansas EMANUEL CLEAVER, Missouri TOM EMMER, Minnesota JIM A. HIMES, Connecticut BARRY LOUDERMILK, Georgia BILL FOSTER, Illinois ALEXANDER X. MOONEY, West Virginia JOYCE BEATTY, Ohio WARREN DAVIDSON, Ohio JUAN VARGAS, California JOHN ROSE, Tennessee JOSH GOTTHEIMER, New Jersey BRYAN STEIL, Wisconsin VICENTE GONZALEZ, Texas WILLIAM TIMMONS, South Carolina SEAN CASTEN, Illinois RALPH NORMAN, South Carolina AYANNA PRESSLEY, Massachusetts DAN MEUSER, Pennsylvania STEVEN HORSFORD, Nevada SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan ANDREW GARBARINO, New York RITCHIE TORRES, New York YOUNG KIM, California SYLVIA GARCIA, Texas BYRON DONALDS, Florida NIKEMA WILLIAMS, Georgia MIKE FLOOD, Nebraska WILEY NICKEL, North Carolina MIKE LAWLER, New York BRITTANY PETTERSEN, Colorado ZACH NUNN, Iowa MONICA DE LA CRUZ, Texas ERIN HOUCHIN, Indiana ANDY OGLES, Tennessee MATT HOFFMANN, Staff Director (II) C O N T E N T S Page Hearing held on: March 8, 2023 ................................................................................................... 1 Appendix: March 8, 2023 ................................................................................................... 57 WITNESSES WEDNESDAY, MARCH 8, 2023 Powell, Hon. Jerome H., Chair, Board of Governors of the Federal Reserve System ................................................................................................................... 4 APPENDIX Prepared statements: Powell, Hon. Jerome H. .................................................................................... 58 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD McHenry, Hon. Patrick: Letter to Vice Chair Barr, Chairman Gruenberg, Chairman Harper, and Mr. Hsu re: Prudential Impact of SEC Staff Accounting Bulletin (SAB) 121, dated March 2, 2023 ............................................................................. 63 Letter to Treasury Secretary Janet Yellen, dated February 28, 2023 ......... 66 Huizenga, Hon. Bill: Federal Reserve legal opinion letter re: BlackRock, Inc., dated December 3, 2020 ............................................................................................................ 68 Federal Reserve legal opinion letter re: Vanguard Group, Inc., dated November 26, 2019 ....................................................................................... 76 Pressley, Hon. Ayanna: Federal Reserve Bank of Cleveland Working Paper Series, ‘‘Post-COVID Inflation Dynamics: Higher for Longer,’’ by Randal J. Verbrugge and Saeed Zaman, dated January 2023 ............................................................. 85 Waters, Hon. Maxine: Written statement of Accountable.US ............................................................ 122 Powell, Hon. Jerome H.: Monetary Policy Report of the Board of Governors of the Federal Reserve System, dated March 3, 2023 ....................................................................... 128 Written responses to questions for the record from Chairman McHenry .... 199 Written responses to questions for the record from Representative Barr ... 201 Written responses to questions for the record from Representative Fitz- gerald ............................................................................................................. 226 Written responses to questions for the record from Representative Flood .. 228 Written responses to questions for the record from Representative Loudermilk .................................................................................................... 230 Written responses to questions for the record from Representative Lucas . 234 Written responses to questions for the record from Representative Meeks 236 Written responses to questions for the record from Representative Nickel 239 Written responses to questions for the record from Representative Nunn . 242 Written responses to questions for the record from Representative Ses- sions ............................................................................................................... 251 Written responses to questions for the record from Representative Timmons ........................................................................................................ 254 (III) THE FEDERAL RESERVE’S SEMI-ANNUAL MONETARY POLICY REPORT Wednesday, March 8, 2023 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10:03 a.m., in room 2128, Rayburn House Office Building, Hon. Patrick McHenry [chairman of the committee] presiding. Members present: Representatives McHenry, Lucas, Sessions, Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Hill, Emmer, Loudermilk, Mooney, Davidson, Rose, Steil, Timmons, Norman, Meuser, Fitzgerald, Garbarino, Kim, Donalds, Flood, Lawler, Nunn, De La Cruz, Houchin, Ogles; Waters, Sherman, Scott, Lynch, Green, Himes, Foster, Beatty, Vargas, Gottheimer, Gonzalez, Casten, Pressley, Horsford, Tlaib, Garcia, Williams of Georgia, Nickel, and Pettersen. Chairman MCHENRY. The Financial Services Committee will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. Today’s hearing is entitled, ‘‘The Federal Reserve’s Semi-Annual Monetary Policy Report.’’ And I will note at the outset that this hearing has a hard stop of 1 p.m., which is traditional for the Fed Chair, and we intend to strictly observe that. I now recognize myself for 4 minutes to give an opening state- ment. Thank you, Chairman Powell, for your testimony today. This week, you stated that the Fed will, ‘‘stay the course until the job is done,’’ and that job is to restore price stability. This is positive. But you know as well as I do that you are facing a very strong headwind from the political left. Democrats are pressuring the Fed to stray from its narrow mandate. It is a page out of their same old progressive playbook. When they don’t have the votes to achieve something here in Congress, they turn to regulators, and now, Chair Powell, they are looking at you and the Federal Re- serve. President Biden’s kowtow into the far left is what got us into this inflationary mess. I urge you to reject the idealogues who put their social agenda ahead of economic prosperity. High prices continue to eat away at workers’ wages and retirees’ incomes. Since President Biden took office, we have experienced in- flation rates not seen since the late 1970s and early 1980s. Infla- tion rapidly accelerated after Democrats passed their so-called (1) 2 American Rescue Plan, which poured nearly $2 trillion of infla- tionary fuel into the economy. By June of last year, the Consumer Price Index (CPI) showed that inflation skyrocketed from below 2 percent to nearly 9 percent, and personal consumption expendi- tures, the Fed’s preferred measure of consumer prices, ballooned to 7 percent. Instead of being rescued by Democrats, Americans were punished with pain at the grocery store and sticker shock at the pump. While inflation is below its mid-2022 peak, it is persisting at rates well above the Fed’s target. It remains broad-based and continues to hammer Americans’ pocketbooks. In fact, a recent Gal- lup poll shows that half of the respondents say they are worse off financially than they were a year ago. It is clear that there is still a long way to go in an effort to bring down costs. I look forward to hearing you reaffirm your commitment to that work today. Republicans also want to hear from you regarding some con- cerning developments from the Federal Reserve on the regulatory front. Recently, the Federal Reserve’s Vice Chair for Supervision announced a, ‘‘holistic review of bank capital and the Fed’s regu- latory regime.’’ However, it seems that only a small group within the Fed knows what this means, what it entails, how much review is being vetted by the full Board, and the type of quantitative anal- ysis the Fed is performing. The Fed shouldn’t operate in the shad- ows, especially when the regulation in question can have broad and significant economic effects. The motivation for the Fed’s holistic review is also clear, particu- larly when so many Board members have stated that the banking system is very well-capitalized, and a review of the capital stand- ard should be targeted—it appears that the Federal Reserve Board is laying the groundwork for climate policy to be implemented through the Fed regulation with an opening salvo to, ‘‘scenario analysis.’’ Addressing an issue like climate change is important, but that is a policy that should originate here in Congress by the elected representatives of the people, not the central bank. As you said, the Fed needs to stick to its knitting. I agree. There is con- cern by many that the Fed is picking up new needles and knitting partisan sweaters. At such a precarious time for our economy here at home and in the global economy, that would be a mistake. Thank you for being here today. I look forward to your testimony and the questions of our Members. The Chair now recognizes the ranking member of the committee, Ms. Waters, for 4 minutes for an opening statement. Ms. WATERS. Thank you very much, Mr. Chairman. Good morn- ing, Chair Powell. Since your last visit, our country, under the leadership of President Biden, has made major progress toward im- proving economic conditions, including adding a record 12 million jobs, and reducing unemployment to its lowest rate in 54 years, while also reducing the deficit by $1.7 trillion. Unfortunately, many families are still struggling to afford basic necessities because of in- flation. What’s more, interest rate hikes are making borrowing, espe- cially for mortgages, outrageously expensive. Since I raised this concern for you in a November letter, the rate hikes continue to have an outsized impact on housing costs, which are, as you know, a primary driver of core inflation. But, Chair Powell, I think that 3 you will agree that Congress also has a role. That is why I am somewhat disappointed that after 2 months, Republicans have taken no serious action to address inflation. By this time last Congress, House Democrats had passed the American Rescue Plan to provide relief from the ongoing pandemic, which included our committee’s efforts to provide $70 billion for homeowners, renters, businesses, and first responders. If Repub- licans are looking for ideas, Committee Democrats have put forth additional bills, like the Build Back Better Act, to bring down costs for Americans, especially housing costs. Even more concerning, we are just months away from an eco- nomic catastrophe beyond what we have ever seen, including spik- ing interest rates, massive job losses, and global instability. I am talking about the threats by the Republican leadership to force a default on our nation’s debt if we don’t agree to their demands to cut Social Security, Medicare, or other critical programs. You have urged Congress to take immediate action to raise the debt ceiling, but rather than focusing on this very real issue, the first bill that Committee Republicans brought to the House Floor instead suggested that Social Security and Medicare are socialist threats to America. Since then, we have considered legislation re- lated to deregulating securities and banking laws, and countering threats from China, but Republicans have completely ignored the biggest economic threat to businesses, consumers, and our econ- omy: defaulting on our debt. Last month, I wrote a letter to Chair McHenry urging him to take this matter seriously and hold the hearing, but I am still waiting for a response. I hope Republicans will listen today to the real consequences that even the mere threat of a default would have for everyone in this country. And finally, I am so pleased that we are finally making progress on diversity and inclusion for key positions at the Fed, including last year’s historic confirmation of Dr. Lisa Cook to serve as the very first Black woman on the Federal Reserve Board, with the Board’s Vice Chair and Kansas City Fed President positions va- cant. I think President Biden and the Kansas City Fed Board should build on this progress by seriously considering diverse can- didates for these positions. With that, I yield back the balance of my time. Chairman MCHENRY. The ranking member yields back. I ask unanimous consent to submit for the record my letter to Secretary of the Treasury Janet Yellen from February 28th, asking for an update on the X date for the debt ceiling. I also ask unani- mous consent to submit for the record the latest CBO long-term budget outlook on the unsustainability of our debt, most recently released. Without objection, it is so ordered. The Chair now recognizes the gentleman from Kentucky, Mr. Barr, who is also the Chair of our Subcommittee on Financial Insti- tutions and Monetary Policy, for 1 minute. Mr. BARR. Thank you, Mr. Chairman. And Chairman Powell, thank you for being here today to discuss the Federal Reserve’s monetary policy actions in a time of economic uncertainty, mixed economic data, and historic inflation that continues to plague fami- lies and businesses around the country. 4 It is paramount that the Federal Reserve remain vigilant on re- ducing inflation, anchoring inflation expectations, and restoring price stability at the Fed’s 2-percent target. I also look forward to discussing the Fed’s regulatory and supervisory activities. As the Fed reviews the bank capital framework, it needs to consider the impact to the real economy and our global competitiveness when raising capital requirements, and sidelining capital would work at cross purposes with monetary tightening, constraining the supply side when we need more, not less, investment to fix supply chains and reduce inflation. Tailored regulations are required of the Fed by law, and a one-size-fits-all approach would be the wrong path to take. Finally, I urge the Fed to, in your words, ‘‘stick to its knit- ting,’’ and not attempt to be a climate regulator. I yield back. Chairman MCHENRY. The gentleman’s time has expired. I will now recognize the ranking member of our Financial Institutions and Monetary Policy Subcommittee, the gentleman from Illinois, Mr. Foster, for 1 minute. Mr. FOSTER. Thank you, and thank you, Chair Powell, for being here today. Today is the 15th anniversary of when I was first elect- ed to Congress and placed on the Financial Services Committee just as the economy was about to collapse. And that was my trial by fire, the emergency response to rescue the economy and the leg- islative response to the Dodd-Frank Act that successfully stabilized our financial system. So 15 years later, as I take my place as the ranking member on the subcommittee with oversight over U.S. banking and monetary policy, I recall the solemn oath that I swore to myself back then to make sure that this kind of calamity never happened again. The monetary policy report that we are receiving today is largely a nar- rative of a return to normal. Lead times to manufacturers are back to pre-COVID levels, the job market retains supernatural strength, and inflation is responding more or less as predicted to the usual measures. And by far the largest threat on the horizon is a repeat of the 2011 default crisis. Congress has the power to avoid that, and we owe it to the American people to do so. I yield back. Chairman MCHENRY. Today, we welcome the testimony of Je- rome Powell, Chair of the Board of Governors of the Federal Re- serve System. Chair Powell was reappointed and sworn in for a second 4-year term as the Chair on May 23, 2022. Chair Powell also serves as Chairman of the Federal Open Markets Committee (FOMC), which is the System’s principal monetary policymaking body. Chair Powell, we thank you for taking the time to be here. We will recognize you for 5 minutes to give an oral presentation of your testimony. And without objection, your written statement will be made a part of the record Chairman Powell, you are now recognized. STATEMENT OF THE HONORABLE JEROME POWELL, CHAIR, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. POWELL. Chairman McHenry, Ranking Member Waters, and members of the committee, good morning, and I appreciate the op- portunity to present the Federal Reserve’s Semi-Annual Monetary Policy Report. 5 My colleagues and I are acutely aware that high inflation is causing significant hardship, and we are strongly committed to re- turning inflation to our 2-percent goal. Over the past year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do. Our policy actions are guided by our dual mandate to promote max- imum employment and stable prices. Without price stability, the economy does not work for anyone. In particular, without price sta- bility, we will not achieve a sustained period of labor market condi- tions that benefit all. I will review the current economic situation before turning to monetary policy. The data from January on employment, consumer spending, manufacturing production, and inflation have partly re- versed the softening trends that we had seen in the data just a month ago. Some of this reversal likely reflects the unseasonably- warm weather in January in much of the country. Still, the breadth of the reversal, along with the revisions to the previous quarter, suggests that inflationary pressures are running higher than expected at the time of our previous Federal Open Market Committee (FOMC) meeting. From a broader perspective, inflation has moderated somewhat since the middle of last year, but remains well above our longer- run objective of 2 percent. The 12 months’ change in total Personal Consumption Expenditures (PCE) prices has slowed from its peak of 7 percent in June to 5.4 percent in January. As energy prices have declined and supply chain bottlenecks have eased over the past 12 months, core PCE inflation, which excludes the volatile food and energy prices, was 4.7 percent. As supply chain bottle- necks have eased, and tighter policy has restrained demand, infla- tion in the core goods sector has fallen. And while housing services inflation remains too high, the flattening out in rents evident in re- cently-signed leases points to a deceleration in this component of inflation over the year ahead. That said, there is little sign of disinflation thus far in the cat- egory of core services, excluding housing, which accounts for more than half of core consumer expenditures. To restore price stability, we will need to see lower inflation in this sector, and there will very likely be some softening in labor market conditions. Although nominal wage gains have slowed somewhat in recent months, they remain above what is consistent with 2-percent inflation and cur- rent trends in productivity. Strong wage growth is good for work- ers, but only if it is not eroded by inflation. Turning to growth, the U.S. economy slowed significantly last year, with real GDP rising at a below-trend pace of 0.9 percent. Al- though consumer spending appears to be expanding at a solid pace this quarter, other recent indicators point to subdued growth of spending and production. Activity in the housing sector continues to weaken, largely reflecting higher mortgage rates. Higher interest rates and slower output growth also appear to be weighing on busi- ness fixed investment. Despite the slowdown in growth, the labor market remains ex- tremely tight. The unemployment rate was 3.4 percent in January, its lowest level since 1969. Job gains remained very strong in Janu- 6 ary while the supply of labor continued to lag. As of the end of De- cember, there were 1.9 job openings for each unemployed indi- vidual, close to the all-time peak recorded last March, while unem- ployment insurance claims have remained near historic lows. Turning to monetary policy, with inflation well above our longer- run goal of 2 percent, and with the labor market remaining ex- tremely tight, the FOMC has continued to tighten the stance of monetary policy, raising interest rates by 4.5 percentage points over the past year. We continue to anticipate that ongoing in- creases in the target range for the Federal funds rate will be appro- priate in order to attain a stance of monetary policy that is suffi- ciently restrictive to bring inflation down to 2 percent over time. In addition, we are continuing the process of significantly reducing the size of our balance sheet. We are seeing the effects of our policy actions on demand in the most interest-sensitive sectors of the economy. It will take time, however, for the full effects of monetary restraint to be realized, es- pecially on inflation. In light of the cumulative tightening of mone- tary policy and the lags with which monetary policy affects eco- nomic activity and inflation, the committee slowed the pace of in- terest rate increases over its past two meetings. We will continue to make our decisions meeting by meeting, taking into account the totality of the incoming data and their implications for the outlook for economic activity and inflation. Although inflation has been moderating in recent months, the process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy. As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than pre- viously anticipated. And I stressed that no decision has been made on this, but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes. Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time. Our overarching focus is using our tools to bring inflation back down to our 2-percent goal and to keep longer-term inflation expec- tations well-anchored. