[Senate Hearing 117-495]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-495


         THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

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

                                HEARING

                               BEFORE THE

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

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

      OVERSIGHT ON THE MONETARY POLICY REPORT TO CONGRESS PURSU- 
       ANT TO THE FULL EMPLOYMENT AND BALANCED GROWTH ACT OF 1978
                               __________

                             MARCH 3, 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
                    
55-669 PDF                WASHINGTON : 2024  


            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 G. 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

                              ----------                              

                        THURSDAY, MARCH 3, 2022

                                                                   Page

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

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

                                WITNESS

Jerome H. Powell, Chair Pro Tempore, Board of Governors of the 
  Federal Reserve System.........................................     6
    Prepared statement...........................................    47
    Responses to written questions of:
        Chairman Brown...........................................    50
        Senator Toomey...........................................    51
        Senator Reed.............................................    55
        Senator Menendez.........................................    57
        Senator Warren...........................................    58

              Additional Material Supplied for the Record

Monetary Policy Report to the Congress dated February 25, 2022...    60

                                 (iii)

 
         THE SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

                              ----------                              


                        THURSDAY, MARCH 3, 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 Senate Committee on Banking, Housing, 
and Urban Affairs will come to order.
    Today's hearing again is in a hybrid format. Our witness is 
in person. Thank you, Chair Powell. Members have the option to 
appear either in person or virtually.
    I want to start by acknowledging that as we sit here this 
morning, Ukrainians are showing such courage and resolve, 
fighting Russian invaders in their homeland. Ukrainian families 
fleeing indiscriminate bombings are taking refuge in subway 
tunnels, something that Europe has not seen since the siege of 
London seven decades ago. I want to express my support for the 
brave men and women in Ukraine fighting for democracy, and I 
know all my colleagues on this Committee, of both parties, join 
me in that.
    This is a Russian attack on democracy. It is only the 
latest, terrible escalation of what has become one of the main 
goals of the Russian Federation, to attack and undermine 
democratic norms at home and abroad.
    The world is looking to us right now. We are the leader of 
the free world, and its oldest democracy. It is vital that we 
live by our values, both abroad and at home. That means a 
commitment to the rule of law, a commitment to democratic 
participation, and a commitment to independent institutions 
that allow our society to function, like the Federal Reserve.
    We created the Fed 109 years ago, I guess, as an 
independent agency, outside of any political party's control, 
to be staffed with economic experts, not political cronies. It 
is one of many American institutions that sets our country 
apart from autocratic regimes.
    It is vital that we reaffirm our commitment to the Fed's 
role, showing the world what a functioning democracy looks 
like. Let us show up and do our jobs, like Chair Powell comes 
here, perhaps 14 times a year, it seems to him. That is the 
best way to achieve a strong, growing economy, that lifts up 
the whole country.
    This time last year, our country and our economy were in a 
place of deep uncertainty. More than 4 million people were out 
of a job. Frontline workers were just beginning to get 
vaccinated. We were in the midst of a public health crisis and 
economic crisis that needed us all of us--policymakers, 
business owners, workers, union and non-union alike--to come 
together and tackle the challenge of this pandemic economy.
    And that is what we did. We passed the American Rescue 
Plan. We got shots into arms, money into people's pockets, 
workers back on the job, and kids back in school. Against the 
odds, 2021 became a year of, as the Chair, I am sure, will say, 
unprecedented economic growth for our country, in job creation, 
wage gains, GDP. For the first time in two decades--think about 
this--for the first time in two decades the American economy 
grew faster than China's economy. Think about that.
    We averaged over half a million new jobs per month last 
year, and we saw the fastest drop ever in the unemployment 
rate. Wages rose for workers, especially low-wage workers, who 
began to have a little more power in a tight labor market. 
American entrepreneurs started a record-setting five million 
new businesses.
    This all translated into American families' household 
balance sheets, which were healthier in 2021 than before the 
pandemic. It is because of the actions that Democrats took in 
this Congress, expanding the Child Tax Credit, and rental and 
housing assistance.
    The American Rescue Plan helped get most Americans 
vaccinated and made a booster shot available to everyone. 
Today, over 65 percent of the population is fully vaccinated, 
more than 75 percent of all adults. Case counts and 
hospitalizations are dropping. We are one step closer to normal 
life beyond the pandemic. Americans no longer have to live in 
fear.
    We have come a long way, but the fight is not over, and it 
has taken a terrible toll on Americans. After 2 years of 
stress, of massive disruptions in our lives and in our economy, 
people are simply exhausted. And they are fearful that 
inflation will make it harder and harder for them to keep up 
with the cost of living.
    The pandemic economy has caused inflation. Families feel it 
at the gas station. They feel it when they are making rent 
payments. They feel it when they check out at the grocery 
store.
    We must acknowledge that Russia's invasion of Ukraine will 
affect the global economy. We learned over the past 2 years how 
fragile our global supply chains are. Some of us have said for 
years that we should make more things in America and rely less 
on China. Elites in Washington, in lobbying for trade change 
and trade law and tax law, elites in Washington dismissed those 
concerns for decade. Now they are starting to wake up.
    We help prevent long-term inflation by bringing supply 
chains home, and in the process we rebuild our own industrial 
base.
    The House and Senate have both passed bills investing in 
domestic manufacturing and research and development. We need to 
put a comprehensive bill on the President's desk and bring 
manufacturing, research, and development back to this country.
    We are building the capacity to move goods faster and more 
cheaply with the Bipartisan Infrastructure Bill. While most 
Americans report mixed feelings about the economy over the past 
year--they may have gotten a raise and a tax cut and have more 
in savings, while also being concerned rightly about rising 
costs--there is one group that did better than ever last year: 
America's large corporations. Corporations made record profits 
in 2021 and they gave their executives and shareholders a 
bigger slice of the profits than ever. They have reacted with 
barely controlled glee at the opportunity to raise prices 
during this pandemic economy.
    We can never forget: raising prices is a choice. There is 
no law saying that if the cost of an input goes up or if 
transportation costs increase, companies have to raise prices. 
They have options. They could cut costs elsewhere by making 
executive bonuses or stock buybacks just a little bit smaller.
    But of course they do not. There is not enough competition 
in the economy, especially drug companies, meatpackers, oil 
companies, shippers. From the meatpacking industry to the oil 
cartels, corporations do not face the fair, capitalist free 
market competition we need to keep prices low and wages high.
    And when you combine current inflation with the expenses 
that have been rising for decades--drug costs, childcare, 
housing--it is little wonder that many middle-class families in 
Nevada, Massachusetts, South Carolina, Alabama, Pennsylvania, 
and Ohio do not feel stable.
    It will take all of us to lower these long-term costs, 
fight inflation, and create an economy where hard work pays off 
for everyone, no matter who you are, where you live, or what 
kind of work you do. All workers should be able to find a good-
paying job that allows them to raise a family, keep up with the 
cost of living, and join the middle class.
    The Federal Reserve has a responsibility, as you know, Mr. 
Chair, to tackle inflation, to ensure we have a resilient labor 
market, a safe and stable banking system, an efficient and 
reliable payments system, and empowered local communities where 
consumers, workers, small banks, and small businesses thrive.
    And it is more important now than ever that we have a 
full--full means seven members, first time in a decade; you 
only have four now, as you know--a full Federal Reserve Board 
making those decisions.
    In a time of deep economic uncertainty, where democracies 
across the world are threatened by authoritarian strongmen, we 
must ensure the Fed is operating at full capacity. We have an 
opportunity, Mr. Chair, as you know, and you know her well, to 
confirm one of the world's leading experts on cybersecurity in 
the financial system. Sarah Bloom Raskin chaired the G-7 Cyber 
Expert Group. We need her in that position now more than ever. 
All of us need to do our job to get her and the other four Fed 
noms confirmed. We must fill these positions so that the entire 
team of decisionmakers can come together, assess the data, and 
address the problems Americans face.
    Today, we have Chair Pro Tempore of the Federal Reserve, 
Jay Powell, here to deliver a biannual update on the Fed's 
actions to steer our economic recovery. Chair Powell, thank 
you, and I look forward to your testimony.
    Senator Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman. Let me begin by 
fully endorsing the sentiments you expressed regarding the 
appalling Russian invasion of an entirely unjustified war 
against Ukraine, and share your salute for the extraordinary 
courage, valor, and commitment of the people of Ukraine.
    Chairman Powell, welcome. I do hope we process your 
nomination soon. Of course, I have been advocating that we do 
that for some time now, but in the meantime I do know that you 
and your fellow FOMC members are fully able to do your job of 
fighting inflation. And, obviously, there is a lot of work to 
do on that front. January's inflation reached a 40-year high of 
7.5 percent, and inflation like that is doing real damage to 
average Americans.
    Some of my colleagues like to observe that wages are 
growing. The problem is inflation is growing faster, and that 
causes workers to fall further and further behind, and that is 
what is happening today. Savers, of course, are earning 
virtually zero on their savings while inflation significantly 
erodes the value of those savings.
    Our current zero-interest-rate monetary policy that we have 
had for some time now is probably appropriate at a period of 
economic crisis or during a recession. It is hard to see that 
that makes sense during a period of multidecade-high inflation.
    Of course, profligate fiscal policy of the year has also 
contributed to inflation. Democrat supporters of blow-out 
deficit spending bills like the American Rescue Plan and Build 
Back Better have looked to blame others for the consequences of 
their own misguided policy. First they blame global supply 
chains. Now they have shifted their blame to greedy 
corporations.
    Actually, inflation is pretty easy to understand. It 
results from more money chasing fewer goods. The 
Administration's policies such as overregulation and a war on 
American energy have limited the production of goods, and 
meanwhile reckless spending has resulted in more money chasing 
those goods.
    Of course, the Fed's accommodative monetary policy has 
further stimulated demand. For several years now I have warned 
that it could be extremely difficult to put the inflation genie 
back in the bottle. Well, the genie is out and the Fed is 
behind the curve. We need to act with urgency to get inflation 
under control.
    Mr. Chairman, I am also deeply troubled to what appears to 
be a growing urge to use financial regulators, in general, and 
the Fed, in particular, to tackle complex political questions 
that are outside of our financial and monetary system. 
Questions like how and how quickly to transition to a lower 
carbon economy. Questions like how to address racially charged 
social issues. Or even how do we improve primary and secondary 
education.
    Now there is no doubt these are very important issues, but 
they are wholly unrelated to the Fed's limited statutory 
mandates and expertise. And yet the Fed has been weighing in on 
every one of these issues. Some intend to use the Fed's 
recently developed climate scenario analysis as a mechanism, as 
part of a tool to steer capital away from carbon-intensive 
industries. All 12 Reserve Banks have hosted a Racism in the 
Economy series, where invited speakers advocated for specific 
policies, including racial reparations and defunding the 
police, among other very liberal proposals. And the Minneapolis 
Fed is actively lobbying to change Minnesota's constitution on 
the issue of K-12 education policy.
    Does anyone really think that these activities are within 
the Fed's statutory mandates? Of course not. What they are is 
they are challenging and complex issues that require really 
difficult tradeoffs. And in a democratic society, those 
tradeoffs have to be made by elected representatives who are 
directly accountable to the American people.
    Consider some tradeoffs associated with addressing global 
warming. Now if we limit domestic oil and gas production 
Americans will pay more at the pump. How much more is 
appropriate? If we suddenly limit domestic production without 
feasible energy alternatives our Nation and the world will 
become more reliant on fossil fuels from autocratic nations. We 
are watching that play out. When does that reliance present an 
unacceptable national and global security threat?
    These are just examples of the unlimited number of equally 
challenging tradeoffs for all of these politically charged 
topics, none of which should be decided by unelected and 
unaccountable central bankers. And yet some of the Reserve 
Banks are diving right, and when I have requested additional 
information about their activities, the Reserve Banks stonewall 
me. When I asked the Board to address the issue, everyone 
passes the buck. The Fed Board says, ``Oh, those things are up 
to the Reserve Banks,'' even though the Board oversees the 
Reserve Banks. And except through the Fed Board the Reserve 
Banks are completely unaccountable to Congress.
    So when I think about this state of affairs, Mr. Chairman, 
I can only conclude that we need to think seriously about 
reforming the structure of the Fed. In my view, any Fed reform 
should preserve and strengthen monetary policy independence, 
but it should also develop mechanisms to enforce the existing 
statutory limits on Federal Reserve activity that are not being 
complied with today. That would require also proper 
congressional oversight by increasing transparency.
    So here are three reform ideas that we ought to discuss. 
First, unlike the main Fed Board, the Reserve Banks are not 
subject to FOIA. Well, that should change. Second, we should 
consider whether or not to subject Federal Reserve bank heads, 
the regional Reserve Bank heads, to Presidential appointment 
and Senate confirmation.
    Third, we ought to examine the historical 12 Reserve Bank 
structure. That dates back to a very, very different time. For 
example, it might make sense to consolidate them into 5 banks, 
and make each one a permanent voter on the FOMC. Or maybe we 
should eliminate the Reserve Banks entirely and have the main 
Fed Board assume these responsibilities.
    To be clear, I am not specifically advocating any one of 
these, but I think we have to consider these and other 
possibilities. I do not present these ideas lightly. But the 
Fed was given independence to insulate monetary policy from 
politics, and Congress has a responsibility to ensure that the 
Fed does not become a political actor.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    Mr. Powell, we welcome you to the Committee again, as Chair 
Pro Tempore of the Federal Reserve. Please begin your 
testimony. Thank you.

