[Senate Hearing 117-698]
[From the U.S. Government Publishing Office]
S. Hrg. 117-698
THE STATE OF THE AMERICAN ECONOMY: A YEAR OF UNPRECEDENTED ECONOMIC
GROWTH AND FUTURE PLANS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE CURRENT STATE OF THE AMERICAN ECONOMY, AND THE FUTURE
ECONOMIC GROWTH PLANS
__________
FEBRUARY 17, 2022
__________
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
52-911 PDF WASHINGTON : 2023
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
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THURSDAY, FEBRUARY 17, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 41
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 4
Prepared statement....................................... 42
WITNESSES
Cecilia Rouse, Chair, Council of Economic Advisers; accompanied
by Jared Bernstein, Member, Council of Economic Advisers; and
Heather Boushey, Member, Council of Economic Advisers.......... 6
Prepared statement........................................... 44
Responses to written questions of:
Senator Cortez Masto..................................... 46
Senator Daines........................................... 47
(iii)
THE STATE OF THE AMERICAN ECONOMY: A YEAR OF UNPRECEDENTED ECONOMIC
GROWTH AND FUTURE PLANS
----------
THURSDAY, FEBRUARY 17, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
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.
Every day, Americans get up, go to work, and do their jobs.
But as we know this week our Republican colleagues refuse to do
theirs.
On Tuesday, this Committee met to vote on five outstanding
nominees for the Federal Reserve. Republicans did not show up.
Not a one. Instead, they went AWOL in the fight against
inflation.
At this pivotal moment in our economic recovery, everyone
understands that we need a full Federal Reserve board--it would
be the first time in nearly a decade where all seven members
sat, confirmed members sat at the Fed--to help tackle
inflation. Republicans have no solutions. Only political
stunts. Americans do not want more political theatrics. They
want actions and solutions to bring down costs.
We will not stop fighting for these nominees. These
nominees--I will just tell you what they have all done. They
have met with every Senator, every single Senator who asked for
a meeting, on Committee, off the Committee. They met with
Committee staff, majority and minority. They offered to meet
with many of my colleagues who refused to meet with them, and
some of them then boycotted the vote. They answered every
question posed to them at the hearing. They answered every
question submitted for the record, more than 200 of them, in a
timely matter. One nominee even answered questions submitted
after the deadline.
If we are going to continue growing our economy, we need
all seven Governors in place. We need these professionals,
working and debating and making decisions about monetary
policy, and interest rates, and jobs, and tackling inflation.
I implore my Republican colleagues to show up and vote.
Vote yes, vote no, just show up and vote. It is your job. I
implore--and the American people expect--for you do your jobs,
just like they do every day.
Let me read a few headlines from the past few weeks:
``Strong Jobs Report Shows Resilient Economy'', ``January
Jobs Report Crushes Expectations'', ``Biden Sets First-Year
Record With 6.6 Million Jobs Added''.
In my State, long derided as the ``Rust Belt,'' Ohioans
have been waking up to headlines like these:
``Intel Picks Ohio for Largest Chip Factory in the World'',
``Hyperion Fuel-Cell Company To Open Largest Columbus Factory
in a Decade'', ``GE Aviation Lands $6.8 Billion Engine Deal in
Sign of Rebound From Pandemic'', ``Intel's Investment:
Gamechanger for Ohio Jobs''.
America is in the midst of unprecedented economic growth.
Our GDP grew by 5.7 percent last year, the strongest annual
growth in 40 years. For the first time in two decades--and this
is, I think, particularly significant--our economy grew faster
than the economy of China.
Job creation hit an all-time high. We added 6.4 million
jobs last year, an average of more than half a million jobs
every single month. We saw the fastest drop ever in the
unemployment rate. American entrepreneurs started more than 5
million new businesses in 2021, another record.
Raw jobs numbers of course do not tell the whole story.
They do not tell you how good the job is, what kind of wage it
pays. On that front, though, the news is perhaps even better.
Wages are rising, particularly for hourly workers who have been
left behind in past economic recoveries. Workers are finally
starting to share in more of the economic growth that they
create.
American families' disposable incomes were higher in 2021
than they were before the pandemic, even adjusting for
inflation. As Assistant Secretary of Treasury Ben Harris said 2
weeks ago, ``Household balance sheets were exceptionally
healthy due in part to the American Rescue Plan, other
Government pandemic assistance, and brisk wage growth.''
All of this progress was possible because of the American
Rescue Plan. We promised shots in arms, money in pockets, and
workers back on the job, and the Rescue Plan delivered.
We know that challenges remain. For all the progress we
have made, we cannot deny that many of the people we serve say
they do not feel it. People are exhausted. They are tired of
this pandemic, they are tired of the anxiety, they are tired of
the way that it has divided neighbors, divided schools, and
divided families.
The number one thing we can do to improve our economy and
improve people's lives is to defeat this pandemic, and we are
on the right course. Cases and hospitalizations are dropping.
Because of the American Rescue Plan, a great majority of
Americans are now vaccinated. Everyone can get a booster shot.
We no longer have to live in fear.
We also know that the pandemic has caused inflation to run
too high. Workers feel it every time they go the grocery store.
Inflation is a real problem and one that we, as a country, need
to address directly. It is all the more reason why we need a
full Federal Reserve board.
The pandemic has revealed that our supply chains are too
long and too fragile. It causes higher prices in some
industries. No one wants to have to go to three different
stores to get all their shopping done, or to have every option
they try to buy on backorder for months. It is maddening, it is
draining, it is frustrating for the American public.
We know how to fix it--you make more things in America. For
too long, our trade policy and our tax policy have encouraged
corporations to move production overseas. It has cost us
millions of jobs, especially in the States of Pennsylvania and
Ohio. It has contributed to our supply chain problems today. It
is time to bring those supply chains back home.
The House and Senate have passed bills to spur domestic
manufacturing, research, and development. They would allow us
to better compete with countries like China. They would support
the production of key inputs like semiconductors. We should put
a comprehensive bill on the President's desk soon.
We also took an important step to speed up our supply
chains by passing the Bipartisan Infrastructure Bill to improve
our roads, and our bridges, and ports, making it easier and
more efficient for American manufacturers to get products to
market.
As important as all of these steps are, Government is not
the only actor here. Corporate consolidation is reducing
competition, giving consumers fewer choices and workers fewer
options. Nobody explains better in the meatpacking industry
than my colleague from Montana, Senator Tester, what has
happened there. Too often corporations increase prices while
cutting an even larger check for executives and shareholders.
The Wall Street Journal tells us that two-thirds of the
largest publicly traded companies have reported larger profits
in 2021 than in 2019. In recent weeks, CEOs have bragged to
Wall Street about their ability to increase prices on
consumers.
Let us be clear. Raising prices is a choice, is a decision
that corporations make. They could make a different choice.
They could reduce the amount of stock buybacks. Millionaire
executives could actually take a bit of a pay cut, or even just
get a slightly smaller raise this year.
But there is nothing forcing them to make a better choice,
because there is not enough competition in the economy. We need
an economy that works for everyone, not just those at the very
top. We cannot declare the recovery complete until all workers
can find a job that pays them fair wages, that treats them with
dignity, and that allows them to keep up with the cost of
living.
Today we will hear from all three members of the
President's Council of Economic Advisers: Chair Rouse, Dr.
Bernstein, and Dr. Boushey. These are skilled economists who
understand that behind all the charts and models and tables are
real people with hopes, dream, and ambitions.
As Chair Rouse said in January, the actions that the Biden
administration has taken have led to, quote, ``unprecedented
improvement in our economy and important investments made in
its future productive capacity.'' I look forward to hearing
more about this year of unprecedented growth, the current state
of the economy, and plans to continue this expansion.
Ranking Member Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. I have to start by
observing it is a little bit rich to be lectured by the
Chairman about not attending a markup of nominees when the
Chairman personally led the Democratic boycott of the Senate
Finance Committee markup of two Trump nominees. There were
several other Democrats on the Committee who participated in
that boycott. I guess what is good for the goose is not good
for the gander.
It is also rich to hear wailing and gnashing of teeth about
vacancies on the Fed board and this newfound Democratic concern
over inflation. First of all, I and my Republican colleagues
have been on record for well over a year warning about
inflation risks, warning about the excessive spending.
Democrats criticized us for wanting to normalize interest rates
and Fed policy. And yet here our Democratic colleagues are
pushing for yet another inflation-fueling spending blowout
bill.
The fact is the Fed is fully functional. The FOMC has 9 of
its 12 members in place. They could raise rates today if they
wanted to. They could do it tomorrow. They could do it at any
time.
But what is really ironic is that it is the Chairman's
decision not to move five nominees forward. We made it clear,
and I made it clear last week to the Chairman repeatedly,
publicly, and privately, we are perfectly happy to vote on five
of the six nominees. That would be four Fed Governors and the
director of the FHFA. If we did, actually most of them would
get considerable Republican support. They would move on.
And if there were a concern about vacancies on the Fed, the
Chairman could fix that very quickly. He chooses not to. He
prefers to have the vacancies. That is his choice.
It is also interesting how some of my Democratic colleagues
have been so passionate about ending the revolving door. I
think you could argue some have practically made a career out
of railing against the revolving door, where people go from a
powerful Government regulator to go work for the industry that
they regulated, they enrich themselves, and then maybe they
come back to do it for another loop. Is there a more
archetypical example than Ms. Raskin?
Senator Warren recently tweeted and called Randy Quarles
``corrupt'' because after he left the Fed he went back to the
firm, the private equity firm that he had founded himself. So I
guess it is corrupt if a Republican does that, but the rules do
not seem to apply in the other direction.
The Chairman said that the candidates answered the
questions. Let me be very clear. Ms. Raskin was far less than
candid with us. She failed to disclose that she even was a
director of Reserve Trust. She failed to disclose the $1.5
million she made for that service. She failed to disclose
hundreds of pages of writing and hours of speeches.
When she was asked how did she get on the board of Reserve
Trust in the first place, she said she could not recall, which
is odd because the founder and chairman says in an article in
today's Wall Street Journal that he has known the Raskins for
decades.
When Ms. Raskin was asked if she ever contacted the Fed on
behalf of Reserve Trust, first she evaded the question
repeatedly, but then eventually she replied by saying she could
not recall.
Well, that is funny, because the Kansas City Federal
Reserve President recalled the conversation very well. The
chairman of Reserve Trust recalled the conversation. He was not
even part of it. But we are supposed to believe that Ms. Raskin
just could not recall.
And let me remind everybody why this is important. Reserve
Trust is a fintech company based in Colorado, and it applied
for something that is extremely valuable: a master account at
the Fed. To my knowledge, there is not a single fintech in
America that has gotten that, and unsurprisingly, they were
denied. Their application was turned down. Then, Ms. Raskin on
the board, called the Fed, and shortly thereafter, the Fed does
a 180-degree reversal and approves the master account.
To the best of my knowledge, as of today, there is a grand
total of one fintech in America that has a master account with
the Fed and it is Reserve Trust.
So we asked an obvious question. Why the reversal? Why the
180-degree change? What changed?
First we get stonewalled. Then we finally get a partial
answer from the Federal Reserve Bank of Kansas City. Let me
just quote one sentence that summarizes it. The Federal Reserve
Bank of Kansas City says, ``After its denial''--and that is a
reference to the denial of the master account application--
``after this denial, RTC changed its business model and the
Colorado Division of Banking reinterpreted the State's law in a
manner that meant RTC met the definition of a depository
institution.'' That is from the Federal Reserve Bank of Kansas
City.
My problem with that is on Tuesday night, the Colorado
Division of Banking says that is not true. And this is what
they said, and I quote, ``We consider the statement that the
division reinterpreted State law as a misrepresentation of our
practice.''
So it remains entirely unclear what happened here. All we
know is that Ms. Raskin was in the middle of it. The firm on
whose board she sat applied for a very, very valuable account
with the Fed. They were turned down. She intervenes, they get
approved, and we cannot get an explanation of what happened
here.
Is that fair to all the other fintechs across America that
would also like to have master accounts, and they have been
turned down? How is that fair to anybody? And how is this
Committee doing its job if we do not insist on getting some
answers to this question? But we get stonewalled. We get
answers from the nominee that she cannot recall, and we get
basically nothing from the Fed.
So, Mr. Chairman, it is your choice if you want to continue
to preclude the possibility of having four nominees from the
Fed confirmed and the FHFA Director. We are quite happy to
process those nominees. But we want answers before we vote on
Ms. Raskin.
Let me just close with a quote justifying a boycott of a
recent markup of nominees. And I quote, ``By refusing to demand
honest, transparent information about the business dealings of
these nominees the Committee failed to do its job on behalf of
the American people.'' That is Sherrod Brown, February 1, 2017.
Chairman Brown. Thank you, Senator Toomey. I do not want
this to be back-and-forth, because we have witnesses here for a
real reason. But let me just say two quick things. One is our
not showing up in the Finance Committee and the HELP Committee
to discuss and actually ultimately vote on two, as it turned
out, particularly one corrupt Cabinet nominee, Dr. Price, who
was in office only about 4 or 5 months and resigned under a
scandal, did not stop the Committee from voting. It was a
protest that they had not answered nearly enough of our
questions. They did not give the kind of response that Sarah
Bloom Raskin, Governor Raskin and others gave, the fulsome
kinds of answer they gave to dozens and dozens of questions. So
we were protesting that, but did not block a vote because the
majority could still go ahead. That is the difference in this.
And the Banking Committee has never done that.
The second issue on voting on four noms--and I know that is
Senator Toomey's contention over and over--he knows, we all
know that that would set a precedent, of the Ranking Member can
decide, based on answers to questions that a nominee gave. I do
not like the answers to climate change especially is one that
has offended many, many Republican Members. Then if a Ranking
Member can say, ``I do not like the answers to the questions,''
then simply withhold a quorum, it means the Ranking Members
then choose whom we are going to vote on. So any Ranking
Member, whether it is Finance or Banking or Veterans or any
other committee, can simply say, ``I did not like his answers.
I did like her answers. We are not going to show up to vote,''
then essentially the Ranking Member determines whom we are
going to vote on.
So we are voting on all five of these Federal noms. We are
voting on FHFA. They are very qualified. That is our intention
when we get back in March.
To our witnesses--Dr. Rouse, Dr. Bernstein, Dr. Boushey--we
welcome you to the Committee. I believe this will be our first
hearing in a long time, as long as I can remember, with the
full CEA before the Committee.
Chair Rouse, please begin your testimony. Thank you for
joining us.
STATEMENT OF CECILIA ROUSE, CHAIR, COUNCIL OF ECONOMIC
ADVISERS; ACCOMPANIED BY JARED BERNSTEIN, MEMBER, COUNCIL OF
ECONOMIC ADVISORS; AND HEATHER BOUSHEY, MEMBER, COUNCIL OF
ECONOMIC ADVISORS
Ms. Rouse. Chairman Brown, Ranking Member Toomey, Members
of the Committee, thank you for inviting me and my colleagues,
Heather Boushey and Jared Bernstein, here to testify today.
Just over a year ago, President Biden entered office with a
full agenda, a pledge not only to fight the pandemic and
support economic recovery, but also to rebuild our economy for
sustainable and more widely shared growth. Success was not pre-
ordained. The country faced a still-raging pandemic, a weak
economic recovery, and historic job loss.
Thanks to the collective efforts of the Administration,
Congress, and the Federal Reserve, we have been able to recover
with strength and speed. And importantly, we have begun to lay
the groundwork for an economy that is stronger, more resilient,
and more equitable.
Over the last year, millions of Americans have gained
protection from the worst of COVID-19, businesses have been
able to resume activity, and children are back at their school
desks. Economic recovery has been strong. In 2021, GDP grew
faster than it has in almost 40 years and the U.S. job market
gained more than 6.7 million jobs. Unemployment is down to 4
percent, years earlier than projected. Child poverty is likely
to be reduced by almost 40 percent in 2021.
The American Rescue Plan was a critical component of this
recovery. It served as an insurance policy to address the
uncertainty of a global pandemic, and support the economy as
the virus, and the tools to tamp it down, evolved. The
emergency measures worked, resulting in a robust economic
turnaround. Families and businesses have had the means and
resources to cope in the short-term. Ultimately, workers and
small businesses have avoided the lasting damage we typically
see when economic crises are allowed to linger.
