[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE TREASURY DEPARTMENT'S
AND FEDERAL RESERVE'S PANDEMIC RESPONSE
=======================================================================
VIRTUAL HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
MARCH 23, 2021
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-12
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
44-345 PDF WASHINGTON : 2021
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANN WAGNER, Missouri
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa TED BUDD, North Carolina
SEAN CASTEN, Illinois DAVID KUSTOFF, Tennessee
AYANNA PRESSLEY, Massachusetts TREY HOLLINGSWORTH, Indiana
RITCHIE TORRES, New York ANTHONY GONZALEZ, Ohio
STEPHEN F. LYNCH, Massachusetts JOHN ROSE, Tennessee
ALMA ADAMS, North Carolina BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan LANCE GOODEN, Texas
MADELEINE DEAN, Pennsylvania WILLIAM TIMMONS, South Carolina
ALEXANDRIA OCASIO-CORTEZ, New York VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
C O N T E N T S
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Page
Hearing held on:
March 23, 2021............................................... 1
Appendix:
March 23, 2021............................................... 39
WITNESSES
Tuesday, March 23, 2021
Powell, Hon. Jerome H., Chair, Board of Governors of the Federal
Reserve System................................................. 7
Yellen, Hon. Janet L., Secretary, U.S. Department of the Treasury 6
APPENDIX
Prepared statements:
Powell, Hon. Jerome H........................................ 40
Yellen, Hon. Janet L......................................... 45
Additional Material Submitted for the Record
Powell, Hon. Jerome H.:
Written responses to questions for the record from Chairwoman
Waters..................................................... 58
Written responses to questions for the record from
Representative Beatty...................................... 69
Written responses to questions for the record from
Representative Davidson.................................... 71
Written responses to questions for the record from
Representative Hill........................................ 74
Written responses to questions for the record from
Representative Meeks....................................... 79
Written responses to questions for the record from
Representative Timmons..................................... 82
Yellen, Hon. Janet L.:
Written responses to questions for the record from
Representative Meeks....................................... 83
Written responses to questions for the record from
Representative Green....................................... 85
Written responses to questions for the record from
Representative Pressley.................................... 86
Written responses to questions for the record from
Representative Nikema Williams............................. 87
Written responses to questions for the record from
Representative Huizenga.................................... 90
Written responses to questions for the record from
Representative Hill........................................ 92
Written responses to questions for the record from
Representative Timmons..................................... 94
OVERSIGHT OF THE TREASURY
DEPARTMENT'S AND FEDERAL
RESERVE'S PANDEMIC RESPONSE
----------
Tuesday, March 23, 2021
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 11:59 a.m., via
Webex, Hon. Maxine Waters [chairwoman of the committee]
presiding.
Members present: Representatives Waters, Maloney, Sherman,
Meeks, Scott, Green, Cleaver, Perlmutter, Himes, Foster,
Vargas, Gottheimer, Lawson, Axne, Casten, Lynch, Adams, Dean,
Garcia of Illinois, Garcia of Texas; McHenry, Lucas, Posey,
Luetkemeyer, Huizenga, Stivers, Wagner, Barr, Williams of
Texas, Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson, Budd,
Kustoff, Hollingsworth, Rose, Steil, Timmons, and Taylor.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
As a reminder, I ask all Members to keep themselves muted
when they are not being recognized by the Chair. The staff has
been instructed not to mute Members, except when a Member is
not being recognized by the Chair and there is inadvertent
background noise.
Members are also reminded that they may only participate in
one remote proceeding at a time. If you are participating here
today, please keep your camera on, and if you choose to attend
a different remote preceding, please turn your camera off.
Before we begin today's hearing, I would like to inform all
Members that our witnesses today have a hard stop at 2:15 p.m.,
Eastern Standard Time.
Today's hearing is entitled, ``Oversight of the Treasury
Department's and Federal Reserve's Pandemic Response.''
I now recognize myself for 4 minutes to give an opening
statement.
I would like to welcome Secretary Yellen and Chair Powell.
I am very pleased that with Democrats' passage of President
Biden's American Rescue Plan, help is now arriving for millions
of struggling individuals, families, and small businesses all
across this country. The Biden plan delivers much-needed relief
in the form of additional direct payments, expanded child tax
credits, emergency rental, homeowner, and employment
assistance, support for small and minority-owned businesses, as
well as funding for other key programs. The American Rescue
Plan (ARP) is exactly what the nation needs in the midst of
this ongoing crisis, and it will help to put us on the path to
a faster and more equitable recovery. I am also very relieved
that we have President Biden's capable leadership in the White
House, and that he is putting in place a team to ensure that
the pandemic response and the implementation of relief programs
is efficient, effective, and a top priority so that we can beat
this deadly virus.
I would like to take a moment, as we prepare to receive
testimony from Secretary Yellen for the first time in her role
as Treasury Secretary, to acknowledge the historic nature of
her appointment. Starting with Alexander Hamilton in September
of 1789, the Department of the Treasury has exclusively been
led by men until now. Over 231 years later, Secretary Yellen
became the first woman to serve as Treasury Secretary. She is
also the first person to serve as Treasury Secretary after
serving as head of both the Federal Reserve and the White House
Council of Economic Advisers.
Secretary Yellen, we applaud you, and our committee looks
forward to continuing to work closely with you. Secretary
Yellen, I would also like to thank you for your work on
negotiating an increase in the special drawing rights of $650
billion at the G-7, as I have previously called for. This
increase will help vulnerable countries to fight the pandemic
and will boost the United States' and global economies.
Chair Powell, I would like to thank you for following my
recommendation on bank capital requirements and ending the
temporary exemptions to the Supplemental Leverage Ratio (SLR)
for big banks. We need to ensure the stability of our financial
system during this continuing crisis, and strong capital
requirements are the cornerstone of appropriate prudential bank
regulation. While we are on the right path with the passage of
the American Rescue Plan and the Biden Administration's strong
leadership, we still have a long road ahead of us. Millions of
people are still out of work, and threats to the economy
remain. We must ensure that there is indeed a sustained and
equitable recovery from this historic crisis, so I look forward
to your testimony.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 4 minutes.
Mr. McHenry. Thank you, Madam Chairwoman, and I want to
thank Secretary Yellen and Chair Powell for being here today.
It is clear we are in a very different place today than we
were last March. Our economy is ready to safely reopen, and
economic projections are increasingly positive. Despite those
facts, Democrats still chose to muscle through their partisan
spending package, only 9 percent of which goes toward defeating
the virus. This package was not targeted to help those most in
need, and does not get Americans safely back to work or kids
back in the classroom. The data tells us that targeted support
is the key to really reaching those groups who need it most,
and with the addition of $1.9 trillion, there has been a great
deal of debate about what will happen with this amount of
liquidity in our financial markets.
Here is what we do know. Increased taxes, will impede
growth, and, as we saw in 2008 and 2009, it is harder to
address long-term unemployment. We see our Central Bank's
balance sheet growing to levels unseen in human history. Pre-
COVID, we experienced a roaring economy spurred by appropriate
regulation, lower taxes, and innovative solutions. Instead of
building on these gains, my Democrat colleagues are approaching
this crisis like they did in 2009, doing it all over again,
rehashing old, failed policies that will not build lasting
growth and lasting prosperity.
Things are much different. It is a much different country
now and a much different economy now, and we should remain
forward-thinking and seek bipartisan solutions to really
address the needs of our economy.
I am grateful for the opportunity to be with you here today
under the guise of a Coronavirus Aid, Relief, and Economic
Security (CARES) Act oversight hearing, although it is
interesting that the CARES funding was rescinded in December.
I think it would be more productive to discuss this larger
COVID package that was just passed, and I believe there is a
lot to discuss there. To put that mammoth $1.9 trillion bill
into perspective, let's put it this way: The Biden
Administration is going to spend $3.7 billion on average, per
day, for every day remaining in 2021. That equals $43,000 per
second. A lot of that money will flow directly from the
Treasury to States and cities, which introduces a whole new set
of challenges with respect to preventing waste and fraud. And
unlike the bipartisan CARES Act, this bill does not contain any
new layers of oversight to address these challenges.
Secretary Yellen, at our first CARES quarterly hearing in
June of 2020, we had a chance to run through our expectations
with respect to transparency with your predecessor.
At that hearing, Secretary Mnuchin committed to providing
key programmatic data to congressional committees to assist
oversight responsibilities, and he followed through on that
commitment. Secretary Mnuchin also committed to working with
the various oversight bodies with jurisdiction under the CARES
Act, including the Pandemic Response Accountability Committee,
the Congressional Oversight Commission, three Department's
Inspectors General, and the Government Accountability Office
(GAO). Now that we have an additional $1.9 trillion to track, I
would ask for your commitment along those same lines as
Secretary Mnuchin committed. That would be encouraging, if you
continue the practice of your predecessor to cooperate with our
committee, both Democrats and Republicans, to ensure
appropriate oversight.
I want to thank you both for your testimony today, and I
look forward to the discussion. I yield back.
Chairwoman Waters. Thank you very much. I now recognize the
gentleman from Texas, Mr. Green, who is also the Chair of our
Subcommittee on Oversight and Investigations, for 1 minute.
Mr. Green. Thank you, Madam Chairwoman. I thank you so much
for your leadership during these turbulent times. Madam
Chairwoman, as the CARES Act funding continues to flow, I am
greatly concerned about the mechanics of how these funds will
reach their intended beneficiaries. There are two recently-
authorized pandemic response programs the Treasury Department
is now rolling out, in which I have a special interest.
The first is the December COVID package that included $9
billion in emergency capital investment as a program. It is
called the Emergency Capital Investment Program (ECIP), and
will provide capital investments and grants to strengthen
Community Development Financial Institutions (CDFIs), and
Minority Depository Institutions (MDIs). I am looking forward
to hearing about the plans for engaging eligible MDIs and CDFIs
regarding this new resource.
The second assistance to small businesses, authorized in
the American Rescue Plan, is through the State Small Business
Credit Initiative, also known as the SSBCI. This $10 billion
program provides funding, $2.5 billion of which will go to
minority-owned businesses, and that can make a real impact in
the hardest-hit businesses. I look forward to hearing from the
witnesses in terms of how these programs will benefit the end
users. I yield back.
Chairwoman Waters. Thank you. I now recognize the
subcommittee's ranking member, Mr. Barr, for 1 minute.
Mr. Barr. Thank you, Madam Chairwoman. Secretary Yellen,
congratulations on your confirmation. I look forward to working
with you. And Chairman Powell, thank you for being here.
Last year, in response to the pandemic, Republicans and
Democrats worked together on multiple bills that were
temporary, targeted, and tied to COVID. In partnership with the
Federal Reserve and Treasury, we were able to direct aid where
it was needed. Unfortunately, despite last year's bipartisan
cooperation, the Majority rammed through a partisan $2 trillion
deficit spending bill that is a Keynesian wish list for their
pre-COVID priorities.
While stimulative policies may look good in the short term,
I worry about the unintended consequences for mid- and long-
term growth. I fear the toxic cocktail of massive deficit
spending, when we had $1 trillion of funding still unspent from
last year, increasing risk of inflation, higher long-term
interest rates, and unprecedented accommodative monetary policy
that I fear is addicting our economy on easy money, the promise
of growth-destroying tax increases, and an avalanche of
regulation, which includes unrelated climate and ESG earnings,
will stifle long-term prosperity.
I hope we can work together to mitigate future damage by
enacting pro-growth, market-oriented solutions to position our
economy for the long term. Thank you, and I yield back.
Mr. McHenry. Madam Chairwoman?
Chairwoman Waters. Yes, Mr. McHenry?
Mr. McHenry. Madam Chairwoman, I ask a point of personal
privilege to recognize my staff director, the Republican staff
director on the Financial Services Committee, Stephen Cote.
