    [Senate Hearing 117-407]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-407

             THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

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

                                    HEARING

                                   before the

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

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

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

                                   __________

                                 JULY 15, 2021

                                   __________

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

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

                                 _________

                     U.S. GOVERNMENT PUBLISHING OFFICE

    48-918 PDF               WASHINGTON : 2023

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                         SHERROD BROWN, Ohio, Chairman

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

                         Laura Swanson, Staff Director

                     Brad Grantz, Republican Staff Director

                           Elisha Tuku, Chief Counsel

                             Tanya Otsuka, Counsel

                     Dan Sullivan, Republican Chief Counsel

                       Luke Pettit, Republican Economist

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                        Charles J. Moffat, Hearing Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                            THURSDAY, JULY 15, 2021

                                                                       Page

    Opening statement of Chairman Brown..............................     1
            Prepared statement.......................................    43

    Opening statements, comments, or prepared statements of:
        Senator Toomey...............................................     3
            Prepared statement.......................................    44

                                    WITNESS

    Jerome H. Powell, Chairman, Board of Governors of the Federal
      Reserve System.................................................     5
        Prepared statement...........................................    45
        Responses to written questions of:
            Senator Toomey...........................................    48
            Senator Cortez Masto.....................................    52
            Senator Sinema...........................................    57
            Senator Daines...........................................    58

                  Additional Material Supplied for the Record

    Monetary Policy Report to the Congress dated July 9, 2021........    61

                                     (iii)

             THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

                                  ----------

                            THURSDAY, JULY 15, 2021

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 9:31 a.m., in room 538, 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.
        Today, our economy is growing because of the American
    Rescue Plan and the Biden-Harris administration's leadership.
    We are putting shots in arms and money in pockets. Families
    have a little bit extra to help pay the bills. Beginning today,
    July 15th, most parents will see a 250 or 300-dollar monthly
    payment in their bank account for each child. In my State, 92
    percent of children are eligible.
        Small businesses are reopening their doors. Workers are
    safely going back to work, often at higher wages. Last month,
    we added 850,000 jobs to the economy. Since President Biden
    took office, we have gained three million jobs, more than any--
    more than in the first 5 months of any presidency in modern
    history. It is not only the jobs numbers; it is the quality of
    these jobs.
        For the first time in decades, workers are starting to gain
    some power in our economy: the power to negotiate higher wages,
    the power to get better working conditions, the power to have
    more control over their schedules and stronger benefits and
    more opportunities for career advancement.
        The Washington Post reported in the past 3 months rank-and-
    file employees have seen some of the fastest wage growth since
    the early 1980s. Think about that. The fastest wage growth
    since Ronald Reagan said it was ``Morning in America.'' That is
    what happens when we invest in our greatest asset, the American
    people.
        Instead of hoping money trickles down from large
    corporations--it never does, and pretty much every Senator
    sitting on both sides of the aisle here knows that--we invested
    directly in our workers and our small businesses and our
    communities. When workers win, our economy wins. When
    everyone--as one of Senator Smith's predecessors used to say,
    when everyone does better, everyone does better.
        Chair Powell, you said the Fed can help make the economy
    work for everyone by ensuring a strong and competitive labor
    market, one where everyone can get a job, one where employers
    actually compete for workers. I agree. Those efforts, combined
    with President Biden's recent actions to increase
    competitiveness, are increasing worker power in the economy. We
    must build on this progress with investment in infrastructure
    that creates millions of jobs, increases our economic
    competitiveness, and spurs growth in communities of all sizes,
    all over the country.
        I have been all over my State in the past few weeks,
    talking with local leaders, seeing mayors in both parties, in
    big cities and small towns. I have heard the same thing from
    all of them. They need more investment in infrastructure, like
    housing and transit, to build a stronger local economy. These
    are the places often overlooked or, worse, preyed on by large
    corporations and Wall Street banks.
        Many of these communities have watched for decades as
    investment has dried up, as storefronts have emptied. Companies
    closed down factories and moved good-paying union jobs abroad--
    in Pennsylvania and Ohio, especially. Private equity firms, big
    investors buy up the houses and jack up the rent. Small
    businesses struggle to compete against big-box chains. Big
    banks buy up smaller ones, only to close branches, leaving
    check cashers and payday lenders as families' only options.
    Think about the opportunity and growth we can unleash in this
    country if we gave these communities the investment to fulfill
    that potential.
        Of course, we know what happens whenever the economy starts
    to grow. The largest corporations and biggest banks throw all
    their efforts and their resources in finding ways to direct
    those gains to themselves. Last year, during the global
    pandemic and deep, deep recession, CEOs paid themselves 299
    times what their average worker made, an even bigger gap than
    before the pandemic.
        Now imagine the kind of windfall they will try to rake in
    during this boom. We have seen it over and over. Consumers
    spend, driving up revenue for companies. They spend it on stock
    buybacks while complaining about workers' demanding higher
    wages. Big banks rake in cash. They spend it on executive
    compensation and dividends and buybacks, and the Fed has
    usually allowed them to, Mr. Chairman, instead of lending in
    communities or increasing capital to reduce risk. The Fed
    should be fighting this trend, protecting our progress from
    Wall Street greed and recklessness, not making it worse.
        During your tenure, Chair Powell, the Fed has rolled back
    important safeguards, making it easier for the big banks to
    pump up the price of their stock and boost their already
    enormous power in our economy. Wall Street would have you
    believe that removing those protections has increased lending
    in support of the real economy. We have been assured that the
    banks have plenty of capital to withstand a crisis.
        But, during the pandemic, it was community banks and it is
    credit unions, not the megabanks, that increased lending. The
    Fed supported the biggest banks to the tune of hundreds of
    billions of dollars. They spent it, shockingly, on themselves
    while small businesses trying to get PPP loans could not
    sometimes get their phone calls returned.
        We ought to try something different. We need a banking
    system that works for everyone. We cannot allow the biggest
    banks to funnel their extra cash into stock buybacks that juice
    their profits instead of investing in the real economy. We
    cannot let big banks merge into bigger and bigger megabanks,
    making it harder for small banks to compete and leaving rural
    and Black and Brown communities behind. We need to strengthen
    the Community Reinvestment Act so that banks serve the
    communities still scarred--still scarred--by the legacy of
    Black Codes and Jim Crow and redlining.
        And we cannot allow repeat performance of the years during
    the last recession. Wall Street destroyed our economy, cost
    families their jobs and their homes and their savings, then
    came roaring back. Families limped along behind them. For the
    vast majority of Americans who get their money from a paycheck
    and not a brokerage account, the economy never looked all that
    great in the years that followed.
        Stable prices, moderate long-term interest rates are not
    enough if every decade a financial crisis hits and strips away
    what people have worked so hard for. Low unemployment is not
    enough if the jobs pay rock-bottom wages and workers have no
    power. GDP growth is not enough if it only benefits those at
    the top and not the workers who made it possible. We need to
    create a different system, one that is stable for the long run,
    one where workers, not Wall Street, reap the benefits of a
    strong economy.
        Chair Powell, you are charged with ensuring both financial
    stability and with overseeing the biggest banks. Both of those
    jobs are equally important. Each affects workers' jobs and
    paychecks and communities.
        And as public servants, our responsibility--yours, mine,
    Ranking Member Toomey, our responsibility--is to the people who
    make this country work. It is up to us to grow an economy that
    delivers for them, not just those at the top.
        Ranking Member Toomey.

             OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

        Senator Toomey. Thank you, Mr. Chairman.
        Welcome back, Chairman Powell.
        The economy certainly has come roaring back from COVID. GDP
    is above its prepandemic levels now, and the Fed forecasts GDP
    will grow by an amazing 7 percent this year. The unemployment
    rate is already at 5.9 percent, which the Fed expects to fall
    to 4.5 percent by the end of the year. And to put that in
    context, the average unemployment rate for the last 20 years
    before the pandemic was 6 percent.
        So with these conditions, the Fed's rationale for
    continuing negative real interest rates and $1.4 trillion in
    annual bond purchases is puzzling. The Fed's policy is
    especially troubling because the warning siren for problematic
    inflation is getting louder. Inflation is here, and it is more
    severe than most, including the Fed itself, expected. And it is
    more than offsetting the wage gains, so leaving workers worse
    off despite their nominal wage increases.
        For the third month in a row, the Consumer Price Index was
    higher than expectations. Core CPI, which excludes volatile
    categories like food and energy, was up 4.5 percent in June,
    the highest reading in almost 30 years. And to be clear, this
    is beyond the so-called base effects. The 2-year change in core
    CPI was at a 25-year high.
        And with housing prices absolutely soaring in many places
    to completely unaffordable levels, I have to ask: Why on Earth
    is the Fed still buying $40 billion in mortgage-backed bonds
    each month?
        Now the Fed assures us that this inflation is transitory,
    but its inflation projections over the last year have not
    inspired confidence. Last June, the Fed projected that PCE, one
    standard measurement of inflation, would be 1.6 percent for the
    12 months ending 2021. Then in December, the Fed raised that
    figure up to 1.8 percent. And now, the Fed's most recent PCE
    forecast for 2021 year-end is 3.4 percent, more than double
    what the Fed thought inflation would be a year ago. But in
    coming months, the Fed is almost certain to revise that
    projection up yet again because so far this year PCE has
    already risen by 6.1 percent on an annualized basis. So for the
    rest of the year, inflation would need to be nearly zero for
    the Fed's latest projection to be proven correct.
        I am very concerned that the Fed's current paradigm almost
    guarantees that it will be behind the curve if inflation does
    become problematic and persistent for several reasons. The
    first, as I pointed out, the Fed has consistently and
    systematically underestimated inflation over the last year.
    Second, the Fed has announced that it will allow inflation to
    run above its 2 percent target level. Well, it is already well
    above 2 percent. And third, the Fed insists that the inflation
    we are experiencing now is transitory despite the fact that
    recent unprecedented monetary accommodation has certainly
    driven the inflation that we are witnessing.
        And since the Fed has proven unable to forecast the level
    of inflation, why should we be confident that the Fed can
    forecast the duration of inflation?
        And after all, you can only know that something is in fact
    transitory after it has ended. What if it does not end? If it
    is wrong, by the time the Fed knows and acknowledges that it
    has gotten it wrong, we could have a big problem on our hands.
    And past experience has shown it is very difficult to get the
    inflation genie back in the bottle once it is out. The Fed may
    have to respond by raising interest rates much more
    aggressively to rein in significant inflation, and that could
    have severe adverse economic consequences.
        So the Fed's current monetary approach seems based on the
    premise that it needs to prioritize maximum employment over
    price stability despite the fact that employment policies
    enacted by Congress are clearly impeding our ability to get
    back to maximum employment. But I would argue it is not the
    Fed's job to attempt to offset flawed congressional policies at
    the expense of its price stability mandate. And when the Fed
    subordinates its price stability mandate to try to maximize
    employment, the Fed runs the risk of failing on both fronts
    because you need stable prices in order to achieve a strong
    economy and maximize employment.
        This is not a partisan argument. Prominent Democratic
    economists, including President Clinton's treasury secretary,
    Larry Summers, President Obama's CEA chairman, Jason Furman,
    and many others have expressed their concern about the risk--
    the risk--of rising and persistent inflation.
        Last, I just want to acknowledge the unique and crucial
    role played by the Fed in our economy and some of the
    responsibilities that attend to that. The ability to direct
    interest rates and control the money supply is, of course, an
    extraordinary power, and Congress has given the Fed a great
    deal of operational independence in order to isolate it from
    political interference.
        But Congress also gave the Fed a narrowly defined mission.
    I am troubled by the Fed, especially some of the regional
    banks, misusing this independence to wade into politically
    charged areas like global warming and racial justice. I would
    suggest that instead of opining on issues that are clearly
    beyond the Fed's mission and expertise it should focus on an
    issue that clearly is its mandate, controlling inflation. If it
    does not, the Fed will find that its credibility and
    independence may also have turned out to be transitory.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Toomey.
        We have an 11 o'clock vote. I informed the Ranking Member
    and the Chair we will work straight through and not break
    during that 11 o'clock vote. So we will just figure that out.
        I will introduce today's witness. Today, we will hear from
    Federal Reserve Chair Jerome Powell on the Fed's monetary
    policy and the State of the U.S. economy. Under law, he comes
    in front of us twice a year at minimum. The Federal Reserve
    plays a key role in making sure our economy and banking system
    work for all Americans.
        Chair Powell, thanks for your years of Government service
    and for your testimony today. You are recognized.

