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





 
                        MONETARY POLICY AND THE

                          STATE OF THE ECONOMY

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

                             HYBRID HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 2, 2022

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-72
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 





                           ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
47-131PDF           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:
    March 2, 2022................................................     1
Appendix:
    March 2, 2022................................................    55

                               WITNESSES
                        Wednesday, March 2, 2022

Powell, Hon. Jerome H., Chair Pro Tempore, Board of Governors of 
  the Federal Reserve System.....................................     5

                                APPENDIX

Prepared statements:
    Powell, Hon. Jerome H........................................    56

              Additional Material Submitted for the Record

Powell, Hon. Jerome H.:
    Monetary Policy Report of the Board of Governors of the 
      Federal Reserve System, dated February 25, 2022............    60
    Written responses to questions for the record from 
      Representative Kustoff *(Responses were not received by 
      publication deadline.) ....................................   n/a
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................   133
    Written responses to questions for the record from 
      Representative Velazquez...................................   135


                        MONETARY POLICY AND THE

                          STATE OF THE ECONOMY

                              ----------                              


                        Wednesday, March 2, 2022

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Maloney, 
Velazquez, Sherman, Scott, Green, Perlmutter, Himes, Foster, 
Beatty, Vargas, Gottheimer, Lawson, San Nicolas, Axne, Casten, 
Torres, Lynch, Adams, Tlaib, Dean, 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, Timmons, 
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 to all Members, we will conclude today's 
hearing at 1:00 p.m.. Members who were unable to ask questions 
at our July hearing with Chair Pro Tempore Powell will be given 
priority to ask their questions today, and we will return to 
our normal order of recognition once those Members have asked 
their questions.
    Today's hearing is entitled, ``Monetary Policy and the 
State of the Economy.'' I now recognize myself for 4 minutes to 
give an opening statement.
    I want to start by reiterating that I join with President 
Biden and our allies in condemning Russia's shameful, 
premeditated, and unprovoked invasion of Ukraine. I stand in 
solidarity with the people of Ukraine.
    Chair Pro Tempore Powell, since the last time you testified 
in July 2021, the United States economy has continued to boom, 
and our recovery from the COVID-19 pandemic is strong. Since 
the beginning of the Biden Administration in January 2021, our 
economy added over 7 million jobs, a record in the first year 
of a new presidency. In addition, wages and salaries for 
workers grew by 4.5 percent in 2021, the highest level in close 
to 40 years.
    While these are encouraging figures, we have more work 
ahead. Families across the nation are facing higher prices 
because of inflation created not only by pandemic-related 
supply chain problems, but also giant corporations taking 
advantage of economic conditions to pass on higher prices to 
consumers.
    Importantly, housing is a key measure and driver of 
inflation. For too long, we have not addressed the shortfall in 
our housing supply, and this lack of supply is driving up 
prices. In 2021, the national median rent for an apartment 
jumped by almost 18 percent, and home prices rose by 17 
percent. These are the true drivers of inflation according to 
experts, despite repeated efforts on the part of Republicans to 
falsely blame pandemic relief and emergency stimulus as the 
primary cause.
    To address housing supply and other inflation drivers, the 
House passed the Build Back Better Act, and the America 
COMPETES Act, which make transformational investments, 
including $150 billion in equitable and affordable housing, as 
well as improvements to our supply chains.
    Regarding digital assets, the Federal Reserve recently 
released a paper seeking public feedback on a possible U.S. 
central bank digital currency, or CBDC, which would provide an 
alternative to volatile cryptocurrencies and benefit financial 
inclusion and promote national security.
    On the other side of that digital coin is a concern that 
pariah states like Russia may use foreign CBDCs to relieve the 
pressure of our carefully-coordinated multilateral sanctions. 
Leadership from the Fed on these issues is more important than 
ever.
    Lastly, I would note that for the first time, a Chair Pro 
Tempore of the Federal Reserve Board is testifying at this 
hearing. Senate Republicans have chosen to unilaterally block 
your confirmation, Chair Pro Tempore Powell, and the historic 
confirmation of diverse and highly-qualified nominees to the 
Board of Governors, leaving key leadership positions at the 
Federal Reserve vacant when it is tackling an array of economic 
issues, including those arising from Russia's invasion of 
Ukraine.
    This will undermine our recovery from the pandemic and 
place our economy and financial stability at risk. At a time of 
enormous economic uncertainty, rising prices, and geopolitical 
turmoil, the Fed's legitimacy is on the line. Now is not the 
moment for obstruction, delay, and gamesmanship. So, Chair Pro 
Tempore Powell, I look forward to your testimony this morning.
    I now recognize the ranking member of the committee, the 
gentleman from North Carolina, Mr. McHenry, for 4 minutes.
    Mr. McHenry. Chairman Powell, we appreciate you being here.
    And I say to the Chair of the committee that this is the 
House. The Senate does nominations. If we wish to have an 
opinion, and direct the Senate, we should go run for the 
Senate.
    We have the Fed Chair here at a time of unprecedented 
economic conditions and a war that is happening. I think we 
should stay focused on that.
    Chair Powell, thank you for your leadership. Thank you for 
your steady hand in your approach over this quite tumultuous 
first term of yours, and congratulations on your nomination and 
the expected confirmation of your second term.
    As we all know, the Financial Services Committee 
Republicans have offered and requested that the Biden 
Administration not approve the $17 billion in International 
Monetary Fund special drawing rights for Russia's reserves last 
year. My hope is that my Democrat colleagues will withdraw 
their support for $60 billion in additional reserves for Moscow 
in this year's omnibus that is being negotiated right now.
    We stand in a bipartisan way with the people of Ukraine, 
and we are grateful for their bravery, and we want to do 
everything in our power to assist and support them.
    Again, thank you, Chair Powell, for your leadership.
    America is facing the worst inflation we have seen in 4 
decades because of Democrats' reckless spending here on Capitol 
Hill. Instead of a course correction, House Democrats keep 
hoping the Senate will take up the $2 trillion in new spending 
through Build Back Better, or whatever they are going to call 
it. This would only make rising prices worse for families 
across the country.
    A Wharton budget model estimates that average American 
families spent $3,500 more last year to keep up with rising 
prices. Nowhere is this more evident than at the supermarket, 
where folks are seeing a 22 percent increase in grocery bills, 
according to a recent KPMG study. For a family of four, this 
could mean choosing between groceries they need, and saving for 
their child's education, their retirement, or even a home.
    The American people should not have to mortgage their 
future because of Democrats' love of more government spending 
to give them the illusion of prosperity in the moment. And 
despite what we heard from President Biden last night, simply 
telling people they are better off does not, in fact, make it 
true.
    However, I am pleased that the President sided with 
Republicans instead of Senator Elizabeth Warren, when he 
renominated you to Co-Chair the Federal Reserve. But as you 
know, Chair Powell, you have an enormous task ahead of you.
    As one of your predecessors famously said, the Fed's job is 
to take away the punch bowl just as the party starts to warm 
up. But the Democrats have drunk deeply, and they want to move 
on to the harder stuff. That is a risk for our economy. We 
can't let that happen.
    I was pleased to see the Fed reject the notion of personal 
accounts by the central bank. As we have seen recently in 
Canada, and their unprecedented use of emergency powers to 
freeze hundreds of bank accounts, we need to ask not just how 
financial authorities can be used, but also how they could 
potentially be abused. It is disturbing that some Democrats 
refuse to see this danger and may actually view it as an 
opportunity to rationalize more government involvement in 
Americans' everyday lives.
    And that is why I sent a letter to regulators today asking 
for clarity on what this disturbing move that we have seen in 
Canada could be--if anything to that accord could be done here 
in the United States and what we should do to prevent it. And I 
look forward to hearing their feedback.
    Again, Chair Powell, thank you for being here. These are 
unprecedented times that you are serving. Thank you for your 
steady hand and your leadership and your willingness to answer 
questions using language that most of us can understand.
    And with that, I yield back.
    Chairwoman Waters. Thank you, Ranking Member McHenry.
    I now recognize the gentleman from Connecticut, Mr. Himes, 
for 1 minute.
    Mr. Himes. Good morning, Chairman Powell.
    Mr. Chairman, probably the most effective tool we have 
deployed against Putin's outrageous attack on Ukraine is the 
sanctions on the Russian central bank and the freezing of 
Russian foreign reserves. Our ability to do so stems mostly 
from the dollar's preeminent position as the world's reserve 
currency.
    It is time--in fact, it is past time for all of us to lead 
on creating a regulatory environment in which we, rather than 
the world's despots, terrorists, and money launderers, benefit 
from the emergence of cryptocurrency, including a central bank 
digital currency.
    Mr. Chairman, one of the headlines on my news feed this 
morning reads, ``Russians turn to crypto amid increasing 
sanctions,'' as the chairwoman indicated. The subcommittee that 
I chair, and the full committee have done and will do hard work 
on this topic, but it is time for all of us to act.
    Mr. Chairman, I can't shake the image of 17th Century 
bankers sitting around London, unable to imagine that their 
gold pieces and copper plates could be replaced by these 
worthless pieces of paper. Let us not be those guys. Let us 
lead and not follow.
    Chairwoman Waters. I now recognize the gentleman from 
Kentucky, Mr. Barr, for 1 minute.
    Mr. Barr. Chairman Powell, thank you for being with us 
today.
    Inflation has hit a 4-decade high, with the Consumer Price 
Index (CPI) surging to 7.5 percent. Core inflation exceeds 5 
percent. The Producer Price Index (PPI) is now pushing 10 
percent. And recently-published inflation forecasts predict 
that the CPI will rise above 8 percent in the coming months.
    According to a study from the Wharton School, the average 
family spent $3,500 more for the same goods and services in 
2021 versus 2020. Tax and spend policies are largely to blame.
    Steven Rattner, former Counsel to the Treasury Secretary 
under President Obama, put it eloquently in a New York Times 
op-ed. He said the $2 trillion American Rescue Plan was, ``the 
original sin that contributed materially to today's inflation 
levels.''
    A potent cocktail of excessive government spending creating 
excess demand, combined with a hostile tax and regulatory 
environment for private enterprise, which has constrained 
supply, have together produced a toxic supply-demand mismatch, 
pushing prices up.
    Compounding these fiscal policy mistakes, the Fed pursued 
for too long an unconventional and overly-accommodative 
monetary policy, which has resulted in an inflation crisis that 
is hitting our constituents where it hurts. It is the clear 
that the Fed is not satisfying its price stability mandate.
    I look forward to hearing from you on the path forward to 
address the monetary policy side of this equation.
    I yield back.
    Chairwoman Waters. I want to welcome our distinguished 
witness today, the Honorable Jerome Powell, the Chair Pro 
Tempore of the Board of Governors of the Federal Reserve 
System.
    Without objection, your written statement will be made a 
part of the record.
    Chair Pro Tempore Powell, you are now recognized for an 
oral presentation of your testimony.

STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIR PRO TEMPORE, 
        BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Powell. Thank you.
    Chairwoman Waters, Ranking Member McHenry, and members of 
the committee, I am pleased to present the Federal Reserve's 
semi-annual Monetary Policy Report.
    Before I begin, let me briefly address Russia's attack on 
Ukraine. The conflict is causing tremendous hardship for the 
Ukrainian people. The implications for the U.S. economy are 
highly uncertain, and we will be monitoring the situation 
closely.
    At the Fed, we are strongly committed to achieving the 
monetary policy goals that Congress has given us: maximum 
employment; and price stability. We pursue these goals based 
solely on data and objective analysis, and we are committed to 
doing so in a clear and transparent manner so that the American 
people and their Representatives in Congress understand our 
policy actions and can hold us accountable. I will review the 
current economic situation before turning to monetary policy.
    Economic activity expanded at a robust 5.5 percent pace 
last year, reflecting progress on vaccinations and the 
reopening of the economy, fiscal and monetary policy support, 
and the healthy financial positions of households and 
businesses. The rapid spread of the omicron variant led to some 
slowing in economic activity early this year, but with cases 
having declined sharply since mid-January, the slowdown seems 
to have been brief.
    The labor market is extremely tight. Payroll employment 
rose by 6.7 million in 2021, and job gains were again robust in 
January. The unemployment rate declined substantially over the 
past year, and stood at 4 percent in January, reaching the 
median of FOMC participants' estimates of its longer run normal 
level. The improvements in labor market conditions have been 
widespread, including for workers at the lower end of the wage 
distribution, as well as for African Americans and Hispanics. 
Labor demand is very strong, and while labor force 
participation has ticked up, labor supply remains subdued. As a 
result, employers are having difficulties filling job openings. 
An unprecedented number of workers are quitting to take new 
jobs, and wages are rising at their fastest pace in many years.
    Inflation increased sharply last year and is now running 
well above our longer-run objective of 2 percent. Demand is 
strong, and bottlenecks and supply constraints are limiting how 
quickly production can respond. These supply disruptions have 
been larger and longer-lasting than anticipated, exacerbated by 
waves of the virus, and price increases are now spreading to a 
broader range of goods and services. We understand that high 
inflation imposes significant hardship, especially on those 
least able to meet the higher costs of essentials like food, 
housing, and transportation. We know that the best thing we can 
do to support a strong labor market is to promote a long 
expansion, and that is only possible in an environment of price 
stability.
    The Committee will continue to monitor incoming economic 
data and will adjust the stance of monetary policy as 
appropriate to manage risks that could impede the attainment of 
its goals. The Committee's assessments will take into account a 
wide range of information, including labor market conditions, 
inflation pressures and inflation expectations, and financial 
and international developments. We continue to expect inflation 
to decline over the course of the year, as supply constraints 
ease and demand moderates because of the waning effects of 
fiscal support and the removal of monetary policy 
accommodation. But we are attentive to the risks of potential 
further upward pressure on inflation expectations and inflation 
itself from a number of factors. We will use our policy tools 
as appropriate to prevent higher inflation from becoming 
entrenched while promoting a sustainable expansion and a strong 
labor market.
    Our monetary policy has been adapting to the evolving 
economic environment, and it will continue to do so. We have 
phased out our net asset purchases. With inflation well above 2 
percent, and a strong labor market, we expect it will be 
appropriate to raise the target range for the Federal funds 
rate at our meeting later this month.
    The process of removing policy accommodation in current 
circumstances will involve both increases in the target range 
of the Federal funds rate and reduction in the size of the 
Fed's balance sheet. As the Federal Open Market Committee 
(FOMC) noted in January, the Federal funds rate is our primary 
means of adjusting the stance of monetary policy. Reducing our 
balance sheet will commence after the process of raising 
interest rates has begun and will proceed in a predictable 
manner, primarily through adjustments to reinvestments.
    The near-term effects on the U.S. economy of the invasion 
of Ukraine, the ongoing war, the sanctions, and of events yet 
to come, remain highly uncertain. Making appropriate monetary 
policy in this environment requires a recognition that the 
economy evolves in unexpected ways, and we will need to be 
nimble in responding to incoming data and the evolving outlook.
    Maintaining the trust and confidence of the public is 
essential to our work. Last month, we finalized a comprehensive 
set of new ethics rules to substantially strengthen the 
investment restrictions on senior Federal Reserve officials. 
These new rules will guard against even the appearance of any 
conflict of interest. They are tough and best-in-class in 
government here and around the world.
    We understand that our actions affect communities, 
families, and businesses across the country. Everything we do 
is in service to our public mission. We at the Federal Reserve 
will do everything we can to achieve our maximum employment and 
price stability goals.
    Thank you. I look forward to your questions.
    [The prepared statement of Chair Pro Tempore Powell can be 
found on page 56 of the appendix.]
    Chairwoman Waters. Thank you very much.
    I now recognize myself for 5 minutes for questions.
    Chair Pro Tempore Powell, as you know, the Fed is required 
to conduct monetary policy in a manner that fulfills its dual 
mandate to promote maximum employment and stable prices. But as 
you have explained, most of the inflation we are experiencing 
right now can be traced back to supply chain issues related to 
the pandemic, and the Fed cannot directly affect supply-side 
conditions.
    These supply chain constraints seem likely to only 
significantly increase as Russia invades Ukraine and the full 
effect of our sanctions take hold. If the Fed's tools are 
mostly useful in stimulating or constraining demand, how can we 
expect monetary policy to rein in inflation that is largely 
driven by supply-side factors?
    Mr. Powell. Our policies really cannot, as you point out, 
affect supply-side conditions. Our policies affect demand.
    What we are facing now is an elevated level of demand in 
the face of supply-side constraints, and it is the collision of 
those two things that is creating inflation. There is an 
important job for us to move away from these very highly 
stimulative monetary policy settings to a more normal level of 
rates, and perhaps tighter at a time when inflation is highly 
elevated, and that is what the Committee plans to do.
    Chairwoman Waters. It seems clear that the Fed has limited 
tools to address inflation and that Congress has an important 
role to play. The Monetary Policy Report notes major shortages 
in housing supply as a factor in higher prices. If Congress 
were to make investments to alleviate these shortages, do you 
think this would be helpful in addressing inflation?
    Mr. Powell. Major investments in housing supply? I think 
housing prices are high for a number of reasons, actually: 
difficulty in getting lots; difficulty in getting materials; 
difficulty in finding workers; and very high demand. It has 
been extraordinarily high. Those are many of the features, and 
also low interest rates have made credit widely available.
    Mortgage rates are going up. That will probably begin to 
cool off demand. I wouldn't want to comment on congressional 
legislation, but I do think there is, no doubt, a role for 
Congress.
    Chairwoman Waters. I suppose I could conclude, without 
having you comment directly on fiscal policy, that you agree 
there are ways to manage inflation outside of monetary policy? 
It is not only monetary policy where others have a role to 
play?
    Mr. Powell. I do think that is right, but more in a sort of 
medium- or longer-term sense. The Fed does monetary policy, and 
inflation is largely a monetary phenomenon. And it is our tools 
that can be used to address inflation.
    Over time, of course, anything that expands the productive 
capacity of the United States over time would, in principle, 
make greater potential output and a less constraining economy.
    Chairwoman Waters. Fed forecasters expect that inflation 
will subside as supply chain disruption issues are resolved. 
However, housing and rent prices, as you have said, account for 
roughly one-third of the Consumer Price Index, and most 
economists do not expect the problem to be resolved as quickly 
as supply chain bottlenecks due to both the time it takes to 
develop housing and the lack of investment in housing that is 
affordable to low- and moderate-income families.
    Currently, there is a shortage of nearly 7 million rental 
homes that are affordable and available to America's lowest-
income renters and a shortage of more than 5 million homes for 
potential home buyers. In my district, there is a shortage of 
more than 34,000 rental homes that are affordable and available 
to the lowest-income families, while the State of California 
has a shortage of more than 962,000 affordable rental homes.
    If Congress does not make the investments to increase 
supply and access to the affordable homes in this country, how 
concerned are you that the Fed will not be able to contain 
inflation?
    Mr. Powell. You are right that housing inflation is a 
significant part of the CPI. We also look more prominently at 
personal consumption expenditure (PCE), which is a different 
measure, and it is something less than that.
    And unlike these temporary supply-side constraints that we 
see, housing inflation really is much more of an indicator of 
the tightness of the economy rather than supply-side problems. 
So, it is something we watch carefully, along with wages, 
frankly, and it is a major contributor to inflation. As I 
mentioned, higher interest rates do--housing is a very 
interest-sensitive sector, and higher interest rates, really 
interest rates that move back toward a more normal level should 
act to cool off the housing market over time.
    Chairwoman Waters. Thank you.
    The gentleman from North Carolina, Mr. McHenry, who is the 
ranking member of the committee, is now recognized for 5 
minutes.
    Mr. McHenry. Thank you, Madam Chairwoman.
    Chairman Powell, thank you for your leadership in 
tumultuous times, and this is certainly interesting times 
internationally, challenging times internationally.
    Everyone else on the Federal Open Market Committee (FOMC), 
it seems, has opined about the March meeting. Everyone, whether 
it is a tweet or an interview or anything else. What are your 
thoughts going into the March meeting?
    Mr. Powell. The March meeting. Okay. Here is how I am 
thinking about the March meeting, and I guess I would start, of 
course, with the U.S. economy, which is very strong. The labor 
market is extremely tight, and inflation is running well above 
target.
    The way we think about our work is we develop working plans 
for making adjustments to monetary policy over the course of 
the coming months, and then we are flexible as plans meet the 
real world. We are never on autopilot, obviously, and at a time 
like this, what we aim to do is to lay out our principles, and 
then, with whatever clarity we do have, proceed to implement 
them, those policies, carefully and nimbly.
    Coming into this meeting, let us say before the Ukraine 
invasion, the Committee was set to raise our policy rate, the 
first of what was to be a series of raises expected for this 
year. Every meeting was live. Decisions would be based on 
incoming data and the evolving outlook.
    I also expected we would make great progress on our plan to 
begin to shrink the balance sheet. So, the question now really 
is how the invasion of Ukraine, the ongoing war, and the 
response from nations around the world, including sanctions, 
may have changed that expectation. And it is too soon to say 
for sure, but for now, I would say that we will proceed 
carefully along the lines of that plan.
    The thing is, the economic effects of these events are 
highly uncertain. So far, we have seen energy prices move up 
further, and those increases will move through the economy and 
push up headline inflation, and also they are going to weigh on 
spending. We are seeing effects on other commodities and 
perhaps from declining risk sentiment and weaker growth abroad.
    The thing is we can't know how large or persistent those 
effects will be. That simply depends on events to come. This is 
where that leaves me. I do think it will be appropriate to 
raise our target range for the Federal funds rate at the March 
meeting in a couple of weeks, and I am inclined to propose and 
support a 25-basis point rate hike.
    We are also going to write down our new summary of economic 
projection individual forecasts, which will show each 
participant's views of the path forward in the economy and with 
rates. I also expect that at this meeting, we will make good 
progress toward an agreement on a plan to shrink the balance 
sheet. We will not finalize that plan at this meeting. We will 
do that when we think the time is right at a coming meeting.
    The bottom line is that we will proceed, but we will 
proceed carefully as we learn more about the implications of 
the Ukraine war for the economy. We use our tools to support 
financial stability and macroeconomic stability. We are going 
to avoid adding uncertainty to what is already an 
extraordinarily challenging and uncertain moment.
    That is how I would think about it.
    Mr. McHenry. That is very specific. You mentioned 25 basis 
points. From all of the analysis about what the Fed will do 
over the course of the next year, is 25 basis points the floor, 
or the ceiling? Is it the speed limit? Is that the max you 
think that the Fed could take on? How do you think of that?
    Mr. Powell. Here is how I think about that. We have an 
expectation, those of us on the Committee have an expectation 
that inflation will peak and begin to come down this year. And 
to the extent inflation comes in higher or is more persistently 
high than that, then we would be prepared to move more 
aggressively by raising the Federal funds rate by more than 25 
basis points at a meeting or meetings.
    Mr. McHenry. You mentioned the balance sheet, a plan for 
the balance sheet, and that is to come. But what I am hearing 
clearly from you is that the Fed is very interested in 
financial stability, given what is happening, and you are 
willing to make quick decisions on a question of liquidity, on 
a question of market stability, those important works that you 
have focused on as Fed Chair.
    And it is actually substantial news for the House to be the 
first, rather than the Senate, to break news. So, thank you for 
being so forthright about your views on this.
    And with that, Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from California, Mr. Vargas, is recognized 
for 5 minutes.
    Mr. Vargas. Thank you very much, Chairwoman Waters, and 
Ranking Member McHenry, for holding this hearing.
    And Chairman Powell, thank you very much for being here 
with us once again.
    As we look at the unprovoked criminal Russian invasion of 
Ukraine, one of the most notable national security responses 
has been the President's recent announcement to cut off much of 
the Russian financial sector from SWIFT financial services. Our 
EU partners have also joined us and excluded seven Russian 
banks from SWIFT.
    Chairman Powell, what practical effects would this have on 
Russia, its economy, its financial sector, and its people?
    Mr. Powell. Thank you.
    I should point out that the Fed does not impose sanctions 
on other countries that we--in this process of developing 
sanctions, we are not a principal. That is really a job for the 
Administration, particularly the Treasury Department. We 
provide technical background support and things like that, but 
I think questions about sanctions and their effects generally 
would be more for the Administration and the Treasury 
Secretary.
    I will just add, though, that the effects of the sanctions 
so far appear to have been significant.
    Mr. Vargas. Yes. We saw what happened to the ruble. We saw 
what happened to the market. The market is still closed. Is 
cryptocurrency a way around it for them? Could you talk a 
little bit about that?
    I know it is a little bit out of your bailiwick. But as you 
said, these are interesting moments in time. We haven't had to 
face this since really World War II. And even all of the 
comments that you made about inflation and watching the market, 
so much of it is tied to obviously what the Russians are doing 
with respect to their unwarranted and criminal acts there in 
Ukraine.
    Mr. Powell. I don't have any private information on the 
extent to which that is happening, but that is something you 
read about and hear about. And I just think it underscores the 
need really for congressional action on digital finance, 
including cryptocurrencies.
    We have this burgeoning industry, which has many, many 
parts to it. And there isn't in place the kind of regulatory 
framework that needs to be there. It was probably no different 
with railroads or telephones or the Internet. Ultimately, what 
is needed is a framework and, in particular, ways to prevent 
these unbacked cryptocurrencies from serving as a vehicle for 
terrorist finance and just general criminal behavior, tax 
avoidance and the like.
    I guess that is what I would say there. I don't really know 
the extent to which it is happening, although you do hear that 
and read it in the paper.
    Mr. Vargas. It seems like an out for them. Since we did go 
down this road, could you comment a little bit about a central 
bank digital currency? It seems like that would be something 
that would be helpful in situations like this.
    Mr. Powell. Yes. We issued a paper. After much thought and 
many drafts, we issued a paper, was it late last year? I guess 
it was late last year, seeking public comment on the costs and 
benefits of a potential central bank digital currency issued by 
the Federal Reserve here in the United States, digital dollars. 
And we await--I think we gave an extended comment period, and 
we very much look forward to reading those comments.
    This will be something in which we invest a fair amount of 
time and expertise and hiring people and things like that to 
try to get it right, but also to understand whether the 
benefits actually outweigh the costs, which I think is an 
unanswered question, both here and around the world. 
Nonetheless, it is our obligation to move vigorously to 
understand the answers to that question so that we can deploy a 
central bank digital currency if it is appropriate.
    So would it, in principle? It depends on why people are 
using unbacked digital currencies. If they are using them to 
evade visibility and evade the law, then for us just to have a 
law-abiding CBDC won't change that. They will still be able to 
use those currencies for that matter.
    The existing digital currencies that, again, are not backed 
are really vehicles for speculation. They are not used in 
payments. They are not a store of value. They are a 
speculation, like gold. That is what they are used for. 
Whereas, potentially, a U.S. CBDC would have a wider view.
    I do want to stress that we have not decided to do it, but 
we do understand our obligation is to really get to the bottom 
of it and to understand both the technical and the policy 
issues that need to be answered.
    Mr. Vargas. Thank you, and I know my time is about up. I 
would just say, from your lips to God's ears. I hope that 
inflation does peak this year and does come down because people 
are hurting.
    And thank you very much again for your steady stewardship. 
We appreciate it.
    Mr. Powell. Thank you.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from Missouri, Mrs. Wagner, is now 
recognized for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman.
    Welcome, Chair Powell. It is good to see you in the chair. 
We appreciate your time and service.
    Chair Powell, since the last FOMC meeting in January, the 
global economy has become markedly more complex. Russia's 
unprovoked and unwarranted invasion of Ukraine has led to a 
very steep increase in the price of energy. As of this morning, 
when I checked, a barrel of crude oil was priced at $112 per 
barrel, and this steep increase in the price of energy risks 
pushing U.S. inflation potentially even higher.
    You have touched on this a little bit, but how does the war 
in Ukraine affect your thinking as you prepare for the next 
FOMC meeting?
    Mr. Powell. I think the first thing again to say is that 
the ultimate economic effects of the war and all of the 
sanctions and events yet to come are just very highly 
uncertain, and we need to understand that. And as I mentioned, 
I think it is appropriate for us to move ahead. Inflation is 
too high. The Committee is committed to using our tools to 
