[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
THE FEDERAL RESERVE'S
SEMI-ANNUAL MONETARY POLICY REPORT
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HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
JUNE 24, 2025
__________
Serial No. 119-29
Printed for the use of the Committee on Financial Services
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
60-984 PDF WASHINGTON : 2026
=======================================================================
HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
C O N T E N T S
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Tuesday, June 24, 2025
Page
OPENING STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 1
Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
Institutions, a U.S. Representative from Illinois.............. 2
STATEMENTS
Hon. Frank D. Lucas, Chairman of the Task Force on Monetary
Policy, Treasury Market Resilience, and Economic Prosperity, a
U.S. Representative from Oklahoma.............................. 3
Hon. Juan Vargas, Ranking Member of the Task Force on Monetary
Policy, Treasury Market Resilience, and Economic Prosperity, a
U.S. Representative from California............................ 3
WITNESSES
Hon. Jerome H. Powell, Chairman, Board of Governors of the
Federal Reserve System......................................... 4
Prepared Statement........................................... 6
APPENDIX
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
Comment letter to the Fed on Regulation II Proposed Rule......... 64
Hon. Nikema Williams:
Urban League................................................. 69
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
French Hill.................................................... 71
Written responses to questions for the record from Representative
Daniel Meuser.................................................. 73
Written responses to questions for the record from Representative
Scott Fitzgerald............................................... 75
Written responses to questions for the record from Representative
Monica De La Cruz.............................................. 81
Written responses to questions for the record from Representative
Lisa McClain................................................... 83
Written responses to questions for the record from Representative
Sylvia R. Garcia............................................... 85
Written responses to questions for the record from Representative
Brad Sherman................................................... 88
Written responses to questions for the record from Representative
Nikema Williams................................................ 94
Written responses to questions for the record from Representative
Cleo Fields.................................................... 96
THE FEDERAL RESERVE'S
SEMI-ANNUAL MONETARY POLICY REPORT
----------
Tuesday, June 24, 2025
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:03 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
(chairman of the committee] presiding.
Present: Representatives Hill, Lucas, Huizenga, Wagner,
Barr, Williams of Texas, Loudermilk, Davidson, Rose, Steil,
Stutzman, Meuser, Kim, Fitzgerald, Flood, Lawler, De La Cruz,
Nunn, McClain, Salazar, Downing, Haridopolos, Moore, Waters,
Velazquez, Sherman, Meeks, Scott, Lynch, Himes, Foster, Vargas,
Gottheimer, Gonzalez, Casten, Pressley, Tlaib, Torres, Garcia,
Williams of Georgia, Pettersen, Fields, Bynum, and Liccardo.
Chairman Hill. The Committee on Financial Services will
come to order.
Without objection, the chair is authorized to declare a
recess at any time.
This hearing is entitled, ``The Federal Reserve's Semi-
Annual Monetary Policy Report.''
Without objection, all members will have 5 legislative days
within which to submit extraneous material to the chair for
inclusion in the record.
I now recognize myself for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
Good morning. I want to thank Chair Powell for joining us
today. We appreciate your time and look forward to hearing more
about the Federal Reserve's outlook on economic and monetary
policy. There has been a lot of rhetoric lately, particularly
from our friends across the aisle, suggesting that Republicans
in the Congress are steering our economy toward a recession.
However, the facts tell a different story. Four months into the
Trump Administration, American workers and taxpayers are
already benefiting from a strong, resilient economy. The Fed
noted that growth is solid, and even former Fed officials have
dismissed the idea of a recession this year or is near. Compare
that to the previous Administration. Under President Biden,
Americans endured the highest inflation rates in decades,
driven by reckless spending and misguided policy decisions.
Now, under the Trump Administration, inflation has declined to
levels lower than those seen before President Biden's flawed
so-called American Rescue Plan, and real wages are finally
meaningfully growing again.
There is always some economic uncertainty when the United
States engages in difficult negotiations necessary to secure
more open markets for American goods and services, but that
uncertainty is not without a strategy, a strategy of balanced
lower regulatory costs, pro-growth tax policy, and controls on
Federal spending, all combined with trade successes offer
economic opportunity. One Fed official, Governor Waller, has
outlined about how a balanced approach, combining potential tax
rates with targeted tariffs, could foster strong economic
growth. Let me be clear on that point. We can fight to open
markets, break down non-tariff barriers while achieving solid
economic growth at the same time. That is President Trump's
goal, just as it was for President Reagan in the 1980s.
I also want to commend you, Mr. Chairman of the Federal
Reserve, for taking positive steps to keep politics out of the
Fed, including disbanding four internal climate-related
committees and making the Fed leaner and more efficient by
rightsizing your workforce across the system. These moves
reflect a commitment to efficiency at the Federal Reserve. I am
also pleased that Governor Miki Bowman has been confirmed as
vice chair for supervision at the Board. Governor Bowman has
been a tireless advocate for community banks, and this
committee is eager to work with her on policies that enhance
our banks' ability to provide greater access to capital and
services for our families and businesses across our Nation. I
look forward to today's hearing, and I yield back the balance
of my time.
I now recognize Mr. Foster on behalf of the ranking member
for 4 minutes for an opening statement.
OPENING STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM ILLINOIS
Mr. Foster. Thank you, and I will save everyone a little
bit of time, Chair. Ranking Member Waters was unavoidably
detained. I will just say a little bit, that the markets have
kind of spoken on their confidence in the Trump economy.
Probably the single simplest metric of that is that the U.S.
dollar is down roughly 10 percent, okay? This is not a small
thing, and it has caused countries around the world to question
the primacy of the U.S. dollar going forward. This is one of
the worst market responses, I think, to the chaos that we are
seeing, the tariffs that are very destructive to international
trade, and just everything that the markets are seeing and
trying to suffer through. I know I am contacted all the time by
businesses in my district, manufacturing businesses that cannot
even start thinking about investing with the level of chaos
just from the tariff policy alone. Anyway, there is a long set
of things we should be talking about, and I am happy to save
people some time, and let us get to it. I yield back.
Chairman Hill. The gentleman yields back. I recognize the
chairman of the Task Force on Monetary Policy, Treasury Market
Resilience, and Economic Prosperity, Mr. Lucas, for 1 minute
for an opening statement.
STATEMENT OF HON. FRANK D. LUCAS, CHAIRMAN OF THE TASK FORCE ON
MONETARY POLICY, TREASURY MARKET RESILIENCE, AND ECONOMIC
PROSPERITY, A U.S. REPRESENTATIVE FROM OKLAHOMA
Mr. Lucas. Thank you, Mr. Chairman. Today's hearing will
allow us to evaluate the state of the economy and review the
Federal Open Market Committee's (FOMC's) policy decisions. It
is appropriate to regularly take a step back and assess the
Central Bank's performance and its responsiveness to the
economic conditions our constituents face back home. This
hearing is particularly a timely conversation as the Fed wraps
up its 5-year framework review, including a thorough look at
the consensus statement, communication strategy, and other
guiding policies that will have a profound effect on the lives
of every American. Many of these topics we will discuss today,
we have taken a closer look at in the Monetary Policy, Treasury
Market Resilience, and Economic Prosperity Task Force. I look
forward to building on these conversations here. One issue that
I think warrants special attention is the binding nature of the
supplementary leverage ratio (SLR) and enhanced supplementary
leverage ratio (eSLR) on the Treasury market intermediation. I
am glad to see the Federal Reserve (Fed) is looking into this
tomorrow, and I hope we will see meaningful action soon.
Chairman Powell, thank you for being here. It is critically
important that Congress and the Central Bank have an open
dialog. Transparency, accountability, honest communications are
pillars of our system's success. I look forward to your
testimony on the state of the economy and the Fed's plans for
the future, and I yield back, Mr. Chairman.
Chairman Hill. The gentleman yields back. I recognize the
ranking member of the Task Force on Monetary Policy, Treasury
Market Resilience, and Economic Prosperity, Mr. Vargas, for 1
minute for an opening statement.
STATMENT OF HON. JUAN VARGAS, RANKING MEMBER OF THE TASK FORCE
ON MONETARY POLICY, TREASURY MARKET RESILIENCE, AND ECONOMIC
PROSPERITY, A U.S. REPRESENTATIVE FROM CALIFORNIA
Mr. Vargas. Thank you very much, Mr. Chairman and Ranking
Member, and thank you, Chairman Powell, both for your years of
public service and for being here today. Since 1977, the Fed
has been tasked by Congress with its dual mandate goals of
achieving both maximum employment and stable prices.
Unfortunately, this administration has made accomplishing these
goals more difficult. In the Fed's most recent summary of
economic projections, we see a forecast for slower growth,
stickier inflation, and rising unemployment, all of which point
to a potential stagflation scenario. Whether it is the
President's indecision on trade policy, his hiring freezes
impacting the collection of economic data, his ballooning of
the deficit to cut taxes for the wealthy, or his name calling,
all of these actions make it tougher for the Fed to do its job.
I look forward to your testimony today, Chairman Powell, and I
yield back with that.
Chairman Hill. The gentleman yields back. Today, we do
welcome the testimony of Honorable Jerome Powell, chair of the
Board of Governors of the Federal Reserve System. Chairman
Powell, we thank you for taking time to be with us. You will be
recognized for 5 minutes to give an oral presentation of your
written testimony, and without objection, your written
testimony would be made part of the record. You are now
recognized for 5 minutes. Mike.
STATEMENT OF HON. JEROME H. POWELL, CHAIRMAN, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you, Chairman Hill, Ranking Member, and
other members of the committee. It is great to be back here
today. I appreciate the opportunity to present the Federal
Reserve's Semi-Annual Monetary Policy Report. The Federal
Reserve remains squarely focused on achieving our dual mandate
goals of maximum employment and stable prices for the benefit
of the American people. Despite elevated uncertainty, the
economy is in a solid position, and unemployment rate remains
low, and the labor market is at or near maximum employment.
Inflation has come down a great deal but has been running
somewhat above our 2-percent longer-run objective. We are
attentive to the risks on both sides of our dual mandate. I
will review the current economic situation before turning to
monetary policy.
Incoming data suggests that the economy remains solid.
Following growth of 2.5 percent last year, Gross Domestic
Product (GDP) was reported to have edged down in the first
quarter, reflecting swings in net exports that were driven by
businesses bringing in imports ahead of potential tariffs. This
unusual swing has complicated GDP measurement. Private domestic
final purchases, or PDFP, which excludes net exports, inventory
investment, and government spending, grew at a solid 2.5-
percent rate. Within PDFP, growth of consumer spending
moderated, while investment in equipment and intangibles
rebounded from weakness in the fourth quarter. Surveys of
households and businesses, however, reported a decline in
sentiment in recent months and elevated uncertainty about the
economic outlook, largely reflecting trade policy concerns. It
remains to be seen how these developments might affect future
spending and investment.
In the labor market, conditions have remained solid.
Payroll job gains averaged a moderate 224,000 per month in the
first 5 months of the year. The unemployment rate at 4.2
percent in May remains low and has stayed in a narrow range for
the past year. Wage growth has continued to moderate while
still outpacing inflation. Overall, a wide set of indicators
suggest that the conditions in the labor market are broadly in
balance and consistent with maximum employment. The labor
market is not a source of significant inflationary pressures.
The strong labor market conditions in recent years have helped
narrow longstanding disparities in employment and earnings
across demographic groups.
Inflation has eased significantly from its highs in mid-
2022 but remains somewhat elevated relative to our 2-percent
longer-run goal. Estimates based on the Consumer Price Index
and other data indicate that total personal consumption
expenditures, or PCE prices, rose 2.3 percent over the 12
months ending in May, and that excluding the volatile food and
energy categories, core PCE prices rose 2.6 percent. Near-term
measures of inflation expectations have moved up over recent
months as reflected in both market and survey-based measures.
Respondents to surveys of consumers, businesses, and
professional forecasters point to tariffs as the driving
factor. Beyond the next year or so, however, most measures of
longer-term expectations remain consistent with our 2-percent
inflation goal.
Our monetary policy actions are guided by our dual mandate
to promote maximum employment and stable prices for the
American people. With the labor market at or near maximum
employment and inflation remaining somewhat elevated, the
Federal Open Market Committee has maintained the target range
for the Federal funds rate at 4-and-a-quarter to 4-and-a-half
percent since the beginning of the year. We have also continued
to reduce our holdings of Treasury and agency mortgage-backed
securities, and, beginning in April, further slowed the pace of
this decline to facilitate a smooth transition to ample reserve
balances. We will continue to determine the appropriate stance
of monetary policy based on the incoming data, the evolving
outlook, and the balance of risks.
Policy changes continue to evolve, and their effects on the
economy remain uncertain. The effects of tariffs will depend,
among other things, on their ultimate level. Expectations of
that level and, thus, of the related economic effects reached a
peak in April and have since declined. Even so, increases in
tariffs this year are likely to push up prices and weigh on
economic activity. The effects on inflation could be short
lived, reflecting a onetime shift in the price level. It is
also possible that the inflationary effects could instead be
more persistent. Avoiding that would depend on the size of the
tariff effects, on how long it takes for them to pass through
fully into prices, and, ultimately, on keeping longer-term
inflation expectations well anchored.
Our obligation is to keep longer-term inflation
expectations well anchored and to prevent a onetime increase in
the price level from becoming an ongoing inflation problem. As
we act to meet that obligation, we will balance our maximum
employment and price stability mandates, keeping in mind that
without price stability, we cannot achieve the long periods of
strong labor market conditions that benefit all Americans. For
the time being, we are well positioned to wait to learn more
about the likely course of the economy before considering any
adjustments to our policy stance.
To conclude, we understand that our actions affect
communities, families, and businesses across the country.
Everything we do is in service to our public mission. We at the
Fed will do everything we can to achieve our maximum employment
and price stability goals. Thank you. I look forward to your
questions.
[The prepared statement of Mr. Powell follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. Thank you, Mr. Chairman. We will now turn to
member questions. I recognize myself for 5 minutes for
questions.
Over the past few weeks, our Democratic colleagues have
suggested the following: after the initial release of the GDP
report, the President is driving the economy into a recession.
Chairman Powell, the latest FOMC statement described economic
activity continued to expand at a solid pace, and you just
reiterated that in your testimony this morning. In your view,
is the term recession and the economy growing at a solid pace,
are those synonymous with each other?
Mr. Powell. I would say no.
Chairman Hill. You note that the labor market continues
strong, the economy is at a standard pace, and you also
referenced in your testimony that first quarter GDP initial
reaction was also from front-end loading, as you noted, imports
to try to avoid tariff impacts. Also, I looked at the Atlanta
Fed GDPNow model, which forecasts GDP growth for the second
quarter of this year at nearly 4 percent, with core GDP
forecast at 2 percent. Does that Atlanta model suggest a
recession to you?
Mr. Powell. No, I would say it does not.
Chairman Hill. So in looking at your remarks about tariffs
today and then the ones that you made during March and April, I
was looking back at a Fed study that noted that up until March,
tariffs have already been partially passed through in consumer
prices, leading to a contribution of merely one-tenth
percentage point increase in core PCE prices, and Harvard study
last week showed that prices have only modestly adjusted since
the announcement of tariffs. Finally, the longer-term inflation
expectations remain consistent with the 2-percent goal.
Governor Waller laid out a pathway that allows for rate
cuts, provided that average effective tariff rates remain close
to 10 percent, or I assume he means 10 percent or lower, the
labor market remains solid, prices continue to disinflate. So
given that data I have outlined, I am sure data that you are
very familiar with, for the economy to avoid persistent
inflation, do you concur with Governor Waller that there is a
pathway for good news as it relates to the regulatory policies,
the tax policies that I have discussed in a world with lower
tariff rates?
Mr. Powell. First, I would not comment on any other FOMC
member's comments one way or the other, but I will say this. I
think many paths are possible here, and certainly the one you
mentioned is a possible one. We could see inflation come in not
as strong as we expect, and if that were the case, that would
tend to suggest cutting sooner. We could see the labor market
weakening, and that would also suggest cutting sooner. On the
other hand, if we see inflation coming in higher or if labor
market were to remain strong, then we would probably be moving
later. So I think a range of possible paths are possible, and
certainly the one you mentioned is one of them.
Chairman Hill. In February 2021, you told us in this
committee that you would stay in your lane and not comment on
President Biden's proposal for the American Rescue Plan or
sharply increasing Federal spending, and you said it was an
issue, but that you would stay in your lane and not comment on
it. Here in this year, you have commented on this idea of
tariffs being set by the executive branch. Are tariffs in your
lane, but a huge fiscal spending by the Biden Administration
not in your lane? Explain to the committee why you chose to be
silent in February 2021 but outspoken this spring.
Mr. Powell. Sure. We have not commented and it would be
inappropriate for us to comment on the policy of tariffs. We do
not have a view. It is not our job, and we just would not do
that, just as we would not comment on the reconciliation
package that you are working on right now. We are not
commenting on tariffs. What our job is, is inflation, keeping
inflation under control and also keeping maximum employment,
and when policies have what appear to be short-and medium-term
implications, meaningful implications for that, then kind of
not the policies themselves, but the inflation becomes our job.
Chairman Hill. Yes. You know, my views on price stability,
I think it is a first among equals in your dual mandate. I have
argued for that. I have introduced legislation to make the dual
mandate the sole mandate, and we have talked about that before,
but I was very curious about your thoughts on former president
of the Cleveland bank, Loretta Mester's quote that I read from
last fall. She says, ``I think that maximum employment is the
maximum level of employment consistent with price stability.''
In other words, she elegantly ties that together, that price
stability is what you can have more control over rather than
all of these other factors that enter the employment picture,
like legislative and executive branch. What are your thoughts
about her quote?
Mr. Powell. I personally think that is a very reasonable
way to think about it.
Chairman Hill. Thank you very much. I yield back. The
gentlewoman from New York is recognized for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman. Good morning, Chair
Powell, and thank you for being here. Last week, the FOMC
decided to maintain the target range for the Federal funds rate
at 4-and-a-quarter to 4-and-a-half percent. While I was not
surprised by the decision to hold rates steady, I was surprised
by the Committee's revised forecast since March, which
represented a decrease of 0.3 percentage points for GDP, a
similar increase for core PCE, and an uptick in the
unemployment rate to 4-and-a-half percent. Can you explain the
incoming data that the committee has seen since March that
caused it to make these adjustments?
