    [Senate Hearing 117-18]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-18

             THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

          OVERSIGHT ON THE MONETARY POLICY REPORT TO CONGRESS PURSU-
           ANT TO THE FULL EMPLOYMENT AND BALANCED GROWTH ACT OF 1978

                                   __________

                               FEBRUARY 23, 2021

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https: //www.govinfo.gov /

                                  __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    44-741 PDF                  WASHINGTON : 2021

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

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                         SHERROD BROWN, Ohio, Chairman

    JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
    ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
    JON TESTER, Montana                  MIKE CRAPO, Idaho
    MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
    ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
    CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
    CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
    TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
    KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
    JON OSSOFF, Georgia                  JERRY MORAN, Kansas
    RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                         STEVE DAINES, Montana

                         Laura Swanson, Staff Director

                     Brad Grantz, Republican Staff Director

                           Elisha Tuku, Chief Counsel

                             Tanya Otsuka, Counsel

                     Dan Sullivan, Republican Chief Counsel

                     John Crews, Republican Policy Director

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                        Charles J. Moffat, Hearing Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                           TUESDAY, FEBRUARY 23, 2021

                                                                       Page

    Opening statement of Chairman Brown..............................     1
            Prepared statement.......................................    44

    Opening statements, comments, or prepared statements of:
        Senator Toomey...............................................     4

                                    WITNESS

    Jerome H. Powell, Chairman, Board of Governors of the Federal
      Reserve System.................................................     5
        Prepared statement...........................................    45
        Responses to written questions of:
            Chairman Brown...........................................    48
            Senator Toomey...........................................    52
            Senator Warren...........................................    56
            Senator Cortez Masto.....................................    66
            Senator Scott............................................    68
            Senator Rounds...........................................    69

                  Additional Material Supplied for the Record

    Monetary Policy Report to the Congress dated February 19, 2021...    71

                                     (iii)

             THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

                                  ----------

                           TUESDAY, FEBRUARY 23, 2021

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10 a.m., via Webex, Hon. Sherrod
    Brown, Chairman of the Committee, presiding.

              OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

        Chairman Brown. This hearing is in the virtual format, as
    we have done in the past. For those joining remotely, a few
    reminders.
        Once you start speaking, there will be a slight delay
    before you are displayed on the screen. To minimize background
    noise, please click the mute button until it is your turn to
    speak or to ask questions.
        You should all have one box on your screens labeled
    ``Clock'' that will show you how much time is remaining. For
    all Senators, the 5-minute clock still applies for your
    questions. At 30 seconds remaining, you will hear a bell ring
    to remind you your time has almost expired. It will ring again
    when your time has expired.
        If there is a technology issue, Cameron and Charlie, who
    are very good at this, will fix it, but we will move to the
    next Senator until any technology issue is resolved.
        To simplify the speaking order process, Senator Toomey and
    I have agreed to go by seniority for this hearing, as we have
    in the past.
        At this Committee's first hearing, we heard from our
    witnesses the challenges and struggles Americans have faced
    over the past year.
        Anyone who has been doing their jobs has heard these
    stories. Frontline workers, like transit workers--whom we heard
    from last week--go to work every day worried they will get the
    virus on the job and bring it home to their families. Mayors
    and county commissioners and community leaders wonder how long
    they can hold on without starting layoffs. Renters see their
    bills pile up, watching their bank balances dwindle lower and
    lower, wondering if this will be the month that an eviction
    notice is posted on their door.
        Today more than 4 million people are out of a job. That
    number keeps climbing. We are still fighting the battle against
    the coronavirus. Nearly 500,000 of our fellow Americans have
    died from COVID-19.
        We know we are facing two crises: a public health crisis
    and an economic crisis. We have to be clear about that. We
    cannot solve one without solving the other.
        We know getting our economy back to full strength requires
    a massive, wartime-level mobilization to get all Americans
    vaccinated.
        We also know that vaccines alone will not put most workers
    and their families back to where they were a year ago.
        We want people back to work, we want kids back in school,
    and we want to see Main Streets thriving and humming with life
    again. That requires real Federal leadership on a level we have
    not seen in this country since World War II.
        As Bill Spriggs alluded to when testifying before this
    Committee, before D-Day, General Eisenhower did not call up
    President Roosevelt and ask, ``Can we afford to storm the
    beaches at Normandy? Do we have the money in our accounts?''
        Most people that I talk to in Ohio and around the country
    are not worried about doing too much in the battle against this
    virus; they are worried about doing too little. They want us to
    do whatever it takes.
        Eighty-five percent of Americans still need a vaccine. Our
    front-line workers still need PPE. Small businesses still need
    assistance to keep their doors open. States and cities and
    towns still need resources and support to open schools safely
    and keep buses running and libraries open and firefighters on
    the job.
        Experts agree the best thing we can do, the best thing we
    can for the country right now, is to get resources out the door
    as quickly as possible to tackle these interconnected problems.
        Former Fed Chair, now our Treasury Secretary, Janet Yellen
    said if we do not do more, we risk a permanent, her word,
    ``scarring'' of the economy into the future.
        Economists from across the political spectrum--including
    many who have testified before this Committee--tell us that
    without strong fiscal support, our economy could spiral even
    further out of control and take even longer--years--to recover.
        Our witness today, Federal Reserve Board Chair Jerome
    Powell, has expressed some of those same concerns. Just a few
    weeks ago--after we passed the COVID-19 relief bill in
    December--Chair Powell said that ``support from fiscal policy
    will help households and businesses weather the downturn as
    well as limit lasting damage to the economy that could
    otherwise impede the recovery.''
        Chair Powell has talked to all of us about the risk of
    falling short of a complete recovery, the damage it will do to
    people's lives and to the ``productive capacity of the
    economy.'' Those were his words: ``productive capacity of the
    economy.''
        President Biden understands this moment; he has risen to
    meet it with his bold American Rescue package. It is a plan to
    both rescue the economy and save American lives.
        Workers and their families need to see their Government
    work for them now, and this rescue plan must be the beginning
    of our work to deliver the results that empower people and make
    their lives better. We need to rethink how our economy
    operates. When a hard day's work does not pay the bills for
    tens and tens of millions of workers, and even middle-class
    families do not feel stable, something in the system is broken.
    We know that.
        Workers' wages have been stagnant for decades; CEO pay has
    soared. Corporations get huge tax breaks. Instead of investing
    in their employees and the communities they serve, management
    too often rewards itself and its shareholders through stock
    buybacks and dividends.
        The wealth and income gaps for women and for Black and
    Brown workers are getting worse, not better. Many families
    still had not recovered from the Great Recession when the
    pandemic hit.
        This did not happen by accident. It is the result of
    choices made by corporations and their loyal allies in
    Washington.
        They have spent years rolling back consumer protections in
    our financial system, cutting corporate tax rates, and using
    Wall Street to measure the economy instead of the condition of
    workers.
        And the same people that have been advocating for these
    rollbacks, pushing this stock market-centered view of the
    economy, are the same people who say we should not go big on a
    rescue plan. They say that there is no need for the Government
    to help people, that the market should decide who wins and who
    loses.
        But we all know that the market does not work when the game
    is rigged. Corporations that have been lining their own pockets
    have done so with plenty of Government help and intervention.
        We know that for them short-term profits are more important
    too often than their workers. That is why we have to stop
    letting them run things.
        Look at what has happened in Texas, where a deregulated
    energy grid failed, leaving millions without power in frigid
    winter temperatures. People are literally freezing to death in
    their own homes--in the United States of America.
        Without any rules, energy companies can charge consumers
    sky-high prices. They even use automatic debits, taking
    thousands of dollars directly out of people's bank accounts. We
    know climate change causes severe weather patterns across this
    country. We need more investment in public infrastructure, not
    less. We cannot let corporate greed continue to stand in the
    way.
        Our Nation's central bank plays a critical role in all of
    this.
        The Federal Reserve can ensure that the biggest banks use
    their capital to invest in their workers and lend in their
    communities, instead of ginning up stock prices with buybacks
    and dividends.
        The Fed can make sure the response to economic and
    financial crises does not just help Wall Street, but helps
    everyone.
        It can require that financial institutions take into
    account the serious risks posed by the climate crisis.
        It can help ensure that everyone in this country has a bank
    account and access to their own hard-earned money. It can start
    to undo the systemic racism in the financial system, from black
    codes to Jim Crow to redlining to locking in discriminatory
    practices during the last Administration. It can make workers
    the central focus of our economy.
        Chair Powell, you said just a few weeks ago that the
    ``benefits of investing in our Nation's workforce are immense.
    Steady employment provides more than a regular paycheck. It
    also bestows a sense of purpose, improves mental health,
    increases life spans, and benefits workers and their
    families.''
        What that boils down to is the dignity of work. It means
    that hard work should pay off, no matter who you are, no matter
    what kind of work you do, whether you punch a clock or work for
    tips or work on a salary or taking care of aging parents. It
    means we need to start measuring the success of our economy by
    the success of the people who make our economy work.
        Chair Powell, thank you. I look forward to your testimony.
        Senator Toomey.

             OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

        Senator Toomey. Thank you, Mr. Chairman, and thank you,
    Chairman Powell. Welcome back to the Banking Committee. I look
    forward to your testimony.
        About a year ago, the U.S. economy was entering an
    unprecedented economic contraction as a result of the shutdowns
    that followed the spread of COVID-19. We all remember credit
    markets seizing up. Second quarter GDP last year fell by over
    30 percent. The unemployment rate reached about 15 percent in
    April, the highest it had been since the 1930s. The economy was
    in very desperate straits, to say the least.
        Thankfully, the worries about a long, drawn-out depression
    appear to have been unfounded. In response to the economic
    collapse, Congress and the Fed took very, very bold,
    unprecedented, and decisive action. The Fed quickly lowered
    interest rates, launched a quantitative easing program on an
    unprecedented scale, and helped facilitate market functioning
    through a variety of emergency programs that were funded
    through congressional legislation, and we in Congress passed
    over $4 trillion in relief over five overwhelmingly bipartisan
    bills.
        Fortunately, today we are in nothing like the situation we
    were in last spring. Today the unemployment rate is now 6.3
    percent, about where it was in July of 2014. Eighteen States
    have unemployment rates below 5 percent. The average household
    in America is in a better financial position today than it was
    in before the pandemic. Personal savings rates are up by over
    $1.6 trillion. Consumer credit is down by over $100 billion.
    There is no question there are some subsets of our economy and
    our society that have been hit much harder than others, but in
    the aggregate, the fact is Americans have more disposable
    income now than they had before the crisis. And yet Congress is
    in deliberations to spend another $1.9 trillion with universal
    payments to people who have never had as much income as they
    do, to entities such as State and local governments, which in
    the aggregate have taken in more revenue in 2020 than they did
    ever before.
        We are well past the point where our economy is collapsing.
    And, in fact, our economy is growing very powerfully. The last
    thing we need is a massive multi- trillion-dollar universal
    spending bill. And we should recognize that all of this
    spending comes at a cost. It all gets funded with Government
    debt, which is either monetized, which has its own dangers, or
    it is a burden that gets passed on to future generations that
    have to service that debt.
        In 2020, debt held by the public reached 100 percent of our
    total economic output, and CBO projects that over the next 10
    years, net interest costs will amount to $4.5 trillion, and
    that is without another $1.9 trillion bill.
        There is also a real danger that we have overheating in
    places that lead to unwanted inflation, and I think the data is
    increasingly pointing in that direction. Keep in mind, we have
    $11 trillion in personal savings deposits. The country is in an
    accelerating reopening as the number of COVID cases is
    declining very, very rapidly on a daily basis. The economy is
    poised for very substantial growth in the near term, and yet
    the Fed continues to purchase $120 billion of securities per
    month, maintain short-term interest rates at basically zero,
    and Congress is considering, as I said, another enormous bill.
        On another matter, I want to make the point that I do think
    it is very important for the Fed to continue to focus on the
    mandate it has and not to seek to broaden that mandate. As
    noble as the goals might be, issues such as climate change and
    racial inequality are simply not the purview of our central
    bank. So during this hearing, I look forward to hearing about
    your views, Mr. Chairman, on the economy, on monetary policy,
    and the state of our markets.
        And with that, I yield.
        Chairman Brown. Thank you, Senator Toomey.
        Today we will hear from Federal Reserve Chair Jerome Powell
    the Fed's monetary policy and the state of the U.S. economy. It
    is nearly 1 year since the coronavirus pandemic first wreaked
    havoc in our country. We know the Federal Reserve plays a key
    role in making sure that our economy recovers for all
    Americans.
        Chair Powell, thank you for your service. Thank you for
    being in front of our Committee today and for your testimony.
    Proceed.