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

        Mr. Powell. Thank you. Chair Brown, Ranking Member Toomey,
    and other Members of the Committee, I am pleased to present the
    Federal Reserve's Semiannual Monetary Policy Report.
        At the Fed, we are strongly committed to achieving the
    monetary policy goals that Congress has given us: maximum
    employment and price stability. We pursue these goals based
    solely on data and objective analysis, and we are committed to
    doing so in a clear and transparent manner. Today, I will
    review the current economic situation before turning to
    monetary policy.
        Over the first half of 2021, ongoing vaccinations have led
    to a reopening of the economy and strong economic growth
    supported by accommodative monetary and fiscal policy. Real GDP
    this year appears to be on track to post its fastest rate of
    increase in decades. Household spending is rising at an
    especially rapid pace, boosted by strong fiscal support,
    accommodative financial conditions, and the reopening of the
    economy. Housing demand remains very strong, and overall
    business investment is increasing at a solid pace.
        As described in the Monetary Policy Report, supply
    constraints have been restraining activity in some industries,
    most notably in the motor vehicle industry, where the worldwide
    shortage of semiconductors has sharply curtailed production so
    far this year.
        Conditions in the labor market have continued to improve,
    but there is still a long way to go. Labor demand appears to be
    very strong. Job openings are at a record high. Hiring is
    robust. And many workers are leaving their current jobs to
    search for better ones. Indeed, employers added 1.7 million
    workers from April through June.
        However, the unemployment rate remains elevated in June, at
    5.9 percent, and this figure understates the shortfall in
    employment, particularly as participation in the labor market
    has not moved up from the low rates that have prevailed for
    most of the past year. Job gains should be strong in coming
    months as public health conditions continue to improve and as
    some of the other pandemic-related factors currently weighing
    them down diminish.
        As discussed in the Monetary Policy Report, the pandemic-
    induced declines in employment last year were the largest for
    workers with lower wages and for African Americans and
    Hispanics. Despite substantial improvements for all racial and
    ethnic groups, the hardest hit groups still have the most
    ground left to regain.
        Inflation has increased notably and will likely remain
    elevated in coming months before moderating. Inflation is being
    temporarily boosted by base effects as the sharp pandemic-
    related price declines from last spring drop out of the 12-
    month calculation. In addition, strong demand in sectors where
    production bottlenecks or other supply constraints have limited
    production has led to especially rapid price increases for some
    goods and services, which should partially reverse as the
    effects of the bottlenecks unwind. Prices for services that
    were hard hit by the pandemic have also jumped in recent months
    as demand for these services has surged with the reopening of
    the economy.
        To avoid sustained periods of unusually low or high
    inflation, the FOMC monetary policy framework seeks longer-term
    inflation expectations that are well anchored at 2 percent, the
    Committee's longer-run inflation objective. Measures of longer-
    term inflation expectations have moved up from their pandemic
    lows and are in a range that is broadly consistent with the
    FOMC's longer-run inflation goal. Two boxes in the July
    Monetary Policy Report discuss recent developments in inflation
    and inflation expectations.
        Sustainably achieving maximum employment and price
    stability depends on a stable financial system, and we continue
    to monitor vulnerabilities here. While asset valuations have
    generally risen with improving fundamentals, as well as
    increased investor risk appetite, household balance sheets are,
    on average, quite strong, business leverage has been declining
    from high levels, and the institutions at the core of the
    financial system remain resilient.
        Turning now to monetary policy, at our June meeting, the
    FOMC kept the Federal funds rate near zero and maintained the
    pace of our asset purchases. These measures, along with our
    strong guidance on interest rates and our balance sheet, will
    ensure that monetary policy will continue to deliver powerful
    support to the economy until the recovery is complete.
        We continue to expect that it will be appropriate to
    maintain the current target range for the Fed funds rate until
    labor market conditions have reached levels consistent with the
    Committee's assessment of maximum employment and inflation has
    risen to 2 percent and is on track to moderately exceed 2
    percent for some time. As the Committee reiterated in our June
    policy statement, with inflation having run persistently below
    2 percent, we will aim to achieve inflation moderately above 2
    percent for some time so that inflation averages 2 percent over
    time and longer-term inflation expectations remain well
    anchored at 2 percent.
        As always, in assessing the appropriate stance of monetary
    policy, we will continue to monitor the implications of
    incoming information for the economic outlook and would be
    prepared to adjust the stance of monetary policy as appropriate
    if we saw signs that the path of inflation or longer-term
    inflation expectations were moving materially and persistently
    beyond levels consistent with our goal.
        In addition, we are continuing to increase our holdings of
    Treasury securities and agency MBS securities at least at their
    current pace until substantial further progress has been made
    toward our maximum employment and price stability goals. These
    purchases have materially eased financial conditions and are
    providing substantial support to the economy.
        At our June meeting, the Committee discussed the economy's
    progress toward our goals since we adopted our asset purchase
    guidance last December. While reaching the standard of
    substantial further progress is still a ways off, participants
    expect that progress will continue. We will continue these
    discussions at coming meetings. As we have said, we will
    provide advance notice before announcing any decision to make
    changes to our purchases.
        We understand that our actions affect communities,
    families, and businesses across the country. Everything we do
    is in service to our public mission. The resumption of our Fed
    Listens initiative will further strengthen our ongoing efforts
    to learn from a broad range of groups about how they are
    recovering from the economic hardships brought on by the
    pandemic. We at the Fed will do everything we can to support
    the recovery and foster progress toward our goals of maximum
    employment and stable prices.
        Thank you. I will look forward to our discussion.
        Chairman Brown. Thank you, Chair Powell, for your
    testimony.
        Our economy looks a whole lot better today than it did last
    year. We still have a long way to go. Yet, many of my
    Republican colleagues have been stoking inflation fears,
    demanding that we pump the brakes on our economic recovery,
    complaining that we are just investing too much money in the
    American people. If my colleagues are suddenly concerned about
    the costs that have been rising for workers and families for
    decades, they can join Democrats in the fight to raise wages,
    to lower the cost of health care, to make housing more
    affordable, to pass the American Jobs Plan. Of course, most of
    them will not say aloud what all this inflation alarmism is
    really all about. It is simply they do not want workers to have
    more power.
        In reality, the biggest risk to our economy, Mr. Chairman,
    is not doing enough to empower workers and not doing enough to
    curb Wall Street greed and excess.
        So, Chair Powell, my question is you supported Vice Chair
    Quarles, as the Vice Chair of Supervision, his efforts to
    weaken capital requirements at the largest banks through
    revisions to the stress capital buffer, and you oversaw
    weakened CCAR stress tests which only decide how leveraged the
    biggest banks are.
        Governor Brainard has pushed back against your efforts to
    weaken financial regulations. President Rosengren of the Boston
    Fed made the case that strong financial regulation enables the
    Fed to be more aggressive in its full employment mandate.
    President Mester of the Cleveland Fed, President Kashkari of
    the Minneapolis Fed are outspoken on the need for the board to
    keep its eye on financial stability. Weakening financial
    safeguards does not help working families. It just increases
    the risk of a financial crisis, wiping out everything they have
    worked so hard for.
        We are finally making progress, as I said earlier, and
    workers are getting a better seat at the table. We can make the
    economy safer and fairer with higher capital requirements for
    the biggest banks.
        My question, Mr. Chair, is: Why have you been against
    stronger capital requirements and using the countercyclical
    capital buffer in curbing runaway executive bonuses and stock
    buybacks?
        Mr. Powell. So I guess I would say, with the stress tests,
    the severity of the stress tests has very much been maintained.
    The effect of the stress capital buffer overall was to raise
    capital requirements for the largest firms. And they did manage
    to get through the recent pandemic and the acute phase of it
    and the recovery and did their jobs during it.
        So I think by and large, our financial institutions are
    well capitalized. We limited their distributions during the
    pandemic, and their capital levels actually rose quite
    materially during the course of the pandemic. So the financial
    system is strong, and the banks are strong.
        I have felt, and I have said on a number of occasions, that
    the level of loss-absorbing capital in the system is about
    right. I think the experience of the pandemic bears that out. I
    would be prepared to deploy the countercyclical capital buffer
    if I thought that the conditions we laid out were triggered,
    but I have not so far felt that way.
        Chairman Brown. Every time the Fed has--thank you for that
    answer. Every time the Fed has taken action to lower capital
    standards, it claims that doing so would increase lending in
    the economy and otherwise promote economic growth. That has not
    been what has happened. Instead, buybacks, dividends, executive
    compensation have continued to go up even during the pandemic.
        We empower workers by maintaining tight labor markets and
    strong financial regulations. I believe strong financial
    regulation enables the Fed to be more aggressive in helping
    workers and that should be your mission. It is time, Mr. Chair,
    respectfully, you change the way you think about regulating the
    biggest banks.
        One other question, Mr. Chair. In addition to adopting pro-
    worker financial stability policies, the Fed can further help
    communities of color by leading the push for a strong update to
    the Community Reinvestment Act. We have seen some good
    developments there with a different Comptroller of the
    Currency. Last year, the Fed unanimously released a framework
    for modernizing CRA that was well received by representatives
    of the civil rights community and by banks.
        My question, Mr. Chair, is the Federal Reserve still
    committed to full, not piecemeal, full CRA modernization with
    an interagency approach, and what is the timing?
        Mr. Powell. We are very much committed to that outcome, and
    I actually feel--I feel good about where we are on this. We are
    resuming our interagency discussions on it. And I am optimistic
    that we will come out with something that has broad support
    among the community of intended beneficiaries and, by the way,
    also among the financial institutions, and that it will be a
    good, solid updating after many years into the more
    technologically enabled era that will help all--help the
    intended beneficiaries quite a bit.
        Chairman Brown. And the timing, Mr. Chair?
        Mr. Powell. Working on it now. I think you will see--you
    will see we are reacting to a very large--analyzing a very
    large quantity of comments and discussing that with--
    particularly with the OCC. But also, the FDIC, it is not clear
    what their role will be at this time, but we hope they will
    join in.
        I think we will be making visible progress in coming
    months. I cannot give you a finish date yet, but I think we are
    moving now.
        Chairman Brown. Good. Thank you. We will be watching.
        Senator Toomey.
        Senator Toomey. Thank you, Mr. Chairman.
        Chairman Powell, in your testimony, you said that
    substantial further progress is still a ways off for the
    economic recovery, and I think you cite that as a justification
    for the extremely accommodative policy that you have. I do not
    think you are referring to the need for substantial further
    progress in GDP growth. I think it is employment that you are
    thinking of. The unemployment rate has declined dramatically,
    but it has not reached the prepandemic lows. And I think that
    you have also made references to the workforce participation
    rate.
        I guess my question is: Is it not entirely possible that
    for a variety of factors, not the least of which is legislation
    that we have passed, the labor force participation rate may not
    get back to the record highs that we recently saw and we have
    made it more difficult for the unemployment rate to get back to
    the record lows that we were at before? And, do you take that
    into account when you determine how much progress we have made
    toward full employment?
        Mr. Powell. So what was happening toward the end of the
    very long expansion, longest expansion, was that people were
    staying in the labor force later into their careers, and so
    labor force participation consistently remained above all
    estimates of where it was going to be. Then what happened in
    the pandemic was a lot of those people retired.
        Senator Toomey. Right.
        Mr. Powell. So there have been really significant amounts
    of retirement.
        So the truth is we do not know where that is going to
    settle out, and it will take a period of years for us to really
    understand what the new trend is. I do not see that as a
    problem for the standard we have set for tapering asset
    purchases, which is substantial further progress. We are not
    going to need to know the answers to those questions to make a
    decision that we have made substantial further progress. It
    will be more of a consideration for raising rates, where we
    have set a higher bar.
        Senator Toomey. OK. I just hope there is a focus on the
    distinct possibility that we are just not going to get to those
    levels anytime soon.
        Let me turn to housing prices a bit. The Case-Shiller Home
    Price Index showed housing prices across the U.S. as a whole
    increased in May by more than 15 percent from the previous
    year. And that was not a base effect. There was no big decline
    in May of last year. Fifteen percent clearly is making housing
    less affordable, more out of reach for more people.
        So a number of voices within the Fed seem to be
    increasingly concerned about this. The St. Louis Fed President,
    James Bullard, said just this week that he is ``a little bit
    concerned that we are feeding into an incipient housing
    bubble.'' Dallas Fed President Robert Kaplan said that the Fed
    should begin tapering to begin offsetting ``some of these
    excesses and imbalances.'' The Boston Fed President, Eric
    Rosengren, raised alarms that the Fed's mortgage-backed
    security purchases may be contributing to the current boom in
    real estate prices, citing the potential financial stability
    implications.
        I guess you know I have been clear for a long time. I have
    been very skeptical about the ongoing mortgage-backed
    purchases. Are you at all concerned about the unintended
    consequences that are associated with $40 billion worth of
    mortgage-backed security purchases that continue month after
    month?
        Mr. Powell. So housing prices are going up, as you
    mentioned, around 15 percent. This is a very high rate of
    increase. A number of factors are contributing. Monetary policy
    is certainly one of those factors. There are also other
    factors. People have very strong balance sheets, so they are
    able to make downpayments. There are also supply factors that
    are constraining the supply, at least temporarily.
        So you know, our best--my best thinking is that the
    difference between Treasury purchases and MBS purchases for
    this purpose is not a large one. Probably MBS purchases are
    somewhat more supportive of housing. That is not their intent,
    but that may be the effect.
        Really, the larger point is that monetary policy is
    supporting this, and that is something--that is a discussion we
    are going to be having as--on an ongoing basis. We talked about
    some of these things at our last meeting, and we will talk at
    the next meeting in a couple of weeks.
        Senator Toomey. I think that is important.
        Let me close with a question on a central bank digital
    currency. During your testimony yesterday, I sensed what I was
    not sure but thought might be a change in your tone about the
    virtues of a central bank digital currency being issued by the
    Fed. One of the things you said yesterday is that one of the
    stronger arguments in favor of a CBDC is that, ``You would not
    need stablecoins; you would not need cryptocurrencies if you
    had a digital U.S. currency.''
        Of course, is not the reverse also true? If you have
    stablecoins, cryptocurrencies in use, then maybe there is no
    need for a central bank digital currency.
        I guess my--two points. One is it is my view that the
    development of a central bank digital currency by the Fed would
    require congressional authorization. I am wondering if you
    share that view. And second, it is still not clear to me what
    problem a central bank digital currency would solve, and I
    wonder if you think there are problems that only a central bank
    digital currency can solve.
        Mr. Powell. First, I am legitimately undecided on whether
    the benefits outweigh the costs, or vice versa, on a CBDC.
    Yesterday, I was answering a direct question about a particular
    argument. I said, in favor, that would be one of the stronger
    arguments.
        Senator Toomey. OK.
        Mr. Powell. I would agree that the more direct route would
    be to appropriately regulate stablecoins, which were not--we do
    not do right now, and that is going to be a very important
    thing that we do do.
        So in terms of congressional authorization, you know, there
    are different views on that. I have said publicly, and I think
    this is right, that we would want very broad support in society
    and in Congress, and ideally, that would take the form of
    authorizing legislation as opposed to a very careful reading of
    ambiguous law to support this. It is a very, very important
    initiative, and I do think we should ideally get authorization.
        In terms of what the problem is to solve, that is--I think
    that is exactly the right question. And you know, I think our
    obligation is to explore both the technology and the policy
    issues over the next couple of years. That is what we are going
    to do, so that we are in a position to make an informed
    recommendation. But my--again, my mind is open on this, and I
    honestly do not have a preconceived answer to these questions.
        Senator Toomey. Thank you, Mr. Chairman.
        Chairman Brown. Senator Menendez of New Jersey is
    recognized.
        Senator Menendez. Chairman Powell, as the Federal Reserve
    seeks to fulfill its mandate of maximum employment, I want to
    discuss with you the tremendous impact that immigration has on
    the labor force. Is it not true that over the past 10 years the
    immigrant labor force participation rate has been consistently
    higher than that of native-born workers?
        Mr. Powell. I believe that is right.
        Senator Menendez. Yes. And let me help you verify that. The
    St. Louis Fed noted in their study that as of June 2021 the
    foreign-born labor force participation rate is 3 percent higher
    than the native-born rate and that gap has not ever been lower
    than nearly 2 percent for the past 10 years.
        And an important, but often overlooked, characteristic of
    these immigrants is their youth. According to the Bureau of
    Labor Statistics, 71.8 percent of foreign-born workers are
    between 25 and 54 years of age compared to 62.2 percent of the
    native labor force.
        So as the American labor force ages, will immigrants and,
    therefore, immigration policy play an increasingly important
    role in maintaining a healthy U.S. labor force, therefore, a
    healthy economy?
        Mr. Powell. Senator, I am going to stay away from making
    any recommendations on immigration policy. It is not in our
    wheelhouse. I will say that labor force growth is one of the
    two things that can drive the top line, the other being
    productivity growth. And you know, in recent years, immigration
    has been a significant part of--counted for a significant part
    of growth in the workforce.
        Senator Menendez. Well, I appreciate that. I am not asking
    you about immigration policy. What I am saying is that one of
    the newest studies shows that nearly 1 in 4 Americans is
    projected to be 65 years of age or older by 2060. So while
    America gets older, the overall population is growing at a
    slower rate than it has in almost a century, leaving unfilled
    job openings in a future American economy. And I think we
    should be looking at our immigration policy, whatever that
    might ultimately be--I have my own idea, the U.S. Citizenship
    Act--as a source of dealing with the labor market.
        Now let me continue on the question of the labor market.
    One part of the Fed's dual mandate is to maximize employment
    and understanding what factors inhibited people's ability to
    work as a key to helping achieve that goal. On page 7 of your
    Monetary Policy Report, and I will quote directly from it,
    ``The effect of the pandemic on employment was largest for
    workers with lower wages, for workers with lower educational
    attainment, and for African Americans and Hispanics, and these
    hard-hit groups still have the most ground left to regain. And
    the pandemic seems to have taken a particularly large toll on
    the labor force participation of mothers, especially Hispanic
    mothers.'' That is very much true. So have disruptions in
    childcare due to the pandemic had a negative effect on
    employment?
        Mr. Powell. Yes, they have, and also schools being closed.
    Caretakers generally are having a hard time getting back into
    the labor force for that reason.
        Senator Menendez. Yes. The Federal Reserve's data shows
    that the pandemic's effects on childcare caused 9 percent of
    all parents to be unable to work late last year and an
    additional 14 percent of parents had to decrease their hours,
    and this effect was especially pronounced among Black,
    Hispanic, and low-income households. So is the effect of
    childcare on employment isolated only to the COVID pandemic?
        Mr. Powell. Sorry?
        Senator Menendez. Is the effect of the availability of
    childcare that is affordable on employment isolated only to the
    COVID-19 pandemic?
        Mr. Powell. I am going to guess really that the answer to
    that would be ``no.''
        Senator Menendez. Yes. And it is ``no.'' Studies have shown
    that working families pay for childcare 35 percent of their
    income, on average, 5 times more than what the Department of
    Health considers affordable. So it seems to me that increasing
    the availability of high-quality, affordable childcare, like
    what President Biden proposes in the American Families Plan,
    has a positive effect on employment, enables businesses to more
    easily find qualified workers, and ultimately helps address the
    supply bottlenecks.
        The same Fed study I just cited notes that reducing or
    offsetting the cost of childcare has a particularly strong
    employment effect on Black, Hispanic, and low-income families.
    The pandemic showed all of the inequalities in our Nation,
    highlighted in a way so dramatically, and particularly
    communities of color. Now, the employment challenges. We all
    talk about wanting to get people to work. The employment
    challenges that people have in being able to work, and they, as
    I have shown in the St. Louis Fed's statistics, more, more
    gainfully employment than native-born. It seems to me we should
    be working on making the pathway easier so that businesses can
    have qualified workers.
        Thank you, Mr. Chairman.
        Chairman Brown. Senator Rounds of South Dakota is
    recognized for 5 minutes.
        Senator Rounds. Thank you, Mr. Chairman.
        Chairman Powell, once again, it is good to see you, sir,
    and I have most certainly appreciated the time that you spent
    trying to not only educate us but also to work with us. I
    understand that clearly you have made it your mission to adhere
    to the guidance for the Fed in which you work to maintaining 2
    percent inflation over a period of time as well as full
    unemployment, or full employment. And when we talk about it, it
    is always a combination of which one you are more focused on
    and how you maintain that while at the same time responding
    appropriately, and in a nonpolitical way, to the actions of
    Congress and the Administration.
        I am just curious. With regard to today's position, we are
    coming out of a pandemic. We have put a lot of fuel into the
    economy with direct payments and so forth, and people are
    trying to get back to work right now. And yet, we have got
    inflation which right now, in this current state, seems to be
    above a 2 percent rate.
        Can you talk a little bit about the measurement time period
    that you believe is appropriate for shooting for a 2 percent
    goal and if there is a concern that you would express, or that
    you follow up with, when we talk about over-inflating or
    perhaps putting fuel in, what concerns you would have and how
    you would respond to congressional activity?
        Mr. Powell. So the inflation that we have today, what we
    said is that if inflation runs below 2 percent for an extended
    period we want inflation to run moderately above 2 percent for
    some time. This is not moderately above 2 percent by any
    stretch; this is well above 2 percent, and we understand that.
    And it is also not tied to, you know, the things that inflation
    is usually tied to, which is a tight labor market, a tight
    economy, that kind of thing. This is a shock going through the
    system associated with reopening of the economy, and it has
    driven inflation well above 2 percent. And, you know, of
    course, we are not comfortable with that.
        In terms of the test that we articulated, we said we wanted
    inflation to average 2 percent over time. We did not tie
    ourselves to a formula. What we really want is inflation
    expectations to be anchored at 2 percent because if they are
    not there is not much reason to think that inflation will
    average 2 percent. So that is really how we are thinking about
    it.
        The challenge we are confronting is how to react to this
    inflation, which is larger than we had expected or that anybody
    had expected. And to the extent it is temporary, then it would
    not be appropriate to react to it. But to the extent it gets
    longer and longer, we will have to continue to reevaluate the
    risks that would affect inflation expectations and will be of a
    longer duration, and that is what we are monitoring.
        Senator Rounds. You have been very careful, and I have
    appreciated the fact that you have done your best to be
    apolitical in this regard. And yet, at the same time, we are
    going to have a debate about whether or not we need to add
    additional fuel to the economy in terms of additional payments
    to individuals. And as we make that discussion, recognizing
    that you are going to do your best to be apolitical and simply
    to respond based upon your goals of the long-term goal of 2
    percent inflation and full employment, how do you see this
    right now? With inflation right now being the focal point and
    yet the possibilities of more dollars being put into this
    economy in this recovery stage, what concern would you express,
    if any?
        And I know that your job is not to give us advice, but
    rather to respond to. What are the tools available for you to
    try to maintain that long-term goal of 2 percent during a time
    in which Congress may very well be adding additional fuel to
    the fire, so to speak, for inflation?
        Mr. Powell. So the way it works is we watch what Congress
    is talking about, and then it reaches a point at which our
    staff will say that looks like it has got a good chance of
    happening, and then we will put something into--the staff will
    put something into the forecast, and all of us will make our
    own judgment about whether that was the right thing to do,
    whether it is too big or too small. And we never then take that
    into the public sphere and say, you know, please do not do that
    for this reason or that reason. It is really not up to us to
    play a role, as you know.
        Senator Rounds. But the tool, the tool that you would use
    would be within monetary policy of the price of money.
        Mr. Powell. Always, the tools we have are, you know, in
    monetary policy, is to raise interest rates, to tighten
    financial conditions more broadly, to slow demand down. And
    that is how you get control of inflation, and that is--and that
    is what you do.
        At a time like this, though, policy is so accommodative.
    You know, it will still be accommodative after we slow asset
    purchases, ultimately stop them, and then raise interest rates.
    It will be accommodative for quite a while. But that is what we
    do, and that is what we will do when and as we need to.
        In the meantime, we are trying to understand. This
    particular inflation is just unique in history. We do not have,
    you know, another example of the last time we reopened a $20
    trillion economy with lots of fiscal and monetary support. So
    we are just trying to--we are humble about what we understand,
    but we are--you know, we are trying to both understand the base
    case and also the risks.
        Senator Rounds. Mr. Chairman, thank you very much for your
    response.
        And, Mr. Chairman, thank you.
        Chairman Brown. Thank you, Senator Rounds.
        Senator Warner from Virginia is recognized.
        Senator Warner. Thank you, Mr. Chairman.
        And, Chairman Powell, it is great to see you. Thank you for
    your good work.
        You know, one of the issues that we have, you and I, spent
    a lot of time talking about over the last year-plus has been
    access to capital issues. And as we know, COVID
    disproportionately hit communities of color. We lost 440,000
    Black-owned businesses last year.
        And as we have discussed in the past, you know, I have been
    a big advocate with many on this Committee, on both sides of
    the aisle, to promote investment into minority depository
    institutions, into community development financial
    institutions. And actually, working with former Secretary
    Mnuchin, we got $12 billion into the relief package back in
    December. Some of that will go into, as you know, tier one
    capital into the CDFIs, which could actually increase their
    lending capacity by about 50 percent. But getting that access
    to capital to low and moderate-income communities is really,
    really important.
        Is there more that the Fed can do--let me give you a two-
    part question--the Fed can do to support CDFIs? And is there
    anything similar to programs like the Fed's Paycheck Protection
    Program, the PPP program liquidity facility, which could also
    potentially be used? I know again we have discussed some of
    these things, but like to see if--what your current thinking
    has been on this issue.
        Mr. Powell. So we do see, and we saw particularly during
    the pandemic, the good that CDFIs and also minority depository
    institutions can do and were doing. And we try to provide
    whatever resources we can, and a lot of it is just engagement
    and things like that and also including the CDFIs in the PPP
    liquidity facility and doing everything we could to incorporate
    them in a way that was useful to them. So all of those things
    are good.
        I think if we could think of more things to do within our
    mandate, given our authorities, we would do them because we do
    see the good that they do in reaching communities that are not
    necessarily reached by other banks.
        Senator Warner. And I do hope, you know, beyond CRA that we
    can, you know, look at--I have got a lot of community banks as
    well that want to try to get into this market. And I have got
    some ideas I would like to come back to you and the Fed on
    because I think sometimes there is a feeling that there is not
    enough regulatory discretion if they want to kind of lean into
    lending to low and moderate-income communities.
        I want to raise one other issue I think we have all seen.
    We all know housing prices are up dramatically. Matter of fact,
    the Federal Housing Finance Agency's House Price Index showed
    that house prices were up 13.9 percent over the 12 months
    ending in March 2021. And there is a lot discussion around
    inflation here. Obviously, if the housing market is overheated,
    that poses a huge issue. You know, how overheated do you think
    the housing market is at this point, and what kind of tools do
    you have that could help deal with that problem?
        Mr. Powell. Price increases are very strong in housing, and
    it is right across the country. And we see that; we hear that,
    everywhere. And there--as I mentioned, there are a number of
    factors at work there, both demand and supply. There is a lot
    of demand because household balance sheets are just in very
    strong--in the aggregate, in very strong shape.
        Monetary policy is clearly supportive of people who want to
    get mortgages now although most of the people getting the
    mortgages have very high credit ratings. It is very different
    than it was before the global financial crisis.
        There are also, you know, both supply constraints on, and
    this predates the pandemic. And this problem is still going to
    be there when every other problem is solved, which is
    difficulty in getting zoning, in getting trained workers. The
    raw material shortages and high prices and bottlenecks will
    probably abate over time, but it was--it is not--I have heard
    from many of you that this was a problem before the pandemic,
    and I think that is probably going to remain the case.
        Senator Warner. Well, I agree. I think the supply issue is
    something we have to address, and you know, Chairman Brown has
    been working on this. I have been working on some ideas. I also
    think one of the things we have got to grapple with if we go
    back again to the kind of wealth gap issues, particularly
    racial wealth gap, 10 to 1 Black versus White families. A lot
    of that goes to home ownership. But I think it is also a
    challenge not only for Black families but for first generation
    home buyers anywhere.
        You know, I have been working on an idea that somebody else
    brought to me that would say can we effectively using Ginnie
    Mae, with a slight interest rate subsidy, almost provide for
    the same payments you would have on a 30-year mortgage, a 20-
    year mortgage product. We have called it the Lift Up Program.
    And I think my time has expired, but I would love to share more
    of that with you and as I will share with my colleagues.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Warner.
        Senator Kennedy from Louisiana is recognized for 5 minutes.
        Senator Kennedy. Mr. Chairman, I want to begin by thanking
    you once again and your colleagues, some of whom are sitting
    behind you. We all remember well spring of 2020, when the world
    economy almost melted down. It did not in substantial part
    because of the actions that you and your colleagues took. You
    kept this thing in the middle of the road. Now some days you
    had to do it with spit and happy thoughts, but you kept it in
    the middle of the road.
        I remember particularly your currency swap lines. I did not
    read a lot about it. But I can understand when the world is
    melting down if other countries seek out treasuries, but when
    they do not like treasuries they want hard, cold, American
    dollars. That is scary. So I want to thank you.
        This is my question. We have spent--not just during the
    Biden administration, but during President Trump's
    administration, we have spent an enormous amount of money. I
    mean, it is breathtaking. And now some agree, whether some
    disagree with it, but some say you should not have done it.
    Some say we had to do it. It is probably a little bit of both.
    A lot of it was not paid for.
        And I look around, and President Biden is asking us in the
    next, I do not know, 6 months to spend what? Another $5.5
    trillion? And there is a lot of talk about pay-fors, but it
    will not all be paid for. We know that.
        At what point do these deficits matter? Are we living in a
    different world? I mean, it--I know you will probably say,
    well, deficits always matter. But at what point does the
    marginal benefit of the extra deficit spending become less than
    the marginal cost?
        Mr. Powell. I do not think there is a precise point that I
    can identify. I will say that we are not on a sustainable path.
    We actually have not been for a long time. That just meaning
    that the debt is growing substantially faster than the economy.
    In the long run, that is not sustainable.
        The laws of gravity have not been repealed. We will need to
    get back on a sustainable path at some point. I think the time
    to do that is when the economy is strong, unemployment is low,
    taxes are rolling in. That is the time to do it and to do it,
    you know, with a longer-term plan that matches up our spending
    needs and our revenues. That is what we are going to need to
    do.
        Senator Kennedy. When do you think that will be?
        Mr. Powell. We will eventually have to do that.
        Senator Kennedy. When do you think that will be?
        Mr. Powell. I wish I knew. I would say, you know, the
    dollar is the world's reserve currency. People are buying our
    paper around the world. I do not think there is, you know, any
    issue of being able to fund our deficits in the near term, in
    the medium term. There is no evidence that there is, but you
    know, we should not wait until the urgent need arises.
        Senator Kennedy. Yes. It is too late then. Well, I mean,
    everybody seems to be a Keynesian now, and that is fair. Dr.
    Keynes was brilliant. But some people forget about that chapter
    in one of his books where he said, OK, you deficit spend, and
    you borrow to stimulate your economy, but when it is better,
    you pay it back. He said that very clearly--you pay it back.
        The other thing that--none of us wants inflation, but it is
    not just inflation as you know much better than I do. It is
    inflation expectations. I worry that if we spend this extra $6
    trillion or $5.5 trillion that President Biden wants us to
    spend that the private sector is going to say, you know, we are
    going to have more inflation. I do not care what they say at
    the Fed. We are going to have more inflation, and we are going
    to start raising prices. I mean, you do not have to be
    Einstein's cousin to figure that out. Do you not think that is
    something we have to consider?
        Mr. Powell. Well, I would agree with you that inflation
    expectations are really central to--what we think are central
    to what creates actual inflation. We see them now being--they
    have moved up. They moved down at the beginning of the
    pandemic. They have moved back up roughly to where they had
    been in recent years. So they are not at a troubling level.
        Senator Kennedy. OK.
        Mr. Powell. But it is something we will be carefully
    watching.
        Senator Kennedy. All right, last point. I am not expecting
    a response. Resist the pressure. You are going to be asked by a
    lot of people to get involved in social policy, in cultural
    matters, and in what some will call economic policy that really
    has nothing to do with the Fed's mission. And it is not just
    happening here; it is happening all over the world. Do not let
    us become Turkey, where the whole central banking system is
    politicized. Please resist.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Kennedy.
        Senator Smith from Minnesota is recognized for 5 minutes.
        Senator Smith. Thank you, Chair Brown and Ranking Member
    Toomey.
        And thanks so much, Chair Powell, for being with us. I
    appreciated the chance to have a longer conversation with you
    earlier this week.
        I want to try to touch on two issues that are important to
    me. The first is just following up briefly on Senator Brown's
    questions around the Community Reinvestment Act, and then I
    want to go to the systemic risks that climate change poses.
        So earlier this week, you and I had a chance to talk about
    this, and you know, I see the Community Reinvestment Act as the
    main rules that govern how banks provide services in low and
    moderate-income communities and communities of color, which
    have experienced systemic and severe lack of access to capital
    and lending and financial services due to discrimination. I am
    glad to hear you think that you will be seeing some updates in
    the coming months, and I wonder if you could just tell us a
    little bit more about what the Fed has learned from all the
    comments that you have received from the CRA proposal that you
    released last year.
        Mr. Powell. So quite voluminous comments, as you can
    imagine, from all corners. And you know, I think we are
    learning a lot, and we are going to incorporate improvements.
    But broadly speaking, this proposal, this approach, has the
    support of the intended beneficiary community and also, to a
    significant extent, the support of the banks, who want--you
    know, they are--they want CRA to be effective. They want it to
    be well measured. You know, they are committed to having it
    being an effective program, so I believe.
        And so generally, you know, we are in the middle of setting
    up to try to write something that reflects those--you know, the
    appropriate comments, and then we will publish that again. But
    it will take some time, and we hope--we do hope to get all the
    banking agencies on board for that. As I mentioned, I am
