[Senate Hearing 119-365]
[From the U.S. Government Publishing Office]
S. Hrg. 119-365
THE SEMIANNUAL MONETARY POLICY REPORT
TO THE CONGRESS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
ON
OVERSIGHT ON THE MONETARY POLICY REPORT TO CONGRESS PURSU-
ANT TO THE FULL EMPLOYMENT AND BALANCED GROWTH ACT OF 1978
__________
FEBRUARY 11, 2025
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
63-444 PDF WASHINGTON : 2026
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM SCOTT, South Carolina, Chairman
ELIZABETH WARREN, Massachusetts, Ranking Member
MIKE CRAPO, Idaho JACK REED, Rhode Island
MIKE ROUNDS, South Dakota MARK R. WARNER, Virginia
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
BILL HAGERTY, Tennessee TINA SMITH, Minnesota
CYNTHIA M. LUMMIS, Wyoming RAPHAEL G. WARNOCK, Georgia
KATIE BOYD BRITT, Alabama ANDY KIM, New Jersey
PETE RICKETTS, Nebraska RUBEN GALLEGO, Arizona
JIM BANKS, Indiana LISA BLUNT ROCHESTER, Delaware
KEVIN CRAMER, North Dakota ANGELA D. ALSOBROOKS, Maryland
BERNIE MORENO, Ohio
DAVID MCCORMICK, Pennsylvania
Lila Nieves-Lee, Staff Director
Jon Donenberg, Minority Staff Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
Sheryl L. Arrington, GPO Detail
Jason T. Parker, GPO Detail
(ii)
C O N T E N T S
----------
TUESDAY, FEBRUARY 11, 2025
Page
Opening statement of Chairman Scott.............................. 1
Prepared statement....................................... 43
Opening statements, comments, or prepared statements of:
Ranking Member Warren........................................ 3
Prepared statement....................................... 44
WITNESS
Jerome H. Powell, Chair, Board of Governors of the Federal
Reserve System................................................. 5
Prepared statement........................................... 45
Responses to written questions of:
Chairman Scott........................................... 47
Senator Warren........................................... 53
Senator Britt............................................ 65
Senator Warner........................................... 66
Senator Smith............................................ 67
Senator Alsobrooks....................................... 68
Additional Material Submitted for the Record
Monetary Policy Report to the Congress dated February 7, 2025.... 71
``Employment Consequences of U.S. Trade Wars'', Paper, Sanjana
Goswami........................................................ 151
(iii)
THE SEMIANNUAL MONETARY POLICY REPORT
TO THE CONGRESS
----------
TUESDAY, FEBRUARY 11, 2025
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m., via
Webex and in room 216, Hart Senate Office Building, Hon. Tim
Scott, Chairman of the Committee, presiding.
Present: Senators Scott, Crapo, Rounds, Kennedy, Hagerty,
Lummis, Britt, Ricketts, Banks, Cramer, Moreno, McCormick,
Warren, Reed, Warner, Van Hollen, Cortez Masto, Smith, Warnock,
Kim, Gallego, Blunt Rochester, and Alsobrooks.
OPENING STATEMENT OF CHAIRMAN TIM SCOTT
Chairman Scott. Good morning. This Committee will come to
order.
And, Chair Powell, thank you for being with us today. I
appreciate your willingness to have a chat with us about some
of the really important issues facing our country.
Without question, the Federal Reserve serves a critical
role in the function of our Government and the global economy.
You have the ability to influence markets and directly
impact the financial future of hundreds of millions of
Americans. That is why the Federal Reserve is supposed to be an
independent institution free from politics. But, in recent
reality, the Fed has been susceptible to political pressure.
Take for example, the Fed's involvement in the Network for
Greening the Financial System, a group dedicated to green
financing and climate change, which the Fed joined in December
2020, as President Biden was about to assume office. Just last
month, the Fed announced that it had pulled out of the
organization as President Trump was getting ready to be sworn
in.
To the American people, this is flip-flopping in the
political wind. Too much focus on climate change instead of
supervision is consequential.
And, in March, just 2 years ago, we saw the failure of
Silicon Valley Bank. SVB marked the third largest bank failure
in U.S. history, and the largest since the 2008 financial
crisis.
And yet, not a single Federal regulator was held to
account. In fact, the FDIC filed a lawsuit against bank
executives, which accused the SVB of egregious mismanagement.
And, I agree.
How is it that no bank supervisor has faced any
consequences with 30 MRAs and MRIAs that never had timely
action at SVB?
How can the people who are supposed to be our cops on the
beat have not faced any recourse for such egregious failures? I
simply don't understand.
We must all address the fact that over the last 4 years,
the Biden administration and Bidenomics have devastated,
decimated, and destroyed hardworking families' abilities to
support themselves.
During Joe Biden's time in office, overall prices rose by
over 20 percent. Energy prices, 34 percent. Transportation
costs, 31 percent. Groceries, 22 percent. And, that's not all.
Thanks to Bidenomics, two-thirds of Americans have less
than $1,000, less than $1,000 in their savings accounts. But,
there is good news. Things are going to get better.
During his first term, President Trump kept his promises to
the American people. In the first 3 years of his presidency,
President Trump built the most inclusive economy ever. Seven
million jobs created, and two-thirds went to women, African-
Americans, and Hispanics.
It's time to once again, make America's economy work for
the folks working paycheck-to-paycheck. Joe Biden broke our
economy, and Donald Trump will fix it.
For too long, bank regulators have followed a black box
regulatory framework with little to no recourse. The FDIC under
President Trump's leadership, recently released, never before
seen, supervisory documents, which confirmed that Biden's
Operation Choke Point 2.0, was real despite assurances that
these unacceptable practices would end following the Democrats'
first Operation Choke Point 1.0.
We are seeing an unfair playing field that results in
disastrous consequences for legal business and law-abiding
citizens. On one hand, if you were in the private sector, and
you did your job poorly, you would face consequences,
reprimands, suspensions, or even being fired.
But, if you were within the walls of the Federal
Government, such as a bank regulator, you will face no
consequences for your actions. Even if you pressure a bank to
cutoff services to digital asset firms, political figures, and
conservative aligned businesses and individuals.
To me, that goes against the principles of fairness and
market access. Over the last 2 years, as the Ranking Member of
this Committee, I have consistently argued that Basel III
Endgame proposals will raise costs and limit credit access for
hardworking Americans.
And, while I'm glad this proposal was not finalized, the
uncertainty surrounding Basal III forced banks to put capital
on the sidelines, limiting access to that capital for local
small businesses across our country.
Now, as Chairman, I plan to work to rectify the issues of
the Biden administration. Chairman Powell, I look forward to
hearing from you on the Federal Reserve's future and the plans
that you have for right-sizing the financial regulatory
framework specifically around Basel III.
To create jobs here in America, we need to make sure there
is capital and liquidity in the market. And, we also want all
Americans, even those growing up in poverty like I did, to know
that they can access the capital necessary to start new
business, grow existing business, buy a home, and pursue their
American dream.
Chairman, I look forward to your comments and your
testimony. I will simply say that I believe that weaponizing an
independent agency like the Fed for liberal positions, from
debanking crypto, bank stress tests, and the green financing
scheme, is not calling balls and strikes as a fair referee.
And, I hope that we are getting ready to clean that slate,
start afresh, and focus on a healthy economy.
Ranking Member Warren.
OPENING STATEMENT OF RANKING MEMBER ELIZABETH WARREN
Senator Warren. Thank you Mr. Chairman. Chair Powell, it is
no secret that you and I disagree on the need for strong bank
regulation, on monetary policy, and on the Fed's stock trading
scandals.
We have sharp differences, but I believe you are a
principled public servant who cares about this country.
We are at an unprecedented moment. Our financial systems
are facing huge risks from the economic chaos of President
Trump and his co-president, Elon Musk.
From on again/off again tariffs, to on again/off again
layoffs for tens of thousands of Government workers, to on
again/off again cuts in domestic grain purchases, to on again/
off again support for medical research.
Now, co-president Musk and his OMB Director have frozen all
work at the Consumer Financial Protection Bureau. There are now
zero cops overseeing the $18 trillion consumer lending market.
Zero cops.
Investigations into illegal foreclosures and auto
repossessions, canceled. Exams of giant credit card issuers to
weed out unlawful junk fees, canceled. Probes of illegal debt
collection practices, canceled. Rules to save people billions
of dollars, canceled.
If Musk and his OMB Director succeed in killing the CFPB,
it's like putting a sign on every checking account, every
credit card, every mortgage application, and every car loan,
cops have been fired, let the scams begin.
That is not all. Musk and his DOGE crew are also rooting
through the Treasury's most important payment systems. The
financial plumbing that ensures that billions of payments go
through, from Social Security checks to grants for community
health centers.
No one has verified how they got this access or what they
are doing with it. No one has checked whether Americans'
financial data has been copied or sold for the personal profit
of Mr. Musk.
Instead, we've had a series of misleading and conflicting
statements by Treasury Secretary Bessent. After receiving
public blowback, it appears that Secretary Bessent is now
trying to throw the Federal Reserve under the bus.
Secretary Bessent claims that DOGE can't meddle with the
Treasury's payment systems, because ultimately the Fed is in
control. Now, I'm not sure whether Secretary Bessent doesn't
understand how the system works, or if he's just trying to
shift the blame to you.
But, I know he is wrong. The Fed simply executes the
transactions that Treasury instructs. If Elon and his hackers,
for example, initiate instructions to choke off payments to
their enemies, or if they issue instructions to shut down
payment for teachers' aides for kids with special needs, the
Fed may have no way of knowing that the instructions were
manipulated, and the Fed may have no legal method to override
them.
Chair Powell, the next 18 months may define your legacy and
the country's trust in the Fed as an institution. I expect that
you will work with Democrats and Republicans in Congress if
DOGE's next move is to try to commandeer the Fed's payment
system.
I'll also expect that you will not join the conspiracy to
shutter the CFPB. Unlike the Treasury payment instructions, you
can see if the CFPB's funding requests have been manipulated.
I understand that some extremists have a different view
about what the law ought to be. But, under the law right now,
impoundment is clearly illegal.
Do not make the Federal Reserve an accomplice to this
illegal act, and forever sully the reputation of the Fed. Keep
the CFPB funded exactly as the law requires.
We are in the middle of a crisis as Elon Musk tries to take
over our Government. But, let's also talk for just a minute
about your day-to-day job, meeting the Fed's dual mandate of
promoting maximum employment and stable prices.
It's now clear that the Fed acted too late and let
inflation get too high, and then responded by keeping rates too
high for too long.
These policies made the big drivers of inflation, like
housing costs, even worse. And they put Americans' jobs at
risk, making it more difficult for them to afford a home, and
for small businesses to be able to finance their operations.
I urge you to move more rapidly to bring down interest
rates, beginning with a meaningful rate cut next month. You
have proven you can move quickly when it is politically
expedient.
After President Trump was elected, and within the space of
just a few weeks, you scrubbed seemingly all mention of
diversity and inclusion from the Fed's website. You withdrew
from an international central bank group that shares
information on climate-related risks to the financial system.
You instituted a hiring freeze that will limit the number
of cops on the Wall Street beat. And, you announced plans to
gut big bank stress tests.
I can see the immediate political appeal of your strategy,
but ultimately, it will fail. You will lose good people.
Climate catastrophes will continue to mount. And the increasing
vulnerability of big banks will threaten our entire economy.
Sure, Donald Trump may be happier with you right now, but,
wading deeper into politics to please him over the long run,
will burn the reputation and the independence of the Fed, and
put our entire economy at risk. I urge you, don't fall into
these traps.
Thank you, Mr. Chairman.
Chairman Scott. Yes, ma'am. Today we'll hear from the Chair
of the Federal Reserve, Jerome Powell, on the semiannual
Monetary Policy Report to Congress.
Chair Powell, thank you for your testimony today. And, you
are now recognized.
OPENING STATEMENT OF JEROME H. POWELL, CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Chairman Scott, Ranking Member Warren, and
other Members of the Committee, I appreciate the opportunity to
present the Federal Reserve's semiannual Monetary Policy
Report.
The Federal Reserve remains squarely focused on achieving
our dual mandate goals of maximum employment and stable prices
for the benefit of the American people. The economy is strong
overall and has made significant progress toward our goals over
the past 2 years. Labor market conditions have cooled from
their formerly overheated state and remain solid. Inflation has
moved much closer to our 2 percent longer-run goal, though it
remains somewhat elevated. We are attentive to the risks on
both sides of our mandate.
I will review the current economic situation before turning
to monetary policy.
Recent indicators suggest that economic activity has
continued to expand at a solid pace. GDP rose 2\1/2\ percent in
2024, bolstered by resilient consumer spending. Investment in
equipment and intangibles appears to have declined in the
fourth quarter, but was solid for the year overall. Following
weakness in the middle of last year, activity in the housing
sector seems to have stabilized.
In the labor market, conditions remain solid and appear to
have stabilized. Payroll job gains averaged 189,000 per month
over the past 4 months. Following earlier increases, the
unemployment rate has been steady now since the middle of last
year, and at 4 percent in January, remains low. Nominal wage
growth has eased over the past year, and the jobs-to-workers
gap has narrowed. Overall, a wide set of indicators suggest
that conditions in the labor market are broadly in balance. 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 over the past 2 years,
but remains somewhat elevated, relative to our 2 percent
longer-term goal. PCE inflation prices, PCE prices rose 2.6
percent over the 12 months ending in December, and excluding
the volatile food and energy categories, core PCE prices rose
2.8 percent.
Longer-term inflation expectations appear to remain well
anchored, as reflected in a broad range of surveys of
households, businesses, and forecasters, as well as measures
from financial markets.
Our monetary policy actions are guided by our dual mandate
to promote maximum employment and stable prices for the
American people.
Since last September, the FOMC lowered the policy rate by a
full percentage point from its peak, after having maintained
the target range for the Federal funds rate at 5.25 to 5.5
percent for 14 months. That recalibration of our policy stance
was appropriate in light of the progress on inflation and the
cooling in the labor market. Meanwhile, we've continued to
reduce our securities holdings.
With our policy stance now significantly less restricted
than it had been, and the economy remaining strong, we do not
need to be in a hurry to adjust our policy stance. We know that
reducing policy restraint too fast, or too much, could hinder
progress on inflation. At the same time, reducing policy
restraint too slowly or too little could unduly weaken economic
activity and employment. In considering the extent and timing
of additional adjustments to the target range for the Federal
funds rate, the FOMC will assess incoming date, evolving
outlook, and the balance of risks.
As the economy evolves, we will adjust our policy stance in
a manner that best promotes our maximum employment and price
stability goals. If the economy remains strong and inflation
does not continue to move sustainably toward 2 percent, we can
maintain policy restraint for longer. If the labor market were
to weaken unexpectedly, or inflation were to fall more quickly
than anticipated, we can ease policy accordingly. We are
attentive to the risks on both sides of our dual mandate and
policy is well positioned to deal with the risks and
uncertainties that we face.