Chairwoman Waters. The gentleman is recognized.
Mr. McHenry. Thank you, Madam Chairwoman. Chairwoman Waters
and I know from our service here on the Hill that without
competent, good staff, this institution couldn't work. And I
think on a bipartisan basis, we know that our staff carries out
a lot of the things that we try to achieve legislatively and in
terms of oversight and working with the Administration to help
the American people.
So, Steven Cote has served our institution quite well. He
will be leaving us in mid-April to go with an establishment
downtown to go into the private sector, and I want to wish him
well. I want to thank him for his service to the American
people, and to our government. He has served in Congress, most
notably as the staff director of the House Rules Committee
before coming to this fine committee, the House Financial
Services Committee, to lead committee Republican staff. He has
served in the Majority and the Minority in the House of
Representatives. He also served in the Administration in the
Office of Management and Budget and various other functions. He
is a patriot who served his country and served his country
well.
I want to thank him for his work, his tenacious spirit, his
love for the staff and the people that he gets to work with, a
love for the institution and our government, and a love for his
country. And I want to thank Stephen for his great work for me
over the last 2\1/2\ years, for the good work that we have been
able to get done. So with that, I want to say thank you to Mr.
Cote for his service, and, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much, Mr. Ranking Member.
I would like to associate myself with you, and I join with you
in recognizing Stephen's contributions to the committee and to
the Congress. Stephen, also called, ``Cote'' by friends and
enemies alike, has had a long and distinguished career in the
United States Congress and in the Executive Branch. During his
20-year career, he has served in a variety of positions and
institutions. To say he is a tough negotiator is an
understatement. He is tenacious, he is fierce, and he is
stubborn. He also has a talent for frustrating several members
of my staff with his demands. He is a fierce advocate for his
ranking member and his party, and I do respect that. So,
Stephen, neither I nor my staff are sorry to see you go.
[laughter]
Chairwoman Waters. But in all seriousness, on behalf of the
Democratic Majority, I thank Stephen for his service to the
American people and wish him the best of luck in his future
endeavors. Thank you very much.
Mr. McHenry. Madam Chairwoman?
Chairwoman Waters. Yes?
Mr. McHenry. Thank you for that kindness. Thank you for
that kindness and the spirit with which you offer it. We both
have talented staff, and sometimes they go toe-to-toe on our
behalf, but it is always for love of our country, but sometimes
for the love of the game, too. So anyway, thank you, Madam
Chairwoman.
[laughter]
Chairwoman Waters. Thank you very much, Mr. Ranking Member.
That is so true.
I now want to welcome today's distinguished witnesses to
the committee.
First, I want to welcome the Honorable Janet Yellen,
Secretary of the United States Department of the Treasury, for
her first appearance before the committee in her new role.
Secretary Yellen has testified a number of times before the
committee in her prior capacity as the Chair of the Federal
Reserve, where she served from 2010 to 2014 as Vice Chair, and
from 2014 through 2018 as Chair, so I do not believe she needs
any further introduction.
I also want to welcome our other distinguished witness, the
Honorable Jerome Powell, Chairman of the Board of Governors of
the Federal Reserve System. He has served on the Board of
Governors since 2012, and as its Chair since 2018. Chair Powell
has previously testified before the committee, and I believe he
also does not need any further introduction.
Each of you will have 5 minutes to summarize your
testimony. You should be able to see a timer on your screen
that will indicate how much time you have left, and a chime
will go off at the end of your time. I would ask you to be
mindful of the timer, and quickly wrap up your testimony if you
hear the chime. And without objection, your prepared statements
will be made a part of the record.
Secretary Yellen, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE JANET L. YELLEN, SECRETARY, U.S.
DEPARTMENT OF THE TREASURY
Secretary Yellen. Chairwoman Waters, Ranking Member
McHenry, and members of the committee, thank you for having me.
We are meeting at a hopeful moment for the economy, but still a
daunting one. While we are seeing signs of recovery, we should
be clear-eyed about the hole we are digging out of. The country
is still down nearly 10 million jobs from its pre-pandemic
peak.
When Congress passed the CARES and Consolidated
Appropriations Acts last year, it gave the government some
powerful tools to address the crisis, but upon taking office, I
worried that they weren't powerful enough. After all, there
were and still are some very deep pockets of pain in the data:
1 in 10 homeowners with a mortgage are behind on their
payments; and almost 1 in 5 renters are behind on their rent.
There are 22 million people who say they don't have enough food
to eat: 1 in 10 adults are hungry in America. I looked at data
like these and I worried that the COVID economy was going to
keep hurting millions of people now and haunt them long after
the health emergency was over.
We know that when the foundations of someone's life falls
apart, when they lose the roof over their head or don't have
the ability to eat dinner every night, the pain can weigh on
them for years. Their earnings potential is permanently
lowered, and am I worried about this happening on a mass scale.
That is why I advocated very hard for the American Rescue Plan,
and why it is my first and my most enthusiastic message today.
Thank you.
With the passage of the Rescue Plan, I am confident that
people will reach the other side of this pandemic with the
foundations of their lives intact, and I believe they will be
met there by a growing economy. In fact, I think we may see a
return to full employment next year. Of course, the speed and
strength of our recovery depends, in part, on how we implement
the legislation. Treasury is tasked with much of that work, and
there is nothing that I or my team take more seriously. We
appreciate your oversight on this matter, and I want to briefly
tell you about how we have been working.
Since taking office 2 months ago, we have been expediting
relief to the areas of greatest need, for example, small
businesses, and especially the smallest small businesses, which
are disproportionately owned by women and people of color. The
pandemic has hit these businesses hard. The Paycheck Protection
Program (PPP) was an early lifeline, but because of issues with
the program's design, the first rounds often did not reach the
small sole proprietorships. We are addressing that now. We
worked with the Small Business Administration (SBA) to tweak
how the program was implemented. It is allowing the PPP to
reach millions more micro-businesses and entrepreneurs,
especially in rural and low-income areas.
We are also building capacity to support these communities
over the longer term. Because of the December legislation,
Treasury now has $12 billion to inject into Community
Development Financial Institutions (CDFIs) and Minority
Depository Institutions (MDIs). In turn, these CDFIs and MDIs
can lend that capital out, helping people buy homes and start
businesses in places that the financial services sector
traditionally hasn't served well.
Then, there are the families I spoke about, the ones
struggling to keep a roof over their head and food on the
table. The American Rescue Plan provides more than $30 billion
to help renters and homeowners at risk of losing their homes,
and we are making sure that assistance flows as efficiently as
possible. For instance, the previous Administration put in
place rules that required tenants and landlords to provide
quite a bit of documentation to get rental assistance,
including detailed statements about their income, but some
people don't have access to those documents. We are cutting
through the red tape for them while still taking responsible
steps to prevent fraud and abuse. And, of course, we have been
sending direct payments to Americans, a lot of Americans. As of
last week, we had issued over 90 million payments.
And all of this is just a fraction of Treasury's work.
There are so many more relief programs, including one that will
provide $350 billion in aid to State and local governments.
Implementing all of it is more complicated than it sounds, and
we are working closely with stakeholders to make sure these
programs are both efficient and effective.
Behind these many relief programs, these millions of
transactions, is a staff of very dedicated and very tired
Treasury and IRS employees. My final word is to them: Thank
you. You are putting on a master class in how government should
work in the furnace of a crisis, and I am grateful to be your
colleague.
With that, I am happy to answer any questions you have.
[The prepared statement of Secretary Yellen can be found on
page 45 of the appendix.]
Chairwoman Waters. Thank you very much, Secretary Yellen.
Chair Powell, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for the opportunity to
discuss the measures that we have taken to address the hardship
wrought by the pandemic.
I would like to start by noting the upcoming 1-year
anniversary of the CARES Act. With unanimous approval, Congress
provided by far the fastest and largest response to any post-
war economic downturn, offering fiscal support for households,
businesses, healthcare providers, and State and local
governments. This historically-important legislation provided
critical support in our nation's hour of need. As the virus
arrived in force, our immediate challenge was to limit the
severity and duration of the fallout to avoid longer-run
damage. At the Fed, we also acted with unprecedented speed and
force, using the full range of policy tools at our disposal.
Today, the situation is much improved. While the economic
fallout has been real and widespread, the worst was avoided by
swift and vigorous action from Congress and the Federal
Reserve, from across government and cities and towns, and from
individual communities and the private sector. More people held
onto their jobs, more businesses kept their doors open, and
more incomes were saved, but the recovery is far from complete.
So, at the Fed, we will continue to provide the economy the
support that it needs for as long as it takes.
As we have emphasized throughout the pandemic, the path of
the economy continues to depend on the course of the virus.
Since January, the number of new cases, hospitalizations, and
deaths has fallen, and ongoing vaccinations offer hope for a
return to more normal conditions later this year. In the
meantime, continued social distancing and mask-wearing will
help us reach that goal as soon as possible.
Indicators of economic activity and employment have turned
up recently. Household spending on goods has risen notably so
far this year, although spending on services remains low,
especially in sectors that typically require in-person
gatherings. The housing sector has more than fully recovered
from the downturn, while business investment and manufacturing
production have also picked up. As with overall economic
activity, conditions in the labor market have recently
improved. Employment rose by 379,000 in February as the leisure
and hospitality sector recouped about two-thirds of the jobs it
lost in December and January.
Recovery has progressed more quickly than generally
expected and looks to be strengthening. This is due in
significant part to the unprecedented fiscal and monetary
policy actions I mentioned, which provided essential support to
households, businesses, and communities. However, the sectors
of the economy most adversely affected by the resurgence of the
virus and by greater social distancing remain weak, and the
unemployment rate, still elevated at 6.2 percent,
underestimates the shortfall, particularly as labor market
participation remains notably below pre-pandemic levels. We
welcome this progress, but will not lose sight of the millions
of Americans who are still hurting, including lower-wage
workers in the services sector, African Americans, Hispanics,
and other minority groups that have been especially hard hit.
The Fed's response has been guided by our mandate to
promote maximum employment and stable prices for the American
people, along with our responsibility to promote stability of
the financial system. When financial markets came under intense
pressure last year, we took broad and forceful actions,
deploying both our conventional and emergency lending tools to
more directly support the flow of credit. Our actions, taken
together, helped unlock more than $2 trillion in funding to
support businesses--large and small--nonprofits, and State and
local governments between April and December. This support, in
turn, has helped organizations to not have to shutter their
businesses and put employers in a better position to both keep
workers on and to hire them back as the recovery continues.
Our programs serve as a backstop to key credit markets and
help restore the flow of credit from private lenders through
normal channels. We deployed these lending powers to an
unprecedented extent last year. Our emergency lending powers
require the approval of the Treasury and are available only in
very unusual circumstances. Many of these programs were
supported by funding from the CARES Act.
Those facilities provided essential support through a very
difficult year. They are now closed, and the Federal Reserve
has returned the large majority of the Treasury's CARES Act
equity, as required by law. Our other emergency lending
facilities are following suit imminently, although we recently
extended the Paycheck Protection Program Liquidity Facility
(PPPLF) for another quarter to continue to support the Paycheck
Protection Program.
Everything the Fed does is in service to our public
mission. We are committed to using our full range of tools to
support the economy and to help ensure that the recovery from
this difficult period will be as robust as possible on behalf
of communities, families, and businesses across the country.
Thank you. I look forward to your questions.
[The prepared statement of Chairman Powell can be found on
page 40 of the appendix.]
Chairwoman Waters. Thank you very, very much, Chairman
Powell. I now recognize myself for 5 minutes for questions.
