[Senate Hearing 117-335]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 117-335


                     NOMINATION OF JEROME H. POWELL

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

                                HEARING

                               before the

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

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

                             NOMINATION OF:

JEROME H. POWELL, OF MARYLAND, TO BE CHAIRMAN OF THE BOARD OF GOVERNORS 
                     OF THE FEDERAL RESERVE SYSTEM

                               __________

                            JANUARY 11, 2022

                               __________

  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

48-289 PDF                WASHINGTON : 2022









            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

                Corey Frayer, Professional Staff Member

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                  (ii)






                            C O N T E N T S

                              ----------                              

                       TUESDAY, JANUARY 11, 2022

                                                                   Page
Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    45
Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     4
        Prepared statement.......................................    46

                                NOMINEE

Jerome H. Powell, of Maryland, to be Chairman of the Board of 
  Governors of the Federal Reserve System........................     6
    Prepared statement...........................................    48
    Biographical sketch of nominee...............................    50
    Responses to written questions of:
        Chairman Brown...........................................    75
        Senator Toomey...........................................    84
        Senator Reed.............................................    98
        Senator Menendez.........................................   100
        Senator Sinema...........................................   104
        Senator Rounds...........................................   105
        Senator Kennedy..........................................   106
        Senator Cramer...........................................   107

                                 (iii)

 
                     NOMINATION OF JEROME H. POWELL

                              ----------                              


                       TUESDAY, JANUARY 11, 2022

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., via Webex and in room 106, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Senate Committee on Banking, Housing, 
and Urban Affairs will come to order.
    This hearing will be in the hybrid format, as we have done 
many times. The witness is in person. The Senators can go 
either way, and my Senate colleagues will be done by seniority, 
whether you are here or whether you are remote, at the gavel. 
So thank you all for joining us.
    Yearning for a return to normalcy, millions of American 
voters elected Joe Biden President of the United States more 
than a year ago. The American people were exhausted by the 
divisive rhetoric at neighborhood functions, and church 
gatherings, and family dinners. They wanted someone who would 
bring this country together based on our shared values, like 
the dignity of work. They wanted an economy that works for 
everyone, not just wealthy elites.
    That is what we are delivering.
    Think of where this country was a year ago. Domestic 
terrorists breached this building a year and a week ago and 
assaulting our democracy. Four million more people were out of 
a job, and the hope of vaccines, for everyone, was just that--a 
hope.
    Today, we have made much progress. We have a President 
committed to democracy, willing to stand in this breach, as he 
put it last week. Vaccines and booster shots have dramatically 
lowered the risk for most people, allowed Americans to go back 
to work and our children to go back to school, safely.
    We added 6.4 million jobs last year--6.4 million jobs--the 
most since 1939.
    The nomination we consider today represents another step in 
President Biden's efforts to rebuild our economy. And the 
President is putting results over partisanship, evidenced by 
the gentleman sitting at the table, renominating a Federal 
Reserve chair of the other political party.
    Jerome Powell has served as Chair of the Federal Reserve 
since 2018. He joined the Fed in 2012. He served the country 
before that in a number of different roles, including as Under 
Secretary for Finance at the Treasury Department during the 
George H.W. Bush administration.
    As Chair, together with President Biden, he has helped us 
deliver historic economic progress. We passed the American 
Rescue Plan, putting shots in arms and money in pockets. The 
unemployment rate dropped to 3.9 percent, down from 6.7 
percent--6.7 percent--when President Biden raised his right 
hand. In December alone, we added 800,000 jobs, more than 
doubling economists' expectations.
    The economy has regained 84 percent of the jobs we lost 
since the pandemic hit 2 years ago. And for some of my 
colleagues who like to measure the strength of the economy only 
by the stock market, it was up 20 percent at the end of 2021, 
and last year hit record highs 70 different times.
    We passed an historic jobs bill, the bipartisan 
infrastructure package, a goal that Presidents, for decades, 
Presidents of both parties failed to reach.
    Chair Powell, along with Vice Chair nominee Lael Brainard, 
whom we will hear from later this week, led the Federal 
Reserve's unprecedented actions to stabilize our economy in the 
face of a global pandemic.
    To his credit, Chair Powell recognized the importance of 
full employment and what that means for all workers, 
particularly those at the margins of our economy. He held firm 
against attempts to politicize the Fed, and prevented an 
economic downturn from becoming far, far worse. He understands 
that the best way to bounce back from this crisis is to get the 
coronavirus under control with vaccines.
    Today we are at a critical moment. For the first time in 
decades, workers are finally--finally--starting to get a little 
bit more bargaining power. Wages are growing faster, faster 
than inflation, faster than we have seen in over a decade.
    Americans are leaving jobs that did not work for them and 
their families, and they are finding better ones, often with 
higher paychecks. Corporations call this, quote, ``a labor 
shortage.'' To me it looks like the free labor market at work 
at its best.
    Of course we still have many challenges. We have seen 
severe supply chain disruptions caused by the pandemic, because 
for decades corporations put short-term profits over long-term 
resilience, lobbying this body for what turned out to be bad 
trade agreements and bad tax policy. The fragile supply chains 
stretching all over the globe are not easily fixed. These 
disruptions, along with corporate opportunism, are raising the 
cost of many consumer goods. That adds to all the costs that 
have been growing more unaffordable for decades, from childcare 
to prescription drugs to housing.
    And while paychecks are starting to go up, wages are still 
far from keeping up with corporate profits. We have only just 
begun the work of empowering American workers and reorienting 
our economy from Wall Street to Main Street.
    Some are suggesting, though, that the Fed pull back on the 
support of the broader economy and make it harder for people to 
get jobs. That is generally what happens.
    Economists' lingo tends to mask what we are really talking 
about when it comes to the Fed's work, so let us be clear. 
President Biden put it pretty well last week. Taking the 
example of the price of cars, he said we have two options. We 
can increase the supply of cars by making more of them, or we 
can reduce demand for cars by making Americans poorer.
    That is the choice we face. When people talk about 
``cooling off'' the economy, what they really mean is making it 
harder for people to find jobs and stopping paychecks from 
growing. And we know how this goes. The ``cooling off'' never 
seems to extend to corporate profits or executives' pay.
    The Fed must not allow only Wall Street to recover while 
working Americans are left behind. We have seen that story 
unfold far, far too many times before.
    Today, banks are quietly celebrating one of their most 
profitable years ever, with huge bonuses and payouts. The Fed 
must do more to stop consolidation in the banking industry from 
hurting consumers and small businesses. It must encourage more 
lending to Main Street, and crack down on stock buybacks and 
risky bets at the biggest banks. And the Fed needs to take 
seriously the systemic risks that threaten our economic 
progress, like cryptocurrencies and stablecoins and, most 
importantly, climate change.
    Chair Powell has shown he understands. In his words, 
``profound challenges for the global economy and financial 
system,'' unquote. If confirmed, we expect him to take what he 
has promised will be ``bold steps'' to tackle these risks.
    Chair Powell and Vice Chair nominee Brainard have also 
begun important work with the FDIC and the OCC to update the 
Community Reinvestment Act regulations. Completing that update 
is essential to increase banks' service to, and investment in, 
all the communities that have been left on their own for too 
long.
    We also expect reform inside the Federal Reserve System. 
That means increasing diversity at the Fed so that the people 
making decisions for our economy actually reflect the workers 
who power that economy, something the Fed's entire history has 
been, frankly, shameful about.
    As Chair Powell has said, ``If entrenched inequities 
prevent some Americans from participating fully in our labor 
markets, not only will they be held back from opportunities, 
but our economy overall will not realize its potential.'' Good 
words from the Chair on that. Many of us have appreciated those 
words, but now we expect action.
    In all of this work the American people must be able to 
trust that the Federal Reserve works for them, that officials 
are not abusing their positions for personal gain. Recent 
revelations about the Fed's ethics scandal have confirmed a lot 
of people's worst suspicions about Government officials. As 
Chair of the Fed, Mr. Powell has a responsibility to restore 
that trust.
    The Fed plays a central role in how we want our economy to 
work. We cannot have a Fed that returns to business as usual, 
because, frankly, that did not work for most Americans.
    Chair Powell, President Biden nominated you to grow the 
economy for all Americans, not just those at the top, and to 
protect that growth from threats to our financial system, like 
risky Wall Street schemes, and cryptobubbles, and increasing 
climate disasters. We expect you to meet these challenges, and 
I believe you have shown the leadership to do so. We will be 
watching closely.
    Senator Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman. Chairman Powell, 
congratulations on your renomination. As I have said, I intend 
to vote in favor of extending your chairmanship. Let me briefly 
explain why.
    There is broad bipartisan backing for Chairman Powell's 
renomination because he has a record of acting thoughtfully and 
constructively, especially in some very difficult 
circumstances.
    First, he did implement a number of modest, sensible 
reforms that reduced regulatory burdens, including on small 
banks, and helped to encourage economic growth. Second, when 
the pandemic hit nearly 2 years ago and Governments worldwide 
began to shut down their economies, credit markets seized up 
and the economy teetered on the brink of collapse. But with 
Congress' help, Chairman Powell acted swiftly and appropriately 
to stabilize the financial markets and the economy.
    And to his critics who claim that the regulatory reforms 
that he has spearheaded would hasten the collapse of the 
banking system, we now know that is clearly empirically false. 
After the pandemic caused the economy to nearly collapse, our 
country emerged with the most well-capitalized banks in 
history. It was, and still is, abundantly clear that those 
regulatory reforms did not come at the expense of financial 
stability.
    Of course, none of the Fed's pandemic actions came without 
a cost. This negative-real interest rate environment continues 
to distort markets, risk asset bubbles, and punish savers. And 
the Fed has dramatically expanded its balance sheet with 
trillions of dollars in Government bonds, effectively 
monetizing a lot of debt and facilitating profligate Government 
spending.
    For the past 18 months, I cautioned that the Fed was 
fighting the last war, a mystery pathogen that led Governments 
to collectively shut down the global economy, when in fact a 
new enemy had arrived, and that was inflation.
    I am relieved the Fed has acknowledged inflation is running 
well above and longer than its initial projections. In 
response, the Fed has accelerated the termination of its bond 
buying program, and FOMC participants appear to be accelerating 
the process to normalize interest rates. These are welcome 
developments.
    But I remain concerned with the Fed's actions going 
forward. First, I worry that the Fed's extraordinary response 
to the crisis could become the new normal for monetary policy. 
We are more than a year into a record economic expansion, with 
unemployment at near all-time lows, and yet the Fed is still 
today buying Government and agency securities.
    Having continued QE throughout the recovery was, in my 
view, a mistake. It has contributed to asset bubbles, distorted 
markets, and a suboptimal allocation of capital, credit, and 
resources, all of which ultimately lead to lower economic 
growth.
    Second, I worry that the Fed's new monetary policy 
framework has contributed to the Fed being behind the curve, as 
we are seeing inflation running at a 39-year high. Under this 
new framework, the Fed intentionally tolerates above target 
inflation for an indeterminate amount of time. Under the old 
approach, the Fed may have acted last April when we first 
passed a 4 percent inflation rate, and we have not seen that in 
some time.
    Beyond monetary policy, I am deeply concerned to see the 
Fed, especially at the regional banks, wade into politically 
charged areas like global warming and so-called racial justice. 
Regional banks have hosted multiple symposia on these issues 
that consistently embrace and advance a particular liberal 
political agenda.
    And the Fed itself joined the Network of Central Banks and 
Supervisors for Greening the Financial System. The network's 
stated aim is to use financial regulation to, and I quote, 
``mobilize mainstream finance to support the transition toward 
a sustainable economy,'' end quote. In other words, to direct 
credit away from the fossil fuel sector.
    The troubling politicization of the Fed puts its 
independence and effectiveness at risk. The Fed has been 
granted operational independence to protect monetary policy 
from short-sighted political interests, and, in turn, the Fed 
has operated largely apolitically to great effect.
    There is a kind of bargain here. The Fed is given 
independence on the assumption it will only engage in areas in 
which it has a mandate. That makes sense.
    But if the Fed is going to stray from its mandate and 
become a political actor, advocating a certain set of social 
policies, then there is no way it is going to maintain its 
independence from the political branches of Government that are 
actually responsible for those topics.
    The Fed does not have a mandate to advance politically 
charged causes that are irrelevant to its mandate, like global 
warming or advancing so-called racial justice. And to make 
matters worse, when I have sought to understand these 
developments at the regional banks I have been met with 
unacceptable noncompliance with reasonable requests.
    So let me be clear. If this politicization continues 
unchecked it will not end well for the Fed or for independently 
driven monetary policy. As the Fed's leader, I hope you take 
this seriously and rein it in to protect the Fed's legitimacy 
and independence.
    I have observed that the Fed has had the good sense to 
adjust its behavior as the facts and circumstances regarding 
inflation have come in differently than were expected. 
Unfortunately, we have seen no such humility or recognition of 
reality from the Biden administration or our Democratic 
colleagues. They appear set on making the inflationary problem 
worse, further causing declines in real wages, with more 
reckless spending that gooses demand and regulatory and 
protectionist policies that limit supply, that in combination 
ultimately push prices for basic goods higher. The crisis we 
face now is inflation complicated by policymakers who unwisely 
behave as if it is still March of 2020.
    The Fed cannot correct for policy failures like school 
closures, Government-induced business shutdowns, or misguided 
expansions of the welfare State, nor should it try.
    Chairman Powell, the role of the Fed Chairman is crucial 
for our shared economic prosperity. I was encouraged to see 
your renomination, and I hope that you will do everything in 
your power to ensure that the Fed operates within its limited 
mandate to effectively support the American economy.
    Chairman Brown. Thank you, Senator Toomey.
    Chair Powell, please rise. Raise your right hand, please.
    Do you swear or affirm that the testimony you are about to 
give is the truth, the whole truth, and nothing but the truth, 
so help you God?
    Mr. Powell. I do.
    Chairman Brown. Do you agree to appear and testify before 
any duly constituted committee of the U.S. Senate?
    Mr. Powell. I do.
    Chairman Brown. Thank you. Please be seated.
    Chair Powell, we welcome you to the Committee. If you would 
like to introduce family or friends feel free. Please begin 
your testimony. Thank you.