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

        Mr. Powell. Thank you, and good morning, Chairman Brown,
    Ranking Member Toomey, and other Members of the Committee. I am
    pleased to present the Federal Reserve's semiannual Monetary
    Policy Report.
        At the Federal Reserve, we are strongly committed to
    achieving the monetary policy goals that Congress has given us:
    maximum employment and price stability. Since the beginning of
    the pandemic, we have taken forceful actions to provide support
    and stability, to ensure that the recovery will be as strong as
    possible, and to limit lasting damage to households,
    businesses, and communities. Today I will review the current
    economic situation before turning to monetary policy.
        The path of the economy continues to depend significantly
    on the course of the virus and the measures undertaken to
    control its spread. The resurgence in COVID-19 cases,
    hospitalizations, and deaths in recent months is causing great
    hardship for millions of Americans and is weighing on economic
    activity and job creation.
        Following a sharp rebound in economic activity last summer,
    momentum slowed substantially, with the weakness concentrated
    in the sectors most adversely affected by the resurgence of the
    virus. In recent weeks, the number of new cases in
    hospitalizations has been falling, and ongoing vaccinations
    offer hope for a return to more normal conditions later this
    year. However, the economic recovery remains uneven and far
    from complete, and the path ahead is highly uncertain.
        Household spending on services remains low, especially in
    sectors that typically require people to gather closely,
    including leisure and hospitality. In contrast, household
    spending on goods picked up encouragingly in January after
    moderating late last year. The housing sector has more than
    fully recovered from the downturn, while business investment
    and manufacturing production have also picked up. The overall
    recovery in economic activity since last spring is due in part
    to unprecedented fiscal and monetary actions, which have
    provided essential support to many households, businesses, and
    communities.
        As with overall economic activity, the pace of improvement
    in the labor market has slowed. Over the 3 months ending in
    January, employment rose at an average monthly rate of only
    29,000. Continued progress in many industries has been tempered
    by significant losses in industries such as leisure and
    hospitality, where the resurgence in the virus and increased
    social distancing have weighed further on activity. The
    unemployment rate remained elevated at 6.3 percent in January,
    and participation in the labor market is notably below
    prepandemic levels. Although there has been much progress in
    the labor markets since the spring, millions of Americans
    remain out of work. As discussed in the February Monetary
    Policy Report, the economic downturn has not fallen equally on
    all Americans, and those least able to shoulder the burden have
    been hardest hit. In particular, the high level of joblessness
    has been especially severe for lower-wage workers and for
    African Americans, Hispanics, and other minority groups. The
    economic dislocation has upended many lives and created great
    uncertainty about the future.
        The pandemic has also left a significant imprint on
    inflation. Following large declines in the spring, consumer
    prices partially rebounded over the rest of last year. However,
    for some of the sectors that have been most adversely affected
    by the pandemic, prices remain particularly soft. Overall, on a
    12-month basis, inflation remains below our 2-percent longer-
    run objective.
        While we should not underestimate the challenges we
    currently face, developments point to an improved outlook for
    later this year. In particular, ongoing progress in
    vaccinations should help speed the return to normal activities.
    In the meantime, we should continue to follow the advice of
    health experts to observe social distancing measures and wear
    masks.
        I will turn now to monetary policy. In the second half of
    the year, the Federal Open Market Committee completed our first
    ever public review of our monetary policy, strategy tools, and
    communication practices. We undertook this review because the
    U.S. economy has changed in ways that matter for monetary
    policy. The review's purpose was to identify improvements to
    our policy framework that could enhance our ability to achieve
    our maximum employment and price stability objectives. The
    review involved extensive outreach to a broad range of people
    and groups, including through a series of Fed Listens events.
        As described in the February Monetary Policy Report, in
    August, the Committee unanimously adopted its revised statement
    on longer-run goals and monetary policy strategy. A revised
    statement shares many features with its predecessor. For
    example, we have not changed our 2-percent longer-run inflation
    goal. However, we did make some key changes. Regarding our
    employment goal, we emphasized that maximum employment is a
    broad and inclusive goal. This change reflects our appreciation
    for the benefits of a strong labor market, particularly for
    low- and moderate-income communities. In addition, we state
    that our policy decisions will be informed by our assessments
    of shortfalls of employment from its maximum level rather than
    by deviations from its maximum level. This change means that we
    will not tighten monetary policy solely in response to a strong
    labor market. Regarding our price stability goal, we state that
    we will seek to achieve inflation that averages 2 percent over
    time. This means that following periods when inflation has been
    running below 2 percent, appropriate monetary policy will
    likely aim to achieve inflation moderately above 2 percent for
    some time. With this change, we aim to keep longer-term
    inflation expectations well anchored at our 2-percent goal.
    Well-anchored inflation expectations enhance our ability to
    meet both our employment and inflation goals, particularly in
    the current low interest rate environment in which our main
    policy tool is likely to be more frequently constrained by the
    lower bound.
        We have implemented our new framework by forcefully
    deploying our policy tools. As noted in our January policy
    statement, we expect that it will be appropriate to maintain
    the current accommodative target range of the federal funds
    rate until labor market conditions have reached levels
    consistent with the Committee's assessment of maximum
    employment, and inflation has risen to 2 percent and is on
    track to moderately exceed 2 percent for some time. In
    addition, we will continue to increase our holdings of Treasury
    securities and agency mortgage-backed securities, at least at
    their current pace, until substantial further progress has been
    made toward our goals. These purchases and the associated
    increase in the Federal Reserve's balance sheet have materially
    eased financial conditions and are providing substantial
    support to the economy. The economy is a long way from our
    employment and inflation goals, and it is likely to take some
    time for substantial further progress to be achieved. We will
    continue to clearly communicate our assessment of progress
    toward our goals well in advance of any change in the pace of
    purchases.
        Since the onset of the pandemic, the Federal Reserve has
    been taking actions to more directly support the flow of credit
    in the economy, deploying our emergency lending powers to an
    unprecedented extent, enabled in large part by financial
    backing and support from Congress and the Treasury. Although
    the CARES Act facilities are no longer open to new activity,
    our other facilities are in place.
        We understand that our actions affect households,
    businesses, and communities across the country. Everything we
    do is in service to our public mission. We are committed to
    using our full range of tools to support the economy and to
    help ensure that the recovery from this difficult period will
    be as robust as possible.
        Thank you. I am happy to take your questions.
        Chairman Brown. Thank you, Chair Powell.
        First, just a yes or no question. Do you agree the most
    important thing we can do for the economy right now is get
    people vaccinated?
        Mr. Powell. I would say that, yes, that is the single best
    policy to return the economy to its potential growth.
        Chairman Brown. Thank you. Researchers in Minneapolis say
    the pandemic is forcing mothers of young children out of the
    workforce. Some 3 million women have been forced out of the
    paid labor market in the past year. Every day families face
    impossible choices between their paychecks and caring for their
    children. The Biden Rescue Plan, as you know, provides the
    funding we need to get Americans vaccinated, as you suggest is
    the right policy. And that will help kids go back to school, to
    help working moms get back to work safely.
        What can the Fed do to make sure women, especially those
    with young children, can return to the workforce so that we do
    not end up with an even bigger lasting gender gap in the labor
    market?
        Mr. Powell. So the tools that can really address specific
    groups, for example, women who have perhaps temporarily dropped
    out of the labor force, those are really fiscal policy tools.
    Obviously, those are not tools that we have, and I today will,
    you know, stay away from fiscal policy and really talk about
    what we can do. And I think the main thing that we can do is
    continue to support the economy, give it the support that it
    needs. We are still 10 million jobs below the level of payroll
    jobs before the crisis. There is still a long way to go to full
    recovery, and we intend to keep our policy supportive of that
    recovery.
        Chairman Brown. Thank you for acknowledging in your opening
    statement and your comments to many of us, and your public
    comments, frankly, about how much we need to do to fight racism
    and increase diversity. Yet we know historically the Fed's
    monetary policy has benefited wealthy savers and homeowners.
    Decades of discrimination in the financial system we talked
    about earlier, from redlining to the subprime mortgage crisis,
    specifically targeted Black, Brown, and other vulnerable
    communities. It is clear the Fed's policy and failure to
    regulate predatory actions in the banking sector have
    contributed to the racial wealth, income, and home ownership
    gaps. You have said that the Fed's tools cannot address the
    underlying causes of racial injustice or income and wealth
    inequality in our economy. I think you give up a little too
    easily when you say that.
        So how can the Fed use its supervision authority to enforce
    antidiscrimination laws and fight racial injustice and income
    inequality?
        Mr. Powell. We do have responsibilities and authorities for
    fair lending, for example, under a number of statutes, and we
    take those responsibilities very seriously and, I think, carry
    them out robustly, and that is an important part of our
    mandate. And so that is something that we could do, and I think
    we do aggressively.
        In addition, through our Consumer and Community Affairs
    Division and through the Federal Reserve Banks, we do not
    spend, you know, public resources, but we try to attract
    private resources around, for example, initiatives that will
    address economic issues of low- and moderate-income communities
    and racial minorities.
        Chairman Brown. I think we could do more, but we will
    discuss that later.
        Chair Powell, in the middle of the pandemic, bank
    regulators have loosened capital requirements at the biggest
    banks. In one of its changes for the capital rules, the Fed
    stated the rule was meant, and I quote, ``to allow banking
    organizations to expand their balance sheets as appropriate, to
    continue to serve as financial intermediaries rather than to
    allow banking organizations to increase capital
    distributions.''
        In other words, the Fed reduced capital standards so banks
    would lend more, not so they would pay dividends. But as you
    know, it is not what is happening. The biggest banks have
    gotten larger. They have gotten more profitable, but they have
    not increased lending. Dividends, however, have remained
    steady.
        My question is: Mr. Chair, will you promise to the
    Committee that you will not extend any exemptions for capital
    requirements for banks and bank holding companies that have
    continued to pay dividends rather than invest in the real
    economy?
        Mr. Powell. So we are talking here really about the
    temporary measures we took with respect to the supplementary
    leverage ratio, and those expire at the end of March. We have
    not decided what to do there yet, and we are actually looking
    into that right now. I am not going to commit to connecting
    that decision to the payment of dividends. As a separate
    matter, as you know, we intervene to require the banks to limit
    their dividend growth to zero and also to limit their share
    buybacks, and the result of what you see now is a banking
    system that has higher capital than it did going into the
    pandemic, and particularly for the largest banks, and one where
    the banks have taken very large reserves against losses and so
    have proven themselves pretty resilient.
        Chairman Brown. Perhaps, but we also understand that they
    have not been supporting the real economy to the degree that we
    hoped they would, and we will continue that conversation. And I
    will send a written question to you on climate that we wanted
    to talk about.
        Chairman Brown. Senator Toomey.
        Senator Toomey. Thank you, Mr. Chairman.
        Just on this topic, let me just say I certainly hope that,
    to the extent that banks have adequate capital for the
    circumstances that they face at any point in time, any capital
    beyond that should absolutely be available to be returned to
    the people who own those banks in the form of dividends or
    stock buybacks, or whatever mechanism is suitable. And anything
    to the contrary is a terrible constraint on our economy and on
    economic freedom.
        I also want to just observe briefly--and I am not asking
    for a comment on this, Chairman Powell, but if I could
    summarize and characterize your opening comments about the
    economy, I think it is fair to say that we have many areas,
    sectors of our economy that are performing extremely well--
    housing in the goods sector I think you referred to. And then
    we have very concentrated problems in certain relatively narrow
    sectors like hospitality and travel and entertainment, which
    are extremely depressed because of the circumstances. I think
    that clearly makes a very strong case that if there were to be
    further fiscal policy, it should address where the problem is
    and not where the problem is not.
        But to address monetary policy for a moment or so, I think
    the Fed's current forecast for growth for this year is over 4
    percent. I think the consensus is well over 5 percent, with
    some thinking it could be considerably higher than that. The
    unemployment rate is now at 6.3, which is about where it was in
    2014 when we were not contemplating multi-trillion-dollar
    bills, and I do not think we were buying $120 billion worth of
    securities per month.
        My concern is that the last two recessions were, I think,
    caused by asset bubbles that burst. In 2001 it was the stock
    market. In 2008 it was the mortgage credit market. In both
    cases, in my view, monetary policy contributed a great deal to
    the formation of those bubbles.
        The Dallas Fed President, Robert Kaplan, recently
    acknowledged that there is a link between the record amount of
    liquidity being pushed into the system and these unprecedented
    asset valuations that we are seeing in a whole range of assets,
    be it GameStop or Bitcoin or real estate commodities. Across
    the board we are seeing quite elevated asset prices and signs
    of emerging inflation.
        So I guess my question is: Do you believe that there is a
    link between the liquidity that the Fed has been providing and
    some of these unprecedented asset prices?
        Mr. Powell. So there is certainly a link. I would say,
    though, that if you look at what the market is looking at, what
    markets are looking at, it is a reopening economy with
    vaccinations; it is fiscal stimulus; it is highly accommodative
    monetary policy; it is savings accumulated on people's balance
    sheets. It is the expectations of much higher corporate
    profits, which matters a lot for the equity markets. So there
    are many factors that are contributing to what is happening in
    markets right now. Monetary policy I would certainly agree is
    one of them.
        Senator Toomey. Yeah, I would just suggest that--right, I
    agree all of those things are happening, all of those
    indicators of growth and increasingly indicators of rising
    inflation. As you know, the TIPS 10-year break-even on
    inflation is now over 2 percent, up from six-tenths of 1
    percent.
        My point is that at some point we have got too much
    liquidity going into the system. The economy is recovering
    very, very well. Problems are isolated and should be addressed
    narrowly. And I hope that $120 billion a month of bond buying
    does not become a permanent situation.
        One of the things I am concerned about, I wonder if you
    could comment on the risk that we would have an increase in
    inflation, an increase in bond deals that would correspond to
    that, but without being back at full employment, what would
    that imply--which I think is a very plausible scenario for
    later this year. What does that imply for the bond-buying
    program?
        Mr. Powell. Well, so what we have said about the bond-
    buying program is that it will continue at the current pace, at
    least at the current pace, until we make substantial further
    progress toward our goals. And we have also said that as we
    monitor that progress, we will communicate well in advance of
    any actual decisions on purchases. And so what it will take for
    us to begin to moderate the level of purchases, is substantial
    further progress toward our goals, which we have not really
    been making for the last 3 months, but expectations are that
    will pick up as the pandemic subsides.
        Senator Toomey. Well, thank you, Mr. Chairman. I would just
    suggest that there are a lot of warning signs that have not
    been worrisome in the past but now are certainly blinking
    yellow. With that, I will yield.
        Chairman Brown. Thank you.
        Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman.
        Chairman Powell, at the end of this pandemic, we need to
    ensure that we have a more equal society. Unfortunately, we are
    not on a path to an equal recovery. As of January, the Black
    unemployment rate is 9.2 percent, the Hispanic unemployment
    rate is 8.6 percent, compared to 5.7 percent for White workers.
        According to the New York Fed, over the course of the
    pandemic the black labor force exit rate has increased
    dramatically while the White labor force exit rate has returned
    to prepandemic levels. Doesn't this mean that the Black
    unemployment rate is likely misleadingly low compared to the
    White rate?
        Mr. Powell. Well, as you point out, this pandemic was
    particularly bad for these long-standing disparities that we
    have in our economy. The job losses were heavily concentrated
    in public-facing service sector jobs. Those job losses tend to
    be more skewed toward lower-paid jobs and, in many cases,
    minorities and women, and so that is really where the big
    pockets of unemployment remain. And so you are right, so the
    burden really has fallen more in the low- and moderate-income
    communities than would typically be the case. It is always the
    case to some extent. This particular event, though, is somehow
    very precisely aimed at those people, and we are well aware of
    that.
        Senator Menendez. Well, I appreciate that acknowledgment.
    We know from the Bureau of Labor Statistics over the course of
    2020, the labor force participation rate for Black men and
    women fell nearly twice as much as it did for White men and
    women. So do you agree that minority families are bearing the
    brunt of the damage caused by the pandemic?
        Mr. Powell. Yes, along with others at the lower end of the
    income spectrum, the bottom quartile.
        Senator Menendez. Would you agree then that addressing this
    disproportionate damage needs to be a central priority in
    relief efforts?
        Mr. Powell. I would have thought so.
        Senator Menendez. Yeah, so would I. Now, as part of the
    Federal Reserve's mission to ensure maximum employment, what is
    the Federal Reserve's plan for maximizing employment for low-
    income and minority workers?
        Mr. Powell. So when we say that maximum employment is a
    broad and inclusive goal, that means we look not just at the
    headline numbers; we also look at different groups and we try
    to take all of that into account in making our assessments. So
    we will take into account the headline numbers, but also those
    for other groups as we think about reaching maximum employment.
        Senator Menendez. Well, I hope that in your mission that
    the Federal Reserve looks at this because Federal Reserve
    studies show that while high-income jobs mostly recovered to
    prepandemic levels, unemployment among low-wage workers remains
    14 percent below prepandemic levels. And this is in spite of
    the fact that almost half of all low-wage workers are essential
    workers, the people who actually let us stay home when we were
    told to stay home to avoid the spread of the pandemic and to be
    infected; but they were risking their lives in the jobs that
    they did. And so I believe we have the tools to try to make
    this an equitable recovery.
        So would you commit to working with Congress and the
    Treasury to help low-wage workers and minority workers be able
    to recover just as strongly as others?
        Mr. Powell. We will do that. I will say, though, that
    monetary policy as a tool is famously a broad--it is a broadly
    effective tool. It does not enable us to target particular
    groups. It lifts the entire economy. But we are going to be
    mindful, though, of the disparities that exist as we make our
    decisions.
        Senator Menendez. Then, finally, as of February 1st, an
    estimated 13 million adults were not caught up on their rent;
    another 10 million adults were not caught up on their mortgage
    payments. Our country is very clearly in the midst of a housing
    crisis. What would be the effect on the housing market and our
    overall economy if Congress does not provide additional
    resources to help families struggling to pay their rent and
    mortgages?
        Mr. Powell. Well, if it were to get to the point at which
    people were evicted--and you are talking about people's lives
    being disrupted in ways that are sometimes quite hard to
    recover from, both for renters and owners, so it is important.
    I think the single best thing we can do about that, of course,
    is to keep monetary policy accommodative to do what we can to
    speed the recovery so that it will be robust and complete as
    soon as possible.
        Senator Menendez. Well, millions of people losing their
    homes would not only affect rateable bases and their most
    single aspect of wealth, so I hope you will keep your eye on
    that.
        Thank you, Mr. Chairman.
        Mr. Powell. Thank you.
        Chairman Brown. Senator Shelby.
        Senator Shelby. Good morning. Chairman Powell, thank you
    for your service of a number of years and how you, I believe,
    have done an outstanding job as Chairman of the Federal
    Reserve. I would like to associate myself this morning with a
    lot of the questions that have been asked already by Senator
    Toomey--the concern of inflation, the concern of the balance
    sheet, of where is the economy going when we get over this
    COVID, which we all hope and pray will be sooner than later.
    And I would like to add to that, Mr. Chairman, what is your
    view of the world economy tying into ours? Because it is an
    important factor as we go forward, assuming in the next, say, 6
    months that we get a handle around COVID in the country, and
    Europe, for example, does the same thing.
        Mr. Powell. So I will take those one at a time. On
    inflation, let me say a couple of things. First, as the very
    low readings of last March and April drop out of the 12-month
    calculation as we move forward this year, we expect readings on
    inflation to move up. That is called ``base effects.'' That
    will be a temporary effect, and it will not really signal
    anything.
        More importantly, though, with all the factors we have been
    discussing, you could see spending pick up pretty substantially
    in the second half of the year. And that would be a good thing,
    of course, but it could also put upward pressure on prices. And
    I would just say that essentially it does not seem likely that
    would result in very large increases or that they would be
    persistent.
        We have all been living in a world for a quarter of a
    century and more where all of the pressures were
    disinflationary, you know, pushing downward on inflation. We
    have averaged less than 2 percent inflation for more than the
    last 25 years. Inflation dynamics do change over time, but they
    do not change on a dime, and so we do not really see how a
    burst of fiscal support or spending that does not last for many
    years would actually change those inflation dynamics.
        I will also say forecasters need to be humble and have a
    great deal to be humble about, frankly, so if it does turn out
    that unwanted inflation pressures arise and they are
    persistent, then we have the tools to deal with that, and we
    will.
        Shall I continue? So on the balance sheet, you know, we are
    going to continue to--we are at a stage where with 10 million
    people--payroll employment is 10 million below where it was
    before the pandemic. You know, we are a long way from maximum
    employment. We are going to keep--the balance sheet is going to
    continue to provide the support that we think the economy
    needs. Over time, it will--the growth of it will slow, but that
    decision is the one that we talked about earlier, where asset
    purchases will continue until we make significant further
    progress toward our goals.
        You asked about the U.S. economy and the world economy. I
    do think--and many forecasters agree--that once we get this
    pandemic under control, you know, we could be getting through
    this much more quickly than we had feared, and that would be
    terrific. But it is not done yet. That job is not done. That is
    the thing I keep coming back to. We have got to finish the job
    with the pandemic, get it under control so that the U.S.
    economy could really reopen. Other countries around the world
    have the same set of issues, but there is--if people will get
    vaccinated and we can get the disease under control properly,
    the second half of this year and thereafter, the economy could
    be very good, and it could be good elsewhere in the world as
    well.
        Senator Shelby. And the fact that the savings rate has gone
    up tremendously in America, does that bode well in the future
    as far as perhaps economic activity?
        Mr. Powell. So a lot of that just is that people have not
    been able to spend. They have not been able to travel and go to
    restaurants, so it is forced savings in a way. So they will
    spend some of that going forward.
        You are really thinking, I think, about the fact that, you
    know, the U.S. needs more savings so that it will have more
    investment and more productivity. It would be nice if we had a
    higher savings rate, and it would be also nice if we did not
    have a lot of dissavings at the Federal level. A lot of it is
    that budget deficits require a lot of assets, not that we
    need--that is something we need to turn to again, but I think
    this is not the time to be thinking about that. But that time
    will certainly come.
        Senator Shelby. Thank you, sir.
        Mr. Powell. Thank you, Senator.
        Chairman Brown. Thank you, Senator Shelby.
        Senator Tester.
        Senator Tester. Yes, thank you, Mr. Chairman. And I want to
    start by thanking Chairman Powell. I very much appreciate your
    frankness. I very much appreciate your fight to keep the Fed
    independent. I know that has been difficult over the past
    number of years, but you have stepped up. You certainly do not
    want a bunch of politicians to determine monetary policy, so I
    am glad you are at the helm.
        I also think that we are going to have a debate over this
    $1.9 trillion package in front of you on probably every damn
    Committee that I am on and a bunch of others. Some of that is--
    well, all of it is necessary, but I do want to talk to you,
    because everybody makes points and I go, ``Yeah, that is a good
    point.'' And it is true. The housing market in a place like
    Montana is hotter than hot. It is, quite frankly, booming, and
    there is another problem that I want to talk to you a little
    bit about with the housing thing. But there are other
    industries and there are folks out there who, quite frankly, do
    not have the job they used to have and may never get that job
    back. And there are business people out there that are up
    against it. Some of those businesses will go broke and never
    reopen. Others will.
        I just kind of want to get your perspective on if you were
    not the head of the Fed but in the U.S. Senate, where would you
    pay most of your attention to? Because I agree, any money we
    spend needs to be focused where it will do the most good. There
    is no doubt about that. Where is your focus? Where would your
    focus be? Would it be on employment? Would it be hospitality
    businesses? Or would it be something more global than that?
        Mr. Powell. That is an interesting question. Maybe the
    grass is always greener, but our work really relates to
    managing the business cycle in a way. But what I always think I
    would focus on is more what we call the ``supply side,'' which
    is really investing in things that will increase the potential
    growth rate of the United States economy over time and make
    that prosperity as broadly spread as possible.
        Let me be more specific. It amounts to investing in people,
    and that means education, it means training. It means all those
    things. And that enables those people to take part fully in our
    great economy, and I really do think in a global economy people
    who are able to use and benefit from technology, there is no
    limit on the amount of those people who can be working in the
    United States because it is such a global economy.
        I also think it is important for businesses as well that
    they have a climate where they can trust, you know, that
    inflation is going to be under control and that business
    conditions are going to be good and that they can invest, and I
    think the Federal Government investing in basic science over
    time has produced a lot of productivity-enhancing things.
        But, more generally, Senator, I think focusing on things
    that will make a longer-run difference to our economy is what I
    would do.
        Senator Tester. OK. I appreciate that.
        Now I want to go to housing because I do not--you know, I
    talk about Montana, but I think this is true all over. We do
    not have enough affordable housing. We do not have enough
    workforce housing. I think that short term and long term, by
    the way, this is going to be a drag on the economy.
        Do you see the Fed playing any role or do you think they
    could have a role in increasing the amount of affordable
    housing that is out there? And if you do think the Fed plays a
    role, what would that role be?
        Mr. Powell. I do not really think we do. When it comes to a
    set of policies like that, that is targeting, you know, the
    fiscal power of the Federal Government to what is seen as a
    worthy cause. It is not really something we can do. We can
    combat housing discrimination and things like that in lending,
    but I do not think we are in a position of being able to
    allocate credit to worthy beneficiaries. That is really fiscal
    policy.
        Senator Tester. Getting back to the pandemic, you have
    implemented a lot of monetary tools during this crisis. In your
    opinion, have they been sufficient? And if they have--yeah,
    that is the first question. Have they been sufficient?
        Mr. Powell. I think they have. I think the difference
    really this time is that fiscal policy has really come to the
    table, and that is making a difference.
        Senator Tester. OK. Moving forward, have you looked at any
    changes to the policies, the monetary policy, the monetary and
    fiscal tools that we use moving forward?
        Mr. Powell. Not yet. I mean, we are looking into that. Of
    course, we will do--right now our focus is on providing the
    economy the support it needs. We will be turning to an
    evaluation of everything that happened in the crisis and
    answering that question.
        Senator Tester. OK. Thank you, Mr. Chairman. Thank you,
    Chairman Powell.
        Mr. Powell. Thank you, Senator.
        Chairman Brown. Thank you, Senator Tester.
        Senator Scott.
        Senator Scott. Thank you, Chairman Brown, and thank you,
    Chair Powell, for being here with us this morning. It is
    certainly an important time for us to engage in a conversation
    about the future of employment in our Nation, and one of the
    core responsibilities of the Fed, of course, has to do with
    unemployment.
        There seems to be so few issues right now, Chairman Powell,
    that actually unite the left and the right. I am always stunned
    in Washington when we find something that unites both sides
    and, frankly, the minimum wage issue is an issue that has
    united both Republicans and Democrats on opposing having the
    $15 minimum wage as a part of the COVID-19 relief package. It
    is good to see my friends on the left coming to the conclusion
    that in the middle of a pandemic that, according to the
    Congressional Budget Office, has already shuttered--the $15
    minimum wage would shutter another 1.4 million jobs. The
    earlier estimate went as high as 3.7 million jobs in the middle
    of a pandemic that has eliminated 10.7 million jobs. This seems
    to be common sense from my perspective, from the perspective of
    Democrats and the Congressional Budget Office.
        My question for you, sir, is: Have the Fed's economists
    conducted research on the potential impacts of raising the
    minimum wage to $15 an hour?
        Mr. Powell. I do not know that we have looked at that
    question particularly. We have great labor economists who have
    done a lot of work on the broad area.
        Senator Scott. Yes, sir. Are their conclusions similar to
    the conclusions of the Congressional Budget Office as it
    relates to the negative impact of raising the minimum wage
    during the pandemic?
        Mr. Powell. Let me say, as I must, that this is a classic
    issue that the Fed never takes a position on, and I am not
    going to take a position on it here today. It is fiscal policy.
    Most of the research still says that there is some tradeoff
    between job loss and those whose wages go up. But, actually,
    you know, the sort of unanimity of that finding of 30 or 40
    years ago is no longer in place. There is a much more nuanced
    understanding of it. But, in any case, it is just an issue
    where we do not play a role or express a view. I can share with
    you the research that we have done. I would be happy to do
    that.
        Senator Scott. That would be----
        Mr. Powell. That our staff has done.
        Senator Scott. That would be very important, especially as
    you think of the Fed's responsibility as it relates to
    providing a sustainable economy that includes keeping
    unemployment as low as possible. The fact that the Fed is not
    taking a position on an increase of the minimum wage that is
    obviously, according to the Congressional Budget Office, going
    to eliminate the minimum of 1.4 million jobs I think is an
    important engagement from the Fed on that issue.
        I will ask you a different question as it relates to the
    COVID relief package of $1.9 trillion. It seems to me that over
    the last fiscal year, we spent right around $6.5 trillion
    addressing the pandemic. My question for you is: As we see
    another $1.9 trillion on top of the $6.5 trillion that we have
    already spent, what is the impact on the issue of rising
    inflation in excess of the Fed's longer-run objective of 2
    percent?
        Mr. Powell. So, of course, as I said at the beginning, I am
    not going to comment today on the proposal that you mentioned,
    the fiscal package that you mentioned, at all. Not our role.
        I will say on inflation there perhaps once was a strong
    connection between budget deficits and inflation. There really
    has not been lately. That does not mean it will not return.
    But, again, my expectation will be that inflation will probably
    be a bit volatile over the next year or so due in significant
    amount to particular things to do with the pandemic. For
    example, we will see a slight increase in inflation in a few
    months because of the base effects that I mentioned. We will
    also see perhaps--we do not know this, but we may see upward
    pressure on prices as the economy fully reopens. A good problem
    to have.
        I do not think that those effects should either be large or
    persistent, and the real reason for that is that we have had
    decades of well-anchored inflation expectations, meaning that
    we have had a very volatile economy for the last 15 years, and
    inflation has just kind of done what it was going to do. It did
    not go up.
        Senator Scott. Thank you very much, sir. I appreciate your
    answer. The fact that you are unwilling and unable to answer
    the questions as it relates to the minimum wage is certainly
    you do not want to get into the politics of the $1.9 trillion
    package. I do not blame you. If I were you, I would not want to
    get into the politics of it at all, frankly, and I certainly
    understand your reticence to do so.
        I will use my few seconds here to simply say that the
    Congressional Budget Office, some Democrats, all Republicans
    all agree that raising the minimum wage is a way to destroy
    jobs and an economy that is looking forward to a fragile
    recovery.
        Thank you, Chair Brown.
        Chairman Brown. Thank you, Senator Scott.
        Senator Warner. Thank you, Mr. Chairman, and thank you for
    holding this hearing. Chair Powell, it is great to see you
    again. Thank you for the good work you are doing.
        I think in response to Senator Tester's questions, when you
    were talking about the kind of investments we ought to be
    making that are long term, thinking about infrastructure, one
    of the areas--and understanding what my friend Senator Scott
    just said in your answer, that you do not want to weigh in on
    the President's most recent plan, I would like you, though, to
    comment whether you believe that broadband investments fall
    into that category of the kind of long-term structural change
    we need. I would argue over the last 11 months we have seen
    that broadband is a necessity. I think it is absolutely COVID-
    related. I hope that the current package can be changed to
    actually include a sizable investment in broadband. As good as
    our four packages, bipartisan packages, have been to date, the
    broadband investment has been meager or nonexistent. Experts
    like Tom Wheeler and Blair Levin have said somewhere in the $40
    to $50 billion range, we could get about 97 percent coverage
    along with better affordability.
        So I guess I am asking, would you agree that immediate
    efforts to close the broadband gap not only represent long-term
    investments, but also have some direct relationship to the
    current health care crisis?
        Mr. Powell. So as you and I have discussed on a number of
    occasions, I would agree that broadband is kind of a classic
    21st century infrastructure and one of those things that can
    support growth. But I, of course, cannot go anywhere near--do
    not want to go anywhere near the question of what should be
    included in the package, if that is OK.
        Senator Warner. What about the question, though, you know,
    from a macroeconomic standpoint, broadband and trying to close
    the digital divide if we are going to have a fulsome recovery
    across socioeconomic groups? Could you speak to the question of
    the necessity for broadband to be ubiquitous if we are going to
    have that kind of robust recovery and comments about whether
    broadband is at this point a ``nice to have'' or an ``economic
    necessity,'' whether it is telework, telehealth, or tele-
    education?
        Mr. Powell. So, again, as you and I have discussed on a
    number of occasions, I would agree that it is a classic piece
    of infrastructure for the modern economy, for the service
    economy, for the technologically advanced economy, and having
    it broadly available just could mean--as broadly available as
    possible could be a significant benefit economically.
        Senator Warner. If not broadly available, are we going to
    be able to see the kind of broad-based recovery that I think we
    are all looking for?
        Mr. Powell. Well, I think we have longer--we have a bunch
    of issues to deal with that relate to these persistent
    disparities that we see to do with education and training and
    all those things. But that would certainly be one of those
    things.
        Senator Warner. Senator Scott in his previous line of
    questioning raised the inflation issues, and I know we have
    seen about a 41-basis-point increase on some of our 10-year
    benchmarks. It is still relatively small. I tend to agree I
    think we do need to make a sizable investment right now. I am
    not sure--the inflation risks, I agree with you, are not as
    high as they potentially might be.
        Could you just briefly give some of the tools you have got
    available as Federal Reserve Chair if you started to see
    inflation rise at a level that you did not feel comfortable
    with?
        Mr. Powell. Well, those are the classic tools that we have,
    and, again, I really do not expect that we will be in a
    situation where inflation rises to troubling levels. At this
    point the Federal Open Market Committee is seeking inflation
    running moderately above 2 percent for some time. So the real
    question is: As we go through this, are we going to find
    ourselves in a situation where inflation expectations are de-
    anchored and inflation is moving up and it is persistent? I
    think we are all very, you know, acquainted with the history of
    how we got into that situation in the 1970s. We did that in the
    1960s. And we have no intention of repeating that.
        So central banks and the Fed learned how to keep--the
    centrality of keeping inflation under control, and we know how
    to do that. That is just by not allowing the economy to just
    ignore constraints over time. But I think this is not a problem
    for this time, as near as I can figure, and if it does turn out
    to be, then we do have the tools we need.
        Senator Warner. We are down to my last 20 seconds, and let
    me just--if you want to make some general comments, I would
    argue that the pandemic was the first major real-world stress
