    [Senate Hearing 118-549]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-549

                      THE SEMIANNUAL MONETARY POLICY REPORT
                                 TO THE CONGRESS

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

                                    HEARING

                                   before the

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

                        ONE HUNDRED EIGHTEENTH 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 7, 2024

                                   __________

      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

    58-305 PDF                WASHINGTON : 2025

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                           SHERROD BROWN, Ohio, Chair

    JACK REED, Rhode Island              TIM SCOTT, South Carolina
    ROBERT MENENDEZ, New Jersey          MIKE CRAPO, Idaho
    JON TESTER, Montana                  MIKE ROUNDS, South Dakota
    MARK R. WARNER, Virginia             THOM TILLIS, North Carolina
    ELIZABETH WARREN, Massachusetts      JOHN KENNEDY, Louisiana
    CHRIS VAN HOLLEN, Maryland           BILL HAGERTY, Tennessee
    CATHERINE CORTEZ MASTO, Nevada       CYNTHIA M. LUMMIS, Wyoming
    TINA SMITH, Minnesota                J.D. VANCE, Ohio
    RAPHAEL G. WARNOCK, Georgia          KATIE BOYD BRITT, Alabama
    JOHN FETTERMAN, Pennsylvania         KEVIN CRAMER, North Dakota
    LAPHONZA R. BUTLER, California       STEVE DAINES, Montana

                         Laura Swanson, Staff Director

                   Lila Nieves-Lee, Republican Staff Director

                           Elisha Tuku, Chief Counsel

                      Amber Beck, Republican Chief Counsel

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                           Pat Lally, Assistant Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                            THURSDAY, MARCH 7, 2024

                                                                       Page

    Opening statement of Chair Brown.................................     1
            Prepared statement.......................................    43

    Opening statements, comments, or prepared statements of:
        Senator Scott................................................     3
            Prepared statement.......................................    44

                                    WITNESS

    Jerome H. Powell, Chair, Board of Governors of the Federal
      Reserve System.................................................     5
        Prepared statement...........................................    45
        Responses to written questions of:
            Chair Brown..............................................    47
            Senator Scott............................................    51
            Senator Fetterman........................................    56
            Senator Crapo............................................    58
            Senator Vance............................................    58
            Senator Hagerty..........................................    63

                  Additional Material Supplied for the Record

    Monetary Policy Report to the Congress dated March 1, 2024.......    65
    Letter submitted by ACU..........................................   130
    Letter submitted to Chair Powell, Chair Gruenberg, and Acting
      Comptroller Hsu................................................   134

                                     (iii)

                      THE SEMIANNUAL MONETARY POLICY REPORT
                                 TO THE CONGRESS

                                  ----------

                            THURSDAY, MARCH 7, 2024

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 9:53 a.m., in room SD-538, Dirksen
    Senate Office Building, Hon. Sherrod Brown, Chair of the
    Committee, presiding.

                OPENING STATEMENT OF CHAIR SHERROD BROWN

        Chair Brown. The Banking, Housing, and Urban Affairs
    Committee will come to order. Chairman Powell, if you'd like to
    after your opening statement, give it again, you can certainly
    do that. The Fed has immense power in shaping our economy. Your
    job is clear; promote stable prices and maximum employment.
        Today, the cost of living is still far too expensive for
    most Americans. The Fed has only one tool available to fight
    those high prices; interest rates. That tool does nothing to
    address the real costs. The real cost for white costs remains
    too high. Corporations price gouging to boost profits and make
    their shareholders richer. Higher interest rates don't force
    corporations to lower their prices, but high interest rates are
    raising housing costs, hindering wage growth, stifling small
    businesses. We all know that.
        Now's the time for the Fed to decide if it's going to make
    good on its commitments to workers and to their families by
    lowering interest rates, by protecting our financial system
    from Wall Street executives who have used their wealth and
    their power to influence economic policy and avoid
    accountability for their risky bets.
        Keeping rates too high for long, for too long strangles the
    economy. No one wants this, and it makes it harder for small
    businesses to expand and hire more workers undermining job
    creation. Higher rates also stifle overdue investments that are
    creating high quality, good paying jobs, and that are necessary
    for us to remain the most competitive and innovative economy in
    the world. High interest rates are raising housing costs,
    higher and higher for families, families already facing a tough
    market with too few options and too high prices.
        I hear from so many Ohioans who feel trapped. Those who
    rent feel like they'll never be able to afford to buy. Those
    who already own their homes, feel like they'll never be able to
    afford a larger one if they decide to grow their family. If
    they're fortunate enough to have an interest rate from a couple
    years ago, they obviously don't want to give it up.
        It limits their choices, it limits the housing supply, and
    by driving up construction costs, higher rates make it even
    harder to build new apartments and homes, so we have even less
    supply at exactly the same time when it's harder to afford a
    mortgage. Families are stuck delaying the purchase of their
    first home, and rent or renting for longer. That cycle drives
    rents up even further.
        Americans pay a steep price for higher interest rates.
    Continued high rates are not going to make life less expensive
    for workers and their families. We know why prices are high
    years after supply chains have improved. It's the same cause of
    so many of the problems our economy; corporations want bigger
    profits to reward their executives.
        In 2022, at the peak of inflation, corporate profits soared
    to historic levels. That's not hyperbole, that's fact.
    Corporate profits soared to historic levels. As you know, where
    those profits went, right into the pockets of their top
    executives. That same year, the largest multinational
    corporations gave out nearly $1.5 trillion, $1.5 trillion
    dollars in stock buybacks and dividends.
        Americans today pay more for groceries than they have in 30
    years. Every time you go to a grocery store. Ohioans pay for
    corporate executives' bonuses and stock buybacks every time you
    go to the grocery store. Grocery shoppers are paying for
    corporate executive bonuses and stock buybacks.
        The biggest corporations are always finding new ways to
    charge people more to increase their profits. Fast food
    restaurants, big stores, are experimenting with electronic
    price tags so they can change prices constantly making it
    easier to sneak prices up little by little, making it harder
    for people to comparison shop and find the store at the lowest
    price.
        Many companies increase their profits by charging more for
    less. The media started calling it shrinkflation. Senator
    Casey, our colleague from Pennsylvania, has particularly been a
    leader pointing this out. A bottle of Gatorade used to be 32
    ounces. Now it's 28 ounces, but the price hasn't gone down, and
    if anything, it's gone up a bit. It's why I introduced
    legislation that would stop that kind of deceptive corporate
    practice. It's the kind of solution we need to take on
    corporate price gouging. It has nothing to do, Mr. Chairman, as
    you know, with higher interest rates.
        The Fed doesn't only set monetary policy. You also make the
    rules that keep our banking system safe and sound, and
    consumers money safe. We've had some positive development, Mr.
    Chair, since the last time you testified in June, like the
    update to the Community Reinvestment Act. Thank you for your
    work on this. This took years of listening carefully to all
    stakeholders. It was long overdue. We'll be watching to make
    sure you implement this quickly. So banks are fulfilling the
    purpose of the Community Reinvestment Act. I spoke to Ohio
    bankers yesterday, most of them small banks, they understand
    the importance of this.
        You also issued an updated capital requirements proposal
    called Basel III, the subject of much discussion in this
    Committee. Strong capital requirements are how we ensure if
    Wall Street bets don't pay off, shareholders and investors are
    on the hook, not taxpayers. Too many examples in this
    Committee, in this Congress, in this country, of tax hold tax
    payers holding the bag for corporate misfeasance, and
    malfeasance, and greed.
        We need these guardrails in place. I urge you to remain
    committed to protecting the public despite the massive amount
    of money big banks and their lobbyists are spending trying to
    kill these taxpayer protections. Let's finish the job. Let's
    finalize Basel III.
        Last year's bank failures also demonstrate the dangers of
    letting the banks chip away at rules and oversight. It's
    entirely predictable. Bankers desperate to increase their
    already massive profits take big risks that undermine our
    economy. When things go wrong, bank executives come to
    regulators with their hands out, accepting no responsibility.
    It's why Congress must finish the job and pass our bipartisan
    RECOUP Act. Senator Scott and I worked on 21 to 2 in this
    Committee to hold senior bank executives accountable when they
    gamble with customers money.
        When the biggest banks exercise special privilege, they do
    so at the peril of our broader economy. We've seen that too
    many times. We know that's a source of so much that's wrong in
    this country; big corporations using their power and influence
    to write the rules of our economy to the benefit of them, and
    their executives, and their investors, to the detriment of
    everyone else.
        It's why I stand up for workers, and why I stand up for
    their right to organize. It's why I stand up to take on
    railroads, and drug companies, and the biggest banks, and
    corporations who time and time again try to rewrite the rules
    to increase their profit margins.
        Chair Powell, I look forward to hearing you from you today,
    thank you, and how the Fed will work to promote an economy
    where everyone who wants a good job has the opportunity to find
    one.
        Senator Scott.

                 OPENING STATEMENT OF SENATOR TIM SCOTT

        Senator Scott. Thank you. Chair Powell, thank you for
    coming this morning. Good morning. Appreciate you being here,
    certainly. In 3 days, March 10th, it'll be the 1-year
    anniversary of the failure of the Silicon Valley Bank. SVB
    marked the third largest bank failure in U.S. history, and
    certainly the largest since the 2007/2008 financial crisis.
        I've said it many times before, and I'll say it again
    today, that there were three major components to SVB's failure.
    First, the bank was rife with mismanagement. Second, there was
    a clear supervisory failure, and our regulators were certainly
    asleep at the wheel. And third, President Biden's reckless
    spending caused record high inflation, which resulted in
    drastic interest rate hikes and tremendous loss.
        When you print and spend trillions of dollars at the end of
    Covid, we should not be surprised that we have record high
    inflation. Record high inflation translates into, today still,
    40 percent higher for gas for your car, 30 percent higher for
    your food, 20 percent higher for your energy costs. The
    devastation the average American is facing because of
    Bidenomics is undeniable, but certainly measurable.
        So I'm glad to spend some time talking about the state of
    our economy. An economy that has been ravaged, as I've just
    spoken about, by inflation, suffering under the weight of an
    open border and millions of illegal immigrants and drowning in
    disastrous regulations. I hear from my constituents all the
    time that inflation and an unsustainable cost of living
    continue to impact their families. For far too many, the
    American dream seems further and further out of reach than ever
    before. And frankly, the past 3 years of this Administration's
    failed policies have landed us right in that spot.
        In fact, last month, Treasury Secretary Yellen sat before
    this Committee and attempted to spin a narrative of how strong
    the economy is, how well-off consumers are, and how much people
    have in the bank thanks to Bidenomics. But in the midst of
    this, she also admitted that many prices are not going down.
        In fact, she said, and I quote, ``We don't have to get
    these prices down.'' Tell that to the mechanic working in South
    Carolina. Tell that to the teacher trying to put gas in the
    tank. It is simply unacceptable because the truth is that
    Americans are now spending more of their income on food than
    they have in 30 years. The truth is that housing affordability
    remains at its lowest level in 40 years.
        But inflation isn't the only concern I'd like to raise. I'd
    also like to address the economic impacts of illegal
    immigration. During your recent interview on ``60 Minutes'',
    you stated that over time, the U.S. economy has benefited from
    immigration. Let's be clear, America is a Nation of immigrants,
    no doubt. But when we talk about illegal immigration today, we
    must also face the dire reality that our towns and our cities
    are suffering from the adverse impacts of illegal immigration
    facilitated by the Biden administration's open, unsecure, and
    unsafe southern border.
        Because of President Biden's policies, we've seen over 7
    million illegal immigrants cross our borders in just 3 years.
    By the time this election happens this year in November, the
    numbers suggest it could be as high as 10 million illegal
    immigrants coming into our country. So we cannot have an honest
    conversation about the benefits of legal immigration in our
    labor force without also addressing the elephant in the room.
    Our country is strained. Our economy is strained under the
    weight of illegal immigration.
        In fact, recent reporting has highlighted that cities and
    States across our country are struggling to keep pace, and some
    have been forced to cut public services to Americans in order
    to fund the cost of feeding and housing illegal immigrants. One
    clear example we saw in New York City were the poorest kids in
    the city. Minority kids in the city were stuck at home because
    the city was using the schools to house illegal immigrants.
    Another example, the city of Denver recently announced that
    some of its employees may have their hours cut in order to
    reallocate funds toward the city's migrant crisis.
        How in the world is that fair to Americans? It's not. We
    must get the legal immigration crisis under control because if
    we don't, our local economies will continue to be crushed, and
    opportunities will continue to be stripped from our citizens
    and their families.
        Finally, as if inflation and the negative impacts of
    illegal immigration were not enough, the tsunami of regulatory
    red tape coming from our financial regulators further threaten
    economic opportunity across the board. For months, we've heard
    bipartisan criticism of the Fed's Basel III Endgame proposal,
    which will restrict lending and access to credit for those who
    need it the most. I was certainly pleasantly surprised to hear
    your comments about Basel III and your thoughts on its future,
    when 97 percent of the comments that you receive are negative.
        That's good news. Good news for the American consumer. Good
    news for entrepreneurs who would like to start a business, but
    do not have access to capital. Perhaps even good news for
    millennials who would love to become a first-time home buyer.
    The opposition to Basel III comes from a diverse array of
    interests; from community leaders, farmers, to housing groups.
    We've even heard opposition in this very room on this very
    Committee from Democratic Senators.
        I look forward to hearing your testimony, and looking
    forward to asking some questions as well.
        Chair Brown. Thank you, Senator Scott. We're here today as
    we do every 6 months, at least, from Chair of the Federal
    Reserve, Jerome Powell, on monetary policy and the state of our
    economy. Please proceed. Thank you for your service to our
    country.

