Fed Chair Jerome Powell Testifies In Front Of The Senate Banking Committee

3 months ago

Fed Chair Jerome Powell testified in front of the Senate Banking Committee on Tuesday.

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Transcript

00:00:00Banking, Housing, and Urban Affairs will come to order.

00:00:03Welcome, Chair Powell, nice to have you back.

00:00:05Good to have you first this time of year.

00:00:08Ohioans know, Americans know,

00:00:10that our economy fundamentally is not a fair playing field.

00:00:14Instead, we have a David and Goliath economy

00:00:17where the largest corporations use their power

00:00:20to funnel all the gains in the economy to the top,

00:00:23aided and abetted by too many people in this room.

00:00:27Corporations squeeze every last penny

00:00:29from Americans' pocketbooks and workers' paychecks.

00:00:33They don't even try to hide it anymore.

00:00:35The biggest corporations are charging more for less.

00:00:39Americans are frustrated.

00:00:40No, actually, Americans are pissed off.

00:00:43They have fewer and fewer choices.

00:00:44Those choices cost more and more.

00:00:47Keeping prices down is part of the Fed's mandate,

00:00:50but as many of us have made clear,

00:00:52the Fed's main tool to combat inflation,

00:00:55raising interest rates,

00:00:56does nothing to address the biggest causes

00:01:00of rising prices right now, corporate greed.

00:01:03Keeping rates too high for too long

00:01:05threatens workers' paychecks,

00:01:07while keeping other costs high, particularly housing costs.

00:01:11Housing prices and rents continue to go up.

00:01:14It's no surprise that since the Fed began raising rates,

00:01:17the amount of income families need

00:01:19to qualify for a mortgage has nearly doubled.

00:01:23Home ownership has long been a bedrock of our middle class,

00:01:27but today, fewer and fewer middle class families

00:01:28can afford to buy a home.

00:01:30Higher interest rates are making our country's

00:01:32housing supply shortage worse, not better.

00:01:36We need more housing construction of all types.

00:01:39Higher rates lead to the opposite,

00:01:42and particularly make it harder

00:01:43for multifamily construction to work financially.

00:01:47Higher interest rates make borrowing more expensive

00:01:49for working families, whether it's for a mortgage

00:01:52or a car or anything else.

00:01:54Most people don't have the luxury

00:01:55of paying for everything in cash.

00:01:58And for the millions of Americans feeling their budgets

00:02:01stretch by higher prices, taking on credit card debt

00:02:04to pay for groceries and other essentials

00:02:06has become an option of last resort.

00:02:10But as more people struggle to pay down their debts,

00:02:13credit card interest rates are reaching all-time highs.

00:02:16Last month, Director Chopra testified

00:02:19in front of this committee and explicitly stated

00:02:21that credit card issuers are charging higher rates

00:02:24far beyond what they need to cover their costs.

00:02:27Corporate greed rearing its head again.

00:02:30Banks are making record profits

00:02:32at the expense of cash-strapped Americans.

00:02:34Every month that the Fed keeps rates high, Mr. Chair,

00:02:38it costs Americans money by making it more expensive

00:02:40to buy a house and to borrow money.

00:02:43Higher borrowing costs stifle future economic growth,

00:02:47leading to fewer homes being built,

00:02:48leading to businesses making fewer investments

00:02:52in the economy, and eventually, if the Fed doesn't stop,

00:02:54leading to workers losing their jobs.

00:02:57As they said, economic policy,

00:02:59I urge the Fed to weigh these trade-offs

00:03:01and remember whose jobs and futures are at stake.

00:03:05It's why I've worked with my colleagues

00:03:07to hold corporations accountable

00:03:08and will continue to do that.

00:03:10For instance, we fought to cap insulin prices

00:03:13for senior citizens.

00:03:14We'll continue to fight to extend this price cap,

00:03:18this price cap on life-saving drugs for all Americans.

00:03:22And why my colleagues and I on this committee are working,

00:03:25it's why we're working to lower housing costs

00:03:27for more Americans.

00:03:29The Fed also continues its work

00:03:31to keep the banking system stable

00:03:33and ensure consumers' money is safe.

00:03:35Last year, the Fed and other bank regulators

00:03:38issued a proposal to update bank capital requirements,

00:03:42strong capital standards,

00:03:43and you've heard in this committee

00:03:45overwhelming support for strong capital standards.

00:03:48These are critical for the economy.

00:03:50It's our way of making sure

00:03:52that if Wall Street bets go poorly, which they often do,

00:03:57investors, executives, and shareholders

00:03:59should pay for it, not taxpayers.

00:04:02The biggest banks have spent obscene amounts of money

00:04:06attacking this Fed proposal.

00:04:09But you, the Fed, don't work for big banks.

00:04:11You work for the American people.

00:04:12Your concern should be developing capital rules

00:04:15that protect Americans' money,

00:04:17not protect bank CEOs' stock portfolios.

00:04:21The Fed needs to look past these shameless lobbying efforts

00:04:25and finalize a rule in the best interest of taxpayers.

00:04:29Another dangerous piece of the Wall Street business model

00:04:32that makes our banking system less safe

00:04:35is incentive-based compensation.

00:04:37This compensation model rewards risky behavior

00:04:42that enriches Wall Street executives in the short term,

00:04:46but makes banks more likely to fail.

00:04:48We saw the results of that model in 2008.

00:04:51We saw it again last year

00:04:53with the failure of Silicon Valley Bank and Signature.

00:04:56Other regulators have moved forward

00:04:57with a proposal to rein in these reckless incentives,

00:05:01but the rule, Mr. Chair, can't move forward

00:05:04without your and the Fed's moving on it.

00:05:07This rule is long overdue.

00:05:09The Fed must join this statutorily required effort

00:05:12as soon as possible.

00:05:14Fed also has the important job of reviewing mergers

00:05:17and acquisitions between and among banks.

00:05:19Over the last several decades,

00:05:21we've seen the largest banks grow into massive,

00:05:23literally trillion-dollar companies,

00:05:25while thousands of small banks in rural communities

00:05:28in Northwest and Southeast Ohio,

00:05:31and small towns in those communities,

00:05:33in those areas and all across America have disappeared.

00:05:36Consumers have lost trusted local banks.

00:05:38Small businesses have lost

00:05:40long-time reliable banking partners.

00:05:43Regulators like the Fed have the crucial job

00:05:45of guarding against mergers that reduce

00:05:48or eliminate competition

00:05:49and lead to bank closures or layoffs.

00:05:52I recently sent comment letters to the OCC and the FDIC

00:05:55on their current efforts.

00:05:56I expect the Fed to take the proper steps

00:05:59to ensure that its merger review process is robust

00:06:03and that it protects consumers and communities.

00:06:05Finally, Mr. Chair,

00:06:06you must ensure the Fed has high ethical standards.

00:06:10Fed officials should never again be able to profit

00:06:13from their positions by using confidential plans

00:06:16about Fed monetary policy and emergency programs

00:06:19to pad their investment portfolios.

00:06:21The board's latest update to its trading rules

00:06:25is simply not good enough.

00:06:27It still fails to establish the clear penalties

00:06:29needed for Federal Reserve officials

00:06:31who make investments in violation of the public trust.

00:06:36A rule with no consequences

00:06:38is really not much of a rule at all.

00:06:40The American people need to be able to trust

00:06:43that the Federal Reserve works for them

00:06:44in a time of deep cynicism

00:06:46that people have about the federal government overall.

00:06:49The American people need to know

00:06:51that officials aren't abusing their positions

00:06:53for personal gain.

00:06:55As chair, you have an important role to play

00:06:57to make sure our economy works for everyone,

00:06:59not just for Wall Street.

00:07:01The Fed's regional banks must do their part

00:07:03to hear from people and other stakeholders

00:07:06in their 12 districts to understand their needs.

00:07:08I look forward to hearing today

00:07:10how the Fed will balance its dual mandate,

00:07:13how it will protect Americans' money,

00:07:14how it will foster an economy

00:07:16that upholds the dignity of work.

00:07:18Senator Scott.

00:07:20Thank you, Mr. Chairman.

00:07:21Thank you, Chair Powell,

00:07:22for being with us this morning.

00:07:23Welcome, welcome back.

00:07:25Joe Biden broke this economy

00:07:27and it's been very difficult to fix it.

00:07:31That's the bottom line.

00:07:31I want to start with the end in mind.

00:07:33Joe Biden broke our economy

00:07:36and it is very difficult for anyone to fix it.

00:07:40Everyday families are struggling to put food on the table.

00:07:43Real wage growth is being eaten away

00:07:45by rising prices and runaway inflation.

00:07:48Think about the fact that for 52 consecutive weeks

00:07:50in the Joe Biden, wages were eclipsed by inflation

00:07:56for 52 consecutive paychecks.

00:08:00I remember back in December, 2020,

00:08:02in South Carolina, gas was $1.99 per gallon.

00:08:06Today, it's still $3.19 per gallon,

00:08:10a 50% increase in just a few years.

00:08:16So it's devastating to the average American family,

00:08:19particularly families like the one I grew up in,

00:08:21a single parent household mired in poverty.

00:08:24When you see your gas prices up 50%,

00:08:27your food up 30%,

00:08:29your cost of keeping your house cool or warm up 25%,

00:08:36it's not a challenge, it's not unfortunate,

00:08:40it's an absolute crisis.

00:08:43And too many households in America today

00:08:46are living paycheck to paycheck

00:08:48and they fear the challenges that are coming our way,

00:08:52the headwinds brought to us by the Biden administration.

00:08:56Those headwinds, of course,

00:08:57are seen through the prism of inflation.

00:09:00Inflation hasn't been this high since the Jimmy Carter years

00:09:04and that devastation is being felt

00:09:06in measured households by too much month

00:09:10at the end of the money.

00:09:11And that devastation is real

00:09:14for the vast majority of Americans.

00:09:17And the pointing finger, I tell you what,

00:09:19brother, it's the Biden administration

00:09:21throwing the Fed under the bus

00:09:23or any other way they can deflect from the real problem.

00:09:27I've seen it, committee hearing after committee hearing

00:09:31after committee hearing,

00:09:34my friends on the left want to point their fingers

00:09:36at anyone other than the real culprits

00:09:39at 1600 Pennsylvania Avenue.

00:09:42Progressive wishlist spending projects

00:09:45and out of control regulations of this administration

00:09:48continues to eat away at America paychecks.

00:09:52And they continue to blame,

00:09:53whether it's shrink inflation, greed inflation,

00:09:56skip inflation, they're looking for someone to blame

00:09:59except for Biden inflation.

00:10:02The devastation of Joe Biden's economic policy

00:10:07continues to impact everyday Americans.

00:10:10The American people see through the facades

00:10:12and they want real solutions.

00:10:14It doesn't take a PhD economist

00:10:16to understand what the average American is experiencing

00:10:20under this administration.

00:10:22When President Biden and my democratic colleagues

00:10:24pumped trillions of dollars into our economy,

00:10:28those dollars increased the demand

00:10:31and pushes prices higher.

00:10:33It's that simple.

00:10:34The American people see and feel it every single time.