    test we have had on our fiscal system since 2009. How do you
    think overall that the system has responded? And recognizing,
    Mr. Chairman, that will be my last question. You may want to
    take that one for the record, but if you want to make some
    general comments quickly.
        Mr. Powell. You meant financial system, I think, right?
        Senator Warner. Right, yes.
        Mr. Powell. Well, I think that the large financial
    institutions that are at the heart of our financial system
    proved resilient. They did. And they have been able to keep
    lending, and their capital levels have actually gone up during
    this period. As I mentioned, their liquidity levels are at
    highs. So I think the work that we did over the course of the
    last decade and then some has held up pretty well so far, and I
    expect it will continue to.
        Senator Warner. Thank you, Mr. Chairman. Thank you,
    Chairman Powell.
        Chairman Brown. Thank you, Senator Warner.
        Senator Rounds of South Dakota.
        Senator Rounds. Thank you, Mr. Chairman. Chairman Powell,
    first of all, it is good to see you again, and I appreciate
    your service to our country as well. Thanks for being with us
    today.
        I would first like to ask about the SLR exclusion which is
    set to expire on March 31st. My colleagues have mentioned it
    earlier, but did not really get into the heart of the matter.
    The temporary patch allowed banks to exclude ultra-safe assets,
    U.S. Treasurys and deposits to the Fed from their balance
    sheets. This was important in preserving bank liquidity during
    last spring's flight to cash and was a commonsense move since
    the Fed cannot go bankrupt and the Treasury has never failed to
    meet its obligations.
        We all agree that the economy is still in need of fiscal
    and monetary support. The Chairman himself said that banks
    should be doing more to help their workers and our broader
    society, but they cannot do that when we are tying their hands
    with excessive and challenging capital requirements. It would
    appear Congress is going to create even more bottlenecks in our
    financial plumbing by flooding the economy with about $1.9
    trillion in new money that banks will have to hold capital
    against as soon as the Treasury starts writing the checks.
        My question is: Would you agree that it makes sense to
    seriously consider extending the SLR exclusion given the other
    measures the Fed and Congress are taking to facilitate our
    economy's recovery?
        Mr. Powell. So I do think that the SLR exclusion--I know it
    expires at the end of March, and we actually have not made a
    decision on what to do. It is something we are in the middle of
    thinking about right now, and so I am just going to have to say
    that we will be making a decision and announcing it pretty soon
    here.
        Senator Rounds. The reason for my question is that I think
    last time around and in the past, we have had challenges with
    banks that have come in and said, look, we have got folks that
    want to bring their assets in, they have got to have a place to
    put it, it is liquid, it is what we are going to have. Most
    certainly that has impacted our ability and the reason for the
    SLR in the first place, and it just seems to reason that as you
    talk about it and as you continue to discuss it, I hope that we
    really do keep an open mind and I presume you are keeping an
    open mind on the need for that, as this amount apparently will
    be put into the economy in very short order. And so I simply
    bring it up saying I think there are a lot of us that think
    that that is going to be an important part of the discussion to
    have.
        Let me lead into another question with you, sir. We have
    been monitoring the increase in Treasury yields from about
    nine-tenths of 1 percent at the start of 2021 to approximately
    1.37 percent when the market closed yesterday. I understand
    this reflects a view of an improving economy, but also comes
    with increased borrowing costs, increased inflation, and
    potentially a move by the Fed to increase interest rates down
    the line.
        How do you view the increase in Treasury yields in the
    broader context of our economy at this point?
        Mr. Powell. So, first, we look at a broad range of
    financial conditions, and that is one. It is an important one.
    But, really, we look at the whole range of financial
    conditions, and it is very important to ask why are rates
    moving up. And so if you look at why they are moving up, it is
    to do with expectations of a return to more normal levels, more
    mandate-consistent levels of inflation, higher growth, an
    opening economy. In a way it is a statement of confidence on
    the part of markets that we will have a robust and ultimately
    complete recovery. So those are the reasons that are behind
    that, I would say.
        Senator Rounds. Great. Well, thanks. Look, we follow the
    markets. We follow on a regular basis whether the markets are
    moving up or moving down and so forth, and I think in
    anticipation of what your thoughts were going to be today, I
    think the market was rather volatile.
        I am just curious. When you walk into an opportunity like
    this where you are sharing your thoughts, I know that you want
    to be very careful in terms of the message that you send, and I
    think you do a very good job of being very careful in the way
    that you send the message, but let me just ask. In your
    opinion, when you prepare for this type of a discussion,
    knowing the markets are literally watching everything you say,
    what is the message that you would like to send? Are you
    talking we are going to have stability, it is going to be
    steady as she goes, we do not see changes coming up with regard
    to the availability of capital, we do not see changes that are
    going to impact inflation? What is the message that you really
    want to send as you share with us today and you are expected to
    be in front of our Committees?
        Mr. Powell. So I guess I will say a couple of things.
    First, the starting point is that we are 10 million jobs below
    where we were in February of 2020, 10 million payroll jobs. So
    there is a long way to go, and many of those jobs are
    concentrated in the lower end of the income spectrum, as I
    mentioned.
        Many parts of the economy have recovered, but in the bottom
    quartile, the unemployment rate is probably in excess of 20
    percent, we think. So there is a long way to go. Monetary
    policy is accommodative, and it needs to continue to be
    accommodative. We have put forward guidance out both on our
    asset purchases and our rates. We think that forward guidance
    is appropriate, and you can expect us to move patiently over
    time as we see better data coming in. You know, right now, we
    have had 3 months of 29,000 jobs a month. It is not very much
    progress. We expect that such progress, which we had earlier
    last year--we had very fast progress. We expect that will begin
    to return in coming months and expect us to move carefully and
    patiently and with a lot of advanced warning.
        Senator Rounds. Thank you, Mr. Chairman.
        Thank you, Mr. Chairman. I apologize for going over on my
    time.
        Chairman Brown. Thank you, Senator Rounds.
        Senator Warren of Massachusetts.
        Senator Warren. Thank you, Mr. Chairman.
        So our economy is suffering through a K-shaped recovery
    where the wealthy are doing better and better while working
    people are doing worse and worse. Chair Powell, you have been
    pretty vocal about inequality over the past few years. You have
    noted--I think I have got a quote here from you-- that it has
    been a growing issue in our country and in our economy for four
    decades. You have talked a lot about how inequality undermines
    opportunity and mobility, and you have described it as
    something that holds our economy back.
        So I take it from these comments that you believe that
    inequality weighs our economy down and stunts economic growth.
    Is that a fair statement?
        Mr. Powell. Yes, it is.
        Senator Warren. Good, and I agree with you on this, and the
    Fed's own data spell out the problem. I think you were just
    talking about it. You know, the top 1 percent of families last
    year received 20 percent of all the income in this country, and
    you think that is not good for our economic growth overall. Is
    that fair?
        Mr. Powell. Well, I would say that the stagnation of
    incomes in the lower-income area and also the low mobility that
    we have seen emerge, those to me are the two most important
    things that I focus on when I talk about inequality--stagnation
    of incomes and low mobility.
        Senator Warren. Right, but we are talking here about income
    inequality, how much people earn each year to be able to pay
    the rent and to be able to put food on the table. But
    inequality also shows up in wealth, which is what families
    build over time, money in the bank, home, stock. Wealth
    inequality is even more extreme in our Nation than income
    inequality. While the top 1 percent of families, this tiny
    slice, got 20 percent of all the income earned in the U.S. last
    year, the top 1 percent held 33 percent of the total wealth in
    this Nation. And now this pandemic is making inequality worse.
        Unemployment, as you just noted, is now at about 20 percent
    for the bottom quartile in this country, meaning that there are
    a lot of folks out there who are making choices about keeping
    the heat on or putting food on the table. Meanwhile, the wealth
    of America's 660 billionaires increased by $1.1 trillion over
    this past year.
        Inequality is felt in another way. It is felt in how people
    pay taxes. The 99 percent in America pay on average about 7.2
    percent of their total wealth in taxes in a given year, but the
    top one-tenth of 1 percent pay only about 3.2 percent. That is
    less than half as much.
        Chair Powell, does it increase inequality when the
    wealthiest Americans pay total taxes at less than half the rate
    of nearly all other American family?
        Mr. Powell. You are getting farther and farther from the
    kinds of inequality that we focus on and, frankly, the ones
    that we can do anything about with our tools. We cannot affect
    wealth inequality, certainly in the short term. We can affect
    indirectly income inequality by doing what we can to support
    job creation at the lower end of the market. So I would leave
    to you--those are really fiscal policy issues that I would
    not--I cannot relate those to our mandate. That is all.
        Senator Warren. I appreciate that you are trying to move
    sideways on this, but you have pointed out that inequality is a
    problem in our country, that it holds back mobility, that it
    holds back opportunity, and I am simply pointing out that
    inequality is felt not just in income. It is also felt in
    wealth even more so, and that our tax structure makes that
    inequality worse over time.
        Extreme wealth inequality undermines our economy, as you
    have said. It undermines justice. It undermines our democracy,
    and our Tax Code focuses almost entirely on income and lets
    most of the wealth that the ultra-rich families have
    accumulated just slip right on through, and that just seems to
    me not right.
        You know, it is time for a wealth tax in America, a 2-cent
    tax on fortunes worth more than $50 million. If your fortune is
    over a billion, pay a few more cents. This wealth tax will let
    us address the inequality that you have been very worried about
    as Chair of the Federal Reserve. It is how we have a chance to
    level the playing field and build an economy that works for
    everyone.
        So thank you for being here, Mr. Chairman, and thank you,
    Chairman Brown.
        Chairman Brown. Thank you, Senator Warren.
        Senator Tillis of North Carolina.
        [No response.]
        Chairman Brown. If not, Senator Kennedy of Louisiana.
        Senator Kennedy. Yes, sir. Can you hear me, Mr. Chairman?
        Mr. Powell. I can, Senator. You have two ``Mr. Chairman's''
    here.
        Senator Kennedy. Yes, sir. Mr. Chairman, the witness, what
    was our fourth quarter GDP growth?
        Mr. Powell. I am reluctant to guess, but it was in the--I
    want to say 4 percent.
        Senator Kennedy. Right. That is what my numbers show, too.
    What are you and your economists estimating that our GDP growth
    will be for 2021?
        Mr. Powell. So we will be updating our forecasting. The
    last forecast the staff did was in January. My guess is that
    the data have been a little more positive, but it will be a
    good number. We would be in the range that you see in the
    public forecast.
        Senator Kennedy. How about 6 percent?
        Mr. Powell. Could be. Could be in that range. In the range
    of 6 to 7 percent.
        Senator Kennedy. OK. At what point in 2021 will the level
    of GDP equal prepandemic levels?
        Mr. Powell. Sometime during the year. It depends on the
    growth rate. Could be second half of the year.
        Senator Kennedy. How about the end of January--or the end
    of February, rather?
        Mr. Powell. I do not know that. Are you asking the
    question--the prepandemic level or the prepandemic trend?
        Senator Kennedy. The prepandemic level. If you froze the
    GDP, the economy, in February a year ago, at what point would
    we be back to where we were February a year ago?
        Mr. Powell. In the first half of the year.
        Senator Kennedy. Yeah, I mean, I see a lot of economists
    saying at the end of February. Do you disagree with that?
        Mr. Powell. I cannot be that specific. I was answering the
    question about the precrisis trend, which is what we are trying
    to get back to.
        Senator Kennedy. Well, here is what I am getting at. You
    have strongly encouraged Congress to pass another coronavirus
    bill, $2 trillion. And I guess tell me, if you could, in just a
    couple of sentences why you think we need to do that if we are
    looking at 6 percent GDP growth this year, and as soon as the
    end of this month, we will be back where we were in February
    2020?
        Mr. Powell. Actually, Senator, I have consistently not
    taken a position on this bill.
        Senator Kennedy. So you do not have an opinion about
    whether we ought to pass President Biden's bill?
        Mr. Powell. As I have said since the December press
    conference, I think, on every public occasion when I have been
    asked about it, I have said that it is not appropriate for the
    Fed to be playing a role in these fiscal discussions about
    particular provisions in particular laws. We did not comment on
    the Tax Cuts and Jobs Act. We did not comment on the CARES Act.
    You know, it is not our role to do that.
        Senator Kennedy. OK. So your opinion is if we do not pass
    the bill, you are cool with that?
        Mr. Powell. Well, that would be expressing an opinion, so
    that is what I am not doing, is expressing an opinion.
        Senator Kennedy. Well, would you be uncool with that?
        Mr. Powell. I think by being either cool or uncool, I would
    have to be expressing an opinion.
        Senator Kennedy. OK. How do you think we ought to pay all
    this money back that we are going to borrow and that we already
    have borrowed?
        Mr. Powell. I think that we will need to get back on a
    sustainable fiscal path, and the way that has worked when it is
    successful is you just get the economy growing faster than the
    debt. I think that we are going to need to do that, and that is
    going to need to happen, but it does not need to happen now.
    Now is the wrong time to be doing that.
        Senator Kennedy. Do you think we ought to go Catwoman on
    the budget and actually look for savings there?
        Mr. Powell. ``Go Catwoman''? I do not know that reference.
    I think in the fullness of time, we will need to right-size our
    budget relative to our--so that the economy is growing faster
    in nominal terms than the debt. We will have to eventually on
    the path we are on.
        Senator Kennedy. Well, do you think that deficits matter?
        Mr. Powell. Certainly in the long run, I do believe they
    do.
        Senator Kennedy. You do not think they matter in the short
    run?
        Mr. Powell. Again, I think we will need to return to----
        Chairman Brown. I am going to call on Hagerty because he
    has waited so long.
        Mr. Powell. We will need to return to this issue, but I
    would not return to it now, and the way to get after this issue
    is to get a situation where the economy is growing faster in
    nominal terms than the debt is.
        Senator Kennedy. What if that becomes the case, but your
    spending is also growing faster than your economy?
        Mr. Powell. Well, no, that is the deficit. I mean, the
    question really is--the deficit is the difference between
    intake and spending, so it depends. It is the net of those two.
        Senator Kennedy. Let me stop you, Mr. Chairman, because I
    am going to have one last question quickly. M2, the money
    supply, is up I think about $4 trillion over the past year, or
    $6 trillion. Four trillion, 6 trillion, what is a few trillion?
    It is up 26 percent, the highest amount since 1943. What does
    that tell you?
        Mr. Powell. Well, when you and I studied economics a
    million years ago, M2 and monetary aggregates generally seemed
    to have a relationship to economic growth. Right now, I would
    say the growth of M2, which is quite substantial, does not
    really have important implications for the economic outlook. M2
    was removed some years ago from the standard list of leading
    indicators, and just that classic relationship between monetary
    aggregates and economic growth and the size of the economy, it
    just no longer holds. We have had big growth of monetary
    aggregates at various times without inflation, so something we
    have to unlearn, I guess.
        Chairman Brown. Thank you, Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman.
        Chairman Brown. Senator Cortez Masto from Nevada.
        Senator Cortez Masto. Mr. Chairman, thank you. Thank you,
    Chairman and Ranking Member. And, Chairman Powell, thank you
    again for being here as usual. I so enjoy listening to you in
    the conversation so far.
        Let me bring up a subject that you and I quite often talk
    about, which is Nevada, and the tourism and service industry as
    we all know has been so hard hit. We have the second highest
    unemployment rate in the Nation. In this type of labor market,
    there is no upward pressure on wages because when people are
    desperate for work, they are willing to take lower-paying jobs.
    But when the unemployment rate is low, employers are more
    willing to both raise wages to find workers as well as invest
    more in in-house training and retraining.
        Can I just ask a question? How does a tight labor market
    encourage employers to invest in in-house training? Do you have
    any thoughts or answers to that at all?
        Mr. Powell. I do. And as we have discussed, in that last
    couple of years when unemployment was routinely below 4
    percent, as low as 3.5 percent, and where labor force
    participation was high, had moved up actually, despite
    expectations that it would not, we saw lots of virtuous effects
    in the labor market. I actually talked about those a couple of
    weeks ago. One of them was--and I did not focus too much on
    it--you saw employers investing more in training. You saw
    employers looking for people at the margins of the labor force.
    You know, employers were going to prisons and getting to know
    people before they came out and giving them jobs as they came
    out. Great things happening from a tight labor market, and I
    just think we saw that, and that is one of the reasons we are
    so eager to get back to that, you know, consistent with also
    maintaining price stability. But we really do think--and others
    saw the same thing we did, which is the broad societal benefits
    of a tight labor market.
        Senator Cortez Masto. And, in particular, wouldn't you
    agree that Congress' investment in workforce and workforce
    development and helping developing those skills for that
    workforce would be important?
        Mr. Powell. I do. Again, I do not want to comment on any--I
    am not entirely sure if what you mentioned is in the current
    proposal, but I would say that the kinds of investment in
    people that enable them to be more effective in the labor force
    and policies that enable people to take part in the labor
    force, those are big things that can increase the productive
    capacity of our economy over time.
        Senator Cortez Masto. Yeah, I agree. And that is why I have
    introduced the Workers Act, the Pathways Act. Many of my
    colleagues are really focused on this investment, particularly
    now when we have an opportunity to have a long-term impact on
    jobs, so thank you for that.
        Let me jump to just the unemployment in the service
    industry now. This is an area that I know we have been really
    hard hit, and we have to do more to turn this economy around in
    our hospitality industry. But let me ask you this: If the
    Congress does not extend and bolster unemployment insurance,
    what is the Federal Reserve's economic forecast for the impact
    on communities like Las Vegas that are dependent on travel and
    hospitality?
        Mr. Powell. So, again, I am not going to comment on--
    unemployment insurance is part of the bill, so I am just going
    to stay away from the current fiscal discussions. I really have
    to do that. I mean, the single most important thing for your
    service sector employees is to get the pandemic behind us so
    people can get on airplanes and go to Nevada again and take
    vacations. That is the single most important economic growth
    thing that we have.
        After that, I think there will be--and it is possible that
    that will begin to happen relatively soon, if we can get the
    vaccines out and get people vaccinated and people do the right
    things with social distancing and masks and that kind of thing.
    You could see that happening relatively soon, which would be
    great.
        Senator Cortez Masto. I agree, but you would agree there is
    an investment that still needs to be made? I mean, we are not
    done here at the Federal level with our monetary and fiscal
    policy in addressing the economic crisis we have. It is one
    thing to get the pandemic under control. It is another to
    understand how we turn this economy around as well. Wouldn't
    you agree?
        Mr. Powell. I would agree, and, you know, as I have said,
    we will keep our policy accommodative. We think we have
    significant ground to cover before we get even close to maximum
    employment, and we hope to do everything we can to speed that
    process.
        Senator Cortez Masto [presiding]. Yeah, and let me just say
    one final thing, because, as you just said, it is the pandemic
    that has hit State after State and individual communities after
    individual communities, I hope we do not shift gears here about
    making investments when some States turn around much quicker
    and their economy turns around much quicker than ours,
    particularly in the service industry. No State should be left
    behind, and I hope that we would all agree to that, that we
    need to pull everybody with us as we address this pandemic and
    start to turn the economy around.
        So I know my time is up. I will submit the rest of my
    questions for the record. I also think that Chairman Brown has
    had to get over to Senate Finance to ask a question. He will
    return. So I am going to sit in his chair temporarily, and I am
    going to go ahead and turn the gavel over to Senator Hagerty.
    Thank you.
        Senator Hagerty. Well, thank you, Senator Cortez Masto, and
    I want to say thank you to Chairman Brown and to Ranking Member
    Toomey as well for holding this hearing today as we work toward
    full economic recovery. And as noted, this is an important part
    of Congress' oversight of the Federal Reserve System.
        And, Chairman Powell, I want to thank you for your time and
    your participation today. More generally, I want to thank you
    for your leadership of the Fed as we work our way through this
    crisis. And I want to say this, Mr. Chairman: I am very
    encouraged by the indications from the Monetary Policy Report
    of the progress that we are making as we come out of this
    downturn. We are looking at potentially north of 4 percent
    economic recovery, or as you and Senator Kennedy were just
    discussing, maybe even 6 percent growth for 2021. I find that
    very encouraging. Albeit an uneven recovery, I feel that it is
    very good news that we are on the way.
        That also raises concerns that I have, and I am sure it has
    been discussed many, many times about the amount of liquidity
    that we are going to continue to pump into this economy. We
    have already allocated $4 trillion in coronavirus recovery
    relief, $1 trillion yet to be spent, and now we are talking
    about putting close to an additional $2 trillion into the
    economy. I will not belabor this anymore. It has been discussed
    by my colleagues, but I share their concerns about injecting
    that much liquidity into the economy at a time when we are in
    the process of recovering, particularly noting our tough and
    slow recovery after the 2008 recession, given the amount of
    funding that was injected into the economy then.
        Chairman Powell, I would like to shift gears for a minute.
    Yesterday Treasury Secretary Yellen talked about the digital
    dollar, the digital dollar that is overseen by the Fed. It is
    tied to blockchain technology, something that she said could
    result in faster, safer, and cheaper payments. You and I have
    discussed the importance of the dollar as the world's reserve
    currency on previous occasions. It is a vital asset for us as
    Americans. I would very much appreciate, Chairman Powell, your
    perspective on whether the Fed should develop a digital dollar,
    a digital dollar that will be held directly by households,
    directly by businesses, and not intermediated by commercial
    financial institutions.
        Mr. Powell. Thank you. So we are looking carefully, very
    carefully, at the question of whether we should issue a digital
    dollar, and it is something that central banks around the world
    are looking at and doing so appropriately because the
    technology now enables us to do that, and it also enables
    private sector actors to create their own kind of digital
    quasi-money type of instruments.
        So there are significant both technical and policy
    questions to do with how we would go about doing that. I would
    say that we are committed to solving the technology problems
    and to consulting very broadly with the public and very
    transparently with all interested constituencies as to whether
    we should do this.
        I would also say we are the world's reserve currency, and
    we have a responsibility to get this right. We do not need to
    be the first. We need to get it right, but this is something we
    are investing time and labor in right across the Federal
    Reserve System. You may know that the Federal Reserve Bank of
    Boston has a partnership with MIT looking at one particular
    thing. We are doing research here at the Board. It does hold
    out the prospect of the things that you mentioned, very
    positive. It could help with financial inclusion as well. At
    the same time, you want to avoid creating things that might be
    destabilizing or that might draw funds away from the banking
    system. We have a banking system which intermediates between
    savers and borrowers. We want to be careful about what the
    implications are of what we do, so it is a very high priority
    project for us.
        Senator Hagerty. I share your concerns on the need to be
    careful. I also appreciate the fact that you are going to stay
    at the leading edge of looking at this and making certain that
    America does not fall behind in any respect in terms of
    maintaining our status as the world's leader in reserve
    currency.
        With just a moment of time left, I want to follow up on a
    more technical comment that Senator Rounds made regarding the
    importance of looking hard at the SLR exemptions as we continue
    to move forward this year. I know they are coming to expiration
    at the end of March, but I very much appreciate your taking a
    hard look at that as we move forward, because there is a
    tremendous amount of liquidity coming in.
        And on inflation, you and I have talked before about the
    experience in Japan of disinflation. At the same time, I share
    Senator Toomey's concerns about the asset price bubbles that we
    are seeing already occur here in America, and, again, I
    appreciate your role in taking a very steady hand in monitoring
    inflation and making sure we stay on top of it. Thank you very
    much, Mr. Chairman.
        Mr. Powell. Thank you, Senator.
        Senator Cortez Masto. Thank you.
        Next I am going to call on Senator Van Hollen. I know
    Senator Brown is asking a question at Finance. I am going to
    ask a question at ENR. So I am going to also pass the gavel to
    Senator Van Hollen. Thank you.
        Senator Van Hollen [presiding]. Thank you, Senator Cortez
    Masto, and welcome, Mr. Chairman. Thank you for your service.
        At the outset here, I just want to underscore the
    importance of the Fed continuing to move ahead with the FedNow
    Service. As we have discussed in previous hearings, the United
    States' outdated payment system is inflicting large and
    unnecessary costs on millions of American consumers, leading to
    billions of dollars of unnecessary funds spent. And this does
    not impact people with big bank accounts who are not close to
    overdrawing. It impacts those who are living paycheck to
    paycheck. So I see that the Fed has accelerated its timetable a
    little bit to 2023. If you can move even faster, all the
    better. You will be saving millions of Americans lots of money
    in unnecessary costs.
        I want to focus my questioning on the issue of long-term
    unemployment. In a speech you gave on February 10th, you
    pointed out that the unemployment rate would be close to 10
    percent if you adjust for the Bureau of Labor Statistics, its
    clarifications and people who dropped out of the labor force
    since the pandemic. This includes over 4 million Americans who
    are counted in the unemployment figures, but are long-term
    unemployed, and millions more who have dropped out of the labor
    force during the pandemic, but would like to get back into the
    workforce. And you noted in that speech the concerns and damage
    from persistent long-term unemployment, what it inflicts on
    workers personally and their families and the negative impact
    on productive capacity for our entire economy. And you stressed
    that monetary policy alone cannot do this. It requires a fiscal
    response.
        So here is my question: Beyond the overall impacts that the
    bill before us or other fiscal responses will make in terms of
    increasing overall economic growth, based on your experience,
    would you agree that it is important to very intentionally
    develop policies to help the long-term unemployed, individuals
    who even during good economic times were unable get into the
    workforce?
        Mr. Powell. I do, and this really is a longer-run thing, I
    would say, but it is particularly relevant now. As I also
    mentioned in those remarks, industries are always growing and
    shrinking, and workers are moving from one industry to another.
    That is just a market-based economy working. In this situation,
    you have that accelerated in a big way. So we may find that
    many of the people who are not going back to work, are not back
    at work now, may really struggle to find jobs because
    businesses are being automated. We hear that all the time, that
    computers and automated answers are becoming more and more
    common. So I think those people are really going to need help
    to get back into the labor force and get their lives back. That
    will take, I think, the kind of investments you are talking
    about.
        Senator Van Hollen. No, I appreciate that, and we are
    talking about a focus and an intentional investment beyond the
    investments that we are making for overall economic growth,
    right?
        Mr. Powell. Yes.
        Senator Van Hollen. Yeah. And I also wanted to turn really
    quickly to the importance of using the right kind of economic
    measurements to determine the well-being of American workers
    and families. As you noted in that same speech, unemployment
    among low-wage workers is 17 percent, where it was at the start
    of the pandemic; whereas, among high-wage workers it is only
    down 4 percent. So if you take the average, you are not seeing
    the impact, the disproportionate impact on low-wage workers.
        I often give the example that if Jeff Bezos had moved to
    Baltimore City last year, the per capita income of Baltimore
    City would have gone from $53,000 per person to $175,000 per
    person, even though nobody was better off individually.
        So what should we be doing and what is the Fed going to be
    doing to make sure that as our economy improves, which we all
    want it to do quickly, we do not overlook the continuing pain
    people are feeling because we are looking at averages and not
    looking beneath those averages?
        Mr. Powell. These people who are struggling in that way are
    doing so because they were employed in public-facing jobs in
    the service industries. So, clearly, the number one thing we
    can do to get them back to work is to get the pandemic behind
    us, and that is not something we can work on here at the Fed,
    but that is the top thing.
        Beyond that, I just think it is up to us to continue what
    we can do to support the economy, really, with some patience in
    order so that they will have time to get across. We have talked
    about a bridge. Most Americans will have a bridge in the end,
    but there is a group that will really struggle. I think we need
    to be mindful of them, because, really, they did nothing wrong.
    This was a natural disaster. And, you know, as a country, we
    set out to provide support.
        Senator Van Hollen. I appreciate that. My hope is the Fed
    releases its numbers going forward. In addition to the
    aggregate average numbers, you also continue to provide us with
    the impact on lower-wage individuals. Thank you, Mr. Chairman.
        Senator Tillis.
        And if Senator Tillis is not with us, Senator Lummis.
        And if Senator Lummis is not with us, Mr. Chairman, is
    Senator Tillis--I am told may be joining us soon?
        Senator Moran.
        Senator Moran. Thank you, Mr. Chairman, Mr. Chairman pro
    tem, and, Chairman Powell, thank you for the opportunity to
    visit with you today, and thank you for your work at the Fed.
        I just have a broad question. How do you view your job in
    relationship to an Administration? So a change in
    Administration from one President to the next, what does that
    mean at the Federal Reserve from your perspective? Anything? Or
    a lot?
        Mr. Powell. Well, our job does not change, and at the very
    beginning of the Administration, the personnel do not change.
    Of course, the one way that Administrations really do interact
    importantly with the Fed is with appointments, and so those
    will happen over time.
        The second thing is, you know, it is a different group of
    people. We have ongoing relationships by a longstanding
    practice with various parts of the Treasury Department mainly,
    but also to a much more limited extent with the White House,
    and we make new relationships and continue to have the same
    sorts of discussions that we have. But, ultimately, the answer
    to your question is nothing really changes because of the
    election other than meeting new people.
        Senator Moran. Chairman, thank you, and thank you for your
    answer. During my time on the Senate Banking Committee, I have
    been an advocate for an independent Fed and want the Fed to
    make decisions based upon best policy without significant
    political interference, other than perhaps the Senate Banking
    Committee, anytime that we can take that opportunity.
        Let me ask a specific question. In the most recent Monetary
    Policy Report to Congress, the central bank indicated that, and
    I quote here, ``Commercial real estate prices remain at
    historically high levels despite high vacancy rates and appear
    susceptible to sharp declines, particularly if the pace of
    distressed transactions picks up or, in the longer term, the
    pandemic leads to permanent changes in demand.''
        I have great concern for the commercial property markets
    and would like to hear what your thoughts are. Is this
    something we need to wait out? Is it something that needs more
    attention than we have been able to provide in CARES or COVID
    relief before? And what does it mean to CMBS borrowers with
    this market?
        Mr. Powell. Well, some parts of commercial real estate--
    office, hotel, and some maybe retail to some extent--are under
    real pressure because of the pandemic. Those changes may be
    lasting or they may be temporary, or they may be somewhere in
    the middle. So this is something that we are keeping a close
    eye on. There is exposure to the banking system, and as you
    pointed out, there is significant exposure in CMBS to, I think,
    the hotel space in particular. So we watch these things.
        Of course, as I think you also mentioned, the single best
    thing that can happen is to have the economy recover quickly so
    that offices and hotels, you know, can be filled up again.
        Where it relates to offices, are more people going to work
    remotely, and so will the demand for office space feel some
    downward pressure for a while or even for the long run? That is
    very possible. We do not really know that, but if you talk to--
    we had a presentation a couple weeks ago from someone who had
    done a survey that suggested that there may be sort of
    sustained lower demand for office space in particular.
        So those are things we watch very carefully. We watch it
    through the banking system and to see whether--most banks are
    OK on that, although some of the smaller banks do have a
    concentration in CRE. So we watch that carefully.
        Senator Moran. Mr. Chairman, thank you very much. I yield
    the balance of my time.
        Senator Van Hollen. Thank you, Senator Moran.
        Senator Smith.
        Senator Smith. Thank you, Mr. Chair. Can you all hear me? I
    know, of course, Senator Tillis was having a hard time with his
    audio.
        Senator Van Hollen. We can hear you.
        Senator Smith. Yes, great. Thank you.
        Chair Powell, it is great to see you today, and I want to
    start by asking you a question around climate risk and
    disclosing climate risk. You and I have discussed before that
    climate change remains one of the most pressing challenges that
    we face. It is an economic issue. It is a health issue. I mean,
    it really cuts across our entire economy. I think in some ways
    it is like a slow-moving pandemic, and, of course, it poses a
    real risk to the banks that the Fed regulates.
        So I know that in December--and I think it was a great
    idea--that the Fed joined the Network of Central Banks and
    Supervisors for Greening the Financial System. I think that is
    a step in the right direction. But my question gets to this: A
    lot of public disclosure on climate risks is mostly voluntary.
    It varies a lot from company to company, which makes it really
    hard to compare risks or interpret what those disclosures mean.
        So could you talk to us about whether or not you think that
    climate risk disclosures should be standardized? Or should we
    continue to allow firms to sort of make their disclosures, if
    they make them at all, in whatever form they choose?
        Mr. Powell. I will. If you would permit me, I would first
    like to say that, of course, the overall response of society to
    climate change, which I agree with you is a very important
    problem, has to come from elected officials in Congress and
    also in executive branch under existing law. So that is really
    where this comes from.
        Senator Smith. I would agree with you.
        Mr. Powell. We have a specific role on climate change,
    which only extends to the scope of our mandate, which is really
    to assure the resilience of the institutions that we regulate
    and supervise.
        But on disclosure--and this is really an SEC issue, but I
    would just say in general financial institutions everywhere,
    particularly the larger and medium-sized ones, are working hard
    on this question. There has been a lot of work done with the
    Task Force on Climate-Related Financial Disclosure, and other
    groups, you know, are struggling with this question of
    different kinds of disclosure that varies by jurisdiction and
    by institution. And I do think that it is appropriate to allow
    some of that difference to persist for now.
        In the long run, clearly we ought to be going to kind of a
    template and more standardized, but it seems to me we can let
    this process--which is very much ongoing now among our own
    financial institutions, we can let it bear fruit for a while.
    But I think in the long run that we have to be going in the
    direction of more standardization.
        Senator Smith. So moving toward a more standardized,
    reliable, comparable kind of standard of disclosure makes sense
    to you?
        Mr. Powell. Yes, it does, over time.
        Senator Smith. Thank you. Thank you. And I just want to
    also just loudly agree with you that this is primarily an
    opportunity where Congress and the executive need to step up
    and take the steps that we need to take from a policy
    perspective. So I agree with you on that.
        I have one other thing I would like to ask you about. There
    has been a lot of conversation today about the unevenness of
    the economic recovery and how that is affecting different
    people differently, and I would like to hit on one point about
    this.
        Last week, I think it was, the Minneapolis Fed came out
    with a report looking at recovery, people recovering their
    employment, and it revealed in Minnesota and in the Minneapolis
    Fed district a dramatic difference in women rejoining the
    workforce or, in this case, not rejoining the workforce, a
    dramatic difference between women and men and even particularly
    a difference between lower-wage women workers and higher-wage
    women workers. This is a huge challenge because in many parts
    of my State, we actually have a workforce shortage. So it is an
    economic challenge as well as, of course, a challenge for
    families that have lost that really significant wage earner.
        So, Chair Powell, could you just talk a little bit about
    this unevenness, the challenges of women returning to the
    workforce as we move through the pandemic, and then how you see
    that affecting our economic recovery?
        Mr. Powell. Sure. So we know that with the closure of
    schools and with home schooling, you know, parents have had to
    stay home, and that burden has fallen significantly more on
    women than on men. So women in effect have had to involuntarily
    withdraw from the workforce. Hopefully, that will be temporary,
    to the extent people want to return to the workforce, but that
    interrupts your career. It may be difficult to get back to
    where you were in the workforce and replace that work life that
    you had and sort of limit your ability to contribute to the
    economy. So it is important. And, again, it is not really our
    policies that can accelerate that, but policies that bring the
    pandemic to an end as soon as possible would help and allow us
    to open the schools up again would certainly help. But you are