    optimistic that this is going to a pretty good place.
        Senator Smith. That is great. I am glad to hear that. I
    think that a well-functioning and modernized CRA is just
    absolutely crucial to making sure that all sectors of our
    economy, for all people, are growing and working. And as
    Senator Brown says, that you know, we fulfill that promise.
    That we all do better when we all do better, I think, is at the
    heart of the CRA. So thank you.
        Let me just move to this question of the risks posed by
    climate change. Yesterday, in your testimony before the House,
    you indicated that the Fed is in the beginning stages of
    working on a program that will engage with financial
    institutions on climate risk. And the last time you came before
    the Committee, you said that you believed it was important
    longer-term for firms to publicly disclose their climate-
    related risks.
        And since then, the SEC has received hundreds of comments.
    Vice Chair Quarles has highlighted the importance of climate
    risk disclosure, and I believe SEC Chair Gensler has signaled
    his intention to begin rulemaking around climate disclosure.
        So can you comment on how you see the role of the Fed on
    climate risk disclosure for financial institutions?
        Mr. Powell. I guess I would start by saying that really the
    foundations of all of this are that we need to get good data on
    the implications of climate change and how to think about that
    in terms of the risks that the financial institutions and other
    parts of the economy are running. And so that is a very basic
    exercise, and you know, we do not have that yet. Once you have
    the data, then disclosure is going to be important because
    markets are going to work. Markets are going to be very, very
    important, and the world investor community will be very
    interested in this. So, those two things.
        And those are--you know, the Fed can help with research and
    data collection, things like that. The disclosure issues are
    really squarely in the province of the SEC, and I know they are
    working very hard on those. But around the world there is a lot
    of progress and focus on these things. I just think they are
    quite central to anything that we are ultimately able to
    accomplish here.
        Senator Smith. So I think it is fair to say that the
    European central banks have led the way here. What can we learn
    from the approach that they have taken?
        Mr. Powell. I think one thing I would point to is the
    climate stress scenarios that have been developed by the
    Network for Greening the Financial System, and a number of the
    major European central banks are running climate stress
    scenarios, very distinct from stress tests. And what they are
    really trying to do is, with financial institutions, look at
    what the effect over a long period of time on their business
    and on their business model could be from, you know, reasonably
    plausible, you know, outcomes for the evolving climate. And it
    is proving to be, I think, a very profitable exercise both for
    the financial institutions and for regulators. So that is one
    thing.
        We have--we have not decided to do that yet. We are in the
    process of looking very carefully at that. My guess is that is
    a direction we will go in that we are not ready to do yet.
        Senator Smith. Thank you.
        Mr. Chair, I realize I am out of time. I want to just note
    that I think that some would say that climate risk is a
    political issue. I see it as a systemic financial risk just
    like other systemic financial risks that big banks and small--
    medium-sized banks have to address. So I think that it is
    extremely important.
        I urge the Fed to continue to look at these impacts and to
    move with alacrity because I think, as you say, Chair Powell, I
    believe that the markets are looking for clarity about how to
    measure and how to assess these risks for the good of investors
    and for everybody. Thank you.
        Chairman Brown. Thank you, Senator Smith.
        Senator Hagerty of Tennessee is recognized for 5 minutes.
        Senator Hagerty. Thank you, Chairman Brown and Ranking
    Member Toomey. I appreciate your holding this important hearing
    that has to do with our critical job of overseeing the Federal
    Reserve.
        And, Chair Powell, I want to thank you for being here with
    us again. Today, I would like to talk with you about inflation.
    Inflation is the insidious tax that the Biden administration is
    imposing on everyday working people here in America right now,
    and it is a great concern.
        Back in February, I discussed with you about how the U.S.
    economy at that point was forecast to see 6 percent growth this
    year, and at that point, I expressed serious concerns about the
    Democrats' nearly $2 trillion of additional partisan spending
    on an economy that was already recovering very rapidly thanks
    to the effects of Operation Warp Speed and also thanks to the
    policies that had been in place during the previous 4 years
    that had put our Nation on a solid footing in terms of tax
    cuts, fair and reciprocal trade, and deregulation.
        The Federal Reserve's challenging and dual mandate is to
    realize price stability and maximum employment, but runaway
    Democrat spending and policies that they are imposing are
    making your job harder than it already is. The bill the
    Democrats ran through in March spent roughly 10 percent of our
    GDP, and now they are looking to spend maybe another 20 percent
    of U.S. GDP on a purely partisan basis. They are throwing
    around trillions of dollars like it was simply Monopoly money
    when really what it is doing is taxing Americans' hard-earned
    paychecks. It is very irresponsible. It is creating inflation
    outcomes that many of us have not seen in our adult lifetimes,
    certainly not since Jimmy Carter was President.
        Echoing what Ranking Member Toomey has said of the concerns
    that he has raised about inflation, I worry, too, that things
    may spiral out of control if we do not show some restraint. At
    the same time, President Biden and the Democrats are imposing
    policies that work against maximum employment. They are giving
    away employment incentives. They are raising taxes on job
    creators, throwing away our energy independence, and freezing
    American investment.
        The Fed has more direct control over inflation and price
    stability than it does over employment. Businesses create jobs,
    and price stability allows American businesses and families to
    make business decisions and to plan their everyday finances.
        But now Americans have a sense of scarcity and, I believe,
    a sense of panic over inflation. The policies that are being
    imposed are causing families in my home State of Tennessee and
    all across America to make financial decisions with soaring
    inflation in mind. Price stability is not a 12 percent
    annualized inflation jump like the one we just saw from May to
    June. People in Tennessee are seeing their buying power eroded
    like never before, and they do not see this as transitory. And
    I am sure people in Chairman Brown's home State of Ohio and
    Ranking Member Toomey's home State of Pennsylvania are feeling
    exactly the same way.
        As you know, inflation expectations can be self-fulfilling.
    Inflation and price instability at this level is bad for
    America.
        Chairman Powell, this environment suggests to me that the
    emergency posture that I understand the Fed adopted back during
    the depths of the pandemic seriously needs to be reconsidered
    right now, and I am very worried that the Fed's continued level
    of asset purchases and balance sheet expansion is facilitating
    this runaway spending that the Democrats are imposing upon us
    and adding to the inflationary pressures that these trillions
    of additional dollars are going to continue to add to our
    economy and continue to add to the debt that our children are
    going to continue to bear. And it is amazing to me that not one
    Democrat in Congress is willing to speak out about this.
        So, Chairman Powell, why is the Fed maintaining its
    emergency monetary policy posture right now, and why do I
    understand that it may continue well into 2023?
        Mr. Powell. So where we are is we are watching the
    evolution of the economy. We are noting that there is still an
    elevated level of unemployment. We note that inflation is well
    above target, and we have discussed that. And we have said that
    we would begin to reduce our asset purchases when we feel that
    the economy has achieved substantial further progress measured
    from last December. So we are in active consideration of that
    now.
        We had a full meeting last June, last month, to discuss
    that. Then we have got another meeting coming up in 2 weeks. So
    we will be making that assessment, and as we assess the
    progress of the economy toward that goal, we will begin to
    reduce our asset purchases. We have set a separate test for
    raising interest rates, which is a higher test. And so that is
    how we are thinking about this today.
        Senator Hagerty. The policy positions that have been
    undertaken by this Administration go far beyond the transitory
    nature that you described. And again, if I think about the
    expectations of the people in my home State, they are very,
    very concerned about inflation. So I would like to pass that
    along.
        I would also like to ask you just a very simple question.
    Does continued Government stimulus spending at this point make
    your job in terms of sustaining price stability more difficult?
        Mr. Powell. So we are not in the business of giving
    Congress advice on fiscal policy, and I just have to leave that
    to you. We take whatever you do, and we put it into our
    considerations of policy, but we do not--we do not comment on
    it one way or another.
        Senator Hagerty. Thank you, Mr. Chairman.
        Thank you, Chairman Brown.
        Chairman Brown. Thank you, Senator Hagerty.
        Senator Warren from Massachusetts is recognized.
        Senator Warren. Thank you, Mr. Chairman.
        So the Chairman of the Federal Reserve has two basic jobs:
    monetary policy, which everybody likes to talk about, and
    regulatory oversight, which is often way down in the weeds but
    keeps our economy safe from another banking meltdown.
        You have been Chair for 4 years now and have gone through
    the process of what you describe as, quote, tailoring the
    regulations put in place after the 2008 financial crisis. Now
    there were a lot of changes, but I want to talk about a couple
    in particular. To prevent taxpayer bailouts, banks are required
    to have living wills. This means that banks must be able to
    show every single year how they could be shut down without
    wrecking the entire economy. In 2019, you changed the rules so
    that the 13 banks with $250 billion to $700 billion in assets
    could submit full living wills only once every 6 years instead
    of every year. So that test is now weaker.
        Chair Powell, has the Fed done anything over the past 4
    years to make living will requirements stronger?
        Mr. Powell. To make living will--we have done a lot of
    things to strengthen regulation and capital, but I think----
        Senator Warren. Yes, but on living wills. So just----
        Mr. Powell. Living wills. No.
        Senator Warren. OK.
        Mr. Powell. Maybe I can explain what we----
        Senator Warren. So let us move to another regulation, the
    Volcker Rule, the rule that works sort of like Glass-Steagall
    ``light'' to separate commercial banking from Wall Street risk
    taking. In 2019, you exempted more short-term trading holdings
    from the rules so banks could take on a little more risk. Now
    that weakened the rule. Then in 2020, you eased up the rules to
    let banks invest more of their assets in high-risk private
    equity and hedge funds. So the Volcker Rule got weaker again.
        So let me ask, Mr. Chairman, during the past 4 years, has
    the Fed done anything to make the Volcker Rule stronger and
    limit risky trading for the largest banks?
        Mr. Powell. I think by clarifying it we made it more
    effective at what it is supposed to do, which is just what you
    said.
        Senator Warren. Well, I have to say it is whether or not
    you did anything to make it stronger, not just whether or not
    you made it clearer. It is whether or not you made it stronger
    or harder for banks to engage in speculative trading. So I am
    taking it that the answer here is ``no.''
        I have highlighted two examples of weakening regulations,
    but there are a whole lot more: reducing capital requirements,
    easing liquidity requirements, shrinking margin requirements,
    scaling back on supervision, weakening the stress tests. It is
    a long list. And I realize that you think these are good
    changes, but I am trying to look at this from a regulatory
    perspective. Is the Chairman of the Federal Reserve making
    banking rules stronger or weaker?
        So tell me, Mr. Chairman, is there a big rule change that I
    missed? Can you name a change that strengthened the rules and
    made the actual rules tougher?
        Mr. Powell. Well, let me say we did not weaken capital
    requirements for the largest banks, and we--I actively resisted
    any move in that direction. And in fact, the stress capital
    buffer which we implemented quite recently, after years of
    consideration, raises capital standards----
        Senator Warren. So----
        Mr. Powell ----for the largest banks by the way. Stress
    tests. They are really bound by the stress tests. We maintained
    the very high stringency of the stress tests through this
    period.
        Senator Warren. But I was asking about anything tougher.
        Look, what I am looking for is that the Fed's record over
    the past 4 years, I see one move after another to weaken
    regulation over Wall Street banks, and that worries me. There
    is no doubt that the banks are stronger today than they were
    when they crashed the economy in 2008, but that is the wrong
    standard. The question is whether or not they are strong enough
    to withstand the next crisis and whether the Fed is tough
    enough to protect the American economy and the American
    taxpayer.
        In 2020, the giant banks that are the beneficiary of these
    weakened rules made it through the crisis, but the researchers
    from the Minneapolis Fed found that the banks would have faced
    up to $300 billion in losses if not for fiscal stimulus from
    the Government. In other words, the current Fed rules were not
    strong enough for the banks to withstand the pandemic without,
    once again, calling on American taxpayers to back them up. And
    that is the heart of my concern. I understand that the next
    crisis may feel far away, but like the pandemic, it may come at
    us fast and from an unexpected direction.
        It is the job of the Federal Reserve, and specifically the
    job of the Chair of the Federal Reserve, to use the regulatory
    tools that Congress has created in order to make sure that
    banks remain strong and that taxpayers will never be called on
    again for a bailout.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Warren.
        Senator Tillis from North Carolina is recognized for 5
    minutes.
        Senator Tillis. Thank you, Mr. Chair.
        Chairman, thank you for being here. I wanted to go back and
    maybe give you an opportunity to respond to one question. You
    were going to explain the work on living wills. Would you like
    to----
        Mr. Powell. Yes.
        Senator Tillis ----explain the work you have done there?
        Mr. Powell. I would just say we--you know, that was an
    incredibly labor-intensive and taxing issue that we went
    through, cycle after cycle after cycle, and really the marginal
    gains from doing it every year diminished quite a lot. So we
    concluded that for the largest banks we would not require a
    full resubmission except every other year. And--but they have
    to--anything that is material they must resubmit. I do not
    think in any way we have weakened our understanding of the
    resolvability or anything like that.
        I would also say we did--we raised capital standards on the
    largest banks, full stop, in the stress capital buffer. They
    are higher now than they were. I would say that.
        Senator Tillis. And with respect to the Volcker Rule, you
    were talking about clarifications. I mean, is the Fed fully
    enforcing the Volcker Rule based on congressional intent?
        Mr. Powell. Absolutely. Look, I think it is important. More
    broadly, I would completely agree that our job is to maintain
    the strength of these large financial institutions so that we
    never have to worry about bailing them out again, and I am
    strongly committed to that.
        You know, we need them to be very, very strong so that they
    can perform the roles that they are supposed to perform even in
    a severe crisis. And I think that they, by and large, did,
    admittedly with a lot fiscal support and a lot of--a lot of
    monetary support, too. We can always--you know, we can always
    do better, but we are committed; I am committed to that.
        Senator Tillis. Thank you. I have got to beat the inflation
    drum for just a minute here. The FOMC members insist inflation
    is transitory, but it has not inspired a lot of confidence in
    me. There was a statement, a couple of statements, by President
    Mary Daly. In February, she declared the pressures on inflation
    now are downward. In May, when inflation readings were at 3.9
    percent, she said the higher inflation readings would be--would
    mean 2.4 to 2.6 percent. In June, she was predicting that
    inflation could go above 3 percent. And despite months of
    relatively low-ball projections, in response to Tuesday's high
    inflation reading, she confidently declared we expect a pop in
    inflation like this. So I hope, from our perspective, you could
    see that we are skeptical about some of the inflation
    projections.
        And I have heard--I have spoken with a number of people in
    the financial services industry, and when I ask them the
    question about ``transitory,'' I am getting more of a response
    now of ``transitory-ish.'' So can you give me a reason why you
    believe the Fed's position on it being transitory, that it will
    snap back, why that is still well founded?
        Mr. Powell. Sure. So let me start by saying that no one has
    any experience of what it is to reopen the economy after what
    we went through, and so all of us are going to have to be
    guided by data and have--you know, our views are going to have
    to be----
        Senator Tillis. Yes, Chairman, let me interrupt you for a
    second. I would also like for you to answer that question in
    the context of the flow of money that has been passed in the
    prior COVID relief packages. And we had an announcement this
    week from the Speaker of the House and Senator Schumer that
    they have an agreement on another 3.5 trillion. I am a part of
    a working group for infrastructure that could add about another
    600 billion. So answer the question in the context of how that
    future, according to the leadership of Congress, outcome is
    going to occur. How does that all fit into the credibility of
    future inflation projections?
        Mr. Powell. So when we look at inflation, we look in the
    basket of things that--and we say which of the hundred-plus
    things in the CPI basket are causing the inflation, high
    inflation reading. And it comes down to really a handful of
    things, all of which are tied to the reopening. It is used,
    rented and new cars. It is airplane tickets. It is hotel rooms,
    and it is a handful of other things. And they account for
    essentially all of the overshoot.
        So--and we think that those things are clearly temporary.
    We do not know when they will end, but they will go away. So we
    do not know when they will go away. We also do not know whether
    there are other things that will come forward and take their
    place.
        You know, if we--what we do not see now is broad inflation
    pressures showing up in a lot of categories. The concern would
    be if we did start to see that. We do not see that now. We will
    be watching carefully.
        And we will not have to wait, you know, a tremendously long
    time, I do not think, to know whether our basic understanding
    of this is right. We will know because we will see other more--
    if we see inflation spreading more broadly, that will give us
    information.
        Senator Tillis. OK. I just want to get one more in. I
    appreciate that, and I listened to your responses from some of
    the other Members. With the LIBOR transition, do you still
    view--I think you publicly stated Ameribor is a reasonable
    choice for regional and community institutions. Do you still
    stand by that?
        Mr. Powell. You know, we do not like to bless individual
    rates, but I would just say market participants have the
    freedom to choose--to choose the rates that they want to
    choose. We are not--we are not forcing them to use. This is
    for--this is for just use.
        Senator Tillis. But I am confirming----
        Mr. Powell. And it uses LIBOR.
        Senator Tillis ----in some public comments, you have said
    it is an appropriate rate for banks and funds through the
    financial--American Financial Exchange. You still stand by that
    statement.
        Mr. Powell. I saw--I saw that. I do not remember saying
    that, but if people--it was in a letter, I think.
        Senator Tillis. OK.
        Mr. Powell. So I must have done it.
        Senator Tillis. Thank you, Mr. Chairman. Appreciate your
    work.
        Mr. Powell. Thank you.
        Chairman Brown. Thank you, Senator Tillis.
        Senator Tester of Montana is recognized for 5 minutes.
        Senator Tester. Yes, thank you, Chairman Brown.
        And I want to thank Chairman Powell for being here today. A
    lot of chairmen around here.
        But look, I have appreciated you, and I have appreciated
    your work during your tenure and especially as we look back
    over an incredibly difficult period of time, where you were
    having to take a lot of issues that we had not seen in, you
    know, 80 years under consideration, getting attacked, trying to
    politicize the Fed. I just want to thank you. I appreciate it.
    I think your expertise and your knowledge has shown through.
    The cream has risen to the top, so to speak. So thank you.
        Look, there is a lot of talk about infrastructure needs,
    and I think that you would probably agree that China is trying
    to take over our role in this world of being the economic
    superpower. And I am one that believes in infrastructure and
    investments in infrastructure is critically important if we are
    going to maintain our position as a worldwide economic power.
    ``The'' worldwide economic power.
        My question for you is: As you look at infrastructure
    investments and how that affects our economy, where would you
    put your focus?
        Mr. Powell. I do not have any--I mean, I would just say
    that well-spent, well-invested infrastructure money does have
    the ability, and it is really up to you to make those
    decisions. But you know, it is the kind of thing that can
    actually raise the growth rate, the potential growth rate, of
    the country over time. But I guess I need to leave the
    details----
        Senator Tester. So I think that there are several proposals
    out there. There are proposals to invest in roads and bridges
    and broadband and grid, which some of us in this room are a
    part of, that I think is really, really important. I think
    there are other proposals that are also very important, but
    they are investing in a different infrastructure, like
    childcare and workforce housing and those kinds of things.
        I do not mean to put you on the spot, but I do value your
    opinion. Where do you think those things fall? Are they equally
    as important, or do you think that--do you think the economy is
    fine without any investment in those kinds of things, like
    housing and childcare and, you know, that kind of stuff?
        Mr. Powell. I do not want to get into--I would not get into
    the debate over whether those are----
        Senator Tester. No.
        Mr. Powell ----infrastructure or not, but there is a----
        Senator Tester. Right. No, no. Just from an economic
    standpoint.
        Mr. Powell. You know, from an economic standpoint, take
    childcare. You know, we used to have the highest female labor
    force participation rate among the advanced economies. Now we
    are close to the bottom of the pack. And one of the differences
    economic researchers point to--there is a lot of research on
    this--is just a different approach on childcare. And it is
    really up to you to look at that and see whether that makes any
    sense in the U.S. context. We do not have an opinion on that.
        Senator Tester. OK.
        Mr. Powell. But that is a basic economic trend where we
    used to lead and we do not anymore.
        Senator Tester. OK. So let me ask you this. I do not know.
    I know that many in the Fed have done some work on issues in
    Indian Country, and one of the issues in Indian Country is
    housing. They have a different situation because of their
    sovereignty and because of, you know, not having the kind of
    collateral that folks who own property have. The land under
    reservation I am talking about. Do you have any thoughts on
    that, on what we could be doing? Outside of the whole
    infrastructure conversation, just what can we do to impact
    Indian Country when it comes to housing? Because, man, it is
    woefully, woefully bad.
        Mr. Powell. That is a hard question, and as you know, we
    have--we have four or five reserve banks that are--that are
    involved, particularly Minnesota, Minneapolis, in Indian
    Country issues. You know, we are not--we are not allowed to
    spend--we do not spend taxpayer money on things directly like
    that, but I think we would agree that there is a significant
    housing issue in Indian Country. And I--you know. I mean, I am
    not sure I have the answer----
        Senator Tester. So if you--look, if you have any ideas that
    pop into your head about how we can--I do not know if
    ``incentivize'' is the right word, but how we can engage the
    private sector to do some--to do some housing so that they
    would be more inclined.
        And look, I get their point of view. It is not traditional.
    You know, they do not have the kind of collateral that they
    would have with--you know, with, well, fee property. So it is
    an issue.
        Look, I appreciate what you are doing. I am about out of
    time, but I just want to thank you for your work. I appreciate
    you being in front of the Committee today and good luck.
        Mr. Powell. Thank you, Senator.
        Chairman Brown. Thank you, Senator Tester.
        Senator Shelby from Alabama is recognized for 5 minutes.
        Senator Shelby. Thank you. Chairman Powell, we have been
    talking about inflation. And it is not going to go away, I
    think, for a while. So we are going to continue to talk about
    it, and you will be concerned with it.
        In June, U.S. inflation accelerated at its fastest pace in
    13 years. Consumer prices increased by 5.4 percent from a year
    ago. Americans are now paying higher prices for many of the
    goods and services that they cannot do without. The buying
    power of the dollar has diminished over the past 40 years. Give
    me some--I will give you some examples. You know all this.
        According to the Bureau of Labor's Consumer Price Index,
    one dollar today is seven times less valuable than it was in
    1970, three-and-a-half times less valuable than in 1980, half
    as valuable as 1990, and one-and-a-half times less valuable
    than 2000, which seems like yesterday.
        Recently, the price of commodities, as you know, has
    increased swiftly. The price of agricultural goods and
    commodities has increased corn by 50 percent from a year ago,
    wheat by 17 percent, soybeans by 54 percent. The price of
    metals has risen. For example, copper, which is used
    everywhere, has increased 43 percent. Aluminum has increased by
    47 percent.
        Energy prices, as you know again, have grown. The price of
    crude oil has increased by 70 percent. Gas prices are up 45
    percent.
        In the automotive industry, prices for used cars rose 45
    percent in the past year, 10.5 percent in June alone. Airline
    tickets are up 25 percent. The cost of milk is up 7.5 percent.
        All of this on the rise. At this point, the Biden
    administration continues to claim that the increases in
    inflation are temporary. I, along with others, believe that
    this could be the sign of things to come. We hope not. For
    instance, economists surveyed by the Wall Street Journal this
    month forecasted higher inflation for the next couple of years.
    Throughout the seventies, as you will recall, high inflation
    crippled consumers with rapid and sudden price increases. Many
    of those conditions exist today, such as loose monetary policy
    and significant Government spending.
        If we fail to take inflation seriously, Mr. Chairman, I am
    concerned that our Nation could be faced with the same
    challenges of years ago. Yet, in the midst of the increase in
    consumer prices, which I have just related, the Biden
    administration is proposing trillions more in Government
    spending. The Fed's ability to maintain price stability is
    threatened, I believe, by actual inflation or the expectation
    of inflation.
        Chair Powell, my question is this: Taking all this into
    consideration, which you have data that we probably do not
    have, do you believe that this Nation, our Nation, is facing a
    real problem with inflation, and if not, why not? How do you--
    how do you justify?
        Mr. Powell. I think we are experiencing a big uptick in
    inflation, bigger than many expected, bigger than certainly I
    expected, and we are trying to understand whether it is
    something that will pass through fairly quickly or whether, in
    fact, we need to act. One way or the other, we are not going to
    be going into a period of high inflation for a long period of
    time because, of course, we have tools to address that. But we
    do not want to use them in a way that is unnecessary or that
    interrupts the rebound of the economy. We want to put--we want
    people to get back to work, and there are a lot of people who
    are not back to work yet.
        So--but we are--let me say, very well aware of the risks
    for inflation, watching very carefully, and you know, if we
    come to the view that--or if we see inflation expectations or
    the path of inflation moving up in a way that is troubling,
    then we will react appropriately.
        Senator Shelby. Are you concerned about all of the things
    that I just related, all the price increases unprecedented in
    recent years, or are you just putting that aside?
        Mr. Powell. No. I mean, we are--of course, we are--we are--
    you know, night and day, we are all thinking about that----
        Senator Shelby. Sure.
        Mr. Powell ----and really asking ourselves whether we have
    the right frame of reference, the right framework for
    understanding this.
        Senator Shelby. Last, do you agree with the economists that
    I referenced, that the Wall Street Journal polled, who forecast
    higher inflation rates for the next couple of years,
    notwithstanding?
        Mr. Powell. So that was--that was the headline writer
    really got a little carried away there because the actual
    forecast showed that the median for 2022 was 2.3 percent PCE
    inflation and for 2023, 2.2 percent PCE inflation, which is not
    at all different from the forecasts of really of the people on
    the Federal Open Market Committee. So those are higher than for
    the last 30 years, but they are not that high. So that forecast
    was not--was not really as problematic as the headline
    suggested.
        Senator Shelby. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Shelby.
        Senator Cortez Masto is recognized for 5 minutes.
        Senator Cortez Masto. Thank you, Mr. Chairman.
        Chairman Powell, welcome back. Let me follow up on this.
    Are you confident that you have the tools that you need to
    address any type of inflation, whether it is transitory or for
    the future, that we are looking at right now?
        Mr. Powell. Yes, I am.
        Senator Cortez Masto. Thank you. And can I ask, in
    considering inflation, how should we compare costs to last
    summer, when prices were well below their current levels
    because of the pandemic?
        Mr. Powell. I think it is actually--in the spirit of your
    question, it is better to compare prices to prices where they
    were in February. And if you look at inflation since then, that
    captures both the decrease and the increase, and you get much
    lower numbers if you do that. There are a lot of people doing
    that right now. So you get--you get inflation in the mid-2s,
    which is still above our target, but that sort of 16-month
    inflation on an annualized basis is a 2.5 percent kind of
    thing, not 5 percent.
        Senator Cortez Masto. Thank you. And then for purposes of
    the COVID relief packages, all of them, including the most
    recent one, the American Rescue Plan, is that the sole cause
    for what you see with respect to the minimum increase in
    inflation?
        Mr. Powell. I think a lot of things go into it. You know,
    the main thing is that we have demand rebounding very, very
    strongly. That is partly monetary policy. It is partly fiscal
    policy. And what we see on the supply side is the supply side
    just cannot keep up with this demand and all these bottlenecks.
    And by the way, it is happening everywhere in the world. So it
    is a combination of factors.
        Senator Cortez Masto. And so unlike the last recession that
    we lived through in 2014, 2010 to 2014, would you--I am
    curious. Would you--and this is my interpretation of it is that
    when our economy opened up from that it was a gradual, gradual
    opening-up of our economy again, and this is more of a kind of
    a light switching on with the economy opening up quickly. And
    that is why we see some of the concerns with supply and demand
    on so many different areas, and that is why we see highly
    concentrated sectors where there is a demand like you have
    touched on tonight, or today. Is that accurate?
        Mr. Powell. It is accurate, and I would add that this--the
    response, both from fiscal and monetary policy, in this episode
    is just orders of magnitude different from what has happened in
    the past. So we are back to pre-COVID levels of economic
    output, and we are on a path to be above the prior trend
    actually within a year, if forecasts prove out.
        Senator Cortez Masto. Thank you. You know, in Nevada, our
    employment rate has fallen sharply since the pandemic last
    spring. Unfortunately, we are still fourth in the Nation for
    unemployment. But as I watch our economy open up again, and
    particularly--you and I have talked about this--is the tourism
    and travel industry is starting to rebound again, which is
    fantastic. Last month, more than 130,000 people applied for
    6,000 positions at a new resort in Las Vegas.
        Part 5 of the Federal Reserve Monetary Policy Report notes
    that ``Payroll employment increased by 3.2 million jobs in the
    first half of 2021, driven by a 1.6 million job gain in the
    leisure and hospitality sector, where the largest employment
    losses occurred last year.'' The May 2021 Federal Reserve
    research paper, however, found that the extra jobless benefits
    that were provided during the pandemic, quote, and I quote
    this, ``likely had little or very small labor supply induced
    impact on the unemployment rate.'' Can you elaborate on that?
        Mr. Powell. So I think that was Reserve Bank research and I
    think it was referring to 2020. It is too soon to really say
    what the facts are going to be here. In fact, we are going to--
    we will be able to learn something because many States, as you
    know, have stopped the additional benefits, and we will be able
    to look and see whether that had any effect on people going to
    back to work. It is way too early to say. There is not enough
    data.
        Senator Cortez Masto. And thank you for saying that because
    that was my next question. You will be studying that data to
    see the difference between those States that cut it off early
    versus those that kept it going, whether that truly was an
    impact or not on----
        Mr. Powell. Yes, we are--everyone is looking to see whether
    there will be a meaningful difference between the two, and
    again, too early to say on that.
        Senator Cortez Masto. I appreciate that. Thank you. And
    then finally, we touched on housing. We are seeing these home
    prices are up more than 15 percent since last year. How much of
    the rise in home prices do you think are due to the Federal
    Reserve's purchase of mortgage-backed securities versus the
    supply issues?
        Mr. Powell. I think that our purchases of Treasuries and
    MBS are what is holding down and also holding interest rates
    low. The overall picture of accommodative monetary policy is
    contributing to what is happening in the housing market. I
    think mortgage-backed securities are contributing probably a
    little more than Treasury securities, but ultimately, they--it
    is roughly the same order of magnitude. So, sorry, was that
    your question?
        Senator Cortez Masto. Yes. Thank you. No, I appreciate
    that. That answers my question. Thank you very much.
        Mr. Powell. Thank you.
        Chairman Brown. Thank you, Senator Cortez Masto.
        Senator Daines of Montana is recognized for 5 minutes.
        Senator Daines. Thank you, Mr. Chairman.
        And, Chairman Powell, good to have you here today and
    thanks for keeping a steady hand here during these rather
    tumultuous times.
        I want to start by joining my colleagues in expressing my
    concern with the inflation we are seeing in the economy. This
    week, we received two inflation readings. They were the highest
    increases we have seen in over a decade and reflect what
    Montana families are already feeling, and that is prices for
    everyday necessities, they are going up. At the same time,
    Majority Leader Schumer, Senator Sanders, Senate Democrats
    proposing another massive, partisan, $3.5 trillion tax-and-
    spend package. I truly believe this is reckless. It threatens
    short, medium, and long-term prosperity of our country. And I
    sincerely hope my colleagues on the other side will reverse
    course. With that, I would like to turn to my questions.
        Chairman Powell, the unemployment rate has consistently
    fallen since the height of the pandemic, now at 5.9 percent,
    down from a pandemic high of 14.8 percent back in April 20. I
    am truly grateful, I know you are, to see this rate fall, more
    Americans getting back to work.
        However, we are digging into this and have concerns about
    the labor force participation rate, which now sits at 61.6
    percent. It has remained in a narrow band between about 61.4
    and 61.7 percent since June 20. The current labor force
    participation rate is 1.7 percentage points lower than it was
    prepandemic, in February 20. A significant percentage of those
    folks who have dropped out of the labor force are over the age
    of 55, and recent data shows that they are not reentering the
    workforce. A lot of those folks, as they are already nearing
    retirement age, may never reenter the workforce.
        And my question, Chairman Powell, is: Do you expect the
    labor force participation rate for those 55 and older to
    recover to prepandemic levels, and if so, why?
        Mr. Powell. So you very accurately described the situation.
    People--toward the end of the last expansion, older people were
    staying in the labor force longer, and as a result, for years
    and years we were seeing higher readings on participation than
    we expected, which was a good, we thought. You know, we want
    the U.S.--the U.S. has a low participation rate compared to our
    peers, surprisingly, but it does.
        So the question is: What is this going to--and then a lot
    of those people retired. Three million people left the labor
    force, and it tended to be older people actually retiring.
        And the question is: What is going to be the equilibrium
    once the economy is going full bore again? Labor force
    participation tends to lag--recovery tends to lag, you know,
    unemployment recovery. So when labor markets get tight, we tend
    to see this.
        So I would just say, first of all, a lot of humility is
    appropriate here. We do not know what the trend labor force
    participation rate is, but you know, we went through 8 years of
    watching labor force participation be higher than we expected.
    And I fully--I fully took that on board, and I think the U.S.
    can do much better in terms of labor force participation. So I
    am not going to close my mind to the idea that we might get
    back, though.
        Senator Daines. Yes. Well, thanks for the thoughtful
    answer. I guess if the--if that rate, participation rate, for
    those 55 and older permanently remains below the prepandemic
    levels, how might you see that impacting the time it might take
    the economy to get back to full employment, and what impact
    might that have as it relates to inflation?
        Mr. Powell. Well, if there is less labor supply, then you
    will hit full employment earlier. As you know, obviously, we
    consider a broad range of indicators, not just unemployment,
    also participation, wages, and those things. But presumably, if
    there is less labor supply and lower participation
    structurally, then you would see that in the form of higher
    wages and higher inflation. We would be able to see that.
        Senator Daines. Chairman Powell, thank you. I want to get
    to my last question here, and that is regarding the balance
    sheet of the Federal Reserve. It recently eclipsed $8 trillion,
    which is more than double where it was before the pandemic.
    When, if ever, do you think the Fed's balance sheet will fall
    below $8 trillion, and could you describe what the risks are if
    the balance sheet remains at this elevated level for an
    extended period of time?
        Mr. Powell. So we have the last cycle as an example. What
    we did was we slowed the pace of asset purchases and then we
    froze the size of the balance sheet for a period of years. And
    as the economy grows relative to the balance sheet, you know,
    the size of the balance sheet relative to the economy becomes
    smaller. So we did quite a bit of that. And then for a couple
    of years, we actually let the balance sheet run off and shrink.
    As securities matured, we stopped reinvesting them, and we let
    the balance sheet shrink at the margin.
        We have not made those kinds of decisions yet, but it is a
    reasonable starting place to think that we might hold the
    balance sheet constant for some time and then perhaps allow it
    to shrink under 8 trillion. In the meantime, it becomes smaller
    as a portion of the economy, and that is the same thing as
    shrinking in a way.