  STATEMENT OF JEROME H. POWELL, CHAIR PRO TEMPORE, BOARD OF 
            GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Powell. Thank you. Chairman Brown, Ranking Member 
Toomey, and other Members of the Committee, I am pleased to 
present the Federal Reserve's semiannual Monetary Policy 
Report.
    Before I begin, let me briefly address Russia's attack on 
Ukraine. The conflict is causing tremendous hardship for the 
Ukrainian people. The implications for the U.S. economy are 
highly uncertain, and we will be monitoring the situation 
closely.
    At the Fed, we are strongly committed to achieving the 
monetary policy goals that Congress has given us: maximum 
employment and price stability. We pursue these goals based 
solely on data and objective analysis, and we are committed to 
doing so in a clear and transparent manner so that the American 
people and their representatives in Congress understand our 
policy actions and can hold us accountable. I will review the 
current economic situation before turning to monetary policy.
    Economic activity expanded at a robust 5.5 percent pace 
last year, reflecting progress on vaccinations and the 
reopening of the economy, fiscal and monetary policy support, 
and the healthy financial positions of households and 
businesses. The rapid spread of the Omicron variant led to some 
slowing in economic activity early this year, but with cases 
having declined sharply since mid-January, the slowdown seems 
to have been brief.
    The labor market is extremely tight. Payroll employment 
rose by 6.7 million in 2021, and job gains were robust in 
January. The unemployment rate declined substantially over the 
past year and stood at 4.0 percent in January, reaching the 
median of FOMC participants' estimates of its longer-run normal 
level. The improvements in labor market conditions have been 
widespread, including for workers at the lower end of the wage 
distribution as well as for African Americans and Hispanics. 
Labor demand is very strong, and while labor force 
participation has ticked up, labor supply remains subdued. As a 
result, employers are having difficulties filling job openings, 
an unprecedented number of workers are quitting to take new 
jobs, and wages are rising at their fastest pace in many years.
    Inflation increased sharply last year and is now running 
well above our longer-run objective of 2 percent. Demand is 
strong, and bottlenecks and supply constraints are limiting how 
quickly production can respond. These supply disruptions have 
been larger and longer lasting than anticipated, exacerbated by 
waves of the virus, and price increases are now spreading to a 
broader range of goods and services.
    We understand that high inflation imposes significant 
hardship, especially on those least able to meet the higher 
costs of essentials like food, housing, and transportation. We 
know that the best thing we can do to support a strong labor 
market is to promote a long expansion, and that is only 
possible in an environment of price stability.
    The Committee will continue to monitor incoming economic 
data and will adjust the stance of monetary policy as 
appropriate to manage risks that could impede the attainment of 
its goals. The Committee's assessments will take into account a 
wide range of information, including labor market conditions, 
inflation pressures and inflation expectations, and financial 
and international developments. We continue to expect inflation 
to decline over the course of the year as supply constraints 
ease and demand moderates because of the waning effects of 
fiscal support and the removal of monetary policy 
accommodation. But we are attentive to the risks of potential 
further upward pressure on inflation expectations and inflation 
itself from a number of factors. We will use our policy tools 
as appropriate to prevent higher inflation from becoming 
entrenched while promoting a sustainable expansion and a strong 
labor market.
    Our monetary policy has been adapting to the evolving 
economic environment, and it will continue to do so. We have 
phased out our net asset purchases. With inflation well above 2 
percent and a strong labor market, we expect it will be 
appropriate to raise the target range for the Federal funds 
rate at our meeting later this month.
    The process of removing policy accommodation in current 
circumstances will involve both increases in the target range 
of the Federal funds rate and reduction in the size of the 
Fed's balance sheet. As the FOMC noted in January, the Federal 
funds rate is our primary means of adjusting the stance of 
monetary policy. Reducing our balance sheet will commence after 
the process of raising interest rates has begun, and will 
proceed in a predictable manner primarily through adjustments 
to reinvestments.
    The near-term effects on the U.S. economy of the invasion 
of Ukraine, the ongoing war, the sanctions, and of events to 
come, remain highly uncertain. Making appropriate monetary 
policy in this environment requires a recognition that the 
economy evolves in unexpected ways. We will need to be nimble 
in responding to incoming data and the evolving outlook.
    Maintaining the trust and confidence of the public is 
essential to our work. Last month, the Federal Reserve 
finalized a comprehensive set of new ethics rules to 
substantially strengthen the investment restrictions for senior 
Federal Reserve officials. These new rules will guard against 
even the appearance of any conflict of interest. They are tough 
and best in class in government, here and around the world.
    We understand that our actions affect communities, 
families, and businesses across the country. Everything we do 
is in service to our public mission. We at the Fed will do 
everything we can to achieve our maximum-employment and price-
stability goals. Thank you.
    Chairman Brown. Thank you, Chair Powell. We, of course, are 
monitoring closely Russia's invasion of Ukraine, the impacts it 
will have on our partners, including our country. In November, 
the Fed issued a rule jointly with the OCC and FDIC to require 
banks to notify their Federal financial regulator of any 
cybersecurity incident within 36 hours. They already made a 
requirement of notification but you sped that up, obviously.
    Given the increased threat of cyberattacks, expeditious 
reporting by financial institutions is essential. How does the 
Fed address any reporting about cyberattacks when they occur? 
What do you do?
    Mr. Powell. When we receive reports. Well, first of all to 
date we have not seen any significant issues, but we remain 
vigilant since the Ukraine war began. So we are in constant, 
ongoing contact with the financial institutions, especially the 
large ones, on cyber risk, and particularly in this 
environment; we have been since a couple of months ago on very 
high alert. So are they. It is regular communication, back and 
forth. The channels are open, and all of us are on the highest 
stage of alert, as you would imagine.
    Chairman Brown. I think it is important. I know that your 
focus is always on financial institutions. It is important for 
us to be able to repel cyberattacks, to protect against them. 
Throughout our economy businesses are reporting cyberattacks on 
them, and your job is obviously with financial institutions. I 
am hopeful that you will make those comments increasingly 
public so that other businesses understand, while you do not 
have jurisdiction, that other businesses understand the 
importance of that.
    We know the impact of Russia's invasion could go beyond 
cyberattacks in financial institutions. It is possible because 
of his actions. Prices of commodities could go up, given any 
market disruptions, and Americans could see higher prices in 
the grocery store and at the gas pump. How does the Fed, Mr. 
Chair, evaluate the economic uncertainty caused by Putin's 
actions? What steps do you take to mitigate those risks, like 
inflation?
    Mr. Powell. You know, so we are watching carefully to see 
how this evolves. I think, to your point, the ultimate effects 
on the U.S. economy of the war, of the sanctions, and of events 
yet to come is highly uncertain. And so we need to be alert to 
what those might be.
    What we know so far is that commodity prices have moved up 
significantly, energy prices in particular. That is going to 
work its way through our U.S. economy. We are going to see 
upward pressure on inflation, at least for awhile. We do not 
know how long that will be sustained for.
    In addition, we could see, you know, risk sentiment 
declining, risk-taking sentiment declining, so you could see 
lower investment, you could see people holding back on 
spending. It is hard to say what the effects on both supply and 
demand will be, and I would just echo that we need to be alert 
and nimble as we make decisions in what is quite a difficult 
environment.
    Chairman Brown. The Monetary Policy Report that you 
released highlighted great news for workers in our economic 
recovery, wage gains across the Board, but especially for low-
wage workers, job growth across sectors, a drop in the 
unemployment rate that beat forecasters' expectations. All good 
news. But we clearly have a long way to go when it comes to 
making sure everyone has a good-quality job. We know from prior 
economic crises that hiking up interest rates--and I know you 
will be cautious--but hiking up interest rates too early can 
depress job growth.
    My question is, as the Fed plans to raise interest rates, 
what steps will you take to ensure that it does not affect the 
pretty amazing job growth? President Biden mentioned, at the 
State of the Union, 369,000 manufacturing jobs, many of them in 
my State of Ohio. How do you ensure that the steps the Fed 
takes do not affect that kind of job growth?
    Mr. Powell. Well, the labor market as we have it today, 
unemployment is down to 4 percent and wages are at historic 
highs for recent history. Quits are at all-time highs or near 
that. Job openings are at all-time highs. So you are right. 
This is a great labor market for workers, particularly workers 
in the lower quartile of earning who are getting the biggest 
wage increases and really very, very high wage increases.
    So the problem really that we are facing is one of high 
inflation, and over time, the biggest risk to being able to 
sustain a long expansion and have continued increases in 
participation, for example, which has tended to lag declines in 
unemployment, is to sustain or really restore price stability. 
So that is the single most important thing we can do to really 
try to have the kind of long expansion that we saw in the last 
cycle, and saw the many benefits that flowed to people as that 
expansion extended.
    Chairman Brown. Thank you. In my last 60 seconds, two yes-
or-no questions if I could. Do you agree that making testing 
and vaccinations accessible has already made it possible for 
people to safely rejoin the labor force?
    Mr. Powell. I do not have any special expertise on that but 
that sounds right to me.
    Chairman Brown. Do you agree that making childcare 
affordable would make it possible for parents to return to work 
and increase the labor supply?
    Mr. Powell. As we, I think, have discussed, there is good 
research that supports that proposition as well.
    Chairman Brown. Thank you. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Chair Powell, just 
so that we get this on the record here, a couple of quick, 
simple questions here. Monetary policy is decided by the FOMC 
of the Fed. Correct?
    Mr. Powell. Yes.
    Senator Toomey. And there are 12 seats on the FOMC of which 
9 are currently filled. Correct?
    Mr. Powell. Actually, there are as many as 19 participants, 
but you are right, there can be 12 voters. So we have right now 
16 of the 19 seats filled, or 9 of the 12 voters.
    Senator Toomey. OK. So the FOMC is, today, right now, fully 
capable of determining monetary policy, and the Fed as a whole 
is fully capable of implementing that policy right now. Is that 
correct?
    Mr. Powell. Yes. We will do our jobs.
    Senator Toomey. OK. I was glad to hear your emphasis on the 
importance of price stability. Here is my concern. You know, it 
is a little bit easier to raise interest rates to normalize to 
fight inflation at a time when the economy is booming. What I 
am a little bit worried about--and I fully acknowledge nobody 
knows how this is going to play out, but I think it is fair to 
say that this war has changed the risk profile a little bit 
with respect to inflation, that you just alluded to. There is 
certainly some upward pressure on
energy, and maybe beyond. And all else being equal, it
probably increases the risk that we will be looking at downward
revisions in growth. Nothing certain about that, but the risk 
is higher.
    And so I wonder if you could share with us your thoughts on 
the importance of fighting inflation if we find ourselves in a 
situation where growth is less robust than what we are hoping 
for now.
    Mr. Powell. So I would agree on both the supply and demand 
side there is a lot of uncertainty. Oil prices are higher. That 
typically does weigh on spending, to some extent. But at the 
same time we have households and businesses that are in such 
strong financial shape, it is not clear what those effects are 
going to be.
    So as I mentioned yesterday, I do think that it is going to 
be appropriate for us to continue to proceed along the lines 
that we had in mind before the Ukraine invasion happened, and 
that was to raise interest rates at the March meeting and to 
continue through the course of the year, based on incoming data 
and the evolving outlook, to engage in a series of rate 
increases.
    I would say in this very sensitive time at the moment I 
think it is appropriate for us to be careful in the way we 
conduct policy, simply because things are so uncertain and we 
do not want to add to that uncertainty. But that is where it 
leaves me.
    Senator Toomey. I just hope that the actual practice going 
forward at the Fed is consistent with what I think you were 
alluding to earlier, and that is the need for price stability 
as a precondition for maximizing the well-being of American 
workers. If we are in a world where we do not have price 
stability, they do not have job security. They do not have 
income security. It is just so important. I sure hope that we 
exceed all of our expectations about growth this year, but I do 
not know that.
    Let me shift to ask you this. In your view, is it 
consistent with the statutory mandate of the regional Fed banks 
to engage in political advocacy, and specifically a racial 
justice campaign or efforts to amend a State constitution? Is 
that within the proper domain of regional Fed banks?
    Mr. Powell. So as we have discussed, you know, the Reserve 
Banks have generally had and exercised a degree of freedom of 
oversight from the Board, the Board of Governors, in their 
research activities, in their policy thinking activities, and 
that has always been thought to be a benefit, including by me, 
because it avoids the kind of group-think you could get if you 
had one economic staff in one building and that is where all 
the Governors were. So it has been a feature rather than a bug 
of the System, for a long time.
    I would echo, though, I strongly share the view that 
everything we do in the System needs to be clearly linked in 
ways that people understand to our mandate, and that that is 
one of the very most important underpinnings of our 
independence. If we are not doing that then the case for our 
independence immediately becomes weaker.
    Senator Toomey. Yes, and I do not think anybody can make 
the case that amending a State constitution with respect to how 
a State pays for primary and secondary education has anything 
to do with that mandate.
    Let me ask you the last question. The Fed has embraced the 
idea of requiring climate scenario analyses for banks, and the 
justification is this is an important way for banks to 
understand the nature of the risk that they face. Whatever one 
thinks of that, is it your view that among the Fed's 
responsibilities is to determine the pace at which the American 
economy transitions to a lower carbon economy?
    Mr. Powell. No.
    Senator Toomey. OK. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Thank you. Senator Tester, of Montana, is 
recognized.
    Senator Tester. Thank you, Mr. Chairman and Ranking Member, 
and I want to thank Chairman Powell for being here today. I 
appreciate the work that you do, as always.
    Look, I think inflation is on everybody's minds and how you 
deal with it, and as you pointed out the last time you were in 
front of this Committee, it is not only a demand problem, it is 
a supply problem. You can help deal with the demand but the 
supplies issue are a little different thing.
    Being in the business of agriculture personally I can see 
that consolidation in the marketplace is a big deal, and I am 
talking particularly the meat industry right now, where you 
have four packers that control 84 percent of this country's 
meat supply. Competition is critically important if capitalism 
is going to work. I do not need to tell you that. You know that 
better than anybody. But there does not seem like there is a 
lot of competition in a number of different areas, but I will 
just focus on meatpacking.
    No, I will not. Let me back up. Let us talk about 
consolidation generally, and if that helps drive prices up or 
down, and then if, in fact, you think it does drive prices up, 
would inserting more competition in the marketplace help 
consumers?
    Mr. Powell. First of all, we are not responsible for 
competition policy. Individual industries can have competition 
issues, and those are appropriate subjects for the folks who 
wield those tools. That is not us.
    At the aggregate level, the connection between 
concentration, for example, and inflation is really not clear. 
Some of the industries that had a lot of consolidation were the 
very ones that drove low inflation over the last 25 years. You 
know, retail and wholesale consolidated a whole bunch and a 
bunch of technology went in, and that was very high 
productivity and very low inflation. So it is not obvious.
    But again, industry by industry there will be cases in 
which there are competition issues, and those are certainly an 
appropriate subject for antitrust scrutiny.
    Senator Tester. As we look at the war in Ukraine, and as we 
look at inflation that is occurring here in this country, and I 
know you are Chairman of the Fed and I know that these are 
areas that you might not want to get into, but I will ask 
anyway. You can always decline to answer. And that is, are 
there certain things we should be doing right now, or paying 
particular attention to, in the inflation realm?
    Mr. Powell. I am sorry. In the sense of----
    Senator Tester. In the sense from a congressional 
standpoint, are there things we should be paying particular 
attention to? I do not want to answer that question for you, 
but I think trucking is a big issue in this country right now. 
I think being able to get
products in and out of this country is a big issue right now, 
from a shipping standpoint. Should we be looking at those kinds 
of things? Should be looking at other things?
    Mr. Powell. I do think that over time there are certainly 
things that Congress could do. I think in the near term, 
really, it is down to the private sector and the supply chains 
and things like that getting untangled, getting fixed, and it 
is down to us doing our jobs with our tools.
    But I would agree, though, that we need more labor supply. 
We need more semiconductors and things like that. Clearly you 
mentioned trucking. We are short workers right now. We had a 
shock to participation that is much larger than in any other 
country, and there must be ways to address that, although some 
of that is voluntary, clearly on the part of people who decided 
to retire and things like that.
    Senator Tester. OK. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Senator Shelby is recognized, from Alabama.
    Senator Shelby. Thank you, Mr. Chairman. Chairman Powell, 
welcome again to the Committee. You have spent a lot of time 
with us here.
    You are the Chairman of the Federal Reserve. We have this 
hearing now before the U.S. Senate Banking Committee, but 
millions of people around the world are watching this hearing 
and watching what you say and also what you do at the Fed. Let 
us talk some more about price stability because I think that is 
so important. We know what the term is, but to the average 
person just explain what you mean by price stability, which is 
a mandate that the Congress gives the Fed.
    Mr. Powell. We think of price stability as having inflation 
that is 2 percent, right around 2 percent, but maybe a clearer 
way----
    Senator Shelby. Stable prices, stable everything. Right?
    Mr. Powell. Yes. But really what it means is that people 
can go about their daily lives without thinking much about 
inflation. It comes down to that, that it is just not an 
important consideration for people living their lives, taking 
out mortgages, putting their kids through school, or for 
businesses that are borrowing, and things like that.
    Senator Shelby. It affects everybody in the economy just 
about, does it not----
    Mr. Powell. It does.
    Senator Shelby.----in one way or the other.
    Mr. Powell. And when inflation goes up, and you are seeing 
this now, real wages, what matters is whether your wages are 
going up more or less than inflation, and for the most part 
real wages are declining, but not for everybody. I think at the 
bottom end of the wage spectrum real wages have actually been 
increasing. And that is why we need to get inflation under 
control.
    Senator Shelby. It is going to be harder to get it under 
control once it is rampant than it would be when it starts out.
    My question to you is this. We know you have a lot of 
great, gifted economists at the Federal Reserve that furnish 
you data on every trend on prices dealing with inflation, price 
stability in the world and how it affects us here, everybody. 
The Fed obviously missed the trends there. Was it a question of 
not having the right data or was it a question of ignoring the 
data you had? Because a lot of private--I would not say all, 
but a lot of private economists predicted where we are going on 
this inflation, and they were spot on 2 years ago.
    Was it a question of, again, you did not have the data, 
which you should have, or you misjudged the data, or you 
ignored the data?
    Mr. Powell. No, no. It was not about data at all. This is 
really what it was about. When inflation really just about, 
barely a year ago, in March of last year, started to move up 
quickly, central banks and macroeconomists really 
overwhelmingly look at that as like a supply shock, like an oil 
shock. And what the textbook says is the shock is going to come 
and it is going to go, and you should not react to it. And so 
we looked at it that way. And I would say by the middle of last 
year we started to move away from it, and we moved away from it 
at an increasing rate of speed. Hindsight says we should have 
moved earlier, and that turned out to be wrong. Not maybe 
conceptually wrong, but it is just taking so much longer for 
the supply side to heal than we thought.
    So in hindsight you certainly would not have done that, but 
I think there really is no precedent for this. We looked at it 
the way it was. There were certainly some voices, and they have 
turned out to be right so far. Ultimately, we think the supply 
side will improve and that will help with inflation. In the 
meantime, we are going to use our tools and we are going to get 
this done.
    Senator Shelby. About 40 years ago or more, you know, we 
had rampant inflation in the United States. We had Chairman, 
Dr. Volcker, who was Chairman of the Fed, and he was maligned 
for a little while by people but praised later. But he brought 
the leadership to the Fed and to the country that we had to 
squeeze inflation out, at all costs just about. And a lot of it 
was draconian. You have to do it.
    Is the leadership at the Fed under you and Fed prepared to 
do what it takes to get inflation under control and protect 
price stability?
    Mr. Powell. Well, let me say I knew Paul Volcker. I am 
pretty sure I saw him testify in this room many years ago. I 
think he was one of the great public servants of the era, the 
greatest economic public servant of the era, and I hope history 
will record that the answer to your question is yes.
    Senator Shelby. So you are prepared to do what it takes 
without any reservation to protect price stability.
    Mr. Powell. Yes.
    Senator Shelby. That would be a departure from what you 
have done. Thank you very much.
    Chairman Brown. Senator Menendez, from New Jersey, is 
recognized.
    Senator Menendez. Thank you, Mr. Chairman. The Biden 
administration, in coordination with U.S. allies around the 
world has placed historic sanctions on Russia in response to 
the invasion of Ukraine. In particular, sanctions on the 
Russian central bank, cutting off its access to international 
reserves I believe will have a powerful effect on Putin and the 
elites who have reaped the benefits of his repressive regime. 
Sanctions are one of our most important foreign policy tools, 
but it is not always easy to understand just how effective they 
can be.
    So Chairman Powell, can you explain in layman terms the 
effect of sanctions imposed on the Russian central bank?
    Mr. Powell. Sure. I should start, though, by saying that 
everyone should know that we do not implement sanctions. Those 
are really the province of the elected Government and the 
Treasury Department. All we do is we are sort of there in the 
background.
    Senator Menendez. I understand.
    Mr. Powell. A technical backstop.
    Senator Menendez. I understand. I just want to use your 
expertise.
    Mr. Powell. Sure. So what the central bank does is--so 
different currencies in different countries are traded all day 
long, and in some cases all night long around the globe, and 
the value of those currencies really matters for people when 
they are trying to buy something. For example, if you are 
trying to buy an American car or American radio or an Apple 
iPhone, it will be priced in dollars. So the ruble weakened 
dramatically through this, which is the Russian currency, and 
what those sanctions do is make it very difficult for the 
central bank of Russia to do its job, which is to support the 
ruble on behalf of the government. And it is because the sort 
of resources that it had to support the ruble were tied up in a 
way that made it difficult to do that. That is part of it.
    Senator Menendez. Yes. And those sanctions means that Putin 
cannot access hundreds of millions in international reserves 
that he could use to continue to fund his war effort. Is that 
correct?
    Mr. Powell. Well, yes.
    Senator Menendez. Let me ask you this. As the economy 
continues to recover, we have had a lot of conversation here 
about managing inflation as a key challenge, the first step to 
do so, in my mind, is to confirm the five highly qualified 
nominees President Biden has selected for the Federal Reserve 
Board, including yourself, and I hope our Republican colleagues 
will allow us to do that soon.
    The next and more challenging step is to address the supply 
crisis that is driving up much of this inflation. Can you give 
us a brief update on how persistent supply chain issues are 
disrupting the recovery and contributing to inflation?
    Mr. Powell. Sure. So a lot of the inflation we are seeing 
is coming from imported goods or manufactured goods that 
contain imported content, and the price of shipping, for 
example, internationally has gone up quite a lot. And there are 
long delays and the ports are full because demand is really so 
high. It is a demand problem as well as a supply problem.
    You know, we have been feeling very small amounts of 
progress on that. I have to say, one of the little bit 
unexpected byproducts of the Ukraine war, it is looking like 
supply chains--it is not going to help at all with supply 
chains because ships are not being offloaded and things like 
that. So there are unanticipated or unexpected effects of what 
we are doing, which is not to say we should not do them.
    So this is not something we have any expertise in fixing, 
but we have been waiting for that to happen, and it has not 
happened. We have not seen much relief on the supply side.
    The other thing is the supply of labor. You know, there is 
no problem with labor demand. Really, the ratio of job openings 
to unemployed is at, by far, the highest level it has ever 
been, more than 1.7 open jobs per unemployed person. So we have 
a labor supply problem. We think that getting past the pandemic 
will really help with that, and, of course, higher wages should 
help bring people in too.
    Senator Menendez. So would strengthening supply chains and 
resolving bottlenecks help to combat inflation in the long 
term?
    Mr. Powell. Certainly in the near term it would, and I 
would think it would be certainly a good thing.
    Senator Menendez. You know, we passed the Strategic 
Competition and Innovation Act last May, and the House now has 
its own provisions. I am looking forward to a reconciliation of 
that because that would address bottlenecks, strengthen our 
supply chains going forward, including funding to boost 
domestic production of semiconductors and my supply chain 
database provision as well.
    Finally, you just mentioned labor. We are facing a dire 
labor shortage across the country which is holding back our 
economy. The Fed's Monetary Policy Report from last week noted 
that, quote, ``Labor supply has been slow to rebound even as 
labor demand has been remarkably strong.'' There are currently 
11 million job openings nationwide. Immigrants are ready and 
willing to fill many of those jobs. Would you say that if we 
had a process in which we could bring those immigrants out of 
the shadows into the light, have them go through a process, 
criminal background check, and make sure they paid their taxes, 
that the role of immigrants in mitigating the current labor 
shortage and rising inflation would be a significant one?
    Mr. Powell. Seeing that we do not do immigration policy, as 
an arithmetic fact immigration has been much lower and accounts 
for, you know, a meaningful part of the labor shortfall.
    Senator Menendez. And that is why leading business groups 
agree with you. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Menendez.
    Senator Crapo, from Idaho, joins us from his office.
    Senator Crapo. Thank you very much, Mr. Chairman, and Chair 
Powell, thank you for being with us today.
    I wanted to start first by following up on some of the line 
of questioning that Senator Toomey raised, just a couple of 
quick questions in terms of the ability to manage the Fed and 
its ability to operate right now.
    It is correct that you were recently named by the Federal 
Reserve Board as the Chairman Pro Tempore pending the handling 
of your nomination. Is that correct?
    Mr. Powell. Yes.
    Senator Crapo. And in that capacity you have the full 
ability to chair the Board while we wait for the handling of 
your nomination. Is that correct?
    Mr. Powell. Yes, it is.
    Senator Crapo. I want to make it very clear, I hope that we 
handle your nomination soon, and I intend to vote in support of 
it. But I just wanted to also make it clear that you are fully 
functioning as the Chair now, in the capacity of Chair Pro 
Tempore. And it is also correct that you were named in January 
by the Federal Reserve Board as the Chairman of the FOMC. That 
is correct also?
    Mr. Powell. Actually, I was elected by the FOMC to be 
chair.
    Senator Crapo. You were elected by the FOMC.
    Mr. Powell. Yes.
    Senator Crapo. All right. And let me move on to just one 
other aspect of it. You have already discussed the dual mandate 
of the Fed today, the low and stable inflation rate, and 
maximum employment. Disturbingly to me, there are some who are 
suggesting that the Federal Reserve should, in addition to 
that, or even to claim it as a part of that, that the Federal 
Reserve should stop so-called suboptimal industries from having 
access to capital, either to restrict their access to capital 
or to deprive their access to capital. Do you believe that any 
kind of standard such as that should be something that the 
Federal Reserve Board should pursue in its supervisory 
capacity?
    Mr. Powell. No, I do not.
    Senator Crapo. All right. I appreciate that because this is 
a disturbing trend that has come in a number of different 
contexts over the last few years, and the notion that we should 
utilize our Federal regulatory and supervision authorities to 
decide which industries are optimal and restrict those that we 
do not like politically from access to capital is a very 
alarming idea that I think American should reject quickly.
    Finally, I just have one more question. Obviously, related 
to Ukraine and the issue of oil and energy markets have come to 
the forefront as a result of a number of different aspects, 
whether it is sanction questions or whether it is simply the 
issues of depriving Russia access to the utilization of Nord 
Stream, and many other aspects. Do you expect that the strains 
on the oil or energy markets that we will see coming out of 
this war will act to push inflation even higher or will act as 
an impediment to our ability to get inflation under control?
    Mr. Powell. In the near term we already see this. Oil 
prices are up substantially from where they were 2 months, 3 
months ago, and that will get into gasoline prices and other 
fuel prices, and that will show up in higher inflation. The 
question really is what will be the extent of those, and even 
more important, what will be their persistence? So typically 
with an oil spike prices go up and they either stay at that 
level or they go down. In either of those cases they add to the 
price level but not to inflation.
    The concern, though, is there is already a lot of upward 
inflation pressure, and additional inflation pressure does 
probably raise, at the margin, the risk that inflation 
expectations will start to react in a way that is negative for 
controlling inflation.
    Senator Crapo. All right. Thank you very much.
    Chairman Brown. Thank you, Senator Crapo.
    Senator Warner, from Virginia, is recognized from his 
office.
    Senator Warner. Thank you, Mr. Chairman. Chair Powell, it 
is great to see you, at least remotely.
    I want to at least point out, because I want to move to 
Ukraine where my friend, Senator Crapo, raised some of the 
issues. It is, obviously, the responsibility of the Fed, as we 
are looking at the economy, to evaluate systemic risk to the 
economy. Is it not?
    Mr. Powell. Yes.
    Senator Warner. Thank you. And you and others have 
testified that whether we call it climate change, sea level 
rise, dramatic changes in weather that brings about flooding, 
storms, you name it, that is appropriate for review, and while 
obviously the terminology of designating a particular industry 
I agree should not be, but the systemic risks, I think, are 
critically important, and I appreciate the fact that you have 
recognized that. I think we need to continue to recognize that. 
We lived through that, literally, and if we look at the number 
of natural disasters from fires in the West to floods in my 
State or floods in the South it is here to stay.
    I want to talk about, I am Chair of the Intel Committee and 
I am very, very concerned about what is happening in Ukraine. I 
am very proud of the fact that the Administration has worked in 
concert with our European allies rather than acting solo. I was 
in Munich 11 days ago, and if you would have told me 11 days 
later that the Europeans would have used SWIFT, struck down 
Nord Stream 2, Germany would change its complete position on 
funding arms, Sweden, Finland, we would have sanctioned Putin, 
I think all terribly important to have a Western response to 
this aggression.
    On the SWIFT issue, I think it is good. I do think we need 
to get our European allies, as well, to sanction some of the 
smaller banks as we have. I think we also need to look at non-
SWIFT abilities of transfer. And I am concerned that--the 
Chairman and Senator Warren and Senator Reed and I are very 
concerned about some of the leakage that could be taking place 
through cryptocurrencies. I think there is a great deal of 
value in ultimately digital-based currencies, but the concern I 
have is that crypto exchanges DeFi--there is a stat I got the 
other day that I thought was very impressive--7,000 stocks on 
our public markets, 17,000 different crypto tokens on crypto 
exchanges, literally a million crypto tokens being developed in 
decentralized finance.
    And I know this is not directly--this is more Secretary 
Yellen's purview, but you and the Fed have gained a lot of 
expertise in this space. Do you see the possibility at least of 
Putin or his oligarchs using digital payments and other 
alternative payment methodology to avoid these sanctions, in a 
sense to transfer their assets out since we have been able to 
kind of clamp down within the traditional banking realm?
    Mr. Powell. So you are right. This is right in the heart of 
what Secretary Yellen is working on. I believe she actually 
addressed this yesterday in some public remarks. And I am not 
privy to any private information about this. You are reading 
about it. I saw that transactions, crypto transactions are 
spiking in Ukraine and in Russia.
    I think it really underscores the need to have a strong 
regulatory regime that permits appropriate activity but that 
prevents inappropriate activity. And we do have laws on the 
books and all that, but I think for digital finance generally 
we need a legal framework that would really take away as much 
as possible of the possibility that people could use unbacked 
cryptocurrencies as a way to evade the law or to finance 
terrorism and hide their ill-gotten gains, and things like 
that. I think it is very important.
    Senator Warner. And again, I appreciate the fact that the 
Fed has, I think, both expertise-wise ramped up in this space. 
I do think the notion of the United States having a digital 
currency when we see the challenges around the digital yuan 
from China. But I do think the amount of capital flows that are 
going into this area, of nonbanked in many ways, there is not 
that kind of clear regulatory overview. It is something we need 
to look at, and I think as an independent source we are going 
to need to continue to draw upon not only yours but the 
enormous resources you have got at the Fed to at least follow 
the capital flows. And I am gravely concerned that Putin and 
his oligarchs may use this escape valve to escape these 
sanctions.
    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, 
Chair Powell, for investing the time with us. We have seen you 
a lot lately, and I think it is important that we continue to 
have the conversation in public about the priorities of the 
Fed.
    One of the concerns that I have, I think both Senator 
Toomey and Senator Crapo have discussed the importance of the 
Fed staying on mission and not looking for ways to expand their 
mission, looking at nominees like Ms. Raskin's approach in 
public statement as it relates to the environmental 
responsibilities that the Fed should take on. I am completely, 
unequivocally opposed to that direction. I know that there is a 
lot of attention being paid these days to ESG. I think that is 
a bad direction for the Fed. I think the Fed should focus its 
attention on its primary responsibilities, and frankly not even 
get involved in congressional matters.
    I know that Senator Tester had some important questions to 
the wrong person about truckers. I think if we were going to 
have a long, serious debate about your opinion on what Congress 
should do to help truckers we would start back in the Obama 
administration and look at the hours of service that curtailed 
the number of available truckers that we have and the amount of 
time that they could spend on the roads.
    So there are a lot of things that the Fed should not do. 
The one thing that we want you to continue to do is to focus on 
the impact that everyday folks, like in Abbeville, South 
Carolina, or in Anderson, South Carolina, are feeling the 
pressure from the inflationary effects of this economy. We 
cannot tie that to Russia or conflict. We can just tie that to 
bad decisions by Democrats and the Biden administration when on 
day one you cutoff the Keystone XL pipeline, which could have 
pumped 800,000 barrels a day, and we are dependent on Russian 
oil, and 600,000 barrels a day. The inflationary impact that 
South Carolinians have felt since December of 2020, where 
prices were $1.99 and now they are $3.40.
    I think about the seniors who are trapped in too much month 
and too little money. And I think to myself that too many folks 
on fixed incomes throughout this country, and specifically in 
South Carolina, are having to make decisions about rationing--
rationing medicine, rationing food, and rationing energy, 
whether it is in your car or at your home. This is a crisis.
    I love to hear that our wages are up 4 or 5 percent, but 
inflation is up 7.5 percent, so the net effect is that the 
invisible tax that we refer to here in Washington as inflation 
is eroding and degrading the spending power of everyday 
Americans, and they are not gullible. They know exactly what 
has changed, and any time you put fuel on a fire you should 
expect it to get hotter, and our economy reflects that same 
direction.
    And those are concerns that I have, and I know that 
yesterday you spoke at length about how the Fed policymakers 
are working to game out a variety of policy scenarios to 
grapple with the uncertain economic risks posed by the ongoing 
geopolitical turmoil while simultaneously working to curb 
still-rising prices, and I think that is an important and 
incredible balance that you will be in charge of. And frankly, 
I did not vote for you the first time but I am voting for you 
this time, because I think that you have proven that you have 
kept your eye on the ball and it is necessary for folks in my 
State and around this country.
    I would love for you to spend my 90 seconds left, talk to 
me about the gaming out of scenarios that the Fed is going 
through so that the average person in our country can 
appreciate the depth of knowledge and the time that you are 
investing in helping us understand the scenarios that could 
happen.
    Mr. Powell. Sure. So we have tools to bring inflation down, 
and they work by raising interest rates. We do that over time, 
and what that does is it increases mortgage rates but just at 
the margin, and the same thing with car loans and things like 
that. And ultimately that slows down demand, ideally in a way 
that comes to a gradual halt, and economic activity continues. 
So that is what we are trying to do here.
    Right now we need to move away from very low interest 
rates. They are not appropriate for the current situation in 
the economy. The economy is very strong. Unemployment is low, 
wages are going up, the labor market is quite healthy, and 
inflation is way too high. So we are accountable for inflation, 
and we are going to use our tools to bring it down.
    Senator Scott. May I have a little bit more time, Chairman? 
I know this is your Committee. Thank you, sir. Very kind.
    So a question for you. As you think about the next meeting, 
when you discuss the interest rate increases, are there 
increments that you would consider not foreshadowing your 
decision but the incremental increases that you think would 
bring the spending and the inflation down while not 
overchallenging the economy?
    Mr. Powell. Yes. So as I mentioned yesterday, my thinking 
at this time, which is at a very, very sensitive time in 
markets and in the world because of what we are seeing 
happening in Ukraine, and we do not know the economic 
implications of that, I said that I would be recommending and 
supporting a one-quarter of 1 percent interest rate increase at 
our March meeting, which is 2 weeks from yesterday.
    But I also said that if we do not see inflation behaving as 
we expect it to behave, which is to peak and begin to come 
down, if we see inflation behaving in ways not consistent with 
that, then we are prepared to raise by more than that amount, 
in a meeting or meetings.