On March 11th, President Biden signed the American Rescue
Plan Act into law, providing an additional $1.9 trillion
package that is already helping individuals, families, and
small businesses. The American Rescue Plan also includes $77
billion in our committee's jurisdiction, including $21.5
billion to pay back rent and future rent payments, which will
not only help renters remain stably housed, but support small
landlords who have also been struggling. Congress has now
provided the Treasury Department with more than $46 billion in
emergency rental assistance to distribute to States, local
communities, Tribes, and Territories to help struggling
families pay their rent and utilities. My State of California
is expected to receive somewhere in the amount of $4.67
billion.
However, I am growing increasingly concerned with how the
program is being implemented by grantees. In particular,
California just launched a program that greatly limits the
amount of assistance renters can receive, even if they owe
more.
Secretary Yellen, what has been the progress so far in
implementing the program? What guidance is Treasury providing
to ensure that grantees are setting up programs that actually
stabilize renters and make landlords whole?
Secretary Yellen. Thank you for that question, Chairwoman
Waters. We have distributed the money to State, local, and
Tribal grantees. The Consolidated Appropriations Act that
started this program does specify that grantees can only
provide assistance to households where one or more individuals
are experiencing unemployment or hardship, that they
demonstrate a risk of experiencing homelessness or housing
stability, and that the household has income at 80 percent of
the area median or below, and that the assistance can be for up
to 15 months. We are trying to provide grantees with the
flexibility to establish their programs and operate them within
those parameters, but with a great deal of flexibility to
address local needs as they see fit.
The role of the Treasury here is to provide policy guidance
so that grantees can establish and follow their own program
policies to meet local needs, and we are developing outreach
and technical assistance so that our grantees can understand
best practices. Of course, we have a role in monitoring to make
sure that the payments are reaching the intended populations.
Chairwoman Waters. Secretary Yellen, I hate to interrupt
you--my time is going to be up shortly--but I am very concerned
about the flexibility that the States have. I don't really know
what all of that means, but I do know that there is a lot of
confusion because some States had moratorium programs, some
cities had moratorium programs, the Federal Government has a
moratorium program, and so I think that is confusing to our
renters. In addition to that, for the State of California to
say that they are going to pay 80 percent of the rental
assistance rather than 100 percent bothers me somewhat, and I
don't know what other States are doing. I know that the
government does provide guidance, so I would like to know if
you can think about any role that we can play to help
straighten out the confusion and to help stabilize this rental
assistance?
Secretary Yellen. Congresswoman, we did distribute
frequently asked questions, revised from the previous
Administration, to try to provide additional guidance, but if
you have concerns, my staff will be glad to work with you and
your office to see if it is possible to address them.
Chairwoman Waters. Thank you very much. I appreciate that,
because there is confusion out there, and I am worried about
what is happening with this confusion, and whether or not our
landlords are going to abandon us and not go for another
moratorium, and so it is a lot of questions. I will get back to
you, and thank you so very much.
With that, I now recognize the ranking member, Mr. McHenry
for 5 minutes.
Mr. McHenry. Thank you, Madam Chairwoman. And, look,
Chairman Powell and Secretary Yellen, I previously asked
questions about the independence of the Fed, trying to get the
Secretary of the Treasury to opine about that. Dr. Yellen, I
would suggest that maybe I need to skip that question with you.
I think you have very practical understanding and knowledge
here at play, and you will treat your successor as you wish to
have been treated since he is now sitting in your chair.
[laughter]
Mr. McHenry. Well, it is nice to have two folks who
understand this in these respective seats, but Chairman Powell,
I want to begin with you and talk about inflation. There
continues to be a great deal of speculation that we should be
worried about inflationary pressures, particularly after the
passage of the most recent $1.9 trillion spending bill, the so-
called stimulus or COVID stimulus bill, and then we see recent
press reports of an additional $3 trillion of spending
contemplated by this Administration. Does the Fed share that
there are inflationary pressures and concerns with this rate of
spending? What is the view now?
Mr. Powell. Thanks. Let me start by saying that we are
strongly committed to our price stability mandate, which, along
with our maximum employment mandate--those are the two mandates
that you have given us. We consider that inflation that is 2
percent over time, in fact, inflation that averages 2 percent
over time. We do expect that inflation will move up over the
course of this year, first, because of what we call base
effects. The very low readings of March and April of last year
dropped out of the 12-month calculation, and, mechanically, it
rises, but that goes away quite quickly. Possibly after that,
we will see a situation in which, as the economy reopens and
vaccinations continues, there could be a surge in spending and
there could be some bottlenecks in the economy. We see some of
that now. We might see some upward pressure on prices.
Our best view is that the effect on inflation will be
neither particularly large nor persistent, and part of that
just is that we have been living in a world of strong
disinflationary pressures around the world really for a quarter
of a century, and we don't think that a one-time surge in
spending leading to temporary price increases would disrupt
that. However, we have the tools to deal with that. We remain
strongly committed to inflation expectations anchored at 2
percent, and we will use our tools as appropriate to achieve
that.
As far as further fiscal policy is concerned, it is not up
to us to comment. As we have discussed on some occasions, we
don't comment on fiscal policy. We try not to, particularly on
specific bills and things like that, so I will leave that to
others.
Mr. McHenry. Secretary Yellen, about fiscal policy, we
have, as Chairwoman Waters highlighted, rental assistance, the
$25 billion of rental assistance to individuals and families
who were in arrears because of the lockdown, and we have tried
to support them with some rental assistance. What guardrails
has the Department of the Treasury put in place to ensure that
the funds are actually prioritized for individuals and families
who are in rental arrears?
Secretary Yellen. It is Treasury's job to establish
guardrails, and we have done that by issuing a set of
frequently-answered questions that are essentially guidance
about how the money needs to be used. It clarifies that
grantees have flexibility, but also that there are the
requirements of the statute, and that we will follow up to make
sure that the payments are going to eligible households and
that the guidelines of the program are being followed.
Mr. McHenry. Thank you. Thank you, Secretary Yellen. The
final question I have is about oversight. Secretary Yellen,
your predecessor agreed to very onerous, and rigid, and strong
oversight for the CARES Act, this current $1.9 trillion has
rescinded all of those things, sadly, except this quarterly
hearing. And so, what I would like to hear is your voluntary
commitment to work with Congress, the GAO, the special
inspectors general, and the Congressional Oversight Commission,
as well as this committee.
Secretary Yellen. I think oversight is very important, and
I pledge to work with this committee and the oversight groups.
Chairwoman Waters. Thank you very much.
Mr. McHenry. Thank you, Secretary Yellen, and
congratulations on your new role. Thank you.
Secretary Yellen. Thank you.
Chairwoman Waters. I now recognize Mrs. Maloney for 5
minutes.
Mrs. Maloney. Thank you. Thank you so much, Chairwoman
Waters, for having this hearing, and welcome, Chairman Powell
and Secretary Yellen. And as the first female Secretary of the
Treasury in history, and the first to head the Fed, we are so
proud of you--
Secretary Yellen. Thank you.
Mrs. Maloney. --and of your many accomplishments, Secretary
Yellen. And as this is Women's History Month, you are certainly
inspiring many young women with more confidence and aspirations
with your leadership, so thank you.
As you know, at the end of last year, we were able to reach
a bipartisan compromise on my Corporate Transparency Act, which
will crack down on anonymous shell companies, the vehicle of
choice for criminal activity, money laundering, and terrorism
financing. I want to thank Ranking Member McHenry for his
willingness to compromise and Chairwoman Waters for her
steadfast support of this bill over many, many years.
The bill requires companies to disclose their true
beneficial owners to FinCEN, which is an arm of Treasury, and
FinCEN will collect this information in a database which is
intended to be state-of-the-art with privacy and security
protection. Law enforcement calls it the most important tool
that has been given to them to track illegal money activity in
30 years, and implementation of this is going to be a massive
undertaking and will require an enormous amount of resources
and manpower at Treasury. I worked on this bill as a top
priority for 12 years, and implementing it and getting it up
and running is a top priority of mine. It is incredibly
important, I believe, to our national security. We have to get
it right.
And so my question to you is, will you commit to making
beneficial ownership one of your top priorities as Treasury
Secretary? We have 2 years to implement it, and I think it will
make all of us safer. I think it is extremely important.
Secretary Yellen. I completely agree with you. It is a very
important piece of legislation, and it is one of our highest
priorities to implement this promptly and to get it right. We
have a hiring plan. We recognize that significant resources
will be required, and we are trying to obtain them. We have
plans for how to collect the required database, and we are
actively working to implement this very important piece of
legislation.
Mrs. Maloney. Thank you. I want to build on Chairwoman
Waters' question. I am not going to repeat all of the things
that were in the important Recovery Act. But my question to
you, Secretary Yellen and Chairman Powell, is what steps can we
take to ensure we don't lose a generation of workers who never
return to the workforce, or that they face these depressed
wages moving forward? We know that over 11\1/2\ women lost
their jobs, compared to 9 million men. Black and Latino women
suffered the highest rate of all, and that the women's labor
force participation is down 2 percent, and the families are
suffering. We have many aspects of it. A lot she mentioned,
from rent to food, to help in so many ways, but I am concerned
about this labor force that has been hurt. What can we do to
help them get back into the labor force? And my question is to
you, Secretary Yellen, first, then to Chairman Powell.
Secretary Yellen. First of all, in the short term, the
American Rescue Plan contains substantial support for
minorities, and particularly for women who have been forced to
drop out of the labor market. There is an important increase in
the child tax credit that is going to result in, along with
other provisions, a 50-percent reduction in the child poverty
rate. There is money to open and support school openings
promptly. There is an enhanced child and dependent care credit
with a successful vaccination program to get women back into
the labor force. And longer term, when we have gotten to the
other side of this pandemic, we hope to address in the jobs
package over the longer term some of the factors that have
resulted in low wages and low labor force participation for
women.
Mrs. Maloney. Thank you. My time has expired.
Chairwoman Waters. Mrs. Wagner, the gentlelady from
Missouri, is recognized for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman, and thank you,
Chairman Powell and Secretary Yellen, for joining us today.
Secretary Yellen, and I would ask you please, respectfully, if
you would keep your answers brief, as the country begins to
safely reopen and our economy recovers, is examining changes to
tax policy the correct direction?
Secretary Yellen. We expect to examine changes to tax
policy along with programs that will address some of the
longstanding problems that have held down our productivity and
labor supply in the United States. We will address
infrastructure, risks from climate change, education, and
training.
Mrs. Wagner. Let me ask you, Madam Secretary, what impact
would this action have on jobs and workers' wages?
Secretary Yellen. I think a package that consists of
investments in people, investments in infrastructure, will help
to create good jobs in the American economy, and changes to
this tax structure will help to pay for those programs.
Mrs. Wagner. Secretary Yellen, what tends to be the impact,
I guess I would ask, on American consumers, my constituents,
when corporate taxes are raised? Do the costs usually tend to
be passed down to them?
Secretary Yellen. The impact of changes in corporate taxes
has been studied by economists for a long time, and the impact
of them on prices and on consumers is very unclear from
existing studies. We do need to raise revenues in a fair way to
support the spending that this economy needs to be competitive
and productive, and--
Mrs. Wagner. Secretary Yellen, if I could, I think we know
that raising the corporate tax rate results in higher costs for
small businesses, schools, and American households. Then why,
as this country begins to reopen and recover economically,
would the Biden Administration be proposing tax policies which
would, in the end, hurt American families and millions of
struggling small businesses?
Secretary Yellen. The Biden Administration is not going to
propose policies that hurt small businesses or Americans. The
Biden Administration is going to propose investments this
economy has long needed to be competitive and productive and
supports our--
Mrs. Wagner. With all due respect, ma'am, I would say this.
