[Senate Hearing 117-670]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-670


  CARES ACT OVERSIGHT OF TREASURY AND THE FEDERAL RESERVE: BUILDING A 
                           RESILIENT ECONOMY

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

                                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
                               __________

                           NOVEMBER 30, 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
                    
52-248 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

                Corey Frayer, Professional Staff Member

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                                  (ii)



                            C O N T E N T S

                              ----------                              

                       TUESDAY, NOVEMBER 30, 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...........................................    48
    Responses to written questions of:
        Chairman Brown...........................................    51
        Senator Toomey...........................................    53
        Senator Warren...........................................    59
        Senator Rounds...........................................    59
Jerome H. Powell, Chairman, Board of Governors of the Federal 
  Reserve System.................................................     7
    Prepared statement...........................................    49
    Responses to written questions of:
        Chairman Brown...........................................    60
        Senator Toomey...........................................    61
        Senator Menendez.........................................    66
        Senator Warren...........................................    69
        Senator Van Hollen.......................................    70
        Senator Sinema...........................................    72
        Senator Scott............................................    73
        Senator Rounds...........................................    74

              Additional Material Supplied for the Record

Washington Post article submitted by Senator Tillis..............    76

                                 (iii)

 
  CARES ACT OVERSIGHT OF TREASURY AND THE FEDERAL RESERVE: BUILDING A 
                           RESILIENT ECONOMY

                              ----------                              


                       TUESDAY, NOVEMBER 30, 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 G50, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Committee on Banking, Housing, and 
Urban Affairs will come to order. Today's hearing is in the 
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. Please click the Mute button to minimize 
background noise. All of you have been through this before so I 
do not think I need to lay out all that we are doing.
    Our speaking order, though, will be as usual, that is by 
seniority of the Members who have checked in before the gavel 
came down, either in person or virtually, and then by seniority 
of Members arriving later, alternating between Democrats and 
Republicans.
    Last week, many Americans sat down with family and friends 
to celebrate Thanksgiving. I start with taking a moment to 
thank the workers that made that possible, many of whom did not 
get the day off--farm workers, grocery store workers, 
restaurant workers, auto workers, delivery workers, longshore 
workers, and so many others who touch our lives. These are the 
people who make our economy work. It is something that the 
Treasury Secretary and the Fed Chair need to always keep in 
mind.
    Under the Biden-Harris administration, our economy is 
bouncing back. It is getting stronger every day. We created 5.6 
million jobs this year. The unemployment has dropped to 4.6 
percent, and weekly unemployment claims dropped to under 
200,000 last week, the lowest level not just since the pandemic 
began, but in over 50 years, since 1969.
    Of course raw jobs numbers alone do not tell the whole 
story. They do not tell you how good the job is, what kind of 
wage it pays.
    And on that front, the news is even better. Workers are 
starting to finally get a little bit more power in our economy. 
Last year, corporations called their workers essential, and 
then many turned around and cut hazard pay--if they ever 
offered it at all--and cut corners on safety, to make sure 
their profits did not take a hit. Or worse, they laid off 
loyal, long-time employees in the midst of a public health 
crisis.
    They cannot make those record profits without someone to 
actually do the work, though. Today, American workers are 
demanding what they have earned. After years of stagnant wages, 
shrinking benefits, and no control over their schedules, 
workers are standing up for themselves and for each other, and 
asking for their fair share of the profits they create.
    We just saw the United Auto Workers win better pay and 
better retirement benefits after a 5-week strike of John Deere. 
It was good for non-union employees too--this is typical--who 
got a bump in pay too.
    For too long, corporate greed has kept paychecks down and 
prices up. Corporations ``cut costs'' at workers' expense to 
juice quarterly earnings numbers, even when they are already 
plenty profitable. Executives reward themselves with record 
profits and stock buybacks, while arguing they cannot afford to 
pay higher wages to anyone else, or cannot afford to lower 
prices.
    During a once-in-a-generation global pandemic, despite the 
supposed ``labor shortages'' and inflation fears, Wall Street 
banks and corporations still managed to rake in record profits. 
Profits at the biggest U.S. companies shot above $3 trillion--
3,000 billion dollars--this year, and the margins keep growing. 
And now, while working families are just starting to get back 
on their feet, megacorporations would rather pass higher costs 
onto consumers than to cut into their already large profits.
    To continue the progress we have made, we need to rethink 
that old system.
    The Biden administration is creating jobs and bringing down 
costs for families to build a resilient economy for the long 
run. The biggest costs families face have been rising for 
years, in many cases decades--housing, health care, 
prescription drugs, childcare, preschool. The Democrats' agenda 
will bring down all these costs.
    We passed the American Rescue Plan, which got shots in arms 
and money in pockets, including the Child Tax Credit, the 
largest tax cuts for working families ever that has helping 
millions of families afford childcare and keep up with the cost 
of living. Ninety percent of families in Pittsburgh and 
Cleveland and Toledo and Philadelphia, 90 percent of families 
with children under 18 are getting at least a $3,000 tax cut.
    We passed the bipartisan infrastructure bill to upgrade our 
ports and transit systems, to revitalize manufacturing here in 
the United States, to secure supply chains, to create millions 
of good jobs.
    Two weeks ago, the House passed Build Back Better which 
will bring down childcare, housing, health care and other 
household costs, and extend the child tax credit, the biggest 
tax cut, as I said.
    Now, the Senate must act.
    The ongoing pandemic has also exposed longstanding 
weaknesses in our supply chain. Global supply chain disruptions 
and increased demands as our economy rebounds are causing 
higher prices in certain sectors.
    Secretary Yellen and Chair Powell are keeping an eye on 
this, and the more we can get the virus under control and 
understand its variants, the faster we will see these 
disruptions subside. We are already seeing some progress.
    The bipartisan infrastructure plan's investment in our 
ports will help speed up our supply chains in the long-run. 
Passing my Supply Chain Resiliency Act would further reshore 
and strengthen U.S. supply chains.
    There is also an even simpler, short-term fix available. 
Corporations could--could--lower their prices. Executives could 
get a slightly smaller pay bump this year and stock buyback 
plans could be put on hold, instead of raising costs for 
customers. Again, that is the choice they face. They could take 
a slightly smaller pay bump this year. They could cut back on 
their stock buyback plans, actually put them on hold, instead 
of raising costs for consumers.
    There is no inexorable law that says profits for those at 
the top must continue to rise and rise and rise in perpetuity, 
even at the expense of everyone and everything else in the 
economy. Corporations can get away with it--we know this. I 
have had these conversations with Chair Powell and Secretary 
Yellen. They can get away with it because they have too much 
power in our economy.
    That makes it all the more vital that we not pull back on 
empowering workers. The Fed cannot pump the brakes on our 
economic recovery too soon, before workers get a chance to 
fully rebound, and I mean all workers. Women, who finally 
started to make significant job gains last month, were 
disproportionately forced out of the labor market as many took 
on the extra jobs of full-time caregiver and homeschool 
teacher. The Black unemployment rate is still twice that of 
White workers. That is increasingly unacceptable.
    A resilient economy is an economy where full employment 
means everyone can get a job--a good job, that pays a living 
wage and allows you to build a career and raise a family. And 
it is an economy where everyone shares in the benefits of 
growth, and where our progress is not gambled away by Wall 
Street greed.
    Instead of doing Wall Street's bidding, we all--and I 
include the Fed, the Treasury Department, and this Congress--we 
all need to support the institutions that work at serving their 
neighbors and contributing to the real economy. That means 
supporting small business and creating paths to home ownership. 
That means supporting institutions like MDIs and CDFIs that 
serve communities that the banks ignore. That means making sure 
workers have power in our economy and share in the prosperity 
they create.
    Corporations and their allies in this building--and there 
are a whole lot of them--want you to believe that we have to 
choose between high wages and low prices. That is a false 
choice. We can have an economy where you earn a living wage and 
you can afford the things you need to live--childcare, health 
care, education, housing, and groceries. Our economy can be a 
reflection of our values as Americans, one that recognizes 
every worker's potential, from all walks of life and from every 
corner of our country.
    President Biden recently announced his intention to 
renominate Chair Powell to lead the Federal Reserve, and 
Governor Lael Brainard to be the Vice Chair. They have helped 
lead our economy through the pandemic, and I will continue to 
work with both of them, and the next Federal Reserve nominees 
that reflect the diversity, in thought, in gender, and race, 
the diversity of the Secretary and the Chair on how they plan 
to build a resilient economy that works for everyone.
    Senator Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman. Secretary Yellen 
and Chairman Powell, welcome back to the Committee. Chairman 
Powell, congratulations on your renomination. Despite our 
several disagreements, I look forward to supporting your 
confirmation.
    When the pandemic hit in 2020, Chairman Powell acted 
swiftly to stabilize financial markets and the economy. He also 
implemented a number of sensible regulatory reforms that helped 
to spur economic growth. And for those who would criticize 
those efforts, I suggest they look at the past 2 years. Our 
economy, and our financial system, experienced a very severe, 
real-world stress test during the worst days of the pandemic, 
and we came out of it with the best capitalized banking system 
in American history.
    While I support Chairman Powell's renomination, I am very 
concerned about whom President Biden may nominate to fill other 
seats on the Fed Board given some of the radical financial 
regulators he has nominated so far. Just consider his radical 
nominee to serve as the Comptroller of the Currency, the 
Nation's top banking regulator.
    Members of the Fed Board ought to have exceptional 
qualifications and an appreciation for the Fed's narrow 
statutory role on monetary policy and banking supervision. We 
need Fed nominees who are focused not on social policy, but 
rather the alarming bout of inflation that we are currently 
experiencing. Inflation is at a 31-year high. Just last month, 
the consumer price index increased by 6.2 percent year over 
year.
    Price hikes are everywhere, from the cost of a Thanksgiving 
meal, which rose by 14 percent over last year, to the pump, 
where gas has reached as high as $6 a gallon in some places.
    Inflation is a tax that is eroding Americans' paychecks 
every day. Even though wages are growing, inflation is growing 
faster and that is causing workers to fall further and further 
behind.
    I have been warning about the risks of higher and more 
persistent inflation since January. Unfortunately, the Fed has 
decided to continue its really emergency monetary policy, 
adding fuel to the inflationary fire, long after the economic 
emergency had passed.
    Earlier this month, I was glad to see the Fed finally 
announce a long-overdue taper of its bond-buying program. 
Quantitative easing should be used in emergencies only, and we 
are well past the need for such support.
    Our economy took a nosedive in the second quarter of last 
year, but by the third quarter of 2020, it had largely 
recovered. And yet here we are in November 2021, and the Fed is 
still buying more than $100 billion in bonds each month.
    The Fed should have started tapering nearly a year ago. But 
instead it is expected to continue buying bonds through next 
June. And on interest rates, which are currently near zero, the 
Fed is still maintaining a wait-and-see approach.
    I am somewhat relieved that Chairman Powell has recently 
spoken about the heightened risks of higher and more persistent 
inflation and has indicated his determination to control it.
    Unfortunately, the Biden administration and many of our 
Democrat colleagues in Congress are not willing to do their 
part to limit inflation. Instead, they are exacerbating the 
problem and then blaming inflation on their usual suspects--
greedy corporations.
    Apparently, some of my colleagues believe that companies 
were for years generously leaving money on the table and only 
now have thought to raise prices to maximize profits. Well, 
this is a cynical fib meant to distract from the fact that 
congressional Democrats' extremely liberal policies are 
contributing to the price hikes hitting Americans' wallets.
    Just take energy prices, for example. President Biden 
kicked off his presidency by taking measures to curb our 
Nation's energy supply. He terminated construction of the 
Keystone Pipeline, a tremendous source of oil. He placed an 
indefinite ban on new oil and gas leases on Federal land.
    Meanwhile, on the demand side, the Administration and 
Democrats in Congress have propped up demand for energy with 
their March 2021 $1.9 trillion stimulus bill. It is no wonder 
then that Americans are seeing skyrocketing energy prices. When 
you decrease supply, and then subsidize demand, prices go up. 
That is basic economics.
    Unfortunately, the Administration has not learned its 
lesson. It is still pushing a multitrillion-dollar reckless 
tax-and-spend plan that will contribute to more inflation and 
damage our economy. Its plan is a massive expansion of the 
welfare State, and it will be partially paid for by large tax 
increases that will hurt American families and make the U.S. a 
less competitive place to do business.
    The intent of this plan is to fundamentally transform the 
relationship between the Federal Government and the middle 
class. It is about socializing many ordinary responsibilities 
that middle-income families have always assumed, including by 
providing free preschool, free paid leave, and free childcare, 
just to name a few.
    Democrats are attempting to hide the unprecedented enormity 
of this tax-and-spending spree through budget gimmicks. 
According to the nonpartisan Penn-Wharton budget model, the 
House version of the Build Back Better plan will cost $4.6 
trillion over 10 years if the bill's temporary provisions are 
made permanent, as the Democrats plan and hope. As Senator 
Manchin has noted, Democrats are using, quote, ``shell games,'' 
end quote, to hide the true cost of this inflation.
    I hope that Democrats will reconsider their misguided 
efforts to double down on the reckless spending that has 
contributed so much to the highest inflation that Americans 
have experienced in 31 years.
    Chairman Brown. Thank you, Senator Toomey.
    I will introduce today's witnesses. We will hear from 
Treasury Secretary Yellen, Federal Reserve Chair Powell, on 
their agencies' continued actions to recover from the pandemic 
and build a resilient economy that works for all Americans. 
Thank you both for your service. Congratulations again to you 
Chair Powell, and thank you for your testimony today.
    Madam Secretary, if you would begin. Thank you.