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

        Mr. Powell. Thank you, Chairman Brown, Ranking Member
    Scott, and other Members of the Committee. I appreciate the
    opportunity to present the Federal Reserve's Semiannual
    Monetary Policy Report today.
        The Federal Reserve remains squarely focused on our dual
    mandate to promote maximum employment and stable prices for the
    American people. The economy has made considerable progress
    toward these objectives over the past year. While inflation
    remains above the FOMC's objective of 2 percent, it has eased
    substantially, and the slowing in inflation has occurred
    without a significant increase in unemployment. As labor market
    tightness has eased and progress on inflation, has continued
    the risks to achieving our employment and inflation goals have
    been moving into better balance. Even so, the Committee remains
    highly attentive to inflation risks, and is acutely aware that
    high inflation imposes significant hardship, especially on
    those least able to meet the higher costs of essentials like
    food, housing, and transportation. The FOMC is strongly
    committed to returning inflation to its 2 percent objective.
    Restoring price stability is essential to achieve a sustained
    period of strong labor market conditions that benefit all.
        I'll review the current economic situation before turning
    to monetary policy.
        Economic activity expanded at a strong pace over the past
    year. For 2023 as a whole, gross domestic product increased 3.1
    percent, bolstered by solid consumer demand, and improving
    supply conditions. Activity in the housing sector was subdued
    over the past year, largely reflecting high mortgage rates.
    High interest rates also appear to have been weighing on
    business fixed investment.
        The labor market remains relatively tight, but supply and
    demand conditions have continued to come into better balance.
    Since the middle of last year, payroll job gains have averaged
    239,000 jobs per month, and the unemployment rate has remained
    near historical lows at 3.7 percent. Strong job creation has
    been accompanied by an increase in the supply of workers,
    particularly among individuals aged 25 to 54, and a continued
    strong pace of immigration. Job vacancies have declined, and
    nominal wage growth has been easing. Although the jobs-to-
    workers gap has narrowed, labor demand still exceeds the supply
    of available workers. The strong labor market over the past 2
    years has also helped narrow longstanding disparities in
    employment and earnings across demographic groups.
        Inflation has eased notably over the past year, but remains
    above the FOMC's longer-run goal of 2 percent. Total personal
    consumption expenditures prices, or PCE prices, rose 2.4
    percent over the 12 months ending in January. Excluding the
    volatile food and energy categories, core PCE prices rose 2.8
    percent, a notable slowing from 2022 that was widespread across
    both goods and services prices. Longer-term inflation
    expectations appear to have remained well anchored as reflected
    by a broad range of surveys of households, businesses, and
    forecasters, as well as measures from financial markets.
        After significantly tightening the stance of monetary
    policy since early 2022, the FOMC has maintained the target
    range for the Federal funds rate at 5.25 to 5.5 percent since
    its meeting last July. We have also continued to shrink our
    balance sheet at a brisk pace and in a predictable manner.
        Our restrictive stance of monetary policy is putting
    downward pressure on economic activity and inflation. We
    believe that our policy rate is likely at its peak for this
    tightening cycle. If the economy evolves broadly as expected,
    it will likely be appropriate to begin dialing back policy
    restraint at some point this year.
        But the economic outlook is uncertain, and ongoing progress
    toward our 2 percent inflation objective is not assured.
    Reducing policy rates restraint too soon or too much could
    result in a reversal of progress that we've seen in inflation,
    and ultimately require even tighter policy to get inflation
    back to 2 percent. At the same time, reducing policy restraint
    too late or too little could unduly weaken economic activity
    and employment. In considering any adjustments to the target
    range for the policy rate, we will carefully assess the
    incoming data, the evolving outlook, and the balance of risks.
    The Committee does not expect that it will be appropriate to
    reduce the target rate until it has gained greater confidence
    that inflation is moving sustainably toward 2 percent.
        We remain committed to bringing inflation back down to our
    2 percent goal, and to keeping longer-term inflation
    expectations well anchored. Restoring price stability is
    essential to set the stage for achieving maximum employment and
    stable prices over the longer-run.
        To conclude, we understand that our actions affect
    communities, families, and businesses across the country.
    Everything we do is in service to our public mission. We at the
    Federal Reserve will do everything we can to achieve our
    maximum employment and price stability goals. Thank you.
        Chair Brown. Thank you, Mr. Chairman.
        Now, you've acknowledged the Fed likely waited too long to
    raise rates when prices shot up in 2021. We can't make that
    mistake again, Mr. Chair, at the expense of workers. If the Fed
    waits until unemployment starts increasing, it may be too late
    to cut rates in time to save American jobs. Why shouldn't the
    Fed act now to prevent workers from losing their jobs rather
    than reacting after the fact?
        Mr. Powell. So we're well aware of that risk, of course,
    and very conscious of avoiding it. And what we expect and what
    we're seeing is continued strong growth, a strong labor market,
    and continuing progress in bringing inflation down, if that
    happens, if the economy evolves over that path, then we do
    think that the process of carefully removing the restrictive
    stance of policy can and will begin over the course of this
    year.
        Chair Brown. I mean, I know we've had this conversation
    publicly here, and privately also, that working people are hit
    the hardest with inflation. They're also hit the hardest when
    companies try to cut costs with layoffs. This town too often
    seems to forget that maximum employment is part of the Fed's
    dual mandate.
        Let me ask you about bank supervision. Senator Scott
    mentioned that last year's bank failures illustrate the need
    for strong oversight. SVB grew too big, too fast. Fed
    supervision didn't react decisively enough. The Fed in response
    undertook an assessment of its supervisory process to identify
    and address gaps related to the speed, the force, the agility,
    if that's the right word, if it's supervision.
        Explain what concrete steps the Federal Reserve's taken to
    strengthen supervision in any specific areas where work to make
    improvements is ongoing.
        Mr. Powell. So this is a very broad area of work. There
    are, you know, many, many people in the Federal Reserve System
    who are involved in supervision, thousands of them, and there's
    a rule book. And so there's been careful study, and thought,
    and a lot of listening to understand how we can meet those
    goals. Being quicker and more effective, basically, is how I
    would say it.
        If you look at Silicon Valley Bank, we weren't quick
    enough, and we weren't effective enough where we were in. And
    so, we're working hard to develop a new rule book and another
    other set of practices, which is still going to be evidence-
    based and fair, but it's going to involve earlier interventions
    and more effective ones. And, you know, I think this is work
    that's ongoing, and will be for some time.
        Chair Brown. Thank you. The job of the Fed, of all public
    officials, is to serve the American people, not their stock
    portfolios. We've seen abuses in this body. We've seen abuses
    at the Federal Reserve. I wrote to you last month asking the
    Fed to identify substantive penalties for board officials who
    violate the trading rules. Where is that in the process, and I
    expect these rules in place before the next monetary policy
    hearing in 6 months. Where is it?
        Mr. Powell. So our own Inspector General gave us six things
    to work on. I read the list from beginning to end, and the
    sixth one was what you said, and I just said, we're going to do
    all of these. Let's get going. So we've done five of them, and
    we're working on the sixth.
        Chair Brown. And it will be finished within 6 months when
    you're back?
        Mr. Powell. I want to get it right. I certainly hope so,
    and expect so.
        Chair Brown. Expect so is a better answer than hope.
        So one last question. More and more many companies use
    algorithms that combine competitors' price information to
    engage in what they call dynamic pricing or surge pricing. You
    know that corporate PR teams worked hard on this. Just another
    way for corporations to make it harder for consumers to seek
    out lower prices and to pad corporate profits. Are you
    concerned that the wide adoption of these price gouging
    strategies, these pricing schemes, if you will, will contribute
    to inflation?
        Mr. Powell. I mean, I think it works both ways. Let me say
    this, you know, we're well aware of this trend, and we're
    monitoring it. Remember that prices go down when there's no one
    in the store, and they go up when there are a lot of people. If
    you're doing dynamic pricing--same thing with the ride
    companies. It works both ways. I don't know that it will have
    implications for inflation. It would certainly have
    implications for consumers who need to be informed.
        Chair Brown. You think that this kind of surge pricing
    might lower prices overall?
        Mr. Powell. I mean, my understanding is that the idea is
    that in slow periods, prices actually go down, and in busy
    periods they go up.
        Chair Brown. But these are sophisticated economists working
    for these big companies, and they're not going to do things to
    lower their profits.
        Mr. Powell. You know, I think the price mechanism is
    incredibly important in our economy. I think we need to give
    companies the freedom to do that as long as they're not fixing
    prices, or failing to disclose the nature of the price changes
    to the public.
        Chair Brown. I have a few seconds. Research has indicated
    constrained supply was behind a significant amount of the
    inflation we've seen over the last few years. If the supply
    chain, for instance, of autos had been more resilient, or if
    there had been more housing availability, would that have made
    your job easier?
        Mr. Powell. Yes. In a word, yeah. A big part of the
    inflation was--and we saw it in 2023--when the supply chain
    problems unwound and when the labor supply shock that we had
    unwound as well. We saw inflation come down very quickly in the
    second half of the year. But it is also down to, you know,
    tight monetary policies playing a role as well.
        Chair Brown. Which leads me to the to the plea with you to
    speak out about inflation, about the contribution of corporate
    profits and greed to inflation. Thank you.
        I'm done.
        Senator Scott. Oh, I know you are done.
        Chair Brown. You find yourself agreeing with me more and
    more often? Is that why? Senator Scott. That would be a
    nightmare and I'm awake.
        [Laughter.]
        Senator Scott. So what I would say, however, is that the
    fact of the matter is that so often, if in fact, 60--I actually
    listened to what you said, which was remarkable; the fact that
    60 percent of Americans today can't afford a $1,000 emergency.
        I can't imagine how the average millennial affords a down
    payment for a home. I can't imagine how they take into
    consideration when they're looking at a snapshot of their
    financial future fixing, and repairing, or having a plan for
    obsolescence that happens for every homeowner in the country.
    So, I think the issue is far more complicated, and would love
    to delve into that over the next 4 minutes and 18 seconds.
        But my first question is a combination between the
    challenges of illegal immigration and crime. It seems like
    every single week there's another story of another city
    underwater attempting to feed and house millions of illegal
    immigrants and American taxpayers are footing that bill.
        Like I mentioned in my opening statement, just recently in
    Denver, we saw city workers having their hours essentially
    zeroed out so that the city could allocate more resources for
    the illegal immigrants. In San Francisco, they say that the
    average cost between San Francisco and Oakland because of crime
    is almost $4 billion.
        Couple that with in New York, you see Governor Hochul
    bringing out the National Guard and the State Police to help
    reduce the impact of crime. At the same time, Mayor Adams says
    he needs more money because the state of affairs from illegal
    immigrants in the city devastating the economy, scaring the
    citizens, and reducing the opportunity for business as usual to
    return to New York City.
        So my question is, can you explain how our economy is
    expected to continue shouldering the burden and the costs
    because of illegal immigration? And what, if any, information
    do you have as it relates to the impact of this surge of crime
    in our major cities on the economic outcomes of those cities?
    Because I heard the discussion that when you have more folks in
    the store, you have more shoppers. Except for these days, when
    you have more folks in the store, sometimes they're just there
    to steal.
        Mr. Powell. So you quoted my statement earlier, and it was
    an accurate quote for which I thank you. But I would say right
    before that, what I said was immigration policy, very
    important, very much under discussion, and it's none of our
    business. We don't set immigration policy, and we don't comment
    on it, so.
        Senator Scott. But you commented on immigration. So my
    point though is that when you're going to tell a story, please
    tell the whole story, especially when the Nation is frustrated
    by nearly 10 million folks by the end of this year coming to
    the country and having the kind of negative impact on prices,
    on crime, on the challenges that everyday Americans, especially
    Americans living in the poorest parts of America face on a
    daily basis.
        Mr. Powell. So as you accurately quoted, I was referring--I
    said over time----
        Senator Scott. Yeah.
        Mr. Powell. ----so I was referring to the history, which
    with you agreed. So I was staying as far as I possibly could
    from the current political context, and it's really not
    appropriate for us. We're independent. We like to remain that
    way, and the way we do that, one of the ways is by staying out
    of political issues that we really aren't assigned. And so, the
    kinds of issues you're talking about are very, very real. I
    don't deny that, but they're really not for us.
        Senator Scott. So the Fed does not consider the impact of
    10 million illegal immigrants coming to our country and the
    cost associated with those illegal immigrants, the impact on
    States like New York, or California, or Illinois, where the
    devastation of crime ravishing the poorest Americans has an
    impact. We don't take that into consideration.
        Mr. Powell. So we do, and so does the Congressional Budget
    Office. We do try to estimate population, and we try to
    estimate the effective immigration, legal or illegal on the
    size of the workforce, and on GDP. If you look at the
    Congressional Budget Office, as you probably know, a detailed
    assessment of all the things like that, we don't really have a
    way--and we do look at the finances in the aggregate of State
    and local governments--that's in the hiring that they do. So
    that's something we look at, but we wouldn't do a very specific
    assessment like that. I mean, CBO probably would, but we
    wouldn't do that.
        Senator Scott. Thank you.
        Chair Brown. Thank you, Senator Scott. Senator Menendez of
    New Jersey is recognized.
        Senator Menendez. Thank you, Chairman. Before I begin my
    questions, I want to celebrate that in the past year, we have
    seen the first Latino Federal Reserve Governor and the first
    ever Latino Federal Reserve Bank president. These are historic
    milestones that show we are finally making progress. Something
    that I have been at for quite some time to the leadership of
    our economic institutions. So I want to applaud that, and Mr.
    Chairman, I hope that progress can continue and extend to the
    rest of the Federal Reserve staff.
        Mr. Powell. Thank you.
        Senator Menendez. I agree with my friend, the Ranking
    Member, that when you tell a story, you should tell the whole
    story. Mr. Chairman, are you aware of the Washington Post,
    February 27th article that says, ``The economy is roaring.
    Immigration is a key reason''?
        Mr. Powell. I don't recall that, but I would've read it.
        Senator Menendez. Let me read it to you. ``Immigration has
    propelled the U.S. job market further than just about anyone
    expected, helping cement the country's economic rebound from
    the pandemic as the most robust in the world.'' It goes on to
    say, ``Economists and labor experts say the surge in employment
    was ultimately key to solving unprecedented gaps in the economy
    that threatened the country's ability to recover from prolonged
    shutdowns.''
        Would you take issue with those statements?
        Mr. Powell. You know, there are a lot of adjectives and
    adverbs in there that you wouldn't see in Fed world, but the--
    --
        Senator Menendez. Take out the adjectives and give me on
    the substance.
        Mr. Powell. Yeah. The story is, I think, broadly that there
    was a very significant increase in the size of the workforce
    last year, and it was happening all during the year, and we
    were wondering what it was.
        And the answer was it was really two things. It was labor
    first participation, but it was also immigration. And if you
    look at the Congressional Budget Office numbers, it kind of
    makes sense because there was a lot of growth, wages were
    coming down, the economy is bigger, and those are probably in
    part effect.
        This is without making any judgments on immigration or
    immigration policy, but I think that's an economic fact.
        Senator Menendez. I'm not suggesting that. I'm just
    suggesting the facts are that we had 10 or 11 million jobs that
    were going unfulfilled in our economy. They lacked the
    productivity that is necessary for success economically. And as
    part of that, clearly, immigration helped fuel part of our
    revival coming out of the pandemic.
        In fact, those were the people who were the essential
    workers when the rest of us were staying home. So I agree we
    need to do what is necessary to have a regularized border, but
    I also think that just to create the context of immigration as
    a scourge is absolutely wrong.
        Let me turn to another question. In my view, the sticky
    inflation we've been seeing in the housing sector is
    principally due to the massive nationwide housing shortage. The
    Fed's Monetary Policy Report attributes the shortage to
    restrictive zoning, high interest rates, and tighter
    underwriting by banks. I would also add to that list
    underfunding of key HUD programs that shore up and expand our
    supply of affordable housing. If the housing supply shortage
    continues to grow, are we likely to see continued housing
    inflation?
        Mr. Powell. Yes, we are.
        Senator Menendez. And housing's already becoming less and
    less affordable for low- and middle-income Americans. According
    to the National Low Income Housing Coalition's 2023 Out of
    Reach report, a worker earning the minimum wage in New Jersey
    would have to work two full-time jobs to afford a modest one-
    bedroom rental home at fair market rate. Do you agree that
    increasingly unaffordable housing is a problem for the economy?
        Mr. Powell. I think there are two things going on. One is a
    longer-term housing shortage, and the other is the pandemic
    effects and the associated higher interest rates, which are
    things that will pass through. When all that passes through and
    rates are normalized, we'll still have the underlying housing
    shortage and it's going to be causing upward pressure on
    housing prices.
        Senator Menendez. Now, the Monetary Policy Report noted
    that, ``Home purchases by low-income households have fallen
    disproportionately more because mortgage lenders impose
    maximums on the ratio of a borrower's debt service payments to
    the borrower's income.''
        I'm worried about how this dynamic will interact with the
    recently proposed capital requirements proposal, which
    according to analysis from the Urban Institute, would
    disproportionately the cost of mortgages for Black, Hispanic,
    and low- and moderate-income borrowers.
        Given this, isn't there a risk that if the capital rules
    implemented without changes, that it could make it even harder
    for disadvantaged borrowers to attain home ownership?
        Mr. Powell. There is a risk like that, and we're very
    focused on it.
        Senator Menendez. And hopefully you're working to mitigate
    it?
        Mr. Powell. Yes.
        Senator Menendez. Thank you, Mr. Chairman.
        Chair Brown. Senator Rounds from South Dakota.
        Senator Rounds. Thank you, Mr. Chairman.
        Chairman Powell, welcome back. Look, first of all, I've
    appreciated the way that you've approached the discussions in
    front of this Committee, and I understand your desire to stay
    as neutral as possible with regard to the politics involved in
    an election year. But I do have some questions here
    specifically with regard to the Basel III Endgame proposal.
        An analysis of that proposal found that 97 percent were
    either opposing it or expressing substantial concerns. In the
    hearing last March on the Monetary Policy Report, you stated
    that the Federal Reserve is a consensus organization, and you
    said, and I quote, ``I will do everything I can, possibly, do
    to bring people together in consensus and have a capital
    framework that could be broadly supported.''
        My question to that is, do you currently believe that there
    is a consensus on this capital framework?
        Mr. Powell. I believe that we will have one. I'm fairly
    confident that we will have such a consensus when we do move
    forward.
        Senator Rounds. So we could expect that you will probably
    not call a vote on the proposal until you believe that there is
    a consensus?
        Mr. Powell. I think that's right. I mean, we're just in the
    process of digesting the comments and then making the
    appropriate changes.
        Senator Rounds. Thank you. As you are aware, I've waited
    several times on the concerns that I have with regard to Basel
    III Endgame, including I'm concerned about the lack of
    transparency, the negative effects on mortgage lending and home
    affordability by disincentivizing banks from offering high loan
    to value loans that primarily help first-time home buyers and
    low to modern income borrowers.
        I'm concerned that the proposal will make buying a home
    harder than it already is for many, and further down the road,
    I fear that it could disincentivize mortgage lending from the
    largest banks, particularly with regard to the secondary market
    and their impact on even smaller banks that do business with
    them.
        Would you be willing to withdraw the proposal or re-propose
    with significant modifications, particularly addressing the
    concerns that I and others have on this Committee raising,
    specifically, with regard to the impact? And I'm thinking of
    Freddie and Fannie, in particular, and what the impact might
    be. What would you see as the process involving those
    particular issues?
        Mr. Powell. So on those issues, we're well aware of and
    very focused on those issues. We haven't decided what to do
    about that yet, but we get it on those issues.
        In terms of process, we're not at the stage of making that
    decision. I will say, if it turns out to be appropriate when we
    get to that point for us to re-propose parts or all of the
    thing, then we won't hesitate to do so.
        Senator Rounds. OK. Thank you. It makes me feel a little
    bit better because I do think there are some very serious
    problems that would occur if the Basel III Endgame as proposed
    goes into effect. And most certainly, am hoping that the
    Federal Reserve will find a consensus on this, and it sounds
    like that may very well include some significant modifications
    if it were to be brought at all. Is that a fair statement?
        Mr. Powell. I expect there will be material and broad
    changes to the proposal before it comes back to the Board for
    consideration.
        Senator Rounds. Thank you, sir. With regard to the economy
    today, a limited level of price growth is believed to help
    facilitate economic expansion, reduce the risk of recession,
    and help businesses and consumers' plan. However, during the
    Biden administration, we saw inflation climb to 13 percent, and
    those prices are now the new norm.
        I know that you make it a policy not to comment on the
    Administration's fiscal policy, but it is well known that--I
    really do believe that high inflation and high prices have been
    a direct result of President Biden's policies, failed in many
    cases, and that the Federal Reserve has, and that the Federal
    Reserve has limited tools to address some of the problems that
    these policies created.
        We talk about supply side versus demand side on these
    costs. What have been some of the unintended consequences from
    raising the Federal funds rate as rapidly--as you felt that you
    had to as the chair and as the Committee--I know that we talked
    a little bit about SVB and the failure there, their inability
    to look at treasuries and the increasing interest rates and so
    forth.
        But can you talk a little bit about some of the things that
    you've seen that were negative with regard to trying to respond
    to those high inflation rates?
        Mr. Powell. Yes. So high interest rates are hard for
    businesses. They're hard for people. They're the tool that we
    have to use to bring inflation down. And our job at this time,
    when high inflation comes, it is the Fed's job to restore price
    stability. And that's what we're doing.
        You point to the losses in banks. That was a very
    substantial thing, and obviously the supervisors, and that was
    us, you know, didn't get to that problem. We were aware of it,
    but we didn't probably appreciate it enough.
        Another surprise, though, is that we were able to get this
    far and get inflation down this quickly without seeing a big
    increase in unemployment, and that's just a great result.
    That's just a surprise. It's not consistent with the historical
    record, but it's a really positive thing.
        Senator Rounds. Thank you. And I just know that the only
    tools you got available were demand side tools.
        Mr. Powell. Yeah, that's right.
        Senator Rounds. Thank you. Thank you, Mr. Chairman.
        Mr. Powell. Thank you.
        Chair Brown. Senator Warner of Virginia is recognized.
        Senator Warner. Well, thank you, Mr. Chairman. Chairman
    Powell, it's great to see you. You know, I would point out to
    my good friend from South Dakota, I do think, you know, if we'd
    gone back 1 year to 18 months ago, nobody would've predicted
    the soft landing.
        And I know you're not ready to declare victory by any
    means, but the fact that inflation has come down, and I
    actually think some of the things like the CHIPS Bill, the
    Infrastructure Bill, and some of President Biden's policies
    have actually kept the economy growth rate at the levels that
    have allowed you to bring down inflation without seeing a
    dramatic rise in unemployment. And again, that'll be something
    we'll probably have the opportunity to litigate over the next 8
    or 9 months.
        I want to take my time on issues around less about monetary
    policy and more about regulation. You know, I think we can
    never presume that we're out of the woods on financial
    stability as we saw with the New York Community Bank yesterday,
    the stock plunge and the capital infusion. You know, one area
    that I raised with you a year ago and I'm going to reraise
    today, and that is nonbank lending.
        The fact that nonbank lending to non-financial firms now is
    actually exceeding regulated bank lending. And let me be clear,
    you know, the nonbank financial sector has done productive
    things in our society over the years. But when folks like
    former New York Fed President, Dudley, and former Fed Governor
    Grosvenor recently said that they had worries about this
    reliance on the nonbank financial sector could lead to overall
    economic lack of stability, I guess, what do you think--I've
    got a three-part question.
        What do you think are the risks as we see this push-out
    effect of more and more lending going outside the regulated
    perimeter to the nonbank sector? How much do we really know
    about these institutions? And one of the things, they have very
    smart, sophisticated investors, but one of those very smart,
    sophisticated investors said, ``Well, hey, we don't like the
    lending profile right now, and we want you to not make any
    additional loans for the next 6 to 9 months.'' Do you think our
    system would be able to pick up the slack?
        Mr. Powell. So we have the regulated banking system where
    you've got a lot of transparency, you've got deposit insurance,
    you've got access to the discount window and all those things;
    regulation. If you go outside that, most of the funding that we
    see now in these vehicles is sophisticated investors who are
    actually limited partners, meaning they can't pull their money
    out. They've signed a contract. They've funded these deals.
        And so, what you see now in the nonbank financial sector is
    significantly that kind of thing. So it doesn't have the run
    risk. The point is, the bigger it grows and the more diverse it
    gets, it is happening outside the regulatory perimeter. And you
    worry that when there is another crisis, you'll be surprised,
    but there'll be ways that that financial structure too can
    break down, and it does break down, in ways we don't
    anticipate.
        So I think we need to be smart about the way--
    intermediation is absolutely moving out of the banks into the
    capital markets and into nonbank financial institutions. That's
    what's been happening for a long, long time. I just think we
    need to be thoughtful about understanding where the risks are
    emerging.
        Senator Warner. And that sophisticated investor may
    rightfully say, hey, we don't want you to lend anymore for a X
    period of time. But that may then, at that moment of crisis,
    mean that the lending capabilities completely dry up.
        And one of the things I never completely understood until I
    got a little better explanation recently, why the large,
    regulated banks weren't more complaining about this nonbank
    lending. But as I got to understand a little bit more of the--
    and again, I'm not per se criticizing on the nonbank lending,
    but many of the regulated banks actually lend to these large
    institutions. So they make money off of those relationships,
    and maybe that's, again, an explanation of why they're not
    being more critical.
        I only got 40 seconds left, but I would like to come back
    to another thing that we've talked about a lot, and that is the
    question of use of the discount window. I believe one of the
    original tools that the Fed had I know banks say, well, we're
    concerned about the stigma. I've got some legislation that
    would actually require mandatory use of the discount window.
    I'd love your comment on that.
        And also, just the idea that having the mechanics of the
    discount window open, potentially even 24/7, because we saw
    with SVB, they won, they didn't know how to use it. But two, if
    they wanted to use it in the nonbank hours, could they get
    access?
        Mr. Powell. There's a lot of work to do on the discount
    window. You're absolutely right. It needs to be brought up
    technologically into the modern age. We need to do more to
    eliminate the stigma problem. And we need to make sure that
    banks are, you know, actually able to use it when they need to
    use it. And, you know, that's a broad work program that we're
    on right now, and it's very important.
        Senator Warner. I know you're working on it, but I would
    look forward to working more, and I'd invite other colleagues.
    I really do think before we start adding a whole host of other
    regulatory issues, we ought to use some of the tools that are
    out there.
        Chair Brown. Senator Tillis of North Carolina.
        Senator Tillis. Welcome, Chair Powell, and Gus sends his
    regards. If you have time after the hearing, you ought to go by
    and see him. He's a dog in our office, but----
        Mr. Powell. I don't want to disturb his nap.
        Senator Tillis. But thank you for being here. I want to get
    back on this Basel III proposal. Senators Lummis, Coons,
    Gillibrand, and I, sent a letter indicating our concerns with
    the current proposal, but I think it's also worth noting that
    the number of other organizations, a diverse group that are not
    normally aligned on policy. You've got Bank Trades, National
    Housing Conference, NAACP, Habitat for Humanity, National
    Community Reinvestment Coalition, the list goes on, who have
    concerns with the current proposal.
        Here's my concern. I think we're trying to make the best of
    what was foundationally a bad proposal. And so, I'm in the
    category of people who think that it should be re-proposed,
    because I think one of the reasons why I did not support Mr.
    Barr's nomination is I felt like we were going to be here.
        I mean, it was pretty clear to me before he ever got
    confirmed on the Board that we were going to be in this place
    some months or years later. And here we are. And I think that
    the industry felt the same way. All of these stakeholders, some
    of them are in banking trades, some of them are on the other
    side of the spectrum.
        So, I'd like to cast my vote or provide some weight to the
    idea that we should re-propose it. And what we ought to do is
    talk about the reality of increasing capital, or that the
    prospect of increasing capital requirements doesn't concern me.
    I think the prior Fed supervisor made comments publicly that
    maybe we needed to raise capital standards.
        But what we did here in this proposal, and I heard in that
    dialog, is let's deal with puts and takes. Let's talk about
    raising capital requirements, but let's also talk about
    reducing the cost of the regulatory burden today if we can do
    it responsibly.
        There's no evidence of that in the current proposal, and I
    think that that may actually produce a different set of
    comments that would be instructive to a final proposal that I
    think realistically will include some increasing capital
    requirements.
        So over what time horizon do you think we would expect to
    either try to make the best of this foundation, or go back and
    take a look at it at a new foundation and re-propose it?
        Mr. Powell. You know, we're going to work through it as
    quickly as we can and should. I will say it's more important to
    get it right than it is to do it fast. We're not in a hurry,
    but my guess is we'll work this out over the course of this
    year.
        Senator Tillis. Yeah. Well, you know, if you take a look at
    the outsized cost of operational risks, the long list of
    concerns that I have publicly and privately expressed on the
    current proposal, I do think sometimes it's easier to knock
    down what I think is a poor foundation and build a better
    house. So again, just wanted to make that comment publicly.
        The question about shrinkflation. I tell you some of these
    words that we come up with. But, you know, President Biden's
    using the idea of shrinkflation and you know, chastising
    manufacturers for creating smaller portion sizes for potato
    chips--I'll use that as one example.
        But if you have rising input cost, and you're not able to
    control that, and you're in a marginal business to begin with,
    and now you're saying you can't even reduce the quantities, how
    does a business that's not making a profit make that work?
        Mr. Powell. I mean, we see inflation at the aggregate level
    as a mismatch between supply and demand. And as we've seen
    supply get better, and we've seen demand cool off a bit--it was
    very hot coming out of the pandemic. We've seen inflation
    coming down.
        Senator Tillis. We saw food inflation between 2010-2021 at
    18 percent over 11 years, and over the last 3 years, we've seen
    it at 21 percent. I think that we have an industry that's
    trying to actually provide products that that consumers want,
    and now they're being chastised for trying to figure out how to
    make the numbers work.
        So this whole idea of shrinkflation is just confounding to
    me. I'm going to submit some for the record. I want to stay on
    time.
        But I have a question. I think the Chair mentioned, and if
    I misunderstood this I'm sure the Chair will clarify, but I
    thought in his opening comments he suggested that stock
    buybacks and paying out dividends were a key factor in
    inflation. Do you, as just a matter of policy, see stock
    buybacks and dividends is one of the top five reasons we're
    experiencing the inflation when we have right now?
        Mr. Powell. First, I guess I see stock buybacks and
    dividends as just the same thing in a different form. And I
    don't know, I wouldn't comment on anything that the Chair even
    may have said. I'd like to avoid that.
        Senator Tillis. I'm not going to ask you about policy
    because I think you're consistent on that, but I just can't
    imagine that if we decided to outlaw stock buybacks and
    dividend payments, that would have a material effect on
    inflation.
        So, I'm not going to ask you to respond to that, but there
    are some people that by inference you could assume that they
    think that that would be helpful. For one, I'm not an
    economist, but I just can't imagine that it would be, you know,
    one of the things that would make your job easier. Can you at
    least opine on that?
        Mr. Powell. Banning stock buybacks and dividends?
        Senator Tillis. Yeah.
        Mr. Powell. Yeah. I think that would be quite a change in
    our capital markets.
        Senator Tillis. Me too.
        Mr. Powell. I mean, this is just money going back to
    shareholders from companies----
        Senator Tillis. Me too.
        Mr. Powell. ----that have nothing to do with it.
        Senator Tillis. Thank you, Mr. Chair.
        Chair Brown. Well done, Senator Tillis. Senator Smith of
    Minnesota is recognized.
        Senator Smith. Thank you, Mr. Chair, and thank you Chair
    Powell. It's great to see you here, again. I appreciate your
    testimony, and I'm going to focus my questions on housing and
    housing affordability.
        As you have well pointed out, overall, prices have
    moderated considerably since the Fed began raising rates. Yet,
    housing costs have remained stubbornly resilient or high
    leaving us really no closer to addressing the affordability
    crisis that I think that we have, and was there well before the
    pandemic.
        Shortly before the Fed began tightening, Chair Powell, and
    you came before the Committee, I asked you about how higher
    interest rates could exacerbate this unaffordability problem
    that we have by making mortgages more expensive and also
    hindering housing development. And I think that at the time you
    argued that we have excess housing demand during the pandemic,
    and that was kind of at the root of higher costs, and that your
    goal, the Fed's goal, was to bring demand closer in line with
    supply.
        So, my first question is this. So the housing market has
    cooled significantly over the last 2 years. Is it your view
    that it is cooled enough so that housing supply and demand is
    better in balance? And following on that, you know, given the
    Fed's limited tools, understanding that, at what point will you
    think that you've done all that you can to lower housing
    demand?
        My view is that we're well past time in Congress to take
    action on the housing supply side, but I'm interested in how
    you see this dynamic.
        Mr. Powell. So, you know, we're not focused so much on
    housing and housing inflation. We're really focused on the
    aggregate, which is also goods and our non-housing services.
    That's way more than half of PCE inflation. There are things in
    the housing sector that we didn't fully anticipate. One of them
    was just that people in very low interest rate homes, with very
    low interest rate mortgages aren't selling.
        Senator Smith. Right.
        Mr. Powell. So the quantity of homes that's available is
    incredibly low, and that's why there's very little in the way
    of existing home sales. And that drives up existing home sale
    prices, but also new home sale prices. So again, there's two
    sets of factors. There's the longer-run issue, and then there's
    the factors associated with the pandemic, and the inflation,