Certainly, raising taxes on business and industry is going to
affect consumers and households and American families in a very
adverse way. Is this being proposed, these tax increases, to
offset the costs of the recently-enacted partisan stimulus
package, ma'am?
Secretary Yellen. No, the stimulus package, the American
Rescue Plan, was not funded with any increases in taxes, but a
longer-term plan that addresses critical relief--
Mrs. Wagner. I really have--
Secretary Yellen. --for this economy probably would be
accompanied by some revenue raises.
Mrs. Wagner. Yes, I would say so, and I would say that the
plan as it exists right now hasn't been paid for. For example,
let me just say this. Last month's lumber prices hit an all-
time high, doubling in price from just 3 months ago. Gasoline
prices jumped 6.4 percent over the previous month, while
electricity and natural gas prices rose 3.9 percent, not to
mention housing prices and other manufacturing supply chain
goods. Are these steady increases a sign that once the economy
fully reopens, we are likely to see parts of the economy where
demand is intense, at least for a period of time, leading to
some additional price pressures?
Let me ask you this, Chairman Powell, in my limited time.
Could you describe in detail the wide range of policy tools the
Fed has at its disposal to address what is obvious inflationary
pressures that we are seeing already?
Mr. Powell. Our most basic tools here are to try to achieve
price stability, and those principally are interest rates and
moving interest rates up and down. As I mentioned a few minutes
ago, though, our best expectation is that there will be modest
upward pressure on prices this year, but that they won't be
particularly large or persistent into the future. But we do
have those tools, and we will use them.
Mrs. Wagner. Thank you. My time has expired. I yield back.
Chairwoman Waters. Thank you. The gentleman from
California, Mr. Sherman, is recognized for 5 minutes.
Mr. Sherman. Thank you. Addressing the comments of Mrs.
Wagner, most of the studies I have seen, and obviously the
Secretary of the Treasury has seen far more, indicate that
increases in corporate income taxes are not passed through to
consumers, but that the incidence of that tax is borne by those
who invest capital, and which is disproportionately the top 1
percent. In contrast, sales taxes are passed through to
consumers.
I want to use most of my 5 minutes just to bring to the
attention of our two august witnesses some matters that I hope
will merit their personal attention in the days to come. Madam
Secretary, your predecessor committed to me, from a foreign
policy standpoint, that the Treasury Department would put a
reasonable amount of lawyer hours into doing a tax treaty with
Armenia, and I hope that policy will continue now that the Iran
government is ready to proceed, having had some discord in the
past.
Madam Secretary, you have delayed till May 17th, the April
15th deadline for Form 1040. It is very important that you do
the same for the Form 1040ES, the estimated tax payments, a
voucher that is usually prepared at the same time and is so
important to gig workers.
Madam Secretary, 2 days ago, the IRS issued a report
indicating that one-fifth of the earnings of the top 1 percent
are going untaxed. I hope very much that you will work with
Congress to replace and restore the 15,000 enforcement officers
that the IRS has lost in the past decade. I used to head the
second-largest tax agency in our country, and it is clear that
putting more effort into tax collection, particularly from the
top 1 percent, will collect many more times the cost in
additional revenue, and will, I think, add to our social
cohesion because wage earners are paying their taxes.
Madam Secretary, I hope you will focus on a letter from the
State of California of May 19th desperately needing guidance on
the Recovery Act, especially showing a decision by California
to conform to Federal law. So, Federal law recently is very
generous to the PPP small businesses. If California conforms to
that law, that isn't regarded as a tax decrease violative of
the provisions of the Recovery Act that says that States should
not be using those funds to cut taxes.
Chairman Powell, we have talked a lot about wire fraud.
Your staff has told me they don't plan to solve the problem. I
hope you get personally involved in making sure our new wire
transfer system does solve the problem. And, Chairman Powell, I
want to commend you for your statement yesterday that the Fed
will not proceed with creating a new Central Bank Digital
Currency (CBDC) without the support of Congress. And I don't
think you will have that support, unless the Know Your Customer
(KYC) provisions are applicable to this new system and it
doesn't become useful to tax evaders, terrorists, drug dealers,
et cetera.
Madam Secretary, believe it or not, I do have a question.
Chairman Powell, when he was before us last month, testified
before this committee that Federal legislation is necessary to
fix the legacy London Interbank Offered Rate (LIBOR) contracts
so that they can continue to function after the LIBOR Index is
no longer published by our friends in London. Secretary Yellen,
would you agree with Chairman Powell that Congress will need to
act to provide for a smooth transition for this $2 trillion in
contracts?
Secretary Yellen. Yes, I would agree. There are certain
legacy contracts where the transition could be difficult
without legislation. These are contracts that don't provide for
a workable fair back rate, and so I think Congress does need to
provide legislation for the LIBOR transition.
Mr. Sherman. Thank you, and in my remaining time, can you
address the issue of States that are conforming their income
tax laws to Federal income law? Is that going to be regarded as
a violation of the Recovery Act?
Secretary Yellen. We are working to provide guidelines on
what will and won't count, and it is premature for me, until we
have completed that, to offer you an answer on the specifics.
Mr. Sherman. Please, it is critical for the people of
California.
Secretary Yellen. We will do it quickly.
Chairwoman Waters. The gentleman's time has expired. Mr.
Lucas, you are recognized for 5 minutes.
Mr. Lucas. Thank you, Madam Chairwoman, for holding this
hearing, and thank you, Chairman Powell and Secretary Yellen,
for appearing before the committee. And, of course, Secretary
Yellen, congratulations. I join my colleagues in congratulating
you on your confirmation as the first woman to serve as
Secretary of the Treasury. I look forward to the day, hopefully
not very far off, when all positions of responsibility, all
opportunities in society will have advanced to the point where
we won't have to use the phrase, ``first woman.'' Again, that
day will come, hopefully soon.
This past Friday, the Fed announced that the temporary
exclusion of Treasuries and reserves in the supplemental
leverage ratio will expire at the end of the month. The
announcement also stated that the Fed will seek public comment
on potential SLR modifications.
Chairman Powell, could you comment on if the exclusion of
Treasuries and reserves over the past year helped improve U.S.
Treasury market conditions and banks' ability to provide
credit?
Mr. Powell. As you know, the Treasury market was
experiencing significant dysfunction during the height of the
crisis, and we did a number of things, and, particularly, we
bought a lot of U.S. Treasuries to restore function. We also
did this exclusion and so did many other large countries like
us did something like that. If you look back, we threw the
kitchen sink at it, and it is hard to say exactly what effect
it had. We did the exclusion relatively late, and by then,
there had been quite a lot of market function recovered. So it
is hard, it is difficult. I would love to give you a straight
answer, but it is difficult to say just how helpful it was.
In any case, that danger has long passed.
Mr. Lucas. Secondly, could you elaborate on the timeline of
potential SLR modifications that may come in the near future,
Mr. Chairman?
Mr. Powell. Yes. We expect to put something out for
comment, and I can't tell you exactly when that will be, but
relatively soon. And we are going to run a very transparent
public process, invite comment, and consider it.
Really, the point is that because of the substantial
increase in reserves and Treasuries, the leverage ratio is
rapidly becoming the binding constraint from a capital
standpoint, and that wasn't our intention at the Fed from the
beginning. We like risk-based capital to be binding because it
forces banks to manage their risks more carefully.
Mr. Lucas. As everyone on this hearing knows, I have always
made it a very strong point that the Third Congressional
District of Oklahoma is a commodity-driven economy. It is
agriculture, and it is energy. There is concern in my district
that financial regulators may be moving towards regulation and
supervision with environmental policy objectives, potentially
discouraging banks from doing business with entire sectors of
the economy.
Chairman Powell, could you respond to that concern of my
constituents?
Mr. Powell. Sure. It has been a long-held policy of the Fed
that we don't tell banks what legal businesses they can lend to
or order them to lend to. That is not what we do.
With the climate change--you are getting at the climate
change work that we are doing. We are at a very early stage of
understanding the risks to regulated financial institutions
from climate change. It is a risk that we think the public has
every right to expect that we will ensure that the banks do
manage over time.
And so, again, we're in the early stages of that. I would
be happy to talk to you offline about that, too.
Mr. Lucas. Absolutely. And Secretary Yellen, could you
provide your thoughts on that concern?
Secretary Yelllen. You want me to weigh in on the issue of
lending and climate change?
Mr. Lucas. Yes, that there will potentially be efforts by
the financial regulators to move towards regulation and
supervision with environmental policy objectives. My folks are
concerned that will lead to discouraging banks from doing
business in certain areas and certain sectors and consequently
potentially have a dramatic effect on their business model or
their ability to function.
Secretary Yellen. Climate change is a top priority for the
Biden Administration, but we agree that financial regulators
should be assessing the risks to financial institutions through
stress testing and other techniques. And investors need
disclosure of risk, but we have no plan to regulate what
lending or investments can be done.
Mr. Lucas. Thank you very much. And I can assure you that I
and my colleagues will watch all that very closely.
With that, I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you. The Chair now recognizes the
gentleman from New York, Mr. Meeks, who is also the Chair of
the House Foreign Affairs Committee, for 5 minutes. Mr. Meeks?
[no response]
Chairwoman Waters. If Mr. Meeks is not available, we will
move on to Mr. Scott for 5 minutes.
Mr. Scott. Thank you very much, Madam Chairwoman.
Chairman Powell, Secretary Yellen, welcome.
Chairman Powell, first to you, thanks to the Rescue Plan,
we now have an opportunity to expand the child tax credit. The
IRS has put forth a Get My Payment website, and I believe it
could be used in conjunction with the efforts through the FDIC
and the private sector to bring more Americans into our banking
system using what is known as Bank On certified safe accounts,
but only if it is able to be moved at the moment when we
capture it.
Because currently, the IRS Get My Payment tool is only open
for the status checks. But consumers are unable to add or
change delivery information as they were able to do so with the
delivery of the first stimulus checks.
So, Chairman Powell, explain that. Don't you agree that
this is an opportunity to increase financial inclusion through
the use of certified Bank On safe accounts, Get My Payment?
Mr. Powell. I would agree with you that greater
inclusiveness in the financial system is a goal of the highest
priority for us and really for all financial regulators and for
the country. I am not familiar with the particular practice you
are referring to, but I will be happy to look into that and get
back to you.
Mr. Scott. Okay, please do. And then there is another one
with the Treasury Department called, Get My Payment. All of
these things are good, but I appreciate your looking into them
as quickly as you can so that if they are there, we need to use
them now because so many of our people cannot get the money
quickly because they don't have the kind of high standing
within our financial system. When you put these things in like
Bank On and Get My Payment, we need to use them right now. So,
I appreciate your looking into that.
Secretary Yellen, let me move to you. The American Rescue
Plan also included $350 billion in assistance to State and
local governments to make up for the lost revenue and to ease
the economic impact of the COVID-19 pandemic. Could you tell me
when local governments can expect Treasury to release guidance
on the American Rescue Plan?
Secretary Yellen. I think we have to issue guidance quite
quickly, I think within 60 days, and to distribute the funds.
And we are working very hard to sort through the issues that we
need to in order to provide clarity about the purpose of the
funds and how they can be used.
Mr. Scott. Okay. Madam Chairwoman, I am concerned. We have
the Treasury Secretary here, and we have the Chairman of the
Federal Reserve here. And we passed this bill, and we put
certain things in it to increase the delivery. And everybody
cannot get this payment through electronic accounts. Most of
the people that you and I have been very concerned about
getting inclusion are not getting these funds as quickly.
I just want to encourage--and I know you agree--but I want
to take a moment here. We passed it. It is there. Please,
please, Treasury Secretary, please Federal Reserve Chair, all
of us need to hurry up. We put these things in place so we
could reach those who have been excluded very quickly. They
need the money as quickly as everyone else.
Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much, Mr. Scott. I now
recognize the gentleman from Florida, Mr. Posey, for 5 minutes.
Mr. Posey. Thank you, Chairwoman Waters, for calling this
hearing today.
We continue to live in a period of uncertainty, but there
is some good news on the horizon for our economy as it appears
poised to recover rapidly as the vaccine is given to more and
more people. Chair Powell told us in his semi-annual appearance
a few weeks ago that the economy could grow by as much as 6
percent during this year alone.
At the same time, other factors could cloud the horizon,
such as our unprecedented level of deficit spending, increases
in nominal Treasury and corporate bond yields, the mysterious
enthusiasm for raising taxes, and the headlong pursuit of
climate change mitigation measures that threaten affordable
energy and our recently-acquired energy independence.
Secretary Yellen, you recently said that the Treasury
Department could facilitate bank stress tests for climate
change, but you wouldn't expect results would be used for
capital requirements or other regulation. If these climate
stress tests have no regulatory purpose, what would the purpose
of such stress tests be?
Secretary Yellen. The purpose of the, maybe we should call
it ``scenario analysis'' rather than ``stress test,'' is for
financial institutions and for the regulators to better
understand the risks that climate change poses to the health
and resilience of core financial institutions, and it will help
those institutions better manage and understand the risks.
Mr. Posey. Are we doing any studies of the risk from solar
interaction with our planet? A couple of years ago, we missed a
solar eruption that would have knocked out a lot of satellites
and kind of put us in the Dark Age. Are we checking on natural
phenomena like that as well?
Mr. Powell. Let me say--
Secretary Yellen. Go ahead.
Mr. Powell. Yes, I can say, since we directly supervise
financial institutions, we do supervise for institutions that
are in areas of the country that are susceptible to significant
weather problems, such as hurricanes and things like that. So,
we do that.
But just in response to your question, I would say that.
Mr. Posey. How would this be used? Some people think it
will be a Federal informercial, like the old Al Gore movie or
something like that. How do you plan to utilize this
information?
Mr. Powell. Let me say that, first of all, many, many of
the large financial institutions are already doing this, and
the reason they are doing it is just what the Secretary said.
It is to try to understand at an early stage of this science
really, understand what are the risks that are involved in
climate change.
And that one way to do that is to run simulations and ask,
``What would happen if? What would happen that?'' There are no
regulatory consequences contemplated. It is an exploration in
understanding better what the risks are to the core of our
financial system, and we feel like that is our obligation is to
understand that.
And again, the financial institutions are very much
actively doing this on their own. It is not something we are
forcing them to do at this point.
Mr. Posey. Who is doing it? Give me some examples of who
might be doing that right now?
Mr. Powell. I am not going to name individual financial
institutions. Many of the large banks are very active in trying
to understand how climate change would affect their business
over the long sweep of time. Many or even all financial--and by
the way, that is also true of large industrial companies in the
United States.
Mr. Posey. And are they sharing that information with you?
Mr. Powell. They are sharing with the public.
Mr. Posey. Does it seem consistent?
Mr. Powell. I think it is early days. Honestly, it is
really very early days in trying to understand what all of this
means. It clearly can have longer-term implications for our
economy, for our financial system, and for the people that we
all serve. And I think our obligation is to try to understand
that. And again, I would say it is early days, but we feel like
we have a responsibility to start the process of understanding.
Mr. Posey. Do you think you will discover revelations that
they have missed or--
Mr. Powell. I think we have a job, which is to ensure that
the institutions we regulate are resilient to the risks that
they are running. The public will expect that, and they have
every right to expect that over time. So, we don't have a new
mandate. This is consistent with our existing mandate of
supervision of financial institutions. It is just the same
mandate and a different risk.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Texas, Mr. Green, is recognized for 5 minutes.
Mr. Green. Thank you very much, Madam Chairwoman.
Madam Chairwoman, I don't want the historic aspect of this
hearing to escape us. I am a senior member of this committee. I
have witnessed many persons appearing before this committee,
many Secretaries of the Treasury and Chairs of the Fed, and I
must tell, you a paradigm shift is taking place, and I don't
want it to be overlooked under your leadership.
I have here the statement of the Chairperson of the Fed,
and in his statement, he says--while addressing progress that
is being made, he states, ``We welcome this progress, but we
will not lose sight of the millions of Americans who are still
hurting, including lower-wage workers in the service sector--
African Americans, Hispanics, and other minority groups that
have been especially hard hit.''
And then, the Secretary of the Treasury, in her statement,
she indicates that, ``Since taking office 2 months ago, we have
been expediting relief to areas of greatest need, for example,
small businesses and especially the smallest small businesses,
which are disproportionately owned by women and people of
color.''
I understand that there is still great work to be done, but
I just don't want to overlook the fact that people are talking
more now about the needs of minorities and women.
Secretary Yellen, you indicated in a message that you
presented not so very long ago, when comparing the 1.8 million
fewer men in the labor force to the 2.5 million fewer women,
you called this, ``extremely unfair.'' This is the Secretary of
the Treasury.
I am grateful to both of you for understanding that it is
now time for us to move forward on the issues associated with
the wealth gap as it relates to minorities in this country, and
especially issues related to women, who happen to be more than
50 percent of the population of the country.
But it is historic to see this movement under your
leadership, Chairwoman Waters. I commend you, and I am honored
to serve under your leadership.
Now to Secretary Yellen, I have a concern, and I am
concerned about the $10 billion that will go to the State Small
Business Credit Initiative (SSBCI). I am concerned because when
this program was instituted on a previous occasion--we have
reauthorized it in the Rescue Plan, but when it was authorized
initially, it went to the States through the Agriculture
Department.
Then, the Agriculture Department had the duty and
responsibility and obligation of making sure that it moved down
to other units of the State. Well, in Texas, that probably is
not the best way to do business. I have this consternation
about it, and my hope is that we will be able to get this to
the end users in a much more expeditious way, such as what you
have indicated you have been trying to accomplish.
My question is this, Madam Secretary: Will you send us an
outline of the timeline for implementation from money in the
Treasury to capital in the coffers of the end users in the $9
billion Emergency Capital Investment Program that has come into
being under the Honorable Maxine Waters' leadership--I had the
privilege of working on this program--and the $10 billion State
Small Business Credit Initiative similarly came into existence?
And I would add also this last one had the help of the
chairwoman of our Diversity and Inclusion Subcommittee, Mrs.
Beatty, who helped us to hone this and refine it to the extent
that we are helping the smallest of small businesses.
I am just hopeful that we can get such an outline because,
I have people who question me daily about, when will the money
be available for us as end users to benefit from it? And I
believe your heart is in the right place. I believe you are
working expeditiously. I just want to be able to answer those
questions when they are posed to me.
So, again, I thank you. I am grateful for this historic
moment. And my hope is that this is only an indication of the
better things to come.
And Madam Chairwoman, I will yield back 12 seconds to you.
Chairwoman Waters. Thank you. Thank you very much. I now
recognize the gentleman from Missouri, Mr. Luetkemeyer, for 5
minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
And congratulations to you, Secretary Yellen, on your new
position. It's good to see you again.
Secretary Yellen. It's good to see you.
Mr. Luetkemeyer. My opening comment is just for you. I also
have another duty here in Congress, which is to be the ranking
member on the House Small Business Committee. And during your
opening statement, which I am sure was written by your staff,
they made or you made some comments with regards to this
Administration being responsible for all of the loans that are
out there that are being taken by those entities, those small
businesses under 20 or 10 employees.
I can quote you from my own press release as the ranking
member of Small Business that the loans have been at roughly 75
to 80 percent, 10 employees or less already, and are generally
about a little over 90 percent of 20 employees or less. And for
the Administration to actually pause that ability of small
businesses with over 20 employees to have access to the program
is actually harmful from the standpoint that, if we don't pass
the extension of the PPP bill that we passed in the House,
which the Senate now has--if we don't pass that, those small
businesses are actually at a disadvantage because the over-20
were delayed. And if they don't get their loan in the pipeline
soon, the pipeline is not going to get processed, and they
won't even get their loan processed.
My comment would be, please tell your staff to quit
politicizing your statement, and please stop taking liberties
with the facts.
Chairman Powell, we are halfway through the 2-year cycle
now on Current Expected Credit Losses (CECL) and a capital
delay, which will end in 2022, and begin the phase-in of
deferred impacts on the capital. We have now had nearly 4
quarters of CECL data available and have banking agencies
reviewing the data.
Can you tell us what the Fed's review of that data is, and
if you would consider a more permanent calibration or revision
to the current approach?
Mr. Powell. We are continuing to look at CECL, and I
honestly don't have anything for you on that data. I will take
a look at it quickly, and get back to you.
Mr. Luetkemeyer. Okay. That would be great, because I think
having deferred it is something that you agreed to up-front
last year in the process. It was something that I think you
probably agreed to again this time, and I think it is something
we certainly need to review, for sure, if not get rid of
altogether, if a delay is something that we all believe is in
the best interest of everybody affected by it.
Also, Chairman Powell, at this point, Fed data from third
quarter 2020 indicates that 51 percent of the commercial real
estate debt is now held by banks, and the FDIC data indicates
that community banks have a higher concentration of these loans
as the lenders. At this point, again, Congress has provided
relief from the financial institutions with these assets
through the suspension of TDRs and the extension of the
foreclosure moratorium.
I think it is important that we have discussions around
this on what will happen when this relief ends. Can you give us
a little heads-up as to what you think will happen, the impact
on balance sheets, the economic recovery, if we take that
extension, we take that foreclosure moratorium off?
Mr. Powell. I will look into that for you.
Mr. Luetkemeyer. I apologize for my voice. I have really
bad allergies today.
Mr. Powell. It is that time of year. No, you are right. We
are monitoring commercial real estate (CRE) very carefully, and
you are absolutely right that its concentrations arise
principally in smaller banks, and we will have to monitor it
carefully as we allow those moratoriums to elapse. And I don't
have anything for you on that today, but we are well aware of
the issue, and we will be sure to move very, very carefully
when we do address that.
Mr. Luetkemeyer. As you know, I am very concerned about
this situation, because, as we saw in 2008 and 2009, when we
went in and very punitively shut down entire industries,
especially in the commercial real estate and real estate
development areas, it had a really, really devastating effect
on not only local economies, but the economy as a whole. So, I
hope we are very, very cautious about this.
You and I have talked about this before with regards to
forbearance and being able to allow these businesses to get
back on their feet and see once what the real loss is before we
go in and sort of, ``scorched earth'' get rid of all these
folks.
But I appreciate your interest on that and your support on
that. I know that you all are doing a good job of working with
the banks at this point. I would ask that you continue to do
that. I realize some loans are bad. You have to write them off,
that is fine.
But I think if time is given with the nature of the economy
the way it is, I believe we can get out of a lot of the mess
that we are in without having to go through the process of
foreclosure. I thank you for your thoughtfulness.
And I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you very much. The gentleman from
Missouri, Mr. Cleaver, is recognized for 5 minutes.
Mr. Cleaver. Madam Chairwoman, let me again, hopefully for
the last time, apologize to you and the members of the
committee, and certainly our witnesses, for not being properly
attired due to my current medical situation. But I thought it
might be better for me to do this than to miss the hearing.
If I can, Madam Secretary, I was here, and probably
everybody at least on the Democratic side who has spoken so far
was here, and many of the--and I think probably, yes, all of
the Republicans as well were on the committee when the tax cuts
were approved. The Tax Cuts and Jobs Act, I think it was
called. And it temporarily authorized what was called the
Opportunity Zones, and I became somewhat excited about it. It
didn't matter whether it was designed by Republicans,
Democrats, or the Tampa Bay Buccaneers, I thought it was--well,
maybe that is going too far.