Mr. Powell. Sure. First of all, these are individual, this
is not a committee forecast. These are just individuals
submitting their own personal forecasts, and we do not bless
those as a Committee, but I think people are looking at the
incoming data and having a range of different judgments. If you
look at the range, if you look at the central tendency, you
will see that it covers quite a wide range. Those are the
medians that you are talking about. So inflation is projected
to have moved up because of what we have seen, particularly
from tariffs, and I think if you look at other outside
forecasters, you will see very much the same thing; the same
results are true----
Ms. Velazquez. What data are you looking for?
Mr. Powell. We look at our own forecast, and we ask
ourselves what is likely to happen. You know, monetary policy
has to be forward looking. A forecast is a prediction of what
is going to happen in the future.
Ms. Velazquez. Thank you. In its statement, the Committee
announced that it will continue to monitor the implications of
incoming data and adjust the stand of monetary policy as
appropriate. Some analysts predict two rate cuts by the end of
the year are still on the table. Is this a fair and accurate
assumption, and what incoming data will the Committee need to
see to consider these cuts?
Mr. Powell. What will actually happen with rates is going
to depend on the path of the economy, and that is highly
uncertain. I would just say what that means at this moment in
time is that a significant majority of the Committee, but also
there is a pretty significant minority that does not agree, but
a significant majority feels it will be appropriate to reduce
rates later this year. What that means is that each of those
persons who wrote down a cut in rates later this year, they
think that there is some state of the world where inflation
does not prove to be as high, or the labor market weakens, or
some combination of those two things, that it will turn out to
be more likely than not appropriate to reduce policy rates
subject to great uncertainty. You know, the story has been
evolving, and our thinking has been adapting, and that will
continue.
Ms. Velazquez. Thank you. Chair Powell, although a cease-
fire has been tentatively reached in the Middle East, the
situation still has the potential to open global and energy
markets, especially if the cease-fire is broken. While at this
point, Iran is seen as unlikely to close the Strait of Hormuz,
that decision could change. How is the Fed assessing the
current situation and incorporating those assessments as it
considers future adjustment to economic projections and its
stand on monetary policy?
Mr. Powell. I think it is too early to know what any
economic implications might be, and I would not want to
speculate. Like everyone else, we are, of course, watching the
situation.
Ms. Velazquez. Thank you, and, Chair Powell, after
reviewing the economic data following the meeting last week, it
seems to me that the Committee is indicating that we could be
headed for a situation where inflation accelerates while
unemployment rises and growth becomes more sluggish. In this
scenario, this will put the Fed's dual mandate of maximum
employment and price stability in tension with one another. In
this scenario, how does the Fed balance these priorities in
order to achieve both mandates?
Mr. Powell. Let me say that we are not facing that right
now, and that is not really our forecast that we will face such
an issue in a serious way, but if that does happen, then what
we do is we look at the two goals and we see which one of them
is farther from its goal. Two variables are maximum employment
or price stability farther from its goal, and we prefer the one
that is farther than its goal, and then we also ask ourselves
how quickly will they return to goal. It is a very difficult
situation for any central bank, and I would say again, we are
not in that situation right now.
Ms. Velazquez. Thank you, Mr. Chairman. I yield back.
Chairman Hill. The gentlewoman's time has expired. The vice
chairman of the full committee, Mr. Huizenga of Michigan, is
recognized for 5 minutes.
Mr. Huizenga. Thank you, Chair Hill and Chair Powell, good
to see you again. I got a lot to cover, so we are going to try
and keep this concise. Following up a bit on what Chair Hill
had been talking about you had said on January 29, 2025, ``We
do not know what will happen with tariffs, with immigration,
with fiscal policy, and with regulatory policy.'' I would add
energy to that, by the way. ``We need to let those policies be
articulated before we can even begin to make a plausible
assessment of what their implications for the economy will
be.'' This is no different than any set of policy changes at
the beginning of the administration. However, December 18 of
2024, at the FOMC press conference, you noted, and I am
paraphrasing, that some Federal Reserve officials began to
incorporate preliminary conditional estimates of how fiscal
policies might impact the economy into their forecasts.
This seems inconsistent, and I sidebarred with the chair to
say, okay, did I hear this correctly, his question and sort of
your answer. What I heard is that there was a belief that the
individual retirement account (IRA) would not be inflationary,
but that tariffs could be. Therefore, suddenly, you and others
were commenting on tariffs, and for the institution, I know you
try to be consensus driven. Why are there FOMC participants
making fiscal policy assumptions into their forecasting when
you yourself said that fiscal policies need to be articulated
before the FOMC can make a plausible assessment into their
implications what those will be? I think if there are different
participants having different assumptions, that would render
the SEP--Summary of Economic Projections--biased, meaningless,
useless, and less impactful when you are not comparing apples
to apples. So would it not make more sense for all the
forecasters to make the same fiscal policy assumptions at the
same time, or, if not, should each participant not disclose
what assumptions that they are using and building into that?
Here is the question.
Mr. Powell. That is a great question. Really, when the
Summary of Economic Projections was originally designed and put
into effect in this way, the way it works is that individuals
are free to make whatever assumptions they want, and they do
disclose them. They disclose them in their speeches and things
like that, so there will be situations where some people
incorporate some things and others do not. We try to be
transparent about that, but that is kind of the way it works.
When I say we do not take it into account, I am really talking
about policy and the committee as a whole, where we will not
take things into account until we know----
Mr. Huizenga. You believe that the participants disclose
their assumptions when they are doing their forecasts?
Mr. Powell. I think they do that in their speeches, and you
may have noticed there are a lot of speeches, and that----
Mr. Huizenga. I guess the opaqueness of the Fed, over the
arc of my 15 years on this committee, has been one that has
been debated greatly, including auditing the Fed and a number
of other things that have gone on. I have here a brief moment,
I do feel like I need to touch on interest rates. Not to be a
shock, you asked how the family business was doing back in
Michigan, families involved in sand and gravel and aggregates
and construction and things like that. It has been strong. We
need more labor. We need a few other things on that, what is
happening. I mean, I think there is no recession. That has been
established. There is no hyperinflation, or certainly not as
what some had been projecting. Yet there seems to be higher-
than-expected or certainly desired interest rates for many of
us. High interest rates, they hurt Americans who are paying car
loans, credit cards, mortgages. You had FHFA Director Pulte
asking for lower interest rates, which would, obviously, impact
homebuyers as well.
So what is it that is keeping, in your mind, the Fed from
what many of us believe is the right thing to do, which is to
lower some interest rates and, by the way, match with the Bank
of Canada, Bank of England, the European Central Bank, the
Swiss Central Bank, a number of emerging Central Banks? By the
way, that is your own assessment on page 33 where you are
laying that out. Why are we not doing what the rest of the
world is doing? Is it because we are at full employment? Is it
because of those tariffs concerns that you said were not part
of the analysis? Was it energy, groceries, durable goods? Why?
Mr. Powell. You are right that if you just look in the
rearview mirror and look at the existing data that we have
seen, you can make a good argument that would call for us to be
at a neutral level, which would be a couple of cuts or maybe
more kind of thing. The reason that we are not is because the
forecast by all professional forecasters that I know of on the
outside and the Fed does expect a meaningful increase in
inflation over the course of this year. When I said we were not
going to talk about tariffs and inflation, that was to say
until we see what the policies are, and so now we know what----
Chairman Hill. The gentleman's time has expired.
Mr. Powell [continuing]. started 6 months since I said
that. Anyway, I would be happy to continue this with you.
Mr. Huizenga. Thank you.
Chairman Hill. The gentleman's time has expired. The
gentlewoman from Michigan, Ms. Tlaib, is recognized for 5
minutes.
Ms. Tlaib. Thank you so much, Mr. Chairman. Chair Powell,
last month, there was research published in the Journal of
Urban Health that found that more than half of Black women of
reproductive age--that is the term they use--in the counties
that I represent that had experienced some sort of eviction
during their lifetime. So that is like 50 percent of Black
women in the two largest counties, Wayne County and Oakland
County, in Michigan, and these numbers are horrific, as you
know. Were you aware of that?
Ms. Powell. No, I was not.
Ms. Tlaib. Evictions are often very traumatic experiences,
but also it creates a cycle of poverty, but also this
instability for many families. Especially when it comes to a
lot of our Black neighbors, the access to equity, the access to
housing has diminished even more in Michigan. We lost more
Black homeownership than any other State in the country during
the last recession. So we know the housing crisis, I believe,
is structural, and some may say it is a policy choice. While
there are many factors at play, and you know this, Chairman,
high mortgage rates, the finance rates, and so forth that drag
the supply of new housing, but last month, new housing hit a 5-
year low. Are you familiar with that?
Mr. Powell. I am not sure exactly what statistics you are
referring to.
Ms. Tlaib. Okay. I do not know. There were all these
articles about the housing market and the impact of tariffs and
so forth, and they said again it hit a 5-year low, and, again,
I am getting this from a source, but this sets the market up
for higher inflation and more burdensome housing costs to years
to come. Chairman Powell I am looking at this monetary,
whatever, policy framework that you guys have put together,
and, again, I am trying to understand how you are looking at
this and the housing crisis. Do you believe it is eroding new
rental supply under construction right now, leading to high
inflation in future years?
Mr. Powell. I think there are two things going on quickly.
One is just there is a longer-run shortage of housing in the
United States, which there is nothing that the Fed can do
about. That is not something we can affect. If I may say, in
the short run, rates are high, and that is going to weigh on
housing activity, but the best thing we can do for the housing
market, the absolute best thing, is to restore price stability
so that rates come down and so that rates can be at a level
that people can afford.
Ms. Tlaib. But do you not think that the restrictive
monetary policy, the framework you all put together undermines
long-term price stability right now by reducing the supply?
Mr. Powell. No. I mean, I think----
Ms. Tlaib. But you are reducing supply.
Mr. Powell [continuing]. No, I think, it restores price
stability, and the point of higher rates is to end.
Ms. Tlaib. So you do not think the higher rates are
impacting future supply of housing?
Mr. Powell. I think interest-sensitive sectors like housing
are very much directly affected when we cut rates or when we
raise rates. That is right, but that is part of the mechanism
for restoring general price stability.
Ms. Tlaib. So keeping the high interest rates does not
impact future supply of housing?
Mr. Powell. It does not. You know, over the long----
Ms. Tlaib. I need to go back to talk to the women that the
study----
Mr. Powell. Our policy will not be a driver of longer-run
housing supply in United States.
Ms. Tlaib. Okay, let me ask you what is the difference and,
honestly, I am confused. I want to learn here, and I am sure
people listening to us want to learn. What is the difference
between demand-driven rent inflation and supply driven rent
inflation? Like, you guys use these terminologies. What is
that? How do I communicate that to the public? What is the
difference between supply- driven versus demand-driven rent?
Mr. Powell. You know, those are not terms that we use
particularly often, but----
Ms. Tlaib. What is supply driven formula that you guys----
Mr. Powell. That would mean that there is not enough supply
to meet demand, but at the same time, it also means there is
more demand than there is supply.
Ms. Tlaib. Are you guys ignoring that?
Mr. Powell. No, but as I said, again, our policies will not
affect in the long run.
Ms. Tlaib. No, I am being serious, because I see somebody
behind you kind of----
Mr. Powell. These are demand or supply in housing.
Ms. Tlaib. I am being serious, you all. We are talking
about a housing crisis that is getting worse right now because
we are not paying attention to future instability, and you can
raise your eyebrows and all this stuff. I mean, do you
understand? Like, I come from a community right now that I
believe is now being impacted by the current framework that you
are putting together that I do feel like it is going to have
long-term effects on the housing crisis, and you are ignoring
it.
Mr. Powell. No, we are not. Actually, we think the very
best thing we can do is to fully restore price stability at the
aggregate level. That will be the best thing for homeowners and
for homebuilders and everybody else.
Ms. Tlaib. Even though the housing supply has been impacted
by the----
Mr. Powell. In the long run, that is the single thing that
Congress has assigned us to do.
Ms. Tlaib. Chairman Powell, you see where I am coming from.
It is impacting future supply of housing, right?
Mr. Powell. Not in the long run, no.
Ms. Tlaib. Okay. Well, Mr. Chair, thank you.
Chairman Hill. The gentlewoman's time has expired. The
gentleman from Wisconsin, Mr. Steil, who is also the chair of
our Subcommittee on Digital Assets, Financial Technology, and
Artificial Intelligence, you are recognized for 5 minutes.
Mr. Steil. Thank you, Chairman Hill. Thank you, Chairman
Powell, for being with us today. I want to dive into two
actions the Fed has recently taken to get a little additional
color on. Yesterday, the Fed announced that reputational risk
would no longer be a component in bank exams. I viewed that
positively. I viewed the reputational risk as often being a
catch-all for political bias. I think it is positive to
depoliticize bank exams, instead focus on the core and
measurable risks. Could you provide color as to whether or not
any new information came to light that led to the decision of
the Fed to remove that yesterday?
Mr. Powell. I am not aware of any new information, no. We
just think it is the right thing to do, and, of course, made an
announcement on Monday under Vice Chair Bowman's leadership.
Mr. Steil. Why would it not have been done previously if it
was the right thing to do? I agree with you it is the right
thing to do. Any timeline as to why that was done yesterday
versus previously?
Mr. Powell. No. I think this is a problem that we came to
understand as a problem over the course of the last couple of
years and actually began considering what is going on here. We
are hearing a lot of reports of debanking and that sort of
thing and over the course of, really, 2024, came to the view
that this was a serious problem that we need to address. We
have said that publicly and now we are doing this, and so are
the other agencies, by the way.
Mr. Steil. I appreciate you taking that action. I do agree
that there was real political bias in some of those exams,
particularly as it related to regulated entities engaged in the
digital asset space.
Let me shift into the digital asset space, if I can.
Another action recently taken by the Fed, the Novel Activities
Supervision Program, was ended and withdrew several statements
on digital-asset-related risks that deterred bank involvement.
In particular, you in the Fed and others in the Fed have spoken
positively about the House and Senate work to regulate
stablecoin, in particular, a real opportunity to dollarize the
globe, and be a significant purchaser of U.S. Treasuries.
Following that action by the Fed, have you seen an identifiable
shift in banks or other regulated entities as it relates to
engagement in the digital asset space?
Mr. Powell. You know, I would not be the one to be picking
that up first, but what I do see is a very significant change
in the tone, and it really does reflect evolving thinking and
the evolving status of the crypto industry, and I would expect
over time we will see more activity.
Mr. Steil. How is the Fed evaluating and overseeing banks
and other regulated entities that are in the digital assets or
crypto space?
Mr. Powell. Our view is that banks get to decide who their
customers are. That is not our decision, and so banks are free
to provide banking services to the crypto industry, to crypto
companies, and banks are also free to conduct crypto activities
as long as they do so in a way that is protective of safety and
soundness.
Mr. Steil. Thank you very much. Let me shift gears because
I want to give you just a little bit of an opportunity to
comment on the housing sector once again but give you a little
freedom here to speak to that area. You correctly are trying to
balance inflation and price stability, but also higher rates
have a significant impact on the housing market as shelter and
housing costs are a significant driver of why many families
cannot afford the things that they need. Can you provide color
as to how you are analyzing the impact that housing and shelter
costs have on families and on inflation with your desire to
maintain price stability, the interest rates that are currently
set by the Fed?
Mr. Powell. Sure. So you know, we realize that people are
feeling high housing costs and high financing costs. In terms
of inflation, we look at something called owner's equivalent
rent and rentals, and that is meant to capture both rented
housing and owned housing, and it has been very sticky. You
know, it has been one of the stickiest parts of inflation. I am
happy to say now it actually is coming down quite regularly.
That is very good news. Really, it has been the service
inflation that has been stickier than other parts of inflation,
so that is good news for people, I think, and it is showing
through into measured inflation now. Again, in the long run,
the best thing we can do is restore price stability and let the
market work. Even then, though, we are still going to have a
housing shortage.
Mr. Steil. What data do you think is leading to the
reduction in the rent equivalent?
Mr. Powell. I just think it took time. The thought is, if
rents come up every year, you would think it would take 1 year
or 2 years for a lack of growth in rents to show up in a lack
of growth in housing prices. It turns out it takes 4 or 3
years. It is a complicated thought, but if you are an existing
tenant, you do not actually catch up the way you would if new
tenants came in, and so that has made the measurement of
inflation stickier. I am happy to say we have been through that
period now, and we are now really seeing housing services
inflation pretty close to where it was when inflation was
solidly at 2 percent.
Mr. Steil. Thank you. I yield back.
Chairman Hill. The gentleman yields back. The gentleman
from California, Mr. Liccardo, is recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair. Chairman, thank you for
your testimony today. I appreciate that your dual mandate is
full employment and price stability, and I appreciate your
efforts on behalf of our country to achieve those. My
understanding is that critical data is collected by the Bureau
of Labor Statistics to help formulate the indicators that you
rely on, that we rely on, to understand unemployment rates,
consumer price index (CPI), and other inflation indicators. We
are certainly hearing a lot about the impacts of the Department
of Government Efficiency (DOGE) on our workforce, and
specifically about the elimination of many of those positions
in the Bureau of Labor Statistics (BLS), and now we have a
proposal in front of Congress to cut $56 million in that
Agency. Are you concerned about the ability of your team to get
accurate data and about the ability to have reliable indicators
to make good decisions upon?
Mr. Powell. I would not say that I am concerned about the
data today, although, clearly, there has been a very mild
degradation of the scope of the surveys and things like that,
but I would say the direction of travel is something I am
concerned about. Measuring the U.S. economy carefully and well
is a project that has been going on, and we are getting better
at it for 100 years and more. It is really important not just
for the Fed, but for Congress and for businesses, frankly, to
know what really is going in the economy, what is happening: is
growth high, is it low, and all those sorts of things. I think
it is a smart investment to just continually try to get better
at measurement of what is happening in the economy. I do not
like to see the kind of stories I am reading, the idea being
that data is going to become more volatile and less reliable.
