[Senate Hearing 118-792]
[From the U.S. Government Publishing Office]
S. Hrg. 118-792
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
__________
JULY 9, 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
63-648 PDF WASHINGTON : 2026
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
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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TUESDAY, JULY 9, 2024
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 42
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 43
WITNESS
Jerome H. Powell, Chair, Board of Governors of the Federal
Reserve System................................................. 6
Prepared statement........................................... 45
Responses to written questions of:
Chair Brown.............................................. 47
Senator Scott............................................ 49
Senator Van Hollen....................................... 58
Senator Hagerty.......................................... 59
Additional Material Supplied for the Record
Monetary Policy Report to the Congress dated July 5, 2024........ 61
Documents submitted for the Record............................... 135
(iii)
THE SEMIANNUAL MONETARY POLICY REPORT
TO THE CONGRESS
----------
TUESDAY, JULY 9, 2024
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 216,
Hart Senate Office Building, Sherrod Brown, Chair of the
Committee, presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. The Committee on Banking, Housing, and Urban
Affairs will come to order.
Welcome, Chair Powell. Nice to have you back. Good to have
you first this time of year.
Ohioans know, Americans know, that our economy
fundamentally is not a fair playing field. Instead, we have a
David-and-Goliath economy where the largest corporations use
their power to funnel all the gains in the economy to the top,
aided and abetted by too many people in this room. Corporations
squeeze every last penny from Americans' pocketbooks and
workers' paychecks.
They don't even try to hide it anymore. The biggest
corporations are charging more for less. Americans are
frustrated. No. Actually, Americans are pissed off. They have
fewer and fewer choices. Those choices cost more and more.
Keeping prices down is part of the Fed's mandate. But as many
of us have made clear, the Fed's main tool to combat
inflation--raising interest rates--does nothing to address the
biggest causes of rising prices right now, corporate greed.
Keeping rates too high for too long threatens workers'
paychecks while keeping other costs high, particularly housing
costs. Housing prices and rents continue to go up. It's no
surprise that since the Fed began raising rates the amount of
income families need to qualify for a mortgage has nearly
doubled. Home ownership has long been a bedrock of our middle
class, but today fewer and fewer middle class families can
afford to buy a home.
Higher interest rates are making our country's housing
supply shortage worse, not better. We need more housing
construction of all types. Higher rates lead to the opposite
and particularly make it harder for multifamily construction to
work financially. Higher interest rates make borrowing more
expensive for working families, whether it's for a mortgage or
a car or anything else.
Most people don't have the luxury of paying for everything
in cash. And for the millions of Americans feeling their
budgets stretched by higher prices, taking on credit card debt
to pay for groceries and other essentials has become an option
of last resort.
But as more people struggle to pay down their debts, credit
card interest rates are reaching all-time highs. Last month,
Director Chopra testified in front of this Committee and
explicitly stated that credit card issuers are charging higher
rates far beyond what they need to cover their costs, corporate
greed rearing its head again.
Banks are making record profits at the expense of cash-
strapped Americans. Every month that the Fed keeps rates high,
Mr. Chair, it costs Americans money by making it more expensive
to buy a house and to borrow money. Higher borrowing costs
stifle future economic growth, leading to fewer homes being
built, leading to businesses making fewer investments in the
economy, and eventually, if the Fed doesn't stop, leading to
workers losing their jobs.
As they set economic policy, I urge the Fed to weigh these
tradeoffs and remember whose jobs and futures are at stake.
It's why I have worked with my colleagues to hold corporations
accountable and will continue to do that. For instance, we
fought to cap insulin prices for senior citizens. We'll
continue to fight to extend this price gap--this price cap--on
lifesaving drugs for all Americans, and why my colleagues and I
on this Committee are working--it's why we're working to lower
housing costs for more Americans.
The Fed also continues its work to keep the banking system
stable and ensure consumers' money is safe. Last year, the Fed
and other bank regulators issued a proposal to update bank
capital requirements, strong capital standards, and you've
heard in this Committee overwhelming support for strong capital
standards.
They are critical for the economy. It's our way of making
sure that if Wall Street's bets go poorly, which they often do,
investors, executives, and shareholders should pay for it, not
taxpayers. The biggest banks have spent--have spent obscene
amounts of money attacking this Fed proposal. But you, the Fed,
don't work for big banks. You work for the American people.
Your concern should be developing capital rules that protect
Americans' money, not protect bank CEO's stock portfolios. The
Fed needs to look past these shameless lobbying efforts and
finalize a rule in the best interest of taxpayers.
Another dangerous piece of the Wall Street business model
that makes our banking system less safe is incentive-based
compensation. This compensation model rewards risky behavior
that enriches Wall Street executives in the short term but
banks--makes banks more likely to fail.
We saw the results of that model in 2008. We saw it again
last year with the failure of Silicon Valley Bank and
Signature. Other regulators have moved forward with a proposal
to rein in these reckless incentives, but the rule, Mr. Chair,
can't move forward without your and the Fed's moving on it.
This rule is long overdue. The Fed must join the statutorily
required effort as soon as possible.
The Fed also has the important job of reviewing mergers and
acquisitions between and among banks. Over the last several
decades, we've seen the largest banks grow into massive,
literally trillion-dollar companies, while thousands of small
banks in rural communities in northwest and southeast Ohio, in
small towns in those areas, and all across America, have
disappeared. Consumers have lost trust at local banks. Small
businesses have lost long-time reliable banking partners.
Regulators like the Fed have the crucial job of guarding
against mergers that reduce or eliminate competition and lead
to bank closures or layoffs.
I recently sent comment letters to the OCC and the FDIC on
their current efforts. I expect the Fed to take the proper
steps to ensure that its merger review process is robust and
that it protects consumers and communities.
Finally, Mr. Chair, you must ensure the Fed has high
ethical standards. Fed officials should never again be able to
profit from their positions by using confidential plans about
Fed monetary policy and emergency programs to pad their
investment portfolios.
The Board's latest update to its trading rules is simply
not good enough. It still fails to establish the clear
penalties needed for Federal Reserve officials who make
investments in violation--in violation of the public trust. A
rule with no consequences is really not much of a rule at all.
The American people need to be able to trust that the
Federal Reserve works for them in a time of deep cynicism that
people have about the Federal Government overall, and the
American people need to know that officials aren't abusing
their positions for personal gain.
As chair, you have an important role to play to make sure
the economy works for everyone, not just for Wall Street. The
Fed's regional banks must do their part to hear from people and
other stakeholders in their 12 districts to understand their
needs.
I look forward to hearing today how the Fed will balance
its dual mandate, how it will protect Americans' money, how it
will foster an economy that upholds the dignity of work.
Senator Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you, Mr. Chairman.
Thank you, Chair Powell, for being with us this morning.
Welcome, and welcome back.
Joe Biden broke this economy, and it has been very
difficult to fix it. That's the bottom line. I want to start
with the end in mind. Joe Biden broke our economy, and it is
very difficult for anyone to fix it.
Everyday families are struggling to put food on the table.
Real wage growth is being eaten away by rising prices and
runaway inflation. Think about the fact that for 52 consecutive
weeks under Joe Biden, wages were eclipsed by inflation. For 52
consecutive paychecks.
I remember back in December 2020, in South Carolina gas was
$1.99 per gallon. Today it's still $3.19 per gallon, a 50
percent increase in just a few years. So, it's devastating to
the average American family, particularly families like the one
I grew up in, a single-parent household mired in poverty.
When you see your gas prices up 50 percent, your food up 30
percent, your cost of keeping your house cool or warm up 25
percent, it's not a challenge. It's not unfortunate. It's an
absolute crisis. And too many households in America today are
living paycheck to paycheck, and they fear the challenges that
are coming our way, the headwinds brought to us by the Biden
administration.
Those headwinds, of course, are seen through the prism of
inflation. Inflation hasn't been this high since the Jimmy
Carter years, and that devastation is being felt and measured
in the households by too much money at the end of the month.
And that devastation is real for the vast majority of
Americans.
And the finger pointing--I'll tell you what, whether--it's
the Biden administration throwing the Fed under the bus or any
other way they can deflect from the real problem. I've seen it
committee hearing after committee hearing after committing
hearing. My friends on the left want to point their fingers at
anyone other than the real culprit at 1600 Pennsylvania Avenue.
The progressive wish list spending projects and out-of-
control regulations of this Administration continues to eat
away at American paychecks, and they continue to blame--whether
it's shrinkflation, greedflation, skimpflation--they are
looking for someone to blame except for Bidenflation. The
devastation of Joe Biden's economic policy continues to impact
everyday Americans.
The American people see through the facades, and they want
real solutions. It doesn't take a Ph.D. economist to understand
what the average American is experiencing under this
Administration.
When President Biden and my Democratic colleagues pumped
trillions of dollars into our economy, those dollars increased
the demand and pushes prices higher. It's that simple. The
American people see and feel it every single time, and they see
it, as I said earlier, at the grocery stores, the gas stations,
at the doctor's office. It's just undeniable the impact that is
happening.
Just last week we celebrated the birth of our country, the
birth of this notion of freedom and liberty. But American
families got slapped with the most expensive July 4th on record
with a cookout this year costing on average 30 percent more
than it did just a few years ago. I call that hogwash.
What's worse is that this Administration doesn't want to
learn a lesson in economics. Instead of reducing the push for
more spending and more regulation, they only simply double
down. Let's take, for example, the tens of billions of dollars
of student loan forgiveness, constant new plans to forgive more
money, regardless of the constitutionality of their decisions.
So, it's important to ask, who are these billions of
dollars of forgiveness actually benefiting? Well, the answer is
simple. This forgiveness scheme will result in debt relief for
750,000 individuals from households with an average income of
300,000 or more. And just don't forget the fact that the
average American family has a household income around $74,000.
So, what we're doing with this unconstitutional student
loan forgiveness is actually asking the median household of
$74,000 per household to bear the burden of forgiving debt for
students who live in households of over $300,000. And the
actual cost of this, somewhere between $870 billion and $1.4
trillion.
So, why do I have to even ask the question? Why do we
continue to punish American families struggling paycheck to
paycheck with a new scheme to relief households over $300,000
of student loan debt? Well, the answer is pretty simple.
Politics. It's one way to buy vote after vote after vote for
November's election. It's just hard to imagine.
So, while I appreciate your measured words outlining the
Fed's work to cool inflation, I think it's past time we all
recognize what is truly going on: political pandering from the
left. I strongly believe that our economy cannot handle any
more of this wasteful spending. And if you disagree, I would
love to hear your thoughts on that.
But it's not just spending policies that stifle growth.
It's also overregulation, and I can't think of a better example
of overregulation than parking more capital on the sidelines
through Basel III endgame. That proposal itself would cost
millions of Americans their chance to own a home, start a small
business, and have access to the credit and the capital
necessary to make their American dreams come true.
For those who are actually watching this hearing today on
C-SPAN, Basel III capital requirements are like taking your
star quarterback, Dak Prescott, and telling him to sit on the
sidelines because he just might get injured during the season.
It's just plain ridiculous. But these proposed capital
requirements would just do that, forcing more money to the
sidelines of the greatest economy on the planet and out of the
hands of first-time homebuyers, business owners, and folks
trying to achieve the American dream.
The stakes are high, and that is why we have to get this
right. You've heard me say this a number of times, but it bears
repeating. We need transparency in your rulemaking process as
this enormous proposal lacks any form of clear justification.
Chairman Powell, it is essential that you and your fellow
governors and the other agencies join in this rulemaking,
following the law, do the homework, and then let the public
check the work. That's why I believe that it is absolutely
necessary to have a complete re-proposal of Basel III endgame.
Give the stakeholders an opportunity to take a look at it, and
then recalibrate what is necessary going forward.
Any increases in capital that are not quantitatively
justified harm the American people who need it most. Our
farmers, homebuyers, small businessowners, need and deserve
access to credit.
Therefore, I'll repeat it one more time, you need to
restore confidence in this rulemaking process, pull the
existing proposal, and have a complete restart. And then, when
the data has been analyzed and is available for the public
scrutiny, reissue an appropriate proposed rule following the
requirements of the APA.
I look forward to your opening statement and having a
chance to have a conversation afterwards.
Chair Brown. Thank you, Senator Scott.
Mr. Chair, welcome. Thank you for your service and for your
testimony today. Please proceed.
OPENING STATEMENT OF JEROME H. POWELL, CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. 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.
The Federal Reserve remains squarely focused on our dual
mandate to promote maximum employment and stable prices for the
benefit of the American people. Over the past 2 years, the
economy has made considerable progress toward the Fed's 2
percent inflation goal, and labor market conditions have cooled
while remaining strong. Reflecting these developments, the
risks to achieving our employment and inflation goals are
coming into better balance.
I will review the current economic situation before turning
to monetary policy.
Recent indicators suggest that the U.S. economy continues
to expand at a solid pace. Gross domestic product growth
appears to have moderated in the first half of this year
following impressive strength in the second half of last year.
Private domestic demand remains robust, however, with slower
but still-solid increases in consumer spending. We have also
seen moderate growth in capital spending and a pickup in
residential investment so far this year. Improving supply
conditions have supported resilient demand and the strong
performance of the U.S. economy over the past year.
In the labor market, a broad set of indicators suggests
that conditions have returned to about where they stood on the
eve of the pandemic: strong, but not overheated. The
unemployment rate has moved higher but was still at a low level
of 4.1 percent in June. Payroll gains averaged 222,000 per
month in the first half of the year.
Strong job creation over the past couple of years has been
accompanied by an increase in the supply of workers, reflecting
increases in labor force participation among individuals aged
25 to 54, so-called workers in their prime working years, and a
strong pace of immigration.
As a result, the jobs-to-workers gap is well down from its
peak and now stands just a bit above its 2019 pre-pandemic
level. Nominal wage growth has eased over the past year. The
strong labor market has helped narrow long-standing disparities
in employment and earnings across demographic groups.
Inflation has eased notably over the past couple of years
but remains above the Federal Open Market Committee's longer-
run goal of 2 percent. Total personal consumption expenditures
prices rose 2.6 percent over the 12 months ending in May. Core
PCE prices, which exclude the volatile food and energy
categories, also increased 2.6 percent.
After a lack of progress toward our 2 percent inflation
objective in the early part of this year, the most recent
monthly readings have shown modest further progress. Longer-
term inflation expectations appear to remain well anchored, as
reflected in a broad range of surveys of households,
businesses, and forecasters, as well as measures from financial
markets.