But Opportunity Zones, the incentives were designed to
encourage private investment in the economically-distressed
areas around the country. And I have become concerned, even
though I had great enthusiasm for the program, that the larger
promise of this organization has not been realized. I thought,
I believed, I hoped that we would have affordable housing,
community-oriented amenities like grocery stores, drug stores
like CVS, that would improve the quality of life in these low-
income areas. But my dream remains unrealized.
Now today, Chairman Green and I sent a letter. Let me say
although, parenthetically, that Opportunity Zones are under the
jurisdiction of the House Ways and Means Committee, and I
accept that, there are some parts of this, especially as it
relates to affordable housing, where Opportunity Zones could be
extremely important.
So, here we are. We have seen some things that happened,
that I think are extremely unfortunate, and they bode poorly
for what we could do in the future. And one of those things,
Madam Secretary, is that we have seen, for example, the
Brookings Institution talked about in one of their reports that
some of the States had picked the Opportunity Zones covering
college campuses located in Census tracts where over 90 percent
of the residents are students.
And I am all for students, but I don't believe the program
was designed, as I recall and read the initial proposal, for
colleges. It was designed for distressed communities. At any
rate, I am talking too long, but I want to make sure that you
understand the concerns we have. And in the remaining time,
could you talk about what economics says about the benefits if
we have this program maybe tweaked or redesigned in some way so
that the incentives actually help people in what we thought
were going to be zones?
Secretary Yellen. I think it is critically important to
increase opportunities to provide affordable housing,
especially for low-income and historically-marginalized
families, and Opportunity Zones, appropriately structured,
could contribute to that. There are a number of other tools
that we have that can contribute to affordable housing goals.
The Low-Income Housing Tax Credit, I think is important in
serving that purpose. The Capital Magnet Fund can also serve to
facilitate investment in affordable housing construction.
This is a top priority for the Biden Administration. We are
certainly open to exploring opportunities at Treasury and
across the government to address the affordable housing
shortage. We are operating at Treasury, the CDFI Fund and other
programs that will invest in CDFIs and Minority Depository
Institutions (MDIs), and I think they can make a contribution.
But we have a variety of programs, and I would look forward to
working with you to see how we can use them to address this
problem.
Mr. Cleaver. Thank you. And thank you, Madam Chairwoman.
Chairwoman Waters. The gentleman's time has expired. Thank
you. The gentleman from Michigan, Mr. Huizenga, is recognized
for 5 minutes.
Mr. Huizenga. Thank you, Madam Chairwoman.
And I am going to be trying to move through a couple of
quick things. But Secretary Yellen, one, congratulations on
your new position, and I look forward to continuing to work
with you.
But I have to read you part of an email I received from a
CPA, a constituent of mine, and this echoes what Mr. Sherman
had to say. My constituent says, ``Extending the filing date of
the 2020 tax returns was not an option. It was a necessity
because of all of the stuff being thrown at us this year.
Making changes to the 2020 income tax rules in March? Really?
``It is going to take software developers 2 weeks at least
to get this into the software correctly. Can you even imagine
the amount of incorrect correspondence the IRS system is going
to create as a result of this, and how much we are going to
have to deal with straightening this out for them because they
also can't get their systems changed correctly that quickly? It
is going to be a mess this summer for sure.
``Extending the 2020 deadline by 30 days is minimal. It
should have been until June 15th, as the American Institute of
Certified Public Accountants (AICPA) and the Ways and Means
Committee recommended, but we can deal with that. Having the
first quarter 2021 estimated payment due on April 15th, after
extending the tax filing date to May 15th, is the most
ridiculous thing I have ever heard. How do you think we
determine what those estimates should be? Through the
completion of the prior year return.
``To have the first-quarter estimate due on April 15th
without knowing where the prior return ended up is ridiculous.
They should have just kept the filing date at April 15th.''
So, one, I want to know if you are aware of this problem,
and, two, whether you are committed to actually trying to
straighten that out and move that date to make it workable?
Secretary Yellen. I believe the logic of moving the one
date, but not the date for estimated taxes, is based on the
idea that it is mainly high-income taxpayers who file estimated
taxes and that they are able to file by April 15th when--
Mr. Huizenga. Let me just stop you right there. As a former
REALTOR and independent contractor, coming out of college, I
was not a high-income earner, but I paid quarterly taxes. I
paid quarterly estimates.
And there are all kinds of people like that who are small
business owners. They are in the middle of trying to keep their
restaurant open, much, I might add, like Marlena, who is a
restaurant owner, an immigrant restaurant owner who is in jail
right now because she violated the Michigan Health Department's
order to shut her restaurant down because she was trying to
save her business. But we have a lot of those folks who need to
understand what their tax liability is before they are going
out and sometimes having to borrow cash to make that first
estimated payment, especially those who are in seasonal work
such as construction, landscaping, those kinds of things.
I don't want to take any more time on that. I do want to
have that conversation with you and your staff offline.
Mr. Powell, materiality, I want to touch on that and the
Fed's involvement in the Network for Greening the Financial
System (NGFS). You have a rather interesting quote saying,
``Regardless of the nature of any future engagement with them,
we will continue to set supervisory and regulatory expectations
basically as normal.''
So, one, that begs the question, why the involvement in
that? And two, materiality, doesn't it need to be definable as
well as quantitative? Very quickly.
Mr. Powell. What the NGFS really is, is regulators,
supervisors from countries around the world who are trying to
understand together what are best practices--
Mr. Huizenga. I know what it is. What I need to know in
this short amount of time is about the materiality. When nobody
can define it or come to an agreement on it, how can it be
measured and be quantitative?
Mr. Powell. We are not trying to measure or quantify
something right now. We are trying to understand at a high
level what is the nature of the risks that will affect banks
over time from climate change?
Mr. Huizenga. That might be your goal and objective. I know
that is not the goal and objective of a number of my colleagues
who have actually been talking about this needing to be into
the review currently. And what I am afraid is that we are going
to get dragged into that.
In my remaining last little bit, I do want to talk about,
Secretary Yellen, you are a professor, a lifelong educator. Do
you agree that we should safely send our kids back to school to
ensure their educational development? I am very concerned about
that impact on the future of our economy.
Secretary Yellen. I have concerns about the impact of
children not being in school, and it is an important objective
to reopen the schools safely as soon as we can.
Mr. Huizenga. Okay. My time has expired. I appreciate the
time, and I look forward to that other conversation about the
IRS.
Chairwoman Waters. Thank you. The gentleman from
Connecticut, Mr. Himes, is recognized for 5 minutes.
Mr. Himes. Thank you, Madam Chairwoman, and thank you to
both of you for appearing.
A couple of quick things, then I do have one question for
both of you. Chairman Powell, I saw with great interest your
comments on cryptocurrency out of the Fed. You said we would
not proceed without support from Congress and urged great
transparency.
I appreciate that. I think my subcommittee would probably
have jurisdiction over that in some combination with Mr.
Sherman's subcommittee. I just wanted to tip my hat to that
sentiment, and I think we should work together. There is quite
a bit of education, I think, to be done with the United States
Congress on that very important topic.
Secretary Yellen, thank you for all of the work that you
and your people have done. I would be remiss if I didn't urge
you to be particularly quick on the rollout of the rules for
the Restaurant Revitalization Fund. That obviously is a sector
that has been brutally hit in the last year or so. We are
hoping that those funds become available quickly.
In my remaining 4 minutes, I have one question for both of
you that I would like to offer. It is undeniable that
everywhere we look today, we see the effects of the very
substantial liquidity in the system. And by the way, it is
gratifying to see monetary and fiscal policy working in tandem.
This was not true when I was a freshman in 2009, when the
fiscal policy was working against the monetary policy for
recovery.
It is very gratifying to see that. But again, everywhere we
look, we see the effects of a flood of liquidity in the system.
That, of course, is in equity market prices, which have a
remarkable run. The high-yield market, which is now yielding
something like 4 percent. Everybody and their brother has a
Special Purpose Acquisition Company (SPAC). Real estate prices
are growing around the country.
So, my question is for both of you. We learned in 2008 that
trees do not grow to the sky. I wonder if you each would just
take 90 seconds to tell us what you see as the near- to medium-
term risks associated with the inevitable contraction, although
we may not know when it comes, of liquidity in the system?
Let me start with the Treasury Secretary for a response,
and then go to the Chairman.
Secretary Yellen. I would say that while asset valuations
are elevated by historical metrics, there is also belief that
with vaccinations proceeding at a rapid pace, the economy will
be able to get back on track.
I think in an environment where asset prices are high, what
is important is for regulators to make sure that the financial
sector is resilient and to make sure that markets work well and
that financial institutions are appropriately managing their
risks.
Mr. Himes. Chairman Powell, that is a pretty good segue
over to you.
Mr. Powell. Monetary policy is highly accommodative right
now. That is appropriate, given how far we are from our
employment goal and our inflation goal, for that matter. And I
think the first thing I would point to is just our overall
monitoring of financial stability.
We have looked carefully at financial stability on an
ongoing basis. We have a framework with four pillars. If you
look at those, the evidence is kind of mixed. You can say that
some asset prices are a bit high, but the banking system is
highly-capitalized, and funding risk is relatively modest.
The remaining category is really leverage among households
and businesses, which is somewhat elevated, but nothing like it
was before the financial crisis. So, it is a mixed picture on
that. The main thing is to have a resilient financial sector
that can withstand the sorts of disruptions that will come.
In terms of moving forward, we have said that we would
start to taper our asset purchases when we have seen
substantial further progress toward our goals. When that comes,
we will communicate well in advance of the time of actually
tapering.
That is what we do. We have learned over the course of some
years now that we need to communicate carefully and move
slowly. Well ahead of time, we will let people know what is
coming, and that is the best we can do to make sure that the
transition away from very highly accommodative monetary policy,
as the economy reaches full employment and price stability
goals that will transition to a different policy.
Mr. Himes. Thank you. I yield back.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Kentucky, Mr. Barr, is recognized for 5 minutes.
Mr. Barr. Thank you, Madam Chairwoman.
Secretary Yellen, you have created a team within Treasury
to focus on climate change. You are also the Chair of the
Financial Stability Oversight Council (FSOC), which is charged
with identifying systemic risk to the financial system.
I certainly understand that changes to weather patterns
could pose risk to individual credits or insurance policy
holders. But linking hypothetical climate scenarios to risk to
the entire financial system seems to me highly speculative, and
on the flip side, I worry that injecting ill-defined climate
scenarios into financial regulation and supervision creates the
immediate and very real risk of driving investment and credit
allocation away from job-producing industries like fossil
energy, an industry that still provides 80 percent of total
energy consumed in the United States, and remains the most
affordable and reliable source of energy to the American
economy.
Are you incorporating this real risk into your assessments
around climate, and how do you plan to account for the
disruptions in the labor market, the very significant
disruptions to the labor market from lost energy jobs? And what
about increasing energy prices and decreasing reliability for
consumers, is that something FSOC will look at in addition to--
in the context of your time as czar?
Secretary Yellen. I believe that FSOC can play a role in
arranging discussions among financial regulators, all of whom
have responsibilities for assessing risks from climate change
to the financial institutions that they supervise and regulate,
to coordinate a systemwide response using the best-available
tools. I think FSOC can facilitate identification of data and
information, including high-quality financial disclosures that
are needed to understand climate risks and make sure that
climate risks are addressed fully in light of these
assessments.
I don't see FSOC playing a role in telling financial
institutions what kind of lending they can do, but information
is important.
Mr. Barr. Thank you. And reclaiming my time, I would just
encourage Treasury to consider the role that shifting
consumption away from fossil energy toward renewables, despite
the market's continued demand for fossil, the impact that could
have on the economy as well and systemic risk, as opposed to
just looking at hypothetical climate scenarios.