    and our response to it. I think as the overall inflation
    continues to come down and rates then come down, you'll see the
    housing market start to heal and get better, and housing
    affordability should go up again. But you're still going to be
    left with the longer-term problem of supply.
        Senator Smith. Right. I think that's right. I mean, what I
    see in Minnesota is that higher interest rates are of course,
    driving up the cost of construction. They're driving up the
    cost of mortgage rates. You're seeing people who aren't leaving
    a house that maybe is a little too small for them because they
    can't afford it. You know, just as you're saying, people are
    staying in there and their homes longer. And so there's sort of
    this double whammy of construction slowing at the same time
    that there is this great need to address housing supply.
        One of the things that you know, is happening, it's
    interesting, a recent analysis by Zillow found that the monthly
    mortgage payment on a--let me get this right. A recent analysis
    by Zillow found that the monthly mortgage payment on a $343,000
    home, assuming 10 percent down payment, is about $2,200 a
    month.
        OK. So, $2,200 a month. That means the cost of owning a
    typical home is higher than 30 percent of median income, which
    is kind of the measure of affordability. And so, we've got a
    lot of issues with people just being priced out of the home of
    the housing market.
        So from where I sit, the cumulative issues of higher
    mortgage rates are just really a challenge, and until we can
    get to the bottom of that, we're going to have a hard time
    addressing the housing affordability challenge that we have.
        Would you like to comment on that?
        Mr. Powell. Yes. I agree with all of that. I mean, we don't
    actually--home prices don't actually go into the calculation of
    inflation. It's really rents and----
        Senator Smith. Right.
        Mr. Powell. ----owner's equivalent rent. But I agree the
    housing market is in a very, very difficult situation. And, you
    know, the sooner we can get back to price stability and restore
    interest rates to lower levels, the sooner it can start
    healing.
        Senator Smith. Yeah. Thank you. Thank you, Mr. Chair.
        Chair Brown. Thank you, Senator Smith. Senator Kennedy of
    Louisiana is recognized.
        Senator Kennedy. Mr. Chairman, thank you for being here.
    Thank you for your service. I think I've said before, I believe
    you and your team probably saved the world economy during the
    pandemic economic meltdown when the whole world wanted dollars
    by establishing the currency swap line. So, I thank you for
    that.
        You gave an interview, Mr. Chairman, on February 4th of
    this year to CBS, 60 minutes, I think. Is that right?
        Mr. Powell. Yeah.
        Senator Kennedy. I ordered a transcript of that hearing,
    which I read. I learned a lot reading it. You were asked a
    question about inflation, and you were asked a question about
    prices declining. And here was your response. I'd like to quote
    you, if that's OK. ``So the prices of some things will decline,
    others will go up, but we don't expect to see a decline in the
    overall price level. That doesn't tend to happen in economies
    except in very negative circumstances.''
        Did I quote you accurately?
        Mr. Powell. I believe you did.
        Senator Kennedy. OK. Later in the interview, you were asked
    about the national debt. Do you recall that?
        Mr. Powell. I don't actually, but I'm sure that's right.
        Senator Kennedy. OK. Well, at least according to the
    transcript, your answer was, and again, I'm quoting you, ``In
    the long run, the United States is on an unsustainable fiscal
    path. The U.S. Federal Governments on an unsustainable fiscal
    path, and that just means that the debt is growing faster than
    the economy. So it is unsustainable.'' Do you remember saying
    that?
        Mr. Powell. I've said that many times. I think that's
    uncontroversial.
        Senator Kennedy. OK. Later in the interview, you said, I
    want to quote, ``You know, I would just say this, integrity is
    priceless. And at the end, that's all you have. And we plan on
    keeping ours.'' Is that an accurate statement?
        Mr. Powell. Yes, it is.
        Senator Kennedy. OK. That's why I want to ask you about the
    FDIC. Have you read the article in the Wall Street Journal
    entitled, ``Strip Clubs, Lewd Photos, and Boozy Hotel: The
    Toxic Atmosphere at Bank Regulator, FDIC''.
        Mr. Powell. I think I did read that a couple months ago.
        Senator Kennedy. Did you read the article entitled, I quote
    again, ``FDIC Lawyer Stayed on Paid Leave for Weeks After Child
    Porn Arrest''.
        Mr. Powell. I don't remember that one.
        Senator Kennedy. OK. Did you read the article entitled,
    also in the Wall Street Journal, quote, ``FDIC Chair Known for
    Temper Ignored Bad Behavior in Workplace''.
        Mr. Powell. I read so much. You know, I can't--I remember
    the broad story, but not particular stories.
        Senator Kennedy. Did you read the article in which a former
    female employee of the FDIC allegedly recalled her male
    colleagues saying women needed to use sex to get ahead at the
    FDIC?
        Mr. Powell. I do not recall that. No.
        Senator Kennedy. OK. Did you read the article in which a
    female risk management examiner during a lunch with a male
    examiner said she had become friendly with that examiner, and
    he complained to her about his marriage, allegedly telling her
    he wasn't getting enough sex. And she allegedly said,
    ``Obviously, if I walked --'' or he allegedly said,
    ``Obviously, if I walked into this office and you were naked,
    I'd fuck you right here.''
        Mr. Powell. I do not remember that, and I think I would.
        Senator Kennedy. OK. Do you remember the article about Mr.
    Randall Ditch, a supervisory examiner in Denver who allegedly
    was demoted in 2014 to a non-supervisory examiner position in
    Tulsa after having sex twice with a subordinate female
    employee, and a number of other rule violations?
        In this article, it says, allegedly, Mr. Ditch had urged
    the woman, ``Do not be a pussy,'' and drink a shot of whiskey
    during work hours, the records show. Do you recall that at all?
        Mr. Powell. I do not recollect that.
        Senator Kennedy. OK. Here's my question, I could go on for
    a while----
        Chair Brown. You could go on, but you're not going to go
    on. So you've passed your 5 minutes. Do your question once.
        Senator Kennedy. Sir?
        Chair Brown. Senator Kennedy, your time is already expired.
    You can do one. You did 5 minutes. Consumed the whole 5 minutes
    with your monologue of----
        Senator Kennedy. Well, you did 6 minutes. I timed it.
        Chair Brown. I asked my----
        Senator Kennedy. You did 6 minutes.
        Chair Brown. Senator Kennedy, for months I have let you go
    way over the 5 minutes. You get your question----
        Senator Kennedy. But you did 6 minutes.
        Chair Brown. I Chair this Committee.
        Senator Kennedy. I understand. You still did 6 minutes.
    Check the record.
        Chair Brown. I'm going to order you--you're going to be at
    6 minutes and 15 seconds if you continue this argument, or
    you're going to ask your question.
        Senator Kennedy. I'll ask my question. I just wanted the
    record to be clear, Mr. Chairman.
        Mr. Chairman, in light of these allegations, if they're
    proven, how can the FDIC lead this charge for Basel III
    Endgame, which is going to turn the banking community upside
    down?
        Mr. Powell. I don't know how I would make the connection to
    Basel III. I'll say it's deeply troubling things, obviously,
    but again, you know, as you point was, if proven, and I mean, I
    think we have to decide Basel III on its merits. And we're not
    looking to the FDIC to lead this, by the way. We're looking at
    the Fed to do what the Fed thinks is right. That's what we're
    going to do. We don't look to, and they don't look to us to
    lead them.
        Chair Brown. Thank you, Chair Powell. Senator Butler is----
        Senator Kennedy. Thank you----
        Chair Brown. ----recognized.
        Senator Kennedy. ----Mr. Chairman.
        Mr. Powell. Thank you.
        Chair Brown. Senator Butler is recognized.
        Senator Butler. Thank you so much, Chair, and Chair Powell.
    Good to see you in person, and thanks for the time to talk.
        I want to pick up a little bit where Senator Smith was in
    relationship to housing, housing affordability, and hopefully
    draw a little bit on the point that you were making about
    rents. It definitely is an important crisis in my State of
    California, and I know across the country where, at least,
    according to the California Department of Housing and Urban
    Development, renters in San Diego are paying about 50 percent
    of what is--they're spending more than 50 percent of what is
    considered affordable.
        And statewide, the majority of renters, more than 3 million
    households, are spending more than 30 percent toward rent.
    Nearly one-third, more than 1 in 5 million households pay more
    than 50 percent of their income toward rent. And the Chicago
    Fed President, Goolsbee, even referred to housing as a missing
    piece of the puzzle in the Fed's path to lower inflation.
        So to the continued conversation, and I know a point that
    you've made that about how inflation has a disproportionate
    impact on lower income households who are focused on spending
    more of their monthly budgets on housing, how is the Fed's
    monetary policy impacting the supply of affordable rentals?
        Mr. Powell. I don't know that we're affecting the supply of
    affordable housing. If you think of affordable housing as
    something that's connected to some sort of Government program,
    that's not our bailiwick. I mean, our interest rates do affect
    the affordability of housing, though.
        Senator Butler. And there was a key point that you made in
    an earlier, I think, reference about--and in your response to
    Senator Smith about the monetary policy and the calculation of
    rents. Can you just spend a couple--just briefly talk about
    that? I want to have one last issue I want to get to before I
    run out time.
        Mr. Powell. It's hard to talk about it briefly. It's
    actually very conceptually challenging to think about housing
    inflation. Do you include the cost of financing it? Do you
    include the sale prices? And the answer is, we don't. We
    convert ownership into an imputed rent, and that's two-thirds
    of homes are owned, and then we actually measure rents. But,
    you know, leases only turned over once a year. So you look at
    market rents, and then, you know, what's happening with newly
    signed leases, maybe very different from what was happening a
    year ago.
        So it's complicated, but the good thing is it, we
    understand all that, and we look through that. We look at
    housing services overall as one of the three important
    categories, along with non-housing services, and goods
    inflation.
        Senator Butler. Thank you for that. And in the line of
    affordability and housing, again, sort of very general, I
    think, to the broad monetary policy and state of our economy
    and unique to California--and I raised this with Secretary
    Yellen when she was here as well. The insurance gaps that are
    presenting themselves due to the impact of climate change, and
    where 1 in 5 residents in California live in areas of that risk
    flooding. And all 58 counties have a history of flood damage.
    And we are seeing more and more home insurance providers,
    actually withdrawing from, from the State.
        You and I had talked a little bit about this in our
    preparation for today's conversation. Can you talk to me about
    or share with us how it is that you--or what you think the
    impact might be of this sort of protection gap in insurance
    coverage on the overall stability of financial institutions in
    the broader economy?
        Mr. Powell. So it is clear that insurance of various
    different kinds, housing insurance, but also automobile
    insurance, and things like that, that's been a significant
    source of inflation over the last few years. And it's to do
    with a million different factors. It's nothing that we control
    from a regulatory or a supervisory standpoint.
        You know, in the longer-term, companies are withdrawing
    from writing insurance in some coastal areas. And you've got to
    think 10 years from now, how are you going to get housing
    insurance? And, you know, maybe the Government will have to
    step in, but it's a significant issue.
        Senator Butler. Thank you, Chair Powell.
        Mr. Powell. Thank you.
        Chair Brown. Senator Vance of Ohio is recognized.
        Senator Vance. Thanks, Mr. Chair, and my gratitude to you
    and the Ranking Member for doing this hearing. And thank you
    Chairman Powell, for being here. It's good to see you, again.
        I think these hearings are always very important. Actually,
    gives us an opportunity to sort of provide some oversight to
    what's going on with the Fed, and better understand some of the
    things that you guys are doing that affect our constituents.
        And I wanted to sort of focus on the Basel III regulations,
    Chairman Powell, and specifically, the way that there have been
    various proposals to sort of draw them down to focus on the
    regional banks. And to just go back to sort of one of the most
    significant crises, obviously in our banking sector, of course,
    the collapse of SVB and First Republic.
        You know, you and I have spoken in private, and I believe
    in public, but one of the concerns that I have is when we talk
    about increasing capital requirements on the banks, if the
    banks were under higher capital requirements in the run-up to
    the crisis, there's maybe an argument that SVB, for example,
    would've bought more long-term treasuries which, of course,
    would've exposed their balance sheet to even more treasury bond
    risk. And that, of course, would've maybe hastened the collapse
    of SVB.
        And, I guess, I want to start here with, you know, when we
    talk about some of the Basel regulations, what was the original
    intent? In other words, what was the original sort of proposal
    for which banks would fall under those regulations in which
    would escape them?
        Mr. Powell. You mean this time around or earlier on?
        Senator Vance. This time around.
        Mr. Powell. So it's the 37 largest banks. Well, there's
    four categories of banks, including the G-SIBs, and this is
    down through the fourth category. The proposal that's out there
    now, I think, does extend to category 4, as well as 3, 2, and
    1.
        Senator Vance. So what's the minimum assets under
    management that you guys have proposed under----
        Mr. Powell. $100 billion.
        Senator Vance. ----the current Basel regulations?
        Mr. Powell. $100 billion.
        Senator Vance. $100 billion.
        Mr. Powell. Yeah.
        Senator Vance. And sort of that sort of gets to my concern
    here because I know there's some discussion about whether you'd
    apply them at $700 billion of AUM or $100 billion of AUM. And
    maybe you could just sort of walk me through that decision
    process at the Fed, where you guys are, and what would sort of
    justify drawing down from a $700 billion threshold to $100
    billion threshold?
        Mr. Powell. So there's the G-SIBs. There's----
        Senator Vance. Of course.
        Mr. Powell. ----the eight identified G-SIBs, and then
    there's one category 2, I guess, and then there are the big
    regionals. And those tend to be, you know, big regional banks,
    and they're category 3, and one of them is a 2, I guess. But
    they have a different tailored level of regulation. Then
    category 4 had significant tailoring.
        And the question is, you know, we have to ask the question,
    since SVB was a category 4, we've got to ask the question what,
    if anything, needs to be changed in the way they were
    regulated, supervised from a capital liquidity standpoint.
        So there was tailoring all the way down. And then below
    $100 billion, of course, those are community banks, and that's
    a different regime as well. This makes sense. We want to have a
    diverse banking sector that's a great benefit to our country
    and very unusual for an advanced economy. So it's something we
    want to preserve.
        Senator Vance. Yeah. And I'm sure you know, Chairman
    Powell, but just to put this on the record, I mean, a lot of
    the commercial lending, a lot of the real estate lending, a lot
    of the consumer lending, about half of that lending, consumer
    lending is provided by the regional banks. I believe the
    Huntington in my home State of Columbus is the number one SBA
    lender in the entire country.
        So to your point, I think these do provide incredibly
    important benefits to our economy. And, you know, you hear a
    lot of people talk about the American economic miracle, and I
    do wonder if part of that is because we don't have the same
    type of financial system that has sort of dominated in Western
    Europe and other First World economies.
        I'm curious, in the process of amending the Basel
    requirements, I mean, have you guys made a decision about where
    to set the threshold yet, and when do you expect to set that
    threshold?
        Mr. Powell. We haven't made any final decisions. We put out
    for proposal some months ago, a proposal, and we've gotten a
    lot of comments, as I'm sure you're aware. We're chewing
    through those and digesting them, and we're just at the
    beginning now to sit down and talk about the changes that we
    will appropriately make to the original proposal.
        Senator Vance. And when do you expect to sort of issue a
    final proposal?
        Mr. Powell. I think it's going to take some time. I think
    it's more important to do it right than it is to do it fast. My
    guess is we'll get through this and be done over the course of
    this year, but it could be faster than that. It could be slower
    than that.
        Senator Vance. So I'm wondering, just being mindful of
    time, I have about 30 seconds left. Would you be willing to
    commit to say that in the process of amending, the Fed will
    remove the regional bank draw down and limit Basel's
    application directly to the G-SIBs, or $700 billion, or above?
        Mr. Powell. I can't get that specific at this point, but,
    you know, we're clearly looking at the whole tailoring issue.
        Senator Vance. OK. I appreciate that. And again, I just
    repeat, Chairman Powell, given what actually happened with the
    banking sector with SVB and First Republic, I just encourage
    you guys not to apply a regulation that doesn't actually solve
    the underlying problem. I fear that if you apply this to banks
    of $100 billion dollars and above, you actually are doing just
    that.
        So with that in mind, I'll yield. Thanks, Mr. Chair.
        Chair Brown. Thanks, Senator Vance. Senator Tester of
    Montana is recognized.
        Senator Tester. Yeah. Thank you, Chairman Brown, and thank
    you for being here, Chair Powell. We appreciate your work in a
    difficult situation, but I think you've done a really good job.
    And so thank you for that.
        The success at the Fed on your mandate for strong
    employment and stable prices is critical for small businesses,
    on Main Street, for farmers, for ranchers, for Montana
    families. You follow all the metrics. From your perspective,
    where is the economy at now, and where's it going?
        Mr. Powell. You know, the economy's growing at a healthy,
    sustainable, solid, strong pace. And that's one thing. Second
    thing I'd say is the labor market is very strong and quite
    tight still. 3.7 percent unemployment for the last 24 months.
    That's the longest period since, you know, 50 years. And the
    third thing is inflation. Inflation was too high. It's come
    down very sharply since the beginning of last year. If you look
    at the 12-month number, the headline number has come down from
    the 5s down to 2.4. And the core number is at 2.8. I think it
    was at 4.9 a year ago.
        So these are big declines. So we're in a very different
    place and a healthy place. We are going to use our tools to try
    to keep that strong economy, keep that strong labor market
    while we continue to make progress on inflation.
        Senator Tester. One of the areas where there has been
    inflation, and I don't exactly know where it's at now, but food
    rose quite rapidly. And by the way, I'm a farmer. We didn't get
    much of that. In fact, we didn't get any of it. Prices now
    compared to what they were a year ago are actually off compared
    to whether 6 years ago, they're up, but compared to whether a
    year ago they're down.
        And so my question to you, Chairman Powell, is there
    anything you can do specifically to deal with food costs as the
    Fed?
        Mr. Powell. I'm telling a farmer his business, but if you
    look at the food cost to the consumer, part of that is
    commodity costs. And that was partly spiked as, you know,
    because of Ukraine; grains and oil and that kind of thing. But
    the rest of it is a lot of costs in the supply chain from when
    it leaves the farm to get, you know, collected, and processed,
    and trucked around, and then put on the shelves, and then the
    stores.
        You know, and all those costs are just part of the general
    economy. So as the labor market cools off from its overheated
    status 2 years ago, you will see, and you have seen, you know,
    food inflation flattening out. And so, you know, the really
    high rates of inflation have come down. The prices, of course
    have not.
        Senator Tester. Correct. I would just say that cattle's
    doing better. Grain actually has dropped in price at the farm
    gate, and I don't want to get into that debate with you at all
    because we probably agree, but it'd take too long, take too
    much time. We got other stuff to talk about.
        Mr. Powell. I'd be learning from you.
        Senator Tester. You've discussed in previous hearings the
    impacts that the pandemic shut downs and supply chain issues
    have had on economies globally. How does the U.S. economy look
    today compared to our competitor Nations, particularly China?
        Mr. Powell. Well, I start with the advanced economies. You
    know, we're doing the best of anybody. We've got the strongest
    growth and the lowest inflation of the advanced economies.
    China is a whole different story. China's having, you know,
    significant difficulties with its economy right now, and
    they're in a very different place, certainly, than we are.
        Senator Tester. And so to repeat that, what I heard you say
    is that the economy of the United States is basically in better
    shape than any other economy in the world.
        Mr. Powell. Any other major economy. Yes.
        Senator Tester. OK. Look, one of the other challenges out
    there is housing in communities all across this country,
    whether you're in Montana, whether you're in a city in Ohio.
    Workforce housing in particular is a top priority, top
    commodity, so to speak. Plenty of folks, great organizations
    are working to address this. I meet them every day, and I
    appreciate the work they're doing. But how do these housing
    supplies issues show up in the data that the FOMC uses to make
    decisions?
        Mr. Powell. So housing prices don't go into the data.
    Housing stats, and renovations, and things like that are just
    business activity and that shows up. But when it comes to
    inflation, we convert ownership into an imputed rent, and then
    we look at rents. That's how we look at all that. So, we're not
    directly affected by changes in housing prices, but over time,
    those will drive rents up.
        Senator Tester. So is it fair to ask, are there economic
    trends that you see for housing?
        Mr. Powell. Yes. So there's two big things going on. One is
    we have this underlying shortage of housing, and it's due to
    things like, you know, difficulties of zoning, a lot of them
    close in to cities, places that are already built, and so more
    difficult to get zoning, more difficult to get people and
    materials, and all that. That's one thing, and that's not going
    away.
        Then there's just a ton of things happening because of the
    pandemic, because of inflation, because of higher rates. And
    those are in the short-term, they're weighing on the housing
    market. But as rates come down and that all goes through the
    economy, we're still going to be back to a place where we don't
    have enough housing.
        Senator Tester. Well, once again, thank you, Chairman
    Powell, for your work. I very much appreciate it.
        Thank you, Chairman Brown.
        Mr. Powell. Thanks.
        Chair Brown. Thanks, Senator Tester. Senator Cramer of
    North Dakota.
        Senator Cramer. Thank you, Mr. Chairman.
        Chairman Powell, good to see you. Thank you for being here.
    It's been a rather uneventful couple of days for you
    considering you've spent 2 days in this place, and I'm not
    going to upset that, by the way, just so you know. But I did
    appreciate your response earlier to Senator Scott when he asked
    about immigration, and you said, you know, the Fed hasn't been
    assigned that.
        So I want to bring up something else you haven't been
    assigned to, that you and I have talked about over the years,
    and that, of course, is climate; the role of climate in your
    job, the role of climate risk in banking. And you've often
    said, I think the most common statement was, ``We should stick
    to our knitting,'' I think, is one of yours. ``Stay in our
    lane,'' similar to what you said, probably to Senator Scott.
        But that said, in October, the Fed, the OCC, the FDIC,
    issued climate guidance, as you know, for management of covered
    institutions. And so, I'm just kind of curious, did Congress
    somewhere along the line give the Fed authority over climate
    policy as well, or is that another one of those things that
    somebody just took on? And I realized you're not the dictator
    of the Fed, only the chairman of the Fed, but I'd be interested
    in, as the chairman, your views on it.
        Mr. Powell. Our assignment is the safety and soundness of
    banks, in that they understand and can manage the risks that
    they face. That's our assignment.
        And we said in climate world, we would do two and only two
    things. One of them was to do illustrative climate scenarios so
    that--you know, the banks are already doing this. The large
    banks who are subject to, they're already doing it because
    they're doing business internationally and they don't have any
    choice.
        So we said we'd do that, and we also said that we'd offer
    guidance not on the level of climate risk or anything like
    that, just on what you had to do to be in a position to assess.
    For my thinking, that's it. That's what we're doing. There are
    no new initiatives. We're not going to change our capital
    requirements to reflect climate risk or anything like that. I'm
    really determined that we are not a climate policymaker, and
    that that is really the business of elected officials.
        Senator Cramer. Very good. Thank you. I'm going to bring up
    one other topic, I don't know if it's been brought up today,
    and that's Central Bank Digital Currency. And I think from a
    lot of my friends out there, I think there's--some--well, I
    know there's some confusion. I mean, I'm easy to confuse, but
    there are a lot of people that get confused about what is meant
    by the Administration's admonition to continue researching,
    experimenting, looking at some sort of, you know, Central Bank
    Digital Currency.
        I think people back home look at that and go, oh my gosh,
    you know, they're going to control this now. And could you
    maybe just differentiate a little bit what people think of in
    terms of a Bitcoin, or their held digital currencies versus
    what essential bank digital currency, who, in my view, should
    emulate cash, right? It still should be about the dollar, not
    about some different kind of currency.
        Could you just sort of help people back home better
    understand why they shouldn't be quite so frightened?
        Mr. Powell. First of all, I want to say that we're nowhere
    near recommending or let alone adopting a central bank digital
    currency in any form. But the idea is that as technology has
    evolved, money has become digital, so.
        But the Government doesn't issue digital money. It's
    digital. If you look at your bank account, people don't hold
    those physical dollars. They're digital. So the thought was
    that the Government could create a digital form of money that
    people could then transfer among themselves.
        Now, of course, that raises a concern that if that were a
    Government account, that the Government would see all your
    transactions, and that's just something we would not stand for,
    or do, or propose here in the United States. That is how it
    works in China, for example, but that's not what we're--if we
    were to ever to do something like this, and we're a very long
    way from even thinking about it, we would do this through the
    banking system.
        The last thing we would want, we the Federal Reserve would
    want, would be to have individual accounts for all Americans or
    any Americans for that matter. Only banks have accounts at the
    Fed, and that's the way we're going to keep it. So it's just
    really--it's a question of following technology as it evolves
    and in a way that serves the public better. People don't need
    to worry about a central bank digital currency. Nothing like
    that is remotely close to happening anytime soon.
        Senator Cramer. That was very helpful. Thank you, Mr.
    Chairman. Thank you, Chairman.
        Chair Brown. Thank you, Senator Cramer. Senator Cortez
    Masto of Nevada is recognized.
        Senator Cortez Masto. Thank you, Mr. Chairman. Chairman
    Powell, great to see you, again. Thank you for all of your good
    work.
        I want to talk a little bit about the commercial real
    estate and what's happening there. The Financial Stability
    Oversight Council's 2023 Annual Report identified commercial
    real estate as a financial risk. And the Fed's monetary report
    also noted commercial real estate prices continue to decline,
    especially in the office, retail, and multifamily family
    sectors. I'm especially concerned that because of the low
    levels of transactions in the office sector prices have not yet
    fully reflected the true decline in the value.
        So can you expand on the emerging risks the Federal Reserve
    has identified in the commercial real estate market, one? And
    then, I'm curious, can you discuss the compound risks
    identified in commercial real estate lending, particularly at
    banks with large CRE concentrations and high fractions of
    uninsured deposits?
        Mr. Powell. Sure. Let me see. I think there are just very,
    very few transactions in commercial real estate right now,
    particularly in the troubled areas. So, it's not a question of
    prices still falling, it's a question that you don't have that
    kind of price discovery. You just have to assume that the
    prices are very low and have come down a lot.
        So, on commercial real estate we have a secular change in
    people working from home. This is one big part of it. That
    means that in many cities, the downtown office district is very
    underpopulated. There are empty buildings in many major and
    minor cities, and it also means that all the, you know, retail
    that was there to service the thousands and thousands of people
    who work in those buildings, they're under pressure too, and
    banks will have made loans to many of those buildings. Not all
    of them, but many.
        So this we've known for some years. And so, what do we do?
    We have identified the banks that have high commercial real
    estate concentrations, particularly office and retail, and
    other ones that have been affected a lot. We identify them, and
    we are in dialog with them around, you know, do, do you have
    your arms around this problem? Do you have enough capital? Do
    you have enough liquidity? Do you have a plan? You're going to
    take losses here. Are you being truthful with yourself and with
    your owners?
        And so we've been working with them. And so for some time
    we've been doing that, and this is a problem that we'll be
    working on for years more. I'm sure there will be bank
    failures, but this is not the big banks. If you look at the
    very big banks, it's not a first order issue for any of the
    very large banks. It's more, you know, small- and medium-sized
    banks that have these issues. We're working with them, we're
    getting through it. I think it's manageable is the word I would
    use, but it's a very active thing for us and the other
    regulators, and it will be for some time.
        Senator Cortez Masto. Thank you. Do you have concerns?
    Well, let me just ask you this. As you're talking with these
    small- and medium-sized banks, because we know that there's
    always could be a contagion, which we've seen in the past. Do
    you have concerns that if they fail, that somehow this is going
    to impact the, the financial sector, and are you prepared and
    trying to address that and prevent that from happening?
        Mr. Powell. We're trying to stay ahead of that. So we also
    reached out to banks that had high concentrations of uninsured
    deposits, and particularly underinsured deposits and a lot of
    commercial real estate in the office sector. So we're well
    aware of that issue, and we just trying to stay ahead of it on
    a bank-by-bank basis and overall. And so far, we've been able
    to do that.
        Senator Cortez Masto. Thank you. Let me jump to another
    issue that has been on my radar. The Federal Housing Finance
    Agency's report on the Federal Home Loan Banks concluded that
    the distinction between the FHLBanks' role and that of the
    Federal Reserve Discount Window as lender of last resort has
    not been clear, especially during times of market stress.
        During the 2023 banking turmoil, we saw banks rely on
    advances from the Federal Home Loan Banks and didn't even have
    relationships with the Federal Reserve to use its discount
    window. I know you've talked a little bit about this with
    Senator Warner, but how is the Federal Reserve working with the
    Federal Home Loan Banks to ensure that banks establish
    protocols to borrow from the Fed's discount window prior to
    times of stress?
        Mr. Powell. So we work with the Federal Home Loan Banks
    because in many cases, banks were moving their loan from the
    Federal Home Loan Bank to the Fed. So, we need to have smooth
    transfer. We need to be in good touch with them.
        Even more important than that though, is that banks, any
    bank in the United States, needs to be in touch with the
    discount window, know how to be able to access it, be able to
    access it, have appropriate collateral, have control of that
    collateral. You know, in many cases it was just incredibly
    inefficient and took a long time for banks to actually go
    through that function.
        The Federal Home Loan Banks are actually ahead of us in
    technology. We know that we need to really invest in technology
    to modernize the discount window, and also we need to do more
    to get our banks, all of them, in touch with the discount
    window in a way that they can use it quickly, should they need
    to do so.
        Senator Cortez Masto. Thank you.
        Chair Brown. Thank you, Senator Cortez Masto. Senator
    Hagerty of Tennessee is recognized.
        Senator Hagerty. Thank you, Chairman Brown. Welcome,
    Chairman Powell.
        Under your tenure, Mr. Chairman, the Fed has taken the
    stance that the 2 percent inflation target shouldn't be viewed
    as a snapshot in time, but rather it needs to be achieved,
    ``sustainably.'' When inflation was running well above the 2
    percent target back in 2021 and early 2022, the Fed was patient
    and allowed rates to offset the below target inflation that had
    occurred in the years prior.
        It strikes me as odd now that while we're still well above
    target inflation and have been well above for the prior year,
    markets seemed to expect the Fed to immediately cut even before
    we've breached the 2 percent inflation threshold.
        So my question is, if the inflation rate reaches 2 percent,
    would that be considered a return to the target rate on a
    sustainable basis, or is it still the case that inflation would
    need to more or less overcorrect to well below 2 percent before
    the Fed makes the rate cut adjustments?
        Mr. Powell. So we it would take us a while to really get
    comfortable that inflation had settled in sustainably at 2
    percent, but that's not our test for changing interest rates.
    Interest rates right now are well into restrictive territory.
    They're well above neutral. And we've said we would not wait
    for inflation to get down to 2 percent because if you wait,
    that monetary policy works with long and variable lags.
        So we've said, you know, for some years that that we would
    start restoring the Federal funds rate to a more normal, almost
    neutral level. We're far from neutral now.
        Senator Hagerty. Yeah.
        Mr. Powell. And so, assuming the economy moves along the
    lines we expect, we do plan on starting the process of dialing
    back restrictions.
        Senator Hagerty. I'm just trying to square and look for the
    symmetry. I know we sort of allowed the economy to overshoot
    when inflation was high, and we sort of made up for prior years
    of low inflation. I'm trying to square that with the fact
    that----
        Mr. Powell. We didn't actually do that. We adopted a
    framework that said we would do that, but then suddenly a few
    months later, we got almost an explosion of very high
    inflation. That's not what we were looking. We said, you know,
    moderately above or modestly above 2 percent. This was not
    modestly above 2 percent, and we reacted--we thought that the
    mistake we made was we thought that that inflation would go
    away----
        Senator Hagerty. That it was transitory.
        Mr. Powell. Transitory. Which means it goes away quickly
    without effort by us. We figured out at the end of '21 that
    that was not the case and we acted.
        Senator Hagerty. And you don't seem see that same abrupt
    dynamic coming the other way. You're more comfortable with
    that?
        Mr. Powell. No. Look, I think we're in the right place,
    which is we're waiting to become more confident that inflation
    is moving sustainably at 2 percent. When we do get that
    confidence and we're not far from it, it'll be appropriate to
    begin to dial back the level of restriction so that we don't
    drive the economy into recession rather than normalizing policy
    as the economy gets back to normal.
        Senator Hagerty. Yeah. Can we go to the balance sheet and
    talk about that? We've seen a dramatic expansion of the Fed's
    balance sheet over the past couple of decades. In 2005, it was
    at $800 billion. It's at $7.5 trillion today. It's doubled
    since the pandemic was underway, and through quantitative
    tapering, the Fed is attempting to reduce its footprint.
        And the concern I have is, on the other hand, Government
    spending tends to just continue to be profligate. We're running
    now a trillion-dollar deficit every 100 days, and we're
    flooding the market with treasury debt, and we're push putting
    upward pressure on interest rates as a result.
        And what I think that is lost on many of us here is that
    the spending levels will only make your job harder when it
    comes to lowering interest rates. Not to mention there's a
    tacit expectation that the Fed step in once the markets can no
    longer absorb our new issuance.
        I think this is a very serious problem. I think it deserves
    more attention, and I think we're now at a point where your
    objectives may be, you know, very much at odds with the
    behavior of our fiscal policy.
        And am I missing something here, Mr. Chairman, or does
    increased net issuance by the Treasury lead to higher rates?
        Mr. Powell. I mean, in principle, more supply should lead
    to modestly higher rates, but that's not going to affect what
    we do. That's not a problem for us. Our balance sheet
    normalization is running very much as expected. We've decreased
    the size of our holdings by almost $1.5 trillion, and----
        Senator Hagerty. I hear you. I just think it's troubling
    that we continue to put fiscal pressure by continuing to put--
    again, we're running a deficit of $1 trillion every 100 days,
    and the issuance is required to deal with that, or putting a
    lot more pressure, I think, on the Fed, and again, making your
    job harder. I think we need to take that into consideration.
        Another component of this topic your colleague, Governor
    Waller, said he'd liked the Fed to shift its holdings toward a
    larger share of short-term treasuries. In fact, prior to the
    financial crisis, about a third of the Fed's holdings were in
    bills. Now they're around 3 percent of your total securities
    holdings.
        Do you share the goal with Governor Waller, and if so, how
    long will it take us to get there?
        Mr. Powell. Take a while. You know, that's an issue--in our
    FOMC meeting in a couple of weeks, we're going to have our
    first really deep dive on what to do with the balance sheet.
    That's one of the issues. I don't think we'll deal with that at
    this meeting, but over time, you know, you'd love not to own a
    lot of MBS, and I can see a case for shortening the maturity.
    But it's not something, you know, that would happen quickly,