    Senator Scott. Very good. I would simply say for, as I call 
them, the kitchen table economists all across the country, 
typically moms making hard decisions on rationing the amount of 
resources that they have and the priorities that they have, I 
think it is really important for us to make it as clear as 
possible and as simple as possible their understanding and 
appreciation for what is happening. When you are trying to run 
a very strong and heavy load at home and you have a full-time 
job, think what we can do to talk in a way that makes it easy 
for us to digest at home, we are doing our public, the average 
person in our country, a lot of good to understand what we are 
trying to explain. Thank you.
    Chairman Brown. Senator Warren, from Massachusetts, is 
recognized.
    Senator Warren. Thank you, Mr. Chairman. Right now our 
country is trying to enforce strong sanctions against Russia, 
weather the political economic fallout of the Ukraine crisis, 
and address the pandemic-related inflation and corporate price-
gouging that is hurting American families. Much is at stake for 
our country.
    But Republicans on this Committee refuse to show up and 
vote on five nominees to the Fed. They refuse to do their job. 
This is shameful and it is risky. Any Republican talking today 
about the risks facing our economy should be willing to show up 
and vote on Fed nominees.
    So let us talk about one of those risks, Mr. Chairman. As 
Russia has invaded Ukraine, the centerpiece of the U.S. 
response is economic sanctions. The United States and its 
allies have rolled out some of the strongest economic sanctions 
in history, severely restricting Russia's access to the global 
financial system, by sanctioning the biggest banks and 
companies, by kicking Russian banks out of SWIFT, the 
international payments messaging system, and by freezing the 
Russian central bank's foreign reserves.
    These sanctions are powerful, but Russia can dodge some of 
this pain by using the same cryptocurrency tools that are 
currently used by drug traffickers, cyber criminals, and tax 
cheats. I will pick one example here. We have all become 
familiar with ransomware, where a cybercriminal infects 
someone's computer system, locks it up, then demands payment in 
order to unlock the system. And how do they get paid? Through 
unregulated cryptocurrencies like Bitcoin.
    Chair Powell, do you know who cybersecurity experts say is 
the world leader in ransomware attacks and in getting paid 
through cryptocurrencies that allow them to obscure and hide 
their trails?
    Mr. Powell. I could guess.
    Senator Warren. Do you want to make a guess here, based on 
what we are talking about today? It is Russia. You know, if you 
listen to our own national security agencies the answer is 
Russia, and that is why, when President Biden held an 
international summit last year to fight ransomware, Russia, the 
biggest source of the problem, was intentionally not invited.
    According to one estimate by the blockchain analysis 
company, Chainalysis, Russia-linked actors collected nearly 
three-quarters of all ransomware revenue in the world last 
year, and hundreds of millions of crypto dollars are collected 
in Moscow each quarter. As much as half of those come from 
illicit crypto wallet addresses. Russia is the world's expert 
on moving money outside legal channels.
    So Chair Powell, obviously, you do not administer sanctions 
but you are an expert on the international financial system. So 
I just want to take a look at this. Are other countries 
currently using cryptocurrencies to evade sanctions? I am 
thinking here of North Korea, Iran, Venezuela?
    Mr. Powell. Honestly, it is not something we are 
responsible for. I mean, I have read publicly that those things 
have happened, though, yes.
    Senator Warren. Well, the Treasury Department, the 
Department of Justice, the United Nations, and the IMF all say 
that the answer is yes. Crypto takes the sting out of 
sanctions, and in fact, the Treasury Department warned last 
year that crypto could undermine our sanctions regime. 
Theoretically, the crypto industry is supposed to enforce 
sanctions as well.
    So let me ask, Chair Powell, is the crypto industry 
enforcing sanctions right now?
    Mr. Powell. So what I have read--again, this is really for 
the Treasury Department, but I have read the same things you 
have and that you had in your letter, which is some reluctance 
expressed on the part of the crypto industry to do that.
    Senator Warren. All right. They are supposed to, but the 
problem is they have not been doing a very good job. Just read 
the Treasury Department's sanctions review or the U.N. reports 
on sanctions compliance. We know that many crypto exchanges and 
wallets are not collecting information about the identities of 
their customers, are not screening their platforms for illicit 
activity, and are not reporting sanctions violations. Heck, 
this is how North Korea has been able to move money around and 
finance its illegal missile programs.
    Here is the thing. The whole point of crypto is that it 
allows someone to conduct financial transactions without having 
to go through the traditional banking system or traditional 
financial intermediaries. Right now, millions of transactions 
are taking place that are completely unregulated, with no one 
verifying who gets what. And that means that while sanctions 
can make it very difficult for Russian companies, political 
leaders, and billionaires to move money around in the 
traditional financial system, there is another shadow 
unregulated world that they can turn to.
    Crypto poses a variety of threats, to financial stability, 
to investor protection, to our environment, but crypto is also 
providing a new way for countries to sanction-proof themselves. 
Cracking down on crypto is a critical piece of holding Russia 
accountable for its aggression. We cannot fool around any 
longer. We need to get new crypto rules in place.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you. Senator Moran, from Kansas, is 
recognized.
    Senator Moran. Chairman, thank you. Chairman, thank you. At 
least one member of the Open Market Committee has said that 
combining a relatively steep path of rate increases with a 
relatively modest reduction in the balance sheet could flatten 
the yield curve and distort incentives for private sector 
intermediation, especially for community banks.
    Help me understand the relationship between balance sheet 
decisions and rate increase decisions and what thought process 
you would undertake in that regard.
    Mr. Powell. Basically we think of the interest rate as the 
active tool of monetary policy, and we think of the balance 
sheet as something we do really in urgent situations. We buy 
assets and that tends to drive down long-term rates.
    So what we are very much about to do, and we are going to 
do this over the course of this year, is both raise interest 
rates and we are going to begin to allow the balance sheet to 
shrink and run off. As the balance sheet shrinks, you know, the 
securities are maturing is what is happening, and Treasury, on 
the other side of the wall, Treasury is deciding what to issue. 
So they issue long, short, in the middle. That is what they do. 
And that will have an effect on the yield curve and on 
financial conditions, but those are decisions that Treasury 
makes.
    But the way we do it, though, to answer your question, is 
we want to decide a path for the balance sheet and then we want 
to let it go in the background and have the interest rate tool, 
meeting to meeting, be the active policy tool. I hope that is 
responsive.
    Senator Moran. And what is the different consequence 
between altering the balance sheet and altering interest rates?
    Mr. Powell. For the shape of the yield curve, you mean?
    Senator Moran. Yes. What happens differently in the economy 
as a result of doing one or the other, or what is the reason to 
do them together?
    Mr. Powell. Well, when we are using them actively, cutting 
interest rates and buying assets, buying longer-term assets, we 
are trying to provide support for the economy. The interest 
rates affect shorter-term rates actually more than they affect 
longer-term rates. Quantitative easing affects longer-term 
rates, and those are important in the economy.
    When you turn it around, really, as I tried to explain, we 
shrink the size of the balance sheet. So for example, if 
Treasury were to issue only long bonds, well that would drive 
up rates and that would tend to tilt the yield curve up. But 
that is a question for Treasury, the issuance question.
    Senator Moran. I am trying to understand while you are 
trying to explain it, and the fault probably lies with me. But 
in regard to interest rates, long-term, short-term, does it 
matter which of those tools you use, and is there a consequence 
different to an American industry, a sector of our economy as a 
result of the machinations between those two tools?
    Mr. Powell. Not really. Not really. So again, our interest 
rate is an overnight interest rate, right, and so when we 
change it, it will affect asset prices all the way out the 
curve. It will affect equity prices and things like that. But 
ultimately, if you are zero lower bound and you cannot cut 
anymore, then in one sense you could be out of tools. And so, 
actually, Milton Friedman was one of the first to talk about 
this many years ago with respect to Japan. You can always 
affect longer-term interest rates by buying sovereign debt, and 
so that tends to bring down longer-term rates. They all matter 
for the economy. To the extent you borrow long, if you are 
someone who likes to borrow very long, like investment-grade 
companies, then your rates will go down for 30-year lending. 
For most people the short end is more important.
    Senator Moran. Mr. Chairman, I am not going to ask you 
about energy policy, but let me ask what percentage or what is 
the quantification of how inflation is related to energy 
prices.
    Mr. Powell. Energy inflation, when we talk about core 
inflation we exclude inflation from energy and food prices 
because those are quite volatile. So right now, I guess, if you 
look at it the way we look at it, core PCE is about 5, in the 
range of 5, and energy inflation and food inflation you put on 
top of that is in the high 6's. So it is close to a couple of 
percent, I believe.
    Senator Moran. And just in my last 14 seconds, I always 
worry about farmers and ranchers, small towns, community banks, 
lenders to those farmers and ranchers. Interest rates and 
energy prices combined have a huge consequence to those who 
feed and clothe and provide energy to us and the world. And 
decisions that you make have perhaps an exacerbated consequence 
to somebody who borrows significant amounts of money to put 
seed in the ground at a time in which fertilizer costs, diesel 
fuel is extremely high. Every input a farmer faces today is 
here. While commodity prices have risen, they have not risen 
sufficiently to overcome the cost of production.
    Mr. Powell. We are very much aware of that. Some of this 
shock is going to be very tough for agricultural companies, and 
that is something we will be monitoring. We do not have the 
tools to deal with that very well, but that is clearly a risk.
    Senator Moran. Mr. Chairman, thank you.
    Chairman Brown. Thank you. Senator Smith, from Minnesota, 
is recognized.
    Senator Smith. Thank you, Mr. Chair. Thank you so much, 
Chair Powell. It is wonderful to see you again, and I really 
appreciate the questions that Senator Moran is asking about 
kind of how this actually works, the mechanics of the economics 
of this. Because the impacts of interest rates, the interest 
rates are the tool that the Fed has to address inflation, but 
in a world where the causes of inflation are so complex it can 
have a tool with other impacts that you do not necessarily 
anticipate--or you can anticipate it but you cannot control for 
that.
    So I want to come back to that, because I am very much 
thinking about this in the context of workforce and what we 
need to do about workforce. You laid out at the beginning of 
your testimony that the American economy is really strong. We 
have seen millions and millions of Americans go back to work, 
fastest economic growth since 1984, unemployment rate is very 
low, and the economy is in good shape, notwithstanding the fact 
that we have got real challenges around rising prices for 
American families.
    In Minnesota, the biggest economic challenge that I hear 
people talk about is the workforce challenge, that there just 
are not enough people to do the work that we have. It is 
interesting. The U.S. Chamber noted that women are 
participating in the labor force at the lowest rate since the 
1970s, and this is having significant impacts on our ability.
    I cannot vouch for the U.S. Chamber's numbers but it 
reflects what I have heard, which is that there is a very big 
discrepancy between the number of men that have come back to 
the workforce and the number of women that have come back. So 
why is this happening? It is complicated, of course. There are 
a lot of early retirements. But there is a real issue with 
childcare and women being able to--women and men, but women in 
particular--being able to come back to the workforce.
    And so, Chair Powell, can you help me understand this? If 
we were to invest, as a country, if we were to invest in making 
childcare more affordable, more accessible, what impact would 
that have on the overall economic conditions of this country, I 
mean, this workforce challenge that we have? And I want to try 
to understand the interplay between that and inflation and how 
this all comes together.
    Mr. Powell. You know, it would, of course, depend on the 
design of the program and how well executed it was, and that 
kind of thing. But there is research. So labor economists, 
including one of our Reserve Bank presidents, have written and 
done research on this and looked at other countries, try to 
control for other factors, but look to see whether childcare 
that can be afforded or is free contributes to labor force 
participation among women, and they have come back with 
positive results on that. And, you know, that does make sense. 
It is intuitive, I think, but that is what the research tends 
to show.
    Senator Smith. Right. And so public investment--if we 
decided, which I think we should, but if we were to decide to 
make a public investment in making childcare more affordable, 
that would not contribute to inflation, would it?
    Mr. Powell. You know, to the extent it got people back in 
the workforce and got them working over time it would help 
relieve the labor shortage and things like that, so it would be 
positive.
    Senator Smith. That is the way it seems to me too, that if 
one of the contributors--if you have more people working you 
are going to be addressing the workforce challenges. Of course, 
I think it is a good thing that wages are going up, and I think 
that is part of what is happening in the economy is the 
relative power of employers versus workers has shifted so that 
workers have more power and they are shifting jobs if they can 
get better salaries, get better wages in other places, and that 
might be contributing to rising wages. But it is generally, I 
think, a good thing.
    So assuming the Fed does what it is planning on doing and 
raising interest rates, what impact does that have on the 
workforce shortage, if any? What does that interplay look like?
    Mr. Powell. Well, again, our tools do not really go very 
much to supply. They go to demand. So right now we have 
substantial excess demand, as I mentioned, and I think the 
first 15 pages of our report are actually a really good summary 
of the labor market inflation and supply chain bottlenecks. I 
would do that commercial. But you have more than 1.7 job 
openings per unemployed person, and that is an overheated labor 
market. The level of quits is at an all-time high, and the 
level of job openings.
    So it seems to me there is a lot that we could do to 
gradually bring demand back down to where demand and supply are 
more in sync, without risking damage of the kind you are 
talking about.
    Senator Smith. So raising interest rates would cause 
companies to cut back. They are not going to have as many job 
openings.
    Mr. Powell. Yes. I mean, it slows economic activity across 
the economy gradually because buyer borrowing costs, mortgage 
rates will go up, the rates for car loans, all of those rates 
that affect consumers' buying decisions, and with a lag it will 
tend to slow down----
    Senator Smith. Job creation.
    Mr. Powell. In addition, it has effects through wealth 
effects, because housing prices will not go up as much and 
equity prices will not go up as much, and so people will spend 
less. And what we hope to achieve is bringing the economy to a 
level where demand and supply are in sync.
    Senator Smith. Thank you. Mr. Chair, I am just thinking 
about what President Biden said at the State of the Union, 
which is that as we grapple with this problem what we want to 
do is we want to lower costs, not lower wages. And so I think 
this is just part of the dynamic that we are all trying to 
figure out here. Thank you so much for being with us, Chair 
Powell.
    Chairman Brown. Thank you, Senator Smith.
    Senator Daines, of Montana, is recognized.
    Senator Daines. Chairman, thank you. Chairman Powell, good 
to have you back here.
    Everybody is talking about inflation as we are sitting here 
today. It is raging in my home State of Montana, a 40-year high 
at 7.5 percent in January. Core inflation rose 6 percent. And 
we recognize it is both above estimates and both well above the 
Federal Reserve's 2 percent target.
    As we take a look at what is going on in Europe and Russia 
as it relates to energy prices, energy independence, national 
security, we are seeing it is all interconnected. As many 
countries in Europe continue to decommission nuclear power 
plants and stop investing in traditional energy, they have 
become now more dependent on adversaries like Russia for 
energy, and now we are seeing the cost of energy is 
skyrocketing.
    Sadly, I think this is a sneak peek at the path that 
America is headed down if President Biden, and frankly our 
colleagues across the aisle, continue to undermine made-in-
America energy. In order to help lower energy costs, help our 
allies be less reliant on Putin and Russia, I believe we must 
unleash American energy and support truly the all-of-the-above 
American energy portfolio, which includes oil, natural gas, 
nuclear, hydro, and coal. I think it is more important now than 
ever before.
    Chairman Powell, the Fed demonstrated unprecedented amount 
of speed to cut rates in March of 2020, when it first cut rates 
then by 50 basis points and followed that soon after by cutting 
rate to zero and launching a new round of quantitative easing 
(QE). My question is this. Has the Fed looked at what impact 
$125-per-barrel oil might have on growth and inflation? Because 
I think we were just here about a year ago having a 
conversation about inflation. Of course, we have moved away 
from any conversations about anything transitory now, as we 
certainly have some inflation here that is far more than 
transitory. But I think it would be fair to say none of us at 
that moment would have thought we would be seeing oil at $100 a 
barrel, or more.
    My question is, have you looked at what $125 a barrel looks 
like, $150 a barrel, even $175 a barrel, what that might mean 
in terms of growth in inflation?
    Mr. Powell. The answer is yes. We run simulations and we 
are running those all the time right now. In addition, we have 
these rules of thumb that show what happens to gas prices, what 
happens to inflation, what happens to growth. They are crude 
rules of thumb but they give us a way of thinking about what 
the effects would be, and they are what you would think. You 
know, inflation goes up, gas prices go up, and growth goes down 
a little bit.
    Senator Daines. So as you have done that modeling, what 
kind of impact are we going to see on inflation in your models 
if we have got, let us say, $125 or $150 a barrel?
    Mr. Powell. Well, you know, let us say that that is $50 
above where oil was during the fourth quarter of last year. I 
want to say it was in the $75, $80 range, something like that. 
And the thing that matters more than anything is how long does 
it persist for. You can have an oil spike, and if it just comes 
and goes, prices will go up but it will not actually affect 
ongoing inflation. That is really the key thing.
    But, you know, I want to say $10 of oil--and I hope I do 
not get this wrong--is like two-tenths, something like that, of 
inflation.
    Senator Daines. Yes. How about on economic growth? What is 
your sense?
    Mr. Powell. It is more like one-tenth. These are rules of 
thumb.
    Senator Daines. Yes. And I think these numbers I quoted 
here are not outlandish. I mean, you have seen how quickly this 
is moving, how volatile the situation is. I am glad you are 
modeling it, but we are very, very concerned, certainly, as you 
are, where this might go.
    I want to talk about the balance sheet of the Fed. The 
Federal Reserve's balance sheet is nearing $9 trillion, which 
is more than double where it was before the pandemic. Could you 
describe how unwinding the balance sheet as a tool to fight 
inflation compares to raising interest rates? For example, 
would a $500 billion reduction in the size of the balance sheet 
equate to a 50-basis-point hike in interest rates?
    Mr. Powell. It would be a very crude calculation because we 
do think that the signaling value of QE is a big part of it, 
and you do not have that when you are having the balance sheet 
run up. I do not have that one in my head. You are right, 
though. That is the sign that it would be tightening policy.
    We really think of getting the balance sheet running in the 
background and shrinking in a predictable way, and we think 
about the interest rates as the active tool.
    Senator Daines. Last question. Do you think we could be on 
the cusp of a wage-price spiral, and what factors are you using 
to make the determination?
    Mr. Powell. Obviously, that is something we really do not 
want. The big thing we do not want is to have inflation become
entrenched and self-perpetuating. And it is a question of 
inflation psychology really, and it having what we call having 
unanchored inflation expectations. And that is why we are 
moving ahead with our program to raise interest rates and get 
inflation under control. That is a serious concern and one that 
we monitor careful. And again, it will depend on--wage 
increases have been very high, particularly at the low end, and 
it will depend on whether those are persistent or not.
    Senator Daines. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Daines.
    Senator Van Hollen, of Maryland, is recognized.
    Senator Van Hollen. Thank you, Mr. Chairman. Welcome, Mr. 
Chairman. I was listening to your testimony, and you pointed 
out that you have got a lot of job openings, a lot of 
vacancies. And you pointed out that there were some commonsense 
measures we could take to address those, including more 
affordable childcare, so more people could ensure that their 
kids are in a safe and secure and affordable place while they 
are at work, and in response to Senator Menendez, allowing 
people to come out of the shadows in our economy with some 
immigration reform. And I think those are both commonsense 
measures, as you said, that we should take.
    You are in a tough position given all of the variables we 
are seeing. We are seeing higher economic growth. In fact, you 
have testified previously that because of the American Rescue 
Plan we have seen much more robust economic and job growth than 
had been estimated before then. You have got a war in Ukraine, 
which is putting upward pressure on oil and gas prices, and 
that in effect, that could also have an impact in slowing down 
the economy. I was interested in Senator Toomey's line of 
questioning. I mean, you have got to navigate that.
    Another variable here, of course, is the possibility of 
another variant of the coronavirus coming back and wreaking 
havoc. Is that not another major unknown that you have got to 
factor into your decisionmaking?
    Mr. Powell. Yes. Yes, it is.
    Senator Van Hollen. And as you think of that, along the 
commonsense lines, does it not make sense that we be fully 
prepared so that if there is another variant and outbreak that 
we are able to quickly address it, quickly reduce the economic 
fallout that we witnessed around the original outbreak? Does 
that not also make common sense?
    Mr. Powell. It sounds like it. I am not sure where I am 
going here. It sounds like a fiscal proposal.
    Senator Van Hollen. Well, it is like the other ones are 
kind of common sense. I am not asking you to make a judgment 
totally within, you know, monetary policy or the Fed's domain 
in that sense. But from an economic perspective--and you have 
an important role to play there--it seems to me that the more 
prepared we are to fight a new variant, the better off we will 
be, from an economic perspective. Right?
    Mr. Powell. Yes.
    Senator Van Hollen. I just point that out because we just 
received a request from the President for a supplemental 
assistance package to stockpile more antivirals, so people 
could be treated more quickly, to stockpile tests so that we 
could quickly determine where we experience an outbreak, and to 
stockpile more vaccines, and also to work globally to prevent a 
new variant from developing. Again, just from an economic 
perspective, those preparations would make common sense, would 
they not?
    Mr. Powell. They would. And, you know, variant to variant, 
the economy has gotten better at dealing with this, the 
American people have. So I think anything that allows us to 
continue living our economic lives is a plus.
    Senator Van Hollen. I appreciate that. I think that we just 
need to take some practical steps, as you said.
    Can you just talk a little bit about the assessment that 
you made regarding the households being in strong financial 
shape? You mentioned that, and I think it is worth just 
elaborating on that a little bit, because we have wage income 
but we also have the income people received as a result of the 
American Rescue Plan, right, $1,400 per person, and other 
emergency assistance we provided. And that has put households, 
overall, in strong financial shape. I think those are the words 
you used. Is that right?
    Mr. Powell. Yes. Just as you say, the level of savings, 
even among those that the lower end of the income spectrum is 
much higher than it was just continuing the prior trend. In the 
surveys that we undertake, people feel better about their 
financial situation than they have in a long time.
    Senator Van Hollen. Right, and again, we have had this back 
and forth about real wage growth, and I think if you look at 
people at the lower end of the economic spectrum you have seen 
real wage growth, as you indicated. But if you look even 
overall at all households, in terms of their personal income 
last year, after-tax personal income compared this year, 
overall that has improved, right?
    Mr. Powell. Yes, in nominal terms.
    Senator Van Hollen. No. I am asking in real terms, 
actually.
    Mr. Powell. You know, it depends on whether you are looking 
at 1 year or 2 year and which measure you are looking at. But 
if you are talking about a particular piece of data I do not 
have it at hand, but I know that for many real wages rose in 
2020, and in the aggregate declined marginally in 2021.
    Senator Van Hollen. Yes. But I am talking about all the 
income available to a household, in real terms. I am happy to 
follow up.
    Mr. Powell. That would be great.
    Senator Van Hollen. Thank you.
    Chairman Brown. I think, Senator Van Hollen, you were in 
part referring to the child tax credit and assistance that low-
income people had.
    Senator Van Hollen. Child tax credit, $1,400 per 
individual. All those helped in terms of personal household 
savings in real time, in real terms.
    Chairman Brown. What matters is the quality of life.
    Senator Kennedy is recognized, from Louisiana.
    Senator Kennedy. Thank you, Mr. Chairman. Mr. Chairman, the 
President has requested that the Congress appropriate 
additional money to fight COVID. Senator Van Hollen just 
referred to it. Do we have that money?
    Mr. Powell. I feel like I am getting into fiscal policy 
here. I really want to leave this to----
    Senator Kennedy. Yes, sir. But do we have that money?
    Mr. Powell. Do we have that money? Well, in the sense of--
--
    Senator Kennedy. Do we even have 5 percent of that money?
    Mr. Powell. I do not know what you mean by ``have the 
money.''
    Senator Kennedy. Will we have to borrow the money?
    Mr. Powell. Yes, I think we are running a deficit, so I 
think a lot of spending is on the basis of borrowing.
    Senator Kennedy. OK. Let me ask you about the sanctions on 
Russia's central bank. The West has sanctioned its bank, and 
you say it is--or some say that it has basically prevented 
Russia from using those foreign reserves, because they are 
foreign reserves. They are not in Russia. They are in other 
banks in other countries. Has China joined in that sanction?
    Mr. Powell. No, I do not believe so.
    Senator Kennedy. So if China wants to it could support the 
ruble, could it not?
    Mr. Powell. In theory, yes.
    Senator Kennedy. OK. Now does that sanction on the foreign 
reserves of Russia by the West, does that stop dollars and 
euros from coming into Russia?
    Mr. Powell. I think other sanctions do. They are not 
getting any hard currency. I think a lot of payment of dollars 
into Russia is coming to a grinding halt.
    By the way, I should say we are really not responsible for 
sanctions, as you obviously know.
    Senator Kennedy. I know that. You are not responsible for 
climate change either, but that does not stop the Federal 
Reserve, or for elementary and secondary education, but that 
has not stopped the Federal Reserve from having an opinion, not 
you but some of your colleagues.
    Now the West has said, the President has said we are going 
to throw Russia out of the international community and we are 
going to throw Russia out of the international marketplace, and 
obviously we all agree with that. And he sanctioned everything. 
But he has not sanctioned Russia's energy. Europe is going to 
continue to buy Russian oil and gas, despite the fact that 
Europe has 1,000 trillion cubic feet of natural gas that it 
refuses to produce. And America, right now, we are continuing 
to buy Russian oil.
    So how are we going to throw Russia out of the 
international community and global markets if we do not attack 
their oil?
    Mr. Powell. That really is a question for the elected 
Government, for the Administration, and particularly the 
Treasury Department.
    Senator Kennedy. I know, but I am asking your opinion, 
because you are a smart man.
    Mr. Powell. I appreciate that very much, but my opinion is 
that it is not something I would have an opinion on, as Fed 
Chair. We do not do energy policy. We do not do sanctions. We 
are technical support. We are not the policymakers. It would be 
like the Secretary of the Treasury coming in and talking about 
monetary policy.
    Senator Kennedy. OK. Let me take you back to the spring of 
2020. Governments shut down the private sector in virtually 
every country. Markets are panicking. Everybody is looking at 
you to calm things down. You did. You did. And one of the 
things you did, aside from the currency swap plan that you 
established--well played--you said we, meaning the Federal 
Reserve, are going to provide capital to American businesses. 
OK? And you did. And you kept us going, and I thank you for 
that.
    Suppose, though, the Federal Reserve had said, at that 
time, we are going to keep American businesses going and we are 
going to supply the capital, except we are going to use this 
opportunity to bankrupt the oil and gas community, the oil and 
gas sector. Where would we be today if we had done that?
    Mr. Powell. You would be very unhappy with me, and 
appropriately so.
    Senator Kennedy. Why is that? Because some of your possible 
new colleagues think we should have done that. Ms. Raskin has 
talked about that, said we should have taken the opportunity, 
at that point, to bankrupt oil and gas.
    Mr. Powell. I do not want to----
    Senator Kennedy. I know.
    Mr. Powell.----get into the----
    Senator Kennedy. I know. I just thought I would slip that 
in. I am not asking you to comment on Ms. Raskin, our reserve 
trust, or the other things that we need to get to the bottom 
of. I am asking you to tell me what would have happened if we 
had used that opportunity to bankrupt the fossil fuel industry, 
as Ms. Raskin suggested we should?
    Mr. Powell. Well----
    Senator Kennedy. Strike the Raskin part. That makes you 
nervous. I can tell.
    Mr. Powell. You know, we are a creature of law. You passed 
the CARES Act. It did not say anything about picking and 
choosing, and we were not going to do that, and we did not do 
it.
    Senator Kennedy. Do you think picking and choosing is a bad 
idea?
    Mr. Powell. I think, you know, we actually have a document 
I have right here from 2009. It is sort of our document where 
we negotiated with the Treasury Department who does what, and 
it talks about the fact that we do not get into allocating 
credit. We try to affect broad credit conditions. We do not 
allocate credit to particular industries. And that is a 
document that we think is sort of one we live with.
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Kennedy.
    Senator Ossoff, from Georgia, is recognized.
    Senator Ossoff. Thank you, Mr. Chairman. Chair Powell, 
thank you for joining us again. Thank you, as always, for your 
service.
    Please explain to the Committee and to the American public 
what steps the Fed is taking and expects to take in response to 
the increase in price level for consumer goods, gas, and 
groceries.
    Mr. Powell. Well, as I discussed yesterday, we are 
embarking on a series of rate increases over the course of this 
year, and no doubt beyond, and we are also going to be 
shrinking the size of our balance sheet as the year goes on. So 
what those things will do is they will raise interest rates 
across the economy and that has the effect of moving demand 
back down to where it is more aligned with supply and getting 
inflation back down to a level that we would recognize, that is 
consistent with our mandate of around 2 percent.
    Senator Ossoff. And what considerations will inform you and 
your team as you determine the rate at which you reduce the 
value of assets on the Fed's balance sheet?
    Mr. Powell. The way we think about that is we want to set--
and this is the meeting we are going to have in 2 weeks--we are 
going to set a pace at which runoff will happen, subject to 
caps, so that if there is more runoff--basically, when 
securities mature we can just not reinvest that money and we 
can just give that money back to the Treasury Department, and 
that is what we do, up to a certain limit. We like to have caps 
so that it is not volatile and it does not affect markets.
    So essentially it is what we think we can do in ways that 
will not interfere with market function and that will get us 
back expeditiously to a balance sheet which is the one we need, 
which is just the right size to implement monetary policy, 
consisting of demand for our liabilities plus a buffer. Ample 
reserves, we call it.
    Senator Ossoff. We are seeing right now the impact of 
geopolitical events on markets' likely impact on the price 
level potentially on unemployment and therefore on your 
mandate. I would like to request that you consider providing 
this Committee with a Members-only briefing that would cover 
two subjects.
    The first is how the Federal Intelligence Coordination 
Office that connects you and your team with the intelligence 
community, performs in ensuring that you and your team are up 
to date on the latest intelligence that could provide a 
forewarning of geopolitical events that impact your mandate and 
financial markets in the U.S. economy.
    And the second is a briefing on the resilience of your 
internal systems and the mechanisms of action for monetary 
policy in the event of a cyberattack or a continuity of 
Government event such that you can continue to do your job even 
if the Nation's information technology or financial 
infrastructure is degraded or under attack.
    Will you and your team provide to this Committee in a 
Members-only or closed or classified setting, as necessary, 
that information?
    Mr. Powell. Sure. The second one, for sure. I am not sure 
there is a lot to really--well, we can talk about this offline 
in terms of what there is to talk about, but we are delighted 
to come up if you want to have us up for a briefing. If the 
Chair and the Ranking Member want us to come up, we will come 
up at any time.
    Senator Ossoff. OK. We will coordinate that with Committee 
leadership and look forward to making that happen.
    How do you consider the labor participation rate when you 
think about what it means to fulfill your mandate with respect 
to employment?
    Mr. Powell. It is one of the key measures. There are many, 
many measures that go into determining what is maximum 
employment. Ultimately, maximum employment is, one way to think 
about it, the highest level that is consistent with price 
stability. And so at a certain point, labor supply has not 
increased at the pace that everyone expected it to increase at. 
It is still meaningfully below where it ought to be, even based 
on its trend. It is very hard to understand why that is. There 
is a great discussion of it in the Monetary Policy Report.
    So essentially what we do is we make a forecast, and that 
forecast now amounts to relatively modest additional 
improvement in labor force participation. We factor that into 
how tight the labor market will be. That will give us a view on 
unemployment, on wages, and things like that. And so that is 
how we do it. And the reason it is fairly modest improvements 
is that is what we have seen so far.
    Senator Ossoff. The Chairman is a stickler for time so I am 
just going to get this last question in here. Will you please 
provide to my office the research that the Fed has conducted or 
third-party academic research that you consider credible with 
respect to the distributional effects of monetary policy over 
the last 15 years, the quantitative easing programs, the 
massive increase in the money supply from central banks across 
the world, how that has impacted the Gini coefficient and other 
distributional and inequality measures?
    Mr. Powell. I would be delighted to.
    Senator Ossoff. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Ossoff.
    Senator Hagerty, from Tennessee, is recognized.
    Senator Hagerty. Thank you, Mr. Chairman and Ranking 
Member. I appreciate you getting us together today again. And, 
Mr. Chairman, I appreciate you being here.
    I would like to talk a little bit about what Senator 
Kennedy was just talking about, what Senator Daines touched on 
with respect to energy. As a candidate, President Biden 
promised that he would do away with the oil and gas industry 
here in America if he were elected, and I think that has been 
one of the campaign promises that he has been very effective at 
essentially undertaking a war on that industry, whether it is 
killing the Keystone XL pipeline permits, whether it is 
terminating oil and gas leases on Federal lands, pressuring 
asset managers and banks to stop lending, to divest from energy 
projects.
    It has been a very extensive effort to decrease American 
energy production. That has had the effect of costing American 
jobs. It has had an effect of raising domestic prices for 
energy. But it has also had an effect, as Senator Kennedy 
mentioned, of making it extremely difficult for the Biden 
administration to respond to Russia's invasion of Ukraine, 
because it makes it very difficult for President Biden to hit 
Vladimir Putin where it will really hurt. It makes it difficult 
to sanction Putin's energy. The reason for that is sanctioning 
Putin's energy, again according to the argument that Senator 
Kennedy eloquently laid out, is going to raise prices for 
energy around the world, given our dependence on Russian energy 
and others.
    We are in a tough spot, and energy touches so many aspects 
of our economy. I hope I could get your insight in terms of how 
you look at the trendline for energy prices, Mr. Chairman, and 
how that is going to affect monetary policy moving forward.
    Mr. Powell. Well, I mean, in the near term clearly energy 
prices have gone up and they may go up further. It depends upon 
events to come. And that is going to push up inflation. 
Certainly in the near term gas prices will go up. As I 
mentioned earlier, there will be effects on inflation, on 
growth, on gas prices, and it all comes down to how persistent 
will they be. You know, if it is a spike that comes back down, 
or it looks like it is coming back down, then that is one 
thing. If it is persistent, then that is a different thing. And 
we would be much more concerned at the latter, and also, 
frankly, the effect that just another oil price shock would 
have on general inflation expectations. We will be watching 
that very carefully.
    Senator Hagerty. I wake up every morning and check futures 
prices. I am sure you have got many variables that you watch, 
and I would look forward to your insight in terms of what you 
think are the most informative variables as you think about 
monetary policy in the long run.
    I would like to turn to the Fed's accountability right now, 
and again, this touches on inflation. I think that the Federal 
Reserve is in a very difficult situation right now, Mr. 
Chairman. You and I have talked about it. A lot of the stimulus 
spending, fiscal policy have made your job very difficult. We 
have had that discussion in hearings before. But with January's 
CPI at 7.5 percent, it really does feel like the Fed is behind 
the curve right now and may have to take more aggressive 
actions than otherwise would have been the case.
    And I saw that the most recent Monetary Policy Report 
omitted the section on monetary policy rules. And I know those 
rules are not intended to be prescriptive there but they are to 
consult, for contextualization. But it was concerning that they 
were missing. And again, I think those rules would have 
indicated that we are behind the curve, that there is more to 
be done on inflation. And it brought me to think about how does 
the Fed think about accountability? How do you think about 
holding the Fed accountable for managing inflation?
    Mr. Powell. So we will bring them back for the July thing. 
Honestly, we sometimes do and sometimes do not. And, by the 
way, I would recommend, the Cleveland Fed has really all of the 
rules. There are a range of rules, but clearly the median rule 
is, you know, so . . .
    But in terms of accountability, you know, it starts with 
transparency from us, and, you know, explaining to you. You are 
the mechanism through which we get our transparency. We deliver 
transparency and we get our democratic accountability by 
explaining ourselves in understandable terms to you and by you 
holding us accountable. And in our system of Government it runs 
through this Committee and the Senate, and the House as well.
    And so we try to be very transparent. We try to be engaged 
with Members and explain and hear your concerns and all those 
kinds of things. Ultimately, it is the bottom line. We both 
came from the business world. It is what you deliver, and we 
need to deliver price stability--we are not currently doing 
that--and we are very high-
ly motivated to get the economy back to a place where we have
inflation under control, but also a strong economy and a strong 
labor market.
    Senator Hagerty. I could not agree with you more. 
Accountable and, frankly, credibility are so important for the 
Fed. I know the Ranking Member has talked a good deal about 
mission creep at the Fed, politicization at the Fed. I will 
just underscore and associate myself with his remarks there as 
well, in terms of my concern there, because it does get very 
deep to the credibility of an organization that we are all so 
dependent upon to be credible, to be transparent as you 