        Senator Daines. Good. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Daines.
        Senator Van Hollen of Maryland is recognized for 5 minutes.
        Senator Van Hollen. Thank you, Mr. Chairman, Ranking Member
    Toomey.
        And, Mr. Chairman, welcome. I have heard the term
    ``unprecedented'' used to describe the jump in inflation. I
    think what is truly unprecedented is the number of jobs we have
    seen generated since President Biden took office, three million
    jobs, the highest rate of job growth of any President in United
    States history, as we work seriously to defeat the pandemic and
    as we pass the American Rescue Plan, to give confidence to
    people in the future of the U.S. economy.
        I do want to dig a little deeper into the inflation issue
    because you have made the point clearly here today that you
    believe it is a temporary increase and if you look at long-term
    projections they are closer to your targets. And that is also
    the expectation of, you know, folks in the financial markets as
    well. Is that not the case?
        Mr. Powell. Yes, broadly speaking.
        Senator Van Hollen. And it is interesting how a short
    period of time changes things. I am looking at remarks you made
    in May 2019, when people were afraid that the inflation rate
    was too low and below your targets. And at that time you made
    the point you thought it was transitory, and you were right.
    And you used the different measure of trimmed-mean CPI to
    describe your thinking. Can you just talk a little bit about
    what that measure is?
        Mr. Powell. Sure. So there--one thing that people do at
    times like this is they chop off the tails and just look at the
    middle of the distribution because sometimes the overall
    inflation measure can be distorted by just a couple of
    categories. So if you did that here--this is the Dallas
    trimmed-mean, and the Cleveland does a version of this--you
    know, it is going to show inflation that is in the low 2s
    because you are getting rid of that small group of categories.
    You know, the risk is that you shop for whatever inflation
    measure that is appropriate at the moment, so we try not to do
    that. But, just clearly, trimmed-mean is sending a signal that
    this is more idiosyncratic than broad across the economy.
        Senator Van Hollen. Right. And is it not the case that the
    increased prices of used cars rose by 10 percent in June alone
    and accounted for more than one third of the entire increase in
    the CPI in June?
        Mr. Powell. Yes, it is.
        Senator Van Hollen. Right. So I mean, those are the kind of
    anomalies you are referring to, right?
        Mr. Powell. It is used cars, new cars, rental cars. It is
    airplane tickets. It is hotels. It is all things that have a
    story that is clearly related to the pandemic. At least, that
    is what it is now.
        Senator Van Hollen. Right. So look, I think rather than
    rush to create alarm about inflation I think we should all be
    together in focusing on important increases in job growth and
    wages that we are seeing. I know you said yesterday that we--
    you expect that we should be able to get back to 3.5 percent
    unemployment as we move forward. I know Secretary Yellen has
    talked about maybe this time next year.
        I am worried--and we have discussed this in the past--about
    persistent, long-term unemployment. And if you look at the June
    numbers, the long-term unemployed--and these are individuals
    who have been jobless for more than 27 weeks or more--increased
    by 230,000 to 4 million total. That followed a decline in long-
    term unemployment in May. So my question is: Is there any way
    we can get back to 3.5 percent unemployment if we do not get
    this number down when it comes to the long-term unemployed?
        Mr. Powell. We saw that what a really strong labor market
    does is it pulls those people in and also pulls people in who
    are on the sidelines or keeps people from leaving. So there is
    just so much to like about a really strong labor market.
        Senator Van Hollen. And I agree with you, Mr. Chairman. If
    you look even before the pandemic, though, in February before
    the pandemic, 3.5 percent unemployment, we had over a million
    Americans who were long-term unemployed. So, yes, we hope that
    the growing economy will be a magnet. I am sure it will. It is
    going to bring a lot of people into the job force. I think all
    of us are concerned about labor force participation. I think a
    stronger economy will address that.
        But there is this, you know, group of long-term unemployed.
    And my concern is, as you well know, the data shows the longer
    you are unemployed the harder it becomes to get back into the
    workforce, and you know, then you get in at a lower wage which
    stays with you throughout your career.
        Do you believe it is worth the Congress considering--I know
    this is not your domain to be specific about what--deliberate
    policies, like wage subsidies, which we used successfully back
    in 2008, those kinds of deliberate policies to make sure that
    the persistently unemployed, long-term unemployed, can get back
    in the labor force.
        Mr. Powell. I would--again without trying to endorse
    anything in particular, we lag all of our peers in labor force
    participation now, which is not where we want to be as a
    country. And I do think that is a classic supply side policy is
    to try to find ways to connect people to--give them some help
    in connecting to the labor force, and then you need a strong
    job market to pull them in and keep them there.
        Senator Van Hollen. Right.
        Mr. Powell. But I do think those things are worth looking
    at.
        Senator Van Hollen. No, I appreciate that. Thank you, Mr.
    Chairman. Hope we will do that.
        Chairman Brown. Thank you, Senator Van Hollen.
        Senator Cramer of North Dakota is recognized for 5 minutes.
        Senator Cramer. Thank you, Chairman Brown and Ranking
    Member Toomey.
        Thank you, Chairman Powell, for being here. First of all,
    let me add my voice to the chorus of people to thank you for
    your cool head through this process, particularly for resisting
    the pressures to lower rates when it was not necessary so we
    had some room when it became very necessary. Appreciate that
    very much.
        Now I want to--I was interested in a lot of the discussion
    going on. I was particularly interested in listening to your
    exchange with Senator Hagerty, where you used the line that I
    have heard you use many times, when he asked a question about
    what Congress ought to be doing, and you said--and I think this
    is a direct quote--``We are not in the business of giving''
    fiscal advice to Congress either way. And again, it is similar
    to what you have said many times.
        Yesterday, thinking about this, I did a quick search engine
    review of the words ``Fed Chair urges Congress,'' and this will
    not surprise you. And by the way, there is not a person in this
    room that does not have some sympathy over headlines that are
    not quite accurate or even quotes. But one report in May of
    last year said: The Fed Chairman asked Congress to consider
    more stimulus. October of last year: Jerome Powell is putting
    out the call to Congress. More money now. November of last
    year: Powell still thinks U.S. needs more stimulus for full
    recovery. Even in December of last year: Fed Chair, Treasury,
    urged Congress to give U.S. a stimulus bridge.
        In other words, you have not always resisted the temptation
    to give us fiscal advice. And by the way, thank you for it. I
    think it was good advice.
        Maybe we look back and say, well, maybe we did too much,
    but we were in a crisis. You did what you needed to do. We did
    what we needed to do. And I do not think there is a lot of
    regret about that.
        Now a number of my colleagues have pointed to what has gone
    on lately and what has been suggested going forward. In
    addition to the $3.5 trillion package, it includes a lot of tax
    increases, like 7 times more increase than the cuts from 2017,
    that built the foundation for this quick recovery, I might add.
    You add in the 1.9 trillion, totally unpaid for, earlier this
    year, the 0.6 trillion in new spending as part of the $1.2
    trillion bipartisan package that is being discussed. You know
    you get to 6 trillion-plus really, really fast.
        What people are not talking about is if we end up at the
    end of this fiscal year passing a 1-year CR or something
    similar to a 1-year continuing resolution, we are going to
    spend another $6.845 trillion, 3 trillion of which will be
    deficit spending. Deficit spending.
        Now my question to you is very direct, and that is just
    simply: Does the economy need another 6 trillion-plus, another
    $6.8 trillion spent this year to enhance the recovery, and is
    there not a detrimental effect to all of that, including the
    tax increases, when we are in fact in--call it whatever you
    want. Type of an inflationary time. But it is uncertain, and
    there is concern, if not alarm.
        Mr. Powell. If I can answer that by saying, you know, we
    did a lot of things. I did a lot of things last year that we
    had never done before, and that one in particular had a lot of
    encouragement from the Administration and the leadership on
    both sides of the Hill and both parties. But I swore it off,
    and I do think we should go back to regular order, which is the
    Fed does not play a role in fiscal policies.
        It is not a national emergency like it was at the time, and
    I just--I do not--I have been trying very hard, so far this
    year succeeding in not getting involved in giving fiscal
    advice. So I am just going to have to--whatever you do, we take
    it into account in our policies, but we do not--we do not come
    out and then comment on whether we think this is a good idea or
    bad idea. Sorry.
        Senator Cramer. Well, OK. I appreciate that. Maybe just one
    other quick question. We notice that the Fed is continuing to
    pour some or pump in some liquidity through the purchases,
    mortgage purchases, particularly, the obviously, Fannie and
    Freddie. Is that--do you see that as continuing to be
    necessary? Obviously, you are doing it, but why?
        Mr. Powell. So as you know, we are looking at that right
    now. We are looking at--my colleagues and I on the Federal Open
    Market Committee are having a second meeting about that in a
    couple of weeks, and we are going to talk about the composition
    of our asset purchases and the path to beginning to reduce
    them. And I would not want to prejudge that----
        Chairman Brown. I am going to go vote.
        Mr. Powell ----but this is something that is very much on
    the table.
        Senator Cramer. I might just add real quickly, with regard
    to climate risk that you have heard a lot about today, whether
    it is political or true risk, I would just want to remind my
    colleagues that when we assess climate risk, in terms of the
    U.S. economy or U.S. investment, do not forget that every time
    we do not invest in energy or climate manufacturing issues in
    the United States another country that does not do it as well
    as us does not do it as well. And this is--climate change is a
    global issue, so let us think about risk in the global--in the
    global context.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Cramer.
        I am going to go vote. Senator Ossoff is next, and
    Republican Senator Lummis we think is coming back, or perhaps
    Senator Crapo maybe, and then Senator Reed will go. But Senator
    Reed will chair, and Senator Ossoff is recognized for 5
    minutes.
        Senator Ossoff. Thank you, Chairman Brown, Ranking Member
    Toomey.
        Thank you, Chairman Powell, for your service and your
    testimony today. Obviously, over the last 18 months, the COVID-
    19 pandemic has been the most significant shock to our economy
    and the financial system. But stepping back, what do you assess
    to be the most significant systemic threats to financial
    stability over the medium term, either limited to the U.S. or
    globally?
        Mr. Powell. I would have to say that the thing that worries
    me the most is really cyberrisk. You know, it is a constant
    concern, and we--you know, we spend lots of time and resources
    on it, so does the private sector. But that is the one where we
    have a playbook for--you know, for bad lending and bad risk
    management, and we have a lot of capital in the system. But you
    know, the cyber, as you see with the--with the ransomware
    issues now, is just an ongoing race really to keep up. And we
    have not had to face a significant cyberevent from a financial
    stability standpoint, and I hope we do not, but that is the
    thing I worry the most about.
        Senator Ossoff. And in terms of threats to financial
    stability following cyber, what next preoccupies your attention
    or concern?
        Mr. Powell. You know, the economy is coming out of this
    globally, coming out of this pandemic. So I would worry about
    if we do not succeed in vaccinating people all over the world
    really we are creating time and space for the development of
    new--of new strains of the virus, which can be more virulent
    and more difficult to fight. And I worry that could--that could
    undermine the economy and, ultimately, financial stability.
        The last thing I will say is, you know, we are at the point
    in the risk cycle where people are looking out four or 5 years
    and they are seeing a pretty good economy. You know, we are
    heading to, I think, a strong labor market, highest GDP in 7
    years. This is the time when risk takers can begin to forget
    that there is a bad state of the economy out there, waiting for
    them at some future date, and take too much risk. And so from a
    supervisory and regulatory perspective, we are very mindful
    that it is time to--it is a time when we need to keep people
    focused on risk management.
        Senator Ossoff. That is a great segue to my next question,
    which is: Given the extraordinary provision of liquidity, not
    just since COVID-19 but over the last 15 years, how concerned
    are you that credit committees at major financial institutions
    and others allocating capital are acting with sufficient
    prudence given the easy access to capital?
        Mr. Powell. You know, financial conditions are highly
    accommodative. People are getting things financed. SPACs and
    things like that are getting done. We see Bitcoin going up in
    value and down in value. So it is--you know, it is a--at times,
    it has felt like a somewhat frothy market, and you know, you do
    worry about that.
        At the same time, you know, we are very focused on the real
    economy. Our jobs are maximum employment and price stability,
    and also financial stability, but we have got a long way to go.
    So we want to be careful about, you know, tending to our main
    mandate while we also think about, you know, financial
    stability issues.
        Senator Ossoff. What is your level of confidence that there
    are not risks lurking in the nonbank financial system, hedge
    funds, private equity, SPACs you mentioned, given the provision
    all this liquidity and the reduced visibility that regulators
    have into some of those institutions?
        Mr. Powell. So there is lots of risk-taking going on in the
    nonbank financial sector. Much of it can take care of itself.
    Private capital can absorb losses. We know from the experience
    of the last crisis and the one before that there are structural
    aspects of nonbank--of the nonbank financial sector that really
    need some--you know, need better regulation and better
    structures, and that is particularly money market funds, which
    twice have had to be bailed out in the acute phase of the
    crisis.
        I think we saw that the Treasury market really lost
    functionality. The most important financial market, it lost
    functionality significantly during the acute phase of the
    crisis, and we are doing a, you know, very careful analysis and
    thinking about whether there needs to be some structural
    strengthening there, and other aspects as well.
        Senator Ossoff. Turning finally to climate change, the
    Fed's most recent Financial Stability Report cited climate
    change as a potential threat to financial stability. The
    National Oceanic and Atmospheric Administration, our country's
    foremost meteorological agency, states that impacts from
    climate change are happening now. They cite risks, including
    changes to water resources, floods, and water quality problems,
    challenges for farmers and ranchers, increases in waterborne
    diseases, rising sea levels that put coastal areas at greater
    risk. The Department of Defense identifies climate change as a
    critical national security threat. What is your assessment of
    the risk that climate change may pose to financial stability or
    to your dual mandate of full employment and price stability in
    the long run?
        Mr. Powell. I think it has implications for all of those
    things in the long run. We are very focused on the risks that
    individual financial institutions are taking and working with
    them to make sure they understand the risks they are running
    and can manage them and address them in their business model.
        More broadly, in financial stability, financial markets
    generally, and nonbank financial institutions, it is much the
    same. We know that, you know, the transition, for example, to a
    lower carbon economy may lead to sudden repricings of assets or
    entire industries, and we need to think about that carefully in
    advance and understand and be in a position to deal with all of
    that.
        We are--you know, we are doing all of that work as are
    other researchers and central banks and Governments around the
    world. There is a lot of work going on, on this end. You know,
    it is a high priority but a longer-term issue in terms of the
    financial stability. I mean, I think the manifestations of
    climate change are here now, but the financial stability issues
    are really coming.
        Senator Ossoff. Thank you, Chairman Powell.
        I yield, Mr. Chairman.
        Senator Reed [presiding]. Thank you. On behalf of Chairman
    Brown, let me recognize Senator Lummis.
        Senator Lummis. Thank you very much, Mr. Chairman.
        And, welcome. Good to see you again. My first question, as
    you might guess, is about digital assets. You had testified
    yesterday in front of the House Financial Services Committee
    that one of the stronger arguments in support of a central bank
    digital currency was its potential to render stablecoins and
    virtual currencies unnecessary, but in March, you acknowledged
    that Bitcoin, Ethereum, and other virtual currencies are
    essentially a substitute for gold rather than the dollar. So I
    want to talk a little bit about the difference between the two.
        So it is pretty clear that Bitcoin, Ethereum, and other
    virtual currencies are investment commodities and not payment
    instruments. The SEC and CFTC have said as much in court cases
    and regulatory actions.
        So I think what you were trying to get at is one of the
    best arguments for a central bank digital currency is that
    stablecoins could be rendered unnecessary. But legally
    speaking, stablecoins and virtual currencies are not synonymous
    because stablecoins do not increase in value generally and are
    used as substitute payment instruments, whereas Bitcoin,
    Ethereum, and other virtual currencies are investment assets.
    There is research from Fidelity, Deutsche Bank, and Credit
    Suisse, and others that call Bitcoin an emerging store of
    value. Goldman Sachs has also said the same about Ethereum.
        And so my question is: Because stablecoins and a central
    bank digital currency are more synonymous with the dollar as an
    instrument of payment and Bitcoin, Ethereum, and other virtual
    assets are more an investment commodity, like gold, when you
    spoke to the Financial Services Committee in the House
    yesterday, did you mean that stablecoin would be unnecessary if
    we had a central bank digital currency?
        Mr. Powell. Basically, you are right. But let me say,
    though, with cryptocurrencies it is not that they did not
    aspire to be a payment mechanism; it is that they have
    completely failed to become one except for people who desire
    anonymity, of course, for whatever reason. So that is why I
    included them.
        But I would completely agree. Really, the question is
    stablecoins. And my point with stablecoins was that they are
    like money funds, they are like bank deposits, and they are
    growing incredibly fast but without appropriate regulation. And
    if we are going to have something that looks just like a money
    market fund or a bank deposit or a narrow bank, and it is
    growing really fast, we really ought to have appropriate
    regulation, and today we do not.
        Senator Lummis. And I would--thank you for that. I would
    assume that you would agree that some common definitions and
    kind of a clear legal framework would help us understand the
    opportunities associated, and the risks associated, with
    financial innovation.
        Mr. Powell. Yes, I could certainly agree with that.
        Senator Lummis. Thank you. Thanks so much. Now I want to
    turn to monetary policy, and I would like to draw your
    attention to this chart. Federal Reserve and Bureau of Economic
    Analysis M2 data shows that deposits and close substitutes held
    by households have generally averaged 51 percent of GDP from
    1952 to 2021. But then data from the end of quarter one of 2021
    shows that households are sitting on deposits and close
    substitutes of approximately 79 percent of GDP today. So that
    is roughly 28 percent or trillions of dollars above the
    historic average. So going back to 1952, there has never been a
    higher percentage of household deposits to GDP. Monetary policy
    also has been highly accommodative over the last 16 months to
    the tune of 32 percent increase in the M2 money supply.
        So I have not heard anybody talking about this hidden
    stimulus. And when households start to spend this cash,
    combined with the enormous liquidity already out there, it
    seems there is real potential for inflation to continue to
    overshoot. We have already seen it this week as the core
    Consumer Price Index number was nearly double what economists
    had predicted.
        So here is my question: Is it really wise to continue to
    have accommodative policy when there is still trillions of
    household cash that will flow into the economy soon?
        Mr. Powell. So this--I think the main factors driving this
    up are really that people have been sitting at home for a year-
    and-a-half not able to travel and go on vacation and spend
    money in restaurants and things like that, and also, combine
    that with the major fiscal transfers that Congress made. And
    that is--so that there is a lot of cash. As you know, there is
    a great deal of cash on household balance sheets, and that is
    what--that is what this is representing.
        You know, is it appropriate for us to continue
    accommodative policy? We think it is, but as you know, we are
    looking now. We are in the process of evaluating, you know,
    when it will be appropriate for us to taper, which is to say
    reduce, our asset purchases. We are having a second meeting
    that will address that topic directly in a couple of weeks.
        So--but for the time being, the other thing I would point
    out is there are still a lot of unemployed people out there
    that are--and we think it is appropriate for monetary policy to
    remain, you know, accommodative and supportive of economic
    activity for now.
        Senator Lummis. Thank you for your responses.
        Thank you, Mr. Chairman. I yield back.
        Senator Reed. Thank you, Senator.
        On behalf of Senator Brown, I will recognize myself, and in
    concluding my comments I will yield to Senator Warnock, and by
    that time I presume Senator Brown will be back to conclude the
    hearing.
        I will ask first--so first of all, thank you, Mr. Chairman,
    for your remarkable service over these many challenging months.
    I appreciate it very much. One of the aspects of the pandemic
    has been an indication of the potential for technological
    displacement of workers. I think we are all now familiar with
    Zoom. In fact, it is a blessing and a curse, simultaneously.
    But as you look forward, how are you factoring in this notion
    of technological displacement in terms of the workforce and
    employment?
        Mr. Powell. We began hearing very early in the recovery
    period that companies were looking at ways to use technology
    really more aggressively in their business models. And a lot of
    the people who lost their jobs during the pandemic, of course,
    were people in service industries, relatively low-paid, public,
    customer-facing businesses: hotels, travel, entertainment, and
    things like that.
        So I think we are going to see--and that--by the way, the
    technology coming into these industries has been a trend. I
    think we are going to see that accelerated, and you will see
    more technology and maybe fewer people. And I think the
    implication of that is that we need to be--we need to work as a
    society to make sure that people find their way back into the
    labor force even if they cannot find their way back into their
    old job.
        Senator Reed. What I think that does is stress the need for
    improving human capital, so that they can be competitive in
    jobs that they might otherwise not be. That is education. That
    is a lot of the things that--and I know you do not comment on
    fiscal affairs, but a lot of the aspects of the President's
    American Family Plan: preschool education, 2 years post-
    secondary education, significant job training, et cetera. But
    just in terms of the future, we are going to have to make those
    investments. Otherwise, my sense would be we are going to have
    a lot of people who want to work but whose skills are not up to
    the new technological opportunities. Is that fair?
        Mr. Powell. It may well be, and that has been a long-run
    trend. If people can keep up with evolving technology, that
    lifts all incomes and lifts their incomes. And if they cannot,
    they tend to fall behind.
        Senator Reed. Let me change subjects slightly here. Labor
    force participation. One of the other illustrations from the
    pandemic was that many, particularly women, were unable to
    continue in the workforce because of their childcare
    responsibilities. Have you and the Fed looked at this factor as
    one of those inhibiting issues for labor force participation,
    and is it a factor?
        Mr. Powell. It is a factor. If you include broadly
    caretaking, it is a big factor. If you just include children
    and schools being closed and caretaking at home and that kind
    of thing, it is still a medium-size factor that is holding back
    participation.
        Senator Reed. So with reasonable and available daycare,
    that should contribute to increased labor force participation.
        Mr. Powell. I think it is daycare coming back and
    reopening, being available. It is also schools reopening in the
    fall, which should help as well.
        Senator Reed. Right. We have all--I think all of us touched
    one way or the other on inflation issues, and some of these
    seem to be sort of one-off effects of the pandemic. Lumber went
    out of sight because people were sitting home and decided to
    redecorate and renovate. Lumber futures are down now, I
    believe. So we can see that leveling off hopefully in the
    future prices. There was a chip shortage which caused new cars
    to be expensive, which drove up the price of used cars. My
    sense is your view is that these are transitory effects that
    are somewhat related to the pandemic or other causes, but they
    do not represent a trend. Is that fair?
        Mr. Powell. Yes. We can identify a half-dozen things just
    like that, and they look very much like temporary factors that
    will abate over time. What we do not know is are there other
    things coming along to replace them. We do hear of pressures
    across the economy. We do not really see price pressures,
    prices moving up broadly across the economy at this point, but
    we are watching carefully for that.
        Senator Reed. And just a final point and echoing something
    Senator Ossoff said, climate change every day becomes much more
    pronounced and much more obvious to all of us, and the impact
    on the economy is something that I think is not transitory. It
    will be with us. Simple things like food when there is no water
    for irrigation, more complicated things like the displacement
    of homes because of rising waters or a lack of food--water,
    rather. And I am pleased to see that you are beginning to focus
    in on that.
        My sense is, though, every day there will be another
    challenge and it will be more--the news will be more upsetting;
    let me put it that way. I hope that is a fair comment.
        Thank you, Mr. Chairman.
        Chairman Brown [presiding]. Thank you, Senator Reed. Thank
    you for presiding.
        Senator Warnock from Georgia is recognized for 5 minutes.
        Senator Warnock. Thank you so much, Chairman Brown.
        And thank you, Chairman Powell. I am a strong advocate for
    working families and successfully pushed, along with Senator
    Brown and Senator Booker, Senator Bennett, and others,
    expansion of the vital child tax credit program in the American
    Rescue Plan. The expanded child tax credit essentially provides
    a tax cut for middle-class families, cutting childhood poverty
    nearly in half nationwide and is generally available to most
    American families with children, including families with little
    to no income.
        Today is a great day because many of them will see that tax
    cut hit their bank accounts today, and I am happy to see
    hardworking families across Georgia and across the country see
    the benefit of this to help with the rising costs of raising
    our children. In my home State of Georgia alone, more than 1.2
    million families will receive these payments, providing much
    needed relief to over 2 million children across the State.
        In previous remarks, Chairman Powell, you stated that,
    quote, ``The widespread vaccinations, along with unprecedented
    fiscal policy actions, are providing strong support to the
    economic recovery.'' With families now beginning to receive
    their child tax credit payments today, how does direct
    financial support to families help sustain an ongoing economic
    recovery?
        Mr. Powell. Well, of course, we try not to comment on
    fiscal policy measures, particularly such as the one you have
    mentioned. But I will just say generally, in the recovery from
    the pandemic, that fiscal policy really did step in strongly
    and support people in their time of need, and I think the
    record will show that.
        Senator Warnock. Thank you. I have another quick question
    about a housing bill I am currently working on, which I hope
    will be a bipartisan bill. One of the other challenges that I
    have worked hard to address is the widening racial wealth gap
    in our country, a wealth gap that has been further exacerbated
    during the pandemic. In particular, I focused on the persistent
    disparities that exist in the undervaluation of Black and Brown
    homeowners within our appraisal market, which, as we all know,
    is a key contributor to creating generational and middle-class
    wealth. Most people's wealth is in their homes. This is
    directly tied to the value of their homes and, thus, their
    ability to pass on wealth to their children.
        I am glad to see the Biden administration, the Fed, and
    other Federal banking and housing agencies taking action, as
    well as banks, credit unions, the appraisal industry, and other
    stakeholders, leaning in collectively together to help solve
    this longstanding issue. Now it seems to me it is time for
    Congress to join the effort.
        Chairman Powell, do you agree that addressing racial
    disparities within the appraisal market can help our economy
    and help close the racial wealth gap?
        Mr. Powell. Well, I do think that there is no place for
    racial discrimination in our banking sector, in our housing
    sector, certainly in the appraisal, and there is a big focus
    now on appraisals, as you point out. And you know, we will use
    the authorities that we have in supervising institutions,
    enforcing CRA, to, you know, try to eliminate that kind of
    discrimination.
        Senator Warnock. Do you think it will help close the racial
    wealth gap?
        Mr. Powell. I think over time. I think a lot of the racial
    wealth gap is traceable to housing, as you point out. So that
    should be the outcome.
        Senator Warnock. Thank you. In April, our colleagues on the
    House Financial Services Committee unanimously passed the Real
    Estate Valuation Fairness and Improvement Act on a bipartisan
    voice vote. Not only would this bill be a great step in
    improving appraisal practices and mitigating racial bias, it
    seems to me it would also help increase and diversify the
    appraiser pipeline, and increase the number of trained
    appraisers in rural communities. And so I am planning to
    introduce this legislation, along with Senator Klobuchar and
    Chairman Brown here in the Senate, and I hope to do so with a
    few of my colleagues from across the aisle because I believe we
    can work together in a bipartisan manner to tackle this
    critical issue that impacts not only these homeowners but
    impacts the economy as we close the racial gap. We all have a
    stake in that.
        One final question on a topic that I am also very
    interested in. Chairman Powell, as you know, the Community
    Reinvestment Act addresses how banks must meet the credit and
    capital needs of the communities they serve. Back in May, I
    asked your colleague, Mr. Quarles, about the Fed's intention to
    issue a joint rule along with the OCC and FDIC, and he
    expressed that it was the Fed's objective to work with the OCC
    and the FDIC to issue a joint CRA rule that protects and
    strengthens our most vulnerable communities. Could you please
    provide us with an update on the status of this CRA rulemaking?
        Mr. Powell. I would be glad to. We are working through the
    process of reviewing a really quite extensive group of comments
    and now engaging with the OCC to go forward and try to sort
    through that and come out with appropriate changes to what we
    proposed. I cannot speak exactly to the FDIC. I think they are
    considering whether to take part in this process. We, of
    course, would really like to get the three agencies together on
    a CRA proposal, and I am very optimistic. There is a lot of
    work to do, but I am very optimistic that the work product will
    be a very good one.
        Senator Warnock. Thank you so much.
        Chairman Brown. Thank you, Senator Warnock.
        I understand the Chair cannot comment on the immense
    importance of child tax credit, but I can. And I thank Senator
    Warnock for bringing it up and thank him for his leadership,
    even in his first 6 months in the Senate, on an issue that is
    going to make a huge difference to 39 million families, 52
    million children. Ninety-two percent of children in my State
    will benefit from it.
        We do not quite have everybody getting checks today or
    direct deposits today, tomorrow, and Saturday. We encourage
    people to go to ``taxcredit.gov,'' the people that have not--
    that are eligible. And that is, as I said, 92 percent of the
    children in my State.
        So, Senator Warnock, thank you for your work on that.
        Chair Powell, thank you for being a witness today and
    providing testimony today.
        For Senators who wish to submit questions for the record,
    those questions are due 1 week from today, on Thursday, July
    22nd.
        Chair Powell, if you would, you have 45 days to respond to
    any questions. Thank you again.
        With that, the hearing is adjourned.
        [Whereupon, at 11:46 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                  PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
        Today, our economy is growing because of the American Rescue Plan
    and the Biden-Harris administration's leadership.
        We're putting shots in arms and money in pockets. Families have a
    little bit extra to help pay the bills--beginning today, most parents
    will see a $250 or $300 monthly payment in their bank accounts for each
    child. Small businesses are reopening their doors. Workers are safely
    going back to work--often at higher wages.
        Last month, we added 850,000 jobs to the economy. Since President
    Biden took office, we've gained three million jobs--more jobs than in
    the first 5 months of any presidency in modern history.
        And it's not only the jobs numbers--it's also the quality of those
    jobs.
        For the first time in decades, workers are starting to gain some
    power in our economy--power to negotiate higher wages, better working
    conditions, more control over their schedules, stronger benefits,
    opportunities for career advancement.
        The Washington Post reported that, ``In the past three months,
    rank-and-file employees have seen some of the fastest wage growth since
    the early 1980s.''
        Think about that--the fastest wage growth since Ronald Reagan said
    it was ``morning in America.''
        That's what happens when we invest in our greatest asset: the
    American people.
        Instead of hoping money trickles down from large corporations--it
    NEVER does, and pretty much every senator knows that--we invested
    directly in our workers, small businesses, and communities.
        When workers win, our economy wins. When everyone does better,
    everyone does better.
        Chair Powell, you've said that the Fed can help make the economy
    work for everyone by ensuring a strong and competitive labor market--
    one where everyone can get a job, and employers compete for workers.
        I agree, and those efforts, combined with President Biden's recent
    actions to increase competitiveness, are increasing worker power in the
    economy.
        We must build on this progress, with investment in infrastructure
    that creates millions of jobs, increases our economic competitiveness,
    and spurs growth in communities of all sizes, all over the country.
        I've been all over Ohio over the past few weeks, talking with local
    leaders--mayors of both parties, in big cities and small towns. And I
    heard the same thing from all of them: they need more investment--in
    infrastructure, like affordable housing and reliable transit--to build
    a stronger local economy.
        These are the places that are too often overlooked or preyed on by
    large corporations and Wall Street banks.
        Many of these communities have watched for decades as investment
    has dried up and storefronts emptied.
        Companies close down factories and move good-paying, union jobs
    abroad. Private equity firms and big investors buy up the houses and
    jack up the rent. Small businesses struggle to compete against big box
    chains. Big banks buy up smaller ones, only to close branches, leaving
    check cashers and payday lenders as families' only options.
        Think about the opportunity and the growth we could unleash around
    the country, if we gave these communities the investment to fulfill
    their potential.
        Of course, we know what happens whenever the economy starts to
    grow--the largest corporations and the biggest banks throw all their
    efforts and their resources into finding ways to direct all of those
    gains to themselves.
        Last year, during a global pandemic and deep recession, CEOs paid
    themselves 299 times more than their average workers--an even bigger
    gap than before the pandemic.
        Now imagine the kind of windfall they'll try to rake in during a
    boom.
        We've seen it over and over.
        Consumers spend, driving up revenue for companies--and they spend
    it on stock buybacks, while complaining about workers demanding higher
    wages.
        Big banks rake in cash--and they spend it on executive compensation
    and dividends and buybacks, instead of lending in communities or
    increasing capital to reduce risk.
        The Fed should be fighting this trend, protecting our progress from
    Wall Street greed and recklessness--not making it worse.
        Chair Powell, during your tenure, the Fed has rolled back important
    safeguards, making it easier for the biggest banks to pump up the price
    of their stock and boost their already enormous power in our economy.
        Wall Street would have you believe that removing those protections
    has increased lending and supported the real economy. We've been
    assured that the banks have plenty of capital to withstand a crisis.
        But during the pandemic, it was community banks and credit unions--
    not megabanks--that increased lending. The Fed supported the biggest
    banks, to the tune of hundreds of billions of dollars--and they spent
    it on themselves, while small businesses trying to get PPP loans
    couldn't get their phone calls returned.
        It's time to try something different.
        We need a banking system that works for everyone.
        We can't allow the biggest banks to funnel their extra cash into
    stock buybacks that juice their profits instead of investing in the
    real economy.
        We can't let big banks merge into bigger and bigger megabanks,
    making it harder for small banks to compete and leaving rural and Black
    and Brown communities behind.
        We need to strengthen the Community Reinvestment Act, so that banks
    serve the communities still scarred by the legacy of Black Codes, Jim
    Crow, and redlining.
        And we cannot allow a repeat performance of the years following the
    last recession.
        Wall Street destroyed our economy, costing families their jobs and
    their homes and their savings--and then came roaring back, while
    families limped along.
        For the vast majority of Americans who get their money from a
    paycheck and not a brokerage account, the economy never looked all that
    great in the years that followed.
        Stable prices and moderate long-term interest rates aren't enough,
    if every decade a financial crisis hits and strips away what people
    have worked so hard for.
        Low unemployment isn't enough, if the jobs pay rock-bottom wages
    and workers have no power.
        GDP growth isn't enough, if it only benefits those at the top, and
    not the workers who made it possible.
        We need to create a different system--one that's stable for the
    long-run. One where workers--not Wall Street--reap the benefits of a
    strong economy.
        Chair Powell, you are charged with ensuring both financial
    stability and with overseeing the biggest banks.
        Both of these jobs are equally important, and both affect workers'
    jobs and paychecks and communities.
        As public servants, our responsibility is to the people who make
    this country work. It's up to us to grow an economy that delivers for
    them--not just those at the very top.
                                     ______

                PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
        Thank you, Mr. Chairman.
        The economy has come roaring back from COVID. GDP is above its
    prepandemic level, and the Fed forecasts GDP will grow by a robust 7
    percent this year. The unemployment rate is already at 5.9 percent,
    which the Fed expects to fall to 4.5 percent by the end of the year.
        To put that in context, the average unemployment rate for the 20
    years before the pandemic was 6 percent. With these conditions, the
    Fed's rationale for continuing negative real interest rates and $1.4
    trillion in annual bond purchases is puzzling.
        The Fed's policy is especially troubling because the warning siren
    for problematic inflation is getting louder. Inflation is here, and
    it's more severe than most--including the Fed itself--expected.
        For the third month in a row, the Consumer Price Index was higher
    than expectations. Core CPI, which excludes volatile categories like
    food and energy, was up 4.5 percent in June--the highest reading in
    almost 30 years. And to be clear, this is beyond so-called base
    effects: the 2-year annual change in core CPI was at a 25-year high.
        With housing prices soaring--in many places to unaffordable
    levels--I'm led to ask: why on earth is the Fed still buying $40
    billion in mortgage-backed bonds each month?
        Although the Fed assures us that this inflation is transitory, its
    inflation projections over the last year do not inspire confidence.
    Last June, the Fed projected that PCE--one standard measure of
    inflation--would be 1.6 percent for the 12 months ending 2021. Then in
    December the Fed revised that figure up to 1.8 percent. And now the
    Fed's most recent PCE forecast for 2021 year-end is 3.4 percent more
    than double what the Fed thought inflation would be a year ago.
        But in coming months, the Fed is almost certain to revise that
    prediction upward--again--because so far this year PCE has risen by 6.1
    percent on an annualized basis. For the rest of the year, inflation
    would need to be nearly zero for the Fed's latest projection to be
    proven correct.
        I'm concerned that the Fed's current paradigm almost guarantees
    that it will be behind the curve if inflation becomes problematic and
    persistent--for three reasons.
        First, the Fed has been consistently and systematically
    underestimating inflation over the past year.
        Second, the Fed has announced it will allow inflation to run above
    its 2 percent target level--it's already well above 2 percent.
        Third, the Fed insists the inflation we're experiencing now is
    transitory, despite the fact that recent unprecedented monetary
    accommodation has certainly caused the inflation we're witnessing.
        But since the Fed has proven unable to forecast the level of
    inflation, why should we be confident that the Fed can forecast the
    duration of inflation? You can only know that something is, in fact,
    transitory after it ends. What if it isn't?
        By the time the Fed knows that it's gotten it wrong, if it does get
    it wrong, we could have a big problem on our hands. As past experience
    shows us, it's very difficult to get the inflation genie back in the
    bottle once she is out.
        The Fed may have to respond by raising interest rates much more
    aggressively to rein in significant inflation. Doing so would have
    severe economic consequences.
        The Fed's current monetary approach seems based on the misguided
    premise that it must prioritize maximum employment over controlling
    inflation. Employment policies enacted by Congress are inhibiting our
    ability to get back to maximum employment. But it's not the Fed's job
    to attempt to offset flawed policies at the expense of its price
    stability mandate.
        When the Fed subordinates its price stability mandate to try and
    maximize employment, the Fed runs the risk of failing on both fronts
    because you need stable prices to achieve a strong economy and maximum
    employment. This is not a partisan argument. Prominent Democrat
    economists, including President Clinton's Treasury Secretary Larry
    Summers and President Obama's CEA Chair Jason Furman, have expressed
    their concerns about the risk of rising inflation.
        I'd like to end by acknowledging the crucial role played by the Fed
    in our economy. The ability to direct interest rates and control the
    money supply is extraordinarily important. As a result, Congress has
    given the Fed a great deal of operational independence to isolate it
    from political interference.
        However, Congress also gave the Fed narrowly defined monetary
    mission. I'm troubled by the Fed, especially the regional Fed banks,
    misusing this independence to wade into politically charged areas like
    global warming and racial justice.
        I'd suggest that instead of opining on issues that are clearly
    beyond the Fed's mission and expertise, it should focus on an issue
    that is in its mandate: controlling inflation. If it doesn't, the Fed
    will find that its credibility and independence were also
    ``transitory.''
                                     ______