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done. To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Federal Reserve will do ev- erything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions. [The prepared statement of Chairman Powell can be found on page 58 of the appendix.] Chairman MCHENRY. Thank you, Chairman Powell. I will now recognize myself for 5 minutes for questions. Chairman Powell, there has been a lot of discussion over the last 24 hours about the effect of rate increases on the economy, and a lot of debate about what you said yesterday in the Senate, but no one asked you this directly. We have a March Open Markets Com- 7 mittee meeting coming up in 2 weeks. What do you think about the March meeting? What is your approach to that? What are we likely to see? Mr. POWELL. Thank you. I won’t repeat what I just said in my testimony, but if I turn to the March meeting, I guess I would say that we have some potentially important data coming up, data to be analyzed. One of them came out at exactly 10:00. That would be the Job Openings and Labor Turnover Survey (JOLTS) report, which, of course, I haven’t seen, having been sitting here at 10:00. But we are also getting a jobs report on Friday, and a Consumer Price Index (CPI) and Producer Price Index (PPI) inflation report next week, so those will be important and we will scrutinize them. When we say that we are going to be looking at the totality of the data, which is what I said, that does include these reports yet to come. They are going to be important in our assessment of the higher ratings that we have very recently received, and of the over- all direction of the economy and of our progress in bringing infla- tion down, and we will be carefully analyzing them. Again, we have not made any decision about the March meeting. We are not going to do that until we see the additional data. The larger point, though, is that we are not on a preset path and that we will be guided by the incoming data and the evolving outlook. Chairman MCHENRY. But you have also said higher, longer. Is that still the case? Mr. POWELL. Yes. As I said in my testimony, we looked at the data since January, and also the revisions to the November and December inflation data, and they suggest that the ultimate level of interest rates is likely to be higher than we had expected. Chairman MCHENRY. So to repeat, what are those economic fac- tors? Mr. POWELL. Going back to January, as I mentioned, the softer inflation readings of November and December were revised up. We got a very strong inflation report for January. We got an extraor- dinarily-strong employment report, very strong consumer spending, and strong manufacturing data right across-the-board. And as I pointed out, some of that may have been affected by the very warm January weather, but nonetheless, all of it pointed in the same di- rection. Chairman MCHENRY. Okay. Let’s move to regulation. Chair Pow- ell, in January, the Federal Reserve put out a policy statement not- ing that digital asset custody is permissible activity if done in a safe and sound manner. However, if a bank can demonstrate to the Fed that it can conduct that activity in a safe and sound manner, the capital impact of the SEC’s Staff Accounting Bulletin effectively precludes banks from offering digital asset custody service at any scale. Are you aware of this Staff Accounting Bulletin (SAB) by the Securities and Exchange Commission and its impact on custodial services? Mr. POWELL. I am aware of it, of course. It is an SEC accounting bulletin, SAB 121, I believe, and— Chairman MCHENRY. That is right. Mr. POWELL. —we are certainly aware of it. And we do follow generally accepted accounting principles (GAAP) in our preamble of regulation. 8 Chairman MCHENRY. Okay. Without objection, I will submit for the record my letter to the bank regulators about this. So, while the Fed says it can be done in a safe and sound man- ner, the Securities and Exchange Commission is regulated so that it cannot be done. My next question is about bank capital standards. You received questions about this yesterday. Vice Chair for Supervision Barr has announced a holistic review of capital requirements. As I said in my opening statement, there are a lot of questions about this proc- ess and previous statements by members of the Fed Board of Gov- ernors about the adequacy of current capital standards. So, while the Vice Chair for Supervision has announced that the Fed will en- gage in a holistic review of capital regulation, is that done at the Governors, the Board level? What is the process? There are a lot of questions that people have about his statements, and we want to understand why it is necessary for the Fed to conduct a holistic review and what that process will entail. My general question is, do you still agree with your previous statements about the adequacy on a generalized basis of our finan- cial system, or are we to read into this that we are not adequately- capitalized, and there is a high level of risk in the system that we are unaware of at this point? Mr. POWELL. Thank you. As a new Vice Chair for Supervision, Vice Chair Barr is taking a fresh look at everything, including cap- ital. That actually is typical of the last two people to have this job. And that makes a lot of sense. In terms of the process, it is cer- tainly conducted under Vice Chair Barr’s leadership with input from the staff and discussions with Governors on that committee, and I am kept broadly apprised about what is going on. But the bottom line is that nothing has been proposed to the Board. Noth- ing has been formalized at this point. There is a lot of work that is going on, discussions are going on, meetings with industry, and that kind of thing. When we get to the place where it is appropriate, the Board will be carefully briefed, and will ultimately vote on a proposal. And that proposal will go out for comment, and we will solicit comment from any and all commenters, and we will look very carefully at that. So, it will be a wide-open process in the sunshine. Chairman MCHENRY. Thank you. I yield back. And I now recog- nize the ranking member of the committee, the gentlewoman from California, Ms. Waters. Ms. WATERS. Thank you very much. Chair Powell, I agree with what you said on February 1st, that Congress must raise the debt limit because of what you described as the highly-risky con- sequences of failing to do so. You are perhaps the most important expert on the debt limit, which is why I find it very concerning that your recommendation to raise the debt limit in a timely manner is being ignored by my colleagues on the other side of the aisle. I am also concerned that the consequences of this brinksmanship are imminent. Fitch Ratings said this week they may seriously look at downgrading the U.S. debt based on the escalating brinksmanship they are observing, even if Congress ultimately ad- dresses the debt limit at the last minute. This is history repeating itself. Standard & Poor’s downgraded our debt back in 2011 when 9 Republicans last controlled the House and threatened default. The Bipartisan Policy Center later found that the 2011 debt limit de- bate cost us $18.9 billion in higher borrowing costs, even though we never defaulted. To put that into perspective, that could have been leveraged to provide up to $200 billion in loans to small busi- nesses through the State Small Business Credit Initiative (SSBCI) or to provide hundreds of thousands of people downpayment assist- ance to buy their first home. I want to emphasize that House Republicans, including most of the Republicans on this committee, had no qualms about paying our debts when Trump was in office. Three times, they addressed the debt ceiling in a timely manner without holding our country hostage. But Republicans are now ready to tear down the hard work of Americans everywhere to weather the pandemic and build back a strong recovery. Chair Powell, can you describe for us the risk you see if Congress continues to delay action on the debt limit, both for our economy and for individuals and families? Mr. POWELL. Let me start briefly by saying that we have no role and seek no role in what is really at the heart of fiscal policy, ex- cept I will limit myself to the two things that other Fed Chairs have said about this. One is just that Congress raising the debt ceiling is really the only alternative. There are no rabbits in hats to be pulled out on this. Two really is just that no one should assume that the Fed can protect the economy from the non-payment of the government’s bills, let alone a debt default or something of that nature, which we don’t think will happen here. But no one should be thinking that we have the tools to protect the economy from all of the poten- tial effects of that. Ms. WATERS. Thank you very much. I don’t want to misrepresent what you said. I somewhat quoted you when you said that Con- gress must raise the debt limit because of what you described as, ‘‘highly-risky consequences of failing to do so.’’ Is that your lan- guage? Mr. POWELL. ‘‘Must’’ in the sense that it really the only way for the debt limit to be raised is if Congress acts to do so. Again, these are fiscal discussions and we don’t want to be a part of them, and really they are between elected officials. Ms. WATERS. But you are an expert on the subject. Mr. POWELL. I spent a lot of time on this, as you will recall, prior to this— Ms. WATERS. As an expert on this subject, you are concerned about the highly-risky consequences of failing to do so, is that cor- rect? Did I correctly quote you? Mr. POWELL. That is correct. Ms. WATERS. Thank you. And again, let me just go a little bit further. The Chair mentioned that he had either written a letter or maybe even had some conversation from Treasury Secretary Janet Yellen about the time limit that she had attempted to de- scribe. Is it your understanding that she said she could maneuver and kind of manipulate things so that she paid the bills that were coming due, but this could only last until about June? Is that your understanding? 10 Mr. POWELL. Honestly, I would really have to not try to interpret the Secretary’s words for you. That is really up to her to do. Ms. WATERS. Can she keep us afloat until about June? Mr. POWELL. Honestly, that is not for me to say. These are really questions for the Secretary. I’m sorry, Ms. Waters. Ms. WATERS. Have you had any conversation with her about the statement that she made about being able to manipulate the debt and pay bills that are coming due out of another account, et cetera? Did you have that conversation with her? Mr. POWELL. The conversations that you and I have privately don’t go anywhere. I don’t talk about them with anybody. And the conversations I have with Secretary Yellen, I don’t— Ms. WATERS. Okay. And I don’t want to get— Chairman MCHENRY. The gentlelady’s time has expired. Ms. WATERS. I beg your pardon? Chairman MCHENRY. The gentlelady’s time has expired. Ms. WATERS. Did I have equal time with you? Chairman MCHENRY. You sure did. He went over time. Ms. WATERS. If I did, thank you. I yield back. Chairman MCHENRY. I now recognize the Vice Chair of the com- mittee, Mr. Hill of Arkansas. Mr. HILL. Thank you, Mr. Chairman, and thank you, Chair Pow- ell, for being with us. You are welcome anytime. Don’t wait until we ask, if you want to volunteer to come here. We love having your views on many topics. Thanks for talking about your commitment to price stability. We had this discussion last June of, I do think that is the primary mis- sion of the Fed, and I think the only priority of the Fed should be price stability, because it is the Legislative Branch and the Execu- tive Branch that really are responsible for, ‘‘full employment, and having that policy environment, and making sure that that is right.’’ So, your commitment to price stability is welcomed by this committee. Yesterday, in the Senate, you suggested that you supported a broad regulatory framework for digital assets, is that correct? Mr. POWELL. Yes. Mr. HILL. And is it your view that if we had a regulatory frame- work here in the United States for digital assets, there would be more transparency and rules of the road for consumers, investors, and developers? Mr. POWELL. Absolutely. Mr. HILL. And what if we had those rules of the road for busi- ness seeking to use and develop blockchain as a potential new tech- nology in their business and tokenize payments that, again, it would be beneficial to business to know how to go about that? Mr. POWELL. Yes, and to ensure that it is all done in a safe and sound manner when we are talking about banks. Mr. HILL. Right. And my next point would be exactly that. To help banks, investment brokers, and custodians understand how they could even participate in that market in a safe and sound manner, do you agree that a regulatory framework would help with that? Mr. POWELL. Yes. 11 Mr. HILL. And then finally, we have grown up in our country, and it is unique in the world that we have a dual banking system, and due to a quirk here in Congress over 100 years ago, we have insurance regulated exclusively by the States. Would you believe that regulatory framework would also have to preserve some sort of role, subject to safety and soundness, for States to play some role in that regulatory framework for digital assets? Mr. POWELL. Let me just say I think that the work certainly works in banking and insurance. I have no problem with those. Mr. HILL. Right, but you consider it possible that it could also work in digital assets? Mr. POWELL. It is certainly possible. Mr. HILL. Yes. Thank you. Turning to a topic that has been a subject here for nearly 4 years, central bank digital currencies (CBDCs), Article I of the Constitution reserves coins, which is money issuance to the Congress, and we have, in turn, delegated that to the U.S. Treasury, which has, since 1912, engaged the Fed- eral Reserve as their fiscal agent. You have testified here many times before that to issue a CBDC, it would have to be authorized by statute, by Congress. Is that still your testimony? Mr. POWELL. That is absolutely the case as it relates to a retail CBDC. Mr. HILL. Right. Mr. POWELL. Potential little forms of a wholesale CBDC, that you would need to look at, it is less clear, but we have always been talking about a retail CBDC, and that is something for which we would certainly need congressional approval. Mr. HILL. And what would be a parameter on something that is not a retail CBDC, where you think that could be issued in some form or fashion without Congress’ direct statutory authorization? Mr. POWELL. For example, it would just be something between banks, so it would look an awful lot like a bank reserve. And you might ask, well, why would we need it, and that is a really good question, too. But it is just something that is literally within a wholesale market. Mr. HILL. But that speaks that you might have a blockchain be- tween banks, and the Fed using a central bank digital currency token to settle transactions institutionally inside the— Mr. POWELL. Yes. Mr. HILL. Yes. That leads me to FedNow, which is supposed to be up and running, I think this summer, somewhat behind the scenes there. I would like to ask you to formally have this com- mittee briefed on that by the Federal Reserve. I know the Chair of the Kansas City Fed was involved. She has now left, and I think the committee has a lot of questions about FedNow, how its inter- operability will work, how it is going to roll out, and also just a question that we have been asked about why the Fedwire system ended up 24-hours-a-day, 7-days-a-week now to benefit consumers who are using Venmo. Do you have any thoughts on that? Mr. POWELL. I am not sure why we are not 24/7 on that, and, of course, we are delighted to come up and brief the committee on FedNow. Mr. HILL. That would be good. We will take you up on that, and the right person from the Fed. And Mr. Chairman, I yield back. 12 Chairman MCHENRY. The gentleman yields back. I will now rec- ognize the ranking member of our Capital Markets Subcommittee, Mr. Sherman of California, for 5 minutes. Mr. SHERMAN. Thank you. Mr. Chairman, I want to thank you for bringing to our committee’s attention several years ago the im- portance of tough legacy London Interbank Offered Rate (LIBOR), some $16 trillion of instruments where the creditor would know how much the debtor was supposed to pay. This committee passed legislation over a year before the LIBOR hit the fan. You issued regulations 7 months before the absolute deadline. I hope we do this in other areas. And it is my understanding that with those final regulations, we are done and we have solved the LIBOR issue. Is that correct? Mr. POWELL. That is my understanding as well. Mr. SHERMAN. Okay. People talk about inflation, and some say that it is a matter of the personalities and politics in the United States. Others argue that the entire world is hit by inflation be- cause of Ukraine and COVID. I think we have the answer to this question in that inflation is considerably higher in the eurozone than it is in the United States today, and it is very hard to say that Joe Biden is responsible for inflation in Germany. I commend the ranking member for bringing up the debt limit and the harm that it has already done to our economy. If we solve the problem tomorrow, we will still have had less investment than we would have had yesterday, and I would say that I commend the President. He is going to issue a budget plan tomorrow, and per- haps in their time, one of our Republican colleagues can tell us when the Republican budget plan will be released. We are all ea- gerly awaiting it. Housing is a huge part of inflation, and we have left it to local government, but the permitting process there guarantees scarcity, which guarantees high housing costs. Mr. Chairman, we talked back in 2001, and several times even before that, about wire fraud. And having just bought a home, I saw the process upfront. Every- body is very nervous about one thing, and that is, will the buyer of the house be tricked into wiring their downpayment to the wrong account, or will the seller or the buyer be tricked or the es- crow agent be tricked into sending the money to someone other than the seller of the property? We talked about this back in 2001, where I urged you with your FedNow system, which I am glad is on track to move forward, to have what the Brits have, that when you send the wire, you iden- tify not only the number of the account you are sending it to, but also the name of the person or entity that is supposed to receive that. At that time, back in 2001, you said that payee matching was not the best way to do it, that there were are other ways to do it and that you would be happy to get back to me as to how you were going to make sure that an email from a Nigerian prince does not get the wired funds, particularly in a housing transaction wired to an account number that turns out to be in Lagos. What progress have you made? When can homebuyers have a system where they are sending it to a named payee as well as to a number? 