    [Senate Hearing 117-664]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-664

    CARES ACT OVERSIGHT OF THE TREASURY AND FEDERAL RESERVE: SUPPORTING AN
                          EQUITABLE PANDEMIC RECOVERY

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

                                    HEARING

                                   BEFORE THE

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

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

    EXAMINING TESTIMONY FROM THE SECRETARY OF THE TREASURY AND THE CHAIRMAN
      OF THE FEDERAL RESERVE, AS REQUIRED UNDER TITLE IV OF THE CARES ACT
                                   __________

                               SEPTEMBER 28, 2021
                                   __________

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

                      [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE

    52-157 PDF                 WASHINGTON : 2023

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                         SHERROD BROWN, Ohio, Chairman

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

                         Laura Swanson, Staff Director

                     Brad Grantz, Republican Staff Director

                           Elisha Tuku, Chief Counsel

                     Dan Sullivan, Republican Chief Counsel

                         Mark Uyeda, Republican Detail

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                        Charles J. Moffat, Hearing Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                          TUESDAY, SEPTEMBER 28, 2021

                                                                       Page

    Opening statement of Chairman Brown..............................     1
            Prepared statement.......................................    45

    Opening statements, comments, or prepared statements of:
        Senator Toomey...............................................     4
            Prepared statement.......................................    46

                                   WITNESSES

    Janet L. Yellen, Secretary, Department of the Treasury...........     6
        Prepared statement...........................................    47
        Responses to written questions of:
            Chairman Brown...........................................    51
            Senator Toomey...........................................    52
            Senator Menendez.........................................    60
            Senator Warren...........................................    62
            Senator Sinema...........................................    71
            Senator Crapo............................................    73
            Senator Kennedy..........................................    77
    Jerome H. Powell, Chairman, Board of Governors of the Federal
      Reserve System.................................................     7
        Prepared statement...........................................    48
        Responses to written questions of:
            Chairman Brown...........................................    79
            Senator Toomey...........................................    82

                                     (iii)

    CARES ACT OVERSIGHT OF THE TREASURY AND FEDERAL RESERVE: SUPPORTING AN
                          EQUITABLE PANDEMIC RECOVERY

                                  ----------

                          TUESDAY, SEPTEMBER 28, 2021

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10 a.m., via Webex and in room 216,
    Hart Senate Office Building, Hon. Sherrod Brown, Chairman of
    the Committee, presiding.

              OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

        Chairman Brown. The Senate Committee on Banking, Housing,
    and Urban Affairs will come to order. This hearing is in a
    hybrid format. Our witnesses are in person. Members have the
    option to appear either in person or virtually.
        For those joining remotely a few reminders. Once you start
    speaking there will be a slight delay before you are displayed
    on the screen. To minimize background noise please click the
    Mute button until it is your turn to speak or ask questions.
        You should all have one box on our screens labeled
    ``Clock'' that will show how much time is remaining. For those
    joining virtually you will hear a bell ring at 30 seconds and
    then when time is expired. If there is a technology issue we,
    of course, will move on to the next Senator.
        Our speaking order will be as usual, that is by seniority
    of the Members who have checked in before the gavel came down
    at 10, either in person or virtually, and then by seniority
    Members arriving later, alternating always, on this Committee,
    between Democrats and Republicans.
        Welcome to our witnesses. We all remember the dark days of
    2008, and the painful years that followed. Secretary Yellen and
    Chair Powell, you both helped us deal with the aftermath in
    your roles at the Federal Reserve.
        When the biggest banks were in trouble, Washington, as
    always, sprang to action. ``We have no choice. We cannot allow
    these banks to fail,'' we heard over and over and over again.
    But millions of families were allowed to fail. American workers
    bailed out the financial industry, but their livelihoods were
    not treated with the same urgency. Recovering their jobs, let
    alone empowering them to demand better ones, would have to wait
    for years.
        By the end of 2013, the stock market had its best year in
    almost two decades. Eleven million people, though, were still
    out of a job.
        The question before us today is the same question we have
    been grappling with for a year: Are we going to learn from our
    past mistakes?
        Americans do not have to settle for another Wall Street-
    first recovery. We have the tools to do things differently. The
    only question is whether we are going to use them, for as long
    as it takes.
        So far, we have worked to learn the lessons of the past and
    do better by American workers. That is what the CARES Act and
    the American Rescue Plan were all about. We put money in
    families' pockets, stimulus checks, Earned Income, Child Tax
    Credit, money spent always in local supermarkets and shopping
    centers on food and back-to-school supplies.
        Treasury helped State and local governments get emergency
    rental assistance to 420,000 families in August alone and $950
    million to help homeowners who are behind on their mortgages.
    The result has been record job growth. Job creation--I am going
    to say this twice--job creation in the first 7 months of the
    Biden administration, Madam Secretary, is nearly double any
    previous first-year President. Job creation in the first 7
    months of the Biden administration is nearly double any
    previous first-year President.
        It is not just the jobs themselves. It is the quality of
    these jobs. For the first time in decades, workers are starting
    to gain a little power in our economy, power to negotiate
    higher wages, power to fight for better working conditions,
    more control over their schedules and their futures. Progress,
    to be sure, but a long way to go.
        We are down 5.6 million jobs since before the pandemic.
    Corporations too often use the pandemic as an excuse to ``cut
    costs.'' We know that by ``costs'' they always mean jobs or
    wages or retirement contributions. They rarely mean CEO bonuses
    or, God knows, they do not mean stock buybacks.
        Instead of hiring back loyal workers as business expands,
    companies outsource or contract out work, often paying people
    more or less half as much.
        The Fed, for its part, has taken extraordinary action over
    the past year-and-a-half to stabilize our economy. But many of
    the Fed's efforts, Mr. Chairman, helped stabilize markets much
    more than they stabilized working families. Those actions have
    been a bonanza for Wall Street. Big corporate mergers are at an
    all-time high. The biggest banks have had one of their most
    profitable years ever, and we are, not to be reminded of it,
    all during a global pandemic.
        The same companies that benefited from the Fed's actions
    want to ``restructure'' the workforce. They complain about a
    ``skills gap'' while refusing to cut into their stock buyback
    budgets to expand training programs or offer truly high wages.
        This ought to be a reminder that we are still in the very
    early stages of recovery, and the same old Wall Street system
    is not good enough. Chair Powell, you have talked about your
    commitment to competitive labor markets, yet you have said that
    the test for full employment is, your words, ``all but met.''
        Tell that to the working mother who was forced to quit her
    job because she could not afford childcare, or even find
    childcare. Tell that to the server who worked for decades at a
    major hotel chain, only to lose her job during the pandemic,
    and then be offered the same job by a contractor paying a
    fraction of the wages with no benefits. Tell that to a worker
    in my hometown in Mansfield, Ohio, who, for decades, watched
    companies close down factories and move good-paying, often
    union jobs abroad, only to have them replaced, when they were
    replaced at all, by low-wage, non-union jobs at a big box
    store.
        Now is not the time to declare victory. Americans have
    watched this story unfold over and over again. Crash.
    Recession. Rapid Wall Street recovery. Years of slow, slow,
    painful, uneven job recovery, always within the same corporate
    system that treats quarterly stock prices as the only real
    measurement that matters, and treats workers as a cost to be
    minimized.
        How many times are we going to continue to do this? How
    many times are Americans going to have to watch history repeat
    itself?
        We cannot declare the recovery complete until all workers
    can find a job that pays them fair wages and treats them with
    dignity. The Fed cannot pull back every time workers gain a
    tiny bit of power to demand higher wages. The Fed cannot
    continue to rubberstamp mergers and allow corporate
    consolidation to go unchecked, and then wonder why job growth
    is not reaching whole regions of the country.
        Full employment means a truly competitive labor market, one
    where everyone can get a job, and employers compete for
    workers. We have not seen that kind of labor market in decades,
    but we can. It is our job, it is this Committee's job, it is
    Treasury's job, it is the Fed's job.
        Also, I also need to say a quick word about the games
    Republicans are playing with people's livelihoods. The debt
    limit--we all know this--the debt limit is not about future
    spending. It is about meeting obligations we have already made.
    It is the bipartisan, overwhelmingly popular CARES Act, the
    reason we are holding this hearing today.
        Every single one of my Republican colleagues who served on
    this Committee last year, every one of them voted for the CARES
    Act. Every one of them, again, who served on this Committee
    before, voted for the $2 trillion tax cut for their wealthy
    friends. They did not seem to have a problem with the debt
    limit then, but now they do not want to pay the bill?
        The partisan game is pretty transparent. We need to pay our
    bills on time. We have always done it. Treasury Secretaries,
    past and present, and across the political spectrum, are
    sounding the alarm about the economic devastation that they are
    threatening.
        China watches all of this with glee, all too eager to see
    the dollar tarnished as the world's reserve currency, and we
    play right into that. We cannot play politics with the full
    faith and credit of the United States.
        Last comment. Chair Powell, I understand you have initiated
    a review of the ethics and financial disclosure rules at the
    Fed after we learned of stock trades that at least two Federal
    Reserve Bank presidents made during the pandemic. I have a bill
    with Senator Merkley and Senator Warnock, also a Member of this
    Committee, the Ban Conflicted Trading Act, that would ban
    members of Congress from buying or selling any individual
    stocks. The same should apply to Fed officials. I am
    introducing a bill to do that. Your job, the Fed's job, members
    of Congress' job is to serve the public, not their stock
    portfolios.
        Ranking Member Toomey.

             OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

        Senator Toomey. Thank you, Mr. Chairman. Secretary Yellen
    and Chair Powell, welcome.
        Last year, Congress, on bipartisan basis, forcefully
    responded to the threat of economic collapse caused by the
    pandemic and that resulting lockdowns. That response, together
    with the Fed's aggressive monetary policy support and the end
    to lockdowns, enabled the U.S. economy to fully recover. Our
    economy today is not only larger than it was before the
    pandemic, but we are now running above prepandemic GDP
    forecasts for this year.
        Unfortunately, our Democratic colleagues are trying to ram
    through a reckless tax and spending bill that will threaten
    this economic growth. Their policies include massively
    expanding the welfare State, raising taxes on U.S. employers,
    and diminishing investment by raising taxes on capital gains.
        Let's be clear about the purpose behind these proposals. It
    is not to spur economic recovery--the economy is strong. Nor is
    it an antipoverty plan--the programs are not limited to the
    poor. It is to redefine the relationship between the Federal
    Government and the middle class. It is about socializing many
    ordinary responsibilities that families have always assumed.
        Instead of raising taxes to partially fund economically
    harmful programs, we should be working to return to the best
    economy of my lifetime, which we experienced just before COVID
    hit. We had the lowest unemployment rate in 50 years, including
    record low unemployment rates for Black and Hispanic Americans.
    Real median household income at an all-time high, and strong
    wage growth, above the rate of inflation, was particularly for
    lowest income earners.
        This was all achieved by reforming the tax code, lowering
    tax rates, and lightening regulatory burdens, and now the
    Democrats colleagues are proposing to reverse all of these
    successful policies.
        The Fed has clear and narrow mandates, to conduct monetary
    policy that promotes stable prices, maximum employment, and
    moderate long-term interest rates, and also to conduct banking
    supervision and maintain an efficient payment system. It is
    therefore concerning to see the Fed, especially its regional
    banks, wade into politically charged areas like global warming
    and racial justice. These efforts undermine the Fed's
    independence and distract from the Fed's actual
    responsibilities, like controlling inflation.
        Speaking of which, the Fed's excessively accommodative
    monetary policy, emergency policies long after the emergency
    has passed, have produced the inflation that I feared and the
    Fed did not expect. We are now seeing rates of inflation
    considerably higher than the Fed projected, and it is hurting
    businesses, consumers, and workers.
        And you do not have to just take my word for it. Here is
    what the CFO one of the biggest retailers in America, Costco,
    said last week, and I quote, ``Inflationary factors abound:
    higher labor costs, higher freight costs, higher transportation
    demand, along with container shortages and port delays,
    increased demand in certain product categories, various
    shortages of everything from computer chips to oils and
    chemicals,'' end quote.
        To address this threat, I urge the Fed to accelerate the
    process of normalizing monetary policy so that it does not fall
    further behind the curve in responding to inflation than it
    already has.
        I am also concerned Treasury may be headed down a similar
    path of exceeding its authority. Too much fanfare, the Biden
    administration has announced an international tax agreement
    that consists of two pillars.
        Pillar one is an unprecedented change that would allow
    foreign countries to tax American companies based on their
    sales overseas. It is a tax revenue transfer from us to them.
    Unsurprisingly, this is the priority for other countries who
    have long sought this tax revenue.
        Pillar two is a global minimum tax on multinationals'
    foreign income. This is the Biden administration's attempt to
    justify burdensome tax increases on U.S. companies, and
    unsurprisingly, this is the Administration's priority and is
    part of its efforts to dismantle our successful 2017 tax
    reforms.
        Now the Administration is imploring other countries to
    implement a global minimum tax that will harm their own workers
    and businesses, and by doing so, the Administration has
    implicitly acknowledged that their proposed multinational tax
    increases will make U.S. workers and businesses less
    competitive, if other countries either do not implement a
    global minimum tax of their own, or if they implement a
    significantly lower rate than what the Administration is
    proposing.
        But there is a real possibility that other countries will
    not implement a global minimum tax for at least two reasons.
    First, the EU can only implement this global minimum tax by
    unanimous consent, which they do not have, which they do not
    have. And second, these countries have only reluctantly agreed
    to Pillar Two in return for Pillar One, which is the transfer
    of U.S. tax revenue from us to them. But implementing Pillar
    One in the U.S. requires a treaty ratified by two-thirds of the
    U.S. Senate. I think that is unlikely to happen.
        So the Administration has implicitly admitted that their
    global tax hike will be a big problem for the United States if
    the rest of the world does not follow suit. But there is a very
    substantial risk that the rest of the world will not follow
    suit. And yet Democrats are charging ahead with this
    destructive tax increase in their reconciliation bill that
    apparently they are going to try to pass any day now.
        So lots to talk about this morning. Secretary Yellen and
    Chairman Powell, I look forward to discussing these and other
    issues with you today.
        Chairman Brown. Thank you, Ranking Member Toomey.
        I will introduce today's witnesses. Today we hear from
    Treasury Secretary Janet Yellen and Federal Reserve Chair
    Jerome Powell, and their agencies' continued actions to support
    an equitable pandemic recovery and make sure that our economy
    works for all Americans.
        Secretary Yellen and Chair Powell, thank you for your
    public service. Thank you for your testimony today.
        Madam Secretary, please proceed.

      STATEMENT OF JANET L. YELLEN, SECRETARY, DEPARTMENT OF THE
                                TREASURY

        Secretary Yellen. Chairman Brown, Ranking Member Toomey,
    Members of the Committee, it is a pleasure to testify today.
        We are in the midst of a fragile but rapid recovery from
    the pandemic-induced recession. While our economy continues to
    expand and recapture a substantial share of the jobs lost
    during 2020, significant challenges from the Delta variant
    continue to suppress the speed of the recovery and present
    substantial barriers to a vibrant economy. Still, I remain
    optimistic about the medium-term trajectory of our economy, and
    I expect we will return to full employment next year.
        A rebound like this was never a foregone conclusion. In
    fact, the American recovery is stronger than those of other
    wealthy Nations. One key factor for our overperformance is the
    policy choices that Congress has made over the past 18 months.
    Those choices include the passage of the CARES Act, the
    Consolidated Appropriations Act, and the American Rescue Plan.
        Treasury, as you know, was tasked with administering a
    large portion of the relief dollars in those bills, and when we
    last met our Department was busy standing up programs to help
    individual families, State governments, and organizations of
    every size in between. While we still have much more work to
    do, we have made significant progress, and I wanted to give you
    an update.
        Let's start with families. In July, our Department started
    sending the monthly expanded Child Tax Credit payments to the
    families of nearly 60 million children across the country. To
    date, $46 billion dollars in payments have been made, and we
    are already seeing the impact. Analysis by the Census Bureau
    found that after the first payments in July, food insecurity
    among families with children dropped 24 percent.
        As for State, local, tribal, and territorial governments,
    COVID-19 decimated their budgets. There were mass layoffs, and
    to end the health and economic emergencies, we knew that
    communities would need funding to hire educators to bring kids
    back to school, for example, or frontline workers to administer
    the vaccine. The American Rescue Plan included $350 billion to
    that end, and those dollars are indeed helping the machinery of
    local governments get up and running. States and localities can
    rely on relief money that is available instead of resorting to
    painful budget cuts.
        Congress rightly designed the State and local program with
    flexibility in mind. I think many of us knew the recovery could
    run up against some unforeseen challenges, and we wanted
    communities to be able to devote resources where and when they
    saw fit. I want to note that this flexibility is paying off
    now, especially with the spread of the Delta variant. Harris
    County, Texas, for instance, has used this funding to boost its
    immunization rate, offering $100 to each person who gets their
    first vaccine dose.
        For the relief dollars not yet out the door, Treasury is
    doing everything it can to expedite their delivery. The
    Emergency Rental Assistance Program is one example. Prior to
    the pandemic, there was essentially no national infrastructure
    to get money from Government coffers to renters and landlords.
    Building that infrastructure has been a massive undertaking for
    States, localities, and tribes.
        The program is scaling up quickly, with 1.4 million
    payments made to help struggling renters keep a roof over their
    heads. Still, too much of the money remains bottlenecked at the
    State and local levels. That is why our Treasury team has
    worked to eliminate every piece of red tape possible in order
    to ensure more payments can get to renters and landlords, but
    States and localities must also work to remove barriers that
    can speed up distribution of rental assistance funds.
        I will end my remarks there except to say this. It is
    imperative that Congress address the debt limit. If not, our
    current estimate is the Treasury will likely exhaust its
    extraordinary measures by October 18th. At that point, we
    expect Treasury would be left with very limited resources that
    would be depleted quickly. America would default for the first
    time in history. The full faith and credit of the United States
    would be impaired, and our country would likely face a
    financial crisis and economic recession as a result.
        We must address this issue to honor commitments made by
    this and prior Congresses, including those made to address the
    health and economic impact of the pandemic. It is necessary to
    avert a catastrophic event for our economy.
        Senators, the debt ceiling has been raised or suspended 78
    times since 1960, almost always on a bipartisan basis. My hope
    is that we can work together to do so again, and to build a
    stronger American economy for future generations.
        Thank you, and I am pleased to take your questions.
        Chairman Brown. Thank you, Madam Secretary.
        Chair Powell, you are recognized. Thank you for joining us.