                     PREPARED STATEMENT OF JEROME H. POWELL
           Chairman, Board of Governors of the Federal Reserve System
                                 July 15, 2021
        Chairman Brown, Ranking Member Toomey, and other Members of the
    Committee, I am pleased to present the Federal Reserve's semiannual
    Monetary Policy Report.
        At the Federal Reserve, we are strongly committed to achieving the
    monetary policy goals that Congress has given us: maximum employment
    and price stability. We pursue these goals based solely on data and
    objective analysis, and we are committed to doing so in a clear and
    transparent manner. Today I will review the current economic situation
    before turning to monetary policy.
    Current Economic Situation and Outlook
        Over the first half of 2021, ongoing vaccinations have led to a
    reopening of the economy and strong economic growth, supported by
    accommodative monetary and fiscal policy. Real gross domestic product
    this year appears to be on track to post its fastest rate of increase
    in decades. Household spending is rising at an especially rapid pace,
    boosted by strong fiscal support, accommodative financial conditions,
    and the reopening of the economy. Housing demand remains very strong,
    and overall business investment is increasing at a solid pace. As
    described in the Monetary Policy Report, supply constraints have been
    restraining activity in some industries, most notably in the motor
    vehicle industry, where the worldwide shortage of semiconductors has
    sharply curtailed production so far this year.
        Conditions in the labor market have continued to improve, but there
    is still a long way to go. Labor demand appears to be very strong; job
    openings are at a record high, hiring is robust, and many workers are
    leaving their current jobs to search for better ones. Indeed, employers
    added 1.7 million workers from April through June. However, the
    unemployment rate remained elevated in June at 5.9 percent, and this
    figure understates the shortfall in employment, particularly as
    participation in the labor market has not moved up from the low rates
    that have prevailed for most of the past year. Job gains should be
    strong in coming months as public health conditions continue to improve
    and as some of the other pandemic-related factors currently weighing
    them down diminish.
        As discussed in the Monetary Policy Report, the pandemic-induced
    declines in employment last year were largest for workers with lower
    wages and for African Americans and Hispanics. Despite substantial
    improvements for all racial and ethnic groups, the hardest-hit groups
    still have the most ground left to regain.
        Inflation has increased notably and will likely remain elevated in
    coming months before moderating. Inflation is being temporarily boosted
    by base effects, as the sharp pandemic-related price declines from last
    spring drop out of the 12-month calculation. In addition, strong demand
    in sectors where production bottlenecks or other supply constraints
    have limited production has led to especially rapid price increases for
    some goods and services, which should partially reverse as the effects
    of the bottlenecks unwind. Prices for services that were hard hit by
    the pandemic have also jumped in recent months as demand for these
    services has surged with the reopening of the economy.
        To avoid sustained periods of unusually low or high inflation, the
    Federal Open Market Committee's (FOMC) monetary policy framework seeks
    longer-term inflation expectations that are well anchored at 2 percent,
    the Committee's longer-run inflation objective. Measures of longer-term
    inflation expectations have moved up from their pandemic lows and are
    in a range that is broadly consistent with the FOMC's longer-run
    inflation goal. Two boxes in the July Monetary Policy Report discuss
    recent developments in inflation and inflation expectations.
        Sustainably achieving maximum employment and price stability
    depends on a stable financial system, and we continue to monitor
    vulnerabilities here. While asset valuations have generally risen with
    improving fundamentals as well as increased investor risk appetite,
    household balance sheets are, on average, quite strong, business
    leverage has been declining from high levels, and the institutions at
    the core of the financial system remain resilient.
    Monetary Policy
        I will now turn to monetary policy. At our June meeting, the FOMC
    kept the Federal funds rate near zero and maintained the pace of our
    asset purchases. These measures, along with our strong guidance on
    interest rates and on our balance sheet, will ensure that monetary
    policy will continue to deliver powerful support to the economy until
    the recovery is complete.
        We continue to expect that it will be appropriate to maintain the
    current target range for the Federal funds rate until labor market
    conditions have reached levels consistent with the Committee's
    assessment of maximum employment and inflation has risen to 2 percent
    and is on track to moderately exceed 2 percent for some time. As the
    Committee reiterated in our June policy statement, with inflation
    having run persistently below 2 percent, we will aim to achieve
    inflation moderately above 2 percent for some time so that inflation
    averages 2 percent over time and longer-term inflation expectations
    remain well anchored at 2 percent. As always, in assessing the
    appropriate stance of monetary policy, we will continue to monitor the
    implications of incoming information for the economic outlook and would
    be prepared to adjust the stance of monetary policy as appropriate if
    we saw signs that the path of inflation or longer-term inflation
    expectations were moving materially and persistently beyond levels
    consistent with our goal.
        In addition, we are continuing to increase our holdings of Treasury
    securities and agency mortgage-backed securities at least at their
    current pace until substantial further progress has been made toward
    our maximum-employment and price-stability goals. These purchases have
    materially eased financial conditions and are providing substantial
    support to the economy.
        At our June meeting, the Committee discussed the economy's progress
    toward our goals since we adopted our asset purchase guidance last
    December. While reaching the standard of ``substantial further
    progress'' is still a ways off, participants expect that progress will
    continue. We will continue these discussions in coming meetings. As we
    have said, we will provide advance notice before announcing any
    decision to make changes to our purchases.
        We understand that our actions affect communities, families, and
    businesses across the country. Everything we do is in service to our
    public mission. The resumption of our Fed Listens initiative will
    further strengthen our ongoing efforts to learn from a broad range of
    groups about how they are recovering from the economic hardships
    brought on by the pandemic. We at the Federal Reserve will do
    everything we can to support the recovery and foster progress toward
    our statutory goals of maximum employment and stable prices.
        Thank you. I am happy to take your questions.
            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                         FROM JEROME H. POWELL