But as President Biden has made abundantly clear, helping
Americans weather the pandemic is simply part one of his
economic vision. The Administration's strategy encompasses what
the President and Treasury Secretary Yellen have called
``modern supply side economics,'' that is, we must make
investments in our economy to boost labor supply, raise
productivity, reduce inequality, and create strong, sustainable
growth.
The Bipartisan Infrastructure Law is a historic step toward
realizing that vision, providing long-overdue investment in our
Nation's roads, bridges, water systems, and broadband
infrastructure. We commend the bipartisan work of many on this
Committee for making these necessary investments, and know your
Governors, mayors, and constituents are grateful.
Unlike the American Rescue Plan, which was short-run relief
designed to be spent out over the course of the pandemic
emergency, the infrastructure law will be spent out across the
country over years, building and strengthening the foundation
our economy needs to increase its productive capacity.
Other administrative actions this year will also contribute
to long-term economic growth. Examples include the whole-of-
Government approach to increasing competition in markets,
addressing climate change, and fostering greater equity.
Of course, challenges remain. The gains in our economy have
taken place against the backdrop of a once-in-a-century
pandemic economy, where what we know about downturns and
recoveries has been tested. Vigilance is required to ensure we
do not backslide when curveballs like Omicron come our way.
And Americans are feeling the pinch of inflation--at the
pump, in grocery stores, and in the marketplace. The pandemic
itself has been a major driver. Consumers have shifted their
spending from services to goods and global supply chains have
been severely tested. A lack of workers has stymied the supply
of goods and services as well.
In the near-term, the principal tools to curb inflation
rest with the Federal Reserve, which is why it is critical to
confirm the five highly qualified nominees now. The
Administration also has some tools it can employ, as
demonstrated in recent actions to improve supply chain
disruptions at the ports and increase the capacity of the
trucking industry.
In the longer term, we must make real investments, be that
in our roads and bridges, or people and ideas. Sustainable
growth will only come about if we are able to increase economic
capacity and allow more Americans to participate productively
in our economy. The economic challenges of 2022 must, of
course, be met, but we must also lay a foundation for future
generations.
In doing so, we must create an economy that rewards work,
not wealth. The Administration's economic agenda aims to ensure
that those in the middle class, who have largely been left out
of economic investments for the past 40 years, will finally
benefit, ensuring that growth is more broadly shared.
We need Congress to act on the President's full economic
agenda to achieve these goals: providing necessary funding to
continue to address the pandemic and keep the economy
functioning; passing USICA to bolster competition and build
resiliency into the market; enabling the energy transition to
curb climate change; and making Build Back Better a reality so
that families can afford the needs of everyday life, like
prescription drugs and childcare. As noted by 17 Nobel Prize
winning economists, these long-term investments not only build
a stronger economy but also ease longer-term inflationary
pressures.
President Biden's economic vision is predicated on the fact
that the economic status quo has not worked for all Americans.
For decades, it largely benefited those at the very top. We
share his vision for a stronger and more equitable economic
future for our country. Thank you.
Chairman Brown. Thank you, Madam Chair. I have two
questions for you and I hope to get, if answers are short
enough, to Dr. Boushey and then Dr. Bernstein.
Chair Rouse, many American workers and families are
concerned about high prices at the grocery store and the gas
station. What is your assessment of inflation right now? What
is the best way to fight it?
Ms. Rouse. Well thank you very much, Mr. Chairman. So we
understand that inflation is affecting consumers' pocketbooks
with higher prices, at the pump, grocery stores, from various
goods. Our view is we expect inflation to moderate over the
coming year, because we believe that the factors that have been
causing high inflation will begin to ease as COVID cases
gradually decrease.
You know, inflation is fundamentally a mismatch between
supply and demand, which has partially reflected a change in
demands as consumers have shifted their spending to goods. So
what we need to do is we have to accommodate demand. We know
that we have to have increased supply. Producers have been
increasing their prices because of the constrained supply. So
we need to ensure that the ports are strong, that we have
robust investment in our infrastructure.
I will say in the short term this really is in the purview
of the Federal Reserve, which is why confirming the nominees is
so very important. The Administration is doing what it can to
increase supply chains, to get more workers back to work,
including truckers with apprenticeship programs, and other
efforts. In the medium term, the competition agenda is so very
important because we know concentration, in concentrated
markets that gives some price pressure for firms. It reduces
innovation. It can cause lower wages for workers.
Importantly, the President's economic vision of investing
in infrastructure and people and ideas is really the long-term
solution, building economic capacity for addressing longer-term
price pressures.
Chairman Brown. Thank you. My friend and colleague, Rob
Portman, called the Bipartisan Infrastructure Bill a
deflationary bill, that it will help drive down prices for
Americans consumers. Do you agree with that?
Ms. Rouse. What I agree is that the Bipartisan
Infrastructure Law makes critical investments in our roads,
ports, bridges, broadband, takes lead out of pipes. Those are
important investments which increase our economic capacity. By
increasing capacity we can accommodate more demand, and so
therefore it helps to ease inflationary pressures.
Chairman Brown. Thank you. Dr. Boushey, your work as an
economist is focused on how we fix problems with inequality in
the economy, whether by race, class, or gender, or even where
you live. The stock market always seems to bounce back first
from a downturn while the lowest-paid workers who experience
the biggest job losses are also the slowest to reap the
benefits of the economic growth that they essentially created.
How do we ensure that economic recovery reaches all
workers, from steel workers in rural Ohio to newly unionizing
baristas at Starbucks, and not just those at the top?
Ms. Boushey. Thank you. Thank you, Chairman. That is a
great question and a good place to start. You know, the
President has been very clear on this issue. In fact, in his
address to Congress last year he said that his economic agenda
focuses on building an economy from the bottom up and middle
out, and really making sure that we see strong, stable, and
shared economic growth. And that is why it was so important
when he first came into office to focus on getting our
economy--addressing the pandemic and getting us back to full
employment.
That is why the American Rescue Plan was so important.
There are charts behind us that show some of the successes,
getting 6.7 million workers into jobs, and importantly, many of
the gains, particularly in wages, have been felt by workers at
the bottom end of the wage spectrum. So when you get folks back
to work it has this pulling-up effect.
Now, of course, that has not solved all of the issues
around inequities, and I want to point out a couple of other
things that we have focused on early on. One thing that the
Administration focused on was making sure that the PPP program,
the Payroll Protection Program, actually went to those who
needed it the most, and there is now research showing that
actually once the Administration came into office more business
owners of color and women were able to access that program. So
that is one way.
And what shows is that you actually need to have a focused
attention, which is why President Biden, as Chair Rouse said,
these whole-of-Government approaches to equity, to addressing
climate change, and to issues around market structure and
competition, because it is only through making sure that all of
our policies are focused on both being inclusive and making
sure that those at the top are not able to be unduly rewarded
will we be able to have that kind of strong, stable, shared
growth.
I want to just end with a couple of notes, to echo what
Chair Rouse said. Certainly the Bipartisan Infrastructure Law
is an important downpayment on equity, in a variety of ways,
but I cannot stress enough how important Build Back Better is,
that more fulsome agenda, to make sure that we are addressing
the needs around care and climate across the U.S. economy.
Chairman Brown. Thank you, Dr. Boushey. Dr. Bernstein,
quickly--and sorry, I do not have a lot of time left--the
pandemic revealed longstanding weaknesses in our supply chain,
as you know. What should Congress and the Administration do to
make supply chains more resilient and bring prices down for
consumers?
Mr. Bernstein. Thank you for the question. As was
mentioned, the Administration is already engaged and working
with the ports and working with the trucking sector doing all
we can to help ameliorate some of these pressures that are
showing up in our elevated inflationary reads. The Ports of
L.A. and Long Beach process 40 percent of the Nation's
containerized imports. They actually broke their 2018 record
last year for annualized imports by 13 percent. The number of
containers sitting on the docks for 9 days has come down by 60
percent, and so on. In the interest of time perhaps we will be
able to get back to this.
But underscoring what both of my colleagues said, by
investing in the Nation's infrastructure, whether it is roads,
bridges, electric vehicles, climate we help to strengthen
supply chains by onshoring some critical capacity that is now
very much dependent on offshore arrangements. We also help to
bolster not just supply chains but build in the kind of
resiliency that has clearly been missing. Certainly microchips
are a great example of that, and USICA is very important policy
solution in that regard.
Chairman Brown. Thank you. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman. In 2019, wages
were rising, and they were rising faster than prices. And wages
were rising faster for low-income workers than they were for
upper-income workers. So we had workers--unemployment reached
record lows also--and workers were able to improve their
standard of living because their income was rising faster than
their expenses.
Now we are in a situation where wages are rising but prices
are rising faster, and the reality is for most workers they are
falling behind because the cost of the things they need to buy
every week is going up faster than any increase in their
income.
So the Bureau of Labor Statistics, on February 10th,
summarized it pretty neatly. They say, and I quote, ``Real
average hourly earnings decreased 1.7 percent, seasonally
adjusted, from January '21 to January '22. The change in real
average hourly earnings, combined with a decrease of 1.4
percent in the average work week, resulted in a 3.1 percent
decrease in real average weekly earnings over this period.''
I know that is not the intention, but is it not true--and I
will start with Dr. Rouse--that most low- and middle-income
workers have experienced a bigger rise in the cost of the
things they need to buy than in their incomes?
Ms. Rouse. Well, I appreciate the concern very much,
Senator, and we are all very concerned about inflation and
appreciate that that is, you know, the purview of the Fed in
the short term, and it is important that we have a full slate
of Governors.
I just would like to point out the chart on the far right.
Senator Toomey. OK, yeah, I am sorry, but look. We all know
that the number of Governors is adequate to do whatever they
need to do about inflation, so let us not go there.
Ms. Rouse. OK. So let us look at this chart on the far
right.
Senator Toomey. But can you confirm the simple fact that
for most workers' wages are not rising as fast as prices?
Ms. Rouse. So some recent estimates by economists Emmanuel
Saez and Zucman suggest that actually, if we look at the bottom
50 percent of workers, that their market income, before taxes
and benefits, is greater now than it was in Q4 2019, and if you
look after taxes and benefits that they are actually ahead.
Senator Toomey. So we saw the number of 7.5 percent as the
most recent annual rate of inflation. We also know that low-
and middle-income people have a worse experience than that
because they pay a disproportionate amount of their income for
things that are rising more rapidly than 7.5 percent, like
gasoline, like groceries.
Are you telling me that you think that the average worker
in America is more than keeping up with inflation?
Ms. Rouse. So what we know is that--look, inflation is
not--we do not want to see this level of inflation going
forward, and that is why the President is focused on doing what
he can. The Federal Reserve is likely to adjust how its posture
has been toward inflation. But we do know that household
balance sheets, because of the efforts of the Federal
Government, the Federal Reserve have been maintained through
this pandemic, which is what is reflected in this chart on the
left.
Senator Toomey. OK. I am surprised that we cannot candidly
acknowledge the obvious. Wages are not growing as fast as
prices for the large majority of workers. These workers are
falling behind. Yes, if you have a lot of accumulated assets,
they have appreciated in value, and you are probably doing
fine. But the Americans I am concerned about in this case are
those who do not have huge accumulated assets.
Let me ask a question of Dr. Boushey. Contrary to what I
occasionally hear, it is an objective fact that the 2017 tax
reform made the American income tax code more progressive. We
lowered the burden for everybody and in the process changing
rules shifted the percentage, the largest percentage, to more
upper-income people.
My understanding is the Administration supports legislation
that would raise the SALT deduction from the $10,000 limit that
we put for rich people to deduct their high State and local
taxes to $80,000. I do not know any working-class people who
have $80,000 worth of State and local taxes, and yet it looks
like the Administration supports that.
My understanding, from joint tax, that the top 10 percent
of income earners would get about 88 percent of the benefit of
lifting the SALT cap. So why does the Administration want to
have this huge giveaway to wealthy people who choose to live in
expensive jurisdictions?
Ms. Boushey. So the Administration has not come out with a
position on the SALT tax at this point, and I am not here to
negotiate that with you today.
Senator Toomey. I am sorry. Maybe I----
Ms. Boushey. But what I can tell you----
Senator Toomey. Did you not endorse the Build Back Better
legislation? The House-passed bill includes----
Ms. Boushey. So the President's framework has been very
clear on his priorities in terms of tax reform----
Senator Toomey. OK, I understand, so----
Ms. Boushey. ----and he has a very robust agenda.
Senator Toomey. I just want to be clear. You do not support
the House-passed bill.
Ms. Boushey. I just said that I am not here to negotiate
that particular piece of the legislation here today, but the
President has put out----
Senator Toomey. That does not sound like much of an
endorsement, OK.
Ms. Boushey. ----a very fulsome agenda around tax reform,
focusing on taxing wealth and not work, and focused on taxing
folks making more than $400,000 a year.
Senator Toomey. OK. Thank you, Mr. Chairman.
Chairman Brown. Senator Tester is recognized.
Senator Tester. Beautiful thing. I like that. Thank you
very, very much. Just a couple of things, and I do not want to
get into an extended debate on this. I do want to get to the
economy and I want to thank you all for being here.
But, you know, when Reserve Trust got their master account
they were not classified as a fintech. It was 3 years later
they did that. And then there is an outfit by the name of Jack
Henry that did the same thing.
But what is more important here is to know that when a
Secretary, a very important Secretary, came to my office during
the Trump administration and I asked him about disclosure and
conflicts of interest, he looked at me and said, ``That is none
of you guys' business.'' A very important Secretary. And he did
not answer any of the question because he did not think I
needed to know any of the questions when I had him in my
office. I could have tried to organize so we did not have a
vote on him, but the truth is I just voted no and that was
that. That is the first question.
The second thing is that, Senator Toomey, I know you have
great skills, and so do folks across the aisle, to be able to
come in here and try to persuade minds. And I know it is
difficult because it is difficult from our side to change you
guys' minds too. But part of showing up is having that debate,
and part of showing up is having that debate before we have the
vote, and God only knows what could have happened and did not
happy because nobody showed up.
The last thing I would say is that I think you are giving
Sarah Bloom Raskin way, way, way too much credit. I serve with
a lot of folks here, and I am sure when I get out of this
position they will continue to say, ``Jon, would you consider
this or consider that,'' in whatever position I am in, whether
it is being a farmer in Montana or a meatcutter or whatever.
And I would do the same thing that I think anybody on this
Committee would do, and that is, ``I will take a look at it. I
will give you a fair shake, but I ain't just going to do what
you tell me to do.''
And you guys are making the assumption that Sarah Bloom
Raskin made a request and they just rolled. I am going to tell
you, if that is the case, we have got the wrong people on these
regional Feds. We ought to take a look at replacing all of
those. Because if that is the process that is used for giving a
master account, then we have got bigger problems than Sarah
Bloom Raskin.
That is all, and I do not want to talk about any of that
anymore. We just to try to make the Senate functional, and not
showing up does not add to the functionality of the U.S.
Senate, which I think we can all agree is pretty damned
dysfunctional at this moment in time.
I want to talk about childcare, because it is something I
hear about almost all the time when I go back to Montana. And I
want to talk about housing, which is what I almost always talk
about when I go back to Montana. And the question I am going to
ask you is pretty simple, really, when it comes to childcare,
and I do not care who answers is. I think we have got a huge
problem, and I think folks have figured it out. Because of the
pandemic, when they were staying at home, they looked at their
bottom line and said, ``Hey, I have got more money not paying
childcare and not working than busting my hump working and
paying for childcare.''
So the question becomes, if we are going to have affordable
childcare--and accessible childcare, because that is important,
I think, absolutely important in rural America but probably
important in urban America too--if we are going to have
affordable childcare, how do we do that? How do we do that, or
do we just assume the private sector will take care of the
problem? And if we do, how long will that take? Because my
grandkids are actually in high school now, and when they were
in childcare it was over $10,000 a head for them to be in
childcare 10 years ago.