  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.
    November has been a very significant month for our economy, 
and Congress is a large part of the reason why. Our economy has 
needed updated roads, ports, and broadband networks for many 
years now, and I am very grateful that on the night of November 
5, members of both parties came together to pass the largest 
infrastructure package in American history.
    November 5th, it turned out, was a particularly 
consequential day because earlier that morning we received a 
very favorable jobs report--531,000 jobs added. It is never 
wise to make too much of one piece of economic data, but in 
this case it was an addition to a mounting body of evidence 
that points to a clear conclusion: Our economic recovery is on 
track. We are averaging half-a-million new jobs per month since 
January, and GDP now exceeds its prepandemic levels. Our 
unemployment rate is at its lowest level since the start of the 
pandemic, and our economy is on pace to reach full employment 2 
years faster than the Congressional Budget Office had 
estimated.
    Of course, the progress of our economic recovery cannot be 
separated from our progress against the pandemic, and I know 
that we are all following the news about the Omicron variant. 
As the President said yesterday, we are still waiting for more 
data, but what remains true is that our best protection against 
the virus is the vaccine. People should get vaccinated and 
boosted.
    At this point, I am confident that our recovery remains 
strong and is even quite remarkable when put in context. We 
should not forget that last winter there was a risk that our 
economy was going to slip into a prolonged recession, and there 
is an alternate reality where, right now, millions more people 
cannot find a job or are losing the roofs over their heads.
    It is clear that what has separated us from that 
counterfactual are the bold relief measures Congress has 
enacted during the crisis--the CARES Act, the Consolidated 
Appropriations Act, and the American Rescue Plan Act. And it is 
not just the passage of these laws that has made the 
difference, but their effective implementation.
    Treasury, as you know, was tasked with administering a 
large portion of the relief funds provided by Congress under 
those bills. During our last quarterly hearing, I spoke 
extensively about the State and local relief program, but I 
wanted to update you on some other measures.
    First, the American Rescue Plan's expanded Child Tax Credit 
has been sent out every month since July, putting about $77 
billion in the pockets of families of more than 61 million 
children. Families are using these funds for essential needs 
like food, and in fact, according to the Census Bureau, food 
insecurity among families with children dropped 24 percent 
after the July payments, which is a profound economic and moral 
victory for the country.
    Meanwhile, the Emergency Rental Assistance Program has 
significantly expanded, providing much-needed assistance to 
over 2 million households. This assistance has helped keep 
eviction rates below prepandemic levels.
    This month we also released guidelines for the $10 billion 
State Small Business Credit Initiative program, which will 
provide targeted lending and investments that will help small 
businesses grow and create well-paying jobs.
    As consequential as November was, December promises to be 
more so. There are two decisions facing Congress that could 
send our economy in very different directions.
    The first is the debt limit. I cannot overstate how 
critical it is that Congress address this issue. America must 
pay its bills on time and in full. If we do not, we will 
eviscerate our current recovery. In a matter of days, the 
majority of Americans would suffer financial pain as critical 
payments, like Social Security checks and military paychecks, 
would not reach their bank accounts, and that would likely be 
followed by a deep recession.
    The second action involves the Build Back Better agenda. I 
applaud the House for passing the bill and am hopeful that the 
Senate will soon follow. Build Back Better is the right 
economic decision for many reasons. It will, for example, end 
the childcare crisis in this country, letting parents return to 
work. These investments, we expect, will lead to a GDP increase 
over the long term without increasing the national debt or 
deficit by a dollar. In fact, the offsets in these bills mean 
they actually reduce annual deficits over time.
    Thanks to your work, we have ensured that America will 
recover from this pandemic. And now, with this bill, we have 
the chance to ensure America thrives in a postpandemic world.
    With that, I am happy to take your questions.
    Chairman Brown. Thank you, Secretary Yellen.
    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 for the opportunity 
to testify today.
    The economy has continued to strengthen. The rise in Delta 
variant cases temporarily slowed progress this past summer, 
restraining previously rapid growth in household and business 
spending, intensifying supply chain disruptions, and, in some 
cases, keeping people from returning to work or looking for a 
job. Fiscal and monetary policy and the healthy financial 
positions of households and businesses continue to support 
aggregate demand. Recent data suggest that the post-September 
decline in cases corresponded to a pickup in economic growth, 
and GDP appears on track to grow about 5 percent in 2021, the 
fastest pace in many years.
    As with overall economic activity, conditions in the labor 
market have continued to improve. The Delta variant contributed 
to slower job growth this summer, as factors related to the 
pandemic, such as caregiving needs and fears of the virus, kept 
some people out of the labor force despite strong demand for 
workers. Nonetheless, October saw job growth of 531,000, and 
the unemployment rate fell to 4.6 percent, indicating a rebound 
in the pace of labor market improvement. There is still ground 
to cover to reach maximum employment for both employment and 
labor force participation, and we expect progress to continue.
    The economic downturn has not fallen equally, and those 
least able to shoulder the burden have been the hardest hit. In 
particular, despite progress, joblessness continues to fall 
disproportionately on African Americans and Hispanics.
    Pandemic-related supply and demand imbalances have 
contributed to notable price increases in some areas. Supply 
chain problems have made it difficult for producers to meet 
strong demand, particularly for goods. Increases in energy 
prices and rents are also pushing inflation upward. As a 
result, overall inflation is running well above our 2 percent 
longer-run goal, with the PCE price index up 5 percent over the 
12 months ending in October.
    Most forecasters, including at the Fed, continue to expect 
that inflation will move down significantly over the next year 
as supply and demand imbalances abate. It is difficult to 
predict the persistence and effects of supply constraints, but 
it now appears that factors pushing inflation upward will 
linger well into next year. In addition, with the rapid 
improvement in the labor market, slack is diminishing, and 
wages are rising at a brisk pace.
    We understand that high inflation imposes significant 
burdens, especially on those less able to meet the higher costs 
of essentials like food, housing, and transportation. We are 
committed to our price-stability goal, and we will use our 
tools both to support the economy and a strong labor market and 
to prevent higher inflation from becoming entrenched.
    The recent rise in COVID-19 cases and the emergence of the 
Omicron variant pose downside risks to employment and economic 
activity and increased uncertainty for inflation. Greater 
concerns about the virus could reduce people's willingness to 
work in person, which would slow progress in the labor market 
and intensify supply chain disruptions.
    To conclude, we understand that our actions affect 
communities, families, and businesses across the country. 
Everything we do is in service to our public mission. At the 
Fed we will do everything we can to support a full recovery in 
employment and achieve our price-stability goal.
    Thank you. I look forward to your questions.
    Chairman Brown. Thank you, Mr. Chair. Secretary Yellen, 
thank you for your comments on the debt ceiling. We have 2 more 
weeks. We know failing to get this done will hurt families in 
small businesses and our whole economy.
    I want to ask you about something else though. The Wall 
Street Journal reported 2 weeks ago the two-thirds of the 
largest publicly traded companies had larger profit margins in 
2021 than in 2019 before COVID-19.
    In 2020, top CEOs made 351 times the income that a typical 
worker made. Even during an ongoing pandemic when faced with 
increased demand and supply chain issues, big corporations 
refused to cut their own profits, they raised prices on people, 
they complained about having to pay workers more, never mind 
the fact they have been giving themselves raises for years 
without it impacting their prices. Meanwhile, the cost of 
housing and medical care and almost everything else for most 
workers has been rising for years.
    You have said, Secretary Yellen, you have said the 
bipartisan infrastructure bill and Build Back Better will bring 
costs down for most Americans. Could you explain that?
    Secretary Yellen. Yes. The Build Back Better plan contains 
support for households to help address some of the most 
burdensome and most rapidly rising costs that they face, for 
example, the cost of childcare, which is virtually unaffordable 
for many American families. There are subsidies for quality 
childcare that will bring down the cost for the great majority 
of American families, universal pre-K for 3- and 4-year-olds, 
and a child tax credit. And all of that will bring down the 
cost of childcare, and for families that are facing crushing 
burdens, for example, very high rental costs in many areas, the 
additional money that they get through the child tax credit 
will help them keep a roof over their family's heads, and as I 
indicated in my opening remarks, is already helping them put 
food on the table.
    With respect to the costs of caring for the elderly, Build 
Back Better contains support for those who are disabled and the 
elderly to get care in their homes. There are subsidies, an 
increase in the Pell Grant and money for education and for 
workforce training that will make that more affordable, and 
reductions in the cost of prescription drugs. These are some of 
the most burdensome items in family budgets, ones that have 
risen more rapidly than the general level of prices over time, 
and the bill will help families meet those burdensome 
expenditures.
    Chairman Brown. Thank you Madam Secretary.
    Chair Powell, is it still your belief that higher prices in 
certain sectors are chiefly caused by the upheaval we are 
experiencing as a result of the global pandemic, and that as 
the pandemic eases so too should inflationary pressure?
    Mr. Powell. I guess I would say it this way. Generally the 
higher prices we are seeing are related to the supply and 
demand's imbalances that can be traced directly back to the 
pandemic and the reopening of the economy. But it is also the 
case that price increases have spread much more broadly in the 
recent few months across the economy, and I think the risk of 
higher inflation has increased.
    Chairman Brown. OK. Thank you. This is a question for both 
of you. The dollar is controlled by the American people, but 
stablecoins are controlled by opaque, secretive technology 
companies over and over on issue after issue. We have seen tech 
firms put profits ahead of the public interest with our 
elections, with our privacy, with competition in our markets.
    And start with you Madam Secretary. Is it risky to let 
control over our money fall into the hands of these companies?
    Secretary Yellen. I believe that stablecoins can result in 
some greater efficiencies in the payment system and could 
contribute to easier and more efficient payments, but only if 
they are adequately regulated. And the President's working 
group, that I chair, recently issued or report indicating that 
there are significant risks associated with these currencies, 
risks to the payment system, risks of runs, and risks related 
to the concentration of economic power.
    And we have called upon Congress to put in place, force 
these stablecoins a regulatory framework that would make them 
safe and protect consumers, and put them on a level playing 
field with other providers of similar services such as banks.
    Chairman Brown. Chair Powell, do you agree with that?
    Mr. Powell. Yes, I do.
    Chairman Brown. OK. Thank you. In closing out my time, I 
think it is important to look in a bit of historical 
perspective, as both of you have explained to me in other 
conversations, in the late '90s and early 2000s over-the-
counter derivatives and subprime mortgages were billed as 
financial innovations. Financial regulators at the time pushed 
to weaken safeguards saying that a cloud of legal uncertainty 
hung over the OTC derivatives markets and regulations. Again, 
their words could discourage innovation and growth and drive 
transactions offshore.
    Later, the banking lobby argued that regulating subprime 
mortgages would decrease borrower choice and reduce access to 
capital. Financial Crises Inquiry Commission cited derivatives 
and subprime mortgages as key factors in the crisis.
    It looks again, again, again like the financial industry is 
using these same arguments for stablecoins in decentralized 
finance platforms. Today all of us on this Committee and both 
parties should be concerned about that, should understand the 
historical parallels, and should listen to this very bipartisan 
panel, the Secretary of the Treasury and the Chair of the 
Federal Reserve.
    Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Since the topic of 
the debt ceiling came out, let me just remind all of us of 
something that we know very well, and that is our Democratic 
colleagues could raise the debt limit all by themselves, any 
time they want, and there is nothing Republicans could do to 
stop them. The tools have been available to them all year long, 
and, in fact, Republicans have offered to expedite the process.
    There is only one reason that our Democratic colleagues 
refuse to use reconciliation to raise the debt limit, and that 
is because they would have to specify the amount of debt they 
want to inflict on the American economy. They want to avoid 
accountability for this terrible spending spree they are 
engaged in by obfuscating and not specifying a dollar amount. I 
think we should be very clear about what is going on here.
    Mr. Powell, under the Fed's new flexible average inflation 
targeting, the inflation target remains at 2 percent, but now 
it is on an average over an unspecified timeframe. Core PCE, 
the Fed's preferred inflation metric, is running above 2 
percent over the past 5 years, nearly 3 percent over the past 2 
years, and 4.1 percent over the past year. So it is above 
target, it has been above target and it is accelerating.
    Yet, the Fed has maintained an extraordinary emergency 
monetary policy stance. It looks to me like this framework 
appears to be a weakening of the Fed's commitment to stable 
prices. Now I know you believe this is transitory, but 
everything is transitory. Life is transitory. How long does 
inflation have to run above your target before the Fed decides 
maybe it is not so transitory?
    Mr. Powell. Well, first of all, the test that we have 
articulated I think clearly has been met now. You know, you are 
absolutely right. Inflation has run well above 2 percent for 
long enough that if you look back a few years, inflation 
averages 2 percent. It was not the case going into this 
episode. It had been many years since we had inflation at 2 
percent.
    So I think the word ``transitory'' has different meanings 
to different people. To many, it carries a time, a sense of 
short lived. We tend to use it to mean that it will not leave a 
permanent mark in the form of higher inflation. I think it is 
probably a good time to retire that word and try to explain 
more clearly what we mean.
    Senator Toomey. Well, you know, it still strikes me as just 
extraordinary that the economy has--it is long past recovery. 
We are in a full-blown expansion. Unemployment is down to 4.6. 
We have record-high asset prices. Housing is leading the way to 
the point where, in many markets, houses are just unaffordable 
for many people. And yet, the Fed is going to purchase $35 
billion in mortgage-backed securities in December alone and is 
scheduled to continue purchasing mortgage-backed securities for 
months on end. I would strongly urge you to reconsider the pace 
of the tapering.
    Secretary Yellen, I want to follow up on the discussion 
about payment stablecoins. In the President's working group 
payment stablecoins were defined, and the definition is, and I 
quote, ``Those stablecoins that are designed to maintain a 
stable value relative to a fiat currency, and therefore have 
the potential to be used as a widespread means of payment,'' 
end quote.
    Well, that certainly covers every major stablecoin that 
exists right now. And what strikes me as perplexing is that the 
President's working group recommendation is that all such 
stablecoins be required to be issued by depository institutions 
only. But yet, as you know, the mechanism by which the value of 
the stablecoin is maintained relative to a fiat currency, they 
vary significantly. Some arguably look somewhat like depository 
institutions. Others look more like money market accounts. 
Still others look like something wholly new.
    Why suggest that they all must be regulated the same way 
and treated as depository institutions?
    Secretary Yellen. Well, they all have the potential to be 
used as a means of payment, regardless of how they are used at 
the outset when they are introduced. And the structure that 
they espouse and adhere to, which is that they have a stable 
value relative to a fiat currency, that is really what 
depository institutions guarantee.
    Senator Toomey. I would just suggest that we really think 
this through. I think the very fundamentally different designs 
suggest that there might be different regulatory approaches.
    I am going to run out of time here, so Mr. Chairman, I just 
want to note that Pillar One of the Biden administration's 
international tax agreement will be the most significant 
international tax change in 100 years. To implement it, every 
one of our bilateral trade--I am sorry--our bilateral tax 
treaties would need to be modified. There is no historical 
precedent for bypassing the Senate treaty process to implement 
Pillar One.
    Secretary Yellen, during a recent Finance Committee 
briefing, I asked you to acknowledge that Administration would 
need to come to the Senate for treaty approval to implement 
Pillar One. You responded that Treasury has yet to determine 
whether a treaty will be needed or not. In my view, and that of 
many of my colleagues, implementing Pillar One would require 
modifications to our existing bilateral tax treaties and those 
modifications must be approved by two-thirds of the Senate. The 
Executive branch cannot ignore the Senate on a matter that is 
clearly our constitutional responsibility.
    Thank you, Mr. Chairman.
    Chairman Brown. Thanks, Senator Toomey.
    Senator Reed is recognized from Rhode Island.
    Senator Reed. Thank you, Mr. Chairman. And first, let me 
thank Secretary Yellen for being our guest speaker at the 
Providence Chamber of Commerce last week. Thank you, Madam 
Secretary.
    Secretary Yellen. Thank you.
    Senator Reed. And I learned something there. I always do 
when I am with the Secretary. She is the only person that has 
been the Chairman of the President's Council of Economic 
Advisors, Chairman of the Federal Reserve, and Secretary of the 
Treasury. So thank you, Madam Secretary, for your work. And let 
me, Chairman Powell, extend my congratulations for your 
reappointment to the Federal Reserve. Thank you.
    Chairman Powell, we have seen, as you both discussed, a 
steady job growth. What is troubling, though, is the labor 
participation rate has remained depressed, and until we get 
that participation rate up higher, we are going to have the 
complaint that we receive, the inability to get workers, et 
cetera. How do we do that, and what do you think are the causes 
of this fall-off in the participation rate?
    Mr. Powell. I did not catch the very end of that. Sorry.
    Senator Reed. The causes of the fall of the participation 
rate, and then how do we rectify those causes?
    Mr. Powell. So it is very surprising. Since June of last 
year, the unemployment rate has dropped six-and-a-half percent, 
and participation has basically moved up to two-tenths. It sort 
of moved sideways, which was surprising. I think when enhanced 
unemployment insurance ran off and schools reopened and 
vaccination came, we all thought there would be a significant 
increase in labor supply and it has not happened. So you ask 
why there is tremendous uncertainty around that, but a big part 
of it is clearly linked to the ongoing pandemic. People 
answered surveys and they are reluctant to go back to work. 
They are reluctant to leave their caregiving responsibilities 
and go back to work because they feel like schools might be 
closing again, things like that.
    So it is an issue, and I think what I am taking on board is 
that it is going to take longer to get labor force 
participation back. We are not going right back to the same 
economy. And really, often labor force participation is a 
lagging indicator. It follows big improvements in the 
unemployment rate. And we are probably on track to have that 
happen, and that means to get back to the kind of great labor 
market we had before the pandemic we are going to need a long 
expansion to get that. We are going to need price stability. 
And in a sense, the risk of persistent high inflation is also a 
major risk to getting back to such a labor market.
    Senator Reed. Thank you very much.
    Madam Secretary, let me thank you for maximizing the 
flexibility in the Emergency Rental Assistance Program. Steps 
like self-attestation and bulk utility payments have been very 
helpful to Rhode Islanders is trying to get these returns. One 
area though is very difficult and it always seems difficult. 
That is the homeless population. Can you look at and try to 
develop the ERA guidelines to emphasize how funds can be 
appropriately used for homelessness?
    Secretary Yellen. That is an extremely important area. We 
are very focused on it and we will be happy to work with you on 
it. What I can say is that ERA funds can be used to provide so-
called housing stability services, a range of services to the 
homeless to help them find a stable shelter.
    Something that Treasury did, a kind of flexibility that we 
built into our guidelines, is ERA statute requires that to be 
eligible for assistance a household has to have a so-called 
rental obligation. Recognizing that would be something that 
would be challenging for families experiencing homelessness. We 
created an opportunity for ERA grantees to provide individuals 
with a letter of intent to pay a rental obligation. So with 
this letter of intent, that would make it easier for the 
homeless to be able to secure housing.
    So those are two forms of flexibility we think will help, 
and we would be glad to work with you to see if we can identify 
more.
    Senator Reed. Thank you, Madam Secretary, and communicating 
those provisions to local authorities would be helpful.
    And just a final point, Secretary Yellen, this is with the 
Homeowner Assistance Fund. I know you are looking at the State 
plans. And if you could accelerate that to get the money out, 
because as you well know, a lot of these moratoriums on 
eviction are either gone or going, and it would be very helpful 
to get the money out. Thank you.
    Secretary Yellen. Yes.
    Senator Reed. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Reed.
    Senator Crapo, of Idaho, is recognized.
    Senator Crapo. Thank you, Mr. Chairman.
    Secretary Yellen, some appear to believe that you have 
announced that unless a debt limit increase or a suspension 
occurs before December 15th, that the Treasury faces imminent 
default. That is not how I have read your comments. So it would 
be helpful for you to clarify what your current projection is 
for when Treasury would run out of headroom to operate below 
the debt limit and run dangerously low of operating cash. I 
also request that Treasury provide details of its latest debt 
and cash projections to the Finance Committee and look forward 
to receiving those projections.
    Secretary Yellen. Yes. Let me clarify what I said. What I 
indicated in my most recent letter to Congress is that I have a 
high degree of confidence the Treasury will be able to finance 
the U.S. Government through December 15th, but there would be 
scenarios in which Treasury would not have sufficient funds to 
continue to finance the operations of the U.S. Government 
beyond that date. I would note that on December 15th, Treasury 
will invest funds from the infrastructure bill, and that will 
use up $118 billion worth of capacity when those funds from the 
Highway Trust Fund are invested in Government securities.
    And I did not say that there is no way that we can make it 
past December 15th. There are a range There is uncertainty 
about what our cash balance will be, and our resources right 
now, there is uncertainty about where we will be on December 
15th. And there are scenarios in which we can see it would not 
be possible to finance the Government. That does not mean that 
there are not also scenarios in which we can, but we think it 
is important for Congress to recognize that we may not be able 
to and therefore to raise the debt ceiling expeditiously.
    Senator Crapo. Well, thank you for that clarification.
    Chair Powell, inflation hit 6.2 percent last month, which 
is the highest in more than three decades. Still, the 
Administration is pushing for support of a nearly $2 trillion 
social spending package. And by the way, that number even 
accepts their budget gimmicks that hide real costs that could 
mean several trillion more in spending over the next 10 years.
    Most of that spending does nothing to ameliorate the 
problems of rising inflation, in fact, will simply add fuel to 
the inflation fire. I am very concerned that the Administration 
is not taking inflation's threat seriously, and in the case of 
energy prices is enacting regulatory policies that themselves 
are threats.
    Do you agree that inflation is a serious threat to our 
economy, and how do you intend to address inflation?
    Mr. Powell. I do think that the threat of persistently 
higher inflation has grown. I think my baseline expectation is 
still, as I mentioned, and of most forecasters, is still that 
inflation will move back down over the course of next year, 
closer to our target. But clearly the risk of more persist 
inflation has risen. And I think what you have seen is you have 
seen our policy adapt, and you will see it continue to adapt. 
We will use our tools to make sure that higher inflation does 
not become entrenched.
    Senator Crapo. I noted in your opening statement that you 
indicated that inflation pressures will linger well into next 
year. You do stand by that?
    Mr. Powell. Yes. I think we can now see, certainly through 
the middle of next year, it is an expectation. You know, 
forecasting is not a perfect art, as you may have noticed. But 
yes, right into the middle of next year, and that is our 
expectation. But of course, what has happened is that data has 
been pushed out repeatedly as supply side problems have not 
really improved.
    Senator Crapo. And if Congress were to pass an additional 
$2 trillion plus in spending, mixed with a number of increases 
in taxes, would that add to inflationary pressures?
    Mr. Powell. Senator, I am sorry but I will just note that 
we have a longstanding policy of not commenting on active 
legislation, as you probably are not surprised to hear.
    Senator Crapo. I suspected that. One last, very quick 
question, and for you, Chair Powell. You have indicated that 
there would be a report by the Fed on its discussion paper 
relating to digital currencies, and that has been delayed 
several times. My question to you is, when can we expect the 
Fed's report and are there reasons for that delay?
    Mr. Powell. I would think very soon. I mean, certainly in 
coming weeks. And the reasons are they are just trying to get 
it right and trying to find the time to get it right. It has 
been a very busy time, as you will know.
    Senator Crapo. Thank you.
    Mr. Powell. Thank you.
    Chairman Brown. Thanks Senator Crapo.
    Senator Warner, of Virginia, is recognized.
    Senator Warner. Thank you, Mr. Chairman, and it is good to 
see you Secretary Yellen, and congratulations, Chair Powell, on 
your reappointment.
    I want to start with you, Chair Powell. I mean, I actually 
think the Fed's activities, particularly during the pandemic, 
which included both extensive use of 13(3) facilities and some 
aggressive bond purchases actually helped stave off what could 
have been a complete economic meltdown. And while we did spend 
in excess of $5 trillion, mostly all in extraordinarily 
partisan way under both President Trump and President Biden on 
recovery from COVID, I think history will treat those actions, 
certain areas excessive, but I think net-net, from a historical 
perspective, it will be well-regarded both for the American 
economy and for the world's economy.
    But I think, as you have indicated, Chair Powell, I think 
we are seeing our economy come back. We will differ on the 
bipartisan infrastructure plan and maybe even a bit of the 
Build Back Better, but that is part of our job. But I have seen 
since your FOMC's November meeting, that the Fed signaled a 
shift, announcing starting to move back from some of the very 
aggressive means you have used and announcing a tapering on the 
pace of bond purchases month-by-month as the economy continues 
to strengthen.
    I would like you to get into that a little bit. Which 
factors most influence that decision for a gradual change in 
course, and how long do you think it will take the Fed to 
gradually wind down these purchases?
    Mr. Powell. So we actually have not made a decision on 
that, but I would just say this. The most recent data, 
particularly since the November FOMC meeting, show elevated 
inflation pressures, a rapid improvement in many labor market 
indicators without an accompanying addition of labor supply, 
and also strong spending that really signals big, significant 
growth in coming months.
    Remember that every dollar of asset purchases actually adds 
accommodation to the economy, but at this point the economy is 
very strong and inflationary pressures are high, and it is 
therefore appropriate, in my view, to consider wrapping up the 
taper of our asset purchases, which we actually announced at 
the November meeting, perhaps a few months sooner. And I expect 
that we will discuss that at our upcoming meeting in a couple 
of weeks. Of course, between now and then we will see another 
labor market report, another inflation report, and we will also 
get a better sense of the new COVID variant, as well, before we 
make that decision.
    Senator Warner. Let me drill down on that a little bit. I 
mean, clearly I think I was surprised. You say you were 
surprised. I think most of us were surprised that coming back 
in September that we did not see more folks reenter the labor 
force. I believe that tapering and, frankly, accelerating it 
can kind of serve as an insurance policy if we do not see this 
return and we see these potential overheating of the economy. 
So I do hope that you will move more aggressively on this 
tapering.
    I also would like to just touch again, you mentioned some 
of the new variants with COVID. One of the things we have got 
to maintain is some ability to move quickly, and we, obviously, 
Congress moved very quickly under President Trump and Secretary 
Mnuchin, with the outset of COVID. Hopefully we will not have 
to come back to those kind of actions from this entity. But 
with these new variants coming on board, what are the markers 
you are going to look at to determine how that might influence 
Fed activity?
    Mr. Powell. So at this point, I think we are all looking at 
the same thing and we are listening to the experts, which I am 
certainly not one of those. But I talk to those people, and it 
is really about transmissibility, it is about the ability of 
the existing vaccines to address any new variant, and it is 
about the severity of the disease once it is contracted. And we 
do not know. I think we are going to know--what I am told by 
experts is it will know quite a bit about those answers within 
about a month. We will know something, though, within a week or 
10 days. And then and only then can we make an assessment of 
what the impact would be on the economy. As I pointed out in my 
testimony, for now, it is a risk. It is a risk to the baseline. 
It is not really baked into our forecast.
    Senator Warner. I am down on my last 20-odd seconds. I am 
not going to get away without at least raising an issue I 
always raised with Secretary Yellen and I know, Chairman 
Powell, I have raised with you as well, and that is, I think, 
the very smart action that took place again, actually under 
President Trump, on investment in CDFIs and minority depository 
institutions.
    And I want to thank Chairman Brown and people like Senator 
Crapo and so many others, including Secretary Mnuchin, that we 
made that investment,. and you now, Secretary Yellen, are 
implementing that. We have seen a great take-up rate from the 
ECIP program, in terms of tier one capital investment into 
these institutions that hit low- and moderate-income 
individuals.
    I guess, with this demand exceeding the amount of money we 
had, what else can we do to shore up these institutions? And I 
would love to press both of you. Maybe you can take this 
partially for the record since I have gone over, on how we 
might even be able to look at securitization of some of this 
CDFI debt so that we can again, increase the liquidity of these 
institutions. But if you briefly, recognizing I have gone over, 
answer that I would appreciate it.
    Thank you, Mr. Chairman.
    Secretary Yellen. Well, we would be glad to work with you 
to discuss possibilities there. I think that the infusion of 
funds into CDFIs and MDIs, it is historic. It is going to make 
a tremendous difference to their ability to support businesses, 
particularly in minority areas.
    We have seen huge take-up of the ECIP funds that have been 
provided. It is $4 billion over subscribed. We are working 
through applications and we will try to make decisions on 
investments shortly. But it certainly shows that it is a 
program that has the potential to make an enormous difference 
to this lending. We would be happy to work with you to find 
ways to make it yet more effective.
    Senator Warner. I am way over time. If you could just say 
yes, you will work with me too, Chair Powell, that would be 
great.
    Mr. Powell. Yes, I will work with you too.
    Chairman Brown. Senator Rounds, from South Dakota, is 
recognized for 5 minutes.
    Senator Rounds. Thank you, Mr. Chairman. First of all, 
Chairman Powell, congratulations on your renomination. I do 
look forward to supporting your nomination. I think you have 
provided stability during a very challenging time. Secretary 
Yellen, it is good to see you once again, and I thank you for 
your service to our country.
    In September, when you were before this Committee, I asked 
you when you would say enough is enough when it comes to our 
debt and deficit. You acknowledged that debt becomes an issue 
when it exceeds 100 percent of GDP, a level we have already 
hit, as you know. But you said also that since the cost of 
servicing our debt has been negative due to a long stretch of 
low rates, our debt has been less burdensome. However, due to 
skyrocketing inflation, I think it is just a matter of time 
before we exit this very low interest rate environment.
    Secretary Yellen, do you think it is finally time to start 
sounding some alarm bells with regard to the financing of our 
national debt?
    Secretary Yellen. Well, I would not want to sound alarm 
bells. I think that we are in a sustainable debt path, but 
President Biden was very clear when he proposed the Build Back 
Better plan that it should be fully financed as the 
infrastructure bill was. And that is what CBO found, that the 
fiscal plans that the Biden administration have put forth in 
infrastructure and Build Back Better will not worsen the debt 
or deficit path. And indeed, by the end of the 10-year horizon, 
Build Back Better lowers deficits, and it yields very great 
benefits beyond the 10-year horizon, particularly from the 
investment in the IRS to enhance its ability to close the tax 
gap and to collect revenues that are due under our tax code.
    Senator Rounds. Right. But----
    Secretary Yellen. So it is a fiscally responsible plan that 
makes matters better rather than worse.
    Senator Rounds. But Madam Secretary, I guess the reason for 
my question is that it is not just a matter of whether or not 
we have half-a-trillion dollars or so that will have to be 
financed or more during a 10-year time period as that money 
comes back in for paying for programs that are 4 to 5 years in 
duration under the proposal. But rather, we have $29 trillion 
plus that will not only be refinanced during a time period, but 
may very well be refinanced at a higher rate. In fact, 
treasuries right now have run anywhere from 1.54 percent to 
1.42 percent over the last couple of days. But they are going 
to trend upwards, and, in fact, there are some people that 
would suggest that treasuries may very well hit 3.5 percent 
over the next 18 months. Do you think that would be a 
reasonable expectation?
    Secretary Yellen. The forecasts that were included most 
recently in the midsession review assumed that interest rates 
would move up over time over the 10-year horizon in line with 
the forecasts of blue chip and other private sector 
forecasters. And even then, given the expectation that real 
interest rates are likely to remain low, below levels that 
prevailed for much of the postwar period, for important 
structural reasons that we have seen plentiful savings at the 
global level and weak investment demand, even with interest 
rates moving up the interest burden of the debt remains quite 
manageable.
    Now of course there is some scenarios in which interest 
rates could move up more than that and we could be in a 
position--there is a chance that the interest burden would 
become difficult for us to manage. But I believe we could have 
the capacity to make fiscal decisions.
    Senator Rounds. Well thank you, Madam Secretary. And 
Chairman Powell, I recognize, and you have been very consistent 
that you manage based upon your direction, which is full 
unemployment and a 2 percent interest rate goal. But does the 
Fed take into account the impacts on a national debt servicing 
and our credit worthiness when it considers interest rate 
decisions?
    Mr. Powell. I think certainly the cost of programs, it all 
goes into our model. You mentioned credit risk. There is not 
any credit risk baked into treasuries at this time, and I would 
not expect that there would be, certainly in the foreseeable 
future.
    Senator Rounds. When you look at this, do you project that 
treasuries will rise over the next 18 months?
    Mr. Powell. So generally, that is something that staff has 
been forecasting ever since I got to the Fed 10 years ago, and 
it really has not happened. What has happened is that, as the 
Secretary mentioned, you have a series of long-running global 
forces that are leading to lower sustained interest rates. How 
long will they last? It is very hard to say. But for now we 
have lower inflation trend. Obviously, currently at the moment 
we have high inflation, but for many years, we have had low 
inflation, and the markets are baking in that return to lower 
inflation.
    Senator Rounds. Thank you. Mr. Chairman. Thank you for your 
time. Thank you for your answers.
    Chairman Brown. Senator Menendez, from New Jersey, is 
recognized.
    Senator Menendez. Thank you, Mr. Chairman. One of the 
central pillars of the House-passed version of the Build Back 
Better Act is an expanded childcare support program that would 
provide direct support to families so that nobody has to pay 
more than 7 percent of their income on high-quality childcare. 
Madam Secretary, would expanding access to childcare services 
improve the labor force participation rate and overall economic 
outcomes among women?
    Secretary Yellen. Senator, I believe that it will succeed 
in having that impact. One of the reasons that labor force 
participation, especially of women, in the United States is now 
lower than that in many developed countries--once upon the 
time, we were the leader; now we have fallen behind--and a 
major difference between the United States and other developed 
countries is our support for childcare, paid leave, things that 
enable women to participate in the labor market. And so I 
believe the provisions, the subsidies for childcare and the 
universal 2 years of pre-K, both of those things, I believe, 
will enhance labor force participation.
    There are a number of studies that show that. The Treasury 
Office of Economic Policy recently issued a paper that 
summarized some of the evidence. And recently, the 
Congressional Budget Office, in assessing Build Back Better, 
issued a statement that indicated that this was likely to boost 
labor force participation.
    Senator Menendez. Well, let me--I agree. One study suggests 
that the rising costs of childcare resulted in an estimated 13 
percent decline in the employment of mothers with children 
under the age of five. Another study found that when one major 
city started offering 2 years of free public preschool, the 
percentage of mothers with young children participated in the 
labor force increased by 10 percent. So you have real-life 
realities of that.
    And one of the things that I am looking forward to on this 
is the effect on minority families. A study from October in the 
Washington Post showed that Black men and women are twice as 
likely as their White peers to report that they are unable to 
look for work because they cannot find childcare. So there is 
evidence here that the currently broken childcare system's is 
especially harmful, particularly to the most vulnerable members 
of our society.
    Chairman Powell, earlier this month I sent you a letter, 
along with Chairman Brown and several of our Senate colleagues, 
asking you to work closely with the Boston and Dallas board of 
directors and search committees to find and select diverse 
candidates for the open president's position. We have not had a 
Hispanic in this role. Can you give us an update on how that 
search is going, including what specific steps you have taken 
to ensure the diverse candidates are being considered?
    Mr. Powell. Those searches are just getting going now. They 
have, I believe, both hired headhunters and I know the process 
well, and it will involve extensive outreach to all different 
kinds of communities and an openness to different kinds of 
candidates. And it is essential, we believe, that diverse 
candidates be identified and be given every chance to do well 
and win those processes as they go forward. So I can take you 
through the details of it if you would like offline, but it is 
something we are pretty committed to.
    Senator Menendez. I would very much like to see that, 
because as you and I have discussed on several occasions the 
Federal Reserve has a serious diversity problem, particularly 
at the leadership level, and the lack of minority 
representation hurts the Fed's ability to do its job. 
Especially when we talk about promoting maximum employment and 
price stability, it is essential that the Fed has in place 
individuals that understand how an uneven recovery will impact 
minority communities. So I look at this as the beginning of, I 
hope, an effort as it relates to diversity, and I hope we will 
have a successful result, I understand a process that hopefully 
includes good, qualified candidates to be considered, but I 
hope it will lead to a successful result.
    Madam Secretary, let me turn to you on the same question. 
How have you empowered Janice Bowdler, the Treasury's first 
Counselor for Racial Equity, to diversify the Treasury 
Department? This is something that I think I have raised with 
you several times. I would like to understand what her first 
goals will be, what are the immediate goals for the Counselor 
for Racial Equity? Can you speak to me to those issues?
    Secretary Yellen. Yes. Briefly, she is empowered to review 
and look for ways to enhance not only our internal hiring and 
diversity efforts within Treasury, but also to review all of 
the programs that we conduct, whether it is the emergency 
programs that were authorized by the ARP or our tax code and 
the way it is administered more broadly. We have asked her to 
undertake a review of ways in which these programs can be 
changed, or if they may have unintended negative consequences 
on diversity or on minority communities, and we are asking her 
to look for ways to improve what we do, both internally at 
Treasury, and with respect to the many programs we conduct. 
Senator Menendez. Well, I look forward to seeing the effects of 
her work. Thank you, Mr. Chair.
    Chairman Brown. Thanks Senator Menendez.
    Senator Tillis is recognized from his office, perhaps. He 
may have turned his camera off.
    Senator Kennedy from Louisiana is recognized.
    Senator Kennedy. Madam Secretary, welcome. Mr. Chairman, 
welcome. Congratulations.