    right, though, that there have been disproportionate impacts,
    and that is one of them.
        Senator Smith. Well, I know I am out of time, but I want to
    just toss in there that one of the key pieces of infrastructure
    for our economy to work, and especially to work for women, is a
    child care system that is there so that their young children
    have a safe, affordable place to go. This has been a big really
    kind of collapse in the child care system during the pandemic
    and something that I hope to be able to work with, continue to
    work with my colleagues on in Congress.
        Thank you.
        Mr. Powell. Thank you.
        Senator Van Hollen. Thank you, Senator Smith.
        Senator Tillis.
        Senator Tillis. Senator Van Hollen, can you hear me?
        Senator Van Hollen. I can hear you. We can hear you.
        Senator Tillis. I had to reboot my PC. Sorry about that,
    but thank you for your indulgence.
        Chairman Powell, thank you for being here, and thank you
    for the time that we spent on the phone a few weeks back.
        We have 210 million adults, Americans over the age of 18 in
    this country, and now we are at a run rate of about 1.7 million
    vaccinations a day now that we have had the lag in January.
    That is the first and second vaccination. So I think in answer
    to Chairman Brown's question, you said the most important thing
    we can do is accelerate the vaccine. Now we are on pace for
    having well over half of the country for people who want to
    take the vaccine vaccinated by, let us say, June, early July
    timeframe.
        Back when you and Treasurer Mnuchin were before us, when we
    were debating what a follow-up package should look like, we
    ultimately passed one that was over $900 billion. We were
    talking about a bridge. In your opening statement, you also
    talked about an optimistic outlook in the second half if we
    continue to make progress on the vaccine. I am not going to ask
    you questions about the fiscal policy that we are debating in a
    $1.9 trillion package. But I am curious if, at least at a high
    level, you think it would be prudent to make sure that the
    additional money that we expend to continue to provide that
    bridge or build that bridge to recovery, should it be spent on
    things that are truly stimulative? Do you see any stimulative
    value, for example, in money coming from the Federal Government
    that ultimately makes it into bank accounts and not back into
    the economy on a short-term basis?
        Mr. Powell. Again, I do not want to comment on the
    particulars of the bill. Clearly, some kinds of support have
    higher multiplier effects, and the people who get the money
    have different marginal propensities to consume.
        Senator Tillis. I want to follow up on a question that
    Senator Moran asked about CMBSs in particular. With the
    eviction and foreclosure moratoriums ultimately sunsetting and
    with the CMBSs also being linked in many cases to pension plans
    and their potentially being volatile, what specific proactive
    steps should we consider as a matter of policy or can you take
    to avoid what may be some tough waters for that space of
    investments in probably the coming year?
        Mr. Powell. You know, the kind of tools that we have are
    not really appropriate for addressing those kinds of situations
    unless they become extremely broad, and I would not expect
    that. So I think it would come down to whether you want to
    direct specific assistance.
        Senator Tillis. Well, let me go back to one other thing on
    asset bubbles. I am sure you are familiar with President
    Bullard's comments about his belief that he does not see any
    potential risk of bubbles. Do you share that view?
        Mr. Powell. I would not comment on what one of my
    colleagues said. So I guess what I would say is this: We look
    at a really broad range of things when we talk about financial
    stability. We have got how much leverage is there in the
    banking system, households, nonfinancial corporates. We look at
    funding risks, and we look at asset prices. The thing we always
    get asked about is asset prices, but they are only one thing.
    Ultimately, what you want is a situation where movements in
    asset prices do not disrupt the broader financial system. I
    think we have highly capitalized banks, and we have done a lot
    to shore up the parts of the financial system that did not hold
    up during the prior crisis.
        You know, I would not comment on any particular--on
    bubbles. You know, we are not--no one can really identify them.
    For any particular asset, even now, people have different
    perspectives. For example, in the equity market, there are some
    who say there is a bubble. Others say if you look at it this
    way, there is a lot of--I do not have an opinion on that for
    this purpose.
        Senator Tillis. Final question. I cannot see the timer, so
    I do not know if I am out of time. I know I am close, but I
    think Senator Van Hollen mentioned the payment system. What is
    the current status of the implementation relative to the
    original timelines for implementation and pricing?
        Mr. Powell. So we are right on track and feeling like we
    will be up and running in 2023, and that is good. We said it
    would be 2023 or 2024. So now we are thinking 2023. That is
    really good, and I just think it is a project that overall is
    very much on track. I do not have anything for you, any news on
    pricing, but it is on track.
        Senator Tillis. OK. Well, I look forward to reaching out
    and maybe speaking with you all about the implementation and
    some of the issues on pricing, which have been a concern of
    mine. Thank you, Chairman Powell.
        Mr. Powell. Thank you, Senator.
        Chairman Brown [presiding]. Thank you, Senator Tillis. And
    thanks to Senator Van Hollen for, while I was voting, taking
    over the Committee.
        Senator Sinema from Arizona.
        Senator Sinema. Well, thank you, Chairman Brown, and thank
    you to Ranking Member Toomey for holding this hearing. Chairman
    Powell, it is good to see you. Thank you for joining us today.
        Now, I will admit that when I hear from Arizonans, the
    first question or concern they have for me is not usually about
    the federal funds rate. It is not about the Fed's dual mandate
    or the money supply curve, because right now Arizonans are
    concerned about getting the coronavirus under control and
    getting our economy back on track. We want to ramp up vaccine
    production and distribution, support small businesses, deliver
    relief to struggling Arizonans, and reopen our schools safely.
    So my hope is that we will get critical relief [inaudible] to
    think about the future, not just the present crisis. We want a
    strong economic recovery, and that means ensuring the Fed's
    work complements our legislative efforts.
        On December 16th, the Federal Open Market Committee stated
    that it will be ``appropriate to maintain the current
    accommodative target range of the federal funds rate until
    labor market conditions have reached levels consistent with
    maximum employment and inflation has risen to 2 percent and is
    on track to moderately exceed 2 percent for some time.'' So the
    FOMC summary of economic projections from December show that
    most members' projections of the longer-run unemployment rate
    lie between 3.9 and 4.3 percent. So, Chairman, does that mean
    that the FOMC will not view the U.S. as having reached
    conditions that are consistent with maximum employment until
    the unemployment rate is 4.3 percent or less?
        Mr. Powell. Yes, and it means more than that, too. When we
    say maximum employment, we do not just mean the unemployment
    rate. We mean the employment rate, which is the inverse, and we
    mean it as a percentage of the population, employment to
    population, which also takes onboard relatively high levels of
    participation. We look at wages. We look at many things, a
    broad range of indicators on maximum employment.
        Senator Sinema. I see. Now, the statement lists three
    conditions for raising rates: full employment, 2 percent
    inflation, and projections of 2 percent-plus inflation. Are all
    three of these conditions necessary for the FOMC to consider
    raising its target for the federal funds rate?
        Mr. Powell. Yes, they are.
        Senator Sinema. Oh. Well, thank you. That is very helpful,
    and I appreciate you clarifying that for all of us.
        You know, as we work to rebuild the economy and reopen
    safely, we will likely see pent-up demand in the hardest-hit
    sectors--hotels, tourism, and restaurants. And as you know,
    excessive pent-up demand can cause temporary sector-specific
    price inflation. But temporary sector-specific price inflation
    is very different than persistent economywide inflation. So
    taking overly aggressive action on a short-term limited problem
    risks cutting off relief before it reaches Arizona families,
    and that is because such action would increase interest rates
    on student loans, mortgages, and other household debts when
    families can least afford it.
        So what tools would the Fed utilize to ensure that you
    effectively distinguish between temporary sector-specific
    inflation and the real deal?
        Mr. Powell. So as I mentioned earlier, we are very aware of
    the history of inflation and how it was gotten under control
    and how it got out from under control. I would just say looking
    at the current situation, we do expect that inflation will move
    up, in part because of what you mentioned, which is
    enthusiastic spending as the economy reopens, but we do not
    expect that the effects on inflation will be particularly large
    or persistent, particularly from sort of a one-time amount of
    spending due to the current situation. So we will be watching
    that carefully to make sure that is right, but we will be doing
    that patiently. And we would expect that the longer-run
    inflation dynamics that we have seen for more than a quarter
    century, where inflation expectations are grounded and
    inflation does not move up very much or it does not move down
    in bad times, does not move up that much in good times, we
    think those will not go away overnight. We think they will
    persist. They may well evolve, but, again, we would expect
    inflation to perform somewhat in keeping with the history of
    the last few decades.
        Senator Sinema. Thank you, Chairman Powell. Again, I
    appreciate you being here today. Mr. Chairman, let us work
    together to get the economy back on track and ensure that
    everyone benefits from this recovery.
        Thank you, and I yield back.
        Mr. Powell. Thank you.
        Chairman Brown. All right. Thank you, Senator Sinema.
        Senator Lummis from Wyoming is next.
        Senator Lummis. Well, thank you, Mr. Chairman, and,
    Chairman Powell, thanks so much for appearing before the
    Committee today.
        I have two questions. The first one centers on energy. As
    you know, demand has dropped for energy since the pandemic
    started, but economists are projecting greater demand later
    this year and into 2022, even while production declines under
    the current Administration's actions to restrict oil, gas, and
    coal development.
        My question is this: Are inflationary risks weighted to the
    upside or downside if a demand shock occurs and reduced
    production cannot keep up?
        Mr. Powell. The downside for a long time. The situation you
    described, let us say hypothetically that it does push up
    energy prices in the near term. That would move through
    headline inflation, but it would not necessarily--it would
    raise prices. It would not necessarily change the rate of
    underlying inflation.
        Senator Lummis. Would a balanced energy approach, more
    balanced than we are looking at right now, be appropriate until
    the supply demand curve returns to normal?
        Mr. Powell. You know, we do not really take positions on
    energy supply. Those are really issues for our elected
    representatives, notably including you, and I know you are an
    expert in the energy space.
        Senator Lummis. Well, I will switch my questions then to
    innovative payment instruments. FedNow and other instruments
    like stablecoins and central bank digital currencies have the
    potential for much higher monetary velocities. So how will this
    impact the monetary transmission mechanism and collateral
    availability in the markets?
        Mr. Powell. Well, we do not think they will have much of an
    effect on monetary transmission, actually. We have had a
    tremendous amount of payment sector innovation for a long time,
    really, and monetary policy transmission continues to be about
    what it is. We change interest rates, and that works its way
    through the economy, and that supports economic activity or
    restrains it, depending on where interest rates are. So we do
    not actually think there is going to be a tight connection
    between the FedNows and the stablecoins of the world. And I
    would agree with you it is important to have collateral, and,
    you know, what we see in the markets is far from a shortage of
    collateral. There seems to be ample collateral, if you just
    look at the rates that are being paid.
        Senator Lummis. Could higher velocities from innovative
    payment instruments lead to a refocusing of the monetary
    transmission mechanism away from the securities markets and
    toward more of a bank-focused transmission mechanism based on
    demand deposits?
        Mr. Powell. Again, we do not see--the premise is--that
    might be right. We do not actually think, though, that there is
    much reason or evidence to expect, or showing that these
    innovations will have much of an effect on velocity, or on
    transmission for that matter. So we should talk about this
    offline. It is a very interesting question, actually. But we do
    not really see the premise, but I would love to hear more.
        Senator Lummis. I will look forward to those conversations.
    One more question. Do we need a central counterparty for the
    clearing of Treasuries?
        Mr. Powell. Interesting question, and that is a proposal.
    We are doing a lot of thinking these days, along with
    colleagues from other agencies, about the structure of the
    Treasury market, given what happened during the acute phase of
    the pandemic when there was so much selling pressure and there
    was not the capacity to handle it. And one way to do that would
    be to have central clearing. It certainly has benefits, and I
    have been a big fan of central clearing in other parts of the
    economy. It is something that we are looking at. I do not know
    that it will wind up being part of the solution, but it is
    certainly worth looking into. So, again, another very
    interesting analysis and question.
        Senator Lummis. Well, thank you. Senator Sinema, who
    previously spoke, and I have founded a Financial Innovations
    Caucus in the Senate, and these are some of the things that we
    want to explore, plus many other things. So we will look
    forward to addressing some of these questions through the
    Financial Innovations Caucus and through this Committee. So
    thank you so much, Chairman Powell, for being with us today and
    for your insights. I yield back.
        Chairman Brown. Thank you, Senator Lummis.
        Senator Ossoff from Georgia, you are recognized.
        Senator Ossoff. Thank you, Mr. Chairman, and thank you,
    Chairman Powell, for joining us this morning and this
    afternoon, and for the discussion that we had several days ago.
        Chairman Powell, it may not be widely known that the Fed's
    retail payment office, or RPO, is based in Atlanta, and the RPO
    is responsible for most transactions involving Americans'
    checking accounts, ACH transactions, direct debit. This is
    critical financial infrastructure vital to the functioning of
    our economy. Do you have concerns that cybersecurity threats to
    the RPO could pose a systemic risk to the U.S. economy? And
    will you commit to working with my office to review the
    cybersecurity of the Atlanta-based RPO and to improve it if
    necessary?
        Mr. Powell. I would agree with you that those are very
    important issues. I do think that the Atlanta Fed is very
    focused on those issues, but I would be, of course, delighted
    to work with your office in that respect.
        Senator Ossoff. Thank you so much. There is no doubt,
    Chairman Powell, that the COVID-19 pandemic is the most
    significant drag on economic growth and job creation, but could
    you step back please and comment on what you assess to be the
    most significant systemic threats to global or national
    financial stability?
        Mr. Powell. Well, you know, clearly, bringing the pandemic
    to an end in the United States and globally, a real decisive
    end, would take so much risk to the financial system end of the
    economy and to the people we serve off the table. So you really
    cannot overestimate the importance of getting that done
    quickly, and we can do it, but just remember--we have not done
    it yet, but we really can do it as a country. And it has to
    happen all around the world, or we will keep getting echoes of
    this, you know, possibly next winter, but this is where we do
    not want to be. We want to get this done and have it be
    decisive.
        Beyond that, I think the advanced economies have issues
    around growth, around an aging population and low interest
    rates, low inflation, low growth, low productivity worldwide,
    the United States to a lesser extent than many other advanced
    economies. But those are issues that we face that threaten
    different kinds of stability. Those are big, big issues that we
    think about and we have to address to some extent with our
    policies. So I could go on.
        Senator Ossoff. Thank you, Chairman Powell. I appreciate
    that. And recognizing that you are, as a matter of policy, not
    commenting on the specific fiscal measures that Congress is
    considering, can you please guide us through what your thinking
    would be, if Congress were to engage in more ambitious fiscal
    expansion, with more significant or more sustained fiscal
    support for low- or middle-income households, without
    commenting on any specific legislation, how might that change
    the Fed's policy outlook?
        Mr. Powell. So we take fiscal policy into account. It is
    completely--we take it as a given, whatever fiscal policy is.
    And it is one of many, many factors that will affect the path
    of the economy. We are focused entirely on the state of the
    economy and the path to maximum employment and price stability.
    That is our focus. Anything that affects that can affect what
    we see. But we will be looking at the actual data in our
    forecast. We will not be reacting to specific policies, if that
    is what you mean. Again, I would say over the longer term----
        Senator Ossoff. Chairman Powell, you have acknowledged the
    extreme difficulty of economic conditions for low-income and
    low-wealth households in this hearing. Which provides more
    direct economic relief to low-income households who may not own
    stocks or hold mortgages or run businesses: direct fiscal
    relief or monetary expansion whose effects are mediated by
    money markets and the banking system?
        Mr. Powell. Well, I would just say again, without
    commenting on a particular bill, fiscal policy, if we are
    talking about targeting specific groups within society for
    support, that is the work of fiscal policy. Monetary policy is
    really not designed to do that.
        Senator Ossoff. That is right. So if trying to relieve the
    suffering of people who are in economically precarious
    situations in their household, who, again, do not own stocks,
    do not own businesses, do not have mortgages, direct fiscal
    relief will be a more effective means of relieving their
    suffering than the broader macroeconomic intervention of the
    Fed through monetary policy. Is that a correct paraphrasing of
    your statement?
        Mr. Powell. Yes, and that is really been the story of this
    recovery, is fiscal policy has really stepped up and done that.
    We have done what we can, too, but fiscal policy----
        Senator Ossoff. OK. I have just 20 seconds. Chairman, I
    want to return to systemic risk. The provision of massive
    liquidity to the financial system, not just since COVID but
    since the 2007-08 crisis, risks the emergence, as the Ranking
    Member noted, of asset bubbles that could pose a systemic risk
    to the banking system. Do you believe that we have sufficient
    surveillance and risk management capacity right now to identify
    those risks before they threaten financial stability?
        Mr. Powell. I do. We monitor financial markets very
    carefully and so do many others. It is not a question of lack
    of monitoring capacity.
        Senator Ossoff. OK. Thank you so much, Chairman Powell.
    Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Ossoff.
        Senator Daines from Montana is recognized. Or perhaps he is
    not here. Senator Cramer from North Dakota has not spoken yet.
    He had checked in earlier. Is he here?
        Senator Warnock from Georgia is recognized.
        I understand people are voting. Let me ask one question. I
    wanted to ask--hang on a second. I apologize. I wanted to ask
    the Chairman a question about climate, and I had mentioned, I
    will do this question in writing. I would rather obviously do
    it now while we are waiting, and I will not keep you long if
    the other Members do not show up.
        Chairman Brown. We know that low- and moderate-income
    communities and Black and Brown communities suffer the effects
    of climate change disproportionately. When a hurricane hits--
    and always have suffered weather disasters, way out of
    proportion to their numbers. When a hurricane hits, when
    wildfires ravage an entire town and regions, entire spring
    planting washes down the Mississippi, local residents need
    Government agencies to be agile and flexible in response.
        What policy changes, Mr. Chair, will the Fed implement to
    promote consumer protection in community development and do
    things like ensuring access to cash or other means of payment
    when these more frequent extreme weather events devastate
    already distressed communities or whole regions? Are you
    coordinating on this with the Federal Reserve Banks, among the
    12 banks?
        Mr. Powell. Yes. So that is a good example, really, of the
    way--to the extent climate change leads to increased episodes
    of severe weather, we need the banking institutions that we
    supervise to be in a position to perform really critical
    functions in the aftermath of this, those of us who see that.
    By the way, the Federal Reserve System itself, our Reserve
    Banks get the cash. They take the actual physical cash and get
    it to those affected areas. It is something they do very well,
    and we need to be resilient and available to do that--able to
    do that, rather. And then we need the banks to be able to
    perform the function that they perform with their ATMs and
    their branches to get that cash out to people who may be in
    pretty dire circumstances in the wake of a natural disaster.
        Chairman Brown. Senator Daines from Montana is recognized
    for 5 minutes.
        Senator Daines. All right. Thanks, Mr. Chairman.
        Chairman Powell, it is good to have you here. I just was
    looking at the T-bill chart and noticing since the 1st of
    February, the 1-month rates have dropped in half, from 0.06 to
    today 0.03; 2 months went from 0.07 to 0.02. We are starting to
    get into that realm here of possibly negative rates, which we
    saw, of course, briefly a year ago March.
        I just want to get your thoughts on that. Is there any
    issues here of shortage collateral? What is driving this as you
    are watching some of these short-term rates approaching zero?
        Mr. Powell. So with T-bills in particular, this would
    really be a Treasury issue, but I would say, you know, it is a
    lot of demand for short term--there is a lot of liquidity and
    people want to store it to some extent in T-bills, and there is
    demand and, therefore, that drives down the rates that people
    are being paid--or are receiving for buying those assets.
        From our standpoint, our policy rate is the federal funds
    rate. And to the extent there were to be downward pressure on
    that because of, for example, the Treasury general account
    shrinking in size, then we have tools that we can use to keep
    that rate in our intended policy range, and we will do that.
    And that should also limit the extent to which other money
    market instruments like T-bills would go even lower or perhaps
    negative.
        Senator Daines. So do you have a concern? Many of us were
    surprised when we saw negative rates here a year ago. These
    rates are getting awfully low in the short term. Is that a
    concern of yours then or not?
        Mr. Powell. Well, again, our principal concern is that the
    federal funds rate be in its intended range, the range intended
    by the Federal Open Market Committee. We do see that there is
    the possibility that other money market rates could move down.
    And I think to the extent we are able to keep the federal funds
    rate in its range, that should ameliorate some of that downward
    pressure. And that would be appropriate.
        Senator Daines. To follow up on that same point, Mr.
    Chairman, the last couple of weeks, we have seen a lot of
    volatility, for example, in the Texas gas markets that to a
    degree spread out to other markets. If there were several of
    these other kind of special circumstances all happening at the
    same time, might this lead to a shortage of collateral from T-
    bills, as seemed to be in the case that we saw here last March?
        Mr. Powell. It is possible. I do not really see that
    happening, but it is true that there is tremendous demand. And,
    again, the issue of supplying the demand across the curve is
    really one for the issuer, which is Treasury.
        Senator Daines. Is there any merit or might it be a good
    idea to waive the supplementary leverage ratio for, say, a year
    until some of these special circumstances we are seeing
    regarding the recovery from the pandemic in the past and when
    perhaps we will have less possible need for some of the dealer
    intermediation in the repo market and some of the other short-
    term markets?
        Mr. Powell. As you I am sure know, the temporary relief
    that we granted regarding the SLR expires at the end of March.
        Senator Daines. Right.
        Mr. Powell. And we are right in the middle of thinking
    about what to do about that. I do not have any news for you on
    that today, but we do expect to make a decision on what to do
    about that exemption, that change we made to SLR back last
    year.
        Senator Daines. Let me shift gears in looking at some of
    the prospects of these asset bubbles here. We are seeing signs
    of speculation across various portions of the economy. Stocks,
    of course, are trading at very high prices to earnings ratios;
    ag commodities moving up, economically sensitive materials,
    such as copper, nickel, they are soaring; Bitcoin is up 80
    percent this year alone.
        Mr. Chairman, how do we know when, I guess to quote--I
    think it was Mr. Greenspan talked about ``irrational
    exuberance'' has unduly escalated asset values, which then
    might become subject to unexpected and perhaps prolonged
    contractions?
        Mr. Powell. So as we look at those things that you cited,
    what many of them have in common is that they are related to
    expectations of and greater confidence in a stronger recovery.
    So that is the metals. It is not so much Bitcoin, but it is the
    metals that you mentioned and inflation expectations and other
    securities. Prices are really related to--you know, because of
    all the factors that are out there right now, an expectation
    that the recovery is going to be stronger, sooner, and more
    complete. And so that is OK. We saw commodity prices moved up a
    lot in 2008 and 2009, and people were worried about inflation.
    The Inflation never came. So it is a healthy sign, I think,
    there.
        Honestly, we are focused on making sure that we are
    providing the support that the economy needs to get back to
    maximum employment and stable prices. We have still got 10
    million people, fewer working now, according to the payroll
    statistics. And it is much worse than that among the workers in
    the lower quartile. So that is really our focus. Our focus in
    financial stability generally has been to have a banking system
    and financial sector that is highly resilient to shocks and----
        Chairman Brown. I am going to change the order of this.
        Senator Daines. All right, Mr. Chairman, I am over my time
    at the moment. So thank you. I yield back.
        Chairman Brown. Thank you, Senator Daines.
        Senator Warnock from Georgia is recognized for 5 minutes.
    Senator Warnock.
        Senator Warnock. Thank you so very much, Chairman Brown,
    and I look forward to working with you and also with Ranking
    Member Toomey and other Members of this Committee. I am
    grateful to Chairman Powell. Thank you so much for taking the
    time to talk to me 2 weeks ago. I look forward to working with
    you as we work on a recovery that embraces our whole country.
    And I especially look forward to working with you and Atlanta
    Fed President Raphael Bostic to help Georgians over the next 2
    years.
        Some have suggested that our COVID-19 challenges with
    unemployment, with homelessness, and poverty will be solved if
    we simply lift all local restrictions and open up the economy.
    But since the beginning of this crisis, I have heard you stress
    time and time again, and something along this order even today
    as you offered your testimony, that the path of the economy,
    you said on one occasion, continues to depend significantly on
    the course of the virus.
        Would you mind elaborating on why this is the case? Will
    the economy fully recover if people do not feel safe and
    comfortable that the virus is contained?
        Mr. Powell. I would answer your question in the negative.
    It would not. We know that actually at the beginning of the
    pandemic, if you look at the plummeting levels of travel and
    going to restaurants through OpenTable, all that data, it shows
    that people stopped doing those things because of the
    coronavirus before there were governmental restrictions at the
    State and local level to do it, to do those things. So it
    really is to a significant extent just people wanting to avoid
    catching the coronavirus.
        It is also, you know, the restrictions that are in place in
    some cases on the part of governments. It is not a role for us
    to express views on whether they should be lifted or not. That
    is really something for State and local governments. But, you
    know, clearly, if you look at the 10 million people who are out
    of work, a great number of them are in those sectors of the
    economy that have been so badly affected by COVID. And those
    are the ones where they gather closely and where people are
    still--not every person, but many people are still reluctant to
    go to indoor restaurants, for example. And you see sporting
    events, they are not having crowds. The people who worked in
    those areas, those are the ones who were affected, and it is
    going to be hard for them to go back to work until people are
    confident, as you say.
        Senator Warnock. So we want the economy to fully recover,
    but we have got to get the virus under control, and those
    things work together, which is why I am glad to see $20 billion
    in the vaccine rollout funds and the COVID-19 stimulus package.
    And I am going to do everything I can to make sure that we get
    those funds approved and out the door so that we can reopen and
    do so safely and permanently.
        You are tasked primarily with looking at the whole economy
    and with the big picture in guiding our country forward. And
    one of the things that you have to look at as you do that is
    systemic risks. You and the other Governors over at the Fed
    Board have to ask, well, what risks are systemic? And in that
    regard, I am curious how broad is your definition of systemic
    risk? My definition of systemic risk includes a cycle of
    poverty. It includes things like disparities in wages that mean
    women make less than men, people of color make less than their
    White sisters and brothers. It includes food insecurity,
    housing insecurity, lack of access to health care. These things
    feed a cycle that limits opportunity, limits upward mobility,
    and people's ability to reach their full potential, which then
    has implications for the whole economy.
        How do you factor these kinds of things in as you take
    stock of whether the economy is working or not and for whom is
    the economy working?
        Mr. Powell. So you have heard us increasingly in recent
    years talking about these longer-run disparities and why do we
    feel that we can do that? It is because they weigh on the
    economy in the sense that if not everyone has the opportunity
    to participate in the economy and contribute as much as that
    person can contribute, given his or her talents and abilities
    and willingness to work and all those different things, then
    the economy is going to be less than it can be. And in our
    country, of course--and every country faces challenges. We are
    not alone in this, but we do face persistent, very persistent
    differentials that are hard to account for and that weigh on
    the economy. And those are along racial lines, along gender
    lines and other lines. And I just think it is--I would say it
    is widely understood now that we need to do everything we can
    to bring people into the economy and let them contribute and
    let them share in the broader prosperity.
        Senator Warnock. Thank you, Chairman Powell. It is clear
    that the bottom line is that poverty, systemic inequality,
    wealth inequality are risks to the entire economy and have
    implications for all of us; that these issues cannot be siloed,
    which is why we have got to take this into consideration as we
    push forward COVID relief, and then pivot to address
    longstanding issues of wealth inequality in our country.
        Thank you so very much.
        Chairman Brown. Thank you, Senator Warnock.
        For Senators who wish to submit questions for the record,
    these questions are due 1 week from today, Tuesday, March 2nd.
        Chair Powell, based on the change we made to our Committee
    rules bipartisanly, you have 45 days to respond to any
    questions.
        I appreciated the dose of reality we heard from Chair
    Powell today: 10 million fewer jobs. We are only creating
    29,000 new jobs a month. That is unacceptable. As you said, Mr.
    Chairman, when it comes to our recovery, the job is not done.
    Talk to any mother or essential worker or mayor. Talk to the
    people who own barber shops and diners and drycleaners.
    Everything is not fine.
        Much of what we heard from my Republican colleagues today
    sounds pretty out of touch with the reality that the great
    majority of American families are living in. It is the same
    message we heard all last summer, last fall, the stock market
    is up, everything is fine. We heard it again today.
        Certainly the wealthiest sliver of Americans are doing just
    fine, just like they were before the pandemic, but our job is
    not to work for them; it is to work for everyone, as you and I
    have discussed, Chair Powell. The Fed has multiple tools to
    increase employment, fight wealth inequality, create an economy
    that Senator Warnock just spoke about, that works for the vast
    majority of people who get their income from a paycheck, not an
    investment portfolio. You, Mr. Chair, have a responsibility to
    use all of those tools toward that goal. I continue and look
    forward to continuing to work with you to do all of that.
        With that, the hearing is adjourned. Thank you so much.
        [Whereupon, at 12:22 p.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                  PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
        At this Committee's first hearing, we heard from our witnesses the
    challenges and struggles Americans have faced over the past year.
        Anyone who has been doing their jobs has heard these stories. Front
    line workers--like our transit workers--go to work every day worried
    they'll get the virus on the job, and bring it home to their families.
    Mayors and county commissioners and community leaders wonder how long
    they can hold on without starting layoffs. Renters see the bills pile
    up, watching their bank balance dwindle lower and lower, and wondering
    if this will be the month an eviction notice comes.
        Today more than 4 million people are out of a job--and the trend
    continues upward. Last week jobless claims rose again. We are still
    fighting the battle against the coronavirus--nearly 500,000 of our
    fellow Americans have died from COVID-19.
        We all know that we are facing two crises--a public health crisis,
    and an economic crisis. We have to be clear about that--we can't solve
    one without solving the other.
        We know getting our economy back to full strength requires a
    massive, wartime level mobilization to get all Americans vaccinated.
        We also know that vaccines alone will not put most workers and
    their families back to where they were a year ago.
        We want people back to work and we want kids back in school and we
    want to see main streets thriving and humming with life again. That
    requires real Federal leadership on a level we have not seen in this
    country since World War II.
        As Bill Spriggs alluded to when testifying before this Committee,
    before D-Day, General Eisenhower didn't call up the president or the
    Treasury Secretary and ask, can we afford to storm the beaches at
    Normandy? Do we have the money in our accounts?
        Most people that I talk to in Ohio and around the country aren't
    worried about doing too much in the battle against coronavirus; they're
    worried about doing too little. They want us to do whatever it takes.
        85 percent of Americans still need a vaccine.
        Our front line workers still need PPE. Small businesses still need
    assistance to keep their doors open. States and cities and towns still
    need resources and support to open schools safely and keep buses
    running and libraries open and firefighters on the job.
        And the experts agree that the best thing we can do for the country
    right now is to get resources out the door as quickly as possible, to
    tackle all of these interconnected problems.
        Former Fed Chair, now our Treasury Secretary, Janet Yellen said
    that if we don't do more, we risk a permanent ``scarring'' of the
    economy into the future.
        Economists from across the political spectrum--including many who
    have testified before this Committee--tell us that without strong
    fiscal support, our economy could spiral even further out of control
    and take years to recover.
        Our witness today, Federal Reserve Board Chair Jerome Powell, has
    expressed some of those same concerns. Just a few weeks ago--after we
    passed the COVID-19 relief bill in December--he said that ``support
    from fiscal policy will help households and businesses weather the
    downturn as well as limit lasting damage to the economy that could
    otherwise impede the recovery.''
        Chair Powell has talked to all of us about the risk of falling
    short of a complete recovery, and the damage it will do to peoples'
    lives and to the ``productive capacity of the economy''--his words.
        President Biden understands this moment, and he's risen to meet it
    with his bold American Rescue package. It's a plan to both rescue the
    economy and to save American lives.
        Workers and their families need to see their Government work for
    them, now.
        And this rescue plan must be the beginning of our work to deliver
    results that empower people and make their lives better, not the end.
    We need to rethink how our economy operates. When a hard day's work
    doesn't pay the bills for tens of millions of workers, and even middle
    class families don't feel stable, something in that system is broken.
        Workers' wages have been stagnant for decades, while CEO pay has
    soared. Corporations get huge tax breaks, and instead of investing in
    their employees and communities they serve, management reward
    themselves and shareholders through stock buybacks and dividends.
        The wealth and income gaps for women, and for Black and brown
    workers, are getting worse, not better. Many families still had not
    recovered from the Great Recession when the pandemic hit.
        This didn't happen by accident. It's the result of choices made by
    corporations and their allies in Washington.
        They've spent years rolling back consumer protections in our
    financial system, cutting corporate tax rates, and using Wall Street to
    measure the economy instead of workers.
        And the same people that have been advocating for these roll backs,
    pushing this stock market-centered view of the economy, are the same
    people who say we shouldn't go big on a rescue plan. They say that
    there's no need for the Government to help people--the market should
    decide who wins and who loses.
        But we all know that the market doesn't work when the game is
    rigged. And the corporations that have been lining their own pockets
    have done so with plenty of Government help and intervention.
        We know that for them, short-term profits are more important than
    their workers. That's why we have to stop letting them run things.
        Just look at what's happening in Texas, where a deregulated energy
    grid failed, leaving millions without power in frigid winter
    temperatures. People are literally freezing to death in their own
    homes--in the United States of America.
        And without any rules, energy companies can charge consumers sky
    high prices. They even use automatic debits, taking thousands of
    dollars directly out of people's bank accounts. We know climate change
    is causing severe weather across our country. We need more investment
    in public infrastructure, not less, and we can't let corporate greed
    continue to stand in the way.
        Our Nation's central bank plays a critical role in all of this.
        The Federal Reserve can ensure that the biggest banks use their
    capital to invest in their workers and lend in their communities,
    instead of ginning up their stock prices with buybacks and dividends.
        The Fed can make sure the response to economic and financial crises
    doesn't just help Wall Street, it helps everyone else.
        It can require that financial institutions take into account the
    serious risks posed by the climate crisis.
        It can help ensure that everyone in this country has a bank account
    and access to their own hard earned money. And it can start to undo the
    systemic racism in the financial system, and make workers the central
    focus of our economy.
        Chair Powell, you said just a few weeks ago that, quote, the
    ``benefits of investing in our Nation's workforce are immense. Steady
    employment provides more than a regular paycheck. It also bestows a
    sense of purpose, improves mental health, increases lifespans, and
    benefits workers and their families.''
        What that boils down to is the Dignity of Work. It means that hard
    work should pay off, no matter who you are or what kind of work you do.
    It means that we need to start measuring the success of our economy by
    the success of the people who make our economy work.
        Chair Powell, thank you and I look forward to your testimony.
                                     ______