described, and to accurately telegraph where we are headed as a 
Nation and as the most significant economy in the world.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Hagerty.
    Senator Cortez Masto, who waited patiently in person for 
her turn, is now recognized from her office.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chair, and 
thank you, Chairman Powell, for being here.
    I listened until I had to run over to the Natural Resources 
Committee--but one question I have for you, and I appreciate 
your candor always, clearly the focus is price stability, but 
we are having challenges right now. Based on what you know now, 
with our economy and the facts before us, do you believe that 
the Fed should have engaged its monetary tools a year ago 
instead of waiting until March to engage some of those, to 
address price instability?
    Mr. Powell. I am sorry. I did not hear the last part of 
your question. I apologize. It was not----
    Senator Cortez Masto. No, that is OK. Do you believe--and 
let me know if you cannot hear me OK--do you believe that the 
Federal Reserve, based on what you know now, with the facts and 
the economy, should have engaged their tools to address the 
price instability a year ago instead of waiting until March?
    Mr. Powell. I do not know about a year ago. I would say 
this. You know, we thought that the supply side problems would 
get better faster than this. They have not. Had we known that 
they were not going to get better then certainly we would have 
engaged our tools earlier.
    Senator Cortez Masto. OK. Let me talk about the Monetary 
Policy Report. You make a strong case that the USA economy is 
the best in the world. Do you believe that our economy has 
weathered the COVID-19 pandemic more effectively than other 
nations?
    Mr. Powell. I think there is quite a lot of evidence to 
that effect, yes.
    Senator Cortez Masto. Thank you. And I appreciate your 
consistent focus on leisure and hospitality industry. As you 
well know, I talk to you about it all the time, coming from the 
State of Nevada. Can you speak to the Fed's report that wages 
in the leisure and hospitality sector are improving quickly?
    Mr. Powell. Yes. I mean, that is an area where we have seen 
very large wage increases, but, you know, it is still one of 
those very much an in-person business, and I guess it is still 
difficult to hire people, which is, of course, why the wages 
have gone up so much.
    Senator Cortez Masto. And why do you think that nearly a 
third of all jobs added to the economy in January were in 
leisure and hospitality? I am curious.
    Mr. Powell. I just think that is where the job openings 
are. You know, that is still the part of the economy--I do not 
need to tell you--that is the part of the economy that still 
has to fully recover.
    Senator Cortez Masto. Thank you. That is what I wanted to 
hear, because it is true. I see the unemployment numbers in my 
State, the highest unemployment rates are in southern Nevada 
where the hospitality and leisure industry is, and we cannot 
forget that. And that has been the challenge to our workforce 
in general, and getting people back to work.
    I know Senator Smith asked you this question, but let me 
just reiterate this, going back to a full workforce. There are 
interesting facts in the monetary report, particularly in the 
first 73 pages, but there was nothing in the labor force 
discussion regarding about the importance of women in that 
labor force. I am assuming you utilize that factor as well. 
Does the Federal Reserve analyze women's workforce 
participation?
    Mr. Powell. Oh yes, very much so. There is a story there. I 
do not know why it did not go into this, if it is not in there. 
But, I mean, early on women bore the brunt of participation and 
of job loss, but over the course of the pandemic much of that 
effect has really reversed, so you are back now to--we were 
looking at this earlier this week--if you look at the change in 
participation or unemployment for men and women, it is very 
hard to see any difference at this point. But that was not the 
case a year ago, where women bore the brunt then, but not so 
much now.
    Senator Cortez Masto. And do you think impact of lack of 
childcare has impacted and been a barrier for women to get back 
in the workforce?
    Mr. Powell. Yes, and there is a table, I think on page 11 
in our book that shows who is not participating. Actually, 
childcare is not so much. Caregiving overall is a big number. 
But according to this data anyway, childcare as such is no 
longer big from a macroeconomics standpoint. I know for the 
people affected it is big.
    Senator Cortez Masto. Thank you. And then one of the other 
areas that we have been talking about, the rising prices that 
we see and that I hear about at home, I see at home, one area 
though is around housing and the focus on how we can reduce 
costs and prices for affordable housing. And so there is work 
being done that we have done already, but also that we can 
still address to increasing the housing supply here, 
incentivize that at the Federal level.
    I am just curious. Would you believe that investments in 
increasing the supply of housing affecting the inflation that 
we see in the housing market and inflation overall?
    Mr. Powell. If you are getting into fiscal policy to 
support affordable housing, that is certainly a worthy and 
important issue but really not our doing.
    Senator Cortez Masto. No, just the fact of supply and 
demand. If what we are seeing is more of a demand for housing 
and lack of supply, and if we are to incentivize that increase 
in the supply of housing that should lower costs, that should 
help address the inflationary----
    Mr. Powell. I think if you create more supply then you will 
get prices going down, pretty much in anything.
    Senator Cortez Masto. Yes, I appreciate that. Chairman 
Powell, thank you again.
    Chairman Brown. Thanks, Senator Cortez Masto.
    Senator Tillis, from North Carolina, is recognized.
    Senator Tillis. Thank you, Mr. Chairman. Chair Powell, 
thank you for being here and thank you again for your long 
track record of being very accessible. When we call you answer 
the phone, and I appreciate that.
    I wanted to talk briefly. Senator Smith talked about 
childcare and in response--I am paraphrasing--you said it 
depends on how it would be designed and executed. And then you 
just made a point in response to Senator Cortez Masto that not 
so much childcare but dependent care. It could be a parent that 
you are taking care of. It could be a disabled spouse. It could 
be any number of other instances.
    And I think if we stop talking--well, let me back up, and 
say, do you think that a universal childcare, flood the zone, 
even for nonworking persons would be helpful in fixing the 
problems that you have right? Like everybody gets it, whether 
you are going to work or not.
    Mr. Powell. That is really not for me to say. That is a 
real legislative question.
    Senator Tillis. But it is sort of a flooding. I know you 
cannot answer it because there are pending proposals there, but 
it just seems to me that if we wanted to really stop talking 
past each other and start talking about policies that makes 
sense, that free people up who have marketable skills or who 
could go to school and get marketable skills, and focus on that 
segment of the population, that is probably an area where we 
could get some consensus, that would have a positive economic 
impact on productivity, potentially even revenue, more people 
working, more businesses prospering. So that is something I 
think our Members should look at versus some of the positions 
we have had here where we have not made any progress, and I 
think we should.
    We filed a bill this week, Senator Tester and I have been 
working on, and I appreciate the Chair's support for what we 
are trying to do for the LIBOR transition. Could you speak to 
the importance--with all the other things going on here some 
Members may not be dialed into it and not necessarily think it 
is important. Could you speak to the importance of getting the 
LIBOR transition legislation passed, which I understand that 
you all are in support of in its final form?
    Mr. Powell. Yes. So it is very important because there will 
be some remaining contracts that are not covered by fallback 
language, and this really is to plug that hole. It is very 
important from a financial stability standpoint. It is good 
that we are down to this last so-called hard tail, but this is 
important legislation.
    Senator Tillis. Thank you for that. I hope that we can get 
it moved forward.
    In any research or reports that you are getting, economic 
research or reports, how well, and I know it would vary sector 
to sector, but how well are small businesses doing right now?
    Mr. Powell. You know, startups or small businesses--I guess 
every startup is a small business--are really high and have 
been right through the pandemic. We did not see that coming but 
that has been the case.
    You know, I remember seeing that small businesses at the 
beginning of the pandemic did not have the resources. We were 
very, very worried about losing a lot of small businesses, 
through no fault of their own, at the beginning of the 
pandemic, but that really did not happen.
    Senator Tillis. Was that likely Paycheck Protection, other 
stimulus measures probably had an impact on that? Some of them 
just figured out how to weather the storm?
    Mr. Powell. Yes, and I just think the overall economy, for 
what Congress did and what we did, you know, I think the 
economy recovered so much quicker than we were afraid.
    Senator Tillis. In North Carolina we are approaching about 
$90 billion in agriculture product every year. I talked with a 
farmers' group yesterday that are struggling with access to 
labor and increased costs. Do you think the way that they fix 
their problems or businesses that are struggling with the cost 
of inputs up, inflated, they can pass some of that to the 
consumer, not all of it? But is it your general sense or 
intuition that most of these small businesses are flush with 
cash and margins?
    Mr. Powell. I mean, it depends on the sector, I would 
think, some of them. The agricultural businesses are paying big 
fertilizer costs, and we hear a lot of stress in that sector.
    Senator Tillis. So I know you are not an economist, but 
intuitively do you think, just looking certain sectors in the 
eye and saying cut costs is even a viable option, given where 
we are with the inflationary pressures?
    Mr. Powell. I think businesses are always minimizing their 
costs. But if we are talking about the President's speech----
    Senator Tillis. I think there is a general consensus that 
any business that is not trying to cut costs so they can 
increase their margins or pay their employees more, then they 
are not competent business people. Could you at least agree 
with that?
    Mr. Powell. I absolutely agree with that.
    Senator Tillis. So to suggest that they are not cutting 
costs right now would suggest that maybe they are not 
competent. I do not expect you to respond to that but that is 
what I infer from the statements from the President.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Tillis.
    Senator Warnock, from Georgia, is recognized.
    Senator Warnock. Thank you so much, Mr. Chairman, and thank 
you, Chair Powell, for being here again today.
    Every day I hear from Georgians who are feeling the pinch 
of rising costs in their wallets. Wages grew last year, but 
this growth has not kept pace with rising costs for housing, 
for gas, for groceries. Georgia families are swimming upstream, 
and while supply chain disruptions contribute to the problem, 
they are not the sole cause. Three global shipping alliances 
control delivery for the majority of imported goods. Two 
companies account for 70 percent of America's diaper market, 
and just four meat processors control more than 80 percent of 
the beef industry.
    This type of market concentrations lowers competition and 
gives giant companies more power to use inflation as an excuse 
to raise prices, leaving Georgia families to foot the bill 
while their executives and investors get richer and richer. 
This is why I pushed for a Federal investigation into apparent 
price gouging by international cargo carriers, carriers that 
have seen as much as 2,000 percent increase in profit in the 
midst of a pandemic.
    Chairman Powell, yes or no. Do you agree that more market 
competition is generally good for the economy and for 
consumers?
    Mr. Powell. I do.
    Senator Warnock. And that too much market concentration 
poses a risk, a risk that consumers can feel and are feeling, 
in fact, right now with rising prices?
    Mr. Powell. I think that concentration is an appropriate 
subject for the competition authorities.
    Senator Warnock. But does market concentration pose a risk 
for rising prices? Yes or no.
    Mr. Powell. Yes. I would not want to be heard to say, 
though, that that is the main source of inflation, but it 
certainly is----
    Senator Warnock. So do you believe there is a role for the 
Federal Reserve to promote market competition to help ease 
inflationary pressures?
    Mr. Powell. So outside of the banking industry we do not 
have a role in competition policy as such. We do administer 
statutes that bear on that, but ultimately, though, our jobs 
are inflation and maximum employment, as you know very well. 
The industries that you are talking about and the kind of 
issues that you are talking about really are for the antitrust 
people rather than for monetary policy.
    Senator Warnock. But dealing with inflation is part of 
your----
    Mr. Powell. Yes.
    Senator Warnock.----your mission and your mandate, and if 
market concentration is contributing to that, does that not 
involve the Fed's mandate?
    Mr. Powell. But we do not have the tools to deal with 
market concentration. You know, we are supposed to achieve 
maximum employment and price stability. That is the classic 
role for the antitrust people at the FTC and Justice Department 
and at the State level, rather than for us.
    Senator Warnock. Will you commit to a study on how market 
concentration has affected the price of consumer goods during 
the pandemic and share that study with Congress and antitrust 
enforcers?
    Mr. Powell. So I think I can do better than that, which is, 
we actually have a good amount of research from inside the Fed 
and from outside the Fed that bears on these questions, and we 
will be happy to share that with you right away.
    Senator Warnock. All right. Thank you so much. I look 
forward to working with you to address the root causes of 
rising costs for Georgia families, for American families, in 
general. All right?
    Mr. Chairman, I have got 50 seconds left but I am going to 
defy Baptist preacher gravity and that is the end of my 
questions.
    Chairman Brown. Thank you, Senator Warnock.
    Follow that advice, Senator Rounds, from South Dakota.
    Senator Rounds. Thank you, Mr. Chairman. Mr. Chairman, 
first of all, thanks for what you do. I appreciate it, and I 
appreciate your openness with us.
    I want to go back and kind of simplify a couple of things 
if we can a little bit, just in terms of the issues surrounding 
inflation. I think it is fair to say that one way you can 
divide it is into two parts, one being the supply side pressure 
on inflation, and the second side being the demand side.
    I think the last time that you were here before this 
Committee we talked about the fact that the Fed really had the 
ability to impact the demand side. Is it fair to say that that 
is where most of your capabilities are today?
    Mr. Powell. Yes. Very much so.
    Senator Rounds. In order to do that--and I know that the 
question is, is trying to get inflation down to 2 percent or 
so--what would you say is, of the total amount, right now we 
are running 7.5 percent, how much of that can the Fed actually 
impact with their policies? What part of it is demand-driven 
versus supply driven in the analysis that you do?
    Mr. Powell. That is a really interesting question, and I do 
not have a precise answer for that. I think it is clearly both, 
and that is why I would say to get back to 2 percent inflation 
we really do think we are going to need help from the supply 
side in the form of just the bottlenecks and shortages and all 
that being alleviated as well.
    Senator Rounds. When you make a determination as to the 
tools that are available to you, and in particular primarily 
raising the basic interest rates that are available to you 
right now, how much of that inflation do you think you can 
impact using the tools that you have got right now? What I am 
pointing at is, it seems to me that if we decided that the 
tools that you have are available to fix all of inflation, we 
put you in a really tough spot, and we may very well go way 
overboard on the amount of interest increases and not be able 
to actually impact a significant part of the inflation itself. 
A fair concern to have?
    Mr. Powell. Yes, and I think we need to bear in mind, and 
we will keep in mind, that some of this is because of very 
strong demand meeting a limited supply, an inflexible supply. 
Cars are a great example. Ordinarily, if there is demand for 
cars, a lot of demand, the car makers go, ``This is great. We 
will make more cars and we will raise the prices too.'' You 
cannot make more cars without more semiconductors, right? You 
can only make the amount that you are making. And so what 
happens is it all goes into higher prices.
    So we can lower car demand by raising rates, and we will do 
that, but ultimately we need more semiconductors so that there 
can be more cars as well, to really get back to 2 percent 
inflation.
    Senator Rounds. Fuel costs have gone up, in some cases, 40 
percent in the last year, though. You cannot really impact----
    Mr. Powell. No, we cannot.
    Senator Rounds.----that portion of it.
    Mr. Powell. No. Well, I mean, we can impact demand, but 
really these prices are set at the global level, by and large, 
and so really, we cannot affect it.
    Senator Rounds. The section of the Monetary Policy Report 
on our debt and deficit explains that due to the extreme 
Federal spending the Federal deficit surged by 15 percent of 
nominal GDP in 2020, and Federal deficits are expected to 
increase by roughly $5.4 trillion by the end of fiscal year 
2030. Federal debt by the public jumped to above 100 percent of 
nominal GDP in 2020, the highest debt-to-GDP ratio since 1947, 
and it remained there in 2021.
    If the Fed is slated to raise interest rates potentially 
more than five times this year, the interest on the Federal 
debt will also rise, further ballooning the national debt. What 
effect does a ballooning national debt have on the economy, and 
how does the Fed factor that into its forecasting of that 
portion of the challenge?
    Mr. Powell. Our unsustainable fiscal path does not really 
have a bearing on that. You know, we work in business cycle 
limit. That is sort of the timeframe we can think about things, 
given our tools and what they do. You know, we are on an 
unsustainable fiscal path, meaning that the debt is growing 
faster than the economy. That, by definition, is unsustainable 
in the long run. We need to get back to that, but the time to 
do that is when the economy is strong, and that is really all I 
can say. That is all I can say about it.
    Senator Rounds. OK. One last question. This week the Fed 
announced a proposed plan to improve the process for financial 
institutions looking to get access to Fed master account. It 
seems unique that it would happen right now with everything 
else going on with regard to nominations here before us. Would 
it suggest that the Fed believes that the process has been 
abused in the past or is this just an arbitrary determination 
being made right now? What is the reason for this 
investigation?
    Mr. Powell. Well, it is just that we have had burgeoning--
it is really digital finance and all the new kinds of charters 
and all of those things, and there is a need for us to--and we 
put a lot of time and thought into the extent to which we 
should provide master accounts to fintechs that may or may not 
have deposit insurance. You know, it is highly precedential, 
and we wanted to get it right.
    We have been thinking about this for a long time, as one of 
your colleagues knows well. And this is a proposal. It is out 
for comment, I think, for 45 days, and it gives sort of three 
tiers, and we want to get public feedback on that. But I think 
it has taken us awhile to get to this. There is no magic to the 
timing, but it is just a reflection of what is going on in the 
world of digital finance.
    Senator Rounds. Very good. Mr. Chairman, thank you.
    Chairman Brown. Thank you, Senator Rounds.
    Senator Reed, from Rhode Island, is recognized.
    Senator Reed. Thank you, Mr. Chairman. Thank you, Chairman 
Powell, for your great work.
    Senator Cortez Masto raised the issue of housing, and for 
families all across the country, particularly in my home State 
of Rhode Island, this is one of the biggest forms of inflation 
they are seeing. It has been reported that housing prices, year 
over year, have gone up 20 percent. Rent nationwide in January 
rose 14 percent in 2021, the last numbers we have.
    I had school principals in yesterday, and they were 
commenting about some of their families having to leave a 
working-class community in Rhode Island because they cannot 
afford the housing--and this is in not luxury housing--to go 
into poorer neighborhoods just to have some shelter.
    And I am afraid there is another factor that is going to 
really exacerbate what is going on, and that is private equity 
and Wall Street have decided that they are going to buy up as 
many homes as they can, and that disrupts what we assume is the 
typical housing market for both rental, i.e., relatively small 
owners have rental properties in the State, they have a 
relationship with their tenants. When it comes to homes, you 
buy a starter house, and then you move up, and you sell it, and 
these are families, through a realtor, selling it. Now we have 
got the big machines that are just buying up houses, throwing 
people out, and I think that is something that is going to 
essentially sneak up on us like the derivatives crisis and a 
lot of other crises in the past.
    But what you are going to do, and within your authority, is 
address the demand side of the economy. This is really a supply 
side issue. I would assume you would agree.
    Mr. Powell. Yes.
    Senator Reed. But if we do not address it, we will see 
continued inflation in housing and continued problems, and that 
is contributing significantly to the overall inflation rate. Is 
that accurate?
    Mr. Powell. I think in housing it is land, labor, lots, 
materials, and it is very strong demand. All of those are 
scarce, and it is a very strong demand hitting, and so that is 
why you are seeing prices go up.
    Senator Reed. Will the interest rate increases, do you 
think, affect demand for housing?
    Mr. Powell. I expect they will, yes. It is a very interest-
sensitive sector.
    Senator Reed. Yes. And in terms of rental housing that 
typically, because of the supply shortage, will be passed on to 
the renter, I would assume.
    Mr. Powell. Yes.
    Senator Reed. So, you know, we have a problem that affects 
families all through this country, and one of the consequences 
of what you are going to do is raise prices, at least slightly. 
But we have to deal with it, and that is on the supply side. I 
know that is not your bailiwick.
    But, you know, we are talking in general terms about 
inflation, and if we do not get a handle on housing inflation 
the American people will still be, and particularly the lower-
income working families will be hammered by this. So I hope we 
can come together on the fiscal side and do something that is 
appropriate.
    We are witnessing extraordinarily disturbing conflict in 
Ukraine, and it is going to have repercussions in many 
dimensions. I think it will also have repercussions in the 
financial world, and I hope the Fed is tuning in and watching 
closely.
    I think the Chinese are particularly interested in the fact 
that we have been able to assemble a global coalition to 
basically shut down the Russian economy, and they will start 
thinking about how they can avoid that fate if they get into a 
similar circumstance. They have, I think, a rudimentary SWIFT 
system, which they might try promoting much more, which could 
interfere with the system that we have invested.
    Then cryptocurrency will be exploited. I think also, too, 
that the whole issue of the dollar as the medium of exchange to 
the world, which is the key that is really making our sanctions 
effective, the Chinese again will look very closely, as they 
have in the past.
    So first, I presume you are going to look at this issue 
very closely, and second, inform us of what developments, and 
then third, you might just indicate what you think might 
happen.
    Mr. Powell. Yes to all of the above. I mean, you are asking 
some longer-term questions, the reserve currency and the 
Chinese messaging system that is like SWIFT. In the near term, 
those are not going to be big questions in this one particular 
instance, but in the longer run I think those things are very 
much on the table.
    Senator Reed. And so we will see, at some point, and again, 
not in months but probably years, movement, particularly by the 
Chinese, to insulate themselves from the same thing that is 
happening in Russia now.
    Mr. Powell. And that is going on now. I mean, that has been 
going on for some time. But it may change the trajectory.
    Senator Reed. It is an accelerant.
    Mr. Powell. Yes.
    Senator Reed. Thank you, Mr. Chairman. Thank you very much.
    Chairman Brown. Thank you, Senator Reed.
    Senator Sinema, from Arizona, is recognized from her 
office.
    Senator Sinema. Thank you, Mr. Chairman, and thank you to 
Chair Powell for being here today to speak about these 
important issues.
    As you know, over the last 2 years we have seen the 
significant impact of the COVID-19 pandemic on our global 
supply chains for both industrial and consumer goods. While our 
economy is beginning to recover, we are already seeing the 
impact that Vladimir Putin's illegal, violent attack on Ukraine 
will have on the price of oil and gas here at home.
    I am supportive of the strong, swift actions the 
Administration has taken to sanction major Russian banks and 
Russian oligarchs in response to the unprovoked war that Russia 
is waging against Ukraine. I believe we can go farther and do 
more.
    I am also mindful of the impacts that these sanctions are 
having and will continue to have on everyday people, not just 
in Russia and Ukraine but also here at home. These sanctions 
can affect the availability and pricing of essential goods for 
hard-working Arizona families by further disrupting global 
supply chains.
    Let me be clear. Arizonans stand with Ukraine in their 
fight to determine their destiny. We are supportive of the 
actions taken thus far to hold Russia accountable. And 
Arizonans are also concerned with the price of groceries and 
everyday goods, and we are paying too much at the pump right 
now.
    So in a global economy, sanctions often involve economic 
tradeoffs. How is the Fed assessing the impact of Russia's 
illegal war and the United States and allied sanctions against 
Russian banks on the pricing of oil and gas for consumers?
    Mr. Powell. Thank you. Oil and gas prices have been going 
up really for a couple of months now, in anticipation of this, 
and then they have gone up substantially in the last couple of 
weeks, and, you know, the really important question for the 
economy is how long that will persist. The immediate impact 
will be to raise gas prices and other fuel prices and prices 
for companies using energy. So inflation will move up. People 
will feel that certainly at the gas pump. And also, you know, 
crudely, you would expect at least a little bit of lower 
economic activity due to higher energy prices.
    But again, it is both the magnitude of that, and that will 
really depend on events that have not happened yet. How big 
will those increases be, and second, how long do they persist? 
If they are brief and go away, or if just the price of oil 
stays at a certain level for a while, then the effect on 
inflation will be temporary.
    So we will be watching all of those things. And, you know, 
we run simulations and that sort of thing. That is one of the 
things we like to do, and so to make ourselves think about the 
possibilities. Of course, everything is so uncertain. It is 
just very hard to say where this is going. And I think in that 
environment we need to move carefully with our policy, and that 
is what we are planning to do.
    Senator Sinema. How much do you expect these changes in oil 
and gas prices to affect the availability and pricing of other 
goods that rely on oil and gas in the United States, and do you 
expect there to be a noticeable impact in the consumer price 
index?
    Mr. Powell. I think certainly you will see gas prices move 
up, as they do when oil prices go up, and that will show up in 
the consumer price index. It will show up in the headline 
index. It does not show up in the core index but it shows up in 
the headline index. And the headline index, of course, is what 
people are actually paying at any given time. So it will show 
up.
    Senator Sinema. Does Russia's war in Ukraine change the 
Fed's thinking about interest rates?
    Mr. Powell. Too early to say. I do think before the 
invasion we were planning to raise rates this year. We were 
planning to make a series of interest rate increases. That is 
still the case. I think right now, in this very sensitive time 
where uncertainty is highly elevated and we really do not know 
which way things are going to go, I think we need to move 
carefully.
    But we certainly think it is appropriate for us to go ahead 
with our plan, and also our plan to shrink the balance sheet, 
but just knowing that we do not want to add to uncertainty. Our 
goal is always to promote financial stability and macroeconomic 
stability, and that means that at times like this we move 
carefully, and that is what we will be doing.
    Senator Sinema. Last question. The sanctions on Russia's 
central bank are also affecting American companies who have 
holdings in Russia. So what assessments are the Fed making 
about the impact of American companies' dealings in Russia, and 
how could the Fed respond to stabilize the markets if that does 
become an issue?
    Mr. Powell. Particularly the large financial institutions, 
but really American businesses, generally really do not have 
major
exposures to Russia, and they have gotten less over the years. 
So particularly with the big banks, there are some meaningful 
exposures but they are not large in the context of the overall 
institution.
    So, in a sense, the first-order effects on the U.S. economy 
from trade or from investment or from operations on the ground 
are not going to be large. There can be other effects, though, 
second-order effects, and unintended consequences and all that, 
so we are watching the situation very carefully.
    Senator Sinema. Thank you. Mr. Chairman, I see my time has 
expired. Thank you.
    Chairman Brown. Thank you, Senator Sinema.
    Thank you to Chairman Powell for joining us today. For 
Senators who wish to submit questions for the hearing record, 
those questions are due 1 week from today, Thursday, March 
10th, close of business. Chair Powell, please submit your 
responses to questions within the 45 days from the day you 
receive them.
    Thank you again for your testimony. The hearing is 
adjourned.
    [Whereupon, at 12:23 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    I want to start by acknowledging that as we sit here this morning, 
Ukrainians are showing such courage and resolve, fighting Russian 
invaders in their homeland.
    Ukrainian families fleeing indiscriminate bombings are taking 
refuge in subway tunnels--something that Europe hasn't seen since the 
siege of London seven decades ago. I want to express my support for the 
brave men and women in Ukraine fighting for democracy, and I know all 
my colleagues on this Committee, of both parties, join me in that.
    This is a Russian attack on democracy. And it's only the latest, 
terrible escalation of what has become one of the main goals of the 
Russian Federation--to attack and undermine democratic norms at home 
and abroad.
    The world is looking to us right now. We are the leader of the free 
world, and its oldest democracy. It's vital that we live by our 
values--both abroad and at home.
    That means a commitment to the rule of law. A commitment to 
democratic participation. And a commitment to independent institutions 
that allow our society to function, like the Federal Reserve.
    We created the Fed as an independent agency, outside of any one 
party's control, to be staffed with economic experts--not political 
cronies. It's one of many American institutions that sets our country 
apart from autocratic regimes.
    It is vital that we reaffirm our commitment to the Fed's role, 
showing the world what a functioning democracy looks like. Let's show 
up and do our jobs--like Chair Powell comes here, perhaps 14 times a 
year, it must seem to him.
    That's the best way to achieve a strong, growing economy, that 
lifts up the whole country.
    This time last year, our country and our economy were in a place of 
deep uncertainty. More than 4 million people were out of a job. 
Frontline workers were just beginning to get vaccinated.
    We were in the midst of a public health crisis and economic crisis 
that needed us all--policymakers, business owners, workers--to come 
together and tackle the challenge of this pandemic economy.
    And that's what we did. We passed the American Rescue Plan. We got 
shots into arms, money into people's pockets, workers back on the job, 
and kids back in school.
    Against the odds, 2021 became a year of unprecedented economic 
growth for our country--in job creation, wage gains, GDP. For the first 
time in two decades, the American economy grew faster than China's.
    We averaged over half a million new jobs per month last year, and 
saw the fastest drop ever in the unemployment rate. Wages rose for 
workers--especially low-wage workers. American entrepreneurs broke 
started a record-setting 5 million new businesses.
    This all translated into American families' household balance 
sheets, which were healthier in 2021 than before the pandemic. That's 
because of the actions Democrats took in this Congress--expanding the 
Child Tax Credit, and rental and housing assistance.
    The American Rescue Plan helped get most Americans vaccinated and 
make a booster shot available to everyone. Today, over 65 percent of 
the population is fully vaccinated--including more than 75 percent of 
all adults. Case counts and hospitalizations are dropping. And now we 
are one step closer to normal life beyond the pandemic. Americans no 
longer have to live in fear.
    We have come a long way, but the fight isn't over--and it has taken 
an incredible toll on Americans. After 2 years of stress, of massive 
disruptions in our lives and in our economy, people are exhausted.
    And they are fearful that inflation will make it harder and harder 
for them to keep up with the cost of living.
    The pandemic economy has caused inflation. Families feel it at the 
gas station. They feel it when they're making rent payments. And they 
feel it when they check out at the grocery store.
    And we must acknowledge that Russia's invasion of Ukraine will 
affect the global economy.
    We learned over the past 2 years how fragile our global supply 
chains are.
    Some of us have said for years that we should make more things in 
America and rely less on China. Elites in Washington that dismissed 
those concerns for decades are now finally starting to wake up.
    We help prevent long-term inflation by bringing supply chains 
home--and in the process, we create jobs and rebuild our industrial 
base.
    The House and Senate have both passed bills investing in domestic 
manufacturing and research and development. We need to put a 
comprehensive bill on the President's desk and bring manufacturing, 
research, and development back to America.
    And we're building the capacity to move goods faster and more 
cheaply with the Bipartisan Infrastructure Bill.
    While most Americans report mixed feelings about the economy over 
the past year--they may have gotten a raise and a tax cut and have more 
in savings, while also being concerned about rising costs--there's one 
group that did better than ever last year: corporations.
    Corporations made record profits in 2021 and gave their executives 
and shareholders a bigger slice of the profits than ever.
    And they've reacted with barely controlled glee at the opportunity 
to raise prices higher than ever.
    We can never forget: raising prices is a choice. There is no law 
saying that if the cost of an input goes up or if transportation costs 
increase, companies have to raise prices.
    They have options. They could cut costs elsewhere by making 
executive bonuses or stock buybacks a little tiny bit smaller.
    But of course they don't--there's not enough competition in the 
economy. From the meatpacking industry to the oil cartels, corporations 
don't face the fair, capitalist competition we need to keep prices low 
and wages high.
    And when you combine current inflation with all the expenses that 
have been rising for decades--prescription drugs, childcare, housing--
it's little wonder that even many middle-class families don't feel 
stable.
    It will take all of us to lower these long-term costs, fight 
inflation, and create an economy where hard work pays off for 
everyone--no matter who you are, where you live, or what kind of work 
you do.
    All workers should be able to find a good-paying job that allows 
them to raise a family, keep up with the cost of living, and join the 
middle class.
    The Federal Reserve has a responsibility to tackle inflation, and 
to ensure we have a resilient labor market, a safe and stable banking 
system, an efficient and reliable payments system, and empowered local 
communities where consumers, workers, small banks, and small businesses 
thrive.
    And it's more important now than ever that we have a full Federal 
Reserve Board making those decisions.
    In a time of deep economic uncertainty--where democracies across 
the world are threatened by authoritarian strongmen--we must ensure the 
Fed is operating at full capacity. We have an opportunity to confirm 
one of the world's leading experts on cybersecurity in the financial 
system--she chaired the G7 Cyber Expert Group. Let's get her on the 
job.
    At this critical time, we must fill these positions so that the 
entire team of decisionmakers can come together, assess the data, and 
address the problems Americans face.
    Today, we have Chair Pro Tempore of the Federal Reserve, Jay 
Powell, here to deliver a biannual update on the Fed's actions to steer 
our economic recovery.
    Chair Powell, thank you, and I look forward to your testimony.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Chairman Powell, welcome. I hope we process your nomination soon. 
In the meantime, I'm confident that you and your fellow FOMC members 
are fully able to do your job to fight inflation.
    Obviously, there's much work to be done. January's inflation 
reached a 40-year high of 7.5 percent. Inflation like that harms 
average Americans.
    Even though wages are growing, inflation is growing faster and 
causing workers to fall further and further behind. Savers are earning 
virtually zero on their savings while inflation erodes their value. Our 
current zero-interest-rate monetary policy would be appropriate for a 
period of economic crisis--not a period of multidecade high inflation.
    Of course, the profligate fiscal policy of the last year has also 
contributed to inflation. Democrat supporters of blowout, deficit 
spending bills like the American Rescue Plan and Build Back Better have 
looked to blame others for the consequences of their misguided 
policies.
    First, they blamed global supply chains. Now they have shifted 
their blame to ``greedy corporations.''
    Actually, inflation is pretty easy to understand. It results from 
more money chasing fewer goods.
    The Administration's policies, such as over-regulation and a war on 
American energy, have limited the production of goods. And reckless 
spending has resulted in more money chasing those goods.
    Meanwhile, the Fed's accommodative monetary policy has further 
stimulated demand. For many years now, I've warned that it could be 
extremely difficult to put the inflation genie back in the bottle. 
Well, the genie is out, and the Fed is behind the curve. We must act 
with urgency to get inflation under control.
    I'm also deeply troubled by what appears to be a growing urge to 
use financial regulators, including the Fed, to tackle complex 
political questions outside the financial system.
    Questions like: how (and how quickly) to transition to a lower 
carbon economy? How to address racially charged social issues? Or even 
how can we improve primary and secondary education?
    No doubt, these are important issues. But, they're wholly unrelated 
to the Fed's limited statutory mandates and expertise. And yet the Fed 
has been weighing in on every one of these issues.
    Some intend to use the Fed's recently developed climate scenario 
analysis to steer capital away from carbon intensive industries. All 12 
Reserve Banks have hosted a ``Racism in the Economy'' series where 
invited speakers advocated for racial reparations and defunding the 
police, among other far-left proposals. And the Minneapolis Fed is 
actively lobbying to change Minnesota's constitution--on the issue of 
K-12 education policy.
    Does anyone truly think these activities are within the Fed's 
statutory mandates? Of course not.
    They are challenging and complex issues that require difficult 
tradeoffs. And in a democratic society, those tradeoffs must be made by 
elected representatives who are directly accountable to the American 
people.
    Consider some tradeoffs associated with addressing global warming. 
If we limit domestic oil and gas production, Americans will pay more at 
the pump. How much more is appropriate?
    If we suddenly limit domestic production without feasible energy 
alternatives, our Nation and the world will become more reliant on 
fossil fuels coming from autocratic nations. When does that reliance 
present an unacceptable national and global security threat?
    There are an unlimited number of equally challenging tradeoffs for 
each of these politically charged topics--none of which should be 
decided by unelected and unaccountable central bankers. And yet, some 
of the Reserve Banks are diving right in.
    When I've requested additional information about their activities, 
the Reserve Banks stonewall me. When I ask the Board to address the 
issue, everyone passes the buck. The Fed Board says it's up to the 
Reserve Banks, even though the Board oversees the Reserve Banks. And 
except through the Fed Board, the Reserve Banks are unaccountable to 
Congress.
    From this state of affairs, I can only conclude that the Fed 
requires reform. Any Fed reform should preserve and strengthen monetary 
policy independence; develop mechanisms to enforce the existing 
statutory limits on the Federal Reserve's actions; and strengthen 
Congressional oversight by increasing transparency.
    Here are three reform ideas. First, unlike the Fed Board, the 
Reserve Banks are not subject to FOIA. That should change.
    Second, we should consider subjecting the Reserve Bank heads to 
presidential appointment and Senate confirmation.
    Third, we should examine the historical 12 Reserve Bank structure. 
For example, it may make sense to consolidate them into 5 banks, making 
each a permanent voter on the FOMC. Or perhaps we should eliminate the 
Reserve Banks entirely by having the Board assume their 
responsibilities.
    To be clear, I do not present these ideas lightly. The Fed was 
given independence to insulate monetary policy from politics. Congress 
has a responsibility to ensure that the Fed does not become a political 
actor.
                                 ______
                                 