    Mr. Chairman, I want to start with you. I realize that no 
one is clairvoyant, but I think it is fair to say that the 
experts who have been advising you about the future rate of 
inflation have pretty much the same credibility as those late 
night, psychic hotlines you see on TV. Is the Fed considering 
increasing the pace of its tapering? We have got to get control 
of inflation. It is ravaging our people.
    Mr. Powell. So I think what we missed about inflation was 
we did not predict the supply side problems, and those are 
highly unusual and very difficult, very nonlinear, and it is 
really hard to predict those things. But that is really what we 
missed, and that is why all of the professional forecasters had 
much lower inflation projections.
    You asked about the taper, so yes. As I mentioned earlier, 
since the last meeting, we have seen basically elevated 
inflation pressures, we have seen very strong labor market data 
without any improvement in labor supply, and we have seen 
strong spending data too. And remembering that every dollar of 
asset purchases does increase accommodation, we now look at an 
economy that is very strong and inflationary pressures that are 
high. That means it is appropriate, I think, for us to discuss 
at our next meeting, which is in a couple weeks, whether it 
will be appropriate to wrap up our purchases a few months 
earlier, as I mentioned.
    Senator Kennedy. All right, thank you.
    Mr. Powell. But in those 2 weeks we are going to get more 
data and we are going to learn more about the new variant.
    Senator Kennedy. OK. Thank you, Mr. Chairman.
    Madam Secretary, you and I do not agree on everything, but 
I have great respect for your intellect and your experience. 
And I understand you have a job to do, but I would be remiss if 
I did not point out that in my opinion there is no fair-minded 
person in the Milky Way who believes the infrastructure bill 
and the Build Back Better bill are not going to require the 
American people to incur substantial debt.
    Now, here is my question, and I am looking for a number. 
How much, in the Biden administration's opinion, is too much 
debt? At what point as you incur debt will the Biden 
administration say, ``OK, that is it. We cannot borrow anymore, 
or it is going to hurt the American people''?
    Secretary Yellen. Well, first of all, I want to say that I 
disagree with your assessment of Build Back Better. It is fully 
paid for, or even more than fully paid for, and CBO just 
completed a comprehensive review of it in which they found 
essentially the same thing. And I believe it was important that 
it be fully paid for.
    Now, I think no single metric is appropriate for evaluating 
whether or not the level of debt in an economy is reasonable 
and sustainable. And we used to, we are accustomed to looking 
at debt-to-GDP ratios and using those kind of metrics and 
looking around the world. Many economists have found that debt-
to-GDP ratios of 100 or more tend to be associated with 
significant problems.
    Senator Kennedy. Are we at 100 and more?
    Secretary Yellen. We are, but we are in very different 
times and that is why it is important to recognize there is no 
single metric that is right. And especially in a world of very 
low interest rates, it is appropriate to look at the burden of 
that debt on society, which is better measured by the real 
interest burden of the debt. And that is exceptionally low, 
negative currently, but projected as interest rates normalize 
to rise to----
    Senator Kennedy. I am going to run out of time.
    Secretary Yellen. It is still----
    Senator Kennedy. I am going to ask you this, Madam Chair, 
quickly. You gave a great speech back in September of 2019. It 
was actually an interview, and I ordered a copy at the time. 
And I am trying to find my copy here. You said--this is what 
you said. I am going to quote. I thought this was such a wise 
statement.
    You said, ``The former Fed chair said she is not worried 
about the debt to gross domestic product ratio in the United 
States right now,'' but added, and I quote, ``I am worried 
about the trajectory of where it is going. It is not stable. We 
are not living within our means right now. Debt is going to 
escalate and that is going to create problems down the road. 
But then most important is the demographic wave that lies ahead 
of us is going to essentially, over the next 30 years, double 
spending on three programs: Social Security, Medicare, and 
Medicaid as a share of GDP. And the increases, both because of 
the aging population and on the healthcare side, medical 
expenses, those things put us on a trajectory of a completely 
sustainable budget path.''
    Now that was when the debt was $17 trillion. It is 29 
trillion. You are going to add trillions more through the Build 
Back Better. Why is that not true today?
    Secretary Yellen. Well, I want to repeat again, Build Back 
Better is fully paid for and will not add to the debt or to 
deficits. In fact----
    Senator Kennedy. You and I just do not agree on that.
    Secretary Yellen. ----it can reduce it.
    Senator Kennedy. I understand.
    Secretary Yellen. CBO certainly agrees with what I said. 
And, I mean, we do have problems eventually in financing 
Medicare and Social Security, which need to be addressed.
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Brown. Senator Van Hollen is recognized for 5 
minutes, from Maryland.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank both of 
you for your service. Chairman Powell, congratulations on your 
renomination.
    And Secretary Yellen, I really want to pick up just where 
you left off. I remember 3 years ago, in both this Committee 
and the Budget Committee, talking about the Republican tax 
breaks for big corporations. At that time, the Congressional 
Budget Office did assess that it would add $2 trillion to the 
deficit. Is that not true?
    Secretary Yellen. That is my recollection that that was the 
kind of number that----
    Senator Van Hollen. That was the CBO score.
    Secretary Yellen. Yes.
    Senator Van Hollen. So it is interesting to hear so many of 
my colleagues who, 3 years ago, did not give a damn about 
adding $2 trillion to the debt, now talking about the Build 
Back Better bill, which as you said does not add to the debt at 
the end of the 10 years. In fact, the Congressional Budget 
Office has already done its analysis. And one of the ways that 
it does not add to the debt is that we close some of those 
big----
    Secretary Yellen. Yes.
    Senator Van Hollen. ----tax breaks from multinational 
corporations who like to park their profits in tax havens. And 
we got rid of some of the incentives in that bill that actually 
encouraged U.S. companies to ship jobs and equipment overseas. 
Isn't that the case?
    Secretary Yellen. That is the case.
    Senator Van Hollen. And can you talk also about out your 
efforts, your successful efforts to establish a sort of 15 
percent global minimum rate in order to prevent the race to the 
bottom?
    Secretary Yellen. Yes. Over decades, what we have seen is 
that countries have been engaged in a race to try to attract 
more multinational firms to do business in their countries by 
cutting corporate tax rates. And if you look at the pattern 
across the globe you see the corporate tax rates have simply 
been trending down. The consequence of that is that 
corporations have paid less and less tax in the United States 
and elsewhere. They have won from this competition, and 
countries like the United States and other countries are 
raising less and less money through taxation on corporations.
    In the United States, corporate taxes have fallen to around 
1 percent of GDP as a consequence of this. And this 
international tax agreement that has been endorsed by, I think, 
137 countries, countries have agreed to hold hands and say, 
``Enough is enough. We need to raise taxes to support 
infrastructure spending, to support investment in people, to 
make our economies productive to grow over time. And 
corporations that are profitable and successful need to pay 
their fair share.''
    So we want to be able to tax companies at a reasonable rate 
and to stop this race to the bottom. And that is what the 15 
percent global minimum tax achieves.
    From our point of view, the difference--we are the only 
country right now that has a global minimum tax, and our tax is 
10.5 percent. It is half what companies that operate only in 
the United States or multinationals pay on their U.S. income. 
And that big differential really encourages multinational 
companies based in the U.S. to shift their profits abroad. So 
by raising our own rate from 10.5 to 15, we narrow that 
differential. We help just purely domestic firms that right now 
are on an unfair, unlevel playing field versus multinationals 
that can shift their activities abroad in the global agreement, 
boost competitiveness----
    Senator Van Hollen. Thank you, Madam Secretary. I think it 
makes common sense and it is important for U.S. businesses.
    There is also a provision in the bill that says folks who 
are making more than $10 million every year should pay a little 
bit more in U.S. taxes. I think that makes sense to most people 
around the country in order to help the whole country succeed. 
And you mentioned some of the items that we are going to then 
invest those funds in. It is fully paid for, including lowering 
childcare costs, saying that no families should pay more than 8 
percent on childcare costs. That is one of the items, right?
    Secretary Yellen. Yes.
    Senator Van Hollen. And there is also, as you mentioned, 
the provision with respect to the child tax credit. This is one 
of the largest tax cuts for middle- and lower-income families 
ever. Is it not?
    Secretary Yellen. Yes.
    Senator Van Hollen. And we are talking about up to $3,600 
per year, per child, per family, which will expire on December 
31st if we do not extend it as part of the Build Back Better 
legislation. Isn't that the case?
    Secretary Yellen. That is true.
    Senator Van Hollen. So we are talking about closing 
corporate tax loopholes, asking folks who are making more than 
$10 million a year to pay a little bit more, so that we can 
lower costs and financial squeeze on American families, and it 
is all paid for. Isn't that right?
    Secretary Yellen. That is correct.
    Senator Van Hollen. Thank you, Madam Secretary. Thank you, 
Mr. Chairman.
    Chairman Brown. Thank you, Senator Van Hollen. Senator 
Tillis is recognized.
    Senator Tillis. Thank you, Mr. Chair. Secretary Yellen, 
Chair Powell, thank you for being here. Chair Powell, I am glad 
to see your nomination has been sent forth. I look forward to 
supporting your confirmation.
    This may actually be a legitimate yes-no question. It is on 
LIBOR transition. Do you all both agree that Congress needs to 
provide a solution to effect the LIBOR transfer, possibly using 
SOFR for legacy contracts, but optionality moving forward?
    Mr. Powell. Yes.
    Secretary Yellen. Yes.
    Senator Tillis. Great. Chair Powell, you noted the PCE was 
risen by 5 percent of the last year with energy and rent prices 
pushing inflation upward, in particular. I want to make sure I 
understand your perspective on inflation and how it is 
calculated by the Fed. If the Federal Government provides 
subsidies to every American renter so their out-of-pocket rent 
was the same as it was 12 months ago, even though the sticker 
price on the rental unit has gone up, would that mean the Fed 
would see no inflation of rents?
    Mr. Powell. I am not sure exactly how they collect the 
data, but I think the question would be, what is the landlord 
receiving, would be my guess.
    Senator Tillis. Right. So----
    Mr. Powell. I do not know the answer to that.
    Senator Tillis. ----the landlord is receiving more in spite 
of the fact that that rent payment would have been subsidized--
--
    Mr. Powell. I do not know the answer. I will come back to 
you. I do not know the answer on that. Yeah.
    Senator Tillis. Chair Powell, what would be--I am sorry. 
Secretary Yellen, what would be your position?
    Secretary Yellen. I would agree with Chair Powell's 
comments on that.
    Senator Tillis. I think it would be interesting to get 
that. You know, we were going to use another example. If turkey 
prices went up for 14 percent, I think that is roughly the 
number at Thanksgiving, and we subsidize the cost of the 
turkey, is the turkey cheaper or is it 14 percent more 
expensive? So I would like for you to get back with me on that, 
Chair Powell.
    Chair Powell, I have got another question for you. We had 
the original COVID virus. We have had Delta. We have had some 
variants have not been designated as a variant of concern. We 
have got Omicron now, which is being viewed as a variant of 
concern. And after that we will have maybe a Pi variant. But I 
am a bit worried that the Administration has a policy of just 
zeroing out COVID, that the goal here is to remove a virus that 
is likely to be around for as long as we are alive. It is going 
to be like a flu season. But I feel like we are still in this 
mode where monetary policy or Fed policy is heavily instructed 
by the risk of another onslaught of a virus. We took the first 
wave. Now we are dealing with subsequent waves that are 
variants.
    So at what point do we just get back to a more normal 
execution of Fed policy that is not influenced by maybe the 
next threat, as if it is suggesting we are going to go back to 
where we were last year? I do not believe that most people 
think that we would treat a variant the way we had to treat 
this new virus that is among us.
    So at what point can we get away from seeing the market, 
seeing the Fed appear to react based on, and implement policy 
that looks more like what we had to do last year with something 
new affecting our economy?
    Mr. Powell. You know, so we are not thinking, and I am not 
thinking that the effects on the economy will be remotely 
comparable to what happened last March with the shutdowns or 
that there will be additional shutdowns. We have tried to 
adapt. We are focused on maximum employment and price 
stability, and we have tried to adapt our policy as we have 
moved along. We will continue to do that.
    And, you know, part of the world is--I agree with you--we 
are going to see this disease being around probably for a long 
time. I think the economic effects over time will diminish. We 
have to be humble about our ability to predict this or to 
really understand. But we are not at all thinking that we have 
not made progress on the economy, as you suggest.
    Senator Tillis. Well, I think it would be helpful for the 
Administration to maybe be more specific to the American people 
to understand that COVID is going to be among us. It is a new 
virus. It is going to be here and we have to deal with it. We 
cannot have talk or expectations that we would in any way react 
the way we did last year. Last year, rightfully, but now we 
have to deal with the fact that it is among us.
    Secretary Yellen, I will have to--first, I would like 
unanimous consent for a Washington Post FactCheck on the 
economists, that Nobel winners, that President Biden has cited 
as the Build Back Better plan actually being noninflationary. I 
think if you read further into the letter, and you hear other 
comments by those economists, they say that longer term, it may 
reduce inflation, but shorter term, it may increase inflation.
    And so rather than drilling down on a question--my time is 
expired--I would like unanimous consent to submit the 
FactCheck.
    And just to say, Secretary Yellen, I think that there are 
laudable goals in some of what is put into the Build Back 
Better plan, but I do not think that they are sustainable. I 
think the way that they have been passed out of the House are 
problematic. And I tend to agree with Senator Kennedy that we 
have got other pressing problems, promises that we have already 
made to the American people with respect to Medicare, Medicaid, 
Social Security, that are promises that we have already made, 
that if we continue to add more and more stressors on our debt 
and our deficit, those are going to be promises that are 
broken. And then once we get that on sound footing, maybe we 
should consider other ways to help others.
    Chairman Brown. Without objection, so ordered.
    Senator Warren, from Massachusetts, is recognized.
    Senator Warren. Thank you, Mr. Chairman.
    So as you know, in the early 2000s, the Fed stood by and 
failed to use its authorities to regulate and supervise the 
biggest banks in this country. And the result was a financial 
crash that cost millions of families their jobs, millions their 
homes, millions their savings. That is why I believe that 
vigilant regulation is an essential part of the Fed's job.
    Chair Powell, you recently stated that it would be 
appropriate, quote, ``for a new person to come in and look at 
the current state of regulation and supervision and suggest 
appropriate changes,'' end quote. Is that still your position?
    Mr. Powell. Yes, it is.
    Senator Warren. The press also reported this as your 
agreement to defer to the Vice Chair for Supervision. So I want 
to ask you a specific example of how that deference would work 
in practice. If you are confirmed and if the new Vice Chair for 
Supervision suggests a regulatory action that you disagree 
with, will you bring that matter before the full Federal 
Reserve board for consideration?
    Mr. Powell. So let me just say that what the law does is 
the law gives the Vice Chair for Supervision the authority to 
set the regulatory and supervisory agenda. And I would expect 
to have a perfectly normal, good, constructive working 
relationship with a new Vice Chair for Supervision. I would not 
see myself as stopping those kinds of proposals from reaching 
the Board since the law seems to indicate that that is the job 
of the Vice Chair for Supervision.
    Senator Warren. Good. I am just trying to be clear on your 
understanding of it. So you would bring that before the full 
board for consideration, even if you personally disagree?
    Mr. Powell. You know, that would be my general intent, yes.
    Senator Warren. OK.
    Mr. Powell. Yes. I mean, I cannot cover every possible 
conceivable situation, but yes. That is my understanding of 
how--this the only other office that has specific legislative 
grant is the Vice Chair for Supervision, and that is what the 
job is.
    Senator Warren. OK. I appreciate that. So you are saying 
you would do it and you would actually feel like you were 
legally bound to do it.
    Mr. Powell. I would say that is how I read the law.
    Senator Warren. OK. If the Vice Chair for Supervision 
recommends a regulatory action with which you disagree, such as 
undoing a rule that Vice Chair Quarles brought forth and that 
you voted in favor of it, what does it mean to defer under such 
circumstances? I just want to understand your thinking here.
    Mr. Powell. I do not think I used the term ``defer.'' You 
mentioned that was a press report.
    Senator Warren. Yeah.
    Mr. Powell. You know, we are a commission structure. The 
person is not the Comptroller of the Currency where they are 
the sole voice. Every Vice Chair for Supervision and those who 
held the job before there was a formal job, they have to 
convince the other members of the Board and that is how it 
works, and that is how I would expect it to work going forward.
    Senator Warren. And I appreciate that. But your specific 
language was that you would respect that authority, which is I 
believe why many, many in the press interpreted that as defer. 
That is why I am trying to understand what respect that 
authority--those were your words--means.
    Mr. Powell. You know, I would say a couple things. First, 
respect the authority to bring these proposals. I also think a 
person who arrives, nominated by the President, confirmed by 
this body, with particular views, I would say that that person 
is entitled to a degree of deference, but I would not overstate 
that. The person still will have to convince the members of the 
Board to vote for whatever that person is proposing.
    Senator Warren. OK. And then, if I can, just one more 
example. If the person in this role proposed new capital 
requirements to incorporate banks' exposure to climate risks, 
would you vote for that?
    Mr. Powell. Would I vote for that? I would have to see what 
you are really specifically talking about.
    Senator Warren. All right. It is very helpful. I appreciate 
your answers here.
    You know, during the last 4 years, while the Fed was 
chipping away at regulations piece by piece, new and emerging 
threats to our financial system continued to grow. I just think 
about the list right now. Climate change--right now, climate 
change is on pace to depress the global economic output by as 
much as $23 trillion annually by 2050. Crypto--the market cap 
of cryptocurrency market is now $3 trillion, six times bigger 
than it was just a year ago. And this is explosive growth that 
is coupled with almost no regulation and no guardrails to 
protect either investors or our financial system.
    The crash scenario here writes itself. Nonbank financial 
institutions grow bigger by the day. BlackRock alone manages 
nearly twice as much money as the entire economy of Japan while 
the Fed refuses to work to declare them a systemically 
significant financial institution.
    Growth and collateralized loan obligations, a new COVID 
variant, the list goes on. This is why I believe that the Fed 
must take a much more active role on regulation. Failure to do 
so puts our entire economy at risk.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Warren.
    Senator Hagerty, of Tennessee, is recognized.
    Senator Hagerty. Thank you, Chairman Brown, Ranking Member 
Toomey. I appreciate your holding the hearing today. Secretary 
Yellen, Chair Powell, thank you for your testimony. Chair 
Powell, I want to congratulate you on your recent renomination. 
I look forward to the hearing that is coming up. I also 
appreciate that we are going to be seeing the Fed's report on 
the digital dollar soon. We have been long awaiting that. I 
think it is an opportunity for America to take a real lead in 
innovation. So thank you for that.
    Secretary Yellen, I would like to pose my first question to 
you. Every move that President Biden has taken so far has 
seemingly improved Russia and Vladimir Putin's strategic 
position. From capitulating on the New START treaty's 
unconditional extension to not fully enforcing mandatory 
sanctions to halt Nord Stream 2, we see Russia and Putin now 
with leverage and strength, vis-a-vis our partners in Ukraine, 
that they have not had since the fall of the Soviet Union. 
Natural gas prices in Europe have been soaring to Putin's 
benefit. And now, in real time, just like watching a fatal car 
crash in slow motion, we are seeing Russia buildup an 
unprecedented number of troops on the border of Ukraine.
    Secretary Yellen, I want to make certain that you have all 
the authority that you need from Congress to deter, and if 
necessary, to punish Putin if Russia invades Ukraine. After 
what happened in 2014, we certainly cannot be caught flatfooted 
again.
    Secretary Yellen. We do have authority to impose sanctions. 
We have imposed sanctions, and the President signed in, I 
believe it was in April, a new Executive order expanding 
Treasury's authority to impose sanctions. And we are aware of 
the troop buildup and I believe have adequate authority to----
    Senator Hagerty. Good.
    Secretary Yellen. ----act at least on these sanctions.
    Senator Hagerty. Madam Secretary, I am pleased to hear that 
you have the authorities that you need to pose significant 
economic and financial pressure. I am curious to hear what the 
Biden administration's strategy is to stop this train wreck 
that appears to be happening at the border of Ukraine.
    Secretary Yellen. Well, we are very cognizant of what is 
happening and are involved in discussions about what the 
appropriate set of steps will be.
    Senator Hagerty. Madam Secretary, with all due respect, I 
hope that we can talk much more than discussions about real 
strategy to send a very strong message to Putin. This is the 
largest buildup that we have seen again since the fall of the 
Soviet Union. They are taking a very aggressive posture there, 
and I would encourage you to send a strong message to Vladimir 
Putin that we are going too, we are capable of, and you have 
the authority to do what you need to put significant, biting 
financial pressure on that regime.
    Secretary Yellen. Agreed that that is appropriate.
    Senator Hagerty. Thank you. Secretary Yellen, I will turn 
to another topic that we have discussed before. Back in 
September, we talked about the leak of confidential taxpayer 
information to ProPublica that was done in early 2021, for 
political purposes. You testified then that it is an illegal 
act, that it is being investigated thoroughly, and there cannot 
be any tolerance for that. You and I agreed on that. So given 
that testimony, I want to ask you; have the leakers been 
identified?
    Secretary Yellen. There are independent agencies, both 
within Treasury, the inspector general, also the FBI and DOJ 
that are conducting investigations. We are not privy. Nothing 
has been reported out yet from those investigations that I am 
aware of, but I believe those investigations are moving 
forward.
    Senator Hagerty. Well, I take that as no update, but after 
the Lois Lerner scandal, after the scandal that occurred here 
in 2021, under this Administration's watch, I appreciate the 
fact that there is an investigation underway, but I would say 
this. Until we have the results of that investigation, until we 
have true accountability, I cannot imagine how the Biden 
administration is encouraging what is in effect a 10-times 
increase in the audit capacity of the IRS when there is no 
accountability there. This is the D.C. swamp at its best.
    Secretary Yellen. Sir, we do not know what the source of 
the leak of that information was, and I would say it is 
premature to indicate that it came from the IRS.
    Senator Hagerty. Well, I think that underscores my case. We 
cannot even determine the source of the leak. We know that was 
IRS information. There is zero accountability. Again, this is 
the swamp and I could not encourage, and certainly my 
constituents cannot condone this aspect of the Build Back 
Better plan that would give even more authority and a tenfold 
increase in the budget to snoop on more Americans, audit more 
Americans and invade our privacy.
    Secretary Yellen. Sir, we have an enormous tax gap. Over 
the next decade, it is estimated that actual tax collections 
will be $7 trillion below what is due. And the IRS has been 
starved of resources over the last decade, so that they are not 
able to conduct meaningful audits of either high-income 
individuals or complex partnerships or corporations. And that 
is where most of the tax gap lies. These are very important 
resources that are needed to make sure that the wealthiest 
individuals and corporations particularly comply with the tax 
laws and pay their fair share what is due.
    Senator Hagerty. I would just----
    Chairman Brown. Thank you. Thank you.
    Senator Hagerty. ----encourage good management here, so we 
make sure those resources are focused in the direction they 
should be rather than attacking conservative groups and 
ordinary Americans and leaking that information to the public. 
Thank you.
    Chairman Brown. Senator Cortez Masto is recognized, from 
Nevada.
    Senator Cortez Masto. Thank you Mr. Chairman. Secretary 
Yellen, Chairman Powell, welcome. Chairman Powell, 
congratulations on your renomination.
    I also want to express my appreciation to the Treasury 
Department and Federal Reserve staff because we cannot forget 
why we are here. We have passed, over the last couple of years, 
several COVID relief packages that were bipartisan supported, 
except maybe for one of them, and the money was immediately put 
out to help our families, our businesses. And so your staff 
have taken extraordinary efforts not only to avoid an economic 
collapse during this deadly COVID-19 pandemic, but getting 
billions of dollars in relief and loans to help us manage the 
economy, help our small businesses, help families, is a 
tremendous feat, and we should not forget that. So, thank you 
to your staff who have worked so hard as well.
    Let me talk about something that is impacting my State is 
the supply chain disruption, and I know you all are working on 
this. Secretary Yellen, President Biden announced a plan to 
address the supply chain disruptions. Now it is clear that the 
low vaccination rates, repeated outbreaks, and an over-reliance 
on Chinese imports contributes to some delays in shortages, but 
Secretary Yellen, where has President Biden's initiatives to 
address supply chain disruptions been successful, and where are 
some of the current sticking points that might persist past the 
second half of next year?
    Secretary Yellen. Well, President Biden, the 
Administration, created a Supply Chain Disruption Task Force in 
June, and it has been working broadly to identify places where 
the White House could make a contribution, could be effective. 
And I think we are beginning to see progress at the ports.
    As you know, President Biden worked with the Ports of Los 
Angeles and Long Beach, where there have been long delays in 
unloading ships, ships waiting for many days to be able to 
offload their containers. They have agreed to remain open 24/7, 
which they are now doing. And also, the Administration has 
worked with major retailers that were leaving containers for 
long periods time on the docks without picking them up, to make 
sure that they begin to expedite movement of those containers 
away from the ports.
    In other areas, in Savannah, the President has worked to 
establish locations away from the ports where containers could 
be brought, moved, and deposited to create more room at the 
docks to keep cargo moving.
    And so there are just a wealth of interventions and working 
really with private sector--because these are private sector 
participants that are responsible for the supply chain, but 
bringing together parties. We are looking at ways that maybe we 
could work with States and cities to expedite the licensing 
commercial driver's license to raise the supply of truck 
drivers, which are in short supply.
    And of course, a lot of this is related to the pandemic, 
and it comes back to increasing vaccinations, boosters, get the 
pandemic under control so that demand patterns shift back 
toward more normal, toward services and away from goods. But 
there are a wealth of interventions that the White House is 
involved in.
    Senator Cortez Masto. No, I appreciate that. I think there 
is also a role for Congress to continue to support not only the 
Administration, but there is legislation that we could pass to 
actually help us address this as well, which is why I support 
the Supply Chain Resiliency Act that has been introduced by me 
and several of my colleagues. It creates an Office of Supply 
Chain Resiliency at the Commerce Department, charged with 
monitoring, researching, and addressing vulnerable supply 
chains. The office will provide loans, loan guarantees, and 
grants to small and medium manufacturers to allow them to 
address supply chain bottlenecks by expanding production. We 
should be prepared for this, knowing this has happened for the 
future short-term and long-term. And so I appreciate your 
comment.
    Secretary Yellen. Long term is important as well.
    Senator Cortez Masto. Thank you. I know my time is up. I 
will submit the rest of my questions to you for future response 
as well. Thank you again.
    Chairman Brown. Thanks, Senator Cortez.
    Now, Senator Scott, from South Carolina, is recognized.
    Senator Scott. Thank you, Mr. Chairman, and thank you, 
Ranking Member, for holding this hearing this morning. Thank 
you to the guests for being here with us this morning.
    I was thinking about the conversation I had over 
Thanksgiving with some South Carolinians about the consequences 
of elections, and we have heard over and over again that 
elections have consequences. Elections have consequences.
    But perhaps no finer point that elections have consequences 
is simply losing a single seat in Georgia, January 5th. The 
result of one lost seat in Georgia may cost taxpayers just this 
year $5 trillion in additional spending. One single seat, $5 
trillion in additional spending; $1.9 trillion on a COVID 
relief package that had 1 percent for vaccines and less than 9 
percent for COVID related health; $1.2 trillion for an 
infrastructure package with only 10 percent of that $1.2 
trillion going to roads and bridges in the next 5 years, and 
now we are talking about overheating the economy with another 
$2 trillion. Elections have consequences. It is stunning.
    And what I have heard this morning is hard to process back 
at home in South Carolina. What I have heard so far is that the 
Administration wants you to believe what they say and not what 
you see and are experiencing, what you see with your own eyes. 
They say by putting another $2 trillion in the economy, it will 
make things more affordable for you.
    But what you see and are experiencing is inflation in part 
caused by trillions of dollars of Government spending and the 
anticipation of even more money. In other words, when inflation 
is over 6 percent and your wage growth is under 3 percent, your 
buying power is going down, not up. And they want you to 
believe that spending more money is going solve this problem.
    But South Carolinians on a fixed income, like Social 
Security, averaging around $1,500 per month, they are spending 
because of this transitory inflation--I do not know what the 
definition of ``transitory'' is anymore--a third of their 
Social Security income on putting gas in their cars, heating 
their houses, and fixing up the places they live in.
    Chairman Powell, is it your impression that the Biden 
administration has a clear understanding that rising prices are 
hitting people the hardest who are on Social Security, families 
struggling paycheck to paycheck, and single moms?
    Mr. Powell. It is not appropriate for me to comment on what 
the Biden administration thinks.
    Senator Scott. What do you----
    Mr. Powell. I will say that we do.
    Senator Scott. Well, let me ask you this.
    Mr. Powell. I can talk about what I----
    Senator Scott. What do you think, in 30 seconds or so?
    Mr. Powell. So, I think that is right. If you think that if 
you think about families that are living paycheck to paycheck, 
they are feeling high gas prices, soon enough heating, oil 
prices, food prices. They are certainly feeling that. And, you 
know, this is our job. Our role is to make sure that this 
higher inflation does not become entrenched.
    Senator Scott. And part of the challenge that I see--I know 
that someone else may address this point, but I was trying to 
figure out the complexity of the labor force participation 
rate, and the fact of the matter is that since the pandemic, we 
have seen a loss of about 1.7 percent of the labor force 
participation rate. We celebrate a 4.6 percent unemployment 
rate, but what we sometimes miss is the fact that when you have 
fewer people looking for work, your unemployment rate goes down 
because your long-term unemployment goes up, which means that 
your labor force participation rate also goes down.
    Before I run out of time, let me just follow up on Senator 
Hagerty's points about expanding the power of the IRS and your 
response, Secretary Yellen. Giving the IRS more power to catch 
tax cheats by starting with the IRS bank reporting proposal 
seems farfetched, at best, because the original proposal 
literally said that if you were a successful lemonade stand 
operator, making 12 bucks a week, putting $600 into your 
checking or savings account, your checking account, would cause 
that account to be reported to the IRS. So then they revamped 
that proposal to $10,000, said differently, if you are making 
minimum wage, working almost full-time, your accounts would 
then also be transferred or at least available for heightened 
inspections by the IRS.
    If you are looking to catch complex business partnerships 
in cheating their taxes, you do not need the IRS bank reporting 
proposal. Can you tell the American people today, Secretary 
Yellen, whether you still support any form of the IRS bank 
reporting requirements your Department proposed earlier this 
year, which would provide the IRS with currently undisclosed 
taxpayer information for the purpose of targeting essentially 
every single working American at minimum wage or higher? Do you 
still support that or not?
    Secretary Yellen. I do support it. I think it is important 
that the IRS have visibility into opaque income streams, and 
that is an important way of improving tax compliance. And it is 
not----
    Senator Scott. Secretary Yellen, let me ask a question.
    Secretary Yellen. ----it is not----
    Senator Scott. Let me ask you a question. Reclaiming my 
time. Let me ask you a question. Because if you are looking to 
catch tax cheats, why in the world would we start with 
something as low as $600 and then revamp it to $10,000? If you 
are trying to find millionaires and billionaires, they are not 
running lemonade stands--I do not think they are--and they are 
certainly not making minimum wage. So when you create a new 
approach to having the IRS search through our account records 
at our financial institutions, or----
    Secretary Yellen. I am sorry. It is not searching through 
anybody's----
    Senator Scott. ----or compelling our financial institutions 
to forward our information to the IRS----
    Secretary Yellen. I am sorry. It is not detailed 
information about what you are doing in your bank account. It 
is too----
    Senator Scott. Aggregated information going to the IRS is 
the scariest proposal, and there is no way that it has to be 
anywhere near the thresholds that you have started with in 
order to find a way to----
    Secretary Yellen. We----
    Senator Scott. ----take accountability for those complex 
organizations.
    Secretary Yellen. We----
    Chairman Brown. Senator Scott, your time has expired. 
Secretary Yellen, please answer the question.
    Secretary Yellen. We have worked----
    Senator Scott. Well, Chairman, if we are going to have a 
conversation, we are going to have the dialog.
    Chairman Brown. Well, you have had the dialog. Please----
    Secretary Yellen. We have worked carefully with Congress to 
narrow the scope of the reporting, and in particular to exempt 
wage earners and Federal beneficiaries. The initial proposal 
was intended to be comprehensive. The requirement asked for 
exactly two pieces of information, aggregate inflows and 
aggregate outflows over the course of a year for each account 
where financial institutions already report interest income 
earned if it exceeds $10. The burden on financial institutions 
was minimal and there was no attempt to target income earners 
whose actual incomes are below $400,000. But the low reporting 
requirement was meant to make evasion more difficult by open 
multiple accounts.
    Chairman Brown. Thank you.
    Senator Ossoff, from Georgia, is recognized.
    Senator Ossoff. Thank you, Mr. Chairman. Thank you to our 
witnesses. Chair Powell, congratulations on your renomination.
    The Fed, as has been noted, is beginning to taper its bond 
buying program, but the program is scheduled to continue 
through mid next year. We are talking about approximately $100 
billion in November, around $90 billion in December, according 
to the current schedule that we have seen created by the Fed, 
injected into capital markets via asset purchases.
    Chair Powell, what specific economic purposes does this 
bond buying continue to serve?
    Mr. Powell. So, we are actually, at our next meeting in a 
couple of weeks, going to have a discussion about accelerating 
that taper by a few months, and in the intervening time, we 
will see more data on inflation, on employment. And also, we 
will see more about the development of the Omicron variant.
    You know, the purpose at the very beginning was all about 
market function, and the purchases did a great job of restoring 
market function. When we continued the program and said we 
would continue it until substantial further progress was made, 
the idea was to continue to support the economy in the way that 
lower longer-term interest rates do. And it served that 
purpose. Now the economy is strong and inflationary pressures 
are high. So we are going to discuss the possibility of a 
faster conclusion and wrap up those purchases a little earlier.
    Senator Ossoff. With aggregate demand quite strong, in 
fact, demand currently exceeding supply of labor and durable 
goods in certain markets, as you noted, rates are low, capital 
markets are highly liquid. So what economic purpose--and I am 
not disputing that there is one, but what economic purpose does 
this continued bond buying serve today and in the months to 
come, recognizing that as you have stated, you and your 
colleagues will be reassessing the pace of the taper at your 
December meeting?
    Mr. Powell. So the purpose it has been serving lately, for 
the most part, has just been supporting economic activity. And 
you are absolutely--you know, the point I am making is that the 
need for that has clearly diminished as the economy has 
continued to strengthen, as we have seen continued significant 
inflationary pressures, and that is why we announced that we 
would taper, and it is why we are now saying that we are going 
to discuss a somewhat faster taper at our next meeting.
    Senator Ossoff. When future crises arise, as they no doubt 
will, this specific method, quantitative easing bond purchases 
beyond typical Federal open market operations which are 
targeting interest rates, what have been the costs and benefits 
of utilizing this technique? Does it not, for example, while it 
provides additional liquidity to capital markets, worsen 
inequality by driving up equity and asset valuations and 
shifting more cash onto the balance sheets of major financial 
institutions, high net worth individuals, and investors?
    Mr. Powell. So I think the record from this and the last 
episode is that asset purchases work through much the same 
channels as regular interest rate changes. Just the difference 
is when you are at the effective lower bound you cannot lower 
interest rates anymore. What do you do? There are two things 
you can do, really. You can promise to hold rates lower for 
longer, and that will affect rates out the curve, and then you 
can actually go ahead and buy bonds directly, and that lowers 
long-term rates. That supports economic activity.
    So it is part of the toolkit. As long as we are going to be 
near the effective lower bound, asset purchases will be part of 
the toolkit.
    You know, the inequality point, I think, it does not bear 
up under scrutiny. Essentially, what is happening is companies 
are experiencing lower longer-term rates. That enables them to 
finance their operations, mortgage rates. The longer-term debts 
in our economy will benefit from those lower long-term rates 
and support economic activity through many of the same 
channels. I think that the idea that they promote inequality is 
not well-supported. And, by the way, we never hear about that 
from the--you know, we meet with community groups and labor 
unions, and they never come in and complain about quantitative 
easing.
    Senator Ossoff. Thank you for sharing your point of view, 
Chair Powell. With my remaining time, I would like to ask you 
what you currently assess to be the most significant systemic 
threats to financial stability in the United States.
    Mr. Powell. You know, I would say the banking system is 
strong. There are some issues to address in the capital 
markets, but I would not say they rise to the level of grave 
systemic importance. We always think about cyber risk as being 
the one that is so difficult to quantify and for which it is 
hard to have a great playbook. So that is the one that I tend 
to lose sleep over.
    Senator Ossoff. Thank you, Chair Powell. Thank you, Mr. 
Chairman.
    Chairman Brown. Senator Daines, of Montana, is recognized 
for 5 minutes.
    Senator Daines. Chairman, thank you. Secretary Yellen, 
Chairman Powell, thank you for being here as well, and 
congratulations, Chairman Powell, on your renomination. I was 
vocal and out front last August supporting your nomination, and 
congratulations. You will have my support.
    I would like to start by expressing my concern with the 
inflation we are seeing in the economy, my concern with the 
Administration and my Democrat colleagues are continuing to 
plow ahead with, I believe, is a very reckless tax and spending 
proposal as if inflation did not exist.
    To go back to where we were here earlier this year, Senator 
Scott made the comment about elections having consequences, and 
the consequences are then we have policy outcomes here that 
have consequences. Even though we had nearly $1 trillion of 
unspent COVID relief dollars coming into 2021, the Democrats 
marched forward with a $1.9 trillion, purely partisan spending 
package. Some of my colleagues refer to this as cash cannons 
shooting across this economy.
    So, we created demand by injecting borrowed money into the 
economy. Now the Democrats are looking at jamming through this 
some $1.75, $1.8 trillion reckless spending bill. Many believe 
the true cost of that bill is somewhere between $4 and $5 
trillion, because they played games with truncating these 
massive programs to try to get the number under $2 trillion. 
The real number is probably $4 or $5 trillion.
    The point is this. Injecting all this money in the economy, 
borrowed money, at the same time constricting supplies whether 
it is through mandates or Government shutdowns, we now have 
really the perfect storm created by the Biden administration 
for inflation, not to mention the issues of energy. Montanans 
expect to see a 47 percent increase in heating costs this 