    we're not actively looking at that. That's sort of a longer-
    term aspiration that I think he was saying.
        Senator Hagerty. Just one final point, Mr. Chairman. You
    and I have talked about this before. We're in an election year.
    You're getting a lot of pressure, I hear, from lawmakers to
    adjust rates. I'm not telling you to raise rates or lower
    rates, but I'm just here to emphasize the fact that the
    credibility of the Fed depends on your remaining data-driven.
    The credibility of our currency as the reserve currency of the
    world depends on that, and I encourage you to continue to
    maintain that posture.
        Thank you.
        Mr. Powell. Will do.
        Chair Brown. Thanks, Senator Hagerty. Senator Warren of
    Massachusetts.
        Senator Warren. Thank you, Mr. Chairman.
        So, it's been a year since we had the second, third, and
    fourth largest bank failures in American history. Greedy bank
    executives were part of the problem, and the Fed as the chief
    regulator of the biggest banks was part of the problem. Under
    your leadership and direction, the Fed steadily weakened rules
    for the biggest billionaire banks. Exactly the banks that
    failed last March. In other words, Chair Powell, you failed to
    do your job to keep these big banks in line.
        Now, when these banks blew up, you went into spin mode,
    promising that the Fed would do better. After years of hemming
    and hawing, you finally agreed to put in place Basel III rules
    that would strengthen capital standards for the biggest banks,
    and I mean the biggest banks. These are the Fed's proposed rule
    would apply to only 37 of the Nation's 4,500 banks. Only the
    banks that have $100 billion or more in capital.
        Now, Chair Powell, when you testified before this Committee
    last June, I asked you about taking responsibility for bank
    failures. And you said, ``The main responsibility I take is to
    learn the right lessons from this, and to undertake to address
    them so we don't have a situation like this where we had
    unexpectedly a large bank fail and spread contagion into the
    banking system.''
        And as part of learning those lessons, you also said that,
    ``you agree with and support,'' Vice Chair for Supervision
    Barr's recommendations for strengthening the Fed's rules and
    supervisory practices for the big banks, and that you are,
    ``confident they will lead to a stronger and more resilient
    banking system.''
        So, I just want to be clear. You haven't backed down from
    any of your comments from a year ago, have you, Chair Powell?
    Write lessons, don't let this happen again, supporting Vice
    Chair Barr's recommendations, which includes stronger capital
    standards?
        Mr. Powell. No.
        Senator Warren. You still stand by all that?
        Mr. Powell. Yeah.
        Senator Warren. Good, good. I'm glad to hear that. Now, I
    understand that those 37 big banks don't like higher capital
    rules because they are like insurance. You know, they would
    make the bank safer, but they cost a little money and would nip
    into the bank's profits. So, these 37 banks are swinging their
    very considerable weight around to try to weaken the capital
    rules. They've spent tens of millions of dollars running ads
    during Sunday night football, and millions more for an army of
    lobbyists to try to twist arms here in Congress.
        Impressive spending, but who exactly are they trying to
    impress? A man on the inside? You know, despite all you said
    last year when the banks failed about supporting Vice Chair
    Barr's recommendations to strengthen rules for big banks,
    public reporting now says that you are driving efforts inside
    the Fed to weaken the capital rule.
        You even told the House Financial Services Committee
    representatives yesterday that you think it's, ``very
    plausible,'' that you withdraw the rule. As one analyst put it,
    ``I don't think they will pass a final rule without Powell's
    support,'' suggesting that the rules will have to be weakened,
    ``to appease Powell.''
        So, Chair Powell, I'm having trouble reconciling the
    statements you made last year, which you say you hold onto,
    statements you made when the headlines were all about three
    giant bank failures, and now, your reported efforts to quietly
    weaken the rules that would strengthen capital standards for
    giant banks and prevent more bank failures.
        So let me just give you a chance to clarify the record
    here. Are you committed to finalizing the strongest version of
    the Basel III capital rules this year?
        Mr. Powell. Let me first say that we have taken and are
    taking many more steps to deal with the problems that revealed
    themselves with Silicon Valley Bank, and that's around
    supervision, we have a strong liquidity----
        Senator Warren. I appreciate that, but I'm just asking
    about the Basel III rules. The ones that you have been required
    for years now to put in place and have dragged your feet on.
        Mr. Powell. The Basel III rules are not directly related--
    they're not the thing that is directly related to Silicon
    Valley Bank. As you point out, they're a longer-run thing. And
    I would just say that we put them out for comment, we got the
    comments, anybody's free to go read the comments.
        My view is that it will be appropriate to make material and
    broad changes to that before we finalize it. And in terms of--I
    didn't say----
        Senator Warren. Material and broad changes to strengthen
    the rules?
        Mr. Powell. Material and broad changes, and, you know,
    we're talking about what that'll mean in the end. I did not say
    that we would withdraw the rule. You know, there's a concept of
    re-proposal, and I said we hadn't made a decision on that. But
    if that turns out to be appropriate in the view of the Board of
    Governors, then that's something we would look at doing.
        Senator Warren. So everything you said a year ago about
    supporting the vice chair, who is responsible for writing these
    rules?
        Mr. Powell. You and I had a long colloquy.
        Senator Warren. Yes, we did.
        Mr. Powell. If you read it again, it's on your----
        Senator Warren. That I have.
        Mr. Powell. ----website, you will see that I'm doing
    exactly what I said I would do in the colloquy.
        Senator Warren. No. You said you would support Vice Chair
    Barr to get us strong rules, and now he is putting out rules--
    --
        Mr. Powell. No. That was about Silicon Valley Bank.
        Senator Warren. ----and you're talking about reproposing.
        Mr. Powell. The vice chair of supervision has every right
    to bring proposals to the Board. That has happened. But as I
    made clear in our colloquy, you're not the comptroller of the
    currency. When I do monetary policy, I have one vote. There are
    11 other voters, and that's the way it works. It's not
    different for the vice chair for supervision.
        Senator Warren. You are the leader of the Fed, and when the
    heat was on last year, you talked a lot about getting tougher
    on the banks. But now the giant banks are unhappy about that,
    and you've gone weak kneed on this. The American people need a
    leader at the Fed who has the courage to stand up to these
    banks and protect our financial system.
        Thank you, Mr. Chairman.
        Chair Brown. Senator Daines of Montana is recognized.
        Senator Daines. Chairman, thank you. Chairman Powell,
    thanks for being here. Good to see you. I can tell you,
    Montanans are continuing to see the impacts across the board
    from inflation that's been brought on by the policies of this
    Administration and by my colleagues across the aisle. And I
    commend you for the job you have done in trying to reign in
    inflation, and I encourage you to continue the fight despite
    political pressures you may face. Last time I checked, it's
    going to get a little more political around here between now
    and November.
        I'm also encouraged, contrary perhaps to my colleague from
    Massachusetts, I'm encouraged by your comments yesterday that
    there will be broad changes to the Basel III proposal, which as
    it's currently proposed, would've significant detrimental
    impacts to credit cost and availability to small businesses.
        And last, I commend your answer yesterday that the Fed is
    not a climate agency, and considering the impact of climate
    change is not a factor in achieving your given mandate,
    Congressional mandate, of maximum employment and stable prices.
        Mr. Chairman, I recently joined many of my colleagues in
    writing to you about my concerns about the long-term debt
    proposal that would mandate regional banks issue new long-term
    debt. I'm concerned that this will have a disproportionate
    impact on smaller regional banks because they're required to
    hold their long-term debt at both the parent holding company
    and insured depository bank levels.
        Could you explain how this aligns with the tailoring
    requirements set forth in the financial reform bill that we
    passed back in 2018, Senate Bill 2155.
        Mr. Powell. So I have a longer-term debt proposal that
    aligns with that. So, first of all, that's been out for comment
    on that one. The comments are in, we're reviewing it. So I
    don't want to say too much, but the theory of it, in the first
    place, was that they're not--those banks are not subject to the
    living will process to the extent that the G-SIBs are. And this
    was sort of meant to be a middle step to make them more
    resolvable without imposing all of the burdens that we impose
    on the 8 G-SIBs to have very elaborate resolution plans. So
    that was the thinking, I think, on the calibration of it and
    all that.
        We have voluminous comments. We're looking at them, we'll
    make an assessment, and move forward as appropriate.
        Senator Daines. Well, thank you. And I know our smaller
    regional banks would be happy to hear that thoughtful
    deliberation.
        Mr. Chairman, understandably, you've had to raise interest
    rates to fight the fires of inflation brought on by reckless
    Democrat spending. However, a major side effect of that is the
    impact the rising rates are having on the cost of servicing the
    out-of-control national debt. Senator Haggerty alluded to this
    a bit in his questioning minutes ago.
        Looking at CBO reports, interest payments on our debt will
    increase 32 percent this year, and will now exceed spending for
    the entire defense department. I have significant concerns.
    Many do here in Washington. Many Americans do that we've
    eventually reach a point where fiscal policy and monetary
    policy converge. Meaning, that the Fed would ultimately have to
    worry about the impact rate-setting would have on Government
    debt or even potentially the risk of a default.
        Chairman Powell, I know fiscal policy is not in your
    purview, but could you ever foresee a situation where fiscal
    irresponsibility snowballs to a point that the Fed would have
    to factor this into its decisionmaking?
        Mr. Powell. You know, I think we're a long way from that,
    and that's a terrible place to be. That's a place where some
    poor, emerging market countries have found themselves over the
    years. For the United States to get that point, I think it's
    unlikely, but I do think that--and it's not our business, we
    should stay out of this fiscal business--but I'll say what
    other Fed chairs have said, which is we really need to get back
    to that discussion about fiscal sustainability.
        And both sides need to get together. The kinds of things
    that have to happen can only be done on a bipartisan basis, and
    so I really hope that we go back to a place where those
    discussions are happening again.
        Senator Daines. I've heard from a number of stakeholders
    about upcoming changes to liquidity regs, including a new ultra
    short-term liquidity requirement. As with any policy decision,
    establishing the facts matters. It's important that financial
    regulators have a complete, thorough understanding of the
    financial environment before releasing a half-baked proposal
    rule or guidance.
        My question is, what do you believe is a sufficient time
    period that would allow your agency to accurately calibrate
    new, sound, and reasonable liquidity requirements?
        Mr. Powell. That is a great question and when we're
    struggling, particularly, with all the other things that are
    going on. You know, we're looking at some--and this is in
    response to Silicon Valley Bank--we're looking at some
    liquidity innovations, and we're asking ourselves; which form
    should that take and how long should it be out for come and
    that sort of thing. We're not ready to do that yet, but that's
    the question we're asking.
        Senator Daines. Follow-on question then I'm finished, Mr.
    Chairman. Will you confirm that prior to the Federal Reserve
    issuing any new liquidity requirements, it will first conduct
    all necessary data collection that would allow for meaningful
    analysis of all potential policy options?
        Chair Brown. And please keep your answer short, Mr.
    Chairman.
        Mr. Powell. Maybe.
        Chair Brown. That's very short. Thank you.
        Mr. Powell. We can talk about this more, but I don't want
    to make a really specific commitment like that without talking
    to the people who are, you know, carefully in touch with this,
    but that, that is the right thought.
        Senator Daines. Thanks, Chairman.
        Chair Brown. Thank you. Senator Fetterman from Pennsylvania
    is recognized.
        Senator Fetterman. Well, seniority----
        Chair Brown. Well, he got here last. Although if Senator
    Warnock sits down in the next 5 seconds, he's next. So, Senator
    Warnock, are you ready, or you want to go to in 5? You're oh so
    generous with each other.
        Senator Warnock. I'm happy to have the junior colleague go
    first.
        Chair Brown. Senator Fetterman's recognized.
        Senator Fetterman. ----much, much better with time.
        Senator Warnock. OK.
        Chair Brown. All right. Senator Warnock is recognized from
    Georgia.
        Senator Warnock. Thank you very much, Mr. Chairman. Banks
    spending on buybacks is rising again, and their consumer small
    business banking revenue has sharply increased. Interest rates
    are high, yet the interest being paid to depositors, ordinary
    working families, working people with bank accounts, not a lot
    of money. In Wall Street, accounts remain low.
        Chairman Powell, I'm concerned that when banks don't
    increase the interest rates on bank accounts, families are
    losing out on dollars that could be in their pockets. Again,
    they don't have the kinds of portfolios that some of the folks
    in this room would have. Is that good for the economy, and are
    you concerned that banks under your supervision are doing this?
        Mr. Powell. Are not paying sufficient?
        Senator Warnock. That's correct.
        Mr. Powell. That's a question I haven't heard. Of course,
    they have the option of putting their money in money market
    funds, and banks compete with each other. But I'll be happy to
    look into that. I hadn't heard that concern.
        Senator Warnock. You know, and I think it is worth taking a
    look at many lower-income individuals and families. Again, they
    don't have some of the sophisticated products yet. Money
    markets are available, but we saw high interest rates, and that
    not being reflected in what depositors are able to benefit
    from. Could those individuals and families benefit from a high
    interest rate on their deposits?
        Mr. Powell. Sure, and, you know, for a long time we had a
    lot of mail from people to the Fed saying, you know, you should
    raise interest rates because we're not getting anything on our
    checking accounts. So, we solved that problem.
        Senator Warnock. I don't think we're asking for that, but
    given the reality, the question, yeah. So let me pivot. The
    Monetary Policy Report states that while demand for housing has
    fallen, the strong labor market has kept prices high. That
    matches what I've been seeing in Georgia. Too many folks can't
    afford a home.
        According to the Monetary Policy Report, mortgage rates
    were averaging around 7 percent last month. That's tough for
    lower-income home buyers. Increases of just the percentage
    point or two can be the difference between owning a home or
    not. Are you concerned about this interplay between lower
    demand, yet stubbornly high prices, and what it means for folks
    trying to buy a home? And what do you think is driving these
    high prices?
        Mr. Powell. So the housing market is in a very challenging
    situation right now. You have this longer-run housing shortage,
    but at the same time, you've got a bunch of things that have to
    do with the pandemic, and the inflation, and our response with
    higher rates.
        So you have a shortage of homes available for sale because
    many people are living in homes with a very low rate mortgage
    that they can't afford to refinance. So they're not moving,
    which means the supply of regular existing homes that are for
    sale is historically low, and very low transaction rate.
        That actually pushes up prices of other existing homes and
    also of new homes, because they're just not enough supply. The
    builders are busy, but they're running into, you know, all
    kinds of supply issues still around zoning, and workers, and
    things like that. So, it's quite challenging.
        And of course, rates are high. So people who are buying, a
    lot of the buyers are cash buyers or are able to actually pay
    without a mortgage because mortgages are expensive. I will say
    the first problem of supply is a longer-run problem.
        The other problems associated with low-rate mortgages, and
    high rates, and all that, those will abate as the economy
    normalizes and as rates normalize. But we'll still be left with
    the housing market nationally where there's a housing shortage.
        Senator Warnock. There's no question we have a supply
    issue. And this issue of high prices, lack of supply, of
    course, disproportionately impacts some communities more than
    others. According to the Monetary Policy Report, the employment
    rate for the Black prime age labor force that is between 25 and
    54 years of age reached a historical peak in 2023.
        The gap between Black and White prime age employment
    dropped to a nearly 50-year low at around 3 percent. We can
    appreciate progress, but a 3 percent gap is still significant.
        Would you agree that it is important to continue focusing
    on narrowing this gap, and if so, what tools does the Federal
    Reserve have to do this work?
        Mr. Powell. It's very important, and the single best thing
    we can do is get prices under control, get inflation under
    control so that we can have a long expansion with--the record
    is clear that a long expansion really gives significant
    benefits to people at the low end of the income spectrum
    because the labor market gets very tight, inflation is low, and
    they benefit more than anybody. So that's where we were before
    the pandemic, and we'd like to get back to that place.
        Senator Warnock. Thank you so very much. I think there's
    some other legislative tools that Congress could use, and I'm
    happy to continue to work with the chair in the ways that we've
    already done to improve that rate, that difference. Thank you.
        Chair Brown. For sure. Thank you, Senator Warnock. Senator
    Lummis from Wyoming is recognized.
        Senator Lummis. Thank you, Mr. Chairman. Welcome. It's nice
    to see you, Mr. Powell.
        My first question is about CDBCs. There's been some chatter
    lately on the social media that people are concerned about the
    Fed creating a CDBC without legislative authorization. You and
    I have discussed that before, and as you know, there are other
    means other than a CDBC that could use digital assets to create
    a secure and instant payment system other than a CDBC.
        So the question is this, do you still agree that the
    Federal Reserve cannot introduce a U.S. Central Bank Digital
    Currency without Congressional authorization?
        Mr. Powell. Yes, I do.
        Senator Lummis. Thank you. That really calms people's
    fears. The people who are concerned that we could end up with
    something like the digital you warned that is used as a means
    of surveillance. So I think that that will calm some of those
    discussions down. Thank you so much.
        My next question is about your core CPE. Now, as you know,
    there's a disconnect between how you measure inflation and how
    the American people see inflation, because the American people
    are spending their money on gasoline, and food, and rent,
    things that have gone up a lot. And they hear about these
    improvements in the economy that they're not seeing in their
    everyday lives.
        So can you explain what measures you use to evaluate
    inflation? And just explain to the American people why you
    don't factor in the things they spend money on every day like
    food and gasoline.
        Mr. Powell. Actually, we do. Our statutory target is
    inflation. It's not core inflation. And if you look at headline
    inflation over the last 12 months, that's it. That's our goal.
    It's 2.4 percent. Core inflation is actually higher than that.
    It's 2.8 percent. And the reason is that some energy and food
    prices have come down, and those don't count in core.
        So our overall legal target is headline inflation, which
    is, you know, it's our best effort to capture the cost of
    living that people face. It's not perfect. You have to make all
    kinds of judgments that aren't easy. I mentioned housing
    earlier. How do you measure housing inflation? Lots of issues,
    but that's what we target.
        The reason we look at core, though, is that headline
    inflation tends to be more volatile, and it tends to be pushed
    around by commodity prices, which really don't relate to the
    overall state of the economy. Is it tight as it's loose? So
    core tends to be a better predictor of overall inflation than
    overall inflation is. I know that's complicated, but ultimately
    though, our target is headline inflation, which does include
    food and energy.
        Senator Lummis. Mr. Chairman, I'd like to include a letter
    in the record that Senator Tillis, and I, and two Democrats on
    this Committee have submitted with regard to Basel III.
        Chair Brown. Without objection.
        Senator Lummis. Thank you very much. My question is this;
    what do you think is more likely that it will be harder for
    consumers to buy a house and small business to obtain a loan
    under Basel III, or will lending just migrate outside the
    banking system, which may be harder to assess because it's
    opaque?
        Mr. Powell. I'm sorry, I didn't get your question. I
    apologize.
        Senator Lummis. OK. So with regard to Basel III, and if
    there are more constraints on lending activity, what is more
    apt to be the consequence of that? That it's harder for
    consumers to buy a house or a small business to get a loan, or
    that lending just migrates outside of the traditional banking
    system.
        Mr. Powell. So if there were anything that constricted
    credit in the banking system, they would probably be both
    things. Probably there'd be fewer loans made, but in addition,
    there would be non-bank lenders that are more than happy to
    make that loan.
        Senator Lummis. I have a chicken in the egg question here.
    Starting with TARP in 2008, there has been a very aggressive
    printing of U.S. dollars up until today. And it particularly
    went on hyperdrive during that 22-month period of Covid.
        So my question is, which comes first? Congress spending
    more and so you respond by printing more money, or are they
    separate considerations?
        Mr. Powell. I think it's hard to get my mind around that
    question. We don't print money to fund the deficit. That's not
    what happens. But when the Government borrows, it borrows. The
    Government borrows to fund deficits is what happens.
        Senator Lummis. Right. And so that would indicate to me
    that you do respond, because we, in deficit spending, are
    creating a demand to borrow, and you're responding by----
        Mr. Powell. Well, we're not making loans though. You know,
    we're not lending money to the Government. We're not financing
    these deficits.
        Senator Lummis. And so, there's no chicken in the egg
    relationship?
        Mr. Powell. There's not really. No, no. I'd have to think
    about this. I've got to think about the way--why don't we
    continue this?
        Senator Lummis. Yeah, I'd love to. And your thoughts
    earlier about fiscal sustainability and how we can work with
    you, and bipartisan maybe next year, to address these issues.
    You know, when you say things, you have to be careful because
    what you say sends ripple effects outside of this building, but
    it would sure be nice if we could sit down with you on a
    bipartisan basis and have those discussions in a frank way.
        Chair Brown. Thank you. Senator Lummis. Senator Fetterman
    of Pennsylvania is recognized.
        Senator Fetterman. No, no----
        Chair Brown. All right. Senator Van Hollen of Maryland is
    recognized.
        Senator Van Hollen. Let me start by thanking Senator
    Fetterman for his allowing me to question. Mr. Chairman, good
    to see you.
        Real wages are up, right? That's good news.
        Mr. Powell. Yes. Over the last couple of years you know,
    wages have been going up more than inflation. Real wages
    broadly are up.
        Senator Van Hollen. That means more families have more
    spending power in their budgets, right?
        Mr. Powell. Yes.
        Senator Van Hollen. Worker productivity's up, right?
        Mr. Powell. Yes, it is.
        Senator Van Hollen. Corporate profits are up, right?
        Mr. Powell. I believe so.
        Senator Van Hollen. And worker productivity is rising
    faster than corporate profits, right?
        Mr. Powell. I don't know the answer to that. That may well
    be right.
        Senator Van Hollen. The charts I show suggest that. So that
    would indicate that unless, you know, corporations decide to
    pocket as profits more of the gains they get from their
    workers' labor, that we should be able to continue to have
    increases in real wages. Is that right?
        Mr. Powell. Yeah.
        Senator Van Hollen. And so, it's important, I think, that,
    you know, people recognize that these corporations are doing
    better than ever, and they are deciding now to essentially
    return the gains made through their workers' productivity,
    which is going up more, to shareholders. Obviously,
    shareholders, we're going to get a profit. But the question is
    whether or not workers share in that profit to the extent of
    their worker productivity.
        And as you know, we've seen a great gap over decades
    between rising worker productivity and real wages, and we're
    hoping to close that gap. Would you agree that it would be good
    for a more inclusive economy if worker wages tracked worker
    productivity increases?
        Mr. Powell. I think if you include benefits, that's a
    significant part of that gap. I've looked into that, but not
    for some years. But I mean, generally speaking, people's
    compensation should equal--should be over time, equal to
    increases in productivity.
        Senator Van Hollen. I appreciate that. And I also want to--
    there's the tradeoff on workers' wages, and there's also an
    issue with price gouging, right? So we have seen record
    profits, we've also seen very high prices these corporations
    are charging for things like groceries.
        Now, I listened to a little bit of exchange with the
    chairman earlier, and of course I think your answer was, you
    know, people will charge what consumers will pay. But it should
    be known that these corporations are reaping much larger
    profits now than they were pre-COVID, for example, right?
        Mr. Powell. I mean, some of them are. I'm not super focused
    on individual corporate profits, but yeah, corporate profits, I
    gather, have been high overall.
        Senator Van Hollen. Right. I mean, they're high for a
    couple reasons. One is that they're charging consumers, for
    example, the grocery stores a lot of money. And the other would
    be if they're not sharing the benefits of labor productivity
    with their employees.
        So I think because we've heard a lot claims by some of our
    Republican colleagues about the causes of price increases, I
    think it's very important that American consumers recognize
    that corporations are choosing to charge them more at the
    grocery store or engaging in things like shrinkflation rather
    than--in order to have more of their profits.
        Let me turn briefly to a letter that I sent to the vice
    chair of supervision and some of the other Federal regulators
    in January of this year regarding the Basel III capital
    requirements, and I support the overall effort on Basel.
        We did raise concerns with respect to a specific issue,
    which is the harmful, and we think unnecessarily harmful impact
    it could have on clean energy tax credit investments. And all
    of the regulators testifying that day, including the vice
    chairman, said they recognized this was a significant issue and
    hoped to address it. Would you agree with that?
        Mr. Powell. Yes, I would.
        Senator Van Hollen. Thank you. Thank you, Mr. Chairman.
    Thank you, Senator Fetterman.
        Chair Brown. Thank you, Senator Van Hollen. Senator
    Fetterman of Pennsylvania is recognized.
        Senator Fetterman. Yes, I love that. All right. So it's
    great to be here with you today.
        Now, I don't know, maybe some people in America were
    talking about a cookie that was $18, and I was alarmed, and I
    hope we investigate that there is a cookie that costs $18. And
    do you believe that an anecdote on Twitter about a cookie that
    costs $18, is that reflective of our economy and where we're at
    or not?
        Mr. Powell. I certainly hope not. I don't do much shopping
    these days, but that sounds like a pretty expensive cookie.
        Senator Fetterman. Yeah. And now, I believe that the
    American economy now is the envy of the world after everything
    right now, correct?
        Mr. Powell. We are, yes. We're performing very well
    compared to our peer group.
        Senator Fetterman. Yeah. Pretty great. And is it fair to
    say that the stock markets are all up at record highs, right?
        Mr. Powell. Pretty close.
        Senator Fetterman. Yeah. And inflation has been pretty
    effectively addressed, right?
        Mr. Powell. It's been coming down sharply since the middle
    of last year. Yes. We've got a ways to go on that, but we've
    made a lot of progress.
        Senator Fetterman. And corporate profits are pretty robust.
    Is that fair?
        Mr. Powell. I believe it is.
        Senator Fetterman. OK. Well, if we can agree that--and I
    don't understand why more people seem to be talking about a
    cookie that cost $18, but that seems to be against the evidence
    as well. But given that now since things are pretty great, and
    we're in a really great place, but now I am concerned, and
    there's rumors going around that Basel they're going to change
    and they're going to reducing the capital, right?
        And, I guess, I'm concerned about that because I don't know
    why we would want to--and also, I wouldn't want the record to
    reflect on you're much smarter than I am, but I would be
    concerned that things are in a really great place right now. We
    can all agree on that. I would be concerned to change something
    like that because I wouldn't want to have something again like
    what happened with SVB, and I just wanted to get your take on
    that.
        Mr. Powell. Sure. So U.S. banks are well capitalized, and
    generally speaking, they're quite well capitalized, and we're
    not talking about reducing current capital levels at all.
    Really, in the Basel III Endgame, capital may well go up.
        And what we're talking about is whether the proposal that
    was put out by the bank regulatory agencies, including the Fed,
    and which has now been the subject of quite a lot of comment
    whether--you know, what changes will be appropriate to that.
    That's what we're talking about. We're not talking about
    reducing existing capital requirements.
        Senator Fetterman. Oh, OK. Well, and then I also want to
    play off of a comment made by my colleague from Tennessee, and
    I actually agreed with him, and he's concerned about the
    deficit. About it is $1 trillion for every 100-dollar-days.
        So now, if the Federal Government had added $3.5 trillion
    to the deficit by extending the Trump tax cuts, would that
    increase or decrease inflation?
        Mr. Powell. So I'm going to fall back on our long-time
    reluctance to comment on fiscal policy. We take year to fiscal
    policy decisions, whatever they may be. We take them as they
    are and we conduct monetary policy to achieve 2 percent
    inflation, but we don't score inflation. CBO does that. They'll
    make a judgment on that, but it's not something we do because
    we're an independent agency, and that requires us to stay the
    heck out of politics.
        Senator Fetterman. So I don't want to put you on the spot,
    but would those kind of tax cuts help addressing inflation or
    inflame inflation?
        Mr. Powell. I don't know what the effects would be on
    inflation. I do know, broadly speaking, we need to get to a
    place where revenues and spending are better aligned. And I
    think everybody knows that. And, you know, I think we used to
    talk about this a lot 10 years ago, and we're not talking about
    it so much anymore. That's understandable. The pandemic was a
    special thing, but I do think it would be great to get back to
    that on a bipartisan basis.
        Senator Fetterman. OK. Well, I have about 30 seconds left.
    I just want to go on the record. I think you've done a really
    great job, and I think our economy--and I do agree that it is
    the envy of the world as well. And I'm confused that more
    people are talking about cookies, or McDonald's meals, and
    those kinds of a thing. It's not reflective on the strength of
    this as well too, and I just want to thank you for your
    service.
        Mr. Powell. Thank you, sir.
        Senator Fetterman. Mr. Chairman.
        Chair Brown. Thank you, Senator Fetterman. That's the last
    question. And thanks for your generosity and yielding to
    colleagues whom you got here before.
        Thank you, Chair Powell, for joining us today, and every 6
    months, and sometimes more often. I look forward to working
    with you in your work to strengthen our economy. Senators who
    wish to submit questions for the hearing record are due 1 week
    from today, March 14th.
        To Chair Powell, please submit response to those questions
    for the record no more than 45 days from the day you received
    them. Thank you again for your testimony.
        Mr. Powell. Thank you, Mr. Chairman.
        [Whereupon, at 12:05 p.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                   PREPARED STATEMENT OF CHAIR SHERROD BROWN
        The Fed has immense power in shaping our economy. Your job is
    clear: promote stable prices and maximum employment.
        Today, the cost of living is still far too expensive for most
    Americans. The Fed only has one tool available to fight those high
    prices--interest rates. And that tool does nothing to address the real
    cause for why costs remain too high: corporations price gouging to
    boost their profits and make their shareholders richer.
        High rates don't force corporations to lower their prices--but high
    interest rates are raising housing costs, hindering wage growth, and
    stifling small businesses.
        Now is the time for the Fed to decide if it is going to make good
    on its commitment to workers and to their families--by lowering
    interest rates and protecting our financial system from Wall Street
    executives who have used their wealth and power to influence economic
    policy and to avoid accountability for their risky bets.
        Keeping rates too high for too long strangles the economy.
        No one wants this. It makes it harder for small businesses to
    expand and hire more workers, undermining job creation.
        Higher rates also stifle overdue investments that are creating
    high-quality, good-paying jobs and that are necessary for us to remain
    the most competitive and innovative economy in the world.
        And high interest rates are raising housing costs higher and higher
    for families who were already facing a tough market with too few
    options and too high prices.
        I hear from so many Ohioans who feel trapped: those who rent feel
    like they'll never be able to afford to buy. And those who already own
    their homes feel like they will never be able to afford a larger one if
    they decide to grow their family. If they're fortunate enough to have
    an interest rate from a couple of years ago, they don't want to give it
    up.
        That limits their choices, and it limits the housing supply.
        And by driving up construction costs, higher rates make it even
    harder to build new apartments and homes--so we have even less supply
    at exactly the same time when it's harder to afford a mortgage.
        Families are stuck delaying the purchase of their first home and
    renting for longer. And that cycle drives rents up even further.
        Americans are paying a steep price for high interest rates. And
    continued high rates are not going to make life less expensive for
    workers and their families.
        We know why prices are high years after supply chains have
    improved. It's the same cause of so many of the problems in our
    economy:
        Corporations want bigger profits to reward their executives.
        In 2022, at the peak of inflation, corporate profits soared to
    historic levels. And you know where those profits went--right into the
    pockets of their top executives.
        That same year, the largest multinational corporations gave out
    nearly one-and-a-half-trillion dollars in stock buybacks and dividends.
        Americans today pay more for groceries than they have in 30 years.
        And Ohioans are paying for corporations' executive bonuses and
    stock buybacks every time they go to the grocery store.
        And the biggest corporations are always finding new ways to charge
    people more to increase their profits.
        Fast food restaurants and big stores are experimenting with
    electronic price tags, so they can change prices constantly--making it
    easier to sneak prices up little by little, and making it harder for
    people to comparison shop and find the store with the lowest price.
        And many companies increase their profits by charging more for
    less--the media has started calling it ``shrinkflation.'' Your bottle
    of Gatorade used to be 32 ounces, now it's 28 ounces--but the price
    hasn't gone down. If anything, it's gone up a little bit.
        It's why I introduced legislation that would stop that kind of
    deceptive practice.
        That's the kind of solution we need to take on corporate price
    gouging--and it has nothing to do with higher interest rates.
        The Fed doesn't only set monetary policy. You also make the rules
    that keep our banking system sound and consumers' money safe.
        We have had some positive developments since the last time you
    testified in June, like the update to the Community Reinvestment Act
    rule. Chair Powell, thank you for your work on this--this took years of
    listening carefully to all stakeholders and was long overdue. We'll be
    watching to make sure you implement this quickly so that banks are
    fulfilling the purpose of the Community Reinvestment Act.
        You also issued an updated capital requirements proposal called
    Basel III.
        Strong capital requirements are how we ensure that if Wall Street's
    bets don't pay off, shareholders and investors are on the hook--not
    taxpayers.
        We need these guardrails in place. I urge you to remain committed
    to protecting the public, despite the massive amounts of money big
    banks and their lobbyists are spending to try to kill these taxpayer
    protections. Let's finish the job and finalize Basel III.
        Last year's bank failures also demonstrate the dangers of letting
    the banks chip away at rules and oversight.
        It's entirely predictable--bankers desperate to increase their
    already-massive profits take big risks that undermine our economy. And
    when things go wrong, the bank executives come to regulators with their
    hands out, accepting no responsibility.
        It's why Congress must finish the job and pass our bipartisan
    RECOUP Act--it passed this Committee 21-to-2--to hold senior bank
    executives accountable when they gamble with customers' money.
        When the biggest banks exercise special privilege, they do so at
    the peril of our broader economy.
        And we know that's the source of so much that's wrong in this
    country: big corporations using their power and influence to write the
    rules of our economy to the benefit of them and their executives and
    their investors--and to the detriment of everyone else.
        That's why I stand up for workers and their right to organize.
        It's why I stand up to take on the railroads and the drug
    companies, and the biggest banks and corporations who time and time
    again try to rewrite the rules to increase their profit margins.
        Chair Powell, I look forward to hearing from you today how the Fed
    will work to promote an economy where everyone who wants a good job can
    find one.
                                     ______