Our monetary policy actions are guided by our dual mandate
to promote maximum employment and stable prices for the
American people. In support of these goals, the committee has
maintained the target range for the Federal funds rate at 5\1/
4\ to 5\1/2\ percent since last July, after having tightened
the stance of monetary policy significantly over the previous
year-and-a-half. We have also continued to reduce our
securities holdings. At our May meeting, we decided to slow the
pace of balance sheet runoff starting in June, consistent with
the plans released previously. Our restrictive monetary policy
stance is helping to bring demand and supply conditions into
better balance and to put downward pressure on inflation.
The committee has stated that we do not expect it will be
appropriate to reduce the target range for the Federal funds
rate until we have gained greater confidence that inflation is
moving sustainably toward 2 percent. Incoming data for the
first quarter of this year did not support such greater
confidence. The most recent inflation readings, however, have
shown some modest further progress, and more good data would
strengthen our confidence that inflation is moving sustainably
toward 2 percent. We continue to make decisions meeting by
meeting. We know that reducing policy restraint too soon or too
much could stall or even reverse the progress that we have seen
on inflation. At the same time, in light of the progress we
have made both in lowering inflation and in cooling the labor
market over the past 2 years, elevated inflation is not the
only risk we face. Reducing policy restraint too late or too
little could unduly weaken economic activity and employment.
In considering adjustments to the target range for the
Federal funds rate, the committee will continue its practice of
carefully assessing incoming data and their implications for
the evolving outlook, the balance of risks, and the appropriate
path of monetary policy.
Congress has entrusted the Federal Reserve with operational
independence that is needed to take a longer-term perspective
in the pursuit of our dual mandate of maximum employment and
stable prices. 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 achieving maximum employment and stable prices
over the long run. Our success in delivering on these goals
matters to all Americans.
I will conclude by emphasizing that we understand that our
actions affect communities, families, and businesses across the
country. Everything we do is in service to our public mission.
Thank you. I look forward to your questions.
Chair Brown. Thank you, Mr. Chair. The senior Member of the
Committee will begin the questioning. Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman. Former
President Trump has indicated that he would propose, if
elected, a substantial increase in tariffs of between 10 and 60
percent, and by doing, thus, eliminate the Federal income tax.
First, the question, though, what would be the impact of
tariff increases on prices, consumers, and the economy?
Mr. Powell. Thank you, Senator Reed. So, I am going to say
that we go very far out of our way not to comment on campaign-
type information. We just--we just don't do that. And we also
don't comment on trade policy. We have really specific and
important jobs, and we try to stick to those.
Senator Reed. Well, I'm glad I allowed you to establish
that principle up front, Mr. Chair.
[Laughter.]
Senator Reed. But let me opine a bit. Ten percent increases
in tariffs is going to have an effect on prices in the shop
aisle. It's going to increase them, because they will be passed
on likely. Sixty percent tariff increases are significant. And,
in fact, I have been told that to replace the income tax we
would have to raise tariffs across the board over 70 percent to
make up for the loss of the income tax, which would I think
create huge economic problems.
I respect your impartiality and your neutrality, but the
numbers don't seem to add up to anything that would help the
country.
Let me switch to something else that might be more within
your line of response. You said in your opening statement that
the labor markets appear to be in a better balance, and that's
one of the key factors to judge whether interest rates can be
lowered.
I must say, I am concerned a bit that we are not on a very
fast track to decreasing interest rates from the Fed. And
because of the better balance you cite, could you comment on
that, Mr. Chairman?
Mr. Powell. Sure. So, the most recent labor market data do
send, to your point, a pretty clear signal that labor market
conditions have cooled considerably compared to where they were
2 years ago. This is no longer an overheated economy. This is
an economy, as I mentioned in my opening remarks, that is more
or less back, by most measures, to where it was before the
pandemic. And that was a strong labor market, but it was not an
overheated labor market.
So, I think the upshot of that really is that we are--we
are well aware that we now face two-sided risks and have for
some time, but now it--you know, the labor market appears to be
fully back in balance. We know that if we move too quickly we
risk--we risk, you know, unnecessarily hampering economic
activity and possibly interfering with the ongoing expansion.
We know that if we move too slowly that we may undo the
good we've done. Well, actually, it's the other way. If we--if
we loosen policy too late or too little, we could--we could
hurt economic activity. If we loosen policy too much or too
soon, then we could undermine the progress on inflation. So, we
are very much balancing those two risks, and that's really the
essence of what we're thinking about these days.
Senator Reed. But the direction seems to be going toward
lowering interest rates at some point, we would hope. That
might be a wish rather than a direction.
Mr. Powell. I think if you look at the last summary of
economic projections, I guess I would say it this way. It
doesn't seem likely that the next policy move would be a rate
increase. We don't take things like that off the table, but
that does not seem the likely direction.
The likely direction does seem to be in--as we make more
progress on inflation, and as the labor market remains strong,
we begin to loosen policy at the right moment.
Senator Reed. Thank you. Two weeks ago the Supreme Court
handed down two decisions that impact every Federal regulatory
agency, including the Federal Reserve. They overturned the
Chevron case, which had eliminated judicial deference to agency
decisionmaking for many, many decades. And they also
dramatically extended the statute of limitations under the
Administrative Procedure Act.
What, in your judgment, is the cumulative effect of these
decisions on the Federal Reserve? More broadly, what does it
mean to the economy if virtually any regulatory decision the
Fed makes can be second-guessed by a judge? What position are
we in now?
Mr. Powell. So, we are--you know, we are, as an
institution, very focused on reading the actual letter and
intent of the law and following it carefully. This is a--this
is a strong institutional value that we have. Those are brand-
new decisions that just came down, and we're really in the
process of just studying. So, I don't have anything for you on
them, but we will of course follow the law as the Supreme
Court--as the Supreme Court has read it, because that's their
job.
Senator Reed. Thank you. I concur with compliance with the
law. But when you do your analysis, and if it is detrimental to
your ability to regulate the banking interests of the United
States, I think you have an obligation to make that public.
Thank you, Mr. Chair.
Chair Brown. Thank you.
Senator Scott from South Carolina is recognized.
Senator Scott. Thank you, Mr. Chairman.
Chair Powell, we've heard a steady stream of commentary
that there will be changes to Basel III endgame proposal. That
can be seen certainly as good news. Some reports say it could
be finalized as soon as August. Others say you are circulating
a term sheet for a revised proposal.
Through it all, this proposal will have outsized impacts on
our banking system from big to regional to our U.S.-based
foreign institutions, as well as impeding access to credit for
consumers. So, even though you yourself have said there will be
broad and material changes, I believe this proposal is flawed,
both in process and in substance, and should be withdrawn.
Do you agree? And will you commit to withdrawing the
existing proposal and issuing a new proposal with a robust
notice and comment process?
Mr. Powell. Well, let me update everyone on the----
Senator Scott. Please.
Mr. Powell. ----status of all that. So, over the past
several months, we have had--in fact, Vice Chair for
Supervision Barr has held a series of discussions with the
other bank regulatory agencies around potential changes to the
original proposal. I am pleased to say that we have made quite
a bit of progress on those and are very close to agreeing on
the substance of those changes.
And I can't really be specific because nothing is agreed
until everything is agreed, so I won't have a lot of specifics
for you today.
The question where we're continuing to try to make progress
is that of process. So, it is--it is--my view is the strongly
held view of the--of members of the Board that we do need to
put a revised proposal out for comment for some period. And the
reason is, you know, when there are broad and material changes,
that has been our practice. We don't see a reason to deviate
from that practice. It seems to be consistent with past
practice and with the Administrative Procedure Act.
So, that's very much what we think, and we're working
through that question with the FDIC and the OCC. We haven't
reached agreement on that, but I'm very hopeful that we will.
You know, we're prepared to move forward at that--when we do
reach agreement on that.
Senator Scott. I appreciate most of your response there. I
do want to discuss one aspect more of Basel before we move on
to another topic. I find it very concerning with how much of
this proposal and this process appears to have been done behind
closed doors. The Fed, the FDIC, OCC proposed Basel III endgame
last July.
Then, in October, the Fed began the collection of data to
conduct a quantitative impact study on the cost of Basel III
proposal, a study which I will note should have been conducted
before any proposal was ever issued. Move forward to January of
this year, Vice Chair Barr committed to a public comment period
once results of the study were published. We are still waiting
to view the results.
Keep in mind, all the while we are hearing rumors that the
Fed is working on revising its proposal and moving toward an
updated version. Please help me understand, how will the Fed
revise or reissue a capital proposal before receiving public
comments? Basically my question.
Mr. Powell. As you know, we have received extensive public
comments, and we have also evaluated the quantitative impact
survey that you mentioned.
Senator Scott. Yes.
Mr. Powell. And so the idea would be, when we--when we do
reach agreement with the other agencies fully, that we would
publish the--you know, the proposed changes, and also the
quantitative impact survey, and also the effects that the QIS
suggest that the changes would have. So, we put all of that out
for comment again for a period of time.
And then, having had yet another round of comment and we
can then move toward finalizing. That's basically the broad
strokes of how I would see this moving forward.
Senator Scott. And how long do you see that opportunity for
public comments?
Mr. Powell. So, it would be meaningful. I mean, it might be
60 days. We don't need to make it--it doesn't need to be a long
one. But, you know, before we do that, we'd need--there's a lot
of work that needs to take place, you know, before you actually
put out the revised proposal. Quite a bit of work.
So, it will take some time, and then we would put it out,
and then there would be--I mean, I'm just taking that number,
60 days of comment, and then we would get the comments back,
and it would be another period of evaluating the comments, and
only then would you go final. So, it--there is a number of
steps here.
Senator Scott. Thank you. Just a final point as I am
running out of time here. I think Senator Reed made the comment
about the Chevron case and the impact that it could have
certainly on curtailing, from our perspective, the regulatory
State.
The necessity of a cost-benefit analysis on new regulations
that will impact the economy I think is quite helpful. In the
thousands--thousand-plus pages of Basel III, I think there were
about 20 pages that reflected some kind of cost-benefit
analysis approach. I really hope that we see more of that going
forward.
Mr. Powell. Thank you.
Chair Brown. Senator Tester from Montana is recognized.
Senator Tester. Well, thank you, Mr. Chairman. Thank you
for the courtesy.
Chairman Powell, good to see you here today. Appreciate
your work. Look, regardless of where I go in the State of
Montana, housing is a big issue. Whether it's Billings or Butte
or Bozeman or Busby or Big Sandy, it doesn't matter, larger
towns to medium-sized towns to small towns, housing is a huge
issue.
And I think it's a huge issue all over the country, and
correct me if I'm not correct in that. And I was wondering how
the housing challenges fit into the overall economic picture
that you're seeing.
Mr. Powell. So, we do pay a lot of attention, and I would
agree with you, we have significant housing issues in the
country, and we had them before the pandemic. Certainly, the
pandemic has created new distortions, and, you know, monetary
policy works through interest-sensitive spending. There is no
more interest-sensitive spending than, you know, buying a house
and having a mortgage.
So, for sure our tighter policy is having an effect on
economic activity in the housing sector. And you--but I would
also say the best thing we can do for housing is to succeed in
getting inflation down to 2 percent on a sustainable basis, so
that rates can come down, so that the housing market can get
back to what was the pre-pandemic normal, which is to say still
a housing shortage but not dealing with the kinds of specific
things we're dealing with now.
Senator Tester. So, let me drill down a little bit. I'm
speaking not necessarily from a housing cost interest--and
you're correct on the things you just brought up. I'm speaking
more from a standpoint of economic growth and that there are
plenty of small businesses, schools, hospitals, Main Street
businesses, that can't hire people. They can't expand because
there simply is no place for them to live.
How does that fit into your economic outlook metrics?
Because I think it's--from my perspective at least, I think
it's limiting the opportunity for expansion. It's limiting the
opportunity for entrepreneurs, business startups. And does that
fit into the economic picture that you look at?
Mr. Powell. So, our mandate is for stable prices and
maximum employment. And, again, I think for the--for housing
supply, the best thing we can do is get inflation under control
so that rates can come back down, so that we can have a more
normalized set of rates and a more normalized housing system.
But I think policies to increase housing supply are really
not so much in the hands of the Fed. They are in the hands of
legislatures, you know, State and Federal.
Senator Tester. So, do you believe that if we were to put
forth some housing incentives, whatever they may be, that could
have a positive--if it resulted, if those incentives resulted
in more affordable workforce housing on the market, that it
would have positive impacts on the economy?
Mr. Powell. You know, these are--these are questions for
you, but I would say this, that I'm aware that we--that housing
is in short supply, and that for many it's a critical need for
the workforce, and so more of it is better. But as to where the
fiscal policy should--how you should prioritize that, that's
not up to us.
Senator Tester. Look, I want to talk about the independence
of the Fed for a second, because I know that you are a strong
supporter of independence, as am I, and political influence I
don't think helps with monetary policy in the country. And so
give me--give me your perspective at least on why the central
bank independence is so critically important.
Mr. Powell. Thank you. I'd be glad to. So, essentially all
advanced economies have adopted a policy of central banking
operational independence, and that just means that when we make
our decisions we are instructed to make them without taking in
extraneous factors, one of which would be politics. And the
record is pretty clear that that's a good--it's a good
institutional arrangement that serves the public well.
And, you know, we just want to stress, as we do
periodically, that this is an institutional choice that we make
as a country, and that as long as it is seen to serve the
public well, it's a good choice. We think so.
Senator Tester. OK. On advanced economies, there is some
that talk about the economy of this country not being in very
good shape. From your perspective, tell me how the economy of
this country is doing compared to other advanced economies that
have central banks.
Mr. Powell. You know, so I'm in lots and lots of
international discussions as part of my job, and the story for
the last 2 years has been just how exceptional the performance
of the U.S. economy has been. And that's not a secret. You
know, there's--clearly, the U.S. economy has performed very
well compared to sort of our advanced economy colleagues.
Senator Tester. Is there any country in the world with a
central bank--any advanced economy that's performing better?
Mr. Powell. Better as a central bank?
Senator Tester. No. Any economy that's an advanced economy
that has a central bank that performs better than us.
Mr. Powell. You know, none comes to mind. As I think of the
majors, the answer would be no.
Senator Tester. OK. Thank you.