winter with higher energy prices.
    The proposal that the Democrats are trying to ram through 
at the moment will add at least $300 billion of deficit in the 
first 2 years, and about $740 billion over the first 5 years. 
And with all due respect, Secretary Yellen, you said it is paid 
for. I think the CBO has not actually said that, even if you 
add in the massive tax break they will be giving to the coastal 
elites the Democrats put in there because their donors screamed 
so loud in places like California and New York. But the bottom 
line is it is not fully paid for, and the CBO has stated that.
    Also, giving the IRS $80 billion to hire 87,000 more agents 
should be chilling to the American people. This is a massive 
expansion of Government. It is funded, in part, through more 
than $400 billion in additional taxes on small businesses, that 
I believe will only exacerbate the inflation fire. And it is 
why so many Montanans and Americans are experiencing these 
inflation harms every day.
    Chairman Powell, core PCE and CPI readings, two main 
indicators for inflation, jumped to 30-year highs of 4.1 
percent and 6.2 percent, respectively. Needless to say, we are 
seeing much higher inflation rates than the Fed projected, but 
yet the Fed is continuing to predict that inflation is going to 
come down in the near future. I think many of us here several 
months ago were very concerned about inflation and probably had 
a different view of where the inflation forecast was going than 
the Fed did at that time.
    But given that inflation has consistently run hotter this 
year than the Fed has projected, what, in hindsight, would you 
say the Fed underestimated in its previous forecast? And 
second, what economic factors have changed to give you 
confidence in your projection that inflation will come down the 
near term?
    Mr. Powell. So I would love to be able to blame our models, 
but it is a poor craftsman who blames his tools. And I will 
tell you what I think we missed and what all the forecasters 
missed, and it is the same thing. It is really the collapse 
of--or call it just the enormous amount of supply side problem 
we have had with semiconductor chips and lumber and all of 
those things. We saw high demand coming, we saw some higher 
inflation coming, but what really happened was this demand came 
and hit a kind of a hard constraint in the form of these supply 
constraints. And that is not in the model.
    So, you know, we live and learn. It is hard to model 
something that is nonlinear and that is, you know, incredibly 
infrequent. There is no precedent really for it.
    Senator Daines. Yeah. You know, I spent 20 years in 
business and there are two rules: the forecast is always wrong 
and the further out the forecast, the wronger it is, is 
generally true.
    But I guess what have we learned from that and what has 
been adjusted in your model now, having learned what has 
happened here in the last 6 months, that gives you confidence 
that your current forecast of seeing diminishing inflation are 
accurate?
    Mr. Powell. You know, so we have learned a lot about how to 
model, for example, a pandemic. We had not thought much about 
that. But you will never hear us say that we have great 
confidence in our forecast. What you hear us saying is that 
there is tremendous uncertainty around our forecasts, and we 
have been saying that for some time. And also we have said that 
we do see these inflationary pressures as now being sustained 
well into next year. We do expect them, though, to subside in 
the second half of next year, and by the way, that is very 
widely held in the forecasting community, which admittedly has 
much to be humble about.
    Senator Daines. Do you think deficits and the rapid 
increase in debt, given that we are now projecting $1.2 
trillion annual deficits for the foreseeable future, is that 
going to have an impact on inflation?
    Mr. Powell. Well, I do not want to comment on fiscal 
policy. That is really up to you and----
    Senator Daines. But you think the rapid rise in debt is a 
threat as it relates to inflation?
    Mr. Powell. I would just say if I can stay in my role, you 
know, unfunded spending tends to be stimulative, I think, in 
the short term. It does. But I would just say, we do need to 
return to a more sustainable fiscal path, but the timing and 
the means of doing that are really not up to the Fed.
    Senator Daines. Mr. Chairman, I know. Before I close, I 
want to quickly touch just one of the banking----
    Chairman Brown. Well, you did close. You can make a 
comment. No more questions. We are already over, and we are 
well over time.
    Senator Daines. I have a short comment to make. A lot of 
Americans and Montanans are concerned about this. We have seen 
reports, and some of my colleagues the other side of the aisle 
have concerns over Professor Omarova, the nominee for 
Comptroller of the Currency. Concerns are one thing. I would 
encourage my colleagues to come out publicly opposed to Ms. 
Omarova's nomination so we can find a way forward on filling 
this important nomination.
    Mr. Chairman, thank you.
    Chairman Brown. Senator Tester is recognized from his 
office.
    Senator Tester. Well, thank you, Mr. Chairman. Hopefully 
you can hear me. I want to thank Secretary Yellen and Chairman 
Powell for being on this call.
    I think it is interesting though, Mr. Chairman, before I 
get to the folks who have presented, that when we gave a tax 
break to billionaires under a Republican administration there 
was no talk about debt then, that, you know, this was going to 
turn around the economy and it was going to move forward. The 
fact is, debt is debt, whether it is created by Democrats or 
Republicans, and I think it is more than just a little bit 
disingenuous to talk about debt when it fits your needs. It 
does not fit them all.
    The fact of the matter is that we have got a debt problem 
in this country and we need to work to fix it. But giving tax 
breaks to billionaires is not a way to fix the debt problem in 
this country. That is just a side comment.
    I want to talk about housing. For Secretary Yellen, look, 
we have housing challenges all over this country. We have 
particular housing challenges that not a lot of folks are 
talking about in Indian country and in some of the more rural 
and frontier areas of our State of Montana, and I believe 
throughout the country. We have done some stuff for housing, 
but the truth is the impact of COVID-19, the impact of poverty 
in many areas, particularly the Indian country areas, is a big 
problem.
    Could you give me some indications on how we should be 
addressing this issue and if it is an issue that is very high 
up on or radar screen as far as something that needs to be 
done?
    Secretary Yellen. Well, I think the issue of affordable 
housing is one that has plagued our country for many years. It 
certainly predates the pandemic, but the pandemic really 
dramatically impacted the income of many, especially low-income 
workers that already were tremendously challenged by the 
affordability or lack thereof of housing.
    So in the short term, the Emergency Rental Assistance money 
that was made available is helping these households, but that 
those funds cannot be used to solve the longer run problems 
that we have. But the Build Back Better package, really that is 
where the President has proposed policies to address what is 
really a crisis in housing affordability. And that proposal 
contains really the most ambitious investments in affordable 
housing production that this country has ever seen.
    So I am hopeful that that will be helpful. The funds that 
were made available to State and local governments in the ARP 
can also be used to address longer-term problems with respect 
to housing affordability.
    Senator Tester. So one of the headlines in the papers 
today, in Montana at least, is that housing inventory has 
caused an increase in prices. In other words, the inventory is 
low, supply is low, and it is driving prices up. That is pretty 
basic economics, quite frankly. But with Build Back Better, do 
you see a significant investment in supply for workforce 
housing and affordable housing?
    Secretary Yellen. Yes. I think it is mainly directed at 
affordable housing. In total, I think the housing-related 
provisions amount to almost $150 billion, so I think that that 
is substantial support to raise the supply of affordable 
housing in this country.
    Senator Tester. And maybe this is going to be up to us, but 
I have got to ask you anyway because you have been around a 
bit, Secretary Yellen. Have you had a chance to take a look and 
see how much money that $150 billion, if implemented correctly, 
could leverage for housing? Are you there?
    Secretary Yellen. I--sorry. Is this for me?
    Senator Tester. This is for you, Secretary Yellen.
    Secretary Yellen. Oh, I am sorry. The question was, how 
much----
    Senator Tester. My question was, have you had a chance to 
look to see how much $150 billion could leverage for affordable 
housing?
    Secretary Yellen. I do not have those numbers at my 
fingertips, but I can get back to you on it. I am sure there 
are estimates of that.
    Senator Tester. OK. Very good. Well, I just want to thank 
you both for being here. Chair Powell, congratulations on the 
nomination, and we will move from there. And thank you, Mr. 
Chairman.
    Chairman Brown. Thank you, Senator Tester.
    Senator Cramer, of North Dakota, is recognized.
    Senator Cramer. Thank you, Chairman. Thank you both for 
being here. Congratulations, Chairman Powell. I look forward, 
as do many of my colleagues, to supporting your confirmation.
    First thing I want to do, Mr. Chairman, is correct a record 
that got real fuzzy when Senator Kennedy asked Secretary Yellen 
a couple of times about debt and deficit and she said that the 
Build Back Better plan is completely paid for and to prove it, 
the point she said, the CBO agrees with her. Senator Daines 
touched on it.
    But I want to read directly from the Congressional Budget 
Office's score. ``The CBO estimates that enhancing this 
legislation would result in a net increase in the deficit 
totaling $367 billion over the 2022 through 2031 period.'' That 
is the 10 years.
    Now, I have got the chart year by year. It is $155 billion 
next year alone, and it continues for 5 years, and then in the 
last 4, it shows some turnaround. But of course, all of that 5 
years of revenue or beyond the first 5 years is built on the 
premise that these programs are not going to be continued, 
which we know, any casual observer of American politics knows, 
once these programs start, they are never going to be cut 
again. But even presuming, the presumption is built in, it is a 
$367 billion deficit, according to this Congressional Budget 
Office's score on the Build Back Better plan.
    Now, I want to get back to an earlier question that Senator 
Menendez asked you, Secretary Yellen. Basically he said would a 
lot of these programs in the Build Back Better plan actually 
increase workforce participation, things like child tax credit, 
childcare credit. You talked a little bit just now about--
Senator Tester called it workforce housing. You called it 
affordable housing. Important distinction because those words 
matter a lot.
    So my question is, if all of those credits, all of those 
giveaways, all of those incentives are going to help increase 
workforce participation, is there a work requirement tied to 
all of those?
    Secretary Yellen. I would like to start by correcting what 
I believe you said about the CBO.
    Senator Cramer. Well, I did not say it. I read the score 
from the Congressional Budget Office.
    Secretary Yellen. I am sorry, but you did not read it 
completely. It does say $360 billion over 10-year effect on the 
deficit. It then notes that it did not include the revenue that 
would come from enhanced resources for tax enforcement. They 
estimated that at $207 billion, and have indicated that their 
scoring of that does not take account of behavioral changes 
that would result from a regime of stricter tax enforcement. 
And Treasury put out its own estimate of that.
    Senator Cramer. And fairy dust creates energy. I 
understand.
    But I want to get back to the issue of incentivizing a 
workforce. Are there workforce incentives, work requirements 
attached to the Build Back Better plan from the House?
    Secretary Yellen. There are places where there are not 
workforce requirement, like the child tax credit. But the vast 
majority, the overwhelming preponderance of individuals who 
receive these tax credits, the child tax credit, do work. And, 
in some cases----
    Senator Cramer. But we are talking about a workforce 
participation rate that needs to be increased. Do any of these 
incentives require people to work to get them or is this just 
going to be added on to whatever they are already getting, 
regardless of their employment situation? They are not, just so 
you know. They are not.
    You know, earlier, Secretary Yellen, you answered a 
question from Chairman Brown about why Build Back Better does 
not increase inflation. Or, actually, his question was, will it 
bring down costs? And you went on to explain all the ways that 
it brings down costs, except that you really did not.
    In North Dakota, the inflation rate is over 7 percent, over 
7 percent, because we appropriately last year stimulated the 
economy, the Congress, the President, the Federal Reserve 
through its policies. We did that appropriately not knowing 
what the outcome was going to be. But by the time we got to 
early this year, the winds of inflation were already blowing, 
the economy was already expanding, and Democrats added $2 
trillion more dollars to debt and deficit as well as 
stimulating the economy without any requirement on the other 
side. Now we are doing another, whatever it is going to be, $2 
to $4 or $5 trillion that the Democrats are going to push 
through.
    And I know that my time is up and I know that Chairman 
Powell does not answer questions about pending legislation, at 
least not recently, so I am going to ask him this. Do you know 
of any economists or a reputable economic model where more 
stimulus of money into a situation reduces the cost of a 
product? To be fair, Secretary Yellen, it may help people pay 
for some things, but the cost does not come down when there is 
more money.
    So, Chairman Powell, do you know of any economic model 
where costs come down when people have more money to spend on 
it?
    Mr. Powell. It is really hard to answer that in the 
abstract. I mean, there are forms of, really, investment that 
create more capacity in the economy.
    Senator Cramer. And I would agree with that, which is why I 
supported the infrastructure package. I think that invests in 
the infrastructure that moves an economy and pays people to 
work to build it and to use it rather than not pay them to 
work.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you.
    Senator Sinema is recognized from her office.
    Senator Sinema. Thank you, Mr. Chairman, and thank you to 
our witnesses for being here today. Secretary Yellen and Chair 
Powell, it is good to speak with you both again.
    Arizonans are increasingly concerned about supply chain 
disruptions and inflation. As we know, global supply chains 
were and continue to be fragmented and dysfunctional due to the 
pandemic. In the bustle of the holiday season, families are 
frustrated to see delayed shipments and empty shelves. Ongoing 
disruptions reduce available supplies of goods, which tends to 
push prices higher, creating inflationary pressures.
    I would like to hear from both of you on my question. Of 
the inflation that we are seeing, how much of it do you 
attribute to global supply chain disruptions? And Secretary 
Yellen, if you could respond first.
    Secretary Yellen. Well, we are seeing inflation all around 
the developed world. The United States is not alone in seeing 
an increase in inflation, and I think most countries are seeing 
disruptions that result from the pandemic. We have had a huge 
shift away from spending on services like going out to 
restaurants, traveling, staying in hotels, and a shift toward 
goods that need to be produced, many of which are imported. 
This is true in the United States and in other countries as 
well.
    Another impact of the pandemic that we are seeing here and 
other countries are a reduction in labor supply because many 
people who have jobs that involve face-to-face contact do not 
yet feel comfortable going back to work and childcare is 
disrupted.
    And so labor supply has been constricted and this dramatic 
shift toward goods away from services, combined with reduced 
labor supply and problems of when it is suddenly hard because 
of supply chain problems to get needed components for 
manufacturing or to stock shelves, that tends to incentivize 
more ordering to build inventories, which adds to the problem.
    So I think both of these factors play into inflation in the 
United States and also to other countries.
    Senator Sinema. Thank you. Chair Powell.
    Mr. Powell. Yes. So I guess I would just say, you are 
looking for a number. I do not really have one close to hand, 
but if you just took out the inflationary effects around 
durable goods and other goods, which is really where the main 
inflation is coming from, certainly in core inflation, you 
would be at a substantially lower level of inflation. In 
addition, you are seeing energy prices going up. It is not 
really a supply chain issue, mostly, but some of it is. But if 
you look at headline inflation, that is going to be one of the 
big factors driving up headline inflation.
    Senator Sinema. Thank you. Now as you know, Government is 
extremely limited in its ability to resolve supply chain 
issues, which are fundamentally working relationships between 
private businesses. Now that being said, I know the 
Administration has taken steps to address some of the staffing 
and logistics issues at our ports. Congress also recently acted 
by passing the Bipartisan Infrastructure Investment and Jobs 
Act, which makes a historic and necessary investment in our 
core infrastructure like roads, bridges, transit, ports, and 
broadband.
    Republican Senator Rob Portman, my negotiating partner in 
crafting this deal, has said he believes our new law is crafted 
in a way that will reduce inflation. Secretary Yellen, do you 
agree with that assessment that this bipartisan infrastructure 
deal will reduce inflation?
    Secretary Yellen. Well, yes. I think over time the 
infrastructure bill will increase the efficiency of our 
economy, modernize our ports, our rails, improve our roads and 
bridges, and enhance the potential output of the economy, raise 
our ability to supply goods and services efficiently, and in 
that sense over time will lower inflationary pressures.
    Senator Sinema. Thank you. And my last question for you, 
Chair Powell. In February, I asked you if the Fed needed to 
achieve all three of the goals it set out--full employment, 2 
percent inflation, and an outlook for greater than 2 percent 
inflation before raising interest rates, and you said yes. Now 
recognizing that the Fed has made some initial moves to begin 
tapering bond purchases, is the answer that you gave me in 
February on interest rates still true today?
    Mr. Powell. So there is still a three-part test. That is 
still true. I would say that if you look at the--one goal was 
to reach 2 percent inflation and another was to achieve 
inflation above 2 percent for some time, I would say this is a 
decision for the Committee to make, but I think the Committee, 
in coming meetings we will wind up saying that those inflation 
conditions have been met.
    Senator Sinema. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Senator Warnock, from Georgia, is 
recognized.
    Senator Warnock. Thank you so very much, Mr. Chairman. 
Secretary Yellen, it is good to see you and congratulations, 
Chairman Powell, on your nomination for a second term as Chair 
of the Fed. I look forward to some supporting your nomination 
and continuing to work with you to ensure that Georgia families 
and businesses and workers continue to recover from the 
pandemic and that working together we can ensure that we have a 
labor market that includes historically overlooked communities 
so that we have an economy that works for all Americans.
    Earlier this month, Georgia's Department of Labor reported 
that the State's unemployment rate is now at 3.1 percent. This 
is the lowest rate in the State's recorded history. This is 
good news, and it indicates that emergency economic relief 
programs in the CARES Act and the American Rescue Plan have 
been working. Certainly, working in Georgia.
    Still, Georgia's economy is not out of the woods yet. Small 
businesses continue to tell me that they are having difficulty 
hiring, while the labor force is still not what it was prior to 
the pandemic.
    Secretary Yellen, the labor participation rate fell in the 
outset of the pandemic and it has remained flat over the past 
year, even as aid programs ended and the economy reopened, 
particularly among women, which is why some called the pandemic 
a ``she-demic'', if you will. Women have been especially hard 
hit by this, especially women and parents with small children. 
What else should Congress do to help bring workers back into 
the labor force?
    Secretary Yellen. So I would say that in the short run 
vaccinations and increasing the number of people who have 
boosters to get the pandemic under control, to reduce number of 
cases, that is the single most important thing we need to do to 
create an environment in which people feel it is safe to work. 
A substantial number of people say that they are not looking 
for work for COVID-related reasons. In some cases, even people 
who are fully vaccinated but who engage in face-to-face contact 
in their jobs are concerned about exposing themselves to COVID 
risks. And I think you see that for schools, childcare centers, 
retail, in food services.
    Over a medium to longer term, many of the provisions of 
Build Back Better, particularly those affecting childcare, the 
availability of elder care and care for the disabled, support 
for childcare, those things promote labor force participation.
    Senator Warnock. Chairman Powell, would you add your 
perspective to this?
    Mr. Powell. Yes. I mean, I guess I would just say that on 
participation it has been a bit of a surprise that we have not 
had more of a recovery, and I really think the single most 
important thing is to get past the pandemic. Then we are really 
going to know how permanent this is. People get surveyed and 
they do say--substantial numbers of people are concerned about 
going back to work at a time when the pandemic is still moving 
around. And so I think that is the key, which means more 
vaccination, more boosters.
    Senator Warnock. So getting the pandemic under control 
through vaccinations, and if I am understanding you correctly, 
the care economy, so supporting families with elder care, 
childcare that you think that will actually strengthen labor 
market participation and not the opposite?
    Mr. Powell. You know, I do not want to get into any 
particular legislation.
    Senator Warnock. Sure.
    Mr. Powell. But yes, I think there is good research, as the 
Secretary pointed out a while ago earlier in the hearing, there 
is good research showing that the U.S. has fallen behind, for 
example, in female labor force participation. You ask why, you 
do comparisons to other countries, and one of the differences 
that shows up as statistically significant is the availability 
of childcare.
    Senator Warnock. Yeah. I believe in the dignity of work and 
it frustrates me, quite frankly, to hear folks moralize about 
the importance of work while not supporting workers, and their 
ability to participate in the labor market. I think closing the 
coverage gap, which is part of Build Back Better, will also 
help enable and strengthen workers even as they strengthen the 
American economy.
    Thank you all so much.
    Chairman Brown. Thank you, Senator Warnock. As we close, 
Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Just a few points 
to wrap up. First I would like to respond to my friend and 
colleague, the senior Senator from Montana, who brought up the 
issue of the 2017 tax reform and remind him and all of us that 
in the wake of our 2017 tax reform, we had the strongest 
economy in 50 years. We had all-time record low unemployment. 
We had wages growing, growing fastest for the lowest-income 
workers. We had inflation that was modest. And, in fact, we 
were narrowing the gap between high-income and low-income 
people. Oh, and by the way, tax revenue collected by the 
Federal Government was growing.
    I also want to touch on the important point that Senator 
Cramer correctly made. The CBO has not said that the Build Back 
Better bill will be fully paid for. He correctly noted that it 
would result in an increase in the deficit totaling $367 
billion over the 10-year period, not counting any additional 
revenue that would be generated by additional funding for tax 
enforcement.
    But when you take that number into account as well, which 
is $207 billion, you are still left with a $160 billion 
estimated increase in the deficit over the 10 years. But it is 
actually much worse than that because, by design, the spending 
in this bill is heavily front loaded with the expectation that 
supposedly expiring programs will actually be continued. If you 
look at CBO's numbers for the first 5 years, the deficit 
increases by $804 billion. That is $804 billion in additional 
deficits, which means $804 billion increasing in the debt we 
would take on, which is why our Democratic colleagues need such 
a big number by which to raise the debt ceiling and why they 
are so unwilling, so far, to use the tool that is available to 
them to pass the debt ceiling increase with a simple majority 
vote, the reconciliation tool, because it also requires that 
they specify just how much debt they want to run up.
    So Mr. Chairman, I think it is important to set the record 
straight on those matters.
    Chairman Brown. I thank the Ranking Member. As the Ranking 
Member mentioned the debt ceiling, I would like to make a 
comment. The last time Congress dealt with the debt ceiling was 
in the summer of 2019. Twenty-seven Senate Republicans voted to 
raise the debt ceiling. So did I. So did, with a Republican 
President, a Republican House and a Republican Senate, more 
than 40 of my Democratic colleagues joined me and others to 
vote to do the right thing for our country.
    There was such little concern about the debt when my 
colleagues passed the $2 trillion tax cut giveaway to the 
wealthy and corporations in 2017. Senator Toomey and I both sit 
on the Finance Committee and had those debates. They just were 
not concerned in those days.
    And I would reiterate, as Secretary Yellen and the 
nonpartisan Congressional Budget Office have affirmed that this 
bill is in fact paid for. Secretary Yellen responded to greatly 
detailed questions with the answer to that, and we heard it. 
Now Republicans would rather hold our full faith and credit 
hostage than pay the bills that they have racked up, perhaps 
that we have all racked up, and that is not acceptable.
    One final point on inflation. Just this morning, Bloomberg 
released a story where the headline pretty much says it all, 
``Fattest Profits Since 1950 Debunk Wage Inflation Story Of 
CEOs''. ``Fattest Profits Since 1950 Debunk Wage Inflation 
Story Of CEOs''. The FDIC also just released its quarterly 
report. Shocking no one, bank profits are up.
    The idea that these corporations cannot afford to pay 
workers higher wages, wages that actually reflect the value of 
the work they do to make these companies profitable, is 
ridiculous. They want the Fed to pull back. Let's be clear. By 
pull back, by tapering, what they really mean is they want 
fewer jobs available. That is what happened after the last 
crisis. The Fed pulled back its support too soon. Some families 
never recovered. We cannot make that mistake again.
    For Senators who wish to submit questions for the record, 
they are due 1 week from today, Tuesday, December 7. Secretary 
Yellen and Chair Powell, you have 45 days to respond to any of 
those questions.
    Thank you again. The Committee is adjourned.
    [Whereupon, at 12:31 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    Last week, many Americans sat down with family and friends to 
celebrate Thanksgiving. I want to take a moment to thank all the 
workers who made that possible, many of whom didn't get the day off--
farm workers, grocery store workers, restaurant workers, auto workers, 
delivery workers, longshore workers, and so many others.
    These are the people who make our economy work.
    Under the Biden-Harris administration, our economy is bouncing 
back, and getting stronger every day. We created 5.6 million jobs this 
year. The unemployment rate has dropped to 4.6 percent, and weekly 
unemployment claims dropped to under 200,000 last week--the lowest 
level not just since the pandemic began, but in over 50 years, since 
1969.
    Of course raw jobs numbers alone don't tell the whole story--they 
don't tell you how good the job is, what kind of wage it pays.
    And on that front, the news is even better. Workers are starting to 
finally get a little bit more power in our economy.
    Last year, corporations called their workers essential, and then 
many turned around and cut hazard pay--if they ever offered it at all--
and cut corners on safety, to make sure their profits didn't take a 
hit. Or worse--they laid off loyal, long-time employees in the midst of 
a public health crisis.
    But they can't make those record profits without someone to 
actually do the work. And today, American workers are demanding what 
they've earned.
    After years of stagnant wages, shrinking benefits, and no control 
over their schedules, workers are standing up for themselves and for 
each other, and asking for their fair share of the profits they create.
    We just saw the United Auto Workers win better pay and better 
retirement benefits after a 5-week strike of John Deere--and it was 
good for non-union employees, who got a bump in pay, too.
    For too long, corporate greed has kept paychecks down and prices 
up. Corporations ``cut costs'' at workers' expense to juice their 
quarterly earnings numbers, even when they're already plenty 
profitable. Executives reward themselves with record profits and stock 
buybacks, while arguing they can't afford to pay higher wages to anyone 
else, or can't afford to lower prices.
    During a once in a generation global pandemic, despite the supposed 
``labor shortages'' and inflation fears, Wall Street banks and 
corporations still managed to rake in record profits.
    Profits at the biggest U.S. companies shot above $3 trillion this 
year, and the margins keep growing. And now, while working families are 
just starting to get back on their feet, megacorporations would rather 
pass higher costs onto consumers than cut into their profits.
    To continue the progress we've made, we need to rethink that old 
system.
    The Biden administration is creating jobs and bringing down costs 
for families to build a resilient economy for the long run.
    The biggest costs families face have been rising for years, in many 
cases decades--housing, health care, prescription drugs, childcare, 
preschool.
    Democrats' agenda will bring down all these costs.
    We passed the American Rescue Plan, which got shots in arms and 
money in pockets--including the Child Tax Credit, the largest tax cut 
for working families ever that's helping millions of families afford 
childcare and keep up with the cost of living. Ninety percent of kids' 
families in Ohio are getting a $3,000 tax credit.
    We passed the bipartisan infrastructure bill to upgrade our ports 
and transit systems, revitalize manufacturing here in the United 
States, secure supply chains, and create millions of good jobs.
    Two weeks ago, the House passed Build Back Better--which will bring 
down childcare, housing, health care, and other household costs.
    Now, the Senate must act.
    The ongoing pandemic has also exposed longstanding weaknesses in 
our supply chain.
    Global supply chain disruptions and increased demand as our economy 
rebounds are causing higher prices in certain sectors.
    Secretary Yellen and Chair Powell are keeping an eye on this, and 
the more we can get the virus under control and understand its 
variants, the faster we will see those disruptions subside. We're 
already seeing some progress.
    The Bipartisan Infrastructure Plan's investment in our ports will 
help speed up our supply chains in the long-run. And passing my Supply 
Chain Resiliency Act would further reshore and strengthen U.S. supply 
chains.
    There's also an even simpler short-term fix available--corporations 
could lower their prices.
    Executives could get a slightly smaller pay bump this year and 
stock buyback plans could be put on hold, instead of raising costs for 
customers.
    There's no inexorable law that says profits for those at the top 
must continue to rise in perpetuity, even at the expense of everyone 
and everything else in the economy.
    Corporations can get away with it, because they have too much power 
in the economy.
    That makes it all the more vital that we not pull back on 
empowering workers.
    The Fed cannot pump the brakes on our economic recovery too soon, 
before workers get a chance to fully rebound. And I mean all workers.
    Women--who finally started to make significant job gains last 
month--were disproportionately forced out of the labor market, as many 
took on the extra jobs of full-time caregiver and homeschool teacher.
    The Black unemployment rate is still twice that of White workers. 
That's unacceptable.
    A resilient economy is an economy where full employment means 
everyone can get a job--a good job, that pays a living wage and allows 
you to build a career and raise a family.
    And it's an economy where everyone shares in the benefits of 
growth, and where our progress isn't gambled away by Wall Street greed.
    Instead of doing Wall Street's bidding, we all--the Fed, the 
Treasury Department, Congress--need to support the institutions that 
are hard at work serving their neighbors and contributing to the real 
economy.
    That means supporting small business and creating pathways to home 
ownership. That means supporting institutions like MDIs and CDFIs, that 
serve communities that the banks ignore. That means making sure workers 
have power in our economy and share in the prosperity they create.
    Corporations and their allies in this building want you to believe 
that we have to choose between high wages and low prices. That's a 
false choice.
    We can have an economy where you earn a living wage and you can 
afford the things you need to live--childcare, health care, education, 
housing, groceries.
    Our economy can be a reflection of our values as Americans--one 
that recognizes every worker's potential--from all walks of life and 
from every corner of our country.
    President Biden recently announced his intention to renominate 
Chair Powell to lead the Federal Reserve, and Governor Lael Brainard to 
be Vice Chair.
    They have helped lead our economy through the pandemic, and I will 
continue to work with both of them, and the next Federal Reserve 
nominees that reflect the diversity of our country.
    I look forward to hearing from Secretary Yellen and Chair Powell on 
how they plan to help us build a resilient economy that works for 
everyone.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Thank you, Mr. Chairman.
    Secretary Yellen and Chairman Powell, welcome.
    Chairman Powell, congratulations on your renomination. Despite our 
disagreements, I look forward to supporting your confirmation.
    When the pandemic hit in 2020, Chairman Powell acted swiftly to 
help stabilize financial markets and the economy. He also implemented a 
number of sensible regulatory reforms that helped to spur economic 
growth.
    And for those who would criticize those efforts, I suggest they 
look at the past 2 years. Our economy experienced a severe real-world 
stress test during the worst days of the pandemic, but we've come out 
of it with the best capitalized banking system in American history.
    While I support Chairman Powell's renomination, I'm very concerned 
about whom President Biden may nominate to fill other seats on the 
Fed's Board given some of the radical financial regulators he's 
nominated so far. Just consider his radical nominee to serve as the 
Comptroller of the Currency, the Nation's top banking regulator.
    Members of the Fed Board ought to have exceptional qualifications 
and appreciation for the Fed's narrow statutory role on monetary policy 
and banking supervision.
    We need Fed nominees who are focused not on social policy, but 
rather the alarming bout of inflation that we are currently 
experiencing. Inflation is at a 31-year high. Just last month, the 
consumer price index increased by 6.2 percent year over year.
    Price hikes are everywhere, from the cost of a Thanksgiving meal, 
which rose by 14 percent over last year, to the pump, where gas has 
reached as high as $6 a gallon in some places.
    Inflation is a tax that is eroding Americans' paychecks every day. 
Even though wages are growing, inflation is growing faster and causing 
workers to fall further and further behind.
    I've been warning about the risks of higher and more persistent 
inflation since January. Unfortunately, the Fed has decided to continue 
its emergency monetary policy, adding fuel to the inflationary fire, 
long after the economic emergency had passed.
    Earlier this month, I was glad to see the Fed finally announce a 
long-overdue taper of its bond-buying program. Quantitative easing 
should be used in emergencies only, and we are well past the need for 
such support.
    Our economy took a nose dive in the second quarter of last year. 
But by the third quarter of 2020 it had largely recovered. Yet, here we 
are in November 2021 and the Fed's still buying more than $100 billion 
in bonds.
    The Fed should have started tapering nearly a year ago. But instead 
it's expected to continue buying bonds through next June. And on 
interest rates, which are currently near zero, the Fed is still 
maintaining a wait-and-see approach.
    I am somewhat relieved that Chairman Powell has recently recognized 
the heightened risks of higher and more persistent inflation and has 
indicated his determination to control it.
    Unfortunately, the Biden administration and many Democrats in 
Congress are not willing to do their part to limit inflation. Instead, 
they're exacerbating the problem and blaming inflation on their usual 
suspects: greedy corporations.
    Apparently, some of my colleagues believe companies were for years 
generously leaving money on the table and only now have thought to 
raise prices to maximize profit. This is a cynical fib meant to 
distract from the fact that Congressional Democrats' extreme Leftist 
policies are contributing to the price hikes hitting Americans' 
wallets.
    Take energy prices for example. President Biden kicked off his 
presidency by taking measures to curb our Nation's energy supply. He 
terminated construction of the Keystone Pipeline, a tremendous source 
of oil. He placed an indefinite ban on new oil and gas leases on 
Federal land.
    Meanwhile, on the demand side, the Administration and Democrats in 
Congress have propped up demand for energy with their March 2021 $1.9 
trillion stimulus bill. It's no wonder then that Americans are seeing 
skyrocketing energy prices. When you decrease supply, but subsidize 
demand, prices go up. It's basic economics.
    Unfortunately, the Administration has not learned its lesson. It's 
still pushing a multitrillion dollar reckless tax-and-spend plan that 
will contribute to more inflation and damage our economy. Its plan is a 
massive expansion of the welfare State and will be partially paid for 
by large tax increases that hurt American families, and make the U.S. a 
less competitive place to do business.
    The intent of this plan is to fundamentally transform the 
relationship between the Federal Government and the middle class. It's 
about socializing many ordinary responsibilities that families have 
always assumed, including by providing free preschool, free paid leave, 
and free childcare.
    Democrats are attempting to hide the unprecedented enormity of this 
tax-and-spending spree through budget gimmicks. According to the 
nonpartisan Penn-Wharton budget model, the House version of the Build 
Back Better plan will cost $4.6 trillion over 10 years if the bill's 
temporary provisions are made permanent, as the Democrats plan. As 
Senator Manchin has noted, Democrats are using ``shell games'' to hide 
the true cost of this legislation.
    I hope that Democrats will reconsider their misguided efforts to 
double-down on the reckless spending that has contributed to the 
highest inflation that Americans have experienced in 31 years.
                 PREPARED STATEMENT OF JANET L. YELLEN
                 Secretary, Department of the Treasury
                           November 30, 2021
    Chairman Brown, Ranking Member Toomey, Members of the Committee: It 
is a pleasure to testify today.
    November has been a very significant month for our economy, and 
Congress is a large part of the reason why. Our economy has needed 
updated roads, ports, and broadband networks for many years now, and I 
am very grateful that on the night of November 5, members of both 
parties came together to pass the largest infrastructure package in 
American history.
    November 5th, it turned out, was a particularly consequential day 
because earlier that morning we received a very favorable jobs report--
531,000 jobs added. It's never wise to make too much of one piece of 
economic data, but in this case, it was an addition to a mounting body 
of evidence that points to a clear conclusion: Our economic recovery is 
on track. We're averaging half-a-million new jobs per month since 
January. GDP now exceeds its prepandemic levels. Our unemployment rate 
is at its lowest level since the start of the pandemic, and our economy 
is on pace to reach full employment 2 years faster than the 
Congressional Budget Office had estimated.
    Of course, the progress of our economic recovery can't be separated 
from our progress against the pandemic, and I know that we're all 
following the news about the Omicron variant. As the President said 
yesterday, we're still waiting for more data, but what remains true is 
that our best protection against the virus is the vaccine. People 
should get vaccinated and boosted.
    At this point, I am confident that our recovery remains strong and 
is even quite remarkable when put it in context. We should not forget 
that last winter, there was a risk that our economy was going to slip 
into a prolonged recession, and there is an alternate reality where, 
right now, millions more people cannot find a job or are losing the 
roofs over their heads.
    It's clear that what has separated us from that counterfactual are 
the bold relief measures Congress has enacted during the crisis: the 
CARES Act, the Consolidated Appropriations Act, and the American Rescue 
Plan Act. And it is not just the passage of these laws that has made 
the difference, but their effective implementation.
    Treasury, as you know, was tasked with administering a large 
portion of the relief funds provided by Congress under those bills. 
During our last quarterly hearing, I spoke extensively about the State 
and local relief program, but I wanted to update you on some other 
measures.
    First, the American Rescue Plan's expanded Child Tax Credit has 
been sent out every month since July, putting about $77 billion in the 
pockets of families of more than 61 million children. Families are 
using these funds for essential needs like food, and in fact, according 
to the Census Bureau, food insecurity among families with children 
dropped 24 percent after the July payments, which is a profound 
economic and moral victory for the country.
    Meanwhile, the Emergency Rental Assistance Program has 
significantly expanded, providing much-needed assistance to over 2 
million households. This assistance has helped keep eviction rates 
below prepandemic levels.
    This month, we also released guidelines for the $10 billion State 
Small Business Credit Initiative program, which will provide targeted 
lending and investments that will help small businesses grow and create 
well-paying jobs.
    As consequential as November was, December promises to be more so. 
There are two decisions facing Congress that could send our economy in 
very different directions.
    The first is the debt limit. I cannot overstate how critical it is 
that Congress address this issue. America must pay its bills on time 
and in full. If we do not, we will eviscerate our current recovery. In 
a matter of days, the majority of Americans would suffer financial pain 
as critical payments, like Social Security checks and military 
paychecks, would not reach their bank accounts, and that would likely 
be followed by a deep recession.
    The second action involves the Build Back Better legislation. I 
applaud the House for passing the bill and am hopeful that the Senate 
will soon follow. Build Back Better is the right economic decision for 
many reasons. It will, for example, end the childcare crisis in this 
country, letting parents return to work. These investments, we expect, 
will lead to a GDP increase over the long-term without increasing the 
national debt or deficit by a dollar. In fact, the offsets in these 
bills mean they actually reduce annual deficits over time.
    Thanks to your work, we've ensured that America will recover from 
this pandemic. Now, with this bill, we have the chance to ensure 
America thrives in a postpandemic world.
    With that, I'm happy to take your questions.
                                 ______
                                 