bring it back down to levels of price stability, which is to 
say 2 percent inflation.
    But I would also say that given the current situation, we 
need to move carefully, and we will. And we will be nimble. We 
will be looking at the situation as it evolves. And again, we 
will use our tools to add to financial stability, not to create 
uncertainty.
    Mrs. Wagner. So, at this point in time, you don't think 
that it significantly alters your expectations for the rate 
increases that you have discussed this year?
    Mr. Powell. I don't think that is knowable yet. What we do, 
what we like to do is to run alternative scenarios, and we have 
done some of that, as you would expect. And it is easy to find 
cases where it would affect it. But we don't know that yet. We 
honestly don't, and we will see.
    Mrs. Wagner. Thank you. Chair Powell, could you explain the 
role of the Federal Reserve in implementing U.S. sanctions on 
Russia, how you are working with the Office of Foreign Assets 
Control (OFAC), how this actually is implemented?
    Mr. Powell. Right. Sanctions are really designed by the 
Administration. They are a part of what the elected government 
does. We provide technical support.
    We implement those sanctions, or we make sure that the 
banks that we supervise and regulate, obey them. That is one 
thing that we do.
    We also consult. We have knowledge about financial markets 
and financial institutions. So, we are providing technical 
support, but we are not the decision-makers on those things. 
And honestly, these are decisions that are made at the level of 
the elected government, not at the level of the Fed.
    Mrs. Wagner. I know things are happening quickly and are 
real-time here, but what actions has the Fed taken to date 
since the invasion of Ukraine?
    Mr. Powell. I would say, first of all, since late last 
year, we have been on very high alert for cyber attacks. We 
haven't really seen any notable incidents about that yet. We 
are making sure that the banks we regulate and supervise are 
also on high alert. We communicate with the Reserve Banks, 
where there is a lot of expertise in these areas, and with 
other parts of the government. So, that is one thing that we 
have done.
    As I mentioned, we are in very close contact with the 
Treasury Department, as you would expect, between every central 
bank and every finance ministry around the world. But again, we 
are not the ones who design the sanctions.
    Mrs. Wagner. Okay. Cybersecurity is, certainly for this 
committee, and especially at the Fed, a top priority. I'm glad 
that you are watching it closely.
    Chair Powell, does our U.S. financial system have the 
necessary capital and liquidity to handle any economic fallout 
from this war? What kind of data will we be seeing?
    Mr. Powell. The evidence to me strongly suggests that the 
answer to that is yes. We just went through a rather enormous 
shock with the pandemic and the near closure of the global 
economy, and U.S. banks' capital levels are at multi-decade 
highs, as are liquidity levels. It is hard for me to look at 
that and say that a lack of capital is a threat at this point.
    There are certainly issues. Again, cyber for private 
financial institutions is a huge issue and one that they spend 
a great deal of time on, as do we.
    Mrs. Wagner. In 2015, the Obama Administration blocked the 
development of the Keystone XL pipeline, a decision reversed by 
the Trump Administration. Then, President Biden canceled the 
permits, again depriving the U.S. of over 800,000 barrels of 
oil a day. Wouldn't expanding the supply of oil by 800,000 
barrels a day reduce energy inflation and lower prices at the 
gas pump?
    Mr. Powell. We are not responsible for energy policy. That 
is a matter for Congress and the Administration. Of course, the 
laws of supply and demand do work.
    Mrs. Wagner. The laws of supply and demand do work.
    I yield back.
    Chairwoman Waters. The gentleman from Guam, Mr. San 
Nicolas, is now recognized for 5 minutes.
    Mr. San Nicolas. Thank you so much, Madam Chairwoman.
    Good morning, Chair Powell.
    And I would like to first recognize one of my senators all 
the way from Guam, Senator James Moylan. Thank you so much for 
making time to join us here today, Senator.
    [applause]
    Mr. Chairman, over the course of the uptick of inflation in 
the last year, you testified before the committee on multiple 
occasions that the Fed believed that the inflation the country 
was experiencing was transitory. And since that time, 
especially today, there is a seeming change in that tenor. 
Could you elaborate more on that?
    Mr. Powell. Sure. I would be glad to.
    I think very widely among macroeconomists and other central 
banks around the world, we looked at it as akin to an energy 
shock and a supply-side shock. And the textbook on monetary 
policy would have you look through that because a supply shock 
comes and goes, and by the time monetary policy is having its 
effect, which happens with long and variable lags, we think the 
supply shock is already gone.
    We looked at it that way. I think we expected to get 
relief, particularly going into last fall, I would say. We 
expected when schools reopened, vaccinations were raised, and 
kids were back in school, we expected the supply of labor to 
come in, that kind of thing. And it didn't happen.
    But it didn't happen because the supply-side constraints 
didn't ease. And it is not like, as a practical matter, what 
was wrong was not the theory, it was just in reality, the 
supply-side constraints have been much, much more durable and 
persistent than we had expected.
    We knew that we could be wrong, and I always thought we 
could pivot pretty quickly and catch up, and we started to 
pivot in the middle of last year and then pivoted hard at the 
end of the year.
    But in the meantime, the economy was really healing 
incredibly quickly over the second half of last year. Record 
job growth and record declines in unemployment, and record 
tightening in the labor market. We know that what our job is 
now, which is to move away from these highly-accommodative 
settings to more appropriate settings given the very hot nature 
of the labor market and the level of inflation.
    Mr. San Nicolas. There is chatter, Mr. Chairman, public 
chatter that the intensity of inflation that we are dealing 
with today is a reflection of the Fed not taking policy action 
soon enough, and not taking enough policy action. And there is 
public chatter that that causes the Fed's credibility to come 
into question as to whether or not it is acting responsibly and 
appropriately with the datasets that are coming in.
    And I bring this up, Mr. Chairman, because we have a duty 
to the American people to be able to raise these questions, as 
pointed as they are, and to give individuals such as yourself 
an opportunity to really speak to the credibility question that 
is out there in the community. So, if you could elaborate 
further on that?
    Mr. Powell. Sure. It is for others to judge many of the 
things you mentioned, and we understand that. But starting in 
December, at our December meeting, we began talking about 
significantly more rate increases. The market took us very much 
at our word.
    And as this year has gone on, market participants do appear 
to be reacting what I would call appropriately to our 
assessment, our ongoing assessment and reassessment of what is 
appropriate. And I will just assure you and everyone that we 
are committed to achieving price stability. We will use our 
tools to achieve price stability.
    Really, that is an essential bedrock element of everything 
else we want to achieve in the economy, including a strong 
labor market.
    Mr. San Nicolas. When we faced the financial crisis in 
2008, a lot of lessons were learned about the need for the Fed 
to be more responsive to the liquidity traps that could take us 
by surprise. Given the circumstances we are dealing with today, 
and the frustrations that the American people are facing, can 
you share with us any lessons that the Fed has learned with 
respect to its responsiveness to the inflation that we have 
been dealing with over the past 12 to 18 months, and the 
intense inflation that we are dealing with today?
    Mr. Powell. The inflation that we are experiencing is 
nothing like anything we have experienced in decades. It is 
higher, of course, much higher than anything we have seen since 
I was much younger. But not only that, it is different. It is 
coming from the goods sector. The goods sector has been a 
source of disinflation for a quarter of a century because so 
many goods, so many manufactured goods have been manufactured--
    Mr. San Nicolas. But just specifically, Mr. Chairman--
reclaiming my time--what specific lessons has the Fed learned 
from the outcome that we are dealing with today?
    Mr. Powell. We are still living through it. So, the main 
focus we have is not on doing a retrospective. It is on 
conducting policy appropriately to return us to price stability 
while also sustaining the expansion.
    Chairwoman Waters. The gentleman's time has expired. The 
gentleman from Georgia, Mr. Loudermilk, is now recognized for 5 
minutes.
    Mr. Loudermilk. Thank you, Madam Chairwoman.
    And Chairman Powell, thank you for being here, and 
congratulations on your nomination to continue your job for a 
second term. I think it is well-deserved.
    Before I get to my questions, I want to hold up something 
here. This is a Ukrainian dollar. It is a hryvnia. I kept some 
of these when I was in Ukraine several years ago doing some 
ministry work, and I think it is interesting to think that what 
happens in the next few days may determine whether this is 
another defunct piece of currency and the nation returns to a 
ruble, or will this maintain some of its value?
    But as you look at it, you can see it is a fraction, 
physically a fraction of the size of the U.S. dollar. It takes 
about 30 of these hryvnias to match a U.S. dollar, but when you 
look at values, our dollar has decreased in value, as you have 
mentioned, due to inflation.
    Now a year ago when you testified before this committee, I 
asked what your outlook was for the economy, and you said you 
expected economic growth to be strong for the rest of 2021. But 
at that time, I warned that the $2 trillion stimulus bill that 
was making its way through Congress at that time was 
unnecessary and far too big, given that the economy was already 
recovering. And lo and behold, these predictions came true.
    In your opening statement, you mentioned that you didn't 
expect inflation to continue at the rate it is right now. But I 
also recall that throughout 2021, we heard that inflation was 
slight. It was going to be temporary. But I also understand 
that prediction probably didn't include the actions and the 
roles that Congress had, as you had said.
    According to a report from the Federal Reserve Bank of San 
Francisco, because the American Rescue Plan was so extremely 
large and was passed when the economy was already recovering, 
this was a significant contributing factor to inflation. Do you 
agree with that report, that our reckless spending is a 
contributing factor to our inflation?
    Mr. Powell. Really, I wouldn't like to comment on any 
particular law, but I will say this. All of the things that we 
did after the pandemic were--we turned our dials as hard as we 
could. So did you, with the CARES Act. And the economy did 
benefit from that. We have the strongest economy in the world 
now.
    But part of that, no doubt part of what we did and what 
Congress did, without naming any particular laws, is also part 
of the reason why inflation is high now.
    Mr. Loudermilk. Right. There are multiple contributing 
factors to that, and the reckless spending, which devalues our 
dollar, is one of those. And what we heard last night was that 
there is not going to be a change in the direction this 
Congress is going or the White House. It sounds like we are 
just going to repeat the same mistakes we made in 2021.
    I know that you have the tools for adjusting the interest 
rate. You mentioned increasing 25 basis points, and you 
mentioned that it may be necessary to go higher. I understand 
that. Do you still think that inflation will be temporary, and 
I believe that you said it would be short-lived going forward 
because of resolving our supply chain issues?
    But since there are other contributing factors to that, are 
you anticipating that Congress or the Administration will undo 
some of the failed policies, such as the spending policies and 
the suppressing of America's energy supply, which has been a 
significant contributing factor?
    Let me rephrase that. If Congress and the White House do 
not change the policies of 2021 and continue down that same 
path, do you still believe that inflation will stabilize, that 
price stabilization will come this year?
    Mr. Powell. First, we have had this expectation, as you all 
know, for more than a year, and it hasn't actually come true. 
So, we are humble about the fact that we can't really call with 
any confidence the turn. But it does seem that this year will 
be withdrawing policy accommodation. Actually, a lot of the 
fiscal policy spending has happened now, and so the impetus to 
growth will be declining and, in fact, negative from fiscal 
policy as it stands now.
    And just the natural improvement of supply chains and labor 
supply and things like that, those are the things we are 
looking to for relief on inflation, that we are hoping for, but 
it's very difficult to say when they will happen. And our job 
is to achieve price stability one way or the other.
    Mr. Loudermilk. Okay. I see I am running out of time. I 
have several other questions, but I will submit those for the 
record, and I yield back, Madam Chairwoman.
    Chairwoman Waters. Thank you.
    The gentleman from Illinois, Mr. Garcia, is now recognized 
for 5 minutes.
    Mr. Garcia of Illinois. Thank you, Chairwoman Waters, and 
Ranking Member McHenry, for this hearing, and thank you to 
Chair Pro Tempore Powell for joining us.
    It has been a challenging year. Rising prices at the gas 
pump and supermarket cause real distress to working-class 
families like my neighbors in Chicagoland, and the improvement 
in employment and wages is real, but not nearly enough.
    My constituents saw a decade of stagnation after the last 
recession. Working-class Latinos and immigrants like my 
neighbors are always hard hit. We simply can't afford that 
again.
    Chair Powell, you have said that inflation has been driven 
by bottlenecks in the supply chain, and last night, President 
Biden highlighted their role in corporate concentration and 
price increases. I will note that CEOs from Kimberly-Clark to 
Tyson Foods had bragged to investors about their power to raise 
prices without facing competition. And last night, President 
Biden said, ``Lower your costs, not your wages.'' And my 
constituents were glad to hear that.
    Mr. Chairman, can you explain how raising interest rates 
will lower prices for diapers or chicken? Last time, it was 
because my neighbors lost their jobs and couldn't buy diapers 
or chicken. Is that the idea?
    Mr. Powell. The idea is that right now, the Federal funds 
rate is still set close to zero, and that is a very stimulative 
level. I think it is 8 basis points today. That is not an 
appropriate level, we think, going forward. We think it is 
appropriate that we engage in a series of rate increases over 
the course of this year and also let our balance sheet shrink.
    And what will happen then over time is that demand will 
moderate as interest rates get into the economy over time, and 
these annual price increases in everything where prices are 
going up will moderate as well. That is how it has always 
worked with interest rates.
    We don't do competition policy. So, I can't really comment 
on that part of it, but I will say that is how we think about 
inflation and that is how we use our tools to get inflation 
under control.
    Mr. Garcia of Illinois. Changing gears, we discussed 
corporate concentration, and last July, the President issued an 
Executive Order on competition that encouraged the Fed and 
other regulators to increase their scrutiny of bank mergers. It 
has been a long time since regulators blocked a bank merger, 
even an acquisition by a global systemically important bank 
(GSIB) in 2020.
    Chairman Powell, do you think it is appropriate to issue a 
moratorium on pending mergers while the Fed updates its 
framework for their review?
    Mr. Powell. I think we have a statute that Congress has 
passed that gives us the rules for evaluating potential 
acquisitions and mergers by banks. I think we have a widely-
developed framework for that work, and we are continuing to 
implement that.
    Any changes that would come would either come through 
legislation or through new personnel at the Fed, neither of 
which we have right now.
    Mr. Garcia of Illinois. As we learned from Wells Fargo, 
frontline bank workers are an important resource for 
regulators. They see firsthand how banks implement or ignore 
internal controls, and they can identify problems as they 
develop. Incorporating frontline workers' voices in our banking 
regulatory system would improve the information we have and 
diversify the voices that get heard.
    Chairman Powell, would the Fed commit to adding bank 
workers to your various advisory councils? Why or why not?
    Mr. Powell. That's a very interesting question. We do have 
quite a diverse group of people on our various advisory 
councils, including people who are representatives of workers.
    I don't know that we have outside councils who advise us on 
bank supervision, per se. But we do always seek out in all of 
our--in our Reserve Bank boards and also the advisory councils 
that we do have representation from labor and also from people 
who live and work and represent the interests of low- and 
moderate-income communities.
    Mr. Garcia of Illinois. Thank you. I would appreciate it if 
you would consider that.
    And Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Tennessee, Mr. Kustoff, is now 
recognized for 5 minutes.
    Mr. Kustoff. Thank you, Madam Chairwoman.
    And thank you, Chair Powell, for attending this morning.
    A lot of times, we look for historical references when we 
try to reference a current event. A number of people, a number 
of pundits, when they look at inflation today, reference it 
back historically to the late 1970s and the early 1980s. From 
your perspective, is that the proper historical reference to 
what we are experiencing today as it relates to inflation?
    Mr. Powell. That is the proper historical reference for 
what we are trying not to replicate. Obviously, all of us have 
looked carefully at the history of post-World War II inflation 
and business cycles and all that kind of thing. One of the 
things that is different now is that central banks, including 
the Fed, very squarely take responsibility for inflation. That 
was actually not the case in the 1970s.
    There was a school of thought that really there were 
certain things that an independent agency just couldn't do 
because it was too hard, and that Congress should do it. So 
now, I think central banks around the world have an inflation 
target. They have transparency so that they can be held to 
account for it. We are not waiting. We are using our tools now 
to--and that is really different than it was in the 1970s.
    Also, inflation expectations have been anchored for a long 
time. They really weren't then. They were allowed to become 
unanchored without much of a response. That would not happen in 
today's world, and it will not happen.
    Mr. Kustoff. A few weeks ago when the CPI number came out, 
I was on my way to a breakfast meeting in Jackson, Tennessee, 
which I represent, and one of my constituents and I, when we 
were talking about the new CPI number, he said, ``I don't care 
what the number is because I know that I am paying 50 percent 
more in gas than I did 12 and 18 months ago. I know I am paying 
20 to 25 percent more in grocery prices than I did a year ago. 
I know what the price of a new car and a used car is.''
    If you were me, if you were a Member of Congress, what 
would you tell your constituents about the rising costs, the 
expensive cost to just live today?
    Mr. Powell. Inflation is too high. We understand that, and 
we are working on it. It is going to take some time, but we are 
going to get it back under control.
    By the way, we are seeing this everywhere in the world. We 
are seeing it more in the United States because our economy is 
stronger, but we are seeing it everywhere in the world.
    Mr. Kustoff. Let me, if I can, follow up on a few questions 
that some of my colleagues asked about.
    Ranking Member McHenry asked you about the next meeting and 
your plans for the next Fed meeting, and I think you eloquently 
laid it out. But you also talked about the situation that has 
developed in Russia and Ukraine. My inference from your answer 
is that if Russia had not invaded Ukraine, the Fed would be 
more aggressive as it relates to the balance sheet and to rate 
hikes. Is that a proper inference?
    Mr. Powell. No, I think that remains to be seen. As I said, 
we are moving ahead at this meeting, it would be my 
expectation, in 2 weeks with a rate increase. And we are going 
to make progress on agreeing on a plan at this meeting to 
shrink the balance sheet, and I am confident we will.
    The question of when we implement that plan is not answered 
yet. I don't think that is clear at this point. That certainly 
is something that we can't answer now.
    Mr. Kustoff. Mr. Garcia referenced the President's State of 