                     PREPARED STATEMENT OF JEROME H. POWELL
           Chairman, Board of Governors of the Federal Reserve System
                               February 23, 2021
        Chairman Brown, Ranking Member Toomey, and other Members of the
    Committee, I am pleased to present the Federal Reserve's semiannual
    Monetary Policy Report.
        At the Federal Reserve, we are strongly committed to achieving the
    monetary policy goals that Congress has given us: maximum employment
    and price stability. Since the beginning of the pandemic, we have taken
    forceful actions to provide support and stability, to ensure that the
    recovery will be as strong as possible, and to limit lasting damage to
    households, businesses, and communities. Today I will review the
    current economic situation before turning to monetary policy.
    Current Economic Situation and Outlook
        The path of the economy continues to depend significantly on the
    course of the virus and the measures undertaken to control its spread.
    The resurgence in COVID-19 cases, hospitalizations, and deaths in
    recent months is causing great hardship for millions of Americans and
    is weighing on economic activity and job creation. Following a sharp
    rebound in economic activity last summer, momentum slowed
    substantially, with the weakness concentrated in the sectors most
    adversely affected by the resurgence of the virus. In recent weeks, the
    number of new cases and hospitalizations has been falling, and ongoing
    vaccinations offer hope for a return to more normal conditions later
    this year. However, the economic recovery remains uneven and far from
    complete, and the path ahead is highly uncertain.
        Household spending on services remains low, especially in sectors
    that typically require people to gather closely, including leisure and
    hospitality. In contrast, household spending on goods picked up
    encouragingly in January after moderating late last year. The housing
    sector has more than fully recovered from the downturn, while business
    investment and manufacturing production have also picked up. The
    overall recovery in economic activity since last spring is due in part
    to unprecedented fiscal and monetary actions, which have provided
    essential support to many households, businesses, and communities.
        As with overall economic activity, the pace of improvement in the
    labor market has slowed. Over the 3 months ending in January,
    employment rose at an average monthly rate of only 29,000. Continued
    progress in many industries has been tempered by significant losses in
    industries such as leisure and hospitality, where the resurgence in the
    virus and increased social distancing have weighed further on activity.
    The unemployment rate remained elevated at 6.3 percent in January, and
    participation in the labor market is notably below prepandemic levels.
    Although there has been much progress in the labor market since the
    spring, millions of Americans remain out of work. As discussed in the
    February Monetary Policy Report, the economic downturn has not fallen
    equally on all Americans, and those least able to shoulder the burden
    have been the hardest hit. In particular, the high level of joblessness
    has been especially severe for lower-wage workers and for African
    Americans, Hispanics, and other minority groups. The economic
    dislocation has upended many lives and created great uncertainty about
    the future.
        The pandemic has also left a significant imprint on inflation.
    Following large declines in the spring, consumer prices partially
    rebounded over the rest of last year. However, for some of the sectors
    that have been most adversely affected by the pandemic, prices remain
    particularly soft. Overall, on a 12-month basis, inflation remains
    below our 2 percent longer-run objective.
        While we should not underestimate the challenges we currently face,
    developments point to an improved outlook for later this year. In
    particular, ongoing progress in vaccinations should help speed the
    return to normal activities. In the meantime, we should continue to
    follow the advice of health experts to observe social-distancing
    measures and wear masks.
    Monetary Policy
        I will now turn to monetary policy. In the second half of last
    year, the Federal Open Market Committee completed our first-ever public
    review of our monetary policy strategy, tools, and communication
    practices. We undertook this review because the U.S. economy has
    changed in ways that matter for monetary policy. The review's purpose
    was to identify improvements to our policy framework that could enhance
    our ability to achieve our maximum-employment and price-stability
    objectives. The review involved extensive outreach to a broad range of
    people and groups through a series of Fed Listens events.
        As described in the February Monetary Policy Report, in August, the
    Committee unanimously adopted its revised Statement on Longer-Run Goals
    and Monetary Policy Strategy. Our revised statement shares many
    features with its predecessor. For example, we have not changed our 2
    percent longer-run inflation goal. However, we did make some key
    changes. Regarding our employment goal, we emphasize that maximum
    employment is a broad and inclusive goal. This change reflects our
    appreciation for the benefits of a strong labor market, particularly
    for low- and moderate-income communities. In addition, we state that
    our policy decisions will be informed by our ``assessments of
    shortfalls of employment from its maximum level'' rather than by
    ``deviations from its maximum level.'' \1\ This change means that we
    will not tighten monetary policy solely in response to a strong labor
    market. Regarding our pricestability goal, we state that we will seek
    to achieve inflation that averages 2 percent over time. This means
    that, following periods when inflation has been running below 2
    percent, appropriate monetary policy will likely aim to achieve
    inflation moderately above 2 percent for some time. With this change,
    we aim to keep longer-term inflation expectations well anchored at our
    2 percent goal. Well-anchored inflation expectations enhance our
    ability to meet both our employment and inflation goals, particularly
    in the current low interest rate environment in which our main policy
    tool is likely to be more frequently constrained by the lower bound.
    ---------------------------------------------------------------------------
         \1\ Italics have been added for emphasis.
    ---------------------------------------------------------------------------
        We have implemented our new framework by forcefully deploying our
    policy tools. As noted in our January policy statement, we expect that
    it will be appropriate to maintain the current accommodative target
    range of the federal funds rate until labor market conditions have
    reached levels consistent with the Committee's assessments of maximum
    employment and inflation has risen to 2 percent and is on track to
    moderately exceed 2 percent for some time. In addition, we will
    continue to increase our holdings of Treasury securities and agency
    mortgage-backed securities at least at their current pace until
    substantial further progress has been made toward our goals. These
    purchases, and the associated increase in the Federal Reserve's balance
    sheet, have materially eased financial conditions and are providing
    substantial support to the economy. The economy is a long way from our
    employment and inflation goals, and it is likely to take some time for
    substantial further progress to be achieved. We will continue to
    clearly communicate our assessment of progress toward our goals well in
    advance of any change in the pace of purchases.
        Since the onset of the pandemic, the Federal Reserve has been
    taking actions to support more directly the flow of credit in the
    economy, deploying our emergency lending powers to an unprecedented
    extent, enabled in large part by financial backing and support from
    Congress and the Treasury. Although the CARES Act (Coronavirus Aid,
    Relief, and Economic Security Act) facilities are no longer open to new
    activity, our other facilities remain in place.
        We understand that our actions affect households, businesses, and
    communities across the country. Everything we do is in service to our
    public mission. We are committed to using our full range of tools to
    support the economy and to help ensure that the recovery from this
    difficult period will be as robust as possible.
        Thank you, I am happy to take your questions.
            RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                         FROM JEROME H. POWELL