It will make it more difficult for the private sector and for
you and for us, and I do not like to see that direction.
Mr. Liccardo. I agree. Thank you. I appreciate that it is
not your role to comment on the advisability of specific
policies, but give your critical role in ensuring stability and
reducing inflation. I have had conversations quite recently,
just a week ago, with a C-suite executive of a major global
retailer, who informed me, because I asked why are we not
seeing the impact of these tariffs in price data yet, and he
said it is coming. It is coming in the third quarter because it
takes time for tariffs to work their way through the
distribution chain. Often what you have on the shelf today may
have been imported 2 or 3 months ago. Is that your
understanding? Do you anticipate there may be impacts down the
road?
Mr. Powell. Yes, that is very much what I hear. I happened
to meet with an unusually large number of business people in
this last FOMC cycle, and that is a typical thing that they
will say, especially the retailers, that what is being sold now
was an inventory in February, let us say, and it just is not
showing up yet, so we do expect tariff inflation to show up
more, but I want to be honest. We really do not know how much
of that is going to be passed through to the consumers. We just
do not know, and we will not know until we see it. It could be
lower than we expect. It could be higher. We have to wait and
see, which is kind of what we are doing.
Mr. Liccardo. I appreciate the uncertainty. Another thing
he told me, which made me very concerned, was that often, they
will increase prices on goods not subjected to tariffs to
compensate for the very substantial losses they have to suffer
with the increase of tariffs on relatively price elastic goods.
In other words, necessities will also tend to bear a higher
price even if they are not subjected to tariffs. Is that your
understanding of the potential impact?
Mr. Powell. You know, that very much is something that
companies will tell you that they do. If they cannot cover the
losses on the thing that is being tariffed, they will find
other ways to do it. We actually do not have prominent examples
of that yet, but that is certainly a possibility, and that did
happen in the last tariff episode with washing machines and
dryers.
Mr. Liccardo. Thank you, Mr. Chairman. Finally there are
indications in the introduction of the report that the Fed is
losing, as we see interest rates getting closer and closer to
the minimum threshold, the ability to stimulate this economy in
times of recession, and we have not had a recession, or at
least we have not had an extended recession in a decade and a
half. I am particularly concerned now as we are looking at debt
that is being considered to be imposed on future generations by
this particular bill. Could there be a combination of very high
debt and very little room to move monetary policy that could
undermine our ability to respond to the next recession?
Mr. Powell. We faced that issue quite a bit in the era of
very low interest rates, but we are at higher levels of
interest rates now, so----
Chairman Hill. The gentleman's time has expired.
Mr. Powell [continuing]. significantly more room to cut
than there was then.
Mr. Liccardo. Thank you very much.
Chairman Hill. The gentleman yields back. The gentleman
from Wisconsin, Mr. Fitzgerald, you are recognized for 5
minutes.
Mr. Fitzgerald. Thank you, Chairman. Chairman Powell,
thanks for being here today. I appreciate it. We had some brief
discussions about this in the past, but in September 2024, with
core inflation still being above target and the labor market
was holding steady at the time, the Fed made a decision to cut
rates by a full half percentage point. It kind of raised some
serious questions as to whether or not the data like truly
supported such a move at that time, and I think some of us were
surprised that it was a full half percent. Can you revisit that
again, what the Fed was thinking at that time because it seems
to be somewhat of an enigma now. It stands out as to why was
this done, why was the half percent done at that point.
Mr. Powell. I would be glad to. First of all, actually, the
inflation and employment readings were very similar then to
what they are now. They were not terribly true, a tenth or two.
Mr. Fitzgerald. True, true. Right.
Mr. Powell. The difference then was you mentioned that the
labor market was stable. It was not. The unemployment rate had
actually gone up almost a full percentage point. I was very
clear about this. We were very clear about it in real time,
too. The concern at that time was that there really has not
been an experience or had not been an experience in the modern
era in which the unemployment rate has gone up close to 1
percent that has not been followed by much higher levels of
unemployment and a recession. Remember, at that point, at the
point we are talking about, the Federal funds rate was 5.3
percent, so definitely a very restrictive level. We were the
last of the big central banks to cut, so we wanted to make a
statement that we were supportive of the labor market and not
just inflation. We have been focusing on inflation. I was quite
clear about this.
So it was all about the labor market. Inflation was the
same and unemployment was roughly the same, but it was the rate
of change with the unemployment rate that raised a lot of
concerns. Remember, we were being criticized for being late to
cut, so we could have done 25. We were criticized for not
cutting in July. Instead, we cut 50 in September, and it seemed
like the right thing to do. You know, at the end of the day, we
do what we think is the right thing when we think it is the
right thing to do. We do not take into consideration political
factors. If we start doing that, I do not know where that
stops. Once you start considering elections and stuff like
that, where does it stop so----
Mr. Fitzgerald. I do not want to insinuate that it had
anything to do with the election itself, but there just seems
to be some very similar numbers right now, and I do not bring
this up because I want to kind of make a point about did the
Fed do the right thing or not. I bring it up because it seems
like everything is in place right now to kind of do the same
thing, make the same move. You know, this morning already, you
have talked a little bit about where you were on inflation
right now and kind of what you are watching, but is there any
lesson there? I mean, are we in a position where it would be
appropriate to do something as big as a half-percent cut again?
Mr. Powell. Well, look, as I said earlier, if you just look
at the basic data and do not look at the forecast, you will say
that we would have continued cutting. The difference, of
course, is, at this time, all forecasters are expecting pretty
soon that some significant inflation will show up from tariffs,
and we cannot just ignore that, but we are just saying let us
wait and see more. That is all we are doing. You will have
noticed a substantial majority of the committee has written
down rate cuts in the remaining four meetings this year, so it
is just a question of being prudent and careful at a time when
the labor market is still strong.
We do not see weakness in the labor market. If we did, that
would change things. You know, we are going to continue to
adapt as the data adapts, but that is the difference between
then and now. Then inflation was forecasted to continue to come
down. Here, it is forecasted to go up by all forecasters, and
again, we are not overreacting to that. We are just saying,
hey, as long as the economy is strong, we can take a little bit
of a pause here, and that is what we are doing and, again,
continue to adapt as the data comes in. If we see data that
suggests that inflation is not going to produce big increases
that would matter, and if we saw the labor market weakening,
that will matter, too, but we do not see those things.
Mr. Fitzgerald. What about supply chain? In 2020, that was
a big issue, obviously related to coronavirus disease (COVID).
I know myself and other members, when we are in our districts
and we are specifically talking to light manufacturing, there
is concern about the supply chain. Is that part of the data
package that you review when you make a decision about where we
are headed in the future?
Mr. Powell. Very much so. You know, I think that is one of
the lessons to be taken----
Chairman Hill. The gentleman's time has expired.
Mr. Powell [continuing]. from the last episode is supply
chains really matter. We are watching that carefully. It is too
soon to say really on that. We are not seeing it yet, but we--
--
Chairman Hill. The gentleman's time has expired.
Mr. Fitzgerald. Thank you, Chairman. I yield back.
Chairman Hill. Thank you, Mr. Fitzgerald. The gentleman
from New Jersey, Mr. Gottheimer, you are recognized for 5
minutes.
Mr. Gottheimer. Thank you, Mr. Chairman. Chairman Powell,
as a member of the Intelligence Committee, I am deeply
concerned about the threat of Iranian cyberattacks on our
financial system as retaliation for our strikes on their
nuclear facilities. In its cybersecurity report last year, the
Fed acknowledged that critical infrastructure, including
financial services, is at risk with rising geopolitical
tensions. Iran has a history of targeting American
infrastructure companies and financial institutions and banks,
which could obviously threaten and cause economic damage. What
actions are the Fed taking now to monitor and defend against
Iranian or proxy cyberthreats targeting our country's financial
institutions?
Mr. Powell. We are in touch with the other regulators and
the parts of the government that work on cyber, as you know,
and we are in touch with the banks for people to be on the
alert for things like that to happen. Also we are on the alert
because we are a target as well, so you are right to raise it.
You know, it is a big issue and----
Mr. Gottheimer. You feel like you have the resources right
now to be prepared for that?
Mr. Powell. Yes. I mean, I think we do. We spend a lot and
the government generally spends a lot on these things, but you
can never, ever be comfortable in this area because the bad
guys are always getting better, so we need to keep getting
better.
Mr. Gottheimer. Thank you, Chairman. Switching gears, the
President and members of his administration have recently
called you out, various name calling, for certain decisions you
have made. I know that some people worry that the President's
bullying will impact your decision-making. I know you work
together and respect, obviously, your independence greatly.
Anything you want to add? I will give you a chance to reiterate
your independence to the American people.
Mr. Powell. Yes, I would just say we are focused on one
thing, and that is we want to deliver a good economy for the
benefit of the American people. That is it, and anything else
is kind of a distraction. I do not mean to refer to any
particular thing, but we stay focused on that task all the
time. We always do what we think is the right thing to do, and
we live with the consequences. I do not know how else to do the
job.
Mr. Gottheimer. Right. So the name calling and the ``Mr.
Too Late'' and all that stuff, the American people should not
worry about that. You are focused on being independent.
Mr. Powell. Yes, that is what I care about. I care about
doing the job for the American people. The things we do matter
a lot for people's lives, and that really concentrates the
mind. You know, you want to just stay focused on that task. As
long as you are sitting in these chairs that we occupy, focus
on that task, do what you think is the right thing, and take
the consequences.
Mr. Gottheimer. Thank you, Mr. Chairman. You have
previously stated that you view stablecoins as a form of money.
Payment stablecoins are already being used for both retail and
wholesale payments as well as for settlement. Recently, this
committee passed the Stablecoin Act, and the Senate passed the
Guiding and Establishing National Innovation for U.S.
Stablecoins (GENIUS) Act, both aiming to establish clear
regulatory framework for fully reserved, dollar-backed payment
stablecoins. Given they are designed to maintain a stable value
and be redeemable for U.S. dollars, should the Securities and
Exchange Commission (SEC) or other regulators explore treating
these stablecoins as cash equivalents for accounting or
financial reporting purposes?
Mr. Powell. Let me say I think it is a great thing that
bills are moving. We need a stablecoin framework. On that
particular issue, I do not have a view for you. I can come back
to you on that.
Mr. Gottheimer. I would be grateful. Thank you.
Mr. Gottheimer. High rates have also caused, as we have
discussed, the cost of paying off our Nation's debt to
skyrocket. The Congressional Budget Office (CBO) estimates that
interest payments will cost the U.S. a trillion dollars in
Fiscal Year 2026 and continue to rise to almost 1.8 trillion by
Fiscal Year 2035. How do you see us continuing to be able to
afford to pay off our debt at this rate, and as the U.S.
continues to borrow, how does that impact your decision to keep
or cut rates? Obviously, foreign countries like Japan, who are
significant buyers of our bonds, have started decreasing their
purchases significantly. Other internal pressures worldwide are
having that impact. Are you worried about this global issue?
Mr. Powell. You know, fiscal policy really is not our job,
and it is not something we take into consideration in making
monetary policy. That is really elected people's jobs. I would
add that for some time now, the U.S. Federal fiscal policy has
been on an unsustainable path, and I will limit myself to that.
Mr. Gottheimer. Last question. Last week, you chose to keep
rates steady, and families in our State, as you will hear from
a lot of people today, are really struggling with the higher
cost of borrowing and putting off bigger purchases on things
like cars and homes. As a result, their wallets are being
crushed by these price hikes and, obviously, the President's
tariffs. What do you have to say to Jersey families who are
struggling with higher costs, and how they should forecast
themselves for their own families?
Mr. Powell. We are committed to returning inflation
sustainably to 2 percent and keeping it there in the long run.
You know, we had cut rates by 100 basis points, so they have
come down quite a bit, and when the time is right, I expect
that will continue, and that will depend on economic factors in
the coming months for starters.
Mr. Gottheimer. Thank you. I yield back. Thank you, sir.
Chairman Hill. The gentleman yields back. The gentleman
from Nebraska, the chair of our Housing and Insurance
Subcommittee, Mr. Flood, you are recognized for 5 minutes.
Mr. Flood. Thank you, Mr. Chairman. Chairman Powell, later
this week, the banking agencies will be proposing changes to
the supplementary leverage ratio, which we think are long
overdue considering the Fed, in 2021, indicated that they would
soon put out proposals for reform to the SLR and never actually
did. However, our understanding is that the proposal being
considered this week will not allow for Treasuries to be
excluded from the SLR calculation. Secretary Bessent earlier
this year had argued that such a change could serve as a boost
for banks and their ability to intermediate in the Treasury
market and could potentially pull Treasury yields down 30 to 70
basis points. Chairman Powell, do you agree with the Treasury
Secretary's comments on the potential positive impact of SLR
reform on the Treasury market, and what is the rationale for
not excluding Treasuries from the SLR calculation in the
proposed rule?
Mr. Powell. I agree that when the leverage ratio is
binding, it discourages banks from undertaking low margin,
fairly safe activities such as mediation in the Treasury
markets, so this should encourage more mediation. I do not have
a numerical estimate of how much that would matter, but I do
think it would matter. I think it was important, and I have
supported the leverage ratio reform for a very long time, since
before 2021.
Mr. Flood. Chairman----
Mr. Powell. In terms of the structure of the thing, I think
we are seeking comments on a particular proposal that does not
involve exclusion, but we are also asking a question about
exclusion.
Mr. Flood. Mr. Chairman, considering the Fed temporarily
excluded Treasuries from the SLR calculation during the COVID
pandemic, were you aware of any safety and soundness or
financial stability problems that arose as a result of that
decision, and if not, why was that relief terminated in 2021?
Mr. Powell. So that was an emergency measure. From the
beginning and end, it was an emergency measure. You know, my
long-held view is that we should have a permanent measure, and
now we are going to. We have an open Board meeting on Wednesday
afternoon after I finish my hearing on the Senate side, and I
am very much looking forward to putting this proposal out for
comment.
Mr. Flood. Thank you. In March, the Federal Reserve,
together with the Federal Deposit Insurance Corporation (FDIC)
and the Office of the Comptroller of the Currency (OCC),
announced that they intend to issue a notice of proposed
rulemaking to repeal the 2023 Community Reinvestment Act and
replace it with the legacy CRA framework. Nearly 3 months have
passed since this announcement. What is the status of this
project?
Mr. Powell. Well, we are going to do what we said we were
going to do. It is just a question of execution, and I think
you will see that coming. Vice Chair Bowman has the job of
sequencing these things, and that one is certainly coming.
Mr. Flood. Do you intend to issue a proposal that will be a
clean rescission and replacement of that rulemaking, or are you
considering amendments to the legacy rule?
Mr. Powell. You know, I honestly do not know. We will come
back to you on that.
Mr. Flood. Okay. So we should know more later this week?
Mr. Powell. We might, yes.
Mr. Flood. Okay. Finally, I would like to build off of what
Congressman Steil asked previously on the supervision of Novel
Activities Program. Do you feel any changes could be made to it
to encourage innovation, and do you anticipate any such changes
to the program?
Mr. Powell. I do. Governor Bowman, now Vice Chair Bowman,
is someone who is actually deeply knowledgeable and experienced
in supervision, and that has not really been the model. We had
more people who were experts on regulation. I think she brings
a particular ability to move supervision in a healthy direction
while also preserving safety and soundness. What you mentioned
is one of the dimensions in which I think that will be true.
Mr. Flood. Thank you for your testimony today. I appreciate
your service to the country, and with that, I yield back, Mr.
Chairman.
Mr. Powell. Thank you.
Chairman Hill. The gentleman yields back. The chair
recognizes the ranking member of our full committee, Ms.
Waters, for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman. Chair
Powell, I appreciate that despite the repeated attacks by the
President and his Cabinet on you personally, that you stood
your ground and you did not bow to pressure from Trump,
especially given the current state of economic uncertainty due
to his policies. Last week, the Fed held interest rates steady.
Afterwards, you said that you and other experts continue to
expect a meaningful amount of inflation due to Trump's tariffs.
You said that it may take some time for the tariffs to work
their way through the supply chain, but that you found, ``Many
companies do expect to put some or all of the effect of tariffs
through to the next person in the chain, and ultimately, to the
consumer.'' While the President may try to claim other
countries pay these tariffs, can you confirm that it is indeed
consumers and businesses in the United States that will bear
these costs?
Mr. Powell. It can be anybody from the exporter, the
importer, the retailer, the manufacturer, or the consumer that
winds up paying these tariffs. In the beginning, it will be the
importer that pays the tariff, but ultimately, it will be
spread out among those five, each of which will try very hard
not to contribute. In the end, the tariff will be paid, and all
of the data suggests that not all of it, but at least some of
it will fall on consumers.
Ms. Waters. Well, you indicated it may take some time for
tariffs to work their way through the supply chain. Would you
elaborate on this, including when is it that we can see
negative impacts to inflation from Trump's tariff policy?
Mr. Powell. So you know, the things that are being sold at
retail now they might have been put into inventory before the
tariffs, in February or March, so we think we should start to
see this over the summer in the June numbers and in the July
numbers. I think we are learning here, if we see less
passthrough, there are no historical experiences we can consult
here, really, so it may turn out that the passthrough is less
or more than we think, and I think we are going to be learning.
You know, we will get a number for June, an inflation number
for June. We will learn something then. We will get it for
July. As we go through the summer, we should start seeing this,
and if we do not, I think we are perfectly open to the idea
that the passthrough will be less than we think, and if so,
that will matter for our policy.
Ms. Waters. Well I have been talking with a lot of my
constituents about these tariffs, and the question that comes
up is, now, is this going to only hurt maybe the big
businesses? What about our small business people? What about
the people that we buy goods and services from every day in our
communities? Is this going to hurt big businesses as well as
small businesses?
Mr. Powell. Yes. I mean, I think it will certainly. If you
are a smaller company that maybe imports a single product, that
is a common business model these days. Then if your product is
tariffed, you may be the one that is affected significantly
whereas bigger companies have more resources and a more diverse
product line.
Ms. Waters. Why do you think you can resist the President
basically telling you what to do? What gives you that
authority?