Chair Brown. Thank you, Senator Tester.
Senator Rounds of South Dakota is recognized.
Senator Rounds. Thank you, Mr. Chairman.
Mr. Chairman, first of all, thanks for coming in again and
visiting with us. I just want to focus on two specific items,
and I'm going to start with the Basel III endgame discussion. I
think Senator Scott did an excellent job of kind of laying out
the concerns that many of us have had with it.
I would like to go back to just one particular issue, which
I think a lot of folks out there that follow this--and I know
it's technical in nature, but let me just ask a specific
question and you can kind of pick it apart for me, please.
Both you and Vice Chair Barr have confirmed that there will
be material changes to every risk type outlined in the
proposal. Since there will be significant changes, do you
believe where the agencies have landed now would be considered
a logical outgrowth of the original proposal from last summer?
Mr. Powell. For those people who are not familiar with,
that's the legal test for--that determines that to be, if it's
a logical outgrowth. If it's not a logical outgrowth, that
would require--legally require re-proposal. And I don't want to
make the legal judgment.
I will just say, again, from my standpoint, my view, and
strongly held view of my--some of my colleagues on the Board is
that it will be appropriate for us to put out the changes again
for a period of comment, just because it's the right thing to
do. It's what we would do typically in a situation where there
are, you know, material changes to a proposed rule.
Senator Rounds. Do you feel that you have a consensus on
the Board to allow that to move forward in terms of an
additional comment period?
Mr. Powell. Yes. But, of course, we have to get the--the
FDIC and the OCC, you know, we're in discussions with them to
work--to work on something that would meet that need, and we
have to get their agreement, too.
Senator Rounds. Assuming--it sounds like that's the path
that you would like to go down.
Mr. Powell. Yes.
Senator Rounds. And if that were the case, would it be fair
to say that we probably would be looking at final
determinations or recommendations for a Basel III endgame
proposal probably into next year, before it would become
anything of a final determination?
Mr. Powell. I think that may be right. You know, it's--
something like that could be right, yeah. I mean, it's hard to
be precise. You know, we would put it out. It takes some time
to write this stuff up. Then you put it out for comment. Then
you get the comments. Then you read the comments. Then you
write the final rule. You know, beginning part of next year is
a good guesstimate.
Senator Rounds. The only reason why I push is because there
are so many folks directly involved with this and the impact on
our economy here. And with a lot of our financial institutions,
this is a significant change, and it's one that a lot of people
are following. So, I'm trying to get you to get into the depth
of this as much as possible, and I thank you for that.
I also want to go into one other area. And, once again,
this is something that you and I have had visits about in front
of this group before. But I want to talk about what the parts
of inflation are and what parts you can control and what parts,
as the Fed, you really can't control.
The demand side of the equation on inflation is a part that
you have the tools to work with. But there is the supply side
of the equation, which is still out there. And I want to just
lay this out because as we do this in this setting, it
naturally becomes political in nature, because one of the
starting points that we talk about is when this Administration
took office and what happens with supply side issues at that
time.
And as I work my way through this, I just want to share the
concern that I've got. And then I recognize you don't want to
be political in it, but I want to lay this out, and then I want
to talk about what you can control and what you can't control
with regard to making changes on inflation through the
processes that you have.
When President Biden took office, gasoline prices--since
President Biden took office, gasoline prices have risen over 54
percent. Energy prices have risen 41 percent. Fuel oil prices
have risen 37 percent.
Now, I can go on and on, but you understand what I'm saying
is is energy has increased substantially. And I think one of
the reasons for this has been additional demand as we have come
out of a pandemic, but the other part of this has been whether
or not investors really want to go back in and invest in
traditional energy resources after the President made the
specific determination to cancel the Keystone XL pipeline on
the day that he stepped into office.
When he did that, he sent one heck of a message to
investors about traditional energy and investing in traditional
energy in the United States, and the fact that a multibillion-
dollar contract or contract could be canceled with the stroke
of a pen.
Now, my question to you is, what percent or has there been
a discussion about what percent or what amount of the inflation
that we've seen--over 20 percent increase in terms of
affordability for a lot of our products, how much of that is
attributable to the demand side and how much of it really is
attributable to supply side challenges that we've seen in this
country?
Mr. Powell. That's a question that we've thought about a
lot, and you--any attempt to reduce that to a precise number
would be inappropriate, because it's so uncertain. But I think
we can say--I believe strongly there is a significant demand
element, and there's a significant supply element. And we've
seen the supply side heal so much over the course of the last
year, so--and we clearly see that that's contributing to lower
inflation.
We also see cooling demand, for example, in the labor
market, so the two forces are working together. I can't really
break it down. It wouldn't be--it would be such an imprecise
estimate I just----
Senator Rounds. Just simply a--just simply an
acknowledgment, though, that it is both demand----
Mr. Powell. It's both. It's definitely both.
Senator Rounds. ----and it is supply.
Mr. Powell. It is both, yeah.
Senator Rounds. Thank you.
Mr. Powell. For sure.
Senator Rounds. Thank you, Mr. Chairman. My time has
expired.
Chair Brown. Thank you, Senator Rounds.
Chair Powell, unemployment has risen by half a percentage
point over the past year. The number of jobs--job openings has
dropped almost 50 percent. The hiring and quit rates are now
below pre-pandemic levels. I'm concerned that if the Fed waits
too long to lower rates, the Fed could undo the progress we
made on creating good-paying jobs.
Full employment is part of the mandate, as you say over and
over. How are you assessing the risk of higher interest rates
on the labor market?
Mr. Powell. So, I completely agree with your
characterization that the latest data do show that we've had
considerable cooling in the labor market, and we do--we're very
much aware that we have two-sided risks now, as I mentioned
earlier. And we're determined to balance those as best we can.
We want to see more good inflation data, and we also want to
continue to see a strong labor market.
And we--those two things are equal under the law. We have
this challenging thing to balance them, but we're very much
conscious that that is our job, and we're trying to do that.
Chair Brown. Well, and you know that if unemployment trends
upward, you must act immediately to protect Americans' jobs.
Workers have too much to lose if the Fed overshoots the
inflation target and causes a completely unnecessary recession.
We will say that over and over and over again. I think you
understand that.
Housing. Higher interest rates are making housing more
unaffordable. Higher rates are supposed to lower costs, yet
housing prices continue to soar. By keeping rates high, the Fed
ignores the economic reality of millions of Americans
struggling to make ends meet and get ahead.
Let me ask you three quick yes or no questions. If you
would answer that way. Since late 2022 when the Fed began
raising rates, has the volume of housing sales decreased?
Mr. Powell. I believe it has, yes.
Chair Brown. Since late 2022, has the median home price
increased?
Mr. Powell. I believe it has.
Chair Brown. Since late 2022, have monthly mortgage
payments become more affordable or less affordable for
homebuyers?
Mr. Powell. Less affordable.
Chair Brown. OK. Thank you. In short, despite housing sales
declining, the median price for a single home--single-family
home has increased by nearly $20,000. People are spending a
greater share of their income and mortgage payments. So, in
sum, higher rates it's clear--from your answers and data, it's
clear higher rates are not bringing down housing costs. The
cost of home ownership is going--only going up.
Let me shift to the Synapse bankruptcy. Since mid-May, tens
of thousands of people, including many Ohioans, have lost
access to their money due to the bankruptcy of this fintech
middleman. Reports indicate that as much as $95 million may
have gone missing. The Fed oversees one of Synapse's former
partner banks, Evolve Bank & Trust. As a regulator, it's your
job to make sure that banks protect the people whom they serve.
What's the Fed doing to help customers who felt the impact
by the Synapse collapse? What are you doing to regain access to
their money?
Mr. Powell. So, we're--we do supervise the bank. We don't
supervise Synapse or let alone the fintechs that feed into
Synapse. And we're strongly encouraging Evolve to do whatever
it can to help make money available to those depositors.
We also, as you may know, did an enforcement action
against--before this all happened, we did an inspection or
looked at--looked at Evolve, and we hit them with an
enforcement action around these very risk management issues,
again, before the--before the current situation developed.
Chair Brown. It's critical that consumers are made whole as
soon as possible. We will continue to talk to you about that.
We will watch. We will let you know we're watching. The Fed
needs to use its supervisory authority to ensure that Evolve is
committing the resources necessary to return those funds to the
account holders.
Last comment. I want to note one last thing. Last year's
Fed report on the failure of Silicon Valley Bank noted how
incentive-based compensation encouraged the excessive risk-
taking that led to the bank's failure. You either watched or
had reports of when those bank CEOs testified in front of this
Committee.
The report--the incentive-based compensation that led to
the bank's failure I mentioned had said that SVB managers,
quote, ``Had a financial incentive to focus on short-term
profit over sound risk management.'' That's what a number of
us--Senator Smith, Senator Butler, Senator Warren, and I--
Warner and I have said over and over, that the short-term
profit over sound risk management causes significant problems
to our financial system.
Compensation practices still pose a threat to our banking
system. Urge you to move quickly to join your colleagues in the
long-overdue rulemaking on executive compensation. I mean, you
know. You read the reports about the outrage of the public
about executive compensation continuing to go up and up and up
and up. You have a role, a significant role, a legal role, to
deal with that.
Thank you.
Senator Tillis is recognized.
Senator Tillis. Thank you, Mr. Chair.
Chairman, thank you for being here. I want to be real quick
on Basel III endgame, and I want to be mindful of time. Just
simply, can I get a commitment from you on releasing the
results of the QIS?
Mr. Powell. We plan to release the results of the QIS, not
just----
Senator Tillis. What timeframe?
Mr. Powell. Well, first, we have to get agreement with the
other banking agencies, but as soon as possible.
Senator Tillis. Can you imagine any agencies having a
concern with--any other banking agencies having a concern with
releasing it? Or is it just a matter of----
Mr. Powell. Not at all.
Senator Tillis. ----put a formal--OK.
Mr. Powell. No. It's just a matter of the bigger picture of
getting agreement on the revisions to Basel III and also how to
proceed.
Senator Tillis. That's great. And I really appreciate the
feedback that I have received from you. I should have started
by thanking you again for your continued accessibility and
discussions outside of the Committee. They are very productive,
and I appreciate that and your leadership at the Fed.
I grew up in the 1970s, got my Social Security number in
1973 when I was 12 years old. That's when I made my first
payment. So, I've been following the economy even as a
youngster, and that was a really lousy time to enter in the
workforce.
Tell me--and I'm hearing discussions among some of our
Members now that would almost be reminiscent of discussions
with prior Fed members saying, look, we've got to lower
interest rates, and we've got inflation--we've got unemployment
out of control.
So, it sounds like we're taking plays--some suggestions
from some of my colleagues are plays from a playbook that
didn't prove to be very effective back in the 1970s. What can
we learn--what would--I'm not going to ask you about where you
go from here.
But if we look back and do a postmortem on some of the
decisions that were made when we had consistently high
unemployment, what lessons can we learn there? Or what mistakes
should we not necessarily repeat?
And I know every--this is a fingerprint of a challenge.
It's not exactly like the stressors that we had back in the
1970s, but what can we learn from the decisions of what I think
are arguably the wrong decisions made back then when we were
dealing with high unemployment and high inflation? What have we
learned?
Mr. Powell. I think the number one thing we learned was
that it's up to the central bank to take it on and stick with
it until it's done. And that doesn't sound controversial now,
but it actually was back then. And so people didn't really get
in there and get it done and it kept--inflation kept coming
back.
I also think there are significant differences this time to
the questions a minute ago. This is a combination of a supply
side that we have very significant supply shocks along with big
demand shocks from the reopening of the economy and from all
the other things that happened. So, I think we have to--each
one of these things is different in its own way. We try to
learn the lessons of history, though.
Senator Tillis. Do you agree or disagree any disconnect
between inflation and inflation expectations from the 2 percent
target should be addressed now and not at a later time?
Mr. Powell. Absolutely.
Senator Tillis. I like that answer. I want to go to
something different. I'm trying to go into a lightning round
now and finish on time. We have seen the 2024 stress test
results for the banking--U.S. banking system. It looks like to
me by every objective measure we've got a strong--we've got a
banking system that's on strong financial footing. Do you
agree?
Mr. Powell. Yes.
Senator Tillis. One last thing. As the Fed considers making
broad and material changes to the Basel III proposal--back on
that one--can I urge you not to overlook the second-order
issues, important FBOs, and certain regionals, to ensure the
bank--that banks are not unduly influenced?
The current proposal, for the example, the outsized
operational risk costs were high. Are we going to take care of
that in any sort of re-proposal?
Mr. Powell. Let me just say we're very conscious of the
comments across the spectrum, foreign banks, domestic banks,
small-, medium-sized banks. You know, everyone is going to get
heard carefully as part of this process. That is our
obligation.
Senator Tillis. And I think in response to Senator Rounds'
question you did indicate that probably because of the nature
of the likely changes from what Mr. Barr expected to what may
ultimately come we are going to open it up to comment again?
Mr. Powell. That's the strong view of the Federal Reserve.
We are working with--on that question with the FDIC and the OCC
to try to find a path to do that.
Senator Tillis. Very good.
Mr. Powell. But from our standpoint, that's essential.
Senator Tillis. I think that's the strong view from at
least several Members on this side of the dais. I hear that
would be very--very, very important because I think it's going
to materially change.
Thank you, Mr. Chair.
Chair Brown. Thank you, Senator Tillis.
Senator Warner of Virginia is recognized.
Senator Warner. Thank you, Mr. Chairman.
Chairman Powell, it's good to see you again. Coming this
late in the questioning, I'm going to at least hit a couple of
the items that my colleagues have otherwise already hit,
because I want to make sure it's noted that I raised them as
well.
First of all, I agree with the chairman. You know, I
probably hear more on housing and housing affordability than
any other issue. And I agree with the chairman, and we've
discussed this around a rate cut. And I understand most of your
answer, but I still want to add my two cents here. We've got to
find a way to start bringing mortgage rates down and let people
get--unlock that housing market.
And, again, we've discussed the rate cut issue, and I know
you've got to navigate that. But I hope it's sooner than later.
I will not recap what I've done in the last couple of
hearings with you, but I do think the discount window proposal
that I've gotten that I know you are working on--you know,
before we think about additional regulations that we do need in
some cases, I think the discount window is an underused tool,
was one of the initial original tools for the Fed.