                    PREPARED STATEMENT OF SENATOR TIM SCOTT
        Chair Powell, thank you for coming this morning. Good morning--
    appreciate you being here.
        In three days, on March 10, it will be the 1-year anniversary of
    the failure of the Silicon Valley Bank.
        SVB marked the third largest bank failure in U.S. history and
    certainly, the largest since the 2007-2008 financial crisis.
        I've said it many times before, and I'll say it again today, there
    were three major components to SVB's failure: first, the bank was rife
    with mismanagement; second, there was a clear supervisory failure and
    our regulators were certainly asleep at the wheel; and third, President
    Biden's reckless spending caused record high inflation, which resulted
    in drastic interest rate hikes and tremendous loss.
        When you print and spend trillions of dollars at the end of COVID,
    we should not be surprised that we have record-high inflation. Record-
    high inflation translates into today, still, 40 percent higher for gas
    for your car, 30 percent higher for your food, 20 percent higher for
    your energy costs.
        The devastation the average American is facing because of
    Bidenomics is undeniable, but certainly measurable.
        So I'm glad to spend some time talking about the state of our
    economy--an economy that has been ravaged--as I've just spoken about--
    by inflation, suffering under the weight of an open border and millions
    of illegal immigrants, and drowning in disastrous regulations.
        I hear from my constituents all the time that inflation and an
    unsustainable cost of living continue to impact their families. For far
    too many, the American Dream seems further and further out of reach
    than ever before.
        And frankly, the past 3 years of this Administration's failed
    policies have landed us right in that spot.
        In fact, last month, Treasury Secretary Yellen sat before this
    Committee and attempted to spin a narrative of how strong the economy
    is, how well-off consumers are, and how much people have in the bank,
    thanks to Bidenomics.
        But, in the midst of this, she also admitted that many prices are
    not going down.
        In fact, she said, ``we don't have to get these prices down.''
        Tell that to the mechanic working in South Carolina, tell that to
    teacher trying to put gas in the tank.
        It is simply unacceptable.
        Because the truth is that Americans are now spending more of their
    income on food than they have in 30 years.
        The truth is that housing affordability remains at its lowest level
    in 40 years.
        But, inflation isn't the only concern I'd like to raise. I'd also
    like to address the economic impacts of illegal immigration.
        During your recent interview on ``60 Minutes'', you stated that
    ``over time. the U.S. economy has benefited from immigration.''
        Let's be clear, America is a Nation of immigrants--no doubt.
        But when we talk about illegal immigration today, we must also face
    the dire reality that our towns and our cities are suffering from the
    adverse impacts of illegal immigration facilitated by the Biden
    administration's open, unsecure, and unsafe southern border.
        Because of President Biden's policies, we've seen over seven
    million illegal immigrants cross our borders in just 3 years. By the
    time this election happens this year, in November, the numbers suggest
    it could be as high as 10 million illegal immigrants coming into our
    country.
        So, we cannot have an honest conversation about the benefits of
    legal immigration in our labor force without also addressing the
    elephant in the room--our country is strained, our economy is strained,
    under the weight of illegal immigration.
        In fact, recent reporting has highlighted that cities and States
    across our country are struggling to keep pace, and some have been
    forced to cut public services to Americans in order to fund the costs
    of feeding and housing illegal immigrants.
        One clear example. we saw in New York City, where the poorest kids
    in the city, minority kids in the city, were stuck at home because the
    city was using the schools to house illegal immigrants.
        Another example--the city of Denver recently announced that some of
    its employees may have their hours cut in order to reallocate funds
    toward the city's migrant crisis. How in the world is that fair to
    Americans? It's not.
        We must get the illegal immigration crisis under control because if
    we don't, our local economies will continue to be crushed and
    opportunities will continue to be stripped from our citizens and their
    families.
        Finally, as if inflation and the negative impacts of illegal
    immigration were not enough, the tsunami of regulatory-red tape coming
    from our financial regulators further threatens economic opportunity
    across the board.
        For months we have heard bipartisan criticism of the Fed's Basel
    III Endgame proposal, which will restrict lending and access to credit
    for those who need it most.
        I was certainly, pleasantly surprised to hear your comments about
    Basel III and your thoughts on its future. When 97 percent of the
    comments that you receive are negative that's good news. Good news for
    the American consumer, good news for entrepreneurs who want to start a
    business but do not have access to capital, perhaps even good news for
    millennials who would love to become a first-time homebuyer.
        The opposition to Basel III comes from a diverse array of
    interests--from community leaders, to farmers, to housing groups. We've
    even heard opposition in this very room, on this very Committee, from
    Democratic senators.
        I look forward to your testimony and looking forward to asking some
    questions as well.
                                     ______