the Union remarks last night. The President, when he talked 
about addressing inflation, said that we need to control costs. 
Did you hear him say that?
    Mr. Powell. I did not. I was too busy getting ready for 
this hearing. I did not watch it.
    Mr. Kustoff. I won't tell the President.
    Mr. Powell. I probably just did.
    Mr. Kustoff. When the President said he wants to control 
costs, or that businesses should control costs to address 
inflation, would you have any idea what he is talking about?
    Mr. Powell. I really can't comment.
    Mr. Kustoff. Fair enough. In a follow-up to questions from 
Congresswoman Wagner, she asked you about cyber. I know pre-
pandemic, pre-invasion, one thing that you said kept you up at 
night was a cyber attack. If Russia were to retaliate against 
the United States in some form of a cyber attack, what degree 
of confidence do you have in our nation's banks to thwart a 
cyber attack from Russia?
    Mr. Powell. What I can tell you is that everything that we 
can do to protect ourselves against cyber, we are doing it. The 
private large financial institutions are doing it, and they 
have been for some time.
    It is very hard to say what is possible to happen, but we 
are certainly on high alert, and we will continue to be.
    Chairwoman Waters. Thank you very much. The gentleman's 
time has expired.
    The gentlewoman from New York, Mrs. Maloney, who is also 
the Chair of the House Committee on Oversight and Reform, is 
now recognized for 5 minutes.
    Mrs. Maloney. Thank you. Thank you very much, Chairlady 
Waters, for your leadership and for calling this hearing.
    Mr. Powell, first, I want to say that at a time when we are 
still recovering economically from the COVID pandemic, and we 
are facing challenges at home and now in Ukraine, I think and I 
feel deeply that the Fed should not be subjected to political 
stunts in the Senate with boycotts by the Republicans, and the 
Senate should consider the pending Fed Board nominations as 
soon as possible.
    The Fed has an important job to do, and President Biden has 
put forward qualified nominees, and we need to get this done. 
That is just my main point.
    With that said, as you and I have discussed in the past, 
the economic recovery has not been even and we still have a 
ways to go to ensure our economy works for everyone.
    Just as one example, the Black unemployment rate remains at 
nearly 7 percent, which is more than double the White 
unemployment rate, and later today, the House Select 
Subcommittee on Coronavirus Crisis is having a hearing where we 
will be looking at the depth of the pandemic's impacts on child 
care providers and workers and the results that has on our 
families and our economies.
    I want to ask you about the monetary policy report the Fed 
released on Friday. The Fed notes that the labor force 
participation rate remains well below estimates of its longer-
run trend as a result of retirement and people out of the labor 
force and engaged in care giving activities.
    From both a macro perspective and a micro perspective, what 
does this drop in labor force participation mean for the U.S. 
economy and what does it mean for those workers who leave the 
workforce to care for their children or family members?
    Mr. Powell. Having a lower labor force participation rate 
now--it is a little more than a percentage point lower than it 
was--reflects a lot of retirements, and what it means is that 
our labor force is smaller. That has consequences, including 
contributing to the labor shortage that we are seeing across 
industries and all across the country. If we had a few million 
more people working, then we wouldn't be feeling that quite so 
much. It also means the potential output of the country is 
lower.
    Many of the people who are not in the labor force are 
retirees who have made a choice. But some of them are people 
who still want to come back, but perhaps can't, because of 
childcare activities or fear of COVID or other factors.
    In any case, the decline in the labor force participation 
that we have seen has been much larger than that of other 
comparable nations, and it was not something we expected, and 
it is certainly something that is now contributing to wage 
inflation and actual inflation and to the labor shortage that 
we are currently seeing.
    Mrs. Maloney. Thank you.
    It has been announced that as a result of the Ukraine war 
and other disagreements, Russia and China are now moving to 
trade completely in their currency, are no longer using the 
dollar, and Pakistan has flown in to meet with Russia. There is 
some talk that they may be part of it.
    What effect would that have on the U.S. economy if China 
and Russia no longer use the dollar in certain block trades 
around the world and with each other? What effect, if any, 
would it have on our economy?
    Mr. Powell. We do benefit from being the main reserve 
currency for the world, and that really is because we have open 
capital accounts and the rule of law, and we have inflation 
over a long period of time under control so that the dollar 
preserves its value.
    And so, our markets are the most liquid and it is the place 
where people want to be. Over time, the question is, if some 
want to move away from the dollar, what will be the effect on 
us?
    I don't think it is something you would feel right away. 
Over time, they would have to create an economic ecosystem 
whereby another currency becomes a better currency for them to 
use.
    What we can do is we can make the dollar the most 
attractive currency by continuing to have the rule of law and 
open capital accounts and make it an attractive place for 
people to invest and to use in their businesses.
    There wouldn't be any short-term effect of that. Over time, 
though, I suppose it would diminish our status as the reserve 
currency. It is also possible to have more than one large 
reserve currency, and there have been times when that was the 
case, so it is not really clear.
    Mrs. Maloney. Thank you. My time has expired. I yield back, 
Madam Chairwoman. Thank you.
    Chairwoman Waters. Thank you. The gentleman from Oklahoma, 
Mr. Lucas, is now recognized for 5 minutes.
    Mr. Lucas. Thank you, Madam Chairwoman.
    And to continue several points that a number of my 
colleagues have raised, as Putin's aggression in Ukraine has 
continued to escalate, the U.S. and its allies have responded 
in a unified voice to condemn Russia and apply economic 
pressure.
    Chairman Powell, could you discuss the difficulty of 
predicting what the implications will be of locking Russia out 
of SWIFT?
    Mr. Powell. Again, on sanctions, we are not the right folks 
to ask. We don't design them. We don't implement them. That 
would be, literally, a question for the Administration.
    Mr. Lucas. Let me word it this way: How sweeping do you 
foresee the ripple effects through the U.S. financial system? 
Is there an effect on us as those actions take place?
    Mr. Powell. With big actions like this, there may well be 
unintended and unexpected effects, and it's hard to say what 
those might be.
    In the economic sphere, not directly to your question, but 
we are seeing concerns over palladium and neon and corn and 
wheat--shortages of those, potentially.
    But it will be difficult to say exactly what the effects 
could be over time. The United States--our financial 
institutions and our economy do not have large interactions 
with the Russian economy. It is a relatively small thing and it 
has gotten smaller and smaller in recent years.
    So, there wouldn't be direct effects from these kinds of 
things on the U.S. economy. It is hard to say what the second-
order effects might be.
    Mr. Lucas. Thank you. You have answered my question.
    As Congresswoman Wagner touched on, the price of oil has 
continued to climb during the past year to its highest level in 
more than 7 years, and we now see international banks, 
appropriately, shunning Russian oil even without energy 
sanctions. Could you describe the range of different scenarios 
the Fed projections are playing in regard to this, and along 
with that, how do you see this potentially impacting the 
already-rampant inflation issues?
    Mr. Powell. Obviously, the price of oil depends on events 
that haven't occurred yet. It really depends on where this 
goes, going forward.
    We have seen prices move up, including just in the last 
couple of days, and they moved up quite substantially since--if 
you go back 3 months before this incident kind of began.
    Prices are up quite a bit. The effects are going to be 
passed through into gas prices, into lower economic activity, 
and into headline inflation, and the larger the increase, the 
larger the effect.
    But the question then will become, is that going to lead to 
repeated inflation increases at that time, and that is not 
necessarily the case, and, of course, we would use our tools to 
make sure that it is not the case.
    Mr. Lucas. And, of course, representing the constituency I 
do, which is both oil and gas production, and agriculture, we 
take very careful note of how those actions will affect world 
crude oil prices. And, of course, Ukraine being a very historic 
major grain producer, my wheat people also are prepared to step 
up and match that.
    But it all underscores, I suppose, the increase in energy 
production in the United States, and supporting policies that 
will not penalize or drive capital away from domestic oil and 
gas production.
    That is more of an editorial on my part, Mr. Chairman. But 
I note that we stand ready in this country to replace resources 
that may not be available or affordable for the rest of the 
world, and we just need a little incentive and encouragement 
from this side of the room to utilize those things.
    My last question in the time I have remaining is, the 
economy is currently operating in what I think we had all 
described as, at the very least, massive economic uncertainty. 
And when you deal with this 40-year inflation, and supply chain 
issues, and the COVID-related issues--and hopefully, we are in 
the final stage--can you elaborate on how critical it is for 
the health of the economic system to be reliable and to 
maintain liquid markets so we can navigate through whatever 
lies ahead of us?
    Mr. Powell. Yes. I would say our markets have been 
functioning well. There is a great deal of liquidity out there. 
Between our swap lines, and our repo facility with other 
foreign central banks, and our standing repo facility in the 
Treasury market, we have institutionalized liquidity provision, 
and I think just the knowledge that is there will help support 
good market function which, despite all this volatility, we 
still have.
    Mr. Lucas. Thank you, Mr. Chairman. I will yield back, 
Madam Chairwoman.
    Chairwoman Waters. Thank you. The gentlewoman from New 
York, Ms. Velazquez, who is also the Chair of the House 
Committee on Small Business, is now recognized for 5 minutes.
    Ms. Velazquez. Thank you, Chairwoman Waters.
    Chairman Powell, thank you for being here today.
    Given what you said about the upcoming meeting in March, 
and the illegal invasion of Ukraine, how is the Fed 
coordinating with other central banks around the world and 
accounting for their actions when considering adjustments to 
interest rate policy here at home?
    Mr. Powell. We are in ongoing contact, it is fair to say, 
with our major central bank colleagues, and we actually have a 
meeting of all of them on Monday morning. It is a virtual 
meeting at 7 a.m. on Monday.
    It is something that we do regularly. That said, we conduct 
monetary policy to achieve domestic objectives, specifically, 
here in the United States, maximum employment and price 
stability, and that is what we use our tools for.
    But of course, foreign events are very much top of mind 
right now, and it is enormously helpful to understand the 
perspectives, particularly, of the Europeans who are so much 
closer physically to what is going on.
    So, that is an important channel for us.
    Ms. Velazquez. Thank you.
    And, Chair Powell, last week the Fed published its 2022 
Small Business Credit Survey. Among other things, the report 
found that small business applicants that used online lenders 
for their financing needs reported more challenges with their 
lenders than did applicants at other sources.
    The top challenges faced by borrowers from online lenders 
were high interest rates and unfavorable repayment terms. Can 
you explain the report's findings and what it could mean for 
small businesses that utilize online lenders to satisfy their 
financing needs?
    Mr. Powell. If I recall that survey, it did raise some 
interesting questions, and our people looked at it and actually 
saw differences in data gathering.
    It is not clear that the data in the two surveys was 
comparable. But I do think it raises interesting questions, and 
we will be happy to get back to your office on that.
    Ms. Velazquez. And it might raise some interesting 
questions where we, through legislation, could provide some 
relief and regulations so that small businesses are not 
shortchanged when it comes to the most important element for 
any small business: access to capital, affordable capital.
    Chair Powell, during public remarks last month, Acting 
Comptroller of the Currency Hsu stated that in the not-too-
distant future, the OCC, the Fed, and the FDIC will issue a 
joint notice of proposed rulemaking (NPR) to update the 
Community Reinvestment Act (CRA).
    Does the Fed also believe a joint NPR is possible, and when 
do you expect it to be released?
    Mr. Powell. Yes, we do. We think that will be ideal, and we 
are working very closely with the OCC and the FDIC to come up 
with a consensus notice of proposed rulemaking reflecting all 
of the comments that we got on our advance notice of proposed 
rulemaking (ANPR).
    I think the timing is soon. I wouldn't want to put a 
specific date, but I know that we are going back and forth and 
it feels like we are getting very close.
    Ms. Velazquez. Right. Thank you.
    And, Chair Powell, a note published by a Credit Suisse 
strategy over the weekend warns that a decision to exclude 
certain Russian banks from the SWIFT system, which I support, 
could result in missed payments and giant overdrafts with 
significant consequences for money markets, thereby forcing the 
Fed and other central banks to intervene to enhance liquidity 
to offset missed payments.
    Do you see this scenario as likely?
    Mr. Powell. No, I don't see that as likely. Of course, we 
always appreciate looking at different risk scenarios. But, 
again, given the relatively modest exposure that our banks have 
directly to Russia, and given the existing tools that we have 
to provide liquidity, I don't see that as a likely outcome.
    Ms. Velazquez. Okay. Thank you. I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Texas, Mr. Sessions, is now recognized 
for 5 minutes.
    Mr. Sessions. Madam Chairwoman, thank you very much.
    Chairman Powell, thank you for not only taking the time to 
join us today, but for your insights into monetary policy.
    The monetary policy report of February 25th, seemingly 
still hot off the press, brings about, I think, a good review 
of the Fed's analysis of where we are, and I know there is that 
temptation by Members of Congress to hold you accountable for 
things which are not within your purview.
    But on page 3 of your February 25, 2022, monetary report, 
you talk about special topics like low labor supply. Next, it 
goes to several other issues, and then, supply bottlenecks.
    As a Member of Congress from Texas, both of these are 
highlighted to me on a daily basis as I receive feedback. This 
is inflationary also.
    We have taken a bit of time with you to probe with you your 
ideas that, I think, you have handled professionally on behalf 
of yourself and the Fed--the issues related to energy.
    But the bottom line is, we can't get people back at work. 
We find that turns into a low labor supply and then we have 
bottlenecks. These are all hand in hand, glove in glove, 
together, in my opinion.
    I took a few minutes just now to look at the labor unions 
and teachers' unions. But let us move to the Federal 
Government. Where is the Federal Government in terms of their 
employees coming back to work now, according to the Office of 
Personnel Management (OPM)?
    Mr. Powell. I don't know. We are an independent agency. I 
will tell you where we are, which is we are in the middle of 
that process, probably closer to the beginning than the middle.
    Mr. Sessions. I know you are but, you see, if they don't 
come to work, then others don't come to work. So, I think your 
point and my point is well made.
    I believe that what we need is your robustness, not just 
your acumen, in these issues and your robustness within the 
Administration to actually let them know that for this report--
for monetary policy to be correct, that you believe inflation 
is a short-term meaningful hindrance on our economy.
    They, meaning the White House, are going to have to make 
policy. They are going to have to understand what caused this. 
And I think that this Administration, and I think the 
Democratic Party, and I think this Congress, have made friends 
with inflation to encourage it, and that if your 
prognostication is going to come forth that we end this 
inflation, we are going to have to have serious changes.
    Because right now in Texas, which has been relatively open, 
I don't see relief on the horizon, and I think that this 
Administration and this Congress have a lot to do with it.
    Without chastising you, I meant to help you. I would like 
for your voice in this Administration and within the halls of 
Congress, perhaps doors that are shut, for them to understand 
that they have actually made friends with and are continuing 
inflation, whether it be with teachers unions or whether it be 
with OPM, and we have to get serious about getting people back 
to work, because as you tap down the amount of money that is 
put in the economy, as that moves, we're going to have to 
correspondingly have people come to work who pay taxes that 
move the economy. Gross domestic product (GDP) is a term we 
used earlier today. It is shifting this big, massive task.
    I have almost a whole 30 seconds left. But I would like you 
to say to you that I would like for your voice of reason, of 
prosperity, a future, to come true as you would like.
    Did I ask you a question? Okay. I am going to support you. 
I am for you. How can we help you?
    Mr. Powell. Honestly, we have the tools and we will use 
them to get inflation under control.
    But to the extent we get help from the supply side, it will 
make that job so much easier. It is about labor force supply. 
It is really about supply constraints and shortages and that 
kind of thing.
    It is also about exogenous events, like a war, which will 
drive up the price of oil and gas, and that will get into 
prices, certainly, and we will make sure that it doesn't 
provoke a cycle of inflation.
    Mr. Sessions. This is what happens when you have to rely on 
other people for your food, cheese, and energy. Thank you very 
much, Mr. Chairman.
    Chairwoman Waters. Thank you, Mr. Sessions. You can help 
Mr. Powell by asking your friends on the Senate side to confirm 
his appointment.
    [laughter]
    Chairwoman Waters. The gentleman from Georgia, Mr. Scott, 
who is also the Chair of the House Agriculture Committee, is 
now recognized for 5 minutes.
    Mr. Scott. Chairman Powell, how are you?
    Mr. Powell. Fine, thank you. How are you, Mr. Scott?
    Mr. Scott. I want to sound the alarm here this morning, and 
I want you to listen to me, and I want the nation to, because I 
am the Chair of the House Agriculture Committee, and I am very 
worried about this turmoil over in Ukraine, and Russia's 
violent, illegal, and criminal actions that they are taking and 
the impact that this has on global trade and, most importantly, 
our own food security.
    We could very well be on the verge of a hunger crisis all 
over this world. I want to share with you, and with the nation, 
some research so that we can understand what this Ukraine-
Russia situation is causing.
    Today, Russia alone is producing more than two-thirds of 
the 20 million metric tons of fertilizer used to grow corn and 
wheat around the world--one country producing 66 percent of the 
fertilizer that is needed.
    And when you combine Ukraine and Russia, these are also the 
two largest exporters of wheat, corn, and barley, producing a 
quarter of the world's wheat in these two countries, making 
this impact a crisis of soaring magnitude when you have this 
much, and these two countries are warring with each other.
    I want to sound the alarm on this. Chairman Powell, the 
disruptions and rising prices from these commodities will 
destabilize global food markets and threaten our food stability 
and social stability.
    My question to you, Chairman Powell, is to what extent 
could these developments create a financial stability risk here 
at home and abroad, and what must we do? We can go without a 
lot of things in this world, but the one thing we cannot go 
without is food.
    And when you have this much power on our food security for 
the world in the hands of these two countries warring each 
other at this time, what can you do about it?
    Mr. Powell. I think your point is very well taken and I 
think it is shipping, it is corn, it is wheat. As you pointed 
out, it is fertilizer, and we see that getting into food prices 
and into the food supply just in these early days after the 
sanctions that have been put in place in a war less than 2-
weeks-old now.
    The Fed doesn't really have the tools to address this. This 