00:10:38When they see it, as I said earlier,

00:10:40the grocery stores, the gas stations,

00:10:43at the doctor's office, it's just undeniable

00:10:46the impact that this is happening.

00:10:49Just last week, we celebrated the birth of our country,

00:10:52the birth of this notion of freedom and liberty.

00:10:55But American families got slapped

00:10:57with the most expensive July 4th on record

00:11:01with a cookout this year costing on average

00:11:0430% more than it did just a few years ago.

00:11:08I call that hogwash.

00:11:11What's worse is that this administration

00:11:14doesn't want to learn a lesson in economics.

00:11:16Instead of reducing the push for more spending

00:11:20and more regulations, they only simply double down.

00:11:25Let's take, for example, the tens of billions of dollars

00:11:28of student loan forgiveness,

00:11:30constant new plans to forgive more money,

00:11:35regardless of the constitutionality of their decisions.

00:11:40So it's important to ask,

00:11:42who are these billions of dollars of forgiveness

00:11:45actually benefiting?

00:11:46Well, the answer is simple.

00:11:49This forgiveness scheme will result in debt relief

00:11:51for 750,000 individuals from households

00:11:56with an average income of 300,000 or more.

00:12:01And just don't forget the fact

00:12:02that the average American family

00:12:04has a household income around $74,000.

00:12:08So what we're doing with this unconstitutional

00:12:11student loan forgiveness is actually asking

00:12:16the median household of $74,000 per household

00:12:20to bear the burden of forgiving debt

00:12:25for students who live in households of over $300,000.

00:12:31And the actual cost of this,

00:12:33somewhere between 870 billion and $1.4 trillion.

00:12:40So why do I have to even ask the question,

00:12:44why do we continue to punish American families

00:12:46struggling paycheck to paycheck

00:12:48with a new scheme to relieve households

00:12:52over $300,000 of student loan debt?

00:12:55Well, the answer is pretty simple, politics.

00:12:58It's one way to buy vote after vote after vote

00:13:03for November's election.

00:13:07It's just hard to imagine.

00:13:09So while I appreciate your measured words

00:13:11outlining the Fed's work to cool inflation,

00:13:13I think it's past time we all recognize

00:13:16what is truly going on, political pandering from the left.

00:13:19I strongly believe that our economy cannot handle

00:13:22any more of this wasteful spending.

00:13:25And if you disagree,

00:13:26I would love to hear your thoughts on that.

00:13:28But it's not just spending policies that stifle growth,

00:13:31it's also over-regulation.

00:13:33And I can't think of a better example of over-regulation

00:13:36than parking more capital on the sidelines

00:13:39through Basel III end game.

00:13:41That proposal itself would cost millions of Americans

00:13:46their chance to own a home, start a small business,

00:13:52and have access to the credit and the capital necessary

00:13:55to make their American dreams come true.

00:13:59For those who are actually watching this hearing today

00:14:03on C-SPAN, Basel III capital requirements

00:14:06are like taking your star quarterback, Dak Prescott,

00:14:10and telling him to sit on the sidelines

00:14:12because he just might get injured during the season.

00:14:16It's just plain ridiculous.

00:14:18But these proposed capital requirements would just do that,

00:14:23forcing more money to the sidelines

00:14:26of the greatest economy on the planet.

00:14:30And out of the hands of first-time home buyers,

00:14:34business owners, and folks trying to achieve

00:14:37the American dream.

00:14:39The stakes are high,

00:14:40and that is why we have to get this right.

00:14:43You've heard me say this a number of times,

00:14:45but it bears repeating.

00:14:46We need transparency in your rulemaking process

00:14:50as this a normal proposal lacks any form

00:14:52of clear justification.

00:14:54Chairman Powell, it is essential that you

00:14:57and your fellow governors and the other agencies

00:15:01join in this rulemaking, follow the law, do the homework,

00:15:05and then let the public check the work.

00:15:08And that's why I believe that it is absolutely necessary

00:15:11to have a complete re-proposal of Basel III end game.

00:15:16Give the stakeholders an opportunity to take a look at it

00:15:20and then recalibrate what is necessary going forward.

00:15:24Any increases in capital that are not quantitatively

00:15:28justified harm the American people who need it most.

00:15:32Our farmers, home buyers, small business owners need

00:15:37and deserve access to credit.

00:15:39Therefore, I'll repeat it one more time.

00:15:41You need to restore confidence in this rulemaking process,

00:15:45pull the existing proposal, and have a complete restart.

00:15:50And then when the data has been analyzed

00:15:53and is available for the public scrutiny,

00:15:55reissue an appropriate proposed rule

00:15:57following the requirements of the APA.

00:16:01I look forward to your opening statement

00:16:04and having a chance to have a conversation afterwards.

00:16:07Thanks, Senator Scott.

00:16:09Mr. Chair, welcome.

00:16:10Thank you for your service and for your testimony today.

00:16:12Please proceed.

00:16:15Chairman Brown, Ranking Member Scott,

00:16:18and other members of the committee,

00:16:19I appreciate the opportunity

00:16:20to present the Federal Reserve's

00:16:22semiannual monetary policy report.

00:16:25The Federal Reserve remains squarely focused

00:16:27on our dual mandate to promote maximum employment

00:16:30and stable prices for the benefit of the American people.

00:16:34Over the past two years,

00:16:35the economy has made considerable progress

00:16:38toward the Fed's 2 percent inflation goal

00:16:41and labor market conditions have cooled

00:16:43while remaining strong.

00:16:45Reflecting these developments,

00:16:46the risks to achieving our employment

00:16:48and inflation goals are coming into better balance.

00:16:51I will review the current economic situation

00:16:53before turning to monetary policy.

00:16:57Recent indicators suggest that the U.S. economy

00:16:59continues to expand at a solid pace.

00:17:04Gross domestic product growth appears to have moderated

00:17:06in the first half of this year,

00:17:07following impressive strength

00:17:09in the second half of last year.

00:17:11Private domestic demand remains robust,

00:17:14however, with slower but still solid increases

00:17:16in consumer spending.

00:17:18We have also seen moderate growth in capital spending

00:17:21and a pickup in residential investment so far this year.

00:17:25Improving supply conditions have supported resilient demand

00:17:28and the strong performance of the U.S. economy

00:17:30over the past year.

00:17:32In the labor market, a broad set of indicators suggest

00:17:35that conditions have returned to about where they stood

00:17:38on the eve of the pandemic, strong but not overheated.

00:17:43The unemployment rate has moved higher but was still low,

00:17:46was still at a low level of 4.1 percent in June.

00:17:50Payroll gains averaged 222,000 per month

00:17:54in the first half of the year.

00:17:56Strong job creation over the past couple

00:17:58of years has been accompanied by an increase

00:18:01in the supply of workers, reflecting increases

00:18:04in labor force participation among individuals aged 25

00:18:08to 54, so-called workers in their prime working years,

00:18:12and a strong pace of immigration.

00:18:15As a result, the jobs to workers gap is well down from its peak

00:18:19and now stands just a bit above its 2019 pre-pandemic level.

00:18:24Nominal wage growth has eased over the past year.

00:18:27The strong labor market has helped narrow longstanding

00:18:30disparities in employment and earnings

00:18:31across demographic groups.

00:18:34Inflation has eased notably over the past couple of years

00:18:37but remains above the Federal Open Market Committee's longer

00:18:41run goal of 2 percent.

00:18:43Total personal consumption expenditures prices rose 2.6

00:18:48percent over the 12 months ending in May.

00:18:50Core PCE prices, which exclude the volatile food

00:18:53and energy categories, also increased 2.6 percent.

00:18:58After a lack of progress toward our 2 percent inflation

00:19:00objective in the early part of this year,

00:19:02the most recent monthly readings have shown modest

00:19:05further progress.

00:19:07Longer term inflation expectations appear

00:19:09to remain well anchored, as reflected in a broad range

00:19:13of surveys of households, businesses, and forecasters,

00:19:16as well as measures from financial markets.

00:19:20Our monetary policy actions are guided by our dual mandate

00:19:23to promote maximum employment

00:19:25and stable prices for the American people.

00:19:28In support of these goals,

00:19:29the Committee has maintained the target range

00:19:31for the federal funds rate at 5.25

00:19:33to 5.5 percent since last July, after having tightened the stance

00:19:38of monetary policy significantly

00:19:40over the previous year and a half.

00:19:42We've also continued to reduce our securities holdings.

00:19:46At our May meeting, we decided to slow the pace

00:19:48of balance sheet runoff starting in June,

00:19:51consistent with the plans released previously.

00:19:53Our restrictive monetary policy stance is helping

00:19:56to bring demand and supply conditions into better balance

00:19:59and to put downward pressure on inflation.

00:20:02The Committee has stated that we do not expect it will be

00:20:05appropriate to reduce the target range

00:20:06for the federal funds rate until we have gained greater confidence

00:20:10that inflation is moving sustainably toward 2 percent.

00:20:14Incoming data for the first quarter

00:20:15of this year did not support such greater confidence.

00:20:18The most recent inflation readings, however,

00:20:20have shown some modest further progress

00:20:23and more good data would strengthen our confidence

00:20:26that inflation is moving sustainably toward 2 percent.

00:20:30We continue to make decisions meeting by meeting.

00:20:33We know that reducing policy restraint too soon

00:20:36or too much could stall or even reverse the progress

00:20:39that we've seen on inflation.

00:20:41At the same time, in light of the progress we've made both

00:20:43in lowering inflation and in cooling the labor market

00:20:46over the past two years,

00:20:48elevated inflation is not the only risk we face.

00:20:52Reducing policy restraint too late

00:20:53or too little could unduly weaken economic activity

00:20:56and employment.

00:20:58In considering adjustments to the target range

00:21:00for the federal funds rate,

00:21:01the Committee will continue its practice

00:21:02of carefully assessing incoming data and their implications

00:21:05for the evolving outlook, the balance of risks,

00:21:08and the appropriate path of monetary policy.

00:21:11Congress has entrusted the Federal Reserve

00:21:13with operational independence that is needed

00:21:15to take a longer-term perspective in the pursuit

00:21:18of our dual mandate of maximum employment and stable prices.

00:21:22We remain committed to bringing inflation back

00:21:24down to our 2 percent goal

00:21:25and to keeping longer-term inflation expectations

00:21:28well anchored.

00:21:30Restoring price stability is essential

00:21:32to achieving maximum employment

00:21:33and stable prices over the long run.

00:21:36Our success in delivering on those goals matters

00:21:39to all Americans.

00:21:41I'll conclude by emphasizing that we understand

00:21:43that our actions affect communities, families,

00:21:45and businesses across the country.

00:21:47Everything we do is in service to our public mission.

00:21:50Thank you.

00:21:51I look forward to your questions.

00:21:53CHAIRMAN BERNANKE.

00:21:53Thank you, Mr. Chair.

00:21:54And the senior member of the Committee will begin

00:21:56the questioning.

00:21:56Senator Reid.

00:21:57SENATOR REID.

00:21:57Thank you very much, Mr. Chairman.

00:22:01Former President Trump has indicated

00:22:04that he would propose, if elected, a substantial increase

00:22:09in tariffs of between 10 and 60 percent

00:22:12and by doing thus eliminate the federal income tax.

