    [House Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

                     OVERSIGHT OF THE TREASURY DEPARTMENT'S
                    AND FEDERAL RESERVE'S PANDEMIC RESPONSE

    =======================================================================

                                 HYBRID HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                DECEMBER 1, 2021

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 117-62

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                  __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    46-301 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                     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            ANN WAGNER, Missouri
    ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
    JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
    BILL FOSTER, Illinois                FRENCH HILL, Arkansas
    JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
    JUAN VARGAS, California              LEE M. ZELDIN, New York
    JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
    VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
    AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
    MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
    CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
    SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
    AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
    RITCHIE TORRES, New York             JOHN ROSE, Tennessee
    STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
    ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
    RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
    MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
    ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
    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

                                  ----------
                                                                       Page
    Hearing held on:
        December 1, 2021.............................................     1
    Appendix:
        December 1, 2021.............................................    37

                                   WITNESSES
                          Wednesday, December 1, 2021

    Powell, Hon. Jerome H., Chair, Board of Governors of the Federal
      Reserve System.................................................     6
    Yellen, Hon. Janet L., Secretary, U.S. Department of the Treasury     5

                                    APPENDIX

    Prepared statements:
        Powell, Hon. Jerome H........................................    38
        Yellen, Hon. Janet L.........................................    42

                  Additional Material Submitted for the Record

    Budd, Hon. Ted:
        Letter to Hon. Viola Lyles, Mayor, City of Charlotte, NC,
          dated November 19, 2021....................................    45
    Powell, Hon. Jerome H.:
        Written responses to questions for the record from
          Representative Hill........................................    48
        Written responses to questions for the record from
          Representative Hollingsworth...............................    52
        Written responses to questions for the record from
          Representative Steil.......................................    54
    Yellen, Hon. Janet L.:
        Written responses to questions for the record from
          Representative Budd........................................    66
        Written responses to questions for the record from
          Representative Garcia......................................    57
        Written responses to questions for the record from
          Representative Gonzalez....................................    56
        Written responses to questions for the record from
          Representative Kustoff.....................................    68
        Written responses to questions for the record from
          Representative Loudermilk..................................    65
        Written responses to questions for the record from
          Representative Williams....................................    63

                           OVERSIGHT OF THE TREASURY
                            DEPARTMENT'S AND FEDERAL
                          RESERVE'S PANDEMIC RESPONSE

                                  ----------

                          Wednesday, December 1, 2021

                 U.S. House of Representatives,
                       Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 10:11 a.m., in
    room 2128, Rayburn House Office Building, Hon. Maxine Waters
    [chairwoman of the committee] presiding.
        Members present: Representatives Waters, Sherman, Scott,
    Green, Cleaver, Perlmutter, Himes, Foster, Beatty, Vargas,
    Gottheimer, Gonzalez of Texas, Lawson, San Nicolas, Axne,
    Casten, Pressley, Lynch, Adams, Tlaib, Dean, Ocasio-Cortez,
    Garcia of Illinois, Garcia of Texas, Williams of Georgia,
    Auchincloss; McHenry, Lucas, Posey, Luetkemeyer, Huizenga,
    Wagner, Barr, Williams of Texas, Hill, Emmer, Zeldin,
    Loudermilk, Mooney, Davidson, Budd, Kustoff, Hollingsworth,
    Gonzalez of Ohio, Rose, Steil, Gooden, Timmons, Taylor, and
    Sessions.
        Chairwoman Waters. The Financial Services Committee will
    come to order.
        Without objection, the Chair is authorized to declare a
    recess of the committee at any time.
        As a reminder, I ask all Members participating remotely to
    keep themselves muted when they are not being recognized by the
    Chair.
        We will conclude today's hearing at 12:15 p.m. Members who
    were unable to ask questions at our September 30th hearing with
    Secretary Yellen and Chair Powell will be given priority to ask
    their questions today, and we will return to our normal order
    of recognition once these Members have asked their questions.
        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.
        Welcome back, Secretary Yellen and Chair Powell. As this
    pandemic continues, the Biden Administration and congressional
    Democrats remain hard at work to provide protections and
    essential relief to individuals, families, and small businesses
    across the country. The emergence of the new Omicron variant
    shows us that this crisis is not over and we must remain
    vigilant to protect our country and our families from the
    devastation of COVID-19.
        Since Democrats have been in power, we have delivered for
    the American public. Democrats provided rental relief for
    struggling renters, provided 70,000 vouchers to address
    homelessness, provided support to State and local governments,
    and helped our nation's restaurants. Democrats helped
    businesses reopen and prioritized vaccine distribution, and
    because of this work, 74.5 percent of individuals 5 years of
    age and older have received at least one shot. In fact, this
    Thanksgiving was the first time since the pandemic began that
    many of us spent time in person with our friends and families.
        Under the Biden Administration's leadership, the economy
    has created 5.6 million jobs, more than any other
    Administration's first 9 months. And weekly jobless claims
    recently fell to 199,000, the lowest total in more than 50
    years.
        But our work does not stop at pandemic relief. We also
    enacted bipartisan infrastructure legislation, an achievement
    that has eluded Republican and Democratic Presidents alike for
    decades. Under the Biden Administration, we now have the
    funding in place and the programs to finally rebuild and refit
    our nation's bridges, roads, and railways, and bring broadband
    to millions. And soon, the Build Back Better Act will make
    long-overdue investments in the nation's affordable housing
    infrastructure, childcare, and education workforce. I hope that
    our Senate colleagues will quickly send this bill to the
    President's desk.
        While these investments will be critical, the Fed's
    unfinished objectives of full employment and price stability
    serve as a reminder that we must not leave anyone behind during
    this recovery. Chair Powell has identified supply chain
    bottlenecks and ongoing caregiving needs as two of the major
    barriers to continued economic recovery. Congressional
    Democrats have responded by passing bills that invest in
    childcare and help clear those bottlenecks.
        It is crucial that the Fed hold off on declaring a
    premature victory on this economic recovery until the
    communities that have been hit the hardest--people of color,
    renters who fell behind on their rent, and women who have done
    the bulk of the caregiving--have a chance to experience the
    recovery. If we are truly to build back better, we must ensure
    that people of color are represented in the Fed's leadership.
    We must make sure that people's caregiving needs are met so
    that they can pursue new opportunities in education, clean
    energy, and more. We must address the root causes of rising
    prices by investing in housing and supply chain resilience.
        Secretary Yellen, Chair Powell, I look forward to
    discussing your ongoing work to respond to the pandemic.
        I will 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 Chair Powell,
    congratulations on your renomination. I am glad to see that
    President Biden recognizes what I have said all along, that you
    have earned and deserve another term leading the Federal
    Reserve. Under your leadership, the Fed took decisive and
    unprecedented action to prevent the COVID-related economic
    challenges from becoming an economic or financial crisis for
    Americans, but there is more to work to be done.
        We need to unwind these firefighting measures and turn our
    focus to rebuilding the economy, which, thanks to pro-growth
    Republican policies, was the greatest in our lifetimes just
    prior to the pandemic. It is the Fed's job to look at and
    evaluate the macroeconomic picture. It is not their job to
    respond to each and every variant. But it is not just the
    pandemic that is posing a threat to our full recovery. It is
    Democrats' bad fiscal policy decisions that are driving
    inflation. Right before Thanksgiving, House Democrats passed
    another massive multi-trillion-dollar spending bill. Our
    economy is feeling the full force of that politically-motived
    decision.
        Look at the job market. In September, a job opening and
    labor turnover survey reported more than 10 million unfilled
    jobs remaining near a record high. Four-point-four million
    people quit their jobs, an all-time high. Labor shortages
    continue to hold back growth and weaken the backbone of our
    economy: small businesses. And instead of seeking bipartisan
    solutions to support working parents as we continue to manage
    COVID, Democrats opted for unworkable mandates.
        NFIB's small business survey for October showed the
    economic outlook deteriorating to its lowest level since
    November 2012. Our labor force participation rate has stagnated
    since June 2020. What do these things have in common? All of
    these issues have in common bad fiscal policy, not a question
    of monetary policy. Nearly half of small businesses report they
    had job openings unfilled, for which they unable to even get
    qualified applicants; in fact, 58 percent indicated they had
    few or no qualified applicants.
        Look at consumer prices. From a year through October, the
    headline Consumer Price Index (CPI) rose to 6.2 percent, the
    largest annual increase in 30 years. Consumer sentiment for
    November dropped to its lowest level in a decade. In fact,
    American families just experienced the most expensive
    Thanksgiving on record.
        Now, Democrats want to blame increased prices on American
    businesses or some other force. It is their policies. It is
    their policies. It is coming from inside the House. It is
    coming from inside the Senate. It is coming from inside this
    Administration. They are driving up costs for the American
    people. In fact, in October, the San Francisco Fed released a
    report showing that Democrat policies are harming our recovery.
        So, what do House Democrats do? Well, they spend more
    money. That was the big vote just before Thanksgiving. More
    money. That is pouring jet fuel onto an inflationary trajectory
    we have in the economy. Speaking of fuel, though, just look at
    gas prices. This is the bad policies from this Administration.
    When you shut off American energy sources, it drives up the
    cost of petrochemicals in our economy. Outsourcing that to OPEC
    actually makes us more dependent on other foreign sources.
        So as important as it is for us to hear from both of you
    today--in fact, this is the final remnant of the CARES Act, the
    fact that you are mandated to come and appear before us on a
    quarterly basis about programs that have now been rescinded,
    but this is the final remnant of the CARES Act, which was, by
    the way, a bipartisan bill passed through the House and the
    Senate and signed by the President last year. But we look
    forward to hearing from you today about this broad economic
    question that we are all very concerned about. And as we
    discuss these policies and what we are doing to address them, I
    hope that we can talk about solutions, not just the problems.
        And with that, I yield back.
        Chairwoman Waters. Thank you, Mr. McHenry. I now recognize
    the gentleman from Texas, Mr. Green, for 1 minute.
        Mr. Green. Thank you, Madam Chairwoman. Madam Chairwoman,
    the Fed is the lender of last resort, and I compliment the Fed
    for what it is has done under its Section 13(3) authority to
    create nine emergency facilities, seven of which were supported
    by funds from the Treasury. But I would also like to note that
    today, currently, unemployment of African American workers is
    at 7.9 percent, and at 5.9 percent for Latino workers, higher
    than the national average of 4.6 percent, and 4 percent for
    Whites.
        Hence, today we must ask, in view of how unemployment rates
    still vary dramatically across races, what more can the Federal
    Reserve do as the lender of last resort to advance its mandate
    to foster economic conditions that achieve both maximum
    employment and stable prices, not just for some, but for all.
    What can regulators do not only to continue to bolster the
    economic recovery, but also the pandemic. We have to deal with
    it and reduce the insecurity as it relates to the wealth gap. I
    look forward to hearing the witnesses respond to this and other
    questions.
        Chairwoman Waters. I now recognize the gentleman from
    Minnesota, Mr. Emmer, for 1 minute.
        Mr. Emmer. Thank you, Madam Chairwoman. My constituents
    just experienced the most expensive Thanksgiving dinner in
    history. A 16-pound turkey is up 23 percent. Costco pumpkin pie
    is up 17 percent. A 2-pound bag of carrots is up nearly 50
    percent. Let's also not forget the outrageous prices at the
    pump making it too expensive for many Americans to drive home
    and celebrate Thanksgiving with their families in the first
    place. This inflation is not transitory, as our witnesses
    finally acknowledged yesterday, and it is not a high-class
    problem, despite what the Biden Administration will tell you.
    That is a lie propagated by those who have never had to do
    mental math at the grocery store to make sure the amount in
    their cart does not exceed the cash in their wallet.
        For Democrat leaders, paying 42 percent more at the pump
    probably isn't a problem, when you are riding a government-
    funded high-speed rail in Silicon Valley. More than 90 percent
    of my constituents reported that rising prices were impacting
    their household budgets. Inflation is destroying Americans'
    ability to save for retirement, buy a home, or build wealth.
    This isn't a tax on the rich; it is an enormous burden on
    working Americans. We must stop this reckless spending before
    it financially cripples our nation.
        I yield back the balance of my time.
        Chairwoman Waters. I want to welcome our distinguished
    witnesses today, who need little introduction to members of the
    committee. First, I want to welcome the Honorable Janet Yellen,
    Secretary of the United States Department of the Treasury, who
    has served in that role since her confirmation in January of
    this year.
        Our second distinguished witness today is the Honorable
    Jerome Powell, Chair of the Board of Governors of the Federal
    Reserve System, who has served in that role since February of
    2018.
        You will each have 5 minutes to summarize your testimony.
    You should be able to see a timer that will indicate how much
    time you have left.
        And without objection, your written statements will be made
    a part of the record.
        Secretary Yellen, you are now recognized for 5 minutes to
    present your testimony.