Mr. Powell. I do not think about it that way at all. I
think I have a job that I am sworn to do, and all I think of is
how much people rely on us to get it right. You know, it really
matters that we get it right, and that concentrates one's mind,
and so that is what we think about at the Fed. We think about
what is the right thing. You know, all I want to do in what is
left of my time at the Fed is have the economy be strong and
have inflation be under control, have a solid labor market. I
want to turn it over to my successor in that condition. Of
course, that is what keeps me up at night, is to do that, and
that is what I think about. That is the only thing I think
about.
Ms. Waters. So how are you protected? By law? By
Constitution? Where does your authority come from?
Mr. Powell. I think I have covered all of that. I do think
we are fully protected, and again, I do not think about that
anymore. What I think about is let us just do our jobs, and
that is what we do. You know, we do not talk about those issues
at all, and all we do is do our jobs as best we can, and it is
not an easy job, but it is one we have willingly taken on, and
very important that we remain focused just on the job and not
on other things.
Ms. Waters. Thank you very much. I yield back.
Chairman Hill. The gentlewoman yields back. The chair
recognizes the gentleman from New York, our vice chair for
communications, Mr. Lawler. You are recognized for 5 minutes.
Mr. Lawler. Thank you, Mr. Chairman. Chairman Powell, as
recently as yesterday, Fed Governor Bowman indicated that if
inflation pressures remain contained, the Fed should consider
lowering rates and said she is open to a rate cut in July.
Governor Waller said very much the same. Do you believe that we
are in a position where we may be able to cut rates in July?
Mr. Powell. I would say this. I think if it turns out that
inflation pressures do remain contained, then we will get to a
place where we cut rates sooner rather than later, but I would
not want to point to a particular meeting. I do not think we
need to be in any rush because the economy is still strong. The
labor market is strong. If we were to see the labor market
meaningfully weaken in a way that was concerning, that would
matter for that decision, and if we see inflation continuing
not to move up. We had not expected inflation to move up much.
We do expect it to move in the summer, and if we see it not
happening, we will learn from that.
Mr. Lawler. The September 2018 TealBook suggested that the
Fed seeing through tariff's inflationary effects is an
appropriate response so long as inflation expectations are
firmly anchored and that the passthrough costs are relatively
short lived. Would you agree that this assessment from the
TealBook still applies to today?
Mr. Powell. I would. Those are the exact factors that we
cite when we talk about this situation, that plus the size of
the tariffs.
Mr. Lawler. Right. Let us assess the current economic
situation. The monetary policy report states that longer run
inflation expectations ``continue to be broadly consistent with
2-percent inflation,'' and Harvard study argued that despite
the relatively quick price responses to tariff announcements,
the overall magnitude of these changes remains modest. So if
these conditions hold, is it not unreasonable to think that
underlying inflation trends should continue its path toward 2
percent?
Mr. Powell. That is certainly a very defensible position. I
think what others on the committee think and what I think is
that this is a question we need to be careful with because it
is different than it was in 2018. The difference is that in
2018 we had not had an inflation as high as 2 percent for a
decade or anymore.
Mr. Lawler. Right.
Mr. Powell. This is a different situation. We have not
fully restored price stability, and another shock--we have to
be careful if there is a meaningfully large and sustained
inflation shock. We have to be careful about that. So you know,
I think we are just trying to be careful and cautious, and we
really think that is the best thing we can do for the people
that we serve. If that happens, we need to be there for it. So
you know, we are in a difficult situation in deciding exactly
when to move, but again, if we continue to see inflation come
in and not prove up with the higher levels than we expect, then
that would matter for our decision making.
Mr. Lawler. Chairman Powell, economist, John Taylor, once
noted that the Federal Reserve should deviate from its own
Taylor rule in the event of an oil shock, similar to the tariff
scenario. One-time price increase from an oil shock should not
be accompanied with an increase in interest rates. Do you agree
with that assessment?
Mr. Powell. I generally do, yes.
Mr. Lawler. Previously, you said that if you wait for
inflation to get back down to 2 percent to cut rates, you are
already too late. You also said in November 2024 that inflation
was on a sustainable path to 2 percent. Given that the FOMC
believes that interest rates now are moderately restrictive and
that an oil or tariff shock may not impact underlying inflation
in a significant or meaningful way, because, as the monetary
policy report established, inflation expectations are firmly
anchored, what is the reason not to cut rates?
Mr. Powell. Well, it is uncertainty about the size and
potential persistence of the potential, but highly uncertain
inflation from tariffs. By the way, we have five Taylor rules
in the monetary policy report. Four of them say that the policy
rate is in the right range, and the other one calls for a hike.
Mr. Lawler. Right.
Mr. Powell. Just for the record.
Mr. Lawler. Well, back in the beginning of the Biden
Administration, okay, when we talked about inflation, they
increased Federal spending by $2-and-a-half trillion each year,
$5 trillion in new spending. That is what gave us inflation, by
printing all of this new money and borrowing, and yet you did
not respond to that by raising rates. In fact, you were late to
raising rates, and now, again, we see a situation where----
Chairman Hill. The gentleman's time has expired.
Mr. Lawler [continuing]. you are late to cut rates. That is
the challenge here.
Chairman Hill. The gentleman yields back. The chair
recognizes the gentleman from Georgia, Mr. Scott, for 5
minutes.
Mr. Scott. Thank you, chairman. Chairman Powell, to the
best of your knowledge, has President Trump put forward a
coherent tariff policy? Is that your opinion?
Mr. Powell. That is not a judgment for me to make or to
discuss.
Mr. Scott. Well, what do you think?
Mr. Powell. Sir, it would be inappropriate for me to----
Mr. Scott. I mean, you run an economy----
Mr. Powell. I do not comment on the President's words or
the President's policy.
Mr. Scott. Does the President, in your opinion, does he
have a coherent tariff policy? You ought to have an opinion on
that. You run our economy. This is your bailiwick. Do you think
he has got a good policy? Answer me.
Mr. Powell. I would never comment on the President of the
United States in that way.
Mr. Scott. All right. What do you think our policy should
be?
Mr. Powell. We play no role in either establishing or
commenting on tariff policy or fiscal policy for that matter.
In our business, we have a specific mandate. We try to stick to
it.
Mr. Scott. Let me tell you something, Chairman. In my State
of Georgia, I got the fastest-growing trade group down there.
The Port of Savannah is indeed our Nation's fastest growing
party, and it is rising even more, the cost, the expenses, our
business community is suffering, and I want to know what you
think of our tariff policy. What do I tell my people? What do
we tell the American people? You are a good man; I want to know
the answer to this question. I want to know how you feel. This
whole tariff question, it is a tax increase. It is running
people out of business. What do you think about that? Give me
some sort of answer. Do you think anything about our tariff
policy? Do you not feel you have a responsibility here? Are you
afraid of President Donald Trump? Why do you not deal with this
because our economy is suffering in a mighty bad way, and I
have to represent my constituency. Let us take Georgia's
agricultural sector, mostly pecans and poultry and cotton
exports. They have been hit hard by retaliatory tariffs from
key trading partners like China. Why are you running away from
the tariff fight? Give us some understanding of that.
Mr. Powell. Honestly, this is just not our role. We are not
an institution that comments on or analyzes decisions that the
President makes or the things that he runs for office on and is
elected on and then does. That is just completely out of our
lane. It is really inappropriate for me to have any comment on
that, I am sorry to say, Mr. Scott.
Mr. Scott. We are having these regional disruptions. Our
economy is in a bad way, and I want to see you and the
President, you got to get together on this. We got pecans in
Georgia. We got peanuts. We run the biggest group. We got the
fastest-growing trade mechanism in the Savannah Port Authority.
We are crushed in Georgia. My business folks are coming to me
on it. I got to get some answers from you. What do I tell them
that the Fed Chairman feels about their experience, and that is
tariff? I think we need to get you and the President together.
Chairman Hill. The gentleman's time has expired. I
appreciate the gentleman from Georgia. The gentlewoman from
Florida, Ms. Salazar, is recognized for 5 minutes.
Ms. Salazar. Hi. Thank you very much for being here. I
appreciate your time, and my name is Maria Salazar. I represent
the city of Miami, which is one of the cities most composed of
Hispanic Americans and people that adore living the American
Dream. So putting that into context, I wanted to ask you a few
questions about the labor force. We agree with what the
President Trump is doing or what the administration is doing in
deporting criminal illegals. We do not want Tren de Aragua. We
do not really want people who have committed any type of crime,
even more if they are illegals, but we do know that,
unfortunately, what is happening right now, after 6 months of
Mr. President being in office, that we are losing thousands and
thousands of workers, what the Immigration and Customs
Enforcement (ICE) leadership has called collateral damage, and
most of those people are working in three main sectors:
construction, hospitality, and agricultural. Even the President
said the other day in a tweet that he understands that those
hands are needed. We are talking about 15 percent of the
economy: construction, hospitality and agricultural. My
question to you is, what is the growth effect on the economy if
this type of removal of people, of hands being removed from
those three main top sectors?
Mr. Powell. Immigration is another area where nobody put us
in charge. You know, Congressional Budget Office and other
agencies can make assessments like that. You know, we do have a
role to maximize employment, but we take immigration policy as
just we take it as it comes. What it has obviously done is it
has really reduced the amount of growth in the labor force, and
so at the same time, demand for workers has been coming down as
well because they have been coming down at about same----
Ms. Salazar. Reduce, I mean, just one drop at a time,
reduce the growth. Why do not we talk a little bit more because
we want to continue growing. We are the number one economy in
the world. We need to continue growing. What is affecting the
growth?
Mr. Powell. Well, there are two things that affect growth.
One is growth in the labor force, more people working, and the
other thing is productivity. How much do they produce per hour
worked? So when you significantly slow the growth of the labor
force, you will slow the growth of the economy, but I think,
again, it is not for us to have a view on immigration policy. I
can just report that.
Ms. Salazar. No, no, I understand. It was just my comments,
but you do agree that if we do not have those hands, then we do
not grow.
Mr. Powell. I think the growth will slow and actually is
slowing this year, and that is one of the reasons.
Ms. Salazar. Well, we do not like that. Now, let us talk
about over the next 10 years, 2025 to 2035, Americans are not
having enough kids, so that means that we need other people,
right? So over the next decade, based on the current trends
that I just explained to you and that you just reiterated, will
there be enough workers to fulfill the labor needs of our
economy between 2025 and 2035?
Mr. Powell. I think labor economists do see, they do
observe the phenomenon you are talking about, which is, is
demand for labor going to be met by the domestic population,
the native-born population, and the answer appears to be,
probably not, over the next 10 years.
Ms. Salazar. Then what about if we do not have that labor
force over the next 10 years? What happens?
Mr. Powell. So, many things will happen. You know, you can
see a big increase in productivity, which would mean we do not
need as many workers. For example, artificial intelligence
could be implemented in a way that creates widespread
productivity gains. I would not count on that, but it is a
possibility.
Ms. Salazar. You would not count on that?
Mr. Powell. I would not count on it.
Ms. Salazar. You would not?
Mr. Powell. No.
Ms. Salazar. Why not?
Mr. Powell. I mean, I think there will be gains because,
well, because with productivity enhancing things, they
typically take longer to be implemented, and then it takes a
while for the gains to be shown. I think in the case of
artificial intelligence, those gains are coming, but they may
take longer or be less in the beginning than expected.
Ms. Salazar. During the time that those changes happen,
then what happens? Our economy does not grow. Is that what you
are saying?
Mr. Powell. Yes, but, I mean, those who make immigration
policy are entitled to weigh these factors. You know, we can
report on what happens, but it is really not our job.
Ms. Salazar. I understand it is not. I just want to hear
what you are thinking, what is your expertise based on those
immigration laws that we are implementing right now. The last
one because I only have 30 seconds: do you think that with
everything that we have talked about, do you think that we can
continue remaining or the United States economy can continue
being the number one economy in the world and that we could
compete if we were to have the immigration laws that we have
right now?
Mr. Powell. I think you could have the highest per capita
earnings, but if you are talking about the aggregate output,
then population growth may be a constraint.
Ms. Salazar. Which one of the two is more important?
Chairman Hill. The gentlewoman's time has expired.
Mr. Powell. Good question.
Chairman Hill. The gentlewoman's time has expired.
Ms. Salazar. All right. Thank you, Chairman.
Chairman Hill. Let me turn to the ranking member of the
House Intelligence Committee, Mr. Himes, for 5 minutes.
Mr. Himes. Thank you, Mr. Chairman, and welcome, Chairman
Powell. Let me start by thanking you for keeping in your lane
and steering clear of fiscal policy, and, in particular, for
your stalwart defense of independent monetary policy. You are
getting pressure from very powerful places and lots of
kibitzing from lots of members on the interest rate question,
and most know better that our independent monetary policy is
the very bedrock of our economy, so thank you for that.
Mr. Chairman, I want to talk just a little bit about some
of the technical matters associated with energy prices and
inflation because, obviously, turmoil in the Middle East has
sent oil prices swinging wildly, with West Texas Intermediate
in the last month or so being anywhere between $61 and $75 a
barrel. We recently saw the Iranian Parliament vote to close
the Strait of Hormuz, which currently handles around 20 million
barrels a day, a fifth of global demand and a little bit more
in terms of natural gas. Chair Powell, you said last week that
conflict in the Middle East in the 1970s resulted in very large
inflation shocks. In contrast to the 1970s, today the United
States does not import most of its energy. We call ourselves
energy self-sufficient on a net basis, but I hear the argument
made that I think is wrong, that because we are energy self-
sufficient, somehow we are insulated from global energy market
prices. Can you comment on that? Is there any validity to the
notion that American consumers of energy are not subject to
global swings in energy prices?
Mr. Powell. Yes. So the price of oil is set globally,
right, and I think if you go back a few years, the thought was
that we had a natural shock absorber, which is that we would
just drill more. If prices went up, we would drill more, and so
you would not have these sustained price shocks that we had
during the 1970s and the original Organization of the Petroleum
Exporting Countries (OPEC) era. I think that is actually in
question now because the oil industry in the U.S. is being much
more careful and focused on return on investment than they
were, having been burned with overcapacity.
Mr. Himes. Right, and, I mean, yes, in the long run, you
can invest in additional extraction technologies, but this does
not respond to day-to-day spot prices.
Mr. Powell. Not quickly, no.
Mr. Himes. So the point I am trying to make is that the
conflict in the Middle East, if it resulted in $120 a barrel of
oil, which is where oil was in 2022, that would have a fairly
substantial inflationary impact on the American household. Is
that correct?
Mr. Powell. We would certainly feel that and as we have
discussed earlier, there is a lot of lore around looking
through oil price shocks, but that depends on the facts and
circumstances.
Mr. Himes. As a technical matter, we tend to refer to CPI,
which is a basket of goods, and we measure the price changes.
Roughly speaking, what percentage of that basket is comprised
of energy?
Mr. Powell. I do not have that on top of my head. It is
much less than it was. Of course, the oil consumption is much
less than it was in the 1970s as a percentage of GDP.
Mr. Himes. But energy includes natural gas and gasoline,
and it is a meaningful portion of the----
Mr. Powell. Yes, although, of course, we have so much
natural gas, so that will always be there for us.
Mr. Himes. So none of us can predict what is going to
happen in the Middle East in an hour, much less in a week or a
month or a year, but as a technical matter, at what price for a
barrel of oil does the American household begin to feel
inflationary effects? So we are at $75 a barrel, roughly, right
now. At what price point does the American household begin to
feel some inflationary effects?
Mr. Powell. I do not want to throw out a number, you know.
Frankly, it is too early to say that something like that is
going to happen, and I know you know that, but I would not want
to throw out a specific number. If prices went up materially,
people would feel that.
Mr. Himes. Okay. Again, I think if I look at the data here,
West Texas Intermediate (WTI) per barrel, it peaked at about
$120 in 2022. What do your models suggest would occur to
inflation, and how would it influence the Fed's thinking should
we be back at $120 a barrel?
Mr. Powell. Well, let us just say there is a big price
spike in that range. So you know, we would look at that. We
look at the overall situation. We would ask ourselves, should
we react to that? For example, during the, what we call the
Arab Spring, back in the early teens, oil prices went up a lot,
and that went into the price, and then there was a discussion,
and I think the right answer was to look through that, the
question you would be asking to yourself, because by the time
you react, the price comes back down. I think the question
today would be is the situation different, and what would be
the implications of those differences.
Mr. Himes. Thank you.
Chairman Hill. The gentleman's time has expired. I thank
the gentleman from Connecticut. The chair recognizes the
gentleman from North Carolina, Mr. Moore. You are recognized
for 5 minutes.
Mr. Moore. Thank you, Mr. Chairman. Chairman Powell, I want
to touch on international standard-setting bodies like the
Basel Committee on Banking Supervision. Their goal was to
promote better harmonization for global capital flows and
regulatory standards, but the Biden Administration's
implementation of Basel III Endgame demonstrated the pitfalls
when the U.S. is a follower instead of a leader in the
international arena. That is why both Democrats and Republicans
shot down former Vice Chair Michael Barr's proposal, which made
capital less acceptable and put U.S. firms and businesses at a
global disadvantage. Do you agree that the United States should
only implement international standards in a way that is
consistent with our own domestic, legal, and regulatory scheme?
Mr. Powell. I do.
Mr. Moore. I appreciate the Federal Reserve's announcement
yesterday to end the use of reputational risk during banking
examinations. This supervisory practice was used as a tool to
pressure banks to refrain from offering financial services to
politically disfavored individuals or industries. What further
steps is the Federal Reserve taking to help usher in these
changes, such as ending examination practices that informally
encourage banks to close certain accounts without written
justification?
Mr. Powell. So we are developing, I should say, Vice Chair
Bowman is developing, a range of policies that will help in
that area, and I should let her speak to it but, as you know,
we have eliminated reputation risk largely, in a thoughtful way
from those things. I think we became more aware of that problem
over the course of last year, and like the other agencies,
decided to move away from that. We are very conscious of the
fact that we should not be telling banks who they can lend to,
that is a decision for them in the private sector.
Mr. Moore. Let me ask you this, how are you ensuring,
though, like, the frontline examiners are aligned with this new
direction and not continuing with any past practices?
