Tina Smith Presses Fed Chair Powell On Inflation: ‘What Have We Learned From This Experience?’

  • 2 months ago
Before the Congressional recess, Sen. Tina Smith (D-MI) questioned Chair of the Federal Reserve Jerome Powell on inflation during a Senate Banking Committee hearing.

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00:00Smith of Minnesota is recognized.
00:02Thank you, Mr. Chair.
00:03Welcome, Chair Powell.
00:04It's good to see you again.
00:05I want to follow up on kind of the line of questioning
00:08that Senator Tester was on a bit ago.
00:11He was talking about how the U.S. economy has been
00:14outperforming other advanced economies around the world
00:18in terms of growth rates, in terms of unemployment,
00:21in terms of inflation, getting inflation under control,
00:23though I think we obviously can all agree that we're not,
00:26at least from my perspective, we're not done yet.
00:30And we don't want to rest on our laurels,
00:31but I'm wondering if you could share what you think
00:34that we have learned from this experience.
00:37What have we done right?
00:39And why is it that we are doing better
00:42than some of the other advanced economies in the world?
00:47I think that it's down to the fundamental strengths
00:49of our economy.
00:50So as you may know, European economic officials
00:55are very, very focused on this question.
00:57They really, it comes up in all of our discussions.
01:00They, Europe has seen productivity increases
01:03of about 1% a year for 40 years.
01:06We've seen 2%.
01:07If you take a number and compound it at 1%
01:11and compound it at 2%, the difference is just enormous
01:14after 40 years in terms of incomes and living standards.
01:17And their question is why is that?
01:19Why is that?
01:20And the standard answer that Americans tend to give
01:22and that I would give is it's down to
01:25more flexible labor markets.
01:27They, in the pandemic, people were,
01:29they kept, they stayed in their existing jobs.
01:31In the United States, we had people changing jobs
01:33at record levels.
01:35And that's the kind of thing that adds to productivity
01:37and contributes to rising living standards,
01:39going back to school and getting skills
01:41and things like that.
01:42Another one is our financial sector.
01:43We have, we don't just have banks.
01:46We have a highly developed ecosystem of financing sources
01:50that will fund early stage investments.
01:52Banks are really not set up to do that.
01:54They're prudentially regulated.
01:56And so those are some of the things.
01:58I think we just have these natural strengths
02:00as an innovative, more flexible economy.
02:04We can grow faster.
02:06I appreciate that.
02:07You know, I think sometimes there's a tendency
02:08to sort of trash our economy
02:10and to sort of say, oh, we suck.
02:14And actually, I think that there's great resilience
02:16in our economy.
02:17I would argue that it has also to do a lot
02:19with the incredible resilience of our workers
02:22and their creativity and their talent
02:24and the training and the education that they have.
02:28And I think I would also argue,
02:29though I wouldn't expect you to make this case,
02:31that the way in which our federal government
02:35responded to the pandemic
02:38in order to make sure that people weren't evicted,
02:40that they still had money to pay their bills
02:44even when they weren't able to work,
02:47meant that overall our economy survived
02:52and was ready to kind of be off to the races
02:55when we emerged from the pandemic.
02:57But Chair Powell, I'd like to ask you a question,
03:00something that you and I have talked about,
03:01I continue to be thinking a lot about,
03:03which is the commercial real estate risk
03:05that we have in this country.
03:07I think particularly for office space,
03:10we know that that has been under strain
03:12the last several years.
03:13The sector has remained largely stable,
03:15but we are hearing about some additional default risk.
03:18And one thing that I'm noting
03:20is that there's some expectation or concern
03:23that that may fall disproportionately on smaller banks.
03:28I think that commercial and regional banks
03:31hold an estimated 2 3rds
03:32of all the commercial real estate loans in the country.
03:35And so unlike larger banks,
03:37these smaller institutions might find it a little harder
03:41to deal with this.
03:42So could you discuss this with us?
03:44Could you tell us a little bit about how you see this risk
03:48and particularly whether this poses some additional risk
03:52that we might be seeing more concentration
03:54in the banking sector as these smaller banks
03:56are maybe under more pressure?
03:57Yeah, so this, to your point,
04:00this is a risk that has been with us
04:01and will be with us for some time, probably for years.
04:05And banks need to be honestly assessing what their risk is.
04:11They need to be assured that they have the capital
04:13and the liquidity and the systems in place
04:15to manage this risk.
04:17The stress test that we apply to the largest institution
04:19stressed commercial real estate pretty hard.
04:22And again, the conclusion is that the large banks
04:27can manage this problem.
04:29And most small banks can too,
04:30but it is in some smaller banks
04:32that tend to have that local concentration
04:35in commercial real estate.
04:38And we're in touch with those banks,
04:39the supervisors and regulators are in touch with those banks
04:42and making sure that they can manage them.
04:45And it's gonna be an issue for many banks,
04:48but it's one that we're trying to work through,
04:50one that we're very much aware of.
04:52And again, it'll be with us for some time.
04:55I think so much about the importance
04:57of these small regional community banks
04:59in small towns, big towns in Minnesota
05:02and how important it is that in my book
05:05that they can stay independent
05:07and better serve their communities in that way.
05:09So I worry about this risk.
05:10Thank you, Mr. Chair.

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