      STATEMENT OF THE HONORABLE JANET L. YELLEN, SECRETARY, U.S.
                       DEPARTMENT OF THE TREASURY

        Secretary Yellen. Thank you, Chairwoman Waters, Ranking
    Member McHenry, and members of the committee. It is a pleasure
    to testify today.
        November has been a very significant month for our economy,
    and Congress is a large part of the reason why. Our economy has
    needed updated roads, ports, and broadband networks for many
    years now, and I am very grateful that on the night of November
    5th, members of both parties came together to pass the largest
    infrastructure package in American history.
        November 5th, it turned out, was a particularly
    consequential day, because earlier that morning, we received a
    very favorable jobs report: 531,000 jobs added. It is never
    wise to make too much of one piece of economic data, but in
    this case, it was an addition to a mounting body of evidence
    that points to a clear conclusion: Our economic recovery is on
    track. We are averaging half-a-million new jobs per month since
    January. Gross domestic product (GDP) now exceeds its pre-
    pandemic levels. Our unemployment rate is at its lowest level
    since the start of the pandemic, and our economy it on pace to
    reach full employment 2 years faster than the Congressional
    Budget Office (CBO) had estimated.
        Of course, the progress of our economic recovery can't be
    separated from our progress against the pandemic, and I know
    that we are following the news about the Omicron variant. As
    the President said, we are still waiting for more data, but
    what remains true is that our best protection against the virus
    is the vaccine. People should get vaccinated and boosted.
        At this point, I am confident that our recovery remains
    strong, and is even quite remarkable when put in context. We
    should not forget that last winter, there was a risk that our
    economy was going to slip into a prolonged recession. And there
    is an alternate reality where right now, millions more people
    cannot find a job or are losing the roofs over their heads. It
    is clear that what has separated us from that counterfactual
    are the bold relief measures Congress has enacted during the
    crisis: the CARES Act; the Consolidated Appropriations Act; and
    the American Rescue Plan. And it is not just the passage of
    these laws that has made the difference, but their effective
    implementation.
        Treasury, as you know, was tasked with administering a
    large portion of the relief funds provided by Congress under
    those bills. During our last quarterly hearing, I spoke
    extensively about the State and Local Relief Program, but I
    wanted to update you on some other measures.
        First, the American Rescue Plan's expanded child tax credit
    has been sent out every month since July, putting about $77
    billion in the pockets of families of more than 61 million
    children. Families are using these funds for essential needs,
    like food. And, in fact, according to the Census Bureau, food
    insecurity among families with children dropped 24 percent
    after the July payments, which is a profound economic and moral
    victory for the country.
        Meanwhile, the Emergency Rental Assistance Program has
    significantly expanded, providing much-needed assistance to
    over 2 million households. This assistance has helped keep
    eviction rates below pre-pandemic levels. This month, we also
    released guidelines for the $10 billion State Small Business
    Credit Initiative (SSBCI), which will provide targeted lending
    and investments that will help small businesses grow and create
    well-paying jobs.
        As consequential as November was, December promises to be
    more so. There are two decisions facing Congress that could
    send our economy in very different directions. The first is the
    debt limit. I cannot overstate how critical it is that Congress
    address this issue. America must pay its bills on time and in
    full. If we do not, we will eviscerate our current recovery. In
    a matter of days, the majority of Americans would suffer
    financial pain as critical payments, like Social Security
    checks and military paychecks, would not reach their bank
    accounts, and that would likely be followed by a deep
    recession.
        The second action involves the Build Back Better
    legislation. I applaud the House for passing the bill, and I am
    hopeful that the Senate will soon follow. Build Back Better is
    the right economic decision for many reasons. It will, for
    example, end the childcare crisis in this country, letting
    parents return to work. We expect that these investments will
    lead to a GDP increase over the long term, without increasing
    the national debt or deficit by a dollar. In fact, the offsets
    in these bills mean they actually reduce annual deficits over
    time.
        Thanks to your work, we have ensured that America will
    recover from this pandemic. Now, with this bill, we have the
    chance to ensure that America thrives in a post-pandemic world.
    With that, I am happy to take your questions.
        [The prepared statement of Secretary Yellen can be found on
    page 42 of the appendix.]
        Chairwoman Waters. Thank you very much. Chair Powell, you
    are now recognized for 5 minutes to present your testimony.

    STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIRMAN, BOARD OF
                GOVERNORS OF THE FEDERAL RESERVE SYSTEM