    Q.1. The Supervisory Climate Committee (SCC) will look at two
    of the Fed's core functions through the lens of climate risk:
    promoting the stability of the financial system; and promoting
    the safety and soundness of financial institutions and
    evaluating their impact on the financial system. As we have
    seen recently in Texas, and over the last couple of years with
    catastrophic wildfires in California or historic spring
    flooding in the Plains Sates, both in the wake of years of
    persistent droughts, climate change exacerbated extreme weather
    events can dramatically affect Americans' jobs and businesses.
    How will the Fed take into account climate change as part of
    its mandate to ensure maximum employment?

    A.1. As you note, earlier this year we announced the formation
    of our Supervision Climate Committee (SCC), which brings
    together senior staff from the Federal Reserve Board (Board)
    and the Reserve Banks as we work to better understand potential
    climate-related financial risks to supervised institutions. The
    formation of the SCC is part of the Federal Reserve's ongoing
    work to help ensure the resilience of supervised firms to
    climate-related risks.
        To best pursue our mandated monetary policy goals of
    maximum employment and price stability, the Federal Reserve
    must, and does, assess any factor that can materially affect
    the dynamics of the job market and inflation. While climate
    change is not a current consideration for monetary policy, we
    recognize that climate change, and the policies governments
    implement in response, could alter the behavior of employment
    and inflation over time. Researchers throughout the Federal
    Reserve System are actively examining the longer-run
    implications of climate change for the economy, financial
    institutions, and financial stability, and if we find important
    changes in these areas, we will take account of them in our
    analysis.

    Q.2. I applaud your efforts to establish the SCC, but I am
    concerned that waiting for the SCC to make reports on its
    agenda before acting to consider climate risk in the Feds other
    core functions may be too late. What is your timeline to
    incorporate climate change as a national and global factor to
    be considered in carrying out all Federal Reserve functions?

    A.2. Congress has assigned the Federal Reserve narrow but
    important mandates around monetary policy, financial stability,
    and supervision of financial firms, and our current work is
    directed at enabling us to consider the potential effects of
    climate change in relation to the achievement of those
    statutory mandates. For example, our most recent Financial
    Stability Report and Supervision and Regulation Report discuss
    at a high level how climate change may create or change risks
    to the financial system or to individual supervised
    institutions. \1\
    ---------------------------------------------------------------------------
         \1\ See https://www.federalreserve.gov/publications/2020-november-
    financial-stability-report-purpose.htm and https://
    www.federalreserve.gov/publications/2020-november-supervision-and-
    regulation-report.htm.
    ---------------------------------------------------------------------------
        In addition, we have been participating in climate-related
    projects in a number of multilateral groups, including the
    Financial Stability Board and the Basel Committee on Banking
    Supervision, and the Federal Reserve recently became a member
    of the Network for Greening the Financial System. We are taking
    a careful, thoughtful, and transparent approach to this work,
    and we will engage with Congress and the public along the way.

    Q.3. In your testimony, you reiterated the Federal Open Market
    Committee's position that maximum employment is a broad and
    inclusive goal. Even before the pandemic, many workers in the
    United States were facing pervasive underemployment, including
    workers who are working part time but want to work full time.
    Nearly 6 million Americans are working part time for economic
    reasons, meaning they would normally be working full-time but
    are forced to work fewer hours than they would like. \2\ To
    what extent does the Federal Reserve take into account the
    number of part-time underemployed workers in its assessment of
    the health of the economy and conduct of monetary policy? How
    does the number of workers who work part-time for economic
    reasons contribute to the racial and gender wealth and income
    gaps?
    ---------------------------------------------------------------------------
         \2\ ``Labor Market Weaker Than Headline Numbers Suggest Center on
    Budget and Policy Priorities'' (cbpp.org); ``Unemployment Rates During
    the COVID-19 Pandemic: In Brief'', Congressional Research Service,
    February 15, 2021, available at: https://crsreports.congress.gov/
    product/pdf/R/R46554.
    ---------------------------------------------------------------------------
        The Federal Open Market Committee's (FOMC) goal of maximum
    employment tries to capture the labor market experiences of all
    Americans and to account for a broad range of labor market
    outcomes (as opposed to simply counting how many people have
    jobs). Underemployment is one of the outcomes that we are
    concerned with. It can come in many forms, ranging from
    discouraged workers who no longer seek work, to those who are
    actively looking for work but have not found a job (the usual
    definition of unemployment), to those who are working part
    time, but would prefer a full-time job. Workers in this third
    category are said to be working part time for economic reasons.
    The number of people working part time for economic reasons is
    quite cyclical and surged to over 10 million during the initial
    stage of the pandemic. Since then, the number of those working
    part time for economic reasons has shrunk to about 6 million,
    which is still nearly 2 million above the level that prevailed
    prior to the onset of the pandemic. Those working part time for
    economic reasons tend to be disproportionately women, Blacks,
    or Hispanics, which means that an increase in the size of this
    group can contribute to greater income inequality. We consider
    this dimension of underemployment, along with others, in
    putting together our overall assessment of the health of the
    labor market and in determining how close we are to meeting our
    maximum employment goal.
        Aside from the overall unemployment rate, what labor market
    indicators and statistics do you look at in determining full
    employment? Do you agree that the Federal Reserve's
    responsibility to ensure maximum employment means full-time
    employment for every worker?

    A.3. To gauge the performance of the labor market we look at a
    wide range of aggregate measures as well as more granular and
    disaggregated statistics. Importantly, though, we do not think
    there is one single measure that captures the overall
    performance of the labor market. Among the data at the
    aggregate level, we examine the standard unemployment rate
    along with broader measures of underemployment that capture
    discouraged workers and those working part time who would
    prefer to work full time if they could find a full-time job. We
    also look at labor force participation and the reasons why
    people are not in the labor force. In addition, we monitor job
    openings and job-finding rates, as well as layoffs and
    unemployment insurance claims. Many of these same measures are
    available for less aggregated groups of the population; in
    particular, these statistics can be broken down by gender, race
    or ethnic identity, education level, and across rural and urban
    areas.
        Unlike price stability, the FOMC does not have a numerical
    target for its maximum employment goal. This reflects the
    complexity of the labor market, which in turn implies that one
    summary statistic will not be able to capture every important
    element of the state of the labor market. In addition, changes
    over time in various features of the labor market may result in
    changes to the level of employment that is consistent with our
    maximum employment goal. For example, the labor market has been
    importantly affected in recent decades as the population has
    aged and average educational attainment has increased. In
    addition, technological shifts have changed the supply and
    demand for different types of workers. More recently, the
    pandemic could leave a lasting imprint on labor market
    performance in coming years, and we will have to use the
    indicators described above to assess when we reach full
    employment in the context of price stability.
        Finally, even at maximum employment there will still be
    some amount of unemployment, both voluntary (as workers search
    for jobs that best match their skills), and involuntary
    (because in a dynamic economy, business downsizing or business
    closures will result in temporary periods of unemployment for
    some workers). We are committed to using our full range of
    tools to support the economy and to help ensure that the
    economy's return to maximum employment is as robust as
    possible.

    Q.4. During the June 16, 2020, Monetary Policy Report hearing,
    I asked you if you would commit to a study about how the
    Federal Reserve's policies have contributed to systemic racism
    in this country. What progress, if any, have you made on this
    request since then?

    A.4. Discrimination has no place in our society. Moreover, it
    is a weight on the economy that restricts opportunity for those
    who want to contribute and share in the prosperity of a robust
    economy. The Federal Reserve devotes considerable time and
    attention to analyzing disparities in income, wealth,
    employment, and other economic outcomes for demographic groups
    and geographic areas. Understanding these disparities, and
    their implications for the functioning of the economy, is a key
    input to effective policymaking. The importance the Federal
    Reserve places on identifying, reporting, analyzing, and
    engaging with the public on these important issues is evident
    in the body of work that is posted on our public website. \3\
    ---------------------------------------------------------------------------
         \3\ https://www.federalreserve.gov/newsevents/economic-
    disparities-work.htm
    ---------------------------------------------------------------------------
        In addition to consideration of economic disparities in our
    monetary policy, research, and outreach efforts, the Federal
    Reserve also has supervisory authority for consumer protection
    and fair lending laws. We have a rigorous fair lending
    supervision program and evaluate fair lending risk at every
    consumer compliance examination, reviewing banks' practices to
    ensure that financial institutions under our jurisdiction fully
    comply with applicable Federal consumer protection laws and
    regulations. Further, with the increased presence of FinTech
    and artificial intelligence (AI) in underwriting and lending,
    we have been studying the benefits and challenges of the
    advancement of these technologies, including the potential
    risks of amplifying bias and inequitable outcomes. It is
    important that we understand how complex data interactions may
    skew the outcomes of algorithms in ways that undermine fairness
    and transparency. We also regularly discuss these issues with
    the other agencies and plan to issue an interagency request for
    information on risk management of AI in financial services to
    help obtain more insight into the application of various
    technologies in lending and other financial services
    activities.

    Q.5. Historically, the Federal Reserve has a poor track record
    when it comes to a diverse workforce--one that reflects the
    population of the United States. What steps have you taken to
    diversify the workplace at the Fed? Are there specific
    mechanisms that you have in place to support people of color
    who work at the Fed?

    A.5. The Board is dedicated to developing and sustaining a
    diverse and inclusive workforce. In support of its commitment,
    the Board has in place strategic objectives to attract, hire,
    develop, promote, and retain a highly skilled and diverse
    workforce. We continue to strengthen a diverse, equitable and
    inclusive culture and workplace through our policies and
    practices. We strive to learn from our experiences and adhere
    to best practices.
        Through these and other intentional and coordinated actions
    we ensure our continued commitment:

        Frequent engagements and activities for the entire
            Board staff and for smaller groups that encourage and
            enable employees' sharing of experiences addressing
            diversity, equity, and inclusion.

        Promotion and support for Employee Resource Groups.
            \4\ These groups hold educational events and
            activities, and help identify and drive talent
            acquisition, on-boarding, career development and
            culture change initiatives.
    ---------------------------------------------------------------------------
         \4\ The Federal Reserve--Diversity (https://
    www.federalreserve.gov/careers-diversity.htm).

        Professional development programs, including
            mentoring, rotation assignments, coaching, and
    ---------------------------------------------------------------------------
            leadership training.

        Ongoing focus on succession and workforce planning
            to address future workforce needs and strengthen the
            diversity of the managerial pipeline and progression to
            leadership positions.

        Intensive recruiting to ensure diverse candidates
            for job vacancies. This includes outreach to diverse
            professional networks, usage of diversity job boards,
            and attendance at job fairs at Hispanic-Serving
            Institutions (HSIs) and Historically Black Colleges and
            Universities (HBCUs).

        Required training for hiring managers focused on
            hiring without bias.

    Q.6. The lack of diversity among economists at the Federal
    Reserve is even starker. Only 1 percent of economists at the
    Federal Reserve are Black. \5\ Why are there so few Black
    economists at the Fed, particularly as compared to the
    percentage of Black economists in the field as a whole? What
    concrete actions are you taking to address this disparity?
    ---------------------------------------------------------------------------
         \5\  https://www.nytimes.com/2021/02/02/business/economy/federal-
    reserve-diversity.html

    A.6. We are fully committed to strengthening diversity across
    all areas of our workforce. This is a high priority for me and
    our staff, and we have a tremendous amount of work going on at
    the Board.
        We engage in extensive outreach to recruit diverse
    candidates, and despite challenges related to the pandemic, our
    engagement has continued during the past year as well. This
    includes participating in minority recruitment events at HBCUs,
    HSIs, and Hispanic professional conferences and career fairs.
        More specifically, we have taken a number of targeted
    actions to increase diversity among our economist positions,
    and to strengthen the pipeline of economists from under-
    represented groups. Some of these actions include our
    collaboration with the American Economic Association (AEA) to
    address the state of diversity and importance of diversity and
    inclusion in the field of economics and in the workplace. We
    have an ongoing teaching and mentoring partnership with Howard
    University's Department of Economics, and Howard University
    will host the AEA Summer Program over the next five years with
    Board staff teaching a research methods course each year.
    Nearly three dozen Board staff have volunteered as instructors,
    teaching assistants, and research mentors for the financial
    literacy course offered at the Board and virtually through
    Howard's Department of Economics.
        In addition, since 2018, the Board has hosted ``Exploring
    Careers in Economics'', an event that welcomed more than 200
    students to the Board and many more virtually to discuss career
    opportunities and diversity in economics. And last, we are
    supporting research on and awareness of the factors that are
    holding back diversity and inclusion in economics. In November,
    we are hosting a conference on Diversity and Inclusion in
    Economics, Finance, and Central Banking, along with three other
    central banks. We look forward to a dynamic program and
    rigorous discussion on what has been done and what more can be
    done to increase diversity and inclusion in the economics
    profession.
        We welcome your suggestions for how we can expand on our
    outreach efforts to increase diversity in our workforce,
    including among leadership roles.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                         FROM JEROME H. POWELL

    Q.1. Climate Change--In the past several months, the Federal
    Reserve has taken steps that appear to be part of a broader
    effort to use financial regulators to address environmental
    policy like climate change.
        Mindful of the Fed's limited statutory authority, can you
    explain what the Fed is doing in this area?

    A.1. Climate change is an important issue, and Congress has
    entrusted the job of addressing the problem of climate change
    itself to Federal agencies other than the Federal Reserve. As
    you note, Congress has given the Federal Reserve narrow but
    important mandates around monetary policy, financial stability,
    and supervision of financial firms, and we consider the
    potential effects of climate change to the extent such effects
    have an impact on the achievement of our statutory mandates.
        Analysis of climate-related risk to the financial system is
    a relatively new and evolving field. At the Federal Reserve,
    our work is still developing and involves investment in
    research and data to better understand how climate change may
    affect financial institutions, infrastructure, and markets. We
    also have been participating in climate-related projects in a
    number of multilateral groups, including the Financial
    Stability Board and the Basel Committee on Banking Supervision,
    and the Federal Reserve recently became a member of the Network
    for Greening the Financial System. We are taking a careful,
    thoughtful, and transparent approach to this work, and we will
    engage with Congress and the public along the way.