                 PREPARED STATEMENT OF JEROME H. POWELL
       Chairman, Board of Governors of the Federal Reserve System
                           November 30, 2021
    Chairman Brown, Ranking Member Toomey, and other Members of the 
Committee, thank you for the opportunity to testify today.
    The economy has continued to strengthen. The rise in Delta variant 
cases temporarily slowed progress this past summer, restraining 
previously rapid growth in household and business spending, 
intensifying supply chain disruptions, and, in some cases, keeping 
people from returning to work or looking for a job. Fiscal and monetary 
policy and the healthy financial positions of households and businesses 
continue to support aggregate demand. Recent data suggest that the 
post-September decline in cases corresponded to a pickup in economic 
growth. Gross domestic product appears on track to grow about 5 percent 
in 2021, the fastest pace in many years.
    As with overall economic activity, conditions in the labor market 
have continued to improve. The Delta variant contributed to slower job 
growth this summer, as factors related to the pandemic, such as 
caregiving needs and fears of the virus, kept some people out of the 
labor force despite strong demand for workers. Nonetheless, October saw 
job growth of 531,000, and the unemployment rate fell to 4.6 percent, 
indicating a rebound in the pace of labor market improvement. There is 
still ground to cover to reach maximum employment for both employment 
and labor force participation, and we expect progress to continue.
    The economic downturn has not fallen equally, and those least able 
to shoulder the burden have been the hardest hit. In particular, 
despite progress, joblessness continues to fall disproportionately on 
African Americans and Hispanics.
    Pandemic-related supply and demand imbalances have contributed to 
notable price increases in some areas. Supply chain problems have made 
it difficult for producers to meet strong demand, particularly for 
goods. Increases in energy prices and rents are also pushing inflation 
upward. As a result, overall inflation is running well above our 2 
percent longer-run-goal, with the price index for personal consumption 
expenditures up 5 percent over the 12 months ending in October.
    Most forecasters, including at the Fed, continue to expect that 
inflation will move down significantly over the next year as supply and 
demand imbalances abate. It is difficult to predict the persistence and 
effects of supply constraints, but it now appears that factors pushing 
inflation upward will linger well into next year. In addition, with the 
rapid improvement in the labor market, slack is diminishing, and wages 
are rising at a brisk pace.
    We understand that high inflation imposes significant burdens, 
especially on those less able to meet the higher costs of essentials 
like food, housing, and transportation. We are committed to our price-
stability goal. We will use our tools both to support the economy and a 
strong labor market and to prevent higher inflation from becoming 
entrenched.
    The recent rise in COVID-19 cases and the emergence of the Omicron 
variant pose downside risks to employment and economic activity and 
increased uncertainty for inflation. Greater concerns about the virus 
could reduce people's willingness to work in person, which would slow 
progress in the labor market and intensify supply-chain disruptions.
    To conclude, we understand that 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 everything we can 
to support a full recovery in employment and achieve our price-
stability goal.
    Thank you. I look forward to your questions.