This year, we are conducting the second periodic review of
our monetary policy strategy, tools, and communications, the
framework used to pursue our congressionally assigned goals of
maximum employment and stable prices. The focus of this review
is on the FOMC's Statement on Longer-Run Goals and Monetary
Policy Strategy, which articulates the Committee's approach to
monetary policy, and on the Committee's policy communication
tools. The Committee's 2 percent longer-run inflation goal will
be retained and will not be a focus of the review.
Our review will include outreach and public events
involving a wide range of parties, including ``Fed Listens''
events around the country and a research conference in May. We
will take on board lessons of the past 5 years and adapt our
approach where appropriate to best serve the American people,
to whom we are accountable. We intend to wrap up the review by
late summer.
Let me conclude by emphasizing that at the Fed, we'll do
everything we can to achieve our dual mandate goals that
Congress has set for monetary policy. We remain committed to
supporting maximum employment, bringing inflation sustainably
to our 2 percent goal, and keeping longer-term inflation
expectations well anchored. Our success in delivering on these
goals matters to all Americans. We understand that our actions
affect communities, families, and businesses across the
country. Everything we do is in service to our public mission.
Thank you. I look forward to your questions.
Chairman Scott. Thank you, Chairman Powell. Certainly, your
words and your actions have a global impact. You have the
opportunity and responsibility of leading this country in the
right direction economically.
And, I thank you for your commitment to having a
conversation with all of us about how you do that well. You and
I had a conversation yesterday, some of it was frustrating,
some of it was illuminating.
But, in the end, my goal is to make sure that the American
people, and specifically those working paycheck-to-paycheck,
have more opportunities to succeed, not fewer.
You have said that the Fed is not against innovation, and
banks are perfectly able to serve crypto customers, as long as
they understand and can manage the risks. Yet, you have
admitted that the threshold has been a little higher for banks
engaging in crypto activities.
Last week I held a hearing on debanking, and once again,
heard the Federal banking agencies, in particular, the Fed, use
reputational risk as a tool to encourage that the banking of
certain legal industries and law-abiding citizens for political
reason is not tied to safety and soundness.
Debanking is a top priority for this Committee, and it
certainly is for me, and one that I believe is a bipartisan
issue. Will you commit to working with this Committee to end
debanking, including working with the new Vice Chair of
Supervision, once appointed, to revise the Federal Reserve's
supervision manuals to remove reputational risk as a tool to
weigh in on political topics?
Mr. Powell. I'm happy to make that commitment.
Chairman Scott. Thank you, sir. Accountability is very
important. I would like to think accountability is a priority
for everyone, especially the Fed, given that failures in Fed
supervision can result in the loss of billions of dollars.
Yet, following the failure of the Silicon Valley Bank,
which was in part due to the failures of its regulators to
identify egregious mismanagement of interest rate and liquidity
risks, we have yet to see any regulators be held accountable.
And, as you recall, that was a point of my frustration. As
a guy who spent a lot of time in the private sector, 15 years
running a few businesses, I can tell you that accountability is
a necessary part of making the entire organization healthier
and performing this job as well as possible.
I'm encouraged that the FDIC has begun the process of
holding SVB executives accountable. That's good news. But, no
Fed employee has been fired, put on probation, put on a
performance improvement plan, all of which would be expected in
the private sectors that I just mentioned, for employee
failure.
Please explain to me why Fed employees are held to a
different standard, from my perspective, then everyone else.
And, what are you planning to do to take accountability for Fed
failures in supervision?
Mr. Powell. We've actually done quite a lot, you know, in
response to the events associated with Silicon Valley Bank.
We've done many, many things.
In terms of specific accountability, what we found was,
this was not a case of malfeasance or nonfeasance so much, it
was a case of people were carrying out a specific playbook that
failed to cause us to act in time for these things.
It wasn't actually particularly fair to the employees to
say, you didn't--you violated our practices in some way. That
wasn't really what happened.
What happened was, I would say, a lot of focus on process
and on governance and controls, and not enough focus on basic
bread and butter banking, credit risk, liquidity risk, interest
rate risk, things like that.
So, as we discussed yesterday, we took very substantial
steps to avoid further spread of those issues. And, that was
successful. But, I understand your point on accountability.
Chairman Scott. This is one of the areas where you see the
approaches of looking at safety and soundness, and with the
number of MRAs and MRIAs that weren't really documented, but no
action was taken, that leads me to the conclusion that
individual employees, supervisors should have been held
accountable for that. I'll move on though.
In the past, you have supported tailoring regulations so
that we ensure banks of different sizes thrive and to preserve
our diverse banking system.
Will you commit to working with me as Chairman to make sure
that financial regulations do not impose more burden than is
necessary?
I'll say that this comes after a number of conversations
with community banks and regional banks that have continued to
stress that the cost of the regulatory framework around them
isn't just harsh, it's oppressive. Larger banks suggest that
the cost per employee for the regulatory framework is $10,000
per employee.
I think we can do better and would love to hear your
thoughts on that.
Mr. Powell. All right. First of all, I will commit to
working with you on that. We do try to avoid excessive burden.
Look, I think it's fair to take a fresh look on, frankly on
debanking. I think we all see, both in your hearing and in the
one on the House side, we hear a lot of people talking about
that.
And, you know, it's time to take a fresh look, I think. We
don't intentionally do these things. But, sometimes regulation
leads things to happen, and we need to be working on that.
Chairman Scott. I appreciate that. And, I'll turn it over
to the Ranking Member. I'll say this, that after having a
number of conversations with CEOs of banks around the country,
one of the things that was made clear to me, was a specific
statement from these CEOs is that the regulatory, OCC and other
regulatory agencies said specifically to debank certain
industries.
And, that is the point that I'm making, and one that I
think we have to solve. If it's legal in America to do
business, we should do our part to make sure that they are
banked.
Senator Warren. Thank you, Mr. Chairman. So, over the
weekend, co-president Musk and Acting Director Vought
effectively shut down CFPB. No more cop on the beat looking out
for a family of four in South Carolina facing an illegal
foreclosure.
No more cop on the beat looking out for your grandma, whose
bank account has just been taken over by a scammer. No more cop
on the beat looking out for people getting ripped off by giant
credit card companies that are charging illegal junk fees.
It also means that the CFPB is no longer doing one of its
most important jobs, examining big banks to root out illegal
conduct before it happens, or at least stop it before more
people get hurt.
Chair Powell, if the CFPB isn't on the job right now, then
who is administering JPMorgan or Wells Fargo's consumer
compliance exams to ensure that they are following the law?
Mr. Powell. Senator, I believe that, and you would know,
that Dodd-Frank moved all authority for examinations in the
consumer space to the CFPB. However, we still have some
jurisdiction over that.
Senator Warren. We'll talk about that in a second. But, the
answer to my question, please. If the CFPB is not there
examining these giant banks to make sure they are following the
laws on not cheating consumers, who is doing that job?
Mr. Powell. I can say no other Federal regulator.
Senator Warren. No one, in other words. So, thanks to co-
president Musk and CFPB Acting Director Vought, Wall Street
banks no longer have to show the bank examiners that they're
not illegally opening accounts people didn't ask for, like
happened with Wells Fargo, or charging illegal junk fees, like
the Bank of America did.
But, CFPB has jurisdiction only on banks that have more
than $10 billion in assets. So, what's happening in thousands
of community banks all around the country, those that have less
than $10 billion in assets?
So, Chair Powell, as you know, the Fed oversees consumer
compliance for State member banks that have less than $10
billion in assets. Has the Fed suspended consumer compliance
exams for those smaller banks, or is the Fed still on the job
to make sure that those smaller banks are following consumer
financial laws?
Mr. Powell. We're still on the job, business as usual.
Senator Warren. All right. By forcing the CFPB not to do
its job, President Trump, Elon Musk, and the author of Project
2025, Russ Vought, are giving Wall Street banks an unlimited
get out of jail free card so they can cheat working families,
even while community banks continue to play by the rules.
You know, for any Americans who have money deposited at
JPMorgan, or Wells Fargo, or any other of the giant banks, they
should now know that there is no one on the job to make sure
that those banks are not scamming you. Only the smaller banks
now have a cop on the beat to make sure that they aren't
cheating consumers.
You know, if I had my money in one of those giant banks, I
might think about going to a smaller bank where the protection,
at least right now, is a whole lot better.
Now, at the same time that the CFPB is under attack, the
Fed is buckling to pressure from Wall Street to erase other
safeguards for the too big to fail banks. During the first
Trump administration, under your leadership, the Fed weakened
the big bank stress tests, including by giving the big banks
some of the answers to the test in advance.
I called you out on it. But, you promised right here in
this Committee that you would not give those banks the whole
answer key.
I'm going to quote you back. You said, complete knowledge
of the models could lead to a model monoculture, in which all
firms have similar internal stress testing models, which could
increase the correlation of risk in the system, and miss key
idiosyncratic risks faced by the firms. I agreed with you.
But, several weeks ago, the Fed announced that it has plans
to do exactly that, hand all of the answers over to the giant
banks.
Chair Powell, why is the Fed about to propose a rule that
directly contradicts your own testimony, and in your own words,
would render the stress tests toothless?
Mr. Powell. Senator, in essence, because the ground has
shifted very substantially in administrative law, and we
actually want the stress tests to remain resilient to that.
And, so, we're making changes to accomplish that.
Senator Warren. Well, the changes are changes you've
identified earlier as making those tests toothless. Look, the
big banks are going to juice shareholder payouts and leave this
economy more vulnerable to a crash.
The Fed is knuckling under to bank lobbyists. We know how
this ends. People will suffer. Wall Street will get bailed out.
I urge you, Chair Powell, to serve Main Street instead of Wall
Street. Don't weaken these rules.
Chairman Scott. Thank you. Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman. And Mr. Chairman,
thank you for coming before the Committee. I appreciate the
opportunity to visit with you.
I have got a series of questions, but I would like to give
you an opportunity if you would like. The suggestion that the
Ranking Member has made here is that the big banks can now scam
individuals right now. Any change in the laws regarding how
they are supposed to be treating the individual consumers out
there or anything along that line?
Mr. Powell. Law changes? No, I am not aware of any law
changes.
Senator Rounds. Any changes in any rules that they would
have to follow?
Mr. Powell. Not that I am aware of.
Senator Rounds. Are they still audited and do they still
have the regulators in watching all of their businesses just as
they did before?
Mr. Powell. They would have all of the regulators except
for the CFPB. If in fact, in the hypothetical the CFPB weren't
carrying that out.
Senator Rounds. Anything else you would like to add before
we move on?
Mr. Powell. No, I am good. Thank you.
Senator Rounds. Thank you, Mr. Chairman. As we continue to
prioritize the stability and the resilience of our financial
system, the ongoing Basel III rulemaking process has remained
front and center in shaping our regulatory framework. I guess I
was rather outspoken with my opposition to the original
proposal and further work was stalled at the end of the last
year.
I guess my question for you today, sir, is could you
provide an update on the Federal Reserve's progress in
finalizing the Basel III Endgame rulemaking process?
Mr. Powell. I would be glad to. So we remain committed to
completing Basel III Endgame. We think it is good for U.S.
banks. It is good for our economy that there be a global
standard beneath which foreign banks can't fall. That was one
of the big ideas behind the whole Basel committee approach.
So where it sits now is we await leadership arriving at the
OCC and the FDIC and that seems to be happening. And when that
happens we are going to sit down with them and work our way
through to a Basel III Endgame proposal. And I think we can do
this reasonably quickly. One that is compliant, and consistent
with the Basel requirements, and also consistent with what
other large jurisdictions are doing. I am optimistic that we
can do that fairly quickly, and we are committed to doing that.
Senator Rounds. We always wanted our banks to be
competitive with European banks. And I am just curious, the
original proposal that was in front of you, and I would like
your thoughts on this, it was estimated to increase our bank's
capital by 19 percent, which I think may very well have created
a potential disadvantage within the U.S. institutions versus
our European counterparts.
With any new proposal, what are your thoughts? Would you
make a commitment that this would be a neutral approach with
regard to capital?
Mr. Powell. The main commitment I will make is we will work
together with new leadership at the other banking agencies to
do something. But that is certainly--you know, I have said many
times in this Committee that I think that the level of capital
in the largest banks is about right. And so it will shake out
somewhere in that area, I would guess.
Senator Rounds. The expectation would be--and the markets
would expect that it would be neutral with regard to capital.
Mr. Powell. In that range, but I want to defer to our new
colleagues and get their views as well. But that is a good
starting place.
Senator Rounds. OK. Thank you. The Federal Reserve's
partnership with the U.S. Treasury plays a central role in
supporting our nation's payment infrastructure, which processes
a vast range of daily transactions from Federal benefit
disbursements to debt obligations. Could you outline the
Federal Reserve's role in supporting and managing the
Treasury's payment systems, including how the Fed works to keep
these systems secure, efficient, and capable of handling the
Government's high volume of daily transactions?
Mr. Powell. So it is a complicated set of arrangements. And
I will try to summarize quickly. Effectively, Congress
authorized spending and then the agencies carry out those
spending orders. And the way they do that, is they send an
order to pay a payee, a recipient, to the Treasury Department.
Upstream before it gets to the Fed, all of these decisions
are made about is this an appropriate order, is this payee on
the Don't Pay List, and all those things. Once all of that is
set, it comes to the Fed, and by that, I mean four or so of the
Reserve Banks. And we actually make the payment. We take the
money out of the Treasury General Account, and we make the
payment.
We make no judgments whatsoever. Those are all made
upstream from us. And we are, in fact, the fiscal agent of the
Treasury.
Senator Rounds. Confirm for me today, is the system safe
today?
Mr. Powell. I believe it is. And I will tell you, we are
very strongly committed to the integrity, efficacy, resilience,
and all of those things of this system. And, you know, people
do depend on this in a big way. And we are committed to that.
Senator Rounds. One last question for you, sir. The failure
of Silicon Valley Bank, and the chairman brought this up. I am
just curious, recognizing a lot of banks out there looked at
this. It cost the other banks in the system a lot of money to
pick up the costs involved in the losses. Nobody has been
fired. But you did indicate that it was a failure in the
playbook. Has the playbook been revised or can we expect that
it will be revised?
Mr. Powell. In a lot of ways, it's been revised, yes. I can
go into some details. I mean, we are--one thing that didn't
happen was--for example, we didn't--the supervisors didn't
follow through aggressively enough on things that they had
said. If they had done that, that could well have been enough
to stop it.