Mr. Powell. I will say that is the ultimate question is,
and I think they will, and I think, as a former bank examiner,
Vice Chair Bowman is actually very well positioned to engage
with supervisors and in a way that someone with experience can
do successfully, whereas if you do not have that experience, I
think it might be harder.
Mr. Moore. Thank you. Secretary Bessent recently announced
a drive to change the culture of supervision through
improvements to examination procedures, enhanced monitoring of
examiner's compliance with those procedures, and more realistic
processes for appealing supervisory findings. That includes
defining unsafe and unsound rules by using more objective
measures rooted in financial risk. Do you support this
initiative, and will we be seeing further rule changes at the
Federal Reserve to achieve this goal?
Mr. Powell. I like the sound of all of that. I will say on
issues of supervision, Vice Chair Bowman has significant
authority, and also, she has got the background and the
understanding, and the first thing I would do is I would ask
her what she thinks about that.
Mr. Moore. Just sort of changing the direction, a couple of
questions. During the volatility in the Treasury markets last
April, some have speculated that foreign investors were dumping
Treasury securities. Since then, though, recent data has showed
that foreign investors' holding of U.S. Treasuries held close
to a record high in April. Does this data show that Treasury
safe haven status and the dollar's global reserve currency
status remain strong while the administration conducted trade
negotiations?
Mr. Powell. I would say yes to that. I think we need to be
careful about these narratives that pop up quickly. I mean, we
are the world's reserve currency and the world's greatest
democracy, and I think the dollar is always going to be anyway,
for a long time, is going to be the reserve currency and the
place where people want to be.
Mr. Moore. Let me ask you this. Do you believe there is a
possibility that Treasury markets will crack just as Jamie
Dimon has recently warned at the Reagan National Economic
Forum?
Mr. Powell. You know, I do not want to say things like
that. I do not think that is something that is happening.
Treasury markets are functioning well and normally, and they
did function through a period of pretty substantial stress, and
as you pointed out, Mr. Moore, that they are focusing well now.
Mr. Moore. Thank you. With that, I yield back, and
actually, if Ms. Salazar is still here, I will give her my
remaining time. If not, I will yield back, Mr. Chair.
Chairman Hill. The gentleman yields back. The chair
recognizes Ms. Williams of Georgia. You are recognized for 5
minutes.
Ms. Williams of Georgia. Thank you, Mr. Chairman, and thank
you, Chairman Powell, for being here. It has been a while since
I have had the opportunity to ask questions, sitting at the
bottom of the room, but I am happy to have this conversation
today because the last time we talked, last July, I mentioned
that combating economic inequality is a critical part of the
Fed's dual mandate, and that is something that I am deeply,
deeply interested in. Back then, we were talking about how we
can get everyone in our economy to have the opportunity to
contribute to their fullest potential because that is how we
get our economy firing on all cylinders and work to continue to
close the racial wealth gap, which my home city of Atlanta
continues to lead the Nation in. That seems like such a far cry
from where we are today, almost a year later. Forget our
economy firing on all cylinders. Now our economy and our Nation
seem to just be on fire. We are looking at tariffs that are
raising the prices of groceries, fuel, housing, and everyday
goods.
Chairman Powell, I get feedback every time I am in a
hearing about my nails because I like to get my nails done, and
my nail tech told me about the increasing cost of so many of
the different products that would be used just for me to get my
manicure monthly because tariffs are frightening so many of our
small businesses, which we know are the backbone of our
economy, and so it is hurting my community in Atlanta. It does
not seem like our President and my Republican colleagues are
really interested in making sure that our economy fires on all
cylinders, as long as billionaires continue to get richer
because that is what we have seen in all of the gutting that
has been done to the Federal Government. Chairman Powell, I
mean, I am sure that this is coming to your department as well.
With the recent events that we have seen, we know that it
is very dangerous to gut the Federal Government, agencies that
we depend on, and politicize the work of agencies such as
yours. Chairman Powell, this current President has tried to
reclassify tens of thousands of non-political public servants
just to make it easier to fire them, and that includes people
who have served in Democratic and Republican Administrations.
It even includes people who serve in independent agencies just
like yours. Chair Powell, as a chair who our current and
previous President routinely has threatened to fire--I think I
just heard something on CNN today while you were here
testifying--but what effect has this policy had on the career
of civil servants in your Agency, and are these threats making
it easier or harder for the Fed to do monetary policy?
Mr. Powell. They are having no effect. We are doing our
jobs.
Ms. Williams of Georgia. You are doing your jobs. I
appreciate you doing your job, even when it might not be easy.
It is important to tune out the things that you hear in the
media because I hear it every day, representing a district that
has a lot of Federal employees, and a lot of people who work at
your Agency. I hear from people all the time. Thank you so
much, and not only do I have thousands of Federal employees in
my district, but my district has one of the widest racial
wealth gaps in the country. Much of that has to do with our
worsening housing crisis. Unfortunately, as we have seen in the
past 6 months, this administration has been focused on this big
billionaire bailout bill, gutting Housing and Urban Development
(HUD), and releasing a budget that does not help the supply of
fair and affordable housing nationwide. Now, we have heard the
President talk about having the power to control interest
rates.
In your opinion, Chairman Powell, what would you expect the
effects would be on the housing market if the President were to
lower interest rates without addressing the housing supply
crisis nationwide?
Mr. Powell. Sorry, if he were to what?
Ms. Williams of Georgia. The President has talked about
having the power to control interest rates. In your opinion,
what would you expect the effects would be on the housing
market if the President were to lower interest rates without
addressing the housing supply crisis nationwide?
Mr. Powell. Honestly, it is not our job to speculate on
things the President might do. Sorry.
Ms. Williams of Georgia. What impact do interest rates have
on housing access?
Mr. Powell. Over the long run, they do not really affect
housing supply assuming that rates will go up and down.
Ms. Williams of Georgia. Well, not on the supply, but on
the housing market. The supply is separate that we need to
address going into this. If we are going to move interest rates
up and down, that is not going to be the end-all/be-all to
getting people into housing. We must address the housing supply
crisis, but what impact do interest rates have on the housing
market in general?
Mr. Powell. Well, interest rates really affect housing
demand, so with lower rates, you see more demand, and higher
rates, maybe less demand.
Ms. Williams of Georgia. Thank you, Chairman Powell. I am
out of time, but I have lots of questions that continue to work
to close the racial wealth gap in this country, specifically
focused on my district in Atlanta, where it is so prevalent.
Thank you so much.
Chairman Hill. The gentlewoman's time has expired. The
gentleman from Indiana, Mr. Stutzman, is recognized for 5
minutes.
Mr. Stutzman. Thank you, Mr. Chairman, and, Chairman
Powell, great to see you. Again, and as I have mentioned to you
before, I always appreciate your steady hand at the wheel, and
not, I guess, getting out of your lane, necessarily, but
obviously, you have a huge impact on the economy and what is
happening there at the Fed.
I want to kind of follow up a little bit on housing, as I
have been hearing a lot about housing concerns in Northeast
Indiana. I know you are used to being beaten up on a lot by
folks all around the country, but I want to speak specifically
to one particular individual, Cardone Capital, Grant Cardone.
He made some pretty strong remarks about your policy when it
comes to the housing industry, and he said that is why you have
500,000 more homes listed than buyers for those homes. When the
rates come down, prices will also come down with it because you
will have more supply in the marketplace, and supply is what
controls prices. He went on to say that interest rates do not
control prices, and he explained that lower rates could
stimulate activity in the market, and activity is what makes
the economy work. I agree with his comments overall, but I
believe, as you said earlier, the economy seems stable, and I
would agree with that, coming from an agricultural and
manufacturing area. It is not booming yet, but I believe most
people are optimistic that good times are coming and that the
structure is set and in place.
But when it comes to housing, it seems like that is where a
lot of Americans are stuck. They have had low rates, they have
a good mortgage rate, but if they want to make a move, they
have to go out of that 3-percent interest rate into 4-and-a-
half, 5, or higher-percent interest rate. Thoughts on
addressing housing because their prices are up, for sure, but
there is no activity. The velocity is very slow. Would you like
to comment on any of that?
Mr. Powell. Sure. Yes, we see the same thing you do in the
housing market. It is tough. People are locked in. They cannot
afford to get out of their house because the cost of getting to
a higher mortgage, higher price mortgage would be a lot. The
best thing we can do, though, is to get inflation sustainably
down to 2 percent and have it stay there over a long period of
time--a long period of time--and that is really what we can
offer to them.
If you go back to the beginning of the pandemic when we cut
to zero and we did all those programs, we really saved the
housing industry because they are the front line for interest
rates. At a time like this, when rates are, I would say,
modestly restrictive, not even moderately, but modestly
restrictive, they feel it, and their customers feel it. We
understand that, but we only have one tool for the whole
economy, not just for housing. So it is something we consider,
but we have to consider the bigger picture, and I do think in
the medium term, as rates come down, you will see normalization
in housing. Of course, there will still be a national housing
shortage. I do not know about your district, but.
Mr. Stutzman. Yes. No, there is a shortage. I mean,
considering the macroeconomics of interest rates, I mean, how
much consideration do you take housing into that decision as
you address interest rates?
Mr. Powell. You know, we are always briefed on it, we
always talk about it, and we always look at it, but at the end
of the day, it is the big U.S. economy, the whole aggregate
thing that matters. We also talk about the agricultural economy
a lot as well, but ultimately--and manufacturing--it has got to
be the whole and not any one particular piece.
Mr. Stutzman. Yes. I just would mention, it is hard for
American families to make that move, and they are stuck, and so
I would just ask you to consider that piece of it because when
Americans cannot move and Americans cannot upgrade or move
laterally even, it really kind of holds the economy back a bit
when Americans do not have that. Again, I want to say thank you
because you have a tough job, but I have not heard from anyone
in my district asking for interest rates to go up. So I will
just pass that along from Indiana's 3rd District.
Mr. Powell. I appreciate that.
Mr. Stutzman. With that, Mr. Chairman, I will yield back.
Mr. Lucas [presiding]. The gentleman yields back. The chair
now recognizes the gentlewoman from Colorado. Ms. Pettersen is
now recognized for 5 minutes.
Ms. Pettersen. Thank you, Mr. Chairman, and great to see
you, Chair Powell. Thank you so much for being here today. I
want to thank you for your long service to our country. I know
that you have served under many Democrats, Republicans. You
have always been nonpartisan and done your job to put our
country first, and we appreciate your steadfast leadership, and
if you are not reappointed, it will be very missed here.
I have some concerns when I think about, I know you have
touched on this a little bit through the questions today, but
around the independence of the Federal Reserve. Your job, no
matter what President you served under, Republican or Democrat,
was to make sure that this was not a political position while
you brought news that some would not be happy about because it
reflected what you had to do to address inflation. When I think
about the conversations we have had going through the global
pandemic and the economic fallout, and how we had to infuse
money throughout our country to keep our services afloat, our
businesses afloat, and while we suffered from inflation like
the rest of the world, we had the quickest, strongest recovery.
We were leading the globe, and so much of that was because of
your leadership.
And so when I think about what this position means, how
important it is that there is independence, what are your
biggest concerns about a potential successor that does not
prioritize that and wants to do what is politically asked of
them versus what they need to do for the country and what are
their long-term repercussions if you are not acting on
addressing the economic uncertainties and trying to address
inflation in this position?
Mr. Powell. I would not speculate on that, but I would say
the credibility of the Fed on price stability is very, very
important. People believe that we will bring inflation back
down to 2 percent over time, and if they really do believe it
and it is true, then that will have big effects on not just
short-term rates, but long-term rates. If that were to be
called into question, then you would see long-term rates go up.
I mean, that credibility, once lost, is very expensive to
regain is what the historical record says. I think people
should understand that credibility on inflation is hard won and
something we need to constantly tend, and that is what we are
doing with our current policy is just being careful with
potential inflation risks. We have not overreacted. In fact, we
have not reacted at all, but we are being a little bit careful
about that set of questions as we decide what to do next.
Ms. Pettersen. Thank you for bringing that up. As we look
at where we were, how far we had come in our economy, things
were starting to stabilize, and we were starting to finally see
a relief on the interest rates. They are starting to go down.
Now they are holding steady. Can you talk about why the
instability when we look at tariffs around the increase in the
deficit by the proposed big ugly bill that is being brought
through Congress right now, and increasing our debt by
trillions of dollars, and having our credit downgraded again
because we are increasing our deficit? With this economic
uncertainty, where we were going, we were on the way down or
reducing our rates, and now we have to hold steady to address
the instability. Is that correct?
Mr. Powell. I am sorry. Could you just briefly restate your
question there? I apologize.
Ms. Pettersen. Yes, I am going to do this as best I can
with Sam here. Having to address inflation, as we have started
to see it, you were able to decrease the rates. We were
starting to go down a little bit. We were seeing that our
economy was finally in a solid place. Prices were starting to
go down. Now with the economic uncertainty, we are starting to
see that you had to hold steady whereas everyone was projecting
before this administration came in with these changes that it
was going to continue to go down. Can you talk about why you
had to choose to hold steady on the interest rates?
Mr. Powell. So we stick to what we are assigned to do,
which is maximum employment and price stability. We do not have
opinions on fiscal policy or trade policy or immigration
policy, or any one of another regulation policy other than we
have our regulatory responsibilities, and so we take what comes
as it comes, and elected politicians do what they do, and we do
not criticize that. We do not have opinions.
Mr. Lucas. The gentleman's time has expired, and the
gentlelady's.
Mr. Powell. Thank you, and thank you, Sam.
Mr. Lucas. The chair now recognizes the gentlewoman from
Texas, Ms. De La Cruz, for 5 minutes.
Ms. De La Cruz. Thank you so much, and thank you, Chair
Powell, for being here with us today. I am Congresswoman Monica
De La Cruz, and I am from deep South Texas, a largely Hispanic
district, a rural community right there on the border of Texas
and Mexico. I serve as the vice chair for Housing and Insurance
Subcommittee, and it is difficult for families right now to
afford a home on an average paycheck. I am committed to finding
affordable housing solutions for the people in my community,
but also for all over the Nation.
So Chair Powell, mortgage rates remain significantly
elevated relative to Treasury yields, with spreads well above
historical norms. To what extent does the Federal Reserve
believe it is a balance sheet policy, particularly the runoff
of Mortgage-Backed Securities (MBS) holdings, is contributing
to this widening, and how does that factor into your broader
assessment of financial conditions?
Mr. Powell. I do not think that our runoff of MBS is a
particularly large contributor to that situation. I also think
it is not just interest rates; there are so many things around
housing now. It is insurance, it is materials, it is land
acquisition, it is labor. There are so many cost pressures that
are pushing up housing costs.
Ms. De La Cruz. Thank you. With that being said, moving on
to an entirely different topic, if the Federal Reserve focuses
on issues outside its dual mandate, there are more
opportunities for policy mistakes. How can you ensure that no
other climate policy work is being done at the Federal Reserve?
Mr. Powell. It is a big risk to our independence if we were
to stray into areas where we should not, that really are not
part of our mandate, and I would agree that climate is the
biggest risk. So we really did the bare minimum. We did much
less than I think people understand in the climate area. All we
did was one piece of guidance and then we ran one stress
scenario, and by the way, it did not find anything. I think you
do not look to us to try to take on a bigger role or really to
play any role in climate, which I personally think is an
important issue and one that needs to be dealt with by elected
officials and for bank regulators just to step in and take that
on without a mandate from Congress is not a good idea. It is
not a good solution, and it is not a good way to remain
independent.
Ms. De La Cruz. Reclaiming my time. What kind of climate
guidance did you make?
Mr. Powell. For just the big banks, I believe we asked to
have a framework for which they would monitor their risks from
lending. That is all it was, and I would say that guidance is
something we are looking at pulling back.
Ms. De La Cruz. When you say, ``their risk for lending,''
their risk for lending based on political climate change. Is
that correct?
Mr. Powell. Well, I mean, I am not defending this. I am
telling you what the idea was. The idea was climate change
would cause certain kinds of assets to lose value, and that if
banks are lending in those areas or to those industries, then
they should at least be able to measure. It did not ban anybody
from doing anything. It was not prescriptive. At the same time,
you have the feeling that the side effect of it would be to
discourage lending, and we do not want that to be the case, so
that is why we are looking at it.
Ms. De La Cruz. Well, it does sound like that is policy
that is based on political agenda, and when it comes to
banking, it should not be based on political agenda but instead
on facts, facts such as credit, facts as good monetary policy.
I would have to disagree with you on the fact that the Federal
Reserve stayed outside or outside of political agendas. When it
comes to climate change, that is a political agenda, and I
would have to disagree with you on that. Thank you. I yield
back.
Mr. Lucas. The gentlelady yields back. The chair now
recognizes the gentleman from California, Mr. Sherman, who is
also a ranking member of the Capital Markets Subcommittee, for
5 minutes.
Mr. Sherman. We do not notice good bank regulations. Things
just go smoothly, but in 2023, we saw the effects of inadequate
bank regulation where we lost three banks. There was a proposal
that passed the House that would have cut the pay rate of your
bank inspectors and regulators down to 70 percent of the rate
paid at FDIC, so you would have been 70 percent of what the
other major bank regulation agency did. I know you have
announced things about headcount, but I am focusing here on
just the rate of pay. Fortunately, we were saved by not
superman, but superwoman, Elizabeth MacDonough, the Senate
parliamentarian, but what effect would it have had on our
ability to have good bank regulation if you had to go to all
the folks in doing bank regulation at the Fed and say that
their pay is going to be cut to 70 percent of the rate of pay
over at the FDIC?
Mr. Powell. It would have made it harder for us to attract
or to retain personnel. It also would have knocked down
something we have had for 90 years, which is a sort of a moat
that allows us to take care of H.R. issues on our own without
Congress.
Mr. Sherman. Gotcha. I have a couple of questions I would
like to ask you to respond to for in the record. The first is
Section 899 of the big, ugly bill, big, beautiful bill,
whatever you want to call it, Enforcement of Remedies Against
Unfair Foreign Taxes. What this does is it imposes a tax on
those residents of about 2 dozen foreign countries should they
invest in the United States, including in our Treasuries, and
we are trying to attract capital from abroad. This is to push
out capital abroad. It does not affect China. It just affects 2
dozen of our friends, particularly in Europe.