So does anybody want to respond to how we make childcare
more affordable and more accessible, and what role the
Government should play in that?
Ms. Boushey. I am happy to take that question, Senator, and
this is such an important issue and that is why addressing
childcare was both an important part of the American Rescue
Plan and also an important part of Build Back Better.
So, I mean, here is the thing. You know, childcare
businesses are out there every day, trying to provide a service
to American families. It is a service that is incredibly
expensive to provide, especially to get the kind of quality
childcare workers that families need, and families cannot
afford those costs. And so the crux of what the President
proposed in Build Back Better was to make it affordable for
families to be able to pay for childcare by capping the amount
of income that families have to pay while, at the same time,
subsidizing those businesses so that they could provide high-
quality care, with qualified care providers, to families all
across the United States.
And, you know, we are already seeing just how challenged
that industry is right now. The number of workers in childcare
has fallen over the course of the pandemic as childcare centers
have really struggled to make ends meet. We have seen now that
the money from the American Rescue Plan is going out to those
providers, out to over 150,000 providers nationwide, to help
them cover their costs during the pandemic.
But all of this, it is about kids' well-being, and we know
that quality childcare is important for our future economy but
it also about making sure that parents can get to work. You
know, we have questions about making sure that labor supply
gets back to where it was prepandemic, and a lot of that is
about addressing this childcare crisis in America.
Senator Tester. Thank you. I am out of time. I would love
to get to housing and I would love to get to some job training
issues, but I will turn it back to the Chairman and Ranking
Member. Thanks, you guys.
Chairman Brown. Thank you, Senator Tester.
Senator Rounds is recognized, from South Dakota, from his
office.
Senator Rounds. Thank you, Mr. Chairman. Let me just begin
by saying I appreciate the opportunity to participate this way,
and I would like to focus on inflation and the causes of it,
and I would like our witnesses to talk a little bit about the
differences between what may very well be demand side
challenges versus supply side.
My constituents in South Dakota, like Americans across the
country are being squeezed by higher prices across the board.
Consumer prices in January were up 7.5 percent from a year ago.
Energy prices overall were 27 percent higher in January than
they were 1 year earlier. Electricity prices have jumped 10.7
percent. National gas prices have soared 40 percent since
January of 2021, reaching the highest level since August of
2014.
Right now the CPI indications are at about 7.5 percent
nationally, and PPI basically 9.7 percent, which would suggest
that there is going to be additional, or at least there is more
inflation in our future rather than less.
My question, Dr. Rouse, is what portion of this, in your
analysis, how much of this is due to demand side, where the Fed
would basically have a role versus the supply side, which, as
you indicated in your testimony earlier, this perhaps, you
know, the President having some things to do and the Fed having
some things to do. First of all, would you agree that the
supply side basically would rest more on the Presidential side
and the demand side more on the Federal Reserve side?
Ms. Rouse. Well, thank you for the question. So the way
that I see it is that we have inflation because it was
important for the Federal Government to support households,
workers, businesses through the pandemic. That is to maintain
demand. We see this in countries around the world that could
afford to do so, that they protected their constituents through
the pandemic. Supply was not able to accommodate that demand
and inflation fundamentally comes when you have a mismatch
between supply and demand.
So there have been various estimates that have been put
out, where we say the confidence interval is very wide, but we
know that as we get through the pandemic we will see regulation
in both of them.
And so what I would say is that as we are expecting that,
as we work through this pandemic, that the price pressures will
ease. You know, outside forecasters are expecting inflation to
be about half by this time next year.
Senator Rounds. Dr. Rouse, if I could I really did not mean
it to--it is not intended as a gotcha question. I am just
curious. When we talk about inflation we know that it is both
sides, and look, we recognize that we did what we could during
the pandemic to be able to make sure that our economy could
recover as quickly as possible.
My question is just right now with inflation where it is at
how do we go about addressing it? If we are serious about
addressing it, how do we do that if we cannot determine how
much the Federal Reserve should do versus how much the
Administration should do? That is my question. If you do not
have that information or if that is not part of the studies,
why not?
Ms. Rouse. So the Federal Reserve is an independent agency,
and they are studying and they will determine the speed and the
size of their response.
I will note that on a fiscal side that the fiscal impulse
has already turned rather negative, so we are already not
putting as much fiscal resources into the economy, which will
actually be slowing down the economy relative to where it has
been over the last 2 years. And we expect that as people come
back into the workforce, as the pandemic is under control, that
will ease some constraints. Getting people back to work will
help on the supply side. And as the pandemic is addressed
around the world, in particular, that will help bring more
goods as well. So there is a role to play for the Federal
Reserve in terms of fiscal policy in helping us to normalize
through this pandemic.
Mr. Bernstein. Senator, let me just say a couple of words
if I might, if that is OK.
Senator Rounds. Thank you very much. I appreciate it. My
only concern on this is I really think it is difficult to bring
this under control if we do not recognize how much of this is
actually due to supply side issues versus demand side. I think
part of that is the cost of petroleum, which is going to impact
everybody, and I think when we are not talking about what is
happening right now, when we talk about shutting down oil and
gas leases on Federal land and so forth, that sends a message
to futures, cost on crude and so forth. That may very well work
well for Mr. Putin because right now he is getting record
profits out of the oil and gas that he is producing, while at
the same time, back here at home, what we are seeing is
increasing prices for our consumers.
I just think that needs to be taken into account, and may
not be a popular thing to talk about right now with the
Administration. I think the American people should understand
that a lot of the inflationary trends that we are seeing are
due to the inflationary pushes on the supply side, which is
restricting the ability of us to have prices right now down to
where they were a year or a year and a half ago.
So I am kind of surprised at the split between the supply
side and the demand side has not been a little bit more of the
discussion that we should be having if we really want to get it
under control.
Mr. Chairman, my time has expired.
Chairman Brown. Dr. Bernstein, please answer briefly.
Mr. Bernstein. I will try to be brief because I actually
like the way you teed the question up and I think that our view
reflects much of the way you framed this, in the sense that
both demand and supply are clearly playing a role. The Federal
Reserve, of course, works more through the demand channel, and
as you suggested, our work is and can help further on the
supply channel.
The answer to the question of how much should each do, each
should do everything it can until inflationary pressures
normalize. What that means on the side of the Government, and
Congress definitely has a very important role to help here, is
to focus on the near-, medium-, and longer-term supply chain
constraints. In the near term, as I have mentioned, we have
intervened extensively in the ports, through trucking. Our
competition agenda is, as Chair Rouse suggested, intended to
help ease consumer prices in those sectors.
And then over the medium term, we very much believe that
investing in domestic semiconductor capacity is so important,
particularly regarding cars, a real source of auto pressure. We
talked a little bit about housing. That has the largest weight
in the consumer price index.
And over the longer term, the infrastructure bill and the
measures in Build Back Better are designed both to increase the
economy's supply side, productive capacity, and help reduce
costs that consumers face.
So I think your framework is actually the correct one, and
I think between the work of the Federal Reserve and Government
trying to expand productive capacity and supply side, we can
ease those pressures, perhaps as the forecast suggests, by the
end of this year.
Chairman Brown. Thank you.
Senator Menendez is recognized, from New Jersey.
Senator Menendez. Thank you, Mr. Chairman. You know, I did
not come here to talk about SALT, but since the Ranking Member
raised it let me just say, if I was Pennsylvania I would like
the way things are. Pennsylvania gets $15 billion more from the
Federal Treasury than it contributes to the Federal Treasury,
so if we could do that. I would be happy to make a deal with
all of my colleagues that have a problem with SALT, that we
will just get back whatever we send, and New Jersey would be
very happy.
Because there are maker States like New Jersey that invest
in education and research and development and infrastructure
that helps to drive the economy and sends billions to the
Federal Treasury more than it gets in return. So it is a maker
State. And then there those States that I call moocher States
that get a lot more than it sends to the Federal Treasury.
So if you want to continue to have States that are maker
States, that are blue-chip States, that make money for the
Federal Treasury, then just continue to ax the State and local
property tax deduction, which is the longest-serving part of
the Federal code in terms of a deduction, and you will see
those States be less of maker States, so that you can continue
to mooch off of it.
But let me move to the more current issue of the time.
There is no doubt that American families are feeling the pain
of inflation as supply shortages have wreaked havoc on the
world economy. However, that pain has been magnified by
companies that are hiding behind the headline inflation figures
to justify raising prices and profits on the backs of hard-
working Americans. And let us be clear. Corporations are not
the ones hurting right now.
Here is a transcript of Kimberly Clark's last earnings call
a few weeks ago. CEO Mike Hsu stated that the company took,
quote, ``decisive action to offset the impact of higher costs
with significant pricing actions.'' He was not kidding. The
price of a 50-pack of Kimberly Clark N95 masks more than
doubled, from $23.19 to $57.15, from last October to January.
And the company's plan for the future is not to deliver relief
to consumers but to resume stock buybacks, quote, ``as soon as
we get the excess cash-flow.''
It is amazing to seek profit beyond simply hiding behind
the issue of inflation.
Dr. Bernstein, are you seeing this occur in other sectors
of the economy as well?
Mr. Bernstein. Yeah. Profit rates and profit margins are
highly elevated for firms across many sectors of the economy.
That is a short answer to your question. I guess putting it in
the context of our discussion--and by the way, I did want to
correct something that Senator Toomey said. Actually, while you
are correct about the year-over-years numbers, last month real
wages actually beat inflation.
But I wanted to talk about this in the context of wage
growth and inflation. It is commonly argued that wage growth is
a source of inflation, and that is potentially true based on a
full set of other factors that contribute to inflation,
including productivity growth and the share of national income
that is going to labor or to profits. And it is completely
coherent within the algebra of how wages and inflation interact
that non-inflationary wage growth can be paid for out of
reduced profit margins, and I think that is relevant to----
Senator Menendez. Well, I just cited one quarterly profit
call. There are many others in which clearly the companies are
using the guise of inflation to ratchet up their earnings, and
that is unconscionable and we have to think about ways in which
that transparency can take place so that consumers know. It is
pretty astounding.
Let me ask one other question. Even as we talk about a
growing economy, we have a labor shortage across the economy,
which is contributing also, in my mind, to rising inflation and
unmet consumer demand. There are currently nearly 11 million
job openings nationwide across low-wage and high-skilled
industries. Immigrants are ready and willing to fill those
jobs. We had the Secretary of Energy in New Jersey the other
day at one of our research and development centers. Four of the
six people who made presentations were clearly immigrants to
the United States, leading the way in innovation.
Unfortunately, there are over 1.6 million immigrants that
still have pending work permit applications before USCIS and
over 8 million immigrants that are stuck in the broader visa
backlog. Leading business groups, including the American
Business Immigration Coalition, agree that robust immigration
legalization provisions are urgently needed to address our
significant labor shortage.
What would each of you say is the role of immigrant workers
in mitigating the current labor shortage and rising inflation?
Ms. Rouse. Well, thank you, Senator Menendez, from the
great State of New Jersey. So we completely agree, and the
President, from day one of his Administration, he sent a bill
to Congress to modernize the immigration system. He has also
issued an Executive order directing a top-down review of
barriers to access in our legal immigration system, as you
know, on which U.S.-based employers rely to fill these critical
labor needs.
So in response to that order, agencies have worked to
create efficiencies in the work permit process, expediting work
permit approvals for health professionals, extended the period
for which such permits are valid, and are actively considering
other administrative actions to expand the labor supply.
So immigration is part of the solution here. I will add
that part of our labor supply challenge was going to happen
just due to the natural demographics of our society. This
pandemic hit at the height of our--pretty much at the height of
the baby boom, as they were retiring, and we have seen some
excess retirements.
I will add that a key part of getting people back to work
will be addressing the pandemic and ensuring we have the tools
so that people can get back to work safely and not risk their
health.
But there is no question that facilitating and dealing with
the backlog of these visas is top of mind. The President's team
is working on it, and that is part of the solution as well.
Chairman Brown. Thank you, Senator Menendez.
Senator Daines, from Montana, is recognized from his
office.
Senator Daines. Chairman Brown, thank you. I just want to
start off by echoing Ranking Member Toomey's comments earlier
about the markup that was supposed to occur this week. It is
truly a shame, in my opinion, that we did not move forward and
get five of the six nominees approved. I wrote a letter in
August supporting Chairman Powell's renomination, and I know
given past concerns from my colleagues on the other side of the
aisle about the use of the revolving door, frankly I am a bit
surprised that they would not share a desire to fully vet this
nominee before moving forward.
Turning to my statement, 2021 was the year of rampant
inflation, growing from 1.4 percent at the start of President
Biden's term now to over 7.5 percent. Inflation grew faster,
and has continued to grow faster than wages for the vast
majority of workers, meaning that paychecks are effectively
shrinking every month as this continues.
On an annualized basis, real average hourly earnings
dropped 1.7 percent. And, of course, other parts of the economy
are feeling the pain. Homebuilder confidence. I grew up the son
of a homebuilder. Their confidence fell for the second straight
month, in large part due to spiking lumber and steel prices as
well as months-long waits for cabinets, garage doors,
countertops, and just about everything else you would find in a
standard home.
Energy prices are rising, gas is up 40 percent year over
year, fuel oil is up 46 percent year over year, and up 9.5
percent in just the last month. And I just found it frankly
startling we are seeing significant increases of Russian diesel
being imported now at a time when we are watching the Russians
invade Ukraine.
This, of course, not going unnoticed by Montanans and
Americans across the country. Consumer sentiment is lower now
than it was at the beginning of the pandemic. In fact,
according to a recent Gallup poll, 71 percent of individuals
living in households with incomes of $40,000 or less say that
price hikes have caused their family financial hardship--71
percent.
Of course, we were all told, all throughout 2021, by
President Biden's administration this inflation was transitory.
I have not heard the word ``transitory'' lately, and many of us
on this side of the aisle were questioning this belief this
would be transitory. We did not buy it, and sadly, our
predictions now have come true.
They are continuing to insist that a peak is just around
the corner. Well even if it is, I have not seen anything that
suggests that 7.5 percent is far too high. We just do not need
inflation to peak soon. We need it to plummet.
Now to a few questions. Looking back at the economy in
February of 2020, we saw what I would describe as a
``Goldilocks economy.'' We had wage growth across the board.
Inflation was in check. Wages were actually growing the fastest
for individuals at the bottom of the wage spectrum. To me, this
broad-based, non-inflationary growth was about as good as it
gets.
My question for the panel is this. Would you agree that the
pre-pandemic economy, from February of 2020, is better than the
economic picture as we sit here today? A simple yes or no will
suffice.
Ms. Rouse. I will agree that the prepandemic economy on net
was looking fairly strong. However, that prepandemic economy
reflected many years of rather anemic growth. It was
reflecting, even in terms of wage growth at the median, we had
seen a little bit but there had been decades where at the
median there had not been robust wage growth. We know that
there were gaps by race and ethnicity that had been
longstanding.
So I would argue that while, in February of 2020, the bones
of the economy were strong that there were weaknesses there
that this President felt we should address, which is why his
economic agenda is designed to increase the economic capacity
in order to generate more robust, sustainable growth that can
be more equitably shared.
Mr. Bernstein. I will weigh in on your question as well.
The labor market is actually tighter now than it was then, by
some metrics. The unemployment rate was lower then than it is
now, although not by much--3.5 versus 4 percent. There are far
more job openings now than there were then. The GDP, probably
the most commonly cited indicator of economic health and
growth, is considerably faster now than it was then, which is
consistent----
Senator Daines. Dr. Bernstein, are you suggesting we are
better off right now than we were in February of 2020?
Mr. Bernstein. It is not a simple yes-no question, is what
I am more than suggesting. It is what I am articulating here.
There is a set of economic indicators--job openings, GDP
growth. Child poverty--child poverty was actually lower when
you factor in the interventions in the rescue plan in 2021,
probably than it was in 2020. We only have estimates of that so
far. And that is very much a function of the President's Rescue
Plan. By pulling the recovery forward, by getting shots in arms
and checks in pockets----
Senator Daines. Dr. Bernstein, I just firmly disagree with
that. We had $1 trillion of unspent COVID dollars at the end of
2020, and then, on a purely partisan basis, our colleagues
pushed another $2 trillion of Federal spending into the economy
in Q1----
Mr. Bernstein. Senator----
Senator Daines. ----and we were warned this was going to
have an inflationary effect. So anyway, I just respectfully
disagree.