But a lot of it was just not focusing enough directly on
what was a very large amount of interest rate risk, a large
portfolio of long-term securities matched up with an unstable
funding base. And somehow people wrote about that, not the Fed,
but others wrote publicly about this. But somehow we don't
expect bank runs outside of a crisis in this country. And that
is what this was. It was a bank run. And bank runs are
incredibly damaging. I think everyone learned a lot from that
and is determined to do better.
Senator Rounds. Thank you, Mr. Chairman. I think this is
one that I think, as you appropriately pointed out, I think
this is an area where a lot more questions are out there yet.
And I think if it is the playbook that was the problem, I think
perhaps a discussion about how that playbook has been revised
would be appropriate in the future.
Thank you, Mr. Chairman.
Chairman Scott. Thank you. Senator Cortez Masto.
Senator Cortez Masto. Chairman Powell, thank you. And thank
you always for the conversations in between these hearings as
well.
Let me focus on a couple of things of concern. And you
touched on a little bit of this. And I think this is important
to clarify. There was a change in the law when the CFPB was
created. The CFPB examines the banks and enforces the law
whereas the Fed only supervises those banks. Is that correct?
Or how would you determine that relationship?
Mr. Powell. With the CFPB? So Dodd-Frank took a lot of the
consumer compliance jurisdiction away from the other banking
agencies and gave it to a newly created agency, the CFPB. We
retained a residual amount of that as we just discussed, which
is banks under $10 billion in assets. But the CFPB essentially
took all of that when Dodd-Frank came into being.
Senator Cortez Masto. So as it was created, when you two
were working together, the Federal Reserve collaborated with
the Consumer Bureau when supervising those large banks,
correct?
Mr. Powell. Yes. We still retain supervision over all of
the holding companies and also of Fed member banks.
Senator Cortez Masto. And let me ask you this, then. Does
the Federal Reserve enforce consumer protection laws now for
things like money transmitters?
Mr. Powell. Not for money----
Senator Cortez Masto. That would be the Consumer
Protection----
Mr. Powell. The Fed member banks, yes.
Senator Cortez Masto. ----that would be CFPB?
Mr. Powell. Yes, yes. That is right.
Senator Cortez Masto. So when we are talking about
collaborating with the CFPB for financial technology firms,
what would the Fed Reserve now do that if the CFPB--if the
hypothetical is the CFPB no longer exists, what would be the
Fed's role right now with respect to technology firms?
Mr. Powell. We don't have jurisdiction over--we have
jurisdiction over banks and some financial market utilities.
Senator Cortez Masto. That is it. So let me ask you this
because I know there are a number of Nevadans who file consumer
reports of concerns about fraud and predators with the CFPB.
The Fed Reserve doesn't receive those reports, correct?
Mr. Powell. No, I don't believe so.
Senator Cortez Masto. And you have no role when it comes to
consumer protection like the CFPB does, correct?
Mr. Powell. Unless you are a Fed member bank that has $10
billion or less in assets, then we have jurisdiction----
Senator Cortez Masto. Right
Mr. Powell. ----on a consumer.
Senator Cortez Masto. So there is a gap. If the
hypothetical is true and what we are hearing that the CFPB is
being shut down, there is a gap what we are hearing in
enforcement out there, and particularly when it comes to
consumer protection. Would you say that is true?
Mr. Powell. Yes. For all banks that we don't----
Senator Cortez Masto. Yeah.
Mr. Powell. ----supervise.
Senator Cortez Masto. And I think that is the concern we
are all having right now is this concern of when we are looking
to streamline Government, and listen I will be the first to
tell you there is a lot of bloat. We need to streamline it. We
need to address regulations and overreach. But there is a
strategic way to do it and not this burn down the house that is
going to harm people across the country, including in my State,
those Nevadans that are looking for some sort of enforcement
around consumer protection laws. So that is what you are
hearing from many of us on our side of the aisle here.
Mr. Powell. Can I just very briefly add that we do have
some residual enforcement authorities, but what we don't have
is examination authority for the banks that the CFPB
supervises.
Senator Cortez Masto. Thank you. And let me ask you this.
You know, we talked about this over the phone, and I understand
it may be difficult to answer this. But the Federal Reserve
board members have been clear that future interest rate cuts
are unlikely to happen despite the strong economy.
But there are folks in my State that are waiting to buy a
home. And we know that is still an issue. The high prices right
now for home affordability, you add the interest rates to it,
it is a problem.
So do you think it is most likely that interest rates will
remain above 6 percent for this year or can you even address
that?
Mr. Powell. You know, overall the economy is strong,
growing 2\1/2\ percent last year. The labor market is also very
solid, unemployment at 4 percent, quite a low level. Inflation
in the last year was 2.6 percent for the year. So we are in a
pretty good place with this economy.
We want to make more progress on inflation. And we think
our policy rate is in a good place, and we don't see any reason
to be in a hurry to reduce it further.
As it relates to housing, so there is a--it is true that
mortgage rates remain high. But that's not so directly related
to the Fed's rate. It is really related more to long-term bond
rates, particularly the Treasury, the 10-year Treasury or 3-
year Treasury for example. And those are high for reasons not
particularly closely related to Fed policy. They may remain
high.
I think, you know, once we lower rates and kind of rates
return to a lower level, mortgage rates will come down. I don't
know when that will happen. And even when it does happen, we
are still going to have a housing shortage in many places.
Senator Cortez Masto. Thank you. Chairman Powell, thank you
again for being here.
Chairman Scott. Thank you, ma'am. Next will be Senator
Kennedy.
Senator Kennedy. Thank you, Mr. Chairman. Thank you, Mr.
Chairman, for being here. My friend, our Ranking Member, said
that you were knuckling under to the big bank lobbyists. Is
that true?
Mr. Powell. No.
Senator Kennedy. It seems to me that the big picture should
not go unnoticed. Do you recall a year or two ago when
inflation was raging? I guess the peak was 9 percent. Many
economists and other experts based in part on history said that
you were going to have to provoke high unemployment and put our
country into a recession in order to get inflation down. Do you
recall that?
Mr. Powell. Very, very well.
Senator Kennedy. Are we in a recession?
Mr. Powell. We are not.
Senator Kennedy. Would you, as an American, trade places
right now with Germany in terms of the economy?
Mr. Powell. No, I sure wouldn't.
Senator Kennedy. How about China?
Mr. Powell. No, I wouldn't trade places.
Senator Kennedy. How about France?
Mr. Powell. No thanks.
Senator Kennedy. Things aren't perfect. Inflation is
obviously still sticky, and loan rates are too high, which I
want to talk about in a second. But the fact is, knock on wood,
we have experienced a soft landing, haven't we?
Mr. Powell. Not for me to say, really. I let others take
that----
Senator Kennedy. Have we experienced a hard landing?
Mr. Powell. No, we sure haven't.
Senator Kennedy. Are we in a recession?
Mr. Powell. No, we're not.
Senator Kennedy. I call that a soft landing. And it seems
to me that you and some of the ladies and gentlemen who are
your colleagues at the Federal Reserve behind you deserve some
credit for that.
Mr. Powell. Thank you.
Senator Kennedy. I don't know why you don't take the
credit. Everybody else from Washington, DC, does. Again, I am
not saying things are perfect, but I never imagined that our
landing could be this soft, albeit, not perfect. And I wanted
to thank you and your colleagues for that effort. You sure
didn't get any help from Congress and our President on the
fiscal side. I don't expect you to comment on that. You and the
Federal Reserve can, to a large extent, control short rates,
can't you----
Mr. Powell. Yes.
Senator Kennedy. ----through the Open Market Committee? You
can't control long rates though, can you?
Mr. Powell. No, we can't.
Senator Kennedy. Why is that?
Mr. Powell. So a lot of things go into long rates. And one
of them is the expected future short rate of Fed policy, but
many, many other things go in. Expectations of inflation in the
longer run, the sort of risks around the economy and around the
budget deficit go into something called the term premium, which
is the part we can't explain when we do these decompositions.
And so, you know, it is set by supply and demand in the bond
market at the long end. And we are not particularly--we have
some influence but mostly not.
Senator Kennedy. Many Americans are looking at short rates
and looking at the Fed's behavior and how you reduced
inflation, but they don't see the long rates going down. And
obviously, that affects mortgage rates. And I would encourage
you and your colleagues to spend some time explaining to the
American people why that is.
Final question, if you went home tonight and Mayor Powell,
your spouse, said I got a call today from our bank, and they
are debanking us. They are worried about their reputational
risk because they don't like our politics. Would you think that
fair?
Mr. Powell. No, I sure wouldn't. And as I mentioned
earlier, I too am troubled by the quantity of these reports and
really want to understand better why this is happening.
You know, one theory is that banks are just very risk
averse around BSA and money laundering and that is because we
are so tough on them and that they just--any red flag is
enough. But, you know, it may be that this whole thing with
reputational risk needs to be thought about.
It is actually coming out of our one manual that we use. We
are taking that concept out, the manual that we have been using
for account access, for master accounts, we are just going to
take that out.
But I think this needs a fresh look, and I think it is time
for that. And we are going to do that.
Senator Kennedy. I have asked our chairman, and he has
agreed to invite some of the CEOs of some of the banks that
have been debanking people. The CEOs, not their lawyers, not
their PR consultants.
Chairman Scott. Not their lobbyists.
Senator Kennedy. Not their priests, them, the CEOs to come
in and let's talk about this and find out what the hell has
been going on.
Chairman Scott. Thank you, Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman.
Chairman Scott. Senator Reed is next.
Senator Reed. Thank you, Chairman Scott. Chairman Powell,
welcome. Thank you very much.
I think your monetary policy combined with the Biden fiscal
policy over the last 4 years has made a tremendous difference.
We have avoided a recession.
I would like to remind people how far we have come. In
2020, the gross domestic product decreased 2.2 percent. The
unemployment rate finished the year at 6.7 percent. By 2024,
gross domestic product grew 2.5 percent. The unemployment rate
was 4.1 percent. Labor force participation rate went up from 61
percent to 62.5 percent. And that is a combination of your work
together with the fiscal policy of the Biden administration. So
I thank you for that.
One of the issues before us today is the issue of tariffs.
In July 2018 testimony you stated, Mr. Chairman, countries that
have remained open to trade, that have not erected barriers,
including tariffs, have grown faster and higher incomes. Do you
still believe that?
Mr. Powell. Yes, I do. I would stand by that.
Senator Reed. So President Trump's tariffs on China,
Canada, and Mexico will obviously raise costs on families. In
fact some economists, many economists, project about $1,200 per
year households will be the average, an increase of inflation
by nearly 1 percent, economic growth depression, for example,
the increase to the average car price by $2,700. Is that a wise
policy?
Mr. Powell. So I guess I ought to say this. I think the
standard case for free trade and all of that logically still
makes sense. It didn't work that well when we had one very
large country that doesn't really play by the rules.
And in any case, it is not the Fed's job to make or comment
on tariff policy. We, you know, really--that is for elected
people, and it is not for us to comment. Ours is to try to
react to it in a thoughtful, sensible way, and make monetary
policies so that we can achieve our mandate.
Senator Reed. Just this weekend, the President removed the
board of the Kennedy Center and made himself chairman. What
would you do if the President tried to remove a member of the
Federal Reserve Board?
Mr. Powell. It is pretty clearly not allowed under the law.
Senator Reed. Thank you. We have communicated back and
forth about synthetic risk transfer as a potential danger to
the banking system. And could you give us some insights on how
we can improve financial stability by regulating these
transactions more appropriately?
Mr. Powell. What we have been doing for some time now is
looking at them on a case-by-case basis. And if they really do
transfer risk successfully, then that is OK. I mean, you know,
it is a good thing if a bank wants to transfer risk off its
balance sheet in a way that itgets compensated for and all of
that.
But what you want to make sure is that the risk is really
transferred. And that was the problem during the global
financial crisis was sort of things that appeared to but did
not accomplish a transfer of risk. So we see this coming, and
we have been looking at these transactions on an ongoing basis.
Senator Reed. Well, I commend you for that. In fact, what
happens typically is the transaction becomes complicated by
synthetic risk transfers as it was the case with synthetic
derivatives. So thank you for your attention to that.
We have talked about housing. That is as critical as ever
across the country. We are in a housing shortage. First of all,
housing is difficult. Two of the mainstays of our housing
market, Fannie Mae and Freddie Mac, helping to support home
ownership. Does the Federal guarantee backing Fannie and
Freddie help make mortgage rates more affordable and home
ownership more accessible, Mr. Chairman?
Mr. Powell. I imagine it does hold down mortgage rates, the
fact that they are a sovereign risk.
Senator Reed. And how important is the 30-year mortgage to
ensure that families can afford a home?
Mr. Powell. In our housing market, the 30-year mortgage is
very important.
Senator Reed. And I have heard some discussions about
eliminating Fannie Mae and Freddie Mac, which would be
detrimental, I presume, to the housing market.
Mr. Powell. That is really a question for you. You know,
putting housing finance back in the private sector has some
appeal over the longer run. But I leave that with you.
Senator Reed. Thank you, Mr. Chairman, very much. I
appreciate it.
Chairman Scott. Thank you. Senator Ricketts.
Senator Ricketts. Well, thank you, Mr. Chairman and Ranking
Member, for holding this important hearing. And thank you,
Chairman Powell, for being here today to talk about our economy
and all the things that are going on.
I want to address again something that the Ranking Member
started talking off about, which was characterizing the CFPB
being the cop on the beat here. But I can tell you as having
been a Governor and having a Department of Banking that
reported to me, that if any consumer would contact us and make
a complaint about a bank, even a big bank like JPMorgan, we
would investigate, as could the OCC, the FDIC, the FTC.
So to characterize that nobody is out there looking for
consumers, I think, is inaccurate, and we ought not to try and
scare consumers right now that somehow this is the case because
if you do have an issue if you are a consumer, please reach out
to your State Department of Banking because those folks are
going to look out for you. I can tell you that because I used
to have one of those Departments of Banking. And they did a
fantastic job of looking out for the consumers.
One of the things that has also impacted consumers is
inflation. Prices under the Biden inflation were up 20 percent.
An average household is paying $13,000 more today than they
were for the same standard of living they had before Joe Biden
got elected.
We see that grocery prices, for example, are up 22 percent.
Rent is up 23 percent. Simply put, Nebraskans are economically
worse off today than they were 4 years ago, and I expect that
is part of the reason why we saw this change in the
Administration. They thought that that was not something that
they wanted to continue to pursue. They didn't want the same
policies being followed.
We have to end the reckless Federal spending, rein in
inflation, and, you know, be responsible about how we make
decisions to be able to grow the economy.
One of those areas that I am concerned about is the
expansion of the Fed's balance sheet. The Fed's balance sheet
before--at the end of 2019, so before the pandemic, was about
$4.1 trillion. By May of 2020, the Fed expanded that to $7
trillion. And by 2022, the Fed's balance sheet hit an all-time
record of $8.9 trillion. Inflation peaked at 9.1 percent that
year, a high we had not seen since 1981.