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

        Mr. Powell. Thank you. Chairman Brown, Ranking Member
    Toomey, and other Members of the Committee, thank you for the
    opportunity to discuss the measures we have taken to address
    the hardship wrought by the pandemic.
        Since we last met, the economy has continued to strengthen.
    Real GDP rose at a robust pace in the first half of the year,
    and growth is widely expected to continue at a strong pace in
    the second half. The sectors most adversely affected by the
    pandemic have improved in recent months, but the rise in COVID-
    19 cases has slowed their recovery. Household spending rose at
    an especially rapid pace over the first half of the year but
    flattened out in July and August as spending softened in COVID-
    sensitive sectors. Additionally, in some industries, near-term
    supply constraints are restraining activity.
        As with overall economic activity, conditions in the labor
    market have continued to improve. Demand for labor is very
    strong, and job gains averaged 750,000 per month over the past
    3 months. In August, however, gains slowed markedly, with the
    slowdown concentrated in sectors most sensitive to the
    pandemic. The unemployment rate was 5.2 percent in August, 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.
        Factors related to the pandemic appear to be weighing on
    employment growth. These factors should diminish with progress
    on containing the virus.
        The downturn has not fallen equally on all Americans, and
    those least able to shoulder the burden have been the hardest
    hit. In particular, despite progress, joblessness continues to
    fall disproportionately on lower-wage workers in the service
    sector and on African Americans and Hispanics.
        Inflation is elevated and will likely remain so in coming
    months before moderating. As the economy continues to reopen,
    we are seeing upward pressure on prices, particularly due to
    supply bottlenecks in some sectors. These effects have been
    larger and longer lasting than anticipated but they will abate,
    and as they do, inflation is expected to drop back toward our
    longer-run 2 percent goal.
        The process of reopening the economy is unprecedented. As
    it continues, bottlenecks, hiring difficulties, and other
    constraints could again prove to be greater and more enduring
    than anticipated, posing upside risks to inflation. If
    sustained higher inflation were to become a serious concern, we
    would certainly respond and use our tools to ensure levels that
    are consistent with our goal.
        The path of the economy continues to depend on the course
    of the virus, and risks to the outlook remain. The Delta
    variant has led to a surge in cases, causing human suffering
    and slowing the recovery. Continued progress on vaccinations
    would support a return to more normal economic conditions.
        The Fed's policy actions are guided by our dual mandate to
    promote maximum employment and stable prices, along with our
    responsibilities to promote the stability of the financial
    system. In response to the crisis, we took broad and forceful
    measures to support the flow of credit and to promote the
    stability of the financial system. Our actions, taken together,
    helped unlock more than $2 trillion of funding to support
    businesses large and small, nonprofits, and State and local
    governments between April and December of 2020. This, helped
    keep organizations from shuttering and put employers in a
    better position to keep workers on and to hire them back as the
    recovery continues.
        These programs have served as a backstop to key credit
    markets and helped to restore the flow of credit from private
    lenders. We have deployed them to an unprecedented extent. Our
    emergency lending tools require the approval of the Treasury
    and are available only in unusual and exigent circumstances,
    such as those brought on by the crisis.
        Many of these programs were supported by CARES Act funding.
    Those facilities provided essential support through a very
    difficult year and are now closed.
        The Fed completed its sales of assets from the Secondary
    Market Corporate Credit Fund on August 31. We were able to wind
    down the facility rapidly and efficiently, with no adverse
    impact on credit conditions. We also recently closed the PPPLF
    to new lending, are managing the paydown of assets in our other
    CARES facilities as they wind down. We continue to analyze
    their efficacy and to review the lessons learned.
        The Fed's actions affect communities, families, and
    businesses across the country. Everything we do is in service
    of our public mission. We will do all we can to support the
    economy for as long as it takes. Thank you.
        Mr. Chair, if I may just offer one thing. What I said last
    week was that we had all but met the test for tapering. I made
    it clear that we are, and we are, in my view, a long way from
    meeting the test for maximum employment. Thank you.
        Chairman Brown. Thank you, Mr. Chairman.
        Madam Secretary, last night my Republican colleagues
    blocked efforts to provide critical disaster relief to millions
    of Americans to keep the Government open and to raise the debt
    ceilings so that the Government can pay our bills on time,
    something we have always done bipartisanly, including right
    after the Republicans passed their deficit-busting corporate
    tax giveaway via reconciliation.
        Be brief, if you would. What would be the impact on our
    economy if they block call efforts to raise the debt ceiling?
        Secretary Yellen. Chairman Brown, failing to increase the
    debt limit would have catastrophic economic consequences. It
    would cause the Government to default on its obligations, which
    is an utterly unprecedented event in American history. It would
    be disastrous for the American economy, for global financial
    markets, and for millions of families and workers whose
    financial security would be jeopardized by delayed payments.
        For example, nearly 50 million seniors would, or could stop
    receiving Social Security payments or see them delayed. Our
    troops would not know when their paychecks would come. Thirty
    million families who rely on the child tax credit would not
    receive the monthly payment on time. Unemployment would surely
    rise and, as we saw in 2011, even coming very close to the
    deadline without raising the debt ceiling can undermine the
    confidence of financial markets in the credit-worthiness of the
    United States that led to a debt downgrade and soaring interest
    rates, which ends up raising payments on mortgages, auto loans,
    and credit cards.
        Chairman Brown. Thank you. You made clear that the debt
    ceiling is about money. We have already spent, like the CARES
    Act, that Republicans in Congress voted for and that President
    Trump signed into law, and now they want to run out and pay the
    bill. We know it is just wrong. They know it is just wrong.
        Chair Powell, the most recent jobs report, as you point
    out, saw unemployment decreasing generally, but it also showed
    a continued racial unemployment gap, and the unemployment is
    rising for Black workers.
        You committed to erring on the side of lower unemployment
    in a more competitive labor market. Thank you for that. But
    last week you announced that policy tightening will begin in
    November with tapering, that interest rate targets will
    increase next year. Why take away economic support just when
    workers are getting back on their feet and starting to see
    glimmers real wage growth, and when the recovery has failed to
    reach so many Black workers?
        Mr. Powell. Right now, we are buying $120 billion worth of
    securities every month, and all of those purchases add to
    accommodation. They are increasing accommodation. And we had
    set a test for beginning to taper those purchases of
    substantial further progress toward our statutory goals. We
    have not met that yet, but as I mentioned, I think we have all
    but met it on the path that we are looking at. We would
    continue to add accommodation, not subtract it, until well into
    the middle of next year. And we think that is appropriate given
    the strength of the economy.
        The test for raising interest rates is substantially
    higher. And, you know, we want to see just, as you indicated at
    the beginning, we want to see a labor market that we both
    indicated, a labor market that is very strong. We want to see
    the kinds of reductions in disparities and the kinds of things
    that we did see before the pandemic arrived.
        Chairman Brown. Thank you. Secretary Yellen, the
    Conservative Niskanen Center said the expansion of the child
    tax credit would result in billions of dollars in spending,
    hundreds of thousands of jobs in local communities,
    particularly rural communities. We know raising a child is work
    and most of the parents getting CTC are really doing two jobs
    at home and in the paid labor force.
        So, set the record straight briefly, if you would. Does the
    expanded child tax credit, particularly a fully refundable
    child tax credit, does it increase labor force participation
    and boost local economies?
        Secretary Yellen. I believe that it does. I think the
    evidence shows that very strongly, that it helps parents take
    care of their children. As I mentioned in my opening statement,
    we have seen that hunger, the number of families that feel
    their children do not have enough to eat drop substantially
    after the first round of payments. We see that parents are
    using the CTC payments to pay for basic needs, including food
    and clothing. And of course, it can be used for childcare and
    provide the kind of support that enables parents to take jobs--
    --
        Chairman Brown. Thank you, and sorry to interrupt. Thank
    you for the way that you and Treasury have gotten those checks
    out monthly, starting in July. Thank you for that.
        Last question. Chair Powell, the New York Times reported in
    February only 2 out of 417 economists employed by the Board of
    Governors, 2 out of 417 are Black. I appreciate you made
    diversity at the Fed a priority. I agree with what you said in
    that article--institutions that focus on diversity and do it
    well are the successful institutions in our society. Cutting it
    even closer, over its 108-year history, no Black woman has ever
    served on the Board of Governors, not one ever. Do you think
    the Board of Governors would be a more successful institution
    if a Black women had a voice and a seat at the table? Should we
    make that a priority?
        Mr. Powell. I would strongly agree that we want everybody's
    voice heard around the table, and that would certainly include
    Black women. And we, of course, have no role in the selection
    process, but we would certainly welcome.
        Chairman Brown. Secretary Yellen, do you agree with that,
    that it is time we had a Black woman on the Board of Governors?
        Secretary Yellen. I do. I think diversity is extremely
    important and that would certainly be a very welcome
    achievement.
        Chairman Brown. Thank you.
        Senator Toomey. Thank you, Mr. Chairman. Let me begin by
    just stating the obvious. If the Government goes on a spending
    binge, that will certainly require more borrowing to pay for
    all that spending. Our Democrats have a spending binge
    underway. They are threatening to dramatically expand that. And
    if they get their way, that will certainly necessarily involve
    more borrowing than we would otherwise need.
        The Democrats have chosen to ignore our warnings about this
    excessive spending but they want us to vote to raise the debt
    ceiling in order to permit the massive spending increases that
    they are planning. I would just remind everyone, just as the
    Democrats have the procedural ability to pass this spending on
    their own, as they intend to, hey have the exact same
    procedural ability to raise the debt ceiling on their own,
    which they inevitably will have to end up doing.
        Mr. Powell, earlier this year there were certainly sectors
    of our economy, especially the sector sensitive to reopening
    experienced, pretty dramatic, but largely temporary price
    spikes. It seems to me now we are seeing a broader, more
    troubling kind of inflation. Input prices are soaring across
    the board. Raw materials, electrical components, energy, and
    consumer expectations seem to have internalized this. The New
    York Fed's most recent survey shows that they expect 5.2
    percent inflation over the coming year.
        Despite this and all the growth that we have talked about,
    as you point out, the Fed is still buying $120 billion in
    securities every month, and I guess my question is, doesn't the
    inflation we are seeing now seem broader and more structural in
    nature than the brief blip we saw, say, in used car prices
    earlier this year?
        Mr. Powell. Yes. I think it is fair to say that it is.
    Mainly what we have seen is that the supply side restrictions
    that are so much at the heart of the inflation we are seeing
    have not only not gotten better, they have actually, in some
    cases, gotten worse. Look at the car companies. Look at the
    ships docked, or with their anchors down outside of Los
    Angeles. And this is really a mismatch between demand and
    supply, and we need those supply blockages to alleviate, to
    abate before inflation can come down. We do believe that it
    will. However, if you look at measured inflation and what is
    contributing to it, most of it is still from a very small
    category of items.
        Senator Toomey. But it is considerably broader than it was,
    and I would also point out, and I know you are aware of this,
    but the Fed's projections of inflation have consistently been
    off. They have consistently been low. And at some point I think
    we need to acknowledge that this is not playing out the way I
    think the Fed had hoped.
        Let me shift the topic to a central bank digital currency.
    So I am increasingly intrigued by the opportunities that a
    properly designed central bank digital currency could provide
    to the U.S. To name a few, instant zero-cost payments,
    interoperability and programmability with smart contracts,
    international competitiveness all come to mind.
        But getting the design correct, getting it right is
    essential. For instance, the privacy of Americans has to be
    respected. We should not design a central bank digital dollar
    that allows the Government to spy on Americans' every
    transaction. And the Fed is certainly not suited to be a retail
    bank, and so we certainly should not try to turn it into one.
    In my view, privately issued digital currency should be able to
    coexist with a digital dollar, if we go down that road, and
    private sector developers certainly should be able to innovate
    either on or in interoperable fashion with a digital dollar.
        So I am not asking you to opine on any of these things, but
    it seems to me the decision about whether or not to go down
    this road is transformational, and there are very, very
    important and sensitive design issues that would have to be
    resolved. So I think that ought to be done in a transparent
    process with political accountability, which is to say, with
    congressional input.
        Could you comment on how important you think it is to have
    congressional authorization if we are going to go down the road
    of a digital dollar?
        Mr. Powell. I would be glad to. And by the way, I agree,
    this is critical work that we want to take forward. So the
    relevant parts of our law were written long before digital
    finance was a thing, and a central bank digital currency could
    take many forms, it is possible that under some forms you would
    be able to make an argument that it would be authorized under
    current law. But I think this is such a fundamental issue. It
    would be ideal if this were to be a product of broad
    consultation, ultimately authorizing legislation from Congress.
        Senator Toomey. Thank you. Madam Secretary, I want to talk
    about the tax agreement. As you know, Pillar One will
    fundamentally rewrite how profits are allocated among
    countries, and will cede U.S. taxing rights to foreign
    jurisdictions to some degree. Well, current bilateral treaties
    would need to be modified to implement this reallocation, and
    obviously this requires a treaty to implement, right? In fact,
    the international agreement itself, I think it acknowledges
    that by referring to a multilateral instrument, layman's terms,
    that is a treaty, and that will be necessary for this
    implementation.
        So do you acknowledge that Pillar One requires a treaty and
    therefore a Senate ratification in order to implement it?
        Secretary Yellen. I believe there are a number of ways in
    which Congress could implement it, but certainly ratification
    of a treaty would be one way in which Congress could authorize.
    And certainly Congress has to authorize the transfer of taxing
    rights that is contemplated in Pillar One.
        Senator Toomey. Well, I will finish Mr. Chairman, but I
    want to stress that we have, for many, many decades, had
    bilateral tax treaties that govern the amounts and the manner
    by which foreign Governments can tax American companies.
    Changing those treaties requires ratification in the Senate.
    There is no way around that, that I can see. Thank you.
        Chairman Brown. Thank you, Senator Toomey. Senator Tester
    is recognized from his office.
        Senator Tester. Thank you, Mr. Chairman, and I want to
    welcome both Chairman Powell and Secretary Yellen. This first
    question is for you Secretary Yellen.
        Through the American Rescue Plan I have fought for, and we
    got targeted relief for local communities and States. I have
    heard some concerns that in Montana some of the funds that you
    have already gotten out from Treasury to the States
    specifically are not getting out for projects, and that
    proposes some problems, especially with winter coming on in
    Montana, that we might miss an opportunity to make upgrades to
    broadband or other critical investments. I have heard some
    folks in Montana, leadership, blaming this confusion that is
    caused by the Treasury Department because the funding is coming
    in two tranches. That does not make a lot of sense to me.
        So Secretary Yellen, beyond the restrictions on uses of
    these funds provided by Congress, and through Treasury's
    guidance, is there anything that the Treasury Department is
    doing which would prevent States like Montana from receiving
    the funds in two tranches and using the funds that they have
    already received now?
        Secretary Yellen. Senator, there is no restriction that
    Montana faces in using the funds that have been allocated or
    making plans to use the funds that will be made available in
    the second tranche. That can be done now. There is absolutely
    no need to wait.
        Senator Tester. OK. So they can use that first tranche
    right now; no need new wait--because your mic was on and off
    there for a minute. Do they need----
        Secretary Yellen. Yes, that is right.
        Senator Tester. Thank you. Do they need your approval to
    start planning what they might use the rest of the funds for?
    And then to clarify, States with split payments do not need
    Treasury's approval to start getting the funds that they
    already have out the door. That is correct, just to make it
    absolutely clear.
        Secretary Yellen. That is correct, and they can plan how
    they intend to use the second tranche of funds as well. They
    can begin doing that now.
        Senator Tester. On the second tranche, do you have a
    timeline for getting the funds to municipalities and States who
    have received these split payments?
        Secretary Yellen. I believe it is a year lag between the
    payments.
        Senator Tester. OK. It is my understanding that the process
    for these funds has worked just as Congress laid them out, and
    it has been pretty predictable. Would you say that is correct?
        Secretary Yellen. Yes, I think it is correct.
        Senator Tester. OK. And then can you talk to me about the
    impact that you are seeing in the communities as program funds
    through the coronavirus State and local fiscal relief fund are
    getting up and running?
        Secretary Yellen. Well, I think we are already seeing
    significant impact of these funds. Some of it is being used for
    immediate pandemic response, vaccination efforts, helping
    unemployed workers, supporting small businesses, and some of it
    is being used to address longer-term needs, including broadband
    infrastructure, water, and sewer. And so these funds can serve
    a variety of needs, and are doing so.
        Senator Tester. OK. Secretary Yellen, I want you to respond
    to something the Ranking Member said, and I think he knows
    better. But he said that Democrats want the Republicans to
    expand the debt limit so that they can spend money. Is it not
    true that the debt limit is expanded because of money that is
    already spent, that it would be similar to you going down to a
    restaurant, ordering a steak dinner, paying for it on your
    credit card, and when the credit card comes back, you would
    say, ``Nope, I am not paying for it.'' Isn't that similar to
    what we are talking about with the debt limit?
        Secretary Yellen. That is absolutely correct. It has
    nothing to do with future programs of payments. It is entirely
    about paying bills that have already been incurred by this
    Congress and previous congresses. And it is about making good
    on past commitments, as you said, paying our credit card bill.
        Senator Tester. Thank you very much. Thank you, Mr.
    Chairman. I yield.
        Chairman Brown. Thank you, Senator Tester. Senator Shelby
    from Alabama is recognized.
        Senator Shelby. Thank you. Welcome, both of you, Madam
    Secretary, Chairman Powell.
        Chairman Powell, I will direct my first question to you.
    The Phillips curve is an economic concept that represents an
    inverse relationship between inflation and unemployment.
    Historically, it has been utilized to understand the
    relationship between unemployment and inflation, in particular,
    in relation to the Federal Reserve's dual mandate of price
    stability and maximum employment. You were aware of this, Mr.
    Chairman. Some economists question the current validity of this
    concept as a connection between inflation and unemployment has
    seemed to grow weaker in recent years.
        Chairman Powell, is the Phillips curve still a valued
    economic model or tool, and have you observed any notable
    strengthening in the relationship between unemployment and
    inflation during the pandemic?
        Mr. Powell. Senator, if you go back to the high inflation
    area that we both recall, there was a very close relationship,
    a one-for-one kind of relationship, or close to it, between
    unemployment and inflation. That is no longer the case. There
    is still a relationship, but we say the Phillips curve is very
    flat, but it is not completely flat. So there is a relatively
    modest relationship. The slope of the line is seven degrees or
    something, so very flat. Is there any change that we observe in
    the near term? To get to your last question, not at this point,
    no.
        Senator Shelby. Do you watch the Phillips curve?
        Mr. Powell. Well, we do, but if you saw, we had 3.5 percent
    unemployment and very modest inflation for a couple of years
    before the pandemic. So it is not a top-of-mind concern. The
    inflation that we are having is, but it is really not related
    to the Phillips curve.
        Senator Shelby. Would you say that the Phillips curve
    concept is not valid right now?
        Mr. Powell. Well, it is not particularly binding right now.
    Inflation is high and the unemployment rate is high, so it is
    not really the binding constraint.
        Senator Shelby. OK. I will direct this question to the
    Secretary. The stepped-up basis, Madam Secretary, is a tax
    provision that allows for a beneficiary to adjust the basis of
    an asset to its current value, rather than its value of when
    originally purchased. We know that. This provision allows for
    beneficiaries to avoid paying high taxes on assets that have
    increased over time, largely due to inflation.
        President Biden's American Families Plan includes a
    proposal to eliminate the stepped-up basis. A lot of people
    believe that such a change would result in a costly tax
    increase on family owned businesses, particularly on farms and
    ranches. According to a study by the Texas A&M Agricultural and
    Food Policy Center, 98 percent of the farms in its 30-State
    data base will be impacted by the Biden administration's
    proposal. The study calculates that the average additional tax
    liability for a farm to be over $720,000.
        Madam Secretary, do you support eliminating stepped-up
    basis for State beneficiaries, and if you do, why?
        Secretary Yellen. Senator Shelby, I do support eliminating
    stepped-up basis. The reason is that a very large share of the
    income of wealthy individuals is simply never taxed.
    Individuals hold onto these assets during their lifetime. That
    income is never taxed. And we know that for some of the
    wealthiest individuals in the country, they pay very low taxes
    overall because most of their income takes the form of
    unrealized capital gains.
        The Biden administration proposed that at death those gains
    be taxed. And with careful consideration, not in any way to
    harm the prospects of family owned farms or small businesses,
    there were substantial exemptions to protect them.
        Even if there is not actually taxation imposed at death,
    getting rid of stepped-up basis would mean that an heir would
    inherit the original basis of the asset, and when that person
    eventually sold the asset, taxes would be paid. But I regard
    step-up of basis as a kind of loophole that allows a very large
    portion of income in this country of the wealthiest individuals
    to go untaxed.
        Senator Shelby. Thank you. Thank you, Mr. Chairman.
        Chairman Brown. Thank you. Senator Warner is recognized
    from his office, remote.
        Senator Warner. Thank you, Mr. Chairman. I want to go back
    and revisit with the Treasury Secretary some of the concerns we
    all share about potential default. I think we all, many of us,
    I know the Chairman and the Ranking Member were around when in
    2011, our Nation got close to that kind of default.
        Madam Secretary--and I particularly worry about some of my
    colleagues who are concerned, rightfully, about additional
    mandatory spending, but if we were to go into this default
    basis, would it not be expected that that would cause a lack of
    faith in the American Government's ability to meet its
    obligations, which, in all likelihood, would result in an
    interest rate spike? And is my math basically correct that if
    there were 100 basis point increase in interest rates, 1
    percent increase in interest rates when we are looking at a $27
    trillion debt, you are looking at more than a $200 billion a
    year additional mandatory interest payment, those interest
    payments because of that spike in interest rates comes before
    payment of Social Security, payment of our military, any of our
    other priorities? And if you extrapolate that on a 10-year
    basis for concerns about spending, would not that be close to
    an additional $2 trillion over 10 years of mandatory spending?
    Is there, Madam Secretary, anything faulty with that analogy or
    my math?
        Secretary Yellen. I do not believe there is anything at all
    faulty about the math. I think there is no question, but if
    Congress were to fail to raise the debt limit, or even if it
    was feared if we are getting close, and it looks as in 2011,
    like Congress might not raise the debt ceiling and we might not
    be able to pay our bills, that you would expect to see an
    interest rates spike. And if the debt ceiling were not raised,
    I think there would be a financial crisis and a calamity. And
    absolutely, it is true that the interest payments on the
    Government debt would increase.
        I would be concerned that the dollar and Treasury assets,
    which are regarded as the most secure in the world and serve as
    the basis for the dollar to be the reserve currency, that it
    would undermine confidence in the dollar as a reserve currency.
    And the interest payments of ordinary Americans on their
    mortgages and on their cars and on their credit cards would all
    go up in line with higher Treasury borrowing costs. And it
    would increase our spending, absolutely.
        Senator Warner. And again, this is not something that you
    could then reverse if suddenly Congress came to its senses,
    once you saw any kind of spike in interest rates or confidence
    losing. Once this genie is out of the bottle there is no
    putting it back in. Is that correct?
        Secretary Yellen. I think that is correct. This would be a
    manufactured crisis we had imposed on this country, which has
    been going through a very difficult period, is on the road to
    recovery, and it would be a self-inflicted wound of enormous
    proportions.
        Senator Warner. And we all know that we are in an economic
    competition with China. Would not this effort in terms of a
    China that is trying to criticize our withdrawal from
    Afghanistan, and would not this give additional fodder to the
    Chinese arguments, and, you know, as you mentioned, undermining
    the confidence in the dollar as the reserve currency? Wouldn't
    this action potentially also give more credibility to China's
    efforts to try to make the RMB an equal to or potentially even
    more of a default reserve currency?
        Secretary Yellen. Well, certainly it would undermine
    confidence in our Government and in the role of the dollar and
    the safety of the dollar, which has really never been
    questioned. The dollar is the safe haven asset when times are
    turbulent, that people feel is absolutely secure. I think China
    has a long ways to go in reforming its financial markets before
    the renminbi is a serious rival to the dollar as a reserve
    currency. But I cannot think of anything more harmful to the
    role of the dollar than failing to raise the debt ceiling.
        Senator Warner. Again, I know my time is up, but I would
    just point out to my colleagues that are rightfully concerned
    about mandatory spending, you know, that interest rate spike
    and the, again, 100 basis points, roughly is $200 billion a
    year. My math says that is 2 trillion over 10. That would be
    spending we do not need to do, and we can all avoid that taking
    place.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Warner. Senator Kennedy
    from Louisiana is recognized.
        Senator Kennedy. Thank you, Mr. Chairman. Thank you, Madam
    Secretary and Mr. Chairman for being here.
        Madam Secretary, when you were here last, and we all look
    forward to you coming, I asked you to tell me what you thought
    inflation would be at the end of this year, and you told me 2
    percent. Do you still stand by that prediction?
        Secretary Yellen. Clearly inflation this year is going to
    be above 2 percent. Just the experience so far this year makes
    that clearly true. But I think we are seeing monthly inflation
    rates taper off.