        Mr. Powell. Chairwoman Waters, Ranking Member McHenry, and
    other members of the committee, thank you for the opportunity
    to testify today.
        The economy has continued to strengthen. The rise in delta
    variant cases temporarily slowed progress this past summer,
    restraining previously-rapid growth in household and business
    spending, intensifying supply chain disruptions, and, in some
    cases, keeping people from returning to work or looking for a
    job. Fiscal and monetary policy and the healthy financial
    positions of households and businesses continue to support
    aggregate demand. Recent data suggest that the post-September
    decline in cases corresponded to a pick-up in economic growth.
    GDP appears on track to grow about 5 percent in 2021, the
    fastest pace in many years.
        As with overall economic activity, conditions in the labor
    market have continued to improve. The delta variant contributed
    to slower job growth this summer as factors related to the
    pandemic, such as caregiving needs and fears of the virus, kept
    some people out of the labor force despite strong demand for
    workers. Nonetheless, October saw a job growth of 531,000, and
    the unemployment rate fell to 4.6 percent, indicating a rebound
    in the pace of labor market improvement. There is still ground
    to cover to reach maximum employment for both employment and
    labor force participation, and we expect progress to continue.
        The economic downturn has not fallen equally, and those
    least able to shoulder the burden have been hit the hardest. In
    particular, despite progress, joblessness continues to fall
    disproportionately on African Americans and Hispanics.
    Pandemic-related supply and demand imbalances have contributed
    to notable price increase in some areas. Supply chain problems
    have made it difficult for producers to meet strong demand,
    particularly for goods. Increases in energy prices and rents
    are also pushing inflation upward. As a result, overall
    inflation is running well above our 2-percent longer-run goal,
    with the PCE Price Index up 5 percent over the 12 months ending
    in October.
        Most forecasters, including at the Fed, continue to expect
    that inflation will move down significantly over the next year
    as supply and demand imbalances abate. It is difficult to
    predict the persistence and effects of supply constraints, but
    it now appears that factors pushing inflation upward will
    linger well into next year. In addition, with the rapid
    improvement in the labor shortage, slack is diminishing and
    wages are rising at a brisk pace.
        We understand that high inflation imposes significant
    burdens, especially on those less able to meet the higher costs
    of essentials like food, housing, and transportation. We are
    committed to our price stability goal. We will use our tools
    both to support the economy and a strong labor market and to
    prevent higher inflation from becoming entrenched.
        The recent rise in COVID-19 cases and the emergence of the
    Omicron variant pose downside risks to employment and economic
    activity and increased uncertainty for inflation. Greater
    concerns about the virus could reduce people's willingness to
    work in person, which would slow progress in the labor and
    intensify supply chain disruptions.
        To conclude, we understand that our actions affect
    communities, families, and businesses across the country.
    Everything we do is in service to our public mission. We at the
    Fed will do everything we can to support a full recovery in
    employment and achieve our price stability goal. Thank you.
        [The prepared statement of Chair Powell can be found on
    page 38 of the appendix.]
        Chairwoman Waters. Thank you very much. I now recognize
    myself for 5 minutes for questions.
        As the pandemic was raging last year, many members of this
    committee suggested that for all the pain and disruption that
    the virus was causing, Americans would respond with strength,
    creativity, and ingenuity, as we have done in other crises.
    That is a guiding principle of Build Back Better. It is not
    enough to just get back to the way things were before. We must
    shape a recovery that builds a new, stronger, and more
    equitable economy for the future. So, let's talk about the
    progress we are making.
        Chair Powell, the American Rescue Plan that passed in March
    helped accelerate vaccinations and re-openings over the last 9
    months. The economy has added over 5.6 million jobs, and
    workers have started to see meaningful wage growth for the
    first time in decades. Do you view these wage growth trends as
    positive? How does your economic recovery compare with other
    major economies? And do you still think that inflation will be
    temporary, and if so, why?
        Mr. Powell. Thank you, Madam Chairwoman. On wages, we have
    seen wages moving up significantly, and at this point, of
    course, we like to see wages move up. Everyone likes to see
    wages move up. That is how incomes rise generation to
    generation. And particularly at the lower end of the wage
    spectrum, we are seeing wages move up. At this point, we don't
    see them moving up at a troubling rate that would tend to spark
    higher inflation, but that is something we are watching very
    carefully.
        In terms of other economies, our recovery is the strongest.
    It is stronger than the others. We had stronger fiscal support,
    frankly, and so part of it is that, but our recovery is really
    the most advanced of any of the largest ones.
        In terms of the temporary nature of inflation, I would say
    that the inflation that we are seeing is still clearly
    connected to the pandemic-related factors. I would also add,
    though, that it has spread more broadly in the economy, and I
    think that the risk of persistent higher inflation has clearly
    risen. And I think that our policy has adapted to that and will
    continue to adapt.
        Chairwoman Waters. If you could expound a little bit more
    on what is happening, I remember when we first started to talk
    about inflation, we basically all talked about it in terms of
    it being transitory. And I think that what you just alluded to,
    relative to how the economy will act or recover--are you
    directly talking about stimulating the economy with, for
    example, Build Back Better, and that will help with the
    inflation that we are experiencing?
        Mr. Powell. I do think that forecasters at the Fed, and
    pretty much all forecasters, do expect that inflation will move
    down over the second half of next year, closer to our longer-
    run goal of 2 percent. But as I mentioned, we have seen
    inflation be more persistent. We have seen the factors that are
    causing higher inflation to be more persistent. There, I am
    thinking of the combination of very high demand, but also the
    supply side difficulties that we are having with blockages and
    that sort of thing and shortages.
        In terms of the effects of the Build Back Better bill, that
    is not something that is appropriate for me to comment on.
        Chairwoman Waters. Thank you.
        Secretary Yellen, when you were the Fed Chair, you were
    known for looking beyond the top line unemployment rate to
    other figures, like the rate of employees quitting, the so-
    called quits rate, to determine whether the economy was
    reaching full employment. The quits rate has surpassed the
    previous records, leading some to label what has happened in
    the economy as the, ``Great Resignation.'' When Chair Powell
    testified in our committee in July, he identified childcare and
    school closures as one of the biggest barriers to further labor
    market recovery. Can you explain what the quit rate tells us
    about the economy today, and do you believe that the
    investments that the Build Back Better Act would make in
    childcare and universal Pre-K will help with this?
        Secretary Yellen. The quit rate, when it is high, and as
    you mentioned, it is the highest it has been in the history of
    this series, it signifies a tight labor market, one where
    workers are leaving their jobs because they feel confident
    about their ability to get another job, or are getting outside
    offers and feel good about the labor market. And that is what
    we have and we see it reflected in surveys of workers who feel
    that jobs are plentiful. And, of course, businesses almost
    universally complain now about the difficulty of hiring
    workers, but this is a very unusual shock that has hit the
    economy.
        And at the same time, we see that for a large number of
    workers, their participation in the labor force has declined,
    and it hasn't yet gotten back up to normal levels. In some
    cases, it is because there were early retirements, and, of
    course, the pandemic did result in, unfortunately, a large
    death toll. But I think there are still many people, especially
    low-income workers, who don't feel confident about the health
    consequences of working, especially in face-to-face type jobs,
    and so those people are still out of the labor force. And I
    think as we get greater control over the pandemic, the supply
    of workers will increase as those people come back to work.
        Chairwoman Waters. The gentleman from North Carolina, Mr.
    McHenry, who is the ranking member of the committee, is now
    recognized for 5 minutes.
        Mr. McHenry. Chair Powell, the last time you were here, in
    fact, both in September and July, I asked you about this. The
    Fed incorporates new spending from the fiscal house, from
    Congress and the White House. They incorporate that into
    projections, and the effects of your monetary decisions with
    the knowns of fiscal policy. And at the time, and you have said
    this twice before, and I think you will say it again, but a lot
    depends on the details. Certainly, you incorporate that
    information, but a lot depends on the details. Is that still
    true?
        Mr. Powell. Yes.
        Mr. McHenry. Okay. So in light of that, we had in February
    a Democrat-only proposal that made it into law, that $2
    trillion, and just last week, another bill that the
    Administration supports that enhances the deficit. According to
    the Congressional Budget Office, it raises the deficit by $400
    billion, and so we have those two large fiscal pieces here.
        When Chair Waters asked the Chairman of the Federal Reserve
    whether or not spending more money from the fiscal house will
    improve inflation, instead of improve, I want to translate for
    the public. When a Democrat says, ``improve inflation,'' it
    means enhance or raise inflation, just to be clear, okay? So my
    friends on the left, when they say, ``improve inflation,'' they
    want more of it.
        Secretary Yellen, to this point, these things are
    imprecise. Policymaking is imprecise. But back in February,
    there was an output gap this Administration acknowledged, and
    economic projections, and came to Congress for fiscal stimulus
    in the name of COVID, but a fiscal stimulus, right? Is it fair
    to say that maybe you overshot in February?
        Secretary Yellen. I think it is fair to say that we had a
    sizable fiscal stimulus. We were very concerned that the most
    significant risk facing the American economy was a shortage of
    jobs and a prolonged downturn that would scar many people,
    particularly the most--
        Mr. McHenry. But in February, in the output gap, versus
    what the fiscal stimulus was that your Administration pushed
    for and got, perhaps you overshot. Is that fair to say? Is that
    a fair assumption?
        Secretary Yellen. I don't think that is a fair assumption.
        Mr. McHenry. It is not?
        Secretary Yellen. We addressed what was very significant
    risk, and as Chair Powell just mentioned, the United States--
        Mr. McHenry. Okay. So, you think that that fiscal--
        Secretary Yellen. --agree--
        Mr. McHenry. Reclaiming my time, Madam Secretary.
        Secretary Yellen. No. Look, the inflation--
        Mr. McHenry. I am going to ask a very particular question
    about the output gap. The output gap at the beginning of the
    year was $300 to $400 billion, right? Economists on the left
    and the right were saying that that was about right.
        Secretary Yellen. I think it was extremely hard under the
    circumstances to have any certainty--
        Mr. McHenry. Okay. And I am asking you a very reasonable
    question, as a policymaker.
        Secretary Yellen. --about what was the output gap.
        Mr. McHenry. Okay. As a policymaker, I am just asking you--
    you are a noted economist, who was the Chair of the Federal
    Reserve. You are now in a very different position having to, I
    think, sell what is a pretty lousy economic agenda, but you are
    doing a great job trying to sell this Administration's agenda.
    The economic question that I hear from economists on the left
    now, and your former San Francisco Fed even acknowledges, is
    that February stimulus contributed to the inflation we are now
    experiencing.
        Secretary Yellen. Look, inflation--
        Mr. McHenry. Is that a fair assumption or not?
        Secretary Yellen. Inflation is a matter of demand and
    supply, and it is certainly true that the American Rescue Plan
    put money in people's pockets, helped them meet expenses that
    they had, and contributed to strong demand in the U.S. economy.
    But if you look at the amount of inflation that we have and its
    causes, that is, at most, a small contributor. The pandemic and
    what it has done to supply chains diverting demand away from
    services and massively onto goods has resulted in supply chain
    problems, and the impact we have seen that has now been long-
    lasting on labor supply due to the pandemic. I would say those
    are very important factors.
        Mr. McHenry. But there is a distinction here between a
    supply shock and a demand issue, right? Is that fair to say?
        Secretary Yellen. The Recovery Plan did boost demand, and
    that is one reason that most households are in a favorable
    financial position, much better than they otherwise would have
    been, and it has enabled their spending. But the fact that the
    spending because of the pandemic has been so focused on goods
    as opposed to services has contributed massively to the supply
    chain problems that are boosting prices.
        Mr. McHenry. Okay. So, Madam Secretary, Chairman Powell,
    the Congress, and the public, and this Administration wants to
    point everything onto the Federal Reserve on inflation. That is
    simply not the case. It is the multiple trillions of dollars
    that this Congress and this Administration is spending that is
    putting jet fuel on the fires of this economy. It is making
    things worse.
        Mr. Perlmutter. Regular order.
        Mr. McHenry. It is the policies of this Administration--
        Ms. Dean. [presiding]. The gentleman's time has expired.
        Mr. McHenry. The Chair went over time, and I am going over
    time as well, so let me just say this.
        Ms. Dean. I was not--
        Mr. McHenry. It is the Administration's agenda here that
    it--I will finish my sentence here, Madam Chairwoman, okay? It
    is the Administration's agenda that is driving up the cost of
    things, and is making the American people worse off, not better
    off. Inflation is outpacing wage increases. This is on the
    Democrat House, Senate, and White House. I yield back.
        Ms. Dean. Thank you. The gentleman yields back.
        The gentleman from Colorado, Mr. Perlmutter, who is also
    the Chair of our Subcommittee on Consumer Protection and
    Financial Institutions, is now recognized for 5 minutes.
        Mr. Perlmutter. Thank you. Good morning, and thank you both
    for your service. A couple of things--I was listening to the
    Republicans talk about inflation, but I think a more important