Now I am encouraged by the actions the Fed has taken with
quantitative tightening to shrink the balance sheet down to
$6.85 trillion. But $6.85 trillion is still too high.
And one of my concerns, Mr. Chairman, is that is kind of
one of your tools to be able to guard against a downturn in the
economy or some sort of shock. You obviously used it during the
pandemic.
Looking ahead long term, will the Fed Reserve continue this
course of unwinding the balance sheet?
Mr. Powell. Yes. So what we said is that we intend to slow
and then stop the decline when reserve balances are somewhat
above the level that we judge consistent with so-called ample
reserves. The most recent data and the feel of the markets is
definitely that reserves are still abundant. They are about the
level they were at when the runoff started because that runoff
has really happened out of the overnight repo facility, reverse
repo.
So, yes, it is an ongoing thing, and we are not yet where
we are headed.
Senator Ricketts. So what kind of pace can we expect? And I
know that obviously there is going to be a lot of factors, like
what happens to the economy over the course of next year. But
if things were to go along the way they are today--you have
already said the economy is doing well. Inflation is a little
higher than we want it to be at 2.6 percent, but unemployment
is at 4 percent. If these commissions--and I think you used the
word stable quite a bit--if these conditions were to remain
stable throughout the course of the year, would you have a
range that you could give us where the balance sheet might be
if we were talking against here in January 2026?
Mr. Powell. Basically, we are going to be looking at
reserve conditions, conditions in reserve markets, and trying
to stop a little bit above what we consider ample. And we think
we are, you know, meaningful above that now. We can't put a
number on it because you can't directly know the demand for
reserves other than by observing behavior in the market and
then putting a little bit of a buffer on it.
So I can't give you an exact number, but for now it is
ongoing. And we have a ways to go.
Senator Ricketts. What kind of conditions would have to
happen for you to start going back to quantitative easing?
Mr. Powell. To quantitative easing? So, you know, that is a
tool we tend to use when we are at the effective lower bound,
and we can't cut interest rates anymore. So nothing like what
you are seeing in the current day. It is a different test for
stopping quantitative tightening. But we would use QE going
forward only in a situation when rates are at zero. And, you
know, we are a long way from zero now.
Senator Ricketts. So you think that if, again, just
generally speaking then if things were to remain stable, you
will continue to unwind the balance sheet. You will continue
the quantitative tightening. You can't give me a range on this.
Is that what I hear you say?
Mr. Powell. That is right.
Senator Ricketts. OK. Great. Well, I encourage you to keep
doing that because, you know, I think that is important to be
able to make sure that you have got powder for the next issue
that we may face. So thank you very much, and I appreciate you
being here.
Mr. Powell. Sure.
Chairman Scott. Senator Warner.
Senator Warner. Thank you, Mr. Chairman. Chairman Powell,
good to see you. One of the things we have talked about in the
past, and I have got two or three issues I am going to get
through fairly quickly, is that while our regulatory framework
should always promote financial innovation, that innovation
can't come at the expense of things like anti-money laundering,
consumer protection, financial stability.
I continue to worry in many of these hearings where we keep
seeing this regulatory creep outside the boundaries of
traditional financial regulation.
I think if we were starting a system from scratch, few of
us would design it this way. But it is one of the reasons why I
am looking forward to working with Chair Scott and Senator
Lummis on a framework at looking at stablecoins in particular
within the regulatory perimeter. I know my friend Bill Hagerty
just introduced a bill in this area. I am looking at trying to
make sure we get those guardrails put in place and how it
touches the Fed is something that is terribly important to me.
I know you and I have talked in the past about the notional
idea of same activity, same regulation in the non-banked
sector. If you would like to wax briefly on this question
around stablecoins on how we think about them in the sense of a
single point of if they are similar to other activities, should
they not have the same regulatory structure?
Mr. Powell. So we definitely support these efforts to
create a regulatory framework around stablecoins. Stablecoins
may have a big future with consumers and businesses. We can't
know that now, but it is important for the development of
stablecoins, you know, in a safe and sound manner and a manner
that protects consumers and savers and all that there be a
regulatory framework.
So, you know, we see these bills, and we are in contact, as
we were in the last Congress, in trying to add our technical
thoughts in how to do this. And we think it is a very
constructive exercise.
Senator Warner. Well, we do think, you know, you have a lot
of expertise in this session. And there are people that are--
people come with lots of opinions on everything in crypto from
over the top to the other end of the spectrum. And I am going
to need to rely on your expertise as well as we try to work
through some framework for stablecoins.
I know there were a lot of earlier questions on CFPB. You
know, I think the record is pretty darn good. It has returned
$20 billion to consumers. As a matter of fact, the last time we
had the previous chair here, Mr. Chopra, we were talking about
$55 million to Virginians.
I do have to mention, this is more for my colleagues, we
did a--Tim Kaine and I did a tele-town hall last night. Lots of
things happening in Virginia. Normally we would get maybe
3,000, 5,000, 6,000 folks on a tele-town hall. We had 60,000
last night. I had not seen anything like that in my time up
here on the Hill. And a huge amount of concern about what the
DOGE boys are doing, whether our information is safe, whether
privacy is protected.
I had one lady say, in light of what was happening at CFPB
and while there is not a direct connection, she is saying is
our deposits at our banks safe? We tried to give her assurance,
but I said, you know what, ma'am? I am going to be talking to
the chairman of the Federal Reserve tomorrow. And with this
diminution or shuttering at least for the time being of the
CFPB, can I tell--I believe her name was Mary--can I tell Mary
from Virginia that her bank account is safe?
Mr. Powell. I think bank accounts overall across the
economy are safe, yes. We have still got deposit insurance at
the FDIC. And the banking system is well capitalized and safe.
Senator Warner. Well, again, I think the concern that was
being raised was the diminution of consumer protections lent
her concerns about whether that dollar being safe.
The last thing I want to recognize is that there have been
reports in the media about the thinness in the treasury
markets, the number of additional bonding that we are going to
have to do, particularly with so many of these unpaid tax cuts.
As a matter of fact, one of the things that was really
striking to me was that yesterday the President mentioned how
he was ``examining treasury debt payments for possible fraud''
and suggested that our debt might not be as high as possible.
We all understand the full faith and credit of the United
States is based upon our reputation. If this President were to
suddenly say, I am wiping off X amount of debt because I don't
believe we owe it, what kind of effect would that have on both
stability of the dollar and the overstability of our economy?
Mr. Powell. It will probably not surprise you that I will
defer to you on that question.
Senator Warner. Do you think it would--from a Fed
standpoint, if the President of the United States starts to say
we are not going to pay our treasury debt, you are going to
have no view at all?
Mr. Powell. I am not going to comment on things that the
President says.
Senator Warner. I would like to see us at some point see us
get a stronger answer on that because I think that in light of
the President's willingness to shut down agencies willy nilly,
his ability to potentially curtail payment of debt, I think,
would have devastating consequences on our economy. Thank you,
Mr. Chairman.
Chairman Scott. Senator Britt.
Senator Britt. Thank you, Mr. Chairman. Obviously, there
has been a lot of conversation both in and out of this hearing
room today, conversations about a co-president, referencing
Elon Musk, referencing the work that DOGE is doing. I think it
is important to remember that President Trump ran on this. I
mean, he said we are going to look for wasteful spending across
our Government. We are $36 trillion in debt. That is not only
fiscally irresponsible. It is actually morally irresponsible.
And the difference in this Administration than the last
Administration is that President Trump is actually the final
arbiter. And it is interesting that none of you had anything to
say over the last 4 years when it is clear that our commander
in chief was not in command.
And if we are going to use the term co-president, then let
us go back and say co-president Jake Sullivan, co-president Ron
Klain, co-president Jill Biden. I mean, it seems that some of
the biggest decisions were made during the President's
afternoon naptime. And so I just think we need to be a little
more honest about what has been laid out and what is actually
occurring.
Chair Powell, I do--I want to discuss some monetary policy
issues, but I first want to highlight a few supervisory items.
We unfortunately started 2023 with several bank failures in
which the Fed itself admits its supervisors were ``too slow to
ask.'' The question has been asked earlier about who was fired,
who was not. I think that there is some real merit to having
accountability that we have not seen there.
In the aftermath of those failures, the Fed was certainly
not slow to act when it came to new regulations. Like the new
capital requirements that would have had, it would have put the
U.S. banks at a global disadvantage and actually hurt consumers
in my State.
The way I look at this, is the world came up with a gold
standard. And then Vice Chair Barr said hold my beer. And
unfortunately that hurts Alabamians. In addition to that, we
had Community Reinvestment Act and stress testing frameworks
that were basically adopted in secret or, as we discussed last
week, the reputational risk and just the arbitrary nature of
that and those standards that were used to push political
agendas. None of this is acceptable. And we have got to take a
look at how to promote greater accountability and transparency
into the Fed's supervisory function.
Shifting gears, as of January 30, the Federal Reserve had a
mark to market loss on its balance sheet of roughly $221
billion. In fact, I looked back, and the Fed has posted losses
since September of 2022. Meanwhile, we have seen transfers to
the CFPB totaling $2 billion since September of 2022.
So just to clarify, Chair Powell, these money transfers are
requested by the CFP director, CFPB director, each quarter and
then directly deposited by the Fed. Is that how that works?
Mr. Powell. So the director of the CFPB requests money. And
we, under the law, we send that money, yes.
Senator Britt. So, yeah, in fact--but Dodd-Frank actually
prohibits the Fed from actually reviewing or amending those
requests?
Mr. Powell. That is correct.
Senator Britt. And so it gives full discretion to the CFPB
then?
Mr. Powell. Up to, I think, 12 percent of our--there is a
ceiling on that, but that is correct.
Senator Britt. So just to level set, how many times, you
know, has the CFPB funding request been denied by the Fed?
Mr. Powell. We don't have the authority to deny it under
the law.
Senator Britt. Zero, right?
Mr. Powell. Zero, yeah.
Senator Britt. Yeah, that is what I thought. And by the
way, I would like to applaud the current Administration Acting
Director Vought for inserting some accountability back into the
agency by pausing these quarterly blank checks.
On that, I know there has been a lot of conversation around
the Bureau over the last few days. But I do want to focus on
those last couple of years, particularly the $2 billion the
CFPB received from September 2022 up to the last receipt on
January 2, 2025.
Congress specified in statute that the Fed shall fund the
CFPB through the combined earnings of the Federal Reserve
system. However, as I mentioned, the Fed has no current
earnings. It has a balance sheet of negative $200 billion.
So instead of the recent audit statement saying the Fed is
funding the CFPB through assessments on its reserve banks--Mr.
Chair, there are only two statutes that authorize the Fed to
make reserve bank assessments and neither permit the CFPB to
fund transfers.
So what authority exactly did the Federal Reserve have to
assess the reserve banks in this manner over the last 2 years?
I just wanted kind of a fact finding.
Mr. Powell. Yeah. You know, we looked at that question very
carefully. And it is very clear on the law in the legislative
history that we are still required to make those payments, and
we will continue to do so.
Senator Britt. I appreciate it. Thank you.
Chairman Scott. Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman. I would point
out that Candidate Trump did not run on implementing Project
2025. In fact, when he was asked on the campaign trail about
Project 2025, he said I don't know anything about that. Who are
those people? And yet he early on and quickly installed a key
architect of Project 2025, Russ Vought, as the head of Office
of Management and Budget, which we know is the command and
control center for the budget overseeing all Federal agencies.
And that is what Elon Musk is doing now. He is implementing
Project 2025, the same Project 2025 that Candidate Trump said
he knew nothing about. And he said that because he knew it was
unpopular. He knew it would be unpopular to take the financial
cop off the beat.
And I want to start by talking about what is happening over
at CFPB, the Consumer Financial Protection Bureau, because that
is the cop on the beat to go after fraudsters and scammers who
cheat Americans out of their hard earned money.
And they have returned billions of dollars to our
constituents, to the consumers who have been victims of these
scams. And in doing so, they have earned some powerful enemies
who want to shut them down.
And Elon Musk is doing that dirty work on behalf of those
fraudsters. And there is something especially twisted about the
richest man in the world shutting down an agency that helps
victims of scammers and fraudsters recover just a little bit of
their hard earned money.
And I find it especially interesting that the new self-
declared head of the CFPB, Russell Vought, told employees not
to come into the office and essentially to stop work.
Here is what he wrote, and I'm quoting, ``Employees should
not come in to the office'' and ``stand down from performing
any work tasks.''
So this is an interesting situation. Federal employees
continue to get paid, but the Trump administration tells them
to stop doing their work. That apparently is what the Trump
administration thinks is a good deal for the American taxpayer,
to pay employees to not to do their job.
So, Mr. Chairman, I have a simple question for you. Is that
a practice that you pursue at the Fed to pay your employees but
tell them not to come to work. Have you done that?
Mr. Powell. No.
Senator Van Hollen. That wouldn't be very efficient, would
it?
Mr. Powell. No.
Senator Van Hollen. No, it wouldn't. And yet that is what
the so-called DOGE boys, efficiency boys, are doing. In
addition to that, they are rummaging through the private, very
personal sensitive information of Americans at the Department
of Treasury.
So it seems to me that the Trump administration and Elon
Musk are focused on everything except what Donald Trump said he
was going to focus on during the campaign, which was to bring
prices down.
And when you look at the price of eggs these days, I notice
that Waffle House just instituted a new 50 cent per egg
surcharge due to the nationwide rise in the cost of eggs. They
said that is going to be a new surcharge. And other restaurants
are following suit. You have seen that, right, Mr. Chairman?
Mr. Powell. Yes.
Senator Van Hollen. And at the same time, the Trump
administration has restricted Federal agencies from providing
the public with information about the bird flu, avian flu,
which is part of the cost of egg increases.
So what we are really facing here is an Administration that
campaigned on bringing down prices and is not doing that, did
not campaign on Project 2025, and that is what they are doing.
But when it comes to prices, Mr. Chairman, the President is
also talking about significant increases in tariffs. Our
Republican colleagues are also talking about passing a tax bill
that gives weight disproportionately to the super wealthy and
which will add trillions to the deficit by their own account.
They are talking about playing around with the baseline.
So my question to you is simple. All things being equal, do
big increases in tariffs and increasing the deficit in debt put
upward pressure on inflation? Isn't that simple math?
Mr. Powell. You know, it really does remain to be seen what
tariff policies will be implemented. And I just think it would
be unwise to speculate when we really don't know. We see
proposals, but it is so hard to say what is going to happen.
Senator Van Hollen. Well, last time the Trump
administration was in office, the Fed took actions because they
were concerned about the impact of an increase in tariffs.
Isn't that the case?