A lot of my colleagues have talked about quantitative
easing or, I mean, Basel III endgame. I do hope when we get the
revisions that we'll see the quantitative analysis that, again,
Senator Tillis already raised and other colleagues have raised.
I also hope that one of the questions I raised in my March
letter to you was, you know, making sure any new regulatory
structure, how it intersects with existing regulatory structure
in terms of market risk, credit risk, and I, again, hope that
we will have that as the revisions come out.
I think one of the things that this debate around Basel III
raised was that--it is my understanding at least looked at--you
may be all looking at revisions to liquidity standards as well,
and wanted to see what you could say about that and whether
that part of those standards are under review and what your
thinking is.
Mr. Powell. Yeah. And I think that actually connects to the
Silicon Valley Bank questions as well, where I think we--there
seems to be a need to update assumptions about liquidity. And
that's a separate proposal that we're also working on, and, you
know, very important. I think we saw how fast that run was. It
was just exponentially faster than prior runs. That's the new
world, and, you know, that's some estimate of what that world
is is baked into things like the--you know, the liquidity
coverage ratio, for example, and other----
Senator Warner. And wasn't that the case, you know, if you
had 25 cents on every depository dollar leave in 6 hours, no
matter what the capital standards are?
Mr. Powell. Yeah.
Senator Warner. And one of the things I guess, you know,
there was a lot of talk after SVB that we need to think about
internet-driven runs. A lot of us raised concerns. Candidly,
I'm not sure I've heard any good proposals. So, whether it
comes from you guys or from folks listening, how we think about
this new internet-driven world.
And, frankly, I think some of the irresponsible behavior by
some of the folks that were major depositors in SVB who in many
ways shouted fire in the crowded theater, and we've not seen
any action there. So, I would welcome additional ideas as well.
And that kind of brings me to my last questions around
supervisory reform. I know that GAO criticized the Fed's
supervisory procedures and the role they played in the 2023
failures. It is a whole brand new world. Are we going to look
at--will your changes to supervisory standards be
comprehensive? Will they be one-off? How do you think about
that in light of the GAO report? And also, in light of just the
SVB and a few of the other failures we saw last year.
Mr. Powell. Vice Chair Barr, who is Vice Chair for
Supervision, is leading a process of looking at our--at the way
we supervise banks and thinking about how we can be faster
whenever it's appropriate, more forceful where it's
appropriate. And I think, you know, they've taken a pretty deep
dive and tried to learn these lessons and then implement them
in a way that is appropriate. So, that's a big project going on
at the Fed right now, which really the Vice Chair for
Supervision leads.
Senator Warner. I think I remember lots of conversations
with the chairman, with you, with the FDIC, on that Thursday
through Sunday, and I think the solution you guys came up with,
the Administration came up with, by Sunday night was a good
one. But they were pretty scary 3 or 4 days there, and it did
seem like the process--I don't know completely how you get
fully ahead of that, but I firmly believe that there should
have been a clearer early warning system and trying to make
sure that we wouldn't be in that kind of crisis situation going
forward.
And, again, I would strongly encourage any additional
thoughts on this technology risk and how we get that right.
Thank you, Mr. Chairman.
Thank you, Chairman.
Chair Brown. Thank you, Senator Warner.
Senator Kennedy of Louisiana is recognized.
Senator Kennedy. Thank you, Mr. Chairman.
Mr. Chairman, our economy is slowing, is it not?
Mr. Powell. Yes. Although still growing at a solid pace.
Senator Kennedy. Our unemployment rate is rising, is it
not?
Mr. Powell. Yes, it is. Although the labor market is still
strong.
Senator Kennedy. Our labor market is slowing, is it not?
Mr. Powell. Yes. But I'd say unemployment is still--you
know, is still low by historical standards, but, yes, it is--
we've seen cooling, yes.
Senator Kennedy. And I was looking at some recent jobs
numbers. I know you've glanced at them, too. About three-
quarters of the net new jobs that were created in June were in
Government, health care, and social assistance. What does that
tell you?
Mr. Powell. That's a concentration. You'd rather see
broader job creation than that. Those three areas have--in some
reports, they have been--as it was this time, they have been
the predominant creators of jobs. That tells you that job
creation is becoming less broad in the economy and narrower.
It's narrowing.
Senator Kennedy. It tells you that Government is creating
those jobs, doesn't it?
Mr. Powell. Well, it's Government, it's also in-person
services, it's also--some of it's Government.
Senator Kennedy. Manufacturing has been flat.
Mr. Powell. Yes. Manufacturing is not creating a lot of--a
lot of new jobs these days.
Senator Kennedy. Information technology shed jobs over the
past 2 years, hasn't it?
Mr. Powell. I don't know.
Senator Kennedy. Leisure and hospitality jobs have slowed
to almost a trickle.
Mr. Powell. That's a place where there were--there was a
desperate worker shortage, and they've done quite a bit of
hiring, but they're catching up now.
Senator Kennedy. I mean, three-quarters of the jobs that
are being created in our economy can be related directly or
indirectly to our spending deficits, can't they?
Mr. Powell. In this report, in this single report, I don't
know that health care is really Government spending. That's
something people are consuming.
Senator Kennedy. Where do you think these hospitals get
their money?
Mr. Powell. They may--they may get it, but, I mean, people
are not--the spending on--the spending on health care is not
necessarily directly related to deficits is my point.
Senator Kennedy. I would disagree with you. I mean, here is
my point. We talk a lot about expectations in terms of
inflation, how if we expect there to be inflation we'll get
inflation. It seems to me that consumer expectations play a
role--a bigger role in the economy than we cede to them. Most
of our economy in America is consumer-driven, is it not?
Mr. Powell. Yes.
Senator Kennedy. Unlike, say, China, which is manufacturing
driven.
Mr. Powell. Very much so.
Senator Kennedy. And I listened to you cite the statistics
about the economy, but most Americans--most Americans don't
feel good about the economy, do they?
Mr. Powell. No. And we don't--we don't tell people how to
feel about the economy.
Senator Kennedy. I mean, isn't it a fact that most people,
if you--if you ask them to define ``Bidenomics,'' they would
say, ``That's easy. We get to pay more to live worse''?
Mr. Powell. I wouldn't touch----
Senator Kennedy. You don't want to answer that one.
Mr. Powell. ----a sentence with that word in it.
Senator Kennedy. Yeah. Yeah. I mean, we can pretty this up
all we--I guess my point is, and I know you're going to do this
anyway, but I'd be really careful with this economy. I mean,
people just don't feel better off today. And one can marshal a
persuasive argument that, well, you should compared to Europe
or compared to China, compared to Canada, but they--you know,
feelings are feelings. People don't feel good about this
economy, and it's primarily because of inflation.
Let me use my final 30 seconds to ask you--I listened to my
good friend, the Chairman, give his opening statement. Do you
think inflation was caused by corporate greed?
Mr. Powell. I'd hate to comment on something the Chairman
was speaking about.
Senator Kennedy. Oh, go ahead.
Mr. Powell. Well----
[Laughter.]
Mr. Powell. So, I would just say we see--at the Fed, we see
inflation as when there's an imbalance between supply and
demand, and we use our tools to work on the demand side of that
and bring it back into line with supply.
Senator Kennedy. I've got 2 seconds. So, when are you going
to lower interest rates?
Mr. Powell. I'm today not going to be sending any signals
about the timing of any future actions.
Senator Kennedy. Thank you, Mr. Chairman.
Chair Brown. Senator Smith of Minnesota is recognized.
Senator Smith. Thank you, Mr. Chair. Welcome, Chair Powell.
It's good to see you again. I want to follow-up on kind of the
line of questioning that Senator Tester was on a bit ago. He
was talking about how the U.S. economy has been outperforming
other advanced economies around the world in terms of growth
rates, in terms of unemployment, in terms of inflation, getting
inflation under control, though I think we obviously can all
agree that we are not--at least from my perspective, we are not
done yet. And we don't want to rest on our laurels.
But I am wondering if you could share what you think that
we have learned from this experience? What have we done right?
And why is it that we are doing better than some of the other
advanced economies in the world?
Mr. Powell. I think that it's down to the fundamental
strengths of our economy. So, as you may know, European
economic officials are very, very focused on this question. And
they really--it comes up in all of our discussions.
Europe has seen productivity increases of about 1 percent a
year for 40 years. We have seen 2 percent. If, you know, you
take a number and compound it at 1 percent and compound it at 2
percent, the difference is just enormous after 40 years in
terms of incomes and living standards. And their question is
why is that? Why is that?
And the standard answer that Americans tend to give, and
that I would give, is it's down to, you know, more flexible
labor markets. In the pandemic, people were--they kept--they
stayed in their existing jobs. In the United States, we had
people changing jobs at record levels. And, you know, that's
the kind of thing that adds to productivity and contributes to
rising living standards, going back to school and getting
skills and things like that.
Another one is our financial sector. We don't just have
banks. You know, we have a highly developed ecosystem of
financing sources that will fund early stage investments. Banks
are really not set up to do that. You know, they are
prudentially regulated.
So, those are some of the things. I think we just have
these natural strengths as a--you know, as an innovative, more
flexible economy we can grow faster.
Senator Smith. I appreciate that. You know, I think
sometimes there is a tendency to sort of trash our economy and
just sort of say we suck. And actually, I think that there is a
great resilience in our economy. I would argue that it has also
to do a lot with the incredible resilience of our workers and
their creativity and their talent and the training and the
education that they have.
And I think I would also argue, though I wouldn't expect
you to make this case, that the way in which our Federal
Government responded to the pandemic in order to make sure that
people weren't evicted. That they still had money to pay their
bills even when they weren't able to work meant that overall
our economy, you know, survived and was ready to kind of be off
to the races when we emerged from the pandemic.
But, Chair Powell, I would like to ask you a question,
something that you and I have talked about, I continue to be
thinking a lot about, which is the commercial real estate risk
that we have in this country.
I think particularly for office space, we know that that
has been under strain the last several years. The sector has
remained largely stable. But we are hearing about some
additional default risk. And one thing that I am noting is that
there is some expectation or concern that that may fall
disproportionately on smaller banks.
I think that commercial and regional banks hold an
estimated two-thirds of all the commercial real estate loans in
the country. And so unlike larger banks, these smaller
institutions might find it a little harder to deal with this.
So, could you discuss this with us? Could you tell us a
little bit about how you see this risk and particularly whether
this poses some additional risk that we might be seeing more
concentration in the banking sector as these smaller banks are
maybe under more pressure?
Mr. Powell. Yes. So, this, to your point, this is a risk
that has been with us and will be with us for some time,
probably for years. And banks need to be honestly assessing
what their risk is. They need to be assured that they have the
capital and the liquidity and the systems in place to manage
this risk.
The stress test that we apply to the largest institutions
stressed commercial real estate pretty hard. And, again, the
conclusion is that the large banks can manage this problem. And
most small banks can, too. But it is in some smaller banks that
tend to have that local concentration in commercial real
estate.
And, you know, we are in touch with those banks. The
supervisors and regulators are in touch with those banks and
making sure that they can manage them. And it is going to be an
issue for many banks. But it is one that we are trying to work
through. One that we are very much aware of, and, again, it
will be with us for some time.
Senator Smith. Thank you. I think so much about the
importance of these small regional community banks in small
towns, even big towns in Minnesota, and how important it is
that, in my book, that they can stay independent and better
serve their communities in that way. So, I worry about this
risk.
Thank you, Mr. Chair.
Chair Brown. Thank you, Senator Smith. Senator Butler of
California is recognized.
Senator Butler. Thank you, Mr. Chairman. Chairman, good to
see you. And I am going to make you do the whole last 5 minutes
since I am the last one for today. You will recall the first
time that we spoke, I tried to engage you around three specific
areas. One was how the monetary policy impacts the quality of
life for young Americans in the future in the work that you are
doing there.
The space of climate risk, and what I see as potentially a
future challenge down the road, and that is the state of
commercial real estate. You and I have had that conversation
before. And no surprises today, I am going to stick to those
three topics, somewhat related to questions that you have been
asked before relative to the housing market, housing
affordability, and interest rates.
I want to narrow the scope just a little bit to ask about
those--how those issues and challenges impact again the quality
of life for America's next generation. Given the severe
shortage of affordable and available homes to buy, coupled with
high interest rates, young Americans are continually unable to
afford homes and are pushed into a rental market driving rental
costs up.
So, there is sort of trickle-down impact here. A recent
Washington Post analysis showed that Gen Z is spending 31
percent more on housing than their millennial counterparts were
10 years ago after adjusting for inflation.
How do you view--that was a long lead in to just ask the
question, how do you envision or view the interest rates of
today and the monetary balancing and policy balancing that the
Fed is doing on contributing to the future generation
predicament if we are to extrapolate the conditions of today.
Mr. Powell. Our job, of course, is the whole economy and
inflation for the whole economy. And the absolute best thing we
can do for younger people is to restore price stability so that
as we benefited from--you know, I graduated from college in
1975 near the end of the big inflation period.
So, during most of my adult life, inflation has just been
not a factor. And that means, you know, stable interest rates,
relatively low interest rates. We want to get back to that. And
that is what the Fed's job is, is that we are not supposed to
look at the housing market as separate from the overall
economy.
In the meantime though, there is no question that higher
interest rates are making it harder to buy homes in the short
term, but in the longer term this is the best thing,
particularly for younger people who are not yet in the housing
market.
Senator Butler. Let me, sort of in line with that
community, constituency, population and definitely aligned with
the concerns of my State that actually faces some severe
climate impacts, just as we speak with wild fires and our
colleagues and fellow Americans in Texas and the impact of the
hurricane, I wanted to pull in your sort of thoughts about the
Fed pilot, the Climate Scenario Exercise.
In May, the Fed conducted a pilot, a Climate Scenario
Exercise, and asked the six largest U.S. banks to examine their
balance sheets and how it would be affected if a large
hurricane hit the Northeast. They reported facing data gaps on
property characteristics, their counterparties and insurance
coverage.
How does the Federal Reserve intend to invest in expanding
the modelling resources for banks that are implementing
climate-related financial disclosures?
Mr. Powell. So, we haven't made any decisions on what to do
with that information or whether to repeat that exercise. To
your point, it was really a learning exercise, you know, how
are banks thinking about this, and how are they modelling it,
and how does it work really? It is a very, very challenging
thing to model. And so that was really the nature of this
exercise.