Mr. Bernstein. OK. Well, I understand your point but let me
just----
Senator Daines. The balance sheet now----
Chairman Brown. Senator Daines--Dr. Bernstein, hold on.
Senator Daines. I am out of time.
Mr. Bernstein. I want to answer the question that you----
Chairman Brown. Dr. Bernstein, wait a minute. Senator
Daines, is that your last question?
Senator Daines. Well, I think I am out of time, Chairman
Brown. I want to respect the Committee.
Chairman Brown. Dr. Bernstein, a very short answer.
Senator Daines. I just respectfully disagree.
Mr. Bernstein. I am trying to answer the question that you
posed, Senator, and ticking off a set of indicators that are
actually doing better now than they were then, in the context
of a once-in-a-hundred year pandemic, which I think is a
remarkable achievement for our Administration and those in
Congress who helped us.
Senator Daines. Well, keep in mind the Federal balance
sheet right now is trillions of dollars higher than it was
before. Anyway, thank you.
Chairman Brown. Senator Warner, from Virginia, is
recognized from his office.
Senator Warner. Thank you, Mr. Chairman, and I appreciate
this Committee's nontransitory--transitory but relentless focus
on this issue. And I would point out to my colleague, I spent a
lot of time working with the former President's Treasury
Secretary, Senator Mnuchin, where we put about $5 trillion,
under President Trump, into COVID relief. We are talking about
what is potentially driving inflation. And I think those
investments, I was proud to work with him on those investments,
and I think they frankly saved this country from not only a
recession but potentially a depression.
I want to come to a topic that I think a couple of Members
have mentioned but I do not think have drilled down on, and
that is our housing shortage. We have seen rents go up 13.5
percent nationwide over the last year. In some markets it has
gone up 20 percent. We have seen home prices double over the
last decade.
A lot of this is frankly due to housing shortages. We now
have a housing shortage of about 1.7 million units, and that
grows by about 150,000 units each year. And everything I have
heard, at least, is that shortage is particularly acute not at
the upper ends, not even on the rental side at the highest-end
rental. It really is the most acute at low-income housing.
And that is one of the reasons why I am working with the
Chairman and many of us on the Committee. We had a robust
housing package in the second part of the President's
initiative that would have gone toward this supply issue.
Because if you are looking at housing costs driving upwards of
a third of CPI, and housing is a huge component of low- and
moderate-income folks' basic nut they have got to meet each
month, you know, if we really want to take on systemically and
not on a transitory basis but on a relentless basis the
question of inflation, we have got to increase housing supply.
So Dr. Bernstein--and I would be happy to hear from other
members of the panel as well--what should we be doing on
housing supply? And I was going to ask two questions. I will
try to ask just one, recognizing I would like to hear from the
whole panel. Housing supply, won't that address inflation? It
will not happen overnight but this is a long-term problem that
has been developing over a decade.
And beyond just direct Government programs there are tax
initiatives, like LIHEAP and others, LIHTC and others, that I
think make some sense. You know, private sector, then
bipartisan support of LIHTC gives that kind of incentive for
low housing construction to developers. Should we not use these
in our toolbox if we are really going to take on, not in a
short-term but in a long-term basis inflation?
Mr. Bernstein. Yes. That is an extremely important set of
questions, and let me begin by thanking you for your leadership
on this work as well as others on the Committee.
Let me start by just saying why this is so important,
underscoring some of the points that you made, Senator. There
is a long-term supply shortfall in the housing sector, and you
mentioned 150,000 units each year deficient supply. Multiply
that by 10 and you get to the number that you are suggesting in
terms of a shortfall. This is a market failure that is
particularly acute in the bottom half of the market. And why?
It is because the math does not always add up for people to
build, for builders to build, along with the problem of
exclusionary zoning problems. This makes this key to the
President's equity agenda, especially in rural areas and
communities of color.
And the third issue you correctly raised was inflation.
Shelter is the largest single component in the CPI. Housing
experts Jim Parrott and Jim Zandi recently wrote, quote, ``If
policymakers are serious about reining in inflation then they
have little choice but to take on the shortfall in housing
supply.''
What can we do? The Administration is already actively
using its executive powers to increase housing supply and
access. We have coordinated with various agencies--Fannie,
Freddie, HUD, Treasury--to create, deliver, or preserve 100,000
affordable units over the next 3 years.
But the Administration toolbox, Senator, as you well know,
is not nearly big enough to deal with the supply shortage that
goes back a decade, at least. Investments that we make now will
pay off for many years to come. Ideas that we have put on the
table, many of which you have helped champion, have a long
history of bipartisan support. And they involve the tax credits
that help to incentivize building on the supply side, where too
often middle- and low-income housing does not pencil out, given
land, permitting materials, and cost, again which predated the
pandemic; resources to help build and renovate houses; and
resources to build housing infrastructure through Community
Development Block Grants, which includes action on exclusionary
zoning.
I can say more about any of those details. It would
probably a whole other hearing to go through them in the way
they deserve, but let me stop there for now.
Senator Warner. And I think we have run out of time so I
would welcome any of my Republican colleagues who want to work
with me on bipartisan tax policy that actually incents the
increase of supply. If we do not want to take a transitory
approach and we want to take a long-term approach to deal with
inflation we have got to increase the supply of housing,
particularly for low- and moderate-income people.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warner.
Senator Scott, from South Carolina, is recognized.
Senator Scott. Thank you, Mr. Chairman, and thank you all
for showing up this morning. It has been a fairly feisty
hearing it sounds like to me, watching this back in the office
and paying attention to the comments.
I will say, there must be millions of kitchen table
economists, also known as parents, all over the country, asking
what in the world is the value of an economist degree in
Washington, DC? Because if we are failing to answer the simple
question that Senator Daines asked, which is are we better off
today than we were a year ago, the answer is emphatically
``no.'' That is not a question that people at the kitchen table
are asking in a serious manner.
When you ask yourself if the average person in this country
whether inflation was better this month than wages, the
cumulative effect of inflation in an average household in the
country, when your gas prices are up 40 percent and your
utilities are up 20 percent, the answer is ``no.'' If you had a
4 percent increase in your wages and a 7 percent increase in
inflation, the bottom line is that your spending power is down,
not up. If, in fact, you can look at inflation as an additional
tax on those folks with fixed incomes, are they better off, the
answer is ``no.''
This is not a hard question to even dig into. This is a
simple question that is clear. When your food is higher, and
your clothing is higher, and your utilities are higher, and
your gas is higher, to suggest that we are anything other than
worse off this year than we were last year, you do not even
have to believe me, as me. Ask the President's approval
ratings, the lowest ever. Why? It is because the average
American family is suffering through an incredible crisis that
they do not have to hear what you are saying. They can see with
their own eyes the disappearing dollars in their accounts. This
is not hard to see. This is easy to see.
What we should be asking ourselves is how do we make it
better, not pretending as if it is not bad. It is really bad,
and getting worse. When you are at a 40-year high in inflation,
this is not something that the average person says, ``I don't
really understand what inflation is anymore.'' They do not even
ask the question, ``What is the definition of transitory''
because this is not transitory.
So the question I would pose, if I had a question, that is
for all three of you is, how do we tell the American people
that the inflationary impact is not devastating to someone like
the woman who raised me, a single mother, who is looking at her
account go down and her challenges go up? How do we say to that
person that there is somehow, some way, good news in the
current economy? And frankly, the confusion that is going to be
caused at tax time, when we accelerated the tax refunds through
the $300 monthly payment, that leads to confusion and a delay
in refunds, because we thought there was a better way to deal
with the Child Tax Credit. I think that is going to add more
confusion to this economy, less confidence in this economy
going forward.
So I hear what you are saying, and I think the average
American is literally sitting there asking themselves, this
cannot be the Banking Committee in the U.S. Senate, unable to
come to the conclusion that we came to in January of 2021,
February of 2021, March of 2021, January of 2022, February of
2022, and we are going to be saying the same thing in March of
2022 as well.
So I would love to hear how inflation is not having the
negative impact that every other person in the country seems to
be fully going through right now.
Ms. Rouse. Senator Scott, look, we understand. The
President understands your kitchen table economics and what
people are concerned about around the table. Part of the
challenge is we are in, we hope, only a 100-year pandemic. We
have been living with this for 2 years. In this country we have
had 900,000 deaths. The case is we are still living with this
pandemic.
What is hard for all of us to understand and appreciate is
what would have happened without the American Rescue Plan,
without the other efforts of the Federal Government and the
Federal Reserve to rescue this economy and ensure that we got
through whole. I appreciate that is a very hard counterfactual
to contemplate.
I am not saying that we are exactly where we want to be,
but as we have highlighted we have had the strongest recovery,
you know, on record. We are doing better than our peers.
Unemployment has fallen dramatically. I would remind the
kitchen table economists that when the President took office
the economy was almost 9.5 million jobs short of where it was
when the pandemic started, and we have recovered almost all of
those jobs. So now people who want a job can get a job, that
unemployment has fallen more quickly than it ever has in a
recovery.
And so while we have challenges, there is no doubt, and the
President is focused on doing what he can in the short term to
try to ease supply challenges, to nominate the Federal Reserve
nominees--and Senator Toomey, I will not say anything more
about that. But we know that we need to get inflation under
control. There is no question about it.
I think that the number one way that the President needs to
be focused on, and we all need to be focused on, is getting
this pandemic under control.
Senator Scott. Thank you, ma'am.
Ms. Rouse. That this is all driven by the pandemic.
Senator Scott. Mostly because Chairman Brown is going to
cut me off in a second, so I just want to finish up here,
because I think it is really important. I think you make some
really good points. Proving a counterfactual is implementation.
I, like many of my colleagues, would love to have been able
to vote for four members of the Federal Reserve and get answers
on the fifth one. I do think that unemployment has fallen,
without any question, partially because the long-term
unemployed should be absorbed in those numbers as well. As we
all know, especially you all better than I, that the more
people who are in the long-term unemployment line, the lower
your unemployment rate goes.
And I will finally finish with this--because you have been
very gracious, Chairman, with my time, and I appreciate that
more than I can say--that the $1.9 trillion COVID relief
package that had about 10 percent for COVID-related health, 1
percent for vaccines, and $1.6 or $1.7 trillion for spending
that actually helped to fuel the inflationary impact that we
are now trying to recover from has also been problematic.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Scott.
Senator Van Hollen, from Maryland, is recognized.
Senator Van Hollen. Thank you, Mr. Chairman, and I do hope
we will vote on the Federal Reserve nominees. Vote yes, vote
no, but let's vote on all of them.
We passed the American Rescue Plan just about a year ago
because the pandemic had hit our economy hard. It had hit
workers hard. Millions of Americans were out of work. And as
you have testified today, and as the fact show--and I think
those factors are uncontested--we have seen jobs come roaring
back, over 6.6 million jobs, a record in the United States. We
have seen very robust, real GDP growth of 5.7 percent in 2021.
Now one of the reasons we passed the American rescue plan
was because families' incomes were being squeezed when they
were out of work. That included the $1,400 individual payments,
did it not, Dr. Rouse?
Ms. Rouse. Yes, it did.
Senator Van Hollen. And I keep hearing from our colleagues
about how the real purchasing power of American families went
down in 2021. It did not. Is it not the case that real
disposable income grew in 2021?
Ms. Rouse. Well, so again I will just refer to our chart
here, which is some new evidence from economists at U.C.
Berkeley, and would suggest, especially for the bottom 50
percent, that if you look at their market wages before tax and
before benefits, that they are better off today than in the
last quarter of 2019. And then when you add in benefits and
after taxes they are ahead.
So we know that inflation is a challenge, but household
balance sheets have weathered it well.
Senator Van Hollen. Well, so look. If I am a household and
what I look at is what is my purchasing power this year over
last year, and is it not a fact that real purchasing power went
up in 2021?
Ms. Rouse. It did. So these data suggest it did for most
families, but we have to acknowledge that inflation has also
been a challenge and has eaten into some of that purchasing
power. But because due to the record GDP growth there has been
a very strong recovery, so that household balance sheets are
strong and many Americans are better off today than they were
at the beginning of the year.
Senator Van Hollen. All right. And so, you know, as I look
at that, when you factor in the individual payments from the
American Rescue Plan, when you factor in the other relief, you
know, taken together with people's wages, the data indicate
that we have seen a growth in disposable, after-tax income, and
especially so for lower-wage individuals.
Let us get to where we are now, because, you know, there
has been a lot of year-over-year comparison with respect to
real wages. And I think, Dr. Bernstein, I think I heard you
clarifying something that had been said earlier. But if you
look at January's figures with respect to real wages, what do
we see?
Mr. Bernstein. I will tell you what we see but I will also
give you the beloved CEA caveat, which is that we never read
too much into any 1 month. We are always looking for trends.
However, we also look closely at the jobs report, and it did
show, in January, that the hourly wage beat the pace of
inflation. I think the hourly wage was up, if I am remembering
correctly, 0.7 percent; inflation was up 0.6 percent. Now that
is 1 month.
But it is indicative of trends that you have heard about
from all of us here today. The strength of the job market, that
was a month where we had an upside surprise in job gains of
467,000 jobs, well above what was expected, and a job market
that was powering through Omicron, that was very much upon the
land that month.
We should also underscore what Chair Rouse was just talking
about, that when the job market tightens up as much as it has,
bargaining power, leverage among working people goes up
disproportionately for those in the bottom half. And that is
one of the factors that is behind the stronger wage growth in
the bottom half and what you see there, vis-a-vis market
incomes and disposable incomes.
Senator Van Hollen. So really quickly, if we are successful
at beating this pandemic--more and more it does look like
Omicron is on the downward trend, although you never know what
will happen--but one of the issues we have seen, of course, is
during the pandemic people purchased a lot more goods relative
to what they purchased in services. In other words, that
balance changed.
Can we expect that as people get back out and can go to
restaurants and movies that that pressure, that price pressure
on goods will come down, and how would that impact inflation,
potentially?
Mr. Bernstein. That is certainly the dominant expectation,
and it is one of the main reasons why forecasts for inflation
predict that inflation will grow about half as fast at the end
of this year than it did last year. That goods-service
rebalancing helps in that regard because inflation in the goods
sector, due to the dynamic that you are describing, has vastly
surpassed that in the service sector.
But we will have to see, and look, forecasts have been
wrong. And I think the thing that we are trying to stress here
today, that both in terms of our Administration's actions in
terms of strengthening supply chains in the near term--our work
at the ports, our work at the trucks--and our legislative
agenda, including the Bipartisan Infrastructure Law and many of
the productive capacity-enhancing measures in the Build Back
Better agenda are extremely important to ease longer-term
inflationary pressures.
Senator Van Hollen. Thank you. Thank you all. Thank you,
Mr. Chairman.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Tillis, from North Carolina, is recognized form his
office.
Senator Tillis. Thank you, Mr. Chairman. Unlike what
Chairman Brown insists, I think I can have competing concerns
at the same time. I think I can be concerned that the Biden
administration's policies are propelling inflationary pressures
higher, while I also believe that Ms. Raskin should provide
answers to important questions. Thirty-six separate ``I do not
recall'' statements are simply unacceptable. To suggest that
these concerns are somehow mutually exclusive I believe is
ridiculous.
Just this morning, Chairman Brown insisted his Finance
Committee boycott in 2017 was because, and I quote, ``They had
not answered nearly enough of our questions.'' Well, let us
review Ms. Raskin under this standard, just articulated by the
Chairman earlier in this Committee.
To date, Ms. Raskin has failed to provide numerous answers.
Ms. Raskin began by failing to list her time at Reserve Trust,
claiming to not even recall how she got the job. Ms. Raskin
failed to answer repeated questions at her nomination hearing
about her conduct lobbying her former colleagues at the Fed
while at Reserve Trust.