Mr. Powell. We wound up cutting rates in 2000 and--I guess
it was '19. But it really was because growth slowed and
confidence was weak, and the global economy was weakening. So
the net effect of all of--that is what we look at. You know, it
is really not just tariffs. It is tariffs, immigration, fiscal
policy, and regulatory policy. And those will all go into a
mix. And we will try to make sense of it and do what is right
for monetary policy.
Senator Van Hollen. Well, if you could just get back to me
on the question of increasing the deficit by trillions of
dollars and what impact you believe that has on inflation and
prices. Thank you, Mr. Chairman.
Mr. Powell. Yes, sir.
Chairman Scott. Senator Lummis.
Senator Lummis. Thank you, Mr. Chairman, and thanks,
Chairman Powell, for being with us today.
I think you are aware of what direction my questions will
take. They will be focused on the bank's supervision function
of the Fed.
I might point out that when you and I were toddlers, 1956,
the chairman of the Fed at the time, William McChesney Martin
said that the Federal Reserve Board is an agency of the
Congress. Ben Bernanke said something similar in 2013 when he
told Janet Yellen that, ``Congress is our boss.'' Do you agree
with that statement?
Mr. Powell. Yes. The way I always say it is that our
supervision, our accountability runs through the legislative
branch not through the executive branch, as it does in many
other forms of Government.
Senator Lummis. Thank you for that because I wouldn't have
guessed that that was going to be your response. The way that
the Fed has behaved for the last 4 years in its relationship
with the U.S. Congress is to thumb its nose at Congress. Your
staff has repeatedly stymied information requests from this
Committee, notably made by myself, the Chairman, the Ranking
Member, Senator Tillis, former Senator Pat Toomey and others.
In my experience, the Fed is a black hole. It consumes
information, but it never releases it.
Your fellow Governors have personally misled me on at least
two occasions with respect to Wyoming and digital assets. And
in recent Federal court filings, former Senator Pat Toomey has
accused your staff of lying to him while providing technical
assistance on legislation that passed in the National Defense
Authorization Act in 2022.
Now I have behind me a statement by the Fed's general
counsel, one of the staff that is sitting behind you today, who
said, ``The Fed generally resists legislative prescriptions.''
Now to me that is thumbing his nose at Congress, the very
people that you and I just agreed you are responsible to, and
the people depend on.
So this is why the American people think there is a deep
State. This is why they think there are faceless bureaucrats
making policy to hurt the very people of this country. Just
look at the mess the Fed made of Silicon Valley Bank. And I
contend that there is a lack of understanding that is
deliberate on the part of the Fed with respect to digital asset
policy.
So the Constitution says Congress is your boss, but somehow
your staff have not gotten that message. So Chairman Powell, do
you commit on behalf of yourself and the Federal Reserve staff
to comply fully with all document demands issued by this
Committee in a timely manner?
Mr. Powell. Sure.
Senator Lummis. Will you instruct your staff to be complete
in their responses and not to obstruct the oversight functions
of this Committee?
Mr. Powell. We always work with the Committee to be
responsive to your requests. Sometimes they are beyond our
capacity to respond to, and we work with Committee and
Committee staff to do that. But we are always responsive to
Committee requests.
Senator Lummis. And I will look forward to engaging with
you when you feel that our requests are outside of the scope of
the oversight that we have over the Fed.
Do you commit to disciplining or removing any staff that
are found to have engaged in debanking activity, furthering
Operation Choke Point 2.0 or other misconduct?
Mr. Powell. I can't make an open-ended commitment to remove
anybody. But I will tell you that I am struck, and my
colleagues and I are struck, by the growing number of cases of
what appears to be debanking. And we are determined to take a
fresh look at that.
In fact, I took--the thing that you showed during the
debanking hearing, when I saw that, we are now taking that out
of the manual. So I thank you for that.
Senator Lummis. Thank you, Mr. Chairman. My time is up.
Chairman Scott. Senator Smith.
Senator Smith. Thank you, Mr. Chair and Ranking Member. And
thank you, Chair Powell, for being with us today. I appreciate
your presence here.
I would like to start with the issue of the rising cost of
home ownership, something that I know is of great interest to
many of my colleagues on this Committee. I know, Mr. Chair,
that you care a lot about home ownership and making home
ownership accessible and available to folks, my colleague,
Senator Lummis, as well, many of the folks on my side of the
aisle as well.
And so I think this is something that we can agree on, that
the rising cost of home ownership is a big challenge for our
constituents, for Americans. And one of the big pressures--
there are many--but one of the big pressures is the rising cost
of home insurance.
In Minnesota, families, seniors, are struggling to manage a
nearly 40 percent increase in home insurance rates. We have
seen this over the last 7 years or so. And I know, Chair
Powell, that you have told this Committee in the past that that
rising cost of buying insurance for your home has been a source
of inflation as we have been trying to manage inflation.
Now I don't know anyone who doesn't see this crisis of
rising insurance rates as being caused by extreme weather
events. We are seeing massive flooding in southeastern United
States. We have seen flooding in Minnesota. We have seen fires
in the Mountain West and California. These are climate-related
events. That is not a political position. That is just a fact.
So, you know, we have got banks that, of course, require
understandably that a homeowner provide insurance as a
predicate for getting a mortgage. So there is a big question
about what is going to happen when insurance becomes
unaffordable or in some parts of the country just literally not
available and what impact that would have on the mortgage
markets and on the value of American homes.
Just last week, a new analysis from First Street showed
that overall the value of U.S. real estate could be reduced by
$1.4 trillion, colleagues, over the next 30 years due to
unaccounted for climate risk. That is the cost, the risk, of
not being able to afford home insurance because of these
extreme weather events.
And the prospect of trillions of dollars of property
becoming uninsurable is clearly a recipe, it seems to me, for
market instability, both in the rental as well as the mortgage
market.
So my question, Chair Powell, is given these trends, how do
you think the Fed, and how do you think we should be thinking
about the challenges that these events are going to pose to
insurance markets and to the overall financial stability of the
economy?
I am asking you to comment specifically on climate change
because I understand my colleagues on the other side of the
aisle see that as a political question. It is more like what
you see as the risk to the financial stability here.
Mr. Powell. So, let me quickly note that we don't regulate
or supervise insurance companies for the most part. But we are
seeing the same thing, which is both banks and insurance
companies are pulling out of areas, coastal areas and things
like that, or areas where there are lot of fires.
So what that is going to mean is that, you know, if you
fast forward 10 or 15 years, there are going to be regions of
the country where you can't get a mortgage. There won't be
ATMs. You know, the banks won't have branches and things like
that. That is a possibility coming up down the road.
It is not that the banks will stay there and keep making
loans in the face of evidence of disaster or that insurance
companies will write policies. They can cancel those policies
every year.
Senator Smith. Right.
Mr. Powell. So I think the risk is that they just won't be
there. And that people won't be able to get them. That is
really the issue.
Senator Smith. So it seems to me that that would be a
massive source of instability in our economy overall if you
were to see that kind of dramatic decline in home ownership,
you know, home values not to mention the disruption that would
occur if people literally couldn't be in their homes anymore.
Mr. Powell. I think it is going to fall--if that happens,
it will fall on homeowners and residents.
Senator Smith. Right.
Mr. Powell. But it will also fall on State and local
governments, you know, which is what you see happening where
they are stepping in in States where insurance is going away,
private insurance. You are seeing States step in because they
want those areas to remain prosperous. So I don't know that it
is a financial stability issue, but it certainly will have
significant economic consequences.
Senator Smith. Well, certainly to try to figure out how to
provide reinsurance, as an example, in the places where
commercial insurance isn't available, would be a massive impact
on State budgets, if to follow your chain of thinking.
And I know in this Committee, I have heard some of my
colleagues on both sides of the aisle talk about the challenges
overall with flood insurance, just as an example, and the
massive expense that that would have for us as well.
I raise this, colleagues, because I think this is an
important issue that we need to be paying attention to. I do
think that it has a fundamental impact on the overall health of
our economy as we look, not even down the road, but where we
are right now.
So I am out of time. I thank you, Chair Powell. I have a
question. You and I have talked quite frequently about my deep
and keen interest in the Community Reinvestment Act. And I will
follow up with a question on that for the record.
Mr. Powell. Thank you.
Chairman Scott. Thank you, Senator Smith. Senator Hagerty.
Senator Hagerty. Thank you, Chairman Scott. Chairman
Powell, it is good to see you here today. Welcome.
I want to start by talking to you a bit about markets and
inflation. Less than 6 months ago you expressed some serious
concerns about labor market weakness and the risk of persistent
inflation. But since then, the FOMC has begun its easing cycle
and cut its target rate by 100 basis points as you mentioned in
your opening remarks.
Now at the January meeting, the FOMC has telegraphed that
it felt both the labor market and inflation have reached a
point where you are comfortable maintaining its target range.
And my question is this.
The recent market data, including last week's strong jobs
report, indicate that the economy is on firm ground. Indeed
swaths of markets have begun to price in fewer and fewer cuts
this year. And I just wanted to talk broadly about these market
conditions that you see. Do you see evidence of a higher
neutral rate emerging at this point?
Mr. Powell. Yes. I mean, let me say there was a lot of
reason to be concerned about downside risk in the labor market
toward the middle of last year. But really that concern has
diminished significantly. The labor market is very strong.
I think the evidence is--my own view, and there are many
different views on this, but is that the neutral rate will have
risen meaningfully, very hard to be precise about it, from what
it was. It was clearly very, very low before the pandemic,
extraordinarily--historically so. But, yes, I think it has
moved up. And many of my colleagues on the FOMC feel that way
too.
Senator Hagerty. It seems that way. I would like to turn
now what seems to be a very popular topic right at this point,
and that is the CFPB.
In your response to Senator Britt's question earlier, you
confirmed that when the CFPB submits quarterly funding
requests, the Fed is not in a position to exercise any
discretion over what the funds are used for. Is that correct?
Mr. Powell. As long as it is compliant with the law.
Senator Hagerty. It just strikes me that the Fed is not in
a position to hold the CFPB accountable for what it does or how
it spends its money? Congress hasn't been allowed to hold the
CFPB accountable for what it does or how it spends its money.
It looks like no one has been able to hold the CFPB accountable
at all.
And now I hear, you know, complaints coming from every
corner, particularly from the other side, complaints about the
excessive delegation of authority to a Republican CFPB director
when this entity was intentionally created to be wholly
unresponsive to elected officials. So I just find that quite
rich.
Before we close, I would like to come to a point on climate
and particularly the Fed's forays into climate activism that
have taken place over these past 4 years and the reason for
entrenchment that we have seen.
It is one thing for the Fed to disassociate from its past
climate activism in a press release. But to credibly claim that
it has divorced itself from partisan climate policies, the Fed
needs to do more than just issue statements, it needs to
actually end its climate policies.
The Fed's independence from politics is a headline topic at
the moment, of course. And while much attention has been given
to potential external pressures on the Fed, I think it is also
critical that we scrutinize how the Fed's own regulation and
supervision might be utilized to in some way politicize the
institution.
So when the Central Bank strays from its mandate by
embracing partisan climate policies, the Fed embroils itself in
controversial political debates and invites legitimate
political scrutiny.
So I just want to urge the Fed to refocus entirely on its
core statutory mandates. I know it is a commitment that you and
I share, Mr. Chairman.
Thank you for being here with us today.
Mr. Powell. Thank you.
Chairman Scott. Thank you. Senator Warnock.
Senator Warnock. Thank you very much, Chairman Scott.
And welcome again, Chairman Powell.
I want to echo the words of Ranking Member Warren and so
many of my colleagues today on DOGE and Project 2025's illegal
attack on the Consumer Financial Protection Bureau. Certainly,
the Bureau was not created to be dismantled. And since its
inception the CFPB has been the only Federal agency solely
dedicated to protecting Americans' wallets and pocketbooks from
scammers and predatory companies in financial services.
The CFPB reduced costs for Americans, returning more than
$21 billion to Americans who have been cheated since its
inception. I want us to focus on that, as folks are talking
about chasing after waste and fraud and abuse. The CFPB has
returned more than $21 billion to Americans. Make no mistake,
this attack on the CFPB will increase costs for Americans and
it will give the green light to fraudsters and predatory actors
seeking to cheat hardworking Americans.
And so, Chairman Powell, thousands of Georgians of all
political stripes have written into my office, and they are
alarmed by an unelected billionaire and his hacksters'
dangerous attempts to access Americans' private data and the
Treasury Department's systems that control $6 trillion in
annual payments to millions of American citizens, including
Social Security, Medicare, and tax refunds.
Quickly, yes or no, has Elon Musk or members of his team,
to your knowledge, attempted to access the Fed's protected data
and systems? Yes or no, to your knowledge?
Mr. Powell. I don't believe so.
Senator Warnock. To your knowledge?
Mr. Powell. I don't believe so.
Senator Warnock. OK. So, will you commit to report to this
Committee, majority and minority, immediately, should you
become aware of any such attempt by Elon Musk or DOGE to pierce
the Fed's independence or to access its protected systems?
Mr. Powell. Yes.
Senator Warnock. Thank you for that commitment.
The Fed's latest Monetary Policy Report states that the
tight labor market has allowed employment and earnings gaps
between Black and Hispanic Americans and White Americans to
narrow. I was glad to see that many of the longstanding
disparities in employment and wages by sex, race, ethnicity,
and education have narrowed under the Biden administration.
Some gaps have reached historic lows. Specifically, the
employment gap for Black workers and White workers is near its
lowest point in almost 50 years. That is the economy that the
Trump administration is inheriting, a historic low in almost 50
years.
Chair Powell, as you work to promote maximum employment,
what steps will the Fed take to ensure that these equity gains
are permanent?
Mr. Powell. So, the best thing we can do is to--it's both
of our mandates, really. Because, as you well know, high
inflation hits people at the low end of the income spectrum
first and most. And, in addition to that, we know that the
benefits of a strong labor market, over time, can be really
visible and important in those communities as well.
So, we pursue our mandate. We keep our heads down. And it
works out that that is the single best thing we can do to
foster, you know, closing those gaps.
Senator Warnock. You pursue your mandate. You want to make
sure that it's working. Would you agree that we still need good
equity data to continue to narrow and close those gaps by race
and gender?
Mr. Powell. I do think, you know, we're always going to be
in favor of good data at the Fed. And, actually, we do have
quite a bit of that data on our website.
Senator Warnock. But if we don't have equity data, it would
be difficult to know, right?
Mr. Powell. Yes.
Senator Warnock. I'm glad to hear you still believe in the
value of good equity data for economic policymaking. It's
better to fly with the data than to fly blind. I'm not sure
what's so controversial about the data.
And while I was disappointed to hear that the Federal
Reserve, which is independent from the White House, had
scrubbed a diversity and inclusion section from its website
after President Trump's executive order, while also scrubbing
data on the racial, ethnic, and gender makeup of its economists
and researchers, I hope you will continue to ensure that the
public has good data on how our economy is working, or not
working, for historically marginalized Americans. I also hope
you will reconsider your decisions around the whitewashing of
the Fed's website.