 TESTIMONY OF JEROME H. POWELL, OF MARYLAND, TO BE CHAIRMAN OF 
      THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Powell. Thank you. Is this on? Yes. Thank you.
    I did not bring any family or friends here today, in light 
of the limited seating circumstances, but I will mention them 
in my testimony. Thank you.
    Chairman Brown, Ranking Member Toomey, and other Members of 
the Committee, thank you for the opportunity to appear before 
you today. I would like to thank President Biden for nominating 
me to serve a second term as Chair of the Board of Governors of 
the Federal Reserve System.
    I would also like to thank my colleagues throughout the 
Federal Reserve System for their dedication, perseverance, and 
tireless work on behalf of the American people. Their 
commitment and expertise were essential to the Fed's response 
to the COVID-19 crisis and remain vital to the implementation 
of monetary policy as our economy continues to progress.
    Particular thanks go to my wife, Elissa Leonard, and our 
three children, Susie, Lucy, and Sam. Their love and support 
make possible everything I do. My five siblings are all 
watching, or will later claim to have watched, and we are 
thinking of each other and of our parents today with love and 
gratitude.
    Four years ago, when I sat before this Committee, few could 
have predicted the great challenges that would soon become ours 
to meet. On the eve of the pandemic, the U.S. economy was 
enjoying its 11th year of expansion, the longest on record. 
Unemployment was at 50-year lows, and the economic benefits 
were reaching those most on the margins. No obvious financial 
or economic imbalances threatened the ongoing expansion. But 
this attractive picture turned virtually overnight as the virus 
swept across the globe.
    The initial contraction was the fastest and deepest on 
record, but the pain could have been much worse. As the 
pandemic arrived, our immediate challenge was to stave off a 
full-scale depression, which would require swift and strong 
policy actions from across Government.
    Congress provided by far the fastest and largest response 
to any postwar economic downturn. At the Fed, we used the full 
range of policy tools at our disposal. We moved quickly to 
restore vital flows of credit to households, communities, and 
businesses and to stabilize the financial system.
    These collective policy actions, the development and 
availability of vaccines, and American resilience worked in 
concert, first to cushion the pandemic's economic blows and 
then to spark a historically strong recovery.
    Today the economy is expanding at its fastest pace in many 
years, and the labor market is again strong.
    As always, challenges remain. Both the initial shutdown and 
the subsequent reopening of the economy were without precedent. 
The economy has rapidly gained strength despite the ongoing 
pandemic, giving rise to persistent supply and demand 
imbalances and bottlenecks, and to elevated inflation. We know 
that high inflation exacts a toll, particularly for those less 
able to meet the higher costs of essentials like food, housing, 
and transportation.
    We are strongly committed to achieving our statutory goals 
of maximum employment and price stability. We will use our 
tools to support the economy and a strong labor market and to 
prevent higher inflation from becoming entrenched.
    We can begin to see that the postpandemic economy is likely 
to be different in some respects, and the pursuit of our goals 
will need to take these differences into account. To that end, 
monetary policy must take a broad and forward-looking view, 
keeping pace with an ever-evolving economy.
    Over the past 4 years, my colleagues and I have continued 
the work of our predecessors to ensure a strong and resilient 
financial system. We increased capital and liquidity 
requirements for the largest banks, and currently capital and 
liquidity levels at our largest, most systemically important 
banks are at multidecade highs. We worked to improve the 
public's access to instant payments, intensified our focus and 
supervisory efforts on evolving threats such as climate change 
and cyberattacks, and expanded our analysis and monitoring of 
financial stability. We will remain vigilant about new and 
emerging threats.
    We also updated our monetary policy framework, drawing on 
insights from people and communities across the country, to 
reflect the challenges of conducting policy in an era of 
persistently low interest rates.
    Congress has assigned the Federal Reserve important goals 
and has given us considerable independence in using our tools 
to achieve them. In our democratic system, that independence 
comes with the responsibility of transparency and clear 
communication, to keep the public informed and enable effective 
legislative oversight. That duty takes on even greater 
significance when the Fed must take extraordinary actions in 
times of crisis. In order to facilitate that transparency, and 
to earn your trust and that of the American people, I have made 
it a priority to meet regularly and frequently with you and 
your elected colleagues, and I commit to continuing that 
practice if I am confirmed to another term.
    The Federal Reserve works for all Americans. We know our 
decisions matter to every person, family, business, and 
community across the country. I am committed to making those 
decisions with objectivity, integrity, and impartiality, based 
on the best available evidence, and in the long-standing 
tradition of monetary policy independence. That pledge lies at 
the heart of the Fed's mission and is one we all make when we 
answer the call to public service. I make it here again, with 
force and without reservation.
    Everything we do at the Federal Reserve is in pursuit of 
the goals set for us by Congress. I am honored to have worked 
in service to those ends since I joined the Fed in 2012, and as 
Chair for the past 4 years.
    Thank you. I look forward to your questions.
    Chairman Brown. Thank you, Chair Powell.
    Many working Americans are concerned about rising prices, 
and I think President Biden's decision to renominate you to a 
second term as Chair shows he is confident you will continue to 
lead our economy through this ongoing crisis.
    In November, you indicated that the rise of the Omicron 
variant, 586,000 new cases daily over the last week, that the 
rise of the Omicron variant posed significant risks to 
employment and economic activity. Do you agree that higher 
prices are related to the supply and demand imbalances that can 
be traced directly back to the pandemic and the reopening of 
the economy?
    Mr. Powell. Yes, I do, for the most part, if you look back, 
and you can trace to developments including strong demand and 
also supply constraints.
    Chairman Brown. Thank you. Last year, FSOC released its 
report on climate-related financial risk which describes how 
climate change is a threat to our financial stability. In the 
past you have said, your words, ``climate change is an emerging 
risk to financial institutions, the financial system, and the 
economy,'' end quote.
    Chair Powell, will the Fed follow the FSOC reports' 
recommendations, including implementing climate stress tests 
for the biggest banks?
    Mr. Powell. We are looking at climate stress tests. I think 
it is very likely that climate stress scenarios, as we like to 
call them, will be a key tool going forward. I would stress 
that those are very different from the regular stress tests 
which affect capital. Climate stress scenarios at this stage 
are really about assuring that the large financial institutions 
understand all of the risks that they are taking, including the 
risks that may be inherent in their business model regarding 
climate change over time.
    Chairman Brown. Will you make this a top priority if 
confirmed to another term?
    Mr. Powell. Yes, it will be. I would say, within 
supervision, as I mentioned, that is likely to be a very 
important priority over the coming years.
    Chairman Brown. The position of Vice Chair of Supervision 
but also yours.
    Mr. Powell. Yes.
    Chairman Brown. OK. It is the Fed's responsibility, as you 
know, to promote financial stability. It means we need strong 
financial safeguards in place to protect American workers and 
families from risks in our financial system. It is all that.
    Chair Powell, recently the Fed has refocused its full 
employment objectives to make sure it includes workers of all 
backgrounds. Can you agree that when all workers, including 
women, including Black and Brown workers, are able to fully 
participate in the workforce, that our economy grows, and do 
you think it is important for the Fed to understand and 
proactively address racial and gender disparities in wealth and 
income and employment in our country?
    Mr. Powell. So what we saw at the end of the last very 
long, longest in our history, expansion was as the labor market 
tightened the benefits began to go more broadly to those at the 
lower end of the income spectrum and to groups that have been 
more marginalized, from an economic standpoint. And that was 
seen, I think, very broadly as a highly desirable set of 
outcomes.
    So our tools do not generally have direct distributional 
effects, but I do think that we see now the great benefits that 
a strong labor market can bring to, you know, right across the 
whole population and for the whole economy.
    Chairman Brown. But you are suggesting, from your answer, 
that only when there is strong demand for labor do people who 
are more on the margins of society, people of color, women, 
people who have not done as well, only then will they benefit? 
Does the Fed have responsibility beyond that?
    Mr. Powell. Well, of course we have responsibilities in 
bank supervision and community affairs and fair lending and 
things like that, but just focusing on monetary policy, our 
principle tool is interest rates, and they affect demand over 
time. And I do think the main thing that we can do is to make 
sure that, you know, consistent with the inflation side of our 
mandate that we do foster a strong employment market.
    Chairman Brown. Is part of that a more diverse workforce at 
the Fed?
    Mr. Powell. As you know, we work very hard to achieve 
diversity, and as all major American institutions, public and 
private, do these days, we certainly do. And think that having 
a diverse workforce makes us better at doing our jobs. And so 
it is an important focus and a high priority.
    Chairman Brown. OK. Thank you. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Chairman Powell, 
we all noted, with great interest, the shift in the Fed's 
focus, the acceleration in the tapering and the indication that 
FOMC members expect now a series of interest rate increases 
this year. I am trying to understand where this leads to, and I 
wonder if you could comment on the fact that if we had three or 
even four 25-basis-point increases in overnight rates we would 
still, in my view, have a very accommodative stance with 
negative real short-term rates.
    Is it your view that it is realistic to bring inflation 
back to the target level if short-term interest rates are 
negative? Real rates.
    Mr. Powell. So the way I would look at it is this. What we 
have now is a mismatch between demand and supply. We have very 
strong demand in areas where supply is constrained, 
particularly around goods, particularly around things like 
cars. So how are those two things going to get better into 
alignment? Well, part of the answer is going to be thorough 
shifts in demand, and we think that part of it will be through 
the return of greater supply.
    So I do not think we look to get all of the realignment 
between demand and supply through the demand channel, although 
we should get some. But at the same time we do think that we 
will get, over the course of this year, return to normal supply 
conditions, and that is going to affect our policy.
    I will say, though, you know, if we see inflation 
persisting at high levels longer than expected, then if we have 
to raise interest rates more over time we will. We will use our 
tools to get inflation back, and the main reason is this, a 
reason is this, that to get the kind of very strong labor 
market we want, with high participation, it is going to take a 
long expansion. We can see that participation is moving only 
very slowly. And to get a long expansion we are going to need 
price stability. And so, in a way, high inflation is a severe 
threat to the achievement of maximum employment and to 
achieving a long expansion that could give us that.
    Senator Toomey. I think that is a very important point. Let 
me also just ask you, as I mentioned, I understood the need for 
quantitative easing, the extraordinary measures that we are 
taking during the crisis. But I worry that the Fed's decision 
to continue to use these policies, well after the crisis had 
passed--and, in fact, we are in the midst of a strong 
recovery--increases the risk of normalizing a behavior like 
this bond buying.
    So I think it is your view that it is important that this 
not become normal routine part of Fed behavior, but could you 
clarify that, and if it is important that this not become a 
routine matter, how do we ensure that it does not?
    Mr. Powell. So I guess I would start by saying that the 
last two downturns, there has been nothing normal about them. 
They have been two historically large downturns, and one being 
the global financial crisis and one being the pandemic, and we 
were called to use--to invent new tools and use all of our 
tools.
    So really, if we had a regular-way recession, a couple of 
quarters of negative growth, a typical recession, then the 
question would be, what do we need to do? So in this era of 
very low interest rates there is not going to be as much room 
to cut, but that would be the first thing that we would do.
    Now just because we have been, and probably remain in an 
era of very low interest rates, we would have to look at asset 
purchases as the next tool in line, but I do not think we would 
automatically use it unless it was necessary.
    Senator Toomey. I would certainly hope that we would not 
automatically use it. I would hope that there would be a very, 
very high threshold to get over, especially when you consider 
the ways in which it distorts the allocation of capital.
    As I mentioned in my opening remarks, one of things I am 
very concerned about is especially the regional banks having 
strayed from the Fed's statutory mission on monetary policy 
into inappropriate and overtly political advocacy. As one of 
many, many examples, the Boston Fed conducted a virtual event 
as part of its Racism and the Economy series, in which the 
speakers routinely and adamantly called for defunding the 
police, which has nothing to do with the Fed's mandate.
    For 7 months now, I have been asking for information from 
several regional banks about their political activism, and for 
7 months they have simply refused to comply with my request. So 
I have requested some documentation from the main Fed with 
respect to this activity, all of which, by the way, is subject 
to FOIA, in any case.
    Now I am sure it is not your opinion that the Ranking 
Member of the Senate Banking Committee is entitled to less 
information than a member of the general public would get 
through a FOIA requests, so can you commit to getting me the 
information that is now long overdue?
    Mr. Powell. So I am aware that you have submitted a FOIA 
request, and we are processing it not. And I do not know what 
is asked for. I do not whether it is actually covered by FOIA. 
But to the extent that it is, you will, of course, get it.
    Senator Toomey. I think it is very important that this 
Committee and Congress understand how the Fed reaches decisions 
to engage in political advocacy.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    Senator Reed from Rhode Island is recognized.
    Senator Reed. Thank you very much, Mr. Chairman, and 
Chairman Powell, congratulations on your renomination. I 
believe that President Biden has made two excellent choices, 
yourself and Governor Brainard. I think you have worked 
together, hand in hand, for many years. I think you will be a 
superb team. And so I look forward to supporting your 
nomination and Governor Brainard's nomination also for Vice 
Chair. And let me join my colleagues in commending you for an 
exceptional job with respect to the pandemic.
    One of the interesting consequences of the pandemic and the 
employment market is that we have seen wages rise. In fact, we 
have seen them rise with respect to factory workers and 
nonsupervisory personnel about 5.8 percent. And my concern is 
would an increase in interest rates in any way begin to slow 
down that rise or indeed reverse it?
    Mr. Powell. So like you, and I think like everyone, we 
think wages moving up is generally a good thing, but if you 
look back through history there are times when wages have moved 
up in a way that has fostered persistent inflation, and that 
hurts everyone. And particularly it hurts people on fixed 
incomes. So we do not see that right now, but we do see these 
are the biggest wage increases in decades, and so we are 
watching carefully.
    You know, to the extent we are looking at this year, what 
we see is an economy where the labor market is recovering 
incredibly rapidly, really beginning around the middle of last 
year that the unemployment rate has been dropping at more than 
\3/10\ of a percent per month since last June. It is now below 
4 percent, which is pretty close to, you know, half-century 
low. So that part of the employment market is doing very well.
    Meanwhile, inflation is running very well, very far above 
our target, and what that is telling us is that the economy no 
longer needs or wants the very highly accommodative policies 
that we have had in place to deal with the pandemic and the 
aftermath. So that is what that is really about.
    We are really just going to be moving, over the course of 
this year, to a policy that is closer to normal, but it is a 
long road to normal from where we are. Right now we are very 
highly accommodative, and it is really time for us to begin to 
move away from those emergency pandemic settings to a more 
normal level. It really should not have negative effects on the 
employment market.
    Senator Reed. Which it is ironic because, as you pointed 
out in your opening statement, when you took over we had 11 
straight years of significant economic growth, but that was not 
translated into the wages of most working people, particularly 
entry-level and non-factory workers, et cetera. And now we have 
seen a situation where that is reversed, and I would hope that 
we could continue that type of progress, and I know you will be 
sensitive to that, going forward.
    One of the interesting things about the situation we face 
now is that the Fed tools are probably most effective at 
reducing overall demand, but a lot of what we are facing is 
supply problems. You know, the situation about automobiles, the 
problem there, in fact, I think used cars are so expensive they 
are distorting the inflation numbers significantly, and that is 
a result of the shortage of microchips and other types of 
chips, which is a result of the pandemic. These are supply 
issues.
    So to what extent will your dealing with demand help 
supply, or maybe that is the real problem?
    Mr. Powell. No, it really will not. We really cannot 
directly affect the supply side conditions. That is why I 
mentioned this really is a problem both of very strong, 
elevated demand, particularly in a part of the economy, the 
goods sector, the durable goods sector, things like washing 
machines and cars and all of the things that people bought 
during the course of the pandemic when they could not spend 
money on travel and services. That is where spending is running 
at level 20 percent above where it was before the pandemic, and 
it has just kind of overwhelmed the supply chains, most of 
which are global. In these days you are getting parts and fully 
assembled products coming in.
    So we can affect the demand side. We cannot affect the 
supply side. But this really is a combination of the two.
    Senator Reed. And the final point I want to make is that 
the issue of climate change is absolutely critical. It is an 
economic issue. I do not think you want to see a lot of banks 
owning property that is literally under water. But if you look 
at any of the analysis going forward that could be the case.
    So I would hope that the Fed would view this as an economic 
issue and pursue it as an economic issue that is going to 
affect us dramatically. And my colleague, Senator Whitehouse, 
has been one of the most staunch visionaries and advocates for 
that position, and I hope the Fed is responsive.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Reed.
    Senator Shelby, from Alabama, is recognized.
    Senator Shelby. Thank you, Mr. Chairman. Chair Powell, 
welcome back to the Committee. You have spent a lot of time 
with us in the past.
    Inflation is currently surging at its highest rate in 40 
years. And while I appreciate the decision that the Fed has 
made to begin tapering, I am concerned that the Fed missed the 
boat on addressing inflation sooner. A lot of us are. And as a 
result to that, the Fed, under your leadership, has lost a lot 
of credibility.
    I only have a little time so I have a number of questions, 
and I know you can probably remember them, or maybe together we 
will remember them all. But I would like to touch on this, if 
you would, I would like for you to. Why did the Federal Reserve 
initially forecast inflation to be transitory? Second, has your 
view on the threat of inflation changed? Why? What assurances 
can you provide here today that the Fed has a better grasp 
today on inflation than a year ago, and so forth? And what 
factors have caused the U.S. to have greater increases in 
inflation compared to other developed countries? And I guess 
last, yes, how important is price stability to the American 
people?
    That is a lot of questions, but these are all relevant to 
your job. Thank you.
    Mr. Powell. Respecting your time let me go right through 
these. First, let me say price stability is half of our 
mandate. There is no basis in the law for preferring maximum 
employment over price stability, or vice versa. They are equal. 
However, at different times one of them is farther away from 
its goal, and that is the one that we need to focus on a little 
bit more. Sometimes that is maximum employment. Sometimes it is 
inflation. I would say now it is inflation.
    So on inflation, why do we say transitory? We said that 
because we thought that these supply side bottlenecks and 
shortages would be alleviated much more quickly than they have 
been. There is no empirical experience with this before. We 
have not had the global supply chain collapse. We have not had 
this kind of a labor force shock before. So we, and essentially 
all other mainstream forecasters, forecasted that by now we 
would be seeing much lower inflation, and that is not what 
happened.
    So what has changed is that, just as I mentioned, the 
supply side constraints have been very persistent and very 
durable. We are not seeing really a lot of progress. If you 
look across, you know, the global supply chains and what is 
happening domestically, look at our ports, look at Long Beach 
and L.A., the two big ports on the West Coast for Asia, the 
number of ships at anchor is still at a record level. So we are 
not really seeing yet the kind of progress we, essentially all 
forecasters, really thought we would be seeing by now, and that 
is really what is driving it.
    I think we did foresee the strong spike in demand. We did 
not know that it would be so focused on goods, but that is 
really what happened.
    So I think we learned that. It was not that it was just--
this is a unique set of circumstances. Really, the United 
States economy is so dynamic. The supply side adapts quickly. 
You know, there are new companies being started and old 
companies dying all the time. This is a situation where there 
actually are hard constraints. People want to buy cars. Car 
makers cannot make any more cars because there are no 
semiconductors. So that has never happened. I cannot think of 
another example of that, and that is true across.
    So what factors, really it is the supply side. Did I miss 
any? I would like to think I covered, at least touched all five 
of those.
    Senator Shelby. What have you really learned, and you would 
share with your fellow Board of Governors, to get a grasp, as 
much as you can, on inflation? Because a lot of us have been on 
the Committee awhile and we remember what Dr. Volcker did with 
the Fed under his leadership. It was draconian, but it worked. 
I hope we will not have to do that, but you have got to do 
whatever you have to do. Do you agree?
    Mr. Powell. We have to achieve price stability, and I 
believe we will, and I am confident we will. And again, it is 
not just a question of restraining demand, although that will 
be--right now we are stimulating demand with very highly 
accommodative policy. As we move through this year we will, in 
all likelihood--we do not know the future, but if things 
develop as expected we will be normalizing policy, meaning we 
are going to end our asset purchases in March, meaning we will 
be raising rates over the course of the year. At some point, 
perhaps later this year, we will start to allow the balance 
sheet to run off.
    And that is just the road to normalizing policy. That is 
what we are going to be doing, and of course we are committed. 
But we do believe, and I think widely it is believed that these 
supply blockages will be alleviated too, so that there will be 
more supply as well, more labor force, but people will be 
coming back into the labor force. We will see more recovery, 
although it has been slow, from participation. And we will see 
these global supply blockages coming down. We will see some 
more cars, although that is going to take some time. And that 
will help as well, getting supply and demand back at the same 
level.
    Chairman Brown. Senator Menendez, from New Jersey, is 
recognized.
    Senator Menendez. Thank you, Mr. Chairman. Chair Powell, 
let me start by reiterating a point that I have made, 
unfortunately far too many times, and the latest batch of 
nominees leads me to, once again, the conclusion that there is 
serious diversity problem at the Federal Reserve.
    Latinos are the country's largest minority. They make up 
nearly 20 percent of the entire U.S. population. It is 
outrageous that they have no representation in Fed leadership. 
There has never been a single member of the Board of Governors 
or regional bank president that has lived the experience of 
being a Latino in the United States, and that means that the 
voices of one-fifth of the country's citizens are repeatedly 
drowned out when the Fed is making critical decisions on 
economic policy, decisions that affect whether a Latino family 
can afford their first home, find a job that pays a living 
wage, send their children to college, save for a comfortable 
retirement, or get a loan to expand their business.
    In late October, several of my colleagues and I sent you a 
letter requesting that you work closely with the Boston and 
Dallas banks to recruit diverse candidates for their open 
president positions. We received your response to that letter 
just last week, and I have to be honest with you, the lack of 
detail was thoroughly disappointing. I had been expecting you 
to provide a more detailed update on the search process before 
your confirmation vote, including what specific changes you 
have made to the process and how they are going to lead to a 
more diverse candidate pool, and I hope that you will do that.
    While we face significant challenges with the Omicron 
variant and supply chain disruptions that are both causing 
families to face higher prices for a variety of goods, the fact 
is that we are experiencing a strong recovery from an 
unprecedented pandemic. Thanks to the American Rescue Plan and 
other policies put in place by Congress and the Biden 
administration, we gained an average of 537,000 jobs per month 
since President Biden took office.
    So Chairman Powell, if you are confirmed, how would you 
continue to balance the Fed's dual mandate to keep price 
increases manageable while not dampening the strong job and 
wage growth that we have seen over the past year?
    Mr. Powell. So by so many measures labor demand relative to 
supply is at its highest level, really, than I can remember. 
The level of job openings is at an all-time high as a 
percentage of the labor force. The level of quits--labor 
economists look at the level of quits as a real indicator of 
how strong the labor market--the percentage of quits, the 
number of quits is at an all-time high.
    So the problem is not lack of demand for labor. The problem 
is that there is a significant supply problem, which is 
associated with the pandemic and a range of other factors. 
Participation has not recovered, but as you can see, for people 
who are in the labor force the unemployment rate is dropping at 
historically fast levels.
    So we do not have a labor demand problem to solve through 
our policy. What we have is a labor supply problem. So what is 
the threat? We are clearly on a path to have an even better 
labor market over time. What are the big threats to our getting 
there? Well I would say very near the top of the list is the 
threat of price stability. If inflation does become too 
persistent, if these high levels of inflation get entrenched in 
our economy and in people's thinking, then inevitably that will 
lead to much tighter monetary policy from us, and it could lead 
to a recession, and that will be bad for workers.
    So really, achievement of maximum employment, by which we 
really mean continued progress in hiring and in participation, 
is going to require price stability, and that is going to 
require us to use our tools, to the extent they work on the 
demand side, while we also expect some help from the supply 
side.
    Senator Menendez. Do you expect inflation to subside as 
vaccinations increase and supply chains are repaired?
    Mr. Powell. Over time, yes. Over time. The question is how 
fast, and the risks that we are running in the meantime that 
inflation psychology starts to get entrenched. But certainly I 
believe that. And you make a great point about vaccinations. 
Getting ahead of the pandemic, I mean, I do not think 2 years 
ago we thought we would still be having record levels of cases, 
and even close to record levels of hospitalizations. Getting 
past the pandemic is the single most important thing we can do.
    Senator Menendez. Now finally, according to the New York 
Times, New Jersey and other parts of the Northeast were hit 
particularly hard at the beginning of the pandemic and during 
the most recent surge, while the Midwest was most strongly 
affected in November of 2020, and the South at the end of last 
summer.
    How closely does the Fed look at differences in regional 
performance when making policy decisions?
    Mr. Powell. We have to focus on the national level, but of 
course we follow, in this instance, the earlier Delta, for 
example, COVID rolled around the country on a regional basis. 
That is not so much the case with Omicron. It is so contagious, 
and it is not the same everywhere, but it really is going 
through the whole country at a pretty rapid rate. But we follow 
that very, very carefully. I would say we did not know much 
about vaccines and pandemics 2 years ago, but we have all had 2 
years to learn.
    But, you know, we defer to the experts, though. We do not 
substitute our judgment on medical issues for the experts but 
we talk to them all the time.
    Senator Menendez. Right. Well I look forward to following 
up with you on the diversity question.
    Thank you, Mr. Chairman.
    Chairman Brown. Senator Crapo is recognized, from Idaho, 
from his office, I believe.
    Senator Crapo. Yes. Thank you, Mr. Chairman, and Chair 
Powell, welcome back to the Committee. When you last appeared 
before I also asked you about an expected Fed report on digital 
currencies. You indicated that delays in releasing the report 
were because the Fed wanted to ensure that their analysis was 
correct and complete, and that a release was expected in the 
coming weeks. However, that report still has not been released.
    Do you have an update you can share on the status of the 
report, and are there problems with sharing this report with 
Congress and the public on what the Fed may be proposing with 
respect to possible centralizing public digital currency?
    Mr. Powell. So the report really is ready to go, and I 
would expect we will drop it--I hate to say it again--in coming 
weeks. But it really is in a situation where it is ready to go. 
The fall for us, given, you know, changes in monetary policy 
and other things going on, it was hard to--we did not get it 
quite to where we needed to get it. But it is effectively there 
now and I will tell you, you know, within weeks we will be 
publishing it.
    And by the way, it is more going to be an exercise in 
asking questions and seeking input from the public rather than 
taking a lot of positions on various issues, although we do 
take some positions.
    Senator Crapo. Thank you. Well I hope that you will be able 
to meet this couple of weeks projection. As you know, I have 
been asking you and other members of the Fed about this for a 
long time, and I really do believe that it is time that the Fed 
releases this report so that we can engage in the further 
discussion of it.
    I want to also, with the rest of my time, go back to the 
issue of inflation. I know you have talked about it a lot with 
us this morning. In response to my question about inflation 
last November, you confirmed that inflationary pressures would 
certainly last, in your words, through the middle of this year, 
this coming year. What do you now expect with the time we have 
seen since you last answered these questions in front of the 
Committee? What do you now expect inflationary pressures to 
look like throughout this year?
    Mr. Powell. I would not think things have changed much on 
that front since last November. I think that inflationary 
pressures do seem to be on track to last well into the middle 
of next year. And if they last longer than that then I will 
just say that our policy will continue to adapt. Our policy has 
been adapting to this, you know, for some months, but if 
inflation is going to last longer than that would potentially 
imply more risk of its persistence and ultimately becoming 
entrenched, and our policy will respond accordingly.
    Senator Crapo. You just said well into the middle of next 
year. Did you mean this year or next year?
    Mr. Powell. I mean this year. You are right. I still think 
it is 2021 sometimes.
    Senator Crapo. OK. I thought so, but I wanted to be sure.
    You know, with regard to a question of what is going to 
happen over the next 3 to 4 months, as we try to deal with the 
inflationary pressures we have described, if consumer price 
inflation were to persist over the next 3 or 4 months at 
somewhere between 5 and 7 percent as we are now seeing, and if 
the unemployment rate were to remain about where it is now, 
below 4 percent, what would we expect the tools that the Fed 
would need to use would be?
    And I noted in one of your responses on the inflation issue 
earlier today I thought I heard you say that the Fed's 
overnight interest rate would still, even after you may use it 
as a tool, would still be very low. Could you just discuss--I 
know you cannot predict the specificity, what the Fed would do, 
but could you discuss what you expect interest rates to look 
like as you utilize that tool?
    Mr. Powell. Sure. So I think to your point, you know, we 
are at a place where unemployment is now very low, historically 
low, and inflation is well above target, and the economy no 
longer needs this very highly accommodative stance of policy. 
And I would expect that this year, 2022, will be a year in 
which we take steps toward normalization. That will involve 
raising the Federal funds rate, that will involve ending asset 
purchases in March, and perhaps later this year, depending on 
the run of things, we would also see ourselves beginning to 
allow the balance sheet to shrink.
    So I think that is the broad picture of what I see 
happening. The committee has not made any decisions about the 
timing of any of that, and I think we are going to have to be 
both humble and a bit nimble here. You know, if you go back and 
look at where we were a year ago today in the economy, you 
know, vaccines were arriving, and I think in my thinking there 
was the idea that that will really help us get past the 
pandemic. It has helped a lot but yet we are at all-time record 
cases and approaching record hospitalizations nationally.
    So the thing has stayed with us longer, and I think we are 
going to have to be open to the changing environment, and 
monetary policy is going to have to adapt as we learn more. We 
are going to learn a lot about the path of inflation, 
particularly as it relates to these supply side blockages we 
have had, over the first 6 months of the year, and every month, 
really.
    Senator Crapo. So do I understand, are you saying that if 
the pandemic remains problematic and aggressive, that that 
would impact the timing of any decisions the Fed might make in 
terms of the Federal funds rate?
    Mr. Powell. I would say it could, but, you know, what has 
happened is the economy has made all these gains in the face of 
two--during 2021, we had two major pandemic outbreaks, two 
variant outbreaks, and really, the beginning of 2021, was 
dominated by a very strong wave of the original COVID. And yet 
the economy, we made tremendous progress in the labor market in 
2021, and growth is at a multidecade high in 2021.
    So I expect the economy to continue to be able to deal with 
these outbreaks. I think it is likely, though, if the experts 
are right and Omicron is going to go through really quickly, 
and peak perhaps within a month and then come down after that, 
I think it is likely you will see, you know, lower hiring and 
perhaps a pause in growth and that kind of thing. But that it 
should be short-lived. It should be, and then the economy, the 
forecast for the rest of the year, or certainly for the next 
quarter or two, would be a very positive one, very positive.
    Senator Crapo. And if that happened, would that increase 
the likelihood of Fed action to increase the Federal funds 
rate, or would it delay that?
    Mr. Powell. Sorry. If that all happens? So I think what we 
are seeing is an economy that functions right through these 
waves of COVID. My colleagues and I see that, and you see that 
every quarter we write down projections of interest rates that 
are individual projections. They are not a committee plan or 
anything like that. But broadly speaking, all Members of the 
Committee see interest rate increases coming this year. The 
median was 3. But that is going to depend on data. It is going 
to depend on the progress we see on the supply side, the 
progress we see on inflation, and we honestly do not know. 
There is risk on both sides, really, on growth and potentially 
on inflation as well.
    So we are going to have to be just very attentive to what 
is happening in the economy and willing to adapt pretty nimbly 
our policy as we go through the year.
    Chairman Brown. Thank you, Senator Crapo.
    Senator Tester, from Montana, is recognized.
    Senator Tester. Yeah. Thank you, Mr. Chairman. I do not 
know if there is any way to turn that mic down, but that was 
almost painful. I mean, it was tough. Not your questions, 
Crapo. Just the intensity.
    First of all, Chairman Powell, I want to thank you for your 
willingness to serve. I appreciate your work you have done, 
working with the Federal Reserve Board throughout the health 
and economic crisis that we have found ourselves in. And just 
to say, as many have said before me, we appreciate your steady 
hand.
    In your opening statement you talked about climate change 
and cyberattacks, taking those into account as part of the 
things the Fed has to do. There was an interesting story in the 
Post yesterday that talked about $145 billion this country 
spent on disasters in 2021. December was the warmest ever, and 
last year was the fourth-warmest year in history. I think that 
is a conservative number, because I do not think it took in the 
impacts of our crops and crop insurance and things like that.
    I say that because I hope you will continue to gather as 
much information as possible about what needs to happen as this 
climate situation appears to be getting worse and not better as 
time moves on. The American taxpayer deserves that.
    Look, the challenges that we have had because of this 
pandemic, it is fair to say that the Federal Reserve has helped 
us get through this is in a major, major way. This question has 
been asked before, but I am going to ask it again in a 
different way. Could you compare the economy prepandemic, 
pandemic, a year ago, and today, and tell me where we are at in 
relation to those three different points of time?
    Mr. Powell. Sure. So the prepandemic economy, that was a 
very long, historically long, 10 years and 8 months expansion. 
Growth was just modestly above potential every year, so we were 
getting growth between 2 and 3 percent, and we think potential 
growth is around 2 percent. So that implies a tightening labor 
market.
    So we had this long, relatively uninterrupted period of 
growth, and what happened was unemployment kept coming down and 
participation kept coming up, and that was very beneficial. So 
you saw people around the edges of the labor market getting 
more wages. We saw companies going to prisons and recruiting 
people who were not going to get out for a couple of years. I 
mean, it was a great labor market. So that is prepandemic.
    So then the pandemic comes and it upends everything, and so 
the question really is how is it going to be different? And we 
are only beginning to see that because we are not out of the 
pandemic. We are a long way from out of the pandemic, 
potentially. So what are some of the things that we are seeing 
that are with us now?
    One of them is that the recovery in labor force 
participation overall has been slower than hoped. Actually, 
prime-age labor force participation has moved up a whole 
percentage point, almost, last year, but overall that was 
offset significantly by older people retiring, for older people 
and not older people retiring. So we are seeing some 
differences.
    We are also going to see people working remotely. The wage 
increases that we are seeing are still very skewed to the lower 
end of the income spectrum. So there may be something happening 
there where wages are just going to be higher for people. We do 
not know whether any of this will persist, but those are some 
of the things that we are seeing.
    I know employers who are hiring younger people out of 
school are finding that they have to have 1 day to work from 
home, or they will go to someplace else where they can get 
that. So it is a market right now where labor is very short, 
and as result workers have a lot of leverage, and that may 
persist. So I think there are a lot of different things.
    Senator Tester. I have just got a limited amount of time 
here, but could you speak a little bit about the importance of 
the independence of the Fed? I remember, pretty clearly, the 
kind of pressure that was put on you by President Trump to try 
to politicize the Fed, and I commend you on keeping it 
independent. Could you talk about why that is so important?
    Mr. Powell. Sure. It is essential that we--we work for all 
Americans, and that is what we do, and it is essential that we 
do that without regard to political considerations, like 
election cycles or particular political parties' views on 
issues that are outside our mandate. You know, we have to focus 
on the job Congress has given us, which is maximum employment 
and price stability, and also the payment system and financial 
stability and other things. But we have got to do that, and 
that is what we need to do to justify our continued 
independence, and we are committed to doing that.
    Senator Tester. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Tester.
    Senator Rounds, from South Dakota, is recognized.
    Senator Rounds. Thank you, Mr. Chairman. Chairman Powell, 
first of all, let me congratulate you again on being selected 
to serve a second term as the Chair of the Federal Reserve, and 
I do look forward to supporting your nomination.
    I want to follow up a little bit with regard to the 
discussion on inflation. Consumer price index rose 6.8 percent 
in November. There appears to be a consistency along that line. 
Part of that you have the opportunity to impact with regard to 
the demand side. Can you talk to us about your discussions, or 
at least your analysis of how much of the inflationary trends 
we are seeing you have the ability to impact with your monetary 
policy?
    Mr. Powell. So again we do not have much ability to affect 
the supply side, and if you look at where the really big 
contributors are to the overshoot from inflation it is in the 
goods section, still largely, and that is cars, that is new, 
used, and rental cars, it is appliances, and----
    Senator Rounds. What about food?
    Mr. Powell. Food too.
    Senator Rounds. Hamburger at over $5 a pound.
    Mr. Powell. Yeah, no, and see, that is not something--we 
cannot--I would say that there are supply side issues there 
too, as you and I have discussed. But those are really outside 
the range of our----
    Senator Rounds. Would it be fair to say petroleum products 
as well? Gas. The price of gas over $5 a gallon.
    Mr. Powell. Yeah.
    Senator Rounds. Those are items that are supply side. They 
are not the demand side.
    Mr. Powell. That is right.
    Senator Rounds. And yet you have a responsibility to try 
to, or at least your goal is to remain inflation about 2 
percent or so.
    Mr. Powell. Right.
    Senator Rounds. But the supply side of this is a 
significant part of the entire inflationary demand. Is it fair 
to say that your focus is on the demand side and not the supply 
side. Correct?
    Mr. Powell. That is right. That is correct.
    Senator Rounds. So what percent of that inflationary trend, 
what percent of that are you trying to impact with the demand 
side monetary policy that you have the ability to impact?
    Mr. Powell. That would be hard to break it down in that 
way. I would say it this way, though. Right now our policy is 
very highly accommodative, so we are stimulating. We are not 
restraining demand at all at this point. We are encouraging it. 
We are trying to get to a place where we are more neutral, and 
then perhaps tight, if that is appropriate?
    Senator Rounds. But it is not political in nature. It is 
economic in nature to say that the inflationary trends that we 
are seeing are partially from the ability to of consumers, with 
cash in their pockets, to be able to pay a higher price. But 
second of all, it is because of the limitations and the 
bottlenecks that we find within the supply side of our economy. 
Correct?
    Mr. Powell. Yes.
    Senator Rounds. So let's just take food as an example. I 
come from South Dakota where cows outnumber people, and yet we 
have producers there that, on a regular basis, talk about the 
fact that they do not see an increase in what they are 
receiving for livestock, and yet our consumers across the 
entire country are seeing huge increases in the price of meat, 
and in between them, packers, four packers who control over 80 
percent of the market showing record-high profits while 
consumers pay huge, inflated prices. That is something which 
has to be dealt with with policy and not necessarily something 
that the Fed can impact. Correct?
    Mr. Powell. That is really a competition policy question, 
yes.
    Senator Rounds. So do we have the same type of challenges 
with regard to other items that people consume on a daily 
basis? And by that I mean petroleum products are something that 
I truly believe that the price rise in petroleum in '06, '07 
really impacted the ability of people to actually pay their 
mortgages or pay their rent, or for that matter, if they were 
going to put food on the table before they were going to pay a 
mortgage.
    Do we have a similar type of situation developing here with 
regard to individuals that are trying to get to work paying a 
higher price for their gasoline, and now they are seeing the 
possibilities of other things going by the wayside?
    Mr. Powell. That is right. I mean, gas prices are high, and 
those gas prices and food prices and heating oil prices, you 
know, are the kind of things that affect people who are living 
paycheck to paycheck, on a fixed income.
    Senator Rounds. And not necessarily something that you can 
do at the Fed, but nonetheless, it does impact inflation, and 
it is something that would probably have to be addressed with 
the regulatory environment that we have within this country 
today.
    Mr. Powell. We can have marginal effects on demand, but 
really, when it comes down to energy and food, those are 
largely importantly influenced by supply side issues.
    Senator Rounds. Thank you, and I would just add this. I 
know that with regard to regulations the Fed has been 
considering whether or not make permanent adjustments on 
separate items, the supplementary leverage ratio, or SLR, in 
order to account for a significant influx of cash that 
consumers have got. They are trying to put them into banks, and 
yet the banks have to basically have capital to be able to 
accept those deposits.
    I would just hope, and I would consider that you continue 
to look at considerations with regard to the adjustments on the 
SLR so that we actually have the ability to accept those 
deposits in the future, sir.
    Mr. Powell. We will return to that. We want risk-based 
capital to be binding not the leverage ratio. We do want to 
make adjustments, but we want them to be done in ways that do 
not reduce the overall bindingness of the capital requirements 
on the largest firms. That is an important principle. But 
within that we do think there are some things we may be able to 
do on the SLR that honor that first principle.
    Senator Rounds. Thank you, Mr. Chairman.
    Chairman Brown. Senator Warner, from Virginia, is 
recognized.
    Senator Warner. Thank you, Mr. Chairman, and Chair Powell, 
let me join my colleagues on both sides of the aisle in 
thanking you again for your service.
    I want to pick up a little bit where my friend, Senator 
Tester, left off when he started talking about prepandemic 
economy, pandemic economy, and postpandemic economy. You said 
in your testimony that the postpandemic economy is likely to be 
different in some respects, and that, quote, ``the pursuit of 
the Fed's goals will need to take these differences into 
account.''
    What are some of those differences? You mentioned we are 
seeing changes in employment patterns. We may need to see new 
supply chains. Can you talk a little bit more about in that 
postpandemic economy what those differences will be? How will 
it affect the Fed's decisionmaking, and will there be actually 
any economic indicators that might have a new emphasis or even 
be new economic indicators in this postpandemic economy, 
hopefully we get to.
    Mr. Powell. We are just beginning to see this sort of 
emerging from the fog, so it is all very indefinite.
    But you mentioned supply chains. The supply chains we had 
prepandemic were very efficient and pretty fragile. And so I 
think companies, since the very beginning of the pandemic, have 
been looking at ways to have more robust supply chains that 
will not be subject to these kinds of disruptions that we have 
had now for 2 years. That is one.
    Another I mentioned earlier is labor force participation 
has been much slower to come back than we had hoped for. The 
level of employment that is consistent with price stability is 
something that can evolve over time, and we have to deal with 
the economy as we find it. Right now we have very high 
inflation, and, you know, wages at multidecade highs, which are 
not causing the current inflation at all but something that we 
are watching.
    And we want participation to come back, but has been quite 
slow. We have to deal with the fact that it probably will take 
a long expansion to draw people back into the labor market, 
just to speak of two. There are many others.
    Senator Warner. Well, for example, would childcare be one 
of those factors? We still have a large percentage of the 
workforce, particularly women in the workforce, participation 
still down. If we do not find a way to provide adequate, 
affordable childcare, is that not going to be a long-term 
disruption?
    Mr. Powell. It is clearly weighing on participation still, 
although participation has moved back up among women as well. 
But that part of the economy is suffering from a lack of 
workers as much as any part is, and that weighs on 
participation by people who depend on childcare, yes.
    Senator Warner. I also think that on the supply chains a 
lot of us, at the beginning of this pandemic, raised concerns 
about being dependent on sole source, for example, whether it 
is the base chemicals that go into our pharmaceutical drugs or 
PPE coming from China. I think some of these changes are going 
to be permanent. We now that the Congress needs to act to make 
sure that we do not maintain that dependence, but I think it is 
something we are going to need to continue to revisit.
    I want to come to another topic that you and I have talked 
about a long time. Out of the pandemic we saw a 
disproportionate effect on minority communities. We lost 
440,000 Black-owned businesses. A lot of the delivery 
mechanisms that we put in place on the Paycheck Protection 
Program, well-intentioned but clearly minority-owned businesses 
did not do as well.
    I am a big believer, and I thank folks on both sides of the 
aisle, and I am going to call up my friend, Mike Crapo, on 
this, we have a lot of money into the CDFIs and MDIs. But there 
still remains challenges for these organizations.
    For example, after the murder of George Floyd, private 
sectors indicated they were going to put up about $200 billion 
to help deal with racial wealth cap issues, but we continue to 
hear that there are a number of entities that might want to, 
for example, invest in MDIs, minority-owned depository 
institutions, with no intent of changing control, but they 
cannot make those investments because of potentially triggering 
that regulation on change of control.
    I think we are going to need some regulatory review here. I 
think, as well, we need to look at, for example, a nonemergency 
discount window that would be geared toward CDFIs and MDIs, 
modeled after the seasonal discount windows that already exist 
on nonemergency basis.
    Can you speak to how you and the Fed can work with me and 
others on this Committee to make sure that CDFIs and MDIs, that 
are going to continue to play, I think, an increasingly 
important role in serving underserved communities, do not get 
blocked by some of these regulatory barriers?
    Mr. Powell. Yeah. So we have talked about this a lot. We 
are very focused on what we can do to support CDFIs and MDIs. 
We did see, in the recovery from the pandemic, in a number of 
cases where they were the ones who were there in poor 
communities, delivering credit to a great extent. So they were, 
in some cases, pretty effective.
    Nonetheless, so what are we doing? As you know, under ECIP 
we have been working with the other banking agencies to make 
sure that those loans and investments can be made in a way that 
gives attractive capital treatment. And, you know, there is 
range of things that we are doing. We do want to foster 
investment in CDFIs and MDIs under the law.
    Senator Warner. I would just ask that we--and we can 
continue this offline. But, you know, for those entities, and 
private capital that wants to come into these institutions with 
no intention of trying to take over control, whether we set up 
a different class of stock or some ability for part of the 
capital to flow into these without triggering the change of 
control requirements that, frankly, at this point prevents a 
lot of those investments.
    So I appreciate what we have worked on so far, but much 
more to do.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Warner.
    Senator Tillis, from North Carolina, is recognized.
    Senator Tillis. Thank you, Mr. Chairman. Chair Powell, 
thank you for being here.
    You mentioned in your opening statements you committed to 
regular and frequent contact. I can attest to the fact that you 
have regularly contacted my office, and any time we have had a 
request for a conversation you have been very prompt, so I 
appreciate you for your responsiveness.
    I want to talk a little bit about the current extraordinary 
inflationary pressures and the tools that the Fed has to deal 
with it. Of course, you could have a benchmark rating increase. 
We know what that would have is a consequence for raising the 
price of lending and ultimately affecting the cost of buying a 
car or buying a house or just making ends meet.
    Your other option is to reduce the balance sheet, 
particularly from some of the COVID areas bond-buying programs. 
I believe that it was Governor Waller who just last month said 
that because of the alarming rate of inflation the Fed should 
begin shrinking the asset portfolio without delay, and I think 
this week the Fed president from Atlanta, Mr. Bostic, said he 
thinks the Fed should aggressively draw down the balance sheet 
by at least $100 billion a month. I know you went up from $15 
billion to $30 billion, but that is a 3.5 time increase over 
the current run rate.
    So to what extent do you think, and give me an idea of 
discussions that you are having at the Fed, to have a faster 
taper in lieu of a rate increase?
    Mr. Powell. We have not made any decisions. We had our 
first discussion of these issues about runoff, and as you 
mentioned there are a number of different pieces to talk about. 
We had that at the December meeting. I expect we will talk 
about it again at the January meeting.
    And again, just no decisions, but as we reflected in our 
minutes, we looked at what the Fed did last time, and I was 
there, as we, you know, ended QE, and then later started to 
have the balance sheet shrink. And we looked at that experience 
and thought that is quite informative, but the economy is in a 
completely different place than it was when we ended asset 
purchases the last time. So the period of time between stopping 
purchases and beginning runoff will be shorter, and also the 
balance sheet is much bigger and so the runoff can be faster.
    So I would say sooner and faster. That much is clear. 
Beyond that, we are not at the point of making decisions at 
this point. We will have another discussion, and I think we 
will be in a position to provide guidance at coming meetings. 
And, you know, we are mindful that the balance sheet is $9 
trillion. It is far above where it needs to be.
    Senator Tillis. At the current draw-down rate that is about 
a 24-year trajectory to retire the balance sheet. Is that 
right?
    Mr. Powell. That would depend on the speed you assume.
    Senator Tillis. What sort of indicators are you looking at 
that would actually drive you to a faster taper, particularly 
based on some of the comments that folks at the Fed----
    Mr. Powell. You know, we are looking at the whole range of 
things. This balance sheet is much shorter in duration than the 
one that we had at the end of the global financial crisis. That 
can play into it.
    We tend to do a lot of analysis. We tend to take two, 
three, four meetings to work these things through. I find that 
the best ideas sometimes take a while to surface. They did the 
last time on this issue. So it will be part of the things that 
we are discussing and doing this year.
    Senator Tillis. OK. Thank you for that. I should have also 
mentioned that I look forward to supporting your nomination.
    Mr. Powell. Thank you.
    Senator Tillis. I want to turn to bank mergers. You know, 
Senate Bill 2155 gave us the opportunity to do some regulatory 
tailoring for some of the smaller banks, and I think it was 
largely successful. I appreciate the bipartisan effort to do 
it.
    But bank mergers are one of the most highly regulated 
transactions that you could go through. It involves the Federal 
regulators, including the Fed, the Department of Justice, and a 
lot of opportunities for outside interest groups and others to 
voice their opinions.
    But I am getting the sense that moving forward there may be 
a trend toward making it more difficult for some of the super-
regionals and other banks to move through the merger process. I 
tracked one recently that involved a North Carolina banking 
institution and it seemed to take a bit longer than I thought 
it would have.
    So can you give me an assurance that there is not sort of 
increasing bias on the part of the Federal regulators to make 
it more difficult for some of these super-regional and smaller 
banks to actually get through a merger and acquisition process, 
or am I missing--is this a trend that I should be concerned 
with, or do you believe that the financial regulators are still 
in a position to allow that ecosystem to continue to evolve, 
which I personally believe is very important for the viability 
of the U.S. banking system?
    Mr. Powell. So we are still applying the same. The law has 
not changed, and our practices have not changed. We are still 
working our way through, you know, the applications that we 
have in front of us.
    Senator Tillis. OK. And I will submit a question for the 
record on the status of the Fed payment system. Thank you.
    Thank you, Mr. Chair.
    Chairman Brown. Thank you.
    Senator Warren, from Massachusetts, is recognized.
    Senator Warren. Thank you, Mr. Chairman.
    So since President Biden took office we have added more 
than 6.4 million jobs, the most jobs that have ever been added 
to the economy in U.S. history. But over the past few months, 
families have faced higher prices at the grocery store, at the 
gas pump.
    Addressing inflation is one of the Federal Reserve's most 
important jobs, and if we are going to solve this problem then 
we need to understand why it is happening. So if we can let's 
start with Econ 101.
    Chair Powell, in markets with lots of competitors, are 
companies' profit margins generally likely to stay low? That 
is, in competitive markets are profit margins likely to stay 
steady, modestly above the cost of labor, or materials and 
capital?
    Mr. Powell. I mean, microeconomics would tell you that all 
of the things equal, you will compete down to your marginal 
cost.
    Senator Warren. Good. And in markets with greater 
concentration and not much competition, are corporations 
generally able to raise prices and increase profit margins, all 
else being equal?
    Mr. Powell. So actually the connection between 
concentration and market power is not as clean as we might 
think it might be. In some of the industries that have 
concentrated, there actually has been, you know, sort of lower 
cost increases. It has resulted in lower costs to consumers, 
and I am thinking there of retail and things like that, so it 
is not as direct.
    Senator Warren. Well, but let me ask it the other way then, 
because we are still kind of doing Econ 101 here. If you are a 
corporation that has eaten up most of the competition and 
cornered the market, is it easier for you to raise prices on 
your customers, and maximize your profits, because you do not 
have to worry about losing your business. In other words, you 
have lost the discipline that the market imposes.
    Mr. Powell. In principle, if you do not have competition 
and you are a monopolist, yes, you can raise your prices.
    Senator Warren. OK. And over the past year we know that 
prices have risen because of supply chain problems, unexpected 
shifts in the demand for goods, and even higher labor costs. 
But if corporations were simply passing along these costs, in 
highly competitive markets, would the companies' profit margins 
have changed much?
    Mr. Powell. You know, so many things affect that 
calculation. In principle you could be right, but----
    Senator Warren. Well it is very much not what we are seeing 
right now. Today nearly two out of three of the biggest 
publicly traded corporations in the country are reporting 
fatter profit margins than they reported before the pandemic, 
which does not sound like they are just passing along costs.
    So let me ask you, does that increase in profit margins, 
combined with greater market concentration industry after 
industry suggest to you that some corporations may be passing 
along increased costs and, at the same time, charging more on 
top of that to fatten their profit margins?
    Mr. Powell. That could be right. It could also just be, 
though, that demand is incredibly strong and that, you know, 
they are raising prices because they can.
    Senator Warren. Well, that is the point. They are raising 
prices because they can, and they are not being competed down.
    You know, market concentration has allowed giant 
corporations to hide behind claims of increased costs to fatten 
their profit margins, so the consumer pays more, both because 
the corporations face higher costs and because, as you put it, 
because the corporation can increase prices.
    The reason I raise this is that higher prices have many 
causes, and we cannot overlook the role that concentrated 
corporate power has played in creating the conditions for price 
gouging.
    Now before my time expires I want to ask you about one 
other important topic, and that is about climate change. Mr. 
Chair, when you came before the Banking and Housing Committee 
last July you said that the transition to a lower carbon 
economy could, quote, ``lead to a sudden repricing of assets or 
entire industries and that we need to be in a position to deal 
with all of that.'' Why is it important for the Fed to assess 
risks related to climate change in order to fulfill its 
mandate?
    Mr. Powell. So our role on climate change is a limited one 
but it is an important one, and it is to assure that the 
banking institutions that we regulate understand their risks 
and can manage them, and it is also to look after financial 
stability. And with financial stability the issue really is, 
can something from climate change rise to the level that would 
threaten the stability of the entire financial system? So that 
sounds more in the nature of what you were reading, something 