In terms of disclosures, you know, we don't really have a--
that is not really our job. That is really the SEC. But, you
know, we don't have a big job on climate, but what it really is
is to make sure that the institutions we regulate are aware of
and understand the risks that they run, including risks from
climate.
Senator Butler. And that they are prepared and learning how
to--as would be the point of a pilot, learning how to mitigate
those risks over time. So, what criteria will you use to
evaluate whether or not you would run the exercise again and/or
share more broadly the results of that exercise?
Mr. Powell. I think we did publish, well, most of the
results of that exercise. So, I don't know what to say about
that. We are looking at it, and we are asking ourselves what
did we learn, what do we need to learn next time. So, you know,
I am not exactly sure what factors we will be looking at, but
we will be doing a careful assessment of what more we need to
do.
Senator Butler. Thank you, Mr. Chairman.
Chair Brown. Senator Hagerty is recognized.
Senator Hagerty. Thank you, Mr. Chairman. Chairman Powell,
welcome.
Chairman, last week in Portugal you said that you wanted to
be, quote, more confident that inflation is moving sustainably
down before you begin to cut rates. You also said in your
testimony that you need greater confidence and more good data
before lowering rates.
Can you give us any color as to what it is you are looking
for in the data and how long it might take us to get there?
Mr. Powell. We need just to see more good inflation data;
that is all. We had 7 months of good inflation data at the end
of last year. And then we had a quarter, really a month or so,
where inflation went up. And now we had one really good
inflation rating and one pretty good one. We just need to see
more so that confidence rises. I'm not----
Senator Hagerty. In terms of--so are we weeks away, months
away? Can you give us----
Mr. Powell. I am going to try to avoid sending any really
specific signals about time today because it is going to depend
on the data. It also matters what is going on in the labor
market though. You know, we have also said that if the labor
market weakens unexpectedly, that could be a case for loosening
policy as well. Really, we are weighing both of those factors.
Senator Hagerty. Here is one of my concerns; I'm sure you
probably share it. But we are coming off of a 40 year high in
inflation. We have seen the rate of inflation coming down, but
we haven't gotten to the 2 percent target. And my concern, for
lack of a better term, is whether or not this might be
transitory in terms of the data that we are seeing right now.
Mr. Powell. That is exactly why we are approaching this
question carefully.
Senator Hagerty. I thought that might be your answer. Thank
you, Mr. Chairman.
Can we shift now to the issue of the Treasury debt? The Fed
is the largest holder of Treasury debt. In February you and I
talked about the pressures that our fiscal deficit is exerting
on interest rates, which by extension makes your job more
difficult.
I would like to talk this time about how Treasury issuance
is impacting our economy and our monetary policy. First just a
basic question. If Treasury issuance were to shift drastically,
either to the long end or the short end of the curve, would
that affect interest rates? Or maybe more simply, did changes
in supply across maturities impact interest rates on the yield
curve?
Mr. Powell. I mean, I think in theory they can.
Senator Hagerty. I agree. As you know, the Treasury
Borrowing Advisory Committee recommends that T-bills comprise
between 15 and 20 percent of total U.S. debt. But right now the
Treasury is issuing T-bills significantly above that
recommended range.
Some people, including myself, believe that this is being
done to artificially stimulate markets in the run up to the
election. And it is shocking how little attention this is
getting. Any manipulation of debt management of this nature
stimulates inflationary pressures and increases taxpayer burden
because it is higher cost to issue these bills.
So, given that Treasury is issuing an excess of short-term
debt, which pulls down longer term rates, isn't it working at
cross-purposes with your monetary policy goals of taming
inflation?
Mr. Powell. So, we take Treasury's debt management
decisions. We don't comment on them. We just do our jobs. So, I
am not going to----
Senator Hagerty. I am not asking for a comment on their
decision, but just as a simple mathematical truth. If they are
pulling down demand on the long end of the curve, doesn't
that----
Mr. Powell. I wouldn't say that that has important
inflation implications, no.
Senator Hagerty. You know, it just feels to me, the same
way that the Biden administration drains the Strategic
Petroleum Reserve, that undermines our ability to respond to
energy shocks.
When the Treasury manages its debt in this manner, it
constrains our ability to respond to future economic shocks.
And that opens our nation up to very real risk, whether it be
amplifying the effects of the Fed's balance sheet reduction,
flooding the supply of one of the most important short-term
debt instruments. The risks seemed to me to be mounting for
Treasury market disruption.
I would like to know what your thoughts are, Mr. Chairman,
about how the Fed will navigate this and whether you have had
discussions with the Treasury about this growing dangerous
dynamic.
Mr. Powell. No, we don't have a seat at the table on
Treasury debt management. Treasury makes those decisions. And
they don't have a seat at our table on monetary policy.
Senator Hagerty. I just think the risk is very obvious
here, though, where we are headed with this type of poor----
Mr. Powell. Honestly, it is completely out of bounds for me
to comment on Treasury debt management in any way.
Senator Hagerty. I think you have been dealt a very
difficult hand here, Mr. Chair. The Biden administration's
policy is aimed to gin up the economy ahead of the election.
These efforts directly undermine your policy goals at the Fed.
That includes excessive issuance of short-term debt, think
about it, Freddie Mac's backstop of second mortgages, unlawful
student debt loan cancellations, the draining of the Strategic
Petroleum Reserve to suppress fuel prices, and President
Biden's own jawboning of the FOMC to lower rates.
As you know, the Federal Reserve was structured to shield
monetary policy from political influence, and that independence
has given the Fed unique credibility in executing its mission.
If the FOMC were influenced in any way by political calculation
rather than economic data, it would severely damage the Fed's
credibility as an independent institution. It would increase
uncertainty in our markets. And it would jeopardize the dollar
status as the global reserve currency.
Thank you, Mr. Chair.
Chair Brown. Senator Warren of Massachusetts is recognized.
Senator Warren. Thank you, Mr. Chairman. When the CEOs of
giant banks can boost their bonuses by getting the banks to
take on more risk, they run the risk that they will end up
running their banks into the ground. It happened in 2008, and
it happened again in 2023.
Back in 2010 though, Congress passed the Dodd-Frank Act.
Section 956 told financial regulators solve this problem. Two
months ago, regulators put forward a proposal, but the Fed
refused to join.
Now in 2018, you told this Committee, Mr. Chairman, that
you, quote, expect that banks will have in place compensation
plans that do not provide incentives for excessive risk taking.
In other words, you trusted the banks to write their own rules.
So, let's see if they actually have.
One thing the proposal would do is require big banks to
delay bonuses for a broad group of critical employees who are
able to gamble with the bank's finances like the head of a
trading desk, for example.
Chair Powell, in the 6\1/2\ years since you said trust the
banks to regulate themselves, how many of the 10 biggest banks
have put policies in place to delay annual bonuses for this
broader group of critical employees whose risk taking could
endanger the bank?
Mr. Powell. I don't know specifically. My guess is all of
them since the financial crisis.
Senator Warren. So, you are the regulator who said trust
banks to self-regulate so we can avoid another financial
meltdown or another bailout, and you don't know if they did or
didn't do that?
Mr. Powell. Well, you make a--it is a very, very specific
narrow question you are asking about----
Senator Warren. Yes, it is a very specific thing because it
is something a regulator should do. You think the answer is 10
out of 10. The answer is zero out of 10.
Mr. Powell. I doubt that.
Senator Warren. Well, go back and look because we have
looked at their statements on this.
Another thing the proposed rule would do is require the
banks to consider flat out banning bonuses and bonus pay for
executives who took risks that threatened the stability of the
bank.
So, let me ask you this one, Chair Powell. In the 6\1/2\
years since you said trust the banks to regulate themselves,
how many of the ten biggest banks now have policies that would
require them to flat out deny bonuses to executives that have
engaged in inappropriate risk taking?
Mr. Powell. I don't know the answer to that. By the way, I
never said trust the banks to regulate themselves.
Senator Warren. I'm sorry. Do you want me to go back and
quote you again exactly?
Mr. Powell. Trust the banks to regulate themselves?
Senator Warren. When you say I expect that the banks will
have in place compensation plans that do not provide incentives
for excessive risk taking.
Mr. Powell. Right. Pursuant to the----
Senator Warren. I take that as to----
Mr. Powell. ----guidance that we issued in 2010, which is
quite detailed.
Senator Warren. And you have not issued a guidance since
you made these comments, since you became chair. And how many
banks have actually put in place the regulations that you said
I expect the banks will have in place. The answer is out of 10,
zero.
Mr. Powell. It was covered by the 2010 guidance actually.
Senator Warren. No. You said in 2018 that they would put
these in place.
Mr. Powell. I said they would have in place.
Senator Warren. No, that is not what you said. So, look,
Chair Powell, the last guidance on this subject, as you say,
was in 2010, which is before you were at the Fed. The Fed has
now refused to join the other financial regulators in
finalizing a rule implementing Section 956 as Congress
directed.
So, my question has been, how many of the 10 biggest banks
have done this, and the answer is zero. Dodd-Frank was passed
14 years ago. There are still no rules to stop banks from
rewarding executives' risky behavior. When you were asked about
these Section 956 rules or lack of rules, in March of this
year, you said, quote, that you wanted to understand the
problem we're solving before proposing a rule.
Chair Powell, the law does not say Jerome Powell in his
infinite wisdom should decide if we have a problem with
executive compensation. The law passed 14 years ago says
executive pay is a problem that threatens the stability of our
economy, so write the rules to rein them in.
Finally, finally, the other financial regulators have
proposed such a rule, but the Fed has not joined. Chair Powell,
I understand why the ten biggest banks in the country like your
approach. You let them do whatever they want. But you don't
work for the giant banks. You work for the American people. I
urge you to do your job.
Thank you, Mr. Chairman.
Chair Brown. Senator Vance from Ohio is recognized.
Senator Vance. Thank you, Mr. Chairman. And thanks, Chair
Powell, for being here. I appreciated you coming by our office
last week to discuss some of these issues.
I would ask something I imagine most of my colleagues are
not asking, which is the relationship between immigration,
particularly extremely high illegal immigration levels under
the Biden administration, and the persistence of the inflation
problem. And I recognize this is not your policy focus. But you
are the Federal Reserve chairman, so I just want to get your
views on this.
And in particular, I would read you a quote from Miki
Bowman, who is one of your governors. And this says, quote,
there is a risk that increased immigration and continued labor
market tightness could lead to persistently high core services
inflation. Given the current low inventory of affordable
housing, the inflow of new immigrants in some geographic areas
could result in upward pressure on rents as additional housing
supply may take time to materialize. With labor markets
remaining tight, wage growth has been elevated at around or
above 4 percent, still higher than the pace consistent with our
2-percent inflation goal given trend productivity growth.
The Bank of England, I believe, produced a recent report on
this issue in the United Kingdom, obviously, a different
economy and a different country. But what do you see as the
relationship, in particular given that housing is such a big
driver of the inflation that we have seen over the last few
years--as Senator Hagerty said, the highest in 40 years--what
role do you see illegal immigration playing in driving up
housing costs which, of course, is the main driver of inflation
for American citizens.
Mr. Powell. Let me quickly start by echoing your first
comment, which is we don't comment on immigration policy, but
we do comment on inflation.
So, I would say this. Many people came into the country
over the last couple of years, many of them through asylum
requests and went to work. Labor supply increased a great deal.
There is no clear answer, but my sense is that in the long run,
immigration is kind of neutral on inflation. In the short run,
it may actually have helped because the labor market got looser
because there were more people.
But you are talking about housing specifically. There will
be--I am sure there are places in the country where new people
coming into the country--I am sure you can find places that
will have contributed to an already tight housing market.
But overall in terms of aggregate inflation, I wouldn't say
it's a driver one way or the other.
Senator Vance. So, I want to follow up on that thread. But
just on that topic of particular areas that have been affected,
Chairman Brown, I would like to ask unanimous consent to submit
a letter for the record from the city of Springfield in our
State, the southwestern part of our State, which I think
highlights a very real example of this particular concern
straight from the horse's mouth itself.
Now this letter, I want to quote from it. Springfield has
seen a surge in population through immigration that has
significantly impacted our ability as a community to produce
enough housing opportunities for all. Springfield's Haitian
population has increased 15,000 to 20,000 over the last 4 years
in a community of under 60,000 previous residents, putting a
significant strain on our resources and the ability to provide
ample housing for all of our residents. And end quote there.
Chair Brown. Without objection, so ordered.
Senator Vance. Thank you. In my conversations with folks in
Springfield, it is not just housing. They are trying to build
5,000 new housing units, which is a very Herculean task in a
town of about 55,000 people. But it is also hospital services.
It is school services. It is--there is a whole host of ways in
which this immigration problem, I think, is having very real
human consequences.
Could we go back to just one other question, Chair Powell,
on this immigration and labor supply question. So, one of the
euphemistic ways in which economists, I think, sometimes talk
about labor supply and immigration, is that they will say
something to the effect of, well, an increase in labor supply
has put downward pressure on labor prices.
What they are effectively saying is that increased
immigration has put downward pressure on the wages of American
workers.
I wonder, you know, when you hear sort of your colleagues
and other economists outside of the Fed talk about the influx
of immigration and the fact that I think it admittedly has put
downward pressure on wages, OK, obviously, that has put some
downward pressure on inflation, but it also puts downward
pressure on the wages that people earn to pay for their
families.
Why do we see that as a good thing? Or maybe that's wrong.
Maybe the premise is fundamentally incorrect. But why do so
many economists treat an influx of new labor as a good thing?
If labor is constrained, labor supply is constrained, doesn't
that lead to rising wages for American workers?
Mr. Powell. I am certainly not trying to put a value
judgment on it. I will say though this is all happening over
the last couple of years in a context of an extremely tight
labor market, now a little bit less tight, significantly less
tight, but you have got a worker shortage. You have got
businesses who have jobs that are open. You have, you know,
more than one job opening for every unemployed person.
So, you have got a very tight labor market, and it is
addressing that. And we are having--wage increases are still
very high, but they are coming down to a more sustainable
level.
Senator Vance. And, Mr. Chair, can I--I know I am over
time. But can I just ask one more question on this? Thank you.
I understand your point, Chair Powell, and again, I am not
ascribing value judgments to you. But if we say we have a
really tight labor market, and we say that there are more than
one job opening per worker, there are two ways that you could
plausibly solve that, probably more than that, but two obvious
ways you can plausibly solve that.