                 PREPARED STATEMENT OF JEROME H. POWELL
  Chair Pro Tempore, Board of Governors of the Federal Reserve System
                             March 3, 2022
    Chairman Brown, Ranking Member Toomey, and other Members of the 
Committee, I am pleased to present the Federal Reserve's semiannual 
Monetary Policy Report.
    Before I begin, let me briefly address Russia's attack on Ukraine. 
The conflict is causing tremendous hardship for the Ukrainian people. 
The implications for the U.S. economy are highly uncertain, and we will 
be monitoring the situation closely.
    At the Federal Reserve, we are strongly committed to achieving the 
monetary policy goals that Congress has given us: maximum employment 
and price stability. We pursue these goals based solely on data and 
objective analysis, and we are committed to doing so in a clear and 
transparent manner so that the American people and their 
representatives in Congress understand our policy actions and can hold 
us accountable. I will review the current economic situation before 
turning to monetary policy.
Current Economic Situation and Outlook
    Economic activity expanded at a robust 5\1/2\ percent pace last 
year, reflecting progress on vaccinations and the reopening of the 
economy, fiscal and monetary policy support, and the healthy financial 
positions of households and businesses. The rapid spread of the Omicron 
variant led to some slowing in economic activity early this year, but 
with cases having declined sharply since mid-January, the slowdown 
seems to have been brief.
    The labor market is extremely tight. Payroll employment rose by 6.7 
million in 2021, and job gains were robust in January. The unemployment 
rate declined substantially over the past year and stood at 4.0 percent 
in January, reaching the median of Federal Open Market Committee (FOMC) 
participants' estimates of its longer-run normal level. The 
improvements in labor market conditions have been widespread, including 
for workers at the lower end of the wage distribution as well as for 
African Americans and Hispanics. Labor demand is very strong, and while 
labor force participation has ticked up, labor supply remains subdued. 
As a result, employers are having difficulties filling job openings, an 
unprecedented number of workers are quitting to take new jobs, and 
wages are rising at their fastest pace in many years.
    Inflation increased sharply last year and is now running well above 
our longer-run objective of 2 percent. Demand is strong, and 
bottlenecks and supply constraints are limiting how quickly production 
can respond. These supply disruptions have been larger and longer 
lasting than anticipated, exacerbated by waves of the virus, and price 
increases are now spreading to a broader range of goods and services.
Monetary Policy
    We understand that high inflation imposes significant hardship, 
especially on those least able to meet the higher costs of essentials 
like food, housing, and transportation. We know that the best thing we 
can do to support a strong labor market is to promote a long expansion, 
and that is only possible in an environment of price stability.
    The Committee will continue to monitor incoming economic data and 
will adjust the stance of monetary policy as appropriate to manage 
risks that could impede the attainment of its goals. The Committee's 
assessments will take into account a wide range of information, 
including labor market conditions, inflation pressures and inflation 
expectations, and financial and international developments. We continue 
to expect inflation to decline over the course of the year as supply 
constraints ease and demand moderates because of the waning effects of 
fiscal support and the removal of monetary policy accommodation. But we 
are attentive to the risks of potential further upward pressure on 
inflation expectations and inflation itself from a number of factors. 
We will use our policy tools as appropriate to prevent higher inflation 
from becoming entrenched while promoting a sustainable expansion and a 
strong labor market.
    Our monetary policy has been adapting to the evolving economic 
environment, and it will continue to do so. We have phased out our net 
asset purchases. With inflation well above 2 percent and a strong labor 
market, we expect it will be appropriate to raise the target range for 
the Federal funds rate at our meeting later this month.
    The process of removing policy accommodation in current 
circumstances will involve both increases in the target range of the 
federal funds rate and reduction in the size of the Federal Reserve's 
balance sheet. As the FOMC noted in January, the federal funds rate is 
our primary means of adjusting the stance of monetary policy. Reducing 
our balance sheet will commence after the process of raising interest 
rates has begun, and will proceed in a predictable manner primarily 
through adjustments to reinvestments.
    The near-term effects on the U.S. economy of the invasion of 
Ukraine, the ongoing war, the sanctions, and of events to come, remain 
highly uncertain. Making appropriate monetary policy in this 
environment requires a recognition that the economy evolves in 
unexpected ways. We will need to be nimble in responding to incoming 
data and the evolving outlook.
    Maintaining the trust and confidence of the public is essential to 
our work. Last month, the Federal Reserve finalized a comprehensive set 
of new ethics rules to substantially strengthen the investment 
restrictions for senior Federal Reserve officials. These new rules will 
guard against even the appearance of any conflict of interest. They are 
tough and best in class in Government, here and around the world.
    We understand that our actions affect communities, families, and 
businesses across the country. Everything we do is in service to our 
public mission. We at the Federal Reserve will do everything we can to 
achieve our maximum-employment and price-stability goals.
    Thank you. I am happy to take your questions.
        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                     FROM JEROME H. POWELL