The other thing I would like you to respond to for the
record is the tariffs and the effect that has not only on the
inflation rate, but, therefore, on interest rates. At your
press conference, you said increases in tariffs this year are
likely to push up prices and weigh on economic activity, and I
would certainly like to know more about that.
The Treasury has our reserves, but you also have a
liquidity fund, which I believe involves buying and selling
foreign currencies, and so that begs the question whether if
you are allowed to buy the euro, whether you are allowed to buy
cryptocurrencies. Of course, the President has said that some
agency of the Federal Government should have a strategic crypto
reserve. Do you or your successors have the legal right to take
assets of the Fed and buy Bitcoin or TRUMP coin?
Mr. Powell. No, we do not, and we do not seek this
authority.
Mr. Sherman. I hope very much that your successor is not
someone who tries to stretch existing statutes and come to an
opposite answer. I would like to focus a little bit on when you
came before our committee last, I guess, in February, I asked
you if you would take a holistic look at bank capital
requirements, including the risk-based capital ratios like
Basel III Endgame and stress testing, to make sure that you do
not have a contraction in the ability to provide credit to Main
Street businesses, and you said you would do that. My question
this time is, how does the Fed plan to sequence the various
capital requirement reform proposals that we expect to see in
the coming months? In what order will you proceed with reforms
on Basel III, weigh risk to capital, leverage ratio, stress
testing, and the Global Systemically Important Bank (G-SIB)
service charge, knowing that these have interactive effects?
Can you tell us what the sequence will be?
Mr. Powell. This is the heart of what the vice chair for
supervision is assigned to do, is to bring proposals to the
board. She is the one who will decide that sequencing. You are
right, there are many things, and it is really up to her to
decide what is the timing, what is the priority. She has only
been confirmed for a couple of weeks, so we are just getting
going.
Mr. Sherman. I hope with you as the head of the Agency,
even if she is supposed to decide the sequencing, that your
Agency will tell us what the sequencing is going to be and
understand how important it is for people to know what order
those various regulations will have.
Mr. Lucas. The gentleman's time has expired.
Mr. Sherman. I yield back.
Mr. Lucas. The gentleman yields back. The chair now
recognizes the gentleman from Iowa, Mr. Nunn, for 5 minutes.
Mr. Nunn. Well, thank you, Mr. Chairman, and thank you,
Chairman Powell, for joining us again here. We have a saying
Iowa is nice, kind of boring. We want our Fed chairman to be
just the same, and you are doing a great job at that. We
appreciate it.
Mr. Powell. Thank you.
Mr. Nunn. Nothing gets boring. We like that, too. Look, you
have a lot of great staff that come from Iowa as well. I
appreciate you having them on your team. We also want to
recognize the fact that folks in Iowa are still feeling the
challenges of the last 4 years. We are middle America. It is
the Heartland of the country, but it also means that impacts
that change things on the coast do not always get felt the same
way in the Midwest. As a result, folks are stretching every
dollar as they face everything from higher grocery prices,
eggs, to trying to buy just that first car or even maybe that
first home and interest rates to them matter as they do
everywhere else, but they are even more.
Now, I will offer the President has made great strides in
making progress for Iowa families, and wage growth is
moderating nationwide. Many Iowans still feel, though, that
inflation spikes impact them, and with the President focused on
rebuilding the middle class, I would like to talk a little bit
about how the Fed ensures that this heart of the Heartland can
feel the benefits of a soft landing as you have laid out.
Mr. Powell. Oh, you are asking me how you will feel the
benefits. Well, I would think, pretty open-ended question, and
I think our goal is to keep the economy strong, the labor
market strong, and price stability fully restored. So that is
really what we can provide, is a long period of stable prices,
and we define that as Chairman Greenspan used to, which is
people can make economic decisions in their families, in their
jobs, where they do not have to think about inflation all the
time, and we are getting back closer to that place, but we are
not quite there yet. That is the main thing we can now do, and
once we restore price stability very soundly, that gives us the
ability to react more strongly to downturns in the economy
without having to worry about inflation. You know, we have
limited scope, but those are two very, very important things
that we can deliver that benefit all families.
Mr. Nunn. I would agree. I guess I would also like to focus
here on the short-term. The Fed Reserve has slightly lower
rates to ease borrowing costs for rural communities, and long-
term trade negotiations strengthen our global position. Would
you agree that the agricultural sector, in particular, is
vulnerable to both interest rates and recognized international
markets and how would the Fed evaluate the unintended
consequences of policy on commodity-dependent economies in a
State like Iowa?
Mr. Powell. We have a number of our Federal Reserve Bank
presidents represent districts which have extensive
agricultural operations and families and farms. We hear from
them kind of all the time, but we hear from them in great
detail around every FOMC meeting, and we understand that time
is pretty challenging right now in the agricultural sector. We
take that into account. You know, ultimately, we are
responsible for the aggregate level of the economy and for
keeping inflation under control and maximum employment, so, but
we do very much think about and take into consideration the
agricultural sector and the people in it.
Mr. Nunn. We appreciate that evaluation. I know there are
farmers back home as well as our bankers who value that because
they are the ones providing the capital for it.
I want to talk a little bit on the national security side
as the vice chair of National Security, Illicit Finance, and
International Financial Institutions (Nat Sec) here. If foreign
actors begin weaponizing Treasury sales or dollar reserves,
what tools does the Fed have to help preserve financial
stability and the dollar status as a reserve currency within
the world?
Mr. Powell. You know, essentially, what makes us the
reserve currency is a few things. It is our great democratic
institution, it is that we have very open capital markets, and
it is that we have price stability and the rule of law. Those
are the things that make you the reserve currency, and you can
keep that status as long as you maintain those things. Of those
things, the thing that we contribute is price stability over
the long run. So people who want to invest in or use the dollar
they can be confident in the value of the dollar over time,
that it will not fluctuate wildly or decline, and so that is
our role. Really, Treasury is responsible for stewardship of
the dollar, but we have that role to play as well.
Mr. Nunn. Very good. In the brief time that I have left
here, I just came back from a trip to Saudi and the Arab
states. Big concern here in the world we are living in right
now with Iran looking at asymmetric ways to threaten the United
States. Cyberattacks have been on the rise. You got a question
here earlier on cybersecurity. Help us feel confident the Fed
is doing everything they can to protect us from a cyber threat.
Mr. Powell. Our part of it is the financial sector and the
institutions we regulate, and they spend a lot of time and
money on cybersecurity. We spend a lot protecting ourselves,
and there are other parts of the U.S. Government that are very
much involved in----
Mr. Lucas. The gentleman's time has expired.
Mr. Powell [continuing]. making us aware of cyber issues
and making sure that we are all ready, and we never sleep on
this because it is always getting harder.
Mr. Nunn. Thank you, Mr. Chair. I yield my time.
Mr. Lucas. The gentleman's time has expired. The gentleman
from California, Mr. Vargas, who is also ranking member and my
colleague on the Monetary Policy Task Force, is now recognized
for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman. Thank you,
Ranking Member. I appreciate it, and, of course, Mr. Powell.
Thank you very much, Chairman Powell, for being here.
I am 64 years old. You are a little bit older than I am. In
my lifetime, I know what the most dramatic economic event is,
at least that I believe. In your lifetime, what do you think is
the most dramatic economic event that you lived through as a
country, as a world?
Mr. Powell. As an adult, I would say the global financial
crisis and the pandemic are the two----
Mr. Vargas. No, just one. You get to pick one.
Mr. Powell. Sorry?
Mr. Vargas. You get to pick one. You picked two. Just one.
Mr. Powell. I would say there is a third, which would be
the Great Inflation, so I am going the wrong way here.
Mr. Vargas. You are going the wrong way. Yes, just pick
one.
Mr. Powell. I would say the global financial crisis was, in
a lot of ways scarier, than the pandemic for me.
Mr. Vargas. You know, it is interesting because both of
them were ones that I lived through, too, and I have to tell
you, the most dramatic for me was the pandemic in so many ways.
I had never seen anything like it where everything closed down.
I remember flying here from San Diego where I live, on a 737,
and there were four passengers. There were four of us on the
plane. Of course, some idiot sits right next to my seat. What
are you doing? Are you stupid? Move away.
But anyway, it is interesting that we did not fall into the
recession, and we did not fall into a depression. I was really
scared about what was going to happen because of the way we
closed down. We did not know how it was going to go, we did not
know what was going to happen, and I think a big reason for
that was sort of the strength that we had at the Fed, and the
country came together and said we are going to figure this
thing out, and we did that. You did not panic. You guys are
very independent. I think everyone did their job. The reason I
say that is because I do worry about the independence of the
Fed now going forward.
So a question, can the President appoint himself as the Fed
chair?
Mr. Powell. It is a question, but not for me.
Mr. Vargas. You are the Fed chair. You should know. You
should know what the requirements are to be the Fed chair. Can
he appoint himself?
Mr. Powell. I do not know.
Mr. Vargas. You do not know that question? Well, you are
the Fed chair. What are the requirements to be the Fed chair?
Mr. Powell. Nominated by the President and confirmed by the
Senate.
Mr. Vargas. Okay. So----
Mr. Powell. I think you have to be a U.S. citizen probably,
but I am not sure.
Mr. Vargas. Okay. So far it seems like the President fits
those. He is a U.S. citizen. He can propose himself, and I
assume that Senators over there could confirm. Why could he not
become the Fed chair also?
Mr. Powell. Again, not a question for me.
Mr. Vargas. Okay.
Mr. Powell. I would not speculate.
Mr. Vargas. The reason I ask that is because, again, I do
think that we have a great system because of the independence
of the Fed. I am not going to ask you this embarrassing
question, although I would like to know whether you read all
the things that he says about you. I am sure you do, or some
people will tell you, yes, but I will not tell you what they
are. I am glad you have been independent, and I think that is
so important because you do look at long terms. It is not
missed on you. You know that we want you all to lower the
rates. You know that, both sides, right? You get that? The
answer could be yes or no.
Mr. Powell. Honestly, I am not sure I do know that. I talk
to members from----
Mr. Vargas. Well, I can say, from our side, we would love
to see the rates go down, and I have heard from a number of my
colleagues on the other side we would love to see the rates go
down.
Mr. Powell. I talk to a lot of members----
Mr. Vargas. I think they pretty unanimously would like to
see----
Mr. Powell [continuing]. who says privately you are doing
the right thing. I hear that from a lot of members privately.
We are appointed and confirmed. My colleagues and I do what we
think is right.
Mr. Vargas. That is exactly right. It is not lost on you
that we all want the rates to go down. In fact, it is really
real when you say someone is locked in at 3 percent at their
house their interest rate, so they do not want to move and get
a 7-percent rate. I mean, they do not want to pay that. That is
real. My colleagues mentioned that, and that is truthful, and
that is why it is so important to be independent because,
again, it is so darn important to have an independent Fed chair
and an independent Fed.
Second, the dual mandate. I respect the chairman very much,
and he is a friend. I hope that does not hurt him politically,
but that being said, he did ask you a question about the dual
mandate. He quoted somebody else and said is that the way you
see it. How do you see the dual mandate? It seems to me that
you gave a little bit of a preference to price stability over
maximum employment. Is that the case?
Mr. Powell. No. I think the two things are equal under the
law. You know, we have not defined it in exactly the way that
the chairman said, but not withstanding that----
Mr. Vargas. Do you agree?
Mr. Powell [continuing]. I do think it is a reasonable way
to define it, which is maximum employment is the maximum level
that is sustainable or consistent with price stability over the
long run. That does not make it, to me, an inferior goal.
Mr. Lucas. The gentleman's time has expired.
Mr. Vargas. Thank you.
Mr. Powell. I think it is kind of implicit in a way.
Mr. Lucas. The chair now recognizes the gentlewoman from
Michigan, Mrs. McClain, for 5 minutes.
Mrs. McClain. Thank you and thank you so much for being
here. I appreciate it. As a small business owner myself, access
to capital is extremely important to me. So I want to talk a
little bit about the Fed's balance sheet and just get a better
understanding of how we are thinking about it. I mean, some
experts say that the Fed's balance sheet or large balance sheet
is distorting the markets and keeping long-term rates, let us
say, too low. Also, I think it limits the access to capital,
right? Historically, if I am accurate, the balance sheet has
been about $4 trillion prior to the pandemic, then we raised it
and almost doubled it to about $9 trillion, and now it is on
kind of a downward trajectory to about $7.2 trillion, again, if
my math is right. Do you think we are on the right track in
shrinking this balance sheet?
Mr. Powell. I do, yes.
Mrs. McClain. I am trying to get a sense of what the
landing spot, in your opinion, should be. Do you think we will
get back to the $4 trillion?
Mr. Powell. No, no. So we are in what we call an ample
reserves regime. Demand fluctuates, and this means the quantity
of reserves can fluctuate without affecting interest rates, and
we think that is a good thing. What that means is there is
going to be a lot of liquidity in the banks and in the
financial system. That is a good thing. There was not enough
liquidity before the global financial crisis. That was one of
the problems. We have some shrinking left to do on the balance
sheet, but we are not going to get down as far as you asked.
Mrs. McClain. Where do you think we will land?
Mr. Powell. You know, I cannot give you an exact number,
but we are going at a pretty modest pace now. We have slowed
down, kind of----
Mrs. McClain. Yes.
Mr. Powell [continuing]. cut in half twice the speed. We
think we can go for a good while at this speed, and we will
learn as we go.
Mrs. McClain. So you think the trajectory, so to speak,
will remain----
Mr. Powell. Yes, and I think the fact that it is quite a
gradual trajectory now is going to enable us to find that level
that is ample and not scarce. When reserves are scarce, you get
a lot of volatility----
Mrs. McClain. Sure.
Mr. Powell [continuing]. and that does not help, so I think
that is a good framework. You know, the ample reserves
framework, I think, serves the country well.
Mrs. McClain. You are not concerned in terms of the access
to capital? I mean, as a business owner, that is what I look
at, is I got to be able to get capital, and some people are
saying we are really hanging on to our cash.
Mr. Powell. You know, honestly, I think if you took the
trouble to go back to a much smaller balance sheet, it would
have no effect whatsoever on capital ability for companies.
Mrs. McClain. Why do you say that?
Mr. Powell. We would not do that at all. We are not pulling
capital away from companies. That is not what is happening. It
is just that you have a big balance sheet where there is a lot
of liquidity. The result is there is a lot of liquidity. Banks
are flush with liquidity for the most part, and that actually
enables lending. It probably would not have much of an effect
one way or the other----
Mrs. McClain. So you are comfortable----
Mr. Powell [continuing]. if we went back to a smaller
balance sheet.
Mrs. McClain. So you are comfortable with the liquidity?
You are comfortable with the access----
Mr. Powell. Yes. I mean----
Mrs. McClain [continuing]. to capital? Excuse me.
Mr. Powell. You know, we look at credit availability for
smaller businesses, and right now, conditions are a little bit
tight, but----
Mrs. McClain. Yes, it is tough for people in my district.
Mr. Powell. Yes.
Mrs. McClain. It is tough.
Mr. Powell. I would say that they are not terribly tight,
but we do see that there is some tightness, but that is not
really a function of the size of the Fed's balance sheet. That
is just that banks are perhaps a little risk averse in this
uncertain environment.
Mrs. McClain. Yes. I think it all goes together and is kind
of intertwined, but I appreciate that. I want to just switch
gears a little bit. Are you seeing any signs of financial
instability building beneath the surface that we may not be
seeing maybe on top of the surface, whether it is in commercial
real estate, private credit, regional banking? Anything you are
seeing underneath the surface that could derail the growth path
that we should----
Mr. Powell. Not really, no. There are a lot of pots that we
need to watch to see that they do not boil over. Commercial
real estate (CRE) has been a problem for 5 years. We are
working our way through it. I think we are making good progress
there. It is not getting worse. It is getting a little better.
Private credit has its real positive attributes. It is not
funded by deposits. As long as it is not funded by retail or by
deposits, it is actually fine for financial stability, but it
is a very big and fast-growing sector, and it has not been
through a real downturn, and it is quite diverse, so I think it
bears close watching. I mean, asset prices are high, and
leverage is not particularly high for corporations and
households historically. It is not particularly high for banks.
Banks are well capitalized, so I think overall financial
stability conditions are not in a place where we worry a lot.
Mrs. McClain. So we are really poised in a pretty good
position economically?
Mr. Lucas. The gentlelady's time has expired.
Mr. Powell. I think so, yes. Absolutely.
Mrs. McClain. Thank you, Mr. Chair. Thank you.
Mr. Lucas. Absolutely. The chair now recognizes the
gentleman from Illinois, Mr. Casten, for 5 minutes.
Mr. Casten. Thank you, Mr. Chairman, and, Chair Powell,
nice to see you again. We spoke in February about some concerns
I had about some of the cuts and some of our economic data
reporting agencies, and I think you had said at the time that
you did not have a concern, but you would alert us if there
were concerns. You mentioned this with Mr. Liccardo, and I am
paraphrasing you. I think you said that you are not concerned
about your access to data right now, but I think you said that
you do not like the direction of travel.
Well, first, I am going to work under the assumption that
as the chairman of the Fed, you probably have more access to
economic data than just about anyone in our country. I am more
worried about the impact on smaller businesses that do not have
your access to data, whether someone is thinking about hiring
decisions, looking at regional inflation rates, and all the
data we get from those resources. If an efficient economy
depends at some level on equal access to information, how
concerned should we be that our business community with some of
these cuts to BLS and elsewhere is not going to be able to
allocate capital as efficiently as otherwise would be in this
moment?
Mr. Powell. The reality is that essentially all the data we
use overwhelmingly is public data. The difference is not that
we have more access. The difference is that this is our job,
and we follow the data very, very closely, but the employment
reports, the CPI reports, the analysis of that by many
economists, internal and external, we just spend all of our
time on this stuff, but I think large businesses have the exact
same----
Mr. Casten. But I am talking like----
Mr. Powell. Smaller businesses----
Mr. Casten. BLS has announced they are cutting 350 indexes,
so that data is no longer going to be public data.