Chair Powell, as we think about the value of protecting
data on the Black/White wealth gap or employment gap, I think
it's important to understand what policymakers can learn from
this data. Historically, from what you've seen in the data,
historically, what types of economic events have caused the
Black/White wealth gap or employment gap to widen?
Mr. Powell. Well, high inflation, downturns. You see,
generally--just take the Black unemployment rate. It generally
moves at twice the speed of the White unemployment rate. So,
when it goes up, it goes up faster, and when it comes down, it
comes down faster. But, at the end of the day, there's always
been a gap, and we want to run a strong labor market and, you
know, we target overall labor market conditions for maximum
employment. But one of the benefits of that is that that gap
comes down.
Senator Warnock. Thank you so much. We all know that fully
deregulating our financial regulators like the CFPB, firing
bank examiners at the FDIC, or weakening the Fed's supervisory
capacity makes an economic shock or recession more likely. We
know that this disproportionately impacts Black and Hispanic
workers, and there are real consequences to weakening and
eliminating financial regulations that keep us safe. Working
people are the ones, especially, who suffer.
So, thank you so much, and I look forward to continuing to
work with you to close these gaps.
Chairman Scott. Senator Banks is next.
Senator Banks. Thank you, Mr. Chairman.
Chair Powell, thank you for presenting your report to the
Committee today and for coming to meet with me last week in my
office, as well.
The Federal Reserve has enormous power over Americans'
ability to work and earn a living, and the Fed's interest rate
decisions have an especially big impact on industries, like
manufacturing, which depend on big investments.
Chair Powell, the Fed's data on manufacturing is still
holding up nationally, but it doesn't look very good in the
Chicago region, which includes most of my State in Indiana. The
``Beige Book'' says manufacturing jobs are declining and fewer
people are buying manufactured products. It also says that
steel demand is at a low level, auto production has slowed, and
machinery orders are down.
What does that say about the rest of the country? When
manufacturing in the heartland slows, does that signal trouble
for industries in other parts of the country as well?
Mr. Powell. It can. It doesn't always, but it certainly
can. We watch the manufacturing sector. It's very important.
Manufacturing jobs tend to be high-productivity jobs. They're
very important in our economy. But I would say, over the last
couple of years, manufacturing was pretty weak during years in
which we had high GDP overall. Manufacturing is a smaller
proportion of the economy than it used to be, but it's still
extremely important.
Senator Banks. Senator Reed asked you why free trade
doesn't work when one of the giant players doesn't abide by the
rules. The China shock is proof of that. The Fed has a mandate
to maximize employment. How do you account for the whole
industry that is repeatedly suffocated by unfair competition?
Mr. Powell. We don't do trade policy. We're not responsible
for it. We don't comment on those who do do trade policy. So,
we don't really have a role in focusing specifically on that.
That really is left to those who have responsibility over
trade.
Senator Banks. Do you agree that a healthy manufacturing
economy is important to a healthy overall U.S. economy, though?
Mr. Powell. I do.
Senator Banks. I hope you had an opportunity to read Robert
Lighthizer's February 6th essay in The New York Times. He
explains why a big trade imbalance between any two countries is
harmful to citizens in both of those countries. How does the
Fed take the trade deficit into account in your decision making
at all?
Mr. Powell. Again, we really don't. You know, we're aware
of it, but it's not something that directly affects our mandate
goals.
Senator Banks. So, not at all?
Mr. Powell. No. I did read his book, by the way. I didn't
read that editorial.
Senator Banks. Fair enough. It is a good book, as well.
I want to get into tariffs. It's no secret that most
conventional economists hate tariffs. But I want to note that
Indiana gained manufacturing jobs during President Trump's
first term with the 2018-2019 tariffs. Even though the
economists' conventional wisdom is that tariffs will reduce
jobs, do you commit to following the data and not prejudge any
outcome?
Mr. Powell. Very much so, as we did in 2018-19.
Senator Banks. Finally, my staff reviewed the research
paper on tariffs in preparation for this hearing. And I want to
point out one of them, called ``The Employment Consequences of
U.S. Trade Wars''. Mr. Chairman, I would like to enter this
paper for the record.
Chairman Scott. Without objection.
Senator Banks. It found that the timing of tariffs are very
important. It found that China's retaliation to President
Trump's tariffs did hurt U.S. jobs, but if the U.S. had imposed
tariffs on China much earlier, in the '90s and early 2000s, it
would have almost completely eliminated job losses due to the
China shock.
And I know what you said before, but will you and your
staff please take a look at this paper?
Mr. Powell. We certainly will. I imagine we already have.
But I'd love to see it.
Senator Banks. Appreciate that. Home ownership is an
essential part of the American dream, but families are
struggling to afford homes. In just 5 years, the price of a
typical home in Indiana has gone up more than 60 percent. More
than three-quarters of American families can't afford an
average home in their neighborhood.
How do the Fed decisions about monetary policy affect the
ability of regular families to buy a home?
Mr. Powell. So, most of what will have driven that increase
will be about--some of it is about local regulation, as you I'm
sure know. It's also about just wages going up and cost of
materials and things like that going up. And land costs and all
that are going up a lot.
The channel through which we affect housing is, of course,
interest rates. And, right now, interest rates are still pretty
high, but, actually, mortgage rates are really not set at the
Fed. Those really key off of longer-run things.
Nonetheless, we're clearly having an effect on the housing
market, and that will unwind as we normalize policy. But we're
still going to be faced with high insurance costs and high
material costs and labor shortages, and all the things that
keep driving housing prices up across the country.
Senator Banks. Thank you. My time has expired.
Chairman Scott. Next will be Senator Gallego.
Senator Gallego. Thank you, Mr. Chair.
Mr. Powell, just kind of running along that vein of
thought, the housing costs are one of the top concerns of my
constituents in Arizona. From 2010 to 2022, rents in Arizona
increased by 72 percent. And I wish wages had increased to
match, but they did not. And the average 30-year fixed mortgage
rate has been above 6 percent for nearly 30 months.
With very few rate cuts anticipated in the near future,
potential cost increases from tariffs or imported construction
materials, as well as the demand that we're going to see in
terms of rebuilding from California, and labor shortages, what
do you think needs to happen to make housing more affordable in
Arizona and the United States in general?
Mr. Powell. You know, housing policy and things to help
housing supply are really in your wheelhouse, not ours. I do
think, you know, the housing markets around the country are
still suffering from the effects, the after-effects of the
pandemic. Once that's all the way through and short-term rates
are down to normal, whatever the new normal level is, I think
housing costs are still going to be high. I think it's still
going to be expensive to build housing in many parts of the
country, where, lots of the urban areas, the obvious places to
build housing has happened.
So, I think it's a long-term--there's a short-term problem
which will go away in coming years, but there's a longer-term
problem with housing availability. And that's going to be
something that is not--that's not within our authorities or
power to affect.
Senator Gallego. You know, one of the things that I've seen
in Arizona, it's because we have people that are locked into
mortgages at 2.9, 2.8 percent, and in order for them to move to
the new house, they're going to have to, essentially, go and
try to get, quote-unquote, a bigger house, but the mortgage
payments are going to be through the roof.
And while I know the Fed doesn't set the mortgage rate, at
the same time, one of the biggest drivers, obviously, of
inflation, especially in places like Arizona, is housing cost.
And then one of the biggest decisions, essentially, you make on
whether or not to move rates is inflation, which is driven by
housing cost. So, we're in this kind of perpetual vicious
circle in Arizona when it comes to interest rates.
So, I don't know what the answer to that is, but I just at
least want for there to be some understanding on that. Because
the reason we're not breaking out of this cycle is because the
problem kinds of feeds itself over and over and over again.
Mr. Powell. Yes, that's exactly what's going on. But it's
not obvious, though, that lower rates would lead to lower
housing inflation, because, of course, that would increase
housing demand. It would unlock people's low mortgages, but
that creates both a buyer and a seller. So it's not clear that
that would be something that would drive down housing
inflation.
Senator Gallego. Well, my supposition, especially in places
like Arizona, which is really growing fast, is that by
increasing supply with lower rates, you end up, essentially,
having more of a competitive market. So, people will start
moving, and, essentially, bring down the overall cost.
But, moving on, I've also heard from businesses in Arizona
that are concerned about the threat of economic stability in
tariffs that are imposed on our key U.S. trade partners. How
should we expect prices to move for basic items like tomatoes,
peppers, cars, and the like, if we place a 25 percent tariff on
Mexico next month, as the President has threatened?
Mr. Powell. So, as you know, we don't do tariff policy and
we don't do commentary on tariff policy. I mean, just
generally, somebody's got to pay the tariff and it could be the
exporter, it can be the importer, it can be a middleman, and it
can be a consumer.
Senator Gallego. Somebody pays for it, though.
Mr. Powell. Somebody does, but in some cases it doesn't
reach the consumer much; in some cases it does. And it really
does depend on facts that we haven't seen yet.
Senator Gallego. But that also contributes to some of the
calculations on inflation overall?
Mr. Powell. It can, but, you know----
Senator Gallego. It's hard to predict----
Mr. Powell. But, also, there's a question of how persistent
that would be and how large it would be.
Senator Gallego. And, of course, I understand you're not
here to specifically comment on trade policy, but, overall, is
it your opinion--let's just say a base opinion--that high
tariffs can lead to higher costs, which would then end up being
seen in terms of your inflation calculation that helps you set
the rates?
Mr. Powell. That's a possible outcome, which will depend
very much on specific facts about what's being tariffed, for
how long, et cetera.
Senator Gallego. OK. Thank you. I yield back.
Chairman Scott. Senator McCormick.
Senator McCormick. Thank you, Chairman Scott.
And, Chairman Powell, good to see you again.
In the past 5 years alone, the national debt has exploded.
Federal spending and the debt have increased by more than 50
percent. Debt held by the public, our true debt obligation, has
more than tripled during the past 15 years, reaching more than
$28 trillion. All told, U.S. national debt is now over 120
percent of our GDP. And runaway spending contributed to a
regressive tax on all Americans, a tax known as inflation.
In the past 5 years, the cost of living has skyrocketed for
working-class Pennsylvanians, especially, as you and I
discussed when we visited, those relying on fixed incomes. And,
unfortunately, that compounding effect of inflation has not
been offset by a commensurate rise in wages for many
Pennsylvanians. I've heard from countless Pennsylvanians who
had to count their dollars at the gas pump, cancel family
trips, even tighten their belts at the dinner table because of
inflation.
So, while we discuss these heady issues, let's not lose
sight of the very real human cost of the decisions made by
people sitting in this room. And, given that cost, I would like
to ask you about the national debt and the cost of financing
it. We now spend more to service the debt annually than we do
on national defense.
So, how concerned are you about the accelerating pace of
Government borrowing and the borrowing cost, which will affect
families in the form of higher mortgage rates?
Mr. Powell. You know, we don't comment on fiscal policy,
other than to say that, as my predecessors have said, the U.S.
Federal budget is on an unsustainable path. It's not that the
level of spending or the level of the debt itself is
unsustainable. It's that the path is unsustainable, and,
ultimately, the level of the debt will be.
So, there's no time like the present to start working on
this. The longer we wait, the more painful it will be. It's
something we need to do and will have to do in the long run,
and the short run is better than the long run for that.
Senator McCormick. And just as a practical matter, how do
you factor that into your policy thinking and decisions?
Mr. Powell. We don't. You know, we're here to achieve
maximum employment and price stability and it's really up to
Congress to deal with fiscal issues, and we leave that to you.
Senator McCormick. This is a more practical question, I
think, which falls clearly in your bailiwick. Because of that
national debt, it's caused the supply of U.S. Treasuries needed
to finance the debt to skyrocket, and that's at the same time
the Fed is shrinking its holdings of Treasury through
quantitative tightening.
So, the question is--or could you at least give us some
insight into the impact that this is having on the Treasury
market, as investors must absorb that supply? And, in
particular, I'm interested in how the biggest holders of U.S.
Treasuries, how their behavior is changing as debt increases.
Mr. Powell. So, this is a real Treasury question, but I
think, from our standpoint, I can say that there are lots of
buyers for Treasuries, but Treasury buyers are going to be
factoring in their assessments of the supply that's coming. And
that may be part of the reason why the term premium has
increased, as you know, over the course of this year. Although,
you know, the rates have been going up and down lately. They're
kind of almost back to where they were before the election.
Senator McCormick. I know the Fed has been moving forward
with comprehensive changes to the stress testing--the stress
test process. Could you discuss how you're thinking about
reducing the volatility of the results and increasing
transparency on the stress test?
Mr. Powell. So, on transparency, we're going to release the
models, you know, clean them up and publish the models, put
them out for comment. And in terms of volatility--and, by the
way, we're also going to release the stress test scenarios
before we implement them.
In terms of volatility, what we said we would do is average
the changes--you know, the problem is the stress capital buffer
can be moving up and down just because of volatility in the
results, and it seemed like a good idea to smooth that out by
averaging over a couple of years.
We're putting all this out for comment, though, and, you
know, ultimately, we'll reflect those comments in the final
decisions we make.
Senator McCormick. Thank you. I'll yield back my time.
Senator Cramer [presiding]. Thank you, Senator McCormick.
Senator Blunt Rochester.
Senator Blunt Rochester. Thank you, Chair and Ranking
Member.
And thank you, Chairman Powell. It's good to see you. And
thank you for meeting with me last week. We discussed
everything from jobs and housing supply to the real impact on
Fed policies on all of our lives. And I also got a chance to
share with you just the concerns and consternation of
Delawareans who, for the past few weeks, have been frightened
by firings and funding freezes, and just the real impact on
people's financial and personal data and information when, you
know, DOGE has access to this information.
I'm hearing from my constituents, as well, about the
potential shuttering of the Consumer Financial Protection
Bureau. As Senator Warnock mentioned, CFPB has returned over
$21 billion to millions of consumers, and that's a real impact.
But I want to also highlight that it was your leadership in
the Fed, working with Congress and the Biden administration, to
really help answer that question that you were asked about: if
you had the choice to switch countries with France and Germany
and others, that you said, no, you would rather be here.
And that success is a testament to all of us. We came
together during a really tough economic time at the end of
this--during a pandemic, and it limited the recession and job
losses. And, since COVID, we've seen a robust job growth, but
we also have grappled with inflation that drove prices up for
so many goods.
And I've worked to address one part of this phenomenon: our
supply chain disruptions. In fact, I recently joined Senators
Cantwell and Blackburn to reintroduce the bipartisan Promoting
Resilient Supply Chains Act to address supply chain
vulnerabilities.