Subsequently, Ms. Raskin provided 36 identical ``I do not
recall'' responses to questions for the record. Ms. Raskin
finally canceled and did not reschedule a meeting with
Committee staff, and said that we could clear these issues up
and get real answers to important questions.
So misrepresenting my objection to Ms. Raskin as simply not
liking her shows a lack of understanding of my concerns.
Now, Mr. Chairman, or for the witnesses, I have been
listening to the entire Committee hearing in my office, and I
was really struck by what Senator Scott was saying. He used the
term ``kitchen table economist.'' Well, I will use the term
``trailer park economist,'' because I was one of those back in
the '70s, when I saw spiraling inflation, wrong-minded policies
from the administration, gas prices that were to a point where
I could not afford to fill up a 12-gallon gas tank at about $5
at a time.
That trailer park that I grew up in is still standing in
Nashville, and I will guarantee you if I went there today and I
presented the graphics that are behind the witnesses and said,
``You are better, right? We have had a historic recovery. We
just saw the strongest recovery on record,'' which was just
stated by one of the witnesses a few minutes ago, my guess is
they are feeling the same way that I did when failed policies
of the past put us in this position. For us to suggest that
people are not struggling, for us to suggest that somehow that
buying power of those folks that are living in the same trailer
park that I did is somehow stronger just absolutely conflicts
with real-world experiences that we see out there every single
day.
Mr. Chair, I also have to restate what Senator Toomey said
earlier. For witnesses on at least more than two occasions to
suggest that the way that we are going to fix the inflation
problem is to get these board members confirmed, really, either
they do not understand that we have a functioning board that
can take action today or they do not want to acknowledge that
fact because of an agenda to have these other four nominees
confirmed before we get answers to questions. And,
incidentally, we were prepared to vote on five out of the six
nominations in the markup, until the Chairman decided to go all
the way with the sixth nomination, Ms. Raskin, where we have
serious concerns.
For the witnesses, 55 percent of the CEOs believe that we
have an inflation problem. Why is it that you think we do not,
or why is it that you think that this should not be top of mind
for President Biden's administration? Why is it, because you
have mentioned Build Back Better several times, why is it that
you think flooding a zone with even more liquidity is somehow
going to fix the fundamental problems we have with this
economy?
Ms. Rouse. Thank you, Senator. So the President is very
focused on the concern of price increases. He understands that
the price of milk and gas have gone up, and that that is a real
challenge for families. This is a President who cares about the
middle class. That is his whole economic agenda.
Senator Tillis. If I may, because I want to try and be
respectful of the Chairman's time, but because I have heard you
and others say that Build Back Better is the solution to the
problem but I see several economists who say that it would
cause inflationary pressures over the long term. It would take
not months or weeks to recover from it but we would get back
maybe to reducing inflation over the course of years. How on
earth can we think that that is the right way to go about
fixing the real-world problems that we have today?
Ms. Rouse. So look. Seventeen Nobel Prize-winning
economists agree that Build Back Better is actually the
antidote to inflation going forward, because it----
Senator Tillis. Yeah, going forward, but how soon?
Ms. Rouse. Because it----
Senator Tillis. Are some of these same economists saying
that that could be a matter of years?
Ms. Rouse. The point is that Build Back Better is not
stimulus. It is not meant to be deficit financed. The President
has proposed that it be paid for and be fiscally responsible.
It makes critical investments, and those investments will not
cause inflation. In fact, they increase the capacity.
So it is not inflationary. I am not sure who you are
referring to, but we know that this is ways to make everyday
costs affordable for families, the very families you were
referring to, in prescription costs, in childcare, and to
ensure that people can get back to work, and so that our
economy has got faster growth and it is more equitably shared.
Yes, it takes time to build and to make those kinds of
investments, but that is the kind of sustainable growth that we
seek going forward.
Senator Tillis. Well, Mr. Chair, thank you for the time. I
can just tell you that those folks that I am going to go visit
back in that trailer park over the next week or so are probably
going to say, ``I do not have years to recover. I have months,
maybe weeks to recover,'' and we have to focus on the short-
term crisis that we find ourselves in today.
Thank you, Mr. Chair.
Chairman Brown. Thank you, Senator Tillis.
Senator Smith, from Minnesota, is recognized.
Senator Smith. Thank you, Mr. Chair and Ranking Member
Toomey.
So I am sitting here and listening to this discussion, and
to listen to my Republican colleagues you would think this
economy in the United States is going to hell in a handbasket,
as my mother would say. And yet I am looking at the information
here that we have got. In the first year of President Biden's
term economy has created over 6 million jobs, the unemployment
rate has fallen to 4 percent, 3.1 percent in my State of
Minnesota, wages increased by 4.5 percent as well.
I note that according to numbers released in January by the
U.S. Census Bureau an astounding 5.4 million new business
applications were filed in 2021. So this says to me that the
American people are hopeful and are feeling that they can
achieve something in today's economy.
Now I am not saying that inflation, nor do I hear any of
you saying that inflation is not an issue that we need to pay
attention to. But let me dive into this a little bit.
A good friend of mine once said that for every complicated
question there is a simple answer that is almost always wrong,
and that seems to me to be the case when it comes to some of
the conclusions that my Republican friends are attempting to
draw when it comes to inflation.
So, Dr. Boushey, let me start with you. The question is why
is inflation going up. One simple answer pushed by my
Republican colleagues is that President Biden and the Democrats
have invested too much in the American people and that is why
inflation is going up. Is that the right conclusion to reach,
Dr. Boushey?
Ms. Boushey. Well, here is the thing. We are recovering
from a historic pandemic. As Chair Rouse said, everything about
our economy right now starts with that fact, that we have to
get the pandemic under control. That is why we had the economic
challenges. It is why we needed to take those historic actions
to support families through this crisis. And it is why, at this
point, even though we have supported families and 6.7 million
people have a job today that did not a year ago--an incredible
achievement, one that forecasters did not think that we would
be able to do.
But that has meant that demand and supply are not in
alignment, and, because of the pandemic, it has been hard for
suppliers to get goods to shelves and people are not going out
and doing things, buying services, at the same level that they
used to. They are not going out to eat. They are not doing
those things. They are buying stuff, but the pandemic has made
it difficult for those things to get to market.
And there are examples all across the economy, but it is an
imbalance in supply and demand. And it is because families have
been supported through this pandemic. You know, that is a core
part of the problem. They have jobs and so they can go out and
buy these goods and demand them.
So yes, it is a complicated issue but it does not mean that
the economy is all bad.
Senator Smith. Well, and it is not the correct assumption
to draw, or conclusion to draw that the actions that we have
taken are the reason why inflation is going up.
Dr. Rouse, this chart here shows that the inflation-
adjusted income is rising for Americans in the bottom 50
percent of the economy. So what conclusion can we draw, based
on what Dr. Boushey just said, about whether the strong action
that we have taken has created more opportunity in the American
economy as we have been struggling with this pandemic?
Ms. Rouse. Well, when Congress took action because of the
pandemic there were two choices, right. Many people have been
concerned about the spending, that we could not afford it, but
there are two choices. We know that because we had to power
down the economy, if action had not been taken that actually
would have shrunk economic activity.
Senator Smith. Right.
Ms. Rouse. And so, therefore, we would have found ourselves
with people with less income. We would have had less economic
growth. Our economy would be smaller.
Instead, Congress, with you all and the prior
Administration, this Administration, the Federal Reserve,
thought it was more important to support the economy so that we
could come out actually even stronger. In fact, the IMF has
recently updated their forecasts, projecting that the U.S.
economy will be stronger in 2024 than it was before, because of
our actions.
So what was important was to maintain the economic activity
so that we could get through this downturn stronger than when
we came in. So that was the rationale.
Senator Smith. Thank you. And Dr. Bernstein, I mean, are
not Americans better off than they were a year ago? Do we not
have millions more Americans vaccinated? Do we not have most of
our students back in school? Are not millions more Americans
back at work?
Mr. Bernstein. Absolutely. And I want to underscore a point
that you are making, using the graph that you held up. If you
actually look back at the heart of the pandemic in 2020, where
you see that big dip in the red line and a big increase in the
other color line, which I am color-blind so I do not know what
color it is--I will call it blue--that gap there is a good
example of exactly what you are raising. Absent the fiscal
support, incomes would have looked much more like the red line
as opposed to the blue line. So this is really trying to
underscore the quote, what it would look like without the
support that Chair Rouse was talking about. So yes.
I think the thing that we never want to lose sight of is
that, yes, families face an inflation challenge that the
President underscores every time he talks about it, and we are
not sitting there watching that. We are doing everything we
can--near term, medium term, long term--with your help, to try
to ameliorate those pressures.
Senator Smith. Well, and there is more that we want to do
that we would like help from our Republican colleagues to do,
like lowering prescription drug prices, like lowering the cost
of childcare, like transitioning to clean energy so that our
utility rates are lower. And so I think those are the things
that we can do that we are already doing, thanks to the
leadership of the President.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Smith.
Senator Ossoff, from Georgia, is recognized from his
office.
Senator Ossoff. Thank you, Mr. Chairman. Thank you to our
panelists. Thank you for your service.
Ms. Rouse, I would like to discuss the affordable housing
crisis faced by Georgians with you for a moment. Statewide home
prices were up 19 percent year over year in December. I hear
from constituents every day in places like Macon, Columbus, and
Atlanta about the dream of home ownership and the ability to
afford rental properties is becoming increasingly unattainable.
Of course, this is not a new phenomenon. The affordable
housing crisis has been growing and brewing for over a decade.
First question for you please, Ms. Rouse, is will you
commit to joining for a call or meeting with me, with Macon-
Bibb Mayor Lester Miller, and Columbus Mayor Skip Henderson and
Atlanta Mayor Andre Dickens to discuss how the White House can
help support our efforts in Georgia to increase the supply of
affordable housing?
Ms. Rouse. OK. You are putting me on the spot, Senator.
What I will say--and I am open to considering the invitation--
but we completely understand that the housing crisis is a
longstanding crisis and it was not created by this pandemic but
it was exacerbated by the pandemic, and that there has been a
long-run mismatch between the supply of housing and the demand.
And that is why the Administration has put a focus on this,
through Build Back Better as well as, you know, things that the
Administration can do through administrative action. There is a
discussion of tax credits and other supports, zoning and land
use.
So we understand the very importance of housing. We need to
solve this problem. It is not unrelated to the discussion of
inflation, and we need more affordable housing.
Senator Ossoff. Ms. Rouse, thank you for that. What I am
asking is not for a policy commitment. I am asking for a
commitment for a phone call or a meeting with me, with Atlanta
Mayor Andre Dickens, Macon-Bibb Mayor Lester Miller, Columbus
Mayor Skip Henderson, to discuss how the White House can
support our efforts in Georgia to increase the supply of
affordable housing.
Ms. Rouse. I would be happy to join such a phone call.
Senator Ossoff. Thank you so much. I appreciate that.
Dr. Boushey, with business incubators located in cities
like Augusta, Alpharetta, and Duluth, Georgia, is a place where
entrepreneurship is thriving. We have diverse immigrant
communities who are contributing to the growth of
entrepreneurship and small businesses. An interesting fact
about Georgia: We have the seventh-highest percentage of
minority-owned startups in the country, and the bipartisan
infrastructure legislation permanently authorized the Minority
Business Development Agency, which will help minority
entrepreneurs with technical assistance and access to capital.
How does, in your view, limited access to capital affect
the growth of minority-owned businesses, and innovation more
broadly? What policies might you suggest Congress can implement
or the Administration can undertake to address this issue?
Ms. Boushey. Well that is a great question. Small
businesses are the lifeblood of the economy all across these
United States, so it is an important part of our economy that
we need to support.
One of the things I want to note is that attention to who
has access to capital is something that the Administration has
been focused on since day one. When the President came into
office he, as a part of his efforts to focus on equity, a
whole-of-Government approach to equity, one of the things that
we focused on was making sure that the Paycheck Protection
Program, the support that went out to small businesses actually
reached the intended businesses.
There is actually new academic research out, that just came
out a couple of weeks ago, showing that those new efforts that
were really targeted at reaching the most vulnerable small
businesses, businesses led by owners of color and women, that
we were successful in doing that, more so than previous
iterations of the PPP program.
So that gives me some hope that with a focused attention on
questions of equity and putting that together with making sure
that small businesses have access to what they need that we can
do that.
Senator Ossoff. Thank you, Dr. Boushey.
Dr. Bernstein, I have had the pleasure of visiting and
working technical colleges and technical training institutions
across the State of Georgia over the last year, since I took
office. For example, I was with the leadership over at Gwinnett
Technical College to understand more about the exciting
workforce training programs they offer students, new
innovations in robotic welding, they are offering training
opportunities.
You know, my view and the view of many in my State is that
we need to make it easier for Americans to access technical
training, technical colleges, vocational training, to develop
the skills that are necessary for steady, good-paying work in
rapidly evolving industries with increasing applications of
technology.
How, in your view, Dr. Bernstein, do workforce and
technical training help improve productivity, opportunity in
our overall economy?
Mr. Bernstein. They do so by making probably one of the
most important connections we can make in the labor market,
which is the skills of the workforce aligning with the demands
of employers, particularly in sectors and areas where that
demand is growing and those, of course, disproportionately tend
to be in technical areas. So training workers for those jobs is
so important, and the way you framed it is exactly right.
Decades ago--I have been involved in this for a long time--
training was much too disconnected to job openings. It was more
sort of getting yourself together, getting your act together in
a way to be able to go out for work. We are much more focused
now on employment-based training, connecting workers with
employers' demands.
Two other quick points. One, unions can be an essential
force in making this connection, particularly through
apprenticeship programs, and it is my understanding--I am
trying to think back of all the different proposals we have
made in this space--I do not think the Biden administration has
made a workforce proposal that does not include
apprenticeships. So a combination of unions, apprenticeships,
and the kind of technical training that you suggested is
absolutely integral to good jobs at good wages.
Chairman Brown. Senator Ossoff, thank you, and happy
birthday a day late, Senator Ossoff.
Senator Cortez Masto, from Nevada, is recognized from her
office.
Senator Cortez Masto. Thank you, Mr. Chair, and thank you
to the panelists here today.
Let me just State the obvious, because I think some of my
Republican colleagues obviously are out there stating the
obvious, which is families and individuals are dealing with
higher prices. What I did not hear from some of my colleagues
was how do we address it? How do we find solutions working
together to address it in the short term and long term?
I know one way to address it is to show up. I do not
understand why my colleagues did not show up to the hearing the
other day to reappoint Jerome Powell in the Federal Reserve,
Lael Brainard to the Federal Reserve, and look at three new
positions. I have not heard of their concerns about those
individuals so it just disappoints me that they did not show
up.
Why is this important? Because the Federal Reserve has the
important monetary tools to help us address inflation, which we
see corresponding to the high prices our families are dealing
with right now. I see them in my State. I talk to my families.
I talk to individuals. I see it at the gas pump when I fill up
my tank. I see it in my own family, when my mother was going
food shopping and she is telling me the prices, and I see it
when I am shopping or my husband is shopping.
So the obvious is there, but what are we going to do about
it? And so this is the conversation I appreciate the panelists
being here today, because unfortunately some of my colleagues
are more about stating the obvious, not finding solutions.
But here is the area I want to focus on. Because of the
high prices that I see in my State, including housing, this is
an area that I have been talking to many within my State about
how do we increase that supply chain to address the high
housing prices. Dr. Bernstein, you talked a little earlier
about this with Senator Warner, and highlighted the fact that
we do have, whether it is 5 million or 7 million, we have a
housing shortage here, and what can we do about working
together with the Administration?
I appreciate your comments that we need to continue, and
you are coordinating, and the Administration is coordinating
with Fannie Mae, Freddie Mac, and Federal home loan banks that
we are looking at continuing low-income housing tax credit, and
it is important to continue that in the BBB.
Let me ask you this. In the Build Back Better bill there
were some housing components that are actually going to address
the housing supply chain, and there are a number of them, not
just increasing the low-income tax housing credit authority,
but there is reduction of bond financing threshold from 50
percent to 25 percent to address it. There is 50 percent basis
boost for properties serving extremely low-income households
that we are looking at.