Mr. Powell. That is a different thing, okay? I do not want
to say, and it would not be true to say that we cannot do our
jobs with the data that we have now. That is just not true.
These jobs, you are always going to make mistakes. It is never
going to be certain at any time, but I would say, seeing that
survey sizes are shrinking, and we are seeing more volatility,
for example, in the labor market data, lower response rates,
and things like that, that is not good, you know. We should be
getting better and better and better.
Mr. Casten. Yes.
Mr. Powell. By the way, we use more and more big private
sector datasets, and that is a relatively new thing over the
last 5 or 10 years.
Mr. Casten. Sure. Yes, and oftentimes----
Mr. Powell. The U.S. Government data has been the gold
standard.
Mr. Casten. Yes, and I guess I get concerned because some
of those datasets, of course, you have to pay for, and not
every business can afford that. Staying on the data point and
picking up on what Mr. Himes was saying, I think only a fool
would predict what is going to happen in the Middle East right
now. The Saudis have been very open that they would like to not
see the price of oil get above a point where they are going to
lose market share much to the dismay of U.S. frackers. U.S.
frackers have been wanting to see it go the other direction. I
do not know how to handicap which group is going to have more
impact on Trump right now, but I would like to have some smart
person out there taking a position on what is happening in oil
markets, and the Energy Information Administration has now
announced they are not going to run the International Energy
Outlook anymore. Should we be concerned about that piece of
data as we think about what is happening in global energy
markets right now, given all the pressures between various
suppliers of where they would like to see the price go and the
wildcard that is Iran and the Red Sea?
Mr. Powell. You know what? I do not particularly know that
specific report. You know, I know there are many, many, many
entities that do data analysis around energy and oil, and the
availability of it, and the price of it, and all those things,
so I cannot speak to that one report.
Mr. Casten. Okay. In my own experience before coming here,
I relied a lot on that, and if I was in my past job, I would
now basically have to rely on the International Energy Agency,
which, in general, was not as robust as the Department of
Energy (DOE) data, and so it is a gap. I guess maybe I will
just close with I think a lot of this gets tied together with
the Office of Financial Research, which would presumably be
synthesizing a lot of this information for you. Your
predecessors, Janet Yellen and Ben Bernanke, both recently
urged the opposition to cuts in Office of Financial Resources
that are in the bill that the Republicans are pushing through.
Do you share your predecessors' concerns about the importance
of that Agency to synthesize some of these disparate things so
that you can do your jobs, that the American people can do your
job, or do you share the views of the Republican Party that
Agency is not necessary?
Mr. Powell. I am not going to take position on the bill, on
the reconciliation package, on specific issues like that do not
relate to us. I will say generally----
Mr. Lucas. The gentleman's time has expired.
Mr. Powell [continuing]. I am a big fan and everyone at the
Fed is a big fan of good data collection.
Mr. Lucas. The gentleman's time has expired. The chair now
recognizes the gentleman from Montana, Mr. Downing, for 5
minutes.
Mr. Downing. Thank you, Mr. Chair. Our national debt now
exceeds $36 trillion. Congressional Republicans have made it
our mission to rein in out-of-control spending from repealing
the green new scam, enacting commonsense Medicaid and
Supplemental Nutrition Assistance Program (SNAP) reforms, and
rescinding wasteful spending. Mr. Chairman, you have repeatedly
said our national debt is not currently at an unsustainable
level, but it is on an unsustainable path. Can you describe
what the point of no return looks like when our debt reaches an
unsustainable level?
Mr. Powell. There is no way to know exactly what that is,
but ultimately, if the debt is growing substantially faster
than the economy, by definition, at some point it will not be
sustainable. We do not have oversight responsibility over the
fiscal authorities. That is traditionally what my predecessors
have limited themselves to saying, and I will say it, too.
Mr. Downing. What effect would that have on the economy?
Mr. Powell. So you would see rates go up. You will have to
fix the problem eventually. If you wait too long, it will be
much more painful.
Mr. Downing. Yes, I believe the U.S. dollar status as the
global reserve currency is essential. It allows the U.S. to
borrow at lower costs, which stimulates economic growth and
increases standards of living. The Trump Administration is
actively negotiating to ensure we are no longer taken advantage
of by our trading partners. At a previous Monetary Policy Task
Force hearing, all of the witnesses agreed that the recent
volatility in the Treasury markets did not permanently damage
the dollar's global reserve currency status. Do you agree?
Mr. Powell. I do.
Mr. Downing. Thank you, sir. Let me turn to oversight of
the Federal Reserve. I certainly believe that had the Federal
Reserve responded faster by raising interest rates earlier to
combat the inflation crisis of the previous administration,
that interest rates would not be as high as they are now. I
hear frequently from my constituents that they are increasingly
getting priced out of the housing market while interest rates
remain near record highs despite the rate of inflation coming
down. Mr. Chairman, I appreciate the Fed's increased
transparency under your leadership, and you have always
welcomed congressional oversight into the Fed, and I also
appreciate the comments you have made about the limits of our
knowledge, demanding humility. With that in mind, can you point
to oversight practices of other governments into their central
banks that could be replicated with the Federal Reserve?
Mr. Powell. That is an interesting question, and I want to
think about that. I will come to see you, and we can talk about
that.
Mr. Downing. Thank you, sir.
Mr. Powell. We have effective oversight from this committee
and from the other committee in the Senate, and I think that is
important.
Mr. Downing. Would you be supportive of an outside
independent group of analysts or economists that conducts a
periodic review of the Fed's economic assessments and modeling?
Mr. Powell. Those are ideas I would like to think about and
discuss privately before----
Mr. Downing. Do you have any other ideas to increase
oversight in the Federal Reserve?
Mr. Powell. Like my predecessors, I have fostered more and
more transparency at the margin, and I think that is
appropriate. I think transparency is critical if we are to
maintain our democratic legitimacy. I have tried that, but I
will devote some more thought to that question.
Mr. Downing. Well, I look forward to following up, and I
thank you for your responses, and on that, Mr. Chairman, I
yield.
Mr. Lucas. The gentleman yields back. The chair now
recognizes the gentleman from Texas, Mr. Gonzalez, for 5
minutes.
Mr. Gonzalez. Thank you, Mr. Chairman, and thank you,
Chairman Powell, for being here with us today. I understand
commenting on some policy issues are outside of your purview,
but I have one that I think is heavily impactful on the
American economy right now, and I want to underscore the scale
and impact of the ICE raids that we are seeing across the
country.
Pew Research estimates that over 10.5 million undocumented
individuals live in the United States, more than 3.3 percent of
the population today, and according to the nonpartisan American
Immigration Council, removing this workforce could cost the
U.S. economy between $1.1 trillion and $1.7 trillion in GDP and
billions in tax contributions, including $22.6 billion in
Social Security and $5.7 billion in Medicare funds that are
increasingly critical as our population continues to age. These
are resources that are paid by these undocumented workers that
have been here for a long time. Many of them have been here for
a very long time. That is why I plan to introduce the Save the
American Workforce Act, which would establish an employee-
sponsored temporary work authorization for undocumented
immigrants who have been in the country for 3 years or longer
and have never been in any kind of trouble, no criminal
liability or nothing else.
Additionally, last week, I sent a letter to President Trump
urging him to halt indiscriminate deportations and issue an
executive order that would do exactly what my bill does to
protect American businesses that need a workforce. The last I
heard, I think we have 7 million open jobs. We have record low
unemployment, which is great, but we have 7 million open jobs
that we cannot fill by American workers. What economic
consequences would we face if these individuals were removed
from the workforce, even further hurting the situation that we
are in? Could this disrupt the economy even more severely than
what we experienced during the Great Recession?
Mr. Powell. As you might expect, Mr. Gonzalez immigration
policy is just not for the Fed to comment on or to let alone
make, and so I am reluctant to engage with you on that.
Mr. Gonzalez. Okay. Okay. I want to talk to you about
something a little different, and this is a banking issue.
Banks are making billions of dollars of construction loans
across the country that are timelined, and contractors are not
able to fulfill their obligation because they do not have the
labor force in the middle of the jobs to finish. I mean, I am
hearing stories in Texas at least where people are pouring
concrete at midnight. Are you all having any kind of
conversation with the administration on how this could impact
the economy and our GDP?
Mr. Powell. We have very deep connections all over the
country through the reserve banks, and we hear some of the same
stories. You know, we are not the policymakers here. We do not
report this to the administration. You know, we do not publicly
have a view on it. It just is what it is, so.
Mr. Gonzalez. Yes.
Mr. Powell. Our maximum responsibility is maximum
employment, price stability, and many, many other factors
affect those goals, but we do not make those goals. We do not
make the policy in those extraneous areas, which include things
like energy, for example, immigration, fiscal policy, or any
number of things. We try to stick to our knitting because that
is how we remain independent.
Mr. Gonzalez. Yes. We are living in such unconventional
times that it would be great if we were having those
conversations in the administration but moving on. The U.S.
dollar has also long been the world's dominant reserve
currency, but that position is facing growing pressure. As of
2024, BRICS nations led by China and including Brazil, Russia,
India, and South Africa, have stepped up efforts to reduce
their reliance on the dollar in global trade. China, for
instance, has expanded the use of the yuan in energy
transactions and cross-border payments, while BRICS is actively
developing alternative payment systems that could erode the
dollar's global role. At the same time, inconsistent and
unpredictable economic policies from the White House have
contributed to a drop in the dollar's value, now at its lowest
level in 3 years. What risk does a weakening dollar pose to our
economy, particularly to U.S. borrowing costs, inflation,
financial stability as China and BRIC nations expands their
efforts to challenge the dollar's global dominance?
Mr. Powell. By long agreement and custom and tradition, the
Treasury Department has responsibility for the dollar and
dollar stewardship. I would say we also are involved in
payments policy. We and the other major central banks are very
aware of other payment developments, and are working on ideas
to make sure that the payment systems that support the dollar
and other----
Mr. Lucas. The gentleman's time has expired.
Mr. Powell [continuing]. major currencies of the
democracies are well supported by that infrastructure.
Mr. Gonzalez. Thank you. I yield back.
Mr. Lucas. The gentleman's time has expired. The chair now
recognizes the gentleman from Florida, Mr. Haridopolos, for 5
minutes.
Mr. Haridopolos. Thank you very much, Mr. Chairman, and
thank you, Chairman Powell, for being here today and answering
these questions for us. It is very much appreciated.
Looking back over the last few years, I think the question
a lot of people have been asking me as they really were
suffering through the challenges with higher prices across the
board. I know they got as high as over 9 percent inflation in
2022, and there was a lot of discussion about was it Ukraine,
was it transitory, was it post-COVID, what was the reason, and
this is your field of expertise. If you look back and you are
teaching a history class, what would you blame the increase in
prices on back in that time period?
Mr. Powell. I will start with the fact that it was
extremely global. There literally was a point at which not a
single country in the world had inflation 2 percent or below,
so it was everywhere. You have to look to common factors, and I
would say that the pandemic and the closing of the global
economy and then the reopening of it, in all cases with some
support, that is a big part of the story. Clearly, though,
there is a role in that for fiscal policy, there is a role in
that for monetary policy, and I like to think all of those
factors were involved, and when it happens everywhere in the
world, you cannot look to one thing. You got to look to a
common factor, and I think that common factor is what happened
around the pandemic.
Mr. Haridopolos. Sure. Good. I mean, I hate it, Monday
morning quarterback, but if you had to do it over again, you
had this opportunity. As you know, the rates stayed pretty flat
in 2021 as inflation creeped up, what would you do differently
today if you had the opportunity to look back and make some
changes?
Mr. Powell. I have perfect hindsight in this----
Mr. Haridopolos. Yes, sir, if you had it. Yes.
Mr. Powell. Sure. Clearly, I would have raised rates a
little earlier. I honestly do not believe it would have made
much difference to the outcomes, but we would have looked a lot
smarter, but that is something I would have done. You know,
ultimately, we did get all the way back to 2 percent inflation,
just about, without having a big increase in employment. So
that was not at all expected. I do not know how that would have
affected my behavior, but somehow things really came out much
better than everyone had anticipated, was that it would take
high unemployment to restore inflation, but it did not.
Mr. Haridopolos. The other pressure point that I heard a
lot of people talking about is this idea of the tariff issue. I
have heard for months now that the sky is falling, but it seems
at this point at least that the inflation rate is pretty
steady. How many months of steadiness do you need before you
might look at an even larger rate cut from the 4.33 I think we
have today?
Mr. Powell. Yes, so you are right. The non-tariff parts of
inflation that we have been working on for 3, 4 years are
behaving really well, and that was our forecast, but it is good
to see it coming true. Tariffs take a while to work their way
through the distribution chain, several months, and I would say
we would expect to see meaningful effects kind of in June,
July, or August, and if we do not we will be learning
something. We have a highly adaptive, flexible economy, and it
is certainly a possibility that the tariffs that we expect will
come through in a much smaller level. We cannot know that until
we actually see it, but I think we will be learning as we go,
and if we see that, then that would lead us to want to cut
earlier. The other thing that would lead us to want to cut
earlier is if we actually did see some weakness in the labor
market of a troubling nature, and we do not see that. Those are
the two things we will be looking for.
Mr. Haridopolos. The last question I would ask is, at that
same time period, where, as you put it, the global issue of
inflation, I get that, but at the same time, there was pretty
radical increase in spending in 2021 by the Federal Government.
What factor did that play in the inflation level?
Mr. Powell. Certainly, a factor, I would say. As I
mentioned, fiscal policy definitely played a role. I think if
you take a step back from those things, what happened was
demand came back so much stronger than we expected. In late
2021, early 2022, you had the pandemic still going on and
Omicron going. Was it 2021? Yes, 2021 into 2022, and demand was
just much stronger than people expected, and, by the way, the
supply side was much slower to recover, so that is the labor
force. That is all of the snarled-up supply chains. The supply
side took a long time to recover and demand was much stronger.
That story created the high inflation. Behind that, fiscal
policy played a role, the spending did, monetary policy played
a role, and the pandemic played a role----
Mr. Haridopolos. But you would agree that the government
spending did play a significant role in that as well?
Mr. Powell. Yes. I would say that, yes.
Mr. Haridopolos. Thank you. Thank you, Mr. Chairman.
Mr. Lucas. The gentleman yields back. The chair now
recognizes the gentleman from Illinois, Mr. Foster, who is also
ranking member of the Financial Institutions Subcommittee, for
5 minutes.
Mr. Foster. Thank you, Mr. Chair. You know, following up
actually on Rep. Gonzalez's line of questioning, so in addition
to your dual mandate, do you believe that preserving the U.S.
dollar and the primacy of the U.S. dollar is part of your job
description?
Mr. Powell. It is not formally part of our job, but, yes,
it is something that we care about, and we certainly would not
want to undermine that, but really, Treasury has the primary
role around the dollar. That has been the case for some time
now.
Mr. Foster. Yes. I was just wondering how you deal with the
sort of worldwide drop in investor confidence in dollar-
denominated assets frankly due to a President who kind of
disregards conventional economic theory and whose answer to
nearly every question seems to be, well, I have not decided
yet, or maybe I will give you an answer in a couple of weeks,
maybe I will just comment. It must be challenging.
Now, one of the things I have been very concerned in terms
of the job market is artificial intelligence and the coming
impact there. We are seeing predictions by the leaders of the
leading AI firms that within 1 to 2 years, a majority of entry-
level white-collar jobs will be gone. Then there are products
that are being released to market that propose to do pretty
much exactly that, and I anticipate pretty high uptake of those
things to, essentially, eliminate back-office operations in
small businesses, things like that, or intermediate-sized
businesses, and we are already seeing layoffs in the Big Tech
firms. Microsoft had a big round of layoffs where 40 percent
were computer coders and maybe another 20 percent supervisors
of computer coders, and so I was just wondering what sort of
analysis the Federal Reserve is doing about that job shock, and
how is it going to affect your dual mandate when it lands,
perhaps as early as the next year or 2?
Mr. Powell. I think economists everywhere are doing work
analyzing the potential implications of AI for employment and
some of the very things that you mentioned, and we are
certainly both consumers and producers of that kind of
research, you know. I certainly cannot make any positive
statements with great confidence about what will happen, but
there is certainly a possibility that at least at the beginning
AI will replace a lot of jobs rather than just augmenting
people's labor.
The history shows that, generally, new technology raises
productivity and creates new jobs over time, but it can be
disruptive in the very short term, and anyone who has been
exposed to AI has to be kind of stunned with what it is capable
of. If you think, oh, this is just the beginning, they say that
2 years from now, the things you are looking at will be left
behind by the continued development. I think it is certainly
everything you would want in a transformational technology, and
I think unknown, but certainly there will be important effects
on the labor market. I hear the same things you mentioned from
CEOs that they can see a way to significant reductions in
employment, but I do not think we know that.
Mr. Foster. Yes, but the question is, are you developing a
playbook for this shock and part of your job is to look at tail
risk, and this is probably not even a real tail risk at this
point. You know, a lot of the CEOs think it is more probable
than not. We have seen law firms just not hire the same number
of junior associates just across the economy. Are you actually
developing a playbook in case the shock is real and what you
may or may not be able to do with monetary or other policies?
Mr. Powell. The playbook is really in your hands and in the
private sector's hands. We will be trying to maximize
employment, and that will be what we do, and at the same time,
we maintain price stability.
Mr. Foster. Yes.
Mr. Powell. You are talking about transitioning people into
new jobs and new lives and----
Mr. Foster. Before AI wipes out those new jobs you are
retraining them for, okay, but think about it. I urge you to
think about it and what you will do if that job shock hits.
So last week, the Fed put out a request for information on
ways to mitigate check and payment fraud. Despite a decline in
the use of checks, check fraud is really very prevalent, and I
was happy to join Chair Hill in sending you a letter and other
banking regulators as well as the Financial Crimes Enforcement
Network (FinCEN) urging action. Can you summarize what you have
in mind doing in response to that letter or what you have
learned, the outreach that resulted from it?
Mr. Powell. So this is on the check fraud thing? I just
know we just started a request for information, and I think we
are starting a process of gathering a bunch of information----
Mr. Lucas. The gentleman's time has expired.