00:22:18First, on the question of what would be the impact

00:22:20of tariff increases on prices, consumers, and the economy?

00:22:25CHAIRMAN BERNANKE.

00:22:26Thank you, Senator Reid.

00:22:27So I'm going to say that we go very far out of our way not

00:22:34to comment on campaign-type information.

00:22:38We just don't do that.

00:22:39And we also don't comment on trade policy.

00:22:41We have really specific and important jobs,

00:22:43and we try to stick to those.

00:22:45SENATOR REID.

00:22:45Well, I'm glad I allowed you to establish

00:22:47that principle up front, Mr. Chairman.

00:22:50But let me opine a bit.

00:22:53Ten percent increases in tariffs is going to have an effect

00:22:56on prices in the shop aisle.

00:22:58It's going to increase them because they'll be passed

00:23:00on likely.

00:23:01Sixty percent tariff increases are significant.

00:23:04And, in fact, I've been told that to replace the income tax,

00:23:07you would have to raise tariffs across the board 70 percent

00:23:12to make up for the loss of the income tax,

00:23:15which would, I think, create huge economic problems.

00:23:19I respect your impartiality and your neutrality,

00:23:23but the numbers don't seem to add up to anything

00:23:26that would help the country.

00:23:29Let me switch to something else that might be more

00:23:31within your line of response.

00:23:36You said in your opening statement

00:23:37that labor markets appear to be in a better balance.

00:23:41And that's one of the key factors

00:23:43to judge whether interest rates can be raised.

00:23:47I must say I'm concerned a bit that we're not

00:23:51on a very faster track to decreasing interest rates

00:23:56from the Fed, and because of the better balance you cite.

00:24:00Could you comment on that, Mr. Chairman?

00:24:02Sure. So the most recent labor market data do send,

00:24:08to your point, a pretty clear signal

00:24:10that labor market conditions have cooled considerably

00:24:13compared to where they were two years ago.

00:24:15This is no longer an overheated economy.

00:24:17This is an economy, as I mentioned in my opening remarks,

00:24:20that is more or less back, by most measures,

00:24:22to where it was before the pandemic.

00:24:24And that was a strong labor market,

00:24:26but it was not an overheated labor market.

00:24:28So I think the upshot of that really is that we are,

00:24:33we're well aware that we now face two-sided risks

00:24:37and have for some time.

00:24:38But now, you know, the labor market appears

00:24:40to be fully back in balance.

00:24:42We know that if we move too quickly, we risk, you know,

00:24:48unnecessarily hampering economic activity

00:24:51and possibly interfering with the ongoing expansion.

00:24:54We know that if we move too slowly,

00:24:56that we may undo the good we've done.

00:24:58Well, actually, it's the other way.

00:25:00If we loosen policy too late or too little,

00:25:05we could hurt economic activity.

00:25:07If we loosen policy too much or too soon,

00:25:11then we could undermine the progress on inflation.

00:25:12So we're very much balancing those two risks,

00:25:15and that's really the essence

00:25:17of what we're thinking about these days.

00:25:18But the direction seems to be going towards lowering interest

00:25:23rates at some point, we would hope.

00:25:24That might be a wish rather than a direction.

00:25:28I think if you look at the last summary

00:25:30of economic projections, I guess I would say it this way.

00:25:34It doesn't seem likely

00:25:35that the next policy move would be a rate increase.

00:25:38We don't take things like that off the table,

00:25:39but that does not seem the likely direction.

00:25:41The likely direction does seem to be as we make more progress

00:25:45in inflation and as the labor market remains strong,

00:25:48we begin to loosen policy at the right moment.

00:25:50Thank you.

00:25:51Just two weeks ago, the Supreme Court handed down two decisions

00:25:57that impact every federal regulatory agency,

00:26:01including the Federal Reserve.

00:26:03They overturned the Chevron case,

00:26:06which had eliminated judicial deference

00:26:10to agency decision-making for many, many decades.

00:26:14And they also dramatically extended the statute

00:26:16of limitations under the Administrative Procedure Act.

00:26:19What is your judgment is the cumulative effect

00:26:22of these decisions on the Federal Reserve?

00:26:25More broadly, what does it mean to the economy

00:26:27if virtually any regulatory decision the Fed makes can be

00:26:31second-guessed by a judge?

00:26:33What position are we in now?

00:26:36So we're, you know, we're, as an institution,

00:26:40very focused on reading the actual letter and intent

00:26:44of the law and following it carefully.

00:26:45This is a strong institutional value that we have.

00:26:49Those are brand-new decisions that just came down,

00:26:52and we're really in the process of just studying some.

00:26:55I don't have anything for you on them, but we will, of course,

00:26:58follow the law as the Supreme Court has read it,

00:27:02because that's their job.

00:27:03Well, thank you.

00:27:04And I concur with compliance with the law.

00:27:07But when you do your analysis, and if it is detrimental

00:27:11to your ability to regulate the banking of the United States,

00:27:15I think you have an obligation to make that public.

00:27:18Thank you, Mr. Chairman.

00:27:19Thank you, Senator Reed.

00:27:20Senator Scott from South Carolina is recognized.

00:27:22Thank you, Mr. Chairman.

00:27:24Chair Powell, we've heard a steady stream of commentary

00:27:27that there will be changes to Basel III, the end-game proposal.

00:27:30That can be seen certainly as good news.

00:27:32Some reports say it could be finalized as soon as August.

00:27:36Others say you're circulating a term sheet

00:27:39for a revised proposal.

00:27:42Through it all, this proposal will have outsized impacts

00:27:46on our banking system from big to regional

00:27:49to our U.S.-based foreign institutions,

00:27:51as well as impeding access to credit for consumers.

00:27:55So even though you yourself have said there will be broad

00:27:59and material changes, I believe this proposal is flawed,

00:28:03both in process and in substance,

00:28:05and should be withdrawn.

00:28:06Do you agree, and will you commit

00:28:08to withdrawing the existing proposal

00:28:10and issuing a new proposal with a robust notice

00:28:12and comment process?

00:28:15Let me update everyone on the status of all that.

00:28:19So over the past several months, we've had, in fact,

00:28:25Vice Chair for Supervision Barr has held a series

00:28:28of discussions with the other bank regulatory agencies

00:28:31around potential changes to the original proposal.

00:28:34I'm pleased to say that we've made quite a bit of progress

00:28:37on those and are very close to agreeing

00:28:39on the substance of those changes.

00:28:43And I can't really be specific

00:28:44because nothing is agreed until everything's agreed,

00:28:46so I won't have a lot of specifics for you today.

00:28:49The question where we're continuing to try

00:28:52to make progress is that of process.

00:28:54So it is my view, it is the strongly held view

00:28:58of members of the Board, that we do need

00:29:02to put a revised proposal out for comment for some period.

00:29:06And the reason is, you know, when there are broad

00:29:08and material changes, that has been our practice.

00:29:11We don't see a reason to deviate from that practice.

00:29:13It seems to be consistent with past practice

00:29:16and with the Administrative Procedure Act.

00:29:18So that's very much what we think.

00:29:20And we're working through that question

00:29:24with the FDIC and the OCC.

00:29:27We haven't reached agreement on that,

00:29:28but I'm very hopeful that we will.

00:29:30You know, we're prepared to move forward at that,

00:29:33when we do reach agreement on that.

00:29:36Well, I appreciate most of your response there.

00:29:39I do want to discuss one aspect more

00:29:41of Basel before we move on to another topic.

00:29:44Find it very concerning with how much of this proposal,

00:29:47this process, appears to have been done

00:29:49behind closed doors.

00:29:51The Fed, the FDIC, OCC proposed Basel III

00:29:54at the end game last July.

00:29:57Then in October, the Fed began the collection of data

00:30:01to conduct a quantitative impact study

00:30:04on the cost of Basel III proposal,

00:30:06a study which I will note should have been conducted

00:30:09before any proposal was ever issued.

00:30:12Move forward to January of this year,

00:30:14Vice Chair Barr committed to a public comment period

00:30:17once results of the study were published.

00:30:20We are still waiting to view the results.

00:30:23Keep in mind, all the while,

00:30:25we're hearing rumors that the Fed is working

00:30:26on revising its proposal

00:30:28and moving towards an updated version.

00:30:31Please help me understand how will the Fed revise

00:30:33or reissue a capital proposal

00:30:35before receiving public comments?

00:30:37Basically my question.

00:30:38As you know, we have received extensive public comments

00:30:41and we've also evaluated the quantitative impact survey

00:30:45that you mentioned.

00:30:46Yes.

00:30:47So the idea would be when we do reach agreement

00:30:49with the other agencies fully,

00:30:51that we would publish the proposed changes

00:30:55and also the quantitative impact survey

00:30:59and also the effects that the QIS suggests

00:31:02that the changes would have.

00:31:03So we'll put all that out for comment again

00:31:06for a period of time.

00:31:07And then, having had yet another round of comment,

00:31:11and we can then move toward finalizing.

00:31:14That's basically the broad strokes

00:31:17of how I would see this moving forward.

00:31:20How long do you see that opportunity for public comments?

00:31:26So it would be meaningful.

00:31:28I mean, it might be 60 days.

00:31:29We don't need to make,

00:31:30it doesn't need to be a long one.

00:31:31But before we do that, we'd need,

00:31:34there's a lot of work that needs to take place

00:31:37before you actually put out the revised proposal,

00:31:41quite a bit of work.

00:31:43So it will take some time and then we would put it out

00:31:46and then there would be,

00:31:47I mean, I'm just taking that number, 60 days of comment,

00:31:51and then we would get the comments back

00:31:52and it would be another period of evaluating the comments.

00:31:57And only then would you go final.

00:31:59So there are a number of steps here.

00:32:01Thank you.

00:32:02Well, just final point as I'm running out of time here.

00:32:05Senator Reed made the comment about the Chevron case

00:32:09and the impact that it could have,

00:32:10certainly curtailing, from my perspective,

00:32:12the regulatory state.

00:32:14The necessity of a cost-benefit analysis

00:32:17on new regulations that will impact the economy,

00:32:19I think is quite helpful.

00:32:21In the thousands, thousand plus pages of Basel III,

00:32:24I think there were about 20 pages

00:32:25that reflected some kind of cost-benefit analysis approach.

00:32:28I really hope that we see more of that going forward.

00:32:33Thank you.

00:32:34Senator Tester from Montana is recognized.

00:32:36Well, thank you, Mr. Chairman.

00:32:38Thank you for the courtesy.

00:32:40Chairman Powell, good to see you here today.

00:32:42Appreciate your work.

00:32:44Look, regardless where I go in the state of Montana,

00:32:50housing is a big issue,

00:32:51whether it's Billings or Butte or Bozeman or Busby

00:32:54or Big Sandy, it doesn't matter.

00:32:56Larger towns to medium-sized towns to small towns,

00:32:59housing is a huge issue.

00:33:02And I think it's a huge issue all over the country,

00:33:04and correct me if I'm not correct in that.

00:33:07And I was wondering how the housing challenges

00:33:10fit into the overall economic picture that you're seeing.

00:33:15So we do pay a lot of attention,

00:33:18and I would agree with you.

00:33:20We have significant housing issues in the country,

00:33:23and we had them before the pandemic.