Q.1. The record levels of leveraged lending prepandemic 
continue to rise and a recent report issued by the Federal 
Reserve, Office of the Comptroller of the Currency, and Federal 
Deposit Insurance Corporation noted that ``credit risk 
associated with leveraged lending is high.'' U.S. banks have 
both direct and indirect exposure to leveraged loans. How is 
the Fed assessing increased credit risk associated with 
leveraged loans? What are you doing to mitigate financial 
stability risk as interest rates rise?

A.1. The Federal Reserve regularly monitors and assesses risks 
to supervised institutions and to the broader system from 
leveraged lending. We use our supervisory tools to closely 
monitor risks, assess unknowns, and work to develop a 
comprehensive understanding of the market. Our analysis 
includes efforts to quantify bank holdings of leveraged loans 
and assess the direct and indirect exposures of large banking 
institutions. In terms of nonbanks, we strive to understand 
their funding structures and the amount of leveraged loans they 
hold. We also work to understand the characteristics and credit 
quality of the loans themselves and the market dynamics in this 
space. Currently, this work does not suggest that the leveraged 
loan market poses a greater financial stability risk than in 
other time periods.
    The Federal Reserve also assesses the broader financial 
stability consequences of credit and interest rate risk 
stemming from increased leveraged lending activity. This 
assessment is done as part of our ongoing, comprehensive 
program of financial stability monitoring. Our Financial 
Stability Report provides in further detail how our framework 
for assessing financial stability looks for vulnerabilities in 
the financial system that could amplify the effects of shocks 
or adverse unexpected economic developments. We track 
vulnerabilities in four key areas: asset valuations, debt owed 
by businesses and households, funding risk, and leverage among 
financial institutions. In the near team and longer run, the 
strength of the economy will influence how the system responds 
to stress. Our objective is to ensure that the overall 
financial system is able to handle shocks without amplifying 
them and causing damage to the broader economy.
    Thus, a crucial part of our assessment is based on the fact 
that the banking system remains highly resilient and bank 
capital ratios have remained at multidecade highs. However, we 
are not complacent and are continuously monitoring for new or 
emerging risks, including those that may arise from leveraged 
lending.