We are looking at closing the qualified contract loophole
to prevent the premature loss of units to early terminations
from the program. We are looking at protecting nonprofit
sponsors' ability to purchase properties at year 15. We are
looking to coordinate housing credit and renewable energy tax
credits. We are even looking at our Tribal communities that we
know need affordable housing and looking at area 30 percent
basis boosts.
These were all proposals that we were looking at in Build
Back Better, and I can tell you, I am talking to members in my
community about this proposal. This makes sense to increase the
housing supply.
My disappointment is my Republican colleagues are not even
there, working with us. I am hopeful that they hear this and
are going to help us address this issue instead of just
pointing fingers.
But can I ask you, based on the proposals that you have
heard and some others, does that make sense? Are we working in
the right area, the part of what we were looking at in Build
Back Better to address that housing supply and address this
issue in the short term and long term?
Mr. Bernstein. Not only does it make sense, but I do not
see how we achieve the housing goals that you articulated, and
that historically, partisans on all sides of the aisle have
shared. As you have suggested, much of the policies that you
are talking about typically involve increasing access to
housing finance, more often than not targeted at the bottom
half of the housing market, which is where the supply
constraints have been most acute. And historically these have
been bipartisan-supported measures. These, in many cases, are
subsidies that go to builders, whose housing deals simply do
not pencil out in the absence of the kinds of measures you are
talking about.
Now we have tried, as you know, in our Administration, to
leverage funds for the capital magnet fund, to work with the
FHFA to increase LIHTC equity investment caps significantly in
order to again increase affordable financing for that sector of
the market. And as you mentioned, in Build Back Better there
are extensive tax credits for the supply side, grants to
rebuild and renovate, and community block grants to renovate
infrastructure related to housing, as well as to push back on
exclusionary zoning.
Finally, what is particularly important about the comments
that you have made is that every intervention that you have
just elevated is on the supply side of the housing market.
There is a demand side, and, you know, we can think about that
and worry about that too. But the emergency is really on the
supply side, and the financing policies that we have discussed
answer the mail precisely there.
Senator Cortez Masto. Thank you. And I know I have run out
of time and I will submit the rest of my questions for the
record because I do have concerns about what the Administration
is doing to restore international travel and our trade
[inaudible] and prevent future instability in the hospitality
sector.
But let me say this. This is a time for people showing up,
working together to find solutions, not to state the obvious to
families, individuals that they already know. It is time to
show up. It is time to have solutions, come to the table and
work together. Clearly there are solutions that are out there,
but we need our colleagues to show up.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Warren, from Massachusetts, is recognized.
Senator Warren. Thank you, Mr. Chairman, and Mr. Chairman,
before I jump into my questions I would like to urge my
Republican colleagues who are taking the time to attend the
hearing today to also do their jobs and vote on the five
outstanding Fed nominees. If you are going to talk to the
witnesses today about inflation, for example, then you should
be just as motivated to actually fight inflation by making sure
that the Fed has all hands on deck, and that means voting these
nominees through right now.
So let me turn to my questions. During President Biden's
first year in office, the economy added a record 6.6 million
jobs, more jobs than those added in the first years of the past
four Republican Presidents combined. Workers are benefiting
too, with wages growing at their strongest pace in years. And
this is particularly impressive because 1 year ago many
economists were predicting that at this point we would still be
caught up with high unemployment and slow economic growth as
the world struggled to deal with the fallout from the pandemic.
But this good news has also brought some bad news--
inflation. Now you might think inflation would also be bad for
companies. After all, an increase in cost of doing business
would likely eat into a company's bottom line. But that is not
happening. In fact, the CEOs of some of the biggest companies
have been bragging to their investors that inflation has
created a terrific opportunity for them to boost profits.
Take the grocery chain, Kroger. Kroger has seen its
business boom during the pandemic, with its stock price rising
nearly 40 percent over the past year. Kroger's CEO recently
told investors that, quote, ``A little bit of inflation is
always good in our business,'' end quote.
So Dr. Boushey, would you agree that it is easier for
companies like Kroger to raise prices in an inflationary
environment because consumers are generally aware that prices
are going up and that lets companies hide behind inflation to
expand their profits?
Ms. Boushey. Well as you know, Senator, President Biden is
very attuned to kitchen table budget issues, and he has been
very focused on asking the regulatory agencies to be on the
alert for price gouging. And I have in front of me a long list
of things that have been happening over the past year on his
work to make sure that markets are competitive and fair.
But let me just note one, which is the Department of
Justice and the USDA have worked together to set up a website
where farmers and ranchers can say where they see problems in
their industry, and that is just one of many things. So it is
an important issue.
Senator Warren. So an important issue. But the point I am
trying to make here is the companies get to kind of draft in
behind the inflation, and I take it you agree that that is what
is going on here.
OK. I see you nodding your head yes. I will take that as a
yes.
Let me go to another example. In a call with investors last
week, the CEO of Tyson Foods, one of the big four conglomerates
that controls as much as 85 percent of the meat market, said
they have, quote, ``restructured our pricing approach,'' end
quote, and are, quote, ``asking them''--the consumers--``to pay
for inflation,'' end quote.
Dr. Bernstein, if all Tyson was doing was raising prices to
offset their production costs due to inflation, would you
expect their profit margins to stay roughly the same?
Mr. Bernstein. Roughly the same.
Senator Warren. Roughly the same.
Mr. Bernstein. Their price increases would offset their
cost increases----
Senator Warren. Right.
Mr. Bernstein. ----which would hold their profits.
Senator Warren. OK. So their profits should stay roughly
the same.
Mr. Bernstein. Roughly the same.
Senator Warren. If that is all that was going on.
Of course, that is not what happened. Tyson nearly doubled
its profit margin over the year, to 11.3 percent, only the
fourth time in the last 30 years that the company has achieved
double-digit profit margins.
And Tyson is not making record profits because it is
selling more. In fact, it is making record profits because it
is charging more. The number of beef products it sold declined
6 percent over the year while the price of beef went up 32
percent.
So let us do one more example here. Another phrase we hear
thrown around is ``pricing power.'' In a recent interview, the
CEO of Chipotle said, ``We are pretty fortunate with the
pricing power that we have,'' end quote, and that, quote, ``If
we need to take more pricing we have room to do it. To date we
have seen no resistance from our customers,'' end quote.
Now this sounds a lot to me like what Fed Chair Powell said
when he was here last month. Big companies are, quote,
``raising prices because they can.''
So Chair Rouse, let me ask you. For those of us who do not
speak economist, is it right to say that when executives talk
about pricing power they are referring to a company's ability
to raise prices and extract profits out of consumers without
worrying about losing business?
Ms. Rouse. I would say it is fair to say that a company has
pricing power when raising prices will not cause them to lose
too many customers.
Senator Warren. And could I just ask--I know I am out of
time--what is it that gives companies pricing power? Does
concentration in an industry give companies more pricing power?
Ms. Rouse. So market concentration does tend to create more
pricing power, which is one reason why increasing competition
is such an important component of the Administration's economic
agenda, because we know that increased competition also helps
workers, spurs innovation, and generally helps markets function
better.
Senator Warren. Well, thank you very much. I appreciate it.
Thank you, Mr. Chairman. And I just want to say, I am glad the
Biden administration is not standing by. We can go after this
concentrated power, industry by industry, and that is what will
help bring prices down.
Chairman Brown. Thank you, Senator Warren.
Senator Warnock, from Georgia, is recognized.
Senator Warnock. Thank you so very much, Mr. Chairman.
Rising costs for families, as my colleague as indicated, is
a persistent problem, and it is one that I am hearing from
Georgians about every day. And it seems to me that part of
fighting against rising costs is ensuring that Federal Reserve,
the independent agency charged with managing inflation, has the
leadership necessary in place. It seems a contradiction to me
to talk about rising costs and to leave the Federal Reserve
hamstrung.
So I would encourage my colleagues on the other side of the
aisle to join us in holding a vote on the five qualified,
diverse nominees in front of us.
I have introduced a bill with my colleagues to suspend the
Federal gas tax, and in our bill Treasury would ensure that
these savings at the pump are passed on to Georgians, cutting
their gas costs. Still, every day we see headlines that large
corporations and their wealthy investors have sought to take
advantage of market volatility to pad their bottom line and
enrich themselves while hard-working Americans are the ones
making difficult decisions with their pocketbooks. They are
seeing record profits. Consumers in Georgia are paying record
prices.
Dr. Bernstein, can you talk about some of the consequences
of market concentration and corporate consolidation in this
economy and over the past decades, and has this made
corporations more powerful?
Mr. Bernstein. Questionably so in terms of industries that
are highly concentrated. We have mentioned meatpacking, and you
just heard Chair Rouse talk about some of the pricing
implications of concentration, particularly an increase in
price levels relative to an industry situation with
considerably less concentration. So we share your intuition
there.
Senator Warnock. Dr. Rouse, would you share that opinion?
Ms. Rouse. Absolutely. It is why the President signed an
all-of-Government effort. He signed an EO last summer to try to
increase competition. We have seen increasing concentration,
and I believe it is three-quarters of industries. We know that
with increased concentration not only are firms able to raise
prices relative to a more competitive market but it generates
less innovation, it can be worse for workers, and generally not
good for our economic health.
Senator Warnock. It is one of the reasons why I have been
urging a Federal investigation into apparent price gouging by
international cargo carriers. We look at the supply chain
issues. Of course, that is an important nexus point, and that
price gets passed on to the rest of us. Can you say something
about that, Dr. Boushey?
Ms. Boushey. Yes, that a good [inaudible].
Senator Warnock. OK. Let me move on to another question.
The expanded Child Tax Credit, the largest tax cut in American
history for working and middle-class families. Let me say that
again because I think that gets lost in the conversation, and
when you say expanded Child Tax Credit the average person may
not know what you are talking about. We are talking about the
largest tax cut for working and middle-class families in
American history. And it seems to me that making this tax cut
permanent would go a long way. It would certainly cut childhood
poverty in half all across our country.
Now I have heard arguments that this tax cut would
contribute to the rising costs we are all experiencing, but
when I talk to Georgians I hear that this money goes toward
everyday expenses. Georgians have told me that the tax credit
helped them to pay for health expenses, pay off debt, buy a
coat for their kid.
Dr. Rouse, do you think that the concerns that the expanded
Child Tax Credit would add to rising costs are justified?
Ms. Rouse. So the Child Tax Credit we know has immense
benefits for children, both in the immediate term in terms of
reducing food insecurity, child hunger, child poverty. It
improves their educational outcomes. It generates outcomes.
These similar kinds of programs generate positive benefits as
adults. They are more likely to work, increasing labor supply.
As adults they have less criminal activity. So it has
tremendous benefits for the children and improves the mental
health of their parents. So there are tremendous benefits
there.
We do not believe that the Child Tax Credit would be
increasing inflation, in particular, because the increase is
just so small that it is modest relative to the size of the
economy. And furthermore, under the President's plan, any
increase in the expansion of the Child Tax Credit would be paid
for. So we do not share that concern, and we believe that the
benefits of the Child Tax Credit is part of an overall effort
to invest in children. Again, it is an important investment for
increasing the economic capacity.
Senator Warnock. So it is a net benefit to the economy and
the economies of these families.
Ms. Rouse. Absolutely.
Senator Warnock. OK. Thank you.
Chairman Brown. Thank you, Senator Warnock.
Senator Reed, from Rhode Island, is recognized.
Senator Reed. Thank you very much, Mr. Chairman, and I
thank the panel for their testimony and insights today.
Dr. Rouse, labor participation rates are falling while
demand for labor is increasing. Do you have any insights into
why labor participation rates are falling and what we might do
to raise them up?
Ms. Rouse. Well hello, Senator Reed. So labor force
participation fell at the beginning of the pandemic, but
actually we have had one of the fastest recoveries in labor
force participation on record. So if we look at prime-age labor
force participation, those are Americans 25 to 54, has
recovered 2.1 percentage points of the 3.1 percentage points
that were lost at the onset of the pandemic.
We know that participation is a little slower to recover
than unemployment, after a recession, but our participation
growth has actually been relatively strong.
What you are probably referring to is we also see record
numbers of job openings, so we have a very tight labor market.
So there is no question that some people are not participating
due to concern out of the pandemic, but let us also keep in
mind that at the onset of the pandemic we were almost at the
height of the baby boom retiring. So even just looking at what
would have been the change in labor force participation in our
labor force without the pandemic, we would have seen a decline.
In addition, with the pandemic we have seen excess retirements.
So many people, I think, will be coming back as the
pandemic gets under control, but let's face it, we do have a
labor force challenge in this country. Declining fertility,
immigration has been stymied due to the prior administration.
And then with the pandemic we need to find ways to be improving
our labor force participation and our labor supply because that
is part of economic growth.
Senator Reed. Related to that, as nominal wages are rising
because of the tight labor market, as we see more people coming
back with the end of the pandemic, we hope, can we sustain this
nominal wage growth?
Ms. Rouse. You are right, Senator, that right now a lot of
the wage growth is due to the fiscal support, and what I call
``pandemic economics.'' So we see wages rising in nominal
terms.
But honestly, the President's economic agenda--so this
includes the Bipartisan Infrastructure Law, and it includes
USICA, it includes Build Back Better, which are designed to
make important investments in our economy--should have the
benefit of increasing labor productivity so that what we have
are sustained wage gains that are due from increasing labor
productivity and therefore sustainable, and should be
benefiting those at the lower end of the wealth income and rate
distribution, those in the middle, therefore more equitably
shared.
Senator Reed. In fact, the President's program is very
specifically directed at trying to maintain wage growth for
low-income, middle-income Americans, very deliberately and very
consciously.
Ms. Rouse. It is. It is not only by ensuring that the kinds
of jobs that they have are well compensated and high-paying
jobs but also by lowering--making everyday costs more
affordable--prescription costs, childcare costs--so that just
overall family well-being and household balance sheets are
growing and sustainable.
Senator Reed. Thank you.
Dr. Bernstein, you spoke very insightfully about the
housing crisis we are facing today. First a question. With the
anticipated rate increases by the Federal Reserve, do you think
that will cool housing prices significantly?
Mr. Bernstein. Historically, increase in the Federal funds
rate show up fairly quickly in mortgage rates, and we are
seeing some of that, and yes, that puts some dampening pressure
on the growth in home prices.
Senator Reed. But the rise in housing prices has been so
significant that even with a dampening housing is out of reach
of many Americans, way up into the middle class. This is not
just an issue of----
Mr. Bernstein. Yeah. So that is exactly the right way to
think of it, in my view. We have referenced that a few times in
the hearing today, the idea that the Fed, the work of the Fed
tends to operate through the demand side channel. What is
really plaguing the housing market, particularly the bottom
half, is the supply side. And there we have tried to do what we
can and have helped to support the creation, delivery, and
preservation of about 100,000 affordable housing units over the
next few years.
But the task, the challenge of literally a decade of
insufficient housing supply, particularly in the bottom half,
is nothing that any Administration can do by itself. It
requires bipartisan support through the kinds of measures that
we have been talking about today, and measures that this
Committee, again, historically, on both sides, have supported,
particularly when it comes to housing finance and ensuring that
deals in the bottom half can occur.
Senator Reed. I would add another factor here, is that
there is a critical role for State and local government,
because land use planning and other factors might be as big a
constraint on the housing supply. But I think the
Administration's commitment and also through the money we have
given to States, Governors' commitments to increase affordable
housing, is significant. It is now a front-page issue. Ten
years ago it was----
Mr. Bernstein. You are exactly right to raise zoning. I do
not think we solve this problem without dealing with
exclusionary zoning issues.
Chairman Brown. Thank you, Senator Reed, for your insight.
Senator Toomey, in closing.
Senator Toomey. Thank you, Mr. Chairman. I will just
observe briefly, I think it is simply indisputable that with
inflation running at a 40-year high, 7.5 percent annual
inflation rate, wages are not keeping up, and that means
Americans are falling behind.
I think it is also very clear that super-easy money and too
much spending by Congress are two of the principal causes. It
appears as though there is going to be some reining in of the
former. It is just really important that we not engage in yet
another spending spree, which will only make it worse. Thank
you.