    topic we should be talking about is the fact that since ex-
    President Trump was defeated by Joe Biden in November of last
    year, we have added almost 6 million jobs, some 620,000 per
    month, and we have seen the stock market rise from 26,000 to
    36,000--now it has backed off to about 35,000--in the last year
    at $1.4 billion per point. It is almost up $13 trillion since
    Joe Biden won the election last year. We have seen GDP up
    dramatically over the last year. And my friends, I appreciate
    that the Republicans want to talk about inflation because that
    is all they can talk about.
        I would like to ask my first question of you, Secretary
    Yellen. Unemployment is falling at the fastest rate in 50 years
    and is now at 4.6 percent. Prior to the American Rescue Plan
    passing, the CBO projected it would take until the 4th quarter
    of 2023 to get to 4.6 percent unemployment, so we are 2 years
    ahead. Madam Secretary, my question is on Build Back Better and
    how will it help in terms of the recovery and create more
    opportunities for everyday Americans?
        Secretary Yellen. Thank you for that question. Build Back
    Better is really focused on addressing long-term issues in our
    economy that have been holding back economic growth and
    contributing to economic inequality. An important aspect of
    Build Back Better is what it does for children and households
    with children: 2 years of universal early childhood education
    for 3- and 4-year-olds and subsidies for childcare to make
    quality childcare affordable for the great majority of
    households, along with a continuation, at least for a year, of
    the child tax credit that has made it possible for so many
    families to support the needs of their children, keep roofs
    over their heads, and diminish food insecurity. And these
    childcare provisions as well as other parts of the program
    should serve to boost labor force participation, particularly
    of women, where we have lagged behind most other developed
    countries. And research suggests that our failure to provide
    adequate childcare and paid family leave is an important
    contributor. In addition--
        Mr. Perlmutter. Let me change the subject for one second,
    to a subject that I have asked both of you about in the past,
    the Safe Banking Act, which involves allowing financial
    institutions to provide financial services to the cannabis
    industry and those that serve the cannabis industry. And you
    may know that we passed it with big bipartisan votes out of
    this committee, off the House Floor to the Senate last cycle,
    this cycle, and we amended the National Defense Authorization
    Act. That is just to remind you where we are.
        In October, Cassidy Collins, a Senior Counsel in the Office
    of the Chief Counsel of the IRS noted the special type of
    collection challenge the IRS undertakes regarding tax
    collection from cannabis-related businesses forced to operate
    in cash only. It is estimated that in just 3 States, nearly $50
    million in taxes went unassessed because of unique issues
    surrounding the cannabis industry. Madam Secretary, do you
    agree that if these businesses were simply allowed to access
    the banking system and didn't have to transact business only in
    cash, it would make the IRS' job easier?
        Secretary Yellen. Yes, of course, it would.
        Mr. Perlmutter. I yield back.
        Ms. Dean. The gentleman yields back.
        The gentlewoman from Missouri, Mrs. Wagner, is now
    recognized for 5 minutes.
        Mrs. Wagner. Thank you, Madam Chairwoman. Secretary Yellen
    and Chair Powell, thank you for joining us today. And as I
    expressed to you earlier, Chair Powell, I want to congratulate
    you again on your renomination for another term leading the
    Federal Reserve Board, and I look forward to continuing to work
    with you.
        Chair Powell, you responded that our best expectation--this
    is your quote--``Our best expectation is there will be modest
    upward pressure on prices this year, but they won't be
    particularly large or persistent in the future.''
        Chair Powell, since that hearing 8 months ago, I have asked
    you about higher inflation. And yes, to my good friend, the
    gentleman from Colorado, we are going to talk about inflation.
    That is all that people are talking about in my district,
    Missouri's 2nd Congressional District. They want to know why
    these prices keep going higher and higher and higher and
    higher. And no, I don't think blame necessarily falls at the
    foot of the Fed. It is Democrat policies and overspending.
        But I digress. I asked you about higher inflation 2 more
    times, sir, and Americans have experienced surging increases
    in, as I said, food, fuel, and housing, leading up to the most
    expensive Thanksgiving, Christmas, and holiday season on
    record. Is it your view, sir, that these price increases still
    aren't, ``particularly large or persistent?''
        Mr. Powell. No, that is no longer my view.
        Mrs. Wagner. Thank you for that answer. Chair Powell,
    yesterday in the Senate Banking Committee, you stated that you
    believe it is time to retire the word, ``transitory.'' I
    couldn't agree more. And to explain more clearly what the Fed
    means when referring to transitory inflation, I think most
    Americans, sir, define, ``transitory,'' as, ``temporary,'' but
    the strain on their monthly budgets and paychecks from this
    inflation does not seem transitory or temporary. If that is not
    what you mean, then could you explain the Fed's meaning,
    please?
        Mr. Powell. Sure. The word, ``transitory,'' to some, as you
    suggest, has a sense of short-lived, a matter of months kind of
    thing, whereas we are using it in a specific way to say that
    transitory to us means that this episode, however lengthy, will
    not leave a persistent long-run string of high inflation behind
    it. And the problem is that our whole role that we play really
    revolves around having clear communication. When you have a
    word that means different things to different people, we just
    need to move on and find a better way to explain ourselves. And
    most forecasters still do overwhelmingly believe that inflation
    will come down significantly in the second half of next year.
    But as I have said, the risks of higher inflation have moved up
    more persistent--
        Mrs. Wagner. Will soaring debt and deficits, and excessive
    spending, and dumping stimulus spending after stimulus spending
    after stimulus spending into our economy be a driver of
    inflation?
        Mr. Powell. I guess I would say that I don't want to
    comment on fiscal policy directly.
        Mrs. Wagner. I am just saying, in general.
        Mr. Powell. In general, if you go back to last March, the
    median of the blue chip, the best resource forecasters thought
    that inflation would be right about at our target, in March of
    this year. What was wrong with that analysis was really that we
    understood demand would be strong, but we didn't understand how
    significant problems on the supply side, would be, which are
    very hard. They were unique.
        Mrs. Wagner. And how much money there would be in
    households and in the system.
        Mr. Powell. Demand is very, very strong, no question, from
    fiscal policy and also from--
        Mrs. Wagner. Fiscal policy. I agree.
        Mr. Powell. --a quickly rebounding economy. The economy is
    very strong now.
        Mrs. Wagner. I agree. Secretary Yellen, let me ask you. The
    CBO, and they reflect one of the more conservative scores, has
    said that Biden's spending bill, the most recent one, will add
    $367 billion to the deficit. Could you describe the long-term
    consequences of too much fiscal spending on financial markets
    and the price of consumer goods?
        Secretary Yellen. Let me first put the CBO number that you
    mentioned in perspective. They did score Build Back Better as
    resulting in $367 billion in deficits over 10 years. Not in a
    year, but over 10 years.
        Mrs. Wagner. There were a lot of gimmicks that went through
    to get that number, too. Let's just be honest.
        Secretary Yellen. However, that score, they made clear,
    does not include the revenue that will come from enhancement of
    resources for tax enforcement. It doesn't include the
    Treasury--
        Mrs. Wagner. How does this overspending on our financial
    markets--
        Ms. Dean. The gentlewoman's time has expired.
        Mrs. Wagner. --and deal with the price of consumer goods?
        Ms. Dean. The gentlewoman's--
        Mrs. Wagner. I would like the gentlelady to--
        Ms.  Dean. The gentlewoman's time has expired. The
    gentleman from Texas, Mr. Gonzalez, is now recognized for 5
    minutes.
        Mr. Gonzalez of Texas. Thank you, Madam Chairwoman, and I
    would like to thank Secretary Yellen and Chair Powell for being
    here with us on such an important occasion, at this critical
    moment, and to talk about a couple of issues that have affected
    my district. My first question is to Secretary Yellen.
        Secretary, when you testified before this committee in
    July, you identified caregiving needs as one of the major
    barriers people face in getting back to work following the
    COVID pandemic. Over 80 percent of South Texans residing in my
    congressional district identify as Latino, but only 19\1/2\
    percent of 3- and 4-year-olds are enrolled in publicly-funded
    preschool. What impact do you think the Build Back Better Act
    will have in supporting our economic recovery and getting folks
    back to work? I know we are talking about this labor shortage,
    but, specifically, do you believe investing in childcare and
    universal pre-K will bolster our economic and labor market
    recovery?
        Secretary Yellen. Yes, I absolutely do. As I mentioned
    previously, one of the reasons, that even before the pandemic,
    women's labor force participation in the United States fell
    short of that in many developed countries is the lack of public
    support for childcare and paid family leave. And during the
    pandemic, this became so much worse because of the issues in
    childcare and schools not being open. But many childcare
    facilities closed, and for people who work in childcare that
    involves face-to-face contact, health concerns have held people
    back from going to work there.
        So, Build Back Better will subsidize childcare so that it
    is affordable for almost all American families and provide 2
    years of universal pre-K for 3- and 4-year-olds. And research
    that Treasury recently summarized in a working paper shows that
    this will boost labor supply, particularly that of women. And
    more recently, the Congressional Budget Office also published a
    paper that opines that this is likely to have positive impacts
    on employment.
        Mr. Gonzalez of Texas. Thank you. And as you know, in the
    CARES Act, we established the Paycheck Protection Program
    (PPP), which has been administered by the Small Business
    Administration (SBA) in concert with Treasury, to provide
    economic relief and emergency payroll support to small
    businesses hit hardest by the pandemic. The program provided a
    lifeline for many small businesses in my district and across
    the country. However, we struggle to reach businesses in
    communities of color. And as I mentioned earlier, over 80
    percent of my district is Latino, and over 19,000 businesses
    applied for PPP, of which only 23\1/4\ identified as Latino.
    How can we look at this information and learn how to better
    reach minority-owned businesses to ensure they have the same
    access to these resources, and what are we doing to make this
    happen?
        Secretary Yellen. Yes. In the more recent Payroll
    Protection Program, priority was given to Community Development
    Financial Institutions (CDFIs) and Minority Depository
    Institutions (MDIs) to have access to those funds in order to
    provide better support to minority areas. And going forward,
    Congress has provided considerable resources to CDFIs and MDIs,
    and what we have found is that these institutions have great
    ability to reach businesses in underserved areas. So, the CDFI
    program that we run in Treasury is very focused on making sure
    that support gets out, and we expect these institutions to play
    a significant role in the State Small Business Credit
    Initiative for which we recently issued guidelines.
        Mr. Gonzalez of Texas. Thank you. And lastly, I just want
    to ask a question on the Emergency Capital Investment Program
    that was established and consolidated in the Appropriations Act
    of 2021 to encourage low- and moderate-income community
    financial institutions to bolster their efforts to support and
    engage with small businesses in their communities. I understand
    the deadline to submit--
        Ms. Dean. The gentleman's time has expired.
        Mr. Gonzalez of Ohio. Okay. Thank you. I yield back.
        Ms. Dean. The gentleman from Texas, Mr. Taylor, is now
    recognized for 5 minutes.
        Mr. Taylor. Thank you, Madam Chairwoman. I appreciate the
    opportunity to be here with you.
        Chairman Powell, I am sure you are familiar with Milton
    Friedman's book, ``Free to Choose.''
        Mr. Powell. Yes.
        Mr. Taylor. This is an important college textbook, I would
    think, on economics, and I would commend Chapter 9 to you,
    ``The Cure for Inflation.'' I think Mr. Friedman lays out some
    important premises of what creates inflation. And I am sure you
    are familiar with the fact that the M2 money supply has gone up
    very dramatically. You are familiar with the Federal Reserve
    holdings and trillions of dollars of debt, the very dramatic
    increase on your balance sheet--I know you are aware of this
    because you were there--and the money in circulation. And this
    comports with, again, going back to Chapter 9 of Milton
    Friedman's book, and he goes in and talks about the inflation
    that took place in the 1970s, and he has a series of charts
    showing the supply of money. So, here is the United States, and
    he goes on and shows the supply of money in Germany and Japan,
    and the increase in prices, and then also, in the United
    Kingdom and Brazil.
        And so all of this is going to a very central point that
    when you increase money, and actually let me quote Mr. Friedman
    here for a second: ``When the quantity of money increases more
    rapidly than the quantity of goods and services available for
    purchase, we have inflation.'' You have printed too much money,
    sir, and that money has created inflation. To stop the
    inflation, I would recommend to you to stop printing the money.
    You indicated yesterday that you are going to start to slow
    down the printing of money. I think you should stop it and stop
    it right now.
        Inflation is on the minds of Americans. In poll after poll
    for the last many months, for 70 to 80 percent of Americans, it
    is a top issue. They are concerned about inflation. Inflation
    is eating away their purchasing power. It is actually robbing
    them of the increases in wages that we have seen because their
    purchasing power is down because of the inflation created by
    the money that is being printed. Would you like to respond to
    that?
        Mr. Powell. Sure. Price stability is one of our two goals,
    the other being maximum employment, and we have to balance
    those two goals when they are in tension as they are right now.
    But I assure you we will use our tools to make sure that this
    high inflation we are experiencing does not become entrenched.
    If I may also add, though, the connection between monetary
    aggregates and either growth or inflation was very strong for a
    long, long time, which ended about 40 years ago. So, the so-
    called velocity of money became quite variable. And now we
