[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


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                 U.S. GOVERNMENT PUBLISHING OFFICE
                 
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            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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