Chairman Brown. Thank you, Senator Toomey. Thank you to
Chair Rouse, especially, and also, of course, to Dr. Bernstein
and Dr. Boushey, for sharing your insights today about the
strength of our economy and making it work better for all
Americans, and I know you emphasize that always.
Our goal is simple. We want everyone to be able to get a
job that pays good wages and can afford to raise a family and
retire with dignity. We want the cost of living to be
affordable so people's paychecks are not eaten away by
expenses. We are making tremendous progress on jobs, as you and
those charts certainly point out, giving workers more options,
more power to negotiate higher pay and better working
conditions. You all understand the importance and the advantage
of carrying a union card.
Our charge now is to keep that progress. If you work hard
you ought to be able to afford a middle-class life. It is that
simple. It is something President Biden for sure understands. I
look forward to continuing our efforts to make sure our economy
reflects the dignity of work.
For Senators who wish to submit questions for the record
these questions are due 1 week from today, February 24. To the
members of the CEA, please submit your responses to questions
for the record within 45 days from the day you receive them.
Thank you again for your testimony. This Committee is
adjourned.
[Whereupon, at 12:14 p.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
Every day, Americans get up, go to work and do their jobs. But our
Republican colleagues refuse to do theirs.
On Tuesday, this Committee met to vote on five outstanding nominees
for the Federal Reserve. But Republicans didn't show up. Instead, they
went AWOL in the fight against inflation.
At this pivotal moment in our economic recovery, everyone
understands that we need a full Federal Reserve board--the first one in
nearly a decade--to help tackle inflation. Republicans engage in
political stunts but have no solutions. Americans don't want more
political theatrics, they want solutions to bring down costs.
We will not stop fighting for these nominees. These nominees have
met with every Senator who asked for a meeting. They met with staff of
senators who asked. They met with Committee staff--majority and
minority. They offered to meet with many of my colleagues who refused
to meet with them--and then boycotted the vote. They answered every
question posed to them at the hearing. They answered every question
submitted for the record, more than 200 of them, in a timely matter.
One nominee even answered questions submitted after the deadline.
If we're going to continue growing our economy, we need all seven
Fed Governors in place. We need these professionals--working and
debating and making decisions--about monetary policy, and interest
rates, and jobs, and tackling inflation.
I implore my Republican colleagues to show up and vote--vote yes,
vote no, just show up and vote. It's your job. I implore--and the
American people expect--for you do your jobs, just like they do every
day.
Let me read a few headlines from the past few weeks: ``Strong Jobs
Report Shows Resilient Economy''; ``January Jobs Report Crushes
Expectations''; ``Biden Sets First-Year Record With 6.6 Million Jobs
Added''.
In my State--long derided as the ``Rust Belt''--Ohioans have been
waking up to headlines like these: ``Intel Picks Ohio for Largest Chip
Factory in the World''; ``Hyperion Fuel-Cell Company To Open Largest
Columbus Factory in a Decade''; ``GE Aviation Lands $6.8 Billion Engine
Deal in Sign of Rebound From Pandemic''; ``Intel's Investment:
Gamechanger for Ohio Jobs''.
America is in the midst of unprecedented economic growth.
Our GDP grew by 5.7 percent last year--the strongest annual growth
in nearly 40 years. For the first time in two decades, our economy grew
faster than China's.
Job creation hit an all-time high. We added 6.4 million jobs last
year--an average of more than half a million jobs a month. We saw the
fastest drop ever in the unemployment rate.
American entrepreneurs started more than 5 million new businesses
in 2021--another record.
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. Wages are rising--
particularly for hourly workers who have been left behind in past
economic recoveries. Workers are finally starting to share in more of
the economic growth they create.
American families' disposable incomes were higher in 2021 than they
were before the pandemic, even adjusting for inflation. As Assistant
Secretary of Treasury Ben Harris said 2 weeks ago, ``household balance
sheets were exceptionally healthy due in part to the American Rescue
Plan, other Government pandemic assistance, and brisk wage growth.''
All of this progress was possible because of the American Rescue
Plan. We promised shots in arms, money in pockets, and workers back on
the job.
And the Rescue Plan delivered.
Of course we know that challenges remain. For all the progress
we've made, we can't deny that many of the people we serve say they
don't feel it.
People are exhausted. They're tired of this pandemic, they're tired
of the anxiety, they're tired of the way that it's divided neighbors,
divided schools, divided families.
The number one thing we can do to improve our economy and improve
people's lives to to defeat this pandemic.
And we are on the right course. Cases and hospitalizations are
dropping. Because of the American Rescue Plan, most Americans are
vaccinated. Everyone can get a booster shot. We no longer have to live
in fear.
We also know that the pandemic has caused inflation to run too
high. Workers feel it every time they go the grocery store or fill up
the gas tank.
Inflation is a real problem and one that we, as a country, need to
address head on. It's all the more reason why we need a full Federal
Reserve board.
The pandemic has revealed that our supply chains are too long and
too fragile. It's causing higher prices in some industries. No one
wants to have to go to three different stores to get all their shopping
done, or to have every option they try to buy on backorder for months.
It's maddening, it's draining, it's frustrating.
We know how to fix it--make more things in America.
For too long, our trade policy and our tax policy have encouraged
corporations to move production overseas. It's cost us millions of
jobs, and it's contributing to our supply chain problems today.
It's time to bring those supply chains back home.
The House and Senate have both passed bills to spur domestic
manufacturing, research, and development. They would allow us to better
compete with countries like China, and would support the production of
key inputs like semiconductors. We should put a comprehensive bill on
the President's desk as soon as possible.
We also took an important step to speed up our supply chains by
passing the bipartisan infrastructure bill. It will improve our roads,
bridges, and ports--making it easier and more efficient for American
manufacturers to get products to market.
As important as all of these steps are, Government is not the only
actor here.
Corporate consolidation is reducing competition, giving consumers
fewer choices and workers fewer options. It allows corporations to
increase prices while cutting an ever larger check for their executives
and shareholders.
The Wall Street Journal tells us that two-thirds of the largest
publicly traded companies have reported larger profits in 2021 than in
2019. In recent weeks, CEOs have bragged to Wall Street about their
ability to increase prices on consumers.
Let's be clear: raising prices is a choice corporations make. They
could make a different choice: they could reduce the amount of stock
buybacks. Millionaire executives could take a pay cut--or even just get
a slightly smaller raise this year.
But there's nothing forcing them to make a better choice, because
there isn't enough competition in the economy.
We need an economy that works for everyone--not just those at the
very top.
We cannot declare the recovery complete until all workers can find
a job that pays them fair wages, that treats them with dignity, and
that allows them to keep up with the cost of living.
Today we will hear from all three members of the Council of
Economic Advisers--Chair Rouse, Dr. Bernstein and Dr. Boushey.
These are skilled economists who understand that behind all the
models, charts, and tables are real people with hopes, dream, and
ambitions.
As Chair Rouse said in January, the actions that the Biden
administration has taken have led to ``unprecedented improvement in our
economy and important investments made in its future productive
capacity.''
I look forward to hearing more about this year of unprecedented
growth, the current state of the economy, and plans to continue this
expansion.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Mr. Chairman, I'll start by observing it's a little bit rich to be
lectured by the Chairman about not attending a markup of nominees when
the Chairman personally led the Democratic boycott of the Senate
Finance Committee markup of two Trump nominees. There were several
other Democrats on the Committee who participated in that boycott. I
guess what's good for the goose is not good for the gander.
It's also rich to hear wailing and gnashing of teeth about
vacancies on the Fed board and this newfound Democratic concern over
inflation. First of all, I and my Republican colleagues have been on
record for well over a year warning about inflation risk, warning about
the excessive spending.
Democrats criticized us for wanting to normalize interest rates and
Fed policy. And yet here our Democratic colleagues are pushing for yet
another inflation fueling spending blowout bill.
The fact is the Fed is fully functional. The FOMC has 9 of its 12
members in place. They could raise rates today if they wanted to. They
could do it tomorrow. They could do it at any time.
But what's really ironic is that it's the Chairman's decision not
to move five nominees forward. We made it clear and I made it clear
last week to the Chairman repeatedly, publicly, and privately. We're
perfectly happy to vote on five of the six nominees. That would be four
Fed governors and the director of the FHFA. If we did, actually most of
them would get considerable Republican support. They'd move on.
And if there were a concern about vacancies on the Fed, the
Chairman could fix that very quickly. He chooses not to, he prefers to
have the vacancies. That's his choice.
It's also interesting how some of my Democratic colleagues have
been so passionate about ending the revolving door. I think you could
argue some have practically made a career out of railing against the
revolving door, where people go from a powerful Government regulator to
go work for the industry that they regulated, enrich themselves and
then maybe they come back to do it for another loop. Is there a more
archetypical example than Ms. Raskin?
Senator Warren recently tweeted and called Randy Quarles
``corrupt'' because after he left the Fed, he went back to the firm,
the private equity firm that he had founded himself. So I guess it's
corrupt if a Republican does that. But the rules don't seem to apply in
the other direction.
The Chairman said that the candidates answered the questions. Let
me be very clear: Ms. Raskin was far less than candid with us. She
failed to disclose that she even was a director of Reserve Trust. She
failed to disclose the 1.5 million dollars she made for that service.
She failed to disclose hundreds of pages of writing and hours of
speeches.
When she was asked how did she get on the board of Reserve Trust in
the first place, she said she couldn't recall. Which is odd because the
founder and Chairman says in an article in today's Wall Street Journal
that he's known the Raskins for decades.
When Ms. Raskin was asked if she ever contacted the Fed on behalf
of Reserve Trust, first she evaded the question repeatedly. But then
eventually she replied by saying she couldn't recall.
Well, that's funny, because the Kansas City Federal Reserve
President recalled the conversation very well. The chairman of Reserve
Trust recalled the conversation. He wasn't even part of it. But we're
supposed to believe that Ms. Raskin just couldn't recall.
And let me remind everybody why this is important. Reserve Trust is
a fintech company based in Colorado. And it applied for something
that's extremely valuable: a master account at the Fed. To my
knowledge, there's not a single fintech in America that has gotten
that.
And unsurprisingly, they were denied. Their application was turned
down. Then, Ms. Raskin who was on the board, called the Fed. And
shortly thereafter, the Fed does a 180 degree reversal and approves the
master account.
To the best of my knowledge, as of today, there's a grand total of
one fintech in America that has a master account with the Fed and it is
Reserve Trust.
So we asked an obvious question. Why the reversal? Why the 180
degree change? What changed?
First we get stonewalled. Then we finally get a partial answer from
the Federal Reserve Bank of Kansas City. Let me just quote one sentence
that summarizes it. The Federal Reserve Bank of Kansas City says,
``after its denial''--and that's a reference to the denial of the
master account application--``after this denial [Reserve Trust Company]
changed its business model and the Colorado Division of Banking
reinterpreted the State's law in a manner that meant RTC met the
definition of a depository institution.''
That's from the Federal Reserve Bank of Kansas City. My problem
with that is on Tuesday night, the Colorado Division of Banking says
that's not true. And this is what they said, and I quote, ``we consider
the statement that the division reinterpreted State law as a
misrepresentation of our practice.''
So it remains entirely unclear what happened here. All we know is
that Ms. Raskin was in the middle of it. The firm on whose board she
sat applied for a very, very valuable account with the Fed. They were
turned down. She intervenes, they get approved, and we can't get an
explanation of what happened here.
Is that fair to all the other fintechs across America that would
also like to have master accounts, and they've been turned down? How is
that fair to anybody?
And how is this Committee doing its job if we don't insist on
getting some answers to this question? But we get stonewalled. We get
answers from the nominee that she can't recall. And we get basically
nothing from the Fed.
So, Mr. Chairman, it's your choice if you want to continue to
preclude the possibility of having four nominees from the Fed confirmed
and the FHFA Director. We are quite happy to process those nominees.
But we want answers before we vote on Ms. Raskin.
Let me just close with a quote justifying a boycott of a recent
markup of nominees. And I quote, ``by refusing to demand honest
transparent information about the business dealings of these nominees
the Committee failed to do its job on behalf of the American people.''
That is Sherrod Brown, February 1, 2017.
______
PREPARED STATEMENT OF CECILIA ROUSE
Chair, Council of Economic Advisers
February 17, 2022
Chairman Brown, Ranking Member Toomey, Members of the Committee:
Thank you for inviting me and my colleagues, Heather Boushey and Jared
Bernstein, here to testify today.
Just over a year ago, President Biden entered office with a full
agenda: a pledge not only to fight the pandemic and support economic
recovery, but also to rebuild our economy for sustainable and more
widely shared growth. Success was not pre-ordained: the country faced a
still-raging pandemic, a weak economic recovery, and historic job loss.
Thanks to the collective efforts of the Administration, Congress,
and the Federal Reserve, we have been able to recover with strength and
speed. And importantly, we have begun to lay the groundwork for an
economy that is stronger, more resilient, and more equitable.
Over the last year, millions of Americans have gained protection
from the worst of COVID-19, businesses have been able to resume
activity, and children are back at their school desks. Economic
recovery has been strong. In 2021, GDP grew faster than it has in
almost 40 years and the U.S. job market gained 6.7 million jobs.
Unemployment is down to 4 percent--years earlier than projected. Child
poverty is likely to be reduced by almost 40 percent in 2021.
The American Rescue Plan (ARP) was a critical component of this
recovery. It served as an insurance policy to address the uncertainty
of a global pandemic, and support the economy as the virus--and the
tools to tamp it down-evolved. The emergency measures worked, resulting
in a robust economic turn-around. Families and businesses have had the
means and resources to cope in the short-term; ultimately, workers and
small businesses have avoided the lasting damage we typically see when
economic crises are allowed to linger.
But as President Biden has made abundantly clear, helping Americans
weather the pandemic is simply part one of his economic vision. The
Administration's strategy encompasses what the President and Treasury
Secretary Yellen have called ``modern supply-side economics''--that is,
we must make investments in our economy to boost labor supply, raise
productivity, reduce inequality, and create strong, sustainable growth.
The Bipartisan Infrastructure Law is a historic step toward
realizing that vision, providing long overdue investment in our
Nation's roads, bridges, water systems, and broadband infrastructure.
We commend the bipartisan work of many on this Committee for making
these necessary investments, and know your governors, mayors, and
constituents are grateful.
Unlike the ARP, which was short-run relief designed to be spent out
over the course of the pandemic emergency, the infrastructure law will
be spent out across the country over years, building and strengthening
the foundation our economy needs to increase its productive capacity.
Other Administrative actions this past year will also contribute to
long-term economic growth. Examples include the whole-of-Government
approach to increasing competition in markets, addressing climate
change, and fostering greater equity.
Of course, challenges remain. The gains in our economy have taken
place against the backdrop of a once-in-a-century pandemic economy,
where what we know about downturns and recoveries has been tested.
Vigilance is required to ensure we do not backslide when curveballs
like Omicron come our way.
And Americans are feeling the pinch of inflation--at the pump, in
grocery stores, and in the marketplace. The pandemic itself has been a
major driver: consumers have shifted their spending from services to
goods and global supply chains have been severely tested. A lack of
workers has stymied the supply of goods and services as well.
In the near-term, the principal tools to curb inflation rest with
the Federal Reserve, which is why it is critical to confirm the five
highly qualified nominees now. The Administration also has some tools
it can employ, as demonstrated in recent actions to improve supply
chain disruptions at the ports and increase the capacity of the
trucking industry.
In the longer-term, we must make real investments--be that in our
roads and bridges, or people and ideas. Sustainable growth will only
come about if we are able to increase economic capacity and allow more
Americans to participate productively in our economy. The economic
challenges of 2022 must, of course, be met, but we must also lay a
foundation for future generations.
In doing so, we must create an economy that rewards work, not
wealth. The Administration's economic agenda aims to ensure that those
in the middle class, who have largely been left out of economic
investments for the past 40 years, will finally benefit, ensuring that
growth is more broadly shared.