Q.2. In light of President Biden's Executive order on Ensuring 
Responsible Development of Digital Assets, the Chairman of the 
Federal Reserve is ``encouraged to evaluate the extent to which 
a United States CBDC, based on the potential design options, 
could enhance or impede the ability of monetary policy to 
function effectively as a critical macroeconomic stabilization 
tool.'' What factors will the Fed consider in evaluating the 
effectiveness of a CBDC to further monetary policy?

A.2. As part of the Federal Reserve's exploration of both the 
potential benefits and potential risks and policy 
considerations of a U.S. central bank digital currency (CBDC), 
the Federal Reserve has been researching the possible impact of 
a CBDC on monetary policy implementation. We are also actively 
engaged on these topics with our international counterparts at 
other central banks and multilateral financial institutions to 
understand and learn from their experiences.
    Under the current monetary policy regime, the Federal 
Reserve exercises control over the level of the federal funds 
rate and other short-term interest rates primarily through the 
setting of the Federal Reserve's administered rates. In this 
framework, the introduction of a CBDC could affect monetary 
policy implementation and interest rate control by altering the 
supply of reserves in the banking system.
    In the case of non-interest-bearing CBDCs, the level and 
volatility of the public's demand for a CBDC might be 
comparable to other factors that currently affect the quantity 
of reserves in the banking system, such as changes in physical 
currency or overnight repurchase agreements. A CBDC that pushed 
reserves lower may have little effect on the federal funds rate 
if the initial supply of reserves were large enough to provide 
an adequate buffer. Over the long term, the Federal Reserve 
might have to increase the size of its balance sheet to 
accommodate CBDC growth, similar to the balance-sheet impact of 
issuing increasing amounts of physical currency.
    The interactions between CBDCs and monetary policy 
implementation could be more pronounced and more complicated if 
a CBDC was interest-bearing at levels that are comparable to 
rates of return on other safe assets. In this case, the level 
and volatility of the public's demand for a CBDC could be quite 
substantial. The potential for significant foreign demand for a 
CBDC in this scenario would further complicate monetary policy 
implementation.
    As noted in the discussion paper released by the Board of 
Governors earlier this year, various design elements of a CBDC 
could have important effects on the way the public comes to use 
CBDCs and, by implication, the way in which CBDCs interact with 
monetary policy implementation. For example, limitations on the 
amounts of a CBDC that may be held or on the amount of a CBDC 
that could be accumulated in a given time period could have 
significant effects on the aggregate amount of a CBDC 
outstanding and variations in the CBDC over time in response to 
economic and financial developments. The Federal Reserve will 
continue to research these and other important topics related 
to CBDCs.
                                ------                                


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

Q.1. Fed Master Accounts. As you know, there has been an 
increasing interest among financial institutions, members of 
Congress, academics, and other stakeholders regarding the 
Federal Reserve's process for reviewing requests for accounts 
and services at Federal Reserve Banks (Fed master accounts). In 
May 2021, the Federal Reserve issued a request for comment 
(RFC) on proposed guidelines for evaluating such requests.\1\ 
The RFC emphasizes that a ``more transparent and consistent 
approach to such requests should be adopted by the Reserve 
Banks.''\2\ Earlier this month, the Federal Reserve issued a 
supplement to the RFC, which proposes a three-tiered review 
framework for evaluating Fed master account applications.
---------------------------------------------------------------------------
     \1\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20210505a.htm.
     \2\ Id.
---------------------------------------------------------------------------
    Notwithstanding, there is a lack of transparency regarding 
the Federal Reserve's process for evaluating Fed master account 
applications, including with respect to (1) institutions that 
have previously applied and (2) the status of those 
applications. As you know, a Fed master account is a type of 
public benefit.\3\ Other agencies that confer similar types of 
benefits are transparent about applications for those benefits 
and the status of past and current applications. For example, 
the public can see on the FDIC's website the institutions that 
have applied for federal deposit insurance and the status of 
their applications.\4\ Similarly, the public can see on the 
FCC's website what entities have applied for Federal 
communications licenses and the status of those 
applications.\5\ However, the public cannot go to the Federal 
Reserve's website to see the same information regarding Fed 
master accounts.
---------------------------------------------------------------------------
     \3\ See, e.g., https://www.brookings.edu/research/the-fed-wants-
to-veto-state-banking-authorities-but-is-that-legal/ (``The master 
account allows a financial institution to participate in the payment 
system. Without it, a financial institution can't really function as a 
financial institution.'').
     \4\ https://www.fdic.gov/regulations/applications/actions.html.
     \5\ https://wireless2.fcc.gov/UlsApp/ApplicationSearch/
searchAppl.jsp.
---------------------------------------------------------------------------
    In order to provide the public with the same degree of 
transparency for this public benefit, please provide the 
following information:
    A list of every institution that has applied for a Fed 
master account in the past 20 years, identifying the type of 
each institution (e.g., traditional bank, trust company, 
fintech company); and the status of each application (e.g., 
approved, denied, withdrawn, under review).