And while we see indications that inflation may be slowing,
too many of our constituents are still facing high prices and
economic uncertainty. We need to do everything that we can to
address this anxiety and the realities that Americans are
facing. And there seems to be a disconnect. While the economy
is doing well here, on the ground people aren't really feeling
that.
So, Mr. Powell, can you talk about, from your perspective,
just what is driving this disconnect between traditional
economic indicators, such as GDP growth and the stock market
performance, and the tangible benefits for families?
Mr. Powell. I'd be glad to. So, it is clear that the
overall aggregate numbers are just very, very good for the
economy: you know, 4 percent unemployment, inflation down to
2.6 percent last year, and the economy growing well in excess
of 2 percent. These are good numbers.
But what people are feeling is the results of several years
of inflation, and, particularly, for people in the low- and
moderate-income category, they're really feeling it. And if you
look at the earnings releases and press conferences that they
do, that companies like the Dollar Stores and things like that
do, who deal a lot with low- and moderate-income people,
they're all telling you that those consumers are feeling really
strapped.
So, we do understand that and we try to keep that in mind.
Even though we acknowledge that the overall data are good, we
see what people are feeling, and, you know, that's inflation.
So, it's just another reminder how much people hate inflation
and how bad inflation is for people, high inflation. And, you
know, it just furthers our resolve to get inflation back to 2
percent and keep it there.
Senator Blunt Rochester. Thank you. One of the big areas
that I focus on, you've heard many of us across the aisle talk
about the housing crisis that we have in this country. And I
know a few others have asked questions previous to me about
this, but I would love to follow up afterwards with,
specifically, what you think are the short-term and long-term
things that we can do to really address the housing supply and
affordability crisis.
I have legislation that looks at things like reducing
regulatory barriers, zoning reform, these things that we know
we can, in partnership with local governments, make a
significant difference. And so, if I could, I would love again
to follow up with you--even cutting red tape, those kinds of
things that we can do long-term and short-term.
But I did want to mention one last thing in the 20 seconds
that I have. The ``Fed Listens'' things that you do, activities
that you do, could you talk a little bit about that as well?
Because working people, a lot of times, people don't feel that
they have a place in these kind of conversations. But can you
talk about what the Fed does with ``Fed Listens''?
Mr. Powell. So, briefly, we did this as part of our review
5 years ago, and we do it on an ongoing basis now. And the idea
is that we break out from the usual people that we talk to,
which is a pretty diverse group, and try to deal directly with
people who are experiencing the economy and our policies.
And it's been--it's quite eye-opening to listen to people
talk about it. We had one person at the Chicago conference 5
years ago who said, ``The expansion,'' which was then 9 years
old, ``is just reaching my community.'' And he talked for some
minutes about how companies were going into prisons and finding
people who weren't going to get out for a year or two and
training them, stuff like that. You could hear a pin drop. It
was very telling stuff. So, I think we learn from all that. And
so we'll keep doing it.
Senator Blunt Rochester. Well, I will end by saying there
is a famous quote--I think it's Martin Luther King--``We may
have come over on different ships, but we're all in the same
boat now.'' We need to get it together.
Thank you. I yield back.
Senator Cramer. Thank you, Senator Blunt Rochester.
Senator Moreno.
Senator Moreno. Chairman, thank you for being here. Thank
you for taking the time on the phone the other day. I
appreciate that very much.
I'll just ask you a broad, general question. When you
increase M2, the money supply, by 40 percent over a short
period of time, is that going to drive inflation?
Mr. Powell. It could. Well, as I think we discussed,
monetary aggregates have not been a great predictor of, really,
any other thing. But I think when there's a sharp increase like
that in M2, then that could--you know, that's something that
might cause some inflation.
Senator Moreno. Now, just to be clear for the people
watching, that happened because of public policy in this
institution here, correct? In other words, there wasn't a
civilian-led effort to increase Government spending, outside of
the elected leaders that chose to make those decisions?
Mr. Powell. Well, I think that was part of it. I think
there were just a lot of causes in the inflation that we saw,
but, you know, it's fiscal policy, it was monetary policy. It
was closing and reopening the economy just generated a bunch of
confusing signals. And then a lot of inflation everywhere in
the world, really, whether people did a lot of fiscal policy or
not. But there were many factors, and that's, I would say, one
of them.
Senator Moreno. But just to be clear, it wasn't the
citizens of the country making those decisions. Those were
elected leaders choosing to close the economy. Businesses
didn't decide 1 day to close, didn't decide to not be able to
go to work. Those were decisions made by policymakers, correct?
Mr. Powell. Yes.
Senator Moreno. So, it's a little disingenuous to hear my
colleagues talk about how they care so much about inflation,
when, in reality, they caused it. But I don't want to continue
that.
I would ask you a question, just out of curiosity, because
you worked at the Department of Treasury. At what point did you
think they were going to run out of ink? Did that concern you
that maybe it was possible that they were printing so much
money that the Treasury would have to find alternate ink
suppliers?
Mr. Powell. That didn't occur to me, but, good question.
Senator Moreno. So, along those lines, something that
concerns me a lot is the idea that we would even look like
China in any way. So, can I have your commitment that, as long
as you're the Chairman of the Federal Reserve System, that we
will never have a central bank digital currency?
Mr. Powell. Yes.
Senator Moreno. Thank you for that. I think that's
extremely important. That makes me very happy to hear you say
that.
Shifting gears to a little bit something that matters to me
and entrepreneurs all over the country is, why can't I wire
somebody money at 6 p.m. Eastern Time? Can we get to a 24/7
scenario where wires are cleared every day, all day? I think
that would be very, very helpful to businesses all over the
country.
Mr. Powell. So, that's coming. It's just coming slowly
here. We have that at FedNow. We'll get in touch with you about
FedNow. We provide that service between two banks. And others
want to provide it, too, but, yes, we do kind of lag a lot of
other countries in that, and it is time for that to happen.
Senator Moreno. So, I know I don't want to put you on the
spot, but to put you on the spot, FedNow, I was very familiar
with it, but it was a little bit late in coming. Can we get a
commitment to do that this year? So that, by the end of this
calendar year, businesses can transact 24/7 and settle
payments?
Mr. Powell. I think they can do that now. I believe they
can do it now on FedNow. And they can also do it on the RTP
system, as well. So, I think it's available. Let me check in
and I'll follow up with you.
Senator Moreno. That would be great. Now, one other piece
of the puzzle here is, what do you think the Fed can do to
fight international terror groups--for example, Hamas,
Hezbollah, Iran, the proxies--that are funded by places like
Qatar? Do you think that we're doing enough to keep them
outside of the banking system? Because, at the end of the day,
terrorism is ultimately funded by these bad actors.
I met with the hostage families this morning. It was heart-
wrenching to hear stories about kids that are my kids' age
being held for almost 500 days. The Qataris are, obviously,
completely complicit in all this. What can we do? What advice
would you have that we can do to make certain that we bring
these terror groups to their knees?
Mr. Powell. You know, we do enforce the money laundering
laws very, very strictly, and--but it's a tough question. You
know, it's a huge focus in international meetings and things
like that. But, you're right, it's really hard to nail it down,
particularly if it's all happening overseas.
But we can do what we can do with our banks. We don't want
to make it so costly, though, that they debank people because
they're so worried about violating the anti-money laundering
laws. I mean, that's some of what's happening, according to the
banks, is that they're so afraid that there might be money
laundering that they just cut people off at the first flag, as
opposed to--perfectly legal businesses are being thrown out
because of their fear of being caught doing money laundering.
So, I think there's a balance there. But, no, it's a really
hard project and one we spend a lot of time on.
Senator Moreno. Thank you, Chairman.
Senator Cramer. Thank you, Senator Moreno.
The patient and persistent Senator Kim.
Senator Kim. Thank you. I wanted to make sure some of my
colleagues had a chance to be able to run off to some of their
meeting. And I've enjoyed being able to listen to the Chairman,
to be able to hear some of your articulation here.
I just want to share with you, you know, I did a telephone
town hall last night, and I'm glad to hear some of my other
colleagues as well, and there is a lot of anxiety right now by
the American people in trying to understand what's happening
and seeing and interpreting what's happening on the news.
So, I guess I just wanted to ask you for your words or how
you would explain to the American people the importance of
independence when it comes to the Federal Reserve.
Mr. Powell. So, I think the point is that we'll make better
policy, we'll keep inflation lower, if we just focus on doing
our job and stay out of politics, stay out of elections, don't
try to favor or to hurt any political party, any political
figure. Just focus on the data.
If we start putting up political filters, we'll be no
good--we'll be less effective at our already quite difficult
job. And, you know, I do think that's broadly understood. I
think there's broad support up here. In both political parties
and on both sides of the Hill, I think there is a decent degree
of support for continued independence.
That's not to say we shouldn't be accountable. We should be
very accountable and transparent about what we do. We should be
up here explaining what we do and why to our oversight body,
which is this Committee, and then the same committee on the
House side.
So, that's what I would say.
Senator Kim. Making decisions about your core mission,
about stability, and about growth, but not thinking about it in
terms of the context of an election cycle, for instance. Is
that right?
Mr. Powell. Yes, exactly.
Senator Kim. I wanted to shift gears a little bit, but a
similar type topic. You know, there's been a lot of attention
to the role of public servants within our Government and our
understanding of what roles they play, how many to have. And I
guess I just wanted to ask if you could speak to the role of
the Federal Reserve employees, their qualifications, and, more
importantly, their importance to the mission and being able to
engage. How important are they to the work that you are trying
to do toward stability and growth?
Mr. Powell. So, I am very proud to be associated with the
people of the Federal Reserve, and I'll give you an example
why. When the pandemic hit, kind of out of the blue, and
economies all over the world are shutting down, the U.S.
Treasury market is stopping to function, companies can't roll
over their commercial paper, economists are writing about a
depression, the people at the Fed who went through the global
financial crisis 10 years before step forward and say, ``We've
got this. We know what to do. Here's what we do with the
Treasury market. Here's what we do with money market funds.
Here's what we do with the companies that can't get any
financing.''
The markets were closed and companies were having maturing
debt that they had to roll over. The people who knew what to do
in that pretty dire emergency were working at the Federal
Reserve, and other places. But I will tell you, it was
impressive. And I think if you could have seen the way people
react and how hard they work, and how much they know, and how
well it worked, really; our work during the acute phase of the
crisis was very successful, and it's entirely due to the
knowledge base that resides with the career people at the Fed.
Senator Kim. Would you say that the Fed is overstaffed?
Mr. Powell. No. I would say that, you know--overworked,
maybe, but not overstaffed. Everybody at the Fed works really
hard. It's a place where people work very hard.
Senator Kim. A lot of this conversation right now about
staffing numbers at different departments, the agencies, going
back to this sense of the taxpayer dollar, you know, in terms
of accountability there. But I guess I just wanted to ask you,
is the Fed paid for by the taxpayer dollars? Can you explain to
us what the burden is on the taxpayer?
Mr. Powell. So, we're self-funding through our large
balance sheet.
Senator Kim. So, when it comes to the staffing at the
Federal Reserve, it's not coming from the taxpayers. Is that
right?
Mr. Powell. You know, indirectly, we--so, all of our
profits we give back to Treasury, and those profits would be
higher if we didn't pay for the Fed. So, in fairness, it does
ultimately come--it's ultimately paid for by the taxpayer, but
we are--but, in that sense, we're self-funded.
Senator Kim. Self-funded?
Mr. Powell. Yes.
Senator Kim. Just one last question here. You talked about
the different actors that are involved when it comes to levying
tariffs, in terms of paying the exporter, the importer, a
middleman could be part of that. I guess I just wanted to ask
you: do you know of any way in which to 100 percent guarantee
that the consumers will not have to pay higher costs when it
comes to tariffs?
Mr. Powell. Not really. It's not going to be easy to
identify with any accuracy exactly where costs do fall, but I
think it would be hard to guarantee any particular outcome. I
think we're just going to have to see.
Senator Kim. OK. Thank you. I yield back.
Senator Cramer. Thank you, Senator.
Senator Warren, do you----
Senator Warren. I do. Thank you, Mr. Chairman. I just want
to make a point before we quit here, and that is about law
enforcement. If you keep the laws the same on the books, but
you fire the cops, you're going to have a lot more crime.
That's kind of Law Enforcement 101. And the problem we've got
right now is the law on the books about consumer protection
hasn't changed, but the cops, at least right at this moment,
have been told at the CFPB to stand down.
And I appreciate that we have State AGs who step in, and
often they partner up with the CFPB, but there is no one else,
for the giant banks, who actually does what's called the bank
examination, the supervision. And that is so important.
Remember the Wells Fargo scandal where Wells Fargo was
illegally opening fake accounts in people's names? You find
that through bank examination, not because the person who got
cheated could figure it out.
Bank of America gets hauled in because bank examiners
discovered they were charging people illegally on junk fees.
Nobody finds that but the people who are down in the banks
doing the bank examination on behalf of the consumers.
Look, we tried a patchwork of law enforcement for consumers
before 2008. We had all those laws scattered among seven
different agencies and we saw how it ended. It ended with
millions of people losing their homes, millions of people
losing their jobs, millions of people losing their savings.
The CFPB is our law enforcement agency to make sure that
the giant banks follow the rules on consumer protection. And,
for me, right now, I would be really worried about doing
business with a giant bank when there's no cop on the beat.
Senator Cramer. Thank you, Senator.
I will recognize myself for just one question, and it will
even be relevant to your job, I promise, Mr. Chairman. So,
thank you for your patience and for being here.
I wanted to follow up on--there were some questions--or at
least I know Senator Rounds asked a Basel III question and your
response was, basically, let's get the people in place from the
Administration, and then we'll proceed again.
Treasury Secretary Bessent recently said that the banking
system is, I believe he said, quote, well capitalized, perhaps
overcapitalized, unquote. And given that assessment, and if you
agree with it, could you discuss the necessity of advancing a
new Basel III proposal? Specifically, how an updated regulation
would impact the ability of the regional banks to compete with
the big Wall Street banks, and what considerations should be
taken into account to ensure that we have a competitive banking
system.
Because I know there's--this concern comes and goes. And
for those of us who have largely regional banks or, God love
them, the best of all, community banks and credit unions, a
competitive system is really important. So, if you could just
answer that, and then I'll wrap up.
Mr. Powell. Sure. So, we are eager to get together with new
colleagues from the FDIC, new leadership at the FDIC and the
OCC, to try to finish Basel III. My own view has been that our
banks are well-capitalized. And, you know, Basel III was not
supposed to be an exercise in raising capital on U.S. banks.
Mario Draghi said that. So, I think that's about right. We have
some work to do, but we'll get there, I believe, fairly
quickly.
In terms of your regionals, they don't face the G-SIB
surcharges. They don't face quite the burden that the large
banks face on resolution planning and that sort of thing. So,
certainly, we need those banks to be healthy and profitable
because we need them to compete with the G-SIBs. We don't want
a world where the G-SIBs just keep getting a bigger and bigger
share of the economy. That's not what we're looking for.