    Q.1. At the Banking Committee's July 15, 2021, hearing, you
    testified that the Treasury markets lost functionality during
    the worst phases of the market turmoil resulting from the
    COVID-19 crisis last year.
        In your view, what are the most immediate concerns with
    respect to the efficiency and resiliency of the Treasury cash
    and futures markets?

    A.1. Treasury markets are currently functioning in the
    efficient manner that we expect and that the stability of the
    financial system requires. Given the importance of Treasury
    markets, the Federal Reserve Board (Board) is actively working
    with the other agencies in the Inter-Agency Working Group on
    Treasury Market Surveillance (IAWG) to ensure that these
    markets remain resilient. \1\ The IAWG has publicly set out
    several areas of work on Treasury market resilience, focusing
    on five specific areas: \2\
    ---------------------------------------------------------------------------
         \1\ Members of the IAWG include the Board of Governors, the
    Commodity Futures Trading Commission, the Federal Reserve Bank of New
    York, the Securities and Exchange Commission, and the U.S. Department
    of the Treasury.
         \2\ See, https://home.treasury.gov/news/press-releases/jy0116#3.

    ---------------------------------------------------------------------------
      1.  Improving data quality and availability.

      2.  Improving resilience of market intermediation.

      3.  Evaluating expanded central clearing.

      4.  Enhancing trading venue transparency and oversight.

      5.  Examining effects of leverage and fund liquidity risk
            management practices.

        The related work streams are still at a preliminary stage.
    The Federal Reserve is committed to working with other agencies
    and with market participants to ensure a resilient market for
    U.S. Treasury securities.

    Q.2. What are the Federal Reserve's intentions with addressing
    those concerns?

    A.2. In addition to its work with the IAWG, the Federal Reserve
    is actively examining steps that we can take to improve
    Treasury market resilience.
        As you are aware, the Federal Open Market Committee (FOMC)
    recently established both a domestic standing repo facility and
    a standing repurchase agreement facility for foreign and
    international monetary authorities (the FIMA Repo Facility). We
    believe these facilities can help address pressures in money
    markets that could impede effective implementation of monetary
    policy. By acting as a backstop, these facilities can also
    reduce stresses in U.S. Treasury securities and Treasury repo
    markets and help promote Treasury market resilience while
    helping prevent these stresses from spilling over more broadly
    to other U.S. financial markets.
        The Federal Reserve also continues to consider ways to
    adapt the supplementary leverage ratio to the current higher-
    reserves environment. The Board has long preferred for leverage
    requirements to be a backstop to risk-based capital
    requirements. When leverage requirements instead are a firm's
    most stringent capital requirement, it may create incentives
    for the firm to substitute out of low-risk assets and toward
    higher-risk assets and could also disincentivize intermediation
    in Treasury markets.
        The Federal Reserve is also working to finalize a rule that
    would require certain banks to report their Treasury and agency
    debt and mortgage-backed securities transactions to the
    Financial Industry Regulatory Authority's Trade Reporting and
    Compliance Engine to help increase resilience of Treasury
    markets.

    Q.3. Are there reforms or actions that other Federal financial
    regulators with oversight responsibilities for the Treasury
    cash and futures markets should be pursuing?

    A.3. Several of the workstreams proposed by the IAWG will
    largely involve other agencies. The Securities and Exchange
    Commission (SEC) has primary oversight of many Treasury market
    trading venues and has already proposed and received comment on
    potential rule changes that would subject certain trading
    platforms that are dedicated to trading in Treasury or agency
    debt to more stringent reporting and disclosure requirements.
    The IAWG is also considering whether expanded central clearing
    of Treasury cash and repo transactions would promote greater
    resilience. The SEC will play a key role in this workstream as
    well given its role as the primary regulator of the Fixed
    Income Clearing Corporation--the entity that centrally clears
    both Treasury cash and repo transactions.

    Q.4. SEC Chairman Gary Gensler has stated that his agency is
    examining whether the settlement cycle for equities securities
    should be faster than the current T+2 standard. Reducing the
    settlement time would decrease risks associated with the
    settlement process and reduce the amounts needed to be posted
    as collateral.
        Do you support efforts to reduce the settlement cycle
    timeframe for equities?

    A.4. The Federal Reserve recognizes the critical role that
    payments, clearing, and settlement activities play in the
    functioning of the financial system, and we support efforts
    that promote the safety and efficiency of core infrastructure
    supporting these markets, including equities. We will continue
    to monitor developments by market participants and the
    Depository Trust and Clearing Corporation (DTCC) as this effort
    moves forward.

    Q.5. Will there need to be any changes to coordinate with the
    payments settlement cycle overseen by the Federal Reserve?

    A.5. At this time, we are not aware of any necessary changes
    with the payments systems overseen by the Federal Reserve
    needed to facilitate a move from a T+2 to a T+1 settlement
    cycle for equities.

    Q.6. During the Banking Committee's July 15, 2021, hearing, you
    distinguished climate scenario analysis (i.e., an exercise not
    tied to capital requirements) from traditional stress testing,
    which the Federal Reserve uses to set minimum capital
    requirements for large banks. While I was glad to hear you do
    not intend to change capital requirements based on climate-
    related risks, I remain concerned that you believe climate
    scenario analysis is ``a direction we'll go in.'' Too often,
    proposals to assess climate-related risks are based on highly
    uncertain climate models. In July 2021, the Financial Stability
    Board acknowledged this uncertainty, stating in a report that
    ``financial institutions' exposures to climate-related risks
    are generally subject to greater uncertainty than those
    relating to other financial risks.'' This report underscores
    the fact that financial regulators have neither the experience
    nor expertise to develop accurate climate scenarios.
        Given these limitations, what benefits do you believe would
    be generated by climate scenario analysis conducted by the
    Federal Reserve that could not be produced by similar exercises
    conducted by private institutions?

    A.6. Congress has assigned the Federal Reserve narrow but
    important mandates around monetary policy, financial stability,
    and supervision of financial firms. Consistent with our
    statutory mandates, the Federal Reserve expects supervised
    firms to manage all material risks, including those relating to
    climate change. We are taking a transparent, data-driven
    approach in assessing the potential for these risks to impact
    the macroeconomy, financial institutions, and the financial
    system more broadly, and observing how supervised firms are
    identifying, assessing, and monitoring these risks.
        Climate scenario analysis is one of many tools that certain
    large banks and certain international supervisory authorities
    are developing to better understand the resiliency of banks to
    a range of potential climate-related risks. As I stated at the
    hearing in July, climate scenario analysis is distinct from
    existing regulatory stress tests for banks. Regulatory stress
    tests are used to assess capital adequacy under specific shocks
    in the short term and have specific consequences for capital
    and supervisory ratings. By contrast, climate-related scenarios
    analysis is typically longer-term and exploratory in nature and
    used to understand and evaluate the potential impact of climate
    change on a bank's risk profile and strategy across a range of
    plausible scenarios.
        Just as it is proving useful for large financial
    institutions and other central banks, climate scenario analysis
    could be useful in relation to our supervisory mandate and our
    focus on financial stability by informing our own understanding
    of the potential economic and financial impact of different
    Government policies and technological innovation related to
    climate change. There are, however, many challenges to this
    work. For example, the links between emissions, temperature
    rise, and economic impact are all uncertain and difficult to
    model, especially over a long-time horizon.
        We are building our understanding in this area by engaging
    with financial institutions, academics, and other central banks
    and institutions.

    Q.7. During the first round of quantitative easing (QE) in the
    wake of the 2008 recession, Federal Reserve Chairman Ben
    Bernanke made it clear that QE was not monetizing the debt. He
    said ``Monetizing the debt means using money creation as a
    permanent source of financing for Government spending. In
    contrast, we are acquiring Treasury securities on the open
    market and only on a temporary basis, with the goal of
    supporting the economic recovery through lower interest rates.
    At the appropriate time, the Federal Reserve will gradually
    sell these securities or let them mature, as needed, to return
    its balance sheet to a more normal size.'' However, as we know,
    the Federal Reserve did not return its balance sheet to its
    precrisis trend.
        Is the current period of QE somehow different or is it fair
    to characterize the current use of QE as having been used to
    monetize the debt?

    A.7. Our asset purchases are neither intended nor designed to
    monetize the Federal Government debt. They have been and will
    continue to be determined by the needs to foster smooth market
    functioning and accommodative financial conditions, in order to
    promote our dual-mandate objectives. In early to mid-March
    2020, amid extreme volatility across the financial system, the
    functioning of Treasury and agency mortgage-backed securities
    (MBS) markets became severely impaired. The Federal Open Market
    Committee (FOMC) recognized that continued dysfunction in these
    markets would have led to an even deeper and broader seizing up
    of credit markets and ultimately worsened the financial
    hardships that many Americans were experiencing as a result of
    the pandemic. The FOMC responded quickly and decisively with
    substantial purchases of Treasury securities and agency MBS.
    These purchases helped market conditions to improve
    significantly over the spring of last year and, with these
    improvements, the Federal Reserve slowed its pace of purchases.
    Then, to help foster continued smooth market functioning and
    accommodative financial conditions, thereby supporting the flow
    of credit to households and businesses as the economy recovered
    from the pandemic shock, the FOMC continued securities
    purchases over the past several quarters. After the FOMC's most
    recent meeting, I said that the Committee reviewed some
    considerations around how our asset purchases might be
    adjusted, including their pace and composition, once economic
    conditions warrant a change. In coming meetings, the Committee
    will again assess the economy's progress toward our goals, and
    the timing of any change in the pace of our asset purchases
    will depend on the incoming data. As we've said, we will
    provide advance notice before making any changes to our
    purchases.

    Q.8. Many have raised concerns that the Federal Reserve's
    purchases of Treasury bonds and mortgage-backed securities have
    contributed to increased inflation, especially in the housing
    market, while others argue that it has boosted affordability
    through lower mortgage rates. In your view, which effect is
    stronger?

    A.8. Our purchases of Treasury securities and agency mortgage-
    backed securities have led to a material decrease in mortgage
    rates, reducing the cost of borrowing to purchase a home. The
    resulting increase in housing demand has contributed to strong
    house price growth over the past year-and-a-half. Shortages of
    labor and materials have constrained the housing supply in many
    parts of the United States. Although the decline in rates in
    2020 was a significant factor boosting home sales and
    residential investment last year, the impact would have been
    greater absent these supply constraints. Housing activity has
    remained elevated in 2021 relative to prepandemic levels.
        House prices do not affect inflation directly because they
    are not used in calculating commonly used price indexes such as
    the Consumer Price Index or the price index for Personal
    Consumption Expenditures. That said, strong housing demand may
    have boosted inflation through other channels.
                                    ------

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

    Q.1. What research initiatives are underway at the Federal
    Reserve to consider the impact of the expansion of the Earned
    Income Tax Credit and the Child Tax Credit on families, local
    communities, and the national economy?

    A.1. Decisions on the appropriate size and structure of the
    Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are
    the responsibility of Congress and the Administration.
        Federal Reserve system staff in recent years have
    researched various ways in which the EITC and CTC can affect
    families, local communities, and the national economy.
    Publications focused on these topics can be found on the
    Board's public website and websites of the Reserve Banks, and a
    sample of recent writings is provided below:

    Aladangady, Aditya, Shifrah Aron-Dine, David Cashin, Wendy
        Dunn, Laura Feiveson, Paul Lengermann, Katherine Richard,
        and Claudia Sahm (2018). ``High-Frequency Spending
        Responses to the Earned Income Tax Credit'', FEDS Notes,
        June 21. Board of Governors of the Federal Reserve System.

    Anderson, Nathan (2021). ``Advance Child Tax Credit Payments:
        Increasing Support for Families With Children'', Community
        Development and Policy Studies Blog, July 14. Federal
        Reserve Bank of Chicago.

    Isaacson, Maggie, and Hannah Rubinton (2021). ``Childhood
        Income Volatility'', Economic Synopses, iss. 8. Federal
        Reserve Bank of St. Louis.

    McGranahan, Leslie (2016). ``Tax Credits and the Debt Position
        of U.S. Households'', Working Paper Series, WP-2016-12.
        Federal Reserve Bank of Chicago.

    Neumark, David, and Peter Shirley (2020). ``Long-Run Effects of
        the Earned Income Tax Credit'', Federal Reserve Bank of San
        Francisco Economic Letter, vol. 2020, iss. 1.

    Q.2. What research initiatives are underway regarding the
    hospitality sector during and after the pandemic?

    A.2. The leisure and hospitality sector was hard-hit by the
    pandemic, as activity in this industry was particularly
    affected by the spread of COVID-19. Specifically, employment in
    this sector dropped by more than 8 million jobs in the early
    stages of the pandemic. Moreover, despite seeing notable gains
    since then, employment in the leisure and hospitality sector in
    July 2021 remained 1.7 million jobs below its prepandemic level
    and accounted for more than one-third of the overall difference
    in private employment relative to its February 2020 level.
        In light of the important role that this industry has
    played in driving swings in overall employment during the
    pandemic, the Federal Reserve staff's regular monitoring and
    analysis of labor market conditions has paid particularly close
    attention to developments in this sector.
        Some of this analysis was presented in the February 2021
    Monetary Policy Report. \1\ In addition, a number of research
    efforts across the Federal Reserve System have focused on
    various aspects of the leisure and hospitality sector. A sample
    of recent writings is listed below:
    ---------------------------------------------------------------------------
         \1\ See the boxes ``Monitoring Economic Activity With
    Nontraditional High-Frequency Indicators'' and ``Disparities in Job
    Loss During the Pandemic'' in the February 2021 Monetary Policy Report,
    available at https://www.federalreserve.gov/monetarypolicy/2021-02-mpr-
    summary.htm.

    Sly, Nicholas, and Bethany Greene (2021), ``Recovery in Rocky
        Mountain Leisure and Hospitality Employment'', Federal
    ---------------------------------------------------------------------------
        Reserve Bank of Kansas City.