A.1. Through the Federal Reserve Act, Congress gave the Federal 
Reserve Banks (Reserve Banks) the authority to open master 
accounts to eligible institutions. Consistent with the 
longstanding practice of the Federal Reserve, information 
regarding which institutions have requested or maintain master 
accounts is considered confidential business information of the 
requestors and the Reserve Banks. As such, the Federal Reserve 
does not disclose that information publicly.
    Institutions offering novel types of financial products or 
with novel charters have emerged in recent years, and many of 
these institutions have requested access to accounts and 
payment services offered by Reserve Banks. As you note, the 
Board has proposed guidelines that are intended to ensure the 
Reserve Banks use a transparent and consistent set of factors 
when reviewing such requests for accounts and payment services.

Q.2. Congressional Investigation Records Request. As you know, 
I made a request last year for Federal Reserve Board records 
pertaining to a congressional investigation of the Federal 
Reserve
and Fed Regional Banks exceeding their mandates by engaging in
politically charged activities. My staff has communicated with 
Federal Reserve Board staff about this request, but to date I 
have not received any requested records that were not already 
publicly available.
    Will you commit to producing all of the requested records? 
Please answer ``yes'' or ``no.''
    If so, when should I expect to receive the requested 
records?
    If not, please fully explain your answer.

A.2. Board staff have worked together with your staff to 
respond to your records request. The Board provided your staff 
with approximately 2,000 pages of documents on April 19. This 
is in addition to the over 7,000 pages provided previously.

Q.3. Federal Reserve's Balance Sheet. In January 2022, the FOMC 
``decided to continue to reduce the monthly pace of its net 
asset purchases, bringing them to an end in early March.''\6\ 
As of March 2, 2022, the Fed's portfolio included nearly $5.75 
trillion of Treasury securities, and the Fed was reinvesting 
its maturing Treasuries at auction.\7\ In January 2021, the 
FOMC also released its ``Principles for Reducing the Size of 
the Federal Reserve's Balance Sheet.'' In those plans, the FOMC 
announced that it will be ``significantly reducing'' the size 
of the balance sheet, primarily by letting its securities 
mature without reinvestment.\8\
---------------------------------------------------------------------------
    \6\ https://www.federalreserve.gov/newsevents/pressreleases/
monetary20220126a.htm.
    \7\ https://www.federalreserve.gov/releases/h41/20220303/.
    \8\ https://www.federalreserve.gov/newsevents/pressreleases/
monetary20220126c.htm.
---------------------------------------------------------------------------
    Has the Fed determined how its balance sheet runoff will 
affect Treasury auctions and cash flows?
    If so, what are those effects?

A.3. Response not received in time for publication.

Q.4. Financial Stability Oversight Council (FSOC). On September 
25, 2020, the Financial Stability Oversight Council (FSOC) 
released a statement on its activities-based review of the 
secondary mortgage market. FSOC's statement affirmed the 
overall quantity and quality of the regulatory capital required 
by the Federal Housing Finance Agency's (FHFA) June 30, 2020, 
proposed rule to establish a new regulatory capital framework 
for Fannie Mae and Freddie Mac (each, a GSE). Specifically, 
FSOC stated that ``risk-based capital requirements and 
leverage-ratio requirements that are materially less than those 
contemplated by the proposed rule would likely not adequately 
mitigate the potential stability risk posed by the 
Enterprises.'' FSOC committed to ``continue to monitor . . . 
FHFA's implementation of the regulatory framework to ensure 
potential risks to financial stability are adequately 
addressed.'' On December 17, 2020, FHFA finalized the 
regulatory capital framework for the GSEs.
    On September 27, 2021, FHFA proposed amendments that would 
have materially reduced the GSEs' regulatory capital 
requirements. In your January 19, 2022, answers to my questions 
submitted following the January 11, 2022, hearing, you stated 
that ``Board staff continues to assess FHFA's proposed 
amendments to its capital rule.'' You also noted that ``FHFA 
did not seek the Board's input on the proposed amendment to its 
capital rule.''
    On February 25, 2022, FHFA finalized those amendments 
largely as proposed. The amendments reduced the tier 1 capital 
that must be maintained by a GSE to avoid restrictions on 
capital distributions from 4 percent to roughly 3 percent of 
the GSE's adjusted total assets. The amendments also reduced 
Freddie Mac's combined capital requirements from 4 percent to 
3.6 percent as of September 30, 2021, with further reductions 
likely to follow due to continued house price appreciation, 
among other things. Fannie Mae's combined capital requirements 
also could further decline as it reverts to prepandemic levels 
of credit risk transfer coverage (about twice the year-end 2021 
levels according to its annual reports on Form 10-K).
    As a member of FSOC, what steps do you think FSOC should 
take with respect to FHFA's now-finalized amendments to fulfill 
FSOC's commitment to ``continue to monitor . . . FHFA's 
implementation of the regulatory framework to ensure potential 
risks to financial stability are adequately addressed''?
    Do you think that these new risk-based capital requirements 
and leverage-ratio requirements are ``materially less than 
those contemplated by the proposed rule'' and are adequate to 
``mitigate the potential stability risk posed by the 
Enterprises''.
    Does the absence of any comment to-date by FSOC on FHFA's 
now-finalized amendments pose a risk to the credibility of the 
Council or risk politicizing the Council?

A.4. The Treasury Secretary is the Chair of the Financial 
Stability Oversight Council (FSOC) and is better placed to 
speak to the steps the FSOC is taking to evaluate amendments to 
the Federal Housing Finance Agency's (FHFA) capital rule for 
GSEs. I believe it is important that the GSEs be subject to 
risk-based capital requirements and leverage-ratio requirements 
that are adequate to mitigate the potential stability risk 
posed by the GSEs. An enhanced supervisory tool set for such 
private entities should include various prudential measures, 
such as resolution planning, stress testing, and liquidity 
management. I welcome the efforts of the FHFA to incorporate 
those measures into their supervisory framework. While these 
efforts and actions by the GSEs to distribute credit risk are 
positive developments, it is important to ensure that the 
overall levels of capital required at the GSEs are appropriate 
for the risks they are taking.
    Board staff actively monitors potential developments in the 
financial markets, including rules from other regulatory bodies 
that may have an impact on financial stability. As such, staff 
continues to assess any such impact by the amendments to the 
FHFA's capital rule.

Q.5. Basel III Capital Requirements. In 2017, the Basel 
Committee on Banking Supervision (BCBS) made changes to the 
Basel III capital framework that would require financial 
institutions to alter how they capitalize for credit risk, 
market risk, and operational risk exposures. It is expected 
that the United States will soon propose to implement these 
reforms, which could significantly raise capital requirements 
for certain banks. There are concerns that such increases could 
reduce the availability of credit for employers.
    How do you plan to administer Basel III in a way that does 
not reduce credit for any business?
    What is your expected timeline for implementation of Basel 
III?

A.5. Strong capital levels are a source of strength for U.S. 
banking organizations, making them more resilient to economic 
shocks and allowing them to extend credit to businesses and 
individuals through the economic cycle, including in a severe 
recession. The U.S. banking sector entered the COVID-19 
pandemic in a position of strength, having spent the previous 
decade implementing and adapting to more robust regulatory 
capital requirements. The experience of the COVID-19 pandemic 
has demonstrated that U.S. banking organizations are well-
capitalized, including through multiple rounds of supervisory 
stress tests.
    The final Basel III reforms are intended to produce more 
robust and internationally consistent capital requirements for 
the largest banking organizations, building on the improvements 
to the capital framework following the 2007-2009 financial 
crisis. Staffs of the U.S. Federal banking agencies continue to 
work actively on a proposal to implement the revised framework 
for the largest firms, as appropriate for the U.S. banking 
system. In doing so, we are considering factors such as credit 
availability and the resilience of firms.
    We plan to make any proposed changes through the standard 
notice-and-comment rulemaking process. At this time, I do not 
have a specific timeline for the proposal.
                                ------                                


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

Q.1. Last year's temporarily boosted Child Tax Credit provided 
families with up to $250-$300 per child per month from July 
through December. These payments drastically cut child poverty 
and helped Americans cover the cost of essential daily 
expenses.
    Did the boosted Child Tax Credit support economic growth in 
2021?
    Did monthly Child Tax Credit payments help parents cover 
higher grocery, gas, and other living costs last year?

A.1. As you note, last year Congress expanded the Child Tax 
Credit (CTC) on a temporary basis. The legislation increased 
CTC benefit amounts, made the credit fully refundable, and 
shifted issuance of the credit to a monthly basis from July 
through December 2021, whereas previously it was issued 
annually. These temporary changes in the CTC likely impacted 
the U.S. economy since, generally, an increase in household 
incomes likely temporarily boosted aggregate demand and thereby 
supported economic growth.\1\ However, when considering such 
policies, fiscal policy makers also consider a wide range of 
tradeoffs, including the expansion of annual Federal deficits 
or the need to raise taxes to fund these policies. It is the 
responsibility of the Congress and the Administration to 
evaluate the effectiveness of the CTC and decide on its 
appropriate size and structure going forward.
---------------------------------------------------------------------------
     \1\ For analysis of how fiscal policy, including tax credits, can 
boost aggregate demand, see, for example, Cashin, Lenney, Lutz, and 
Peterman, ``Fiscal Policy and Aggregate Demand in the U.S. Before, 
During and Following the Great Recession'', Finance and Economics 
Discussion Series 2017-061. Washington, DC: Board of Governors of the 
Federal Reserve System. For additional discussion of the likely 
economic effects of the CTC, see Parolin, Z., Ananat, E., Collyer, 
S.M., Curran, M., and Wimer, C., ''The Initial Effects of the Expanded 
Child Tax Credit on Material Hardship'', National Bureau of Economic 
Research Working Paper 29285, 2021; Parolin, Z., Collyer, S., Curran, 
M., and Wimer, C., ``Monthly Poverty Rates Among Children After the 
Expansion of the Child Tax Credit'', Poverty & Social Policy Brief 
5(4), Columbia University, 2021; and Perez-Lopez, Daniel, ``Economic 
Hardship Declined in Households With Children as Child Tax Credit 
Payments Arrived'', U.S. Census Bureau, August 11, 2021. For studies of 
employment changes due to the introduction of the expanded CTC, see, 
for example, Ananat, E., Glasner, B., Hamilton, C., and Parolin, Z., 
``Effects of the Expanded Child Tax Credit on Employment Outcomes: 
Evidence From Real-World Data From April to December 2021'', National 
Bureau of Economic Research Working Paper No. 29823, 2022; Bastian, J., 
``Investigating the Effects of the 2021 Child Tax Credit Expansion on 
Poverty and Employment'', Working Paper, February 14, 2022; and 
Corinth, K., Stadnicki, M., Meyer, B.D., and Wu, D., ``The Anti-
poverty, Targeting, and Labor Supply Effects of the Proposed Child Tax 
Credit Expansion'', Becker Friedman Institute for Economics Working 
Paper No. 2021-115, University of Chicago, 2021.

Q.2. As we've seen in recent weeks with the economic response 
to Russia's unprovoked invasion of Ukraine, our Nation's 
sanctions tools are so effective because the dollar is 
ubiquitous in cross-border payments. It is an economic and 
national security priority to protect the international role of 
the dollar. Do you believe a U.S. digital currency can help 
maintain the attractiveness of the dollar, especially as 
foreign central banks have recently launched their own digital 
---------------------------------------------------------------------------
currencies?

A.2. Today, the dollar is widely used around the world because 
of the size of the U.S. economy, our deep and liquid financial 
markets, the strength of our institutions, and the commitment 
of the United States to the rule of law. It is important, 
however, to consider the implications should many foreign 
jurisdictions introduce central bank digital currencies (CBDC).
    The Federal Reserve is examining the potential benefits and 
risks of issuing a U.S. CBDC, including implications for the 
use of the dollar abroad. The dollar is important to global 
financial markets--it is not only the predominant global 
reserve currency, but it is also the most widely used currency 
in international payments. Thus, it is also essential to 
consider what the future status of global financial markets and 
transactions would look like with and without a Federal 
Reserve-issued CBDC.
    In March, the Biden administration issued an Executive 
order to ensure the responsible development of digital assets 
to protect consumers, financial stability, and national 
security. The Executive order calls for analysis of the 
potential implications of a U.S. CBDC and foreign CBDCs on the 
U.S. national interest and financial centrality. The Federal 
Reserve will work closely with its interagency colleagues on 
these important topics, which will complement ongoing CBDC 
research at the Federal Reserve.
    The Federal Reserve is also working closely with 
international colleagues on CBDC and related topics. For 
example, in 2020 the Federal Reserve collaborated with six 
other central banks and the Bank for International Settlements 
(BIS) to produce a report on foundational principles for 
CBDCs.\2\ The Federal Reserve has continued this work with 
further analysis of policy options and practical implementation 
issues, joining other central banks in issuing a series of 
reports last fall on system design and interoperability, user 
needs and adoption, and financial stability implications.\3\ 
Additionally, the Federal Reserve collaborated with the G7 to 
produce a set of public policy principles for retail CBDCs.\4\ 
We also work with the Financial Stability Board and BIS on ways 
to improve cross-border payments, which includes studying how 
CBDCs might be used for cross-border payments.\5\
---------------------------------------------------------------------------
     \2\ Bank for International Settlements, ``Central Bank Digital 
Currencies: Foundational Principles and Core Features'' (Basel: BIS, 
October 2020), https://www.bis.org/publ/othp33.pdf.
     \3\ Bank for International Settlements, ``Central Banks and the 
BIS Explore What a Retail CBDC Might Look Like'', press release, 
September 2021, https://www.bis.org/press/p210930.htm.
     \4\ G7, ``Public Policy Principles for Retail Central Bank Digital 
Currencies'' (CBDCs), October 2021, https://
assets.publishing.service.gov.uk/government/uploads/system/uploads/
attachment
-data/file/1025235/
G7_Public_Policy_Principles_for_Retail_CBDC_FINAL.pdf.
     \5\ Financial Stability Board, ``Enhancing Cross-border Payments: 
Stage 3 Roadmap'' (Washington, DC: FSB, October 2020), https://
www.fsb.org/2020/10/enhancing-cross-border-payments-stage-3-roadmap/.
---------------------------------------------------------------------------
    The Federal Reserve Board also issued a discussion paper in 
January as a first step in a public discussion between the 
Federal Reserve and stakeholders about CBDCs. \6\ The paper is 
not intended to advance any specific policy outcome, nor is it 
intended to signal that the Federal Reserve will make any 
imminent decisions about the appropriateness of issuing a U.S. 
CBDC. Moreover, the Federal Reserve does not intend to proceed 
with issuance of a CBDC without clear support from the 
executive branch and from Congress, ideally in the form of a 
specific authorizing law. Irrespective of any conclusion on 
whether to issue a CBDC, the Federal Reserve will continue to 
play an active role in developing international standards for 
CBDCs.
---------------------------------------------------------------------------
     \6\ ``Money and Payments: The U.S. Dollar in the Age of Digital 
Transformation'', https://www.federalreserve.gov/publications/money-
and-payments-discussion-paper.htm.
---------------------------------------------------------------------------
                                ------                                


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

Q.1. How does the Federal Reserve ascertain how much of rising 
prices is due to demand exceeding supply on the one hand and a 
reduction in the value of money on the other?

A.1. Response not received in time for publication.

Q.2. What is the Federal Reserve's current expectation of how 
much reducing its balance sheet and increasing interest rates 
will contribute to reducing inflation as opposed to other 
actions Congress or the executive branch may take to address 
workforce, competition, supply chains, and related issues?

A.2. Response not received in time for publication.

Q.3. At the hearing, your testimony was that you expect to be 
tightening credit in order to reduce demand in the economy.
    What are the ways that the Federal Reserve can increase 
velocity at the same time it is reducing the money supply?

A.3. Response not received in time for publication.

Q.4. The latest Monetary Policy Report states that ``While all 
groups have experienced at least a partial recovery in 
employment rates since April 2020, the shortfall in employment 
remains especially large for lower-wage workers and for 
Hispanics, African Americans, and other minority groups.''
    What effect do you expect raising interest rates to have on 
unemployment of these groups?
    Will the Fed continue to monitor the effects of raising 
interest rates on low-income and minority workers as it 
considers future anti-inflation actions?

A.4. Response not received in time for publication.
                                ------                                


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

Q.1. You have now refused, on three separate occasions, to 
provide Congress with the full set of requested information on 
the ethics scandal arising from top Fed officials' trades in 
stocks, bonds, and other investments and potential insider 
trading. In my letter to you on January 10, 2022, and two 
previous letters, I requested the full contents of the March 
23, 2020, email reported in the New York Times, and complete 
copies of any other ethics advice or information provided to 
Fed officials between January 1, 2020, and the present. I was 
provided with an excerpt of this email by the Board's 
Congressional Liaison Office on October 21, 2021, and none of 
the other information I requested. I request again that you 
share this email in full, as well as complete copies of any 
other ethics advice or information provided to Fed officials 
between January 1, 2020, and the present.

A.1. As discussed in my response to your office dated February 
14, the Federal Reserve Board's (Board) Office of the 
Congressional Liaison shared all of the substantive content of 
the March 23 email with your office on October 21, 2021. On an 
ongoing basis, the Board's ethics office sends regular 
reminders of ethics obligations to Federal Reserve policymakers 
and staff.

Q.2. In my letters, I also requested that Fed staff provide my 
staff a briefing on the Fed's ``broad set of new rules'' that 
were announced on October 21, 2021, regarding the purchase and 
trading of individual securities and the timeliness of 
reporting and public disclosure by Fed policymakers and senior 
staff. These new rules have since been released, yet it is 
unclear that these rules are strong enough to meet the 
shortcomings of ethical standards at the Fed. Will you commit 
to ensuring a briefing is provided by March 24, 2022?

A.2. The Board's Legal Division conducted a briefing for the 
staff of the Senate Committee on Banking, Housing, and Urban 
Affairs and the staff of its members on March 23.

Q.3. I asked you to provide information on Vice Chair Clarida's 
``errors'' in his financial disclosures. You did not provide a 
response, citing the ongoing Inspector General investigation. 
However, the existence of this investigation does not preclude 
you from answering these questions, so I ask again: When did 
Fed officials first learn that Vice Chair Clarida had made 
``inadvertent errors'' \1\ in his initial financial disclosure? 
When did Clarida file his amended disclosure? When was this 
amended disclosure made publicly available on the Office of 
Government Ethics website?
---------------------------------------------------------------------------
     \1\ New York Times, ``A Fed Official's 2020 Trade Drew Outcry. It 
Went Further Than First Disclosed'', Jeanna Smialek, January 6, 2022, 
https://www.nytimes.com/2022/01/06/business/economy/richard-clarida-
fed-stockfund.html.

A.3. In light of the Office of Inspector General's 
investigation, it would not be appropriate for me to comment on 
the disclosures of any specific individuals, including the 
former Vice Chair.
              Additional Material Supplied for the Record

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