in the nature of transition risk, where some unexpected, you 
know, Government policy change happen, which could potentially 
create disruption.
    Senator Warren. Well the world is running out of time to 
deal with the climate crisis, and the Fed has an important role 
to play here, and I hope the Fed will step up.
    Last thing, Chair Powell, I sent you another letter asking 
for more information about the Fed's ethics scandal, and I 
asked for a response by next Monday. Can I receive your 
assurance that I will get that response by next Monday?
    Mr. Powell. I will have to look into the status of that. 
You will get either a response or we will update you on where 
we are.
    Senator Warren. OK. I would like to have a response. OK. 
Very important. Thank you.
    Chairman Brown. Thank you.
    Senator Kennedy, of Louisiana, is recognized.
    Senator Kennedy. Mr. Chairman, congratulations. I think it 
is fair to say that you are, and once you are confirmed, will 
continue to be one of the most powerful people in the world.
    So I want to begin today, I have some questions, but first 
I have a plea. Above all else, above everything else on your 
plate, I ask that you please preserve the independence of the 
Federal Reserve. The last thing that America needs right now is 
to have the Federal Reserve politicized. It is the last thing 
the world needs right now, and believe me, the whole world is 
watching, including our enemies.
    Now I get it. Our politics is polarized. I hope you will 
remain blissfully ignorant of that. And I get it. I am not 
telling you not to listen to elected officials, public 
officials. I get it. I mean, I can only speak for the Senate. 
We have some very smart people in the Senate. They have strong 
opinions and strong personalities. We have got a few Senators 
that, to paraphrase Dave Barry, think they ought to make a 
Hamilton-style musical about their lives. I get all that.
    But you have got to remain independent. Political fads come 
and go, but the dollar does not. I hope not. The dollar 
underpins the entire world economy. Politicize it at your own 
risk.
    Let me shift gears to a question. Professor Keynes, about 
who I know you know more than I do, but Professor Keynes has 
seen a resurgence in the last few decades in his number of 
followers. And, of course, we both know Professor Keynes said 
one way to get out of a recession is to have the Government 
spend money it does not have, to deficient spend, to stimulate 
the economy.
    But Professor Keynes said something else that the media 
does not usually quote. He also said when you get out of the 
recession, pay the damn money back. Did he not? Did he not say 
that?
    Mr. Powell. Yeah. I was going to add that. What he said was 
it is OK to do deficit spending but you should be doing 
surplus, you know, in good times, to sort of keep it----
    Senator Kennedy. Yeah. Now behind me is a charge of our 
public debt, going all the way back to, I think, 1990. You do 
not have to be Euclid to see that the direction is up, and it 
has been up under Republican administrations, and it has been 
up under Democratic administrations. It has been up under 
Democratic and Republican Senates and Houses. It is up.
    So here is my question to you. How much is too much? At 
what point, in your judgment, are we going to hit the point 
where you have to say, ``No, that is it. We cannot do anymore. 
It is hurting the world. It is hurting our country.''
    Mr. Powell. So we do not know when that is, and as the 
world's reserve currency, demand for our paper is very strong. 
If you had shown that and then asked somebody, 15 years ago, to 
predict what interest rates would be, they would not be 
predicting that the 10-year would be at 1.75.
    Senator Kennedy. No.
    Mr. Powell. Right? So there has been a lot of demand.
    Senator Kennedy. But they would have predicted that the 
debt was going to go up.
    Mr. Powell. They would have looked at that picture and 
said, ``Well, you must be experiencing difficulty borrowing,'' 
but we are not at all.
    So, no, we are on an unsustainable path. Debt is not at an 
unsustainable level, but the path is unsustainable, meaning it 
is growing faster than the economy, meaningfully faster than 
the economy. We have to address that over time. We will address 
it over time. And the better way to do it is soon, and to do it 
in good times. Start when the economy is strong and the taxes 
are rolling in. You know, since we do not do fiscal policy, but 
I will say that the sustainability of the debt is something we 
need to get back to and focus on again.
    Senator Kennedy. Good luck, Mr. Chairman.
    Mr. Powell. Thank you, sir.
    Chairman Brown. Senator Van Hollen, of Maryland, is 
recognized.
    Senator Van Hollen. Thank you, Mr. Chairman. Welcome.
    Mr. Chairman, we all recognize we have got continuing 
economic challenges, but I think it is important to look at 
some critical areas where we are much better off today than the 
Fed predicted we would be at this time, just a little while 
ago. We have seen a record increase of 6.4 million jobs in our 
economy in 2021, and back in December of 2020, when the 
unemployment rate was 6.7 percent, the Federal Board of 
Governors projected that the unemployment rate in December of 
the year we just came out of would be 5 percent. Is that not 
correct?
    Mr. Powell. I cannot do it from memory but I am sure you 
are right.
    Senator Van Hollen. Well, as I reviewed your predictions 
that was what it was, and, in fact, we did much better than 
that. The unemployment rate for December, the month that we 
just left, was 3.9 percent, and the unemployment rate for that 
fourth quarter of last year was 4.2 percent, a year ahead of 
what the Fed had predicted. Is that right?
    Mr. Powell. Yes.
    Senator Van Hollen. And what happened in between was a lot 
of us here in the Senate and the House and folks around the 
country looked at those projections and said, ``That is not the 
kind of course we want to be on,'' and we passed the American 
Rescue Plan which helped stabilize the economy and helped 
result in those much-improved employment numbers. Isn't that 
right?
    Mr. Powell. Yes.
    Senator Van Hollen. Now let me just talk about inflation. I 
think all of us recognize that Americans are experiencing price 
increases in many areas. The Federal Reserve has predicted--
well, the Cleveland Fed projected a 2.6 percent inflation rate 
for this year, which matches the Federal Reserve Board's 
projections. If you look at consumer expectations, not 
surprisingly they are running higher than that, because of 
where we have been in the last couple of months.
    But can you explain why you are confident at the Federal 
Reserve that we can hit that 2.6 percent target while 
continuing to push for full employment?
    Mr. Powell. So that is the median of expectations of 
individual expectations. We do not have a committee or official 
Fed forecast. And it is conditioned on a number of assumptions, 
and the most important assumption here is that we do get 
significant relief on the supply side, that the global supply 
chains loosen up and we get, you know, more semiconductors so 
that we can start manufacturing cars again. That is going to be 
a big part of getting inflation back down.
    Part of it will also be our moving from a very highly 
accommodative policy to a somewhat less accommodative policy, 
but still accommodative, but a lot of it will come on the 
supply side.
    Senator Van Hollen. And on the supply chain issue, I mean 
there have been recent reports of progress in a number of 
supply chain bottlenecks. Can you just speak to your perception 
of where that stands?
    Mr. Powell. Yes. You always see a few snowflakes, but it 
does not amount to a storm yet. If you look at the Port of Los 
Angeles, the Port of Long Beach, record numbers of ships still 
at anchor. We did see--and this is maybe what you saw--that 
inventories are moving up and delivery times have shortened, 
and that is a good thing.
    But on the other hand, you know, Omicron can really, 
particularly if China sticks to a no-code policy, Omicron can 
really disturb the supply chains again, although it could be 
briefer this time.
    So I think the picture--we would not want to say--I would 
not want to say that it is decisively improving yet, but we are 
watching it carefully.
    Senator Van Hollen. I got it. I was pleased to hear 
President Biden say, when he renominated you for this position, 
that you saw the economic risks of climate change as a, quote, 
``top priority.'' Is that an accurate statement?
    Mr. Powell. Yes.
    Senator Van Hollen. And if confirmed, how do you plan to 
prioritize addressing the financial risks of climate change in 
your next term?
    Mr. Powell. So we have a role to play. It is a narrow one 
but an important one, and that is it relates to our existing 
mandates. We do not have a new mandate on climate change. It is 
really the simple mandate, the central mandate of supervising 
and regulating financial institutions to make sure that they 
are aware of and able to manage all of their risks, and we are 
doing that, particularly focusing on the largest financial 
institutions, who, by the way, are spending a lot of time 
themselves on these issues.
    And second, looking at financial stability issues. You 
know, we have responsibility for the stability of the financial 
system, and over time climate risk can play into that as well.
    Senator Van Hollen. Well thank you, Mr. Chairman. I am 
pleased to see that you do agree that it is a top priority. 
Thank you.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Van Hollen.
    Senator Hagerty, from Tennessee, is recognized.
    Senator Hagerty. Thank you, Mr. Chairman, Ranking Member 
Toomey. I appreciate you holding this hearing. I want to 
congratulate Chairman Powell on being renominated to be the 
Chair of the Fed. Thank you for your testimony and your 
presence here today, Chairman.
    First I have just a quick housekeeping question for you. I 
think I know the answer to this, but as a matter of fact, have 
you ever embellished your resume, your record, your publication 
history?
    Mr. Powell. I do not think so.
    Senator Hagerty. I did not think so. Thank you for 
clarifying that for us.
    I would like to turn to the topic of quantitative easing 
for just a minute, Chairman Powell. When Chairman Bernanke 
first introduced quantitative easing back in 2009, he assured 
lawmakers at that point that it would be both temporary and 
rare. Essentially it was introduced as an emergency measure. Do 
you agree that quantitative easing should be both temporary and 
rare?
    Mr. Powell. I agree we should not use it unless we need to, 
but I will say it is going to depend, on some extent, on where 
interest rates. We have been in a very low interest rate 
environment, even during good times, all over the world, and 
when that is the case we do not have a lot of ammunition to 
support the economy.
    So I can imagine a regular garden variety downturn, which 
we have not had in a long time, in which we did not need to 
resort to quantitative easing to asset purchases and we then 
would not. But in a world where you have only got a couple 
hundred basis points to cut you may need to do that, because 
what that gives you is the ability to move longer-run rates 
down, not just at the short end.
    Senator Hagerty. I understand but I just remain concerned 
because here we are, 12 years later, from its first 
introduction. The Fed's balance sheet is nearly $9 trillion. We 
are continuing to grow, albeit at a slower pace, so it remains 
a real concern.
    You said earlier to Senator Shelby that you think the Fed 
could begin the process with normalizing its balance sheet 
later this year. Can you provide us with a little bit more 
clarity on this process, how soon you think this would begin, 
and whether you would consider actively selling securities 
rather than just letting them gradually run off the balance 
sheet?
    Mr. Powell. So we had our first discussion of this set of 
issues at the December FOMC meeting. We will talk about it 
again at the January meeting in a couple of weeks. We have not 
made any decisions. This time is going to bear some similarity 
to what we did last time but it is going to be different too, 
and that is already clear in that we will have the ability to 
move sooner and to move a little faster than we did last time. 
So more clarity is coming soon on that, but I do not want to 
get ahead of the Committee.
    In terms of selling assets, we have not made any decisions 
on that. We did not do that last time. We never ruled it out 
either. So it is just something we will be looking at. The 
balance sheet is a whole lot bigger this time, and also the 
duration is shorter, and the economy is much stronger, so it is 
a very different situation.
    Senator Hagerty. So I would like to come to the question of 
governance if I might. While you have been nominated to remain 
Chairman of the Fed, the Biden administration's three proposed 
appointees would, together with the nominee for Vice Chairman, 
who we will hear from this Thursday, constitute a majority of 
the Federal Reserve board.
    Looking recently at the five-member board at the FDIC and 
what happened there, there, at the FDIC, a five-member board 
overturned 88 years of tradition and independence with Biden 
political appointees led by CFPB Director Rohit Chopra, forcing 
out the FDIC Chairman before her 5-year term was up, strictly 
for partisan reasons.
    This incident causes me to worry that an activist bloc at 
the Federal Reserve board could sideline you. They could exert 
their authority while excluding the full FOMC membership.
    So my question for you, Mr. Chairman, is the Fed vulnerable 
to similar unfortunate, politically motivated hijacking of an 
organization, like we just witnessed at the FDIC, and what 
could this Committee do to prevent it?
    Mr. Powell. First, and you will know that I do not have any 
comment at all on the recent events at the FDIC. So at the Fed, 
monetary policy is conducted by the Federal Open Market 
Committee, which includes the 12 reserve bank presidents, and 
in total there are as many as 12 voters. So we will always have 
a balance of Governors and reserve bank presidents.
    Regulatory policy is really the business of the Board of 
Governors, and there are as many as seven Governors, and a 
majority is four. We do have a history at the Fed of working 
collaboratively and coming together and getting consensus on 
issues, and that certainly is my intention, that is my nature, 
and I will work hard to make sure that things stay that way.
    Senator Hagerty. And as a Member of this Committee I will 
work hard to support you, to maintain that posture as well. 
Thank you, Mr. Chairman.
    Mr. Powell. Thank you.
    Chairman Brown. Thank you, Senator Hagerty.
    Senator Cortez Masto, from Nevada, is recognized from her 
office.
    Senator Cortez Masto. Thank you, Mr. Chairman. Chairman 
Powell, good to see you again. Thank you always for taking the 
time to answer my calls, meet with me, answer my questions. I 
so appreciate it.
    Let me start with a question that Senator Tester talked to 
you about, because I think it is important we recognize and put 
this in perspective again. He asked you about comments about 
what the economy was like prepandemic, during the pandemic, and 
then after, and you actually said something I think was 
important, that we are still in a pandemic. And even still in 
the middle of this pandemic you said earlier in your opening 
remarks that the economy is expanding at its fastest pace in 
many years and the labor market is strong.
    Now in many conversations you have always prioritized job 
growth and higher wages, especially for those who tend to earn 
lower salaries, and you have consistently said that the best 
thing any one of us can do to increase employment, raise wages, 
improve our supply chains, and reduce inflation is to get 
vaccinated, to wear masks, and follow the medical guidance to 
prevent the spread of COVID-19. Do you still believe that 
reducing COVID-19 infections will have the greatest impact on 
inflation, supply chains, employment participation, and wages?
    Mr. Powell. I do, and if you imagine a world in which we no 
longer have to deal with a pandemic, I think that is the answer 
to your question. We would quickly see the supply side problems 
alleviate. We would probably see significantly more labor 
supply. So these issues are still related to the pandemic. It 
is proving more difficult than we had hoped to end the 
pandemic, but I certainly would think that is right.
    Senator Cortez Masto. And let me just add one additional 
thing. Of course we all have concerns with the rising prices of 
so many goods. I see it in my home State when I go grocery 
shopping or hear it from my family members and constituents in 
Nevada.
    One other area I want to also focus on, though, is housing. 
A new study from the Federal Home Loan Bank of Atlanta reported 
that the median American household would need 32 percent of its 
income to cover mortgage payments on a median-priced home, the 
most since November 2008, and home prices have climbed 18 
percent in the past year. Now we are short at least 3 million 
homes, especially affordable homes.
    So, Chairman Powell, do you think increasing the supply of 
housing, in essence building more homes, would also have an 
effect on the inflationary prices that we are seeing right now 
in the housing market?
    Mr. Powell. Yes, and that is outside of what we can do but 
clearly the housing market is extremely tight. It was tight 
before the pandemic and it is remarkably tight now, and supply 
is quite limited.
    Senator Cortez Masto. Thank you. Let me jump to another 
topic, which is ethics for the Board of Directors. I think we 
are all disappointed that Vice Chair Clarita did not disclose 
his active trading in late February 2020. You and I have had 
this conversation. Can you describe the changes you have made 
to improve the ethics guidelines and training at the Federal 
Reserve?
    Mr. Powell. Yes, I would be glad to. So we have really made 
a complete change in the way we govern purchases and sales of 
securities by covered people, which includes all of the 
policymakers and senior staffers. No one can any longer buy 
individuals stocks. In addition, if you want to sell something 
that you--so people will be owning mutual funds, mainly, as I 
already do. When you want to sell something, it has to be 
outside of blackout, as always, but you have got to give 45 
days' notice, and you make that decision. You have got to clear 
that trade with that sale with a central body.
    We do not really have, because of our federated nature, we 
do not have a group in the center that applies these rules 
consistently and clearly across the whole system. We will have 
that now at the Board of Governors. So you will go and you will 
say, ``I want to sell X amount of this mutual fund.'' Forty-
five days later, that trade will take place, whether things 
change or not. So there will be no ability to time the market 
and really no appearance of--the kind of appearance issues that 
we have had.
    The old system was in place for decades on end, and then 
suddenly it was revealed as insufficient. And so we do take the 
need to protect our credibility with the public very seriously, 
and I think our new system is easily the toughest in Government 
and the toughest I have seen anywhere.
    Senator Cortez Masto. Thank you, Chairman Powell. Mr. 
Chairman, thank you.
    Chairman Brown. Senator Lummis, from Wyoming, is 
recognized.
    Senator Lummis. Thank you, Mr. Chairman, and 
congratulations on your nomination. Please throw me a lifeline 
here and help me support your nomination.
    The Fed's website today says that the Federal Reserve will 
ensure the provision of payment services to all depository 
institutions on an equitable basis, and to do so in an 
atmosphere of competitive fairness. But that is not the case at 
all, Mr. Chairman. The Fed actually uses substantial discretion 
in providing master accounts to depository institutions, or 
denies them by delay, simply starving the master account 
applicant until it dies. And that is true even though every 
single Federal court that has ever looked at this issue 
disagrees with the Fed's assertion of substantial discretion.
    The Greater Buffalo Press and Jet Courier Services cases in 
the Second and Sixth Circuits found that the Federal Reserve 
services were, quote, ``available to all banks.'' The Fourth 
Corner Credit Union case in the Tenth Circuit from 2017 said 
the same thing.
    The Federal Reserve Act says that a depository institution 
is any institution eligible for deposit insurance. The FDIC 
says, in General Counsel Opinion 8867, that an entity is a 
depository institution if it is creating deposit liabilities 
out of customer assets and is characterized by State law as a 
bank.
    As you know, Chairman Powell, I am terribly concerned about 
the manner in which Wyoming's special purpose depository 
institutions are being treated by the Federal Reserve. We have 
discussed this. What is your reaction to this?
    Mr. Powell. So as we discussed, there are novel charters, 
and the SPDIs are one of them, and we want to be really careful 
because they are hugely precedential. They are very important 
from a precedential standpoint. And so we have been looking 
carefully at this, and I would say there are good arguments for 
viewing SPDIs as depository institutions for this purpose, and 
we are looking carefully at it. I do think we will make some 
progress on this, and we can talk about it more offline.
    But I think you do understand that we--you know, if we 
start granting these there will be a couple hundred of them 
pretty quickly, and we have to think about the broader safety 
and soundness implications. And, you know, it is just hugely 
precedential. That is really why we have taken our time with 
it. And we appreciate you bringing it my attention, and so we 
can continue to talk about it.
    Senator Lummis. Well as you know it has been well over a 
year, well over a year, and I have been stonewalled for well 
over a year. My State has been stonewalled for well over a 
year.
    You know, you mentioned in your testimony today that we can 
begin to see that the postpandemic economy is likely to be 
different in some respects. My job is to represent Wyoming's 
best interests and to ensure the Fed is preparing itself for 
the postpandemic economy and to promote responsible innovation, 
as you mentioned in your statement.
    You know, I asked your staff for an update on the SPDI 
charter last week, and I have yet to receive a response. And as 
we discussed in December, I believed I would receive a response 
by today. So my disappointment is profound. My frustration is 
profound. And for now I will just leave it at that.
    But I will say thank you for your dialogue with Senator 
Kennedy and Senator Hagerty today. I thought those were 
encouraging dialogues, and once again, Chairman Powell, throw 
me a lifeline.
    I yield back.
    Chairman Brown. Thank you, Senator Lummis.
    Senator Smith, of Minnesota, is recognized.
    Senator Smith. Thank you, Chair Brown and Ranking Member 
Toomey, and welcome to the Committee again, Chair Powell. As 
always it was good to talk with you yesterday, and I want to 
just say, Mr. Chair, that I think that together Chair Powell 
and Lael Brainard would make a great team at the Fed, and I 
think you are a strong combination.
    So Chair Powell, I would like to ask you about kind of 
where we are with employment and how this relates to the 
decisions that the Fed is making. Last week, the Bureau of 
Labor Statistics released job numbers from December, as you 
know well, and thanks to the American Rescue Plan, and I would 
also say the hard work and grit and innovation of Americans, 
the unemployment rate has dropped to just 3.9 percent, which is 
really a remarkable and historic recovery from the beginning of 
the pandemic. I note that in my home State of Minnesota, in 
November, the unemployment rate was even lower, so this is 
really an incredible accomplishment.
    You and I have discussed this before, how it is useful to 
unbundle, though, these aggregate numbers so that we understand 
a little bit more about what is happening, understand that it 
is a more complicated story. For example, Black workers, 
amongst Black workers the unemployment rate remains stubbornly 
high, at 7.1 percent, more than twice what it is for White 
workers.
    So Chair Powell, could you tell us, how should the Fed 
consider factors like this as you evaluate economic strength 
and whether the economy has reached full employment? The 
factors that I am referring to as unbundling these aggregate 
numbers so we understand more deeply where we are with the 
different sectors of our economy.
    Mr. Powell. Sure. So we do look at a wide range of 
indicators to determine whether labor market conditions broadly 
are consistent with maximum employment. It not a single number 
like inflation can be, and you mentioned a couple of them.
    What we saw at the end of the last very long expansion was 
that unemployment rates and the gap between White unemployment 
rates and other unemployment rates were at all-time lows, and 
this was a very desirable feature, and really a feature of 
having a tight labor market. So that is a little bit of 
something that tells us whether the labor market is tight. We 
are not targeting a particular number there but we are using it 
to inform our thinking.
    You mentioned African-American unemployment, which is at 
7.1. It dropped by 2.9 percent this year. That is the same 
decline as for White workers.
    The other thing I will say is that there was an increase in 
December of \5/10\ or \6/10\ among Black unemployment. It is a 
much smaller sample size and it is pretty volatile, so we would 
tend to look for a couple of months. It can bounce around more 
than the overall aggregate.
    Another key aspect of maximum employment, though, is 
participation. So we also want to think that participation is 
at a structural high level, and there is not a lot of slack in 
that pocket. And we saw that at the end of the last cycle. We 
saw participation holding up in the face of demographic 
decline. And so that is another thing that we look at 
carefully.
    Senator Smith. Thank you. I agree with that, and I think 
that we are, in Minnesota, as we are all over the country, 
experiencing a shortage of workers, and I am glad to see that 
what we are seeing, in fact, is wages increasing, especially 
for people who are in lower-wage jobs, and that for the first 
time in a long time workers, I think, have increased bargaining 
power, which is of benefit to them. So these are complicated 
issues and I think it is important that we kind of look beneath 
some of these aggregate numbers.
    But I want to touch on another issue before I wrap up here. 
You and I have talked about my grandmother, Avis Mason, who was 
born in 1898, and who became the president of a small community 
bank at Etna Green, Indiana. Her father, who started the bank, 
was blessed with three daughters, which is how she became 
president.
    Like so many banks around the country, and over the years, 
her bank was ultimately sold to a larger bank and became part 
of the story of increased consolidation in the financial 
sector, and this pattern has repeated itself for decades in 
Minnesota and all across the country.
    Over the last 30 years, the number of banks in this country 
has been more than cut in half, and we have seen, I think, the 
harm that industry consolidation can do broadly, especially in 
small towns in rural places. I note the comments and the 
questions of my colleague, Senator Rounds, with whom I have 
done a lot of work on issues of concentration in agriculture.
    So Chair Powell, one of the important duties of the Fed is 
to review bank mergers. Can you tell us how you think about 
bank mergers today, and what do you see as the impacts of 
consolidation on concentration and access to financial 
services, especially in underserved areas?
    Mr. Powell. So we operate under a statute which requires us 
to consider a number of factors, and those include competition 
and future prospects, financial and managerial resources, 
convenience and needs of the communities to be served, CRA 
performance, BSA/AML compliance, and financial stability. So 
all of those things go into our--and there is a rich lore of 
how we apply those things, and generally banks that are 
applying for permission to do mergers understand that body of 
work.
    More broadly, though, as we have discussed, when you look 
back at the United States banking industry, for 30 years and 
more, almost 40 years, you have seen a very steady decline in 
the number of banks. So one of the things that is driving that 
is just, you know, the loss of rural population, and I have 
seen many, in my earlier years at the Fed, many cases in which 
you would have a county that had lost half of its population 
over the last 50 years--it is very typical of rural America--
and there was one bank left and it wanted to merge with another 
bank in a nearby State.
    So anyway, it is a trend that is happening because of 
demographic changes. Also, fixed costs are going up. Regulatory 
costs are going up, and that is a fixed cost. The need to 
invest in technology to serve your customers is really a fixed 
cost now, and that requires a bigger bank.
    Community banks are part of the fabric of America, and we 
do not want anything we do to sort of exacerbate the problem of 
community banks going out of business. But there are strong 
secular forces that are driving this consolidation, apart from, 
you know, regulation, although that can be part of it.
    Senator Smith. Thank you. I believe I am out of time. Thank 
you, Mr. Chair.
    Chairman Brown. Thank you, Senator Smith.
    Senator Cramer, from North Dakota, is recognized.
    Senator Cramer. Thank you, Chairman Brown and Ranking 
Member Toomey. Thank you, Chairman Powell, for stepping up 
again and being willing to take the job on. Congratulations.
    I am going to go back to a question somebody asked probably 
an hour and a half ago, very high level but a point that one of 
my colleagues made, and I do not remember which one. But he 
said, in congratulating you, that President Biden clearly has 
confidence in your ability to lead our economy through this 
crisis. And without judging those particular words I would ask 
you, flat out, do you lead our economy? Is that what your job 
is, to lead the economy?
    Mr. Powell. I am responsible for an agency that has 
specific, narrow mandates. I would not want to characterize it 
one way or the other.
    Senator Cramer. I would not either, quite honestly, but I 
have great respect for and confidence in our free market 
economy with a very light regulatory touch.
    That said, I also want to associate myself with Senator 
Kennedy's strong word of encouragement to keep the Fed 
independent. That is why I respect you so much, Chairman 
Powell. Under the previous President you maintained 
independence, and we would certainly hope and expect that you 
would continue that independence under the current 
Administration.
    You have touched on this, but I want just a little further 
clarification, because somebody, I think it was Senator 
Menendez, asked you how do you balance the two mandates; of 
course, price stability and maximum employment. I thought you 
did a pretty good job, and I want to give you a chance to make 
it even clearer, and maybe I will help with the way I form the 
question.
    Doesn't price stability naturally lead to a strong economy, 
which naturally leads to maximum employment? In other words, 
you talked, I think, in your answer that, you know, we focus on 
whichever one needs the help the most at a given time. That is 
my paraphrase of it. But perhaps you could just elaborate a 
little bit on it.
    Mr. Powell. Sure. So most of the time monetary policy works 
the same way for both of them. You know, usually inflation is 
low when the economy is weak, when unemployment is high, and so 
you cut interest rates and that helps unemployment go down and 
it helps inflation move up, back up to 2 percent. So usually 
that is the case, almost all the time.
    In rare occasions, though, you have a situation where the 
two sort of goals are not complementary, and we have had a 
little bit of that here. I am not sure we have it anymore, but 
the idea being that we were far from maximum employment--that 
is no longer the case--but inflation was really high.
    I think the situation today is more correctly 
characterized, as we are very rapidly approaching or at maximum 
employment, and we are far away from our inflation tool. There 
is no basis to prefer one of the two goals over the other, but 
our constitutionally adopted document at the Fed, our Statement 
on Longer-Run Goals and Monetary Policy Strategy, says when 
this is the case we look at far something is from the goal and 
how long it will take to get to the goal, and we look at the 
other goal, and we use our tools. And I think the current 
application of that provision would say you need to focus on 
getting inflation under control because you are not going to 
have maximum employment unless you have price stability.
    Senator Cramer. I agree. Thank you. Well said.
    In fact, with that in mind, what I worry the most about 
with the Fed, and you and I have discussed this previously, is 
the mission creep that I think both clouds and, frankly, 
complicates that main mission of price stability. If you have 
to sit around and you have to hire people that are going to 
assess climate risk as an example, banks themselves are not 
already considering that. Which, by the way, climate risk, in 
my mind, is really regulatory risk, because climate is a global 
issue. It is not a domestic issue. It is a domestic issue to 
the degree it is a global issue.
    But what I worry about is the natural outcome of further 
regulations in the climate sphere, and that is what we are 
talking about with a climate stress test, or cyberstress test, 
or any other number of tests, but climate in particular. The 
natural outcome is that we are going to somewhat transfer our 
climate guilt to other countries who do not have our 
environmental and labor standards. In other words, we do not do 
anything to help the climate except to have more imports from 
faraway places that are much larger polluters than us.
    So I have to tell you, I am a little worried. I am quite 
worried, actually, mostly worried about the mission creep at 
the Fed, should we continue to add these extra things that you 
have to be focused on. And I would just ask for a response to 
them and then my time will wrap up.
    Mr. Powell. Well, I agree with your principle which is that 
we have got to stick to our knitting we want to remain 
independent. I really do. And I guess I would say climate is 
appropriate for us an issue to the extent it fits within our 
existing mandates. And I think it does in the sense of it is 
another risk, over time, that banks are going to run. But the 
broader answer to climate change has to come from legislators 
and the private sector.
    Senator Cramer. I agree. Thank you, and I look forward to 
supporting your confirmation. Thank you. Thank you, Mr. 
Chairman.
    Chairman Brown. Thank you.
    Senator Ossoff is recognized from his office.
    Senator Ossoff. Thank you, Mr. Chairman, and thank you, 
Chair Powell, for joining us. Congratulations on your 
renomination.
    Chair Powell, are you prepared, if necessary, to act with 
agility, flexibility, and speed if inflation risk to the upside 
manifests in the coming months and quarters?
    Mr. Powell. Yes, I am.
    Senator Ossoff. And what do you assess to be the level of 
risk that inflation surprises to the upside in this year?
    Mr. Powell. Well, I would say it this way. My expectation 
is that we will see some relief on the supply side, as the year 
goes on. By that I mean global supply chains will start to 
loosen up. The shortages will start to be lesser. If that does 
not happen and we see inflation becoming even more persistent 
and even higher, then I think the risk of it becoming 
entrenched in the psychology of businesses and households and 
people, I think that increases and that would indicate that we 
would respond.
    Senator Ossoff. Thank you, Chair Powell. You have noted 
that the Fed and many mainstream economic forecasters had 
difficulty anticipating the supply chain bottlenecks, the labor 
shortages, the difficulty with which the global economy would 
add supply in response to the return of demand and demand 
stimulated by Government policy.
    How can the Fed improve its modeling such that it is not 
surprised by those macroeconomic dynamics in a future crisis?
    Mr. Powell. So I think this is a unique situation. We do 
not have ten pandemics to look back on and say, ``Oh, these are 
the common features when the global economy shuts down to deal 
with a global pandemic.'' It was all just new, and the problem, 
strictly speaking, is not the models. It is the assumptions you 
put in the models. So I would not blame the models. Really it 
just is that we and other forecasters, we believed, based on 
our analysis and discussions with people in industry, that the 
supply side issues would be alleviated more quickly than now 
appears to be the case, substantially more quickly. We believed 
that we would have seen material relief on the supply side, 
that we also thought, you know, by the end of last year.
    We also thought that there would be a much more significant 
return to the workforce than has turned out to be the case. And 
while that is not what is causing current inflation, it is more 
a kind of demand side issue that labor supply can be an issue 
going forward for inflation, probably more than the supply side 
issues, these supply chain issues that we are seeing.
    So we assumed, we believed that we would see these things, 
and, you know, the data have come in pretty consistently 
showing that the supply side challenges are more persistent and 
more substantial than we had expected.
    Senator Ossoff. Thank you, Chair Powell. I want to discuss 
with you the institutional integrity, public confidence in 
institutions, ethics among those who hold high office and have 
privileged access to information. I am an advocate for banning 
stock trading by Members of Congress who make policy, who have 
access to information and economic forecasting, and banning 
stock trading by their spouses, and I will be introducing 
legislation this week intending to make that the law, with 
penalties for Members of Congress who violate those new rules.
    We had, this week, the resignation of another senior Fed 
official related to controversy about their stock trading. How 
widespread is the practice of stock trading, management of 
one's own portfolio at senior levels in the Fed? Do you agree 
that it undermines public confidence in the institution? Will 
you work with this Committee to advance legislation? I know the 
Chairman has proposed some, to end that practice, and will you 
comply with any lawful requests or commands for records or 
information by this or other congressional committees to 
examine those trades and their propriety?
    Mr. Powell. Well to the latter, of course we will do that.
    So I would just point out we have, immediately upon the 
emergence of these facts, we began to devise a brand-new system 
of governing investment by principles and senior staff 
associated with the FOMC. That process is very far along. It is 
nearing completion. We have already announced the contours of 
it, and it effectively ends any ability to actively trade on 
the part of any senior Fed official, either FOMC member or 
senior staff.
    You cannot purchase any equities. If you bring equities to 
the Fed, ownership of equities to the Fed, of course they 
cannot be in banks or anything like that, but you can sell 
them. But if you want to sell or buy anything you have to give 
45 days' notice, and it is nondiscretionary. Once you say you 
are going to do that then those securities will be bought or 
sold in 45 days. So there is no ability to time the market.
    In addition, we are going to have a group at the Board of 
Governors here in Washington that is preclearing trades, all 
trades, and is in a position to apply the rules consistently 
across the system. And I really think this is the strongest 
system I have seen in place certainly for a Government agency, 
and I think it rises to the current situation. I completely 
agree that the public's faith that we are working to their 
benefit is absolutely critical.
    Senator Ossoff. Thank you, Chair Powell. And will you 
provide the outlines of that proposal to this Committee as soon 
as possible?
    Mr. Powell. We have already announced it, and we are very 
much at the point of being ready to adopt it. But of course we 
would be delighted to share that.
    Senator Ossoff. I am looking forward to seeing the details. 
It is vital that the public understand that those in positions 
of power are not trading based upon access to information that 
the general public does not have.
    Thank you, Chair Powell, for your testimony today. I yield 
back, Mr. Chairman.
    Chairman Brown. Senator Daines, from Montana, is 
recognized.
    Senator Daines. Mr. Chairman, thank you. I want to start by 
expressing my continued concerns my colleagues have had with 
inflation we are seeing in the economy. The last time you were 
here before the Committee real wages were down. Well, they are 
still down as we sit here today, 1.9 percent over the course of 
2021, to be more precise, and I believe it is a direct result 
of this inflation that we are seeing.
    CPI inflation grew by 6.8 percent, year over year, in 
November. Tomorrow morning we are going to get the CPI rating 
for December. I think we all know it is not going to be good 
news for hard-working Montanans, hard-working Americans who are 
seeing their wages eaten away, month after month, by inflation.
    Economists are projecting that CPI inflation will rise 
about 0.5 percent on a month-to-month basis in December, which 
will leave CPI inflation up at 7.1 percent in 2021. This would 
be the biggest annual increase in 40 years, and is well above 
the Federal Reserve's 2 percent target.
    This, of course, is not that surprising, to many of us who 
were here in this very room who warned this would happen when 
our Democrat colleagues passed this very reckless $1.9 trillion 
spending package in March of this year, when the economic 
recovery was already well underway, and we pointed out there 
was nearly $1 trillion of unspent funds coming into calendar 
year 2021. The Democrats, on a purely partisan basis, pushed 
another $1.9 trillion of reckless spending in March.
    Frankly, we should be thankful at this moment that most 
recent, multitrillion-dollar reckless tax and spending spree 
package did not pass last year, as that would only worsen the 
problems we are seeing today.
    I trust the Federal Reserve is on the case to address this 
inflation. I want to make sure that we here in Congress do not 
do anything to make your job more difficult than it already is.
    Moving away from inflation, I would like to briefly address 
the Federal Reserve's dual mandate. Chairman Powell, I think it 
is safe to say the Federal Reserve has its hands full already 
trying to achieve its statutorily mandated goals of promoting 
maximum employment and stable prices. However, many have called 
for expanding the Fed's role to wade into politically charged 
issues for the first time. The Federal Reserve has a long 
history of political independence, and I worry that 
independence could easily be undermined.
    Chairman Powell, will you commit to strictly following the 
Fed's dual mandate and not expanding it in ways that are not 
clearly supported by the law?
    Mr. Powell. Yes.
    Senator Daines. I know Senator Crapo mentioned this earlier 
so I will just add brief additional remarks on the Fed's report 
on the costs and benefits of a central bank digital currency. 
It is a topic that we want to start discussing here, so it 
would be helpful to have the Federal Reserve's insights. And I 
very much appreciate that you are working to get this report 
out in the next few weeks.
    My question, Mr. Chairman, is, the FSOC recently designated 
climate change as an emerging threat to financial stability. 
Can you describe a sequence of climate-related events that 
would cause a financial crisis?
    Mr. Powell. So it is a good question. There are two 
different kinds of risk, right. There is physical risk and then 
there is transition risk. So physical risk tends to be, you 
know, these risks in the form of extreme weather and that kind 
of thing, and they kind of accumulate over time gradually. And 
to have a financial stability disruption, something that 
actually threatens the financial system, it does not result 
from that kind of a process. So it does not seem likely in the 
near term that it would come from physical risk.
    So that means the real risk would be transition risk, and 
what that means is some surprising event would have to take 
place that destabilized the whole financial system and maybe 
caused a very large financial institution to fail in a 
disorderly way.
    How would that happen? It conceivably could happen through 
Government policy, or it could come through an event, some kind 
of a public event that really, not unlike the pandemic only 
related to climate in some way.
    So those are the kinds of things. These are not things that 
we think about will happen every day, but, you know, it is more 
a question of over time what can happen from climate.
    Senator Daines. So just a follow-up to that. This morning I 
was with Chairman Manchin of Energy and Natural Resources 
Committee, which I serve on. We had a hearing on hydropower. 
And there is a movement afoot in this country to breach 
hydropower dams, to breach dams. We have already seen blackouts 
in the U.S. and other countries because of forced closures of 
reliable baseload energy, whether it was the nuclear plants 
that have been shut down, coal plants that have been shut down. 
They are talking about breaching dams.
    Do you think that rolling blackouts due to a lack of a 
stable baseload power poses a more tangible and real near-term 
threat to the stability of the financial system?
    Mr. Powell. I would have to think about that. I will say 
that to have a successful--if you are someone who wants to see 
a transition away from carbon-based energy, you know, we are 
going to need a lot of energy to facilitate that transition, 
and I think that means we need to be honest about having to 
rely on more traditional kinds of power.
    Senator Daines. Yeah. But what is mind-boggling to me--and 
this will be my last comment, Mr. Chairman, and I will finish--
but what is mind-boggling means we have sources of energy that 
do not emit carbon, like nuclear, like hydropower, and yet we 
see these ideological movements that are seeking to shut down 
nuclear plants, shut down hydropower, in some cases, which I 
think pose a significant risk to the stability of the grid as 
well as to our financial system.
    Mr. Chairman, thank you.
    Chairman Brown. Thank you, Senator Daines.
    Senator Toomey is recognized for one last round of 
questioning, and I will finish up. Thank you.
    Senator Toomey. Thank you, Mr. Chairman. I want to start by 
just underscoring a point that Senator Daines just made, which 
I think is extremely important, and I do not think we made it 
until he made that point, which is that every month that goes 
by in which inflation, in the form of consumer prices, is 
growing faster than wages are gaining is a month in which 
workers are falling behind. There has been some comment about 
wage gains. I think we would all like to see wage gains. But 
wage gains that are more than wiped out by price increases do 
not leave a family better off.
    And so it is not a contradiction. It is not somehow 
contrary to the interest of a working family to get price 
stability. In fact, it is necessary for the well-being of the 
working families of Pennsylvania and America that we bring 
about price stability.
    Mr. Chairman, two quick questions for you, one regarding a 
central bank digital currency. Some have advocated, as you 
know, that a central bank digital dollar be used and developed 
in such a fashion that individual Americans have retail 
accounts with the Fed and the Fed becomes the retail banker for 
America. It seems to me that there is absolutely nothing in the 
history, the experience, the expertise, the capabilities of the 
Fed that lend the Fed to being a retail bank. Is that a fair 
observation?
    Mr. Powell. I would say it is, yes.
    Senator Toomey. Thank you. Second, I know we are going to 
get our report soon, and I am very much looking forward to 
this, as you and I have discussed. But I wonder if you could 
respond to this. If Congress were to authorize, and the Fed 
were to pursue a central bank digital dollar, is there anything 
about that that ought to preclude well-regulated, privately 
issued stablecoins from coexisting with a central bank digital 
dollar?
    Mr. Powell. No. Not at all.
    Senator Toomey. All right. Thank you very much. Thank you, 
Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    Chair Powell, you have responded three times, I believe, to 
this issue, but I wanted to try to get a little more 
specificity from Senator Cortez Masto, Senator Ossoff, and 
Senator Warren. The recent revelations about the Vice Chair's 
financial transactions before the Fed announced its 
extraordinary support of the economy in 2020 are pretty 
troubling, as you and I have talked and you have responded to 
here.
    After the initial fallout from Fed officials making stock 
trades you announced stricter trading rules at the Fed. That 
was, I believe, in October. Those rules have still not been 
written, to my knowledge. We have not seen them, if they have 
been written, so they certainly obviously have not been 
implemented.
    When will these rules--when will we see them and when will 
they be put in place?
    Mr. Powell. Imminently. We have tried to take care and 
write them correctly. They are complex. We have to hire people, 
we have got to build systems, and we have got to write rules. 
So we have been hard at work at that since October. We are 
ready to move ahead with that, and I would think it is in the 
very near future.
    Chairman Brown. OK. We are watching. Several of my 
colleagues, Senator Warnock and Senator Ossoff, mentioned it. 
His bill and our bill complement and do some of the same 
things, the importance of banning conflicting trading at the 
Fed. We should move also with our colleagues too, so that is a 
next step in this.
    I want to, before closing, address one issue that came up 
today. You have said banks were well capitalized during the 
pandemic. They had one of their most profitable years ever. But 
the largest banks still are spending it on stock buybacks and 
bigger dividends while still demanding relief for policy 
measures because of the volume of the deposits they are taking 
in. Government help can be necessary but they do not need 
Government help now.
    They should scale back. They could and should and can scale 
back their stock buybacks. Banks could use that capital to 
increase lending to small businesses, mom-and-pop 
manufacturers.
    We have seen manufacturing wages, which used to be the 
highest wages in our economy, particularly for sort of 
moderate-income people, we have seen that slide back, in part 
because mom-and-pop manufacturers critical to the supply chain 
are not always getting the access to capital they should. We 
should use that capital to increase lending, to invest in 
communities instead of enriching their executives while pushing 
to weaken resiliency of our banking system.
    The Fed needs to strengthen, not weaken, capital 
requirements. It is the job of our banking system to support 
the real economy, not executive stock portfolios. That is what 
this comes down to. Everything the Fed does needs to support 
the economy so that it works for all Americans--workers, small 
businesses, their communities.
    That is the Fed. You must lead, if confirmed. I plan to 
support your confirmation. I am counting on this, as most of in 
the Senate are.
    So, Chair Powell, thank you for being here today. Thank you 
for providing testimony.
    Senators who wish to submit questions for the hearing 
record, those questions are due at the close of business on 
Friday, the 14th of January. To the nominees, we would like to 
have your responses by Wednesday, January 19th.
    Thank you again for your testimony today. The Committee on 
Banking, Housing, and Urban Affairs is adjourned. Thank you.
    [Whereupon, at 12:27 p.m., the hearing was adjourned.]
    [Prepared statements, biographical sketch of nominee, and 
responses to written questions supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    Yearning for a return to normalcy, American voters elected Joe 
Biden President of the United States.
    The American people were exhausted by divisive rhetoric at 
neighborhood functions, church gatherings, and family dinners.
    They wanted someone who would bring this country together based on 
our shared values, like the dignity of work. They wanted an economy 
that works for everyone--not just wealthy elites.
    That is what we are delivering.
    Think of where our country was a year ago.
    Domestic terrorists breached this building a year and a week ago, 
assaulting our democracy.
    Four million more people were out of a job, and the hope of 
vaccines, for everyone, was just that--a hope.
    Today, we have made so much progress.
    We have a president committed to democracy--willing to stand in 
this breach, as he put it last week.
    Vaccines and booster shots have dramatically lowered the risk for 
most people, and allowed Americans to go back to work and our children 
to go back to school, safely.
    We added 6.4 million jobs last year--6.4 million jobs--the most 
since 1939.
    The nomination we consider today represents another step in 
President Biden's effort to rebuild our economy. And the president is 
putting results over partisanship, renominating a Federal Reserve chair 
of the other political party.
    Jerome Powell has served as Chair of the Federal Reserve since 
2018. He joined the Fed in 2012. Before that, he served the country in 
a number of different roles, including as Under Secretary for Finance 
at the Treasury Department during the George H.W. Bush administration.
    As Chair, together with President Biden, he has helped us deliver 
historic economic progress.
    We passed the American Rescue Plan, which got shots in arms and 
money in pockets. The unemployment rate dropped to 3.9 percent, down 
from 6.7 percent at the end of the last Administration. In December 
alone, we added 807,000 jobs--more than doubling economists' 
expectations.
    The economy has regained 84 percent of the jobs we lost since the 
pandemic hit 2 years ago. And for some of my colleagues who only like 
to measure the strength of the economy by the stock market--it was up 
27 percent at the end of 2021 and hit 70 record highs last year.
    We passed an historic jobs bill, the bipartisan infrastructure 
package--a goal that has for decades eluded presidents of both parties.
    Chair Powell--along with Vice Chair nominee Lael Brainard, whom we 
will hear from later this week--led the Federal Reserve's unprecedented 
actions to stabilize our economy in the face of a global pandemic.
    Chair Powell, to his credit, recognized the importance of full 
employment--and what that means for all workers, particularly those at 
the margins of our economy. He held firm against attempts to politicize 
the Fed, and prevented an economic downturn from becoming far worse.
    He understands that the best way to bounce back from this crisis is 
to get the coronavirus under control with vaccines.
    Today, we are at a critical moment. For the first time in decades, 
workers are finally--finally--starting to get a little bit more 
bargaining power. Wages are growing faster than we've seen in over a 
decade.
    Americans are leaving jobs that didn't work for them and their 
families, and finding better ones--often with higher paychecks. 
Corporations call this a, quote, ``labor shortage.'' To me it looks 
like the free labor market at work at its best.
    Of course we still have many challenges.
    We have seen severe supply chain disruptions caused by the 
pandemic. And because for decades corporations put short-term profits 
over long-term resilience--enabled by bad trade deals and bad tax 
policy that they lobbied for--those fragile supply chains stretch all 
over the globe, and aren't easily fixed. These disruptions--along with 
corporate opportunism--are raising the cost of many consumer goods.
    That's adding to all the costs that have been growing more 
unaffordable for decades, from childcare to prescription drugs to 
housing.
    And while paychecks are starting to go up, wages are still far from 
keeping up with corporate profits. We have only just begun the work of 
empowering American workers, and reorienting our economy from Wall 
Street to Main Street.
    Yet some are already suggesting the Fed pull back on its support of 
the broader economy, and make it harder for people to get jobs.
    Economists' lingo tends to mask what we're really talking about 
when it comes to the Fed's work, so let's be clear--President Biden put 
it pretty well last week:
    Taking the example of the price of cars, he said we have two 
options: we can increase the supply of cars by making more of them, or 
we can reduce demand for cars by making Americans poorer.
    That's the choice we face. When people talk about ``cooling off'' 
the economy, what they really mean is making it harder for people to 
find jobs and stopping paychecks from growing.
    And we know how this goes--the ``cooling off'' never seems to 
extend to corporate profits or executives' pay.
    The Fed must not allow only Wall Street to recover, while working 
Americans are left behind. We've seen that story unfold too many times 
before.
    Today, banks are quietly celebrating one of their most profitable 
years ever, with huge bonuses and payouts.
    The Fed must do more to stop consolidation in the banking industry 
from hurting consumers and small businesses. It must encourage more 
lending to Main Street, and crack down on stock buybacks and risky bets 
at the biggest banks.
    And the Fed needs to take seriously the systemic risks that 
threaten our economic progress--like cryptocurrencies and stablecoins 
and climate change.
    Chair Powell has shown he understands--in his words--``profound 
challenges for the global economy and.financial system,'' and if 
confirmed, we expect him to take what he has promised will be ``bold 
steps'' to tackle these risks.
    Chair Powell and Vice Chair nominee Brainard have also begun 
important work with the FDIC and the OCC to update the Community 
Reinvestment Act regulations. Completing that update is essential, to 
increase banks' service to, and investment in, all the communities that 
have been left on their own for too long.
    We also expect reform inside the Federal Reserve System.
    That means increasing diversity at the Fed, so that the people 
making decisions for our economy actually reflect the workers who power 
it.
    As Chair Powell has said, ``If entrenched inequities prevent some 
Americans from participating fully in our labor markets, not only will 
they be held back from opportunities, but our economy overall will not 
realize its potential.''
    Many of us have appreciated his words. This year, we expect action.
    In all of this work, the American people must be able to trust that 
the Federal Reserve works for them, and that officials aren't abusing 
their positions for personal gain.
    Recent revelations about the Fed's ethics scandal have confirmed a 
lot of people's worst suspicions about Government officials. As Chair 
of the Fed, Mr. Powell has a responsibility to restore that trust.
    The Federal Reserve plays a central role in how we want our economy 
to work. We can't have a Fed that returns to business as usual--because 
that didn't work for most Americans.
    Chair Powell, President Biden renominated you to grow the economy 
for all Americans, not just those at the top. And to protect that 
growth from threats to our financial system, like risky Wall Street 
schemes, cryptobubbles, and increasing climate disasters.
    We expect you to meet these challenges, and I believe you have 
shown the leadership to do so. We will be watching closely.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Thank you, Mr. Chairman.
    Chairman Powell, congratulations on your renomination. As I've 
said, I intend to vote in favor of extending your chairmanship. Let me 
briefly explain why.
    There's broad bipartisan backing for Chairman Powell's renomination 
because he has a record of acting thoughtfully and constructively, 
especially in difficult circumstances.
    First, he implemented a number of modest, sensible reforms that 
reduced regulatory burdens, including on small banks, and helped spur 
economic growth. Second, when the pandemic hit nearly 2 years ago--and 
Governments worldwide began to shut down their economies--credit 
markets seized and the economy teetered on the brink of collapse. But 
with Congress' help, Chairman Powell acted swiftly and appropriately to 
stabilize the financial markets and the economy.
    And to his critics who claim that the regulatory reforms he 
spearheaded would hasten the collapse of the banking system, we now 
know that's empirically false. After the pandemic caused the economy to 
nearly collapse, our country emerged with the most well-capitalized 
banks in history. It was, and still is, abundantly clear that those 
regulatory reforms did not come at the expense of financial stability.
    Of course, none of the Fed's pandemic actions came without a cost. 
This negative-real interest rate environment continues to distort 
markets, risk asset bubbles, and punish savers. And the Fed has 
dramatically expanded its balance sheet with trillions in Government 
bonds, effectively monetizing a lot of debt, facilitating profligate 
Government spending.
    For the past 18 months, I cautioned that the Fed was fighting the 
last war--a mystery pathogen that led Governments to collectively shut 
down the global economy--when a new enemy is here: Inflation.
    I'm relieved the Fed has acknowledged inflation is running well 
above and longer than its initial projections. In response, the Fed has 
accelerated the termination of its bond buying program. And FOMC 
participants appear to be accelerating the process to normalize 
interest rates.
    But I remain concerned with the Fed's actions going forward. First, 
I worry that this has become the new normal for the Fed's monetary 
policy. We're more than a year into record economic expansion, with 
unemployment at near all-time lows, and yet the Fed is still buying 
Government and agency securities.
    Having continued QE throughout the recovery was a mistake. It has 
contributed to asset bubbles, distorted markets, and a suboptimal 
allocation of capital, credit, and resources, ultimately leading to 
lower economic growth.
    Second, I worry that the Fed's new monetary policy framework has 
caused it to be behind the curve, as we are seeing with inflation 
running at a 39-year high. Under this framework, the Fed intentionally 
tolerates above target inflation for an indeterminate amount of time. 
Under the old approach, the Fed may have acted last April when we first 
passed 4 percent inflation.
    Beyond monetary policy, I'm deeply concerned to see the Fed, 
especially at the regional banks, wade into politically charged areas 
like global warming and so-called racial justice. Regional banks have 
hosted symposia on these issues that consistently embrace and advance a 
liberal political agenda.
    And the Fed itself joined the Network of Central Banks and 
Supervisors for Greening the Financial System. The network's stated aim 
is to use financial regulation to ``mobilize mainstream finance to 
support the transition toward a sustainable economy.'' In other words, 
to direct credit away from the fossil fuel sector.
    The troubling politicization of the Fed puts its independence and 
effectiveness at risk. The Fed has been granted operational 
independence to protect monetary policy from short-sighted political 
interests. And in turn, the Fed has operated largely apolitically to 
great effect.
    There's a kind of bargain here: the Fed is given independence on 
the assumption it will only engage in areas in which it has a mandate. 
That makes sense.
    But if the Fed is going to stray from its mandate and become a 
political actor, advocating a certain set of social policies, then 
there's no way it's going to maintain its independence from the 
political branches of Government that are actually responsible for 
those topics.
    The Fed does not have a mandate to advance politically charged 
causes that are irrelevant to its mandate, like addressing global 
warming or advancing so-called racial justice. And to make matters 
worse, when I've sought to understand these developments, I've been met 
with unacceptable noncompliance.
    Let me be clear--if this politicization continues unchecked--it 
will not end well for the Fed or for independently driven monetary 
policy. As the Fed's leader, I hope you take this seriously and rein it 
in to protect the Fed's legitimacy and independence.
    I've observed that the Fed has had the good sense to adjust its 
behavior as the facts and circumstances regarding inflation have come 
in differently than they expected. Unfortunately, we've seen no such 
humility or recognition of reality from the Biden administration, or 
our Democrat colleagues.
    They appear set on making the inflationary problem worse with more 
reckless spending that gooses demand and regulatory and protectionist 
policies that limit supply, that in combination ultimately push prices 
for basic goods higher. The crisis we face now is inflation complicated 
by policymakers who unwisely behave as if it's still March 2020.
    The Fed cannot correct for policy failures like school closures, 
Government-induced business shutdowns, or misguided expansions of the 
welfare State--nor should it try.
    Chairman Powell, the role of the Fed Chairman is crucial for our 
shared economic prosperity. I was encouraged to see your renomination, 
and I hope that you will do everything in your power to ensure that the 
Fed operates within its limited mandate to effectively support the 
American economy.
                                 ______
                                 