00:33:26Certainly the pandemic has created new distortions.

00:33:31And monetary policy works

00:33:34through interest-sensitive spending.

00:33:35There is no more interest-sensitive spending

00:33:37than buying a house and having a mortgage.

00:33:39So for sure, our tighter policy is having an effect

00:33:45on economic activity in the housing sector.

00:33:48But I would also say the best thing we can do for housing

00:33:53is to succeed in getting inflation down to 2%

00:33:56on a sustainable basis so that rates can come down

00:33:58so that the housing market can get back

00:34:01to what was the pre-pandemic normal,

00:34:03which is to say still a housing shortage,

00:34:05but not dealing with the kinds of specific things

00:34:08we're dealing with now.

00:34:10So let me drill down a little bit.

00:34:13I'm speaking not necessarily from a housing cost interest,

00:34:17and you're correct on the things you just brought up.

00:34:19I'm speaking more from a standpoint of economic growth

00:34:23in that there are plenty of small businesses,

00:34:26schools, hospitals, main street businesses

00:34:29that can't hire people, they can't expand

00:34:32because there simply is no place for them to live.

00:34:35How does that fit into your economic outlook metrics?

00:34:41Because I think it's, from my perspective,

00:34:44I think it's limiting the opportunity for expansion,

00:34:46it's limiting the opportunity for entrepreneurs,

00:34:48just business startups.

00:34:50And does that fit into the economic picture

00:34:53that you look at?

00:34:54So our mandate is for stable prices and maximum employment.

00:34:59And again, I think for housing supply,

00:35:03the best thing we can do is get inflation under control

00:35:06so that rates can come back down

00:35:08so that we can have a more normalized set of rates

00:35:11and a more normalized housing system.

00:35:13But I think policies to increase housing supply

00:35:17are really not so much in the hands of the Fed,

00:35:20they're in the hands of legislatures, state and federal.

00:35:24Do you believe that if we were to put forth

00:35:27some housing incentives, whatever they may be,

00:35:31that could have a, if it resulted,

00:35:33if those incentives resulted in more affordable

00:35:36workforce housing on the market,

00:35:38that would have positive impacts on the economy?

00:35:41These are questions for you,

00:35:43but I would say this, that I'm aware that we,

00:35:47that housing is in short supply,

00:35:50and that for many, it's a critical need for the workforce.

00:35:55And so more of it is better,

00:35:57but as to where the fiscal policy,

00:36:00how you should prioritize that, that's not up to us.

00:36:02Look, I wanna talk about the independence

00:36:05of the Fed for a second,

00:36:06because I know that you are a strong supporter

00:36:09of independence, as am I,

00:36:11and political influence, I don't think,

00:36:14helps with monetary policy in the country.

00:36:17And so give me your perspective, at least,

00:36:21on why the central bank independence

00:36:25is so critically important.

00:36:27Thank you, I'd be glad to.

00:36:28So essentially, all advanced economies

00:36:32have adopted a policy of central bank

00:36:34and operational independence,

00:36:35and that just means that we make our decisions,

00:36:38and we're instructed to make them

00:36:39without taking in extraneous factors,

00:36:41one of which would be politics.

00:36:43And the record is pretty clear that that's a good,

00:36:47it's a good institutional arrangement

00:36:49that serves the public well.

00:36:51And we just wanna stress, as we do periodically,

00:36:56that this is an institutional choice

00:36:58that we make as a country,

00:37:00and that as long as it's seen to serve the public well,

00:37:02it's a good choice, we think so.

00:37:04Okay, on advanced economies,

00:37:07there's some that talk about the economy of this country

00:37:10not being in very good shape.

00:37:12From your perspective,

00:37:15tell me how the economy of this country's doing

00:37:17compared to other advanced economies

00:37:19that have central banks.

00:37:21You know, so I'm in lots and lots

00:37:23of international discussions as part of my job,

00:37:26and the story for the last two years

00:37:28has been just how exceptional

00:37:29the performance of the U.S. economy has been.

00:37:33And that's not a secret.

00:37:35There's a,

00:37:37clearly the U.S. economy has performed very well

00:37:39compared to sort of our advanced economy colleagues.

00:37:44Is there any country in the world with central bank,

00:37:46any advanced economy that's performing better?

00:37:49Better as a central bank?

00:37:51No, any economy that's an advanced economy

00:37:54that has a central bank that performs better than us.

00:37:57I, you know, none comes to mind.

00:37:59As I think of the majors, the answer would be no.

00:38:01Okay, thank you.

00:38:03Thanks, Senator Tester.

00:38:05Senator Rounds of South Dakota is recognized.

00:38:07Thank you, Mr. Chairman.

00:38:09Mr. Chairman, first of all,

00:38:10thanks for coming in again and visiting with us.

00:38:13I just want to focus on two specific items,

00:38:15and I'm going to start with the Basel

00:38:17three-end game discussion.

00:38:19I think Senator Scott did an excellent job

00:38:21of kind of laying out the concerns

00:38:22that many of us have had with it.

00:38:25I would like to go back into just one particular issue,

00:38:27which I think a lot of folks out there that follow this,

00:38:30and I know it's technical in nature,

00:38:32but let me just ask a specific question,

00:38:35and you can kind of pick it apart for me, please.

00:38:37Both you and Vice Chair Barr have confirmed

00:38:41that there will be material changes

00:38:43to every risk type outlined in the proposal.

00:38:47Since there will be significant changes,

00:38:50do you believe where the agencies have landed now

00:38:53would be considered a logical outgrowth

00:38:56of the original proposal from last summer?

00:39:00For those people who are not familiar with,

00:39:02that's the legal test that turns out to be.

00:39:05If it's a logical outgrowth,

00:39:06if it's not a logical outgrowth,

00:39:07that would require, legally require, a re-proposal,

00:39:11and I don't want to make the legal judgment.

00:39:13I will just say again, from my standpoint,

00:39:15my view and strongly held view

00:39:18of some of my colleagues on the board

00:39:20is that it will be appropriate for us

00:39:21to put out the changes again for a period of comment

00:39:25just because it's the right thing to do.

00:39:27It's what we would do typically in a situation

00:39:30where there are material changes to a proposed rule.

00:39:33Do you feel that you have a consensus in the board

00:39:35to allow that to move forward

00:39:37in terms of an additional comment period?

00:39:40Yes, but of course, we have to get the FDIC and the OCC,

00:39:44you know, we're in discussions with them

00:39:47to work on something that would meet that need,

00:39:50and we have to get their agreement, too.

00:39:53Assuming, it sounds like that's the path

00:39:55that you would like to go down.

00:39:56Yes.

00:39:58If that were the case, would it be fair to say

00:40:01that we'd probably be looking at final determinations

00:40:04or recommendations for a Basel III endgame proposal

00:40:08probably into next year

00:40:10before it would become anything of a final determination?

00:40:13I think that may be right.

00:40:15You know, it's something like that could be right, yeah.

00:40:20I mean, it's hard to be precise.

00:40:22You know, we would put it out.

00:40:24It takes some time to write this stuff up.

00:40:26Then you put it out for comment.

00:40:27Then you get the comments.

00:40:28Then you read the comments.

00:40:29Then you write the final rule.

00:40:32You know, beginning part of next year is a good guesstimate.

00:40:35The only reason why I push it is because there are so many

00:40:37folks directly involved with this

00:40:38and the impact on our economy here

00:40:41and with a lot of our financial institutions.

00:40:42This is a significant change,

00:40:44and it's one that a lot of people are following,

00:40:46so I'm trying to get you to get into the depth of this

00:40:49as much as possible, and I thank you for that.

00:40:52I'd also want to go into one other area,

00:40:54and once again, this is something that you and I

00:40:55have had visits about in front of this group before,

00:40:58but I want to talk about what the parts of inflation are

00:41:01and what parts you can control

00:41:02and what parts, as the Fed, you really can't control.

00:41:06The demand side of the equation on inflation

00:41:09is the part that you have the tools to work with,

00:41:12but there is the supply side of the equation,

00:41:15which is still out there, and I want to just lay this out

00:41:17because as we do this in this setting,

00:41:20it naturally becomes political in nature

00:41:22because one of the starting points that we talk about

00:41:26is when this administration took office

00:41:27and what happens with supply-side issues at that time,

00:41:31and as I work my way through this,

00:41:32I just want to share the concern that I've got,

00:41:34and then I recognize you don't want to be political in it,

00:41:37but I want to lay this out,

00:41:38and then I want to talk about what you can control

00:41:40and what you can't control

00:41:42with regard to making changes on inflation

00:41:44through the processes that you have.

00:41:48When President Biden took office,

00:41:50gasoline prices, since President Biden took office,

00:41:54gasoline prices have risen over 54%.

00:41:58Energy prices have risen 41%.

00:42:02Fuel oil prices have risen 37%.

00:42:06Now, I can go on and on,

00:42:07but you understand what I'm saying

00:42:08is that energy has increased substantially,

00:42:11and I think one of the reasons for this

00:42:13has been additional demand as we've come out of a pandemic,

00:42:16but the other part of this has been whether or not

00:42:18investors really want to go back in

00:42:20and invest in traditional energy resources

00:42:23after the president made the specific determination

00:42:26to cancel the Keystone XL pipeline

00:42:28on the day that he stepped into office.

00:42:30When he did that, he sent one heck of a message

00:42:32to investors about traditional energy

00:42:34and investing in traditional energy in the United States

00:42:37and the fact that a multibillion-dollar contract

00:42:39or contract could be canceled with a stroke of a pen.

00:42:44Now, my question to you is, what percent,

00:42:48or has there been a discussion about what percent

00:42:52or what amount of the inflation that we've seen,

00:42:55over 20% increase in terms of affordability

00:42:58for a lot of our products,

00:42:59how much of that is attributable to the demand side

00:43:02and how much of it really is attributable

00:43:03to supply-side challenges that we've seen in this country?

00:43:08That's a question that we've thought about a lot,

00:43:11and any attempt to reduce that to a precise number

00:43:15would be inappropriate because it's so uncertain.

00:43:19But I think we can say, I believe strongly,

00:43:22there's a significant demand element

00:43:24and there's a significant supply element.

00:43:25And we've seen the supply side heal so much

00:43:29over the course of the last year or so,

00:43:30and we clearly see that that's contributing

00:43:32to lower inflation.

00:43:33We also see cooling demand, for example,

00:43:35in the labor market.

00:43:36So the two forces are working together.

00:43:37I can't really break it down.

00:43:40It wouldn't be, it would be such an imprecise estimate.

00:43:43Just simply an acknowledgement, though,

00:43:45that it is both demand and it is supply.

00:43:48It is both, yeah, for sure.

00:43:51Thank you, Mr. Chairman.

00:43:52My time has expired.

00:43:54Chair Powell, unemployment has risen

00:43:57by half percentage point over the past year.

00:43:59The number of job openings has dropped almost 50%.

00:44:04The hiring and quit rates are now below

00:44:05pre-pandemic levels.

00:44:07I'm concerned that if the Fed waits too long

00:44:10to lower rates, the Fed could undo the progress

00:44:14we've made on creating good-paying jobs.

00:44:16Full employment is part of the mandate,

00:44:17as you say over and over.