is really a matter for Congress and the Administration, I 
think. But you are right to call attention to it, and I do 
think that it is understood that help will be needed here.
    Mr. Scott. I just want to say that we cannot allow the 
world to get into this desperate situation. So, I am giving 
this as sort of a Paul Revere moment here. I am not saying the 
British are coming, but I am saying the Russians are already at 
the door, and they could cause worldwide hunger, and I hope 
that free nations around the world can come together and 
realize that this is not just Ukraine's fight. It is our fight 
and we have to win this fight, and hopefully, we can get more 
of our nations to come together and end this situation in 
Ukraine and Russia before it causes, truly, a worldwide war.
    Chairwoman Waters. Thank you very much.
    The gentleman from Florida, Mr. Posey, is now recognized 
for 5 minutes.
    Mr. Posey. Thank you, Chairwoman Waters.
    Chair Powell, when your former Deputy, Mr. Quarles, came 
before the committee last May, I pointed out to him that just a 
week before, the April inflation rate had been recorded at 4.2 
percent, much higher since 2009. The rate in March of 2021 had 
been only 2.6 percent.
    I asked him if we were paying the price for monetizing a 
huge Federal debt, what the late Dr. Friedman and former 
Chairman Bernanke both called, ``helicopter money.'' Mr. 
Quarles told me that he didn't believe the Federal Reserve was 
monetizing the debt.
    Mr. Chairman, looking back a year, does the Fed continue to 
deny that it has been monetizing the debt, and do you believe 
that you should have acted before now to rein in the inflation, 
rather than let it now exceed 7.5 percent, the highest rate 
since 1952?
    Mr. Powell. I think by monetizing the debt, what that means 
is for the central bank to purchase the debt with the intention 
of holding it, and that is not the intention here.
    We are about to start shrinking the balance sheet and we 
will return the balance sheet to a size relative to our economy 
that it was before.
    Also, that is not at all our intention. We purchase longer-
term securities in order to drive down longer-term interest 
rates to support economic activity. I would also say that is 
not really what we think of as the source of inflation, 
admitting that inflation, proclaiming that inflation is far too 
high and that we are committed to using our tools to get it 
back down.
    It is really about very, very high demand, particularly in 
the goods sector, related to a spending shift that happened in 
the pandemic and supply constraints that we didn't foresee--
international supply chains, labor constraints, low labor force 
participation, right across the economy.
    It is a very different kind of inflation story than we have 
had in the past, but it is one that we have to deal with, and 
we will deal with it.
    Mr. Posey. Chair Powell, when you appeared before this 
committee in March of last year, and I asked you to clarify the 
purpose of the Federal Reserve collecting data and employing 
stress tests related to climate change, you assured us that the 
Federal Reserve would be collecting the information to help 
financial institutions learn about climate risk and wouldn't be 
using the information for regulatory purposes.
    In recent weeks, considerable controversy has emerged in 
the confirmation process to fill four vacant seats on the 
Federal Reserve Board. One of the nominees has a record of 
advocating for aggressive Federal Reserve regulation related to 
climate change, including actions that would regulate capital 
allocation away from fossil fuels.
    I won't ask you to comment on the confirmation process. But 
can you continue to assure us that the climate data--the stress 
test proposed by the Federal Reserve won't be used for 
regulatory purposes and driving investment away from 
traditional energy sources here?
    Mr. Powell. We call them climate stress scenarios, and we 
haven't--we are actually just building the capability to do 
this, and the idea is not to use them in the way that we use 
the traditional stress tests to set capital levels, in effect. 
The idea is more to allow financial institutions and also 
regulators to better understand the extent to which and the 
ways in which climate financial risks have any implications for 
the banks.
    That is the purpose of it. I will add, though, that we 
don't think it is our job to tell banks which legal companies 
they can and can't lend to, and I don't see that as an 
appropriate role for us.
    Mr. Posey. I am really glad to hear that. So, that is an 
absolute, unequivocal--a guaranteed answer that the data will 
not be used for regulatory purposes in any way whatsoever?
    Mr. Powell. I can just say that, first of all, we are not 
even doing the tests yet--those scenarios yet. But, certainly, 
that is not going to be their construct. They are going to be--
the construct will be what I said, which is to help us 
understand better, not to set capital or otherwise put on 
further regulatory requirements.
    Mr. Posey. Thank you so very much. I deeply, deeply 
appreciate that, and I yield back. Thank you.
    Chairwoman Waters. Thank you very much.
    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. Good morning, Mr. Powell. How are you?
    Mr. Powell. Fine. How are you?
    Mr. Perlmutter. I am good. And I just want to thank you. 
You have been getting picked on, on inflation. But I would like 
to start with chart one of your book. I always ask about your 
charts because I love them.
    And chart one shows a tremendous growth in employment, and 
chart two shows a tremendous drop in unemployment--the converse 
of it--and it has dropped from about 14 percent to 4 percent.
    Do you think that the Fed's monetary policy helped in 
reducing the unemployment rate?
    Mr. Powell. Yes, for sure.
    Mr. Perlmutter. Two years ago, we were going into a 
pandemic. You and I had a conversation about the potential for 
a worldwide recession of a magnitude we had never seen. Did we 
hit that? Did we get that recession?
    Mr. Powell. No, we didn't.
    Mr. Perlmutter. And you may recall, I am a bankruptcy 
lawyer, so I look at things kind of with a pessimist's eye. I 
expected many, many bankruptcies. Did we have those? Did we 
have the bankruptcies that we thought we might get?
    Mr. Powell. We sure didn't.
    Mr. Perlmutter. Do you have any idea how much the gross 
domestic product has grown in the last year?
    Mr. Powell. I want to say five point something percent.
    Mr. Perlmutter. It is actually more than that, and one of 
your charts has that--I think it is on page 23, chart 14. From 
2020 to now, it went from less than $17.5 trillion up to $20 
trillion. So, it is substantial, about 15 percent.
    Now, I don't think it is that much, but it is substantial. 
Did we expect that when we went into COVID?
    Mr. Powell. You mean since the trough?
    Mr. Perlmutter. Yes.
    Mr. Powell. I was just giving you the last year. As you 
know, we were looking at some really bad scenarios and hoping 
they wouldn't happen in the first half of 2020.
    Mr. Perlmutter. The Fed took some pretty dramatic actions, 
as did central banks around the world, did it not?
    Mr. Powell. Yes.
    Mr. Perlmutter. And the Congress, led by the Democrats, 
took some pretty substantial and dramatic steps, including the 
CARES Act, the American Rescue Plan, the infrastructure bill, 
to build a better America and to help us get out of what looked 
like it could be a tremendous recession.
    I could ask you, did it not, but I am not going to lead you 
in that one. But what I do want to talk about is the fact that 
despite the one flaw that Republicans can find, which is 
inflation, we have lower unemployment, and a bigger economy. Do 
you know how many other countries have higher inflation around 
the world than America? Sixty-four, according to trade 
economics inflation of country by country. This is a worldwide 
phenomena, is it not?
    Mr. Powell. Yes, it is.
    Mr. Perlmutter. I want you to take a look at a couple more 
of your charts, because I think these are probably the most 
important, and they are the median wage growth found in chart C 
on page 12, and the change in the price index for personal 
consumption found on page 13, diagram 8.
    According to your chart on page 12, the bottom order of 
wage earners have had their wages increase by almost 9 percent. 
Do you see that?
    Mr. Powell. Yes.
    Mr. Perlmutter. And the bottom, the next quarter, by 6\1/
2\, 7 percent. Do you see that?
    Mr. Powell. Yes, I do.
    Mr. Perlmutter. And then, you look over to the next page 
and we are running, I think you said, at about 5, 5\1/2\ 
percent inflation. So, wage earners in the bottom half are 
making more money than they are, potentially--if I do the math, 
they are making anywhere from 8, 9 percent against a 5 percent 
increase in costs. Now, it is not apples to apples. Wages are 
going up, are they not?
    Mr. Powell. Wages at the bottom, in the bottom quartile, 
have gone up in real terms. I do not think that is true for the 
second, third, and fourth quartiles, but it is true for the 
bottom quartile that their wages--nominal wages--have gone up 
more than inflation.
    Mr. Perlmutter. Okay. Last question, when you and I spoke 
at the beginning of this year--my time has expired, so I will 
ask it to you later on.
    And I thank you for your service, sir. I thank you for 
keeping us out of a recession. I think we built a better 
America by staying out of a recession. I yield back.
    Chairwoman Waters. Thank you so much.
    The gentleman from Ohio, Mr. Davidson, is now recognized 
for 5 minutes.
    Mr. Davidson. Thank you, Madam Chairwoman.
    And thank you, Chairman Powell, for coming here, and I also 
appreciate your book and the work and, frankly, just yet, 
again, I want to highlight the really heroic work that the 
Federal Reserve did to create stable markets, particularly in 
March and April of 2020.
    Since then, of course, there have been a lot of economic 
distortions, one of which is the ongoing inability of the 
Federal Reserve to stabilize its own balance sheet, which is 
now over $9 trillion.
    I appreciate Mr. Perlmutter highlighting some of the good 
news and, frankly, I am positive that he has previously 
operated a lemonade stand because he can always make something 
good out of the lemons.
    But the concern is that in the long term, this has come at 
the expense of sound money. Just over a year ago, I talked to 
you about sound money, and does the U.S. dollar represent sound 
money, because many of us anticipated that inflation was not 
transitory and that the quantity theory of money might have 
some impact on inflation.
    So, in light of the fact that we have seen substantial 
change in the rate of inflation now versus what was showing up 
then but was anticipated, do you still think that the U.S. 
dollar is sound money? And either way, what are the threats to 
the U.S. dollar as sound money?
    Mr. Powell. The U.S. dollar is sound money. Yes. The 
threats to the U.S. dollar as the reserve currency, really, in 
the near term are--to displace the U.S. dollar as the reserve 
currency, if that is your question, you need to be a very 
attractive place to hold large amounts of reserves.
    Mr. Davidson. It is really different than that because we 
are probably still going to be the reserve currency since the 
world grades on a curve, and frankly, the planet has never had 
this much debt since World War II.
    All of the countries around the world did similar things. 
We weren't even--the discipline of the Bretton Woods era was 
gold. I don't know that there is magic just in gold but there 
is magic and discipline.
    If you look at sound money being defined by a stable store 
of value, an efficient means of an exchange, and a trusted 
record of account, you have at least taken some things on store 
of value.
    And as you have seen people decide to filter transactions, 
and develop technology and regulatory frameworks that are 
intended to be able to filter transactions, it is not as 
trusted or efficient as a means of exchange or a record of 
account. And so, those kinds of things. Not so much, do we do 
okay on the curve, but is it truly sound?
    Mr. Powell. I am not sure I followed the last part. But I 
do think that--look, inflation is indisputably too high. We are 
using our tools to bring inflation back down to levels of price 
stability and we will accomplish that task.
    Longer-term, the U.S. dollar is easily the best currency 
and it is because of what I just said. It is also because of 
the rule of law and the fact that we are the incumbent, and as 
long as we observe the rule of law and keep the dollar 
relatively--keep inflation low and predictable, that will 
remain the reserve currency.
    Mr. Davidson. Okay. Thank you, Mr. Chairman.
    And, look, historically, there have been multiple reserve 
currencies and, generally, when something loses its status as a 
reserve currency, it is not just because of other things that 
unfold but it is because the value is debased. And we can come 
up with fancy words like modern monetary theory or quantitative 
easing or similar to quantitative easing but not really the 
same.
    When the Federal Reserve's balance sheet is growing, in a 
way, it represents the Fed as the lender of last resort. We are 
not constrained by the taxes we collect.
    We are not even constrained by the amount of money the 
world will lend us. We are constrained only by the will of 
Congress to not spend more, and what are you going to do, not 
cover the prolific spending by Congress?
    Moving on, just talking about the Fed's role, of course, 
stable prices is really only one component. The other is full 
employment.
    And I wonder if you think in light of Mr. Perlmutter's 
reference to chart 2, if chart 4, which is the labor force 
participation rate, trends the right way, and as you link to 
the next thing as a regulator, there is a lot of pressure for 
you to do ESG.
    What can the Fed do and what does Congress need to do to 
strike those balances?
    Mr. Powell. Relative to ESG?
    Mr. Davidson. And full employment.
    Mr. Powell. Well, full employment, I think, most members of 
the FOMC now think we are at labor market conditions that are 
consistent with maximum employment.
    Mr. Davidson. With 60 percent labor force participation? 
Sixty-two?
    Mr. Powell. The maximum employment can never be higher than 
the level that is consistent with price stability.
    Chairwoman Waters. The gentleman's time has expired.
    Mr. Powell. I think we are at that level, at least.
    Mr. Davidson. Thank you.
    Chairwoman Waters. The gentleman from Illinois, Mr. Foster, 
who is also the Chair of our Task Force on Artificial 
Intelligence, is now recognized for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman.
    And I would like to add to Representative Perlmutter's list 
of your triumphs, the record level of small business formation. 
And I think that when you try to preserve the very strong 
economic recovery, I realize you have a dual mandate, but keep 
an eye on that one, too. It is one of the most important 
successes we don't talk about enough.
    Do you remember the misery index?
    Mr. Powell. I do.
    Mr. Foster. Yes. And when unemployment drops from 14 
percent to 4 percent, so dropped by about 10 percent, and then 
the inflation goes from about 2 percent to 7 percent, so up by 
5 percent, does that mean the misery index is increased or 
decreased?
    Mr. Powell. It would be decreased.
    Mr. Foster. Thank you for that.
    You actually mentioned repeatedly that the inflation 
problem was, largely, one of goods and not so much one of 
demand, and also of labor shortage. Can you make any rough 
estimate of what fraction of the inflation we are seeing was 
due to sort of those three effects?
    Mr. Powell. I should be clear. Inflation is also too high 
in the service sector. I wouldn't want to oversell that. But 
the really big change has been in goods, which had negative 
inflation or close to zero inflation for 25 years.
    I don't have off the top of my head the ability to just 
tell you what the contribution of that is, but it is big, and 
it is a significant part of it. A lot of it also is energy, 
which is--
    Mr. Foster. Obviously, it's a worldwide problem.
    Mr. Powell. Yes.
    Mr. Foster. If you could get back to me with something a 
little more quantitative from your staff on that, I would just 
be--
    Mr. Powell. I would be glad to do that.
    Mr. Foster. --interested in knowing your estimate.
    Now, in terms of the labor shortage, back in the days when 
we had a different Senate, they passed comprehensive 
immigration reform that was then, of course, blocked by 
Republicans, and many studies at the time indicated it would be 
a huge positive for our economy to pass comprehensive 
immigration reform, and that was at a time which didn't have an 
extraordinarily-tight labor market.
    Is there anything you can think of that would invalidate 
those studies which showed that comprehensive immigration 
reform in both the low-skill and the high-skill sectors would 
be a huge plus if it was passed?
    Mr. Powell. If I can answer that this way, if you look back 
at the trend, let's say, 5 years ago, in that range of 
immigration--legal immigration--people coming in, and look 
where we are now, we are now several million people, many of 
whom would be in the workforce, short of that. So, lower 
immigration is definitely part of the story of the labor 
shortage. But that is what I would say.
    Mr. Foster. Is there anything quantitative you can say 
about the timescale for unwinding the balance sheet? Do you 
think of this in terms of a fixed timescale that we want to go 
back to normal in the next 2 years or 3 years? Or do you say we 
are going to take it down by 1 percent a month? Or do you 
anticipate some sort of feedback loop where we look at the 
taper tantrums or the equivalent and sort of adjust it as you 
go?
    Mr. Powell. The way we did it last time is we set a cap on 
the amount that will run off, and anything above that gets 
reinvested for both mortgage-backed securities (MBS) and for 
Treasuries. We haven't had that discussion at the Committee. We 
will have it in 2 weeks.
    But I guess it turns out that the level of the cap doesn't 
really matter that much for how long it takes. Something in the 
range of 3 years to get back to where you are trying to get to 
and the way we define is the end.
    We look at the size of the economy and the size of the 
banking system and we ask, what is the level of reserves that 
we will need at that point? And we set a course for that place, 
and then as we start to get close to it, we might slow down a 
little bit, as though it were an airplane, and that is the way 
it will work.
    But I think something in the range of 3 years to get back 
to what the balance sheet needs to be, which is basically 
reflective of the public's demand for our liabilities plus a 
buffer and what we call ample reserves.
    Mr. Foster. Yes. Do you have an estimate for how many hours 
of your life have been spent attempting to explain the 
difference between quantitative easing and monetizing the debt 
to Members of Congress?
    [laughter]
    Mr. Powell. No, sir.
    Mr. Foster. Okay.
    Now, one of the most valuable functions of that is to 
provide the emergency assistance to the financial systems of 
the free world and you mentioned that you stood ready. Are 
there specific things you are worried about in Eastern Europe, 
where the economies are more tightly tied to Russia, where you 
may really have to step in and get involved? Any specific 
worries?
    Mr. Powell. What we are watching is the global markets and 
the dollar funding market and we are seeing markets that are 
functioning, and, of course, we have tools and we have things 
in place to deal with stresses should they emerge.
    That is really what we are doing, and, as I mentioned, 
markets are functioning, so we haven't had to deploy any of 
those tools.
    Mr. Foster. Thank you.
    And my time is up. 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, and welcome, 
Chairman Powell. It's good to see you again.
    We are in the middle right here of a really disastrous 
situation with Ukraine, and part of the approach to corralling 
the Russian advance there is on the financial side. And it 
would appear to me that we probably didn't do this as quickly 
as we should have. It didn't look to me like we had a plan.
    If we really wanted to get involved financially, we should 
have been sitting here saying whenever--when they move the 
first battalion or regiment or whatever you want--amount of 
troops you want to talk about on the border we should sort of 
said something, well, okay, if you move another one there, we 
are going to start doing things to you. And we didn't do that 
until they started to invade, and then now, all of a sudden, we 
are playing catch up.
    That begs the question, we know that China is watching all 
of these actions very, very carefully. They are looking at what 
Russia does, how we react, what we do, how the rest of the 
world reacts, what they do.
    To me, we need to be sitting here as a country, as the Fed, 
as Members of Congress, saying, we need to be ready for the 
Chinese when they invade Taiwan, because I see no reason why 
they will not do that shortly.
    If we don't prepare for that, shame on us. My question to 
you is, are you beginning to think about what kind of actions 
you would take or support or suggest to the Administration, 
should China take over Taiwan or attempt to do that?
    Because this is going to be a completely different scenario 