Broadband, Madam Secretary. The pandemic has been
especially hard for rural families who don't have a broadband
connection in my home State of Kentucky. And I am glad that the
American Rescue Plan allows for necessary investments in
broadband, but one of the ongoing problems we have had is that
funding our broadband infrastructure often goes to areas that
already have broadband, and the dollars never get into
underserved areas like in my district.
I was disappointed that this committee, in the markup of
the American Rescue Plan (ARP), rejected my amendment to
dedicate funds to rural areas for broadband. Will you commit
Treasury to using its authority to see that in the American
Rescue Plan, broadband funding is spent first and foremost in
underserved rural areas?
Secretary Yellen. We need to distribute the funds to
States, localities, Territories, and the like based on the
requirements that are in the ARP, and using the funds for
broadband or water or sewer for the State and local funding is
certainly a permitted use. But we are going to give flexibility
to the recipients of these funds as to precisely how they
deploy them, consistent with the requirements of the Act--
Mr. Barr. Thank you, and I look forward to working with you
and Treasury on that. I appreciate that. I think we can work
together on that.
Final question: With the multi-trillion dollar deficit
spending bill just passed, the promise of an additional $3
trillion in spending by this Administration on top of the $4
trillion in borrowing because of COVID last year, does the
Treasury or the Fed or both of you intend to lengthen the
maturity of government debt before interest rates rise?
Secretary Yellen. Treasury has been looking at this
question and has no current plans to do that.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Illinois, Mr. Foster, is recognized for 5
minutes.
Mr. Foster. Thank you, Madam Chairwoman.
Secretary Yellen, Chair Powell, I would like to probe a
little bit deeper on Central Bank Digital Currencies, and in
particular the need for a secure digital ID for participants. I
believe that both of you are on the record as acknowledging
that an anonymous, untraceable digital dollar is not a viable
option for our country or the free world because of its ability
to be abused for money laundering, terrorism financing,
ransomware, and so on. Is that principally correct?
Mr. Powell. I don't think I am on the record for that, but
I will go on the record now for it.
Mr. Foster. Secretary Yellen?
Secretary Yellen. Nor am I on the record, but I would agree
that we need to be very careful about the use of the digital
currency for illicit finance, and anonymous currency makes that
much harder to control.
Mr. Foster. Yes. Well, I concur. I think it is sort of
logically impossible.
On the other hand, I believe that the Chinese approach to
digital currencies that gives the government immediate and
unconditional access to all transaction information will be
equally unacceptable to Americans and to most citizens of the
free world. Therefore, a digital dollar will be crucially
dependent on having an effective authentication component. That
is a secure and legally traceable and maximally privacy-
preserving way for participants to authenticate themselves as a
unique legally traceable individual, a secure digital ID.
And it must be backed by a trusted court system and a clear
legal regime to determine the conditions under which the
participants might be unmasked. And as a digital dollar, if it
is to be used internationally, we are then going to need a
digital ID system that operates internationally, at least among
the free countries of the world.
I would like to thank you both for beginning engagement
with authorities in other countries on Central Bank Digital
Currencies, and I was wondering where you see this discussion
going as far as a secure digital ID and a means of
authentication across boundaries, across countries?
Secretary Yellen. I will let Chair Powell start with this,
because he has been more involved than I have.
Mr. Powell. Thank you. So, yes, where we are is we are
engaged in a process of looking at all of the technical issues
and design issues, which interact with each other. That is one
of the most basic ones.
Reflecting your earlier question, I don't think a system
that relies entirely on, for example, completely private
governance or completely secret information about who actually
owns the digital dollar would be viable. And the lack of
privacy in the Chinese system is just not something we could do
here.
At the same time, I would say there has to be a balance,
and it does call for using a two-tiered system in some way so
that there is a wallet outside of the central bank, and
transfers can take place there and that there are appropriate
protections. We are only beginning to think carefully about
these things, and it is going to be a careful, detailed, and
probably lengthy process of consideration, one that we are
investing quite a bit in now, and that I expect will last some
time.
Mr. Foster. Secretary Yellen, did you have any thoughts on
this?
The issue of the secure digital ID is very much in your
court, having to do with--one of the things that the
coronavirus laid bare is the lack of simply a list of citizens
in the U.S., and then our ability to rapidly distribute funds,
particularly to the underbanked. A high-quality and universal
digital ID in the U.S. would have made that immeasurably
easier, as well as everything from vaccine certificates or you
name it.
And so, it is an ongoing discussion on many fronts. And
there are also specific proposals. I believe you had letters
urging both of you to look into this in more detail. And I was
just wondering, just simply as a means for citizens to receive
payments, Fed accounts, each one of us already has an account
with the Federal Government, the IRS at least, and I was
wondering how you saw this part of the conversation going?
Secretary Yellen. I think it is something that is worth
exploring. I have not done so, but we would be glad to have
further conversations with you about how something like this
could work. It is certainly a problem, as you have mentioned.
Mr. Foster. Thank you.
Chairwoman Waters. The gentleman's time has expired. The
gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams of Texas. Thank you, Madam Chairwoman.
And thank you, Madam Secretary and Chairman Powell, for
being with us.
The Biden Administration's tax plans are becoming clearer
each day, and from what we have learned so far, the President
was not really telling the truth when he told voters that
anyone earning less than $400,000 would not have a penny raised
in taxes. Now, this number has been reduced to anyone making
$200,000 a year, and a significantly greater number of families
can expect the government to take more of their hard-earned
paychecks so that Democrats can fund their progressive
priorities.
In addition to individual tax rates going up, the corporate
tax rates are also expected to be raised, and we will no longer
have one of the most competitive tax rates in the world. This
will stifle business investments, prevent employers from hiring
more people, and reduce capital-struggling businesses that will
need to make the necessary changes to accommodate the new
normal after COVID-19.
So, Chairman Powell, can you talk about the correlation
between business investment and productivity gains, and how
increasing productivity benefits workers and the overall
economy?
Mr. Powell. Sure. The way living standards rise over time
is through increasing productivity, more output per hour.
Without that, incomes can't sustainably rise, and that is
significantly connected to investment, investment in human
capital and also in advancing technology.
Mr. Williams of Texas. Okay. Thank you, Mr. Chairman.
At the beginning of 2020, Congress updated the Bank Secrecy
Act and made some of the largest changes to our anti-money
laundering laws in decades. When this legislation was signed
into law, there were some concerns coming from the business
community about the impact this will have on small businesses
in the form of additional regulatory costs. As a small business
person, I can tell you that is a burden that we do not look
forward to.
And as you start putting out guidance and implementing the
law, I hope you will be mindful of this and do all you can to
ensure that businesses will not be stuck with significant new
expense.
So, Secretary Yellen, can you give us a status update on
Treasury and FinCEN's work in implementing the Anti-Money
Laundering Act of 2020?
Secretary Yellen. Yes. Timely and effective implementation
of the Anti-Money Laundering Act of 2020 is the top priority at
FinCEN. Our efforts are well underway, and several of the
provisions of the Act that involve FinCEN looking at
innovation, regulatory reform, and the like, we are actively
engaged in. This is something that is a high priority, and we
are making progress on it.
Mr. Williams of Texas. Okay, thank you.
Chairman Powell, in the past, we have talked about the
workforce participation rate and how we need to get people off
the sidelines and contributing to our economy. In other words,
just put them to work.
In your testimony, you note that this figure is still
notably lower than it was before the pandemic, and yet the
COVID-19 bill recently extended the enhanced unemployment
benefits until September. Now, I have consistently expressed my
concerns about how this policy will be detrimental to our
economic recovery and make it more lucrative to, frankly, live
off of these overly-generous government programs than to go out
and find a job.
So, Chairman Powell, given the enhanced unemployment
benefits are now law, how should we be incentivizing people to
get off the sidelines and back in the workforce and make a good
living for their families?
Mr. Powell. I think the most important thing is for people
to get vaccinated, so that we can get the economy fully
reopened and those jobs can come back, and people can feel safe
doing them.
Mr. Williams of Texas. Do you have an answer to that,
Secretary Yellen?
Secretary Yellen. I agree with that. Many people who are
not working are not doing so because of safety considerations
or because they have children out of school. And the studies
that have been done about whether or not the additional
payments discourage work show pretty clearly that they don't
serve to do that. In addition, they will be expiring in the
fall.
Mr. Williams of Texas. In my remaining time, I just want--
we talked about increasing taxes earlier. I would just say, as
a small business owner who employs hundreds of people in Texas,
it is pretty simple. If you cut taxes, you increase jobs. If
you raise taxes, you cost jobs any way you look at it. I hope
that everybody will understand that raising taxes to any
business is not good for our economy.
With that, I will yield back my time, Madam Chairwoman.
Chairwoman Waters. Thank you very much. I now call on Mr.
Vargas from California for 5 minutes.
Mr. Vargas. Thank you very much, Madam Chairwoman. I
appreciate very much this hearing.
I also congratulate, in the strongest way, Secretary
Yellen. It is quite an honor to have a woman now running
Treasury. That is very, very exciting.
[Inaudible] about deficit spending when we Democrats are in
power. They don't seem to remember that when they are,
especially their $1.9 trillion giveaway to the wealthiest
Americans, tax giveaway. It is probably even more now because
the wealthiest have made so much money during this pandemic.
But one of the things that I have found so interesting
about this particular hearing is that we have two incredibly
intelligent people presenting today, and one is a Democrat and
one is a Republican. One was appointed by a Democrat, and one
was appointed by a Republican. And yet, they seem to be
principled and scientific, speaking about the facts and not
crazy things. This is the way it used to be.
And so, I appreciate it very, very much and, again, I can't
tell you how much I have enjoyed listening to this intelligent
conversation. I am sure that the Secretary and the Chairman
have differences of opinion, as they should. But it would be
done on a factual basis, and it would be done, I think,
intelligently and scientifically.
In that spirit, I do want to ask about climate change. It
seems that both of you have the notion that climate change
could be a big deal and is in your study. So, what are the
long-term investments that we need to be looking at with
respect to climate change in our economy? And either one of you
can go first.
Secretary Yellen. I would start off by saying that climate
change poses very severe risks to the well-being of humanity,
and it is a global problem that demands a global solution.
While we need to address climate change at home, we also need
to work globally to help other countries, particularly poorer
countries, have the resources to address it as well.
It is a top priority of the Biden Administration. President
Biden has released a detailed plan to combat climate change. We
have rejoined the Paris agreement. We intend to put forward a
proposal to invest in sustainable infrastructure and to create
new green jobs in the process.
We have talked earlier in this hearing about evaluating the
risks to businesses and to financial institutions from climate
change, which the financial regulators are doing, and I hope to
facilitate through FSOC the sharing of information on best
practices. We need to focus on information and disclosure of
information about the risks to companies that investors need to
channel their capital in the right directions.
Mr. Vargas. Mr. Chairman, what about the risks to
businesses and financial institutions?
Mr. Powell. We see this through a different lens,
appropriately, from the Treasury Department, and that really is
the lens of our existing mandate. We supervise banks and some
other institutions to ensure that they understand and are
managing the risks that they are running in their business. And
we don't have a new mandate. That is what we do.
And climate change is an emerging risk. We are looking at
it carefully. We actually are just in the very early stages of
considering stress scenarios, and that is what others are
doing, too. It is an emerging idea. It is not actually
something that people are conducting now, but we are doing that
and many other things to--again, to get a basic understanding
of how the financial system can be resilient against what may
be very significant emerging risks over time.
Mr. Vargas. Thank you. Yesterday, in the Foreign Affairs
Committee, we talked to David Beasley, from the World Food
Program. Climate change was such a big deal there to famine and
to other problems internationally. So, again, I am very
thankful that you are working together and that you are
scientific.