And that's where a lot of pressure--you know, we've seen
the number of community banks, especially, declining for 30
years, and this is not something we want to--we don't want to
be the cause of that. If it's happening by natural causes or
because of evolving technology, that's one thing, but we don't
want to be inadvertently causing that to happen.
Senator Cramer. So, as you look at a Basel III exercise,
can you think of anything specifically that ensures that
competitive, diverse banking system is maintained, rather than
a consolidation, whether it's fewer community banks into more
regional banks or fewer regional banks into more Wall Street
banks?
Mr. Powell. Well, I just think it's, you know, you think
twice before you impose the--the kinds of things that we impose
on the largest banks and the next-to-largest banks, you want to
be careful not to just think we should do exactly the same
thing. You know, what tends to happen is, for smaller banks, it
raises the fixed costs, is what it does, of banking, and it
makes it harder to start new banks, and it makes it harder for
any but the largest to be successful. So, that's not what we
want. You know, we want a lot of competition. And these
regionals, it's important that they thrive.
Senator Cramer. I agree, and I agree with your assessment.
So, thank you for that. Thank you for staying with us for the
day and I'm glad we could get you first.
So, as we wrap up, for Senators who wish to submit
questions for the hearing record, those questions are due 1
week from today: Tuesday, February 18th.
Chair Powell, you have 45 days from that day to submit your
response to questions for the record.
Thank you. The Committee stands adjourned.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material submitted for the record follow:]
PREPARED STATEMENT OF CHAIRMAN TIM SCOTT
Chair Powell, thank you for being here today, appreciate your
willingness to have a chat with us about some of the really important
issues facing our country.
Without question, the Federal Reserve serves a critical role in the
function of our Government and the global economy.
You have the ability to influence markets and directly impact the
financial future of hundreds of millions of Americans.
That is why the Federal Reserve is supposed to be an independent
institution free from politics.
But, in recent reality, the Fed has been susceptible to political
pressure.
Take for example the Fed's involvement in the Network for Greening
the Financial System, a group dedicated to green financing and climate
change, which the Fed joined in December 2020 as President Biden was
about to assume office.
Just last month, the Fed announced that it had pulled out of the
organization as President Trump was getting ready to be sworn in.
To the American people, this is flip flopping in the political
wind. Too much focus on climate change instead of supervision is
consequential.
And in March, just 2 years ago, we saw the failure of Silicon
Valley Bank.
SVB marked the third largest bank failure in U.S. history and the
largest since the 2008 financial crisis. And yet, not a single Federal
regulator was held to account.
In fact, the FDIC filed a lawsuit against bank executives which
accused the SVB of ``egregious mismanagement.'' And I agree. How is it
that no bank supervisor has faced any consequences? With 30 MRAs and
MRIAs that never had timely action at SVB.
How can the people who are supposed to be our cops on the beat have
not faced any recourse for such ``egregious'' failures. I simply don't
understand.
We must all address the fact that over the last 4 years, the Biden
administration and Bidenomics have devastated, decimated, and destroyed
hardworking families ability to support themselves.
During Joe Biden's time in office, overall prices rose by over 20
percent, energy prices 34 percent, transportation costs 31 percent,
groceries 22 percent.
But that's not all.
Thanks to Bidenomics, two-thirds of Americans have less than
$1,000--less than $1,000--in their savings accounts.
Here's there is good news: things are going to get better.
During his first term, President Trump kept his promises to the
American people.
In the first 3 years of his presidency, President Trump built the
most inclusive economy ever.
Seven million jobs created, and two-thirds went to women, African
Americans, and Hispanics.
It's time to once again make America's economy work for the folks
working paycheck to paycheck.
Joe Biden and Kamala Harris broke our economy and Donald Trump will
fix it.
For too long, bank regulators have followed black box regulatory
frameworks with little to no recourse.
The FDIC, under President Trump's leadership, recently released
never-before-seen supervisory documents, which confirmed that Biden's
Operation Chokepoint 2.0 was real despite assurances that these
unacceptable practices would end following the Democrats' first
Operation Chokepoint 1.0.
We are seeing an unfair playing field that results in disastrous
consequences for legal businesses and law-abiding citizens.
On one hand, if you are in the private sector and you do your job
poorly, you would face consequences--reprimands, suspensions, or even
being fired.
But if you are within the walls of the Federal Government, such as
a bank regulator, you will face no consequences for your actions, even
if you pressure a bank to cut off services to digital asset firms,
political figures, and conservative-aligned businesses and individuals.
To me, that goes against the principles of fairness and market
access.
Over the last 2 years, as the Ranking Member of this Committee, I
have consistently argued that the Basel III Endgame proposal will raise
costs and limit credit access for hardworking Americans.
And while I'm glad this proposal was not finalized, the uncertainty
surrounding Basel III forced banks to put capital on the sidelines--
limiting access to that capital for local and small businesses across
the country.
Now, as Chairman, I plan to work to rectify the issues of the Biden
administration.
Chairman Powell, I look forward to hearing from you on the Federal
Reserve's future and the plans you have for rightsizing the financial
regulatory frameworks, specifically around Basel III.
To create jobs here in America, we need to make sure there is
capital and liquidity in the market.
And we also want all Americans, even those growing up in poverty
like I did, to know they can access the capital necessary to start new
businesses, grow existing businesses, buy a home, and pursue their
American Dream.
Chairman, I look forward to your comments and your testimony and I
will simply say, that I believe that weaponizing an independent agency
like the Fed for liberal positions--from debanking crypto, bank stress
tests, and the green financing scheme--is not calling balls and strikes
as a fair referee. And I hope that we are getting ready to clean that
slate, start fresh, and focus on a healthy economy.
______
PREPARED STATEMENT OF RANKING MEMBER ELIZABETH WARREN
Thank you, Mr. Chairman. Chair Powell, it's no secret that you and
I disagree on the need for strong bank regulation, on monetary policy,
and on the Fed's stock trading scandals.
We have sharp differences, but I believe you are a principled
public servant who cares about this country.
We are at an unprecedented moment. Our financial systems are facing
huge risks from the economic chaos of President Trump and his co-
president, Elon Musk. From on-again, off-again tariffs, to on-again,
off-again layoffs for tens of thousands of Government workers, to on-
again, off-again cuts in domestic grain purchases, to on-again, off-
again support for medical research.
Now, co-president Musk and his OMB director have frozen all work at
the CFPB. There are now zero cops overseeing the $18 trillion consumer
lending market. Zero cops. Investigations into illegal foreclosures and
auto repossessions--canceled. Exams of giant credit card issuers to
weed out unlawful junk fees--canceled. Probes of illegal debt
collection practices--canceled. Rules to save people billions of
dollars--canceled. If Musk and his OMB Director succeed in killing the
CFPB, it's like putting a sign on every checking account, credit card,
mortgage application, and car loan ``Cops have been fired--Let the
scams begin!''
That's not all. Musk and his DOGE crew are also rooting through the
Treasury's most important payment systems--the financial plumbing that
ensures that billions of payments go through--from Social Security
checks to grants for community health centers. No one has verified how
they got this access or what they are doing with it.
No one has checked whether Americans' financial data has been
copied or sold for the personal profit of Mr. Musk.
Instead, we've had a series of misleading and conflicting
statements by Secretary Bessent.
After receiving public blowback, it appears that Secretary Bessent
is now trying to throw the Federal Reserve under the bus. Secretary
Bessent claims that DOGE can't meddle with the Treasury's payments
system because ultimately ``The Fed is in control.''
I'm not sure whether Secretary Bessent doesn't understand how the
system works or if he's just trying to shift blame to you, Chair
Powell, but I know he is wrong. The Fed simply executes the
transactions Treasury instructs. If Elon and his hackers, for example,
initiate instructions to choke off payments to their enemies or if they
issue instructions to shut down payments for teachers' aides for kids
with special needs, the Fed may have no way of knowing the instructions
were manipulated and no legal method to override it.
Chair Powell, the next 18 months may define your legacy and the
country's trust in the Fed as an institution. I expect you'll work with
Democrats and Republicans in Congress if DOGE's next move is to try to
commandeer the Fed's payment system. I also expect that you will not
join the conspiracy to shutter the CFPB. Unlike the Treasury payment
instructions, you can see if the CFPB's funding requests have been
manipulated. I understand that some extremists have a different view
about what the law ought to be, but under the law right now,
impoundment is clearly illegal. Do not make the Federal Reserve an
accomplice to this illegal act and forever sully the reputation of the
Fed. Keep the CFPB funded, exactly as the law requires.
We're in the middle of a crisis as Elon Musk tries to take over our
Government, but let's also talk about your day-to-day job--meeting the
Fed's dual mandate of promoting maximum employment and stable prices.
It's now clear that the Fed acted too late and let inflation get too
high and then responded by keeping rates too high for too long. These
policies made the big drivers of inflation--like housing costs--even
worse. And they put Americans' jobs at risk, making it more difficult
for them to afford a home and for small businesses to finance their
operations. I urge you to move more rapidly to bring down interest
rates, beginning with a meaningful rate cut next month.
You have proven you can move quickly--when it is politically
expedient. After President Trump was elected, within the space of a few
weeks:
You scrubbed seemingly all mention of diversity and inclusion from
the Fed's website.
You withdrew from an international central bank group that shares
information on climate-related risks to the financial system.
You instituted a hiring freeze that will limit the number of cops
on the Wall Street beat.
You announced plans to gut big bank stress tests.
I can see the immediate political appeal of your strategy, but
ultimately it will fail. You will lose good people. Climate
catastrophes will continue to mount. And the increasing vulnerability
of the big banks will threaten our entire economy.
Sure, Donald Trump may be happier with you right now, but wading
deeper into politics to please him, over the long run, will burn the
reputation and the independence of the Fed and put the economy at risk.
I urge you: Don't fall into these traps.
______
PREPARED STATEMENT OF JEROME H. POWELL
Chair, Board of Governors of the Federal Reserve System
February 11, 2025
Chairman Scott, Ranking Member Warren, and other Members of the
Committee, I appreciate the opportunity to present the Federal
Reserve's semiannual Monetary Policy Report.
The Federal Reserve remains squarely focused on achieving its dual-
mandate goals of maximum employment and stable prices for the benefit
of the American people. The economy is strong overall and has made
significant progress toward our goals over the past 2 years. Labor
market conditions have cooled from their formerly overheated state and
remain solid. Inflation has moved much closer to our 2 percent longer-
run goal, though it remains somewhat elevated. We are attentive to the
risks on both sides of our mandate.
I will review the current economic situation before turning to
monetary policy.
Current Economic Situation and Outlook
Recent indicators suggest that economic activity has continued to
expand at a solid pace. Gross domestic product rose 2.5 percent in
2024, bolstered by resilient consumer spending. Investment in equipment
and intangibles appears to have declined in the fourth quarter but was
solid for the year overall. Following weakness in the middle of last
year, activity in the housing sector seems to have stabilized.
In the labor market, conditions remain solid and appear to have
stabilized. Payroll job gains averaged 189,000 per month over the past
four months. Following earlier increases, the unemployment rate has
been steady since the middle of last year and, at 4 percent in January,
remains low. Nominal wage growth has eased over the past year, and the
jobs-to-workers gap has narrowed. Overall, a wide set of indicators
suggests that conditions in the labor market are broadly in balance.
The labor market is not a source of significant inflationary pressures.
The strong labor market conditions in recent years have helped narrow
long-standing disparities in employment and earnings across demographic
groups. \1\
---------------------------------------------------------------------------
\1\ The February Monetary Policy Report includes as a special
topic an update on employment and earnings across demographic groups.
---------------------------------------------------------------------------
Inflation has eased significantly over the past 2 years but remains
somewhat elevated relative to our 2 percent longer-run goal. Total
personal consumption expenditures (PCE) prices rose 2.6 percent over
the 12 months ending in December, and, excluding the volatile food and
energy categories, core PCE prices rose 2.8 percent. Longer-term
inflation expectations appear to remain well anchored, as reflected in
a broad range of surveys of households, businesses, and forecasters, as
well as measures from financial markets.
Monetary Policy
Our monetary policy actions are guided by our dual mandate to
promote maximum employment and stable prices for the American people.
Since last September, the Federal Open Market Committee (FOMC) lowered
the policy rate by a full percentage point from its peak after having
maintained the target range for the Federal funds rate at 5\1/4\ to
5\1/2\ percent for 14 months. That recalibration of our policy stance
was appropriate in light of the progress on inflation and the cooling
in the labor market. Meanwhile, we have continued to reduce our
securities holdings.
With our policy stance now significantly less restrictive than it
had been and the economy remaining strong, we do not need to be in a
hurry to adjust our policy stance. We know that reducing policy
restraint too fast or too much could hinder progress on inflation. At
the same time, reducing policy restraint too slowly or too little could
unduly weaken economic activity and employment. In considering the
extent and timing of additional adjustments to the target range for the
Federal funds rate, the FOMC will assess incoming data, the evolving
outlook, and the balance of risks.
As the economy evolves, we will adjust our policy stance in a
manner that best promotes our maximum-employment and price-stability
goals. If the economy remains strong and inflation does not continue to
move sustainably toward 2 percent, we can maintain policy restraint for
longer. If the labor market were to weaken unexpectedly or inflation
were to fall more quickly than anticipated, we can ease policy
accordingly. We are attentive to the risks to both sides of our dual
mandate, and policy is well positioned to deal with the risks and
uncertainties that we face.
This year, we are conducting the second periodic review of our
monetary policy strategy, tools, and communications--the framework used
to pursue our congressionally assigned goals of maximum employment and
stable prices. The focus of this review is on the FOMC's Statement on
Longer-Run Goals and Monetary Policy Strategy, which articulates the
committee's approach to monetary policy, and on the committee's policy
communications tools. The committee's 2 percent longer-run inflation
goal will be retained and will not be a focus of the review.
Our review will include outreach and public events involving a wide
range of parties, including ``Fed Listens'' events around the country
and a research conference in May. We will take on board lessons of the
past 5 years and adapt our approach where appropriate to best serve the
American people, to whom we are accountable. We intend to wrap up the
review by late summer.
Let me conclude by emphasizing that at the Fed, we will do
everything we can to achieve the two goals Congress set for monetary
policy--maximum employment and stable prices. We remain committed to
supporting maximum employment, bringing inflation sustainably to our 2
percent goal, and keeping longer-term inflation expectations well
anchored. Our success in delivering on these goals matters to all
Americans. We understand that our actions affect communities, families,
and businesses across the country. Everything we do is in service to
our public mission.
Thank you. I look forward to your questions.
Responses to Written Questions Submitted for the Record
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Additional Material Submitted for the Record
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