    think more of just the imbalances between supply and demand in
    the real economy rather than monetary aggregates, which isn't
    to say that was wrong when written. I think it was probably
    correct when it was written, but it has been a different
    economy and a different financial system for some time.
    Nonetheless, your point on inflation is well taken.
        Mr. Taylor. And I appreciate that. Secretary Yellen, don't
    you think that the deficit spending of this Administration is
    on an unparalleled level? The $2 trillion in deficit spending
    in February, dumping money into the economy, has created the
    inflation that we see today.
        Secretary Yellen. Well, the Build Back Better Plan that is
    under consideration now is paid for.
        Mr. Taylor. Okay. But the $2 trillion in February, was that
    paid for?
        Secretary Yellen. The Rescue Plan was not paid for.
        Mr. Taylor. Okay. So, that is $2 trillion of deficit
    spending.
        Secretary Yellen. There was a very good reason to pass
    that. We faced a major risk in terms of seeing our workforce,
    particularly the most vulnerable members of the American
    society, scarred permanently, losing homes, being unable to put
    food on their tables, take care of their children, and being
    permanently financially harmed, as well as there was a shortage
    of demand in the economy that could have resulted in long-
    lasting joblessness and high unemployment. And the plan that
    was enacted into law was focused on dealing with that, and it
    has been successful with the--
        Mr. Taylor. Did it create inflation? Did the $2 trillion of
    deficit spending create inflation?
        Secretary Yellen. It did boost demand, and that is one of
    several factors that are involved in inflation. But absent the
    pandemic and the supply chain problems we have had, and the
    negative impact the pandemic has had on the supply of labor--
        Mr. Taylor. Secretary Yellen, what is interesting--
        Secretary Yellen --would be--
        Mr. Taylor. Secretary Yellen, just to finish here, what is
    interesting is that Milton Friedman wrote in 1979, ``No
    government is going to accept responsibility for producing
    inflation,'' and you, ma'am, have just embodied that denial
    because your deficit spending is creating the inflation that
    Americans need relief from now. I yield back.
        Ms. Dean. The gentleman's time has expired. The gentleman
    from Guam, Mr. San Nicolas, is now recognized for 5 minutes.
        Mr. San Nicolas. Thank you, Madam Chairwoman. I would like
    to begin by clarifying the fact that the deficit spending just
    referred to was to address the pandemic concerns that were
    impacting this country, the unemployment of our people, the
    fact that there were so many businesses that needed support.
    And one of the reasons why we enacted the relief packages that
    we did was to make sure that we didn't collapse our economy as
    a result of these pandemic circumstances. So, let's make sure
    we are bifurcating the issues here and not just hammering away
    on what happened in the past and trying to tie it into the
    present. And with that, I would like to talk about the present.
        It looks like the narrative of the Minority is to try and
    pin the inflationary circumstances of this country on the
    fiscal policy that is being pursued by the sitting government.
    And I think it is important for us to remember that just a few
    months ago, the very same Minority, in similar hearings, were
    stating that they were upset that the rollout of relief funding
    was not happening fast enough. That is entirely juxtaposed to
    the inflationary arguments being presented today. They were
    arguing for us to push even more money into the financial
    system, into the monetary supply. So, I really hope that we can
    go back to that mentality, because getting help to the American
    people during the pandemic was and is a priority, and
    continuing to get help to the American people in our
    infrastructure and in the many good things in Build Back Better
    should also continue to be a priority.
        It needs to further be reminded that Build Back Better has
    not even been enacted yet. Its fiscal impacts have not been
    materialized. It is not factoring into the money supply. And we
    recently just had testimony that inflation is running at a
    certain clip up to October--I believe it was mentioned by
    Chairman Powell--at 5 percent. And I think that is important
    for us to contextualize because we are suffering from
    inflation, but the inflationary pressures are not as a result
    of the recently-passed Build Back Better bill that still
    remains to be enacted.
        With that being said, I would like, without objection,
    Madam Chairwoman, to enter into the record an article dated
    October 15, 2021, by Paul Hannon in London, Ryan Dube in Lima,
    and Stella Yifan Xie in Hong Kong, under The Wall Street
    Journal entitled, ``Inflation Surges Worldwide as COVID-19
    Lockdowns End and Supply Chains Can't Cope.''
        Ms. Dean. Without objection, it is so ordered.
        Mr. San Nicolas. And in that vein, I would like to pose a
    question to Chairman Powell. Mr. Chairman, is the inflation
    that we are enduring here in America today, is it just
    occurring in America or is there a global inflationary
    environment?
        Mr. Powell. As you mentioned, if you look at Western
    Europe, Germany in particular, if you look at the United
    Kingdom and you look at Canada, you are seeing high rates of
    inflation in many of these countries, less so in Asia, but
    certainly in most parts of Europe and Canada and the United
    States.
        Mr. San Nicolas. And is it fair to state that these
    inflationary pressures that are occurring globally are
    predominantly as a result of the normalization that is starting
    to occur from the economies getting back on their feet due to
    the pandemic?
        Mr. Powell. Yes. When you see something happening
    everywhere around the world, you look for common factors, and
    those would be just the reopening of the economy. COVID
    continues to impose supply-side constraints, so whatever
    demands there are run up against hard constraints, which is
    unusual for market economies, and you are seeing high inflation
    everywhere. Many of the same features that we are seeing here,
    you are seeing elsewhere, but different countries are feeling
    it to different degrees.
        Mr. San Nicolas. So just in that context, let's not hold
    back the American people by creating some kind of inflationary
    scare, making it seem like it is a fiscal policy issue. This is
    a global inflationary environment. Let's continue to take care
    of the American people, while we allow the experts who are
    testifying before us today to continue guiding us as we try and
    tackle inflation.
        Moving on to Secretary Yellen, I want to first begin by
    recognizing some of your staff, J.J. Ricchetti and Arian Rubio,
    Special Assistants who have been working closely with our
    office. They help us to do our job in engaging Treasury and
    allow you to come here today and do your job, to be able to
    answer questions directly from us.
        I just had one quick question, Secretary Yellen. My local
    governor is holding off on expending some resources that were
    provided under the local relief package. I think they are
    waiting to see what the final rule is on the spending of the
    local recovery funds. Is a final rule going to be materially
    different from the interim rule or can we expect it to be
    materially the same?
        Secretary Yellen. We are in the final stages of producing
    the final rule. It is undergoing review. We had thousands of
    comments and have tried to respond. Until that rule comes out,
    and we expect it to come out shortly, the interim rule applies
    and can be relied upon.
        Ms. Dean. The gentleman's time has expired, just as a
    courtesy. Thank you.
        All Members are instructed, if they have not exhausted
    their questions, to submit them in writing for the record.
        At this time, the gentleman from New York, Mr. Zeldin, is
    recognized for 5 minutes.
        Mr. Zeldin. Thank you, Madam Chairwoman. Thank you to
    Secretary Yellen and Chairman Powell for being here today. And
    thank you to Chairwoman Waters and Ranking Member McHenry for
    holding this hearing.
        First, to start with you, Secretary Yellen, just now in
    response to Mr. Taylor's questioning, I believe you said that
    it is your position that the Build Back Better bill is fully
    paid for. Did I hear you correctly?
        Secretary Yellen. Let me be clear. We would agree with the
    CBO analysis that led to a score of a $367 billion deficit over
    10 years, but CBO was explicit that their analysis did not
    include revenue that would result from an $80 billion
    investment over 10 years in the IRS. And the Office of Tax
    Analysis issued a paper with our own estimate based on our data
    and information that we have from the IRS about the likely
    payoff from that, and we estimate that at $400 billion.
        So, when we put together those two pieces of information,
    it is more than fully paid for.
        Mr. Zeldin. I appreciate you clarifying that. So, the
    Administration's position is that you believe that it is fully
    paid for by ramping up the amount of IRS agents that are out
    there by several tens of thousands and going after more
    Americans to try to get them to pay more in taxes. I believe
    the number is up over 80,000 more IRS agents, and we have some
    strong disagreement with regards to that proposal. I am hearing
    from a lot of constituents who don't want to see several tens
    of thousands of additional IRS agents added, to go after hard-
    working Americans across the country because we already have
    enough IRS agents out there to go after individuals. And they
    are also concerned with the proposal to be spying on bank
    accounts and transactions at low-dollar amounts.
        Chairman Powell, you were asked a question with regards
    to--you were talking about inflation, and I just want to
    understand this correctly. You said that in the second half of
    next year, you believe that inflation will start coming down.
    Is that accurate?
        Mr. Powell. Our forecast--and that of many, I would say
    almost all forecasters--does expect that inflation will be
    coming down meaningfully in the second half of next year. That
    is an expectation, and it is a forecast.
        Mr. Zeldin. And just so that I understand, is that
    something with which you agree?
        Mr. Powell. I think it is likely, but I don't think--the
    point is we can't act as though we are sure of that. We are not
    at all sure of that. Inflation has been more persistent and
    higher than we have expected, and we have to use our policy to
    address the range of plausible outcomes, not just the most
    likely one, which is that one. That is the most likely but
    there are other possibilities, and we are well aware of that.
        Mr. Zeldin. And when you say that answer, I just want to
    understand that in the context of an additional question with
    regard to the Build Back Better bill. You were asked whether or
    not that would--what kind of an effect that would have on
    inflation, and you refused to comment on that. So my question
    is, the prediction that in the second half of next year, it is
    likely that inflation would come down, is that a prediction
    assuming that the Build Back Better bill is law or is not law,
    that the trillions of dollars is spent or not spent?
        Mr. Powell. It is really not our role to comment on fiscal
    proposals, indirectly or directly.
        Mr. Zeldin. No, that is not what I am asking. The
    prediction that inflation is going to go down in the second
    half of next year is either built on an assumption that there
    is going to be trillions of dollars spent or not spent.
        Mr. Powell. The principle--
        Mr. Zeldin. Which assumption was used in making that
    prediction?
        Mr. Powell. --driving assumptions would be these, that the
    goods inflation that we are seeing will subside because the
    supply chain problems will sort themselves out. At the same
    time, though, you are going to see rent inflation going up and
    you are going to see possibly--
        Mr. Zeldin. I think you might be misunderstanding me, Mr.
    Chairman.
        Mr. Powell. --pushing up.
        Mr. Zeldin. With all due respect, I am trying to understand
    whether or not--
        Mr. Powell. There will be a fiscal prediction. It will be
    in there. People will make different assumptions. But, of
    course, we will assume--at this point, we are assuming that
    something passes, but we do not know exactly what it is going
    to be. It is very hard to be precise, because again, we don't
    know what will pass.
        Mr. Zeldin. That leaves far more questions than answers
    with regards to the prediction. I yield back.
        Ms. Dean. The gentleman's time has expired.
        The gentlewoman from Massachusetts, Ms. Pressley, who is
    also the Vice Chair of our Subcommittee on Consumer Protection
    and Financial Institutions, is now recognized for 5 minutes.
        Ms. Pressley. Thank you, Madam Chairwoman. The House just
    passed the Build Back Better Act. We are closer than ever to
    delivering overdue support for workers, for families, and for
    the economy. There is truly just so much for us to feel hopeful
    about.
        Unfortunately, many Republicans are working overtime to
    distract from these historic accomplishments. Today, they speak
    about inflation and they speak about it without any nuance or
    any context, and they refuse to put forth serious solutions.
    They use their platforms to discourage people from getting
    vaccinated, which will only prolong pandemic-induced inflation.
    They spread lies that the Build Back Better Act will add to the
    deficit, despite 3 years ago enthusiastically passing Trump's
    tax break for the wealthy bill, knowing it would add $2
    trillion to the deficit.
        I am tired of this fear mongering and misinformation, so
    let's today, in this moment, set the record straight about the
    Build Back Better Act. Secretary Yellen, please answer yes or
    no to these questions wherever possible. Would providing
    universal pre-K and drastically cutting the cost of childcare
    have a positive impact on the economy?
        Secretary Yellen. Yes, I believe it would. It would promote
    higher labor force participation, and these investments in
    children would have a significant payoff, making them more
    successful and better-prepared to succeed in our economy.
        Ms. Pressley. And would making prescription drugs cheaper
    for seniors and families have a positive impact on the economy?
    Yes or no?
        Secretary Yellen. Yes, it would certainly cut the cost of
    living, especially for retirees who have been struggling with
    the cost of prescription drugs, but many others as well.
        Ms. Pressley. And would investing in more affordable
    housing have a positive impact on the economy? Yes or no?
        Secretary Yellen. Yes, I think that has been a very
    significant problem for decades and has made it exceptionally
    difficult, especially for lower-income families to manage in
    expensive parts of the country.
        Ms. Pressley. And would expansion of the child tax credit,
    a tax cut for the lowest-earning families have a positive
    impact on the economy? Yes or no?
        Secretary Yellen. Yes, and it has already done so. In the
    months after the child tax credit has been paid out we have
    seen a substantial decrease in the number of families reporting
    food insecurity.
        Ms. Pressley. So, zero Republicans--zero--voted for the
    Build Back Better Act, despite it containing substantial
    serious and popular solutions to combat inflation, supply chain