Thank you.
Chairwoman Waters. Thank you very much. Mr. Hill, the
gentleman from Arkansas, is recognized for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman.
And let me welcome my good friend, Jay Powell, back to the
committee for this oversight hearing.
And what a pleasure it is to say, ``Madam Secretary,'' and
to welcome Janet Yellen back to the committee in your new role
as our Treasury Secretary. It is a pleasure to have you both
here.
Secretary Yellen. Thank you.
Mr. Hill. Secretary Yellen, China, Russia, Iran, Syria,
Venezuela, and Myanmar are all subject to Treasury's Office of
Foreign Assets Control (OFAC) sanctions program. Secretary of
State Blinken said last week that China is committing genocide,
and President Biden recently called Vladimir Putin a killer.
And with Chairwoman Waters' strong support, Treasury is
considering sending billions of dollars to these dictatorships
through the International Monetary Fund's (IMF's) special
drawing rights allocation.
Wouldn't you agree that no-strings-attached liquidity for a
genocidal regime like China runs counter to our national
interests?
Secretary Yellen. I believe our national interest involves
augmenting the reserves of countries that need it, so that at
this very difficult time, we don't pressure countries to take
contractionary, deflationary actions that would make recovery
more difficult. And it is especially important to channel
resources to the world's poorest countries that are having a
great deal of--
Mr. Hill. Madam Secretary, I agree completely. And of
course, David Malpass has made available $160 billion of
concessional loans through the World Bank, and the IMF,
billions of dollars to those neediest countries through its
facilities for some 80 countries. So, I think we share that
goal.
But could you at least certify for us today that China
won't receive billions of dollars in this no-strings-attached
liquidity through the SDR allocation?
Secretary Yellen. The funds are allocated in accordance
with the quotas that each country has at the IMF in an
unconditional way. So, China, if this allocation goes through,
will receive resources.
China is expected to use some of these resources, I
believe, to, along with other countries, recycle their Special
Drawing Rights (SDRs) to some of the poorest countries through
the Poverty Reduction and Growth Trust and to provide relief to
countries that have outstanding borrowing from China. I think
that China is likely to use SDR resources in ways that will be
beneficial to countries around the world.
Mr. Hill. Madam Secretary, thank you for that. I hope that
is the case. I will believe it perhaps when I see it. I hope
that is an important part of this discussion of limiting their
access.
Would you, in turn, also ensure that Third World countries
that have been penalized by nontransparent predatory lending
from the Belt and Road Initiative from China's largest creditor
will not be paid with SDR allocations from those poor
countries? Can you certify that for us today?
Secretary Yellen. We do want to make sure that SDR
allocations are used to relieve poverty and address real needs,
and we will work with them and with China to ensure that they
don't go to repaying loans from the Belt and Road Initiative.
Mr. Hill. And turning to Russia, of course, as I noted,
President Biden acknowledged last week that Vladimir Putin is a
killer. Killers don't deserve a blank check from the IMF, do
they?
Secretary Yellen. As I said, an SDR allocation goes to
members in accordance with their quotas in the IMF.
Mr. Hill. Well, I have argued, and I hope you will work
with us--you are skirting Congress by limiting the SDR
allocation to $650 billion that you discussed with your G-7
colleagues. But you are not making the efforts I think are
important for America's national security to limit this hard
currency access going to some of the worst regimes in the
world.
Will you commit to work with Congress to limit this SDR
allocation access to Iran, Syria, Venezuela, Russia, and China?
Secretary Yellen. We are working with the IMF to craft
rules that will promote transparency and make it difficult for
countries. They need to find willing partners to exchange SDRs,
and that requirement will limit uses for some of the countries
that you mentioned.
Mr. Hill. Thank you, Madam Chairwoman, and I yield back.
Chairwoman Waters. The gentleman's time has expired. Mr.
Gottheimer, the gentleman from New Jersey, is recognized for 5
minutes.
Mr. Gottheimer. Thank you, Madam Chairwoman.
And thank you, Chairman Powell and Secretary Yellen, for
being here today.
Secretary Yellen, if I can start with you, the State and
Local Tax (SALT) deduction cap jammed through Congress in the
2017 tax hike bill raised taxes for a majority of the families
in my district. For all four counties and the scores of middle-
class families I represent, on average, SALT puts them above
the $10,000 cap.
For example, in Bergen County, the average taxpayer claimed
$24,783 before the cap went into place, and the average
property tax alone was $12,398 last year. These are my
communities' teachers and first responders and small business
owners, young people trying to start a family, all groups who
were struggling, obviously, during the pandemic.
It is high time we fought back against these moocher States
that put this into place. My district has been taken advantage
of by these folks enough. Our taxes need to be cut, not raised,
as we recover from COVID-19, and removing the SALT cap has
broad bipartisan support.
Will the Administration support eliminating the SALT cap
and fully reinstating the deduction, ending this misguided
policy of double taxation on my constituents?
Secretary Yellen. I do think that the SALT cap is a feature
of the Tax Cuts and Jobs Act (TCJA) that resulted in very
disparate treatment. There are a lot of options that have been
presented, and I would work with you to try to ensure that the
inequities that this caused are remedied in a fair and
responsible way. As you mentioned, there is a bipartisan
proposal to repeal the cap.
President Biden discussed a proposal that would cap
itemized deductions at 28 percent. The caps could be increased.
I think we need to study just what impact it has had, and I
look forward to working with you to find a fair way to address
it.
Mr. Gottheimer. Thank you, Madam Secretary, and I really
look forward to working with you, too, on that.
Just one other item. Given the number of rural locations
throughout the country, including in my district, that still
don't have true broadband connectivity, I believe that Treasury
should make sure any American Rescue Plan (ARP) Act broadband
infrastructure dollars are targeted to truly underserved areas,
to avoid overbuilding.
For example, according to a recent survey by the Census,
only 69 percent of residents in White Township, in my district,
have broadband connectivity. Even in northern New Jersey, there
are lots of places that don't have connectivity or have very
limited connectivity. I was wondering, based on the legislation
that was just signed into law, will you commit Treasury to
using the authority Congress gave it to see that broadband
funding is spent first and foremost on underserved areas and to
avoid overbuilding?
Secretary Yellen. I am not sure that we have the ability
under the law to impose those kinds of restrictions, but I will
look at it. And I would also mention that the ARP contains a
Coronavirus Capital Projects Fund. It is $10 billion that can
also be used to fund broadband and infrastructure. So, there is
quite a bit of money in the ARP for infrastructure, and I will
look at what can be done.
Mr. Gottheimer. I was thrilled about that, obviously. It
was something I fought hard for, the $10 billion fund for
broadband. And I think the way it is written, the Treasury has
latitude here, and I would love to talk to you about that
further to make sure that it goes to places that don't have
broadband connectivity now so we don't overbuild, which has
been a mistake in the past, as you know, and try to avoid that.
Madam Secretary, The New York Times this week published an
article stating that more than $600 billion of income goes
unreported yearly to the IRS. This gap in reporting will reduce
Federal revenue by $1.4 trillion over the next decade. It is a
great opportunity to make sure we go after tax cheats or people
who don't pay what they should, to avoid raising taxes
otherwise.
Are you prioritizing that? Are you looking into the revenue
raisers that don't require tax rates to increase, such as
increasing the audit capabilities of the IRS, to help close the
tax gap?
Secretary Yellen. Absolutely. I think this is something
that would be both fair and not involve any increase in tax
rates or burdens. It would make sure that those who are
supposed to pay, do.
It does require more resources for the IRS. I would like to
work with Congress to see if we can provide that funding
because I think this would be a very important initiative. I am
fully supportive of it.
Mr. Gottheimer. Excellent, and I think we get a 5- or 6-to-
1 return on that.
Secretary Yellen. Absolutely.
Mr. Gottheimer. Thank you so much for your time.
And I yield back. Thank you.
Secretary Yellen. Thanks.
Chairwoman Waters. Thank you very much. The gentleman from
Georgia, Mr. Loudermilk, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman, and I
appreciate the panelists being with us today.
The Majority and the Administration recently enacted a
massive $2 trillion stimulus bill, which they said was
necessary because we are in an economic crisis. But now, all of
a sudden, the Administration thinks the economy is strong
enough to withstand a major tax increase, the first in 30
years, in the middle of a pandemic.
The notion that the economy is in crisis, and the notion
that the economy is strong, cannot both be true at the same
time. So, Secretary Yellen, could you tell us, which is it? Is
it strong, or is it in crisis?
Secretary Yellen. Right now, it is in crisis due to the
pandemic, and the Rescue Package should provide the funding
that is needed to address the pandemic and to relieve the
suffering that it has caused, getting people to the other side
of it. It has been deficit funded. There haven't been tax
increases to finance it.
But once the economy is strong again, and we are beyond the
pandemic, President Biden is likely to propose that we engage
in long-term plans to address longstanding investment
shortfalls in our economy, in infrastructure and investments to
address climate risk, investments in people, investments in
R&D, in manufacturing, and these will make our economy more
productive, raise wages, and create good jobs.
It is necessary to pay for them. This would be spending
over a 10-year horizon and would require some additional
funding. He has been clear about the tax proposals that he
would consider. One of those would be an increase in the
corporate income tax rate back to 28 percent, coupled with
reform of the Global Intangible Low-Tax Income (GILTI) to
reduce the incentives of American companies to move their
activities abroad to offshore activities. And we are actively
engaged in Organisation for Economic Co-operation and
Development (OECD) negotiations that would make it possible to
do that without negatively impacting the competitive positions
of American businesses.
We have had a global race to the bottom in corporate
taxation, and we hope to put an end to that and, in that
context, to collect more than the 1 percent of GDP corporate
tax revenue that we now collect, which is very low, and among
the lowest of developed countries.
Mr. Loudermilk. Madam Secretary, a lot of explanation
there, but it sounds like all of that is premised on the idea
that the economy has been in crisis. And I and several others
beg to differ on that, even during the pandemic. But economists
and even Chairman Powell were projecting up to 6 percent growth
in 2021 before the bill was even signed into law.
The economists also believe the package is 6.5 times larger
than it needs to be. And I agree with the former Democratic
Treasury Secretary Larry Summers, who said the reconciliation
package is the most irresponsible economic policy in 40 years.
So, I don't think you can say it is in crisis, and that our
economy is strong. It is kind of speaking out of both sides of
our mouths here.
Secretary Yellen?
Secretary Yellen. We have lost 9.5 million jobs. We have an
unemployment rate that, if you add in people who have dropped
out of the labor force because of the pandemic, is running at
probably over 9 percent. So, we have a huge problem of
joblessness in our economy.
Mr. Loudermilk. Well, I understand that, but reclaiming my
time here, there are many States that are actually seeing more
revenue, tax revenue this year than they did--
Chairwoman Waters. Hello, Mr. Loudermilk, are you still on?
[no response]
Chairwoman Waters. I don't know if there is a technical
glitch, or if he is muted.
[pause]
Chairwoman Waters. Mr. Loudermilk, can you hear me? I
suppose not.
To our technician, can you get Mr. Loudermilk back on?
[pause]
Chairwoman Waters. I see that his mouth is moving, but we
can't hear him. Is he unmuted?
[pause]
Chairwoman Waters. Unfortunately, there appears to be a
problem with the Internet, and we have an agreement for a hard
stop at this time. And so, Mr. Loudermilk will probably be one
of our first Members recognized at the next meeting of our
distinguished guests, when they come.
With that, I would like to thank our distinguished
witnesses for their testimony today.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
And with that, this hearing is adjourned.
[Whereupon, at 2:16 p.m., the hearing was adjourned.]
A P P E N D I X
March 23, 2021
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