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        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                      FROM JANET L. YELLEN

Q.1. Homeowners of color have faced disproportionate hardship 
over the course of the COVID-19 Crisis. What data will Treasury 
make public about who is receiving help through the States' 
Homeowner Assistance Fund programs and when do you expect to 
begin reporting that data? Will you commit to making public 
data that will allow the public to evaluate whether each State 
is equitably serving all homeowners seeking assistance?

A.1. Treasury is committed to making data available about who 
is benefiting from the Homeownership Assistance Fund (HAF) and 
other recovery programs. Treasury rapidly made available close 
to $1 billion to HAF Participants, 10 percent of each of their 
allocations, to immediately begin serving vulnerable homeowners 
and to support administrative efforts to launch their full 
programs. At least 18 States established pilot programs, and 
Treasury has begun gathering information about those pilot 
programs.
    Treasury is currently in the process of approving HAF Plans 
submitted by eligible participants, including several States, 
the District of Columbia, Territories, and Tribes. In addition, 
Treasury has released interim reporting guidance for HAF 
participants. The first report from HAF Participants, a one-
time interim report, will be due to Treasury by February 28, 
2022, with quarterly reporting beginning in April 2022 and 
annual reports due for the first time in June 2022. After 
validating the accuracy of that data, Treasury will make 
reports available on the Treasury website. This is likely to 
begin after February 2022.

Q.2. Will Treasury commit to publishing each State's Homeowner 
Assistance Fund plan and any amendment to those plans in a 
central location? When do you expect to begin publishing those 
plans that are already approved?

A.2. Treasury anticipates beginning to publish approved State 
HAF Plans on the Treasury website in January 2022.

Q.3. Women have borne the brunt of the job losses during the 
COVID-19 Crisis. We created over half-a-million jobs in October 
and more than half of those job gains went to women. The 
National Women's Law Center estimates that it would take 8 
months of this kind of job growth to gain back the millions of 
jobs lost since February 2020. Secretary Yellen, what can we do 
to make sure women can return to the work force with good jobs 
that help grow our economy? What progress have we made so far, 
and how is Treasury planning to address the issue?

A.3. Our labor force participation rate remains well below 
prepandemic levels. The pandemic has imposed considerable 
burdens on families and women, in particular, in childcare and 
elder care responsibilities. The American Rescue Plan's funding 
for State and local governments can also be used to support 
childcare to help parents get back to work.
    Even before the pandemic, women's labor force participation 
had stagnated in the U.S. relative to other advanced countries. 
Providing more support for childcare through universal pre-K 
and augmenting our childcare infrastructure is imperative to 
growing our labor force and our economic potential over the 
next decade. The Build Back Better agenda will deliver 
universal pre-K and strengthen childcare, and Treasury will 
work to support the implementation of these programs.

Q.4. Leading up to the 2007-2008 Crisis, regulators failed to 
understand the risk that was building up and the 
interconnectedness of our financial system before it was too 
late. One of the lessons learned from the crisis was that 
regulators need to proactively seek to limit risk on the entire 
financial system. What parallels and distinctions do you see 
between the 2008 financial crisis and growing risks to our 
financial system from a climate risk financial crisis?

A.4. Following the 2008 financial crisis, the Dodd-Frank Act 
charged the Financial Stability Oversight Council (FSOC) with 
identifying and responding to emerging risks to the stability 
of the U.S. In its Report on Climate-Related Financial Risk, 
the FSOC identified climate change as an emerging and 
increasing threat to U.S. financial stability. The report 
includes over 30 specific recommendations to U.S. financial 
regulators, laying out necessary actions to identify and 
address climate-related risks to the financial system and 
promote the resilience of the financial system to those risks.
    The 2008 financial crisis revealed in part the need for 
regulators to work together to assess financial risks more 
holistically and in a coordinated fashion. The FSOC's climate 
report represents a significant and important interagency 
effort to identify and consider climate-related financial risks 
across markets and institutions overseen or supervised by FSOC 
member agencies. Climate-related financial risks have the 
potential to impact the safety and soundness of regulated 
institutions, the integrity of financial markets, investor and 
consumer protection, and financial stability more generally. 
The report discusses the complex transmission channels linking 
climate-related transition and physical risks to the economy 
and financial sector, recognizing that climate-related shocks 
may be propagated by interconnections throughout the economy 
and financial system.
    Climate change is not an abstract threat that we can afford 
to ignore. In 2021, there were 20 separate billion-dollar 
weather and climate disasters in the U.S., just two less than 
the record set in 2020. These disasters cost over $145 billion 
and took 688 lives. Climate-related disasters are expected to 
only increase as temperatures rise, as we have seen in recent 
decades. Adjusted for inflation, there were 29 billion-dollar 
weather and climate disasters in the 1980s, 53 in the 1990s, 63 
in the 2000s, and 123 in the 2010s (NOAA National Centers for 
Environmental Information (NCEI) U.S. Billion-Dollar Weather 
and Climate Disasters (2022). https://www.ncdc.noaa.gov/
billions/DOI:10.25921/stkw-7w73).
    These events underscore the importance of the 
Administration's urgent, whole-of-Government effort on climate 
change and the need for the financial system to support an 
orderly, economywide transition toward the goal of net-zero 
emissions.
    While U.S. financial regulators have begun to make 
significant progress in tackling these challenges, there is a 
substantial amount of work yet to be done, especially improving 
data and measurement and expanding capacity to address and 
manage climate-related financial risks.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                      FROM JANET L. YELLEN

Q.1. Cryptocurrencies--Given the recent passage of cryptotax 
reporting provisions in the Infrastructure Investment and Jobs 
Act (P.L. 117-58), when do you anticipate Treasury will conduct 
a rulemaking on third party tax reporting related to 
cryptocurrencies?

A.1. Information reporting is a critical tool in increasing tax 
compliance and reducing tax evasion. Information reporting also 
helps taxpayers by providing them with the information that 
they need to prepare tax returns. When considering these 
requirements, Treasury and the IRS will engage in a robust 
notice-and-comment rulemaking process that will solicit input 
from affected industries and other interested parties before 
they make final determinations about the scope of application 
of new broker reporting rules for digital assets. This is a 
months-long process that requires engagement with experts in 
order to appropriately consider the utility of information that 
will be reported to taxpayers and the IRS and the cost of 
providing that information, among other issues.

Q.2. In the recently published President's Working Group (PWG) 
recommendations for stablecoins, the PWG noted that ``in the 
absence of Congressional action . . . the agencies recommend 
that the Financial Stability Oversight Council (FSOC) consider 
steps available to it to address (stablecoin) risks.'' It is 
important that Congress weigh in on proper stablecoin policies, 
and that the American economy has certainty as to the Federal 
Government's actions. What steps will the PWG take to work with 
Congress on the appropriate legislative solutions before any 
administrative actions are taken related to FSOC designation?

A.2. The primary recommendation in the PWG report is for 
Congress to enact legislation to ensure that payment 
stablecoins, and payment stablecoin arrangements, are subject 
to a Federal prudential framework on a consistent and 
comprehensive basis. Since the publication of the report, 
Treasury staff has been engaged in active discussions with 
members of Congress and their staffs regarding the benefits and 
risks of stablecoins, regulatory gaps, and measures that would 
effectively address such gaps. We look forward to continuing 
those discussions.

Q.3. In its report, the PWG recommends that Congress enact 
legislation that requires stablecoin issuers to be insured 
depository institutions. Why are existing and successful 
partnerships between stablecoin issuers and insured depository 
institutions, in States such as New York and Wyoming, not 
sufficient when it comes to customer protection and avoiding 
run risks?

A.3. As discussed in the PWG report, currently, oversight of 
stablecoin is fragmented and inconsistent. Stablecoins are 
issued under a variety of supervisory overlays, and some 
issuers are effectively operating outside of the regulatory 
perimeter. Even where the issuer of a stablecoin is subject to 
effective oversight, supervisors may lack visibility into the 
broader stablecoin arrangement that supports the use of the 
stablecoin. As a result of these regulatory gaps, stablecoins 
pose risks related to runs, payment system disruptions, and 
concentration of economic power. A requirement for stablecoins 
to be issued by insured depository institutions, combined with 
authority for the supervisor of that issuer to set risk 
management standards for critical activities in the stablecoin 
arrangement, would help ensure that there are safeguards in 
place against these risks.

Q.4. At the Senate Banking Committee hearing on November 30, 
2021, you stated that the PWG recommended that stablecoin 
issuers should be insured depository institutions because 
stablecoins have the potential to be used in payments. There 
are multiple companies that do not issue stablecoins that 
provide payment services, such as PayPal, Venmo, and Square.
    Do you think that these companies should also be required 
to be insured depository institutions in order to provide 
payment services?

A.4. The PWG was convened to consider the risks and benefits of 
stablecoins, and to make recommendations for addressing any 
identified regulatory gaps. A requirement for stablecoin 
issuers to be insured depository institutions would help to 
address risks related to runs, payment system disruptions, and 
concentration of economic power in the context of stablecoins. 
Some observers have suggested that other payment service 
providers pose similar risks. Treasury staff are considering 
the similarities and differences between stablecoin issuers and 
other payment service providers, and would welcome the 
opportunity to engage further with you and your staff on this 
topic.

Q.5. If your answer is ``no'', then why do you think stablecoin 
issuers should be treated differently and required to be 
insured depository institutions?

A.5. Please see the response above.

Q.6. What factors lead you to this conclusion?

A.6. Please see the response above.

Q.7. Congress through statute has given U.S. financial market 
regulators--both the Securities and Exchange Commission (SEC) 
and Commodity Futures Trading Commission (CFTC)--considerable 
authority to issue exemptions from specific regulatory 
requirements enforced by those agencies so long as those 
exemptions serve the public interest (e.g., Section 36 of the 
Securities Exchange Act and Section 4 of the Commodity Exchange 
Act). The agencies also have used flexibility to interpret and 
provide guidance on these authorizing statutes and regulations.
    Some attention has been paid by policy makers to crypto 
asset market participants acting outside of the U.S. regulatory 
perimeter. However, some market participants involved with 
crypto assets are taking steps to demonstrate that their market 
activity is conducted in a safe and sound manner, and are 
seeking exemptions or guidance that would result in more 
activity, not less, falling under the supervision of the U.S. 
financial market regulators.
    Do you support the SEC and the CFTC providing appropriate 
exemptions and guidance to market participants as a means to 
facilitate more activity involving crypto assets coming under 
the supervision of those agencies?

A.7. Treasury supports the recommendation in the PWG report for 
Congress to promptly enact legislation to ensure that 
stablecoins are subject to effective oversight on a consistent 
and comprehensive basis. Treasury also supports efforts by the 
SEC and CFTC to effectively administer and ensure compliance 
with the Federal securities and commodities laws.

Q.8. I have previously asked you whether Treasury believes the 
Financial Stability Oversight Council (FSOC) has the authority 
to designate all stablecoin providers as financial market 
utilities (FMU) or payment, clearing, or settlement (PCS) 
activities. You replied:

        To address prudential risks associated with the use of 
        stablecoins as a means of payment, the PWG Report on 
        Stablecoins recommends that Congress act promptly to 
        ensure that payment stablecoins are subject to 
        appropriate Federal prudential oversight on a 
        consistent and comprehensive basis. In the absence of 
        Congressional action, the report recommends that the 
        Council consider steps available to it to address the 
        risks outlined in the report. As Treasury's work on 
        stablecoins progresses, it intends to evaluate how 
        FSOC's designation authority with respect to financial 
        market utilities and payment, clearing, and settlement 
        activities may potentially apply to stablecoin 
        arrangements.
    What would it mean for a stablecoin provider to be 
designated as a systemically important FMU for as engaging in 
systemically important PCS activity?

A.8. If activities conducted within stablecoin arrangements 
are, or are likely to become, systemically important PCS 
activities and have been designated by the Council, the 
appropriate financial regulator would be able to establish 
risk-management standards for financial institutions that 
engage in that activity. These risk management standards might 
include requirements in relation to the assets backing the 
stablecoin, requirements related to the operation of the 
stablecoin arrangement, and other prudential standards. 
Financial institutions that engage in designated PCS activities 
also would be subject to an examination and enforcement 
framework. Similarly, an entity that is designated as a 
systemically important FMU would be required to comply with 
risk management standards established by the appropriate 
financial regulator.

Q.9. What does a Federal framework for regulation of payment 
stablecoins look like? The PWG report on stablecoins recommends 
that Congress enact legislation to address stablecoin risks, 
but it does not explicitly state what that ought to look like. 
What specific measures would you recommend and why?

A.9. The legislative recommendations in the PWG report include: 
(a) a requirement for issuers of payment stablecoins to be 
insured depository institutions; (b) a requirement for 
custodial wallet providers to be subject to appropriate Federal 
oversight; and (c) measures to ensure that supervisors of 
stablecoin issued have the ability to set risk management 
standards for critical activities within a stablecoin 
arrangement, and to promote interoperability among stablecoins 
and between stablecoins and other payment instruments. Such 
legislation would provide an effective set of safeguards 
against run risk, payment system risk, and excessive 
concentration of economic power.

Q.10. In June 2021, the Basel Committee on Banking Supervision 
(BCBS) consulted on proposed guidance for the prudential 
treatment of crypto assets, including stablecoins.
    Do you agree with the proposed recommendations regarding 
stablecoins and Group 2 crypto assets such as Bitcoin?

A.10. The June 2021 consultative document is a preliminary 
proposal for prudential treatment of bank exposures to digital 
assets. The proposal divides digital assets into two 
categories--a set of lower risk exposures referred to as 
``Group 1,'' and a set of higher risk exposures referred to as 
``Group 2,'' which includes bitcoin. Treasury supports efforts 
by the banking agencies to ensure that there are effective 
prudential requirements in place for bank exposures to digital 
assets, and that such requirements appropriately reflect the 
risks of the exposures involved.

Q.11. How does Treasury plan to work with the BCBS and other 
international bodies with respect to digital assets and 
stablecoins?