00:44:19How are you assessing the risks of higher interest rates

00:44:22in the labor market?

00:44:24So I completely agree with your characterization

00:44:26that the latest data do show that we've had

00:44:30considerable cooling in the labor market,

00:44:32and we do, we're very much aware

00:44:34that we have two-sided risks now,

00:44:36as I mentioned earlier, and we're determined

00:44:39to balance those as best we can.

00:44:42We want to see more good inflation data,

00:44:45and we also want to continue to see a strong labor market.

00:44:47And those two things are equal under the law.

00:44:50We have this challenging thing to balance them,

00:44:52but we're very much conscious that that is our job,

00:44:54and we're trying to do that.

00:44:55Well, and you know that if unemployment trends upward,

00:44:58you must act immediately to protect Americans' jobs.

00:45:01Workers have too much to lose if the Fed overshoots

00:45:04inflation targeting, causes a completely

00:45:06unnecessary recession.

00:45:08We will say that over and over and over again.

00:45:11I think you understand that.

00:45:14Housing, higher interest rates are making housing

00:45:16more unaffordable.

00:45:17Higher rates are supposed to lower costs,

00:45:20yet housing prices continue to soar.

00:45:22By keeping rates high, the Fed ignores the economic reality

00:45:26of the millions of Americans struggling

00:45:28to make ends meet and get ahead.

00:45:29Let me ask you three quick yes or no questions,

00:45:32if you would answer that way.

00:45:34Since late 2022, when the Fed began raising rates,

00:45:38has the volume of housing sales decreased?

00:45:42I believe it has, yes.

00:45:44Since late 2022, has the median home price increased?

00:45:48I believe it has.

00:45:49Since late 2022, have monthly mortgage payments

00:45:52become more affordable or less affordable for homebuyers?

00:45:56Less affordable.

00:45:57Okay, thank you.

00:45:57In short, despite housing sales declining,

00:46:00the median price for a single home,

00:46:03single family home, has increased by nearly $20,000.

00:46:06People are spending a greater share of their income

00:46:10in mortgage payments.

00:46:11So in sum, higher rates, it's clear from your answers

00:46:14and data, it's clear higher rates are not bringing down

00:46:17housing costs.

00:46:18The cost of home ownership is only going up.

00:46:22Let me shift to the synopsis.

00:46:24Bankruptcy, since mid-May, tens of thousands of people,

00:46:27including many Ohioans, have lost access to their money.

00:46:30Due to the bankruptcy of this fintech middleman.

00:46:34Reports indicate that as much as $95 million

00:46:36may have gone missing.

00:46:38The Fed oversees one of Synopsys' former partner banks,

00:46:42Evolve Bank and Trust.

00:46:43As a regulator, it's your job to make sure

00:46:45that banks protect the people whom they serve.

00:46:48What's the Fed doing to help customers

00:46:52who felt the impact by the Synops collapse?

00:46:55What are you doing to regain access to their money?

00:46:57So we do supervise the bank.

00:47:00We don't supervise Synapse or let alone the fintechs

00:47:02that feed into Synapse.

00:47:04And we're strongly encouraging Evolve

00:47:07to do whatever it can to help make money available

00:47:11to those depositors.

00:47:12We also, as you may know, did an enforcement action against,

00:47:17before this all happened, we did an inspection

00:47:19or looked at Evolve and we hit them

00:47:23with an enforcement action

00:47:26around these very risk management issues.

00:47:28Again, before the current situation developed.

00:47:31Okay, it's critical that consumers are made whole

00:47:34as soon as possible.

00:47:35We will continue to talk to you about that.

00:47:37We will watch.

00:47:38We will let you know we're watching.

00:47:40The Fed needs to use its supervisory authority

00:47:42to ensure that Evolve is committing the resources necessary

00:47:46to return those funds to the account holders.

00:47:49Last comment.

00:47:51I wanna note one last thing.

00:47:53Last year's Fed report on the failure

00:47:55of Silicon Valley Bank noted how incentive-based

00:47:58compensation encouraged excessive risk taking

00:48:01that led to the bank's failure.

00:48:04You either watched or had reports

00:48:06of when those bank CEOs testified

00:48:08in front of this committee.

00:48:11The report, the incentive-based compensation

00:48:15that led to the bank's failure,

00:48:16I mentioned it said that SVB managers,

00:48:19quote, had a financial incentive to focus

00:48:21on short-term profit over sound risk management.

00:48:25That's what a number of us, Senator Smith,

00:48:26Senator Butler, Senator Warner and I have said over and over

00:48:30that short-term profit over sound risk management

00:48:34causes significant problems to our financial system.

00:48:38Compensation practices still pose a threat

00:48:43to our banking system.

00:48:44I urge you to move quickly to join your colleagues

00:48:47in the long overdue rulemaking on executive compensation.

00:48:51I mean, you know, you read the reports.

00:48:54The outrage of the public about executive compensation

00:48:58continue to go up and up and up and up.

00:49:01You have a role, a significant role,

00:49:03a legal role to deal with that.

00:49:06Thank you.

00:49:08Senator Tillis is recognized.

00:49:10Thank you, Mr. Chair.

00:49:11Chairman, thank you for being here.

00:49:14I want to be real quick on Basel III in game

00:49:16and I want to be mindful of time.

00:49:19Just simply, can I get a commitment from you

00:49:21on releasing the results of the QIS?

00:49:25Yeah, we plan to release the results of the QIS.

00:49:28What time frame?

00:49:29Well, first we have to get agreement

00:49:31with the other banking agencies, but as soon as possible.

00:49:35Can you imagine any agencies having a concern

00:49:37with any other banking agencies having a concern

00:49:39with releasing it?

00:49:40Or is it just a matter of pro forma?

00:49:41Not at all.

00:49:42Okay.

00:49:43No, it's just a matter of the bigger picture

00:49:44of getting agreement on the revisions to Basel III

00:49:47and also how to proceed.

00:49:49That's great.

00:49:50And I really appreciate the feedback

00:49:53that I've received from you.

00:49:54I should have started by thanking you again

00:49:56for your continued accessibility and discussions

00:49:59outside of the committee.

00:50:00They're very productive and I appreciate that

00:50:02and your leadership at the Fed.

00:50:04I grew up in the 70s.

00:50:07Got my social security number in 1973

00:50:10when I was 12 years old.

00:50:12That's when I made my first payment.

00:50:13So I've been following the economy even as a youngster.

00:50:16And that was a really lousy time to enter in the workforce.

00:50:21Tell me, and I'm hearing discussions

00:50:24among some of our members now

00:50:25that would almost be reminiscent of discussions

00:50:27with prior Fed members saying,

00:50:29look, we gotta lower interest rates

00:50:31and we've got unemployment out of control.

00:50:36So it sounds like we're taking some suggestions

00:50:39from some of my colleagues or plays from a playbook

00:50:42that didn't prove to be very effective back in the 70s.

00:50:46What can we learn?

00:50:48I'm not gonna ask you about where you go from here.

00:50:51But if we look back into a post-mortem

00:50:54on some of the decisions that were made

00:50:56when we had consistently high uninflation,

00:50:59we had the inflation, I should say,

00:51:01we had consistently high unemployment,

00:51:04what lessons can we learn there

00:51:06or what mistakes should we not necessarily repeat?

00:51:08And I know that this is a fingerprint of a challenge.

00:51:13It's not exactly like the stressors

00:51:15that we had back in the 70s.

00:51:17But what can we learn from the decisions,

00:51:19what I think are arguably the wrong decisions

00:51:22made back then when we were dealing

00:51:23with high unemployment and high inflation?

00:51:26What do we learn?

00:51:27I think the number one thing we learned

00:51:29was that it's up to the central bank to take it on

00:51:31and stick with it until it's done.

00:51:33And that doesn't sound controversial now,

00:51:36but it actually was back then.

00:51:37And so people didn't really get in there and get it done

00:51:41and inflation kept coming back.

00:51:44I also think there are significant differences this time

00:51:47to the questions a minute ago.

00:51:49This is a combination of a supply side

00:51:52that we had very significant supply shocks

00:51:55along with big demand shocks

00:51:58from the reopening of the economy

00:52:00and from all the other things that happened.

00:52:01So I think we have to,

00:52:04each one of these things is different in its own way.

00:52:06We try to learn the lessons of history though.

00:52:08You agree or disagree,

00:52:10any disconnect between inflation

00:52:13and inflation expectations from the 2% target

00:52:16should be addressed now and not at a later time?

00:52:18Absolutely.

00:52:20I like that answer.

00:52:22I want to go to something different.

00:52:24I'm trying to go into a lightning round now

00:52:27and finish on time.

00:52:30We've seen the 2024 stress test results

00:52:33for the banking, US banking system.

00:52:37It looks like to me by every objective measure,

00:52:41we've got a strong, we've got a banking system

00:52:43that's on strong financial footing.

00:52:47Do you agree?

00:52:49Yes.

00:52:51One last thing.

00:52:52As the Fed considers making broad and material changes

00:52:54to the Basel III proposal back on that one,

00:52:59can I urge you not to overlook the second order issues,

00:53:03important FBOs in certain regionals

00:53:05to ensure that banks are not unduly influenced?

00:53:11The current proposal, for example,

00:53:12the outsized operational risk costs were high.

00:53:16Are we gonna take care of that

00:53:18in any sort of re-proposal?

00:53:19Let me just say we're very conscious

00:53:21of the comments across the spectrum,

00:53:24foreign banks, domestic banks, small, medium-sized banks.

00:53:28Everyone's gonna get heard carefully

00:53:29as part of this process.

00:53:30That is our obligation.

00:53:32And I think in response to Senator Round's question,

00:53:35you did indicate that probably because of the nature

00:53:38of the likely changes from what Mr. Barr expected

00:53:42to what may ultimately come,

00:53:43we are gonna open it up to comment again?

00:53:45That's the strong view of the Federal Reserve.

00:53:48We're working on that question with the FDIC

00:53:51and the OCC to try to find a path to do that.

00:53:53But from our standpoint, that's essential.

00:53:55I think it's a strong view from at least several members

00:53:58on this side of the dais here

00:53:59that that would be very, very, very important

00:54:01because I think it's gonna materially change.

00:54:03Thank you, Mr. Chair.

00:54:04Thanks, Senator Telles.

00:54:05Senator Warner of Virginia is recognized.

00:54:07Thank you, Mr. Chairman.

00:54:09Chairman Powell, it's good to see you again

00:54:11coming this late in the questioning.

00:54:13I'm gonna at least hit a couple of the items

00:54:16that my colleagues otherwise already hit

00:54:19because I'll make sure it's noted

00:54:21that I raised them as well.

00:54:22First of all, I wanna agree with the chairman.

00:54:24I probably hear more on housing and housing affordability

00:54:27than any other issue, and I agree with the chairman.

00:54:31And I know we've discussed this around a rate cut,

00:54:34and I understand most of your answer,

00:54:36but I still wanna add my two cents here.

00:54:39We've gotta find a way to start bringing mortgage rates down

00:54:42and let people unlock that housing market.

00:54:46And again, we've discussed the rate cut issue,

00:54:48and I know you've gotta navigate that,

00:54:51but I hope it's sooner than later.