                 PREPARED STATEMENT OF JEROME H. POWELL
 To Be Chairman of the Board of Governors of the Federal Reserve System
                            January 11, 2022
    Chairman Brown, Ranking Member Toomey, and other Members of the 
Committee, thank you for the opportunity to appear before you today. I 
would like to thank President Biden for nominating me to serve a second 
term as Chair of the Board of Governors of the Federal Reserve System. 
I would also like to thank my colleagues throughout the Federal Reserve 
System for their dedication, perseverance, and tireless work on behalf 
of the American people. Their commitment and expertise were essential 
to the Fed's response to the COVID-19 crisis and remain vital to the 
implementation of monetary policy as our economy continues to progress. 
Particular thanks go to my wife, Elissa Leonard, and our three 
children, Susie, Lucy, and Sam. Their love and support make possible 
everything I do. My five siblings are all watching, and we are thinking 
of each other and of our parents today with love and gratitude.
    Four years ago, when I sat before this Committee, few could have 
predicted the great challenges that would soon become ours to meet.
    On the eve of the pandemic, the U.S. economy was enjoying its 11th 
year of expansion, the longest on record. Unemployment was at 50-year 
lows, and the economic benefits were reaching those most on the 
margins. No obvious financial or economic imbalances threatened the 
ongoing expansion. But this attractive picture turned virtually 
overnight as the virus swept across the globe.
    The initial contraction was the fastest and deepest on record, but 
the pain could have been much worse. As the pandemic arrived, our 
immediate challenge was to stave off a full-scale depression, which 
would require swift and strong policy actions from across Government.
    Congress provided by far the fastest and largest response to any 
postwar economic downturn. At the Federal Reserve, we used the full 
range of policy tools at our disposal. We moved quickly to restore 
vital flows of credit to households, communities, and businesses and to 
stabilize the financial system.
    These collective policy actions, the development and availability 
of vaccines, and American resilience worked in concert, first to 
cushion the pandemic's economic blows and then to spark a historically 
strong recovery.
    Today the economy is expanding at its fastest pace in many years, 
and the labor market is strong.
    As always, challenges remain. Both the initial shutdown and the 
subsequent reopening of the economy were without precedent. The economy 
has rapidly gained strength despite the ongoing pandemic, giving rise 
to persistent supply and demand imbalances and bottlenecks, and thus to 
elevated inflation. We know that high inflation exacts a toll, 
particularly for those less able to meet the higher costs of essentials 
like food, housing, and transportation. We are strongly committed to 
achieving our statutory goals of maximum employment and price 
stability. We will use our tools to support the economy and a strong 
labor market and to prevent higher inflation from becoming entrenched.
    We can begin to see that the postpandemic economy is likely to be 
different in some respects. The pursuit of our goals will need to take 
these differences into account. To that end, monetary policy must take 
a broad and forward-looking view, keeping pace with an ever-evolving 
economy.
    Over the past 4 years, my colleagues and I have continued the work 
of our predecessors to ensure a strong and resilient financial system. 
We increased capital and liquidity requirements for the largest banks--
and currently, capital and liquidity levels at our largest, most 
systemically important banks are at multidecade highs. We worked to 
improve the public's access to instant payments, intensified our focus 
and supervisory efforts on evolving threats such as climate change and 
cyberattacks, and expanded our analysis and monitoring of financial 
stability. We will remain vigilant about new and emerging threats.
    We also updated our monetary policy framework, drawing on insights 
from people and communities across the country, to reflect the 
challenges of conducting policy in an era of persistently low interest 
rates.
    Congress has assigned the Federal Reserve important goals and has 
given us considerable independence in using our tools to achieve them. 
In our democratic system, that independence comes with the 
responsibility of transparency and clear communication, to keep the 
public informed and enable effective legislative oversight. That duty 
takes on even greater significance when the Fed must take extraordinary 
actions in times of crisis. In order to facilitate that transparency, 
and to earn your trust and that of the American people, I have made it 
a priority to meet regularly and frequently with you and your elected 
colleagues. I commit to continuing that practice if I am confirmed to 
another term.
    The Federal Reserve works for all Americans. We know our decisions 
matter to every person, family, business, and community across the 
country. I am committed to making those decisions with objectivity, 
integrity, and impartiality, based on the best available evidence, and 
in the long-standing tradition of monetary policy independence. That 
pledge lies at the heart of the Fed's mission and is one we all make 
when we answer the call to public service. I make it here again, with 
force and without reservation.
    Everything we do at the Federal Reserve is in pursuit of the goals 
set for us by Congress. I am honored to have worked in service to those 
ends since I joined the Fed in 2012, and as Chair for the past 4 years.
    Thank you. I look forward to your questions.