                     PREPARED STATEMENT OF JEROME H. POWELL
            Chair, Board of Governors of the Federal Reserve System
                                 March 7, 2024
        Chair Brown, Ranking Member Scott, and other Members of the
    Committee, I appreciate the opportunity to present the Federal
    Reserve's semiannual Monetary Policy Report. The Federal Reserve
    remains squarely focused on our dual mandate to promote maximum
    employment and stable prices for the American people. The economy has
    made considerable progress toward these objectives over the past year.
        While inflation remains above the Federal Open Market Committee's
    (FOMC) objective of 2 percent, it has eased substantially, and the
    slowing in inflation has occurred without a significant increase in
    unemployment. As labor market tightness has eased and progress on
    inflation has continued, the risks to achieving our employment and
    inflation goals have been moving into better balance.
        Even so, the Committee remains highly attentive to inflation risks
    and is acutely aware that high inflation imposes significant hardship,
    especially on those least able to meet the higher costs of essentials,
    like food, housing, and transportation. The FOMC is strongly committed
    to returning inflation to its 2 percent objective. Restoring price
    stability is essential to achieve a sustained period of strong labor
    market conditions that benefit all.
        I will review the current economic situation before turning to
    monetary policy.
    Current Economic Situation and Outlook
        Economic activity expanded at a strong pace over the past year. For
    2023 as a whole, gross domestic product increased 3.1 percent,
    bolstered by solid consumer demand and improving supply conditions.
    Activity in the housing sector was subdued over the past year, largely
    reflecting high mortgage rates. High interest rates also appear to have
    been weighing on business fixed investment.
        The labor market remains relatively tight, but supply and demand
    conditions have continued to come into better balance. Since the middle
    of last year, payroll job gains have averaged 239,000 jobs per month,
    and the unemployment rate has remained near historical lows, at 3.7
    percent. Strong job creation has been accompanied by an increase in the
    supply of workers, particularly among individuals aged 25 to 54, and a
    continued strong pace of immigration. Job vacancies have declined, and
    nominal wage growth has been easing. Although the jobs-to-workers gap
    has narrowed, labor demand still exceeds the supply of available
    workers. The strong labor market over the past 2 years has also helped
    narrow long-standing disparities in employment and earnings across
    demographic groups. \1\
    ---------------------------------------------------------------------------
         \1\ A box in our latest Monetary Policy Report, ``Employment and
    Earnings Across Demographic Groups'', discusses differences in labor
    market outcomes among segments of the population.
    ---------------------------------------------------------------------------
        Inflation has eased notably over the past year but remains above
    the FOMC's longer-run goal of 2 percent. Total personal consumption
    expenditures (PCE) prices rose 2.4 percent over the 12 months ending in
    January. Excluding the volatile food and energy categories, core PCE
    prices rose 2.8 percent, a notable slowing from 2022 that was
    widespread across both goods and services prices. Longer-term inflation
    expectations appear to have remained well anchored, as reflected by a
    broad range of surveys of households, businesses, and forecasters, as
    well as measures from financial markets.
    Monetary Policy
        After significantly tightening the stance of monetary policy since
    early 2022, the FOMC has maintained the target range for the Federal
    funds rate at 5\1/4\ to 5\1/2\ percent since its meeting last July. We
    have also continued to shrink our balance sheet at a brisk pace and in
    a predictable manner. Our restrictive stance of monetary policy is
    putting downward pressure on economic activity and inflation.
        We believe that our policy rate is likely at its peak for this
    tightening cycle. If the economy evolves broadly as expected, it will
    likely be appropriate to begin dialing back policy restraint at some
    point this year. But the economic outlook is uncertain, and ongoing
    progress toward our 2 percent inflation objective is not assured.
    Reducing policy restraint too soon or too much could result in a
    reversal of progress we have seen in inflation and ultimately require
    even tighter policy to get inflation back to 2 percent. At the same
    time, reducing policy restraint too late or too little could unduly
    weaken economic activity and employment. In considering any adjustments
    to the target range for the policy rate, we will carefully assess the
    incoming data, the evolving outlook, and the balance of risks. The
    Committee does not expect that it will be appropriate to reduce the
    target range until it has gained greater confidence that inflation is
    moving sustainably toward 2 percent.
        We remain committed to bringing inflation back down to our 2
    percent goal and to keeping longer-term inflation expectations well
    anchored. Restoring price stability is essential to set the stage for
    achieving maximum employment and stable prices over the longer run.
        To conclude, we understand that our actions affect communities,
    families, and businesses across the country. Everything we do is in
    service to our public mission. We at the 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 CHAIR BROWN
                         FROM JEROME H. POWELL

    Q.1. Commercial real estate (CRE) investments make up a
    substantial share of economic activity--nearly 3 percent of
    total GDP in 2022. Commercial banks hold approximately $3
    trillion in CRE debt. In the latest Federal Reserve Monetary
    Policy Report, the Board writes, ``Commercial real estate (CRE)
    prices continued to decline, especially in the office, retail,
    and multifamily sectors, and low levels of transactions in the
    office sector likely indicated that prices had not yet fully
    reflected the sector's weaker fundamentals.'' \1\ Community and
    regional banks have substantial CRE holdings potentially making
    them more vulnerable to financial stress as prices decline.
    ---------------------------------------------------------------------------
         \1\ https://www.federalreserve.gov/publications/files/20240301-
    mprfullreport.pdf
    ---------------------------------------------------------------------------
        In light of recent events, what is the Fed's view of the
    risks CRE poses to the banking system, and how is the Fed
    confronting those risks through its supervisory activities?
        Commercial banks have been a significant source of credit
    for multifamily housing. \2\ Millions of Americans live in
    multifamily housing.
    ---------------------------------------------------------------------------
         \2\ https://www.nmhc.org/research-insight/quick-facts-figures/
    quick-facts-investment-returns-on-apartments/quick-facts-mortgage-debt-
    outstanding/
    ---------------------------------------------------------------------------
        What steps is the Fed taking to monitor emerging risks
    unique to the multifamily housing sector?

    A.1. As noted in the April 2024 Financial Stability Report, \3\
    the banking system remains resilient, with sound capital and
    liquidity levels in the fourth quarter. However, the value of
    commercial real estate (CRE) property prices remained high
    relative to rental income, particularly for the office sector.
    ---------------------------------------------------------------------------
         \3\ See https://www.federalreserve.gov/publications/files/
    financial-stability-report-2024
    0419.pdf.
    ---------------------------------------------------------------------------
        CRE has been a supervisory focus for the Federal Reserve.
    As noted in our May 2024 Supervision and Regulation (SR)
    Report, \4\ Federal Reserve supervisors remain focused on
    monitoring banks with concentrations in CRE loans. Supervisors
    are particularly focused on assessing whether risk management
    practices at these banks are commensurate with the level of
    concentration and the composition of a bank's CRE loan
    portfolio. The Federal Reserve is also closely monitoring
    banks' CRE lending in the multifamily sector.
    ---------------------------------------------------------------------------
         \4\ See https://www.federalreserve.gov/publications/files/202405-
    supervision-and-regulation-report.pdf.
    ---------------------------------------------------------------------------
        As part of the supervisory process, examiners, when
    appropriate, develop supervisory plans and conduct examinations
    to assess CRE risks specific to a bank and the risk
    characteristics of its CRE loan portfolio by property sector.
    For a bank with a CRE loan concentration, examiners complete
    procedures to appropriately assess the activity and the
    associated risks to the bank. When there are weaknesses in risk
    management practices or safety-and-soundness issues, examiners
    make recommendations to a bank to address the weaknesses, or
    when the matter is more serious, examiners will take
    supervisory action.
        In June 2023, the Federal Reserve along with the Federal
    Deposit Insurance Corporation, National Credit Union
    Administration, and the Office of the Comptroller of the
    Currency issued an interagency Policy Statement on Prudent
    Commercial Real Estate Loan Accommodations and Workouts. \5\
    The interagency policy statement was issued to assist financial
    institutions, given current challenges and risks facing CRE
    lending. The statement is a principles-based resource for
    financial institutions to consider when engaging with borrowers
    experiencing financial difficulties. While this interagency
    policy statement is only one part of the Federal Reserve's
    larger supervision program and broader outreach efforts to
    inform the public and industry of CRE risks and supervisory
    expectations, it reinforces a key message to the industry that
    financial institutions should work prudently and constructively
    with creditworthy commercial borrowers experiencing financial
    difficulties. It also clarifies that such a message applies in
    all stages of the economic cycle. The interagency policy
    statement is further intended to promote supervisory
    consistency among examiners, enhance the transparency of CRE
    loan accommodation and workout arrangements, and ensure
    supervisory policies and actions do not inadvertently curtail
    the availability of credit to sound borrowers.
    ---------------------------------------------------------------------------
         \5\ The Supervision and Regulation Letter 23-5 is available at
    https://www.federalreserve.gov/supervisionreg/srletters/SR2305.htm.