00:54:53I will not recap what I've done

00:54:57in the last couple hearings with you,

00:54:59but I do think the discount window proposal

00:55:01that I've gotten that I know you're working on

00:55:04before we think about additional regulations

00:55:06that we do need in some cases,

00:55:08I think the discount window is an underused tool,

00:55:11was one of the original tools for the Fed.

00:55:13A lot of my colleagues have talked about quantitative easing

00:55:16or I mean Basel III endgame.

00:55:19I do hope when we get the revisions

00:55:21that we'll see the quantitative analysis

00:55:24that again, Senator Tillis already raised

00:55:26and other colleagues have raised.

00:55:28I also hope that one of the questions I raised

00:55:30in my March letter to you was,

00:55:33making sure any new regulatory structure,

00:55:34how it intersects with existing regulatory structure

00:55:39in terms of market risk, credit risk,

00:55:42and I again hope that we will have that

00:55:44as the revisions come out.

00:55:46I think one of the things that this debate

00:55:50around Basel III raised was that it is,

00:55:55my understanding at least,

00:55:56looked at, you may be all looking at revisions

00:56:00to liquidity standards as well,

00:56:02and wanted to see what you could say about that

00:56:06and whether that part of those standards are under review

00:56:11and what you're thinking is.

00:56:12Yeah, and I think that actually connects

00:56:14to the Silicon Valley Bank questions as well,

00:56:17where I think there seems to be a need

00:56:19to update assumptions about liquidity.

00:56:22And that's a separate proposal that we're also working on.

00:56:26And very important, I think we saw how fast that run was.

00:56:29It was just exponentially faster than prior runs.

00:56:32That's the new world and that's some estimate

00:56:35of what that world is, is baked into things

00:56:38like the liquidity coverage ratio, for example.

00:56:41Right, and wasn't that the case if you had 25 cents

00:56:45on every depository dollar leave in six hours,

00:56:47no matter what the capital standards are.

00:56:48And one of the things, I guess,

00:56:50there was a lot of talk after SVB

00:56:53that we need to think about internet-driven runs.

00:56:58A lot of us raised concerns.

00:57:00Candidly, I'm not sure I've heard any good proposals.

00:57:04Whether it comes from you guys or from folks listening,

00:57:06how we think about this new internet-driven world.

00:57:09And frankly, I think some of the irresponsible behavior

00:57:13by some of the folks that were major depositors in SVB

00:57:17who, in many ways, shouted fire in the crowded theater

00:57:20and we've not seen any action there.

00:57:22So I would welcome additional ideas as well.

00:57:26And that kind of brings me to my last questions

00:57:28around supervisory reform.

00:57:32I know the GAO criticized the Fed's supervisory procedures

00:57:38in the role they played in the 2023 failures.

00:57:43It is a whole brand new world.

00:57:47Are we gonna look at,

00:57:49will your changes to supervisory standards be comprehensive?

00:57:55Will they be one-off?

00:57:56How do you think about that in light of the GAO report

00:58:00and also in light of just the SVB

00:58:02and a few of the other failures we saw last year?

00:58:04Vice Chair Barr, who's vice chair for supervision,

00:58:08is leading a process of looking at the way

00:58:12we supervise banks and thinking about how we can be faster

00:58:17where it's appropriate, more forceful where it's appropriate.

00:58:21And I think they've taken a pretty deep dive

00:58:25and tried to learn these lessons

00:58:26and then implement them in a way that is appropriate.

00:58:30So that's a big project going on at the Fed right now,

00:58:33which really vice chair for supervision leads.

00:58:36I think I remember lots of conversations

00:58:39with the chairman, with you, with the FDIC

00:58:41in that Thursday through Sunday.

00:58:43And I think the solution you guys came up with,

00:58:45the administration came up with by Sunday night

00:58:48was a good one, but they were pretty scary

00:58:50three or four days there.

00:58:52And it did seem like the process,

00:58:54I don't know completely how you get fully ahead of that,

00:58:57but I firmly believe that there should have been

00:59:01a clearer early warning system

00:59:04and trying to make sure that we wouldn't be

00:59:06in that kind of crisis situation going forward.

00:59:08And again, I would strongly encourage

00:59:11any additional thoughts on this technology risk

00:59:13and how we get that right.

00:59:14Thank you, Mr. Chairman.

00:59:15Thank you, Senator Warner.

00:59:16Senator Kennedy of Louisiana is recognized.

00:59:20Thank you, Mr. Chairman.

00:59:25Mr. Chairman, our economy is slowing, is it not?

00:59:31Yes, although still growing at a solid pace.

00:59:36Our unemployment rate is rising, is it not?

00:59:41Yes, it is, although the labor market is still strong.

00:59:48Our labor market is slowing, is it not?

00:59:51Yes, but I'd say unemployment is still low

00:59:55by historical standards, but yes, we've seen cooling, yes.

01:00:00And I was looking at the recent jobs numbers.

01:00:05I know you've glanced at them, too.

01:00:12About three quarters of the net new jobs

01:00:16that were created in June were in government

01:00:20healthcare and social assistance.

01:00:23What does that tell you?

01:00:25So that's a concentration.

01:00:27You'd rather see broader job creation than that.

01:00:32Those three areas have, in some reports,

01:00:35they've been, as it was this time,

01:00:38they've been the predominant creators of jobs.

01:00:41That tells you that job creation's becoming less broad

01:00:43in the economy and it's narrowing.

01:00:45It tells you that government's

01:00:46creating those jobs, doesn't it?

01:00:48Well, it's government, it's also in-person services,

01:00:52it's also, some of it's government.

01:00:55Manufacturing's been flat.

01:00:58Yes, manufacturing's not creating

01:01:00a lot of new jobs these days.

01:01:01Information technology shed jobs

01:01:04over the past two years, hasn't it?

01:01:06I don't know.

01:01:09Leisure and hospitality jobs have slowed

01:01:12to almost a trickle.

01:01:14That's a place where there was

01:01:18a desperate worker shortage,

01:01:19and they've done quite a bit of hiring,

01:01:20but they're catching up now.

01:01:22I mean, three quarters of the jobs

01:01:25that are being created in our economy

01:01:28can be related directly or indirectly

01:01:32to our spending deficits, can't they?

01:01:37In this report, in this single report,

01:01:39I don't know that healthcare

01:01:41is really government spending.

01:01:44That's something people are consuming.

01:01:44Well, where do you think these hospitals get their money?

01:01:47They may get it, but I mean, people are not,

01:01:50the spending on healthcare is not necessarily

01:01:53directly related to deficits, is my point.

01:01:56I would disagree with you.

01:02:02I mean, here's my point.

01:02:03We talk a lot about expectations

01:02:08in terms of inflation, how if we expect

01:02:10there to be inflation, we'll get inflation.

01:02:15It seems to me that consumer expectations

01:02:19play a bigger role in the economy

01:02:23than we cede to them.

01:02:26Most of our economy in America

01:02:28is consumer-driven, is it not?

01:02:30Yes.

01:02:31Unlike, say, China, which is manufacturing-driven.

01:02:35Very much so.

01:02:36And I listened to you cite the statistics

01:02:40about the economy, but most Americans

01:02:45don't feel good about the economy, do they?

01:02:49No, and we don't tell people

01:02:51how to feel about the economy.

01:02:52I mean, isn't it a fact that most people,

01:02:54if you ask them to define by dynamics,

01:02:59they would say, that's easy.

01:03:01We get to pay more to live worse.

01:03:05I wouldn't touch a sentence with that word in it.

01:03:10Yeah, yeah.

01:03:13I mean, we can pretty this up all we,

01:03:15I guess my point is, and I know you're going

01:03:17to do this anyway, but I'd be really careful

01:03:20with this economy.

01:03:22I mean, people just don't feel better off today.

01:03:27And one can marshal a persuasive argument

01:03:30that, well, you should, compared to Europe,

01:03:34or compared to China,

01:03:38compared to Canada.

01:03:40But there's, you know, feelings are feelings.

01:03:43People don't feel good about this economy.

01:03:46And it's primarily because of inflation.

01:03:50Let me use my final 30 seconds to ask you.

01:03:55I listened to my good friend, the chairman,

01:03:56give his opening statement.

01:03:59Do you think inflation was caused by corporate greed?

01:04:05I hate to comment on something

01:04:06the chairman was speaking about.

01:04:08Oh, go ahead.

01:04:09Well, so I will just say, we see at the Fed,

01:04:14we see inflation as when there's an imbalance

01:04:18between supply and demand.

01:04:21And we use our tools to work on the demand side

01:04:23of that and bring it back into line with supply.

01:04:26I got two seconds.

01:04:27So when are you going to lower interest rates?

01:04:29I'm today not going to be sending any signals

01:04:34about the timing of any future actions.

01:04:37Thank you, Mr. Chairman.

01:04:39Senator Smith of Minnesota is recognized.

01:04:42Thank you, Mr. Chair.

01:04:43Welcome, Chair Powell.

01:04:44It's good to see you again.

01:04:46I want to follow up on kind of the line of questioning

01:04:49that Senator Tester was on a bit ago.

01:04:52He was talking about how the US economy

01:04:54has been outperforming other advanced economies

01:04:57around the world in terms of growth rates,

01:05:00in terms of unemployment, in terms of inflation,

01:05:02getting inflation under control.

01:05:04Though I think we obviously can all agree

01:05:05that we're not, at least from my perspective,

01:05:09we're not done yet.

01:05:10And we don't want to rest on our laurels.

01:05:11But I'm wondering if you could share what you think

01:05:14that we have learned from this experience.

01:05:17What have we done right?

01:05:19And why is it that we are doing better

01:05:22than some of the other advanced economies in the world?

01:05:27I think that it's down to the fundamental strengths

01:05:29of our economy.

01:05:30So as you may know, European economic officials

01:05:35are very, very focused on this question.

01:05:37They really, it comes up in all of our discussions.

01:05:40They, Europe has seen productivity increases

01:05:43of about 1% a year for 40 years.

01:05:46We've seen 2%.

01:05:48If you take a number and compound it at 1%

01:05:51and compound it at 2%,

01:05:53the difference is just enormous after 40 years

01:05:55in terms of incomes and living standards.

01:05:57And their question is why is that?

01:05:59Why is that?

01:06:00And the standard answer that Americans tend to give

01:06:02and that I would give is it's down to

01:06:05more flexible labor markets.

01:06:07They, in the pandemic, people were,

01:06:09they kept, they stayed in their existing jobs.

01:06:11In the United States,

01:06:12we had people changing jobs at record levels.

01:06:15And that's the kind of thing that adds to productivity

01:06:17and contributes to rising living standards,

01:06:19going back to school and getting skills

01:06:21and things like that.

01:06:22Another one is our financial sector.

01:06:23We have, we don't just have banks.

01:06:26We have a highly developed ecosystem of financing sources

01:06:30that will fund early stage investments.

01:06:32Banks are really not set up to do that.

01:06:34They're prudentially regulated.

01:06:36And so those are some of the things.

01:06:38I think we just have these natural strengths

01:06:41as an innovative, more flexible economy.

01:06:44We can grow faster.

01:06:46I appreciate that.