            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                     FROM JEROME H. POWELL

Q.1. Chair Powell, you recently stated that in your career, you 
``have seen the best and most successful organizations are 
often the ones that have a strong and persistent commitment to 
diversity and inclusion.'' Yet, according to the New York 
Times, just 1 percent of all economists at the Fed are Black 
and less than 10 percent of them are Hispanic. I appreciate 
that in your nomination hearing, you emphasized the importance 
of a diverse workforce for full employment, including at the 
Fed. What steps will you take to ensure racial equity in hiring 
at the Fed? Will you commit to furnishing this Committee with a 
report by July 1st of this year, if confirmed, identifying the 
Fed's progress in hiring more economists and staff from diverse 
backgrounds?

A.1. To foster diversity, we must develop an overall culture of 
inclusion at all levels, starting at the top. The Federal 
Reserve Board (Board) reviews and assesses our employment 
policies, procedures, and practices and works closely with 
stakeholders to address any barriers that may not align with 
the Board's values in fostering an inclusive working 
environment. Board leaders continue to engage in strategies 
that support effective recruitment and development goals. For 
example, we have implemented an Ambassador outreach program in 
which Board employees from diverse backgrounds representing a 
variety of job families, including economics, may participate. 
This program is designed to attract candidates to the Board by 
providing information about the Federal Reserve and the 
Ambassadors' experience working at the Board.
    We offer voluntary classes in leadership development, 
mentoring, and skill enhancement as part of career development 
and succession planning. In addition, we will continue to 
support the American Economics Association summer programs for 
economics-centered internships, and to work closely with other 
minority and women's professional organizations such as the 
Sadie Collective to advance opportunities for minorities in the 
economics profession. To promote accountability for addressing 
possible bias in the recruitment and promotion process, hiring 
officials will continue to attend workshops on recruiting 
without bias, and we will continue to ensure that interview 
panels include people with diverse backgrounds.
    In addressing the challenges of increasing diversity in the 
economics profession, we are collaborating with the G7 Central 
Banks to identify leading practices and resources that will 
enable recruitment of economists from a broader set of research 
areas in order to attract more diverse candidates and better 
support the diversity of perspectives, experiences, and skill 
sets needed to fulfill our mission. In addition, our economics 
divisions (Research and Statistics, Monetary Affairs, 
International Finance, and Financial Stability) will continue 
to collaborate on a variety of diversity and inclusion 
initiatives to support and encourage increased representation 
of women and minority groups in the economics profession. These 
initiatives involve partnerships with outside organizations--
such as the American Economic Association, the Bank of England, 
the European Central Bank, the National Economic Association, 
and the American Society of Hispanic Economists--as well as 
Federal Reserve System and internal efforts.
    With regard to your question on reporting, the Board's 
Office of Minority and Women Inclusion annually reports to 
Congress outlining its activities, successes, and challenges. 
The appendices of this report provide the Board's Employer 
Information EEO-1 Report, as well as the combined data for 
official staff demographics of the Board and Reserve Banks, the 
demographics of Federal Reserve System boards of directors, and 
the total contract payments by the Board and Reserve Banks to 
minority- and women-owned businesses. As required by section 
342 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, the Board will continue to provide this 
information annually. Our next report will be forthcoming at 
the end of March.

Q.2. What specific measures will you use to evaluate the 
success of the Federal Reserve in understanding and addressing 
the needs of Black, Indigenous and people of color (BIPOC)? 
And, will you keep Congress apprised, as appropriate, on the 
progress being made on these measures?

A.2. The Federal Reserve devotes considerable attention to 
analyzing differences in income, wealth, employment, and other 
economic outcomes for Black, Indigenous, and people of color, 
women, and communities across regions of the country to help us 
better understand the implications of such differences for the 
economy's functioning. The Federal Reserve regularly reports 
the outcomes of these efforts to Congress and the public 
through various reports and testimonies, all of which are 
posted on our website.
    Some specific examples of the data collection work that we 
have undertaken include:

    The Distributional Financial Accounts (DFAs). The 
        DFAs provide quarterly estimates of wealth, assets, and 
        debt by race and ethnicity.

    The Survey of Household Economics and 
        Decisionmaking. Since 2013, the Board has conducted the 
        Survey of Household Economics and Decisionmaking, which 
        measures the economic well-being of U.S. households, 
        including across racial and ethnic groups, and 
        identifies potential risks to their finances.

    The Survey of Consumer Finances (SCF). The SCF is a 
        long-running data product of the Board. For the 2022 
        SCF, Board staff have worked to improve the SCF's 
        ability to measure wealth disparities across racial and 
        ethnic groups by increasing the sample size for these 
        groups. These improvements to the SCF will allow us--
        for the first time--to estimate the wealth holdings of 
        Asian families separately; in addition, it will permit 
        us to look more closely at subsets of Black and 
        Hispanic families.

    The Small Business Credit Survey. This survey 
        covers a national sample of small businesses 
        (businesses with fewer than 500 employees) and provides 
        information on firms' financing needs and access to 
        credit, with a focus on startups, minority-owned firms, 
        women-owned firms, rural firms, and self-employed and 
        gig workers.

    Data from these surveys as well as research and analysis 
based on these data are available in a number of public 
formats, including a section of the Board's website that 
provides easy access to the range of our data and research on 
economic disparities. The Federal Reserve also regularly 
presents relevant analysis in the semiannual Monetary Policy 
Report that we submit to Congress, such as the analysis we 
included in the February 2021 Monetary Policy Report on 
disparities in labor market outcomes across demographic groups 
and for workers at various places in the wage distribution.
    In addition, the Federal Reserve System and the Board have 
undertaken or encouraged analysis of these topics in the 
following ways:

    The Board and the Federal Reserve Banks of Atlanta, 
        Minneapolis, and St. Louis have set up research centers 
        that investigate the causes of economic and financial 
        disparities across demographic groups. For example, the 
        Board has become a member of the Central Bank Network 
        for Indigenous Inclusion, which seeks to foster ongoing 
        dialogue, research, and education to raise awareness of 
        economic and financial issues and opportunities around 
        Indigenous economies. The Board's participation is 
        supported by the Center for Indian Country Development 
        at the Federal Reserve Bank of Minneapolis and the 
        Economic Education Partnership with Indian Country at 
        the Federal Reserve Bank of St. Louis.

    Building on previous work, the Board and Reserve 
        Banks partnered to convene research conferences in 2021 
        that focused on uneven outcomes in the labor market.

    The Federal Reserve also supervises and enforces laws and 
regulations designed to advance economic opportunity to people 
and communities of color by promoting fair and equal access to 
credit and financial services and preventing illegal 
discrimination. We have rigorous processes and robust programs 
to implement the laws and regulations in the following areas, 
and the Federal Reserve's work in these areas is reported to 
Congress in our Annual Report.

    Community Reinvestment Act (CRA): Implementation of 
        the CRA is a crucial mechanism for addressing 
        persistent systemic inequity in the financial system 
        for low- and moderate-income (LMI) and minority 
        individuals and communities. CRA evaluations carefully 
        review and rate banks on how well they meet the 
        investment, credit, and banking services needs of their 
        local communities, which are critical to advancing 
        economic opportunity, including by promoting access to 
        home ownership, small business loans, and education. 
        The Board is working with the Federal Deposit Insurance 
        Corporation (FDIC) and the Office of the Comptroller of 
        the Currency (OCC) to propose revisions to regulations 
        that would strengthen the CRA's role in meeting the 
        credit needs of communities of color by encouraging 
        investment in minority depository institutions, women-
        owned financial institutions, low-income credit unions, 
        community development financial institutions, and 
        encouraging investment in Indian Country and colonias.

    Fair Lending Laws: As a supervisor of financial 
        institutions, we enforce both the Fair Housing Act and 
        the Equal Credit Opportunity Act, the Federal fair 
        lending laws that prohibit discrimination in lending. 
        Under these authorities, we have a robust supervisory 
        approach to make sure banks have strong programs to 
        ensure fairness in their lending and address any 
        findings of discrimination to ensure that bank policies 
        or practices do not close off opportunities to access 
        credit that advance economic opportunity. Supervisory 
        evaluations for CRA and fair lending are also taken 
        into account when evaluating proposals for mergers and 
        acquisitions.

    Minority Depository Institutions (MDIs): The 
        Federal Reserve recognizes the importance of MDIs, 
        which have an explicit mission to serve the banking and 
        credit needs of minority consumers and communities and 
        understand the challenges inherent in providing access 
        to credit and other financial services in traditionally 
        underserved areas. In collaboration with the FDIC and 
        OCC, the Federal Reserve's Partnership for Progress 
        (PFP) program is dedicated to supporting the 
        preservation of MDIs to ensure these financial 
        institutions can thrive and support an inclusive 
        financial system. In 2021, the Federal Reserve expanded 
        the programmatic work to include Women's Depository 
        Institutions (WDIs) to ensure that PFP resources are 
        also available to WDIs. The agencies' activities are 
        reported annually to Congress in the Annual Report on 
        Promoting Minority Depository Institutions.