Mr. Powell [continuing]. for really focusing on that issue.
Mr. Foster. Okay, and if you could say what you are
actually going to do in response, that would----
Mr. Lucas. The gentleman's time has expired.
Mr. Foster. Thank you. I yield back.
Mr. Lucas. The gentleman yields back. I now recognize
myself for 5 minutes.
Chair Powell, we have discussed this several times before,
but the issue remains, so I continue to raise it. I sent you a
letter several months ago urging you to seek public comment and
permanently revisit the SLR and eSLR, particularly given the
constraints current calculations places on market participants'
ability to intermediate in the Treasury market. I am glad to
see that you are meeting tomorrow to discuss the issue, and I
know you have discussed this with Mr. Flood.
I want to clarify a couple of things. The last time you
testified before the committee, you said you were concerned
about the levels of liquidity in the Treasury market and that
one obvious thing to do would be to reduce how binding the SLR
on intermediate capacity. Are you considering changes in the
SLR and eSLR, and will you consider exempting Treasuries and
reserves from the SLR and eSLR?
Mr. Powell. I do think we have effectively raised the
capital tax on all kinds of intermediation activities, and that
certainly includes Treasury market activities, so I have long
favored leverage ratio reform. So we are putting out a document
for comment, which will seek comments on one particular
proposal and alternatives to that proposal, as I mentioned
earlier.
Mr. Lucas. Which I think answers my next question. Will you
look at changes at the leverage ratios that constrain a bank's
ability to participate?
Mr. Powell. Yes, that is the idea.
Mr. Lucas. In your view, would allowing netting mechanisms
for derivatives on Treasuries encourage participation in the
market, and would you consider looking at that with your
prudential counterparts?
Mr. Powell. This is for derivatives?
Mr. Lucas. Uh-huh.
Mr. Powell. My first phone call on that would be to Vice
Chair Bowman to ask her what she is planning, but I am
certainly open to that conversation.
Mr. Lucas. Absolutely. Let us discuss the framework review.
You said that the review of the consensus statement is
complete, but potential changes to communication strategies and
tools may continue into the fall. When can we expect the
framework review to be complete, and will you provide
opportunities to receive feedback from members, industry, and
the public on any changes the Board is considering?
Mr. Powell. The framework review, there are two parts of
it: There is the consensus statement, which contains our
monetary policy framework, and then there are communications.
On the first, the framework, we have had the meetings that we
needed to have to talk about the employment mandate and the
price stability mandate and how we might change the framework.
Now comes the discussion between participants on the committee,
all 19 of us, about exactly what language to use in the new
framework, and we are just entering that phase between these
two meetings and at the July meeting, and, hopefully, we will
be able to announce something near the end of the summer. By
the way, we have laid this out a little bit in the minutes as
we go.
Mr. Lucas. One last question. The Monetary Policy Report
(MPR) notes that the FOMC's policy deviates from the first-
difference policy rule. Will you provide a justification for
why the FOMC decided against that path?
Mr. Powell. Against the first-difference rule?
Mr. Lucas. Uh-huh.
Mr. Powell. Well, as you probably know, there are five
rules that we talk about there, and the first-difference rule
is the one that calls for a price hike. The other four say that
we are in the right place. So the Taylor rules generally are
very supportive for where we are, it so happens right now. The
first-difference rule is a very interesting concept, which we
can talk online, which has a lot of appeal, but it can be a
little bit volatile, too, and right now, it is calling for a
rate hike. The other four are calling for us to hold our policy
where it is.
Mr. Lucas. The irony. Thank you, Mr. Chairman. I yield back
the balance of my time, and I turn to the gentleman from
Oregon, Ms. Bynum, for 5 minutes.
Ms. Bynum. All right. Thank you, Mr. Chair. I want to start
off with just kind of a foundational belief I have. This Big
Beautiful Bill is trash, and it is actually increasing our
costs. Thank you for being here today. I was just back home and
saw firsthand that businesses across the country, across my
State, are worried about inflation and rising costs, and
particularly for our State where we make chips, we import,
export agriculture, and we have apparel, so we just want to
level set there.
My Republican colleagues have actually been focused today
on asking you to lower interest rates, but they are seeming to
ignore the market chaos that the President has caused. My first
question is, it is my understanding that one of the key
responsibilities of the chair of the Federal Reserve is to
stabilize prices and fight inflation. Is that right?
Mr. Powell. Yes.
Ms. Bynum. By my count, the President, President Trump, has
changed or announced a new tariff or a delay of previously
announced tariffs 19 times, and so has the President's ever-
changing tariff made it easier or harder to stabilize prices
and fight inflation?
Mr. Powell. I, by practice, never comment on things the
President does or says.
Ms. Bynum. Has the administration's policies on tariffs----
Mr. Powell. Or the administration.
Ms. Bynum. Has the change in policy on tariffs made it
easier or harder?
Mr. Powell. It is not up to us to judge these changes.
These are things that elected politicians get elected and do,
and it is just not our job. You know, our job is to provide
stable prices and maximum employment to the public, and that is
what we do. Some of the price increases from tariffs will flow
through to the consumer. We do not know whether that will be
persistent or how large it will be, and so right now, we are
kind of in watch and wait mood until we have a better sense.
Ms. Bynum. Is it your sense that back to school will be
affected, the holiday season would be affected? You mentioned
it a little bit earlier, you did not say the exact timeframe,
but you thought maybe a few months we would start to see
changes from tariff and perhaps----
Mr. Powell. Well, I think we are going to be learning as we
see. Before the July meeting, we will get an inflation report
well before that. We expect to start to see meaningful
increases through the goods channel, and if we do not see that,
then that will be telling us something. We will be learning
from that, and by the way, we also will be looking at the labor
market. If it weakens unexpectedly, we will be looking at that,
too. We will continue to adapt to the evolving situation, as we
have been doing.
Ms. Bynum. Thank you. What market conditions would make it
so that the Federal Reserve would be able to lower interest
rates, which would also lower costs?
Mr. Powell. Yes. As I just mentioned, I would say if we
were to see that inflation is not coming through as our
forecast and other public forecasts have suggested, that would
push us in the direction of being able to cut sooner. Also, if
the labor market were to weaken, that would push us in the
direction of being able to cut sooner. I think if the opposite
happens, if the labor market remains strong and we do see
higher inflation, I think we will still get around to cutting,
but it would be later rather than sooner.
Ms. Bynum. What do you think American families are
expecting from the Federal Reserve?
Mr. Powell. Stable prices and maximum employment. That is
what we want to deliver, and we want people to feel so
confident of price stability that they never think about
inflation. That is where we were for a very long time, and we
have made a lot of progress back to that place, but we are not
quite there yet, and we are going to finish that job.
Ms. Bynum. Is there a plan that the administration has
presented on how it plans to lower costs as opposed to
providing tax breaks for billionaires?
Mr. Powell. It is really not up to me to discuss the
administration's priorities or policies.
Ms. Bynum. Okay. I am going to quickly switch gears here.
It seems to me like you are under a lot of pressure from the
President to address the national debt. True? False?
Mr. Powell. Sorry?
Ms. Bynum. Are you under pressure from the President to
address the national debt?
Mr. Powell. Our role is maximum employment and price
stability. Fiscal policy is the responsibility of Congress, and
so it is not really within our ambit.
Ms. Bynum. I think that despite all of the talk about
national debt, this big, beautiful trash bill continuing to do
that will actually raise the national debt. Thank you for
answering the questions today and continuing to work to lower
costs and----
Mr. Lucas. The gentlelady's time has expired.
Ms. Bynum. Thank you.
Mr. Lucas. Thank you. The chair now recognizes the
gentleman from Kentucky, Mr. Barr, who is chairman of the
Subcommittee on Financial Institutions, for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman, and thank you, Chairman
Powell, for the generosity of your time. We are at the witching
hour but appreciate your endurance, and with respect to the
gentlelady's line of questioning, would a recession that would
potentially result from a massive tax increase, a $4 trillion
tax increase, would a recession help the debt and deficit
picture?
Mr. Powell. No. Tax receipts would go down and all that.
Mr. Barr. Yes. I think this sky-is-falling scenario about
the One Big Beautiful Bill; we have to put it into context. I
am not asking you, Chairman Powell, to comment on this, but
this is my editorial response to my colleague. A massive $4.5
trillion tax increase that would put us into a recession is not
a recipe for fiscal discipline.
Chairman Powell, let me switch gears to tariffs. Governor
Waller argued in a speech earlier this month that tariffs might
result in just a onetime price increase as opposed to
increasing long-term inflation expectations, especially since
this Congress has not pumped massive spending into the economy
as Democrats did under President Biden. On this issue of a one-
time price increase versus inflation expectations, do you
generally agree with Governor Waller's analysis?
Mr. Powell. I do agree that, basically, if things are a
one-time increase, then you do not respond to them. That is the
whole idea, is there is a shock to prices. It could be an oil
shock. It could be a tariff shock. Generally speaking, you do
not respond if you are highly confident that it will just be a
onetime shock. I think the current situation, though, is a
complicated one, and I think a number of my colleagues, and I
feel like it is a decision we need to take with some care, and
the reason is because we are not at price stability. In 2018
and 2019, when the President's tariffs were put into place, not
only did we not raise rates, we cut rates 3 times that year
because the tariffs were so much smaller. These tariffs are
many times larger, and they do raise kind of more concern. In
2019, we had not had high inflation in 30 years. Now we are
only a few years away from high inflation, so we think that it
may well prove to be a onetime thing, but in the meantime, it
is a decision we want to approach with some care.
Mr. Barr. I think we made a lot of progress toward getting
closer to that 2-percent goal. Does the Fed take into account
the disinflationary fiscal policies like supply side tax cuts,
deregulation, and more energy production that could be a
counterweight to whatever onetime price increase that might
materialize as a result of tariffs?
Mr. Powell. So we look at aggregate inflation, not any
particular kind, and I am very gratified at the performance of
services inflation, which has come down now. That was the very
sticky inflation. So I think overall the inflation picture is
actually pretty positive.
Mr. Barr. Chairman Powell, we are looking forward to this
rulemaking later this week addressing Treasury market
liquidity. Can you talk about how banks are constrained from
holding U.S. Treasuries and other low-risk assets on their
balance sheet as a result of these restrictive leverage ratios?
Mr. Powell. Yes. When banks are bound by the leverage
ratio, when that is the binding capital constraint, then that
is going to make sort of low-risk, low-return assets, something
you do not want to hold, and so lots of fairly low-risk
intermediation, including Treasury market intermediation, gets
taxed to the point with capital requirements that you just see
less of it. I have always thought that it would be better if
there was a backstop rather than the binding thing, and that is
what this proposal is going to do.
Mr. Barr. Well, let me preemptively thank you and Vice
Chair of Supervision Bowman for working on SLR reform to
accommodate more bank holdings of Treasuries to stabilize our
Treasury markets. Finally, I am pleased to see that the Fed
joined its interagency counterparts and announced that you no
longer plan to consider reputational risk in your examination
process. Senator Scott and I introduced the Financial Integrity
and Regulation Management (FIRM) Act to stop the weaponization
of the supervision process to stop the targeting of politically
unfashionable groups. Our bill requires regulators to focus on
the true risks as opposed to political factors. What was the
Federal Reserve's thought process in implementing this
commonsense reform?
Mr. Powell. That it is commonsense. You know, I think this
is an area where we have learned over the last couple of years
that there really was a problem here. The reports were louder
and louder and more and more troubling, so we just thought let
us take this off the table. It may have been----
Mr. Lucas. The gentleman's time has expired.
Mr. Powell [continuing]. unintentional on the part of
banks. It was just such a fraud issue that banks turned away
people with----
Mr. Lucas. The gentleman's time has expired.
Mr. Powell. We did not intend to discriminate. That is what
the banks----
Mr. Barr. Thank you for helping to depoliticize the banking
system. I yield back.
Mr. Lucas. The chair will now announce the membership. We
will recognize Mr. Torres and Mr. Loudermilk, then adjourn for
our 1 p.m. agreed-to hard stop time, and with that, the
gentleman from New York, Mr. Torres, is recognized for 5
minutes.
Mr. Torres. Thank you. Chair Powell, you spoke about
elevated uncertainty and declining sentiment in the U.S.
economy. Do you believe, as I do, that the economy would be in
a better position but for the elevated uncertainty and
declining sentiment created by the Trump tariffs?
Mr. Powell. I do not want to be criticizing policies. I
will say uncertainty has----
Mr. Torres. It is fair to say that the policy created
uncertainty?
Mr. Powell. It is fair to say uncertainty was very
elevated, but it is also fair to say that uncertainty has
actually come down since the peak, if you will, in April. I
think there is a different feeling out there now than there was
2 months ago, and it is more constructive feeling on the part
of businesses, which you must be feeling, too.
Mr. Torres. But it is higher than it otherwise would be in
the absence of the Liberation Day tariffs. To what extent was
the elevated uncertainty a factor in keeping the Fed from
cutting interest rates?
Mr. Powell. I think that is part of it. The truth is we
were cutting rates, and we paused in January and have not cut
rates since, and really, the reason is that we, like other
forecasters, do expect a fairly substantial wave of price
increases to come through to the consumer and to measured
inflation. We have always said the timing, amount, and
persistence of all that is highly uncertain. I think we had not
expected to see it until now. We now begin to think it is time
for us to be seeing that, and if we do not see it, that will
matter. If we do see it, that will matter, so we have just
taken a cautious approach to not moving our policy rate until
we have a little more confidence about the size and likely
effects of that.
Mr. Torres. Chair Powell, following the so-called
Liberation Day tariffs in early April, we saw something the
U.S. economy had not seen in decades: a flight not to the U.S.
dollar as a safe haven, but away from it. Since President
Trump's inauguration, the U.S. Dollar Index has fallen by
nearly 10 percent, marking the worst first half performance for
the dollar since 1986. At the same time, Japan, America's
largest sovereign creditor, just saw the worst 20-year Japanese
government bond auction since the 1980s, raising fears that it
could reduce its holdings of U.S. Treasuries. Given these
developments, do you believe, as I do, that the U.S. may be
transitioning from a period of dollar dominance to a period of
dollar decline?
Mr. Powell. Well, let me say the Fed does not have
responsibility for the dollar. That is really the Treasury----
Mr. Torres. But I am asking for your analysis.
Mr. Powell. I would not make that statement. Things have
been volatile. The markets are digesting things, and I think
the Treasury market has been fine. By many measures, the dollar
is still highly valued.
Mr. Torres. You feel the safe haven status of the dollar is
as strong as it has ever been?
Mr. Powell. I think the dollar is still the number one safe
haven currency. You know, I would say these narratives of
decline are premature and a bit overdone.
Mr. Torres. I want to ask about the debt. The Big Beautiful
Bill would have ugly consequences for our Nation's finances,
adding more than $2 trillion to the debt if the provisions are
temporary, and far more if made permanent. We have accumulated
World War II levels of debt, not during a world war, but during
peacetime. Interest payments on the debt have become the
largest item in the Federal budget after Social Security,
surpassing Medicaid, Medicare, and military defense. To what
extent is the U.S. at risk of entering a debt spiral, in which
rising interest costs lead to ever larger deficits, which, in
turn, lead to ever larger interest cost?
Mr. Powell. Yes. I think that the U.S. Federal budget is on
an unsustainable path. The debt is not on an unsustainable
level right now, but the path is not sustainable, and I think
the sooner we deal with that, and by we, I mean you, the
better.
Mr. Torres. The Trump Administration has championed the
unitary executive theory, the notion that the President has
absolute power over all entities that wield executive power.
That theory, if taken to an extreme, would all but abolish the
independence of the Federal Reserve. If monetary policy became
nothing more than an expression of Presidential will and whims,
what havoc would that wreak on the U.S. economy?
Mr. Powell. I think that independent central banks have
proven over time to be a valuable and critical institutional
practice, and I think that is because, basically, advanced
economies, democracies around the world have given their
central banks a degree of operational independence. They assign
them goals. You go do this, and you stick to those things. You
know, you may choose the means of achieving those goals. It is
called instrument independence, but not goal independence, and
I think it is a very important----
Mr. Lucas. The gentleman's time has expired.
Mr. Torres. Thank you.
Mr. Powell [continuing]. practice.
Mr. Lucas. The gentleman's time has expired. The chair now
recognizes our last member of the day, the gentleman from
Georgia, Mr. Loudermilk, for 5 minutes.
Mr. Loudermilk. Well, thank you, Mr. Chairman. Chairman
Powell, it is good to see you again, and I am going to be
brief, so maybe we can get out of here right at time.
As some of my colleagues know, I chair the bipartisan
Payments and FinTech Caucus, along with a fellow Georgian on
this committee, Representative David Scott. In the past, you
and I have talked about payment-related issues like FedNow, but
today, I would like to ask you about the failure of Synapse
Financial Technologies, a third-party service provider that
connects banks with non-bank fintechs and what it means for the
bank and the nonbank ecosystem.
Last year, a dispute between Synapse Financial Technologies
and Evolve Bank & Trust revealed a shortfall in customer
savings, deposits of $65 million to $95 million. There are
still thousands of individuals who are not able to access their
funds, including some of my constituents. The question is,
could you provide an update on what the Federal Reserve is
doing to ensure that customers regain access to their funds,
and is there anything that the Federal Reserve is considering
to helping prevent situations such as this going forward?
Mr. Powell. I do not have a lot of specifics for you on
that. I am assured that we are still very much doing everything
we can to try to get people their money back and to avoid
similar occurrences.
Mr. Loudermilk. Okay. Well, I said I was going to be brief,
and that was a brief answer, so with that, I yield back, Mr.
Chair.
Mr. Lucas. The gentleman yields back. The chair would like
to thank Chairman Powell for his testimony today, and without
objection, all members will have 5 legislative days to submit
additional written questions for the witness to the chair.
Questions will be forwarded to the witness for his response,
and, Chair Powell, please respond no later than January 29,
2025.
[The information referred to can be found in the appendix.]
Mr. Lucas. This hearing is adjourned.
Mr. Powell. Thank you.
[Whereupon, at 1 p.m., the committee was adjourned.]
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