One is through a new influx of workers via the immigration
system. Another way is by raising wages and bringing some of
the workers that are on the side lines, I think specifically of
the 7 million prime-age men that have dropped out of the labor
force. Why isn't that more the focus of policymakers rather
than--you know, you see a labor shortage. Rather than bringing
in a large number of new immigrants, why not try to boost wages
in a way that brings some of those workers off the side lines.
That seems to be a much better focus from my perspective.
Mr. Powell. Certainly, that's a very constructive focus. I
would agree. I don't think it has to be one or the other.
Senator Vance. Thank you, Mr. Chairman.
Chair Brown. Senator Van Hollen from Maryland is
recognized.
Senator Van Hollen. Thank you, Mr. Chairman. Chairman
Powell, it is good to see you. And let me first applaud you and
your team at the Fed for at least so far being on track to
bring down inflation without so far triggering a surge uptick
in unemployment.
But you know very well that is a risk if the Fed does not
act with full awareness of that danger. When you were here in
March, you said that you were, quote, well-aware, end quote, of
the risk to unemployment of waiting too long to cut rates and,
quote, very conscious of avoiding it, end quote.
Since then, we have seen a slowing in the economy and a
rise in unemployment. I am just reading something today in
analysis with Diane Swonk, KPMG's chief economist, who summed
it up by saying, quote, the ice is thinning. Red flags are
emerging for the U.S. economy, end quote.
The engine of the economy, the labor market, is cooling
faster than previously known. The unemployment rate is above 4
percent for the first time since 2021. It is taking workers
longer to find jobs. Economic activity in the service sector,
which is responsible for two-thirds of economic growth, slowed
in June.
So, my question, Mr. Chairman, is, how do you take all of
these factors into account? Do you share my concern that as of
today there is a real risk of an increase in unemployment
larger than is currently on your radar screen?
Mr. Powell. Yeah, I mean, absolutely. I do, even more so
than in March when we were here, see that. So, we have seen,
and I think the latest data show, that labor market conditions
have now cooled considerably from where they were 2 years ago.
And I wouldn't have said that until the last couple of
readings.
And I would say also that, you know, for a long time the
risks were more that we would fail to hit our inflation target.
I think the risks as to the two statutory targets we have,
price stability and maximum employment, I think those are
coming much more into balance.
My colleagues and I are looking at that, and we fully
understand that we have to manage this process of administering
the Federal funds rate and deciding what to do with it in a way
that manages both of those risks. And, you know, the two
mandates are equal under the law. And so, yes, we do get that.
Senator Van Hollen. Well, I appreciate that. And I
appreciate the fact that you have seen that sort of calculation
change since you were last here. Because I think the data
indicates that we are at risk now of not acting soon enough to
curb the increase in unemployment. And if we allow that to go
too long, we may see a real uptick there.
And so I am pleased that is very, very much on your radar
screen and hope that that would be a really deciding factor as
you and your other Fed colleagues determine what to do with
respect to interest rates.
And has been said in the housing sector, we are seeing a
continuing drag created by high interest rates. So, that has
been a--I think all of our colleagues, as you probably heard
today, are really hearing from our constituents understandably
about the very high housing prices. And it has slowed
investment in other sectors, like manufacturing as well.
In my final minute, I would like to turn to the question
that Senator Warren asked because I asked your colleague, Vice
Chair Barr, about exactly this, a question of implementing
Section 956 of Dodd-Frank when he was before the Committee just
a short time ago, May 16 of this year.
And I asked him about why the Fed had not moved forward
along with other agencies with respect to implementing what the
law is and what the law has been for 10 years.
NCUA has signalled their intent to propose a rule. The SEC
has indicated that they are moving forward. I said to Vice
Chair Barr that I have not seen any notice of proposed rule
from the Fed. And can I get the commitment that the Fed will
quickly begin to process implementing this law by issuing a
notice of proposed rule?
His answer was, and I am quoting, in discussions with my
colleagues, it became apparent that at the board, we believe we
need to conduct some further analysis before deciding what
steps to take. We are committed to following the law to
implementing Section 956, but we have further work to do.
Count me among those who are very frustrated that we are
now 10 years after this law has passed. Vice Chair Barr
committed to following the law. I am sure, Mr. Chairman, that
you would commit to following the law. But why is it how that
it is taking the Fed so long to move forward with
implementation of 956.
Mr. Powell. So, I would like to look at the actual language
of the statute. What it says is it calls on the regulators to
make determinations about specific incentive compensation
practices that cause excessive risk taking. And we haven't done
that.
So, we did--you know, we put in place pretty serious
guidance back in 2010. After putting it up for comment, we
looked at all these questions. It has been in place for 14
years. We supervise on it. And, you know, so the question I am
asking is, OK, let's go ahead and look at what the practices
are that are happening now, not that are happening before the
global financial crisis when it was obvious that things needed
to be changed. And we put the guidance in place.
It seems to have largely worked, certainly as it relates to
the large firms. And then let's design something that is
designed to the residual risk as opposed to just taking
something off the shelf from 15 years ago and doing that. So,
we are working on that at the Fed now.
And, again, I am--the statute requires us to prescribe
regulations or guidelines to prohibit those things. And, you
know, I want to do that since we have them.
Senator Van Hollen. Just very briefly, is it your testimony
that the Fed has already met the requirements?
Mr. Powell. No.
Senator Van Hollen. OK.
Mr. Powell. No.
Senator Van Hollen. I just want to make that clear. And we
do look forward to the Fed moving forward.
Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Van Hollen. Senator Britt
from Alabama is recognized.
Senator Britt. Thank you, Mr. Chairman. Chair Powell, thank
you for being with us today. My colleague from Maryland
actually just touched on something. But as I was listening to
the exchange from my colleague from Massachusetts in her
closing remarks, particularly about Dodd-Frank and 956, there
was also a comment at the end where she mentioned you working
for giant banks versus the American people.
Now, I have a long list of questions I want to talk to you
about, but I did want to get you to respond to that.
Mr. Powell. That is completely untrue. You know, the things
that we are doing are consistent with our international
obligations, and they are meant to be the best thing for the
American economy. And that is really our only consideration.
We have policy differences across various things. But, you
know, we are all trying to achieve the best results we can for
the people that we serve.
Senator Britt. Absolutely. Thank you. Chair Powell, I have
repeatedly talked about my concern with long-term debt
proposal. And I just think that it has not been well thought
through.
First, I have concerns that it blatantly undermines the
tailoring requirement. And on that note, do you believe that
2155 will be applicable to the long-term debt requirement?
Mr. Powell. I think it applies to everything. And on the
long-term debt requirement, you know, we have voluminous
comments that we are looking at carefully and thinking through
the process of what to do about them.
Senator Britt. I appreciate that because I do believe that
currently it lacks a real cost/benefit analysis. And I think it
really does need serious reconsideration.
And additionally, when you take a look at it and its
overlapping nature with Basel III, it seems inappropriate that
we would move forward with a new long-term debt proposal
finalizing that rule when we don't even really understand what
Basel III is going to mean for capital requirements for banks
and obviously financial institutions.
So, my question for you is just that. Would it be
inappropriate to move forward with the long-term debt proposal
finalizing that rule prior to Basel III being finalized as
well?
Mr. Powell. I don't know that I would--I can't give you a
clear answer on that. It will depend. I mean, Basel III won't
be finally finalized for some time. But that is not to say that
we wouldn't reach a place where people understand and accept
and support what it is that we are doing. And then I think at
that point we would certainly move forward with other rules.
Senator Britt. I heard you mention to one of my other
colleagues that probably by the time this all took place, it
would be the beginning of next year. I would just say my
concern, the Fed has said that the long-term debt rule will
directly be impacted by the final Basel product.
And so, you know, why would it be inappropriate or
appropriate to move forward with that before banks can fully
understand what they are facing from Basel? So, I would just
that you all are thoughtful about that.
These are a lot of things that people are dealing with and
trying to really understand the implications of. And I think we
have seen consistently that people are not taking a look at the
cumulative impact of these things and not really taking a look
at the trickledown effect.
And on that, on Basel, when you testified in March, you
said the Fed was aware and fully considering the potential
impacts of a proposal on our commodities markets. And I do want
to talk about that. The commodities market, our agriculture
industry, is one in five jobs. In the State of Alabama, it is
20 percent of our economy. I am a big believer in food security
is national security.
And the proposal would increase hedging cost by 80 percent,
meaning banks would be far less likely and are inclined to
offering clearing services. So, this could have a detrimental
effect to our agriculture community and increase other costs
providing food and fiber for our Nation.
When you look at inputs such as feed, seed, fertilizer
prices, those have skyrocketed. And prices have ended up just
getting passed down to the consumer, and grocery prices are up
21 percent since January.
So, do you believe that the revised Basel proposal will
alleviate these concerns that our farmers and our ag community
have had about Basel III and has the Fed done anything
specifically to take a look at this and if not, will you commit
to doing so?
Mr. Powell. I don't want to get into the specific changes
that we are going to make. I will just say that we are very
well aware of and very focused on that particular set of
changes and paying close attention to the issues you have
raised.
Senator Britt. I appreciate that. And I also hope that the
Fed, when you craft these types of regulation, you really
consider the relationship between economic impact and the
ability of community banks to serve their communities as well.
I have heard you mention that to a another one of my
colleagues. So, I know that you are committed to doing that.
But that is incredibly important to Alabamians and our Main
Streets all across the State.
In my last few seconds, I want to touch on one more topic.
So, finding solutions to expanding affordable childcare is a
top priority of mine. And it is something that I know a number
of my colleagues on the other side of the aisle share an
interest in and believes is an important issue as well.
So, Chair Powell, do you believe that increasing access to
affordable childcare would positively impact labor
participation in our county?
Mr. Powell. I do believe that.
Senator Britt. Thank you.
Chair Brown. Thank you, Senator Britt. Senator Cortez Masto
of Nevada is recognized.
Senator Cortez Masto. Thank you. Excuse me. Chairman
Powell, thank you for joining us. And I always appreciate
visiting with you in my office as well and your comments.
Let me start by a comment you made in the opening. Over the
past 2 years, you said the economy has made considerable
progress toward the Federal Reserve's 2 percent inflation goal.
Labor market conditions have cooled, while remaining strong,
reflecting these developments. The risk to achieving our
employment and inflation goals are coming into better balance.
And what we know is that since Biden came into office, the
United States has added over 15 million jobs. Under President
Biden, we had 41 consecutive months of job growth. And you just
said it again here today that wages are up as well. The average
U.S. wages and salaries grew by nearly, what 16,700 between
January 2021 and April 2024.
So, would you agree with the statement by a Ranking Member
earlier today that the U.S. has the greatest economy on the
planet?
Mr. Powell. I certainly would.
Senator Cortez Masto. Let me ask you this. Jumping around,
and there has been talks today about the Fed's independence and
how important the Fed's independence is. The Wall Street
Journal recently reported former Trump administration officials
drafted policy options to weaken the independence of the
Federal Reserve. If President Trump were to be elected in
November, allegedly former Administration officials discussed
policy options to erode the Fed's independence to make it
easier for a President to impact interest rate decisions or
fire the Fed chair at will.
Chairman Powell, how important is it that the Fed has
independence to provide economic stability and anchor inflation
expectations?
Mr. Powell. So, I think it is actually essential. It is
literally essential. And the good news is I think that is
pretty broadly understood and particularly on Capitol Hill on
both sides of the aisle. I believe that people do understand
that we need to do our work in a way that is outside of the
political process to the maximum extent possible.
Of course, we need to be accountable and tremendously
transparent. If you look at the box in the monetary policy
report on Central Bank independence, it is really a box about
transparency. That is the other side.
So, I think it is really important. I think it is an
institutional arrangement that has served the public well. And
I do believe that there is pretty wide support for it.
Senator Cortez Masto. And you said that it has been
intentional and institutional arrangement over the years for
this very reason, correct?
Mr. Powell. Yes. This is a choice that we make. And I think
countries around the world, advanced economies, have all made
this choice effectively. And the results are clear that you now
have independent central banks, and you have better anchored
inflation expectations. And you have better performance on
inflation and better performance in the economy generally,
which isn't to say there won't be shocks and crises and that
kind of thing.
Senator Cortez Masto. And then let me touch on a subject
that one of my colleagues just talked about because I was going
to ask about this, which is our immigration.
In Nevada, immigrants are extremely important for our
economy. They are essential workers, doctors, nurses, and
teachers in my community. Can you, without getting into other
ancillary issues that don't impact what you do, can you talk
about and elaborate on how immigration affects the employment
rate and why you look at it, and for what reason you look at
the immigration issue?
Mr. Powell. So, again, we don't--just to make the point
that you made, we don't take a position. We don't comment on
immigration policy. We have no responsibility for it. It's not
our job. So, we just look at the numbers, and we sort of try to
assess the economic consequences of immigration.
And over the last 2 years--two years ago, we had an economy
where we really had a labor shortage. And what has happened is
we have had a wave of immigration. And many of those people
have gone to work and gone to work legally through the asylum
process. Not all of them. There is also a group that has not
been legally processed. But many of this latest group have
sought asylum and then gotten--gone through the process of
getting a work permit.
So, what that means is that employers wanted workers, and
there were more job openings than there were people actively
seeking work or working. And so now you have a new supply of
workers, and they filled those jobs. So, we have a bigger
economy. But it is not a tighter economy because labor supply
has increased the economic capacity. That is just the
arithmetic. That is not saying it is a good thing or a bad
thing. There are other policy choices that could be made, and
they are not for us to make.
Senator Cortez Masto. When you say greater economy----
Mr. Powell. Larger economy.
Senator Cortez Masto. In other words, it has improved the
growth of our economy.
Mr. Powell. The economy grew three-point-something
percent--3.4 percent, believe--last year. And some part of that
was that, as Congressional Budget Office analysis showed, and
to many a surprise, there had been a really significant
uncounted group of workers coming into the country who had gone
to work.
And that is part of the story of how the economy managed to
grow that much while inflation was coming down pretty sharply.
Inflation came down two full percentage points during 2023
while the economy was growing at 3.4 percent and while these
people were coming.
And so that is part of the explanation for why we had such
an interesting and pretty good year in 2023.
Senator Cortez Masto. Thank you.
Mr. Powell. Senator Cramer of North Dakota is recognized.