    Further, the Federal Reserve has a long-standing commitment 
to community development, establishing programs at each of the 
12 Reserve Banks and the Board in 1984. This function promotes 
economic growth and financial stability for LMI communities and 
individuals by conducting and publishing research and convening 
community development stakeholders interested in working 
together to address challenges and create new investment 
opportunities.
    To help inform the work of community development 
practitioners, researchers, lenders, and policymakers, the 
Federal Reserve produces publications and convenes events to 
disseminate research, data, and perspectives on issues related 
to advancing economic opportunity for traditionally underserved 
populations and areas.

Q.3. What is your plan for creating an inclusive working 
environment for employees within your office?

A.3. I place a high value on setting a tone of inclusiveness 
and openness in my office. An inclusive working environment is 
critical to enable all employees to fully engage in their work 
and to feel valued and respected. It is important to provide a 
venue and a process for employees to have the ability to freely 
and confidently share feedback on their workplace. I have 
supported the implementation of an Engagement Survey. Feedback 
from this process has led to enhancing career development 
opportunities, creating a Board-wide mentoring program, 
implementing diversity and inclusion training events, and 
addressing safety to speak up.

Q.4. Where have you excelled in past positions in attracting, 
hiring, and promoting people of color in positions in your 
organization? Where might there be room for improvement?

A.4. As Chair, I have internally and externally stated my 
strong personal belief in and support for a diverse and 
inclusive environment, including specifically identifying its 
importance as part of the Board's 2020-23 Strategic Plan. As 
Chair, I have also led quarterly meetings with staff at many 
levels from within the Board and the System to discuss and 
assess our progress in advancing diversity and economic 
inclusion. These meetings are a priority for me and my 
colleagues on the Board.
    I also speak regularly with staff about the importance of 
fostering diversity and inclusion. I meet with the Board's 
Director of the Office of Women and Minority Inclusion on a 
quarterly basis, and I have met with the chairs and cochairs of 
each of the Board's seven Employee Resource Groups \1\ on a 
number of occasions. We have created staff advisory groups at 
the division level to work with leadership to create action 
plans focusing on staff development and division inclusion 
activities. In an effort to learn from others, we have also 
hosted business and nonprofit leaders who have served on 
Reserve Bank boards of directors to discuss what has worked 
well in developing a culture of diversity and inclusion at 
their organizations.
---------------------------------------------------------------------------
     \1\ The Board's employee resource groups include: Advocacy for the 
Diverse Abilities, Needs, and Contributions of Employees (ADVANCE) 
Employee Resource Group; African American Employees Resource Group; 
Asian American Pacific Islander Employee Resource Group; Hispanic 
Employee Resource Group; LGBTQA Employee Resource Group; Veterans 
Employee Resource Group; and Women's Employee Resource Group.
---------------------------------------------------------------------------
    As Chair, I have encouraged and strongly supported the 
considerable outreach we do to diverse candidates in our 
recruiting of staff. This includes participating in minority 
recruitment events at Historically Black Colleges and 
Universities (HBCUs), Hispanic-Serving Institutions (HSI), and 
Hispanic professional conferences and career fairs. Our 
outreach is particularly notable as we hire recent college 
graduates as full-time research assistants, a position which 
can be an important step towards a career in economics.
    We are also reviewing our recruiting and hiring practices 
to identify and implement ways in which we can further increase 
the pool of diverse qualified candidates. As a result of our 
ongoing review, we have started to broaden the research 
specializations within economics from which we have typically 
hired economists. Recruiting from a broader set of research 
areas not only may draw more diverse candidates, but also 
better supports our mission by ensuring broader skill sets and 
perspectives.
    Under my leadership as Chair, the Board has leveraged its 
award-winning internship program to offer students on-the-job 
experience and learning. The program is a way to create a 
diverse job candidate pool for our entry-level positions. The 
Board has also implemented job board and resume database access 
to expand diversity sourcing initiatives with the National 
Black MBA Association and National Society of Black Engineers.
    Over the last 4 years, my colleagues and I have worked to 
develop the pipeline of economists from under-represented 
groups. We have welcomed diverse groups of students--at the 
high school, undergraduate, and graduate levels--to the Board 
both in person and through online events to discuss career 
opportunities, the work that we do, and diversity in the 
profession. We are collaborating closely with the American 
Economic Association (AEA) and with Howard University, 
including committing staff resources over the next 5 years to 
teach an Advanced Research Methods class to undergraduate and 
masters level students at the AEA Summer Training Program, 
which is being hosted by Howard University.
    My colleagues and I are also supporting research on and 
awareness of the factors that are holding back diversity and 
inclusion in economics. For example, in November 2021, we 
hosted a conference on Diversity and Inclusion in Economics, 
Finance, and Central Banking, along with three other central 
banks.
    Prior to becoming the Chair of the Board, I was chair of 
the Board's Committee on Reserve Bank Affairs, responsible for 
overseeing Reserve Bank operations. With respect to the process 
of selecting Reserve Bank presidents, we have focused over the 
past 7 years on ensuring that Reserve Bank boards reflect the 
communities that they serve, in terms of personal 
characteristics, as well as professional experience and 
educational background. Research has shown that diverse hiring 
committees have more success in identifying and attracting 
diverse talent. The directors who serve on these boards play 
the lead role in appointing presidents and other senior Reserve 
Bank leaders. During my tenure as the chair of the Committee on 
Reserve Bank Affairs, I also worked with Reserve Bank boards of 
directors and presidents to specifically align expectations for 
the Reserve Bank president position and developed a set of key 
dimensions for the role. In addition, I oversaw the overhaul of 
the Reserve Bank president search process, leveraging best 
practices I learned from my previous leadership roles and 
outreach to various communities. Aligning expectations and 
having robust search processes are important steps in assuring 
that search committees have the opportunity to consider a 
broader set of candidates who are diverse in professional, 
academic, and personal background. These changes--both to 
Reserve Bank boards and the appointment process--have helped 
diversify the sectoral, professional, racial, and gender makeup 
among the Reserve Bank presidents. More work is needed in 
furthering diversity across the senior ranks of the Federal 
Reserve System, and I am committed to working with the Reserve 
Banks to further leverage effective practices in the senior 
leadership search processes.

Q.5. Twenty years ago, Wall Street marketed over-the-counter 
derivatives and subprime mortgages as ``financial innovation'' 
and a way to manage risks and expand opportunity. Without 
regulation, these products failed and upended the financial 
system. We hear the same type of marketing about cryptocurrency 
today--that it's innovative, secure, and expands inclusion. 
They also market stablecoins as an alternative to the American 
dollar, which you mentioned in the hearing is strong and in 
demand across the world. What risks do you see to working 
families from cryptocurrency and stablecoins? Further, what do 
you believe is the Fed's role in protecting the economy from 
the risks of crypto assets?

A.5. Like any new financial technology, crypto assets may 
create potential benefits, but they also pose a range of risks, 
including those related to safety and soundness, anti- money 
laundering, illicit finance, and--as you note--consumer 
protection. It is vital that the United States maintain a 
strong financial regulatory system that adheres to the 
principle of same activity, same risks, same regulation for all 
financial activity, including novel asset classes such as 
crypto assets.
    The Board continues to monitor financial services 
innovation involving crypto assets, including the potential 
risks to the financial system. As you know, the Board's 
regulatory and supervisory authority is generally limited to 
activities conducted by depository institution holding 
companies, State member banks, and their nonbank affiliates. 
The Federal Reserve is committed to supporting responsible 
innovation in banking, but is focused on ensuring the safety 
and soundness of banking institutions and the financial system 
more broadly. The Federal Reserve is also committed to working 
with our interagency counterparts to tackle novel risks in the 
financial system, such as those raised by the growth of crypto 
assets.
    Stablecoins that may be used as a means of payment, like 
other payment innovations, are of particular concern in light 
of their rapid growth and asserted promise of stability. 
Stablecoins may improve efficiencies, increase competition, 
lower costs, and foster broader financial inclusion, but they 
also pose risks such as run risk, payment system risk, systemic 
risk, and risks related to the concentration of economic power. 
The President's Working Group on Financial Markets, together 
with the other Federal banking agencies, has recommended that 
Congress move promptly to enact legislation that would ensure 
payment stablecoins and payment stablecoin arrangements are 
subject to a consistent and comprehensive Federal regulatory 
framework.
    More broadly, the Board is working in conjunction with the 
other Federal banking agencies to better understand the risks 
associated with crypto-asset-related activities, including 
those related to cryptocurrencies, and to develop an 
appropriate, coordinated response. As noted in the recent 
interagency statement on this topic, the agencies are engaging 
in policy work focused on providing greater clarity on whether 
certain activities related to crypto assets conducted by 
banking organizations are legally permissible and, if so, how 
these activities can be conducted safely. The agencies expect 
to provide further clarity on these issues throughout 2022. The 
Board, also in conjunction with the other Federal banking 
agencies, works closely and frequently with the Financial 
Crimes Enforcement Network on matters relating to the Bank 
Secrecy Act and anti- money-laundering policy and regulatory 
issues, including those related to digital assets such as 
cryptocurrency.

Q.6. Recently, the Fed approved mergers that created banks with 
$560 billion, $450 billion, and even $1 trillion in assets. 
Bank mergers often lead to closed branches, decreased financial 
inclusion, less access to capital for small businesses. How do 
you prioritize community needs and financial stability in 
reviewing bank mergers?

A.6. The Federal Reserve is committed to promoting financial 
inclusion, and to the premise that all Americans should have 
access to affordable banking services regardless of where they 
live. The Federal Reserve is required to review bank merger and 
acquisition (M&A) proposals under the relevant statutory 
factors set forth in the Bank Holding Company Act and the Bank 
Merger Act and takes seriously its responsibility for doing so. 
Under these statutes, the Federal Reserve is required to 
consider, among other things, the managerial resources of the 
organizations involved and the proposed combined organization. 
As part of its evaluation of the managerial factor, the Federal 
Reserve considers the involved institutions' records of 
compliance with laws and regulations, including those related 
to consumer protection.
    The Federal Reserve is also required to consider the 
effects of a bank M&A proposal on the convenience and needs of 
the communities to be served by the resulting financial 
institution. In evaluating the convenience and needs factor, 
the Federal Reserve considers whether the involved institutions 
are currently helping to meet the credit needs of their 
communities, as well as the potential effects of the proposal 
on these communities. This includes considering the records of 
the involved institutions under the CRA, their consumer 
compliance records, the results of their recent fair lending 
examinations, as well as the number and locations of branches 
proposed to be closed as a result of the merger and the 
potential impact of closures in LMI and majority-minority 
areas.
    Because a bank's CRA performance is taken into account in 
the Board's review of bank M&A proposals, I should also note 
the Federal Reserve's ongoing work to strengthen and modernize 
the CRA. In 2020, the Federal Reserve released an Advance 
Notice of Proposed Rulemaking (ANPR) on the CRA regulations. 
\2\ In July, the Federal banking agencies took a significant 
step forward by announcing that we are working together on 
strengthening CRA regulations. \3\ I believe that the Board's 
ANPR will serve as a sound framework for our interagency 
efforts.
---------------------------------------------------------------------------
     \2\ Community Reinvestment Act, 85 FR 66410, 66412 (Oct. 19, 
2020).
     \3\ See https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20210720a.htm.
---------------------------------------------------------------------------
    The Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act) added financial stability as a statutory 
factor the Board must consider when evaluating M&A proposals 
under the Bank Holding Company Act and the Bank Merger Act. In 
analyzing the financial stability considerations associated 
with a proposed banking merger, the Board assesses the systemic 
footprint of the resulting firm and the incremental effect of 
the transaction on the acquirer's systemic footprint. Since the 
enactment of the Dodd-Frank Act, the Board has not approved any 
acquisition by a global systemically important bank (GSIB) that 
resulted in a material increase in its systemic footprint or 
any M&A transactions that would create a GSIB. Further, the 
Board has made substantial improvements to its regulatory 
framework to mitigate systemic risk since the 2008 financial 
crisis, including through the adoption of stricter bank capital 
and liquidity requirements, as well as other enhanced 
prudential standards under the Dodd-Frank Act. Under the 
Board's regulatory and supervisory framework, as banking firms 
grow larger--whether organically or through M&A--they face an 
increasingly stringent set of prudential requirements.

Q.7. As I mentioned in my opening statement, when the Federal 
Reserve's only remedy against inflation is to raise interest 
rates, it is ordinary Americans who bear the brunt, becoming 
locked out of employment and losing access to affordable credit 
in service of ``cooling off'' the economy. In the past, the 
Federal Reserve has raised interest rates prematurely, hurting 
workers in the process. How is this time around different? As 
Chair, how will you work to ensure that the Federal Reserve 
takes lessons from our history to inform future monetary policy 
frameworks, especially given that, as you shared during your 
testimony, the higher prices we are seeing are heavily impacted 
by pandemic-related supply constraints?

A.7. The labor market is very strong, and I expect that it will 
strengthen further, although the pandemic will continue to 
prevent or discourage some from re-entering the workforce. Job 
openings and quits are at record levels, and nominal wages are 
rising at the fastest rate in decades. Wage gains have been 
concentrated in the lowest quartile of earners and among 
production and nonsupervisory workers. The labor market does 
not suffer from a lack of demand, but from restrained supply 
resulting from the pandemic. Many people are still unable or 
unwilling to return to the workforce because of factors such as 
caregiving needs or fears of illness, which has limited firms' 
ability to attract workers.
    More broadly, strong aggregate demand and pandemic-
constrained supply have pushed inflation well above our 2 
percent objective. High inflation is most burdensome for those 
living on fixed income and struggling to pay costs of basic 
necessities. One of the key lessons of the past, including 
those from the previous expansion, is that the biggest benefits 
of a strong labor market emerge over the course of a long 
expansion, particularly for families and residents of low-to-
moderate income communities. To return to the kind of economy 
we saw before the pandemic could require another long, 
sustained expansion, which will, in turn, require price 
stability and well-anchored longer-term inflation expectations. 
The Federal Open Market Committee will be discussing these 
issues at our coming meetings.

Q.8. Chair Powell, the Federal Reserve has not had a full Board 
of Governors since 2013. As we face a critical moment in our 
economic recovery, there is much work to be done. Do you agree 
that the Federal Reserve would benefit from a full Board?

A.8. As you are aware, the Federal Reserve has many functions, 
and members of the Board contribute a broad range of views to, 
and share responsibility for, fulfilling that work. Under the 
Federal Reserve Act, the Board can take any authorized action 
with the Board members that are serving. I have served with as 
few as three members, and as many as seven. I have 
significantly benefited from the range of views my colleagues 
contribute to our deliberations.

Q.9. During your time as Chair, did you ever prevent another 
member of the Board from expressing his or her views or refuse 
to work with that member on an issue with which you disagreed? 
Do you commit to work with every member of the Board of 
Governors and attempt to find common ground?

A.9. I have served on the Board for nearly 10 years and have 
occupied the position of Chair for nearly 4 years and, in my 
experience, the Board is a highly collaborative environment 
where governors with different views work together in good 
faith to conduct the business of the Board. I welcome diverse 
opinions and have never prevented other governors from 
expressing their views. I have worked to continue to foster the 
Board's collegial and collaborative culture, and I commit to 
continue to do so if I am confirmed for a second term as Chair.
                                ------                                


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

Q.1. Economists often describe quantitative easing (QE) as 
working through a ``term premium effect.'' QE pushes down long-
term yields by reducing the supply of Treasury debt and 
mortgage bonds.
    To the best of your understanding, how much do the Fed's 
portfolio holdings reduce the current 10-year Treasury yield? 
If uncertain, provide a plausible range.
    What models or analyses inform your estimate of the Fed 
portfolio's TPE?

A.1. The financial and economic effects of quantitative easing 
have been a topic of economic research for decades. \1\ 
Following the Global Financial Crisis in 2008, the literature 
on the financial and economic effects of quantitative easing 
expanded greatly. Various authors have identified a range of 
possible channels through which quantitative easing may affect 
financial conditions and the overall economy, including a 
portfolio balance channel, duration channel, and signaling 
channel, among others. \2\ These various channels of influence 
work through both the term premium embedded in longer-term 
Treasury yields and the expected future path of short-term 
interest rates. Vayanos and Vila (2021) \3\ is one study that 
has provided a theoretical basis for understanding the effects 
of quantitative easing. The term structure model of Li and Wei 
(2013) \4\ has been an important framework underlying many of 
the Federal Reserve's empirical estimates of the effects of 
quantitative easing on the term structure of interest rates. 
Numerous authors have studied the effects of quantitative 
easing in foreign economies. While the estimates vary 
considerably, most papers find evidence that quantitative 
easing can have important effects on the level of longer-term 
yields and other asset prices. These changes in financial 
conditions, in turn, can have meaningful macroeconomic effects. 
\5\
---------------------------------------------------------------------------
     \1\ One of the earliest papers focusing on the effects of changes 
in the supply of Treasury securities in the hands of the public on the 
level of longer-term Treasury yields is Modigliani, Franco, and Richard 
Sutch (1967), ``Debt Management and the Term Structure of Interest 
Rates: An Empirical Analysis of Recent Experience'', Journal of 
Political Economy, 74, August, pp. 569-589.
     \2\ See, for example, Krishnamurthy, Arvind, and Annette Vissing-
Jorgensen (2011), ``The Effects of Quantitative Easing on Interest 
Rates: Channels and Implications for Policy'', Brookings Papers on 
Economic Activity, 42, Fall, pp. 215-265; D'Amico, Stephania, William 
English, David Lopez-Salido, and Edward Nelson (2012), ``The Federal 
Reserve's Large-Scale Asset Purchase Programmes: Rationale and 
Effects'', Economic Journal, 122, November, pp. 415-446; Bauer, Michael 
D., and Glenn D. Rudebusch (2014), ``The Signaling Channel for Federal 
Reserve Bond Purchases'', International Journal of Central Banking, 
September, pp. 233-289, and Bhattarai, Saroj, and Christopher Neely 
(2016), ``A Survey of the Empirical Literature on U.S. Unconventional 
Monetary Policy'', Federal Reserve Bank of St. Louis Working Paper, 
October. In addition, monetarist literature's account of how asset 
purchases can lower bond yields and stimulate the economy when the 
short-term interest rate is at its lower bound is quite similar to what 
we have laid out in describing our asset purchases. For example, see 
Edward Nelson (2013), ``Friedman's Monetary Economics in Practice'', 
Journal of International Money and Finance, vol. 38, no. 1, pp. 59-83.
     \3\ Vayanos, Dmitri, and Jean-Luc Vila (2021), ``A Preferred-
Habitat Model of the Term Structure of Interest Rates'', Econometrica, 
89, January, pp. 77-112.
     \4\ Li, Canlin, and Min Wei (2013), ``Term Structure Modeling with 
Supply Factors and the Federal Reserve's Large Scale Asset Purchase 
Programs'', International Journal of Central Banking, 9, March, pp. 3-
39.
     \5\ See, Engen, Eric, Thomas Laubach, and David Reifschneider 
(2015), ``The Macroeconomic Effects of the Federal Reserve's 
Unconventional Monetary Policies'', Finance and Economics Discussion 
Series, Board of Governors of the Federal Reserve, January.
---------------------------------------------------------------------------
    Calculating the effects of the increase in the Federal 
Reserve's total portfolio of securities holdings on the 10-year 
Treasury yield is complicated because such effects work through 
the entire expected future path of securities holdings. That 
said, the estimates from various studies of the effects of 
securities holdings, summarized in Gagnon (2016), \6\ provide a 
reasonable range. According to Table 1 in this study, the 
median of the estimated quantitative easing effects for the 
U.S., reported across a range of papers, is about 70 basis 
points for quantitative easing purchases, amounting to 10 
percent of nominal GDP. Over the period from 2019 Q4 to 
present, the Federal Reserve's securities holdings increased as 
a share of nominal GDP from about 17 percent to about 35 
percent. Using the 70-basis point figure, this 18 percentage 
point increase in the Federal Reserve's securities holdings as 
a share of nominal GDP since the onset of the pandemic, all 
else equal, may have lowered the level of the 10-year Treasury 
yield by roughly 125 basis points. Of course, the range of 
uncertainty around any estimate of this type is quite large. 
While this estimated effect of the increase in the Federal 
Reserve's securities holdings on longer-term yields is sizable, 
the effect would be expected to fade over time once asset 
purchases conclude and as the size of the Federal Reserve's 
balance sheet relative to nominal GDP returns to a more normal 
level.
---------------------------------------------------------------------------
     \6\ Gagnon, Joseph (2016), ``Quantitative Easing: An 
Underappreciated Success'', Peterson Institute for International 
Economics, Policy Brief, April.

Q.2. Traditional monetarist analysis suggests a different 
transmission mechanism for QE: the money supply. QE increases 
the amount of reserves in the banking system. A greater level 
of reserves earning a near-zero return drags down return on 
equity, incenting banks to increase lending. Lending boosts 
bank deposits, and therefore the money supply. In turn, all 
else equal, the greater money supply increases aggregate 
demand--and in the long run, prices.
    Do you believe this mechanism is important for explaining 
the transmission of monetary policy? Please explain your view 
and share any relevant research.
    Or if you do not yet have an informed view, will you commit 
to studying it further and briefing me and my staff?

A.2. The traditional textbook account of deposit creation--
according to which increases in the quantity of reserves in the 
banking system give rise to a multiplied expansion of the money 
supply via the commercial banking system increasing its loans 
and investments--can be of value in understanding the behavior 
of commercial banks' reserve balances and their deposit 
liabilities in past historical episodes. In recent decades, 
however, this theory has been of much more limited value in 
understanding the process of money creation, as the 
relationship between bank reserves and bank deposits has 
weakened considerably in the United States.
    With regard to the relationship between the money supply, 
aggregate demand, and prices, the M2 monetary aggregate once 
had a reasonably stable connection with total spending in the 
economy, and it was widely argued that M2 growth provided a 
useful signal about the future course of the inflation rate. 
For the past 30 years, however, financial innovation, related 
changes in regulation, and the lower level of nominal interest 
rates have substantially altered the link between M2 and 
economic activity. M2 has not been a reliable indicator of 
spending, inflation, the stance of monetary policy, or the 
degree of policy accommodation. Correspondingly, about a decade 
ago, M2 was dropped from the Conference Board's standard set of 
U.S. leading economic indicators.

Q.3. FOMC participants have re-evaluated their views on the 
appropriate path of policy in light of recent inflation. In the 
December 2021 Summary of Economic Projections, the median FOMC 
participant projected three rate hikes in 2022, up from one 
rate hike. All participants see inflation slowing. However, 
three rate hikes would only raise overnight rates to between 
0.75 percent and 1.00 percent. In real terms, interest rates 
would still be sharply negative. While these projections are 
not a committee forecast, these numbers suggest that 
participants generally believe that inflation will fall despite 
real interest rates remaining in negative territory.
    How can the Fed curtail inflation while real interest rates 
remain negative?
    Does this imply that the neutral interest rate is now 
negative, and so a less negative rate can be contractionary?

A.3. The elevated levels of inflation we have experienced 
reflect a mismatch between demand and supply. Some of the 
sectors of the economy that have experienced very strong 
demand, especially those involving goods, have hit supply 
constraints. We expect inflation to start coming down this year 
as a result of both an increase in supply and a moderation in 
demand. That said, we do not think that the current imbalance 
between demand and supply will be fully resolved this year. 
Elevated inflation is currently the foremost threat to the 
achievement of maximum employment.
    Monetary policy cannot address supply constraints, but it 
can affect demand. This is a reason why, as you noted, the 
median Federal Open Market Committee (FOMC) participant in 
December saw three rate hikes in 2022 as appropriate. But, if 
the economy evolves broadly as anticipated, rate hikes this 
year would be only part of our actions to curtail inflation. 
For instance, the median FOMC participant in December saw 
additional rate hikes as appropriate for next year (2023) and 
beyond, taking the real Federal funds rate out of negative 
territory. In this context, it is important to note that demand 
and inflation pressures respond not just to the current level 
of the Federal funds rate but also to its expected path. 
Indeed, longer-term interest rates, which encompass the 
expected trajectory of the Federal funds rate, are most 
relevant for economic activity.
    In addition to our communications regarding the expected 
future path of the Federal funds rate, we have already made 
strides toward ending our net asset purchases, which we expect 
will end in early March. We have also started discussions about 
reducing the size of our securities holdings, and will continue 
those discussions at coming FOMC meetings.
    As you noted, in the December 2021 Summary of Economic 
Projections, the median FOMC participant projected three rate 
hikes in 2022. This median view is based on a set of 
expectations for how the economy will evolve, including an 
expectation that inflation will move down substantially over 
the course of the year. We will act as needed to curtail above-
target inflation if the data do not support that view.

Q.4. In the past, you have testified about the role of fiscal 
policy in supporting monetary policy when it is constrained by 
the zero lower bound. In your view, fiscal policy can support 
aggregate demand when the Fed's primary tool (the overnight 
interest rate) is constrained. We have now seen the troubling 
result of that support: tremendous inflation. And rather than 
fix our long-term budget issues, my Democrat colleagues want to 
continue deficit spending. Others have proposed radical changes 
to the Fed's framework for monetary policy, such as allowing 
for negative nominal interest rates, or purchasing corporate 
bonds and equities. None of these radical proposals address the 
root issue: the neutral interest rate has fallen close to zero.
    Do you agree that the potential growth rate is closely 
connected to the neutral rate?

A.4. Yes. The growth rate of potential output is one of the key 
factors that determines an economy's neutral rate. However, 
many other factors can affect the neutral rate, including the 
growth rates of population and the labor force, the expected 
length of people's retirements, the share of near-retirement 
age workers relative to retirees, the distribution of income, 
the capital intensity of the production process, and the price 
of investment goods. These factors affect the supply and demand 
for savings, and therefore interest rates, and many of them 
factors also affect potential growth.

Q.5. All else equal, for each percentage point increase in the 
potential growth rate, how much would the neutral rate 
increase? If uncertain, provide a plausible range.

A.5. As I noted in my answer to 4(a), it is quite difficult to 
estimate the relationship between potential real GDP growth and 
the neutral interest rate, as there are many interacting 
factors at play. But on the basis of the current State of 
economic research, it is plausible that for each percentage 
point increase in the potential real U.S. GDP growth rate, the 
longer-run value of the neutral real interest rate would 
increase by 0.4 to 1 percentage point. \7\
---------------------------------------------------------------------------
     \7\ On the 0.4 percent estimate, see Borio, Claudio, Piti 
Disyatat, Mikael Juselius, and Phurichai Rungcharoenkitkul (2017), 
``Why So Low for So Long? A Long-Term View of Real Interest Rates'', 
BIS Working Paper No. 685, December, Table 8. On the 1 percentage point 
estimate, see the discussion on pp. S62-S63 of Holston, Kathryn, Thomas 
Laubach, and John C. Williams (2017), ``Measuring the Natural Rate of 
Interest: International Trends and Determinants'', Journal of 
International Economics, 108, Supplement 1, May, pp. S59-S75.

Q.6. In your view, what is the current neutral rate? If the 
neutral rate were to rise, at what level would the zero lower 
---------------------------------------------------------------------------
bound no longer be a salient concern for monetary policy?