    Q.2. Chairman Powell, diversity of perspectives and experiences
    are critical for the Fed as it makes decisions that affect all
    Americans. The Fed has made good progress in recent years at
    improving racial and gender diversity within its leadership,
    but it's also critical that there are voices represented beyond
    just the business and financial realms and leaders with ties to
    the communities they serve. This year the Cleveland and
    Philadelphia Reserve Banks will be selecting new Presidents.
    Both Presidents will serve as FOMC voting members and act as
    regional economic policy leaders for their respective
    districts. The Board's input in this process weighs heavily on
    the presidential committee's final decision.
        Additionally, the Board selects three Class C Directors for
    each of the 12 Federal Reserve Regional Banks. These directors
    oversee management of the Regional Banks and select their
    bank's president. It is vital that Class C Directors can speak
    to the local needs of workers, consumers, community banks, and
    the business community.
        Please describe the Fed's recent efforts to increase
    thought diversity and select leaders with connections to
    Federal Reserve districts across the System's leadership?

    A.2. The Federal Reserve System (System) is committed to
    fostering and leveraging diversity at all levels of our
    organization. My colleagues and I agree that we make better
    decisions on behalf of the American people when we draw from a
    rich pool of perspectives and experiences.
        The Board of Governors (Board) works closely with each of
    the Federal Reserve Banks (Reserve Banks) to identify and
    recruit highly qualified directors who can contribute to the
    System's understanding of economic conditions in their
    respective Districts and the Nation. As you noted, we have made
    significant progress in increasing gender, racial, and ethnic
    diversity among directors, and we are committed to maintaining
    these gains. Collectively, nearly 70 percent of current Class C
    and Class B directors, who represent the public and are
    responsible for selecting their Reserve Bank's leadership, are
    diverse in terms of gender and/or race/ethnicity.
        Further, the current Class C and Class B directors provide
    the System with a window into the economic well-being and
    interests of workers, families, consumers, and communities
    through their affiliations with a wide array of sectors and
    industries, as well as organizations, such as labor unions,
    nonprofits, hospital systems, and colleges and universities.
    The Reserve Banks also benefit from the perspectives of their
    Class A directors, including community and regional bankers,
    who are elected by the member banks in their respective Federal
    Reserve Districts to represent those banks. And as you know,
    the Class A directors do not have a role in selecting Reserve
    Bank leadership.
        Using the lessons from recent searches for Reserve Bank
    presidents and other senior System leaders, the Board has
    communicated clear expectations to ensure that the search
    process is robust, transparent, fair, and inclusive, and
    generally conforms to best practices. Recent Reserve Bank
    president searches have all emphasized the importance of
    executive leadership and community engagement in addition to
    policymaking capabilities. Additionally, the search committees
    proactively reach out to their District's communities and
    constituencies and engage with the public through digital media
    and events and solicit nominations of candidates. My colleagues
    and I at the Board, as well as the search committees, are
    committed to continue conducting robust searches to identify
    the best leaders.

    Q.3. The Bank Holding Company Act requires the Fed to consider
    the effects of the proposed transaction on the convenience and
    needs of the community to be served when assessing mergers and
    acquisitions. Yet the Fed approved the formation of Truist,
    which went on to close nearly one thousand branches and still
    plans to close more after missing financial targets, which the
    merger was supposed to assure.
        What is the Fed doing to make sure that future merger
    decisions do not result in the surviving entity failing to meet
    its communities' convenience and needs?

    A.3. The Federal Reserve Board (Board) takes seriously its
    responsibility to review bank merger proposals under the
    relevant statutory factors set forth in the Bank Holding
    Company Act of 1956 (BHC Act). These factors include the
    financial and managerial resources of the organizations
    involved and of the proposed combined institution; the
    convenience and needs of the communities to be served by the
    resulting institution; the Community Reinvestment Act
    performance of the involved depository institutions; the
    effectiveness of the parties in combatting money laundering;
    and the effects of the proposal on competition and financial
    stability.

    Q.4. The Fed is the only one of the three banking regulators
    that hasn't moved officially to review its merger policy.
        When can we expect to see the Fed release an update to its
    bank merger guidance?

    A.4. The Federal Reserve currently is reviewing its bank merger
    framework to determine whether any adjustments would be
    appropriate to improve our merger analysis. This includes a
    review of each of the statutory factors that the Federal
    Reserve must consider in evaluating merger proposals. As part
    of this process, Board staff have been engaging in discussions
    with staff of the other banking agencies regarding our bank
    merger frameworks, and with staff of the U.S. Department of
    Justice regarding its ongoing review of the joint bank merger
    guidelines.

    Q.5. The Fed also has a financial stability mandate for
    mergers, but it approved an acquisition by Silicon Valley
    Bank--then an already fast-growing institution that quickly
    rose to become one of the 25 largest banks in the country--
    acquiring another multibillion-dollar bank without noting any
    concerns about financial stability risks.
        What is the Fed doing to make sure that future merger
    decisions do not create or exacerbate systemic risks to
    financial stability?

    A.5. The Board has developed a comprehensive, multifaceted
    framework for evaluating how a particular proposed merger may
    affect risks to financial stability. Under the framework, the
    Board analyzes five key factors: (i) the size of the resulting
    firm; (ii) the availability of substitute providers for any
    critical products or services offered by the resulting firm;
    (iii) the interconnectedness of the resulting firm with the
    banking or financial system; (iv) the extent to which the
    resulting firm contributes to the complexity of the financial
    system; and (v) the extent of the cross-border activities of
    the resulting firm. These metrics are intended to capture the
    systemic importance of the combined organization and the
    incremental effect of the transaction on the systemic footprint
    of the acquiring institution. The Board also considers
    qualitative factors indicative of the relative degree of
    difficulty of resolving the resulting firm, such as the
    opaqueness and complexity of a firm's internal organization.
    Further, the Board considers the resulting firm's global
    systemically important bank score and factors that may mitigate
    the effect of a proposed transaction on financial stability.
    However, the Board has been clear that these factors are not
    exhaustive or dispositive, and that any analysis under the
    financial stability factor is holistic.

    Q.6. A growing share of workers engage in ``gig'' work or other
    forms of part-time employment. While part-time work can be
    useful for many workers who have other familial or personal
    responsibilities, like attending school, workers in alternative
    work arrangements often have unpredictable or inconsistent
    hours, leading to greater financial insecurity.
        Please explain how the Fed considers alternative work
    arrangements including ``gig'' worker or part-time workers in
    its monetary policy decision making?

    A.6. As part of our statutory mandate to promote maximum
    employment and stable prices, we monitor a variety of labor
    market data, including data on part-time employment, to assess
    the extent to which labor is underutilized. The available data
    on part-time employment indicates whether individuals are
    working part time for economic reasons (e.g., because they
    could not find full-time work or because of a period of weak
    demand at their employer) or for non-economic reasons (e.g.,
    because they are students, have childcare responsibilities, or
    have other family or personal obligations that precludes full-
    time work). Individuals working part time for economic reasons
    could work more if demand was higher and so provide an
    indication of the position of the economy relative to maximum
    employment. An unusually large amount of part-time work for
    economic reasons, for example, could suggest that the economy
    is relatively far from maximum employment.
        The share of workers working part time for economic reasons
    was 2.8 percent in April, well toward the lower end of the
    range for this metric over the past 30 years. Over the past
    year, as the unemployment rate has increased slightly, so has
    the share of workers working part time for economic reasons,
    suggesting that the labor market remains tight, but not quite
    as tight as it was a year ago.
        If unemployment remained low, but an elevated number of
    people were working part time for economic reasons, this might
    suggest the economy was below maximum employment, and we would
    take that into consideration. Of course, any assessment of the
    position of the economy relative to maximum employment would
    also take into account a large variety of other labor market
    indicators.

    Q.7. Efforts are currently underway to increase public safety
    communications on the National Mall. The National Mall has long
    been a difficult place to deploy critical communications
    infrastructure, but there remains a public safety and homeland
    security imperative to ensure first responders can communicate.
    FirstNet Authority provided my office a copy of a letter it
    sent the Federal Reserve on November 16, 2023, requesting a
    meeting and discussing the possible installation of FirstNet
    wireless equipment on property managed by the Federal Reserve.
        Please provide an update on the Fed's involvement in this
    initiative and any ideas the Fed may have to help address the
    challenges with public safety communications.

    A.7. Federal Reserve staff often engage with entities that are
    interested in procurement or services opportunities with the
    Board. We would be happy to follow-up directly with your staff
    on this issue.
                                    ------

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

    Q.1. The Federal Reserve (Fed) announced in October 2023 that
    it would undertake a supplemental data collection to better
    understand the effects of the Basel III Endgame proposal. \1\
    Subsequently, during a fireside chat on January 9, 2024, Vice
    Chair Barr indicated that the public would have an opportunity
    to comment of the results of the Fed's analysis of the data.
    \2\
    ---------------------------------------------------------------------------
         \1\ https://www.federalreserve.gov/newsevents/pressreleases/
    bcreg20231020b.htm
         \2\ https://whfdc.org/events/EventDetails.aspx?id=1812706&group=
    ---------------------------------------------------------------------------
        Does the Fed intend to reopen the comment period on the
    Basel III Endgame rule to allow for comments on the data
    results? If not, how does the Fed plan to provide the public
    with an opportunity to comment?
        What, if any, data does the Fed plan to release as part of
    the results?
        Will independent analysis of the data collected be
    possible?

    A.1. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are in the process of reviewing and assessing the
    data and the comments received on the proposal. While we have
    not yet made any decisions on how to proceed, I am confident
    that the final product will be one that is analytically well-
    grounded and will have broad support among the Board of
    Governors (Board) and the public.

    Q.2. In response to a question regarding whether the Fed was
    willing to withdraw the Basel III Endgame proposal or re-
    propose with significant modifications, you stated, ``[I]n
    terms of process, we're not at the stage of making that
    decision. I will say if it turns out to be appropriate, when we
    get to that point, for us to propose parts or all of the thing,
    then we won't hesitate to do so.'' You went on to state, ``[I]
    expect there will be material and broad changes to the proposal
    before it comes back to the [sic] board for consideration.''
        Do you agree that ``material and broad'' changes to any
    Federal agency proposal would require additional notice and
    comment periods to allow the public an opportunity to review
    and comment to ensure transparency and accountability in the
    rulemaking process? If not, please explain.
        What is a realistic timeline for when the Fed and the other
    Federal banking agencies would decide to withdraw or re-propose
    the Basel III Endgame proposal?

    A.2. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are in the process of reviewing and assessing the
    data and the comments received on the proposal. While we have
    not yet made any decisions on how to proceed, I am confident
    that the final product will be one that is analytically well-
    grounded and will have broad support among the Board and the
    public.

    Q.3. In response to questions regarding the impact of rising
    interest rates on the affordability of housing and whether
    housing supply and demand are in balance, you stated, ``There
    are things in the housing sector that we didn't fully
    anticipate, and one of them was . . . that people in homes with
    very low interest rate mortgages aren't selling. So, the
    quantity of homes that's available is incredibly low and that's
    why there's very little in the way of existing home sales and
    that drives up existing home sale prices but also new home sale
    prices.''
        Please explain what the Fed anticipated would happen to
    housing supply and demand when interest rates were raised in
    response to inflation.
        Has the Fed considered what impact significant additional
    demand stimulus would have on housing affordability in the
    current supply constrained housing market? If yes, please
    explain.
        What would that mean for homeowners, renters, and the Fed's
    ability to bring down inflation?

    A.3. Rising mortgage rates typically reduce overall demand in
    the residential real estate market. The run-up in rates through
    late-2023 contributed to an increase in typical mortgage
    payments for new borrowers that caused home sales to fall
    sharply. \3\ However, several other factors have supported
    underlying demand for housing and prevented significant price
    declines, including the robust job market and the increased
    prevalence of remote work.
    ---------------------------------------------------------------------------
         \3\ For more details, see the box ``Recent Housing Market
    Developments'' in the March 2024 Monetary Policy Report.
    ---------------------------------------------------------------------------
        Housing supply has also faced constraints from both short-
    and long-term factors. In the short term, higher interest rates
    and tighter underwriting by banks significantly increased
    builders' costs of financing, thereby discouraging new
    construction. In addition, a variety of longer-term factors--
    including zoning and other regulatory hurdles and shortages of
    labor and materials--have prevented construction from keeping
    up with underlying demand.
        The interplay between demand and supply has unfolded
    differently across different segments of the housing market.
    High mortgage rates have discouraged some potential sellers
    with low rates on their current mortgages from moving, which
    has kept the existing home market unusually thin. Indeed, there
    has been a dramatic reduction in the number of people both
    selling and bidding on homes. The shortage of available
    existing homes for sale has pushed some remaining homebuyers
    toward newly constructed homes and supported a modest rebound
    in single-family construction since the middle of last year. In
    contrast, after rising to historically high levels in 2022,
    multifamily construction starts have fallen more recently in
    response to builders' concerns about oversupply (which is
    showing up in falling occupancy rates and a slowdown in rents).

    Q.4. Last October, the Fed took the unprecedented step of
    issuing principles for climate-related financial risk
    management. The ``principles'' function as guidance,
    instructing financial institutions on how they should be
    conducting business as it relates to with climate risks. You
    stated when the guidance was adopted, ``It is not the Fed's
    role to tell banks which businesses they can and cannot lend
    to, and this guidance is not intended to do so.'' \4\ Governor
    Bowman warned when voting against the guidance, `` . . . I am
    concerned that the guidance could be used by the Federal
    Reserve and other Federal banking agencies to pursue climate
    policies leveraging the opacity of the supervisory process.''
    \5\
    ---------------------------------------------------------------------------
         \4\ https://www.federalreserve.gov/newsevents/pressreleases/
    powell-statement-20231024b.htm
         \5\ https://www.federalreserve.gov/newsevents/pressreleases/
    bowman-statement-20231024b.htm
    ---------------------------------------------------------------------------
        What safeguards are in place to ensure that this new
    guidance will not be abused by regulators to push political
    climate agendas?

    A.4. The Federal Reserve neither prohibits nor discourages
    financial institutions from providing banking services to
    customers of any specific class or type, as permitted by law or
    regulation. The decision regarding whether to make a loan or to
    open, close, or maintain an account rests with the financial
    institution, so long as the financial institution complies with
    applicable laws and regulations.
        In October 2023, the Federal Reserve, jointly with the
    Federal Deposit Insurance Corporation and the Office of the
    Comptroller of the Currency, finalized Principles for Climate-
    Related Financial Risk Management for Large Financial
    Institutions (the principles) that provide a high-level
    framework for the safe and sound management of exposures to
    climate-related financial risks for large financial
    institutions, those with $100 billion or more in total assets.
    The principles are squarely focused on prudent and appropriate
    risk management, reflecting that the Federal Reserve's
    responsibilities with respect to climate change are narrow and
    tightly linked to our responsibilities for bank supervision.
    The Federal Reserve is not--nor do we seek to be--a climate
    policymaker.

    Q.5. Given that the joint banking agencies issued the Basel III
    Endgame and Long-Term Debt proposals a little over a month
    apart and closed the comment period for both proposals on the
    same date:
        Do the agencies plan to finalize both rules at the same
    time?
        Has the Fed conducted any analysis on the combined impact
    of the two proposals?

    A.5. We are in the process of carefully considering comments on
    all aspects of the proposals, including how each proposal would
    interact with other rulemaking proposals and impact the U.S.
    economy and regulated firms. While we have not yet made any
    decisions on how to proceed, I am confident that the final
    product will be one that is analytically well-grounded and will
    have broad support among the Board and the public.

    Q.6. The Federal Reserve Bank of New York recently detailed the
    rise in household debt, increasing 1.2 percent in the fourth
    quarter of 2023. \6\ The data also reflects that credit card
    and auto loan delinquencies are continuing to rise, with bank
    credit card loan delinquencies now at their highest level in
    over a decade. \7\
    ---------------------------------------------------------------------------
         \6\ https://www.newyorkfed.org/newsevents/news/research/2024/
    20240206
         \7\ https://fred.stlouisfed.org/series/DRCCLACBS
    ---------------------------------------------------------------------------
        Is the Fed concerned with this increasing trend amongst
    borrowers?
        Did the Fed consider short-term borrowing costs and a
    potential increase in debt and delinquency when making the
    decision to quickly increase interest rates in response to
    inflation?

    A.6. Although credit card balances on the whole have risen over
    the past year, this largely reflects a continued reversal of
    declines seen in the early stages of the pandemic. Adjusted for
    inflation, credit card balances have reached their prepandemic
    levels (as of the fourth quarter of 2023).
        Credit card delinquency rates fell to near-record lows
    during the pandemic; they have since risen above their
    prepandemic levels and currently stand at about their long-run
    average starting from the early 2000s (excluding the period of
    the 2007-08 financial crisis and its aftermath). The rise in
    delinquencies to date is not likely to have material effects on
    the aggregate economy or on financial stability, but we will
    continue to monitor developments and the resulting implications
    for the economy.

    Q.7. On February 15, 2024, the Federal Reserve released for the
    first time four hypothetical scenarios in addition to its
    annual stress tests. \8\ The Fed contends that these
    hypothetical scenarios will help provide insight into the
    resiliency of the U.S. banking system and will not have an
    impact on bank capital requirements.
    ---------------------------------------------------------------------------
         \8\ https://www.federalreserve.gov/newsevents/pressreleases/
    bcreg20240215a.htm
    ---------------------------------------------------------------------------
        Will the results of these scenarios be used by bank
    examiners in the supervisory process?
        Will the results of these scenarios factor into a firm's
    CAMELs ratings?

    A.7. In February 2024, the Federal Reserve Board released the
    hypothetical scenarios for its annual stress test, which helps
    ensure that large banks can lend to households and businesses
    even in a severe recession. Additionally, for the first time,
    the Board released four hypothetical elements designed to probe
    different risks through its exploratory analysis of the banking
    system. The exploratory analysis will not affect bank capital
    requirements. The elements of the exploratory analysis will
    complement the 2024 stress test by providing aggregate banking
    system results against different economic and financial
    conditions. The exploratory analysis can inform supervisory
    analysis and deepen our understanding of the resilience of the
    banking system. Exploratory analysis will not determine capital
    requirements or firms' ratings.

    Q.8. According to a USDA forecast released in February--weak
    commodity prices, high interest rates, and lingering
    inflationary pressures will likely sink farm income for a
    second straight year in 2024. Persistent inflation continues to
    elevate costs for farmers and ranchers on inputs ranging from
    labor to equipment to fertilizer. There is widespread concern
    amongst our agricultural producers and lenders that weakening
    commodity prices will make it difficult for farmers and
    ranchers to turn a profit in the near future, resulting in a
    credit squeeze with reverberations across rural economies.
    While our agricultural producers and lenders recognize the
    cyclical nature of their industry and the need to prepare for
    near-term ups and downs, they should not have to worry about
    constraints that will limit the ability of banks to serve
    America's food producers. There is also a growing awareness of
    the Basel III Endgame proposal's impact on farmers and
    ranchers' access to capital and cost of borrowing, as well as
    the role banks have in providing market stability and price
    discovery functions.
        How does the Fed plan to address the uneven inflation
    recovery for our farmers and ensure future credit availability?
        Does the Fed plan to thoughtfully address the concerns
    raised by stakeholders in the agriculture sector with the Basel
    III Endgame proposal? If so, how?

    A.8. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are aware of the concerns that commenters have
    raised about the impact of the rule on the agriculture sector.
    We are in the process of reviewing and assessing the data and
    the comments received on this issue and other aspects of the
    proposal. I am confident that the final product will be one
    that is analytically well-grounded and will have broad support
    among the Board and the public.

    Q.9. It seems that the Fed, along with the other banking
    regulators, have been on a crusade to promulgate as much new
    regulation as possible. Regulations touching everything from
    climate change, mergers and acquisition, liquidity
    requirements, and just about everything in-between. For
    regulated entities and policymakers alike, it is extremely
    difficult to keep pace with the flood of proposals being rushed
    out. Financial institutions are now spending countless hours
    and millions of dollars just to understand these new rules and
    proposals, let alone comply with them.
        How often, if ever, has the Fed analyzed the combined
    impacts and costs of all the new regulations to banks, other
    industries, consumers, and our economy?

    A.9. Congress and the American people rightly expect us to
    achieve an effective and efficient regulatory regime that keeps
    our financial system strong and protects our economy, while
    imposing no more burden than is necessary. Striking this
    balance is critical, but it is also challenging. Therefore,
    public input and thoughtful deliberation are essential.
    Proposals put forward by the Board are accompanied by economic
    impact analyses. Where appropriate, those analyses acknowledge
    the potential interactions of the proposals with other
    regulations. In addition, many of those proposals, and notably
    the Basel III Endgame and the Long-Term Debt proposals
    requested comment on the interaction with other outstanding
    proposals.

    Q.10. During the March 6 hearing before the House Financial
    Services Committee, you indicated that the Fed is working on a
    package of liquidity measures which directly address the
    Silicon Valley Bank (SVB) failure.
        Does the Fed intend to gather and analyze thorough data and
    information prior to releasing a proposed rule or guidance?
        What is the timeline for release of a proposal addressing
    these liquidity measures?

    A.10. The events of the first half of 2023--in particular, the
    unprecedented level and speed of deposit outflows at a few
    firms--have underscored the importance of liquidity risk
    management. In light of this experience, the Board is carefully
    considering how we supervise and regulate liquidity risk. Any
    changes to our liquidity rules would be expected to go through
    the normal notice and public comment process.
                                    ------

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

    Q.1. We are a year out from the Silicon Valley Bank blow up and
    bailout. Isn't it true that increasing capital requirements, as
    the Fed is proposing in its NPRM, would reduce the costs and
    likelihood of bailing out greedy, mismanaged banks like SVB?
        Do you stand by the Fed's assessment that the NPRM to
    increase capital requirements will increase lending costs by
    just 3 basis points?