Senator Cramer. Hi, Mr. Chairman. Thank you, Chairman. As
always, all of my prep goes out the window with the last
question. So, on the legal immigration workforce front, and I
know this isn't your bailiwick, but the issue of workforce is
important to the economy.
I would submit to my colleagues, beyond even the people who
come here seeking asylum suddenly being available for the
workforce, we have a million plus people who we welcome in
legally every year, the vast majority of whom don't come in
with a job or even a skill set. And we have so much work to do,
colleagues, on the legal immigration front to create a
connection between economic demands for workers and the skill
set and education that our immigrants bring to us.
So, most every other country requires some sort of skill
set useful in the economy. We don't do much of that. So, that
is just my speech for the moment.
I know, Mr. Chairman, you have gotten already lots of very
specific questions. And I have heard a couple of them on Basel
III. So, I am just going to make an illustration, and you can
comment on it if you would like. But there is a large
generation and transmission utility in North Dakota, Rural
Electric Cooperative, Basin Electric, a very large G&T members
all over the Upper Midwest.
And they recently testified in front of the CFTC on Basel
III, and they expressed concern about how operations would be
impacted if lending was curtailed or limited in any way. And
they gave a real-world example. And I wanted to just give you
that example.
Now, remember this is electricity supply that we are
talking about. It is critical that it remains reliable. It is
critical that it remains affordable. And part of an electric
cooperative's risk management program, of course, is how it
buys the fuel that generates the electricity, in this case,
natural gas. They may buy natural gas in advance at a fixed
price, realizing that natural gas is one of those commodities
that goes up and down in pretty big swings at times.
But they can hedge by buying it at a fixed price for a
power plant. And it protects the cooperative financially since
electricity prices, again, follow those spot prices generally.
So, spot prices spike. So, do electricity prices. However, with
a natural gas hedge, the cooperative can generate electricity
at a lower fixed fuel cost, protecting itself and its consumers
from high prices. It is an upfront cost on the balance sheet
between the cooperative and its bank. But it protects the
reliability and affordable supply of electricity.
I give you that very specific example, not to even mention
that the cooperative model itself has some unique qualities.
But if you would like to comment on it. You have already stated
that there are going to have to be changes. I just throw that
into your box of things to think about. And you are welcome to
comment if you like.
Mr. Powell. I'll just say we are well aware of that issue,
and I appreciate you bringing it up.
Senator Cramer. Thank you, Mr. Chairman. With that, then, I
am just going to speak to this independence issue. I think that
the senators who have questioned you on it are correct. I share
that concern. As you know, the independence of the Fed is
essential. I have resisted moves within my own party to change
it. But those moves are very narrow and not very, I don't
think, very realistic.
And I appreciate you pointing out that from what you can
tell, at least on Capitol Hill, we are all pretty much united
on that front. Perception does matter. It matters a great deal.
And you and I have had discussions over the years on you were
very--you admonished us strongly as Congress to spend what we
needed to spend to get through the pandemic and to maintain the
economy. I think you were right to do that.
You were just as aggressive in not responding to calls to
rein it in a little when Democrats brought the Inflation
Reduction Act and the American Rescue Plan to the forefront.
And I think it really basically hijacked the economy and put
fuel on the inflation. But perception matters.
And so I would just submit to you, and you haven't said you
are going to do this. I don't have any reason to believe you
will do this. But any move to lower interest rates or move
interest rates either direction before November 5 could
certainly be a bad perception even if there is a strong push to
do that.
I know you understand that. But I just want you to know
that as long as you remain independent, I will be on your side.
I think neutral is a good place to be.
And by the way, you have one of those jobs where being
boring is one of the noble things you can be. So, great job.
Thank you.
Mr. Powell. We do our best.
Chair Brown. Thank you, Senator Cramer. Senator Warnock is
recognized, who is decidedly not boring.
Senator Warnock. Thank you very much, Mr. Chairman. The
latest monetary policy report shows inflation and housing costs
is gradually easing. That is good news. But many Georgians
still feel the sting of unaffordable homes and mortgages. And
one reason for this, and you and I have discussed this, is that
we aren't building enough houses.
A 2022 study published in the Journal of Economic Geography
found that for every 10 percent increase in the housing stock,
rents decreased by 1 percent.
We have discussed this issue, particularly the effects of
housing supply on housing costs, and we agree that while the
Federal Reserve does not control housing supply, it can help
create the environment that encourages the construction of new
housing, particularly affordable housing.
Chair Powell, how has the Fed been working to foster an
environment that encourages home construction. And what, in
your view, are the challenges that remain?
Mr. Powell. So, in the long run, the absolute best thing we
can do for the housing market and for the economy is to
sustainably bring inflation back down so that people aren't
talking about it anymore. And it's just assumed by everybody in
their daily lives that inflation will be around 2 percent, so
we don't need to talk about it, which is where we were for a
long time. We want to get back to that.
Interest rates can come down then. And the housing market
can return to the state it was in before the pandemic, which
was to say really tight. We don't have enough housing. And
that's not really a monetary policy issue.
In the short-term though, you know, I would say tight
monetary policy weighs on the housing market. You know, the
policy works through interest-sensitive spending, and housing
is definitely at the top of the list of interest-sensitive
spending.
So, we understand that, you know, we are suppressing--not
suppressing, but our higher interest rates, you know, have led
to lower housing starts and lower activity in the housing
market. But we are doing that to get back to 2 percent
inflation for the whole economy so that the housing market can
be on a better foundation.
Senator Warnock. Yeah, and related to that, when you have
these high interest rates, of course, you see across the
country, but particularly in a State like Georgia, these
institutional investors who are coming into the space and they
are buying houses in all cash, boxing out first-time, first-
generation homebuyers and, of course, the conditions for them
doing that improve to their favor with higher interest rates.
Would you agree with that assessment?
Mr. Powell. I know that some of that is happening. I don't
know that higher interest rates make it--I mean, some of that
is--they are working with----
Senator Warnock. You have got higher interest rates, and
you have got institutional buyers who can purchase it all cash.
Doesn't that further----
Mr. Powell. But they have to borrow the money at higher
interest rates. I am just saying higher interest rates doesn't
make their investment any cheaper.
Notwithstanding, I understand it is a sensitive issue. And
in most markets, it is still a pretty small portion of the
outstanding housing stock. But it is not an issue for us. You
know, they are a legal buyer of housing. Our job is really the
whole economy. I mean, it is more of a question for
legislatures.
Senator Warnock. So, how can the Fed better use its
monetary tools to ensure that we are meeting key inflation
objectives like housing affordability?
Mr. Powell. You know, I think the best thing we can do is
kind of what we think we have been doing, which is to move
carefully as we think about loosening policy and make sure that
we do that when we have got greater confidence that inflation
is moving sustainably down to our 2 percent target.
We are also keeping a close eye on the labor market. And if
we see unexpected weakening there, then we could respond to
that too. But that is really the best thing we can do for the
whole economy and very specifically for the housing market,
too.
Senator Warnock. I will point that you are limited in terms
of your influence there. And there is a role for Congress to be
sure, which is one of the reasons I wanted to be on this
Committee to introduce a Down Payment Toward Equity Act with my
colleague, Senator Butler. This bill would help first
generation homebuyers compete with Wall Street institutional
investors by helping with down payment costs, closing costs,
and costs to reduce interest rates.
I look forward to continuing productive conversations with
you and looking at how we can make housing more affordable for
all Americans.
I am running out of time here, but one of the other
concerns I maintain with respect to reducing the racial wealth
gap is this issue around home appraisals. And the Fed as part
of their agency task force on property appraisal and valuation
equity, what expertise and perspective has the Fed brought to
this task force and how are you responding to this issue of
home appraisals?
Mr. Powell. So, as you know, we have been an active
participant in that task force. And, you know, we bring all of
the expertise we have in the housing market as well as
regulatory, supervisory, and economic expertise generally as we
look at that.
And I will also say that our strongly held view is that
discrimination has no place in the banking system and that
includes appraisals and other valuations.
Senator Warnock. I agree with that. And quickly, I was glad
to see that CFPB and other agencies recently finalized a rule
that creates strong anti-discrimination standards for automated
home valuations.
The Fed has not yet approved this rule. Why not and does
the Fed plan to do so?
Mr. Powell. I'm sorry. Why do we?
Senator Warnock. You have not yet approved the rule that
was made--that was suggested by the CFPB. They finalized the
rule.
Mr. Powell. But do we--I am sorry. I am not aware that it
is a rule that we have to finalize too. Is that the case?
Senator Warnock. That is my understanding.
Mr. Powell. Let me follow up with you on that. I am not
aware of that.
Senator Warnock. Thank you.
Chair Brown. Senator Daines of Montana is recognized.
Senator Daines. Chairman, thank you. Chairman Powell,
thanks for being here today. Certainly, it is not lost on
anybody here, election season is in full swing. And so from now
until election day, my Democratic colleagues in Congress as
well as the Biden-Harris administration will waste no time
attempting to sell a fairy tale to the American people that
financially and economically they are better off now than they
were almost 4 years ago.
When President Biden took office, inflation was at 1.4
percent. His failed policies drove us to the highest inflation
we have seen in 40 years. I can tell you the folks back home in
Montana aren't fooled because in every part of their lives,
inflation is not some kind of hypothetical. They see the
everyday impacts of the decades-high inflation brought on by
the policies of the Biden administration and facilitated by
congressional Democrats.
The cost of most goods and services across the economy are
more expensive than they were in 2020. and that is a fact that
no amount of political spin or mental gymnastics can make go
away. Here are a couple of examples. Breakfast cereal, prices
have increased 28 percent since January of 2020. Gas prices
increased 36 percent from the national average of $2.63 a
gallon to $3.58 per gallon. Egg prices, egg prices have jumped
$3 per dozen in 2024, double the cost of $1.45 in February of
2020.
And this dishonesty doesn't stop with inflation. On the
labor market, while President Biden and Senate Democrats are
celebrating a victory lap in light of the recent jobs report,
showing 206,000 new jobs last month, they are willfully
ignoring the fact that more than a third of these job gains
came from the Government sector.
Mr. Chairman, I commend you for the job you have done thus
far in trying to rein in inflation, and I encourage you to
continue the fight despite the political pressures you may
face. I am also encouraged by the comments you made earlier
this month about the dire need for Washington to address its
fiscal imbalance. I couldn't agree more.
I have said many times and continue to believe that
Washington's culture of reckless spending, of excessive
borrowing is leading us down a very dangerous path by leaving
future generations with mountains of debt. And I am happy to
hear you agree with that assessment.
Mr. Chairman, given that it is an election year, you are
undoubtedly facing immense political pressure to lower rates.
Thus far, you have done an admirable job in using the tools at
your disposal to fight inflation, and I urge you to continue to
be led by data and not calendars or political influence.
You said as recently as last week that while things are
trending in the right direction, you would need to see further
evidence before cutting rates.
So, here is my question, Mr. Chairman. What specifically
are you looking at and looking for as we head into the next
FOMC meeting, and how do you factor in this recent labor data
and certainly the significant part of that being Government
jobs?
Mr. Powell. So, we are looking for two things really. One
is just more good inflation data. And we had quite a lot of
good inflation data the last 7 months of last year. Then we had
kind of a bump in inflation in the first quarter. And now we
have had one good and one very good inflation reading.
And we need more good data so that we can be confident that
what we are seeing is really--that is where inflation is going.
That it is going back down toward 2 percent. We don't need to
see it at 2 percent. Right now we are at 2.6 percent. So, that
is on inflation.
On the labor market, to your question, we have seen that
the labor market has cooled really significantly across so many
measures and a number of people here today have pointed them
out. And the unemployment rate has moved up. You see a labor
market that is now pretty much in balance, pretty much where it
was in 2019. It is not a source of broad inflationary pressures
for the economy now, but it is still a strong labor market.
You know, 4.1 percent unemployment is a very good and
historically low unemployment rate. So, we want to--we have a
mandate to support maximum employment. And we also are paying
close attention. And if we see that the labor market was
weakening unexpectedly, which is to say, you know, more than
what we have seen in a material way, unexpectedly, then we
could also respond to that because we have a dual mandate. And
we now see the two mandates as more in balance than they were a
year ago. Really the focus had to be, and was on, inflation.
Now we need to be focusing on both goals.
Senator Daines. Chairman, thank you. I want to get one
question on Basel III and then we will--in March, this
Committee agreed that it was seriously flawed and needed to be
completely rewritten. I was encouraged to see reports last
month that the Federal Reserve had provided other financial
regulation to possible changes to the proposal. My question is
I continued to believe the proposal should be scrapped
altogether. But could you share what changes you are planning
to make and the status of the ongoing development of the
updated proposal?
Mr. Powell. So, we have had extensive discussions led by
Vice Chair for Supervision Barr with the FDIC and the OCC. We
have made a lot of progress in getting close to an agreement on
a set of proposed changes. The work that remains is to agree on
a process forward. How are we going to move forward? It is our
view institutionally that we need to put the changes out for
comment for some period of time so that the public, all members
of the public who want to comment, can see them again and
comment on them again and see them in the context of the
quantitative impact survey that we did. And that is the right
way to proceed. That is how we would ordinarily proceed. And we
don't see why we would deviate from that. And this is the
conversation we are now having with the leadership of the FDIC
and the OCC. And my hope is it will be able to come together
around a way to proceed forward, you know, very soon. I would
hope we would have done so by now. But I believe we will do so
very soon.
Chair Brown. Thank you for joining us today, Chair Powell.
I look forward to working with you strengthen this economy.
For Senators who wish to submit questions for the hearing
record, they are due 1 week from today, July 16, to Chair
Powell. Please submit your responses to questions for the
record 45 days, no more than 45 days from the day you receive
them.
Thank you for your testimony. The Committee is adjourned.
[Whereupon, at 12:12 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
Welcome Chair Powell.
Ohioans know and Americans know that our economy fundamentally is
not a fair playing field.
Instead, we have a David and Goliath economy, where the largest
corporations use their power to funnel all the gains in the economy to
the top--aided and abetted by too many people in this town.
Corporations squeeze every last penny from Americans' pocketbooks and
workers' paychecks.
They don't even try to hide it anymore.
The biggest corporations are charging more for less. Americans are
frustrated--no, actually, they're pissed off. They have fewer and fewer
choices and those choices cost more and more.