A.6. Some perspective on how individual FOMC participants 
assess the value of the longer-run neutral rate is provided by 
December SEP. The median participant's longer-run projected 
value of the Federal funds rate was 2.5 percent. All 
participants in December projected a longer-run inflation rate 
equal to our 2 percent objective, implying a median longer-run 
neutral real interest rate of 0.5 percent. \8\ Pricing in 
markets for inflation-protected Treasury securities likewise 
suggests that the longer-term value of the real interest rate 
is low. We expect that the lower bound on nominal interest 
rates will be a salient concern in the setting of monetary 
policy for the foreseeable future.
---------------------------------------------------------------------------
     \8\ See, https://www.federalreserve.gov/monetarypolicy/files/
fomcprojtabl20211215.pdf.

Q.7. What models or analysis informs your estimate of the 
neutral rate, as well as the relationship between the neutral 
---------------------------------------------------------------------------
rate and the potential growth rate?

A.7. Although the neutral rate of interest is an important 
conceptual tool, it is also an unobserved variable that changes 
over the business cycle and over longer time frames. Numerical 
estimates of the rate will depend on the economic model and 
estimation procedure used. Members of the Board and the FOMC 
look at estimates of the neutral rate of interest based on a 
variety of models. Although such estimates can provide useful 
inputs into policymakers' projections and deliberations, all 
estimates are associated with considerable uncertainty. 
Policymakers also take into account information from other 
sources, such as their observations of the economy and their 
discussions with market participants and observers.
    In deciding on monetary policy, FOMC participants likely 
have different views about the importance they attach to 
estimates of the neutral rate and in the weights they give to 
the various estimates. In addition, the pandemic and its 
economic effects have considerably complicated the 
interpretation of estimates of the neutral rate, particularly 
in the case of estimates of shorter-term and medium-term 
concepts of the rate. The FOMC as a whole has not adopted an 
official model of the neutral rate or a preferred estimate of 
that rate, and I do not assume that we know with confidence the 
level of the neutral rate at any point in time.

Q.8. At a Financial Stability Oversight Council (FSOC) meeting 
in 2021, Treasury Secretary Yellen expressed potential systemic 
concerns resulting from ``liquidity risks'' associated with 
open-end mutual funds and money market funds. It is concerning 
that this will be used to justify an overreaching regulatory 
regime for both products.
    Do you believe that money market funds should be eliminated 
as an investment vehicle?

A.8. Properly structured, money market funds can play an 
important role in the financial system. However, amid recent 
financial stresses, we have seen that the incentive of 
investors in prime funds and tax-exempt funds is to rush to 
redeem, especially if they anticipate that others are or will 
soon be doing so. This incentive contributed to destabilizing 
redemption waves in 2008 and 2020, both of which placed extreme 
stress on the broader financial system, threatening its ability 
to function and support business activity and employment, and 
that ultimately required Government intervention backed by 
taxpayers. The Securities and Exchange Commission (SEC) has 
primary jurisdiction over money market funds and has recognized 
these risks. I defer to the SEC, as the primary regulator, to 
pursue the appropriate reforms.

Q.9. Do you support retaining the viability of open-end mutual 
funds as an investment vehicle?

A.9. As with money market funds, properly structured, open-end 
funds can play an important role in the financial system. Open-
end mutual funds, particularly funds that hold fixed-income 
assets like bonds or loans, experienced unprecedented investor 
outflows during March 2020, and their large asset liquidations 
contributed to the distress in markets ranging from those for 
U.S. Treasury securities to those for municipal and corporate 
bonds that ultimately required Government intervention backed 
by taxpayers. The Federal Reserve, as a member of the Financial 
Stability Oversight Council (FSOC) and in the context of the 
Interagency Working Group for Treasury Market Surveillance 
(IAWG), continues to work with the SEC and other relevant 
agencies to better understand the events of March 2020. I would 
defer to the SEC as the primary regulator of open-end mutual 
funds, regarding the regulation of those types of investments.

Q.10. If confirmed, will you respect the SEC's jurisdiction to 
regulate money market funds?

A.10. Yes.

Q.11. Do you believe that the in-kind redemption mechanism for 
exchange-traded funds (ETFs) presents different liquidity 
concerns than cash redemptions from traditional mutual funds? 
If you believe there is a difference, please explain how that 
affects your views on how to regulate ETFs.

A.11. Exchange Traded Funds (ETFs) have different liquidity 
risks than open-end funds or money market funds, and my 
understanding is this does affect how the SEC approaches their 
regulation. Authorized Participants (APs), usually large 
financial institutions that are regulated by the Federal 
Reserve, typically create or redeem shares in ETFs, mainly in 
exchange for securities, rather than cash. As a result, the 
incentive to redeem early is usually not present in ETFs. 
However, it is important that APs understand and manage the 
risks of ETF transactions and that investors, shareholders, and 
others understand the role of APs.

Q.12. On July 12, 2016, former Federal Reserve Governor Daniel 
Tarullo described the term ``shadow banking'' as evoking a 
``sense of something hidden, furtive even'' in a speech.
    Do you believe this term should apply to open-end mutual 
funds registered with the SEC?

A.12. As I noted in my response to Question 5, properly 
structured, open-end funds can play an important role in the 
financial system.

Q.13. In 2018, the House of Representatives voted 406-4 in 
favor of the JOBS and Investor Confidence Act. Section 1501 of 
that legislation would have replaced the Dodd-Frank Act's 
stress test requirement applicable to SEC- and CFTC-regulated 
entities with an authorization to adopt rules requiring 
periodic analyses of financial condition, including available 
liquidity, of such entities under adverse economic conditions.
    Do you support this modification that the JOBS and Investor 
Confidence Act would have made?

A.13. As you know, the Board's regulatory and supervisory 
authority is generally limited to activities conducted by 
depository institution holding companies, State member banks, 
and their nonbank affiliates. As required by the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, certain large 
firms that we supervise are subject to company-run stress 
testing requirements. I would defer to Congress, and to the 
expertise of the relevant Federal financial regulatory 
agencies, on the appropriate scope of company-run stress 
testing requirements for financial companies not supervised by 
the Board.

Q.14. I am concerned about the FSOC's designations of 
Systemically Important Financial Institutions (SIFIs). A SIFI 
designation is troubling in part because it creates moral 
hazard: it formalizes an institution's ``too big to fail'' 
status and creates the expectation that the taxpayers will bail 
out a SIFI that falls into financial distress. Also troubling 
is FSOC's history of exercising its SIFI designation powers. 
Under the Obama administration, FSOC made overreaching SIFI 
designations of nonbanks in a nontransparent manner and without 
providing a clear path for de-designation. In 2019, FSOC issued 
a policy that made several improvements to the non-bank 
designation process. These included emphasizing that 
designation is a last resort, requiring cost-benefit analysis 
and an assessment not only of the impact of a risk but also the 
likelihood that it will be realized, as well as creating both 
predesignation and postdesignation ``off-ramps'' to help firms 
and regulators avoid or reverse SIFI designation by mitigating 
systemic risks.
    Will you commit that, if confirmed, you will support 
ensuring that FSOC:
    Continues to treat SIFI designation as a last resort;
    Maintains a transparent process for SIFI designation;
    Conducts robust cost-benefit analysis for all designations; 
and
    Provides institutions with the opportunity to avoid 
designation and, if designated, a path to reverse such 
designation?

A.14. I agree that Systemically Important Financial Institution 
designation should be reserved for circumstances where the 
systemic risks posed by the entity cannot be appropriately 
addressed by relevant agencies under their existing 
authorities; that designation should be done transparently; 
that designation should be informed by the best possible 
analysis of the potential benefits and costs; and that 
designation should not be a one-way street.

Q.15. Under what conditions, if any, would you support the FSOC 
or the Financial Stability Board (FSB) designating mutual 
funds, ETFs, and money market funds as nonbank SIFIs?
    In considering the systemic risks posed by mutual funds, 
ETFs, money market funds and other asset managers, I generally 
support the activities-based approach taken by the FSOC, SEC, 
and others. This approach prioritizes understanding and 
responding to the systemic risks of the activities undertaken 
by asset managers, such as maturity and liquidity 
transformation, rather than focusing on the entities 
themselves. Under this approach, the relevant agencies design 
regulations to limit the systemic risk of activities undertaken 
by all covered entities, rather than designating individual 
entities.
    The Financial Stability Board (FSB) does not have a process 
for designating asset managers as systemically important. And 
of course, FSB decisions are not binding on U.S. supervisors 
and regulators, who follow U.S. law in determining the 
appropriate supervisory and regulatory treatment of U.S. 
institutions.

A.15. Asset managers provide investment advice to clients. They 
do not bear the risk of investments made by their clients 
because asset managers do not own those assets.
    Should asset managers be designated by the FSOC or the FSB 
as nonbank SIFIs? If so, under what conditions?
    As I noted in my response to the previous question, I 
generally support an activities-based approach to understanding 
and responding to the systemic risks posed by asset management. 
Under this approach, individual asset managers are not subject 
to designation; rather, the appropriate agencies consider 
systemic risk when designing regulations for classes of 
institutions.

Q.16. Over the past few years, there have been several 
disruptions in the U.S. Treasury market (both cash and 
futures), which is generally considered to be the deepest and 
most liquid market in the world.
    Some Treasury market observers have expressed concerns 
about regulatory fragmentation, with responsibilities divided 
between five or more agencies. Others have called for specific 
regulatory reforms, including (1) mandatory central clearing, 
(2) amendments to bank capital rules, and (3) additional data 
collection.
    Do you believe that the current regulatory framework for 
oversight of the Treasury market is adequate? If not, what 
changes do you believe should be made?

A.16. Given the importance of Treasury markets, it is incumbent 
upon the U.S. official sector to ensure that the structure of 
these markets can meet current and future needs. The Federal 
Reserve is an active participant in the IAWG, and within that 
context Federal Reserve staff are intensively analyzing a range 
of potential reforms and whether they could help to improve 
Treasury market functioning in an effective manner. Many of 
these reforms, if they are pursued, would most naturally fall 
under the remit of other agencies, such as the SEC or Treasury, 
and we expect that those agencies would take the lead in such 
circumstances.
    While central clearing can have many benefits in terms of 
decreasing market risks, it also has the potential to impose 
certain costs on some market participants and to further 
concentrate risk in certain intermediaries. Any efforts to 
further encourage or mandate central clearing in the market for 
Treasury securities would require careful analysis in 
partnership with our agency colleagues. We continue to examine 
the potential benefits and costs of expanded central clearing, 
which may differ across the various segments of the Treasury 
market.
    The Federal Reserve is continuing to examine changes to our 
regulatory capital framework as we consider ways to improve 
Treasury market functioning. The Board has long preferred that 
leverage requirements be a backstop to risk-based capital 
requirements. When leverage requirements instead are a firm's 
most stringent capital requirement, it lowers incentives for 
the firm to hold low-risk assets, such as Treasuries. As noted 
in your question, responsibility for oversight of Treasury 
markets is divided across a number of agencies. While banks 
face a different regulatory environment than some other 
participants in Treasury markets, we believe that it is 
important to work with IAWG agencies in considering the 
regulatory environment for nonbanks as well and to seek to 
promote a consistent framework where possible.
    As you know, the Board has approved a final rule that will 
require depository institutions meeting certain thresholds for 
activity to report their Treasury and Agency debt and mortgage-
backed securities transactions through the Financial Industry 
Regulatory Authority's TRACE reporting system. This new 
requirement is scheduled to go into effect as of September 1, 
2022, in order to ensure that the covered banks have adequate 
time to prepare for the new reporting requirements. The Federal 
Reserve has previously worked closely with the Office of 
Financial Research on its collection of centrally cleared 
Treasury repo market data, and we are supportive of collecting 
similar data for the non-centrally cleared segment of this 
market.

Q.17. On September 25, 2020, the FSOC released a statement on 
its activities-based review of the secondary mortgage market. 
FSOC's statement affirmed the overall quantity and quality of 
the regulatory capital required by the Federal Housing Finance 
Agency's (FHFA) June 30, 2020, proposed rule to establish a new 
regulatory capital framework for Fannie Mae and Freddie Mac 
(each, a GSE). \9\ Specifically, FSOC stated that ``risk-based 
capital requirements and leverage ratio requirements that are 
materially less than those contemplated by the proposed rule 
would likely not adequately mitigate the potential stability 
risk posed by the Enterprises.'' \10\ FSOC also concluded ``it 
is possible that additional capital could be required for the 
Enterprises to remain viable concerns in the event of a 
severely adverse stress.'' (emphasis added). \11\ FSOC also 
committed to ``continue to monitor . . . FHFA's implementation 
of the regulatory framework to ensure potential risks to 
financial stability are adequately addressed.'' On December 17, 
2020, FHFA finalized a regulatory capital framework for the 
GSEs that included leverage ratio requirements that were 
identical to those in the proposed rule. \12\
---------------------------------------------------------------------------
     \9\ 85 FR 39,274.
     \10\ https://home.treasury.gov/system/files/261/Financial-
Stability-Oversight-Councils-Statement-on-Secondary-Mortgage-Market-
Activities.pdf
     \11\ Id.
     \12\ 85 FR 82,150.
---------------------------------------------------------------------------
    FHFA has since proposed reducing the regulatory capital 
required by both the risk-based capital requirements and the 
leverage capital requirements of FHFA's final rule. \13\
---------------------------------------------------------------------------
     \13\ 86 FR 53,230.
---------------------------------------------------------------------------
    In light of FSOC's commitment to monitor FHFA's 
implementation of the GSEs' regulatory framework, which 
includes the regulatory capital framework, did FHFA solicit 
input from the Board of Governors of the Federal Reserve System 
(the Fed) before proposing to reduce the aforementioned capital 
requirements? If yes, please provide a copy of those comments.
    Did the FHFA ask the Fed whether the proposed amendments to 
the GSEs' regulatory capital framework would adequately address 
potential risks to financial stability? If yes, please provide 
a copy of the Fed's response on this question.
    Has the Fed otherwise reviewed the proposed amendments to 
the GSEs' regulatory capital framework?

A.17. Board staff actively monitors potential developments in 
the financial markets, including proposed rules from other 
regulatory bodies that may have an impact on financial 
stability. As such, staff continues to assess the Federal 
Housing Finance Agency's (FHFA) proposed rulemaking. While 
Board staff and FHFA staff frequently interact on matters of 
mutual interest, FHFA did not seek the Board's input on the 
proposed amendment to its capital rule. Thus, there are no 
comments or responses to provide.

Q.18. FHFA's proposed amendments include a proposed reduction 
in the prescribed leverage buffer amount (PLBA). \14\ If 
finalized as proposed, the amendments would reduce each GSE's 
PLBA by two-thirds (from 1.5 percent of adjusted total assets 
to approximately 0.5 percent) and its PLBA-adjusted leverage 
capital requirements by one-quarter (from 4.0 percent of 
adjusted total assets to approximately 3.0 percent).
---------------------------------------------------------------------------
     \14\ 86 FR 53,230.

A.18. As a participant in FSOC's secondary market review, would 
FHFA's proposed amendments, if finalized, result in ``leverage 
ratio requirements that are materially less than those 
contemplated by [June 30, 2020] proposed rule''?
    As noted in my response to Question 12, Board staff 
continues to assess FHFA's proposed amendments to its capital 
rule. It is important that the GSEs are subject to risk-based 
capital requirements and leverage ratio requirements that are 
adequate to mitigate the potential stability risk posed by the 
enterprises.

Q.19. FSOC stated that ``a meaningful leverage ratio 
requirement that is a credible backstop to the risk-based 
requirements would address potential risks to financial 
stability by ensuring that the capital requirements are 
consistent with historical loss experiences during severe 
stresses while mitigating model, measurement, and related risks 
with a simple, transparent measure of risk.'' Taking into 
account the 20 percent risk weight floor on mortgage exposures 
(1.6 percent of the exposure amount), the floor on the stress 
capital buffer (0.75 percent of adjusted total assets), and the 
current sizing of each GSE's stability capital buffer (1.0 
percent and 0.7 percent of adjusted total assets for Fannie Mae 
and Freddie Mac, respectively), it appears exceedingly unlikely 
that a GSE's risk-based capital requirement could ever be less 
than the proposed leverage capital requirements of 3.0 percent 
and 2.9 percent for Fannie Mae and Freddie Mac, respectively, 
even if a substantial portion of a GSE's mortgage exposures 
were subject to the risk weight floor.
    As a participant in FSOC's secondary market review, and in 
light of the apparently very remote prospect that the GSEs' 
risk-based capital requirements could ever be less than the 
proposed leverage capital requirements, would the proposed 
amendments to the PLBA result in ``a meaningful leverage ratio 
requirement'' and would the proposed leverage capital 
requirements be ``a credible backstop to the risk-based 
requirements'' within the meaning of FSOC's statement?

A.19. As noted in my response to Question 12, Board staff 
continues to assess FHFA's proposed amendments to its capital 
rule. It is important that the GSEs are subject to risk-based 
capital requirements and leverage ratio requirements that are 
adequate to mitigate the potential stability risk posed by the 
enterprises.

Q.20. As part of its rationale for the proposed amendments to 
the PLBA, FHFA noted that ``Basel III standards require 
systemically important banks to hold a tier 1 capital leverage 
ratio buffer in excess of a 3 percent leverage requirement 
equal to 50 percent of a GSIB's higher loss-absorbency risk-
based requirements.'' FHFA also stated that it intended to 
amend the PLBA ``in a manner similar to the U.S. banking 
regulators' proposal to set the eSLR buffer to one-half of the 
GSIB surcharge'' and that ``a dynamic PLBA that is tied to the 
stability capital buffer would further align the [Enterprise 
Regulatory Capital Framework] with Basel III standards.'' 
Related to this, former Fed Vice Chair for Supervision Quarles 
recently said ``[w]ith respect to the enhanced supplementary 
leverage ratio (eSLR) that applies to U.S. global systemically 
important banks (GSIBs), the best way to address this problem 
is the approach endorsed by the Basel Committee: recalibrating 
the fixed 2-percent eSLR buffer requirement to equal 50 percent 
of the applicable GSIB capital surcharge, with corresponding 
recalibration at the bank level.'' \15\
---------------------------------------------------------------------------
     \15\ Governor Randal K. Quarles, ``Between the Hither and the 
Farther Shore: Thoughts on Unfinished Business'' (Dec. 2, 2021), 
available at www.federalreserve.gov/newsevents/speech/
quarles20211202a.htm.
---------------------------------------------------------------------------
    Importantly, a GSIB's eSLR buffer requirement is a percent 
of risk-weighted assets, while a GSE's stability capital buffer 
requirement is a percent of adjusted total assets. If the 
intent were to align FHFA's approach to the PLBA with the Basel 
Committee's approach to the eSLR buffer, would each GSE's 
stability capital buffer requirement first need to be converted 
to an equivalent that is expressed as a percent of risk-
weighted assets (e.g., by dividing the stability capital buffer 
requirement by the average risk weight of the GSE's assets 
(currently around 33 percent))?

A.20. Board staff actively monitors potential developments in 
the financial markets, including proposed rules from other 
regulatory bodies that may have an impact on financial 
stability. As such, staff continues to assess the FHFA's 
recently proposed amendments to its capital rule. I believe it 
is important that the GSEs face risk-based capital requirements 
and leverage ratio requirements that are adequate to mitigate 
the potential stability risk posed by the enterprises. I would 
be happy to have my staff reach out to your staff to discuss 
the structure and calibration of the Federal Reserve's Global 
Systemically Important Banks surcharge framework, as compared 
to the FHFA's proposed framework.

Q.21. Most stablecoins are pegged to the U.S. dollar, and many 
are used in international markets. Could stablecoins contribute 
to the dollar's use internationally?

A.21. The impact of U.S. dollar-pegged stablecoins on the 
international use of the dollar depends on a range of factors. 
The U.S. dollar is widely used around the world because of the 
size of the U.S. economy, its deep and liquid financial 
markets, the strength of U.S. institutions, and the commitment 
of the United States to the rule of law. For these reasons, 
many stablecoins choose to peg their value to the U.S. dollar. 
In general, if users outside of the United States who 
previously would have held assets or conducted transactions in 
another currency begin to do so with dollar-pegged stablecoins, 
then this would likely increase the global use of the dollar. 
However, the use of dollar-pegged stablecoins internationally 
could instead represent a substitution out of other dollar-
denominated assets, including cash rather than a net increase 
in global use of the dollar. The extent to which a dollar-
pegged stablecoin adds to dollar use abroad would also depend 
on how the stablecoin is used (primarily as a store of value, a 
medium of exchange, or both) and the dollar reserve policies of 
stablecoin issuers and virtual asset service providers.

Q.22. The ability to freely transact with each other is a 
fundamental component of our society, and the ability to do so 
without Government oversight should be essential to the 
creation of a U.S. central bank digital currency (CBDC).
    How important do you think individual privacy protections 
are in the design of a CBDC? What privacy measures do you think 
should be included in its design?

A.22. No decisions have been made on whether to pursue a CBDC 
in the United States, and the Federal Reserve does not intend 
to proceed with issuance of a CBDC without clear support from 
the Executive Branch and from Congress, ideally in the form of 
a specific authorizing law. I strongly believe that individual 
privacy is of fundamental importance in the design of any 
potential CBDC.
    The Board will be releasing a paper in the near future as a 
first step in a public discussion between the Federal Reserve 
and stakeholders about CBDCs. Soliciting feedback on the best 
ways to protect individual privacy will be a key component of 
that discussion.

Q.23. If the Fed receives authorization from Congress for the 
creation of a CBDC, there will still be many crucial decisions 
that the Fed will have to make regarding its design and 
implementation. If a CBDC is not adaptable, poorly designed, or 
excessively manipulated by the Government, the public will have 
other options to secure their privacy and ensure low-cost 
payment services.
    Could well-regulated, privately issued stablecoins serve as 
a check on the design and management of any American CBDC?

A.23. As noted in my response to Question 17, no decisions have 
been made on whether to pursue a CBDC in the United States. As 
the Federal Reserve evaluates whether a U.S. CBDC would be 
appropriate, one critical question is whether a CBDC would 
yield benefits more effectively than alternative methods. These 
alternative methods could include improvements to the existing 
U.S. payment system. Alternative methods could also include 
well-designed and appropriately regulated stablecoins.
    Well-regulated, privately issued stablecoins could coexist 
with a CBDC. In the future, it is possible that CBDCs, 
stablecoins, and other forms of money could serve different 
needs or preferences. It is important for all forms of money to 
be well-designed and appropriately regulated. For that reason, 
the President's Working Group on Financial Markets, together 
with the other Federal banking agencies, has recommended that 
Congress act promptly to enact legislation that would ensure 
payment stablecoins and payment stablecoin arrangements are 
subject to a consistent and comprehensive Federal regulatory 
framework.

Q.24. Over the past year, there has been an increasing backlog 
of bank merger applications pending Fed review. In recent 
months, some have come to believe that a de facto moratorium on 
bank mergers and acquisitions was in place at the Fed. As this 
Committee has seen in another area under its jurisdiction, 
namely, the Committee on Foreign Investment in the United 
States (CFIUS) process, an informal moratorium could be put in 
place by regularly sending requests for additional information 
to applicants and claiming that the application is not yet 
complete.
    Are you aware of any formal or informal effort at the Fed 
to delay the resolution of bank merger applications?
    Do you believe that the Fed's current merger approval 
process provides clear instructions to applicants such that 
they can reasonably expect to submit a complete application 
without multiple rounds of revisions and additional questions?
    Will you commit not to deliberately delay the bank merger 
application process, and to hold your staff accountable for 
doing the same?
    Will you commit to consider each application on its 
individual merits?

A.24. The Board continues to process each application as 
expeditiously as possible and within the applicable statutory 
deadlines, while ensuring that decisions are based on a 
complete record. In December 2021, the Board approved three 
bank merger applications, and the Reserve Banks approved 17 
additional bank merger applications under delegated authority.
    The Board takes seriously its responsibility to review each 
bank merger and acquisition (M&A) proposal on its individual 
merits under the relevant statutory factors set forth in the 
Bank Holding Company Act and the Bank Merger Act. These factors 
include the financial and managerial resources of the 
organizations involved and of the proposed combined 
organization; the convenience and needs of the communities to 
be served by the resulting institution; the Community 
Reinvestment Act performance of the involved depository 
institutions; the effectiveness of the parties in combatting 
money laundering; and the effects of the proposal on 
competition and financial stability.
    The Board provides clear instructions to applicants 
regarding the merger approval process. For example, applicants 
file applications pursuant to section 3 of the Bank Holding 
Company Act using the Board's Form FR Y-3, which is accompanied 
by instructions detailing the specific informational 
requirements applicable to each proposal. Notwithstanding those 
forms and instructions, requesting additional information, both 
from applicants as well as from other regulators, is integral 
to the Board's development of a complete record upon which to 
evaluate each of the relevant statutory factors. Additional 
information may be requested from applicants for a number of 
reasons, including because the information in the initial 
filing is unclear or incomplete, or because the proposal raises 
legal, supervisory, or policy issues.

Q.25. Congress established a set of requirements for the Fed 
review of bank merger applications under the Bank Holding 
Company Act (BHCA) by establishing specific factors for 
consideration. The statute does not give the agency discretion 
to depart from them. \16\ Further, BHCA sets a 91-day deadline 
for the Fed to approve or disapprove of the application after 
the record is complete. \17\ To ensure the Fed cannot ignore 
this deadline, Congress structured the law to automatically 
grant any merger application the Fed fails to act on within 
that timeframe. \18\ An express or de facto moratorium would 
appear to directly contravene the law.
---------------------------------------------------------------------------
     \16\ See, Bank Holding Company Act, 12 U.S.C. 1842(c)(1).
     \17\ Id. 1842(b)(1).
     \18\ Id. 1842(b)(1).
---------------------------------------------------------------------------
    Will you commit to review complete bank merger applications 
expeditiously, as required by law?
    Will you commit not to deliberately delay the bank merger 
application process, and to hold your staff accountable for 
doing the same?
    Will you commit to consider each application on its 
individual merits?

A.25. My response is yes to all three parts of you question. 
The Board carefully considers each M&A application on its 
individual merits in view of the relevant statutory factors. 
The Board acts, and will continue to act, on bank merger 
applications as soon as it completes its review within the 
statutory deadlines. As I noted in my response to Question 19, 
the Board continues to process each application as 
expeditiously as possible.

Q.26. Please describe with particularity the process by which 
you answered these questions for the record, including 
identifying who assisted you in answering these questions along 
with a brief description of their assistance.

A.26. My responses reflect contributions from a large number of 
colleagues across many divisions within the Federal Reserve 
Board. The answers represent my views, and I submit them to you 
as my own.
                                ------                                


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

Q.1. Both nominal and real wage growth grew slowly during much 
of our recovery from the Great Recession. However, nominal wage 
growth was robust in 2021, with production and nonsupervisory 
workers seeing the strongest gains.
    As supply chain disruptions and inflation ease, won't 
monthly, nominal wage growth similar to what we saw in the 
second half of 2021 lead to robust real wage growth?