13 Mr. POWELL. I hope we did come back in a timely way to you on that, but it is a problem you brought to our attention. You are right over many years, and we continue to focus on that. Mr. SHERMAN. The bureaucrats who are working on this don’t want to do what the Brits did. They have proven it can be done. You said you were going to accomplish the same goal in some other way, and it has been a while and it is not solved, nor are you aware of any solution. I would hope that you would go back and say, we don’t want to add this anxiety to every real estate trans- action, so we will go back to the drawing board, follow what the Brits have done, and have pay matching. Finally, as to crypto, cryptocurrency says what it means: hidden money. That is what it means. And if we impose Know Your Cus- tomer (KYC) and Anti-Money Laundering (AML) statutes to it, it won’t be crypto anymore. What crypto wants is to have part of its ecosystem above the waterline, visible and subject to Know Your Customer, and then have the rest of the iceberg below the water- line. Chairman MCHENRY. The gentleman’s time has expired. Mr. SHERMAN. My time has expired. Chairman MCHENRY. I will now go to the gentleman from Texas, Mr. Sessions, for 5 minutes. Mr. SESSIONS. Chairman McHenry, thank you very much. Chair- man Powell, thank you for joining us today. We appreciate not only your professionalism, but your direction. Chairman Powell, I know that the Fed considers divergences, and you talked about it in your opening statement, about the Con- sumer Price Index, personal consumer expenditures, inflation, GDP, and all of these things are also talked about in your mone- tary report of March 3, 2023. Thank you. A couple of days ago, I had an opportunity to see that an economist, Arthur Laffer, pro- duced a report that spoke about literally this country doubling GDP. Now, I know we are putting CPI, PCE, inflation, all of these things into a mix, but he said that if we made changes in healthcare, to efficiencies, we can double the current GDP rate. My question to you, and I hope you can answer, is what do you think about that? Is it something that is in this document, that I have missed, and it is seemingly to a person who follows this, as Art Laffer does, for 50 years? What do you think is an important way to look at efficiencies in healthcare? Thank you. Mr. POWELL. So, no, that is not in our monetary policy report. I will just say one thing, and that is we do spend something like 17 or 18, in that range, percent of GDP delivering healthcare. Other similarly-wealthy countries spend 10 percent, so it is the de- livery system. It is not that the benefits are incredibly rich or any- thing like that; it is just that the delivery system is very expensive. That is a trillion dollars a year that we spend and get nothing for it. This is fiscal policy, so I would think that he may have meant that if we had a delivery system that saved that trillion dollars that doesn’t really get us anything, then that would be great for the economy, with which I agree. Mr. SESSIONS. You have spoken of supply chain disruptions be- cause it, in fact, is an inhibitor or an accelerator as we gain that advantage. You just talked about some seemingly, which would 14 offer some validation to Mr. Laffer as he spoke about the huge im- portance of this. Is that something you should start paying atten- tion to, to where policy people not only at the Fed, but your Fed banks around the country would start looking at and start putting pressure on us to gain those efficiencies as a result of a global view? Mr. POWELL. On supply chains generally, they have suddenly be- come tremendously important in inflation, as you know, for the last couple of years, and for the first time, really have been something that we have had to study carefully. In terms of healthcare deliv- ery, that is strictly a question for you and for the parts of the gov- ernment that are charged whether the Fed does not have a role to play and does not seek a role in that. Mr. SESSIONS. Does not see a role, and yet, as I look at this, you have a role in projecting confidence, you have a role in education, you have a role in who is in the workplace, you have a role—my talk—my interest rates. And yet my point is, it is such a staggering number that impacts us. I would just love to have you go back. Per- haps we on this committee need to give you some direction on that, but I think your testimony today recognizes the staggering impact on that. I don’t think it is political. The answer may be political, but I think the actual numbers are not political. It is an ineffi- ciency that is happening across the country, not a regional matter, and so I wanted to get your take on that, and I appreciate you being here as always. Thank you for your confidence and your hard work that you give this country. Mr. Chairman, I yield back my time. Chairman MCHENRY. The gentleman yields back. I will now rec- ognize the gentleman from Georgia, Mr. Scott, who is also the ranking member of the House Agriculture Committee, for 5 min- utes. Mr. SCOTT. Thank you very much, Mr. Chairman, and welcome back, Chairman Powell. Chairman Powell, listen to me very carefully here, because I think we are on the verge of making a terrible mistake. Back in 2008, if you recall, Barney Frank and Ms. Waters asked me to take a look at and kind of work with you and the Fed. You were a Board member in 2008, and we came to the conclusion that we needed a more-equitable playing field between our large banks like Goldman Sachs and Citigroup, and our regional and smaller banks like Truist, and our community banks, and we changed that. But now, I hear that the Fed and the FDIC plan to drop a new rule which seeks to apply the long-term and higher capital requirements that were created. And you and I did this back in 2008, and you will remember, that were created for the Goldman Sachs and for them, and now we want to apply these rules to the regional banks. There is a big difference. And we have omitted this difference if you proceed in this man- ner. I think it is very misguided. It works. And you and I worked on this. You recall this. You were a Board member, and we saw that we needed to have a better playing field to protect. And if you all go along with this, it could put many of our regional banks and small community banks out of business. So, I want you to reverse this. 15 First of all, tell me, am I speaking the truth? Are you all plan- ning to, all of a sudden, put the smaller and regional banks under the same heavy or financial load as your large worldwide banks? Tell me. Mr. POWELL. No, we are not planning that. We believe strongly, and always have, in tailoring to address the different size and risk characteristics of financial institutions and certainly nothing like that for the regionals. They won’t have anything like what the very large, most systemically important banks have in terms of overall regulation. Mr. SCOTT. Yes, because I remember clearly, I think we were on this side then, talking about this in the same committee room, and you worked with us on that. I am glad to hear that. Where is that coming from? Is it a concern? Is it just a rumor? Have there been any discussions about removing the playing field and the guard rails we have here, the differentiations and the requirements be- tween the regional banks, community banks, and your larger global banks? There is nothing to that? Mr. POWELL. I would say this. We are required by the law now and we are doing this. Dodd-Frank actually required us. Mr. SCOTT. Yes. Mr. SCOTT. It suggested that we should tailor, and then, S. 2155 then required it, and anything that we do will reflect appropriate tailoring. Mr. SCOTT. Okay. So, that is off the board. We are not going to change and put the smaller and regional banks under the same fi- nancial obligation role as large banks. We got that right from you, correct? Mr. POWELL. Yes, that is right. Mr. SCOTT. Okay. Good. Now, let me turn to China. I am really worried about China, and right now, people may not know it, but China is the world’s largest economy in terms of purchasing power. At our last meeting, I talked about this move where we didn’t blow the balloon up, and this is an example of what I was pointing out. Chairman MCHENRY. The gentleman’s time has expired. I will now recognize the gentleman from Oklahoma, Mr. Lucas, who is also the Chair of the House Science Committee, for 5 minutes. Mr. LUCAS. Thank you, Mr. Chairman. Chairman Powell, I would like to follow up on the topic of capital standards, one of those things we have discussed many times together. As you know, com- modity markets have seen significant volatility in the last few years. And during times of tremendous economic uncertainty, like we have seen, end users turn to the markets to hedge risk, particu- larly those in the agriculture and energy sectors. And I know that the Fed is early in the review process of potential changes in cap- ital requirements, but I will ask this anyway. Can you commit to ensuring that these changes will not increase the cost for banks providing those commodity derivatives to end users? Mr. POWELL. That is really specific. Can I go look at that? I am not actually sure that the work even addresses that, so let me get back to you on that. Mr. LUCAS. Fair point, and that particular response makes me feel better because, after all, those products are very important to 16 my folks and make a great deal of difference in how they are able to address their issues. As you discussed earlier, and as you have consistently assured us, the Fed is not a climate-making policymaker. You and I have talked about this issue, again, many times in the past. However, I am concerned that the Fed could be heading in that direction and could be laying the groundwork for climate-related stress tests that would reduce access to capital for entire sectors of the economy. This would also potentially open up the Federal Reserve to political pressure and force the Fed, in fact, to make policy decisions related to climate change. We have seen, for example, this Administration turn to regulators to impose climate policy as an alternative to the legislative process. Chairman Powell, how careful are you in ensuring that the Fed does not place itself into the climate debate, and how can Congress ensure that the Fed’s regulatory toolkit is not, shall we say, warped into creating climate policy outcomes? Mr. POWELL. I think we do have a narrow, but real, role there, which is around bank supervision, making sure the banks under- stand and can manage their risks over time from climate. I think my colleagues and I all understand that it is a tightly-cir- cumscribed role that we are playing, and that we are not looking to move into an area where we are actually becoming a climate pol- icymaker. I would completely agree with you, though, that over time, that border needs to be very carefully guarded, and I will tell you that I will do that as long as I am at the Board of Governors. Mr. LUCAS. I very much appreciate that because, again, it is a very important issue in my district in Oklahoma. Traditional pro- duction, agriculture, oil and gas, and the actions that the Fed takes have a significant impact back home, so it is vital that we resist the demands to do that sort of thing now or in the future, and I very much appreciate that response. And with that, I will yield back the balance of my time, Mr. Chairman. Chairman MCHENRY. The gentleman yields back. The gentleman from Massachusetts, Mr. Lynch, who is also the ranking member of our Subcommittee on Digital Assets, Financial Technology and Inclusion, is recognized for 5 minutes. Mr. LYNCH. Thank you, Mr. Chairman, and thank you, Chairman Powell, for your willingness to come here and update us. Last week, the Treasury Department announced that leaders from Treasury would begin to meet regularly with leaders from the Fed and from the White House to discuss a possible central bank digital currency (CBDC) and other payment innovations. In the statement, it was mentioned that, ‘‘The Fed is encouraged to pro- vide periodic public updates as it continues its research and its technical experimentation on central bank digital currencies.’’ I was wondering, first of all, when you might be expecting to share some of these public updates. What is the timing on that? Mr. POWELL. We did go out for comment, in general, on a CBDC a year or so ago, and I do expect we will go out, I can’t give you a date, but we will certainly go out and engage. We engage with the public on an ongoing basis. We are also doing research on pol- icy and also on technology. That is where we are up to. 17 Mr. LYNCH. I am aware that the Boston Fed has a partnership, the Hamilton Project, with the folks from MIT Media Lab where they want to create jobs, but it says here that the discussions would include technical experimentation. I was just wondering, at what level are you talking about making decisions on architecture for a retail CBDC? Mr. POWELL. We are not at the stage of making any real deci- sions. What we are doing is experimenting in kind of early-stage experimentation. How would this work? Does it work? What is the best technology? What is the most efficient? We are really at an early stage, but we are making progress on sort of technological issues. The policy issues were equally important, though. We haven’t decided that this is something that the financial system in this country wants or needs, so that is going to be very important. Mr. LYNCH. Okay. I think I speak for the chairman as well, that we would love to have more dialogue with the Fed on that, and maybe bring in the folks from MIT as well, and just make sure that Congress and this committee is as up-to-date as others. Let me switch over to FedNow. There are some champions of dig- ital currency and stablecoins, in particular, that continue to cite the need for faster payment systems. However, as was mentioned earlier, FedNow is a service that the Fed is working to finalize that will allow for instant payments between bank accounts, and the Fed has a target release date of between May and July, which is right around the corner. Do you see any reason why cryptocurrencies would provide faster payments than the FedNow system? And with this offer, with the transparency of FedNow, would it offer distinct advantages over some of these stablecoins that are touting faster payments? Mr. POWELL. What FedNow will do is it will enable all of the banks, any bank in the United States, not just the big ones, to offer instantly-available funds and real-time payments to their cus- tomers. That is what it will do. That is a great thing. I think you are asking whether a CBDC would serve some of that, but a CBDC is going to be years in the evaluation, and I think we can get this into the hands of the public very quickly. And I think we will have real-time payments in this country very, very soon, and that is a good thing. Mr. LYNCH. It is. I do have an overriding question, and that is, before the greenback, everybody had their own currency. You had rail companies. You had coal companies. You had State banks that were authorized to issue their own currency. But when the green- back came out, all of those various currencies went to zero because the greenback had the full faith and credit of the United States be- hind it. I am worried about a lot of these stablecoins and other cryptocurrencies. Do they go to zero when we come up with a CBDC that has the full faith and credit of the United States behind it? We have thousands of these out there, and you have people in- vesting millions and millions of dollars, well, trillions right now. And I am just thinking, if we had those advantages built into a CBDC, wouldn’t those alternatives go to zero if they did not have the transparency and the full faith and credit that we enjoy? 18 Mr. POWELL. Certainly, unbacked cryptocurrencies that don’t have any intrinsic value, but nonetheless trade for a positive num- ber—I have never understood the valuation of those. Stablecoins, many of them are really drawing on the credibility of the dollar. They are dollar-based. They are dollar-denominated, mainly dollar- based reserves, although we don’t know what is in the reserves be- cause there is no regulation. Chairman MCHENRY. The gentleman’s time has expired. The gentleman from Missouri, Mr. Luetkemeyer, who is also the Chair of our Subcommittee on National Security, Illicit Finance, and International Financial Institutions, is recognized for 5 minutes, Mr. LUETKEMEYER. Thank you, Mr. Chairman, and thank you, Chairman Powell, for being here this morning. The reserve cur- rency status of the dollar to the U.S. has enormous financial and national security benefits. In the wake of Russia’s unprovoked in- vasion of Ukraine, the Fed took action to prevent the Kremlin from accessing more than $300 billion in reserves, roughly half of Rus- sia’s reserves. However, this led to an accelerated effort by coun- tries like China to de-dollarize their official foreign exchange re- serves. Just last week, there was an article in the Wall Street Jour- nal entitled, ‘‘Russia Turns to the Yuan in an Effort to Ditch the Dollar.’’ Not only that, but China’s President Xi Jinping pushed for the settlement of energy trades in the Chinese yuan at a summit with Arab leaders in December. My question is, are you concerned about these actions by Russia and China to establish different reserves and conduct transactions in non-U.S. dollars? Mr. POWELL. The U.S. dollar is the widely-accepted and really the only serious candidate for the world’s principal reserve cur- rency, and that is because of our democratic institutions, our liquid markets, the rule of law, and all those kinds of things, and also the fact that the dollar has held its value over time. Other countries who are competing on other playing fields want to establish dif- ferent currencies, but, really, the dollar is the one that is going to be used more broadly in international commerce because we have those aspects and other countries don’t. Mr. LUETKEMEYER. That is true until now, but my question is, are you concerned about the actions of these countries, because if they see themselves being challenged or concerned, for instance, if China were to invade Taiwan? As Russia invaded Ukraine, there were some sanctions put on. I don’t disagree with the sanctions. The last time you were here, though, Mr. Chairman, I asked the question, because it is an instructive moment for us from the standpoint that knowing that we put sanctions on Russia, all of their different accounts, as well as the oligarchs from that country, are we thinking about doing the same thing to China when they invade Taiwan? And your answer at that point was, no. We passed a bill out of this committee last week to ask the Ad- ministration basically to start thinking about that in those terms. What kind of situations can you come up with? Are you talking to allies, begin to talk to them to start putting together a list of how you would go about sanctioning the different individuals, the dif- ferent accounts, things like that? Have you started thinking about that at all yet? 19 Mr. POWELL. Let me say that the business of sanctions is entirely in the hands of the elected government and the Treasury Depart- ment. We are an implementer as it relates to banks. That is it. We don’t make those decisions. Mr. LUETKEMEYER. Yes, but we are going to take your advice on the different aspects of this. Mr. POWELL. Honestly, when the sanctions were being put in place, Treasury was doing it. We were not doing it. Mr. LUETKEMEYER. Okay. Mr. POWELL. Yes, and that is the way it works. Mr. LUETKEMEYER. Next question. There was an article in one of the political newspapers, yesterday I guess it was, and it talked about the problem that we have here with the Fed’s balance sheet. It says it now appears similar to a hedge fund whose long-term as- sets are financed by short-term borrowing, and the bottom line is that it is going to cost money. The Fed now has a negative income as a result of having to do this, and it says here that the Fed will simply borrow the money to pay the bills. Is this true, that we are having the Fed losing money right now as a result of the way you have these debts, the borrowings that you have purchased, struc- tured? Mr. POWELL. The place I would start is, we always turn over all of our earnings in every year. We turn them over on an ongoing basis, and we have turned over something like $1.2 trillion in earn- ings just in the last decade or so. We always know that when we raise interest rates, you are going to lose money, and— Mr. LUETKEMEYER. Okay. But do you agree with the point that we have a negative income right now? Mr. POWELL. That is right. Mr. LUETKEMEYER. And this goes to my concern that the Con- sumer Financial Protection Bureau (CFPB) gets their money to run their agency from the Fed. Mr. POWELL. That is right. Mr. LUETKEMEYER. Basically, there is no money for the Fed to pay the CFPB’s bills, if this is the case, unless you continue to bor- row, which is basically what is going to happen now is you are going to have to borrow money to be able to pay the CFPB’s bills. Is that not correct? Mr. POWELL. No, we don’t borrow money. We don’t shut down the Fed when we have negative income. Mr. LUETKEMEYER. Okay. Mr. POWELL. We can pay our bills, and we can— Mr. LUETKEMEYER. My follow-up question then is, do you do any accountability or assessing of the CFPB’s spending of these dollars at all? Mr. POWELL. No, we don’t. The Inspector General does. Mr. LUETKEMEYER. So, they just get a blank check? You just told me they get a blank check. They send you a bill. You send them a check. There is no accountability for them— Mr. POWELL. No, I think there are limits built into the law, which I don’t have in front of me right now. Mr. LUETKEMEYER. I have yet to see a limit, Mr. Chairman. I would love to see what the limits are, because I don’t think that 20 they have ever agreed they have limits, but I see that my time is up, Mr. Chairman, so I yield back. Chairman MCHENRY. The gentleman’s time has expired. We will now go to the gentleman from Illinois, Mr. Foster, who is also the ranking member of our Financial Institutions and Monetary Policy Subcommittee. Mr. FOSTER. Thank you, and just a quick comment, I think it is a mistake to imagine that you can completely hide from the macro- economic effects of technology in your scenario planning. We just talked briefly about healthcare costs. Obesity is half of our healthcare costs, and there are treatments in these GLP-1 agonists that look like they are just a home run against obesity. So, these will be near-term impacts, which will have major macroeconomic effects. I hope you have a certain fraction of futurists in the room when you are talking about your scenario planning, because a lot of that future is now. Okay. Back to economics. We have this historically-low unem- ployment rate of 3.4 percent, and historically, this would be consid- ered to drive runaway inflation. Your predecessor, Alan Greenspan, repeatedly referred to dangerously low levels of unemployment, and yet we see inflation is coming down now. What is going on here? How can we have these historically-low levels of unemployment without having inflation take off? Is it possible that we simply have less frictional unemployment in our system due perhaps to the fact that people get their new jobs online and have a job lined up before they quit? Mr. POWELL. Inflation is coming down, but it is very high, is the thing. I have never said all of it or most of it, but some part of the high inflation that we are experiencing is very likely related to an extremely-tight labor market. Wages affect prices, and prices affect wages, so I do think that is part of it. More to your point, though, there was a time when there was a tight relationship between inflation and unemployment. In other words, the Phillips curve was steep, and that went away over the period of the Great Moderation. And really, in our thinking, that is because people came to expect 2-percent inflation and we had 2- percent inflation, and then people just stopped focusing on infla- tion, and it stayed very low. So, there was really no relationship or a very, very tiny relationship. We could have very weak eco- nomic growth or very strong economic growth, and we wouldn’t have inflation respond very much. That was before the pandemic, though. Mr. FOSTER. Okay. I hope you don’t overlearn some of the lessons there. It is one of my worries. There have been a number of exoge- nous shocks to the system here, and it will take a while to go through them. You want to be careful there. And a related issue, when you say refer to the totality of factors, you are looking at