        Senator Kennedy. Yes, ma'am. What do you think it will be
    at the end of the year, if not 2 percent?
        Secretary Yellen. Probably closer to 4 percent.
        Senator Kennedy. OK.
        Secretary Yellen. And that is already almost must be the
    case based on what has happened this year. But in my
    estimation, there are the types of supply bottlenecks that the
    economy----
        Senator Kennedy. OK. I do not want to spend too much time
    on inflation, and I am sorry to interrupt, but we have so
    little time and I talk slowly.
        What party controls the House?
        Secretary Yellen. The Democrats.
        Senator Kennedy. What party controls the Senate?
        Secretary Yellen. The Democrats.
        Senator Kennedy. I believe we can agree that President
    Biden is a Democrat.
        Secretary Yellen. I believe.
        Senator Kennedy. OK. Senator Schumer, who is a Democrat,
    and my friend, controls the Senate floor, and he can raise the
    debt ceiling by just amending the budget resolution, cannot he?
        Secretary Yellen. It is possible that could be done.
        Senator Kennedy. Yes, ma'am. So why didn't he do it? Why do
    not you all do it?
        Secretary Yellen. Because this is not----
        Senator Kennedy. Let me just finish. Why do not you all
    just do it and then we do not have this fight?
        Secretary Yellen. Because this----
        Senator Kennedy. Why do you insist on doing it the hard
    way?
        Secretary Yellen. Because it is very important to recognize
    that raising the debt ceiling is about paying bills that
    Congresses----
        Secretary Kennedy. I know. But----
        Secretary Yellen. ----have incurred in the past.
        Secretary Kennedy. But I want to----
        Secretary Yellen. And it is a shared responsibility.
    Democrats have----
        Senator Kennedy. So why do not you--I agree with that.
        Secretary Yellen. The Democrats----
        Secretary Kennedy. Why do not you just amend the budget
    resolution?
        Secretary Yellen. Democrats have provided votes in the past
    when both houses of Congress, who are controlled by
    Republicans, when the Republican Party was in the middle of
    reconciliation. 2017 is a good example. And Democrats pitched
    in to do their duty to raise the debt ceiling.
        Senator Kennedy. But I just--I just--I know all that, and
    we--and I appreciate your perspective. But let me ask you
    again. There is a real simple solution. Why do not you all just
    amend the budget resolution? It just takes 50 votes by my
    Democratic friends and the Vice President. Why do not you just
    do that? Problem solved, done, easy peasy, finish. Let's go
    have a cocktail.
        Secretary Yellen. Well, it will be up to the leadership of
    Congress to decide----
        Senator Kennedy. Well, are you going to recommend they do
    that?
        Secretary Yellen. We will confer with them on what is the
    best strategy to move forward.
        Senator Kennedy. I have not been around this place as long
    as you have, but it is not often around here that we have a
    problem that has an easy solution, and this is a real easy
    solution. And I get politics. I understand why politically you
    folks want to have Republican fingerprints on the spending
    fiscal knife. I get that. But is your politics so important
    that you want to gamble here on the----
        Secretary Yellen. I want to make sure that----
        Senator Kennedy. ----sovereign debt of the United States
    when you have a very, very simple solution that you refuse to
    take?
        Secretary Yellen. I want to see that the debt ceiling is
    raised. As I have said, I believe it would be catastrophic not
    to do so. But I equally believe that deficits have been run
    under both Democratic and Republican administrations. It is
    important to recognize that. And that means that paying the
    bills for those deficits is a shared responsibility, and it
    should not be the responsibility----
        Senator Kennedy. I agree with that.
        Secretary Yellen. ----of any one party.
        Senator Kennedy. Very eloquently put. But it is a fact,
    isn't it, that you and your folks just want Republican
    fingerprints on the Democrats' effort to tax, spend, and
    regulate America into Europe. Now it is your prerogative to do
    that, but this is all about the Administration's desire to have
    Republican fingerprints on it, and later call it bipartisan.
    And you know that, Madam Secretary, with all the respect I can
    muster, and so do the American people.
        Thank you, Mr. Chairman.
        Chairman Brown. Senator Kennedy, I rarely speak between
    witnesses, but I wonder if Secretary Yellen takes you up on
    that offer to go get a cocktail, if you would pay or you would
    skip out on paying the bill or expect Secretary Yellen to pay?
        Senator Menendez is recognized from New Jersey.
        Senator Menendez. Thank you, Mr. Chairman. I had not
    intended to pursue this line of questioning but I must say my
    distinguished friend and colleague from Louisiana always sparks
    my interest.
        Republican fingerprints were all over the tax cuts to the
    wealthiest people and corporations in America to the tune of $2
    trillion. Republican fingerprints, for the many years that they
    were in a majority, were all over the budget spending that was
    unpaid for. Republican fingerprints are all over the politics
    of this now.
        When Democrats were in the minority, Democrats did the
    fiscally responsible thing. They voted with Republicans to
    recognize the debt that had already been inherited, not a debt
    to come, but that which had already been inherited. You all
    created a significant part of this debt, and now you want to
    walk away from it. I know that President Trump was the king of
    debt and bankruptcy, and maybe you have adopted that as your
    view, but it is not a view in the national interests of the
    United States. So I love that my friend sparks my concerns.
        In any event, let me turn to my real purpose here. We have
    discussed at length how diversity remains a problem at both of
    your agencies. Chairman Powell, during your tenure, the number
    of minorities in management positions have barely budged. In
    the most recent report, the Fed's Office of Minority and Women
    Inclusion states, quote, ``The Hispanic participation in our
    workforce has remained steady over the past 5 years.'' Steady.
    Well, when it is already pretty dismal, steady does not really
    do very much for me. ``We recognize that our prior efforts,''
    it goes on to say, ``have resulted in minimal progress.''
        So my question is, what are you doing about it? What are
    you doing about it?
        Then let me just make this a joint question. Secretary
    Yellen, I see the same thing happening at Treasury. I have
    raised this from the date of your confirmation proceedings to
    most recently. I am really chagrined that I have to be forced
    to consider not voting for nominees because it is the only way
    to get the attention of these agencies. But if you are sitting
    as one of the few Hispanic American Senators and seeing what is
    coming forth from this Administration, especially in these two
    sectors, it is abhorrent.
        So what are we going to do about it? Chairman?
        Mr. Powell. Let me start briefly by agreeing that if you
    look at successful organizations in the United States, private
    and public, you will almost always see a successful approach to
    diversity, a focus on diversity from the top. So I think it
    really starts with making diversity a high priority. I have
    done that. My predecessors have done that. If you talk to any
    of our senior leadership, the people who do the hiring, the
    people in all the divisions, you will see that they talk about
    diversity, that they focus on diversity and hiring. It is not
    easy to move----
        Senator Menendez. But if it is a high priority, it is a
    dismal failure. I mean, I hear high priority, but, you know,
    the proof is in the pudding and it is just not there. So I do
    not know how high a priority it is when we continue to have the
    same types of numbers. Madam Secretary.
        Secretary Yellen. Senator Menendez, I would say that it is
    a high priority at Treasury. With respect to political
    appointments that I have been involved with, we are very
    focused on recruiting and hiring Latinos, and we have been
    engaging with Latino interest groups to identify and source
    candidates. Just over the past several weeks, we have extended
    three offers to Latino candidates, including two Latinas who
    will serve in leadership roles within the Department of the
    Treasury, and we will announce those soon.
        In hiring within the Department as a whole, we track very
    carefully the demographic composition of our workforce, and it
    is a high priority to improve diversity. Every Treasury bureau
    has a partnership with Hispanic-serving institutions and
    Hispanic community organizations. We have employee----
        Senator Menendez. Well, I do not mean to interrupt you, but
    I look forward to seeing actual nominations. Every nomination
    that I have been asked to cast a vote on here certainly is not
    Latino.
        Secretary Yellen. They are not all Senate-confirmed, but
    they are senior leadership positions.
        Senator Menendez. OK. Then I would love to see those that
    are not Senate-confirmed because as far as I can see the
    numbers have not changed. So I look forward to the
    announcements because I would love to applaud progress in a
    significant way.
        If I may, Mr. Chairman one last question.
        Chairman Brown. Sure.
        Senator Menendez. Chairman Powell, you know, for the Latino
    community but beyond, expanding access to childcare, would not
    that improve the labor force participation rate among women? I
    know so many women who want to get back in the labor force, but
    they have no access to any affordable childcare that, at the
    end of the day, allows them to do so.
        Mr. Powell. There is a good bit of research that would
    support that conclusion. Yes.
        Senator Menendez. Thank you.
        Chairman Brown. Senator Lummis of Wyoming is recognized.
        Senator Lummis. Thank you, Mr. Chairman, and let me say
    something on behalf of the people I represent in Wyoming. This
    is not pointed to either party. This is pointed to the Congress
    of the United States. It is absolutely irresponsible that we
    are $28 trillion in debt and that both parties sit here and
    blame each other for what they both did irresponsibly. It is
    absolutely unconscionable what we have done to the people of
    this country. It is both parties' faults. It is the Congress'
    fault and we need to address it, but we are so busy making each
    other look like the rat's rear end that we will not address the
    real problems in this country that led us to be $28 trillion-
    plus in debt, and now asking to get further in debt. I am
    horrified. My constituents are horrified. This has got to stop.
        That said, now I will turn my attention to the Secretary.
    Secretary Yellen, speaking of horrified, my constituents cannot
    believe that you support a proposal to require banks and credit
    unions to report customer data to the Internal Revenue Service
    for transactions of $600 or more. There are obvious privacy
    concerns for all Americans here, and this represents a dramatic
    new regulatory burden for community banks and credit unions in
    Wyoming and elsewhere. Our banks will have to hire contractors
    to rat on their customers, implement new computer software,
    deploy resources better used elsewhere in order to collect data
    for the Government.
        Bank customers are not subjects of the Federal Government.
    Banks do not work for the IRS. This is invasive of privacy.
    Wyoming's people literally will find alternatives to
    traditional banks just to thwart IRS access to their personal
    information, not because they are trying to hide anything, but
    because they are not willing to share everything.
        My question is, are you aware of how unnecessary this
    regulatory burden is? Do you distrust the American people so
    much that you need to know when they bought a couch or a cow? I
    am astounded by what you are supporting and proposing. I think
    it is invasive. I think privacy for individuals is getting
    ignored. And I think treating the American people like they are
    subjects of the Government is unconscionable.
        Secretary Yellen. Well, Senator Lummis, I really disagree
    with the assessment that you have, and I think you
    misunderstand the proposal. Banks already report directly to
    the IRS the interest that they pay on accounts when it exceeds
    $10. And this is not a proposal to provide detailed
    transaction-level data by banks to the IRS. It is a proposal to
    add two additional pieces of easily ascertained information
    onto the 1099-INT form that banks already file, namely the
    aggregate inflows into the account during the year and the
    aggregate outflows.
        And I think it is important to recognize that we have a tax
    gap that is estimated at $7 trillion over the next decade. That
    is taxes that are due and are not being paid to the Government
    that deprive us of the resources we need to do critical
    investments to make America more productive and competitive.
        And the reason that that tax gap, in part, exists, partly
    it is because the IRS has been deprived of revenue to hire
    auditors, but the IRS has a wealth of information about
    individuals. If you work at a job where you get labor income, a
    W-2 is filed and sent. There are dividend payments and
    transactions payments that are sent to the Government. But
    there are a class of partnerships, businesses, high-income
    individuals who have opaque sources of income that the IRS does
    not have direct information about and that is where the tax gap
    is, not low-income people. And this additional information
    would help to----
        Senator Lummis. Well, $600 threshold is not usually where
    you are going to find the massive amount of tax revenue you
    think Americans are cheating you out of.
        Secretary Yellen. That is correct, but it is important to
    have comprehensive information so that individuals cannot game
    the system and have multiple accounts.
        Senator Lummis. Mr. Chairman, I yield back.
        Chairman Brown. The Senator from Massachusetts, Senator
    Warren, is recognized.
        Senator Warren. Thank you, Mr. Chair. Thank you both for
    being here today.
        Chair Powell, during your time as chair, you have taken
    plenty of actions to weaken the Fed's regulatory oversight of
    our largest banks. So today I want to talk about three
    instances of that and ask you to think about them in hindsight.
        First, the stress test. Now these are designed to tell
    whether or not big banks can survive without a taxpayer
    bailout. When the tests were first set up, bank supervisors
    could restrict stock buybacks and dividend payments to
    strengthen the bank's balance sheet. In 2019, you took that
    power away. And we now know, from the Fed's own research, that
    when the economy hit choppy waters last year, those banks
    needed stimulus from the taxpayers and that without this
    taxpayer help they would have faced up to $300 billion in
    losses, meaning that they were in a sharply weakened position
    to withstand the stress.
        Chair Powell, do you regret weakening the stress test?
        Mr. Powell. I do not think we have weakened the stress
    test, and I am not sure what you are referring to. When banks
    fail the stress test, their distributions are limited.
        Senator Warren. So I laid it out here that you took away
    the power to restrict stock buybacks and dividend payments that
    could be used to strengthen the balance sheet. You do not see
    any changes you made to the stress test and handling stress
    tests out in advance?
        Mr. Powell. Senator, capital in the largest banks is at
    multi-decade highs.
        Senator Warren. That is not my question. I am looking at
    the Fed's own research which says that without the help that
    you had to put into the economy last year, they would have
    faced up to $300 billion in losses.
        Look, I do not want to argue with you about what capital--
    --
        Mr. Powell. Which they would have met. Which they would
    have been able to absorb without difficulty.
        Senator Warren. Let me ask you the question then. I take it
    you do not have any regrets about any changes to the stress
    test?
        Mr. Powell. Not really. I mean, I am prepared to look at--
    anything we did is fair game to look at again, but I do not
    think so. No.
        Senator Warren. OK. But let me ask about another action. In
    2020, the Fed, along with the other agencies, removed the
    Volcker rule restrictions on whether banks could cosponsor so-
    called family funds. And then earlier this year, we watched the
    collapse of a quote/unquote ``family fund'' called
    ``Archegos,'' which caused banks to suffer a quick $10 billion
    in losses.
        Given the Archegos collapse, do you regret weakening the
    Volcker rule?
        Mr. Powell. That is actually a family office, Archegos is.
    I do not know that there are any Volcker rule implications for
    Archegos. I will say we have looked at the Archegos situation
    closely, and I think learned our lessons from that.
        Senator Warren. Learned your lessons, but do you have any
    regrets about weakening the Volcker rule around family funds,
    having watched what Archegos did?
        Mr. Powell. I would have to understand the Archegos
    connection. Generally, it was widely agreed that the Volcker
    rule as implemented was complex and not workable. We took a
    fresh look and----
        Senator Warren. OK. I will take that as a no. I just want
    to make sure I can get through all three of these.
        One last example. In 2019, the Fed weakened liquidity
    requirements, the rules that ensure that firms have adequate
    cash to meet their obligations. For banks between $250 and $700
    billion dollars in assets, the liquidity requirement was cut by
    15 percent. So let me just ask, do you regret slashing
    liquidity requirements designed to protect markets from
    crashing like they did in 2008?
        Mr. Powell. So that was tailoring, which the law that had
    been passed through this committee required. I do not see that
    there has been any evidence that that was a bad idea, but it is
    one that could certainly be looked at again.
        Senator Warren. OK, so you would be willing to at least
    look at that one again?
        Mr. Powell. Yes.
        Senator Warren. OK. This cut by 15 percent.
        You know, Chair Powell, the elephant in the room is whether
    you are going to be renominated for a second term as Fed chair.
    Renominating you means gambling that for the next 5 years a
    Republican majority at the Federal Reserve with a Republican
    chair who has regularly voted to deregulate Wall Street will
    not drive this economy over a financial cliff again. And with
    so many qualified candidates for this job, I just do not think
    that is a risk worth taking.
        I know that some argue that your deregulatory actions are
    mostly harmless. I disagree. I think they have put taxpayers at
    risk for hundreds of billions of dollars. But even at that, so
    far you have been lucky, but the 2008 crash shows what happens
    when the luck runs out. The seeds of the 2008 crash were
    planted years in advance by major regulators, like the Federal
    Reserve that refused to rein in big banks.
        I came to Washington after the 2008 crash to make sure that
    nothing like that would ever happen again. Your record gives me
    grave concern. Over and over you have acted to make our banking
    system less safe, and that makes you a dangerous man to head up
    the Fed. And it is why I will oppose your renomination.
        Thank you, Mr. Chair.
        Chairman Brown. Senator Rounds from South Dakota is
    recognized.
        Senator Rounds. Thank you, Mr. Chairman.
        Well, needless to say, Chairman Powell, I would probably
    disagree with my colleague, and I commend you for the hard work
    that you have done, and I most certainly think that you do
    deserve to be renominated to the position that you have right
    now, and I look forward to working with you for the next
    several years.
        Chairman Powell, I would like to ask you about the
    supplementary leverage ratio, the SLR exclusion that the Fed
    and the other banking regulators instituted during the pandemic
    that allowed banks to exclude ultra-safe assets, including U.S.
    treasuries and deposits to the Fed from their balance sheets.
    This exclusion allowed the banks to take in the extraordinary
    amount of deposits that we saw during the pandemic without
    having to grapple with needless capital requirements.
        I am just curious whether or not you believe that that move
    was successful and whether or not you would see any
    possibilities of perhaps a continuation of that in the future?
        Mr. Powell. So it was important that we did it in the
    crisis, and it worked. I think it is less binding now because
    of all the money that is now at the reverse repo facility.
        Ultimately, we do not want leverage ratios to be the
    binding constraint on banks because we think that that gives
    them the incentive to take more risk. I would say we need to be
    very careful with the supplemental leverage ratio because we
    want to make sure that any changes we make to it will not
    reduce the overall binding-ness of the capital requirements for
    the largest institutions. But it is something we would look at
    modifying, and it is one of the things we are looking at right
    now.
        Senator Rounds. Presumably you felt that you received
    pretty positive feedback from the institutions that were
    impacted by this particular modification of the rule.
        Mr. Powell. Yes, and that was an emergency situation. When
    the emergency ended, we allowed that provision to lapse. But I
    think overall though, with all the liquidity in the system, it
    could again become the binding constraint and that would not be
    good from a safety and soundness standpoint.
        Senator Rounds. Thank you. Secretary Yellen, welcome.
        Secretary Yellen. Thank you.
        Senator Rounds. It is good to see you again. I would like
    to direct this question to you. During our last quarterly CARES
    hearing, I inquired about the severe backlog of tax returns
    facing the IRS as approximately 2.4 million tax returns
    remained untouched by the IRS at that time, many of which were
    from 2019. That number only continued to grow with an
    approximate 35 million backlogged tax returns at the end of
    June, when the National Taxpayer Advocate released the midyear
    report to Congress.
        When I originally asked about the IRS's possible plan to
    address the backlog, you responded that you had not yet had a
    discussion with the IRS commissioner about this particular
    issue, but you did provide assurances that you would work with
    me and my office and remain committed to developing a plan to
    address the backlog. After receiving no correspondence
    following the hearing, I sent a letter to you asking these same
    questions to which I have also not yet received a response.
        So my question, Secretary Yellen, I am asking for a third
    time, have you discussed the IRS's plan to address its immense
    backlog of tax returns with the IRS commissioner? If so, what
    is the plan?
        Secretary Yellen. We have discussed this with the IRS
    commissioner and he is addressing it and I would be happy to
    get you more details. My apologies if we have not responded in
    a timely way. I promise to do so quickly.
        Senator Rounds. So it would be fair to say that the IRS
    does have a plan in place to prevent this level of backlog in
    the future?
        Secretary Yellen. We are trying to add to the IRS's
    resources so that they will be able to handle these things in a
    more expedited fashion.
        Senator Rounds. We can perhaps expect a communication from
    your office here in the next 5 days or so?
        Secretary Yellen. We will try to get you that
    communication.
        Senator Rounds. Thank you. Also, Secretary Yellen, with the
    Treasury quickly approaching the debt limit, and I know that
    this is something which you have identified it and have
    expressed concern over, it makes one question when America
    might become the next Greece. When, in your view, when do we
    have to say enough is enough when it comes to our deficit and
    our debt?
        Secretary Yellen. So one, in thinking about what is a
    reasonable level of debt, there are a number of different
    metrics that one might look at. Commonly, debt-to-GDP ratios
    are a measure that is widely used. Ours is a little bit over
    100 percent, which traditionally has been regarded as high. But
    we are in a very low-interest-rate environment, that is been
    true for a very long time, and is likely to be true going
    forward.
        And an alternative, and I think better measure of fiscal
    sustainability is to look at the real net interest cost of the
    debt. What is it in real terms costing to service the
    outstanding debt? And for the last several years, that is been
    negative. And even if interest rates, 10-year rates and the
    Treasury yields revert in future years backup to more normal
    levels, the interest cost, which really is the burden, is
    projected to remain low. The plans that the Biden
    administration has put forth, we keep that low, at under 1
    percent of GDP.
        Senator Rounds. Thank you. My time has expired. Thank you,
    Mr. Chairman.
        Chairman Brown. Thank you, Senator Rounds. Senator Smith of
    Minnesota is recognized.
        Senator Smith. Thank you, Mr. Chair, and welcome to
    Secretary Yellen and to Chair Powell. I am going to direct my
    questions to Secretary Yellen today, and I would like to start
    with the question of emergency rental assistance. I think we
    have all seen that the pandemic has not been a great equalizer.
    It has laid bare the deep inequities in our society,
    particularly, I would argue, in housing. With COVID, you know,
    we are all in the same storm but we are not all in the same
    boat.
        What this looks like in Minnesota is the following. There
    are about 60,000 families in Minnesota that are behind on rent,
    and to support those families, we all worked hard here in
    Congress to get the emergency rental assistance. So far,
    however, only about 15,000 families have received help through
    Minnesota's Emergency Rental Assistance Program, and that is
    not nearly good enough. And this is particularly troubling
    because about two-thirds of these families are families of
    color and indigenous families. So if this program is not
    working, it is disproportionately hurting them.
        So Secretary Yellen, here is my question. I appreciate that
    Treasury has worked hard to clear away the red tape at the
    Federal level to make this program work better, and I
    appreciate that this is being run at the State level, and often
    also at the local level. What can you tell us about what you
    are doing to make sure that renters are not hurt as Treasury
    approaches this recapturing of emergency rental assistance
    funds?
        Secretary Yellen. Well, we want to make sure that renters
    are helped and we have been, as you noted, working hard to
    provide the support to State and local governments to put in
    place effective programs. But the ERA1 statute requires
    Treasury to begin reallocating excess funds that will be
    required as of September 30th, and Treasury is developing a
    procedure to govern that process. We want to make sure that
    localities with demonstrated need receive additional funds and
    that they come from places that are not running effective
    programs or have less need. And we will be looking at
    reallocation in order to improve the effectiveness of the
    program.
        Senator Smith. Secretary Yellen, in Minnesota about 30,000
    applications remain to be processed, which is a sign, I think,
    of the great need in our State. Can Treasury approach this,
    looking at these large backlogs of applications that are
    remaining to be processed, that are in other words sort of in
    the system right now as you are working on this?
        Secretary Yellen. I mean, we will look at backlogs. We will
    look at the effectiveness with which States and local
    governments have gotten out the rental assistance that they
    have. We want to see, before additional funds are made
    available, that the ones that are available have been allocated
    effectively. But if that is true and there is clearly
    additional need than those places would be eligible to receive
    additional funds.
        Senator Smith. Thank you. I appreciated, in your opening
    statement, that you talked about the mammoth task of standing
    up infrastructure at the State and local level in order to
    distribute this rental assistance. And as you move forward with
    this, following the law, we need to make sure that the folks
    that are really needing the help are not the ones that are
    getting penalized because of slower than we would have liked
    implementation of this program. So I appreciate your comments
    and I look forward to continuing to work with you on this as
    well.
        Secretary Yellen. Very good. We do as well.
        Senator Smith. I just have about a minute left and I want
    to just touch briefly on the question of childcare. We know
    that childcare is a family and an economic imperative, and I am
    really grateful to the work that you have been doing. I
    appreciated very much the Treasury's recent report on the
    childcare supply challenge and the great difficulties we have
    here.
        Secretary Yellen, Minnesota childcare providers tell me
    that they are really struggling to find and keep workers. They
    are painfully aware that they are not able to pay their workers
    as much as they are worth and as a result there is high
    turnover in the sector. Now, when most businesses encounter
    challenges in hiring, they raise wages to attract people. Can
    you just explain to everybody why that is not a feasible option
    for folks that are trying to make the system work in the
    childcare sector?
        Secretary Yellen. Well, in many ways, this is a market and
    this is what the Treasury report showed that just does not
    work, that parents, when they most need childcare, are unable
    to borrow in order to cover it, and so they are struggling with
    very high childcare expenses at a moment in their lifetime when
    they can often simply not afford it, and that puts the
    childcare providers in a situation where they just cannot
    afford to pay wages that are living wages.
        And, in fact, a substantial fraction of childcare workers
    receive some additional social support because the wages are so
    low, and we really need to fix that. It is a broken market, and
    there are huge gains to society for making sure that children
    have quality childcare, and it influences the course of their
    success over their whole lives.
        Senator Smith. Well, thank you for that. And, Mr. Chair, I
    know we are out of time, but we have a solution to this problem
    that is included in the Build Back Better plan that President
    Biden has proposed and that we have been working on in the
    Senate and the House. And I look forward to getting that
    solution passed into law to address these systemic problems in