A.11. Treasury is not a banking regulator (the Office of the 
Comptroller of the Currency is an independent body within 
Treasury) and, therefore, does not participate in the Basel 
Committee on Banking Supervision. However, Treasury works 
through the Financial Stability Board and other multilateral 
groups of which it is a member to propose and advance policies 
that provide comprehensive oversight of digital assets, further 
common regulatory outcomes across jurisdictions, and to reduce 
opportunities for regulatory arbitrage. Treasury also supports 
efforts by the banking agencies to ensure that there are 
effective prudential requirements in place for bank exposures 
to digital assets, and that such requirements appropriately 
reflect the risks of the exposures involved.

Q.12. What steps are being taken by Treasury and the 
interagency groups in which Treasury participates to remain 
accessible to innovators and support the responsible growth of 
financial services and products enhanced by distributed ledger 
technology?

A.12. Treasury routinely meets with a wide variety of market 
participants, public interest groups, academics, and other 
stakeholders to inform our understanding of the services and 
products that could be supported by distributed ledger 
technology, as well as their implications for consumers, the 
financial system, and the broader economy. Interagency groups 
that Treasury participates in also have robust processes for 
public and industry engagement.

Q.13. Government Sponsored Entities--On January 14, 2021, 
Treasury and each of Fannie Mae and Freddie Mac (each, a GSE), 
acting through the Federal Housing Finance Agency (FHFA) as its 
conservator, entered into a letter agreement amending the 
Amended and Restated Preferred Stock Purchase Agreement dated 
September 26, 2008, between Treasury and the GSE (each, a 
PSPA). Pursuant to section IX of that letter agreement, 
Treasury committed to develop a proposal to resolve the 
conservatorships and transmit that proposal to both Houses of 
Congress on or prior to September 30, 2021. As of December 7, 
2021, Congress has not received this proposal. When does 
Treasury expect to transmit this proposal?

A.13. Treasury remains focused on providing critical relief to 
homeowners and renters most impacted by the pandemic, including 
through its administration of funding for the Emergency Rental 
Assistance Program and the Homeowner Assistance Fund, and on 
promoting housing stability, which includes advancing housing 
policies that can sustainably increase the stock of affordable 
housing units for rent and ownership. In addition to addressing 
these urgent priorities, Treasury is formulating housing-
finance policies in cooperation with interagency partners that 
expand fair and equitable access to home ownership and 
affordable rental opportunities, protect taxpayers, and promote 
liquid residential finance markets. Treasury has not yet 
adopted any new policy positions on the GSE conservatorships. I 
look forward to continuing our work across the Administration 
and with the Congress in support of these goals.

Q.14. Pursuant to section IX of that letter agreement, Treasury 
also ``commit[ted] to work to restructure Treasury's investment 
and dividend amount in a manner that facilitates the orderly 
exit from conservatorship, ensures Treasury is appropriately 
compensated, and permits the [GSE] to raise third-party capital 
and make distributions as appropriate.''
    What actions does Treasury expect to perform to satisfy 
that commitment?

A.14. Treasury remains focused on providing critical relief to 
homeowners and renters most impacted by the pandemic, including 
through its administration of funding for the Emergency Rental 
Assistance Program and the Homeowner Assistance Fund, and on 
promoting housing stability, which includes advancing housing 
policies that can sustainably increase the stock of affordable 
housing units for rent and ownership. In addition to addressing 
these urgent priorities, Treasury is formulating housing-
finance policies in cooperation with interagency partners that 
expand fair and equitable access to home ownership and 
affordable rental opportunities, protect taxpayers, and promote 
liquid residential finance markets. Treasury has not yet 
adopted any new policy positions on the GSE conservatorships. I 
look forward to continuing our work across the Administration 
and with the Congress in support of these goals.

Q.15. When will each of those actions be performed?

A.15. Please see the response above.

Q.16. Has Treasury retained any financial, legal, or other 
advisors to support Treasury's effort to resolve the GSEs' 
conservatorships or otherwise assess or modify its rights or 
obligations under the PSPAs?
    If so, who did Treasury retain?

A.16. Treasury has not retained advisors for this purpose.

Q.17. Reconciliation Legislation--The Congressional Budget 
Office estimates that H.R. 5376, the ''Build Back Better Act,'' 
would increase Federal outlays by nearly $1.7 trillion and 
increase net budget deficits by $367 billion over the 10-year 
2022-2031 period. CBO also notes that the provision providing 
increased funding to the IRS would increase revenue by $207 
billion, resulting in a net deficit increase of $160 billion.
    However, the legislation contains many costly provisions 
that are temporary and thus sunset within the 2022-2031 budget 
window. Moreover, several nonpartisan institutions have 
estimated the true cost of the bill under the scenario where 
all temporary provisions are made permanent. The nonpartisan 
Penn Wharton Budget Model projects that the legislation would 
increase total spending by $4.6 trillion over the 10-year 
budget window if all of the temporary provisions are made 
permanent.
    Without additional spending offsets or tax increases, net 
deficits would increase by almost $3 trillion over the 2022-
2031 budget window. Notably, the legislation extends the 
expanded Child Tax Credit for just one year at a cost of more 
than $100 billion for 2022 alone. Conventional wisdom would 
suggest that making this provision permanent would cost more 
than $1 trillion over 2022-2031.
    Regarding the expanded Child Tax Credit, you said earlier 
this year that, ``I think this is something that's very 
important to continue'' and that, ``[i]t's a very important 
program that will do a huge amount to relieve child poverty.'' 
You have also called for Congress to make this expanded Child 
Tax Credit permanent. What, then, is the purpose of extending 
the expanded Child Tax Credit for just one year (2022), rather 
than making it permanent?

A.17. The Biden administration has made it a clear priority to 
fully fund the provisions of the Build Back Better Act, and we 
continue to be firmly committed to this goal. (For more detail, 
see this blog post: https://home.treasury.gov/news/featured-
stories/preliminary-estimates-show-build-back-better-
legislation-will-reduce-deficits)
    Making the expanded Child Tax Credit permanent is an 
important goal that will serve the needs of America's families 
while also ensuring that the recent historic gains in childhood 
poverty reduction are truly lasting. We are committed to fully 
funding such extensions in subsequent legislation with 
appropriate revenue measures.

Q.18. What is the purpose of having other major provisions in 
the Build Back Better Act, such as Federal subsidies for 
childcare, be temporary rather than permanent?

A.18. The President's FY22 Budget proposed to extend the Child 
Tax Credit until the expiration of many provisions of the Tax 
Cuts and Jobs Act, since other provisions (such as various 
personal exemptions) may interact with the ideal Child Tax 
Credit amount, so the full package should be considered 
holistically. While Congress has opted for a shorter extension, 
we remain committed to working towards a fully funded permanent 
version of the expanded Child Tax Credit, and we look forward 
to working with Congress on appropriate revenue measures.

Q.19. If you believe these policies should be made permanent, 
then how would the Biden administration propose offsetting 
their cost?

A.19. Depending on the evolution of the Build Back Better 
legislation in the Senate, there will still be many appropriate 
revenue measures for future consideration. The President's FY22 
Budget provides a good description of several important revenue 
measures that could be considered in the future.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                      FROM JANET L. YELLEN

Q.1. I am concerned that bank employees do not feel adequately 
empowered to utilize whistleblower processes, given the ongoing 
reports of systemic wrongdoing at megabanks that were not 
discovered by regulators until the problems had already become 
major systemic problems, such as the fake account scandal at 
Wells Fargo. Do you agree that stronger affirmative protections 
for workers who speak up about wrongdoing, such as ``just 
cause'' protections against wrongful terminations, would help 
address this issue?

A.1. Banks should have protections in place to ensure that 
their employees can report unlawful or fraudulent practices 
without fear of retaliation. Robust whistleblower protections 
are a critical part of ensuring that incidents can be reported. 
Treasury is focused on building an economy that lifts workers 
up rather than weighing them down.
    Treasury supports strong whistleblower protections and 
supports strong action by the Federal regulators to prevent and 
address wrongdoing by firms. Whistleblower protections should 
protect truth telling and promote a culture of transparency and 
accountability. Treasury is available to review proposals that 
could strengthen such employee protections.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                      FROM JANET L. YELLEN

Q.1. I've heard from hundreds of South Dakotans about how 
difficult it is to get in contact with a human being at the 
IRS. As you know, the Biden administration released a memo 
outlining procedures to returning to work, which required 
agencies to submit their reentry plans by July 19, 2021.
    Has your agency submitted its plan for reentry and is it 
publicly available?

A.1. In accordance with OMB Memo M-21-25 ``Integrating Planning 
for a Safe Increased Return of Federal Employees and 
Contractors to Physical Workplaces With Post-Reentry Personnel 
Policies and Work Environment'', Treasury submitted its plan 
for reentry to OMB on July 12, 2021. The plan is not publicly 
available.

Q.2. When will the IRS return to fully in-person operations?

A.2. Prior to the pandemic, the IRS workforce performed a 
combination of in-person, field, and remote work. In FY 2019, 
47 percent of IRS employees participated in telework. In FY 
2020, the most recent year for which data is available, 76 
percent of employees participated in telework. The IRS 
completed the reopening of its facilities in July 2020, though 
some individual facilities have periodically closed since then 
in response to local health conditions. Employees whose duties 
cannot effectively be performed remotely have returned to the 
office. In addition, IRS has resumed field-based taxpayer 
contacts. The IRS continuously evaluates operational needs, 
health conditions, pandemic safety guidance, applicable laws 
and regulations, bargaining agreements, and other factors in 
determining the availability of telework and remote work for 
individual employees and work units.

Q.3. As of October 2, 2021, the IRS still had 6.8 million 
unprocessed individual 2020 tax year returns. Is there a plan 
in place to prevent this level of backlog in future years?

A.3. The IRS has faced some of the same challenges that 
everyone in the country has faced these past 2 years, and its 
mission has also been complicated by several rounds of COVID-
relief legislation, some of it retroactive, and its work 
distributing three rounds of economic stimulus payments to the 
American people. Nonetheless, the IRS recognizes the need to 
reduce its inventory backlog and is working hard to do so now.
    Despite the challenges it faces, the IRS has cut its 
backlog in half since filing season ended in May. Further, the 
IRS has used its remaining resources to hire thousands of new 
customer service representatives in the last several months in 
order to have additional personnel entering this filing season 
and reduce future backlogs. However, decades of underfunding 
the IRS have led to fewer personnel dedicated to service than 
at any time in the last decade. In part due to significant 
underfunding for taxpayer service activities, the IRS is also 
limited in the share of its existing workforce that can be used 
to answer phones or taxpayer correspondence. The lack of stable 
funding also means the IRS has not been able to invest in 21st 
technology that would dramatically improve the taxpayer 
experience-like working to automate stages in the processing of 
paper returns.
    The challenges of the backlog and this coming season filing 
season illustrate the urgency of additional funding for the 
IRS. Had the agency entered the pandemic with adequate 
resources, it would have been well-equipped to continue to 
process returns and to serve taxpayers these last few years.
                                ------                                


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

Q.1. The practice of redlining excluded Black homeowners from 
acquiring equity, and its legacy today persists in expanding 
the racial wealth gap. The Brookings Institute reported in 
September that ``homes in predominantly Black neighborhoods 
across the country are valued at $48,000 less than 
predominantly White neighborhoods for a cumulative loss in 
equity of approximately $156 billion.'' A recent Federal 
Reserve Board OIG report noted that out of 343 consumer affairs 
examinations in 2019, 36 had a high-risk redlining matter. The 
Board also made only one fair lending referral to DOJ that 
year. The OIG Report and the Board's response focused on the 
timeliness and efficiency of fair lending reviews, rather than 
whether the Board took actions to protect borrowers and prevent 
banks from engaging in redlining and other discriminatory 
lending practices. What specific benchmarks or metrics will the 
Board establish to ensure that that it effectively enforces 
fair lending laws?

A.1. To ensure effective enforcement of fair lending laws, the 
Federal Reserve starts by evaluating fair lending risk in every 
consumer compliance examination based on the risk factors set 
forth in the interagency fair lending examination procedures. 
When performing this evaluation, we look at risk factors 
related to potential discrimination in pricing, underwriting, 
redlining, and steering.
    If warranted by our evaluation of these risk factors, we 
conduct additional analyses of a State member bank's policies 
and practices to assess the bank's compliance with fair lending 
laws and management of fair lending risk. If we have concerns 
about a pattern or practice of any type of lending 
discrimination, we require the bank to provide additional data 
and information. For example, if the risk profile of a bank 
warrants a more in-depth review of particular loan products, we 
would request additional information from the bank to determine 
whether there is a fair lending violation or whether the bank 
needs to enhance its risk management to avoid future 
violations.
    When we find a violation, we cite it, and when we find a 
pattern or practice of fair lending violations, we refer it the 
Department of Justice as required by statute. In 2020, we 
referred two fair lending matters to DOJ, including a matter 
involving discrimination based on a pattern or practice of 
redlining in mortgage lending based on race or national origin.
    However, citing violations and referring matters to the 
Department of Justice are not the only tools we use to ensure 
compliance with fair lending laws. Where we do not find a 
violation of law but are still concerned about potential fair 
lending risk, we issue supervisory findings directing banks to 
take corrective actions to strengthen their compliance 
management systems and prevent future violations. From 2018 to 
2020, we issued more than 140 such findings. We follow up to 
evaluate compliance with these findings to ensure the bank has 
taken appropriate action.
                                ------                                


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

Q.1. The Federal Reserve has not yet published its digital 
dollar paper, which was initially expected to be released 
during the summer of 2021. My hope is that this report will be 
issued soon.
    In drafting the report, what did you find to be the most 
difficult part of getting this right?
    What is your personal perspective on the role of a 
potential digital dollar and stablecoins in our existing 
financial system?

A.1. On January 20, the Federal Reserve Board (Board) issued 
its discussion paper on central bank digital currency (CBDC) 
entitled ``Money and Payments: The U.S. Dollar in the Age of 
Digital Transformation'', that outlines our current thinking on 
digital payments, with a particular focus on the benefits and 
risks associated with CBDC in the U.S. context. The discussion 
paper reflects the Board's long-standing recognition of the 
important role that the private sector plays in the U.S. 
payment system. \1\ We are seeking to stimulate broad 
conversation on whether and how a CBDC could improve an already 
safe, effective, dynamic, and efficient U.S. domestic payment 
system.
---------------------------------------------------------------------------
     \1\ See ``The Federal Reserve in the Payments System'' (issued 
1984; revised 1990 and 2001), https://www.federalreserve.gov/
paymentsystems/pfs-frpaysys.htm.
---------------------------------------------------------------------------
    With respect to any possible central bank digital currency 
(CBDC), for the past several years, the Federal Reserve has 
been exploring the potential benefits and risks of CBDCs from a 
variety of angles, including technological research and 
experimentation. As we evaluate whether a U.S. CBDC would be 
appropriate, one critical question is whether a CBDC would 
yield benefits more effectively than alternative methods. These 
alternative methods could include improvements to the existing 
U.S. payment system. Alternative methods could also include 
well-designed and appropriately regulated stablecoins.
    Payments innovations, including stablecoins, have the 
potential to improve efficiencies, increase competition, lower 
costs, and foster broader financial inclusion. Well-regulated, 
privately issued stablecoins could coexist with a CBDC. In the 
future, it is possible that CBDCs, stablecoins, and other forms 
of money could serve different needs or preferences. It is 
important for all forms of money to be well-designed and 
appropriately regulated. For that reason, the President's 
Working Group on Financial Markets, together with the other 
Federal banking agencies, has recommended that Congress act 
promptly to enact legislation that would ensure payment 
stablecoins and payment stablecoin arrangements are subject to 
a consistent and comprehensive Federal regulatory framework.
    The Board has not made any decisions on whether to issue a 
CBDC. Moreover, the Board does not intend to proceed with 
issuance of a CBDC without clear support from the executive 
branch and from Congress, ideally in the form of a specific 
authorizing law. The discussion paper represents the beginning 
of what will be a thoughtful and deliberative process with 
Congress and the broader public.

Q.2. The Federal Reserve has not made decisions on the 
applications of two State-chartered banks that would use 
stablecoins for payments seeking master accounts at the Federal 
Reserve. How is the Federal Reserve working to support 
innovative banks that are offering new financial services and 
products, such as use of, and access to, digital assets?

A.2. The Board continues to monitor financial services 
innovation involving digital assets, including the potential 
risks to the financial system. As you note, certain 
institutions have requested access to the payment services 
offered by the Federal Reserve Banks. To help achieve the goal 
of applying a transparent and consistent process for all access 
requests, as well as enable appropriate consideration of the 
ramification for the broader financial system, the Board 
proposed for public comment Account Access Guidelines for the 
Reserve Banks (proposed guidelines) to evaluate such requests. 
These proposed guidelines take into account the Federal 
Reserve's legal authority and reflect an analysis of its policy 
goals. With technology driving rapid change in the payments 
landscape, the proposed guidelines would ensure requests for 
access to Federal Reserve payment services are evaluated in a 
consistent and transparent manner that promotes a safe, 
efficient, inclusive, and innovative payment system, consumer 
protection, and the safety and soundness of the banking system. 
Specifically, the proposed approach is based on a foundation of 
risk management and mitigation and recognizes that risks to the 
Reserve Banks, to the payment system, to financial stability, 
and to the effective implementation of monetary policy, among 
others, may arise when an institution gains access to Federal 
Reserve accounts and services. The Board has received comments 
from a broad set of stakeholders, including institutions and 
trade associations representing both traditional and 
nontraditional charters, as well as chartering authorities, 
academics, think tanks, and members of Congress. The comments 
received reflect broad support for consistency and transparency 
in Reserve Bank evaluation of requests for accounts and 
services but differ in their views about how best to achieve 
those goals. Staff are analyzing the comments and working to 
finalize the guidelines.
    In addition, the Board's regulatory and supervisory 
authority is generally limited to activities conducted by 
depository institution holding companies, State member banks, 
and their nonbank affiliates. The Federal Reserve is committed 
to supporting responsible innovation in banking. To that end, 
the Board is focusing on providing clarity on key supervisory 
and regulatory questions.
    With respect to coordination with other Federal regulators 
on critical policy issues, the Board is working in conjunction 
with the Federal Deposit Insurance Corporation and the Office 
of the Comptroller of the Currency) (together, the agencies) to 
understand better the risks associated with digital assets-
related activities, including those related to 
cryptocurrencies, and to develop an appropriate, coordinated 
response. As noted in the recent interagency statement on this 
topic, the agencies are engaging in policy work focused on 
providing greater clarity on whether certain activities related 
to crypto assets conducted by banking organizations are legally 
permissible and, if so, how these activities can be conducted 
safely. The agencies expect to provide further clarity on these 
issues throughout 2022.
    The Board, also in conjunction with the other Federal 
banking agencies, works closely and frequently with the 
Financial Crimes Enforcement Network on matters relating to the 
Bank Secrecy Act and anti-money-laundering policy and 
regulatory issues, including those related to digital assets 
such as cryptocurrency. Further, the President's Working Group 
on Financial Markets, \2\ together with the other Federal 
banking agencies, recently issued a report on stablecoins that 
includes recommendations for congressional action to 
holistically address the range of risks that could arise from 
stablecoin arrangements.
---------------------------------------------------------------------------
     \2\ The Secretary of the Treasury, the Chair of the Board, the 
Chair of the Securities and Exchange Commission, and the Chairman of 
the Commodity Futures Trading Commission.

Q.3. In June 2021, the Basel Committee on Banking Supervision 
(BCBS) consulted on proposed guidance for the prudential 
treatment of crypto assets, including stablecoins.
    Do you agree with the proposed recommendations regarding 
stablecoins and Group 2 crypto assets such as Bitcoin?
    How does the Federal Reserve plan to work with the BCBS and 
other international bodies with respect to digital assets and 
stablecoins?

A.3. The Basel Committee on Bank Supervision (BCBS) received a 
wide range of comments on its consultative document, which are 
an important input to the Basel process. The Federal Reserve 
and other regulators are in the process of analyzing those 
comments. As the BCBS process continues, we expect the proposed 
capital framework will evolve to reflect stakeholder input.
    As a general matter, BCBS takes a ``same risk, same 
activity, same treatment'' approach which the Federal Reserve 
supports. Developing a clear risk profile for crypto assets, 
however, is complicated by the novel nature of these assets and 
the lack of historical track record.
    For that reason, it is important to approach bank 
activities with respect to these crypto assets carefully as the 
market grows and evolves and their risks are better understood. 
The Federal Reserve has significant resources dedicated to 
better understanding this asset class.
    It is critical that the global regulatory community seeks 
to approach crypto asset related issues together to avoid 
fragmented approaches that lead to harmful arbitrage 
opportunities. Global engagement and consistency are critical, 
and the Federal Reserve Board (Board) continues to work with 
international bodies, such as the BCBS and Financial Stability 
Board, on crypto asset related issues as a mechanism for 
coordinated action.

Q.4. What steps are being taken by the Federal Reserve and the 
interagency groups in which the Federal Reserve participates to 
remain accessible to innovators and support the responsible 
growth of financial services and products enhanced by 
distributed ledger technology?

A.4. Please see response to Question 2.

Q.5. As of the termination of the Main Street Lending Program 
(MSLP) on January 8, 2021, the MSLP purchased a total of 1,830 
loan participations totaling $16.6 billion. As of October 31, 
2021, the MSLP experienced $12 million in loan losses and 
reserved an additional $2.3 billion as an allowance to cover 
estimated loan losses throughout the life of the MSLP program.
    Please provide a list of MSLP borrowers responsible for 
these MSLP loan losses and identify the main factors 
contributing to the losses incurred (e.g., bankruptcy of a 
borrower).

A.5. The $12 million in Main Street Lending Program (MSLP) loan 
losses were recognized due to events such as bankruptcy filings 
or other material adverse business events that make liquidation 
or bankruptcy appear imminent for the borrower or have 
otherwise led to the acceleration of a loan by the lender. Due 
to ongoing loan workout activity and in light of other policy 
concerns, the Federal Reserve does not plan to publicly release 
the names of individual borrowers that have triggered loss 
recognition.

Q.6. Will the Federal Reserve pursue recovery of these loan 
losses? What are the policies and procedures governing those 
recovery efforts?

A.6. Since the beginning of the MSLP, the Federal Reserve has 
stated that ``the Main Street SPV will make commercially 
reasonable decisions to protect taxpayers from losses on Main 
Street loans and will not be influenced by non-economic factors 
when exercising its voting rights under the Loan Participation 
Agreement or the Co-Lender Agreement, including with respect to 
a borrower that is the subject of a workout or restructuring.'' 
\3\ In pursuit of recovery consistent with these principles, 
the Main Street SPV relies on lenders to service each Main 
Street loan in accordance with the standard of care set out in 
the Main Street loan participation agreement and in light of 
the duties of the lender under the Main Street servicing 
agreement. The Main Street SPV will also work with each lender 
in evaluating each credit situation and engage independent 
external workout advisory and legal services as appropriate to 
pursue recovery.
---------------------------------------------------------------------------
     \3\ See FAQ J.6.

Q.7. Did the internal credit scoring model used to evaluate 
MSLP loans identify the loans that led to $12 million in losses 
---------------------------------------------------------------------------
as risky in advance of those borrowers defaulting?

A.7. Most of the $12 million in losses relate to loans that 
were rated as doubtful before the relevant event of default. 
The loans not categorized as doubtful defaulted due to 
unforeseen adverse circumstances that would not be considered 
in a credit scoring model (e.g., the unexpected death of a 
business proprietor).

Q.8. Did any lenders contribute to an outsized volume of loans 
included in the MSLP's $2.3 billion allowance for estimated 
loan losses?