a mixture of leading and lagging indicators when you look at this totality of factors. And perhaps you might be paying too much attention to the lagging indicators and not enough to the leading indicators, the example that you reference in your remarks, and there is more detail in the report about the dif- ference between using current rental payments versus the amount that you pay for a new rental contract, and the difference in how 21 much they lag. Had you paid more attention, for example, to the leading indicators like current rental contracts, then you probably would have picked up inflation earlier. You would have not gotten so far behind the curve on that. And secondly, there are policy implications going forward. If you look at current rental prices for new contracts, you are much fur- ther along in fixing inflation, and you can take your foot off the brake. So, what is your thinking on that and whether you may per- haps be systematically not paying enough attention to leading indi- cators versus lagging ones? Mr. POWELL. We have had our eyes on the whole housing infla- tion thing from the very beginning, and right now, what I would say is that every forecaster is baking in lower rent increases. That is a big part of why people think inflation is going to come down in 2023. I think the thing with transitory is it more had to do with goods, and it had to do with the thought that the supply side dis- ruptions would go away much quicker than they would, that the labor market disruptions would go away much quicker than they did. And in hindsight, it just took much longer for those disturb- ances to go away. Mr. FOSTER. Yes, and if you allow yourself to Monday-morning- quarterback yourself, you probably would have gone up to 4 per- cent earlier and not had such a big problem with inflation. Are there structural things you can contemplate or even after-action re- views to say what would have happened if we would have paid more attention to the leading indicators or, an engineering term, improved the bandwidth of your feedback regulator? If you want to get the best result, you need a high bandwidth feedback in the sys- tem even when there is averaging on the back end. Mr. POWELL. This is something we only think about during wak- ing and sleeping hours, as you can imagine. It is really hard to know what the lessons are. Again, nobody had seen the supply chains collapse. No one had seen labor force participation plummet or unemployment go to 14 percent and higher than that really— Chairman MCHENRY. The gentleman’s time has expired. Mr. POWELL. —it would take to go away. And if we ever see this pitch again, we will know how to swing at it, but it has been— Chairman MCHENRY. We will now recognize the— Mr. POWELL. —a bunch of firsts. Sorry. Chairman MCHENRY. The gentleman’s time has expired. We will now go to the gentlewoman from Missouri, Mrs. Wagner, who is also the Chair of our Capital Markets Subcommittee, for 5 minutes. Mrs. WAGNER. I thank you, Chairman McHenry, and, Chair Pow- ell, welcome. Thank you for your service and for being here today. Yesterday, I was pleased to hear you discuss how inflation is se- verely hurting the working people in America. In your testimony, you also state that strong wage growth is good for workers but only if it is not eroded by inflation, and that is key. Inflation is a tax, a hidden tax on every American. If the Federal Reserve were to shirk its mandate to stabilize prices, leaving inflation alarmingly high, what would it cost America’s hardworking families in Mis- souri’s 2nd Congressional District and beyond? Mr. POWELL. I think the costs of failure to restore price stability would be extremely high, and while there will be a cost to success, 22 the cost of failure will be much higher. You would be looking at an extended period where people learn to expect and live with high and volatile inflation, and it is very, very hard to have rising real incomes during such a period. So, it would be a bad thing for the country. Mrs. WAGNER. Can you reassure the committee that the Fed re- mains committed to bringing prices down for our constituents? Mr. POWELL. Yes, I do. Mrs. WAGNER. Thank you. Mr. POWELL. I hereby assure you. Mrs. WAGNER. And changing topics here a bit, as China’s econ- omy reopens, and about 18 percent of the world’s population re- sumes its consumption of oil and other key goods, what sort of in- flationary impact will we see here in the United States, sir? Mr. POWELL. A faster reopening of China, which it looks like we may be seeing, does have the potential to put upward pressure on commodity prices, but it also would mean a faster sort of unravel- ing of the problems in supply chains, so those would be offsetting effects. I think sitting here today, we don’t expect the net effect to be big for the United States. It might be bigger for other parts of the world, but we think it ought to be moderate overall. Mrs. WAGNER. China is one of the world’s top oil importers. Do you expect any inflationary effects on global energy markets as China’s oil consumption returns to previous levels? Mr. POWELL. I think oil prices could be affected. I think that is a big concern in Europe, for example. We have our own domestic oil and we have a lot of natural gas as well. Mrs. WAGNER. We sure do. I wish we were actually harvesting more of that liquid natural gas. Chair Powell, you, Vice Chair Barr, and many others have recently identified that the banking system is well-capitalized and strong. Bank capitalization remained robust during the shock of the pandemic and related shutdowns of eco- nomic activity. Capitalization of large financial institutions weath- ered severe stress testing mandated by the Fed. And despite all of that, as also previously mentioned by Chairman McHenry, Vice Chair Barr insists on conducting a review of capital rules. I am concerned that this review is being conducted in a silo, and that the findings will not be made fully available to the public. Taking such an approach in the context of this holistic capital re- quirement review would make it impossible to conduct a trans- parent rulemaking process, denying the public information nec- essary to consider and to comment. I think this is just simply not appropriate in this situation, and I am concerned by the lack of clarity, I think is the best word, perhaps at this point by the Vice Chair. I have a couple of questions. You have served on the Fed Board for over 10 years since the financial crisis regulatory framework has been put in place. And over that period, have you seen any real-world evidence that America’s banks are undercapitalized? Mr. POWELL. American banks are strongly-capitalized, and I be- lieve Vice Chair Barr has said that as well. Mrs. WAGNER. Yes. 23 Mr. POWELL. But the point is there have not been any real pro- posals to evaluate yet, and when there are, that will be done in a highly-transparent manner. Mrs. WAGNER. I hope so. I am glad to hear you say, ‘‘in a highly- transparent manner.’’ Do you agree that excessively-high capital levels constrain banks’ lending capacity, with spillover effects on jobs and living standards for Americans? Mr. POWELL. I think it is always a balance, right? More capital means more safety and soundness and more ability to withstand terribly-stressful periods, but it is more expensive. Equity capital is more expensive. U.S. banks have competed incredibly well around the world with the high levels of capital. Mrs. WAGNER. Yes, they have internationally. Mr. POWELL. That is a tradeoff that you are always going to be making when you think about capital. Chairman MCHENRY. The gentlewoman’s time has expired. Mrs. WAGNER. My time has expired, yes. Thank you. Chairman MCHENRY. We will now recognize the gentlewoman from Ohio, Mrs. Beatty, who is also the ranking member of our Subcommittee on National Security, Illicit Finance, and Inter- national Financial Institutions, for 5 minutes. Mrs. BEATTY. Thank you, Mr. Chairman, and I like that title. Chairman Powell, thank you for coming and being such a good col- league and friend. I have a couple of questions I am going to try to get through quickly. Chair Powell, in a press conference last month, you stated, ‘‘There is a lot of spending coming into the construction pipeline, both private and public, and that is going to support economic ac- tivity.’’ How do you think the strong pipeline of funding from what the Democrats put together in passing the Inflation Reduction Act, the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act will do to have economic activity this year and moving forward? Mr. POWELL. I guess I was making the point that there are a lot of sources of demand that we can rely on, even though demand has been relatively increasing at a relatively modest rate. Part of it is— Mrs. BEATTY. Will this help in that demand? Mr. POWELL. Yes. State and local governments, I mentioned, are about to— Mrs. BEATTY. Would you say this is a great thing that we have done, coming from the left of— Mr. POWELL. It is not for me to judge the merits of what gets done, but I am just saying there is— Mrs. BEATTY. But it will contribute— Mr. POWELL. —demand there that will support economic activity. Mrs. BEATTY. —and support it? Mr. POWELL. Yes. Mrs. BEATTY. I am going to assume from that, that that is a posi- tive. Let me go to the second question. Chairman Powell, the Fed- eral Open Markets Committee is projecting that unemployment will increase to 4.6 percent by the end of the year, and those costs, as we know, won’t be borne equally. If we look at the ratio from the last time unemployment was 4.6 percent and compare it to our numbers now, it would mean that White unemployment would go 24 up to about 0.9 percent, but Black unemployment would go up by 2.3 percent. Does that sound somewhat accurate to you? Mr. POWELL. Yes. Mrs. BEATTY. Can you address the disparity impact with that, and before you answer, let me go to the book, and thank you that it was put in our places together. In this book with your signature on it, it is stated, ‘‘However, while disparities in unemployment have largely returned to pre-pandemic levels, there still remains significant disparities in absolute levels of employment across groups like African Americans and Hispanics.’’ Can you address that? Mr. POWELL. I can. Right now, to your point, actually, African- American unemployment is, I think, 5.4 percent, which is just about as low as it has been since we started tracking it in 1972. Mrs. BEATTY. But differential from majority by— Mr. POWELL. That is 5.4 percent, whereas the overall is 3.4 per- cent, and that includes Blacks, so that means for Whites, it is well lower than that, so there is a persistent gap between Black and White unemployment. And also, when unemployment goes up quickly in a recession, it goes up much faster for African Ameri- cans. When the economy grows again, it comes down faster. So, that is somehow embedded in our economy. The best thing we can do is achieve stable prices so that we can have long expansions. And what happens in those long expansions is that the labor mar- ket gets tight, sustainably tight, and we have historic lows in un- employment, including for African Americans. Mrs. BEATTY. Let me say, thank you. As you know, in the 117th Congress, I was the Chair of the Diversity and Inclusion Sub- committee, and let the record state that you always pushed for making sure that you understood and respected that. This is very minor and certainly personal to me. In this report, maybe those who helped you author it, I would like to see the areas that talks about unemployment not under a title of special topics, but some- thing that draws a little more attention to it as some of the others. Just very minor. Last question, can you tell me if the Fed is committed to working with the other agencies like the FDIC and the OCC to finalize a rule soon on the Community Reinvestment Act (CRA)? Certainly, that is something of great interest to many of my colleagues, so can you give us any updates on it, or how the process is going, or what we can expect? Mr. POWELL. Yes. With Governor Brainard’s departure from the White House, I have asked Vice Chair Barr to take the lead in moving it forward. I would characterize it that there is essentially agreement between the three banking agencies on the changes to be made. That is all being written up and vetted, and at a certain point, the members of the Board of Governors will be briefed on it, and will vote on it. Mrs. BEATTY. Is there anything we can do to help with that? Mr. POWELL. No, I think we are hard at work on it. It is going to take some months, but I think we can see the airport and we will be landing in a few months. Chairman MCHENRY. The gentlewoman’s time has expired. Mrs. BEATTY. Thank you. I yield back. 25 Chairman MCHENRY. The gentleman from Kentucky, Mr. Barr, who is also the Chair of our Financial Institutions and Monetary Policy Subcommittee, is recognized for 5 minutes. Mr. BARR. Thank you, Chairman McHenry. And, Chairman Pow- ell, economic data are mixed, as you know. On the one hand, low unemployment, robust hiring, strong consumer spending, and per- sistent core inflation, and a CPI that is still more than 3 times your 2-percent target suggests more aggressive tightening is war- ranted. On the other hand, because the Fed misjudged the infla- tionary impact of Democrats’ overspending, kept interest rates too low for far too long, and failed to end quantitative easing soon enough, the Fed has been forced to raise the Fed funds rate 450 basis points in just 11 months and reduce the M2 money supply at the fastest rate since the 1930s. As a result, wage gains have slowed, credit card debt is at an all-time high, the housing market is in a slump, and the yield curve is inverted. I agree with you that the historical record cautions strongly against prematurely loosening policy, but what would you say to those who caution about the lag effects of monetary policy, the pre- cipitous decline in liquidity? Will the economy have to suffer a re- cession in order to bring inflation down to 2 percent? Mr. POWELL. We are very well aware of the lags with which mon- etary policy affects economic activity, inflation. Those are long and variable, and, I would stress, highly uncertain. There is nearly no agreement on exactly how long they are, but we know that slowing down the pace of rate hikes this year is a way for us to see more of those effects as they come in. Mr. BARR. In December, most Fed officials expected to lift rates this year to between 5 and 5.5 percent. Is that still your estimated terminal rate, or does the data suggest that the terminal rate could be higher than 5.5 percent? Mr. POWELL. My colleagues and I will write down new forecasts and release them to the public on March 22nd. But as I mentioned in my testimony, the data we have seen so far this year suggests that the ultimate level of rates will need to be higher, but we still have some more data to come in between now and the meeting. But as of today, it suggests a higher level than that. Mr. BARR. Let’s go to Vice Chairman Barr’s review of the capital framework. I have a lot of questions for you on that. When Gov- ernors Brainard, Quarles, Clarida, Bowman, and Waller made up the Board under your leadership, major changes in policy were ad- dressed following Board consensus and not when there was signifi- cant dissent. Will you commit to not implementing a new capital framework following this holistic review or the Basel end game if there is considerable dissent from the Board? Mr. POWELL. I can’t really commit to that. We are a consensus kind of an organization, and that is what we will work toward, but ultimately, we— Mr. BARR. Would that be a break from your prior practices? You are a consensus builder, Mr. Chairman. You pride yourself on that, and we credit you for being a consensus-oriented Chairman. Will you commit to continuing that practice and not allow major changes to the bank capital regulatory framework to be made by one person? 26 Mr. POWELL. They can’t be made by any one person, but I do commit to that. And I commit to doing everything I possibly can to bring people together in consensus, to have something that can be broadly supported. Mr. BARR. Thank you. Earlier this year, you said, ‘‘We are not and will not be a climate policymaker.’’ However, in the Fed’s draft Principles for Climate-Related Financial Risk Management for Large Financial Institutions, one proposed principle suggested that boards of directors of financial institutions should consider making changes to compensation policies to align with values in the context of supposed climate risks. It appears then that the Federal Re- serve, through regulation, wants to begin implementing climate policies, so which is it? There seems to be a disconnect between your statements publicly and the rules that the Board is putting forward for comment. Mr. POWELL. I feel strongly that climate change is an important issue that needs to be addressed by elected people. It is just not something that we have been charged with by Congress. So, we do have a narrow role, and that role will be around making sure that banks understand and can manage the risks that they are running, and that is going to be it. And as I said before, we don’t want to drift into becoming a climate policymaker, and we will have to guard that border very carefully. Mr. BARR. Regarding the Fed’s Climate Scenario Analysis pilot program, did the Board vote to approve the creation of that pilot program? Mr. POWELL. I have to check, but I don’t think so. I think it was already authorized. Mr. BARR. And this is a concern that I have. I am concerned that one Governor acting unilaterally to implement major policy changes without Board consensus is a problem. So, I would urge you and your colleagues on the Board to continue a consensus-ori- ented approach. I yield back. Chairman MCHENRY. The gentleman’s time has expired. We will now go to the gentleman from Connecticut, Mr. Himes, who is also the ranking member of the House Permanent Select Committee on Intelligence, for 5 minutes. Mr. HIMES. Thank you, Mr. Chairman, and welcome, Chairman Powell. Thank you for your careful conduct of monetary policy, independent of the many political desires that circulate in this building. Independent monetary policy is a bedrock of a solid econ- omy. I want to reflect for a moment on another bedrock of the American economy: the full faith and credit of the United States Government, which is now being put at risk by the Republican Ma- jority. My Republican friends know how very dangerous a game they are playing. They know that salary payments to our soldiers are at risk. They know that their irresponsibility will raise mortgage rates for new homebuyers, but they say this is the only time we focus on spending in the debt, which, of course, is baloney. It is a pernicious form of baloney. The time to focus on the deficit is when you are voting for the spending and the tax cuts that create the deficit. When you are voting for the Trump tax cuts, which the 27 Congressional Budget Office (CBO) said would add $2 trillion to the national debt, that is the moment to consider whether you want to do that, not when the good name of the United States is hanging in the balance. This stuff gets a little complicated, but the American people real- ly need to understand what is happening here. The Congress sits down to a huge 10-course meal of tax cuts, and spending, and more defense spending, and expansion of this program and that stim- ulus, all of which we vote for collectively, first course, second course, white wine, red wine, four servings of dessert. And then the bill comes and Republicans say, whoa, wait a minute, wait a minute. Hold on. Look at this bill. This is irresponsible. Do we real- ly want to pay this bill? That is not the moment for the consider- ation. The moment is when you are ordering four helpings of des- sert. That is when we should be talking about it and taking respon- sibility for the choices that we make without putting the full faith and credit of the United States at risk. Now, here is where the hypocrisy comes in. My Republican friends like to point the finger at this side of the aisle and blame us, but, Chairman Powell, as you know, fully one-quarter, 25 per- cent of today’s U.S. debt, was accrued in the 4 years of the Trump Administration. This country has been around for 246 years, and fully one-quarter of the United States’ debt was accrued under President Trump. By the way, speaking of hypocrisy, in the 4 years of President Trump, the debt ceiling was raised or suspended 3 times. I didn’t even notice, but now, of course, we have a different President, and so the calculus is different. Now, I don’t think I am going to persuade the Majority to act re- sponsibly here. I actually think the markets will persuade them. And you will recall, because we were watching this closely, that on September 29, 2008, the Republican House of Representatives voted down the Great Recession rescue package. As the vote was going down in the House of Representatives, the equity market dropped 7 percent, with $1.2 trillion lost from people’s retirement accounts. Then, Congress sobered up, and a couple of days later, we passed the Rescue Act. So, Mr. Chairman, there is a question here and the question is this. You and I both watch the markets pretty closely. Treasury tells us that on June 5th—that is just 3 months away—the Treas- ury runs out of money. My question to you, Mr. Chairman—and I know I am asking you to be a little speculative here—is what should we watch for? What market signals could indicate that the markets are getting fed up with the manifest irresponsibility around this? Give us some things that we should be looking for? Mr. POWELL. And I would love to, but I am going to limit myself to what other Fed Chairs have said about the debt ceiling, which is that it does need to be raised by Congress. In the end, there are no rabbits in hats, as I mentioned, and also no one should assume that it is the Fed’s business to protect the economy from various events. And no one should assume that we have the tools to predict the highly-uncertain effects of that kind of an event. Mr. HIMES. Monetary policy is obviously very concerned with in- terest rates. If global capital markets begin to decide that we are really serious about hurting ourselves this time, is it possible that 28 we could see interest rates rise more because borrowers of United States debt decide that we are actually a little risky? Is that pos- sible? Mr. POWELL. I think that and many other things are possible. The thing is, we have never crossed that line, and if we cross that line, we are going to find out, and I think it is highly uncertain. Mr. HIMES. Okay. So, that is possible. And you know I don’t like pressing you on these things, but you said that this and many other things are possible. Do you want to elaborate on what might be in the category of, ‘‘many other things?’’ Mr. POWELL. I would rather not, actually. Mr. HIMES. Okay. I figured. Thank you. Mr. Powell, again, I thank you for your really responsible conduct of monetary policy. And there is a reason that you are insulated from our political de- sires, and I very much appreciate that, and I yield back. Chairman MCHENRY. The gentleman yields back. The Chair now recognizes the gentleman from Texas, Mr. Roger Williams, who is also the Chair of the House Small Business Committee. Mr. WILLIAMS OF TEXAS. Thank you, Mr. Chairman. And Chair- man Powell, it is good to see you. It’s always good to have you here. In past congressional testimony, you have repeatedly stated that you support protecting the State-based system of insurance regula- tion, which is the most effective and competitive in the world. And my home State of Texas is the world’s 7th-largest insurance mar- ket, proving the success of this system. Now, with the International Association of Insurance Supervisors (IAIS) conference in November, there is the opportunity to have the U.S. State-based aggregation method become formally recognized as comparable or equivalent to the insurance capital standard. We should not be following the European model that has increased reg- ulations and less competition, and we should prioritize a model that encourages deregulation, competition, and less government in- volved in pricing. My question is, Chairman Powell, can you highlight the benefits of the U.S. State-based aggregation method compared to the Euro- pean model regarding market resiliency and systemic risk, and can you confirm that you will push for an aggregation method to be deemed equivalent by the IAIS? Mr. POWELL. I can say this. I do think that our insurance regu- latory system has proved itself appropriate and adequate and has gotten the job done for a long time, and we don’t need to be copying other country’s or other region’s insurance regulatory systems. I am a little rusty on the details of the capital requirements, but that sounds right. Mr. WILLIAMS OF TEXAS. But the bottom line is, our side works, and the other doesn’t. We need to stay where we are. Mr. POWELL. Our side works. Mr. WILLIAMS OF TEXAS. Yes, thank you. Also, in the past, you stated that banks were well-capitalized. We talked about that today, but now there have been increased conversations about rais- ing capital requirements. Numerous economic studies have found that raising capital requirements for banks will increase borrowing costs for their consumer and commercial customers. In 50 years, I have never had a day I wasn’t out debt, so I am concerned about 29 this, and implementing additional regulatory capital requirements will slow economic growth and limit financial institutions’ lending ability. So, do you believe that raising capital requirements would raise the cost of borrowing and add cost to our economy and to Main Street America? Mr. POWELL. It depends on which banks experience higher cap- ital requirements, and there isn’t any proposal to evaluate right now, of course, but it is always a tradeoff. Higher capital is good in a sense, because it keeps banks able to lend during bad times. That is really a good thing. Too much capital, though, probably lim- its credit availability, so we are always trying to strike that bal- ance. Mr. WILLIAMS OF TEXAS. This has been touched on a little today, but let me come from a different angle on it. The Federal Reserve was created to act as a nonpartisan entity that remains separate from party politics. You talked about that. Unfortunately, through- out recent years, the Fed has gotten caught up in politically- charged issues like economic inequality, gender and race discrimi- nation, and climate change. Recently, the Federal Reserve Board proposed guidance on managing climate-related risks for large banks, further proving that the Fed is giving in to some political pressure and operating outside its intended purpose and respon- sibilities. Our country’s financial leaders, in my mind, should be focused on addressing runaway inflation instead of worrying what the finan- cial institutions are doing to monitor climate change. We have touched on this a little bit, but how can the Fed ensure that they are not placing undue regulations and guidance on banks by forced involvement in partisan green politics, and how is the Federal Re- serve ensuring they remain separate from political influence? Mr. POWELL. Our independence is partly founded on the idea that we will stay out of stuff that you have not assigned us to do, and if we are going to wander all over and take on the hot issue of the day, our case for our independence is dramatically weakened. On climate change, you mentioned the guidance, and then there are also the stress scenarios, and those are the two things that we have done. We tried to keep those tightly focused on the banks’ un- derstanding and being able to manage the risks that they will run over the longer time periods on climate, and not slide into a broad- er sort of policymaking role on climate change. I accept that that could be a slippery slope and a moving border. And I just want to say I think my colleagues feel the same way on the Board, that we are going to guard that border carefully, and we are going to stick to our role and not try to be policymakers. In many other countries, the central bank is out there in the lead with the support of the public doing climate policy, but that is not where we are in the United States, and we are not going to pretend that it is. Mr. WILLIAMS OF TEXAS. I have some time left, and I yield back, but I just want to say as an auditor, I am looking forward to that first day of that rate cut. Thank you for being here. We appreciate it. 30 Chairman MCHENRY. The gentleman’s time has expired. We will now go to the gentleman from California, Mr. Vargas, for 5 min- utes. Mr. VARGAS. Thank you very much, Mr. Chairman, and again, thank you for holding this hearing. Chairman Powell, it’s a pleas- ure to see you again. I have said it before and I will say it again, it is always great to see you because I always think of the old Re- publicans, the ones who are very noble, did the right thing, didn’t play chicken with the economy, very forthright. Anyway, I appre- ciate you being here very much. Like some of my colleagues on the other side, I would say the same thing about some of them, and I appreciate you. We heard today that the inflation is President Biden’s fault. What is the inflation rate in the European Union today? Mr. POWELL. It is high. Mr. VARGAS. It is high. Is it 10 percent possibly? Mr. POWELL. I don’t have that figure in my head, but it is very, very high from a headline standpoint, and they have had core infla- tion move up, too. Mr. VARGAS. Are they following President Biden’s policies? Is that what caused the inflation, because it seems to be President Biden’s fault? Mr. POWELL. I think inflation is everywhere, and it must have to do with a common factor, and that common factor has to be the reopening of the economy after and the things that were done with COVID. On the other hand, each country has a little bit different case, and I think you have to be careful. We had much more of a demand-oriented issue than they did. Their inflation looks a lot like ours did a year ago. Mr. VARGAS. Okay. Yes, I just had to bring it up, because, again, Mr. Sherman brought it up, but it is interesting. Every time I hear inflation is caused by President Biden, I wonder, why is it all over the world? It is not because of the pandemic, of course, or because Europe is at war. That wouldn’t cause it, of course. It would have to be President Biden’s policies. That is ridiculous, and I think the voters saw through it last time. I haven’t been here for 15 years like my good friend, Mr. Foster. I have only been here for 11 years. But when I first got here, I heard from my friends on the other side that the boogeyman was the Dodd-Frank Act. Dodd-Frank was going to be the end of bank- ing, and, in fact, all my colleagues would almost scream how hor- rible this was. And then we got the bankers up here during a real stress test, which was the pandemic, and we asked them, has it been helpful to have Dodd-Frank? Do you know what they said? Mr. POWELL. I don’t. Mr. VARGAS. They said it was helpful. In fact, it kept the banks capitalized. It was fascinating. Now, to be fair to them, they did complain about some of the smaller issues, but not Dodd-Frank in general, the bill. Then, it seemed that the Consumer Financial Pro- tection Bureau (CFPB) became the next boogeyman, but they seem to be fading on that. And I think the reason for that is the CFPB has actually helped so many people, that now a lot of their own constituents now are getting helped by the CFPB. All of a sudden, there is not quite the energy. So now, they are attacking ESG, and 31 they are saying that you and everybody else is somehow conspiring to make sure they don’t buy their oil or their coal. Are you con- spiring to do that? Are you conspiring? Mr. POWELL. No, I don’t believe we are conspiring. Mr. VARGAS. No? Now, I heard it was supposedly climate risk. Is there a risk in the climate change? Mr. POWELL. Yes. Mr. VARGAS. There is? Could it affect the banks? Mr. POWELL. Certainly, in the longer run, yes. Mr. VARGAS. Yes, of course, it can. Do you think insurance com- panies take this into account? Mr. POWELL. Yes. Actually, I believe they do. Mr. VARGAS. They absolutely do. Mr. POWELL. They write long-duration liabilities. They certainly do. Mr. VARGAS. Of course, they do. They are very concerned with it. Weather is a big deal. I was the vice president of Liberty Mutual in their corporate legal department, and we used to have what we called catastrophes, and these catastrophes happened every 25, 50, or 100 years. Now, those 25-, 50- and 100-year events happen every 5 years, or every 2 years. So, of course, it is. It is ridiculous not to take a look at these ESG factors. We have to, and, again, I am glad that you are taking a look at it, because it is real. I am glad that the President is taking a look at it. And it is sad that my colleagues on the other side just want to stick their head in the sand and say, no, climate change is, ‘‘supposed climate change.’’ No, the reality is that it is real climate change, and it is costing billions and billions of dollars. And if you don’t be- lieve it, go ask all those poor people in Florida who had those huge hurricanes come through and wipe them out. Again, I appreciate very much the work that you have done. The only thing I hope is, as you said, that if we ever see this pitch again, we will know how to swing at it. And I hope we don’t get the pitch of defaulting because I am not sure we will know how to swing at that one. Thank you again, Mr. Chairman. Mr. POWELL. Thank you. Mr. VARGAS. I yield back. Chairman MCHENRY. The gentleman yields back. The Chair now recognizes the gentleman from Michigan, Mr. Huizenga, who is also the Chair of our Subcommittee on Oversight and Investiga- tions, for 5 minutes. Mr. HUIZENGA. Thank you, Mr. Chairman, and I am going to move quickly. It’s good to see you again, Chair Powell. I caught a little bit of the Senate hearing yesterday, and you had a lot of pres- sure to keep the sugar high going. And frankly, if the Fed and many of our colleagues had listened to what many of us were say- ing, we should have been weaned off that artificially low, cheap money that kept the party going, and frankly, we wouldn’t be in this position. To reference Chair Greenspan’s punchbowl analogy, not only did no one have the courage to remove the punchbowl, you had people cheering on the pouring of another bottle of 151 rum into the punchbowl, and here you have folks wanting to do the exact same thing. Let’s spend more, and now, here we are. You have an impos- 32 sible decision: to slow the economy or let everyone get crushed by inflation. And we know tightening means a slower economy. And a slower economy means fewer jobs. Fewer jobs hit those who can least afford to lose a job. And so, in short, the lower rungs of the economic ladder will suffer more than the rest of the ladder, so that is the state of play of where we are at currently. I have to hit a couple of quick issues here. I wanted to start off by discussing climate, especially given the Fed’s announcement in January that they were going to conduct a Pilot Climate Scenario Analysis Exercise. The Fed, along with the OCC and the FDIC, have each issued proposed climate risk management principles for banks that you are attempting to finalize by the end of the year, and their requirements don’t stop at the border. The U.K. and the EU central banks are moving to require significant ESG disclosure regimes as well. I know the Fed is taking a look at commodities capital charges in the holistic review, but even though the Fed isn’t forcing banks to encompass climate analysis in their stress tests, there are many initiatives at the Fed that are going to make it more costly for banks to finance traditional fossil fuel companies. I want to ask you a very specific question: Will you commit that you will withhold support for a new capital rule that increases capital charges on bank activities in traditional energy companies? Mr. POWELL. I can’t sit here and promise what I will and will not vote for, because I don’t know what is going to be in the proposal, but that is not the kind of thing I think we are looking at. Mr. HUIZENGA. I’m sorry. It is not the kind of thing— Mr. POWELL. This is about overall capital levels more than any- thing else, I think, rather than the specific thing you are talking about. Mr. HUIZENGA. Okay. We are going to follow up on that, because we need to have a real-time conversation about what is going on there. I want to quickly switch topics and go in a different direction for this next question. I want to ask you about two opinions issued by your legal staff in November of 2019 and December of 2022 to the asset managers, Vanguard and BlackRock. Chairman McHenry, I would like to submit the two letters for the record. Chairman MCHENRY. Without objection, it is so ordered. Mr. HUIZENGA. Thank you. These opinions appear to outline the parameters of how both Vanguard and BlackRock can operate with- out being deemed a bank holding company. In addition to the legal restrictions outlined by the bank holding company, these opinions listed out here in quite detail list out commitments that the compa- nies would need to take to avoid being viewed as having, ‘‘control.’’ These opinions also appear to provide assurances that the Federal Reserve Board staff would not recommend that the Board find the asset managers to be bank holding companies. Further, it is un- clear whether the Board will take any steps beyond a periodic self- certification by the asset managers to monitor compliance, with the condition that they, ‘‘not take any action to control a banking orga- nization. As some asset managers play a larger role and clearly strive to influence policy in companies across the free market, we need to remain vigilant.’’ 33 So, Chair Powell, is the Board taking any steps to assess or mon- itor whether Vanguard and BlackRock are complying with the com- mitments made in November of 2019 and December of 2020, re- spectively? Mr. POWELL. I would have to check and get back to you on that. Mr. HUIZENGA. Okay. Mr. POWELL. I am familiar with the issue. Mr. HUIZENGA. I appreciate that, but that says to me that it doesn’t sound like there is an ongoing assessment that is taking place or scrutiny of that. Is somebody reviewing that or is some- body in charge of reviewing that? Mr. POWELL. That is a very specific, narrow question. I am quite familiar with the issue. Mr. HUIZENGA. It is specific and narrow to two companies, but not to an industry. That is what we need to be driving at, and I guess we need to find out whether there is somebody proactively reviewing these activities and these commitments that the compa- nies have made as well as the Fed has made. How often do you think they should be reassessed: annually, monthly, biannually? Mr. POWELL. This is a very narrow set of questions. I can get you great answers really easily, but I don’t have them in my head to— Chairman MCHENRY. The gentleman’s time has expired. Mr. HUIZENGA. I look forward to those great answers, and I yield back. Chairman MCHENRY. We will now go to the gentleman from New Jersey, Mr. Gottheimer, for 5 minutes. Mr. GOTTHEIMER. Thank you, Mr. Chairman. And Chairman Powell, thank you for joining us today. Chairman Powell, when you testified before the committee last June, PCE inflation was up 6.3 percent year-over-year. Just a few weeks ago, PCE data showed that the number has decreased to 5.4 percent. We are moving in the right direction, but despite the Federal Reserve raising interest rates, the highest rates since October 2007, we are still far off from the 2-percent inflation that the Federal Reserve is targeting. Do you believe 2 percent is still the right target for inflation? And given the ongoing energy transition, the push to shift supply chains out of China, and the labor shortage here in the U.S., should the Fed consider adjusting its target to avoid overly bur- dening Americans? Would a decline to 3-percent inflation be enough to offer price stability without excessive economic pain? Mr. POWELL. No, 2-percent inflation is going to remain our longer-term inflation goal. Mr. GOTTHEIMER. Are you concerned, given all of the other fac- tors that I mentioned, or do you think we just have to keep sticking with that? Mr. POWELL. I think that has to remain our longer-term inflation goal. It is the global standard and it is our standard, and this is not a time at which we can start talking about changing it. We have no instinct to do that. Mr. GOTTHEIMER. Thank you, Mr. Chairman. The gig economy has grown significantly in recent years as more Americans are working as contractors or running small businesses. The Dallas Federal Reserve has written that gig workers are often not in- cluded in payrolls and not counted among the unemployed, and 34 this may understate the number of Americans who could be count- ed as unemployed. The Fed has also noted a large number of Amer- icans who are missing from the workforce after the pandemic. Do we need to change the way we think about measuring unemploy- ment to account for these changes? Mr. POWELL. I missed the word you are saying. Gig? Mr. GOTTHEIMER. Sorry. Do you think we need to change the way we think about measuring unemployment to account for these changes? Mr. POWELL. I didn’t catch that. What was the word— Mr. GOTTHEIMER. Oh, sorry. Gig workers. Mr. POWELL. Gig workers. Mr. GOTTHEIMER. Yes, I’m sorry. Gig workers. Mr. POWELL. That is the word I didn’t hear. Okay. No, we clearly need to incorporate gig workers both into the labor force and to whether they are working, and they certainly are working. We are trying to do that. It is not that we are not trying to do that, but we may not be doing it perfectly. Mr. GOTTHEIMER. And is there a better way to capture them? Given we are still using older measurement ways, are we updating our measurement— Mr. POWELL. We are definitely trying to get those people. Self- employed people, they do report in the household survey, I believe. I can get more for you on that, but I am sure we are not doing a perfect job at it because it is a relatively new thing. But we are very well aware of it, and they are supposed to be included. Mr. GOTTHEIMER. That would be great. I would love to talk to you more about that. Mr. POWELL. Great. Mr. GOTTHEIMER. Thank you. As you are also aware, many of us are having discussions about the long-term fiscal health of our country and our economy. Like many, I worry that higher interest rates will put upward pressure on the national debt. CBO already estimates that annual interest costs will nearly triple for the U.S. over the next decade. You said to the Senate yesterday that inter- est payments are not a consideration of the Fed, but are you con- cerned that higher interest rates will more rapidly make payments on the debt unsustainable, and are there actions Congress should consider to address this issue? Mr. POWELL. I will say what my predecessors have said, which is that we are on an unsustainable path, and ultimately, we will get back on a sustainable path. And the sooner we get to work on that, the less painful it will be. Mr. GOTTHEIMER. And rates, of course, were low between the fi- nancial crisis