    childcare. Thank you.
        Chairman Brown. Thanks, Senator Smith. Senator Scott of
    South Carolina is recognized.
        Senator Scott. Thank you, Mr. Chairman, Ranking Member.
    Thank you to both witnesses for being here this morning. Good
    morning. I know you all have difficult challenges that we all
    face as a Nation and it looks like they are getting more
    difficult, not less difficult.
        Democrats control the White House, the Senate, the House.
    They have the votes to raise the debt ceiling. Unfortunately,
    they also have the votes to fundamentally weaken the greatest
    economic engine in world history. What they do not have the
    votes to do is to force Republicans to be complicit with their
    reckless spending spree. Killing the goose that lays the golden
    eggs is not just bad for the goose. It is bad for everyone who
    depends on the eggs as well.
        There is nothing compassionate about spending money we do
    not have on new benefits we cannot afford, all the while
    discouraging work and increasing the likelihood of a future
    default, when the yet-to-be-born American receives the bill for
    benefits she did not experience and are no longer available.
        It is also important to note that our labor force
    participation rate is down, not up, even with the new programs
    and the payouts that I heard this morning during this hearing
    that somehow is supposedly increasing our labor force
    participation, when, in fact, it is apparent and clear to
    Americans that is not the case.
        Chair Powell, you know as well as I do, and certainly maybe
    neither one of us knows as well as the folks working paycheck
    to paycheck around this Nation or the seniors depending on
    their Social Security checks to make their ends meet, that
    inflation is having a devastating impact on people on fixed
    income, people working paycheck to paycheck. I think about the
    fact that gas prices are up over 40 percent as a Nation, and
    frankly, over the last few days we have seen signs that it is
    going to only get worse, not better. The gas prices are going
    up over $3 a gallon in so many parts of this country, and
    frankly, even higher in other parts. The fact that food,
    whether it is bacon or fish, meat, all are up double digits.
        Can you point to any specific policies put in place by the
    current Administration that may be exacerbating the runaway
    rise in food and energy prices in recent months?
        Mr. Powell. Senator, that would not be for me to do, but I
    think those things are--I would not be identifying policies of
    the current Administration.
        Senator Scott. Would you agree that the fact is that when
    we have limited supply and an increasing demand, that a $1.9
    trillion COVID relief that has spent less than 1 percent on
    vaccines and 9 percent on COVID-related health only adds more
    pressure on our markets, and that pressure results in higher
    inflation?
        Mr. Powell. Senator, we have some really difficult and
    important jobs, but one of them is not commenting on fiscal
    policy, I am sorry to say, with respect.
        Senator Scott. I do think that it does include inflation
    and employment. Aren't those two major aspects of being the
    Chairman of the Reserve?
        Mr. Powell. Those are the two major aspects.
        Senator Scott. Indeed. And so when you see policies that
    are put in place that has not increased our labor force
    participation but decreased our labor force participation
    rates, and you see policies that are actually designed, so I
    heard earlier this morning, to put people back at work, in fact
    that number is going down, you see that the impact of the
    inflationary, what I thought was transitory, that is what we
    heard earlier this year when I asked you all both the question
    about inflation in this country, seems to me that we are
    heading in the wrong direction.
        Let me ask Secretary Yellen. The phase of spiking
    inflation, slowing growth, lingering high unemployment, and
    historic levels of Government spending and Government debt, how
    do we justify supporting President Biden's $3.5 trillion tax
    spend package?
        Secretary Yellen. Well, first of all, the package is paid
    for, so there is----
        Senator Scott. How is it paid for, ma'am?
        Secretary Yellen. There are increases in taxation on
    corporations and----
        Senator Scott. May I ask you a question?
        Secretary Yellen. ----high income individuals.
        Senator Scott. Let me ask you a question on that while I
    have you here. Do you think that taking the cap gains tax from
    23.8 percent to 43.8 percent will encourage more investment in
    our economy or less investment in our economy? Do you think
    that taking the corporate tax from 21 percent to 28 percent
    will actually--we both recognize that corporations, they may
    write the check, but the people who pay the tax are the
    consumers and the employees with fewer increases in wages and
    lower benefits. How do we think that these higher taxes are
    going to lead to more opportunities in our marketplace?
        Secretary Yellen. Well, first of all, I think that the
    likely impact on investment spending is very small, and I
    think, in 2017, when taxes were cut substantially, you did not
    see any surge in investment spending. Instead, what you saw was
    a surge in stock buybacks. So the linkage between investment
    spending and the corporate tax rate is really very modest.
    Mainly it falls on excess profits. So I think the Biden
    package, the Build Back Better package, will improve corporate
    competitiveness because it is going to invest in critical
    infrastructure in our economy----
        Senator Scott. Thank you. Secretary Yellen, I do not want
    to cut you off but I have no choice because Chairman Brown is
    going to cut me off. So before I lose my time here, thank you,
    Chairman, for----
        Chairman Brown. You already have lost your time, but
    proceed, Senator Scott.
        Senator Scott. You are a patient Chairman, and I appreciate
    that more than I could say.
        I am so glad that you brought up the 2017 tax reform
    package that we worked so hard on. Bottom line is I would say
    that as someone who watches the market, and I know you watch it
    very closely, the fact is that in 2018, in 2019, we saw more
    revenue to the Government, not fewer dollars for the
    Government. And to think that taking the corporate tax from 21
    to 28 percent is somehow going to make us more competitive
    against our OECD competitors, I know that you have a strategy
    to raise our guilty and make us more competitive somehow by
    having other countries agree to higher taxes.
        I will just say that the proof will be in the pudding and
    maybe you and I will be here in a couple years to have a
    conversation about the results of the tax increase that will
    make us less competitive and not more competitive, but thank
    you for your graciousness.
        Thank you, Mr. Chairman.
        Chairman Brown. Senator Van Hollen of Maryland is
    recognized.
        Senator Van Hollen. Thank you, Mr. Chairman. I thank both
    of you for your service.
        Madam Secretary, just to pick up on that last thread
    because we have heard it throughout this morning, our
    Republican colleagues trying to have it both ways. On the one
    hand, they beat up on our proposals to reform the corporate tax
    code to make it more fair, to make sure that every
    multinational corporation pays its fair share, that they cannot
    park their profits in the Cayman Islands and other places. And
    then on the other hand, they say, ``Oh, this reconciliation
    bill is going to add to the deficit,'' and they tie it into
    this debt ceiling debate.
        Let's just be very clear. The Build Back Better agenda that
    President Biden has proposed would pay for itself through some
    of the tax reform measures you mentioned, right?
        Secretary Yellen. Yes, absolutely. It will pay for itself.
        Senator Van Hollen. Right, which is very different than the
    2017 Trump tax giveaway to big corporations that did not have a
    penny to pay for it. Isn't that correct?
        Secretary Yellen. That is correct. It resulted in very
    large increases in deficits, and the Biden package will not.
    And beyond a 10-year horizon, it will improve tax collections
    and reduce deficits substantially.
        Senator Van Hollen. Right. And let's now talk about one of
    the tax cuts we want to extend, right, which is the tax cut for
    middle-income and lower-income families with kids. We estimate
    that this year that cut child poverty in half in the United
    States, right?
        Secretary Yellen. Yes, the child tax credit and other
    features.
        Senator Van Hollen. But that expires at the end of the
    year, does it not?
        Secretary Yellen. It does, and we think it is important to
    extend it. It is really critical support to families that are
    trying to raise children. And we have already seen in 3 months
    of distributing these child tax payments spending on food that
    has reduced food insecurity, on apparel, and on children and
    their well-being. It makes a huge difference.
        Senator Van Hollen. Right. So let's just be clear. We are
    hearing Republicans this morning beat up on us for closing big
    loopholes in the corporate tax cut, in part to pay for an
    extension of tax cuts for middle-income families with kids----
        Secretary Yellen. That is right.
        Senator Van Hollen. ----which cut child poverty in half
    this year. And I guess their position is, ``Well, let's just
    let it lapse, and then we can have child poverty double in the
    years to come.''
        Madam Secretary, I have series of questions. Some of them I
    am going to put you for the record on the issue you raised with
    respect to the emergency rental assistance. And I share your
    concern that this money has not gotten where it is needed
    quickly enough, and I appreciate some of the measures you have
    taken recently to allow renters to self-certify income and
    financial hardship.
        I hope you will also make it clear that with the
    appropriate safeguards, landlords can submit applications in
    bulk on behalf of tenants, and we will be following up with you
    on that.
        Also, I heard you responding to Senator Smith. Can you give
    us assurances that as we reallocate some of these funds, and I
    understand why you want, that we are not going to harm the very
    people we wanted to help simply because their local government
    could not get the funds out as quickly as some others?
        Secretary Yellen. We will certainly try to avoid that. We
    are aware of that possibility, and we will try to reallocate,
    for example, within States so that individual who are not being
    helped locally will have access.
        Senator Van Hollen. Right. I am also going to follow up
    with you on, in Baltimore City's case, the Treasury has said
    that they can use their funds to try to bring back tourism,
    which is a good thing----
        Secretary Yellen. Yes.
        Senator Van Hollen. ----but they cannot use their funds to
    try to bring back families who may have left Baltimore City
    during this pandemic to live in other places, even though
    bringing them back would not just be a one-time tourist
    investment in the city, but a long-term investment. I will
    follow up with you on that.
        Secretary Yellen. I would be happy to do so.
        Senator Van Hollen. Chairman Powell, you have spoken to it
    generally, but you heard Secretary Yellen's assessment of what
    the impact on our economy would be if we did not lift the debt
    ceiling and defaulted. Do you agree with the assessment she has
    provided here this morning, that it would be devastating, and
    all the other pieces?
        Mr. Powell. Yes, I do. I think it is essential to raise the
    debt ceiling in time to avoid payment defaults of any kind. The
    potential effects could be severe.
        Senator Van Hollen. Right. And just to be very clear, isn't
    it the case, Secretary Yellen, that about 68 percent, excuse
    me, 28 percent of our total debt right now was incurred during
    the 4 years of the Trump administration.
        Secretary Yellen. I believe that is right. I think about $8
    trillion. That is right.
        Senator Van Hollen. Right. And I suspect that almost every
    Republican Member of this Committee voted for the measures
    during those 4 years, including that big tax giveaway.
        And I would just point out, I heard Senator Kennedy earlier
    this morning talk about how, you know, let Democrats do it
    alone. We would like our Republican colleagues to do the right
    thing, but we are willing to do it alone. In fact, Senator
    Schumer just announced that later today he will go to the floor
    of the Senate and say, ``Just let the Democrats, with 50 votes,
    and the Vice President lift the debt ceiling.'' He is going to
    ask unanimous consent to do that. We could do that today. I
    have noticed Senator Kennedy is not here anymore, but that
    would get it done. And while we would like our Senate
    Republican colleagues to do the right thing for the country we
    are willing to do it alone if they just let us and get out of
    the way.
        Thank you, Mr. Chairman.
        Chairman Brown. Thanks, Senator Van Hollen. Senator Daines
    from Montana is recognized.
        Senator Daines. Chairman Brown, thank you, and thank you,
    Secretary Yellen and Chairman Powell, for being here today.
        I want to start by expressing my continued concern with the
    inflation we are seeing in the economy. Real wages are down. It
    results in inflation. I am deeply concerned that supply chain
    issues that we are seeing will not be quickly resolved. Add to
    that the reckless $3.5 trillion tax and spending spree. Let's
    be clear. It is the largest tax increase in 50 years. It is the
    largest spending bill in the Nation's history. You have to have
    superlatives if you start talking about what is being proposed
    right now in Washington.
        I fear inflation will persist, and the reduction in wages
    that workers are seeing as a result might indeed accelerate.
    This package would affect and kill hundreds of thousands of
    jobs, hurt economic growth in my home State of Montana, as well
    as across the country.
        Turning to my questions. Secretary Yellen, yesterday I sent
    a bipartisan letter with eight of my colleagues urging Treasury
    to ensure that water storage projects, like those on the, it is
    called the St. Mary's Milk River system, are eligible for water
    infrastructure, ARPA, funding. Would you commit to working with
    me and my team and some of the other senators on both sides of
    the aisle to ensure these critical water infrastructure needs
    would be addressed?
        Secretary Yellen. Certainly. I mean, I am not knowledgeable
    on the details----
        Senator Daines. I would not expect you to know the details
    of that, right.
        Secretary Yellen. ----but we will certainly work with you
    on that. Absolutely.
        Senator Daines. I want to raise your attention, so thank
    you, Secretary Yellen.
        Secretary Yellen. We will definitely do so.
        Senator Daines. Much appreciated.
        Turning now to the topic of energy. Secretary Yellen, I
    would like to get your thoughts on what is happening in Europe
    right now. The U.K., in particular, is increasingly reliant on
    renewable power generation, and right now the wind simply is
    not blowing and they are not able to get enough natural gas to
    meet demand. This has led to massive spikes in the cost of
    power. In fact, power prices for next-day delivery in the U.K.
    are 10 times higher than the average price just 1 year ago.
        In the U.S., we are very fortunate. We have moved from
    being a net importer of energy to now a net exporter. I think
    it is providing incredible competitive advantage for us,
    national security implications by reducing reliance on other
    countries for energy.
        We are able to do this because the U.S. has a very diverse
    mix of energy production: national gas, hydro, coal, wind,
    solar, nuclear, many other sources. However, I am deeply
    concerned with the Biden administration's policies to curtail
    reliable base-load power that comes from coal, oil, gas, and
    would send us back to where we perhaps were back in the '70s,
    into where Europe seems to be headed today.
        Secretary Yellen, could you help us understand and explain
    how the Biden administration's tax hikes and grand aim to
    really shut down fossil fuel production would not lead us to
    the same path of dependence on hostile adversaries, for
    example, Russia, where much of Europe now is faced with today?
        Secretary Yellen. Well, President Biden, and I feel the
    same way too, believe that climate change is an existential
    threat that absolutely must be addressed. And he has proposed a
    clean electricity plan that would, by 2035, shift entirely the
    electricity sector to reliance on renewables. And, of course,
    with renewables, as you pointed out in the case of the U.K.,
    there is a question of what to do if the sun is not out and the
    wind does not blow. And I believe there are storage
    technologies that can be deployed and, you know, other means to
    address that, and of course that has to be part of a plan to
    switch to renewables and address climate change.
        Senator Daines. Yeah, and one of our concerns of course is,
    of course, the technical challenge here on intermittent sources
    of energy, as you described, and storage, but the impact this
    will have on families that are on fixed incomes, our seniors,
    our lower-income families are seeing these massive spikes in
    energy costs.
        Secretary Yellen. Well, that is certainly something we
    would want to avoid, and I do not believe that the President's
    program is going to lead to increases in the cost of energy for
    the typical family.
        Senator Daines. And I respect that point of view. And I am
    sure when the Europeans launched on this path, they were not
    planning to have order of magnitude increases in prices either,
    but it has been a consequence of the policies.
        Chairman Powell, earlier this month in response to the
    revelations about securities trading by presidents of Fed
    regional banks, you began to review the ethics and transparency
    rules across the Fed because, and I quote, ``The trust of the
    American people is essential for the Federal Reserve to
    effectively carry out our important mission.''
        The Fed Board of Governors is subject to FOIA and the
    Federal Records Act, but the Fed regional banks currently are
    not. Would you support making Fed regional banks subject to
    FOIA and the Federal Records Act to ensure greater public
    transparency and trust in the Fed?
        Mr. Powell. Senator, that is a good question. I would like
    the chance to think about it and come back to you. I would want
    to reflect on that and on the reasons why they are not subject
    to it, and I will do that.
        Senator Daines. I appreciate that, Chairman Powell. Mr.
    Chairman, I will wrap up here this statement. If there is
    something that concerns many of us it is the loss of trust to
    the American people in their Government, and here you have one
    more example. I appreciate your leadership, and thanks for
    consideration of that request.
        Mr. Powell. Thank you.
        Chairman Brown. The Senator from Georgia, Senator Ossoff,
    is recognized.
        Senator Ossoff. Thank you, Mr. Chairman, and thank you to
    our guests. Mr. Chairman, a question I have asked you in
    several consecutive hearings, the COVID-19 pandemic, of course,
    the most significant shock to the U.S. and global economy in
    the last 2 years. Beyond COVID, what do you assess are the most
    significant systemic risks or threats to financial stability in
    the U.S. and globally?
        Mr. Powell. When I think about systemic risks to the
    financial system I always think about cyber risks, really more
    than anything else. We have a very highly capitalized banking
    system, one that is much better at measuring its risks, so that
    more traditional--making bad loans, losing money, and things
    like that, that will happen, but the banks are really well
    fortified against that.
        The risk that we have not really faced the full brunt of
    yet is a successful cyberattack on a financial institution of
    some kind, be it a financial market utility or a bank or
    another financial institution, and, you know, we work closely
    with Treasury and other agencies all around the country on
    that. You never have the feeling you are doing enough, but it
    is a very high priority to be ready for. But that would be the
    number one thing.
        Senator Ossoff. Madam Secretary, the same question for you,
    please. Other than the ongoing COVID-19 pandemic and the
    terrible economic toll that it is taking and the terrible
    health toll that it is taking, looking more broadly, what do
    you assess to be the most significant systemic risks or threats
    to financial stability?
        Secretary Yellen. I think there are threats to financial
    stability that have come from the growth of activity in the
    shadow banking sector. We saw some of those threats emerge
    during the onset of the pandemic. We have, for example, open-
    end bond funds that guarantee daily redemption, saw massive
    withdrawals by individuals who wanted to flee to cash, and that
    can trigger fire sales of assets with systemic consequences.
    The Financial Stability Oversight Council that I head has taken
    that up as a topic that we are looking at and examining.
        There are issues relating to hedge funds and the
    possibility of leverage there that can trigger financial runs.
    That is another topic. And more broadly, climate change over
    time, I believe, could be a significant risk to the financial
    sector and the economy, and FSOC is also doing work on that to
    assess, evaluate, coordinate regulators, work with them to make
    sure they have the data that they need and that we develop the
    methodologies to examine that risk.
        Senator Ossoff. Thank you, Madam Secretary. Mr. Chairman,
    you noted in your testimony the impact of supply chain
    bottlenecks on prices. Can you give a sense to what extent you
    assess that difficulties in the shipping markets and import
    operations are driving those bottlenecks and contributing to
    high price levels in some sectors?
        Mr. Powell. It is certainly one of the major factors. We
    are told by our contacts that retailers, for example, that are
    trying to buy products for the holiday season cannot get the
    product. If they can get the product, they cannot get a
    container. They can get the container, they cannot get a ship.
    If they can get the ship, it is at anchor outside of the port
    of Los Angeles. So transportation is a big issue. Really, our
    supply chains have gotten all tangled up and blocked up. Big
    part of it.
        Senator Ossoff. Thank you, Mr. Chairman. And Mr. Chairman
    and Madam Secretary, as you know, Georgia hosts the Port of
    Savannah, which is the fastest-growing deep water port in the
    United States. It hosts the largest single container terminal
    in the United States. We have additional capacity at the Port
    of Savannah.
        Broadly speaking, have you been in any meetings,
    principals' meetings, or National Economic Council meetings, or
    discussions at a high level about surging governmental
    resources and ingenuity to solve these shipping bottlenecks?
    When I reflect upon the capacity, for example, that our
    Department of Defense has to project power and mobilize
    resources and execute complex logistics around the world, I
    cannot help but wonder whether with a more hands-on and
    targeted approach we could resolve some of these issues at
    major U.S. ports and in the shipping industry.
        Secretary Yellen. The National Economic Council is looking
    closely at this issue. They have hired someone who has
    extensive experience with logistics and supply chains to take a
    very careful look and to see what we can do to try to untangle
    these supply chains.
        Senator Ossoff. Thank you. Any recommendations to Congress
    would be appreciated. And perhaps if there is some emergency
    legislative measure that would allow us to tackle this problem
    which is contributing to price and stability and price
    increases, let's follow up directly about opportunities to work
    together.
        Secretary Yellen. We would be happy to do that.
        Senator Ossoff. Thank you, Mr. Chairman. I yield.
        Chairman Brown. Thank you, Mr. Ossoff. Senator Tillis is
    recognized from his office, remote.
        Senator Tillis. Thank you, Mr. Chairman. Secretary Yellen,
    and Chair Powell, thank you for being here.
        Chair Powell, the Administrative Procedure Act requires
    Federal agencies, including the Federal Reserve, to follow
    well-established rules when entering proposed and final
    regulations. I believe the Fed issues far too much guidance
    that is generally applicable to all banks, which should instead
    be subject to thoughtful and transparent notice and comment. I
    believe former board member, Tarullo, has suggested that that
    certain Federal actions are exempt from the APA, and I think
    specifically noting CCAR, the Comprehensive Capital and
    Analysis Review.
        In my conversations with Vice Chair Quarles, he has made it
    abundantly clear that he believes that Fed does, in fact, have
    to abide by the APA in all circumstances. So, Chair Powell, who
    is right? Does Tarullo have a leg to stand on in terms of
    saying that the Fed is not subject to the APA in all
    circumstances, or is Vice Chair Quarles right, that you are?
        Mr. Powell. Senator Tillis, I will speak to you to this
    issue under the control of my general counsel who is here, but
    my understanding is that the APA does apply to the board and
    that we take care to observe its requirements. I know that our
    stress testing and capital plan rules were promulgated in
    compliance with the APA.
        Senator Tillis. So I guess with legal counsel in the room,
    I have got a half answer.
        Mr. Powell. Well, I have given you what I know. I would be
    happy to follow up with you.
        Senator Tillis. Yeah, I feel very strongly about it. We
    will come back to that.
        I did want to ask you another question, Chair Powell. In
    minutes from the FOMC conference call on October 13th, you
    advocated for--oh, I am sorry, October 2013--you advocated for
    not disclosing contingency plans you had made for a potential
    breach of the debt ceiling, saying it would, and I quote from
    the minutes, ``make it less likely that the Congress will feel
    enough pressure to actually raise the ceiling,'' end quote.
        Do you think it is the role of the Federal Reserve to
    decide to withhold such information, and if you do believe
    that, in what other instances have you deemed it not important
    enough to not influence congressional outcomes?
        Mr. Powell. Actually, if you look at that transcript, what
    I said was, and what I meant was, the things that we will do
    that are within our power to do I think are very well
    understood by market participants. There was a long list of
    things discussed at that meeting, and as you get down the list
    these were things that we really would not like to do and
    probably would not do, but, you know, really, in a national
    emergency we would have to think about doing.
        So I was talking about those sorts of things, and I thought
    putting those out there and having people believe that we would
    do these things was really not a good idea, and that it might
    create a misunderstanding on the part of the public that we
    actually could shield the financial markets and the economy and
    the American people from a default on the debt ceiling, on our
    debt, and that is not the case.
        Senator Tillis. Secretary Yellen and Chair Powell, I know
    you both made comments endorsing the Federal legislative
    solution to provide a replacement framework for outstanding
    financial contracts tied to LIBOR. I agree completely, and I
    was pleased to see the legislation clear the House Financial
    Services Committee last week on a strong bipartisan basis. I
    just want to let you know that we understand that bipartisan
    action is needed in the Senate to affect a smooth transition
    and to provide certainty to capital markets, and I look forward
    to working with my colleagues, first among them Senator Tester,
    to make sure that Congress does act and provide for a smooth
    transition.
        Thank you, Mr. Chairman. I yield back.
        Senator Toomey [presiding]. Thank you, Senator Tillis.
    Senator Cortez Masto.
        Senator Cortez Masto. Thank you. Thank you both for being
    here. It has been, at times, a loud, exciting hearing this
    morning and I appreciate your patience and you are still there
    willing to ask questions, and I think it says a lot about both
    of you.
        But let me just put something, because at the end of the
    day, at least for the people in my State, it is about the truth
    and the facts and people working together and what is happening
    in this country during this pandemic.
        So let me just verify, because Congress passed the CARES
    Act, the American Rescue Plan, and an appropriations bill with
    significant resources for health care, for housing, and support
    for local governments, and they did this because we were in the
    middle of a worldwide health pandemic due to COVID-19. Isn't
    that correct? Yes for both of you? Both shaking your heads yes?
        Mr. Powell. Yes.
        Senator Cortez Masto. Yes. So how important were those
    investments to avoid a deep and painful recession? Were they
    important to avoid that recession? Is that----
        Secretary Yellen. Absolutely.
        Mr. Powell. Utterly essential.
        Senator Cortez Masto. OK. And I appreciate that because at
    the end of the day there is bipartisan work to address this
    pandemic and it was needed at that time. The work that we are
    doing to increase the debt limit has a lot to do with that debt
    that was incurred back then to address the pandemic. Isn't that
    right, Secretary Yellen?
        Secretary Yellen. That is true. Raising the debt limit
    allows us to pay bills that were incurred because of those acts
    and others of Congress.
        Senator Cortez Masto. So just so I can clarify, so my
    colleagues who are refusing to come to the table to address
    this, they are getting the benefit of that relief in their
    States, however. Correct?
        Secretary Yellen. Yes, of course.
        Senator Cortez Masto. All right. Just to clarify that. Now,
    I do know though, coming from Nevada, and Chairman Powell, you
    and I have had this conversation, Secretary Yellen, you as
    well, there is still an industry that was so hard hit that it
    is still trying to recover from this pandemic, which is that
    hospitality, that travel and tourism industry. Isn't that
    correct?
        Secretary Yellen. It is still deeply depressed, and has not
    come back to normal yet.
        Senator Cortez Masto. That is right. So Chairman Powell,
    can I ask you your thoughts on what we should continue to do to
    address to help the recovery? Because I know at least in
    Nevada, which the main revenue generated for our State is this
    hospitality, travel, and tourism, that leisure traveler has
    been there, but the business traveler is not back, the
    international traveler is not back. Are you anticipating what