Keeping prices down is part of the Fed's mandate. But as many of us
have made clear: the Fed's main tool to combat inflation, raising
interest rates does nothing to address the biggest causes of rising
prices right now--corporate greed.
Keeping rates too high for too long threatens workers' paychecks
while keeping other costs high--particularly housing.
Housing prices and rents continue to go up.
It is no surprise that since the Fed began raising rates, the
amount of income families need to qualify for a mortgage has nearly
doubled.
Home ownership has long been a bedrock of our middle class, but
today, fewer and fewer middle-class families can afford to buy a home.
And higher interest rates are making our country's housing supply
shortage worse, not better. We need more housing construction, of all
types. Higher rates lead to the opposite, and particularly make it
harder for multifamily construction to work financially.
Higher interest rates make borrowing more expensive for working
families--whether it's for a mortgage or a car or anything else. Most
people do not have the luxury of paying for everything in cash.
And for the millions of Americans feeling their budgets stretched
by higher prices, taking on credit card debt to pay for groceries and
other essentials has been an option of last resort.
But as more people struggle to pay down their debts, credit card
interest rates are reaching all-time highs. Last month Director Chopra
testified in front of the Committee and he explicitly stated that
credit card issuers are charging higher rates far beyond what they need
to cover their costs.
Banks are making record profits at the expense of cash-strapped
Americans.
Every month that the Fed keeps rates high, it costs Americans money
by making it more expensive to buy a house and borrow money.
Higher borrowing costs stifle future economic growth, leading to:
Fewer homes being built.
Businesses making fewer investments in the economy.
And eventually, if the Fed doesn't stop, workers losing their jobs.
As they set economic policy, I urge the Fed to weigh these
tradeoffs and remember whose jobs and futures are at stake.
This is why I have worked with my colleagues to hold corporations
accountable, and will continue to.
I have fought hard to cap insulin prices for senior citizens and
will continue to fight to extend this price cap on life-saving drugs to
all Americans.
And why my colleagues and I on this Committee are working to lower
housing costs for more families.
The Fed also continues its work to keep the banking system stable
and ensure consumers' money is safe.
Last year, the Fed and the other banking regulators issued a
proposal to update bank capital requirements. Strong capital standards
are critical for the economy--it's our way of making sure that if Wall
Street's bets go poorly, investors and executives and shareholders pay
for it, not taxpayers.
The biggest banks have spent obscene amounts of money attacking
this proposal.
But the Fed doesn't work for big banks--it works for the American
people. Your concern should be developing capital rules that protect
Americans' money--not bank CEOs' stock portfolios.
The Fed needs to look past these shameless lobbying efforts and
finalize a rule that's in the best interests of taxpayers.
Another dangerous piece of the Wall Street business model that
makes our banking system less safe is incentive-based compensation.
This compensation model rewards risky behavior that enriches Wall
Street executives in the short term, but makes banks more likely to
fail.
We saw the results of that model in 2008 and again last year with
the failures of SVB and Signature.
Other regulators have moved forward with a proposal to rein in
these reckless incentives, but the rule can't move forward without the
Fed.
Chair Powell, this rule is long overdue and the Fed must join this
statutorily required effort as soon as possible.
The Fed also has the important job of reviewing mergers and
acquisitions between banks.
Over the last several decades, we've seen the largest banks grow
into massive, trillion-dollar companies, while thousands of small banks
in rural communities and small towns and all across America have
disappeared. Consumers have lost trusted local banks, and small
businesses have lost longtime banking partners.
Regulators like the Fed have the crucial job of guarding against
mergers that reduce or eliminate competition and lead to branch
closures or layoffs.
I recently sent comment letters to the FDIC and OCC on their
current efforts, and I expect the Fed to take the proper steps to
ensure that its merger review process is robust and protects consumers
and communities.
Finally, you must ensure that the Fed has the highest ethical
standards.
Fed officials should never again be able to profit from their
positions by using confidential plans about Fed monetary policy and
emergency programs to pad their investment portfolios.
The Board's latest update to its trading rules is simply not good
enough.
It still fails to establish the clear penalties needed for Federal
Reserve officials who make investments in violation of the public
trust. A rule with no consequences isn't much of a rule at all.
The American people need to be able to trust that the Federal
Reserve works for them, and that officials aren't abusing their
positions for personal gain.
As Chair of the Federal Reserve, you have an important role to play
to make sure our economy works for everyone, not just for Wall Street.
And the Fed's regional banks must do their part to hear from people and
other stakeholders in their districts to understand their needs.
I look forward to hearing today how the Fed will balance its dual
mandate, protect Americans' money, and foster an economy that upholds
the dignity of work.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
Thank you, Mr. Chairman. Thank you, Chair Powell, for being with us
this morning. Welcome back.
Joe Biden broke this economy and it's been very difficult to fix
it. That's the bottom line. I want to start with the end in mind. Joe
Biden broke our economy and it is very difficult for anyone to fix it.
Everyday families are struggling to put food on the table. Real
wage growth is being eaten away by rising prices and runaway inflation.
Think about the fact that for 52 consecutive weeks in the Joe Biden
[administration] wages were eclipsed by inflation for 52 consecutive
paychecks. I remember back in December of 2020, in South Carolina, gas
was a dollar and 99 cents per gallon. Today, it's still $3.19 per
gallon. A 50 percent increase in just a few years.
So, it's devastating to the average American family, particularly
families like the one I grew up in--a single parent household mired in
poverty. When you see your gas prices up 50 percent, your food up 30
percent, your cost of keeping your house cool or warm up 25 percent.
It's not a challenge. It's not unfortunate. It's an absolute crisis.
And too many households in America today are living paycheck to
paycheck, and they fear the challenges that are coming our way--the
headwinds brought to us by the Biden administration.
The headwind, of course, is seen through the prism of inflation.
Inflation hasn't been this size since the Jimmy Carter years, and that
devastation is being felt in measured households by too much [money] at
the end of the [month]. And that devastation is real for the vast
majority of Americans.
And the pointing finger--I tell you what, whether it's the Biden
administration throwing the Fed under the bus or any other way they can
deflect from the real problem. I've seen it in committee hearing after
committee hearing after committee hearing. My friends on the left want
to point their fingers at anyone other than the real culprits at 1600
Pennsylvania Avenue.
The progressive wish list, spending projects, and out of control
regulations of this Administration continues to eat away at American
paychecks. And they continue to blame--whether it's ``shrinkflation,''
``greedflation,'' and ``skimplation.'' They're looking for someone to
blame except for Bideninflation.
The devastation of Joe Biden's economic policy continues to impact
everyday Americans. The American people see through the facades, and
they want real solutions. It doesn't take a Ph.D. economist to
understand what the average American is experiencing under this
Administration. When President Biden and my Democratic colleagues
pumped trillions of dollars into our economy, those dollars increase
the demand and pushes prices higher.
It's that simple. The American people see and feel it every single
time, and they see it, as I said earlier, the grocery stores, the gas
stations, at the doctor's office. It's just undeniable the impact is
happening.
Just last week, we celebrated the birth of our country, the birth
of this Nation of freedom and liberty. But American families got
slapped with the most expensive July 4th on record, with a cookout this
year costing on average 30 percent more than it did just a few years
ago. I call that hogwash.
What's worse is that this Administration doesn't want to learn a
lesson in economics. Instead of reducing the push for more spending and
more regulations, they only simply double down.
Let's take, for example, the tens of billions of dollars of student
loan forgiveness--constant new plans to forgive more money regardless
of the constitutionality of their decisions.
So, it's important to ask, who are these billions of dollars of
forgiveness actually benefiting? Well, the answer simple. This
forgiveness scheme will result in debt relief for 750,000 individuals
from households with an average income of $300,000 or more.
And just don't forget the fact that the average American family has
a household income around $74,000. So, what we're doing with this
unconstitutional student loan forgiveness is actually asking the median
household of $74,000 per household to bear the burden of forgiving debt
for students who live in households of over $300,000. And the actual
cost of this? Somewhere between $870 billion to $1.4 trillion dollars.
Why do I have to even ask the question? Why do we continue to
punish American families struggling paycheck to paycheck with the new
scheme to relieve households over $300,000 of student loan debt? Well,
the answer is pretty simple. Politics. It's one way to buy vote after
vote after vote for November's election. It's just hard to imagine.
So, while I appreciate your measured words outlining the Fed's work
to cool inflation, I think it's past time we all recognize what is
truly going on. Political pandering from the left. I strongly believe
that our economy cannot handle any more of this wasteful spending. And
if you disagree, I would love to hear your thoughts on that. But it's
not just spending policies that stifle growth, it's also
overregulation.
And I can't think of a better example of overregulation than
parking more capital on the sidelines through Basel III Endgame. That
proposal itself would cost millions of Americans their chance to own a
home, start a small business, and have access to the credit and the
capital necessary to make their American Dreams come true.
For those who are actually watching this hearing today on C-SPAN,
Basel III capital requirements are like taking your star quarterback
Dak Prescott and telling him to sit on the sidelines because he just
might get injured during the season.
It's just plain ridiculous. But these proposed capital requirements
would just do that. Forcing more money to the sidelines of the greatest
economy on the planet and out of the hands of first-time homebuyers,
business owners, and folks trying to achieve the American Dream. The
stakes are high, and that is why we have to get this right.
You've heard me say this a number of times, but it bears repeating,
we need transparency in your rulemaking process, as this enormous
proposal lacks any form of clear justification.
Chairman Powell, it is essential that you and your fellow
governors, and the other agencies join in this rulemaking, follow the
law, do the homework, and then let the public check the work.
That's why I believe that it is absolutely necessary to put to have
a complete re-proposal of Basel III Endgame.
Give the stakeholders an opportunity to take a look at it and then
recalibrate what is necessary going forward.
Any increases in capital that are not quantitatively justified
harmed the American people who need it most. Our farmers, homebuyers,
small business owners need and deserve access to credit.
Therefore, I'll repeat it one more time. You need to restore
confidence in this rulemaking process. Pull the existing proposal and
have a complete restart. And then when the data has been analyzed and
is available for the public scrutiny, reissue an appropriate proposed
rule following the requirements of the APA.
I look forward to your opening statement and having a chance to
have a conversation afterwards.
______
PREPARED STATEMENT OF JEROME H. POWELL
Chair, Board of Governors of the Federal Reserve System
July 9, 2024
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.
The Federal Reserve remains squarely focused on our dual mandate to
promote maximum employment and stable prices for the benefit of the
American people. Over the past 2 years, the economy has made
considerable progress toward the Federal Reserve's 2 percent inflation
goal, and labor market conditions have cooled while remaining strong.
Reflecting these developments, the risks to achieving our employment
and inflation goals are coming into better balance.
I will review the current economic situation before turning to
monetary policy.
Current Economic Situation and Outlook
Recent indicators suggest that the U.S. economy continues to expand
at a solid pace. Gross domestic product growth appears to have
moderated in the first half of this year following impressive strength
in the second half of last year. Private domestic demand remains
robust, however, with slower but still-solid increases in consumer
spending. We have also seen moderate growth in capital spending and a
pickup in residential investment so far this year. Improving supply
conditions have supported resilient demand and the strong performance
of the U.S. economy over the past year.
In the labor market, a broad set of indicators suggests that
conditions have returned to about where they stood on the eve of the
pandemic: strong, but not overheated. The unemployment rate has moved
higher but was still at a low level of 4.1 percent in June. Payroll job
gains averaged 222,000 jobs per month in the first half of the year.
Strong job creation over the past couple of years has been accompanied
by an increase in the supply of workers, reflecting increases in labor
force participation among individuals aged 25 to 54 and a strong pace
of immigration. As a result, the jobs-to-workers gap is well down from
its peak and now stands just a bit above its 2019 level. Nominal wage
growth has eased over the past year. The strong labor market has helped
narrow long-standing disparities in employment and earnings across
demographic groups. \1\
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\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 couple of years but
remains above the committee's longer-run goal of 2 percent. Total
personal consumption expenditures (PCE) prices rose 2.6 percent over
the 12 months ending in May. Core PCE prices, which exclude the
volatile food and energy categories, also increased 2.6 percent. After
a lack of progress toward our 2 percent inflation objective in the
early part of this year, the most recent monthly readings have shown
modest further progress. Longer-term inflation expectations appear to
remain well anchored, as reflected in a broad range of surveys of
households, businesses, and forecasters, as well as measures from
financial markets.
Monetary Policy
Our monetary policy actions are guided by our dual mandate to
promote maximum employment and stable prices for the American people.
In support of these goals, the committee has maintained the target
range for the Federal funds rate at 5\1/4\ to 5\1/2\ percent since last
July, after having tightened the stance of monetary policy
significantly over the previous year-and-a-half. We have also continued
to reduce our securities holdings. At our May meeting, we decided to
slow the pace of balance sheet runoff starting in June, consistent with
the plans released previously. Our restrictive monetary policy stance
is helping to bring demand and supply conditions into better balance
and to put downward pressure on inflation.
The committee has stated that we do not expect it will be
appropriate to reduce the target range for the Federal funds rate until
we have gained greater confidence that inflation is moving sustainably
toward 2 percent. Incoming data for the first quarter of this year did
not support such greater confidence. The most recent inflation
readings, however, have shown some modest further progress, and more
good data would strengthen our confidence that inflation is moving
sustainably toward 2 percent.
We continue to make decisions meeting by meeting. We know that
reducing policy restraint too soon or too much could stall or even
reverse the progress we have seen on inflation. At the same time, in
light of the progress made both in lowering inflation and in cooling
the labor market over the past 2 years, elevated inflation is not the
only risk we face. Reducing policy restraint too late or too little
could unduly weaken economic activity and employment. In considering
adjustments to the target range for the Federal funds rate, the
committee will continue its practice of carefully assessing incoming
data and their implications for the evolving outlook, the balance of
risks, and the appropriate path of monetary policy.
Congress has entrusted the Federal Reserve with the operational
independence that is needed to take a longer-term perspective in the
pursuit of our dual mandate of maximum employment and stable prices. 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 achieving maximum employment
and stable prices over the long run. Our success in delivering on these
goals matters to all Americans.
Let me conclude by emphasizing that we understand that our actions
affect communities, families, and businesses across the country.
Everything we do is in service to our public mission.
Thank you. I am happy to take your questions.
Questions Submitted for the Record
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Additional Material Supplied for the Record
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