because of the size of China, the size of the military, the 
size of Taiwan, versus getting into Eastern Europe. So, it is 
kind of a large question, but would you like to jump into it?
    Mr. Powell. Those questions are really questions that are 
dealt with at the National Security Council and the Defense 
Department and the intelligence agencies and the Treasury 
Department.
    We are interested students of all that, and we have our 
technical expertise that we can contribute. But honestly, we 
are not--
    Mr. Luetkemeyer. Mr. Chairman, I listened to you very 
carefully a while ago, and you made the comment that you are 
looking at making policy for anticipated situations in the 
coming months with regards to a number of things--what happens 
with the economy, what happens with inflation.
    So if you are not doing that--I understand you may not want 
to tell me today because that will be helping the Chinese who 
are probably watching this right now. I understand that.
    But just a sort of a wink and a nod to say, yes, we are 
looking at that would, certainly, be not--it will give us a 
level of comfort to know that we are not going to be behind the 
eight ball again.
    Mr. Powell. As I also mentioned, we do model alternative 
scenarios of various kinds and in fact, with every Tealbook, 
which is our document that we use at the FOMC, we run half a 
dozen of them in great detail. Our people study those and it 
helps them think about alternatives. So, I will just leave it 
at that, if I could.
    Mr. Luetkemeyer. Okay. Thank you. I will let you off the 
hook on that one.
    With regards to inflation, we have talked about it 
significantly here today, and I think sometimes that you are 
given way too much credit for it, and given way too much 
criticism for it. I think that there are a lot of things that 
are outside your control that happen that, basically, affect 
inflation, and you have to react to it.
    You don't make monetary policy on the Administration side. 
You don't make legislative policy for the legislative side. 
And, yet, you have to react to all of those things.
    I am the ranking member on the House Small Business 
Committee, and I had an economist come in to talk to our 
committee the other day, and I asked him to break down the 
different causes of inflation.
    And I said, let me identify, at least, what I think are 
four significant costs. One is money supply--the amount of 
money that is pumped in either through Fed actions or through 
our actions as Congress--regulations, supply chain/workforce 
situations, and energy.
    And he broke it down like this, and he had some charts and 
he started going off, and I said, just give me the percent. And 
he said, roughly 40 percent through the money supply--the money 
that goes in as a result of Fed actions or congressional 
actions, 1 percent is regulations, 20 percent supply chain, and 
20 percent energy.
    If you look at that--I know Mr. Foster a while ago was 
looking for some answers so, hopefully, I have helped him with 
his question--if you look at that, basically, you don't have a 
lot of control over regulations.
    You don't have a lot of control over supply chain and no 
control over energy policy, and money supply if Congress gets 
involved and passes these massive bills and throws a lot of 
money in there, you don't have control of that one either.
    So, the amount of control over this is just probably in the 
neighborhood of 20 to 40 percent at best. My concern is that 
when you say that you are trying to help things with inflation, 
it really balances--it goes back to the Administration and to 
us as Congress.
    The Administration, the first thing it did was to stop the 
pipeline, stop oil drilling, and prices went up, and that right 
there is 20 percent. So, it is important, I think, that we 
understand that. I would like for you to comment on that, if 
you would, just for a second.
    Mr. Powell. Sure. Yes, that's an interesting breakdown. We 
can continue this discussion. We would have a little different 
assessment.
    I would just say that we welcome--this is a lot about 
supply-side issues, and we welcome any help we can get on that, 
and we are looking for help from an improved supply side.
    Mr. Luetkemeyer. Okay.
    Chairwoman Waters. Thank you very much. The gentleman's 
time has expired.
    The gentleman from Florida, Mr. Lawson, is now recognized 
for 5 minutes.
    Mr. Lawson. Thank you, Madam Chairwoman.
    And Chairman Powell, welcome to the committee.
    Before I ask my question, I have a statement. They said one 
of the benefits of inflation is that you can live in a more 
expensive neighborhood without moving, and I thought that was a 
very interesting statement I was seeing--
    Mr. Powell. That is a good one.
    Mr. Lawson. --and I thought I would bring it to your 
attention.
    According to the recent analysis of branch closures by the 
National Community Reinvestment Coalition, between 2017 and 
2021, banks have closed as many as 7,000 branches across this 
country, one-third of which were in low- and moderate-income 
communities and neighborhoods of color.
    To what extent is the Fed considering these banks as it is 
contemplating reform to implementing and stressing the 
Community Reinvestment Act (CRA) and the importance of those 
banks' branches for a nearby community?
    Mr. Powell. I do think that is a focus of the CRA and also 
of the focus that we want to strengthen in our proposal that is 
out for comment. Actually, it is now--we have had the comments 
and we are getting ready to put out a notice of proposed 
rulemaking.
    But we do understand the importance of presence in the 
community and service to the community, and those things do go 
into our CRA assessments.
    Mr. Lawson. Okay.
    Mr. Powell, according to the latest forecast from Goldman 
Sachs and the Federal Reserve, which raised interest rates more 
than expected this year due to high inflation and the labor 
market approaching full employment, can you speak more on this? 
Should we expect the Fed to raise interest rates at all in the 
meeting this year, and what should we expect the Fed's main 
rates to be by the end of this year?
    Mr. Powell. Yes. The inflation is running well above our 
target. The labor market is extremely tight. The economy is 
growing strongly and our policy rate--we do expect to move our 
policy rate up in a series of rate increases this year, away 
from the very low setting that we put into place during the 
acute phase of the pandemic and to a more appropriate level, 
given the fast recovery and the strong recovery that the 
economy has had, and given the fact that inflation is running 
so far above our target.
    We do expect that will be appropriate. We have communicated 
that transparently and clearly, and markets have accepted it, 
and it is our plan to return to price stability while also 
supporting continued expansion.
    Mr. Lawson. Okay. I wanted to make sure that I understood 
the statement that was made earlier. With wages going up, as 
they say, and the bottom half are making more in earnings, do 
you think that we are in a better situation to deal with 
inflation now than we have been with inflation in the past?
    Mr. Powell. I think that this inflation is substantially 
higher than anything we have seen since I was in college 50 
years ago. This is strong and high inflation, and it is very 
important that we get on top of it and that is exactly what we 
are going to do.
    I would say this: The labor market is extremely strong. 
From that standpoint, I do think we are in a good place from 
the standpoint of trying to get inflation under control. 
Workers are still going to be getting good jobs and pay 
increases for some time.
    So, the economy is strong, and that means the economy can 
take the rate increases that we are going to be making. 
Ultimately, we need to get demand and supply back in alignment 
so that we can get inflation back to a more appropriate level.
    Mr. Lawson. Okay. Thank you, sir. And with that, I yield 
back, Madam Chairwoman.
    Chairwoman Waters. The gentleman from Michigan, Mr. 
Huizenga, is now recognized for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman, and Chair 
Powell, I appreciate this opportunity. I am actually going to 
pick up on what my colleague from Florida was just talking 
about, and add that to what my colleague from Missouri, next to 
me here, was talking about. And you may have said that the 40/
20/20/20 ratio that came from Douglas Holtz-Eakin, breaking 
that down to about 40 percent of inflation being tied to 
monetary policy and spending, 20 percent to regulations, 20 
percent to energy policy, and 20 percent to supply chain--you 
might disagree with that, is what you had said. But do you 
believe that spending has contributed to the situation that we 
are in now?
    Mr. Powell. I may have misunderstood what your colleague 
said.
    Mr. Huizenga. Madam Chairwoman, I ask that you suspend--I 
think Mr. Lawson still has his microphone on, and we are 
getting a little crosstalk, so if we can maybe add a few 
seconds back here?
    Chairwoman Waters. Okay. Is the gentleman muted now?
    Mr. Huizenga. Clearly, he is not.
    Chairwoman Waters. I think you can resume.
    Mr. Huizenga. Okay. I would ask that you have a light gavel 
at the end of my time here. I think we were having a little 
crosstalk, if we could go back on that.
    Chairwoman Waters. Yes.
    Mr. Powell. I may have misunderstood. I thought that the 40 
percent was money supply, but you made it sound more like 
monetary policy. Look, we can discuss those numbers, but that 
makes more sense to me.
    Mr. Huizenga. But the point being, has spending contributed 
to inflation?
    Mr. Powell. Yes. I think a number of factors have, 
including monetary policy.
    Mr. Huizenga. I would agree with that, and frankly, many of 
us have sort of warned or talked about this situation. We have 
record debt right now, previously without conflict. Now, war 
and rumors of war that we hope are not going to happen may even 
increase that debt. And I am afraid that our spending habits 
are putting you and all policy decision-makers in an even 
tighter box.
    Look, we all know that inflation is real. It is hitting, 
whether it is gas at $3.79 versus $2.74 a year ago, groceries, 
you name it, housing. And when you were here in July, I talked 
about the housing situation--my family is in construction--and 
what that means. And we can't just wave a magic wand and say, 
``Oh, we are going to lower prices.'' That just simply isn't 
realistic.
    But what I heard last night is that the President is 
acknowledging that people are living paycheck to paycheck, and 
he understands that, yet the message I keep hearing from the 
President and my friends on the other side of the aisle is that 
we need to spend even more. And I am concerned that is going to 
put us again into an even tighter box than we currently are, so 
if you care to touch on that before I move on?
    Mr. Powell. I should stay away from fiscal policy, if you 
don't mind.
    Mr. Huizenga. And look, I am not asking whether you support 
a particular bill or not. Theoretically, for your classroom--
America is your classroom as they are watching this right now--
spending is a contributing factor to inflation. Correct?
    Mr. Powell. It is, but it is not really our job and not 
ours to comment on. We do have--
    Mr. Huizenga. I understand that.
    Mr. Powell. --a role here and we need to do it.
    Mr. Huizenga. I fully understand that. Just the facts. 
Okay.
    I am going to move on to another issue, which is a rules-
based approach to monetary policy. In the 114th Congress, in 
2015, I introduced the FORM Act, which would lay out a rules-
based monetary policy. And I know in your testimony today you 
indicated that a rate increase is expected, and you confirmed 
that with the ranking member.
    What I am curious, about, though, is that since 2017, the 
Fed's monetary policy report included a section on monetary 
policy rules, and you have been very clear, and now Secretary 
Yellen has been clear that a lot of rules are modeled and 
looked at. The only exception to this was 2020, the first year 
of the pandemic, and maybe more surprisingly, the report that 
was just released this month, for example, in 2017, the 
monetary policy section of the report stated that, ``Monetary 
policymakers consider a wide range of information on current 
economic conditions.''
    It is not included in this report. Can you shed some light 
on why it was omitted this year?
    Mr. Powell. I honestly didn't know that was the case, or if 
someone talked to me about this before the thing was printed 
and sent up here, I don't remember. That is also a real 
possibility, given the number of things I have on my mind right 
now. But as you say, we didn't have it in July of 2020. We will 
have it in the next one. There was no big thought, as far as I 
know, going into that. It is just sometimes we include it and 
sometimes we don't.
    I will say that thinking about policies through rules is 
something that I learned about in monetary policy, doing that. 
When you are actually implementing policy, no committee has 
ever really viewed its policy rules as a way of setting policy. 
They use them to inform your thinking.
    Mr. Huizenga. Yes, and I guess my idea with the format was 
to then inform the market, and that includes us as citizens as 
well. And I would like this committee to re-examine that.
    I appreciate the indulgence, Madam Chairwoman, as we had 
that crosstalk at the beginning, and I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Illinois, Mr. Casten, who is also the 
Vice Chair of our Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets, is now recognized for 5 
minutes.
    Mr. Casten. Thank you, Madam Chairwoman. And thank you, 
Chair Pro Tempore Powell.
    I am always struck that there is a real risk of hubris for 
those of us in our line of work, at least up here. If we get to 
write laws, sometimes we conclude that means we can write the 
laws of physics as well, which is dangerous. And I am troubled 
by some of the questioning of my colleagues and some of the 
debates around confirmation of your colleagues around climate 
change.
    The Intergovernmental Panel on Climate Change (IPCC) report 
which came out last week said that climate change effects are 
outpacing our ability to adapt. We are seeing communities that 
sort of simultaneously have droughts, floods, and fires, and 
money is moving in surprising ways. We have seen personal 
stories just in the last months of one coastal community where 
the roads are being washed out, that haven't yet paid off the 
bonds that were used to pay for the road, and they don't know 
how to reconnect those communities. And in another community on 
the coast, the mayor is sitting there realizing that in one 
neighborhood, he can afford to build a sea wall, and in another 
neighborhood, it is cheaper to relocate people and then deal 
with the political fallout of that decision.
    We have massive political risks that are coming, and we 
know they are coming because the laws of physics do not care 
how we vote. And I am concerned by your response to Mr. Posey--
I think you said we have not even done the scenarios yet on 
climate change. I understand these are complicated, but if 
those scenarios haven't been done, I want to start--if we do 
not deal with the financial fallout, the political fallout is 
going to be far worse.
    And I just want to start with a very specific question. 
NOAA and NASA came out with a report, I think last week, or 2 
weeks ago, saying that Florida is looking at 12 inches of sea 
level rise in the next 10 to 20 years, and 18 inches by 2050, 
which means that there are whole communities in Florida where 
there is going to be complete property loss before a 30-year 
mortgage is repaid; that was issued today.
    Are Fannie Mae and Freddie Mac changing their lending 
standards in response to those risks in those communities in 
Florida and elsewhere that are now within 30 years of being 
unable to repay those notes?
    Mr. Powell. I don't know.
    Mr. Casten. I ask the question there, because in the U.S. 
Commodity Futures Trading Commission (CFTC) report, ``Managing 
Climate Risk in the Financial Sector,'' which came out in 2020, 
they noted that the higher an area's risk for coastal flooding, 
the more likely that commercial banks will be offloading their 
risks onto Fannie and Freddie. So, if the sophisticated players 
in the system are seeing this risk, and we, at a Federal level, 
are backstopping, how are we isolating our Federal balance 
sheet from that risk exposure?
    Mr. Powell. I think that is a very likely outcome, 
actually. As private lenders move away from that, will the 
government force people to move away from the coast, or will 
they wind up--the government, that is, us--wind up picking up 
the tab? It's more likely to be the latter, it seems to me.
    Mr. Casten. Moving away from offloading the risk onto the 
taxpayer, back when I was in the energy industry, one of the 
tells that we had that we knew there was a downturn coming in 
energy markets was when the big banks started creating a 
special opportunity Fund 5. We all knew that was code for 
taking your Dodd-Frank Act compliance, that capital, and moving 
it into an equity pool and selling it off to the least-
sophisticated people in the equity space. Anybody who has spent 
time in the banking industry has seen that game.
    To what degree does the Fed or the Treasury have the 
ability to monitor where the sophisticated folks who are seeing 
this coming are shifting the risk off to the less-sophisticated 
folks in the private sector?
    Mr. Powell. There is a lot of thinking going on about this. 
I would have to think about that. But there is a lot of 
thinking about what will happen over longer periods of time in 
coastal areas and things like that. I can look into that for 
you.
    Mr. Casten. And it is not just coastal, right? It is 
California fire risk. Do you rebuild that house where the fire 
is, and who is holding the paper if it burns the second time, 
before it is paid off? Drought risk in communities, running 
away the capital movements. And to be clear, we are going to 
create so much wealth in the transition to a clean economy, but 
I think we can find more winners than losers if we are smart 
about this. But there is this huge capital play and the 
nervousness I get is, as I said, partly that we are shifting 
risk onto the public sector, and partly that if we don't have a 
really good understanding of what the capital structure looks 
like in these communities, we are not seeing it.
    As you know, Senator Schatz and I have introduced this bill 
to push and encourage you and your colleagues to do these 
climate, whatever we are talking about, scenario analyses. But 
we know the sophisticated people are going to offload the risk, 
and as the IPCC report said, the effects are outpacing our 
ability to adapt and we need to get ahead of this much quicker.
    Mr. Powell. I want you to know we are working on the 
scenarios. It is an active effort on our part.
    Mr. Casten. Let us know how we can help you, make sure you 
have the resources to move a lot quicker.
    Thank you, and I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Kentucky, Mr. Barr, is now recognized 
for 5 minutes.
    Mr. Barr. Thank you. Mr. Chairman, it's good to see you 
again, and thank you for your testimony today. I appreciate 
your testimony that overspending has contributed to the 
inflation crisis we are facing right now, but I also appreciate 
your humility with respect to the Fed failing to meet its price 
stability mandate and the fact that you admit that inflation is 
primarily a monetary policy phenomenon. I want to focus on 
monetary policy in my questioning.
    I know you understand that this has human costs. I want to 
share a couple of anecdotes from my district. A painter, Gerald 
Holland, from Nicholasville, Kentucky, says a gallon of paint 
costs $10 more today than a year ago. The Suffoletta family 
from Georgetown, Kentucky has been in the retail home 
furnishing business since the late 1940s. In a conversation 
last week, they informed me that in the last year, the cost of 
goods from their manufacturers have increased 30 to 40 percent, 
and they are still receiving price increase letters every week, 
and like most small businesses, their costs of labor and 
overhead have gone up over 25 percent. So now, they are having 
to determine how to operate without passing those costs on to 
the end consumer, and still have some profits left at the end 
of the year.
    I could share dozens, as many of my colleagues could share 
dozens of these kinds of stories, including from constituents 
on fixed incomes who cannot afford the dramatic reduction in 
their purchasing power.
    Before November 2021, Chair Powell, when you declared it 
was time to retire the word, ``transitory,'' in relation to 
inflation, my colleagues and I repeatedly, in hearings last 
year, after the $2 trillion spending bill, cautioned you that 
inflation wasn't transitory, that we were hearing from our 
constituents, individuals and small businesses, that inflation 
was hitting them hard and was sticky. But the FOMC kept up with 
the unconventional monetary policy. And even after you retired 
the word, ``transitory,'' as late as February 2022, the Fed was 
continuing its QE liquidity injections, even though inflation 
was at 7.5 percent, a 40-year high, and the Fed had rejected 
and immediately halted the QE at both its December and January 
policy meetings.
    This week, economist Mohamed El-Erian published an op-ed, 
in which he states that the Fed's insistence that inflation was 
transitory is, ``an error that will likely be remembered as one 