    can be done by the Federal Reserve to address this--and
    Secretary Yellen, I will ask you the same thing--by the
    Administration, or what should we be doing as Congress? Have we
    done enough for this industry or does more need to be done to
    help bring it back because of this pandemic?
        Mr. Powell. In my view, the most important thing is to get
    control of the pandemic. That is what is keeping people out of
    sporting arenas and off of airplanes and out of restaurants and
    bars. And we saw that very clearly in the August payroll report
    where job creation in these industries had gone from very
    strong for several months to zero in August. So it is really
    all about, at this point, getting the Delta variant and really
    frankly getting vaccination and immunity up higher which is not
    something we can do.
        Senator Cortez Masto. Thank you. Secretary.
        Secretary Yellen. And I would agree with that answer, and
    it is something we are working as hard as we possibly can to
    do, to get vaccination rates up, to deal with the pandemic.
        Senator Cortez Masto. Thank you. And let me talk about
    something that is also impacting my State, and I think many,
    which is the disruption in the supply chain. Senator Ossoff was
    talking to you about it, Secretary Yellen, and you talked about
    the National Council, if I remember correctly.
        Secretary Yellen. National Economic Council.
        Senator Cortez Masto. Yes. Is there a timeframe when they
    anticipate coming back with some kind of concrete answers to
    how to address this disruption in the supply chain?
        Secretary Yellen. I can get information for you on that. I
    know they are bringing together business leaders who were in
    affected industries with experts to see if things can be worked
    out.
        Senator Cortez Masto. Thank you. I appreciate that. I am
    going to yield the remainder of my time. I will submit the rest
    of my questions for the record, but thank you both for being
    here.
        Mr. Powell. Thank you.
        Secretary Yellen. Thank you, Senator.
        Senator Toomey. Senator Hagerty.
        Senator Hagerty. Thank you, Ranking Member Toomey, and
    thanks to the Members of the Committee for holding this
    hearing. I want to thank Chairman Powell and Secretary Yellen
    for being here today.
        Chair Powell, I would just like to also acknowledge you.
    You and I have talked extensively about my concerns about the
    inflation and the economy. We spoke about this in February and
    we spoke about it in depth during our hearing in July. I am
    very pleased to see the Fed beginning to lay the groundwork now
    to address inflation in our economy, and for that, I want to
    thank you.
        Secretary Yellen, I would like to turn my attention to you,
    and if we might speak about the $3.5 trillion transformation of
    the U.S. economy that is being proposed right now, that we are
    going to be expected to vote upon very soon. Last week, you,
    Leader Schumer, Speaker Pelosi stood before the American public
    and said you had agreed to framework, a framework to pay for
    this. Could you tell us what is in this framework?
        Secretary Yellen. Well, it was essentially a list of ideas
    where there is support from the House, the Senate, and the
    White House for how revenue could be raised that would be
    sufficient to cover the expansive programs under consideration.
    And as we have articulated, this involves increases in the
    corporate tax rate, a reform of international provisions that
    will reduce the incentives we currently have in the tax code to
    export jobs and export profits to low-taxed areas, and to
    export jobs abroad and raise revenue, and additional revenue
    raised from high-tax, high-income individuals, well above
    $400,000, for example, by raising back the highest income tax
    rate to where it was before 2017, and will go in 2026, under
    current law to increase the tax rate on capital gains, and
    importantly to improve tax compliance. We have a huge tax gap
    that is estimated at $7 trillion----
        Senator Hagerty. I will come to the compliance issue in
    just a moment. I would, though, very much like to see this
    framework that you agreed to. We are going to be expected to
    vote on the most massive transformation of the U.S. economy
    that this Nation has ever seen. $3.5 trillion is a huge amount
    of money in pay-fors. And the industries and the individuals
    and how they are going to be targeted is something that I would
    very much like to get a copy of before I am expected to vote on
    this. I am certain that my----
        Secretary Yellen. I am sure.
        Senator Hagerty. ----fellow Committee Members would like to
    see this. Is this something that you could get to me and my
    team by the close of business today, Secretary?
        Secretary Yellen. No, it is not. There are currently
    discussions and negotiations taking place within the House and
    the Senate with involvement in the White House to try to decide
    what a final package will look like. And until that is decided,
    you know, you can see that things coming out of House Ways and
    Means, for example, but this is very much in the process of
    being decided.
        Senator Hagerty. This is very, very disturbing when we are
    talking about something of this magnitude and you are telling
    me that I cannot see the framework, that the Members of this
    Committee cannot see the framework. I guess we are just
    supposed to trust the Administration.
        Secretary Yellen. Well you can look at our proposals that
    the President put out in conjunction with his Build Back Better
    plan.
        Senator Hagerty. These are just platitudes. I am talking
    about the specifics of the program.
        Secretary Yellen. Well the Treasury's green book had
    specifics of our proposals and House Ways and Means marked up a
    bill pertaining to revenue that you can look at the specifics.
        Senator Hagerty. I will look forward to you working with my
    staff so we can have a detailed understanding, because the last
    thing I want to do is find ourselves yet again in a situation
    where we have got to pass a bill to find out what is in it.
    And, in fact, we need to have a very clear understanding of
    this sort of transformation because the credibility of this
    Administration has been seriously challenged. If you look at
    the disaster that is taking place in Afghanistan, if you look
    at the disaster at our southern border, the inflation that is
    running rampant in our economy, I am very concerned and I want
    to have a much clearer picture of what the intended pay-for
    will be and the impact on the economy. So I appreciate your
    team working with mine so we can get as much information as
    possible on this. Thank you.
        I would like to turn to another specific area, much more
    specific indeed. You spoke about this with Senator Lummis. That
    has to do with the new requirement that our banking system now
    report transactions that exceed $600. That is going to be an
    impact on community banks, on farm credit lenders. It will be
    an extensive compliance burden.
        But there is a greater concern that I have, and that is the
    concern that my constituents have raised with me and that the
    American public has in the ability to keep this information
    confidential. And after we have seen what happened when the IRS
    disclosed the private confidential tax information of its
    political enemies during this Administration to ProPublica,
    there is a huge concern and a deserved concern on the part of
    the American public that this information, that the detail that
    we are talking about it a detail level that I would expect from
    the Chinese Communist Party, not here in America. But the
    detail will be protected.
        Can you tell me what you are going to do to make certain
    that this taxpayer confidential information will be protected?
        Secretary Yellen. Protecting taxpayer information is the
    highest priority of the Internal Revenue Service. The
    ProPublica information represented an illegal revelation of
    taxpayer information. It is an illegal act and it is being
    investigated thoroughly by independent entities, law
    enforcement, and the inspector generals of Treasury and the
    IRS, and there really cannot be tolerance for that. We are
    proposing to invest in the IRS so that they can modernize their
    systems and put in place better controls that will protect
    taxpayer information.
        Just to be clear, we do not know that the ProPublica
    information came from the IRS. That has not been established.
    And we are talking about a small amount of information, not
    every transaction that is less than $600. Banks already report
    to the IRS on Form 1099-R----
        Senator Hagerty. I am aware of that.
        Secretary Yellen. ----the amount of interest, and we are
    just asking for two additional pieces of information, aggregate
    inflows and aggregate outflows from the account during the
    year.
        Senator Hagerty. Again, far more detail about it,
    Americans' private transactions. And again, I will say I
    appreciate the fact that you are looking for accountability
    within the IRS. We have seen a great lack of accountability in
    this Administration. Just look at what is happened in
    Afghanistan, zero accountability. Look at what is happened at
    out border, zero accountability. The American public is
    concerned and I very much appreciate the efforts that you are
    taking and I hope that you get to the bottom of this so it
    never happens again.
        Thank you, Madame Secretary.
        Chairman Brown [presiding]. Senator Warnock from Georgia is
    recognized.
        Senator Warnock. Thank you so very much. Thank you so much,
    Mr. Chairman, and thank you, Chairman Powell and Secretary
    Yellen, for being here.
        Yesterday, it was reported that the Regional Federal
    Reserve Bank presidents in Dallas and Boston are resigning
    following earlier reports that they were actively trading their
    private investments while the bank was intervening in the
    markets. Throughout the COVID-19 pandemic, many experts have
    underscored the importance of maintaining the independence of
    the Central Bank. Independence, of course, is necessary before
    the pandemic, after the pandemic, during the pandemic.
        Even though neither serves now as voting members of the
    Federal Open Market Committee, this is a blow to the image of
    the Central Bank serving as an impartial and independent agency
    charged with maintaining stability in pricing and employment.
    Chairman Powell, what immediate actions have you taken to
    ensure the impartiality of the Fed, and what systems already
    that are in place failed here and how do you plan to fix them
    going forward?
        Mr. Powell. Our need to sustain the public's trust is the
    essence of our work. We want the public to understand that we
    work for all Americans. So we do not like to be having these
    concerns raised. It is really something that is very, very
    concerning. So as soon as I learned of it, I directed our staff
    to undertake a review of our practices.
        We have had in place a set of practices around investments
    and trading and disclosure that seems to have worked for a long
    time, only it is clearly really not working now and we
    understand now that we need to raise modifier practices and we
    are in the process of creating ideas and recommendations for
    that. That is one thing that we are doing. We are also looking
    carefully at the trading that was done to make sure that it is
    in compliance with our rules and with the law.
        Senator Warnock. The rules seem to have broken down. Do you
    think there needs to be any changes in the trade?
        Mr. Powell. Yes. I am 100 percent sure there is a need for
    those and there will be. I do not know precisely what they will
    be, but the appearance is just obviously unacceptable. Even if,
    as appears to be the case, these trades were in compliance with
    the existing rules, that just tells you the problem is that the
    rules and the practices and the disclosure needs to be improved
    and that is what we are working on. We will rise to this moment
    and address this forthrightly.
        Senator Warnock. I agree. Confidence in the Central Bank is
    essential, and I look forward to working with you on this issue
    and also working with Chairman Brown, who is working on
    legislation.
        Let me change topics. I am a strong advocate for working
    and middle-class families and we successfully pushed to include
    an expansion of the vital Child Tax Credit program in the
    American Rescue Plan. I think it is really important as some
    folks are talking about this $3.5 trillion package that what we
    are talking about here with the Child Tax Credit is a tax cut,
    and that does not get said often enough. I think it has
    something perhaps to do with the kind of attitude about working
    people, ordinary people, poor people. It is a tax cut.
        Experts say that this tax cut would cut child poverty in
    half nationwide, and 97 percent of families with children
    qualify. So this is about lifting the burdens of our neighbors.
    If made permanent, this tax cut for families would push poverty
    in a typical year down below 10 percent in 47 States, including
    Georgia.
        Secretary Yellen, should Congress make this program
    permanent and if so, what kind of long-term benefits will this
    have for our Nation's economy and families?
        Secretary Yellen. Well we certainly would like to find a
    way to make it permanent. It is a very important support for
    children and their families. We saw just after one payment that
    the share of families reporting that there was not enough to
    eat in the household dropped by 24 percent, and it is clear
    that families are spending this on their children for clothing,
    for food.
        And, you know, the security that our children have whether
    they grow up insecure, in families that do not have enough to
    provide for them, make all the difference to their success in
    life. So this program that will provide a steady source of
    income, along with other supports in the sort of Build Back
    Better agenda, including 2 years of preschool, childcare
    support, I think these are critical investments to make sure
    that families with children can support them and they can
    succeed in their lives.
        Senator Warnock. You said they use the money to buy things
    like food, I believe you said----
        Secretary Yellen. Yes.
        Senator Warnock. ----clothing. What, in your estimation, is
    the impact of that on the economy, on a consumer economy? Does
    that help or hurt?
        Secretary Yellen. Well of course it is positive. It
    supports spending in the economy that creates jobs in the
    process.
        Senator Warnock. And what would be the impact of adding
    mandatory work requirements if we extend this and made it
    permanent?
        Secretary Yellen. Well we would not be in favor of
    mandatory work requirements. The truth is that the vast
    majority, over 90 percent of families that require this
    assistance are working, have workers, and you have, in
    addition, grandparents, for example, who are no longer in the
    workforce or people who are disabled, may not be working and
    cannot work, who are also getting support that they need to
    take care of children.
        Chairman Brown. Thank you, Senator Warnock.
        Senator Warnock. Thank you.
        Chairman Brown. The Senator from North Dakota, Mr. Cramer,
    is recognized.
        Senator Cramer. Thank you, Chairman Brown. Thank you,
    Senator Toomey. Thanks to both of you for being here and I
    cannot resist. For some reason, I am just not surprised, Madame
    Secretary, that working for money is something that your
    Administration is against. I mean part of the reason we have
    this no longer transitory inflation, Mr. Chairman, is because
    we keep giving money away like it grows on trees and we
    increase the demand for products while diminishing the supply.
        I want to get to another point, related however, Secretary.
    You made addressing climate change a high priority in your
    term. It is a central point of your term. You and John Kerry,
    the President's climate czar, have encouraged banks and
    investment institutions to form this net zero banking alliance.
    By the way, net zero, Mr. Chairman, what that means is we are
    going to transfer our climate guilt to other people who do not
    have a climate conscience. I would rather set a goal, a global
    goal, and hold the real polluters accountable rather than
    reducing our economy and putting us at a disadvantage.
        But anyway, the President has urged banks to provide as
    much support for alternative energy projects as possible,
    which, of course, presumes at the expense of current energy
    projects. And that could obviously force financial institutions
    to put political and social agendas ahead of their investors
    and ahead of their banks, ahead of the American economy. And
    that is why I have been such a harsh critic of these very
    arbitrary ESG statements put out by banks.
        But in light of this weak unemployment and recovery
    numbers, the fact that this inflation, that I never believed it
    was transitory, clearly is not any longer, do you think it is
    really a good idea for private businesses to be forced by a
    Government official to make decisions about where they should
    or should not put their money, jeopardizing jobs, jobs in our
    energy sector? Because guess what is up? The price of gasoline,
    the price of oil, the price of electricity is skyrocketing. And
    there is no worse tax.
        Mr. Warnock wants to call Child Tax Credit a tax cut, and
    he complains that we do not say that often enough. We do not
    say it because it is not a tax cut. It is a subsidy. It is a
    subsidy. Now, you can argue whether it is a good subsidy or a
    bad subsidy, but calling it a tax cut is not fair. What we are
    doing is driving the price of all of these fuel sources up,
    transferring our climate guilt, and then hamstringing our own
    financial institutions with these arbitrary rules.
        So in light of what is going on with unemployment, now I
    know you want to just tax people a whole bunch more and pay
    people not to work so maybe unemployment is not a problem, but
    is it? Couldn't we please rethink this strategy, Madame
    Secretary?
        Secretary Yellen. Well look, climate change is an
    existential threat and it is a very high priority of President
    Biden's and of mine to address it, but no one is forcing banks
    or other financial institutions to make investments that they
    do not think are profitable and desirable. There is enormous
    interest in the financial community in making investments that
    will be profitable in sustainable investments.
        And what we want to do, and we are working through FSOC to
    do this, is to make sure that investors have the kind of
    information that will enable them to make investment decisions
    that they want to make that are profitable. And----
        Senator Cramer. So you do not think they are capable of
    getting their own information at risk and opportunity so you
    have to have a czar and a secretary and other czars give them
    information that might be helpful to their decision--all the
    while, by the way, Russia, Venezuela, Saudi Arabia, they get
    the benefit of all of this. I mean when our President has to
    call on OPEC+ to help bring the price of gasoline down by
    increasing production, all the while we shut off our own,
    whether by fiat or by innuendo, that does not seem like a great
    strategy to me. I think you are wrong.
        I will yield back. Thank you, Mr. Chairman.
        Chairman Brown. Thanks, Senator Cramer. As we close,
    Senator Toomey has some remarks and then I will make a closing
    statement.
        Senator Toomey. Thank you, Mr. Chairman. I just feel
    compelled to go back one more time and touch on this issue of
    the debt ceiling. I have to confess I have been shocked to hear
    our Treasury Secretary and some of my colleagues tell us today
    that raising the debt ceiling and additional borrowing that
    that permits is 100 percent about covering spending that was
    committed to in the past, as thought the spending that has not
    yet occurred this year somehow is not going to cause a deficit,
    somehow that spending will not require borrowing? The spending
    that has not yet occurred but is going to occur absolutely is
    going to increase the amount that we are going to have to
    borrow. And when we go on an unprecedented, blowout spending
    spree, it is going to increase spending by that much more.
        I mean just think about it. Imagine that this $3.5 trillion
    spending bill, let's imagine Senator Sanders had his way and it
    was $6 trillion. Do we seriously think that would have no
    impact on the amount of money our Government would have to
    borrow? How ridiculous. Of course it does.
        And so the truth of the matter is our Democratic colleagues
    do not want the American people to associate this huge spending
    binge they have been on and want to continue on with the debt
    that will be required in part to pay for it, and we are not in
    favor of either one. And that is why, Mr. Chairman, I think you
    are going to need to use the procedures readily available to
    you to raise the debt ceiling just as you intend to pursue all
    this spending, which is with a simple majority vote.
        Chairman Brown. Thank you, Senator Toomey. Of course, we
    all know that 3 years ago, 45 Democrats joined a number of
    Republicans with a Republican President, a Republican Senate, a
    Republican House to pay our debts. We believed it was our
    patriotic duty. We all took an oath of office swearing to the
    obeisance thereof of what we believed and American values and
    we paid our debts. We did it then in a bipartisan overwhelming
    vote and we should do it, and we know that Senator McConnell
    does not seem to think that.
        Let me get one thing straight though about what we have
    talked about. The infrastructure we have had, investments we
    passed in a bipartisan bill we are working on now are fully
    paid for. It is simple. Instead of American taxpayers racking
    up debt due to corporate handouts and tax cuts for wealthy
    CEOs, those corporations, those billionaires for the first time
    are finally going to help us pay for the investment we need in
    our greatest asset, the American people. It is not just nurses
    and teachers and firefighters that are paying their taxes. It
    is time that the wealthiest people in this country paid their
    fair share.
        Corporate greed is a big reason why we need this investment
    in the first place. For decades, we had a corporate business
    model, I mentioned that in my opening statement, where they
    plow all their cash into stock buybacks and bonuses and other
    schemes where the money ends up in their pockets instead of
    funding the real economy.
        The economy of a year ago may have looked pretty good from
    a corporate boardroom or may have looked pretty good from the
    Dirksen Office Building, but anyone who got, as Lincoln would
    say, their public opinion baths would know that so many
    workers, entire neighborhoods, entire towns were not seeing the
    gains, those stock market gains, translate into opportunity for
    them and their family.
        We are changing that. One of the best things about our
    economy today is for the first time in decades, the first time
    in some people's memory, workers are starting to gain a little
    power in our economy, over their schedules, over their wages,
    over their benefits. They are going to gain a whole lot more
    power when we invest in jobs in their towns and childcare and
    housing and the Child Tax Credit and education and workplace
    protections, and everything workers need to feel stable and
    think, just so they know, finally in this country, they are
    getting a fair shake.
        I thank Secretary Yellen for joining us, thank Chairman
    Powell for joining us. The meeting is adjourned.
        [Whereupon, at 12:30 p.m., the hearing was adjourned.]
        [Prepared statements and responses to written questions
    supplied for the record follow:]
                  PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
        We all remember the dark days of 2008, and the painful years that
    followed. Secretary Yellen and Chair Powell, you both helped us deal
    with the aftermath in your roles at the Federal Reserve.
        When the biggest banks were in trouble, Washington sprung to
    action--``we have no choice, we can't allow these banks to fail,''
    everyone said.
        But millions of families were allowed to fail.
        American workers bailed out the financial industry, but their
    livelihoods were not treated with the same urgency. Recovering their
    jobs--let alone empowering them to demand better ones--would have to
    wait for years.
        By the end of 2013, the stock market had its best year in almost
    two decades, while nearly 11 million people were still out of a job.
        The question before us today is the same question we've been
    grappling with for a year: are we going to learn from our past
    mistakes?
        Americans do not have to settle for another Wall Street-first
    recovery. We have the tools to do things differently--the only question
    is whether we're going to use them, for as long as it takes.
        So far, we have worked to learn the lessons of the past, and do
    better by American workers. That's what the CARES Act and the American
    Rescue Plan were all about.
        We put money in families' pockets--stimulus checks and the Earned
    Income and the Child Tax Credit were spent in local supermarkets and
    shopping centers on food and back-to-school supplies.
        Treasury helped State and local governments get emergency rental
    assistance to 420,000 families in August alone and provided $950
    million to help homeowners who are behind on their mortgage.
        The result has been record job growth--job creation in the first 7
    months of the Biden administration is nearly double any previous first-
    year President.
        It's not just the jobs numbers--it's also the quality of those
    jobs.
        For the first time in decades, workers are starting to gain a
    little power in our economy--power to negotiate higher wages, better
    working conditions, and more control over their schedules and their
    futures.
        Progress, to be sure. Yet we have a long way to go.
        We are still down 5.6 million jobs since before the pandemic.
        Corporations are using the pandemic as an excuse to ``cut costs''--
    and we know that by ``costs'' they always mean jobs or wages or
    retirement contributions, never CEO bonuses or stock buybacks.
        Instead of hiring back loyal workers as business expands, companies
    are outsourcing or contracting out the work, and paying people half as
    much.
        The Fed, for its part, has taken extraordinary action over the past
    year-and-a-half to stabilize our economy.
        But many of the Fed's efforts helped stabilize markets much more
    than they stabilized working families.
        Those actions have been a bonanza for Wall Street. Big corporate
    mergers are at an all-time high, and the biggest banks have had one of
    their most profitable years ever--during a global pandemic.
        The same companies that benefited from the Fed's actions want to
    ``restructure'' their workforce, and complain about a ``skills gap,''
    while refusing to cut into their stock buyback budgets to expand
    training programs or offer truly high wages.
        This ought to be a reminder that we're still in the very early
    stages of recovery--and that the same old Wall Street system is not
    good enough.
        Chair Powell, you have talked about your commitment to competitive
    labor markets, yet you have said that the test for full employment is
    ``all but met.''
        Tell that to the working mother who was forced to quit her job
    because she couldn't afford childcare, or even find childcare.
        Tell that to the server who worked for decades at a major hotel
    chain, only to lose her job during the pandemic, and then be offered
    the same job by a contractor paying half the wages with no benefits.
        Tell that to a worker in my hometown in Mansfield, who for decades
    has watched companies close down factories and move good-paying, union
    jobs abroad--only to have them replaced, when they were replaced at
    all, by low-wage, non-union jobs at a Big Box store.
        Now is not the time to declare victory.
        Americans have watched this story unfold over and over again.
        Crash. Recession. Rapid Wall Street recovery. Years of slow,
    painful, uneven job recovery.
        And always within the same corporate system that treats quarterly
    stock prices as the only measurement that matters, and treats workers
    as a cost to be minimized.
        How many times are we going to continue to do this?
        How many times are Americans going to have to watch history repeat
    itself?
        We cannot declare the recovery complete until all workers can find
    a job that pays them fair wages and treats them with dignity.
        The Fed cannot pull back every time workers gain a tiny bit of
    power to demand higher wages.
        The Fed cannot continue to rubberstamp mergers and allow corporate
    consolidation to go unchecked, and then wonder why job growth isn't
    reaching whole regions of the country.
        Full employment means a truly competitive labor market--one where
    everyone can get a job, and employers compete for workers.
        We have not seen that kind of labor market in decades--but we can.
    That is our job--in Congress, at Treasury, at the Fed.
        I also need to say a quick word about the games Republicans are
    playing with people's livelihoods.
        The debt limit is not about future spending--it's about meeting
    obligations we've already made, like the bipartisan, overwhelmingly
    popular CARES Act--the reason we're holding this hearing today.
        Every single one of my Republican colleagues who served on this
    Committee last year voted for the CARES Act. Every single one of them
    voted for the $2 trillion tax cut for their wealthy friends. They
    didn't seem to have a problem with the debt limit then.
        But now they don't want to pay the bill.
        The partisan game is pretty transparent.
        We need to pay our bills on time. And we've always done it
    together. Treasury Secretaries--past and present, and across the
    political spectrum--are sounding the alarm about the economic
    devastation they're threatening.
        And China is watching with glee, all too eager to see the dollar
    tarnished as the world's reserve currency.
        We can't play politics with the full faith and credit of the United
    States.
        Finally, Chair Powell, I understand you've initiated a review of
    the ethics and financial disclosure rules at the Fed after we learned
    of stock trades that two Federal Reserve Bank Presidents made during
    the pandemic.
        I have a bill with Senators Merkley and Warnock--the Ban Conflicted
    Trading Act--that would ban members of Congress from buying or selling
    any individual stocks. I think the same should apply to Fed officials
    and I'm introducing a bill to do that.
        Your job, the Fed's job, members of Congress' job is to serve the
    public, not their stock portfolios.
                                     ______

                PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
        Thank you, Mr. Chairman. Secretary Yellen and Chair Powell,
    welcome.
        Last year, Congress, on bipartisan basis, forcefully responded to
    the threat of economic collapse caused by the pandemic and resulting
    lockdowns. That response, together with the Fed's aggressive monetary
    policy support and the end to lockdowns, enabled the U.S. economy to
    fully recover. Our economy today is not only larger than it was before
    the pandemic, but we're now running above prepandemic GDP forecasts for
    2021.
        Unfortunately, Democrats are trying to ram through a reckless tax
    and spending bill that will threaten economic growth. Policies include
    massively expanding the welfare State, raising taxes on U.S. employers,
    and diminishing investment by increasing taxes on capital gains.
        Let's be clear about the purpose behind these proposals: It's not
    to spur economic recovery--the economy is strong. Nor is it an
    antipoverty plan--the programs are not limited to the poor. It's to
    reconfigure the relationship between the Federal Government and the
    middle class. It's about socializing many ordinary responsibilities
    that families have always assumed.
        Instead of raising taxes to partially fund economically harmful
    programs, we should work to return to the best economy of my lifetime,
    which we experienced before COVID hit. We had the lowest unemployment
    rate in 50 years--including record low unemployment rates for Black and
    Hispanic Americans--real median household income at an all-time high,
    and strong wage growth, above the rate of inflation, particularly for
    lowest income earners.
        This was achieved by reforming the tax code, lowering tax rates,
    and lightening regulatory burdens. Now the Democrats are proposing to
    reverse all of these policies.
        Chair Powell, as you know, the Fed has clear and narrow mandates:
    To conduct monetary policy that promotes stable prices, maximum
    employment, and moderate long-term interest rates, and to conduct
    banking supervision and maintain an efficient payment system.
        As Chair Powell has articulated, these are ``narrow but important''
    responsibilities. It's therefore concerning to see the Fed, especially
    its regional banks, wade into politically charged areas like global
    warming and racial justice. These efforts undermine the Fed's
    independence and distract from the Fed's actual responsibilities like
    controlling inflation.
        Speaking of which, the Fed's excessively accommodative monetary
    policy, emergency policies long after the emergency has passed,
    produced the inflation I have feared, and the Fed did not expect. We're
    now seeing rates of inflation considerably higher than the Fed
    projected. And it is hurting businesses, consumers, and workers.
        You don't have to take my word for it. Here's what the CFO of
    Costco said last week: ``Inflationary factors abound: higher labor
    costs, higher freight costs, higher transportation demand, along with
    container shortages and port delays, increased demand in certain
    product categories, various shortages of everything from computer chips
    to oils and chemicals.''
        To address this threat, I urge the Fed to accelerate the process of
    normalizing monetary policy so that it does not fall further behind the
    curve in responding to inflation than it already has.
        I'm also concerned Treasury may be headed down a similar path of
    exceeding its authority. To much fanfare, the Biden administration has
    announced an international tax agreement that consists of two pillars.
        Pillar one is an unprecedented change that would allow foreign
    countries to tax American companies based on their sales overseas. It's
    a tax revenue transfer from us to them. Unsurprisingly, this is the
    priority for other countries, who have long sought this tax transfer.
        Pillar two is a global minimum tax on multinationals' foreign
    income. This is the Biden administration's attempt to justify
    burdensome tax increases on U.S. companies. Unsurprisingly, this is the
    Administration's priority and is part of its efforts to dismantle our
    successful 2017 tax reforms.
        The Administration is imploring other countries to implement a
    global minimum tax that will harm their own workers and businesses. By
    doing so, the Administration has implicitly acknowledged that their
    proposed multinational tax increases will make U.S. workers and
    businesses less competitive, if other countries either don't implement
    a global minimum tax of their own, or implement a significantly lower
    rate than what the Administration is proposing.
        But there's a real possibility that other countries will not
    implement a global minimum tax for at least two reasons. First, the EU
    can only implement this global minimum tax by unanimous consent, which
    they don't have. Second, these countries have only reluctantly agreed
    to pillar two in return for pillar one, which is the transfer of U.S.
    tax revenue to them. But implementing pillar one in the U.S. requires a
    treaty ratified by two-thirds of the Senate--and that's not going to
    happen.
        The Administration has implicitly admitted that their global tax
    hike will be a disaster for the U.S. if the rest of the world does not
    follow suit. There's a very substantial risk that the rest of the world
    will not follow suit. And yet Democrats are charging ahead with this
    destructive tax increase in their reconciliation bill that they're
    going to try to pass any day now.
        Secretary Yellen and Chair Powell, I look forward to discussing
    these and other issues with you today.
                                     ______