and the end of 2021, particularly low. After the tar- get inflation rate is hit, what do you think the new normal looks like in terms of rates and the Fed balance sheet over the next 5 to 10 years? Mr. POWELL. That is a really good question. There was a secular decline in longer-term interest rates, which we don’t control, for 40 years, to the point where the 10-year Treasury was at 10 percent, and then at the end of 40 years, it was quite low. You are at higher levels, as you pointed out, levels we haven’t seen since earlier in this century. I don’t think anybody knows what this is going to look 35 like 5 years down the road. Demographics haven’t gotten better. Globalization may actually move a little bit in reverse, which would tend to produce higher inflation, and thus, higher rates. But you have to ask, of the factors that caused low rates, how much of that has changed, and some of it has, but much of it hasn’t. Mr. GOTTHEIMER. And building on that a little bit, what is the right metric, do you think, if you were in our shoes, for assessing our fiscal health? Do you think we should be focused on maintain- ing a specific debt-to-GDP ratio, or is there a specific number? Are there other measures lawmakers should be focusing on? Mr. POWELL. We have traditionally focused on debt-to-GDP, but many people pointed out before the pandemic that rates were secu- larly lower, and that, therefore, you could look at sort of real debt service. There was a lot of research on that, and by those meas- ures, actually, debt service was much easier to handle. Now, the 10-year is back close to 4 percent, and I think we need to be careful not to assume that these secularly-low longer-term rates are going to continue indefinitely, because that doesn’t look likely now. And frankly, most forecasts have always shown things like the 10-year going back to a higher level, so it won’t be that big of a change. I think it has more or less been handled, for example, by CBO that way. Mr. GOTTHEIMER. Excellent. Thank you so much, and I yield back. Thank you. Mr. POWELL. Thank you. Chairman MCHENRY. The gentleman from Ohio, Mr. Davidson, who is also the Chair of our Subcommittee on Housing and Insur- ance, is now recognized for 5 minutes. Mr. DAVIDSON. Thank you, Mr. Chairman. And Chairman Pow- ell, thank you. It is an honor to be able to talk with you today, and I appreciate the work you and the monetary policy focus portion of the Fed does. We are waiting for maybe a more consistent input from our bank regulators. So, for the regulatory side, I have spoken with multiple bankers who tell me that they have never seen a higher degree of regulatory burden, steering guidance, and shaping activities in the market from regulators, and I don’t think that is just narrowly focused on the Fed, but I ask you to look into it. There are a lot of people who feel like there is an Operation Choke Point 2.0 going on, and it is particularly focused on de-bank- ing people who are disfavored by the current Executive Branch pri- marily, just like the previous Operation Choke Point. And so to the extent that you yield any influence over the regulatory component of the Federal Reserve, I think that would be meaningful and im- portant, because part of the strength of the U.S. dollar is, of course, the stable store of value. Currencies around the world are wres- tling with that and inflation, and you all are working to tackle it. But the other part is, is it is an efficient means of an exchange, and when people really feel like some third party is going to steer or shape their money, they don’t trust it. For the unbanked and the underbanked, fundamentally, that lack of trust is part of why they don’t use our banking system today. In fact, that is part of the ap- peal of the digital asset space, is the permissionless nature of it. It seems that a lot of people in the financial services space who have grown up in it and are leading it today, feel threatened by 36 the prospect of change. And if they have maybe reluctantly con- cluded that you can’t ban crypto, they at least want to keep it ac- count-based so that some third party can actually control the as- sets, which is a polite way of saying we don’t actually trust our citi- zens to control their money or their assets. We will let somebody else do it for them, because we can control those third parties. And in fact, that is what the regulators do, isn’t it? Mr. POWELL. As in what? Mr. DAVIDSON. They control the third parties. If you don’t comply with the regulatory regime, you don’t get to operate a financial services business, right? Mr. POWELL. That is right. Mr. DAVIDSON. Yes. And at the end of the day, I think a lot of people were concerned by your remarks yesterday—I know I was— saying that permissionless digital assets pose a systemic risk to the financial system. Mr. POWELL. By the way, I think if you read through the digital guidance, which I did getting ready for this hearing—and of course, I read it before we put it out the first time—but it is pretty careful to say that we don’t want regulation to oppose innovation, and thus, entrench incumbents and things like that. It is pretty bal- anced, the language, and I think it essentially goes to the question of protecting the safety and soundness of institutions. I think what we say about it is—I will paraphrase it—that they have been vehi- cles for fraud, vehicles for— Mr. DAVIDSON. Zero-point-two-four percent. So, if you follow your own report on fraud, it is a fraction of what it is with the U.S. dol- lar. Speaking of the dollar, is there any real current threat to the dollars preeminence as the world’s reserve currency? Mr. POWELL. You are asking a question? I didn’t— Mr. DAVIDSON. Yes, sir. Mr. POWELL. Is there a real threat? Mr. DAVIDSON. Is there a threat? Mr. POWELL. I think that our status as the world’s reserve cur- rency is not under a particularly strong threat right now. I think it is a pretty stable equilibrium. It is not a permanent equilibrium, but there isn’t really a serious competitor, and that is because of our democratic institutions, and the rule of law, and the fact that the dollar’s value is pretty stable. Mr. DAVIDSON. Okay. Quickly, on the repo market, just any in- sight into that, and then I will have my last comment here and just leave the last word to you, but I’m particularly curious about the repo market. But I will close by simply saying I would ask you to turn off the purchase of mortgage-backed securities. As the Chair of the Housing and Insurance Subcommittee, I am particularly con- cerned about affordable housing, and the artificial prop for the mortgage-backed securities does raise the cost of capital in that space. So whether you own it, or occupy it, or rent it, it is going to raise the cost there, but I just ask if you would comment on the safety and soundness of the repo market, if you would? Mr. POWELL. Of the repo market—as far as I know, the repo market is functioning reasonably well these days. You are talking about the reverse repo facility or the— Mr. DAVIDSON. Yes. 37 Mr. POWELL. Reverse repo facilities are a different thing. We can continue this later. Mr. DAVIDSON. I would like to follow up with you later. My time has expired, so I yield back. Mr. POWELL. Thank you. Chairman MCHENRY. The gentleman from Illinois, Mr. Casten, is recognized for 5 minutes. Mr. CASTEN. Thank you, Mr. Chairman. Chairman Powell it’s al- ways a pleasure to see you, and I appreciate your time here today. I want to start with this chart in your monetary policy report, which I think is fascinating, Chart 14 on page 17. This is the his- tory of wage growth and job growth, and for those of you who don’t have it in front of you, broadly speaking, from 2000 to 2017, we had more workers than jobs. From 2017 until the COVID crisis, it was about the same, and since COVID, we have had more jobs than workers. And there is tons of rich stuff in here that I just en- joyed reading. But broadly speaking, if that was the only thing going on in the economy, I would assume that we had 20 years where it was essentially a buyer’s market for labor, and the last year-and-a-half where it has been a seller’s market for labor, as you look at that. And if I go through and I look at from 2010 to 2020, CPI was up 20 percent over the period and real median wages was less than 10 percent. So, for half of the economy, they didn’t keep up with wages, even though we think of that as a very low inflationary pe- riod. Corporate profits were also up strongly, as you would expect. I am not saying that with judgment. If it is a buyer’s market for labor, you would expect the gains from labor productivity to flow to consumers and profits, and it looks like that is what it did. In the— Mr. POWELL. Which chart you are looking at? Mr. CASTEN. This is Chart 14 on page 17. It is the top right cor- ner there. Mr. POWELL. Got it. Okay. Thanks. Mr. CASTEN. In the last year-and-a-half, median wages are up 5 percent, which is almost as much as they grew during that 10-year period before, and, yes, inflation is still a bit higher than that. But what I am wondering is, as you look at the economy, is wage growth universally bad in your view, or is wage growth good to the extent that it is keeping up with wages because, historically, wages didn’t keep up? And how do you think through that nuance, be- cause interest rates are a very blunt tool? And if you agree with me that we are now basically in a seller’s market for labor, shouldn’t we expect and welcome some of the wage inflation which goes with that? Mr. POWELL. I would say two things. First, we want wages to go up in ways that are consistent over time with the increase in pro- ductivity and inflation, and that makes all the sense in the world. The other thing I would say is that in this instance, what we have seen is these very high nominal wage gains have very largely been eaten up by higher inflation. So, it is very important that we re- store price stability so that we can start to see real wage gains after inflation across the income spectrum. 38 Mr. CASTEN. No. And to be clear, we are all opposed to inflation here. But in that 2010–2020 period that we all viewed as a very low inflationary period, the gains from productivity did not flow to labor. Wages did not keep up with inflation, and we didn’t think about that as a problem for the Fed to fix because overall inflation was down. This gets sort of theoretical, but let’s say that we had 6-percent wage inflation and 5-percent CPI. There would be more money in people’s pockets, but would we view that as an infla- tionary period to clamp down because we didn’t view the inverse as a problem, if you will? Mr. POWELL. Our job is to restore price stability and keep price stability. It isn’t to keep wages down, and it is certainly not to get involved in trying to establish the appropriate level of labor share of profits, for example. That is not the way we think about it at all. We think about price stability, and when we think about price stability, we think about wages as an important input to that. But we are not targeting a particular level of prices, and we would never say that we don’t want real wages to go up. What we are really charged with is price stability, and to do that, we have to think about wages. In particular, no one at the Fed would be upset to see the labor share go up, but that is not some- thing that our policies affect. That is set by globalization, and the advance of technology, and educational skills, and aptitude and all those things. That is what drives productivity, and that is what drives labor share. Mr. CASTEN. Yes, and I realize it is hard to have these conversa- tions in 5 minutes. Mr. POWELL. Yes. I would be happy to follow up after the hear- ing. Mr. CASTEN. I guess what is hard is that, also in that 2010–2020 period, median home prices went up by 50 percent. We didn’t view that as inflationary. And 401(k)s went up a lot. We didn’t view that as inflationary because those were asset increases. So, as we have shifted the gains from people who had wealth to people who were dependent on wages, there needs to be some correction. And I leave it there because I am out of time, but how we think about that— Chairman MCHENRY. The gentleman’s time has expired. Mr. CASTEN. I yield back. Chairman MCHENRY. We will now go to the gentleman from Ten- nessee, Mr. Rose, for 5 minutes. Mr. ROSE. Thank you for being with us today, Chairman Powell. I just want to echo at the outset some of the concerns that my col- leagues have raised about Vice Chair Michael Barr’s, ‘‘holistic re- view,’’ of capital markets, and also about the Fed engaging in cli- mate policy, as well as your decision to put Vice Chair Barr in charge of the Community Reinvestment Act rulemaking. With that said, I am going to dive right into my questions. Chair Powell, I was pleased to see that the U.S. Coin Task Force released their report on the State of Coin a few months ago. The report notes that the Federal Reserve and the U.S. Mint will be jointly contracting with a third-party consultant to review the coin supply chain and develop recommendations to improve it. 39 Chairman Powell, could you provide us with an update on what the Fed has learned from its review of the coin circulation issues that occurred during the pandemic? Mr. POWELL. We know that the natural flow of coins in the econ- omy slowed down a lot because people were staying home and that kind of thing, and they may have switched to non-coin-based means of payment. And we feel like the evidence shows that has continued now. People are paying electronically and things like that, and coins are sitting in jars on people’s desks and at home, and they are not circulating back into the banks, and thus, to the retail stores. So, we are working on that. We are working with the Mint. We are working with all of the stakeholders in the coin eco- system to try to address this problem, and we are well aware of it. Mr. ROSE. It seems to me that what we learned from that is that it is probably necessary to have a greater reserve of coins if there is such an interruption in the future so that commerce is not in- deed interrupted. Would you share that broad view? Mr. POWELL. That sounds right. I am not an expert. I will say it feels like we need more coins now because more of them are sit- ting in people’s homes and pockets, and they are not flowing back to where retailers, in particular, need the flow of coins. So, that sounds right to me. Mr. ROSE. On a related note, could you speak about the impor- tance of maintaining cash as a viable payment option, particularly for those who lack or don’t have access to traditional financial serv- ices? Mr. POWELL. We think it is absolutely critical, because there are people who don’t have credit cards. Many people don’t have credit cards, they don’t have good credit, and they need to be paying in cash. And when stores are not dealing with people who don’t have cash, it is a serious problem for those people in the economy. We have it at the Board of Governors and you see it elsewhere because most payments are now taken care of by credit cards, and it is very efficient, but we need to be looking out for people who use cash. Mr. ROSE. Thank you. I appreciate the perspective. Picking up on Mr. Luetkemeyer’s concerns that he expressed earlier, as you know, the Consumer Financial Protection Bureau’s (CFPB’s) fund- ing mechanism is intricately linked to the Federal Reserve System. According to Title X of Dodd-Frank, each quarter, the CFPB Direc- tor requests an amount that is reasonably necessary to carry out the Bureau’s authorities, and the Federal Reserve must transfer that amount so long as it does not exceed 12 percent of the Federal Reserve’s total operating expenses. For the first 5 years of the existence of the CFPB, of course, there was a relaxation there with respect to that 12-percent cap that allowed $200 million annually to be spent beyond that number so long as it was reported and so long as the reported excess was sent to the President by congressional appropriators. Chair Powell, during your chairmanship, has the Fed ever rejected a CFPB budg- et request? Mr. POWELL. I do not believe so. 40 Mr. ROSE. And could you tell us what policies and procedures are in place at the Fed to ensure that there is no waste, fraud, or abuse, or that these limits are not otherwise exceeded? Mr. POWELL. We have no role in engaging with that. We share a common Inspector General who does work on those issues, but we don’t have any governance of any kind over the CFPB. We are just a source to them. Mr. ROSE. Thank you. I appreciate that insight. In closing, Chair Powell, yesterday Senator Warren asked you what you would say to the 2 million people who may lose their jobs if the Fed keeps raising interest rates. Frankly, Senator Warren should have been asking herself the same question when she voted and advocated for the Democrats’ reckless spending packages that caused this infla- tion that we are seeing today, and is the reason the Fed has had to raise interest rates, in my view. Frankly, I would call on Senator Warren, the President, and the Democratic Party, for that matter, to apologize to the American people for causing this kitchen table crisis across the country. With that, Mr. Chairman, I yield back. Chairman MCHENRY. The Chair now recognizes the gentle- woman from Massachusetts, Ms. Pressley, for 5 minutes. Ms. PRESSLEY. Thank you, Chairman Powell, for joining us today and for your testimony. I am going to focus my comments and my questions on the high costs that families in my district are seeing because of your interest rate hikes. Now, while the Fed has ac- knowledged that higher interest rates are not the primary driver for the slowdown in price increases, you continue to raise interest rates, risking not only millions of jobs, but also a recession. Based on projections from the Fed, approximately 2 million people will lose their jobs, so that is 2 million families who will struggle to put food on the table, keep a roof over their heads, and to make ends meet, but the economic hardship does not end there. Mr. Chairman, I would like to request unanimous consent to sub- mit a recent paper by the Federal Reserve Bank of Cleveland, enti- tled, ‘‘Post-COVID Inflation Dynamics,’’ into the record. Chairman MCHENRY. Without objection, it is so ordered. Ms. PRESSLEY. Chairman Powell, are you familiar with this pub- lication? Yes or no? Mr. POWELL. No, I am not. Ms. PRESSLEY. Okay. Let me give you some context. In this paper, the Fed’s own economists predict that reaching the 2-per- cent inflation goal that you have set will be impossible without causing a recession and spiking the unemployment rate to 7.4 per- cent, which translates to millions of working people losing their jobs. Chairman Powell, many economists agree with me when I say that engineering a recession to bring inflation under control is not the right strategy, especially at a time when we are seeing inflation cool in real time, independent of your rate hikes. On behalf of the people of this country, to prevent a recession, yes or no, Chairman Powell, will you pause future interest rate hikes? Mr. POWELL. We are not seeking to have a recession, and we don’t think we need to have a recession to get— Ms. PRESSLEY. Respectfully, will you pause interest rate hikes, yes or no? 41 Mr. POWELL. I don’t answer, ‘‘yes’’ or ‘‘no’,’ about whether I will pause the interest rate hikes. That is a serious question, and I can’t tell you because I don’t know all the facts. That is not a pos- sible— Ms. PRESSLEY. It is a very serious question because it has very serious implications. The people who will bear the brunt of an eco- nomic recession are most-vulnerable. We know from past experi- ences that recessions have catastrophic and deeply inequitable con- sequences. In fact, while some will catch a cold, others will catch pneumonia, but you know that, an economic cold or pneumonia. In fact, in your opening statement, you said, ‘‘We will stay the course until the job is done.’’ To conclude, ‘‘We understand that our ac- tions affect communities, families, and businesses across the coun- try.’’ Could you elaborate what this effect will be on communities, families, and businesses of these interest rate hikes? Mr. POWELL. Right now, we are trying to bring down inflation on behalf of all of those families. I think high inflation is particularly hurting working families all around the country very badly. And as you know, if you are on a very limited budget and you don’t have a lot of excess earnings, when prices start going up, you are in trouble right away. Middle- and upper-middle-class people have more resources, so we think it is absolutely critical for the working people of this country that we get inflation back under control. And also, while we are at it, we have a dual mandate— Ms. PRESSLEY. Apologies, Mr. Chairman, just reclaiming my time here, the most devastating impacts will be to our most-vulnerable populations: veterans, the elderly, low-income workers, and Black and Brown workers, those who have often been ignored and ne- glected in the name of what you refer to as, ‘‘appropriate monetary policy.’’ And yet, you assert that you will stay the course. It is un- conscionable, and our most-vulnerable workers and families cannot afford to wait for you to realize the harm that you were doing. In my opinion, this sounds more like the assertions of a greedy cor- poration than someone who has a public mission on behalf of the people of this country. I have one more question with my remaining time here. Chair- man Powell, another consequence of your interest rate hikes has been the increase of the average 30-year fixed-rate mortgage rate to 6.6 percent, double what it was 2 years ago. Do you see this wid- ening inequity in the housing market as a problem, and what steps will you take to make housing more affordable? This is putting homeownership further and further out of reach for my constitu- ents, including new parents, parents, millennials, and people of color, and contributing to inequities and the racial wealth gap. So, what are your thoughts on that? Mr. POWELL. Our policies do affect— Chairman MCHENRY. The gentlelady’s time has expired. Chair Powell can submit an answer for the record. Mr. POWELL. I will briefly say, if I can, that interest rate policies affect interest sensitive spending very directly. When we cut rates, they help housing. When we raise rates, you see the effect on hous- ing. Ms. PRESSLEY. Thank you. 42 Chairman MCHENRY. The gentleman from South Carolina, Mr. Timmons, is now recognized for 5 minutes. Mr. TIMMONS. Thank you, Mr. Chairman, and thank you, Chair Powell, for being with us today. We currently have $32 trillion in debt. Our debt-to-GDP ratio is 120 percent, the highest it has ever been, and, yes, we have a debt ceiling fight brewing for the sum- mer. I would argue it is an opportunity to get our fiscal house in order, but sadly, there is no meaningful bipartisan effort to respon- sibly address our debt. Both sides have even preemptively started political attacks, al- leging either side wants to cut Social Security and healthcare, but politics and talking points will not fix our problem. Our debt is the greatest national security threat. Social Security will be insolvent in 2033, and our healthcare system is fundamentally broken. We spend twice as much as the average country per person, and our obesity rate is 3 times the average. I want to be clear, though, I am not advocating cuts to Social Security, but my Social Security will have to be different than my father’s, and we must change the incentive structures of our healthcare system. Briefly, let’s go over some history. Social Security was created in 1937. The retirement age then was 65, and average life expectancy was 60. It’s easy to see how that math works. In 1960, Congress raised the retirement age to 67. It has not been increased since then. That year, life expectancy was 69. That math still works due to a growing population, but it is getting narrower. I will throw in another few statistics for that year, 1960: 14 percent of Americans were obese; and our debt-to-GDP ratio was 53 percent. Let’s fast forward to this year. Our retirement age is still 67, but our life ex- pectancy is 77. That math clearly does not work, nor is the pro- gram functioning for the purpose for which it was designed. And shockingly, our obesity rate is 37 percent, and we spend $13,000 per person on healthcare, compared to the global average of $6,000 per person, and a 13-percent obesity rate. Clearly, our healthcare system is failing. Our system focuses on managing sickness, where we should be facilitating health and wellness. We will only meaningfully be able to address the debt ceiling by focusing on the biggest drivers of our debt. Responsible policymakers should be focused on saving Social Security by reforming it and transforming our healthcare system to facilitate healthy citizenry capable of working and being contrib- uting members of society. The American people deserve more than the political nonsense. Five years ago, the number-one issue I ran on was debt. It has been and continues to be our greatest national security risk. I hate to say it, but in the last 4 years, it has gotten way worse. Congress has spent $7 trillion, of which $5 trillion was done mostly on party lines. The Democrat Majority has not only spent money we don’t have over the last 4 years, but their fiscal policy has caused out- of-control inflation, which caused you to raise interest rates. Last year, I asked you if you ever took into consideration the im- pact of interest rate increases on the cost of our debt service. You appropriately and adamantly said, no. Our debt service cost the next 10 years will be over $10 trillion. I am going to point out two things. Number one, that is more than all of our debt service since 43 1940 combined, the last 80 years. And while you did not take inter- est rate increases impact on our debt service into your decision- making, the best estimate is that those rate increases will increase our debt service cost by $2 trillion in the next 10 years. So basi- cally, the $7 trillion that the Democrats spent in the last 4 years is going to cost us an additional $2 trillion, and that is not fac- toring in future rate increases as you continue to appropriately try to get inflation under control. As you can tell, this is a huge prob- lem. The $7 trillion in unnecessary spending in the last 4 years has caused inflation. Some of my colleagues across the aisle disagree with that causal relationship. Clinton’s Treasury Secretary and Obama’s Director of the National Economic Council, Larry Summers, wrote an op-ed be- fore they spent the money and said it was going to cause inflation, and he has gone on the, ‘‘I was right,’’ tour for the last couple of years. We need responsible policymakers to address our debt. Let’s talk about what is not serious, and that is minting a tril- lion-dollar coin. Many of my colleagues across the aisle have advo- cated for this. Luckily, both President Biden and Treasury Sec- retary Yellen have said that this is not a serious proposal, and they have no plans of considering it. Unfortunately, the Biden Adminis- tration has a bit of a history of doing a 180 when the political winds blow. Most recently, President said he would veto the D.C. crime bill, and now he is adamantly supporting it and plans to sign it. Chair Powell, my only question to you is, if President Biden and Secretary Yellen send you a trillion-dollar coin, will you accept it? Mr. POWELL. And what I will say to that is this only winds up one way, and that is with Congress raising the debt ceiling. Mr. TIMMONS. So, you will not accept a trillion-dollar coin and treat it as a trillion dollars if it is sent to you? Mr. POWELL. I will add, there are no rabbits to be pulled out of hats here. This only— Mr. TIMMONS. I know you don’t like yes-or-no questions, but if you were sent a trillion-dollar coin and asked to treat it as a tril- lion dollars, will you treat it as a trillion dollars? Mr. POWELL. That would be a rabbit coming out of a hat. Mr. TIMMONS. I will take that as a, no. Thank you. Mr. Chair- man, I yield back. Chairman MCHENRY. The Chair now recognizes the gentle- woman from Michigan, Ms. Tlaib, for 5 minutes. Ms. TLAIB. Thank you so much, Mr. Chairman. And thank you, Chair Powell, for being here. You have a lot of economic projections of various data, various reports that are coming out, and you have studied inflation, right? Obviously, it is your number-one priority right now. How much is inflation impacted by these three things: corporate profiteering; egregious executive pay; and the use of stock buybacks? Mr. POWELL. I don’t have the numbers, but I would say in the case of executive pay, and, well, in the case of share repurchases, I can’t think of how it would affect inflation. In the case of execu- tive pay, that would be very small in terms of the broader economy. In terms of profits, though, the way I think about that is the places where profits are really high are places where there are shortages 44 and supply chain issues. And as those things get better, as they are, you are going to see inflation comes down and even prices come down, and you will see corporate margins come down there. And that will be part of how inflation comes down. Ms. TLAIB. Corporate profiteering does impact inflation. You don’t have any stats of, percentage-wise, how much of it? I really paid attention to your testimony in the Senate hearing yesterday, and there was a lot of conversation about my neighbors’ and resi- dents’ wages and so forth. They are finally starting to see a little bit more closer to possibly getting fair wages. It is not even far enough. But I don’t know if the Fed is paying closer attention to monopolies, corporate profiteering, and executive egregious pay, all of it, even these stock buybacks. You are saying all of that aside, you are focused more on wages and increasing the interest rate than on those other major— Mr. POWELL. Our focus is really on price stability, not so much wages. Wages play into that because they are an important cost for business, but we are not trying to achieve a particular level of wages. We are trying to achieve 2-percent inflation. Ms. TLAIB. Yes, and I think it is really important. Chairman Powell, what we saw during the pandemic is the wealthy and the corporations continued to profit in large scale, and still do buybacks, and still do really egregious executive pay, and benefits, and so forth for those at the top. And then, of course, the commu- nities and such were impacted by it. But what I hear consistently is folks thinking that is the reason that all of a sudden, wages are skyrocketing and all this. But all I see is a continuation, again, of those who are already getting a huge benefit, the folks at the top, the executives and so forth. My friend, Glenn, taught me this today, that the Feds are actu- ally sitting on something in Dodd-Frank, Section 956. You all have been sitting for the last 12 years on guidance regarding executive compensation and the high risks of it. There were some proposals done, but not implemented. Again, it has been 12 years. Why is that something that you are not concerned about regarding infla- tion? One, you are sitting on it, right? Why? It has been 12 years. And then two, why is that you are saying that is not a big deal, that it is not going to impact the cost of products and so forth for our residents? Mr. POWELL. It is a multi-agency rule, and there have been re- peated attempts to get five or six or seven, however many it is, agencies to agree. That is one thing. Ms. TLAIB. On disclosures? Mr. POWELL. No, no, it is on policies to— Ms. TLAIB. Yes, which include disclosures and arrangements re- garding the executive pay and risk of it. Mr. POWELL. I think the disclosures are there. You are right, we haven’t been able to get agreement among the agencies. But more to the point, the Board has long since—this is just for the big banks where we have this authority—the Board of Governors are very focused on how executive compensation works and that it not reward unnecessarily-risky behavior and that kind of thing. Ms. TLAIB. Yes, but in Dodd-Frank, which Congress passed, you are supposed to put something in place, and it is not in place. And 45 look, I am saying this because I feel like the Fed is more obsessed with wages than they are in regards to the monopolies, the cor- porate profiteering. I don’t think there is a laser focus on that, be- cause I think the Fed and Congress can support fair wages and still combat inflation if you are fair in combating egregious execu- tive pay, monopolies, and corporate profiteering. Mr. POWELL. We don’t do competition policy, and we also don’t, broadly speaking, regulate corporate wages. Ms. TLAIB. But Section 956 sort of addressed it. Chairman MCHENRY. The gentlelady’s time has expired. Ms. TLAIB. Section 956 addresses it. And it has been 12 years. Chairman MCHENRY. The gentleman from South Carolina, Mr. Norman, is now recognized for 5 minutes. Mr. NORMAN. Thank you. Chair Powell, I appreciate you coming in. I don’t have to tell you the fact that as goes housing, so goes the economy. I am from South Carolina. We have people moving in, and the population is increasing, and I can tell you that housing, and not just single-family housing, is in trouble. People are fin- ishing what is in the pipeline. It has now affected multifamily apartments, the higher rents that they did get with inflation. This is entirely caused, for the most part, by the policies of this Admin- istration with gas, buying it from other countries, and with supply chain shortages. There is no reason to start a project when you can’t get supplies, and that is what we are facing in the housing industry at all levels. So, any increase in interest is just another dagger that is going to kill the housing industry along with com- mercial projects. Again, the pipeline is filling up, but the pipeline, once it leaves, you are not going to have any. And I am from a State where there are people moving in. One of the things that you hear, I think Mr. Davidson mentioned, was regulations. Banks are complaining about being overregulated and the costs associated with it. I know that since Governor Brainard left, the CRA is in a state of flux. Who is determining that, and when you will you have some guide- lines out? Mr. POWELL. That will be done by the whole Board of Governors when we vote on it, and also by the OCC and the FDIC. Mr. NORMAN. Will they have any input from those who are hav- ing to pay the price of implementing CRA, like get any input from banks or having to navigate— Mr. POWELL. I know that throughout the multiyear process, there has been a tremendous amount of interaction with banks, a tremendous amount, and bank lobbying groups, and also consumer groups. But yes, there has been a ton of input and working with the industry to try to achieve these statutory goals efficiently. I wouldn’t say it is perfect, but there has certainly been a lot of interactions. Mr. NORMAN. So, they are getting input prior to implementing the requirements for CRA or the guidelines for CRA? Mr. POWELL. Yes, I am pretty sure there has been quite a bit of interaction with the industry in terms of what to do and how to do it. 46 Mr. NORMAN. Okay. Now, I think you have stated that you don’t feel it is the Federal Reserve’s policy to get into implementing cli- mate change. Mr. POWELL. We are not and we shouldn’t be climate policy- makers. We do have a small role, a focused role to play, principally with the larger banks to make sure they understand and can man- age their climate risks in the long run. Mr. NORMAN. Should it be mandated? Mr. POWELL. Should what be mandated? Mr. NORMAN. Should climate change policies be mandated by the Federal Reserve? Mr. POWELL. Again, climate change is something that is going to affect businesses, and people, and regions, and States, and whole countries, and I think that has to be a job for elected people, by and large. I think what we are going to affect is we just want to make sure that banks understand and can manage the risks that they are running, and these are principally longer-term risks. Mr. NORMAN. What is concerning to those of us in the business community is that we have to borrow from banks. The Federal Re- serve is conducting a Pilot Climate Scenario Analysis that is being mandated, not asked. It is being mandated for the six largest banks to participate in. When you have to do a scenario and man- date that they do this, is that not the Federal Reserve getting di- rectly involved in mandating it? Mr. POWELL. I think the banks actually want this. These six big banks have to face this globally, and what they want is uniform ap- proaches and guidance on how to have one set of rules. The big six banks that we are talking to are already running climate scenarios all the time, multiple climate scenarios. Mr. NORMAN. Most of the banks are well-capitalized now. That could change, and this is just another expense that is out there. On the CFPB, the history, I think you said it was 12 percent. It cannot go above 12-percent ratio. That does not seem logical to me. Has it ever been below the 12 percent, from your perspective? Mr. POWELL. Someone here quoted the law, and that rang a bell for me, so that is what the law says. Have they been below? I would have to go back. I am happy to provide it. It is all kind of— Mr. NORMAN. If you could, because it seems to me like it is. If you have that cap, businesses couldn’t operate like that, because there would be no incentive to reduce the price as long as it is automated. Thank you. Mr. POWELL. That is the way the law is set up. Mr. NORMAN. Okay. Thank you for being here. Mr. POWELL. Thank you. Chairman MCHENRY. The gentlewoman from Texas, Ms. Garcia, is now recognized for 5 minutes. Ms. GARCIA OF TEXAS. Thank you, Mr. Chairman, and thank you, Chairman Powell for being with us today. The end is in sight. I would like to begin by highlighting an issue that has been a concern for the Congressional Hispanic Caucus and others. I know that the Chair has suggested that we are going to weave in the di- versity and inclusion issues throughout our hearing, so here is my concern: There has never been a Latino Federal Reserve President, and further, only about 5 percent of the Federal Reserve’s overall 47 workforce identifies as Hispanic or Latino. As we know, over the past year or so, there have been several presidential vacancies at the Federal Reserve Banks, and there has still been consistent fail- ure to appoint a Latino candidate. Chair Powell, are you aware of this trend, and do you agree that it is a problem that our diversity and inclusion numbers in Federal Reserve Board are not reflective of the Latino population? Mr. POWELL. Yes, it is something we have been focusing on. Ms. GARCIA OF TEXAS. Okay. And can we get a commitment from you that you will work on the workforce issues internally? Mr. POWELL. Yes. Ms. GARCIA OF TEXAS. Thank you so much. And I would like to now follow up a little bit on some of the questions from Representa- tive Norman, because I do have a concern about housing costs, par- ticularly as it relates to equity and the negative impact on minority communities. I think you said in your paper that activity in the housing sector continues to weaken, largely reflecting higher mort- gage rates. As he mentioned, the rates are higher, not only impact- ing single-family housing, but multifamily housing. And it is also becoming even more and more difficult for people in my district, which is 77-percent Latino, to be able to buy their first-time/first homebuyer, the workforce, entry-level kind of housing. As financing for homes get harder to find and mortgage rates rise, the population of new buyers is skewing towards older, wealthier, and wider communities. In many cases, in our suburbs, equity firms are buying out the housing stock. Chair Powell, can you please speak about the relationship be- tween Federal Reserve interest rate hikes and housing inequity, and what needs to change here? Mr. POWELL. What needs to change is we need to get inflation under control so that interest rates can come back down. In the meantime, they are high because inflation is hurting all of your constituents, not just the housing sector, and all of everybody’s con- stituents, and it is our job under the law to restore price stability, and also to keep maximum employment. Ms. GARCIA OF TEXAS. Is there anything else that Congress can be doing in this respect? Mr. POWELL. That would be up to Congress, but there are lots of ways in which Congress can support people in various ways, but that is really in your hands. Ms. GARCIA OF TEXAS. Right. Now, I want to move on to the numbers that you mentioned. Again, in your remarks at page 2, of course, we all know there has been a record. The historic unem- ployment rate is down now to 3.4 percent, the lowest, I believe, in history, and thank you, Mr. President, for that. But you also men- tioned that there are 1.9 job openings for each unemployed indi- vidual. I wonder if you could tell me how you define, ‘‘unemployed individual?’’ What does the unemployed individual profile look like? Mr. POWELL. That has a very specific meaning. It is someone who is not working, but is actively seeking a job. For example, if you take 6 months off and stop looking for a job, you are no longer unemployed. That means there is a group of people who are kind of around the edges of the labor force who don’t count as unem- ployed, and those people are marginally attached to the labor force, 48 that kind of thing. But to be actually considered unemployed in the statistics, you have to be actively looking for work. Ms. GARCIA OF TEXAS. Right. So, it does not include people who are perhaps disabled and cannot find accommodations in the work- place to be able to get a job? Mr. POWELL. Unless they are looking for it. The test is whether you are actively looking, I think, in the last— Ms. GARCIA OF TEXAS. Actively looking, regardless of age. Mr. POWELL. That is right. Ms. GARCIA OF TEXAS. Whether or not they are— Mr. POWELL. It is not a value judgment. It is just the way we assess unemployment. We look at the other groups, too, but actual unemployment is— Ms. GARCIA OF TEXAS. How do you factor in the people who actu- ally are on unemployment insurance? Mr. POWELL. I’m sorry? Ms. GARCIA OF TEXAS. How do you factor in the people who are on unemployment insurance? Mr. POWELL. Well, they are unemployed. By definition, we count them as unemployed or they wouldn’t qualify under the State re- quirements. Ms. GARCIA OF TEXAS. Right. I just want to make sure that we clearly understand that there are children, there are people who are older, people who are disabled, people who can’t find daycare; there are so many other reasons why someone is unemployed. Mr. POWELL. Yes. Ms. GARCIA OF TEXAS. Okay. Thank you. I yield back. Chairman MCHENRY. The gentleman from Wisconsin, Mr. Steil, who is also the Chair of the House Administration Committee, is recognized for 5 minutes. Mr. STEIL. Chairman Powell, thank you for being here with us today. Your testimony has been insightful as we look to tackle in- flation and the impact that it is having on families across the United States right now. I want to go back to a comment that was attributed to you regarding a question from Senator Kennedy yes- terday on the impact that fiscal policy is having as it relates to in- flation, and the quote that was attributed to you was that it wasn’t a big factor. As we look at kind of a whole host of policies here on Capitol Hill, from reckless spending that we saw in the previous Congress, a lack of, what we just discussed, individuals who are outside the labor market, how do we get these folks back into the labor market, whether or not we have policies that are discouraging folks to come back into work, as we look at high energy costs and the oppor- tunity to drive energy prices lower by unleashing American energy, how do you factor in the fiscal policies, or how should policymakers factor in the fiscal policies and the impact that is also having an inflation? I’m not looking for your advice on the fiscal policies, be- cause I know you want to stay out of that, but how should law- makers be looking at the fiscal policy and its impact on inflation? Mr. POWELL. Let’s take energy, for example. Remember, inflation is the change in prices. It is not the level, as you well know. En- ergy prices have been coming down, right? They are still high, but they have been coming down, and they are contributing negatively 49 to headline inflation. So, when I say it is not contributing to infla- tion, that is what I mean. In addition, if you look at aggregate spending, it peaked, and then it has been coming down, so the fis- cal impulse is actually negative at this point. Most of the inflation that we now have, something like two-thirds of the contribution of inflation in core PCE inflation, comes from the services sector, and that isn’t really about fiscal policy. Fiscal policy was important at the very beginning. So is mone- tary policy, by the way, but now it is more about just that inflation is out there and you have to bring it down. The record is that it doesn’t come down by itself unless it is driven by transitory factors. For example, in the goods sector, the supply chains have been get- ting better, and as that has happened, goods inflation has come way down, and sometimes it is negative now. I hope that is helpful. Mr. STEIL. Yes. Thank you. To take that one step further, we are waiting on the President’s budget, it is over a month late, but we are anticipating receiving that in the near term. And as we look at interest payments on the debt and the cash flow implications that has, not asking for what you are going to do at the next Board meeting, for obvious reasons, but as you are in those deliberations in future Board meetings on potential rate increases, how does the impact of interest on the debt factor into the calculus of you and your colleagues? Mr. POWELL. We don’t look at that. If we started to change our monetary policy because we were concerned about the level of debt payments and things like that, that is not something that the United States needs to do, and it is not something we do. Mr. STEIL. Why would it be something that the United States doesn’t need to do? What do you mean? Could you elaborate on that? Mr. POWELL. Yes, we are going to do our job. Congress has given us the job: maximum employment, price stability, regulate the banks, and manage the payment system to some extent. We will do those jobs. We don’t have to worry about the United States budget. That is not our job. And it isn’t that the debt today is unsustainable. It is that the path is unsustainable. We can service our debts. It is just that we are on an unsustainable path, meaning that the debt is growing faster than the economy. So, we would never consider that. We will never look. If a central bank has to avoid taking actions because it is concerned about the budget, that is called fiscal dominance, and that is the thing you don’t see among advanced economies. We think we are a long way from that. Mr. STEIL. Thanks. Thanks for your feedback on that point. The CBO just released their report showing potential interest payments on the debt accelerating dramatically over the next decade, show- ing it would be 14 percent of our fiscal spend to compare that, right? National defense will be 13 percent. Social Security is also 14 percent. On that level, that is a policymaker issue, but your in- sights on that are helpful. I only have a few seconds left, and a handful of my colleagues have commented on the ongoing review of bank capital standards. I just want to echo those concerns about what the impact would be of a significant capital-level increase. Could you just comment 50 briefly about how you quantify the costs of higher capital in the supposed benefits and how you balance out that risk and reward? Mr. POWELL. It is always a balance. That is exactly as you say. We know that the capital increases that I supported back in 2012, 2013, 2014, 2015, 2016, earlier in my time at the Fed, they made the bank stronger, and they made them more resilient, and you really want that. You want a banking system that can stand up and keep doing its job in times of crisis, but the exact balance be- tween that and the availability of capital and the cost of capital is always going to be a matter of judgment. Mr. STEIL. Thank you very much. I yield back. Chairman MCHENRY. The gentlewoman from Georgia, Ms. Wil- liams, is now recognized for 5 minutes. Ms. WILLIAMS OF GEORGIA. Thank you, Mr. Chairman. As the Member of Congress representing Atlanta, the City with the high- est racial wealth gap in the country, I am focused on creating an economy of inclusion, an economy that works for everyone and brings the most-marginalized into our economy. Americans and At- lantans flourish when the economy works for everyone. The Fed- eral Reserve has a mandate of maximum employment that is meas- ured by analyzing various data points of economic conditions. In 2020, the Federal Reserve updated its approach to fulfilling and measuring this mandate to include job growth that was broad- based and inclusive. Chairman Powell, do you agree that broad-based and inclusive growth means job growth that helps reduce racial unemployment and wage disparities? Mr. POWELL. I think it means what it says. Remember, we can’t really target a particular racial or ethnic group with that, but we like to think that our decisions are informed by an understanding of diverse groups across the economy. Ms. WILLIAMS OF GEORGIA. Chairman Powell, could you share ex- amples of how the Fed is including broad-based and inclusive job growth in the maximum employment mandate? Mr. POWELL. Sure, I would be glad to. One thing we do is it is always part of the data that we look at. At each meeting, we al- ways talk about it. We always mention it: different unemployment rates, and labor force participation rates, and wage rates, and things like that by racial, ethnic, and gender groups, and that kind of thing. That is always in the data that we look at and talk about. That is the first thing, so it informs our pursuit of maximum em- ployment. We are trying to take a broader and more-inclusive un- derstanding of what that statutory goal means. Ms. WILLIAMS OF GEORGIA. Thank you. Two weeks ago, the Fed- eral Trade Commission released data indicating that Georgians re- ported the most fraud and scam claims of any other State in 2022, amounting to millions of dollars of stolen money. The Federal Re- serve’s website has resources to help consumers protect themselves from scams where criminals leverage the Federal Reserve’s name, including emails claiming potential victims are eligible for lottery winnings, robocalls threatening arrest in exchange for money, and other phishing communications. Chairman Powell, how does the Federal Reserve measure wheth- er its counter-fraud communications are reaching the most-vulner- 51 able households and communities, especially those who might not be following the Federal Reserve press releases or your website or have limited access to broadband? Mr. POWELL. When those kinds of scams happen, particularly when they involve us, we go on social media to try to reach people and tell them that if they are contacted by someone pretending to be a Federal Reserve person, that is not, so we do that. Also, we work with our Inspector General, who works with law enforcement to make sure that law enforcement is involved. So, we are aware of these scams. I think you are talking about the ones that involve people pretending to be a Federal Reserve person and get in touch with me and we will send you some money, and we do what we can to reach out to the public on that. Ms. WILLIAMS OF GEORGIA. That is after the fact, but what hap- pens before so that the general public is aware that this is hap- pening? For those people who are not on social media, is there an- other way to get this information out to the general public? Mr. POWELL. It is real. We do what we can. We are not an insti- tution that deals with the general public very much. We deal with banks, and, of course, our rate hikes and rate cuts, and monetary policy affects all Americans. But I think when something like that happens, it is a broad program. It is a bunch of people who are per- petuating a fraud on many, many people, and we try to get out there quickly, and try to reach people and, again, also alert law en- forcement. Ms. WILLIAMS OF GEORGIA. Thank you, Mr. Chairman. And, Chairman McHenry, I yield back the balance of my time. Chairman MCHENRY. That is very kind and gracious of you. The first of the day. We need to commend that for the record. With that, we will recognize the gentleman from Pennsylvania, Mr. Meuser, for 5 minutes. Mr. MEUSER. Thank you very much, Chairman McHenry. And thank you, Chairman Powell, for being with us. Chairman Powell, is the Fed’s commitment regarding ESG not to force investment banks to renege on their fiduciary responsibilities? Mr. POWELL. We don’t actually have policies in effect in that space. Mr. MEUSER. Okay. Mr. POWELL. That is not an assignment that we have. Mr. MEUSER. You saw some issuances by heads of some invest- ment banks, not to mention any names, who felt like that was the case. Mr. POWELL. The Fed was asking them to— Mr. MEUSER. The SEC, the Fed, you stated a couple of minutes ago that you feel that some sort of ESG—you stated that banks want it. Mr. POWELL. I am telling you that is completely different. It is regulated financial institutions that we regulate and supervise. The big ones are probably subject to the climate change issues all over the country. Mr. MEUSER. So, you agree that the Fed won’t ask banks to re- nege on their fiduciary responsibilities? The Fed won’t do that? Mr. POWELL. We don’t regulate the investment banks. The SEC does. 52 Mr. MEUSER. Okay. So, the answer is, no? Mr. POWELL. What is the question again? Mr. MEUSER. I will move on. Earlier, some of my colleagues and Chairman McHenry questioned the holistic review of the capital bank holdings. This holistic view, which no one has seen, according to my sources, but there are published reports that it will call for more capital to be held by banks. I understand the deferral to Vice Chair Barr, but do you have anything you could add that would warrant the need for large banks’ capital increases? Mr. POWELL. There isn’t a proposal to evaluate or talk about it yet. Vice Chair Barr has indicated he was going to take a look. He said he thinks capital is strong, and the question really is, is it strong enough? I know he has been working on it, and there will be a process when he does arrive at conclusions. He has no author- ity to enact something himself. It has to go through the Board of Governors, and also through the FDIC and the OCC. Mr. MEUSER. Okay. This has nothing to do with the QT initia- tive, the tightening of the money supply; they are not related at all? Mr. POWELL. No, I would say not. Mr. MEUSER. Okay. Are you comfortable with the QT reductions which have taken place? Mr. POWELL. Yes. We have the balance sheet moving down at a healthy clip, and it seems to be going pretty well. Mr. MEUSER. Okay. The Biden Administration’s fiscal and energy policy has cost trillions in deficit spending, as you well know, very, very excessive, trillions of dollars. Meanwhile, energy costs for the average American, from heating oils to gasoline, have increased by over 40 percent, and businesses, of course, just over the last 2 years. So, high energy obviously affects the cost of manufacturing, wages, general cost of living, and almost every aspect of society. Wouldn’t such fiscal and energy policy work of the Biden Adminis- tration working hand-in-hand with initiatives, such as QT and ini- tiatives of the Fed, be far more effective than the Fed fighting in- flation on your own? Mr. POWELL. We are the Agency that has the responsibility to re- store price stability, and we just have to do it. That is the task we have been given under the law. It is great if Congress helps, it is great if the Administration helps, but we have to deliver it, and we will. That is our responsibility, which we fully accept. Mr. MEUSER. Not risking stagflation if the fiscal policy and mon- etary policy are working against each other? Mr. POWELL. Again, we don’t comment on fiscal policy. That is for elected people, and we have a job: maximum employment; and price stability. We use our tools. We try to stay in our lane, stick to our knitting. Mr. MEUSER. It is just the fear of a number of people that we are going to have high interest rates and higher than 2-percent in- flation if there is not that level of fiscal and monetary cooperation. Mr. POWELL. Again, fiscal policy does what it is going to do. We take that as exogenous. The fiscal policy will be what you and your colleagues do, and that comes into the economy, and we see, and we don’t have a view. We don’t try to comment on the decisions 53 that you make. And we use our tools to restore price stability no matter what happens outside of our building. Mr. MEUSER. Sure. Okay. Mr. Chairman, I yield back. Thank you. Chairman MCHENRY. The gentleman yields back. We now recog- nize the ranking member of our Oversight and Investigations Sub- committee, Mr. Green of Texas, for 5 minutes. Mr. GREEN. Thank you, Mr. Chairman. And thank you, Chair- man Powell, for being with us today. I greatly appreciate your work, but I would like to take just a few moments to talk about how our legislative bodies have legitimized systemic racism. It has been done by having a Fed that has a responsibility to produce maximum employment, knowing that the 2-to-1 Black-White wage gap exists traditionally, and also knowing that traditional actions and methodologies will not change that, but yet, we won’t give you the authority to make recommendations or to take actions that would directly target that. It is not your fault. It is the legislative body’s fault. We perpetuate systemic racism in your mandate of maximum employment. We also perpetuate it in lending because we know that invidious discrimination exists in lending. We know it exists, and there are laws that will prevent and punish persons who cheat banks. You will be prosecuted, and you will be fined criminally if you cheat a bank. No such law exists if you cheat a customer. And we know that Black people, who are more qualified than White people, will get less money when they get a loan and pay a higher interest rate. These are all things that are the case. They are true. So, legislative bodies continue to legitimize systemic racism, and the bodies have become so bold now. Many of the members are so bold now as to say that they are sick and tired of hearing about this. They don’t want a discussion about racism and systemic discrimination. They believe that all is well as long as all is well in the White world. A good many won’t see it that way, Mr. Powell, but that is the way their actions would lead one to conclude they have positioned themselves. Many of these people are my friends, people that I as- sociate with, talk to regularly, but there comes a time when you just have to be truthful. Systemic racism can be eliminated. It can be dealt with. We know how to, but we don’t have the will to do it. So, I don’t fault you. Not one scintilla of blame would I cast your way. It is the legislative body. It is the people who sit on this com- mittee who won’t allow laws to be passed making it a crime to deny a person a loan who is qualified to get that loan, people on this committee who will say they don’t want to hear any more and en- courage persons who are professionals, experts, encourage them to push back against talk about invidious discrimination. Systemic racism emanates from the legislative body. You are in a very awkward position, because I genuinely believe that you would like to do something about it, but you can’t. It creates a sad state of affairs. I thank you for the time, Mr. Chairman, and I yield back. Chairman MCHENRY. The gentleman’s time has expired and he yields back. 54 The gentleman from Wisconsin, Mr. Fitzgerald, is recognized for 5 minutes. Mr. FITZGERALD. Chairman Powell, thanks for being here today. I just had one question, and some of my colleagues have touched on this today, again, that I think we are well aware, I am well aware, that there is a dynamic back in the district and across this nation. There is a certain segment of adults, 25- to 35-year-olds, many of them dual income, no kids, and they are completely frozen out of the housing market right now because the cost of a home in a new subdivision, in any municipality, is a half a million dollars or more. And as a result of that, it is not only by actions of the Fed, I think, on the interest rates, but certainly the other thing I wanted to bring up is, because the balance sheet at the Fed has gone from $4 trillion to $9 trillion post-pandemic, could the Fed, by no longer buying mortgage-backed securities in a smaller universe of the pri- vate sector, buyers who demand a higher rate of return, is there not another kind of built-in trigger there that mortgage rates are going to continue to go higher unrelated to what the Fed does? Be- cause I think the concern is that between the dynamics of no new subdivisions, 25- to 35-year-olds unable to get a loan, and then in- terest rates continuing to climb, we are going to lose a generation of adults here who are never going to get homeownership. They are never going to benefit, which we all know is the big wealth-builder for any family. So, if there is anything I take away from what we heard today, and the questions asked, I hope that is something that the Fed is in tune to and is looking at closely. Mr. POWELL. One thing is that there is a challenge with supply nationally, and that is zoning, it is people, it is materials. And so, the housing stock is constrained to some extent by just harder to find zoning anymore because things are so built up in so many places, and those are not things that we can control. In terms of our ownership of mortgage-backed securities, what happens with them as they mature is, they are repaid or prepaid, and they run off on their own. That is a passive sort of way to shrink the balance sheet. And, of course, they don’t run off very quickly when rates are this high, because people are not refinancing their mortgages, because they have much lower mortgage rates. So, there is no evi- dence at this point of the markets having a hard time absorbing this supply of mortgages because the supplies in play of new mort- gages is very low. It has to be right that when we are no longer buying mortgages, and we won’t be. We are not buying mortgages now, and I hope we don’t have to buy any more mortgage backs. We don’t buy indi- vidual mortgages. We buy mortgage-backed securities. I hope we are not doing that anytime soon. We only do that in really severe situations where the fixed-income markets are gigantic, and there are a lot of buyers out there, and where there is a yield, there will be buyers, and I expect that will be the case. Not that it wouldn’t have some upward pressure on rates for us not to be a buyer any- more, but we weren’t a buyer for a very long time. We thought we would never go back in after the global financial crisis. And we 55 kind of had to after the pandemic financial crisis just to keep the markets working, and now we have stopped again. Mr. FITZGERALD. Good. Thank you very much, Mr. Chairman, and I yield back. Chairman MCHENRY. The gentleman yields back. Noteworthy. I want to thank, in particular, our Members, Mr. Fitzgerald and Ms. Williams, for their additional minutes back to the Fed Chair. In a rate environment like this, time is money, and that is much more valuable these days. And I would like to thank Chair Powell for his testimony. The Chair notes that some Members may have additional ques- tions for this witness, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legis- lative days for Members to submit written questions to this witness and to place his responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous mate- rials to the Chair for inclusion in the record. And with that, this hearing is adjourned. Mr. POWELL. Thank you. [Whereupon, at 1:01 p.m., the hearing was adjourned.] A P P E N D I X March 8, 2023 (57) 58 59 60 61 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 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 Æ

Jerome H. Powell (2023, March 7). Congressional Testimony. Testimony, Federal Reserve. https://whenthefedspeaks.com/doc/testimony_20230308_chair_the_federal_reserves_semiannual

@misc{wtfs_testimony_20230308_chair_the_federal_reserves_semiannual,
  author = {Jerome H. Powell},
  title = {Congressional Testimony},
  year = {2023},
  month = {Mar},
  howpublished = {Testimony, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/testimony_20230308_chair_the_federal_reserves_semiannual},
  note = {Retrieved via When the Fed Speaks corpus}
}