[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]