                     PREPARED STATEMENT OF JANET L. YELLEN
                     Secretary, Department of the Treasury
                               September 28, 2021
        Chairman Brown, Ranking Member Toomey, Members of the Committee:
    It's a pleasure to testify today. We are in the midst of a fragile but
    rapid recovery from the pandemic-induced recession. While our economy
    continues to expand and recapture a substantial share of the jobs lost
    during 2020, significant challenges from the Delta variant continue to
    suppress the speed of the recovery and present substantial barriers to
    a vibrant economy. Still, I remain optimistic about the medium-term
    trajectory of our economy, and I expect we will return to full
    employment next year.
        A rebound like this was never a foregone conclusion. In fact, the
    American recovery is stronger than those of other wealthy Nations. One
    key factor for our overperformance is the policy choices that Congress
    has made over the past 18 months. Those choices include the passage of
    the CARES Act, the Consolidated Appropriations Act, and the American
    Rescue Plan.
        Treasury, as you know, was tasked with administering a large
    portion of the relief dollars in those bills, and when we last met, our
    Department was busy standing up programs to help individual families,
    State governments, and organizations of every size in between. While we
    still have much more work to do, we have made significant progress, and
    I wanted to give you an update.
        Let's start with families. In July, our Department started sending
    the monthly expanded Child Tax Credit payments to the families of
    nearly 60 million children across the country. To date, $46 billion
    dollars in payments have been made, and we're already seeing the
    impact. Analysis by the Census Bureau found that after the first
    payments in July, food insecurity among families with children dropped
    24 percent.
        As for State, local, tribal, and territory governments, COVID-19
    decimated their budgets. There were mass layoffs, and to end the health
    and economic emergencies, we knew that communities would need funding
    to hire educators to bring kids back to school, for example, or
    frontline workers to administer the vaccine. The American Rescue Plan
    included $350 billion to that end, and those dollars are indeed helping
    the machinery of local governments get up-and-running. States and
    localities can rely on relief money that is available instead of
    resorting to painful budget cuts.
        Congress rightly designed the State and local program with
    flexibility in mind. I think many of us knew the recovery could run up
    against some unforeseen challenges, and we wanted communities to be
    able to devote resources where and when they saw fit. I want to note
    that this flexibility is paying off now, especially with the spread of
    the Delta variant. Harris County, Texas, for instance, has used this
    funding to boost its immunization rate, offering $100 to each person
    who gets their first vaccine dose.
        For the relief dollars not yet out the door, Treasury is doing
    everything it can to expedite their delivery. The Emergency Rental
    Assistance Program is one example. Prior to the pandemic, there was
    essentially no national infrastructure to get money from Government
    coffers to renters and landlords. Building that infrastructure has been
    a massive undertaking for States, localities, and tribes.
        The program is scaling up quickly, with 1.4 million payments made
    to help struggling renters keep a roof over their heads. Still, too
    much of the money remains bottlenecked at the State and local levels.
    That's why our Treasury team has worked to eliminate every piece of red
    tape possible in order to ensure more payments can get to renters and
    landlords, but States and localities must also work to remove barriers
    that can speed up distribution of rental assistance funds.
        I'll end my remarks there except to reiterate what I've
    communicated many times these past several weeks: It is imperative that
    Congress swiftly addresses the debt limit. If it does not, America
    would default for the first time in history. The full faith and credit
    of the United States would be impaired, and our country would likely
    face a financial crisis and economic recession.
        We must address this issue to honor commitments made by this and
    prior Congresses, including those made to address the health and
    economic impact of the pandemic. It's necessary to avert a catastrophic
    event for our economy.
        Senators, the debt ceiling has been raised or suspended 78 times
    since 1960, almost always on a bipartisan basis. My hope is that we can
    work together to do so again--and to build a stronger American economy
    for future generations. Thank you, and I'm pleased to take your
    questions.
                                     ______