    Knotek II, Edward S., Michael McMain, Raphael Schoenle,
        Alexander Dietrich, Kristian Ove R. Myrseth, and Michael
        Weber (2021), ``Expected Post-Pandemic Consumption and
        Scarred Expectations From COVID-19'', Federal Reserve Bank
        of Cleveland.

    Garcia Luna, Erick (2021), ``Hospitality and Janitorial Workers
        in the Twin Cities Have Faced Disproportionate Challenges
        During COVID-19'', Federal Reserve Bank of Minneapolis.

    Q.3. What research initiatives are underway regarding job
    quality--jobs with living wages, good benefits, stable hours
    and flexibility--during and after the pandemic?

    A.3. There are several research initiatives within the Federal
    Reserve System that touch on various aspects of job quality.
    One particularly relevant example is the initiative
    ``Increasing the Quality of Jobs'' that was led by the Federal
    Reserve Bank of Boston. The initiative involves both research
    and outreach activities aimed at promoting improvements in job
    quality. \2\ As part of its research activities, the initiative
    convened a Job Quality Research Consortium that was composed of
    scholars working on this topic, with the goal of sharing
    ongoing analysis and identifying areas for further study. Some
    of the analysis the initiative has generated (listed below for
    reference) include, respectively, a study on the potential for
    more-equitable paid sick leave, a study on the downstream
    benefits of higher incomes and wages, and a study on access to
    health care among essential frontline workers in the early
    stages of the pandemic.
    ---------------------------------------------------------------------------
         \2\ See, https://www.bostonfed.org/community-development/
    expanding-employment-opportunities/increasing-the-quality-of-jobs.aspx.

    Chaganti, Sara (2021), ``Pandemic Response Reveals Potential
        for More Equitable Paid Sick Leave Coverage in the
        Northeast'', Community Development Issue Briefs 21-2,
    ---------------------------------------------------------------------------
        Federal Reserve Bank of Boston.

    Godoy, Anna, and Ken Jacobs (2021), ``The Downstream Benefits
        of Higher Incomes and Wages'', Community Development
        Discussion Papers 21-1.

    Chaganti, Sara, Amy Higgins, and Marybeth J. Mattingly (2020),
        ``Health Insurance and Essential Service Workers in New
        England: Who Lacks Access To Care for COVID-19?'' Community
        Development Issue Briefs 20-3, Federal Reserve Bank of
        Boston.

    Q.4. The Federal Reserve's Monetary Policy Report does not
    mention poverty. What research has the various Federal Reserve
    Banks published on the impact of fiscal policy in response to
    the COVID-19 pandemic--the American Rescue Plan, CARES, the
    appropriations bill, etc.--have on poverty rates for American
    families?

    A.4. The Federal Reserve has devoted considerable effort to
    understanding how the recession caused by the COVID-19 pandemic
    has affected low-income U.S. households. For instance, the June
    2020 Monetary Policy Report contains analysis documenting the
    disproportionately large employment losses suffered by low-wage
    workers during the pandemic. \3\ Another example is the Federal
    Reserve's Survey of Household Economics and Decisionmaking
    (SHED). The results of a supplemental version of the SHED,
    fielded in April of 2020, reveal significantly greater job loss
    among households with incomes of less than $40,000 as compared
    to all households. \4\ The 2020 annual edition of the survey
    reveals that adults with less than a high school degree fell
    further behind those with higher levels of education in terms
    of financial well-being; the 2020 SHED also shows that the
    financial hardship caused by the pandemic appears to have been
    importantly counterbalanced by financial relief and stimulus
    measures, including the Coronavirus Aid, Relief, and Economic
    Security Act (CARES Act). \5\
    ---------------------------------------------------------------------------
         \3\ See the box titled ``Disparities in Job Loss During the
    Pandemic'' in Monetary Policy Report, Federal Reserve Board, June 12,
    2020.
         \4\ See, ``Report on the Economic Well-Being of U.S. Households in
    2019, Featuring Supplemental Data From April 2020'', Federal Reserve
    Board, May 2020.
         \5\ See, ``Economic Well-Being of U.S. Households in 2020'',
    Federal Reserve Board, May 2021.
    ---------------------------------------------------------------------------
        Unfortunately, both data and research tend to lag events on
    the ground and the official U.S. poverty statistics are
    currently only available through 2019--a fact which limits the
    amount of research currently available on U.S. poverty since
    the onset of COVID-19.
        Below is a selected list of research publications by
    Federal Reserve System staff on fiscal policy and low income/
    poverty in the COVID era:

    Dettling, Lisa J., and Lauren Lambie-Hanson (2021). ``Why Is
        the Default Rate So Low? How Economic Conditions and Public
        Policies Have Shaped Mortgage and Auto Delinquencies During
        the COVID-19 Pandemic'', FEDS Notes, March 4. Board of
        Governors of the Federal Reserve System.

    Falcettoni, Elena, and Vegard Nygaard (2021). ``Acts of
        Congress and COVID-19: A Literature Review on the Impact of
        Increased Unemployment Insurance Benefits and Stimulus
        Checks'', FEDS Notes, February 24. Board of Governors of
        the Federal Reserve System.

    Larrimore, Jeff, Jacob Mortenson, and David Splinter (2021).
        ``Earnings Shocks and Stabilization During COVID-19'',
        Finance and Economics Discussion Series 2021-052. Board of
        Governors of the Federal Reserve System.

    Lee, Donghoon, Rajashri Chakrabarti, Andrew F. Haughwout,
        Joelle Scally, William Nober, and Wilbert Van der Klaauw
        (2020). ``Debt Relief and the CARES Act: Which Borrowers
        Benefit the Most?'' Liberty Street Economics, August.
        Federal Reserve Bank of New York.

    Mattiuzzi, Elizabeth, and Eileen Hodge (2020). ``COVID-19
        Impacts on Housing Stability in the Twelfth Federal Reserve
        District'', Community Development Research Brief, vol.
        2020, iss. 06. Federal Reserve Bank of San Francisco.

    Rajan, Aastha, and Ezra Karger (2020). ``Heterogeneity in the
        Marginal Propensity to Consume: Evidence From COVID-19
        Stimulus Payments'', Working Paper Series, WP-2020-15.
        Federal Reserve Bank of Chicago.

    Tran, Thao, and Ying Lei Toh (2020). ``Pandemic Relief Has
        Aided Low-Income Individuals: Evidence From Alternative
        Financial Services'', Economic Bulletin, December. Federal
        Reserve Bank of Kansas City.

    Q.5. Some analysts anticipate economic growth as high as 7
    percent. If we experience an economic boom, which reports has
    the Federal Reserve published--or currently writing--which
    provides some options of approaches that could give us a unique
    chance to experience robust economic growth that benefits all
    workers, families, and the environment?

    A.5. Our new monetary policy framework is designed to promote
    the achievement of price stability and maximum employment, the
    dual mandate assigned to us by Congress. In particular, the
    Federal Open Market Committee (FOMC) has a broad-based and
    inclusive goal for maximum employment that focuses on
    minimizing shortfalls of employment from its maximum level and
    reflects our belief that a robust labor market can be sustained
    without causing an outbreak of inflation. \6\ As we observed in
    the latter stages of the 2009 to 2019 expansion, pushing the
    economy toward maximum employment allows all workers and
    families, especially the economically disadvantaged, to benefit
    from economic growth. Materials describing the review of
    monetary policy strategy that led to our current framework can
    be found on our website. \7\
    ---------------------------------------------------------------------------
         \6\ See the FOMC's Statement on Longer-Run Goals and Monetary
    Policy Strategy for a description of the Federal Reserve's monetary
    policy framework.
         \7\ See, ``Review of Monetary Policy Strategy, Tools, and
    Communication''.
    ---------------------------------------------------------------------------
        The Federal Reserve publishes a number of reports assessing
    the economic well-being of Americans that can be informative
    for policymakers designing economic policies to benefit all
    workers and families. The Survey of Household and Economic
    Decisionmaking, for example, asks individuals about important
    economic events and decisions in their lives. It is the source
    of the often-cited statistic on the share of households that
    would not be able to use liquid savings to cover an unexpected
    $400 expense. The SCF provides high-quality data on household
    wealth, income, and consumption and is the source of much of
    the recent research on increases in inequality in wealth and
    income in the United States. In addition, we have combined data
    from the SCF with our Financial Accounts data to produce the
    Distributional Financial Accounts (DFAs), which provide
    quarterly updates on the wealth of low-, middle-, and high-
    income households. The DFAs also report quarterly data on
    household wealth by age, education, and race.

    Q.6. Please provide any research from the Federal Reserve Banks
    regarding best practicesin helping homeowners recover from
    delinquency and avoid foreclosure?

    A.6. Over the years, the Federal Reserve System has dedicated
    significant research efforts regarding mortgage delinquency and
    foreclosure, including best practices to support homeowners in
    recovering from delinquency and avoiding foreclosure. Many of
    the studies analyze the impacts on homeowners and implications
    of policies and practices designed to support mortgage
    borrowers who are struggling to make payments.
        Research related to these issues is publicly available on
    the Board's and the Reserve Bank's websites. Please see below,
    a sample of recent research published by economists and
    researchers at the Board and Reserve Banks:

    An, Xudong, and Lawrence R. Cordell (2019). ``Mortgage Loss
        Severities: What Keeps Them so High?'' Working Papers 19-
        19. Federal Reserve Bank of Philadelphia.

    Calem, Paul S., Lauren Lambie-Hanson, Leonard I. Nakamura, and
        Jeanna Kenney (2018). ``Appraising Home Purchase
        Appraisals'', Working Papers 18-28. Federal Reserve Bank of
        Philadelphia.

    Garriga, Carlos, and Aaron Hedlund (2019). ``Crises in the
        Housing Market: Causes, Consequences, and Policy Lessons'',
        Working Papers 2019-33. Federal Reserve Bank of St. Louis.

    Lazaryan, Nika, and Urvi Neelakantan (2016). ``Monetary
        Incentives and Mortgage Renegotiation Outcomes'', Economic
        Quarterly, vol. 102, no. 2, pp. 147-168. Federal Reserve
        Bank of Richmond.

    Q.7. The Monetary Policy Report mentions retirements from baby
    boomers as a reason for a lower workforce participation rate.
    An employment-to-population ratio that adjusts foraging could
    capture those that are undercounted by the unemployment rate.
    Would the Federal Reserve consider incorporating an age measure
    into their quarterly projections and public assessments of
    maximum employment?

    A.7. When the FOMC revised its Statement of Longer-Run Goals
    and Monetary Policy Strategy (consensus statement) in August
    2020, we unanimously agreed that our statutory goal of
    ``maximum employment'' is ``a broad-based and inclusive goal
    that is not directly measurable and changes over time owing
    largely to nonmonetary factors that affect the structure and
    dynamics of the labor market.'' The role of the retirements of
    baby boomers in contributing to the reduction in the labor
    force participation rate is one example of such a nonmonetary
    factor. It is, however, just one example.
        In the pursuit of maximum employment as a broad-based and
    inclusive goal, we routinely consult research, analyses, and
    commentary on a wide range of indicators about different
    aspects of the labor market. In judging the performance of the
    labor market relative to our goal of maximum employment, the
    lengthy list of variables the FOMC might assess includes
    measures of unemployment, labor force participation, wages, and
    other variables both at the aggregate level and across
    different demographic groups. \8\ Because the list is long, and
    because the variables that deserve the most weight can change
    over time, adding prominence to one particular variable could
    hinder the FOMC's communications, and indirectly, its policy
    deliberations. Moreover, while the Summary of Economic
    Projections (SEP) is helpful for conveying information to the
    public regarding individual FOMC participants' views of the
    economic outlook, participants can differ on the importance
    they attach to various labor market indicators.
    ---------------------------------------------------------------------------
         \8\ See, https://www.federalreserve.gov/mediacenter/files/
    FOMCpresconf20210728.pdf.
    ---------------------------------------------------------------------------
                                    ------

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

    Q.1. How is the current rise in coronavirus cases, primarily
    driven by the delta variant, factoring into the Fed's outlook
    for economic growth? What, if any, epidemiological modeling is
    the Fed using to inform that outlook, if applicable?

    A.1. Throughout the pandemic, my colleagues and I at the
    Federal Reserve have said that the economic outlook importantly
    depends on the course of the virus; that remains the case. In
    addition, we have observed that the economic implications of
    successive waves of COVID-19 infections have tended to
    diminish. At least two factors may be at play here. First,
    vaccinations appear to reduce its severity among the
    vaccinated, leading to increased comfort with resuming normal
    activities. Second, we are learning how to better cope with the
    virus in our everyday life. For example, many people have
    adjusted their behaviors to reduce the risk of infection, and
    many businesses have found new ways of operating.
        Even so, it is plausible that the spread of the delta
    variant could be having an adverse effect on economic activity
    (or that other variants could do so in the future). The spread
    of the delta variant and the associated increase in case counts
    may be leading some people to pull back from travel or dining
    out because of the risk of infection, and it may be leading
    some people to delay their return to the labor force,
    particularly if schools alter their plans for reopening in the
    coming weeks.
        To inform our thinking about the economic outlook, we
    continue to closely monitor data on COVID-19 cases,
    hospitalizations, and deaths in the U.S. and abroad, as well as
    a variety of high-frequency economic indicators. We pay
    considerable attention to what epidemiologists are saying about
    the transmissibility and the severity of the COVID-19 variants,
    the efficacy of vaccines in the face of those variants, and the
    pace of vaccinations. We also monitor the responses of public
    health authorities, as the actions they take may have economic
    consequences.
        Although a significant share of the population has been
    vaccinated, further progress on this front is key, as the
    economy is unlikely to fully recover until most people are
    confident that it is safe to resume activities involving groups
    of people.
                                    ------

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

    Q.1. Many have raised concerns that the Federal Reserve's
    purchases of Treasury Bonds and Mortgage Backed Securities have
    fed inflation, especially in the housing market. Other argue
    that those actions have boosted affordability. Can you say
    which effect is stronger?
        The limited supply of housing is a national issue and is
    also feeding inflation. Would the Fed's efforts to ease rates
    have a more robust effect if supply was in balance?

    A.1. Our purchases of Treasury securities and agency mortgage-
    backed securities have led to a material decrease in mortgage
    rates, reducing the cost of borrowing to purchase a home. The
    resulting increase in housing demand has contributed to strong
    house price growth over the past year-and-a-half. Shortages of
    labor and materials have constrained the housing supply in many
    parts of the United States. Although the decline in rates in
    2020 was a significant factor boosting home sales and
    residential investment last year, the impact would have been
    greater absent these supply constraints. Housing activity has
    remained elevated in 2021 relative to prepandemic levels.
        House prices do not affect inflation directly because they
    are not used in calculating commonly used price indexes such as
    the Consumer Price Index or the price index for Personal
    Consumption Expenditures. That said, strong housing demand may
    have boosted inflation through other channels.

    Q.2. Given positive changes to bank balance sheets throughout
    the pandemic-induced downturn, and their strong state today,
    how do you think the leverage ratio and other regulatory
    requirements based on balance sheet size and growth should be
    adjusted?

    A.2. The Federal Reserve Board (Board) has long maintained that
    leverage capital requirements are most effective as a backstop
    to risk-based capital requirements. Where a leverage
    requirement serves as a firm's binding capital requirement, it
    can skew incentives for the firm to substitute low-risk assets
    for high-risk ones.
        Prior to the onset of COVID-19, the levels of capital and
    of overall loss absorbency in the banking system were generally
    appropriate. Strengthened by a decade of improvements in
    capital, liquidity, and risk management, banks have continued
    to be a source of strength during the pandemic. We continuously
    evaluate the resiliency of banks and monitor financial and
    economic conditions to help determine the effectiveness of the
    regulatory framework. As we continue to engage in these
    efforts, we will consider changes in balance sheet size and
    growth while aiming to maintain the overall strength of bank
    capital requirements.

    Q.3. What potential threats do you see to America and to the
    world from China's development of a Digital Yuan? Will this
    topic be addressed in the Fed's upcoming research report on
    digital currencies?

    A.3. Every country approaches decisions about whether and when
    to issue a central bank digital currency (CBDC) based on
    dynamics unique to its own context. For example, many of the
    motivations cited by other jurisdictions, such as rapidly
    declining cash use, weak financial institutions, and
    underdeveloped payment systems, are not shared by the United
    States.
        The global appeal of the dollar is rooted in the United
    States' transparent and accountable institutions, reliable rule
    of law, deep financial markets, flexible exchange rate, and
    open capital account. New technological designs of other
    currencies will not alter the importance of nor change these
    features, especially in the near term.
        That said, given the dollar's important role globally, we
    recognize that it is essential that the United States remain on
    the frontier of research and policy development regarding CBDC.
    We continue to closely monitor many central banks' progress on
    CBDC, including that of China.
        Our forthcoming discussion paper will cover a broad range
    of issues related to digital payments and CBDC and will invite
    public comment. We are committed to hearing a wide range of
    voices to inform any decision on whether or how to move forward
    with a U.S. CBDC, taking account of the broader risks and
    opportunities.
        Irrespective of the conclusion we ultimately reach, we
    expect to play a leading role in developing international
    standards for CBDCs, engaging actively with central banks in
    other jurisdictions as well as regulators and supervisors here
    in the United States throughout that process.

    Q.4. You mentioned during the hearing that cyberthreats to the
    financial system are among your biggest worries. Could you
    provide an overview of what recent actions the Federal Reserve
    has taken, and what the Fed is currently doing, to ward off
    future cyberattacks?

    A.4. The Board views the security of the financial system as a
    high priority and recognizes the risks posed by malicious
    cyberactors to the Federal Reserve, other financial
    institutions and the broader financial system.
        The Board actively engages on cybersecurity issues with key
    stakeholders including the Federal banking agencies, other
    Government agencies, and industry. We routinely monitor
    cybersecurity threats and ensure appropriate responses to
    incidents that could affect the operations of the Federal
    Reserve or supervised institutions.
        The Board is also an active participant and leader in
    international groups addressing the cyber resiliency of the
    global financial system, including the Financial Stability
    Board, the Basel Committee on Banking Supervision, the
    Committee on Payment and Market Infrastructures (and its joint
    efforts with the International Organization of Securities
    Commissions), the International Association of Insurance
    Supervisors, and the Group of Seven. The Board closely
    coordinates with other international agencies, governance
    bodies, financial regulators, and industry, to share
    information and best practices.
        Additionally, the Board regulates and supervises certain
    financial institutions to ensure that they operate in a safe
    and sound manner and comply with all applicable laws and
    regulations. We continue to emphasize that financial
    institutions should monitor and mitigate cyberthreats and
    remain vigilant and resilient.
        Recent examples of supervisory policies include:

        In October 2020, the Board together with other
            Federal banking agencies, published a paper outlining
            sound practices to assist the largest and most complex
            financial institutions with the development of
            comprehensive approaches to operational resilience,
            including resilience to cyberthreats. The paper
            leverages existing regulations and provides information
            on how to detect, defend against, and respond to common
            cyberthreats, such as data destruction, theft, malware,
            and denial of service. The guidance is aligned with
            common industry standards such as the National
            Institute of Standards and Technology Cybersecurity
            Framework and best practices managing cyberrisk.

        In January 2021, the Federal banking agencies
            proposed computer-security incident notification
            requirements for banking organizations and their bank
            service providers. In general, the proposed rule would
            require a banking organization or bank service provider
            to provide notice of an incident that could materially
            disrupt, degrade, or impair its business operations or
            services. The timely notification of incidents would
            enhance Federal banking agencies' abilities to assess
            and quickly respond to potential risks such incidents
            may pose to the supervised entity and the banking
            system as a whole.

        The Board contributed significantly to the effort
            to update the Federal Financial Institution Examination
            Council (FFIEC) Architecture, Infrastructure, and
            Operations (AIO) booklet of the IT Handbook which was
            published on June 30, 2021. The booklet is designed to
            assist examiners from each of the FFIEC member agencies
            when assessing the risk profile and adequacy of an
            entity's information technology architecture,
            infrastructure, and operations.
                  Additional Material Supplied for the Record

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