    issues, and financial hardship, solutions that are fully paid
    for. To try to justify their de novo, they are spreading lies
    about this bill. They say the bill will cause long-term
    inflation. Wrong. That is a falsehood. They say it will add to
    the deficit. Wrong. That is a falsehood. Anything to delay
    solutions and distract the public from their government
    spending hypocrisy.
        Secretary Yellen, what are the real causes of inflation and
    how will policies that stop the spread of COVID-19 and support
    labor participation help to fight it?
        Secretary Yellen. To my mind, the real causes of inflation
    reflect the impact the pandemic has had on the economy. The
    programs that have supported income have kept demand at a solid
    pace and enabled our economy to grow the fastest of any
    economy, to bring down unemployment toward more normal levels.
    But because of the pandemic, demand shifted massively, away
    from services and toward goods. That huge demand for goods has
    resulted in massive supply chain bottlenecks that have crippled
    our ports and our transportation system and caused a shortage
    of semiconductors that have led to huge increases in the price
    of new and used vehicles.
        And because of the pandemic, a substantial number of
    workers have not returned to the labor force, I believe because
    they are concerned about the health consequences of working in
    face-to-face type jobs and probably also because of childcare
    concerns.
        Ms. Pressley. Secretary Yellen, in the remaining time I
    have, I do want to give you the floor to talk about the
    revenue-raising provision that will pay for the Build Back
    Better Act investments. How will they both make--
        Ms. Dean. The gentlewoman's time--
        Ms. Pressley. Oh, I'm sorry. I yield back. My time is up.
        Ms. Dean. The gentlewoman's time has expired.
        The gentleman from Ohio, Mr. Gonzalez, is now recognized
    for 5 minutes.
        Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, and
    thank you to both Chairman Powell and Secretary Yellen for
    being with us today. And congratulations to Chairman Powell on
    your reappointment.
        Secretary Yellen, I am going to start with you. Earlier you
    said, and I think you said it in different ways a few times,
    that when supply and demand get out of balance, you can have
    inflation, and the demand side has accelerated while we still
    have supply chain bottlenecks. Fair?
        Secretary Yellen. The demand has been strong. Demand has
    also shifted away from services and toward goods, which has
    created huge problems, more than the aggregate level of demand.
        Mr. Gonzalez of Ohio. Yes, ma'am. And the American Rescue
    Plan, which was a partisan bill that increased demand, which
    you testified to, did it do anything to alleviate supply
    issues?
        Secretary Yellen. It did not have substantial impacts on
    supply.
        Mr. Gonzalez of Ohio. When we say that--and this is my
    frustration. For a year, a year plus, we negotiated in good
    faith, for bipartisan legislation to be targeted and
    appropriate with respect to our response to COVID-19. You all
    won the election. It is your prerogative to ignore Republican
    concerns. But you went forward with the American Rescue Plan,
    which we warned would increase inflation, specifically for the
    reasons the Secretary just said. It would increase demand and
    do nothing to alleviate supply chain bottlenecks. That is
    exactly what happened. You are set to repeat the exact same
    mistake with Build Back Better.
        Chairman Powell, I want to commend you for retiring the
    term, ``transitory,'' as it relates to inflation. My
    constituents have been complaining about it for over a year.
    There are concerns. One, inflation is particularly hard on low-
    and middle-income Americans, in particular those with fixed
    incomes. We all know that. It has been brutal for them.
        And two, and I think this is the new risk, risk accumulates
    over time the longer rates are at zero, as anyone who invests
    money in discounts cash flows at a zero-interest rate can
    justify virtually any investment. As we have seen that, and
    various asset bubbles have built up over time.
        I think the risk shifts. Now, I believe the risk is that we
    have let inflation run too hot for too long, and we are in need
    of a more sudden course correction, which you suggested
    yesterday. That being the case, what are you most concerned
    with when considering the ramifications of the taper on the
    market and the economy at large? What pockets of risk are you
    looking at as the taper begins?
        Mr. Powell. Let me just say, I think that the taper need
    not be a disruptive event in markets. I don't expect that it
    will be. It hasn't been so far. We have telegraphed it.
        I think if you look at the state of the economy, look at
    where we are, look at the most recent run of data, you can see
    that the highly-accommodative policy that we have, even after
    the taper is done, it is really appropriate that we taper, and
    as I mentioned yesterday--
        Mr. Gonzalez of Ohio. I agree.
        Mr. Powell. --in my view, it is appropriate that we
    consider, at the next meeting, tapering faster so that it wraps
    up a few months earlier.
        Mr. Gonzalez of Ohio. Yes. I agree. I guess I would
    encourage you--and my concern, again, is we have seen asset
    bubbles accumulate over the course of the pandemic. Investors
    have done incredibly well. I think we should be tapering. I
    agree with that in a lot of ways on the monetary front. But I
    suspect that there is risk building up and I just want to make
    sure that it is on the Fed's radar.
        I want to shift to--I have 1 minute and 26 seconds to see
    if I can get this out. In recent months, Americans,
    unfortunately, have seen energy prices significantly increase,
    especially at the pump. Some people who talk on Twitter have
    claimed that this is due to greedy corporations and speculators
    driving up prices. Do you believe that is the reason for
    increased gas prices?
        Mr. Powell. Energy is a global market, and there are many,
    many factors at work there, I would say. It is a combination of
    very strong demand across-the-board, and supply-side factors
    too.
        Mr. Gonzalez of Ohio. Not greedy corporations and
    speculators driving up prices, that is not accurate for why
    energy prices are high?
        Mr. Powell. Looking at this from an economic perspective,
    it is very strong demand in the face of what have been some
    supply blockages and a little bit of discipline on the part of
    the providers.
        Mr. Gonzalez of Ohio. Thank you. I agree.
        In the summer of 2020, the Federal Reserve updated its
    Statement on Longer-Run Goals and Monetary Policy Strategy to
    state that the Fed would seek to achieve inflation above 2
    percent for some time period. Do you have any second thoughts
    on that, given that we have seen inflation persist for quite
    some time, and if we didn't change the framework, how would you
    potentially have responded differently throughout the pandemic?
        Mr. Powell. The sort of overarching fact of monetary policy
    in the last 15 years, and probably the next 15 years, is just
    that interest rates are significantly closer to the effective
    to zero, and in that world it is hard to support the economy
    and attain growth and maximum employment and 2 percent
    inflation. So, the framework was designed to address a
    situation in that.
        Now, what we have here is an unique historical shock, which
    is the beginning of the pandemic, the middle of it, and the end
    of it, and a different situation and we have a different part
    of the framework that deals with that.
        Ms. Dean. The gentleman's time has expired.
        Mr. Gonzalez of Ohio. Thank you. I will follow up in
    writing. Thank you.
        Mr. Powell. I would be glad to.
        Mr. Gonzalez of Ohio. Thank you, Mr. Chairman.
        Ms. Dean. Thank you. The gentlewoman from Michigan, Ms.
    Tlaib, is now recognized for 5 minutes.
        Ms. Tlaib. Thank you so much, Madam Chairwoman, and I would
    like to thank both of our witnesses for being here.
        Chairman Powell, President Biden stated that with your
    renomination, you would use your authority to address the
    threat that climate change poses to our financial system. As
    you know, if we allow temperatures to rise another 2 degrees
    this century, we are surrendering the planet and our
    environment to corporate polluters, accepting, of course, the
    disruption to our agriculture, our trade, migration on a
    massive, unprecedented scale, and the devastating public health
    impacts. And Chairman, you should know this is so personal for
    me because I am seeing it firsthand in Michigan, where Wayne
    County has not met Clean Air Act standards since 2013. This is
    the largest populated county in Michigan. And not only with
    record floods that have impacted families during the pandemic,
    come up 4 times alone in some households over the summer, it is
    devastating. We need to do something about it, and I know it
    directly impacts our economy.
        Chairman Powell, can you outline precisely what your plan
    is to fulfill that commitment to address climate risk to our
    financial system?
        Mr. Powell. I would be glad to. The Fed has a couple of
    ways that we will address climate that are important, but they
    are not, by themselves, going to be enough, the first of which
    is just to supervise and regulate financial institutions,
    particularly the large ones, to make sure that they understand
    the risks that they are running and can manage them.
        The second really is from a financial stability standpoint.
    Climate change has potentially significant effects on financial
    stability and also on the broader economy, so, we do a lot of
    research. Our researchers are some of the ones who go around
    the globe, who are doing the original research to understand
    the pathway of climate change through the financial system and
    the economy. And those are within our mandate to supervise
    firms and look after financial stability. We will be
    incorporating climate change very much into those mandates.
        Ms. Tlaib. So you know, and I know you have heard it, that
    between 2016 to 2020, banks provided, what, $3.8 trillion in
    direct fossil fuel financing, with most of that investment
    coming from banking. Banks are holding companies under the
    Fed's supervision, and I know you are talking about oversight
    here. But the Acting Comptroller of the Currency, Michael Hsu,
    has announced that the OCC plans to issue supervisory guidance
    on climate risk by the end of the year.
        Chairman Powell, does the Fed intend to join this guidance?
    Why or why not?
        Mr. Powell. I don't think we will join this specific
    guidance. We are very much tracking and in discussions with the
    OCC. I think we will move to certainly provide guidance, and I
    think we all want, all the agencies want to have consistent, or
    ideally, identical guidance. I don't think we will actually be
    in a position to join this specific guidance at this time but
    we will get there.
        Ms. Tlaib. And you know the OCC will also begin examining
    how large banks are addressing climate risk as part of the
    examination, starting in 2022. So, does the Fed plan on
    conducting a similar assessment in 2022, and what is the Fed
    planning to do on assessing climate risk to banks face in 2022?
        Mr. Powell. In 2022, we are already deep into dialogue, and
    again, particularly with the largest financial institutions.
    That is really where a lot of the work is going on right now,
    ongoing dialogue with all of them. And by the way, they are
    doing the same thing we are doing, which is trying to
    understand the implications of climate change for their
    business model, for the things that they do. And also what we
    are thinking about is what is the appropriate supervisory
    approach, how do we do this, which tools do we use, for
    example, climate scenario--
        Ms. Tlaib. Yes, and just on behalf of my residents, I hope
    dialogue turns into guidance and accountability.
        Finally, I am glad you have allowed the leadership of other
    central banks--you joined the Network for Greening the
    Financial System last year. I really appreciate that. But, as
    Fed Governor Brainard has indicated, the U.S. still trails
    other countries in, ``measuring, monitoring, and managing
    climate-related financial risk,'' and the Governor said, ``We
    need to catch up.''
        They go on to say, Chairman Powell, about how far back we
    are in regard to having a much more active role. And so,
    Chairman Powell, the European Central Bank (ECB) has announced
    that climate risk will guide its monetary policy. Will the
    Federal Reserve do the same? Are you actually aggressively
    looking at taking this kind of approach?
        Mr. Powell. I am focused on the United States and our
    existing mandates.
        Ms. Tlaib. Is that a no?
        Mr. Powell. Well, it--
        Ms. Tlaib. Is it no, right now?
        Mr. Powell. It is sort of a broader question--
        Ms. Tlaib. Maybe?
        Mr. Powell. --than a yes or a no.
        Ms. Tlaib. They are saying, okay, we are going to use
    climate risk to guide our monetary policy.
        Mr. Powell. Okay. Narrowly, then, I would say we are not
    doing that now. I think that is something we will do in the
    longer run, but no, we are not doing that now.
        Ms. Tlaib. Not now. Okay.
        The ECB's initial supervisory review revealed that the bank
    faced material risks from climate risk, yet have failed to meet
    the supervisory expectations laid out by the regulator.
    Chairman Powell, do you have similar comprehensive information
    about how U.S. banks are positioned--
        Ms. Dean. The gentlewoman's--
        Ms. Tlaib. I will submit the question in writing.
        Mr. Powell. We are developing that.
        Ms. Tlaib. You are? Good.
        Mr. Powell. We are in the development phase on that.
        Ms. Tlaib. Okay. Thank you.
        Ms. Dean. The gentlewoman's time has expired.
        The gentleman from Texas, Mr. Gooden, is now recognized for
    5 minutes.
        Mr. Gooden. Thank you. Secretary Yellen, I have a few
    questions. If Build Back Better becomes law, which earlier you
    stated it was paid for, and one of the tools for payment was
    enhanced collections from the IRS, if this does become law
    would you anticipate that more Americans will be audited by the
    IRS?
        Secretary Yellen. I would anticipate that many fewer
    Americans with incomes below $400,000 will be audited, that the
    IRS will have the resources to direct their audits in those
    places where we have every reason to believe that taxpayers are
    not paying what is due, that is, high-income Americans and
    complex partnerships and corporations where the sources of
    income are opaque and the audit rates have dropped to
    historically low levels. The auditing will be focused in those
    areas. Those areas are what account for a $7 trillion tax gap
    over the next decade.
        Mr. Gooden. And do you think we need 87,000 new IRS
    employees for that?
        Secretary Yellen. The auditing staff of the IRS has
    declined. The skill level of the auditing force has declined
    substantially. It is critical to hire people who have the
    expertise to conduct these complex audits. But the hiring will
    also improve customer service. The customer service at the IRS
    has fallen to unacceptably low levels.
        Mr. Gooden. I will agree with you there. Thank you for
    those answers.
        Back to inflation. In March, you said that fears that the
    Administration's $2-trillion relief bill could trigger a rapid
    rise in inflation were misplaced. And we heard earlier today