A.8. At this time, the Federal Reserve staff does not see 
evidence of an individual lender contributing to an outsized 
volume of loans in the MSLP's allowance for estimated loan 
losses. The $2.3 billion allowance for estimated loan losses 
incorporates an amount for each loan in the Main Street 
portfolio. In accordance with the accounting policy of the Main 
Street SPV, loans with outstanding balances of $15 million or 
more that also meet certain triggers related to performance, 
credit rating, or value (generally those loans rated doubtful) 
are subject to an individual review and loss assessment. All 
other loan losses are estimated on a pooled basis using 
internal risk rating models that assess probability of default, 
loss given default and exposure at default for each loan given 
the rating and consideration of internal and external factors. 
Accordingly, each and every loan contributes at some level to 
the overall loss estimate.

Q.9. As you are aware, the Federal Reserve has had an 
increasing number of bank merger applications pending for many 
months without resolution. The longer the Federal Reserve takes 
to review and decide on merger applications, the greater the 
uncertainty it generates for applicants, potential applicants, 
and bank customers. The potential effect of this uncertainty is 
particularly concerning given the challenges currently facing 
the economy from inflation, ongoing effects of the pandemic, 
supply chain disruptions, and other economic uncertainties. As 
a prudential regulator, the Federal Reserve should support, 
rather than impede, the functioning of the banking system and 
the economy.
    What are the reasons for the widespread delays in the 
Federal Reserve's decisions on bank merger applications?
    How will you ensure the Federal Reserve reviews and 
resolves pending and future merger applications promptly and 
efficiently?

A.9. The Board continues to process each application as 
expeditiously as possible and within the applicable statutory 
deadlines, while ensuring that decisions are based on a 
complete record. In December 2021, the Board approved three 
bank merger applications, and the Reserve Banks approved 17 
additional bank merger applications under delegated authority.
    The Board takes seriously its responsibility to review bank 
merger and acquisition (M&A) proposals under the relevant 
statutory factors set forth in the Bank Holding Company Act and 
the Bank Merger Act. These factors include the financial and 
managerial resources of the organizations involved and of the 
proposed combined organization; the convenience and needs of 
the communities to be served by the resulting institution; the 
Community Reinvestment Act performance of the involved 
depository institutions; the effectiveness of the parties in 
combatting money laundering; and the effects of the proposal on 
competition and financial stability. Every M&A application 
before the Board is reviewed carefully in view of each of these 
statutory factors. The Board will continue to focus on 
processing M&A applications in accordance with its statutory 
obligations.
                                ------                                


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

Q.1. Earlier this month I sent you a letter along with Chair 
Brown and several of our colleagues asking you to work closely 
with the Boston and Dallas Boards of Directors and search 
committees to find and select diverse candidates for the open 
president positions.
    Can you give us an update on how that search is going, 
including what specific steps you have taken to ensure diverse 
candidates are considered?

A.1. As you know, the appointment of a Reserve Bank president 
is formally an action of eligible Class B and C directors of 
the Bank's board, with the approval of the Board of Governors 
(Board). Before a final selection is made, a diverse pool of 
candidates is very important to a strong search process. The 
Federal Reserve Banks of Boston and Dallas (Banks) launched 
their president searches in October and November 2021, 
respectively.
    Most recently, on February 9, the Federal Reserve Bank of 
Boston announced its selection of Dr. Susan M. Collins to serve 
as its next president, CEO, and participant in national 
monetary policymaking on the Federal Open Market Committee. 
This decision was reached after a rigorous search, selection by 
the eligible (nonbanker) members of the Bank's Board of 
Directors, and approval by the Board.
    The Banks have both articulated strong commitments to 
conduct nationwide searches for highly qualified candidates 
from a broad, diverse slate of backgrounds from inside and 
outside the Federal Reserve System. Furthermore, both Banks 
formed diverse search committees and hired national search 
firms to help identify candidates. In addition, the Office of 
Minority and Women Inclusion (OMWI) directors at the Board and 
the two Reserve Banks have served as advisers to the search 
committees. The Banks also have used diverse interview panels 
to ensure that different points of view and opinions are part 
of the hiring decision. Additional search committee efforts 
have included outreach to stakeholders and the public for 
feedback and input through public websites and townhalls, and 
both Banks have invited the public to submit potential 
candidates for nomination. For example, after a broad and 
diverse public outreach effort seeking input on desired 
characteristics in candidates; inviting referrals, nominations, 
and applications; and encouraging sharing of the opening within 
networks, on October 25, the Federal Reserve Bank of Boston's 
search committee and search firm held meetings with three of 
the Bank's advisory councils (the New England Advisory Council, 
the Community Development Advisory Council, and the External 
Diversity Advisory Council) and gather additional input and 
perspective on the attributes and skillsets that advisory group 
members see as important in the next Boston Fed president. And, 
on January 13, the Federal Reserve Bank of Dallas hosted a 
virtual town hall that was open to the public to discuss and 
answer questions about the presidential search process. 
Panelists included the cochairs of the presidential search 
committee, and a representative of the global search firm Egon 
Zehnder that is assisting in the search for candidates. 
Participants were able to submit questions during the moderated 
discussion, and the recorded discussion is available on the 
Bank's public website. \1\
---------------------------------------------------------------------------
     \1\ See https://www.dallasfed.org/fed/presidentialsearch.
---------------------------------------------------------------------------
    I would note that experience in recent years has shown that 
diverse boards and diverse search committees tend to consider 
and appoint diverse leaders. Relevant research also underscores 
the importance of diversity--background, experience, and 
profession--on boards and search committees. Such diversity has 
been achieved in recent years in the Federal Reserve System, as 
the Board of Governors through its direct appointment of Class 
C directors has fostered appreciable new diversity in Reserve 
Bank boards, including those in Boston and Dallas.
    The Board, through our Committee on Reserve Bank Affairs, 
has been involved in ongoing communication with the respective 
search committees about the recruitment process, including 
public engagement strategies.

Q.2. What lessons have you taken from this process for 
improving minority recruitment at the Fed, particularly for 
senior leadership positions?

A.2. The Federal Reserve and other organizations make better 
decisions with a diverse group around the table, and I remain 
committed to working with Reserve Bank directors and presidents 
to further our engagement with various communities throughout 
each of the 12 districts to develop pipelines for future 
leadership roles at the Federal Reserve.
    To foster diversity, we must develop an overall culture of 
inclusion at all levels, starting at the top. As Chair, I have 
internally and externally stated my strong personal belief in 
and support for a diverse and inclusive environment, and I have 
taken a number of steps to work towards achieving greater 
diversity and inclusivity that is also part of the Board's 
2020-23 Strategic Plan. I have led quarterly meetings with 
staff at many levels from within the Board and the System to 
discuss and assess our progress in advancing diversity and 
economic inclusion. These meetings are a priority for me and my 
colleagues on the Board.
    I also speak regularly with staff about the importance of 
fostering diversity and inclusion. I meet with the Board's 
Director of the Office of Women and Minority Inclusion on a 
quarterly basis, and I have met with the chairs and cochairs of 
each of the Board's seven Employee Resource Groups on a number 
of occasions. To see where the Board could learn from others, 
we have also hosted business and nonprofit leaders who served 
on Reserve Bank boards of directors to discuss what has worked 
well in developing a culture of diversity and inclusion at 
their organizations.
    I have encouraged and strongly supported the considerable 
outreach we do to diverse candidates in our recruiting of 
staff. This includes participating in minority recruitment 
events at Historically Black Colleges and Universities, 
Hispanic-Serving Institutions, and Hispanic professional 
conferences and career fairs. Our outreach is particularly 
notable as we hire recent college graduates as full-time 
research assistants, a position which can be an important step 
towards a career in economics. I would note that the Board has 
shown a significant increase in Hispanic hiring from 4 percent 
in 2020 to 10 percent in 2021. To build on this success, we 
will work to strengthen outreach and networking initiatives 
with organizations such as American Society of Hispanic 
Economists, Association of Latino Professionals for America, 
National Hispanic Corporate Council and Prospanica.
    We are also reviewing our recruiting and hiring practices 
to identify and implement ways in which we can further increase 
the pool of diverse qualified candidates. As a result of our 
ongoing review, we have started to broaden the research 
specializations within economics from which we have typically 
hired economists. Recruiting from a broader set of research 
areas not only may draw more diverse candidates, but also 
better supports our mission by giving us broader skill sets and 
perspectives.
    Under my leadership as Chair, the Board has leveraged its 
award-winning internship program to offer students on the job 
experience and learning and to create a diverse job candidate 
pool for our entry-level positions. The Board has also 
implemented job board and resume database access to expand 
diversity sourcing initiatives with the National Black MBA 
Association and the National Society of Black Engineers.
    Over the past 4 years, my colleagues and I have worked to 
develop the pipeline of economists from under-represented 
groups, including through outreach to students at many levels. 
We have welcomed diverse groups of high school, undergraduate, 
and graduate level students to the Board, both in person and 
through online events, to discuss career opportunities, the 
work that we do, and diversity in the profession. We are 
collaborating closely with the American Economic Association 
(AEA) and with Howard University, including by committing staff 
resources over the next 5 years to teach an Advanced Research 
Methods class to undergraduate and masters level students at 
the AEA Summer Training Program, which is being hosted by 
Howard University.
                                ------                                


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

Q.1. I am concerned that bank employees do not feel adequately 
empowered to utilize whistleblower processes, given the ongoing 
reports of systemic wrongdoing at megabanks that were not 
discovered by regulators until the problems had already become 
major systemic problems, such as the fake account scandal at 
Wells Fargo. Do you agree that stronger affirmative protections 
for workers who speak up about wrongdoing, such as ``just 
cause'' protections against wrongful terminations, would help 
address this issue? Can you commit to working with other 
prudential regulators and the CFPB to develop stronger 
protections for frontline employees who speak up when abusive 
managers or bad business policies drive bank wrongdoing?

A.1. The Federal Reserve encourages any person with information 
regarding possible unsafe or unsound practices or violations of 
law, including consumer abuses or financial mismanagement, by 
any institution the Federal Reserve supervises or any director, 
officer, or employee of such institution to report that 
information to Federal Reserve staff. Whistleblowers may elect 
to report information anonymously to the Federal Reserve, and 
in all circumstances, the Federal Reserve will protect the 
whistleblower's identity as confidential supervisory 
information to the extent permissible by law. \1\
---------------------------------------------------------------------------
     \1\ There may be some circumstances where the identity of the 
whistleblower may be disclosed, including in response to other Federal 
or State financial institution supervisory agencies, other law 
enforcement agencies, or in response to Federal or State grand jury, 
criminal trial, or Government administrative subpoenas. See generally 
Rules Regarding Availability of Information, 12 CFR Part 261.
---------------------------------------------------------------------------
    Congress has granted whistleblowers employed by insured 
depository institutions certain statutory protections against 
retaliation. Under section 932 of the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989, a whistleblower 
employed by an insured depository institution may not be 
discharged or otherwise discriminated against for providing 
information to the Federal Reserve and other agencies with 
supervisory and law enforcement responsibility. \2\ The Federal 
Reserve takes seriously claims of retaliation against 
whistleblowers and encourages any claim of retaliation be 
reported to Federal Reserve staff.
---------------------------------------------------------------------------
     \2\ See 12 U.S.C. 1831j.
---------------------------------------------------------------------------
    Whistleblowers take substantial professional and financial 
risk to bring forward information regarding potential 
misconduct in the institutions that the Federal Reserve 
supervises. The Federal Reserve is committed to ensuring that 
they are protected from retaliation.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR VAN HOLLEN FROM JEROME H. POWELL

Q.1. Chair Powell, Acting Comptroller of the Currency Michael 
Hsu has announced that the OCC plans to issue climate-risk 
management supervisory expectations for large banks by the end 
of the year. Does the Federal Reserve intend to join this 
guidance? Why or why not?

A.1. Climate change poses significant challenges for the U.S. 
economy and financial system, with implications for the 
structure of economic activity, the safety and soundness of 
financial institutions, and the stability of the financial 
sector more broadly. While primary responsibility for 
addressing climate change itself rests with elected officials, 
we are committed to working within our existing mandates and 
authorities to address the implications of climate change.
    We are focused on addressing the implications of climate 
change through the lens of our mandates related to supervision 
and regulation of financial institutions and the stability of 
the broader financial system. The Federal Reserve is committed 
to ensuring that supervised firms have strong risk management 
capabilities to promote their resilience to all risks, 
including climate-related financial risks. From a financial 
stability perspective, we are working to rigorously identify 
and measure links between climate change and financial 
stability, including by examining how climate change can 
increase financial sector vulnerabilities.
    We look forward to reviewing comments on the draft 
principles released by the Office of the Comptroller of the 
Currency for comment on December 16, as we continue to move 
toward the development of an interagency set of supervisory 
expectations for the management of climate-related financial 
risks with a focus on large banks. We believe that a consistent 
approach across bank regulatory agencies will best support the 
effective management of these risks.

Q.2. Chair Powell, Acting Comptroller Hsu has also announced 
that the OCC will begin examining how large banks are 
addressing climate risk as part of their examinations starting 
in 2022. What is the Federal Reserve planning to do on 
assessing the climate risk that banks face in 2022?

A.2. In 2021, the Federal Reserve announced the formation of 
the Supervision Climate Committee (SCC) to promote the 
resilience of supervised firms to climate-related financial 
risks. The SCC is actively engaging with a wide range of 
stakeholders to understand the potential impact of climate 
change on the banks we supervise. Our engagement includes in-
depth discussions with large supervised firms on their current 
approaches to managing the financial risks associated with 
climate change and their use of scenario analysis to better 
understand physical and transition risks. We are also engaged 
in international work on these topics through our participation 
in the Network for Greening the Financial System, the Financial 
Stability Board, and our leadership role in cochairing the 
Basel Committee on Banking Supervision's Task Force on Climate-
Related Financial Risks.
    We are planning to continue this external engagement this 
year, including in-depth discussions with large supervised 
firms on a variety of climate-related topics. The SCC will also 
continue to undertake its own analysis to better understand 
bank exposures to physical and transition risks. Our engagement 
and analysis will provide the necessary foundation as we move 
toward the development of an interagency set of supervisory 
expectations for the management of climate-related risks with a 
focus on large banks.

Q.3. Chair Powell, last year the Federal Reserve joined the 
Network for Greening the Financial System (NGFS) and has since 
formed a Supervision Climate Committee. Other members of the 
NGFS have released supervisory expectations for how banks will 
address climate risk and have begun conducting examinations of 
how well banks align with supervisory expectations. The results 
of the European Central Bank's initial supervisory review 
reveal that banks face material risks from climate risk, yet 
have failed to meet the supervisory expectations laid out by 
regulators.
    Do you have similarly comprehensive information about how 
U.S. banks are positioned on vulnerability to climate risk 
relative to their European counterparts?

A.3. The SCC is actively engaging with a wide range of 
stakeholders to understand the potential impact of climate 
change on the banks we supervise. As noted above, our 
engagement includes in-depth discussions with large supervised 
firms on their current approaches to managing the financial 
risks of climate change and their use of scenario analysis to 
better understand physical and transition risks. From these 
discussions, we know that large banks are developing frameworks 
and tools to assess the financial risks and opportunities 
related to climate change. Large supervised firms are actively 
incorporating physical and transition risks into their existing 
risk management frameworks, with emphasis on governance, risk 
identification and risk measurement. The measurement of 
climate-related risks, however, poses unique challenges that 
supervisors and supervised institutions are working to 
overcome, including those related to data, uncertainty, and 
time horizon.
    The SCC is undertaking its own preliminary analysis to 
better understand bank exposures to physical and transition 
risks, potential indirect effects of climate change that can 
impact supervised firms, and trends in insurance markets and 
risk mitigation. This analytical work leverages expertise from 
across the Federal Reserve System (System), including knowledge 
of the effects of physical and transition risks on local 
economies, households, and businesses. Scenario analysis--where 
the resilience of financial institutions and the financial 
system are assessed under different hypothetical climate 
scenarios--is an emerging tool in assessing climate-related 
financial risks. The Federal Reserve is developing a program of 
scenario analysis to evaluate the potential economic and 
financial risks posed by different climate outcomes.

Q.4. Chair Powell, the New York Department of Financial 
Services (NYDFS) recently put out guidance requiring State-
based insurers to conduct scenario analysis for climate risk. 
In its guidance, the NYDFS wrote ``Technology exists today--
provided by rating agencies, asset managers, and specialty 
service providers--to quantitatively assess the resilience of 
investment portfolios to transition and physical risks under a 
range of scenarios.'' Moreover, financial regulators 
internationally have already begun developing climate stress 
tests for banks, and according to a recent report by Reuters, 
many big bank CEOs see climate risk regulation as inevitable.
    What is your plan for utilizing available technology to 
develop the strongest possible climate risk supervision 
framework?

A.4. The Federal Reserve leverages expertise from across the 
System to undertake its own analytical work to better 
understand exposures of supervised firms to physical and 
transition risks, potential indirect effects of climate change 
on the broader economy, and trends in insurance markets and 
risk mitigation.
    The Federal Reserve is also working to develop an effective 
scenario analysis program around climate change separate from 
our existing regulatory stress testing regime. This is a 
complex undertaking, and we are identifying additional data, 
technology, and modeling resources that are needed to support 
our efforts to understand the financial and economic risks 
associated with climate change. The Federal Reserve is also 
developing our capacity to incorporate climate-related data 
sets that will enhance our understanding of these risks. This 
includes, for example, increased granularity on geographic 
exposures of supervised firms and new approaches to estimate 
exposures to transition risks. These insights will inform the 
development of our supervision framework.
                                ------                                


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

Q.1. Do you anticipate that tapering corporate bond purchases 
at the pace you outlined to the Committee in February will help 
address inflationary pressures, and if so, to what extent?

A.1. The elevated levels of inflation we have experienced 
reflect a mismatch between demand and supply. Some of the 
sectors of the economy that have experienced very strong 
demand, especially those involving goods, have hit supply 
constraints. We expect inflation to start coming down this year 
as a result of both an increase in supply and a moderation in 
demand. That said, we do not think that the current imbalance 
between demand and supply will be fully resolved this year. 
Elevated inflation is currently the foremost threat to the 
achievement of maximum employment.
    The effects of monetary policy on inflation and the labor 
market generally depend on both current and expected future 
settings of the Federal funds rate as well as how the size and 
composition of the Federal Reserve's balance sheet are expected 
to evolve over time. The Federal Open Market Committee's (FOMC) 
policy actions and communications with both the policy rate and 
balance sheet tools help ensure that our policy addresses 
inflation pressure, supports progress toward maximum 
employment, and is positioned to address the full range of 
plausible outcomes.
    Our asset purchases were enormously important at the 
beginning of the recovery in restoring market function. 
Thereafter they were an important macroeconomic tool to support 
demand. In light of inflation developments and improvement in 
the labor market, the economy no longer needs this highly 
accommodative policy. Following our November FOMC meeting, we 
started tapering our asset purchases, and at our December 
meeting we decided to step up our pace of tapering. At our 
January meeting, we reaffirmed this plan, which will see our 
net asset purchases conclude in early March.
    As always, the FOMC's monetary policy actions will be 
guided by our mandate to promote maximum employment and stable 
prices for the American people. The Federal Reserve is 
committed to using its full range of tools to support the U.S. 
economy in this challenging time.

Q.2. There has been speculation about what ``full employment'' 
in the Federal Reserve's dual mandate may now mean, given that 
the economy may have been permanently altered by the pandemic. 
Do you believe there have been structural changes to the labor 
market due to the pandemic, such that the Fed may need to look 
at a new understanding of what constitutes ``full employment''?

A.2. The maximum level of employment consistent with price 
stability evolves over time for reasons unrelated to monetary 
policy. Various factors that affect labor supply, including 
those related to the pandemic, are important drivers of the 
level of maximum employment. In addition, maximum employment 
cannot be directly observed. We therefore consider a wide 
variety of indicators in assessing where the economy stands in 
comparison with our goal of maximum employment, including 
headline unemployment rate, other official measures of 
unemployment, labor force participation, measures of hours 
worked and part-time work, and outcomes for various demographic 
groups.
    The kind of labor market we had before the pandemic will 
require a long, sustained expansion, which will in turn require 
maintaining price stability and well anchored longer-term 
inflation expectations. In that sense, higher inflation may be 
the single biggest threat to a lengthy, sustained expansion and 
to getting back to a strong labor market and keeping it for as 
long as possible.
    The postpandemic labor market may look different from 
before. We will continue to do our best to understand the 
changes in the economy and remain committed to adjusting our 
policies as appropriate to promote achievement of both our 
maximum employment and price stability goals.
                                ------                                


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

Q.1. I am not unique among my colleagues in my concern that 
banking services in our communities not suffer interruptions or 
impairment, not just because of the pandemic directly, but also 
because of upheavals in hiring markets and other parts of local 
economies. A number of bank merger deals that were announced 
many months ago still await Federal Reserve approval, and these 
banks in the meantime have to deal with uncertainties for their 
customers, communities, and especially their employees.
    What will the Federal Reserve do to resolve these matters 
promptly and put an end to these uncertainties?

A.1. The Federal Reserve (Board) continues to process each 
application as expeditiously as possible and within the 
applicable statutory deadlines, while ensuring that decisions 
are based on a complete record. In December 2021, the Board 
approved three bank merger applications, and the Reserve Banks 
approved 17 additional bank merger applications under delegated 
authority.
    The Board takes seriously its responsibility to review bank 
merger and acquisition (M&A) proposals under the relevant 
statutory factors set forth in the Bank Holding Company Act and 
the Bank Merger Act. These factors include the financial and 
managerial resources of the organizations involved and of the 
proposed combined organization; the convenience and needs of 
the communities to be served by the resulting institution; the 
Community Reinvestment Act performance of the involved 
depository institutions; the effectiveness of the parties in 
combatting money laundering; and the effects of the proposal on 
competition and financial stability. Every M&A application 
before the Board is reviewed carefully in view of each of these 
statutory factors. The Board will continue to focus on 
processing M&A applications in accordance with its statutory 
obligations.
                                ------                                


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

Q.1. As reported by the Minneapolis Fed, commercial banks in 
South Dakota and across the Ninth District have experienced 
unprecedented deposit growth and lower demand for loans since 
the onset of the pandemic. The combination of relief efforts, 
shifts in spending by consumers and businesses and the search 
for profitability in a low-interest-rate environment has led to 
significant changes in bank balance sheets. Specifically, banks 
have had fewer options for deploying cash. To address this 
problem, around this time last year the Fed provided regulatory 
relief to banks by allowing institutions with under $10 billion 
in assets to calculate their asset size for applicable 
thresholds based on total assets as of December 31, 2019. That 
relief expires at the end of this year. Although many thought 
this problem would have taken care of itself, banks are still 
feeling the temporary unintended consequences of the Government 
aid provided during the pandemic. The NCUA has already 
announced that credit unions will receive extended relief. Is 
the Fed considering extending its regulatory guidance issued in 
November 2020?

A.1. Community banking organizations experienced substantial 
asset growth at the beginning of COVID-19, in part due to 
participation in various programs instituted by the Federal 
Government. In response, the Federal banking agencies 
promulgated an interim final rule in December 2020 that 
provides temporary relief for community banking organizations 
that crossed certain asset-based regulatory and reporting 
thresholds of $10 billion or less after December 31, 2019. The 
interim final rule provided that the relief lasted through 
December 31, 2021, therefore allowing community banking 
organizations sufficient time to either reduce their balance 
sheets or prepare for higher regulatory and reporting 
standards. The decision to provide further relief reflected a 
balance between certain community banking organizations' need 
for additional time to prepare for higher regulatory and 
reporting standards and the consequences of the unlevel playing 
field that further relief would cause for similarly sized 
banking organizations. While the Federal Reserve Board and 
other Federal banking agencies did not extend the temporary 
regulatory and reporting threshold relief, certain regulatory 
and reporting requirements within the scope of the interim 
final rule provide a banking organization that becomes newly 
subject to a requirement a transition period before it must 
comply with the requirement. Banking organizations that become 
newly subject to requirements due to the expiration of relief 
under the interim final rule would qualify for those transition 
periods.
              Additional Material Supplied for the Record
          WASHINGTON POST ARTICLE SUBMITTED BY SENATOR TILLIS

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