A.1. Although end-of-year values have not yet been released for 
a number of wage measures, the Bureau of Labor Statistics' 
(BLS) measure of average hourly earnings for private industry 
workers rose sharply over the second half of 2021, increasing 
at an annual rate of 5.8 percent. Several other wage measures 
appear on track to post gains of around 4.5 percent to 5 
percent for 2021 as a whole. Some measures point to even larger 
gains. These are aggregate statistics, however, and with the 
Consumer Price Index (CPI) up almost 7 percent over the past 
year and the Personal Consumption Expenditures (PCE) price 
index up about 5.5 percent, price increases have likely 
outpaced wage gains for many workers.
    Recent rapid price increases are in part related to supply 
and demand imbalances that have emerged as a result of the 
pandemic; as these imbalances are resolved, we and many other 
forecasters expect consumer price inflation to step down this 
year. Were wage gains to continue at their recent pace, and 
were inflation to diminish significantly, real wages would 
indeed increase robustly for the average worker.
    It is important to note, though, that part of the pickup in 
wage growth that we have seen is itself likely attributable to 
the effects of the pandemic. In particular, significant and 
persistent labor shortages have emerged. Pandemic-related 
factors that have contributed to these shortages include 
caregiving needs and ongoing fears of the virus, both of which 
have weighed on labor force participation. And these labor 
shortages, in turn, have put upward pressure on wages.
    As the pandemic wanes and more workers return to the labor 
market, we would expect nominal wage gains to moderate. Whether 
wages will decelerate more quickly than prices--or vice versa--
is difficult to predict. How these dynamics play out will 
determine what happens to real wages going forward.
    Ultimately, real wage gains will be influenced by 
fundamental factors such as the rate of growth of labor 
productivity. Again, however, the experience of the average 
worker or household--which is essentially what many commonly 
cited aggregate statistics measure--will not fully capture the 
experience of every group of workers or households.

Q.2. Corporate profits rose to historic levels as a percent of 
GDP in the 2nd and 3rd quarters of 2021. Profit margins are 
also reportedly at historic highs. Will wider profit margins 
better enable companies to increase wages without raising 
prices and creating a wage-price spiral?

A.2. Wages are the single largest component of business costs, 
but the relationship among wage growth, price inflation, and 
markups or profit margins is difficult to tie down empirically. 
In particular, the economywide corporate profit share, as a 
share of gross domestic income, tends to fluctuate over the 
course of a business cycle, though not in a regular or 
predictable fashion. Moreover, measures of economywide price-
cost margins appear to have followed slow-moving trends over 
the past several decades, though the ultimate driver of these 
trends is not well understood.
    In general, wage growth can be a source of upward pressure 
on price inflation when higher wages are not matched with gains 
in labor productivity, as this situation will tend to erode 
firms' price-cost markups. When markups or profit margins are 
already relatively high, firms can absorb some of these 
increases in labor costs before passing them through to prices. 
But firms might also be more likely to pass increases in labor 
costs through to prices when demand for their products is high, 
or if they are facing additional sources of cost pressure. In 
addition, even if aggregate measures of profit margins are 
relatively high, profit margins in particular sectors could be 
tighter and so cost shocks in those sectors could add to 
overall inflation.
    A key driver of a wage-price spiral is a situation where 
high inflation at a given point leads households and firms to 
expect high inflation in the future, with workers then 
demanding faster nominal wage gains to keep ahead of the rise 
in the cost of living and firms boosting prices in response to 
the faster growth in their labor costs. While we currently see 
little evidence that such a dynamic is present, it is an 
important risk and we are closely monitoring the data for any 
signs that it is emerging.

Q.3. The Dodd-Frank Act requires the Federal Reserve to set a 
maximum interchange rate that is ``reasonable and 
proportional'' to the cost for a card issuer to authorize, 
clear, and settle a debit transaction. In 2011, issuer costs 
were around 8 cents per debit transaction and the Federal 
Reserve set the maximum rate at 21 cents with 1 cent for fraud 
prevention and 5 basis points for fraud losses. A Federal 
Reserve survey released in 2021 found that issuer costs have 
fallen to 4 cents as of 2019. In light of this survey, will the 
Federal Reserve reconsider whether the maximum interchange rate 
remains ``reasonable and proportional'' to issuers' costs?

A.3. Pursuant to the Federal Reserve Board's (Board) 
responsibilities under section 920 of the Electronic Fund 
Transfer Act (EFTA), as amended by section 1075 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, the Board 
has collected data on a biennial basis from debit card issuers 
subject to Regulation II's interchange fee standards (covered 
issuers). The collected data include information on covered 
issuers' debit card volumes and values, fraud losses, and 
authorization, clearing, and settlement costs. The Board has 
also released summary information to the public from those data 
collections on a biennial basis with the most recent report, 
covering data for 2019, released on May 7, 2021. The Board is 
in the process of conducting an updated data collection, 
collecting data for 2021 from covered issuers.
    The Board will continue to review the parts of Regulation 
II that directly address interchange fees for certain 
electronic debit transactions in light of the most recent data 
collected by the Board pursuant to section 920 of the EFTA and 
may propose revisions in the future.

Q.4. The markets for trading Treasuries have proven susceptible 
to disruptions that have undermined their stability and 
integrity. Please discuss what steps you intend to take to 
improve these markets in each of the following areas:
    Improving timely access to market information.
    Reducing risks of trade processing and settlement failures.
    Reducing conflicts of interests and ensuring integrity of 
trading venues.

A.4. Given the importance of Treasury markets, it is incumbent 
upon the U.S. official sector to ensure that the structure of 
these markets can meet current and future needs. The Federal 
Reserve is an active participant in the Interagency Working 
Group on Treasury Market Surveillance, and within that context 
Federal Reserve staff are intensively analyzing a range of 
potential reforms and whether they could help to improve 
Treasury market functioning in an effective manner. Many of 
these reforms, if they are pursued, would most naturally fall 
under the remit of other agencies, such as the Securities and 
Exchange Commission (SEC) or Department of the Treasury, and we 
expect that those agencies would take the lead in such 
circumstances, although we stand ready to offer our support.
    With regard to the timely access to market information, the 
Board has approved a final rule that will require depository 
institutions meeting certain thresholds for activity to report 
their Treasury and agency debt and mortgage-backed securities 
transactions through the Financial Industry Regulatory 
Authority's TRACE reporting system. This new requirement is 
scheduled to go into effect as of September 1, 2022, in order 
to ensure that the covered banks have adequate time to prepare 
for the new reporting requirements.
    The Federal Reserve System plays an active role in helping 
to ensure sound market practices through the Federal Reserve 
Bank of New York's sponsorship of the Treasury Market Practices 
Group (TMPG). That group has issued a number of best-practice 
recommendations that have helped to reduce the number of 
settlement failures in Treasury and agency debt markets. The 
TMPG has also conducted important work detailing settlement 
practices in secondary Treasury markets and their potential 
risks. The Federal Reserve is supportive of the SEC's 
consideration of proposals to extend to Treasury-market trading 
venues the operational access, disclosure, and regulatory 
oversight provisions of Regulation Alternative Trading Systems 
(ATS) and the system integrity provisions of Regulation Systems 
Compliance and Integrity (SCI).
                                ------                                


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

Q.1. I've spoken to you before about the lack of diversity 
among Fed Bank presidents and the need to ensure that minority 
candidates are fairly considered in the search for the new 
presidents of the Boston and Dallas Fed Banks.
    (a) Has the Board of Governors communicated with the 
regional bank directors to consider minority candidates?
    (b) How was that communication made and what, if any, 
response has the Board received from the regional bank 
directors?

A.1. In response to parts (a) and (b) of your question, the 
Board of Governors (Board), through our Committee on Reserve 
Bank Affairs, is involved in ongoing communication with the 
search committees at the Federal Reserve Banks of Boston and 
Dallas about the recruitment process, including public 
engagement strategies. We share the goal of having as broad and 
diverse a candidate pool as possible for each of the searches. 
The search committees have underscored the importance they 
attach to a process that actively seeks to identify and include 
qualified minority candidates, and their commitment to their 
full consideration.

Q.2. Do you know if minority candidates have been considered 
for either position? If so, how many?

A.2. At this stage in the process, the search committees are 
doing broad outreach to identify candidates. The Federal 
Reserve Banks of Boston and Dallas launched their president 
searches in October and November 2021, respectively. These 
Banks have both articulated strong commitments to conduct 
nationwide searches for highly qualified candidates from a 
broad, diverse slate of backgrounds from inside and outside the 
Federal Reserve System. Both Banks formed diverse search 
committees and hired national search firms to help identify 
candidates. In addition, the directors of the Board's and the 
Reserve Banks' Offices of Minority and Women Inclusion (OMWI) 
have been serving as advisers to the search committees. The 
Banks are also using diverse interview panels to ensure that 
different points of view and opinions are part of the hiring 
decision. Additional search committee efforts include outreach 
to stakeholders and the public for feedback and input through 
public websites and townhalls, and both Banks have invited the 
public to submit potential candidates for nomination. Most 
recently, on January 13, the Federal Reserve Bank of Dallas 
hosted a virtual town hall that was open to the public to 
discuss and answer questions about the presidential search 
process. Panelists included the cochairs of the presidential 
search committee, and a representative of the global search 
firm Egon Zehnder that is assisting in the search for 
candidates. Participants were able to submit questions during 
the moderated discussion, and the recorded discussion is 
available on the Bank's public website. \1\
---------------------------------------------------------------------------
     \1\ See, https://www.dallasfed.org/fed/presidentialsearch.

Q.3. Has the Board of Governors interviewed any minority 
---------------------------------------------------------------------------
candidates for either position?

A.3. Both searches are ongoing and have not reached the point 
in the process for Board interviews of candidates.

Q.4. What specific steps have you taken to ensure the regional 
banks consider a diverse pool of candidates?

A.4. The appointment of a Reserve Bank president is formally an 
action of eligible Class B and C directors of the Bank's board, 
with the approval of the Board of Governors. The Federal 
Reserve Banks of Boston and Dallas launched their president 
searches in October and November 2021, respectively. These 
Banks have both articulated strong commitments to conduct 
nationwide searches for highly qualified candidates from a 
broad, diverse slate of backgrounds from inside and outside the 
Federal Reserve System.
    Experience in recent years has delivered a number of clear 
lessons, all of which are incorporated into the process for the 
searches currently under way. Most importantly, diverse boards 
and diverse search committees tend to consider and appoint 
diverse leaders. Relevant research also underscores the 
importance of diversity--background, experience, and 
profession--on boards and search committees. Such diversity has 
been achieved in recent years in the Federal Reserve System, as 
the Board of Governors through its direct appointment of Class 
C directors has fostered appreciable new diversity in Reserve 
Bank boards, including those in Boston and Dallas.

Q.5. We know that diverse leadership helps bring about better 
outcomes at every institution from corporate boardrooms to 
universities to Congress, and the Fed is no different.
    If confirmed for a second term, what concrete steps are you 
going to take to improve minority representation, particularly 
Latino representation, in leadership roles at the Fed?

A.5. I fully agree that the Federal Reserve and other 
organizations make better decisions with a diverse group around 
the table, and I remain committed to working with Reserve Bank 
directors and presidents to further our engagement with various 
communities throughout each of the twelve districts to develop 
pipelines for future leadership roles at the Federal Reserve.
    To foster diversity, we must develop an overall culture of 
inclusion at all levels, starting at the top. As Chair, I have 
internally and externally stated my strong personal belief in 
and support for a diverse and inclusive environment, and I have 
taken a number of steps to work towards achieving greater 
diversity and inclusivity that is also part of the Board's 
2020-23 Strategic Plan. I have led quarterly meetings with 
staff at many levels from within the Board and the System to 
discuss and assess our progress in advancing diversity and 
economic inclusion. These meetings are a priority for me and my 
colleagues on the Board.
    I also speak regularly with staff about the importance of 
fostering diversity and inclusion. I meet with the Board's 
Director of the Office of Women and Minority Inclusion on a 
quarterly basis, and I have met with the chairs and cochairs of 
each of the Board's seven Employee Resource Groups \2\ on a 
number of occasions. To see where the Board could learn from 
others, we have also hosted business and nonprofit leaders who 
served on Reserve Bank boards of directors to discuss what has 
worked well in developing a culture of diversity and inclusion 
at their organizations.
---------------------------------------------------------------------------
     \2\ The Board's employee resource groups include: Advocacy for the 
Diverse Abilities, Needs, and Contributions of Employees (ADVANCE) 
Employee Resource Group; African American Employees Resource Group; 
Asian American Pacific Islander Employee Resource Group; Hispanic 
Employee Resource Group; LGBTQA Employee Resource Group; Veterans 
Employee Resource Group; and Women's Employee Resource Group.
---------------------------------------------------------------------------
    I have encouraged and strongly supported the considerable 
outreach we do to diverse candidates in our recruiting of 
staff. This includes participating in minority recruitment 
events at Historically Black Colleges and Universities, 
Hispanic-Serving Institutions, and Hispanic professional 
conferences and career fairs. Our outreach is particularly 
notable as we hire recent college graduates as full-time 
research assistants, a position which can be an important step 
towards a career in economics. I would note that the Board has 
shown a significant increase in Hispanic hiring from 4 percent 
in 2020 to 10 percent in 2021. To build on this success, we 
will work to strengthen outreach and networking initiatives 
with organizations such as American Society of Hispanic 
Economists, Association of Latino Professionals for America, 
National Hispanic Corporate Council and Prospanica.
    We are also reviewing our recruiting and hiring practices 
to identify and implement ways in which we can further increase 
the pool of diverse qualified candidates. As a result of our 
ongoing review, we have started to broaden the research 
specializations within economics from which we have typically 
hired economists. Recruiting from a broader set of research 
areas not only may draw more diverse candidates, but also 
better supports our mission by giving us broader skill sets and 
perspectives.
    Under my leadership as Chair, the Board has leveraged its 
award-winning internship program to offer students on the job 
experience and learning and to create a diverse job candidate 
pool for our entry-level positions. The Board has also 
implemented job board and resume database access to expand 
diversity sourcing initiatives with the National Black MBA 
Association and the National Society of Black Engineers.
    Over the past 4 years, my colleagues and I have worked to 
develop the pipeline of economists from under-represented 
groups, including through outreach to students at many levels. 
We have welcomed diverse groups of high school, undergraduate, 
and graduate level students to the Board, both in person and 
through online events, to discuss career opportunities, the 
work that we do, and diversity in the profession. We are 
collaborating closely with the American Economic Association 
(AEA) and with Howard University, including by committing staff 
resources over the next 5 years to teach an Advanced Research 
Methods class to undergraduate and masters level students at 
the AEA Summer Training Program, which is being hosted by 
Howard University.
    If confirmed, I look forward to continuing to support these 
and other efforts.

Q.6. While Class C directors are getting more diverse, B 
directors, who are selected by member banks to represent the 
public, remain predominantly White and male. An analysis by the 
Brookings Institution recommended that the Fed Banks implement 
a set of best practices for selecting of directors to help 
guide member banks through the process.
    Would you commit to working with me to encourage and 
coordinate efforts among the Federal Reserve banks to develop 
and implement such guidelines and best practices?

A.6. The nomination and election of Class B directors are 
prescribed in detail in the Federal Reserve Act. In particular, 
these directors are elected by the banks within the District, 
with a mandate to represent the public. While these directors 
are not selected directly or indirectly by the Board of 
Governors, we do engage on a continuous basis with Reserve 
Banks and members of their boards in an effort to encourage the 
recruitment of more diverse Class B directors. Indeed, we take 
a similar approach with the Class A directors, who are also 
elected by the banks within the District. If confirmed, I look 
forward to continuing our dialogue on this important matter.

Q.7. Fed watchers have also suggested that the appointment 
process for regional Fed Bank presidents be open to greater 
public input.
    Do you agree that that Fed would benefit from greater 
public participation in the Presidential and Director selection 
processes?

A.7. The Federal Reserve System serves all Americans, and the 
selection process for Bank presidents and directors benefits 
from input from a wide range of stakeholders. That is why the 
ongoing searches for new presidents for the Federal Reserve 
Banks of Boston and Dallas include broad outreach to 
stakeholders and the public for feedback and input, and 
opportunities for the public to submit potential candidates for 
nomination. Search committees have been sharing information 
about the search and soliciting questions and input from the 
public through public events, such as town halls, and dedicated 
websites and social media channels. We continue to leverage 
advancements in technology and adopt other best practices in 
creating new ways for public input.

Q.8. According to the Federal Reserve Act, Class B and C 
Directors are supposed to represent the interests of the 
public, and should be selected with ``due but not exclusive 
consideration to the interests of agriculture, commerce, 
industry, services, labor, and consumers.'' Currently, one in 
ten directors are CEOs of Fortune 500 companies. 75 percent of 
Fed Directors are from banking or business. Of the directors 
that represent the business sector, only 24 percent come from 
small businesses. A mere 5 percent of bank directors are from 
labor.
    If confirmed, how would you work to improve sectoral 
representation in leadership roles at the Fed?

A.8. Reserve Bank boards of directors provide valuable insights 
into a range of sectors, including healthcare, manufacturing, 
entertainment, restaurant, retail, hotel, agriculture, 
transportation, education, labor, small businesses, 
construction, technology, consumer goods, and financial 
services. The directors work through their own networks to 
understand and represent different perspectives within their 
own sectors when providing regional and sectoral inputs to the 
Bank and the Board. If confirmed to a second term as Chair of 
the Federal Reserve Board, I am committed to continue working 
with Reserve Bank directors and presidents in further engaging 
with various sectors in their regions to develop pipelines for 
future leadership roles at the Federal Reserve.
                                ------                                


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

Q.1. As you know, we are currently witnessing the widespread 
effects of ongoing supply chain disruptions that have led to 
shortages of many industrial and consumer products, including 
price inflation. Much of this has been attributed to the COVID-
19 pandemic. If confirmed, how will you utilize what you have 
learned in your time leading the Fed during the pandemic to 
promote greater pricing stability for essential consumer and 
industrial goods?

A.1. The recent upturn in price inflation reflects a 
combination of supply- and demand-related developments. On the 
demand side, there has been a large and rapid shift in consumer 
spending toward goods--particularly durable goods--as the 
pandemic has made spending on many services more difficult or 
less desirable. On the supply side, the availability of a range 
of goods has been curtailed by production issues in the U.S. 
and abroad, often because key inputs cannot be obtained or 
because goods cannot be transported to U.S. markets as easily 
as before. In addition, labor shortages in some sectors have 
restricted the supply of goods as well as services.
    We continue to believe that many of the factors pushing up 
inflation are related to the pandemic and will pass with time, 
although the timing and extent of the decline remains highly 
uncertain. No matter how these factors evolve, the Federal Open 
Market Committee is committed to using its tools to ensure that 
elevated inflation does not become entrenched.
                                ------                                


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

Q.1. Chairman Powell, in your testimony before this Committee 
last week, you stated that ``We [The Federal Reserve] increased 
capital and liquidity requirements for the largest banks--and 
currently, capital and liquidity levels at our largest, most 
systemically important banks are at multidecade highs.''
    You have stated numerous times in congressional testimony 
and correspondence that the level of capital in the banking 
system is about right--a view that you held prior to the COVID-
19 pandemic and increases in capital over the past 2 years. In 
September 2018, in response to a letter from me, you stated 
that, ``overall capital for our largest banking organizations 
is at about the right level.''
    In each of your semiannual appearances before this 
Committee last year, you noted the high levels of capital and 
liquidity in the banking system. Governor Quarles, in his 
departing remarks last month, cautioned that, `` . . . 
implementing the remaining elements of Basel III could result 
in a material increase in capital levels, perhaps up to 20 
percent for our largest holding companies.'' and pointed out 
that current high capital standards constrain the banking 
system from providing credit and ultimately cost jobs and 
living standards.
    Do you continue to believe there is sufficient capital in 
the banking system?
    Given the temporary nature of the Fed's COVID interventions 
and the resulting inflation of capital charges, do you 
anticipate measuring capital neutrality at pre-COVID levels as 
the Fed normalizes policy and works to implement Basel III 
finalization?

A.1. Yes, I believe that there is sufficient capital in the 
banking system, particularly for the largest firms. Robust 
capital and liquidity requirements for the banking system, with 
a particular focus on the largest and most complex banks, are 
fundamental to financial stability. The regulatory capital 
framework introduced since the financial crisis has required 
financial institutions to significantly strengthen their 
capital levels over the last decade. Consistent with their 
systemic importance, global systemically important banks 
(GSIBs) are subject to the most stringent standards, including 
additional capital requirements such as the GSIB surcharge and 
the enhanced supplementary leverage ratio. As a result, the 
banking system was well capitalized at the onset of the COVID-
19 pandemic and financial institutions were well positioned to 
deal with the challenges of the COVID-19 event. As I mentioned 
during my testimony before the Committee, capital levels at our 
largest and most systemically important banks are currently at 
multidecade highs.
    With respect to our work to implement the outstanding Basel 
III capital reforms in the United States, we are working 
actively with the FDIC and the OCC on that proposal.
    We will of course continue to evaluate the resiliency of 
large banks and monitor financial and economic conditions to 
ensure our capital framework functions as intended.
                                ------                                


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

Q.1. Chair Powell, it is my understanding that the Federal 
Reserve's treatment of subordinated debt of Subchapter S and 
Mutual banks under the Emergency Capital Investment Program 
(ECIP) will severely limit their participation in the program 
to only a fraction of the amount they are eligible to receive 
under ECIP.
    Out of 101 program recipients, Louisiana had 13 ECIP 
recipients, 10 of which are Subchapter S banks.
    If the Federal Reserve does not exclude ECIP capital from 
bank debt calculations, Subchapter S and Mutual banks risk 
scrutiny from their regulators.
    Will the Federal Reserve commit to excluding the ECIP from 
the calculation of the debt-to-equity ratio and the double 
leverage ratio for Subchapter S and Mutual banks?

A.1. Since the creation of the Emergency Capital Investment 
Program (ECIP), the Board of Governors of the Federal Reserve 
System, the Federal Deposit Insurance Corporation, and the 
Office of the Comptroller of the Currency (together, the 
agencies) have been working with the U.S. Department of the 
Treasury (Treasury) to facilitate ECIP investments in regulated 
financial institutions. Throughout this process, the agencies 
have been taking steps to ensure that regulated financial 
institutions receive an appropriate capital treatment for ECIP 
instruments that is consistent with safety and soundness 
considerations.
    Most notably, we issued an interim final rule to allow 
instruments issued under ECIP to qualify as regulatory capital 
under each agency's capital rule. Under the interim final rule, 
preferred stock issued through ECIP is counted as additional 
tier 1 capital and subordinated debt issued through ECIP is 
counted as tier 2 capital. These treatments are broadly in line 
with the agencies' treatment of similar types of capital 
instruments under the capital rule.
    I appreciate the concern that some financial institutions 
are structured in a way that prevents them from issuing 
preferred stock under ECIP; such financial institutions would 
instead issue subordinated debt to Treasury. While taking 
additional action to provide favorable treatment for ECIP 
subordinated debt may increase the ability of some S-
Corporations and mutual banking organizations to participate in 
ECIP, ECIP subordinated debt is an obligation that must be 
repaid. As we consider these issues, we are mindful of the 
balance between facilitating participation in the program and 
increasing risk to the safety and soundness of the 
participating financial institutions due to increased leverage. 
We continue to evaluate these issues actively and carefully.
                                ------                                


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

Q.1. Under current law, banks are required to enable all debit 
cards to be processed over at least two unaffiliated networks. 
For the last decade, Regulation II has applied to in-store 
transactions. However, as online transactions increase, only 6 
percent of online debit card transactions are being processed 
over competing networks, meaning merchants are paying more or 
retailers are having to swallow the cost.
    A clarification of ``Reg II'' proposed by the Federal 
Reserve last May said the routing choice requirement applies to 
online, as well as in-store transactions, and would require 
that banks allow competing networks a chance to handle debit 
transactions. However, this rule has not yet been finalized. 
Can you provide clarity as to when this rule will be finalized?

A.1. On May 7, 2021, the Federal Reserve Board (Board) issued 
proposed revisions to Regulation II for public comment. \1\ The 
proposed revisions specified that, pursuant to section 920 of 
the Electronic Fund Transfer Act as amended by section 1075 of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act, 
debit card issuers should enable, and allow merchants to choose 
from, at least two unaffiliated networks for card-not-present 
debit card transactions, such as online purchases. The Board 
sought comment on all aspects of the proposed revisions. On 
June 22, 2021, the Board extended the comment deadline from 
July 12, 2021, to August 11, 2021, to allow interested persons 
more time to analyze the issues and prepare their comments. \2\
---------------------------------------------------------------------------
     \1\ See, https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20210507a.htm.
     \2\ See, https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20210622a.htm.
---------------------------------------------------------------------------
    The Board received nearly 2,700 comments on the proposal. A 
wide variety of industry stakeholders submitted comments and 
presented diverse perspectives on the proposal and other issues 
related to the regulation and the debit card market. The Board 
is carefully considering these comments as it evaluates final 
revisions to the regulation on this matter.

Q.2. While COVID-19 has presented a number of unusual 
circumstances, the world is far more aware now of the lack of 
transparency of the Chinese Government, run by the CCP. Chair 
Powell, how do you assess the risks posed by China to our 
short, medium, and long-term economic stability and strength? 
What tools are at the Fed's disposal and what is the Fed 
considering when it comes to addressing China?

A.2. The economic and financial stability risks posed by China 
have increased of late. To a large extent, these increased 
risks are centered in its property sector. Chinese authorities 
have substantial potential resources to manage these risks, in 
principle, but we cannot rule out the possibility of an abrupt 
and persistent slowdown in their economy. With China now the 
world's second largest economy, any sharp downturn there would 
have global repercussions. The U.S. economy could be adversely 
affected through trade channels as well as through negative 
sentiment effects on U.S. and global financial markets, though 
the degree to which this would occur is uncertain.
    Moreover, China also plays a large role in global supply 
chains, and COVID-19 has brought to the forefront associated 
fragilities. More immediately, at a time of high global demand, 
short-term disruption to Chinese output from COVID restrictions 
and power rationing have contributed to upward pressure on 
prices around the world.
    Even if very adverse outcomes for the Chinese economy were 
to materialize, with spillovers to the U.S. through 
macroeconomic and financial channels, they are unlikely to 
materially threaten the stability of the U.S. financial sector 
because our financial system has only limited direct exposures 
to China. In addition, U.S. banks are well-capitalized and able 
to respond to severely adverse global scenarios, as our stress 
tests have repeatedly shown. That said, we continue to monitor 
economic and financial risks stemming from China, to analyze 
possible spillovers to the U.S., and to take these 
considerations into account in our micro- and macro-prudential 
financial risk assessments.

Q.3. Many banks have grown frustrated with the glacial pace of 
merger approvals. My view is that regulators should approve 
proposed transactions that result in a combined company with a 
strong and resilient capital base and the ability to make long-
term investments in the communities and customers. There is no 
need to pause merger transactions in order to do this. Can you 
speak to why the extended delays are happening and when an 
uptick in approvals could be expected? Are you supportive of 
instituting any form of moratorium on bank mergers?

A.3. The Board carefully considers each merger and acquisition 
(M&A) application on its individual merits in view of the 
relevant statutory factors. The Board continues to process each 
application as expeditiously as possible and within the 
applicable statutory deadlines, while ensuring that decisions 
are based on a complete record. In December 2021, the Board 
approved three bank merger applications, and the Reserve Banks 
approved 17 bank merger applications under delegated authority.