We need Congress to act on the President's full economic agenda to
achieve these goals: providing necessary funding to continue to address
the pandemic and keep the economy functioning; passing USICA to bolster
competition and build resiliency into the market; enabling the energy
transition to curb climate change; and making Build Back Better a
reality so that families can afford the needs of everyday life-like
prescription drugs and childcare. As noted by 17 Nobel Prize winning
economists, these long-term investments not only build a stronger
economy but also ease longer-term inflationary pressures.
President Biden's economic vision is predicated on the fact that
the economic status quo has not worked for all Americans--for decades,
it largely benefited those at the very top. We share his vision for a
stronger and more equitable economic future for our country.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM CECILIA ROUSE, JARED BERNSTEIN, AND
HEATHER BOUSHEY
Q.1. Hospitality and Tourism--Nevada's hospitality sector has
had persistently higher than average unemployment; nearly twice
as many leisure and hospitality workers are out of work
compared with the national average across industries. In
addition, emerging variants and lagging vaccinations rates have
led to only a partial return of business travel, trade shows,
and international travel has occurred. For instance, attendance
at the Consumer Electronics Show, a significant annual
convention and source of operating revenue, fell by more than
75 percent due to concerns about the emerging variant: Omicron.
\1\ Many businesses in the tourism and hospitality industry
have faced narrower margins and have had to reduce their
offerings due to supply chain constraints.
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\1\ https://www.reviewjournal.com/business/conventions/ces/ces-
attendance-down-more-than-75-organizers-say-2509439/
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What is the Biden administration doing to restore
international travel and our trade shows and prevent future
instability in the hospitality sector?
A.1. Starting on November 8, 2021, the Biden administration
implemented a new international travel system that helped
restore safe travel to the United States from the 33 countries
that were previously subject to limitations on travel. The
implementation of this new system contributed to an increase in
international travel to the United States while protecting the
American people by putting in strict, consistent protocols
around the world.
While incoming land border crossings into the U.S. have not
recovered to their prepandemic levels, the 12.85 million
passenger and pedestrian crossings in February 2022 are a large
increase from last year's volumes, reflecting increases through
2021 and particularly strong increases in the third quarter.
Air travel is also well on its way to recovering to its
prepandemic level. As of April 3, 2022, the total amount of
passengers flying in America was nearly 90 percent of what it
was on the same day in 2019. In 2021, air travel on April 3rd
was only two-thirds its 2019 level, and in 2020--during a
period of intense lockdown--it was only 5 percent of what it
was in April, 2019.
Q.2. How can we strengthen and shorten our supply chains for
the inevitable next wave or next Pandemic? Where should we
prioritize investments in new domestic and global supply
capacity, including manufacturing and transportation?
A.2. As the question suggests, shortening supply chains
(reducing lead time) is a key way of increasing resilience.
Important strategies for doing so are for firms to better
understand the structure of their supply chains (visibility),
invest in backup capacity (redundancy), and improve their
ability to solve problems and substitute between inputs
(agility), as well as vertically integrating components of the
production process. Private firms are increasingly aware of the
value of investments in these capabilities.
However, sometimes market failures make it unlikely that a
private firm will invest enough in resilience; factors giving
rise to market failures include the importance of resilience
for national and climate security and the frequency with which
investments in supply chain resilience made by one firm benefit
other firms as well. The U.S. Government should prioritize
investments in industries where market failures such as the
above are present, and/or are key to meeting national goals.
Such industries include semiconductors, clean energy, and
health (medicines, vaccines, and personal protective
equipment). In addition to industry-specific investments such
as these, the Government should also invest in improved
capability to monitor supply chains, develop and diffuse best
practices for managing supply chains, and help finance
innovation and workforce training, especially by the small
suppliers that make up a significant portion of U.S. supply
chains.
Much more detail on these issues of supply chain resilience
will be available in chapter 6 of the ``Economic Report of the
President'', forthcoming in mid-April.
Q.3. Immigration--The CEO of the U.S. Chamber of Commerce
recently shared that immigration reform could help reduce
inflation and address the labor shortages that we're currently
seeing in key industries.
What is the impact that immigration reform would have on
inflation, labor shortages, job creation, and economic growth?
A.3. Reform that increases immigration to the United States
would likely increase economic growth and job creation in the
long run, a conclusion supported by a comprehensive review of
research on immigration conducted by the National Academies of
Sciences. Immigrants are both potential employees and potential
customers for existing businesses. They also increase
innovation and entrepreneurship. Over time, this adds up to a
larger economy with more jobs and a higher standard of living.
Immigration reform that makes it easier for undocumented
immigrants already in the United States to work legally could
also address more immediate labor shortages and potentially
help reduce inflation. Right now, these immigrants are already
contributing to demand for goods and services, which may put
upward pressure on prices in some cases. However, their ability
to contribute to supply, and to fill jobs in critical sectors
that are experiencing labor shortages, is limited by their lack
of legal authorization to work. Granting such authorization
would free them to do jobs that use their skills well,
including jobs that employers are currently having difficulty
filling.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
FROM CECILIA ROUSE, JARED BERNSTEIN, AND HEATHER BOUSHEY
Q.1. Do you believe corporate greed is causing the inflation we
are seeing throughout the economy?
A.1. Healthy market competition is fundamental to a well-
functioning U.S. economy. Basic economic theory demonstrates
that when firms have to compete for customers, it leads to
lower prices, higher quality goods and services, greater
variety, and more innovation.
There is evidence that in the United States, markets have
become more concentrated and perhaps less competitive across an
array of industries: four beef packers now control over 80
percent of their market, domestic air travel is now dominated
by four airlines, and many Americans have only one choice of
reliable broadband provider. There are a number of reasons for
these trends towards greater concentration, including
technological change, scale economies, the increasing
importance of ``winner take all'' markets, and more lenient
Government oversight over the last 40 years.
When there is insufficient competition, dominant firms can
use their market power to charge higher prices, offer decreased
quality, and block potential competitors from entering the
market-meaning entrepreneurs and small businesses cannot
participate on a level playing field and new ideas cannot
become new goods and services. There is also evidence that
dominant firms use market power to suppress wages, labor
standards, and labor's share of income generated by the firm.
Q.2. Mark Zandi, the chief economist for Moody's Analytics, was
highly critical of Democratic proposals like suspending the gas
tax and pulling out pieces of BBB in order to combat inflation.
He said ``None of these ideas so far will help to a meaningful
degree, and could do some harm because they could juice up
demand at a time supply is constrained by the pandemic and
worsen inflation.'' Do you agree with Dr. Zandi's assessment?
A.2. Elevated inflation has been a shared pandemic experience
among virtually all advanced economies. One cause is strong
consumer demand overall, and particularly strong demand for
goods that are specifically experiencing disrupted supply
chains and other supply constraints. Many of these supply
constraints will likely ease as the pandemic situation itself
improves. Other supply constraints reflect dynamics that pre-
date the pandemic and will require long-term efforts to ease by
expanding the productive capacity of the economy. The
Bipartisan Infrastructure Law advances this by making critical
long-term investments in areas like ports and transportation.
Other pieces of the Administration's agenda would further
expand the U.S. economy's capacity as well, such as through
increasing women's labor force participation through the
provision of more accessible, affordable childcare and elder
care. The Administration in the FY 2023 Budget proposed a
combination of investments and offsets that would net reduce
the deficit by $1 trillion over 10 years. These outcomes would
help ease long-term inflationary pressure over time.
Q.3. In your testimony, you stated that ``President Biden's
economic vision is predicated on the fact that the economic
status quo has not worked for all Americans--for decades, it
largely benefited those at the very top.'' Does 40-year high
inflation impact middle-class Americans or those at the very
top more?
A.3. Inflation can have different impacts on households across
the income distribution, partly because of differences in the
mix of goods and services purchased, and partly because of
differences in the share of their income that is absorbed by
necessities such as food and shelter.
While there appear to be relatively small differences in
the average price increases faced by middle-income households
compared to upper-income households, price changes do not tell
the entire story of differences in household well-being. The
increase in prices should be compared to increases in wages and
income that also occurred during 2021.
Researchers from University of California-Berkeley, as part
of the Realtime Inequality Project, estimate that income from
just labor income (wages and employee benefits) and returns on
investments (excluding Government transfers and taxes)
increased for adults across the income distribution, even after
adjusting for inflation. Adults in the bottom 50 percent of the
income distribution experienced the strongest growth, with
their real annualized incomes rising by 10.1 percent between
December 2020 and December 2021.
Real income growth was 2.5 percent for adults with income
between the 50th and 90th percentile), and 6.3 percent for
upper-income adults (those above the 90th percentile). This
means that incomes grew at a rate that exceeded the historic
price inflation in 2021, and to a greater extent for households
with incomes up to the median.
An alternative measure is disposable income, which factors
in taxes and Government benefits. Though the patterns are
similar, when comparing annualized real disposable income in
December 2021 to income in December 2020, growth will tend to
be lower, in part because many COVID-19 relief programs sunset
at some point during 2021. Growth in real disposable income was
5.2 percent for adults in the bottom 50 percent, and 2.6
percent for individuals above the 90th percentiles. And for
middle-income individuals, between the 50th and 90th
percentile, real disposable income actually decreased somewhat,
by 1.1 percent, again primarily due to the roll-off of COVID-19
relief.
Q.4. The Committee for a Responsible Federal Budget recently
released analysis, citing CBO data, that if interest rates rise
by one percentage point higher than was anticipated in CBO's
July 2021 economic forecast, average annual interest costs will
increase by $209 billion per year. That would bring total
interest costs from now through 2031 to $7.3 trillion. What do
you think the chances are of a 1 percent increase in net
interest costs above the current baseline, and do you think
that level of spending on interest is sustainable?
A.4. One of the best measures of the sustainability of Federal
interest payments is the ratio of real net interest payments
relative to GDP. Real net interest--the Federal Government's
annual interest payments after adjusting for inflation--
directly measures the cost of servicing the Nation's debt: the
real resources that are going toward servicing the existing
stock of debt, instead of investing in the future.
Real interest has averaged about 1 percent of the economy
since 1980 and was about 2 percent in the 1990s. Since then,
the effective real interest rate on Federal debt has fallen
ten-fold, from over 4 percent to 0.4 percent in the 2010s. As a
result, real interest has fallen--and real interest costs are
expected to remain negative in 2022. The economic assumptions
in the President's FY 2023 Budget anticipate that real interest
rates will rise over the coming decade, using projections in
line with private forecasters. Nevertheless, under these
assumptions, the President's policies would keep real interest
at or below the historical average over the coming decade. This
means that we have the capacity to make critical investments
that expand the productive capacity of the economy while also
keeping real interest cost burdens low by historical standards.
The fact that the President's policy agenda, as presented in
the FY23 budget, includes measures to more than offset the
costs of his proposals is also consistent with the budget's
interest rate forecast.
There are two-sided risks around any interest rate
projection. The Administration's projections reflect the path
of rates under which, in our view, the uncertainty around
economic risks is roughly balanced. Interest rates may come in
higher than expected, for example if productivity growth proves
stronger than anticipated. Rates may come in lower than
expected due to, for example, unanticipated economic shocks.
Over the last 20 years, Administrations of both parties, the
Congressional Budget Office, and private sector forecasts have
all, on average, overestimated interest rates in their
projections. Put another way, actual interest rates have
consistently come in below projections on average.
Q.5. The Joint Committee on Taxation found that the BBB bill
would have added $750 billion to the debt in the first 5 years,
yet the Administration has repeatedly insisted it would help
bring down inflation. Can you explain to me how adding $750
billion to the debt in 5 years would reduce inflation? Or were
you all suggesting that inflation would come down 5 years after
the bill is enacted?
A.5. The President's FY 2023 Budget proposes investments that
boost economic growth, reduce cost pressures, and promote
shared prosperity in a way that improves the fiscal outlook of
the United States and reduces fiscal risks over the long term.
Under the Budget's policies, deficits would continue to decline
from recent levels. Deficits would fall from 15 percent of GDP
in 2020 to 5.8 percent of GDP this year and then decline
further and remain below 5 percent of GDP through the 10-year
window. Moreover, under the Budget's policies, the medium-term
economic burden of Federal debt would remain low.
At the same time, the United States does face fiscal
challenges over the long term-driven largely by demographic
pressures on health and retirement programs, an inequitable tax
system, and rising health care costs. There is also uncertainty
about the interest rate outlook. The Budget's proposals
prudently address these future challenges by reforming the tax
system and more than paying for all new policies, reducing
deficits over the long run. The Budget proposes capacity-
enhancing legislation and commits to fully paying for it; it
also proposes additional investment and revenue policy that
lower deficits by $1 trillion over the next 10 years.
Overall, the Budget details an economically and fiscally
responsible path forward-addressing the long-term fiscal
challenges facing the Nation while making investments that
produce stronger economic growth and broadly shared prosperity
well into the future.
Q.6. Concerning, supply chain problems in the trucking
industry, does the Biden administration believe that current
solutions to alleviate employee shortages are able to fix long
term industry shortages?
A.6. Current solutions, such as the Safe Driver Apprenticeship
Pilot Program, can be helpful in the near term, but ensuring an
adequate supply of drivers longer term may require a broader
effort. Working conditions in trucking have deteriorated over
the last several decades, and turnover is high compared to
other industries. Drivers are often misclassified as self-
employed and forced to bear costs personally that would
normally be covered by an employer. The average driver is also
about four years older than the average worker overall, which
could suggest coming retirements and limited entry into the
industry by young workers may be a concern going forward.
Improving job quality is likely key to generating interest in
the industry among workers and maintaining an adequate supply
of skilled drivers. In addition, longer-term efforts can help
make more efficient use of truckers' time, thus reducing the
number of truckers needed. For example, currently truckers can
spend hours per day (often unpaid) waiting to load or unload
their trucks. Public- and private-sector efforts to improve
supply-chain functioning (for example, by paying truckers for
waiting time) may help improve this situation.
Q.7. When do you believe inflation will stop rising? When do
you forecast inflation will return to 2 percent?
A.7. In the very near-term, the Russian invasion of Ukraine
will put upward pressure on consumer prices, especially food
and energy. The Administration is taking a wide range of
actions to mitigate these pressures, including the announcement
of a historic 1 million barrel/day release on average from the
Strategic Petroleum Reserve for the next 6 months. The duration
of this pressure is uncertain and dependent on, above all, the
status of the conflict and the closer realignment of supply and
demand throughout many sectors of the economy.
Over the longer-run, the Federal Reserve, private
forecasters, market-implied forwards, and household surveys all
broadly expect inflationary pressures to ease over time. For
example, the March 2022 Blue Chip Consensus Forecast of CPI
inflation is that it will decline to 2.3 percent at an
annualized rate in 2023 Q4, a pace historically consistent with
the Federal Reserve's 2 percent PCE target. This outlook
largely reflects three factors: (1) the gradual unsnarling of
supply chains as the pandemic comes under control and consumer
demand renormalizes; (2) the shift of fiscal policy from
tailwind to headwind as pandemic support fades; (3) the effects
of shifts in monetary policy by the Federal Reserve, which
remains the primary line of defense against inflation.
Q.8. In your testimony, you note that consumers have shifted
their spending from services to goods. The implication is that
the inflation we are seeing is being driven at least in part by
above-trend demand for goods, and that if demand moves from
goods to services, inflation will decrease. What gives you
confidence that demand for goods will subside? Could it be
possible that consumer behavior has permanently shifted toward
a higher demand for goods? If so, what implications does that
have for supply chains?
A.8. The Administration is paying close attention to the
evolution of consumer demand as the economy heals. The level of
aggregate inflation-adjusted consumer spending, as measured by
real personal consumption expenditures (PCE), is roughly back
to its prepandemic trend. The composition of consumer spending
remains different than prepandemic, however, with the share of
PCE going to services being lower than before 2020 while the
share to goods is higher. The lower services spending as of
February 2022 is primarily being driven by lower spending in
recreational services and health services, the latter of which
is being in part driven by delays in elective surgeries and
dental visits. We expect that many services categories will
renormalize towards prepandemic consumption shares as services
reopen and COVID-19 risk fades. Conversely, we expect demand
for goods will also likely taper towards shares closer to those
that prevailed before the pandemic. The big issue we are
watching is whether aggregate demand exceeds aggregate supply
moving forward.