    that that was quite a large factor in where we are today with
    respect to inflation.
        I realize you are selling this plan as great for the future
    and with calming these inflation fears, but isn't it difficult
    for us to accept perhaps, on my side of the aisle, that we are
    not going to just continue to kick the can down the road and
    make things worse when your predictions were so wrong back in
    February? Do you really not think that spending another several
    trillion dollars will--
        Secretary Yellen. First of all, we are talking about a
    decade. We are not talking about a single year. The spending
    from the American Rescue Plan, which was $1.9 trillion, was
    largely concentrated this year. Build Back Better is a decade-
    long plan. It is a small plan relate to the total size of the
    economy and GDP over a decade, and it is paid for. So, it does
    not involve an increase in deficits according to a combination
    of CBO and Treasury reckoning over the next decade, and beyond
    that, it puts in place investments that will continue to bring
    down deficits.
        And finally, I would say it will improve the supply side of
    the economy, which is, in the long run, a factor that will tend
    to mitigate ongoing inflationary pressures.
        Mr. Gooden. Thank you. And Chairman Powell, would you agree
    with that analysis, that this increased spending, these
    multiple trillions of dollars over the next year, will that
    help us get to that point that we are at in the end of next
    year where you see inflation reducing?
        Mr. Powell. I'm sorry. We really don't comment on existing
    legislation. It is kind of out of bounds for us. This is what
    the CBO will do. They will make an estimate--
        Mr. Gooden. Just to confirm your discussion with
    Congressman Zeldin, your analysis that the inflationary numbers
    are anticipated to perhaps reduce at the end of next year is
    based on this Build Back Better passing?
        Mr. Powell. We have to see the final bill and how much of
    it is paid for. You have to look at the spending in the first
    couple of years. You have to look at exactly how much of it is
    paid for to really make a sophisticated judgment about that.
    But it is 10 years of spending. So, I am really reluctant to
    get pulled into commenting on something on which we don't
    really have the final facts.
        Mr. Gooden. Thank you. I yield back.
        Ms. Dean. The gentleman yields back. I now recognize myself
    for 5 minutes.
        Welcome back, Secretary Yellen. Welcome back, Chair Powell.
    And Chair Powell, congratulations on your renomination as Fed
    Chair.
        My colleagues on the other side of the aisle have spent a
    tremendous amount of time attacking the Build Back Better Act
    as wasteful spending that will increase the deficit and fuel
    inflation, as we have seen through this conversation. I, of
    course, disagree with that. Not only is this legislation paid
    for, but it makes critical, long-term, overdue investments that
    will improve productivity and address the supply chain
    bottlenecks, part of the cause of heightened inflation.
        The Build Back Better Act critically makes investments
    close to more than $7 trillion, projected 10-year tax gap, that
    is largely due to tax evasion by the wealthy and by
    corporations. I am reminded of the quote by Benjamin Franklin,
    ``There are only two things certain: death and taxes.''
    However, we know, from reality, and Secretary Yellen you have
    spoken about this, that taxes are not certain for everybody,
    and it is time we made a fair, equal playing field.
        So, rather than the boogeyman of 87,000 agents coming after
    hard-working Americans, could we be clearer? What are the ways
    that wealthy individuals and corporations fail to pay taxes, in
    some cases? It is not everybody. We know that. How do some
    avoid or fail to pay taxes, and that is what we are trying to
    go after.
        Secretary Yellen. The rates of compliance for income
    streams that have third-party reporting to the IRS, like wages
    and salaries, 95, 97, 98, something like that, percentage of
    income is reported and taxes are paid as due.
        Ms. Dean. Can you paint a picture--
        Secretary Yellen. That is not where the problem is; the
    problem is opaque sources of income, when individuals earn
    income that isn't wage and salary income, the IRS doesn't know
    about it. They have to rely on the honesty of the taxpayer to
    report what they have earned. They don't have additional
    sources of information. And for complex partnerships and for
    companies, similarly, the sources of income and amounts are
    opaque.
        And if we had high auditing rates, that would probably
    promote more honest reporting. But audit rates have dropped to
    unbelievably low levels over the last decade. And so, the
    investment in the IRS to enhance its auditing capacity, not
    only will that directly enable greater tax collections but a
    lot of research shows that it will improve honesty in reporting
    in the first place when the odds of being audited rise.
        Ms. Dean. That would be valuable because as Treasury as
    estimated, the tax gap could be as high as $7 trillion over the
    next decade, in the future decade. How that much money is
    currently falling through the cracks, and we here, in Congress,
    wouldn't want to address that is staggering to me.
        Chair Powell, in the remaining time that I have, when you
    appeared before this Committee in July, I asked you about the
    need for greater public and private investment. You talked
    about how investment raises the potential growth rate,
    increasing productivity, and raising living standards. I also
    asked you about the impact of supply chain vulnerabilities on
    inflation, which you repeatedly testified to be one of the
    major drivers of inflation.
        As part of the Build Back Better Act, I worked to include
    language to increase our investment in domestic manufacturing
    and support supply chain resiliency. Ultimately, this
    legislation took the form of authorizing $500 million for the
    use of the Defense Production Act for the purposes of
    supporting manufacturing right here.
        Chair Powell, how would this kind of domestic investment in
    manufacturing address continued supply chain challenges and
    combat inflation?
        Mr. Powell. I am going to have to decline to answer. I do
    not want to get into commenting on particular aspects of this
    specific bill. It is just not our role. I assent that we do not
    have the capability to do it. It is just that we really have to
    respect that we are not part of fiscal policy. We do our jobs.
        Ms. Dean. I respect that. How about the fact, if we can
    encourage and create greater domestic manufacturing, not
    speaking of the legislation then, what would that do in terms
    of inflation?
        Mr. Powell. A significant part of the inflation that we are
    seeing is due to longer-length supply chains from Asia. So to
    the extent--as an actual matter, if you made things locally
    here, in this particular situation, you would see lower
    inflation. But by the time--
        Ms. Dean. Thank you, and I have to--
        Mr. Powell. --this will be passed--
        Ms. Dean. --gavel myself off because my time has expired.
    Thank you, Chair Powell.
        The gentleman from Texas, Mr. Sessions, is now recognized
    for 5 minutes.
        Mr. Sessions. Thank you very much, Madam Chairwoman. Madam
    Secretary, I want to, without trying to be too much, as it
    were, that we are fighting each other here over politics, I
    have found it very interesting that your remarks wanted to be
    in line with the Administration, of which you serve as a
    Cabinet officer, but it gets confusing for a Member of
    Congress, and I believe the American people, to speak directly
    to the fact, the case, or the truth that we decide.
        You have used the words, ``honesty in reporting,'' I
    believe 3 times today. You reference that this Build Back
    Better is being completely paid for, but then you put a caveat
    there, but CBO did not report it that way because of the
    revenue that might come in from whatever today we are hearing,
    80,000 or 87,000 new IRS agents.
        What am I, as a member of this committee, to take away as
    the position of the Treasury Department as they properly
    respond to questions from Members of Congress or the media
    about the truth of the matter? Are you in favor of the Build
    Back Better or the CBO score?
        Secretary Yellen. We respect the CBO and agree with the CBO
    analysis of those portions of the bill that CBO scored. CBO
    reported that over the next decade, the aggregate deficit
    resulting from the bill would be $367 billion.
        Mr. Sessions. Yes, ma'am, and that--
        Secretary Yellen. But they also made clear--
        Mr. Sessions. I don't want to argue with you, so are you
    suggesting--
        Secretary Yellen. That is correct, that it coincides--
        Mr. Sessions. --do you think it is fair that you would, and
    the Administration would continue the dialogue, it is
    completely paid for, but--
        Secretary Yellen. I think that is completely--
        Mr. Sessions. --the honesty--
        Secretary Yellen. --I am sorry, I--
        Mr. Sessions. --in reporting is Congress looks at the CBO.
        Secretary Yellen. Congress has to look at the footnotes in
    the CBO report as well, and CBO made clear that their score did
    not include any revenue from additional IRS enforcement. They
    made that completely clear in their written report.
        Mr. Sessions. Yes, ma'am.
        Secretary Yellen. And they have an estimate of what that
    would be, but they have also stated previously that their
    methodology assumes very little shift in the behavior of
    taxpayers. And the Treasury Department has its own analysis and
    their outside researchers who have analysis of what the impact
    of these IRS resources will be. Our estimate, Treasury's
    estimate, is it will generate $400 billion over 10 years. And
    if you combine that with CBO's estimate of the remainder, which
    is a deficit of 367, those two things come out in positive
    territory.
        Mr. Sessions. So, you want a Rube Goldberg drawing, if this
    happens, then we, as the Administration, can say, and the
    President, with a masked face can say, ``It is paid for.'' But,
    in fact, honesty in reporting is what ought to be.
        I still would disagree with the gentlewoman. You are the
    Treasury Secretary. I am not. You are entitled to your opinion.
    I still think that because the honesty in reporting is
    necessary, it would be honest to say, ``And CBO does not
    concur.'' Because I believe it is important to tell people, by
    and large, the truth. The truth of the matter is that you will
    be adding 87,000 net new employees to a department that may
    take 5 or 6 years to materialize.
        Secretary Yellen. That is--
        Mr. Sessions. Another question please, ma'am. How many IRS
    agents--I apologize, I have exceeded my time. I will provide,
    in writing, a request to you, and I want to thank the
    chairwoman, for the time. Thank you.
        Chairwoman Waters. Thank you very much.
        The gentlewoman from New York, Ms. Ocasio-Cortez, is now
    recognized for 5 minutes.
        Ms. Ocasio-Cortez. Thank you, Madam Chairwoman, and thank
    you to Secretary Yellen and Chair Powell for being with us
    today.
        One of the things that I also wanted to focus in on is the
    very important topic of climate change in terms of the Treasury
    and the Federal Reserve's role in that. The United States just
    returned from COP26 in Glasgow, where participating nations
    agreed to reduce carbon emissions in order to remain within the
    1.5 degree Celsius benchmark, as acknowledged by the Paris
    Agreement.
        The Financial Stability Oversight Council, or FSOC,
    recently released a report exploring the risks that climate
    change poses to our financial system. And while it is the first
    time that FSOC has designated climate change as a threat to
    U.S. financial stability, I was disappointed to see that the
    report, which is intended to serve as a blueprint for Federal
    regulators, makes no mention of any timelines or policies
    needed to stay within that 1.5 degree Celsius target. As a
    matter of fact, the FSOC report, in discussing climate change,
    doesn't discuss the 1.5 degree Celsius target at all, and
    instead it focuses on general data disclosure and review.
        Secretary Yellen, can you explain why the report fails to
    make mention of globally-acknowledged targets for climate to
    prevent further climate change degradation?
        Secretary Yellen. FSOC's mission and responsibility is to
    identify threats to the financial stability of the United
    States and to coordinate across regulatory agencies to make
    sure that they are addressed. Treasury is also involved with
    the Administration in trying to put in place policies--economic
    policies, tax policies, spending policies--that will address
    climate change itself and, of course, very substantial policies
    are included in Build Back Better, and the infrastructure plan
    also contains policies that address climate change and are
    oriented toward trying to meet our commitment to the 1.5
    target.
        Ms. Ocasio-Cortez. Thank you, Secretary Yellen. As a
    general note, I do think it is important that perhaps we
    consider the fact that there are substantially different
    financial risks between 1.5 degrees Celsius, 2 degrees, and
    beyond. But when we look at some of our partners around the
    world, Sweden's Riksbank will only purchase bond holdings from
    companies complying with their climate standards. The Swiss
    Central Bank has announced that they will exclude coal
    investments from its massive holdings. The European Central
    Bank conducts stress testing with respect to climate.
        Do you believe that the United States is behind the rest of
    the world when it comes to mitigating the risk that climate
    change poses to our financial system and the commitments we are
    willing to make to do so?
        Mr. Powell. I take it you are asking me that question, or
    were you asking Secretary Yellen?
        Ms. Ocasio-Cortez. Oh, I apologize. I was asking Secretary
    Yellen, but Chairman Powell, you are welcome to weigh in as
    well.
        Mr. Powell. Thank you. I am really focused on our domestic
    context and doing what we think is right under our laws and our
    authorities as the Fed, and I would say that principally what
    we are working on is regulation and supervision of the largest
    financial institutions, and also financial stability, more
    broadly.
        Ms. Ocasio-Cortez. A May report from the International
    Energy Agency (IEA) found that new fossil fuel exploration
    extraction was incompatible with a 1.5 degree Celsius
    objective, and that, ``There is no need for investment in new
    fossil fuel supply in our net zero pathway.'' And with respect
    to the U.S. mitigating the catastrophic impacts of essentially
    going beyond 1.5, potentially going beyond 2 degrees Celsius,
    do we agree--or, Secretary Yellen, do you agree with this
    assessment that we should consider phasing out investments in
    new fossil fuel supplies?
        Secretary Yellen. I certainly learned a lot from the IEA
    report and have no basis to question their judgment. As Chair
    Powell indicated, the FSOC's mission and the Fed's mission is
    safety and soundness of financial institutions, and we don't
    have authority to tell institutions that they must pursue
    lending policies that support the Paris commitment. But it is
    very noticeable that at Glasgow, all of the major global
    financial institutions voluntarily committed to align their
    lending with the Paris commitments, and certainly, Treasury