    Q.2. Do you believe the Fed's financial stability
    responsibilities authorize you to pursue regulatory policies
    with the explicit goal or practical effect of reducing carbon
    emissions?

    A.2. It has long been the policy of the Federal Reserve to not
    dictate to banks what lawful industries they can and cannot
    serve, as those business decisions should be made solely by
    each institution. Moreover, as I wrote in response to your
    first question, Congress has entrusted the job of addressing
    the problem of climate change itself to Federal agencies other
    than the Federal Reserve. Climate-related risks--like any other
    risk--can have implications for financial stability, and we
    consider those risks to the extent they have an impact on the
    achievement of our statutory mandates.

    Q.3. Continued Accommodative Monetary Policy--Given that the
    economy has largely recovered and is on pace to reach
    prepandemic levels this summer, what is the rationale for
    continuing to inject $120 billion a month of liquidity via
    asset purchases?

    A.3. In December 2020, the Federal Open Market Committee (FOMC)
    put in place outcome-based guidance on asset purchases. We
    reaffirmed that guidance at our January and March meetings. The
    guidance states that we will continue to increase our holdings
    of Treasury securities by at least $80 billion per month and of
    agency mortgage-backed securities (MBS) by at least $40 billion
    per month until substantial further progress has been made
    toward the FOMC's maximum employment and price stability goals.
    This guidance reinforces our strong commitment to using our
    full range of tools to achieve these mandates.
        The increase in our balance sheet since last March has
    materially eased financial conditions and is providing
    substantial support to the economy. We see the current stance
    of monetary policy--including our policy regarding asset
    purchases--as appropriate to continue to move the economy
    toward our statutory goals. As always, the FOMC will closely
    monitor economic developments and continue to assess how our
    ongoing policy actions can best support achievement of maximum
    employment and price stability.

    Q.4. Has the Fed's forward guidance created a structural speed
    limit to ceasing asset purchases? What is the shortest
    plausible timeframe in which the Fed could completely stop
    expanding the Fed's asset holdings?

    A.4. As noted in the previous response, the guidance on asset
    purchases states that the FOMC will continue to increase our
    holdings of Treasury securities and agency MBS at least at the
    current pace until substantial further progress has been made
    toward the FOMC's maximum employment and price stability goals.
    This guidance embodies the point that the accommodation the
    FOMC intends to provide through its securities holdings depends
    on the progress made toward our goals. If substantial further
    progress toward our objectives occurs relatively quickly, the
    length of time over which our asset purchases would continue at
    the current pace would be shorter, and our securities holdings
    would rise by less. Conversely, if this progress happens more
    slowly, then our asset purchases would continue for longer, and
    we would correspondingly increase our securities holdings by a
    greater amount--thereby providing greater support to the
    economy.
        It is important that the FOMC be transparent about our
    policy actions. The FOMC intends to clearly communicate its
    assessment of actual and expected progress toward its goals
    well in advance of the time when we would judge it appropriate
    to make a change in the pace of purchases.

    Q.5. School Reopening--Has the Fed conducted any research on
    the long-term damage being done to the labor force by the
    school closures? If so, please provide.

    A.5. Most K-12 schools were closed to in-person education at
    the start of the pandemic, and many schools remained closed to
    in-person education last fall and winter. \1\ Staff research
    done within the Federal Reserve System suggests that the
    closure of in-person education had substantial effects on
    parents' labor force participation--especially mothers'
    participation--although the longer-term consequences are
    uncertain.
    ---------------------------------------------------------------------------
         \1\ Using information on virtual learning in public school
    districts compiled by Education Week, Board staff estimated that
    roughly two-thirds of public school students started the Fall 2020
    school year with full or partial virtual learning.
    ---------------------------------------------------------------------------
        For example, analysis by Board staff finds that since March
    2020, the number of parents who report being out of the labor
    force due to caregiving reasons has been elevated relative to
    previous years, especially in the fall of 2020 and thereafter.
    Figure 1 (below) shows the change in the fraction of parents
    aged 25 to 54 years with children 6 to 17 years of age who
    responded to the Current Population Survey (CPS) that they are
    not in the labor force due to caregiving reasons, for the
    indicated month relative to the same month in the previous
    year. \2\ In particular, since September 2020 the fraction of
    mothers out of the labor force for caregiving reasons has been
    2 percentage points or more higher than it was in the same
    months of the previous year, while the fraction of fathers out
    of the labor force for caregiving reasons has been elevated by
    about half a percentage point. Furthermore, over this period,
    the increase relative to previous years has been especially
    large for Black and Hispanic mothers (respectively, a 5
    percentage point and 3 percentage point average increase
    relative to the previous year, compared to a 1\1/2\ percentage
    point average increase for White mothers). \3\
    ---------------------------------------------------------------------------
         \2\ These estimates are based on calculations from publicly
    available CPS microdata, and are similar to those described in the box
    titled ``Disparities in Job Loss During the Pandemic'' in the February
    2021 Monetary Policy Report. Similarly, other research across the
    Federal Reserve System has noted that employment and labor force
    participation have declined relatively more for parents, especially
    mothers. For example, see: ``Parents in a Pandemic Labor Market'',
    Federal Reserve Bank of San Francisco, Working Paper 2021-04, https://
    www.frbsf.org/economic-research/publications/working-papers/2021/04/
    and ``Did COVID-19 Disproportionately Affect Mothers' Labor Market
    Activity?'' Federal Reserve Bank of Chicago, Chicago Fed Letter No.
    450, https://www.chicagofed.org/publications/chicago-fed-letter/2021/
    450.
         \3\ In addition to the CPS, a number of real-time household
    surveys during the pandemic have specifically asked respondents whether
    their employment decisions have been affected by child care
    responsibilities (for example, Household Pulse Survey, conducted by the
    Census Bureau, and the COVID Impact Survey, conducted by the National
    Opinion Research Center at the University of Chicago for the Data
    Foundation). However, these surveys' limited histories make it
    difficult to infer whether the responses reflect child care
    difficulties during the pandemic as opposed to what would be typical
    during normal times.
    ---------------------------------------------------------------------------
        Looking ahead, it is difficult to predict the long-term
    consequences of this extended disruption to parental labor
    supply (and at present there has been little research that
    attempts to quantify these effects). The eventual magnitude of
    the effect on the labor force will depend on a number of
    difficult-to-predict factors, including how quickly in-person
    education reopens for all students; the prevalence of job
    opportunities after children return to school; and the extent
    to which remaining pandemic-related health concerns might
    affect parents' ability to safely reenter the labor force,
    along with their interest in doing so.

                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                         FROM JEROME H. POWELL

    Q.1. Bank Capital Requirements--In response to questioning, you
    indicated that the Federal Reserve was ``in the middle of
    thinking about'' a decision on extending interim final rules
    that provided institutions with relief from the supplementary
    leverage ratio by allowing the exclusion of U.S. Treasuries and
    Central Bank deposits. These rules are currently scheduled to
    expire on March 31, 2021.
        At what point did the Federal Reserve begin deliberations
    regarding a possible extension of these policies? Please
    provide, at a minimum, the month in which you began considering
    a potential extension or modification of temporary SLR relief
    at either the holding company or the depository institution
    level.

    A.1. The Federal Reserve Board (Board) sought comment on the
    interim final rules issued in April 2020 \1\ and May 2020 \2\
    to modify temporarily the supplementary leverage ratio (SLR),
    including specific questions for public feedback on whether the
    modifications from the interim final rules should be shorter or
    longer to achieve their intended purpose. The Board received
    and considered several comments from the public on this issue.
    ---------------------------------------------------------------------------
         \1\ 85 FR 20578 (April 14, 2020).
         \2\ 85 FR 32980 (June 1, 2020).

    Q.2. Have any alternatives to extending the date of the SLR
    relief been discussed? If so, please describe them and provide
    ---------------------------------------------------------------------------
    any reasons why they were not chosen.

    A.2. The Board announced recently that the temporary exclusions
    to the SLR requirement announced in April and May of 2020 would
    expire as scheduled on March 31, 2021. In that announcement,
    the Board also stated that it plans soon to seek public comment
    on potential measures to adjust the SLR.

    Q.3. How many banks opted-in for the SLR relief at either the
    holding company or depository institution level?

    A.3. The prior approval requirements related to the May 2020
    interim final rule issued by the Board, the Office of the
    Comptroller of the Currency (OCC), and the Federal Deposit
    Insurance Corporation (FDIC) only applied to depository
    institutions that opted into the relief. \3\ There are no
    similar prior approval requirements that apply to holding
    companies subject to the SLR. Holding companies are subject to
    other pandemic-related restrictions on their capital
    distributions. \4\ The only State member bank that opted into
    the SLR relief was Goldman Sachs Bank USA. The OCC and FDIC
    would be in the best position to provide information about any
    State nonmember bank or national bank that opted into the SLR
    relief.
    ---------------------------------------------------------------------------
         \3\ 12 CFR 217.303(g).
         \4\ https://www.federalreserve.gov/newsevents/pressreleases/
    bcreg20201218b.htm
    ---------------------------------------------------------------------------
        For each institution that did opt-in, please provide the
    following for each quarter starting in 2019 Q1:

      1.  The institution's total leverage exposure

      2.  The institution's total amount of U.S. Treasuries

      3.  The institution's total amount of Central Bank Deposits

      4.  The institution's total amount of capital distributions

      5.  The institution's supplementary leverage ratio

    Q.4. Can you commit to not finalizing any additional proposals
    that would reduce capital requirements for the Globally
    Systemically Important Banks (GSIBs) during the remainder of
    your term?
    ---------------------------------------------------------------------------
         \5\ The data included in Table 1 are based on public filings by
    Goldman Sachs Bank USA in its FFIEC 041 (Call Report) regulatory report
    submissions.

    A.4. Consistent with previous statements, I believe the current
    levels of capital and of overall loss absorbency in the banking
    system are generally appropriate. Strengthened by a decade of
    improvements in capital, liquidity, and risk management, banks
    have continued to be a source of strength during the past year.
    Consistent with their systemic importance, globally
    systemically important banks (GSIBs) are subject to the most
    stringent standards, including additional capital requirements
    ---------------------------------------------------------------------------
    such as the GSIB surcharge.

    Q.5. Monetary Policy--The pandemic has disproportionately
    affected marginalized Americans working low-income jobs.
        Please describe how the Fed will use its monetary policy
    tools to ensure a broad-based recovery.

    A.5. The dual mandate assigned to the Federal Reserve monetary
    policy is to achieve maximum employment and price stability.
    The highly accommodative monetary policy stance that the
    Federal Open Market Committee (FOMC) has put in place since the
    outbreak of the pandemic and the guidance that it is currently
    providing on its interest rate and balance sheet policies are
    designed to provide support to economic activity in order to
    achieve these goals. Improvement in the labor market should
    contribute to diminishing economic inequalities, as the
    recovery would benefit many in low- and moderate-income (LMI)
    communities. Accordingly, pursuing our congressional mandate
    assists in promoting a broad-based recovery.
        In our revised Statement on Longer-Run Goals and Monetary
    Policy Strategy, issued in August 2020 and reaffirmed in
    January 2021, the FOMC indicated that ``maximum employment'' is
    a broad and inclusive goal. Among other things, this means that
    we will be monitoring a broad range of indicators in assessing
    our progress toward maximum employment. We will remain highly
    attentive to disparities in the labor market of various kinds--
    rather than focus solely on the ``headline'' aggregate data.
    Our revised statement also indicates that our policy decisions
    will be informed by the FOMC's assessments of the shortfalls of
    employment from its maximum level. This implies that we will
    not tighten monetary policy solely in response to a strong
    labor market. Our adoption of this position reflects the
    widespread acceptance that a robust job market potentially can
    be sustained without causing an outbreak in inflation, together
    with our recognition of the considerable benefits brought by
    strong labor markets, particularly for LMI communities.

    Q.6. How will the Fed react in the event that inflation starts
    to trend higher, but millions of Americans remain left with
    limited opportunities to be employed at an adequate, livable
    wage?

    A.6. In pursuing its dual mandate, the FOMC seeks to achieve
    maximum employment and inflation at the rate of 2 percent over
    the longer run. Our experience is that the goals of maximum
    employment and price stability are generally complementary--so
    that pursuing maximum employment is typically consistent with
    achieving our price stability goal of a longer-run inflation
    rate of 2 percent.
        When occasions arise on which the FOMC's judgment is that
    the objectives are not complementary, the FOMC takes both
    employment shortfalls and inflation deviations into account in
    its decisions, as well as the potentially different time
    horizons over which employment and inflation are projected to
    return to levels judged consistent with the Federal Reserve's
    mandate.
        With regard to the present situation, the FOMC has
    indicated that, as inflation has been running persistently
    below our longer-run 2 percent goal, we will aim to achieve
    inflation moderately above 2 percent for some time, so that
    inflation averages 2 percent over time and longer-term
    inflation expectations remain well anchored at 2 percent. The
    FOMC expects to maintain an accommodative stance of monetary
    policy until these outcomes are achieved. More specifically, we
    have indicated that we would not expect to raise the target
    range for the federal funds rate from its effective lower bound
    until we see labor market conditions that are consistent with
    our assessment of maximum employment, inflation has risen to 2
    percent--and durably so, not on a transitory basis--and
    inflation is on track to run moderately above 2 percent for
    some time.

    Q.7. What data or metrics will the Fed use to ensure that the
    recovery reaches low-wage, marginalized workers? How will these
    data and metrics guide your decision-making?

    A.7. We will look at a large variety of indicators to assess
    the economy's progress toward our broad and inclusive goal of
    maximum employment. For example, in addition to aggregate data
    on the labor market, we will also be looking at labor market
    measures by race and ethnicity, education, and income. We
    recognize that in the recovery from the Great Recession, many
    groups only started to experience the benefits of the recovery
    after the aggregate unemployment rate had reached relatively
    low levels. In particular, it was not until 2015 and later that
    the labor force participation rate began to recover (with much
    of that recovery concentrated among individuals with less than
    a college degree); wage gains for low-income workers started to
    match and then exceed wage gains for other workers; and the
    unemployment rate for African Americans moved below 9 percent.

    Q.8. Are there steps that Congress, the White House, or the Fed
    can take to get a more detailed and representative assessment
    of the economic conditions that working-class Americans face on
    a daily basis?

    A.8. Collecting high-quality data that can describe the full
    distribution of economic experiences--not simply the average
    experience--is key. Two surveys conducted by the Federal
    Reserve help us do that. The Survey of Household and Economic
    Decision-Making asks individuals about important economic
    events and decisions in their lives. It is the source of the
    often-cited statistic on the share of households that do not
    have enough liquid savings to cover an unexpected $400 expense.
    The Survey of Consumer Finances (SCF) provides household-level,
    high-quality data on wealth, income, and consumption and is the
    basis of much of the recent research on increases in wealth and
    income inequality in the United States. We have combined data
    from the SCF with data from the Financial Accounts of the
    United States, which are published by the Federal Reserve
    Board, to produce the Distributional Financial Accounts (DFAs),
    which provide quarterly updates on the wealth of low- and
    middle-income households, along with that for high-income
    households. The DFAs also provide quarterly data on household
    wealth by age, education, and race or ethnicity. In addition,
    research by our economists uses microdata on households and
    individuals from the Census and other sources to describe and
    interpret the economic experiences of different groups of
    Americans. We continue to look for ways to improve and better
    use the data we collect ourselves or obtain from outside
    sources, and to sharpen our analyses of these data to create a
    detailed, accurate, and timely description of the economic
    experiences of all Americans.

    Q.9. According to the Congressional Budget Office, the U.S.
    economy was operating above its maximum sustainable level prior
    to the pandemic, despite inflation remaining below the Federal
    Reserve's target level. What would your estimate be for the
    output gap in January 2020? How far from potential output do
    you believe the economy was at that point?

    A.9. Real-time estimates of potential output, like those for
    the natural rate of unemployment, are highly uncertain. Indeed,
    this uncertainty was one of the reasons our revised Statement
    on Longer-Run Goals and Monetary Policy Strategy says that our
    policy decision will be informed by our ``assessments of the
    shortfalls of employment from its maximum level'' rather than
    by ``deviations from its maximum level'' as in our previous
    statement.
        Regardless, I think it is fair to say that the economy was
    in a good place in January 2020. The economic expansion was
    well into its 11th year, the longest on record. The overall
    unemployment rate had declined to 3.5 percent, the lowest level
    in a half-century. The unemployment rate for African Americans,
    at 6 percent, had also reached historical lows. Prime-age labor
    force participation was the highest in over a decade, and job
    openings were plentiful. And while overall wage growth was
    moderate, wages were rising more rapidly for earners on the
    lower end of the scale. These encouraging statistics were
    reaffirmed and given voice by those we met and conferred with,
    including the community, labor, and business leaders; retirees;
    students; and others we met with during the 14 ``Fed Listens''
    events we conducted in 2019.
        Importantly, however, the strength in the labor market in
    2019 and early 2020 did not result in unwanted upward pressures
    on inflation: In January 2020, the 12-month change in PCE
    inflation was 1.9 percent, a little below the FOMC's 2 percent
    objective. Indeed, there was every reason to expect that, had
    it not been for the onset of the pandemic, the labor market
    could have strengthened even further without causing a
    worrisome increase in inflation.
        Of course, the situation is very different today. Despite
    the improvement in economic activity in recent quarters
    following the deep contraction caused by the pandemic, the
    economic recovery remains uneven and far from complete, and the
    path ahead is highly uncertain. And while the future path of
    the economy continues to depend significantly on the course of
    the virus and the measures undertaken to control its spread, we
    at the Federal Reserve are committed to using our full range of
    tools to support the economy and to help ensure that the
    recovery from this difficult period will be as robust as
    possible.

    Q.10. Economist Larry Summers recently claimed that if
    President Biden's $1.9 trillion American Rescue Plan spending
    package was approved, we would have ``an economy that is
    literally on fire.'' \6\ Are you concerned that enactment of
    this package would cause dangerous overheating? Would the
    Federal Reserve likely raise interest rates if the package is
    passed at its current level?
    ---------------------------------------------------------------------------
         \6\ Bloomberg, ``Biden Urges Fast Virus Relief as Minimum-Wage
    Hike Hopes Fade'', Justin Sink, February 5, 2021, https://
    www.bloomberg.com/news/articles/2021-02-05/biden-s-go-big-push-on-
    stimulus-gets-help-from-weak-jobs-senate.

    A.10. With COVID-19 vaccinations becoming more widespread and
    good prospects for people's lives and activities to start
    returning to normal before long, I am hopeful that we can
    achieve a strong economic recovery this year. The additional
    fiscal support from the recently enacted American Rescue Plan
    (ARP) will contribute to the strength of that recovery.
    Professor Summers and some other respected economists have
    questioned whether the amount of additional fiscal support
    provided in the ARP might overheat the economy and generate a
    problematic rise in inflation. While I agree that very strong
    growth this year could create some upward pressure on inflation
    for a time, I do not believe that sustained higher inflation
    will become a longer-lived problem.
        The economy is still a long way from a full recovery, with
    payrolls some 9\1/2\ million below their prepandemic level. So
    even with the very strong economic growth that we all hope for,
    it will take some time to return to maximum employment. And, of
    course, the path ahead is still highly uncertain with
    considerable downside risks--including those related to
    emerging new variants of the virus. Moreover, the previous
    expansion demonstrated that a strong labor market can be
    sustained without inducing an unwanted increase in inflation.
        Rapid growth with a reopening economy could well lead to
    prices moving up this year, as firms see a large increase in
    demand and as some production bottlenecks emerge. But I would
    anticipate that any such higher inflation would be temporary.
    Inflation has averaged less than 2 percent for a quarter of a
    century, and low inflation has been the norm globally as well
    as in the U.S. That inflation performance has become ingrained
    in consumer inflation expectations and psychology. We are far
    from the situation of the 1970s, when higher inflation could
    boost expectations of future inflation and become built into
    wage and price setting. Inflation dynamics do evolve over time,
    but they have not tended to change rapidly.
        To be sure, no one has perfect foresight about how the
    economy will evolve. If, contrary to expectations, inflation
    were to persistently rise to unwelcome levels, we have the
    tools to address such a situation and will use them as needed.

    Q.11. Climate Finance--Following the May 19, 2020, hearing of
    the Committee on Banking, Housing, and Urban Affairs, I
    submitted questions for the record, including several on
    climate-related financial risks, to which you responded in
    August 2020. \7\ In your response, you wrote ``Economic
    research to understand the specific transmission channels
    between climate-related risks and the financial system is
    essential to understanding the impact of those risks on the
    Federal Reserve's mission,'' and though the ``research
    remain[ed] at an early stage,'' efforts were ``active and
    ongoing.'' \8\
    ---------------------------------------------------------------------------
         \7\ Letter from Federal Reserve System Board of Governors Chair
    Jerome Powell to Senator Elizabeth Warren, August 27, 2020.
         \8\ Id.
    ---------------------------------------------------------------------------
        Please describe the efforts the Fed has taken to better
    inform decisions regarding the incorporation of climate-related
    risks into the Board's mission since your August 2020 letter
    and since the Fed joined the Network for Greening the Financial
    System in December 2020. \9\
    ---------------------------------------------------------------------------
         \9\ Board of Governors of the Federal Reserve System, ``Federal
    Reserve Board Announces It Has Formally Joined the Network of Central
    Banks and Supervisors for Greening the Financial System, or NGFS, as a
    Member'', press release, December 15, 2020, https://
    www.federalreserve.gov/newsevents/pressreleases/bcreg20201215a.htm.

    A.11. Climate change is an important issue, and Congress has
    entrusted the job of addressing the problem of climate change
    itself to Federal agencies other than the Federal Reserve.
    Congress has given the Federal Reserve narrow but important
    mandates around monetary policy, financial stability, and
    supervision of financial firms, and we consider the potential
    effects of climate change to the extent such effects have an
    impact on the achievement of our statutory mandates.
        Since August 2020, we have released a Financial Stability
    Report and a Supervision and Regulation Report (both published
    in November 2020) that include high-level discussion and
    analysis on how climate change may create or change risks to
    financial institutions or the financial system. \10\
    ---------------------------------------------------------------------------
         \10\ See https://www.federalreserve.gov/publications/2020-
    november-financial-stability-report-purpose.htm and https://
    www.federalreserve.gov/publications/2020-november-supervision-and-
    regulation-report.htm.
    ---------------------------------------------------------------------------
        As you note, on December 15, 2020, the Board announced that
    we have formally joined the Network for Greening the Financial
    System (NGFS). We had been attending NGFS meetings as a guest
    and participating in NGFS activities for more than a year prior
    to officially joining. Through this forum, we look forward to
    deepening our discussions with more than 80 central banks and
    supervisory authorities from around the world, sharing research
    and identifying best practices to ensure the financial system
    is resilient to climate-related risks.
        In January 2021, we announced the formation of our
    Supervision Climate Committee (SCC), which brings together
    senior staff from the Board and Reserve Banks to facilitate the
    better understanding of potential climate-related risks to our
    supervised institutions. Additionally, in March, we announced
    the formation of our Financial Stability Climate Committee
    (FSCC), a Federal Reserve Systemwide committee composed of
    Board and System staff that works to facilitate the better
    understanding of climate-related risks to our financial system.
    Our goal is to incorporate climate risk into our forward-
    looking monitoring of financial stability through the FSCC.
        We also continue to participate in climate-related projects
    in a number of multilateral groups, including the Financial
    Stability Board (FSB) and the Basel Committee on Banking
    Supervision (BCBS). With respect to the FSB, a report on the
    financial stability implications of climate change was released
    in November 2020. \11\ Federal Reserve staff is also cochairing
    the BCBS's Task Force on Climate-Related Financial Risks.
    ---------------------------------------------------------------------------
         \11\ www.fsb.org/2020/11/the-implications-of-climate-change-for-
    financial-stability/
    ---------------------------------------------------------------------------
        We are taking a careful, thoughtful, and transparent
    approach to this work, and we will engage with Congress and the
    public along the way.