of its biggest ever.'' And pardon me for contributing to your 
humility on that.
    But my question is, has the FOMC learned from its mistake? 
Has it learned that unconventional monetary policy at a time 
when it is not needed is harmful for the economy? Has it 
learned that QE during a time of recovery is a recipe for 
inflation, and has it learned that we cannot print our way to 
prosperity?
    Mr. Powell. I think the main thing that we have learned is 
that the supply-side constraints that we saw were not as 
transitory as we had hoped, and thought, and as I mentioned, 
every other mainstream economist and central bank around the 
world made the same mistake. That doesn't excuse it, but we 
thought that these things would be resolved long ago.
    Mr. Barr. Does the FOMC--do you and your colleagues concede 
now, in hindsight, that the overly-accommodative monetary 
stance for too long was a mistake, a monetary policy mistake?
    Mr. Powell. I will just answer for myself. That is for 
other people to assess. I would say that we had an expectation, 
and as I said earlier, I always thought there was a chance we 
would be wrong, and that if we were wrong, we would be able to 
pivot. And we did pivot, and we pivoted pretty quickly, but by 
then the economy really was moving very, very fast.
    Mr. Barr. On the pivot, how quickly do you expect a higher 
Fed funds rate, removing the accommodation to bring down 
inflation, and how does that affect the pace at which you would 
tighten?
    Mr. Powell. As I mentioned, I expect the Fed funds rate to 
go up in 2 weeks, and I expect a series of rate increases this 
year. But as I mentioned earlier, given the current situation, 
we are going to move carefully.
    Mr. Barr. My concern is that to break this inflation fever 
now, you do not have a lot of good options. It is going to take 
some aggressive tightening in order to break historically-high 
inflation levels.
    Not to belabor the point, but one final thing on the 
climate stress testing. Last year, in response to my questions 
about the Fed's decision to join the Network for Greening the 
Financial System, you affirmed that the Fed's job was not to 
combat climate change. But in your confirmation hearing, you 
said that, ``We are looking at climate stress tests. This will 
be a key tool going forward.'' To clarify, which is it? Is it 
that you will not use this, as Mr. Posey asked you, to support 
capital surcharges for banks serving fossil energy companies?
    Mr. Powell. That is not the design nor intent of the stress 
scenarios that we are working on right now. It is really to 
assist us and financial institutions, who are doing these 
things themselves very actively, the larger ones, to understand 
the risk.
    Mr. Barr. My time has expired, but as we look at a global 
energy crisis with the Ukraine and--
    Chairwoman Waters. The gentleman's time has expired.
    Mr. Barr. --it is critically important that we do not 
redirect capital--
    Chairwoman Waters. The gentleman from Massachusetts, Mr. 
Lynch--
    Mr. Barr. I yield back.
    Chairwoman Waters. --who is also the Chair of our Task 
Force on Financial Technology, is now recognized for 5 minutes.
    Mr. Lynch. Thank you, Madam Chairwoman. And thank you, 
Chair Powell, for your service and your great work.
    I do want to ask you a question about the SWIFT network, 
and I realize that the sanctions piece of this is owned by 
Treasury. But I am curious if in any of your risk analyses, you 
have looked at the possibility that if we did completely ban 
Russian banks from use of the SWIFT network, and it became a 
target of the Russian cyber forces, have we basically gamed out 
how that might happen, and do we feel comfortable that 
structurally and architecturally, the SWIFT network would be 
able to resist a state-sponsored assault on that messaging 
service?
    Mr. Powell. I'm sorry, Mr. Lynch, I am really not the right 
person to answer that question. That is really a question that 
our Treasury Department or our Administration, more broadly, 
and the intelligence groups would be able to address.
    Mr. Lynch. I am a little surprised at that, because earlier 
in your questions, you talked about cybersecurity and how that 
was in your lane, in part. But I will let that go.
    You did mention the recent Fed report on CBDC, and in that 
report it more or less pushed responsibility back to Congress 
to resolve some of the major issues around the creation of a 
Fed CBDC. And I know that we have a working group at MIT and 
the Boston Fed that are doing great work on this. It started 
under Chairman Gensler, but I believe Neha Narula is running 
that effort.
    In all honesty, I am not sure that Congress is equipped by 
itself to make those key decisions around architecture and the 
shape and form of any CBDC for the United States. I think we 
are relying on the Fed and the Treasury to help us. And so, I 
was hoping for a little bit more instruction with the Fed 
paper, and is there any way we could collaborate rather than 
pushing the responsibility on Congress, with all of the other 
issues we have to deal with, and also with the disparity in 
background in dealing with CBDC and those crypto issues?
    Mr. Powell. Yes. Let me address that. What the great people 
in Boston are doing is really technical experimentation around 
how you would build a CBDC if you were going to do one, looking 
at different structures and options and technologies. That is 
separate from the policy questions of whether we should do 
this.
    How we are thinking of this is there is technical 
experimentation, there are all of the technology questions that 
have to be solved, but there are also the policy questions--
should we do this and why, and how, and what should be the 
structure, and that kind of thing. So, we will be working on 
this project in coming years, and we hope building trust in 
Congress and in the public that we are doing it as a fair, 
honest, independent group who really is just looking out for 
the best interests of the country and of our citizens. And we 
will be making recommendations on the appropriate structure, if 
we do come to make a recommendation.
    The point is, though, that our existing statute doesn't 
really contemplate a central bank digital currency so, ideally, 
we would get legislation, that would be authorizing 
legislation, and we would take part in it. It is not that we 
would be asking Congress to start this from scratch and figure 
out all the answers. We would be working with you to build 
trust in our process and ultimately come to you with a 
proposal, and then Congress would do its work and authorize.
    Mr. Lynch. Thank you, but Mr. Chairman, the concern is that 
the architecture and the security of the system will guide 
policy. So, I believe we need to work together. But thank you.
    Madam Chairwoman, I yield back.
    Mr. Powell. No, I agree.
    Chairwoman Waters. Thank you.
    The gentleman from Texas, Mr. Williams, is now recognized 
for 5 minutes.
    Mr. Williams of Texas. Thank you, Madam Chairwoman, and 
thank you, Chairman Powell, for being here. It is always good 
to have you come before the committee.
    There hasn't been a Federal Reserve Chairman since Paul 
Volcker, in the 1980s, who has dealt with inflation at these 
levels that we talk about today, and historically, the Fed has 
been unable to reduce prices without sending our economy into a 
recession. And to further complicate the situation, the central 
bank has previously never had to deal with winding down such 
aggressive asset purchases to go along with increasing interest 
rates.
    You are going to have to take action on both of these 
pressing issues, with the backdrop of what we see in Ukraine, 
between Russia and Ukraine, and the general global instability 
that we have. Needless to say, you have a very tough job ahead 
of you.
    Mr. Chairman, how do you plan on getting inflation under 
control without completely hampering growth, or worse, causing 
the economy to go into a recession?
    Mr. Powell. That is exactly our objective. We are going to 
use our tools, we are going to raise interest rates, and we are 
going to shrink our balance sheet over the course of this year. 
As I mentioned, during this critical phase of global events we 
are going to do that with care, and we will always move with 
care but particularly now. And that is how it works. We remove 
accommodation and the very high levels of demand that are, to 
some extent, a result of our accommodative policy. Those rates 
will go up. Take housing, for example. The housing market 
should cool off. It is very, very hot right now. And that 
should happen broadly in the economy over time.
    We talk about getting to a neutral rate, which would be 
somewhere between 2 and 2.5 percent. It may well be that we 
need to go higher than that. We just don't know. And we don't 
know what events will intervene in the meantime. We haven't 
faced this challenge in a long time, but we all know the 
history and we all know what we need to do.
    I also do think, and I think it is more likely than not 
that we can achieve what we call a soft landing, and they are 
far more common in our history than is generally understood, 
and that would be what you described, which is to get inflation 
back under control without a recession.
    Mr. Williams of Texas. Some of us in this room remember the 
1980s.
    Mr. Powell. Sorry?
    Mr. Williams of Texas. Some of us in this room remember the 
1980s and what it was like.
    We know that there is a lag period between the Federal 
Reserve's actions and the inflammatory implications being felt 
in the economy. The San Francisco Fed, which we have mentioned 
today, admits that this latency period could last anywhere from 
3 months to 3 years, and for families and business owners, like 
myself, the 3 years would be an extremely long time to deal 
with prices at these elevated levels.
    Mr. Chairman, when the Fed eventually decides to raise 
interest rates, what tools will you have at your disposal to 
ensure your actions are felt with as little a delay as possible 
so we can once again have price stability, like we have talked 
about?
    Mr. Powell. In this world that we live in now, when we make 
a decision about interest rates, or frankly, even talk about a 
decision to raise interest rates, markets pick it up like that. 
Financial positions have already tightened. We haven't actually 
lifted off from zero, but as of a week ago, the market was 
pricing in, it was literally already reflected in financial 
conditions, to some extent, six or seven rate increases. It is 
less than that now, and we haven't made a decision to do that 
yet.
    Our decisions get into financial conditions very quickly. 
It does take time, of course, for that to affect economic 
activity, and that is where you get 3 months to longer than 
that. I think by the end of a year, much of the effect is 
generally thought to be in.
    But that time period has already started, because monetary 
policy really works through expectations, and we are now 
expecting rate increases, and they have already happened, in 
effect, and we have to ratify them, of course.
    Mr. Williams of Texas. We are seeing them. Finally, in the 
past year you have referenced productivity gains as being key 
to increase the living standards for American workers over 
time. Unfortunately, we have seen the Biden Administration 
implement many new, time-consuming regulations that are forcing 
businesses, again like mine and others, away from productive 
activities. The American Action Forum conducted a study which 
estimated that new regulations from President Biden's first 
year in office will culminate in over 131 million new paperwork 
hours.
    Quickly, Mr. Chairman, can you discuss the correlation 
between a company's regulatory burden and the effect on 
productivity?
    Mr. Powell. I am a little bit familiar with the research, 
and it has actually been difficult to make those connections in 
research. But we know, as a practical matter, we all want just 
the right amount of regulation, not too much, and to the extent 
that you are spending resources unnecessarily, that will hold 
you back.
    Mr. Williams of Texas. Thank you very much, and I will 
yield my time back, Madam Chairwoman.
    Chairwoman Waters. The gentleman from New York, Mr. Torres, 
is now recognized for 5 minutes.
    Mr. Torres. Thank you, Madam Chairwoman. During his State 
of the Union, President Biden reported that the U.S. has seen 
the fastest job growth in history, the U.S. has had the fastest 
economic growth in more than 4 decades, and the U.S., among 
advanced economies, has had the fastest economic recovery from 
COVID. And so, the inflation that we have seen is the 
consequence of a strong economy colliding with a supply chain 
disrupted by COVID-19.
    Given the Russian invasion of Ukraine and the inflationary 
pressures that could likely follow, is there a risk that 
raising interest rates could backfire, that it could cause a 
recession without actually reining in inflation? How 
significant is the risk of stagflation?
    Mr. Powell. There are several questions in there. Our goal, 
of course, is to raise interest rates in a way that restrains 
inflation and gets it back to levels that we would call 
consistent with price stability, and to do that while still 
sustaining an expansion and a strong labor market. That is our 
goal, and that is how we will use our tools. There are no 
guarantees in life, but that is our intention and what we 
propose to do.
    Mr. Torres. The U.S., as you know, has severely sanctioned 
Russia, and Russia is expected to engage in cyber retaliation. 
There are financial institutions, commercial banks that invest 
up to $1 billion every year on cybersecurity. How much does the 
Fed invest in its own cybersecurity every year?
    Mr. Powell. I don't have a dollar amount for you, but it is 
quite substantial. We have very good cyber people at the 
Reserve Banks and at the Board here in Washington. And as I 
mentioned a little earlier, we have been at a very highly-
elevated level of oversight on cyber issues for several months 
now, as this event has increased. And we haven't seen any 
troubling incidents yet, but we remain on high alert.
    Mr. Torres. The ability of the U.S. to hold rogue states 
like Russia accountable depends heavily on the SWIFT 
international payment system. In your view, how easily could 
China and Russia create an alternate messaging service that 
could seriously compete with SWIFT and seriously undermine the 
effectiveness of SWIFT sanctions?
    Mr. Powell. That is an interesting question to speculate 
about. I think in the near term, that is not something you can 
create overnight. I know that China does have their system. It 
is really a question for the longer term, and not for the 
immediate term. It is not something you could do quickly like 
that, but let me think about that.
    Mr. Torres. Fair enough. I have a question about 
stablecoins. The leading stablecoin issuers have chosen to peg 
their stablecoins to the U.S. dollar, which to me represents a 
vote of confidence that reinforces rather than challenges the 
status of the dollar as the world's reserve currency. The U.S. 
has no central bank digital currency (CBDC) of its own, and is 
unlikely to have one in the years to come. Do you believe, as I 
do, that dollar stablecoins can play a role in out-competing 
China when it comes to digital currencies?
    Mr. Powell. I will say it this way. I think there may well 
be a role for well-regulated stablecoins. I think there is the 
possibility over time, and this is not what we see right now, 
that they could be efficient and popular among consumers and 
things like that.
    I think in terms of helping us compete with China, I don't 
know but possibly, yes.
    Mr. Torres. I am assuming it is better to have stablecoins 
pegged to the dollar than to have stablecoins pegged to China's 
currency, or the currency of another country?
    Mr. Powell. I would agree with you that, in a way, that is 
consistent with the role of the dollar, and most of the 
stablecoins are, of course, dollar-based.
    Mr. Torres. I have a question about the Community 
Reinvestment Act (CRA). Even though the CRA exists to prevent 
racial discrimination in matters of lending, also referred to 
as redlining, regulators fail to consider race when enforcing 
the CRA. Do you think race should be considered?
    Mr. Powell. We went out with an advance notice of proposed 
rulemaking a couple of years ago. We took in a whole lot of 
comments, and took those into account, and I think we are now 
sitting down with the OCC and the FDIC to come up with a notice 
of proposed rulemaking, and that is one of the issues that we 
have been thinking about very carefully. And I don't have any 
announcement for you, but that is something that is going to 
come out of those conversations.
    Mr. Torres. But you are open to considering it?
    Mr. Powell. It is something we have been considering. We 
asked for comment on it.
    Mr. Torres. That is the extent of my questioning. Thank 
you, Madam Chairwoman.
    Chairwoman Waters. Thank you. The gentleman from Arkansas, 
Mr. Hill, is now recognized for 5 minutes.
    Mr. Hill. Thank you, Madam Chairwoman. I appreciate the 
hearing. And Mr. Chairman, thank you so much for coming back 
for your Humphrey Hawkins testimony, and we all wish you the 
best of luck as you complete the confirmation process in the 
Senate.
    I enjoyed hearing Mr. Kustoff from Tennessee talk about 
William McChesney Martin, or actually he was talking about the 
1970s. I guess my friend from Kentucky, Mr. Barr, brought up 
William McChesney Martin. And it made me think about the 1970s, 
and you and I both started our business careers in that decade, 
where inflation was really considered the number one economic 
concern in the United States and around the world. Arthur Burns 
was your predecessor then, and I recently read a talk he gave 
called, ``The Anguish of Central Banking.'' Have you heard of 
that before?
    Mr. Powell. Yes, it rings a bell.
    Mr. Hill. Well, I commend it to you. It was delivered in 
1979, so he was no longer the Chairman, and he was reflecting 
on his tenure at the Fed and also on fiscal policy of the 1960s 
and 1970s. So, I commend it to you and the Federal Open Market 
Committee, and to my colleagues here on the committee. And with 
your permission, Madam Chairwoman, I would like to insert it in 
the record.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. Hill. It is a stark reminder that when we abandon 
fiscal discipline and our core financial principles, and 
instead embrace what I consider economically-illiterate 
concepts like modern monetary theory, we get into economic 
anguish. And in this talk, Chairman Burns reflects on his own 
mistakes at the helm of the Fed, as well as the abandonment of 
conservative government finance, when Burns warned, ``fear of 
immediate unemployment rather than fear of current or eventual 
inflation comes to dominate economic policymaking.'' That was 
his warning to us, and I think it merits at this time--you said 
you don't want to go back to the 1970s. In fact, you argued 
that is what we are trying to absolutely avoid. So, I do 
encourage people to read this report, because inflation is a 
thief.
    You answered a question from Mr. Huizenga that you were not 
aware that in the 2022 monetary policy report, the rules 
section in the monetary policy was not included. Is that right?
    Mr. Powell. I was aware of it a couple of days ago. What I 
said was, I don't remember any prior discussion, but that 
doesn't mean it didn't happen. It just means I didn't remember 
it.
    Mr. Hill. Right. In the FOMC meetings, do they still have a 
presentation, part of the staff presentation, sort of a trend 
analysis on using those rules that have traditionally been in 
the policy? Does that still go on in FOMC meetings?
    Mr. Powell. Yes. Yes, it does.
    Mr. Hill. Yes. I think that is an indication that it is 
probably best that it be included in the report.
    I was looking at some forecasting about the so-called 
Taylor Rule, dating to the 1990s, which you have testified on 
many times. Are you aware of what the Taylor Rule would 
indicate now in its formula, vis-a-vis the inflation that we 
have today?
    Mr. Powell. Generally, yes.
    Mr. Hill. Do you know the range that--
    Mr. Powell. High.
    Mr. Hill. Yes. The answer I saw was 9.55 percent, which 
doesn't mean it is right or wrong, but it is one of those 
indicators about how far off we are maybe in our funds rate 
targeting. I am glad to hear that you will consider that being 
put back in the report.
    I also wanted to raise the subject of the Fed mandate. You 
have taken some questions on that today, too. We have had 
legislation in the past to reconsider the 1977 approach 
Congress took in the middle of that inflation to have both 
price stability and full employment, and we have debated that 
in this committee before. And in my view, considering the 
fiscal policy stimulus and the monetary policy that we have had 
in the last couple of years, we really have to focus on price 
stability. And in Congress, we are here to really prevent that 
kind of inflation, and I recognize and I am happy to say that 
it is both a fiscal responsibility and a monetary policy.
    I am proposing that we go back to price stability. And we 
won't be alone. As I understand it, New Zealand, Canada, 
Australia, and the United Kingdom have that as their sole 
mandate: price stability. Is that your understanding too, of 
those central banks?
    Mr. Powell. Yes. I think the European Central Bank (ECB)--
that would be a matter for Congress, obviously. I would say, if 