    will be monitoring very closely their performance, and we are
    heartened to see these important commitments.
        Ms. Ocasio-Cortez. Thank you very much.
        Chairwoman Waters. Thank you very much. The gentlelady's
    time has expired.
        The gentleman from Oklahoma, Mr. Lucas, is now recognized
    for 5 minutes.
        Mr. Lucas. Thank you, Madam Chairwoman, for holding this
    hearing, and thank you, Chair Powell and Secretary Yellen, for
    appearing before the committee, and like my colleagues,
    Chairman Powell, I would like to congratulate you on your
    renomination for another term. I would acknowledge to you that
    I am not sure the President did you a favor, but thank you for
    being willing to do this again.
        That said, let's talk about a number of issues, and I will
    try and roll through them in some sort of a concise fashion.
    Since the onset of the pandemic, the United States has added
    more than $5 trillion to its total national debt, standing at
    about $29 trillion. And as the Secretary has alluded to,
    apparently we need to raise the debt ceiling very soon to
    address that even. And that doesn't count the extra trillions
    that have gone on the Federal Reserve System's balance sheet.
    The U.S. is now set to exceed the debt-to-GDP ratio in a way
    not seen since the end of the Second World War.
        Chairman Powell, speak to us from a macroeconomic
    perspective. When is the right time to prioritize the threat of
    U.S. debt rapidly outpacing economic growth? We have spent a
    lot of money in the last couple of years.
        Mr. Powell. And as I generally would say, as is
    appropriate, I think, for me to say in my role, the U.S. needs
    to get back on a sustainable fiscal path. The right time to do
    that is when the economy is strong, when the taxes are rolling
    in, when employment is high, and the right way to do it is to
    have a longer-term plan really to get the economy growing
    faster than the debt. By definition, it is unsustainable to
    have the debt ultimately growing faster than the economy, and
    we have that now.
        Mr. Lucas. Chairman, you and I were both young men in the
    Carter-Reagan period, under your predecessor, Chairman Volcker,
    when we went through an inflationary cycle that was even more
    horrendous than this, and the effort that it took to bring that
    period to a conclusion. I guess I would like to visit, for a
    moment, just about the fundamental issues, again, not
    addressing particular legislation, just the fundamental issues.
        The amount of money, through congressional activity, that
    we put into circulation, and in 2020, I think in a bipartisan
    way we voted an incredible amount of money out of this place,
    because the wheels were coming off in the spring and summer of
    2020 with COVID, and no one wanted to return to a 1929, 1941
    period. So, we were willing to do whatever it took.
        But that now brings us to this point of addressing
    inflation and getting a grip on that. Could you describe how--
    and I know you don't comment on legislation--policymakers at
    the Fed evaluate the results of these kinds of forecasts on the
    economy?
        Mr. Powell. What we are really looking at is so many things
    cause inflation, but really it is an imbalance between supply
    and demand. In the real economy, that is what it is about. And
    we actually see fiscal stimulus, that the stimulative aspect of
    fiscal policy is actually declining and will turn into a
    headwind next year. You have to distinguish between the change
    in the level, if you will. So, as deficits are coming down
    overall, you are going to see less in the way of fiscal
    stimulus to grow off of this high level of growth that we have.
    We had a very stimulative 2020, if that makes sense.
        Mr. Lucas. The buzz will lead to a hangover. Yes.
        Mr. Powell. What we are looking at is another strong year
    next year. Most forecasters see strong growth, but they also
    see the supply chains getting untangled, and they see the
    economy, the supply side rising to meet strong demand, and we
    see inflation coming down. Again, it is not a certainty. It is
    a forecast.
        Mr. Lucas. But the balancing act of policymakers, as the
    supply increases we still have to address the money that is
    available to chase those few resources or this process won't
    come to an end.
        Turning to you, Secretary, we have discussed, several of my
    colleagues have, climate-related issues. I am concerned, coming
    from a district that produces lots of different forms of
    energy, and consumes massive amounts of different forms of
    energy, that when the majority can't pass a bill to outlaw
    certain forms of energy, and they can't pass a bill to tax it
    to death, that the route they are going to take is to use
    regulatory policy to strangle the capital available to those
    industries.
        Could you touch on that for a moment? Is it the intention
    of the regulators to create standards such that banks cannot
    support any particular energy industry that may ask for
    capital, that may justify a loan?
        Secretary Yellen. As Chair of FSOC, I would say our focus
    is on financial stability, and the regulators, like the Federal
    Reserve, are focused on safety and soundness of institutions,
    and that means making sure they hold adequate capital to manage
    the risk.
        Mr. Lucas. There is a fascinating report from the New York
    Fed--
        Secretary Yellen. It is not a--
        Mr. Lucas. --that I hope you will review. With that I yield
    back, Madam Chairwoman.
        Chairwoman Waters. Thank you very much.
        The gentleman from Illinois, Mr. Garcia, is now recognized
    for 5 minutes.
        Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and of
    course, I thank you and the ranking member for convening this
    hearing. And, of course, thank you to our witnesses for joining
    us today to discuss the CARES Act oversight and our pandemic
    response. From when we passed the CARES Act until today, we
    have made remarkable progress. Our recovery has been
    impressive, especially compared to other countries, but it has
    been uneven and unequal as well. It is our job to fix that.
        Secretary Yellen, I represent a working-class, immigrant
    district, including many families with children. In fact, it's
    one of the youngest districts in the country. The stimulus
    checks and the child tax credit were vital in my community.
    That is why I have fought so hard to ensure that mixed-status
    families and Individual Taxpayer Identification Number (ITIN)
    holders are finally able to access these vital benefits in the
    American Rescue Plan. More than half of Latino children have at
    least one immigrant parent, and at least 90 percent of these
    children are U.S. citizens, meaning they are entitled to these
    benefits, but they often can't get them.
        The question for you--millions of ITINs expired at the end
    of last year, and the ITIN process is plagued by delays.
    Sometimes, the IRS holds onto original documents for months, a
    terrifying prospect for an immigrant family. What are Treasury
    and the IRS doing to streamline the application process for
    ITIN filers?
        Secretary Yellen. I can get back to you, or have my staff,
    with greater detail on this. But we have been trying to speed
    the delivery, for example, of the child tax payments to
    individuals who didn't file a return in either 2019 or 2020.
    Many ITINs may be in that category, and it has been an
    objective of our outreach to make sure that there are tools
    available to apply for those payments. We made an application
    available on mobile devices that is in Spanish as well, to try
    to make sure that they receive the payments they are entitled
    to, but I would be glad to get back to you with more detail on
    this.
        Mr. Garcia of Illinois. Thank you. I will take you up on
    that and follow up with you and your folks.
        Data shows that Latinos are less likely than Whites to
    report receiving monthly child tax credit payments. This is
    disturbing, since Latino children are more likely to live in
    poverty. What can Treasury and the IRS do to monitor the
    success of the tax credit in the Latino community and what can
    Congress do to ensure that the tax credit reaches everyone that
    is entitled to it?
        Secretary Yellen. I would just say that we have tried,
    through an extensive outreach program, and working with Members
    of Congress as well, to make sure that there is awareness,
    especially in low-income and minority communities of
    eligibility for these payments, especially the child tax
    payments. And it is a question of getting the world out and
    making sure that families know how to apply.
        Mr. Garcia of Illinois. And do you think that Members of
    Congress have any other role to help ensure that everyone who
    is eligible gets it?
        Secretary Yellen. We have asked Members of Congress to help
    us get the word out. The IRS has had an extensive outreach
    program, but certainly Members of Congress can help publicize
    the availability of these benefits in their districts.
        Mr. Garcia of Illinois. Thank you, Secretary. I look
    forward to following up with you and, of course, working
    together to ensure that these benefits reach every community in
    this country.
        Thank you, Madam Chairwoman. I yield back.
        Chairwoman Waters. Thank you.
        The gentleman from Missouri, Mr. Luetkemeyer, is now
    recognized for 5 minutes.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman.
        Chairman Powell, congratulations on your renomination. I
    look forward to working with you over your next 4 years.
        Also, Chairman Powell, the Fed oversees 753 financial
    institutions for compliance, with numerous measures related to
    the safety and soundness of the banking system. If one of those
    institutions chose to not follow a law passed by Congress or a
    rule the Fed promulgated, the Fed can take a myriad of
    enforcement actions including cease and desist orders, removal
    and prohibition orders, and monetary policies. In other words,
    if you break the law, there are consequences. Isn't that
    correct?
        Mr. Powell. That is correct.
        Mr. Luetkemeyer. Thank you. Secretary Yellen, do you
    believe the Fed should punish those entities when they decide
    not to follow the law? Do you believe that the Fed should
    punish those entities when they do not follow the law? Those
    banks, if they are not following the law?
        Secretary Yellen. Yes, if they don't follow the law.
        Mr. Luetkemeyer. Thank you. If you are going to hold the
    banks and society accountable to the law, shouldn't we also
    hold Cabinet members accountable when they do not follow the
    law?
        Secretary Yellen. Yes.
        Mr. Luetkemeyer. Thank you for that. Secretary Yellen, I am
    the ranking member of the House Small Business Committee, as
    you well know. The CARES Act put the Secretary of the Treasury
    in charge of the PPP program. You, by law, were supposed to
    show up by the end of April, April 23rd, which is now 222 days,
    over 7 months, and you will get to grace the threshold of that
    committee hearing room and give your report. Why do you
    continue to ignore and thumb your nose at the Small Business
    Committee and your job to adhere to the law, which you just
    said is important as a Cabinet member?
        Secretary Yellen. I believe that congressional oversight is
    very important, and that Congress and committees should be
    partners with us in serving the American people. I have, over
    the last 10 months, testified 12 times, and--
        Mr. Luetkemeyer. Madam Chairwoman, with all due respect,
    you are not answering my question. It is very specific. Yes,
    you have been able to accommodate every other committee on this
    Hill except the Small Business Committee, which you are
    required, by law, to show up to. Why are you not there?
        Secretary Yellen. Well, I--
        Mr. Luetkemeyer. Why are you not at the Small Business
    Committee?
        Secretary Yellen. --do have the ability to delegate
    responsibilities--
        Mr. Luetkemeyer. You have not delegated to anybody yet.
    There is nobody who has shown up for 222 days now, past--
        Secretary Yellen. I have offered my Deputy Treasury
    Secretary to testify before the committee, and--
        Mr. Luetkemeyer. Madam Secretary--
        Secretary Yellen. --that is something that I do have--
        Mr. Luetkemeyer. --reclaiming my time, with all due
    respect, you do not delegate an authority like that. You are
    required by law to show up. As you just said, multiple times,
    you have been to other hearings across the spectrum of the
    House and the Senate, and yet you refuse to come to the Small
    Business Committee. Is it beneath you to show up at our
    committee hearing, which is against the law, by the way?
        Secretary Yellen. --the Treasury has had, during the Biden
    Administration, essentially no role in the Paycheck Protection
    Program.
        Mr. Luetkemeyer. Well, that is a problem for the Biden
    Administration. That is not the problem of the--you should be
    doing your job.
        Secretary Yellen. It is the Small Business Administration
    that has responsibility--
        Mr. Luetkemeyer. No, it does not, Madam Secretary.
        Secretary Yellen. --for conducting--
        Mr. Luetkemeyer. Madam Secretary, with all due respect, it
    does not. The CARES Act gave the Secretary of the Treasury
    authority over that. I spent 2 or 3 weeks with the leadership
    team of this committee, working with Secretary Mnuchin, to put
    that plan together. It is in your purview. It is in your
    jurisdiction. It is your job to oversee that particular
    program, and it is your job to be able to report on it, as per
    the law. You just thumb your nose at the law over and over
    again. It can't continue.
        As you just said, there should be consequences to Cabinet
    members who do not follow the law. Amazing. It is breathtaking.
        I have about a minute left, so let me move on quickly here.
        Chairman Powell, I am very concerned about the continued
    investment in China by all of the folks in this country, the
    investment folks. To me, it falls under monetary policy, but I
    will see what your opinion is here.
        As we continue to throw more money in the economy, it seems
    like there is more money that is shifting over to China and
    investing in the Chinese bonds, they are investing in their
    companies, we are investing in their securities. Are you
    alarmed by this at all, by our investing in China and their
    economy, which would be competing against us and would have a
    direct impact on our economic ability to survive down the road?
        Mr. Powell. Representative Luetkemeyer, we really don't
    have a role in that. The SEC would have a role. If investors
    are investing in Chinese bonds and things like that, that would
    really be an issue for the SEC but not so much for us.
        Mr. Luetkemeyer. Are you concerned about it at all, the
    level of investment over there?
        Mr. Powell. I am mostly concerned about inflation and
    stable prices and maximum employment here at home.
        Mr. Luetkemeyer. Okay. Well, that investment, I think,
    would have a dramatic impact because of the money flowing in
    there versus it is flowing back here. To me, it would be able
    to set up our own supply chains over here to be able to be more
    helpful.
        Thank you very much. I yield back.
        Chairwoman Waters. Thank you very much.
        I would like to thank Secretary Yellen and Chair Powell 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.
        With that, this hearing is adjourned.
        [Whereupon, at 12:14 p.m., the hearing was adjourned.]

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