    Q.12. Please describe in detail additional steps that the Fed
    plans to take to address climate-related risks throughout the
    financial system?

    A.12. As noted above, we have established the SCC, which brings
    together senior staff from across the Federal Reserve System to
    facilitate the better understanding of potential climate-
    related risks to our supervised institutions. In this area, we
    are investing in analysis to better understand the transmission
    channels through which climate change impacts the banking
    sector and are engaging with supervised institutions to
    strengthen our understanding of how they are currently
    assessing climate risks. We have also established the FSCC,
    which will undertake work to facilitate the better
    understanding of climate-related risks to our financial system.
    We are in the early stages of identifying and assessing these
    risks and how to incorporate them into our financial stability
    framework.
        More broadly, we remain focused on investing in research
    and data to better understand how climate change may affect
    financial institutions, infrastructure, and markets. Robust
    data and rigorous analyses are essential to informing all our
    actions.

    Q.13. In your correspondence, you also mentioned that ``the
    Federal Reserve has considerable expertise in understanding the
    impact of severe weather events, ranging from economic
    forecasting, to financial stability monitoring, to prudential
    supervision, to continuity of operations.'' \12\ News reports
    regarding recent extreme weather events, however, state that
    ``As climate change worsens, severe conditions that go beyond
    historical norms are becoming ever more common.'' \13\
    ---------------------------------------------------------------------------
         \12\ Letter from Federal Reserve System Board of Governors Chair
    Jerome Powell to Senator Elizabeth Warren, August 27, 2020.
         \13\ Associated Press, ``U.S. Needs To Brace Itself for More
    Deadly Storms, Experts Say'', Matthew Daly and Ellen Knickmeyer,
    February 18, 2021, https://apnews.com/article/us-deadly-winter-storms-
    2021-df7d37d12ef13633bb5666e1151bcf9e.
    ---------------------------------------------------------------------------
        How has or how will the Fed work to incorporate research on
    climate change's impact on extreme weather events and other
    significant climate impacts on the economy into its work? [Sic]
    ensure that financial institutions are equipped to manage and
    address climate-related risks?

    A.13. For the Federal Reserve's near-term analysis, we already
    take into account information on the severity of weather
    events. When a severe weather event occurs, we closely monitor
    the effects on local economies, assess the implications for
    broader measures of economic production and employment, and
    adjust our economic forecasts accordingly.
        For example, our staff regularly uses daily measures of
    temperatures and snowfall from National Oceanic and Atmospheric
    Administration weather stations to better understand how severe
    weather may be affecting measured and real economic activity in
    specific areas.
        More generally, to best pursue our mandated monetary policy
    goals of maximum employment and price stability, the Federal
    Reserve must, and does, assess any factor that can materially
    affect the dynamics of the job market and inflation. While
    climate change is not a current consideration for monetary
    policy, we recognize that climate change, and the policies
    governments implement in response, could alter the behavior of
    employment and inflation over time. Researchers throughout the
    Federal Reserve System are actively examining the longer-run
    implications of climate change for the economy, financial
    institutions, and financial stability, and if we find important
    changes in these areas, we will take account of them in our
    analysis.

    Q.14. How will you ensure that financial institutions are
    equipped to manage and address climate-related risks?

    A.14. As noted above, we recently announced the formation of
    the SCC, which will bring together senior staff from the
    Federal Reserve Board and the Reserve Banks to facilitate the
    better understanding of potential climate-related risks to our
    supervised institutions. Our approach has been to invest in
    research and data to understand how climate change and the
    financial system interact.
        We also welcome and benefit from engagement with
    international colleagues from other central banks, supervisory
    authorities, and standard-setting bodies. For example, we are
    engaged in climate-related work through the FSB, the Basel
    Committee's Task Force on Climate-Related Financial Risks, and
    the NGFS.

    Q.15. Increased calls for financial regulators to tackle the
    issue of the climate crisis are coming from current Federal
    Reserve Bank leaders, top officials at the Treasury Department,
    and current and former members of the Federal Reserve Board of
    Governors. \14\
    ---------------------------------------------------------------------------
         \14\ New York Times, ``As Winter Sweeps the South, Fed Officials
    Focus on Climate Change'', Jeanna Smialek, February 18, 2021, https://
    www.nytimes.com/2021/02/18/business/economy/federal-reserve-climate-
    change-banks.html.
    ---------------------------------------------------------------------------
        Last year, former Federal Reserve Board Governor and former
    Deputy Treasury Secretary Sarah Bloom Raskin stated, ``when it
    comes to curbing the effects that climate risk will have on the
    economy, particularly the heightened chance that such risks
    will bring about economic catastrophe, leadership must exist
    and concerted action must be taken.'' \15\ Do you believe that
    the Fed during your tenure has shown the leadership and
    concerted action on climate risk to the economy, as described
    by former Deputy Treasury Secretary Raskin?
    ---------------------------------------------------------------------------
         \15\ Ceres, ``Addressing Climate as a Systemic Risk: A Call to
    Action for U.S. Financial Regulators'', June 2020, https://
    www.ceres.org/sites/default/files/reports/2020-06/
    Financial%20Regulators%20FULL%20FINAL.pdf.

    A.15. Within the bounds of the Federal Reserve's statutory
    mandate, we have undertaken important new initiatives and
    increased our overall program of work on climate-related topics
    in recent years. This work, which is ongoing, includes the
    ---------------------------------------------------------------------------
    following:

        Establishment of the SCC;

        Establishment of the FSCC;

        Cochairing the Basel Committee's Task Force on
            Climate-Related Financial Risks;

        Joining the NGFS as a member;

        Participating in the ongoing FSB work to assess the
            implications of climate change for financial stability;

        Incorporating analysis and discussion of climate-
            related risks into our Financial Stability Report and
            Supervision and Regulation Report;

        Extensive ongoing economic research, including
            published papers on climate-related topics in areas
            such as asset pricing, consumer spending and savings
            behavior, industrial production, credit availability,
            and fiscal outcomes;

        Organizing and hosting multiple conferences on
            climate-related economic research and policy analysis;
            and \16\
    ---------------------------------------------------------------------------
         \16\ For example, see ``Economic Risks of Climate Change:
    Implications for Financial Regulators'', Federal Reserve Bank of San
    Francisco, last modified on December 4, 2020; Federal Reserve Bank of
    New York, ``Reducing Climate Risk for Low-Income Communities'', press
    release, November 19, 2020; ``Virtual Seminar on Climate Economics'',
    Federal Reserve Bank of Richmond; ``Climate Change Economics'', Federal
    Reserve Bank of Richmond, last modified on November 20, 2020; and
    Galina B. Hale, Oscar Jorda, and Glenn D. Rudebusch, ``The Economics of
    Climate Change: A First Fed Conference'' (December 2019).

        Collaborating and sharing information across the
            Federal Reserve System through our System Climate
    ---------------------------------------------------------------------------
            Network and other forums.

    Q.16. Earlier this year, current Treasury Secretary and your
    predecessor as Federal Reserve Chair Janet Yellen stated,
    ``Both the impact of climate change itself and policies to
    address it could have major impacts, creating stranded assets,
    generating large changes in asset prices, credit risks and so
    forth that could affect the financial system. These are very
    real risks.'' \17\ Do you believe that the Fed during your
    tenure has sufficiently or adequately worked to address the
    impacts of climate change and policies to address it on our
    economy, as described by Secretary Yellen?
    ---------------------------------------------------------------------------
         \17\ POLITICO, ``Yellen Vows To Set Up Treasury Team To Focus on
    Climate, in Victory for Advocates'', Zachary Warmbrodt, January 19,
    2021, https://www.politico.com/news/2021/01/19/yellen-treasury-
    department-climate-change-460408.

    A.16. To appropriately address the impacts of climate change on
    our economy and financial system, we must first understand the
    risks. The Federal Reserve has made and continues to make
    strides in better understanding climate-related economic and
    financial risks. Researchers throughout the Federal Reserve
    System are examining the implications of climate change for the
    economy, financial institutions, and financial stability. The
    Federal Reserve is investing in data and empirical work to
    analyze the transmission of climate-related risks to the
    economy and developing methodologies to measure these risks.
    Our staff is also engaging with colleagues from other
    regulatory agencies, central banks, and standard-setting
    bodies. Please see the answer to 15 above for a more detailed
    ---------------------------------------------------------------------------
    list of activities.

    Q.17. Last month, President and CEO of the Federal Reserve Bank
    of San Francisco stated that ``[i]t is a fact that severe
    weather events are increasing,'' that ``[w]e have to understand
    what the risks are, and think about how those risks can be
    mitigated,'' and that ``[o]ur responsibility is to look
    forward, and ask not just what is happening today, but what are
    the risks.'' \18\ Do you believe that the Fed during your
    tenure has worked to understand the risks of climate change and
    how those risks can be mitigated, as described by Dr. Daly?
    ---------------------------------------------------------------------------
         \18\ New York Times, ``As Winter Sweeps the South, Fed Officials
    Focus on Climate Change'', Jeanna Smialek, February 18, 2021, https://
    www.nytimes.com/2021/02/18/business/economy/federal-reserve-climate-
    change-banks.html.

    A.17. As noted in the answers to the previous questions, the
    Federal Reserve has made and continues to make strides in
    better understanding climate-related economic and financial
    ---------------------------------------------------------------------------
    risks.

    Q.18. Last month, Federal Reserve Board Governor Lael Brainard
    stated, ``Climate change and the transition to a low-carbon
    economy create both risks and opportunities for the financial
    sector. Financial institutions that do not put in place
    frameworks to measure, monitor, and manage climate-related
    risks could face outsized losses on climate-sensitive assets
    caused by environmental shifts, by a disorderly transition to a
    low-carbon economy, or by a combination of both.'' \19\ Do you
    believe that the Fed during your tenure has sufficiently or
    adequately worked to describe the frameworks to measure,
    monitor, and manage climate-related risks on our economy, as
    described by Governor Brainard?
    ---------------------------------------------------------------------------
         \19\ Board of Governors of the Federal Reserve System, ``The Role
    of Financial Institutions in Tackling the Challenges of Climate
    Change'', Lael Brainard, February 18, 2021, https://
    www.federalreserve.gov/newsevents/speech/brainard20210218a.htm.

    A.18. We continue to prioritize our work to better understand
    and measure climate-related financial risks, including through
    analysis of transmission channels of climate change risk to the
    banking sector, measurement methodologies, and data gaps and
    challenges. In pursuing this work, we are actively cooperating
    on an ongoing basis with other agencies and authorities,
    including through the BCBS's Task Force on Climate-Related
    ---------------------------------------------------------------------------
    Financial Risks, the FSB, and the NGFS.

    Q.19. Main Street Lending Program--What share of loans under
    the Main Street Lending Program have been made to nonprofit
    organizations? Does the Federal Reserve have up-to-date data on
    the financial condition of nonprofit organizations that
    received loans under the Program?

    A.19. The total principal amount of the loan participations
    purchased under the Main Street Lending Program (Main Street)
    as of the time of its closure on January 8, 2021, was $16.586
    billion. Of that amount, the total principal amount of the loan
    participations purchased by the Nonprofit Organization New Loan
    Facility or the Nonprofit Organization Expanded Loan Facility,
    the Main Street facilities that made loans to nonprofit
    organizations, was $40 million.
        Main Street relied on eligible lenders (including, for
    example, banks, savings associations, and credit unions) to
    underwrite the loans whose participations were purchased by the
    Main Street special purpose vehicle. Under Main Street's terms,
    a for-profit business or nonprofit organization that received a
    loan must provide quarterly and annual financial data, which is
    used to assess borrowers' credit risk on an ongoing basis.
        For more details, see the full transaction-specific
    disclosures on the Board's public website. \20\
    ---------------------------------------------------------------------------
         \20\ http://www.federalreserve.gov/reports-to-congress-COVID-
    19.htm
    ---------------------------------------------------------------------------
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR CORTEZ MASTO FROM JEROME H. POWELL

    Q.1. In the last few months, the Federal Reserve has joined the
    Network for Greening the Financial System, started discussing
    climate risk in their financial stability reports, and formed a
    Supervision Climate Committee. What is the specific mandate and
    scope of work for the Supervision Climate Committee?

    A.1. Climate change is an important issue, and Congress has
    entrusted the job of addressing the problem of climate change
    itself to Federal agencies other than the Federal Reserve.
    Congress has given the Federal Reserve narrow but important
    mandates around financial stability and supervision of
    financial firms, and we consider the potential effects of
    climate change to the extent such effects have an impact on the
    achievement of our statutory mandates.
        The Supervision Climate Committee (SCC) brings together
    senior staff from the Federal Reserve Board (Board) and the
    Reserve Banks to facilitate the better understanding of
    potential climate-related risks to our supervised institutions.
    The SCC's work is in the early stages. The SCC is focused on
    engaging with a wide variety of stakeholders, including large
    banks, to strengthen its understanding of how banks incorporate
    physical and transition risks into their risk management
    frameworks; working to identify best practices for measuring
    and potentially addressing climate-related risks at banks; and
    investing in analysis to better understand the transmission
    channels through which climate change impacts individual banks
    and the banking sector.

    Q.2. On page 30 of the Monetary Policy Report, the report notes
    that prior to the pandemic business debt levels were already
    high. Now, business leverage stands near historical highs.
        Can you expand on the indicators the Federal Reserve
    considers to measure stress on businesses, business leverage,
    insolvency risk, commercial real estate vacancies and sales?
        What indicators should local elected leaders, business
    owners, and the Government consider?

    A.2. The Board produces the quarterly Z.1 statistical release,
    ``Financial Accounts of the United States'', which includes
    data on transactions and levels of financial assets and
    liabilities, by sector and financial instrument. It also
    includes balance sheets, including net worth, for nonprofit
    organizations, nonfinancial corporate businesses, and
    nonfinancial noncorporate businesses.
        The Board's Financial Stability Report (FSR) has regularly
    included a snapshot of key statistics from the Z.1 release for
    the level of business credit. The FSR has focused on the ratio
    of nonfinancial business credit to GDP as a key measure of
    business leverage and has also reported statistics on gross
    leverage of public nonfinancial businesses--the ratio of firms'
    book value of total debt to the book value of total assets. The
    latest report is available on the Board's public website. \1\
    ---------------------------------------------------------------------------
         \1\ https://www.federalreserve.gov/publications/financial-
    stability-report.htm
    ---------------------------------------------------------------------------
        A key measure of insolvency risk for businesses is the
    interest coverage ratio, the ratio of earnings before interest
    and taxes to interest payments. \2\
    ---------------------------------------------------------------------------
         \2\ See Figures 2-6 for the November 2020 FSR.
    ---------------------------------------------------------------------------
        Additional indicators that Board staff consider when
    measuring stress on businesses, business leverage, and
    insolvency risk include net leverage and aggregate debt growth
    of nonfinancial businesses, the share of nonfinancial business
    debt with low interest coverage ratios, outstanding amounts of
    BBB- and high yield nonfinancial corporate bonds, and
    downgrades and expected defaults of nonfinancial businesses.
        For commercial real estate vacancies and sales, we consider
    vacancy rates, growth rates of price indexes by property type,
    and changes in lending standards.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                         FROM JEROME H. POWELL

    Q.1. Chair Powell, you are familiar with my concerns around
    protecting the U.S. system of insurance regulation that has
    worked so well for policyholders and the market for over 150
    years in terms of access and affordability. The insurance
    market we have here at home is the largest and most diverse in
    the world and supports products and services in the retirement
    and health space that do not exist in other jurisdictions
    around the world.
        Protecting this system should be an apolitical objective.
    Despite the change in Administration and new leadership at the
    Treasury Department, I expect that the Federal Reserve will
    continue its work in ongoing negotiations at the International
    Association of Insurance Supervisors on the development of an
    Insurance Capital Standard (ICS) that does not compromise the
    U.S. insurance market.
        Will the Federal Reserve continue fighting to ensure that
    U.S. insurance capital standards are recognized as outcome-
    comparable to the ICS?

    A.1. Yes. The Federal Reserve Board (Board) advocates for the
    U.S. approach to insurance regulation at the International
    Association of Insurance Supervisors (IAIS). To assess group
    capital, U.S. regulators have proposed aggregating existing
    legal entity capital requirements. The Board proposed such an
    approach, termed the Building Block Approach, for depository
    institution holding companies significantly engaged in
    insurance activities. The National Association of Insurance
    Commissioners (NAIC) and States have proposed a similar
    approach, the Group Capital Calculation. The Federal Reserve
    will continue to advocate for these approaches to be deemed
    outcome comparable to the Insurance Capital Standard.

    Q.2. Has the Federal Reserve communicated and coordinated with
    the Biden administration's Treasury Department on this
    important work?

    A.2. We have communicated and coordinated with the Treasury
    Department on this issue since the change in Administration. We
    work closely together with U.S. Treasury's Federal Insurance
    Office, as well as with the State insurance regulators and the
    NAIC, as part of our participation at the IAIS.

    Q.3. I have been closely monitoring the Federal Reserve's
    consideration of how to modernize the regulatory and
    supervisory framework for the Community Reinvestment Act (CRA).
    Now that the comment period has closed on the Federal Reserve's
    CRA ANPR, I would like to request an update the process and
    planned next steps.
        In issuing the CRA ANPR, the Federal Reserve said that it
    aims to build consensus and ultimately issue a modernized CRA
    rule on an interagency basis. Is the Federal Reserve
    coordinating with the other banking regulators to develop a
    unified rule? When can the public expect to see a proposed
    rule? Historically, CRA has been very geographically focused.
    How can the Federal Reserve update CRA in a way that makes
    sense for both digital banks and traditional, branch-focused
    banks?

    A.3. Community Reinvestment Act (CRA) modernization is a high
    priority for the Board. Our goal is to strengthen
    implementation of the law's core purpose of meeting the credit
    needs of low- and moderate-income (LMI) communities. We have
    taken several significant steps to achieve our goal of getting
    CRA modernization right and providing a foundation for the
    Federal banking agencies to develop a common approach,
    including issuing an Advanced Notice of Proposed Rulemaking
    (ANPR) and holding more than 50 listening session across the
    country to gather additional input.
        With the benefit of input from the public and now with the
    Board's ANPR comment period complete, we believe there is an
    opportunity for a harmonized rule among the agencies. The Board
    remains committed to working toward a consistent approach
    across the agencies, and we look forward to arriving at a
    common approach that meets the law's intended purpose, to
    ensure that banks are meeting the credit needs of LMI
    communities. We have also sought input on how to reduce
    inequities in credit access and to strengthen banking services
    and investment in LMI communities.
        We believe that putting forward a proposal that reflects
    extensive stakeholder feedback and provides a long comment
    period builds a foundation for the agencies to ultimately
    develop a consistent approach that has broad support.
        The Board's ANPR seeks input on ways to strengthen the CRA
    while increasing clarity, consistency, and transparency. In
    addition, we would like to see a set of rules that tailors CRA
    evaluations to reflect differences in bank sizes and business
    models; uses metrics that account for changes in business
    conditions across economic cycles; and considers the credit
    needs and opportunities of local communities, accounting for
    factors such as the unique needs of small banks and rural
    areas. The ANPR specifically proposes policy approaches that
    recognize how banking is evolving to ensure that CRA
    modernization of assessment areas take into account how banks
    serve their customers through mobile and internet banking,
    while still maintaining a focus on branches, given their
    importance to individuals and communities.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                         FROM JEROME H. POWELL

    Q.1. In 2019, the Fed, OCC, and FDIC took steps mandated by
    Congress to tailor banks' prudential regulations.
        Now we're almost a year into the COVID-19 crisis and banks
    have been a critical component of the recovery of the U.S.
    economy. Furthermore, they have been stress tested twice in
    recent months. In addition, as we discussed at our recent
    hearing, their dividends and buybacks have been restricted.
    Despite the severe economic challenges of the pandemic banks
    have passed these rigorous tests while maintaining strong
    capital and liquidity reserves. There is also more liquidity in
    our financial system than ever before.
        Do you agree that tailoring of capital and liquidity
    requirements to the systemic footprint of particular banking
    institutions is still appropriate? Are you aware of any
    negative impact to the U.S. economy because of regulatory
    tailoring?

    A.1. The Federal Reserve Board's (Board) tailoring rule \1\
    better aligns regulatory requirements with the risk profile of
    an institution and implements aspects of the Economic Growth,
    Regulatory Relief, and Consumer Protection Act. By creating a
    more risk-sensitive regulatory framework, the tailoring rule
    ensures that prudential standards, including those for capital
    and liquidity, are appropriately stringent for large banking
    organizations.
    ---------------------------------------------------------------------------
         \1\ See 84 FR 59032.
    ---------------------------------------------------------------------------
        Tailoring financial regulation to risk is good public
    policy and a long-standing aspect of the Board's regulatory
    framework. The Federal Reserve conducts periodic reviews of its
    rules to update them, reduce unnecessary costs, address
    unintended consequences, and streamline regulatory
    requirements, consistent with the statutory provisions
    underlying such rules. These efforts include considering the
    costs and benefits of regulations as well as exploring
    alternative approaches that would achieve the intended result
    with greater simplicity, transparency, and efficiency.
        The Federal Reserve continues to closely monitor evolving
    risks and the potential impact of those risks on the broader
    financial system and assess the capital and liquidity adequacy
    of large banking organizations subject to the regulatory
    tailoring framework. Because large U.S. banking organizations
    are subject to robust stress testing and enhanced supervision
    of their capital planning processes, they currently have
    significant capital buffers over their existing requirements.
    U.S. banking organizations more generally remain well
    positioned to continue to lend to borrowers during the current
    economic conditions. In addition to encouraging banking
    organizations to use their capital buffers to support lending
    to households and businesses, the Federal Reserve is
    encouraging banking organizations to work constructively with
    borrowers in the context of the COVID-19 pandemic. We will
    continue to evaluate whether adjustments to the capital and
    liquidity frameworks are warranted as the situation progresses.
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