I were to show you monetary policy response to five central 
banks, or six central banks, I would say three of them would be 
like us, a dual mandate, and three of them would be just 
inflation. You wouldn't actually see any difference in their 
reaction function because they do have to look at resource 
utilization, which is employment, in order to determine policy. 
So, you wind up with very similar answers.
    Mr. Hill. I thank you for your testimony, and again, wish 
you well in your final confirmation process. And Madam 
Chairwoman, I yield back.
    Chairwoman Waters. Thank you. The gentlewoman from North 
Carolina, Ms. Adams, is now recognized for 5 minutes.
    Ms. Adams. Thank you, Madam Chairwoman, and Chair Powell, 
it is good to see you again, sir.
    Mr. Powell. It's good to see you.
    Ms. Adams. Thank you so much for being here, and of course, 
I would have preferred to be congratulating you on your 
reappointment to the Federal Reserve, but hopefully, we can get 
that done. I did publish an op-ed this morning with Chairwoman 
Waters, Congressional Black Caucus Chairwoman Beatty, and some 
African-American colleagues on the Financial Services 
Committee, calling on Senator Toomey to return to the table and 
give you and the other four nominees the vote that you deserve.
    Let me ask you--a simple yes or no will do here--do you 
believe that the Federal Reserve would be better able to serve 
the American people if it had a fully-staffed Board of 
Governors?
    Mr. Powell. I want to thank you for your kind words and 
support, but I wouldn't want to comment directly or indirectly 
on the Senate. I am a nominee, and I await the Senate's 
judgment, and I would prefer not to get into that process, 
other than as a nominee.
    Ms. Adams. Okay. Thank you, sir.
    Let me switch gears and talk for a moment about Russia. As 
we have discussed extensively today, Russia's invasion of 
Ukraine has consequences far beyond the geopolitical. We have 
discussed the potential systemic risks the invasion poses to 
global markets and the mechanisms to keep Russia isolated from 
the international economy for the duration of this illegal 
aggression.
    But I am concerned about the potential systemic risks here 
at home. The European Central Bank has identified systemically 
important financial institutions with ties to Russian banks, 
and those institutions could potentially require assistance to 
live up to their obligations. Are there any U.S. institutions 
that you are monitoring that have outside default risks as it 
pertains to the freezes on Russia's assets?
    Mr. Powell. Basically, no. Our financial system and our 
financial institutions have relatively little exposure to 
Russia, and even the largest exposures that any of them have 
are not very big. It would need to be a second-order thing, 
whereby a foreign financial institution has exposures to Russia 
but also has exposures to our banks. And we don't see that as a 
primary risk, but it is something we are watching.
    Ms. Adams. Okay. With my remaining time, let me ask you, 
your November report indicated that the forthcoming rise in 
interest rates will have ripple effects throughout the entire 
economy. Can you speak to the interconnection between the Fed's 
rate hikes and the freeze on Russian assets as it pertains to 
the prices of certain commodities?
    Mr. Powell. The price of commodities is generally set on 
the world market by supply and demand. And we do intend to 
raise interest rates this year, as we have said, but as long as 
we are in this very sensitive phase of events in Eastern 
Europe, we are going to be careful in doing so. We are going to 
avoid adding uncertainty, as I mentioned a little earlier. And 
we do believe that over time, as we raise the interest rates 
and as we get relief from supply-side improvements, as well for 
inflation, that we will get inflation back down. We expect to 
see that happening, and to the extent that we don't see it 
happen, we are prepared to move more aggressively.
    Ms. Adams. Great. Thank you very much. Madam Chairwoman, I 
yield back.
    Chairwoman Waters. Thank you. The gentleman from Ohio, Mr. 
Gonzalez, is now recognized for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, and 
thank you, Chairman Pro Tempore Powell, for being so 
forthright. I think your answers to Mr. McHenry's questions at 
the outset were incredibly helpful. I think it was probably the 
most direct that you have been with respect to how you are 
viewing interest rate policy heading into the March meeting. I 
certainly appreciate that, and I suspect others do as well. 
Thank you for that transparency.
    I want to start with Ukraine and Russia, and I know this is 
just evolving. My view, despite some, what I thought was a 
little bit of flowery rhetoric last night from the President, 
is that this is the beginning of a long-term conflict. This is 
not something that will be over in a matter of days, but 
months, and perhaps years, as the Russians encircle Ukraine and 
our lack of response, in many respects.
    I know you are a student of history, and you are a student 
of monetary policy history. When you look at a world where this 
is a longer-term conflict, how do you view a longer-term 
military engagement in Europe impacting rate policy and balance 
sheet policy, and if you haven't begun that study yet, is that 
something that the Fed will endeavor in the coming weeks and 
months?
    Mr. Powell. It is a really good question, and I would have 
to agree with you that this event does seem to be one that is a 
game-changer and will be with us for a very long time.
    As I mentioned, we don't understand yet. There are events 
yet to come that we haven't seen and we don't know what the 
real effect on the U.S. economy will be. We don't know whether 
those effects will be lasting or not. But it is something that 
we are going to be thinking about a lot. It is exactly the 
things that we will be thinking about. It is really too early 
to say, but it is not too early to try to imagine and assess.
    Mr. Gonzalez of Ohio. Thank you. And I know my thoughts and 
prayers are with the Ukrainian people, as are many of my 
colleagues--all of my colleagues, I think we are unanimous in 
that, that we hope for a successful outcome, although 
admittedly, the days ahead appear to be quite choppy, and it is 
hard to see a positive outcome in the near term.
    I want to shift to another thing the President said last 
night about companies needing to lower their costs, not their 
wages, and that is how we are going to fight inflation. That 
sounds wonderful. How do you magically sort of lower your costs 
as a company? It is sort of implied that it is corporate greed 
that is leading to inflation. I have read your comments. I 
think they are spot on with respect to the supply-demand 
dynamics. But are you aware of a way for companies to just sort 
of unilaterally lower their costs?
    Mr. Powell. First, I would not comment on the President's 
comments at any time, and I won't do that now.
    I think, and my experience in the business world very much 
was that businesses are constantly managing their costs. That 
is a lot of what businesses do, so it is an ongoing thing. But 
I didn't watch the speech and I don't know the context, and I 
would never comment on anything the President says.
    Mr. Gonzalez of Ohio. Thank you. Shifting to my last 
question, there has been talk of whether cryptocurrencies 
represent a good vehicle for sanctions avoidance. I think you 
have rightly said that is maybe for the purview of Treasury. 
But generally speaking, a system that transactions occur on a 
public ledger that are auditable and reviewable by the entire 
world--anybody in the world can go and check and monitor these 
things--and in a world where those same systems have 
transaction speed limits, essentially, do you think in that 
world, a public ledger is a good way to launder money or avoid 
sanctions?
    Mr. Powell. I am not an expert on sanctions, so I'm 
reluctant to comment on that in the context of sanctions, just 
because it is not our field. I would say there's a balance you 
have to strike between privacy, which is very important, yet 
also the ability of law enforcement and national security to 
track payments. And I think to the extent that cryptocurrencies 
are a means by which you can evade both law enforcement and 
national security concerns, then that is not something we 
should tolerate.
    Mr. Gonzalez of Ohio. Thank you. Thank you for, again, your 
transparency, and I yield back.
    Chairwoman Waters. Thank you. The gentlewoman from 
Pennsylvania, Ms. Dean, is now recognize for 5 minutes.
    Ms. Dean. Thank you, Chairwoman Waters, and thank you, 
Chair Powell, for being before us again today with such 
forthright testimony in such challenging times.
    I wanted to just start with the question of inflation and 
something that you said to one of our colleagues in response to 
a question. You said that inflation is too high, we are seeing 
it everywhere in the world, and ours is worse because our 
economy is stronger. Can you flesh out that duality a little 
bit, maybe contrast it with others globally who are struggling 
with inflation but do not have a strong underlying economy?
    Mr. Powell. I think maybe the closest economies and 
political systems would be the countries of Western Europe and 
Canada. Advanced economy countries like that are all having the 
highest inflation they have had in a very long time. Places 
like Germany, which is famously inflation-averse, has high 
inflation.
    Ours is a little higher. Our economy is now well above the 
level of output that we were at before the pandemic. If you 
just look at the output the economy had before the pandemic to 
where it is now, we are way above that, and other countries are 
kind of just getting back to that level. We have just had a 
stronger recovery, and that is because of monetary policy and 
fiscal policy and also just vaccines and a whole range of 
factors. So, of the advanced economies, ours is generally 
higher.
    And we're going through this same process that the Bank of 
England and other central banks are going through, which is 
raising rates and trying to get inflation back under control. 
We are very committed to doing that. It is a common problem. 
Again, ours is worse, because our inflation is higher, largely 
because our economy is that much stronger.
    Ms. Dean. I know you have a series of meetings and possible 
rate hikes, you talked about in 2 weeks, likely the 25 basis 
points increase. For my constituents, my consumers, what impact 
will we begin to see, will they begin to see with the small, 
incremental rate hikes?
    Mr. Powell. It is a little bit like the rate hikes that 
took place in the first part of this century. The rate hikes 
that took place after the global financial crisis were much 
slower. They were every other meeting. But the cycle before 
that, there were rate hikes at consecutive meetings. What you 
feel is these are fairly small rate increases, a quarter of a 
percentage point every 7 weeks. And, by the way, we haven't 
made any decisions after this meeting, but the thought is that 
rates move up, our policy rate moves up, and with it, rates on 
mortgages, rates on car loans, rates on the loans that people 
take out to buy appliances, things like that. So companies, 
their borrowing costs go up.
    And you get to a point where you have raised it a few 
times, and it is still a gradual process, even though it is as 
much as twice as fast as the last cycle. But people start to 
spend a little bit less, and economy demand returns to a lower 
level. By this time, we hope that the economy is going back to 
normal in terms of supply chains and the breakdown between 
goods and services spending, things like that. We hope we are 
getting help on the inflation front from a bunch of things.
    In any case, we do have the responsibility to generate 
price stability, and we will use our tools to do that, over 
time.
    Ms. Dean. I thank you for that. One particular area of 
concern for me is the role that increasing market consolidation 
has played in contributing to inflation. An example that we 
have seen is the huge price spikes in the meat industry, which 
has become incredibly concentrated, and consolidated. To what 
extent would you attribute supply chain fragility and recent 
price increases to market concentration?
    Mr. Powell. We are not the competition authorities, and so 
I would defer to the competition authorities on all of those 
questions.
    In terms of inflation, though, inflation is mainly a 
macroeconomic phenomenon, which doesn't link in the aggregate 
very well to concentration. Some of the most concentrated 
industries, in fact, were those that drove low inflation. I am 
thinking there of warehousing and retail and things like that. 
Those industries consolidated and they drove lower prices. So, 
it is not so obvious.
    There clearly are industries where that may be the case, 
where they become consolidated and they are able to raise 
prices. It is not clear if they would be able to generate an 
inflationary cycle, but they can certainly raise prices, in the 
first instance. It is not a settled question in the economics, 
but again, we defer to the competition authorities.
    Chairwoman Waters. The gentlewoman's time has expired.
    Ms. Dean. Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you. The gentleman from West 
Virginia, Mr. Mooney, is now recognized for 5 minutes.
    Mr. Mooney. Thank you, Madam Chairwoman. Inflation remains 
a serious concern for my constituents in West Virginia. 
Inflation erodes the real value of every paycheck. When the 
cost of filling a tank of gas or buying groceries increases, 
all Americans lose money.
    Today, I would like to focus on a slightly different aspect 
of inflation, which is inflation's corrosive effect on 
Americans' savings. The combination of low interest rates and 
high inflation has clobbered returns on common savings tools, 
like savings accounts, money market funds, and certificate of 
deposit. January's 12-month Consumer Price Index of 7.5 percent 
pushes the yield on these savings tools into deeply-negative 
territory. In other words, with inflation as high as it is, 
Americans who have saved responsibly for years are losing their 
money over time.
    Chairman Powell, my first question is, how concerned are 
you about the effects that inflation and negative savings 
yields are having on the long-term health of our economic 
recovery?
    Mr. Powell. I would agree that inflation falls heavily on 
people who are living on, for example, bank deposits and CDs. 
This is typically retired people and the elderly, and of course 
they do bear the brunt of this. That is one of the reasons we 
need to get inflation back down to appropriate levels, and that 
is what we are working on.
    Mr. Mooney. Thank you. Savings is an important way to 
achieve financial goals, like purchasing a new home, or paying 
for college, or retirement. Savings is a way to take control of 
your financial destiny. Savings is a part of how we can achieve 
the American Dream.
    I would like to raise another potential issue about the 
declining value of savings and its implications going forward. 
I am concerned that our current economic environment will 
discourage savings altogether. Chairman Powell, are you 
concerned about the effects that inflation and negative savings 
yields could have on Americans' incentives to save money going 
forward?
    Mr. Powell. Interesting. If it were to persist for a long 
time, I would be concerned. Of course, right now the level of 
savings on people's balance sheets is at historic highs because 
they saved during the pandemic. They were not able to spend 
money on travel. Right now, we are looking at a couple trillion 
dollars of savings above where they would have been without the 
pandemic.
    But over time, yes, savings is important, and I would agree 
that high inflation can be a disincentive.
    Mr. Mooney. Thank you. I think it is important that we 
monitor the savings rate closely with this in mind. If 
Americans save less, it could have economy-wide implications, 
both now and especially in the future. So, we should be careful 
to ensure that monetary policy encourages savings going 
forward.
    That is all I have. Thank you, Madam Chairwoman. I yield 
back.
    Chairwoman Waters. Thank you very much. The gentlewoman 
from Texas, Ms. Garcia, who is also the Vice Chair of our 
Subcommittee on Diversity and Inclusion, is now recognized for 
5 minutes.
    Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank 
you, Chairman Pro Tempore Powell, for being with us today. I 
think I am going to be last, so I'm going to try to be soft.
    In a recent press conference, you had mentioned that 
forecasters expect inflation to subside as supply chain 
disruption issues are resolved. I understand this has been 
addressed, and my colleagues and I are working on addressing 
the supply chain crisis through multiple legislative solutions.
    At home, in Houston, one of the nation's shipping and 
energy capitals, we are focused on expanding and developing the 
nation's ports and waterways to continue building our role in 
facilitating global energy and trade. You also said in your 
remarks today that we understand that high inflation poses 
significant hardships, especially on those least able to meet 
the higher costs of essentials like food, housing, and 
transportation.
    I want to focus on housing. In Houston, housing costs have 
skyrocketed, with the median price rising 18 percent last year, 
and the average, 16 percent. Nationwide, housing indirect 
prices account for roughly one-third of the CPI, and most 
economists do not expect this problem to be resolved as quickly 
as supply chain bottlenecks.
    In your earlier exchange with my colleague, Congressman 
Williams, you mentioned a soft lending, wherein the Fed will 
address inflation first, and survey the housing prices trending 
downward. My question is this: Is the Fed looking at 
alternative plans? In the event that housing prices do not 
trend with inflation, how might that impact inflation reviving 
if low housing supply continues the upward pressure?
    Mr. Powell. We do. As you mentioned, housing costs and 
housing services costs, and if you are a renter, they are a 
very big chunk of what goes into the inflation indices. And to 
the extent housing prices--we are not saying they will go down, 
but we are saying that the increases will be much smaller. We 
don't need housing prices to actually decline. What we can't 
have is, we don't want to have them increasing at very high 
levels as they have been doing.
    Largely as a function of supply and demand--I don't know 
about Houston, but in many places in the country, it is 
difficult to find lots, difficult to find labor, and difficult 
to get materials, because materials are very expensive.
    Ms. Garcia of Texas. We are experiencing that.
    Mr. Powell. Yes, and demand is very strong, interest rates 
are low, and what you get is a lot of buyers and not enough new 
houses.
    What will happen as we raise interest rates--and this is 
already happening, it is already priced in--is that mortgage 
rates will go up and you will see that prices will begin to go 
up more slowly, demand will decline, and hopefully, we will get 
back to a place where demand and supply are well-aligned.
    Ms. Garcia of Texas. Will we ever get back to the pre-
pandemic levels?
    Mr. Powell. Of price?
    Ms. Garcia of Texas. Yes, sir.
    Mr. Powell. No. I would only expect that we could limit 
further price increases. We are not trying to drive prices back 
down. What we are trying to do is limit future prices.
    Ms. Garcia of Texas. Okay. How concerned are you that there 
seems to be a lack of investment in affordable housing, and how 
that could cause inflation to become a long-term problem, even 
if the Fed is able to get inflation under control in other 
segments of the economy, specifically, public housing?
    Mr. Powell. Public housing is, of course, not our--our 
policy tools don't generally meet the need for affordable 
housing. It is really more of a fiscal policy and a housing 
policy question.
    But I know that economic research shows that high housing 
costs for workers are making it difficult for people to live 
close to where they need to be going for work, and it is 
limiting the ability of people to be in the workforce, and 
ultimately limiting our economy. I will say that.
    Ms. Garcia of Texas. Last question, you mentioned in your 
remarks that it impacts essentials like food, housing, and 
transportation. What does increased inflation do to the poverty 
rate? I know unemployment is down. Does that basically mean 
poverty is coming down, or does it continue to rise with 
inflation?
    Mr. Powell. Those things would have offsetting effects. To 
the extent inflation is going up faster than people's wages--
and that is actually not the case for people at the lowest end 
of the spectrum, because that is where the highest wage 
increases have been, in the aggregate--but to the extent that 
was happening, it would potentially increase poverty, but to 
the extent people are going back to work, that would decrease 
it.
    Ms. Garcia of Texas. Thank you. Madam Chairwoman, I yield 
back.
    Chairwoman Waters. Thank you very much. I would like to 
thank Mr. Powell for his testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, 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 this witness and to place his 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.
    This hearing is adjourned.
    [Whereupon, at 1:03 p.m., the hearing was adjourned.]

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                             March 2, 2022