01:06:47I think sometimes there's a tendency

01:06:48to sort of trash our economy

01:06:50and to sort of say, oh, we suck.

01:06:54And actually, I think that there's great resilience

01:06:56in our economy.

01:06:57I would argue that it has also to do a lot

01:06:59with the incredible resilience of our workers

01:07:02and their creativity and their talent

01:07:04and the training and the education that they have.

01:07:08And I think I would also argue,

01:07:09though I wouldn't expect you to make this case,

01:07:11that the way in which our federal government

01:07:15responded to the pandemic

01:07:18in order to make sure that people weren't evicted,

01:07:20that they still had money to pay their bills

01:07:24even when they weren't able to work,

01:07:27meant that overall our economy survived

01:07:32and was ready to kind of be off to the races

01:07:35when we emerged from the pandemic.

01:07:37But Chair Powell, I'd like to ask you a question,

01:07:40something that you and I have talked about,

01:07:41I continue to be thinking a lot about,

01:07:43which is the commercial real estate risk

01:07:45that we have in this country.

01:07:47I think particularly for office space,

01:07:50we know that that has been under strain

01:07:52the last several years.

01:07:53The sector has remained largely stable,

01:07:55but we are hearing about some additional default risk.

01:07:58And one thing that I'm noting

01:08:00is that there's some expectation or concern

01:08:03that that may fall disproportionately on smaller banks.

01:08:08I think that commercial and regional banks

01:08:11hold an estimated 2 3rds

01:08:12of all the commercial real estate loans in the country.

01:08:15And so unlike larger banks,

01:08:17these smaller institutions might find it a little harder

01:08:21to deal with this.

01:08:22So could you discuss this with us?

01:08:24Could you tell us a little bit about how you see this risk

01:08:28and particularly whether this poses some additional risk

01:08:32that we might be seeing more concentration

01:08:34in the banking sector as these smaller banks

01:08:36are maybe under more pressure?

01:08:38Yeah, so this, to your point,

01:08:40this is a risk that has been with us

01:08:42and will be with us for some time, probably for years.

01:08:46And banks need to be, you know,

01:08:49honestly assessing what their risk is.

01:08:51They need to be assured that they have the capital

01:08:53and the liquidity and the systems in place

01:08:55to manage this risk.

01:08:57The stress test that we apply to the largest institution

01:08:59stressed commercial real estate pretty hard.

01:09:02And again, the conclusion is that the large banks

01:09:07can manage this problem.

01:09:09And most small banks can too,

01:09:10but it is in some smaller banks

01:09:12that tend to have that local concentration

01:09:15in commercial real estate.

01:09:18And, you know, we're in touch with those banks,

01:09:19the supervisors and regulators are in touch with those banks

01:09:23and making sure that they can manage them.

01:09:25And it's gonna be an issue for many banks,

01:09:28but it's one that we're trying to work through,

01:09:30one that we're very much aware of.

01:09:32And again, it'll be with us for some time.

01:09:35Thank you.

01:09:35I think so much about the importance

01:09:37of these small regional community banks

01:09:39in small towns, big towns in Minnesota,

01:09:42and how important it is that, in my book,

01:09:45that they can stay independent

01:09:47and better serve their communities in that way.

01:09:49So I worry about this risk.

01:09:50Thank you, Mr. Chair.

01:09:51Thank you, Senator Smith.

01:09:52Senator Butler of California is recognized.

01:09:56Thank you, Mr. Chairman.

01:09:58Chairman, good to see you.

01:09:59Good to see you.

01:10:00And I am gonna make you do the whole last five minutes

01:10:04since I'm the last one for today.

01:10:08You'll recall the first time that we spoke,

01:10:09I tried to engage you around three specific areas.

01:10:13One was how the monetary policy impacts

01:10:17the quality of life for young Americans

01:10:20in the future in the work that you are doing.

01:10:23Space of climate risk.

01:10:26And what I see as potentially

01:10:30a future challenge down the road,

01:10:32and that is the state of commercial real estate.

01:10:35You and I have had that conversation before,

01:10:37and no surprises today,

01:10:39I'm gonna stick to those three topics.

01:10:42Somewhat related to questions that you've been asked before

01:10:46relative to the housing market,

01:10:48housing affordability, and interest rates,

01:10:51I wanna narrow the scope just a little bit

01:10:53to ask about how those issues and challenges

01:11:00impact, again, the quality of life

01:11:01for America's next generation.

01:11:04Given the severe shortage of affordable

01:11:07and available homes to buy,

01:11:09coupled with high interest rates,

01:11:12young Americans are continually unable to afford homes

01:11:16and are pushed into a rental market,

01:11:17driving rental costs up.

01:11:19So there is sort of trickle-down impact here.

01:11:24Recent Washington Post analysis showed

01:11:27that Gen Z is spending 31% more on housing

01:11:31than their millennial counterparts were 10 years ago

01:11:34after adjusting for inflation.

01:11:36How do you view, that was a long lead-in

01:11:38to just ask the question,

01:11:40how do you envision or view the interest rates of today

01:11:44and the monetary policy balancing that the Fed is doing

01:11:48contributing to the future generation predicament

01:11:52if we are to extrapolate the conditions of today?

01:11:56So our job, of course, is the whole economy

01:12:01and inflation for the whole economy.

01:12:03And the absolute best thing we can do for younger people

01:12:06is to restore price stability

01:12:08so that as we benefited from,

01:12:10I graduated from college in 1975,

01:12:13near the end of the big inflation period.

01:12:14So during most of my adult life,

01:12:17inflation has just been not a factor.

01:12:19And that means stable interest rates,

01:12:21relatively low interest rates.

01:12:23We want to get back to that.

01:12:24And that is what the Fed's job is,

01:12:26is that we're not supposed to look at the housing market

01:12:30as separate from the overall economy.

01:12:32In the meantime, there's no question

01:12:34that higher interest rates are making it harder

01:12:36to buy homes in the short term.

01:12:39But in the longer term, this is the best thing

01:12:41for particularly for younger people

01:12:43who are not yet in the housing market.

01:12:45Let me sort of in line with that community,

01:12:49constituency, population,

01:12:50and definitely aligned with the concerns of my state

01:12:54that's actually facing some severe climate impacts,

01:12:58just as we speak with wildfires

01:13:02and our colleagues and fellow Americans in Texas

01:13:05and the impact of the hurricane.

01:13:07I wanted to pull in your sort of thoughts

01:13:11about the Fed pilot on the climate scenario exercise.

01:13:18In May, the Fed conducted a pilot climate scenario exercise

01:13:21and asked the six largest US banks

01:13:23to examine their balance sheets

01:13:25and how it would be effective

01:13:27if a large hurricane hit the Northeast.

01:13:29They reported facing data gaps on property characteristics,

01:13:33their counterparties and insurance coverage.

01:13:37How does the Federal Reserve intend to invest

01:13:40in expanding the modeling resources for banks

01:13:43that are gonna be,

01:13:44that are implementing climate-related financial disclosures?

01:13:48So we haven't made any decisions

01:13:50on what to do with that information

01:13:51or whether to repeat that exercise.

01:13:53To your point, it was really a learning exercise.

01:13:56You know, how are banks thinking about this

01:13:59and how are they modeling it

01:14:01and how does it work really?

01:14:04It's a very, very challenging thing to model.

01:14:07And so that was really the nature of this exercise.

01:14:09In terms of disclosures, you know, we don't really have a,

01:14:12that's not really our job, that's really the SEC.

01:14:15So, but you know, we don't have a big job on climate

01:14:20but what it really is is to make sure

01:14:21that the institutions we regulate are aware of

01:14:24and understand the risks that they run,

01:14:26including risks from climate.

01:14:29And that they're prepared

01:14:32and learning how to, as would be the point of a pilot,

01:14:37learning how to mitigate those risks over time.

01:14:41So what criteria will you use to evaluate

01:14:45whether or not you would run the exercise again

01:14:48and or share more broadly the results of that exercise?

01:14:52I think we did publish, well,

01:14:54most of the results of that exercise.

01:14:55So I don't know what to say about that.

01:14:57We're looking at it and we're asking ourselves,

01:15:00what did we learn?

01:15:01What do we need to learn next time?

01:15:04So, you know, I'm not exactly sure what factors we'll be

01:15:09looking at but we'll be doing a careful assessment

01:15:12of what more we need to do.

01:15:13Thanks. Thank you, Mr. Chairman.

01:15:15Senator Haggarty is recognized.

01:15:17Thank you, Mr. Chairman.

01:15:21Chairman Powell, welcome.

01:15:23Chairman, last week in Portugal you said that you wanted

01:15:25to be, quote, more confident

01:15:27that inflation is moving sustainably

01:15:29down before you begin to cut rates.

01:15:31You also said in your testimony that you need greater confidence

01:15:34and more good data before lowering rates.

01:15:36Can you give us any color as to what it is you're looking

01:15:40for in the data and how long it might take us to get there?

01:15:44We need just to see more good inflation data.

01:15:46That's all.

01:15:46We, you know, we had seven months of good inflation data

01:15:49at the end of last year.

01:15:50Then we had a quarter, really a month or so,

01:15:52where inflation went up.

01:15:53And now it may be we had one really good inflation reading

01:15:57and one pretty good one.

01:15:59We just need to see more so that confidence rises.

01:16:02I'm not going to tell you.

01:16:04Are we weeks away, months away?

01:16:06Yeah, I mean, I'm going to try

01:16:07to avoid sending any really specific signals

01:16:10about time today because it's going to depend on the data.

01:16:13It also matters what's going on in the labor market, though.

01:16:15You know, we've also said

01:16:16that if the labor market weakens unexpectedly,

01:16:18that could be a case for loosening policy as well.

01:16:22Really, we're weighing both those factors.

01:16:24Here's one of my concerns.

01:16:25Yeah, I'm sure you probably share it.

01:16:26But we're coming off of a 40-year high in inflation.

01:16:29We've seen the rate of inflation coming down.

01:16:32But we haven't gotten to the 2% target.

01:16:34And my concern, for lack of a better term, is whether

01:16:36or not this might be transitory in terms of the data

01:16:39that we're seeing right now.

01:16:40That's exactly why we're approaching this

01:16:43question carefully.

01:16:44I thought that might be your answer.

01:16:45Thank you, Mr. Chairman.

01:16:47Can we shift now to the issuance of Treasury debt?

01:16:50You know, the Fed is the largest holder of Treasury debt.

01:16:54In February, you and I talked about the pressures

01:16:57that our fiscal deficit is exerting on interest rates,

01:16:59which by extension makes your job more difficult.

01:17:01I'd like to talk this time

01:17:02about how Treasury issuance is impacting our economy

01:17:05and our monetary policy.

01:17:07First, just a basic question.

01:17:09If Treasury issuance were to shift drastically,

01:17:12either to the long end or the short end of the curve,

01:17:14would that affect interest rates?

01:17:15Or maybe more simply, do changes in supply

01:17:18across maturities impact interest rates

01:17:20in the yield curve?

01:17:22I mean, I think in theory they can.

01:17:24Yeah, I agree.

01:17:27As you know, the Treasury Borrowing Advisory Committee

01:17:30recommends that T-bills comprise between 15

01:17:33and 20 percent of total U.S. debt.