                     PREPARED STATEMENT OF JEROME H. POWELL
           Chairman, Board of Governors of the Federal Reserve System
                               September 28, 2021
        Chairman Brown, Ranking Member Toomey, and other Members of the
    Committee, thank you for the opportunity to discuss the measures we
    have taken to address the hardship wrought by the pandemic. Our health
    care professionals continue to deliver our most important response, and
    we remain grateful for their service. Progress on vaccinations and
    unprecedented fiscal policy actions are also providing strong support
    to the recovery.
        Since we last met, the economy has continued to strengthen. Real
    gross domestic product rose at a robust pace in the first half of the
    year, and growth is widely expected to continue at a strong pace in the
    second half. The sectors most adversely affected by the pandemic have
    improved in recent months, but the rise in COVID-19 cases has slowed
    their recovery.
        Household spending rose at an especially rapid pace over the first
    half of the year but flattened out in July and August as spending
    softened in COVID-sensitive sectors. Additionally, in some industries,
    near-term supply constraints are restraining activity.
        As with overall economic activity, conditions in the labor market
    have continued to improve. Demand for labor is very strong, and job
    gains averaged 750,000 per month over the past 3 months. In August,
    however, gains slowed markedly, with the slowdown concentrated in
    sectors most sensitive to the pandemic. The unemployment rate was 5.2
    percent in August, 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.
        Factors related to the pandemic, such as caregiving needs and
    ongoing fears of the virus, appear to be weighing on employment growth.
    These factors should diminish with progress on containing the virus.
        The economic downturn has not fallen equally on all Americans, and
    those least able to shoulder the burden have been the hardest hit. In
    particular, despite progress, joblessness continues to fall
    disproportionately on lower-wage workers in the service sector and on
    African Americans and Hispanics.
        Inflation is elevated and will likely remain so in coming months
    before moderating. As the economy continues to reopen and spending
    rebounds, we are seeing upward pressure on prices, particularly due to
    supply bottlenecks in some sectors. These effects have been larger and
    longer lasting than anticipated, but they will abate, and as they do,
    inflation is expected to drop back toward our longer-run 2 percent
    goal.
        The process of reopening the economy is unprecedented, as was the
    shutdown. As reopening continues, bottlenecks, hiring difficulties, and
    other constraints could again prove to be greater and more enduring
    than anticipated, posing upside risks to inflation. If sustained higher
    inflation were to become a serious concern, we would certainly respond
    and use our tools to ensure that inflation runs at levels that are
    consistent with our goal.
        The path of the economy continues to depend on the course of the
    virus, and risks to the outlook remain. The Delta variant has led to a
    surge in cases, causing significant human suffering and slowing the
    economic recovery. Continued progress on vaccinations would help
    support a return to more normal economic conditions.
        The Fed's policy actions are guided by our dual mandate to promote
    maximum employment and stable prices for the American people, along
    with our responsibilities to promote the stability of the financial
    system. In response to the crisis, we took broad and forceful measures
    to support the flow of credit in the economy and to promote the
    stability of the financial system at the onset of the pandemic. Our
    actions, taken together, helped unlock more than $2 trillion of funding
    to support businesses large and small, nonprofits, and State and local
    governments between April and December of 2020. This, in turn, helped
    keep organizations from shuttering and put employers in a better
    position to keep workers on and to hire them back as the recovery
    continues.
        These programs have served as a backstop to key credit markets and
    helped to restore the flow of credit from private lenders through
    normal channels. We have deployed these lending tools to an
    unprecedented extent. Our emergency lending tools require the approval
    of the Treasury and are available only in unusual and exigent
    circumstances, such as those brought on by the crisis.
        Many of these programs were supported by funding from the
    Coronavirus Aid, Relief, and Economic Security (CARES) Act. Those
    facilities provided essential support through a very difficult year and
    are now closed.
        The Federal Reserve completed its sales of assets from the
    Secondary Market Corporate Credit Facility on August 31. We were able
    to wind down the facility rapidly and efficiently, with no adverse
    impact on credit conditions. The Federal Reserve also recently closed
    the Paycheck Protection Program Liquidity Facility to new lending, and
    the facility is now in runoff mode. Similarly, we are managing the
    paydown of assets in our other CARES Act facilities as they wind down
    over time. We continue to analyze the facilities' efficacy and to
    review the lessons learned.
        To conclude, our actions affect communities, families, and
    businesses across the country. Everything we do is in service to our
    public mission. We at the Fed will do all we can to support the economy
    for as long as it takes to complete the recovery. Thank you. I look
    forward to your questions.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]