    A.1. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are in the process of reviewing and assessing the
    data and the comments received, including those on the impact
    of the proposal on lending costs. I am confident that the final
    product will be one that is analytically well-grounded and will
    have broad support among the Federal Reserve Board (Board) and
    the public.

    Q.2. Your predecessor, Paul Volcker, once said that ``just
    about whatever anyone proposes, no matter what it is, the banks
    will come and claim that it will restrict credit and harm the
    economy . . . it's all [baloney].'' \1\ Do you agree that
    claims about increasing capital requirements are without merit?
    ---------------------------------------------------------------------------
         \1\ Jeff Connaughton, ``The Payoff: Why Wall Street Always Wins'',
    Prospecta Press, 2012, p.200.

    A.2. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are in the process of reviewing and assessing the
    data and the comments received. I am confident that the final
    product will be one that is analytically well-grounded and will
    ---------------------------------------------------------------------------
    have broad support among the Board and the public.

    Q.3. All the big banks claim that increasing capital
    requirements would be terrible because equity funding is
    allegedly so much more expensive than debt funding. Yet many
    American companies are funded primarily through equity. Apple,
    for example went for decades without issuing debt, funding its
    operations through equity and not issuing dividends. The big
    banks do the exact opposite: loading up on debt and shoveling
    their earnings out to shareholders as fast possible.
        Did Steve Jobs somehow mismanage Apple by not loading up on
    debt like the big banks do?
        What benefits, if any, do working Pennsylvanians get from
    letting federally insured banks remain highly leveraged and
    shovel profits out the door as fast possible?

    A.3. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are in the process of reviewing and assessing the
    data and the comments received. I am confident that the final
    product will be one that is analytically well-grounded and will
    have broad support among the Board and the public.

    Q.4. Do you agree with SEC Chair Gensler that stablecoins are
    basically just poker chips at the crypto casino? Aren't
    stablecoins just the newest quote-unquote ``safe'' asset that
    will blow up the economy and get bailed out?

    A.4. Payment stablecoins are a form of private money, subject
    to the same run risk as all such forms of money. Depending on
    their specific design and use case, stablecoins may pose risks
    to U.S. consumers, financial institutions, and the broader
    payment system, especially if they grow to a large scale. Any
    instrument that is claimed to represent the U.S. dollar must be
    well-regulated to protect U.S. households and businesses. The
    principle of ``same risk, same regulation'' will ensure an even
    playing field for stablecoins versus more traditional forms of
    money-like assets. This principle iterates that when crypto
    companies are engaging in the same activities as traditional
    financial intermediaries, leading to the same risks, they
    should be subject to the same rules.
        As described in the interagency President's Working Group
    on Financial Markets ``Report on Stablecoins'' in 2021,
    legislation from Congress is integral to ensuring risks
    associated with stablecoins are adequately managed. \2\ The
    report also noted that stablecoins, if appropriately regulated
    and well-designed, could support faster, more efficient, and
    more inclusive payment options. Any legislation on stablecoins
    should include a Federal statutory prudential framework for
    stablecoins that fully addresses the risks they pose.
    ---------------------------------------------------------------------------
         \2\ See https://home.treasury.gov/system/files/136/
    StableCoinReport-Nov1-508.pdf.
    ---------------------------------------------------------------------------
                                    ------

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

    Q.1. Last September, the Federal Reserve, the Federal Deposit
    Insurance Corporation and the Office of the Comptroller of the
    Currency proposed a rule to require certain large bank holding
    companies to issue and maintain a minimum amount of long-term
    debt.
        My Republican colleagues on this Committee and I, led by
    Senator Britt, sent you a letter on January 17, highlighting
    our concern that the lack of tailoring in the Long Term Debt
    proposed rule contradicts the statutory requirements of the
    Economic Growth, Regulatory Relief, and Consumer Protection Act
    (S. 2155).
        The proposed rule fails to apply tailoring principles and
    treats Category II, III, and IV financial institutions in an
    identical fashion for purposes of long-term debt issuances. It
    also imposes an additional burden to category II-IV banks by
    requiring them to issue LTD at both the parent holding company
    and bank level, where U.S. Globally Systemically Important
    Banks, or ``G-SIBs'' need only to issue LTD from the parent
    company.
        Chair Powell, will you commit to tailoring the LTD final
    rule, in accordance with the spirit and letter of S. 2155?

    A.1. Differentiating regulatory requirements based on the
    characteristics of banking organizations has long been an
    important feature of the Federal Reserve Board's (Board)
    regulatory framework. I am committed to maintaining the
    strength and diversity of the banking system so that it can
    continue to provide financial services and access to credit for
    households and businesses. It is important that our regulation
    and supervision reflect the size and risks associated with
    different firms. The proposal invited the public to comment on
    the Board's proposed differentiation of the long-term debt
    requirements, and whether the Board should adjust the proposed
    application and scope of the rule. We are in the process of
    carefully considering these and other comments received on the
    proposal. While we have not yet made any decisions on how to
    proceed, I am confident that the final product will be one that
    is analytically well-grounded and will have broad support among
    the Board and the public.
                                    ------

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

    Q.1. In 2020, the Federal Reserve gave BlackRock assurances
    that, as long as they stay below 25 percent ownership of a
    bank, they will not be labeled Bank Holding Companies (BHCs).
    The Federal Reserve has also given State Street and other asset
    managers similar commitments. However, as you may know, this is
    not the only trigger in the Bank Holding Company Act to be
    designated a BHC. Another criteria that can trigger a BHC
    designation is whether a company ``directly or indirectly
    exercises a controlling influence over the management or
    policies of the second company.''
        And I should note that when the Federal Reserve granted
    these assurances, your agency also required the asset managers
    make various commitments. One of these states that the asset
    managers will not ``exercise or attempt to exercise a
    controlling influence over the management or policies of any
    Bank or any of its subsidiaries.''
        While I appreciate the Federal Reserve requiring these
    commitments, I'm concerned that both the regulators and the
    public lack insight into whether the asset managers are abiding
    by these requirements. As you may know, BlackRock, Vanguard,
    and State Street file shortened beneficial ownership
    disclosures--13G filings rather than 13D filings--due to their
    status as passive investors. As a result, the public and
    regulators lack insight into their stewardship activities and
    more specifically, insight into their engagement with
    executives at, and boards of, banks and other portfolio
    companies in which they are invested.
        Given this, I'm worried the big three asset managers may
    not be abiding by their commitments and instead hiding
    pertinent activities from the Federal Reserve, SEC, and other
    regulators.
        With that in mind, will the Federal Reserve reevaluate
    assurances made to State Street and BlackRock regarding BHC
    designation and consider labeling them BHCs if the asset
    managers continue to avoid disclosing their corporate
    stewardship activities?

    A.1. Asset managers invest on behalf of their clients in
    regulated banking entities, including Federal Reserve Board-
    regulated banking entities. A number of asset managers have
    engaged in discussions with Federal Reserve Board (Board) staff
    about how and when statutory control requirements apply to
    their investment activity in Board-regulated banking entities.
    As a result of this engagement, some asset managers have
    provided commitments to the Board to limit their investments,
    activities, and relationships with respect to Board-regulated
    banking entities. In each case, the asset managers have
    committed that they will not ``attempt to influence the
    dividend policies; loan, credit, or investment decisions or
    policies; pricing of services; personnel decisions; operations
    activities (including the location of any offices or branches
    or their hours of operation, etc.); or any similar activities
    or decisions of any Board-regulated banking entity or any of
    its subsidiaries.'' \1\
    ---------------------------------------------------------------------------
         \1\ See the appendices in Letter from Scott G. Alvarez, General
    Counsel, Board of Governors of the Federal Reserve System, to Satish M.
    Kini, Debevoise & Plimpton LLP (April 11, 2013), at https://
    www.federalreserve.gov/supervisionreg/legalinterpretations/bhc-
    changeincontrol
    20130413.pdf; Letter from Mark E. Van Der Weide, General Counsel, Board
    of Governors of the Federal Reserve System, to Anne E. Robinson,
    Managing Director, General Counsel and Secretary, The Vanguard Group,
    Inc. (November 26, 2019), at https://www.federalreserve.gov/
    supervisionreg/legalinterpretations/bhcchangeincontrol20191126a.pdf;
    Letter from Scott G. Alvarez, General Counsel, Board of Governors of
    the Federal Reserve System, to Jeffrey Hare, DLA Piper LLP (April 27,
    2016), at https://www.federalreserve.gov/bankinforeg/
    LegalInterpretations/bhc-changeincontrol20160427.pdf; Letter from Scott
    G. Alvarez, General Counsel, Board of Governors of the Federal Reserve
    System, to Satish M. Kini, Debevoise & Plimpton LLP (June 15, 2017), at
    https://www.federalreserve.gov/bhc--changeincontrol20170615.pdf; Letter
    from Mark E. Van Der Weide, General Counsel, Board of Governors of the
    Federal Reserve System, to Donald S. Waack, Mayer Brown LLP (April 5,
    2018), at https://www.federalreserve.gov/bhc-
    changeincontrol20180405.pdf; Letter from Mark E. Van Der Weide, General
    Counsel, Board of Governors of the Federal Reserve System, to William
    J. Sweet, Jr., Skadden, Arps, Slate, Meagher, and Flom LLP (December 3,
    2020), at https://www.federalreserve.gov/supervisionreg/
    legalinterpretations/blackrock-letter-20201203.pdf; and Letter from
    Mark E. Van Der Weide, General Counsel, Board of Governors of the
    Federal Reserve System, to Robert J. Rhatigan, Dechert LLP (May 6,
    2021), at https://www.federalreserve.gov/supervisionreg/
    legalinterpretations/virtus-letter-20210506.pdf.
    ---------------------------------------------------------------------------
        These commitments are conditions imposed in writing in
    connection with the interpretive letters, and firms that fail
    to comply with their commitments are subject to the Board's
    enforcement authority. \2\ Like other investors that provide
    commitments to the Board, asset managers are required to
    certify their compliance with the commitments on request. For
    example, BlackRock and Vanguard provided such certifications in
    April 2024 and March 2023, respectively.
    ---------------------------------------------------------------------------
         \2\ See 12 U.S.C. 1818.
    ---------------------------------------------------------------------------
        The Board can and does monitor the ownership levels of
    investors, including asset managers, in Board-regulated banking
    entities in several other ways. Every parent bank holding
    company and savings and loan holding company is required to
    file annual reports with the Board. Among other things, this
    report requires each holding company to list each securities
    holder that owns, controls, or holds with the power to vote 5
    percent or more of any class of voting securities of the
    holding company as of its fiscal year end. \3\ This information
    allows Federal Reserve staff to monitor ownership levels in
    Board-regulated banking entities (including ownership by asset
    managers) and ensure compliance with filing obligations under
    the Bank Holding Company Act, Home Owners' Loan Act, and the
    Change In Bank Control (CIBC) Act. Furthermore, during an
    inspection of a holding company, Federal Reserve supervisors
    also review and discuss the composition and strategy of the
    firm's board of directors and management with the firm's
    management. The inspection provides supervisors visibility into
    whether there are any change of control or undue influence
    issues, including with respect to the influence of asset
    managers. Additionally, for any asset manager that files a CIBC
    Act notice with the Board, the Board typically requests a list
    of all entities in which the asset manager has an equity
    investment over a certain threshold, and the percentage of
    voting equity owned.
    ---------------------------------------------------------------------------
         \3\ See ``Instructions for the Preparation of the Annual Report of
    Holding Companies, Reporting Form FR Y-6, Report Item 3: Securities
    Holders'', GEN-9 (Effective December 2022), at https://
    www.federalreserve.gov/apps/reportingforms/Download/
    DownloadAttachment?guid=63605a60-09b7-4bf5-b0cc-c931beb9b0b1.

    Q.2. You noted insurance prices are rising due to ``a million
    different factors.'' Isn't it true that since the COVID-19
    pandemic inflation in insurance cost inputs have risen faster,
    and higher on a cumulative basis, than broader inflation?
        For auto insurance this might include cost inputs such as
    used cars and trucks values, motor vehicle parts and equipment,
    and motor vehicle repair and maintenance costs. For homeowners
    insurance this might include costs inputs such as single-family
    residential construction trade services and labor, rent of
    shelter and household furnishings and operations.
        Can you share the extent to which these costs have risen
    since the COVID-19 pandemic in comparison to broader CPI or
    PPI, for the same time period?
        In comparing CPI and PPI data from the Bureau of Labor
    Statistics for these specific insurance cost inputs and
    inflation in premiums for private passenger auto insurance and
    premiums for homeowners insurance, could you share if insurance
    premiums are keeping pace with these cost inputs, meaning as
    high and as fast?

    A.2. Insurance plays an important role in transferring risk to
    the financial sector participants best positioned to manage and
    hold it. While the Federal Reserve does not regulate the way
    insurance is provided or the types of insurance provided, a
    significant erosion in the availability and affordability of
    insurance could have adverse effects on the broader economy.
    Gaps in insurance protection can have consequences for
    homeowners, businesses, and State and local governments, as
    well as for the value of their assets. These effects in turn
    may impact the safety and soundness of supervised institutions,
    the stability of the financial system, or the broader economy.
        Although comprehensive and timely data to monitor trends in
    insurance markets are limited, some evidence suggests that the
    cost of certain types of insurance (e.g., motor vehicle
    insurance and homeowners' insurance) has risen much faster than
    overall inflation. According to the consumer price index (CPI),
    vehicle insurance premiums are up more than 40 percent since
    December 2019, and the cost of vehicle maintenance and repair
    (likely the largest cost factor for insurers) has increased 35
    percent. Data from the National Association of Insurance
    Commissioners suggest insurance revenues, a rough proxy for the
    price of insurance, have also risen faster than overall
    inflation. \4\ Specific comparisons between cost inflation and
    insurance rates are difficult due to lags between when insurers
    experience claim costs and when they reflect them in rates.
    Insurance rates also reflect competitive decisions and, in some
    States, regulatory rate approvals.
    ---------------------------------------------------------------------------
         \4\ Homeowners insurance is out of scope for the CPI. The CPI
    includes ``rental equivalence'' to measure the cost of home ownership,
    and insurance costs are assumed to be captured by owners' equivalent
    rent, so there is no easy way to gauge the precise impact.
    ---------------------------------------------------------------------------
        The recent rise in insurance costs reflects a combination
    of factors, including rising home and vehicle prices, an
    increase in the cost of materials and labor for repairs, a rise
    in the cost of reinsurance, changes in postpandemic driving
    behaviors, greater building in high-risk areas, litigation
    rules and trends, and growing losses from more frequent or
    severe weather events. Mitigation actions that reduce the
    likelihood or severity of insurance claims may help in reducing
    increases in insurance premiums.
        Insurance availability reflects individual insurer
    decisions balancing several factors. Some of the key
    considerations include: the extent to which insurers are
    confident that they can measure and price the risks they are
    assuming; the extent they can charge a premium that reflects
    the risk, their input costs, and their financial and
    competitive goals; the extent that coverages fit their
    strategic and risk management goals; and any constraints from
    regulation and capital capacity. Insurance insolvencies also
    have the potential to affect the availability and affordability
    of insurance.
        Government-run insurance programs can provide support to
    markets where private insurance coverage is insufficient. As
    you note, there may also be other measures, such as those
    related to loss prevention, that are effective in maintaining
    the availability and affordability of private insurance
    coverage.

    Q.3. Aside from these economic factors, there may be other
    factors, such as growth in exposures in high weather risk
    regions, increasing litigation, and regulatory environments.
    Could you expand on these various other factors that are
    significantly contributing to rising insurance costs?

    A.3. Please see my response to Question 2.

    Q.4. In your testimony you mentioned some companies ``are
    withdrawing from writing insurance'' in certain regions and
    made reference to the effects of ``insurance coverage on the
    overall stability of the financial institutions in the broader
    economy.''
        Would you agree that it is a prudent business decision to
    take steps to de-risk if a company is not allowed to charge the
    premiums indicated by the costs being assumed?
        To ensure companies are well positioned financially to
    cover future liabilities, would you agree it is important for
    an insurance company to maintain a high ``Financial Strength
    Rating'', and ratings downgrades stemming from issues such as
    diminished capital and surplus due to excessive losses and
    delays in rate approvals, can have financially adverse
    consequences on a company?
        You noted the Fed is ``monitoring the rising costs of
    insurance and its impacts on macro economy''. Would you agree
    that it negatively affects consumers if insurance companies
    become insolvent because rates are ``inadequate'' and premiums
    too low? Would you agree that it negatively affects the broader
    financial sector if insurance companies become insolvent
    because rates are ``inadequate'' and premiums too low?

    A.4. Please see my response to Question 2.

    Q.5. You noted the increases in insurance prices have ``been
    adding meaningfully to inflation.'' Would you agree that
    insurance company solvency, much like any business, depends on
    revenue streams that are adequate to cover costs and expenses?
        This means, in the insurance context, insurance departments
    must approve adequate rates, which is charged as premium, to
    ensure a functioning insurance market? And is it appropriate to
    compare current overall inflation measures with the increases
    in insurance premiums needed because rates have been suppressed
    in some markets for several years?

    A.5. Please see my response to Question 2.

    Q.6. In your testimony you pondered whether ``the Government
    will have to step in'' due to a lack of insurance. To ensure a
    healthy and functioning insurance market, companies must be
    able to charge an adequate rate to cover their losses and
    expenses. Though, with rising losses and underlying cost
    inputs, would you agree the Government should incentivize the
    adoption and enforcement of building codes and proven
    mitigation and resiliency measures to reduce risk, which as a
    result, could significantly improve affordability and
    availability by reducing overall losses?

    A.6. Please see my response to Question 2.
                                    ------

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

    Q.1. In reference to the Federal Reserve's consideration of
    potential changes to proposed rules to strengthen capital
    requirements for large banks (the ``Basel proposal''), you
    stated: ``[My] guess is this can be done this year, but it
    could be faster than that.''
        If the Basel proposal is resubmitted, will the Federal
    Reserve provide a public comment period that is the same
    duration as the public comment period for the initial proposal?
    If not please provide context as to why this would not be the
    case.

    A.1. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are in the process of reviewing and assessing the
    data and the comments received on the proposal. While we have
    not yet made any decisions on how to proceed, I am confident
    that the final product will be one that is analytically well-
    grounded and will have broad support among the Federal Reserve
    Board and the public.

    Q.2. There has been significant concern raised about the
    mortgage capital provisions in the Basel proposal.
        Are there any concerns raised in comment letters that the
    Fed is currently working on addressing?

    A.2. We have received voluminous substantive comments on the
    capital proposal, as well data from the quantitative impact
    studies. We are aware of the concerns that commenters have
    raised about the mortgage capital provisions. We are in the
    process of reviewing and assessing the data and the comments
    received on the proposal. While we have not yet made any
    decisions on how to proceed, I am confident that the final
    product will be one that is analytically well-grounded and will
    have broad support among the Federal Reserve Board and the
    public.

    Q.3. The Fed currently holds about $2.6 trillion of mortgage-
    backed securities (MBS) in its securities portfolio, about a
    quarter of the total MBS market. Kansas City Federal Reserve
    President Esther George has stated that Fed officials agree in
    principle that the central bank's securities portfolio should
    only include assets issued by the U.S. Treasury--not those
    backed by mortgages.
        How is the Fed considering the effects of reducing its MBS
    footprint on housing markets?

    A.3. The Federal Reserve conducts monetary policy in pursuit of
    its statutory mandate to promote price stability and maximum
    employment. In response to the pandemic, the Federal Reserve
    purchased large volumes of Treasury securities and agency
    mortgage-backed securities (MBS) in the amounts needed to
    ensure smooth market functioning and the effective transmission
    of monetary policy to broader financial conditions. With the
    economic recovery well along, the Federal Reserve began to
    gradually reduce the size of its securities holdings beginning
    in June of 2022 consistent with its previously announced
    principles and plans for reducing the size of the balance
    sheet. \1\ Since then, the Federal Reserve's securities
    holdings have declined by about $1.6 trillion.
    ---------------------------------------------------------------------------
         \1\ See https://www.federalreserve.gov/newsevents/pressreleases/
    monetary20220126c.htm and https://www.federalreserve.gov/newsevents/
    pressreleases/monetary20220504b.htm.
    ---------------------------------------------------------------------------
        At present, the Federal Reserve's agency MBS holdings stand
    at about $2.4 trillion and are running off at a pace of about
    $15 billion per month. As noted in the Federal Open Market
    Committee's (FOMC) statement of Principles for Reducing the
    Size of the Balance Sheet, in the longer run, the FOMC intends
    to hold primarily Treasury securities in the Federal Reserve
    System Open Market Account (SOMA) portfolio, thereby minimizing
    the effect of Federal Reserve holdings on the allocation of
    credit across sectors of the economy. The gradual pace of
    runoff of agency MBS implies that returning to a SOMA portfolio
    that consists primarily of Treasury securities will take some
    time. For example, the SOMA annual report includes some
    illustrative projections for the Federal Reserve's balance
    sheet. \2\ In these projections, agency MBS holdings decline by
    about $1.6 trillion over the next 10 years. The agency MBS
    market has adapted well to the gradual reduction in the Federal
    Reserve's holdings and that process seems likely to continue to
    proceed smoothly, with the Federal Reserve's presence in this
    market continuing to diminish over time.
    ---------------------------------------------------------------------------
         \2\ See https://www.newyorkfed.org/medialibrary/media/markets/omo/
    omo2023-pdf.pdf.
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