01:17:35Right now, the Treasury is issuing T-bills significantly

01:17:38above that recommended range.

01:17:40Some people, including myself, believe that this is being done

01:17:42to artificially stimulate markets

01:17:44in the run-up to the election.

01:17:46And it's shocking how little attention this is getting.

01:17:49Any manipulation of debt management

01:17:50of this nature stimulates inflationary pressures

01:17:53and increases taxpayer burden

01:17:56because it's higher cost to issue these bills.

01:17:58So given that Treasury is issuing an excess

01:18:00of short-term debt, which pulls down longer-term rates,

01:18:04isn't it working at cross-purposes

01:18:06with your monetary policy goals of taming inflation?

01:18:08So we take Treasury's debt management decisions.

01:18:13We don't comment on them.

01:18:14We just do our jobs.

01:18:15No, I'm not asking for a comment on their decision.

01:18:16But just as a simple mathematical truth,

01:18:20if they're pulling down demand on the long end

01:18:21of the curve, doesn't that work in the country?

01:18:24I wouldn't say that that has important inflation

01:18:26implications, no.

01:18:27You know, it just feels to me the same way

01:18:30that the Biden administration drains the strategic petroleum

01:18:33reserve, that undermines our ability

01:18:34to respond to energy shocks.

01:18:36When the Treasury manages its debt in this manner,

01:18:39it constrains our ability to respond

01:18:40to future economic shocks.

01:18:42And that opens our nation up to very real risk,

01:18:46whether it be amplifying the effects

01:18:47of the Fed's balance sheet reduction,

01:18:50flooding the supply of one of the most important short-term

01:18:52debt instruments.

01:18:53The risks seem to me to be mounting for Treasury market

01:18:55disruption.

01:18:56I'd like to know what your thoughts are, Mr. Chairman,

01:18:58about how the Fed will navigate this,

01:19:00and whether you've had discussions with the Treasury

01:19:02about this growing, dangerous dynamic.

01:19:06No, we don't have a seat at the table

01:19:08on Treasury debt management.

01:19:09Treasury makes those decisions, and they

01:19:11don't have a seat at our table on monetary policy.

01:19:13I just think the risk is very obvious here,

01:19:15though, where we're headed with this type of portfolio management.

01:19:18Honestly, it's completely out of bounds

01:19:21for me to comment on Treasury debt management in any way.

01:19:24I think you've been dealt a very difficult hand here,

01:19:26Mr. Chair.

01:19:27The Biden administration's policy

01:19:28is aimed at gin up the economy ahead of the election.

01:19:31These efforts directly undermine your policy goals at the Fed.

01:19:34That includes excessive issuance of short-term debt.

01:19:37Think about it, Freddie Mac's backstop of second mortgages,

01:19:39unlawful student debt loan cancellations,

01:19:42the draining of the strategic petroleum reserve

01:19:45to suppress fuel prices, and President Biden's own jaw

01:19:48boning of the FOMC to lower rates.

01:19:50As you know, the Federal Reserve was

01:19:52structured to shield monetary policy from political influence.

01:19:55And that independence has given the Fed unique credibility

01:19:58in executing its mission.

01:19:59If the FOMC were influenced in any way

01:20:01by political calculation rather than economic data,

01:20:04it would severely damage the Fed's credibility

01:20:06as an independent institution.

01:20:07It would increase uncertainty in our markets,

01:20:10and it would jeopardize the dollar status

01:20:12as the global reserve currency.

01:20:13Thank you, Mr. Chair.

01:20:15Senator Warren of Massachusetts is recognized.

01:20:17Thank you, Mr. Chairman.

01:20:20When the CEOs of giant banks can boost their bonuses

01:20:23by getting the banks to take on more risk,

01:20:26they run the risk that they will end up running

01:20:29their banks into the ground.

01:20:30It happened in 2008, and it happened again in 2023.

01:20:34Back in 2010, though, Congress passed the Dodd-Frank Act.

01:20:39Section 956 told financial regulators solve this problem.

01:20:43Two months ago, regulators put forward a proposal,

01:20:47but the Fed refused to join.

01:20:50Now, in 2018, you told this committee, Mr. Chairman,

01:20:54that you, quote, expect that banks will have in place

01:20:59compensation plans that do not provide incentives

01:21:02for excessive risk taking.

01:21:05In other words, you trusted the banks

01:21:07to write their own rules.

01:21:09So let's see if they actually have.

01:21:12One thing the proposal would do is require big banks

01:21:15to delay bonuses for a broad group of critical employees

01:21:20who are able to gamble with the bank's finances,

01:21:24like the head of a trading desk, for example.

01:21:27Chair Powell, in the six and a half years

01:21:29since you said trust the banks to regulate themselves,

01:21:33how many of the 10 biggest banks have

01:21:36put policies in place to delay annual bonuses

01:21:40for this broader group of critical employees

01:21:44whose risk taking could endanger the bank?

01:21:48I don't know specifically.

01:21:49My guess is all of them, since the financial crisis.

01:21:54You're the regulator who said trust

01:21:55the banks to self-regulate so we can avoid

01:21:58another financial meltdown or another bailout.

01:22:02And you don't know if they did or didn't do that?

01:22:07It's a very, very specific narrow question

01:22:09you're asking about.

01:22:10Because it's something a regulator should do.

01:22:13You think the answer's 10 out of 10?

01:22:15The answer is zero out of 10.

01:22:18I doubt that.

01:22:19Well, go back and look, because we've looked at their statements

01:22:22on this.

01:22:23Another thing the proposed rule would do

01:22:25is require the banks to consider flat out banning bonuses

01:22:30and bonus pay for executives who took risks that threatened

01:22:33the stability of the bank.

01:22:36So let me ask you this one, Chair Powell,

01:22:37in the six and a half years since you said trust the banks

01:22:40to regulate themselves.

01:22:42How many of the 10 biggest banks now

01:22:45have policies that would require them to flat out

01:22:48deny bonuses to executives that have engaged

01:22:51in inappropriate risk taking?

01:22:56I don't know the answer to that.

01:22:57By the way, I never said trust the banks

01:22:59to regulate themselves.

01:23:01I'm sorry, do you want me to go back and quote you again?

01:23:04Exactly?

01:23:05Trust the banks to regulate themselves?

01:23:07When you say, I expect that the banks will have in place

01:23:11compensation plans that do not provide incentives

01:23:15for excessive risk taking.

01:23:17Right, pursuant to the guidance that we issued in 2010,

01:23:22which is quite detailed.

01:23:23And you have not issued a guidance

01:23:26since you made these comments, since you became chair.

01:23:29And how many banks have actually put in place the regulations

01:23:34that you said, I expect the banks will have in place?

01:23:38The answer is, out of 10, zero.

01:23:40It was covered by the 2010 guidance.

01:23:43No, you said in 2018 that they would put these in place.

01:23:47I said they would have in place.

01:23:49No, that is not what you said.

01:23:52So look, Chair Powell, the last guidance on this subject,

01:23:56as you say, was in 2010, which is before you were at the Fed.

01:24:02The Fed has now refused to join the other financial regulators

01:24:07in finalizing a rule implementing Section 956

01:24:12as Congress directed.

01:24:14So my question has been, how many of the 10 biggest banks

01:24:18have done this?

01:24:18And the answer is zero.

01:24:20Dodd-Frank was passed 14 years ago.

01:24:24There are still no rules to stop banks

01:24:27from rewarding executives' risky behavior.

01:24:30When you were asked about these Section 956 rules,

01:24:34or lack of rules, in March of this year,

01:24:38you said, quote, that you wanted to understand

01:24:42the problem we're solving before proposing a rule.

01:24:47Chair Powell, the law does not say Jerome Powell

01:24:50in his infinite wisdom should decide

01:24:52if we have a problem with executive compensation.

01:24:56The law passed 14 years ago says executive pay

01:25:00is a problem that threatens the stability of our economy,

01:25:05so write the rules to rein them in.

01:25:08Finally, finally, the other financial regulators

01:25:12have proposed such a rule, but the Fed has not joined.

01:25:16Chair Powell, I understand why the 10 biggest

01:25:19banks in the country like your approach.

01:25:21You let them do whatever they want,

01:25:23but you don't work for the giant banks.

01:25:25You work for the American people.

01:25:27I urge you to do your job.

01:25:30Thank you, Mr. Chairman.

01:25:32Senator Vance from Ohio is recognized.

01:25:34Thank you, Mr. Chairman,

01:25:35and thanks, Chair Powell, for being here.

01:25:37I appreciate you coming by our office last week

01:25:39to discuss some of these issues.

01:25:41I wanted to ask something I imagine

01:25:42most of my colleagues are not asking,

01:25:44which is the relationship between immigration,

01:25:47particularly extremely high illegal immigration levels

01:25:51under the Biden administration,

01:25:52and the persistence of the inflation problem.

01:25:55And I recognize this is not your policy focus,

01:26:00but you are the Federal Reserve Chairman,

01:26:02so I just want to get your views on this.

01:26:05And in particular, I want to read you a quote

01:26:07from Mickey Bowman, who is one of your governors,

01:26:13and this says, and a quote,

01:26:15there's a risk that increased immigration

01:26:17and continued labor market tightness

01:26:18could lead to persistently high core services inflation.

01:26:22Given the current low inventory of affordable housing,

01:26:24the inflow of new immigrants in some geographic areas

01:26:26could result in upward pressure on rents

01:26:28as additional housing supply may take time to materialize.

01:26:31With labor markets remaining tight,

01:26:33wage growth has been elevated at around or above 4%,

01:26:35still higher than the pace consistent

01:26:37with our 2% inflation goal,

01:26:39given trend productivity growth.

01:26:41The Bank of England, I believe,

01:26:43produced a recent report on this issue in the United Kingdom,

01:26:46obviously a different economy and a different country,

01:26:48but what do you see as the relationship

01:26:52in particular given that housing is such a big driver

01:26:55of the inflation that we've seen over the last few years,

01:26:57as Senator Hagerty said, the highest in 40 years,

01:27:01what role do you see illegal immigration playing

01:27:04in driving up housing costs,

01:27:05which of course is a main driver of inflation

01:27:07for American citizens?

01:27:08Let me quickly start by echoing your first comment,

01:27:11which is we don't comment on immigration policy,

01:27:13but we do comment on inflation.

01:27:15So I would say this,

01:27:18many people came into the country

01:27:20over the last couple of years,

01:27:22many of them through asylum requests and went to work.

01:27:27Labor supply increased a great deal.

01:27:32There's no clear answer,

01:27:33but my sense is that in the long run,

01:27:37immigration is kind of neutral on inflation.

01:27:39In the short run, it may actually have helped

01:27:41because the labor market got looser

01:27:43because there were more people.

01:27:44But you're talking about housing specifically,

01:27:47there will be, I'm sure there are places in the country

01:27:51where new people coming into the country,

01:27:54I'm sure you can find places and they exist

01:27:58where that will have contributed

01:27:59to an already tight housing market.

01:28:01But overall, in terms of the aggregate inflation,

01:28:03I wouldn't say it's a driver one way or the other.

Fed Chair Jerome Powell Testifies In Front Of The Senate Banking Committee

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